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Importance of establishing a duty of care

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A recent decision of the Technology and Construction Court has emphasised the challenges a purchaser faces establishing a duty of care in the absence of a contractual relationship with consultants engaged by the seller.

In the recent case, BDW Trading v Integral Geotechnique, the Court found that, where a consultant prepared a geotechnical report in respect of a site to be sold for residential development, the consultant did not owe a duty of care to the ultimate purchaser who had been shown the report. 

There was no assumption of responsibility by the consultant where the report expressly prohibited third-party reliance and contemplated a contractual assignment that had not taken place. 

Integral were appointed to carry out a geotechnical report for a site that was intended for residential development and the report would be provided to prospective purchasers as part of the tender package.

Integrals’ appointment expressly excluded third party rights and prohibited assignment of the report without its consent. Due to an oversight, the seller never assigned the report to the buyer and instead, relied on the report findings during its due diligence.  

The report indicated that there was a possibility of asbestos contamination within the building structure but made no mention of asbestos in the ground itself. Asbestos was subsequently discovered and BDW was forced to remediate the site. 

In the absence of an assignment, BDW had no contractual recourse against Integral. BDW instead commenced a professional negligence claim, arguing it was owed a duty of care in tort by Integral in respect of the report, which BDW considered to have been negligently prepared. BDW argued that it would have negotiated a reduction in sale price to cover the costs of remediation had it known of the asbestos.

The claim was dismissed by the Court, who concluded that Integral owed no duty of care to BDW. Whilst Integral knew its report may be relied on by BDW, in the absence of an assignment of its appointment, no such duty of care existed. It is therefore vital that such assignments are not overlooked. 

In acquiring a site or property, prospective purchasers should carefully check whether they can rely on any surveys or reports prepared. To ensure the existence of a contractual relationship, purchasers should, where the contractual documentation allows, either effect an assignment of the consultant’s appointment or receive a properly executed collateral warranty or letter of reliance from the consultant as part of the transaction.

This case highlights the importance of ensuring that consultants should make sure their scope of duty is properly defined within their appointment. Disclaimers are unlikely to be effective in excluding liability to third parties under appointments, so express exclusion clauses should be negotiated and clearly set out. 

This also provides 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 that contractual restrictions can be used to restrict third party liability.

 

Read more news from the residential and commercial property industry by viewing our latest Briefing Notes: Issue 91.