Limitation of liability clause did not limit primary payment obligation (High Court)

Costcutter Supermarkets Group Ltd v Vaish and another [2024] EWHC

This case is a useful reminder of the legal difference between a claim for a debt on the one hand and a claim for damages for breach of contract, on the other, and in particular, the very different effect a limitation of liability clause will have in these two circumstances.

In brief, the facts were that Costcutter claimed against Mr Vaish and another (the respondents) for payment of a debt for goods delivered to their supermarkets, as the respondents cancelled direct debits to Costcutter and moved to a different supplier. The respondents counter-claimed for lost profits caused by a change in Costcutter’s business model.

At first instance, both parties’ claims were rejected and the judge cited a limitation of liability clause in their contract. This limited liability for tortious, statutory and breach of contract claims to five times the service charge paid in respect of the preceding year. As no service charge had been paid in the year proceeding the claim, both parties’ claims were considered as limited to zero under the contract.

The respondents’ breach of contract claim was not appealed, but Costcutter appealed its non-payment claim. On appeal, the judge criticised the previous ruling for failing to distinguish between claims for collection of a debt (primary claims) and claims in damages (secondary claims).

The limitation of liability clause expressly prevented the respondent’s secondary claim, as that was a claim for damages flowing from an alleged breach of contract. However, the clause did not apply at all to Costcutter’s claim. Costcutter was not seeking damages for breach of contract. It had a claim in debt to enforce a primary payment obligation – these were the sums it was owed for the goods supplied. It was therefore not prevented by this clause from collecting the debt owed.

So, although this all worked out for Costcutter, where there are sweeping exclusions or limitations which appear to apply to a customer’s liability, a supplier may want to ensure it is clear that these are not intended to cut through the actual payment obligations.