Following the decision of the High Court of England and Wales in
the NetTV case1, there was a strong presumption
against the ability of an exclusion clause to exclude liability for
a deliberate repudiatory breach. This could only be rebutted by
very strong or clear language which would persuade a court that the
parties intended the breach in question to be covered.
Following this decision, there was debate as to whether it would
be followed in subsequent cases given its departure from the
existing position of the courts in relation to the construction of
limitation and exclusion of liability provisions.
However, more recently the Court in AstraZeneca UK Limited v
Albemarle International Corporation and Albemarle Corporation
[2011] EWHC 1574
(Comm)("AstraZeneca") criticised the
NetTV decision and commented that the question of whether
liability for a breach of contract, of whatever nature, was limited
by an exclusion clause is a matter of construction of the clause
and is without any presumption.
Although the Court's comments in AstraZeneca are in
line with the prevailing view expressed in pre-NetTV
decisions, they are obiter and therefore not
binding.2 Pending at least a determinative
decision by a court in the UK, if not a decision on the matter by
an Irish court, caution should therefore be exercised when drafting
clauses intended to exclude liability for deliberate repudiatory
breaches and it would be advisable for parties to continue to
include express wording to exclude such liability where
desired.
Facts
In 2005 Albermarle (AE) entered into an
agreement to supply DIP to AstraZeneca (AZ), which
AZ distilled to produce Propofol. It was a term of the agreement
that should AZ wish to purchase Propofol directly, then AE would
have the "first opportunity and right of first refusal"
to supply it.
In 2008 AZ ultimately decided to purchase Propofol directly from a
third party despite the fact that, following negotiations, AE had
matched their terms. AE terminated the supply agreement.
AZ claimed that AE had committed a deliberate repudiatory breach
of the agreement by failing to deliver two orders of DIP. AE
denied the claim, and in the alternative argued that any liability
it might have was limited by the exclusion clause in the
agreement. This clause read:
"No claims by [AZ] of any kind, whether as to the
products delivered or for non-delivery of the products, or
otherwise, shall be greater in amount than the purchase price of
the product in respect of which such damages are
claimed..." (Part One);
and
In no case shall [AZ] or [Albemarle] be liable for loss of
profits or incidental or consequential
damages."(Part Two).
AZ argued that, following NetTV, AE could not rely on the
exclusion clause as it was in "deliberate repudiatory
breach" of the contract. AE counter-claimed for damages
in respect of AZ's failure to honour their right of first
refusal. AZ denied this and also argued that any liability
was limited by the exclusion clause.
The Court ultimately held that both parties were in breach of the
agreement, but neither breach amounted to a repudiatory
breach. The Court nevertheless dealt with the issue of the
effect of such a breach on an exclusion clause as both parties had
argued it.
Decision
The Court made the following comments on the issue:
The view arising from the NetTV decision that a strong presumption
exists against construing an exclusion clause so as to exclude
liability for deliberate repudiatory breach is incorrect;
The modern view taken by the courts, as exemplified by decisions
in Suisse Atlantique3 and Photo
Production4, reject the idea that such breaches
should be treated differently from other breaches and the courts
have since continued to reject the concept of repudiatory or
fundamental breach altogether; and
It is a question of construction of the exclusion clause in every
case as to whether it covers the particular breach in
question.
The Court concluded that even if AE's breach had been a
deliberate repudiatory breach, the question of whether any
liability for damages for that breach was limited by the exclusion
clause "would simply be one of construing the clause,
albeit strictly, but without any
presumption".
It added that Part One of the exclusion clause was
"sufficiently clearly worded to cover any breach of the
delivery obligations, whether deliberate or otherwise"
and therefore AE's liability was limited. Part Two is
also to be construed strictly as against the party relying on it
(AZ), however it did not cover AZ's failure to respect AE's
right of first refusal.
To allow it to do so would render AZ's obligation no more than
a statement of intent and a construction which has such an effect
will be avoided by a court if an alternative construction
exists. AE's claim for damages against AZ is therefore
not excluded by the clause.
Comment
If the view in NetTV is to be followed by Irish
courts, express wording would be needed in contracts to make it
clear that the parties intended to exclude a deliberate repudiatory
breach. However, if the view of the Court in AstraZeneca is
followed, it would be a question of construction whether an
exclusion clause covered a particular breach.
Footnotes
1 Internet Broadcasting Corporation (trading as NetTV) v MAR LLC (trading as MARHedge) [2009] EWHC 844
2 An obiter opinion is one which is voiced by a judge and has only incidental bearing on the case in question and is therefore not binding.
3 Suisse Atlantique Societe d'Armement Maritime v NV Rotterdamschke Kolen Centrale [1967] 1 AC 361
4 Photo Production v Securicor [1980] 1 AC 827
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