A servant may have but one master

Terry Fleet's article summarised the differences between the two standard forms of novation agreement which have recently been published (16 April, page 50). To summarise his summary, the standard documents from the City of London Law Society and the Construction Industry Council differ in two ways: on the duties the consultant should owe to the employer and contractor before and after novation; and on the contractor's ability to pursue damages from the consultant in the event of a pre-novation breach. Both forms are a response to the disarray in the world of design and build caused by the infamous Blyth & Blyth case (type the search term into Building's internet archive for a full three-year history of this case).

In this article I want to explain why the CIC has in its form avoided incorporating the fiction that the contractor is to be treated as if it were the consultant's client from the beginning (the "novation ab initio" approach of the CLLS).

A consultant needs to know who its client is at any time, and thus whose interests it is to protect. The interests of a design-and-build contractor and an employer are different. Although they both want to see the project completed on time, within budget and without defects, it is the employer's interest as building owner or developer to maximise what it can obtain for what it spends. The contractor wants to win the tender but also wants to make a profit. It also wants to be sure that it has understood the risks and the assumptions made in the tender documents. In particular, it wants to understand the risks in relation to the consultant's design, so that it can correctly price for these in its tender.

I came across a situation recently where it had been agreed from the beginning of the project that the consultant would later be novated to the contractor on the "ab initio" basis. The appointment contained duties prior to novation to support the preferred contractor and provide it with information and co-operation until the building contract was signed.

Specifically, the consultant was obliged to agree information for the preparation of a detailed cost plan, provide further design and cost information to the contractor and information for subcontractor packages. It also had to agree with the contractor the schedules for release of information during this stage and the construction phase.

All this would obviously place the consultant under a positive duty to protect the interests of the contractor at a time when it is also meant to be protecting the interests of the employer. Not surprisingly, this puts the consultant in an impossible position. But it is also against the interests of both the employer and the contractor, even if they are both fully apprised of the inherent conflict of interest (as they clearly should be). Any solicitor that attempted to represent two parties with potentially different interests would soon find itself in front of the solicitors' disciplinary tribunal.

More often, however, the situation is that the consultant has not given, or been expected to give, any formal advice to the contractor prior to being novated. In this scenario, it would obviously be quite wrong to judge the actions of the consultant prior to novation on the basis that the contractor had in fact been its client.

For example, the consultant has had no opportunity to consider with the contractor what allowances and assumptions it has made in relation to the design in formulating its tender price, nor had any conversations with the contractor as to how far the design may or may not have been complete.

In these circumstances, the "ab initio" assumption would treat a professional person as though they were acting for a client at a time when not only was the person not acting for that client, but was in fact acting for an entirely different client with different interests.

The form of agreement published by the CIC therefore seeks to ensure that the consultant can only be liable for a breach of duty owed to the client by which it was engaged at the time of the breach. The agreement does not leave the contractor without a remedy for breaches of duty prior to novation, if the contractor has suffered loss as a result of such a breach, but only if it was a breach of a duty owed to the employer.