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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 Ł1m, 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.
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.
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