The limits of limiting liability

In McGee Group Ltd v Galliford Try Building Ltd the court was asked to consider a clause capping a sub-contractor’s liability for delay/disruption. Limitation clauses which seek to limit or cap liability for future claims are commonplace in construction contracts, but this case is a stark reminder of the care required when drafting as they can be costly.

The facts

Galliford engaged McGee as sub-contractors to design and construct groundworks in relation to a new hotel and casino. The contract incorporated the JCT Design and Build Sub-Contract Regulations (2011) although heavily amended. The relevant provisions in the contract were:

• Clause 2.21 provided that if McGee failed to complete any of the work within the contract period, they would be liable for “direct loss and/or expenses suffered or incurred” in Galliford achieving “access conditions” by the “access target date”. Galliford claimed damages from McGee of about £1 million under this clause.
• Clause 4.21 set out that McGee were liable for any “loss, damage, expense or cost” suffered by Galliford as a result of any delay in the progress of the main works. Galliford claimed about £2.3million under this clause.

The parties agreed that Galliford were entitled to losses under the contract. However, McGee relied on clause 2.21B to argue that its liability for any “direct loss and/or expense and/or damages” was capped at 10 per cent of the sub-contract value, ie £1.5 million. Galliford argued that losses claimed under clause 4.21 were not subject to the cap because (1) the limit of liability clause only related to claims made under the clauses which were physically proximate to it in the sub-contract (ie clause 2.21), and (2) the wording of clauses 2.21B and 4.21 demonstrated that they were intended to apply to different liabilities. Both were given short shrift by the court.

The judgment

The court found in favour of McGee. Coulson J confirmed that while limitation of liability clauses have to be clear and unambiguous, they should be interpreted with reference to the parties’ “wider allocation of benefit, risk and responsibility”. Applying a percentage cap is a common means of reducing risk and promoting certainty.

The court held that clause 2.21B placed a cap on McGee’s liability for an entire category of loss as it was found that the parties had intended to provide a cap for all losses arising out of delay and disruption (rather than being limited those under clause 2.2.1 only). Galliford’s attempt to differentiate the losses between the two clauses so as to avoid the application of the cap was “artificial and uncommercial”. In any event, the claims caught by clause 4.2.1 also fell under clause 2.2.1 which meant the 2.2.1B cap would have always applied.

Comment

This case is a good reminder that care is needed in drafting limitation of liability clauses to ensure that they are clear and unambiguous and accurately reflect the parties’ intentions. Those are factors that the court will take into account when interpreting the clauses.

The dispute arose in part due to the significant amendments made by the parties to the JCT contract which appeared to contradict some of the JCT standard terms. Care is particularly required when attempting to amend the standard terms. Arguably, the dispute could have been avoided if clause 2.21B stated that it applied to all losses/liabilities.

Finally, this case is a good reminder that the courts will not be impressed by a party who attempts to backtrack on an agreement to limit another’s liability by raising spurious technical arguments, particularly when the parties entered into the contract with equal bargaining power.