legal review - beale & company solicitors llp · rupert had described as a culture of delay and...

Beale&CompanyLondon | Bristol | Dublin

Legal Review

2013

www.beale-law.com www.beale-law.comLondon | Bristol | Dublin London | Bristol | Dublin2 3

Case References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Beale & Company News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Professional liability: solicitors, accountants and financial advisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

+ Property transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 – Was there a breach of trust? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 – Relief under section 61 of the Trustee Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

+ The White v Jones principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 – What would have happened? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 – “Loss of a chance” damages? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

+ Duty to explain unusual clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

+ A duty to warn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

+ Application of the SAAMCO principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

+ Drafting the chief executive’s service contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

+ Solicitors liable for litigation costs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 – Solicitors acting under CFAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 – Further factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

+ Tax advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

+ Professional negligence: expert opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

+ Statutory and common law duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

+ Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Professional liability: construction professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

+ Net contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

+ Some architect duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

+ Professional conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

+ The SAAMCO principle not applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

+ Common law duty of care (physical injury) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

+ Common law duty of care (economic loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Construction

+ Building contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 – Meaning of the words used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 – Precedence of contract documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 – Variation omitting work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 – Lump sum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 – Due diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

+ Adjudication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 – Compliance with the Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 – The residential occupier exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Table of contents

– Is a collateral warranty a construction contract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 – Applying for final resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 – An earlier adjudication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 – Crystallisation of a dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 – Procedural unfairness? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 – Procedural irregularities? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 – The rules of natural justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 – Human rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

+ The Defective Premises Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

+ Jackson reforms: compliance with the Civil Procedure Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

+ Costs budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

+ Mediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

+ Costs on discontinuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

+ Costs: who is the successful party? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

+ Costs and Part 36 offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

+ Near miss offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

+ Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

+ New claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

+ Re-litigating old issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

+ Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

+ Duty of good faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

+ Repudiatory breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

+ Limitation of liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

+ Blanket notifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

+ Public liability insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

+ The order in which multiple claims should be met . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

+ Basis of contract clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

+ Rights of subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

+ Disclosure of insurance details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Health and safety and public liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

+ The role of reasonable foreseeability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

+ Non-delegable duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

+ Rules of causation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

+ Ascertaining the cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66


Legal Review 2013 – Case References

Case Name Page

1 ABB Ltd v BAM Nuttall Ltd [2013] EWHC 1983 (TCC) (12 July) 39

2 AIB Group (UK) Plc v Mark Redler & Co [2013] EWCA Civ 45 (8 February) 10

3 AJ Building & Plastering Ltd v Turner [2013] EWHC 484 (QB) (11 March) 29

4 Aldersgate Estates Ltd v Ham Construction Ltd (In Liquidation) & another [2013] EWHC 104 (TCC) (31 January) 26

5 Aldi Stores Ltd v WSP Group PLC [2007] EWCA Civ 1260 (28 November 2007) 50

6 Ampurius NU Homes Holdings Limited v Telford Homes (Creekside) Limited [2013] EWCA Civ 577 (23 May) 54

7 Arcadis UK Ltd v May & Baker Ltd [2013] EWHC 87 (TCC) (29 January) 36

8 Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2013] EWHC 1322 (TCC) (23 May) (CA decision = [2013] EWCA Civ 1541 (29 November)

36

9 Atkins Ltd v Secretary of State for Transport [2013] EWHC 139 (TCC) (1 February) 32

10 Berney v Saul [2013] EWCA Civ 640 (5 June) 20

11 Birse Developments Ltd v Co-operative Group Ltd [2013] EWCA Civ 474 (1 May) 50

12 Caribbean Steel Co Ltd v Price Waterhouse [2013] UKPC 18 (9 July) 19

13 Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1643 (TCC) (14 June) 44

14 Feltham v Freer Bouskell [2013] EWHC 1952 (Ch) (15 July) 12

15 Feltham v Freer Bouskell [2013] EWHC 3086 (Ch) (15 July) 48

16 Fermanagh DC v Gibson [2013] NIQB 16 (4 February) 37

17 Finesse Group Ltd v Bryson Products and another [2013] EWHC 3273 (TCC) (29 October) 27

18 Flatman v Germany Weddell v Barchester Health Care Ltd [2013] EWCA Civ 278 (10 April) 17

19 Gabriel v Little [2013] EWCA Civ 1513 (22 November) 14

20 Genesis Housing Association Ltd v Liberty Syndicate Management Ltd (for and on behalf of Syndicate 4472 at Lloyds) [2013] EWCA Civ 1173 (4 October)

61

21 Gladman Commercial Properties v Fisher Hargreaves Proctor [2013] EWHC 25 (Ch) (18 January) 50

22 Green v Royal Bank of Scotland [2013] EWCA Civ 1197 (9 October) 20

23 Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 (11 May 2004) 45

24 Hammersmatch Properties (Welwyn) Ltd v Saint-Gobain Ceramics & Plastics Ltd [2013] EWHC 2227 (TCC) (24 July) 48

25 Harrison v Technical Sign Co Ltd & Ors [2013] EWCA Civ 1569 (4 December) 27

26 Heron v TNT(UK) Ltd [2013] EWCA Civ 469 (2 May) 18

27 Hide v Steeplechase Co (Cheltenham) Ltd [2013] EWCA Civ 545 (22 May) 63

28 Hunt v Optima (Cambridge) Ltd [2013] EWHC 681 (TCC) (29 April) 27

29 Ikbal v Sterling Law [2013] EWHC 3291 (Ch) (30 October) 12

30 John Dowland v The Architects Registration Board [2013] EWHC 893 (Admin) (19 April) 24

31 John Grimes Partnership Ltd v Gubbins [2013] EWCA Civ 37 (5 February) 24

32 Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] EWCA Civ 38 (7 February) 56

33 Magical Marking Ltd v Ware & Kay LLP [2013] EWHC 636 (Ch) (20 March) 47

34 Mathiesen v Clintons [2013] EWHC 3056 (Ch) (11 October) 14

35 McManus and others v European Risk Insurance Co HF [2013] EWHC 18 (Ch) (17 January) 58

36 Mehjoo v Harben Barker [2013] EWHC 1500 (QB) (5 June) 18

37 Michael Nulty (dec’d) and others v Milton Keynes Borough Council [2013] EWCA Civ 15 (24 January) 66

38 Mid-Essex Hospital Services NHS Trust v Compass Group UK & Ireland Ltd [2013] EWCA Civ 200 (15 March) 53

39 Mitchell v News Group Newspapers [2013] EWHC 2179 (QB) (18 June) [2013] EWHC 2355 (QB) (1 August) [2013] EWCA Civ 1537 (27 November)

41

40 M J Gleeson Group Plc v AXA Corporate Solutions Assurance SA [2013] Lloyd's Rep. I.R. 677 (4 June) 59

41 MT Hojgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Ltd [2013] EWHC 967 (TCC) (23 April) 31

42 Murray v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC) (16 April) 45

43 National Museums and Galleries on Merseyside Board of Trustees v AEW Architects and Designers Ltd [2013] EWHC 3025 (TCC) (11 October)

49

44 Nelson’s Yard Management Co v Eziefula [2013] EWCA Civ 235 (21 March) 46

45 Newcastle International Airport Ltd v Eversheds LLP [2013] EWCA Civ 1514 (28 November) 16

46 Parkwood Leisure Ltd v Laing O’Rourke Wales & West Ltd [2013] EWHC 2665 (TCC) (29 August) 35

47 PGF II SA v OMFS Ltd [2013] EWCA Civ 1288 (23 October) 45

48 Pioneer Cladding Ltd v John Graham Construction Ltd [2013] EWHC 2954 (TCC) (4 October) 34

49 R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1 (23 January)

51

50 Rathbone Brothers Plc and another v Novae Corporate Underwriting & Ors [2013] EWHC 3457 (Comm) (8 November)

61

51 Robbins v Bexley London Borough Council [2013] EWCA Civ 1233 (17 October) 65

52 RWE Npower Renewables Ltd v J N Bentley Ltd [2013] EWHC 978 (TCC) (22 April) 30

53 Sabic UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (QB) (10 October) 32

54 Santander UK Plc v R.A. Legal Solicitors [2013] EWHC 1380 (QB) (23 May) 11

55 St Anselm Development Co Ltd v Slaughter & May [2013] EWHC 125 (Ch) (1 February) 21

56 Sylvia Henry v News Group Newspapers Ltd [2013] EWCA Civ 19 (28 January) 43

57 Teal Assurance Co Ltd v W R Berkley Insurance (Europe) Ltd [2013] UKSC 57 (31 July) 60

58 Tesco Stores v Constable [2008] EWCA Civ 362 (16 April 2008) 60

59 TSG Building Services v South Anglia Housing [2013] EWHC 1151 (TCC) (8 May) 38

60 TSG Building Services Plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC) (8 May) 54

61 Venulum Property Investments Ltd v Space Architecture Ltd [2013] EWHC 1242 (TCC) (22 May) 42

62 Westfields Construction Ltd v Lewis [2013] EWHC 376 (TCC) (27 February) 34

63 West v Ian Finlay & Associates [2013] EWHC 868 (TCC) (16 April) 22

64 Whyte & Mackay Ltd v Blyth & Blyth Consulting Engineers [2013] CSOH 54 (9 April) 39

65 Willmott Dixon Housing Ltd v Newlon Housing Trust [2013] EWHC 798 (TCC) (9 April) 38

66 Woodland v Essex County Council [2013] UKSC 66 (23 October) 64

67 Wright v Michael Wright (Supplies) Ltd [2013] EWCA Civ 234 (27 March) 46

68 XYZ v Various sub nom Re PIP Breast Implant Litigation [2013] EWHC 3643 (QB) (22 November) 62

69 Yam Seng PTE Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB) (1 February) 52

70 Zennstrom v Fagot [2013] EWHC 288 (TCC) (21 February) 40

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On the horizon

Although perhaps another difficult year, we hope that 2013 saw the beginning of the end of the recession and a chance to look towards new opportunities. Here I give some thoughts and our predictions on what to look out for in the year ahead.

Construction

This year we advised on a number of new contract forms where clients wanted

to share risk and reduce disputes . This looks set to continue based on the

number of enquiries we are receiving . Will this mean less disputes? We are

seeing some stale claims against professionals coming back to life as we near

the end of the limitation period . Our defendant clients are taking a tougher line

and refusing standstill agreements, which will test claimants’ resolve . We are

also being instructed on fee claims where clients have not been prepared to

invest in lawyers’ fees to recover unpaid fees but they are now . They have often

written these sums off so any monies recovered now are pure profit .

Another trend we are seeing is contractors getting into disputes with their

insurers . Several instructions in the last quarter of 2013 lead us to believe this

is more than a coincidence . Contractors are now beginning to use this route,

having paid chunky premiums . In the past they may simply have looked to their

client or sub-contractors - now they are looking at their insurers .

The efficiency drive by the Courts around costs and punishing parties who

cannot keep up with the pace they set is good for clients and should make

them begin to realise the advantages of the courts over adjudication .

Foreword

2013 saw some important decisions in the area of professional liability. This review will favour on those key decisions affecting a number of different professions including insurance issues faced by professionals and insurers alike.

On 1 April 2013, the much heralded reforms recommended by Sir Rupert

Jackson came into effect, accompanied by a determination to end what Sir

Rupert had described as a culture of delay and non-compliance in the conduct

of litigation . The stricter approach to enforcing the rules was felt by Andrew

Mitchell M .P . whose solicitors were a few days late in filing their client’s costs

budget in his action against News Group Newspapers . As a result, his right to

recover costs if he is successful in his action is limited to court fees . The Court

of Appeal hoped that their decision would send out a clear message .

The requirement to file costs budgets at the first case management conference,

which had already been piloted in some courts, now applies generally . Costs

budgets approved by the court are intended to set a ceiling on costs that can

be recovered . Our report refers to some of the first decisions on applications to

revise the original budget upwards as the case progresses .

Solicitors continued to face claims for breach of trust when property

transactions did not complete as hoped and sometimes turned out to be

fraudulent but the bar for relief for solicitors under section 61 of the Trustee

Act was not set as high as had perhaps been expected . The Court of Appeal

declined to apply the SAAMCO principle in a case against engineers but did so

in a case against solicitors .

We have included several examples of how the more liberal approach to

contract interpretation, pioneered in recent years in a series of high-level

judgments, has been applied to produce more commercially sensible results

than a literal reading might have suggested . Diverging strands of judicial

opinion seemed to be developing on the concept of good faith in contracts .

There was an important Court of Appeal decision on when a breach of contract

can be treated as repudiatory .

In the field of adjudication, there were decisions on whether a collateral

warranty is a construction contract and on the limitation period affecting

proceedings to recover money paid pursuant to an adjudicator’s award . A

Scottish court held, in a particular case, that enforcement of an adjudicator’s

award would be an infringement of human rights .

Section 69 of the Enterprise and Regulatory Reform Act came into force, which

means that, for the most part, breaches of health and safety regulations will no

longer be actionable per se .

“ The Court of Appeal declined to apply the SAAMCO principle in a case against engineers but did so in a case against solicitors

”Antony Smith Senior Partner

Executive Summary

This case involves allegations of professional negligence by the

Claimants who were institutional purchasers of historical mill

buildings in Leeds, Yorkshire following their engagement of the

Defendant surveyors and engineers to survey those buildings prior

to purchase.

Background The Claimants were interested in buying a converted 19th Century mill

building called Marshall Mills together with another building known as

Marshall Court in Leeds. In 2003, during the negotiation period with the

vendor, the Claimant instructed the Defendant to carry out a building

survey. During a site visit the Defendant noticed cracking in three brick

piers at ground floor level and reported that the cracks appeared to be

of recent origin. After a number of meetings between the Claimants, Defendant and

the vendor, the Defendant suggested that remedial wall ties should be

installed as a holding procedure, that the cracks should be monitored

and that a provisional figure of £20,000.00 should be set aside for the

strengthening of the piers if deterioration continued.

In 2005, significant and serious increases in the sizes of the cracks

were recorded. Compression failure was identified as the cause of

the cracking however nothing was done to rectify the cracking and

no further monitoring was carried out. The cost of the urgent repair

work was high and was not carried out until 2008/2009. The Claimant

claimed that the Defendant ought to have recognised that three

cracked brick piers were or might well be subject to compression failure

and that the Defendant should have carried out calculations which

would or might have revealed at least a real risk of compression failure.

Igloo Regeneration Limited

v Powell Williams Partnership

The Claimant claimed that

the Defendant ought to have

recognised that three cracked

brick piers were or might well

be subject to compression

failure

Author’s NameReference to other literature

here

Reference to other literature

here


here


here


here


here

Keyfacts:

£20,0000 set-aside for pier

strengthening2003 the Claimant instructed

the Defendant to carry

out a building survey2008/9 urgent repair work

carried out

www.beale-law.com1

London | Bristol | Dublin

Beale&Company

Sheena Sood Partner

Sheena trained with Beale and Company and has been a Partner since

1998. She has over 20 years of experience and specialises in projects and

construction related disputes. She has been involved in a diverse range

of construction and engineering related claims and contractual disputes

as well as civil claims and criminal prosecutions arising under health and

safety and environmental laws.

She has a full breadth of knowledge and experience of all types of dispute

resolution and has a particular expertise in construction adjudications. Her

excellent success record in adjudications enables a tactical approach to be

adapted and methodical preparation of evidence.

On large scale disputes Sheena is adept at utilising electronic management

systems to minimise the costs involved in the management of client

documentation and for e-disclosure purposes. She acts for both Claimants

and Defendants and adapts her approach with keen awareness of the

mindset of the opponent. She adopts a commercially pragmatic approach

to dispute resolution with her client’s aim at the forefront.

She has also advised and represented numerous clients in health and

safety matters in the construction and related industries and has much

experience of dealing with investigations and prosecutions.

Sheena regularly writes articles and speaks at seminars on recent

developments and legal issues of interest to those in the construction field.

Sheena is admitted to practice in Ireland and also admitted in Northern

Ireland.

Beale&Company

Sheena SoodPartner

www.beale-law.comLondon | Bristol | Dublin

DDI: +44 (0) 20 7240 8711

M: +44 (0) 7801 393 589

E: [email protected]

…is imaginative and shows

sound judgement.

Legal 500 UK 2012

Education Brunel University LLB

Admitted England and Wales 1992 Ireland 2002 Northern Ireland 2006

Expertise Construction, Engineering & Infrastructure Health, Safety & Environment Professional Liability

Beale&CompanyLondon | Bristol | Dublin

London | Bristol | Dublin www.beale-law.com

Beale&Company

LondonBeale and Company Solicitors LLPGarrick House27-32 King StreetCovent GardenLondonWC2E 8JB

DX No. 51632 Covent Garden

T: +44 (0) 20 7240 3474F: +44 (0) 20 7240 9111

Beale and Company Solicitors LLP34 Lime StreetLondonEC3M 7AT

DX No. 517 London/City

T: +44 (0) 20 3544 5060F: +44 (0) 20 3544 5061

BristolBeale and Company Solicitors LLPRoyal Talbot House2 Victoria StreetBristolBS1 6BN DX No. 7809 Bristol

T: +44 (0) 117 311 7474F: +44 (0) 117 311 7475

DublinBeale and CompanyHamilton House28 Fitzwilliam PlaceDublin 2

DX No. 109048 Fitzwilliam

T: +353 (0) 1 775 9505F: +353 (0) 1 775 9506

Welcome to our Legal Review of 2013… .A report from Antony Smith, Senior Partner


Insurance

Underwriters on Profin should have a good few years on claims, following the

surveyor and solicitor claims from the property bubble of 2008 . Accountants’

low level of risk seems to continue and as construction booms this year or next

there will be a period of quiet . That will change in two years or so when new

projects throw up claims but make hay now! This particularly applies to the new

entrants who do not have the historical baggage .

