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22 JUL 2020

ASSUMPTIONS OF RESPONSIBILITY AND THIRD PARTIES

Brunel Professions on how you are liable even if the identity of a third party is unknown

A recent case has affirmed the principle that a professional can be liable for a third party’s reliance on their work, even where they didn’t know the exact identity of the third party, and perhaps surprisingly, even when the third party did not exist at the time that the professional performed the work.

The case was Valley Brook Investments Ltd and another v Huam Ltd [2020]. The professional involved was an architect, but the underlying principle applies to any professional.

The architect had produced a set of drawings regarding the feasibility of converting an existing office structure into residential flats. The number of flats that could be included in the building was key to its development potential. The architect had an appointment with the then owner of the office, who was in the course of selling the property.

The architect was subsequently approached by a potential buyer, who advised that if he proceeded, he would set up a SPV company to purchase and develop the property. The buyer had been given the architect’s drawings by the seller, and wanted to discuss the project with the architect.

It appears that the architect was keen to be involved in this project, and perhaps these commercial considerations played a role in what happened next. The architect discussed the project and supplied the buyer with a further copy of the drawings.

There was some dispute in the case regarding the extent and purpose of the discussions. The buyer alleged that he had sought assurance from the architect that the development could contain a minimum of 16 flats. The architect denied this, and maintained that the conversations were much more superficial in content.

The architect had made a telephone note, but the content was largely jottings of names and key words, rather than a fuller note of the actual matters discussed. The architect had only made a single telephone note, but the buyer was later able to demonstrate from mobile phone records that in fact three conversations had taken place over the course of the day.

Ultimately it came down to the architect’s word against the buyer’s, and the judge had to decide which version he thought was more probable to be the case. The judge’s comments on contemporaneous documentation are a useful reminder of the approach that the courts take in such cases involving a professional.

“....Both of those gentlemen were markedly nervous in the giving of their evidence. I am satisfied that each of them was seeking to give his honest recollection of what was said. They were, however, giving evidence in March 2020 about a conversation or conversations which had taken place just over four years before. In addition I have to be conscious of the fact that each gentleman was inevitably recollecting matters from a particular viewpoint. I also have regard to the common human capacity and tendency for a witness genuinely but mistakenly to recollect past events as having actually happened in the way in which the witness now with hindsight believes they would, or indeed should, have happened. In the light of that my conclusion as to what happened on 2nd February 2016 must be reached by assessing their evidence through the prism of the contemporaneous documents and of inherent likelihood. The impression made by the demeanour of a witness must be set against those matters and to the extent that the contemporaneous documents in particular show a picture different from that depicted by a particular witness it is the former and not the latter which I should normally regard as more likely to be an accurate account of what happened . In this case the direct documentation in respect of the conversations on 2nd February 2016 is markedly sparse. It is limited to .... (a) very short attendance note and the telephone records which I have summarised above. Some limited assistance can, however, be derived from the contents of the subsequent emails...

...The attendance note taken...was sketchy. It amounted to the jotting down of a name and some limited details. That is an understandable course but it does mean that the note cannot be relied upon as a contemporaneous record of the conversation as a whole in the same way as a more detailed attendance note might have been.”

The judge decided that the number of flats which could be created had been discussed, and this, coupled with the submission by the architect of the drawings to the client, created the framework for reliance and responsibility on the part of the professional to have arisen.

The key components of this are the relationship between the parties, that reliance must be reasonable, and that it must be reasonably foreseeable by the professional that the information would be relied on.

A key question was then to whom the duty was owed. Both the SPV and the buyer had brought the claim against the professional, but the SPV did not exist at the time that the conversations had taken place and the drawings had been sent.

The judge held that reliance by the SPV was foreseeable. The wider point thereby affirmed was that if it was reasonable, and reasonably foreseeable by the professional that an identifiable category of third party would rely on the information in the future, then the actual identity of the third party being known, or even their existence at the time, was not necessary; rather the existence of the third party is necessary at the time that the right to bring a claim arises.

This led to the perhaps counter-intuitive position that the judge denied that a duty was owed to the buyer (the actual person who received the drawings) and found that a duty was owed to the SPV (which didn’t exist at the time). The rationale was that the conversations with the buyer were in the context of the creation of a future SPV, and hence the reliance which was reasonably foreseeable was by the SPV.

The case is an unsettling reminder that duties of care can be created relatively informally, and as such, a very important reminder of the importance of record keeping in determining what actually happened, and therefore the parameters of any such duty which is created.

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James  Burgoyne

James Burgoyne

Director - Claims & Technical

James joined Brunel in 2009 and heads up the Technical and Claims Department. As well as representing Brunel on the ACE PII panel, he writes occasional pieces for us on insurance, risk and associated topics.

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