Drax Energy Solutions Ltd (Formerly Haven Power Ltd) v Wipro Ltd

Hearing date: 9 February 2023

INTRODUCTION

This is the trial of two preliminary issues concerning the interpretation of a limitation of liability clause (“the Clause”) contained in a Master Services Agreement made between the Claimant, Drax Energy Solutions Ltd (“Drax”) and the Defendant, Wipro Ltd (“Wipro”) dated 20 January 2017 (“the MSA”).

Drax issued proceedings against Wipro on 2 September 2021, and the main trial is due to commence on 1 October 2024, with a time estimate of 36 days.

The MSA concerned the provision of software services by Wipro for Drax, an energy supplier. The new IT system to be provided, based on Oracle software, included customer relationship management, billing and smart metering facilities for Drax's business.

Under Schedule 10 of the MSA, the core services to be provided by Wipro under numbered “statements of work” (“SOW”) were as follows:

(1) SOW 1–3 would be entered into on 17 January, 10 February and 10 March 2017 and they addressed the design, build, test and implementation of the Oracle-based software modules to include software licences for 5 years;

(2) SOW 4 would be entered into on 19 April 2017 for a 4-year period in respect of Application Management Services and a further 4 years for Data Centre Costs, Meter to Cash, and Oracle Cloud Application Maintenance Costs;

(3) SOW 5 would be entered into on 24 January 2017, for 5 years, for WAN Network Services;

(4) SOW 6 would be entered into on 19 April 2017 for a design for software encryption

and all of these comprised the “Planets” suite of programs.

There were then agreed go-live dates for the various SOWs.

The agreed charges for SOW1–4 were as follows (rounded up):

(1) SOW1: £4.8 million;

(2) SOW2: £2.2 million;

(3) SOW3: £250,000; and

(4) SOW4: £858,000.

In addition, there was a separate Insights SOW to be provided by 30 September 2017. £304,000 was to be paid in the first year and £152,000 per annum for the next 3 years.

It is common ground that the total SOW charges payable in the first 12 months of the MSA were £7,671,118. Wipro contends that the total charges for each of the succeeding 4 years would be:

(1) Year 2: £840,404;

(2) Year 3: £992,404;

(3) Year 4: £983,404, and

(4) Year 5: £608,644.

On any view, the project was not a success though the reasons for this are very much in dispute. Milestones were missed, rearranged and missed again and Drax alleges that it had to spend very large sums of money to render acceptable the deliverables provided by Wipro. In the end, Drax terminated the MSA on 7 August 2019 for what it says were repudiatory breaches on the part of Wipro.

THE CLAIM

Introduction

Before turning to the Clause itself and the Preliminary Issues, I need to set out the nature and structure of Drax's claim and, critically, the amounts claimed. I should say at the outset that Drax's total quantified claim is for some £31 million. There is then a counterclaim by Wipro of around £10 million. The counterclaim includes £5.5 million by way of damages for wrongful termination, £1.28 million for prolongation costs, unpaid invoices of £1.5 million and termination claims of £2.4 million.

The total charges made by Wipro under the MSA and which were paid by Drax amounted to £4.9 million.

The claim made by Drax breaks down into 4 categories:

(1) Misrepresentation Claim;

(2) Quality Claims;

(3) Delay Claims; and

(4) Termination Claims.

Misrepresentation

Here, Drax alleges that, but for the representations which were false, it would not have entered into the MSA and the SOWs at all. It has therefore lost its entire net expenditure on the project being £31.7 million.

Quality Claims

The losses claimed here are set out in the Schedule to the Particulars of Claim (“POC”) under two headings — “expenditure caused by pre-termination breaches” and “Balance of expenditure wasted by reason of the termination”. As those titles suggest, only the first heading describes losses said to be attributable directly to the Quality breaches of the contract themselves.

These losses are made up of costs incurred by Drax over and above what it would have to have incurred in any event, in relation to dealing with Wipro's work product. In other words, it spent more than it should have done to make the work product contractually acceptable and useful. Those losses come to some £9.8 million.

