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Don't Assume! – Contractual Necessity

BDW Trading Limited -v- Integral Geotechnique (Wales) Limited [2018] 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.

Background

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.

The Claim

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.

Decision

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.

Comment

So what to learn from this case then? Don’t assume - if you want to rely on anything, make sure you confirm that legal reliance in writing. A couple of hours spent putting together a novation agreement or deed of warranty could save you millions of pounds later down the line.

Most parties to construction contracts, particularly on the consultant side, are aware that they are often required to novate their services, and to warrant their past services, to third parties who have an interest in the same site or property. Indeed most consultant appointments expressly allow for, and in some cases require, such transfers of responsibility. If you act for the employer or contractor, it is inherent on you to make sure that you ensure your client takes the necessary formal steps to be able to rely legally on a report, or on past or future services.

From the consultant side, it is equally important to be aware of what your contractual responsibilities are, and where possible to attempt to limit these proactively. If your appointment requires you to sign warranties in favour of third parties, it is usually preferable to attempt to restrict these, either entirely, or by limiting the class of beneficiaries to specific parties, or to a certain number, and/or to require your consent before assignment. This will mean you are less likely to be put in a position, perhaps many years after you performed your services, where you are being required to warrant the performance of your services or to contract with a third party whom you have no connection with, and who may be relying on your services for a different purpose than the party with whom you initially contracted.

Contact

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.

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