Hong Kong – Interpretation Of Exclusion And Limitation Of Liability Clauses – A Shift In The Courts’ Approach.

25 May, 2016

 

In Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2015] EWHC 3573 (TCC), England’s Technology and Construction Court was tasked with interpreting limitation and exclusion clauses in a contract relating to consultancy engineering services. The case reaffirms that the courts will uphold exclusion and limitation clauses, as long as they are drafted in such a way that the parties’ intentions are clearly expressed.

 

The Exclusion and Limitation of Liability Clause 

 

The Claimant developers claimed that the Defendant consultants had failed to identify and notify them of asbestos contamination of the land to be purchased by the Claimant. The Defendant relied on an exclusion and limitation of liability clause in the contract appointing it, which read as follows:

 

“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 £12,000,000.00 (twelve 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.”

 

Preliminary Issues 

 

Preliminary issues before the Court included whether the words “Liability for any claim in relation to asbestos is excluded” had the effect of excluding liability for the claim and, if not, whether the Defendant’s liability would be limited to £5,000,000.00.

 

The Court held that the words ‘Liability for any claim in relation to asbestos is excluded” did have the effect of excluding liability for the claim. The court said that had it found that those words did not exclude liability, it would have found that liability was limited to £5,000,000.00.

 

Shift in Court’s approach 

 

In coming to its conclusion, the Court said that there has been a shift in the courts’ approach to limitation and exclusion clauses because it has been increasingly recognised that parties to commercial contracts are and should be left free to apportion and allocate risks and obligations, as they see fit, particularly where insurance may be available to one or both of the parties to cover the risks being allocated. Further, Parliament had chosen not to extend the application of the Unfair Contract Terms Act 1977 to commercial contracting parties of equal bargaining strength. The Court also referred to the fact that allocation of risks in construction contracts has been commonplace in standard building contracts for years.

 

The Court said that when interpreting an exclusion or limitation of liability clause, the Court’s task is essentially the same as when it interprets any other contractual provision: it is to identify what a reasonable person, having all the background knowledge which would reasonably have been available to the parties, would have understood the parties to have meant. The Court said that in pursuing that task, the commercial or contractual context may make it improbable that one party would have agreed to assume responsibility for the relevant negligence of another, so that clear words are needed.

 

Comment 

 

The holding of the English Court is not surprising and is consistent with the general approach of modern courts respecting freedom of contract. Such approach can also be seen from the judgments in Cavendish Square Holding BV v Talal El MakdessiandParkingEye Limited v Beavis,reported on in our previous article, where the English Supreme Court made it clear that in relation to a negotiated contract between properly advised parties of comparable bargaining power, the strong initial presumption must be that the parties are themselves the best judges of what is legitimate in a provision dealing with the consequences of a breach.