Persimmon Homes Ltd v Ove Arup & Partners Ltd & Anor [2017] EWCA Civ 373

[2017] EWCA Civ 373

Case No A1/2016/0483

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM Queesn's Bench Division, Technology and Construction Court

Mr Justice Stuart-Smith

HT2014000199

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 25/05/2017

Before

LORD JUSTICE JACKSON

LORD JUSTICE BEATSON

LORD JUSTICE MOYLAN

Between

(1) Persimmon Homes LimitedAppellants / Claimants

(2) Taylor Wimpey UK LimitedAppellant

(3) BDW Trading LimitedAppellant

(1) Ove Arup & Partners LimitedRespondents / Defendants

(2) Ove Arup & Partners International LimitedRespondent

Marcus Taverner QC & Tom Owen (instructed by Dentons UKMEA LLP) for Appellant

Manus McMullan QC & Rónán Hanna (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for Respondent

Hearing Hearing dates : Wednesday 3rd & Thursday 4th May 2017

Judgment Approved

Lord Justice Jackson :

[1]This judgment is in six parts, namely: Part 1 – Introduction Paragraphs 2 – 7 Part 2 – The facts Paragraphs 8 – 30 Part 3 – The present proceedings Paragraphs 31 – 36 Part 4 – The appeal to the Court of Appeal Paragraphs 37 – 39 Part 5 – Grounds 1 & 2: The natural meaning of the exemption clauses Paragraphs 40 – 50 Part 6 – Ground 3 & 4: The canons of construction and whether the exemption clauses extend to negligence by Arup Paragraphs 51 – 62

Part 1 – Introduction

[2]This is an appeal by developers against a decision that their engineers have no liability for unexpected quantities of asbestos found on site. The issue in this appeal is whether the following clause, when read in context, exempts the engineers from liability for any asbestos which they may negligently have failed to identify:

“Liability for any claim in relation to asbestos is excluded.”

[3]The claimants in the action and appellants in the Court of Appeal are Persimmon Homes Limited (“Persimmon”), Taylor Wimpey UK Limited (“Taylor Wimpey”) and BDW Trading Limited (“BDW”). Together they are operating as a consortium (“the Consortium”).

[4]The defendants in the litigation and respondents in the Court of Appeal are Ove Arup & Partners Limited and Ove Arup & Partners International Limited. No distinction has been drawn between those two companies for the purposes of this appeal. I shall refer to the defendants as a single entity, “Arup”.

[5]In this judgment I shall use the following abbreviations: “ABP” means Associated British Ports. “Berridges” means Berridge Environmental Laboratories Limited. “Cuddy” means Cuddy Demolition and Dismantling Limited. “ESP” means Earth Science Partnership. “Healer” means Healer Associates Limited. “UCTA” means the Unfair Contract Terms Act 1977. “WDA” means the Welsh Development Agency.

[6]The present appeal arises from a decision on preliminary issues. No evidence was called in the court below. The relevant facts either emerge as common ground on the pleadings or are set out in a Schedule of Agreed Facts and Assumptions, which the parties have prepared jointly.

[7]After these introductory remarks, I must now turn to the facts.

Part 2 – The Facts

[8]Barry is a seaside town in Wales, about six miles west of Cardiff. It was once a thriving port through which much coal was exported. That industry has now gone and there is little use for the docks.

[9]In the early 1990s ABP and WDA decided to regenerate approximately 170 acres of land adjacent to Barry Number 1 Dock. This project involved site clearance, reclamation, some limited decontamination, earthworks and the provision of basic infrastructure.

[10]ABP engaged Arup as civil engineers in connection with the project. Arup were principally engaged to give advice and to supervise, rather than to undertake physical investigations or groundwork. ABP also engaged many other consultants and contractors, including Berridges. Berridges investigated and reported on the presence of contaminants, in particular asbestos. The presence of such contamination was hardly a surprise. Barry’s past history as a major industrial centre made the presence of contamination likely.

