Clear drafting and measured risk acceptance

Contracts sit at the heart of every commercial transaction. But key terms are often agreed in haste or glossed over entirely in the hope that nothing will go wrong. My experience, both in private practice and in-house, is that stakeholders sometimes take comfort in ‘getting the deal done’ and assume the finer points will never be tested. Recent case law, however, provides a timely reminder that when things do go wrong, the courts will turn to the contract. Unless the language is ambiguous, they will be reluctant to deviate from what was agreed. 

Some recent key decisions underscore the importance of clear drafting and measured risk acceptance.

In Zaha Hadid Ltd v Zaha Hadid Foundation [2024] EWHC 3325 (Ch), the High Court considered whether a trade mark licence agreement that allowed only the licensor to terminate – and appeared indefinite – was enforceable. The licensee argued that the agreement must contain an implicit termination right; otherwise, it amounted to an unlawful restraint of trade.

The court was unequivocal: the contract was unambiguous and the absence of mutual termination rights did not invalidate the agreement. Nor was the arrangement automatically considered a restraint of trade. This is a reminder that courts are unlikely to rescue parties from the consequences of terms they have signed up to. The lesson for lawyers is simple: if a party wants the right to terminate, it needs to negotiate for it.

EE Ltd v Virgin Mobile Telecoms Ltd [2025] EWCA Civ 70 is another example of the courts sticking to contractual language. Virgin had breached an exclusivity clause by diverting customers to other networks, causing EE to lose anticipated profits. Unfortunately for EE, the contract contained a wide exclusion clause for loss of anticipated profits. EE argued that enforcing this would leave it with virtually no remedy, which could not have been the parties’ intention. But the Court of Appeal disagreed, holding that the clause was clear and enforceable. Even significant commercial unfairness is no reason for courts to disregard a plainly worded clause. For lawyers, this highlights the need to consider the practical effects of exclusions and limitations in the context of the business relationship.

In Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC), the High Court tackled the distinction between wasted expenditure and loss of profits. The contract excluded claims for loss of profits, so TCS sought to recover ‘wasted expenditure’ instead. The court found that TCS’s claim was effectively for anticipated savings, which it categorised as loss of profits – and therefore excluded. Claimants cannot relabel loss of profits as wasted expenditure to sidestep exclusion clauses. It also reinforces the need to draft exclusions with care and to understand how future claims could be framed.

Topalsson GmbH v Rolls-Royce Motor Cars Ltd [2024] EWCA Civ 1330 adds further nuance. The dispute centred on how liability caps interact with set-off rights. The High Court initially applied Topalsson’s counterclaim for unpaid fees before applying the liability cap. The Court of Appeal, however, found that the set-off should be applied after the cap. This difference in approach resulted in a substantial financial impact. The judgment also confirmed that interest for late payment was outside the liability cap. Commercial practitioners should note the importance of carefully considering the order of set-off and the drafting of liability and interest clauses, particularly in high-value contracts.

Costcutter Supermarkets Group Ltd v Vaish and Anor [2024] EWHC offered another valuable reminder: liability caps do not automatically apply to claims for unpaid invoices. The contract capped liability at five times the service charge paid in the prior year – in this case, zero. The customer argued that this meant Costcutter’s claim was capped at nothing. The High Court rejected this, distinguishing between claims for breach of contract (secondary obligations) and primary obligations, such as paying for goods. Only the clearest language would allow a party to escape paying debts entirely, and the contract fell short. The message for lawyers is clear: if a liability cap is intended to apply to primary obligations, the contract must spell this out in the plainest terms.

Finally, in King Crude Carriers SA & Ors v Ridgebury November LLC & Ors [2024] EWCA Civ 719, the Court of Appeal confirmed that a party cannot rely on its own breach to avoid a payment obligation. The buyer failed to provide documentation to open an escrow account and then argued that no deposit was due as a condition precedent had not been fulfilled. The court rejected this attempt. This judgment is unsurprising, but a useful reminder that contractual conditions cannot be manipulated to excuse non-performance where the non-performance is self-induced.

These cases all show the courts’ reluctance to deviate from the terms of a contract, no matter how commercially harsh the outcome. For lawyers advising clients – whether in-house or in private practice – the message is simple:

• Be thorough in drafting. Contract clauses should reflect what the parties are genuinely willing to sign up to.
• Challenge commercial optimism. If a business client suggests ‘we can live with that term’, ask whether they can really live with it if something goes wrong.
• Consider the life of the contract. Too often, contracts are signed and then forgotten until there is a dispute. Encourage clients to regularly review key provisions, especially around liability and termination.
• Watch for ambiguity. The courts may interpret unclear language against the drafter, but they will not rescue parties from a bad bargain if the language is clear.
• Keep in mind commercial reality. The business context matters, but only up to the point that it is captured in the contract.

As commercial lawyers, we have a dual role: to advise on risk and to help ensure that what is written down matches what is really agreed. Recent case law reminds us that the contract is king – and words matter.

Winona Chan is legal counsel at Aldermore Bank plc, London