Tesco Stores Ltd. v Costain Construction Ltd & Ors

These two related actions, numbered, respectively HT-02-07 (“Action 07”) and HT-02-439 (“Action 439”), arise out of a fire (“the Fire”) which occurred on 4 August 2001 at a superstore (“the Store”) at Coldfield Drive, Oakenshaw Wood, Redditch in Worcestershire belonging to the Claimant in each action, Tesco Stores Ltd. (“Tesco”). In the Fire the Store was seriously damaged. Instead of rebuilding it as it had been before the Fire Tesco chose, no doubt for sound commercial reasons, to have constructed a larger store, some 10,000 square feet larger than the Store. The detailed implications of that decision, if they need to be considered at all, are for a second round of the present litigation.

The Store was originally constructed for Tesco between about April 1989 and about March 1990 by Costain Construction Ltd. (“Costain”). Costain is the First Defendant in each of Action 07 and Action 439. Costain is, and has been at all times material to Action 07 and Action 439, a member of a group of companies (“the Costain Group”). Another company in the Costain Group is Costain Ltd. (“the Other Costain Company”). The Other Costain Company was, until notice of discontinuance of the claims against it was given during the course of the present trial, the Second Defendant in each of Action 07 and Action 439. There were no other defendants in Action 439. Action 07 was commenced by a claim form issued on 9 January 2002. I shall come to consider the nature of the claims made in Action 07, but after that action was commenced it was decided on behalf of Tesco that it wished to make additional claims against both Costain and the Other Costain Company. As I shall explain, questions of limitation are relevant to the claims which Tesco seeks to pursue against Costain and it was considered appropriate in the first instance for the claims which it was desired to pursue against Costain and, at that time, the Other Costain Company in addition to those made in Action 07 to be made in a new action so that any question of limitation which arose in relation to the new claims could be dealt with on its merits, and not be prejudiced by seeking to add the new claims by amendment in Action 07. Action 439 was commenced by a claim form issued on 13 November 2002.

For practical purposes the Other Costain Company really only ever had a “walk on” role both in Action 07 and in Action 439. What that role was alleged to be was set out at paragraph 66 of the Re-Re-Amended Particulars of Claim in Action 07 and at paragraph 54 of the Amended Particulars of Claim in Action 439, which were in identical terms, namely:-

“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.

Messrs. Peter Hing and Jones (“PHJ”), the Third Defendants in Action 07, are a firm of architects. They designed the Store as originally constructed.

In about 2001 Tesco decided to have works (“the Alteration Works”) carried out at the Store. The contractor engaged to design and to undertake the Alteration Works was the Fourth Defendant in Action 07, Vale (UK) Ltd. (“Vale”).

Part of the Alteration Works involved the construction of an extension at the north-eastern corner of the Store. In this judgment I shall call the work of constructing that extension “the Extension Works”.

The Extension Works were sub-contracted by Vale to Leonard Burgess Ltd. (“Burgess”). Although, nominally, a party to Part 20 Claims in Action 07, Burgess is in liquidation and has taken no part in those proceedings.

The performance of the Extension Works included the design, manufacture and erection of a steel structure (“the Structure”).

Burgess sub-sub-contracted to a company called Benruss the design and manufacture of the Structure. It sub-sub-contracted the erection of the Structure to Whitelight Industries Ltd. (“Whitelight”), which is the Fifth Defendant in Action 07. Whitelight went into liquidation after the commencement of Action 07 and thereafter took no part in the action.

It seems that during the course of the attempt by Whitelight to erect the Structure it became apparent that some modification of the steel frame of the existing external wall at the north-eastern corner of the Store was necessary. In particular, it became apparent that it would be necessary to undertake works involving cutting into the steel of the existing frame (“the Cutting Works”). It seems that Whitelight was asked by Burgess to, and did, provide a steel fabricator to undertake the Cutting Works. While the Cutting Works were in progress the Fire broke out.

How it was contended in the circumstances which I have summarised Costain and PHJ were liable to Tesco in respect of the consequences of the Fire was put in paragraph 3 of the Case Summary for the present trial in this way:-

“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.”

A consideration of exactly how the case of Tesco was put in the Re-Amended Particulars of Claim in Action 07 against Costain and PHJ and against Costain in the Amended Particulars of Claim in Action 439 suggested that there were a number of issues which could conveniently be tried as preliminary issues in advance of the main trial. This judgment is concerned with those issues. Before setting out the issues for determination at this stage of the litigation, it is necessary to explain how the particular issues which I ordered to be tried arose.

In short it was alleged against Costain on behalf of Tesco, first, that Costain was in breach of the contract by which it agreed to design and construct the Store in the first place, and negligent, in relation to failing to provide appropriate fire stopping and inhibiting measures within the Store as constructed, and, second, that Costain was negligent in relation to the undertaking of an inspection of the Store in about October 1993 to assess the adequacy of the fire stopping and inhibiting measures in place and in reporting on the results of that inspection. In Action 07 complaint was made in relation to the report contained in a letter dated 19 October 1993. In Action 439 complaint was added in respect of the report contained in a letter dated 27 May 1994. In its Amended Defence in Action 07 Costain denied that it had concluded any contract with Tesco in relation to the construction of the Store, although it was admitted that Costain had in fact built it. Costain further denied that it owed to Tesco the duties of care in respect of the construction of the Store for which Tesco contended. The inspection of the Store in October 1993 was admitted, but it was contended that it had been competently carried out and the results properly reported. Limitation defences were advanced in respect of all claims.

