Shared Network Services Ltd v Nextira One UK Ltd

A contractual limitation clause may apply to damages following a repudiatory breach if, on construction, its wording covers that breach. The former doctrine of fundamental breach does not prevent reliance on a clearly worded limitation clause. A claim for wasted expenditure remains a claim for damages for breach of contract.

Under Unfair Contract Terms Act 1977, reasonableness is assessed by reference to the circumstances known or contemplated when the contract was made, rather than with hindsight. On summary judgment, the court determines the pleaded case. A claim has no real prospect of success where an effective liability cap reduces the recoverable amount to nil.

The claimant sought approximately €1.75 million in damages after the defendant closed a VPN connection supplied under a remote network operation centre services agreement. The claimant alleged repudiatory breach and claimed wasted expenditure. The defendant applied for summary judgment, relying on a contractual cap limiting liability to 50 per cent of service charges paid during the preceding 12 months. No service charges had been paid.

The claimant argued that the cap did not cover repudiatory breach and was unreasonable under sections 3 and 11 of the Unfair Contract Terms Act 1977. The court also considered the claimant’s unpleaded suggestion of deliberate breach.

1. Summary judgment. The defendant obtained summary judgment dismissing the claim. The claimant’s pleaded claim had no real prospect of success because clause 14.2 provided an effective answer to the claim and no service charges had been paid.
2. Repudiatory breach. Damages for repudiatory breach are damages under the contract. The claimant had to rely on the contract and its alleged breach to establish any entitlement to damages. The argument that the clause did not cover such damages was therefore fallacious.
3. Fundamental breach. The suggestion that a limitation clause could not apply where the defendant was in repudiatory breach sought to revive the doctrine of fundamental breach, which had been laid to rest by Photo Production v Securicor [1980] AC 827. The issue was one of construction. Clause 14.2 applied to the alleged breach, particularly because it stated that the limitation applied regardless of the form of action.
4. Wasted expenditure. The claim remained a claim for contractual damages. Following The Mamola Challenger [2011] 1 Lloyd’s Rep 47, a wasted expenditure claim was a species of expectation loss and was not different in principle from other damages for breach of contract.
5. Reasonableness. The requirement under section 11 of the Unfair Contract Terms Act 1977 was assessed when the agreement was made, by reference to the circumstances then known or contemplated. The claimant’s later experience could not be used with hindsight. The commercial parties had entered into a clause which was not inherently unreasonable, and the claimant had been offered the opportunity to obtain legal advice.
6. The court decided the pleaded case. Any proposed case based on deliberate breach would require permission to amend and was not before the court.