Are legal costs within a contractual cap on liability?

Equitix Biomass v Fox (High Court) [2021]

Legal costs are always a critical factor in the decision whether or not to litigate. It is therefore, perhaps surprising that, to our knowledge, no case has, until now, ever considered the question as to whether a limit of liability applies only to the damages awarded or includes any award of legal costs.


The High Court was asked to consider whether a contractual cap on liability for warranty claims under a share purchase agreement (SPA) applied to damages only, or whether it also captured other ancillary liabilities, including an award of interest and costs arising from a warranty claim. The £11million contractual cap was expressed as applying to liability "in respect of" any claim under the SPA for breach of warranty. The seller submitted that this imposed an aggregate financial limit which included not just damages but also interest and costs. It argued that the parties could not be taken to have intended that those ancillary obligations would remain at large and uncapped, and that such an interpretation was inconsistent with the broad words "in respect of".

The buyer contended that the language, properly construed, applied to damages only. A ‘claim’ was defined as "any claim under [the SPA] for breach of the Warranties".


The court preferred the buyer's construction. The limitation applied "in respect of" a "claim under [the SPA]" and this did not extend to claims for interest or costs, the award of which would be made pursuant to the court's jurisdiction to make ancillary orders, rather being made under the SPA itself. Although the phrase "in respect of" was wide, the court considered that it was not as broad as the phrase "arising out of or in connection with", and it would have expected interest and costs to be mentioned expressly in the liability cap if the parties had intended that important litigation rights were being foregone. Rather unhelpfully, the court did not go on to offer any guidance as to whether the outcome would have been any different had the limitation used the "arising out of or in connection with" phraseology.

Points to Note:

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