London calling… Clear words needed to exclude wasted expenditure…

The Court of Appeal held that recovery of damages for wasted expenditure did not fall within a clause excluding damages for loss of profit.

Background

The case related to an IT system to be provided by IBM to CISGIL. A dispute arose in respect of an IBM invoice which was not paid by CISGIL and IBM terminated the contract. The High Court held that IBM had wrongfully repudiated the contract but found that CISGIL’s claim for wasted expenditure was excluded in its entirety by operation of an exclusion clause in the contract.

Decision

The CA considered whether, as a matter of language, the description of the types of losses being excluded, namely “loss of profit, revenue, savings” was apt to cover or include “wasted expenditure”. The CA held that claims for “wasted expenditure” were not excluded by the terms of the exclusion clause because those words were simply not there. The CA considered that clear language was needed to exclude such an obvious remedy and this was not present in the relevant clause.

The CA also drew a distinction between claims for loss of profit, revenue or savings (which were generally types of consequential loss and difficult to estimate in advance) and claims for wasted expenditure (which were ascertainable). The CA considered that the exclusion clause covered the former type of loss, but not the latter. CISGIL was therefore not precluded from recovering its claims for wasted expenditure.

Comment

The case highlights the importance of using clear words if a particular type of loss is to be excluded from recoverable damages.  If a party wishes to exclude claims for wasted expenditure then this should be clearly set out in the contract.

^{CIS General Insurance Limited v IBM United Kingdom Limited [2022] EWCA Civ 440}