Reducing the risk of third party liability for professionals - DAC Beachcroft

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Reducing the risk of third party liability for professionals

Published 29 August 2018

In  the recent case of BDW Trading Limited v Integral Geotechnique (Wales) Limited [2018] EWHC 1915, Judge Stephen Davies QC offers valuable guidance as to how a construction professional may reduce the risk of owing a tortious duty of care to the eventual purchaser of a development site when producing a report relied upon by that purchaser.

Instructive procedural guidance is also given as to the conduct of instructing solicitors and experts in the preparation of an expert's joint statement. 

Background

The Defendant (IGL) is a firm of consulting geotechnical and geo-environmental engineers based in South Wales. IGL was instructed by landowners, Bridgend County Borough Council ('Bridgend'), to undertake a geotechnical report ('the Report') over an 8.23 acre site in the village of Ogmore by Sea. 

Bridgend intended to sell the site for residential development and it was made clear to IGL that a copy of their Report would be provided to prospective developers as part of the tender package. Given its intended use and Bridgend's intention for the eventual purchaser to be able to rely on the Report, it was made a term of IGL's appointment that the Report be capable of assignment with warranties. At the same time, IGL’s appointment expressly excluded third party rights, prohibited assignment without consent by incorporation of the ACE Conditions and limited liability for environmental contamination.

In its Report, which was commissioned in May 2012, IGL concluded that there may be a potential source of contamination on the site from asbestos containing materials ('ACMs') within the building structures. IGL made no reference however to the risk of ACMs in the remaining ground on site.

In May 2014 the Claimant, BDW (a division of Barratt Homes), having reviewed IGL's Report as part of the tender package, purchased the site for £4.5m for the purposes of developing 170 residential houses. 

During the course of development a large volume of ACMs was found to be present not only in the building structures (as reported by IGL) but also in the ground itself. Significant remedial costs in the region of £860,000 were incurred by BDW before works could proceed to develop the site. 

The claim

BDW issued a professional negligence claim against IGL and sought damages representing the costs of the ACM remediation costs. BDW claimed that, had IGL advised on the risk of ground contamination in its Report, BDW would have negotiated a reduction in the purchase price of the site to reflect the additional clean-up costs.

As BDW had not taken an assignment of the Report they had no contractual claim against IGL. Consequently, BDW argued that a tortious duty was owed on the basis that IGL's Report had been produced and intended for consideration by potential developers and, indeed, BDW had relied on the Report in the course of negotiating the purchase.

Duty of Care 

Following a detailed review of the authorities relevant to the existence of common law duty of care the Judge concluded that no duty could exist in this case in circumstances where:

  • IGL, whilst accepting their Report was intended for distribution to prospective purchasers, had made it a specific term of their appointment that any purchaser requiring legal reliance would ask for and be granted a formal assignment;

  • BDW did not ask IGL, nor did IGL ever communicate an agreement to assign the benefit of the Report; 

  • IGL's intentions as to the scope of its liability were clear and reinforced by the terms of its appointment with Bridgend which, in addition to the express requirement for a formal  assignment, also contained a third party rights exclusion, prohibited assignment without consent by incorporation of the ACE Conditions and limited liability for environmental contamination.

The Judge commented that "the fact that there is discussion or – in this case – agreement that an assignment should be provided is consistent with a recognition that without it the intended beneficiary is not entitled to place legal reliance on the report or services".

The Judge went on to say that (his own emphasis) "what is important in my judgement is that IGL was making it clear that it was willing to allow the eventual site purchaser to place legal reliance on the report but only if some legal document was put in place to allow it to do so. Without it, the eventual site purchaser would not be permitted to place reliance on the report". 

IGL’s knowledge that a third party may rely on the Report, and the fact that it was likely to have been willing to assign the benefit of the Report, did not necessarily give rise to a duty of care particularly where IGL had provided the Report on the understanding that a third party could not rely on it without taking a formal assignment. 

Expert Witness Evidence

The Judge also made some interesting comments on the role of legal representatives in expert discussions. David Tonks, the expert consulting geotechnical engineer appointed by the Defendant, accepted that he had sent the first draft of the experts' joint statement to IGL's solicitors, Weightmans, for comment, and later made changes to the draft report as a result of feedback given by Weightmans. 

Agreeing with the complaint made by the Claimants legal counsel, the Judge commented that "it was quite inappropriate for independent experts to seek input from their clients solicitors into the substantive content of their joint statement or, for that matter, for the solicitors to either ask an expert to do so or to provide input if asked".

The Judge referred to sections of the TCC Guide and Practice Direction 35 which provide that instructing solicitors may only '"assist"' in identifying issues which the joint statement should address, and must not get involved in either negotiating or drafting the joint statement. In this case the Judge accepted that Mr Tonks evidence had not been modified in a significant way but made it clear that, save as to the very limited circumstances set out in the TCC guide, any solicitor involvement in the preparation of joint statements would be considered a serious transgression and may render the statement impermissible. 

Comment

This decision is a useful overview of the factors a Court will take into account when deciding whether a professional owes a duty of care and highlights the ways professional consultants can make use of contractual restrictions to restrict third party liability. The case shows that the intention of the parties will always be considered objectively and a tortious duty of care will not always be owed by a professional, particularly if there are contractual terms indicating otherwise. It is standard for developers to receive site investigation reports in tender packs. Professional consultants would be wise to consider use of the type of contractual restrictions used by the parties in this case. Such  terms may reduce the risk of liability for that professional (and its insurers) outside the contractual matrix.

Solicitors instructing experts also need to be careful as to how much they "assist" in identifying issues for experts to consider.

Authors

Lyn Crawford

Lyn Crawford

Manchester

+44(0)161 934 3163

Suzanne Houghton

Suzanne Houghton

Manchester

+44(0) 161 934 3050

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