High Court grants reverse summary judgment in US $312 million software dispute, finding that exclusion clause applies

On 13 October 2023, Mrs Justice Joanna Smith handed down judgment in Pinewood Technologies Asia Pacific Limited v Pinewood Technologies Plc [2023] EWHC 2506 (TCC), in which the Court granted reverse summary judgment in favour of the Defendant (“Pinewood UK”) on a US $312 million claim brought by the Claimant (“Pinewood AP”), and summary judgment on Pinewood UK’s counterclaim. The judgment addresses the proper approach to the construction of exclusion clauses, as well as the circumstances in which a party deals on the other party’s standard terms within the meaning of section 3(1) of UCTA.

Tamara Oppenheimer KC and Max Kasriel acted for the successful party, Pinewood UK.

The dispute arose out of two reseller agreements dated 28 July 2017 and 8 January 2019 (the “Reseller Agreements”), under which Pinewood UK appointed Pinewood AP as its exclusive reseller of dealer management software in various territories in the Asia-Pacific region.

Pinewood AP alleged that Pinewood UK had acted in breach of various obligations to develop the software for use in the territories, claiming damages estimated in sum of US $312.7 million. Pinewood UK denied the claim in its entirety, relying on (among other things) an exclusion clause contained within each of the Reseller Agreements. Resisting Pinewood UK’s application for reverse summary judgment, Pinewood AP argued that:

• It had a real prospect of establishing at trial that the exclusion clause contained in the Reseller Agreements did not exclude Pinewood AP’s claims. Pinewood AP contended that the clause was, on its proper construction: (a) not apt to exclude claims arising from a repudiatory breach of contract (relying on the decision of the Court of Appeal in Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] 2 Lloyd’s Rep 270); alternatively (b) only intended to cover indirect or consequential losses falling within the second limb of Hadley v Baxendale.

• It had a real prospect of establishing at trial that the exclusion clause was unenforceable as an unfair term pursuant to the Unfair Contract Terms Act 1977 (“UCTA”), and should be granted permission to amend its pleadings to rely on the same.

• Specific disclosure should be granted to explore the possibility that Pinewood AP had a claim against Pinewood UK for “fraud or fraudulent misrepresentation” (in respect of which the exclusion clause would not apply), and that the need for such disclosure was a compelling reason to allow the claim to proceed to trial.

Pinewood UK counterclaimed for unpaid invoices issued under the Reseller Agreements. Pinewood AP defended the counterclaim by seeking to set-off sums it alleged were due to it pursuant to its claim. In seeking summary judgment on its counterclaim, Pinewood UK relied on a no set-off clause contained within each of the Reseller Agreements. Pinewood AP resisted the application, arguing that the no set-off clause did not apply to equitable set-offs, alternatively was an unfair term pursuant to UCTA.

Mrs Justice Joanna Smith held that:

• The exclusion clause on its proper construction applied to Pinewood AP’s claims. The Court rejected the submission that Kudos stood as authority for the proposition that exclusion clauses “do not apply to the non-performance of contractual obligations or to repudiatory breaches of contract”, which the Court held was neither consistent with the ratio in Kudos nor with wider authority (and was an attempt to revive the discredited doctrine of fundamental breach). The Court reaffirmed the principle that there is no presumption against exclusion clauses being construed so as to cover deliberate repudiatory breach.

• The Court rejected the submission that the exclusion clause was only intended to cover indirect or consequential losses falling within the second limb of Hadley v Baxendale, which the Court held was neither supported by the language of the clause itself nor the wider contractual context. In so doing, the Court reaffirmed the principle that, when construing an exclusion clause, even where there is an imbalance between the parties, there is no requirement to strain the language if it is clear.

• Pinewood AP’s UCTA arguments (in relation to both the claim and the counterclaim) had no real prospect of success, because it was clear from documents before the Court that the Reseller Agreements had been the subject of negotiation which had led to substantial amendments to the draft originally provided by Pinewood UK. It followed that (applying the principles set out by the Court of Appeal in African Export-Import Bank v Shebah Exploration & Production Co Ltd [2018] 1 WLR 487) Pinewood AP was not dealing on Pinewood UK’s standard terms for the purposes of section 3(1) of UCTA.

• No specific disclosure should be ordered to permit Pinewood AP to explore the possibility of a fraud claim, an application which the Court held “amount[ed] […] to no more than a fishing expedition”.

• Pinewood UK was entitled to summary judgment on its counterclaim. The no set-off clause applied to Pinewood AP’s claim, and there was no basis for the construction advanced by Pinewood AP that the clause applied only to legal set-offs and not equitable set-offs.

The judgment is available here.