[11]Arup started their work in May 1992. There was a time lag of some four years before the parties got round to drawing up and executing a formal contract.

[12]By a deed of appointment dated 20th February 1996 (“the 1996 appointment”) ABP appointed ARUP to provide engineering and environmental services, as set out in the documents attached. Those services included a wide range of advisory, design and supervisory services. The subject matter included site contamination, traffic issues, archaeology, ecology, drainage, statutory services, road links, integration with rail links and compliance with local authority requirements.

[13]After undertaking that regeneration project, ABP invited tenders for the purchase of the site. A consortium comprising Persimmon, Taylor Wimpey and BDW expressed interest.

[14]In December 2006 or January 2007 the Consortium invited Arup to a meeting, with a view to Arup acting as consultant to the Consortium for the purpose of their bid. That meeting took place on 22nd January 2007.

[15]By an exchange of emails on 23rd January 2007 the Consortium engaged Arup to provide consultant engineering services with regard to the Consortium’s bid for the site. The fee was costs plus 10%, subject to an overall cap of £10,000 plus VAT.

[16]The parties have referred to that exchange of emails as “the 2007 contract” and I shall do the same. The 2007 contract required Arup to produce a constraints plan; to advise on sustainability and the potential for removal of a railway in the west of the site; to supply “information on infrastructure quantities and abnormals to cost up the scheme”. The 2007 contract also required to Arup to attend weekly meetings up to March 2007.

[17]Between January and March 2007 Arup provided services to the Consortium in accordance with the 2007 contract. The Consortium put in a successful bid. They purchased the site for £53 million on 21st September 2007. The Consortium intended to construct a commercial and residential development on the site.

[18]Whilst the purchase negotiations were proceeding, the Consortium discussed with Arup the possibility of Arup providing further professional services. As part of these discussions Arup provided a document setting out their proposals for future scope of work and fees. I shall refer to this as “the June proposal”. The proposed future scope of work included: a) Geotechnical/contamination input; b) Transportation assessment; c) Earthworks and remediation; d) On-site spine road highways, drainage, utilities, services diversions and footbridge; e) Off-site highways and foul improvement; f) Input into environmental impact assessment produced by others; g) Public realm and public open spaces; h) Site presence and as-built drawings; i) BREEAM eco-homes assessment.

[19]Clause 14 of the June 2007 proposal stated:

“14.0 Contract and Limits of Liability We propose that the appointment will be in accordance with ACE agreement or similarly worded appointment contract. Assuming the above commission includes all of the above elements, and the contract is with one party, we propose that the total liability of Arup is limited to £10m, with the liability for pollution limited to £5m in aggregate. We would be prepared to provide a professional indemnity of £5m for each and every event. The liability for any claim in relation to asbestos is excluded. Warrantees would be made available to the three consortium members, with wording to be agreed.”

We propose that the appointment will be in accordance with ACE agreement or similarly worded appointment contract. Assuming the above commission includes all of the above elements, and the contract is with one party, we propose that the total liability of Arup is limited to £10m, with the liability for pollution limited to £5m in aggregate. We would be prepared to provide a professional indemnity of £5m for each and every event. The liability for any claim in relation to asbestos is excluded. Warrantees would be made available to the three consortium members, with wording to be agreed.”

[20]The Consortium decided to appoint Arup to perform some, but not all, of the services set out in the June proposal. They sent a letter of intent on 17th October 2007, on the basis of which Arup started work. Paragraph 8 of the letter stated:

“Your liability to us under this letter (whether in contract, tort (including negligence), breach of statutory duty, restitution or otherwise) shall be limited to £2,000,000 (two million pounds).”

[21]At this point I interject to say that both the June proposal and the letter of intent are part of the pre-contract negotiations between the parties. They cannot be used as aids to construing the final agreement. On the other hand those documents record the background knowledge of the parties and the risks to which they were turning their minds.

