Interpreting the interpretation: exclusion and indemnity clauses under Canada Steamship

In the recent case of Lictor Anstalt v Mir Steel UK Ltd [2012] EWCA Civ 1397, the Court of Appeal shed light on the interpretation of exclusion clauses. These clauses are normally interpreted in accordance with the principles set out in Canada Steamship Lines Ltd v The King ([1952] A.C. 192). The Lictor Anstalt case, however, has clarified that the Canada Steamship principles are merely guidelines and should not be applied ‘mechanistically’.

Background

Steel manufacturers, Alphasteel, entered into a contract with Lictor to provide the parts to make a hot strip mill for use in Alphasteel’s premises. The contract provided that the mill would remain the property of Lictor. Alphasteel then went into administration and their administrators included the mill in the assets that were offered for sale. Lictor gave notice of its ownership of the mill. Despite this, the administrators sold the assets, including the mill, to a company called Libala. Libala knew about Lictor’s ownership claim over the mill and the administrators had provided them with all the documentation in relation to the claim. In the draft heads of terms Libala acknowledged the title dispute in relation to the hot strip mill and accepted that they would only acquire the right and title to assets that Alphasteel actually had.

Libala then entered into a hive down agreement with the administrators and another company called Mir Steel under which Libala’s right, title and risk in various assets, including the mill, passed to Mir Steel. Mir Steel was aware of the title dispute relating to the mill and the agreement warranted that Libala and the administrator had not withheld from Mir Steel any information relating to the dispute. Furthermore, Clause 9.5 of the hive down agreement stated that Mir Steel “agrees that it shall be responsible for settling any claim made against it by Lictor Anstalt in respect of the hot strip mill situated at the Property”.

Lictor then raised proceedings against Mir Steel and Libala, asserting that Alphasteel had no title in the mill at the time of the hive down agreement and therefore Lictor continues to own the mill. Mir Steel sought to bring both Alphasteel and the administrators into the action as defendants on the basis that their intentional wrongdoing made them tortfeasors in inducing a breach of the contract between Alphasteel and Lictor and, alternatively, conspiracy. Whether or not it was possible to join Alphasteel and the administrators as defendants rested on the interpretation of Clause 9.5. Mir Steel’s solicitors used the principles stated in Canada Steamship Lines Ltd v The King regarding the interpretation of clauses such as this to argue that the judge should find in its favour and join Alphasteel and the administrators as defendants.

In Canada Steamship the following were set out as the principles for the interpretation of exclusion of liability clauses:

Mir Steel’s solicitor attempted to apply these principles to liability for intentional wrongdoing, on the basis that it, like negligence, is a fault-based liability. The submission was that as no express words were used to exclude liability for intentional wrongdoing, any doubt as to whether Clause 9.5 was wide enough to exclude such liability had to be decided against Alphasteel and the administrators and in Mir Steel's favour. As a result, Alphasteel and the administrators should join the action as defendants and Mir Steel should not be required to bare the whole burden of Lictor’s claim.

Decision

The Court of Appeal paid heed to various criticisms made in other cases about a rigorous application of the Canada Steamship“should not be applied mechanistically and ought to be regarded as no more than guidelines”Canada Steamship principles. In line with such previous comments it was decided that the principles . It was advocated that the Court’s job was to interpret contracts in the context in which they were made; not to strictly apply the principles to provide an automatic and mechanical solution.

In this case then, the Court had to consider the overall commercial purpose of the hive down agreement and to ascertain whether Clause 9.5, in giving Mir Steel responsibility for “any claim”, intended to protect Alphasteel and the administrators from having to contribute to a claim based on inducing a breach of contract or conspiracy, as well as protecting it from liability in relation to Lictor’s title claim. It was decided that Clause 9.5 was intended to give such protection. Alphasteel was under a Court order to enter into administration, the administrators’ purpose was to get the assets sold quickly and efficiently, and Mir Steel’s purpose was to commercially exploit the assets. It does not follow that it was the parties’ intention that Mir Steel should be able to buy the assets knowing about the title dispute, sign a contract accepting responsibility for any claim arising from this, and then claw back from Alphasteel and the administrators.

Comment

This case reiterates the importance of analysing the context in which the contract was made and the intentions of the parties when interpreting exclusion of liability clauses. It shows that the Canada Steamship principles will not be applied to the neglect of context and intentions. This case may take the pressure off those hoping to use general exclusion of liability clauses to exclude fault-based liability. The caveat being, of course, that this must be the clear intention of the parties. This decision will prove no help where neither the drafting nor the context is clear enough to reflect intentions. It is therefore advisable that where liability is intended to be excluded, that this is expressly stated.