Limitation of liability
Welcome to 'Insights from TCS v DBS' four-part series providing an in-depth look at the judgment handed down in; Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC) (17 May 2024).
In the second article of the series, we looked at the court's decision on partial termination and when a breach is capable of remedy under the contract.
In this article, the third of this series, we look at the interpretation of liability caps and the importance of clear drafting of liability clauses. For a deeper insight into the "anticipated savings" exclusion clause, see part four exclusion and "loss of anticipated savings".
For ease, we include the introduction and case summary in each part of the series.
Introduction
The judgment handed down in Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC) (17 May 2024) determined a significant and long-standing tech modernisation and business process outsourcing dispute. The ruling addresses a number of contractual themes common to IT disputes arising from delay. Reviewing the decision offers valuable insight into the meticulous analysis undertaken by the court to examine relevant sequences of events during the project, and to properly construe the agreement between the parties, particularly in relation to proving causation and loss.
Much of the judgment comprises analysis and determination specific to the agreement between the parties. There are however key parts offering valuable learning points for those working close to contracts for tech transformation projects, particularly where problems have arisen, or where litigation is threatened, imminent or underway. We explore here four key areas for learning from the judgment:
Case summary
DBS engaged TCS to supply the IT modernisation project in 2012. The project did not go well, beset by delays from an early stage.
TCS contended that the main causes of critical delay were the lack of availability of technical infrastructure and mismanagement of DBS' IT hosting provider. DBS argued that the cause of delay was TCS' delayed development and testing of the software.
TCS claimed just over £110 million in delay damages. DBS counterclaimed for delay as well as bringing claims for defects in the quality of the software in the sum of just under £109 million. TCS also claimed for underpayment of Volume Based Service Charges to the value of around £14 million.
Constable J. rejected almost all of TCS's claims for delay damages, but TCS was awarded £2.4 million for a particular period where the court found delays were caused by DBS's actions (see Part 2). DBS was awarded £4.6 million due to delays attributed to TCS. Most of DBS's other counterclaims were dismissed. For TCS, the overall outcome and award of £2.4 million represents a partial victory in their claims as it brought acknowledgement from court of some responsibility on the part of DBS for the delays
Part three summary
The judgment is a further helpful authority on the interpretation of liability caps, following the 2023 decision in Drax v Wipro (see our article and podcast on that judgment.)
In summary, DBS sought delay payments and argued for multiple liability caps, but the court found in favour of TCS, deciding that a single, aggregate cap of £10,000,000 applied.
The limitation of liability clause containing the wording "the aggregate liability ... in respect of all other claims, losses or damages, shall in no event exceed" (but also ambiguous wording to the contrary) was a single, aggregate cap that applied to all claims and not multiple, separate caps.
Background
The following parts of the exclusion clause were key:
"52.2 Subject to clause 52.1, the CONTRACTOR's total aggregate liability:
52.2.5 in respect of Delay Payments shall be limited to 10% of the implementation Charges.
52.2.6 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."
DBS's position was that the cap of £10,000,000 applied separately to each of its counterclaims brought against TCS. It argued that the monetary limit was an alternative to a limit based on "the Charges paid under this Agreement during the 12-month period preceding the date of the event giving rise to the claim under consideration" which would be a different period for each claim depending on the facts of that claim. So, for each claim, there was a separate limit defined by the charges over a separate period. (But no claim was brought by DBS referring to the alternative cap.) It also contended that the language "less the amounts previously paid" at the end of the sub-clause did not change the meaning of the language above.
TCS argued that clause 52.2.6 provided a single, aggregate cap of £10,000,000 whose level is set by reference to the Charges due to be paid in the 12 months prior to the first event giving rise to the claim arising. This construction, it contended, would apply to all claims other than those explicitly dealt with in the preceding sub-paragraphs of that clause.
Clause 52.2.5 dealt with delay payments (which were not actually defined in the agreement). TCS argued that "implementation Charges" should be equated with the term "Modernization Release" which was a reference to one of the milestones within the table following clause 2.4.2. The milestone though made no reference to "implementation Charges". Only "Charges" was a defined term.
Judgment
The judge reminded that each contract turns on its own wording and observed that clause 52.2.6 was "far from a model of clarity". It was actually academic whether a single cap applied to all claims or multiple separate caps in light of the judge's later determinations on liability and quantum. But the clause was construed as giving rise to a single cap applicable to all claims, losses or damages because:
- The wording "the aggregate liability ... in respect of all other claims, losses or damages, shall in no event exceed" reflected a clear intention for a single cap. This interpretation followed the judgments in two cases where the liability cap clauses contained similar language (Royal Devon and Exeter NHS Foundation Trust v ATOS IT Services UK Ltd[2017] EWCA Civ 2196 and Drax Energy Solutions Ltd v Wipro Ltd[2023] EWHC 1342 (TCC)). In both those cases, the clause set a cap on the total aggregate liability, linking this limit on a per-event basis to the charges incurred in the 12 months leading up to the date of the claim. In both, the respective courts found that a single cap applied.
- Clause 52.2.6 did not contain the simple language of "per claim", which would have indicated multiple caps. That phrase could readily have been included, but it wasn't.
- The clause sought to "net off sums previously paid". This suggested that the capped sums calculated in accordance with the clause were not intended to be additive (though it may be that a later claim than the first sets the cap).
The judge found that the wording at the end of clause 52.2.6, "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" should be read to mean liability under that specific sub-paragraph, rather than the agreement. This is because the words at the start of the clause clearly indicate that clause 52.2.6 is a cap which applies to matters other than those addressed in the preceding sub-paragraphs. If the intention had been that it was an overriding cap, simpler language would have been used to express that.
As far as the Delay Payments cap under clause 52.2.5 was concerned, the crucial phrase in the clause was "implementation Charges". There was no definition for this term within the agreement. As mentioned above, TCS argued it should be linked to a project milestone specified in the clause. The judge dismissed this contention. He considered it impossible to find a clear or meaningful intention to identify this specific type of charge. Claims for the Delay Payments were therefore not limited.
Comment
The judgment follows in the vein of recent decisions on liability caps where references to "aggregate liability" have been interpreted in favour of parties seeking to assert that a single cap applies to all claims rather than multiple caps. This seems to be so even where clauses starting with "aggregate liability" (or "total liability" in Drax v Wipro) are followed by references to the possibility of multiple claims. In this case, the inclusion of the word "total" before "aggregate liability" and its attachment to each sub-paragraph was treated as even more persuasive than previous caselaw in deciding that a single cap had been intended.
This is yet another alert for contract drafters to strive for clear drafting in limitation clauses, to avoid potential contradictions between "aggregate" or "total" caps and reference to multiple or separate events or claims. Where different caps apply to different types of losses, consider how the separate caps interact and what may happen if the same event/breach gives rise to different types of loss. Endeavour to test the set of exclusion and limitation of liability clauses against envisaged risks or scenarios, to ensure that they operate as intended and provide a commercial realistic outcome. This can be particularly helpful where there are a series of different caps for different scenarios, or potentially overlapping exclusions and limitations.
Finally, parties will be in an uncertain position, when a contract comes to be construed, where key definitions are omitted or not defined within a clause or agreement.
Read the original article on GowlingWLG.com
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.
