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ON THE TURN

LEGAL

In my line of work there is seldom any realistic correlation between the sums at stake and the complexity of the issues in a dispute, writes Kim Franklin.

If anything, the rule of inverse proportion seems to apply - this means that the smallest of claims can give rise to the most taxing of legal conundrums. On the other hand, claims for £10 million can turn on the meaning of a single line of the contract.

Equally, there is little correlation between the value of a building contract and the size of the claim if it all goes horribly wrong. The cost of proving a new factory oor, for example, bears little or no relation to the losses that are incurred while the factory is closed down and the failed screed replaced. If the occupants of the defective building are engaged on particularly lucrative pastimes - the money markets for example - the sky is the limit.

Wily contractors try to limit their liability for these losses by a contract term which either excludes liability for particular sorts of loss or limits their liability to an overall cap.

Whether these exclusion clauses work or not depends upon the nature of the contract and clause.

If the contract contains provisions that are particularly onerous or unusual they should, in the words of Lord Denning, be 'printed in red ink on the face of the document with a red hand pointing to them' before they bind the recipient. Back in the 1980s a picture library imposed a holding fee of £5 per day for transparencies that were held beyond the permitted period of 14 days. The return of 47 transparencies four weeks late led to a charge of £3,783.50. The court characterised this as 'exorbitant', not least because of the fact that the unsuspecting recipient had not been properly notified of it.

So how was it for Green Piling Ltd? The firm contracted with AIG Remediation (now Encia) to construct piles for a Shepherd Homes development in Hartlepool. The parties agreed a total price of £250,000. Of the 94 homes built, 41 subsequently showed signs of settlement said to be caused by defects in the piling design. The potential losses for 12 homes were of the order of £3 million and the estimated total claim was £10 million.

But Green Piling's contract included the magic words, 'Our maximum total liability is limited to the Contract Price'.

So could they escape the £10 million claim for a £250,000 price tag?

In Shepherd Homes v Encia Remediation (Judgment 26.01.07), the court held that the limitation of a contractors' liability to the amount of the contract price was not particularly unusual. Green Piling had given fair notice of the provision to Encia, which, as part of a large international group, had the superior bargaining power. It could have contracted with other piling contractors on terms which did not include the cap - but at greater cost.

As there was nothing unusual or unreasonable about the provision, Green Piling was entitled to rely on it.

This was one of those cases where a £10 million claim did indeed turn on the meaning of one line of the contract.

Kim Franklin is a barrister and chartered arbitrator at Crown Office Chambers in London. Visit www.crownofficechambers. com

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