Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1981] UKHL 12

House of Lords
Between
Ailsa Craig Fishing Co LtdAppellantMalvern Fishing Co LtdRespondent
Before
Lord WilberforceLord Elwyn-JonesLord SalmonLord Fraser of TullybeltonLord Lowry

LORD ELWYN-JONES

My Lords,The only questions for decision in these appeals are(i) whether the liability of the respondents, Securicor (Scotland) Ltd., under a short-term contract made on 31st December 1971, has been effectively limited by a special condition in that contract and if so(ii) whether the applicable limit is £1,000 or £10,000.Whether a clause limiting liability is effective or not is a question of construction of that clause in the context of the contract as a whole. If it is to exclude liability for negligence, it must be most clearly and unambiguously expressed, and in such a contract as this, must be construed contra proferentem. I do not think that there is any doubt so far. But I venture to add one further qualification, or at least clarification: one must not strive to create ambiguities by strained construction, as I think that the appellants have striven to do. The relevent words must be given, if possible, their natural, plain meaning. Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion: this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives, and possibly also the opportunity of the other party to insure.It is clear, on the findings of the Lord Ordinary, that the respondents were negligent as well as in material breach of their contractual obligations. The negligence consisted in a total or partial failure to provide the service contracted for viz. " continuous security cover for your [the pursurers'] "vessels from 1900 hours on 31/12/71 until 0700 hours on 5/1/72 " over the increased area specified in the contract. It is arguable, in my opinion, that the failure was not total, in that some security against some risks was provided, though not that which was necessary to prevent the actual damage which occurred. But I do not think that it makes a difference as regards the applicability of the clause of limitation whether this is right or not, and since their Lordships in the Inner House were of opinion that the failure was total, I will proceed on the assumption that this was so.The clause of limitation was as follows (special condition of contract 2( f )):" ( f ) If, pursuant to the provisions set out herein, any liability on the " part of the Company shall arise (whether under the express or " implied terms of this Contract, or at Common Law, or in any " other way) to the customer for any loss or damage of whatever " nature arising out of or connected with the provision of, or2
" purported provision of, or failure in provision of, the services " covered by this Contract, such liability shall be limited to the " payment by the Company by way of damages of a sum ..."
[alternatives are stated to which I shall refer later].This clause is on the face of it clear. It refers to failure in provision of the services covered by the contract. There is no warrant as a matter of construction for reading " failure " as meaning " partial failure ", i.e, as excluding " total failure " and there is no warrant in authority for so reading the word as a matter of law. I am clearly of opinion that Pollock & Co. v. Macrae 1922 SC (HL) 192 is no such authority and if the latter case of Mechans Ltd. v. Highland Marine Charters Ltd. 1964 S.C. 49 so decided, it ought in my view not to be followed.The appellants tried to find an ambiguity in this clause in three ways.(i) First they relied upon the finding of the Lord Ordinary, with which the Inner House generally agreed, that there was such an inconsistency between the provisions of condition 2( a ), excluding liability, and those of condition 2( f ) as to create uncertainty as to the meaning of the former condition. It was this inconsistency which led the courts below to conclude against the validity of the exclusion clause. So it was argued the same inconsistency and the doubts engendered by it must invalidate condition 2( f ). But this is transparently fallacious. Because clause A casts doubt upon the meaning of clause B, it does not follow at all that the converse is true and that clause B casts doubt upon the meaning of clause A. Clause B must be looked at on its own, and may turn out to be perfectly clear. A similar argument was presented as to an inconsistency between clause 2(f) and clause 4(i) and, in my opinion, fails for the same reason.(ii) It was contended that the initial words " If, pursuant to the provisions " set out herein " are ambiguous and that their ambiguity invalidates the whole subclause. But I accept on this the conclusion of Lord Dunpark that the words are " open to construction " and I agree on the construction which he prefers. The possibility of construction of a clause does not amount to ambiguity: that disappears after the court has pronounced the meaning.(iii) There is an inconsistency between subclauses 2(f)(i)( a ) and ( b ) so that it is impossible to arrive at a figure of limitation clearly expressed. There- fore, it is said, no limitation has effectively been made. I reproduce these subclauses:

