Case law update: Change from Official Referees to the Technology and Construction Courtby Simon Tolson |
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IntroductionIn this programme we will be looking at recent changes to the former Official Referees court. We will be examining two key decisions, both of His Honour Judge Bowsher Q.C in the newly named Technology and Construction Court. The first case is the Department of National Heritage v Steensen Varming Mulcahy and (1) Balfour Beatty Ltd (Third Party) and (2) Laing Management Ltd (Third Party). This is a truly epic case, a judgment of some 150 pages, concerning electrical installations within the new British Library, a project which has been short listed for the 1998 Building of the Year Award! The Plaintiff claimed the cost of repairing and mitigating extensive damage to cabling installed by Balfour Beatty and costs arising from delays alleged to be caused by the damage. The Plaintiff and Third Party ganged up through their insurers, to allege against Steensen, the Defendant, that the damage was due to their bad design. In particular, the specification which involved trunking that opened downwards, from the ceilings, and made the placing of cabling difficult and likely to lead to damage. Steensen in turn alleged the damage was due to Balfour Beatty’s bad workmanship, poor supervision, bad management and co-ordination by the Plaintiff and Laing Management. It was held that:
As a result expectations of clients and consultants might now reasonably contemplate a standard of care from the contractor, particularly the specialist contractor, consistent with the requirements of contract specification and method statement of the contractor. The second case is P&O Developments Ltd v The Guy’s and St Thomas National Health Service Trust and the back to back action of the Guy’s and St Thomas National Health Service Trust v P&O Developments Ltd, Austen Associates and Austin Associates Ltd. The particular significance of this case lies in the guidance provided on the extent to which a party can adopt and rely on the facts and matters lying behind a commercial settlement, that is a settlement reached with the benefit of leading professional advice, in subsequent proceedings. In this case, Guy’s contended that the Court was obliged to take account of sums provided for by a leading quantity surveyor practice in respect of Works Contractors claims which formed the basis of a wrap up deal between Guy’s and the Management Contractor, Higgs & Hill. Guys argued that these elements of the overall recommended figure of the independent quantity surveyor were relevant to the issue of what proportion of those allocations should be attributable by Guy’s claims for damages from P&O and Austen Associates. Cases based on these arguments have become increasingly common over the last four or five years based on a loose relationship with a Court of Appeal case called Biggin v Permanite [1951] 2KB 314. The upshot is that where a settlement has been reached by parties to a dispute, it is not sufficient to determine whether it was reasonable to make a settlement. On the contrary, it is essential to prove the settlement was itself reasonable. Last, but not least, we will briefly look in this programme at recent attempts made by tenants to have building work carried out to their properties by their landlords on the basis of a purported breach of the covenant of quiet enjoyment. In two decisions of the Court of Appeal Baxter –v- Camden London Borough Council [1998] 2EGLR 29 and Southwark London Borough Council –v- Mills [1998] 2EGLR 30 the tenants in each case complained of suffering intolerable noise as a result of ordinary use and enjoyment of an adjoining flat by another tenant due to inadequate sound proofing. Both cases were pleaded purely on the covenant of quiet enjoyment. In the Baxter case, the Court of Appeal whilst accepting that the landlord could be liable in these circumstances did not make a ruling to that effect. In the Mills case the Court of Appeal held by a majority that the landlords were not liable under the covenant of quiet enjoyment on the basis that limits should be placed on the ambit of this covenant. This did not extend to requiring the landlord to carry out physical works to improve a property beyond the condition it was otherwise in at the time the lease was granted. The Court of Appeal however avoided the central question of liability, and it seems that the decision may well now go up to the House of Lords. For example, Mantell LJ felt the tenants claim must fail because, in his view, the covenant of quiet enjoyment could not encumber a positive obligation to carry out building works which the landlords would not otherwise be required to do under their covenant to repair. Peter Gibson LJ would have upheld the tenants’ claim. He said that to suggest the covenant of quiet enjoyment was being exercised to impose a positive obligation to enhance the premises was, in his view, to confuse the right with the remedy. The tenants would only be entitled to damages, not an order that improvements be carried out and went on to say that whilst the covenants did not entitle the tenants to an abstract standard of quietness, he felt that the standard of quietness in each case should really depend on the locality and nature of the premises rather than the knowledge of parties at the date of the tenancy. The repercussions of this, case if it is overturned in the House of Lords, would be potentially very costly for both local authority and commercial landlords. For contractors who have given collateral warranties, the dangers are obvious should the landlord seek to recover on an indemnity. We shall return to this in more detail in a later programme