Limiting liability: certainty required
Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd [25.10.16]
Technology and Construction Court decides that the failure to conclude negotiations meant that a contract did not cap the engineer’s liability.
Despite the apparently harsh nature of the result in this case, the judge had little sympathy for the claimant engineer. Mr Justice Coulson described its approach to the negotiations as “dilatory and often uncooperative”.
A liability cap is only of value if it is incorporated into a contract. As Coulson J said:
it is usually better for a party to reach a full agreement … through a process of negotiation and give-and-take, rather than to delay and then fail to reach any detailed agreement at all.
Many law firms offer advice to professionals on warranties and appointments. In this case, legal advice may have provided the impetus to complete the negotiations. The absence of a liability cap may cost the engineer several millions of pounds.
The defendant contractor was engaged by Kier to act as the specialist concrete sub-contractor on two large projects, the Wellcome Building and Castlepoint Car Park. In 2001, the contractor started discussions with the claimant engineer about instructing it on several projects, including the car park.
During their initial discussions in September 2001, the engineer proposed a liability cap set at the level of its professional indemnity insurance. On 8 November 2001, the contractor sent the engineer a draft “protocol agreement”, which included standard terms and conditions and an (uncompleted) liability cap. In late November, the contractor instructed the engineer to start design work on the car park, with the terms and conditions in line with the draft protocol agreement.
On 6 March 2002, the contractor sent the engineer two letters to try to finalise the draft protocol agreement. The first letter confirmed instructions in respect of the car park. The second letter enclosed an amended copy of the draft protocol agreement, which included another mention of the liability cap. The engineer contended that this limited its liability to 10% of the sub-contract sum (i.e. £610,515).
Despite several months of negotiations, no final position was agreed in relation to the protocol agreement. The works were completed on the basis of the first letter.
By 2003, Kier received reports of concrete falling off the superstructure of the car park. Kier passed a claim down the contractual chain to the contractor, which in turn looked to the engineer. The contractor’s claim was for £40 million. The engineer sought a declaration from the court that its liability was capped at £610,515.
Dismissing the engineer’s claim for declaratory relief, Coulson J held as follows:
- There was too much ambiguity in the correspondence for the court to conclude that either party intended to be bound by a liability cap. He stated that:
the court is not entitled to rewrite history so as to incorporate into that contract express terms which were not the subject of a clear and binding agreement.
- The contractor’s instruction to commence design work created a simple contract. He rejected the engineer’s contention that the contract incorporated any version of the liability cap circulated during the negotiations.
- There had been no “final and unqualified expression of assent” to a liability cap. He held that there was no liability cap, whether of £610,515 or at all.