" (i) in the case of all services other than the Special Delivery Service

" ( a ) Not exceeding £1,000 in respect of any one claim arising " from any duty assumed by the Company which involves " the operation, testing, examination, or inspection of the " operational condition of any machine, plant or equipment " in or about the customer's premises, or which involves " the provision of any service not solely related to the " prevention or detection of fire or theft;" ( b ) Not exceeding a maximum of £10,000 for the " consequences of any incident involving fire theft or any " other cause of liability in the Company under the terms " thereof;
" and further provided that the total liability of the Company " shall not in any circumstances exceed the sum of £10,000 in " respect of all and any incidents arising during any consecutive " period of twelve months."
For my part I find these clauses, though intricate, perfectly clear. Subclause ( a ) limits any one claim; subclause ( b ) limits any aggregate of claims the consequences of any one incident; the proviso limits the total liability of Securicor in respect of incidents arising in any period of 12 months. The clauses may overlap, in the sense that more than one may apply: they may3give rise to difficulty, e.g. if the total liability is exhausted early in the 12 months period, and other claims arise. But I cannot find any ambiguity in them, notably in relation to the present case. And this answers the second question. I have no doubt that subclause ( a ) applies so as to limit individual claims to £1,000 each. There is no question here of applying subclause ( b ) . For these reasons I would dismiss the appeals.

Lord Elwyn-Jones

My Lords,,I have had the advantage of reading in draft the speeches of my noble and learned friends. Lord Wilberforce and Lord Fraser of Tullybelton. For the reasons they have given I would refuse the appeal and I agree that the respondents must have their costs in this House.

Lord Salmon

My Lords,I have had the advantage of reading the speeches of my noble and learned friends, Lord Wilberforce and Lord Fraser of Tullybelton. Although I consider that Securicor's contract was deplorably drafted, I agree for the reasons stated by my noble and learned friends that the appeal must be dismissed.

