Excluding loss of profits: Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies plc – Preview

An article by Philip Marriott, barrister at Gatehouse Chambers, discussing the judgment in Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies plc [2023] EWHC 2506 (TCC), which is the latest example of the courts upholding wide-ranging exclusion clauses. The case also provides a helpful reminder that the Unfair Contract Terms Act 1977 (UCTA 1977) only aids claimants in limited circumstances.

The judgment in Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies plc [2023] EWHC 2506 (TCC) is the latest example of the courts upholding wide-ranging exclusion clauses. The case also provides a helpful reminder that the Unfair Contract Terms Act 1977 (UCTA) only aids claimants in limited circumstances.

Facts

Despite similar names, the parties were in fact unrelated entities. The defendant (Pinewood) is the developer and supplier of a dealer management system for the automotive industry (the DMS). Pursuant to two agreements (the Reseller Agreements), Pinewood appointed the claimant (PTAP) as the exclusive reseller of the DMS in several Asian countries.

In its claim, PTAP alleges that Pinewood breached its obligations to ensure the DMS was kept up to date with further releases and that the DMS complied with various legal requirements. Damages were sought for wasted expenditure and lost profits.

In its defence and counterclaim, Pinewood denied breach and alleged that, in any event, lost profits and wasted expenditure were excluded by clause 16 of the Reseller Agreements, which excluded:

“any liability [Pinewood] 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 and alleged that PTAP could not withhold payment because clause 8.10 excluded set-off. PTAP admitted the invoices remained unpaid but argued that clause 8.10 did not extend to a general defence of equitable set-off.

The hearing before Mrs Justice Smith considered several applications, but this article focuses on those relating to the exclusion clauses, namely:

• PTAP’s application to amend its case to rely on section 3 of UCTA to resist the exclusion clauses (see The application to amend).
• Pinewood’s application for reverse summary judgment based on the exclusion clauses (see Reverse summary judgment).
• Pinewood’s application for summary judgment for the unpaid invoices relying on the exclusion of set-off (see Set-off).

The application to amend

Under section 3 of UCTA, where contracting parties deal on one of their “written standard terms of business”, exclusion clauses are only enforceable where they satisfy the requirement of “reasonableness”. PTAP sought permission to amend their pleadings to rely on section 3 of UCTA to resist the exclusion clauses.

Mrs Justice Smith rejected PTAP’s application as having no real prospect of success at trial on the basis that the Reseller Agreements were not “standard terms of business”, meaning section 3 of UCTA could not apply.

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] EWCA Civ 845).

In this case, there were extended negotiations between the parties, both of whom were legally represented throughout. These resulted in changes in the provisions on assignment and required Pinewood to provide additional hosting for the DMS. The court held such amendments were plainly of substance and went beyond clarificatory edits.

Accordingly, the threshold requirements of section 3 of UCTA were not met and 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.

Reverse summary judgment

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. Importantly, the court rejected PTAP’s argument that exclusion clauses could not apply to non-performance of contractual obligations or repudiatory breaches as an attempt to resurrect the doctrine of fundamental breach. While clear language would be required, there was no principle of law that such clauses could not be agreed.

The court also rejected an argument that the interpretation of exclusion clauses should not be decided summarily. The legal principles had been fully argued and PTAP could not particularise, even in general terms, any factual evidence which would be available at trial that may affect the clauses’ interpretation.

As such, the court held that the exclusion clauses unambiguously excluded PTAP’s claims for lost profits and wasted expenditure. Further, such an interpretation did not render PTAP’s rights wholly unenforceable because claims could still be brought for incurred costs.

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

This case, along with others like EE Limited v Virgin Mobile Telecoms Limited [2023] EWHC 1989 (TCC) and Transocean Drilling UK Ltd v Providence Resources Plc (The GSF Arctic III) [2016] EWCA Civ 372, shows judges are increasingly willing to enforce wide-ranging exclusion clauses. Courts are also willing to do so on summary judgment applications, instead of waiting for trial.

Pinewood is also a helpful reminder that section 3 of UCTA has a narrow application and cannot be used as a general device to escape contracts parties are no longer happy with.

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.

Pinewood is, therefore, a reminder that exclusion clauses should be carefully read whilst negotiating contracts, and not seen as mere boilerplate.

Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com