Excluding a Consultant’s Liability for Negligence

2 August, 2017
by: Cripps Pemberton Greenish

Consultants’ appointments often contain limitations on the liability of the consultant. These limitations may relate to specific types of loss, for example claims relating to pollution, or provide for an overall cap on liability.  The well advised consultant will want, as far as possible, to cover its potential exposure by maintaining professional indemnity insurance cover to a level at least equal to the cap on its liability.

Historically, there have been two legal threads that have potentially undermined the effectiveness of such limitation clauses. The courts have tended to construe narrowly any attempt to contract out of a liability that would otherwise arise.  First, these clause have been construed ‘contra proferentem’, that is against the person who is putting them forward.  Second, it has been held that unless very clear words indeed are used, the terms are not effective to exclude a party’s liability for its own negligence.

Against this background, we have seen an increasing trend for the courts to recognise that, in commercial contracts, parties should be free to make their own bargains. In the contract appointing a consultant, the parties will seek to allocate risks between them.  The fees charged for the consultant’s services will in part reflect the risks that it is prepared to run.  If those terms include a limitation on the consultant’s liability, why should it not be upheld?

This was vividly illustrated in the recent case of Persimmon Homes and Ors v Ove Arup[1].  The claimants were a consortium of developers engaged in the regeneration of part of the former harbour in Barry.  Ove Arup were consultants providing various services.  In Ove Arup’s appointment document, and in collateral warranties that were given to consortium members, there were three exclusions of liability.  One was an overall cap on liability of £5,000,000. Second was a limit on liability for pollution and contamination.  Third, and the subject of the litigation, was a statement that ‘liability for any claim in relation to asbestos is excluded’.

The claimants argued that Ove Arup had negligently failed to identify the extent of the asbestos on site. Had they known, they would have paid less for the site.  They also incurred additional costs in removal because it was discovered after the event.  Ove Arup pointed to the contract clause – the claim related to asbestos and therefore was excluded.

The Court of Appeal, upholding the decision of the High Court, found in favour of Ove Arup. It gave short shrift to the ‘contra proferentem’ argument. This has little place in the context of a commercial contract freely negotiated between well advised parties. The Court cited with approval the observations of Lord Neuberger when he said[2]:

“The words used, commercial sense, and the documentary and factual context, are, and should be, normally enough to determine the meaning of a contractual provision.”

It also had little difficulty in deciding that the words of the exclusion clause were wide enough to extend to the negligence of Ove Arup. Indeed, if the clause was not intended to cover negligence, what would it cover?

The approach set out by Jackson LJ in the judgement is instructive:

“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.

Those seeking to limit their liability will take comfort from this decision – but they still need to make sure that clear language is used to achieve the desired outcome.

[1] [2017] EWCA Civ 373

[2] K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904; [2012] Ch 497 at [68]