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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] This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information please contact us at Broadwalk House, 5 Appold Street, London EC2A 2HA T: +44 (0)20 7638 1111 F: +44 (0)20 7638 1112 www.ashurst.com. Ashurst LLP and its affiliates operate under the name Ashurst. Ashurst LLP is a limited liability partnership registered in England and Wales under number OC330252. It is a law firm authorised and regulated by the Solicitors Regulation Authority of England and Wales under number 468653. The term "partner" is used to refer to a member of Ashurst LLP or to an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Ashurst LLP's affiliates. Further details about Ashurst can be found at www.ashurst.com. © Ashurst LLP 2013 Ref:31153363 15 October 2013