How to draft a successful exclusion clause: lessons from the Glencore case

How to draft a successful exclusion clause: lessons from the Glencore case

Lexis®PSL Commercial recently interviewed Paul Jonson, head of Pannone’s dispute resolution and regulatory division, on the Glencore Energy UK Ltd v Cirrus Oil Services Ltd case.

The case shows that drafting successful exclusion clauses has become something of an art form.

Standard form contracts are a useful start but every situation should be examined carefully.

What is the background to this case?

Glencore sought damages from Cirrus Oil for repudiation of a contract for the sale of around 630,000 barrels of crude oil. The contract included the following exclusion clause:

32.1. Except as specifically provided in the Special Provisions or in Section 12.4, in no event, including the negligent act or omission on its part, shall either party be liable to the other, whether under the Agreement or otherwise in connection with it, in contract, tort, breach of statutory duty or otherwise, in respect of any indirect or consequential losses or expenses including (without limitation) if and to the extent that they might otherwise not constitute indirect or consequential losses or expenses, loss of anticipated profits, plant shut-down or reduced production, loss of power generation, blackouts, or electrical shutdown or reduction, hedging or other derivative losses, goodwill, use, market reputation, business receipts or contracts or commercial opportunities, whether or not foreseeable.

What issues did this case raise?

Cirrus Oil submitted that the effects of this exclusion clause were twofold:

  • to exclude all liability ‘in respect of any indirect or consequential losses or expenses’—this effectively covered all losses falling within the second limb of Hadley v Baxendale (ie unusual losses for which the defaulter can only be liable if made aware of the danger of them being suffered), and
  • to exclude all liability for loss of anticipated profits, whether or not they can be seen as ‘indirect or consequential losses or expenses’ under Hadley v Baxendale.

Cirrus Oil argued that a claim made under section 50(2) and (3) of the Sales of Goods Act 1979 was a claim for lost profits. Since Glencore had been able to terminate its contract with its supplier without any liability and without taking

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