if leave to appeal is granted. A fond farewell to the Official Referees On the 9th October 1998 at a Grand Ceremony attended by Lord Irvine, the Lord Chancellor, the Lord Chief Justice, Thomas Bingham, the Master of the Rolls and other legal dignitaries, it was announced that the term "Official Referee" which had been with us for more than 120 years was to be dropped immediately. The term "Official Referee" had been universally used to describe those judges the Lord Chancellor had from time to time determined are to discharge the functions of Official Referees in accordance with RSC 36. Instead of "Official Referees" these judges are to be known as ‘Judges of the Technology and Construction Court’. In a speech given by the Lord Chancellor he commented that some people had confused Official Referees with "Official Receivers" or the "Official Solicitor", others confuse them with something altogether different. He said that huge bags of abusive mail have to be sent each day to the Football Association and FIFA. It is with a sigh therefore that the antiquated name Official Referee has been given the red card, as Lord Irvine put it. The Court is now to be known as the Technology and Construction Court to give the Judges who sit in this Court the recognition and acknowledgement they have long deserved as the full time professional judges they have been since the last war. It had long been perceived the term Official Referee denied them this recognition and it was time for change. The new name is intended to reflect the wide range of business conducted in this part of the court structure. Whilst cases connected with building and engineering have long been stable bread and butter of the court, cases have increasingly come for decision involving Information Technology. The Judges in the former Official Referees certainly grasped the opportunities offered by Information Technology since the beginning of this decade as many practitioners in the Official Referees’ Solicitors Association know well. His Honour Judge Bowsher Q.C., being one of the first computer literate Judges at this time. In addition, Mr Justice Dyson has been given a permanent home in the Technology and Construction Court in St Dunstan’s House, Fetter Lane, the epicentre of the Court and he is now the Judge charged with hearing key, but not always necessarily lengthy cases. The jurisdiction of the Court remains the same as it was before the change of name. There have nevertheless been refinements in the system of fixing trial dates which have developed over recent months by the Judges. Whilst each Judge will retain his own list for case management, he will fix a trial date by reference to a common list, rather by reference to an individual diary. This is intended to remove differences between individual diaries and should enable the Court on occasion to give earlier dates for trial than in the past. These modifications, which have been put into place manually, will hopefully soon be fully computerised with listing of cases by the Judges with the help of their Clerks entered by computer. With the ORSA IT Protocol which has now been in place for some months and the virtually universal submission by Counsel of written openings and skeleton arguments on computer disk, this all helps to bring this Court well and truly into the 21st century. One point of detail, which is important for practitioners and experts who regularly appear in the courts, and that is the form of address of Judges of the new TCC. Judges of the Technology and Construction Court, whether here in London or elsewhere in the country are to be addressed as "My Lord" or "My Lady" instead of the former "Sir" or "Your Honour". No changes have been made in relation to Order 36, which governs the practice of the former Official Referees, but there will be changes next April come the Woolf Reforms. Finally, the Official Referees Solicitors Association a body of some 200 or more specialist solicitors working regularly in the former Official Referee Courts has now been renamed the Technology Construction Solicitors Association (TeCSA), not to be confused with the Child Support Agency! Department of National Heritage v Steenson Varming Mulcahy and othersBackground This was a case essentially brought by insurers by subrogation in the name of the Department of National Heritage (DNH), now known as the Department of Culture, Media and Sport. It is important to bear in mind that the Plaintiff is the Crown, suing in the name of the DNH, but that DNH is not itself a corporation in its own right but a manifestation of the Crown. The claim arises from the discovery of very extensive damage to low voltage electrical cabling installed in the new British Library by the appointed parcel contractor, Balfour Beatty Ltd (BB), the first third party. The second third party, Laing Management Ltd (LM) were engaged as the management contractors for the British Library project. The action was essentially insurance led and the amount pursued in the action was limited to the actual sum paid out by insurers in respect of material damage and in respect of consequential loss in the sum of £8.4m. Another important feature of the case was that DNH, BB and LM effectively ganged up and combined in this action to allege that the excessive damage to the electrical cables was the result of bad design and other failings on the part of the Defendant, Mechanical and Electrical Consulting Engineers, SVM. SVM denied the allegations and asserted that the excessive damage was caused by a combination of bad workmanship on the part of BB and lack of co-ordination on the part of LM and on the part of DNH and his agents. DNH further alleged that the design method of SVM was incompatible with the design requirements