Marine professionals – limitation of liability
Marine professionals (surveyors, designers, naval architects etc) operating in any of the marine industries as independent contractors should endeavour to limit their exposure to claims by ensuring that their terms and conditions incorporate suitable limitations on their liability. This is so whether the work being done relates to luxury yachts, commercial ships or floating drilling and production equipment for use offshore in exploration and production activities and should be done irrespective of the scale and value of the specific project.
The incidence of claims being brought against marine professionals is on the increase. In particular projects involving the conversion or upgrading of a ship, have become more involved and more complex. Delays and cost overruns have become common place with such projects over the years, with parties seeking to allocate responsibility for the consequences. Lack of front end preparation has been identified as the key cause of losses. As a result heavier reliance is now placed upon marine professionals with regard to suitability studies, surveys and design/scheduling at the beginning of the project.
What a marine professional is able to achieve by agreement with his client in limiting his liability will largely depend upon the market and, in particular, what the competition are offering. Rarely, however, will a marine professional be selected for work on the strength of his willingness to assume liability for his negligence!
As a starting point, it is clearly appropriate for a marine professional to limit his liability overall – he is essentially a provider of services and advice. He is not bearing the risk (or rewards) of the project; he has no equity interest. His financial interest is capped at the level of his potential or actual fees. Thus any liability he may assume for any losses arising from the services and advice provided should be limited to a sensible and reasonable amount in the circumstances.
Further, any overall limitation should be co-extensive with the scope of the entire services provided. It should extend to any services beyond the original scope of work whether or not contemplated at the time the contract is made. Otherwise, it may be said that the limitation applies only to the original scope of work and that any new or extra work performed has been undertaken without any such limitation applying.
This raises a practical consideration – marine professionals should not do additional work which is not within the scope of the contract without first ensuring that it is subject to the same terms and conditions as the original scope of work. An addendum to the contract does not merely act as a record of the scope and price for new work but, if correctly drafted, ensures that all of the limitations applying to the original work will apply to any new work. A common theme in claims is that the marine professional is asked to provide further advice and services that evolve from the initial scope of work - as the relationship with the client develops so the level of responsibility and extent of work grows; but this can give rise to an assertion being made later on that the professional ceased to act within the scope of the original contract and that he has assumed new responsibilities in contract or in tort without limit. It is important, therefore, to ensure that extra work or responsibilities are only assumed with written agreement as to the terms, including limitations. This administration ought to be second nature; and sensitivities over the maintenance of client relationships ought not to deter efforts to reach agreement on such matters.
Next, the amount of any overall limitation on liability ought not to be based upon the amount of insurance cover. Clearly, whether a marine professional can insure his risk in the market and the cost to him of any cover is a consideration in undertaking and pricing work; but this should not determine the amount of any limitation he agrees with his client. A marine professional should act as a prudent uninsured would act in negotiating terms.
The amount of any limitation will usually be a pre-agreed fixed sum (say 10% of the total price quoted for the work) or the amount of fees paid for the work. What is acceptable will depend on the circumstances. Classification societies tend to look to agree a cap of 10% of the contract price for their verification services. Designers tend to cap their liability at the fees paid to them, but there is no standard as such.
Finally, turning to the detailed drafting of such clauses, they are occasionally mistakenly prepared on the basis that they are designed to limit any liability for consequential or indirect losses. Such liabilities would routinely (and should in any event) be excluded by a suitable provision. An overall limitation clause acts independently to limit or cap any recourse against the marine professional for direct losses and damages for breach of contract or in negligence to an agreed figure. Direct losses are not narrowly confined and could exclude a claim for loss or profits and other costs that you extend well beyond the cost of merely obtaining alternative services or re-doing the work. It is therefore important that the clause is sufficiently widely drafted to encompass any claim or liability for direct or any other losses “howsoever arising” whether under the contract, in tort for negligence or otherwise. It is also recommended that express reference is made to any liability for breach of any statutory duty to the extent that the same may be limited.
A typical clause might provide as follows (but in all cases specific advice should be obtained):
“ The aggregate liability of the Consultant to the Company for any matters arising under or in connection with this Agreement (however arising including for breach of contract, in tort, by reason of indemnification, breach of statutory duty, equity or any other legal theory) shall in no case exceed 10% of the Contract Price. This liability limit shall not apply to or be reduced by liability in the case of fraud, fraudulent misrepresentation and/or wilful misconduct.”
Our thanks for this article go to
Ian Garrard and Clare Calnan
Curtis Davis Garrard