English Court of Appeal signals broader approach to exemption clauses in commercial contracts

The Court of Appeal of England and Wales has signalled a potentially significant development in the interpretation of exemption clauses - the effect of which is to underscore the importance of ensuring that contracts accurately reflect the allocation of risk.

Facts At issue in Persimmon Homes v Ove Arup [2017] EWCA CIV 373 was who was liable for additional costs incurred by the late discovery of unexpected quantities of asbestos on a building site.

The relevant contract included an exemption clause (with emphasis added):

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 developers argued that the wording of the clause restricted liability only for the engineer spreading asbestos - not for negligent failure to alert the developer to existing asbestos on site. In effect, the words 'liability for any claim in relation to asbestos' should be read as 'liability for causing any claim in relation to asbestos'.

But the Court of Appeal disagreed (as had the earlier court), on grounds both of the language used and the application of business common sense. Indeed, the Court went so far as to say that the alternative construction was "bizarre, if not ungrammatical".

Of wider application, however, is the Court's approach to the developers' contention, relying on the contra proferentem rule and case law, that the clause in question did not exclude liability for negligence because this was not expressly stated.

"Interpretation against the draftsman" and other fable The contra proferentem rule requires any ambiguity in an exemption clause to be resolved against the party who put the clause forward and relies upon it. It now has a limited role especially in relation to commercial contracts negotiated between parties of equal bargaining power.

In these contexts, both in New Zealand and in the UK, the modern approach is to apply the rule only where there is a genuine ambiguity in the wording of a contract that is equally capable of bearing two competing meanings.[1] The Court of Appeal reinforced this trend and found that the circumstances for...