Interactive E-Solutions JLT & Anor v O3b Africa Ltd

A fraud carve-out in a commercial exclusion clause preserves liability only where fraud is a necessary ingredient of the cause of action. It does not preserve a claim merely because the factual background includes allegedly dishonest conduct. Contractual references to causes, remedies and rights of recovery are read in their legal context. Commercial parties may allocate contractual risks broadly, and exclusion clauses are construed through linguistic, contextual, purposive and common-sense analysis. A claim based on repudiatory breach remains subject to the exclusion where dishonesty is not a constituent element of the cause of action.

The appellants provided satellite-based internet infrastructure and contracted with the respondent under a Master Services Agreement and related Service Orders. The appellants disputed the validity of a Service Commencement Notice, refused to pay service fees and alleged that the respondent’s purported termination was a repudiatory breach.

The High Court, Commercial Court, held that the counterclaim was barred by clause 10(c), which excluded liability except for liability arising from fraud, and refused permission to re-re-re-amend the Defence and Counterclaim. The appeal concerned whether the pleaded case disclosed an arguable cause of action in which fraud or dishonesty was a necessary ingredient.

The Court of Appeal unanimously dismissed the appeal.

1. Contractual interpretation. The court’s principal task was to determine what the agreement meant. Commercial parties, particularly parties of equal bargaining power, may allocate contractual risks through exclusion and limitation clauses. The former general hostility towards such clauses has been moderated. Their meaning must be determined by linguistic, contextual, purposive and common-sense analysis, consistent with the commercial allocation of risk. These considerations were reflected in Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373 and Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128.
2. Meaning of the clause. Clause 10(c) was a liability provision. Its references to obligations, remedies, causes, theories of law or equity and rights of recovery pointed to legal obligations and remedies arising from a cause of action. Although the word cause could mean reason in another contractual context, its meaning here was determined by the clause’s concern with legal liability.
3. Fraud carve-out. Liability arising from fraud meant liability for which fraud was a necessary averment or ingredient of the legal basis of the claim. The relevant question was whether an allegation of fraud was necessary to support the cause of action. This approach was consistent with the legal background to fraud carve-outs, including the concerns discussed in relation to the Misrepresentation Act 1967 and the Unfair Contract Terms Act 1977.
4. Application. The pleaded counterclaim alleged repudiatory breach, but dishonesty was not a constituent part of it. The appellants did not allege that they had been misled by the respondent, and accepted that dishonesty was not an element of the counterclaim. The alleged dishonest conduct therefore did not bring the claim within the carve-out. An argument that the construction rendered parts of the clause redundant carried little weight because prolix commercial drafting commonly uses overlapping expressions.

The counterclaim disclosed no arguable cause of action outside the exclusion. The High Court’s refusal of permission to re-re-re-amend was upheld.

• Court of Appeal (Civil Division) — [2018] EWCA Civ 62: dismissed the appeal.
• High Court of Justice, Commercial Court — Mr Richard Salter QC, sitting as a Deputy High Court Judge: held that the counterclaim was barred by clause 10(c) and refused permission to re-re-re-amend the Defence and Counterclaim.