This article considers comments made by the Technology and Construction Court in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1191 relating to the enforceability of clauses which seek to exclude liability in a contract and follows on from our recent articles examining current market practice in construction contracts for limitation clauses and recent case law on the subject.
Background
In July 2007, prior to acquiring a site in Essex, Elvanite, a recycling and demolition contractor, instructed AMEC to make a planning application to permit waste recycling at the site. The contract was made in September 2007. Elvanite planned to sell the site on and, in March 2008, agreed a purchase price for the site with SITA. The sale was delayed due to planning issues. Negotiations with SITA broke down and the sale fell through. The planning application was withdrawn and re-submitted later with permission finally being granted in March 2009. SITA offered to buy the site again but for a much reduced price. SITA ultimately decided not to proceed and no other offer was received.
Elvanite brought a claim against AMEC for the losses it claimed to have suffered as a result of AMEC’s failure to submit a planning application by the deadline set out in the contract between the parties, the losses being the difference between the price it paid for the site and the price originally offered by SITA.
Judgement
The court concluded that AMEC was not in breach of contract as the reasons for the failure to submit the planning application on time were outside of its control and, in particular, arose from Elvanite’s insistence that SITA approve everything. It further concluded that the reasons for the sale falling through at the original price offered by SITA were not related to the planning permission.
AMEC’s defence included reliance on two particular exclusion clauses. The judge’s comments on the clauses are not binding as he had already dismissed the claim against AMEC but they are still interesting and very relevant.
The first clause required a claim to be “filed” within “one year of substantial completion of the Services”. The judge held that the “filing of claims” was not something recognised in English court procedure as meaning raising proceedings but did accept that it meant that a letter of claim at least had to have been issued within the time period. Elvanite’s letter had not been sent until after the one year period had expired and was therefore too late.
The second exclusion clause provided that AMEC were not responsible for any “consequential, incidental or indirect damages”. AMEC successfully argued that the loss of profit was not recoverable as, at the time of entering into the contract, it was not aware that Elvanite planned to sell the site and also the specific sale to SITA (and purchase price they offered) was not in the contemplation of either party when the contract was made and that therefore the losses were.
Conclusion
The courts will not automatically enforce clauses that seek to exclude or limit a party’s liability but rather will examine the specific words used, the particular circumstances of each case and the level of commercial experience of the parties in reaching a conclusion.
To be in the strongest possible position in the event of a claim, parties should aim to draft clearly, questioning objectively whether drafting is reasonable and consider putting the drafting in the context of the project to explain the reason for including a particular exclusion or limitation clause if a party is otherwise being deprived of a substantial remedy.