The way in which the alleged contract between Tesco and Costain in relation to the construction of the Store was pleaded in the Re-Amended Particulars of Claim in Action 07 was this:-

“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.

During the hearing before me Tesco sought, and obtained without objection, consent to amend further the Re-Amended Particulars of Claim in Action 07 so as to add new paragraphs 12A and 12B as follows:-

“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.”

The duties of care alleged in respect of the work done by Costain in relation to the Store in 1989 and 1990 at paragraph 17 of the Re-Amended Particulars of Claim were:-

“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.”

Costain’s case in relation to the circumstances in which no contract came to be concluded in relation to the Store between it and Tesco was neatly encapsulated in paragraph 16 c of its Amended Defence in Action 07:-

“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.”

So far as any duty of care was concerned, Costain’s case, set out at paragraph 20 of its Amended Defence in Action 07, was:-

“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.”

Tesco’s response to that case was set out in paragraph 13 of its Re-Amended Reply to Costain’s Defence in Action 07 as follows:-

“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 its Re-Amended Reply to Costain’s Defence in Action 07 it was pleaded on behalf of Tesco at paragraphs 5 to 9 inclusive that there had been a course of dealing between Tesco and Costain in the period 1988 to 1991 in the course of which Costain had constructed a number of stores for Tesco. It was contended that in the case of each store Costain had agreed to undertake the design and construction on the terms of Tesco’s standard form of design and build contract for the time being in use. The conclusion contended for at paragraph 10 of the Re-Amended Reply was:-

“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.”

Tesco’s Re-Amended Reply to the Defence of Costain also included this response to Costain’s case as to there being no contract between them in relation to the Store:-

“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.”

Reply 32 to Costain’s Request for Further Information dated 15 August 2002 was in these terms:-

“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.”

In paragraph 5 of PHJ’s Defence to Costain’s Part 20 Particulars of Claim it was pleaded that:-

“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.”

During the course of the hearing before me Tesco sought and obtained, again without objection, permission further to amend its Re-Amended Reply to the Defence of Costain and the Other Costain Company in Action 07 so as to add these paragraphs in relation to the course of dealing upon which Tesco sought to rely:-

“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.”

It is not material for the purposes of this judgment to set out more precisely than I have already the nature of the alleged breaches of contract for which Tesco contended or the nature of the alleged negligence on the part of Costain in performing its obligations as a result of that alleged contract.

As I have already indicated, the other matters complained of as against Costain on behalf of Tesco, apart from failure to perform properly obligations allegedly assumed in relation to the construction of the Store in the first place, concern the alleged inspection of the Store by Costain in October 1993 and the reports made of the results of that inspection. The case as against Costain was put in the Re-Amended Particulars of Claim in Action 07 in this way:-

“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.”

In the Amended Particulars of Claim in Action 439 the allegations set out in the preceding paragraph were repeated, with the addition, between what was paragraph 25 of the Re-Amended Particulars of Claim in Action 07, but was paragraph 16 of the Amended Particulars of Claim in Action 439, and what was paragraph 26 of the Re-Amended Particulars of Claim in Action 07, which was paragraph 20 of the Amended Particulars of Claim in Action 439, of these paragraphs:-

“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.”

Costain admitted in its Amended Defences in Action 07 and Action 439 that the letters dated 19 October 1993 and 27 May 1994 had been written by it to Tesco and were in the terms alleged on behalf of Tesco. However, Costain seemed to have no very positive case as to what inspection was undertaken before the letter dated 19 October 1993 was written. Rather its case as pleaded was that it was not possible now to say who had carried out an inspection or of what that inspection consisted. To supply that deficiency a case was set out as to what the inspection most probably amounted to and it was asserted that it would not have been practicable for the person making the inspection to have damaged the structure of the Store in order to inspect all that which might have been inspected had there been no objection to invasive investigation. Moreover, it was contended that it would have been reasonable for the person making the inspection to proceed on the basis that the original drawings of the Store showed what was required under relevant regulations at the time of construction, and thus reasonable for such person to conclude that the relevant requirements were met if what was shown on the drawings was what was seen on site, without revisiting the question of what the relevant requirements were. Further it was contended that on the balance of probabilities whoever made the inspection on behalf of Costain had been accompanied by a representative of PHJ. The point was also made that Tesco could not have relied on the letter dated 19 October 1993 as in its letter dated 28 April 1994 it requested PHJ to undertake an identical inspection to that upon which Costain reported in its letter dated 19 October 1993.

