(1989) 3 W.L.R. 1150

The Weekly Law Reports 24 November 1989
1150
tf i^mfng'o^R. In re M. and N. (Minors) (C.A.) [1989]
I would only add that, in agreement with Butler-Sloss L.J., I regard
injunctive protection of children from publicity which, though inimical to
their welfare, is not directed at them or at those who care for them, but
is an incidental part of life, as being in a special category to which this
judgment is not addressed, but which was considered in In re X. (A
Minor) (Wardship: Jurisdiction) [1975] Fam. 47.
Appeal allowed. B
No order as to costs.
Legal aid taxation.
Solicitors: Oswald Hickson Collier & Co.; Borough Solicitor; Official

Solicitor; Kingsford Stacey for Kelham & Sons, Stamford.
C
D. E. C. P.
[COURT OF APPEAL]
PACIFIC ASSOCIATES INC. AND ANOTHER V. BAXTER AND OTHERS
1988 Oct. 24, 26, 27, 28, 31; Purchas, Ralph Gibson and Russell L.JJ.
Nov. 2;
Dec. 15 F
Negligence—Duty of care to whom?—Engineers—Appointment to

supervise dredging contract between employer and contractor—
Contractual requirement for engineers to certify contractor's
claims for additional payment—Express term of disclaimer of
engineers' liability to contractor—Engineers' refusal to certify—
Contractor's claim for losses from negligent administration of Q
contract—Whether engineers owing duty of care to contractor
In 1975 the plaintiffs successfully tendered for a contract to
carry out extensive dredging and reclamation work to a lagoon
in the Persian Gulf. The contract between the plaintiffs and the
employer provided, inter alia, for the defendants, an engineering
partnership, to supervise the work in accordance with the
conditions laid down in the contract. By general condition 12 of H
the contract in the event of the plaintiffs encountering
unforeseeable obstructions in carrying out the work the
employer, having received certification by the defendants, was
to pay the additional expense thereby incurred. By general
condition 67 unsettled disputes arising between the employer or
the defendants and the plaintiffs were to be referred to
arbitration. Condition P.C. 86 contained a general disclaimer
whereby it was expressly provided that the defendants were not
1151
3 W.L.R. Pacific Associates v. Baxter (C.A.)
A themselves to be held liable to the plaintiffs for any acts or
omissions under the contract. Following the commencement of
work the defendants became dissatisfied with the progress of the
dredging and a dispute between the parties ensued, the plaintiffs'
case being that pre-contract reports supplied by the defendants
had been inaccurate as to the nature of the floor of the lagoon.
In 1977 the defendants refused to certify claims by the plaintiffs
for reimbursement of additional expense under the provisions of
B general condition 12 and the plaintiffs made formal submissions
for arbitration under general condition 67. In 1985 the arbitration
was settled on the employer paying some £10m. to the plaintiffs.
Thereafter the plaintiffs issued a writ against the defendants for
damages for economic loss of £45m. claiming that "by their
continual failure to certify and by their final rejection of the
plaintiffs' claim the defendants acted negligently and alternatively
P were in breach of their duty to act fairly and impartially in
administering the contract."
An application by the defendants under the provisions of
R.S.C., Ord. 18, r. 19 to strike out the plaintiffs' claim for not
disclosing a reasonable cause of action and being an abuse of
the process of the court was granted by the judge, sitting on
official referee's business, on 1 December 1987. The judge held
that the defendants were the employer's agent and did not owe
D any duty of care to the plaintiffs for acts for which under the
terms of a commercial contract the employer could be held
liable.
On appeal by the plaintiffs:—
Held, dismissing the appeal, (1) that although the defendants
were professional engineers employed to supervise the work
that the plaintiffs had contracted with the employer to do they
were by agreement acting solely for the employer and were not
E under the terms of the contract required to exercise due care to
the plaintiffs; that the defendants had not voluntarily accepted
having any responsibility to the plaintiffs in the way that they
performed their contractual obligations; and that accordingly,
even assuming the truth of the facts pleaded by the plaintiffs,
the defendants could not by implication be assumed to owe a
duty of care not to cause economic loss to the plaintiffs (post,
F pp. 1 1 7 5 A - B , 1176E-F, 1 1 7 7 D - H , 1181G-H, 1183E-G, 1 1 9 1 A - D ) .
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964]
A.C. 465, H.L.(E.) distinguished.
(2) That in the absence of any voluntary assumption of
responsibility by the defendants to the plaintiffs there could be
imposed by law on the defendants a duty to take care to avoid
economic loss accruing to the plaintiffs; that for the imposition
of such a duty of care the plaintiffs had to satisfy the three
^ requirements of foreseeability of harm, of proximity and of it
being just and reasonable to impose the duty on the defendants;
that considering all the circumstances, and in particular the
contractual terms freely entered into by the plaintiffs and the
existence of the disclaimer clause, those requirements had not
been shown by the plaintiffs to be fulfilled so as to require the
imposition of any duty on the defendants to the plaintiffs (post,
H pp. 1 1 7 8 B - D , 1 1 8 4 D - E , 1 1 8 6 D - F , 1 1 9 2 D - G ) .
Caparo Industries Pic. v. Dickman [1989] 2 W.L.R. 316,
C.A. and Sutcliffe v. Thackrah [1974] A.C. 727, H.L.(E.)
considered.
(3) That the effect of the provision in the contract of the
disclaimer clause was to show that the defendants expressly
declined to accept any responsibility to the plaintiffs for loss
under a contract to which they had not been made a party; that
in the circumstances the disclaimer clause eliminated the
1152
Pacific Associates v. Baxter (C.A.) [1989]
possibility of the plaintiffs pursuing a remedy of any kind, save ^
in respect of fraud, against the defendants; and that even if
their relationship with the plaintiffs was such as to impose on
the defendants a duty of care to avoid economic loss being
incurred by the plaintiffs, the presence of the disclaimer clause
in the contract was decisive against any such duty of care being
imposed (post, pp. 1 1 7 6 E - F , 1 1 8 1 C - D , 1186F-G, 1187B-E, 1 1 9 1 F -
G, 1192B-C, D - G ) .
B
The following cases are referred to in the judgments:
Anns v. Merton London Borough Council [1978] A.C. 728; [1977] 2 W.L.R.
1024; [1977] 2 All E.R. 492, H.L.(E.)
Arenson v. Arenson [1977] A.C. 405; [1975] 3 W.L.R. 815; [1975] 3 All
E.R. 901, H.L.(E.)
Banque Keyser Ullmann S.A. v. Skandia (U.K.) Insurance Co. Ltd. [1989] 3
W.L.R. 25, C.A. . C
Caparo Industries Pk. v. Dickman [1989] 2 W.L.R. 316; [1989] 1 All E.R.
798, C.A.
Chambers v. Goldthorpe; Restell v. Nye [1901] 1 K.B. 624, C.A.
Ernst & Whinney v. Willard Engineering (Dagenham) Ltd. (1987) 3
Constr.L.J. 292
Esso Petroleum Co. Ltd. v. Mardon [1976] Q.B. 801; [1976] 2 W.L.R. 583;
[1976] 2 All E.R. 5, C.A. n
U
Glunzer v. Shepard (1922) 135 N.E. 275; 233 N.Y. 336
Gleeson v. J. Wippell & Co. Ltd. [1977] 1 W.L.R. 510; [1977] 3 All E.R. 54
Goldberg v. Housing Authority of the City of Newark (1962) 186 A. 2d 291
Greater Nottingham Co-operative Society Ltd. v. Cementation Piling and
Foundations Ltd. [1989] Q.B. 71; [1988] 3 W.L.R. 396; [1988] 2 All
E.R. 971, C.A.
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465; [1963]
3 W.L.R. 101; [1963] 2 All E.R. 575, H.L.(E.) E
Hirachand Punamchand v. Temple [1911] 2 K.B. 330, C.A.
Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 A.C. 520; [1982] 3 W.L.R.
477; [1982] 3 All E.R. 201, H.L.(Sc)
Leigh and Sillavan Ltd. v. Aliakmon Shipping Co. Ltd. [1986] A.C. 785;
[1986] 2 W.L.R. 902; [1986] 2 All E.R. 145, H.L.(E.)
Lubenham Fidelities and Investment Co. Ltd. v. South Pembrokeshire
District Council (1986) 33 B.L.R. 39, C.A. p
Michael Salliss & Co. Ltd. v. Calil (unreported), 3 July 1987, Judge Fox-
Andrews Q.C.
Minister of Pensions v. Chennell [1947] K.B. 250
Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223;
[1970] 2 W.L.R. 802; [1970] 1 All E.R. 1009, C.A.
Muirhead v. Industrial Tank Specialities Ltd. [1986] Q.B. 507; [1985] 3
W.L.R. 993; [1985] 3 All E.R. 705, C.A.
Peabody Donation Fund (Governors of) v. Sir Lindsay Parkinson & Co. ^
Ltd. [1985] A.C. 210; [1984] 3 W.L.R. 953; [1984] 3 All E.R. 529,
H.L.(E.)
Ranger v. Great Western Railway Co. (1854) 5 H.L.Cas. 72, H.L.(E.)
Shui On Construction Co. Ltd. v. Shui Kay Co. Ltd. (1985) 1 Constr. L.J.
305
Simaan General Contracting Co. v. Pilkington Glass Ltd. (No. 2) [1988]
Q.B. 758; [1988] 2 W.L.R. 761; [1988] 1 All E.R. 791, C.A. H
Smith v. Cox [1940] 2 K.B. 558
Stevenson v. Watson (1879) 4 C.P.D. 148, D.C.
Sutcliffe v. Thackrah [1974] A.C. 727; [1974] 2 W.L.R. 295; [1974] 1 All
E.R. 319, H.L.(E.)
Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. [1986] A.C. 80;
[1985] 3 W.L.R. 317; [1985] 2 All E.R. 947, P.C.
Townsend v. Stone Toms & Partners (1984) 27 B.L.R. 26
Welby v. Drake (1825) 1 Car. & P. 557
1153
3 W.L.R. Pacific Associates v. Baxter (C.A.)
A The following additional cases were cited in argument:
Birkett v. James [1978] A.C. 297; [1977] 3 W.L.R. 38; [1977] 2 All E.R.
801, H.L.(E.)
Business Computers International Ltd. v. Registrar of Companies [1988] Ch.
229; [1987] 3 W.L.R. 1134; [1987] 3 All E.R. 465
Croudace Ltd. v. London Borough of Lambeth (1986) 33 B.L.R. 20, C.A.
D. & F. Estates Ltd. v. Church Commissioners for England [1989] A.C.
B 177; [1988] 3 W.L.R. 368; [1988] 2 All E.R. 992, H.L.(E.)
Harris v. Wyre Forest District Council [1988] Q.B. 835; [1988] 2 W.L.R.
1173; [1988] 1 All E.R. 691, C.A.
Hill (William) Organisation Ltd. v. Bernard Sunley & Sons Ltd. (1982) 22
B.L.R. 1, C.A.
Jones v. Department of Employment [1989] Q.B. 1; [1988] 2 W.L.R. 493;
[1988] 1 All E.R. 725, C.A.
c McConnell v. Lynch-Robinson [1957] N.I. 70, C.A. (N.l.)
Midland Silicones Ltd. v. Scruttons Ltd. [1962] A.C. 446; [1962] 2 W.L.R.
186; [1962] 1 All E.R. 1, H.L.(E.)
Quintette Coal Ltd. v. Bow Valley Resource Services Ltd. (1986) C.L.R. 153
Reichel v. Magrath (1889) 14 App.Cas. 665, H.L.(E.)
Rowling v. Takaro Properties Ltd. [1988] A.C. 473; [1988] 2 W.L.R. 418;
[1988] 1 All E.R. 163, P.C.
n Smith v. South Wales Switchgear Co. Ltd. [1978] 1 W.L.R. 165; [1978] 1 All
U
E.R. 18, H.L.(Sc)
Southern Water Authority v. Carey [1985] 2 All E.R. 1077
Vermont Construction Inc. v. Beatson (1976) 67 D.L.R. 3d 95
INTERLOCUTORY APPEAL from Judge John Davies Q.C. sitting on

official referee's business.
£ By writ dated 24 March 1986, the plaintiffs, Pacific Associates Inc.,
as contractors and R.B. Construction Ltd. as sub-contractors, claimed
damages against the defendant engineers, Halcrow International
Partnership and its 13 individual partners. The amended statement of
claim alleged that by their continual failure to certify and by their final
rejection of the plaintiffs' claims, the defendants acted negligently and
alternatively were in breach of their duty to act fairly and impartially in
F administering the contract entered into by the plaintiffs and the
employer, the Ruler of Dubai. As a result the plaintiffs claimed to have
suffered loss and damage totalling £45m.
On 1 December 1987 the defendants' application to strike out the
plaintiffs' claim for not disclosing a reasonable cause of action and being
an abuse of the process of the court was granted by Judge John Davies
P on the ground that even assuming the facts pleaded by the plaintiffs to
be correct, the defendants were the employer's agent and did not owe a
duty of care to the plaintiffs in respect of acts for which the employer
could be held liable.
By a notice dated 30 December 1987 the plaintiffs appealed against
the decision on the grounds, inter alia, that (1) the judge misdirected
himself in law in holding that the defendants owed to the plaintiffs no
H duty of care; (2) that the judge misdirected himself in law in holding
that the plaintiffs suffered no actionable loss; (3) that the judge
misdirected himself in law in holding that the defendants did not owe to
the plaintiffs a duty to act fairly and/or impartially as engineers; (4) the
judge ought to have held that on the facts pleaded in the amended
statement of claim there was a relationship of sufficient proximity as to
give rise to a duty of care on the part of the defendants owed to the
plaintiffs; (5) that the judge ought to have held that the damages
1154
Pacific Associates v. Baxter (C.A.) [1989]
claimed were recoverable given the proximate relationship between the A

plaintiffs and the defendants; (6) that the judge ought to have held that
the defendants as engineers under the contract owed to the plaintiffs a
duty of care in tort concurrently with the contractual rights between the
plaintiffs and the employer; (7) that the judge ought to have held that
on the facts pleaded the defendants owed the plaintiffs a duty to act
fairly and/or impartially in administering the contract, and (8) the judge
wrongly held that the particular conditions of the contract affected, °
altered or reduced the duty of care owed by the defendants and ought
to have held that the conditions being contract conditions to which the
defendants were not a party did not affect the duty owed by the
defendants to the plaintiffs.
By a respondent's notice dated 13 January 1988 the defendants
contended that the judge's decision should be affirmed on the additional Q
grounds that, (1) the judge ought to have held that (a) the plaintiffs'
loss, if any, derived from the defendants' decision made under general
condition 67 of the contract, (b) in order to succeed in their claim in
respect of the decision under general condition 67 the plaintiffs had to
show that the defendants' decision was made negligently and (c) the
defendants were immune from suit in respect of that decision because it
was made qua arbitrator; (2) the judge ought to have held that the D
plaintiffs' loss, if any, was caused (a) by their failure to recover what
was due to them in the arbitration between the plaintiffs and the
employer and not from any breach of duty by the defendants, and/or (b)
by the plaintiffs' failure to mitigate their loss, and (3) having regard to
the following circumstances, namely (a) all heads of damage now
claimed against the defendants were claimed in the arbitration proceedings £
by the plaintiffs against the employer, (b) there was a settlement by
consent of the claims in the arbitration proceedings and (c) the
relationship of the defendants and employer were akin to privity of
interest, the judge ought to have held that the circumstances were such
as to render the relitigation of the questions formerly adjudicated on by
consent an abuse of the process of the court.
The facts are stated in the judgment of Purchas L.J. F
Anthony Scrivener Q.C., Andrew Burr and N. Mark Hill for the
plaintiffs, the contractor and sub-contractor.
Simon Tuckey Q.C. and Elizabeth J. Davies for the defendants, "the
engineer."
Cur. adv. vult. G
15 December. The following judgments were handed down.
PURCHAS L.J. These appeals raise important issues relating to the
duty owed, if any, by an engineer appointed to supervise construction
works. Pacific Associates Inc. ("the contractor") and R.B. Construction
Ltd. ("the sub-contractor") claimed against Halcrow International H
Partnership and the 13 individual partners (collectively referred to as
"the engineer") by writ and statement of claim damages alleged to have
been caused by breach of duty by the engineer. For the purposes of the
appeals the position of the contractor and the sub-contractor are
equivalent. I propose to use the word "contractor" to include "sub-
contractor" where appropriate after 13 April 1977, the date of the
subcontract.
1155
3 W.L.R. Pacific Associates v. Baxter (C.A.) Purchas L.J.
A The appeals relate both to a determination of a preliminary issue and

