Designs liability: lessons to learn from recent decision

Sandra Cassels

By Sandra Cassels, a partner in the commercial litigation team at Morton Fraser, specialising in construction and engineering disputes

What happened

A design consultant was involved in the rehabilitation of a water mains system, having been subcontracted to deliver the works under an amended contract. Part of the works involved the selection of a polyurethane sleeve to line the inside of existing pipework in the system. This material was selected by the contractor and approved by the client, before the design consultant’s contract began.

However, the lining material subsequently failed, and the contractor claimed that the design consultant had breached its contractual duties of care.

The design consultant opposed this claim because the materials had been selected by the contractor before the start of their contract, without their input.

The design consultant was not asked to comment on the materials. The contractor was prevented from making the claim in the first instance because of personal bar, a legal principle in Scots law which stops a party from relying on a right and bringing a claim in certain circumstances.

To rebut the design consultant’s defence, the contractor relied on two provisions from the amended contract:

The design consultant was expected to have ‘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

‘Any design responsibility noted as ‘Construction and Design Partner’ within the documents provided for within section 2 of the Scope would be the Consultant’s responsibility’.

In February of this year, an arbitrator found the design consultant liable for the designs which preceded its appointment, despite not being involved in the process of selecting materials.

The design consultant appealed against this finding to the Court of Session as Arbitration Appeal No. 1 of 2021 [2021] CSOH 41, but in April 2021 Lord Clark upheld the arbitrator’s award. Lord Clark found that the design consultant had full design responsibility for all the works carried out under the amended design contract.

What can be learned from this decision?

There is a high threshold to appeal successfully to the Court of Session and seek leave to appeal against an arbitrator’s decision.

Here, the design consultant assumed liability for the prior design works due to the terms in the amended contract. However, such liability may also arise from provisions in the scope of services or an obligation which conveys responsibility akin to that under the Building Contract.

Where the contractual terms are clear, and those terms sub-contract responsibility and liability for the full design works, the court is prepared to hold the sub-contracted party liable for such works. Importantly, this case shows that the court’s willingness extends to before that party’s appointment.

Parties to such contracts should thoroughly consider the implications of ‘catch-all’ clauses and their reach.

Consultants and sub-contractors should try to limit their design responsibility to the works completed by them, or under their instruction, to avoid liability for another’s work. If this is not possible, due diligence must be carried out to assess the risk being taken on.

Where ‘catch-all’ clauses are agreed and full responsibility is transferred to the sub-contractor, Lord Clark says the scope of responsibilities will expand to include prior works unless there is ‘a clear explanation of what was the expanded scope and its boundaries’. Wording would be required which explicitly limits responsibility in some way for the sub-contracted party not to be liable for the prior works.

Parties should then also ensure their insurance terms are sufficient in relation to obligations under such contracts.

It is also important to consider the distinction between different design duties. The duty to exercise reasonable skill and care will be favourable for a consultant as it is standard to use it as a benchmark, and this differs from a fitness for purpose obligation which is more onerous. It is difficult to maintain professional indemnity insurance where the latter duty applies, meaning sufficient insurance may not be achievable.

The decision reached in this Court of Session appeal is an important reminder to businesses to review contracts and understand fully the scope of obligations to ensure they aren’t surprised by those obligations in the future.