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EXCLUSION ZONE

LEGAL

For many years contracting parties, including construction professionals, have faced the problem that exclusion clauses in their contracts might be unenforceable under the Unfair Contract Terms Act 1977, writes Sarah McNally.

More recently, the additional problem has emerged that a term may be held to be unenforceable under the Unfair Terms in Consumer Contracts Regulations. These regulations might apply to a wide variety of terms.

That the problem is a live one is demonstrated by Munkenbeck & Marshall v Harold (17.03.05), in which the court was asked to consider the enforceability of two terms of SFA/99.

Firstly Clause 9.6, dealing with the recovery of indemnity costs and expenses for time spent in connection with the action where an architect obtains a court judgment or arbitrator's award for the recovery of fees or expenses (or where the client fails in any claim). Indemnity costs constitute a more favourable assessment of costs. Secondly Clause 5.13, dealing with the provision of an interest rate of 8 per cent above the Bank of England base rate.

Essentially the architect, Munkenbeck & Marshall, claimed unpaid fees and the client counterclaimed for damages. The principal issues were settled on the basis that the claims succeeded in relation to the whole of the fees claimed, and the counterclaim was dismissed. The issues relating to time spent on the project, costs and interest remained.

The judge could not make a finding as to the time spent, and so that part failed on the facts. As to the rest, it was common ground that the client was a consumer, so the regulations applied. It was also clear that the client had not been given a copy of SFA/99.

It was argued by the client that the relevant clauses caused a significant imbalance in the parties' rights and obligations, and so the regulations meant that they were unfair. The architect argued that SFA/99 was issued by the RIBA in consultation with client bodies and was an industry standard, and that the clauses were both reasonable and necessary.

If the clauses were not upheld, it was argued, a client could withhold payment and put the architect at risk of being left out of pocket if proceedings were brought, thereby negotiating a discount.

The court decided that the clauses were unusual and onerous, and that they had not been specifically drawn to the attention of the client. There was an imbalance and this imbalance was not required in order to protect the position of the architect. The terms therefore fell foul of the regulations, and were unfair and unenforceable.

While it may well be thought that it is usual and acceptable for an architect to adopt industry standard terms, in dealings with consumers it appears that this may not suffice. It may well be necessary to specifically draw attention to any unusual or onerous term, even if it is printed in a standard form.

Even then, there is no guarantee that the court will find that it is enforceable.

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