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England and Wales High Court (Technology and Construction Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Tesco Stores Ltd. v Costain Construction Ltd & Ors [2003] EWHC 1487 (TCC) (02 July 2003) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2003/1487.html Cite as: [2003] EWHC 1487 (TCC) |
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Case No: HT-02-439 |
QUEENS BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
133-137, Fetter Lane, London, EC4A 1HD |
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B e f o r e :
____________________
| TESCO STORES LIMITED |
Claimant |
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| - and - |
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| (1) COSTAIN CONSTRUCTION LIMITED (2) COSTAIN LIMITED (3) PETER HING AND JONES (A FIRM) (4) VALE (UK) LIMITED (5) WHITELIGHT INDUSTRIES LIMITED |
Defendants |
____________________
Marcus Taverner Q.C. and Simon Hargreaves (instructed by Osborne Clarke for the First and Second Defendants, Costain Construction Ltd. and Costain Ltd., in both actions)
Peter Coulson Q.C. and Derek Holwill (instructed by Henmans for the Third Defendants, Peter Hing and Jones, in Action HT-02-07)
The Fourth and Fifth Defendants in Action HT-02-07, Vale (UK) Ltd. and Whitelight Industries Ltd., did not appear and were not represented.
____________________
Crown Copyright ©
Introduction
"Costain's Financial Statements, for the year ended 31 December 2000, state that the company sold its business and assets and liabilities to Costain Limited [that is, the Other Costain Company] with effect from 1 January 1999. Pending proper particulars thereof, Tesco contends that consequently Costain Limited is also liable in respect of Costain's liabilities to Tesco."
It is not immediately clear what justification there might have been thought to be in law for the assertion contained in that paragraph.
"As against PHJ and Costain, Tesco contends that the fire spread, causing very substantial damage to the Store, was due to the absence of proper fire stopping measures at the Store. Tesco contends that there was no cavity closure at the top of the external wall enabling the fire to escape into the eaves and then the roof space, and that there were long lengths of roof space without cavity barriers."
The Claims against Costain
"12. By letters, dated 20 and 23 March 1989, Tesco instructed Costain to design and build the Redditch store in accordance with Tesco's Design and Construct Contract Issue No.7 ("Tesco Contract Issue No. 7"). By letter to Tesco, dated 30 March 1989, Costain accepted such instruction. Consequently, and in any event Costain accepted such instruction by commencing work on site on 3 April 1989.
13. It was agreed between Tesco and Costain that they would execute, under seal, Tesco's Design and Construct Contract Issue No. 7. It was agreed by Costain that such Tesco Contract Issue No. 7 would regulate the contractual relationship between the parties. Further, as the parties accepted that the agreement would be executed under seal it was understood and agreed that there would be a twelve year limitation period in respect of any breaches of that contract. Such agreement is evidenced by the following,
a) As confirmed by Costain's internal memorandum, dated 8 March 1989, it was agreed, at Tesco's offices at Cheshunt, on 7 March 1989, that Tesco intended to award Costain the contract to design and build the Redditch store;
b) By a further Costain internal memorandum, dated 10 March 1989, to Mr. Franks of Costain's legal department, Mr. Joyce stated that Costain had been confirmed by Tesco as the contractor for the Redditch Store with the applicable contract to be Tesco Contract Issue No. 7; Mr. Franks was invited to comment on Tesco Contract Issue No. 7; Costain has not disclosed any response by Mr. Franks to such memorandum; in the circumstances, it is to be inferred that Mr. Franks agreed the application of Contract Issue No. 7, particularly (a) as his earlier memorandum, dated 5 October 1988, commenting generally on Contract Issue No. 7 (as a generic document) raised no relevant concerns and (b) in view of the correspondence below;
c) By its correspondence with Bucknall Austin, Costain consistently confirmed its agreement and intention to execute Tesco Contract Issue No. 7; Tesco will rely on the following letters from Costain to Bucknall Austin in which Costain sought to complete the contractual documentation, namely those dated 16 January 1990, 1 March 1990, 26 March 1990, 12 April 1990, 25 May 1990, 7 August 1990 (which expressly invited the Contract Documents to be submitted for execution by Costain), 24 October 1990, 2 November 1990, 12 February 1991, 16 August 1991, 6 January 1992 and 24 June 1992;
d) Additionally, by its internal memorandum, dated 8 February 1991, Costain's Mr. Basil recorded the agreement and intention that the outstanding contractual documentation should be completed.
14. In the event, so far as Tesco is presently aware, Costain, despite signing and returning certain Novation Agreements as provided for by the Tesco Contract Issue No. 7 by letter to Bucknall Austin, dated 16 August 1991, never executed the contract itself.
15. By reason of Tesco Contract Issue No. 7 and/or the agreement reached between the parties that such contract would apply, there were the following express terms of Costain's retainer by Tesco,
a. Costain would upon, and subject to the conditions set out in Tesco Contract Issue No. 7, carry out and complete the Works (namely, the design and construction of the Redditch store) in a good and workmanlike manner and to the satisfaction of the Employer's Representative so that the completed Works were reasonably fit for their intended use (clause 1 (1));
b. Costain warranted to Tesco that Costain's design and/or the design of those persons employed or engaged by Costain (including design work carried out prior to such employment or engagement) would be such that the completed Works shall be reasonably fit for their intended use (clause 2 (1));
c. Costain warranted that the materials used in the Works shall be reasonably fit for their intended use; such warranty extending to any substitution or variation in the design and/or construction of the Works (clause 2 (1)).
16. Further, there were the following implied terms of Costain's retainer, each of which was implied by operation of law to give business efficacy to the retainer and/or to reflect the common intention of the parties,
a. Costain would, so far as it was able, design (alternatively, be responsible for the design of) the Redditch store so that,
i. Its drawings demonstrated compliance with the relevant statutory requirements, including Building Regulations;
ii. The Redditch store would be fit for its purpose;
b. Costain would ensure that the Redditch store was,
i. Constructed in a good and workmanlike manner and in accordance with good building practice;
ii. Constructed in accordance with the relevant statutory requirements, including Building Regulations, and so that it would be fit for its purpose."
It is somewhat remarkable that what seemed to be relied upon as evidence of the contract alleged were not exchanges between Tesco itself and Costain, but rather internal documents of Costain and letters from Costain to Bucknall Austin Plc ("Bucknalls"). Bucknalls carried on business as quantity surveyors and construction cost consultants, and I shall return to their role in the construction of the Store. It is also notable, given that there were also claims against PHJ in relation to the design of the Store, to the detail of which I shall come, that the main focus of attention in the express and implied terms pleaded was the design, rather than the construction, of the Store.
"12A Further or alternatively, as at the date of Tesco's letter of 20 March 1989, Tesco and Costain had reached agreement on all essential terms of the contract other than price. Agreement on price was reached on or about 28 June 1989. In the premises, a binding contract for the design and construction of the store on the terms set out in paragraph 12 above and paragraphs 15 and16 below was concluded between Tesco and Costain on or about that date.
12B. If, which is denied, the agreement of the Employer's Requirements and/or the Contractor's Proposals was essential for a binding contract to be concluded between Tesco and Costain, then Tesco will contend that such a binding contract was concluded upon the agreement of the Employer's Requirements in or about March/April 1990 and/or upon the agreement of the Contractor's Proposals in or about March 1990."
"Further or alternatively, in the circumstances pleaded above, Costain owed Tesco duties at common law of the same form and scope as those set out at paragraphs 15 and 16 above. Further or alternatively Costain owed to Tesco a duty to exercise reasonable skill and care in designing and building the Redditch store."
"It is admitted that, in the event that a contract was concluded, it was intended by Costain that such a contract would include Tesco's Standard Terms and be executed under seal, and that in those circumstances a 12 year limitation period would apply. As a result of the failure of Tesco to provide such documents, despite Costain's repeated requests (some of which Tesco identify at paragraph 13 c of the Particulars of Claim and to which Costain will refer at trial) for a complete set of contract documents and which Tesco either would not or could not deliver, no such contract was concluded."
"a. It is denied that Tesco has properly identified the scope of the common law duty upon which it seeks to rely.
b. Without prejudice to (a) above, it is denied, in the "circumstances pleaded" by Tesco, that Costain owed Tesco duties at common law of the same form and scope as those set out at paragraphs 15 and 16 of the Particulars of Claim for the reasons given above.
c. Further and in any event, it is denied that Costain owed Tesco a duty to exercise reasonable skill and care in designing the Redditch store. In particular Costain did not design the Redditch store, the professionals did, and so Costain could not and did not owe any duty in respect of design or the fitness for purpose of the same.
d. Yet further, if Costain did owe any tortious duties with regards to either the construction, design or fitness for purpose of the Redditch store (denied in any event as to design and fitness for purpose, not admitted as to construction), it is denied that the scope of the same embraced a duty of care to save Tesco harmless from loss in respect of damage to the property itself and/or economic loss consequent upon the same.
e. Further and in any event, such duty of care in law which could be established (which is not admitted) is limited to a duty to save harmless in respect of defects not apparent by intermediate subsequent inspection. No such duty or breach of the same is pleaded."
"As to paragraph 20, it is denied that Tesco has failed to identify properly the common law duty of care relied on. Without prejudice to the foregoing, Tesco pleads further to paragraph 20 as follows:
(1) Costain owed to Tesco a concurrent duty of care at common law to exercise reasonable skill and care in and about the performance of its contractual duties;
(2) Such a duty extended to holding Tesco harmless in respect of both damage to the store itself and economic loss consequent thereon.
(3) Further or alternatively, even if, which is denied, no contract was concluded between Tesco and Costain, either on the terms of Issue 7 or at all, then Costain nevertheless owed to Tesco a duty at common law to exercise reasonable skill and care in designing and constructing the store. Such a duty extended to holding Tesco harmless in respect of both damage to the store itself and economic loss consequent thereon.
(4) By reason of the matters set out at paragraph 11 above, Costain assumed responsibility towards Tesco for the design and construction of the Redditch store.
(5) Further or alternatively, by reason of the express warranty provided by Costain as particularized in paragraph 15b of the Amended Particulars of Claim, Costain owed to Tesco a duty of the nature and extent set out in sub-paragraphs (1) and (2) above. "
"In the premises, and by reason of this course of dealing between the parties:
(1) The agreement between Costain and Tesco in relation to the Redditch store was on Tesco's standard terms and conditions, either by way of express agreement or by way of implication by reason of this course of dealing; and
(2) The relevant limitation period applicable to any contractual claims arising under or out of the contract is 12 years."
"11. While Tesco admits that its standard term contract documentation was not executed by Costain in the case of the Redditch store, at all material times Costain evinced an intention to complete the documentation and to be bound by its terms. Tesco relies in particular in this regard on:
(1) Paragraph 14a of Costain's Defence.
(2) Costain's acceptance of the standard terms and conditions by its conduct in purporting to design and construct the Redditch store in accordance with the same. In this regard Tesco relies in particular on the following:
(a) Commencing works on site
(b) Making payment to PHJ in respect of architectural services provided in relation to the Redditch store by PHJ. For the avoidance of doubt, prior to Costain commencing work on site PHJ had been paid by Tesco.
(c) Adopting and complying with the defects liability period provided for by Tesco's standard terms.
(d) Purporting to act as though there had been a novation in respect of PHJ's Architect's Appointment. By way of example, Tesco refers to and relies upon Costain's letter to PHJ dated 18 May 1994 in which Costain asserted that PHJ was "the Architect novated to us for the Tesco store built at Redditch in 1989/90" and as such was required to check its drawings and inspect the store to establish the safety of the structure.
(e) Naming Tesco's Design and Construct Contract Issue No. 7 as the main contract in its (Costain's) sub-contracts in respect of the Redditch store.
(f) Undertaking the 1993/4 inspection of the store and reporting to Tesco in respect of the same in circumstances where Costain accepted that if defects in fire stopping were found it would be liable to remedy the same at no cost to Tesco. Tesco refers to paragraph 21 below in this regard.
(3) Further PHJ and the other consultants relied upon the existence of a contract between Tesco and Costain on the terms of Tesco's standard terms edition 7 as the basis upon which they acted in relation to the contract and, in particular, followed the instructions of Costain….
12A. Further or alternatively, Costain is now estopped from denying that the contract with Tesco for the design and construction of the Redditch Store was on Tesco's standard terms and conditions by reason of the matters set out:
(1) in paragraph 11 above;
(2) in Tesco's reply 32 to Costain's Requests for Further Information dated 15 August 2002; and
(3) in paragraph 5 of PHJ's Defence to Costain's Part 20 Particulars of Claim."
"As is more fully particularised in Tesco's Reply to Costain's Defence, Tesco will contend that it is entitled to rely on a 12 year limitation period even if the contract under seal was not executed by reason of the following:
(a) It was a term of the contract entered into by Tesco and Costain and/or it was within the contemplation of the parties that such a contract would be under seal and that, as a result, a 12 year limitation period would apply to any claims arising out of the contract. In the premises, and for the avoidance of any doubt, the effect of the contract was that Costain agreed not to raise any point on limitation provided any claim made by Tesco in respect of Costain's breach of contract was made within 12 years of any such breach.
(b) Tesco relied on the matters set out in 32(a) above and by reason of the same Costain is now estopped from denying that any claim made by Tesco is statute-barred provided that any such claim has been made within 12 years of the occurrence of the relevant breach of which complaint is made (which it has).
(c) Further, and as Costain knew, Tesco's policy was to let its construction contracts only on its (Tesco's) standard terms. By way of example, Tesco relies on its letter to Costain Engineering Construction Limited dated 11 June 1993."
"PHJ's case as to the contractual position so far as it related to Tesco, Costain and PHJ is as follows:
(i) Costain was engaged by Tesco as Design and Build Contractors. PHJ adopts the case advanced by Tesco in this regard, and further avers that by no later than 3.4.90, Tesco and Costain had agreed upon the terms of a Design and Build Contract, in the form of the documents forwarded by Costain to Bucknall Austin on or about 26.3.90. PHJ rely in support of this averment upon, inter alia, Bucknall Austin's letter to Costain dated 15.3.90; Costain's letter to Bucknall Austin dated 26.3.90, with its enclosures; and Bucknall Austin's letter to Costain dated 3.4.90.
(ii) Further, Tesco, Costain and PHJ each conducted themselves, at all material times from at least April 1989 onwards, on the common assumption that Costain was engaged by Tesco as Design and Build Contractors; and that PHJ was engaged as Costain's architect. PHJ will rely in support of this averment upon, inter alia, the following facts and matters:
(a) Tesco, by letter dated 4.5.89, instructed PHJ to submit all accounts to Costain, in accordance with the Design and Build contractual documentation which had passed between Tesco and Costain.
(b) Costain duly paid the accounts tendered by PHJ.
(c) Costain specifically instructed PHJ, by letter dated 11.5.89, as follows:
"Any variations to existing drawings, other than those specifically requested by an official Tesco instruction, must be issued to ourselves in preliminary form, for a cost analysis prior to issue as a construction detail."
(d) Costain dealt direct with Tesco over questions of design which arose from time to time, including, by way of example, the design of the toilet area, as evidenced by a letter dated 19.5.89 from Tesco to Costain; and the design of the Customer Catering Facility, as evidenced by a letter dated 22.5.89 from Costain to PHJ enclosing Tesco's drawing detailing Tesco's instructions in relation to the said facility;
(e) Costain complained, from time to time about PHJ's work, as evidenced, for example, by Costain's letters to PHJ of 14.6.89 and 8.8.89.
(f) Costain assumed responsibility for the management of the site and for the co-ordination of all activities, including design work. PHJ will rely in this regard upon the Minutes of Site Meetings, to which PHJ will refer for their full terms and effect.
(g) Costain named Tesco's Design and Construct Contract Issue No. 7 as the main contract in its (Costain's) sub-contracts in respect of the Redditch store.
(iii) PHJ believed, at all material times, that Costain had been engaged by Tesco as Design and Build Contractors; and acted, at all material times, in reliance upon this belief. PHJ will rely, inter alia, upon the following facts and matters:
(a) That PHJ would otherwise have acted as Employer's representative, and taken responsibility for the communication of Tesco's requirements from Tesco to Costain; and would have issued Instructions to Costain, rather than acting at Costain's direction, as was in fact the case.
(b) That PHJ would have assumed responsibility for the direction and co-ordination of design sub-contractors, rather than Costain, as was in fact the case.
(c) That PHJ would otherwise have assumed responsibility for the administration of the terms of the contract, including certifying payments, assessing and, where justified, granting extensions of time, certifying Practical or Partial Completion, and listing defects.
(d) That PHJ would otherwise have chaired and minuted Site Meetings, rather than Costain, as was in fact the case.
(e) That PHJ would have held separate Design Team meetings with Tesco and other members of the design team, and not left such matters to Costain.
(iv) PHJ's belief that Costain had been engaged by Tesco as Design and Build Contractors was a belief induced by both Tesco and Costain. So far as concerns Costain, PHJ relies in support of this contention upon the facts and matters set out above.
(v) In the premises, and whether or not there was in fact a Design and Build contract concluded between Costain and Tesco, whether as alleged by Tesco or otherwise, it is averred that Costain is estopped, by convention and/or conduct, as against PHJ and/or Tesco, from denying that it was retained by Tesco as a Design and Build Contractor on Tesco's Design and Construct Contract Issue No. 7; alternatively is estopped from denying that it undertook the obligations of a Design and Build contractor in relation to the Redditch store.
(vi) It is further averred that PHJ's contractual obligations were in fact transferred by novation from Tesco to Costain, in accordance with the Design and Build arrangements set out above. In this regard, PHJ says further as follows:
(a) PHJ did in fact, on 4.5.90, execute a novation agreement, as had been contemplated in the letter to PHJ dated 22.2.89, pursuant to which its contractual obligations were purportedly transferred from Tesco to Costain. This document was not so far as PHJ can now ascertain, ever executed by either Tesco or Costain.
(b) It is, however, PHJ's case that there was a novation by conduct, in about April 1989, as a result of which PHJ's contractual obligations were in fact transferred from Tesco to Costain.
(c) Further or alternatively, it is averred that Tesco, Costain and PHJ each conducted themselves, at all material times from April 1989 onwards, on the common assumption that there had been such a novation; on the common assumption that Costain was engaged by Tesco as Design and Build Contractors; and on the common assumption that PHJ was engaged as Costain's architect. PHJ will rely in support of each of these averments upon, inter alia, the facts and matters set out above.
(d) In the premises, Tesco and Costain are each now estopped by convention, or by conduct, from denying that there was such a novation at or about that time."
"4A. Paragraph 12 is denied. It was not an essential pre-requisite or condition precedent of Costain taking on contractual or any other legal responsibility for the design or of there being a legally binding contract between Costain and Tesco, that Costain were to receive executed novation agreements in respect of the consultants at the same time as and as part of the execution of the formal contract documents between Costain and Tesco. No such precondition was intimated by Tesco to Costain, let alone agreed between the parties.
4B. Further, and as Costain had demonstrated at other projects where the contract documentation was executed prior to Costain commencing work at Redditch, Costain was perfectly prepared to execute the contract documents as between itself and Tesco in the absence of some or all of the novation agreements (whether executed or not). For the avoidance of doubt, Tesco will contend that this demonstrates that the receipt of executed novations cannot have been a precondition for Costain concluding a binding contract with Tesco under which Costain took responsibility for the design of the store. In this regard Tesco relies on the following projects:
(1) Mold
(2) Crick
(3) Pontypridd
4C. In each of the projects referred to in paragraph 4B above, Costain executed the contract documents as between itself and Tesco in the absence of executed novation agreements in respect of one or more of the consultants.
4D. Tesco relies on this course of dealing between the parties as demonstrating that there was no essential pre-requisite or condition precedent of the type alleged in paragraph 12."
"21. On the evening of 17 July 1993, Tesco's store in Maidstone, Kent was substantially destroyed by fire. The fire had been started deliberately by persons unknown in a plastic refuse bin outside a newsagents, which was part of the same shopping complex as the Maidstone store. The fire penetrated the interior of the roof of the newsagents through the timber soffit, and then spread through the roof void of the entire complex.
22. As a consequence of such fire, Tesco took steps to check that the works necessary to inhibit the spread of fire had been carried out at other stores constructed to a similar design.
23. On 19 October 1993, Costain who knew, as a result of their extensive links with Tesco, of Tesco's desire to check the extent of fire inhibiting works at other stores, wrote to Tesco in the following terms in relation to the Redditch store,
"Although we did not receive a letter specific to this store, we have taken it upon ourselves to carry out a detailed inspection of fire barriers as per other stores constructed by our Company in the Midlands.
We are pleased to report that further to this inspection we can confirm that fire stopping works comply with the requirements of the Design and Statutory Regulations prevailing at the time of construction".
24. Costain intended that its letter should be relied upon by Tesco and in particular, intended and/or foresaw that Tesco would not carry out any other or further investigation into the adequacy of the fire inhibiting works at the Redditch store.
25. By letter, dated 28 April 1994, Tesco requested PHJ, as the appointed architect for the development of the Redditch store, to arrange an inspection, in conjunction with the main contractors (Costain), in order to determine and report upon the condition of the fire inhibiting works at the store.
26. By letter to Tesco, dated 3 June 1994, PHJ confirmed that,
a. Costain had carried out the relevant inspection in the previous October, as part of Costain's review of all four Midlands Tesco projects with which Costain had been involved;
b. From discussions with Costain, it appeared that Costain might not have actually returned the report to Tesco in respect of the Redditch store, but Costain had now done so.
27. By undertaking the inspection and/or by making the statements in its letter dated 19 October 1993 against the factual background set out above, Costain undertook towards Tesco a common law duty of care,
a. To undertake a detailed inspection of the fire inhibiting works at the Redditch store with reasonable skill and care; and/or
b. To exercise reasonable skill and care so as to see that its detailed inspection entailed a thorough inspection of all the fire stopping works at the Redditch store in October 1993;
c. To exercise reasonable skill and care so as to see that it had taken all necessary steps to ensure that its confirmation, that fire inhibiting works at the Redditch store complied with the requirements of the Design and Statutory Regulations prevailing at the time of construction, was accurate; and/or
d. To take reasonable skill and care so as to ensure that the statements made in the letter of 19 October 1993 were accurate.
28. As a consequence of, and in reliance on, the fact that Costain had carried out a detailed inspection of the Redditch store, in or about October 1993, and the terms of Costain's letter of 19 October 1993, Tesco did not itself carry out (or obtain) a detailed inspection of the fire inhibiting works at the Redditch store, or effect remedial works."
"17. Pursuant to this request, PHJ contacted Costain on or about 16 May 1994 with regard to organising an inspection of the store. Costain confirmed to PHJ that it had already inspected the store and retained a copy of the report in respect of the same. In these circumstances PHJ did not arrange for a further inspection of the store to be undertaken.
18. By letter to Tesco dated 27 May 1994 Costain confirmed to Tesco that,
"further to a detailed inspection of the store last Autumn we can confirm that fire stopping works comply with the requirements of the design and statutory regulations prevailing at the time of construction."
