Saying what you mean
John Noctor explains the case of Persimmon Homes Ltd & Others v Ove Arup & Partners Ltd, in which an exclusion clause was contested over its meaning.
Persimmon Homes Ltd & Others v Ove Arup & Partners Ltd
The Court of Appeal has recently decided that a clause which purported to exclude liability for claims in relation to asbestos, actually excluded liability for claims in relation to asbestos.
No surprise there then, except to a consortium of developers who were left with the clean up bill.
The case is a useful reminder that when parties of equal bargaining power agree to apportion liability between themselves, the Courts will not usually ride to the rescue if things do not turn out as planned.
With that in mind, it is always wise to assume that a clause in a contract means what it says, including one which limits or excludes liability.
A consortium of developers bought a site in South Wales for development. The consortium included two of the big boys, in the shape of Persimmon Homes and Taylor Wimpey. They engaged Ove Arup to assist with the initial site investigations before purchase, and to provide design and development services post purchase.
The contractual documentation contained a clause which limited the liability of Ove Arup to £12 million, and crucially contained the following wording: “Liability for any claim in relation to asbestos is excluded".
When the developers started the groundworks, they found a lot more asbestos than anticipated. They brought a claim against Ove Arup for negligence, seeking damages for the cost of having to deal with the asbestos.
Not surprisingly, Ove Arup pointed to the exclusion clause, and the battle lines were drawn. The Technology and Construction Court had no difficulty in finding in favour of Ove Arup. However, the developers took the matter to the Court of Appeal, where they advanced the following arguments:
- The clause should be read as follows: “Liability for causing any claim in relation to asbestos is excluded".
This would meant that Ove Arup could escape liability for any asbestos which they had brought to the site (thus causing the claim) but could not escape liability for asbestos which was already there, but which they had failed to spot.
- Even if that was wrong, the clause was not effective to exclude liability for negligence, because the wording did not specifically refer to negligence.
This argument is based on the "contra proferentem" rule, where any ambiguity in an exclusion clause is sometimes sufficient to negate its effect. The developers argued that the failure to refer to negligence meant that the clause was ambiguous and therefore ineffective.
The Court of Appeal gave both arguments short shrift and dismissed the developers claim. Taking the arguments in turn, the Court made the following points:
- The wording of the clause was perfectly clear, and nothing needed to be added in order for it to make commercial sense, or to reflect the true intention of the parties. It meant what it said, in that all liability for claims in relation to asbestos were excluded, including claims for negligence.
- The contra proferentem rule has very little application in the interpretation of commercial contracts made between parties of equal bargaining power. In addition, since the wording of the clause was not ambiguous, nor was it unclear, the contra proferentem rule was simply irrelevant .
The Courts are not keen on exclusion clauses and will often look to defeat them in consumer contracts, where the bargaining power of the contracting parties is unequal.
However, where the parties are of equal bargaining power, as is usually the case in business relationships, the opposite is true. The Courts will generally refuse to interfere, provided the exclusion clause meets the test of “reasonableness" set out in the Unfair Contract Terms Act 1977, and is not otherwise so ambiguous that it would be unfair to allow it to stand.
The moral of the story is that your contracts should say what they mean, because you will be asked to stand by them, and that could be expensive if you have said the wrong thing.
For any questions on commercial contracts and how they apply to your business, contact John Noctor at email@example.com.
About the author
John Noctor specialises in company and commercial work for major clients.
Published: Tuesday 27th June 2017
Categorised: Corporate Law, Lawyers for Business, Legal Services in Newcastle, Penrith, Public Procurement, Public Sector, Small Business / New Business, Tourism & leisure, West Cumbria