of SVM’s contract with DNH and that SVM failed to carry out its duties to supervise and inspect under the contract. Whilst the losses alleged in the pleadings to have been suffered by DNH exceeded £16m, their claim was limited for reasons already explained, to £8.4m. Just over £3.4m for the cost of remedial works, the balance being the alleged costs attributable to delays arising from the cable damage. DNH also claimed £268,417 for VAT paid in respect of remedial works. The type of cabling used, the subject of the action was low voltage and there was a vast quantity of it, in all more than 3,000 kilometres of single core low voltage cables lying within metal trunking. Some of this damaged cable was discovered by Balfour Beatty and put right in or about 1993, about 300 kilometres being replaced through this process. It later transpired, and it was common ground in the proceedings that the amount of damage discovered in the low voltage cabling was far in excess of what might be expected in the ordinary course of events. As a result of the common cause made by DNH, BB and LM, the Plaintiffs and third parties were represented by the same Counsel and solicitors. This is because BB and LM were represented by lawyers instructed by the insurers because they like DNH were insured under the Project Policy as required by the Crown. The principal insurers were the Commercial Union Assurance Company PLC. The Issues The chief issues set out at page 7 of the judgment concerning SVM were:
SVM denied:
Description of the site The library has a total plan area including all floors and basements of 26 acres and is comprised of 4 deep basements for storage of books, from ground level upwards are readers’ areas, office areas and exhibition and meeting rooms. Particularly relevant to the action was the fact that each reader’s desk is served and connected by under floor cabling to serve the desk with lighting, power for reader’s laptop computer, connections also exist between reader’s computer and the libraries computerised index and communication system for ordering books. There was no issue between the parties that the bulk of the wiring was satisfactorily installed in the underfloor areas. The chief problems concerned the cabling installed overhead, between the ceiling and the underside of the floor slab. The trunking through which the cable was to run opened downwards and involved complex routing which caused considerable disruption when late design changes required removal of some of that cabling and reinstallation. One of a number of criticisms that comes out from the judgment in relation
to the British Library Project, which of course is already one of considerable
notoriety, is the effect of the very great design changes, some of which
came with changes in Government over the years responsible for the project. The electrical works commenced in September 1988 and as that was the peak of the then construction boom, it is evident from the judgment there were workforce problems due to the overheated state of the industry at the time. Delays ensued and the morale of the workforce diminished. In October 1992 the work was substantially behind the programme. As already mentioned, the initial problems with the low voltage electrical cabling identified by BB were put right by them but by 1992 BB had set about putting all the blame on SVM and war was effectively declared following a detailed letter from BB to SVM on 23rd February 1993. Before long, BB’s workforce involved with the electrical parcel reduced from 250 to 70 men. They were certainly not proceeding, as the Judge commented, regularly and diligently. In late 1994 DNH negotiated a series of agreements with BB because by that time there were very substantial disputes with contractors. The settlement was designed to conclude all claims and counterclaims then in issue. We shall see that the particular contractual obligations of SVM were quite special to the British Library and the findings are therefore worthy of caution because of that fact. SVM’s express design obligations under its contract DNH allege that there were two important aspects to the duty to design which it relied on:
In the judgment Judge Bowsher found the designer’s design must
be such that those who are responsible for implementing it, and those
who are responsible for supervising that implementation, can do so by
the exercise of the skill and care ordinarily to be expected of them:
See Equitable Debenture Assets Corporation v William Moss Group
Limited(1) per His Honour Judge Newey QC at page 21: |
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It was DNH’s primary case that, given SVM’s design, it would have been impossible, even if special or exceptional care had been taken, to avoid substantial damage being caused to the cables. It was submitted on behalf of DNH that even if exceptional care might have avoided some damage being caused, SVM’s duty is to be tested against the standard of a reasonable degree of skill and care of the ordinary electrician, particularly if no special instructions or instruction are given. It was said that, if, given that amount of care, damage was inevitable, then the electrical containment system can properly be said to have been "unbuildable" in the sense used by Judge Newey. Judge Bowsher was pleased to follow the guidance given by the late Judge Newey, but the words "those likely to be employed to do the work" used by Judge Newey were said by Judge Bowsher to be important as they were related to the differing facts of each case. It is not to be assumed in every case that the work is to be done by the "ordinary electrician". Judge Bowsher said the designer is entitled to look at the facts of the project on which he is engaged and consider