Lord Fraser of Tullybelton

My Lords,The only surviving issue in these appeals is whether the respondents (" Securicor ") have succeeded in limiting their liability under a contract between themselves and the Aberdeen Fishing Vessel Owners' Association Limited (" the Association ") who were acting on behalf of a number of owners of fishing vessels, including the appellants. Nothing turns upon the fact that the appellants were not themselves a party to the contract and I shall proceed as if the contract had been made with them.The appellants were the owners of the fishing vessel " Strathallan " which sank while berthed in Aberdeen Harbour on 31st December 1971, at a time when Securicor were bound, under the contract with the Association, to provide security cover in the Harbour. Her gallows fouled the vessel moored next to her on the starboard side, called the " George Craig ", which also sank. Both vessels became total losses. Two actions were then raised. In one the appellants claimed damages from the owners of " George Craig " as first defenders and from Securicor as second defenders. In the other the owners of the " George Craig " claimed damages from the appellants, who brought in Securicor as a third party. The Lord Ordinary (Lord Wylie) held that the loss of both vessels had been caused by breach of contract and negligence on the part of Securicor. He found them liable to the appellants in damages for the loss of the " Strathallan ", and found them liable to relieve the appellants of their full liability to the owners of the " George " Craig " for the loss of that vessel. He assessed the damages in each case at a little over £55,000. The Lord Ordinary rejected arguments on behalf of Securicor to the effect that their liability was either wholly excluded, or limited in amount, by the terms of their contract. Securicor reclaimed against the Lord Ordinary's judgment but they did not contest his findings of breach of contract and negligence. Their contention on the reclaiming motion was solely that their liability had been either excluded or limited by the terms of the contract. The First Division of the Court of Session (the Lord President, Lord Cameron and Lord Dunpark) allowed the reclaiming motion in part, holding that liability had been limited in amount but that it had not been excluded. The appellants now appeal to your Lordships' House against that decision insofar as it held that liability had been limited.4In order to appreciate the contentions of the parties, it is necessary to refer briefly to the circumstances in which the contract came to be made. Until 31st December 1971 Securicor had for some months been providing a security service for vessels of owners represented by the Association. They did so under a contract dated 12th May 1971, under which the service was limited to vessels berthed at the Albert Quay in Aberdeen Harbour, and operated only during the nights and at weekends. The main object was to prevent intruders from boarding unmanned vessels and damaging them or stealing from them. Early on 31st December an official of the Association realised that the service would not be adequate for the New Year period, partly because there were many more vessels than usual in the harbour and partly because they would be remaining there for several days. Owing to the unusual number of vessels they could not all be berthed at Albert Quay, where the security patrols were already provided during certain hours, and some of them would have to be berthed at the Fish Market/Commercial Quay ("the Fish Market area"). The quay in the Fish Market area was of open structure, and there was a special risk that vessels might slide under the deck of the quay and become caught or " snubbed " by the bow. The risk arose especially on a rising tide. That was just what happened to the appellants' vessel the " Strathallan ", during the evening of 31st December, 1971, and caused her to sink taking the " George Craig " with her. As Securicor accept the Lord Ordinary's findings of fault against them, it is unnecessary to refer in greater detail to the events of that evening. Securicor also accept the decision of the First Division that the liability was not wholly excluded by the contract.The question whether Securicor's liability has been limited falls to be answered by construing the terms of the contract in accordance with the ordinary principles applicable to contracts of this kind. The argument for limitation depends upon certain special conditions attached to the contract prepared on behalf of Securicor and put forward in their interest. There is no doubt that such conditions must be construed strictly against the proferens, in this case Securicor, and that in order to be effective they must be " most clearly and unambiguously expressed " —see Pollock & Co. v. Macrae 1922 SC (HL) 192 , 199 per Lord Dunedin. Pollock was a decision on an exclusion clause but insofar as it emphasised the need for clarity in clauses to be construed contra proferentem it is in my opinion relevant to the present case also. It has sometimes apparently been regarded as laying down, as a proposition of law, that a clause excluding liability can never have any application where there has been a total breach of contract, but I respectfully agree with the Lord President who said in his opinion in the present case that that was a misunderstanding of Pollock. Pollock was followed by the Second Division in Mechans Limited v. Highland Marine Charters Limited 1964 S.C. 49 and there are passages in the judgments in that case which might seem to treat Pollock as having laid down some such general proposition of law, although it is not clear that they were so intended. If they were I would regard them as being erroneous. Mechans appears to have been relied upon by counsel for the appellants before the Second Division, but was not relied on in this House.There are later authorities which lay down very strict principles to be applied when considering the effect of clauses of exclusion or of indemnity— see particularly the Privy Council case of Canada Steamship Lines Ltd. v. The King [1952] AC 192 , 208, where Lord Morton of Henryton, delivering the advice of the Board, summarised the principles in terms which have recently been applied by this House in Smith v. U.M.B. Chrysler (Scotland) Ltd. 1978 SC (HL) 1 . In my opinion these principles are not applicable in their full rigour when considering the effect of clauses merely limiting liability. Such clauses will of course be read contra proferentem and must be clearly expressed, but there is no reason why they should be judged by the specially exacting standards which are applied to exclusion and indemnity clauses. The reason for imposing such standards on these clauses is the inherent improbability that the other party to a contract including such a clause intended to release the proferens from a liability that would otherwise fall upon him. But there is no such high degree of improbability that he5would agree to a limitation of the liability of the proferens, especially when, as explained in condition 4(i) of the present contract, the potential losses that might be caused by the negligence of the proferens or its servants are so great in proportion to the sums that can reasonably be charged for the services contracted for. It is enough in the present case that the clause must be clear and unambiguous.The contract was arranged during the morning of 31st December, 1971 in some haste. It is set out on a form partly printed and partly filled in in ink, which is headed " Temporary Contract or Contract Change Request" and in which the Association " request Securicor Ltd. to carry out the " services detailed below subject to the Special Conditions printed overleaf." The form requested " continuous security cover for your (sic) vessels from " 19.00 hours on 31/12/71 until 07.00 hours on 5/1/72" and stated that the area covered was to be extended to include the Fish Market area. Nothing turns upon that part of the contract but I should mention that the appellants contended that this temporary contract, so long as it was in operation, entirely superseded the contract of 12th May 1971 and was the sole measure of parties' rights and obligations to one another. Having regard to condition 8 of the Special Conditions, I see no reason to question that contention.The " Special Conditions of Contract" were elaborate and are applied to services of several types. So far as this appeal is concerned, the part which is most directly applicable is condition 2, and especially paragraph ( f ) of that condition. Paragraph 2( f ) is in the following terms: —" ( f ) If, pursuant to the provisions set out herein, any liability on the " part of the Company shall arise (whether under the express or " implied terms of this Contract or at Common Law, or in any " other way) to the customer for any loss or damage of whatever " nature arising out of or connected with the provision of, or " purported provision of, or failure in provision of, the services " covered by this Contract, such liability shall be limited to the " payment by the Company by way of damages of a sum:

