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Funders cannot escape liability for contributory negligence

  • United Kingdom
  • Construction and engineering - Articles


In the recent case of Lloyds Bank Plc v McBains Cooper Consulting Ltd [2015] EWHC 2372 (TCC) the Court considered the extent to which a funder could recover losses from a negligent technical adviser despite the Funder’s failures to properly engage with the technical adviser at the relevant times.

Lloyds (“the Funder”) provided a loan facility in the sum of £2.625 million to a project entity (“the Borrower”). McBains (“the Project Monitor”) was employed by the Funder to carry out initial due diligence, to check the progress and quality of the works, to approve the Borrower’s applications for drawdown of funds from the loan facility and to make recommendations to the Bank as to the amount that should be paid against the drawdown request.  

After around 21 months the loan had been almost completely exhausted, but construction was far from complete. Consequently, the Funder decided to cut its losses and realise its security. 

The Funder sustained a loss of around £1.4 million and sought to sue the Project Monitor for negligence. The Funder argued that the Project Monitor had been negligent in its advice whilst the Project Monitor argued that the Funder had not relied on its advice.  In making closing submissions to the Court both parties accepted that they fell below their respective standards or care and diligence. 

This case largely turned on its own facts.  The Project Monitor admitted that it had acted negligently in breach of its retainer.  However, the Funder had itself failed to share information with the Project Monitor and failed to respond appropriately to the Project Monitor’s reports.  The Funder admitted that, in light of a draft report issued by the Technical Monitor, the Funder should have realised that the overall cost of the project would exceed the facility of £2.625 million.  Further, the Judge (Edward-Stuart J) remarked that it was -

quite clear that this loan should never have been made by the Bank in the first place (a decision for which it cannot blame McBains Cooper)”.

Accordingly, Edward-Stuart J deducted one third from the damages that would otherwise have been awarded to the Funder in order to reflect the Funder’s contributory negligence.

This case is of relevance to a broad range of client-consultant relationships, but will be of particular interest to Funders.  In disregarding the clear instructions of its advisers a funder’s conduct can amount to culpable failure and cause of its own loss.  In light of this case, Funders may be concerned to ensure that they fully engage and co-operate with their advisers or risk losing a significant proportion of the protection afforded to them by such advisers’ liability for negligence and such advisers’ professional indemnity insurance cover for such negligence.

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