Mrs Justice O'Farrell:
- On 7 November 2011 the claimant ("the Trust") entered into a contract with the defendant ("ATOS") for "the provision of health record scanning, electronic document management and associated services" ("the Contract").
- The system comprised Mobius Clinical Electronic Medical Records ("EMR") Desktop, an application developed by a third party sub-contractor, Fortrus Limited, running in an internet browser and communicating via Adobe LiveCycle software, which provided workflow, electronic forms and record management, Kodak Capture software for scanning documents and an electronic document management system and repository called Laserfiche.
- The Contract Price was £4,939,207 and the term of the Contract was 5 years.
- The Trust was unhappy with the performance of the system when it was introduced in 2012. Although various modifications to the software were provided by ATOS, the Trust remained dissatisfied and in September 2014 it invoked the contractual dispute resolution process.
- In November 2014 the Trust served a contractual notice of material breach in respect of the alleged failure by ATOS to remedy defects in the system.
- On 21 April 2016 the Trust served a notice on ATOS, terminating ATOS's services under the Contract.
- In these proceedings the Trust seeks damages in the sum of approximately £7.9 million for breach of contract.
- The Trust's case is that it is entitled to claim damages for wasted expenditure consequent on its acceptance of ATOS's repudiatory breach. Although the Contract contains a provision limiting the liability of the parties, such provision is unenforceable for ambiguity or uncertainty.
- ATOS's case is that such damages for wasted expenditure are expressly or impliedly excluded by the Contract, as lost profits, business, anticipated savings, or indirect or consequential loss or damage. Further, any damages are subject to the liability cap in the Contract, which is valid and enforceable.
- On 17 February 2017 Mr Justice Coulson ordered that the above disputed issues of construction in respect of recoverable damages should be tried as preliminary issues.
- ATOS denies any liability in respect of the alleged breaches and the sums claimed are disputed. However, it is agreed that, for the sole purpose of these preliminary issues, the court should assume that the Trust could establish its case on both liability and quantum.
- The agreed preliminary issues are as follows:
Issue 1 – wasted expenditure claims
i) Whether as the defendant contends, the defendant is under no liability in respect of each of the claimant's claims to recover wasted expenditure made in paragraphs 102 to 110 of the Particulars of Claim because:
a) liability for each such claim is expressly or by necessary implication excluded by the terms of clause 8.1.3(a) of the Contract; and/or
b) the claims represent an illegitimate attempt to evade the effect of that clause by seeking recovery of heads of loss which are expressly excluded by the clause
ii) whether, as the claimant contends, clause 8.1.3(a) of the Contract does not exclude and is no bar to the claims it makes for wasted expenditure on a reliance loss basis.
Issue 2 – Limitation of liability
iii) What is the meaning and effect of the limitation of liability at clause 8.1.2(b) of the contract and paragraph 9.2.2 of Schedule G?
iv) Whether, as the claimant contends, the limitation of liability at clause 8.1.2(b) of the Contract and paragraph 9.2.2 of Schedule G is ineffective and it is entitled to a declaration to that effect
v) whether, as the defendant contends, the limitation of liability at clause 8.1.2(b) of the contract and paragraph 9.2.2 of Schedule G is effective, and if so, what is its meaning and effect.
The contract – relevant provisions
- Under the Contract, ATOS agreed to:
) design the System and Services;
ii) develop and install electronic document management ("EDM") software, and provide associated software maintenance and support services; and
iii) provide document scanning services.
- The System is defined in Clause 1.1.48 as:
"the combination of Hardware and Software working together to deliver the function and performance specified in the Contractor Undertakings. Any part of the System may be separately identified as a Sub-system."
- The Services are defined in Clause 1.1.40 as:
"the services to be provided under this Contract, including but not limited to the Implementation and Scanning Services and the Support Service."
- Clause 2.1 sets out the obligations on the part of ATOS:
"The Contractor shall meet the Contractor Undertakings contained in schedule A, and shall fulfil all its obligations under the Contract in accordance with the timetable in schedule E in consideration of payment by the Authority of the Contract Charges."
- Schedule A contains a performance specification and general requirements in respect of the System and Services to be provided by ATOS.
