As part of its defence to the allegations made by the Consortium, Arup applied to have preliminary issues heard with regards to the applicability of the above exclusion clauses, the last sentence in particular. This was on the basis that, if correct, the proper application of these clauses excluded Arup’s liability for the vast majority of the Consortium’s claim. The Consortium argued for a restrictive approach to these clauses, contending that they should be restricted to liability "for causing" pollution, contamination or asbestos, and that they should not be interpreted as applying to Arup’s own negligence. The Consortium relied in this regard on the “contra proferentem” rule which allows unclear contract terms to be construed against the party who drafted them or who seeks to rely on them. The Consortium also relied on a well established line of cases dealing with the circumstances in which exclusion or indemnity clauses are to be interpreted as protecting against a party’s own negligent acts (known as the Canada Steamship principles). The Canada Steamship principles indicate that a party’s own negligent acts should not be covered by the general words of an exclusion or indemnity clause where those words are apt to apply to both negligent and non-negligent acts. The TCC’s approach As noted in the previous LawNow (click here), Mr Justice Stuart-Smith agreed with Arup’s interpretation of the exclusion clauses and refused to apply the restrictive rules suggested by the Consortium. The TCC noted that the modern approach to exclusion clauses acknowledges that commercial parties to a contract are free to assign risks as they see fit and exclusion clauses should therefore be given their ordinary and natural meaning in the same way as any other clause of a contract. Default rules, such as contra proferentem should be reserved for cases of genuine ambiguity. The TCC’s approach in this regard has since been endorsed by the Court of Appeal’s decision last year in the Transocean Drilling case (to read more on LawNow on that decision, click here).
The Court of Appeal In a unanimous decision, the Court of Appeal (led by Lord Justice Jackson) has upheld the TCC’s decision, deciding that: - Not least for grammatical reasons, the Consortium’s reading of the exclusion clauses was unworkable and did not reflect business common sense with regards to the relationship between the parties. - The meaning of the clauses was clear and unambiguous and should be given effect to. - Accordingly, the contra proferentem rule was not relevant. - The Canada Steamship guidelines are more relevant to indemnity clauses than to exclusion clauses and were “of very little assistance in the present case”. In any event, the possible non-negligent acts identified by the Consortium as falling within the present clauses were fanciful or remote and did not give rise to any inference that negligent acts were not intended to be covered. More generally, the court supported the TCC’s unrestrictive approach to the interpretation of limitation and exclusion clauses (at paragraph 56): “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.”