Have you ever considered what your liability might be if you were asked to give a 'freebie' bit of professional advice to a friend or acquaintance?
According to the Court of Appeal, even if there is no contract for services, you might be on the hook to pay compensation (even for pure financial loss) if you get it wrong.
In Burgess v Lejonvarn, Ms Lejonvarn offered to assist her friends the Burgess', by providing them with free design and project management services in relation to an extensive landscaping project for their garden. There was no formal contractual arrangement, although it was suggested that she might be paid if she undertook detailed design work at a later stage.
As the project progressed, it became apparent that there were difficulties with both the standard of the works and rising costs. The Burgess' terminated their professional and personal relationship with Ms Lejonvarn, engaged another landscape designer and issued proceedings to recoup their losses.
In the High Court the judge decided that although there was no contract, Ms Lejonvarn had a duty of care as a professional consultant and was liable to the Burgess; for their economic (money) losses resulting from the defective works, as well as for the increase in the original budget. Ms Lejonvarn appealed, mainly on the grounds that the court was wrong to find that a duty of care existed. The Court of Appeal rejected her arguments in their entirety and unanimously upheld the decision of the lower court.
Whilst this is a case which turns on its facts, it provides authoritative guidance for professionals on how a court might establish whether a duty of care has arisen and importantly, the types of losses potentially recoverable. It is generally accepted that pure economic loss is not normally recoverable without a contract, subject to particular exceptions. One of these is where there has been a voluntary assumption of responsibility for advice or services, where the professional knows or ought to have known that these would be relied upon. The result is that the relationship between the parties will be treated by a court as something like a contractual one. Even though Ms Lejonvarn was not obliged by a contract to actually carry out the services offered, the court found that if she did so, then she was obliged to perform them with reasonable skill and care.
The Court of Appeal's decision will not catch the type of advice given informally to a friend, but if the circumstances support a more formal, commercial type of reliance, then even if the professional has acted without a fee, he or she could be obliged to compensate the other person not only for actual damage, but also for their monetary losses. The main lesson to be learned from this (in the words of the Judge), "cautionary tale" is to be certain that when giving professional advice, both parties are clear on the extent of the reliance which has been agreed, or could reasonably be expected and, crucially, the possible outcomes (including whether any professional indemnity insurance will respond) if all does not go to plan.
This article is taken from Building Interest - Spring 2017
