When Should Liability Caps Be Applied – Before Or After Set-Off ?

Technology contracts frequently include liability caps. For example, a technology vendor might agree that "no more than 12 months' fees" can be claimed. But complications often arise when both parties have contractual claims against each other. Should the parties set off their claims first and then apply the liability cap to the net amount?Or should the cap bite on each party's liability separately, with set-off only after the cap has reduced one side's claim? The recent Topalsson v Rolls-Royce decision shows just how significant this question can be in high-value technology disputes

Background

Topalsson GmbH entered into a services agreement with Rolls-Royce Motor Cars Ltd to deliver a new digital configurator for the Ghost model. Implementation plans agreed in late 2019 and 2020 contained dated milestones. When those milestones were missed, Rolls-Royce terminated. At first instance, the Technology & Construction Court held that the second termination was valid