General framework for liability of service providers for defects, fault or negligence in United Kingdom

Find out about the risk of liability in service contracts, and how to manage them

In United Kingdom, the subject of liability for defects, fault or negligence mainly concerns service and works providers, taking into account all of the following points: 

1. Service contracts may sometimes involve a transfer or modification of ownership, giving rise to strict liability for defects without fault being required. 
2. The performance of services often involves a number of subcontractors, whose misconduct may make you personally liable. 
3. Case law on the limitation or reduction of liability by contractual clauses is fairly restrictive. 
4. In addition to the responsibilities of the service provider, the customer or his agents may also make a mistake that affects the outcome of your work. 
5. Clarity in a contract is the key to success in order to avoid any complaints about the quality of services. 

In addition, any website owner offering online services in UK should be aware that system malfunctions, loss of data by the site host or cyber-attacks can cause significant damage to your customers and engage your liability. 

Main legal rules 

With regard to the legal rules governing the provider’s liability for defects, fault or negligence, here are the main points to note: 

• A service contract, otherwise known as a mandate, does not commit the service provider (or mandatary) to the result, but only to the diligent fulfilment of its obligations. 
  • In principle, the service provider must commit a fault, whether intentional or negligent, regardless of its seriousness. However, in contracts governed by UK law, fault is presumed and it is up to the service provider to prove the contrary, where applicable. 
  • However, when the service provider undertakes to carry out work that results in the creation, modification or transfer of ownership of goods, it assumes liability for any material defect even if it has not committed any fault in this respect. This is known as a “contract of enterprise”. In this case, the transfer of risk is important, just as in a contract of sale. 

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• The seriousness of the fault is in principle irrelevant, but this question deserves to be qualified, through the following two points:  
  • A freelancer may or may not be a professional. A non-professional assumes less responsibility if he tells the client that he is not experienced enough to carry out a particular task and the client accepts the possible consequences. 
  • In other cases, accepting a mandate that the service provider is not sure of being able to carry out, not having enough skills, already engages his responsibility and he cannot free himself by simply declaring that he is not a professional. 
• The performance of services often involves the intervention of subcontractors, substitutes, employees or other third parties. 
  • The service provider is fully liable for the negligence of its employees or directors. 
  • If there is a firm prohibition on delegating the performance of services to third parties, its breach already gives rise to liability on the part of the provider and no additional fault or proof of fault on the part of the subcontractor is required. 
  • In other cases, the service provider is in principle fully liable for the fault of external subcontractors, subject to limitations of liability to be agreed. 

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It should be noted that where the subcontractor does not perform only part of the service or only a subordinate task, but fully replaces the service provider, the latter is only liable for the care with which it chose and instructed the subcontractor. On the other hand, the substitute may be acted upon directly by the customer, subject to certain limits – the only exception in UK law in this area being that the substitute is not itself bound by the contract to the customer. 

• It should also be pointed out that, in addition to contractual liability, there is civil liability which applies when the subcontractor or employee personally causes damage to the customer through his fault and by acting unlawfully. It should be noted that any attack on the property, life or body of the victim is in itself unlawful, without any particular law being broken. In this way, theft, destruction, damage or injury can be brought directly against the person responsible, as well as against the service provider through contractual liability. 
  • The law does not in itself prohibit limiting liability in the contract, but imposes some restrictions. 
  • Firstly, no limitation of liability is possible in the event of personal injury or damage to property, or even loss of life. 
  • Secondly, the contract does not take away the penal code, and the violation of the law cannot be forgiven simply because of the limiting contractual clause. 
• Finally, if we accept that exoneration for slight negligence is possible, the limitation cannot apply to serious negligence or intentional wilful misconduct. 
• The limitation of liability clause – entered into prior to the harmful event – is to be distinguished from the amicable settlement reached after the event. When the customer firmly accepts the performance of services without reservation, it is virtually impossible for him to hold the service provider liable for any damage. 

Recommendations

To limit liability in contracts of enterprise, we recommend that you consider the following tips: 

1. In contracts for work and services, remember to clearly delimit the moment of transfer of risk using our contract templates, and the service provider will no longer be liable for damage or defects after this moment. 
2. As a subcontractor, be careful if you accept payment or instructions directly from your principal’s customer, as this may imply a tacit contract with him, whereas all the limitations of liability that you have agreed with your direct principal will no longer be enforceable against this customer who has not signed up to them. 
3. Always remember to limit your liability to the amount of fees paid during a certain period prior to the dispute. 
4. Even if you are contractually authorised to do so, always ask your customer for firm acceptance if you hire external subcontractors. 
5. Include a clause in the contract specifying the time limit after completion for reporting any defects in the service. If the customer accepts unreservedly that there is no defect, you can no longer be held liable.