Apart from the average incompetent professionals, where could we see new or

unexpected spikes in claims? Cyber is one obvious answer . Instances of data

loss and hacking are on the rise . Christmas saw two major hacking incidents .

Travel insurer Staysure warned approximately 90,000 customers that some of

their sensitive bankcard details may have been stolen . In the second, retailer

Target said that the details of more than 40 million cards were stolen by thieves

who compromised card swipe systems at Target’s tills . The new National

Crime Agency has warned that it is not just retail businesses that are at risk,

professional practices are a prime target for hackers . Whether a policy will

respond to a claim depends on the scope of the cover, but there are likely to

be large losses looming . Our team has developed a response that insurers like

to use where we have teamed up with other experts to provide an incident

response service . This includes legal advice, IT specialists and PR advisors . 2014

could be the year we see businesses taking out cyber cover as part of standard

risk management .

The other area of increased risk is brokers’ negligence . With reduced premiums

during recession, insureds have looked to make savings . Brokers who have

cut back staff may not have the experience to have warned clients about

the dangers of their approach to risk and advised on the wrong response to

cutbacks . All crystal-ball gazing so we will see .

International

Our international work is still largely based on FIDIC and the claims are very

large . The use of Dispute Boards may be a good one in theory but more

disputes seem to be progressing from the DAB to full scale arbitration . Maybe

there needs to be renewed effort to make clients more accepting of DAB

decisions . We see this as an important part of our role in advising at the

beginning of disputes so client expectation and understanding means they

are ready to accept DAB decisions or challenge when appropriate and not just

challenge because they can . We work closely on this theme with many leading

DAB members who we know are concerned about this trend .

Beale & Company News continued Beale & Company News continued

“ I use the team for their in-depth knowledge and experience, supported by an open-minded and well-rounded approach. Chambers UK 2014

”

“The team has a strong focus on international work, particularly in the Middle East and Africa. Chambers UK 2013

”

A selection of our highlights….

A new look and future growth

Last year we unveiled a more modern look for the firm with a re-brand of our

logo and website . With 2013 marking 175 years since the firm was founded, back

in 1838, we felt it time to modernise our image and how we present ourselves in

the market we operate, and also highlight our expertise in our specialist sectors

and the legal services we provide .

Our brand refresh also signified our commitment to developing with our clients

and to our own further growth . In 2013, Will Buckby was promoted to Partner,

reflecting the success of our highly regarded international construction practice .

We also promoted three to Associate in our Dublin office and were pleased to

offer solicitor positions to trainees in London and Bristol .

2014 will see further changes for the firm as our Covent Garden office will be

re-locating to new offices in the City of London – meaning our two London offices

will become one again . We will be based in the heart of the London insurance

market, thus cementing our reputation as one of the leading legal advisers to this

sector and allowing us to work more closely with our clients and contacts . With

offices in London, Bristol and Dublin and a Partner based in Dubai we have the

geographical spread to service our diverse client base both in the UK and overseas .

Collaborative approach

We have made significant investment to our international team and presence

over the last few years . We are structured to advise clients either directly from

our well established offices in the UK and Dublin or in collaboration with our

international partners across jurisdictions including Africa, Europe and the Middle

East . This investment has led to us working on many high profile development

projects and international arbitrations across the year . Our AME Seminars are also

proving popular particularly with Government Departments in Africa and provide

a valued networking opportunity for our clients . We have received recognition of

our achievements from leading legal directory Chambers and Partners and British

Expertise who have shortlisted us for the ‘Outstanding International Business

Award (SME) 2014’ .

Creative Solutions

Our commitment to grow with our clients and put their needs first has seen us

approach specific legal services and opportunities with more creative solutions

– be it through client dedicated extranets, up to date IT solutions or competitive

and innovative fee structures . This approach to our clients and also to new

business seems to be paying off as we have achieved a number of new business

wins and panel positions through competitive pitches . We have also offered

advice and solutions via a number of events held for clients and contacts in the

sectors in which we are operating .

With thanks for your support last year, we wish all our clients and friends a happy

and successful 2014 and look forward to working with you .


Professional liability: solicitors, accountants and financial advisers continued

Was there a breach of trust?

The essential question in such situations is whether the solicitors have parted

with the funds without completion of the transaction for which the funds were

provided having taken place . The solicitors in this case did not obtain, when

they parted with the funds, a statement from the existing mortgagee of the

amount required to redeem the existing mortgage and confirmation that the

money would be used for that purpose . The Court of Appeal held therefore

that there had been no completion and so there had been a breach of trust in

parting with the funds .

The court further held, disagreeing with the judge below, that the breach could

not relate only to the amount overpaid to the borrowers (i .e . the extra amount

that should have been paid to discharge the existing mortgage): the breach

could only relate to the whole of the funds .

However, the Court of Appeal held that, under the equitable rules of

compensation, the compensation payable by the solicitors to the lenders should

be limited to the loss that was actually caused by their breach of trust, which in

reality was only the amount of this overpayment . Thus the Court reached the

same result as the judge below by a different route .

The same strict principle that there is a breach of trust if a solicitor parts with

the funds without completion taking place was followed in Santander UK Plc v R.A. Legal Solicitors (23 May), a case concerning a fraudulent transaction,

where the solicitor parted with the funds not realising that the property in

question was not for sale at all . The Court of Appeal has held that in such a

situation, no completion has taken place, because any documents received

by the solicitor in exchange for the money are worthless forgeries and the

transaction itself a nullity .

The solicitors in this case tried to run another argument to the effect that,

even though completion did not in fact take place, the solicitors were not in

breach of trust because they had followed usual and proper procedures and

paid out the funds for the purpose of completion; however, the judge held that

they were in breach of the express terms of the trust contained in the lender’s

instructions to them, which was not to part with the funds save on completion

of the transaction .

Relief under section 61 of the Trustee Act

However, under section 61 of the Trustee Act, the court has a discretion to

relieve a trustee of liability for breach of trust if the trustee has acted honestly

and reasonably and ought fairly to be excused for the breach of trust . There

was no question here but that the solicitors had been honest, and the judge

seems to have had little hesitation in concluding that they had also acted

reasonably and should be excused of liability under section 61 .

This seems to be the most likely defence open to solicitors who get caught up

in fraudulent transactions of this sort which seem to have been all too common

“ The Court of Appeal held therefore that there had been no completion and so there had been a breach of trust in parting with the funds

”

Professional liability: solicitors, accountants and financial advisers

Property transactions

Solicitors instructed to act on the purchase of a property typically act both for the purchaser and for the purchaser’s lender (normally a bank or building society) and are put in funds by the lender to enable them to complete the purchase and obtain a mortgage over the property in favour of the lender.

The solicitors hold the funds on trust to apply them in accordance with their

instructions . If therefore they pay the funds out otherwise than in accordance

with those instructions, they may have acted in breach of trust, not merely been

negligent . In some circumstances, they may not have been negligent at all;

even if they were negligent, the consequences of being in breach of trust are,

potentially, more serious .

This was the situation in AIB Group (UK) Plc v Mark Redler & Co (8 February) .

The solicitors were put in funds in this case to arrange for the remortgage of

a property, in order to secure a new loan by a new lender to the owners of the

property . The solicitors inadvertently paid out too much to the property owners

and not enough to discharge the existing mortgage .

The owners later defaulted, and in the event the lender lost a large part of its

loan due to a fall in the value of the property, which was sold for a substantially

lower price than it was thought to be worth when the loan was made .

The lender argued that the solicitors were in breach of trust in parting with

the funds without obtaining a discharge of the existing mortgage and were

therefore liable to repay all the funds to the lender, less only the amount that

had been recovered for the lender on the sale of the property . If this argument

were to succeed, the lender would be able to recover from the solicitors the

whole of their loss on the transaction, including what they would have lost

anyway even if the transaction had been properly completed, and so would

actually have benefited from the solicitors’ alleged breach of trust .

“ The solicitors inadvertently paid out too much to the property owners and not enough to discharge the existing mortgage

”



The judge held that the relative whom she had intended to benefit was entitled

to sue the solicitors, under the White v Jones principle .

What would have happened?

This was not the end of the matter, because the claimant still had to satisfy the

court that had the solicitor done what he should have done and acted in time

to take proper instructions from his client, the client would have stuck to her

intention to leave the bulk of her estate to the claimant . This raised a point on

which there appears to be no authority .

The normal rule is that a claimant has to prove that the negligence (or other

wrongdoing) alleged against the defendant caused the loss suffered by the

claimant for which it is claiming redress; but this often involves a hypothetical

question – what would have happened if the defendant had not been negligent?

- and answering it with a sufficient degree of certainty is sometimes difficult .

In a situation where the hypothetical question concerns what the claimant

itself would have done, the claimant must prove its case (that what it would

have done would have avoided the loss that it has suffered) on the balance of

probabilities – the normal standard in civil cases . For example, in a situation

where there has been a negligent failure to give the claimant certain advice

which would have avoided the loss, the claimant must prove, on the balance of

probabilities, that it would have followed that advice had it been given . If it fails

to discharge this burden, the claim will fail .

Loss of a chance damages?

However, if the hypothetical question concerns what some third party would

have done, a more modulated approach may apply . Provided that the claimant

can show that there was more than a speculative chance that the third party

in question would have acted in a way that would have avoided the claimant’s

loss but cannot go so far as to prove this on the balance of probabilities, the

court may assess as a percentage the likelihood or chance that this would have

happened and award as damages that percentage of the loss (such damages

are sometimes referred to as loss of a chance damages) .

There seems to be no authority on the question of whether this percentage

chance approach can be followed in the case of a claim by a disappointed

beneficiary under the principle in White v Jones . Is the testator, although

the solicitor’s client, to be treated as a third party for this purpose? The

hypothetical question in this particular case involved the conduct of the 90-year

old lady: what would she have done if the solicitor had responded promptly

to her instructions? Would she have stuck with her intention to leave the

bulk of her estate to the new beneficiary? In order to recover her full loss, the

claimant would have to satisfy the court that, on the balance of probabilities,

she would have done . But if she could not do this, could the percentage chance

assessment be applied to enable her to recover a percentage of her loss?

“ If it fails to discharge this burden, the claim will fail

”


in recent years . It seems clear that the solicitor’s conduct of the transaction

does not necessarily have to have achieved an especially high standard in order

for the solicitor to obtain relief under this section . Minor or one-off instances of

poor practice, for example, even if negligent, may not prevent the solicitor from

obtaining relief, particularly if they have not caused the loss that has occurred .

The importance of this last point was illustrated a few months later in the case

of Ikbal v Sterling Law (30 October) . This was another case of an imposter

selling a property that he did not own and of the purchaser’s solicitors parting

with the funds for a purchase that was not completed . It was held, following

the earlier authorities, that the solicitors had therefore parted with their client’s

funds in breach of trust, which again raised the question – would the court

grant relief to the solicitors under section 61 of the Trustee Act?

In this case, the conduct of the solicitors did seem to be open to criticism . The

judge came to the conclusion that, from start to finish, the work of the solicitors

was conducted casually, and that they were in serious breach of duty following the

purported completion in failing to warn their client for some time that the transfer

document had not been received, during which time the client incurred expenses

on the house that he thought he had purchased . However, because there was no

causal connection between the solicitors’ conduct and the loss of the funds, the

judge granted relief under section 61 . (The client was awarded damages flowing

from the solicitors’ breach of duty following the purported completion) .

The judge rejected an argument that there were signs that should have made

the solicitors suspicious . However, he pointed out that the events in question

had occurred prior to the issue by the Law Society in October 2010 of a

practice note about “Property and registration fraud”, since when it could be

argued that solicitors should be more alert to any possible signs of fraud .

The White v Jones principle

The well-known case of White v Jones established some years ago that a

disappointed beneficiary could make a claim against a solicitor who had been

negligent in the preparation of a will . The reason that a special rule was needed

was because the solicitor’s client was the testator and so normally only the

testator or, following the testator’s death, the testator’s estate could bring a

claim against the solicitor for negligence . However, the negligence may not have

resulted in any loss to the estate: for example, if, as a result of the solicitor’s

negligence, person A receives a legacy which the testator had intended to go

to person B, the estate itself will have suffered no loss . Hence the need for a

special rule allowing person B to sue the solicitor .

A situation of this kind arose in Feltham v Freer Bouskell (15 July), where a

90-year old lady in a nursing home instructed her solicitor to make changes to

her will, leaving the bulk of her estate to a relative not mentioned in her existing

will . The solicitor failed negligently, as the judge later held, to act promptly in

response to these instructions before the lady died . (She did in fact make a new

will before she died, but the validity of this will was open to challenge) .

“ The judge came to the conclusion that, from start to finish, the work of the solicitors was conducted casually, and that they were in serious breach of duty

”



It was accepted that the solicitors had not been engaged to advise their client

on the commercial wisdom of making the loan . However, before the loan was

made, it came to the attention of the solicitors that the loan would in fact be

used to purchase the property in question and discharge a mortgage on it,

which the client claimed he had not realised . The solicitors were held to have

been under a duty to inform their client of this and were therefore in breach of

duty when they failed to do so .

What damages were claimable from the solicitors? The solicitors relied on what

has come to be known as the SAAMCO principle (called after the well-known

valuers case in 1996 of South Australia Asset Management Corporation v York

Montague Ltd) .

Application of the SAAMCO principle

This principle is now a cornerstone of the law relating to professional liability .

Briefly, it is that the extent of a professional person’s liability for any particular

loss is conditioned by the scope of the professional person’s duty . However,

stating the principle is sometimes easier than applying it in practice .

The first question addressed by the court in the Gabriel case was – what actual

loss (if any) was incurred by the client as a result of making the loan? In reply

to this, in view of the findings of the judge in the court below, the court of

appeal accepted (not without some hesitation) that the client did not know

how the loan was going to be used and that, if he had known this, he would not

have proceeded with it . Therefore, the loss incurred was the full amount of the

client’s loss on the transaction .

The next question addressed by the court was whether, having regard to the

scope of the solicitors’ duty, the solicitors were liable for the whole of this loss

or only some (and if so what) part of it . The court held that the duty of which

the solicitors were in breach was a duty to provide information to the client,

not to advise the client on the course of action that he should take . It followed

that the full loss incurred by the client as a result of making the loan did not fall

within the solicitors’ duty of care and so the solicitors were not liable for the

whole of the loss .

The court then asked – what were the consequences of the duty that the

solicitors did owe (to provide the information) being breached? This is not the

same question as “what would have been the consequences if the duty of care

had been fulfilled?” (the answer to which, on the facts accepted by the Court of

Appeal, would have been that the full loss would have been avoided) . The court

concluded that none of the loss was attributable to the solicitors’ breach of

duty: the whole loss was the foreseeable consequence of obvious commercial

risks that the client chose to take .

In short, the application of the SAAMCO principle in this case led to the

conclusion that the solicitors were not liable for any part of the client’s loss .

“ The first question addressed by the court in the Gabriel case was – what actual loss (if any) was incurred by the client as a result of making the loan?

”


The judge was of the view that it could but that the point remains to be

decided by an appellate court . As it was, the judge held that the claimant in

fact succeeded on the balance of probabilities and so was able to recover her

full loss .

Duty to explain unusual clauses

There is a principle established in past cases that a solicitor owes a duty to his

or her client to explain unusual clauses in an agreement into which the client is

contemplating entering . It has also been said that, especially where the client is

unsophisticated, it is incumbent on the solicitor to confirm the advice in writing .

This principle was considered in the case of Mathiesen v Clintons (11 October),

which concerned a complicated clause in a share agreement between a

husband and wife to make financial provision for the wife . (The marriage was in

difficulties but neither at this stage wanted a divorce) .

Arguably, the solicitors acting for the wife were remiss in failing to obtain

details of the husband’s salary and of a scheme by which it could be increased

but the judge held that these failings did not, in the circumstances, amount to

negligence . However, the judge held that the solicitors had been negligent in

failing to advise their client on the workings of the clause, prior to execution of

the agreement . This was notwithstanding the fact that, as he held, the client

was far from being unsophisticated and had been involved in the negotiations

(but had not entered into such an arrangement before) . He held that it would

have been prudent but not essential to have put the advice in writing .

The claim against the solicitors in fact failed because it was out of time – an

argument that there had been deliberate concealment was rejected – and

the judge also held that the client would not have sought to renegotiate the

agreement in any event .

A duty to warn

The scope of a professional person’s duty should be determined by the

retainer . However, it is always possible that a particular duty may be triggered

by circumstances that arise during the commission . An example is where

a professional person, in the course of doing that for which he is retained,

becomes aware of a risk or potential risk to the client . The professional may

thereby become under a duty to warn (or at least inform) the client of the risk,

even if the risk may concern matters that are outside the retainer .

This is what happened in the case of Gabriel v Little (22 November), which

concerned solicitors who acted for a businessman making a loan to be used for

the development of a property . The loan was never repaid and, although the

loan was secured on the property, the property itself was never developed and

was eventually sold in a derelict state for a pittance .

“ Arguably, the solicitors acting for the wife were remiss in failing to obtain details of the husband’s salary

”



Could such an order be made against solicitors who act for a party in litigation

but are not, of course, parties to the litigation themselves?

Solicitors acting under CFAs

Many solicitors regularly conduct litigation under a conditional fee agreement

(CFA) (a matter that was a particular focus of the reforms to civil litigation

that came into effect on 1 April) . Broadly, the solicitor acts for the claimant on

terms that the claimant will only have to pay the solicitor’s fees if it wins the

case . The claimant can also protect itself against liability for the defendant’s

costs by taking out after-the-event (ATE) insurance, which of course protects

the defendant too (or, more commonly, the defendant’s insurers) if the claimant

would otherwise be unable to pay its costs .