- Clause 3.1.1 provides:
"The Contractor shall perform its delivery and installation obligations under the Contract according to the timetable contained in schedule E …"
- Schedule E contains a schedule of key deliverable milestones and contractual dates to be achieved by ATOS, including:
i) Milestone IM1 - "Contract Signature" – the planned date was 4 November 2011;
ii) Milestone IM7 – "Early Adopter Go Live (Speciality 2)" – by 5 October 2012 – the key deliverables included satisfactory completion of the clinical user trial and completion of the early adopter specialities roll out; the Trust dependencies included availability of resources to support the roll out;
iii) Milestone CD8 – "Post Go Live Verification & Integration III" – 45 days after go live from successful acceptance – by 7 December 2012.
- Clause 2.2 sets out the obligations on the part of the Trust:
"The Authority shall pay the Contractor the Contract Charges, and shall perform its responsibilities under the Contract including, but not limited to, those specified in schedule D (Authority's responsibilities), in compliance with the Contractual Dates set out in schedule E."
- Charges are defined in Clause 1.1.10 as:
"the charges as set out in schedule G."
- Clause 7.1.1 states:
"The Authority shall pay the Contractor the Contract Charges, as applicable, and any other valid charges that may become due, according to the payment schedule contained in schedule G."
- Schedule G provides that the total Charges payable during the term of the Contract should not exceed the Total Contract Price of £4,939,207 (excluding additional services).
- Schedule G contains a payment schedule, rates and charges for additional services, and rates applicable to changes.
Breach and Termination
- Clause 3.1.3 states:
"Any actual or anticipated material delay or failure by either party shall be notified to the Project Board and managed in accordance with the recommendations of the Project Board. Both parties shall use all reasonable endeavours to mitigate the impact of such delay regardless of cause."
- Clause 3.1.4 states:
"Subject to clause 3.1.3, delay or failure solely caused by the Contractor to meet any Contractual Dates contained in the timetable in schedule E, shall be subject to the provisions of clause 8.3 (delays)."
- Clause 8.3.1 states:
"If the Contractor fails to meet any Contractual Date specified in the timetable contained in schedule E, both parties shall use all reasonable endeavours to mitigate the impact of such delay, and as required under the provisions of clause 3.1, it shall be liable to:
(a) reimburse the Authority for all proven losses, costs, damages and expenses incurred by the Authority by reason of such delay."
- Clause 8.3.2 states:
"(a) The provisions of sub-clause 8.3.1(a) above shall apply to delay by the Contractor in meeting any Contractual Dates, notwithstanding the previous application of such provisions to delay or failure by the Contractor to meet any other Contractual Dates.
(b) The Authority acknowledges that the Contractor's ability to meet its obligations under the Contract according to the timetable in schedule E may depend on the Authority likewise meeting its obligations, including those specified in schedule D. Consequently, insofar as the Contractor is prevented from fulfilling any of its obligations as a direct result of a delay solely caused by the Authority it shall not be liable to the Authority for such failure and sub-clauses 3.1.3 and 3.2.1 shall apply."
- Clause 8.6 states:
"Except as otherwise expressly provided by the Contract, all remedies available to the Contractor or the Authority for breach of the Contract are cumulative and may be exercised concurrently or separately. The exercise of any one remedy shall not be deemed an election of such remedy to the exclusion of other remedies."
- Clause 10.2 states:
"Either the Authority or the Contractor may at any time by notice in writing to the other party terminate the Contract as from the date of service of such notice whenever any of the following events occurs:
10.2.1 there is a breach by the other party of any provision hereof which expressly entitles the non-breaching party to terminate the Contract; or
10.2.2 the other party commits a material breach of any of its obligations hereunder which is not capable of remedy or, if capable of remedy, is not remedied within thirty (30) days or such reasonable time (agreed between the parties at the time), after receipt of written notice from the non-breaching party of its intention to terminate."
- Clause 23 sets out the acceptance procedures for the System and identifies the acceptance criteria as specified in schedules A and F. Clause 23.4.1 provides:
"If the System, any part of it, any Deliverable, Service or Task has failed to meet its required acceptance criteria specified in schedule F in all material respects by the Acceptance Completion Date specified in relation to it, if any, the Contractor shall, unless the provisions of clause 3.2 apply, be deemed to be in Default, thereon, without prejudice to any other remedies available to the Authority, it shall be entitled, in respect of and as appropriate to such failure, to:
(d) terminate the Contract under the provisions of clause 10.2.1 provided only that:
(i) such failure is in respect of acceptance of the System or Service;
In the event of termination in accordance with this sub-clause 23.4.1(d), the provisions of 11.3 shall apply."
