Careless words cost … a lot

The Court of Appeal has recently concluded that there is no reason in principle why a professional agent of an employer cannot become liable to a contractor for negligent misstatements made by the agent that induces the contractor to tender.

Although the judgment was effectively a restatement of established law, its application to a tender is particularly relevant to the construction industry.

The court gave a timely reminder that if a statement is made negligently during the tendering process and a party relies on that statement to its detriment, this could give rise to a claim for loss or damage.

The case concerned the development of a site in Nottingham. Castle Wharf retained Gleeds, a QS, to act as its agent and to co-ordinate the development and to pass information to the contractors. Castle Wharf retained Franklin Ellis to act as architect for the project.

Jarvis was one contractor that tendered for the project. At the time the tender documents were issued, the design included certain elements that had not been approved by the planners. Gleeds made representations to Jarvis that the project would receive planning permission. This was incorrect. Jarvis was successful in its tender and was appointed contractor.

A key fact was that in October 1996 Franklin Ellis provided Jarvis with copies of drawings and correspondence with planners. Those documents effectively revealed that the project did not have planning permission in all respects. Jarvis had a number of meetings with the planners, who expressed unfavourable views on the project, warned Jarvis that planning permission had not been obtained and told it that it proceeded at its own risk.

Negotiations with the planners were not successful. In April 1997, the planners issued an enforcement notice to stop the works.

In May 1998, Jarvis issued proceedings against Castle Wharf, Gleeds and Franklin Ellis seeking relief in relation to preliminary issues of liability. Jarvis succeeded at first instance. The action against Gleeds was based on the tort of negligent misstatement.

The judge accepted that a duty was owed and concluded that:

• Representations had been made by Gleeds
  
• The representations were made negligently
  
• Jarvis had relied on the representations
  
• As a result of relying on the representations, Jarvis had suffered loss and damage.

Gleeds appealed.

The duty of care alleged by Jarvis was of the type in Hedley Byrne & Co vs Heller & Partners Ltd [1964, AC 465] – that is, a duty in relation to the provision of information upon which the provider knew or ought to have known that the recipient would rely.

The Court of Appeal stated: "The position, as it appears to us, is this: there is no reason in principle why the professional agent of the employer cannot become liable to a contractor for negligent misstatements made by the agent to a contractor to induce the contractor to tender, if the contractor relies on those misstatements. But whether a duty of care in fact arises in any given situation must depend on all the circumstances, including in particular the terms of what was said to the contractor."

The court assumed, without deciding, that Gleeds had breached that duty of care. It accepted that Jarvis relied on the misstatements in making the tender offer. However, no contract had been entered into between Jarvis and Castle Wharf and Jarvis was free to walk away at any time – once it knew the true position.

Franklin Ellis had provided Jarvis with copies of the correspondence with the planners and drawings. Furthermore, Jarvis was an experienced design-and-build contractor and ought to have discovered the actual planning position.

The Court of Appeal found that, by the time Jarvis commenced work, it was aware of the true position and did not rely on the misrepresentations made by Gleeds.

This decision is a restatement of the rule established in Hedley Byrne vs Heller. It is a sober reminder of the duties on professional advisers during the tender period and reflects a growing readiness by courts to impose duties on parties. offering advice.