Diabolical liabilities

Am I alone in finding the Construction Industry Council's "liability briefing", dated February 2004, breathtakingly cavalier in its view of the position of the client?

Plainly, clients come in all shapes and sizes but most build once in a lifetime. They are not familiar with the industry and the process of building a project. They turn to their consultants for advice. Even expert clients need the help of architects, structural engineers, acousticians and the like.

And what is the advice from the CIC? It is suggesting that because consultants are facing a hardening professional indemnity insurance market, they should limit their liability for breach of contract or negligence to a financial cap – "beyond which the consultant will not be liable". In other words, beyond which the client has to bear the consequences of the consultant's breach of contract or negligence.

So, the one-off client who engages an architect and finds that the design was so flawed that the building leaks, must pay to remedy the defect in addition to the costs of moving its business. And the CIC suggests that this is an advantage to the client too because a cap "… gives clients as well as consultants a degree of certainty that they would not otherwise have."

The CIC briefing then goes on to advocate not just a cap on liability for each act of negligence (which would reflect a consultant's normal PI policy) but a total limit that applies regardless of how many claims arise because "this option offers the greatest certainty in relation to potential exposure".

At this point the Unfair Contract Terms Act 1977 intervenes to assist the client, since it provides that liability for negligence cannot be excluded or restricted unless the term restricting liability satisfies the requirement of "reasonableness" – so the CIC then goes on to give advice as to how a "reasonable cap" should be calculated.

The CIC might do better to advise its members to avoid mistakes than advocate abrogation of responsibility

The CIC does suggest that consultants should discuss and specifically agree the cap, because "if this is done, it is much more difficult for the other party to successfully challenge the cap in court". The discussion should be recorded in detail so that the evidence can be presented later. The CIC suggests that the amount of the cap could certainly be less than the amount of the consultant's PI insurance if factors such as the level of the fee and the relative bargaining power of the parties are taken into account.

Even a major commercial client is at risk if the CIC actively promotes and recommends to its members that they adopt this policy in a concerted way. What is the client to do to protect itself against the unlimited risk of its consultants' bad advice?

The sting in the tail of the CIC's advice is that, since recipients of collateral warranties of holders of third-party rights may bring claims against the consultant, the consultant should look for further protection "if it is anticipated that the third-party claims might exceed an agreed cap … the consultant may wish to seek an indemnity from the client."

So, not only does the client have to bear its own losses arising from the consultant's negligence, it seems it also has to indemnify the consultant against all other losses suffered as a result of that negligence.

It is hard to imagine any other industry that would so disregard the interests of its customers as to provide "liability briefings" along these lines. Fortunately, at the moment, these sort of caps and limits are very rare indeed – notwithstanding the fact that the CIC suggest that these caps are "now accepted by many clients". In an appropriate case, it is quite clear that clients would be reasonable and sensible and would agree an appropriate cap. In other cases, though, such a cap is completely inappropriate.