The High Court has issued its judgment in a case regarding a contract for the digital transformation of the DBS authority's services by Tata. As is often the case with IT projects, there were delays, and the parties blamed each other.

The Court was asked to review the liability clause, which provided that its "aggregate liability":

"in respect of all other claims, losses or damages, shall in no event exceed £10,000,000 (subject to indexation) or, if greater, an amount equivalent to 100% of the Charges paid under this Agreement during the 12 month period immediately preceding the date of the event giving rise to the claim under consideration less in all circumstances any amounts previously paid (as at the date of satisfaction of such liability) by the CONTRACTOR to the AUTHORITY in satisfaction of any liability under this Agreement."

The court was asked to consider the thorny question of whether the limitation of liability clause provided a single, aggregate cap that applied to all claims, or multiple, separate caps.

The High Court held that it provided for a single cap rather than multiple caps.  This was because:

  • the words “the aggregate liability … in respect of all other claims, losses or damages, shall in no event exceed” were a clear indicator that the clause was setting out the total liability notwithstanding however many claims, losses or damages might exist;
  • the simple language of ‘per claim’ was absent; and
  • although the wording  “claim under consideration” suggested that more than one claim may be possible, the clause then sought to net off sums previously paid. This meant that the capped sums calculated under the clause were not intended to be additive.

Last year the court considered a similar dispute in Drax Energy Solutions Ltd v Wipro Ltd [2023] EWHC 1342 (TCC). It considered the wording of the clause, and decided that there was a single aggregate liability cap. The unclear clause reflected drafting common in IT services agreements, where the liability cap varies according to the delivery risk profile and the fees paid. Our summary of this decision can be found here.

Further, in the Tata/DBS case, the clause limiting recovery of losses was examined, which excluded liability for loss of profits. Tata had claimed for loss of revenue. It argued that anticipated cost savings were not realised because of customer delays and so net revenue was reduced. DBS argued that this claim was in fact a claim for loss of profits by another name and, as such, was excluded by the contract. 

The court agreed with DBS and considered the Court of Appeal decision in Soteria Insurance Ltd v IBM United Kingdom Ltd [2022] EWCA Civ 440. In this case, it was found that an exclusion of loss of profit, revenue and savings did not exclude a claim for wasted expenditure. It was noted, with reference to another case, that wasted expenditure was not limited to expenditure incurred after the contract was made, but can include expenditure before the contract, provided it was reasonably in the contemplation of the parties as likely to be wasted if the contract were broken. A party can elect to claim for wasted expenditure rather than loss of profits. 

Although this case focused on expenditure actually incurred but which was wasted, rather than lost anticipated savings, the court noted “an instructive reminder as to the correct starting point: the natural and ordinary meaning of the words”. In the present case, the words ‘anticipated savings’ were not expressly excluded in the relevant clause of the contract, but ‘loss of profits’ was, and it was accepted that the claim for loss of anticipated savings was the same in substance to a claim for loss of profits.

We have seen a number of cases disputing limitations of liability reach the courts in recent months - this case is another reminder to give careful thought to the drafting of liability caps and exclusion clauses.