Why you need a properly drafted consultancy agreement: a cautionary tale

The NSW District Court has issued a timely reminder of the importance of a properly drafted consultancy agreement, particularly in respect of the extent of the obligations and the duty of care related to the scope of work the consultant is engaged to carry out.

Background

In ADH Plumbing Pty Ltd v Glenashka Pty Ltd [2020] NSWDC 593, the subcontractor was engaged by the head contractor to carry out works, which included the construction and asphalting of roads and parking areas at a hospital in Central West NSW. In order to obtain certification of the works under the head contract, the subcontractor engaged K&H Geotechnical Services Pty Ltd (K&H) to provide expert soil and geotechnical testing services.

When issues with the road works arose, the head contractor terminated the subcontract. The subcontractor initiated proceedings against K&H for breach of contract and negligence, alleging that K&H had breached its duty of care and was negligent by not performing the testing works with the requisite level of skill and care.

The main issues before the Court were:

·??????the scope of K&H’s contractual obligations; and

·??????the extent of the duty of care (if any) owed by K&H to the subcontractor.

Nature of the dispute

The subcontractor alleged that the consultancy agreement with K&H was partly oral and partly written (consisting mostly of emails), under which K&H was required to provide “Level 1 inspection and testing services as a NATA Accredited Testing Authority” to certify the quality of works under its subcontract.

The subcontractor further alleged that K&H owed it a duty of care to exercise the required level of care and skill when providing the respective services under the consultancy agreement between the parties.

By contrast, K&H contended that under the agreement, it was only required to provide inspection and testing services on an ad hoc basis and had properly carried out the services in which it was contracted to perform.

Decision

In adopting the reasonable businesslike approach to the interpretation of the agreement and analysing the evidence put before the Court, Dicker SC DCJ held that the agreement between the parties did not require K&H to provide the “Level 1” services. Instead, his Honour accepted the view advanced by K&H that the agreement between the parties only required K&H to provide “ad hoc” soil and geotechnical testing.

In reaching his decision, his Honour applied the principles of BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40 in rejecting the allegation that the agreement between the parties included an implied term, pursuant to which K&H was required to provide the “Level 1” services, as “it [went] without saying” that this implied term contradicted the express written terms agreed between the parties.

His Honour held that as the consultancy agreement only required K&H to perform the ad hoc services, there was no failure on the part of K&H to “exercise reasonable care and skill in the provision of the contracted services or services incidental to those services” and dismissed the proceeding.

What does this mean for you?

All too commonly consultants are engaged under agreements which are made up of a combination of letters, emails and oral communications. This approach can result in difficulties when disputes arise as to the scope of the service(s) and duty of care in which a consultant is engaged to carry out.

This decision serves as a timely reminder for principals, head contractors, subcontractors and consultants of the importance of ensuring that consultancy agreements are drafted with clear contractual rights, responsibilities and scope of services specified.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact the author: [email protected]?