Limiting your liability - some guidance from the Supreme Court
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Last week’s Supreme Court decision in Impact Funding Solutions v AIG Europe Insurance drew together some important threads on when and how a party can limit or exclude liability which are of general application. Principally:
- The contra proferentem doctrine is there to remove doubt, not create it. If the exclusion clause is clear, the doctrine has no application.
- Exclusion clauses come in two varieties: (i) those that exclude or limit liability arising as a matter of law (for example, liability for negligence or breach of a term implied as a matter of law); and (ii) those that define the scope of a contractual duty (for example, where I agree to paint your exterior woodwork but exclude your garage doors from the definition of exterior woodwork). Type (i) exclusions will be strictly construed against the party benefiting from the exclusion; type (ii) exclusions will be subject to the usual, less stringent rules on contractual interpretation.
- The courts consider that business people are capable of looking after their own affairs and should be free to apportion risks between themselves as they choose.
- Interpretation and implication are separate processes. The express terms must be interpreted before one can consider any question of implication (cf my last post).
None of this is necessarily new but given the recent restatements and reiterations of the approach to interpretation, the decision is a timely refresher on the key principles. In a period of uncertainty, being able to apportion risk with some measure of certainty is high on all our agendas.