Kudos Catering (UK) Ltd v Manchester Central Convention

A contractual exclusion of liability for loss of profits may cover damages for breach of contract, including damages following repudiatory breach, where its language clearly bears that meaning. Construction begins with the contractual words read in their legal and commercial context. The court asks whether the words admit more than one possible interpretation. If they do, the commercially sensible interpretation, having regard to the relevant surrounding circumstances, is preferred. If the language is unambiguous, the court must apply it even if the result appears commercially unattractive. A party cannot avoid an exclusion clause merely because the breach is characterised as repudiatory or because the clause does not use the words “breach”, “damages” or “termination”.

Kudos Catering (UK) Ltd contracted with Manchester Central Convention Complex Ltd to provide catering and hospitality services at venues operated by the defendant. The agreement contained clause 18.6, under which the defendant was to have no liability in contract, tort or otherwise for loss of goodwill, business, revenue or profits.

The defendant purported to terminate the agreement before the end of its term. The claimant treated that conduct as repudiatory breach and claimed damages for anticipated lost profits. On a preliminary issue directed by Master Eyre, the court had to decide whether clause 18.6 excluded liability for those losses, ignoring any rectification issue.

1. Preliminary issue determined. On the proper construction of clause 18.6, any or all liability for the claimant’s loss of profits was excluded. A declaration was made accordingly.
2. The court applied the principle in Photo Production Ltd v Securicor Transport Ltd, [1980] AC 827, that a party alleged to have committed a repudiatory breach is not thereby precluded from relying on an exclusion or limitation clause.
3. Contractual construction is a unitary exercise. The court considers the language used, the meaning a reasonable person with the relevant background knowledge would have understood, and the relevant surrounding circumstances. Where the language has two possible constructions, the construction consistent with business common sense may be preferred. If the words have only one possible meaning, the court applies that meaning regardless of its effect.
4. The expression “liability in contract” naturally includes liability for breach of a contractual obligation, including liability to pay damages. The absence of the particular words “breach”, “damages” or “termination” did not create an alternative construction of clause 18.6.
5. The surrounding circumstances did not make the clause commercially impossible. The claimant could choose whether to accept a repudiation, and other contractual benefits might counterbalance the exclusion. The court therefore rejected the claimant’s proposed restriction of clause 18.6 to losses arising only from negligent or wrongful performance during the contract.