Where an architect's appointment is novated to a design-and-build contractor, what may prevent the contractor to the contractor recovering from the architect losses caused by pre-contract design errors?
Novating the architect to the contractor is meant to transfer the design risk and the right to recover for it. A Scottish decision showed that a simple transfer can leave the contractor recovering nothing.
It depends on the wording: a novation that merely puts the contractor in the employer's shoes limits recovery to what the employer would have recovered, so where a pre-contract design error caused the employer no loss the contractor recovers nothing, and the cure is a novation giving the contractor its own direct right, typically a consultant warranty
It depends on how the novation is drafted. A novation may transfer the employer's accrued rights against the architect, but the instrument must be construed to identify whether the contractor also receives an independent right for its own loss. A Scottish decision exposed a trap in that: because the contractor's recovery is limited to what the employer would have recovered, and the pre-contract design errors had affected only the contractor's price and caused the employer no loss, the employer would have recovered nothing, so the contractor recovered nothing either. Standing in the employer's shoes meant inheriting the employer's absence of loss. A drafting response is to confer an express direct right on the contractor, which may take the form of a warranty from the consultant, directly to the contractor, that its services were performed in accordance with the original appointment. On that wording the contractor claims for its own loss and the no-loss trap is avoided.
| Usual novation | The contractor stands in the employer's shoes |
| The trap | Recovery limited to what the employer would have recovered |
| No employer loss | If the employer suffered no loss, the contractor recovers nothing |
| Blyth & Blyth | The contractor recovered nothing on those facts |
| The cure | A novation with a direct warranty to the contractor |
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