Professional Negligence in Construction

Ben Patten KC and Hugh Saunders

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CHAPTER 3 The obligations of construction professionals

Section A: the contract 28
- The function of the contract 28
- When will a contract exist? 28
- When will a contract be varied? 30
Section B: express terms 30
- Ascertaining the meaning of express terms 30
- Common types of problem 31
- Express terms relating to services 31
- Other express terms 33
Section C: implied terms 35
Section D: the tort of negligence 35
Section E: duty of care – personal injury 36
- The general rule 36
- Requirement of duty to the client 37
Section F: duty of care – physical damage 38
- The general rule 38
- No recovery for economic loss 38
- No recovery where not just and equitable 39
- Examples 40
Section G: duty of care to the client – economic loss 42
- The general rule 42
- The emergence of concurrent liability 42
- Concurrent liability established 43
Section H: duty of care to third parties – economic loss 45
- The general rule 45
- Exceptions that failed 45
- Assumption of responsibility 46
Section I: statutory duties 50
- The Defective Premises Act 1972 50
- The Construction (Design and Management) Regulations 2015 52
Section J: personal liability 54
Section K: remuneration and other matters 55
- Remuneration 55
- Disputes over remuneration 56
- Plans, documents and copyright 57

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Section A: the contract

The function of the contract

3.1 The starting point (and often the ending point) for appreciating the obligations of a construction professional is its contract. The contract will define what it is that the construction professional is obliged to do, setting out the balance of its rights and obligations against the rights and obligations of the employer. As is discussed below, this is true even where the contract takes the form of the simplest written document or (as sometimes happens) no document at all. 3.2 The contracts under discussion here are contracts for the provision of services. The construction professional acts as an independent contractor, whose skills and labour are purchased on a project by project basis by the employer. We are not concerned with construction professionals who are engaged by developers or contractors as employees. 3.3 Construction professionals are generally engaged on the basis of detailed contracts, often in standard form or in standard form with bespoke amendments, but it is important to recognise that such agreements may not always be in place and, even where they are, they may not be clear as to responsibility for a particular issue. In those situations, any court or arbitrator trying to ascertain the extent of a professional’s obligations will consider the meaning of the express terms and what can be taken to have been agreed by way of implied terms. Types of problem that occur frequently are discussed below. 3.4 A number of different terms are used to describe the construction professional’s contract with its client. It can variously be referred to as “the contract”, “the professional services agreement”, “the appointment”, “the engagement” and “the retainer”. There is no practical distinction between this nomenclature. In law they are all contracts, and all these terms refer to the same set of mutual obligations. 3.5 On any particular construction project a construction professional may enter into a number of different contracts. On some projects, a construction professional may enter into more than one contract with the client (for example, for different work at different times) although this is unusual. More commonly the construction professional may enter into contracts with other persons. As a condition of the contract with the client, the construction professional may agree to enter into another contract with the client’s funder or some person to whom the client intends to sell the completed project. In that agreement, the construction professional will undertake responsibility to that person for losses it might sustain as a result of a failure by the construction professional to carry out its work carefully. Such agreements are commonly referred to as collateral warranties or duty of care deeds. 3.6 Alternatively, the construction professional may agree that its contract with the client be novated to the design and build contractor. This means that a new contract comes into being between the construction professional and the design and build contractor with the latter stepping into the shoes of the original client.

When will a contract exist?

3.7 For a contact to exist, all that is required is evidence of an agreement that the construction professional will act (in some way) for the employer and will receive (in some way) benefit in return. The agreement is usually in writing, but it may be entirely oral: it is sufficient for the employer to ask the construction professional to carry out work and for

