Liability Caps and Exclusion clauses considered again by the TCC in Tata Consultancy Services v DBS

Tata Consultancy Services Limited v Disclosure and Barring Service [2024] EWHC 1185 (TCC) 

This TCC decision is a useful further case on the interpretation of liability caps, as well as a decision which considers the proper interpretation of an exclusion clause and the impact in that context of how a party characterises its losses. 

The Dispute 

The Disclosure and Barring Service (“DBS”) is a non-departmental public body which is responsible for processing and issuing DBS checks in England and Wales, and for maintaining Barred Lists of individuals. Tata Consultancy Services (“TCS”) provides business process outsourcing and IT services. TCS was engaged by DBS in 2012 to modernise and digitise its manual paper-based processes, while simultaneously operating the pre-existing processes until the modernisation project was live. 

The modernisation project suffered from delays, and was the subject of a “partial termination”. The remainder of the project went live in 2017. The dispute between the parties related to liability for delays, and defects in those elements of the project which were ultimately delivered. TCS brought claims for breach of contract in the value of £110.2 million, plus a claim of £14.3 million for underpaid charges. DBS brought counterclaims for losses arising from delays and defects in the system with a value of £108.7 million. 

The Liability Clause

The contract between the parties contained an exclusion clause, the key elements of which provided:

"52.2 Subject to clause 52.1, [TCS’] total aggregate liability: 
… [separate sub-clauses setting caps for IPR claims, damage to tangible property, damage to data, Service Credits]…
52.2.5 in respect of Delay Payments shall be limited to 10% of the implementation Charges.
52.2.6 in respect of all other claims, losses or damages, shall in no event exceed £10,000,000 (subject to indexation) or, if greater, an amount equivalent to 100% of the Charges paid under this Agreement during the 12 month period immediately preceding the date of the event giving rise to the claim under consideration less in all circumstances any amounts previously paid (as at the date of satisfaction of such liability) by [TCS] to [DBS] in satisfaction of any liability under this Agreement"

DBS argued that the clause envisaged multiple caps, and that a specific limit applied to each claim it made. This was said to be supported by the alternative limit relating to monies paid under the contract; as this is calculated by reference to the 12 months which preceded it, it was argued that this must logically be different for each claim.

TCS argued that the clause gives rise to a single cap. TCS’ arguments rested on the fact that the clause defines the "total aggregate liability", together with the argument that the mechanism requiring the deduction of amounts previously paid suggests one cap rather than multiple caps. TCS also relied on the decisions in Royal Devon & Exeter NHS Foundation Trust v Atos IT Services UK Ltd [2017] EWCA Civ 2196 and Drax Energy Solutions v Wipro Ltd [2023] EWHC 1342 (TCC) cases in which similar clauses were considered, and in which in each case the relevant court found that a single cap applied. 

The Court considered both the Devon & Exeter and Drax cases but reminded the parties that each contract turns on its own wording. Although the clause agreed by TCS and DBS was "far from a model of clarity", the correct construction was that it constituted a single cap because:

• The words "aggregate liability... in respect of all other claims, losses or damages shall in no event exceed" clearly indicate a single cap. 
  
• The language "per claim" is absent, and could readily have been included by the parties as a simple means of expressing this.
  
• The attempt in the clause to set off sums previously paid suggests that the caps are not intended to be additive (notwithstanding that more than one claim is contemplated by the clause).

The Court also considered how the alternative calculation would work, where it is necessary to look at the Charges paid under the contract under the previous 12 months. The Court found that it is not necessarily the claim that is first in time that sets the alternative cap (which is what the Court found in Drax). It may be that a later claim gives rise to a greater overall cap than that previously calculated by reference to an earlier claim, and it is that which should be used. But the Court found it unnecessary to determine the precise mechanics of how that calculation would work in this case because DBS had not presented a calculation of its loss on that basis. 

The Court also determined that, as a matter of proper construction of the clause, the sums to be deducted as "amounts previously paid" were those paid under this sub-clause, not amounts which would fall under different caps (such as the cap for damage to tangible property). 

Damages: Loss of Anticipated Savings vs Loss of Profits 

The contract between TCS and DBS contained an exclusion clause as follows:

"52.4 Subject to clauses 52.1 and 52.5, neither party will be liable to the other for: 

52.4.1 any indirect, special or consequential loss or damage; or 
52.4.2 any loss of profits, turnover, business opportunities or damage to goodwill (whether direct or indirect).

52.5 … [DBS] may, amongst other things, recover as a direct loss:

52.5.1 any additional operational and/or administrative costs and expenses arising from [TCS’] Default;
52.5.2 Any wasted expenditure or charges rendered unnecessary and/or incurred by [DBS] arising from [TCS’] Default; and 
52.5.3 The additional cost of procuring Replacement Services for the remainder of the Term; and 
52.5.4 any anticipated savings."

TCS’ position was that it was incurring a per-transaction cost for processing DBS’ transactions, and that this cost should have reduced over the lifetime of the project as more and more elements of it were performed by the modernised system. In reality, delays to the project meant that this reduction of cost was not achieved. At the same time, the contract provided for the transaction charge paid by DBS to TCS to reduce over time, in line with the anticipated reduction in the per-transaction cost. The transaction charge was unaffected by delays. TCS presented its claim for the monies lost as a loss of anticipated savings, but did not dispute that it could have articulated the claim as one for loss of profits. 

The Court’s starting point was the natural and ordinary meaning of the words, and pointed out that clause 52.4 does not mention "anticipated savings". However, the words also have to be construed in the context of the other parts of this clause and the contract as a whole. The Court considered whether by implication clause 52.4 was intended to exclude all losses which are referred to in clause 52.5, on the basis that clause 52.5 could be read as a “saving” provision for DBS’ benefit only. The Court found that when tested against other types of losses such as wasted costs (which are referred to in clause 52.5 but not 52.4), that analysis failed. 

The Court concluded that although a claimant is entitled to articulate its claim as it sees fit, there was no substantive difference between anticipated savings and loss of profits in this instance. The correct construction was that TCS’ claim for loss of anticipated savings was excluded by the contract. 

Key Practice Points 

The proper interpretation of exclusion and limitation of liability clauses is often disputed. The frequently-used formulation of a cap calculated by reference to sums paid under the contract, in particular, can cause a number of problems if the mechanism has not been carefully thought through and subjected to clear and careful drafting. In addition, as this case shows, exclusion clauses are sensitive to the context of the contract that they appear in; for example, a loss of anticipated savings may not always translate directly to a loss of profits as it did in this case. Drafting which considers likely types of loss ahead of time will help to reduce the prospect of disputes arising which centre on these clauses. 

Related Articles

Royal Devon & Exeter NHS Foundation Trust v Atos IT Services UK Ltd [2017] EWCA Civ 2196: Exclusion and Limitation of Liability Provisions: A TCC Ruling on Categorisation of Losses and a Court of Appeal Ruling on Complex Caps 

Drax Energy Solutions v Wipro Ltd [2023] EWHC 1342 (TCC): Interesting English judgement on the interpretation of limitation of liability clause