[22]In due course the Consortium and Arup entered into a written contract of engagement which superseded the letter of intent. This contract was dated 22nd September 2009. I shall refer to it as “the 2009 agreement”.

[23]By the 2009 agreement the Consortium engaged Arup to provide engineering services for the Barry Docks project for a fee of £655,000. The agreed services fell into the following categories: a) Strategic Flooding Consequences Assessment; b) Revised constraints plan and programme updates, costs advice an input on drainage and highways up to November 2007; c) Geotechnical/Contamination investigation; d) Transport assessment input; e) Specific input on earthworks and remediation consisting of the preliminary and detail design of East Quay, Arno Quay and West Pond and South Quay and the preparation and submission of design information to discharge planning conditions; f) Strategic level input on on-site highways and drainage to assist masterplanning and earthworks/remediation; g) Engineering input in environmental impact assessment dealing with geology and ground conditions, water quality and drainage, transportation including text sections and figures.

[24]The 2009 agreement contained the following provisions: “1. CONSULTANT’S OBLIGATIONS 1.1. The terms and conditions of this Agreement and the warranties and undertakings which it contains are deemed to apply to all services performed and to be performed by the Consultant in relation the Project both before and after the date of this Agreement. 1.2. The Consultant shall provide the Services in accordance with this Agreement and with such reasonable written instructions (if any) as the Consortium and/or the project manager stated in Schedule 1 (“the Project Manager”) may give to the Consultant. 1.3. Where and to the extent that the Consultant has already performed or partly performed any of the Services, the Consultant warrants that:1.3.1 it has done so in accordance with the standards of reasonable skill and care and all other terms and conditions set out in this Agreement;

1.3.2 all warranties and undertakings in the Agreement apply to them;

1.3.3 the Consultant shall complete the performance of any part performed Services in due time in accordance with this Agreement; and

1.3.4 all sums (if any) paid to the Consultant to date in respect of work done in relation to the Project are payments on account of sums due under this Agreement. 1.4. The Consultant warrants that it has exercised and shall continue to exercise in the performance of its duties under this Agreement all the reasonable skill and care as is to be expected of a properly qualified and competent member of its profession experienced in carrying out work such as its duties under this Agreement in relation to Projects of similar scope, size, nature, timescale and complexity and on a similar site or at a similar location to the Project. 1.4A Notwithstanding any other term of this Agreement the Consultant’s obligation in relation to the performance of the Services shall be to exercise the duty of care in clause 1.4 and the Consultant shall only liable if and to the extent that he has failed to exercise the duty of care and for the avoidance of doubt the Consultant shall not be under any fitness for purpose obligation under this Agreement. … 6. PROFESSIONAL INDEMNITY INSURANCE 6.1 The Consultant will at its own cost take out and maintain professional indemnity insurance, with reputable insurers carrying out business in the European Union, with a limit of indemnity of not less than £5,000,000 (five million pounds) for any one occurrence or series of occurrences arising out of any one event provided always that: 6.1.1. such insurance shall be in place from the date of this Agreement until no less than 12 years after the completion of the Services; 6.1.2. the insurance premiums in respect of the insurance shall at all times be the responsibility of the Consultant; … 6.3 The Consultant’s aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory duty or otherwise (other than for death or personal injury caused by the Consultant’s negligence) shall be limited to £12,000,000 (twelve million pounds) with the liability for pollution and contamination limited to £5,000,000 (five million pounds) in the aggregate. Liability for any claim in relation to asbestos is excluded.” 1.3.1 it has done so in accordance with the standards of reasonable skill and care and all other terms and conditions set out in this Agreement; 1.3.2 all warranties and undertakings in the Agreement apply to them; 1.3.3 the Consultant shall complete the performance of any part performed Services in due time in accordance with this Agreement; and 1.3.4 all sums (if any) paid to the Consultant to date in respect of work done in relation to the Project are payments on account of sums due under this Agreement. 6.1.1. such insurance shall be in place from the date of this Agreement until no less than 12 years after the completion of the Services; 6.1.2. the insurance premiums in respect of the insurance shall at all times be the responsibility of the Consultant;

[25]The 2009 agreement required Arup to enter into individual deeds of warranty with each of the three members of the Consortium. Arup duly did so on the following dates: 2nd March 2010: warranty in favour of BDW; 24th April 2010: warranty in favour of Persimmon; 22nd June 2010: warranty in favour of Taylor Wimpey.

