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Accountants
were liable for the loss of chance to obtain anticipated savings in
relation to the operation or otherwise of a profit related pay scheme.
The loss did not fall within the defendant's limitation of liability
clause in its terms of business.
The defendant,
Price Waterhouse, admitted that it gave negligent advice as a result
of misinterpreting the Finance Act 1995 in relation to profit related
pay (PRP) schemes. The principal issue was one of causation as to what
damage the claimant, Keele University, had sustained by reason of the
admitted negligence.
At first
instance, the court decided what Keele University would have chosen
to do had it received correct advice - the rational response would have
been to have had contingency planning with a view to opting-out of the
PRP scheme after a relatively short period of time. Opt-out had a substantial
chance of success. The loss of the chance to obtain savings in that
way was therefore a direct result of Price Waterhouse's negligence and
was included in the matters for which Price Waterhouse had expressly
accepted liability. The court also held that the damages were not within
a limitation of liability clause in Price Waterhouse's terms of business.
On appeal,
Price Waterhouse challenged the decision that the losses did not fall
within the limitation of liability clause in its terms of business.
The clause provided that, "In no circumstances shall any liability…
exceed £1,700,00 being twice the anticipated saving to Keele University…".
The terms further provided that, subject to that limitation:
(i) Price Waterhouse accepted liability to pay damages in respect of
loss or damages suffered by Keele as a result of Price Waterhouse's
services (the "first limb") and that
(ii) all other liability was expressly excluded, in particular consequential
loss (the "second limb").
Although
the Court of Appeal's reasoning differed from that of the judge at first
instance, the conclusion was the same and the appeal was dismissed.
It was held that the first limb of the clause (accepting liability)
and the second limb (excluding liability) should be read as a whole
and meaning given to both if possible. The word "other" at
the start of the second limb was the key and meant that precedence had
to be given to the first limb under which the accountants accepted liability
for Keele's losses. The second limb was a residual category. The contra
proferentum rule did not need to be applied.
It is standard practice for most professionals' terms of business to
contain limitation clauses. This case emphasises the need for limitation
clauses to be drafted with the utmost care to ensure that they achieve
the protection required.
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