Doffing your cap: how effectively are you limiting your liability under contracts?

24th February 2015

A recent case in the Technology and Construction Court illustrates the importance of precise drafting when providing for caps on liability under contracts.The agreement in question, in the case of Sabic UK Petrochemicals v. Punj Lloyd Limited and others, provided that if the employer, Sabic, terminated its construction contract as a result of breach by the contractor, Simon Carves Limited, it could recover any costs over and above the contract price, which were necessary to complete the works: the so-called “additional costs to complete test”.

However, it also contained the following cap: …the aggregate liability of the Contractor under or in connection with the Contract (whether or not as a result of the Contractor’s negligence and whether in contract, tort or otherwise at law)…shall not exceed 20% (twenty per cent) of the sum of the Contract Price…

The contractor might be forgiven for thinking it could rely on the generality of the wording “whether in contract, tort or otherwise at law” as a ‘catch-all’ cap on all liability however it arose. It was just this wording, however, that the court interpreted as an indication that the cap should only apply to damages arising from breach of contract or tort. Mr Justice Stuart-Smith stated that this “linking language is … typically associated with clauses referring to liabilities arising out of breaches of obligations, whether contractual or tortious” and apparently saw no extra significance in “or otherwise at law”.

 

 

 

 

Consequently, the “additional costs to complete test” was construed as a way of calculating sums due on termination which was not subject to the 20% cap: a surprise to the contractor no doubt, and a reminder of the importance of clear drafting and really understanding which liabilities are capped, and which may not be.

If you would like to discuss any of the issues raised in this article, please contact Rebecca Anforth, head of our commercial law team, or Harry Perrin, author of the article.

The information provided in this article is for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at 24 February 2015. Appropriate legal advice should be sought for specific circumstances before any action is taken. Copyright © Murrell Associates Limited, February 2015.