However, if the claimant does not take out ATE insurance (it may not be able

to afford the premium), the successful defendant or its insurers may not be

able to recover any of its costs – unless perhaps it can recover them from the

claimant’s solicitors, on the basis that, by enabling the claimant to pursue the

claim, they have in effect funded the claim . The extent to which solicitors acting

on behalf of claimants can fund or “prime pump” litigation for those of limited

means, without thereby exposing themselves to adverse orders for costs should

the claims fail, was the issue before the Court of Appeal in two cases, Flatman v Germany and Weddell v Barchester Health Care Ltd (10 April) .

Such an order would not be made against a solicitor unless the solicitor had

acted outside the normal role of a solicitor . Therefore, since solicitors are

permitted to act under a CFA, a third party costs order would not be made

against a solicitor who has acted for an unsuccessful party merely on the basis

that the solicitor had agreed that the party would not have to pay the solicitor’s

costs if it lost the case . The point of principle in the Flatman and Weddell

cases was whether the same applies where the solicitor has also paid the

disbursements of the unsuccessful party (for example, court fees and expert

witness fees) without requiring them to be repaid to the solicitor in the event of

the party being unsuccessful .

The Court of Appeal considered whether the legislation that permitted

solicitors to act under a CFA covered disbursements as well as normal costs .

The court ruled that it did . The effect of the court’s ruling, therefore, is that a

solicitor acting under a CFA who pays the client’s disbursements in litigation

will not, without more, be at risk of incurring an order to pay the other

party’s costs .

Further factors

However, further factors could justify the making of such an order against

solicitors acting in litigation, of which one of the two cases may provide an

example . There was evidence before the court that the solicitors may have

“Such an order would not be made against a solicitor unless the solicitor had acted outside the normal role of a solicitor

”


Drafting the chief executive’s service contract

When solicitors are retained by a company to draft a service contract for its

chief executive, should they take instructions from the chief executive, or would

that involve a conflict of interest?

The point arose in Newcastle International Airport Ltd v Eversheds LLP (28

November) . The case arose out of events of some notoriety in the north east,

when it transpired that variations to the contracts of the chief executive officer

and the finance director of Newcastle International Airport Limited (of which

various local authorities were shareholders) entitled them, upon completion of

the refinancing of the company’s debt, to bonuses totalling some £8m .

The solicitors, who were engaged by the company to draft the new contracts

and, in doing so, took instructions from the chief executive himself, maintained

that, in their experience, their instructions in relation to the drafting of such

contracts invariably come from the executive directors, with the resultant draft

then being reviewed by the company’s remuneration committee . The Court of

Appeal accepted that the solicitors were entitled to regard the chief executive

as having the authority of the company when giving instructions, but did not

agree that advice given by the solicitors to the executives on the effect of the

drafts could therefore be treated as advice to the company .

The court held that the solicitors were under a duty, having completed the

drafts, to give separate advice to the remuneration committee on the effect of

the drafts, explaining in user-friendly language a summary of the scheme and

the workings of each material change to the original contracts and identifying

where in the drafts the changes could be found .

What would have happened if they had done this? In the very unusual

circumstances of this case, the court held that the chairwoman of the

remuneration committee, who, among other things, seems to have had an

aversion to reading legal documents, would not in fact have read and ensured

that she understood the advice that should have been given . The case against

the solicitors failed, therefore, on causation .

Although the court did not suggest that the solicitors should not have taken

instructions from the executives, it did remark that it was less than ideal that

they should have done so, whatever may be the current practice .

Solicitors liable for litigation costs?

A court may order a person who is not a party to the litigation to pay the

costs of the successful party in the litigation if the non-party has funded the

unsuccessful party and the unsuccessful party is unable to pay the costs itself .

However, such an order would not normally be made against a mere funder: the

funder must have had an interest in the proceedings and have stood to benefit

from them (had the unsuccessful party been successful) or have sought to

control the conduct of the proceedings on behalf of the unsuccessful party, so

that the funder could be said to be the “real” party to the action .

“ The Court of Appeal accepted that the solicitors were entitled to regard the chief executive as having the authority of the company…

”



Much of the judgment was then concerned with what would then have

happened if they had done that: whether the claimant would in fact have been

advised by a specialist to follow the bearer warrant scheme, whether he would

have taken that advice and done so in time and whether it would in fact have

worked to his advantage . These points were resolved in the claimant’s favour

(the answer to each question was held to be yes) and the accountants were

therefore ordered to pay damages comprising the amount of capital gains tax

that the claimant had had to pay and the costs of another scheme that the

claimant had tried but had proved abortive .

Another, more fundamental, issue in the case was whether the accountants

were under a duty to the claimant to advise him on tax planning at all,

given that he had not requested such advice and it was not covered in the

accountants’ retainer letter . The judge held that such a duty was owed because

such advice had in fact regularly been given by the accountants without being

requested, and was in fact given by them in relation to capital gains tax on the

proposed sale . In short, it was a case of a duty arising as a result of what was

actually done .

Professional negligence: expert opinion

Professional negligence is falling below the standards properly to be expected of a

person of the relevant profession . In order to prove that there has been professional

negligence, expert evidence of the relevant standards from those within the

same profession is normally crucial (save in the case of claims against solicitors

and barristers, where the judge is presumed to have the relevant expertise) . If

a properly qualified and reputable independent expert expresses a reasoned

opinion that the work carried out by the professional met the required professional

standard, it is for the claimant to establish why that view should be rejected .

So said the Privy Council on an appeal from the Court of Appeal of Jamaica

in the case of Caribbean Steel Co Ltd v Price Waterhouse (9 July), where the

work in question concerned a valuation prepared by accountants of the shares

of a company prior to its acquisition by another company . The criticism of the

accountants’ valuation centred upon their treatment in the report of a surplus

in the company’s pension fund . The view of the accountants’ expert witness

was that the accountants’ estimate of the value of the company was reasonable

and had been properly carried out and that the pension fund surplus could be

considered an asset of the company . The judge at first instance rejected this

evidence: the Court of Appeal said that he was wrong to have done so .

The fact that the accountants had called an independent expert to testify that

in his opinion there was no negligence did not, of course, preclude the court

from rejecting the expert’s view . But it was essential that the reasons given

by the expert for reaching his opinion were carefully scrutinised; for unless

there was sound reason for rejecting it, a judge could not properly find that

professional negligence had been established .

“ The judge held that such a duty was owed because such advice had in fact regularly been given by the accountants…

”


proceeded with the case despite instructions from their client (the claimant)

not to do so without ATE insurance in place . Despite the solicitors having

succeeded on the point of principle concerning disbursements, the court

upheld (both in this case and in the other case where the same solicitors

were acting) an order for disclosure of documents relating to the funding

arrangements for the claimant, to enable the defendant’s insurers to consider

whether there were still grounds for seeking an order for costs against the

solicitors .

A negligent failure on the part of the solicitors to obtain ATE insurance for

their client and to inform their client of this was in fact the background to

Heron v TNT(UK) Ltd (2 May), another case before the Court of Appeal . It

was argued that the solicitors’ negligence had created a conflict of interest

between the solicitors and their client, as the solicitors had an interest of

their own in endeavouring to resolve the case in a way that avoided any cost

liability for their client that should have been covered by ATE . However, there

was no evidence that the failure to obtain ATE insurance had caused costs

to be incurred that would not have been incurred anyway and the judge in

the court below had rejected a claim of conscious impropriety on the part of

the solicitors .

In these circumstances, the Court of Appeal rejected the claim for an order

making the solicitors liable for the costs of the other side . Otherwise, any act

of negligence by a solicitor in the conduct of litigation (thereby giving rise to

a conflict) would be sufficient to make such an order, and the court did not

accept that the law goes that far .

Tax advice

Despite the political unpopularity of tax avoidance schemes, the judgment

in Mehjoo v Harben Barker (5 June) is a reminder that an accountant may

nonetheless be in breach of duty to its client if it fails to advise on legal ways of

avoiding (or mitigating or saving) tax . The case concerned a scheme known as a

Bearer Warrant Scheme which was available to people not domiciled in the UK as

means of avoiding capital gains tax on the sale of shares in a company . It involved

the conversion of registered shares in the company into bearer shares, the shares

being moved into an offshore jurisdiction (such as Jersey) and gifted to an

offshore trust set up for this purpose . The sale of the shares by the trust would be

outside the scope of UK tax . The scheme has since been blocked by legislation

but would have been available at the time to the claimant in this case .

The case against the claimant’s accountants, who were generalist accountants,

was not that they should have known or advised the claimant about this

scheme but that they should have realised that the claimant, who had been

born in Iran, was likely to have non-domiciliary status and that this would have

potential tax advantages; and so, when it was clear that the claimant would

face a large claim for capital gains tax on the sale of his shares, they should

have advised the claimant to seek advice from non-dom specialists .

“ It was argued that the solicitors’ negligence had created a conflict of interest…

”



Did the limitation period for the claimant’s subsequent action against the

solicitors start to run only from the date when she settled the original action? If

the action had actually been struck out, would the limitation period have only

started to run from the date when it was struck out?

On these (essentially the same) questions, the leading authorities may not be

entirely consistent, but it seems that in most situations it is likely that damage

will be held to have been sustained – and the limitation period to have started

to run – before the original action was settled or struck out (or permitted to

continue only on a restricted basis) as the case may be . This is because, once

there was a material risk of the action being struck out, which is likely to have

happened before it actually was struck out, the value of the claim in the action

would have been diminished, and this would constitute damage .

In St Anselm Development Co Ltd v Slaughter & May (1 February), the issue

was whether a single act of negligence could give rise to two causes of action,

each with its own limitation period . Solicitors were alleged to have advised

negligently on extensions to the leases of two flats, causing a disadvantage

to their client (the lessor) . The extended lease for each flat was completed at

different times . The claim against the solicitors was started more than six years

after completion in respect of the first flat but before the end of the six years in

respect of the second . Was the claim in respect of the second flat doomed as

well? This depended on whether there was a separate cause of action in respect

of each flat . The judge held that there was, as the solicitors owed a separate

duty to advise on each underlease, even though the advice was the same in

both cases . The claim in respect of the second flat was, therefore, in time .

“ Was the claim in respect of the second flat doomed as well?

”


Statutory and common law duties

Breach of a statutory duty may in some cases give rise to a right of action in

private law for a person who suffers loss as a result of the breach but it does

not follow that the existence of the statutory duty gives rise to a co-extensive

duty of care at common law . So it was held by the Court of Appeal in Green v Royal Bank of Scotland (9 October) .

The case concerned the sale of an interest rate swap by the bank to two of

their customers . The Bank did not give the customers any recommendation or

advice in relation to the swap but it was alleged that the bank was in breach of

the then current Conduct of Business Rules in failing to take reasonable steps to

ensure that they understood the nature of the risks involved .

It was too late for the customers to bring an action for this alleged breach of

statutory duty (as would have been possible) but an action for breach of a

common law duty of care would still have been in time, if there was any such

duty (one of the potential advantages of an action for breach of a common law

duty of care is a longer limitation period) .

The Bank did not assume any advisory duty of care to the customers nor did

any such duty arise . The common law duty of care established in the well-

known case of Hedley Byrne and Co Ltd v Heller and Partners Ltd is a duty

to take care in making a statement but does not comprise a duty to give any

particular information or advice, unless the lack of such information or advice

itself renders a statement misleading .

The performance of a statutory duty by (typically) a public body may bring

about a relationship between itself and another person, which could give rise

to a duty of care owed to that person . But such a duty would arise out of the

relationship so created, not by reason of the imposition of the statutory duty .

In short, no common law duty of care in this case was owed by the bank to its

customers . However, the Court did say that the existence of a statutory duty

may give rise to a common law duty of care in circumstances where breach of

the statutory duty is not actionable in private law .

Limitation

A perennial issue in professional negligence claims is the question of when

damage is first sustained by the claimant, because this is when the six-year

period for starting an action in tort is triggered . In the case of Berney v Saul (5 June), the Court of Appeal had to consider this issue in relation to a claim

against solicitors who were alleged to have negligently delayed in prosecuting

an action, such that there was a risk of the action being struck out, or of only

being allowed to continue with a restriction on the amount that could be

claimed . It was not known whether either risk would have materialised, because

the claimant, in the face of this situation, had settled the action for what, she

claimed, was a considerable undervalue .

“ The Bank did not assume any advisory duty of care to the customers nor did any such duty arise

”


in the net contribution clause to other…..contractors was only to those other

contractors .

Consultants seeking to include a net contribution clause in their contracts

may be well-advised, therefore, to ensure that it expressly covers the main

contractor .

This being a contract with a residential house owner, the Unfair Terms in

Consumer Contracts Regulations 1999 applied, and the judge also pointed out

that where there is doubt about the meaning of a contractual term, it should

be construed in the consumer’s favour . The judge did not, though, rule that

the clause itself was void as unfair under the Regulations .

Some architect duties

On the scope of an architect’s duty of inspection, the judge made the

following comments:

… an architect probably should be present when this type of operation [the pouring of a floor slab in a domestic project] is being carried out if that is reasonably possible….an architect would not be expected to check the precise depth of the excavation or the mix of the concrete, unless he was put on notice that something was obviously wrong….an architect would be looking to see that the work appeared to be in accordance with the specification. For example, if the design of a strip foundation specified that it was to be 750mm deep, I would expect an architect to notice if the trench for it was only some 300-400mm deep….I would not necessarily expect an architect to notice if the trench was only 600-650mm deep….That might not be immediately obvious…..one would not ordinarily expect an architect to be carrying a ruler and measuring every dimension, unless he or she had some particular reason for concern about some particular aspect of the work.

(The judge concluded that the architect was not in breach of duty in failing to

notice defects in the floor slab) .

The specification for the M&E services was essentially a performance

specification, so it required the contractor to produce the detailed design

of the M&E installation . The judge did not consider that the architect was

negligent in failing to specify a form of contract that provided for contractor’s

design (though if this had been done, the contractor would probably have

been required to have professional indemnity insurance in relation to its

design duties) .

Professional conduct

People who wish to practice as architects must be entered on the Register

of Architects maintained by the Architects Registration Board under the

Architects Act 1997 . Appropriate qualifications and practical experience

or a sufficient standard of competence are required to be entered on the

Professional liability: construction professionals continued

“ …an architect probably should be present when this type of operation [the pouring of a floor slab in a domestic project] is being carried out if that is reasonably possible…

”

Professional liability: construction professionals

Net contribution

West v Ian Finlay & Associates, on 16 April, involved a successful claim for professional negligence against architects. The case involved renovation work to a residential property. The project, in the words of the judge, proved to be a disaster. One feature of the disaster is that the main contractor became insolvent, so the claim lay solely against the architects.

This is the sort of nightmare that professional consultants and their

professional indemnity insurers dread – the consultant being left to carry the

whole of the can because the contractor, who might well have been primarily

responsible for the damage, turns out to be insolvent . The allegations upheld

against the architects in this case concerned both design and inspection; but,

in relation to the latter at least, the architects might well have expected the

main share of liability to be apportioned to the contractor .

To deal with just this sort of situation, professional engagements frequently

contain a net contribution clause, the purpose of which is, in effect, to limit

liability to what the consultant would have had to pay had all other parties

to blame actually paid the amount that was or would have been apportioned

to them . Such a clause was included in the contract of engagement of the

architects in this case, in the following terms:

Our liability for loss or damage will be limited to the amount that it is reasonable for us to pay in relation to the contractual responsibilities of other consultants, contractors and specialists appointed by you.

Unfortunately for the architects, interpreting the contract in its context, the

judge did not consider that the term contractors in this clause included the

main contractor . The relevant context was that the house owners decided to

appoint directly various other contractors to supply certain elements of the

works, which saved them from having to pay the main contractor’s overhead

and profit in relation to those items . The judge concluded that the reference

“ One feature of the disaster is that the main contractor became insolvent, so the claim lay solely against the architects

”


2008 and the value of the development fell over the period of delay by a

substantial amount . The question for the Court of Appeal was whether the

engineer could, in principle, be liable for loss suffered by the developer as a

result of this fall in market value .

The Court said the appeal raised an issue of some importance about the law

on remoteness of damage in cases of breach of contract . Was the damage in

question too remote?

The legal test of remoteness stems from the nineteenth century case of

Hadley v Baxendale . The standard exposition of the test in modern times

is that a type of loss is not too remote if the party in breach ought to have

realised at the time of making the contract that it (i .e . the type of loss in

question) was not unlikely to result from the breach .

A fall in the property market could be said to be something not unlikely to

occur: it is well known that properties go up and down in value .

It was argued on behalf of the engineer that, applying the SAAMCO principle,

the first step should be to establish the scope and nature of the duties

owed by the engineer under the contract and whether the loss for which

compensation is sought is of a kind or type for which the engineer ought fairly

to be taken to have accepted responsibility . Approaching the matter in this

way, it would be seen that there was no duty on the engineer to protect the

developer against losses due to falls in the market .

The facts of this case were not dissimilar from that of the SAAMCO case itself,

where it was held that valuers advising lenders on the value of properties to

be taken as security for a loan who negligently overvalue the property should

not be liable for losses attributable solely to a fall in the property market,

notwithstanding that such losses were foreseeable in the sense of being not unlikely . Such liability was excluded on the ground that it was outside the

scope of the liability which the parties would reasonably have considered that

the valuer was undertaking .