- Clause 25.3 provides for the Contractor to carry out corrective actions as agreed by the parties in respect of any failure to meet specified Service Levels. Clause 25.4 states:
"If so specified in the Contractor Undertakings, the Authority shall be entitled to performance remedies specified in schedule A, if any are specified therein, in place of, in addition to or in combination with the provisions of clause 25.3 in which case, such remedies shall be applied without prejudice to any other rights and remedies available to the Authority and, where applicable, shall be in addition to the financial limitations set out in clause 8."
- Clause 25.5 states:
"If, notwithstanding any corrective actions taken in accordance with sub-clause 25.3 or performance remedies applied in accordance with clause 25.4, the Contractor persistently fails, in any material respect, to meet any Service Level, such failure shall be considered to be a material breach of the Contractor's obligations and shall entitle the Authority to terminate the Contract in accordance with the provisions of clause 10.2. Neither party shall be prevented from determining that any other breach of the Contract constitutes a material breach."
- Clause 10.4 states:
"Rights and obligations of the parties which have accrued or which shall accrue shall survive termination of the Contract insofar as survival shall be construed from the relevant clauses in the context of such termination ..."
- Clause 11 provides for the consequences of termination and clause 11.4 states:
"The termination of the Contract as provided for in this clause 11 shall not prejudice or affect any right of action or remedy which shall have accrued or shall thereafter accrue to the Contractor or the Authority."
Limitation of Liability
- Clause 8.1.2 contains a limitation of liability provision:
"… the liability of either party for Defaults shall be limited as stated below:
(a) the liability of either party under the Contract for any one Default resulting in direct loss of or damage to tangible property of the other party or any series of connected Defaults resulting in or contributing to the loss of or damage to the tangible property of the other party shall not exceed the figure set out in schedule G;
(b) the aggregate liability of either party under the Contract for all Defaults, other than those governed by sub-clause 8.1.2 (a) above, shall not exceed the amount stated in schedule G to be the limit of such liability."
- Default is defined in clause 1.1.20 as:
"any breach of the obligations of either party (including but not limited to fundamental breach or breach of a fundamental term) …"
- Paragraph 9 of Schedule G provides:
The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (a) shall not exceed the sum of two million pounds.
The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (b) shall not exceed:
9.2.1 for any claim arising in the first 12 months of the term of the Contract, the Total Contract Price as set out in section 1.1; or
9.2.2 for claims arising after the first 12 months of the Contract, the total Contract Charges paid in the 12 months prior to the date of that claim."
- Clause 8.1.3 contains an exclusion of liability provision:
"(a) Without prejudice to the generality of sub-clause 8.1.1 neither party shall be liable to the other for:
(i) loss of profits, or of business, or of revenue, or of goodwill, or of anticipated savings; and/or
(ii) indirect or consequential loss or damage; and/or
(iii) specific performance of the Contract unless expressly agreed by the parties to be applicable in schedule G.
"(b) The provisions of sub-clause 8.1.3(a) shall not be taken as excluding or limiting the Authority's right under the Contract to claim for any of the following which results from a Default by the Contractor provided the Authority has made all reasonable efforts to mitigate such results:
(i) costs and expenses which would not otherwise have been incurred by the Authority including, without limiting the generality of the foregoing, costs relating to the time spent by the Authority's executives and employees in dealing with the consequences of the Default;
(ii) expenditure or charges paid by the Authority which would not otherwise have been incurred or would have ceased or would not have recurred;
(iii) costs, expenses and charges resulting from the loss or corruption of the date or Software owned by or under the control of the Authority, in accordance with sub-clause 13.4.2 provided that the Contractor's liability shall be limited to costs, expenses and charges associated with re-constituting such data or Software and returning it to a fully operational state insofar as it is inherently capable of being re-constituted.
"(c) Any liability of the Contractor resulting from a claim under sub-clause 8.1.3(b) shall be subject to limitation in accordance with sub-clause 8.1.2."
