The recent Court of Appeal judgment in Persimmon Homes v Ove Arup & Partners provides important guidance on the application of the contra proferentum rule to exemption clauses in commercial contracts.
This case concerned a failure by the defendant engineers to advise the claimants, a consortium of developers, about the existence of asbestos at a site under development. The defendants sought to rely on a clause which excluded liability for any claim in relation to asbestos. At a preliminary issue hearing, the judge’s view was that the clause did operate to exclude liability for the claims, on the basis that it amounted to an agreed allocation of risk between the parties.
On appeal, the claimants argued that the judge had failed properly to apply the contra proferentem rule, namely, that the exemption clause should be construed against the party seeking to rely on it and therefore in favour of the claimants. The Court of Appeal considered that, in commercial contracts involving parties of equal bargaining position, the contra proferentem rule has a very limited role in interpreting exemption clauses and is more relevant to indemnity clauses.
This should serve as a warning to commercial parties when negotiating contracts, particularly in the construction context. It is clear that, where the parties are of equal bargaining power, the courts will seek not to interfere on the basis that it is open to the parties to agree an appropriate allocation of risk. Where interference is necessary, it seems that the courts will seek to apply the natural meaning of the words of an exemption clause, without recourse to the contra proferentem principle.