Draft excluders - how to enforce your exclusion clauses

 

Businesses considering whether the exclusion clauses in their contracts are enforceable could take a look at the recent case of Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd (Kudos v MCCCL).

As far back as 1972 Lord Denning said: "some clauses I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient". 

No one is suggesting that a construction contract reads: ‘Hey You! Read this! You won’t like it!’ but Kudos  demonstrates that a killer clause, nestling out of context in a reassuring section such as ‘insurance provisions’ may not be relied upon.


The Facts
 

This was a business-to-business five year agreement contract between the Manchester Convention Centre for Kudos to use its facilities to cater for functions, paying a fee and percentage of profits for the privilege.  MCCCL purported to terminate the contract 20 months early because a dispute had arisen.  Kudos accepted that termination as a repudiatory breach, terminated the agreement itself and claimed lost profits of £1.3 million.

However, MCCCL relied upon clause 18.6 of the agreement to deny any liability for Kudos’ lost profits. Clause 18.6 sheltered under the general heading ‘INDEMNITY AND INSURANCE’ and, sitting alongside standard clauses stated Kudos “hereby acknowledges and agrees that the Company shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits…..”.

It is widely accepted that bespoke contracts between businesses are subject to little statutory control, on the grounds that the parties can take care of themselves. In the High Court, His Honour Judge Seymour QC considered the words in clause 18.6 were “perfectly clear . . .  Their effect is that in any case in which there might otherwise be a liability in contract to pay damages in respect of loss of profits there is not one.  It is as simple as that.”


Court of Appeal judgment
 

On appeal, Lord Justice Tomlinson overturned this finding and found for Kudos. Behind this judgment was business common sense. A party to a commercial contract would not intend to defeat the object of the contract by agreeing to abandon a remedy for breach of contract afforded them by the general law. 

If it was adopted, clause 18 would rob the contract of any sanction for non-performance by MCCCL.  “It is inherently unlikely that the parties intended the clause to have this effect,” Lord Justice Tomlinson said. “One may safely say that the parties cannot, in a contract, have contemplated that the clause should have so wide an ambit as in effect to deprive one party’s stipulations of all contractual force; to do so would be to reduce the contract to a mere declaration of intent.”

This case demonstrates that nasty clauses cannot be buried in a contract in the hope that the other side will not notice them, and that even in bespoke contracts the courts can be reluctant to uphold draconian clauses which deprive the other party of a remedy. 

An exclusion clause is more likely to be enforceable if the commercial basis is spelt out and it should remain enforceable if it is brought expressly to the other party’s attention prior to the agreement being entered into.

Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd

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