Significant Court of Appeal Judgment on Limitation of Liability in IT Contracts

Significant Court of Appeal Judgment on Limitation of Liability in IT Contracts

The Court of Appeal has handed down a significant judgment in relation to limitations of liability in IT contracts, which has relevance to commercial contracts more generally: Soteria Insurance Limited v IBM United Kingdom [2022] EWCA Civ 440.

The clause in question excluded claims for “loss of profit, revenue, savings (including anticipated savings)” and the question was whether this clause excluded a claim by a customer against a supplier for wasted expenditure.

At first instance, the High Court had held that it did exclude such a claim, on the basis that: (i) in reality, the losses comprised the savings, revenues and profits the customer had missed out on; and (ii) re-framing the claim as wasted expenditure did not change that position.

The Court of Appeal overturned this decision, on the basis that:

  • The natural and ordinary meaning of the words “loss of profit, revenue, savings (including anticipated savings)” did not include wasted expenditure;
  • In general, exclusion clauses should be interpreted restrictively;
  • Wasted expenditure is a different type of loss to loss of profit or revenue, wasted expenditure being far more predictable, and if the parties had intended to exclude liability for wasted expenditure, they would have done so expressly; and
  • Wasted expenditure is not simply a method of assessing or claiming lost profits or revenues.

The message to contract drafters is clear: if you want to exclude claims for wasted expenditure, you should do so expressly.

The judgment can be found here

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