Excluding loss of profits: Pinewood Technologies2
In Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies plc [2023] EWHC 2506 (TCC), the High Court held that a contractual exclusion clause effectively excluded liability for loss of profits and wasted expenditure, thereby showing the courts’ intention to uphold wide ranging exclusion clauses.
Background of the dispute
Amazingly, despite having very similar names, the parties were unrelated entities.
The defendant (‘Pinewood’) is the UK developer and supplier of a bundled management system for car dealers (the ‘DMS’). Pinewood entered into two agreements (the ‘Reseller Agreements’) with the claimant (‘PTAP’) as the exclusive reseller of the DMS in a number of Asian countries.
A dispute arose between the parties, whereby PTAP claimed Pinewood had breached various obligations. These breaches caused PTAP to suffer losses of ‘at least’ US$312.7 million, which included damages for loss of profit and wasted expenditure.
Pinewood denied any breach and alleged that, in any event, lost profits and wasted expenditure were excluded by clause 16 of the Reseller Agreements, which provided that:
“[Pinewoods] excludes…any liability it may have for breach of this Agreement for … (2) loss of profit, bargain, use, expectation, anticipated savings, data, production, business, revenue, contract or goodwill; (3) any costs or expenses, liability, commitment, contract or expenditure incurred in reliance on this Agreement or representations made in connection with this Agreement ….”
Pinewood also counterclaimed for unpaid invoices due under the Reseller Agreements and alleged that because the Reseller Agreement excluded set-off, PTAP were not entitled to withhold payment in respect of these invoices.
Pinewood’s application for summary judgment
Pinewood made an application for summary judgment on the claim and the counterclaim. The application was opposed by PTAP on the grounds that, firstly, both the exclusion and ‘no set-off’ clauses were unenforceable as they failed to meet the requirement of reasonableness under section 11 of the Unfair Contract Terms Act 1977 (‘UCTA’). They also submitted that the construction of these clauses was such that they could only be dealt with at trial.
It could be that PTAP were relying on the recent Court of Appeal Judgment: Last Bus Ltd t/a Dublin Coach v Dawsongroup Bus and Coach Ltd [2023] (as mentioned in a previous update), where the Court of Appeal concluded the parties were contracting on Dawson’s standard terms of business, and further that these terms were unreasonable. In addition, the Court of Appeal found that the question of reasonableness would usually require a trial, rather than determination on a summary basis.
The ‘reasonableness’ of exclusion clauses
The court held that while clear language was needed to exclude contractual rights, exclusion clauses were still to be construed in line with normal principles of interpretation and that parties were free to exclude contractual rights if that was the clear and natural meaning of the clause.
However, when contracting parties deal on one of their “written standard terms of business”, exclusion clauses are only enforceable where they satisfy the requirement of “reasonableness” (Section 3 of UCTA).
The court held the test for “standard terms of business” was whether the terms were “effectively untouched” and whether any amendments were “of substance” (African Export-Import Bank v Shebah Exploration & Production Co Ltd [2017]). In this case, the parties had negotiated substantial amendments to Pinewood’s standard terms when agreeing the Reseller Agreements. Therefore, and in contrast to the Last Bus case, the court held such amendments were plainly of substance and went beyond Pinewood’s standard business terms.
Accordingly, the threshold requirements of section 3 of UCTA were not met and PTAP’s attempt to exclude the amendment had no real prospects of success. Importantly, the court also confirmed it was not relevant that the exclusion clauses themselves were not amended from the original terms.
As such, the court held that the exclusion clauses were effective in respect of excluding PTAP’s claims for lost profits and wasted expenditure.
Set-off
Pinewood sought summary judgment on its claim for unpaid invoices. PTAP did not deny such invoices had not been paid but sought to rely on a defence of equitable set-off. The court held PTAP could not rely on such a defence because clause 8.10 provided that payment:
“… shall be made in full without withholding deduction or set off, including in respect of taxes, charges and other duties”
where “including” was held to show “taxes, charges and other duties” were not exhaustive, and the natural meaning meant set-off generally was excluded.
Comment
Firstly, the case of Pinewood2 reminds us that courts are not afraid to ‘grasp the nettle’ on summary judgment applications, instead of waiting for trial.
Secondly, Pinewood2 should firstly serve as a helpful reminder that section 3 of UCTA has a narrow application and cannot generally be used as a device to escape contracts parties are no longer happy with. This case (along with others like EE Limited v Virgin Mobile Telecoms Limited [2023]) shows that courts are increasingly willing to enforce wide-ranging exclusion clauses. As such, during contract negotiation exclusion clauses should be read carefully and should not be seen as mere boilerplate clauses.
And finally, the case serves as an important example of the potential significance of clauses excluding set-off. Cashflow is often a concern for companies, not least during litigation, and being able to enforce unpaid invoices without waiting for the conclusion of a full trial can significantly strengthen a party’s bargaining position.
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