Can letters of reliance really be relied upon? 

We are often asked to negotiate letters of reliance (LORs) from specialist environmental and ground consultants as part of development acquisitions, either where clients are procuring newly completed properties, or they are purchasing a site with the intention of developing it later. However, the recent case of Darcliffe Homes Limited v Glanville Consultants, Ground and Water Limited [2024] EWHC 3184 (TCC) raises questions as to the benefit of these LORs after a property developer unsuccessfully bought a claim for damages against engineering consultants Glanville Consultants and Ground and Water Limited for losses incurred due to their negligence in preparing two sets of environmental reports. The court ruled that the claimant would have bought the site regardless of whether the risk of ground dissolution was identified in the reports.  

Background of the case 

Darcliffe Homes Limited (Darcliffe) is a property developer which claimed two engineering consultants, Glanville Consultants (Glanville) and Ground and Water Limited (GWL), provided erroneous advice in their ground investigation reports of a proposed development of land at Stoneham Farm, near Reading (the Site).  

In May 2014, Darcliffe engaged Glanville to provide a report (Glanville’s First Report) which was issued to Darcliffe on 24 July 2014. An updated report (Glanville’s Second Report) was provided on 29 April 2016. Planning permission was granted, subject to reserved matters and legal agreements, on 1 December 2016. 

On 6 November 2017, Darcliffe appointed GWL to produce a Phase 2 intrusive site investigation for the Site. In November 2019, Darcliffe purchased the Site for circa £5m to build a housing development. 

Darcliffe alleged that it relied upon Glanville’s and GWL’s reports when purchasing the Site and that Glanville and GWL failed to report that the Site was at high risk of ground dissolution due to the presence of chalk beneath the Site. Darcliffe said it incurred circa £7.5m in remediation costs and claimed damages from GWL and Glanville for this amount for breach of contract and negligence.  

Before the trial started the claims against GWL were settled and so the trial proceeded against Glanville only. 

Key points of the judgment 

Glanville’s obligations and the scope of their duty 

Adrian Williamson KC sitting as Deputy Judge of the High Court had to determine the scope of Glanville’s obligations. He held that Glanville’s core obligation was to carry out a Phase 1 Geo-Environmental Assessment which required an analysis of the ground conditions and included a desktop geotechnical assessment. Glanville was obliged to exercise reasonable care and skill in carrying out the assessment. 

Adrian Williamson KC acknowledged that a primary purpose of engaging Glanville was to advance Darcliffe’s position in planning terms which is why the report aimed “to demonstrate that there are no particular issues that would prevent responsible development of the site”. Glanville was obliged to exercise reasonable care and skill in carrying out the assessment as a whole and Darcliffe was entitled to the benefit of such performance for whatever purpose it chose. It was held Glanville’s duty was to carry out a reasonably competent Phase 1 Geo-Environmental Assessment.   

Glanville’s performance and alleged breach/negligence 

The issue of breach and causation was considered – would the loss not have occurred if the Phase 1 Geo-Environmental Assessment had been carried out with reasonable skill and care?  

Glanville’s First Report gave a “clean bill of health” so far as the Phase 1 Geo-Environmental Assessment was concerned. Darcliffe was aware that this assessment would be reviewed and developed following GWL’s Phase 2 investigation. Glanville’s Second Report was in “materially identical terms and did nothing to dispel the impression created by the First Report.” 

The question for the judge therefore was whether Glanville had exercised reasonable skill and care in determining the Site as having a “clean bill of health”.  

The judge held that any reasonably competent Geologist, Geotechnical Engineer or Specialist Consultant dealing with the ground should have been able to identify that chalk was present and been aware of the risks associated with engineering and construction on sites where the underlying geology was chalk.  

Glanville failed to carry out any analysis of the ground conditions despite it being engaged for this reason. If it had done so, it should have informed Darcliffe that dissolution features may have been present and warned Darcliffe of any potential hazards associated with this. 

The judge therefore concluded that Glanville was in breach of its duty to use reasonable skill and care in undertaking the assessment.  

Reliance/causation 

However, the judge went on to consider whether this breach of duty caused Darcliffe’s loss.  In determining causation, Adrian Williamson KC considered three Questions:  

1. If Glanville were in breach of duty, what was the minimum further and/or different that they were obliged to do in order not to be held negligent? 

Glanville did not need to do much more than it did to act with reasonable care and skill. It is noted at paragraph 4.11 of Glanville’s report that “the sites [sic] geology is at a low [sic] from ground dissolution ” but the report should have emphasised that ‘low’ meant a ‘low risk’ not ‘no risk’.  

2. How would Darcliffe’s corporate mind have been affected if Glanville had given non-negligent advice? 

Darcliffe submitted that if it had known that dissolution features should be assumed, or if Glanville’s report warned them of such risk, Darcliffe would have investigated the potential cost implications, and it would not have gone ahead with the purchase.  

The judge did not accept that Darcliffe would have withdrawn from the transaction, rather Adrian Williamson KC concluded that they would have taken further advice to understand the potential costs implications and therefore Darcliffe did attach some weight to Glanville’s apparent assessment that the Site was at “low risk”.  

Therefore, if Glanville had given non-negligent advice, Darcliffe’s corporate mind would have been only minimally affected.  

3. What would Darcliffe have done differently than they in fact did, the corporate mind having been affected? 

The judge interpreted this to mean that Darcliffe lost the chance to give better and more focussed instructions to GWL to look more carefully for signs of ground dissolution features. However, GWL should have been aware of all the relevant implications of building on the Site, considering that Darcliffe sought an “interpretive report…with a full geotechnical assessment including…buried concrete classification, ground floor construction stability/dissolution risk” and provided a link to Glanville’s Phase 1 Geo-Environmental Assessment. GWL had access to, and relied upon, the underlying information which Glanville had obtained. 

GWL confirmed in its report that the Site was “underlain by the Seaford Chalk Formation“, therefore Darcliffe was in no different a position at the time of this report than it would have been if Glanville had provided a limited further assessment warning of the ground dissolution risks.  

In considering these three questions the judge concluded that Darcliffe had failed to establish a sufficient nexus between a particular element of the harm for which it sought damages and Glanville’s breach of duty. The claim therefore failed as a matter of causation.  

The Birketts view  

This case highlights the importance of causation when relying on ground investigation reports, especially in cases where a desktop study could give rise to liability if followed by detailed physical investigations.  

Professionals who produce ground investigation reports should be aware of their duty to produce the reports with reasonable skill and care. And those with the benefit of LORs should consider the amount of reliance they seek to place on the reports referred to when making commercial decisions. Whilst the case certainly does not render LORs worthless, it highlights the importance of ensuring that the specialist consultant is aware of the purpose of the transaction, why the beneficiary requires the benefit of reliance on their reports via provision of a LOR and that the provision of LORs does not obviate the beneficiary from taking further investigative action itself.  

Adrian Williamson KC’s obiter comments on the assessment of loss are also of interest. He concluded that if Darcliffe had been successful it would have been entitled to the difference between the price paid for the Site and what it would have paid if the reports had not been made negligently, disregarding the fact that Darcliffe achieved higher prices when selling the completed properties than it had originally forecast as the higher prices did not arise as a consequence of Glanville’s breach of duty.