Exemption Clauses and the risks to developers
When appointing consultants, developers must always be mindful of any exclusions contained in appointment contracts. As seen in the recent Court of Appeal case, Persimmon Homes Ltd v Ove Arup & Partners Ltd & Anor , where the Court accepted the contract as it was written and was unwilling to sympathise with the claimant’s alternative interpretation of the scope of an exclusion.
When it was found that Ove Arup & Partners Ltd (“the Engineers”) had failed to identify and report on asbestos in the development, Persimmon Homes Ltd (“the Claimants”) argued that the Engineers were liable for their additional costs. The Engineers, in turn, referred to its formal appointment and warranty, which included the wording "the liability for any claim in relation to asbestos is excluded" (“the Exemption Clause").
The Engineers argued that the Exemption Clause relieved them from any and all liability relating to asbestos; an argument The Court of Appeal upheld when they found that the exemption clause was effective and ruled in favour of the Engineers.
The background facts
- A developer of the site engaged the Engineers to give advice and to supervise the clearance, reclamation, some limited decontamination, earthworks and the provision of basic infrastructure
- The Claimants, acting as a consortium of purchasers looking to buy the site, engaged the Engineers to provide engineering services with regard to their bid
- The Engineers were appointed to give advice and to supervise the project, rather than to undertake physical investigations or groundwork
- Following a successful bid, the Engineers were further employed to provide ongoing services to the Claimants
- In 2012 the Claimants engaged a groundworks contractor to develop the site. The contractor encountered substantial amounts of asbestos
- The Claimants believed the Engineers had been negligent in failing to identify and report upon that asbestos and in order to recover damages for their losses commenced proceedings.
The First Claim at Technology and Construction Court – 2014
The Claimants claimed two types of damages against the Engineers, specifically:
- their purchase price was too high by £2 million had they known of the asbestos; and
- the late discovery of the asbestos caused the Claimants to incur additional, avoidable costs.
The Engineers asserted that any liability in respect of the asbestos was excluded by the Exemption Clause, to which the Court agreed.
The Court stated that the parties should be free to allocate risks as they see fit. The Exemption Clause represented an agreed allocation of risks between the parties with clear meaning.
The Claimants were unhappy with the result and sought to appeal the decision at the Court of Appeal.
The Court of Appeal – 2016
Two arguments were used in the appeal:
- Firstly, that the wording of the restriction imports a "causative connotation", i.e. that the restriction should only be in respect of asbestos that the Engineers caused. This argument failed as the Court ruled that the "natural meaning" of the words should be used and its was nonsensical to suggest that the Exemption Clause was only intended to prevent asbestos claims that the Engineers actually caused.
- Secondly, the Claimants contended that the exemption wording was not so wide as to exempt the Engineers from the consequences of their breaches of duty. Again, this argument failed. The Court agreed that in construction contracts the parties commonly agree how risk is allocated and who will insure against what. Contractors and consultants who accept large risks will charge for doing so and will no doubt take out appropriate insurance.
That the Court found in favour of the Engineers sends a clear message to developers. While it is said that ambiguity favours the party that did not write the contract, where an exclusion is written in a plain and simple manner, the Court will enforce it.