A reader writes Stavry Onissiphorou of ACE picks a good-natured – and closely argued – fight with Ann Minogue over whether it’s fair for consultants to limit their liabilities
In last week’s Building, Ann Minogue

asked whether she was alone in finding the Construction Industry Council’s liability briefing of February 2004 “breathtakingly cavalier in its view of the position of the client”. The briefing advocated the managing of liability through financial caps. The limitation of liability in this way has been around for many years. The Association of Consulting Engineers’ own agreements introduced such a clause in the 1980s and clients have accepted such limitations.

Limitation of liability clauses can be quite sophisticated. For example, an aggregate limit of liability for pollution and contamination claims has been around for 10 years or so, and clients have had no difficulty in accepting this in projects where the risks of such claims are high, such as site investigations on contaminated land.

ACE has long argued that unlimited liability is a myth. As everyone knows, recovery is limited to the level of a consultant’s insurance cover and assets. Consultants also have the difficulty of trying to judge what will be available in the market when a claim comes in, as it is the insurance policy in force at that time which is relevant. At present, consultants are in a position where the cover available is becoming more restricted each year.

The existence of financial caps can protect

the client while at the same time providing consultants with an assurance that their potential liability will not be beyond what is reasonable, taking all relevant circumstances into account and regardless of whether or not the consultant has the insurance to meet the claim.

If financial caps were not used, what would happen? Let us consider for a moment the scenario where a consultant accepts unlimited liability. A single successful claim could result in that firm’s liquidation. What is the position then for the other clients who have engaged the consultant (or indeed the same claimant but on another project), and what about the holders of collateral warranties and third party rights? The answer is simple. There may well be no insurance, leaving claimants to bear the entire burden of their loss and damage, possibly leading to their own liquidation. If all these claims were subject to a reasonable cap and the consultant has professional indemnity insurance, there is a better chance of these claims being met, at least in part.

Financial caps therefore provide a greater chance that claims may be satisfied. Far from the construction industry showing a “disregard for the interests of its customers”, as Ann suggests, caps are in the interests of all parties.

Unlimited exposure is a factor in the spiralling levels of insurance premiums. If the industry adopted a sensible capping regime, insurers may lower premiums. As premiums are reflected in consultants’ fees, lower premiums could mean lower fees. A win–win situation.

ACE does not regard financial caps as a means of imposing an arbitrary cap on consultants’ liability and they are not the “abrogation of responsibility” that Ann describes.

It is worth remembering that caps on liability would, to some extent, be unnecessary if clients did not attempt to impose obligations on consultants that they cannot meet, even if

they exercise reasonable skill and care. For example, those imposing strict obligations in relation to time for performance and those imposing warranties for fitness for purpose, which are outside the scope of consultants’

PI insurance.

Ann suggests that the issue of unlimited

liability should be approached “intelligently

and coherently”. What better way to do this

than to discuss what the risks are, who is best placed to manage them and the likely damages in the event of a claim? This is all that is

being suggested. The natural result of such a

discussion is a reasonable cap on liability, which brings with it advantages to consultants and clients alike.

Trickey’s situations

News finally reaches us that the QSs of the RICS are feeling unloved and dispossessed. How could things have got so bad? Even big-hearted Chris Blyth of the Chartered Institute of Building is saying: “I’ll take them – if they’re good enough!” (20 February, page 15). Someone in the office suggests joining the rush to provide a new home for all the RICS’ members who want to jump ship. We therefore decide to found the Regal Institution of Cornish Surveyors – fees to be payable in cider, all speeches to be in Kernow, and the wearing of the pasty compulsory on St Austell’s day. A membership exam is sketched out, consisting of the following questions:
  • Do you feel unloved by your professional organisation?

  • Do you enjoy sitting in a freezing site cabin in winter?

  • Do you look good in brown trousers and shoes?

Obviously, as a bona fide multidisciplinary institute, we would have to offer professional training. Ideas range from the obvious – modelling with lolly sticks for architects, finding out where you are by looking at a map for land surveyors – to the more technically demanding – swearing for site managers and abacus training for QSs.

And best of all, joining are institute will entitle you to the designation “RICS” after your name. We are anticipating a barrage of membership enquiries.

Greg Trickey works for Devonshire Fire and Rescue.

Postscript

Stavry Onissiphorou is legal adviser at the Association of Consulting Engineers.