Obligations to warn under the JCT contracts - contractors beware

The judgment of HHJ Richard Seymour QC in Co-operative Insurance Society Limited v Henry Boot Scotland Limitedand others (1 July 2002) considered 2 issues that arise regularly in practice but are rarely dealt with by the Courts: the impact of a ground conditions report which has been provided to the Contractor on the Contractor’s liabilities under a JCT Contract, and the question of the extent of a Contractor’s liability for design where part of that design has been carried out on behalf of the Employer but where the Contractor has completed that design in order to complete the Works.

The facts

The Claimant ("Co-op") owned a site upon which the First Defendant ("Boot"), a subsidiary of the Second Defendant, agreed to carry out certain demolition and building works. The Contract incorporated the JCT Standard Form of Building Contract, 1980 Edition, Private with Quantities and incorporated various standard form and bespoke amendments. It also incorporated the Contractor’s Designed Portion Supplement (1981 edition, revised July 1994). The Contractor’s Designed Portion was stated in the Contract to include (amongst other things):

• Earthworks support to sub-basement excavations
• Bored bearing piles to foundations and contiguous bored pile walls
• Temporary propping to contiguous bored pile walls
• Temporary supports and propping to walls of adjourning properties and to the retained retaining walls.

The Third Defendant, Crouch Hogg Waterman Limited ("CHW") was an engineer engaged by the Co-op to act as consulting engineers in connection with the execution of the Works.

In March 1996, during the execution of the Works, water and soil flooded into the sub-basement excavations. One of the claims made in the action before Judge Seymour, related to the consequences of that occurrence. The parties agreed that various preliminary issues be tried in relation to that occurrence. Some of these related to the question of whether a ground conditions report prepared by Terra Tek Limited was incorporated into the Building Contract and, if so, what were the consequences of such incorporation. Others related to the question of the extent to which Boot was responsible for design carried out by CHW which Boot had subsequently completed under the Contractor's Designed Portion Supplement.

The incorporation of the Terra Tek report into the building contract

It was argued on behalf of Boot that the Terra Tek report had been incorporated into the Building Contract. Boot based this argument on the fact that the report was referred to in various Drawings and in the Bills of Quantities. Alternatively, said Boot, there was an implied term or warranty that the ground conditions would accord with the ground conditions to which Boot had been referred in the Terra Tek report as being the prevailing ground conditions.

However, the problem was that the Building Contract included a definition of the "Contract Documents". This did not include a reference to the Terra Tek report. Also, one of the bespoke terms that had been incorporated into the contract (a new clause 2.2.2.4) stated that Boot was deemed to have satisfied itself as to the form and nature of the site including the ground and subsoil. Counsel for the Co-op and for CHW submitted that this was inconsistent with the incorporation into the Building Contract of the Terra Tek report.

The Judge found that the Terra Tek report had not been incorporated into the Building Contract. This was on the basis that it was not in the list of identified Contract Documents, nor was it stamped or signed as a contract document. The Judge suggested that it was unlikely that the parties would have wished to incorporate the report into the contract between them, because all that it did was show the results of particular soil investigations and, if it had been incorporated, difficulties could arise as to the effect in law of incorporating it.

In addition, the Judge rejected the suggestion that a term should be implied into the Building Contract to the effect that the Terra Tek report was incorporated in it. The terms of clause 2.2.2.4 made it clear, the Judge thought, that contractual risk in relation to ground conditions (amongst other things) was to be allocated to Boot.

Counsel for Boot raised two other alternative arguments in relation to the Terra Tek report:

• that the Terra Tek report amounted to a warranty or representation by the Co-op that the ground conditions/ground water level would be those ascertainable from the report. Whilst this was not elaborated upon by Counsel for Boot, the Judge assumed that Boot’s Counsel meant by this that, assuming the Terra Tek report had not been incorporated into the Building Contract, nevertheless, the provision of it by the Co-op to Boot induced Boot to enter into the Building Contract in reliance upon the statements contained in it.

The Judge accepted that, potentially, the contents of the Terra Tek report could amount to a representation. In addition, potentially, the Terra Tek report could form part of a contract collateral to the Building Contract under which Boot could derive rights separate from those created under the Building Contract. However, the Judge accepted the submissions of the Co-op that, when considering the contents of the Terra Tek report in relation to ground water, it did not contain any sufficiently definite and unqualified statement which could amount to a representation upon which Boot could reasonably have relied.

• that the Co-op was estopped by convention from arguing that the Terra Tek report did not form part of the Building Contract.