In the Amended Defences of Costain defences of limitation were raised in relation to all alleged causes of action which it was contended on behalf of Tesco it had against Costain. That line of defence was obvious, and one which it was sought to forestall in the Re-Amended Particulars of Claim in Action 07 and in the Amended Particulars of Claim in Action 439. Essentially the points taken in the Re-Amended Particulars of Claim in Action 07 were, first, that the claim for damages for breach of the contract for the design and construction of the Store contended for was one to which a twelve year limitation period was applicable, and that period had not expired by the date of the commencement of Action 07, while for all of the alleged causes of action in tort what was contended was that the cause of action did not arise until the date of the Fire, or, if it did, Tesco’s date of knowledge for the purposes of Limitation Act 1980 s. 14A was not until after the date of the Fire. The Amended Particulars of Claim in Action 439 included a section entitled “Costain, Limitation and its Inspection and Report in October 1993”. That section was in these terms:-

“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. ”

As against PHJ it was alleged in the Re-Amended Particulars of Claim in Action 07 that it entered into an agreement (“the PHJ Agreement”) set out in a letter dated 22 February 1989 written by Tesco to PHJ and dated, as executed on behalf of PHJ, 20 March 1989. That was not in dispute, nor were the express terms of the PHJ Agreement. It was common ground that in the circumstances PHJ owed to Tesco duties of care in tort to carry out its obligations under the PHJ Agreement with the care and skill to be expected of reasonably competent architects.

While there was agreement as between Tesco and PHJ as to what were the express terms of the PHJ Agreement, that was not the position in relation to terms which it was contended on behalf of Tesco at paragraph 10 of the Re-Amended Particulars of Claim in Action 07 were to be implied into that agreement. The terms contended for were said to be implied, “by operation of law to give business efficacy to the retainer and/or to reflect the common intention of the parties”, and were these:-

“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.”

The case of PHJ in relation to the terms quoted in the preceding paragraph was set out at paragraph 9 of its Amended Defence and was:-

“(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.”

At paragraph 11A of its Amended Defence it was explained on behalf of PHJ that:-

“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.”

Anticipating, as in the case of Costain, and again correctly, as matters turned out, that defences of limitation would be raised in answer to the contentions that PHJ had acted in breach of the PHJ Agreement and negligently in designing the Store, it was pleaded on behalf of Tesco at paragraphs 56 and 57 of the Re-Amended Particulars of Claim that:-

“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.”

The response of PHJ to what was set out at paragraph 56 of the Re-Amended Particulars of Claim in Action 07 was set out in paragraph 49 of its Amended Defence in this way:-

“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.”

Although no claim was made against PHJ on behalf of Tesco in relation to the alleged inspection of the Store in 1993 or 1994, such a claim was made on behalf of Costain in Part 20 proceedings commenced against PHJ in each of Action 07 and Action 439. The way in which the claim was put in a combined statement of case in both actions was this:-

“20A. On 9^th 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 19^th 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 28^th 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 27^th 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 3^rd 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 28^th 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 3^rd 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 3^rd June 1994 was not a proper response to Tesco’s letter dated 28^th 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 9^th September 1993, and that it had certainly arisen by 3^rd 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 9^th September 1993, and that it had certainly arisen by 3^rd June 1994.

20N. PHJ owed these duties because:

a.

PHJ was aware of the contents of the letters dated 19^th October 1993 and 27^th 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 28^th 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 19^th October 1993 or 27^th 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 19^th October 1993 or 27^th 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.”

The answer of PHJ to the allegations quoted in the preceding paragraph was set out in paragraphs 13A to 13J of its Amended Defence in the Part 20 proceedings. Those paragraphs were in the following terms:-

“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 validity of the contentions in the various statements of case which I have so far set out in this judgment plainly needed to be determined at some stage in this litigation, and it seemed convenient to deal with them as preliminary issues in advance of the main trial so that the preparation for that trial could be more focused. I therefore directed that the following questions be determined as 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?”

In the event those preliminary issues gave rise to few disputes of fact. Although a number of witnesses were called on behalf of each of the participants in the trial of preliminary issues to give oral evidence, by and large each witness candidly accepted that, at this remove in time from the events of 1988 to 1990 and those of 1993 and 1994, he had no very definite recollection, independent of contemporaneous documents of which he had been shown copies for the purposes of preparing his witness statement, of most of the matters upon which he had been invited to comment.

It appears that certainly from the latter part of the 1980s Tesco had embarked upon a programme of having constructed for it a considerable number of new supermarkets all over the United Kingdom, other than in Northern Ireland. The preferred means of arranging for the construction of a particular supermarket seems to have been on a “Design and Build” basis. As operated by Tesco what that basis apparently involved in the first instance was Tesco putting together a team of professional organisations appropriate to the task of designing the supermarket, in particular architects, structural engineers, and building services engineers, and Tesco itself entering into appropriate contracts of engagement with the relevant organisations. Thereafter Tesco would identify a building contractor to undertake the actual work of construction and enter into a contract (a “Main Contract”) with that contractor. Under the terms of the Main Contract the contractor was obliged to assume liability for the design of the supermarket in question. However, it was contemplated that the contractor would enter into contracts of novation with Tesco and each relevant professional organisation engaged to design any aspect of the supermarket under which the benefit and burden of the contract originally made between Tesco and the particular organisation was effectively transferred to the contractor. Separately, so it appears, Tesco engaged quantity surveyors to act in connection with the particular project to advise on costs and, to an extent, to act as agents of Tesco in relation to such matters as securing the execution of appropriate contract documentation.

