Polypearl Ltd v E.on Energy Solutions Ltd
| Jurisdiction | England & Wales |
| Judge | Judge Behrens |
| Judgment Date | 03 October 2014 |
| Neutral Citation | [2014] EWHC 3045 (QB) |
| Court | Queen's Bench Division |
| Date | 03 October 2014 |
| Docket Number | Case No: A40LS073 |
[2014] EWHC 3045 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LEEDS DISTRICT REGISTRY
MERCANTILE LIST
The Court House
Oxford Row
Leeds LS1 3BG
His Honour Judge Behrens sitting as a Judge of the High Court in Leeds
Case No: A40LS073
Hugh Preston QC (instructed by SHK Solicitors) for the Claimant
David Caplan (instructed by Pinsent Masons LLP) for the Defendant
Hearing date: 17 September 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is the trial of two preliminary issues ordered by HH Judge Raeside QC on 16th June 2014. The preliminary issues concern the applicability of an exclusion or limitation clause to losses allegedly suffered by Polypearl Ltd ("Polypearl") as a result of alleged breaches by E.ON Energy Solutions Ltd ("E.ON") of 2 written agreements entered into by the parties in May 2011.
Polypearl is a company engaged in the business of cavity wall insulation and the manufacture and supply of polystyrene bead and adhesive. E.ON is a supplier of, amongst other things, electricity.
On 10 May 2011 Polypearl and E.ON entered into two written agreements, a Master Agreement ("the Master Agreement") containing general terms and conditions and an Insulation Scheme Event Transaction Document ("the ISETD"). It will be necessary to refer to the terms of each of these agreements in more detail below. For present purposes it is sufficient to note that under clause 2.1 the Master Agreement came into force on 10 th May 2011 and was to continue until 31 st December 2012 unless otherwise terminated in accordance with the agreement or transaction document.
It is Polypearl's case that under the terms of the ISETD E.ON was obliged to purchase 153,000 m 3 Products at £44.44 per m 3 during the contract period. Products are defined in the Master Agreement as "Polypearl Platinum Cavity Wall Bead and Polypearl adhesive". In fact only 39,295 m 3 of Products were purchased leaving a shortfall of 113,705 m 3.
Polypearl claim that E.ON was in breach of contract in failing to purchase the shortfall. It alleges that it has suffered significant loss as a result of the breach of contract. The losses are pleaded in paragraphs 10(i) and (ii) of the Particulars of Claim and may be summarised thus:
1. Loss of Profit — The loss of revenue from the shortfall is £5,053,050.20 (113,705 x £44.44). The saving of costs amounted to £2,949,508. Thus the loss of profit amounts to £2,103,542.
2. Loss of opportunity to receive its share of the carbon savings that would have been achieved but for the breach of contract. Polypearl's share of the carbon saving per property is calculated at £171.02. A further 24,664 properties would have been insulated giving a loss of £4,218,037.
In addition to these claims (which total £6,321,579) Polypearl alleges it has suffered further losses of £1,501,381 as a result of the breach of an oral agreement it entered into with E.ON on 17 th May 2012. However none of the issues relating to the alleged oral agreement are the subject of the preliminary issues with which this judgment is concerned. Thus, save for noting that the existence of the oral contract is very much in dispute, it is not necessary to refer to it further.
E.ON has filed a detailed Defence to the claim. It does not accept that there was any obligation to purchase 153,000 m 3. Products as alleged It accordingly denies that it was in breach of the ISETD as alleged or at all.
E.ON puts Polypearl to proof that it suffered the alleged losses and that Polypearl have taken all reasonable steps to mitigate its losses. Furthermore it seeks to rely on clauses 10.1 and 10.7 in the Master Agreement which (in summary) exclude liability for indirect losses and limit liability for direct losses to £1,000,000. Polypearl deny that those clauses limit or exclude liability for the losses it suffered as a result of the breach of the ISETD.
Accordingly on 16 th June 2014 Judge Raeside QC ordered the following preliminary issues:
(i) Whether clause 10.1 of the Master Agreement … excludes liability for Polypearl's losses claimed at paragraph 10(i) of the Particulars of Claim and/or at paragraph 10(ii) of the Particulars of Claim; and
(ii) If not, whether clause 10.7 of the Master Agreement limits liability for Polypearl's losses claimed at paragraph 10(i) of the Particulars of Claim and/or at paragraph 10(ii) of the Particulars of Claim to the sum of £1,000,000.
The Order also provides that the facts pleaded in the Particulars of Claim are to be assumed for the purposes of the preliminary issue trial.
