It’s Not What You Do or Who You Are

IT’S NOT WHAT YOU DO OR WHO YOU ARE, BUT WHAT YOU SIGN

By Matt Kuc

Increasingly we see construction disputes become more and more multiparty, with professional consultants across architecture, engineering and surveying disciplines finding themselves attached anywhere from the second respondent to the tenth respondent and above in very broadly spread litigation. Consumerist law seeks to find a commercial resolution (someone has to pay) and getting a reduction to the liability of any one party has shifted strategically from trying to counter on the claimant’s quantum to instead seeking to join and spread liability to other parties. Rather than waiting for a dispute to arise, this can also be managed by the contract at the engagement stage to create a predetermined liability context should a dispute eventuate in the course of the project.

This is where contracts become topical. Increasingly, the implications of unfavourable contract terms become a significant factor in apportioning liability. No example has been more publicly clearer than in the Lacrosse dispute (Owners Corporation No.1 of PS613436T, Owners Corporation No. 2 of PS613436T, Owners Corporation No. 4 PS613436T & Ors v LU Simon Builders P/L, Stasi Galanaos, Gardner Group & Ors [2019] VCAT 286) where it was specifically noted that the builder LU Simon, while primarily liable, was able to successfully pass nearly 100% of their liability on to professional consultants in no small part due to the strength of the contracts in place. For quantity surveyors having the benefit of operating outside the primary design and construction space affords some protection, but, contractual liabilities can draw the surveyor back in. Across surveying professions, in particular quantity and building surveying, numerous contractual issues have exacerbated liability or even allowed the establishment of liability that would not have otherwise existed. Negotiating on fair contract terms upfront at the point of engagement is pivotal to ensuring adequate, relevant and reasonable liability is taken on. There have been four key areas of contractual liability arising for surveying professionals that seek to stretch the liability to unreasonable grounds beyond the actual professional services rendered.

These are:

1. ‘Design’ contracts, with scope outside of service rendered 2. Liability for others, with scope for indirect liability

3. Contracting out of proportionate liability in various jurisdictions such as the Civil Liability Act (New South Wales) and the Wrongs Act (Victoria), or other relevant legislation reducing or removing apportionment rights or defences 4. Broad indemnity clauses, with far greater liability than common law. A focus on the contract terms at the engagement stage is key to a Surveyor’s ability to firstly:

1. reduce overall risk, and consequently 2. align with available insurance, reducing the gap of commercial (uninsured) risks.

DESIGN CONTRACTS

We commonly see professional consultants provided with ‘design’ contracts modified from one of AS2124, AS4000 or AS11000 as the standard forms of a construction contract. At times a highly consequential misnomer, these ‘consultant’ contracts are provided to all consultants on a project irrespective of role, however, they are written with liability attaching to the provision of ‘design’ rather than ‘services’ through a defined scope only.

Where a surveyor provides no actual design input, these clauses can serve to claw you back into a claim via contractual liability. The role of the quantity surveyor should include certifying a progress payment based on a stage being completed, essentially in compliance solely with whether or not that stage was reached in accordance with the corresponding certification of the building surveyor/ inspector/certifier counterpart; and should not be to make a qualitative assessment of whether the design being costed or constructed was a good one. In the case of a building surveyor, we see some states explicitly reference their inability to provide any design input (section 79 of the Building Act (Victoria) 1993).

Litigation and claims scenarios have arisen drawing in surveying professionals under a design contract where a ‘compliant’ project had damage or loss arising from questionable design. Design was not the role of a surveyor, but unfortunately a contractual responsibility had been taken on. This has been a timely reminder to ensure that a correct contract form and scope of services is achieved in the first instance by the surveyor, in order to avoid potential contractual liability for services you not only do not provide but could not and had no intention to provide.

LIABILITY FOR OTHERS

While liability for your actions is reasonable, conversely liability for other parties is, on face value, clearly undesirable. It is common if you utilise subcontractors to be bound to ‘backto-back’ terms from your client to your subcontractor. Where we have seen challenging contractual environments for quantity surveyors is in some government contracts that effectively create tripartite agreements between a quantity surveyor and building certifier. Despite performing completely different roles, the quantity surveyor was responsible for, not only certifying progress payments (acceptable), but also responsible for certifying the relevant stages of building completion (not acceptable). This was despite the fact that the certifier was not a subcontractor and was contracted separately and directly to the government body.

CONTRACTING OUT OF PROPORTIONATE LIABILITY

Proportionate liability legislation exists for a reason – to ensure you are only responsible for losses from your own acts and not be responsible for the work of other parties. Contracting out of these rights, from the perspective of the principal seeking to impose them, is a way of trying to guarantee a commercial outcome on a dispute if any one contributing party goes broke, has no insurance, or otherwise is unable to pay. Waiving rights or explicitly contracting out of certain legislation can push liability more into a ‘joint and several’ environment where it can be argued that each party is able to be individually held liable for the entire loss. While it can be seen why this might be a desirable position for the principal, it is equally a clearly undesirable position for any surveyor to find themselves in. The advice to businesses with these clauses being proposed is to have them struck out entirely.

INDEMNITY CLAUSES

Indemnity clauses vary greatly from contract to contract but key outcomes that benefit a surveyor include:

1. liability reduced to the extent that a loss was contributed to by any other third party 2. liability attaching to the services provided, not to the contract

3. liability that does not agree to pay ‘all’ loss, damage or costs 4. liability that does not agree to pay loss ‘indirectly’ caused by you. The wording of an indemnity clause can have similar implications to the more obvious clauses contracting out of proportionate liability, albeit tacitly.

The less explicit implications of an indemnity clause are often difficult for a consulting business to identify or understand and forms the starting point of any contract review or insurance advice whether provided by a lawyer or insurance broker in their relevant professional capacities.

ISSUES AT DISPUTE STAGE

Unfavourable contract terms highlighted above can cause the exacerbation of liability against the surveyor, or even seek to establish liability against the surveyor that might not have otherwise existed. Summarising the unfavourable terms, this could include: • a claim for design flaws, despite arguably only performing a costing or certification role • being claimed against for 100% of the loss, despite only being partly responsible • being held responsible for something you were not directly involved in, and carrying indemnity for indirect losses • being held responsible for the negligence of others, without recourse against them. This is where advice and consideration is key up front, to not just understand but mitigate potential contractual liabilities in turn reducing the overall risk to the surveying firm in a project.

ISSUES WITH INSURANCE

Switching focus to professional indemnity insurance, the intention of the policy is to cover a business for a claim made against them for financial loss arising out of their professional services. Relevant to the topic at hand, what professional indemnity insurance doesn’t say is to cover a business for a claim made against them for financial loss arising out of whatever contract terms

were signed. On the contrary, contractual liability above and beyond your common law liability is a common exclusion in professional indemnity insurance. The clearest example of this is where rights to proportionate liability are waived. This not only increases your liability but also opens up a gap for your insurer to establish the percentage to which you were negligent or contributed to damage or loss being the Insured component, as opposed to a contractual outcome that results in a higher portion of loss being required to be paid; and ultimately uninsured loss. Flowing on from the dispute to what in consequence is almost always an insurance claim, the alignment of fair, proportionate, and negligence-based contract terms will not only reduce overall risk but also align as closely as possible to indemnifiable risk via professional indemnity insurance.

Insurance and legal advice should be sought from independent advisors in order to best understand and protect your position.

Matt Kuc is the Professional Risks Manager at Member Advantage Insurance Broking, the preferred partner for Insurance and Financial Services of AIQS.