what is the standard of workman required by the employer and agreed by the contractor to be provided to do the particular work. This brings us nicely to the terms of BB’s contract. The terms of BB’s contract relevant to the standard of workmen and workmanship need not be gone into in detail as they were special to the case. Suffice to say that it was a requirement that the workmen be competent and adequately staffed for the proper administration, co-ordination, supervision and superintendence needed for the work. The contract specification called for a high standard of workmanship and finish, the contractor being required to clearly understand that any work which is not, in the opinion of the management contractor up to standard, will have to be taken down and made good or replaced. It went on to say that if any information contained in drawings or in the specification appears to be conflict with accepted good practice, the contractor was to bring this to the attention of the management contractor who would give an instruction to clarify it. As Judge Bowsher pointed out, the standard of workmanship required was not just an "ordinary" or "reasonable" standard, but "a high standard of workmanship and finish". Judge Bowsher pointed out that it was not any accident in the specification that BB were required to bring to the attention of the management contractor any information which appeared to conflict with accepted good practice as BB were undertaking to provide workmen capable of producing finished work of a high standard when doing what was required by the drawings and specification. The proviso being insofar as they drew to the attention of the management contractor anything which appeared to them to conflict with good practice. Judge Bowsher found that BB did not tell the management contractor or SVM or anyone else for that matter that to require the trunking covers to be laid lid facing down was contrary to good practice, despite the fact that the specification plainly required lid down trunking in specified areas. Furthermore, given that BB’s method statement referred to the supervision of directly employed qualified staff SVM were entitled to assume that their design would be executed by a workforce composed of directly employed labour provided by a contractor with one of the best reputations in the world, bearing in mind that the contractor had undertaken work to a high standard (not just a "reasonable" standard) on one of the most prestigious buildings to be built in the country in this century. Judge Bowsher felt it necessary to comment on the fact that Counsel for DNH had submitted in closing submissions the nature of the project was relevant in considering the standard to be expected of SVM. Judge Bowsher said that in turn SVM were entitled to assume that this highly skilled contractor would, in compliance with its contract, draw to the attention of SVM, though the Management Contractor, any requirement of the design which was contrary to good practice. Impossibility of design In relation to the submission which DNH made, which was their primary case, namely that given SVM’s design it would have been impossible even if special or exceptional care had been taken to avoid substantial cable damage, Judge Bowsher found that DNH and BB were arguing a far too low standard of care to be applied by BB. He stressed in the judgment that "exceptional" care was not required of BB, but a high standard was required. Judge Bowsher said:
He went onto say that even if DNH were relying on the correct standard of care, both DNH and BB should have objected to the design at the time of tendering, or in default of such objection being accepted, BB should have refrained from tendering. Having undertaken a task which they now say was too difficult, BB cannot now be heard to say that the task which they undertook with open eyes was impossible to achieve. Thus, Judge Bowsher reasoned that it did not lie in the mouth of BB to complain that it was not within the capability of their workforce to install cabling to a high standard in lid down trunking, and it does not lie in the mouth of DNH to rely on and adopt that case against SVM! Must the work be supervisable Taking a further point from the Equitable Debenture Assets Corporation case, DNH argued the design must be "supervisable" and capable of being executed under supervision so that the quality of work can be checked by the supervisor. As to that, Judge Bowsher agreed with the late Judge Newey, subject to one important point. Some work he said by its nature is rather difficult to supervise such that no design can negate the difficulty of supervision. There are obvious difficulties he said about supervising the work of a steeplejack or a diver working under water carrying out construction repairs. Equally, there are difficulties about supervision of work of an electrician in places where access is impossible. The overall method can be supervised, and in many respects it can be seen by the supervisor if the electrician is going about his work in the wrong way, but in one vital respect the quality of work rests very much on the individual actually executing it. When a cable is being led or drawn through a confined space, the onlooker can see whether the overall method used is correct, but the man (and oddly enough it always does seem to be a man) actually doing the work is the only one who can feel the tug on the cable which indicates that some damage may be done if extra care is not taken at that point with that cable. If having felt the tug, the workman carries on regardless, then there is little that the supervisor can do about it except by inspection afterwards and inspection is difficult unless spot checks are made on individual cables while the work is in progress. That is one reason why the quality of workforce is vitally important said Judge Bowsher. On the evidence, Judge Bowsher said that he did not see that it was any more difficult to supervise either during the work or by inspection afterwards with lid down then with lid up trunking. Duty to keep design under review Judge Bowsher confirmed that SVM were under duties both at common law and by way of express terms to keep their design under review. The contract expressly provided a continuing duty on SVM to ensure, by revisions to drawings if necessary, throughout construction that effect was given to their original design intention. As for the common law position, the designer was under a continuing
