No contract – no claim: the importance of collateral warranties in construction projects
A recent Technology and Construction Court decision has confirmed a duty of care was not owed by a third party design consultant to a main contractor on a multi-party construction project.
The judgment in Multiplex Construction Europe Ltd (the main contractor) v Bathgate Realisations Civil Engineering Ltd (the sub-contractor) & Others has provided some unsettling authority for those considering legal action against third party consultants engaged on construction projects, and serves as a careful reminder to ensure collateral warranties are in place across the supply chain.
The main contractor on this project was engaged to design and build a large scale development at 100 Bishopgate in London and passed down those obligations to the sub-contractor in relation to various concrete works. In performing its obligations, the sub-contractor engaged several third parties, but none directly contracted with the main contractor.
RNP Associates Ltd (the consultant) was one of those third parties, and was engaged directly by the sub-contractor to "check" designs for the contracted works. To this end, the consultant provided certificates to the sub-contractor. The main contractor later claimed those certificates included multiple warranties, which were only provided to the sub-contractor as agent for the main contractor.
The main contractor discovered defects in the sub-contractor's works, which resulted in around £12 million of losses being incurred. The main contractor sought to recover those losses from various parties, including the consultant's insurer, Argo Global Syndicate (the consultant's insurer), as the consultant was in liquidation.
The main contractor's claim included allegations of negligence, negligent misstatement and breaches of warranties, which the main contractor alleged were provided for its benefit (in the certificates provided to the sub-contractor).
No contract – no duty of care – no claim
In order to succeed in its claim, the main contractor needed to establish that it suffered financial loss as a result of a specific duty of care and/or contractual obligations being owed to it and breached by the consultant.
To this end, the Court considered two preliminary issues:
- did the consultant owe a duty of care to the main contractor; and
- did the consultant provide any warranties to the main contractor during its appointment (so as to establish a contractual relationship)?
The Court decided that the answer to both issues was no, and the claim against the consultant's insurer was dismissed.
- It was found that neither of the following existed here:
any relevant direct engagement between the consultant and the main contractor; and
- any evidence that any warranties were provided for the main contractor's benefit.
To impose a duty of care or contractual liability upon the consultant here would, Mr Justice Fraser suggested, "short circuit" existing contractual relationships on the project between sub-contractor and consultant, sub-contractor and main contractor, and main contractor and the developer.
Gaps can sometimes exist in contractual relationships, which can leave a party without a remedy to pursue when loss occurs, but can in certain circumstances be filled by the Court imposing a duty of care in the law of tort (in the absence of contractual obligations). If loss is suffered as a direct result of an imposed duty being breached, an actionable remedy will accrue against that party. However, despite contentions to this effect from the main contractor, the Court did not consider that there were any gaps to fill here given the carefully structured contractual relationships at all levels of the supply chain on this project.
The scope of the consultant's involvement on this project, and any engagement with the main contractor, was notably limited. It remains to be seen whether there would have been a different outcome in Court if relationship lines were less clearly drawn across the supply chain. Based on the facts, this judgment may well be a "sensible and just outcome" (as described by Mr Justice Fraser himself), and no doubt will offer comfort to third party consultants and insurers. However, the case provides food for thought for those parties without contractual ties to members of the supply chain on projects they are (or have been) engaged on.
It serves as an important reminder for parties engaged on construction projects to ensure their contractual relationships are clearly defined, and to make it a condition of any contract with downstream contractors that any third parties engaged by them are required to provide collateral warranties for their benefit in order to protect them in the event that any loss is incurred as a result of their performance on the project.