With January traditionally a month for detox, Sarah Evans suggests it is time to bring clarity to your contracts.

Above: Sarah Evans

On 7th December 2015, the Technology & Construction Court handed down judgment on preliminary issues in Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another.

The judgment makes clear that where commercial parties of equal bargaining power enter into a contract, the judiciary is reluctant to interfere. This makes it all the more important that parties to commercial construction contracts ensure that the contract reflects their intention and understanding clearly and without ambiguity.

The need for clarity was apparent in two respects within the judgment: what contractual terms applied and what the exclusions and/or limitations of liability covered.

Excluding/limiting liability

Where either party knows of a particular risk, and wants to ensure that liability for that risk is either excluded or not excluded (as the case may be), they need to ensure that the drafting is crystal clear to avoid dispute down the line.

The relevant clause of the post-purchase contract in this case read: “The Consultant’s aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory duty or otherwise […] shall be limited to £12,000,000.00 […] with the liability for pollution and contamination limited to £5,000,000.00 […] in the aggregate. Liability for any claim in relation to asbestos is excluded.”

This is a clause that may at first glance seem common to similar contracts. However, it caused some bother, with the court noting that “viewed objectively, it is likely that the parties used different words in order to convey a different meaning”.

The parties could neither agree whether:

1. the final sentence was absolute, covering all asbestos related claims regardless of whether they were in negligence or otherwise, due to the omission of “whether in contract…”. as found in the first sentence; nor

2. whether the £5,000,000 sub-limit, phrased “for pollution and contamination” covered both liability for causing the spread of pollution/contamination and for failure to identify the presence of pollution/contamination.

Both were decided in favour of the consultant: the final sentence was absolute, and the sub-limit did cover failure to identify the presence of pollution/contamination.

Multiple professional appointments

In Persimmon, a consortium of developers (the ‘consortium’) instructed engineering firm Ove Arup (the ‘consultant’) to:

1. assist in deciding whether to bid for a site, and if so the appropriate purchase price (pre-purchase contract); and
2. provide design and development services, after purchase (post-purchase contract).

The consultant believed that the post-purchase contract:

1. superseded the pre-purchase contract, so that there was one source of contractual obligations; or, if it did not
2. inserted the exclusion/limitation of liability clause into the pre-purchase contract.

The court held that neither was accurate; each contract operated separately.

The arguments involved in this aspect of the dispute relied heavily upon contractual interpretation. Ultimately, the outcome very nearly came down to something as simple as a missing capital ‘S’ on “services”.

Come trial, this may have the effect that the consultant will be unable to exclude and/or limit his liability for breach under the pre-purchase contract.

Detox Tips

Given the minor technicalities on which this case did or could have turned, parties to commercial contracts should ensure they take professional legal advice from the outset of a project to ensure that drafting is as clear as possible.

It is also advisable that where parties have doubt as to the intended effect of particular wording, they request some written clarification during contract negotiation of how the other party understands the wording. This will ensure everything is clear and both parties are on the same page, avoiding future dispute. Litigation is an expensive and risky way to find out what your contract means.

About the author: Sarah Evans is a senior associate with Thomas Eggar, a trading style of Irwin Mitchell LLP.