However, perhaps rather surprisingly, the Court of Appeal held in the John

Grimes Partnership case that the SAAMCO principle does not and is not

intended to alter the standard approach based on reasonable foreseeability

derived from Hadley v Baxendale . It merely shows that in some situations the

standard approach will not apply, because it will not reflect the expectation or intention reasonably to be imputed to the parties . However, the Court said that

such situations are unusual and that Hadley v Baxendale remains a standard

rule, which has been rationalised on the basis that it reflects the expectation

to be imputed to the parties in the ordinary case:

Normally, there is an implied term accepting responsibility for the types of losses which can reasonably be foreseen at the time of contract to be not unlikely to result if the contract is broken.

On behalf of the engineer, it was argued that acceptance of such

responsibility for losses due to the fall in property market should not be

imputed to the engineer: the contrast between the modest fee payable to


“ Approaching the matter in this way, it would be seen that there was no duty on the engineer to protect the developer against losses due to falls in the market

”


Register . However, the Act also requires the Board to issue a Code laying down standards of professional conduct and practice expected of registered persons. Under the Code that has been issued in accordance with this

requirement, architects are required to ensure that their personal and

professional finances are managed prudently . An order of bankruptcy or

failure to pay a judgment debt are examples of matters that may be examined

by the Board .

John Dowland v The Architects Registration Board (19 April) concerned an

architect who was struck off the Register after being made bankrupt and

whose application for re-admission after two years was refused by the Board .

The architect (or former architect, as he now was) appealed to the court,

arguing that the Board’s decision not to re-admit him was flawed on various

grounds . The judge dismissed the architect’s arguments . One argument raised

by the architect, based on an interpretation of the Act, was that under the Act

only matters of competence could be considered on an application for re-

admission; however, the judge held that the Board’s considerations were not

so confined .

The judge also ruled that it was not open to the former architect to appeal

under the Act against the Board’s refusal to reinstate him on grounds

concerning professional conduct (as opposed to professional competence)

but that he could have applied to the court for judicial review: the outcome,

though, would have been the same .

Whatever the circumstances of this particular case, some might argue that

matters of conduct which have no bearing on an architect’s competence

should not cause an architect to be struck off the register or prevent him or

her being re-admitted .

The SAAMCO principle not applied

We have referred above to a solicitors case where the SAAMCO principle

(called after the well-known valuers case in 1996 of South Australia Asset

Management Corporation v York Montague Ltd) was applied . The principle

was not applied, however, in a case against engineers, John Grimes Partnership Ltd v Gubbins (5 February) . Instead, the Court of Appeal

considered the issue of liability for the loss in question through the narrower

prism of whether the loss was too remote .

The engineer had been engaged to design the road and drainage for a

residential development . The judge found that it was an express oral term of

the contract that the agreed work would be completed by a particular date,

and he also held that that was a reasonable time for the work to be done . The

work was not completed by the agreed date and the judge found that, due

to this breach of contract on the part of the engineer, the development was

delayed by 15 months .

Unfortunately, this delay occurred in the aftermath of the financial crisis of

“The architect (or former architect, as he now was) appealed to the court, arguing that the Board’s decision not to re-admit him was flawed…

”



the loss in question is economic than where physical injury is concerned .

However, in the case of Harrison v Technical Sign Co Ltd & Ors (4 December),

which concerned serious injuries to passers-by caused by the fascia of a shop

becoming detached and falling to the pavement, the Court of Appeal held

that the judge below had been wrong to hold that a firm of surveyors owed a

duty of care owed to the passers-by .

The surveyors in question had a few months before inspected the awning

beneath the fascia and, in the view of the judge, should have noticed that the

fascia had dropped . The judge applied the three-fold test and held that it was

satisfied . However, the Court of Appeal held that the judge had placed too

much emphasis on foreseeability of harm, almost to the point of treating it as

sufficient to create a relationship of proximity between the surveyors and the

passers-by: on its own, said the court, foreseeability of harm is not enough .

The proprietor of the shop was concerned that the awning may have been

damaged during building work carried out by the proprietor’s landlord which

the surveyors had managed and supervised and the proprietor had asked the

surveyors to inspect the awning in their capacity as the landlord’s agents . This

limited role of the surveyors in inspecting the awning meant that there was an

insufficient degree of proximity between them and the passers-by to give rise

to a duty of care on their part .

Common law duty of care (economic loss)

The case of Finesse Group Ltd v Bryson Products and another (29 October)

concerned exhibition stands and the adhesive which was supposed to stick

colour laminated panels to the structure of the stands . However, this was

not a case where the panels fell off and injured people . The complaint was

that some of the panels began to delaminate from the structure of the stand

and displayed a bubbling or bulging effect . Any damage complained of

here, therefore, appeared to be economic loss . Only rarely will a common

law duty of care be owed in respect of economic loss, and if there is no prior

relationship between the parties, hardly ever . A claim in tort, therefore, by the

makers of the exhibition stands against the manufacturers of the adhesive

(by whom they had not been supplied directly, so they had no contract with

them) seemed hopeless and it was struck out at the first case management

conference .

Most cases in which a common law duty of care to prevent economic loss

have been held to exist refer back to the landmark case of Hedley Byrne v Heller & Partners . The duty derived from that case and as refined in

subsequent cases arises broadly out of an assumption of responsibility by

one party professing a particular skill and reliance on that assumption by the

other party, in circumstances that are equivalent to contract . In Hunt v Optima (Cambridge) Ltd (29 April), consultants were retained by the developer of

a block of flats to carry out periodic inspections during construction with

a view to producing certificates for purchasers of the flats, certifying that,

“ However, the Court of Appeal held that the judge had placed too much emphasis on foreseeability of harm…

”


the engineer under the contract and the potential scale of the losses through

market movement was emphasised, as was the fact that the engineer had no

control over the market movement .

The court was dismissive of the first point:

It may not infrequently be the case that the breach of a contract of modest size gives rise to a substantial claim in damages. Moreover, any such contrast is merely one possible pointer towards a contracting party not having undertaken a potential liability which is reasonably foreseeable and by itself would not normally suffice to establish such an absence of responsibility. It does not do so here.

As for the argument that the engineer had no control over the property

market, the court pointed out that there are many decided cases where delay

in delivery of goods has been held to give rise to damages for loss suffered

through a change in the market price .

This was a disappointing decision not just for the engineers in the case but for

professional people and professional indemnity insurers generally . The Court

seemed concerned to confine the SAAMCO principle within narrow bounds,

as only arising in exceptional cases . This approach does not, though, seem

consistent with the approach in other cases .

The same issue was the subject of a procedural judgment a few days earlier

in the Technology and Construction Court in the case of Aldersgate Estates Ltd v Ham Construction Ltd (In Liquidation) & another (31 January), also

involving a claim against an engineer (and also a contractor) . The case

concerned a property development, during which the façade of the property

(which was to be retained) started to subside and was damaged . As well as

the costs of rebuilding the façade, the claim also included damages for delay

in practical completion of the works, and in particular for diminution in value

due to market changes during the period of delay . The total claim, as of 31

January, came to £4,418,224, of which no less than £3,441,328 was said to be

the result of the diminution in value due to market changes .

The judge refused an application for the issue (of whether the defendants

could be liable for this diminution in value) to be tried as a preliminary issue .

Common law duty of care (physical injury)

There are various legal tests for determining whether, in any particular

situation, a common law duty of care is owed . One is the three-fold test

approved in the well-known case of Caparo Industries Plc v Dickman: foreseeability (whether it was foreseeable that negligence by the defendant

might cause the injury or loss that has occurred), proximity (whether there

was a sufficient relationship of proximity between the defendant and the

claimant who suffers injury or loss) and fairness (whether it would be fair just

and reasonable to impose on the defendant a duty of care to the claimant) .

The courts are likely to be more cautious in imposing a duty of care where

“ The Court seemed concerned to confine the SAAMCO principle within narrow bounds, as only arising in exceptional cases

”


Construction

Building contracts

There have been a number of well-known cases in recent years about contractual interpretation, at least some of which are almost always referred to in any judgment now where interpretation of a contract is an issue. In one case in 2013 (RWE Npower Renewables Ltd v J N Bentley Ltd, which is referred to below), the effect of these cases was summarised by the judge in the following way:

One needs to determine objectively what a reasonable person with all the background knowledge reasonably available to the parties at the time of the contract would have understood the parties to have meant and one is looking to adopt the more rather than less commercial construction .

Meaning of the words used

Some fundamental principles of contract construction were considered in

AJ Building & Plastering Ltd v Turner (11 March) . The case concerned insurance

claims for damage to houses . The contractors who carried out the remedial

work had not been instructed directly by the household insurers; the insurers

had instructed another company, which had subcontracted the work to the

contractors . Unfortunately, this company had gone into administration leaving

the contractors unpaid, with no right of recourse against the insurers . The

contractors therefore looked for payment from the householders themselves .

The contractors’ claim against the householders was based on a mandate

that they had procured from the householders . Under this mandate, as well as

agreeing to employ the contractors to carry out the work, the householders

stated that they would remain responsible for payment of any policy excess or any monies due for work authorised by me/us, which is not paid by my/our insurer . Did this mean that the householders had to pay for the work which

they had assumed would be paid for by their insurers?

“ …a reasonable person with all the background knowledge reasonably available to the parties at the time of the contract

”


based on those inspections, the work had been constructed to a satisfactory

standard and in general compliance with approved drawings and the Building

Regulations . They were held to owe a duty of care to the purchasers of the

kind derived from Hedley Byrne v Heller, and that the duty of care extended

not only to the making of the statements in the certificates but also to the

performance of the services which were necessary to enable the certificates

to be issued .

The judge also held that the certificates constituted contractual warranties .

The purchase price paid by the purchasers for the flat, although not, of

course, paid to the consultants, was valid consideration for this purpose: while

consideration, in order to create a contract, must move from the promisee

(the purchasers), it need not move to the promisor (the consultants) .

“ The judge also held that the certificates constituted contractual warranties

”


see if there is an ambiguity. If it is possible to identify a clear and sensible commercial interpretation from reviewing all the contract documents which does not produce an ambiguity, that interpretation is likely to be the right one; in those circumstances, one does not need the “order of precedence” to resolve an ambiguity which does not actually on a proper construction arise at all.

The judge ruled in this case (deciding against the contractors and disagreeing

with the adjudicator) that, despite some verbal differences between the

documents, there was no material ambiguity between the descriptions of the

work comprised in the section in question .

Variation omitting work

The case of MT Hojgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Ltd (23 April) raised the question of how a variation constituting the

omission of work was to be valued . The contract involved the installation of

the foundations for wind turbine generators offshore . A jack-up barge was to

be used for this purpose but the particular barge provided by the contractors

turned out to be inadequate for the job . The engineer issued variation orders

requiring the substitution of a different vessel . The new vessel was hired

directly by the employer and provided on a free-issue basis to the contractor .

The contract was bespoke but contained not unusual provisions for variations

to be valued by the engineer applying a specified schedule of rates if those

rates are directly applicable to the relevant work; if not, that the engineer

should apply suitable rates that reflect the level of pricing in the schedule;

or if there is no rate in the schedule that could be reflected in a suitable

rate, the engineer shall determine an amount that is in all the circumstances

reasonable .

These provisions are clear in identifying how rates are to be established, where

this is possible . What they do not say is how such rates are to be treated so as

to reach an appropriate adjustment of the contract price, or how a reasonable

amount is to be determined where no rates can be established . This is not a

problem when valuing additional work, where the work in question has been

or will be actually carried out; but the position is different with omissions .

The choice here, for determining how the contract price should be adjusted

(i .e . reduced), was between adopting the contractor’s original projected price

for the work to be carried out using the contractor’s barge (which was later

replaced) or a hypothetical calculation of what would have been a reasonable

price if the work using that barge had in fact been carried out .

In the circumstances of this case, the judge accepted the contractor’s

argument that the former approach was correct . The employer argued for the

latter approach, but the cost of carrying out the work using the inadequate

barge would, of course, have been very substantial . This approach would in

effect have entailed an award of damages against the contractor for failure

to perform the works using its own barge; however, the employer had chosen

Construction continued

“ A jack-up barge was to be used for this purpose but the particular barge provided by the contractors turned out to be inadequate for the job

”

The judge held that, properly construed against the relevant factual

background, the requirement in the mandate referred only to work that

was not covered by the insurance, for example, any additional work that a

householder may have asked the contractors to do . If that construction was

wrong, the judge held that the reference in the mandate to payment which is not paid by my/our insurer should not be read as being limited to payment

made directly to the contractor but could also cover monies paid by the

insurer to the company that went insolvent .

The judge referred to recent Supreme Court authority that, where a contract

is capable of more than one meaning, the court is entitled to prefer the

construction that best accords with commercial common sense even though

another construction would not produce an absurd or irrational result .

Another issue concerned the effect of the Unfair Terms in Consumer

Contracts Regulations, which applied to the contract (as created by the

mandate) between the householders and the contractors . These Regulations

provide that:

If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail…

The judge held that, if the normal principles of construction yield a clear

preference for one interpretation over another, this regulation does not

apply . The regulation will only operate as a “tie-breaker” where the process

of construction does not clearly favour one interpretation over another . This

regulation did not, therefore, influence the outcome in the householders’ favour .

Precedence of contract documents

The same point was made, albeit in a rather different context, in the judgment

in RWE Npower Renewables Ltd v J N Bentley Ltd (22 April) . The case here

concerned large civil engineering works divided into sections and the dispute

was over what constituted the work to be carried out in one particular section,

so as to decide whether or not completion of that section had taken place

in time in order to determine whether liquidated damages in relation to that

section were payable .

There were a number of different contract documents which were given

an order of precedence by the contract . However, the judge said that this

order of precedence should only be resorted to as an aid to interpretation

if the normal process of construing the contract, reading contract

documents together against the relevant background to the contract, had

led to the conclusion that there was an irreconcilable ambiguity between

the documents . However, as the judge said, often, on analysis, apparent

ambiguities are not ambiguities at all:

What one cannot and should not do is to carry out an initial contractual construction exercise on each of the material contract documents on any given topic and then, so to speak, compare the results of that exercise to


“ If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail…

”


contractor would not comply with a (revised) completion date . Eventually the

contract was terminated .

The judge accepted that the slippage in the timetable did not in itself mean

that the contractor was not proceeding with due diligence . The absolute

contractual obligation to complete by a certain date and the due diligence

obligation were two separate obligations . Nonetheless, other cases in which

the issue has been considered suggest that the obligation of diligence will

be linked to the parties’ contractual obligations, and in this contract the

obligation was directed to the discharging of the contractual obligations

relating to the carrying out and completion of the works . The mere fact that

the obligation to complete on time may have been or become impossible

for the contractor to achieve does not render that obligation irrelevant when

considering the separate obligation to exercise due diligence .

On behalf of the contractor, it was submitted that the obligation of due

diligence does not require the contractor to achieve the impossible; rather,

at any given moment, the obligation should be assessed with regard to what

is feasible at the time . In particular, it was argued that the obligation did not

impose on the contractor an obligation to take accelerative measures to

ensure that it complied with the completion date, at least to the extent that

the delays were not in fact retrievable .

The judge disagreed . If an absolute contractual requirement (such as

achievement of the completion date) becomes impossible, the obligation

to exercise due diligence would then normally attach to the objective of

minimising the ongoing breach; or, in other words, it would attach to the

nearest possible approximation to proper contractual performance of

the absolute obligation . The due diligence obligation is also flexible: its

performance will depend on what is required from time to time to achieve

the contractual objects in hand . This may in some circumstances include

the taking of measures not originally contemplated, such as accelerative

measures .

After close consideration of the contractor’s conduct and progress on various

elements of the works, the judge concluded that the contractor had failed

to exercise due diligence in certain key areas . The termination was therefore

justified . The judge held that the contractor was not in repudiatory breach of

contract, although this issue was no longer relevant .

Adjudication

There were the usual crop of court cases concerning adjudication, usually

consisting of an application to the court by the claimant to enforce an

adjudicator’s decision, where the respondent considered that there were

grounds for resisting enforcement . Some broader points concerning the

adjudication process were also the subject of judicial consideration .


“ …the judge concluded that the contractor had failed to exercise due diligence in certain key areas…

”


to pursue the variation route rather treat the contractor as being in breach of

contract .

Lump sum

When is a lump sum contract not a lump sum contract? In Atkins Ltd v Secretary of State for Transport (1 February), the contractor was engaged

to maintain part of the highways network . Its obligations included the repair

of minor defects, including potholes . It was to be paid a lump sum over the

period of the contract . The contract contained a modified version of the NEC3

Conditions, which the judge said:

are used throughout the construction and engineering industries and are highly regarded in the sense that they are perceived by many as providing material support to assist the parties in avoiding disputes and ultimately in resolving any disputes which do arise.

The contractor claimed that the prevalence of potholes on the network

was significantly greater than it had anticipated and argued that, where the

number of potholes exceeded the amount that it would have been reasonable

for an experienced contractor or consultant to have allowed for, this

constituted a defect within the meaning of clause 60 .1(11) of the conditions,

giving rise to a compensation event .

The judge rejected the contractor’s argument . As well as ruling that the

language of the contract did not permit this interpretation, the judge pointed

out that this interpretation of the contract would remove the commercial risk

on the contractor of the number of potholes being more than anticipated

while being able still to recover the full lump sum if the number turned out to

be less .

The judge held that the question was one of general public importance,

because the NEC contract is widely used throughout the country and

potholes are an increasingly widespread problem!

Due diligence

The meaning of due diligence in a construction contract was given particular

attention in the long judgment in the case of Sabic UK Petrochemicals Ltd v Punj Lloyd Ltd (10 October) . As well the obligation to complete on time, with

liability for liquidated damages in the event of failure to do so, the contract

provided that:

the Contractor shall, with due diligence, carry out and complete the Engineering Works in accordance with the Contract and the Regulations and to the reasonable satisfaction of the Project Director .

