Bristows' SnippITs – How to avoid “Drax-tically” different interpretations of a liability cap

This post is part of the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

In the recent decision of Drax Energy Solutions Ltd v Wipro Ltd, the Court considered whether a limitation on liability imposed a single aggregate cap on all liability or separate caps on different types of liability and provided helpful insight on some of the phrases commonly used in limitation of liability provisions.

Key takeaways: 

Clear, consistent and coherent drafting is key to avoid unintended consequences! In particular:

• Language such as “aggregate liability” and “any and all claims” most emphatically indicated a single aggregate cap, but “total liability” did too. “For each claim” indicated separate per claim caps.
• Where a cap is determined by reference to a percentage of charges paid and/or payable during a period before “the date the claim first arose” or similar, ensure that all of the wording reflects your intention. E.g. by “the claim” do you mean the first claim or each claim?  The former suggests a single aggregate cap, so any claims made after the first claim are subject to the cap but the amount of the cap is determined by reference to the period before the first claim. The latter suggests separate per claim caps, especially absent wording indicating an aggregate cap such as “less any amounts paid and/or liable to be paid to which this clause applies”.
• Use the same phrases wherever possible. If caps are drafted differently, the Court will usually view this as deliberate and interpret them differently. Whilst the Court decided not to do so here, you cannot rely on a Court deciding to do the same.       

Background:

Wipro and Drax (an energy company) entered into an agreement for Wipro to provide a new IT system, including customer relationship management, billing and smart metering facilities. The project was not a success and Drax brought claims against Wipro totalling £31m.

The agreement included this liability cap provision (the “General Cap”):

“[…] 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 argued that the General Cap was a single aggregate cap applicable to all Drax’s claims combined. Drax argued that it applied separately to each of Drax’s claims.    

The Court’s conclusions:

The language of the General Cap

The reference to “total liability” supported a single aggregate cap. As did the absence of wording such as for “each claim”. So, had a single figure (e.g. £20m) been inserted after “limited to”, there would have been no confusion and the provision would have clearly indicated a single aggregate cap. 

However, calculation of the amount of the cap by reference to the charges paid and/or payable in the preceding 12 months from when “the claim first arose” created ambiguity – “the claim” could be read as each claim (which would suggest a per claim cap) or the first claim (which would suggest a single aggregate cap). Neither position was explicit but, on balance, the language favoured a single aggregate cap. 

Other caps

Different language was used in respect of the liability cap on data protection claims that clearly indicated a single aggregate cap – “aggregate liability” and liability being for “any and all claims”. The data protection cap was also calculated by reference to when “the claim first arose”, which the Court considered to clearly mean the first claim in that context. However, it was not a straightforward case of adopting this same interpretation for the General Cap as the omission of language such as “aggregate liability” and “any and all claims” made a single aggregate cap less clear. That said, the use of more emphatic language in other provisions was not a “significant pointer” that the General Cap was not a single aggregate cap.

The caps as a whole were not well-drafted and possibly drafted at different times, so the logical implications of different language that might ordinarily have been drawn did not necessarily follow here.