Strained relations

Since the Court of Appeal decision in Pacific Associates Inc v Baxter (1988) 16 ConLR 90, it has generally been assumed that the court will deny the contractor a right of action against an allegedly negligent architect or engineer whose under-certification causes loss to the contractor. But it may be that the scene is changing, and liability in tort is once again coming to the fore.

Last year saw some significant cases on liability for negligent misstatement, and the way is now open for more actions based on the 'reliance' principle of Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465. Indeed, the architect/ engineer and contractor relationship has always seemed to me to be a classic example of 'reliance'.

The construction professional holds himself out as such, and the industry's certification procedures are based on the certificate and other decisions under the contract being made by a professional. Further, as van Deventer says (Law of Construction Contracts, 1993, page 223): 'It is obvious that in contracting, the contractor relies on this professional, that he will not act negligently in making his professional judgments; and in making each application for a certificate this reliance continues.'

Such a simple analysis did not appeal to their Lordships in Pacific Associates who regarded 'the contractual structure' as being the central feature. That contractual structure, so they said, precluded liability and meant that the contracting parties had only their contractual rights against each other. Like Lord Simon in Arenson v Arenson (1977) AC 405, I have always believed that the primary role in one of responsibility.

Be that as it may, last year saw Judge Cyril Newman's decision in Conway v Crowe Kelsey & Partners (1994) 39 ConLR 1, which upheld the principle that a professional man may owe concurrent duties to his client both in contract and in tort. In that case, consultant engineers were sued by their clients for alleged negligent investigation into structural damage arising from heave under the plaintiffs' property and advice as to the necessary remedial and preventive work which resulted, so it was alleged, in the Conways suffering pure economic loss. The contractual claim was statute barred.

Among other things, the judge held that the relationship of professional and client is one of reliance. 'The relationship of professional and client creates a relationship of reliance if not dependence in which the client is less able to assess the nature of the quality of the product (advice or a service) than in the case of a supply of goods. [The relationship] is generally closer than that of mere supplier and consumer or vendor and purchaser... The client relies on the professional and her/his professed expertise.'

Judge Newman was proved to have adopted the correct approach by the decision of the House of Lords in Henderson & Others v Merrett Syndicates Ltd (1994) 3 AII ER 506, which is of general significance. The case concerned the claim made by Lloyd's 'names' against their Lloyd's underwriting agents.

The House of Lords applied Hedley Byrne and held the underwriting agents liable. Where someone assumes professional or quasi-professional services for another person who relies on those services, the relationship between the parties is itself sufficient to give rise to a duty to exercise reasonable skill and care in doing so. This does not depend on there being a contract between the parties and Hedley Byrne liability is not confined to the making of statements.

Interestingly, their Lordship held that 'indirect names were not prevented by the chain of contracts contained in the agency and sub-agency agreements from suing the managing agents in tort'. The 'contractual structure' was, accordingly, irrelevant.

The two leading judgments are masterly and, while Pacific Associates was not considered by the Law Lords, the tenor of the Henderson case casts serious doubt on the Court of Appeal's analysis. Certainly, it is now clear that there can be concurrent liabilities in contract and tort and the plaintiff can chose the remedy which is more advantageous to him.

All professionals are under this concurrent liability. As Lord Goff put it, 'as a matter of principle, it is difficult to see why concurrent remedies in tort and contract, if available against the medical profession, should not also be available against members of other professions, whatever form the relevant damage may take'.

In my view, the Court of Appeal's approach in Pacific Associates v Baxter can no longer stand. Their lordships assumed that the issue was a contractual one and the judgments appear to start off on the assumption that no liability exists. The relationship between the engineer/architect and the contractor is not subject to negotiation: the contractor has no choice but to accept the employer's nominee.

As van Deventer puts it (page 228), 'at the end of the day, the construction professional effectively controls the project. He wields enormous power over the contractor on a project, and his decisions can make or break a contractor.'

The presence or absence of an arbitration clause in the contract should not affect the position, although the availability of an arbitral remedy seems to have been a factor in Pacific Associates. The contractor may need additional safeguards - and as a long-stop, a tortious claim against a negligent construction professional provides him with that remedy. It is certainly available to him in other countries of the common law and it should be available in England as well.