Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd
House of Lords
Citations: [1983] 1 WLR 964; [1983] 1 All ER 101; [1983] 1 Lloyd’s Rep 183; 1982 SC (HL) 14; 1982 SLT 377; (1983) 80 LSG 2516; (1983) 127 SJ 508; [1983] CLY 440.
Facts
Ailsa Craig Fishing hired a security firm to supervise their fishing vessel. The security firm negligently caused the ship to sink one of Malvern Fishing’s boats. Malvern successfully sued Ailsa for £55,000. Ailsa sought an indemnity from the security firm for those damages. However, the contract between Ailsa and the security firm contained a limitation clause limiting the firm’s liability in most circumstances to £1000. It stated that:
If…any liability on the part of the company shall arise (whether under the express or implied terms of this contract, or at common law, or in any other way) to the customer for any loss or damage of whatever nature arising out of or connected with the provision of, or purported provision of, or failure in provision of, the services covered by this contract, such liability shall be limited to the payment by the company by way of damages of a sum [of £1000].
Ailsa argued that the 3-stage test for interpreting exclusion clauses in negligence cases should be applied to the limitation clause in this case. They thought that if the limitation clause were interpreted using this test, the clause would not apply in this situation. They could then recover the full amount from the security firm.
Issue(s)
- How should limitation clauses be interpreted?
Decision
The House of Lords held against Ailsa. The limitation clause should be interpreted using normal principles of contractual interpretation. It did apply to the facts of this case.
This Case is Authority For…
Whether a clause limiting liability applies to the facts of the case is determined using the normal rules for construing contracts. The clause should be construed by reference to the whole contract. The more stringent rules for interpreting clauses which completely exclude liability for negligence do not apply to limitation clauses.
Other
This case contains discussion of the old contra proferentem rule for interpreting exclusion and limitation clauses. This rule has been significantly limited by the Supreme Court in BNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 Plc [2016] UKSC 29.
