It is becoming more common to see the inclusion of financial cap clauses in appointment agreements and collateral warranties, and such clauses can pay dividends in the event that a professional negligence claim ever arises. Any proposed cap must be drawn to the attention of the other party to the contract and a figure discussed and negotiated with them and this process recorded. This makes it very much more difficult for the other party to challenge the enforceability of the cap. Also, it is important to bear in mind that any limitation of liability will have to satisfy the test of 'reasonableness' under the Unfair Contract Terms Act. What is reasonable depends on the circumstances of each case. The type of cap under a contract should be considered. It may be an 'each and every claim' basis, so that each claim could be to the full value of the limit. Alternatively, it might be drafted so that it applies on an aggregated basis. The latter variety is more common and affords better protection. Each project has to be looked at on its merits and a number of factors should be considered, including: 1.the nature and extent of the risks of the project, having regard to its size, complexity etc. 2.an assessment of the damages that would be payable in the event of a claim in negligence (e.g. the cost of repeating the work/construction costs) 3.the resources that the consultant could be expected to have available to meet any liability 4.any previous dealings between the parties 5.the amount and cover available to the consultant under their PI policy Great care needs to be taken in drafting clauses capping liability. In the event of a dispute, any limitation of liability will be construed against the party who drafted it. Legal advice should therefore be sought on the wording of the clause itself. We recommend the use of industry standard wordings such as those from the ACE or RIBA conditions.
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