19. Costain intended that this letter should be relied upon by Tesco whether in addition to or substitution of its letter dated 19 October 1993 and in particular, intended and/or foresaw that Tesco would not carry out any other or further investigation into the adequacy of the fire inhibiting works at the Redditch site and, in particular, would not require PHJ to undertake an inspection of the store as it had requested it to do in its letter of 28 April 1994."
"39. As to Tesco's claim in tort arising from Costain's inspection and report in October 1993 and/or 1994,
a. Such cause of action did not accrue until loss was suffered by reason of the fire on 4 August 2001;
b. Alternatively, Tesco's date of knowledge, for the purposes of section 14A of the Limitation Act 1980, was not until after the fire on 4 August 2001.
40. By reason of the matters set out in paragraphs 32 to 36 above, Tesco will contend that no reasonably competent contractor carrying out an inspection in accordance with Tesco's instructions could have failed to identify and report on the defects in fire-stopping at the Redditch Store.
41. In particular, the defects set out in paragraph 36 above were basic and obvious. Those in paragraphs 36a to 36f inclusive would have been particularly obvious upon the most cursory of inspections of the roof. They would have been obvious to even a relatively junior employee with some basic training in the Building Regulations and fire protection matters.
42. In the premises it is to be inferred that either:
a. Costain carried out no inspection at all of the Redditch store and then deliberately concealed this fact from Tesco by its letters dated 13 [sic] October 1993 and/or 27 May 1994; or
b. Costain did carry out such an inspection, identified some or all of the defects relied upon by Tesco but deliberately failed in breach of duty to report the same to Tesco; or
c. Costain carried out a limited inspection of the store but deliberately concealed the limited nature of its inspection and/or any defects revealed on such an inspection; or
d. Carried out an inspection which was so cursory that it could not properly be described as a "detailed" inspection.
43. The absence of any inspection and/or the absence of any detailed inspection and/or the deliberate breach of duty in failing to report to Tesco the defects identified by any such inspection concealed facts and matters relevant to Tesco's cause of action against Costain in circumstances where they were unlikely to be discovered for some time. Such facts and matters were:
a. The failure of Costain to carry out any inspection at all of the Redditch store; alternatively
b. The failure of Costain to carry out a "detailed" inspection of the store and/or
c. The failure of Costain to report to Tesco each and every one of the defects that it in fact identified.
44. Tesco could not have discovered and did not in fact discover these facts and matters, whether by reasonable diligence or at all, until such time as the fire. For the avoidance of doubt, each of the defects relied upon by Tesco would only have been identifiable upon an inspection of the roof spaces. Having obtained confirmation from Costain that such an inspection had been carried out and that the fire stopping works at the store were adequate and complied with relevant statutory requirements, Tesco had no reason, and did not in fact, undertake any such inspection of the roof space itself.
45. By reason of the foregoing Tesco is entitled to and does rely on section 32 of the Limitation Act 1980 in support of its contention that its causes of action as against Costain did not accrue until the date of the fire, namely 4 August 2001. "
The claims against PHJ
"a. PHJ would, so far as it was able, design the Redditch store so that,
i. Its drawings demonstrated compliance with the relevant statutory requirements, including Building Regulations;
b. PHJ would, so far as it was able, inspect the site during the construction of Redditch store so as to ensure that it was,
i. Constructed in accordance with good building practice;
ii. Constructed in accordance with the relevant statutory requirements, including Building Regulations."
"(i) It is admitted that it was an implied term of the contract pursuant to which Tesco retained PHJ as aforesaid, that PHJ would act with the reasonable care and skill of a reasonably competent architect.
(ii) Save as aforesaid, paragraph 10 of the Re-Amended Particulars of Claim is denied. It is averred that the express terms agreed between Tesco and PHJ were comprehensive, and that there was no necessity for the implication of any further terms or conditions in order to give business efficacy to the contract between PHJ and Tesco and/or to reflect the common intention of the parties."
"If, as alleged by Costain in its Defence herein, but denied by Tesco, there was no contract between Tesco and Costain which imposed upon Costain design and build obligations (whether in accordance with the Tesco Standard Documentation for use with the Design and Build Contracts, Issue No. 7, or otherwise) then PHJ's case is as follows:
(i) That, as pleaded above, PHJ was, at all material times, led to believe, by both Tesco and by Costain, that Costain was working for Tesco pursuant to a Design and Build contract, and as such had design obligations to Tesco.
(ii) That the nature and extent of PHJ's contractual obligations to Tesco fall to be determined on the basis that the position as between Tesco and Costain was as PHJ had been led to believe, namely that Costain had in fact undertaken design and build responsibilities to Tesco, whether or not that was in fact the position and whether or not Costain's contentions herein as to the nature and extent of its contract with Tesco are accepted in whole or in part."
"56. The Architect's Terms and Conditions executed by PHJ, on 20 March 1989, were deemed to have been made under seal. Tesco's claim in contract is thereby brought within the twelve year limitation period.
57. As to Tesco's claim in tort arising from the design, development and inspection of the Redditch store by PHJ,
a. Such cause of action did not accrue until loss was suffered by reason of the fire on 4 August 2001;
b. Alternatively, Tesco's date of knowledge, for the purposes of section 14A of the Limitation Act 1980, was not until after the fire on 4 August 2001."
"With regard to paragraph 56 of the Re-Amended Particulars of Claim, PHJ says as follows:
(i) It is admitted that the Architect's Terms and Conditions, signed by PHJ on 20.3.89 contained the following text:
"9.1 For all purposes, the Terms and Conditions contained in this letter shall be deemed to have been made under seal by the parties."
(ii) It is denied that the contract between PHJ and Tesco was in fact a specialty within the meaning of section 8 of the Limitation Act 1980, and it is accordingly denied that the period of limitation applicable to Tesco's claims in contract herein is 12 years.
(iii) Further and in any event, all of the work carried out by PHJ which it is now contended by Tesco was carried out in breach of contract was completed in 1989 and in any event prior to 8.1.90. Accordingly, even if, which is denied, PHJ was in breach of contract as alleged, the breach(es) of contract alleged occurred more than 12 years prior to the date of issue of these proceedings and are statute barred even if the applicable period of limitation is that provided for in section 8 of the Limitation Act 1980."
"20A. On 9th September 1993, Costain wrote to PHJ in these terms:
" … in anticipation of Tesco's formal instruction, we confirm our verbal request to your Mr. Heckles for the supply of all drawings relevant to fire protection/prevention works at the Redditch store."
20B. PHJ knew, or ought reasonably to have known, that Costain asked for these drawings for the purposes of carrying out an inspection of the Redditch store. PHJ thereafter supplied these drawings knowing that Costain would use them in carrying out an inspection of the Redditch store.
20C. In this respect, Costain, as contractor, would have assumed, and was entitled to assume, that the design depicted in the drawings complied with the Statutory Regulations prevailing at the time of construction. PHJ knew, or ought reasonably to have known, that Costain would assume that the drawings complied with the Statutory Regulations prevailing at the time of construction. PHJ did not say at any time prior to the inspection (or afterwards) that the design of the Redditch store failed to comply with the Statutory Regulations prevailing at the time of construction.
20D. An inspection of the Redditch store took place in September/October 1993.
20E. Costain avers that, on the balance of probabilities, PHJ carried out the inspection of the Redditch Store in September/October 1993 jointly with Costain and agreed that fire stopping works complied with the requirements of the Design and Statutory Regulations prevailing at the time of construction. In support of this proposition Costain will rely upon the following:
a. That Mr. Heckles' recollection at the time appears to have been that PHJ inspected jointly with Costain.
b. That Mr. Gibson-Leitch's recollection at the time appears to have been that all four Midlands Stores were inspected by Costain "with architects".
c. That it was Tesco's practice to ask the contractor and the architect to inspect.
d, That it was Costain's practice to carry out these inspections jointly with the architect, as it was on any occasion where queries were raised which would have involved design/regulation issues.
e. That Mr. Heckles (in the context of recollecting his agreement with the Fire Officer in relation to New Oscott) recalled that someone from PHJ had done "a similar exercise with Costains for Redditch" – which is to say that this person carried out an inspection jointly with Costain and found to the same effect i.e. "no problems but properly protected as agreed with LA Fire Officer".
f. That PHJ were asked to issue the relevant drawings, and did issue (around September/October) the relevant drawings, in relation to the Redditch store.
g. That Mr. O'Connor's reference at the end of the note: "P. S. Robert has checked his daybook – his survey was at the end of September" is a reference to "someone from our group" i. e. PHJ inspecting the Redditch store in September 1993.
h. That PHJ was the designer and Costain the contractor.
20F. On 19th October 1993, Costain wrote to Tesco (copied to PHJ) in the following terms:
"Although we did not receive a letter specific to this store, we have taken it upon ourselves to carry out a detailed inspection of fire barriers as per other stores constructed by our Company in the Midlands. We are pleased to report that further to this inspection we can confirm that fire stopping works comply with the requirements of the Design and Statutory Regulations prevailing at the time of construction".
20I. [sic] On 28th April 1994 Tesco wrote to PHJ in the following terms:
"I understand that you were the appointed Architect for the above Development which has been carried out within the last 6 years. Could you please arrange to have an inspection carried out by yourselves in conjunction with the main contractors in order to determine the condition of the fire stopping works and if necessary a report should be provided and returned to myself. If the fire stopping works are unsatisfactory then could you please forward a letter informing us of same, or alternatively, providing a building regulation completion certificate as soon as possible."
20J. On 27th May 1994, Costain wrote to Tesco (copied to PHJ) in the following terms:
"We are pleased to report that further to a detailed inspection of the [Redditch] store last autumn, we can confirm that fire stopping works comply with the requirements of the design and statutory regulations prevailing at the time of construction."
20K. On 3rd June 1994, as alleged at Paragraph 20 of the Particulars of Claim, PHJ wrote to Tesco in the following terms:
"Thank you for your letter dated 28th April 1994. We were in fact approached by Costain Construction last October in respect of this matter, and they have carried out the inspection to which you refer, as part of their review of all four Midlands Tesco projects with which they were involved. From discussion with Costain, it appeared they may not have returned a report to you in respect of the Redditch project, but they confirmed to us that they would do so, and I see that they have now written. We hope this is satisfactory and closes the matter."
20L. PHJ's letter dated 3rd June 1994 implicitly confirmed that it was satisfied by its previous inspection with Costain and/or that it was satisfied that the drawings which it had supplied to Costain expressly for the purposes of inspection complied with the Statutory Regulations prevailing at the time of construction. Otherwise, PHJ's letter dated 3rd June 1994 was not a proper response to Tesco's letter dated 28th April 1994.
20M. In all the circumstances:
a. PHJ owed Tesco a duty of care to inspect the Redditch store with that degree of skill and care to be expected of the reasonably competent architect carrying out such an inspection.
b. Further and in any event PHJ owed Tesco a duty of care to identify any element of the design of the Redditch store which did not comply with the Statutory Regulations prevailing at the time of construction. Costain will contend that this duty of care arose as early as 9th September 1993, and that it had certainly arisen by 3rd June 1994.
c. Yet further and in any event PHJ owed Costain a duty of care to identify any element of the design of the Redditch store which did not comply with the Statutory Regulations prevailing at the time of construction. Costain will contend that this duty of care arose as early as 9th September 1993, and that it had certainly arisen by 3rd June 1994.
20N. PHJ owed these duties because:
a. PHJ was aware of the contents of the letters dated 19th October 1993 and 27th May 1994;
b. PHJ was the architect and designer of the works and Costain was the contractor. Tesco had a policy of requiring inspections by both architect and contractor for these purposes, and Costain had a policy of inspecting with the architect for these purposes;
c. Neither Tesco nor PHJ can have expected that Costain would have undertaken a review of the design of the Redditch store in order to ascertain whether the design complied with the Statutory Regulations prevailing at the time of construction;
d. PHJ knew having received Tesco's letter of 28th April 1994 and in the circumstances above that Tesco (and, further or in the alternative, Costain) was/were dependent upon PHJ to report if the design of the Redditch store was not compliant with the Statutory Regulations prevailing at the time of construction.
20O. To the extent that Tesco establishes that the design of the Redditch store was not compliant with the Statutory Regulations prevailing at the time of construction, and to the extent that Tesco establishes, contrary to Costain's Defences, if alleged, that Costain is liable for failing to point out such non-compliances in its letters dated 19th October 1993 or 27th May 1994, then PHJ was in breach of those duties of care which it owed to Tesco identified in paragraphs 20M a. and b. above, and the duty of care which it owed to Costain identified in paragraph 20M c. above, in failing to identify those non-compliances either to Costain or to Tesco direct. Costain and Costain Limited repeat paragraph 4 above and Costain will further claim from PHJ damages for breach of the duty of care described in paragraph 20M c. above.
20P. Further and in any event, to the extent that Tesco establishes that the construction of the Redditch store was not compliant with the Statutory Regulations prevailing at the time of construction, and to the extent that Tesco establishes, contrary to Costain's Defences, that Costain is liable for failing to point out such non-compliances in its letters dated 19th October 1993 or 27th May 1994, then PHJ was in breach of those duties of care which it owed to Tesco identified in paragraphs 20M a. and b. above, and the duty of care which it owed to Costain identified in paragraph 20M c. above in failing to identify those non-compliances either to Costain or to Tesco direct. Costain and Costain Limited repeat paragraph 4 above.
20Q. As particulars of breaches of the duties of care described at paragraph 20M above, Costain and Costain Limited will refer to and rely upon the allegations herein and such of the allegations made by Tesco against Costain and PHJ as Tesco establishes at the trial of this matter."
"13A. Paragraph 20A of the Part 20 Particulars of Claim is admitted.
13B. Paragraph 20B of the Part 20 Particulars of Claim is denied.
13C. With regard to paragraph 20C of the Part 20 Particulars of Claim, PHJ says as follows:
(i) It is agreed that PHJ did not inform Costain that the design of the Redditch store did not comply with Statutory Regulations prevailing at the time of construction. It is denied, if the same be averred, that Costain's request to PHJ, to which reference is made in paragraph 20A of the Part 20 Particulars of Claim, imposed any obligation upon PHJ to consider this question or to advise Costain as to whether or not the design of the Redditch store complied with Statutory Regulations prevailing at the time of construction.
(ii) It is denied that Costain was entitled to assume that the design depicted in the drawings supplied by PHJ complied with Statutory Regulations. Costain undertook an obligation to Tesco to confirm that the fire-stopping works at the Redditch store complied with the requirements of the Design and Statutory Requirements [sic] prevailing at the time of construction, not to confirm that the building had been constructed in accordance with PHJ's drawings. If, which is not admitted, Costain made any such assumption Costain thereby took upon itself the risk that the building, as designed, did not comply with the requirements of the Design and Statutory Requirements [sic] prevailing at the time of construction.
(iii) It is denied that PHJ either knew, or ought reasonably to have known that Costain would assume that the design of the Redditch store depicted in PHJ's drawing complied with Statutory Regulations prevailing at the time of construction.
(iv) Save as aforesaid, paragraph 20C of the Part 20 Particulars of Claim is denied.
13D. Paragraph 20D of the Part 20 Particulars of Claim is not admitted.
13E. Paragraph 20E of the Part 20 Particulars of Claim is denied. With regard to the matters relied upon by Costain, PHJ says as follows, adopting the lettering used in the Part 20 Particulars of Claim.
(a) If, which is not admitted, Mr. Heckels believed at any material time that PHJ had, or may have, carried out a joint inspection with Costain of the fire-stopping works at the Redditch store, Mr. Heckels was mistaken in that belief.
(b) If, which is not admitted, Mr. Gibson-Leitch believed at any material time that he had carried out an inspection of the fire-stopping works at the Redditch store with an architect, then either the architect in question was not PHJ, or Mr. Gibson-Leitch was mistaken in that belief.
(c) This is denied. Tesco did not ask, and does not assert that it asked, PHJ or any other architect to carry out an inspection of the fire-stopping works at Redditch.
(d) This is denied. Costain did not ask any architect to carry out inspection of the fire-stopping works at Redditch.
(e) No admissions are made as to the statement alleged to have been made by Mr. Heckels. The attendance note dated 17.5.94, and made by a Mr. O'Connor, from which the words quoted have been taken, does not, in any event, support the construction which Costain seek to place upon it, namely that an inspection of firestopping works had been carried out by PHJ at the Redditch store which disclosed no problems.
(f) The facts pleaded are admitted; the inference which Costain seek to draw is denied. PHJ's case is that if Costain had asked, or had intended to ask, PHJ to conduct a joint inspection of the Redditch store, the written request of 19.10.93 [sic – in fact the request was dated 9 September 1993] for the drawings would have been the obvious moment to do so. The fact that Costain did not make such a request at this time evidences that Costain did not intend to, and did not in fact, ever ask PHJ to conduct a joint inspection of the Redditch store.
(g) The postscript to Mr. O'Connor's note is admitted. It is denied that it has the meaning suggested by Costain.
13F. Paragraphs 20F, 20I, 20L and 20K of the Part 20 Particulars of Claim are admitted.
13G. Paragraphs 20L and 20M of the Part 20 Particulars of Claim are denied.
13H. Save that it is admitted that PHJ was aware of the contents of the letters dated 10. [sic in fact 19] 10.93 and 27.5.94 and that PHJ was the architect involved in the construction of the Redditch store, paragraph 20N of the Part 20 Particulars of Claim is denied.
13I. Paragraphs 20O and 20P of the Part 20 Particulars of Claim are denied.
13J. Paragraph 20Q of the Part 20 Particulars of Claim is noted. PHJ's case as to the alleged breaches of duty (which are denied) is as set out herein and in its Amended Defence to Tesco's Re-Amended Particulars of Claim, served in Action No. HT-02-07."
The Preliminary Issues
"1. Did the Claimant ("Tesco") and the First Defendant ("Costain") make a contract in 1989 under which Costain undertook to carry out any work or provide any services for Tesco in connection with the construction of a supermarket and associated buildings at a site at Coldfield Drive, Oakenshaw Wood, Redditch, Birmingham ("the Redditch Site")?
2. If the answer to Issue 1 is affirmative:
(i) Was it a term of such a contract that the limitation period in respect of any breaches of the agreement would be twelve years?
(ii) How was such a contract made and what documents, if any, were incorporated into it?
(iii) Were any, and if so which, of the express terms pleaded at paragraph 15 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of such agreement and, if not, so far as material, what were the express terms?
(iv) Were any, and if so which, of the implied terms pleaded at paragraph 16 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of such agreement and, if not, so far as material, what were the implied terms?
3. Is Costain estopped, as asserted by Tesco at paragraph 12A of its Amended Reply in Action No. HT-02-07, from denying that "the contract with Tesco for the design and construction of the Redditch Store was on Tesco's standard terms and conditions" by reason of the matters set out therein?
4. Is Costain estopped, as against Tesco and/or the Third Defendant ("PHJ"), from denying that it was retained as Tesco's design and build contractor as alleged in paragraph 5 of PHJ's Defence to Costain's Part 20 proceedings in Action No. HT-02-07?
5. If the answer to Issue 2(i) is negative, is Costain estopped, as asserted by Tesco at paragraph 65(2) of the Amended Reply in Action HT-02-07 from "denying any claim made by Tesco is statute-barred provided that any such claim has been made within 12 years from the occurrence of the relevant breach of which complaint is made"?
6. Is Costain estopped from denying a novation by conduct in April 1989 as alleged at paragraph 5 of PHJ's Defence to Costain's Part 20 proceedings in Action No. HT-02-07?
7. Did Costain owe to Tesco any duty of care in tort in relation to anything undertaken by Costain in connection with the Redditch Site in 1989?
8. If the answer to Issue 7 is affirmative were the nature and extent of such duty of care as set out in paragraph 17 (and 15 and 16) of the Re-Amended Particulars of Claim and paragraph 13 of the Reply to the Defence of Costain in Action No. HT-02-07; and if not, what were the nature and extent of the duty of care owed by Costain to Tesco?
9. Did Costain assume a duty of care to Tesco of the nature and extent pleaded at paragraph 27 of the Re-Amended Particulars of Claim in Action No. HT-02-07 as a result of the writing by Costain to Tesco of the letter dated 19 October 1993; and, if not, what were the nature and extent of the duty of care to Tesco (if any) assumed by Costain in writing the letter dated 19 October 1993?
10. Did Costain assume a duty of care to Tesco of the nature and extent of th[at] pleaded at paragraph 21 of the Amended Particulars of Claim in Action No. HT-02-439 as a result of the writing by Costain to Tesco of the letter dated 27 May 1994; and, if not, what were the nature and extent of the duty of care to Tesco (if any) assumed by Costain in writing the letter dated 27 May 1994?
11. If the answers to Issues 7 and 8 are to the effect that a duty of care was owed by Costain to Tesco which was capable of encompassing one or more of the losses pleaded at paragraph 65 of the Re-Amended Particulars of Claim in Action No. HT-02-07, and on the assumption that Costain was in breach of that duty of care as alleged by Tesco in the said Re-Amended Particulars of Claim, subject to issues arising under section 14A and section 32 of the Limitation Act 1980, did Tesco's cause of action in tort in respect thereof accrue as at the date of the fire, 4 August 2001?
12. If the answer to Issue 9 is to the effect that a duty of care was owed by Costain to Tesco which was capable of encompassing one or more of the losses pleaded at paragraph 65 of the Re-Amended Particulars of Claim in Action No. HT-02-07, and on the assumption that Costain was in breach of that duty of care as alleged by Tesco in the said Re-Amended Particulars of Claim, subject to issues arising under section 14A and section 32 of the Limitation Act 1980, did Tesco's cause of action in tort in respect thereof only accrue as at the date of the fire, 4 August 2001?
13. If the answer to Issue 10 is to the effect that a duty of care was owed by Costain to Tesco which was capable of encompassing one or more of the losses pleaded in the Amended Particulars of Claim in Action No. HT-02-439, and on the assumption that Costain was in breach of that duty of care as alleged by Tesco in the said Amended Particulars of Claim, subject to issues arising under section 14A and section 32 of the Limitation Act 1980, did Tesco's cause of action in tort in respect thereof only accrue as at the date of the fire, 4 August 2001?
14. On the assumption that Costain is liable to Tesco to any extent in respect of the claims made in this action, is the Second Defendant ("Costain Limited") liable to Tesco as contended at paragraph 66 of the Re-Amended Particulars of Claim in Action No. HT-02-07 and in paragraph 54 of the Particulars of Claim in Action No. HT-02-439?
15. If there was no contract as between Tesco and Costain which imposed upon Costain design and build obligations (whether in accordance with the Tesco Standard Documentation for use with the Design and Build Contracts, Issue No. 7, or otherwise) do PHJ's contractual obligations to Tesco nevertheless fall to be determined on the basis that the position as between Tesco and Costain was that Costain had undertaken design and build responsibilities to Tesco as alleged in paragraph 11A of PHJ's Amended Defence in Action No. HT-02-07?
16. Was the agreement executed by PHJ on 20 March 1989 deemed as between the parties to it to be a specialty for the reason pleaded at paragraph 56 of the Re-Amended Particulars of Claim in Action No. HT-02-07?
17. Is the limitation period for the contractual claims made by Tesco against PHJ in respect of alleged breaches of the agreement executed by PHJ on 20 March 1989, pleaded at paragraph 8 of the Re-Amended Particulars of Claim in Action No. HT-02-07, 12 years or 6 years?
