UK: Contra Proferentem - Another Latin Principle Bites The Dust?

Contra proferentem is a legal principle which, broadly speaking, means that where there is ambiguity in a contract, a clause will be construed against the party who put it forward and seeks to rely upon it.

But in its recent judgment in Persimmon Homes Limited and Others v Ove Arup & Partners Limited and another [2017] EWCA Civ 373, the Court of Appeal has suggested that the effect of the rule in commercial contracts should now be restricted.

Background facts

The claimants were members of a consortium formed to bid for the purchase of a site in Barry docks, South Wales, with a view to developing it for commercial and residential use.

The defendants were civil engineers who had originally been engaged by the owner of the site to advise and supervise on its regeneration prior to sale; and who were subsequently engaged by the claimants to act as consultant for the purposes of their bid for the site.

The claimants succeeded in their bid and purchased the site for £53 million in September 2007. In 2009, the claimants engaged the defendants (among other engineering contractors) to provide further engineering services for the development of the site, including "geotechnical / contamination investigation". In 2012, when excavation commenced, the groundworks contractor found substantial quantities of asbestos.

High Court proceedings

In 2014, the claimants brought proceedings against the defendants for breach of contract, negligence and breach of statutory duty. They contended that the asbestos discovered on site was significantly more than expected, and that the defendants had been negligent in failing to identify and report on the asbestos at an early stage. As a result the claimants said they had overpaid for the site by £2 million, and that the late discovery had caused them to incur additional costs.

In their defence, the defendants referred to a clause which was contained both in the 2009 agreement between the claimants and defendants, and in the individual warranties given by the defendants to each of the claimants. The clause read as follows:

"Liability for any claim in relation to asbestos is excluded".

The defendants said this clause excluded liability for all the claims brought against them by the claimants. The High Court ordered a trial of preliminary issues to determine, as a matter of principle, whether the clause excluded liability for each and every claim asserted in the claimants' particulars of claim.

High Court decision

At first instance, the judge held that the exclusion clause exempted the defendants from liability for the claims asserted by the claimants. In commercial contracts to which the Unfair Contract Terms Act 1977 does not apply, parties should be free to allocate risks as they see fit, and this clause was an example of that. The clause barred all claims relating to asbestos. Its meaning was clear and the court should give effect to it.

Court of Appeal

The claimants appealed the decision to the Court of Appeal. They contended that:

  1. In context, the phrase "liability for any claim in relation to asbestos" meant "liability for causing the presence of asbestos" - the clause therefore excluded liability only for causing the spread of asbestos, not for failing to advise on its presence;
  2. Even if the clause was not as narrow as they contended, it was not wide enough to exclude liability for negligence; and
  3. The judge erred in failing to apply contra proferentem rules.

In delivering the leading judgment, with which Beatson and Moylan LJJ agreed, Jackson LJ considered first the natural meaning of the exclusion clause, and then other 'rules' of contractual construction.

Natural meaning of the clause

Jackson LJ identified that the exclusion clause in the agreement and the warranties had three separate limbs:

  1. an overall limit of liability of £12 million;
  2. a limit on liability for pollution and contamination of £5 million; and
  3. an exclusion in relation to asbestos.

The parties agreed that the overall limit on liability (limb (i)) applied to all the claimants' pleaded claims, but there was dispute as to the meaning and effect of limbs (ii) and (iii) of the exclusion clause.

The claimants argued that in limbs (ii) and (iii), the phrase "liability for" meant "liability for causing". The limit on liability "for pollution and contamination" was a limit on liability for causing pollution and contamination. Asbestos was effectively a sub-category of pollution and contamination, and so the exclusion of liability for asbestos (limb (iii)) was an exclusion of liability for causing asbestos contamination. They argued that the parties could not have intended to exclude liability for any asbestos claim, only for causing asbestos contamination.

Jackson LJ held that the defendants' interpretation of the clause followed its natural meaning. The effect of the claimants' submissions was that the parties had agreed that the defendants would not be liable for causing the spread of asbestos by moving it from one place to another, but that they would be liable simply for leaving it in place. That was non-sensical. Both language and business common sense led to the conclusion that the defendants' interpretation of the clause was right - on its natural meaning, it excluded all claims relating to asbestos, not only claims for causing the spread of asbestos.