There was a right to terminate the contractor’s employment if (among other

things) the Contractor is failing to proceed with the Engineering Works with due diligence . The contract fell into delay and it became clear that the

“ …the judge pointed out that this interpretation of the contract would remove the commercial risk on the contractor…

”


was not time for this and the other exceptions to statutory adjudication to be

done away with, so that all parties to a construction contract can enjoy the

benefits of adjudication .

Is a collateral warranty a construction contract?

A question that has been the subject of some uncertainty is whether a

collateral warranty is a construction contract within the meaning of the Act

and whether, therefore, a claim under a collateral warranty can be referred to

adjudication under the Act . The question arose for consideration in Parkwood Leisure Ltd v Laing O’Rourke Wales & West Ltd (29 August), where the

claimant making a claim under a collateral warranty sought from the Court a

declaration that it could institute adjudication .

The case concerned the construction of a swimming and leisure facility .

The contractor was engaged under a standard JCT design and build

contract and gave a collateral warranty to the operator of the facility . The

warranty contained familiar provisions . In clause 1, the contractor warranted, acknowledged and undertook that:-

it has carried out and shall carry out and complete the Works in accordance with the Contract

There was nothing unusual in the warranty, although it was not in one of

the standard forms, and it was to these opening words that the judge paid

particular attention . The judge had no doubt that this collateral warranty

was a construction contract for the purposes of the Act and to be treated as

such . The judge particularly stressed the point that under the warranty the

contractor was undertaking to carry out at least some work that had not yet

been completed .

The judge said that it does not follow that all collateral warranties given in

connection with construction developments will be construction contracts

under the Act . For example, this may not be the case where all the works

are completed and the contractor (or whoever) is simply warrantying a past

state of affairs as reaching a certain level, quality or standard . This is despite

the fact that an ordinary contract (i .e . not one that is a collateral warranty)

is not prevented from being a construction contract by the fact that it is

retrospective in effect . As the judge said, it is common for contracts to be

finalised after the works have started and to be retrospective in effect back

to the date of commencement; a construction contract does not have to be

wholly or even partly prospective . However, it seems that this may not be so

in the case of a collateral warranty .

So the question seems to be open as regards warranties in respect of past

work . But for warranties that relate to the carrying out of work still to be done,

the position seems reasonably clear, unless and until the matter falls to be

reconsidered by a higher court .


“ …it has carried out and shall carry out and complete the Works in accordance with the Contract

”


Compliance with the Act

The adjudication provisions in a contract must comply with the Act that

originally required such provisions to be included in a construction contract

(i .e . the Housing Grants Construction and Regeneration Act 1996) .

The contract in Pioneer Cladding Ltd v John Graham Construction Ltd (4

October), which was a sub-contract, provided that, if a monetary award in

an adjudication was made in favour of the sub-contractor, the amount would

be placed in an account in the joint names of the solicitors for the parties

(as opposed to being paid straight to the sub-contractor) . The judge had no

doubt that this term was in breach of both the policy behind the Act and of

the Act itself and could not be enforced . The same went for another term that

made the party referring a dispute to adjudication responsible for payment of

the adjudicator’s fees .

The sub-contractor thus obtained judgment from the court to enforce a

monetary award from the adjudicator in its favour; however, the judge held

that this was one of those rare cases where, due to the financial circumstances

of the sub-contractor, execution of the judgment should be stayed, pending

the outcome of arbitration between the parties .

The residential occupier exception

The statutory right to refer disputes to adjudication does not apply to

contracts for work on a dwelling which one of the parties occupies, or intends to occupy, as his residence . This is often referred to as the residential occupier exception . It does not often apply because most construction contracts

now contain terms providing for adjudication anyway . The intention of the

exception was to protect ordinary householders from what was, originally, a

new and untried system of dispute resolution .

There were no terms providing for adjudication in the case of Westfields Construction Ltd v Lewis (27 February), which concerned refurbishment

works to a dwelling house . However, the judge held that the intention of the

owner of the house was to let out the property once the works had been

completed . In these circumstances, the judge held that the owner of the

house was not a residential occupier within the meaning of the Act . The

judge rejected the argument that one could be a residential occupier merely

by virtue of living in the dwelling at the time the contract is entered into;

although that may be an important consideration, residential occupation has

to be ongoing and cannot be determined by reference to a single snapshot

in time . The dispute therefore that had arisen in this case had been properly

referred to adjudication and the adjudicator’s decision was enforceable .

The judge suggested that the residential occupier exception is now difficult

to justify as adjudication in construction contracts is generally thought to have

worked well and has certainly reduced costs . He asked rhetorically whether it

“ …which one of the parties occupies, or intends to occupy, as his residence…

”


should not be put before an adjudicator or why the second adjudicator should

not have regard to the earlier decision .

The second adjudicator did not consider himself to be bound by the earlier

decision, so the argument that he took an unduly restrictive view of his

jurisdiction did not arise .

Crystallisation of a dispute

Enforcement of an adjudicator’s award can be resisted on the ground that

no dispute had crystallised at the date of the notice of adjudication (so the

adjudicator had no jurisdiction) .

A dispute does not arise simply by virtue of one party (the claimant) making

a claim . On the other hand, the other party (the respondent) does not have to

have expressly rejected the claim before it can be said that there is a dispute . A

dispute does not arise unless and until it emerges that the claim is not admitted .

Non-admission of the claim may be inferred from various circumstances, for

example, the nature of any discussions that may ensue between the parties,

or the respondent prevaricating or remaining silent for a longer period of

time than in all the circumstances would be reasonable for responding to the

claim . (A deadline imposed by the claimant for this purpose would not in

itself be effective, unless it would otherwise be a reasonable period of time for

responding) .

Fermanagh DC v Gibson (Banbridge) Ltd (4 February) concerned a

contractor’s interim application for payment made following completion of the

works . The application effectively comprised the contractor’s final account .

The employer’s project manager had requested further information to enable

them to assess the claim and contended that sufficient information had not

been received prior to adjudication being commenced by the contractor .

The judge was satisfied that the project manager had had a reasonable time

to make the assessment prior to issue of the notice of adjudication: if the

supporting documentation was not sufficient to support the application, that

would have been reflected in the assessment . It followed that there was a

dispute over the contractor’s claim at the time of the notice of adjudication

and so the adjudicator had jurisdiction .

Completion of construction work is not uncommonly followed by a lengthy

process of negotiation over the contractor’s final account . Detailed scrutiny

will be part of this process, much of which may simply involve verifying the

details of the contractor’s claim . The case illustrates that a contractor can in

the meantime, through adjudication, obtain a provisional payment based on a

more broad brush assessment .

Procedural unfairness?

Another ground on which the employer resisted enforcement of the

adjudicator’s award was procedural unfairness on the part of the adjudicator .


“ The judge was satisfied that the project manager had had a reasonable time to make the assessment

”

Applying for final resolution

An adjudicator’s decision is binding pending final resolution of the dispute by

legal proceedings, arbitration or agreement between the parties . So the losing

party in an adjudication can still apply to court (or arbitration, if the contract so

provides) for final resolution of the dispute and if the court (or arbitrator) finds

in its favour, it can recover from the other party any money that it was ordered

to pay by the adjudicator . However, this will not be possible if the relevant

limitation period for commencing legal proceedings or arbitration has expired .

When does the limitation period (which for a claim under a contract is 6 years,

or 12 where the contract is under seal) in such a case commence running?

This question has arisen in two recent reported cases, and raises the wider

question of the nature of the proceedings to recover sums paid following an

adjudication, a point on which the Act is somewhat opaque .

In the first case, which was in 2009, the court held that the right of a party to

refer a dispute to court or arbitration (as the case may be) for final resolution

following an adjudicator’s decision is an implied term of the contract, so that

the limitation period for commencing the necessary proceedings does not

commence until that right accrues – i .e . until the adjudicator’s decision has

been given .

In 2013, in the case of Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc (23 May), the judge disagreed with the decision in 2009 .

He held that there was no need to imply a term of the kind decided in that

case because a party anticipating having to go to court or arbitration to

seek repayment of a sum paid in compliance with an adjudicator’s decision

can protect its position against the running of the limitation period by

commencing proceedings for negative declaratory relief, i .e . for a declaration

that it is not liable for the sum in question . It would not have to wait first

for the adjudicator’s decision . In the view of the judge, the limitation period

commenced to run at the same time as it did for the actual claim .

On 29 November, the Court of Appeal allowed the appeal . As an adjudicator’s

decision is binding pending final resolution of the dispute by legal

proceedings, arbitration or agreement between the parties, the court held

that there is plainly an implicit right for a party who makes a payment in

compliance with an adjudicator’s decision to seek repayment of that amount

in legal proceedings or arbitration (as the case may be) . That being the case,

the period of limitation for seeking repayment only starts running when the

payment is made .

The Court of Appeal was doubtful about the appropriateness of an action for

negative declaratory relief .

An earlier adjudication

In Arcadis UK Ltd v May & Baker Ltd (29 January), the judge ruled that there

was no reason why the decision in an earlier adjudication on similar issues


“ The Court of Appeal was doubtful about the appropriateness of an action for negative declaratory relief

”


decision . An example of a breach of the rules of natural justice is where an

adjudicator, in making his or her decision, relies on a point that had not been

made by either party and on which the parties had not had an opportunity to

comment (what has been called an adjudicator going off on a frolic of his own);

however, such a breach would only render the decision unenforceable if the

point is or is likely to have been of decisive or considerable importance to the

adjudicator’s decision .

ABB Ltd v BAM Nuttall Ltd (12 July) was, in the words of the judge, one of those relatively rare cases where there was a breach of this nature . The dispute

arose out of a sub-contract substantially in the NEC (Option A) form and

concerned the scope of an agreement that the parties reached over payment

for a compensation event, an agreement that had not been recorded in writing .

The adjudicator concluded that there had been no agreement over the scope of

the agreement (i .e . over what work the agreed payment covered), a conclusion

which led the adjudicator to award a substantial further payment to the sub-

contractor .

In reaching this conclusion, the adjudicator relied heavily on clause 11 .1A of the

contract, which states:

No alterations or amendment may be made to this subcontract except where expressly recorded in writing by a document expressed to be supplemental to this subcontract and signed by the parties.

Unfortunately, this clause had never been mentioned during the course of the

adjudication, by either of the parties or the adjudicator himself . The contractor,

therefore, had not had an opportunity to argue, as it might have done, that

the agreement in question did not constitute an alteration or amendment to

the sub-contract as such and that clause 11 .1A was, therefore, irrelevant . It was

not possible to speculate on what the adjudicator might have decided without

having regard to clause 11 .1A . The adjudicator’s breach of the rules of natural

justice was, therefore, material and his decision could not be enforced .

Human rights

A major challenge in Scotland to the enforcement of an adjudicator’s decision

was made under the European Convention on Human Rights and Fundamental

Freedoms in the case of Whyte & Mackay Ltd v Blyth & Blyth Consulting Engineers (9 April) .

The dispute arose out of a claim of professional negligence against consulting

engineers involving allegations of defective foundations and settlement to a

commercial building . The claim was intimated some five years after the work

was completed . The adjudicator’s decision required the engineers to pay almost

£3m . The major head of claim would not be incurred until the end of the lease

of the building in 2035/6 . In the meantime, the cost saving enjoyed by the

pursuer (as the claimant is called in Scotland) in not having incurred additional

piling work will mean that the pursuer will not be out of pocket and so will

suffer no loss .


“ The adjudicator’s breach of the rules of natural justice was, therefore, material and his decision could not be enforced

”


The contractor’s claim was contained in 63 lever arch files . The adjudicator

refused a request by the employer for a longer period than 7 days in which

to respond . The judge said that a breach of the rules of natural justice or

procedural unfairness would be material where an adjudicator had failed

to afford to a party a reasonable opportunity to respond to the case being

made by the other party . However, the judge held that the employer had been

given a reasonable time to respond given the opportunity that had existed

prior to the commencement of adjudication for the employer to address the

application for payment .

The judge emphasised that one can only expect a summary and objective

view of a dispute to be taken through adjudication, however substantial the

claim .

Procedural irregularities?

Procedural irregularities in the adjudication process may also invalidate the

process, but in order to have this effect the irregularity would have to involve

non-compliance with a provision that could be described as fundamental . The

requirement on a claimant to refer the dispute to the adjudicator within 7 days

of the notice of adjudication is a fundamental provision, in view of the clear

intention of the Act in this respect, and so late service of the referral would

invalidate the adjudication; however, a more minor breach, such as late service

of a particular referral document or failure to comply in some particular way

with the prescribed manner of referral, may not have this effect . Such was

said to be the case in Willmott Dixon Housing Ltd v Newlon Housing Trust (9

April) .

Another rule, considered to be well established by the authorities, is that no

more than one dispute can be referred in the same adjudication . However,

also in the Willmott Dixon case, the judge held that this did not mean that

two disputes could not be referred to the same adjudicator by way of two

separate adjudications .

The judge also cast doubt on whether it is in fact correct that more than

one dispute cannot be heard in one adjudication, without the consent of the

parties, although a different judge commented later in another case - TSG Building Services v South Anglia Housing (8 May) – that the authorities

on this point are sufficiently well established, albeit that the courts adopt a

sensible and commercial approach in determining the relative width of any

given dispute .

The rules of natural justice

Although adjudicators should observe the rules of natural justice in

conducting adjudications and making decisions, a breach of these rules by

an adjudicator will cause his or her decision to be unenforceable only if the

breach in question was material – i .e . if it had an important effect on the

“ The judge also cast doubt on whether it is in fact correct that more than one dispute cannot be heard in one adjudication

”


Litigation

Jackson reforms: compliance with the Civil Procedure Rules

There is little doubt that a more robust approach to observance of the Civil Procedure Rules was intended to be and, so far, has been achieved by the changes to the rules that came into effect on 1 April, notably the changes to rule 1.1, which makes enforcing the rules part of the overriding objective of achieving justice, and rule 3.9, which makes enforcement of the rules one of two specific factors to be taken into account in dealing with applications for relief from penalties for default.

One new rule is that costs budgets must be filed at least 7 days before a case

management conference . In the event of a party failing to do this, it will be

treated as having filed a budget comprising only the applicable court fees – i .e .

it will only be entitled to recover the court fees that it has incurred; no solicitors’

or counsel’s fees or anything else .

This rather draconian sanction was applied in Mitchell v News Group Newspapers (18 June, 1 August and 27 November), where the claimant, Andrew

Mitchell MP, had failed to file a budget in time: it was filed one day before

the case management conference . The budget was in the sum of £506,425 .

Although the new rules did not apply at the relevant time, they were treated as

a guide to the way the court should approach the matter . The court accordingly

ordered that the claimant be treated as having filed a budget comprising only

the applicable court fees .

A court may grant relief from a penalty of this nature . The critical question in

the post-Jackson regime is how willing will the courts be to grant such relief .

The court in this case felt that, in the light of the stricter approach to complying

with the rules, it should not do so . Permission to appeal was granted in case too

strict an approach had been adopted in this particular case .

On 27 November, the Court of Appeal gave its judgment: the order of the court

below was upheld .

“ One new rule is that costs budgets must be filed at least 7 days before a case management conference

”


The judge accepted the engineers’ argument that enforcement of the award would

infringe their right under the Convention to their possessions . The judge stressed

the unusual features of the case and emphasised that the challenge was not to

the legislative scheme for adjudication itself and the decision not to enforce the

award should not undermine the scheme . Doubt has been expressed before as

to whether the scheme for adjudication was ever intended to deal with a claim of

this nature, some years after work on site had been completed . What the judge

referred to as the well-known problems, disadvantages and potential injustices

of an adjudication were not, in the particular circumstances of this case, counter-

balanced, let alone outweighed, by any of the aims and purposes lying behind the

1996 Act .

A point left for further consideration was whether the fact that the engineers had

professional indemnity insurance meant that there could not be an interference

with their Convention right to their possessions but the judge seemed doubtful

that this was a relevant consideration .

Whether a court in England would be prepared to take a similar view of the

potential applicability of Convention rights to enforcement of an adjudicator’s

award remains (perhaps) to be seen .

The Defective Premises Act

Under the Defective Premises Act 1972, a person who builds a dwelling house owes

a duty to see that the work is done in a workmanlike or professional manner, with

proper materials and so that, when completed, the dwelling will be fit for human

habitation . A person who arranges for someone else to build the house (typically,

a developer or house owner who engages a builder) will owe the same duties if

doing so in the course of a business involving the provision of dwellings .

In the case of Zennstrom v Fagot (21 February), a couple bought a house, which

they later decided to demolish and rebuild, and engaged builders and architects for

this purpose . Their intention was to live in the new house as their home, but after

completion, their plans changed and they sold the house . Unfortunately, serious

defects were later discovered in the house . The builders were insolvent and the

architects had no insurance, which perhaps explains why the new owners sought

to argue that the couple owed the duties imposed by the Defective Premises Act;

but this meant that they had to prove that the couple had arranged for the building

of the house in the course of a business involving the provision of dwellings .

The new owners might have been able to prove their case if they could show

that the couple had always intended to sell the house on completion and not live

there themselves or only live there for a minimal period . That could have entailed

acting in the course of a business and it would not have mattered if it had been the

first time they had done this or that they were not providing any other dwellings .

However, the judge held that the couple had to have formed the intention to sell

the house on or soon after completion prior to entering into the contract with the

builder, contrary to what they were saying . In the event, the judge had no hesitation

in accepting their evidence that they had no such intention at that stage, and the

claim against them failed .

“ Their intention was to live in the new house as their home, but after completion, their plans changed…

”


One suspects that, had this case been heard following the judgment in the

Mitchell appeal, the stricter approach would have been enough on its own to

refuse permission, without reference to the particular factors mentioned by the

judge . It seems that it would be enough that there was simply no good reason

for service of the particulars being late .