Although the trial of the preliminary issues was listed for a two day hearing, I was provided with clear and helpful skeleton arguments from Counsel and was only referred to three authorities. The area of dispute between the parties was relatively narrow and the oral argument was completed within half a day. I immediately acknowledge the assistance I received from Counsel in the course of their clear and concise submissions.
The Agreements
During the course of his submissions Mr Caplan referred me to a number of the clauses in the Master Agreement and the ISETD. He pointed out that both agreements were signed on the same day. The ISETD is in fact Annex 1 to the Master Agreement. It is 64 pages long whereas the Master Agreement is 22 pages long. The clauses are such that there is a strong inference that lawyers were involved in at least some of the drafting. There is, however, no evidence as to whether each side was legally advised. Whilst the Agreements are commercial documents between commercial organisations there is no evidence as to the respective bargaining power of the parties.
The Master Agreement
Mr Caplan drew my attention to a number of the provisions of the Master Agreement
Recital A
This recital explains that E.ON wishes to develop its outsourcing relationship with Polypearl as part of its Carbon Emission Reduction Target ("CERT") obligations to develop opportunities for supplying residential CERT approved schemes and other energy and energy related products to its customers.
Definitions.
Mr Caplan referred me to the definitions of Charges, Event, Products and Transaction Document. He noted that charges meant the sums payable to Polypearl as set out in the Transaction Document. He pointed out that the ISETD was a Transaction Document within the meaning of the definition.
He drew my attention to clause 1.5 which made it clear that each Transaction Document forms part of the Agreement and is subject to the terms of the Master Agreement. This point is repeated in clause 1 of the ISETD.
Termination
There are two clauses dealing with termination. Under clause 2.1 (as already noted) the agreement terminated on 31 st December 2012 unless otherwise terminated. E.ON had an option to extend the term for a further 12 months.
Under clause 12 there is provision for early termination in 4 different situations. These include regulatory requirements, material breach by either party, and/or insolvency. Under clause 12.4 E.ON have an express power to terminate on giving 3 months notice.
Obligations
There are a number of clauses dealing with the obligations of the parties. These include an obligation on both parties to use their reasonable endeavours to maximise the sale opportunities of the Products (cl 3.3), an obligation on E.ON to pay Polypearl's invoice subject to a detailed procedure (cl 4), obligations to attend regular monthly meetings to review the previous month's performance and include revisions of the forecast (cl 5.1). It is not necessary to refer to the clauses in detail.
Other Clauses
Mr Caplan drew my attention to a number of other clauses which, although not directly relevant to the questions of construction that arise in the preliminary issue demonstrated the complex nature of the agreement and the fact that it had been drafted by lawyers. These included a non-exclusivity clause (cl 9), a detailed clause dealing with TUPE (cl 14) and an Entire Agreement clause (cl 16)
Exemption/Limitation Clauses
The 7 exemption clauses are set out in clause 10. Clauses 10.1 and 10.7 are, of course, central to this application and must be set out in full:
(10.1) "Neither party will be liable to the other for any indirect or consequential loss, (both of which include, without limitation, pure economic loss, loss of profit, loss of business, depletion of goodwill and like loss) howsoever caused (including as a result of negligence) under this Agreement, except in so far as it relates to personal injury or death caused by negligence"
(10.7) "Subject to the above, the aggregate liability of each Party under this Agreement for any damage or direct loss howsoever caused (other than death or personal injury caused by the indemnifying party's negligence) will (save in respect of E.ON's obligation to pay the Charges or Polypearl's obligation to reimburse any of the charges) be limited to £1,000,000."
Mr Caplan also drew to my attention the broad scheme of the other 5 clauses. In summary Polypearl acknowledge that (save for paying the charges) E.ON has no liability in respect of the supply and installation of the Products (cl 10.2); Polypearl is responsible for compliance with statutory regulations (cl 10.3) and is deemed to have acquainted itself with all conditions likely to affect the execution of the Events (cl 10.5).
Under clause 10.4 (and subject to cl 10.1) Polypearl is bound to indemnify E.ON in relation to claims by its customers or third parties arising out of the...
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Contracts Refresher: Excluding Liability For Loss Of Profits
...other. Two High Court cases last year - Fujitsu v IBM, [2014] EWHC 752 (TCC) and Polypearl Limited v E.on Energy Solutions Limited [2014] EWHC 3045 (QB) - illustrate well the approach taken by the courts when interpreting exclusions of "loss of profits" in the context of direct and indirect......