Are construction contracts worth the paper they’re written on?

Two recently reported cases highlight the importance of contractual arrangements in construction disputes.

Williams Tarr Construction

In Williams Tarr Construction Limited (WTC) v Anthony Roylance Limited (ARL) & Anthony Roylance, the design and build contractor’s claim failed due to a lack of clarity about the terms of the civil engineer’s appointment. WTC’s claim assumed that they had contracted with Mr Roylance personally. Mr Roylance argued that the contract was with his limited company who WTC paid for the services provided. However, the court found that he had made a deliberate decision to ensure that his limited company was not referred to on any of his correspondence which led it to determine that the appointment was a personal one.

Since the contract was evidenced by an exchange of emails only, the court then had to determine the scope of Mr Roylance’s personal obligations. The most “natural interpretation” of those emails significantly limited the scope of Mr Roylance’s contractual obligations. Problematically, WTC had not alleged that any of those limited obligations had been breached or performed negligently. Therefore, while Mr Roylance was found to have assumed contractual obligations in his personal capacity, he escaped liability because WTC was unable to prove he had breached the contract.

BDW Trading

In BDW Trading Limited (BDW) v Integral Geotechnique (Wales) Limited (IGL), the purchaser of a site failed in its attempt to pursue a consulting engineer who had prepared a report for the vendor. The benefit of the report was not assigned to BDW as part of the purchase. Interestingly, there was a pre-existing relationship between the parties under which BDW had contacted IGL to seek express written agreement to rely on their reports on several previous occasions. That did not occur on this occasion, which was fatal to BDW’s claim.

In the absence of a contractual relationship, BDW had to establish the existence of a duty in tort. IGL’s report stated that it was prepared for the vendor’s sole use and that it could not be assigned without consent.When IGL were contacted by BDW about the report, IGL did not communicate any objection to BDW and indeed would have agreed if asked. However, the court determined that where IGL was not asked to, nor did it agree to BDW placing legal reliance on its report, and where the report expressly excluded third party rights, a duty of care could not exist. BDW had failed to take steps to protect its interests at the outset of the matter and its claim failed as a result.

What can we take from these decisions?

1.  Those at the top end of the contractual chain, including main contractors, should:

• Ensure a contractual link is established. Evidencing the clear terms of a written contract and ensuring contracts (and even reports as in the BDW case) are properly assigned or novated is essential. Establishing a tortious duty of care in a construction context is far from straightforward.
• Consider whether to have a simple contract or a deed. If a main contractor has entered into a deed with its client, it should ensure that its subcontracts are also written as deeds. A deed requires certain formalities to be completed and cannot be implied if not in written form and properly executed. A contract executed as a deed extends the period for bringing a claim from 6 to 12 years, generally from Practical Completion, so you must ensure your subcontracts are executed as deeds and contain the same limitation period.

2.   Subcontractors and consultants should not rest easy:

• Mr Roylance was found to have assumed a personal liability despite having set up a limited company to protect his interests. Clarity about who is entering into the contract is key. A different judge might have taken a different view about the scope and terms of Mr Roylance’s contractual obligations potentially resulting in him being personally liable. He would no doubt have been hastily checking the terms of his insurance policy in that event.
• Think about what you are agreeing to do and expressly exclude liabilities for what you are not. IGL were able to rely on a term which prevented anyone but their client from relying on their report and prevented any assignments without their express consent. Mr Roylance avoided liability, perhaps by the skin of his teeth, because the scope of his services had been limited and did not include responsibility for the problematic defects. The architect in West v Ian Finlay & Associates (2014)had a net contribution clause which meant it was only liable for losses which were just and equitable based on their responsibilities rather than the entire claim. The consultant in Persimmon Homes Limited v Ove Arup & Partners Limited (2015) successfully excluded liability for losses arising out of asbestos contamination. Provided such exclu