Exclusion clauses and the contra proferentem rule
PERSIMMON HOMES v OVE ARUP (CA) [2017]
Courts have traditionally been hostile to clauses limiting or excluding liability and interpret them strictly, using a range of methods to defeat what might at first sight seem to be wide-ranging exclusions. The old principle of contra proferentem (where a clause is interpreted restrictively against the party who introduced the wording in question or who was seeking to place reliance upon it) is one of the favoured tools. However, the Courts appear to be more prepared to give effect to the words used by the parties in the contract and the contra proferentem rule does not now seem to be applied as much.
Facts:
- Persimmon and other companies (together the “Developers”) formed a consortium to purchase a site for development. The Developers initially engaged Ove Arup (“OA”) to assist with site investigations and subsequently to provide design and development services in relation to the site.
- Clause 6.3 of the parties’ agreement provided that: “... Arup’s aggregate liability whether in contract, negligence … shall be limited to twelve million pounds, with liability for pollution and contamination limited to five million pounds. Liability for any claim in relation to asbestos is excluded ”.
- Groundworks for the development commenced and the Developers found a greater quantity of asbestos contamination on site than they had expected. The Developers claimed that OA had been negligent in failing to identify and report the presence of the asbestos at an earlier stage and sought recovery of damages for the increased cost of dealing with the asbestos. OA denied being liable, arguing that any liability relating to asbestos was excluded.
- The High Court judge noted that the Court's task when interpreting an exclusion clause is essentially the same as it is when interpreting any other provision of a contract. He held that it was “entirely clear" that the clause excluded all liability relating to asbestos, whether arising from negligence or not.
- The Developers appealed.
Decision:
- The Court of Appeal (“CA”) upheld the High Court’s decision unanimously. It found that the last sentence of the clause was clear and excluded liability for all claims for asbestos whether arising from negligence or not.
- It also confirmed that the principle of contra proferentem now has a very limited role in relation to the interpretation of commercial contracts negotiated between parties of equal bargaining power. As the meaning of the words in question was not ambiguous or unclear, the contra proferentem rule was not relevant.
- The judge said, “In major construction contracts the parties commonly agree how they will allocate the risks between themselves and who will insure against what. Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down. Contractors and consultants who accept large risks will charge for doing so and will no doubt take out appropriate insurance. Contractors and consultants who accept lesser degrees of risk will presumably reflect that in the fees which they agree".
- The CA determined that the last sentence of the clause excluded liability for negligent acts because the words on their ordinary meaning were wide enough to cover negligence in advising about the extent of asbestos on the site and it was not possible to think of any liability except based on negligence.
Points to note:
- Generally speaking it is still sensible to expressly reference negligence when excluding or limiting liability. However, as this case shows, failing to do so may not be fatal.
- The willingness of the CA to recognise that limitation and exclusion clauses are all about a commercial apportionment of risk is to be welcomed. Although the Court expressly referenced construction contracts, there is no particular reason to believe this should not be of general application to other types of commercial contracts.
- Although the principle of contra proferentem seems to have a reduced role to play, it is still important and sensible to make any exclusions and limitations as clear and unambiguous as possible to avoid arguments arising in the first place and then to ensure that the Courts have as little room as possible to apply the principle.