Contra Proferentem: When To Exclude An Exclusion Cause

The contra proferentem rule broadly states that where there is doubt about the meaning of a contract, the words will be construed against the party who put them forward. This is because a party who imposes terms on another must make those terms clear and should suffer the consequences if it fails to do so. In R v Canada SS Lines Ltd [1952] AC 192 ("Canada Steamship") a three stage approach was set out in relation to clauses purporting to exclude liability for negligence:

Where wording is clear and unambiguous liability will be excluded; Where wording is general, any ambiguity will be resolved against the party relying on the clause; and Where negligence is the only possible basis of liability, it may be excluded by general wording; where this is not the case, only non-negligent liability will be excluded, unless it is too remote. The courts have used both the contra proferentem rule and Canada Steamship to strike down numerous exclusion clauses. However, the introduction of the Unfair Contracts Terms Act 1977 ("UCTA") has led to the defeat of exclusion clauses in many contracts through different means. UCTA applies to contracting business parties, where one party deals on the other's written standard terms of business. Where this is the case, UCTA states that an exclusion clause will only be valid to the extent that it was a fair and reasonable clause to have been inserted having regard to the circumstances which ought to have been known to the parties at the time of contracting. UCTA doesn't apply to negotiated clauses and excludes various types of contract such as insurance and employment contracts, many company related contracts or contracts relating to interests in land. Nonetheless, when required to interpret exclusion clauses in commercial contracts to which UCTA does not apply, the courts have tended to look more to the intentions of the parties and have demonstrated a softening in their approach to strict literal interpretation, since the introduction of UCTA.

The recent case of Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2017] EWCA has clarified the courts' approach to exclusion clauses in commercial contracts to which UCTA does not apply. It has confirmed a limited role for the contra proferentem rule and Canada Steamship, in favour of respecting the parties' freedom to allocate risk as they see fit.

Persimmon Homes, Taylor Wimpey and BDW Trading were part of a consortium of site developers...

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