Delay Claims

A similar approach is taken to the description of losses here. The losses caused by the various delays, in breach of contract, are put at £9.7 million.

Termination Claims

The maximum claim made in respect of the damages claimed is £31.6 million. This comprises all of the expenditure on the MSA and SOWs. However, there is a further item, claimed separately, in the sum of £126,195. This relates to exit planning costs in excess of what Drax would reasonably have incurred had the MSA been properly performed. This item is included in the £31.7 million claimed in respect of the Misrepresentation Claim.

If the Quality and Delay Claims are made out in full, then they would amount to some £19.5 million which would be deducted from the £31.6 million referred to above leaving a figure of just over £12 million. This was itself made up of the £4.4 million of charges claimed by Wipro and paid by Drax, some other costs that might be described as “reliance expenditure” and then the costs listed under the second description of Quality and Delay Claim losses in the Schedule to the POC. These were the expected costs, assuming that the MSA had run its course but were now wasted due to its wrongful termination by Wipro. These amounted to £3.7 million in respect of quality and £827,278 in respect of Delay, making a total of just over £4.5 million.

If any of the first category of Quality and Delay Claim costs were not recovered by reference to such alleged breaches, then they are claimed as a further element of the Termination Claims, effectively as wasted expenditure.

Claims Analysis

It follows from the above that on the basis of Drax's primary case on its claims, they are as follows, using round figures:

(1) Quality: £9.8 million;

(2) Delay: £9.7 million;

(3) Termination: £12 million; and

(4) Misrepresentation: £31 million.

I set them out in this order because if one excludes the Misrepresentation Claim, there is no overlap between any of the other 3 claims. They each seek different and separate losses. The way the Misrepresentation Claim is framed, however, means that different parts of it do overlap with each of the other 3 claims.

Of course, these are Drax's maximum quantified figures and any or all of them could be less, perhaps significantly less, even if the underlying liability is established.

I should add that in the alternative to almost all of the Termination Claim, there is an alternative claim set out at paragraph 79 of the POC. This alternative claim has not yet been quantified and does not form part of the analysis proffered by both sides for the purposes of determination of the Preliminary Issues. I therefore say no more about it.

THE RELEVANT CLAUSES

The Clause itself is clause 33.2 of the MSA. However, it is necessary to set it out in context, which means reciting the first 6 sub-paragraphs of clause 33, headed “Liability”, as follows, with bold added for the Clause.

“ 33. LIABILITY

33.1 Subject to clauses 33.5 and 33.6, the Supplier's liability to the Customer, whether in contract, tort (including negligence) for breach of statutory duty or otherwise, for loss or damage to tangible property arising out of or in connection with this Agreement (including all Statements of Work) shall be limited to £20 million per event or series of connected events.

33.2 Subject to clauses 33.1, 33.3, 33.5 and 33.6, the Supplier's total liability to the Customer, whether in contract, tort (including negligence), for breach of statutory duty or otherwise, arising out of or in connection with this Agreement (including all Statements of Work) shall be limited to an amount equivalent to 150% of the Charges paid or payable in the preceding twelve months from the date the claim first arose. If the claim arises in the first Contract Year then the amount shall be calculated as 150% of an estimate of the Charges paid and payable for a full twelve months.

33.3 The Supplier's total aggregate liability arising out of or in relation to this Agreement for any and all claims related to breach of any provision of clause 21 whether arising in contract (including under an indemnity), tort (including negligence), breach of statutory duty, laws or otherwise, shall in no event exceed 200% of the Charges paid or payable in the preceding twelve months from the date the claim first arose or £20m (whichever is greater).

33.4 Subject to clauses 33.5 and 33.6, the Customer's total liability to the Supplier, whether in contract, tort (including negligence), for breach of statutory duty or otherwise, arising out of or in connection with this Agreement (including all Statements of Work) shall be limited to the Charges payable under this Agreement (including all Statements of Work) in respect of Services properly performed by the Supplier at the point the claim is made.

33.5 Subject to clause 33.6, neither party will be liable to the other party for any indirect, consequential or special loss including but not limited to...