With friends like these… Professional negligence and free advice

By Sean Mchale on

The Court of Appeal’s recent judgment in Lejonvarn v Burgess and Another [2017] EWCA Civ 254 decided that the Technology and Construction Court (TCC) had correctly found that a professional consultant owed a duty of care in tort for services that she performed (without charge) for her friends.

Background

Mrs Lejonvarn and Mr and Mrs Burgess had been friends for around 10 years. Over the years, the friends did various favours for each other.

In 2012, the Burgesses started obtaining quotations for landscaping works to their garden. The proposed scheme was looking to cost them over £200,000. Mrs Lejonvarn (who described herself as an architect) told her friends that they could do the works within a smaller budget. She started to provide design and project management services for the project, but the parties never discussed a formal contract. Further, Mrs Lejonvarn did not ask for any payment. This was on the basis that if detailed design work were required later down the line, she would require payment.

Unfortunately, the friendship broke down over costs issues before this point and the Burgesses engaged an alternative designer to complete the works. The Burgesses sued Mrs Lejonvarn, alleging that the work carried out under her supervision was defective. They claimed for the increased cost of completing the project, including remedial works. The claim was valued at up to £265,000.

The Technology and Construction Court’s (TCC) decision

A trial of preliminary issues was held at the TCC. The judge decided that there was no contract between the parties. However, he held Mrs Lejonvarn owed the Burgesses a duty of care in tort and this duty gave rise to liability for pure economic loss.

What is pure economic loss?

By way of example, say an electrical contractor negligently cuts through cables in a factory, leaving the factory unusable. A claim for pure economic loss here would be for the potential earnings the company could have gained if the cable were not damaged, and the factory was usable.

There is a general rule that a negligent defendant will not be liable for pure economic loss suffered by a claimant. This is to prevent entirely disproportionate claims being brought. In the above example, the factory’s potential loss of earnings could be colossal, compared with the damage that was actually caused.

In cases where there is a special relationship between the parties, there will be liability for pure economic loss. A special relationship arises if there is an assumption of responsibility by a defendant (if he knows that the claimant is relying on his special skill); and the claimant reasonably relies upon the defendant’s skill.

In Lejonvarn v Burgess, the TCC found that Mrs Lejonvarn had assumed responsibility and she therefore owed a duty of care that gave rise to a liability for pure economic loss. Mrs Lejonvarn appealed.

The Court of Appeal’s decision

The Court of Appeal unanimously agreed with the TCC judge. It found that Mrs Lejonvarn did owe duties of care to the Burgesses to prevent pure economic loss. The Court of Appeal, in considering Mrs Lejonvarn’s points, clarified the law on a duty of care and liability for pure economic loss. The key points to be taken from the Appeal judges’ decision are set out below.

In the absence of a contract, there can still be a duty of care

The TCC had concluded that there was no contract, but that the parties’ relationship was “akin to a contractual one”. Mrs Lejonvarn had assumed responsibility to the Burgesses and therefore owed them a duty of care in tort.

The Court of Appeal agreed and found that even if there was no contract, a duty of care could still arise in tort.

The correct test on pure economic loss

The TCC decided that Mrs Lejonvarn was liable for pure economic loss in tort as the “assumption of responsibility” test had been satisfied.

In her appeal, Mrs Lejonvarn said this was the wrong test to apply. The Court of Appeal disagreed with Mrs Lejonvarn and held that the assumption of responsibility test was appropriate in two main areas:

  1. Where there was a fiduciary relationship, and
  2. Where someone voluntarily provided services in circumstances where he knew or ought to have known that an identified person would rely on his advice.

This claim clearly fell into the second of these two cases, and therefore the assumption of responsibility test was correctly applied.

Distinction between contract and tort

A basic distinction between contract and tort is that a contract can impose positive obligations on a party (e.g. to carry out a specific job). Contrastingly, tort can only impose a negative obligation – e.g. a duty to act with reasonable skill and care.

Mrs Lejonvarn appealed the TCC’s decision on the basis that it had decided that she owed positive duties, that was only possible if there had been a contract (which the TCC had said there was not).

The Court of Appeal recognised the importance of this principle and emphasised that it did not find that Mrs Lejonvarn had a duty to carry out the services. It found that if she chose to perform the services, then she must act with reasonable skill and care.

Comment

The TCC described its own decision as a “cautionary tale” to those giving free advice to friends and family. However, it did note that this was more than a “piece of brief ad hoc advice”. The Court of Appeal’s decision reaffirms this, and helps clarify how to test whether it is reasonable to impose a duty of care.

If you have received advice or services from a professional (whether formally or not) and are concerned that they have caused you a loss, our professional negligence team can help. Call today on 0800 988 7756 for a FREE consultation.

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