Anyone who is negotiating a contract or a party to an existing contract which contains a limitation of liability clause.
What do you need to do?Consider, in the context of this decision, whether the words used in a clause limiting liability exclude damages for repudiatory conduct and if appropriate seek further legal advice.
Brandon Yap (葉文耀)
Registered Foreign Lawyer
Geoff Wood
Partner
Geoff Wood
Partner
Sydney
Mark Darian-Smith
Melbourne
James Forrest
Peter Megens
Summary
This case follows from Lime Telecom Pty Ltd v PowerTel Ltd [No.1] [2008] NSWSC 324. Here, McDougall J in an ex tempore decision considered clause 14.5 and the extent to which it limited the liability of PowerTel Ltd (PowerTel).
In the case, his Honour held that:
- the principles applicable to the proper construction of exclusion clauses are equally applicable to limitation of liability clauses,
- like exclusion clauses, limitation of liability clauses cannot operate to defeat the main objects of the contract, and
- parties cannot use a limitation of liability clause as a “back door approach” to defeat claims for damages for repudiation not excluded by exclusion clauses.
Background
See our case note on Lime Telecom Pty Ltd v PowerTel Ltd [No.1] [2008] NSWSC 324.
Application
PowerTel asked to be heard further in respect of clause 14.5 and whether it applied to limit the defendant’s liability for damages, and if so, to what extent.
Clause 14.4 and 14.5 were relevant to the issues before the Court:
14.4 Except as otherwise expressly provided in this Agreement (which includes your express liabilities for charges and payments under clause 7) and to the extent permitted by law, a party has no liability to the other party in connection with this Agreement for or in respect of any consequential loss, indirect loss, loss of profits of any kind, loss or corruption of data, interruption to business, loss of customers or customer losses, loss of revenue and economic loss of any kind, whether in contract, negligence or any other tort under any statute or otherwise. 14.5 To the extent permitted by law, the
aggregate liability of a Party to the other Party in any 12 month period
in respect of all claims in (sic) arising out of or connection with
this Agreement, whether in contract, negligence or any other tort, under
any statute or otherwise, will not in any circumstances exceed the
lessor (sic) of: |
Held
His Honour held that clause 14.5 applied to each and every separate agreement formed under the Standard Form Agreement. That , however, did not alter its construction.
His Honour held that the principles enunciated in Darlington Futures Ltd v Delco Australia Pty Ltd with regard to the construction of contractual clauses seeking to exclude liability are equally applicable to clauses (like clause 14.5) that seek to limit liability, noting that Darlington Futures itself involved both types of clauses.
Clause 14.5 only had work to do in regards to claims not specifically excluded by clause 14.4. In other words, it could only be invoked when a claim escapes the net of clause 14.4.
Even though his Honour conceded that repudiation of a contract could be said, without any straining of the English language, to be something that occurs “in connection with” a contract (the broad words used in clause 14.5), he refused to give clause 14.5 a construction that allowed it to limit liability for repudiatory damages because to do so would mean “that what the parties had not succeeded in doing through the front door of cl.14.4, they would have succeeded in doing through the back door of cl 14.5.” (at [25]).
His Honour considered that this “back door” approach to limitation of liability would create an absurdity and would help PowerTel achieve what they could not have with clause 14.4, thereby defeating the main aim of the contract.
Conclusion
The Court read down clause 14.5 and held that it could not apply to the circumstance of total repudiation.
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