Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd (Ailsa Craig Fishing Co Ltd v Securicor (Scotland) Ltd)

A contractual limitation of liability must be construed strictly against the party relying upon it and must be clear and unambiguous. The court should nevertheless give its language its natural meaning and should not manufacture ambiguity by strained construction.

Limitation clauses do not attract the full rigour applied to exclusion and indemnity clauses. Their construction may reflect the risks assumed, the remuneration received and the other party’s opportunity to insure. Clear language may limit liability for negligence and for a total failure to provide the contracted service. Different limits applying respectively to each claim, each incident and an annual aggregate can operate cumulatively without inconsistency.

Securicor contracted to provide continuous security cover for fishing vessels in Aberdeen Harbour during the New Year period. The fishing vessel Strathallan sank while berthed in the harbour and caused the neighbouring George Craig to sink. The Lord Ordinary found that both losses resulted from Securicor’s breach of contract and negligence. Damages exceeding £55,000 were assessed in each of two related actions.

The First Division of the Court of Session allowed Securicor’s reclaiming motion in part. It held that contractual conditions did not exclude liability but limited its amount. The vessel owners appealed against the finding that liability was limited. The questions were whether the limitation condition applied to a total failure to provide the service and, if it did, whether the applicable limit was £1,000 or £10,000.

1. The appeals were dismissed unanimously. Lord Wilberforce and Lord Fraser of Tullybelton delivered the substantive speeches. Lord Elwyn-Jones, Lord Salmon and Lord Lowry agreed with their reasoning and conclusions.

2. Per Lord Wilberforce and Lord Fraser, the effectiveness of a limitation clause is a question of construction in the context of the whole contract. Such a clause must be construed strictly against the proferens and must express its effect clearly and unambiguously. The court must, however, give the words their natural meaning and must not create ambiguity by strained construction.

3. Per Lord Wilberforce and Lord Fraser, clauses limiting liability are not treated with the same hostility or subjected to the same exacting standards as clauses excluding liability or providing an indemnity. A limitation may reasonably allocate risk by reference to the scale of the potential loss, the remuneration charged and the other party’s opportunity to insure.

4. Per Lord Wilberforce and Lord Fraser, condition 2(f) expressly extended to liability arising from a failure to provide the contracted services. There was no basis for construing “failure” as confined to partial failure. The condition therefore applied even on the assumption, favourable to the appellants, that Securicor had totally failed to perform the relevant obligation. Pollock & Co v Macrae did not establish a general rule that a clause could never apply after a total breach. To the extent that Mechans Ltd v Highland Marine Charters Ltd suggested such a rule, it was erroneous and should not be followed.

5. Per Lord Wilberforce and Lord Fraser, neither the relationship between the ineffective exclusion clause and the limitation clause nor the opening words of condition 2(f) made the limitation uncertain. An inconsistency which cast doubt upon the earlier exclusion clause did not reciprocally make the later limitation clause ambiguous.

6. Per Lord Wilberforce and Lord Fraser, condition 2(f)(i)(a) imposed a limit of £1,000 upon each claim. Condition 2(f)(i)(b) imposed a limit of £10,000 upon the aggregate consequences of each incident, while the proviso imposed a £10,000 aggregate limit for incidents within any consecutive 12 months. The overlapping limits were clear and consistent. Each of the two claims was accordingly limited to £1,000.

7. Per Lord Fraser, the references to liability arising under express or implied contractual terms, at common law or in any other way were sufficiently wide to include Securicor’s own negligence and that of its employees. Securicor was awarded its costs in the House.

1. House of Lords: The vessel owners’ appeals were dismissed unanimously. The contractual limitation was effective, and each claim was limited to £1,000.

2. First Division of the Court of Session: Securicor’s reclaiming motion was allowed in part. Liability was not excluded but was limited in amount.

3. Lord Ordinary: Lord Wylie held that the loss of both vessels was caused by Securicor’s breach of contract and negligence. He rejected both exclusion and limitation arguments, found Securicor liable for the loss of the Strathallan, and required it to relieve the appellants of their liability for the loss of the George Craig.