Court of Appeal clarifies liability limits in water metering contract

24 Mar 2025Court Report

Court of Appeal rules on the interpretation of a framework agreement between South East Water and Elster Water Metering

Background and Context

The Court of Appeal recently delivered a significant ruling in the case of South East Water Limited (SEW) versus Elster Water Metering Limited, addressing the interpretation of a framework agreement concerning the supply of water meters and Automated Meter Reading (AMR) units. The appeal was heard by Lord Justice Coulson, Lord Justice Males, and Lord Justice Zacaroli, following a decision by HHJ Stephen Davies in the Technology and Construction Court.

The Dispute

The dispute arose when SEW alleged that the AMR units supplied by Elster were defective, primarily due to water ingress and failure to meet the specified battery life of ten years. SEW initially sought damages exceeding £19 million, with an alternative indemnity claim over £28 million. However, they accepted that their claim was subject to a contractual cap of £10 million. Elster contended that the Framework Agreement further limited SEW's recovery, particularly through Schedule 11, which outlined warranty and fault attribution terms.

Judgment in the High Court

In the High Court, Judge Davies struck out parts of SEW's claim, supporting Elster's interpretation that Schedule 11 limited SEW's entitlement to replacement costs of faulty AMR units. SEW appealed, arguing that the judge erred in his construction of Schedule 11 and its interaction with the broader Framework Agreement.

Court of Appeal's Analysis

The Court of Appeal focused on whether Schedule 11 constituted a limitation of liability clause. Lord Justice Coulson, delivering the leading judgment, concluded that Schedule 11 did not limit SEW's right to claim damages under the Framework Agreement. Instead, it specified the parties' obligations only if Elster provided replacement AMR units.

Interpretation of Schedule 11

The court found that Schedule 11 was not concerned with damages but rather the cost implications when Elster supplied replacement units. The court rejected the notion that it limited SEW's damages to the notional cost of replacements, noting the absence of clear language supporting such a limitation.

Commercial Sense and Context

The court emphasised that Schedule 11 should be read in conjunction with Schedule 2 of the Framework Agreement, which outlined SEW's broader rights and remedies. The court highlighted the importance of clear contractual language, particularly when limiting statutory rights or remedies.

Conclusion and Implications

The Court of Appeal allowed SEW's appeal, clarifying that Schedule 11 did not restrict SEW's entitlement to damages for breaches of the Framework Agreement. This decision underscores the necessity for precise contractual drafting, especially in complex commercial agreements.