Design Liability Under The JCT Design & Build 2016 Standard Form

The Contractor’s Responsibility For Design Under The JCT D&B

The JCT Design and Build 2016 standard form (the “JCT DB”) is used where the Contractor is responsible for carrying out the design of the Works, as well as the construction of the Works. Clause 2.1.1 of the JCT DB states:
“The Contractor shall carry out and complete the Works in a proper and workmanlike manner and in compliance with the Contract Documents, the Construction Phase Plan and Statutory Requirements and for that purpose shall complete the design of the Works ……” (our emphasis).

The Standard Of Care Under The JCT D&B

By taking on responsibility for the design, the Contractor will owe a duty of care to the Employer under the contract.  Clause 2.17.1 of the JCT DB states:
“.1 Insofar as his design of the Works is comprised in the Contractor’s Proposals and in what he is to complete in accordance with the Employer’s Requirements and these Conditions (including any further design that he is required to carry out as a result of a Change), the Contractor shall in respect of any inadequacy in such design have the same liability to the Employer, whether under statute or otherwise, as would an architect or other appropriate professional designer who holds himself out as competent to take on work for such design and who, acting independently under a separate contract with the Employer, has supplied such design for or in connection with works to be carried out and completed by a building contractor who is not the supplier of the design.” (Our emphasis).

The standard of care for professionals was laid down in the case of Bolam v Friern Hospital Management Committee [1957] 2 All ER 118. It was held that a professional will not be negligent if he carried out his work to the standard of a reasonably competent member of his profession. Furthermore, if he acted in accordance with a practice accepted at the time as proper by a responsible body of professional opinion, he will not be negligent just because there was a body of competent professional opinion which might have adopted a different practice.

It can be seen above that the JCT DB imposes on the Contractor a similar duty of care as would apply to an architect or other professional designer in the tort of negligence. In Greaves v Baynham Meikle [1975] 1 WLR 1095, Lord Denning MR sitting in the Court of Appeal said: “Apply this to the employment of a professional man. The law does not usually imply a warranty that he will achieve the desired result, but only a term that he will use reasonable care and skill.”

The JCT DB does not impose a fitness of purpose obligation on the Contractor (i.e. a duty to provide a building which is fit for its intended purpose). On the contrary, but for clause 2.17, there would be a risk that a fitness of purpose obligation could be implied into the JCT DB (Independent Broadcasting Authority v EMI Electronics Limited [1980] 14 B.L.R. 1).
Therefore, to succeed in a claim against the Contractor under clause 2.17, the Employer would have to show that the Contractor failed to exercise reasonable skill and care. If instead of a fitness for purpose obligation applied, the Employer need only demonstrate that the building was not fit for its purpose.
Concurrent Liability In Contract And Tort
The question is does the Contractor also owe a duty of care to the Employer in the tort of negligence (as well as under the JCT DB)?
It is generally accepted that in the tort of negligence (subject to the usual rules on duties of care in relation to proximity, foreseeability and policy), contractors (as well as professionals) can owe duties of care to their clients and to third parties to take reasonable care to avoid causing personal injury and to avoid causing physical damage to other property.
There is nothing in the JCT DB that prevents a claim from being brought by the Employer in the tort of negligence. Accordingly, a Contractor could have design liability to the Employer under both the JCT DB and in the tort of negligence.
The Contractor’s liability for design under the JCT DB and in the tort of negligence is different in the following key aspects:

• Remoteness of damage
• Measure of damages
• Recovery of economic loss
• Limitation periods

Remoteness Of Damage
In contract, damages are not recoverable if the loss is too remote from the breach. In order not to be too remote, when the contract was made the loss has to be either such loss that would arise naturally in the ordinary course of things as a result of the breach or loss that can have been reasonably supposed to have been within the contemplation of the parties as being the probable result of the breach (Hadley v Baxendale (1854) 9 Exch 341).
In the tort of negligence, for the damage suffered not be too remote from the breach of duty and therefore not recoverable, the damage must have been reasonably foreseeable at the time of the breach of duty (Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388). Even if the risk of the damage occurring is very small, provided that it was reasonably foreseeable, it may pass the test for remoteness of damage and therefore be recoverable (Heron II [1969] 1 AC 350). In the Heron II case, Lord Reid distinguished the test for remoteness of damage in tort and contract – in contract, not only must the loss have been reasonably foreseeable, but it must have been “not unlikely to occur” as a result of the breach of contract.

Measure Of Damages In Contract And Tort

In contract, the purpose of damages is, insofar as money can to put the innocent party in the position that he or she would have been in if the breach of contract had not occurred.
In tort, the object of damages is to compensate the innocent party, insofar as money can, for the loss that he or she has suffered as a result of the breach of duty.

In the case of both a breach of contract and a breach of duty, the innocent party has a duty to mitigate its loss. This means that such party should take reasonable steps to minimise its loss and should avoid taking any unreasonable steps which will increase its loss. Any loss which would not have been suffered if the innocent party had complied with this duty to mitigate may not be recoverable.

