The recent case of Drax Energy Solutions Ltd v Wipro Ltd [2023] EWHC 1342 (TCC) focused on a poorly drafted limitation of liability clause in a Master Services Agreement (MSA).
Drax Energy Solutions Ltd (Drax) is a leading UK-based renewable energy company, and Wipro Ltd (Wipro) provide digital and IT consulting services. Drax entered into a contract with Wipro Ltd to develop an energy management software system. The contract was valued at around £50m.
Drax subsequently brought claims against Wipro as it encountered numerous challenges relating to Wipro’ alleged misrepresentations, lack of quality and delay, which culminated in termination of the MSA by Drax. Drax made a large financial claim of around £31m, alleging that Wipro had failed to satisfy its contractual obligations, which caused significant financial losses and reputational damage.
Key legal issues
The court considered two preliminary issues:
- Did the limitation of liability clause set out in the MSA provide for multiple liability caps applying per claim, or one single aggregate cap?
- If the clause did provide for multiple liability caps for different claims, how should “claim” be interpreted?
Analysis of liability cap
The wording the court was asked to consider was as follows:
33.2 subject to clauses 33.1, 33.3, 33.5 and 33.6, the supplier's total liability to the customer, whether in contract, tort (including negligence), for breach of statutory duty or otherwise, arising out of or in connection with this agreement (including all statements of work) shall be limited to an amount equivalent to 150% of the charges paid or payable in the preceding 12 months from the date the claim first arose. If the claim arises in the first contract year then the amount shall be calculated as 150% of an estimate of the charges paid and payable for a full 12 months.
The High Court reiterated the approach to the interpretation of the clauses was rooted in the following principles:
- That the “natural and ordinary” meaning of the clauses should apply
- That “clear words” will be needed before the court will take away valuable rights and remedies which one of the parties would have at common law or statute
- Commercial common-sense will be applied to the extent that a reasonable person in the parties’ position would have perceived it
- Where there are multiple interpretations of a clause, the court will choose the interpretation which yields the “least bizarre” results
One cap, or multiple caps?
Wipro argued that the wording set out in the MSA created a single, aggregate liability cap of £11.5m, which amounted to 150% of the first year’s charges in the MSA. Wipro cited the reference to “total liability” in the clause.
On the other hand, Drax argued that the limitation of liability clause provided for multiple caps each with a separate financial limit, giving rise to a cap of £31.7m. Drax highlighted the reference to “12 months prior to the date the claim first arose” which would not make sense in the context of a single cap, and the absence of the word “aggregate”.
On balance, the High Court held that phrases in the clause, such as “total liability” and “the claim”, as opposed to “each” or “a” claim provided a clear indication that the limitation of liability clause imposed a single aggregate cap. The court also put considerable weight on how the further data protection liability clause had been drafted. The parties both agreed that the data protection liability clause imposed a single cap for all claims, and the court considered that where the same wording (in part) was used across both clauses, it should be construed consistently, which favoured the interpretation of the general liability clause as a single cap.
Meaning of “claim”
Although the court had decided that the clause was a single aggregate cap, it did go on to look at how “claim” should be interpreted. Wipro’s interpretation was a broad interpretation of “claim” as meaning “liability”, and therefore there should only be a single claim. On the other hand, Drax argued that “claim” should mean “cause of action”. On that basis, there would arguably be dozens of claims within the proceedings and would expose Wipro to liability of up to £132m.
The High Court took a “common-sense” view and ultimately found a balance between the two parties, and decided that there were four broad claims, which related to different types of action and relied on different sets of facts.
Sinead Hughes