The Court of Appeal's recent judgment in Lejonvarn v Burgess & Anr [2017] EWCA Civ 254 provides a sobering reminder to professionals and their insurers that the provision of free informal advice and services can come at a price.

Background

The claimants Mr & Mrs Burgess and the defendant Mrs Lejonvarn were friends for some 10 years. In 2013 the claimants wished to undertake landscaping works to their garden. Following discussions between the parties, Mrs Lejonvarn (who described herself as an architect) undertook various services in relation to these works, to include procuring a contractor to carry out earthworks and monitoring the works. Mrs Lejonvarn carried out these services on a gratuitous basis, the intention being that, as the works proceeded to the next phase, she would prepare a design for a fee.

However, the relationship broke down over costs' issues before the first phase was complete. The claimants sued, alleging that the work carried out under Mrs Lejonvarn's supervision was defective and remedial works were required.

The judge held that there was no contract between the parties. Nevertheless, Mrs Lejonvarn owed a duty of care in tort and that duty extended to a duty to prevent pure economic loss. This was of course important as it provided the legal basis for the claimants to seek to recover their alleged losses from Mrs Lejonvarn.

Mrs Lejonvarn appealed against the judge's findings that:

  • she owed a general duty of care to the claimants in circumstances where the judge had found no contract existed between the parties; and
  • she agreed to provide services and owed specific duties of care in relation to the same, namely to:
    • inspect and supervise the works;
    • undertake the design of the garden; and
    • exercise cost control, prepare a budget and oversee expenditure against that budget, and to review and advise in connection with applications for payment.
  • Mrs Lejonvarn, as a matter of fact, provided these services.

Court of Appeal decision

The Court of Appeal agreed with the judge, finding that Mrs Lejonvarn did owe duties of care to the claimants to prevent pure economic loss. The Court of Appeal addressed the following issues:

A duty of care can still be owed in the absence of a contract

The judge at first instance had concluded that there was no contract but the parties' relationship was "akin to a contractual one". Mrs Lejonvarn had assumed responsibility to the claimants and so owed them a duty of care in tort. On appeal, Mrs Lejonvarn argued that, if there was no contract, there could not be a relationship "akin to a contractual one". The Court of Appeal disagreed. Even if a contract was not formed, a duty could still arise in tort. On facts the judge was correct to conclude that the relationship was akin to a contractual one and that Mrs Lejonvarn owed a duty of care.

The correct test for establishing a duty of care

The general rule is that a claimant cannot recover pure economic loss in tort. This is because defendants are usually not held to have assumed a duty of care to prevent economic loss. An exception to the rule is if the "assumption of responsibility" test (as set out in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145) is satisfied. The claimants' losses in this case constituted pure economic loss. The judge at first instance worked through the assumption of responsibility test and decided that Mrs Lejonvarn had assumed responsibility and therefore the claimants could, in principle, recover their pure economic losses from her. On appeal, Mrs Lejonvarn argued that the assumption of responsibility test was the wrong test to apply as this was not a case which could be said to be equivalent to contract, given the judge’s finding that there was no contract. She argued that the judge should have used the test in Caparo Industries Plc v Dickman [1990] AC 605, namely:

  • whether the loss in question was reasonably foreseeable;
  • whether there was a sufficient relationship of proximity; and
  • whether in all the circumstances it is fair, just and reasonable to impose a duty of care.

This is the classic test for establishing whether a duty of care exists in tort and is the general basis for arguing that defendants do not owe duties of care to prevent pure economic loss. The assumption of responsibility test sits as an exception to this general test.

The key question here was the third strand of the Caparo test. Mrs Lejonvarn argued that the court should consider as a separate stand-alone issue whether it was fair, just and reasonable to impose the duty of care in question. In this case, Mrs Lejonvarn submitted it was not fair, just or reasonable.

The Court of Appeal disagreed and held that the judge had taken the correct approach. The assumption of responsibility test was the appropriate test in two core cases;

  • (a) where there was a fiduciary relationship; and
  • (b) where the defendant voluntarily provided services in circumstances where he knows or ought to know that an identified claimant will rely on his advice.

The current claim clearly fell into the second of these two cases. The assumption of responsibility test then effectively subsumed all aspects of the Caparo test. The judge therefore had used the correct test and was correct to conclude Mrs Lejonvarn had assumed responsibility to prevent pure economic loss to Mr & Mrs Burgess.

Duties in tort can only be negative duties

One of the key differences between duties owed in contract and tort is that a contract can (and often does) impose positive obligations, for example an obligation to carry out certain services. Tort, by contrast, can only impose a negative obligation ie a duty to not cause harm. That negative obligation is normally phrased as a duty to act with reasonable skill and care.

Mrs Lejonvarn argued that some of the judge's decisions at first instance imposed a positive duty eg that she had a positive duty to inspect the works. This went beyond the realms of tort.

The Court of Appeal agreed with the principle that tort can only impose negative duties and that some of the duties that the judge had found at first instance could have suggested a positive obligation to carry out specific works. It therefore rephrased the duties to make it clear that there was no positive obligation on Mrs Lejonvarn to carry out the services in question. However, to the extent she carried out the services, she owed the claimants a duty to carry those services out with reasonable skill and care.

Comment

It is important to note that the majority of the decisions concerning the existence of a duty of care actually turn on the facts - who said what, to whom, and what happened next. These issues will determine in each instance whether a duty of care has been assumed by a professional and whether the provision of advice or services has gone beyond a "friendly favour" without intention to create legal obligations.

In Burgess the Court of Appeal found that the professional had gone well beyond "favour" territory, concluding that:

" ..the judge was.. entitled to conclude that it was appropriate or fair, just and reasonable to find that a duty of care arises in the circumstances of this case….. In particular, the context was a professional one. It was not informal or social. There was an obvious relationship of proximity. Although [the defendant] was not going to be paid initially the expectation was that she would be paid for later work. She held herself out as having professional skills. She said she would perform professional services and did so. She was aware that the [claimants] would be relying upon her to properly perform those services and it was foreseeable that economic loss would be caused to them if she did not."

A warning to all professionals in a culture where the lines between obligations we take on in our professional lives and in our personal lives have become increasingly blurred.

See here for our article on the first instance decision.