To facilitate the method of proceeding which I have described in the preceding paragraph Tesco caused to be prepared what was described as “Standard Documentation for use in connection with Design and Construct Contracts” (“the Standard Documentation”). The Standard Documentation comprised:-

The Standard Documentation seems to have been altered from time to time. The making of alterations resulted in the production of different “Issues” of the Standard Documentation. For the purposes of the trial of the preliminary issues I have been concerned with “Issue No.6”, dated, it seems, April 1987, to which I shall refer in this judgment by the name “Issue No. 6”, and with “Issue No.7”, to which again I shall refer by that designation. Issue No. 7 appears to have been dated, in its final printed form, February 1989. It seems that prior to appearing in its final printed form Issue No. 7 had been used in draft versions with different dates.

The detail of Issue No. 6 is not material for present purposes.

The form of Main Contract included within Issue No. 7 (“the Issue 7 Main Contract”) comprised Articles of Agreement (“the Articles”) and attached conditions (“the Conditions”).

The Articles contained, amongst others, these recitals:-

“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.

The Conditions included:-

“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.”

The Architect’s Agreement included within Issue No.7 (“the Issue 7 Architect’s Agreement”) included these provisions:-

“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.”

In the Novation Agreement included within Issue No. 7 (“the Issue 7 Novation Agreement”) Tesco was called “the Company”, the contractor party to it was called “the Contractor” and the professional organisation party to it was called “the Consultant”. The expression “the Principal Agreement” was defined as meaning the relevant Issue 7 Main Contract, while the expression “terms of Engagement and Conditions of Appointment” was defined as meaning whatever agreement had previously been made between Tesco and the relevant professional organisation. The Issue 7 Novation Agreement included these provisions:-

“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.”

I shall come separately to deal with the involvement of PHJ in the design of the Store, but it is material at this stage to notice that that involvement commenced some time in 1988. That was a considerable period before the execution of the PHJ Agreement. Costain’s involvement seems to have commenced when it was invited, by a letter dated 16 November 1988 written on behalf of Tesco by Bucknalls, to submit a first stage tender for the construction of the Store. That was not the first time that Costain had been invited to submit a tender for the construction of a supermarket for Tesco. It was clear from the material put before me that Costain was at that time familiar with Tesco’s wishes to use Standard Documentation and to have the contractor for any supermarket enter into a Main Contract under seal under which the contractor accepted design responsibilities. It also appeared that Costain was in principle prepared to deal with Tesco on the terms desired by Tesco, subject to appropriate back-to-back arrangements being made with the relevant architects and other professional organisations.

My attention was drawn in particular to the involvement of Costain in three projects for Tesco in 1988 and 1989. One project concerned the construction of an extension to a warehouse at Crick. In that case it appeared that Costain executed a form of the Main Contract included in Issue No. 6 with amendments which included deletion of clause 4 (which was not materially different from clause 4 of the Conditions). That form of contract as executed was sent to Messrs. Spicer Partnership (“Spicer”), quantity surveyors acting on behalf of Tesco in relation to that project, under cover of a letter dated 24 March 1988. Execution seems to have preceded the execution of novation agreements with the relevant professional firms involved with the design in that case. Novation agreements were executed subsequently, but in the interim no form of agreement was concluded as between Tesco and Costain because the amendments made by Costain to the form of agreement which it executed were not acceptable to Tesco.

The second of the three projects to which I have referred concerned the construction of an extension to the Tesco supermarket in Pontypridd. Again Spicer acted as quantity surveyors to Tesco. From the terms of a letter dated 25 March 1988 written by Costain to Spicer it appears that Costain executed and returned to Spicer contract documents in that case notwithstanding that no novation agreement had been made with Messrs. Ove Arup and Partners (“Arup”), although novation agreements had been made with other professional organisations involved.

The third project to which I have referred concerned the construction of a supermarket in Mold. In that case it appears that Costain executed a form of the Main Contract included within Issue No. 6 and returned it under cover of a letter dated 23 March 1989 to Messrs. Robert H. Gleave and Partners (“Gleave”), the quantity surveyors acting for Tesco in relation to that project, notwithstanding that the structural engineers involved in that project had not at that time executed a novation agreement. The structural engineers did subsequently execute such an agreement.

I shall return to what is said to be the significance of the events to which I have referred in the previous three paragraphs of this judgment.

Following the indication on the part of Costain that it was interested in submitting a tender for the construction of the Store tender documents were sent to it by Bucknalls under cover of a letter dated 21 November 1988. In that letter it was indicated that the intended forms of contract for the project were those included within Issue No.6. There were also sent under cover of that letter Employer’s Requirements, and a form of tender, amongst other documents. The Employer’s Requirements identified as “Architect” for the purposes of the project PHJ, as “Quantity Surveyor” Bucknalls, as “Structural Engineer” Ernest Green Partnership Ltd. (“Green”) and as “Building Services Engineer” Messrs. Sibley Robinson Partnership (“Sibley”). The Employer’s Requirements also identified as “Employer’s Representative” Mr. Kevin Pleass, a Project Controller. At folio 1/4 the Employer’s Requirements included this:-

“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.”

The other companies invited to tender for the construction of the Store included Wimpey Construction Ltd. (“Wimpey”).

