UK: The Gloves Are Off… Again: Liability For Deliberate Breach Excluded

In the case of Mott MacDonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC), the TCC confirmed by way of summary judgment that there would be no presumption that a party who "deliberately and wilfully" breaches a contract cannot rely on an exclusion clause. To exclude such breaches specifically, the wording of a clause must be clear.

Background

This case was part of the second round of litigation between the parties to reach the TCC. Both disputes arose out of a project to build a power station on the Falkland Islands. Mott MacDonald (MM) provided design consultancy services to Trant Engineering (Trant) as a part of its tender submission. Trant was awarded the contract and shortly after, a dispute broke out between MM and Trant concerning the scope of works and payment. This dispute ultimately led to MM revoking Trant's access to the shared project software, which was, at the time, implemented and controlled by MM. Trant sought an interim injunction to allow it access to the project software (the First Dispute).

The TCC, applying the balance of convenience test, granted the interim injunction sought. The parties eventually settled the dispute and entered into a Settlement and Service Agreement (the SSA) which dealt with both liability for the First Dispute, and established the parties' obligations in respect of the project moving forward. The precise issues are not strictly relevant to this article but the full judgment can be found on Keating Chambers website.

The present dispute

Fast forward to 2021 and the TCC was again tussling with a dispute between the parties. Both contended there had been a breach of the SSA, with MM pursuing Trant for non-payment of sums due. Trant however, alleged that it has a substantial counterclaim on the basis that MM had "fundamentally, deliberately and wilfully" breached the terms of the SSA. MM denied that it had breached the terms of the SSA, but sought summary judgment on the issue of whether liability for fundamental, deliberate and wilful breaches of the SSA would fall within the scope of clauses limiting and restricting liability.

The legal bit

In its judgment, the TCC noted that there are conflicting authorities on this issue. On one hand, in Internet Broadcasting Corp Ltd v MAR LLC [2009] EWHC 844 (Ch), the High Court held that there was a presumption that a party in deliberate repudiatory breach of a contract cannot rely on an exclusion clause. That presumption can only be displaced by strong express language.

Conversely, in the later case of AstraZeneca UK Ltd v Albemarle International Corp [2011] EWHC 1574, Flaux J, stated that this approach was contrary to precedent and should not be followed, a position subsequently supported by LJ Lewison in the case of Shared Network Services Ltd v Nextiraone UK Ltd [2012] EWCA Civ 1171 (albeit in a non-binding judgment).

Whilst the TCC considered and reviewed numerous authorities on the issue, in his judgment Eyre J eventually sided with Flaux J. The TCC confirmed that the correct approach of construing exclusion clauses where there had been a deliberate breach was to "simply construe the clause, albeit strictly, but without any presumption". As such, the fact that the purported breach of contract was deliberate has no material effect on the ability to exclude liability. A deliberate breach was to be treated in the same way as any other breach.

Summary judgment was awarded in favour of MM.

Note, although neither case takes precedence over the other (as they are all High Court cases), it appears that the approach taken by Flaux J, and the TCC in this case, is consistent with established authorities. As such, should this issue find itself in the appellate court, it is expected that that court would take the opportunity to formally overrule the judgment in Internet Broadcasting Corp Ltd v MAR LLC.

Conclusion

This case highlights that the precise wording of any contractual clause is of critical importance. A party to a contract must ensure that the relevant clause, and in this case an exclusion clause, is set out in plain language, capable of covering specific breaches. As demonstrated here; the courts are unwilling to imply exceptions (or a presumption) to the express terms of a contract. In the words of Eyre J: to do so "would have the effect of restricting the clear scope of these clauses".

If you are unsure as to the scope and extent of liability under a particular contract; seek specialist advice from a member of Birketts' Construction and Engineering Team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.