to an order to strike out the amended statement of claim by Judge John
Davies Q.C. sitting on official referee's business on 1 December 1987.
The works out of which the claim arose were dredging and reclamation
work in Dubai Creek Lagoon in the Persian Gulf ("the works") to be
carried out by the contractor pursuant to a contract dated 25 February
1975 ("the contract") between the contractor and His Highness the
° Ruler of Dubai ("the employer"). The matter first came before the
judge on an application by the engineer under R.S.C., Ord. 18, r. 19 to
strike out the contractor's claims on the grounds that they did not
disclose a reasonable cause of action and were an abuse of the process
of the court. By consent, it was ordered that at the same time the judge
should consider as a preliminary issue the following question:
C "Assuming, without deciding, the facts pleaded in the amended
statement of claim whether in law the plaintiffs can recover damages
from the defendants and if so what damages?"
The background can be shortly stated. Invitations to tender for the
works were issued at some date prior to February 1975 by predecessors
of the engineer, Messrs. Halcrow (Middle East) Ltd., consultant
D engineers. Nothing turns on the change of formal identity which took
place in July 1978. We have been told that there were some 20 tenderers
of which the contractor was the successful one. The tender was made
after examining, inter alia, the "drawings, conditions of contract,
specification and bill of quantities," and in the light of bore hole reports
and other geological information. The contractor tendered in the
E knowledge that the work would be supervised by the engineer in
accordance with the conditions of contract.
It is not necessary to consider the details of the work involved, save
to say that they were extensive. A central matter for consideration was
the nature of the bed of the creek the dredging of which was the subject
matter of the contract. The bore hole reports which had been provided
by the engineer disclosed that of the materials to be found on the floor
F of the lagoon a certain percentage would consist, or was expected to
consist, of "hard materials." Again, it is only necessary to know that the
presence of these materials rendered the dredging more difficult and
expensive. In particular it required more powerful dredging equipment.
The contractor's case was that the information imparted at the tender
stage was inaccurate and, as a result, the tender price on which the
contract sum was based was too low. The following provisions of the
G contract are relevant:
"Part I—General Conditions ('G. C.')
"11. The tender shall be deemed to have been based on such
data regarding hydrological climatic and physical conditions as shall
have been supplied by the employer in the documents furnished to
H the contractor by the employer for the purpose of tendering. The
contractor shall nevertheless inspect and examine the site and its
surroundings and shall satisfy himself . . .
"12. The contractor shall be deemed to have satisfied himself
before tendering as to the correctness and sufficiency of his tender
for the works . . . cover all his obligations under the contract and
all matters and things necessary for the proper completion and
maintenance of the works. If however during the execution of the
1156
Purchas L.J. Pacific Associates v. Baxter (C.A.) [1989]
works the contractor shall encounter physical conditions or artificial A

obstructions which conditions or obstructions could not have been
reasonably foreseen by an experienced contractor the contractor
shall forthwith give written notice thereof to the engineer's
representative and if in the opinion of the engineer such conditions
or artificial obstructions could not have been reasonably foreseen by
an experienced contractor then the engineer shall certify and the
employer shall pay the additional expense to which the contractor °
shall have been put by reason of such conditions including the
proper and reasonable expense . . .
"46. The whole of the materials plant and labour to be provided
by the contractor under clause 5 hereof and the mode, manner and
speed of execution and maintenance of the works are to be of a
kind and conducted in a manner to the satisfaction of the engineer, Q
Should the rate of progress of the works or any part thereof be at
any time in the opinion of the engineer too slow to ensure the
completion of the works by the prescribed time or extended time
for completion the engineer shall so notify the contractor in writing
and the contractor shall thereupon take such steps as the contractor
may think necessary and the engineer may approve to expedite
progress so as to complete the works by the prescribed time or D
extended time for completion. . . .
"56. The engineer shall except as otherwise stated ascertain and
determine by admeasurement the value in accordance with the
contract of work done in accordance with the contract. . . . If after
examination of such records and drawings the contractor does not
agree the same or does not sign the same as agreed they shall g
nevertheless be taken to be correct unless the contractor shall
within 14 days of such examination lodge with the engineer's
representative for decision by the engineer notice in writing of the
respects in which such records and drawings are claimed by him to
be incorrect.
"60. (1) Unless otherwise provided payments shall be made at
monthly intervals in accordance with the conditions set out in Part F
II in the clause numbered 60.
"67. If any dispute or difference of any kind whatsoever shall
arise between the employer or the engineer and the contractor in
connection with or arising out of the contract or the carrying out of
the works (whether during the progress of the works or after their
completion and whether before or after the termination abandonment ^
or breach of the contract) it shall in the first place be referred to
and settled by the engineer who within a period of 90 days after
being requested by either party to do so shall give written notice of
his decision to the employer and the contractor. Save as hereinafter
provided such decision in respect of every matter so referred shall
be final and binding upon the employer and the contractor until the
completion of the work and shall forthwith be given effect to by the H
contractor who shall proceed with the works with all due diligence
whether he or the employer requires arbitration as hereinafter
provided or not. If the engineer has given written notice of his
decision to the employer and the contractor and no claim to
arbitration has been communicated to him by either the employer
or the contractor within a period of 90 days from receipt of such
notice the said decision shall remain final and binding upon the
1157
A employer and the contractor. If the engineer shall fail to give notice
of his decision as aforesaid within a period of 90 days after being
requested as aforesaid or if either the employer or the contractor be
dissatisfied with any such decision then and in any such case either
the employer or the contractor may within 90 days after receiving
notice of such decision or within 90 days after the expiration of the
first named period of 90 days (as the case may be) require that the
° matter or matters in dispute be referred to arbitration as hereinafter
provided. All disputes or differences in respect of which the decision
(if any) of the engineer has not become final and binding as
aforesaid shall be finally settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by one or
more arbitrators appointed in accordance with the said Rules. The
Q said arbitrator/s shall have full power to open up review and revise
any decision opinion direction certificate or valuation of the engineer
and neither party shall be limited in the proceedings before such
arbitrator/s to the evidence of arguments put before the engineer
for the purpose of obtaining his said decision. No decision given by
the engineer in accordance with the foregoing provisions shall
disqualify him from being called as a witness and giving evidence
D before the arbitrator/s on any matter whatsoever relevant to the
dispute or difference referred to the arbitrator/s as aforesaid. The
arbitrator/s shall not enter on the reference until after the completion
or alleged completion of the works unless with the written consent
of the employer and the contractor provided always (i) that such
reference may be opened before such completion or alleged
£ completion in respect of the withholding by the engineer of any
certificate or the withholding of any portion of the retention money
to which the contractor claims in accordance with the conditions set
out in Part II in the clause numbered 60 to be entitled or in respect
of the exercise of the engineer's power to give a certificate under
clause 63(1) hereof or in respect of a dispute arising under clause 71
hereof (ii) that the giving of a certificate of completion under clause
F 48 hereof shall not be a condition precedent to the opening of any
such reference."
"Part II—Conditions of Particular Application ('P. C.')
"60(4) The contractor shall submit to the engineer after the end
„ of each month a statement showing the estimated contract value of
the permanent work executed up to the end of the month . . . and
the contractor will be paid monthly on the certificate of the engineer
the amount due to him on account of the estimated contract value
of the permanent work executed up to the end of the previous
month subject to a retention . . . (6) Payment upon each of the
engineer's certificates shall be made by the employer within 30 days
H after such certificate has been delivered to the employer and in the
event of failure by the employer to comply with the provisions of
this sub-clause he shall pay to the contractor interest at the rate of 9
per cent, per annum . . . (7) The engineer may by any certificate
make any correction or modification in any previous certificate
which shall have been issued by him and shall have power to
withhold any certificate if the works or any part thereof are not
being carried out to his satisfaction . . .
1158
Ptirchas L.J. Pacific Associates v. Baxter (C.A.) [1989]
"84. The engineer in giving his decision with respect to a claim or A

in respect of any matter mentioned in the last preceding clause or in
respect of all other matters in which his decision is made final by the
terms of the contract or any of them will act independently of and
entirely unfettered by the employer.
"85. In measuring, valuing, deciding or certifying the engineer is
not intended to act as arbitrator but as an engineer acts by his skill
and from his knowledge of any fact and incidents connected with °
the works and in so far as any facts are not within his own
knowledge, he shall be at liberty to inform his mind by inquiring of
the engineer's representative assistant engineers, inspectors and
others. The engineer shall at all times be considered seized of all
the facts necessary for him to form his opinion, make his
measurements or valuation, give his decision or order, make his Q
requisition or give or refuse his certificate and he shall be at liberty
to certify at such time and in such manner as in his discretion he
shall think proper and he shall not be bound to give any reason for
or any particulars of his certificate or any reason for his not
certifying.
"86. Neither any member of the employer's staff nor the
engineer nor any of his staff, nor the engineer's representative shall D
be in any way personally liable for the acts or obligations under the
contract, or answerable for any default or omission on the part of
the employer in the observance or performance of any of the acts,
matters or things which are herein contained."
Work started in the summer of 1975. By letter of 10 November the
engineer gave notice under general condition G.C. 46 that they were not E
satisfied with the progress of the dredging. In a reply two weeks later
the contractor referred to damage to the dredgers caused by hard rock
which had been encountered. Meetings and correspondence concerned
with the progress of the dredging continued into 1976 between the
contractor and the engineer. By an agreement made as of 2 October
1976 and signed on 13 April 1977 the contractor sub-contracted part of F
the work to R.B. Construction Ltd.
By letter dated 9 July 1977 the contractor first intimated a claim
under G.C. 52(5) for additional expenses in accordance with G.C. 12.
This was rejected by letter dated 10 August 1977 from the engineer
which stated that if the contractor wished to pursue the claim it would
be necessary to establish an agreed set of observation data. At a
meeting on 14 December 1977 the contractor's representative indicated G
that the work could only be completed by much larger dredging plant
than originally envisaged; that the contractor was incurring considerable
losses and that he was going to seek an increase in the rates for the
contract. The engineer's representative pointed out that as a matter of
grace the employer had already agreed to one year's extension of time;
that nothing had been shown that had not been indicated by the bore H
hole reports at tender stage and repeated that a claim would have to be
supported by full details which could be the basis for recommendations
to the employer.
Under cover of a letter dated 7 June 1980 the contractor sent to the
engineer three volumes comprising a "summary presentation of claim,"
which included the formal claim under G.C. 12 for additional expenses.
This claim was rejected by the engineer in a letter dated 25 June 1980:
1159
A "So far as your claims relate to an assertion that the materials to be

dredged were different to those which might reasonably have been
assumed at the date of tender in terms of dredgeability and cost of
removal, transportation and effect on overdredging they are
rejected."
The contractor made formal submissions in accordance with G.C. 67 of
B a number of claims including, inter alia, the hard material claim to
which on 13 December 1980 the engineer made a formal rejection in
accordance with the terms of the clause. On 12 March 1981 the matter
was referred to the International Chamber of Commerce in the form of
an arbitration between the contractor and the employer. The engineer
was not, of course, formally a party to this arbitration although their
representatives would clearly play a part as witnesses. The points of
^ claim were delivered with the request for arbitration. The defence in
those proceedings was dated 29 October 1981. The next relevant event
was on 2 July 1985 when by a formal agreement between the contractor
and the employer the arbitration was settled in consideration for the
payment by the employer to the contractor of the equivalent of £10m. in
consideration for the agreement by the contractor that
D "such payment and agreement by the defendant (the employer)
constitutes full and final settlement of all its and their claims against
the defendant and bear its and their own costs in connection
therewith."
There was a reciprocal agreement by the employer acknowledging that
the settlement was in full and final settlement of all claims by the
E employer against the contractor and those claiming under him.
On 24 March 1986 the contractor issued a writ naming the 14
defendants but this was not served until 5 March 1987 when it was
served together with a statement of claim on the first 13 defendants.
This prompted the application to strike out the claim to which I have
already referred and which was heard on 9, 20, 21 and 22 October 1987.
P The hard materials claim was for £31m. plus interest. The facts in the
statement of claim, which in the terms of the consent order for the trial
of the preliminary issue are assumed to be correct, were set out in Judge
John Davies' judgment in the following terms:
"6. Statement of claim
"I can summarise the essential basis of the [contractor's] claims
£* as follows without distinguishing between them since the parties
have agreed that I should treat [the sub-contractor's] claim on a par
with that of [the contractor]: they were entitled under clauses 11
and 12 of the contract to additional payment for hard materials. It
was the duty of [the engineer] in administering the contract and in
particular in issuing interim certificates and in deciding claims under
clause 67 of the contract to act with the care and skill, fairness and
H impartiality to be expected of engineers of their high standing and
repute; the [contractor], to [the engineer's] knowledge, relied upon
them to do so. As part of their duties [the engineer was] obliged to
consider the [contractor's] hard material claims and, if they
considered them valid to certify them for interim payment when
they were originally submitted or if not, then by the adjustment of
later certificates, or ultimately by decision under clause 67.
Throughout the duration of the works the [contractor] made
1160
repeated claims for additional payment for hard materials, but A