There were various exchanges between Bucknalls and Costain in the period leading up to the submission by Costain of the final version of its tender. Tenders on alternative bases were sought. The final version of the tender was submitted on 16 December 1988. It was in a standard printed form which had been provided by Bucknalls and which had been completed on behalf of Costain in manuscript. The standard printed form commenced with these words:-

“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 ”

By a letter dated 11 January 1989 Bucknalls informed Costain that its tender had not been successful.

At some point prior to about the beginning of March 1989 Arup joined the design team for the Store as highway engineer. It seems to have been intended that Arup would be treated for the purposes of contractual relationships concerning the project in the same way as PHJ, Green and Sibley.

It appears that there was a falling out between Tesco and Wimpey as a result of which Tesco had decided, at or about the beginning of March 1989, that it wished Costain, rather than Wimpey, to undertake the construction of the Store. From an internal memorandum written by Mr. H. R. Whatley of Costain, of which a copy was put in evidence, it seems that Tesco’s decision was communicated to Costain at a meeting held on 7 March 1989. In another internal memorandum, this time dated 10 March 1989, Mr. G. M. Joyce of Costain indicated to Mr. Clive Franks of the Costain Legal Department that the form of contract proposed to be made between Tesco and Costain was the Issue 7 Main Contract. Tesco did not communicate its intentions in relation to the construction of the Store to Costain in writing until Mr. Bruce Fletcher, Head of New Works, wrote a letter dated 20 March 1989, which was in these terms:-

“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 3^rd April 1989 with completion on 19^th 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.”

Costain replied to the letter dated 20 March 1989 in a letter dated 30 March 1989. What Costain said in the latter letter was:-

“We acknowledge receipt of and thank you for your letter dated 20^th 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 20^th March 1989 signed by our Managing Director, Mr. W. Sperry, in acknowledgement of the terms and conditions contained therein.”

Before Costain replied to Mr. Fletcher’s letter dated 20 March 1989 he had in fact written again, this time in a letter dated 23 March 1989. The material part of that letter read:-

“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 3^rd 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 2^nd 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.”

Costain responded to Mr. Fletcher’s letter dated 23 March 1989 in a letter dated 31 March 1989 as follows:-

“We acknowledge receipt of and thank you for your letter dated 23^rd March 1989 giving us authority to commence the main contract works on the 3^rd April 1989 generally in accordance with the tender documents, with a contract completion date of 19^th 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.”

Costain then proceeded with the work of construction of the Store.

Under cover of a letter dated 8 June 1989 Costain sent to Bucknalls calculations indicating that its second stage tender for the Store amounted to a total of £8,352,834.56. Bucknalls replied in a letter dated 28 June 1989 that a figure of £8,251,454 had by that time been agreed between Bucknalls and Costain. In a letter dated 7 July 1989 to Tesco Bucknalls recommended acceptance of a contract sum of £8,251,454. Tesco apparently accepted that recommendation, although on the evidence put before me it was unclear exactly when or how.

On or about 29 June 1989 Bucknalls sent to Costain revised Employer’s Requirements in relation to the construction of the Store.

After it commenced the construction of the Store Costain included within the sums of which it claimed payment from time to time sums claimed by PHJ in respect of its own fees. It appears that PHJ submitted invoices in respect of its fees to Costain following receipt of a letter dated 4 May 1989 written by Mr. Pleass. The letter was copied to Costain. In his letter Mr. Pleass wrote:-

“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 21^st 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.”

Sums which were included in payments made by Tesco to Costain in respect of the fees of PHJ were passed on by Costain to PHJ under cover of letters following a standard pattern and incorporating a final paragraph in identical form. The letters were dated, respectively, 26 June 1989, 30 August 1989, 5 October 1989, 9 November 1989, 19 December 1989, 15 January 1990, 7 February 1990, 9 March 1990, 29 March 1990, 18 May 1990 and 15 November 1992. Each was headed “Without Prejudice”. The terms of the letter dated 26 June 1989 may be treated as typical of the pattern of all of the letters. The text of that letter was:-

“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 7^th 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.”

During the course of the construction of the Store representatives of Costain chaired site meetings and took the minutes of such meetings.

In a letter dated 11 May 1989 to PHJ Costain wrote:-

“We are writing to advise you that from the 12^th 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.”

Thereafter Costain continued to write to PHJ directly concerning matters relevant to the design of the Store. The detail of the communications is not material to determination of the preliminary issues, so a few examples of the sort of letter which Costain wrote to PHJ will suffice.

In a letter dated 12 May 1989 to PHJ Costain said:-

“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.”

Under cover of a letter dated 22 May 1989 Costain sent to PHJ:-

“for your immediate attention the Tesco’s drawing detailing their present requirements for the Customer Catering Facility at the above contract.”

In a letter dated 23 May 1989 to PHJ Costain wrote:-

“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.”

With a letter dated 8 June 1989 to PHJ Costain sent details of the pit to the scissor lift and dock levellers supplied by its subcontractors and requested PHJ to ensure that any appropriate details were reflected in PHJ’s drawings.

In a letter dated 14 June 1989 Costain wrote to PHJ in the following terms:-

“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.”

In a letter dated 8 August 1989 to PHJ Costain complained about the non-availability of certain information. The letter was in these terms:-

“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.”

Costain also made a habit of sending to PHJ for comment any drawings prepared by its subcontractors.

