Never assume: mates rates and the duty of care

Background

The Claimants (Mr and Mrs Burgess) and the Defendant (Mrs Lejonvarn) were “good friends” for ten years. Over the years the Burgesses had done favours for Mrs Lejonvarn (and/or her husband). These included providing free office space and graphic design services. Mrs Lejonvarn, who worked in architecture, had in turn given the Burgesses professional help on a number of projects. When the Burgesses decided to embark on a significant landscaping project for their garden, Mrs Lejonvarn agreed to assist.

The litigation was about the nature and extent of her assistance. In a mixture of formal and informal email and oral exchanges, the Burgesses alleged that Mrs Lejonvarn had agreed to project manage the garden landscaping project. Mrs Lejonvarn had secured a contractor to carry out earthworks and hard landscaping, and had apparently supervised and managed the procurement and the works’ early stages. It seems that she intended later to provide her own design input, for a fee, in respect of the “soft” elements of the project. In July 2013, however, the formerly friendly relationship ended in considerable acrimony. The Burgesses complained that much of the work was defective and that costs were far higher than expected, and they claimed from Mrs Lejonvarn the increased cost (£265,000) of completing the project.

The Court was asked to determine a number of preliminary issues, including whether Mrs Lejonvarn owed any duties in contract and/or tort to the Burgesses, and (if so) what the scope of those duties were.

Absence of contract

There was no binding contract. On first principles, the emails did not contain the key elements required for a contract, including any offer (or acceptance) or any consideration.

The Court noted that there were no “clauses of the type typically to be expected in a professional’s terms of engagement”, such as those concerning duration of services and early termination.

Was there a duty of care in tort?

In principle, where one party with a special skill assumes or undertakes a responsibility towards another, who relies on this, a duty will arise. A professional supervising construction work usually deploys a special skill. Therefore, if there is an assumption of responsibility, a duty of care arises, which will also encompass "pure economic loss" (ie loss not caused by physical damage to the person/property). This is an exception to the general rule that "pure economic loss" is not recoverable in tort (in the absence of a contractual relationship). Such loss can be recovered where a party has assumed responsibility or there is a special relationship between the parties (Hedley Byrne & Co Ltd v Heller [1963] UKHL 4 and Henderson v Merrett Syndicates Ltd [1994] UKHL 5).

Mrs Lejonvarn argued that no formal duty of care in tort, giving rise to a potential liability in damages, should arise. She argued that she simply provided friends with free services, albeit with an eye on building her own consultancy business.

As far as the law is concerned, the key ingredients of liability in tort for "pure economic loss" for negligent services/advice are “an assumption of responsibility coupled with reliance by the plaintiff which, in all the circumstances, makes it appropriate that a remedy in law should be available for such negligence….” (Lord Goff in Henderson). The fact that services may have been performed for free does not (of itself) matter. The principle rests on the relationship between the parties. In supervising construction work, a professional usually deploys a special skill and, if there is an assumption of responsibility, a duty of care arises in respect of "pure economic loss".

In this case, Mrs Lejonvarn acted as a project manager and the Burgesses relied on her to do this properly. Her duties included selection and procurement of contractors, preparation of designs for costing purposes, periodic inspection, and cost control.

Lessons to learn?

This is a cautionary tale for professionals who provide services outside of a formal contractual framework, especially with the aim of providing free “tasters” or “loss leaders” for business development purposes. Mrs Lejonvarn’s help/services to the Burgesses were extensive/formal/professional enough to trigger a duty of care. Her services were not in the realm of “brief ad hoc advice of the type occasionally proffered by professional people in a less formal context”. There was, on the facts of this case, considerable input and commitment on both sides as well as significant expenditure by the Burgesses.

Professionals should ideally endeavour, regardless of personal relationships, to set out clearly the scope of their services (and any remuneration) in the form of a written contract or engagement letter. Equally, where there is an existing retainer but services are being requested or tasks performed which may fall outside its scope, care should be taken to ensure that the terms and scope of those additional services are clear and agreed. Professionals undertaking such services should also consider whether their professional indemnity insurance will cover them. In this case, Mrs Lejonvarn did not have professional indemnity insurance. Even in the context of "mates rates" and providing services to close friends, professionals should not lose sight of commercial considerations and any potential liability, if a project goes wrong.

As an aside, this is also a reminder that alternative dispute resolution (ADR) should always be at the forefront of parties’ minds. After a three day High Court hearing, the legal costs in the Lejonvarn case may have exceeded the amount at stake. The judge could not “think of a more appropriate case [for] …mediation…”. Parties may find themselves penalised in costs if they reject or fail to explore this avenue.