Limiting your design liability – a discussion of the decision in Lendlease v AECOM (2023)

29 January 2024 - 7 Min Read
By William Brown

If you are a consultant, or a contractor with design responsibility, then you should take time to consider the judgement in Lendlease Construction (Europe) Limited v AECOM Limited [2023] 2620 (TCC).

In short, this case considers contractual wording which I would strongly recommend getting into your appointment agreements / contracts. It might just save you!

Facts of the Case

I have bullet pointed out the key facts for ease of reference:

  • The project was the design and construction of the Oncology Centre at St James’ University Hospital in Leeds (“the Hospital”)
  • Lendlease was the design and build contractor.
  • Lendlease appointed AECOM to provide M&E and fire safety strategy services.
  • Defects were discovered within the design and construction of the Hospital.
  • Following on from the discovery of the defects (1) Lendlease entered into a settlement agreement to make payment in respect of several M&E defects; and (2) Lendlease was found liable for other defects by the Court in 2022.
  • Lendlease tried to pass on liability for several of the M&E and fire safety defects to AECOM on a back-to-back basis.

The Outcome

The court decided that Lendlease could NOT pass on liability to AECOM.  In arriving at this decision, the court considered a wide range of legal principles and there were a number of reasons why Lendlease’s case was dismissed.

In the interests of keeping this article brief, I am not going to discuss all of the law considered by the court.  Instead, I want to focus in on the wording of AECOM’s appointment agreement and why I think it was so important.

Limiting Liability to using Reasonable Skill and Care

It appears that Lendlease had undertaken to achieve certain “performance criteria” within its main contract.  Sometimes these are referred to as “fitness for purpose” obligations.  It is not clear from the judgement what the performance criteria were, but I assume they related to the output of the M&E systems.

On the facts, the performance criteria were not met, meaning that Lendlease was liable under its main contract.  Lendlease argued that this liability could be passed to AECOM as it had (allegedly) been appointed on a back-to-back basis.

The question for the court boiled down to this – was AECOM actually appointed on a back-to-back basis?  Let’s consider the clauses of the contract and see:

Clause 1.01: “the Consultant shall be deemed to have notice of and shall observe the Employer’s Requirements and/or the Project Agreement and/or the Principal Agreement to the extent the same shall have been issued to the Consultant by the Contractor and to that extent shall be deemed to have full knowledge of the terms and conditions of the Employer’s Requirements and/or the Project Agreement and/or the Principal Agreement. To the extent of the obligations of the Consultant as set out in this Agreement, the Consultant shall ensure that no act, default or omission of the Consultant shall cause or contribute to any breach by the Contractor of any of its obligations contained in the Employer’s Requirements and/or the Project Agreement and/or the Principal Agreement.”

In my view, if the clause above was the only one in play, then AECOM would have been liable on a back-to-back basis.  AECOM would have been deemed to have knowledge of the performance criteria, and would have been liable to Lendlease had they not been achieved.

But there is more.

Clause 4.01: “The Consultant warrants that he has exercised and will exercise all reasonable skill care and diligence in conformity with the normal professional standards of a consultant holding himself out as a competent consultant experienced in the provision of such services for projects similar in scope and complexity to the Works and having regard for the dates and periods stated in the Contract Programme and Design Service Programme and duties herein described and will comply in all respects with the requirements of the local authority, statutes, regulations, and codes of practice in force and relevant to the design of the Works, including but not limited to fire, health and safety…”

The clause above says something different. It effectively says that AECOM was to exercise reasonable skill, care and diligence in performing its services. This is not the same as achieving performance criteria, which is a much more onerous standard.

The difference in the two standards above is well illustrated in the UK Supreme Court case of MT Hojgaard A/S v E.ON Climate [2017] UKSC 59. In this case, the design and build contractor did everything that a reasonable designer would have done by following the Eurocodes and other associated design standards… but the structures they designed still failed to meet the performance criteria. In this case, the contractor was found liable for failing to meet the performance criteria, even though it had exercised reasonable skill and care.

I mention the MT Hojgaard case because it illustrates the point above quite well. I have also mentioned it, because Lendlease tried to rely upon it in arguing clause 4.01 did not get AECOM off the hook. I can absolutely see why Lendlease made this argument, and I agree with them.

However, there is more. The final sentence of clause 4.01 went on to state:

“Notwithstanding any other clause in this Agreement or the Principal Agreement or term implied by statute or common law, the Consultant shall not be construed to owing any greater duty in relation to this Agreement than the use of necessary reasonable skill, care and diligence pursuant to this Clause 4.01.”

The clause above (very clearly in my opinion) limited AECOM’s liability to the lower reasonable skill, care and diligence standard.  In other words, AECOM only had to do what any other reasonable designer would do in the circumstances in attempting to meet the performance criteria.  If the clause above had existed in the MT Hojgaard contract, it probably would have had a very different outcome for the design and build contractor!

The court held that the wording above could not be ignored.  As a result, when the contract was read as a whole, AECOM was not contracted with Lendlease on a back-to-back basis.  Lendlease was liable for achieving the performance criteria, but AECOM was only liable to exercise reasonable skill, care and diligence.

Take aways

If you are a consultant, or a contractor with design responsibility, then you should seek to negotiate wording into your appointment agreements / contracts which strictly limits your liability for design to using reasonable skill and care.

We review contracts for our clients on a regular basis.  Within our reviews, we often suggest introducing wording similar to that set out below (this example is for a design and build subcontractor, but it can be adapted for consultant appointments or main contracts):

“To the exclusion of any other express or implied term of this Subcontract, the Subcontractor’s liability for design (including design it has prepared or caused to be prepared, or design it has assumed responsibility for under this Subcontract) shall be limited to the use of reasonable skill and care.  Nothing within this Subcontract shall be construed as a fitness for purpose obligation.”

If you have any questions on this article, feel free to drop me an email – [email protected].

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