Select 2016 Keeping a cap on your liability Nathan Searle, Counsel Helen Kimberley, Senior Associate 13 October 2016 Overview • Where does your liability arise? • What do the cases say? • Recap on statutory rules for limiting liability: – UCTA – B2B – CRA – B2C • Putting it into practice: – Interpreting common phrases when limiting liability – Practical tips Hogan Lovells | 2 Where does liability arise and how is it controlled? CPA: Consumer Protection Act 1987 SOGA: Sale of Goods Act 1979 GOODS TORT: Civil liability for breach of obligations imposed by law THIRD CRA: Consumer Rights Act 2015 PARTY (Consumer) B2C: CPA; Tort B2B: Tort B2C: CRA; Contract; Tort B2B: SOGA; Contract; Tort SELLER GOODS BUYER GOODS END USER B2B: SOGA; Contract; Tort Hogan Lovells | 4 CRA: Consumer Rights Act 2015 SGSA: Supply of Goods and Services Act 1982 SERVICES TORT: Civil liability for breach of obligations imposed by law BtoC: CRA; Contract; Tort BtoB: SGSA; Contract; Tort END SUPPLIER SERVICES CUSTOMER SERVICES CUSTOMER BtoB: SGSA; Contract; Tort Hogan Lovells | 5 Controls on excluding and limiting liability Common Law • Cannot exclude liability for fraud • Exclusion of common law rights (including right to terminate contract for repudiatory breach), negligence and breach of contract/duty need to be clearly and unambiguously expressed . • Presumption that parties to contracts do not intend to exclude all liability because if there is no consequence for breach then there is no legally binding contract. • Normal rules apply – natural and ordinary meaning of the words in commercial context • BUT any ambiguity construed against person trying to exclude/limit unless clause is mutual – "contra proferentem " • Limitations probably more acceptable than exclusions • Purposive interpretation will not help limitation or exclusion clauses! Hogan Lovells | 6 Controls on excluding and limiting liability Statute • Unfair Contract Terms Act 1977 ("UCTA") • CRA 2015 • Misrepresentation Act 1967 Hogan Lovells | 7 What do the cases say? Recent case law developments Transocean Drilling UK Ltd v Providence Resources Plc (CA) "20 . CONSEQUENTIAL LOSS For the purposes of this Clause 20 the expression "Consequential Loss" shall mean: (i) any indirect or consequential loss or damages under English law, and/or (ii) to the extent not covered by (i) above, loss or deferment of production, loss of product, loss of use (including, without limitation, loss of use or the cost of use of property, equipment, materials and services including without limitation, those provided by contractors or subcontractors of every tier or by third parties), loss of business and business interruption, loss of revenue (which for the avoidance of doubt shall not include payments due to CONTRACTOR by way of remuneration under this CONTRACT), loss of profit or anticipated profit, loss and/or deferral of drilling rights and/or loss, restriction or forfeiture of licence, concession or field interests whether or not such losses were foreseeable at the time of entering into the CONTRACT and, in respect of paragraph (ii) only, whether the same are direct or indirect. The expression "Consequential Loss" shall not include CONTRACTOR’S losses arising in connection with (1) failure by COMPANY to provide the letter of credit as required by Clause 3.13 of Section III or resulting termination of this CONTRACT or (2) any termination of this CONTRACT by reason of COMPANY’S repudiatory breach. Subject to and without affecting the provisions of this CONTRACT regarding (a) the payment rights and obligations of the parties or (b) the risk of loss, or (c) release and indemnity rights and obligations of the parties but notwithstanding any other provision of the CONTRACT to the contrary the COMPANY shall save, indemnify, defend and hold harmless the CONTRACTOR GROUP from the COMPANY GROUP’S own consequential loss and the CONTRACTORshall save, indemnify, defend and hold harmless the COMPANY GROUP from the CONTRACTORGROUP’S own consequential loss." Hogan Lovells | 9 Hut Group Ltd v Nobahar-Cookson (CA) Clause 5.1 of Schedule 5: "The Sellers will not be liable for any Claim unless the Buyer serves notice of the Claim on the Sellers (specifying in reasonable detail the nature of the Claim and, so far is practicable, the amount claimed in respect it) as soon as reasonably practicable and in any event within 20 Business Days after becoming aware of the matter ." Hogan Lovells | 10 Arnold v Britten (Supreme Court) Clause 3(2): "To pay to the Lessor without any deduction in addition to the said rent a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and the provision of services hereinafter set out the yearly sum of Ninety Pounds and value added tax (if any) for the first three