If a contractor’s no longer around to settle a claim, two UK court cases suggest an employer may be able to turn its attention to its design consultants instead, writes Tom O’Brien

In these challenging times, many contractors and design consultants are fighting hard to stay in business. Two recent UK court cases show that if a contractor loses that fight, the employer’s design consultants may have to settle a claim in the event there are defects in a building caused by the contractor’s bad workmanship.

Now more then ever it appears that employers can successfully deploy the “scattergun” approach to litigation in circumstances where the party who traditionally would have been held liable for a defect is no longer around to answer the claim.

In McGlinn v. Waltham Contractors Ltd and Others and Hart Investments Ltd v. Terence Maurice Charles Fidler, the UK courts appear to have been prepared to expand the duties of design consultants in order to provide the employer with a remedy in circumstances where the contractor has gone insolvent.

The McGlinn and Hart Investments decisions are important because in the current downturn employers may start asking themselves: “If I can’t recover from the contractor then from whom can I recover?” Also in the absence of any Irish case law in this area, UK decisions are likely to have a persuasive effect on any Irish Court faced with a similar set of circumstances.

In the McGlinn case, a contractor and design team were employed by McGlinn to build a luxury house. Prior to completion certain non-structural defects were identified in the house and McGlinn sued the design team and the contractor (who was in administration and therefore took no part in the proceedings).

In this case while the contractor was responsible for the defects the design consultants were held responsible for not identifying them and having them rectified.

The case provides some very useful guidance on the extent of a design consultant’s duty to supervise a project. The court focused, amongst other things, on whether the architect had been discharging his “periodic inspection” duty by carrying out inspections before and after fortnightly and monthly site meetings.

Despite the fact the architect had religiously carried out these inspections, the judge felt it was not good enough and that the architect should have tailored his inspections to the nature and progress of the works. The fact, therefore, that defective work had been carried out and covered up was not a defence since the architect should have become aware of the defects by being present at the right time.

In the Hart Investments case, a structural engineer was engaged to provide design services in respect of the permanent building works for two large houses. The employer sued the contractor (who was in liquidation) and the structural engineer when the façades of the houses collapsed due to the lack of sufficient temporary propping to the existing retaining walls.

The question that arose in this case was the extent to which an engineer who is employed in relation to the permanent works is obliged to point out defects in the temporary works of the contractor.

Despite the fact the engineer had not been employed in respect of the temporary works and there was no express terms agreed between the engineer and Hart regarding inspection, the court held that the engineer was obliged to point out defects in the temporary works of the contractor and take what steps as were open to him to have them rectified.

So what does all this mean for design consultants in Ireland? Well design consultants need to be aware that they could be in the line of fire if the contractor is not around to take responsibility.

In terms of managing the risk, design consultants should carefully consider their inspection patterns to take account of the nature of the works in question.

Design consultants should also be careful to list out what services they are actually providing and perhaps more importantly those which they are not. While this may help, cases such as Hart Investments show that a court might still hold a consultant responsible for works which the consultant was not retained to advise upon.

In addition, if the design consultant wishes to insulate itself to some degree from the insolvency risk of the contractor or any of the other design consultants on a job it would be prudent to ask for the insertion of a “net contribution” clause into their letter of appointment.

This clause is designed to avoid the effects of the Civil Liability Act 1961 which provides that where responsibility for a defect is shared between two parties one party may be ordered to bear the entire amount of the resulting loss.

So if for example a contractor was responsible for 90% of a loss and a design consultant 10% and the contractor became insolvent the employer would be entitled to recover 100% of its loss from the design consultant.

With a “net contribution” clause the design consultant’s liability may be limited to a net contribution calculated on the basis that the contractor has paid its contribution of any damages awarded.

While this type of clause has yet to be tested before the Irish Courts it may afford design consultants some level of protection against the increasing insolvency risk of contractors and the worst effects of decisions such as McGlinn and Hart Investments.

Tom O’Brien is a senior associate in the Projects & Construction Group at A&L Goodbody

This article appears in the March edition of Irish Construction Industry Magazine