- The Trust's case is that the initial system provided by ATOS in October 2012 was unacceptably slow, there were inaccuracies in the patient records in the system, clinical data for patients recorded on e-forms was incomplete and forms were duplicated within the system. As a result, it was not safe to implement the system in full or migrate current patient data to the system and scanning was limited to historic patient medical records.
- Between 2012 and 2014 ATOS released multiple versions of software but failed to remedy the existing defects and introduced new defects.
- In September 2014 and September 2015 ATOS purported to introduce fixes to the system but they failed testing.
- The pleaded allegations against ATOS include the following:
i) there were delays in the delivery and testing of the specified software;
ii) the software delivered by ATOS did not provide the specified functionality;
iii) software intended to fix defects failed performance and acceptance testing;
iv) ATOS failed to provide the specified level of Support Services; and
v) ATOS failed to meet the contractual completion dates and/or milestones.
- ATOS's defence is that the Trust signed off the Milestone Acceptance Certificate for Milestone 7 "Early Adopter Go Live", indicating that ATOS had achieved satisfactory completion of that milestone. The system delivered complied with the contractual specification and the Trust was responsible for wider implementation of the system.
- ATOS delivered everything which it was required to deliver to meet the final contractual milestone CD8 "Post Go Live Verification and Integration III". The Trust rejected the opportunity to engage ATOS to provide a fully managed service for the system.
- Any inadequacies in the system's performance were caused by limitations in the Trust's network and hardware, the Trust's failure to provide the necessary daily maintenance and administration and the Trust's overloading of the system.
- The damages claimed for the alleged breaches, and for repudiatory breach, are set out in paragraphs 102 to 112 of the Particulars of Claim and can be summarised as follows:
||Sums paid to ATOS under the Contract
||Cost of Laserfiche licences in the event that the Trust is required to purchase them to view archived patient records that should be available in the System
||Costs incurred by the Trust, such as the purchase of hardware and software, for the purposes of the project
||Procurement and tendering costs incurred by the Trust
||Costs incurred by the Trust in retaining IT contractors to implement the System
||Costs of internal IT, projects and health records staff at the Trust who would otherwise have been employed in work of benefit to the Trust
||Costs of specialist contractors engaged by the Trust to develop interfaces between the existing systems and the System
||Costs incurred by the Trust for the on-site scanning bureau required for the project
||Scanning payments made to ATOS
Issue 1 – wasted expenditure
- Clause 8.1.3(a) of the Contract excludes each party's liability for loss of profits, business, revenue, goodwill or anticipated savings.
- The issue is whether any of the above claims are recoverable as damages or excluded by clause 8.1.3(a) of the Contract.
- Mr Charlton QC on behalf of the Trust submits that the above sums are recoverable as damages for repudiatory breach by way of wasted expenditure incurred in reliance on the anticipated performance of the Contract. The claims do not represent loss of profits, revenue, goodwill or anticipated savings or otherwise fall within the ambit of clause 8.1.3(a).
- Ms O'Sullivan QC on behalf of ATOS submits that the claims (apart from the mitigation costs) are properly characterised as claims for loss of revenue, profit or other benefits which would have enabled the Trust to defray the incurred costs if the Contract had been performed. As such, they are excluded expressly or implicitly by the terms of clause 8.1.3(a).
- ATOS's submissions can be summarised as follows.
i) The Trust's claim is for expenditure which would have been incurred in any event if the Contract had been fully performed in accordance with its terms.
ii) The basis of such claim is a rebuttable presumption that if the Contract had been performed, the Trust would have received revenue, savings or other benefits from the EMR system that would have enabled the Trust to recoup its expenditure.
iii) In cases concerning employee costs, the basis of the recovery of wasted expenditure is that the damages represent the loss of revenue which would have been generated by the employees if they had not been diverted from their normal duties by the defendant's breach: Aerospace Publishing Ltd v Thames Water Utilities Ltd  EWCA Civ 3 per Wilson LJ at para. ; Azzurri Communications Ltd v International Telecommunications Ltd  EWPCC 17 per Birss at para. ; Admiral Management Services v Para-Protect Europe Ltd  EWHC 233 per Stanley Burnton J at para. . Those cases show that the claim for wasted expenditure is not in fact a claim to recover the costs spent but a claim in damages for loss of the revenue, profit or other benefit which would have enabled the claimant to defray those costs if the contract had been performed.
