Exclusion clauses gain some weight at the Court of Appeal

The Court of Appeal has recently ruled that a clause designed to exclude liability was indeed effective in excluding liability. Unsurprising on the surface, but big news when considered against the narrow interpretation rules of contra proferentem and Canada Steamship that historically limit the effectiveness of these clauses. The decision indicates a move away from such restrictive principles and towards a more natural interpretation of clause wording.

The Case

Persimmon had purchased a site in South Wales for commercial and residential development, following advice from Ove Arup in respect of their bid. They then appointed Ove Arup for the provision on engineering services, to include site contamination investigations. The contract included an exclusion clause which (in part) read, “Liability for any claim in relation to asbestos is excluded”.

Subsequent excavation of the site revealed amounts of asbestos in the ground that far exceeded Persimmon’s expectations. They accused Ove Arup of failing to identify the issue sooner, and sought recovery of a perceived £2 million overpayment in the respect of the site, as well as the costs associated with removal of the asbestos. Ove Arup understandably argued that the exclusion clause served to exclude liability for all such claims.

Historic Court Interpretation

Exclusion clauses pop up regularly in construction contracts, but even the most straightforward wording can fall foul of the contra proferentem rule or Canada Steamship guidelines, which for years have led courts to interpret exclusion clauses in a very narrow manner.

Contra proferentem, in very broad terms, provides that where there is doubt over the meaning of a contract clause, it will be construed against the person who put forward the wording or seeks to rely upon it.

Canada Steamship [1952] established that where an exclusion clause does not specifically mention liability in negligence, the court should consider whether the wording is wide enough to cover negligence, and whether the intention of the parties could reasonably have been for the clause to apply to negligence in addition to breach of contact.

The Decision

The court ruled in favour of Ove Arup, and in doing so rejected Persimmon’s arguments that (1) the clause excluded liability for causing the spread of asbestos only, not for failing to identify it, (2) the clause was not wide enough to exclude liability for negligence, and (3) the contra proferentem rule should apply.

In doing so, the Court made the following key observations:

• The clause should be given its “natural meaning” with consideration of what amounted to business common sense;

• The guidance in Canada Steamship was now less relevant to exclusion clauses and of little assistance in the present case;

• In the context of a commercial contract negotiated between parties of equal bargaining power, the role of the contra proferentem rule should be a very limited one.

The decision should be seen as welcome news for commercially informed contracting parties. It reinforces the trend away from narrow interpretation of exclusion clauses, and in doing so, acknowledges the ability of parties to effectively agree and allocate risk between them. Going forward, we should expect a much simpler approach to interpretation of these clauses that focusses primarily on the words on the page, and a greatly reduced role for dated principles such as contra proferentem and Canada Steamship.