A few months ago, CECA Wales and their legal advice partners, Diales, hosted their first joint webinar on “limitations of liability clauses” as part of their new partnership on legal support and advice for CECA Wales members.
We thought we’d start with a particularly contentious matter which can cause significant difficulties when poorly considered and applied. This can be neatly summed up in the following quote from “Trust and Productivity” : The private sector construction playbook (November 2022).
“The inappropriate apportioning of risk can be a major cause of project failure. This can be avoided by early engagement, by transferring risk at the right time and by not saddling suppliers with onerous liabilities”
https://bethebusiness.com/files/research-reports/5195_construction_brochure_singlepgs.pdf
Given that this is such a contentious issue we also opened this out to construction clients from across Wales in the hope that a collaborative approach could lead to a more mature approach to risk and liabilities on future contracts.
The session was expertly delivered by Geraldine Fleming of Diales who shared a number of cases where poorly applied clauses to limit liabilities for various parties very often failed to achieve their intended purpose. There were examples where the courts decided that those passing on liabilities either didn’t do so fairly or correctly which meant that they ended up retaining liabilities and all the consequences that go with that. “Unlimited liabilities” don’t always mean that!
But, as Geraldine said :
“Limitation of liability clauses are vital for CECA members. This has been recognised by the UK Government in its Construction Playbook publication which highlights that suppliers should not be asked to take unlimited liabilities. The NEC contract includes secondary option X18 which specifically addresses limitation of liability clauses, but of course, in order for this to be effective, this option needs to be chosen and carefully completed (in Contract Data Part One). It is worth considering your insurance policies when reviewing this.”
The days of those higher up the supply chain cutting and pasting LoL clauses from contract to contract with little thought of the consequences are “alive and well” and those who continue with this practice may well live to regret it! And of course, no one wins if a small business is forced into administration because of these onerous clauses – which become worthless if the supplier goes bust! However, poorly constructed LoL clauses can also have the disastrous effect of ruling out perfectly competent suppliers from bidding for works which is dreadfully unfair for those SME businesses seeking a healthy order book.
The webinar proved to be an eye opener for delegates and, whilst it may not be the sexiest of subjects, it’s critical that all businesses (and construction clients and their appointed representatives) get to grips with it if we’re to create a much healthier economic environment.
Ed Evans
Director, CECA Wales