18. Were any, and if so which, of the implied terms pleaded at paragraph 10 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of the agreement between Tesco and PHJ which is pleaded at paragraph 8 of the Re-Amended Particulars of Claim?
19. If PHJ was in breach of any duty of care owed in tort to Tesco, as alleged in paragraph 54 of the Re-Amended Particulars of Claim in Action No. HT-02-07, and subject to issues arising under section 14A and section 32 of the Limitation Act 1980, did Tesco's cause of action in tort in respect thereof only accrue as at the date of the fire, 4 August 2001?
20. Whether the nature of the obligations set out in paragraphs 9, 10 and 11 of the Re-Amended Particulars of Claim was such that, in the event that PHJ was in breach of contract as alleged by Tesco, those breaches of contract occurred at or continued until Practical Completion regardless of (1) when the allegedly defective design work was undertaken; and (2) whether, as a matter of fact, the defects in construction alleged could or could not be detected upon a reasonable inspection of the Redditch store as at the date of Practical Completion?
21. Did Costain or PHJ carry out an inspection of the Redditch store in 1993/1994? If so, which?
22. In all the circumstances, what were the nature and extent of any duty of care in tort, if any, assumed by PHJ to Tesco and/or Costain in relation to the Redditch Store in 1993 and1994?
23. If PHJ did owe Tesco and/or Costain a duty of care in relation to the Redditch store in 1993/4, as alleged by Costain in its Amended Particulars of Claim in Action No. HT-02-07, and on the assumption that PHJ was in breach of that duty of care as alleged by Costain, did Costain's cause of action in respect thereof accrue in 1993/4 or did it only accrue at the time of the fire, namely 4 August 2001?"
Tesco Standard Documentation
(i) a form of Main Contract;
(ii) a form of sub-contractor agreement for use between the chosen contractor and any sub-contractors selected for the purposes of the relevant works;
(iii) a form of "Parent Company Guarantee";
(iv) a form of "Consultant Novation Agreement" ( a "Novation Agreement");
(v) a form of "Architect's Commissioning Letter" (an "Architect's Agreement");
(vi) a form of "Structural Engineer's Commissioning Letter";
(vii) a form of "Building Engineering Services Consultants Commissioning Letter";
(viii) a form of "Landscape Architects Commissioning Letter".
"B. The Contractor has submitted proposals for carrying out the Works which include a statement and analysis of the sum which he will require for carrying out that which is necessary to complete the Works in accordance with the Conditions and the Employer's Enquiry Document. The Contractor's proposals, the Employer's Enquiry Document and this Agreement shall hereinafter be referred to as the "Contract Particulars"….
E. The Contract Particulars have been signed and sealed by the parties hereto."
The former recital indicated that a contract in the form of the Issue 7 Main Contract was expected to incorporate both "Contractor's proposals" ("Contractor's Proposals") and an "Employer's Enquiry Document" ("Employer's Requirements"). The latter recital in the printed form of the Articles was plainly contemplating a situation which, if it were accurate in any particular case, would only be so as a result of further action on the part of Tesco and the relevant contractor, namely the actual execution of an Issue 7 Main Contract under seal.
"1(1) The Contractor will upon and subject to these Conditions carry out and complete the Works shown and described or referred to in the Contract Particulars in a good and workmanlike manner and to the satisfaction of the Employer's Representative so that the completed Works are reasonably fit for their intended use….
2(1) Regardless of any warranties given by any other persons in respect of the Works, the Contractor warrants to the Employer that his design and the design of those persons employed or engaged by him (including design work carried out prior to such employment or engagement) will be such that the completed Works shall be reasonably fit and [sic] for their intended use. The Contractor further warrants that the materials used in the Works shall be reasonably fit for their intended use. This warranty shall extend to any substitution taking place pursuant to Clause 1(2) hereof and in relation to any design work necessitated by a variation pursuant to Clause 7 hereof…
4(1) The Contractor shall observe and perform (including the payment of any sums or the execution of any works) those obligations and conditions contained in any Agreement(s), between the Employer and any interested third party, so far as they affect the carrying out and the completion of the Works and shall indemnify the Employer from and against any damages, costs, losses, fees, expenses or the like arising from any breach of the same. A copy of the said Agreement(s) is appended to the Employer's Enquiry Document.
(2) The Employer shall procure compliance by the third party of the obligations on its part contained in the said Agreement(s) so far as they affect the carrying out and completion of the Works."
"You are invited to provide Architectural Services for the above project and to carry out all necessary duties in connection therewith and as set out hereunder. It is a condition of your appointment that at or about the time the Construction Contract is entered into you will execute a Novation Agreement, a draft of which is annexed hereto, when directed by this Company….
1.1 Your appointment and, therefore, these Terms and Conditions are effective from the date of this Company's first instructions to you in respect of this project.
1.2 The Architect will up to the time of the execution of the Novation Agreement act on behalf of this Company in all matters set out or implied in the Architect's appointment and will obtain approval in writing before initiating any service or work stage. Such approval will be obtained from a Director of this Company or its designated representatives.
1.3 The Architect shall in conformity with the normal standards of the Architect's profession to be assessed by the Standard of an Architect experienced in projects of the scale and complexity of this project exercise all reasonable skill, care and diligence in the discharge of the services agreed to be performed by him. In connection with the project the Architect will prior to the execution of the Novation Agreement only take instructions from a Director of this Company or its designated representatives. The Architect will not make at any time any material alteration, addition or omission from the design unless approved by a Director of this Company or its designated representatives….
9.1 For all purposes the Terms and Conditions contained in this letter shall be deemed to have been made under Seal by the parties."
"1. THE Consultant HEREBY UNDERTAKES to perform the obligations under the Terms of Engagement and Conditions of Appointment for the Contractor with immediate effect and to be bound by the terms and conditions of the same in every way as if the Contractor were a party thereto ab initio in lieu of the Company.
2. THE Consultant:
(a) Releases and discharges the Company from the further performance of the Company's obligations under the Terms of Engagement and Conditions of Appointment and from all claims and demands whatsoever arising out of or in respect of the Terms of Engagement and Conditions of Appointment whether prior to or subsequent to the date hereof.
(b) Is deemed to have notice of the terms and conditions of the Principal Agreement and agrees that the performance of the obligations under the Terms of Engagement and Conditions of Appointment are necessary for the execution and completion of the Works under the Principal Agreement.
Provided that for the avoidance of doubt this shall not mean that the Consultant undertakes any duty or obligation beyond that of exercising that degree of skill, care and diligence so as to conform with the duties set out in the Terms of Engagement and Conditions of Appointment.
3. THE Consultant releases and discharges the Company from all claims and demands whatsoever in respect of the said Terms of Engagement and Conditions of Appointment and accepts the liability of the Contractor upon the said Terms of Engagement and Conditions of Appointment in lieu of the liability of the Company and the Contractor agrees to be bound by the terms of the said Terms of Engagement and Conditions of Appointment in every way as if it were named in the said Terms of Engagement and Conditions of Appointment as a party thereto in place of the Company…..
6. Nothing contained in this Agreement shall operate to discharge the Consultant from any liability in respect of duties performed prior to the execution of this Agreement. The Consultant agrees that in respect of all duties performed by it after the said date of execution it shall owe the same duty of care to the Company as agreed in the Terms of Engagement and Conditions of Appointment concurrent with such duties owed to the Contractor….
8. For all purposes the Terms and Conditions contained in this Novation Agreement shall be deemed to have been made under seal by the parties."
The involvement of Costain in the construction of the Store
"C The Quantity Surveyor will be employed by the Employer throughout the Contract and his fees will be paid directly by the Employer.
Contractor's Design Team
D The Architect, Structural Engineer, Building Services Engineer are responsible for the design of the project and will, under the terms of the Contract, become employed by the Contractor through a Consultant Novation Agreement.
E Attention is drawn to the fact that the Novation Agreements included are standard for the Tesco Form of Contract.
F The Contractors design team's remuneration will be met by the Contractor, as set out in their respective Letters of Appointment reproduced in the Tesco Form of Contract."
No copies of any agreements made between Tesco and PHJ, Green or Sibley were attached to the Employer's Requirements. At folio 1/11 of the Employer's Requirements was set out a list of contractors introduced by the words:-
"A It is the Employers policy to use the following approved sub-contractors and suppliers as mentioned in the Policy Memoranda for various aspects of the work.
B The Contractor is to employ these companies to execute the work or supply the goods and materials mentioned. The appointed firms will become domestic sub-contractors and suppliers to the Main Contractor."
"We having read the Conditions of Contract and Representative Bills of Quantities delivered to us and having examined the drawings referred to now [sic] therein do hereby offer to execute and complete in accordance with the Conditions of Contract the whole of the works described for the sum of "
"TESCO REDDITCH
Further to your first stage tender and subsequent negotiations with Bucknall Austin Plc, in connection with the above project, we write to advise you that it is our intention to enter into a formal contract with your company in accordance with the Tesco Standard Documentation for use with Design and Build Contracts, Issue Number 7 dated August 1988, the first stage tender documentation and in a satisfactory contract sum being agreed between yourselves and the Quantity Surveyors (Bucknall Austin PLC).
In consideration of the issuance of this letter, you are to consider your company as part of the design team and to put in hand all works in accordance with the instructions of the Employers Representative.
The anticipated contract period will be 46 calendar weeks commencing on 3rd April 1989 with completion on 19th February 1990, subject to the satisfactory compliance with Local Authority Planning requirement [sic], based on your first stage tender sum of £7,602,781 (Seven million, six hundred and two thousand seven hundred and eighty one pounds).
If we repudiate the terms of this letter, you will be reimbursed for all reasonable, direct and actual loss (not to include reimbursement for any consequential loss or loss of profit) expected from the date of this letter up to the date at which you were advised that Tesco Stores Limited do not propose to continue with the project.
If agreement cannot be reached, between Tesco Stores Limited and yourselves as to the amount of reimbursement, your claim shall be referred to Bucknall Austin Plc as Tesco Stores Limited's Quantity Surveyors, for amendment and such amendment is to be a condition precedent to your entitlement to payment.
If without good cause you withdraw from this project or make yourselves unavailable for appointment, you shall not be entitled to payment for work done and you shall be liable for all costs and losses incurred by Tesco Stores Limited as a result of that withdrawal.
Please return a copy of this letter (enclosed) with your signature to acknowledge your agreement to its terms."
"We acknowledge receipt of and thank you for your letter dated 20th March 1989 accepting our first stage tender in the sum of £7,602,781 subject to satisfactory negotiation.
We confirm we shall work with the design team and put in hand all works in accordance with the instructions of the Employers Representative.
We enclose as requested a copy of your letter dated 20th March 1989 signed by our Managing Director, Mr. W. Sperry, in acknowledgement of the terms and conditions contained therein."
"I refer to the negotiations between Messrs. Bucknall Austin PLC and yourselves in respect of the above Development.
I am pleased to advise you that you are authorised to commence the main contract works on Monday 3rd April, 1989 generally in accordance with the tender documents already in your possession with a contract period of 46 weeks and in the budget contract sum of £8,320,000 (Eight million, three hundred and twenty thousand pounds).
You are aware that the above contract sum is yet to be subject to the reduction agreed between Mr. Bassil and Mr. Blackburn and, of course, is subject to the completion of the 2nd stage tender negotiations….
I look forward to a satisfactory outcome to this project and would be grateful for your acknowledgment [sic] of the contents of this letter."
"We acknowledge receipt of and thank you for your letter dated 23rd March 1989 giving us authority to commence the main contract works on the 3rd April 1989 generally in accordance with the tender documents, with a contract completion date of 19th February 1990.
We note the budget contract sum of £8,320,000 as stated in your letter which we understand is still subject to negotiation."
"Unfortunately now that the Main Contractor has been appointed for this Project, all Fee Accounts need to be passed through Messrs. Costain Construction.
Would you kindly re-submit this account in accordance with the Conditions in your Letter of Appointment, and you should note that your fees can now be based on the agreed Tender Figure from Messrs. Costain Construction.
I am returning herewith your letter and invoice dated 21st April, 1989."
In a letter to Costain dated 8 May 1989 Mr. Peter Lyons of PHJ wrote that:-
"On the direction of our client, I herewith enclose an interim fee account in respect of the above. I trust you will find this in order for payment, which I should appreciate receiving as soon as possible, since I was advised to re-direct this to yourselves following its earlier submission to Tesco Stores Limited."
"Following the inclusion of professional fees in the Quantity Surveyor's, Bucknall Austin's Certificate Valuation No. 3, we are pleased to advise that the sum of £98,000.00 (excluding VAT) was certified on your behalf.
We therefore confirm that you have received our cheque in the sum of £112700.00 being the summation of the above mentioned value of £98000.00 plus VAT of £14700.00. Your interim fee invoice No. 3036/89 dated 7th May 1989 refers.
In forwarding our cheque as outlined above, we confirm that we do so without prejudice to the outstanding matters concerning the Consultant Novation Agreement, drawn up in respect of a letter of appointment, relating the [sic] the provision of your services, which agreement is presently unresolved between us and not completed."
"We are writing to advise you that from the 12th May 1989, any variations to existing drawings, other than those specifically requested by an official Tesco instruction, must be issued to ourselves in preliminary form, for a cost analysis prior to issue as a construction detail.
The only exemption to this procedure would be expanded details of existing construction drawings."
"We have been advised by one of our subcontractors quoting for the coffee shop kitchen that in order for your layout to the coffee shop to comply with the latest design standard the wall should be altered as suggested on the attached sketch.
We are not sure whether these details are valid but trust you will check this out with Mr. K. Pleass, Tesco Stores Limited.
Whilst writing we would respectfully remind you that we are awaiting further details of the sample panels you require."
"for your immediate attention the Tesco's drawing detailing their present requirements for the Customer Catering Facility at the above contract."
"We enclose for your immediate attention the Tesco letter dated 19 May 1989 regarding the decision to proceed with the high mast lighting scheme to the above project.
Will you please ensure that your drawings reflect this decision. Should you have any queries relating to this do not hesitate to contact the writer."
"Further to our discussion on site and a subsequent telephone conversation, we are not satisfied with the amount of information given on your internal drainage drawings.
We have received complaints from our Subcontractor regarding this matter and it is at present preventing them from ordering the fittings and could delay the drain laying.
You are aware that we are using Supersleve clay ware drainage and require urgently from you the gully types and grating information.
The fact that your drawings refer to Tesco Design Standards is insufficient information and as stated previously we require you to produce drawings that are clear and can be issued to Subcontractors and which conform with Tesco Standards."
"We are concerned to note that certain detailed information is still not available which is currently frustrating the progress of the works. Whilst detailed sheets of information required are already in your possession the following requires your urgent attention:-
1. Details of Pyramid construction.
2. Details of elevations involving hung slates.
3. Confirmation of door laminate colours.
4. Details of junctions for soffit sheeting, discussed 25 July 1989.
5. Section through main entrance.
Your assurances to produce drawings and detailed information is generally not met and frequently lacks co-ordination with Tesco standard details.
Furthermore many and varied calls to you regarding car park levels and associated drainage has culminated in Costain developing a system which will operate effectively. This situation is totally unacceptable and we must insist that a greater effort is made by you in order to prevent contract delays.
In recognition of the above difficulties we confirm our request for you to attend a meeting on site on Friday 11 August 1989 at 2.30 pm where we trust items can be addressed prior to the main Tesco Meeting on 16 August 1989."
"We note that each of the documents has been signed by the Employer, but we feel that, inasmuch as in Clause 4 of the Agreement the Consultant acknowledges that to date he has received payment of the sum stated, it would be prudent for the Consultants to execute the documents before this Company is asked to sign them."
"The application for Building Regulation approval had been made in the name of the previous contractor. Peter Hing & Jones to discuss with Redditch [that is to say, the Council of the Borough of Redditch ("the Council")] and amend as necessary.
They were also to seek stage Building Regulations approval. Ernest Green & Partners were requested to assist and if possible enter into direct communication with the consultant engineers carrying out the checking on Redditch behalf (Keith Thomson & Partners, Redditch)."
"No action had taken place regarding the building regulation approval as discussed at the last meeting. Both Peter Hing & Jones and Ernest Green were instructed to take action as soon as possible in accordance with previous discussions."
"PH&J had received queries from Redditch Borough Council regarding fire protection. PH&J would respond by 14.4.89."
"3.0 Cavity Barriers
It is standard practice for Tesco Stores Limited to provide other fire protection facilities as an alternative to the provision of cavity barriers in the ceiling void over the sales area, and we now apply for a relaxation of the Building Regulation Requirement B3 (3) for the following reasons:
3.1 The building will be protected by automatic heat/smoke detection system throughout.
3.2 No combustible materials are to be installed within ceiling voids.
3.3 Duct probes will be installed within the extract ducting.
3.4 A fireman's control switch will be installed.
3.5 The automatic detection installations will be connected to the fire alarm installation, which on activation will automatically shut down the ventilation system and activate a separate smoke ventilation.
3.6 The ceiling is constructed of non-combustible material.
3.7 All electric cables are in metal conduit or trunking."
"Peter Hing & Jones had forwarded a copy of Redditch Building Control queries to CCL [that is, Costain] and had replied to all points also copying CCL. CCL suggested that Peter Hing & jones [sic] neet Building Control to clear any further problem."
Attempts to finalise contract documentation between Tesco and Costain
"As discussed between Mr. C. Matthews and the writer today we are pleased to enclose herewith our draft Contractor's Proposals for this project for your perusal. The basic format has been successfully used on other Tesco projects and we look forward to receiving your comments shortly, so that we may amend as necessary and provide you with two sets for incorporation into the Contract Documents.
Similarly we look forward to receiving your comments on the proposals discussed today between Mr. C. Matthews and the writer, regarding our proposed amendments to the revised Employer's Requirements document, which was received at Coventry on 29th June 1989, after acceptance of the second stage Contract Sum."
Although, as I have already indicated, the Issue 7 Main Contract contemplated that Contractor's Proposals would be incorporated in a contract in that form, it appears that it was only at this time that Costain got round to producing a draft of such. Obviously the matter of the revised Employer's Requirements had by this point been long outstanding.
"We acknowledge receipt of your letter dated 15th March 1990 and are pleased to confirm our agreement to your comments. Accordingly we enclose herewith two bound copies of the duly amended Contractor's Proposal [sic] for incorporation into the Contract Documents.
We note that the latter part of our letter dated 1st March 1990, concerning our proposed amendments to the revised Employer's Requirements, has not been covered in your letter of 15th March 1990 and we look forward to receiving your response.
With regard to the recent telephone request from Mr. Matthews we can advise you that we have now received from the Ernest Green Partnership Limited a letter dated 19th March 1990 enclosing in duplicate the Terms of Engagement and Conditions of Appointment and the Consultant Novation Agreement both duly executed by Ernest Green Partnership Limited.
We enclose herewith both copies of the Terms of Engagement and the Novation Agreement for incorporation into the Contract Documents. However, we note that most of the items referred to in our letter to you dated 22nd September 1989 have not been corrected….
We look forward to receiving the Contract Documents for execution by this Company at your earliest convenience."
"Further to your letter dated 26th March 1990 we would make the following comments:-
(1) We acknowledge receipt of the two correctly amended copies of the Contractor's Proposals.
(2) We confirm that the Employer's Requirements have been revised in accordance with your amendments.
(3) There will be two original copies of the Contract Documents, not three as requested by Costain Construction Limited. One will be the Contract set and one will be the "Certified Copy".
Furthermore we enclose both copies of the Terms of Engagement and the Novation Agreement for the Structural Engineer for your signature. Please could you sign these and return them to us at your earliest convenience."
"We acknowledge receipt of, and thank you for, your letter dated 3rd April 1990.
With regard to paragraph (3) thereof you are mistaken in thinking that we requested three sets of Contract Documents. Two, of course, is the norm and this is perfectly acceptable. We did, however, call for the Terms of Engagement and The [sic] Novation Agreement for each Consultant to be in triplicate. You will note from our letter dated 22nd September 1989 that they should be in triplicate, so that after execution each party can retain an original. However, if only two are available we shall retain one upon our execution of the Contract Documents and shall return the other one to you.
With regard to your final paragraph you only enclosed both sets of the Novation Agreement for the Structural Engineer. His Terms of Engagement were not attached thereto. Since we cannot check the Agreement against the wording contained in the Contract Documents until we receive them from you we suggest that we retain the two sets of the Structural Engineer's Novation Agreements pending our receipt from you of:
1. Two sets of Contract Documents
2. Two sets of the Terms of Engagement for the Structural Engineer.
3. Two sets of the Terms of Engagement and Novation Agreement for the Architect."
"Further to your letter dated 12th April 1990 we enclose a photocopy of the Terms of Engagement for the Structural Engineer, the original copies being retained at this office.
With regard to your request for the Architect's Terms of Engagement and Novation Agreement, we have yet to receive either the aforementioned from Peter Hing and Jones, once received they will be forwarded immediately.
The remainder of the contract documentation will be retained at our office pending the return of all outstanding items, when the Contract Documents will be assembled and despatched for signature.
Should you have any queries or require any further information, please do not hesitate to contact us."
"Your letter of 19th April 1990 advised us that you have not yet received the Terms of Engagement and Novation Agreement from Peter Hing and Jones, and that the Contract Documents would be assembled once all outstanding items are returned.
Can you please advise the writer whether you have now received the completed documents from the Architect and whether there are any other outstanding matters preventing your compilation of the Contract Documents?"
"We refer to our letter of 25th May 1990 and note that we do not appear to have received your reply.
You will recall that your letter of 19th April 1990 advised us that you had not received from the Architect the Novation Agreement and Terms of Engagement. Can you please advise the writer whether you have yet received the completed documents from the Architect?
If you have received the completed documents can you advise the writer if there are any other outstanding matters that are preventing your assembling the Contract Documents and submitting them to us for execution?
If you have not received the documents from the Architect can you please advise the writer what action you are taking to conclude the documentation for this contract?
We look forward to hearing from you shortly."
"Thank you for your letter of 7th August 1990 concerning contract documentation on the above project.
We have now received signed Novation agreements and commissioning letters from Peter Hing and Jones. We are however awaiting the formal agreement between Tesco and Ove Arup and Partners, who inform us today that they now have this document and will be forwarding it on to us.
Upon receipt of this agreement we will be happy to complete the documentation and forward it on to yourselves for signature."
"We refer to your letter of 29th August 1990, when you advised us that you were expecting to receive very shortly from Tesco the Novation Agreement for Ove Arup and Partners. As this would complete the documentation in your possession you were expecting to forward the Contract Documents and Novation Agreements to us in the near future.
As nearly two months have now elapsed we would appreciate an update on the situation."
"Thank you for your letter of the 24th October 1990 regarding the contract documentation on the above project.
On Wednesday 24th October we attended a meeting at Dairyglen House to discuss the final account, at which the novation agreement with Ove Arup was discussed.
As yet this agreement has not been finalised with Tesco and they have therefore suggested that we prepare our documentation without this.
This being the case we would ask you to confirm your agreement to this solution and in the meantime we shall prepare our documentation."
