6 May 2014 | Sarah Conroy
The court case Glencore Energy UK Limited v Cirrus Oil Services Limited has shown that the courts continue to stand firm in their strict interpretation of contractual exclusion clauses. A position which may serve to assist suppliers when faced with a purchaser who has acted in repudiation of agreed contract terms.
Often buyers may refuse to accept goods in the belief they are protected from a hefty claim for loss of profits thanks to a purchaser-friendly exclusion clause preventing claims for loss of profit. But the determination of Mr Justice Cooke in Glencore v Cirrus has clarified the position on claims brought under Section 50 of the Sale of Goods Act 1979 (SOGA) for wrongful non-acceptance of goods.
The case concerned a refusal by Cirrus to accept delivery of crude oil from Glencore. The supply contract between Glencore and Cirrus contained an exclusion clause which excluded claims against Cirrus by Glencore for indirect or consequential losses or expenses, including loss of anticipated profit. Cirrus argued Glencore’s claim for damages was a claim for loss of profits and so excluded by the contract.
This was rejected and Glencore successfully brought a claim for damages under Sections 50(2) and 50(3) of SOGA despite the exclusion. The distinction here was the measure of damages, which the court determined to be a claim for loss of a bargain and not for loss of profit. On that basis the exclusion did not defeat Glencore’s claim and they were successful in recovering their loss of a bargain. Mr Justice Cooke described the Section 50 provisions as “designed to compensate the seller for the loss of the bargain with the buyer by computing how much worse off the seller would be, if at the time of the breach, he had sold the goods to a substitute buyer. The measure constitutes both a ceiling and a floor to the loss claim on the assumption that the seller had gone out into the market and sold at the date of breach”.
The judge confirmed “no-one who understood the way in which the Sale of Goods Act works, would refer to this measure of loss as “loss of profits”, and where parties to a contract intend to exclude claims for damages for non-acceptance under the Section 50 SOGA provisions specific wording must be used.
While suppliers may be under significant pressure to accept purchasers’ standard terms, which will often contain a generously drafted exclusion clause, the distinction drawn in Glencore may well assist suppliers and facilitate a recovery for losses suffered.
☛ Sarah Conroy is an associate in the commercial dispute resolution team at law firm Weightmans