years of the term hereby granted increasing thereafter by Ten Pounds per Hundred for every subsequent three year period or part thereof ." Hogan Lovells | 11 Effective risk allocation clauses: are there limits? • It is possible to exclude liability for fundamental breaches of contract - Photo Production Ltd v Securicor Transport [1980] AC 827 • Courts will respect risk allocation of parties - Smit v Mobius [2001] CLC 1545 • Possible limit to exclusions of liability when a party ceases to perform the contract - A Turtle Offshore SA v Superior Trading Inc [2008] EWHC 3034 Hogan Lovells | 12 You must be very clear to exclude common law rights • Dalkia Utilities v Celtech [2006] 1 Lloyd's Rep. 599 • The terms of the contract: – Clause 14.4 – "In the event of the Client being in material breach of its obligations to pay the charges the Company shall have the right to terminate this agreement immediately." – The rest of clause 14 gave Dalkia rights of termination in various other events e.g. the construction of the mill not being completed by a particular date. – Clause 15.7 – "The consequences of termination set out in this clause represent the full extent of the parties' respective rights and remedies arising out of any termination save for those rights remedies and liabilities which arise prior to termination." Hogan Lovells | 13 Recap on statutory rules UCTA B2B: exclusions defined "[ a term: • excluding or restricting any liability; or] • making the liability or its enforcement subject to restrictive or onerous condition; • excluding or restricting any right or remedy in respect of the liability; or • subjecting a person to any prejudice in consequence of his pursuing any such right or remedy; • excluding or restricting rules of evidence or procedure." UCTA; s13 "claim[ing] to be entitled to render a contractual performance substantially different from that… reasonably expected of him, or… no performance at all " UCTA; s3 Hogan Lovells | 15 UCTA overview: now only B2B TYPE OF LIMITATION/EXCLUSION B2B Section 2: Excluding/limiting liability to a person for death or personal injury cause by Prohibited negligence Section 6: Excluding/limiting implied undertakings of title Prohibited Section 6: Excluding/limiting implied undertakings of conformity with description, sample or quality Section 2: Excluding/limiting other negligence Has to be reasonable Section 3: Excluding/limiting breach of contract in standard terms (where not otherwise covered) Any other exclusion or limitation for breach of contract No controls Hogan Lovells | 16 UCTA: what are "standard terms"? • Section 3 UCTA: (1) This section applies as between contracting parties where one of them deals … on the other's written standard terms of business. (2) As against that party, the other cannot by reference to any contract term — (a) when himself in breach of contract, exclude or restrict any liability of his…. • In Yuanda (UK) Co Ltd v WW Gear Construction Ltd (2010) c ontract was based on standard JCT + Gear's standard amendments schedule - which was itself materially amended and negotiated • Court held these were not written standard terms of business – account must be taken of extent of negotiation – written standard terms would usually be used unamended in all or most of the relevant parties' contracts – "If there is any significant difference between the terms proffered and the terms of the contract actually made, then the contract will not have been made on one party's written standard terms of business." (Paragraph 26, Yuanda v WW Gear.) • Note case law also suggests that standard terms do not need to be incorporated in their entirety to be viewed as "standard terms". • In practice …if terms are subject to material negotiation/amendment they are unlikely to be "standard" even if using "standard terms" as a starting point Hogan Lovells | 17 UCTA - reasonableness • UCTA section 11(1): Reasonableness: – Burden of proof on party seeking to exclude ; …fair and reasonable – Relevant factors include : [clause] having regard to the circumstances – bargaining positions; which were, or ought – inducement to agree to the term; reasonably to have – extent of the customer’s knowledge of the existence and extent of the term; been, known to or in – non-compliance with a trigger condition; the contemplation of – special order of the customer the parties when the (UCTA sched 2) contract was made. – means (inc insurance) available to cover liability (UCTA Section 11(4 )) Hogan Lovells | 18 Recap on statutory rules CRA CRA: Key features TIMING Came into force on 1 October 2015 (mostly) APPLICATION Goods, Digital Content & Services SCOPE Consumer Contracts & Consumer Notices KEY EFFECTS • Reforms, enhances & consolidates existing consumer rights