Bucknalls sent to Costain under cover of a letter dated 13 September 1989 two copies of Issue 7 Novation Agreements relating to Sibley and Green. Costain returned those documents to Bucknalls under cover of a letter dated 22 September 1989 which included this paragraph:-

“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.”

While in many respects illustrated by matters to which I have already referred Costain operated as if it was setting the pace for work in connection with the Store not only by itself, but also by PHJ, Green and Sibley, the position in relation to Building Regulations approval appears to have been handled substantially by PHJ to the exclusion of Costain.

In the minutes of the first meeting between representatives of Costain, Tesco, PHJ, Green, Sibley and Bucknalls, which was held on 14 March 1989 it was recorded, at minute 2.02 that:-

“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).”

From the first meeting between Costain, Tesco, PHJ, Green, Sibley and Bucknalls forward an item, numbered either 2.01 or 2.02, of the minutes remained the question of Building Regulation approval.

The minutes of the meeting held on 29 March 1989 at 2.02 recorded that:-

“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.”

The relevant minute, 2.02, in those of the meeting held on 12 April 1989 read:-

“PH&J had received queries from Redditch Borough Council regarding fire protection. PH&J would respond by 14.4.89.”

In fact it appears that PHJ did not respond within the timescale expected by the Council, with the result that by a notice dated 21 April 1989 the plans deposited with the Council were rejected for want of the supply of information requested by the Council’s letter dated 31 March 1989. That rejection seems to have spurred PHJ into action, for in a letter dated 25 April 1989 to the Council it sought to deal with the outstanding information requested by the Council, including in particular concerning fire protection. In relation to cavity barriers the letter said this:-

“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.”

In a letter to the Council dated 19 May 1989 PHJ confirmed that the Council did not require a formal resubmission of the Building Regulations application following the rejection of plans or a formal application for relaxation of requirements in relation to cavity barriers in the sales area.

Minute 2.02 of the meeting held on 10 May 1989 recorded that:-

“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.”

The detail of records in the minutes thereafter in relation to the progress of the Building Regulations application is not material. It is sufficient to state that all relevant minutes indicated that the matter was being dealt with by PHJ.

Building Regulations approval of the plans of the Store was, in the event, granted by the Council on 19 December 1989.

Construction of the Store was completed on about 27 February 1990.

It appears that no serious effort was made either on behalf of Tesco or on behalf of Costain to address the question of completion of contract documentation in relation to the Store until the construction of the Store was almost complete. Even at that time the initiative seems to have come substantially from Costain, which had the greatest difficulty in extracting any worthwhile, still less prompt, response from Bucknalls on behalf of Tesco.

It was Mr. Gerald Paine, at the time employed by Costain as a Managing Quantity Surveyor, who sought, unsuccessfully as it turned out, to advance the question of contract documentation. His efforts really began with a letter to Bucknalls dated 16 January 1990, in which he wrote:-

“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 29^th 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.

Unhappily Mr. Paine’s optimism that he would hear shortly after his letter of 16 January 1990 from Bucknalls proved to be misplaced. He did send a reminder dated 1 March 1990 in which he referred to telephone conversations with Mr. Matthews of Bucknalls after the date of the letter, but by the date of the letter no final response had been forthcoming. Eventually Miss Susan Bell of Bucknalls did reply, in a letter dated 15 March 1990, with some minor observations. However, the matter of finalising contract documentation was not then pressed forward by Bucknalls.

Miss Bell did write a letter dated 14 February 1990 to PHJ requesting signature on behalf of PHJ of an Issue 7 Novation Agreement. PHJ, by Mr. Lyons, did sign such an agreement, but not until 4 May 1990. It was never executed either on behalf of Tesco or on behalf of Costain.

Mr. Paine replied to Miss Bell’s letter dated 15 March 1990 in a letter dated 26 March 1990. The part of the letter which is material for present purposes was in the following terms:-

“We acknowledge receipt of your letter dated 15^th 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 1^st March 1990, concerning our proposed amendments to the revised Employer’s Requirements, has not been covered in your letter of 15^th 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 19^th 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 22^nd September 1989 have not been corrected….

We look forward to receiving the Contract Documents for execution by this Company at your earliest convenience.”

On this occasion Bucknalls, by Miss Bell, replied rather more promptly. In a letter dated 3 April 1990 she wrote:-

“Further to your letter dated 26^th 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.”

Mr. Paine’s reply to Miss Bell’s letter dated 3 April 1990 was dated 12 April 1990. What he said was:-

“We acknowledge receipt of, and thank you for, your letter dated 3^rd 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 22^nd 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.”

At that point the matter seems to have lost any significant steam. Miss Bell did reply fairly promptly, in a letter dated 19 April 1990. She wrote:-

“Further to your letter dated 12^th 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.”

Silence then ensued. Mr. Paine enquired as to the then current position in a letter to Bucknalls dated 25 May 1990.

“Your letter of 19^th 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?”

There was no response to Mr. Paine’s letter dated 25 May 1990. He wrote again on 7 August 1990. He said:-

“We refer to our letter of 25^th May 1990 and note that we do not appear to have received your reply.

You will recall that your letter of 19^th 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.”

Miss Bell did reply on this occasion, in a letter dated 29 August 1990. What she wrote in that letter was:-

“Thank you for your letter of 7^th 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.”