[26]The warranties included the following provisions:

“BACKGROUND (A) The Consultant has been appointed by Associated British Ports (“the Client”) under a deed of appointment dated 20th February 1996 (“the Appointment”) to provide professional services in relation to the regeneration of No1 Dock, Barry – Phase 1 (as defined in the Appointment as “the Project” which expressions has the same meaning in this Deed). (B) By an agreement dated 21st September 2007 and made between the Client and the Beneficiary the Client is required to procure a warranty from the Consultant in favour of the Beneficiary. (C) The Consultant is obliged under the Appointment to give a warranty in favour of the Beneficiary. … 2. CONSULTANT’S WARRANTIES The Consultant warrants to the Beneficiary that it has performed and will continue to perform its duties under the Appointment in accordance with the Appointment and that it has exercised and will continue to exercise in the performance of those duties the reasonable skill and care to be expected of a properly qualified member of its profession experienced in carrying out such duties such as its duties under the Appointment in relation to a Project of a similar scope, nature, timescale and complexity and on a similar site or at a similar location to the Project. … 4. PROFESSIONAL INDEMNITY INSURANCE 4.1 The Consultant by this Deed covenants with the Beneficiary that it has at its own cost taken out and will maintain professional indemnity insurance with reputable insurers carrying on business in the European Union with a limit of indemnity of not less than £5,000,000 (five million pounds) for each and every claim (but aggregate in respect of contamination and pollution risks), in relation to the Project provided always that: 4.1.1. such insurance shall be in place from the date of commencement of the Consultant’s services until no less than 12 years after completion of the services under the Appointment; 4.1.2. if such insurance is not available to the Consultant (and/or members of the Consultant’s profession engaged in services of a similar scope, size, nature and complexity as the Consultant) at commercially reasonable rates and terms (excluding any increase in premiums attributable to the actions, omissions, errors or defaults of the Consultant), the Consultant and the Beneficiary will meet and the Consultant will outline the steps he intends to take to manage such risks. If the steps proposed by the Consultant are not reasonably acceptable to the Beneficiary, the parties shall agree an alternative method of managing such risk. 4.2 The Consultant will provide the Beneficiary with reasonable evidence that the policies referred to in this clause 4 are in full force and effect together with a summary of the policy terms and conditions. 4.3 The Consultant’s aggregate liability under this Deed whether in contract, tort (including negligence), for breach of statutory duty or otherwise (other than for death or personal injury caused by the Consultant’s negligence) shall be limited to £5,000,000.00 (five million pounds) with the liability for pollution and contamination limited to £5,000,000.00 (five million pounds) in the aggregate. Liability for any claim in relation to asbestos is excluded.”

The Consultant warrants to the Beneficiary that it has performed and will continue to perform its duties under the Appointment in accordance with the Appointment and that it has exercised and will continue to exercise in the performance of those duties the reasonable skill and care to be expected of a properly qualified member of its profession experienced in carrying out such duties such as its duties under the Appointment in relation to a Project of a similar scope, nature, timescale and complexity and on a similar site or at a similar location to the Project. 4.1.1. such insurance shall be in place from the date of commencement of the Consultant’s services until no less than 12 years after completion of the services under the Appointment; 4.1.2. if such insurance is not available to the Consultant (and/or members of the Consultant’s profession engaged in services of a similar scope, size, nature and complexity as the Consultant) at commercially reasonable rates and terms (excluding any increase in premiums attributable to the actions, omissions, errors or defaults of the Consultant), the Consultant and the Beneficiary will meet and the Consultant will outline the steps he intends to take to manage such risks. If the steps proposed by the Consultant are not reasonably acceptable to the Beneficiary, the parties shall agree an alternative method of managing such risk.

