Interpretation Of Exclusion Clauses Found In Commercial Contracts

The Court of Appeal has recently handed down judgment in Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another1 which confirms that exclusion clauses will be interpreted narrowly when negotiated between parties of equal bargaining power. The effect of this decision is that one of the rules of interpretation that commercial parties often seek to rely on - the contra proferentum rule - in which any ambiguity in a clause is interpreted against the party seeking to rely on it, now has a very limited role in commercial contracts.

The facts

Ove Arup & Partners Ltd and another (Arup) were engaged as civil engineers to the owners of a site in Wales in connection with a regeneration project. Over a number of years Arup provided a variety of services ranging from advisory only to design and supervisory. One of the subjects which Arup was instructed on related to site contamination, albeit that other consultants were also engaged to advise the owners directly on the presence of contaminants including asbestos.

Once the regeneration project had been completed the owners of the site invited tenders for the purchase of the site. Persimmon Homes, Taylor Wimpey and BDW formed a consortium (the Consortium) with a view to putting in a bid for the purchase of the site. Arup was engaged to provide consultant engineering services to the Consortium in relation to the proposed bid, which was ultimately successful.

During the purchase negotiations between the owners and the Consortium, Arup was engaged by the Consortium to provide further ongoing services which included "Geotechnical/Contamination investigation". The agreement between Arup and the Consortium contained the following clause within the Professional Indemnity Insurance clauses:

"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."

A similar limitation and exemption clause was found in each of the three individual warranties provided by Arup to each member of the Consortium with the only difference being that Arup's liability in the warranties was said to be limited to £5,000,000 in the...