Recovery Of Economic Loss In Contract And Tort

A distinction is made between professionals and contractors with regard to the recoverability of pure economic loss in tort.

The pure economic loss was said in Henderson v Merrett Syndicates Ltd [1995] 2AC 145 to fall into two categories: (a) “subtraction loss”, which is a loss resulting in the reduction in the value of the assets in question; and (b) “expectation loss”, such as in White v Jones [1995] 2 A.C. 207, where a solicitor’s negligence in failing to draw up a new will resulted in a legacy not being bequeathed to the intended beneficiary.

In tort, a person performing professional or quasi-professional services can owe a duty of care to a client or third party not to cause pure economic loss in certain circumstances (namely if the assumption of responsibility, a special relationship and reliance can be proved) (Hedley Byrne & Co. Ltd. V. Heller & Partners Ltd. [1964] A.C. 465 and Henderson v Merrett).

However, generally, a contractor will not be liable for such loss (see Murphy v Brentwood District Council [1991] 1 AC 398 and Robinson v PE Jones [2011] 3 W.L.R. 815).

By contrast, pure economic loss can be recovered under a contract if such loss can be reasonably considered to have arisen naturally from the breach of the contract or have been within the reasonable contemplation of the parties at the time of contract as being the probable result of such breach. Pure economic loss can also be recovered if there were special circumstances known to both parties when the contract was made, such that the loss was within their reasonable contemplation as ordinarily flowing from such a breach in those circumstances. See Hadley v Baxendale (1854) 9 Exch 341.

The Contractor’s Liability For Consequential Loss Under The JCT D&B
Clause 2.17.3 of the JCT DB states:
“.3 Where and to the extent that this Contract does not involve the Contractor in taking on work for or in connection with the provision of a dwelling or dwellings to which that Act applies, the Contractor’s liability for loss of use, loss of profit or other consequential loss arising in respect of the liability of the Contractor referred to in clause 2.17.1 shall be limited to the amount, if any stated in the Contract Particulars; but such a limitation shall not apply to or be affected by any liability for liquidated damages under clause 2.19.” (Our emphasis).

The eiusdem generis (which means “of the same type”) rule provides that where a general phrase (or “sweeping up” sub-clause) follows specific enumerations in a contract clause, the phrase will generally be interpreted as limited to other examples of the same type or genus (Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240).

Applying the eiusdem generis rule to clause 2.17.3 means that the Contractor’s liability for consequential loss (including loss of use and loss of profit that is in each case consequential loss) may be limited by inserting a cap in the Contract Particulars. This cap will apply irrespective of whether such loss was within the reasonable contemplation of the parties at the time they made the contract because they were aware of special circumstances (see Hadley v Baxendale (1854) 9 Exch 341 discussed above).

It is important to appreciate that any such cap will not limit the Contractor’s liability for direct losses (including any loss of profit or loss of use which is a direct loss). A direct loss is a loss which arises naturally in the ordinary course of things from the breach of contract in question (Hadley v Baxendale (1854) 9 Exch 341).

Limitation Periods In Contract And Tort

The JCT DB provides for a Rectification Period, which will be 6 months unless a different period of time is inserted in the Contract Particulars. During the Rectification Period, if any defects in the Works appear which are due to the Contractor’s failure to comply with his obligations under the contract (including as a result of negligent design under clause 2.17), the Employer may instruct the Contractor to return to the site and make good those defects.
However, even after the expiry of the Rectification Period, the Contractor remains liable under the Limitation Act 1980 for defects in the Works which are due to any breach of the JCT DB contract by the Contractor.
In contract, under the Limitation Act 1980, the Employer must bring a claim for breach of contract (such as negligent design) within 6 years after practical completion (this being the point of accrual of the cause of action), if the contract was signed under hand, or within 12 years after practical completion, if the contract was executed as a deed.
The position is different for negligence actions for latent damage not involving personal injury. The Latent Damage Act 1986 amends the Limitation Act 1980, and provides that the Employer must bring a claim for latent damage in the tort of negligence by the later of:

(a) 6 years from accrual of cause of action or
(b) 3 years of the date of knowledge and right to bring an action.
However, there is a longstop period of 15 years after the negligent act or omission.
Accordingly, in certain circumstances, by virtue of the alternative discoverability of damage ground under the Latent Damage Act 1986, a latent defects claim brought in the tort of negligence may benefit from a longer limitation period than will apply to such a claim brought under a contract.

Conclusion

A contractor who is contemplating entered into a contract based on the JCT DB will need to understand fully the ramifications of so doing. The absence of a fitness for purpose duty, with all of its incumbent problems, is welcome for contractors. However, liability at law beyond the expiry of the Rectification Period, the nature and level of damages which the contractor could be exposed to, and the contractor’s concurrent liability in tort are all matters which should exercise the contractor’s mind.