The importance of contractual nexus

Duty of care in tort not established in favour of main contractor from third party sub consultant

There has been an reminder of the importance of collateral warranties and third party rights from relevant parties involved in construction projects in the recent case of Multiplex Construction Europe Ltd v Bathgate Realisations Civil Engineering Ltd & Ors [2021] EWHC 590 (TCC) (16 March 2021) (bailii.org).  The case demonstrates that it is in practice, very difficult to bring a claim in tort against a party to a project in the absence of a contractual relationship, particularly in the context of a large project where the contractual relationships have been carefully structured.

In this case, Multiplex engaged Bathgate in relation to the 100 Bishopsgate project in the City of London. The defendant subcontractor, Bathgate, had design responsibility both for the concrete core and for the temporary slipform rig works. Bathgate had engaged a consultancy called RNP to provide design checking service and specifically to provide "Category 3 checks". Both Bathgate and RNP had become insolvent.  After Bathgate's liquidation, it was discovered that the slipform rig was defectively constructed and Multiplex had to have this replaced.  Multiplex had obtained default judgment against Bathgate for the defects but it also wanted to make a claim against RNP's insurers, Argo, under the Third Party Rights Against Insurers Act 2010 in respect of the losses it suffered (which including replacing the slipform rig, and taking other remedial steps). This formed part of a £12 million claim against RNP's insurers.

The issue in the case was: did RNP owe any duties and/or obligations to Multiplex in respect of certain certificates in connection Category 3 checks provided by RNP to Bathgate? 

The clear answer was no.  In reaching this conclusion, Mr Justice Fraser considered the following legal tests/principles: 

• the assumption of responsibility test (under the principles set out in Hedley Byrne & Co v Heller & Partners Ltd [1964] AC 465 and Henderson v Merrett Syndicates Ltd [1994] UKHL 5; [1995] 2 AC 145)
• the three-part test (i.e. 1) reasonable foreseeability of the economic loss 2) proximity and 3) fairness, justice and reasonableness as set out in Caparo Industries plc v Dickman [1990] UKHL 2, [1990] 2 AC 605)
• a free standing duty of care
• negligent misstatement.

Mr Justice Fraser determined that whichever test applied the answer was no.  This was for the following reasons:

• There was direct contractual responsibility for design of the temporary works from Bathgate to Multiplex.  However, there was no direct contractual link between RNP and Multiplex. Just because Bathgate had become insolvent did not open the door to create a liability on the part of RNP when this had not been previously envisaged.
• The project had a large number of participants and a complex contractual structure.  The relationship between Bathgate and RNP sat entirely separate from that contractual matrix. To find that there was an assumption of responsibility on the part of RNP direct to Multiplex would "short circuit the contractual relations".
• The role fulfilled by RNP was limited to performing a Category 3 check upon the design that was produced by the entity with design responsibility.  The purpose of the Category 3 check was to comply with the requirements of the British Standard so that Bathgate could comply with its own contractual obligations. No services were provided directly to Multiplex by RNP. RNP did not assume responsibility for the accuracy of the information in the certificates to Multiplex but provided these to Bathgate simply to allow Bathgate to comply with its own design responsibility under the sub-contract between Bathgate and Multiplex.
• Multiplex as the main contractor would have a large number of other contractual obligations. RNP did not know the full extent of any of these obligations and had no way of finding out (and as such would not be able to anticipate the losses that Multiplex could suffer).  It would therefore not be just, reasonable or fair to impose a duty of care upon RNP of the type contended for by Multiplex. 
• It was inconceivable that a reasonable businessman would have considered that RNP was voluntarily assuming an unlimited responsibility towards the main contractor or any other party involved in the project other than the one with whom RNP was in direct contract. 

Mr Justice Fraser also commented on the policy considerations in terms of consequences in litigation and settlement. If a duty of care were to be imposed, this would open the door for the main contractor to bring in other entities directly with whom it has never had direct contractual relations. This would complicate proceedings and also increase insurance premiums.

When members of the supply chain become insolvent, this can cause difficulties if a problem such as a defect emerges. It is logical that a client will look to see "who else" would be an attractive target for a claim. However, in the absence of a contractual relationship and save in exceptional circumstances, this case is a reminder that the hurdles to overcome for a claim in tort to succeed are unlikely to apply in the context of a complex construction project.  It is important for employers/main contractors to ensure they are satisfied with the collateral warranties and performance security provided by the supply chain on a case by case basis. In this case, it would have been unlikely that the main contractor would have initially requested a warranty from RNP or that RNP would have agreed to this given their limited role (and the limited fee they were receiving).  However, on a large complex projects such as this, it demonstrates that each parties' role, however small can have significant consequences to be considered and managed as appropriate.