When will a consultant owe a design and build contractor (with whom it has no contractual relationship) a duty of care in tort during the tendering period, to avoid causing the contractor economic loss.

Galliford Try Infrastructure Limited & Anor v Mott MacDonald Limited and Rowen Structures Limited [2008] EWHC 1570 (TCC)

The contractor entered into a design and build contract in relation to the redevelopment for commercial purposes of the former Victorian Birmingham Children’s Hospital. Under the design and build contract, the contractor undertook full responsibility for (amongst other things) all engineering design already carried out by the consultant. The consultant was engaged by a company in the same group of companies as the developer. (For simplicity, we shall refer in this report to the consultant as having been engaged by the developer.)

Under the building contract, there was a provision for the contractor (if so required by the developer) to enter into a novation of the consultant’s appointment in a specified form which was attached to the building contract. However, the contractor was aware that the form of novation agreement had not been agreed with the consultant (mainly due to a lack of agreement in relation to price). Thus no novation agreement was entered into at the time the contractor entered into the building contract (or ever).

The contractor’s losses

The contractor allegedly suffered losses because it had made no or inadequate allowance within its contract price and programme for addressing two significant design issues (the piling issue and the hospital facade issue).

The contractor alleged that the reason why it had made no/inadequate allowance in its contract price in relation to these two issues was because it had relied upon information/advice provided by the consultant during the tendering period (before the contractor entered into the design and build contract).

The losses suffered by the contractor were economic losses - the cost of the significant additional redesign work that the contractor had to carry out to address the two design issues, and losses arising from the consequent delay to the project.

The judge’s analysis of the legal principles

The judge’s summary of the applicable legal principles included the following:

A duty of care may arise in relation to economic loss:

  • out of a negligent misstatement or misrepresentation; and/or;
  • where there was a non-contractual provision of services.
  • There was no simple formula to determine if a duty of care existed in relation to economic loss. The courts have traditionally favoured caution.
  • It was always necessary to consider the circumstances and context - commercial, contractual and factual, including the contractual structure - to determine if a duty of care arose and, if so, the scope of that duty.
  • It was necessary for the party seeking to establish the duty of care (the losing party) to establish that the other party (the potentially liable party) owed a duty which related to the kind of losses which the losing party had suffered.

Where a duty of care was alleged to arise as a result of a negligent misstatement or misrepresentation, it was relevant to determine:

  • Was the potentially liable party asked to give and did it give advice to the losing party?
  • Was the potentially liable party fully aware of the nature of the particular transaction which the losing party had in contemplation and that its statement would be relied upon by the losing party?
  • Did the losing party rely upon the statement in entering into the transaction in question?

Where a duty of care was alleged to arise as a result of the non-contractual provision of services it was relevant to determine:

  • Whether the relationship between the parties was akin to contract or whether the potentially liable party was asked to provide services for the benefit of the losing party.
  • Whether the losing party relied upon the services.

For both types of duties of care - the following tests were helpful but not determinative:

  • Whether the potentially liable party voluntarily assumed responsibility; and
  • the threefold test of (i) reasonable foreseeability of the economic loss; (ii) proximity and (iii) fairness, justice and reasonableness.
  • Disclaimers were simply one factor (albeit an important one) in determining whether a duty of care arose. One could not usually voluntarily undertake a responsibility if one told all concerned that one was not accepting such responsibility.

Applying the legal principles

The contractor had to establish that:

  • the consultant owed it a duty of care as a result of one or more representations or out of the relationship and course of conduct between the contractor and the consultant; and
  • the scope of any duty extended to not causing the economic losses which the contractor alleged it had suffered.

The judge noted (amongst other things):

  • There was no authority in which the issue as to whether a duty of care arose as between contractor and consultant in relation to information (principally tendering information) passed by the consultant to contractor at tender stage had been considered.
  • In the ordinary course of events, an architect or engineer engaged by a developer would not owe any duty of care (at least in respect of economic loss) to tendering contractors.
  • This was because the successful tenderer must be considered to have taken the risk in relation to information etc. passing between the professional team and the contractor during the tendering process. Architects and engineers would be surprised and concerned if it was established that they owed duties of care, in effect, to prevent contractors under-pricing building jobs, except possibly in exceptional circumstances.

