Only yourself to blame

As regular readers will know, John Stirling has already written about the particular type of losses Carillion could not recover in the Blyth & Blyth case (29 June, page 50). Rattled contractors are now trying to get consultants to sign agreements that could enable them to recover losses in a similar situation. This may be the wrong approach.

The Blyth case concerned a leisure centre in Scotland. The client had engaged Carillion to build it on a fixed-price design-and-build contract whereby Carillion took on liability for engineer Blyth & Blyth's design, prepared before Carillion signed. Carillion had under-tendered because of allegedly inaccurate or insufficient information in the employer's requirements provided by the engineer. Its claim against the engineer failed because, said the courts, that would mean retrospectively changing the duty owed by the engineer to the employer. Liability depends on establishing to whom a duty is owed and the scope of that duty.

It is perfectly possible for a consultant to be in breach of its duty to the employer and for the employer to suffer no loss as a result. But then, if this is the situation, has the consultant been in breach of duty at all? Was the loss suffered (though not by the employer) of a kind that the consultant was under a duty to the employer to avoid? If it wasn't, there has been no breach on the part of the consultant, so the consultant has not been negligent and is not liable.

Suppose the loss was of a kind that the consultant was under a duty to the employer to avoid and that, as it happens, it had to be borne by the contractor. An example is a defect in the design brought about by a miscalculation of loadings. There seems to be a view that the contractor would not be able to recover such losses from the consultant under a contract similar to that in the Blyth case. But the case does not go that far. Having accepted that the novation agreement did not alter in any way the consultant's duty to the employer, the judge said that it was inconsistent for Carillion to argue that the contractor became entitled to recover losses that could not be categorised as any loss suffered by the employer (my emphasis).

If contractors think they can pass risk on to the employer’s consultants, I suspect they will be disappointed

The only way in which contractors can claim for these sort of losses is, as the judge put it, somehow to recast retrospectively the scope of the duty owed by the consultant to the employer. This, in reality, is an impossible task. Even if it were possible to impose on a consultant, at the time that it is working for the employer, a separate duty owed to the contractor, this could place the consultant in the impossible situation of endeavouring to serve two masters whose interests may well be in conflict. The tension between two such duties was the point to which the judge kept returning in Blyth.

Contractors (and employers) who attempt to create such a situation could be treading a dangerous path. A court straining to make commercial sense of the contract could do so by interpreting the scope of duty owed both to employer and contractor, in any given situation, in a minimalist way, so as to avoid the potential for conflict of interest.

Contractors are in danger of fighting the wrong battle. The problem in the Blyth case arose because contractors have been willing to accept the risk of deficiencies in the design as though this were a proper design-and-build contract. In truth, this is a hybrid between the traditional form of contract, where the contractor has no liability for design, and a proper design-and-build contract, where the design is prepared by the contractor and its consultants from the outset.