UK: Limitation Clause In Business Contract Not Unreasonable

Last Updated: 30 July 2013
Article by Mark Alsop

Elvanite Full Circle Limited v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1191

Elvanite claimed against AMEC, its professional consultant, for breach of contract. AMEC had been engaged to submit planning permission on a site for Elvanite by a stated date for a fee of about £14,000. That did not happen. Elvanite agreed, subject to contract, to sell the site to a third party conditional on planning permission and an environmental permit. When planning permission did not come through by the expected date, the property market had turned and the buyer pulled out. Elvanite sought to recover its loss of profit on the deal from AMEC, alleging breach of contract. The agreement between them stated that:

  • AMEC was not to be responsible for any consequential, incidental or indirect damages.
  • The total liability of AMEC was to be limited to the total compensation actually paid or £50,000, whichever was less.
  • All claims by Elvanite were deemed to be relinquished unless filed within one year after completion of the services.

The Technology and Construction Court found against Elvanite on the facts, but it made obiter comments on the enforceability of the exclusion clauses under UCTA and certain other points:

  • The three clauses did not fall foul of UCTA. The starting point was the judgment of Chadwick LJ in Watford Electronics v Sanderson where it was said that experienced businessmen representing companies of equal bargaining power should be taken to be the best judge of commercial fairness of the agreement which they have made. Here, the parties' bargaining positions were broadly equal, Elvanite received no inducement to agree to any of the terms, Elvanite knew what AMEC's terms said and terms limiting liability were not uncommon in contracts for the supply of goods/services
  • Exclusion of consequential/indirect damages. Elvanite's claim was for loss of profit, which could be direct or indirect loss, depending on the nature of the contract obligations. The judge took the view that the claim for loss of profit in this case did not fall under either head of Hadley v Baxendale and was not recoverable in any event. AMEC only became aware of the circumstances that might cause a loss of profit after the contract was made. But if he were wrong about that, the loss of profit would only be recoverable under the second limb of Hadley v Baxendale, not the first, i.e. the loss was not the direct and natural consequence of the breach. Here, the services related to completing a planning application with reasonable care and skill; the loss of profit arose from the alleged profitability of the site, which was not the subject matter of the contract. The claim was, therefore, at most a claim for recovery of indirect loss and therefore excluded by the express term of the contract.
  • Cap on liability. It was common for those providing goods and services to seek to limit their liability to the value of the contract, particularly where the goods or services were only a small component in an otherwise much larger machine or structure. Reference was made to the recent Ampleforth Abbey case where a liability cap of the amount paid was held to be unreasonable under UCTA because the contract imposed on the professional an obligation to take out professional indemnity insurance to a level which was many times greater than the cap. Such a stark discrepancy did not arise in this case. No evidence was put before the court as to the resources available to AMEC for the purpose of meeting the liability and how far it was open for AMEC to cover itself by insurance (both UCTA considerations) but in any event the court considered that the other UCTA points (e.g. equal bargaining power) were rather more important. The court also considered Elvanite's argument that the cap could only be reasonable if it was the amount paid or £50,000 "whichever is greater" not "whichever is less" as in the actual contract. In the judge's view, the reasonableness of this provision could not depend on the distinction. £50,000 was still an arbitrary figure and a relatively modest amount. There was no logical distinction between those two alternatives.


There is no new law in this decision, but it does confirm that the courts are reluctant to interfere with contractual exclusion clauses made between businesses of equal bargaining power. The judgment also indicates that a cap of £50,000 would have been reasonable, even if the amount paid had been far greater. One wonders whether that is a line that will be followed in other cases; it's probably better to stick to a cap equal to fees paid or a fixed sum, whichever is the greater. Note also the judge's view that the insurance position was relatively unimportant in UCTA terms compared with other factors such as equality of bargaining power – not always the case in recent decisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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