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Liability caps: a reminder for contract drafters

A liability clause operated as a single aggregate cap for all claims: Drax v Wipro.

Wipro provided software services to Drax under a master services agreement. After a series of missed milestones, revised dates and delayed deliveries, Drax terminated the agreement early and commenced proceedings. It considered that the limitation of liability clause imposed separate liability caps on each of its claims, meaning that Wipro’s liability, which it claimed was GBP31.7 million, would be capped at around GBP23 million. By contrast, Wipro considered that the clause imposed a single cap for all claims, limiting its total liability to around GBP11.5 million.

As a preliminary matter the court looked at how the cap worked. The key provision was Clause 33.2 which read as follows:

“Subject to clause[s]… 33.3… the Supplier’s total liability to the Customer, whether in contract, tort (including negligence), for breach of statutory duty or otherwise, arising out of or in connection with this Agreement (including all Statements of Work) shall be limited to an amount equivalent to 150% of the Charges paid or payable in the preceding twelve months from the date the claim first arose. If the claim arises in the first Contract Year then the amount shall be calculated as 150% of an estimate of the Charges paid and payable for a full twelve months.”

The court found that a single aggregate liability cap applied to Wipro’s liability for the following reasons: 

  1. The language up to “limited to”, strongly suggested that the cap was for all claims. The phrase “total liability” supported that reading, as did the absence of words like “for each claim”.  
  2. The formulation in clause 33.2 referred to when “the claim” first arose not “each claim”. It was common ground that clause 33.3, which had the same expression, imposed a single cap for all claims relating to a breach of the data protection clause. This suggested that clause 33.2 should be interpreted in the same way. 
  3. The court noted that the parties were “quite capable of using such explicit language” for each individual claim. However, there was no explicit use of words “per claim” or “per event”. 

This case is a reminder to try to spell out as clearly as possible whether any limit is intended to cover all potential claims (a single cap) or whether the intention is that each claim is subject to individual limits (multiple caps), with some drafting tips as to how to achieve this.

Judgment: Drax v Wipro

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