Consultant held to be responsible for third party designs

Arbitration Appeal No. 1 of 2021 [2021] CSOH 41

We are increasingly seeing attempts by project clients and contractors to make consultants responsible for all design on a project and for information prepared by the client or by a third party. A recent case before the Scottish Courts has underlined the importance of resisting such provisions after it upheld a contractual requirement for a consultant to accept liability for designs created by a third party prior to their engagement on a project. This proved yet another example of the UK Courts’ reluctance to ignore what commercial parties contractually agree to and emphasises the importance of considering responsibility for a design under any consultancy appointment (including any attachments) very carefully.

Background

The dispute related to a project for the rehabilitation of a water mains system.

As is market standard, the project procurement route was the typical appointment of a main contractor (the “Contractor”) via a design and build contract in which the Contractor accepted full design responsibility. The Contractor’s design works were sub-contracted to a designer (the “Consultant”) under an amended NEC Professional Services Contract 2005, Option A (the “PSC”).

There were two key additions to the PSC:

1. an acknowledgement that the Consultant had, “provided for any other design works necessary to provide a complete design for the purposes of the construction works and in accordance with the Scope”; and
2. a provision stating, “any design responsibility noted as `Construction and Design Partner’ within the documents provided for within section 2 of the Scope [which was back-to-back with the Contractor’s design obligations under the main contract]” would be the Consultant’s responsibility.

Part of the works involved the use of a polyurethane lining to coat the inside of old pipes in the water mains. The lining failed and the Contractor claimed against the Consultant on the basis that the material chosen was inappropriate and in breach of the Consultant’s design obligations. However, the lining had been selected by the Contractor prior to the Consultant being engaged under the PSC. The Consultant therefore objected to the Contractor’s assertions on the basis that the selection of the lining was done without input or approval by the Consultant, nor was the Consultant ever asked to comment on issues involving the lining.

The Contractor argued that the amendments to the PSC expressly required the Consultant to take full and complete responsibility for the design and specification, including those completed by third parties, prior to entering the PSC, and such responsibilities covered the specification of the pipe linings. The arbitrator agreed and issued the arbitration award in favour of the Contractor.

Appeal

In an attempt to appeal the arbitrator’s award, the Consultant argued before the Outer House of the Scottish Court of Session that the arbitrator’s decision contained legal errors, and that they should be granted leave to appeal in accordance with Scots law. Part of the Consultant’s submissions was that allowing for the specifications and approvals completed before, and completely outside, the Consultant’s formal engagement to be captured by the Consultant’s total liability under the PSC created an “absurd” legal fiction.

The Court rejected the application and in doing so emphasised that the threshold for such appeals is high as the arbitrator must have been ‘obviously wrong’. In addition, the court made some observations regarding the principles of contractual interpretation. A key takeaway was that the parties were free to contractually agree that the Consultant assumes responsibility for designs and specifications made prior to their engagement. The Court therefore considered that it was the responsibility of the Consultant to understand the implications of assuming liability for previous designs and specifications, and it should therefore, in practice, have taken steps to check they were in fact satisfied with the prior services.

Comment

Assuming liability for pre-existing designs carried out by third parties and/or for information provided by or on behalf of the client are common requirements (and risks) in the current hardened contractual market.  These could arise as a result of express obligations for the consultant to be responsible for the design of the project as a whole, provisions in the scope of services or an obligation to assume the same responsibility as imposed under the Building Contract.

Whilst the decisions of the Scottish Courts are not binding on the Courts of England and Wales, the reasoning behind the Court’s decision to not grant leave to appeal follows the English Courts’ reluctance to interfere with commercial parties’ freedom of contract. There is therefore a risk that similar provisions would be upheld by the English courts.

It is therefore important for Consultants to consider their appointments carefully and seek to limit their design responsibility to design they have carried out and the services provided.

To the extent that liability is accepted for information and designs which the consultant did not prepare, it is important that due diligence is carried out on the information and designs and if possible, the risk priced for.

The UK Government’s Construction Playbook states that public sector clients should avoid holding the supply chain responsible for errors in information unless they have had the opportunity to complete due diligence and generally encourages a fair allocation of risk.  Hopefully this will see a move towards a more considered and fair approach in relation to design responsibility.