Painting the full picture: certifiers and financiers in projects

By Nick Rudge , David Donnelly
Banking Infrastructure Property & Development

In brief

A recent decision of the UK High Court provides valuable instructions to both financiers and consultants regarding their obligations in monitoring project developments. Partners Nick Rudge and David Donnelly and Lawyer Patrick Easton report on the decision in Lloyds Bank plc v McBains Cooper Consulting and its relevance to parties to Australian projects.

How does it affect you?

  • The Lloyds Bank plc v McBains Cooper Consulting case is a reminder that financiers and consultants cannot rely on a 'tick-the-box' approach in the monitoring of projects.
  • The case is also a reminder to financiers of the importance of ensuring that those monitoring consultants' output need to have sufficient industry literacy to properly assess, question and test it.
  • Certifiers must provide a true factual picture of progress, which should appear in a summary rather than being buried in attachments.


Lloyds Bank (the bank) agreed to provide a loan facility to a church (the borrower) of £2.625 million in May 2007 for the development of a building owned by the church.

The bank retained McBains Cooper Consulting Ltd (McBains Cooper) in February 2006 to act as the project monitor – a role similar to that of an independent certifier/reviewer in Australia – for the development. McBains Cooper's role was to monitor the quality of works, provide monthly progress reports, and make recommendations to the bank as to amounts to be paid according to the borrower's drawdown applications.1 McBains Cooper was also required under the banks' retainer agreement to provide a valuation of the works in progress, despite the individual appointed from McBains Cooper not being qualified as a quantity surveyor.

In early 2009 the loan facility was nearly exhausted, despite significant work still being required to achieve completion. The borrower did not have sufficient alternative funds to complete the development. The bank enforced its security and sustained a loss of around £1.4 million. The bank then sought to claim its loss from McBains Cooper at the UK High Court's Technology and Construction Court.

The dispute

The dispute surrounded liability for the bank's loss.

McBains Cooper was required under its retainer agreement with the bank to visit the site and submit progress reports to the bank. The bank alleged that McBains Cooper did not visit the site often enough and was reckless in preparing and submitting the progress reports. As a result of McBains Cooper's negligent conduct, the bank had funded 'out-of-scope works' that it had not agreed to finance and had consequently become exposed to risks it had not anticipated. McBains Cooper argued that the 'out-of-scope works' were outside the scope of what McBains Cooper were contractually required to advise upon.

McBains Cooper argued that it 'understood' that some works on the development were to be funded separately to the loan facility and that therefore the balance of the loan facility was not critical. The bank responded that it had relied on McBains Cooper's 'understanding' that some of the works were to be funded outside of the loan facility.

The decision

Justice Edwards-Stuart of the Technology and Construction Court held that McBains Cooper had acted negligently. However, his Honour also held that the bank was contributorily negligent and required the bank to bear one-third of its losses.

McBains Cooper's negligence

His Honour held that McBains Cooper had breached its duty to the bank on numerous occasions by failing to properly perform its obligations under the retainer agreement. However, these breaches were not the cause of losses to the bank until McBains Cooper failed to advise the bank in the tenth progress report that the borrower's recent drawdown application included an item regarding out-of-scope works. This failure resulted in the bank not becoming aware of the project's true financial position which, his Honour found, would have led the bank to terminate the loan and enforce its security.

His Honour considered that McBains Cooper's acceptance in submissions that its approach had been 'overly contractual' was 'entirely appropriate'. Specifically, his Honour stated that 'not to report the additional cost on the ground that the contract had not been formally varied is, to my view, verging on the absurd'. Instead, his Honour held that McBains Cooper should have drawn the bank's attention to the out-of-scope works in order to 'paint the full picture'.

Lloyds Bank's contributory negligence

Justice Edwards-Stuart determined that the bank suffered losses not merely due to McBains Cooper's negligence, but due its own negligence. First, his Honour determined that the loan should never have been made. Once the loan facility had been made, the bank continued to contribute to its own loss, he found.

While no money had been applied for in relation to the out-of-scope works until the tenth progress report, the bank had been advised by McBains Cooper in the sixth progress report, some four months earlier, of the borrower's decision to pursue the out-of-scope works. His Honour held that the bank was not entitled to rely on McBains Cooper's understanding of separate sources of funds, as McBains Cooper was not purporting to confirm this as a matter of fact and it was not McBains Cooper's role to arrange the funding for the project. Instead, the bank should have investigated the out-of-scope works, confirmed that the borrower knew it had to pay for the cost overruns and that the borrower had the funds available to do so.

Implications for Australia

The case provides valuable lessons for both financiers and consultants on the monitoring of projects.

While the 'lion's share of the responsibility' rested with McBains Cooper to perform its contractual obligations to the bank with reasonable care, the bank could not derogate from its responsibility for arranging the financing. Neither the bank nor McBains Cooper were served well by resorting to overly contractual accounts of their respective responsibilities.

In Australia, financiers are increasingly relying on specialists in assessing and monitoring projects. In utilising specialists and consultants, such as independent certifiers, financiers should ensure that they are relying on people with appropriate skillsets . A 'tick-the- box approach' to reviewing such opinions is unlikely to avoid a finding of contributory negligence, particularly where the underlying process is deficient.Additionally, the case serves as a reminder to financiers of the importance of ensuring that those monitoring the output have sufficient industry literacy to properly assess, question and test it.

Where an independent certifier is obliged to provide information in progress reports, it is important that a true factual picture of progress is clearly provided. Important information should appear in a summary and it is insufficient to bury it in attachments, particularly where it is not adverted to in the summary. Adopting a legalistic approach to a certifier's duty to inform by dumping all information on the financier will not suffice to discharge that duty.

Third-party consultants engaged to monitor a project should ensure that:

  • Their reports give a true report of on-site progress and do not take an overly narrow approach to reporting delays, variations in scope and matters that may give rise to claims;
  • They have a clear understanding of the scope of the project and the sources of funds for the project, particularly if the borrower is to fund out-of-scope works;
  • Critical information is provided clearly in a summary form in their reports, not buried in attachments; and
  • Appropriately qualified people are in charge of reviewing the project.

Project financiers who engage third-party consultants to monitor a project should ensure that:

  • Third-party consultants properly understand the financial structure for the project, including all sources of funds and the project scope;
  • Information that is critical to the financiers decision to lend or ongoing monitoring is specified in the reporting requirements for the relevant consultants;
  • All output from the consultant is reviewed thoroughly by staff familiar with the project and the industry, and any areas of concern expressly raised with the consultant and internally;
  • Internal processes and controls are complied with,both at the time the loan is approved and during development.


  1. Lloyds Bank plc v McBains Cooper Consulting [2015] EWHC 2372 (TCC) [3].