English High Court holds that there should be no presumptions when construing clauses purporting to exclude or limit liability in the context of allegedly deliberate or repudiatory breach

Mott MacDonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC) concerned an application for summary judgment by Mott MacDonald Ltd (“Mott”) on whether the fundamental, deliberate and wilful breaches of contract alleged by Trant Engineering Ltd (“Trant”) fell within scope of the clauses limiting and restricting Mott’s liability. Trant took the position that the counterclaim it had brought against Mott was not limited by the clauses in question, because there was a strong presumption against the exclusion of liability for a deliberate repudiatory breach and express language was necessary for a contractual term to be effective to exclude liability for such a breach.

The English High Court held that clauses purporting to exclude or limit liability for deliberate and repudiatory breaches are to be construed by reference to the normal principles of contractual construction, without the imposition of a presumption and without requiring any particular form of words or level of language to achieve the effect of excluding liability.

Factual background

Mott is an engineering consultancy, and Trant is an engineering contractor. Trant was engaged to construct a new power station in the Falkland Islands, and had engaged Mott to provide initial design consultancy services during the initial tender period. A dispute arose and Trant commenced proceedings, further to which a Settlement and Services Agreement (“SSA”) was entered into to settle the dispute. Under the SSA, Mott was to provide certain services with respect to Trant’s work on the power station. The SSA contained clauses limiting and excluding the liability which Mott would otherwise have to Trant in the event of a breach of the SSA.

Mott commenced proceedings under the SSA for payments allegedly due under the SSA. Trant counterclaimed for a significantly higher sum. Trant claimed that Mott had positively and deliberately refused to perform its obligations and had done so in order to put improper pressure on Trant to pay sums which were not due to Mott.

The application and the court’s decision

Mott sought summary judgment on the applicability of the SSA clauses limiting and excluding liability to any breach of the SSA by it, including breaches which were “fundamental, deliberate or wilful in character”.

The parties were agreed on the general principles around the construction of contracts as set out in the Supreme Court decision of Wood v Capita Insurance Services Ltd [2017] UKSC 24 (see our commentary on this case here).

Mott’s position was that such general principles of construction also applied to clauses excluding or restricting liability (albeit there being a need for a degree of strict construction, such degree depending on whether the clause purports to totally exclude liability or limit it in the event of breach).

Trant relied on the High Court’s decision in Internet Broadcasting Corporation Ltd & others v MAR LLC [2009] EWHC 844 (Ch) (“Marhedge”), where the court took the view that there was a strong presumption against an exclusion clause operating to preclude liability for a deliberate repudiatory breach of contract, and that the presumption could only be rebutted by strong language.

Following a review of the authorities, including the House of Lords decision in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (which rejected the previous doctrine that exclusion clauses did not apply where the party seeking to rely on them had been guilty of a fundamental breach) and the 2011 High Court decision in AstraZeneca UK Ltd v Albemarle International Corp [2011] EWHC 1574 (where the judge in that case warned that the Marhedge approach was contrary to precedent and should not be followed), the court concluded that the correct approach to interpreting a clause excluding liability for a deliberate repudiatory breach is “simply one of construing the clause, albeit strictly, but without any presumption”.

On the facts, the judge deemed that the clauses in question were set out in sufficiently clear language to be construed as covering the alleged breaches of the SSA which were “fundamental, deliberate, or wilful”. The judge therefore granted summary judgment in favour of Mott.

Analysis

There was (and still is) conflicting English High Court authority on whether clauses excluding or limiting liability for deliberate repudiatory breach are subject to special rules of contractual construction.

Prior to this decision, commentators considered the approach set out in AstraZeneca v Albermarle to be consistent with established authority. This judgment further gives weight to that view. While this decision does not overrule Marhedge, it is widely expected that the Court of Appeal or the Supreme Court would do so should the issue ever be appealed.