iv) That characterisation applies to all the heads of damage claimed by the Trust (save for the mitigation costs). An award of reliance damages does not represent the direct recovery of the wasted net expenditure. The net benefits which would have been derived but for the breach are quantified in monetary terms by reference to the presumption that their value would have at least equalled that wasted expenditure. The wasted expenditure represents "an alternative measure of gains prevented" as explained by Deane J in Commonwealth of Australia v Amann Aviation  174 CLR 64 at pp.127-128.
v) It would be open to the Trust to claim costs and expenses that were incurred as a result of a breach by ATOS as such claims are expressly preserved by clause 8.1.3(b) of the Contract. However, the Trust has chosen not to pursue its claims on this basis.
- The general principle is that common law damages are compensatory for loss or injury. In a claim for breach of contract, the damages should be such as to place the claimant in the position he would have been in if the contract had been performed: Robinson v Harman (1848) 1 Exch 850 per Baron Parke p.855.
- The quantum of damages for breach of contract should reflect the value of the contractual bargain of which the claimant has been deprived as a result of the defendant's breach: The Golden Strait Corporation v Nippon Yusen Kubishika Kaisha  2 AC 353 (HL) per Lord Scott at paras. ,  and .
- In a commercial contract, the value of such damages is usually measured by reference to the additional amount of money that the claimant would require to achieve the financial value of the expected contractual benefit, such as lost profits, the cost of reinstatement or diminution in value ("the expectation basis").
- A claimant may elect to claim damages on an alternative basis by reference to expenditure incurred in reliance on the defendant's promise, such as sums paid to the defendant or other wasted costs ("the reliance basis"): Cullinane v British Rema  1 QB 292; Anglia Television v Reed  1 QB 60.
- A claim for reliance losses uses a different method of measurement from that used to calculate expectation losses but both provide compensation for the same loss of the contractual bargain in accordance with the Robinson v Harman principle: Omak Maritime Ltd v Mamola Challenger Shipping Co  EWHC 2026 per Teare J at paras. ,  and ; Yam Seng Pte Ltd v International Trade Corporation Ltd  EWHC 111 per Leggatt J at para. .
- A claim for wasted costs can be explained as compensation for the loss of the bargain based on a rebuttable presumption that the value of the contractual benefit must be at least equal to the amount that the claimant is prepared to expend in order to obtain such benefit. That presumption applies equally to cases of non-pecuniary benefit where the claimant does not expect or aim to make a profit: Omak (above) at para. .
Characterisation of the Trust's claims
- The Trust's case is that under the Contract ATOS promised to provide a functional EMR system. In reliance on ATOS's promise, the Trust incurred expenditure. In breach of contract ATOS failed to provide a functional EMR system. As a result of ATOS's breach, the expenditure was wasted. The Trust is entitled to recover the wasted expenditure as damages for breach of contract based on a rebuttable presumption that the value of a functional EMR system would be at least equal to such expenditure.
- The Trust is not entitled to recover as damages any lost profits that it anticipated it would make using the new system, nor any lost revenue or savings that it planned to generate from use of the system. Those categories of loss are expressly excluded by clause 8.1.3(a).
- However, that does not preclude the Trust from recovering damages to compensate for the loss of a functioning EMR system. That was a contractual benefit to which the Trust was entitled and of which it has been deprived by ATOS's alleged breach. The rebuttable presumption that the value of that loss is at least equal to the Trust's expenditure does not transform the claim for loss of the EMR system into a claim for loss of any additional benefits that would flow from use of the EMR system.
- ATOS's submissions wrongly assume that any "contractual benefit" which is presumed to at least equal the value of the expenditure must represent profits, revenues or savings. In most commercial cases, there would be such a defined financial benefit that would be expected to defray the costs incurred and render the bargain financially viable. However, that is not the case where the contractual benefit is non-pecuniary. In those cases, the anticipated benefit is not a financial gain that could defray the costs incurred but rather a non-pecuniary benefit for which the claimant is prepared to incur such costs. In cases where a party does not expect to make a financial gain, it is the non-pecuniary "benefit" that is assigned a notional value equivalent to at least the amount of expenditure.
