Project managers have already been castigated by the courts for failing to report defects and deficiencies in the work of other consultants, but a new vista of potential liability opened after the Court of Appeal's decision in J Jarvis & Sums Ltd vs Castle Wharf Developments Ltd, Gleeds Management Services Ltd and Franklin Ellis Architects Ltd on 19 January 2001.
The case is complex, relating to a prominent development in Nottingham with a high-profile pre-let to the Nottingham Evening News. Castle Wharf, the developer, retained Gleeds to co-ordinate the development and manage the tender process. It also retained Franklin Ellis as its architect, novating it to the design-and-build contractor, Jarvis, to whom a letter of intent was issued on 1 November 1996.
The dispute related to Jarvis' losses due to costs wasted and delays caused by an enforcement notice issued by the planners as construction proceeded. The development was, according to the planners, materially different from that for which permission had been granted, so work had to stop, causing a delay of well over 18 months before a new contract was agreed.
Jarvis claimed that Gleeds negligently mis-stated, during the tender period, the state of negotiations with the planners. Jarvis relied on those mis-statements and hence, Gleeds was liable for damages. The trial judge found in favour of Jarvis: Gleeds and Castle Wharf were both liable, Castle Wharf being responsible for Gleeds' mis-statements. The Court of Appeal did not. It acknowledged that the courts have been slow to recognise a duty of care to a contractor by a professional acting on behalf of an employer who has or is about to enter into a contract with the contractor. In this case, there was no contract between the employer and the contractor at the time of the alleged mis-statements. If there had been a specific negligent mis-statement, which the contractor had relied on, then, undoubtedly, a liability could arise. Whether a duty of care arises in any given situation depends on the circumstances, including, in particular, what was said to the contractor.
In the toing and froing, statements are made that may cross the line between fair negotiation and negligent mis-statement
The Court of Appeal was doubtful as to whether any real "representations" were made by Gleeds: a statement, for example, that the planning officers had rejected two potential changes might lead to an "inference" that others accepted, but this was not expressly stated to Jarvis. Inferences could not trigger liability – there must be a "statement".
Jarvis also had difficulty proving reliance: its architect had met with the planners and was clearly aware of some of the problems. And, as the Court of Appeal emphasised on a number of occasions, as a design-and-build contractor, Jarvis was expected to have some knowledge of planning issues. The Court of Appeal also had difficulty understanding Jarvis' true loss arising from any alleged negligent mis-statements.
The case emphasises the need for extraordinary care not just by the employer in post-tender negotiations but also by his team. In the toing and froing that inevitably ensues, statements are routinely made that may prove to have crossed the line between fair negotiation and negligent mis-statement.
For the architect Franklin Ellis, the planning negotiations proceeded as part of a continuous process. However, the difference was that, before 1 November 1996, its client was the developer and after, the contractor. The case emphasises the need for the architect to consider in such circumstances whether its new client is sufficiently aware of all of the issues that arose before the novation. Although the court accepted that Franklin Ellis was only under a duty to advise Jarvis on planning matters if asked to do so, this finding was largely based on the fact that Jarvis was aware that it was starting building works without the planners' approval and this was a big risk. There are other circumstances in which Franklin Ellis could have been held responsible by the courts, for example, if its advice about aspects of the design being novated to the contractor was ignored. It should repeat that advice to avoid liability following novation.
Postscript
Ann Minogue is a partner in solicitor Linklaters.
