Loss Prevention Alerts

Alert No 3

September 1998

Summary

A recent development is the client's request, at the end of a site investigation or remediation project, for what is termed a "completion certificate". Often, the consultant or contractor is under no contractual obligation to provide such a certificate. But these can be dangerous.

The issue

The language of certification, to consultants or contractors whose roots are in structural or civil engineering, can be familiar and comforting. In traditional construction contracts a certificate can be the condition precedent for payment of professional fees or the contract sum or for the release of retention monies. Certain types of certificates can constitute conclusive evidence that the works are of the contractual standard. But the completion certificates clients demand from consultants and sometimes from contractors following the remediation of a site or the delivery of a site investigation report are generally not linked to payment and they are certainly not intended to be in the consultant's or contractor's interests.

The risks

The certificate (which is often drafted by the client, his lawyer or his surveyor) might make a statement which cannot be justified given the nature of the remediation or investigation carried out. For example, a consultant asked to supervise the work of a remediation contractor might be asked to certify that the remediated site is now fit for purpose: a consultant asked to carry out a desk top study might be asked to certify that no polluting processes have ever been carried out on the site or on any adjacent site. All any certificate should say is that the services the consultant or contractor was paid to carry out have been completed. If the client insists on embellishments, then at least ensure that the statements made are unambiguous and supportable. Do not promise fitness for purpose.

The certificate, being a statement that a certain end has been achieved, may be used to give comfort to potential purchasers or lessees of the site or to their lenders. These parties will take comfort if they feel they can rely on the statements set out in the certificate and sue the consultant should those statements constitute negligence. Unfortunately, it is very unclear to what extent a certificate will give rise to tortious liability to a third party.

• Some certificates contain clauses designed to limit the consultant's liability. However, this amounts to a virtual admission that the certifier owes a duty of care. If there was not intended to be liability then why limit it?
  
• A certificate silent on the subject of liability is, all other things being equal, less likely to create a duty of care. If though, notwithstanding this, the courts held that a duty exists (because other circumstances suggest that the imposition of such a duty would be reasonable) the certifier would have unlimited liability. Accordingly, the wording of the certificate requires very careful consideration.
  
• Particularly worrying are certificates addressed to "To Whom it may Concern". Should a duty of care exist, it would be owed to an indeterminate class.
  
• When a consultant knows that the certificate is to be disclosed to those interested in the site, or in the more extreme case where it is those companies that are actually negotiating with the consultant over the terms of the certificate, it will difficult to argue that no duty of care exists.
  
• If forced to issue a certificate, at least try and extract a payment.
  
• Collateral warranties can be a useful risk management tool. If there is a certificate in circulation, the execution of a properly worded collateral warranty in favour of named third parties will help the certifier to argue that the certificates were not intended to create a sufficiently proximate relationship to ground a duty of care; it was intended that duties should be owed only to those in favour of whom collateral warranties have been executed.
  

Finally, do not be persuaded by the argument that these certificates constitute industry practice and all consultants are signing them. This is not the case. In the current competitive environment, some consultants will feel unable to resist their clients' demands. The real danger though is the assumption that these certificates constitute no more than a minor detail of project administration rather than (as is the case) a considered attempt on the part of some developers and property investment companies to pass risk to consultants.