"Thank you for your letter dated 30th October 1990 advising us that the agreement between Tesco and Ove Arup and Partners has not yet been finalised.
Although we concur with your suggestion to prepare the Contract Documents excluding the agreement with Ove Arup at this stage, we do not agree that this is a "solution". Whilst we look forward to receiving the Contract Documents to enable our checking process to begin, we would also appreciate your advice as to the probability of receiving the letters of appointment and novation agreements duly executed by both Tesco and Ove Arup and, if relevant, the possible time scale involved."
"Thank you for your letter of 2nd November 1990 regarding Contract Documentation on the above project. We have again written to Ove Arup and Tesco regarding the signing of the agreements and are awaiting their reply.
In the meantime we are happy to pass on to you the signed Contract Documentation on the above project excluding Ove Arup's agreement. This information will be with you before the Christmas break.
Should you have any queries, please do not hesitate to contact us."
"Your letter of 11th December 1990 stated that you have written again to Ove Arup and Tesco regarding the Novation Agreement, and that we would receive the Contract Documents, excluding Ove Arup's Novation Agreement, before the Christmas break.
Unfortunately we have neither received the Contract Documents nor any advice concerning the progress (if any) of the outstanding Novation Agreement.
We would greatly appreciate receiving your advice in both these matters."
In the letter dated 16 August 1991 Mr. Paine wrote:-
"We are pleased to enclose herewith the two Novation Agreements for Ernest Green Partnership Limited duly signed by this Company, but left undated.
We confirm your advice that these will be incorporated into the Contract Documents, which will then be sent to us by return. When we execute the Contract Documents we shall insert the date on the above novation agreements and the other Consultants' novations."
Mr. Paine's 1992 letters were brief and rather despairing in tone. In that dated 6 January 1992 he said:-
"We refer to our letter dated 16th August 1991 which confirmed your advice that the Contract Documents would be sent to us "by return".
We note that we have not received them and trust that you will remedy this in the very near future."
In his final effort, the letter dated 24 June 1991, he wrote simply:-
"Further to our letter of 6th January 1992 requesting the Contract Documents, we are advised by our Coventry office that these are now available.
We would be obliged if you could send them to this office, marked for the attention of the writer."
The PHJ Agreement
"Further to my letter of 20 March 1989 I now enclose herewith the Terms of Engagement and Conditions of Appointment in respect of Redditch duly signed and completed.
We acknowledge the existence of the draft Novation Agreement which awaits signature and completion by Costains as contractor."
As I have already recorded, Costain never did execute an Issue 7 Novation Agreement in respect of the PHJ Agreement, and PHJ itself did not do so until May 1990.
The Maidstone fire and its aftermath
"You are required, as a matter of urgency, to carry out an inspection of all fire prevention works, such as vertical and horizontal fire barriers, fire stopping to party walls, fire break walls and any area where fire stopping has taken place within the structure. This includes checking that the fire stopping on walls goes right up to the underside of the roofing material, i.e. tiles or slates following their contours.
This work is required to be carried out and reported back without fail with [sic] the next four weeks, and your cooperation in achieving this is urgently required."
Letters in similar terms were written to Costain in relation to a number of supermarkets, such that it became apparent to Costain that it would receive letters in respect of all the supermarkets which it had constructed for Tesco over the relevant period.
"Further to our letter dated 31st August 1993, regarding Tesco New Oscott and in anticipation of Tesco's formal instruction, we confirm our verbal request to your Mr. Heckels for the supply of all drawings relevant to fire protection/prevention works at the Redditch store."
A PHJ "Received" stamp on the reverse of its copy of the letter indicated that the drawings requested were despatched to Costain on 12 October 1993, apparently by Mr.Tony O'Connor.
"TESCO – NEW OSCOTT
We enclose for your information and records correspondence received from Tesco dated 20th August 1993, regarding fire protection.
Please supply by return all relevant drawings indicating areas/details to be investigated."
On the reverse of the copy of that letter received by PHJ was a "Received" stamp beside which someone had written, "Is there a problem here from a design point of view". Mr. Heckels responded to the letter dated 31 August 1993 in a letter dated 7 September 1993 in which he said:-
"Further to your letter dated 31st August 1993 we would report as follows:-
- section 19 through office/retail junction,
- ground floor compartmentation plan,
- first floor compartmentation plan.
The drawings confirm that the only compartmentation required was between office/retail area. The design of the fire warning system meant that no compartmentation/cavity barriers were required in the shop floor area. Also, no boundary fire stopping was required because of the distance between the store and the surrounding structures.
You will note from the section that the construction details indicate masonry supported off the steelwork. Therefore to check the integrity of the protection to the supporting steelwork.
As discussed between your Mr. Burley and the writer, should you require a representative from ourselves to be present when any "opening up" occurs please ask."
It does not appear that there was any written request made by Costain to PHJ for a representative to accompany a representative or representatives of Costain on an inspection of the New Oscott Store following any opening-up.
"The thing is I have never done a fire inspection or done any inspections. The inspections that I did carry out for Costains – not looking for fire protection – I would usually mark-up the drawing recording the defect or whatever I was looking at."
I accept that evidence. I found Mr. Burley to be an impressive and careful witness.
"Although we did not receive a letter specific to this store, we have taken it upon ourselves to carry out a detailed inspection of fire barriers as per other stores constructed by our Company in the Midlands.
We are pleased to report that further to this inspection, we can confirm that fire stopping works comply with the requirements of the design and statutory regulations prevailing at the time of construction."
"17. I do not recall specific discussions at that time amongst the senior management team in the Birmingham office concerning any such request [for inspections to be made of Tesco supermarkets] from Costain's head office. We were not to receive any payment for these inspections; they were being done more as a good will gesture to maintain the relationship with a key client….
22. As contracts manager I would not have and did not carry out the inspection at Redditch even though I would have been qualified to do so. I don't recall which site manager and personnel were delegated to carry out the inspections. I have been supplied by the solicitors for Costain with the names of various personnel understood to have been employed at the Birmingham office during the relevant period and understand that they have undertaken comprehensive enquiries of a large number of ex-employees of Costain in an effort to ascertain who would have carried out the inspection for me. Unfortunately, those enquiries have not led to any person recollecting the inspections and the names have not prompted my recollection of the events.
23. I note from the letter dated 9 September 1993 from Matthew Burley that he appears at least to have commenced the process of the investigation at Redditch and that he was apparently involved in the inspection at New Oscott.
24. It would be consistent that he (or another manager with comparable qualifications and skills) would have managed the inspection process, directed the resources on site and then reported the result of such inspection to me…
27. My approach to the inspections, which I believe was consistent with the Costain approach generally, was to have the designs verified by the relevant designers of the stores and then to check with the joint attendance of the designers, without carrying out any intrusive works, those designs against the actual workmanship for any obvious errors.
28. I understood therefore that what was required was a detailed inspection of those areas of the store that could be inspected without disrupting the trading of the store. It is likely that we would have had to agree some form of method statement with Tesco and have reviewed health and safety considerations.
29. I would therefore have arranged for a detailed visual inspection to be carried out. Only if that inspection revealed any obvious problems would I have considered it necessary to recommend any further action….
31. I do recall visiting Redditch at some time during this period. It may have been to check on the inspection arrangements.
32. The inspection would have looked for conformity with the design information issued to us by the designers, and to check that the quality of workmanship was generally satisfactory.
33. The inspection would have been conducted by reference to drawings supplied by the architects…
34. I do not recall receiving the drawings (which would first have come to myself and Colin Ford in the usual course for distribution to the appropriate staff members). However, I would have received numerous drawings daily and these would not have stood out from the rest. I am sure I must have received the drawings or we would have continued to chase Peter Hing & Jones for them.
35. I can't now recall whether I met a representative from Peter Hing & Jones as part of the inspection arrangements, although I may well have done….
40. At the conclusion of the inspection it would have been normal practice for the site manager and architect to have reported back that the exercise had been satisfactorily completed, and such documentation confirming the same would have been placed on file.
41. I don't recall whether or not a formal detailed report document as such was prepared, but it would have been normal practice that some recognition would have been placed on file to conclude the process. That might have been in the form of notes taken by the site manager, perhaps on the copy drawings supplied confirming the areas where access had been gained and whether any defects were noted or in an internal file note or memorandum format.
42. I would not however have written the 19 October 1993 letter unless I was satisfied that the inspection had been carried out properly and that I was able to give the confirmations contained in that letter."
Mr. Gibson-Leitch also struck me as a cautious and careful man and an impressive witness.
"RE: INSPECTION OF FIRE STOPPING WORKS: REDDITCH
I understand that you were the appointed Architect for the above Development which has been carried out within the last 6 years.
Could you please arrange to have an inspection carried out by yourselves in conjunction with the main contractors in order to determine the condition of the fire stopping works and if necessary a report should be provided and returned to myself.
If the fire stopping works are satisfactory then could you please forward a letter informing us of same, or alternatively, providing a building regulation completion certificate as soon as possible.
Your early attention to the above would be appreciated but in any case should be returned to us no later than Monday, 23rd May, 1994.
Should you have any queries regarding the above, then please do not hesitate to contact me."
"… it is clear that at the time I wrote the letter, Tesco had both been told and had noted that the fire inhibition measures at Redditch were satisfactory. I therefore cannot now explain why I wrote the letter of 28.04.94. It was clearly unnecessary. It may have been that I did not have a copy of the 1993 letter from Costain on the file and temporarily thought that Redditch had been overlooked. I am also not sure why I addressed it to Peter Hing & Jones, rather than Costain given that it was our usual practice to write to the contractor. When writing it I obviously did not take into consideration the fact that Costain had already told Tesco that Redditch was satisfactory."
In his oral evidence Mr. Dainty suggested an alternative explanation for his writing the letter dated 28 April 1994, namely that in referring to his listings, which I have already mentioned, his eye slipped from one line to another, which related to a project in respect of which the contractor had gone into liquidation, and thus he thought that there was no contractor which could be asked to undertake an inspection. In such circumstances, he told me, it was his practice to request the architect for the project to undertake the requisite inspection, engaging a new contractor for any necessary opening up works. I reject that as the explanation simply because the letter dated 28 April 1994 in terms asked PHJ to undertake an inspection "in conjunction with the main contractors". In the context the reference can only have been to the main contractors which built the Store. In the result it is just a mystery why Mr. Dainty wrote the letter dated 28 April 1994.
"Rang Costains, spoke to Peter Gibson Leech [sic] who recognised letter we received from Tescos and remembered going through this exercise last year with Robert Heckles [sic] for New Oscott – he would research.
Peter G. L. rang back and reported that this exercise was as a result of a fire at Tescos (Kent area) where fire spread through unprotected cavities and destroyed the building. He recalled carrying out 4 surveys with architects at the 4 stores in the Midland Area including Redditch but had no record of passing report on Redditch to Tescos. He is surprised that Tescos wrote to us and not to them as they have details of their report to forward on Redditch.
17/5/94
Spoke to Bob Heckles (out yesterday). He recalls doing the survey for New Oscott – no problems but properly protected as agreed with L. A. fire officer. He thinks a similar exercise with Costains for Redditch – probably Charles Trueman.
He suggest [sic] we phone Tescos and put them in touch with Costains as they have a copy of the report for Redditch and are in any case responsible under D + B contract.
Tony O'C
P.S. Robert has checked his daybook – his survey was at end Sept. 93. "
"37. That attendance record is not however entirely accurate in so far as it refers to the inspections having been carried out by me on behalf of Costain. It is not correct to say that I recalled carrying out the four inspections. As said, in conjunction with my fellow contracts manager, and given the company wide profile of the affair, possibly also our area manager, I would have delegated this task. I recalled that four inspections had been carried out, not that I carried them out.
38. It would have been unusual for the architects not to be involved in such inspections. This approach was followed by Costain on all such similar requests received from clients."
"13. What I can say with complete confidence is that even if I did mention to Tony O'Connor, or anyone else, that PHJ had carried out some specific fire-stopping survey or inspection of a Tesco store in 1993/4, that would have been a reference to an inspection at the New Oscott site. So far as I can recall, I never went to the Redditch site at all; and apart from dealing with the telephone call from Costain referred to above [from Mr. Burley], I had no involvement at all in the Redditch project.
14. As mentioned above, I do not know if anyone from PHJ attended a re-inspection of the fire-stopping works at Redditch. I do not even know if one took place, although obviously Costain's letter of 19th October 1993 suggests that Costain did carry out such an inspection. I certainly do not recall suggesting that Charles Truman may have been involved in such an inspection, but if I did raise this suggestion, it must have been pure guesswork on my part, based on the assumption that if PHJ had been involved in any inspection, he may have been a likely individual to have been involved. I knew that Redditch was Graham Welch's project and that Charles Truman worked for Graham. Charles Truman was not an architect. He was employed as a "clerk of works" and was responsible for sorting out site problems. I believe he managed small projects on site and it may well have been his job to do routine inspections for Graham Welch. However, for large inspections, the contractors would, I think, normally wish to use the architect who designed the building. A fire-stopping inspection would be a big job with lots of opening up to do. It would probably take more than a day. I do not think it is the sort of job that I would ever have expected Charles Truman to carry out, and I have to say, therefore, that it seems to me now unlikely that I would ever have suggested to Mr. O'Connor that I thought Charles might have carried out such an inspection.
15. I am accordingly a little surprised at what was recorded by Mr. O'Connor in his note. I think it is at least possible that he may have recorded something that I suggested I thought might have happened as if I had confirmed that I thought that that is what definitely had occurred. If I did say what is recorded, it may perhaps have been that I assumed that Costain would have wanted someone from PHJ to go with them on such an inspection. My experience is that contractors can be reluctant to take on responsibilities relating directly or indirectly to design matters and this may perhaps be why I may have supposed at the time that PHJ may had [sic] accompanied Costain on any inspection. I should say, however, that I have no specific knowledge that Costain was the sort of contractor, which was reluctant to carry out inspections itself."
"We are pleased to report that further to a detailed inspection of the above store last Autumn, we can confirm that fire stopping works comply with the requirements of the design and statutory regulations prevailing at the time of construction."
"Thank you for your letter dated 28th April 1994. We were in fact approached by Costain Construction Limited last October in respect of this matter, and they have carried out the inspection to which you refer, as part of their review of all four Midlands Tesco projects with which they were involved.
From discussion with Costain, it appeared they may not have returned a report to you in respect of the Redditch project, but they confirmed to us that they would do so, and I see that they have now written.
We hope this is satisfactory and closes the matter."
"Tesco relied on Costain's written assurances (see their letters 19.10.93 and 27.05.94…) that they had carried out a detailed inspection of Tesco Redditch and that the store was built in accordance with the Building Regulations prevailing at the time of construction. As a result of receiving these assurances, Tesco believed that the fire inhibition measures at Redditch were satisfactory. I do not believe, given the very serious nature of Tesco's request initial request [sic], that Costain can have believed that Tesco would not rely on these assurances."
"I do not now specifically recall seeing either of these letters from Costain, but I was more involved with the stores where problems were reported and in respect of which I would have definitely received copies. Having seen the inspection Costain had carried out at Milton (see below) and their subsequent reports, I would have been satisfied that a "detailed" inspection would have identified at least all those defects identified at Milton. If Costain had said the building did not comply with the design or building regulations, Tesco would have required them to carry out any remedial works, just as we did at Milton…"
Mr. Laird's letter of 18 May 1994
"We have recently had reason to revisit a Tesco store where a triangular gable end at high level built in brick and blockwork cavity construction was sucked out by high winds. The reason for the failure being the construction was not tied back to the steelwork.
It therefore follows as you were the Architect novated to us for the Tesco store built at Redditch in 1989/90 that we require you to check your drawings and visit the site to remove any doubt that a similar incident could occur. It would also be worthwhile checking for any such other area of the design, such as pre-cast copings etc which may have a similar potential problem.
Would you please carry out your investigation within the next 2/3 weeks and write to us confirming there is no problem or advise by return of any potential area that would require further detailed investigation.
Please respond to Nick Laird at the above address."
The Costain Agreement dated 1 July 1999
"The Vendor [that is to say, Costain] has agreed to sell and the Purchaser [that is to say, the Other Costain Company] has agreed to purchase the Assets and the Businesss on the terms set out in this Agreement."
The expressions "the Assets" and "the Business" were respectively defined in clause 1 of the Costain Agreement as meaning:-
"the property and assets agreed to be sold and purchased under this Agreement;"
and
"the whole of the business carried on by the Vendor in the United Kingdom at the date of this Agreement;".
"2.1 Subject to the provisions of Clause 2.3 the Vendor shall sell and the Purchaser shall purchase as a going concern the Business and Assets and the Purchaser shall assume the Liabilities with effect from the date of this Agreement;
2.2 Subject to the provisions of Clauses 2.3 and 12 the Vendor will wholly discontinue carrying on the Business and the Purchaser shall be entitled to carry on and continue the same and to hold itself as doing so in succession to the Vendor in each case with effect from the date of the Agreement;
2.3 The provisions of Clause 2.1 and 2.2 shall be deemed to have had effect on the Transfer Date and the Parties shall procure that all necessary steps are taken by them to account for the transactions pursuant to this Agreement as if the Business and Assets had been sold and purchased on the Transfer Date and as if the Business had been conducted by the Purchaser and the Assets owned by the Purchaser since that date."
In clause 1 of the Costain Agreement the "Transfer Date" was identified as 1 January 1999 and the expression "the Liabilities" was defined as meaning:-
"all unsatisfied liabilities (whether actual or contingent) as at the date of this Agreement incurred by or on behalf of the Vendor in respect of the Business and/or the Assets."
"4.1 The Purchaser shall with effect from the date of this Agreement assume responsibility for the due and punctual payment, satisfaction and discharge of the Vendor's obligations under/or in respect of:
4.1.1 the Contracts;
4.1.2 the Liabilities; and
4.1.3 all other liabilities, obligations and provisions of whatever nature of the Vendor (including provisions for contingency) relating to the Business;
4.2 The Purchaser shall indemnify and keep indemnified the Vendor against all liabilities or obligations of the Vendor which are to be assumed by the Purchaser under the Provisions of this Clause."
The expression "the Contracts" was defined in clause 1 of the Costain Agreement as meaning:-
"all the contracts, arrangements and obligations of the Vendor which relate to the Business, including without limitation, all joint venture agreements between the Vendor and Third Parties;".
"(to the extent to which the Vendor is legally entitled to assign them) all of the Vendor's rights against third parties including (without limitation) rights under or in respect of warranties, representations, guarantees and indemnities and the benefit of any insurance or insurance claim attributable to any event occurring before the date of this Agreement which relates to the Assets or to the Liabilities assumed by the Purchaser under this Agreement in respect of the Business or any of the Assets;".
Clause 7 itself made this provision:-
"7.1 The Purchaser shall take over from the Vendor with effect from the date of this Agreement the benefit and burden of the Contracts and the Third Party Rights;
7.2 If the benefit and burden of any of the Contracts or Third Party Rights cannot be effectively assigned to the Purchaser except by an agreement of novation with, or consent to the assignment from, one or more third parties:-
7.2.1 this Agreement shall not constitute an assignment or attempted assignment of the Contract or Third Party Right in question;
7.2.2 the Parties shall seek to procure such novation or consent;
7.2.3 unless and until such Contract or the Third Party Right is novated or assigned:-
7.2.3.1 the Vendor will hold the benefit of the Contract or the Third Party Right in trust for the Purchaser absolutely and (so far as it lawfully may) give all reasonable assistance to the Purchaser to enable the Purchaser to enjoy the benefit of the Contract or the Third Party Right and to enforce its rights under it; and
7.2.3.2 the Purchaser shall (if such subcontracting is permissible and lawful under the contract or other document) as the Vendor's sub-contractor perform all obligations of the Vendor under it."
"The Purchaser shall pay, satisfy and discharge all the debts, liabilities and obligations relating to the Business and the Assets which have arisen since the Transfer Date (and which have yet to be paid, satisfied or discharged) and which subsequently arise following completion and shall indemnify the Vendor against all actions, proceedings, costs, damages, claims and demands in respect of them."
The preliminary issues - categorisation
(i) issues 1 to 6 inclusive ("the Costain Contract Issues"), each of which poses a question in relation to what the contractual position, if any, as between Costain and Tesco was concerning the original construction of the Store, or, if there was in fact no contract, whether Costain is estopped now from so asserting;
(ii) issues 7 and 8 ("the Costain 1989-1990 Tortious Duties Issues"), which relate to the alleged duties of Costain in tort owed to Tesco in respect of the original construction of the Store;
(iii) issues 9 and 10 ("the Costain 1993-1994 Tortious Duties Issues"), which concern the alleged duties of Costain in tort owed to Tesco in respect of the inspection of the Store in 1993 and the reports made thereafter;
(iv) issues 11 to 13 inclusive ("the Costain Accrual of Cause of Action Issues"), which focus on the question whether the date upon which a cause of action in respect of various alleged breaches of duties of care owed by Costain to Tesco accrued was 4 August 2001;
(v) issue 14 ("the Other Costain Company Issue"), which raised the matter of the liability of the Other Costain Company in respect of any defaults on the part of Costain in performing its obligations towards Tesco, but which no longer requires formal decision;
(vi) issues 15 to 18 inclusive ("the PHJ Contract Issues"), which relate to the contractual position as between PHJ and Tesco;
(vii) issues 19 and 20 ("the PHJ Accrual of Cause of Action Issues"), which concern the question of the date upon which a cause of action on the part of Tesco against PHJ accrued;
(viii) issue 21 ("the Inspection Issue"), which raises the question whether Costain or PHJ or neither inspected the Store in 1993;
(ix) issues 22 and 23 ("the PHJ 1993-1994 Tortious Duties Issues"), which are concerned with the question whether PHJ owed any duty of care to Tesco or Costain in relation to the inspection of the Store in 1993.
The Costain Contract Issues
"The answer is "yes". The nature of Costain's case as to the formation of a contract is far from clear. It is not entirely apparent whether Costain denies the existence of any contract at all (which would be very surprising) or merely that it was not concluded on Tesco's standard terms. In support of its contention that a contract (and a contract on its standard terms) was concluded between the parties Tesco relies on the following:
a. Costain in fact designed and constructed the store. It would be a nonsense to suggest that no contract at all was concluded between the parties;
b. The relevant letter of intent of 20th March 1989 … was itself, a contractual document and was signed and acknowledged by Costain's Managing Director Mr. W. Sperry and returned by Costain's Senior Quantity Surveyor Mr. McNally… In particular it
(i) Referred to the Tesco standard documentation for use with Design and Build contracts issue 7 and the first stage tender documentation;
(ii) Used contractual language ("In consideration of the issuance of this letter") which required Costain to be part of the design team and to "put in hand all works in accordance with the instructions of the Employers Representative";
(iii) Contemplated only three circumstances as breaking the relationship between the parties (repudiation of the terms of the letter by Tesco, non-agreement on price or withdrawal by Costain) – none of which occurred;
c. The parties clearly agreed to contract on Tesco's standard terms in respect of the design and construction of the store. The fact that Costain consistently pressed Tesco to execute the contract documents supports rather than undermines this argument. Not only did Costain accept the standard terms without demur, Costain was keen to execute the formal contract documents recording them.
d. All material matters and terms of the contract were agreed by the parties. There is no evidence whatever of there being any terms in dispute or remaining to be agreed.
e. This is not a case where the parties did not intend to be contractually bound until the formal contract documents had been executed. On authority, the court should be slow to draw such a conclusion and should not do so in the absence of clear evidence to support it. This is not the case here. At no stage did Costain ever state to Tesco that they were not acting as a design and build contractor or reserve their position in any way as against Tesco. "
"1.2.4 In the present case, Costain's case as to the existence of a Contract between themselves and Tesco is not wholly clear. The Amended Defence … denies the existence of the contract alleged by Tesco, but does not state whether Costain deny the existence of any contract at all. In its response to Request 4 of Tesco's Part 18 Request dated 21.2.03, Costain deny that "any contract" was concluded between Tesco and Costain "as regards the design and construction" of the Redditch store. On the other hand, the response to Request 6 merely states that "it is not accepted" that there was "some form of contract" concluded between the parties which seems to suggest something less than a denial of this contention. For Costain to contend that it had no contractual relationship at all with Tesco (notwithstanding the work done for, and the payments made by, Tesco) would, it is submitted, be remarkable; and PHJ believe that the real issue here is the terms of such a Contract and in particular:
(a) Whether it should be treated as being under seal;
(b) Whether it included any design obligations/responsibility.
