The importance of assignments: If you are purchasing a site for development, would you rely on a report your seller obtains in its favour then gives to you, stating that you can rely on it; the seller accepting no liability for its contents?

Author: Susannah Davis, Professional Support Lawyer, Construction, Real Estate, London

This blog post explores why purchasers should take an assignment or insist on other protection before relying on reports provided to them by others.

If your answer to the question posed is ‘yes’, read on as this is exactly what happened in the case of BDW Trading Ltd (the “developer”) v Integral Geotechnique (Wales) Ltd (the “consultant”). In this case, the developer was left without a legal remedy when he suffered loss having relied on a negligently prepared report.

The facts are simple. The developer was buying a site. The seller (a council) commissioned a ground report from the consultant on terms stating: “It is intended that your report should be relied upon by the eventual purchaser, therefore, it must be capable of assignment with warranties at least twice. A statement on this is to be included in your report.”

The consultant raised no objection to the proposed assignment and duly prepared its report without the required wording but with the benefit fully assignable. The consultant made it clear in the report that, whilst assignment was permitted, it was otherwise prepared for the council only and no third party should rely on it.

What went wrong?

The council didn’t assign to the developer. The developer either failed to check it had the assignment, or failed to notice it hadn’t and, in the report, the consultant negligently omitted to advise that asbestos may be present at the site. Meanwhile, the council and the developer contracted on terms that the council would provide the report to the developer and the developer could rely on its contents. The developer relied on the report, suffered loss, sued the consultant for negligence and lost.

Why did the developer lose?

The consultant had made it perfectly clear that he was only agreeable to an assignment (which would have given the developer a contractual remedy). It was unfair to place any other duty of care on the consultant and it was not his fault that the council and the developer did not enter into the assignment.

The moral of the story?

If you are a purchaser, do not place reliance on any report prepared by a consultant and obtained from your seller, unless you also have the benefit of an assignment in your favour. If not, you must have a collateral warranty or a reliance letter issued to you by the consultant who prepared the report, or you must insist on an alternative (eg vesting of third party rights). If you have none of these protections, beware. The consultant will have no liability to you if his report gives negligent advice that you later rely on, causing you loss.

For further information please contact:

Susannah Davis
Susannah Davis
Professional Support Lawyer, Construction, Real Estate, London
Email
+44 20 7466 2843
Nick Downing
Nick Downing
Partner and UK head of construction and engineering, London
Email | Profile
+44 20 7466 2741

 

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