The Judge did not come to a conclusion on this, as he did not feel it appropriate to deal with it in the context of a hearing on preliminary issues. He stated that the documents he had seen did not support a conclusion that an estoppel by convention had arisen, but refused to come to a concluded view on this point in the absence of oral evidence from the parties on the point.

What were Boot’s contractual rights and obligations for the design of the piled walls?

It was submitted on behalf of Boot that its only contractual obligation in relation to the design of the piled walls was to prepare working drawings in respect of the concept devised by CHW.

In response, Counsel for the Co-op argued that earthwork support to sub-basement excavations, bored bearing piles to foundations and contiguous bored pile walls and temporary propping to contiguous bored pile walls, all formed part of the Contractor's Designed Portion and that Boot was therefore responsible for the design of those elements under the Building Contract. As part of that responsibility, Boot had to complete the design by producing all necessary working drawings and doing calculations and obtaining evidence that the design would work in practice. The Co-op's Counsel relied on clause 2.7 of the contract conditions as fixing the standard of design work to be done. Clause 2.7.1 of the conditions was in the standard form set out in the Contractor's Designed Portion Supplement, and (in summary) provided that, in preparing the design for the Contractor’s Designed Portion (whether in preparing the Contractor’s Proposals or in carrying out and completing the Works), the Contractor had a duty of skill and care.

The Judge found that Boot was obliged, pursuant to clause 2.1.2 of the Building Contract, to complete the design of the contiguous bored pile walls. That meant that they had to develop the conceptual design of CHW into a completed design which was capable of being constructed. The process of completing the design involved examining the design at the point at which responsibility was taken over, assessing the assumptions upon which it was based and forming an opinion as to whether those assumptions were appropriate. As a result, in the Judge’s view, a person who undertook on terms such as those of the Building Contract in this case (i.e. including clause 2.7) an obligation to "complete" a design begun by someone else agreed that the result, no matter how much of the design work was done before the process of "completion" commenced, would have been prepared with reasonable skill and care.

The terms of the Building Contract (other than clause 2.7) sought to impose more risk on Boot than would be imposed by the terms of the standard form of JCT Contract. The fact that clause 2.2.2.4 imposed on Boot a specific liability in relation to the risk in ground conditions has already been noted. In addition, however, it should be noted that:

• there was no specific document identified in the Contract as the Employer's Requirements. In the reference to the Employer’s Requirements in the Supplementary Appendix the Contract simply stated that, in respect of the Contractor's Designed Portion, the Contractor should "provide all necessary working drawings which should be cross-referenced to the Architect's drawings, calculations and evidence of satisfactory performance; specification information and product details with reference numbers"
• Clause 2.11 stated that Boot was to ensure that proper integration and compatibility of the various elements of the Works
• Clause 8.1.4 imposed on Boot a "duty to warn" in that Boot were under an obligation to inform the Architect and the Employer of any defects in any design.

These clauses imposed more extensive liabilities on Boot in relation to the preparation of the design for the Works than would be the case under a standard form of JCT Contract including the Contractor’s Designed Portion Supplement. However, Judge Seymour, when considering the question of the extent of the Contractor’s design responsibilities, referred expressly only to clause 2.7 and it could therefore be argued that the principles he identified would apply to any contract incorporating a provision in the same terms as Clause 2.7 of the Contractor’s Designed Portion Supplement. The most obvious case here would be JCT 1998 standard form With Contractor’s Design.

The implications of this decision seem to be that:

• care must be taken when incorporating a ground conditions report into a Building Contract (if this is what the parties have agreed) to ensure this is done adequately, but the effects in law of such an incorporation (without more) will be unclear
• provision of such a report by the Employer to the Contractor may amount to an actionable misrepresentation but there must be evidence that all the elements of a misrepresentation claim are present if it is to succeed
• a combination of clause 2.1 and 2.7 of a contract in the JCT 1998 standard form including the Contractor's Designed Portion Supplement mean that a Contractor
• • must consider any design prepared on behalf of the Employer which the Contractor is required to complete under the Contractor's Designed Portion and warn the Employer in the event he finds it inadequate and
  • will assume full responsibility (on a skill and care basis) for any design to which the Contractor's Designed Portion applies, whether that design was carried out by the Contractor or by others on the Employer's behalf.

It should also be noted that leave to appeal from Judge Seymour's decision was refused. Whether his decision reflects your understanding of the JCT forms of contract or not, therefore, his decision will be binding. Contractors undertaking design under the JCT forms of contract beware …

For further information please contact Victoria Peckett at victoria.peckett@cmckcom or on +44 (0)20 7367 2544