Mott Macdonald Ltd v Trant Engineering Ltd

Exclusion and limitation clauses are construed under the ordinary principles of contractual construction. There is no rule or presumption that such clauses cannot apply to fundamental, deliberate or repudiatory breaches. Nor is any particular form of words required.

Clear language may nevertheless be necessary in practice because excluding an ordinarily arising liability is a departure from the norm. The court must read the clause in its contractual and commercial context. A clause will not be construed so as to reduce the contract to a mere declaration of intent. A limitation of liability is less extensive a departure from the norm than a total exclusion and may therefore be more readily inferred.

The claimant, an engineering consultancy, and the defendant, an engineering contractor, entered into a Settlement and Services Agreement concerning design services for a power-station project. The claimant sought payment under the agreement. The defendant advanced a substantial counterclaim alleging that the claimant had fundamentally, deliberately and wilfully refused to perform its obligations.

The claimant applied for summary judgment on whether contractual provisions limiting liability, excluding specified losses and providing for a net contribution calculation applied to such breaches. The central issue was whether the provisions should be construed as excluding or limiting liability for deliberate or repudiatory breaches, and whether that issue could properly be determined summarily.

1. Summary judgment. The court applied the principles summarised in Easyair Ltd v Opal Telecom Ltd. The issue was a short question of contractual construction. The relevant factual matrix at the date of the agreement was sufficiently clear, and the court could proceed on the assumption that the alleged breaches were capable of being established at trial. Summary determination was therefore appropriate.
2. Applicable construction principles. Exemption and limitation clauses are governed by the ordinary principles of contractual construction. The court must consider the language used, the agreement as a whole, the relevant factual and commercial context, and the parties’ objective intentions. Photo Production Ltd v Securicor Transport Ltd rejected the former fundamental-breach doctrine. The question is one of construction, not the application of a separate rule of law.
3. There is no presumption against applying an exclusion or limitation clause to a deliberate, repudiatory or fundamental breach. Nor is any particular formula or degree of linguistic strength required. Clear words may be needed because exclusion is a departure from the ordinary contractual position, but that is a consequence of construction and context, not a special legal rule. The approach in Marhedge was rejected. The later analysis in Astrazeneca UK Ltd v Albemarle International Corporation represented the correct approach.
4. The court must ensure that an exemption clause is not construed so as to reduce the contract to a mere declaration of intent. That limit did not apply here. The agreement was a bespoke commercial arrangement containing a comprehensive liability regime. The cap still exposed the claimant to liability of up to £500,000. The possibility of termination for accepted repudiation also meant that future payment obligations would not necessarily continue.
5. The liability cap, exclusions clause and net contribution clause were expressed in clear language capable of applying to the alleged breaches. The defendant’s commercial and insurance arguments did not justify departing from that construction or protecting it from a bad bargain. The clauses therefore applied to any breach of the agreement, including fundamental, deliberate and wilful breaches. Summary judgment was entered for the claimant on the construction issue.

First-instance decision. No prior appellate history is stated in the judgment.