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RELIANCE (OR NOT?), BY A 3rd PARTY, ON A CONSULTANT’S REPORT PREPARED FOR AN EMPLOYER?

BDW Trading Limited-v-Integral Geotechnique (Wales) Limited

This is a not-untypical provision of a design, construction and commissioning engineering contract:

‘With the exception of any Warranted Information, the Contractor shall be fully responsible for checking and verifying the accuracy, correctness and completeness of any and all data (including without limitation the Employer’s Drawings, met ocean data and bathymetric data) on the climatic, hydrological, geological, oceanographic, topographic and general conditions of the Site including, but not limited to the ground, sub-soil, foreshore and seabed and its suitability for the design, engineering, construction supply and delivery, installation, testing and commissioning (including the remediation of defects) of the Works and the Contractor shall be responsible for the interpretation thereof. The Employer shall bear no responsibility for, any error, inaccuracy or omission of any kind in any such data and no warranty or representation is given in respect thereof …….’

Doubtless readers will recall comparable wording in more than one standard form of civil engineering contract and process engineering contract.

It is common for an employer to provide ground investigation reports, borehole surveys and the like to tendering contractors, but almost always with an express term on similar lines to the above.

You may ask, why bother providing (any?) data in the first place.

The TCC case of BDW Trading Limited-v-Integral Geotechnique (Wales) Limited (handed down on 25 July 2018) delivered judgement on a not uncommon issue of 3rd party reliance on site investigations and the rights (or not) of those third parties should there be errors in such reports.

The TCC decided that the consulting engineers that produced the subject report, IGL, did not owe BDW (a subsidiary in the Barratt Group) a duty of care in relation to that report. The report had been prepared for Bridgend County Borough Council (BCBC). BDW had relied on the geotechnical report in considering the costs associated with a proposed development.

Summary
In 2010, BCBC decided to sell Ogmore Residential Centre in Glamorgan (the Site) for housing. The tender package included instruction for IGL to prepare a geotechnical report, understood by IGL that same could be used to market the site to residential developers

Such developers would be provided with the report.

BDW, the eventual developer, received the report. BDW understood the report to advise there was no risk of contamination from asbestos-containing materials (ACMs) on the site, excepting for possibly within existing buildings.

BDW included for such costs as it deemed appropriate on that basis for asbestos removal within its development cost plan. Following the site purchase by BDW in May 2014, it transpired that ACMs were, however, present other than in existing buildings, and throughout the site. The costs of dealing with the subsisting asbestos products was, consequentially, significantly higher than allowed for in the BDW cost plan.

BDW sought to recover those additional costs from IGL, arguing that IGL (there being no contract between the parties) owed it a tortious duty of care in relation to the report argued to have been negligently prepared.

BDW further argued that, had it known the true extent of ACMs, it would have tendered a lesser consideration for the purchase of the site from BCBC which sum would have allowed for costs in dealing as appropriate with the asbestos later discovered. In the event, the commercial viability of the development was prejudiced on account of the unforeseen decontamination costs.

The TCC’s judgement was that IGL did not owe BDW the argued for duty of care and BDW was not therefore entitled to rely on IGL’s report. Notwithstanding IGL knowing that third parties would see, and probably rely on, the report therefore influencing bids tendered for the purchase of the site, such reliance was not effected without assignment of IGL’s appointment by the Council. There was a contractual right only, which remained with BCBC.

A key factor in the judgement was the existence of an exclusion of third party rights clause in the terms between IGL and BCBC and a statement in the report that it was for BCBC’s use only; it should not be passed on to others without express consent, but that it could be assigned (but wasn’t) to the eventual site purchaser.

Further, interestingly, the court found that even if IGL had owed BDW a duty of care, its report had not been negligently prepared.

Pertinent principles:

1) A party intending to rely on a report, not otherwise commissioned by that party may have difficulty establishing a claim in the tort of negligence against the drafting party.

2) A negligence claim becomes the more difficult if it is agreed that a party will obtain reliance on a report only under contract, but a contractual relationship has not, as a fact, been created.

Thus, if reliance on a report is desired by a third party, i.e.being NOT the party that instructed the report, that third party must ensure that it expressly executes an agreement for reliance, including:

1. a collateral warranty from the party that prepares the report;
2. procures a letter of reliance from the party that prepares the report;
3. procures an assignment, of the party that prepares the report, to the third party, with due cognisance taken of the relevance of the consultant’s terms of the initial appointment and, from the point of view of the instructing party, if the latter party still requires to enjoy reliance on the report.

Michael Hawkyard B.Sc (Hons), FRICS, FCIOB, FCICES, FCIArb

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