[27]I shall refer collectively to clause 6.3 of the 2009 agreement and clause 4.3 of the warranties as “the exemption clauses”.

[28]Arup duly set about performing the services required under the 2009 agreement. Arup were not the only engineers involved in the project. The Consortium also engaged the services of other consultants and specialist contractors. These included the engineering firm Healer and its specialist geotechnical sub-consultant, ESP.

[29]In 2012 the Consortium engaged Cuddy as groundworks contractor for the development. The groundworks commenced in May 2012, including excavation.

[30]On or around 10th July 2012 Cuddy encountered asbestos. The Consortium maintained that the quantity of asbestos on site was substantially more than they expected. They took the view that Arup had been negligent in failing to identify and report upon that asbestos at an early stage. Accordingly, in order to recover damages for their losses, the Consortium commenced the present proceedings.

Part 3 – The present proceedings

[31]By a claim form issued in the Technology and Construction Court on 30th July 2014 Persimmon, Taylor Wimpey and BDW claimed damages against Arup for breach of contract, negligence and breach of statutory duty. The essence of the claim which the claimants advanced in their particulars of claim was that Arup’s breaches caused two types of loss. First, the purchase price was too high by £2 million. If properly advised, the Consortium would have bought the site for £51 million, rather than £53 million. Secondly, the late discovery of the asbestos caused the Consortium to incur additional costs which they could have avoided, if properly advised at an early stage.

[32]Arup served a defence denying liability for a number of reasons. In particular, Arup contended that their liability (if any) in respect of the asbestos was excluded by clause 6.3 of the 2009 agreement and clause 4.3 of the warranties given to each of the claimants.

[33]Very sensibly, the court ordered a trial of preliminary issues in order to resolve those questions. Issues 2 and 3 were formulated as follows:

“Issue 2: Do the words ‘Liability for any claim in relation to asbestos is excluded’ in Clause 6.3 of the [September 2009] Agreement and Clause 4.3 of the Warranties exclude liability for each and every claim asserted in the Particulars of Claim? Issue 3: If the answer is negative, is Arup’s liability to the Consortium for each and every claim asserted in the Particulars of Claim limited to £5,000,000.00: (a) Under the Agreement? (b) Under the Warranties?”

[34]The trial of the preliminary issues took place on 17th to 18th November 2015 before Stuart-Smith J. The judge handed down his reserved judgment on 7th December 2015. He answered “yes” to preliminary issues 2, 3(a) and 3(b).

[35]I would summarise the judge’s reasoning as follows:(i) The Barry Quays site was a challenging one. Arup’s services were required to deal with many important issues. Contamination, by asbestos or otherwise, was a modest part of those issues.

(ii) There has been a shift in the approach of the courts to limitation and exclusion clauses since the enactment of UCTA. In commercial contracts to which UCTA does not apply there is a growing recognition that parties should be free to allocate risks as they see fit.

(iii) Most of the claimants’ claims are for losses attributable to the Consortium’s late appreciation of the extent of the asbestos on site. The claimants also allege that Arup failed to prevent the spread of asbestos on site. The claimants accept that the latter claims are barred by the exemption clauses.

(iv) Properly construed, the exemption clauses cannot be limited in their operation to claims for causing the spread of asbestos or claims for non-negligent breaches of statutory duty.

(v) The exemption clauses bar all claims for asbestos, including those pleaded in the particulars of claim, and limit Arup’s liability in respect of other contamination to £5 million.

(vi) The fact that the exemption clauses form part of wider contractual provisions relating to professional indemnity insurance reinforces that conclusion.

(vii) The word “for” in the exemption clauses does not mean “for causing”.

