A slippery slope

In my article of 21 April I considered the effect of an assignment by a client of the rights under a contract to a purchaser of the property or site. The point was that the purchaser may be able to sue the original contractor and the original consultant.

The case of Offer-Hoare vs Larkstone Ltd, decided in the Technology and Construction Court last year, shows how the principles set out in that article can apply to reports produced by consultants and others.

The case concerned a site investigation carried out by a company called Technotrade, into the stability of a site prior to it being developed. The company that engaged Technotrade later decided not to carry out the development and sold it to another developer, with the benefit of the planning permission that had been obtained with the assistance of Technotrade’s report. The purchaser acquired Technotrade’s report and used it in connection with a further planning permission and proceeded with the development. During the development a landslip occurred.

The landslip caused damage to houses uphill from the area of the slip and led to stabilisation works being carried out. The claims of the houseowners for damage to their property amounted to about £88,000, and the cost of the stabilising work was in excess of £800,000.

The purchaser wanted to make a claim against Technotrade. The original client agreed to assign to the purchaser the benefit of its contract with Technotrade under which the report was produced.

It was now more than four years since Technotrade had prepared its report and completed its services for its client, and nearly four years since the client had sold its interest in the site to the purchaser. It was more than a year since the landslip. In return for the assignment, the purchaser agreed to pay the client one half of any money it recovered from Technotrade, after deduction of costs.

Consultants and others can become liable in tort to third parties to whom their reports have been passed

The judge made the following findings on preliminary issues:

• The assignment was valid, and so the benefit of any claim for breach of contract against Technotrade arising out of the latter’s investigation and report was passed to, and could be pursued by, the purchaser.
• The argument that the client had suffered no loss as a result of any such breach, having sold the site for full value, was rejected. The client’s claim, which had been assigned, was a claim for substantial damages, notwithstanding the sale.

The judge also considered whether the client had a separate claim in tort against Technotrade, but decided it did not, as the landslip had occurred after the client had sold the site and therefore no such claim could be assigned.

The judgment is also a reminder that consultants and others can become liable in tort to third parties to whom their reports have been passed, independently of their original contracts and even though no fee has been paid.

In this case, however, the judge decided there was no independent duty of care in tort owed by Technotrade to the purchaser in respect of economic loss. This was because Technotrade did not know at the time of its report that the development would be carried out by another party, to whom its report would be passed, or that its report would be “recycled” in connection with a further application for planning permission.

The moral of all this? Consultants need to be careful about agreeing to the use of their reports by anyone other than their original client without assessing the liabilities they could incur as a result.