A recent Court of Appeal decision in Persimmon Homes v Ove Arup provides a useful update on the interpretation of exclusion of liability clauses in construction contracts. The case concerned consulting engineers who sought to limit their liability for pollution and contamination and exclude liability for asbestos in line with their professional indemnity cover.
A consortium led by Persimmon Homes purchased a site in Barry, South Wales for commercial and residential development. The Consortium engaged Ove Arup ('Arup') to provide engineering services. Arup’s appointment contained the following exclusion 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) 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 the collateral warranties, the aggregate limit of liability was £5million rather than £12million. In addition, "liability for any claim in relation to asbestos is excluded."
During the works asbestos was discovered. The level of asbestos was substantially more than had been expected. The Consortium made a claim against Arup on the basis that Arup had been negligent in failing to identify or report upon the amount of asbestos prior to project commencement.
Arup argued that it could rely on the exemption clause to avoid any liability in respect of asbestos. The TCC agreed that the clause excluded liability for asbestos claims. The Consortium appealed.
The Court of Appeal Decision
The Consortium argued that the exemption clause should be read as follows,
“…liability for causing pollution and contamination… [and]… Liability for causing any claim in relation to asbestos is excluded.”
In other words, Arup could only exclude liability for claim for causing the presence of asbestos, not for failing to report on its presence.
The Court of Appeal rejected this argument on the basis that it did not follow the natural meaning of the words used. The Court pointed out the paradox in the Consortium’s reasoning: why would the parties agree that Arup would not be liable if it caused asbestos contamination, but would be liable for not reporting its presence? The Court therefore decided that the clause excluded any claim relating to asbestos not just claims for causing asbestos contamination.
The Consortium had relied on two principles commonly used to limit the effect of exemption clauses:
- the contra proferentem rule of interpretation which requires any ambiguity in an exclusion clause to be construed against the party who put the clause forward and seeks to rely on it; and
- following a long line of cases, any clauses which seek to exclude or limit liability for negligence must be clear and unambiguous.
The Court of Appeal held that the meaning of the clause was clear and therefore the above principles were irrelevant. The Court further held that the contra proferentem rule had only limited application commercial contracts negotiated between parties of equal bargaining power.
COMMENT: the key message is to ensure that any exclusion or limitation clauses are clear and unambiguous. The Court will always strive to give the words used their ordinary and natural meaning. Where there is any ambiguity, it should not be assumed that the words will be interpreted against the party relying on them. This is particularly good news for professional consultants and their insurers seeking to rely on these types of exclusion clause.
Professional indemnity insurance policies often contain limitations or exclusions on the cover available for contamination and asbestos related claims. Accordingly, the inclusion of such clauses consultants’ appointments is an important part of a professional’s risk management strategy.
Unfortunately, the Court was not required to consider the fact that the collateral warranties contained a different cap on liability.