Exclusion clauses in the TCC: a broader approach?

A recent case decided by the TCC has found the general words of an exclusion clause to be sufficiently clear to exclude liability for a consultant’s own negligence. The decision may suggest a broader approach to the interpretation of exclusion and limitation clauses than has been adopted in recent cases before the Commercial Court.

Persimmon Homes v Ove Arup & Partners

Persimmon was part of a consortium (the "Consortium") who bought and developed a large site in Wales. Arup was also involved with the development, advising and providing professional services to the Consortium. After committing itself to the purchase and development of the site, the Consortium discovered asbestos contamination. The Consortium alleged that Arup ought to have discovered the contamination and commenced proceedings claiming damages for alleged breach of contract and negligence. Arup argued that its liability for negligence was excluded under Clause 6.3 of the Contract which provided:

"The Consultant’s aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory or otherwise (other than for death or personal injury caused by the Consultant’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."

The Consortium relied on a line of cases beginning with Canada Steamship Lines v The King. These cases confirm that if the language of a clause is clear enough to exclude negligence then effect must be given to the provision. However, if there is no express reference to negligence, the court is to consider whether the words used are wide enough to cover negligence and to resolve any doubt against the party for whose benefit the clause was included (i.e. the contra proferentum rule). These cases also suggest that general words should not be held to exclude negligence where they could cover liability for both negligent and non-negligent acts.

The decision

The Court found that the words of the exclusion clause were sufficient to cover negligence even though the exclusion for asbestos liability did not expressly refer to Arup’s own negligence. Although taking into account the Canada Steamship principles, the Court highlighted the increasing recognition that parties to commercial contracts should be left to apportion and allocate risks and obligations as they see fit for reasons of commercial certainty and also because it is reasonable to assume that the price negotiated reflects the commercial risk each party is willing to accept and their ability to manage risks in other ways (such as through insurance).

The court noted that the applicable rules of interpretation are essentially the same when interpreting an exclusion or limitation clause or any other provision of a contract. The overarching objective is to determine "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 contra proferentum rule should only be applied if the true meaning of the clause does not emerge from the usual process of interpretation. It is a "last resort" and the Court should not strain to find ambiguity where none exists.

The Court found that the meaning of the last sentence of Clause 6.3 was clarified by the rest of the clause. The limitations of liability in the first sentence expressly applied to negligence by Arup. Taking Clause 6.3 as a whole, the final sentence was seeking to exclude liability for asbestos altogether and it was not necessary to repeat the words "whether in contract, tort (including negligence)."

Conclusions and implications

This decision may suggest a difference in approach between the Commercial Court and the TCC as to the interpretation of exclusion and limitation clauses. Over the past year we have reported on two cases from the Commercial Court which have applied a relatively restrictive approach to such clauses, rooted in a reluctance to allow the exclusion or limitation of liability in the absence of clear words (see our Law-Nows on the Transocean and Scottish Power decisions here and here).

Contrary to those Commercial Court decisions, and instead of emphasising the need for "clear words" and the application of the contra proferentem rule, the present decision focuses on whether the meaning of the clause is sufficiently clear in all the circumstances. This potentially more liberal approach is similar to that adopted by previous TCC decisions in the recent past (such as Fujitsu Services Ltd v IBM United Kingdom) and might also be thought to be consistent with the Privy Council’s decision last year in the NH International case considering an exclusion clause for employer’s claims under the FIDIC form (see our Law-Now on that case here). The Privy Counsel in that case found the FIDIC clause to be sufficiently clear to cover all employer claims, overruling the arbitrator’s finding that the clause lacked the "clear words" he thought necessary to achieve such a result.

Given the divergent approaches to interpretation, parties would be well advised to draft exclusion and limitation clauses in clear terms making express reference to liability for negligence where possible.

References:

Canada Steamship Lines Ltd v The King [1952] AC 192 (PC);

Transocean Drilling U.K. Limited v Providence Resources plc the Arctic III [2014] EWHC 4260 (Comm);

Scottish Power UK Plc v BP Exploration Operating Company Ltd [2015] EWHC 2658 (Comm);

Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC);

NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (Trinidad and Tobago) [2015] UKPC 37.