What terms in a consultant’s appointment could third parties seek to enforce under the Contracts (Rights of Third Parties) Act? And could this be a problem? The answer, as always, will depend on the appointment itself, and on whether the term benefits other members of the construction team or third parties such as funders and purchasers.
Taking the construction team first; there may be express rights to enforce. For example, the consultant may agree “to provide [a named contractor] with certain specified drawings at a certain time and the contractor shall be entitled to enforce this term”. If the drawings are late, the contractor will be able to sue the consultant for damages. The client will also be able to sue the consultant for its own losses, such as extra work carried out by its project manager, because the consultant will also be in breach of its direct obligation to the client.
It will be relatively easy for consultants to assess the losses that are payable to the contractor in such circumstances – they are likely to be the same as those that would have been payable had the contractor’s claim come through the client. The act also protects a consultant against double recovery. There is, however, the possibility of a multiplicity of claims and the additional costs those would incur. If it is not certain who is at fault, a claim commenced by the contractor could well include both the client and the consultant, resulting in similar multiparty actions as occur now. Less easy to assess will be the losses that could be incurred as a result of much wider terms. For example, “the contractor and all members of the professional team may enforce any term of this contract which is for their benefit”. This would lead to uncertainty as to which term is enforceable by whom with what effect, and should therefore be resisted.
The act also gives third parties a right to enforce any term that purports to confer a benefit on them. This, too, could give other members of the construction team direct rights against the consultant – and it could be difficult to identify them in the absence of an express right. Consider the following:
- Any obligation to provide information to other members of the team could confer such a right, with similar consequences to those outlined above.
- Licences given to the client and others to use the consultant’s intellectual property may extend to the members of the construction team. If the terms of the licence are properly expressed, the use of any documents will be restricted to their original purpose and the original project. However, those licences may continue, even though the client’s right may have been revoked because of non-payment or by repudiation, which would mean that the consultant would lose some control of its documents.
- Consultants are in danger of extending their liability and weakening control of their property
- This is especially true when rights are granted to parties outside the construction team
- Other members of the construction team could have a right to enforce an indemnity if the consultant has agreed so to indemnify the client. If the indemnity is properly worded, the claim should be no more extensive than before the act, but if it is too wide, the consultant could be liable to a third party even if it has not been negligent – and for damages that are wider than those properly recoverable in law by a third party.
- An obligation to provide certificates or statements, for example to the architect as to the state of completion of the M&E installations, could be enforceable by the architect. The liability of the provider of the statement, if it was incorrect, can also be assessed fairly accurately (see my article of 7 April 2000).
The consequences of agreeing to terms that benefit third parties outside the construction team, such as funders, purchasers or tenants, are much harder to assess. For example, information given to future occupiers might have very different implications from that given to a member of the team. Licences to use documents given to future owners would entitle any owner to copy and reproduce the documents concerned, leaving the consultant with little control over who has them and how they might be used.
Indemnities against third-party claims that extended to all purchasers and tenants could extend to losses that the consultant had not foreseen and cannot assess (for example, a subsequent tenant’s substantial losses because it cannot use the building).
Certificates or reports that a consultant agrees to provide, say concerning a site investigation to a future purchaser of the site, would give that future purchaser a direct right to that report. The consequences of doing so if the report were incorrect could be difficult to assess.
There may be advantages to the consultant in having some third-party claims made under the act rather than in tort because it will be able to take advantage of any defences available under the contract with the client. However, there are unlikely to be many restrictions of liability as between the client and the consultant and so, particularly where funders, purchasers and tenants are concerned, all those restrictions would need to be included in the appointment.
Rachel Barnes is partner in solicitor Beale and Company.