Who’s looking out for whom?

Professional indemnity insurers try to preserve consultants’ rights to claim contributory negligence, but where does this leave the consultant?

Readers of Building may recall an article by Melinda Parisotti (“Beware their clause,” May 2004)

in which she referred to the “sinister” clauses in appointment documents that provide that “no act, failure to act, consent or acceptance by the client shall diminish or reduce the liability of the consultant under this agreement”.

She suggests that the clause be qualified to permit the consultant to reduce its liability by alleging contributory negligence. But a client should think carefully before accepting this sort of qualification.

The purpose of the clause is to make it clear that if a client carries out tests or reviews the consultant’s work, it does so for its own benefit. The client should be able to rubber-stamp the consultant’s work without being required to review it in detail. Is it unreasonable for the client to put itself entirely in the consultant’s hands? After all, the consultant is being paid by the client to take care of its interests.

But (in the absence of this clause) if a client did this, it could be viewed as failing to take reasonable care of its interests, thereby laying itself open to contributory negligence arguments.

Likewise, the client may take on liability for its consultant’s negligence if it approves the use of a novel design or untested material. In other words, the purpose of the clause is to prevent the consultant from relying on the client’s contributory negligence.

It is hard to sustain the argument that a client who excludes the defence of contributory negligence is acting
unreasonably

“But,” asks the consultant, “what if I negligently rely on inaccurate information from my client?” Some consultants would consider that in this case they should be partly relieved of liability for their negligence. I would question this. Why should a client be liable for the accuracy of information it provides in situations where the consultant has a duty to spot inaccuracies?

The principle of whether contributory negligence should be applied in a contractual context is not clear cut. English courts have allowed a defence of contributory negligence in a contractual setting in certain limited circumstances but, as the Australian High Court said in Astley vs Austrust Limited (1999): “It is one thing to apportion the liability for damage between a person who has been able to obtain the gratuitous services of a defendant where the negligence of each has contributed to the plaintiff’s loss. It’s another matter to reduce the damages otherwise payable to a plaintiff who may have paid a large sum to the defendant for a promise of reasonable care merely because the plaintiff’s own conduct has also contributed to the suffering of the relevant damage.”

Against this background, it is hard to sustain the argument that a client who seeks to protect himself by excluding the defence of contributory negligence is acting unreasonably.

However, some professional indemnity insurers take a hard line on this point. The insurers argue that a client that is foolish enough to approve a consultant’s work without due care and attention, or provides information without worrying about inaccuracies, which it is the consultant’s job to spot, should take some blame for his own misfortune.

If the client accepts the insurers’ amendment and allows a defence of contributory negligence to be raised against it, it will find itself in an invidious position. If it puts too much faith in its consultant, it places itself at risk. If he goes to the other extreme and starts to micromanage or appoints a shadow team, it could imply it is voluntarily accepting additional responsibility for checking the consultant’s work. Faced with this no-win position, the client usually insists on the clause remaining.

So where does this leave the consultant? If it does agree to accept full liability for matters that are its responsibility, it could find itself exposed without insurance. If its client places trust in it and approves work without checking it first, that faith may come back to bite the consultant in its own pocket.