- In this case, regardless whether the EMR system was anticipated to produce any profits, revenue or savings, the Trust would have the use of the EMR system as a contractual benefit. The claim for wasted expenditure is based on a rebuttable presumption, not that the EMR system would produce revenues to defray such expenditure, but rather that the use of the EMR system was worth at least the expenditure incurred.
- ATOS has identified the internal costs of staff at the Trust as a particular head of damage that falls within the exclusion in clause 8.1.3(a) because it is pleaded that those resources would otherwise have been employed in beneficial work for the Trust. Reliance is placed on the Aerospace, Azzurri and Admiral cases as support for the proposition that on a proper analysis such internal costs are claims for lost revenue. However, those cases were concerned with the costs of diverted staff resources incurred after and as a consequence of the relevant breach or other wrong, in order to remedy the damage suffered. As such, they were properly characterised as lost revenues caused by the breach. They can be distinguished from the internal staff costs in this case, which form part of the costs incurred in performing the Contract. As such, they fall to be dealt with in the same way as the other wasted costs.
- It is open to ATOS to defeat the claim for wasted expenditure by establishing that the expenditure exceeded any benefit to be gained from the Contract.
- An award of damages for breach of contract should not put the claimant in a better position than he would have been in had the contract been performed: C&P Haulage v Middleton  1 WLR 1461 per Ackner LJ at pp.1467-1468.
- If the defendant can establish that the claimant's expenditure would have been wasted in any event, because it made a "bad bargain", the wasted expenditure will not be recoverable as damages: Omak (above) per Teare J at paras.  to ; Yam Seng (above) per Leggatt J at para. .
- The burden of proof lies on the defendant to show that the expenditure would not have been recouped and would have been wasted in any event: CCC Films (London) Ltd v Impact Quadrant Films Ltd  QB 16 per Hutchison J at p.40; Omak (above) per Teare J at paras.  Yam Seng (above) per Leggatt J at para. . In the case of a contract where no financial gains were expected, the recoupment in question would not be payments but alternative gains, such as use or enjoyment. To establish a bad bargain in such a case, the defendant would have to show that the value of the asset or other performance promised was less than the expenditure incurred by the claimant.
- The "bad bargain" principle does not change the characterisation of the damages claimed from compensation for loss of a functional EMR system to compensation for lost profits, revenue or savings.
- For the above reasons, the Trust's claims for damages for breach of contract by reference to wasted expenditure are not excluded by clause 8.1.3(a) of the Contract.
Issue 2 – liability cap
- Issue 2 concerns the meaning and effect of the limitation of liability provision at clause 8.1.2(b) of the Contract and paragraph 9.2.2 of Schedule G.
- Clause 8.1.2(b) and paragraph 9.2.2 of Schedule G purport to limit the aggregate liability of ATOS for breach of contract (excluding liability for personal injury or damage to property):
i) for any claim arising in the first 12 months of the term of the Contract, the Total Contract Price as set out in section 1.1 (paragraph 9.2.1); or
ii) for claims arising after the first 12 months of the Contract, the total Contract Charges paid in the 12 months prior to the date of that claim (paragraph 9.2.2).
- The Trust's case is that the limitation of liability at paragraph 9.2.2 of Schedule G is not capable of being construed and should be declared unenforceable.
i) Paragraph 9.2.2 purports to limit the "aggregate liability" of ATOS "for claims [plural] arising after the first 12 months of the Contract" by reference to "the total Contract Charges paid in the 12 months prior to the date of that claim" [singular]. The clause does not work because the reference to "that claim" which defines the relevant 12 month period is not itself defined; it does not obviously refer to "claims" at the beginning of the paragraph and cannot be interpreted as if it read "each such claim".
ii) "Claims arising" means the date or dates on which a breach or Default occurred in respect of which ATOS is liable under the Contract. This sets the liability cap by reference to contract charges paid in the 12 month period prior to the date of the breach.
iii) The difficulty arises where there is more than one claim arising. The Trust submits that it is not clear whether there is a single cap calculated by reference to a claim or whether there is a separate cap for each claim that arises. Multiple caps for each claim arising is inconsistent with the concept of a cap and could result in potential liability for ATOS of many millions of pounds. If the reference to "claims arising" should be read as "claims notified", ATOS's liability would expand with each notification of a material breach.
iv) It is not clear that a reasonable person would have understood the words to have such meaning and therefore the liability cap provision should be declared unenforceable.