1.2.5 In any event, and whatever Costain's stance on these matters, it is clear from the documents identified below that Tesco and Costain had in fact agreed on all relevant matters and that a Design and Build Contract did in fact come into existence between the parties."
"As to the law, the principles to be derived from the authorities, some of which I have already mentioned, can be summarised as follows:
(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole (see Hussey v. Horne-Payne).
(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary "subject to contract" case.
(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed; see Love and Stewart v. Instone, where the parties failed to agree the intended strike clause, and Hussey v. Horne-Payne, where Lord Selborne said at p.323:
"…The observation has often been made, that a contract established by letters may sometimes bind parties who, when they wrote those letters, did not imagine that they were finally settling terms of the agreement by which they were to be bound; and it appears to me that no such contract ought to be held established, even by letters which would otherwise be sufficient for the purpose, if it is clear, upon the facts, that there were other conditions of the intended contract, beyond and besides those expressed in the letters, which were still in a state of negotiation only, and without the settlement of which the parties had no idea of concluding any agreement [ My [Lloyd LJ's] emphasis]
(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled (see Love and Stewart v. Instone per Lord Loreburn at p. 476).
(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.
(6) It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word "essential" in that context is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by "essential" one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by an "essential" one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge "the masters of their contractual fate". Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens everyday when parties enter into so-called "heads of agreement"."
"Before I turn to the facts it is important to consider briefly the approach to be adopted to the issue of contract formation in this case. It seems to me that four matters are of importance. The first is the fact that English law generally adopts an objective theory of contract formation. That means that in practice our law generally ignores the subjective expectations and the unexpressed reservations of the parties. Instead the governing criterion is the reasonable expectations of honest men. And in the present case that means that the yardstick is the reasonable expectations of sensible businessmen. Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v. Metropolitan Railway (1877) 2 AC 666; New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1974] 1 Lloyd's Rep 534 at p.539 col.1 [1975] AC 154 at p. 167 D-E; Gibson v. Manchester City Council [1979] 1 WLR 294. The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd. v. Novinex [1949] 1 KB 628 at p. 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 WLR 333. "
"It is trite law that the critical question in each case is did the parties intend to conclude a legally binding agreement. Intention (although itself necessarily subjective) is judged objectively – i.e. by the words and conduct of the party concerned. The usual method of testing such an intention is to identify a clear offer by one party which has been unequivocally accepted by the other. However, the courts have recognised that in a commercial/construction context it will sometimes (and perhaps often) be difficult to identify with any precision a single offer to which a single acceptance is given in the course of complex and prolonged negotiations between the parties. What is important and determinative is whether from an objective point of view the parties can be said to have agreed on all essential matters and intend themselves to be legally bound by such agreement."
"More recent cases in which this approach was adopted are Mitsui Babcock Energy v. John Brown Engineering (1996) CILL 1189; (1996) 51 Con LR 129 and the Court of Appeal decision in Stent Foundations v. Carillion Construction (2001) 78 Con LR 188. In the latter case, the Appellant accepted that there was agreement on all essential terms but endeavoured to argue that the agreement was, in effect, "Subject to Contract" and that formality was a condition precedent to any binding contract between the parties. The Court of Appeal rejected that argument and upheld the decision of Dyson J. to the effect that there was a binding contract. The conduct of the parties was an important element of the judgment of Lady Justice Hale. She said at paragraph 44:
"It also seems to me clear that everyone behaved as if the Works Contract was in place. Payment was made under that Contract. The developing dispute about the ground conditions was being handled by WCM as if it was under that Contract."
And at paragraph 46 of her Judgment, she said:
"Everything else that happened after then was in accordance with the Contract between WCM and Stent. This includes the procurement for WCM for Wiggins of the Bond and Warranty, which would not have been necessary, or at least as necessary if, as Mr. Steynor contends, the Letter of Intent had been a Contract between Wiggins and Stent which was still in existence.""
"After the 19th July 1989, the contract proceeded in every respect as if all contract documents had been fully signed and sealed. Moreover at no time did Costain seek to suggest that they were not contractually bound or that they did not take responsibility for the design. Certificates, payments, meetings, instructions, defects periods and final accounts all proceeded precisely in accordance with the terms of Tesco's standard form."
The suggestion that, as it were, it is for a party to an alleged contract who contends that no contract has been concluded to make that plain otherwise he will be taken to be bound does seem to be approaching the issue from an unusual direction.
"Faced with the conflict of judicial opinion in this case, I prefer the views of Donaldson J and Cairns LJ as being more orthodox and in conformity with the basic principle that the court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court's function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings; the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract; if is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them; it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, formed part of the contract which the parties made for themselves."
"My Lords, there may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance; but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another is not one of these."
"The modern commercial practice of making quotations and placing orders with conditions attached, usually in small print, is indeed likely, as in this case, to produce a battle of forms. The problem is how should that battle be conducted? The view taken by the judge was that the battle should extend over a wide area and the court should do its best to look into the minds of the parties and make certain assumptions. In my judgment, the battle has to be conducted in accordance with set rules. It is a battle more on classical 18th century lines when convention decided who had the right to open fire first rather than in accordance with the modern concept of attrition.
The rules relating to a battle of this kind have been known for the past 130-odd years. They were set out by the then Master of the Rolls, Lord Langdale, in Hyde v. Wrench, and Lord Denning MR has already referred to them; and, if anyone should have thought they were obsolescent, Megaw J in Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. called attention to the facts that those rules are still in force. "
"Now the question whether in a case such as the present any contract has come into existence must depend upon the true construction of the relevant communications which have passed between the parties and the effect (if any) of their actions pursuant to those communications. There can be no hard and fast answer to the question whether a letter of intent will give rise to a binding agreement: everything must depend on the circumstances of the particular case. In most cases, where work is done pursuant to a request contained in a letter of intent, it will not matter whether a contract did or did not come into existence, because, if the party who has acted on the request is simply claiming payment, his claim will usually be based on a quantum meruit, and it will make no difference whether that claim is contractual or quasi-contractual. Of course, a quantum meruit claim (like the old actions for money had and received and for money paid) straddles the boundaries of what we now call contract and restitution, so the mere framing of a claim as a quantum meruit, or a claim for a reasonable sum, does not assist in classifying the claim as contractual or quasi contractual. But where, as here, one party is seeking to claim damages for breach of contract, the question whether any contract came into existence is of crucial importance.
As a matter of analysis the contract (if any) which may come into existence following a letter of intent may take one of two forms: either there may be an ordinary executory contract, under which each party assumes reciprocal obligations to the other; or there may be what is sometimes called an "if" contract, i.e. a contract under which A requests B to carry out a certain performance and promises B that, if he does so, he will receive a certain performance in return, usually remuneration for his performance. The latter transaction is really no more than a standing offer which, if acted on before it lapses or is lawfully withdrawn, will result in a binding contract."
"The principles may be summarised as follows.
(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars: the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] AC 749.
(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v. Salen Rederierna AB [1985] AC 191,201:
"if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."
"There is a blurred borderline between architectural design and the construction details needed to put it into effect. Borderlines of responsibility cannot be defined in the abstract. A carpenter's choice of a particular nail or screw is in a sense a design choice, yet very often the choice is left to the carpenter and the responsibility for making it merges with the carpenter's workmanship obligations. In many circumstance[s], the scope of an architect's responsibility extends to providing drawings or specifications which give full construction details. But responsibility for some such details may rest with other consultants, e.g. structural engineers, or with specialist contractors or subcontractors, depending on the terms of their respective contracts and their interrelationship. As with the carpenter choosing an appropriate nail, specialist details may be left to specialist subcontractors who sometimes make detailed "design" decisions without expecting or needing drawings or specifications telling them what to do. In appropriate circumstances, this would not amount to delegation by the architect of part of his own responsibility. Rather that element of composite design responsibility did not rest with him in the first place."
In the result it seems to me that it would be appropriate to imply into the contract which I have found a term that, insofar as any design decision was made by Costain, the element designed would be reasonably fit for its intended purpose. By "element designed" I mean that item to which the design decision immediately related, so that, following the example of the carpenter and his choice of nail taken by May LJ, the nail would be reasonably fit for the purpose for which it had been selected to use it, rather than the woodwork into which the nail was inserted would be reasonably fit for whatever was its intended purpose.
"It has been suggested that where work commences without a formal contract and is allowed to continue by the owner/employer when all material terms have been agreed by the parties, then almost always the principles of waiver and estoppel are brought into play so as to prevent a subsequent denial by the owner that a contract was concluded. These principles should apply equally in the other direction where, in similar circumstances, the contractor subsequently denies that a contract was concluded: Mitsui Babcock Energy Ltd. v. John Brown Engineering Ltd. (above)."
"This form of estoppel is founded, not on a representation of fact made by a representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed."
Lord Denning MR at pages 121 and 122 of the report expressed his conclusions in two slightly different formulations:-
"So I come to this conclusion: When the parties to a contract are both under a common mistake as to the meaning or effect of it – and thereafter embark on a course of dealing on the footing of that mistake – thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. The parties are bound by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them."
and
"When the parties to a transaction proceed on the basis of an underlying assumption – either of fact or of law – whether due to misrepresentation or mistake makes no difference – on which they have conducted the dealings between them – neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so."
"Estoppel by convention is not dependent on a contract, but on a common assumption."
and, second, a summary at page 352 that estoppel by convention applies:-
"where (1) the parties have established by their construction of their agreement or their apprehension of its legal effect a conventional basis, (2) on that basis they have regulated their subsequent dealings, to which I would add (3) it would be unjust or unconscionable if one of the parties resiled from that convention."
However, a little later on page 352 Bingham LJ called attention to the observation of Purchas LJ in Troop v. Gibson (1986) 277 Estates Gazette 1134 at page 1144 that:-
"The crucial requirement for convention estoppel is that at the material time both parties should be of a like mind."
"Estoppel by convention [was] relied upon to establish particular contractual terms, thereby giving rise to a contractual cause of action which would not otherwise exist."
However, the only case to which they drew my attention in which it had been suggested that estoppel by convention could be relied upon in effect to bring into existence a contract which otherwise had not been made was Mitsui Babcock Energy Ltd. v. John Brown Engineering Ltd.
"Just as the representation which supports an estoppel in pais must be a representation of fact, the assumed state of affairs which is the necessary foundation of an estoppel by convention must be an assumed state of facts presently in existence … No case has gone so far as to support an estoppel by convention precluding a party from resiling from a promise or assurance, not effective as a matter of contract, as to future conduct or as to a state of affairs not yet in existence. And there is no reason to suppose that the doctrine will ever develop so far. To allow such an estoppel would amount to the abandonment of the doctrine of consideration, and to accord contractual effect to assurances as to the future for which no consideration has been given."
Lord Goff's comment upon that passage, at page 40, was:-
"I myself suspect that this statement may be too categorical; but we cannot ignore the fact that it embodies a fundamental principle of our law of contract. The doctrine of consideration may not be very popular nowadays; but although its progeny, the doctrine of privity, has recently been abolished by statute, the doctrine of consideration still exists as part of our law."
Although not bearing directly upon the point which I made in the preceding paragraph, it does seem to me that in the passage just quoted Lord Goff was at least counselling caution before contemplating the possibility that an estoppel by convention could be a substitute for a contract.
"He contends, amongst many and varied arguments, that a conclusion to that effect does not involve the reconciliation of numerous cases but the recognition that this court is, as the judge was, bound by three decisions of the Court of Appeal to conclude that the estoppel claim has no real prospect of success either. The three decisions and the propositions they respectively established are (1) a common law or promissory estoppel cannot create a cause of action, Combe v. Combe [1951] 2 KB 215; (2) an estoppel by convention cannot create a cause of action either, Amalgamated Investment & Property Co. Ltd. v. Tezas Commerce International Bank Ltd. [1982] QB 84 and (3) accepting that a proprietary or equitable estoppel may create a cause of action it is limited to cases involving property rights, whether or not confined to land, Western Fish Products Ltd. v. Penwith District Council [1981] 2 AER 204, 217."
The Vice-Chancellor indicated his conclusions in paragraph 38:-
"In my view English law, as presently understood, does not enable the creation or recognition by estoppel of an enforceable right of the type and in the circumstances relied on in this case. First it would be necessary for such an obligation to be sufficiently certain to enable the court to give effect to it. That such certainty is required in the field of estoppels such as is claimed in this case as well as in contract was indicated by the House of Lords in Woodhouse AC Israel Cocoa Ltd. v. Nigeria Produce Marketing Co. Ltd. [1972] AC 741 and by Ralph Gibson LJ in Troop v. Gibson [1986] 1 EGLR 1, 6. For the reasons I have already given I do not think that the alleged obligation is sufficiently certain. Second, in my view, the decisions in the three Court of Appeal decisions on which M&S rely do establish that such an enforceable obligation cannot be established by estoppel in the circumstances relied on in this case. This conclusion does not involve the categorisation of estoppels but is a simple application of the principles established by those cases to the obligation relied on in this. I do not consider that any of the dicta in the line of cases relied on by Baird could entitle this court to decline to apply those principles."
"92. It is also, on authority, an established feature of both promissory and conventional estoppel that the parties should have had the objective intention to make, affect or confirm a legal relationship. In Combe v. Combe, all three judges, echoing what Denning J had said in High Trees, referred to the need for a promise or assurance "intended to affect the legal relations between them" or "intended to be binding" (per Denning LJ at p.220, Birkett LJ at p.224 and Asquith LJ at p.225.); see also per Oliver LJ in Spence v. Shell UK Ltd. [1980] 2 EGLR 68, 73E. In Amalgamated Investment at p.107B, Robert Goff J touched on the same point, when distinguishing cases where parties had represented a transaction to have an effect it does not have (e.g. De Tchihatchef) as follows:
"Such cases are very different from, for example, a mere promise by a party to make a gift or to increase his obligations under an existing contract; such promise will not generally give rise to an estoppel, even if acted on by the promisee, for the promisee may reasonably be expected to appreciate that, to render it binding, it must be incorporated in a binding contract or contractual variation, and that he cannot therefore safely rely upon it as a legally binding promise without first taking the necessary contractual steps."
93. A similar theme is involved in the distinction touched on by Robert Walker LJ in Gillett v. Holt at p.831G between "a mere statement of present (revocable) intention, and …. a promise."
94. As I have already said, the fact that there was never any agreement to reach or even to set out the essential principles which might govern any legally binding long-term relationship indicates that neither party can here objectively be taken to have intended to make any legally binding commitment of a long-term nature, and the law should not be ready to seek to fetter business relationships with its own view of what might represent appropriate business conduct, when parties have not chosen, or have not been willing or able, to do so in any identifiable legal terms themselves. These considerations, in my judgment, also make it wrong to afford relief based on estoppel, including relief limited to reliance loss, in the present context."
"57. [The answer to the issue is] Yes. Costain demonstrated that it was prepared to execute the contract documents under seal and the parties at all times conducted themselves on the basis that a contract had been concluded on Tesco's standard terms, that the contract would be executed under seal and that, accordingly, the applicable limitation period would be 12 years."
With the greatest respect to Mr. Stewart and Mr. Chapman, that has the look of a formulation which appears calculated to mask the manifest absurdities to which Issue 5 gives rise. The notion underlying Issue 5 has to be that a party should be taken to have performed a formal act, sealing a document, which it has not actually performed and was under no obligation to perform, simply because, had appropriate terms of a contract been agreed and the necessary prerequisites to the concluding of a contract been met, the probability is that it would have executed the contract under seal. The argument seems to me to be quite hopeless. The answer to Issue 5 is negative.
The Costain 1989-1990 Tortious Duties Issues
"37. In considering the existence and scope of the duties in tort that may be owed, it may be relevant to distinguish between a duty of care limited to physical damage to property other than to the store itself ("the Donoghue v. Stevenson duty") and a duty of care founded on an assumption of responsibility which allows the recovery of "pure" economic loss including damage to "the thing itself" ("the Henderson duty").
38. The following ought not to be controversial:
a. Save for a dispute as to the extent of their design responsibilities, PHJ owed Tesco a Henderson duty concurrent with and arising from the architect's appointment.
b. Save for a dispute as to the scope of its inspection duties, Costain owed Tesco a Henderson duty arising out of the 1993/4 inspections.
c. Save for a dispute as to the scope of its design duties, Costain owed Tesco (at the very least) a Donoghue v. Stevenson duty arising out of its (design and) construction of the store.
39. What is more controversial, and perhaps at the heart of the present dispute, are the following issues:
a. Whether Costain owed Tesco a Henderson duty in respect of the (design and) construction of the store; and
b. Whether PHJ, if they are to be treated as being novated to Costain, owed Tesco any duty of care at all in respect of design and/or inspection services provided pursuant to the novation (though this does not fall to be determined now).
(2) The Henderson duty
40. The following principles arise from the authorities:
a. Where an employer contracts with a designer for the design of a building, the designer will owe to the employer a duty of care in tort to exercise reasonable skill and care in and about the design.
b. The duty of care will be concurrent with the designer's contractual duties.
c. The duty of care will usually extend to holding the employer harmless against economic as well as physical loss and damage, particularly when the designer is under a contractual duty (whether express or implied) to exercise reasonable skill and care in and about the design.
d. The duty of care in these circumstances stems from the proximity between the parties and the assumption of responsibility on the part of the designer for the design. It is based squarely on the line of authorities from Hedley Byrne v. Heller & Partners [1964] AC 465 through Henderson v. Merrett [1995] 2 AC 145.
41. Whether the designer is an architect or a design and build contractor ought not, as a matter of principle, to make any difference: Bellefield Computer Services Ltd. v. E. Turner & Sons Ltd. [2000] BLR 97 at 102 per Schiemann LJ; Storey v. Charles Church Developments Ltd. (1996) 12 Const LJ 206; Keating on Building Contracts 7th Ed. at paras. 7-01 and 7-31B and Hudson's Building and Engineering Contracts 11th Ed. at para. 1.278. What is determinative is whether or not the designer can be said to have assumed responsibility toward the employer for the design in such a way that the scope of the duty owed encompasses economic loss. This will be relatively easy to establish where:
a. A contract also exists between employer and designer; and
b. That contract imposes a similar, contractual duty to exercise reasonable skill and care in relation to the design.
42. In the present case, if the Court were to find that there was no contract because of some failure to document the agreement between the parties, there would be no reason for the law not to impose a duty of care which, viewed objectively, Costain must have assumed. It is right to acknowledge, however, that the contractual position as between the parties may also negative the imposition of a duty of care in tort. Thus, where there is a chain of contracts between employer, contractor and sub-contractor, a court may well be unlikely to find a duty of care in tort – or at least one extending to economic loss – owed by sub-contractor to employer directly.
(2) [sic] A Donoghue v. Stevenson duty of care
43. On any view, Costain owed Tesco a Donoghue v. Stevenson duty of care in constructing the store. This will enable Tesco to recover damages in respect of loss to property other than the store itself and thus the following heads of loss:
a. Stock
b. Plant & Machinery
c. The 1997 bulk store extension
d. Loss of profits consequent on a. and b. and c. above.
(3) Scope of obligations
44. Whilst it is conceptually possible for the content and scope of the obligations owed by a party in tort to be more or less extensive than those owed by it concurrently pursuant to a contract, often the duties will not just be concurrent but also co-extensive. As appears below, Tesco contends that this is the position as regards both Costain and PHJ in this case. The particular consequence for Costain in this case is that it owed to Tesco a duty to take reasonable care so as to ensure that the design and construction of the store was [sic] reasonably fit for its intended purpose."
For reasons which I shall explain, it seems to me that that exposition of the law of negligence as said to be relevant to the preliminary issues which I have to decide is superficial and skates over a number of difficult and important points of principle.
"60. It appears that, even on its own case, Costain accepts that it took responsibility for the construction of the store (although it may be that Costain seeks to assert that it had no contractual responsibility for the same). Tesco's case is, as set out above, that Costain took responsibility for both the design and the construction of the store. Whether or not the Court were to find that a contract was concluded, Tesco submits that Costain must have owed it a Henderson duty of care in respect of the construction of the store on the basis of the authorities set out in paragraphs 40 to 42 above. Tesco also submits that such a duty (even if a contract were not to be found) extended to design. Costain assumed responsibility for the design of the store: see, for example, the points made on the New Oscott-type gable inspection and the requirement that all contact between sub-contractors and consultants was directed through Costain.
61. Even were the Court to find that there was no Henderson duty, Costain nevertheless owed a Donoghue v. Stevenson duty (as explained in paragraph 43 above)."
"1.(1) The Contractor shall execute and complete the Works, so far as it is legally and physically possible to do so, in a good and workmanlike manner and using materials of good quality so far as they may be reasonably procurable.
(2) The Contractor undertakes that the Work will be designed or have been designed with such reasonable professional skill and care and judgment as an architect or consulting engineer (experienced in civil structural mechanical electrical heating or ventilating work as the case may be) would have exercised had [he] or they been appointed by the Employer to perform those services so that they will be suitable for those purposes of the Employer which have been expressly made known to the Contractor in writing before the date of this Contract…"
but did not itself undertake any work of construction or design, owed a duty of care in tort to the customer in respect of the work of construction and design carried out by others. Judge Stabb considered the issue at pages 521G-523D of the report. I need not, I think, set out the extensive citations from the judgment of Megaw LJ in Batty v. Metropolitan Property Realisations Ltd. [1978] QB 554 and from the speech of Lord Wilberforce in Anns v. Merton London Borough [1978] AC 728 which Judge Stabb set out in the passage to which I have referred. Omitting those citations what he said was:-
"So far as the first defendants, Landbuild [the building contractor], are concerned, no one doubts that they are in breach of their contractual obligation to execute and complete the works in a good and workmanlike manner and to see that the building was designed with reasonable professional skill and care. But it was contended by counsel for Cornhill [insurers of Landbuild, which did not itself take part in the trial] that it could not be said that they were also in breach of duty, because to equate breach of duty with breach of contract, where the contract has in practice as here been performed by an independent contractor, would result, in effect, in making Landbuild liable for the tortious acts of an independent contractor. I am not prepared to accede to his submission that to show breach of duty it is necessary to look for and find facts which give rise to a breach of duty which are facts other than those which give rise to the breach of contract. He cited Esso Petroleum Co. Ltd. v. Mardon …[1976] QB 801 and Batty v. Metropolitan Property Realisations Ltd. …[1978] QB 554 in support of that contention. In the former case, a servant of the plaintiff company had negligently misrepresented the potential throughput and such representation was also held to constitute a contractual warranty, and, in the latter, the developers were held to be in breach of a contractual warranty to provide a house fit for habitation and in breach of duty for failure to inspect the land properly, so as to observe that any house built thereon would not be fit for human habitation. In the course of his judgment in Batty's case ….Megaw LJ said…..