Were there exceptional circumstances in this case, which would result in a duty of care being established?

The Court’s findings 

  • The court concluded that the consultant did not owe the contractor a duty of care to avoid causing economic losses to the contractor in relation to the piling issue. The court relied (amongst other things) on the fact that, during the period leading up to the contract:
  • There was no effective transfer of control of the consultant to the contractor. The consultant continued acting as the engineer employed by the developer.
  • Although the consultant was asked to and did liaise extensively with the contractor, providing tender information direct to the contractor, this was not unusual for the performance of the consultant’s contractual duties to the developer.
  • The contractor did not ask the consultant to advise it as such or to provide other services for the contractor.
  • The contractor had not involved the consultant in any aspect of its contract pricing or programming. The contractor had not asked the consultant whether the designs were complete overall; whether there would be a need for design development; or whether any contingency should be allowed for any elements of the design. The contractor had not shown the consultant what its "contractor’s proposals" were.
  • The contractor had not established that there was any or any material reliance by it upon the consultant. The fact that the contractor accepted full design responsibility under the building contract at a time when it knew that it had not reached agreement with the consultant about the novation pointed strongly to conscious risk taking by a contractor which was not relying upon the advice of the consultant.
  • The parties were seeking to agree the terms of a novation agreement. It would be odd if the contractual route having failed (the parties having been unable to reach an agreement on price), the contractor could procure - for free - an enforceable warranty on the part of the consultant to exercise reasonable skill and care, with duties to perform services for the contractor.
  • The consultant had included disclaimers on its drawings and specifications which stated that the consultant accepted no responsibility for the document to any person other than the person by whom it was commissioned (i.e. the developer). The court rejected the argument that the disclaimer acted as an exclusion of liability for negligence which was subject to the Unfair Contract Terms Act 1977. The disclaimers were simply one of a number of factors to take into account when determining whether a duty of care existed at all.

The court then considered the hospital facade issue and likewise rejected any duty of care arising. The contractor’s claims against the consultant therefore all failed.

Editors’ comments

Consultants will no doubt be reassured that:

  • A consultant engaged by a developer when providing tendering information will not normally owe a duty of care to a contractor in relation to pricing or programming; and
  • the disclaimers included in the consultants’ drawings and specifications were upheld as a factor which militated against any such duty arising.

If the contractor had entered into a novation agreement with the consultant at the same time as entering into the building contract, would the contractor have been entitled to recover the economic losses it sought from the contractor?

The judgment did not disclose details of the proposed novation agreement in this case, so we can only speculate...

If the proposed novation agreement was a novation ab initio, then the contractor might have had redress against the consultant, on the basis that:

  • a novation ab initio is one in which the consultant is deemed to have been engaged by the contractor from the outset;
  • obligations in fact carried out by the consultant pre-novation for the developer are therefore recast as obligations fictionally carried out pre-novation for the contractor; and
  • the consultant might, as a result, have been liable for failing to advise the contractor as to the assumptions made in its tender and the sufficiency of its contract price.

However, would a consultant expect to be contractually liable to a contractor for economic losses suffered by a contractor in this scenario?

In reality, the consultant is typically engaged by a developer to work exclusively for the developer during the tendering period, without owing any duties to the contractor. A real conflict of interest would arise if this were not the case.

In contrast, if the proposed novation was a novation de futuro, the contractor is unlikely to have had contractual rights against the consultant for economic losses because a novation de futuro:

  • takes effect from the date of the novation agreement and thereby avoids the fiction of a novation ab initio; and
  • the contractual undertakings given by the consultant in relation to design carried out prior to the novation would not typically cover the adequacy of assumptions made in the contractor’s tender and the sufficiency of its contract price.

Consultants should ensure that (unless intended and agreed) novation agreements do not expose them to liability in contract for the sort of economic losses which the contractor sought, in this case, to recover in tort. View: Galliford Try Infrastructure Ltd & Anor v Mott MacDonald Ltd [2008] EWHC 1570 (TCC)