Persimmon Homes Limited, Taylor Wimpey UK Limited and BDW Trading Limited (the Consortium) decided to regenerate a former industrial site in Barry, Wales. The Consortium engaged Ove Arup & Partners Limited and Ove Arup & Partners International Limited (Arup) as civil engineers in connection with their project. Arup’s initial engagement was to give advice and supervise rather than undertake physical investigations or groundwork on the site. The Consortium and Arup entered into a written contract in 2009 (the 2009 Agreement), stating that ‘liability for any claim in relation to asbestos is excluded.’
It transpired that there was asbestos on the site, discovered when groundworks were being laid. The Consortium claimed that Arup had been negligent in failing to identify and report the asbestos and also brought claims for breach of contract and statutory duty.
As a reminder, the contra proferentem rule means that where the interpretation of a clause is ambiguous, the ambiguity is resolved against the party who is seeking to rely on that clause. In the leading judgment, Jackson LJ referred to the earlier case of Canada Steamship Lines Ltd v The King [ 1952 ] AC 192. This outlined a three step approach to construe an exemption clause, as follows:
- Does the language expressly exempt the party from the consequence of its negligence? If so, effect must be given to the provision;
- If there is no express reference to negligence, are the words used wide enough in their ordinary meaning, to cover negligence? If there is any doubt at this stage, the contra proferentem rule would apply; and
- If the words are wide enough to cover negligence, is it possible that the head of damage may be based on a ground other than negligence, such other ground not being ‘fanciful or so remote’ that that it would not give the party the desired protection? For example, might it not have been intended to exclude strict liability rather than negligence?
The Consortium sought to rely on the contra proferentem rule as one of their arguments for claiming that Arup was negligent in not identifying and alerting them of the asbestos on site, despite the exclusion clause. It argued that the wording only excluded liability for causing the spread of asbestos, rather than failing to identify it.
The Court of Appeal found favour with Arup’s argument.
The judgment considered the following:
- the natural meaning of the words used – Jackson LJ concluded that the exclusion clause could not be construed as excluding some, but not all, claims relating to asbestos;
- common sense approach – it would be “nonsensical” if the parties had agreed that Arup could avoid liability for moving asbestos from one part of the site to another, but be liable if the asbestos was left in place; read together, the contract’s exclusion clauses were intended to limit Arup’s liability to insurable risks;
- with regard to contra proferentem, “in relation to commercial contracts, negotiated between parties of equal bargaining power, that rule now has a very limited role” (see K/S Victoria Street v House of Fraser (Stores Management) Ltd  EWCA Civ 904 and Transocean Drilling v Providence Resources  EWCA Civ 372);
- the Canada Steamship case was probably more relevant to interpreting indemnity clauses, not exclusion clauses (“It is one thing to agree that A is not liable to B for the consequences of A’s negligence. It is quite another thing to agree that B must compensate A for the consequences of A’s own negligence”);
- in construction projects, the parties would assess risks and decide who would insure against what risk. There was no need to approach exemption clauses “with horror or with a mindset determined to cut them down”. Contractors and consultants accepting large risks would take out appropriate insurance and would price accordingly;
- the courts had softened their approach to exclusions clauses since the introduction of the Unfair Contract Terms Act 1977 (UCTA) despite UCTA not applying to commercial contracts.
It is clear that in commercial contracts, the contra proferentem rule no longer has a big part to play. This case is a timely reminder of the modern day approach to contractual interpretation between commercial parties and an example of the growing recognition that they should be permitted to allocate risks as they see fit.