duty to keep his design under review to see whether in fact it is and
remains appropriate as the construction progresses. It is not open to
the designer to defend an allegation of negligent design by claiming
it was executed with reasonable skill and care at the outset and that
the inappropriateness of the design was brought about by external factors
over which the designer had no control. This was established long ago
in the base of Brickfield Properties v Newton (2). |
1. 1984
CON LR 1
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In this case Sachs LJ said
Judge Bowsher held this duty to review is one which extends throughout the life of the construction process itself and the judgment indeed refers to a number of authorities3. It was argued by DNH that the duty on SVM was particularly onerous because of SVM’s use of lid down trunking in a construction of this type which should be regarded as "experimental". That is whilst it is a well known construction method, it is usually used only where the volume of cables to be carried is light and where there are to be long great runs of trunking. This was not a point which Judge Bowsher found attractive as he did not accept that lid down trunking was experimental in this context but made the important point that where a designer does adopt an experimental or unusual approach then there is a particularly high duty on him to keep his design under review. SVM’s duty to supervise and inspect
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2. 1971 1 WLR at 873 |
As far as the allegations raised concerning duties to inspect and supervise Judge Bowsher records at page 66 of his judgment that the extent of the duty of an architect or engineer to inspect has been discussed in many cases, amongst them Jameson v Simon4 and East Ham Corporation v Bernard Sunley(5), Sutcliffe v Chippendale & Edmundson (1971)(6) and Corfield v Grant(7). In all these cases, the extent of the duty depends on the terms of the contract and the circumstances of the project. Following Judge Bowsher’s review of the express terms of SVM’s contract, which Judge Bowsher said must be read as a whole in the light of the circumstances, he found that there was no agreement made for SVM to engage site control staff or for them to appoint site supervisory staff. In fact on the contrary, there were positive arrangements made for site supervision to be performed by others, which made this contract rather unusual. It was an interesting feature of the overall contractual arrangements that LM had distinct supervisory duties to supervise the execution and maintain the necessary quality control of the entirety of the works and to employ qualified mechanical and electrical engineers. BB also retained a duty to supervise the works so as to provide workmanship and materials of the contractual standard. That is to install suitable materials with satisfactory workmanship. To perform those duties BB were found to be liable to provide close supervision, implicit in the usual understanding of the function of a foreman. At paragraph 172 of the judgment Judge Bowsher found that it was SVM’s duty to make such site visits as were reasonably required to ensure that the site was adequately supervised so that the electrical works would be properly executed in accordance with good engineering practice. He found that SVM’s duty did not extend to preventing BB doing bad work: that could only be done by such close supervision as would be expected from a foreman. SVM’s duties were limited to taking such steps which would discourage bad workmanship and if possible discover it after it had been done. Judge Bowsher was clearly unimpressed with the thrust of the Plaintiff’s main case. Namely that it was inherently unlikely that for more than four years a well known electrical contractor’s workforce of qualified and competent men would carelessly install in excess of 3,000 km of electrical cabling that by dint of their bad workmanship methods, poor standards and incorrect practices they caused universal damage at a wholly unacceptable level, and that the design of the system with lid down trunking was unprecedented and in direct breach of the long established standard M&E specification. Judge Bowsher rejected this suggestion as he did not accept that because of the sheer magnitude of bad workmanship it had to follow that there was something wrong with the design. He pointed out that the design was open to all. There were no hidden traps in it and no-one complained about it at the time. As to supervision, BB cannot complain that they would have produced better work if they had been better supervised by others: it was their duty to provide their own supervision to produce a high standard of work. While bad workmanship on the part of BB may have seemed unlikely on the probabilities, those probabilities changed after the work began. BB were badly slated in the judgment for their work. Certainly it appears not enough supervisory staff were employed and a sort of cat and mouse game was