Download Caps on liability: ensuring that an "aggregate" cap means just that

Ashurst London
October 2013
Construction briefing
Caps on liability: ensuring that an
"aggregate" cap means just that
Where the liability of a party under a
contract is stated to be limited to a certain
amount, that party will want to be sure that
the cap applies in all situations, except
where the contract expressly states
otherwise.
The effect of the cap
Clause 30.9 of the contract contained an "additional
costs to complete test", i.e. if the total cost to the
Employer in completing the Works exceeded the total
cost that the Works would have cost if they had been
completed by the Contractor (and the contract had not
A decision of the Technology and
Construction Court delivered on 10 October
signals that the Courts may adopt an
unexpected interpretation of such capping
clauses so it is important to make them
absolutely clear.
been terminated), the difference would be recoverable
by the Employer from the Contractor either by way of
set off or as a debt.
A separate clause provided that the "aggregate liability
of the Contractor under or in connection with the
Contract (whether or not as a result of the
Case and facts
Contractor's negligence and whether in contract, tort,
The case was Sabic UK Petrochemicals Limited v Punj
or otherwise at law) … shall not exceed 20% (twenty
per cent) of the sum of the Contract Price".
Lloyd Limited and others1. Sabic (the "Employer"), a
manufacturer of petrochemical products, entered into
The question for the Court was: did the aggregate cap
a contract with Simon Carves Limited (the
of 20% apply to the Employer's claim under Clause
"Contractor") under which the latter agreed to design,
30.9 (its cost to complete the Works) so that it could
procure and construct a plant to produce low density
polyethylene.
recover no more than an amount equal to 20% of the
Contract Price?
Before the first year was out, it was clear that the
The Court held that the cap did not automatically
stated date for completion would not be met and the
apply to limit the sums recoverable from the
parties entered into two agreements under which
Contractor under the additional costs to complete test.
significant changes were made to a number of the
The cap applied to liabilities incurred as a result of
contract terms and as to price. Importantly, the
breaches of contractual or tortious obligations only. If,
parties agreed a date upon which ethylene could first
and to the extent that, liability for breach of contract
be introduced into the plant for the purposes of
formed a constituent part of the calculation under
commissioning (the "Ethylene In Date "/" EID" date),
which was to be the critical date going forward.
Clause 30.9, it would be limited (capped), but
otherwise the cap would not apply.
Further difficulties and slippage to the timetable
The reasons for the Court coming to that unexpected
conclusion were as follows:
occurred and just three months later, the Employer
issued a warning letter to the effect that it would be
terminating the contract for the Contractor's failure to
exercise due diligence. A month later, it terminated
the contract.

The language of the capping clause (applying to
liability "whether or not as a result of the
Contractor's negligence and whether in contract,
tort, or otherwise at law") was language typically
The Court held that the Employer had validly
terminated the contract under the express provisions.
associated with clauses referring to liabilities
arising out of breaches of contractual and tortious
obligations.
AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA
SAUDI ARABIA SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA

Clause 30.9 could be triggered not just as a result
of a breach of contract by the Contractor but also
actually held to have had a limiting effect on the ambit
of the capping clause.
in other circumstances, including, the insolvency of
the Contractor. None of those other circumstances
The case highlights the fact that, where clauses are
that could trigger termination required actual
intended to limit liability to an overall cap in all
breach of contract or tort by the Contractor.
circumstances, they need to be very clearly drafted
and, if only from the perspective of the party seeking
While the case obviously turned on the precise words
to rely on the cap (i.e. usually the Contractor),perhaps
used, it is interesting that words which may have been
in a slightly different way to that which has previously
been the norm.
added in an attempt to be all-encompassing ("whether
or not as a result of the Contractor's negligence and
whether in contract, tort, or otherwise at law") were
Notes
[2013] EWHC 2916 (TCC)
Further information
For further information or advice, please speak to your usual Ashurst contact or to:
Michael Smith
Kirstin Bardel
Partner, Energy, transport and
Counsel, professional development
infrastructure
T: +44 (0)20 7859 1296
T: +44 (0)20 7859 1004
E: [email protected]
E: [email protected]
Nicholas Hilder
Ben Patton
Counsel, Energy, transport and
Partner, Construction
infrastructure
T: +44 (0)20 7859 2398
T: +44 (0)20 7859 1020
E: [email protected]
E: [email protected]
Matthew Bool
Ian Fairclough
Partner, Construction
Counsel, Energy, transport and
T: +44 (0)20 7859 2241
infrastructure
E: [email protected]
T: +44 (0)20 7859 1300
E: [email protected]
Peter Grayson
Serge Radojevic
Associate, Energy, transport and
Associate, Energy, transport and
infrastructure
infrastructure
T: +44 (0)20 7859 2838
T: +44 (0)20 7859 3814
E: [email protected]
E: [email protected]
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© Ashurst LLP 2013 Ref:31153363 15 October 2013