notwithstanding the validity of their claims [the engineer] invariably
maintained that 'the hard materials should have been foreseen by
the [contractor] from the data supplied to them and consistently
rejected their claims right up to and including the time when they
finally rejected them under clause 67 in December 1980. By their
continual failure to certify and by their final rejection of the
[contractor's] claims [the engineer] acted negligently and alternatively °
were in breach of their duty to act fairly and impartially in
administering the contract. As a result the [contractor] suffered the
following loss and damage:
Entitlement (that is to say their entitlement to be
paid extra for hard materials under the terms of
the contract) £31m. C
Interest £22m.
Arbitration costs (due to the fact that 'the rejection
of [the contractor's] claim forced it to commence
arbitration proceedings as required by clause 67') £2m.
Less credit (for the amount recovered in the
arbitration proceedings) £10m. D
Net total £45m."
By the contract between the employer and the contractor the latter
can only recover sums of money on account of the contract price when
these are certified by the engineer. In the end, subject to retention
money, the ultimate sum earned by the contractor is the initial contract
price as varied under the terms of the contract. The terms of G.C. 12
clearly provided that the additional sum to be paid by the employer shall
represent the additional expense to which the contractor had been put
by reason of the unexpected circumstances together with the proper and
reasonable expense of complying with instructions which the engineer
might issue and of any proper, reasonable measures approved by the F
engineer which the contractor might take in the absence of specified
instructions. The contractor, therefore, was to be protected against
being out of pocket but was not entitled to any profit on the additional
work involved.
Describing the position of the engineer the judge said:
"He was the agent of the employer for those purposes (i.e. the G
administration of the contract); he was contractually bound to his
principal, the employer, and the terms and scope of his agency
would be those to be inferred from what he was employed to do
under the terms of the contract. It also follows that, short of any
fraud or dishonesty on his part, which would be manifestly outside
the scope of his agency, his principal would be liable for the acts of u
his agent, subject to any right of recourse he might have against his
agent for indemnity."
The amended statement of claim asserted that
"the engineer held itself out, and was expected to, and the
[contractor] relied on the engineer so to perform the engineer's
obligations with the skill, etc. . . . "
1161
Although these facts are to be assumed for the purpose of the trial of
the preliminary issue, they are not determinative of the existence of
"proximity" for the purpose of liability in tort for the damage claimed.
On the question of liability the judge took as his starting point the
quotation from the speech of Lord Keith of Kinkel in Governors of the
Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985]
A.C. 210, 241:
B
"So in determining whether or not a duty of care of particular scope
was incumbent upon a defendant it is material to take into
consideration whether it is just and reasonable that it should be so."
The judge continued his judgment in these terms:
"This, in my view, is especially so where the duties on which a
C plaintiff relies to found a case in tort arise out of a contract, and
there would seem to be no reason why the defendant should not
have been made a party to the contract if that was the intention of
the parties and he had been prepared to assume a liability similar to
that now sought to be attached to him in tort."
He then referred to Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank
D Ltd. [1986] A.C. 80, 107, per Lord Scarman:
"Their Lordships do not believe that there is anything to the
advantage of the law's development in searching for a liability in
tort where the parties are in a contractual relationship. This is
particularly so in a commercial relationship. Though it is possible as
a matter of legal semantics to conduct an analysis of the rights and
g duties inherent in some contractual relationships including that of
banker and customer either as a matter of contract law when the
question will be what, if any, terms are to be implied or as a matter
of tort law when the task will be to identify a duty arising from the
proximity and character of the relationship between the parties,
their Lordships believe it to be correct in principle and necessary
for the avoidance of confusion in the law to adhere to the
F contractual analysis: on principle because it is a relationship in
which the parties have, subject to a few exceptions, the right to
determine their obligations to each other . . . "
The judge continued:
"Lord Scarman was there dealing with the liability in negligence of
^ a banker to his customer. However, his words are in my view
equally pertinent to the situation one has here, where the duties
alleged arise out of the participation of the engineer in a contract,
although he was not a party to it, but the person who seeks to make
him liable in tort for his acts under the contract was a party to it.
More than that, the damage which the plaintiffs allege is wholly
comprehended within the ambit of the contract, and the action in
H tort is based on the plaintiffs' entitlement to what they claim was
their due from the employer under that contract. . . . Just as the
implications of the agency relationship between the engineer and
the employer depend on the terms of the contract between the
employer and the contractor (see Lord Morris in Sutcliffe v.
Thackrah [1974] A.C. 727, 747, 752), so also, in my view, must
those of the relationship between the contractor and the engineer.
More than that, the plaintiffs' whole case is based on the contract
1162
and on the alleged breach of a duty of care by the engineer in A

performing his functions under it. The damage relied on is, and can
only be the infringement by the engineer of a right which the
contractor had against the employer under the contract. The paradox
at the root of this claim seems to me to be that it postulates the
continuing validity of the contractor's claim against the employer
whilst seeking to impose a commensurate liability upon the latter's
agent on the ground that in the course of his administration of the ^
contract he negligently failed to give proper or timeous effect to its
terms."
After reviewing the relevant terms of the contract, the judge commented:
"I cannot with respect see how the question of the existence, nature
and scope of such a duty or of its breach can be divorced from the ^
question of the nature of the function which the defendants were
employed to perform with the knowledge and agreement of the
contractor: the provisions of [G.C. 67 and P.C.s 85 and 86] are
integral parts of the nature of his function."
Asking himself the question
"whether it accords with good sense for the law to intervene in a D
commercial relationship like this to impose upon the agent of one
party to the contract a duty of care towards the other party to that
contract in respect of administrative acts for the consequences of
which his principal would in any case be liable under the contract"
the judge came to the firm conclusion that the answer was "no." On this
basis, he answered the question posed in the preliminary issue in the £
negative.
The judge then turned to the question of "the balance of the
application to strike out the writ and the statement of claim" on the
ground that they were an abuse of the process of the court. The
settlement of the arbitration on 2 July 1985 was the basis of his approach
to this problem in the light of two authorities Welby v. Drake (1825) 1
Car. & P. 557 and Hirachand Punamchand v. Temple [1911] 2 K.B. 330. F
These cases concerned actions in debt. The judge said:
"In my view, however, the principle which they express is equally
applicable to the circumstances of this case, which is concerned with
principal and agent, where the contract between the principal and
the third party expressly excludes the personal liability of the agent,
and the settlement made by the principal was on the terms which I G
have already mentioned. I would, therefore, strike out the claim in
this case, both on the ground that it discloses no reasonable cause
of action, that it is unconscionable and an abuse of the process of
the court."
In support of his appeal Mr. Scrivener submitted that on the
assumptions made for the purposes of the trial of the preliminary issue H
the three criteria necessary to establish liability which appear from the
authorities and which were marshalled in the judgment of Bingham L.J.
in Caparo Industries Pic. v. Dickman [1989] 2 W.L.R. 316 were
established. These were (1) foreseeability of harm, (2) proximity and
(3) that as a matter of policy it is just and reasonable to impose a duty
of care on the engineer in favour of the contractor. He submitted that a
failure on the part of the engineer properly to discharge his duty under
1163
3 VV.L.R. Pacific Associates v. Baxter (C.A.) Purchas L.J.
A the contract must be taken to cause foreseeable harm to the contractor

who was under the terms of its contract with the employer dependent on
the proper discharge by the engineer of his duties, inter alia, to certify
the moneys due to the contractor under the contract. In addition Mr.
Scrivener emphasised that the employer had a right of action outside the
contract and the arbitration provision in G.C. 67 against the engineer in
negligence or breach of duty (see Sutcliffe v. Thackrah [1974] A.C. 727)
° and that, therefore, it would not be just and reasonable if a similar right
against the engineer was not enjoyed by the other party to the contract,
namely, the contractor. The contractor's claim, Mr. Scrivener submitted,
was covered entirely by the principles in Hedley Byrne & Co. Ltd. v.
Heller & Partners Ltd. [1964] A.C. 465 and was not affected by any of
the subsequent authorities in which this case was considered. Further,
Q Mr. Scrivener distinguished Welby v. Drake, 1 Car. & P. 557 and
Hirachand Punamchand v. Temple [1911] 2 K.B. 330 which he said were
both accord and satisfaction cases. The settlement which was achieved
with the employer, including the mutual releases of all outstanding
claims, etc., he submitted, did not involve the engineer at all and the
latter was not entitled to rely on any accord and satisfaction which
formed the basis of the settlement of the arbitration with the employer.
D
He referred to Smith v. Cox [1940] 2 K.B. 558. In further submissions
Mr. Scrivener relied on Townsend v. Stone Toms & Partners (1984) 27
B.L.R. 26.
Mr. Tuckey in support of the judgment relied on the well-established
proposition that there was no general liability in tort for foreseeable
economic loss disassociated from physical damage. He relied on the
£ proposition that the terms of the contract sufficiently defined the rights
and liabilities arising between the engineer and the two parties to the
contract and that there was no justification for any extension of this
position by superimposing a duty in tort. Furthermore, Mr. Tuckey
relied on the disclaimer contained in the conditions of particular
application P.C. 86 as a disclaimer on which the engineer could rely to
disprove that element of acceptance of a duty of care necessary to
F establish liability under the principle in Hedley Byrne. In this case, it
was submitted, the contractor's rights of protection in relation to any
loss which might ensue from a failure on the part of the engineer either
properly to certify or to accept a claim under G.C. 67 were catered for
under the arbitration provisions and a right of recovery against the
employer under that clause. Mr. Tuckey submitted that the remote
Q possibility of an employer becoming bankrupt or unable to meet the
liability for any damages flowing from the conduct of his agent, the
engineer, were too remote a consideration to affect a general principle
of whether or not liability in tort should be superimposed on the
contractual position. If there was any appreciable danger of the employer
failing to meet his obligations under the contract it would be open to the
contractor to stipulate for a separate contractual right of action against
H the engineer.
On the question of reasonableness, Mr. Tuckey submitted that the
mere fact that the engineer accepted appointment by the employer to
act under the contract was not sufficient to impose a duty in tort in
favour of the contractor who had its own remedies under the contract.
Furthermore, in the face of the commercial relationship and the detailed
provisions of the contract, it was not just and reasonable but rather
undesirable to import into a carefully structured contractual arrangement
1164
added obligations in tort. This was particularly the case where those A
provisions expressly provided an exclusion from liability protecting the
engineer or any of his staff from liability for their acts or obligations
under the contract. In support of his respondent's notice Mr. Tuckey
submitted that in any event the engineer was entitled to immunity from
suit in respect of the decision under G.C. 67 because any miscertification
at an earlier stage could then have been corrected at the G.C. 67 stage
and that in acting in pursuance of his duties under G.C. 67 the engineer "
was acting in a quasi-arbitral role.
The sheet-anchor for the consideration of the main issue raised in
this appeal is still Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.
[1964] A.C. 465. The central issue in that case was, of course, whether a
duty of care could arise in relation to spoken or written words. At the
risk of making a dangerous generalisation the effect of the authority for Q
the present purposes can be culled from the following short extracts
from the speech of Lord Devlin, at pp. 528-529 and 530:
"I think, therefore, that there is ample authority to justify your
Lordships in saying now that the categories of special relationships
which may give rise to a duty to take care in word as well as in
deed are not limited to contractual relationships or to relationships „
of fiduciary duty, but include also relationships which in the words
of Lord Shaw in Nocton v. Lord Ashburton [1914] A.C. 932, 972
are 'equivalent to contract,' that is, where there is an assumption of
responsibility in circumstances in which, but for the absence of
consideration, there would be a contract. . . . I shall therefore
content myself with the proposition that wherever there is a
relationship equivalent to contract, there is a duty of care. Such E
a relationship may be either general or particular. Examples of a
general relationship are those of solicitor and client and of banker
and customer. For the former Nocton v. Lord Ashburton has long
stood as the authority and for the latter there is the decision of
Salmon J. in Woods v. Martins Bank Ltd. [1959] 1 Q.B. 55 which I
respectfully approve. There may well be others yet to be established.
Where there is a general relationship of this sort, it is unnecessary
to do more than prove its existence and the duty follows. Where, as
in the present case, what is relied on is a particular relationship
created ad hoc, it will be necessary to examine the particular facts
to see whether there is an express or implied undertaking of
responsibility."
/-«
Of course, there has not only to be an acceptance of responsibility to
take care on the part of the potential tortfeasor but also a reliance on
that duty by the alleged victim. If it were otherwise the damage would
not have flowed from the breach if established. The engineer is a
professional body and in the context of the contract assumes a
responsibility towards the employer to execute his duties in a professional
manner. It remains, however, to consider whether beyond this the H
engineer accepted a direct duty towards the contractor and whether on
its part the contractor relied on the due performance of his duties under
the contract by the engineer beyond giving rights to the contractor to
proceed against the employer under the contract. This question lies at
the heart of this appeal and depends on whether an appropriate degree
of proximity between the engineer and the contractor beyond the terms
of contract is established. As I have already commented the assumption
1165
A of the truth of the facts pleaded in the amended statement of claim does
not determine this issue.
During the course of argument the court has been referred to a large
number of authorities many of which have considered a duty in tort
based on the Hedley Byrne duty or extensions thereto. It is clear from
these authorities that there is no one touchstone with which to determine
the existence or otherwise of a duty of care in any particular
° circumstance. Various criteria emerge which are capable of adaptation
to the particular circumstances of the case under review. As a
generalisation before a duty can be found to exist the circumstances in
which the parties find themselves must establish a proximity of some
kind that would demonstrate that the lack of care of the one will
foreseeably cause pecuniary loss to the other in the context where the
Q first has accepted responsibility for such loss, if occasioned by his
negligence, and the second has in the same context relied on the
exercise of due care and skill by the first so as to give rise to a direct
duty to be responsible for that loss. The matter does not end there,
however, because superimposed on the foregoing criteria is what has
been called a policy aspect, namely, that before a duty of care will be
held to exist the court should find it just and reasonable to impose such
D a duty: see per Lord Keith in Governors of Peabody Donation Fund v.
Sir Lindsay Parkinson & Co. Ltd. [1985] A.C. 210, 241. This aspect was
also discussed in the judgments in Greater Nottingham Co-operative
Society Ltd. v. Cementation Piling and Foundations Ltd. [1989] Q.B.
71. In that case there was a subcontract between the parties in which
certain liabilities in contract were accepted, namely to exercise skill and
£ care in the design of the concrete piling but nothing mentioned in the
contract of executing the work with care and skill. In those circumstances
it was held that no duty of care would be superimposed on the existing
contractual relationship: see p. 100:
"In order to establish what might be called the Hedley Byrne type
of liability, it must be possible to cull from the close relationship of
the parties the assumption by the tortfeasor of a duty not to cause
pecuniary loss to the victim. In Hedley Byrne & Co. Ltd. v. Heller
& Partners Ltd. [1964] A.C. 465 the relationship was not affected
by a direct contractual relationship and this was also the position in
Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 A.C. 520, and there
was, therefore, no contractual influence on the relationship. In the
present case the tortfeasor had contracted to be liable for failure to
G use reasonable skill and care in the design of the pile driving
operation and in the selection of materials and goods (clause
A(l)(a) and (b)); but the contract was significantly silent as to
liability for the manner in which the work was executed. Once it is
established that there is no general liability in tort for pecuniary loss
dissociated from physical damage (see per Robert Goff L.J. in
Muirhead v. Industrial Tank Specialities Ltd. [1986] Q.B. 507 and
Bingham L.J. in Simaan General Contracting Co. v. Pilkington
Glass Ltd. (No. 2) [1988] 2 W.L.R. 761) it would be difficult to
construct a special obligation of this nature in tort to which liabilities
created by a collateral contract did not extend:" per Purchas L.J.
The facts of the present case are, of course, clearly distinguishable
from those in the Greater Nottingham Co-operative case but from the
policy point of view there may be a useful analogy, namely that where
1166
the parties have come together against a contractual structure which

