Novation without tears

The judgment in Blyth & Blyth has been much talked about, written about and criticised by the construction legal community (type "Blyth" and "Carillion" into Building's archive search engine to get an idea of the controversy surrounding the case). Effectively, what happened in the case was that the established practice of novating design consultants from employer to the design-and-build contractor was thrown into disarray.

Without wishing to add further material to the cottage industry that has developed around the Blyth & Blyth, it is worth remembering that the judgment raised significant points that are of general application to novation agreements.

These include: whether a novation agreement provides for a novation or an assignment; whether the employer is entitled to reserve continuing post-novation rights against the consultant; and how much loss the contractor should be entitled to recover after the novation for breaches of the consultant's duties undertaken before the novation.

These points and others have now been formalised by the publication of two standard forms of deed of novation by the Construction Industry Council and the construction committee of the City of London Law Society respectively.

So, has the wait for standard forms of novation agreement been worthwhile? And is the choice of alternative forms a help or a hindrance to the construction industry's advisers and insurers?

In short, the CIC and CLLS forms meet the demand for simple standardised documentation and both are refreshingly brief. The CIC form has five clauses, while the CLLS form makes do with three.

Both forms also resist the temptation to include additional provisions that may be relevant to individual projects, such as a warranty back to the employer after the novation.

So much for the similarities. Here come the differences.

Both forms meet the demand for simple standardised documentation and are refreshingly brief. They also resist the temptation to include individual project provisions

The CLLS approach is to give the novation retrospective effect and adopt the "novation ab initio" approach, whereby "the consultant undertakes to perform the appointment and be bound by its terms in every way as if the contractor were, and had been from the inception, a party to the appointment in lieu of the employer".

The CIC form has moved away from novation ab initio to an arrangement where the consultant warrants the pre-novation services to the contractor as well as promising to perform the post-novation services. It is not a novation agreement but a warranty agreement.

A further difference between the two forms concerns the measurement of damages recoverable by a contractor in the event of a pre-novation breach. The CLLS deed makes the consultant's liability for the contractor's losses "subject to any limitation of liability in the appointment".

The CIC form adopts a different approach in the event of a pre-novation breach. It puts the contractor in the Blyth & Blyth position of recovery limited by the employer's measure of loss. However, it acknowledges that "the consultant shall not be absolved from liability to the contractor by virtue of the fact that the loss has not been suffered by the employer" – the crux of the Blyth case.

Ultimately the choice of form may be predicated by the context in which the consultant's appointment for a project is made and whether there is a clear division between pre-novation and post-novation duties. The CIC approach may find favour where the consultant was originally appointed and worked on the assumption that the project was to proceed on a traditional basis rather than design-and-build.

The CIC and the CLLS have each produced deeds of novation as a considered reaction to the decision in Blyth & Blyth. Each gives the industry the opportunity to adopt standard (albeit alternative) approaches to design-and-build procurement techniques.