Step one of determining whether the terms of a contract are effective to exclude liability has always been considering the proper meaning of the terms to see whether they apply to the specific situation.

This was the analysis in the recent case of Kudos Catering,[1] where the Court of Appeal had to consider wording which was said to exclude all contractual liability. The claimant was the supplier of catering services at a set of conference venue for five years. After three years, the customer purported to terminate the agreement, and the claimant treated that as a repudiatory breach. The preliminary issue was whether the customer’s liability was excluded by a provision that the customer should “have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits … suffered by the Contractor or any third party in relation to this Agreement.”

The Court held that this did not exclude liability for repudiatory breach, which amounted to entire further non-performance of the contract, otherwise the agreement would be devoid of contractual content since there would be no sanction for the customer not performing at all. This was part of an indemnity provision and related only to negligent performance as it was only this that could generate an obligation to indemnify. The courts will not lightly presume that the parties intend to abandon a general remedy for breach of contract. Thus, the clause did not exclude liability for repudiatory non-performance.

The courts in recent years have taken a more purposive and commercial, rather than literal, approach to the construction of contracts. This case shows that this applies to exclusion clauses, but so does the courts long-standing approach of construing exclusion clauses restrictively and against the party putting them forward.