One consequence of the new strict approach may almost inevitably be an

increase in claims for negligence against solicitors who miss deadlines or

fail otherwise to comply with the rules, until the culture of delay and non-compliance identified by Sir Rupert Jackson has become a thing of the past .

Costs budgeting

Costs budgeting as a way of controlling the costs of litigation is an important

part of the reforms that came into effect on 1 April . Various pilot schemes

had already been in effect, including a scheme for defamation proceedings .

This required each party to prepare a costs budget for approval by the court

at the first case management conference following the start of proceedings

and a revised cost budget for approval at various stages of the proceedings

thereafter . The solicitors were also to liaise monthly to check that their

respective budgets were not being exceeded .

The question that arose for the Court of Appeal in Sylvia Henry v News Group Newspapers Ltd (28 January) and may well arise in other cases is whether a

party entitled to recovery of its costs from another party can recover more

than its latest approved budget . The rules of the scheme provide that this can

only happen if good reasons can be shown . The judge assessing the costs

in this case had felt constrained to rule that the costs recoverable by the

claimant from the defendant could not exceed the claimant’s initial budget

because, although the costs that exceeded that budget seemed reasonable

and proportionate, no revised budget had been approved following her initial

budget and the defendant was consequently unaware that the initial budget

was being exceeded .

The Court of Appeal stated that the objectives of the scheme were to manage

the costs so that they were reasonable and, most importantly, proportionate

to what was at stake in the case, and to ensure that the parties were on an

equal footing . The purpose of the latter objective was to protect a party in any

particular case against the superior financial resources of the other party . The

Court of Appeal held that the claimant’s failure to comply with the rules of the

scheme had not undermined these objectives . In these circumstances, the court

was entitled to take all circumstances into account, so that failure to follow the

rules in liaising regularly with the other defendant over costs and obtaining

approval to revised budgets was just one factor among others that could be

considered . Taking this and other factors into account, the Court allowed the

appeal, thus enabling the claimant in this case to recover more than her budget

(subject to detailed assessment of the costs) .

However, the Court of Appeal did say that the starting point must be that

Litigation continued

“ The rules of the scheme provide that this can only happen if good reasons can be shown

”

The Court of Appeal quoted from Sir Rupert Jackson’s Final Report: the courts

have become too tolerant of delays and non-compliance with orders and lost

sight of the damage which the culture of delay and non-compliance is inflicting

upon the civil justice system . They also quoted from a lecture earlier in the

year by the Master of the Rolls, in which he said, in relation to applications for

relief from penalties for default, that there is to be a shift away from exclusively

focusing on doing justice in the individual case . Parties’ procedural obligations

serve the wider public interest of ensuring that other litigants can obtain justice

efficiently and proportionately . Parties can no longer expect indulgence if they

fail to comply with these obligations .

Giving some guidance of the new approach, the Court said that the relief from

penalties for default would now usually be granted only in two situations: where

the breach is trivial and application for relief made promptly, or where there is a

good reason for the default . Merely overlooking a deadline, whether on account

of overwork or otherwise, is unlikely to be a good reason . Overwork and staff

shortages were said to be reasons for the default in this case . Good reasons

are only likely to arise from circumstances outside the control of the party in

default .

The Court was very conscious of the significance of their decision . We believe that the wide publicity that is likely to be given to this judgment should ensure that the necessary changes will take place before long… . .we hope that our decision will send out a clear message. If it does, we are confident that, in time, legal representatives will become more efficient and will routinely comply with rules, practice directions and orders.

Testament to the significance of this case is that it has already been referred to

in at least eight reported cases in the few weeks since the judgment was given .

The judgment is not only, of course, relevant to the particular default in the

Mitchell case – the failure to file a costs budget in time – but to any non-

compliance with the rules of civil procedure . A common example is failure to

serve particulars of claim within the stipulated time limit following the claim

being issued . In Venulum Property Investments Ltd v Space Architecture Ltd (22 May), the claimant’s solicitors had served the claim form within

the four months allowed for service but had mistakenly thought, due to a

misunderstanding of the rule, that they had a further 14 days for service of the

particulars of claim . The limitation period applicable to the claim had expired

since the claim had been issued, so it would not be possible to start another

action if permission to extend time was not granted .

The judge said that, if all other things were equal, he would have difficulty in

seeing how it would be either just or proportionate to visit a few days delay in

the service of the particulars by the sanction of preventing the claimant from

pursuing its claim against the defendants in question for all time . Other things

were not equal, however, in the view of the judge . He referred to three factors in

particular and added that all the circumstances also had to be considered in the

light of the stricter approach . Permission to extend time was therefore refused

and the claim effectively struck out .


“ We believe that the wide publicity that is likely to be given to this judgment should ensure that the necessary changes will take place before long…

”


showed an increase over the approved budget, stated that he did not think

that good reasons had been shown to explain the increases, save in one case .

The main reason for the overall increase seemed to be a mistake in the original

budget .

The costs management order is stated to be relevant to costs assessed on

the standard basis . What if the costs are to be assessed on the indemnity

basis? The question did not have to be decided because the judge rejected

the defendant’s application for costs on the indemnity basis; however, the

judge expressed the view that, in principle, there is no reason why the costs

management order should not be taken into account as the starting point when

assessing costs on the indemnity basis . It may be easier in such a case to show

good reason for departing from the budgeted amount; in some cases, an award

of indemnity costs may itself constitute a good reason .

In an earlier case, Murray v Neil Dowlman Architecture Ltd (16 April), the same

judge said that a mistake in a costs budget which is then approved by the

court would not normally be justification for the budget later being rectified; in

short, one must get it right the first time . Likewise, the absence of prejudice to

the other party would not normally alone be sufficient to justify a revision . The whole basis of the recent amendments to the CPR is the emphasis on the need for parties to comply with the CPR, and the court orders made under it.

Mediation

The Court of Appeal continued to try and encourage parties to endeavour to

settle disputes through mediation .

Some years ago, the Court of Appeal held in the case of Halsey v Milton Keynes General NHS Trust (11 May 2004) that an unreasonable refusal to

engage in mediation could be penalised in costs, even though the party which

had so refused had been successful in the litigation . That principle has since

been applied in many cases . What often happens is that the successful party

which had unreasonably refused to engage in mediation is not allowed to

recover all of its costs from the unsuccessful party .

In the case of PGF II SA v OMFS Ltd (23 October), the Court of Appeal

extended the principle to cover a situation where a party simply fails to respond

at all to an invitation to engage in mediation or some other form of alternative

dispute resolution (ADR) . In fact, the Court held that failure to respond at all

to such an invitation (as opposed to responding but refusing the invitation, for

whatever reason) is generally in itself unreasonable . The defendant in this case

made a Part 36 offer which the claimant eventually accepted but long after

the end of the relevant period specified in the offer . During that further period,

the defendant had incurred further costs amounting to some £250,000, which

it would normally have been entitled to recover from the claimant . However,

because it had failed to respond to an invitation to mediate, the judge had

declined to make an order allowing it to recover these costs, and the Court of

Appeal upheld the judge’s order .


“ It may be easier in such a case to show good reason for departing from the budgeted amount…

”


the approved budget is intended to provide the financial limits within which

the proceedings are to be conducted and that the court will not allow costs

in excess of the budget unless something unusual has occurred . Further, the

rules of the pilot scheme that applied to this particular case have now been

superseded by the rules that came into general effect on 1 April and these rules,

read as a whole, lay greater emphasis on the importance of the approved or

agreed budget as providing a prima facie limit on the amount of recoverable

costs . A court is unlikely to be persuaded that costs incurred in excess of the

budget are reasonable and proportionate to what is at stake .

The case of Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd (14 June) concerned another, similar pilot scheme, for proceedings in the

Technology and Construction Court . This scheme too required detailed budgets

setting out estimated costs for the entire proceedings to be filed at court for

approval by the court . The court will then make a costs management order

recording its approval of the budgeted amount . A party may later file and serve

a revised budget if the original budget is no longer accurate . When assessing

costs on the standard basis, the court will not depart from the last approved

budget unless satisfied that there is good reason to do so . In other words, the

amount of the latest court-approved budget will normally constitute a limit on

the costs that a successful party in the litigation can recover from another party .

In this case, the approved budget costs of the successful party (who was the

defendant in the action) were £268,488 . However, the total costs which the

defendant sought to recover from the unsuccessful claimant at the conclusion

of the litigation came to £497,593 .

The defendant had in fact sent a revised estimate, which was double the

previous estimate, to the claimant shortly before the trial . However, this revised

estimate had not been brought to the attention of the judge nor had a revised

costs management order been sought or obtained . The question was whether

a revised costs management order could be made now, after the end of the

trial, when the recoverable costs were due to be assessed . The real question, of

course, was whether the defendant could recover more than the amount of its

last approved budget of £268,488 .

The judge had little hesitation in rejecting the application for a revised

costs management order at this stage . Such an application should be made

immediately it becomes apparent that the original budget costs have been

exceeded by more than a minimal amount . The application in this case should

have been made before the trial, and such an application should never be made

after judgment, when it can no longer be a budgeting exercise but based on

actual costs that have been incurred . It would make a nonsense of the costs

management regime if a party could apply to double the amount of its costs

budget at the end of the trial .

That still left open the question of whether, on assessment of costs, the

defendant would be able to show that there was good reason to depart from

the last costs management order . That would ultimately be a matter for the

costs judge but the trial judge, having considered the various items of cost that

“ When assessing costs on the standard basis, the court will not depart from the last approved budget unless satisfied that there is good reason to do so

”


defendant) . The order for costs on discontinuance could not pre-empt what

would have been decided at trial . If the claimants had felt very confident about

winning the case, they could have applied for summary judgment or to have the

defence struck out .

The only basis for a different order on costs could be on the grounds of

the defendant’s conduct . The Court of Appeal, allowing their appeal, held

that the defendant’s failure to respond to any of the four letters prior to the

action amounted to conduct justifying a departure from the normal rule . The

defendant was ordered to pay the costs of the claimants up until service of the

defendant’s defence . After that, there was to be no order as to costs .

Costs: who is the successful party?

In a case where there has been a trial and judgment, the normal rule (or, at least,

the starting point) is that the successful party is entitled to be paid its costs

by the unsuccessful party . Sometimes, however, it may not be clear who has

been the successful party; for example, in a case where a claimant is awarded a

sum which is trivial in relation to the full amount that it had been claiming . The

prevailing view in recent cases in the Court of Appeal is that in such a case the

defendant would normally be regarded as the successful party .

There seems to be some difference of opinion on this . In one recent case with

an outcome of this nature, Lord Justice Jackson, dissenting from the majority

view, argued that the claimant should be regarded as the successful party

because the defendant did not make a Part 36 offer in relation to the small

amount for which it was held liable .

In Magical Marking Ltd v Ware & Kay LLP (20 March), at the end of the trial

of a professional negligence claim against solicitors, the claimant was awarded

£28,000, having been claiming damages in excess of £10 million . Following the

prevailing view in the Court of Appeal, the judge held that the defendants were

the successful party . He reduced the costs payable by the claimant by 15% to

reflect the issue on which it had been successful .

This issue had only been raised by the claimant, by an amendment to its case,

on the last day of the trial . A Part 36 offer made at that stage by the defendants

to cover their liability on this issue would have been inappropriate because

it would have carried with it liability for all the costs to date . Lord Justice

Jackson’s point would seem to apply more readily where the potential liability

of the defendant on a small matter, relative to the rest of the claim, was clear

from the outset of the case .

Costs and Part 36 offers

An important change, or addition, to Part 36 of the Civil Procedure Rules

came into effect during the year as part of the Jackson reforms . If a claimant

succeeds in beating its own Part 36 offer, in addition to the consequences that

already existed (enhanced interest and indemnity costs), the claimant will now


“ The prevailing view in recent cases in the Court of Appeal is that in such a case the defendant would normally be regarded as the successful party

”


The Court of Appeal did in fact say that it might itself have allowed the

defendant to recover some of these costs; however, the precise order was in the

discretion of the judge and the Court was content anyway to allow the judge’s

order, even if a little harsh, to stand, pour encourager les autres . The case, said

the Court, sends out an important message to civil litigants, requiring them to

engage with a serious invitation to participate in ADR .

The Court referred also to the ADR handbook which has been prepared and

published in response to Sir Rupert Jackson’s report on civil litigation costs .

It may, of course, in some circumstances, not be unreasonable to refuse an

invitation to participate in ADR . However, a party that takes this view should

state its reasons there and then in response to the invitation and not at some

later date, for example, when the question of the costs of the action arises .

In Halsey v Milton Keynes, the Court of Appeal took the view that unwilling

parties could not actually be obliged to refer their disputes to mediation,

because that would impose an unacceptable obstruction on their right of

access to the court . However, in Wright v Michael Wright (Supplies) Ltd

(27 March), a case in which the parties had resisted judicial entreaties to

refer the dispute to mediation, the Court of Appeal suggested that it was

time nonetheless to consider whether a court could at least direct a stay for

mediation to be attempted, even if neither party was requesting it .

Costs on discontinuance

Arguments about costs typically arise where there may be grounds for

departing from the normal rule . For example, where a claimant discontinues

its claim, the normal rule is that it pays the defendant’s costs . This rule was not

followed, however, in the case of Nelson’s Yard Management Co v Eziefula (21

March), which sprang from concern of the claimants about work being carried

out on a neighbouring property . They sent four letters to the owner of that

property, pointing out, among other things, that he had not served Party Wall

Notices or permitted their surveyor to have access to the site . They received no

reply at all to any of these letters and felt constrained to start proceedings .

Eventually, before the proceedings had progressed very far, they achieved

much of what they had been seeking: their expert was permitted to inspect the

excavation work, trial holes were drilled under the supervision of the claimants’

Party Wall surveyor and it was agreed with the local authority’s building control

officer that no damage could have occurred to the foundations and that the

construction of a retaining wall would be acceptable . A Party Wall Notice was

served and a Party Wall Award agreed (though the defendant maintained that

these were in relation to work that he had only later decided to carry out) .

In the light of all this, the claimants served notice to discontinue the

proceedings but sought a different order on costs than the one that would

normally apply (i .e . that they should pay) . They could not rely on the fact they

would have won if the case had gone to trial, even if this had been reasonably

certain (but especially as there were matters that were in fact disputed by the

“ However, a party that takes this view should state its reasons there and then in response to the invitation…

”


Interest

Can the Late Payment of Commercial Debts (Interest) Act 1998 apply to an

award of common law damages for breach of contract? An interesting but

previously undecided issue, said the judge at the end of National Museums and Galleries on Merseyside Board of Trustees v AEW Architects and Designers Ltd (11 October), a case in which the claimant was awarded damages of over £2

million against its architects

The claimant was entitled to interest on those part of the judgment sums that

relate to historical costs - for instance, costs and expenses incurred by the

claimant in relation to dealing with collapsed ceilings in 2011 - but at what rate?

The usual discretionary rate is Bank of England base rate plus 2% (i .e . 2 .5%,

currently) but the 1998 Act allows for interest of 8% .

The 1998 Act applies to debts of the kind identified in the Act . In the case of

a contract, an obligation to pay the whole or any part of the contract price is

a debt covered by the Act . The judge said that there is a very clear distinction

between the payment of the contract price and any liability for damages for

breach of contract and held that the latter is not a debt as such . The Act,

therefore, does not apply to an award of damages for breach of contract .

Liability for damages could be said to be converted into a debt as a result

of a judgment or arbitration award but at that stage it attracts the specified

judgment rate of interest for late payment of a judgment sum .

New claims

Complex building disputes seldom end exactly as they began . The claimant

may make new allegations as the dispute progresses or the other party may

raise new grounds of defence . Where design or construction defects are the

subject of the dispute, the existence of further defects may be alleged . When a

claimant seeks to make a new allegation, the question may arise – is this a new

cause of action? If it is, and the period of limitation for bringing a claim of this

nature has or may have expired, the court should not permit it to be raised in

the existing action, by way of an amendment to the pleaded case, unless the

new claim arises out of the same or substantially the same facts as are already

in issue on any claim already made in the existing action .

The new claim must be compared with the existing claim or claims . If the

new claim asserts a breach of a new duty, this would normally constitute a

new cause of action . If, however, the new claim asserts a further breach of a

duty that is already pleaded, the courts have had more difficulty in deciding

whether a new cause of action is involved, particularly in construction cases:

it is a question of fact and degree . In a case involving damage to a building, it

will generally amount to a new cause of action if the new breach is said to have

caused damage to a different element of the building .


“ Liability for damages could be said to be converted into a debt as a result of a judgment or arbitration award…

”

be entitled to an additional lump sum, not to exceed an amount calculated in

accordance with the tables set out in the rule, unless it is unjust to do so .

Feltham v Freer Bouskell (15 July), a case of solicitors’ negligence which is

referred to in the professional liability section above, was the first case in which

this new costs sanction was considered . The maximum amount which could

have been ordered was slightly less than £75,000 . In fact, the judge decided

that it would not be just in the circumstances of this case to make any such

order . The circumstances in question were an important point first being raised

by the claimant only at the opening of the trial, late disclosure by the claimant

of some important documents and the lateness of the claimant’s Part 36 offer

itself . The judge observed that the last point is bound to be relevant in relation

to the award of a lump sum, whereas the other sanctions (enhanced interest

and indemnity costs) only take effect from the date of the offer anyway .

There was a sting in the tail for the defendants though, because the judge then

ruled that he would not make any deduction in the costs to which the claimant

was entitled, which, if he had ordered payment of an additional lump sum in

accordance with the new rule, he would have done .

