Testing the law: which test to apply to establish a duty of care?

Summary

In BDW Trading Limited, the engineers had not agreed to third parties relying on their site report (and no assignment had taken place), so it was held that no duty of care could be established. While it is not clear from the judgment which test was applied to determine whether a duty of care existed, the court usefully summarises the issues and the legal tests which apply to determine whether a duty of care exists in circumstances where there is no contractual relationship. The court also considered the importance of disclaimers; these are not exclusion clauses, but form part of the factual matrix to be considered in determining whether a duty of care is owed.

Background

The defendant consulting engineers (IGL) were instructed by Bridgend County Borough Council (Bridgend) to provide a geotechnical report in respect of a site (the Report) that Bridgend intended to sell to the claimant national housebuilder (BDW). The Report anticipated further investigations.

In June 2012, the Report was included in a tender package that was provided to BDW. Subsequently, relying on the tender documents and the Report, BDW offered to purchase the site for £4.5m. Bridgend accepted the offer. Although BDW relied on the Report, it was never actually assigned to it.

Asbestos contamination was subsequently identified on the site with an anticipated remedial cost of £860,000.00.

BDW sought to recover the additional cost from IGL. They alleged that despite the lack of a contractual relationship, IGL owed a tortious duty of care properly to advise BDW of the risk that asbestos might be present.

Disclaimers

The judgment considers whether disclaimers can effectively exclude liability. As above, the Report clearly anticipated further testing would (and should) be undertaken.

Although a disclaimer of liability may be sufficient to preclude a finding of assumption of responsibility
the Court determined that disclaimers are not exclusion or limitation clauses, they are nothing more than pieces of the factual background to be taken into account by the Court to consider whether or not a duty of care arises.

In respect of attempting to establish whether a duty of care exists and in the context of the assumption of responsibility test, it was specifically noted that disclaimers are “simply a reminder……not to rely upon what [has not been] commissioned”. They are an important factor but should not be considered in isolation.

Did IGL owe a duty of care to BDW?

The judgment referred to the established legal tests for determining whether a duty of care arises as follows:

1. Test 1: the “three-fold test”
   1. was the loss reasonably foreseeable?
   2. was there a relationship of proximity?
   3. taking into account all the circumstances, would it be fair just and reasonable to impose such a duty?
2. Test 2: the assumption of responsibility test
3. Test 3: the incremental approach

Reference is also made to the widely reported case of Lejonvarn v Burgess which raised similar issues (see our article here). However, in Lejonvarn, contrary to BDW Trading Limited, it was determined that an architect who had previous professional and non-professional dealings with her neighbour did owe a duty of care, even though there was no contract in place.

In Lejonvarn, it was found on appeal that the assumption of responsibility test (Test 2 above) applies in circumstances where:

• a professional voluntarily “tenders skilled advice or services”, and
• it is known, or ought to be known, that the advice will be relied upon.

The decision

With reference to Lejonvarn, the court held that, in circumstances where it was neither requested of IGL, nor did IGL agree to BDW placing reliance on the Report, other than via the mechanism of an assignment that never transpired, a duty of care did not exist.

The Court concluded that even if contrary view had been determined, in the absence of an assignment, the Court could not have reached the conclusion that IGL “fairly, justly or reasonably” assumed liability to the BDW and therefore, even in these circumstances, it was not possible to determine that a duty of care had arisen. Accordingly, the fact that it was stated in the Report that the Report was not to be assigned without express consent was fatal to the Claimant’s position.

Lessons learned

This decision is a key reminder (and is somewhat of a backlash following Lejonvarn) that establishing a duty of care where there is no contract in place is challenging and contrary to the norm.

Attempting to impose a duty of care in tort in circumstances where a contract does not exist is a reoccurring issue in multi-party construction disputes. The opposing decisions in BDW Trading Limited and Lejonvarn evidence that the position is far from clear and that, in the majority of circumstances, the factual matrix is likely to be the ultimate determining factor.

As a guide for construction professionals/practitioners, there are a number of useful points that have arisen from BDW Trading Limited. These are as follows:

1. Succinctly defining the scope of the duty is essential
2. To effectively exclude liability, disclaimers are unlikely to effective, including express exclusion/limitation clauses is the preferred option
3. To ensure a contractual relationship is in place, include clear requirements for written assignment and ensure the relevant documents are executed,
4. Specifically, in respect of reports or surveys, if the report was not prepared for the party that is intending to rely on it, it may be difficult to determine that a duty of care exists. In light of this, ensuring that the consultant’s appointment is assigned is therefore key, and
5. Following on from 4 above, always insist that collateral warranties are in place and properly executed.