Clause Excluding Loss of Profit is Upheld in Recent Judgment

In Pinewood Technologies Asia Pacific Limited v Pinewood Technologies Plc [2023] the court showed that it is prepared to take a robust stand and uphold clauses excluding liability in certain circumstances.

Amongst the many issues before the court, there was a question over the enforceability of a party’s exclusion clause in a contract the parties had entered into.  A further issue was the circumstances in which parties deal on standard terms within section of the Unfair Contract Terms Act 1977 (UCTA).

Briefly, UCTA sets out limits on the extent to which under the law liability for breach of contract can be avoided by means of contract terms. Section 3 applies as between the parties when one of them deals on the other’s written standard terms of business.

In the Pinewood case, a dispute arose between the two parties out of two contracts they had entered into between them, the Pinewood Asia Pacific company (PAP) alleging that Pinewood Technologies Plc (PT) was in breach of certain obligations causing loss to PAP of multi millions of dollars.  PT denied the breach and looked to rely upon its contractual exclusion of liability clauses to deny liability.   It also counterclaimed against PAP for unpaid invoices due to it from PAP and in turn PAP denied the invoices were payable and tried to rely upon equitable set off despite there being a clear no set off clause in the contract.

PAP argued that the exclusion clause could not apply where there had been a repudiatory breach of contract by PT.  (In brief, a repudiatory breach is a breach by one party which goes to the heart of the contract and entitles the innocent party to terminate the contract by accepting the breach and seeking damages or continue with the contract and seek damages for the breach).

Unfortunately for PAP, the High Court was prepared to uphold PT’s exclusion clause and refused PAP’s claims.  In doing so, the Court reaffirmed that the application of an exclusion clause will be a matter of construction in each case and will turn on its own merits.   It also reaffirmed the principle that there is no presumption against exclusion clauses being construed so as to cover a deliberate repudiatory breach.  

The Court found that the exclusion of liability clauses were “clear and unambiguous” and there was no need for the Court to look beyond the wording.  

What is more, there were findings of fact that there had been negotiations between the parties when the contracts were being agreed and that the amendments to the draft contract from PT were “clearly substantive”.  Those amendments directly impacted the obligations of the parties and therefore it was not possible to say that for the purposes of section 3(1) of UCTA, the terms ultimately agreed were PT’s standard business terms.  PAP was not permitted to rely upon UCTA in its attempts to defend the claim against it.

In summary, the Pinewood case underscores that it is possible and usually beneficial to include in business-to-business contracts exclusion and limitation clauses where they clear and unambiguous.

This decision also appears to show that the court will not use UCTA to meddle with such clauses. It also confirms that it is possible to include clauses that exclude liability arising from repudiatory breaches of contract, whilst the court will not make any presumptions against exclusion clauses that cover deliberate repudiatory breaches.  Instead, the court will look at the merits and make findings accordingly.

For further information or to discuss your matter in further detail, please contact our Head of Litigation and Dispute Resolution department, Joanne Davies at jdavies@keelys.co.uk or on 01543 420059