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Excluding Liability under Commercial Contracts

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In May 2013 Mr Justice Coulson gave judgment in the High Court in the case of Elvanite Full Circle Limited v AMEC Earth & Environmental (UK) Limited [2013] EWHC 1191 (TCC). This case is not unusual, but demonstrates the power of exclusion clauses in comme

The Claimant, Elvanite Full Circle Limited (“Elvanite”) is a demolition and recycling contractor. Elvanite brought a claim against AMEC Earth & Environmental (UK) Limited (“AMEC”) for consequential losses arising from AMEC’s failure to make a planning application by a deadline specified in a contract between the parties. AMEC denied the allegations and counterclaimed for outstanding professional fees.

Although he found against the Elvanite on other grounds, the judge also considered two exclusion clauses in the contract. An exclusion clause is a clause which excludes or restricts liability and can operate in various ways.

Time limit on claims

An exclusion clause in the contract provided that:

“All claims by the CLIENT shall be deemed relinquished unless filed within one (1) year after substantial completion of the Services”

The Judge found that “filed” meant sending a detailed letter of claim. This did not mean issuing a Claim Form at Court. However, the letter which was sent within a year was at most a notice rather than “a clear summary of facts on which each claim is based” and “the basis on which the claim is made, identifying the principal contractual terms and statutory provisions relied on” which the Judge considered was required.

Most importantly, he confirmed that as a matter of principle the parties can vary the ordinary six year limitation period, after which such claims are barred from proceeding. This is therefore a powerful and effective way of preventing claims, although it is better to avoid ambiguities in the drafting which led to some of the arguments in this case. The clause in this case acted as a bar to a claim.

Exclusion of Consequential / Indirect damages

Another exclusion clause in the contract provided that:
“10) CONSEQUENTIAL DAMAGES. AMEC shall NOT be responsible for any consequential, incidental or indirect damages.”

The terms “direct loss” and “indirect loss” are often used by lawyers. The Judge concluded that loss of profit can amount to direct or indirect loss, but the claimed loss of profit was in this case a claim for indirect loss and was therefore prohibited by the exclusion clause.

Conclusion

The Elvanite case shows that the Courts will look to uphold the agreement between commercial parties which allocate the risk of commercial contracts between them. However, that drafting needs to be clear and careful. For example, the term indirect or consequential loss is not a precise term. An agreement may be clearer if it provides for the exclusion of specific heads of loss such as loss of goodwill or loss of business, with a term such as “indirect loss” being used as part of careful drafting as a sweep up provision.

If you have any questions about commercial disputes or the drafting of commercial contracts, please contact John Mackle at john.mackle@clarionsolicitors.com who is a Senior Associate in the Dispute Resolution Team or Matthew Hattersley at matthew.hattersley@clarionsolicitors.com who is the Partner in charge of Clarion’s Commercial Team or another member of the commercial or dispute resolution teams.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.