- ATOS's case is that the limitation of liability provision at paragraph 9.2.2 of Schedule G is valid and enforceable.
i) The drafting of paragraph 9.2.2 is unfortunate in that the opening words refer to "claims" in the plural whereas the concluding words refer to "claim" in the singular. However, the defect can be cured by reading the opening words of paragraph 9.2.2 as if they were the same as the opening words of paragraph 9.2.1 i.e. "any claim arising".
ii) Clause 8.1.2 of the Contract governs "the aggregate liability of either party under the contract for all Defaults". This indicates that the liability referred to in paragraph 9.2 is a liability for "Defaults". The natural meaning of "claim arising" is a reference to the date on which a breach or Default occurred in respect of which ATOS is liable under the Contract.
iii) The use of the words "the aggregate liability of the Contractor … shall not exceed" in paragraph 9.2 indicates that the parties must have intended the liability cap in paragraph 9.2.1 to apply to all Defaults arising in that period. The use of the disjunctive "or" between paragraphs 9.2.1 and 9.2.2 indicates that they are alternatives and not cumulative. There is only one cap, determined by the timing of the first Default.
iv) Alternatively, there are two caps, the first applying to any Defaults occurring in the first 12 months of the Contract (the amount of the Total Contract Price) and the second applying to any Defaults occurring after the first 12 months, being the total Contract Charges paid in the 12 months prior to the date on which the claim is made in respect of those Defaults.
- When interpreting a written contract, the court is concerned to ascertain the intention of the parties by reference to what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to be using the language in the contract. It does so by focussing on the meaning of the relevant words in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the contract, (iii) the overall purpose of the clause and the contract, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions: Arnold v Britton  UKSC 36 per Lord Neuberger at paras.  to ; Rainy Sky SA v Kookmin Bank  UKSC 50 per Lord Clarke at paras.  to ; Chartbrook Ltd v Persimmon Homes Ltd  UKHL 38 per Lord Hoffmann at paras.  to ,  to ; Wood v Capita Insurance Services Ltd  UKSC 24 per Lord Hodge at paras.  to .
- When interpreting limitation of liability clauses, there is no presumption against the parties having agreed to give up or limit their remedies for breach of contract. Provided that the words used are clear, the court will give effect to the commercial allocation of risk in the contract: Tradigrain SA v Intertek Testing Services (ITS) Canada Ltd  EWCA Civ 154 per Moore-Bick LJ at para. ; Nobahar-Cookson v The Hut Group Limited  EWCA Civ 128 per Briggs LJ at para. ; Transocean Drilling UK ltd v Providence Resources plc  EWCA Civ 372 per Moore-Bick LJ at paras.  and .
- However, the words used must be clear and unambiguous in order to limit the liability of a party for his own wrongdoing: Dairy Containers ltd v Tasman Orient Line  UKPC 22 per Lord Bingham at para. .
- The courts strive to give effect to all contractual terms agreed by the parties where possible and are reluctant to find that a contractual provision is void for uncertainty: Whitecap Leisure v John H Rundle Ltd  EWCA Civ 429 per Moore-Bick LJ at paras.  to ; Associated British Ports v Tata Steel UK Limited  EWHC 694 per Rose J at paras.  to .
Meaning of the clause
- The starting point is clause 8.1 which clearly states that the parties have agreed to limit their respective liabilities under the Contract. The wording of clause 8.1.2(b) indicates that the parties intended to impose a financial cap on the total liability of either party for all Defaults. There are express carve out provisions, namely: (i) no exclusion or limitation in respect of personal injury/death (clause 8.1.1), (ii) a separate cap on liability for damage to property (clause 8.1.2(a)) and (iii) exclusion of liability for consequential losses (clause 8.1.3(a)). Therefore, the cap imposed by clause 8.1.2(b) would apply only to other loss and damage caused by any Default.
- The relevant limitation of liability provision is at paragraph 9.2 of Schedule G. It is not drafted with precision. The question for the court is whether it can be made to make sense with sufficient clarity and certainty to make it enforceable.
