Limiting your liability – the risks of a badly drafted contract

The recent High Court case of McGee Group Ltd v Galliford Try Building Ltd [2017] provides an excellent example of the importance of having a well drafted contract in place when entering into a significant commercial arrangement. The case was in fact a dispute between a main contractor and its sub-contractor on a construction project but the key lesson of the case applies to any sector.

The Defendant main contractor, Galliford, awarded a sub-contract to McGee Group for certain works on the project. The contract was based on a standard form JCT Design and Build sub-contract which is widely used in the construction sector but which included numerous bespoke amendments. There were delays to the project and Galliford claimed just over £2.2m from McGee. The bespoke amendments included two separate clauses dealing with the sub-contractor’s liability for delay:

• Clause 2.21 limited the sub-contractor’s liability for “direct loss and/or expense and/or damages” for failing to complete the sub-contract works on time, including achieving the “access conditions” by target dates, to 10% of the contract value.

• Clause 4.21 on the other hand provided that the sub-contractor was liable for any “loss, damage, expense or cost” suffered by the contractor as a result of delay “to the regular process of the main contract” works caused by the sub-contractor.

So there appeared to be two contradictory clauses, one saying the sub-contractor’s liability for delay was limited to 10% of the contract value, the other saying it was liable for all of it, admittedly with slightly different wording used as to the type of loss. Despite the ambiguity, the court took the view that the limitation in clause 2.21 applied to all liability for delay. As a result Galliford lost out on recovering some £600,000 of its total loss, and was doubtless  hit by a significant bill for legal costs in addition.

An important reminder therefore to ensure that limitation of liability clauses, and any important contractual clauses, are clearly and unambiguously drafted.