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Case law: Court of Appeal makes it harder for businesses in contractual disputes to argue exclusion clauses don't apply

A party disputing clauses in a commercial agreement which exclude liability for specified acts or omissions are unlikely to be able to use the contra proferentem rule to attack those clauses, a recent Court of Appeal ruling makes clear.

July 2017

This update was published in Legal Alert - July 2017

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A consortium was set up to buy a site for development. A firm of civil engineers entered into an agreement with the consortium to provide it with advice on the bid.

The consortium won the bid and contracted with the engineers for more advice relating to the development of the site, including advice on contamination issues. However, when development began, the consortium found a great deal of asbestos on the site. They would not have paid as much for the site had they known how much asbestos was there - and its presence increased the costs of development significantly.

They took the engineers to court, claiming breach of contract, negligence and breach of statutory duty.

The engineers denied any liability as their agreement with the consortium contained an exclusion clause saying ‘liability for any claim in relation to asbestos is excluded’. They said this included any liability for failing to advise on the extent of the asbestos on the site.

The consortium argued that the true construction of the exclusion clause was that it excluded liability for causing the presence of asbestos, ie for spreading it around the site, but it did not exclude liability for failing to advise on its presence in the first place.

The Court of Appeal agreed with the engineers. It said the natural meaning of the exclusion clause meant it excluded the engineers' liability for any of the consortium's claims. It said that the consortium's construction would mean the exclusion clause would protect the engineers if they spread the asbestos around the site, but not if they left it where it was, which would be nonsensical.

The Court also took into account that the exclusion of all liability for asbestos by the engineers was consistent with the insurance they had taken out, and with the other warranties in the agreements with the consortium.

The Court of Appeal also considered the consortium's argument that the contra proferentem rule should apply. This is the legal principle that if there is doubt or ambiguity about the meaning of a contractual clause, it should be construed against the person relying on the clause.

The Court's view of the contra proferentem rule was that ‘in relation to commercial contracts, negotiated between parties of equal bargaining power, it now has a very limited role’. It also found that ‘the words used, commercial sense, and the documentary and factual context, are, and should be, normally enough to determine the meaning of a contractual provision’.

The rule did not therefore apply in this case.

Operative date

  • Now

Recommendation

  • Businesses disputing clauses in agreements which exclude liability for certain acts or omissions of the other party should concentrate on other means of attacking those clauses, as they may no longer rely on the contra proferentem rule

Case law: Persimmon Homes Ltd v Ove Arup & Partners Ltd & Anor [2017] EWCA Civ 373

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.