PLC Construction blog: liability caps: does Ampleforth have anything to teach RIBA?

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Summary: I recently blogged on Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd and how the court in that case held that the liability cap in the project manager’s standard terms did not pass the Unfair Contract Terms Act 1977’s (UCTA) test of reasonableness. RIBA’s recent announcement that it is about to release a 2012 version of its standard form consultancy agreements spurred me to think some more. How vulnerable to challenge under UCTA are terms excluding or limiting liability in standard form appointments, such as those produced by RIBA, RICS and ACE?

I recently blogged on Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd and how the court in that case held that the liability cap in the project manager’s standard terms did not pass the Unfair Contract Terms Act 1977’s (UCTA) test of reasonableness. 

RIBA’s recent announcement that it is about to release a 2012 version of its standard form consultancy agreements spurred me to think some more. How vulnerable to challenge under UCTA are terms excluding or limiting liability in standard form appointments, such as those produced by RIBA, RICS and ACE?

Standard form appointments 

RIBA’s notes for its Standard Conditions of Appointment 2010 (RIBA Standard Conditions) say that they are “designed to create a fair balance of risk between the architect/consultant and the client, whether or not the client has any experience of building projects.” However, the RIBA Standard Conditions (and their RICS and ACE counterparts) contain a host of clauses that exclude or limit the consultant’s liability. Indeed, it is hard not to conclude that a main aim of these contracts is to protect the consultant’s interests.

You may think that none of this much matters. Experienced clients, particularly those procuring high value or complex projects or which require funding, are unlikely to use standard form appointments (at least not without significant amendment). I often hear that terms like RIBA’s are not intended for use on such projects, but that is exactly my point. If they are not intended for use by sophisticated clients, they must be intended for inexperienced ones. That is why a case like Ampleforth may have some uncomfortable lessons for RIBA, RICS and ACE.

Take the RIBA Standard Conditions as an example. They contain the following limitations and exclusions (amongst others):

  • The client is to hold the contractor and not the architect responsible for the management and operational methods necessary for the carrying out of the works. (This is despite the fact that an inexperienced homeowner client may very well expect the architect to perform this management role, say as a contract administrator.)
  • A liability cap.
  • A net contribution clause drafted in broad terms.

It will be a perceptive inexperienced client who readily grasps the intended effect of all these provisions. 

Unfair Contract Terms Act 1977 

It is easy to see that these terms could seriously restrict a client’s ability to recover any loss it incurs as a result of a consultant’s negligence. As a result they may well be open to challenge under UCTA, particularly if the client is dealing as a “consumer”. A contract between a homeowner and an architect for the design of a home extension is likely to be a consumer contract. 

Sections 2 and 3 of UCTA are most relevant to claims under a professional appointment. They provide that:

  • A person cannot exclude or restrict his liability for negligence by contract except insofar as the term satisfies the requirement of reasonableness.
  • If one party to a contract is a consumer or contracts on the basis of the other’s written standard terms of business, the other cannot exclude or restrict liability for breach of contract by reference to a term of the contract except insofar as the term satisfies the term of reasonableness.

UCTA doesn’t define “written standard terms of business”, but case law suggests that a standard form such as the RIBA Standard Conditions could constitute written standard terms, if the consultant “invariably or at least usually” contracts on those terms (see British Fermentation Products Ltd v Compair Reavell Ltd). An architect who habitually offers to contract on RIBA terms, even if such terms are sometimes rejected, may well be using written standard terms of business within the meaning of UCTA. 

As for the requirement of reasonableness, the test is whether the term is fair and reasonable having regard to the circumstances which were, or ought reasonably to have been, known to the parties when the contract was made. If a party attempts, by way of contract, to limit its liability to a specified amount, the court must have regard to the resources available to him to meet the liability and how far he could have covered it by insurance. Finally, it is up to the person seeking to rely on an exclusion or limitation of liability to show that it is reasonable. 

Terms open to challenge? 

Anyone who has carried out building work at their home will know that it can be a complicated, expensive and stressful experience, and that you rely on the advice and expertise of your chosen consultant. That includes trusting them to propose fair terms and conditions and not seeking legal advice, even if advised to do so. 

If things go wrong through no fault of your own, is it reasonable for those who are responsible to rely on a raft of exclusions and limitations such as those within the RIBA Standard Conditions? My hunch is that the court would be reluctant to assist a consultant in such a case, particularly if, as in Ampleforth, it clearly has the means (by way of insurance) to meet a claim substantially in excess of a low cap on liability. 

So perhaps it is time for the RIBA, RICS and ACE to reconsider whether their terms really represent a “fair balance of risk” between consultant and client, particularly when the client is a consumer. Given the conclusions reached in Ampleforth, this may be to the ultimate benefit of consultants themselves. I, for one, would be disappointed if this suggestion were simply met by a more defensive approach from drafting bodies and consultants focused on highlighting “key terms” to clients, without pausing to consider whether the underlying terms really achieve their objective. At the very least, I believe that consultants should engage more proactively with inexperienced clients on matters such as the level of caps, and not simply tick boxes in standard form documents and hope for the best.

This blog was first published by PLC Construction as part of our regular construction blog series in which we share our practical experiences of working in construction and engineering and give our opinion on the current and future legal developments that shape and will shape the industry. Please select the link for other PLC Construction blogs.

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