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Legal Notes: British court looks contractual duty of care in the eye and declines to fill gaps

John Bleasby
Legal Notes: British court looks contractual duty of care in the eye and declines to fill gaps

Millions of dollars are at stake when something goes wrong during a construction project, followed by an urgent search for someone to pay any resultant costs. However, that’s much easier said than done when projects are complex and interlinked contracts are numerous. Unravelling the intricacies and pinning down reparations to a single party is fraught with challenges.

That was certainly the case in a U.K. dispute between Multiplex Construction Europe Ltd. and Dunne Building and Civil Engineering Ltd., a subcontractor responsible for the design and construction of core concrete elements.

Multiplex alleged Dunne’s concrete work was defective and that the slip form rig used was unsafe. A slip form is a constantly moving piece of equipment that permits the concrete core to be constructed incrementally.

Multiplex calculated their losses to be £12 million, about C$20 million, in the form of remedial work and delays. In an ideal world, Multiplex would seek reparation from Dunne.

For its part, Dunne had appointed specialty design and engineering firm BRM Construction LLC to design the slip form. 

However, Dunne had gone into receivership, and BRM was not within the jurisdiction of the U.K. Technology and Construction Court and was uninsured. Although Multiplex managed to obtain default judgments against both Dunne and BRM, that wasn’t going to bring them any money.

That meant looking farther down the chain to RNP Associates Ltd., the independent third-party Dunne had hired to design check the slip form undertaken by BRM. But RNP had also gone into liquidation. That left Multiplex believing their only course to recover their losses would be to leap-frog over Dunne, BRM and RNP and to proceed against RNP’s insurer, Argo.

The court denied Multiplex’s claim against the insurer. As described by Peter Stockill and Sam Mullender of Pennington Manches Cooper LLP, “There was no contractual link between Multiplex and RNP.”

In fact, the court noted this was a “consciously created framework” chosen in order to not establish a contractual relationship with one another. Since this type of contractual structure is, “an entirely conventional arrangement in a major construction project,” the court chose not to intervene, explain Stockill and Mullender.

In addition, Steve Nichol of U.K. law firm Duane Morris notes Multiplex suffered from a lack of evidence to support their case because they were pursuing Argo alone. Although Dunne and BRM were named as defendants, they did not participate in the proceedings.

“Faced with this complete lack of evidence, the court concluded that the agreement between Dunne and RNP was confined to its most basic and essential terms,” says Nichol.Nevertheless, Gowling WLG UK partner Ashley Pigott notes although Multiplex, “accepted that it had no contractual relationship with RNP, it still sought to maintain a claim that RNP provided a warranty to Multiplex. “

Justice Fraser found RNP did not provide any warranties to Multiplex in its certificates.

Justice Fraser also dismissed claims that certificates issued by RNP regarding the slip form constituted warranties to Multiplex.

“(I)t would go entirely outside (the) detailed contractual framework to construe statements by RNP within the certificates, or the certificates themselves, as constituting warranties given directly by RNP to Multiplex,” wrote Justice Fraser.

In other words, it is not up to the courts to fill any “gaps” in the duty of care between multiple parties, says Pigott.

“This judgment highlights the pivotal significance of the complex and intentional contractual framework. Establishing a duty of care in that context, where there is no contract in place, will always prove formidable.”

Nichol suggests risks could be mitigated by, “securing collateral warranties from everyone involved in the supply chain, particularly those involved in the design of temporary and permanent works, and ensuring that everyone in the supply chain responsible for design carries appropriate insurance.”

“That said,” he adds, “there’s not much that anyone can realistically do in contractual terms to protect against fraud by your contracting partners.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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