Dubai: UAE law would have applied but for choice of parties
A £3m liability cap in a law firm’s terms of business was unreasonable under the Unfair Contract Terms Act (UCTA), the High Court has held.
Kennedys Dubai, an LLP registered in England and Wales and owned by the well-known City law firm, had the resources and insurance to cover what it knew could be a much larger claim were it to be negligent, said Caroline Shea KC [1], sitting as a deputy High Court judge.
But the decision was moot because the 1977 Act did not apply to the retainer, as it was “manifestly more connected to Dubai than to England”.
The court was hearing four preliminary issues in a claim brought by Dubai-based Convrgnt Value Engineering (CVE) over Kennedys Dubai’s work on a claim it brought that led to an award of £4.5m. CVE’s case is that a further £16m should have been recovered.
Kennedys Dubai denies liability, and in the alternative relies on the £3m cap in its terms of business in respect of any liability.
CVE argued that the cap failed to satisfy the reasonableness test under UCTA and so was unenforceable.
Judge O’Shea held that the case fell within section 27 of the Act and so disapplied its provisions because English law was applicable to the retainer only by choice of the parties and, but for this, the applicable law would be that of the UAE.
This meant the UCTA provisions regarding the reasonableness of the cap did not apply but she still gave a short judgment on the issue as it was fully argued.
The Act makes specific provision that, where terms seek to restrict liability, regard be had to the resources available to that party and how far it was open to them to procure cover through insurance.
Here, Kennedys Dubai had the “substantial” financial support of the main Kennedys business – which would have “come to the rescue” if needed – and indemnity insurance of at least £30m.
The level of potential damages in the parties’ minds at the time the retainer was signed was another relevant factor. While it was hard to be precise about this, Judge O’Shea said “there was an expectation that the sum recovered would be comfortably in excess” of £3m.
She said: “There would have been no cost to Kennedys Dubai in agreeing a higher cap, and in those circumstances limiting it to £3m, a figure significantly below the highest amount which could reasonably be expected to have been lost on breach, was unreasonable.”
The firm was also unable to give any reason for the imposition of the cap at that level. It had not been drawn the CVE’s attention, although CVE’s managing director also admitted having not read the terms of business.
“I accept that CVE was a commercial entity and that would ordinarily lend support to a finding of the reasonableness of the terms to which it agreed,” Judge O’Shea continued.
“However the weight to be attached to that factor is much reduced by the fact that the liability cap was not negotiated.”
The judge went on to hold that the cap applied to CVE’s claims based on failure of consideration and money paid under a mistake, and that Kennedys Dubai did not make actionable misrepresentations regarding the terms of business such that it was estopped from relying on the cap.