Be clear who your client is.
RSK Environment v Hexagon Housing (High Court) [2020]
Claims for damages can be brought both for breach of contract and, in tort, typically for negligence i.e. a failure to exercise reasonable skill and care in circumstances where a duty of care is held to exist. Often, claims in both contract and tort subsist in parallel but the right to bring a claim for negligence can exist independently of there being any contract in place between the claimant and defendant provided a duty of care is held to exist. The question to be answered here was whether limitation clauses in a contract applied to a claim brought by an entity that was not a party to the contract in question?
Facts:
The consultant (‘RSK’) was engaged by a developer, Skillcrown, to provide a ground condition report on a development site. A proposal was issued by RSK to Skillcrown which Skillcrown formally accepted. The terms of appointment, which explicitly incorporated RSK’s standard terms of business, included significant limitations of liability.
RSK’s formal report was issued in April 2014 to the developer and the site's prospective purchaser, Hexagon, who were jointly identified as the "client" in the report. The report’s introduction stated that Skillcrown and Hexagon had jointly commissioned the report. The report referred to the terms of the appointment but did not recite them. There was no evidence that Hexagon ever saw the terms of the appointment or agreed to be bound by the terms and conditions referred to in the proposal.
Hexagon acquired the site in June 2014 and a major ground collapse occurred in May 2016.
Following the ground collapse, Hexagon claimed damages from RSK based upon negligence (‘failure to exercise reasonable skill and care’), alleging that the limitations of liability were irrelevant because it had no contractual relationship with RSK. Hexagon asserted that RSK assumed responsibility to it even in the absence of any contract between them. RSK sought a declaration that any common law duty of care was defined by reference to the terms of the appointment, including its limitations of liability.
There was no evidence before the court that Hexagon ever received a copy of RSK’s standard terms that contained the limitation clauses. Hexagon submitted that if there had been a contract between the parties, these terms would not bind Hexagon for failure of reasonable notice, per the well-known law of incorporation.
RSK maintained that a contract was validly formed between itself and Hexagon and argued that, in all the circumstances, the parties intended the limitations of liability to apply to any responsibility that RSK had assumed. RSK maintained that even where there is no direct contract between A and B, the nature and scope of A's duty of care to B may be determined by the terms of A's professional retainer with C.
Decision:
The judge reviewed key authorities regarding the so called ‘assumption of responsibility’ and concluded that they all served to emphasise the importance of the factual / contractual matrix. That was problematic in this case as the factual matrix was disputed. Because of the preliminary nature of the proceedings, the court refused to make any declarations. The relevance and impact of RSK’s standard terms of business will therefore have to be resolved at a subsequent trial
Points to Note:
- The facts of the case highlight the risk of addressing a report to multiple parties in circumstances where the original proposal (including the contract terms) was only issued to and accepted by one entity. Whatever the ultimate conclusion, RSK made a fundamental error in agreeing to identify Hexagon as a ‘client’ without getting a clear acknowledgement from them that they were bound by the terms of the original proposal, including RSK’s standard terms of business. Those issuing professional reports or, indeed, entering any form of contract, would be well advised to review procedures so as to ensure that limitations of liability are effective against any client entity who may be able to claim that a duty of care existed, particularly where there is some form of assignment of ownership interest as occurred here.