Topalsson GmbH v Rolls-Royce Motor Cars Ltd

[2024] EWCA Civ 1330

Rolls-Royce engaged Topalsson through a Services Agreement to design, build, implement and maintain digital visualisation software. There were delays to the project, then disputes, and, in April 2020, Rolls-Royce purported to terminate the Agreement. At first instance, the judge held that the sums due to Rolls-Royce by way of “termination damages” amounted to a total of €7.9 million. This figure was reduced by the amount due to Topalsson (some €800k) and then the judge applied the contractual cap of €5 million, awarding Rolls-Royce damages in the sum of €5 million plus interest. 

On appeal, Topalsson argued that the cap applied separately to both, their liability to Rolls-Royce and Rolls-Royce’s liability to Topalsson, which would have the effect of fixing Topalsson's liability at €5 million less the sum owing to Topalsson. This would leave a sum due of just over €4.2 million. Topalsson also said that the claim for interest fell within the original cap. 

Coulson LJ discussed the judge’s approach which adopted the following sequence: 

i)    a consideration of Topalsson's liability to Rolls-Royce;
ii)    a consideration of Rolls-Royce’s liability to Topalsson; 
iii)    the netting off of one liability against the other; and 
iv)    then – and only then – the application of the cap. 

However, Coulson LJ considered that there was nothing in the relevant clause (20) which suggested that the cap only applied once the net financial position between the two parties had been calculated. If that had been the intention of the parties, it would have been very easy for the clause to say that, and to make clear that the cap only applied to the net liability between the parties. However, instead the clause referred to: “the total liability of either party to the other” [Coulson LJ’s emphasis]. 

Coulson LJ held that those words suggested a totting up, not a netting off. They were contrary to the idea that the net position had to be ascertained before the cap was applied. Further, those words positively indicated that the cap must be applied to Topalsson’s liability to Rolls-Royce and to Rolls-Royce’s liability to Topalsson. The words used in the contract assumed the calculation of two separate liabilities, either party to the other, with each liability being the subject of the cap. In this way, the cap would be applied to Topalsson's total liability to Rolls-Royce and would reduce it to the cap figure – €5 million. It would be applied separately to Rolls-Royce’s liability to Topalsson, but that would have no financial effect because that liability was much less than €5 million. The two liability figures would then be netted off at that stage, resulting in a sum due to Rolls-Royce of €4.2 million odd.

In addition, Topalsson said that Rolls-Royce’s entitlement to interest also fell within the cap. This was not an issue raised at trial. For a number of reasons, the CA declined to allow the late amendment proposed by Topalsson to deal with this issue. One of those reasons was that Topalsson were in breach of numerous court orders. This meant that costs would not be an adequate remedy for any late amendment because there was nothing to suggest that Topalsson would pay them.

Coulson LJ did, in case that view was wrong, go on to consider the claim. The appellate judge rejected the claim for a number of reasons including that the cap could not be considered in isolation. Clauses 14.1 and 14.2 set out that the parties were agreed that interest payable under clause 14.11 was “a substantial remedy for late payment” and that it was “the sole remedy” available. If the cap applied, this would mean that the innocent party – here, Rolls-Royce – would be denied the “sole and substantial remedy” for late payment that the parties had expressly agreed. Further, a provision that interest for late payment be included within the cap would require clear words, of which there was not. And, given that such a construction would be a positive disincentive on Topalsson to pay the sums when they fell due, it would be contrary to commercial common sense. Interest on late payment fell outside the cap in clause 20.

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