The Royal Devon and Exeter NHS Foundation Trust v ATOS IT Services UK Ltd

Reliance damages compensate for the loss of the contractual bargain and are not necessarily claims for lost profits, revenue or savings. Wasted expenditure may therefore be recoverable where the contractual benefit was non-pecuniary, subject to the defendant proving that the claimant made a bad bargain. A contractual exclusion of profits, revenue, goodwill, anticipated savings and consequential loss does not exclude a claim for the value of a promised but non-functional system merely because expenditure is used to measure that value. A limitation clause should be construed to give effect to a commercially sensible aggregate cap where the language permits it.

The Trust contracted with ATOS for an electronic medical-record and document-management system. Following alleged defects and termination, the Trust claimed approximately £7.9 million, principally as wasted expenditure.

The parties agreed that liability and quantum would be assumed for the purpose of preliminary issues. The court had to determine whether the wasted-expenditure claims were excluded by clause 8.1.3(a), and whether the limitation provisions in clause 8.1.2(b) and paragraph 9.2 of Schedule G were uncertain or enforceable.

1. Wasted expenditure. The Trust could claim reliance losses for expenditure incurred in reliance on ATOS’s promise to provide a functional electronic medical-record system. Reliance damages are an alternative method of measuring the loss of the contractual bargain, rather than a different form of compensation.
2. The exclusion of loss of profits, business, revenue, goodwill, anticipated savings and indirect or consequential loss did not exclude the claim. The contractual benefit was the use of a functioning system. The rebuttable presumption that its value was at least equal to the expenditure did not convert the claim into one for lost profits, revenue or savings.
3. The internal staff costs were part of the expenditure incurred in performing the Contract. They were distinguishable from staff costs incurred after a breach to remedy resulting damage, which may be characterised as lost revenue. ATOS could defeat the claim by proving that the expenditure would have been wasted in any event because the Trust had made a bad bargain. The burden of proving that point lay on ATOS.
4. Limitation clause. The court construed the contract by reference to its natural and ordinary meaning, other provisions, purpose, known background, commercial common sense and the exclusion of subjective intention. There was no general presumption against limiting contractual remedies, but clear language was required to limit liability for wrongdoing.
5. Paragraph 9.2 of Schedule G imposed one aggregate cap for all Defaults falling within clause 8.1.2(b). The references to singular and plural claims could be corrected by construction. The cap was determined by the timing of the first Default: the Total Contract Price applied if a Default occurred in the first 12 months; otherwise the cap was the Contract Charges paid in the 12 months before the first Default.
6. The preliminary issues were determined accordingly. Clause 8.1.3(a) was no bar to the wasted-expenditure claims, and the liability cap was valid and enforceable.

First-instance determination of agreed preliminary issues. No appellate history was stated in the judgment.