15 March 2023

There And Back Again. Jurisdiction Revisited.

Do you understand the risks of taking on international projects?

You are at the forefront of your profession, and you have been asked to provide Services in connection with an international project.

The work will likely increase your renown as well as providing a decent fee, but great care must be to be taken to ensure that this project does not become less of a shining jewel for your crown and more the tip of an iceberg that could do untold harm to your business.

Following the events of the past years – Brexit, Covid-19, and the war in the Ukraine – and their impact on both the UK’s economy and our standing globally, the issue of work being undertaken in jurisdictions outside of the United Kingdom is becoming an increasingly contentious topic for Insurers.

 Categories of risk

The first step in taking on any project is to identify the particular risks that may arise on the Project. However, this step becomes more important when dealing with an international project.

Whilst some of the risks may be universal, each project will have its own unique risks that take on more significance when you factor in the requirements of operating in a foreign jurisdiction.

Your professional indemnity insurance may be a key part of risk management strategy, in addition to understanding the impact the project may have on your insurance position, there are other factors that need to be considered. There are a number of tools that may assist in considering the political, economic, sociological, technological, legal and environmental impact of the project such as a ‘pestle analysis’ can assist.

Understanding your Professional Indemnity Insurance

A Single Step …

As a starting point, the professional indemnity policy arranged on your behalf will generally provide cover for any claims brought against you almost anywhere in the world, with work in the US and Canada usually being excluded. These are the territorial and jurisdictional limits noted on your policy schedule.

Another aspect that needs to be considered when dealing with Clients and Projects in a foreign jurisdiction would be the existence of any sanctions on either the Client or the territory in question. This is a key consideration as the professional indemnity policy will not provide cover. Irrespective of any contractual arrangements that may be in place, that would expose Insurers to any sanction, prohibition or restriction.

This remains the case whether that exposure arises out of any resolution of the United Nations or sanctions, laws or regulations of the United Kingdom, European Union or United States.

In the majority of cases though, the issue of legal jurisdiction is likely to be relatively straightforward as the work will be undertaken In the UK and subject to the relevant laws within the UK.

So, whilst the policy may initially provide cover for Projects anywhere in the world, the reality of the position from an insurance and jurisdiction perspective may be a little more complicated.

“Our Man in …”

Whenever you are asked to provide services relating to a project in a different jurisdiction, there are a few points that should be considered before accepting the Appointment, and we’ll look at these in turn.

Who is appointing you?

Whilst the ultimate Client may be based somewhere else in the world, with the actual work being undertaken in the relevant location, who is appointing you? In most cases, it is likely that you have been contacted by another member of the design team, (e.g., project manager, developer etc), and they will usually be based in the UK.

As a result, you are being appointed by a UK based firm to provide Services and on that basis, we would recommend that an attempt is made to ensure that your appointment is made subject to the relevant law within the UK.

Whilst they may attempt to argue that their underlying contract may be subject to a different jurisdiction, that does not necessarily mean that yours must also be subject to the same laws.

What if the Client/Consultant insists?

There may be occasions when your ‘Client’ remains adamant that the Appointment is subject to the laws of a different Jurisdiction, there are several issues that you need to consider that will impact on your firm from both a risk management and insurance perspective.

From a risk management perspective, the Appointment will likely create an obligation to comply with any applicable law, regulations, or standards in that jurisdiction. As a result, it is extremely important that you ensure that you are aware of the various liabilities and obligations that you will be accepting under the Appointment.

To that end, we would strongly recommend that you obtain specialist legal advice to ensure that you are provided with the information necessary to consider the full extent of the potential risks and issues that may arise in that Project.

If you elect not to take appropriate legal advice, this creates a potential risk management issue given the suggestion that you are prepared to accept legal liability in a foreign jurisdiction without considering or investigating the implications of that decision.

Unfortunately, this gives rise to serious concerns on the part of Insurers and is likely to result in a marked alteration to the nature of the cover provided by your Insurers and may result in a significantly increased excess relating to that project or the cover for the project being excluded.

As either outcome may leave you potentially exposed to an uninsured loss, it may also leave you in breach of the Appointment generally.

The Final Straw

One final issue that also needs to be considered is whether your current insurance policy is appropriate from the outset.

There are certain jurisdictions that require the insurance policies to be placed with Insurers registered or operating within that jurisdiction. As your current policy is unlikely to comply with those requirements, you may also need to obtain specialist advice in that Country with regards to obtaining local cover. This would be an additional cost over and above your existing insurance arrangements, if you can obtain such cover.

The unfortunate reality is that providing services outside of the United Kingdom can give rise to several issues that can seriously impact on your business. As a result, it is vitally important you obtain appropriate specialist legal and/or insurance advice to ensure that you understand and accept the full scope of the liabilities and obligations you are potentially entering into.

If you would like to discuss the issues raised in this article or have any additional queries, please do not hesitate to contact us.