Persimmon Homes Ltd v Ove Arup & Partners Ltd & Anor

An exclusion clause in a negotiated commercial contract must be construed according to its natural meaning, read in its documentary and factual context and against the allocation of risk agreed by the parties. A clause excluding liability for any claim in relation to asbestos is not confined to liability for causing asbestos to spread. It may exclude negligence claims alleging failure to identify or advise about pre-existing asbestos. The contra proferentem rule has a very limited role in negotiated commercial contracts between parties of equal bargaining power. Traditional guidelines on exemption clauses provide little assistance in that setting. Even if applied, broad words may cover negligence where no realistic non-negligent basis for the claim exists.

Three developers appealed from Stuart-Smith J’s decision on preliminary issues in Technology and Construction Court proceedings against two Arup companies. The developers alleged breach of contract, negligence and breach of statutory duty after asbestos was encountered during development of the Barry Quays site. They claimed losses including an alleged overpayment for the site and additional development costs.

The relevant agreements imposed aggregate limits for pollution and contamination and stated that liability for any claim in relation to asbestos was excluded. The judge held that the clauses excluded all pleaded asbestos claims and limited other contamination liability to £5 million. The appeal concerned the natural meaning of the clauses, whether they addressed only the causing or spreading of asbestos, and whether they excluded negligence.

Appeal dismissed. Lord Justice Jackson delivered the judgment, with Lord Justices Moylan and Beatson agreeing.

1. Construction of the clauses. The exemption clauses contained three distinct limbs: an overall liability cap, a £5 million limit for pollution and contamination, and an exclusion for any claim in relation to asbestos. The words “in relation to” were naturally broad. The word “for” did not have a causative meaning requiring the claim to arise from Arup having caused asbestos or contamination to spread.
2. The contractual context reinforced that construction. The provisions formed part of arrangements identifying the risks Arup would accept and insure against, and those it would not accept or insure against. It would be commercially irrational to exclude liability for moving asbestos while retaining liability for leaving pre-existing asbestos undiscovered. The contamination limb therefore applied to claims in relation to pollution and contamination generally, while the asbestos limb excluded all claims in relation to asbestos, including negligence claims based on failure to identify or advise about it.
3. Construction principles. In negotiated commercial contracts between parties of equal bargaining power, contra proferentem has a very limited role. The words used, commercial sense, and documentary and factual context will normally determine meaning: K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904; [2012] Ch 497, and Transocean Drilling UK Ltd v Providence Resources PLC [2016] EWCA Civ 372; [2016] 2 Lloyd’s LR 51.
4. The Canada Steamship guidelines were of very little assistance in the circumstances. The court observed that, in commercial contracts, they were more relevant to indemnity clauses than exemption clauses: Canada Steamship Lines Ltd v The King [1952] AC 192. In any event, even if those guidelines applied, the words were wide enough to cover negligence and the suggested non-negligent regulatory breaches were fanciful or remote. They did not prevent the exclusion from operating.
5. The pre-contract proposal and letter of intent could not be used as aids to construing the final agreement, but they recorded the parties’ background knowledge and the risks to which they had directed their attention. The preliminary issues were therefore answered in Arup’s favour.

1. Court of Appeal (Civil Division): dismissed the developers’ appeal.
2. Queen’s Bench Division, Technology and Construction Court: Stuart-Smith J decided the preliminary issues on 7 December 2015, holding that the asbestos exclusion barred all pleaded asbestos claims and that other contamination liability was limited to £5 million.