provides for compensation in the event of a failure of one of the parties
involved the court will be slow to superimpose an added duty of care
beyond that which was in the contemplation of the parties at the time
that they came together. I acknowledge at once the distinction, namely,
where obligations are founded in contract they depend on the agreement
made and the objective intention demonstrated by that agreement
whereas the existence of a duty in tort may not have such a definitive
datum point. However, I believe that in order to determine whether a
duty arises in tort it is necessary to consider the circumstances in which
the parties came together in the initial stages at which time it should be
considered what obligations, if any, were assumed by the one in favour
of the other and what reliance was placed by the other on the first. The
obligations do not, however, remain fixed subject only to specific
variations as in the case of contract. I would not exclude a change in the
relationship affecting the existence or nature of a duty of care in tort.
This situation, however, does not arise in the present case.
The contractual structure against which the engineer and the
contractor came into contract was substantially provided by the terms of
the contract which, of course, were part of the background against
which the tender was made. The contract in its general conditions
contained a large number of provisions by reason of which the contractor
was in a direct relationship with the engineer. Examples are to be found
in G.C. 46 and G.C. 56 and numerous other certifying conditions (G.C.
52, G.C. 60, P.C. 60, etc.). In other aspects the engineer worked solely
as the agent for the employer. Instances of this were, of course, the
preparation of the invitations to tender and the contract document, bills
of quantities, etc. which accompanied it. We were told that there was no
record available of any specific contract between the employer and the
engineer in relation to the contract. The best information was that the
engineer had for a considerable time prior to 1974 acted in relation to
other contracts for the employer and that the position between them was
most probably one similar to a general retainer. For the purposes of this
appeal I do not think that the precise contractual arrangement between
the employer and the engineer is relevant. It is sufficient to notice that
there must have been some contract, expressed or implied, between the
two a term of which must have been that the engineer would carry out
his function with due skill and care.
It is now necessary to turn to consider some of the authorities
relating to the specific position as between the contractor and the
engineer. It is immediately apparent that there is no simple unqualified
answer to the question: "Does the engineer owe a duty to the contractor
in tort to exercise reasonable skill and care?" but that this question can
only be answered in the context of the factual matrix including especially
the contractual structure against which such duty is said to arise.
The central question which arises here is: against the contractual
structure of the contract into which the contractor was prepared to enter
with the employer, can it be said that it looked to the engineer by way
of reliance for the proper execution of the latter's duties under the
contract in extension of the rights which would accrue to it under the
contract against the employer? In other words, although the parties were
brought into close proximity in relation to the contract, was it envisaged
that a failure to carry out his duties under the contract by the engineer
would foreseeably cause any loss to the contractor which was not
1167
A properly recoverable by the contractor under its rights against the
employer under the contract? Although this is distinguishable from the
position in Greater Nottingham Co-operative Society Ltd. v. Cementation
Piling and Foundations Ltd. [1989] Q.B. 71, it may be argued that it
would not be just and reasonable to impose on the engineer by way of
liability in tort rights in favour of the contractor in excess of those rights
which the contractor was content to acquire against the employer under
° the contract.
A start can be made with Ranger v. Great Western Railway Co.
(1854) 5 H.L.Cas. 72, which was cited in Sutcliffe v. Thackrah [1974]
A.C. 727. That case has the distinction of antiquity but the facts
involved bear an uncanny resemblance to those in the present case.
Ranger was the contractor engaged upon the construction of works
Q including, inter alia, the Avon Bridge. The engineer was Brunei.
Ranger's bills asserted fraud on the part of the company through their
engineer in two relevant respects. The first was that inspection pits
misled the contractor into underestimating the hardness of the rock to
be excavated in the cutting and tunnel and he was thereby induced to
tender an uneconomically low price. The second point of greater subtlety
was that unbeknown to the contractor Brunei was a shareholder in the
D company. It is on the second point that Lord Cranworth L.C. said, at p.
88:
"It is not necessary to state the duties of the engineer in detail: he
was, in truth, made the absolute judge, during the progress of the
works, of the mode in which the appellant was discharging his
duties; he was to decide how much of the contract price of £63,028
E from time to time had become payable, and how much was due for
extra works; and from his decision, so far, there was no appeal.
After all the works should have been completed, the appellant
might call in a referee of his own as to any question as to the
amount (if any) then due beyond what had been certified. The
contention now made by the appellant is, that the duties thus
confided to the principal engineer were of a judicial nature; that
Mr. Brunei was the principal engineer by whom these duties were
to be performed, and that he was himself a shareholder in the
company; that he was thus made a judge, or arbitrator, in what
was, in effect, his own cause. That until the month of July 1838 the
appellant was unaware of the fact of Mr. Brunei having any interest
in the company, except as the engineer, and so ought not to be
G bound by any of his decisions."
Lord Cranworth L.C. then considered an authority* to the effect that
the decision of a judge made in a cause in which he has an interest is
voidable and continued, at p. 89:
"I think the principle has no application here; a judge ought to be,
and is supposed to be, indifferent between the parties. He has, or is
H supposed to have, no bias inducing him to lean to the one side
rather than to the other. In ordinary cases it is a just ground of
exception to a judge that he is not indifferent, and the fact that he
is himself a party, or interested as a party, affords the strongest
proof that he cannot be indifferent. But here the whole tenor of the
contract shows it was never intended that the engineer should be
* Dimes v. Proprietors of Grand Junction Canal (1852) 3 H.L.Cas. 759.
1168
indifferent between the parties. When it is stipulated that certain A

questions shall be decided by the engineer appointed by the
company, this is, in fact, a stipulation that they shall be decided by
the company. It is obvious that there never was any intention of
leaving to third persons the decision of questions arising during the
progress of the works. The company reserved the decision to itself,
acting however, as from the nature of things it must act, by an
agent, and that agent was, for this purpose, the engineer. His ^
decisions were, in fact, those of the company. The contract did not
hold out, or pretend to hold out, to the appellant, that he was to
look to the engineer in any other character than as the impersonation
of the company: in fact, the contract treats his acts and the acts of
the company, for many purposes, as equivalent, or rather identical.
I am therefore of opinion that the principle on which the doctrine Q
as to a judge rests, wholly fails in its application to this case."
Of course, the contract in the present case specifically included
provisions whereby the engineer's decisions could be challenged (G.C.
67) and which placed a duty on the engineer whilst acting as agent of
the employer to be fair as between the employer and the contractor
(P.C. 84) and to that extent that he should be objective in the discharge D
of his duties.
In Sutcliffe v. Thackrah [1974] A.C. 727 their Lordships were
concerned with a claim by an employer against the architect whom he
had employed to design a house. There was a contract between the
building owner and the architect which acknowledged that, inter alia,
the latter would be concerned with a R.I.B.A. form of contract.
Subsequently, the employer entered into a contract with a firm of ^
builders which was in a standard R.I.B.A. form. The architects were
appointed architects and quantity surveyors and during the course of the
works issued interim certificates to the builders. The builders failed and
were removed from site and another firm completed the work at higher
cost. The original builders went into liquidation and the employer
brought an action against the architects in negligence and breach of p
duty. The R.I.B.A. form contained a condition 35(x) providing for
arbitration. In his speech Lord Reid drew the distinction between the
function of an arbitrator to form a judgment having heard the evidence
and contentions of each party in dispute from the role of an architect, at
p. 735:
"In other forms of professional activity the professional man is ^
generally left to make his own investigation. In the end he must
make a decision but it is a different kind of decision. He is not
determining a dispute: he is deciding what to do in all the
circumstances."
And at pp. 736-737:
"Now I can come to the position of an architect. He is employed by H
the building owner but has no contract with the contractor. We do
not in this case have occasion to consider whether nevertheless he
may have some duty to the contractor: I do not think that a
consideration of that matter would help in the present case. The
R.I.B.A. form of contract sets out the architect's functions in great
detail. It has often been said, I think rightly, that the architect has
two different types of function to perform. In many matters he is
1169
A bound to act on his client's instructions, whether he agrees with

them or not; but in many other matters requiring professional skill
he must form and act on his own opinion." (Emphasis provided.)
"Many matters may arise in the course of the execution of a
building contract where a decision has to be made which will affect
the amount of money which the contractor gets. Under the R.I.B.A.
contract many such decisions have to be made by the architect and
" the parties agree to accept his decisions. For example, he decides
whether the contractors should be reimbursed for loss under clause
11 (variation), clause 24 (disturbance) or clause 34 (antiquities);
whether he should be allowed extra time (clause 23); or when work
ought reasonably to have been completed (clause 22). And, perhaps
most important, he has to decide whether work is defective. These
Q decisions will be reflected in the amounts contained in certificates
issued by the architect.
"The building owner and the contractor make their contract on
the understanding that in all such matters the architect will act in a
fair and unbiased manner and it must therefore be implicit in the
owner's contract with the architect that he shall not only exercise
due care and skill but also reach such decisions fairly, holding the
D balance between his client and the contractor."
Lord Reid then continued firmly to dismiss the suggestion that
architects acting in accordance with an R.I.B.A. form of contract could
enjoy immunity as "quasi-arbitrators," at pp. 737-738:
"One might almost suppose that to be based on the completely
£ illogical argument—all persons carrying out judicial functions must
act fairly, therefore all persons who must act fairly are carrying out
judicial functions. There is nothing judicial about an architect's
function in determining whether certain work is defective. There is
no dispute. He is not jointly engaged by the parties. They do not
submit evidence as contentious to him. He makes his own
investigations and comes to a decision. It would be taking a very
F low view to suppose that without his being put in a special position
his employer would wish him to act unfairly or that a professional
man would be willing to depart from the ordinary honourable
standard of professional conduct."
Lord Morris of Borth-y-Gest approached the position in similar
terms with a difference in contrasting the rights accruing to the employer
G with those accruing to the contractor. I would not, however, with
respect over-emphasise this distinction which I do not think was
necessarily in the mind of Lord Morris. He said, at pp. 744-745:
"If there is no arbitration to which the provisions of the Arbitration
Act apply but if two or more people informally agree to refer a
disputed matter to the decision of some person of their own
H selection they may place him in the position of a quasi-arbitrator
and the common understanding of them all may be that the chosen
person in accepting the charge does not expressly or implicitly
undertake to do more than to give his honest opinion. Were the
respondents in the present case in that position?
"They were employed and paid by the appellant. The duties
involved that the architect would act fairly: he was to act fairly in
ensuring that the provisions of the building contract were faithfully
1170
carried out. He was to exercise his care and skill in so ensuring. But A
his function differed from that of one who had to decide disputes
between a building owner and a contractor. When interim certificates
were issued it was necessary to have regard to the contract terms
and to exercise care and skill in certifying the value of work done.
/ / the contractor thought that the sum certified was too little the
contractor could call for arbitration. If the employer paid the amount
certified and later found that there was over-certification as a result of "
the architect's negligence I can see no reason why, if loss resulted to
him, he should not sue his architect.
"As parties to a building contract or to a contract of sale are in
general free to introduce whatever terms they wish into their
contract it follows that it is quite possible for them to arrange that
someone who at one stage is the agent of one party may at another Q
stage become an arbitrator as between the parties. But this must be
a definite arrangement. The mere fact that an architect must act
fairly as between a building owner and a contractor does not of itself
involve that the architect is discharging arbitral functions." (Emphasis
provided.)
Lord Morris said, at pp. 752-753: D
"In summarising my conclusions I must preface them by the
observation that each case will depend upon its own facts and
circumstances and upon the particular provisions of the relevant
contract. But in general any architect or surveyor or valuer will be
liable to the person who employs him if he causes loss by reason of
his negligence. There will be an exception to this and judicial
immunity will be accorded if the architect or surveyor or valuer has E
by agreement been appointed to act as an arbitrator. There may be
circumstances in which what is in effect an arbitration is not one
that is within the provisions of the Arbitration Act. The expression
'quasi-arbitrator' should only be used in that connection. A person
will only be an arbitrator or quasi-arbitrator if there is a submission
to him either of a specific dispute or of present points of difference F
or of defined differences that may in the future arise and if there is
agreement that his decision will be binding. The circumstance that
an architect in valuing work must act fairly and impartially does not
constitute him either an arbitrator or a quasi-arbitrator. The
circumstance that a building owner and contractor agree between
themselves that a certificate of an architect showing a balance due is
to be conclusive evidence of the works having been duly completed G
and that the contractor is entitled to receive payment does not of
itself involve that the architect is an arbitrator or quasi-arbitrator in
giving his certificate."
Viscount Dilhorne adopted the same approach and made no specific
reference to the existence or otherwise of any duty owed by the architect j ^
to the contractor. He referred to the effect of the arbitration clause,
however, in the following terms, at p. 757:
"It began with the words 'Provided always that, in case any
question, dispute, or difference shall arise between the proprietor,
or the architect on his behalf, and the contractor.' That, to my
mind, shows that the parties to the contract recognised that the
architect in performing his duties under the contract would be
1171
A acting on behalf of the employer. The inclusion of this arbitration

