Going overseas? Check your insurance – and the local law
Architecture has always been a strong export product for the UK. Architects are increasingly asked to tender for projects outside the country and to sign up to appointments which may not follow the UK market norms. What differences should architects be aware of in appointment documents for overseas projects?
If you are confronted with an appointment document for an overseas project the first thing to do is establish whether it is subject to English law or the law of the local jurisdiction. While English law is another great export and is often used as the governing law under contracts for foreign projects, you cannot guarantee that it will be used in an appointment document for an overseas project. Where an appointment is not subject to English law, you should take foreign law advice on the proposed terms. Irrespective of the governing law of the appointment, you should also ask your insurers to confirm whether the appointment is acceptable. Insurers are often able to cover appointments for overseas projects, but do not take this for granted. Check whether any specific requirements need to be satisfied in order for the appointment to fall within cover.
Appointments for overseas projects often include requirements for the architect to provide some form of performance security. This can take the form of bonds or parent company guarantees. Bonds come in a number of forms. Conditional or performance bonds require the client to demonstrate a breach of the architect’s appointment in order to make a claim. By contrast, a call can be made under an on-demand bond without having to show that the architect has breached the terms of its appointment. On-demand bonds are clearly much more risky from an architect’s perspective but are, unfortunately, the type most likely to be required on an overseas project.
In many legal systems, an occupier or person with an interest in a building does not have to have a contractual link with an architect in order to sue them for defective design
Third party rights
In the UK, architects are often required to provide collateral warranties or third party rights in favour of third party purchasers or tenants. Although appointment documents for overseas projects may not include equivalent requirements, you should check whether a third party purchaser or tenant of the project would be able to sue you even if you have not provided them with a collateral warranty. In many legal systems, an occupier or person with an interest in a building does not have to have a contractual link with an architect in order to sue them for defective design.
Overseas appointments often include liquidated damages provisions covering delay in completion of the architect’s services or a right for the client to withhold payment if the services are not completed by a particular date or to the client’s satisfaction. You should carefully review the payment and damages provisions in the appointment. If the client refuses to water them down, you should factor such considerations into your proposed fee and programme for completion of the services.
Care should be taken in relation to the appointment’s provisions for dispute resolution. Claiming payment in courts in far flung corners of the world can be complicated and time consuming. In view of this, appointments for overseas projects often include arbitration provisions (see panel). In general, it can be easier to enforce an arbitrator’s decision than the decision of a court in a foreign jurisdiction.
While taking on work in a foreign jurisdiction can be an exciting prospect, architects should be particularly conscious of the terms of their appointment and ensure that they take advice on foreign law and obtain their insurer’s approval before signing up.
Angus Dawson is a partner at Macfarlanes
Contract amendments
Arbitration is an alternative form of dispute resolution to going to court. It is a private method of dispute resolution under which an arbitrator, or panel of arbitrators, decides the dispute in question. Subject to limited grounds of challenge, the decision of the arbitrators will be final and binding on the parties. The procedure for the arbitration can be agreed between the parties or set by the arbitrators, meaning that the proceedings may be very similar to court proceedings or, conversely, may be much simpler. The key benefit of arbitration provisions on overseas projects is that the decision of the arbitrator or arbitrators is, in general, much easier to enforce overseas than the decision of a foreign court. The arbitrators will usually have the ability to determine who should be liable for the costs of the arbitration.