Ireland: Once More Unto The Breach: Court Reconsiders NETTV And Exclusion Clauses For Deliberate Breach

Last Updated: 17 September 2012
Article by John O'Connor, Yvonne Cunnane and Andreas Carney

Following the decision of the High Court of England and Wales in the NetTV case1, there was a strong presumption against the ability of an exclusion clause to exclude liability for a deliberate repudiatory breach. This could only be rebutted by very strong or clear language which would persuade a court that the parties intended the breach in question to be covered.

Following this decision, there was debate as to whether it would be followed in subsequent cases given its departure from the existing position of the courts in relation to the construction of limitation and exclusion of liability provisions. 

However, more recently the Court in AstraZeneca UK Limited v Albemarle International Corporation and Albemarle Corporation [2011] EWHC 1574 (Comm)("AstraZeneca") criticised the NetTV decision and commented that the question of whether liability for a breach of contract, of whatever nature, was limited by an exclusion clause is a matter of construction of the clause and is without any presumption.

Although the Court's comments in AstraZeneca are in line with the prevailing view expressed in pre-NetTV decisions, they are obiter and therefore not binding.2  Pending at least a determinative decision by a court in the UK, if not a decision on the matter by an Irish court, caution should therefore be exercised when drafting clauses intended to exclude liability for deliberate repudiatory breaches and it would be advisable for parties to continue to include express wording to exclude such liability where desired.


Facts

In 2005 Albermarle (AE) entered into an agreement to supply DIP to AstraZeneca (AZ), which AZ distilled to produce Propofol. It was a term of the agreement that should AZ wish to purchase Propofol directly, then AE would have the "first opportunity and right of first refusal" to supply it. 

In 2008 AZ ultimately decided to purchase Propofol directly from a third party despite the fact that, following negotiations, AE had matched their terms. AE terminated the supply agreement.

AZ claimed that AE had committed a deliberate repudiatory breach of the agreement by failing to deliver two orders of DIP.  AE denied the claim, and in the alternative argued that any liability it might have was limited by the exclusion clause in the agreement.  This clause read:

"No claims by [AZ] of any kind, whether as to the products delivered or for non-delivery of the products, or otherwise, shall be greater in amount than the purchase price of the product in respect of which such damages are claimed..." (Part One); and

In no case shall [AZ] or [Albemarle] be liable for loss of profits or incidental or consequential damages."(Part Two).

AZ argued that, following NetTV, AE could not rely on the exclusion clause as it was in "deliberate repudiatory breach" of the contract.  AE counter-claimed for damages in respect of AZ's failure to honour their right of first refusal.  AZ denied this and also argued that any liability was limited by the exclusion clause. 

The Court ultimately held that both parties were in breach of the agreement, but neither breach amounted to a repudiatory breach.  The Court nevertheless dealt with the issue of the effect of such a breach on an exclusion clause as both parties had argued it.


Decision

The Court made the following comments on the issue:

The view arising from the NetTV decision that a strong presumption exists against construing an exclusion clause so as to exclude liability for deliberate repudiatory breach is incorrect;

The modern view taken by the courts, as exemplified by decisions in Suisse Atlantique3 and Photo Production4, reject the idea that such breaches should be treated differently from other breaches and the courts have since continued to reject the concept of repudiatory or fundamental breach altogether; and

It is a question of construction of the exclusion clause in every case as to whether it covers the particular breach in question.

The Court concluded that even if AE's breach had been a deliberate repudiatory breach, the question of whether any liability for damages for that breach was limited by the exclusion clause "would simply be one of construing the clause, albeit strictly, but without any presumption"

It added that Part One of the exclusion clause was "sufficiently clearly worded to cover any breach of the delivery obligations, whether deliberate or otherwise" and therefore AE's liability was limited.  Part Two is also to be construed strictly as against the party relying on it (AZ), however it did not cover AZ's failure to respect AE's right of first refusal. 

To allow it to do so would render AZ's obligation no more than a statement of intent and a construction which has such an effect will be avoided by a court if an alternative construction exists.  AE's claim for damages against AZ is therefore not excluded by the clause.


Comment

If the view in NetTV is to be followed by Irish courts, express wording would be needed in contracts to make it clear that the parties intended to exclude a deliberate repudiatory breach.  However, if the view of the Court in AstraZeneca is followed, it would be a question of construction whether an exclusion clause covered a particular breach.

Footnotes

1 Internet Broadcasting Corporation (trading as NetTV) v MAR LLC (trading as MARHedge) [2009] EWHC 844

2 An obiter opinion is one which is voiced by a judge and has only incidental bearing on the case in question and is therefore not binding.

3 Suisse Atlantique Societe d'Armement Maritime v NV Rotterdamschke Kolen Centrale [1967] 1 AC 361

4 Photo Production v Securicor [1980] 1 AC 827 

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