Near miss offers

Some years ago, the Court of Appeal ruled that a Part 36 offer which

comes very close to beating the amount eventually awarded could have the

consequences of a successful Part 36 offer, on the basis that the narrowness

of the margin means that the other party would in fact have been better off

accepting the offer, taking into account time, cost and effort since incurred

in order to achieve such a small increase . This could perhaps be seen as part

of the more flexible approach to costs that the courts have shown in recent

times but Lord Justice Jackson in his report expressed concern about the

uncertainty that this case introduced into the workings of Part 36 and the rule

was amended to make it clear that the success or failure of a Part 36 offer must

be judged in money terms only, however small .

Subject to the consequences of any successful Part 36 offer, which should

normally be applied, the courts still have considerable discretion when making

orders for costs under the general rules on costs, which are set out in Part 44 .

However, in the case of Hammersmatch Properties (Welwyn) Ltd v Saint-Gobain Ceramics & Plastics Ltd (24 July), where a Part 36 offer had narrowly

failed to beat the amount awarded, the judge said that a near miss offer such

as this should not be rewarded under Part 44 with the consequences which it

cannot now achieve under Part 36 . The judge referred to a principle set out in

the case of Multiplex Construction (UK) Ltd v Cleveland Bridge UK in 2008 that

if one party makes an offer under Part 36 or under Part 44 which is nearly but

not quite sufficient and the other party rejects that offer outright without any

attempt to negotiate, then it might be appropriate to penalise the second party

in costs . The judge held that this was no longer a principle that applied to Part

36 and should not be applied as a special near miss rule through Part 44 .


“ There was a sting in the tail for the defendants though, because the judge then ruled that he would not make any deduction in the costs…

”


There may sometimes be problems over litigating all issues arising in a complex

dispute in one action . A few years ago, in the case of Aldi Stores Ltd v WSP (28

November 2007) Group PLC, it was said that a party involved in litigation who

was faced with the issue of wishing to pursue other proceedings should raise

the matter at a case management conference in the existing action so that any

appropriate directions could be given . The Court of Appeal made it clear that

this must be done and that there could be no excuse for failure to do so . In a

later action, the Court of Appeal warned that parties who keep future claims

secret risk having them held to be an abuse .

The Court of Appeal confirmed in the present case that failure to follow the Aldi guidelines could be a relevant factor pointing towards a second action being an

abuse .

Privilege

On 23 January, the Supreme Court gave its judgment in R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another on the issue of whether legal advice privilege covered legal advice on

tax matters given by accountants . By a majority of 5 to 2, the court held that

the privilege is confined to legal advice given by qualified lawyers, save where it

has been extended by legislation (for example, to patent and trade mark agents

and licensed conveyancers) .

Legal advice privilege is a common law right developed over several hundred

years . Its object is to encourage candour and completeness in communications

seeking and providing professional legal advice by ensuring that such

communications need never be disclosed to any other party (including

government or state authorities) . The privilege belongs to the client, not to the

adviser . The majority of the court accepted that there was no principled reason

for confining the privilege to legal advice given by qualified lawyers, especially

as such advice is increasingly given by non-lawyers, such as accountants giving

specialist tax advice .

However, whatever the logic of the matter, the fact is that it has long been

assumed that the privilege is confined to advice given by qualified lawyers . The life of the common law has not been logic (as was said in a nineteenth century

text book on the common law) . Some common law rules may have limitations

or other aspects which are only explicable by reference to historical practices

or beliefs . Given the belief that legal advice privilege is confined to advice given

by qualified lawyers, it would in practice be extending its ambit to declare that

it also covers legal advice given by accountants or anyone else . The majority of

the court considered that any such extension should only be effected (if at all)

through legislation by Parliament .


“ Legal advice privilege is a common law right developed over several hundred years

”

The case of Birse Developments Ltd v Co-operative Group Ltd (1 May)

involved alleged defects to a warehouse floor . The original allegations were that

the floor suffered severe cracking and other defects caused by the breaches of

duty of the defendants and that it was necessary to carry out repairs at a cost

of some £381,000 . The new allegation which the claimant was seeking to make

was that it had been discovered that the steel fibre content of the concrete

used for the construction of the floor was insufficient and that the entire floor

needed to be replaced at a cost of some £2 .5 million .

The Court of Appeal had no doubt that this amounted to a new cause of action,

and that it did not arise out of the same or substantially the same facts as were

already in issue . The action had been started within the limitation period, but

the limitation period had now expired and so this new claim could not now be

raised .

Re-litigating old issues

Courts have long been wary about claims being re-litigated in subsequent

actions and a subsequent action may be struck out as an abuse . The absence

of overlap between defendants - for example, where a claimant brings an action

against a person and then, when that action is over, starts a new action for the

same thing against another person - is traditionally a powerful factor against

finding abuse but not a bar, and it did not prevent a second action of this

nature being held to be an abuse in Gladman Commercial Properties v Fisher Hargreaves Proctor (18 January) .

Both actions arose out of a contract for the sale of land to the claimant (in the

second action), which the claimant alleged had been induced by fraudulent

or negligent misrepresentation . The first action was between the claimant,

the vendor of the land and the local authority and was settled mid-trial on

terms that seemed quite favourable to the claimant . Notwithstanding that

apparent success, the claimant then started an action against the surveyors

who, as agents for the vendor and for the local authority, had made the alleged

misrepresentations .

The action was struck out anyway, because the settlement of the first action

was held, as a matter of law, to have released the surveyors from liability, as

joint tortfeasors . There is still a common law rule that, where there are joint

tortfeasors, the release of one will have the effect of releasing the other or

others (subject always to the terms of the release) . This has been described as

a trap for the unwary .

However, both the judge at first instance and the Court of Appeal also held that

the second action should be struck out as an abuse . Although the defendants

were different, the issues were the same and personnel from the surveyors, who

had faced hostile cross-examination as witnesses in the first action, would have

to endure that ordeal again .


“ Notwithstanding that apparent success, the claimant then started an action against the surveyors…

”


relational contracts as they are sometimes called . Such contracts may, in the

words of the judge, require a high degree of communication, co-operation and

predictable performance based on mutual trust and confidence and involve

expectations of loyalty which are not legislated for in the express terms of the

contract but are implicit in the parties’ understanding and necessary to give

business efficacy to the arrangements .

The judge concluded that the traditional English hostility towards a doctrine of

good faith in the performance of contracts, to the extent that it still persists, is

misplaced . He could see no objection, and some advantage, in describing the

duty as one of good faith and fair dealing .

Most construction contracts and certainly those involving the maintenance

of facilities and provision of other services over a period of time could be

described as relational contracts and might therefore be assumed to include a

duty of good faith and fair dealing .

However, on 15 March, the Court of Appeal allowed the appeal of the NHS Trust

in Mid-Essex Hospital Services NHS Trust v Compass Group UK & Ireland Ltd . The Court referred to the judgment in Yam Seng case but evinced a much

narrower approach to the question of good faith .

The Compass Group case (which featured in our report of 2012) concerned a

contract for the provision of catering and cleaning services to two hospitals . In

the court below, the NHS trust was held to be in breach of contract in making

unreasonable deductions from payments to the service providers and in

awarding excessive service failure points, entitling the latter to terminate the

contract . Assessments made by the Trust of the service provider’s performance

were said to have been made on an extremely harsh basis and some of them

were plainly absurd . The judge found that such conduct had led to a poisoning

of the relationship between the parties .

The judge in the court below held that the Trust was in breach of an implied

term not to exercise its right to make deductions and award service failure

points arbitrarily, capriciously or irrationally . The Trust was also held to be in

breach of an express contractual term to co-operate in good faith .

The Court of Appeal, however, ruled that there was no implied term not to

act arbitrarily, capriciously or irrationally in deciding to award service failure

points or make deductions: there was no need to imply such a term because

the contract itself contained precise rules for determining such matters . The

court also interpreted narrowly the express duty to co-operate in good faith,

ruling that it applied only to the two specific matters mentioned in the same

clause – the efficient transmission of information and instructions and enabling

the Trust to derive the full benefit of the contract . Co-operation on such

matters was irrelevant to the levying of deductions . The duty to co-operate

in good faith meant only to work together honestly . The Trust’s conduct

(The Trust’s managers were aggressive in meetings and intemperate in their correspondence) did not, it seems, trouble the Court of Appeal, because it did

not affect the provision of the services .

Contracts continued

“ He could see no objection, and some advantage, in describing the duty as one of good faith and fair dealing

”

Contracts

Duty of good faith

Some contracts contain a term expressly imposing a duty to act in good faith. In the case of Yam Seng PTE Ltd v International Trade Corp Ltd (1 February), the judge considered whether such a duty may now govern all contractual relationships, even if it is not expressly stated.

The judge referred to an apparent view among commentators that there is

no legal principle of good faith of general application in English contract law .

English law is said to embody an ethos of individualism, whereby the parties

are free to pursue their own self-interest not only in negotiating but also in

performing contracts provided they do not act in breach of a term of the

contract .

However, in this respect, English law appears to be swimming against the

tide . A general principle of good faith is not only recognised in most civil

law jurisdictions (including those of France, Germany and Italy) but in other

common law countries, including the United States and Australia . But while

there may be no such general principle in England, a duty of good faith may

be implied in any ordinary commercial contract, following the established

methodology of English law for the implication of terms .

The approach to the interpretation of contracts has undoubtedly changed

in recent times . It is now emphasised that contracts are made against a

background of unstated shared understandings which inform their meaning .

The relevant background includes not only matters of fact known to the parties

but also shared values and norms of behaviour . It is not therefore difficult

to imply into any commercial contract a term that the parties will abide by

standards of commercial dealing which are so generally accepted that they

would reasonably be understood to take them as read .

Duties of good faith are likely to be of particular significance in contracts

involving a longer term relationship (as opposed to a simple exchange), or

“ The judge referred to an apparent view among commentators that there is no legal principle of good faith of general application in English contract law

”


aside the effect of the purported termination, the target date for the part of

the development which had been suspended would have been exceeded by 15

months .

It was no longer disputed in the Court of Appeal that the developer was in

breach of its obligation to carry out the works with due diligence and to use

reasonable endeavours to procure completion by the target date . But was

either breach repudiatory? The trial judge’s view was that the developer’s

ongoing breach of its due diligence obligation had become repudiatory at least

by the time that work had been halted for over 5 months and the developer

could not say when it would resume .

The Court of Appeal said that the test for repudiatory breach is whether the

breach has deprived the injured party of substantially the whole benefit of the

contract or, possibly, a substantial part of the benefit . The first test, in particular,

sets the bar high .

The claimant was intended to obtain, first and foremost, a leasehold interest of

999 years duration in the commercial units comprised in the development . The

claimant was not in a position where it was never going to obtain that interest .

If (hypothetically) it had received all the commercial units one year late, it would

still have got what it had contracted for, and getting it one year late would not,

on the face of it, have deprived the claimant of a substantial part of the benefit

it was intended to receive, let alone substantially the whole benefit .

The next thing to consider was what loss the claimant had or might have

suffered as a result of the breach . At the time it purported to terminate the

contract, it had suffered no actual loss . It was concerned that the delay would

interfere with its marketing programme (it planned to sublet the various units

to business tenants) . It might also have to bear for longer the cost of funding

its original deposit and the balance of the purchase price for the units on which

work had not been halted . Such matters, which could be compensated by

payment of damages, were not sufficient to establish a repudiatory breach .

The court also held that the question of whether a breach is repudiatory

must be judged at the date when the injured party purports to terminate the

contract . The circumstances that determine whether a breach is repudiatory

may change: a breach that is not repudiatory initially may become so as the

consequences of that breach worsen and the reverse may also be true . Here,

the uncertainty at the end of 2009 to which the judge attached significance

had diminished in October 2010, when the claimant purported to terminate,

because the work that had been halted had by then resumed . In a changing

situation, an injured party wishing to terminate the contract must be careful

neither to strike too soon nor leave it too late . In this case, however, the court

was doubtful whether at any stage a repudiatory breach had been established .

These issues need not arise, of course, if the contract sets out expressly the

circumstances in which a party may terminate the contract, as most building

contracts do .

Contracts continued

“ At the time it purported to terminate the contract, it had suffered no actual loss

”

A similarly restrictive view of an obligation to work together and individually in the spirit of trust, fairness and mutual co-operation was followed by the judge

(disagreeing with the adjudicator) in the case of TSG Building Services Plc v South Anglia Housing Ltd (8 May) . The contract was for the provision for a

Housing Association of a programme of gas servicing and associated works for

some 5,500 individual properties, with each party having the right to terminate

the contract at any time for any (or no) reason . The parties were referred to

as partnering team members, and they were required to establish, develop and implement their partnering relationships…with the objective of achieving…trust, fairness, mutual co-operation, dedication to agreed common goals and an understanding of each other’s expectations and values.

The judge held that these provisions did not require the Housing Association

to act reasonably in exercising (or in choosing to exercise) its right under the

contract to terminate the contract early, as it decided to do . The judge also

ruled that there was no implied duty of good faith, and that, even if there was, it

would not or could not circumscribe or restrict what the parties had expressly

agreed about the right to terminate .

The requirements of good faith are clearly sensitive to context . However,

where a duty to act with good faith – whether express or implied – means no

more than to act honestly, it is hard to see that it adds anything much . Under

English law, any contractual obligation must be interpreted in context, but the

contextual approach need not be restrictive – it may well be the opposite . The

starting point of the Court of Appeal was that there is no general doctrine of

good faith in English law, the very point that was effectively challenged by

the judge in the Yam Seng case . It would not be surprising, therefore, if two

broadly diverging strands of judicial opinion are emerging on the question of

good faith, a conflict which will no doubt be addressed in due course by the

Supreme Court .

Repudiatory breach

Last year’s report (on 2012) included the case of Ampurius NU Homes Holdings Limited v Telford Homes (Creekside) Limited, which concerned the question

of repudiatory breach of contract, i .e . the sort of breach that entitles the injured

party to bring the contract to an end .

Care has to be taken in treating a breach of contract as repudiatory, in case it

is later decided by the court that the breach was not repudiatory . This is what

happened in this case, in which a high court judge ruled in 2012 that the breach

was repudiatory but, on 23 May 2013, the Court of Appeal ruled otherwise .

The case involved a contract for the development of a property to be

purchased by the claimant on completion . While the works were proceeding,

the developer had funding problems as a result of the credit crunch and halted

work on part of the development . This work was resumed 15 months later

but shortly afterwards the claimant purported to terminate the contract . The

developer continued with the development . The trial judge held that, leaving

Contracts continued

“ Under English law, any contractual obligation must be interpreted in context…

”


not cover a failure to perform the contract at all . Thus the expression in the

sub-clause in relation to this Agreement should be understood as meaning in relation to the performance of this Agreement .

The case could be regarded as a paradigm of modern construction of an

agreement . One starts with a clause the meaning of which seems quite clear

(as the judge at first instance thought) but which does not seem to accord

with commercial sense . One therefore resorts to a wider context to produce an

interpretation that yields to business common sense . The context in this case

was found mainly within the agreement itself but of course a much broader

context can also be taken into account .

The judge at first instance seems to have thought erroneously that the issue of

construction only arises if there at least two alternative interpretations of the

form of words used .

Contracts continued

“ Agreement should be understood as meaning in relation to the performance of this Agreement

”

Contracts continued

Limitation of liability

The case of Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd (7 February) concerned the following clause in a contract for the

supply of catering services:

The Contractor hereby acknowledges and agrees that the Company shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits…..suffered by the Contractor or any third party in relation to this Agreement…..

When the company purported to terminate the contract before the end of its

five-year term, the contractor alleged that this was a repudiatory breach of

the contract and claimed damages, including loss of the profits that it would

have earned during the remaining twenty months of the contract . Perhaps

not surprisingly, the company said that the claim was excluded by the above

clause . The point was tried as a preliminary issue (therefore assuming, for this

purpose only, that the company’s purported termination of the contract was

a repudiatory breach) . The judge agreed with the company, but the Court of

Appeal allowed the contractor’s appeal .

The Court of Appeal observed that the company’s interpretation of the clause

would effectively deprive the agreement of contractual content, because there

would be no sanction for non-performance of the agreement by the company

(the court was not impressed by the argument that the contractor could seek

injunctive relief from the courts) . The court said that the judge had failed to

consider the words of the clause in their wider context . The main relevant

context in this case was the head clause in which this clause appeared as a sub-

clause .

The head clause was headed “Indemnity and Insurance” and contained (not

unusual) sub-clauses requiring the contractor to indemnify the company

against claims for personal injury and damage to property and to effect the

usual insurances covering such matters . Then followed a sub-clause requiring

the company to indemnify the contractor against claims arising out of the

provision of or damage to property caused by the negligence of the company .

The next sub-clause reverted to a point about insurance and seems to have

been inserted in the wrong place . The sub-clause after that (which should have

immediately followed the company’s indemnity) contained the exclusion of

liability with which the case was concerned .

The Court of Appeal concluded that the sub-clause was basically intended to

qualify the company’s indemnity that preceded it . However, the court accepted

that, in view of its wide wording, it must have been intended to do more that .

The key was the reference in the sub-clause to loss suffered by any third party .

Liability of the company for any such loss would only arise, under the indemnity,

as a result of negligence by the company . The court, therefore, concluded

that the exclusion of liability in the sub-clause was concerned only with liability

arising out of the company’s negligent performance of the contract and did

“ The Court of Appeal observed that the company’s interpretation of the clause would effectively deprive the agreement of contractual content…

”


The conclusion [we] come to, which is the inevitable conclusion one must come to, is that every file conducted by [the conveyancing firm taken over]……contains or is more likely than not to contain examples of malpractice negligence and breach of contract and so each and every file………..should properly be notified to you as individually containing shortcomings on which claimants will rely for the purposes of bringing claims against [us] as successor practice.