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the construction professional to agree to do so, or even, in some cases, simply to carry out the work. Under English law there is a predisposition to find that a contract exists in circumstances where one person carries out work for another, and the situation of construction professionals is no different. 3.8 However, the formation of a contract requires the presence of intent on the part of both parties to enter into a contract. This “intent” is objectively judged. What counts is what the parties do or say to each other rather than what they privately thought. The necessity for contractual intent means that the mere fact that work is carried out by a construction professional does not necessarily mean that a contract exists. Two situations must be distinguished. 3.9 Construction professionals frequently commence work for an employer prior to agreeing the terms of a formal contract. They may be agreed that their rights as against each other are to be subject to a final agreement. If no such final contract is agreed it is unlikely that the court or arbitrator will find that there was no contract at all. There will usually be a contract for some work to be provided in exchange for some payment (often a reasonable payment), but the other terms of that simple contract will be very limited. At its most extensive the contract will contain a term that the work carried out was carried out carefully, but no further obligations are likely to be imposed upon the construction professional. 3.10 This should be contrasted with the situation where the construction professional commences work without a written contract, but both parties are agreed on many if not most of the terms of that contract. If no final contract is entered into, it may be open to a court or an arbitrator to find that there was substantive agreement on a considerable number of terms, albeit not all of those contained in the document which was under negotiation. Much will depend upon the way in which the parties acted and what they said to each other. 3.11 There may be special circumstances where a construction professional carries out work for someone where neither the construction professional nor the person for whom the work is carried out intend (objectively) that a contract will come into being between them. These are almost always instances where the construction professional agrees to carry out work without payment or other benefit.1 It will be a rare case in which some kind of contract does not come into being.2 3.12 Disputes of this nature are often about remuneration, rather than the quality of services or other obligations undertaken by the construction professional.3 3.13 A contract only gives rise to obligations between the persons who are the parties to it. A construction professional will almost always contract directly with the employer. It is possible for the employer to use an agent as the means of contracting with a construction professional, but this is very unusual. As a rule of thumb, there will always be a contract of some sort between a construction professional and its client. 3.14 There may be special situations where a construction professional carries out work under a contract with the client, which work is for the benefit of some third person. In those circumstances, it is possible that the true contract is with both, or that some other rule of

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law allows the third person to take action against the construction professional,4 but such circumstances are highly unusual.

When will a contract be varied?

3.15 Just as the making of a contract requires “intent” on the part of the employer and the construction professional, so there must be an objective intention shared by both parties if a contract is to be varied. The fact that a construction professional believes that it is no longer required to provide advice on a particular aspect of the works is unlikely to be sufficient to show that the contract has been varied to that effect. Something must have been said or done by the employer which clearly indicated that the employer wished to release the construction professional from that obligation. By the same token, the mere fact that the employer decides to add a new area of work to the construction project is not in itself a clear basis for asserting that the construction professional’s contract has been varied so that it will now provide services in respect of that work. There has to be some evidence that both parties have agreed to change the contract in this way. Evidence of intention to vary may be obtained from the facts, but evidence of a unilateral intent will be insufficient.5

Section B: express terms

Ascertaining the meaning of express terms

3.16 The express terms of a contract are the written (and sometimes oral) provisions of a contract setting out what the professional is required to do and how it is to do it. They are to be contrasted with what might be called the unwritten or unexpressed intentions of the parties as to those matters, which if they exist as contractual terms are said to be “implied”. 3.17 A complex standard form contract such as the RIBA Standard Agreement contains a lengthy and detailed list of express terms. These will set out in detail what the architect is required to do (the services it is required to perform), when and in what circumstances that work is to be undertaken, the standard of performance, when and how much the architect is to be paid, what other obligations the architect might owe to the employer, how disagreements between the architect and the employer are to be resolved, and what limitations may exist on the rights of the employer to recover compensation from the architect. 3.18 Where the meaning of an express term is disputed the court or arbitrator will seek to ascertain that meaning by reference to the objective intention of the parties as demonstrated by the words they used and the context in which those words appear.6

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3.19 Whilst the standard form contracts of most construction professionals have been drafted with the aim of avoiding obscurity (not least by employing terms which have a recognised meaning in the construction industry) it is not uncommon for professionals and employers to disagree as to the meaning of particular phrases and the scope of works to be undertaken.

