Persimmon Homes Ltd and others v Ove Arup & Partners Ltd [07.12.15]

Technology and Construction Court holds that contractual liability was excluded in relation to asbestos contamination; general guidance given on exclusion and limitation of liability clauses.

Implications

Construction contracts frequently seek to exclude or restrict liability in respect of certain obligations or duties undertaken by one of the parties or the financial consequences of a breach by that party.

Courts will seek to preserve the principle that parties to commercial contracts are, and should be, free to apportion and allocate risks and obligations as they see fit. However, when interpreting contractual provisions which seek to exclude or restrict liability the courts will require the party relying on these provisions to do so in clear and unambiguous terms.

Mr Justice Stuart-Smith emphasised that when interpreting contractual clauses which seek to restrict or limit liability, including liability for negligence:

  • The overarching objective is to identify the intention of the parties. This involves determining what a reasonable person would have understood the parties to have meant, having all the background knowledge which would reasonably have been available to the parties.
  • The starting point in the interpretive process is the words themselves.
  • The court will ascertain what the particular parties intended in the particular commercial context of each case. The commercial and contractual context may make it improbable that one party would have agreed to assume responsibility for the relevant negligence of another, so clear words are needed.
  • The courts will not look at the rationale as to why a party might seek to exclude its liability, but will look at whether the implications show that it is consistent with business common sense.
  • In order to be effective, exemption clauses must be clearly and unambiguously expressed. If the clause contains language which expressly exempts the party in whose favour it is made from the consequence of its negligence, effect must be given to that provision.
  • The more improbable it is that the other party would agree to excluding liability the clearer the clause needs to be which excludes liability.
  • In case of doubt, the clause is interpreted against the party who made the document and now seeks to rely on it.

This decision emphasises the potential benefit to a party seeking to rely on exclusion or limitation of liability clauses, whilst highlighting the importance of clear and unambiguous drafting.

Background

The Claimants were a consortium of developers. They engaged the Defendant firm to provide consultant engineering services, including advice on potential contamination, before purchasing a site for development. After purchasing the site and committing themselves to the development, the Claimants discovered asbestos contamination, which they alleged the Defendant should have warned them about but did not. The Claimants incurred increased costs attributable to the late appreciation of the scope and presence of asbestos, which they alleged was due to the Defendant’s negligent failure to advise.

The appointment between the parties included the following clause:

“The Consultant’s aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory duty or otherwise (other than for death or personal injury caused by the Consultant’s negligence) shall be limited to £12,000,000.00 (twelve million pounds) with the liability for pollution and contamination limited to £5,000,000.00 (five million pounds) in the aggregate. Liability for any claim in relation to asbestos is excluded.”

Decision

Stuart-Smith J held that the natural meaning of the first sentence was that the £5 million limitation of liability for pollution and contamination applied whether or not the liability arose as a consequence of the Defendant’s negligence.

The second sentence, if viewed on its own, was an unqualified exclusion of all liability “for any claim in relation to asbestos”. Once the second sentence was read with the first the clarity of its meaning was reinforced. The placing of the full stop between the first and second sentences served to emphasise that, whilst the first two categories of liability were limited (limitation of liability clauses), the third category was excluded altogether (an exclusion of liability clause).

Since the Claimants’ claims were all in relation to asbestos, the Defendant’s liability was excluded. If any claims could not be described as claims in relation to asbestos, liability was limited to £5 million.