It was also relevant that the limits were tied to the insurance obligations on the defendants under the 2009 agreement and the individual warranties.

That effectively dealt with the case as a matter of routine interpretation, but the Court went on to consider the contra proferentem rule.

Contra proferentem

In the alternative, the claimants submitted that the exclusion clauses should be construed against the defendants on the basis of contra proferentem, and/ or that they were not wide enough to exempt the defendants from liability for negligence.

Following the judgments of Lord Neuberger MR in K/S Victoria Street v House of Fraser (Stores Management) Limited [2011] EWCA Civ 904 and Lord Justice Moore-Bick in Transocean Drilling UK Ltd v Providence Resources PLC [2016] EWCA Civ 372, Jackson LJ held that "in relation to commercial contracts, negotiated between parties of equal bargaining power, [the contra proferentem rule] now has a very limited role." Hoorah to that!

Quoting Lord Neuberger MR, he said "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". Hoorah again.

The contra proferentem rule therefore had no impact on construction of the exclusion clause in this case.

Excluding negligence

Jackson LJ then turned to look at case law on excluding liability for negligence, starting with Canada Steamships Lines Ltd v The King [1952] AC 192. In that case, the court held that where there was no express reference in an exclusion clause to negligence, in interpreting the clause the court must ask first whether the exclusion is wide enough to cover negligence, and second whether it could reasonably have been intended to cover a head of damage other than negligence (in which case it would be construed to cover only that head of damage other than negligence).

Although he found the Canada Steamships guidelines of limited assistance in this case, Jackson LJ found that the wording of the exclusion clauses was wide enough to exclude liability for negligence, and it was not possible to think of any other non-fanciful ground but negligence the parties could have desired to exclude by the clause. Accordingly the clause was effective to exclude the defendants' liability for all the asbestos related claims brought by the claimants.

Although the Court did not address the so-called Canada Steamships guidelines in the same blunt way that it did the contra proferentem rule, it is clear that the Court found it, again, of limited assistance as a rule of interpretation in the 21st century.

Comment

The case is an illustration of the courts' approach to the interpretation and construction of contracts - that the rules on interpretation, under Arnold v Britton & Ors [2015] UKSC 36 and Wood v Capita Insurance Services Ltd [2017] UKSC 24, give the courts all the room they need to interpret contracts as the words and the context requires, leaving no room remaining for archaic 'canons' of interpretation such as the contra proferentem rule and the Canada Steamships guidelines.

In particular, the Court of Appeal was firmly of the view, and anxious to state, that sophisticated commercial parties are free to allocate risks between them as they see fit (which the insurance provisions in the 2009 agreement and the individual warranties had clearly and properly achieved); and the court will not allow rules of contractual construction to get in the way of the parties' language and business common sense.

Jackson LJ noted in particular that the disputed wording appeared in a clause headed "professional indemnity insurance". It was clear that the parties had considered this wording in the context of allocating and insuring for risk, and exemption clauses are, he said, "part of the contractual apparatus for distributing risk". The clauses reflected those risks the defendants were prepared to accept (and insure against) and those which they were not. Asbestos fell into the latter category.

He also recognised that the fees charged by the defendants would allow an element for the cost of insuring against those risks they accepted, and that the fees would no doubt have been greater had asbestos been a risk the defendants were accepting and insuring against.

So, contra proferentem at last bites the dust, This is no loss, as recently it has only ever been used if there was no better argument available; and it's perhaps one less thing to worry law students with on week one of the contract law module at university.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Sep 2019, Seminar, London, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

8 Oct 2019, Seminar, Birmingham, UK

Supporting the development of paralegals, trainees and lawyers of up to five years' PQE by providing valuable knowledge and guidance together with practical tips.

10 Oct 2019, Seminar, London, UK

Supporting the development of paralegals, trainees and lawyers of up to five years' PQE by providing valuable knowledge and guidance together with practical tips.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions