O’Farrell J in the TCC dealt with the effect of an exclusion clause on a claim based on reliance losses. ATOS provided medical records software that the Trust argued suffered from performance issues.
The Trust eventually terminated ATOS’s contract and sought damages for wasted expenditure. ATOS argued that a claim for wasted expenditure was excluded by the contract.
Clause 8.1.3 contained an exclusion of liability provision in the following terms: ‘neither party shall be liable to the other for: (i) loss of profits, or of business, or of revenue, or of goodwill, or of anticipated savings; and/or (ii) indirect or consequential loss or damage’.
The Trust’s heads of claim were for wasted expenditure incurred in reliance on the anticipated performance of the contract: it argued that they did not represent loss of profits, revenue, goodwill or anticipated savings.
O’Farrell J noted that while in a commercial contract the value of damages is usually measured by reference to the additional amount of money that the claimant would require to achieve the financial value of the expected contractual benefit, such as lost profits, the cost of reinstatement or diminution in value (‘the expectation basis’), a claimant may elect to claim damages on an alternative basis by reference to expenditure incurred in reliance on the defendant's promise, such as sums paid to the defendant or other wasted costs (‘the reliance basis’). A claim for wasted costs can be explained as compensation for the loss of the bargain based on a rebuttable presumption that the value of the contractual benefit must be at least equal to the amount that the claimant is prepared to expend in order to obtain such benefit.
It was open to ATOS to prove that the claimant’s expenditure would have been wasted in any event because it made a ‘bad bargain’. This principle did not change the characterisation of the damages claimed from compensation for loss of a functional EMR system to compensation for lost profits, revenue or savings.
The clause therefore did not exclude the Trust’s claim. In future, lawyers drafting exclusion clauses would be well advised to consider excluding reliance as well as expectation losses.
David Sawtell / 25th Sep 2017
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