It will be observed that Megaw LJ stated that the plaintiffs were entitled to judgment on the basis of tortious liability as well as on the basis of breach of contract, assuming that the plaintiffs had established a breach by the defendants of a common law duty of care. I am not concerned with the relationship between Landbuild and Kirton [a subsidiary of Landbuild which had actually erected the building]. It may well be, and for this purpose I accept, that Kirton were independent contractors so far as the work was concerned. Here Landbuild, the main contractors, did absolutely nothing, except to hand over the work to Kirton to be done by them. The question therefore is whether or not they owed to Cynat a primary duty of care which they could not delegate to anyone else. The modern view is to be found in the passage of the speech of Lord Wilberforce in Anns v. Merton London Borough …[1978] AC 728 at 751 where he said…
It seems to me that in entering into that contract in those terms with Cynat, Landbuild could properly be said to have established a sufficient relationship of proximity with Cynat such that, in the reasonable contemplation of Landbuild, carelessness or neglect on their part might be likely to cause damage to Cynat. Nor do I consider that there is any reason to take employer and contractor out of the class in which that duty of care can be said to arise. I take the view that Landbuild, in entering into this contract to erect a factory which was to be properly designed and built, were under a common law duty of care to take reasonable steps to see that this result was achieved. They took no such steps and, in the result, Cynat suffered damage in consequence of the collapse of the roof. The duty of Landbuild, as I have said, was a primary duty which they could not delegate to Kirton or anyone else. Accordingly, in my view, Cynat are entitled to judgment against Landbuild and Render [the designer of the building] on the basis of breach of contract and tortious liability."
"In Cynat Products Ltd. v. Landbuild (Investment and Property) Ltd. [1984] 3 All ER 513, the defendants contracted with the plaintiffs as main contractors to erect a building in respect of which they subcontracted both the work of construction and of design and supervision. After completion, because of a design fault in the roof, it fell in, and two walls collapsed in a gale. The plaintiffs sued for the cost of the physical damage and for economic loss stemming from the disruption of their business. In the course of the trial the question arose whether the first defendants could be liable in common law negligence as well as for breach of contract when the contract had in fact been performed by independent contractors.
Judge Sir William Stabb Q.C. found the defendants liable on the basis that they had breached their contractual obligations to the plaintiffs to execute and complete the work in a good and workmanlike manner and to supply a building designed with reasonable professional skill and care. He also found the defendants to be in breach of their common law duty, which he held was a primary duty which could not be delegated to an independent contractor. At the material part of his judgment he stated, at p.522:
"It may well be, and for this purpose I accept, that Kirton were independent contractors so far as the work was concerned. Here Landbuild [the defendants], the main contractors, did absolutely nothing, except to hand over the work to Kirton to be done by them. The question therefore is whether or not they owed to Cynat a primary duty of care which they could not delegate to anyone else."
He then quoted from the well-known passage of the speech of Lord Wilberforce in Anns v. Merton London Borough Council [1978] AC 728, 751, and continued [1984] 3 All ER 513, 523:
"It seems to me that in entering into that contract in those terms with Cynat, Landbuild could properly be said to have established a sufficient relationship of proximity with Cynat such that, in the reasonable contemplation of Landbuild, carelessness or neglect on their part might be likely to cause damage to Cynat. Nor do I consider that there is any reason to take employer and contractor out of the class in which that duty of care can be said to arise. I take the view that Landbuild, in entering into this contract to erect a factory which was properly designed and built, were under a common law duty of care to take reasonable steps to see that this result was achieved. They took no such steps and, in the result, Cynat suffered damage in consequence of the collapse of the roof. The duty of Landbuild, as I have said, was a primary duty which they could not delegate to Kirton or anyone else. Accordingly, in my view, Cynat are entitled to judgment against Landbuild …. on the basis of breach of contract and tortious liability."
It does not seem to me that there is anything in that authority to lead me to a conclusion in this case contrary to that which I have already stated. The decision is not cited, or considered, in Keating on Building Contracts, 5th ed. (1991), p.161, nor in Hudson's Building and Engineering Contracts, 11th ed. (1995), vol. 1, p.184, para. 1.310, where each of those works refers to the position that a builder will not normally be liable in negligence to the employer or to a third party with whom he did not contract in respect of damage caused by the negligence of an independent contractor. Further, it does not appear to have been regarded as a significant exception to what Lord Bridge of Harwich described in D & F Estates Ltd. v. Church Commissioners for England [1989] AC 177, 208 as:
"trite law that the employer of an independent contractor is, in general, not liable for the negligence or other torts committed by the contractor in the course of the execution of the work."
While Lord Bridge distinguished the case on the grounds that it was (like Batty v. Metropolitan Property Realisations Ltd. [1978] QB 554) concerned with the issue whether the defendant's admitted contractual liability to the plaintiff was matched by a parallel liability in tort (whereas the plaintiff in the D & F Estates case was a third party), he also observed [1989] AC 177, 209 that:
"the issue was of importance only as bearing upon the liability of insurers to indemnify defendants", and he appears to have treated it with reservation also for that reason.
In Clerk & Lindsell on Torts, pp.229-230, para 3-37, the Cynat Products case [1984] 3 All ER 513 is referred to in a footnote to the consideration of Rogers v. Night Riders [1983] RTR 324, as constituting an illustration that the well-known categories of non-delegable duty may not necessarily be exhaustive and that it may, in the particular circumstances of any case, be arguable that a defendant has accepted a duty of care that is non-delegable. Finally, the decision is plainly regarded as an unusual one in Salmond & Heuston on the Law of Torts, 20th ed. (1992), p.477, where it is suggested that it is important as a matter of policy not to put a premium on the ignorant employer who confides all his affairs to independent contractors (cf. Sumner v. William Henderson & Sons Ltd.[1964] 1 QB 450, 471).
It is apparent from the report of Cynat Products Ltd. v. Landbuild (Investment and Property) Ltd. [1984] 3 All ER 513 that Landbuild were not represented at the trial, although by fourth party proceedings they were claiming an indemnity against Cornhill Insurance Co., which mounted arguments on their behalf. It is also plain that it was a case where Landbuild had given an express undertaking that work would be designed with such reasonable professional skill, care and judgment as an architect or consulting engineer would have exercised had he been appointed by the employee to perform the services.
It seems to me that all those matters make the Cynat Products case distinguishable from this case, in which I do not consider that similar policy provisions dictate any finding of non-delegable duty for the purpose of the law of tort."
"265. Whether Costain's building work was carried out under a contract to building [sic] work or not, it is acknowledged that it owed a duty of care to Tesco in respect of the building work completed.
266. In broad terms, duties owed by those who carry out building works, and whose works, it is said, have caused physical damage, are examined by reference to Donoghue v. Stevenson [1932] AC 562 [HL] and Murphy v. Brentwood [1991] 1 AC 398 [HL], the former providing the genesis of the duty and the latter providing limitations of the duty. See also Bellefield Computer Services Limited v. E. Turner & Sons Limited [2000] BLR 97 [CA] (Bellefield No. 1).
267. If there was a contractual duty to build, the duty of care is defined in Donoghue v. Stevenson terms. See in this respect, the comments of I. N. Duncan Walllace 116 LQR 530, October 2000, where, having applauded Schiemann LJ's judgment in Bellefield No. 1 and the ratio, he queries Schiemann LJ's dicta to the effect that there would have been a concurrent duty owed by the builder in tort to that in contract and which would have extended to damage to the building itself. Duncan Wallace says at p. 532:-
"The denial of a concurrent liability in tort which exceeds the liability in contract, rightly established by the cases on this subject, does not, it is submitted, logically have the effect of elevating a lesser liability in tort up to a level of a higher contractual entitlement."
268. The reasoning of HHJ Humphrey Lloyd QC in Samuel Payne v. John Setchell Limited [2002] BLR 489 supports the view that a builder does not owe a duty of care in respect of the building itself, whether in contract with the Claimant or not.
269. By contrast, duties owed by those who carry out professional, or quasi-professional services, and whose services, it is said, have caused economic damage, are examined by reference to Henderson v. Merrett Syndicates Limited [1995] 2 AC 145 [HL].
270. This dichotomy of approach results in a professional providing services in respect of a building (as opposed to a builder or manufacturer) being liable for economic loss in respect of the building in respect of which he has provided services."
"At present I content myself with pointing out that in English law there must be, and is, some general conception of relations giving rise to a duty of care, of which the particular cases found in the books are but instances. The liability for negligence, whether you style it such or treat it as in other systems as a species of "culpa," is no doubt based upon a general public sentiment of moral wrongdoing for which the offender must pay. But acts or omissions which any moral code would censure cannot in a practical world be treated so as to give a right to every person injured by them to demand relief. In this way rules of law arise which limit the range of complainants and the extent of their remedy. The rule that you are to love your neighbour becomes in law, you must not injure your neighbour; and the lawyer's question, Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be – persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question."
The great contribution of Lord Atkin to the development of the law of negligence was to identify and to formulate that underlying principle. By so doing he set the scene for the substantial further development of the law which has followed and is continuing. His comment that, "acts and omissions which any moral code would censure cannot in a practical world be treated so as to give a right to every person injured by them to demand relief", is not much regarded these days.
"In Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 AC 1 it was held that the cause of action in tort against consulting engineers who had negligently approved a defective design for a chimney arose when damage to the chimney caused by the defective design first occurred, not when the damage was discovered or with reasonable diligence might have been discovered. The defendants there had in relation to the design been in contractual relations with the plaintiffs, but it was common ground that a claim in contract was time-barred. If the plaintiffs had happened to discover the defect before any damage had occurred there would seem to be no good reason for holding that they would not have had a cause of action in tort at that stage, without having to wait until some damage had occurred. They would have suffered economic loss through having a defective chimney upon which they required to spend money for the purpose of removing the defect. It would seem that in a case such as Pirelli, where the tortious liability arose out of a contractual relationship with professional people, the duty extended to take reasonable care not to cause economic loss to the client by the advice given. The plaintiffs built the chimney as they did in reliance on that advice. The case would accordingly fall within the principle of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465."
I shall have to return to the decision in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners and to the comments of Lord Keith in the passage just quoted in the context of issues concerning accrual of causes of action. However, my attention was drawn to it by Mr. Stewart in the present context in support of a submission that, contrary to what was contended on behalf of Costain, the House of Lords did not decide in Murphy v. Brentwood District Council that a builder owed no duty of care to a building owner not to cause him economic loss by providing him with a building which was defective. Rather, submitted Mr. Stewart, what the House of Lords decided was that the builder owed no such duty in the absence of a special relationship between the builder and the building owner. Such a special relationship, Mr. Stewart contended, existed between the builder and the customer for whom the builder constructed the building by virtue of the contract between them.
"If a manufacturer negligently puts into circulation a chattel containing a latent defect which renders it dangerous to persons or property, the manufacturer, on the well known principles established by Donoghue v. Stevenson [1932] AC 562, will be liable in tort for injury to persons or damage to property which the chattel causes. But if a manufacturer produces and sells a chattel which is merely defective in quality, even to the extent that it is valueless for the purpose for which it is intended, the manufacturer's liability at common law arises only under and by reference to the terms of any contract to which he is a party in relation to the chattel; the common law does not impose on him any liability in tort to persons to whom he owes no duty in contract but who, having acquired the chattel, suffer economic loss because the chattel is defective in quality. If a dangerous defect in a chattel is discovered before it causes any personal injury or damage to property, because the danger is now known and the chattel cannot safely be used unless the defect is repaired, the defect becomes merely a defect in quality. The chattel is either capable of repair at economic cost or it is worthless and must be scrapped. In either case the loss sustained by the owner or hirer of the chattel is purely economic. It is recoverable against any party who owes the loser a relevant contractual duty. But it is not recoverable in tort in the absence of a special relationship of proximity imposing on the tortfeasor a duty of care to safeguard the plaintiff from economic loss. There is no special relationship between the manufacturer of a chattel and a remote owner or hirer.
I believe that these principles are equally applicable to buildings. If a builder erects a structure containing a latent defect which renders it dangerous to persons or property, he will be liable in tort for injury to persons or property resulting from that dangerous defect. But if the defect becomes apparent before any injury or damage has been caused, the loss sustained by the building owner is purely economic. If the defect can be repaired at economic cost, that is the measure of the loss. If the building cannot be repaired, it may have to be abandoned as unfit for occupation and therefore valueless. These economic losses are recoverable if they flow from breach of a relevant contractual duty, but, here again, in the absence of a special relationship of proximity they are not recoverable in tort. The only qualification I would make to this is that, if a building stands so close to the boundary of the building owner's land that after discovery of the dangerous defect it remains a potential source of injury to persons or property on neighbouring land or on the highway, the building owner ought, in principle, to be entitled to recover in tort from the negligent builder the cost of obviating the danger, whether by repair or by demolition, so far as that cost is necessarily incurred in order to protect himself from potential liability to third parties."
Mr. Stewart contended that that passage also was consistent with the principle which in his submission was to be extracted from the decision.
"Their Lordships do not believe that there is anything to the advantage of the law's development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship. Though it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships including that of banker and customer either as a matter of contract law when the question will be what, if any, terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties, their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analysis: on principle because it is a relationship in which the parties have, subject to a few exceptions, the right to determine their obligations to each other, and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, e.g. in the limitation of action."
"From these statements, and from their application in Hedley Byrne, we can derive some understanding of the breadth of the principle underlying the case. We can see that it rests upon a relationship between the parties, which may be general or specific to the particular transaction, and which may or may not be contractual in nature. All of their Lordships spoke in terms of one party having assumed or undertaken a responsibility towards the other. On this point, Lord Devlin spoke in particularly clear terms in both passages from his speech which I have quoted above. Further, Lord Morris also spoke of that party being possessed of a "special skill" which he undertakes to "apply for the assistance of another who relies upon such skill". But the facts of Hedley Byrne itself, which was concerned with the liability of a banker to the recipient for negligence in the provision of a reference gratuitously supplied, show that the concept of a "special skill" must be understood broadly, certainly broadly enough to include special knowledge. Again, though Hedley Byrne was concerned with the provision of information and advice, the example given by Lord Devlin of the relationship between solicitor and client, and his and Lord Morris's statements of principle, show that the principle extends beyond the provision of information and advice to include the performance of other services. It follows, of course, that although, in the case of the provision of information and advice, reliance upon it by the other party will be necessary to establish a cause of action (because otherwise the negligence will have no causative effect), nevertheless there may be other circumstances in which there will be the necessary reliance to give rise to the application of the principle. In particular, as cases concerned with solicitor and client demonstrate, where the plaintiff entrusts the defendant with the conduct of his affairs, in general or in particular, he may be held to have relied on the defendant to exercise due skill and care in such conduct.
In subsequent cases concerned with liability under the Hedley Byrne principle in respect of negligent misstatements, the question has frequently arisen whether the plaintiff falls within the category of persons to whom the maker of the statement owes a duty of care. In seeking to contain that category of persons within reasonable bounds, there has been some tendency on the part of the courts to criticise the concept of "assumption of responsibility" as being "unlikely to be a helpful or realistic test in most cases" (see Smith v. Eric S. Bush [1990] 1 AC 831, 864-865, per Lord Griffiths; and see also Caparo Industries Plc v. Dickman [1990] 2 AC 605, 628, per Lord Roskill). However, at least in cases such as the present, in which the same problem does not arise, there seems to be no reason why recourse should not be had to the concept, which appears after all to have been adopted, in one form or another, by all of their Lordships in Hedley Byrne [1964] AC 465 (see, e.g., Lord Reid, at pp. 483, 486 and 487; Lord Morris (with whom Lord Hodson agreed), at p. 494; Lord Devlin, at pp. 529 and 531; and Lord Pearce at p.538). Furthermore, especially in a context concerned with a liability which may arise under a contract or in a situation "equivalent to contract", it must be expected that an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff: see Caparo Industries Plc v. Dickman [1990] 2 AC 605, 637, per Lord Oliver of Aylmerton. In addition, the concept provides its own explanation why there is no problem in cases of this kind about liability for pure economic loss; for if a person assumes responsibility to another in respect of certain services, there is no reason why he should not be liable in damages for [sic] that other in respect of economic loss which flows from the negligent performance of those services. It follows that, once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further enquiry whether it is "fair, just and reasonable" to impose liability for economic loss – a point which is, I consider, of some importance in the present case. The concept indicates too that in some circumstances, for example where the undertaking to furnish the relevant service is given on an informal occasion, there may be no assumption of responsibility; and likewise that an assumption of responsibility may be negatived by an appropriate disclaimer. I wish to add in parenthesis that, as Oliver J. recognised in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch 384, 416F-G (a case concerned with concurrent liability of solicitors in tort and contract, to which I will have to refer in a moment), an assumption of responsibility by, for example, a professional man may give rise to liability in respect of negligent omissions as much as negligent acts of commission, as for example when a solicitor assumes responsibility for business on behalf of his client and omits to take a certain step, such as the service of a document, which falls within the responsibility so assumed by him."
"But, for present purposes more important, in the instant case liability can, and in my opinion should, be founded squarely on the principle established in Hedley Byrne itself, from which it follows that an assumption of responsibility coupled with the concomitant reliance may give rise to a tortious duty of care irrespective of whether there is a contractual relationship between the parties, and in consequence, unless his contract precludes him from doing so, the plaintiff, who has available to him concurrent remedies in contract and tort, may choose that remedy which appears to him to be the most advantageous."
"It is however my understanding that by the law in this country contracts for services do contain an implied promise to exercise reasonable care (and skill) in the performance of the relevant services; indeed, as Mr. Tony Weir has pointed out (XI Int. Encycl. Comp. L., ch. 12, para 67), in the 19th century the field of concurrent liabilities was expanded "since it was impossible for the judges to deny that contracts contained an implied promise to take reasonable care, at the least, not to injure the other party". My own belief is that, in the present context, the common law is not antipathetic to concurrent liability, and that there is no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy. The result may be untidy; but, given that the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties, I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him, subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that, in accordance with ordinary principle, the parties must be taken to have agreed that the tortious remedy is to be limited or excluded."
"It is however right to stress, as did Sir Thomas Bingham MR in the present case, that the issue in the Tai Hing case was whether a tortious duty of care could be established which was more extensive than that which was provided for under the relevant contract."
"I wish however to add that I strongly suspect that the situation which arises in the present case is most unusual; and that in many cases in which a contractual chain comparable to that in the present case is constructed it may well prove to be inconsistent with an assumption of responsibility which has the effect of, so to speak, short circuiting the contractual structure so put in place by the parties. It cannot therefore be inferred from the present case that other sub-agents will be held directly liable to the agent's principal in tort. Let me take the analogy of the common case of an ordinary building contract, under which main contractors contract with the building owner for the construction of the relevant building, and the main contractor sub-contracts with sub-contractors or suppliers (often nominated by the building owner) for the performance of work or the supply of materials in accordance with standards and subject to terms established in the sub-contract. I put on one side cases in which the sub-contractor causes physical damage to property of the building owner, where the claim does not depend on an assumption of responsibility by the sub-contractor to the building owner; though the sub-contractor may be protected from liability by a contractual exemption clause authorised by the building owner. But if the sub-contracted work or materials do not in the result conform to the required standard, it will not ordinarily be open to the building owner to sue the sub-contractor or supplier direct under the Hedley Byrne principle, claiming damages from him on the basis that he has been negligent in relation to the performance of his functions. For there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility."
"Because the valuer will appreciate that his valuation, though not the only consideration which would influence the lender, is likely to be a very important one, the law implies into the contract a term that the valuer will exercise reasonable care and skill. The relationship between the parties also give rise to a concurrent duty in tort: see Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145. But the scope of the duty in tort is the same as in contract.
A duty of care such as the valuer owes does not however exist in the abstract. A plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply. He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered. Both of these requirements are illustrated by Caparo Industries Plc v. Dickman [1990] 2 AC 605. The auditors' failure to use reasonable care in auditing the company's statutory accounts was a breach of their duty of care. But they were not liable to an outside take-over bidder because the duty was not owed to him. Nor were they liable to shareholders who had bought more shares in reliance on the accounts because, although they were owed a duty of care, it was in their capacity as members of the company and not in the capacity (which they shared with everyone else) of potential buyers of its shares. Accordingly, the duty which they were owed was not in respect of loss which they might suffer by buying its shares. As Lord Bridge of Harwich said, at p. 627:
"It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless."
In the present case, there is no dispute that the duty was owed to the lenders. The real question in this case is the kind of loss in respect of which the duty was owed.
How is the scope of the duty determined? In the case of a statutory duty, the question is answered by deducing the purpose of the duty from the language and context of the statute: Gorris v. Scott (1874) LR 9 Ex 125. In the case of tort, it will similarly depend upon the purpose of the rule imposing the duty. Most of the judgments in the Caparo case are occupied in examining the Companies Act 1985 to ascertain the purpose of the auditor's duty to take care that the statutory accounts comply with the Act. In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking.
What therefore should be the extent of the valuer's liability? The Court of Appeal said that he should be liable for the loss which would not have occurred if he had given the correct advice. The lender having, in reliance on the valuation, embarked upon a transaction which he would not otherwise have undertaken, the valuer should bear all the risks of that transaction, subject only to the limitation that the damage should have been within the reasonable contemplation of the parties.
There is no reason in principle why the law should not penalise wrongful conduct by shifting on to the wrongdoer the whole risk of consequences which would not have happened but for the wrongful act. Hart and Honore, in Causation in the Law, 2nd ed. (1985), p.120, say that it would, for example, be perfectly intelligible to have a rule by which an unlicensed driver was responsible for all the consequences of his having driven, even if they were unconnected with his not having a licence. One might adopt such a rule in the interests of deterring unlicensed driving.
But that is not the normal rule. One may compare, for example, The Empire Jamaica [1955] P 259, in which a collision was caused by a "blunder in seamanship of … a somewhat serious and startling character" (Sir Raymond Evershed MR, at p.264) by an uncertificated second mate. Although the owners knew that the mate was not certificated and it was certainly the case that the collision would not have happened if he had not been employed, it was held in limitation proceedings that the damage took place without the employers' "actual fault or privity" (section 503 of the Merchant Shipping Act 1894) because the mate was in fact experienced and (subject to this one aberration) competent. The collision was not therefore attributable to his not having a certificate. The owners were not treated as responsible for all the consequences of his having been uncertificated.
Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences which are attributable to that which made the act wrongful. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate.
I can illustrate the difference between the ordinary principle and that adopted by the Court of Appeal by an example. A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee.
On the Court of Appeal's principle, the doctor is responsible for the injury suffered by the mountaineer because it is damage which would not have occurred if he had been given correct information about his knee. He would not have gone on the expedition and would have suffered no injury. On what I have suggested is the more usual principle, the doctor is not liable. The injury has not been caused by the doctor's bad advice because it would have occurred even if the advice had been correct.
The Court of Appeal [1995] QB 375 summarily rejected the application of the latter principle to the present case, saying, at p.404:
"The complaint made and upheld against the valuers in these cases is … not that they were wrong. A professional opinion may be wrong without being negligent. The complaint in each case is that the valuer expressed an opinion that the land was worth more than any careful and competent valuer would have advised."
I find this reasoning unsatisfactory. It seems to be saying that the valuer's liability should be restricted to the consequences of the valuation being wrong if he had warranted that it was correct but not if he had only promised to use reasonable care to see that it was correct. There are of course differences between the measure of damages for breach of warranty and for injury caused by negligence, to which I shall return. In the case of liability for providing inaccurate information, however, it would seem paradoxical that the liability of a person who warranted the accuracy of information should be less than that of a person who gave no such warranty but failed to take reasonable care.
Your Lordships might, I would suggest, think that there was something wrong with a principle which, in the example which I have given, produced the result that the doctor was liable. What is the reason for this feeling? I think that the Court of Appeal's principle offends common sense because it makes the doctor responsible for consequences which, though in general terms foreseeable, do not appear to have a sufficient causal connection with the subject matter of the duty. The doctor was asked for information on only one of the considerations which might affect the safety of the mountaineer on the expedition. There seems no reason of policy which requires that the negligence of the doctor should require the transfer to him of all the foreseeable risks of the expedition.
I think that one can to some extent generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them.
The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong."
"Omissions, like economic loss, are notoriously a category of conduct in which Lord Atkin's generalisation in Donoghue v. Stevenson [1932] AC 562 offers limited help … There are sound reasons why omissions require different treatment from positive conduct. It is one thing for the law to say that a person who undertakes some activity shall take reasonable care not to cause damage to others, it is another thing for the law to require that a person who is doing nothing in particular shall take steps to prevent another from suffering harm from the acts of third parties (like Mrs. Wise) or natural causes. One can put the matter in political moral or economic terms. In political terms it is less of an invasion of an individual's freedom for the law to require him to consider the safety of others in his actions than to impose upon him a duty to rescue or protect. A moral version of this point may be called the "why pick on me?" argument. A duty to prevent harm to others or to render assistance to a person in danger or distress may apply to a large and indeterminate class of people who happen to be able to do something. Why should one be held liable rather than another? In economic terms, the efficient allocation of resources usually requires an activity should bear its own costs. If it benefits from being able to impose some of its costs on other people (what economists call "externalities"), the market is distorted because the activity appears cheaper than it really is. So liability to pay compensation for loss caused by negligent conduct acts as a deterrent against increasing the cost of the activity to the community and reduces externalities. But there is no similar justification for requiring a person who is not doing anything to spend money on behalf of someone else … Of course it is true that the conditions necessary to bring about an event always consists of a combination of acts and omissions. Mr. Stovin's accident was caused by the fact that Mrs. Wise drove out into Station Road and omitted to keep a proper look out. But this does not mean that the distinction between acts and omissions is meaningless or illogical. One must have regard to the purpose of the distinction as it is used in the law of negligence, which is to distinguish between regulating the way in which an activity may be conducted and imposing a duty to act upon a person who is not carrying on any relevant activity. To hold the defendant liable for an act, rather than an omission, it is therefore necessary to be able to say, according to common sense principles of causation, that the damage was caused by something which the defendant did … Mr. Stovin's injuries were not caused by negotiations between the Council and British Rail or anything else which the Council did. So far as the Council was held responsible, it was because it had done nothing to improve the visibility at the junction."
"There are arguments against imposing liability on reluctant rescuers. There are arguments against holding public authorities liable for not doing something which they are under no statutory duty to do. But in the present case, absent any possible exclusion clause in the liability of the builders to their contractual partners, the imposition of liability on the builders to subsequent owners only has the effect of substituting a different beneficiary for the original beneficiary of the builders' potential liability. In those circumstances, to hold that, although they would have been liable if the wall had been built of combustible materials, they are not liable because the wall was not built high enough, would have been quite unjustifiable on any policy ground and the judge was right not to do so. I would dismiss the Builders' appeal."
In dismissing the purchasers' appeal, Schiemann LJ indicated that he considered that the conclusion which Bell J had reached had been arrived at following the guidance of the House of Lords in Murphy v. Brentwood District Council. At page 102 of the report Schiemann LJ made an observation upon which Mr. Stewart placed considerable reliance in support of his submission as to the correct understanding of the decision in Murphy v. Brentwood District Council:-
"In substance the judge applied a control device so as to achieve the result that the builders were not liable to subsequent owners for damage to the building itself. There being no evidence of any contractual exclusion clause which sought to exclude liability in tort, the case has proceeded on the basis that, had there been no change in ownership, the builders would have been liable to the original owners both in contract and in tort. Contract is irrelevant for present purposes but it is significant that the builders are assumed liable to the original owners in tort for damage to the building. ... As I have already indicated, had there been no change of ownership the builders would have been liable in tort for the damage to the building. "
Of the suggestion that different parts of the building should be treated differently for the purposes of deciding whether the damage to them was recoverable as damages for breach of the duty of care which was held to have existed, Schiemann LJ said at page 105 of the report:-
"However, in the present case the whole of the dairy was built at the same time by the builders, marketed as a unit, bought as a unit to be used as a unit and was used as a unit. I have no doubt that any holding either that (1) the rooms on one side of the wall should be treated for present purposes as constituting a different building from the rooms on the other side of the wall, or that (2) the wall should be treated as constituting a different building from the rooms on one side of it, would be a thoroughly undesirable approach to the issues before us."
"The principal routes by which Mr. Stow QC sought to escape a Donoghue v. Stevenson liability deriving from the speeches in Murphy v. Brentwood District Council were (a) that liability under Donoghue v. Stevenson was limited to personal injuries and consequential loss arising therefrom; and (b) that the case against the Defendant involved pure omissions; it did not involve omissions during the course of positive acts which, together, gave rise to physical damage. Reliance was placed in this context on the speech of Lord Hoffman in Stovin v. Wise, Norfolk County Council (Third Party) [1996] AC 923.
I was impressed with neither argument. Dealing with the second argument first, I do not think that Stovin v. Wise assists Mr. Stow on the facts of this case. The Defendant was under a duty to build the wall in question in accordance with the plans. It failed to do so. Like the judge, I find no intellectual or legal difficulty in taking the view that the Defendant's failure, like much tortious conduct, consisted of both positive acts and omissions.
Once the existence of a Donoghue v. Stevenson type duty is acknowledged, it seems to me that it must apply both to personal injury and to damage to property, together with losses consequent upon either…"
"that, as a matter of policy, although a builder must be taken to have foreseen the possibility of loss or damage arising from inherently defective work for which it was responsible, it did not owe a duty of care to anybody (including the person who engaged the builder) to avoid causing such loss or damage unless it was physical injury to persons or damage to property other than the building itself."
"First, the skills of a designer and a builder create a product: the designer produces drawings, specifications etc; the builder produces the works, either in following through and completing the design of others for whom it is not responsible or in devising a design and completing it (as has always happened in very many cases – especially in those sectors where the Employer looks to the contractor for such a complete service – and as continues to be so today, since the trend towards design and build which began many years ago shows no signs of slackening.) Although a designer may decide what is to be done and, sometimes, how it is to be done, a builder has also to take decisions where the contract or the designer has left them to him. Matters of detailing and fixing call for the exercise of proper care and skill which must be provided to the standard expected of a builder holding himself out as competent to build the structure or work in question, which in the majority of cases will be no less than professional standards, and may indeed be higher where the work is specialised. Since many contractors have always been responsible for design as well as construction, there is in law an implied warranty of suitability for purpose (ie the core of every design obligation) as well of quality unless displaced by the terms of circumstances of the contract: Young & Marten v. McManus Childs [1969] 1 AC 454. For the purposes of liability in negligence in particular the relevant question is not who should be responsible but, rather, who took the relevant decision and thus failed to exercise the requisite care? Whoever took the decision is in law likely to owe some duty of care to avoid causing loss. In my judgment Murphy and DOE v. Bates establish that, as a matter of policy, any person undertaking work or services in the course of a construction process is ordinarily liable only for physical injury or for property damage other than to the building itself but is not liable for other losses – ie economic loss. If any liability for such economic loss is to arise it must be for other reasons, eg as a result of advice or statements made upon which reliance is placed in circumstances which create a relationship where there is in law to be an assumption of the responsibility for loss – ie within the principle of Hedley Byrne v. Heller (see Lord Keith's speech in Murphy which I have quoted above). In my judgment a designer is not liable in negligence to the client or to a subsequent purchaser for the cost of putting right a flaw in a design that the designer has produced that has not caused physical injury or damage, just as a contractor is not liable. Each is in the eyes of the law "a builder" as each is responsible for part of the process that leads to completion of a building or other works. Plainly the liability of such a builder in negligence cannot extend to becoming the equivalent of contractual liability for this would be the beginning of the "transmissible warranty" (see Lord Bridge's speech) and would run counter to the policy that there is no liability in negligence for defects in the product, be it a building or a chattel. Because concurrent liability in tort cannot exceed the liability in contract it does not follow that in some way that concurrent liability must be elevated to the level of the contractual liability."
The Costain 1993-1994 Tortious Duties Issues
"It being accepted by Costain that in undertaking the inspection and in making the statements in the letters dated 19 October 1993 and 27 May 1994, Costain undertook to Tesco a common law duty of care to undertake a detailed inspection of fire barriers with reasonable skill and care, and to exercise reasonable skill so as to ensure that the statements made in the letters (of 19 October 1993 and 27 May 1994) were accurate, the questions of the nature and scope of that duty of care, including the meanings of "a detailed inspection" and "fire barriers" be left over to the trial in October."
The Costain Accrual of Cause of Action Issues
"67. Whether the duty of care owed is a Henderson duty or a Donoghue v. Stevenson duty, it is clear that for the purposes of the accrual of the cause of action in tort, damage will not be suffered until damage to property occurs. The position as regards the Donoghue v. Stevenson duty is straight-forward: the cause of action did not accrue until property other than the store itself was damaged. Such damage did not occur until the fire.
67. As regards the Henderson duty, the relevant damage remains physical damage to property but here the property is the store itself rather than other property. The cause of action does not accrue (even if that cause of action is in respect of a duty of care that encompasses economic loss) until such time as physical damage to the property itself occurs: see London Congregational Union Inc. v. Harriss & Harriss (a firm) [1988] 1 All ER 15 at 25a-d per Ralph Gibson LJ. In this regard a distinction must be made between a defect and damage to the property. A defect may exist in the property without causing damage to it for the purposes of setting time running; see Pirelli General Cable Works Ltd. v. Oscar Faber & Partners (a firm) [1983] 2 AC 1 at 16 per Lord Fraser. Thus in Pirelli itself, while the chimney was clearly defective as from the date it was constructed in 1969, time did not begin to run until damage was suffered in 1970 when the chimney cracked. Similarly in London Congregational Union Inc. v. Harriss & Harriss (a firm) the drains were clearly defective from the moment that they were constructed in accordance with the architect's negligent design, but damage was not suffered until flooding occurred as a result of that defect. This position is indistinguishable from the present case. Here the design and construction of the store was defective in that the fire inhibition measures were either absent, defective or inadequate. Nevertheless, damage was not suffered until those defects manifested themselves in damage to the property as at the date of the fire.
68. Yes. See Issue 11 above. While the duty of care owed by Costain in relation to the 1993/4 inspection and reports is modelled on more classical Hedley Byrne lines, the position on accrual remains the same as for the duty owed when designing and constructing the store. The question of when the cause of action accrues is a question of fact in each case. The normal position in a classic Hedley Byrne case is that the cause of action will accrue when the negligent statement/advice is relied on. But this is not invariably the position. Thus, a mortgage lender who relies on a negligent survey report does not suffer damage (and hence its cause of action does not accrue) when it makes the advance in reliance on the negligent survey, but only when the value of the security and the borrower's covenant taken together falls below that owed by the borrower: Nykredit Mortgage Bank plc v. Edward Erdman Group Ltd. [1997] 1 WLR 1627. If the borrower continues to pay then the lender does not suffer a loss, even though, arguably, it suffers a contingent loss as soon as it makes the advance because it acquires less security that [sic] it thought it was [sic]. If there was never a default on the part of the borrower, then the lender would never suffer damage. Similarly, in this case it would be strange if Tesco's cause of action accrued when it relied on Costain's reports. At that stage Tesco was no worse off than prior to the inspection and reports: it had a defective store that would suffer damage if (but only if) a fire began. If there was never a fire, then Tesco would not suffer damage for the purposes of setting time running. "
"The inquiry which we have to undertake therefore is one which asks when the second defendant's negligence first became actionable. It was at that moment that the cause of action accrued. It is immaterial that at some later time the damage suffered by the plaintiffs became more serious or was capable of more precise quantification. Provided that some damage has been suffered by the plaintiffs as a result of the second defendant's negligence which was "real damage" (as distinct from purely minimal damage) or damage "beyond what can be regarded as negligible" that suffices for the accrual of the cause of action."
"277. There are two parts to this issue:
(a) Which of the losses pleaded at paragraph 65 of the Re-Amended Particulars of Claim in Action No. HT-02-07 are encompassed by the duty owed by Costain to Tesco?
(b) Did Tesco's cause of action in respect of those heads of losses accrue as at the date of the fire, 4 August 2001?
278. Since Costain was the builder and not the designer: (i) the losses at sub-paragraphs 65b. and 65c. (plant and machinery and stock) are encompassed by the duty of care; (ii) the losses at sub-paragraph 65a/ (building works) are not encompassed by the duty of care and (iii) that the losses at sub-paragraph 65d. (loss of profit) may or may not be encompassed depending upon the precise reason why a loss of profit occurred.
279. The cause of action in respect of those heads of damage encompassed by the duty of care accrued at the date of the fire."
Although in that passage Mr. Taverner and Mr. Hargreaves seem to have been treating the losses claimed by Tesco as consequent upon physical damage, as I have already indicated in my consideration of the Costain 1993-1994 Tortious Duties Issues, in my judgment all of the elements of loss claimed are properly to be characterised as economic losses so far as Costain was concerned because none of them was caused in any way by any default on the part of Costain, which did not cause the fire.
"I think, with all respect to Geoffrey Lane LJ, that there is an element of confusion between damage to the plaintiff's body and latent defect in the foundations of a building. Unless the defect is very gross, it may never lead to any damage at all to the building. It would be analogous to a predisposition or natural weakness in the human body which may never develop into disease or injury. The plaintiff's cause of action will not accrue until damage occurs, which will commonly consist of cracks coming into existence as a result of the defect even though the cracks or the defect may be undiscoverable. There may perhaps be cases where the defect is so gross that the building is doomed from the start, and where the owner's cause of action will accrue as soon as it is built, but it seems unlikely that such a defect would not be discovered within the limitation period. Such cases, if they exist, would be exceptional."
"Once it is appreciated that the loss in respect of which the plaintiff in the present case is suing is loss to his pocket, and not for physical damage to the house or foundations, then most, if not all the difficulties surrounding the limitation question fall away. The plaintiff's loss occurs when the market value of the house is depreciated by reason of the defective foundations, and not before. If he resells the house at full value before the defect is discovered, he has suffered no loss. Thus in the common case the occurrence of the loss and the discovery of the loss will coincide…..
This approach avoids almost all the practical and theoretical difficulties to which the academic commentators have drawn attention, and which led to the rejection of the Pirelli decision [1983] 2 AC 1 by the Supreme Court of Canada in the Kamloops case, 10 DLR (4th) 641. The approach is consistent with the underlying principle that a cause of action accrues when, but not before, all the elements necessary to support the plaintiff's claim are in existence. For in the case of a latent defect in a building the element of loss or damage which is necessary to support a claim for economic loss in tort does not exist so long as the market value of the house is unaffected. Whether or not it is right to describe an undiscoverable crack as damage, it clearly cannot affect the value of the building on the market. The existence of such a crack is thus irrelevant to the cause of action. It follows that the judge applied the right test in law….
It is regrettable that there should be any divergence between English and New Zealand law on a point of fundamental principle. Whether the Pirelli case [1983] 2AC 1 should still be regarded as good law in England is not for their Lordships to say. What is clear is that it is not good law in New Zealand."
"I can see no relevant difference between the relationship of the defendant consulting engineers in the Pirelli case to their clients, the plaintiffs, and the relationship of the defendant architects in this case to their clients, the United Reformed Church of East Finchley. In both cases there was negligent design which was latent, in the sense that for a time the building and the various parts of it functioned as those parts were expected and required to function, and which was later the cause of physical damage to the building. I therefore conclude that, unless this case can be distinguished on the facts in some way from the Pirelli case or unless it falls within an exception from the rule established by that case, the cause of action in respect of the negligent design of the drains must be held to have accrued when the flooding occurred and not before."
"In applying the principle established in the Pirelli case, as Judge Stabb sought to do in the Tozer Kemsley case, I see no reason why on the facts of a particular case the defect resulting from negligent design or supervision should not constitute the physical damage to the building provided that the damaging consequences of the defect are immediately effective. In such circumstances there is no need for subsequent or later damage in order to complete the cause of action.
Accepting the principles stated by Judge Stabb and applying them to the facts of this case, I am unable to find that the defect in design can or should be treated as physical damage to the building. The drains, in the physical condition resulting from the defect in design, were not such as to produce at once their damaging effects. They were capable of functioning properly as drains and they did so for some twenty months. When they failed effectively to function as drains because of heavy rainfall in the area they did not merely function unsatisfactorily, e.g. by making noises or emitting smells, but were the cause of physical damage to other parts of the building. The defect in design in this case was, in my judgment, as latent, and as distinct from subsequent physical damage caused by it, as was the negligent incorporation of unsuitable material in Pirelli's chimney."
"Next counsel for the defendants submitted that, if the design defect in the drains cannot in this case be treated as physical damage, nevertheless it caused, at the date of practical completion at latest, economic damage to the plaintiffs, i.e. the burden of the cost of putting the drains in order. As I have said, counsel for the defendants in this case repeated the argument which he presented to the House of Lords in the Pirelli case based on two cases of breach of duty by solicitors, Howell v. Young (1826) 5 B & C 259 and Forster v. Outred & Co (a firm) [1982] 2 All ER 753, [1982] 1 WLR 86. I have already set out Lord Fraser's comment on that argument: in his view the submission was not well founded. Counsel for the plaintiffs has objected that the point was not taken below and that no evidence was directed towards it. Counsel for the defendants accepts that that is the position. Even if nevertheless the point can be regarded as open to the defendants on this appeal, for my part I am of the opinion that it cannot avail the defendants so as to require that the cause of action be treated as having accrued at latest on practical completion. The ordinary relationship of client and architect which existed between the parties in this case, or of client and consulting engineer which was present in the Pirelli case, is not in my view such that liability for pure economic loss would arise in tort on proof of negligent design or supervision but without proof of damage to property."
The rejection by Ralph Gibson LJ of the analysis that a defect in a building which had not caused damage to person or property did give rise to economic loss and his view that an architect or consulting engineer did not owe a duty of care in tort the scope of which could extend to not causing economic loss to his client do not reflect the way in which the law in this area has developed.
"Mr. Stuart-Smith contends, on behalf of the defendants, that when she signed the mortgage deed she suffered actual damage. By entering into a burdensome bond or contract or mortgage she sustained immediate economic loss; her valuable freehold became encumbered with a charge and its value to her was diminished because she had merely the equity of redemption, varying in value at the whim of her son's creditors; she could not sell the land without discharging the mortgage; she could not prevent her son from borrowing on the security of her mortgage to the extent of the full value of the land; she could have sued the defendants in February 1973 for an indemnity or for damages on the basis of the diminished value of the land or the amount of the outstanding debt to the mortgagor."
Later, at page 94C-D Stephenson LJ said:-
"What is meant by actual damage? Mr. Stuart-Smith says that it is any detriment, liability or loss capable of assessment in money terms and includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has no control; things like loss of earning capacity, loss of a chance or bargain, loss of profit, losses incurred from onerous provisions or covenants in leases. These are all illustrations of a kind of loss which is meant by "actual" damage. It was also suggested in argument, and I would accept it, that "actual" is really used in contrast to "presumed" or "assumed". Whereas damage is presumed in trespass and libel, it is not presumed in negligence and has to be proved. There has to be some actual damage."
The other members of the Court of Appeal, Dunn LJ and Sir David Cairns, agreed with the judgment of Stephenson LJ.
"I add only the cautionary reminder that the loss must be relevant loss. To constitute actual damage for the purpose of constituting a tort, the loss sustained must be loss falling within the measure of damage applicable to the wrong in question.
Take first the simple case which gives rise to no difficulty. A purchaser buys a house which has been negligently overvalued or which is subject to a local land charge not noticed by the purchaser's solicitor. Had he known the true position the purchaser would not have bought. In such a case the purchaser's cause of action in tort accrues when he completes the purchase. He suffers actual damage by parting with his money and receiving in exchange property worth less than the price paid.
In the ordinary way the purchaser in this example will not know of the negligence of his valuer or solicitor when completing the purchase. Despite this his cause of action arises at the date of completion, and time begins to run for limitation purposes."
"For what, then, is the valuer liable? The valuer is liable for the adverse consequences, flowing from entering into the transaction, which are attributable to the deficiency in the valuation. The principle of liability, easier to formulate than to apply, has next to be translated into practical terms. As to this, the basic comparison remains in point, as the means of identifying whether the lender has suffered any loss in consequence of entering into the transaction. If he has not, then currently he has no cause of action against the valuer. The deficiency in security has, in practice, caused him no damage. However, if the basic comparison throws up a loss, then it is necessary to inquire further and see what part of the loss is the consequence of the deficiency in the security….
The basic comparison gives rise to issues of fact. The moment at which the comparison first reveals a loss will depend on the facts of each case. Such difficulties as there may be are evidential and practical difficulties, not difficulties in principle….
Indeed, for the cause of action to arise only when the lender realises his security would be a highly unattractive proposition. It would mean that, however obvious it may be that the lender will not recover his money, he cannot start proceedings. He must wait until he manages to sell the property, a process which may be protracted. This would be a surprising stance for the law to take. It would be all the more surprising when one has in mind that a lender's cause of action against his negligent valuer for breach of contract, as distinct from a claim in tort, arises when the negligent valuation is given. If disaster were evident and the lender were to sue his valuer for breach of contract without waiting until he had realised his security, it is inconceivable that the court would award only nominal damages. The court would do its best to assess the loss. This prompted the trenchant observation of Bingham LJ in D. W. Moore & Co. Ltd. v. Ferrier [1988] 1 WLR 267, 280:
"If, in a contractual claim for negligence, the court would have awarded other than nominal damages, I do not see how it can be said that an action in tort based on the same negligence would have been bound to fail for want of any damage as an essential ingredient of the cause of action."
