Introduction

In the recent case of Mott MacDonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC), the English Technology and Construction Court (the “Court”) explored on whether liability limiting clauses would apply to alleged fundamental, deliberate and wilful breaches of contract.

Background

The claimant, Mott MacDonald Limited (“Mott”) is an engineering consultancy and the defendant, Trant Engineering Limited (“Trant”) is an engineering contractor. In 2016, Trant was engaged to construct a new power station and Trant had further engaged Mott to provide initial design consultancy services during the tender period. Subsequently, a dispute rapidly developed between the parties and the parties entered into a Settlement and Services Agreement (“SSA”) with a view to resolving the dispute and governing the parties' future actions. The SSA contained, amongst other things, the following liability limiting provisions (the “Provisions”):

“Notwithstanding any other term to the contrary in the Agreement or any related document and whether the cause of action for any claim arises under or in connection with the Agreement in contract or in tort, in negligence or for breach of statutory duty or otherwise. In relation to any and all causes of action as aforesaid:

the total liability of the Consultant in the aggregate for all claims shall be limited to £500,000 (Five hundred thousand Pounds)…”

Mott commenced proceedings for due payments under the SSA. Trant counterclaimed and contended that Mott had fundamentally, deliberately, and wilfully breached its obligations under the SSA by failing to complete the required design deliverables; to provide the native data files and detailed calculations that Mott had created; and to carry out independent reviews of its design, and thereby rendering Trant to redo virtually the entire scope of work under the SSA.

Mott denied the alleged breaches and further argued that as a matter of law and of construction of the SSA even if the breaches were to be established and were found to have been fundamental, wilful, or deliberate the exclusion and limitation clauses in the SSA would nonetheless operate to exclude or limit its liability.

The application for summary judgment

Mott applied for a summary judgment on the basis that the Provisions in the SSA shall be applicable regardless of the alleged breaches and that Trant had no realistic prospect for proving otherwise. The Court first cited Wood v Capita Insurance Services Ltd [2017] UKSC 24 which sets out the standard principles governing the construction of contracts, whereby both Mott and Trant agreed on the same.

With that being said, the parties were wrangled as to the approach to be taken to the construction of exclusion and limitation clauses. Mott contended that the standard principles should also be applied to exclusion and limitation clauses and there was no ambiguity in the wording of the Provisions whereas Trant asserted otherwise and reiterated that there must be clear wordings in the contract to exclude liability for deliberate breaches of contract.

The Court’s decision

The Court cited Astrazeneca UK Ltd v Albermarle International Corporation & another [2011] EWHC 1574 (Comm) which concluded that exemption clauses did apply to deliberate repudiatory breaches if the wording in a contract is sufficiently clear to cover any breach.

When coming to the decision that whether exemption clauses shall be applicable, the Court reviewed and compared the decisions in Internet Broadcasting Corporation Ltd & others v MAR LLC [2009] EWHC 844 (Ch) (which is now known as the Marhedge approach) and Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. The Marhedge approach, which Trant relied on, stipulates that the presumption against an exclusion clause that is to exclude liability for deliberate repudiatory breach of contract can only be rebutted by strong language.

Yet, the Marhedge approach was rejected by the House of Lords in Photo Production Ltd v Securicor Transport Ltd . The House of Lords held that an exclusion clause is to be considered in the same manner as any other clauses in a contract, without regard to the gravity of the alleged breaches and imposition of presumption. As such, the Court concluded that it does not require a particular form of words or level of language to achieve the effect of excluding liability as long as such clause will not be read as operating to reduce the party’s obligations to the level of a mere declaration of intent.

Taking into account the above analysis, the Court concluded that the Provisions in the SSA were clearly drafted to exclude certain liability but not to exclude all of the liabilities and obligations that Mott owed to Trant. Besides, the Court noted that if Trant considered that Mott had actually acted in repudiatory breach, it should have discharged itself from the SSA and brought its own obligations to an end but Trant did not do so. As such, the Court granted summary judgement in Mott’s favour.

Hong Kong Court’s approach to exclusion clauses

In Maeda Kensetsu Kogyo Kabushiki Kaisha (Maeda Corp) v Bauer Hong Kong Ltd [2020] HKCA 830, a dispute arose between the main contractor and the sub-contractor in relation to the quality of works of the sub-contractor and the provisions in the contract. In particular, the parties disputed over one of the clauses in the contract which must be strictly complied with as conditions precedent to any entitlement to additional payment when there was an intention to claim.

The Court of Appeal held that the wording of such clause was clear and unambiguous and there is no justification to give the clause a narrow construction. The Court of Appeal referred to Keating on Construction Contracts (3^rd cumulative supplement to the 10^th ed at §3-105A) and reiterated that in construction contracts, exemption clauses should be seen as part of the contractual apparatus for distributing risk and there should be no predetermined mindset to cut them down.

Ultimately, the parties are free to make their own bargains and it is the court’s duty to interpret and give effect on the wordings and clear intention of the parties’ agreement. The contra proferentem rule (i.e. any clause considered to be ambiguous should be interpreted against the interests of the party that created the clause) should not be deployed unless it is genuinely ambiguous.  

Whilst the above case concerned primarily dispute as to provisions of conditions precedent, in light of the Court of Appeal’s recognition of principles set out in Keating on Construction Contracts, it is anticipated that similar principles shall apply to the interpretation of liability limiting provisions.

A lesson to be learned

The cases above serve as a reminder that exclusion clauses and liability limiting provisions must be drafted in clear languages as no special consideration will be applied. It is worth noting that both the courts in the United Kingdom and Hong Kong agreed on the importance of contract certainty and the modern approach of the contractual interpretation that the courts are adopting. The courts also acknowledge that contracting parties should have the liberty and autonomy to agree on whatever terms they wish as long as the terms are coherent and clear.