clause of itself makes it highly improbable that the parties to the
contract agreed that the architect should act as an arbitrator between
them for then there might be an arbitration upon an arbitration."
Lord Salmon, in his speech in Arenson v. Arenson [1977] A.C. 405
in dismissing a submission made that there should not be a duty owed
B by the architect to the contractor since it would put the former at the
risk of being "shot at from both sides," said, at p. 438:
"In spite of the remarkable skill with which this argument was
developed, I cannot accept it. Were it sound, it would be just as
relevant in Sutcliffe v. Thackrah [1974] A.C. 727 as in the present
case. The architect owed a duty to his client, the building owner,
Q arising out of the contract between them to use reasonable care in
issuing his certificates. He also, however, owed a similar duty of
care to the contractor arising out of their proximity: see Hedley
Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465. In
Sutcliffe v. Thackrah, the architect negligently certified that more
money was due than was in fact due, and he was successfully sued
for the damage which this had caused his client. He might, however,
D have negligently certified that less money was payable than was in
fact due and thereby starved the contractor of money. In a trade in
which cash flow is especially important, this might have caused the
contractor serious damage for which the architect could have been
successfully sued. He was thus exposed to the dual risk of being
sued in negligence but this House unanimously held that he enjoyed
£ no immunity from suit."
However, in Sutcliffe v. Thackrah Lord Salmon had concentrated on the
position of the architect qua the employer. He said [1974] A.C. 727,
759:
"No one denies that the architect owes a duty to his client to use
proper care and skill in supervising the work and in protecting his
F client's interests. That, indeed, is what he is paid to do. Nevertheless,
it is suggested that because, in issuing the certificates, he must act
fairly and impartially as between his client and the contractor, he is
immune from being sued by his client if, owing to his negligent
supervision or (as in the present case) other negligent conduct, he
issues a certificate for far more than the proper amount, and
Q thereby causes his client a serious loss."
During the remainder of his speech Lord Salmon dealt in considerable
detail with the position of valuers and others in the context of arbitral
immunity. He referred, at p. 760, to the "trilogy of cases" by which the
majority of the Court of Appeal in Chambers v. Goldthorpe [1901] 1
K.B. 624 were so influenced but did not return specifically to consider
JJ the question of a duty arising between the architect and the contractor
in circumstances akin to those prevailing in Sutcliffe v. Thackrah. In
referring, at p. 763, to Stevenson v. Watson (1879) 4 C.P.D. 148, the
third case of the trilogy, however, Lord Salmon said, at pp. 763-764:
"Under the very special terms of the contract in Stevenson v.
Watson 'all questions or matters in dispute which [might] arise
during the progress of the work or in settlement of the account' had
to be left to the architect 'whose decision [was to be] final and
1172
binding upon all parties.' It seems to me that this architect may well A
have been put in the position of an arbitrator under the exceptional
terms of the contract. Moreover, since there was no contractual
relationship between the architect and the builder, it is difficult to
see how any action based on a duty of care could be got up on its
feet against him; in those days the law of negligence was in a very
early stage of its development."
With great deference to Lord Salmon the reference to his view of the
position which would have arisen in Sutcliffe v. Thackrah had there been
under-certification rather than over-certification, may not be of such
compelling authority as if it had been a central matter for consideration
when delivering his speech in the earlier case.
This analysis of Sutcliffe v. Thackrah would, in my judgment, dispose Q
of two submissions that were made during the course of argument,
namely, the submission by Mr. Tuckey that when refusing to review the
contractor's application under G.C. 67 the engineer was acting in an
arbitral role. I am quite unable to accept the proposition that the role
played by the engineer under G.C. 67 was anything other than a review
of an earlier executive decision made in the course of his function as
supervising engineer and subject to arbitration under the latter provisions D
of G.C. 67. To adopt the words of Viscount Dilhorne in a similar
position in Sutcliffe v. Thackrah to view the function of the engineer
under G.C. 67 as an arbitral function would be to construct an
arbitration upon an arbitration. The second submission which I think is
at least damaged by the attitude taken by their Lordships in Sutcliffe v.
Thackrah was that made by Mr. Scrivener in pursuit of the "just and p
reasonable approach" that if there was a duty in tort owed by the
engineer to the employer so there ought also to be a similar duty owed
by the engineer to the contractor. Mr. Scrivener relied on the dismissal
by Lord Salmon in Arenson v. Arenson [1977] A.C. 405, 438, of the
"shot at from both sides" argument. In my judgment, however, this
submission is flawed because it ignores the distinction between the
contractual basis of the relationship between the employer and the F
engineer as opposed to the relationship between the contractor and
the engineer which can only be constructed in tort arising out of the
contractual structure accepted by the contractor. Although not central to
the considerations with which in Sutcliffe v. Thackrah Lord Morris of
Borth-y-Gest was concerned in his speech the extract already cited in
this judgment in which he refers to a right to sue the architect enjoyed
by the employer arising out of his duties to the employer and the right
of the contractor to go to arbitration if he disputed any certification or
action which affected him in a financial way points the distinction
between the remedies available to each.
Mr. Scrivener in support of his submission that a duty of care was
owed by the engineer to the contractor referred to a number of decisions
at first instance. These emanate from judges of great experience and H
merit consideration. They are conveniently assembled in the judgment
of Judge Fox-Andrews Q.C. in Michael Salliss & Co. Ltd. v. Calil
(unreported), 3 July 1987 of which we have been given a transcript. The
judgment was delivered on 3 July 1987 in the Official Referee's Business
List of the Queen's Bench Division. The first of the other two cases was
Lubenham Fidelities and Investments Co. Ltd. v. South Pembrokeshire
District Council in which the judgment at first instance was given by
1173
A Judge Newey Q.C. on 26 May 1983 and in the Court of Appeal is
reported at (1986) 33 B.L.R. 39. The third case was Shui On Construction
Co. Ltd. v. Shui Kay Co. Ltd. (1985) 4 Constr. L.J. 305, a judgment of
Hunter J. in the High Court of Hong Kong on 29 March 1985. Judge
Newey came to the conclusion that the architects, Wigley Fox, as they
were the architects appointed under the contract, owed a duty of care to
Lubenham, the contractors, as well as to the council. There was an
° alternative claim in tort based on an assertion that by issuing certain
certificates the architects were liable to the contractors for procuring a
breach of contract by the council. It was this latter issue, apart from the
construction of the contract itself, which attracted the attention of the
Court of Appeal and to a large extent the attention of the official
referee. The question of a duty of care in tort received only passing
C reference in the judgment of May L.J. (1986) 33 B.L.R. 39, 61. This
issue does not appear to have been argued in any detail in the Court of
Appeal.
The judgment of Hunter J. in Shui On Construction Co. Ltd. v. Shui
Kay Co. Ltd., 4 Constr. L.J. 305 is a skilfully structured and careful
judgment. After rehearsing the two questions posed by Lord Wilberforce
in Anns v. Merton London Borough Council [1978] A.C. 728, 751, and
D considering other cases "in the wake of Hedley Byrne & Co. Ltd. v.
Heller & Partners Ltd. [1964] A.C. 465," the judge took comfort from
the decision of the Court of Appeal in Esso Petroleum Co. Ltd. v.
Mardon [1976] Q.B. 801 on the question of legal proximity. Turning to
the second question, the judge considered Sutcliffe v. Thackrah with
particular attention to the reference to that case made by Lord Salmon
E in Arenson v. Arenson [1977] A.C. 405, 438, and described Lord
Salmon's remark as "admittedly an obiter but in my judgment a plainly
considered view of a very distinguished judge in this field." Hunter J.
also relied on the views of Lord Denning M.R. in the Arenson case in
the Court of Appeal [1973] Ch. 346, 365. However, Lord Denning M.R.
at the passage to which reference is made was dealing with the position
p of a professional man carrying out a valuation or a weighing operation:
b
see Glanzer v. Shepard (1922) 135 N.E. 275; 233 N.Y. 336, per Cardozo
J. With respect to Hunter J. this latter reference is of little assistance to
the application of the second question in the Anns case as it is now
applied in the circumstances of the present case. Summarising the
position in what may well be a sage comment, Hunter J. said, at p. 309:
„ "One is minded to suspect that architects will prove to be unable to
resist the tide which in the last 20 or 30 years has successively
submerged accountants, solicitors, barristers, surveyors and valuers
in the sense that they have all been held to owe duties of care to
persons other than their own clients. When one adds that support to
the statute (sic) of Lord Salmon and Lord Denning, it does seem to
be impossible for me to conclude that the case advanced on the
H pleading is unarguable."
Hunter J. was dealing with an application to strike out the claim. In
fairness to him since he delivered his judgment in 1985 there has been
an extensive and dramatic reconsideration of the whole area of tortious
liability for pecuniary loss arising from negligent misstatements and the
like: see the judgment of Bingham L.J. in Caparo Industries Pic. v.
Dickman [1989] 2 W.L.R. 316, 320 et seq. With respect to Hunter J., in
1174
my view his judgment was not supported by the judgment of Lord A

Denning M . R . or the speech of Lord Salmon to which he referred.
I come now to the third of the judgments at first instance, namely
Michael Salliss & Co. Ltd. v. Calilona (unreported), 3 July 1987. H e r e
again in a careful judgment, Judge Fox-Andrews considered the well-
trodden path of authority leading up to Junior Books Ltd. v. Veitchi Co.
Ltd. [1983] 1 A . C . 520 and the judgment of Hunter J. to which I have
just referred, together with the judgment of Robert Goff L.J. in "
Muirhead v. Industrial Tank Ltd. [1986] 1 Q . B . 507. In particular Judge
Fox-Andrews considered the passage in the latter judgment, at p p . 5 2 7 -
528, and came to the following conclusion:
"But it is self evident that a contractor who is a party to a J . C . T .
contract looks to the architect/supervising officer to act fairly as
between him and the building employer in matters such as certificates C
and extensions of time. Without a confident belief that that reliance
will be justified, in an industry where cash flow is so important to
the contractor, contracting could be a hazardous operation. If the
architect unfairly, promotes the building employers' interest by low
certification or merely fails properly to exercise reasonable care and
skill in his certification it is reasonable that the contractor should
not only have the right as against the owner to have the certificate
reviewed in arbitration but also should have the right to recover
damages against the unfair architect. I find that to the extent that
the plaintiffs are able to establish damage resulting from the
architects' unfairness in respect of matters in which under the
contract the architects were required to act impartially damages are
recoverable and are not too r e m o t e . " E
If I may say so, I find Judge Fox-Andrews' comment of not a little force
and in my judgment it isolates an aspect of this case over which I have
had a good deal of doubt. However, the judge formed his conclusion
against an understanding that one of three critical factors mentioned by
Robert Goff L.J. in the Muirhead case, at p . 527, was absent in the
Salliss case: p
"That the defendant may be able to rely on a contractual term with
a third party in order to defeat the plaintiff's claim against them is
that on the facts in Junior Books it was considered by a majority of
the House of Lords that the nominated sub-contractor had assumed
a direct responsibility to the building owner."
Robert Goff L.J. continued, at p . 528: G
"Voluntary assumption of responsibility in circumstances akin to
contract, was the basis of liability in Hedley Byrne & Co. Ltd. v.
Heller & Partners Ltd. [1964] A . C . 465 which Lord Roskill regarded
as relevant in Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 A . C .
520, both to the invocation by the defendant of contractual terms
with the third party and to reliance." J_J
With respect to Judge Fox-Andrews in ignoring the third criterion I am
forced to the conclusion that a question mark must reside over his
conclusion in the Salliss case. It apparently overlooks the contractual
structure against which any reliance placed by the victim on the
assumption of liability demonstrated by the proposed tortfeasor depends.
Bearing these authorities in mind it is now necessary to consider the
position of the contractor against the circumstances prevailing at the
1175
A time when its relationship with the engineer was established, namely, at
tender stage, and to pose the question: Did the contractor rely on any
assumption of liability in tort appearing to be accepted on the part of
the engineer which would afford to the contractor remedies beyond
those which it acquired under the terms of the contract in respect of
which it was to tender? One must start with the proposition that if the
contractor had required an indemnity or extra-contractual protection in
" respect of defaults by the engineer or insolvency on the part of the
employer then it was open to the contractor to have stipulated for such
protection. On the contrary, by accepting the invitation to tender on the
terms disclosed in the document "Instructions to Tenderers" and the
contractual documents submitted therewith the contractor must be taken
to accept the role to be played by the engineer as defined in the
Q contract.
The terms of the contract provided a three-stage process under which
the contractor obtained payment for his work, the third stage of which
(G.C. 67) included a reference to one or more independent arbitrators who
are given the power "to open up review and revise any decision opinion
direction certificate or valuation of the engineer." In the case of withholding
by the engineer of any certificate the resort to arbitration is not postponed
D until after completion of the works. However in this case, as a matter of
history, the claim under G.C. 67 was not made until after second certificate
of completion. The opening words of G.C. 67 are extremely wide: "If any
dispute or difference of any kind whatsoever shall arise between the
employer or the engineer and the contractor . . . " No function of the
engineer under or in connection with the contract was mentioned to the
g court during the course of argument which would escape this clause.
Clause P.C. 84 refers to P.C. 83 (deduction of sums certified due from the
contractor to the employer) and other matters in which the engineer's
decision is made final by the contract but the purpose of the clause is to
ensure that the engineer "will act independently of and entirely unfettered
by the employer." It was not argued that this clause affected in any way
the operation of the arbitration provisions in G.C.67.
F P.C. 85 gives very wide discretionary powers to the engineer in the
discharge of his function under the contract which are quite incompatible
with the role of an arbitrator. Wide as they may be, however, they are
subject to the provisions of G.C. 67, and it is under this clause that
arbitration is introduced. In my judgment, as I have already indicated,
there is no question of arbitral immunity being enjoyed under the terms
P of this contract by the engineer.
It remains only to consider shortly the significance of P.C. 86. This is
admittedly an important part of the contractual structure against which
the contractor accepted the engineer in his role under the contract. The
clause provides specifically that "neither the engineer nor any of his staff
shall be in any way personally liable for the acts or obligations under the
contract." This can only refer to his own acts in performing the
H obligations imposed on the engineer under the contract. The question is
whether the protection of this clause extends to the negligent performance
of those functions. In this context it is not necessary to establish that the
negligence on the part of the person relying on the exclusion clause is
the only negligence to which reference can be made as is the case with
such a clause in ordinary contracts. The presence of the reservation is
given its normal role to play in the overall1 consideration of what
responsibility was accepted by the proposed tortfeasor. This is dealt with
1176
in the speech of Lord Reid in Hedley Byrne & Co. Ltd. v. Heller & \
Partners Ltd. [1964] A.C. 465, 492-493:
"It appears to me that the only possible distinction in the present
case is that here there was no adequate disclaimer of responsibility.
But here the appellants' bank, who were their agents in making the
inquiry, began by saying that 'they wanted to know in confidence
and without responsibility on our part,' that is, on the part of the g
respondents. So I cannot see how the appellants can now be
entitled to disregard that and maintain that the respondents did
incur a responsibility to them.
"The appellants founded on a number of cases in contract where
very clear words were required to exclude the duty of care which
would otherwise have flowed from the contract. To that argument
there are, I think, two answers. In the case of a contract it is C
necessary to exclude liability for negligence, but in this case the
question is whether an undertaking to assume a duty to take care
can be inferred: and that is a very different matter. And, secondly,
even in cases of contract general words may be sufficient if there
was no other kind of liability to be excluded except liability for
negligence: the general rule is that a party is not exempted from p
liability for negligence 'unless adequate words are used'—per
Scrutton L.J. in Rutter v. Palmer [1922] 2 K.B. 87, 92, C.A. It
being admitted that there was here a duty to give an honest reply, I
do not see what further liability there could be to exclude except
liability for negligence: there being no contract there was no
question of warranty."
E
In accepting the invitation to tender with the complete contractual
framework including the disclaimer in P.C. 86, it would, in my judgment,
be impossible either to support the contention that the engineer was
holding himself out to accept a duty of care with the consequential
liability for pecuniary loss outside the provisions afforded to the
contractor under the contract, or to support the contention that the
contractor relied in any way on such an assumption of responsibility on ^
the part of the engineer in any way to bolster or extend its rights. I
think that I should say that even if P.C. 86 were not included in the
contract in this case, the provisions of G.C. 67 would, in my view, be
effective to exclude the creation of any direct duty on the engineer
towards the contractor.
Before leaving the question of disclaimer I should refer to the speech G
of Lord Brandon of Oakbrook in Leigh and Sillavan Ltd. v. Aliakmon
Shipping Co. Ltd. [1986] A.C. 785, 817. Lord Brandon was commenting
on the speech of Lord Roskill in Junior Books Ltd. v. Veitchi Ltd.
[1983] 1 A.C. 520 in which Lord Roskill was considering whether an
exclusion clause in the main contract might affect the position as
between one party to that contract and a third party. Lord Roskill said,
H
at p. 546:
"My Lords, that question does not arise for decision in the instant
appeal, but in principle I would venture the view that such a claim
according to the manner in which it was worded might in some
circumstances limit the duty of care just as in the Hedley Byrne case
the plaintiffs were ultimately defeated by the defendants' disclaimer
of responsibility."
1177
A With reference to this passage Lord Brandon in the Leigh and Sillavan
Ltd. case said, at p. 817:
"As is apparent this observation was no more than an obiter
dictum. Moreover, with great respect to Lord Roskill there is no
analogy between the disclaimer in Hedley Byrne & Co. Ltd. v.
Heller & Partners Ltd. [1964] A.C. 465, which operated directly
P between the plaintiffs and the defendants, and an exclusion of
liability clause in a contract to which the plaintiff is a party but the
defendant is not. I do not therefore find in the observation of Lord
Roskill relied on any convincing legal basis for qualifying a duty of
care owed by A to B by reference to a contract to which A is, but
B is not, a party."
Q There can be no doubt of the force of Lord Brandon's comment as it
stands. However, with great respect to Lord Brandon the absence of a
direct contractual nexus between A and B does not necessarily exclude
the recognition of a clause limiting liability to be imposed on A in a
contract between B and C, when the existence of that contract is the
basis of the creation of a duty of care asserted to be owed by A to B.
The presence of such an exclusion clause whilst not being directly
D binding between the parties, cannot be excluded from a general
consideration of the contractual structure against which the contractor
demonstrates reliance on, and the engineer accepts responsibility for, a
duty in tort, if any, arising out of the proximity established between
them by the existence of that very contract.
I have come to the conclusion, for the reasons already stated, that no
g liability can be established in tort under which the engineer owed a
direct duty to the contractor in the circumstances disclosed in this case. I
emphasise, however, that in coming to this conclusion it does depend on
the particular circumstances of the case not the least of which were the
contractual provisions in the contract which afforded an avenue enabling
the contractor to recover from the employer. I see no justification for
superimposing on this contractual structure an additional liability in tort
F as between the engineer and the contractor. In coming to this conclusion
I have taken into account: (i) that although there was a degree of
proximity established in the obvious sense that the contractor under the
terms of the contract relied on the engineer performing his duties in
supervising the execution of the works, this is not the same quality of
proximity required to establish a duty of care in the Hedley Byrne sense;
Q (ii) that the duty on the engineer to perform in accordance with the
contract arose out of some contractual relationship, unspecified, existing
between the employer and the engineer, which give rise to that duty;
(iii) that there was no direct contractual relationship between the
engineer and the contractor; (iv) that under the contract, the contractor
could challenge in the fullest sense the performance of his duties by the
engineer by claiming against the employer for sums due to the contractor
H including extra expenses and interest on outstanding sums due; (v) that
the contractor, when tendering for the contract, was content to offer for
the works on the terms set out in the invitation to tender which
incorporated the full terms of the proposed contract. In these
circumstances the following propositions appear to me to be established.
(i) The engineer remains under contractual obligations to the employer,
which give rise to a duty to exercise skill and care and in appropriate
circumstances to act fairly between the employer and the contractor. If
1178
the engineer is in breach of this duty he is liable to the employer for A