(viii) The exemption clauses represent an agreed allocation of risks between the parties. Their meaning is clear. The courts should give effect to that meaning.

[36]The claimants were aggrieved by the judge’s decision. Accordingly they appealed to the Court of Appeal.

Part 4 – The appeal to the Court of Appeal

[37]By an appellant’s notice filed on 8th February 2016 the three claimant companies appealed to the Court of Appeal on grounds which I would summarise as follows:(i) The phrase “liability for pollution and contamination” in the first sentence of the two exemption clauses meant “liability for causing pollution and contamination”. It did not mean any liability in connection with pollution and contamination.

(ii) The phrase “liability for any claim in relation to asbestos” in the second sentence of the two exemption clauses should be construed in the same way. Asbestos is a sub-category of pollution and contamination. Therefore the second sentence excluded liability for any claim against Arup for causing the presence of asbestos.

(iii) Even if the above arguments are rejected, the second sentence of the clauses does not exclude liability for negligence.

(iv) The contra proferentem rule and the rules governing the construction of exemption clauses remain in place. The judge erred in failing to apply those rules.

[38]This appeal came on for hearing on 3rd – 4th May 2017. Mr Marcus Taverner QC and Mr Tom Owen appeared for the claimants, as they had done in the court below. Mr Manus McMullan QC and Mr Rónán Hanna appeared for Arup, as they had done in the court below. I am grateful to all counsel for their assistance.

[39]Grounds 1 and 2 are closely linked. Likewise grounds 3 and 4 are closely linked. I shall therefore address the two pairs of grounds separately, starting with grounds 1 and 2.

Part 5 – Grounds 1 and 2: The natural meaning of the exemption clauses

[40]Each of the exemption clauses has three separate limbs. They are(i) an overall limit of liability;

(ii) a limit on liability for pollution and contamination;

(iii) an exclusion in relation to asbestos.

[41]In clause 6.3 of the 2009 agreement the first limb specifies an overall limit of £12 million. In clause 4.3 of the warranties the first limb specifies an overall limit of £5 million. The second limb of both exemption clauses specifies a limit of £5 million on liability for pollution and contamination. The third limb of both exemption clauses excludes liability for any claim in relation to asbestos.

[42]There is no dispute between the parties as to the effect of the first limb of the exemption clauses. It imposes a limit on Arup’s liability for all of the claims pleaded in the particulars of claim. Mr Taverner confirmed this concession in answer to a question from the court. So the effect of limb 1 of clause 6.3 of the 2009 agreement is clear and undisputed.

[43]There remains a separate issue concerning limb 1 of clause 4.3 of the warranties, which came to the fore in answer to further questions from the court. That is whether the overall limit of £5 million applies to the Consortium as a whole or separately to each of the three claimant companies. Somewhat curiously, the judge was not asked to decide that issue. Therefore the issue has not been addressed in the grounds of appeal or the skeleton arguments. In those circumstances Mr Taverner submits, and Mr McMullan accepts, that this court should not deal with that question.

[44]I turn now to the second limb. The claimants’ case is neatly distilled in paragraphs 47 and 48 of their skeleton argument as follows:

“…the word “for” has a causative connotation such that it means “for” in the sense of meaning “for causing”

. It is not a matter of adding words, it is simply a matter of construing the meaning of the word “for” in its context. 48. In contrast, a liability consequent upon a failure properly to advise about a pre-existing, in-situ state of contamination or pollution is not a liability “for” pollution, or contamination but for failing to advise about a state of affairs.”

[45]Arup’s case is that that interpretation does not make sense. In so far as Arup were being engaged to investigate and advise upon contamination (a small part of their overall brief) the parties were clearly talking about Arup’s potential liability for failing to identify contamination. The possibility of Arup causing contamination to move from one place to another because of clumsy investigation procedures cannot possibly be the target of limb 2.

