Businesses should be wary of relying heavily on widely drafted exclusion clauses following the recent case of Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013]. The defendant sought to rely upon an exclusion clause to exclude liability for the claimant’s loss of profits following non-performance of a contract.
Although the High Court initially found in favour of the defendant and excluded liability, the decision was subsequently overturned by the Court of Appeal.
Background: Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd
Kudos Catering (KC) are a catering company that entered into a 5-year contract with Manchester Central Convention Complex (MCCC), to provide catering services at their conference and exhibition centre. MCCC sought to terminate the contract during the third year, with both parties alleging repudiatory breaches of contract. KC subsequently made a claim against MCCC for loss of profits of £1.3 million, which would have been made had the contract run its full term of 5 years.
MCCC denied any liability for loss of profits based on clause 18.6 of the contract between the parties, which stated:
“The Company [MCCC] shall have no liability whatsoever in contract… for any loss of goodwill, business, revenue or profits… or indirect or consequential loss suffered by the Contractor or any third party in relation to this Agreement”
High Court Holds the Exclusion Clause as Perfectly Clear
Unlike contracts between a business and a consumer or contracts that are on one party’s standard terms, a bespoke agreement between two businesses that has been fully negotiated is subject to very few controls. Although KC argued that the liability shouldn’t be excluded for a repudiatory breach (ending the contract early), the High Court upheld the literal interpretation of the clause, as the wording was ‘perfectly clear’ and couldn’t be interpreted in any other way.
KC additionally argued that if liability was excluded, it would be left without remedy. The court held that KC could have insisted on performance of the contract rather than terminating the contract with MCCC. KC subsequently appealed the decision.
Court of Appeal Finds No Exclusion for Non-performance
The Court of Appeal found that insisting on contract performance was not realistic, and KC’s only option was to claim for loss of profits. It also decided that by literally interpreting the clause, there would be no sanction for MCCC for non-compliance which was very one sided and would not have been the intention of the parties. The clause was therefore considered in the context of the wider contract.
The clause was listed under the ‘Indemnity and Insurance’ heading, which dealt with obligations and indemnities arising from defective performance, not repudiatory breach. This allowed the court to interpret the clause as not excluding liability for non-performance of the contract, allowing KC for claim for loss of profit.
Conclusion
Ultimately, the Court of Appeal’s decision was just and equitable given the circumstances, but it only achieved this through tight interpretation of the exclusion clause. Businesses should be aware that interpretation such as this is circumstantial, and other cases may result in different outcomes.
The courts will not be so inclined to enforce exclusion clauses that are hidden or misleadingly labelled, so parties that seek to rely on these clauses should make sure they are properly communicated, and are reasonable. If an exclusion clause seeks to remove any substantial remedies for severe breaches, it will be much harder for a party to enforce it.
To make sure your contracts reflect your intentions and that your exclusion clauses give you the protection you need, please contact James Crichton via e-mail jcrichton@rollingsons.co.uk or by telephone on 0207 611 4848.
