Royal Devon & Exeter NHS Foundation Trust v Atos IT Services UK Ltd

[2017] EWCA Civ 2196

This case was about the meaning and effect of a limitation clause. It is another example of the court deciding the meaning of a “homemade” clause.

The central issue was what was the natural meaning of the words used, applying the test of a reasonable person who had all the background knowledge of the parties. LJ Jackson noted that both parties were well-resourced, commercial organisations with ready access to legal advice. The term itself, although “poorly drafted”, was perfectly rational. Therefore there was no reason for the court to depart from the natural meaning of the words used, once that natural meaning has been ascertained. Atos were engaged in 2011 to provide an IT system, whereby patient records would be held online. It did not go well. The contract included the following at paragraph 9 of schedule G:

“9. Limitation of Liability

9.1 The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (a) shall not exceed the sum of two million pounds.

9.2 The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (b) shall not exceed:
9.2.1 for any claim arising in the first 12 months of the term of the Contract, the Total Contract Price as set out in section 1.1; or
9.2.2 for claims arising after the first 12 months of the Contract, the Total Contract Charges paid in the 12 months prior to the date of that claim.”

An issue arose on the pleadings as to whether, and to what extent, Atos’ liability was limited by paragraph 9.2.2 of schedule G to the contract. At first instance, Royal Devon argued that paragraph 9.2 of schedule G was not capable of being construed and should be declared unenforceable. Atos accepted that paragraph 9.2 was poorly drafted, but submitted that it either imposed a single cap which, depending on the circumstances, would be either that set out in paragraph 9.2.1 or that set out in paragraph 9.2.2, or imposed two caps, the first in respect of defaults occurring in the first twelve months of the contract and the second in respect of subsequent defaults.

At first instance, Mrs Justice O’Farrell rejected the case that paragraph 9.2 was unenforceable and held that the paragraph had the first of the two meanings canvassed by Atos. On appeal, Royal Devon argued that the Judge ought to have adopted the second alternative, rather than the first alternative.

Lord Justice Coulson noted that the phrase “any claim arising” at the start of paragraph 9.2.1 meant “any default occurring”. To the Judge, the language of paragraph 9.2 pointed emphatically towards there being two separate caps. For any default or defaults occurring in the first year of the contract, Atos’ liability was capped at the amount of the contract sum. For any default or defaults occurring in the years 2, 3, 4 or 5, that liability was capped at a lower sum, namely the amount of the contract charges paid in the previous twelve months. If there were defaults in both periods, then the liability for defaults before 7 November 2012 was capped at the amount of the contract sum; the liability for subsequent defaults was capped at the amount of the contract charges paid in the relevant twelve-month period.

To the Judge, there was nothing surprising about that arrangement. Atos was doing the high value work in the first twelve months, when defaults could have very expensive consequences. Atos was doing lower value work in years 2, 3, 4 and 5 when defaults would have less expensive consequences.

Although paragraph 9.2 of schedule G was a “homemade clause” which may yield some odd results, the natural meaning which yielded the “least bizarre consequences” was that paragraph 9.2 imposed two separate caps, namely a high cap for defaults occurring in the first year and a separate, lower cap for defaults occurring in subsequent years.

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