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Limitation and exclusion clauses in construction contracts

Recent case law

When negotiating construction contracts, including building contracts and professional consultant appointments, many parties will seek to exclude or limit their liability for certain claims.

Traditionally the courts have stepped in to restrict the operation of such clauses, particularly those that seek to exclude liability in its entirety. However, following recent case law there seems to have been a shift in judicial attitude and the courts are now more willing to enforce terms that have been agreed between commercial parties, taking the view that the court should not interpret meaning into a clause when no ambiguity exists.

Recent cases have provided an insight into how the courts will interpret exclusion and limitation clauses and the courts' attitude to their enforceability against third parties.

Bloomberg LP v (1) Sandberg (2) Sandberg LLP (3) Buro Happold Ltd and (third party) Malling Pre-Cast Ltd [2015] EWHC 2858 (TCC)

In this case, the landlord, Bloomberg LP (“Bloomberg”) entered into a lease with a tenant. The tenant, being required to undertake works at the property, appointed Malling Pre-Cast Ltd (“Malling”) for cladding works. Bloomberg had the benefit of a collateral warranty from Malling which included at clause 6 the following limitation:

“no proceedings shall be commenced against the Contractor [Malling] after the expiry of twelve years from the date of practical completion”.

At the time of the dispute, the 12 year period had expired and accordingly Bloomberg was precluded from pursuing a claim against Malling.

The tenant appointed Sandberg and Sandberg LLP (“Sandberg”) and Buro Happold to provide consultancy services and a condition survey respectively, following defects in the cladding works which required considerable remedial works by the Landlord.

Bloomberg claimed against Sandberg and Buro Happold. Malling was not a party to the claim on the basis that under clause 6 of its collateral warranty with Malling, Bloomberg was time barred from bringing a claim.

Consequently, Sandberg and Buro Happold sought a contribution from Malling under section 1(3) of the Civil Liability (Contribution) Act 1978 which states that a party to litigation can seek a contribution from a third party unless the liability for the underlying cause of action has ceased due to an expiry of limitation or it has been extinguished.

Sandberg and Buro Happold contended that clause 6 was only a bar to Bloomberg's right of action against Malling and that they were still able to claim a contribution from Malling. Malling sought a summary judgment to strike out the claim against it on the basis that clause 6 prevented any party from bringing a claim due to the passage of time.

Mr Justice Fraser in the Technology and Construction Court came to the following conclusion:

  • Bloomberg was prevented from bringing a claim against Malling due to clause 6.
  • Clause 6 did not apply to third parties meaning that the underlying cause of action was not extinguished and therefore Sandberg and Buro Happold could claim a contribution from Malling.
  • The Civil Liability (Contribution) Act 1978 is in place to benefit third parties and it is yet to be decided if parties could contract out of the Act.

In another recently reported case a consultant ("the Consultant") was appointed to provide consultancy services over a period of decades, from approximately 1992. In 2006 a number of well-known residential housing developers formed a consortium (“the Consortium”) to purchase land and instructed the Consultant in two separate agreements: the first in 2007 to provide advice prior to the purchase including pre-site investigations and determination of the purchase price and the second in 2009 to provide design and development services. Both instructions included the provision of services in relation to pollution, contamination and asbestos. The Consultant also provided collateral warranties in favour of each of the Consortium members in 2010 in respect of the 2009 agreement.

The 2009 agreement contained an exclusion clause that stated as follows:

“the Consultant’s aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory duty or otherwise (other than for death or personal injury caused by the Consultant’s negligence) 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.”

The collateral warranties contained an identical clause but limited the total aggregate liability to £5 million only (as opposed to £12 million).

When asbestos was discovered at the site, the Consortium claimed damages from the Consultant alleging breach of contract and negligence. Mr Justice Stuart-Smith in the Technology and Construction Court ordered a trial of three preliminary issues and stated the following:

  1. Did the 2009 agreement supersede the 2007 agreement? The court said no. The services listed in the 2009 agreement did not include any of those listed in the 2007 agreement, the definition of the Project differed between the two agreements and the court also considered what the parties would reasonably have known at the time of contracting and was not satisfied that the later agreement also governed the 2007 agreement. The limitation clause had not therefore been incorporated into the 2007 agreement.
  2. Whether the wording “Liability for any claim in relation to asbestos is excluded” in both the 2009 agreement and the collateral warranties barred the Consortium from making a claim against the Consultant? The Court embarked on an exercise of interpretation and took a less restrictive approach than it traditionally has done in respect of exclusion clauses. The Court stated that the wording was “entirely clear” and stressed that commercial parties of equal status are free to agree contractual terms and the court should not imply meaning into contracts where terms have been agreed and there is no ambiguity as to meaning. Accordingly, the Consultant's liability relating to asbestos was excluded.
  3. If liability was not excluded, was it limited to £5 million under the 2009 agreement or the collateral warranties? To the extent that any of the claims did not relate to asbestos, the Consultant's liability was limited to £5 million.

Comment

It is common practice for parties to seek to include exclusion and limitation clauses in any construction contract. It goes without saying that a party should consider any such exclusion or limitation clauses when considering whether to pursue a claim against the other party. Following the Bloomberg case discussed above, parties should be wary that they may remain liable to third parties under the Civil Liability (Contribution) Act 1978, even if limitation has passed under the contract. The expiry of limitation under contract does not stop statutory contribution claims.

The English Courts have traditionally taken a restrictive view as to how exclusions clauses should be interpreted and enforced. Recently however, the courts have taken a less restrictive approach by looking at the wider context of the agreement. Where commercial parties of equal bargaining positions have freely negotiated the terms of agreements, the courts are likely to enforce the terms of those agreements.

When negotiating construction contracts, parties should therefore carefully consider the potential implications of any exclusion clauses or limitations if the 'doomsday scenario' were to materialise. The courts can no longer be relied upon as a fall back to contend that exemption clauses are either unenforceable or should be restricted in their application.

If you would like any assistance or have any queries arising out of this article, please contact Tom Lister, Solicitor in DWF's Construction, Infrastructure & Projects team on 0161 603 5085.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

 

 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Paul Barge

Partner

I am a Partner in DWF’s Manchester office and Head of the Construction & Infrastructure team in the North West.