The search for consistency in contractual interpretation: South East Water Limited v Elster Water Metering Limited [2025] EWCA Civ 287

Clifford Darton KC and Eleanor Vickery have been successful in the Court of Appeal, with judgment being handed down in the case of South East Water Limited v Elster Water Metering Limited [2025] EWCA Civ 287 on 20 March 2025.

They appeared for the successful Appellant, South East Water Limited (‘SEW’).

The case concerned the interpretation of a Framework Agreement, whereby the Respondent (‘Elster’) provided SEW with water meters and Automated Meter Reading electronic units (‘AMR units’).

At first instance, HHJ Stephen Davies granted Elster’s application for strike out / summary judgment, holding that the Framework Agreement contained a provision (Schedule 11) that was “intended to have the effect of limiting SEW’s entitlement in relation to a faulty AMR unit identified in operation to the cost of an equivalent replacement device and any incidental costs to the warranty below. It is, frankly, hard to see how its wording could have been improved …”.

SEW was granted permission to appeal, and the appeal was heard on 5 March 2025 by Lord Justices Coulson, Males and Zacaroli.

The Court of Appeal allowed the appeal, holding that:

1. Schedule 11 was not concerned with SEW’s entitlement to damages or the assessment or quantification of the damages. It certainly was not a limitation clause. There was nothing to suggest it applied where Elster were not supplying replacement AMR units to Elster, nor where SEW had brought a claim for damages. There was nothing in it which purported to take away SEW’s right to opt to obtain replacement products in the market and factor in those costs in a damages claim (paragraph 41 of the Judgment).
   
   
2. There were no words in Schedule 11 of the Framework Agreement of sufficient clarity to suggest Schedule 11 would somehow comprise the limit of Elster’s liability to SEW. The assumption that parties do not give up their ordinary rights without clear words was “simply not displaced” (paragraphs 43 and 44 of the Judgment).
   
   
3. The “notional cost” argument advanced by Elster in the appeal hearing, that SEW’s damages would be limited to the notional cost to Elster of supplying replacements even if SEW had not asked Elster to replace them, did not work (paragraphs 49 to 52 of the judgment of Lord Coulson).
   
   
4. Schedule 11 could be read consistently with the rest of the Framework Agreement, provided it was read as being operable only if SEW decided to trigger the option of giving Elster the opportunity to remedy defects or supply replacements (paragraphs 56 to 60 of the Judgment). SEW may reach a point where they no longer trusted Elster to deliver a product that was fit for purpose, and they were not bound to ask for replacement AMR units they did not want, or have their damages limited to the notional cost of a replacement by Elster. This was “the final piece of the puzzle” (paragraph 58 of the Judgment).
   
   

The Judgement is an important reminder of two key principles of contract law:

1. The Courts will seek to interpret contracts (a) so that their provisions complement each other and (b) as expressing the parties’ intentions in a consistent and coherent manner (paragraph 31 of the Judgment).
   
   
2. The Courts start from the assumption that parties did not intend the contract to derogate from their normal rights and obligations (paragraph 30 of the Judgment), and clear words are needed to give up these rights (paragraph 44 of the Judgment).
   
   

You can find a copy of the Judgment here.