Grasping the nettle in Technology Disputes

In a recent High Court decision, the court made the bold move of making an award of reverse summary judgment on a claim (along with judgment on the Defendant’s counterclaim) - Pinewood Technologies Asia Pacific Ltd -v- Pinewood Technologies PLC [2023] EWHC 2506 (TCC).

The case is interesting for technology sector clients as the court took a robust approach to an exclusion of liability clause in a reseller agreement. 

Background

The Defendant, Pinewood, is a UK-registered company and part of one of the world’s largest automotive retailers. Pinewood had developed and supplies dealer management systems (‘the Pinewood DMS’) for the automotive industry. A DMS is a bundled management information system containing software that meets the needs of the finance, sales, workshop, parts, inventory and administration components of running a motor dealership. Pinewood contracts with independent partners (‘resellers’) to market and sell the Pinewood DMS to motor vehicle dealerships outside the United Kingdom. The claimant, PTAP, was the reseller for Hong Kong, Japan and a number of other territories.

Pinewood had entered into two reseller agreements with PTAP. The reseller agreements contained the following clauses:

1. Clause 3.1, PTAP was appointed by Pinewood as the ‘exclusive reseller of the [Pinewood DMS] in the Territory for the Term’;
2. Clause 4.2(c) required PTAP not to ‘for the Term, promote, market, sell, licence, resell, supply or otherwise provide or deal in any software, licence or services to or in relation to Motor Vehicle Dealerships, which is or are similar to or may compete with the [Pinewood DMS] and/or [Pinewood DMS] Services…’. 
3. Clause 8 provided for payment by PTAP to Pinewood of monthly fees on a fixed basis proportionate to the number of Pinewood DMS user accounts provided from time to time by PTAP to its customers in the relevant territories.
4. There were various obligations on Pinewood to keep PTAP updated with developments of the Pinewood DMS, to ensure that the Pinewood DMS met the legal requirements in the territory.
5. Clause 16 contained a general exclusion and limitation of Pinewood’s liability – it is useful to recite this in full as they are familiar and commonly used clauses:
     
   “16.1 Liability not limited
   Pinewood does not exclude its liability for death or personal injury resulting from its negligence, for fraud or fraudulent misrepresentation, or for breach of Clause 13 (Confidentiality).

   16.2 Excluded Types of Loss
   Subject to Clause 16.1, Pinewood excludes, in relation to any liability it may have for breach of this Agreement, negligence under, in the course of or in connection with this Agreement, misrepresentation in connection with this Agreement, or otherwise howsoever arising in connection with this Agreement, any such liability for: (1) special, indirect or consequential loss; (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 or representations made in connection with this Agreement; or (4) losses suffered by third parties or the Reseller’s liability to any third party.

   16.3 General Liability Limit
   Subject to Clause 16.1, Pinewood limits its liability for breach of this Agreement, negligence under, in the course of or in connection with this Agreement, or otherwise howsoever arising in connection with this Agreement, in aggregate for all events giving rise to such liability, to the yearly average of the total Pinnacle User Account Monthly Fees invoiced averaged over each complete Agreement Year to date, or in the case of any claim arising in the first Agreement Year, to the amount reasonably expected to be invoiced on account of Pinnacle User Account Monthly Fees for that Agreement Year.”

The Reseller Agreements were terminated and PTAP brought claims against Pinewood for breach of various obligations and claimed damages of $312.7 million under different heads of loss including wasted expenditure and lost profits. The lost profits claim alone was for over $300 million. 

Pinewood’s application for reverse summary judgment

Pinewood brought an application for reverse summary judgment claiming that the exclusion of liability at clause 16.2 of the Reseller Agreements applied, refuting PTAP’s claim for damages for wasted expenditure and lost profits and therefore PTAP had no real prospect of success at trial. Alternatively, Pinewood sought a declaration that its liability was limited to £134,528 – the yearly average of fees paid – relying on clause 16.3.

