Limitations of liability Case Study no.3

It is not only defined caps on liability which provide protection. Exclusions with regards to particular types of losses can also be a valuable risk management tool

Griffiths & Armour
20 September 2014

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The land, which was owned by a local authority, was being developed to include the construction of a new civic centre when the contamination was discovered. The contamination originated from a neighbouring site which had previously contained a petrol filling station. The owner of the neighbouring site accepted that they were the source of the contamination and agreed to remediate the local authority site and pay compensation to the local authority for its losses. 

In this case is that the consultant’s appointment contained an exclusion of liability for any consequential losses

The consultant provided advice to the neighbouring site owner on the remediation strategy, and was then subsequently appointed to design a remediation strategy for both the local authority site and the former filling station. The remediation strategy proposed that the sites could be remediated within fixed timescales and to target contamination levels which were subsequently agreed with the local authority.

Of note in this case is that the consultant’s appointment contained an exclusion of liability for any consequential losses. During the remediation works, the consultant alleged that the site owner caused re-contamination to occur with the result that it would be impossible to achieve the remediation target levels within the agreed timescale. A dispute ensued during which the consultant’s fees were withheld and the firm’s appointment was subsequently terminated.

The dispute proceeded to arbitration which was initiated by the consultant as a claim for unpaid professional fees in the region of €735,000. The site owner counterclaimed, contending that no fees were payable to the consultant at all as the consultant’s remediation strategy had been inadequate and was incapable of achieving the target remediation levels.

The site owner claimed that costs of €6M had been incurred in settling claims with the local authority and also with the tenant of the former filling station site in respect of the failure to remediate the sites to the agreed targets and within the agreed timescales. The site owner sought recovery of these costs from the consultant. 

The consultant’s defence team felt that the consultant had a reasonable defence to some aspects of the site owner’s claim. However, they also concluded that the target levels set out by the consultant in the remediation strategy were overly ambitious given the site conditions and level of contamination.

Nevertheless, it was felt worthwhile continuing with the Arbitration.

Outcome

In the event, the arbitrator favoured the evidence provided by the site owner and found against the consultant, concluding that the owner did not cause re-contamination to occur and that the remediation strategy and the target levels suggested by the consultant were simply unachievable.

In his award, the arbitrator rejected the consultant’s fee claim and ordered that the consultant should pay the direct costs of remediating the sites to the agreed levels. However, he upheld the exclusion of consequential losses in the consultant’s appointment and did not award the site owner anything in respect of consequential losses.

While the consultant was still held liable for a significant sum, the exclusion of liability for consequential losses reduced the consultant’s liability in this case by a very significant amount.