The recent case of Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corporation [2024] EWHC 35 (TCC) provides a salient reminder of the need for parties to carefully consider the limitation of liability in contracts and the construction of these clauses.

Innovate sought damages from the University of Portsmouth arising from a Research Agreement between the parties concerning research into a drug patented by Innovate. An academic paper was published by the University which Innovate alleged had been "infected by dishonesty" because the author of the paper (a scientist at the University) either knew, or was reckless as to whether, the paper was in-part fabricated.

The Research Agreement included an exclusion of liability clause as follows:-

"...the University is not liable to [Innovate] because of any representation (unless fraudulent) or any warranty (express or implied), condition or other term, or any duty at common law, or under the express terms of this Agreement for any loss of profits, business, contracts, opportunity, goodwill, revenues, anticipated savings, expenses, costs or other similar loss; and/or any indirect, special or consequential damages or losses (whether for loss of profits or otherwise)."

Innovate sought to claim loss of profits in excess of £1 million on the basis that it alleged there had been a dishonest breach of the Research Agreement by the University.

The issue before the Court was the construction of the limitation clause. The sole carve out in the exclusion clause was for 'fraudulent misrepresentation'. As a matter of construction the word 'fraudulent' applied only to representation and not to the remainder of the clause. The Court found that the exclusion of liability was applicable to all claims except where the claim was based upon a fraudulent misrepresentation. Therefore a dishonest breach of contract was not sufficient to defeat the exclusion of liability.

Further the Court found that the exclusion of liability was reasonable for the purposes of the Unfair Contract Terms Act 1977 and enforceable. The clause did not provide a blanket exclusion for all liability. There was no inequality in the parties bargaining power. A legally qualified individual had negotiated the Research Agreement on behalf of Innovate. Innovate did not blindly accept the terms put to it but actively negotiated amendments including to the wider exclusion clause. Further, the University was being paid a sum far below the commercial market rate for the work to be undertaken and therefore, it was reasonable that it sought to limit its liability for potentially significant sums far in excess of those rates, on the basis of acts of its agents.

The construction of a clause is an issue that needs to be considered on a case-by-case basis. However, this case is a stark reminder that although a clause may not expressly refer to any limitation for a claim of dishonest breach, it may well be caught and excluded by the overall construction of the clause. Careful review of any exclusion and limitation clauses is essential for parties before entering into any agreement.

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.