Excluding liability for loss of profit (1)

Pinewood Technologies Asia v Pinewood Technologies (High Court) [2023]

The question before the court was whether an exclusion clause in a contract effectively excluded liability for loss of profits. The court also had to consider whether a prohibition upon exercising a right of set-off was effective. Finally, the decision also provides a useful illustration of the approach the English courts will take to applying the Unfair Contract Terms Act 1977 ("UCTA") to exclusion clauses in contracts that have been negotiated


Pinewood Technologies Plc ("Pinewood") is a UK developer and supplier of a management information system for motor dealers (the "DMS"). Pinewood entered into two agreements (the "Reseller Agreements") with Pinewood Technologies Asia ("Asia"), an unrelated Hong Kong company. Pursuant to these agreements, Pinewood appointed Asia as its exclusive reseller of the DMS in a number of Asian countries.

Asia brought a claim against Pinewood alleging that Pinewood had breached various obligations in the Reseller Agreements which made it difficult if not impossible for it to secure deals to licence the DMS in the relevant territories. Asia sought to claim its loss of profits and certain other losses.

Pinewood denied that it had breached the Reseller Agreements but also argued that the claims were excluded by a clause in the Reseller Agreements (the "Exclusion of Liability Clause"). This clause provided that:

'Pinewood excludes … any liability it may have for … (2) loss of profit, bargain, business, revenue, contract or goodwill….'

Pinewood counterclaimed for unpaid fees due under the Reseller Agreements, which Asia had withheld on the basis of equitable set off. Pinewood argued that Asia was prohibited from setting off the fees by another clause in the Reseller Agreements (the "Exclusion of Set Off Clause"). This clause provided that:

'[The fees] … shall be [paid] in full without withholding, deduction or set-off, …'


The court first had to decide what application the UCTA ‘reasonableness test’ had. Section 3 UCTA provides:

“(1) This section applies as between contracting parties where one of them deals on the other's written standard terms of business”.

Pinewood argued that UCTA did not apply as the parties had not dealt on its standard terms of business. Although the Reseller Agreements were based on Pinewood’s standard reseller agreement, Pinewood claimed that there had been negotiations and substantial variations to the Agreements.

Applying an earlier Court of Appeal judgment, the court held that the relevant question was whether the terms were 'effectively untouched' or whether there had been ‘substantive changes’. If there had been material changes to the terms, it did not matter if the exclusion clauses themselves had not been negotiated. The liability and exclusion clauses had not, in fact, been the subject of debate or amendment.

The Court found that the parties had negotiated substantive amendments to Pinewood's standard terms. Multiple drafts of the Agreements had gone back and forth, with changes being proposed by both parties, some of which were accepted. The Court therefore concluded that there was no real prospect that UCTA would apply.

Did the Exclusion of Liability Clause exclude Asia's claims for loss of profits?

The judge rejected Asia's argument that exclusion clauses cannot apply to the non-performance of contractual obligations or to serious, repudiatory breaches of contract. As has been well established previously, they can apply even to wilful, deliberate breaches and whether they apply in any given circumstances is a matter of interpretation / construction of the words used.

The Court held that the Exclusion of Liability Clause was effective to exclude claims for loss of profit as the language of the clause clearly and unambiguously excluded such liability. However, Asia was held to be able to bring a claim in relation to certain costs incurred and this was an important factor in deciding the scope of the exclusion which, the court decided, did not have the effect of removing all substantive rights and remedies.

This decision contrasts with the decision in Kudos Catering v Manchester Convention Complex [2013] in which a ‘loss of profit’ exclusion appears to have been given a much narrower interpretation.

Did the Exclusion of Set Off clause exclude Asia’s ability to set off any claims against the fees?

To restrict or exclude rights of set-off, the court said clear and unambiguous wording is required. The Court held that the Exclusion of Set Off clause did exclude Asia’s ability to set off any claims against the fees. The language of the clause was clear: the fees had to be paid in full without set off, and it was well established that 'set off' meant both legal and equitable set off.

Points to Note:

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