What happens when you think your service provider refuses to own up responsibility? “Exclusion clauses in commercial contracts: the contract is king”
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I came across an interesting article published by Catherine Gelder of Berwin Leighton Paisner LLP - on 29June 2017 titled “Exclusion clauses in commercial contracts: The Contract is King” which gave insights as to what business owners and Directors can expect from the courts when seeking contractual remedies from a service provider when the job they have been employed for, fails to deliver the expected result...
So what is an exclusion clause? In simple terms an exclusion clause is when you have a clause in a commercial contract that exempts a contracting party from liabilities. As reported in the article in the recent decision by the court of appeal over Persimmon Homes Ltd and others v Ove Arup & Partners Ltd it reinforces the court’s recent willingness to champion “business common sense” and to uphold contractual terms agreed between commercial parties of equal bargaining strength. This trend, the writer explains, should make the English courts a more business-friendly place to litigate.
Persimmon is a Developer and Arup is a Consultancy firm employed by Persimmon to provide advice including advice on asbestos contamination prior purchasing a property in Wales. Arup’s contract included an exclusion clause that ended with the wording “Liability for any claim in relation to asbestos is excluded”. The developers purchase the site but later found unexpected quantity of asbestos contamination resulting in losses for the developer. Persimmon sued and on appeal the court was asked to decide whether the exclusion clause exempted the advisor from liability for the asbestos contamination. The court ruled, among other things, that the exclusion clause did indeed exclude all claims for asbestos-related losses suffered by the developer
So what is the changing approach to the exclusion clauses? :
The courts are willing to assess the legal and commercial context in which agreements are made, allowing weight for commercial considerations. (The write adds to my amusement Although precisely what “business common sense” means is undefined and therefore remains somewhat subjective!)
The courts seem to find less ambiguity in commercial contracts, reducing the relevance of the traditional rules of interpretation.
Less reliance on historic cases giving commercial parties further confidence that the court will enforce the agreement that the parties have reached.
So why is this important to business owners and directors when entering into any commercial contract, it is simply reassurance that the wording of contracts are (and should be) what they intend to be (and in plain English!), it also highlights the importance of taking some time to read, explore possible scenarios, asks questions and negotiate what could go wrong before signing the dotted line (needless to say keep record of it!). My mantra is that if in doubt what the contracting party means just write and ask them to spell it out so you are absolutely in the know!
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