Navigating Liability Limits: Key Lessons from 2024

Tata Consultancy Services Ltd v Disclosure and Barring Service

The first of these cases was a dispute between Tata Consultancy Services Limited and the Disclosure and Barring Service arising from an agreement regarding a digital transformation of services project.  

The agreement contained a limitation of liability clause, which provided that Tata’s “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 project was beset with delays, for which Tata claimed damages of c. £110m. The DBS counterclaimed for c. £109m delay damages, and also sought damages for quality issues affecting the software supplied by Tata.

The primary question, reminiscent of Drax v Wipro (on which we have commented previously), was whether a single aggregate cap of £10m should be applied across all of the claims, or a separate £10m cap applied in respect of each one. Unsurprisingly, Tata argued that the £10m cap applied across all claims; multiple caps would mean a significant increase to its potential liability.

The unclear drafting of the liability clause was the focus of the court, with Constable J stating that the clause was “far from a model of clarity”. Constable J held that the clause provided for a single cap rather than multiple separate caps, giving three main reasons to support this decision:

• The words "the aggregate liability … in respect of all other claims, losses or damages shall in no event exceed" made it clear that the cap was for the contractor’s total liability, no matter how many claims were brought.
• The drafting further suggested that only a single cap was intended, as the words “per claim” were notably absent. Had this simple language been included, there might have been a stronger suggestion that multiple caps had been intended to apply.
• The words “claim under consideration” could suggest the possibility of more than one claim under consideration, but the clause then went on to net off sums that have been previously paid. This therefore suggested that capped sums were not intended to be additive.

Topalsson GmbH v Rolls-Royce Motor Cars Ltd

The second of these cases was a reversal of the first instance judgment on the interplay between a contractual liability cap (limiting each party’s liability to €5m in aggregate) and a set-off provision.

When Rolls-Royce terminated its contract with Topalsson for delay in provision of services and claimed losses of c. €8m, Topalsson was owed c. €800,000 for services provided prior to termination. Topalsson argued that the liability cap should be applied before the set-off clause, but the High Court found in Rolls-Royce’s favour, awarding damages of over €7m before applying the €5m cap, plus interest.

On appeal, the Court of Appeal found in favour of Topalsson and ordered that it pay €4.2m in damages, having applied the €5m cap and then set off the €800,000 owed to Topalsson on termination. The Court’s key reasons for the decision were as follows:

• The language of the liability cap, which referred to “the total liability of either Party to the other”, was suggestive of a totting up, rather than a netting off. It gave no indication that the net position needed to be ascertained before the cap could be applied.
• This interpretation was aligned with commercial common sense and prevented either party from potentially side-stepping liability caps. It was pointed out that: "if the claim for set-off was taken into account before the cap was applied, the result could be manipulated, so that the party with a right to set-off can avoid the consequences of the cap altogether".
• This interpretation was consistent with Lord Denning’s obiter example in Bureau Wijsmuller NV v Owners of the Tojo Maru (No.2).

Topalsson had argued that Rolls-Royce’s entitlement to interest should also fall within the cap, instead of being in addition. This part of the claim was only brought during the appeal, and Topalsson was not permitted to amend its claim. It was pointed out, however, that this argument would have failed in any event, as the agreement stated that interest should be the “sole” remedy available for late payment. If the cap had included interest, Rolls-Royce would be denied this remedy. For interest to be included within the cap, clear wording in the contract would have been required.

Conclusion

Neither of these 2024 cases introduced any new legal principles to be borne in mind going into a new calendar year. However, whilst each focussed on a different element of limitation of liability provisions, both outcomes (as is so often the case in this area of contractual law) throw into sharp relief the importance of clear drafting. Failures in clarity when negotiating, agreeing and documenting limitation of liability clauses can lead to potentially costly disputes down the line.