The duty of a professional person appointed, amongst other things, to "prepare contract documentation and arrange for such documents to be executed by the parties" was considered by the English courts in Sweett (UK) Limited v Michael Wight Homes Limited in February 2012.
The facts
Sweett (UK) Limited ("Sweett") were the QS and Employer's Agent on a project for circa £1m, for the demolition of an existing factory building, construction of six houses and refurbishment of a cottage. The contractor was Diamond Property Construction Limited ("Diamond") and the employer was Michael Wight Homes Limited ("Wight").
Diamond started work in March 2008 on the basis of a letter of intent. The building contract was subsequently signed in May 2008. Sweett had given advice to Wight on the need for a bond, and it was a requirement of the contract that Diamond provide a performance bond, in the terms of the draft which was incorporated in the contract, for 10% of the contract sum.
Both before and after signing of the contract, Sweett was in touch with Diamond on numerous occasions in relation to the bond, and chasing for the bond to be issued. Communications included emails, meetings and telephone calls. These attempts continued until September 2008 when Sweett's engagement ended because of their fees having been unpaid since April. By that time, Diamond had still not produced a bond. They subsequently went into liquidation in June 2009.
The arguments
Wight argued that Sweett was responsible for ensuring that Diamond executed a performance bond, and that this was an absolute obligation. Diamond's failure to do so was a breach of contract.
Alternatively, they argued that it was an implied term of the contact that Sweett would use reasonable skill and care to arrange for the performance bond to be executed by Diamond. Sweet's failure to arrange for the execution was, Wight argued, a breach of that implied term. It was suggested there were measures available to Sweett, such as withholding payment from Diamond or advising Wight to meet the cost of the bond, which might have assisted but which Sweett did not take.
Sweett accepted there was an implied term of reasonable skill and care, but they also argued that they had met that standard. They also accepted that it was their duty to assist with compiling contract documents. However, they did not accept that this duty went as far as ensuring that Diamond executed the bond, or indeed any other documents.
The decision
The court did not accept that Sweett's contract could impose on Sweett an obligation to ensure that Diamond executed the bond. The contract only required Sweett to "arrange", which was not the same. "Ensuring" would suggest Sweett was effectively underwriting the contract requirements between Diamond and Wight for execution of the bond. There was therefore no absolute duty on Sweett and they were obliged only to exercise reasonable skill and care.
In order to consider whether they had discharged that standard, the court considered in detail the steps taken by Sweett to obtain the bond and heard evidence from expert witnesses on what would constitute reasonable steps. On the basis of this, it was considered that the actions taken by Sweett in chasing Wight were adequate to meet the requirements of reasonable skill and care, and therefore Sweett were not liable to Wight for the bond not having been executed.
Comment
It is important for professionals to consider carefully the terms of any obligations they are taking on, particularly where they are matters over which they may have no control, such as having a third party execute documents. It is also important to ensure that the obligation to exercise reasonable skill and care to fulfil any obligations is met, and that records are kept of any attempts made to fulfil contractual requirements, so that this can be evidenced if required.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