played with site staff being withdrawn and then introduced back on site in drips and drabs. Judge Bowsher also found from the evidence that BB’s electricians responsible for the damage must have known the damage which they themselves had caused but deliberately chose to ignore it and leave badly damaged cables in place in the trunking. They would have known of that even if, as is alleged, such damage was forced on them by being required to work to a bad design. There was also evidence that coloured pens were issued by electricians to disguise damage to cables which of course was a very serious finding. Summary This is a fascinating decision both technically and legally and has rightly been referred to as a blockbuster. With the aid of modern technology Judge Bowsher has produced a judgment of considerable detail and clarity in a matter of weeks following a trial that lasted many months. Whilst this decision largely turns on its facts, there are important guiding principals. Whilst specialist consultants have learnt from the courts in the last few years that a higher duty is generally expected from them compared with a general practice it now seems that the contractors are in for the same sort of treatment. The case contains very helpful statements of the law in relation to the responsibility of designers to provide a buildable and supervisable design, last considered fully some 14 years ago in Equitable Debenture Asset Corporation. The case demonstrates that contractors, particularly on specialist bespoke contracts, must be careful to ensure, like their consultant cousins, that they may well be exposing themselves to higher than common law duties of care in the particular circumstances. Hence the area of buildability and supervisory performance are now to be reviewed in a new light. It will clearly be a refreshing case for consultants who may well look in wonderment that the mechanical and electrical engineer managed to deflect the very heavy and considerable flack fired from it from the primary plaintiff and the nominal plaintiff third parties. P&O Developments Limited v The Guy’s and St Thomas’s National Health Service Trust and The Guy’s and St Thomas’s National Health Service Trust v P&O Developments Limited, Austen Associates, Austen Associates LimitedBackground Where a defendant’s breach of contract renders the plaintiff liable to a third party, as for example, where a subcontractor’s breach puts the main contractor in breach of the main contract and liable to the employer, the plaintiff can normally recover the amount of that liability as damages for the breach. If the plaintiff reasonably compromises the third party liability, the amount paid under the compromise is admissible prima facie evidence of the loss caused by the Defendant’s breach, although further evidence may be adduced to determine the actual loss and this was all well established in a case long ago called Biggin & Co Limited v Permanite Limited(8). It will usually also be necessary to establish the plaintiff’s liability to the third party and the defendant’s liability to the plaintiff, since evidence of the compromise is relevant only to the measure of damages. It is relevant to prove that the compromise was made upon legal advice, but in such circumstances evidence of the legal advice is not normally relevant or admissible.
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3. Chelmsford
District Council v T J Evers 25 BLR 99, HHJ Smelt QC, London
Borough of Merson v Lowe, 18 BLR 130 per HHJ Stab QC, Victoria
University of Manchester v Wilson 2 CON LR 43 per HHJ Newey
QC and University of Glasgow v William Whitfield 42 BLR 66.
4. 1899 1 F (Court of Session) 1211. 5. 1996 AC 406. 6. 18 BLR 149. 7. 1992 29 CON LR 58. |
That has been the broad position for the last forty years. The facts The Guy’s Hospital case dealt with the trial of certain preliminary issues on assumptions of fact. The importance of the case goes to the extent a plaintiff can rely on a "done deal" and the make of the numbers behind it as a bona fide assessment of damages in claims that the plaintiff then pursues against other parties. The project concerned the construction of the Philip Harris House building, which was part of a staged development at Guy’s Hospital in south east London. Guy had employed a management team which included the plaintiffs by original action, P&O as the project managers and the second and third defendants, that is Austen Associates and Austen Associates Limited hereafter (AA) as mechanical and electrical services engineers. They were brought in by way of counterclaim by Guy. There were extremely severe delays on this project in respect of which extensions of time were granted by the architects, Watkins Gray International. The whole legal process started with a claim made by P&O for payments under their contract, including related extensions of time. Guy’s counter claimed against P&O and AA for damages for having caused a part of those delays by producing late and inadequate information and failing to programme or manage the project properly. The Preliminary issue The preliminary issue was concerned with that part of the counterclaim brought by Guy’s which related to claims brought by certain Works Contractors. These works contractors had brought claims against Higgs & Hill (H&H) with whom they had contracted. Part of those claims were in respect of delays which these works contractors alleged could be traced back in part to delays caused by P&O and AA. By virtue of the management contract Guy’s were required to reimburse H&H in respect of claims made against them by work contractors. Guy’s turned to Davis Langdon & Everest (DLE) for advice
on their liabilities and on general advice on quantification thereof.
