Legal: specialist reports - easy to miss a trick

An important part of development that often causes no end of angst is the existence of specialist reports, be it environmental, site/soil conditions; rights of light or similar; the importance that they play for those who did not commission them yet need to rely on them to offset their risk; and the problems that those that did commission them, whether directly or indirectly, have in trying to sort out the demands of those who need to rely on them when, more often than not, the commercial pressure is on to get that sorted.

Being able to rely on the findings of a specialist report can be of great importance to those offering funding for acquisition or development finance; those purchasers acquiring a freehold or leasehold interest in land for a substantial part of a development or a property and their funder; and contractors being asked to take on soil and rock condition/environmental risk .

Without the ability to be able legally to rely on the findings of such reports and potentially, should they be able to prove loss, being able to recover against those who wrote the reports the funding may not be offered or the terms upon which it is offered may be commercially unfavourable to or unviable for the borrower; the purchaser at worst may not proceed; may reduce the price and/or require the seller to maintain some contingent liability rather than the deal offering a clean exit for the seller or a limited time on the hook; or the contractor may refuse to accept risk for or cap its liability for the risk, the subject of the report – none of which is at all relaxing for those trying to agree heads of terms/agreements when the commercial pressure is on.

So what about those reports? Is it only the person/company who actually commissions the report (and has a formal contract with the person providing it) who can recover its losses if the report proves to be incorrect?

The general rule is that it is only the person/company to whom a report is addressed or who initially appointed the author to provide information or advice who can make a claim if things go wrong.

The parameters of responsibility and possible reliance can be significantly widened to include a person who is not a party to the original contract. A third party may be able to enforce statutory rights under the Contracts (Rights of Third Parties) Act (the Act), or benefit from a collateral warranty should the appointment of the consultant/specialist provide for that, the report being issued as part of its services under that appointment. Many commercial contracts expressly exclude the Act and collateral warranties are not always obtainable but the law broadly suggests that if it can be demonstrated that it was reasonable in the circumstances for the third party to have relied on a specialist’s report and that reliance could have been foreseen by the person who prepared it, there may be the ability for reliance although that is not ideal and many third parties wanting to rely on the findings of the report would not be keen to accept that as a possible avenue of recourse.

It is so easy to ensure if you are the one initially requiring such reports to get it right from the outset so these sorts of issues do not come to be a problem down the line; But so so often in the rush to get things done, this is overlooked .

The recent case of BWD Trading Limited v Integral Geotechnique (Wales) Limited illustrates how these sorts of issues can cause problems if not properly addressed prior to agreeing to acquire an interest in land and the importance of expressly dealing with the ability to rely on reports for those who may commercially need to secure that reliance for their own commercial risk.

In BDW Trading, a housebuilder (BDW) acquired land at Bridgend in South Wales for a housing development and brought a claim for professional negligence in the High Court against a firm of consulting engineers (IGL) alleging that a site investigation report prepared by IGL under an appointment IGL entered into with the vendor of the land, Bridgend County Borough Council, did not sufficiently identify the extent of contamination by asbestos the result of which was, BDW claimed, it had, bearing in mind the likely cost of decontamination overpaid the purchase price. There was no contractual relationship between BDW and IGL.

In this case IGL had been made aware that the report was to be provided to prospective purchasers and it was capable of being (but was not in fact) assigned to them and the Court found that no duty of care existed and rejected BDW’s claim; one of the factors in the Judge’s decision being that IGL’s appointment expressly excluded the Act.

So what needs to be done to avoid this type of hassle? The most important point is to always, before rushing off to get that report commissioned, think through what may be required in terms of others being able to rely on that report further down the line.

If the commission is very little other than just to carry out investigations desk top or otherwise and then produce a report then it is unlikely that the appointment of that company will deal with conferring third party rights to others/ provide for collateral warranties. It may enable the benefit of the appointment to be assigned but that may not be workable where the client commissioning it still itself needs to rely on the appointment or multiple parties need to rely on it.

One easy fix is to require reliance wording for a wide description of third parties who may need to rely on the report describing them by reference to the type of interest they may be acquiring/class of third party if they are unknown at that point in time to be incorporated into the reports when they are issued – but not to forget to check, on receipt of the report, that that wording has in fact been correctly incorporated. Other methods are to require reliance letters addressed to the third party concerned to, if required, be entered into by the consultant but if that is some way down the line post issue of the report and completion of the consultant’s services, physically getting hold of that often proves problematic.

First off, as a matter of good practice, what may be required should be thought through by those rushing off to get reports commissioned which is more than often not the case. Secondly be clear at the point of pulling a deal together what is available reports wise or not and what type of reliance is provided for to minimise the risk once terms start to crystalize of the commercial deal being less attractive whether you be a seller, purchaser, contractor or funder.