Southern Insulation (Medway) Ltd v How Engineering Services Ltd & Ors

This is the judgment of the court.    These two interlocutory appeals by Southern Insulation (Medway) Ltd (“Southern”) come before the court by permission of the trial judge, Akenhead J, following reserved judgments given by him on 21 May 2010 and 23 July 2010. They have been expedited by order of Toulson LJ because the trial of the main actions, to which four working weeks have been allocated, is due to begin in October.

Both actions concern the chilled water pipework and associated fittings at One Silk Street,  premises of which the claimants,  Linklaters Business Services (Linklaters) became tenants and managers in November 1996.  Southern is alleged in both actions to have been negligent, as a specialist sub-sub-contractor, in cladding the chilled water pipes in the new building, with the result that the pipes corroded and had to be replaced at a cost of some £3.5m.

In the first action, which we will call the “Linklaters” action,  Linklaters sued the head contractors in contract under a warranty and also the head contractors’ holding company (together “the McAlpine companies”) under a guarantee,  for the costs of the replacement work.   The McAlpine companies brought additional claims against  the sub-contractors,  How Engineering Services Ltd (the Third Party) and its parent company, the Fourth Party (together “the How companies”) claiming an indemnity under the sub-contract and a contribution under the Civil Liability (Contribution) Act 1978 (“the 1978 Act”).   The How companies then brought proceedings against Southern under the 1978 Act,  claiming a contribution,  to the extent of 100%,  for their liability (if any) to the McAlpine companies.  The basis for this contribution claim is that Southern was in breach of a duty of care in tort that it owed to Linklaters in respect of the cladding work,  so that Southern would be liable to Linklaters for the same damage (if any) for which the How companies are liable to indemnify the McAlpine companies.    In this action,  Akenhead J had before him an application by Southern, the Fifth Party, for summary judgment against the Third and Fourth Parties, alternatively for the striking out of the claims of these parties against Southern, on the ground that, assuming the facts alleged or relied on by them to be true, their claims could not succeed in point of law.

In the second action,  which we will call “the How action”,  How Engineering claims against Southern in tort to recover any sums that How has to pay up the line in respect of the replacement costs.   How alleges that Southern is under a duty of care in tort to How to protect it from financial loss arising under the collateral warranties and guarantees between Linklaters,  the head contractor and the subcontractor,  which were concluded without Southern’s knowledge and after Southern sub-sub-contracted with How Engineering to do the cladding work.

In the How action Akenhead J had before him an application by Southern to give summary judgment for Southern on the claim or in the alternative to strike it out.

Both applications were in substance endeavours to establish by way of judgment on a preliminary point of law that, taking the facts pleaded against Southern at face value, neither the claim for contribution nor the claim for damages could succeed,  because Southern did not owe any duty of care in tort to either Linklaters or How for the kind of loss claimed.  Although both applications failed, the grant of permission to appeal by the judge himself indicates that the issues were not unproblematical – a view with which this court, having read the papers, concurs.

The applications failed, however, for differing reasons. In the Linklaters action Akenhead J concluded that there were too many factual uncertainties to make either summary judgment or striking out appropriate. He reached this conclusion, nevertheless, after a careful survey of the relevant law which at least illustrated the potential magnitude of the issues of law. In the How action Akenhead J concluded that there was, on the assumed facts, a duty of care in tort owed by Southern to How collaterally to their contract. This much is therefore res judicata at first instance.

Mr Wilmot-Smith QC, for Southern, wishes to submit that in the Linklaters action there was no warrant for holding the issue to be fact-dependent, the facts being comprehensively admitted for the purpose of the argument, and that the judge ought to have gone on – as this court now should in his stead – to grasp the nettle and decide the issue of law. In the How action, where the judge undoubtedly has grasped the nettle, counsel seeks to submit that the correct answer in law is the opposite of the judge’s.

When the court sat on 19 August, with two days allocated for the appeals and judgment, it was apparent that we were being asked to get a quart into a pint pot. We make no criticism of anybody in this regard: everyone involved has done the best that can be done to speed the process along. But this is a vacation court, sitting in its present constitution only this week. It is clear to us, first, that any judgment will have to be reserved; secondly, that it will not be a short or simple judgment; and thirdly, in particular given the existing commitments of all three members of the court, that the chance of delivering it before the trial starts is slim.

We put these problems to counsel. Neither disagreed with our estimate of the potential magnitude of the issues. They are, in our present view, issues which may require the attention of the Supreme Court in due course. While, therefore, it is a misfortune for Southern to lose the chance of coming scot-free out of both actions without a trial, there is at least an equal possibility that to proceed with these appeals would simply, at considerable cost, defer the trial of two actions one of which involves liabilities unaffected by the present issues and both of which involve what we are told are possibly dispositive factual disputes.

In these circumstances counsel, having taken instructions, have not objected to the disposal of the appeal in the Linklaters action by dismissal and to the disposal of the appeal in the How action by adjournment. We have so ordered, with liberty to restore the appeal in the How action should that in due course become appropriate.

Having heard submissions on costs, we order that the costs of each appeal be reserved to the trial judge.