Commercial Clauses and Appointments
This article first appeared in Architects Journal (17.10.2014)
Three clauses in appointment documents often give rise to heated debate, warns Mark Klimt.
Analysis of appointment documents, tends to concentrate on liability issues and in particular (understandably) on obligations which would be outside the protection of the Architect’s insurance policy. However, there are three clauses which frequently give rise to animated debate and which would benefit from closer analysis. All are within the RIBA SFA Appointment but are negotiated with varying degrees of success.
Attempts by Architects to secure a cap on their contractual liability to the level of their required insurance are frequently undermined when the Client asks if this is an insurance pre-requisite. Insurers’ liability will be capped at the level of the policy and what happens beyond that, will not be of their concern. It will, though, be of very real concern to the Architect who will want to know that its other assets will be safe from a Claimant. The Architect will argue that it is having to go to the expense of maintaining insurance at a level which the Client has stipulated. In return, the Architect should have the comfort of knowing that the Client will not look beyond the insurance policy for redress. “Uncapped” or “unlimited” liability sounds alarming and conjures up images of the Architect being totally unprotected. This will not be the case where there is an insurance policy in place, which Claimants tend to accept as the principal asset of the practice. Operating through the vehicle of a Limited Liability Company (as many Architects do) further reduces the impact of a failure to achieve a formal contractual cap on liability. Such cap would anyway not protect an Architect from third party claims in tort.
A common battleground concerns whether the Architect’s grant of a licence in its materials should be subject to payment of outstanding fees. The RIBA terms allow an Architect to suspend such licence if fees are not paid, although it is questionable whether a Court would order that a Client is not entitled to use any materials if there has been significant payment. On the other hand, it is particularly irksome for an Architect to see its materials being used when they have not been paid for. The right to withdraw consent to the use of drawings is a powerful weapon when trying to bring a recalcitrant payer to heel. It is, though, probably a better weapon in theory than in practice, should a Client be prepared to tough it out and claim that fees are not due. The Architect would then need to be very sure of its ground before exercising any right to suspend the licence. Should it transpire that fees were not, after all, due the Architect would then be responsible for the delay occasioned to the project. Perhaps a compromise can be achieved between the Architect’s concern to protect its fees and the Client’s concern not to be held to ransom, by agreeing that the licence is subject to payment of all fees which are not the subject of a genuine dispute.
A highly unpopular clause in the RIBA Standard Terms is the exclusion of any right of set-off (particularly given that at common law such a right would exist). Set-off is a type of counterclaim (say for damages for breach of contract) in respect of one item against monies that are otherwise agreed to be owed. An Architect, having performed its services will want to be paid for those elements of work and will not want its cash flow compromised by unproven allegations from a Client about monies due elsewhere. Some ferocious set-off clauses allow a Client’s to set-off against the fees due on one project, monies alleged to be due from the Architect on any other project between the parties, which means that any “local” disagreement is threatens the whole Client relationship. Again, a compromise might be for the contract of engagement to be silent as to set-off – in other words neither expressly to exclude it nor expressly to include it, although in that instance, if a Client considers that the Architect has cost it money, the likelihood is that set-off will be applied anyway, on the time honoured principle of possession being nine tenths the law.
Ultimately, the seemingly intractable payment complications are probably best addressed by having robust termination provisions, allowing the Architect to terminate if the relationship is breaking down, without fear of being held responsible for the additional occasioned costs.
For more information, please contact Mark Klimt, Partner, on 020 7280 8802.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.