economic loss directly flowing from the breach. Whether this action lies
in contract or tort or both will only be a relevant question in very
exceptional circumstances. Their Lordships did not specifically consider
this question in Sutcliffe v. Thackrah [1974] A.C. 727. (ii) There is no
reason to infer that the contractor was relying on any right to recover
damages in the form of economic loss arising from any breach of duty in
(i) above, other than by pursuing its remedies against the employer °
under the contract, (iii) There is no reason to infer that the engineer
ever assumed or appeared to assume a direct responsibility to the
contractor for any economic loss that might be occasioned to the
contractor as a result of any breach of his duty as in (i) above, (iv)
There is, therefore, no basis on which a duty of care to prevent
economic loss can be imposed on the engineer in favour of the contractor Q
which would be for all practical purposes co-terminus with the rights to
be enjoyed by the contractor under the contract.
Whether it is said that in the above circumstances there was not
proximity between the parties and, therefore, no duty of care, or
whether it is said that no economic loss in the sense of loss not
recoverable under G.C. 67 is foreseeable; or whether it is said that to
allow the existence of such a duty would not be just and reasonable may D
not in the present case matter very much. The result will be the same.
The position might well have been otherwise if G.C. 67 or some other
provision for arbitration had not been included in the contract. The
position of the engineer, if the contract so provided, might well be
arbitral or quasi-arbitral: see per Lord Morris of Borth-y-Gest in Sutcliffe
v. Thackrah [1974] A.C. 727, 751G. On the other hand, he might well E
owe a duty to exercise skill and care to a contractor who relies on his
valuations and certificates just as the person operating the weighbridge
was found to be liable in Glanzer v. Shepard, 135 N.E. 275 or even to
be "shot at from both sides" as envisaged by Lord Salmon in Arenson v.
Arenson [1977] A.C. 405, 438. These are all exceptional cases. It will be
rare in these days for a contract for engineering works of any substance
in which a consulting engineer is appointed not to have an arbitration F
clause.
In my judgment, therefore, Judge John Davies was correct in ruling
that the statement of claim disclosed no cause of action. It remains,
however, to consider the other aspects of the case on which Mr. Tuckey
relied in support of his submission that in any event the claim was an
abuse of the process of the court which should be struck out on those ^
grounds. I have already touched on the submission that the function of
the engineer was a quasi-arbitral function and have expressed the view
that the duty to reconsider the matter under G.C. 67 was not such a
function. There is no reason to suggest that both contesting parties
submitted evidence in support of their respective cases in a dispute or
difference submitted for arbitration or quasi-arbitration by the engineer
at this stage. All the contemporary documents and the conduct by the H
contractor and the reaction by the engineer show that the latter was,
whilst acting impartially under G.C. 67, acting in pursuance of his
contract with the employer. I do not think it is necessary to deal further
with this aspect of the case. As I have already said, no question of
arbitral immunity can arise in this case.
Mr. Tuckey referred to Spencer-Bower and Turner's Res Judicata,
2nd ed. (1969), Appendix A, paras. 503-505. The burden of these
1179
A paragraphs is to the effect that the court, in the exercise of its inherent
jurisdiction to prevent vexatious or oppressive litigation, in earlier times
exercised this jurisdiction very sparingly; but that in modern practice the
jurisdiction has been resorted to with increasing frequency. The modern
exercise of this jurisdiction is no longer restricted to cases where
estoppel per rem judicatam is established but in appropriate circumstances
will be used where they are such as to render any re-agitation of the
° questions formerly adjudicated on being a scandal or abuse. Mr.
Tuckey's submission was that although the determination by settlement
of the arbitration proceedings under G.C. 67 could not raise a formal
estoppel nevertheless under this extension the court should exercise its
inherent jurisdiction. Mr. Tuckey submitted that three conditions must
be satisfied in order to establish a true issue estoppel, namely, (a) final
Q judgment in earlier proceedings; (b) where the subject matter was
identical; and (c) there was an identity of parties. In the present case the
settlement of the arbitration satisfied the first condition. Certainly it
could be said that the subject matter was the same in the sense that all
the issues which would have been relevant had the arbitration run its full
course would be those which would be litigated in the action. Although
the litigating parties were not the same there was a degree of privity of
D interest between the employer, who was respondent to the arbitration,
and the engineer, his agent who was the defendant in the High Court
action, and the contractors in both proceedings. The question of privity,
which is the central one in issue, is clearly a very difficult area of the
law. It was the subject of a critical and detailed analysis by Sir Robert
Megarry V.-C. in Gleeson v. Wippell [1977] 1 W.L.R. 510, 515C-516D.
£ The privity between the engineer, the contractor and the employer
arising out of the contractual structure against which they came together
over the works involved is clearly one of some relevance. The issue will
be very similar if not the same as those raised in the arbitration. The
question is: should the contractor be prevented from proceeding on
similar grounds against the engineer in these circumstances? In one
sense it is a bare re-agitation of the same issues on the part of the
F contractor. The difficulty is, the proposition mentioned by Sir Robert
Megarry in considering what he described as his third point, that if
there is to be privity it cannot depend on the success of the earlier
proceedings out of which the estoppel arises and the concept that a
defendant is entitled to rely on his own defence rather than be
prejudiced by someone else's defence. Thus, had the arbitration been
(-, successful in favour of the contractor, would the fact that the employer's
defence failed to prevent the engineer from constructing his own
defence? It would appear to be unjust that this should be the case. I
have made it clear that to my mind this is a very difficult aspect of this
case. Had I been obliged in order to determine this appeal to reach a
firm conclusion in the circumstances I would have been minded to
sustain what would be a small extension of the principle already
H established; but fortunately it is not necessary for me to arrive at a firm
conclusion on this subject.
Finally, Mr. Tuckey submitted that any damages which might have
been suffered by the contractor in this case did not flow from the breach
of the duty, if such existed, owed by the engineer to the contractor. His
submission was that the event of the arbitration and its settlement
constituted a novus actus interveniens. The engineer's breach, if any,
must have arisen out of a failure to perform the duty imposed on him by
1180
G.C. 67. Any pre-existing breach in failing to grant interim certificates A
was capable of remedy under the review provided by the clause. Any
damage suffered by the contractor resulting from such a breach was
recoverable in the arbitration proceedings provided for by the clause.
These proceedings were instituted by the contractor and were the
subject matter of a settlement. The reasons behind, or the cause for,
that settlement cannot be related back to any breach on the part of the
engineer either in failing to certify under general conditions 12, 52 or 67; B
but must arise out of the circumstances in which the settlement was
achieved. The circumstances in which the settlement was achieved were
not fully deployed either before the official referee or before this court.
It is worthy of note in this respect that in the amended statement of
claim the costs of the arbitration are claimed but the fact of the
compromise is pleaded as narrative but not as being caused by the Q
breach of duty of the engineer. It was indicated, however, that there
were fears about the health and continued existence of the employer;
and this may well be so, but there was also clearly a serious dispute as
to any right of certification under G.C.12 which was fully deployed in
the correspondence which took place between the contractor and the
engineer almost from the beginning of the work up to the time when the
formal G.C. 67 application was made. In my judgment there is D
considerable force in Mr. Tuckey's submissions that the settlement
occurring in the context of the arbitration constituted a novus actus
interveniens and would prevent the recovery of any loss occurring to the
contractor as a result of the settlement in that arbitration. For these
reasons I would dismiss both appeals.
E
RALPH GIBSON L.J. I agree that these appeals should be dismissed.
Purchas L.J. has stated the terms of the contract between the contractor
and the employer as a result of which the relationship between the
contractor and the engineer came into existence.
As I understood Mr. Scrivener's submissions for the contractor he
placed primary reliance on the application to the facts of this case of the
principles established by Hedley Byrne & Co. Ltd. v. Heller & Partners F
Ltd. [1964] A.C. 465. In short, he said that this is a case of the engineer,
as a professional man, acting with knowledge that his skill and judgment
were being relied on so that he is to be treated as having voluntarily
assumed responsibility to the contractor for exercising that skill and
judgment with due care. Mr. Scrivener pointed to and relied on the
passages in the speeches of their Lordships: Lord Reid at p. 486, Lord ^
Morris of Borth-y-Gest at pp. 495, 497 and 502, Lord Hodson at pp. 509
and 514, Lord Devlin at pp. 517, 525-526, 528-529 and 530 and Lord
Pearce at p. 538. He contended that the comments, in the cases following
the decision in Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 A.C. 520,
have not been directed to and have had no effect on the position and
responsibility of the professional man as explained in the Hedley Byrne
case. Mr. Scrivener was referring in this context to such cases as D. & F. H
Estates Ltd. v. Church Commissioners for England [1989] A.C. 177;
Greater Nottingham Co-operative Society Ltd. v. Cementation Piling Ltd.
[1989] Q.B. 71; Ernst & Whinney Willard Engineering (Dagenham) Ltd.
(1987) Constr. L.J. 292; Simaan General Contracting Co. v. Pilkington
Glass Ltd. [1988] Q.B. 758; Muirhead v. Industrial Tank Ltd. [1986] Q.B.
507 and Governors of the Peabody Donation Fund v. Sir Lindsay Parkinson
& Co. Ltd. [1985] A.C. 210.
1181
3 W.L.R. Pacific Associates v. Baxter (C.A.) Ralph Gibson L.J.
A Mr. Scrivener also contended that this was a case in which, even if the
engineer could not be treated as having voluntarily assumed a responsibility
to the contractor to use proper care, and therefore could not be treated as
having known that the contractor was relying on that assumption of
responsibility, nevertheless the relationship between the contractor and
engineer was so close and so direct that a duty to take care, owed by the
engineer to the contractor, must be imposed by the law.
" There are, in my judgment, two main questions to be answered in this
case. The first is whether the relationship between the contractor and the
engineer, as alleged in the statement of claim, was such that the engineer
became under a duty to the contractor to act with due care to avoid
economic loss to the contractor under the contract with the employer,
assuming for that purpose, in the first instance, that there was no such
Q exemption clause or statement as is contained in P.C. 86 of the conditions
of particular application. The text of it has been set out by Purchas L.J.
The second main question is whether any such duty of care is to be
imposed having regard to the presence of that exemption clause even if the
answer to the first question is that, in the absence of such a clause, the
engineer would have become under such a duty. Since the exemption
clause is present in the contract, and since, for reasons which I shall give, it
D would be decisive against the imposition of any such duty of care, in my
judgment, even if, in its absence, the law would impose such a duty of care
on the engineer; there is no necessity for this court to reach a final
conclusion on the first question. This court should, however, I think,
express its view as to what the answer to that first question should be. The
professional firms engaged in construction work as architects or engineers
£ or surveyors, and the companies which carry out such work, are concerned
to know whether in the relationships between contractor, employer and
engineer under a contractual relationship like to that set out in this
contract, but ignoring the disclaimer clause, the law imposes a duty of care
on the engineer to the contractor, not to cause economic loss to the
contractor in the process of certifying and of accepting or rejecting claims
under the contract. Of course, each case will depend on its own facts and
F circumstances and on the particular provisions of the relevant contract: see
per Lord Morris of Borth-y-Gest in Sutcliffe v. Thackrah [1974] A.C. 727,
752G. But it is likely that a large number of contracts are placed for
construction or engineering works in which the contractual relationship of
contractor and employer and the contractual duties of the engineer are
substantially similar to those present in this case and it should be possible
^ to determine whether in general a duty of care does or does not arise in
such a case. Further, in considering the effect which may properly be given
to the exemption clause it is relevant to know whether there would be a
duty of care but for the presence of that clause.
' For my part, I would answer the first question by saying that, on the
facts as they are in this case assumed to be, there was "no express or
implied undertaking of responsibility" (see per Lord Devlin in Hedley
H Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, 530) on
which the alleged liability of the engineer could be founded, according to
the primary submission by Mr. Scrivener based on Hedley Byrne. It seems
to me that the facts in Hedley Byrne were markedly different and that the
principle there applied is not capable of direct application in this case. A
feature of Hedley Byrne, in my judgment, is that there was an approach,
made to the defendant bank by or on behalf of the plaintiffs, inviting the
bank to provide a service of advice and information directly to the
VOL. 3 50
1182
Ralph Gibson L.J. Pacific Associates v. Baxter (C.A.) [1989]
plaintiffs. Hence it was, to deal with some of the passages relied on by Mr. A
Scrivener, that Lord Reid said, at p. 486:
"A reasonable man, knowing that he was being trusted or that his skill
and judgment were being relied on, would, I think, have three courses
open to him. He could keep silent or decline to give the information
or advice sought: or he could give an answer with a clear qualification
that he accepted no responsibility for it or that it was given without g
that reflection or inquiry which a careful answer would require: or he
could simply answer without any such qualification. If he chooses to
adopt the last course he must, I think, be held to have accepted some
responsibility for his answer being given carefully, or to have accepted
a relationship with the inquirer which requires him to exercise such
care as the circumstances require."
C
Hence it was, also, that Lord Morris of Borth-y-Gest said, at p. 495:
"If someone who was not a customer of a bank made a formal
approach to the bank with a definite request that the bank would give
him deliberate advice as to certain financial matters of a nature with
which the bank ordinarily dealt the bank would be under no obligation
to accede to the request: if, however, they undertook, though -.
gratuitously, to give deliberate advice (I exclude what I might call
casual and perfunctory conversations) they would be under a duty to
exercise reasonable care in giving it. They would be liable if they were
negligent although, there being no consideration, no enforceable
contractual relationship was created."
Further, Lord Devlin said, at pp. 525-526: g
"It would be surprising if the sort of problem that is created by the
facts of this case had never until recently arisen in English law. As a
problem it is a by-product of the doctrine of consideration. If the
respondents had made a nominal charge for the reference, the problem
would not exist. If it were possible in English law to construct a
contract without consideration, the problem would move at once out
of the first and general phase into the particular; and the question
would be, not whether on the facts of the case there was a special
relationship, but whether on the facts of the case there was a contract.
The respondents in this case cannot deny that they were performing a
service. Their sheet anchor is that they were performing it gratuitously
and therefore no liability for its performance can arise. My Lords, in
my opinion this is not the law." G
In this case there was no request to the engineer by or on behalf of the
contractor for the engineer to render any service of any kind to the
contractor. The contractor came into that relationship with the engineer, as
Purchas L.J. has demonstrated, which was the result of the contractor
entering into the contract with the employer and of the engineer having
been engaged by agreement with the employer to perform the functions of H
the engineer under the contract. The engineer assumed the obligation
under his agreement with the employer to act fairly and impartially in
performing his functions. He was under a contractual duty to the employer
to act with proper care and skill. Such risk as the engineer could reasonably
foresee of the contractor suffering loss as a result of any want of care on
the part of the engineer is, in my judgment, remote: the contract provided
for the correction by the process of arbitration of any error on the part of
1183
A the engineer and it has not been suggested that there is any real scope for
an error on the part of the engineer which would not be at once detected
by the contractor. The court should, I think, at least in the absence of any
factual basis for the engineer to have foreseen any other outcome, proceed
on the basis that the contractor would recover by arbitration the sums
which it ought to recover under the contract. It is, I acknowledge,
foreseeable that a contractor under such an arrangement may suffer loss by
® being deprived of prompt payment as a result of negligent under-
certification or negligent failure to certify by the engineer but arbitration
should secure interest on the unpaid sums.
The contractual duty of the engineer, owed to the employer, to act
fairly and impartially is a duty in the performance of which the employer
has a real interest. If the engineer should act unfairly to the detriment of
Q the contractor claims will be made by the contractor to get the wrong
decisions put right. If arbitration proceedings are necessary the employer
will be exposed to the risk of costs in addition to being ordered to pay the
sums which the engineer should have allowed. If the decisions and advice
of the engineer, which caused the arbitration proceedings to be taken were
shown by the employer to have been made and given by the engineer in
breach of the engineer's contractual duty to the employer, the employer
D would recover his losses from the engineer. There is, therefore, not only
an interest on the part of the employer in the due performance by the
engineer of the duty to act fairly and impartially but also a sanction which
would operate, in addition to the engineer's sense of professional obligation,
to deter the engineer from the careless making of unfair or unsustainable
decisions adverse to the contractor.
£ I have had in mind the submission of Mr. Scrivener based on the
opinion of Lord Salmon in Arenson v. Arenson [1977] A.C. 405, 438F and
of Lord Fraser of Tullybelton, at p. 442, and on the decisions of the judges
a^ first instance which have been reviewed by Purchas L.J. It is,
nevertheless, in my judgment, plain that, assuming the truth of the
allegations set out in the statement of claim, there is no material on which
it could properly be said that the engineer voluntarily assumed any
F responsibility to the contractor to take care in the discharge of the duties of
the engineer under the contract.
There was, as I have said, nothing in the nature of the engineer being
asked to render any service to the contractor, or of undertaking to do so.
As must have been obvious, in my judgment, to the contractor, the
position was that the engineer had agreed with the employer to perform
~ the functions of engineer under the contract and the proper performance of
those functions required that the engineer act fairly and impartially. I find
it impossible to hold that the engineer in fact assumed any relevant
responsibility to the contractor or that he said or did anything which
objectively considered could properly be regarded as an express or implied
assumption of such responsibility. The law may impose a duty in the
absence of any actual assumption of responsibility by a defendant in a case
H of economic loss but, if it is to do so, it should in my judgment be on the
ba'sis of an imposed duty and not by the assertion of an implied assumption
when there was in fact none.
I have, in reaching that conclusion, also had in mind the decision of this
court in Caparo Industries Pic. v. Dickman [1989] 2 W.L.R. 316, a case
concerned with the relationship of a statutory auditor of a company to a
shareholder and to an investor in the company. Bingham L.J. said, at p.
326:
1184
"The Hedley Byrne case [1964] A.C. 465 shows that the relationship A
of A and B may be sufficiently proximate if, independently of contract,
A assumes the responsibility of giving B deliberate advice: if A
engages B contractually to give advice to C, the relationship of B and
C is no less proximate, however that expression is interpreted."
The statutory auditors had been retained by contract by the company to
give an independent report to shareholders about the financial state of the B
company. Bingham L.J. concluded, at p. 327, that it was inescapable that
the auditor had voluntarily assumed direct responsibility to individual
shareholders. I cannot regard the engineer as being in a similar position to
that of the statutory auditors. In agreement with Purchas L.J., I would
hold that the engineer was not employed by the employer to exercise due
care in the interest of the contractor, so that the engineer could be Q
regarded as assuming responsibility to the contractor so to act. The
engineer was employed by the employer to act for the employer as
engineer under the contract and the duty thereby assumed by the engineer
to act fairly and impartially was a responsibility assumed only to the
employer.
As to the second basis of Mr. Scrivener's argument, I would again, for
the following reasons, answer the first question by saying that, if the
disclaimer clause were not present, the law should not, on the facts set out
in the statement of claim, impose a duty of care on the engineer owed to
the contractor in respect of the matters set out in the statement of claim. It
has been accepted that in a case of pure economic loss there may be
imposed by the law a duty to take care although there has been no
"voluntary assumption of responsibility": see per Bingham L.J. in Caparo E
Industries Pic. v. Dickman [1989] 2 W.L.R. 316, 326, citing Ministry of
Housing and Local Government v. Sharp [1970] 2 Q.B. 223, per Lord
Denning M.R. at pp. 268-269, per Salmon L.J. at p. 279E and per Cross
L.J. at p. 291A. Further, in Ross v. Counters [1980] Ch. 297 the defendant's
solicitors had undertaken to their client, the testator, to act with care with
reference to the effective making of the testator's will, including the p
conferring of a benefit on a named beneficiary. That beneficiary was held
entitled to recover against the solicitors in respect of the benefit lost
through the solicitors' negligence although there had been no direct
assumption of responsibility by the solicitors to the beneficiary or reliance
by the beneficiary. It was common ground on the argument of this appeal
that, for imposition of such a duty of care, the three requirements must be
satisfied, namely of foreseeability, of proximity, and that it is just and G
reasonable to impose the duty. In considering whether it is just and
reasonable to impose the duty it is necessary, or course, to take into
account the nature, extent and likelihood of any harm, foreseeably resulting
from any want of care.
As to foresight of harm, I have stated above that such risk as the
engineer could reasonably foresee of the contractor suffering loss, as a H
result of any want of care on the part of the engineer such as is alleged
in the statement of claim, is, in my judgment, remote, because the
contract provided for the correction of any such mistake by the process
of arbitration; and any risk of loss through an event such as the
insolvency of the employer, causing the contractor not to recover some
payment which it would have recovered if such payment had been
earlier certified by the engineer, was at least equally remote. No
1185
A allegation is made that such insolvency or other event should have been
in contemplation by any party.
Next, as to proximity, namely, "such close and direct relations that
the act complained of directly affects a person whom the person alleged
to be bound to take care would know would be directly affected by his
careless act:" see per Lord Atkin in Donoghue v. Stevenson [1932] A.C.
562, 580, 581, 582, cited by Lord Keith in Yuen Kun Yeu v. Attorney-
B
General of Hong Kong [1988] A.C. 175, 192. It is clear that the
contractor in entering into the contract placed reliance on the engineer
performing properly his obligations under the contract and the engineer
knew that the contractor would be initially affected by the way in which
the engineer performed those obligations; but, for the reasons already
stated, the engineer would not expect the contractor to be in the end
Q directly affected by the careless act of the engineer in performing those
obligations because of the way in which the contract provisions would be
expected to operate. The engineer is giving an opinion, or advising on,
matters on which the engineer has information, or access to documents,
not available to the contractor as in the case of the bankers in Hedley
Byrne and of the certifying accountants in such cases as Caparo Industries
Pic. v. Dickman. In such a case as this, the contractor will know at once
D whether he agrees with the action of the engineer and the contractor has
the information on which to judge whether he can or sensibly should
dispute the engineer's decision. That fact, not unlike the expected
intermediate examination before use of a defective chattel which may be
sufficient to negative any duty of care in a producer of the chattel to the
injured user (see the cases cited in Charlesworth and Percy on Negligence,
£ 7th ed. (1983), para. 8.33) seems to me to be of importance. The
producer, when that principle is applied, is not under a duty of care to
the ultimate user because he is entitled to suppose that the defective
state of the chattel, resulting from any want of care on his part, would
be detected and any risk of injury thereby prevented. Similarly, the
engineer in this case should be entitled to suppose that the contractor
will detect any error on the part of the engineer, caused by want of
F care, and take appropriate action. Further, the engineer has an
opportunity to correct any error which he has made and which is
pointed out to him by the contractor. If the engineer persists in his error
the process of arbitration should correct it and provide to the contractor
the reward which should have been allowed by the engineer together
with appropriate interest.
Q As to the third requirement, namely, that it should be just and
reasonable in all the circumstances to impose liability, I have no doubt
that, assuming the disclaimer clause to be absent, it would not be just
and reasonable. Mr. Scrivener drew attention to the fact that in certain
textbooks the existence of a duty of care on the part of an engineer or
architect to the contractor, in the circumstances of contractual structures
similar to that in this case, has been considered or assumed. The
H presence of the disclaimer in P.C.86 in this case indicates that attention
has been given to the possibility. I will assume that the engineer could,
and perhaps did, obtain such insurance cover as was thought to be
necessary. Mr. Scrivener also asserted that, if a duty of care should be
imposed in such a case as this, it is unlikely that attempts will be made
with any frequency to pursue similar claims hereafter because of the
great difficulty of proving that a decision made by a professional man is
capable of being characterised as negligent, in the sense of being outside
1186
the range of opinion open to a competent member of the relevant A