Common types of problem

3.20 Although disputes over the meaning of a contract can arise in any number of ways, the following generic list covers the more common types of dispute: 3.21 Disputes as to the true meaning of a word or phrase. The lawyers responsible for the drafting of contracts between construction professionals and their clients strive to exclude any substantial possibility of disagreement over meaning by defining important words in clear terms. Most contracts will contain an extensive list of “definitions”. However, that intent is not always successfully achieved and is of limited application if the parties choose to graft further documentation containing important words (which may not provide definitions of those words) onto standard terms. Thus, the engineer may have an obligation to review the design of “the groundworks” but the meaning of that term may not be fully and clearly set out, so that there is some doubt as to whether it includes the pavements of the car park. 3.22 Conflicting provisions. Carefully drafted contracts should be internally consistent, but particularly in complex contracts where the construction professional’s services are contained in a number schedules, it may happen that there are apparently conflicting provisions. For example, under part of the contract dealing with the general description of the works the scope of the architect’s responsibilities may appear to extend to designing all of the façade whereas, on one reading of the schedule of services attached, the architect may have no responsibility in respect of the design of the brise soleil. 3.23 Omissions. The contract may simply omit provisions which would explain to the parties what responsibility the construction professional has for a particular aspect of the works. Thus, for example, the engineer may be accorded responsibility for the design of the drainage in a development, but midway through the works the employer may discover that there are issues in relation to potential pollutants which need to be negotiated with the regulatory authorities. The engineer’s contract may be entirely silent as to whether this is part of the engineer’s scope of work.

Express terms relating to services

3.24 Most disagreements on the meaning of contracts arise in the context of the services which the professional is required to provide. Many construction professionals reach agreement on detailed contracts long after they have commenced work on the project. The terms which appear in the contracts (which may be terms advanced by the employer) may not correspond to the construction professional’s understanding of the services which it has provided and has agreed to provide. This mismatch may be overlooked at the point at which the contract is executed. Alternatively, some issue may arise long after the services have been performed where the employer contends that something should have been done by the professional which was not done (possibly because no one gave any thought to it at

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the time) and the dispute concerns whether the wording of a particular part of the contract has the effect of imposing that responsibility upon the professional. 3.25 Areas of disagreement over services generally involve either responsibility for design which may have been carried out (or is thought to be the responsibility of others), or contracts which require the construction professional retrospectively to take responsibility for design or the coordination of design. Thus the civil and structural engineer may have overall responsibility for the design of a particular structure, but under the building contract a specialist sub-contractor may have design responsibility for a particular part of the building which it has agreed to provide. The employer and the professional may be in dispute as to whether, on a true construction of the express terms of the engineer’s appointment, the engineer was entitled to leave certain aspects of the design to the specialist sub-contractor.7 3.26 In Tesco Stores Ltd v The Norman Hitchcock Partnership Ltd 8 the employer sued its architect for failing adequately to inspect the fire separation works which had been installed by contractors. The architect’s appointment did not contain an express term which clearly extended to this responsibility and the employer’s argument was rejected. Not only was there no express agreement that the architects would inspect this aspect of the works but the court found that the employer had not relied upon the architect to undertake this function. 3.27 Problems involving retrospectivity often arise in the context of novation. Here a construction professional will commence work for the employer but will subsequently have its contract novated to the design and build contractor (who is treated as having contracted with the construction professional from the start).9 Because the employer and the design and build contractor may have had different interests (indeed sometimes conflicting interests) the design and build contractor may have a different appreciation of the extent to which a particular aspect of the services carried out by the construction professional on behalf of the employer was required to reduce risk in the design.10 3.28 Whilst it is important to distinguish disputes about the scope of services from disputes about the way in which services ought to be carried out, it is not always straightforward to identify the precise delineation between these two concepts. Many of the typical instances which are discussed in concern the extent to which a particular service, expressly required by the contract, requires particular steps in order to perform it. Thus for example, the contract may require the architect to review the design of the specialist sub-contractor to ensure that it is generally in accordance with the contract documents. To what extent is the architect required to go in performing that obligation? Does it have to obtain advice from specialists in the field so that it can form an understanding as to whether or not the specialist sub-contractor’s design will be generally in accordance with the contract documents?

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3.29 As will be seen, problems of this nature are often resolved not just by a consideration of the meaning of the particular words used in the appointment but also by their factual context and an ascertainment of the reasonable expectations of both the employer and the professional at the moment when the appointment was agreed.