" (i) In the case of all services other than the Special Delivery

" Service

" ( a ) Not exceeding £1,000 in respect of any one claim arising " from any duty assumed by the Company which involves " the operation, testing, examination, or inspection of the " operational condition of any machine, plant or equip- " ment in or about the customer's premises, or which " involves the provision of any service not solely related " to the prevention or detection of fire or theft;
" ( b ) Not exceeding a maximum of £10,000 for the consequences " of any incident involving fire, theft or any other cause " of liability in the Company under the terms hereof; and " further provided that the total liability of the Company " shall not in any circumstances exceed the sum of £10,000 " in respect of all and any incidents arising during any " consecutive period of twelve months."
On behalf of the appellants it was argued that that paragraph, even if apparently clear in its own terms, is not applicable when read in the context of the contract as a whole, where there has been a total failure to perform the services contracted for or what is sometimes called a total failure of contract, and that this was such a case. It was said that clause 2( f ) must be qualified by the opening words of condition 2 and of clause ( a ) of that condition which show that liability can only arise for some fault in the course of providing the services contracted for, and not where there has been a total failure to provide the service. I cannot accept that submission, because clause 2( f ) expressly states that it applies to liability arising out of " the provision of, or purported provision of, or failure in provision of " the services contracted for. If this submission had not been so persuasively presented, I would have thought it to be unarguable in face of the provisions of clause ( f ).6The learned judges of the First Division found that this was a case of total failure or total breach of contract, in the sense of Lord Dunedin's speech in Pollock, supra. As that is the finding most favourable to the appellants on this part of the case it is not now material to consider whether this is strictly a case of total failure. If the question had been material at this stage I would have wished to give it further consideration, because there is no suggestion that the security cover was not duly maintained during the evening of 31st December 1971 in the Albert Dock area, which was part of the area covered by the temporary contract, and I think there is much to be said for the view that the contract was performed in part. But it is not necessary to come to a decision on that point.A further argument for the appellants was that clause ( f ) of condition 2 applied only to liability which arose " pursuant to " the provisions of the contract, and that pursuant to meant " in accordance with the express " provisions of the contract." This meaning was said to be emphasised by the first sentence of clause 4(iii). But that argument fails, in my opinion, if for no other reason than that clause ( f ) itself proclaims unambiguously that it applies to liability which shall arise under the " express or implied " terms of the contract. Next, the appellants argued that there is an incon- sistency between clause ( a ) of condition 2 which purports to exclude liability altogether and clause ( f ) which purports to limit the amount of liability in certain cases. The existence of that inconsistency was one of the reasons for the First Division's decision that the exclusion clause was lacking in clarity, and counsel sought to apply the same argument in reverse to the limitation clause. But the argument is in my opinion unsound. It is one thing to say, as the First Division did, that when you find a provision for limiting liability coming after a provision which is capable of being read as excluding liability altogether, the limitation provision casts doubt on the meaning of the earlier one. But it is quite a different thing to say that the inconsistency casts doubt on the meaning of the limitation clause. If the exclusion clause had succeeded in its purpose, the limitation might have been unnecessary, but its meaning as a sort of long stop is in my opinion clear and is not affected by the existence of the exclusion clause.A separate argument was advanced to the effect that paragraph ( f ) was confused and uncertain in itself because the provisions of sub-paragraphs (i)( a ) and ( b ) did not make it clear whether the limit of liability in any particular case was £1,000 or £10,000. Perhaps the intention of sub- paragraphs ( a ) and ( b ) may not be immediately clear on first reading to a person unfamiliar with provisions of this sort, but a very little consideration is enough to show, in my opinion, that the meaning is that explained by the learned judges of the First Division. Sub-paragraph ( a ) relates to any claim arising in any of the ways there mentioned and it limits the liability of Securicor to £1,000 for each claim. Sub-paragraph ( b ) relates to any one incident and limits their liability to £10,000 in respect of each incident. The two provisions overlap but they are in no way inconsistent. For example, in the present case the owner of each of the vessels has a separate claim which, if the clause is applicable, will be limited to £1,000. But both claims arise out of one incident, and if there had been more than ten claims for £1,000 each arising out of the same incident, the total liability of Securicor would have been limited to £10,000. That meaning is in my view clear and unambiguous and I reject this argument.Having considered these particular criticisms of paragraph ( f ) the question remains whether in its context it is sufficiently clear and unambiguous to receive effect in limiting the liability of Securicor for its own negligence or that of its employees. In my opinion it is. It applies to any liability " whether under the express or implied terms of this contract, or at common " law, or in any other way." Liability at common law is undoubtedly wide enough to cover liability including the negligence of the proferens itself, so that even without relying on the final words " any other way ", I am clearly of opinion that the negligence of Securicor is covered.For these reasons I would refuse the appeal. The respondents must have their costs in this House.7

Lord Lowry

My Lords,I have had the opportunity of reading in draft the speeches of my noble and learned friends, Lord Wilberforce and Lord Fraser of Tullybelton.There is nothing which I can usefully add, since I entirely agree with their reasoning and conclusions and with the order proposed.

I, too, would dismiss the appeal

313684 Dd 8208150 C2 11/81