The High Court has dealt with yet another IT contract dispute, in which it ruled that a single liability cap applied to all claims under an IT MSA rather than multiple caps for multiple claims (cue: sigh of relief here for the vendor).  

This case arose in the context of an MSA under which Wipro provided software services to Drax Energy.  Various SoWs were called off over a few months from project , but the relationship went sour and ended up in the courts.

Drax Energy terminated the MSA early. It claimed damages of £9.8 million for quality issues, £9.7 million for delay, £12 million for termination-related issues and £31 million for misrepresentation. Each of its claims included several specific causes of action, and separate losses (other than from misrepresentation which crossed over with the other claims. Drax Energy considered that clause 33.2 (see below) imposed separate liability caps on each of its claims, which would mean that Wipro's maximum possible liability would be £23 million.  Clause 33.2 stated:

"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 twelve 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 twelve months."

Wipro took the view that clause 33.2 imposed a single cap for all claims. It said that the claims had arisen in the first contract year.  It calculated that 150% of the charges payable that year equalled £11.5 million and so that was its maximum liability.

At a preliminary hearing, the court was asked to rule on the interpretation of the limitation of liability clause under the MSA.  Its decision was that there was a single aggregate liability cap which applied to Wipro's liability for Drax Energy's claim. 

The court considered the wording of the clause, the fact that there was a single cap for data protection liability, there was inconsistent use of "aggregate" and "for all and any claims", there were conflicting liability provisions which did not make sense when read with each other, and there was no explicit use of the words "per claim" or "per event" which also weakened Drax Energy's argument. There were no commercial considerations which would outweigh the outcome suggested by the language.

The court also discussed the meaning of the word "claim" and rejected the argument that it meant "cause of action".  It also said that it did not mean liability. In this context the judge thought there was a middle ground and that "claim" referred to each of the misrepresentation, quality, delay and termination claims.

So what can we learn?  As ever, careful drafting is key.  Here, the MSA reflected drafting common in IT services agreements, where the liability cap varies according to the delivery risk profile and the fees paid.  Charges were to be calculated over a rolling period rather than the whole term. The case is a reminder for all to give careful thought to the drafting of liability caps, including the relationship between SoWs and the MSA. The same of course can be said for termination rights and cross termination rights. This reminder is ever true in a world when CTOs and CIOs are being pushed hard to get products to market or to drive efficiency or transformational change.    

Let us know if you need help in assessing your liability provisions: do they achieve exactly what the parties intend and are they 'market'?