A lot of column inches have been dedicated to the decision in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc. These have naturally focussed on the headline point around adjudication and limitation periods. However, there is another issue arising from the case that interests me.
The judgment does not reveal the precise terms of Aspect’s appointment. Quite possibly no formal appointment was in fact put in place. It is by no means uncommon for this to be the case, and indeed for the consultant’s report to include some standard wording setting out the terms on which the report was purportedly produced.
What is likely is that Aspect’s fee was a mere fraction of its ultimate liability (in the region of £650,000) resulting from its failure to identify the extent of asbestos in the property. This raises interesting (at least to me) questions about the risk/reward equation as it applies to such consultants.
Appointments for roles like Aspect’s are often entered into on a consultant’s standard terms. This is typically justified by the relatively low fee, rather than the potential consequences of negligence on the consultant’s part. Such terms may well fail to address key requirements, or include limitations and exclusions, leaving the client in an uncertain, perhaps unprotected, position. For example:
- Consultants’ standard terms tend to include financial caps and other limitations on liability, at least, as a starting point. When acting for developers, I am regularly told by consultants that it is entirely reasonable for my client to accept an aggregate cap limited to a (very low) multiplier of the fee payable, and further to accept a blanket exclusion of so-called “consequential” or “economic” losses. This, so it is said, is because the balance between the reward (a low fee) and the potential risk (of a claim for breach) is otherwise unfair.
- There is often a mismatch between the requested liability cap and the level of the consultant’s professional indemnity insurance (PII). Readers with long memories will recall that this was one of the issues that arose in the Ampleforth case. This mismatch is hard to justify, given that the consultant carries PII precisely to protect himself in the event of claims made against him.
- When it comes to agreeing the level of PII, again developer clients are frequently urged by consultants to simply accept what they are offered. However, since clients will effectively also rely, albeit indirectly, on the existence of PII, it is not unreasonable to insist that it is set at a sensible level. After all, most consultants will have few, if any, other assets with which to meet a claim.
- Often standard terms, whether in a formal appointment or included within a report, expressly prohibit reliance on the report by third parties. Similarly, assignment of the client’s rights is frequently prohibited. A developer considering its options at the inception of a project may not see this as an issue. However, procurement strategies can change. There may be a need to bring in a separate developer entity, or to involve a fund or purchaser. Without the option of reliance or assignment, there is no way to give these parties the recourse they will expect.
Lessons from Aspect
We are again in a market where demand is out-stripping supply. For seemingly minor consultants, it may be seen as an “easy win” for clients to accept standard terms and focus more energy and resource on getting the core project team appointments in place.
However, as Aspect demonstrates, the level of fee may bear little relation to the impact that a consultant’s failure may have on the overall success of the project. The decision should serve as a timely reminder that, if an appointment is worth doing at all, it is worth doing properly.
When agreeing terms:
- Although often indicative, do not let the value of fees alone dictate your approach to appointing a consultant.
- Often a consultant’s standard terms will not provide adequate protection of a client’s interests. With a little effort, and minimal involvement from the client’s lawyers, a bespoke short form appointment can ensure that the client’s position is suitably protected.
- Think about whether third parties may, now or in future, be interested in the performance of the consultant’s duties. If the future is uncertain (and it often is), look to retain as much flexibility as possible.
When negotiating limitations and exclusions of liability:
- Be careful when agreeing limitations of liability. Consider whether any agreed caps provide an appropriate level of protection against potential risks. Think about the drafting too. For example, will the cap apply in the aggregate or on a “per claim” basis?
- Remember that the consultant will (or should) be protected by PII. The level of that insurance should act as a baseline when agreeing caps on liability.
- Consider any proposed liability exclusions and question their rationale. Ensure that they are drafted clearly and narrowly.
When assessing insurance cover:
- Ensure that the PII requirement is set at a sensible level. If the consultant does not carry that level of cover, should you really be appointing him at all?
- If the level of PII seems insufficient, consider whether other insurance solutions may offer protection. For example, in appropriate cases, an environmental impairment policy may provide at least partial cover against the risk of unforeseen contamination. Talk to your broker and see what is available.