Another long pause ensued. It ended when Mr. Paine took up the cudgels once more. In a letter dated 24 October 1990 to Bucknalls he wrote:-

“We refer to your letter of 29^th 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.”

Miss Bell gave the update requested in a letter dated 30 October 1990. She said:-

“Thank you for your letter of the 24^th October 1990 regarding the contract documentation on the above project.

On Wednesday 24^th 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.”

Mr. Paine commented on the suggestions made in Miss Bell’s letter dated 30 October 1990 in a letter dated 2 November 1990. His comments were:-

“Thank you for your letter dated 30^th 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.”

Miss Bell left it until 11 December 1990 before responding to Mr. Paine’s letter of 2 November 1990. In her letter of 11 December 1990 she wrote:-

“Thank you for your letter of 2^nd 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.”

In fact the promised Contract Documentation never came. No one from Bucknalls ever seems to have written to Costain again on the subject of contract documentation. Mr. Paine chased up the matter at intervals until June 1992, writing a total of four letters over a period of a year and a half or so. Then, just as Tesco and Bucknalls seem to have lost interest in the matter by about the end of 1990, he lost interest also. There the matter rested until the events which led up to the commencement of this action. As some reliance was placed upon the particular terms of Mr. Paine’s four letters, dated, respectively, 12 February 1991, 16 August 1991, 6 January 1992 and 24 June 1992, I should set out the terms of each letter. That dated 12 February 1991 was in these terms:-

“Your letter of 11^th 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 16^th 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 6^th 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 was in the terms of the Issue 7 Architect’s Agreement. As despatched by Tesco in letter form it was dated 22 February 1989. After execution on behalf of PHJ it was sent to Tesco under cover of a letter dated 21 March 1989 to Mr. Pleass written by Mr. Kenneth Fairbairn, the senior partner in PHJ, in which he wrote, so far as is presently material:-

“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.

On 17 July 1993 a fire was started deliberately in a newsagent’s shop adjacent to a supermarket belonging to Tesco at Grove Green, Maidstone in Kent. The fire spread from the point at which it had commenced to the supermarket and caused serious damage. That prompted a concern on the part of Tesco, and in particular Mr. Fletcher, that all Tesco supermarkets constructed in the previous six years should be inspected so as to ensure that all appropriate fire prevention works had been incorporated in the construction. Tesco seems to have considered it appropriate to seek to require, in the case of each supermarket constructed during the relevant period, the contractor who built it to carry out the inspection considered necessary as a matter of urgency and without payment. That was perhaps inviting as a response an injunction in emphatic terms to depart. However, Tesco’s view of its power in the construction market place being such that contractors would be anxious to maintain its goodwill seems in large measure to have been justified, at least insofar as inspections were undertaken, and apparently without charge, but at nothing like the pace which Tesco seems to have considered was appropriate.

A letter in a standard form to contractors was prepared within Tesco which gave the instructions to which I have referred. An example of such a letter was one dated 27 July 1993 written to Costain in relation to a supermarket at Chorley in Lancashire. The text of the letter said this:-

“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.

A supermarket which Costain had built for Tesco was at New Oscott (“the New Oscott Store”). Costain never in fact received from Tesco a request to inspect the Store. However, by early September 1993 it was anticipating that it would receive such a request. Mr. Matthew Burley, who was employed by Costain at the time as a Site Manager, wrote to PHJ a letter dated 9 September 1993 under the heading “Tesco, Redditch”, in which he said:-

“Further to our letter dated 31^st 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.

Mr. Burley gave evidence before me. His evidence, which I accept, was that he did not now recall how he came to know that Costain was being required by Tesco to undertake inspections of supermarkets which it had constructed. He also said, and again I accept, that he did not now recall the content of the letter dated 31 August 1993 referred to in his letter to PHJ dated 9 September 1993, and that he understood that no copy of it could be found. He said, and Mr. Robert Heckels, who also gave evidence before me, confirmed, that he had been involved with Mr. Heckels in connection with the New Oscott Store and it was simply for that reason that he made his request for drawings of the Store to Mr. Heckels. I accept that, and I also accept the evidence of Mr. Heckels that he personally in fact had nothing to do with the Store.

After the conclusion of what was intended to be a hearing of the oral evidence in relation to the preliminary issues a copy of the letter dated 31 August 1993 written by Mr. Burley to PHJ came to hand, along with copies of some other documents relating to the New Oscott Store. It became clear from those documents that Tesco had written a letter dated 20 August 1993 in the standard form to which I have referred to Costain requiring it to carry out an inspection of the fire prevention works at the New Oscott Store. That prompted Mr. Burley to write the letter dated 31 August 1993 to PHJ, in which he said, simply:-

“TESCO – NEW OSCOTT

We enclose for your information and records correspondence received from Tesco dated 20^th 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 31^st 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.

Although it was he who requested drawings of the Store from PHJ, Mr. Burley told me, and I accept, that he had no recollection either of receiving the drawings requested or of undertaking an inspection of the Store. In his oral evidence he was adamant that he had never undertaken a fire inspection. He said:-

“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.

