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Excluding liability for loss of profits

Print publication

09/01/2015

Background
In Polypearl Ltd v E.On Energy Solutions Ltd [1] the claimant entered into a supply contract with the defendant. The contract provided that neither party would be liable to the other for “any indirect or consequential loss, (both of which include, without limitation, … loss of profit)”. The contract further capped liability for “direct loss” at £1 million.

The claimant claimed that the defendant breached the contract by buying fewer of the products than it was obliged to do under the contract. The claimant sought loss of profits of just over £2 million.

Submission
The defendant submitted that, pursuant to the terms of the contract, loss of profits were indirect losses and were therefore excluded.

Judgment
The Court held that the exclusion clause did not cover liability for direct loss of profits. However, the cap of £1 million applied.

The Court construed the exclusion clause to mean that the words “loss of profits” were subordinate to the preceding words “indirect or consequential loss” and their purpose was to indicate what could be an indirect or consequential loss. They were not an attempt to place a direct loss in the indirect loss category. Clear language would be needed if a claim for direct loss of profits were to be deemed an indirect loss and therefore within the ambit of the exclusion clause.

Commercially, the most likely damage the claimant would suffer from the defendant’s failure to buy the products was a loss of profits. It accorded with business common sense therefore for the clause to be interpreted as not excluding claims for a direct loss of profit.

Points to consider
As is often the case with judgments on exclusion clauses, the key thing is to ensure the drafting is very clear. Any departure from a “common sense” position must be absolutely unambiguous. If the intention is to exclude all loss of profit claims, this must be spelt out.

[1] [2014] EWHC 3045 (QB)