HT-2020-000448 - [2024] EWHC 1185 (TCC)

In its Amended Particulars of Claim at paragraph 40, TCS sought a sum then quantified at £77,314,727 for ‘Loss of Revenue’. This was explained further at paragraphs 124 and 125 of the Further Information dated 31 March 2021:

As presented following expert evidence, TCS relies upon the FM found within the Contract to quantify TCS’s loss of anticipated savings, as a result of its claim that it was deprived of benefitting from the operational efficiencies of R1-D. TCS claims that the FM shows that the costs incurred by TCS in providing the Operational Services were projected to fall significantly over time, owing to the new processes enabled by R1 software. The claim is not articulated as one for, or is not in fact, a claim for wasted expenditure in the sense that specific costs which actually were incurred have been identified as costs which were ‘wasted’: the costs in fact incurred were required to comply with the ongoing contractual obligations. It is said, however, that but for the delays to R1-D, the predicted or anticipated efficiencies (within the FM) were not actually realised, thus creating a loss.

DBS claims that this is, in reality, a claim seeking compensation for reduced profit. It claims that, as such, the claim is (directly or indirectly) a claim for loss of profit and hence excluded by Clause 52.4.1. TCS contends that a claim for lost anticipated savings is not caught by the clause, and it is entitled to frame its claim to its advantage.

It was not disputed by TCS that the claim for loss of anticipated cost savings is a claim which could equally have been articulated as a claim for lost profits: if the savings had been made as it is alleged was anticipated, TCS’s profit would have been greater to an equivalent extent. Indeed, as DBS points out, the claim was first articulated as a claim for lost revenue. It is also not disputed that had the claim now pursued been framed in this way, it would be excluded by Clause 52.4. DBS says that the substance of the claim remains excluded by Clause 52.4, and its exclusion is not dependent upon how the claim is framed.

Both parties refer me to the recent judgment of Soteria Insurance Ltd v IBM United Kingdom Ltd [2022] EWCA Civ 440.

In that case, the exclusion clause excluded:

At first instance, O’Farrell J considered that the loss of the bargain suffered by the innocent party as a result of the repudiatory breach by the other comprised the savings, revenues and profits that would have been achieved had the intended IT solution been successfully implemented. She considered that a conventional claim for damages in this type of commercial case would usually be quantified based on those lost savings, revenues and profits, and that whilst the claiming party is entitled to frame its claim as one for wasted expenditure, that simply represents a different method of quantifying the loss of the bargain; it does not change the characteristics of the losses for which compensation is sought. As such, O’Farrell J concluded that the claim was excluded.

However, on appeal, Coulson LJ considered that a claim for wasted expenditure was not excluded. He identified at [40] that when a claimant claims damages in consequence of the other side's repudiation, there is a choice:

The Judge concluded, for a number of reasons, that wasted expenditure was not excluded by the clause. At paragraph 68 and following Coulson LJ provided the following reasons (amongst others):

The authority is not, of course, of direct application in that, first, the words of the relevant limitation of liability clause were different, and, second, in Soteria the focus was on whether the words of the clause caught a claim for expenditure actually incurred, but which was wasted, rather than lost anticipated savings.

Nevertheless, the case is an instructive reminder as to the correct starting point: the natural and ordinary meaning of the words. ‘Anticipated savings’ are not words which appear in Clause 52.4.

However, I need to construe Clause 52.4 as part of the surrounding provisions of Clause 52 and indeed the Agreement as a whole. Clause 52.4 applies to both parties. The immediately following Clause 52.5 applies only to the Authority. In this clause, the parties agree that DBS is entitled to claim ‘wasted expenditure’ and ‘anticipated savings’, expressly permitted as a direct head of loss recoverable. No equivalent clause exists for the Contractor’s benefit. This, DBS argues, supports a construction that, but for the clause, such losses would be irrecoverable pursuant to Clause 52.4. It might equally be said that the parties put their mind to the potential existence of a head of loss, namely, ‘anticipated savings’ and yet chose not to, and I do not regard this is determinative against TCS’s construction. This because it seems to me obvious that Clause 52.4 would not exclude any additional cost of procuring a replacement service, which is an ordinary head of direct loss recoverable in termination cases. In this regard, Clause 52.5.3 merely states what the legal position is, and would be with or without it, and it cannot be inferred therefore that losses included (perhaps on a belt and braces approach) would necessarily have been irrecoverable but for Clause 52.5.

However, Soteria is also instructive as to the distinction between the ‘speculative’ type losses such as a claim for loss of profits and a claim for actual costs which were expended (and which expenditure is proven by invoices, contracts and such documents) but wasted by reason of the termination. It was for this reason that Coulson LJ, at least in part, rejected O’Farrell’s construction which relied upon her conclusion that the substance of the claim made was the same as the substance of what was being excluded. In the present case, the ‘loss of anticipated savings’ is no more or less than a loss of profit claim, as Mr Cogley was more than happy to accept and, indeed, aver. He relied upon Soteria to advance the entitlement on the part of a particular claimant to articulate its claim how it saw fit, and if it was open to it to advance a claim in such a way that it was not caught by the words of a limitation clause, that was its entitlement and good fortune.

However, that was a mischaracterisation of Soteria. Coulson LJ was distinguishing between two very different substantive claims between which the innocent party to a termination must elect: it can either claim its loss of profits or, alternatively, its wasted expenditure. Then a distinction was drawn between potentially speculative and open-ended claims on the one hand (with which he associated claims for anticipated savings) and claims for actual, incurred, but wasted expenditure on the other. The former were regularly excluded by limitation clauses, and the latter were not regularly regarded as claims for consequential loss or excluded.

It is necessary to return to the words used, but against this background and in circumstances where it is, rightly, accepted that the claim for loss of anticipated savings is the same in substance to a claim for lost profits.

I consider that the correct construction is that a claim for loss of anticipated savings (which is in all but name a claim for loss of profits) is caught by the wording of Clause 52.4.