Construction PI: a reminder of the importance of establishing a duty of care

The TCC held in BDW Trading Limited v Integral Geotechnique (Wales) Limited that a geotechnical engineer did not owe a duty of care to a purchaser of a development site where the report had been prepared for the seller of the development site, shown to the purchaser as part of the tender package, but no contractual assignment of the report to the seller had taken place prior to exchange of contracts.

The TCC also issued a reminder of the application of paragraph 13.6.3. of the TCC Guide concerning the very limited scope of legal advisor’s input in the experts’ joint statement.

Background

The claimant developer was interested in purchasing development land from a local authority. Prior to marketing the site, the local authority had engaged the defendant geotechnical engineer to undertake a geotechnical assessment of the site to identify the risk of materials containing asbestos being present. The report was to include advice on a remedial strategy should contaminated material be found.

The local authority made it known to the defendant at the point of instructing it that the report was intended to be used for marketing the site to residential developers who would be provided with the report. It was also clearly stated that the report “must be capable of assignment with warranties at least twice”.

The defendant attached its standard terms with its proposals, which included:

1. Incorporation of the Association of Consulting Engineers Conditions of Engagement 1995 – which in turn provide “neither party may assign or transfer any benefit or obligation under this agreement without the prior written consent of the other party”;
2. An exclusion of third party rights; and
3. A £300,000 limit of liability.

The defendant proceeded to prepare its report – which concluded there was the existence of possible contaminant at part of the site and recommended further investigations – in May 2012. The report itself stated that it was for the local authority’s use only, should not be passed onto others without the defendant’s express consent, but that it could be assigned to the eventual site purchaser.

In June 2012 the tender package was provided to the claimant which, as anticipated, enclosed the defendant’s report. There was some correspondence between the claimant and defendant, with whom it had a pre-existing relationship, and contracts for sale and purchase were exchanged in July 2013. Crucially, the claimant failed to request that the defendant’s report be assigned to the claimant prior to exchange. It seems this point was simply overlooked, some internal paperwork suggesting that it had been done.

Completion took place in March 2014, and it was then discovered that there was additional contaminated material which required removal and which had not been identified by the defendant (although this point was in dispute). The claimant therefore brought a claim against the defendant in negligence. A key point of dispute was whether the defendant owed the claimant a duty of care.

The law

The judge set out the established law that there are three separate but parallel tests for determining the existence of a duty of care:

1. The “threefold” test:

a. Whether the loss was reasonably foreseeable;

b. Whether there was a sufficient relationship of proximity; and

c. Whether in all the circumstances it is fair, just and reasonable to impose a duty of care.

2. The “assumption of responsibility” test; and

3. The “incremental approach”.

The incremental approach is not relevant here. In considering the “threefold” and “assumption of responsibility” tests above, an objective approach should be taken, and it is not necessary for the claimant’s reliance upon the defendant’s advice to have been reasonable - Precis (521) Plc v William Mercer Ltd.

The existence of a limit of liability and exclusion of third party rights are relevant factors to take into consideration.

Decision

The court found that, on the facts, the defendant did not owe the claimant a duty of care.

The court noted that some of the facts (for example that the defendant was aware that the report would be provided to prospective purchasers and agreed to provide the report on that basis) pointed towards there being a duty of care. However, other facts (for example the clauses in the defendant’s terms excluding third party rights and limiting its liability) pointed towards there being no duty of care.

In deciding that there was, on balance, no duty of care, the court considered that the wording on the report that it was for the local authority’s use only was key. The judge considered that “the only sensible interpretation….is that [the defendant] was making it clear that it agreed that [the claimant] should be entitled to place legal reliance on the report only through the mechanism of an assignment…[the defendant] was making it clear that it was willing to allow [the claimant] to place legal reliance on the report but only if some legal document was put in place to allow it to do so”. A reasonable reader in the claimant’s position would have been aware that without the assignment, there could be no reliance on the report. Therefore in the circumstances, no duty of care was owed.

In reaching its decision, the court considered Galliford Try Infrastructure Limited v Mott Macdonald Limited, which concerns circumstances where a transfer of contractual liability is contemplated but does not proceed and the significance of disclaimers. In short, the fact that the parties recognised that there was a need for a novation but this was not effected pointed towards there being no duty of care. The existence of a disclaimer was one factor to take into account.

Comment

This case is a reminder of the importance of taking all factors into account when considering whether a duty of care exists. While the test is objective, the court took into account the fact that the claimant was a “reasonably sophisticated” business entity with a reasonable knowledge of basic contract law principles, and had access to legal advice if required. It is common practice in the construction industry for assignments, novations and collateral warranties to be put in place, and if the claimant wished to place legal reliance on the report it should have taken steps to obtain an assignment – particularly in circumstances where wording on the report itself made it clear that it was for the local authority’s use only but was capable of assignment. An existing business relationship and the fact that the defendant would have been willing to assign the benefit of the report to the claimant were relevant factors, but in the circumstances not enough.

An additional point discussed in the judgment is the involvement of solicitors in the preparation of the experts’ joint statement. Before agreeing the experts’ joint statement, one of the experts sought input on the draft from its client’s solicitor. The court reminded the parties that it is “quite inappropriate” for experts to seek input from their client’s solicitor except in the limited circumstances refered to in paragraph 13.6.3 of the TCC Guide – i.e. to assist in identifying issues which the statement should address. Legal advisors must not be involved in negotiating or drafting the experts’ joint statement, and should only invite the expert to consider amending any draft joint statement in exceptional circumstances where there are serious concerns that the court may misunderstand or be misled by the terms of that joint statement. There is further guidance in the Practice Direction to Part 35.

In practice, experts often provide a draft of the joint statement to legal advisors before it is agreed. This judgment was a clear warning from the court that legal advisors should not provide general comments or suggestions on the content of the draft joint statement unless there are serious concerns that the joint statement “may have been infected by some material misunderstanding of the law or fact”. If that is the case, legal advisors would be best to raise those concerns openly to the appointed expert and its opponent, to ensure transparency and give both experts the opportunity to consider the joint statement and continue their discussions if necessary.

Further reading: BDW Trading Limited v Integral Geotechnique (Wales) Limited (2018)