High Court holds that limitation clause did not limit primary payment obligation

The High Court’s decision in Costcutter Supermarkets Group Ltd v Vaish & Anor [2024] EWHC 152 (KB) serves as a useful reminder of the difference between primary and secondary contractual obligations and the court’s reluctance to infer that primary contractual obligations are limited by broadly drafted limitation of liability clauses.

Background

The claimant, Costcutter Supermarkets Group Ltd (Costcutter), sought to enforce debts owed by two convenience store operators (the Defendants) resulting from the Defendants’ failure to pay for goods it had provided to them. The Defendants argued that the limitation clause contained in the trading agreements between the parties reduced the Defendants’ liability to zero. The limitation clause limited “the total liability of either party […] in respect of all acts, omissions, events and occurrences, whether arising out of any tortious act, breach of contract or statutory duty or otherwise” in any contractual year to five times the service charge owed by the Defendants under the trading agreements in the previous year.

The decisions

The key issue for the courts was the proper construction of the limitation clause and, in particular, whether it capped the Defendants’ liability to pay for goods they had received.

The Court at first instance held that a debt constitutes an omission to pay the price due under a contract which arises out of a “breach of contract… or otherwise” and therefore the limitation clause applied. Since the Defendants did not pay a service charge to Costcutter in the year before their failure to pay for the goods in question, the trial judge held that the limitation clause reduced their liability to zero.

On appeal, the High Court did not agree with the trial judge’s interpretation of the limitation clause. It referred to the distinction between a claim in debt and a claim in damages, finding that an action for the price of goods was a claim in debt to enforce a primary obligation, as opposed to a liability to pay damages upon a breach of contract which is a secondary obligation. The High Court considered that the limitation clause only limited secondary obligations to pay damages following a breach, and this did not affect a primary liability in debt.

In interpreting the limitation clause, the High Court drew on recent Supreme Court guidance on limitation of liability clauses provided in Triple Point Technology, Inc v PTT Public Company Ltd [2021] AC 1148, in particular the Court’s reluctance to assume that a party will have agreed to give up valuable rights that it would otherwise have had without the contract containing very clear wording to that effect. The High Court found that broad exclusion clauses aimed at any cause of action, such as the limitation clause, cannot be relied upon to excuse the performance of a primary obligation and that wording such as “or otherwise” is not clear enough to exclude claims relating to the enforcement of primary obligations. The judge raised doubts as to whether a primary obligation could ever meaningfully be excluded in an effective contract.

The High Court upheld Costcutter’s appeal and concluded that the limitation clause did not operate to limit Costcutter’s debt claim. Consequently, the High Court held that the Defendants were liable to Costcutter for the sums due under the trading agreements and awarded interest on the sums outstanding.

Key takeaways

The decision provides useful reassurance that the courts will not readily find parties’ primary obligations to be excluded by limitation clauses. However, to avoid uncertainty and potential obstruction by a counterparty, if contracting parties are uncertain as to whether a limitation clause could potentially limit primary obligations, such as an obligation to pay, they should expressly make clear that this is not their intention.

With thanks to Harry Dooner for his assistance in preparing this post.