If the (aggregate) cap fits

Allan Owen and Beth Edwards provide a summary of the High Court’s recent Judgement in Tata Consultancy Services Ltd v Disclosure and Barring Service which provides useful guidance on limits of liability.

Facts

The Disclosure and Barring Service (“DBS”) entered into a contract with Tata Consultancy Services Limited (“TCS”) for both the operation of “business as usual” Disclosure and Baring processes and provision of a digital transformation project to replace software (the “Agreement”). The Agreement contained a clause limiting TCS’s liability in cases where the “aggregate liability”:

“in respect of all other claims, losses or damages, shall in no event exceed £10,000,000 (subject to indexation) or, if greater, an amount equivalent to 100% of the Charges paid under this Agreement during the 12 month period immediately preceding the date of the event giving rise to the claim under consideration less in all circumstances any amounts previously paid (as at the date of satisfaction of such liability) by the CONTRACTOR to the AUTHORITY in satisfaction of any liability under this Agreement.”

The digital transformation project faced several delays, with each party blaming the other for the setbacks. TCS argued that mismanagement of the third-party IT hosting provider by DBS, as well as a failure to communicate a decision to abandon part of the project caused issues. By contrast, DBS stated that the delay was caused not by a problem with the IT infrastructure, but because the software was not ready to be installed and did not function properly.

TCS brought a claim for more than £110m worth of delay damages. In turn, DBS counter claimed for delay damages, as well as damages for several quality issues which affected the software.

Issues

The claim itself was incredibly wide reaching, with both parties issuing a variety of claims against each other.

One of the key issues was whether the drafting in the Agreement created an aggregate liability cap of £10,000,000 for all claims, or multiple caps of £10,000,000 for each claim.

Alongside this question, the following issues were also raised:

• Was the claim for “loss of revenue”, which TCS had put forward, actually a claim for “loss of profits”, which had been excluded by the liability clause?
• Relief was available to TCS if it failed to meet a milestone but had been prevented from doing so by an “Authority Cause” (as defined in the Agreement). What requirements needed to be satisfied here?

Judgment

Single or Multiple Cap?

Constable J dismissed the argument that multiple caps applied for the following reasons:

• It was clear that the clause intended to encompass TCS’s total liability, irrespective of the number of claims that might exist; this was demonstrated by the use of the words “the aggregate liability … in respect of all other claims, losses or damages shall in no event exceed“
• Notably, the words “per claim” were not part of the clause.
• Although the drafting “the claim under consideration” could imply the existence of multiple claims, the words that follow preclude this. Specifically, “less in all circumstances any amounts previously paid…” suggests a single, cumulative cap.

In his judgment, Constable J referenced the recent case of Drax Energy Solutions Ltd v Wipro Ltd[2] where a similarly drafted clause was also found to only create a single cap.

Other issues

In relation to the other issues outlined above, the High Court found as follows:

• Loss of revenue – TCS’s claim that, due to DBS’s delays, they had not been able to achieve anticipated cost savings and so suffered “loss of revenue” was rejected. This was found to be loss of profits in another guise, and therefore was excluded under a separate liability sub-clause.
• Prevention relief – for TCS to be entitled to relief, TCS needed to demonstrate both that:
  • they had been delayed due to an “Authority Cause” (as defined in the Agreement); and
  • without that delay, they would otherwise have met the milestone set.

On the facts, the High Court found that there was only a three-month period where both of the above elements were satisfied and delay damages could be awarded. Outside of that, all other delay damages claims by TCS were rejected.

Ultimately, Constable J rejected all but around £108m worth of delay damages claims brought by TCS. DBS was awarded £4.6m in delay damages, and all other claims by both parties were dismissed.

Commentary

Although this judgment related specifically to a technology contract, its implications in relation to liability caps are wide reaching and affect all commercial and construction contracts, where drafting similar to that included in the Agreement is a frequent feature.

The case provides more evidence that, following Drax, the growing sentiment of the court is, where it is uncertain whether there is an aggregate cap or multiple caps, an aggregate cap will be implied. As such, clear and careful drafting is needed to ensure multiple caps are in place if this is the parties’ intention; practitioners should carefully consider the intended impact of the liability clauses and ensure that the drafting reflects this.

Allan Owen is a Partner and Beth Edwards is a Trainee Solicitor at Sharpe Pritchard LLP.

This video is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email This email address is being protected from spambots. You need JavaScript enabled to view it.