Following a number of high profile decisions of the English courts on commonly used contractual provisions, this update reviews a recent judgement and provides advice for those drafting and reviewing contracts containing exclusion clauses.

Reliance on exclusion clauses by one party often gives rise to disputes. In one case in 2013, the Court of Appeal considered the scope of a wide exclusion clause.

Kudos Catering v Manchester Central Convention Complex [2013] EWCA Civ 38

Kudos and Manchester Central Convention Complex entered into a five year agreement under which Kudos was to provide catering services in the Manchester Convention Centre. The relationship broke down and Manchester terminated the agreement. Kudos claimed the termination was a repudiatory breach of contract, accepted the repudiation and claimed damages for the loss of profit it would have earned over the remainder of the term of the contract.

Manchester relied on a wide exclusion clause to argue that it was not liable:

"[Kudos] hereby acknowledges and agrees that [Manchester] shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits ... in relation to this Agreement."

The court held that the exclusion clause did not apply to liabilities for a repudiatory breach of contract, despite the fact that it was drafted very widely. The court started from the position that it was 'inherently unlikely' that the parties intended to enter into a clause so wide that it resulted in one party abandoning its remedies for breach. In this case, the words 'in relation to this Agreement' meant the clause applied only in relation to the performance of the contract and not to its termination (whether through a deliberate or non-deliberate repudiatory breach).

In reaching this decision, the position of the clause within the agreement was relevant to the construction. The clause was situated in the same section of the agreement as a wide indemnity given by Manchester to Kudos. Although there was a boilerplate provision which made clear that the headings were for convenience only, the court was clear that it was able to take into account the relationship between the clauses under that heading.

Practice points

  • If you agree a wide exclusion clause, consider setting out the commercial rationale for that agreement so that the courts will not start from the premise that the wide scope is unintentional.
  • It is better to 'sign post' exclusion clauses by clear headings and prominent positioning, rather than hiding them in the detail.
  • If you intend that the exclusion clause will apply to termination of the contract, including repudiatory breach (deliberate or non-deliberate), you should use clear words to that effect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.