Clarity begins at home

The decision of Mr Justice Stuart-Smith in Persimmon Homes & Others and Ove Arup & Partners was delivered on 7 December 2015. The case demonstrates the importance of identifying risk and how this can give rise to liability. It also demonstrates the critical requirement for clear contract drafting. The courts are the final arbiters when called on to interpret commercial agreements. This often involves attempts to exclude or limit a party’s liabilities. They will apply the test of whether a particular interpretation accords with business common sense. No contracting party wants to think of the divorce when on their honeymoon. This however cannot cloud the overriding need for clarity on the part of the draftsman at all times. In this case, the court’s findings were that there was sufficient clarity to operate as an exclusion of liability.

This main issue related to an agreement made in September 2009 between a consortium of developers, of which Persimmon was one, and the well-known firm of engineers, Ove Arup & Partners. Arup’s services related to land which has been purchased by the Consortium at Barry Quays, Barry in the south of Wales. The consortium maintained that after committing themselves to the development and the purchasing of the site in September 2007, asbestos contamination was discovered of which they previously had been unaware. There were two agreements made between the consortium and Arup. The first agreement was made in January 2007 whereby Arup was appointed to provide consultant engineering services. This was by an exchange of emails and was the subject of a £10,000 fee budget cap. Subsequently Arup was  appointed pursuant to a letter of intent in 2007 but it was agreed that the letter of intent was superseded by an agreement made between the parties in September 2009. Not all of the  services proposed by Arup in 2007 were included within the 2009 agreement but the fees payable to Arup were £655,000. Arup relied on an exclusion clause within the 2009 agreement. The main issue was whether this clause was effective in excluding liability. All of the claims included within the consortium’s Particulars of Claim related to and followed from the presence of asbestos at the site.

No contracting party wants to think of the divorce when on their honeymoon. This however cannot cloud the overriding need for clarity on the part of the draftsman at all times

The consortium alleged that significantly increased costs had been incurred due to its late appreciation of the scope of the presence of the asbestos which was attributable to Arup’s negligence of failing to advise. Irrespective of  any actual negligence, did the exclusion clause provide Arup with a defence?

The key words within clause 6.3 of the 2009 agreement stated: “… the total liability of Arup is limited to £12m, with a liability for pollution and contamination limited to £5m in aggregate.

The liability for any claim in relation to asbestos is excluded. The professional indemnity insurance for this scope and fee is £5m for each and every event.”

The court interpreted this as if it were viewed on its own and was an unqualified exclusion of all liability “for any claim in relation to asbestos”. Thus, the words were sufficient to show clearly that liability for any claim in relation to asbestos was excluded. This meant that it should be viewed separately from the earlier part of the wording which served as a limitation of liability. Thus there were three categories of liability being addressed - aggregate liability overall, liability for pollution and contamination and thirdly liability for any claim in relation to asbestos. 

The key words were included within the 2009 agreement under the heading of “Professional Liability Insurance”. This demonstrated that the parties had considered not only the apportionment of risk but also the obtaining of insurance, the allegation of risk being subject to both a limitation and an exclusion of liabilities. The consortium said that Arup had not put forward any sensible rationale why it should be able to exclude its liabilities. The judge said that the correct test was whether Arup’s interpretation was inconsistent with business common sense. He added that clause 6.3 was written in straightforward language that any commercial man could understand without lawyers’ accretions. Thus, the answer was “yes” and the consortium’s arguments failed.

It had greater success in arguing that the 2009 agreement did not supersede the earlier January 2007 agreement. This means that any liability arising from this 2007 agreement was not covered by the same limitations and exclusions of liability. This may at least have providedthe consortium with some degree of comfort and encouragrement.

Jeffrey Brown is a partner in the London office of Veale Wasbrough Vizards