- Paragraph 9.2.1 is reasonably straightforward to interpret. It provides that the aggregate liability of ATOS shall not exceed "for any claim arising in the first 12 months of the term of the Contract, the Total Contract Price". It is common ground that the reference to "claim arising" should be read as "Default occurring". That is a reasonable interpretation because it is unlikely that the parties would have intended the level of any cap to be determined by the timing of any notice of default or commencement of any proceedings, as opposed to the date of any breach.
- Under the original contract schedule, completion of the key deliverables (i.e. the hardware, software and scanning requirements to deliver an operational system) would be achieved within 12 months of the Contract (the final milestone in December 2012 was 45 days after the system went live). There was commercial logic in fixing a cap on the contractor's liability as the Total Contract Price for any failure to meet its primary obligations to achieve those milestones. If ATOS failed to deliver, RDE could be deprived of (potentially) all benefits received under the Contract but would not suffer any additional losses.
- Paragraph 9.2.2 is more difficult to interpret. It provides that the aggregate liability of ATOS shall not exceed "for claims arising after the first 12 months of the Contract, the total Contract Charges paid in the 12 months prior to the date of that claim". I accept Ms O'Sullivan's submission that the infelicitous wording in paragraph 9.2.2 can be rectified by reading the singular and plural references to "claim(s)" in the singular. If, as both parties contend, the reference to "claim arising" should be read as "Default occurring", then paragraph 9.2.2 can be read to make sense.
- The question that then arises is whether, and if so, how, paragraphs 9.2.1 and 9.2.2 operate together, and whether they provide for one, two or multiple caps.
- The introductory words in paragraph 9.2 "aggregate liability … shall not exceed" indicate that the intention of the provision is to limit the total or composite liability of ATOS. Those words read together with the reference to "or" between paragraphs 9.2.1 and 9.2.2 indicate that the parties intended to agree one cap that would apply, the level of which would be determined in accordance with the sub-paragraph into which the relevant Default fell.
- If paragraph 9.2 were intended to provide for multiple caps where there were multiple claims, both sub-paragraphs would have to be read on that basis. Paragraph 9.2.1 refers to "any claim" and would impose a cap in the amount of the Total Contract Price in respect of each claim arising in the first 12 months. That could lead to a liability cap that was multiple times the Total Contract Price in the event that there were several Defaults during that period. Likewise, if there were two breaches, one occurring during the first 12 months and one occurring 12 months and 1 day after the Contract, the level of the cap would approach double the Total Contract Price (the Total Contract Price plus the fixed charges paid in the first year and 1 day less the first milestone). It is very unlikely that the parties would have contemplated or agreed to such a term because the potential level of the cap would render it devoid of any real purpose.
- Where, as in this case, the words used could give rise to competing interpretations, one of which makes commercial sense and the other does not, it is open to the court to prefer the interpretation that makes commercial sense.
- Although the language used in paragraph 9.2 is not helpful, the intention of the parties can be ascertained by construing the provision together with clause 8.1 and in accordance with the assumption that the parties intended the provision to have a reasonable and commercially sensible effect.
- In my judgment, paragraph 9.2 imposes one aggregate cap on the liability of ATOS for all Defaults (excluding claims for personal injury or property damage). The level of the cap is determined by the timing of the first Default. If a Default occurs in the first twelve months of the Contract, the level of the cap is the Total Contract Price. If no Default occurs during the first twelve months of the Contract, the level of the cap is the total Contract Charges paid in a twelve month period prior to the first Default.
- For the above reasons, the preliminary issues are determined as follows:
i) Clause 8.1.3(a) of the Contract does not exclude and is no bar to the claims made by the Trust for wasted expenditure on a reliance loss basis.
ii) The limitation of liability provision at clause 8.1.2(b) of the Contract and Paragraph 9.2 of schedule G is valid and enforceable. The meaning and effect of the provision is that there is one aggregate cap on the liability of ATOS for all Defaults encompassed by clause 8.1.2(b). If a Default occurs in the first twelve months of the Contract, the level of the cap is the Total Contract Price. If no Default occurs during the first twelve months of the Contract, the level of the cap is the total Contract Charges paid in a twelve month period prior to the first Default.