When can contractual limitation of liability clause limit a third party’s tort claim?

This was the question the court was asked to answer in RSK Environmental Ltd v Hexagon Housing Association Ltd.

Amidst the summer recess and the ongoing pandemic, the case may have slipped past many practitioners. However, it raised two valuable points:

• First, a heavy-weight legal question: can parties be bound in tort by limitation clauses in contract, in circumstances where no contract exists and the tortious duty is not concurrent? In other words, if and how a contractual clause can limit a free-standing tortious duty.
• Secondly, a point of procedure: in this case, was part 8 the suitable way of resolving the issue?

Spoiler-alert: O’Farrell J answered the second question in the negative, leaving the first question unresolved. That said, the court carefully reviewed the relevant case law, providing readers with an up-to-date consideration of an issue that (at least one party said) was not decided.

Background

One of the more unusual circumstances of this matter is that the claim was conducted on the assumption that any duty in tort owed was not concurrent with contractual duties between the parties. This arose because of the facts.

A developer, Skillcrown, contracted RSK to produce a geotechnical report on a site. At the final iteration of the report, RSK named both Skillcrown and Hexagon as its “Client”, with Hexagon’s knowledge.

Hexagon purchased the site, which later suffered a significant ground collapse.

Hexagon claims against Skillcrown in contract, and against RSK in negligence. Hexagon asserts that RSK’s assumed responsibility to Hexagon, absent any contract between them.

The legal problem

The contract between RSK and Skillcrown contained a series of clauses which could operate to limit RSK’s liability. RSK maintained that these clauses limit or exclude its liability for negligence, and that applies to any duty it owed to Hexagon.

The parties agreed – how could they not? – that had the duty of care been concurrent with duties in contract, Hexagon’s claim in tort would be co-extensive with its claim in contract.

Here, there was no evidence before the court that Hexagon received a copy of RSK’s standard terms that contained the limitation clauses. Hexagon submitted that had there been a contract between the parties, these terms would not bind Hexagon for failure of reasonable notice, per the well-known law of incorporation. Hexagon said that if it would not be bound in contract to such terms, it could surely not be bound when a free-standing duty of care had been assumed in tort.

RSK maintained that a contract was formed between itself and Hexagon, but accepted for the purpose of its Part 8 claim that the court should assume there was none. RSK argued that, in all the circumstances, the parties intended limitation of liability to apply to any responsibility that RSK had assumed.

The legal argument

Both parties traced the history of the case law in an effort to find the answer: traversing the famous cases that are the subject of many a law exam, and those that are more specialist; cases dealing with tortious duties, and those on incorporation.

RSK particularly invited the court to consider more recent cases in which contractual limitation clauses have been held to regulate parties’ tortious duties of care: Arrowhead Capital Finance v KPMG LLP and BDW Trading Ltd v Integral Geotechnique (Wales) Ltd.

Hexagon emphasised that, as a matter of principle, if a term is to apply to a free-standing tortious duty of care, that term must operate directly between the parties. That, in Hexagon’s submission, requires at the very least some communication of the terms, which is consistent with and analogous to the law of incorporation. Hexagon said that that principle runs consistently through the relevant case law, when the facts of each case are considered.

The importance of the factual matrix

O’Farrell J noted that the court’s inquiry as to assumption of duty necessarily requires a consideration of the nature and scope of that duty. She said:

“The cases all serve to emphasise the importance of the factual matrix when considering any common law duty of care arises, including the nature and scope of that duty.”

That finding proved determinative. The court held that it could not decide this case in a vacuum; factual findings on the  the existence of a contract (or otherwise) between the parties, the terms of such a contract, and the proper construction of such terms were required. Accordingly, RSK’s claim was dismissed.

The significance of the case

O’Farrell J’s judgment serves as something of a roll-call of key caselaw pertaining to these principles. Readers of the judgment will be assisted by the court’s selection of the key moments in the development of this body of law, and its thoughtful analysis of those moments.

The practice point is perhaps so obvious it almost ought not to warrant mention. Cases on the tort of negligence always turn on their facts, and the assumption of responsibility is no exception. When facts are disputed, the case is unsuitable for Part 8 proceedings.

Of course, had this matter been raised as an issue in main proceedings, the resolution would be bound with the relevant findings of fact. But is that entirely satisfactory when such thorny questions of legal principle are at stake? If, as Hexagon submitted, the assumed facts fell in a way so as to raise a novel point on the interplay between contract and tort, perhaps we need some statements of principle from the court. In particular:

• If, when, and how a party who assumes a free-standing duty of care in tort is able to exclude liability; and
• If, when and how the principles of incorporation of terms in contract apply to tortious assumption of duty.

As this case shows, such questions are not purely academic.

The litigation between the parties (and others) continues, and it remains to be seen whether these issues are revived and resolved in the main proceedings. If these issues are determined, many of us hope the court sets out some guiding principles.

Emma appeared in this case, led by Paul Reed QC, for Hexagon Housing Ltd. She is grateful to Paul for his comments on this blog post.

This article was first published in Thomson Reuter’s Practical Law Construction Blog.