A recent case has held that an exclusion clause was sufficiently broad to exclude liability for negligence. In Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2017] EWCA Civ 373, the Court of Appeal moved away from the traditional principles of contra proferentem and the Canada Steamship guidelines. Instead the court focussed upon the wording of the clause and the intention of the parties.

The judgment will be of interest to businesses and their advisers because it indicates a growing acceptance of more general wording in exclusion clauses where this has been agreed by commercial parties of equal bargaining power. It also emphasises the trend towards the use of commercial common sense in determining the meaning of contractual terms.

Background

Ove Arup provided engineering and environmental consultancy services to the owners of a site known as Barry Quays, South Wales (the Site) for a number of years in connection with a regeneration project at the Site.

The Site had been put up for purchase and Permission Homes Ltd were part of a Consortium which successfully bid for, and purchased, the Sitefor commercial and residential development. The Consortium initially engaged with Ove Arup to assist with Site investigations to inform their bid and, post-purchase, the Consortium entered into a contract with Arup to provide services in relation to the development of the Site. The collateral warranties in the consultancy appointment included the following exemption 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 (twelve million pounds) [£5,000,000 in the collateral warranties] with the liability for pollution and contamination limited to £5,000,000 (five million pounds) in the aggregate. Liability for any claim in relation to asbestos is excluded.

In July 2012 groundworks for the development commenced at the Site and the Consortium found there to be a greater quantity of asbestos contamination than had been anticipated. The Consortium claimed that Arup had been negligent in failing to identify and report the presence of asbestos at an earlier stage and sought damages for the increased cost of dealing with the contamination. Arup denied liability, and raised multiple issues in its defence, including that it could rely on the terms of the exemption clause.

The Technology and Construction Court ordered a trial of preliminary issues to consider the wording of the exemption clause and found that this did exclude Arup's liability for the asbestos claims. The Consortium appealed this decision, seeking to rely on the contra proferentem rule and the Canada Steamship guidelines (outlined below).

The Court of Appeal's approach

In a unanimous decision, the Court of Appeal rejected the appeal and upheld the decision of the Technology and Construction Court.

When interpreting exclusion clauses, the traditional approach of the Courts has been to apply principles which would generally lead to a narrow interpretation of that clause. These principles are:

  1. The contra proferentem rule: the principle which provides that any ambiguity should be interpreted against the party who relies on it; and
  2. The Canada Steamship guidelines: this provides that a clause seeking to exclude liability for negligence must be express and clear. General wording regarding exclusions of liability will not exclude liability for negligence if there is another basis of liability that could otherwise be excluded. If there is another basis of liability as well as negligence, then that other liability will be excluded and the negligent liability will not be.

However, in more recent times, the courts have tended to cast doubt on the extent to which these principles remain applicable, at least where the broad intent of the clause appears clear.

In the current case, the Court found that the wording in the exemption clause was sufficiently clear and unambiguous for the contra proferentem rule not to apply. It also confirmed that more generally the contra proferentem rule had a very limited role in relation to the interpretation of commercial contracts negotiated between parties of equal bargaining power. Further, the Court found the Canada Steamship guidelines of little use and commented that these guidelines are more applicable to the interpretation of indemnity clauses rather than exemption clauses.

It also noted that even if this interpretation was incorrect and the guidelines had been applied, this would not have knocked down any exclusion of liability for negligence, given that it was not possible to think of any other type of liability Arup may have for the asbestos claim which could otherwise have been excluded. The Court's decision here supports the increasing trend to move away from the traditional approach, in favour of commercial common sense and an acknowledgement of the autonomy of the parties to a contract. As the Court of Appeal commented:

"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."

What does this mean?

To ensure that your clause will be effective, the practical advice remains to use clear and unambiguous drafting. Any exclusions of liability should be carefully drafted, to ensure that all liabilities each party is expecting to be covered or excluded (liability for negligence, statutory liability, etc.) are appropriately captured, rather than looking to rely on wider and more general 'catch-all' provisions.

However the case does show the increasing willingness of the courts to take a different stance in its interpretation and enforcement of exclusion clauses agreed by commercial parties of equal bargaining power, by taking a practical and perhaps more commercially sensible approach.

This case, and other fairly recent decisions, show a willingness of the courts to harmonise their approach to construing all parts of a contract, with more and more importance being placed on the intention the parties and the risk allocation agreed at the outset. This is a move away from the previous, slightly more disjointed, approach where the parties' intentions would be at the forefront when interpreting some clauses, and legal rules would take precedence when considering others.