Excluding liability for wasted expenditure: the dangers of imprecise drafting

Court of Appeal decision

The claimant appealed the decision to the Court of Appeal, which overturned the High Court’s ruling on the following grounds:

1. Wasted expenditure did not come under the same category of loss as loss of profits, revenue or savings when looking at the natural and ordinary meaning of the words.
2. The court explained that the proper approach to exclusion clauses is that the more valuable a right being excluded, the clearer the language must be to exclude it. Wasted expenditure has the potential to be highly valuable, and so it could not be the parties’ intentions to exclude it if it is not expressly mentioned.
3. Calculating loss of profits, revenue and savings is a difficult accounting exercise in comparison to calculating wasted expenditure, for which the claimant could easily produce receipts, invoices and other documentation proving its loss. Therefore, the types of losses could be distinguished between uncertain and certain losses, so it makes commercial sense for parties to exclude the former but not the latter.
4. The court held that the High Court was wrong to conclude that the claimant’s loss of bargain was limited to lost profits, revenue and savings. Rather, the principal loss was that of a functioning IT system meaning that the costs associated with not receiving the system (i.e. the wasted expenditure incurred) could be recovered.

Key takeaways

This case highlights the importance of accurate and comprehensive drafting to convey your intentions when contracting, a lack of appreciation of which can lead to significant liabilities if things go wrong.