As Mr. Briggs submitted, no accountant or prospective buyer, viewing the loan book of a commercial lender, would say that the shortfall in security against outstanding loans to defaulting borrowers did not represent a loss to the lender merely because the securities had yet to be sold. Realisation of the security does not create the lender's loss, nor does it convert a potential loss into an actual loss. Rather, it crystallises the amount of a present loss, which hitherto had been open to be aggravated or diminished by movements in the property market."
The Other Costain Company Issue
The PHJ Contract Issues
"It being accepted by the parties that the question of whether PHJ was in breach of its contractual obligations to Tesco falls to be decided in the context and against the factual background that PHJ performed those obligations on the basis and in the belief that Costain was the design and build contractor in relation to this project, issue 15 be disposed of on these terms."
"The judge rejected Virgin's claim on the ground that Virgin was "a high profile, successful, commercial entity" with considerable in-house expertise in taxation matters and was "properly equipped to consider and take appropriate action to deal with the tax implications of their property transactions". There was abundant evidence to justify these findings. Many of the facts disclosed by this evidence were not known to Finers at the time, and evidence of them, while possibly relevant on questions of causation, was irrelevant in relation to the scope of Finers' duty. This did not turn on the extent to which Virgin in fact expected to rely on Finers for advice on VAT, but on the extent to which they appeared to Finers to need such advice. As Donaldson LJ pointed out in Carradine Properties Ltd.v. D. J. Freeman (1982) SJ 157:
"In deciding what [a solicitor] should do and what advice he should tender the scope of his retainer is undoubtedly inportant, but it is not decisive. If a solicitor is instructed to prepare all the documentation needed for the sale and purchase of a house, it is no part of his duty to pursue a claim for unfair dismissal. But if he finds unusual covenants or planning restrictions, it may indeed be his duty to warn of the risks and dangers of buying the house at all, notwithstanding that the client has made up his mind and is not seeking advice about that. I say only that this may be his duty, because the precise scope of his duty will depend inter alia upon the extent to which the client appears to need advice. An inexperienced client will need and be entitled to expect a solicitor to take a much broader view of the scope of his retainer and his duties than will be the case with an experienced client". (our emphasis).
Finers were instructed to agree the wording of the SDA prepared by Concita's solicitors in order to ensure that it carried out the terms of the Surveyors' Agreement. They were not instructed to advise on the VAT implications of the proposed transaction, and in the absence of such instructions the Judge's conclusion that they were under no duty to give such advice to apparently experienced and sophisticated commercial clients or to warn them that the transaction had VAT implications is unassailable. It is absurd to suppose that Finers were under any general duty to warn of the possibility of a VAT liability. Clearly there were fiscal implications in a complex transaction of the kind into which Virgin were proposing to enter, and the possibility that these would include VAT problems cannot have been overlooked. Mr. Lehrer was aware that VAT considerations had dictated the identity of the company in which the properties were vested. It is true that these considerations were concerned with liability for output tax and not input tax, but Mr. Lehrer was entitled to suppose that similar consideration would be given to both.
Given the limited nature of his instructions and the character of the client, Mr. Lehrer was entitled to assume that the fiscal implications of the Surveyors' Agreement were being considered by others within or instructed by Virgin with greater expertise in such matters than himself. Indeed, Mr. Lehrer had confirmation that this was so. At a meeting attended by him on 23rd June, Mr. De Morgan expressed concern at the VAT implications of an invoice in relation to the Sixth floor of Vision House. But Mr. Lehrer was not instructed to advise in relation to this, and so far as he was concerned whatever problem there may have been was considered and dealt with without reference to him."
"The Contract between PHJ and Tesco was not sealed and was therefore not a Deed. An agreement that a document should be deemed to be under seal is not equivalent to an agreement that the applicable limitation period for contractual claims should be 12 years. If Tesco had wanted to obtain the benefit of an extended limitation period, clear words should have been used. Tesco could and should have sought PHJ's agreement to an express term to that effect."
"It is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law or such remedy may be excluded by usage binding on the parties … But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption."
"a. PHJ would, so far as it was able, design the Redditch store so that,
i Its drawings demonstrated compliance with the relevant statutory requirements, including Building Regulations;
b. PHJ would, so far as it was able, inspect the site during the construction of Redditch store so as to ensure that it was,
i Constructed in accordance with good building practice;
ii Constructed in accordance with the relevant statutory requirements, including Building Regulations."
Mr. Stewart and Mr. Chapman submitted at paragraph 75 of their written opening that those terms were to be implied "to give business efficacy to the contract and by obvious inference on the basis of what was expressly agreed by the parties".
"5.1 Prepare in conjunction with other appointed Consultants sufficient information to enable the Contractor to make application for Building Regulation Approval and any necessary waivers for the construction of the Works….
6.5 Generally inspect, by means of periodic site inspection at intervals of at least once a fortnight, (or at more frequent intervals as may be necessary but not constantly) the Works in order to seek to ensure that the project is being constructed generally in accordance with the Building Contract and in accordance with good building practice…"
The PHJ Accrual of Cause of Action Issues
"The architect is under a continuing duty to check that his design will work in practice and to correct any errors which may emerge. It savours of the ridiculous for the architect to be able to say, as it was here suggested that he could say: "true, my design was faulty, but, of course, I saw to it that the contractors followed it faithfully" and be enabled on that ground to succeed in the action."
"It is not seriously arguable that a solicitor who or whose firm has acted negligently comes under a continuing duty to take care to remind himself of the negligence of which, ex hypothesi, he is unaware."
"14. I accept the proposition that, although it is necessary to look at the circumstances of each engagement, a designer who also supervises or inspects work will generally be obliged to review that design up until that design has been included in the work: see Jackson and Powell on Professional Negligence, 4th Edition, para 2-17. In a number of cases, it has been held that this duty continues until practical completion: see Chelmsford D. C. v. T. J. Evers (1983) 25 BLR 99, 106, Equitable Debenture Assets Corporation Ltd. v. William Moss Group Ltd. (1984) 2 Con LR 1, 24 and Victoria University of Manchester v. Hugh Wilson (1984) 2 Con LR 43, 73.
15. But it is necessary to consider the scope of that duty in a little more detail. What does the duty to review the design entail? In what circumstances will an architect be in breach of that duty? I find it convenient to consider an example. Let us suppose that an architect is engaged on the standard RIBA Conditions of Engagement to provide the full service (as PTE in the present case), including administering a building contract in a standard JCT form of contract. Suppose that he designs the foundations of a building (a large office block), the foundations are constructed in accordance with his design, and several years later, practical completion is achieved. Let us further suppose that the design of the foundations is defective and one which no reasonably competent architect would have produced: in other words, the architect was negligent. There can be no doubt that the architect commits a breach of contract when he completes the design and gives instructions to the contractor to construct the foundations in accordance with it. But in what sense and to what extent is the architect under a duty to review his negligent design once the foundations have been designed and constructed?
16. In my view, in the absence of an express term or express instructions, he is not under a duty specifically to review the design of the foundations, unless something occurs to make it necessary, or at least prudent, for a reasonably competent architect to do so. For example, a specific duty might arise if, before completion, the inadequacy of the foundations causes the building to show signs of distress; or if the architect reads an article which shows that the materials that he has specified for the foundations are not fit for their purpose; or if he learns from some other source that the design is dangerous. In such circumstances, I am in no doubt that the architect would be under a duty to review the design, and, if necessary, issue variation instructions to the contractor to remedy the problem. But in the absence of some reason such as this, I do not think that an architect who has designed and supervised the construction of foundations is thereafter under an obligation to review his design.
17. I do not accept that in every case where an architect has negligently introduced a defective design into a building, he is also by the same token in breach of a continuing breach [sic] of a contractual obligation to review his design. [Dyson J then quoted the words of Oliver J in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp which I have already set out.]
18. In my view, that observation is as apt to apply to an architect as it is to a solicitor. The position is quite different where the architect (or solicitor) knows, or ought to know, of his earlier negligence. When that occurs, then he may well be under a contractual obligation to review his earlier performance, and advise his client honestly and competently of his opinion. Whether he is in fact under such a duty when he has actual or constructive knowledge of his earlier breach of contract will depend on whether the contract is still being performed. If the contract has been discharged (for whatever reason), then the professional person may be under a duty in tort to advise his client of his earlier breach of contract, but it is difficult to see how he can be under any contractual duty to do so.
19. The foundation for the statement in the cases that an architect is under a continuing duty to review his design is the dictum of Sachs LJ in Brickfield Properties Ltd. v. Newton [1971] 1 WLR 862, 973F [sic]: [which was then set out].
20. But Sachs LJ was not concerned to explore the scope of an architect's continuing duty to review his design. In my judgment, the duty does not require the architect to review any particular aspect of the design that he has already completed unless he has good reason for so doing. What is a good reason must be determined objectively, and the standard is set by reference to what a reasonably competent architect would do in the circumstances."
The Inspection Issue
The PHJ 1993-1994 Tortious Duties Issues
"355. These issues fall to be answered as follows:
(a) PHJ owed Tesco and Costain a duty of care to identify any element of the design of the Redditch store which did not comply with the Statutory Regulations prevailing at the time of construction. (This is whether PHJ inspected or not.)
(b) PHJ owed Tesco a duty to inspect the Redditch store with that degree of skill and care to be expected of the reasonably competent architect carrying out such an inspection.
356. The nature of the duties was for PHJ to exercise that degree of skill and care to be expected of the reasonably competent architect performing such services.
357. The duty ran from the date of reliance (if any) by Tesco up and until a further inspection was or could be expected to be carried out which could give rise to the opportunity for the statement being shown to have been wrong.
358. As regards the duty owed to Costain, this ran from the date of Costain's reliance i.e. around 3rd June 1994.
359. The duties are capable of encompassing one or more of the losses pleaded at paragraph 65 of RAPC, including Costain's liability to Tesco (if any) (see paragraphs 20Q and 20M of Costain's Amended Particulars of Part 20 Claim.
360. PHJ owed Costain a duty of care in these circumstances because:
(a) PHJ knew, or ought reasonably to have known, that Costain asked for "the supply of all drawings relevant to fire protection/prevention works at the Redditch store" for the purposes of carrying out an inspection of the Redditch store.
(b) PHJ thereafter supplied these drawings knowing that Costain would use them in carrying out an inspection of the Redditch store.
(c) Costain, as contractor, would have assumed, and was entitled to assume, that the design depicted in the drawings complied with the Statutory Regulations prevailing at the time of construction.
(d) PHJ knew, or ought reasonably to have known, that Costain would assume that the drawings complied with the Statutory Regulations prevailing at the time of construction.
(e) PHJ did not say at any time prior to the inspection (or afterwards) that the design of the Redditch store failed to comply with the Statutory Regulations prevailing at the time of construction.
(f) The inspection in October 1993 took place jointly between Costain and PHJ.
(g) Costain copied the 19 October 1993 letter to PHJ.
(h) On 28 April 1994 Tesco wrote to PHJ in the terms set out at paragraph 323 above.
(i) On 27 May 1994, Costain wrote to Tesco in the terms set out in paragraph 327 above, and copied that letter to PHJ.
(j) On 3 June 1994, PHJ wrote to Tesco in the terms set out at paragraph 329 above, and copied that letter to Costain.
(k) PHJ's letter dated 3rd June 1994 implicitly confirmed that it was satisfied by its previous inspection with Costain and/or that it was satisfied that the drawings which it had supplied to Costain expressly for the purposes of inspection complied with the Statutory Regulations prevailing at the time of construction. Otherwise, PHJ's letter dated 3rd June 1994 was not a proper response to Tesco's letter dated 28th April 1994."
Conclusions
1. Did the Claimant ("Tesco") and the First Defendant ("Costain") make a contract in 1989 under which Costain undertook to carry out any work or provide any services for Tesco in connection with the construction of a supermarket and associated buildings at a site at Coldfield Drive, Oakenshaw Wood, Redditch, Birmingham ("the Redditch Site")?
Answer: Tesco and Costain did make a contract in 1989 under which Costain undertook to carry out work for Tesco in connection with the construction of the Store.
2. If the answer to Issue 1 is affirmative:
(i) Was it a term of such a contract that the limitation period in respect of any breaches of the agreement would be twelve years?
Answer: No.
(ii) How was such contract made and what documents, if any, were incorporated into it?
Answer: The contract was made by the counter-signature on behalf of Costain and return to Tesco of Tesco's letter dated 20 March 1989. The only document incorporated into the contract was that letter as counter-signed and returned.
(iii) Were any, and if so which, of the express terms pleaded at paragraph 15 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of such agreement and, if not so far as material, what were the express terms?
Answer: None of the express terms pleaded at paragraph 15 of the Re-Amended Particulars of Claim in Action 07 were express terms of the contract. The express terms of the contract were only that Costain would commence the work of construction of the Store in advance of the making of a formal contract and those terms as to payment in the event that no formal contract was concluded set out in the letter dated 20 March 1989.
(iv) Were any, and if so which, of the implied terms pleaded at paragraph 16 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of such agreement and, if not, so far as material, what were the implied terms?
Answer: In the way in which they were formulated none of the terms pleaded at paragraph 16 of the Re-Amended Particulars of Claim in Action 07 were implied terms of the contract. However, there were implied terms of the contract that Costain would perform any construction work which it carried out under the contract in a good and workmanlike manner and that insofar as any design decision in relation to the Store was made by Costain, the element designed would be reasonably fit for its intended purpose.
3. Is Costain estopped, as asserted by Tesco at paragraph 12A of its Amended Reply in Action No. HT-02-07, from denying that "the contract with Tesco for the design and construction of the Redditch Store was on Tesco's standard terms and conditions" by reason of the matters set out therein?
Answer: No.
4. Is Costain estopped, as against Tesco and/or the Third Defendant ("PHJ"), from denying that it was retained as Tesco's design and build contractor as alleged in paragraph 5 of PHJ's Defence to Costain's Part 20 proceedings in Action No. HT-02-07?
Answer: No.
5. If the answer to Issue 2(i) is negative, is Costain estopped, as asserted by Tesco at paragraph 65(2) of the Amended Reply in Action HT-02-07 from "denying any claim made by Tesco is statute-barred provided that any such claim has been made within 12 years from the occurrence of the relevant breach of which complaint is made"?
Answer: No.
6. Is Costain estopped from denying a novation by conduct in April 1989 as alleged at paragraph 5 of PHJ's Defence to Costain's Part 20 proceedings in Action No. HT-02-07?
Answer: No.
7. Did Costain owe to Tesco any duty of care in tort in relation to anything undertaken by Costain in connection with the Redditch Site in 1989?
Answer: Yes.
8. If the answer to Issue 7 is affirmative were the nature and extent of such duty of care as set out in paragraph 17 (and 15 and 16) of the Re-Amended Particulars of Claim and paragraph 13 of the Reply to the Defence of Costain in Action No. HT-02-07; and if not, what were the nature and extent of the duty of care owed by Costain to Tesco?
Answer: The duty of care owed by Costain to Tesco was to execute any building or design work which Costain in fact carried out itself with the care and skill to be expected of a reasonably competent building contractor so as not to cause damage to person or property or economic loss.
9. Did Costain assume a duty of care to Tesco of the nature and extent pleaded at paragraph 27 of the Re-Amended Particulars of Claim in Action No. HT-02-07 as a result of the writing by Costain to Tesco of the letter dated 19 October 1993; and, if not, what were the nature and extent of the duty of care to Tesco (if any) assumed by Costain in writing the letter dated 19 October 1993?
and
10. Did Costain assume a duty of care to Tesco of the nature and extent of the [sic] pleaded at paragraph 21 of the Amended Particulars of Claim in Action No. HT-02-439 as a result of the writing by Costain to Tesco of the letter dated 27 May 1994; and, if not, what were the nature and extent of the duty of care to Tesco (if any) assumed by Costain in writing the letter dated 27 May 1994?
Agreed answer to 9 and 10: It being accepted by Costain that in undertaking the inspection and in making the statements in the letters dated 19 October 1993 and 27 May 1994, Costain undertook to Tesco a common law duty of care to undertake a detailed inspection of fire barriers with reasonable skill and care, and to exercise reasonable skill so as to ensure that the statements made in the letters (of 19 October 1993 and 27 May 1994) were accurate, the questions of the nature and scope of that duty of care, including the meanings of "a detailed inspection" and "fire barriers" be left over to the trial in October.
11. If the answers to Issues 7 and 8 are to the effect that a duty of care was owed by Costain to Tesco which was capable of encompassing one or more of the losses pleaded at paragraph 65 of the Re-Amended Particulars of Claim in Action no. HT-02-07, and on the assumption that Costain was in breach of that duty of care as alleged by Tesco in the said Re-Amended Particulars of Claim, subject to issues arising under section 14A and section 32 of the Limitation Act 1980, did Tesco's cause of action in tort in respect thereof accrue as at the date of the fire, 4 August 2001?
Answer: No. Any cause of action accrued at the date at which Tesco in fact sustained economic loss as a result of a breach of the duty of care. If the Store as completed was less valuable than it would have been had the requisite fire stopping and inhibiting measures been incorporated into it, the cause of action accrued at the date of Practical Completion. If that is not so, but Tesco would have been put to additional expense had it required the inclusion in the Store at the time of construction of the appropriate fire stopping and inhibiting measures, the cause of action accrued at the date at which that cost exceeded what it would have been at the time of the original construction of the Store.
12. If the answer to Issue 9 is to the effect that a duty of care was owed by Costain to Tesco which was capable of encompassing one or more of the losses pleaded at paragraph 65 of the Re-Amended Particulars of Claim in Action No. HT-02-07, and on the assumption that Costain was in breach of that duty of care as alleged by Tesco in the said Re-Amended Particulars of Claim, subject to issues arising under section 14A and section 32 of the Limitation Act 1980, did Tesco's cause of action in tort in respect thereof only accrue as at the date of the fire, 4 August 2001?
Answer: No. Any cause of action accrued at the date upon which the cost to Tesco of having carried out the works which it would have had carried out but for its reliance upon the report increased above what that cost would have been as at the date of Tesco's reliance upon the report and Tesco thereby sustained a loss.
13. If the answer to Issue 10 is to the effect that a duty of care was owed by Costain to Tesco which was capable of encompassing one or more of the losses pleaded in the Amended Particulars of Claim in Action No. HT-02-439, and on the assumption that Costain was in breach of that duty of care as alleged by Tesco in the said Amended Particulars of Claim, subject to issues arising under section 14A and section 32 of the Limitation Act 1980, did Tesco's cause of action in tort in respect thereof only accrue as at the date of the fire, 4 August 2001?
Answer: As for Issue 12.
14. On the assumption that Costain is liable to Tesco to any extent in respect of the claims made in this action, is the Second Defendant ("Costain Limited") liable to Tesco as contended at paragraph 66 of the Re-Amended Particulars of Claim in Action No. HT-02-07 and in paragraph 54 of the Particulars of Claim in Action No. HT-02-439?
Answer: The agreed answer to this issue is no, as the claim against the Second Defendant has been discontinued.
15. If there was no contract as between Tesco and Costain which imposed upon Costain design and build obligations (whether in accordance with the Tesco Standard Documentation for use with the Design and Build Contracts, Issue No. 7, or otherwise) do PHJ's contractual obligations to Tesco nevertheless fall to be determined on the basis that the position as between Tesco and Costain was that Costain had undertaken design and build responsibilities to Tesco as alleged in paragraph 11A of PHJ's Amended Defence in Action No. HT-02-07?
Answer: Upon proper construction of the PHJ Agreement what was required to be included by PHJ in its designs of the Store was to be determined having regard to the fact that those designs were to be implemented by an experienced building contractor.
16. Was the agreement executed by PHJ on 20 March 1989 deemed as between the parties to it to be a specialty for the reason pleaded at paragraph 56 of the Re-Amended Particulars of Claim in Action No. HT-02-07?
and
17. Is the limitation period for the contractual claims made by Tesco against PHJ in respect of alleged breaches of the agreement executed by PHJ on 20 March 1989, pleaded at paragraph 8 of the Re-Amended Particulars of Claim in Action No. HT-02-07, 12 years or 6 years?
Answer: Although the PHJ Agreement was not in fact a specialty, upon proper construction of clause 9.1 of it PHJ agreed not to raise a defence of limitation in respect of any claim for alleged breach of the agreement unless and until a period of 12 years had elapsed from the date of the alleged breach.
18. Were any, and if so which, of the implied terms pleaded at paragraph 10 of the Re-Amended Particulars of Claim in Action No. HT-02-07 terms of the agreement between Tesco and PHJ which is pleaded at paragraph 8 of that Re-Amended Particulars of Claim?
Answer: None of the alleged implied terms were terms of the PHJ Agreement.
19. If PHJ was in breach of any duty of care owed in tort to Tesco, as alleged in paragraph 54 of the Re-Amended Particulars of Claim in Action No. HT-02-07, and subject to issues arising under section 14A and section 32 of the Limitation Act 1980, did Tesco's cause of action in tort in respect thereof only accrue as at the date of the fire, 4 August 2001?
Answer: No. Any cause of action accrued at the date at which Tesco in fact sustained economic loss as a result of a breach of the duty of care. If the Store as completed was less valuable than it would have been had the requisite fire stopping and inhibiting measures been incorporated into it, the cause of action accrued at the date of Practical Completion. If that is not so, but Tesco would have been put to additional expense had it required the inclusion in the Store at the time of construction of the appropriate fire stopping and inhibiting measures, the cause of action accrued at the date at which that cost exceeded what it would have been at the time of the original construction of the Store.
20. Whether the nature of the obligations set out in paragraphs 9, 10 and 11 of the Re-Amended Particulars of Claim was such that, in the event that PHJ was in breach of contract as alleged by Tesco, those breaches of contract occurred at or continued until Practical Completion regardless of (1) when the allegedly defective design work was undertaken; and (2) whether, as a matter of fact, the defects in construction alleged could or could not be detected upon a reasonable inspection of the Redditch store as at the date of Practical Completion.
Answer: PHJ had no obligation to review its design unless something occurred which would have brought to the attention of a reasonably competent architect the need to review his design. PHJ had no obligation to inspect work executed at the Store which had been covered up.
21. Did Costain or PHJ carry out an inspection of the Redditch store in 1993/1994? If so, which?
Answer: Costain carried out an inspection in the autumn of 1993.
22. In all the circumstances, what were the nature and extent of any duty of care in tort, if any, assumed by PHJ to Tesco and/or Costain in relation to the Redditch Store in 1993 and 1994?
Answer: PHJ did not assume any duty of care to either Tesco or Costain in relation to the Store in 1993 or 1994.
23. If PHJ did owe Tesco and/or Costain a duty of care in relation to the Redditch store in 1993/4 as alleged by Costain in its Amended Particulars of Claim in Action No. HT-02-07, and on the assumption that PHJ was in breach of that duty of care as alleged by Costain, did Costain's cause of action in respect thereof accrue in 1993/4 or did it only accrue at the time of the fire, namely 4 August 2001?
Answer: In 1993-1994.
