Duty of care in tort for defects in design and build contracts – an ‘unsettled and controversial’ issue

Posted: 17/05/2023

The question of whether a design and build contractor owes its employer client a duty of care in tort in respect of defects – and, if so, whether in relation to its design and/or workmanship obligations – is a difficult question, but one that has real practical importance (for example, when any contractual claim is already time barred). 

In a recent summary judgment case, Sheffield Teaching Hospital Foundation Trust v Hadfield Healthcare Partnerships Ltd [2023] EWHC 644 (TCC), the Technology and Construction Court (TCC) has confirmed that this issue remains both ‘unsettled and controversial’, thus leaving this important question unanswered. This case also reiterates the importance of clear drafting in standstill agreements to avoid subsequent arguments over what is, and what is not, covered by the agreement.   

Background

In December 2004, Sheffield Teaching Hospital Foundation Trust appointed Hadfield Healthcare Partnerships, a special purpose company, to design, develop and operate a new ward block at its hospital under a PFI project. Hadfield employed Kajima Construction as the design and build contractor and Veolia to provide facilities management services following completion of the works.

Practical completion was achieved in 2007. Between 2017 and 2018, the trust identified a number of defects in the fire compartmentation and other fire safety works in the ward. In January 2018, the trust, Hadfield, Kajima and Veolia entered into a standstill agreement in respect of potential claims. 

In December 2020, the trust commenced proceedings against Hadfield, seeking damages for approximately £13 million. Hadfield then commenced Part 20 proceedings against Kajima in August 2021, seeking damages and/or an indemnity in respect of any liability to the trust resulting from Kajima's alleged failure to design and/or construct the wing in compliance with the design and build contract. 

Nine months later, in May 2022, Hadfield also commenced Part 20 proceedings against Veolia, claiming that if Kajima was to establish that the defects were Veolia’s responsibility (as maintenance failures) then Hadfield would claim an indemnity and/or damages against Veolia.  

In January 2023, Kajima issued a summary judgment application and request to strike out elements of Hadfield’s pleading on grounds that Hadfield’s claims had no real prospect of success as they were time barred, and because Kajima did not owe Hadfield a common law duty of care in tort in relation to alleged workmanship or materials breaches causing defects.  

Court’s decision

In relation to limitation, Kajima submitted that the definition of ‘dispute’ in the standstill agreement did not include Hadfield’s right to bring a claim for breach of the design and build contract. Hadfield’s claim was therefore time barred as it did not benefit from the suspension of time under the agreement. This argument was largely based on the fact that the contract was not expressly listed in the ‘project documentation’ definition of the standstill agreement (which was linked to the ‘dispute’ definition). 

This issue was essentially one of interpretation of the agreement, and the court found that there was wider language within it that had a more than fanciful prospect of allowing Hadfield to argue that the claim fell within the scope of the standstill. 

The court also noted that, even if Kajima won the issue of construction, Hadfield had an alternative rectification case, which would need to be determined, and could not be decided as part of the current application. As such, the court rejected this aspect of Kajima’s summary judgment/strike out application.  

In relation to the duty of care in tort, Kajima argued that it was settled law that a contractor does not owe a concurrent duty of care in tort to avoid economic loss (ie defects) in respect of workmanship and materials. It relied heavily on the Court of Appeal decision in Robinson v PE Jones (Contractors) Ltd [2012] QB 44 where the court stated (albeit not in the leading judgment) that: ‘It must now be regarded as settled law that the builder/vendor of a building does not by reason of his contract to construct or to complete the building assume any liability in the tort of negligence in relation to defects in the building giving rise to purely economic loss.’  

Notwithstanding this, the court held that Kajima had not satisfied the test for summary judgment and that this duty of care issue should be decided at trial. The court agreed with Hadfield’s submission that the law in relation to a concurrent duty of care in tort remains ‘unsettled and controversial’. It thought it arguable that Robinson v PE Jones could be distinguished from this case, and the central question of whether there had been an assumption of responsibility by Kajima might be answered differently. 

In reaching this view, the court highlighted that the construction contract contained both design and workmanship obligations and it did not contain any exclusion of Kajima’s liability in tort. The court went on to say that: ‘It is right to question, as a matter of law, whether there is any basis on which building contractors should be distinguished from other professionals when ascertaining whether there has been any…assumption of responsibility’ and that ‘within the construction industry today there are many disciplines of special skill and expertise which could be described as professional’. 

What makes these comments so interesting is that the court made them in the context of considering whether a contractor may owe a duty of care for defects caused by workmanship breaches, as opposed to design breaches. It also means that Hadfield can continue arguing for such a duty, and this remains an area of law where there is real uncertainty; one where clarification from the courts would be very welcome.  

This article was co-authored with Vittoria Lorenzi, trainee solicitor in the construction advisory and dispute resolution team.

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