[46]In relation to limb 3, the parties advance the same arguments. The claimants contend that limb 3 applies to any claim for causing the spread of asbestos. Arup contend that limb 3 relates to any claim concerning asbestos.

[47]The essential difference between limbs 2 and 3 is that limb 2 imposes a limitation on liability for contamination, whereas limb 3 excludes liability altogether for one form of contamination, namely asbestos.

[48]Having reviewed the skeleton arguments and oral submissions of counsel, I am satisfied that Arup’s interpretation of limbs 2 and 3 is correct. I reach this conclusion for four reasons:(i) Arup’s interpretation accords with the natural meaning of the words used.

(ii) If “for” means “for causing” as Mr Taverner submits, the last sentence of the exemption clauses becomes bizarre, if not ungrammatical. One cannot sensibly read that sentence as saying: “Liability for causing any claim in relation to asbestos is excluded”.

(iii) As Mr McMullan submits, it would be nonsensical for the parties to agree that Arup are not liable if asbestos is moved from one part of the site to another, but are liable if it is left in place.

(iv) Clause 6 of the 2009 agreement and clause 4 of the individual warranties set out the professional indemnity insurance which Arup were required to obtain for the Barry Quays project. Clause 6.3 of the 2009 agreement and clause 4.3 of the warranties were clearly intended to limit Arup’s liability to the extent of the insurance cover. In that context it is absurd to read limbs 2 and 3 of the exemption clauses as confined to claims for moving contamination from one place to another.

[49]Let me now draw the threads together. Both the language used by the parties and any application of business common sense lead to the same conclusion. Limb 2 of the exemption clauses limits Arup’s liability for claims in relation to pollution and contamination to £5 million. Limb 3 of the exemption clauses excludes Arup’s liability for claims in relation to asbestos. Limb 2 is not limited to claims for causing the spread of contamination. Limb 3 is not limited to claims for causing the spread of asbestos.

[50]I therefore reject the first two grounds of appeal. I must now turn to grounds 3 and 4. Part 6 – Grounds 3 and 4: The canons of construction and whether the exemption clauses extend to negligence by Arup

[51]The claimants contend that even if clauses 6.3 and 4.3 do not have the narrow meaning suggested above, they are not so wide as to exempt Arup from the consequences of the breaches of duty alleged in the particulars of claim. In support of this contention, they rely upon the contra proferentem rule and the case law relating to the interpretation of exemption clauses.

[52]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. In relation to commercial contracts, negotiated between parties of equal bargaining power, that rule now has a very limited role. Lord Neuberger MR summarised the position succinctly in K/S Victoria Street v House of Fraser (Stores Management) Ltd

[2011] EWCA Civ 904

;

[2012] Ch 497

at [68]:

“…Quite apart from raising abstruse issues as to who is the proferens (and, in particular, whether the issue turns on the precise facts of the case or hypothetical analysis), “rules” of interpretation such as contra proferentem are rarely decisive as to the meaning of any provisions of a commercial contract. 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.”

The judgment of Moore-Bick LJ in Transocean Drilling UK Ltd v Providence Resources PLC

[2016] EWCA Civ 372

; [2016] 2 Lloyd’s LR 51 at [20] to [21] is to similar effect.

[53]In my view the meaning of clauses 6.3 and 4.3 is clear. The contra proferentem rule does not impact upon the resolution of the preliminary issues in this case.

[54]Turning to the case law on exemption clauses, the claimants rely upon the long line of authorities starting with Canada Steamship Lines Ltd v The King

[1952] AC 192

. In that well known case the Privy Council was considering the construction of two separate clauses in a lease, one being an exemption clause and the other being an indemnity clause. At [208] Lord Morton, delivering the judgment of the court, said:

