Topalsson GmbH v Rolls-Royce Motor Cars Limited

Where a contract caps the total liability of each party to the other, the cap applies separately to each party’s liability before contractual set-off, unless the wording clearly requires netting first. A cap cannot be circumvented by setting off sums otherwise payable to the other party. A general liability cap does not include contractual late-payment interest where the agreement makes that interest a separate, sole and substantial remedy. Clear words would be needed to deprive the innocent party of that remedy. An appellate court should exercise caution before allowing a new point or amendment. It should consider the nature of the trial, the new point, prejudice, the opportunity to respond and costs. A party should not ordinarily advance on appeal a case contradicting its pleadings and trial presentation.

Topalsson supplied digital visualisation software to Rolls-Royce Motor Cars Limited under a Services Agreement. Following delays and disputes, Rolls-Royce terminated the Agreement. After trial, O’Farrell J found that the termination was valid and awarded Rolls-Royce termination damages. After deducting sums due to Topalsson and applying the contractual cap, the award was €5 million: [2023] EWHC 1765 (TCC).

Topalsson appealed on the sequence of applying the liability cap and set-off, and on whether contractual interest was itself subject to the cap. It also sought permission to re-re-amend its pleading to argue that interest could not be awarded under the Senior Courts Act 1981. The central issues were whether the cap applied separately to each liability and whether the late arguments should be admitted.

Disposition. The appeal was allowed on Issue 1 and dismissed on Issue 2. Permission to re-re-amend was refused. The substantive sum due to Rolls-Royce was therefore reduced to approximately €4.2 million, while contractual interest remained outside the cap.

1. Cap and set-off. Clause 20 referred to the total liability of either party to the other. Properly construed, this required two separate liability calculations. The €5 million cap applied separately to Topalsson’s liability to Rolls-Royce and Rolls-Royce’s liability to Topalsson. The capped figures were then set off. The court rejected the lower court’s net-loss sequence. Charges payable to Topalsson under the Agreement were not themselves capped, but amounts owed by Topalsson under the Agreement, against which those charges could be set off, were subject to the cap. Liability under another agreement was outside clause 20.
2. Authority and double counting. The court applied the anti-circumvention reasoning illustrated in The Tojo Maru [1969] 2 Lloyd’s Rep 193. The laundry illustration was obiter in that case, but it demonstrated why set-off should not precede application of the cap. The court found no double counting between deductions in calculating termination damages and the proportion of charges payable on termination.
3. Late amendment. The cautious and discretionary approach in Singh v Dass [2019] EWCA Civ 360 and Notting Hill Finance Ltd v Sheikh [2019] 4WLR 146 applied. The cap argument concerning interest was a positive defence which required pleading. The proposed statutory-interest argument contradicted Topalsson’s pleadings, trial presentation and the unappealed findings that the award was damages. The length of the trial, finality considerations, breaches of court orders and failure to pay judgment sums meant that costs would not be an adequate remedy.
4. Interest and the cap. Clauses 14.11 and 14.12 made contractual interest a substantial and sole remedy for late payment. Reading that interest into clause 20 would deprive the innocent party of the agreed remedy. It would also require clear words because it would deny common-law rights and create a disincentive to pay, producing an unjustified windfall for the defaulting party. Contractual interest was therefore outside the cap.
5. Statutory interest. In an academic alternative analysis, the court rejected the characterisation of the award as a contractual debt or indemnity. It was termination damages or damages for repudiatory breach. Section 35A(1) of the Senior Courts Act 1981 conferred wide powers concerning interest, while section 35A(4) addressed overlap between statutory interest and contractual interest on a debt. The point was not necessary to the outcome and the court was not satisfied that all material had been provided for a fully reasoned decision.

1. Court of Appeal (Civil Division): Allowed the appeal on the separate application of the liability cap before set-off, dismissed the appeal concerning contractual interest, and refused permission for the proposed re-re-amendment.
2. High Court of Justice, Technology and Construction Court: O’Farrell J found valid termination, assessed Rolls-Royce’s termination damages, deducted sums due to Topalsson, and applied the €5 million cap: [2023] EWHC 1765 (TCC) .