• In the case of Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964, it was held that limitation clauses work against the party relying upon the clause.
  • This contract case concerned exemption clauses, contact construction (interpretation) and performance of contractual obligations.
  • This case questioned the application of the contra proferentem rule on exclusion clauses.

Facts of the Case

  • A third party security company failed to provide security to C’s fishing boats causing it sink as well as a boat belonging to D.
  • C contended in this case that the contract clause liability price of £1,000 cannot be enforced since the security company did not fulfil their obligations.

Issues

  • Can D rely on this limitation clause?
  • Does the contra proferentem rule apply?

Held by House of Lords

  • Appeal dismissed – the contract clause limiting liability for the security company was clear and not ambiguous.

Lord Wilberforce

Question of construction

  • The security company’s liability depends on how the contract can be interpreted.
  • “Whether a clause limiting liability is effective or not is a question of construction of that clause in the context of the contract as a whole. If it is to exclude liability for negligence, it must be most clearly and unambiguously expressed, and in such a contract as this, must be construed contra proferentem.”
  • “I venture to add one further qualification, or at least clarification: one must not strive to create ambiguities by strained construction, as I think that the appellants have striven to do. The relevant words must be given, if possible, their natural, plain meaning.”
  • “Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion: this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives and possibly also the opportunity of the other party to insure.”

Lord Fraser of Tulybelton

Exclusion/limitation clauses

  • This case relies on Pollock & Co. v. Macrae [1922] SC (HL) 192 as case authority to show whether contra proferentem applies.
  • While there are few differences between exclusion and limitation clauses, it’s crucial to make the distinction between the two.
  • “In my opinion these principles are not applicable in their full rigour when considering the effect of clauses merely limiting liability… The reason for imposing such standards on these clauses is the inherent improbability that the other party to a contract including such a clause intended to release the proferens from a liability that would otherwise fall upon him.”