Some of you may recognise the title line from the song “I Won’t Dance”, performed by a whole selection of sassy singers throughout the ages: Frank, Louis, Ella, and more recently Lady Gaga. This line is not the easiest to interpret. According to one view, it is all about the perils of dancing with the singer “clad in a frock called ‘An Armful of Flame'”.
Stuart-Smith J had a similarly difficult task interpreting the meaning and effect of an asbestos-related exclusion clause in a professional appointment in Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another. The case was complicated by the various contractual arrangements between the parties.
The asbestos problem
Persimmon Homes, Taylor Wimpey and BDW Trading (the developer) formed a consortium that was intending to purchase and develop a large site in South Wales. Ove Arup had been involved with the potential development since 1992, and had provided professional services and advice to a number of parties, including the developer.
After the developer had purchased the site, asbestos was discovered. The developer argued that Arup should have warned it about the asbestos contamination at the site and claimed damages from Arup, alleging breach of contract and negligence. Arup denied liability, arguing that its contract with the developer specifically excluded liability for asbestos.
This position was complicated by the way in which the parties had documented their agreement which comprised:
- An agreement between the developer and Arup reached by an exchange of emails in January 2007 relating to the provision of services in preparation for the developer’s bid for the site.
- A letter of intent dated October 2007.
- An agreement between the developer and Arup dated September 2009 relating to the provision of consultancy services concerning the site, including a contamination investigation.
- Collateral warranties provided by Arup in favour of each of the consortium members in 2010 (2010 warranties).
The dispute hinged on clause 6.3 of the September 2009 agreement:
“The Consultant’s aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory duty or otherwise (other than or 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.”
The 2010 warranties contained an identical term (clause 4.3), save that overall liability was capped at £5 million pounds rather than £12 million pounds.
What was the meaning of the clause excluding liability for asbestos?
One of the preliminary issues before the court was whether the exclusion clause excluded Arup’s liability in respect of all of the claims made against it in relation to the asbestos contamination.
The developer relied on the principles first established in Canada Steamship Lines Ltd v The King and more recently applied in Geys v Société Générale that if a clause expressly exempts the party in whose favour it is made from liability for negligence, effect must be given to it, but if there is no express reference to negligence, the court must consider whether the words used are wide enough to cover it. If there is any doubt on this point it must be resolved in favour of the other party and against the party relying on it. In other words, clear words are required if one party agrees to assume responsibility for negligence of the other.
English law has traditionally taken a restrictive approach to the construction of exclusion clauses and clauses limiting liability for breaches of contract and other wrongful acts. However, in recent years there has been a shift in the approach of the courts to limitation and exclusion clauses.
In this case, the court concluded that the words “liability for any claim in relation to asbestos is excluded” were clear enough, on their own, to exclude liability whatever the cause, although it recognised that such words could be “rendered uncertain by the wider context”. However, in this case, the wider context of both clause 6 and the September 2009 agreement as a whole, reinforced the court’s conclusion that these words excluded liability for any asbestos related claim whether caused by Arup’s negligence or otherwise.
In reaching this conclusion, Stuart-Smith J confirmed the court’s approach that:
- There is an increasing recognition that parties to commercial contracts of equal bargaining power 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 other or both parties to cover the risks being allocated.
- For this reason, when interpreting contracts, exclusion and limitation clauses should not be treated differently from any other provision of a contract.
The developer also argued that the exclusion of liability for asbestos removed any incentive for Arup to perform the services properly. Why would the parties exclude such a central part of the agreements? The court did not agree. It found that:
- As a matter of fact, Arup’s responsibilities were wide-ranging and were not limited to asbestos.
- The agreements that the parties entered into were:
“examples of contracts where businessmen who are capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can most economically be borne have reached an agreement that the Court should be very slow to disturb or to characterise as unbusinesslike”.
What was the relationship between the January 2007 and September 2009 agreements?
One of the other preliminary issues before the court was whether the September 2009 agreement superseded the January 2007 agreement or whether it caused clause 6.3 of the September 2009 agreement to be incorporated into the January 2007 agreement?
On the facts, the court concluded that the September 2009 agreement did not govern the January 2007 agreement, and the terms of the September 2009 agreement were not incorporated into the January 2007 agreement. The exclusion of liability for asbestos related claims was not included in the January 2007 agreement, so if liability had arisen from services or works carried out under that agreement, the exclusion clause would not have applied. This case is a good example of the contractual mess that can arise on long term projects or developments, when consultants are engaged to provide services in a piecemeal fashion, using relaxed arrangements.
It is not unusual for consultants, and contractors, to be engaged on a two stage basis, initially providing services prior to a tender being accepted or a purchase being completed, and then providing services or carrying out works in relation to the project itself. Parties are often keen to commence works as quickly as possible and they may feel that an exchange of correspondence or a letter of intent will do the job temporarily, with a contract being put in place much further down the line. Sometimes these temporary arrangements last longer than originally intended or subsequent agreements are not documented properly with the result that the court is tasked with untangling the contractual position.
How can we prevent this from happening? As when you dance with an ‘Armful of Flames’, the message is proceed with care. When consultants or contractors are providing services or carrying out works at various phases of a project, it is important to consider how subsequent agreements affect those already in existence and what contractual terms apply to the work that has been carried out throughout the various phases.
This article was first published by Practical Law Construction as part of our regular construction blog series in which we share our practical experiences of working in construction and engineering and give our opinion on the current and future legal developments that shape and will shape the industry. To read more from the series, visit the Practical Law blog.