The Association for Consultancy & Engineering (ACE) has embarked on a campaign to reform the law on liability in the construction industry by bringing about proportionate liability.
English common law does not recognise the doctrine of proportionate liability. The consequence is that any party contributing in some small way to a negligent act becomes jointly and severally liable for damages. The practical effect of this in the construction industry is that the insured consultant bears the risk of the insolvency of others who may have been equally, if not more, culpable.
This basic injustice was noted in the Latham Report (1993), Constructing the Team, which recommended that: '. . . in construction cases (other than personal injury), defendants should have their liability limited to a fair proportion of the plaintiff's loss, having regard to the relative degree of blame.
Defendants who are only liable for some of the latent damage should not have to suffer 100% liability because other defendants are unable or unwilling to bear their share of the loss.' Proportionate liability legislation has been introduced in Australia, albeit spurred by a meltdown in its insurance sector. The UK government's recent Company Law Reform Bill contains proposals that an auditor's liability for damages can be limited to an amount determined by the courts to be fair and reasonable, having regard to the extent of the auditor's responsibility, and the nature and purpose of the auditor's professional and contractual obligations. It is apparent from this that the government is not opposed to the principle of proportionate liability.
Some say that consultants are free to limit their liabilities under contract, but forget that common law doctrines are always available to plaintiffs. A chronic waste of scarce management resources are applied to negotiating reasonable terms with inexible clients.
How many consultants could afford to mount a Civil Liability (Contribution) Act 1978 claim on fellow professionals after unsuccessfully defending a claim for a minor contributory breach? And how many would succeed?
The law exploits the weakness of consultants' bargaining power compared with their clients across all construction sectors, meaning that net contribution clauses are, like reasonable caps on liability, often excluded in their contracts. It encourages unfair business practices by clients who are in the driving seat in selecting business partners. The resulting dependence on the consultants' PI, in turn, contributes to the relatively high cost of construction in the UK and acts to the detriment of the industry and society.
A law on proportionate liability will make clients much more professional about whom they pick as their business partners. It will contribute to ensuring that risks are properly shared and better managed, and that PI cover will remain relevant, affordable and competitive. All round, it will make for a fairer and more respectable industry.
Martin Nielsen is chairman of the Association for Consultancy & Engineering