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.
At issue in Persimmon Homes v Ove Arup  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 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. The Court of Appeal reinforced this trend and found that the circumstances for application of the rule were not present in this case.
Canada Steamships - no longer full steam ahead
The Court also considered the presumption stated by the Privy Council in Canada Steamships Lines Ltd v R  AC 192, that (unless stated otherwise) an exemption clause is not intended to apply to liability for negligence. As there was no such statement in the exemption clause in this case, the Court could have relied upon the Canada Steamships judgment.
But instead the Court of Appeal concluded that the Canada Steamships rules were "of very limited assistance" and commented that "at any rate in commercial contracts, the Canada Steamships guidelines (in so far as they survive) are now more relevant to indemnity clauses than to exemption clauses".
The Court went onto comment that:
What next for New Zealand?
The Canada Steamship principles have been applied in New Zealand in the past, albeit in cases that largely predate the modern acceptance of contextual interpretation. It will be interesting to see whether the New Zealand courts take a similar approach to the Canada Steamships principles in future.
In the meantime, it is imperative that commercial advisers obtain appropriate legal advice on the limitation of liability.
1 See Transocean Drilling UK Ltd v Providence Resources PLC  EWCA Civ 372; DA Constable Syndicate v Auckland District Law Society Inc  NZCA 237  3 NZLR 23 at , Executors Ltd v QBE Insurance (International) Ltd  NZCA 447 2 NZLR at , and Tower Insurance Ltd v Skyward Aviation 2008 Ltd  NZSC 185,  1 NZLR 341 at .
2 By the Court of Appeal in Hawkes Bay and East Aero Club Inc v McLeod  NZLR 289 (CA) at 296, and Airwork (NZ) Ltd v Vertical Flight Management Ltd  1 NZLR 641 (CA) at 652-653.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.