“Their Lordships think that the duty of a court in approaching the consideration of such clauses may be summarized as follows:- (1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called “the proferens”) from the consequence of the negligence of his own servants, effect must be given to that provision. Any doubts which existed whether this was the law in the Province of Quebec were removed by the decision of the Supreme Court of Canada in The Glengoil Steamship Company v. Pilkington. (2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens in accordance with article 1019 of the Civil Code of Lower Canada: “In cases of doubt, the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation. (3) If the words used are wide enough for the above purpose, the court must then consider whether “the head of damage may be based on some ground other than that of negligence”, to quote again Lord Greene in the Alderslade case. The “other ground” must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, which is no doubt to be implied from Lord Greene’s words, the existence of a possible head of damage other then that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants.” (1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called “the proferens”) from the consequence of the negligence of his own servants, effect must be given to that provision. Any doubts which existed whether this was the law in the Province of Quebec were removed by the decision of the Supreme Court of Canada in The Glengoil Steamship Company v. Pilkington. (2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens in accordance with article 1019 of the Civil Code of Lower Canada: “In cases of doubt, the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation. (3) If the words used are wide enough for the above purpose, the court must then consider whether “the head of damage may be based on some ground other than that of negligence”, to quote again Lord Greene in the Alderslade case. The “other ground” must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, which is no doubt to be implied from Lord Greene’s words, the existence of a possible head of damage other then that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants.”

[55]Over the last 66 years there has been a long running debate about the effect of that passage and the extent to which it is still good law. In hindsight we can see that it is not satisfactory to deal with exemption clauses and indemnity clauses in one single compendious passage. It is one thing to agree that A is not liable to B for the consequences of A’s negligence. It is quite another thing to agree that B must compensate A for the consequences of A’s own negligence.

[56]In recent years, and especially since the enactment of UCTA, the courts have softened their approach to both indemnity clauses and exemption clauses: see Lictor Anstalt v MIR Steel UK

[2012] EWCA Civ 1397

; [2013] 2 All ER (Comm) 54 at [31] to [34]. Although the present judgment is not the place for a general review of the law of contract, my impression is 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.

[57]In major construction contracts the parties commonly agree how they will allocate the risks between themselves and who will insure against what. Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down. Contractors and consultants who accept large risks will charge for doing so and will no doubt take out appropriate insurance. Contractors and consultants who accept lesser degrees of risk will presumably reflect that in the fees which they agree.

[58]As previously noted, the exemption clauses in the present case form part of the contractual arrangements concerning professional indemnity insurance. In clause 6 of the 2009 agreement and in clause 4 of the warranties, the parties agreed(a) what risks Arup would accept and insure against and

(b) what risks Arup would not accept and would not insure against. Self-evidently, the fees which Arup charged and which the Consortium agreed to pay allowed for the cost of that professional indemnity insurance, even though that cost was not separately identified.

[59]In my view, the canons of construction elucidated in the Canada Steamships line of cases are of very little assistance in the present case.

[60]If I am wrong, however, and if Lord Morton’s principles are applicable, the two exemptions clauses still exclude liability for the breaches of duty alleged in the particulars of claim. I reach that conclusion for the following reasons:(i) The words of the two clauses in their ordinary meaning are wide enough to cover negligence by Arup in advising about the extent of asbestos on site.

(ii) It is not possible to think of any non-negligent ground of claim relating to asbestos which the parties might have had in mind. The suggested non-negligent breaches put forward by the claimants, namely breaches of various regulations, fall into Lord Morton’s “fanciful or remote” category. The parties cannot sensibly have been agreeing that Arup’s only liability in relation to asbestos would be for non-negligent breaches of those regulations.

[61]Let me now draw the threads together. The meaning of the two exemption clauses is clear. Neither the contra proferentem rule nor the case law on exemption clauses can come to the rescue of the claimants. Clause 6.3 of the 2009 agreement and clause 4.3 of the warranties exclude liability for all the Consortium’s pleaded claims in respect of asbestos. I therefore reject the third and fourth grounds of appeal.

[62]If my Lords agree, this appeal will be dismissed.

Lord Justice Moylan :

[63]I agree.

Lord Justice Beatson :

[64]I also agree.