DLE produced a detailed report on which Guy’s substantially relied. The thrust of Guy’s case was that if it could prove that the global settlement with H&H was reasonable, then the sums allocated to H&H and the individual works contractors within DLE’s report represented Guy’s actual loss with respect to each of those work contractors. Guy’s further contended that to prove the global settlement was reasonable, it was sufficient for Guy’s to show that it reasonably relied on advice given by competent reputable advisors, in particular DLE and their report and that it followed that the fact that the settlement reached with H&H was at arms length and followed advice from DLE, it established the settlement was prima facie reasonable. Guy’s put forward an alternative case namely that if the reasonableness of the global settlement did not fix Guy’s loss with respect to the individual allocations with respect to the works contractors, then Guy’s would contend that the fact that the allocations in DLE’s report were made by competent and reputable consultants means that those allocations were reasonable in the absence of any other evidence of loss. P&O and AA contended that this was a far too simplistic approach and a much deeper enquiry was necessary. Agreed issues The sum claimed against P&O and AA was £6.72million i.e. about 8% of the total figure. Guy’s alleged this £6.72m was attributable to breaches of contract and duty owed by P&O and AA as consultants to Guy’s. The main issue before Judge Bowsher concerned the assessment of damages and related issues of duty, breach and causation. Judge Bowsher was not the least attracted to Guy’s primary case that sums allocated to H&H by the DLE report should be used as a basis of actual loss with respect to each works contractor for whom Guy’s were seeking recompense from P&O and AA. Neither did he approve of the alternative cases put forward by Guy’s, namely merely because allocations in DLE’s report were made by competent and reliable consultants meant those allocations were reasonable in the absence of any other evidence of loss. He found that they were contrary to the decision of the Court of Appeal in Biggin & Co Limited v Permanite Limited. Judge Bowsher pointed out that in considering Biggin & Co Limited v Permanite Limited, it was important to bear in mind what it did not decide. A settlement between A and B, however reasonable it may be from the point of view of A and B, cannot determine C’s liability to B. A submission to the contrary was firmly rejected by a strong Court of Appeal in Fletcher & Stewart v Jay & Partners (1976) 17 BLR 38 (Megaw, James and Geoffrey Lane LJJ). In that case, the Court of Appeal approved the statement of the Official Referee, Sir William Stabb QC.:
Judge Bowsher commented that the case before him was an even stronger case than that before Sir William, because the present is not a case where the obligations of the third party to the defendant are the same as the obligations of the defendant to the plaintiff. He stressed the nature of the causes of action and to whom they are owed has to be identified. Judge Bowsher was not persuaded by Richard Fernyhough QC’s argument that its primary contention as regards its ability to use the global settlement was supported by the decision of His Honour Judge Esyr Lewis WC in Oxford University Press v John Steadman Design Group (1990). In that case the judge found that a global settlement was reasonable and went onto make an apportionment of the global figure to various heads. The reason that did not assists Guy’s was because the apportionment was made under the provisions of the Civil Liability (Contribution) Act 1978 and totally different considerations arose which did not arise in this case because there was no statutory right of contribution in Guy’s case. Judge Bowsher was neither impressed by Guy’s reliance on the
Court of Appeal decision in Comyn Ching (London) Limited v Oriential
Tube Company Limited(9) since the examination of the
cause of action demonstrated the decision was not relevant as the plaintiffs
in that case relied on a contractual indemnity. |
8. 1951 2
KB 314 |
Richard Fernyhough QC also relied upon the judgment in the Board of Governors of the Hospital for Sick Children v McLaughlin & Harvey Plc(10). Judge Bowsher found the question in that case was again different because Judge Newey was concerned with whether the matter of repair of the building could be regarded as reasonable for the purposes of contributing damages, which again was a different question. Guy’s case on the issues highlighted the importance of why an agreement made with a person not a party to the action was admissible. Judge Bowsher said that Biggin v Permanite provided two answers to this question. Firstly because of a rule of evidence the Court of Appeal had stressed in Biggin v Permanite that it is the policy of the court to encourage settlement. For that reason there may be readiness to accept individuals settling a claim between them with a purpose of trying to reach a settlement at a fair figure. The extent to which the settlement may be taken as a matter of evidence to be in the right area will depend on the facts e.g. bargaining capacity, whether the parties have an ongoing business relationship and so forth. Furthermore the courts take judicial notice of the fact that businessmen do not generally pay more than their perception of what the deal is worth. The second rule comes from Hadley v Baxendale. This is based on the idea that under the second