Court upholds contractual limitation of liability clauses
/CBL Insurance Ltd (Liq) v Harris [2021] NZHC 1393
The High Court has recently confirmed in the context of a strike out application the enforceability of exclusion and limitation of liability clauses commonly found in the standard terms of engagement of professional services firms.
Background
This involved the liquidation of CBL Insurance Limited (in liquidation and receivership) (CBL) in 2018. The liquidators of CBL brought a claim against the former directors to recover losses of $316 million, as well as a claim against PricewaterhouseCoopers (PwC) who provided actuarial services to CBL, seeking to recover $278 million.
Under the Insurance (Prudential Supervision) Act 2010 (IPSA), the actuary that CBL appointed had to be a natural person rather than a company, so during the relevant years, two PwC employees served as actuaries.
PwC’s terms of engagement contained two key provisions:
PwC and CBL agreed that in the event of a dispute, CBL could only bring a claim against PwC and not any of its employees.
PwC’s liability would in no circumstances exceed five times the amount of total fees paid in the relevant period.
Despite these provisions, CBL sued both PwC, the firm, and its two actuary employees. Its claims exceeded manifestly the liability cap of five times the amount of total fees paid. PwC therefore applied to strike out these parts of CBL’s claims and to require CBL to limit its claim to an amount within the liability cap.
High Court decision
The Court held that the terms of engagement were clear and unambiguous. The terms stated expressly that CBL was not to bring claims against PwC’s employees and, on that basis, the Court struck out entirely claims against the two actuaries. Further, as a novel point, the Court held that the IPSA statutory scheme did not preclude such appointed actuaries from limiting their liability. While the question of whether a statute created a private law duty was novel, the Court confirmed that such a question could be determined on a strike out application where the relevant policy considerations were evident in the relevant legislation. It was therefore a matter of statutory interpretation. Accordingly, the Court also found against CBL determining that the IPSA scheme did not create a private law duty.
In relation to the contractual liability cap, the Court also confirmed that the question of a contractual liability cap can be determined appropriately (and enforced) before trial through the strike out procedure. Where part of a claim is clearly subject to a contractual liability cap, a claim exceeding the cap can be struck out and/or require repleading to take it into account.
The Court held that the provision in the terms of engagement clearly capped PwC’s liability to five times fees paid. Accordingly, the claims against PwC were far beyond the liability cap such that they were frivolous, vexatious and an abuse of process. Instead of striking out the claims entirely, the Court gave CBL the opportunity to replead its claim in light of the liability cap.
Comment (Tom Pasley)
The decision is, in our view, a sensible and commercial one. It should give comfort to professionals and their firms who include limitation clauses in their terms of engagement. It shows judicial willingness to enforce these types of clauses, including before trial. This will force plaintiffs to consider more closely the merits of a claim against professionals and be realistic in terms of the maximum quantum of their claim, or else face potential strike out and adverse cost implications.
Given the blow this decision represents for the liquidators of CBL, we expect it will be appealed.
Tom Pasley is a Special Counsel at Fee Langstone
