INTERNET BROADCASTING CORPORATION LTD (T/A NETTV) V MAR LLC (T/A MARHEDGE) (A US INCORPORATED COMPANY)

[2009] EWHC 844 (Ch), Chancery Division, Mr G Moss QC, 24 April 2009

Contract – Construction of exemption clause – Defendant wrongfully terminated agreement – Contract contained exemption clause excluding liability – Whether capable of excluding liability for personal wrongdoing

The parties had been involved in setting up together an internet TV venture. The project seemed to be going very well when in May 2006 the defendant gave notice purporting to terminate the agreement with immediate effect. The claimant sought damages for breach of contract. The defendant admitted to wrongful repudiatory termination but relied upon an exemption clause to protect it from substantial liability in respect of loss of profits from a contract which turned out to be profitable for both parties. In this judgment, the true construction of the exemption clause was dealt with as a preliminary issue. The clause at issue read as follows: "17. Subject to clause 16 neither party will be liable to the other for any damage to software, damage to or loss of data, loss of profit, anticipated profit, revenues, anticipated savings, goodwill or business opportunity, or for any indirect or consequential loss or damage". Mr Moss QC, sitting as a deputy High Court Judge, held that on the authorities, clear words were required to exempt a party from his own wrongdoing. A stricter approach ought to be taken when the wrongdoing was personal to the wrongdoer as opposed to cases of vicarious liability. It was much less likely that the parties would have intended the words of an exemption clause, particularly one not using "strong" words, to cover a deliberate personal repudiation as opposed to repudiation by reason of vicarious liability. The proper function between commercial parties at arm's length and with equal bargaining power of an exemption clause was to allocate insurable risk, so that an exemption clause should not normally be construed in such cases so as to cover an uninsurable risk or one very unlikely to be capable of being insured, in particular deliberate wrongdoing by a party to the contract itself (as opposed to vicarious liability for others). There was much authority for the approach that excessive literalism in the interpretation should be avoided.