Exclusion and Limitation Clauses in Contract — Mir Steel —V- Morris (2012)

Clauses limiting or excluding liability of the parties are a common feature of commercial contracts.  Significant limitations on the permissible extent of such clauses have been imposed by the courts.  The UK Court of Appeal recently considered the use of these clauses in its decision in Mir Steel UK —v- Morris.

The facts of the case were as follows.  A number of assets were sold by Alphasteel, a company in administration, among them a hot strip mill, to Mir Steel.  The mill was subject to a retention of title by its supplier (Lictor), as well as a prohibition on the sale or transfer of the asset without Lictor’s consent.

There was a specific provision in the agreement for sale that Mir Steel should be responsible for settling any claim made against it by Lictor, as follows:

“The purchaser agrees that it shall be responsible for settling any claim made against it by Lictor in respect of the hot strip mill situated at the Property.”

Prior to conclusion of the agreement, Lictor wrote to Alphasteel’s administrators asserting ownership of the mill and disputing their entitlement to sell the asset.  The sale went ahead notwithstanding Lictor’s assertions.  

Lictor brought proceedings against Mir Steel, claiming damages for conversion, inducement to breach of contract, and unlawful conspiracy, and sought the return of the mill.  Mir Steel sought to join the company’s administrators in the litigation; the judge at first instance rejected the application on the basis that the agreement clearly provided that Mir Steel assumed responsibility for settling ‘any claim’ made against it by Lictor in respct of the mill.

The question before the Court of Appeal was whether the clause in the sale agreement by which Mir Steel had agreed to settle any claim by Lictor was sufficient to exclude any claim made by Lictor of the asset, or a claim based on the retention of title only.

Counsel for Lictor cited the principles outlined in the Canada Steamship case, in which it was held that clear, unambiguous words were needed in order to exclude liability for negligence, arguing that express words were equally needed to exclude liability for intentional wrongdoing.  The Court of Appeal discussed the Canada Steamship principles, but characterised them as guidelines rather than firm rules, and did not accept that the administrators had retained any liability in respect of claims by the supplier.

It is relevant that the relevant clause was not, strictly speaking, an exclusion clause; rather, the limitation of Alphasteel’s liability followed from the drafting of the clause which specifically transferred the risk of dealing with the supplier to Mir Steel.  The Court found that Mir Steel had bought the assets from an insolvent company in the knowledge that it would be required to settle any outstanding claim to payment by Lictor, and the price reflected this; therefore, the administrators had no liability in respect of the claim by Lictor.

The case highlights the importance of clear drafting in clauses that transfer risk from one party to another, and in clauses which seek to limit a liability that a party would otherwise have under contract or tort.

Mir Steel UK Ltd. v. Morris [2012] EWCA 1397

For further information, contact Paul Keane or Elaine McGrath.

Keywords: Commercial Law, Publication, Deirdre Ní­ Fhloinn

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