limb of the rule in the case the parties may be held to have had in reasonable contemplation the fact that a reasonable settlement would be reached, much as there would be a contemplation of litigation if the parties could not resolve their disputes at the outset. Judge Bowsher said that to regard Biggin v Permanite as applying both in evidential rule and the second branch of the rule in Hadley v Baxendale was workable and sensible and he applied the authority to the facts of this case. As a general rule he said a party would be taken to have in contemplation a settlement which is reasonable in the sense that it is based on an assessment of what is legally due from the plaintiff to the third party. As with all things the answer depends on the facts of each case. Judge Bowsher came to a provisional view that it is likely that the parties ought reasonably to have contemplated that if Guy’s had settled with H&H for claims made by works contractors alone, they would have settled in reliance on advice by competent and reliable advisors who would require the production of the sort of documents which would normally be required by competent quantity surveyors to vouch the claims of the works contractors. He went onto say that a settlement of the works contractors claims reached in that way would be reasonable, but it would only be evidence of the amount of the claim of any one works contractor if the advisor considered each works contractor individually rather than considering the works contractor generally so as to make an overall judgment. Whilst Judge Bowsher did not argue that the effect of the wrap up deal was to discharge any obligation of Guy’s to H&H in respect of the entirety of the delay and disruption claims, he pointed out that Guy’s argument entirely omits any reference to cause of action, breach or causation and hence fails to deal with any legal liability of P&O or AA, which are absolutely crucial if Guy’s are to be able to sustain their position against the two defendants. Judge Bowsher commented that whilst he had no doubt of the high reputation of DLE, and that he would expect that their advice would be reasonable, using the word "reasonable" here means reasonable in the light of the brief given to DLE by Guy’s, this is a very different thing from advice producing figures which are reasonable in law. At page 46 of the judgment Judge Bowsher asked:-
The report which is before me, he said, shows on its face that it was produced to enable Guy’s to make with H&H a commercial settlement, which became accurately known as a wrap up deal. He went on to say the intention of entering into the wrap up deal was stated in the recital to that very agreement as heads of terms to secure clear, fair and acceptable terms. That was not a legal determination, far from it. Indeed, Judge Bowsher commented that the figures and allocations relating to the works contractors were said by DLE to be based on inadequate information: in some cases the works contractor had not even formulated a claim properly. Judge Bowsher came to the impression that the report by DLE was such that they were not able for the most part to collect the sort of material which would normally be relied on by quantity surveyors in valuing claims. He came to the conclusion Guy’s could not rely on the apparent reasonableness of the global settlement as a basis for advancing its claim against P&O and AA with respect to their liability for the works contractors. He found it was necessary for Guy’s to prove that the sums in fact allocated were reasonable and it was material to investigate at what figure H&H themselves settled with the individual works contractors but only in the sense that the evidence of the figures at which H&H settled but there cannot be helpful evidence of reasonableness or otherwise. He went on to find that in order to prove that the global settlement was reasonable it was not sufficient for Guy’s to rely upon advice given by competent surveyors nor was it sufficient that Guy’s acted reasonably in relying on that advice. These were relevant factors, but they were not ultimately determinative. He went on to finally hold that even if Guy’s proved the breaches of contract and/or duty by the defendants the measure of damages recoverable may have some relevance to the amount incorporated in the global settlement but that it did not have to. Interestingly, this case and the Sainsbury’s decision(11)
decided on 21st July 1998 have certain parallels. Whilst the Sainsbury’s
case was concerned with contribution being sought under the Civil Liability
(Contribution) Act 1978 it highlights nonetheless those involved in
closing a settlement and seeking a contribution from a third party need
to be very careful. Not only must the settlement be shown to be reasonable
but the plaintiff must be alert to issues affecting quantum such as,
for example loss of a chance, contributory negligence and any other
issues which, whilst concerned with causation, affect the measure of
damages ultimately recoverable. |
9. 1979 17
BLR 86 10. 1987 19 CON LR 25 |
In the Guy’s decision we see that outside the 1978 Act there is only a persuasive evidential virtue in establishing a reasonable settlement was brokered upon professional advice, particularly where there has been a globalising element in that advice. It is not a safe platform on which to rely as a causative and quantitative finding of loss or damage in a later action!
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11. J Sainsbury Plc v Broadway Malyan |