Other express terms

3.30 Aside from the express terms which set out what it is that the construction professional has to do, the most important express term in an appointment is the term or terms setting out the standard to which that service is to be performed. 3.31 The almost universal standard is the standard of reasonable skill and care. The precise meaning of this phrase is discussed in , but it is important to note at this point that it is a dangerous over-simplification to say that a construction professional’s obligation to his client is always to act carefully.11 3.32 In the first place, whist the courts will frequently construe obligations in a construction professional’s contract as obligations to act with reasonable skill and care, there is no necessity for the employer to limit the professional’s obligation in this way. If the words of a contract are sufficiently clear, the employer may require the construction professional to bring about a particular result. This kind of absolute obligation may generally apply in terms of prohibitions (for example, preventing the construction professional from specifying a particular product or class of products) but it could conceivably apply to any aspect of the professional’s services. 3.33 Secondly there are a class of ancillary obligations which may arise out of the construction professional’s position as agent for the employer which impose absolute obligations (for example, not to enter into an agreement with a third party on behalf of the employer without the employer’s authority).12 3.34 An important part of any contract between a professional and its employer is the allocation of risk. It is very common for the contracts of construction professionals to contain limitation of liability clauses. Such clauses are generally effective to “cap” the extent of the loss for which the construction professional can be liable in the event of a successful claim. 3.35 However, other broader protections are not uncommon. Many standard form appointments for architects and engineers contain clauses which require claims to be brought within a certain time (for example six years of the end of the defects liability period under the building contract), thus putting the risk of a late undiscovered claim against the professional on the shoulders of the employer.13

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3.36 Some contracts contain a “net contribution clause”, a provision which limits the liability of the construction professional to that portion of the loss which it has caused which it is just and equitable for it to bear having regard to the responsibility of all the other persons who have caused the loss.14 The default position in English law is that, where A and B, by their independent actions or omissions cause loss to C, C may generally recover all of the loss from whichever of A or B as it chooses to sue, regardless of their relative culpability for the loss. That party can then seek contribution from the other defendant. The fact that B has no resources to meet a claim provides no defence to A against C. That is A’s risk. A net contribution clause alters this position. C can only recover from A that part of the loss which is A’s share of overall responsibility. It thus shifts the risk to the employer that some other participant in the project who may be share responsibility in the loss will lack resources or will have a limitation defence by the time that the loss is discovered. 3.37 Further, as is discussed elsewhere,15 the standard form appointments of construction professionals generally require that any dispute between the professional and the employer be resolved in arbitration rather than in litigation. This can present tactical advantages to the construction professionals. 3.38 It is partly for these reasons that most substantial employers will require construction professionals to agree to bespoke terms which strip out these and similar provisions and may often impose conditions that are favourable to the employer. Generally such contracts will be in the form of deeds, being contracts executed “under seal”,16 allowing contractual claims to be brought against the construction professional for a period of 12 years.17 One provision which is particularly prevalent in such contracts is an obligation on the part of the construction professional to evidence that it has professional liability insurance at a particular level, to maintain that level of indemnity insurance for a number of years (often 12 years, corresponding with the applicable limitation period) and to provide evidence that the insurance is being maintained if called upon to do so at any time during that period. 3.39 The contract between a construction professional and its client is no different to any other contract when it comes to the general law regulating the operation of contracts. If the contract contains a particularly onerous term it is possible that its effect may excluded by operation of the Unfair Contacts Terms Act 1977 or (in the case of consumer contracts) the Consumer Rights Act 2015.18 Similarly the contracts of construction professionals may be deemed to give rise to certain additional rights or obligations pursuant to the Contracts

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(Rights of Third Parties) Act 1999 and the Late Payment of Commercial Debts (Interest) Act 1998.

Section C: implied terms

3.40 At common law terms are implied into a contract when it necessary for some additional provision to regulate the rights and obligations of the parties because without that provision the contact either cannot function or because it is manifestly clear that the parties must have intended that their rights and obligations would be governed by this term and it was omitted from the express terms by oversight.19 3.41 At the risk of oversimplification, it can be said that the more detailed and exhaustive the express terms of a construction professional’s contract, the less scope there is for the implication of terms. Because most construction professionals are engaged on standard terms and conditions or on bespoke terms which have been formulated by lawyers engaged by the employer, the implication of terms tends to play little part in disputes concerning the liability of construction professionals. However, arguments over implied terms do arise in situations where, for whatever reason, there is either an omission or a lack of clarity in the express terms.20 3.42 Moreover, whilst it is rare for a construction professional to be involved in a dispute over the disclosure of information confidential to its client, or a dispute with its client over a contract with a third party entered into by the construction professional on behalf of the client, it should be kept in mind that important obligations which arise as a consequence of the construction professional’s status as the agent of its employer often arise as implied terms. 3.43 Implication for necessity or business efficacy is not the only route to implication. 3.44 Terms are also implied into the contracts of professionals by statute just as they are implied into other contracts. Thus section 13 of the Supply of Goods and Services Act 1982 implies an obligation into a contract to provide services that the services will be provided with reasonable skill and care.21 Section 14 of the Act implies a term that the service will be provided within a reasonable time. Again, for the reasons which are set out above, these implied terms are unlikely to add anything of significance to the rights and responsibilities of the construction professional as against its employer.

