Synopsis

The TCC determined that a clause excluding all liability for asbestos contamination would operate to exclude liability for negligence.

Background

Ove Arup & Partners Ltd (‘Arup’) were a firm of engineers engaged by Persimmon Homes Ltd & Ors (‘the Consortium’) to provide a variety of services in relation to the development of a large site at Barry Quays in South Wales, initially the pre-purchase works of investigation and reporting to inform the Consortium’s bid, and then to provide services relating to the design and development of the site.

It subsequently emerged that the site was heavily contaminated by asbestos and the question to be determined was whether an exclusion contained within the contract would exempt Arup from all liability in relation to any asbestos-related losses suffered by the Consortium.

Decision

This was a trial of three preliminary issues, each relating to the construction of certain provisions contained in the contracts between the parties.

The key issue was in relation to the construction of the following exclusion within the contract:

"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."

Stuart-Smith J first discussed the principles of construction that would apply to exclusion clauses. Rejecting the contention that any special rules would apply to exclusions made between contracting businesses with equal bargaining power, he summarised the approach as follows:

These statements establish that the Court's task is essentially the same when interpreting what is said to be an exclusion or limitation clause as it is when interpreting any other provision of a contract: it is to identify what a reasonable person having all the background knowledge which would reasonably have been available to the parties would have understood the parties to have meant.

The Consortium sought to make two arguments as to why the exclusion would not cover the numerous claims being advanced against Arup:

  1. The asbestos exclusion should have words implied into it to read “Liability for any claim in relation to asbestos (unless incurred in negligence) is excluded”, either as the natural interpretation of the term in the context of the contract or on the basis of the repugnancy doctrine; or
  2. That the words “liability for” in the asbestos exclusion should be understood to mean “for causing the uncontrolled spread of”, on the basis that “liability for” is allegedly a term of art endorsed by the insurance world to bear that meaning in relation to pollution and contamination. This would have had the effect that the clause would exclude liability for any of Arup’s actions which had caused the spread of asbestos, but not for, for example, negligently failing to advise the Consortium of the underlying asbestos contamination.

Smith-Stuart J rejected the first submission on the basis that the clause was clear and absolute, and there was no reason to imply the words into it. He also considered the argument based on the repugnancy doctrine to be without merit, as the contract would not be reduced to a declaration of intent without those words.

In relation to the second argument, Stuart-Smith J was unconvinced that the material put before him was enough to establish that “liability for” was a term of art in insurance. He further considered that even if such had been established by the Consortium, the material put before him involved non-marine insurance policies which “are different in structure and coverage from professional indemnity insurance where the liabilities that are insured typically arise from the provision of specialist advice or services which require a degree of expertise.” As such, the clause was not limited to excluding liability for Arup causing the uncontrolled spread of asbestos, but would act to exclude all asbestos related claims.

The final preliminary issue to be determined was whether the 2009 agreement governing Arup’s provision of services relating to the design and development of the site would obliterate the terms of the earlier agreement made for the pre-purchase works of investigation and reporting. Stuart-Smith J considered that the wording of the 2009 agreement made it clear that it did not cover the pre-purchase works, which would therefore continue to be governed by the terms of the earlier contract.

This was a clear case of two businesses of equal bargaining power allocating the risks of the contract in a conscious and deliberate manner, and in such circumstances there was no need for the TCC to disturb their agreement by implying words into the terms of the contract. It is interesting that Stuart-Smith J considered the clause was sufficiently clear to exclude liability for negligence without expressly referring to negligence, a position that might have seemed unlikely in light of the Canada Steamship1principles regarding exclusions for negligence and the contra proferentem rule. In practice, parties must still continue to consider carefully the wording of any contractual term purporting to exclude liability, and for the avoidance of doubt it will always be safer to exclude negligence explicitly on the face of the document to avoid later judicial gymnastics.

[For more information, please refer to the case judgment.]