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The Court of Appeal has overturned a High Court decision that the words "loss of profit, revenue, savings (including anticipated savings)" in a limitation of liability clause effectively excluded a claim for wasted expenditure.

A customer had incurred significant expenditure in the expectation of receiving a much-improved IT system. The system was never provided and the contract was terminated. In the High Court, O'Farrell J stated that the customer's loss of bargain caused by the supplier's repudiatory breach comprised the savings, revenues and profits the customer would have achieved if the IT system had been delivered.

Framing a claim as one for wasted expenditure did not change the characteristics of these losses. On this basis, the relevant wording excluded the customer's loss.

The Court of Appeal held for the customer on the following grounds:

• Natural and ordinary meaning of the words. On the natural and ordinary meaning of the words, claims for wasted expenditure were not included in "loss of profit, revenue [or] savings".

• Proper approach to exclusion clauses. Clear language is required to exclude a valuable right and clauses which may have extreme consequences must be stringently construed. Nothing in the clause suggested that the customer's inevitable costs would be irrecoverable on the supplier's repudiatory breach.

• Different types of loss. Pre-estimating loss of profit, revenue and savings is difficult, and these losses are often classed as consequential and excluded. Ascertaining wasted expenditure is a straightforward accounting exercise and the ability to claim it is a valuable right; a prudent drafter would expressly exclude it if this was the parties' intention.

• Loss of bargain. The High Court had been wrong to hold that the customer's loss of bargain comprised just lost profits, revenue and savings. Instead, the principal loss was of a functioning IT system. There are different ways of calculating the damages payable for the loss of a bargain. Lost profits (or revenue or savings) is one way and wasted expenditure is another. It does not follow that wasted expenditure is a method of assessing or claiming lost profits (or revenue or savings).

At most one could say that the rationale for allowing recovery of wasted expenditure is the (rebuttable) presumption that such expenditure would have been recouped from profits, revenue or savings. This outcome may be welcomed following criticism of the High Court decision. Drafters wishing to exclude wasted expenditure should do so expressly.

Case: Soteria Insurance Ltd v IBM United Kingdom Ltd [2022] EWCA Civ 440 (4 April 2022) (Lord Coulson, Lord Phillips and Mr Justice Zacaroli).

Date: 7 April

Posted in News on Apr 07, 2022

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