Limitation and exclusion clauses in a professional appointment
PERSIMMON HOMES v OVE ARUP [2015]
The Technology and Construction Court (“TCC”) has interpreted a limitation and exclusion clause in a professional appointment as protecting the consultant from liability relating to asbestos at a development site, even though the consultant was aware of the presence of asbestos from an early stage. Although this was a construction case, the TCC’s comments on the interpretation of the liability and exclusion clause have wider application to other types of commercial contracts.
Facts:
- Ove Arup (“OA”) provided professional consultancy services in relation to a site in South Wales for many years. Possible development of the site raised many issues, including potential contamination and pollution.
- Around 2006, Persimmon Homes and others formed a consortium (“P”) to bid for the site. P engaged OA under two agreements, one in relation to its bid and the other to provide design and development services in relation to the site (“2009 Agreement”).
- Clause 6.3 of the 2009 Agreement (“Clause 6.3”) provided that, "... [OA’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 [OA’s] negligence) shall be limited to £12,000,000.00 (twelve million pounds) with the liability for pollution and contamination limited to £5,000,000.00 (five million pounds) in the aggregate. Liability for any claim in relation to asbestos is excluded.”
- Under the 2009 Agreement, OA also agreed to give each member of the consortium a collateral warranty in relation to its services which was provided in 2010 (“2010 Warranties”). Clause 4.3 of the 2010 Warranties (“Clause 4.3”) had the same limitation and exclusion terms as Clause 6.3, except that the overall cap was £5 million, not £12 million.
- In 2012, asbestos contamination was discovered at the site which P said that OA should have warned it about but did not. P claimed damages from OA for the increased cost of dealing with the asbestos, alleging this was attributable to OA's negligent failure to advise. OA denied liability relying on the provisions in Clause 6.3.
- The TCC ordered a trial of three preliminary issues. Issues 2 and 2 related to the liability wording:
- Issue 2 – Did the words "Liability for any claim in relation to asbestos is excluded" in Clause 6.3 and Clause 4.3 exclude liability for P’s claims against OA?
- Issue 3 – If OA’s liability was not excluded, was it limited to £5 million under the 2009 Agreement or the 2010 Warranties?
Decision:
The TCC decided:
- Issue 2 – The words excluding liability in relation to asbestos in Clause 6.3 and Clause 4.3 were effective to exclude liability for P’s claims against OA.
- Issue 3 – As liability in relation to asbestos was excluded under Clause 6.3, the questions under this issue did not need to be decided. However, the judge commented that if liability had not been validly excluded, then it would have ruled that OA’s liability was limited to £5 million under the 2009 Agreement and the 2010 Warranties.
- In order to come to these conclusions, the TCC said that its overarching objective was to identify the parties’ intention under Clause 6.3 and Clause 4.3. The judge stated that this task is essentially the same whether interpreting an exclusion or limitation clause or any other provision of a contract. It is done by determining, "what a reasonable person having all the background knowledge which would reasonably have been available to the parties would have understood the parties to have meant".
- The TCC said the commercial and contractual context may make it unlikely that one party would have agreed to take responsibility for the negligence of the other, so clear words are needed to show that this is in fact what the parties intended.
- Looking at the exclusion in the second sentence, the judge said that it was an unqualified exclusion of all liability “for any claim in relation to asbestos”. He thought those words were enough to show clearly that liability for any claim in relation to asbestos was excluded, whatever the cause. P had argued that there needed to be an express reference to excluding liability in relation to asbestos due to negligence for such liability to be effectively excluded.
- The judge noted that it was unnecessary to reiterate the words from the first sentence referring to liability "whether in contract, tort (including negligence) …" in the second sentence in order to make it clear that liability for any claim in relation to asbestos was excluded whether or not it was in negligence. Because of the absolute nature of the exclusion in the second sentence when seen on its own and in context, the judge stated that P’s view effectively required the second sentence to be amended to read: “Liability for any claim in relation to asbestos (unless incurred in negligence) is excluded” (emphasis added). He considered that this did not seem to be either natural or justified in the context of Clause 6.3.
- In considering the commercial and contractual context, the judge remarked that:
- the fact that clause 6 of the 2009 Agreement was entitled ‘Professional Liability Insurance’, as was clause 4 of the 2010 Warranties, meant the parties had evidently considered and allocated risks and liabilities as a deliberate part of the contractual agreement as a whole; and
- one of the Schedules also referred to a limit on liability for pollution and contamination and an exclusion of liability in relation to asbestos, with a reference to the professional indemnity insurance cover for the scope of liability, which used similar language.
- The TCC therefore concluded that the meaning of Clause 6.3 was entirely clear in:
- limiting liability for pollution and contamination to £5 million; and
- excluding liability for asbestos whether liability arose in negligence or not, and the absence of a reference to liability in negligence was immaterial.
Points to note:
- The TCC said:
- interpretation should not be “uncompromisingly literal nor unswervingly purposive”;
- where words are capable of more than one meaning, the Court should consider the implications of the different constructions as part of the interpretive process and can prefer one which is consistent with ‘business common sense’ and reject one that is not;
- the Court should treat what it considers to be ‘business common sense’ with caution, because this may depend upon the standpoint from which the question is asked;
- the Court should not strain to find ambiguity where none exists.
- Usually if a party wishes to exclude or limit liability for negligence then it must ensure that this is clearly and unambiguously expressed. That remains good advice. However, it is to be welcomed that the Courts have shown themselves unprepared, at least in this instance, to entertain attempts to create ambiguities where they do not exist.
- The TCC acknowledged that in recent years the Courts have been increasingly willing to recognise that parties to commercial contracts are entitled to apportion the risk of loss as they see fit and that provisions which limit or exclude liability must be construed in the same way as other terms. This is particularly the case where the parties are commercial entities of supposed equal status or bargaining power.