Important Reminder when drafting Liability Caps in Contracts
Jurisdiction: England and Wales
Judgment: Drax v Wipro
Dispute Over Liability Cap Interpretation
In the legal tangle between Drax and Wipro concerning the provision of software services, the interpretation of a liability clause took centre stage. Drax, after facing a series of delays and missed deadlines from Wipro, terminated their master services agreement early, sparking a debate over the extent of Wipro’s financial liability. Drax argued for a liability cap based on separate claims, totalling approximately GBP 23 million, while Wipro maintained that a singular aggregate cap, limiting its liability to about GBP 11.5 million, was applicable.
The Clause in Controversy
At the heart of the matter was Clause 33.2 of the agreement, which sought to limit Wipro’s total liability across various grounds including contract, tort, and breach of statutory duty, to 150% of the charges paid or payable in the preceding twelve months. The contention arose over whether this limitation applied to each claim individually or to all claims collectively.
Court’s Clarification on Liability Limitation
The court’s examination revealed that the clause indeed instituted a single aggregate cap for all claims against Wipro. This conclusion was drawn from the specific language used in the clause, emphasizing “total liability” without indications of per-claim limitations. Additionally, references to “the claim” rather than “each claim” further solidified the interpretation of a singular cap, paralleled by the consistent use of language in related clauses of the agreement.
Interpretation Implications and Drafting Advice
The court’s decision underscored the critical importance of clear, unambiguous contract drafting, especially concerning liability limitations. The absence of explicit per-claim language led to the conclusion that the parties intended a single cap. This outcome serves as a cautionary tale and a guide for future agreements to specify whether liability caps are meant to apply on an aggregate basis or separately for each claim, avoiding potential disputes over interpretation.
Key Takeaway for Contractual Clarity
This verdict in Drax v Wipro showcases the necessity for precision in contractual terms, particularly in defining the scope of liability caps. It highlights the judicial preference for straightforward interpretation based on the contract’s language, urging parties to articulate their intentions clearly to forestall similar litigations. This case stands as a reminder of the power of contract drafting in shaping the outcomes of legal disputes.