Pinewood Technologies – High Court upholds wide-ranging exclusion clause

Summary

In Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies Plc,¹ the High Court upheld a wide-ranging one-sided clause which excluded loss of profits and wasted expenditure, granting summary judgment on the issue in favour of the Defendants. In so doing, the Court considered the application of certain provisions of the Unfair Contract Terms Act 1977 (UCTA) to exclusion clauses in commercial contracts.

 

Key Takeaways

Pinewood illustrates the need for parties to think carefully when negotiating and drafting exclusion clauses. Where the intention of commercial parties is clear, the Court is likely to uphold wide-ranging exclusion clauses; the Court will not intervene to save a commercial party from an unfavourable agreement or to allow it to recover losses otherwise excluded by contract.

The case also demonstrates that such issues can be decided at an interim stage of proceedings, despite the potentially severe impact on a party’s case: there is no "hard and fast rule" that issues relating to the construction of exclusion clauses must go to trial.²

 

Facts

The Defendant, Pinewood Technologies Plc (Pinewood) contracted with the Claimant, Pinewood Technologies Asia Pacific Ltd (PTAP) to supply a dealer management system (DMS) (a bundled management information system containing software for the running of motor dealerships)³ under the terms of Reseller Agreements (the Agreements). Pursuant to the Agreements, PTAP was appointed as the exclusive reseller of the DMS to customers across certain Asian territories.

PTAP also paid a fee to Pinewood, in return for which Pinewood owed various development obligations to PTAP relating to the DMS, including: (i) to advise PTAP about releases and further updates to the DMS; (ii) to ensure that the DMS met various local legal requirements, and (iii) to make any necessary changes to ensure the DMS met vehicle manufacturer franchise standards.⁴

In July 2022, PTAP initiated proceedings against Pinewood, alleging breaches by Pinewood of its development obligations under the Agreements. PTAP claimed that Pinewood's alleged breaches and subsequent issues with the DMS had caused significant disruption to PTAP's customer contracts, and claimed damages including lost profit and wasted expenditure.

Pinewood denied that it had breached the Agreements and argued that, in any event, the exclusion clause in the Agreements excluded Pinewood's liability for the loss claimed as it covered: “(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” (the Exclusion Clause).

 

The High Court Decision

The High Court was asked to consider several interim applications in the case, including:

• Pinewood's application for reverse summary judgment on PTAP's claim based on the Exclusion Clause (the Summary Judgment Application); and
• PTAP's request to amend its pleadings in order to introduce reliance on UCTA in defence of Pinewood's reliance on the Exclusion Clause (the UCTA Application).

UCTA Application

The UCTA Application was considered first, given that the outcome had the potential to inform the Summary Judgment Application.⁵

In the UCTA Application, PTAP sought to amend its case by relying on section 3 of UCTA (Liability Arising in Contract).⁶ PTAP argued that the Exclusion Clause formed part of Pinewood's "written standard terms of business", within the meaning of section 3(1) UCTA. Pursuant to section 3(2) UCTA, exclusion clauses in written standard terms of business are only enforceable if they are "reasonable". PTAP argued that the Exclusion Clause was unenforceable, as its wide-ranging nature meant it failed to satisfy the "reasonableness test", which is set out in section 11 UCTA.⁷

The Court dismissed the UCTA Application, deciding that UCTA did not apply because the Agreements did not constitute "written standard terms of business". Citing African Export-Import Bank,⁸ the Court noted that the test for whether contractual terms amounted to "written standard terms of business" was whether the terms were "effectively untouched". In finding that the Agreements were not "effectively untouched", the Court took the following factors into consideration:

• Although Pinewood conceded that it did not "reinvent the wheel" each time it entered into an agreement,⁹ substantial changes had been made to Pinewood's standard terms to accommodate the commercial arrangement with PTAP; and
• Pinewood and PTAP negotiated the terms over email and on calls. Both parties had access to legal advice, and the negotiations resulted in variations that directly affected their respective rights and obligations.¹⁰ This analysis would also have a bearing on the Court's findings in respect of the Summary Judgment Application.¹¹

The Court declared it was "fanciful” that a trial judge would liken the Agreements to standard terms of business and so refused permission for PTAP to amend its case.

Summary Judgment Application

As regards Pinewood's reliance on the Exclusion Clause, the Judge commented that where the language of an exclusion clause was "fairly susceptible" to one meaning only, that meaning would be upheld unless such meaning was "repugnant to the contract” or otherwise created a commercial absurdity. Applying this to the facts, the Court held that the presumption must be that the parties did not intend to derogate from the express wording of the Exclusion Clause. As such, the Court decided that the clause unambiguously excluded PTAP's claims for damages and loss of profit.

As to whether the issue of the enforceability of the Exclusion Clause could be properly dealt with by summary judgment, the Court held that: as (i) the Summary Judgment Application dealt with a short point of construction; (ii) the law was sufficiently clear , and (iii) there were no factual complexities that required evidence to be heard at trial, the Court could "grasp the nettle" and determine the issue at summary stage in favour of Pinewood.

 

Comment

A wide-ranging exclusion clause may in practice appear unjust, especially if the clause tips the balance in favour of the breaching party. However, Pinewood demonstrates that the Court will have little sympathy for a commercial party seeking to argue that an exclusion clause is unenforceable (pursuant to UCTA or otherwise) in circumstances where the terms of the clause have been freely negotiated. Further, where the terms are clear and unambiguous, the matter for the Court will amount to a simple point of construction, which can be dealt with by summary judgment.

Pinewood is a reminder of the importance of ensuring that the terms of exclusion clauses, and their impact on recoverable losses, are clearly understood by both parties at the drafting stage.