profession. I see force in these submissions. The fact that most
contractors are in ordinary circumstances sufficiently protected by
recourse to the contractual obligations of the employer does not wholly
preclude the risk, in a small number of cases, of a contractor suffering
severe loss as a result of the sort of conduct of which the engineer is
here alleged to have been guilty. Nevertheless, in agreement with
Purchas L.J., it seems to me to be neither just nor reasonable in the
circumstances of the contractual terms existing between the contractor
and the employer (absent the disclaimer clause) to impose a duty of care
on the engineer to the contractor in respect of the matters alleged in the
statement of claim, namely, the alleged failure to certify and final
rejection of the contractor's claims. So to do would be to impose, in my
judgment, a duty which would cut across and be inconsistent with the C
structure of relationships created by the contracts, into which the parties
had entered, including in particular the machinery for settling disputes.
It may be that, if the court upheld the submission that such a duty of
care should be imposed on the architect or engineer in a case where the
contractual structure is generally as it is in this case, but without any
disclaimer clause, the professions and those in the construction industries ^
would devise effective contractual structures to contain or deal with the
potential existence of such a duty. Suitable exclusion clauses would be
employed or omitted as thought to be appropriate. Provision could be
made as to when claims against the engineer or architect may proceed.
A separate arbitration clause could be included or provision made for
joint arbitration when necessary. Nevertheless, in my judgment, assuming
the absence of the disclaimer clause, in the light of the other contractual E
provisions, it would be unreasonable and unjust to impose the duty of
care. If the contractor accepted the terms set out in the tender document,
without the presence of the disclaimer clause, the contractor should,
with reference to certification and admission or rejection of claims, be
limited to such relief as he can obtain through operation of the terms of
the contract and the court should not impose a duty of care on the p
engineer which would be additional to the relationship between the
parties set out in the contract, and which is unnecessary for the fair
working of that relationship as, in my judgment, the parties expected
and intended it to work.
As to the second question, if, contrary to my view, the correct
answer to the first question were that, without the disclaimer, the Q
engineer would be under a duty to the contractor to take care, I would
hold that the presence of the disclaimer clause should prevent the
imposition on the engineer of any duty to take care in the circumstances
set out in the statement of claim. First, as to the contractor's reliance on
Hedley Byrne [1964] A C . 465, it seems to me to be impossible to argue
that the engineer can be treated as having assumed responsibility to the
contractor. In the Hedley Byrne case Lord Devlin said, at p. 533: "
"A man cannot be said voluntarily to be undertaking a responsibility
if at the very moment when he is said to be accepting it he declares
that in fact he is not. The problem of reconciling words of
exemption with the existence of a duty arises only when a party is
claiming exemption from a responsibility which he has already
undertaken or which he is contracting to undertake."
1187
A The words of P.C. 86 contain a provision in the contract documents