Section D: the tort of negligence

3.45 It is difficult to overstate the extent to which the construction professional’s rights and obligations as against its client are governed by the construction professional’s contract with the client. It is a rare case in which a court or arbitrator will need to look beyond that

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contract. However, where it is necessary to consider legal obligations outside contract these are likely to be found in the tort of negligence. 3.46 In Blyth v Birmingham Waterworks Co 22, Alderson B described negligence as: “the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do”. The mere fact of negligence is not sufficient to ground a cause of action, however: the claimant must show that the defendant owed it a duty not to be careless. In the tort of negligence A may owe a duty to B to take reasonable care in the way in which he goes about his business so as to avoid B from suffering harm.23 This obligation can arise independently of any contractual relationship between A and B (although as described below, it arises in the context of some contractual relationships also). 3.47 The courts employ a number of different tools in order to decide whether in any particular case A is liable in tort for damage caused to B by its negligence. These tests primarily focus upon, first, the kind of harm suffered and, second, the kind of relationship between A and B. 3.48 As will be seen, in the context of construction professionals, the nature of the harm suffered by B has been decisive in determining whether a duty exists. Physical harm or damage to property will readily justify the existence of a duty of care. By contrast, financial loss which does not arise as the direct consequence of physical harm or damage to property, generally militates against the existence of such a duty. In those cases, something more will be required: something about the closeness of the relationship between A and B.

Section E: duty of care – personal injury

The general rule

3.49 Construction professionals are in no different position to any other person when it comes to personal injury caused by their carelessness. Just as the driver of a car owes a tortious duty of care to passengers and other road users, or the surgeon owes a duty of care to his patient, the construction professional owes a duty to persons who might be injured by his carelessness to take reasonable care to safeguard them against such personal injury. 3.50 The key element in the existence of the duty is foreseeability: if A undertakes some activity which it is reasonably foreseeable might cause injury to B, A will generally owe B a tortious duty of care to safeguard him against injury caused by the careless carrying out of that activity. 3.51 Often the carelessness lies in an omission to act when a reasonably careful person would do something. In Clay v AJ Crump & Sons Ltd 24 demolition works had commenced on a site and the employer expressed concern to the architect as to the stability of a wall and

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the safety of persons working close to it. The architect promised to look into the matter. He consulted with the demolition contractor which assured the architect that the wall was safe. The architect did not carry out its own inspection. After completion of the demolition works in that area, the building contractor brought its workmen onto site. It carried out a cursory examination of the wall but did not notice its instability. The wall collapsed injuring one of the workmen. The Court of Appeal held that each of the architect, the demolition contractor and the building contractor owed the labourer a duty of care to take reasonable care to prevent him being injured.25

Requirement of duty to the client

3.52 It is important to note that the architect became subject to a duty of care because he had agreed to (or was obliged to) examine the stability of the wall. The mere fact that danger of personal injury exists in the environment in which a construction professional is working is not sufficient to give rise to a duty:26 the injury must arise from the negligent carrying out of some task or responsibility of the construction professional. 3.53 In Perrett v Collins 27 the Court of Appeal explained the relationship between the task with which the defendant is charged and the existence of a duty of care:

it has never been a requirement of the law of the tort of negligence that there be a particular antecedent relationship between the defendant and the plaintiff other than one that the plaintiff belongs to a class which the defendant contemplates or should contemplate would be affected by his conduct. Nor has it been a requirement that the defendant should inflict the injury upon the claimant ... In cases of personal injury, it suffices that the activity of the defendant has given rise to the situation which has caused the injury to the plaintiff. Where the defendant is involved in an activity which, if he is not careful, will create a foreseeable risk of personal injury to others, the defendant owes a duty of care to those others to act reasonably having regard to the existence of that risk.

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