The consultants' catch-22

The Hilson Moran Partnership case discussed by Ann Minogue (10 March) arose out of a statement made by the consulting engineer. The engineer said that the engineering services installations were in a state of practical completion when they were not. This seems an apt moment to remind consultants of their duties and the liabilities they may incur, both to clients and third parties, in respect of statements they make in letters or formal certificates. The outcome of the case would have been the same if the consulting engineer had given a certificate. After all, a certificate is no more than a formal statement. However, the implications of giving a “final certificate” are outside the scope of this article.

Consultants owe a duty of care to their clients in relation to any statements or certificates they are required to provide under the terms of their contract. These can cover many topics, such as services, materials, quality of work, specifications and progress of the works. Unless the contract specifies otherwise, that duty is to use reasonable skill and care in making those statements. Consultants also owe their clients a duty of care in tort, which means that they can be sued for negligent misstatement if any statement made is not correct.

None of this is surprising. However, difficulties can arise over the wording of these statements. Clients can require consultants to give certificates in a certain form at a certain time during a project – but what if the situation to be described in the certificate does not exist at the time the certificate has to be given? The consultant will be in breach of its obligation to give the certificate if it refuses to do so, but could become liable if the statement made in the certificate is incorrect.

The answer is that the consultant’s appointment should provide that the certificate is only given if the consultant is satisfied as to the correctness of the statement at the time it is required to give it.

The statements in the certificate also need careful consideration. They could relate to matters that are outside the consultant’s knowledge or responsibility.

As Ann explained in the Hilson Moran case, the duty of care in relation to giving a statement can also arise under collateral warranties. In the case, the consulting engineer had undertaken a duty of care under a warranty to the purchaser of the offices. This duty extended to the care with which it made the statement concerning the readiness of the mechanical and electrical installations. Since it had been in breach of that duty, it was liable to the purchaser. But it would not have been liable to its client, the main contractor, whom it had warned that the statement did not reflect the true state of affairs.

Clients can require you to give certificates at a certain time, but if the situation to be described does not exist, you may have a choice between lying or breaching your contract …

Consultants therefore need to consider the effect of any certificate they give on the people to whom they will give or have given warranties. If a statement is qualified or a warning given in a separate letter to the client, the consultant should ensure that holders of warranties are also made aware of the qualification or warning, even though the client may be reluctant for it to be passed on.

It would be better, however, if the statement or certificate itself contained all the necessary caveats. This would have circumvented the difficulty Hilson Moran suffered, since the collateral warranty it gave did not contain the right to raise against the purchaser equivalent rights in defence of liability which it would have had against its client.

Liability for negligent misstatement can also be incurred directly to third parties to whom a statement is made where the consultant knows that the third party is likely to rely on the statement and does, in fact, do so.

The courts have refined the number of people to whom the consultant can become liable. The duty is not owed to the world at large. The consultant has to know that its statement is being communicated to a person of a specific nature. Thus, if a client asks for a certificate concerning, say, the consultant’s services for transmission to a funder, the consultant could become liable to that funder if it gives a certificate that misrepresents the true position. However, the client would not be able to make the consultant liable to some other party, for example, a prospective purchaser, to whom the client also passed the certificate.

The transaction in connection with which the statement is given must be of the same type, that is, taking the example just given, for the purpose of lending money and not for the purpose of any sale. Finally, the person to whom the certificate is given must have suffered a loss as a result of reliance on the consultant’s certificate. If these criteria are met, a consultant can become liable for damages for economic loss in addition to damages for personal injury and damage to third-party property.