'Loss of Profits' exclusion clause in the legal news

Exclusion clauses are an everyday feature of many international trade and physical commodity contracts.  Typically, parties seek to exclude liability for loss of profits (amongst other things).  In a recent case the  Court had to decide if a claim for ‘wasted expenditure’ was excluded by a loss of profits exclusion clause and decided that it was; the claim for loss of expenditure just being another way of bringing a claim for loss of profit.

The case was appealed and the Court of Appeal took a different view, deciding that a claim for wasted expenditure was factually different from a claim for lost profit – such that the loss of profit exclusion did not protect the Defendant from liability.

This is an example of the accepted approach to exclusion clauses; ie that they are construed narrowly with any ambiguity being applied against the party seeking to rely on the exclusion. 

The ‘lesson’ to learn is that when drafting exclusion clauses it is wise to direct them to precise types of different loss, so that they have the wides overall application.  In this case the difference between excluded ‘loss of profit’ and non-excluded ‘wasted expenditure’ cost the Defendant £80m!  

The case is Soteria Insurance Ltd (formerly CIS General Insurance Limited) v IBM United Kingdom Limited [2022] EWCA Civ. 440.

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