The High Court recently refused an application for leave to appeal a Full Federal Court decision in a case regarding vendor liability. This ruling has significant implications for professional consultants and the way the reports they prepare for their clients are used.
The case demonstrated how considerable reputational damage can be caused to consultants whose reports are misused, or used out of context, in legal proceedings.
In this case, environmental consultants Environmental & Earth Sciences (EES) had been found liable for damages of $2.1 million plus costs because of two reports prepared for its client, Caltex, regarding the validation and partial remediation of two plots of land in Chatswood on Sydney’s North Shore.
One report stated that one plot of land for sale was fit for residential land use in accordance with the Environmental Protection Authorities’ "Guidelines for Assessing Service Station Sites".
However, importantly, the second report for the adjacent plot of land did not find the site suitable for residential use.
However, in the process of purchasing the site, it was found that only part of the second report was reviewed by the vendor, and a paragraph regarding the validation of only one portion of the site, taken out of context – which resulted in the assumption that both plots were suitable for residential use.
In its judgment overturning the decision, the Full Court found that EES could not be held liable, as there was nothing in EES’s reports to suggest that they were accepting responsibility to anyone other than their client (Caltex) for the accuracy. Furthermore, the court held that there had been nothing to suggest that EES believed anyone other than its clients might have relied on the contents.
The Full Court’s decision to overturn the ruling is a victory for other professional services firms whose reputations had been tarnished in a similar way.
The case highlights the need for consultants, when preparing reports for their clients, to be very clear about the parameters within which the reports are being prepared, for whom they are intended, and in which circumstances they were to be used.
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