Pacific Associates Inc v Baxter
[1990] 1 QB 993
Independent editorial summary — not the official judgment. Read the full judgment via the source link.
Ratio Decidendi
An engineer engaged by the employer to supervise construction work and certify interim payments owes no duty of care in tort to the contractor for economic loss caused by negligent certification or rejection of claims, at least where the contractual structure gives the contractor its own avenue of recovery against the employer and is inconsistent with the assumption of any additional responsibility. Whether such a duty arises cannot be answered in the abstract: it depends on the factual matrix, and especially the contractual structure, against which the parties came together.
Facts
The contractor claimed damages in negligence against the engineer retained by the employer under a construction contract. The engineer was expected to supervise the construction and to certify the interim value of the work for payment as the work proceeded. The contractor alleged that the engineer's failure to certify, and the rejection of its claims under the construction contract, had caused it economic loss. There was no direct contractual relationship between the engineer and the contractor; under the contract the contractor could challenge the engineer's performance by claiming against the employer for sums due, including extra expenses and interest, and the contractor had tendered on the full terms of the proposed contract.
Judgment Summary
The Court of Appeal held that no liability could be established in tort under which the engineer owed a direct duty to the contractor in the circumstances of the case. Purchas LJ emphasised that this conclusion depended on the particular circumstances, not least the contractual provisions which afforded the contractor an avenue to recover from the employer, and saw no justification for superimposing an additional tortious liability on that contractual structure. Although there was a degree of proximity, in that the contractor relied on the engineer performing its supervisory duties, it was not proximity of the quality needed to found a Hedley Byrne duty. The court also held that a clause excluding the responsibility of one party to a third party should be taken into account where the contract in question was the basis for the creation of the alleged duty of care.
Key Quotes
"…from the policy point of view there may be a useful analogy, namely that where the parties have come together against a contractual structure which provides for compensation in the event of failure of one of the parties involved the court will be slow to superimpose an added duty of care beyond that which was in the contemplation of the parties at the time when they came together…However, I believe that in order to determine whether a duty arises in tort it is necessary to consider the circumstances in which the parties came together in the initial stages at which time it should be considered what obligations, if any, were assumed by the one in favour of the other and what reliance was placed by the other on the first. The obligations do not, however, remain fixed subject only to specific variations as in the case of contract."
— Purchas LJ at 1010F–1011A, as quoted by Akenhead J in Galliford Try Infrastructure Ltd v Mott MacDonald Ltd [2008] EWHC 1570 (TCC) at [187](verbatim, verified against the judgment)
"It is immediately apparent that there is no simple unqualified answer to the question: "Does the engineer owe a duty to the contractor in tort to exercise reasonable skill and care?" but that this question can only be answered in the context of the factual matrix including especially the contractual structure against which such duty is said to arise."
— Purchas LJ at 1011E, as quoted by Akenhead J in Galliford Try Infrastructure Ltd v Mott MacDonald Ltd [2008] EWHC 1570 (TCC) at [187](verbatim, verified against the judgment)
"I have come to the conclusion…that no liability can be established in tort under which the engineer owed a direct duty to the contractor in the circumstances disclosed in this case. I emphasise, however, that in coming to this conclusion it does depend on the particular circumstances of the case not the least of which were the contractual provisions in the contract which afforded an avenue enabling the contractor to recover from the employer. I see no justification for superimposing on this contractual structure an additional liability in tort as between the engineer and the contractor."
— Purchas LJ at 1023A–D, as quoted by Akenhead J in Galliford Try Infrastructure Ltd v Mott MacDonald Ltd [2008] EWHC 1570 (TCC) at [187](verbatim, verified against the judgment)
"…where obligations are founded in contract they depend on the agreement made and the objective intention demonstrated by that agreement whereas the existence of a duty in tort may not have such a definitive datum point. However, I believe that in order to determine whether a duty arises in tort it is necessary to consider the circumstances in which the parties came together in the initial stages at which time it should be considered what obligations, if any, were assumed by the one in favour of the other and what reliance was placed by the other on the first. The obligations do not, however, remain fixed subject only to specific variations as in the case of contract. I would not exclude a change in the relationship affecting the existence or nature of a duty of care in tort."
— Purchas LJ, as quoted by Joanna Smith J in Avantage (Cheshire) Ltd v GB Building Solutions Ltd [2022] EWHC 171 (TCC) at [55](verbatim, verified against the judgment)
Subsequent Treatment
Akenhead J reviewed the decision and quoted Purchas LJ's dicta at length in Galliford Try Infrastructure Ltd v Mott MacDonald Ltd [2008] EWHC 1570 (TCC) at [187], treating them as bearing directly on whether a design consultant owes a contractor a tortious duty of care within a construction contractual chain.
In Avantage (Cheshire) Ltd v GB Building Solutions Ltd [2022] EWHC 171 (TCC) at [55]–[56], Joanna Smith J quoted Purchas LJ's observation that the parties' relationship may evolve after the contractual structure is put in place and 'respectfully agree[d]', holding that the contractual matrix is the starting point but does not fix the tortious relationship for all time.
Cited in Precis (521) Plc v William M Mercer Ltd (CA, 15 February 2005) on when a duty of care is assumed towards a third party (per the swarb.co.uk citator; lists of citing cases may be incomplete).
What To Do Next
Get Professional Help