Judgement highlights importance of exact wording of an exclusion of liability clause
15 September 2021
In a recent judgement the importance of the exact wording of an exclusion of liability clause in a contract came under the spotlight.
It confirmed that any limitation of liability clause which is intended to deprive one of the parties of all remedies needs a careful, transparent approach to be enforceable.
In the case of Acarus Pharmaceuticals Corporation v Recipharm Limited, the Commercial Court in London examined an exclusion of liability clause and held that it did not bar Acerus' claims for additional costs and lost profits arising out of a breach of contract.
Acerus alleged that the suspension of Recipharm’s manufacturing license in August 2018 was a violation of its contractual obligations and led to a shortage of Estrace in Canada.
This judgment emphasises the need to take note of the overall structure of an agreement to ensure that "general" clauses -freestanding clauses governing every aspect of the relationship- are not buried within sections of the agreement that relate to specific situations.
In this case, there was a header "liability for loss and claims", however, there was also a boilerplate term "The headings in this Agreement are for convenience only and shall not affect its interpretation."
It is important to note that the wording of the clause is a comprehensive exclusion of liability:
"In any event and notwithstanding anything contained in this Agreement in no circumstance shall either party be liable to the other in contract, tort (including negligence or breach of statutory duty) or otherwise howsoever to the other, and whatever the cause thereof (i) for any increased costs or expenses, (ii) for any loss of profit, business or contracts, revenues or anticipated savings or (iii) for any special indirect or consequential loss or damage of any nature whatsoever arising from this Agreement or the Technical Agreement."
Recipharm asserted that Acerus' claims for damages for breach of contract were excluded by this clause.
However, the Court accepted Acerus' argument that the clause was not freestanding and did not apply to all claims arising out of the contract. This was because the clause was within a section of the contract about indemnities and insurance for third party claims.
Acerus also relied on the fact that there were other clauses elsewhere in the contract that allowed costs in the event of other failures and, therefore, these would be inconsistent with a standalone exclusion of liability.
The Court noted that, if the clause was treated as freestanding, Recipharm could simply walk away from its obligations without any sanction at all.
Subsequently, Acerus Pharmaceuticals Corporation announced in a statement last month that” On August 3, 2021, Recipharm was granted permission to appeal the Commercial Court’s decision, with the main proceedings being stayed pending appeal.
“In light of permission to appeal being granted and, amongst other things, the delay to the proceedings and to final judgment this will cause, Acerus has accepted the Part 36 Offer and will receive from Recipharm in settlement a payment of £1.7 million by August 24, 2021. In addition, Acerus will be entitled to payment of the majority of its costs of the litigation.”
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