Forethought is key - how far can a professional expect a duty of care to extend?

Forethought is key - how far can a professional expect a duty of care to extend?

Forethought is key - how far can a professional expect a duty of care to extend?

“Forethought we may have, undoubtedly, but not foresight”
Napoleon Bonaparte

The recent High Court case of Valley Brook Investments Limited and another v Huam Limited [2020] EWCH 1715 (Ch), highlights that regardless of whether a third party was known or even in existence at the time the professional work was carried out, a duty of care can still be owed to that unknown third party if that third party relied (and such reliance was reasonable and anticipated) upon the professional’s work.

The case

In 2014, an architectural company, Huam Limited (the “defendant”) produced certain architectural drawings (the “drawings”) for its client, Mr Ajay Magon (the “seller”) for the proposed development of Imperial Chambers, Albert Street, Crewe (the “property”) from an office building into numerous residential apartments.

In early 2016, Mr Andrew Mines’ (the “second claimant”) was looking to buy the property from the seller with a view to developing the property however the purchase price the second claimant was willing to pay was heavily dependent upon how many residential apartments could be formed on the property. In accordance with the drawings provided by the defendant to the seller back in 2014, the seller believed the property could accommodate sixteen residential apartments with a further six if an additional storey was added. 

Separately, the second claimant had been in discussions with the defendant in relation to drawings, noting that if the purchase was to go ahead, it would be via a special purpose vehicle (later known as Valley Brook Investments Limited (the “first claimant”)) for financial reasons.

On 17 February 2016, the defendant sent the drawings to the second claimant. A week later, on 24 February 2016 the first claimant was incorporated and subsequently purchased the property on 10 October 2016 for £442,000.

The issue

The first claimant bought the property having placed heavy reliance upon the drawings provided by the defendant however, the drawings exaggerated the footprint of the property by 30% - had the second claimant have been aware of this at the outset, he would have sought to negotiate a lower purchase price. The first claimant and the second claimant therefore brought a negligence claim against the defendant. The defendant contended that it did not owe a duty of care towards the first claimant, as the first claimant did not exist at the time the drawings were provided to the second claimant.

The decision

HH Judge Eyre QC held that a professional can owe a duty of care to an unknown person if reliance by such person on the professional’s statement is reasonable and to be anticipated if the circumstances give rise to an assumption of responsibility (Hedley Byrne v Heller [1964] AC 465). The judge continued that is not necessary for the professional to know the identity of the person to whom responsibility is being assumed, provided they are identifiable as a category.

HH Judge Eyre QC held that the defendant fell into the category where it was reasonable and to be anticipated that a third party might reasonably rely on the drawings for the purpose of the purchase of the property and so a duty of care towards the first claimant would ordinarily arise. The fact that the first claimant had not been incorporated when the defendant sent the drawings to the second claimant was irrelevant – the first defendant existed when the cause of action accrued, the date the property was purchased.

Comment

At first glance, this is a surprising case, and would appear to extend the potential liability of professional advisers beyond what is reasonable. How can you owe a duty of care to a non-existent entity?

When you consider the detail, however, it becomes apparent that the court applied long established principles set out in the landmark judgement of Hedley Byrne v Heller to the particular facts of the case. The result is not very surprising after all. Nevertheless, professionals should take care to think about who will be relying upon their work in the future, and consider appropriate exclusion clauses or limitations of liability.

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View profile for Caroline CarmichaelCaroline Carmichael

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