Given the potential cost of liability for client losses, keeping a very close eye on your terms could save you from a large hit in the courts
One of the biggest battle grounds for an architect agreeing appointment terms is whether they will be liable jointly with another party for any losses incurred by a client.
Net contribution clauses are often seen as one way to alleviate this concern, but they may not always be the answer. There is also the question of what responsibility an architect should have for defective works, where it had an inspection role over works carried out by the contractor and its sub-contractors.
Failure to inspect
A recent case involving Hoare Lea as M&E engineer highlights the importance of these elements. Greenwich Millennium Village v Essex Services Group focused on the defective design and failure to inspect of an M&E engineer, but the same principles would generally also apply to an architect.
The case relates to catastrophic flooding of a new development on the Greenwich peninsula. It seems the chief physical cause was the over-tightening of a plastic nut on one riser and installation of an inappropriate valve in another. Damage amounted to £4.75m and Hoare Lea was found liable for well over £1m.
Liability was decided to lie at 40% for the professional providing inspection services and 60% for the sub-contractor who carried out the defective work.
Hoare Lea was liable for such a large percentage of the loss because it did not notice that the surge arrestor system it recommended was not correctly fitted in the works.
A key point noted by the judge is that the use of surge arrestors was, at the time, comparatively new. Only Hoare Lea (not the sub-contractor) had the requisite knowledge and experience of using these and should have taken more care to ensure the services contractors installed the system satisfactorily.
Hoare Lea’s defence relied partly on a claim that its inspection role had been removed by the developer. However, it had continued carrying out the role
Hoare Lea’s defence relied partly on a claim that its inspection role had been removed by the developer. However, it had continued (and continued to be paid for) carrying out the role. The warranty that Hoare Lea had signed in favour of the developer covered the services as set out in the appointment, and did not take account of any removal of inspection services. This is a key concern to be aware of if there is a substantial change to the architect’s services on a project.
The warranty Hoare Lea gave the developer did contain a net contribution clause, which might have helped limit its liability. However, the judge pointed out that the net contribution clause referred only to other ‘consultants’, not to sub-contractors. As Hoare Lea was jointly liable only with sub-contractors, the net contribution clause did not affect the apportionment of liability.
Finally, one change to appointment documents often requested by consultants is to remove all references to ‘ensuring’ that something is done, to be replaced by an obligation to ‘see to it’ that something is done. The judge made the point in this case that the use of the words ‘see to it’ would not in fact help. Hoare Lea had specified a new and innovative design for the surge arrestors, and so had to ‘see to it’ that the parties constructing it understood how the new system would operate.
Alistair McGrigor is a partner with Nabarro
NOTICE OF ASSIGNMENT
You may occasionally receive one of these from a lawyer. It gives you notice of the assignment of the rights under a document (often, for example, a collateral warranty). These notices are required by statute, and without serving notice, an assignment of rights under contracts is not legally valid.
This should be distinguished from being requested to consent to an assignment of a document. In this situation you are usually entitled to refuse, depending on the terms of the document being assigned.
A notice of assignment does not entitle you to refuse to consent to the assignment. It merely puts you on notice that an assignment of the warranty is taking place.
Some notices are more complex and detailed than simple notices of assignment; in circumstances where you are being put on notice that a charge has been taken over the contract in question. Usually these set out that the funder has taken security over the contract, but require you to continue dealing with the original contract party in relation to that contract. However, the principle is the same, that the security is being made valid by serving notice to you that the security has been granted.