The insurers rejected the notification, save in respect of the 33 files where

defects had been specifically identified . Regarding all the rest of the files, the

solicitors had not identified a specific incident, occurrence, fact, matter, act or

omission which would give rise to a claim on each individual file, and so the

notifications were firmly rejected in their entirety and without question .

The insurers also refused to renew the policy and the solicitors were unable

to obtain cover from another qualifying insurer and had to enter the Assigned

Risks Pool . The solicitors applied to court for a declaration that their notification

was valid .

Blanket notifications by solicitors have been the subject of earlier court cases,

which have been decided in favour of the solicitors in question, though the

issue there was whether a claim made later was covered by the notification . The

notifications in those cases were held to be valid in relation to the later claim,

even though the notification had not even referred to the transaction from

which the claim arose, let alone identified a defect in relation to the handling of

that particular client as likely to give rise to a claim .

The judge therefore held that the stance taken by the insurers in the present

case was clearly wrong and their contention that their liability was limited to

identified files was misconceived and at odds with case law .

The judge, however, did not feel able to grant a declaration concerning the

validity of the notification, not least because of the difficulty in deciding exactly

what the declaration should say . If and when a claim arose, it would have to be

considered at that stage whether it was covered by the notification . This issue

concerning a declaration was later (on 2 December) considered by the Court

of Appeal and the judge’s ruling upheld . The judge’s comments on the insurers’

rejection of the notification were not challenged (and in the meantime the

solicitors had been able to obtain insurance from a qualifying insurer, though at

a rather higher premium) .

Public liability insurance

Public liability insurance policies sometimes contain extensions that seem to

take it outside the field of public liability as generally understood . M J Gleeson Group Plc v AXA Corporate Solutions Assurance SA (4 June) concerned

a building contractor’s policy that extended to indemnify the contractor

in respect of legal liability arising from the defective workmanship of their

subcontractors including the cost of making good defective workmanship .

Insurers continued

“ The insurers also refused to renew the policy and the solicitors were unable to obtain cover from another qualifying insurer…

”

Insurers

Blanket notifications

Professional indemnity insurance is almost invariably written on a claims made basis, which in principle means that liability for a claim is covered under the policy in force at the time the claim is made and by the insurers who have issued that policy, as opposed to the policy at the time that the negligence or other event giving rise to liability occurred.

However, the assured is under a duty to notify the insurer of any circumstances

of which it is aware that may give rise to a claim; and in practice it is the policy

in force at the time of that notification that has to respond to any claim arising

out of the circumstances so notified, even though the claim itself may only be

made at a time when that policy is no longer in force .

This situation has given rise to disputes over whether a particular claim is or is

not covered by an earlier notification, a matter that may decide which policy

and which insurer cover the claim or whether indeed the claim is covered at all .

An unusual (and possibly unprecedented) feature of the case of McManus and others v European Risk Insurance Co HF (17 January) is that it concerned a

dispute over the scope of a notification without any claim having actually been

made .

The case concerned a firm of solicitors with an exemplary claims record who

took over a conveyancing practice . As the solicitors were later constrained

to accept, their due diligence in relation to the take-over seems to have been

deficient . Within a few weeks, 17 claims were received in connection with the

files of the firm taken over . Investigations indicated patterns of bad practice,

another 33 files were identified where there could well be a problem and there

were inevitably doubts about all the hundreds of files of this conveyancing

practice of which the solicitors were deemed to be the successor practice .

In the notification which the solicitors sent to their insurers, the solicitors listed

a number of specific recurring problems in the files that had been reviewed, and

said:

“ This situation has given rise to disputes over whether a particular claim is or is not covered by an earlier notification…

”


Insurers continued

Basis of contract clauses

Genesis Housing Association Ltd v Liberty Syndicate Management Ltd (for and on behalf of Syndicate 4472 at Lloyds) (4 October) concerned insurance

taken out by a housing association in relation to a building project . The

insurance included cover for the risk of the builder becoming insolvent during

the construction period .

Unfortunately, the wrong builder was inadvertently named on the proposal

form . The builder contracted to carry out the works was formed as a special

purpose vehicle for this development; the builder named on the proposal form

was another, more substantial company in the same group . After the project

had been running for about 18 months, the builder went into administration but,

because of the error in the proposal form, the insurers denied liability under the

policy .

The main problem for the Housing Association was that, in the declaration on

the proposal form, it was agreed that the proposal form and the statements in

it would form the basis of the contract between the parties (i .e . the contract

between insurer and insured) . Under a line of authorities stretching back

for more than a century, the effect of a basis of contract clause is that the

statements in the proposal form become contractual warranties . This remains

the case even if the policy itself contains no reference to the proposal form .

The fact that the statements in the declaration were expressed to be to the best of our knowledge and belief would not help; in any event, although the error

was inadvertent, it was known who the builder was to be .

The Court of Appeal observed that the principle has been the subject of some

criticism and its juristic basis has been said to be unclear . There is now statutory

reform to exclude the principle in relation to consumer contracts but that could

not affect this case .

The Court of Appeal, therefore, dismissed the Housing Association’s appeal,

thus upholding the right of the insurers to reject the claim .

Rights of subrogation

It is well established that insurers, after indemnifying an insured against a

particular loss, cannot exercise rights of subrogation against a co-insured where

the co-insured is insured in respect of the same loss . In such a situation, there is

considered to be a policy waiver . However, it does not seem that an insurer can

never pursue a subrogated claim against another party insured under the policy

in question .

Rathbone Brothers Plc and another v Novae Corporate Underwriting & Ors (8

November) concerned a professional liability policy taken out by an investment

company which also covered its subsidiaries and employees . The court held

that the policy covers an individual, who was engaged as a consultant by a

“ The Court of Appeal observed that the principle has been the subject of some criticism…

”

Insurers continued

The judge referred to the importance of the factual background in interpreting

contracts . The relevant background included here the general nature of the

policy . The judge commented that it could not be the case that this policy was

intended to provide what in effect would be a contractual guarantee of the

workmanship of the subcontractors . The judge concluded that the extension

only applied where damage to property (i .e . the sort of damage caused by

tortious acts that public liability insurance is intended to cover) has been

caused by the defective workmanship in question .

This approach was similar to that in a case a few years ago Tesco Stores v Constable (16 April 2008) where it was held that the policy did not cover

contractual liability for the losses of third parties caused by damage to property

The order in which multiple claims should be met

Teal Assurance Co Ltd v W R Berkley Insurance (Europe) Ltd (31 July) was

a judgment of the Supreme Court concerning the top layer of a professional

liability insurance programme taken out by an engineering company . The first

or primary layer was placed with an insurance company; the three successive

excess layers and the top layer itself were placed with a captive insurer

of the engineer which reinsured the risks under these layers with various

retrocessionaires . Each level contained a limit of cover for each and every claim

and a limit in the aggregate, and each would drop down as and when the layer

below it became exhausted .

The top and drop policy which constituted the top layer excluded any claims

emanating from or brought in the USA and Canada . The engineer faced a

number of claims, some emanating from the USA, some not . The engineer,

through its captive insurer, wished to ensure that there was cover available in

the lower layers to meet the USA claims, i .e . that they were not exhausted by

non-USA claims, for which there would be cover in the top layer . This meant

choosing which claims to meet from the lower layers and therefore meant

choosing the order in which claims would be met . The reinsurers of the top

layer, not surprisingly, objected, and argued that they were not entitled to do

this . The Supreme Court, and the courts below, agreed with the reinsurers .

The basis of the court’s judgment is that the insurance cover in relation to a

particular claim becomes exhausted through that claim being ascertained

(whether by judgment or settlement or however) and at the same time: that

is the moment when the insurers become liable to meet the claim . The captive

insurers, on behalf of the engineers, argued that, under the policy wording, a

particular layer is only obliged to respond to a claim when the amount due from

the layer below has been paid . Following an earlier case, the Supreme Court

held that this meant when the claim has been ascertained, but even if the word

paid were interpreted literally, it would not entitle the insured to alter the order

in which claims fall become due to be paid .

It seems clear that the order, for the purpose of policies with aggregate limits, is

determined by the order in which claims are ascertained .

“ The engineer, through its captive insurer, wished to ensure that there was cover available in the lower layers to meet the USA claims…

”


Health and Safety and public liability

The role of reasonable foreseeability

The obligations and potential liability of employers under health and safety legislation may not, for most part, be strict, but the extent to which the common law concept of reasonable foreseeability is relevant has long been debatable. Under the Provision and Use of Work Equipment Regulations, every employer shall ensure that work equipment is so constructed or adapted so as to be suitable for the purpose for which it is used or provided. The term suitable is defined as meaning suitable in any respect which it is reasonably foreseeable will affect the health or safety of any person. Thus through this definition the concept of reasonable foreseeability is brought into play, but to what effect?

This question was considered by the Court of Appeal in Hide v Steeplechase Co (Cheltenham) Ltd (22 May) . The court held that the concept of reasonable

foreseeability in the regulations had to be construed so as to be consistent

with the European Directives under which the regulations were made . The main

directive provides that employers’ responsibility may be excluded or limited

where occurrences are due to unusual and unforeseeable circumstances,

beyond the employers’ control, or to exceptional events, the consequences of

which could not have been avoided despite the exercise of all due care .

This implies a much more limited concept of foreseeability . However, the

significance of this judgment is clearly affected by the coming into force on 1

October of section 69 of the Enterprise and Regulatory Reform Act 2013 .

This amends section 47 of the Health and Safety at Work etc Act to provide,

in general terms, that breach of health and safety regulations will no longer

be civilly actionable save insofar as further regulations provide . The aim is to

address the problem of a perceived compensation culture and the effect is that

it will usually only be possible to bring civil claims arising out of such breaches

as a common law action for negligence . This would obviously bring the

common law concept of reasonable foreseeability back into play .

“ The term suitable is defined as meaning suitable in any respect…

”

Insurers continued

subsidiary, against proceedings that have been brought against him . However,

the consultant also has the benefit of a contractual indemnity from the parent

company and the court held that the insurers could pursue a subrogated claim

against the parent company (i .e . the policyholder) under this indemnity .

Disclosure of insurance details

A few years ago, a judge held that the civil procedure rules enabled a court to

order a defendant to disclose details of its insurance in respect of the claim

against it . Some months later, a different judge held that the rules gave the

court no power to make such an order and so felt constrained to disagree with

the earlier decision .

In XYZ v Various sub nom Re PIP Breast Implant Litigation (22 November), the

judge agreed that the court had no power to make such an order under the rule

concerning disclosure of documents (the only rule that had been considered

in the earlier cases) . However, she considered the matter under the rule

concerning case management and held that under that rule she could order

the defendant, whose financial solvency was doubtful but who seemed to have

insurance in respect of the claim, to disclose whether or not its insurance was

sufficient to fund its participation in the proceedings . An order to this effect

could be justified on the basis that it would affect the court’s management of a

highly complex piece of litigation .

She did not, however, consider that there was authority under the rule to order

a party to disclose information that would show whether its insurance would be

sufficient to meet any orders for damages or costs . The ruling was rather less,

therefore, than the claimants had presumably been hoping for .

“ An order to this effect could be justified on the basis that it would affect the court’s management of a highly complex piece of litigation

”


There has been some debate over the extent to which this case extends the law

and, in particular, may increase the burden on local authorities and their insurers .

The case does not expand the categories of negligence as such . Nonetheless, it

does mean that local authorities which outsource functions of the kind covered

by the case may be liable for the negligent performance of those functions

without any fault on their own part . Where the party to whom the function is

outsourced is a substantial organisation, this may not matter: the party that has

actually been negligent will always be primarily liable, and one can expect that in

many cases it will have indemnified the authority . The case is likely to be of more

practical relevance where functions are outsourced to poorer or uninsured or

underinsured contractors .

Causation

Establishing liability for damages due to negligence or any other breach of duty

involves proving not only that there was a breach of duty but that the breach

caused the loss in question . As we have mentioned above in connection with

professional liability, this may mean venturing into the realm of hypothesis:

what would have happened if the duty in question had been fulfilled rather than

breached? Would the loss have been prevented?

If the duty was to take a specific step or give some particular advice, and the

breach of duty was a failure to take that step or give that advice, the hypothetical

question will normally be – what would have happened if this had been done and,

in particular, would the loss have been avoided as a result? In the case of advice,

for example, would the advice have been acted on?

However, the duty in question may be of a kind that could have been fulfilled by

one or more of a range of possible actions, and the breach of duty a failure to do

anything . In such a case, the answer to the hypothetical question may vary with

each possible action . One such action may not have avoided the loss but it may

nonetheless have been perfectly reasonable (and therefore not negligent) to

have taken that action; another action may have avoided the loss but may have

involved going beyond the call of duty .

Does one have to ask what the person in breach of duty should have done, or (if

this is different) what that person would in fact have done? The answer is: the

latter .

The point arose in Robbins v Bexley London Borough Council (17 October),

where the Council was held liable to a house owner for tree root damage caused

by trees for which the Council was responsible . The duty of which the Council

was held to have been in breach was to take reasonable steps to prevent such

damage being caused by the trees . The judge was of the view that a reasonable

programme of maintenance would have been to reduce the height of the trees

every few years by 25% but that such a programme would not have prevented

the damage . However, the judge held that if the Council had taken steps to

perform its duty, more severe pruning would in fact have taken place, which

would have prevented the damage . The Court of Appeal upheld the judgment .

Health and Safety and public liability continued

“ …what would have happened if the duty in question had been fulfilled rather than breached?

”

The amendment does not apply to breaches that occurred before it came into

effect, so it will be a while before its impact is felt . On the face of it, though,

and subject to arguments over interpretation and a possible challenge by the

European Commission, the change is favourable to employers and their insurers

Non-delegable duties

The judgment of the Supreme Court in Woodland v Essex County Council (23

October), arising from a tragic injury to a school girl during a swimming lesson,

attracted some attention in the media . In short, the education authority was held

potentially liable for the incident (subject to proof of negligence and causation) .

The courts below had held that the authority could not be liable because the

conduct of the swimming lesson had been contracted out by the school .

The general rule is that a person (whether a corporation or an individual) is not

liable for the negligence of an independent contractor engaged by it, unless that

person is itself at fault . This contrasts with the vicarious liability of an employer

for the negligence of its employee, which exists regardless of any fault on the

part of the employer . However, there is an exception to the rule concerning

independent contractors, where the person who employs the contractor can

be said to owe a non-delegable duty for the performance of the work that it

employs the contractor to carry out . This does not mean that it cannot delegate

the work to another person at all but that it cannot delegate its own legal duty

for the proper performance of that work: if, therefore, the contractor does not

perform the work properly, the person who engaged the contractor will be liable,

without any fault on its own part . (The contractor will, of course, also be liable,

being the party at fault) .

It has long been held that there may be a non-delegable duty where the work in

question is of a hazardous nature . This would not apply to teaching children to

swim . However, another category of case where there may be a non-delegable

duty is (1) where there is an antecedent relationship between defendant and

claimant, (2) the duty is to protect a particular class of persons against a

particular class of risks and (3) the duty is personal to the defendant . This would,

on the face of it, cover a situation as between a school and its pupils, so that

if the school delegates a particular function, such as the taking of swimming

lessons, to a third party, the school (and hence the local education authority) will

remain responsible for the non-negligent performance of that function .

The Supreme Court reviewed the cases in this latter category and held that the

time had come to recognise that a non-delegable duty does indeed arise in such

situations, where the claimant is a patient or a child, or for some other reason is

especially vulnerable or dependent on the protection of the defendant against

risk of injury, and the claimant has been placed in the custody, charge or care of

the defendant .

The boundaries of this category of case cannot be defined with precision and

each situation that may fall within it will have to be considered on its own facts .


“ This does not mean that it cannot delegate the work to another person at all but that it cannot delegate its own legal duty…

”


London Antony Smith Senior Partner

T: +44 (0) 20 7420 8704

E: a .smith@beale-law .com

It is important to identify the content of the duty breached – it was not a

duty to implement a programme of regular 25% reductions but a duty to take

reasonable steps to prevent tree root damage to the claimant’s house . From

that point one asks the hypothetical question of what would have happened

had the duty been fulfilled, and on the facts one reaches the answer that the

damage would have been prevented .

Ascertaining the cause

Sherlock Holmes famously said that when you have eliminated the impossible,

whatever remains, however improbable, must be the truth . Holmes’ dictum

is not, however, good law . Michael Nulty (dec’d) and others v Milton Keynes Borough Council (24 Jan) concerned a fire in a warehouse, each possible cause

of which seemed inherently unlikely . The judge had concluded that the most

likely cause of the fire was one that was the least unlikely . The Court of Appeal

said that this did not follow as a matter of law but that it was a valid factual

finding for the judge to make in all the circumstances . There may be situations

where a court concludes that no cause of a particular event has been proved

on the balance of probabilities, which could mean that a claim arising out of the

event in question is bound to fail .

The Court of Appeal also said that one cannot apply a percentage chance to

the question of whether something has already occurred; one cannot say, for

example, that there is a 25% chance that something has happened: either it

has happened or it has not, and the court has to decide that question on the

balance of probabilities .


“ There may be situations where a court concludes that no cause of a particular event has been proved…

”

Antony Smith Senior Partner

Rhian Howell Partner

Tara Cosgrove Partner

For further information about any case or issue covered in this Legal Review please contact … .

Bristol Rhian Howell Partner

T: +44 (0 117 311 7471

E: r .howell@beale-law .com

Dublin Tara Cosgrove Partner

T: +353 (0) 1 775 9546

E: t .cosgrove@beale-law .com

www.beale-law.comLondon | Bristol | Dublin 69

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