Don't Assume! – Contractual Necessity
BDW Trading Limited -v- Integral Geotechnique (Wales) Limited  EWHC 1915 (TCC)
Where parties have a long course of dealings together, it can sometimes be tempting to skip the contractual formalities involved each time a piece of work is carried out. A recent decision in the TCC suggests that this may be unwise, and that the Courts will be slow to find a duty of care in tort where there is no formal contractual relationship.
The background to the claim is fairly complex, but instrumental in the decision:
- the Defendant IGL was a geotechnical engineer. In 2012, it provided a geotechnical survey for a local council who owned a site capable of development for residential use, and who were planning to sell on the site to a developer. When contracting with the Council, IGL made it clear that they were willing to assign the benefit of the report to any potential developer. However, IGL’s standard terms also made it clear that no third parties were entitled to rely on the report.
- the report mentioned that there was a general risk that materials containing asbestos (known as "ACMs") might be present within the site. However, no ACMs had been discovered in the course of site investigations and so the scope of further works recommended was limited to specific areas where ACMs may be located.
- the Claimant BDW was a local developer. It was interested in purchasing the site and was provided with a tender package by the Council, which included a copy of IGL’s report. BDW and IGL had a longstanding relationship and had entered into a term agreement which governed the contractual matrix when BDW directly instructed IGL. BDW contacted IGL to ask various questions related to the report. However, it did not seek a novation or assignment of the report, for reasons which were never properly understood.
- BDW purchased the site, in part in reliance on IGL’s report. It put aside an allowance of £465,000 for remediation works to the site, to include the removal of ACMs. It instructed a contractor to begin remediating the site, and to remove ACMs discovered. However, the extent of the ACMs discovered on site was far greater than expected, eventually costing several million pounds to remediate.
BDW subsequently brought a claim against IGL, alleging that IGL owed BDW a tortious duty of care, that IGL had been negligent in failing to assess the extent of ACMs present on the site, and that BDW had purchased the site in reliance on the report. They claimed approximately £3m, on the basis that they incurred avoidable delay costs as a result of the ACM remediation, and that had they known of the extent of the ACMs, they would have been able to seek a concomitant reduction in the purchase price from the Council.
IGL defended the claim, inter alia, on the grounds that they did not owe a duty of care to BDW, and that in any event their report was not negligent.
Duty of Care
HHJ Davies QC, sitting as a Judge of the High Court, found that IGL owed no duty of care to BDW:
- IGL had produced the report for the Council. Whilst they had no objections to their report being passed on to potential purchasers, it did not follow that they therefore were happy for potential purchasers to place legal reliance on the report.
- Taking into account the third party rights statement and the reference to assignment, it was clear that where a potential purchaser did want to rely on the report, IGL would expect them to enter into a formal contractual relationship, by way of novation or assignment. Discussions regarding assignment between the parties made it clear that they were aware that this would be the mechanism by which legal reliance would be obtained.
- The fact that IGL had made it clear that they would be willing to assign the report was irrelevant; it was up to BDW to actually take the steps to ensure that it could rely on the report, and it had not.
Allegation of Negligence
As an extra sting in the tail, the Judge went on to say, even if there had been a duty of care owed to BDW, IGL was not in breach of it. Whilst their report was missing some relevant information, it was not below the standards to be expected of a reasonably competent geotechnical engineer. IGL had carried out a reasonable survey, with a specific purpose, and it had not been negligent in so doing.
For more information please contact Robert Calnan , Associate, DD 020 7220 5217
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.