Not unexpectedly, PTAP tried to argue that as the summary judgment application raised questions of construction that it could only be dealt with at a full trial. It also applied to amend its case to put forward an argument that clause 16 of the Reseller Agreements formed part of Pinewood’s ‘written standard terms of business’ within the meaning of UCTA, and did not meet the statutory requirement of ‘reasonableness’, so that the clause was ineffective.

High Court Decision

In a robust move, the court granted summary judgment in favour of Pinewood and dismissed PTAP’s applications.

It was accepted by all parties that PTAP’s proposed application to amend to introduce an UCTA based argument should only be allowed if it had a ‘real prospect of success’. In assessing this, the court is required to consider whether the applicant has a ‘realistic’ as opposed to a ‘fanciful’ prospect of success. A ‘realistic’ claim is one that carries some degree of conviction. This means a claim that is more than merely arguable.

The judge had to consider the meaning of the words ‘deals on the other’s written terms of business’, which are not defined or explained in UCTA she rejected PTAP’s submission that there was a real prospect of success at trial on the UCTA Argument. It was found that:

1. negotiations took place between the parties in advance of the First Reseller Agreement involving email exchanges and calls; it is also clear that both sides had access to legal advice. 
2. The draft agreement went backwards and forwards between the parties on several occasions and changes were proposed by PTAP, some of which were rejected by Pinewood but others accepted.
3. Pinewood made at least one substantive addition at clause 3.6 of its own accord. 

Accordingly the judge said “it is impossible to say that the terms ultimately agreed in the First Reseller Agreement were Pinewood’s standard business terms; on any view, it cannot be said that the terms were ‘effectively untouched’ or that none of the changes was material or that the changes left the …Reseller Agreement to all intents and purposes unchanged.” Although the exclusion clause had been untouched, other parts of the agreements had been amended.

As a result of this finding, there was no requirement to satisfy the UCTA reasonableness test. 

As this was a summary judgment application, the judge considered whether further evidence may be available at trial as to the negotiations or their context that could possibly alter here conclusion. She concluded that this was not the case. She stated “The touchstone is whether the standard terms remain ‘effectively untouched’ – that is a question which I can determine now.”

As to the effectiveness of the exclusion clause, it was held that the language of clause 16.2 was on its face clear and unambiguous – it clearly excludes “in relation to any liability it may have for breach of this Agreement”, loss of profit and costs or expenses incurred in reliance on the agreement. There was no suggestion that the word ‘breach’ is qualified or limited in scope. The judge was prepared to imply that that, with the exception of the liability identified in 16.1, the parties were intending to cast the net of excluding liability as widely as possible. It was made clear that if the wording of clause 16.2 had tried to exclude all liability for loss of any type, then that would have rendered otiose the general liability limit in 16.3. But as it was possible to identify losses which were not excluded by clause 16.2 it meant that this was not the case. 

The Court of Appeal refused permission to appeal against this decision.

Comment

This was a bold decision to make on a summary basis but the judge had satisfied herself that proceeding to a full trial would not have produced any material evidence to change her decision. The judge certainly felt able to grasp the nettle.

The case also re-emphasises that the words of the exclusion must be read in the context of the whole exclusion clause, the contract as a whole, the material background and circumstances as at the time the Agreement were entered into and not looked at in a vacuum.

The decision will be welcomed by IT suppliers generally, it reiterates the ability, where agreed, to exclude liability for breach of contract giving rise to damage in the form of loss of profit and wasted expenditure. Exclusion and limitation clauses will be upheld where they are clear. The decision makes clear that the courts will not rush to use UCTA as a way to intervene on exclusion/limitation clauses.

Finally, although this was a high value case involving issues of contract construction, it illustrates that judges will grasp the nettle and that summary judgment can be still available even where there are issues of construction to be determined provided the court is satisfied that it has before it all evidence required for the proper determination of the arguments.

For further information or assistance with IT Contract drafting issues, please contact Paul Walsh and  Moya Clifford.