Price Waterhouse (A Firm) v University Of Keele

Contractual exclusion and limitation provisions must be construed as a whole, with the court seeking to give effect to each limb. Where a clause accepts liability for loss directly caused by services and then excludes all other liability, the latter is a residual category. Loss directly caused by negligent services therefore remains within the accepted liability, even if separately described as failure to realise anticipated savings or benefits, subject to the clause’s other operative limits. Repetition or redundancy does not require contractual words to be disregarded. The contra proferentem rule is unnecessary where proper construction produces a clear meaning. A refusal to guarantee a benefit does not, by itself, exclude liability for loss of that benefit caused by negligence.

Price Waterhouse agreed to advise the University of Keele on establishing a profit-related pay scheme. The scheme failed to satisfy the relevant requirements because of negligent advice concerning the calculation of employee participation. The High Court, Chancery Division, entered judgment for the University for damages and interest.

The engagement terms capped liability and accepted liability for loss or damage suffered as a direct result of the services, while excluding all other liability, including failure to realise anticipated savings or benefits. Hart J held that the claimed losses fell within the accepted liability. Price Waterhouse appealed against that construction and contended that the Unfair Contract Terms Act 1977 should also be considered. The central issue was whether loss of anticipated savings caused by negligent advice was excluded by the second limb of the clause.

1. Appeal dismissed. The damages claimed for loss of anticipated savings caused by negligent advice fell within the first limb of the contractual clause and were not excluded by the second limb. The judge reached the correct conclusion, although the Court of Appeal differed from his reasoning that the two limbs were self-contradictory.
2. Arden LJ held that contractual provisions should be read as a whole. The court should first seek to reconcile apparently overlapping clauses and give effect to each. In Pagnan SA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Law Reports 342, inconsistency was described as requiring contradiction or conflict such that effect could not fairly be given to both terms. Here, the first limb positively accepted liability for loss directly resulting from the services, subject to the cap and other stated conditions. The second limb began with the word other. That word made it a residual category, covering liability not already within the first limb. Loss of savings directly caused by negligent services therefore remained within the accepted liability.
3. The preceding cap, fixed at twice the anticipated saving, supported that construction because it indicated that recovery of an anticipated benefit was contemplated in some circumstances. The interpretive principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 did not justify altering the ordinary meaning of the clause where there was no relevant background evidence. The contra proferentem rule was unnecessary because the properly construed clause had a clear meaning.
4. Following Homburg Houtimport BV v Agrosin Ltd (the Starsin) [2003] 2 WLR 711, overlap or repetition did not require the second limb to be disregarded. A professional adviser’s refusal to warrant that savings would be achieved did not exclude the consequences of its own negligence where that negligence caused the loss.
5. Wall LJ adopted Arden LJ’s reasoning. Buxton LJ agreed with the result but also relied on the strict construction principle for exclusion clauses stated in Ailsa Craig Fishing Co v Malvern Fishing Co [1983] 1 WLR 964. The question under the Unfair Contract Terms Act 1977, including section 2(2), did not require determination.

• Court of Appeal (Civil Division) — Appeal from orders of Hart J in the High Court, Chancery Division, dated 2 and 10 July 2003. The appeal was dismissed: [2004] EWCA Civ 583.