A recent UK High Court decision, (Polypearl Ltd v E.On Energy Solutions Ltd), emphasized the importance of business common sense in interpreting a limitation of liability clause. The question was whether the words “Neither party will be liable to the other for any indirect or consequential loss, (both of which include, without limitation, pure economic loss, loss of profits, loss of business, depletion of goodwill and like loss) howsoever caused..” excluded liability only for indirect loss, and not for direct loss of profits.
The court held it did not exclude liability for direct loss. The article notes that “clear express words must be used in order to rebut the presumption that neither party intends to abandon any remedies for a breach of contract arising by operation of law”, especially not for a loss of profits directly caused by a failure of the customer to purchase the quantity of goods specified in the agreement.
Takeaway:
- When interpreting a specific clause, courts will consider the amount of care and detail used in the drafting of the clause. Courts will also consider ‘business common sense’ when interpreting a game-changing clause, such as a limitation of liability clause.