The current trend of appellate decisions is to leave commercial parties of equal bargaining power to their own contractual fate. Persimmon Homes Ltd v Ove Arup and Partners Ltd [2017] EWCA Civ 373, in which the Court of Appeal considered the meaning of an asbestos exclusion clause, reinforces that message.
Background facts
The appellants (“the Consortium”) sought to purchase land adjacent to an old dock in Barry, Wales, as part of a regeneration project.
The Consortium engaged the respondents (“Arup”) to act as their consultant in bidding for the land. The Consortium put in a successful bid, and purchased the site with the intention of constructing a commercial and residential development.
Subsequently, Arup agreed to provide engineering services to the Consortium for the regeneration project (“the Contract”). The terms of the Contract expressly applied to Arup’s past services in relation to the project, and contained the following clause:
6.3 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) 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.
The Contract required Arup to enter into individual deeds of warranty (“the Warranties”) with each of member of the Consortium, which Arup duly did. The Warranties included the following clause:
4.3 The Consultant’s aggregate liability under this Deed 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 £5,000,000.00 (five million pounds) with the liability for pollution and contamination limited to £5,000,000.00 (five million) in the aggregate. Liability for any claim in relation to asbestos is excluded.
Groundworks began, and shortly thereafter the groundworks contractor encountered asbestos.
The Consortium said the quantity of asbestos was substantially more than they had expected. Accordingly, they commenced proceedings against Arup, contending that Arup negligently failed to identify and report upon the asbestos at an early stage, which had caused the Consortium to buy the site at too high a price and to incur avoidable costs. Arup denied liability for a number of reasons, including because their liability (if any) in respect of the asbestos was excluded by clause 6.3 of the Contract and clause 4.3 of the Warranties (“the Exclusion Clauses”).
The Court ordered a trial of preliminary issues to determine the effect of the Exclusion Clauses. At first instance, Stuart-Smith J held that they excluded Arup’s liability for each and every claim asserted by the Consortium. The Consortium appealed.
On appeal, the Consortium contended the phrase “liability for pollution and contamination” in the first sentence of the Exclusion Clauses meant “liability for causing pollution and contamination, rather than any liability in connection with pollution and contamination. Accordingly, because asbestos is a sub-category of pollution and contamination, they argued that “liability for any claim in relation to asbestos” should be construed in the same way. Therefore, the second sentence merely excluded liability for any claim against Arup for causing the presence of asbestos. Further, even if such a construction was wrong, the contra proferentem rule and the rules governing the construction of exemption clauses remained in place (the Canada Steamship Lines v The King [1952] AC 192 line of authorities) and meant that the Exclusion Clauses were not so wide as to exempt Arup from all the breaches of duty alleged. The judge erred in failing to apply those rules.
Arup argued that the Consortium’s interpretation did not make sense. The parties were clearly talking about Arup’s potential liability for failing to identify contamination, rather than cause it. The possibility of Arup causing contamination because of clumsy investigation procedures could not possibly have been the target of the Exemption Clauses. The same arguments applied to liability for asbestos, and the parties’ intended to exclude any claim in relation to it.
The decision
Lord Justice Jackson gave the lead judgment, and agreed with Arup’s interpretation, which could be reached on the basis of the natural meaning of the words used, and/or business common sense. If “for” meant “for causing”, as the Consortium contended, the last sentence of the Exclusion Clauses became bizarre, if not ungrammatical (ie. it could not sensibly be read as “Liability for causing any claim in relation to asbestos is excluded”). Further, it would be nonsensical for the parties to agree that Arup were liable if asbestos was moved around the site, but not if left in place.
Of more general note, Lord Justice Jackson explained that the Courts had softened their approach to exclusion clauses (drawing on Lord Neuberger MR’s speech in K/S Victoria Street v House of Fraser (Stores Management) Ltd [2012] Ch 497). On the present facts, the “cannons of construction” set out in the Canada Steamship line of cases offered very little assistance, and had no impact on the meaning of the Exclusion Clauses. He provided the following guidance:
In major construction contracts the parties commonly agree how they will allocate the risk 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. Contractors and consultants who accept large risks will charge for doing so and will no doubt take out appropriate insurance. Contractors and consultants who accept lesser degrees of risk will presumably reflect that in the fees which they agree.
It seemed there was no way out for the Consortium. Even if the Canada Steamship cannons of construction did apply, Jackson LJ held they could not come to the Consortium’s rescue. The ordinary meaning of the Exemption Clauses was wide enough to cover negligent advice about asbestos on site, and it was not possible to think of any non-negligent ground of claim that the parties might have had in mind which was not “fanciful or remote”.
The ‘take away’ message
In my view the Court of Appeal’s message was clear and reassuring: sophisticated commercial parties will be held to the natural meaning of the contractual words they have used. Those leafing through the chapters of Lewison looking for a clever legal argument to pull them out of (what naturally appears to be) a problematic exclusion clause may well struggle. In recent years, the appellate courts have raided the contract lawyer’s armory, removing purposive interpretation (Arnold v Britton [2015] AC 1619 and Wood v Capita Services Insurance Ltd [2017] 2 WLR 1095), implied terms (Marks and Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742), and now the Canada Steamship line of cases (see also Transocean Drilling UK Ltd v Providence Resources [2016] 2 All ER (Comm) 606) from the arguments that are likely to be available for parties who wish to wriggle free. Persimmon Homes v Ove Arup provides yet further certainty that sophisticated commercial parties can rely on the commercial bargain they struck