A High Court decision in 2021 reaffirmed the effectiveness of limits on liability imposed in the terms and conditions of professional services firms.
Why Is This Important?
For builders who engage designers, architects, engineers, surveyors and any other professional services on behalf of their clients, this is an important issue. It means that if there is an error or omission in those services, the maximum amount that the professional is liable for will be capped at the limit set out in their terms & conditions, even if the cost of the error is substantially more.
Let’s say you offer a full design & build service to a client. You engage an external designer to draw up the plans. Unfortunately, on one of the pages, they make an error with a measurement, and that just happens to be the page the builders follow. The work is completed before the error is identified. The client demands that the error be rectified, with an estimated cost of $75,000. However, the designer’s terms and conditions have limited their liability for any error to a maximum of two times their fees, which comes to just $28,000.
Unfortunately, the builder’s own contract with their client did not include such a limitation for errors, leaving them stuck in the middle and having to stump up the difference.
The Lesson
Builders who are engaging professional services on behalf of their clients need to:
- Ensure they are clear about any limitations of liability in the contracts, the terms and conditions of their consultants and subcontractors
- Provide similar limiting terms in their own contracts were legally allowed to do so
- Consider professional indemnity insurance to cover their liability for errors in these professional services
