What are the risks of relying on professional advice without a contract in place?

02 August 2018

How safe are you relying on professional advice where there is no contract in place?

We review the latest decision in this area in the case of BDW Trading Ltd v Integral Geotechnique (Wales) Ltd [2018]. This is a reminder that whilst in principle, it may be possible to prove a duty of care in tort (where there is no contractual relationship), in actuality, it can be challenging.



Background

  • A local council (the Council) owned the site in question (the Site) and intended to sell the site for housing development after obtaining planning permission.
  • Assembling a tender package, in 2010, the Council commissioned a site geotechnical report from the Defendant, Integral Geotechnique (Wales) Ltd (IGL). The report was issued on 18 May 2012.
  • The claimant, BDW, is a residential developer and requested and received a tender package in June 2012 which included the IGL report.
  • BDW proceeded to purchase the site in May 2014.
  • Costly remediation works then had to be undertaken by BDW in order to remove asbestos and to decontaminate the site, to an extent that had not been anticipated by BDW.

The Dispute

In these proceedings, BDW pursued a professional negligence claim against IGL claiming that IGL's investigations and report failed properly to assess and identify the extent of the possible presence of asbestos on the Site.

There was no contract between BDW and IGL so the claim was made in tort. In order to succeed, BDW had to prove that IGL had a duty of care to BDW, that the duty had been breached and that BDW had suffered a recoverable loss. Issues of contributory negligence were also to be considered.

The Decision - key issues

Duty of Care

BDW's principal challenge was to prove that IGL owed it a duty of care - if this could not be proven, all other arguments were effectively irrelevant in terms of this particular claim.

Relevant factors:

  • The Council had asked IGL to prepare a report capable of being assigned "with warranties", to the ultimate purchaser of the Site. IGL were informed that their report would be provided to and relied upon by the purchaser.
  • In the event, IGL had agreed to provide the report but the finalised appointment excluded third party rights and contained a limitation on liability for environmental contamination.
  • IGL's report stated it was for the Council's use only and could not be passed to others without IGL's express consent; it could be assigned to the purchaser of the Site. IGL's report was provided to BDW but without IGL's express consent.
  • IGL was not asked to nor did it agree to BDW placing legal reliance on the report other than through the mechanism of an assignment.
  • In error (having intended to), BDW failed to get a formal assignment of the benefit of the IGL report.

The Technology & Construction Court (TCC) found that no duty of care existed in these circumstances. Crucially, it determined that if BDW wanted advice from IGL on possible contamination (or any other specific point), it should have requested it.

BDW had also argued that, as IGL were aware that BDW had a copy of their report, IGL should have warned/advised BDW that that it had not consented to BDW having or relying upon the report. This allegation was described by the TCC as "hopeless".

Based on the finding that there was no duty of care, BDW's whole claim failed. The TCC did however go on to consider the other key issues on an "obiter" basis (ie not essential to the decision and therefore not legally binding).

Allegation of negligence

The TCC concluded that even if BDW had proved a duty of care, its claim would have failed to establish any negligence by IGL.

Whilst some parts of the IGL report could be open to criticism, it was clear that the report was provisional and subject to further inspection and testing - bearing this in mind, it could not be viewed as negligent.

Recoverable loss

BDW contended that if IGL's report had not been negligent, it would have known of the presence of asbestos and consequentially, it would have put in a lower bid for the Site to take account of the cost of remediation works.

BDW's arguments on loss therefore centred around a hypothetical reduction in the purchase price of around £2.5-3m reflecting the estimated or actual costs of the remediation works.

IGL argued that the claim was more properly viewed as a "loss of a chance" claim i.e. hypothetically, BDW's chance to purchase the Site at a lower price. The TCC agreed that this was the correct approach.

After detailed consideration, the TCC concluded that it was highly likely that BDW could have obtained a reduction in the purchase price for the Site as argued, taking into account the presence of asbestos and the anticipated or likely cost of decontaminating the Site.

Applying therefore a percentage of 75% to reflect the loss of this chance (to negotiate a lower purchase price) to the anticipated or likely cost of decontamination works, the amount that hypothetically would have been awarded to BDW was £1m.

Contributory negligence

If BDW had succeeded in its claim, IGL argued that any recovery should be reduced due to contributory negligence of BDW.

The TCC agreed in principle (although not on the basis of the allegations specifically pleaded by IGL) and found that it would have reduced damages payable to BDW by 30% to reflect contributory negligence in that BDW as "a knowledgeable and experienced developer with an in-house technical department" should have queried any negligent report by IGL before exchanging contracts with the Council to purchase the Site.

Practical points

This case is a clear reminder that proving a tortious duty of care can be onerous, particularly where factually a contractual relationship between the claimant and defendant should have been in place.

Even if a duty of care can be established, a claimant faces further hurdles. Ultimately, if recoverable loss is proven, recovery could be limited by a finding of contributory negligence. Any such claim will be considered in the light of the experience and knowledge of the particular claimant - here, the developer was highly experienced and this was taken into account when reducing the hypothetical award of damages.

Some practical tips to limit your exposure:

  • Have a standard checklist to be completed in advance of any purchase of land for development.
  • At the outset of an acquisition project, carry out a desktop risk analysis to enable you to review your standard checklist to make it bespoke for the project.
  • Use your bespoke checklist to diarise key dates for reviewing progress eg has the warranty from the geotechnical engineer been obtained; must be finalised prior to exchange with site owner - and then diarise on again as required.
  • Always insist on contractual warranties and relevant assignments where required.

If you have any queries on this or related topics, please contact Michael O'Shea or Rob Bridgman.

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NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.

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