Court rules on software dispute upholding clause excluding loss of profit

Judgment in Pinewood Technologies Asia Pacific Limited v Pinewood Technologies Plc [2023] EWHC 2506 (TCC) saw the court robust in upholding an exclusion clause, dismissing an Unfair Contract Terms Act ("UCTA") argument and using summary judgment for a high value dispute. In this update, we take a deeper look into the outcome of the case and the key takeaways for contract drafters, as well as future high value cases.

Background

Pinewood UK had appointed Pinewood AP to be its exclusive reseller of dealer management software for various Asia-Pacific territories. The reseller, Pinewood AP, claimed that Pinewood UK was in breach of its obligations to develop the software for use in the territories, claiming damages for loss of profit and wasted expenditure in the sum of US $312.7 million.

Pinewood UK argued that the exclusion clause in the Reseller Agreements meant the claim would fail, and sought summary judgment. The exclusion clause included this wording:

"… Pinewood [UK]. In relation to [breach, negligence, misrepresentation] or otherwise howsoever arising in connection with this Agreement any such liability for … (2) loss of profit…. (3) any costs or expenses … incurred in reliance upon this Agreement"

Pinewood AP countered that the exclusion clause:

1. did not exclude claims arising from a repudiatory breach of contract such as that claimed to have been committed by Pinewood UK; and
2. only intended to cover indirect or consequential losses and therefore did not cover the damages claimed by Pinewood AP.

Pinewood AP also argued that under UCTA the exclusion clause was unenforceable as an unreasonable term in Pinewood UK's written standard terms of business.

What was the outcome?

The court decided that the exclusion clause was:

• effective at excluding Pinewood AP's claim; and
• enforceable under UCTA as the agreement was not on Pinewood's written standard terms

The court dismissed Pinewood AP's claim that the exclusion clause could not apply where there was a repudiatory breach or that it was left with no effective remedy.

The court rejected Pinewood AP's UCTA argument as it was clear from the documents that:

• negotiations had taken place between the parties
• which led to amendments being made to the draft agreement which were "clearly substantive" and which directly affected the obligations of the parties.

Although the exclusion clause was untouched, other parts of the agreements had been amended. It was therefore impossible to say that the terms ultimately agreed were Pinewood UK's standard business terms for the purposes of section 3(1) of UCTA.

Key takeaways

1. Good news for drafters of contracts
   1. Courts will in B2B contracts uphold exclusion and limitation clauses where they are clear.
   2. Contract drafters often worry that the UCTA requirement for exclusion clauses to be reasonable in standard terms of business might impact a negotiated contract. This decision suggests that the courts will be slow to use UCTA as a way to intervene on exclusion/limitation clauses. In this case the court took a narrow view of the meaning of "standard terms of business" in UCTA. Contract drafters may be able to relax on this point.
2. Procedurally, a high value case does not automatically mean summary judgment is a no go. Summary judgment (where a case is disposed of without a trial) can be highly effective for very high value cases where contractual construction arguments involve short points and where the court has before it all evidence required for the proper determination of those arguments.

If you have any questions about this article, please contact David Lowe, Patrick Arben, Sean Adams or Jocelyn Paulley.