prepared on behalf of the employer and given to the contractor for the
preparation of its tender. The contractor knew at the time who the
engineer would be. In the context those words, in my judgment, are to
be treated as put forward by the employer, but with the knowledge and
approval of the engineer, for the purpose and with the effect of showing
that, in performing his functions under the contract contemplated by the
B contract documents, the engineer was not accepting or assuming any
responsibility directly to the contractor.
Next, as to proof of a relationship so close and direct that a duty to
take care should be imposed despite the absence of any voluntary
assumption of responsibility on the part of the engineer, the presence of
the disclaimer clause would be equally effective, in my judgment, even
Q if, without it, a duty of care would be imposed by law on the engineer in
the circumstances and with reference to the matters set out in the
statement of claim. The effect of the clause would still be sufficient to
prevent the alleged duty of care from arising, because there is no factor
present of such force as could render it just and equitable to impose that
duty of care on the engineer whose freedom from liability "for the acts
or obligations under the contract" is declared by P.C. 86. All the
D matters alleged against the engineer are, as it seems to me, acts of the
engineer under the contract between the employer and the contractor
and are acts, namely certification and acceptance or rejection of claims,
falling within the intended scope of that clause. The fact that the clause
is contained in a contract to which the engineer is not a party should
not, in my judgment, prevent the words having the effect which all the
g parties to this arrangement, namely contractor, employer and engineer,
plainly expected and intended them to have.
As to the alternative ground advanced by Mr. Tuckey on behalf of
the engineer, namely that the engineer could not be liable because he
was acting as an arbitrator or quasi-arbitrator, I agree that the point fails
for the reasons given by Purchas L.J.
I would not uphold the additional ground on which the judge relied
F and which was based on the principles expressed in Welby v. Drake, 1
Car. & P. 557 and Hirachand Punamchand v. Temple [1911] 2 K.B. 330.
In the latter case the plaintiffs were treated as having accepted money
from the father of the defendant on the terms proposed, namely, that it
be accepted in satisfaction of all sums due from the defendant. By so
accepting the father's payment, the son's debt became extinct or the
(-. situation was created in which it would be an abuse of the process of the
court for the plaintiffs to pursue the claim further against the son: see
per Fletcher Moulton L.J., at p. 339, and Farwell L.J., at p. 340. In that
case the payment was offered and retained on terms that the son was to
have the benefit of the payment and to procure his release. There is
nothing to show that the settlement between the contractor and the
employer in this case, and the payment by the employer to the contractor
H under that settlement, were to be in any way for the benefit of the
engineer or that they were to procure any protection or release for the
engineer from any liability under which he might be.
As to the contention that the court should not permit the re-opening
and re-agitation of the claim of the contractor, on the ground that what
they seek to raise against the engineer is the same claim as that
advanced against the employer in the arbitration and finally settled in
those proceedings, I would prefer to express no concluded view. On the
1188
assumption that the contractor had in law a valid basis of claim against A
the engineer I would have difficulty in accepting that the settlement of
their claim against the employer could provide the basis for holding that
the contractor should be prevented from pursuing that claim against the
engineer.
Lastly, as to the contention that the loss alleged in the statement of
claim could not, on the facts pleaded, be held to have been caused by
any negligence alleged against the engineer, I agree with Purchas L.J. °
that there is much force in the submissions made by Mr. Tuckey. The
statement of claim sets out the alleged acts of negligence in failing to
allow the contractor appropriate additional compensation, extensions of
time and the other relief claimed by it under the contract. It is then
alleged that, by reason of matters set out in the statement of claim, the
contractor has suffered loss and damage. Under the particulars, it is Q
alleged that the rejection of the contractor's claim forced the contractor
to commence arbitration proceedings against the employer. There is
then the bare statement that those proceedings were settled on the terms
described by Purchas L.J. Nothing suggests that the alleged negligence
of the engineer was a cause of the contractor choosing to settle its claim
as it did. If the engineer was not to blame for the circumstances which
caused the contractor to choose to settle the claim for a fraction of what D
was properly due to the contractor, and if such an outcome was not a
foreseeable consequence of any negligence on the part of the engineer in
dealing with the contractor's claims—and it is not alleged that it was—
the negligence of the engineer in rejecting the contractor's claims could
be regarded as relegated to no more than part of the history and
circumstances in which the contractor's decision was made to settle those g
arbitration proceedings: see Minister of Pensions v. Chennell [1947] 2
K.B. 250 cited in Banque Keyser Ullmann S.A. v. Skandia (U.K.)
Insurance Co. Ltd. [1989] 3 W.L.R. 25. Since, for the reasons given, the
contractor has failed to demonstrate any arguable cause of action against
the engineer it is not necessary to decide whether this point of lack of
proof of causation could be held by itself to justify striking out the
contractor's claim. F
RUSSELL L.J. This case is concerned with (a) the existence and
(b) the extent of any tortious duty owed, where purely economic loss
has resulted from negligent conduct on the part of an expert professional.
In this field Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964]
A.C. 465, was a watershed and since that case the problem has Q
crystallised in a number of authorities in the Court of Appeal and the
House of Lords. The instant appeal is yet another illustration of the
problem.
As my starting point I take what is to be gleaned from Hedley Byrne.
The headnote reads, at p. 466:
"a negligent, though honest, misrepresentation, spoken or written,
may give rise to an action for damages for financial loss caused
thereby, apart from any contract or fiduciary relationship, since the
law will imply a duty of care when a party seeking information from
a party possessed of a special skill trusts him to exercise due care,
and that party knew or ought to have known that reliance was
being placed on his skill and judgment."
Lord Morris of Borth-y-Gest said, at pp. 502-503:
The Weekly Law Reports 1 December 1989
1189
3 W.L.R. Pacific Associates v. Baxter (C.A.) Russell L.J.
A "My Lords, I consider that it follows and that it should now be

regarded as settled that if someone possessed of a special skill
undertakes, quite irrespective of contract, to apply that skill for the
assistance of another person who relies upon such skill, a duty of
care will arise. The fact that the service is to be given by means of
or by the instrumentality of words can make no difference.
Furthermore, if in a sphere in which a person is so placed that
" others could reasonably rely upon his judgment or his skill or upon
his ability to make careful inquiry, a person takes it upon himself to
give information or advice to, or allows his information or advice to
be passed on to, another person who, as he knows or should know,
will place reliance upon it, then a duty of care will arise."
^ A succession of cases in the years since Hedley Byrne have recognised
the necessity to put a brake on these developments relating to the
existence of a duty of care, so that in addition to what was subsequently
to be described as the tests of proximity and foreseeability, there has to
be grafted on a third test which must be satisfied before a duty of care
can arise. That third test is whether, in the circumstances of the
individual case, it is just and reasonable that the duty should be
D imposed. In agreement with Bingham L.J. in Caparo Industries Pic. v.
Dickman [1989] 2 W.L.R. 376 I think this third test was admirably put
by Weintraub C.J. in Goldberg v. Housing Authority of the City of
Newark (1962) 186 A. 2d 291, 293 when he said:
"Whether a duty exists is ultimately a question of fairness. The
inquiry involves a weighing of the relationship of the parties, the
E nature of the risk, and the public interest in the proposed solution."
In my judgment it is this third test which is at the heart of this appeal.
I entertain no doubt but that the engineer, when he prepared tenders
and contract documents, held himself out as an expert on whom the
contractor was entitled to rely in the administration of the contract.
Throughout its operation it was plainly contemplated that the engineer
F would supervise the activities of the contractor and would bring to bear
his expertise, as well as fairness, in determining the extent of the work
to be certified. His position, which has been fully described in the
judgment of Purchas L.J. was, vis-a-vis the contractor, a very close one,
albeit falling short of any direct contractual relationship. In my judgment
the proximity test was satisfied.
Q I am less certain that the engineer, when he assumed his position
under the contract between the employer and the contractor, reasonably
contemplated that in the event of his negligence in the way of under-
certification, or indeed of under-certification without negligence, economic
damage would, or at least could, ensue. Mr. Tuckey, during the course
of his submissions on behalf of the engineer, submitted that because the
contractor had a remedy for non-certification or under-certification
H against the employer, no damage was to be foreseen by the engineer.
On this aspect of the case I entertain some reservation. The non-
certification or under-certification by an engineer might lead, in an
individual case, to such financial embarrassment for the contractors that
withdrawal from the contract might become necessary. In such a
situation the fact that subsequently the contractors would be able to
recoup their loss via arbitration (weeks, months or years ahead) would
be cold comfort to them. The loss in the meantime would have been
VOL. 3 51
1190
Russell L.J. Pacific Associates v. Baxter (C.A.) [1989]
real. In a less extreme case the contractors would simply be kept out of A
working capital which, but for it being withheld, would be available to
them. But, having recognised these possibilities, the circumstances in the
instant case were such that the possibility of damage being suffered by
this contractor beyond what could be recouped in arbitration has to be
regarded as remote, and I believe that this remoteness is a factor to be
taken into account when one comes to consider the third test.
That third test was considered by Lord Keith of Kinkel in Governors "
of the Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd.
[1985] A.C. 210, 240-241 when he said:
"The true question in each case is whether the particular defendant
owed to the particular plaintiff a duty of care having the scope
which is contended for, and whether he was in breach of that duty
with consequent loss to the plaintiff. A relationship of proximity in C
Lord Atkin's sense must exist before any duty of care can arise, but
the scope of the duty must depend on all the circumstances of the
case. In Dorset Yacht Co. v. Home Office [1970] A.C. 1004, 1038,
Lord Morris of Borth-y-Gest, after observing that at the conclusion
of his speech in Donoghue v. Stevenson [1932] A.C. 562, Lord
Atkin said that it was advantageous if the law 'is in accordance with n
sound common sense' and expressing the view that a special relation
existed between the prison officers and the yacht company which
gave rise to a duty on the former to control their charges so as to
prevent them doing damage, continued, at p. 1039: 'Apart from this
I would conclude that, in the situation stipulated in the present
case, it would not only be fair and reasonable that a duty of care
should exist but that it would be contrary to the fitness of things E
were it not so. I doubt whether it is necessary to say, in cases where
the court is asked whether in a particular situation a duty existed,
that the court is called upon to make a decision as to policy. Policy
need not be invoked where reason and good sense will at once
point the way. If the test as to whether in some particular situation
a duty of care arises may in some cases have to be whether it is fair
and reasonable that it should so arise, the court must not shrink
from being the arbiter. As Lord Radcliffe said in his speech in
Davis Contractors Ltd. v. Fareham Urban District Council [1956]
A.C. 696, 728, the court is "the spokesman of the fair and
reasonable man.'" So in determining whether or not a duty of care
of particular scope was incumbent upon a defendant it is material to
take into consideration whether it is just and reasonable that it G
should be so."
With those words in mind I examine some of the facts in the instant
case. The engineer presented the contractoi with the contract documents,
and the contractor freely chose to enter into the contract with the
employer. The contractor was aware that the engineer was not a party
to the contract, and that accordingly any complaint that might arise H
against the engineer at the suit of the contractor would be an extra-
contractual one which would have to be resolved by a process other
than a claim for breach of contract.
In the event of non-certification or under-certification the contractor
was entitled to arbitrate along the well defined processes to be found in
G.C. 67. Although for the reasons given by Purchas L.J. in his judgment
the engineer is not able to claim immunity from suit as a result of any
1191
3 W.L.R. Pacific Associates v. Baxter (C.A.) Russell L.J.
A arbitral or quasi-arbitral role under the terms of the contract, in my

judgment the presence of G.C. 67, freely accepted by the contractor and
agreed to by it without stipulation that the engineer should be a party to
the contract or to any arbitration pursuant to the condition, does not
merely define the ambit of the duty owed—it goes to its very existence.
In my opinion the following question is worthy of being posed.
Given the contractual structure between the contractor and the employer,
° can it be fairly said that it was ever within the contemplation of the
contractor that, outside the contract, it could pursue a remedy against
the engineer? I do not believe that any representative of the contractor
would have thought so for one moment, nor do I believe that from an
entirely objective point of view the answer could be anything other than
in the negative. The contractor in reality had its rights adequately
Q protected by the terms of its bilateral contract with the employer. If the
contractor had thought not, then it was at liberty to insist upon a
tripartite contract before embarking on the work.
The very existence of G.C. 67 in the form in which it is drafted is, in
my judgment, sufficient to dispose of this appeal in favour of the
engineer. I would hold that, the parties having sought to regulate their
relationships the one with the other by a contractual process, the law
D should be very cautious indeed before grafting on to the contractual
relationships what might be termed a parasitic duty, unnecessary for the
protection of the interests of the parties and, as will appear when
reference is made to P.C. 86, contrary to the express declarations of the
engineer. P.C. 86 is worth setting out in full. It provides:
"Neither any member of the employer's staff nor the engineer nor
E any of his staff, nor the engineer's representative shall be in any
way personally liable for the acts or obligations under the contract,
or answerable for any default or omission on the part of the
employer in the observance or performance of any of the acts,
matters or things which are herein contained."
Of course, the engineer cannot rely on the clause as a binding contractual
p term between him and the contractor for there was no contract between
them. But, in my view, there must be a presumption against the
condition being present for no purpose. In my opinion the purpose of
the clause was, inter alia, to eliminate the possibility of the contractor
pursuing a remedy of whatever kind, save fraud, against the engineer.
Mr. Scrivener, on behalf of the contractor, argued that P.C. 86 had
nothing other than administrative significance. I do not agree. True it is
^ that the condition did not specifically refer to negligence, and that in
contractual cases such a requirement has been shown to be essential.
But this, vis-a-vis the engineer and the contractor, is not a contractual
case. The condition, in my opinion, destroys the duty of the engineer, if
duty there ever was. As to the wording of the condition, reference can
usefully be made to Lord Reid's observations in Hedley Byrne [1964]
H A.C. 465, 492-493:
"The appellants founded on a number of cases in contract where
very clear words were required to exclude the duty of care which
would otherwise have flowed from the contract. To that argument
there are, I think, two answers. In the case of a contract it is
necessary to exclude liability for negligence, but in this case the
question is whether an undertaking to assume a duty to take care
can be inferred: and that is a very different matter. And, secondly,
1192
Russell L.J. Pacific Associates v. Baxter (C.A.) [1989]
even in cases of contract general words may be sufficient if there A

was no other kind of liability to be excluded except liability for
negligence: the general rule is that a party is not exempted from
liability for negligence 'unless adequate words are used'—per
Scrutton L.J. in Rutter v. Palmer [1922] 2 K.B. 87, 92. It being
admitted that there was here a duty to give an honest reply, I do
not see what further liability there could be to exclude liability for
negligence: there being no contract there was no question of B
warranty."
In my judgment the words of P.C. 86 effectively exclude, and were
intended to exclude, the liability of the defendants for their negligence.
The word "liable" to be found in the clause can relate only to negligence.
The absence of the word "negligence" does not destroy, in the
circumstances of this case, the efficacy of the clause. It is effective Q
against the contractor in so far as it was on notice as to the terms of the
clause, appearing as it did in a contract to which the contractor, was a
party. The condition being present in a contract freely entered into by
the contractor, I do not think that it is just and reasonable that the
contractor should be permitted to go behind it and, despite its existence,
take proceedings against the engineer on the very basis which the
condition seeks to exclude. D
I summarise my conclusions on the existence or otherwise of a duty
owed by the engineer to the contractor as follows. The parties so chose
to structure their relationships that there was no contract between the
engineer and the contractor, although there were contracts between the
employer and the contractor and the employer and the engineer. The
absence of any contract between the engineer and the contractor is not
without significance. The tests of proximity and foreseeability may be E
satisfied, but it is not just and reasonable that there should be imposed
on the engineer a duty which the contractor chose not to make a
contractual one because (a) P.C. 86 is part of the relationship between
the parties and (b) G.C. 67 provides for the contractor an adequate
remedy in the event of non-certification or under-certification. The
existence of these conditions in my judgment eliminates any duty of care F
on the part of the engineer.
Purchas and Ralph Gibson L.JJ. have both referred to the submissions
made by Mr. Tuckey that the loss alleged in the statement of claim
could not be held to have been caused by any negligence alleged against
the engineer. I think there is much to be said for this submission based
on novus actus interveniens but, because I am firmly of the opinion that
the contractor has failed to establish an arguable cause of action against Q
the engineer, I find it unnecessary to express any definitive view. For the
reasons that I have indicated and those expressed by Judge John Davies,
to whose judgment I would wish to pay tribute, I would dismiss these
appeals.
Appeal dismissed with costs.
Leave to appeal refused. „
Solicitors: Durrani Piesse; Davies Arnold & Cooper.
H. D.

(1989) 3 W.L.R. 1150

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The Weekly Law Reports 24 November 1989

Solicitors: Oswald Hickson Collier & Co.; Borough Solicitor; Official

PACIFIC ASSOCIATES INC. AND ANOTHER V. BAXTER AND OTHERS

Negligence—Duty of care to whom?—Engineers—Appointment to

INTERLOCUTORY APPEAL from Judge John Davies Q.C. sitting on

claimed were recoverable given the proximate relationship between the A

A The appeals relate both to a determination of a preliminary issue and

works the contractor shall encounter physical conditions or artificial A

"84. The engineer in giving his decision with respect to a claim or A

A "So far as your claims relate to an assertion that the materials to be

repeated claims for additional payment for hard materials, but A

and on the alleged breach of a duty of care by the engineer in A

A the contract must be taken to cause foreseeable harm to the contractor

the parties have come together against a contractual structure which

indifferent between the parties. When it is stipulated that certain A

A bound to act on his client's instructions, whether he agrees with

A acting on behalf of the employer. The inclusion of this arbitration

my view his judgment was not supported by the judgment of Lord A

the engineer is in breach of this duty he is liable to the employer for A

the range of opinion open to a competent member of the relevant A

A The words of P.C. 86 contain a provision in the contract documents

A "My Lords, I consider that it follows and that it should now be

A arbitral or quasi-arbitral role under the terms of the contract, in my

even in cases of contract general words may be sufficient if there A

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