In 1993 Mr. Peter Gibson-Leitch was employed by Costain as a Contracts Manager based at its office in Birmingham. He wrote a letter, headed “Tesco, Redditch”, to Tesco which was dated 19 October 1993 and was copied to PHJ. The text of the letter was:-

“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.”

Mr. Gibson-Leitch gave evidence before me. He said, and I accept, that he did not recall the events surrounding the inspections of Tesco supermarkets in any real detail. That is hardly surprising, given the lapse of time and that, as he told me, he had many other concerns in the ordinary course of his working life. In his witness statement dated 14 April 2003, in passages which I accept, Mr. Gibson-Leitch said:-

“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.

Tesco seems to have received Mr. Gibson-Leitch’s letter dated 19 October 1993, for in a running computer listing maintained by Tesco as part of its monitoring of the process of inspection of its supermarkets a note was made, as was demonstrated by a version of the listing dated 19 January 1994 of which a copy was put in evidence, in relation to the Store that “Contractor confirmed compliance”. A different listing, circulated under cover of an internal Tesco memorandum written by Mr. Fletcher and dated 29 March 1994, noted that in respect of the Store that “Main contractor confirmed all works complete”. The same listings indicated that Tesco had received letters from Costain in relation to the other supermarkets which Costain had constructed for Tesco in the Midlands, but none of those letters can now apparently be found.

Despite the indications to which I have referred in the preceding paragraph that Tesco did receive, and note the contents of, Mr. Gibson-Leitch’s letter dated 19 October 1993, Mr. Paul Dainty, who at the material time was employed by Tesco as a Project Controller, wrote a letter dated 28 April 1994 to PHJ in which he said this:-

“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.”

Mr. Dainty was called as a witness on behalf of Tesco. At paragraph 31 of his witness statement dated 3 April 2003 he said in relation to the letter dated 28 April 1994:-

“… 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.

While I have no difficulty in accepting that Mr. Dainty could not now recall why he wrote his letter dated 28 April 1994, the fact that he did write it indicates to me that at the Tesco end the nature of the inspection exercise was treated as being somewhat mechanical. That is to say, rather than there being any conscious consideration of reports of inspections, it was more a case of ticking off a supermarket if there had been a letter saying that fire stopping works were satisfactory, and not ticking it off if there had not. The writing by Mr. Dainty of the letter dated 28 April 1994 presupposes that he overlooked when he did it not only Mr. Gibson-Leitch’s letter of 19 October 1993, but also both of the versions of Tesco’s running listing of supermarkets. However, the question whether Tesco in fact relied upon either Costain’s letter dated 19 October 1993 or Costain’s letter dated 27 May 1994 is one for resolution following the second round of this litigation, and so I say no more about it now. However, Tesco’s case as to what it would have done had it not received assurances as to the position concerning the Store does have a relevance to the preliminary issues, and so, without deciding whether that case is well-founded or not, it is material to set out the indications in the evidence given before me as to what that case is.

Mr. Tony O’Connor of PHJ made a file note dated 16 May 1994 as to the top part and 17 May 1994 as to the bottom part under the heading “FIRE STOPPING – TESCO REDDITCH”. The note was in these terms:-

“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. ”

It appears that Mr. O’Connor’s note is inaccurate in a number of respects, although it is unclear whether he noted accurately what he was told, that information being inaccurate, or whether the note itself was inaccurate, or a combination of the two.

Mr. O’Connor himself was called as a witness, but his evidence, which I accept, was that he had no recollection of the conversations recorded in his files note and no recollection of the circumstances prevailing at the time he made the note. Other than in relation to the matters recorded in his notes and the sending of copies of drawings showing fire precautions to Costain on about 12 October 1993, Mr. O’Connor had nothing to do with the Store.

Mr. Gibson-Leitch was asked about the references to him in the note. His evidence, which again I accept, in his witness statement about it was:-

“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.”

Although not something upon which Mr. Gibson-Leitch specifically commented, Mr. O’Connor’s note was also inaccurate in indicating that no report had been made to Tesco following an inspection in 1993 – Mr. Gibson-Leitch had written the letter dated 19 October 1993.

Mr. Heckels was also asked to comment on Mr. O’Connor’s note. His evidence in his witness statement dated 8 April 2003, which I accept, was:-

“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 19^th 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.”

Mr. Charles Truman was not called to give evidence in person, but a witness statement made by him was put before me as his unchallenged evidence. He ceased his employment with PHJ on 31 May 1993. He had nothing to do with any inspection of the Store in September or October 1993.

In the result it seems to me that no reliance can be placed on the file note of Mr. O’Connor as an accurate record of anything which actually happened, whether or not it was, in whole or in part, an accurate record of what Mr. O’Connor was told on 16 or 17 May 1994.

There was undoubtedly some contact between PHJ and Costain following Mr. Dainty’s letter dated 28 April 1994 to PHJ, for Mr. Gibson-Leitch was prompted to write again to Tesco, this time marking his letter for the attention of Mr. Dainty. The letter was dated 27 May 1994 and headed “TESCO – REDDITCH”. It was copied to Mr. Welch at PHJ. The letter said, simply:-

“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.”

Mr. Welch himself replied to Mr. Dainty’s letter in a letter dated 3 June 1994, which was copied to Costain. What he said in his letter was:-

“Thank you for your letter dated 28^th 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.”

Mr. Dainty in his evidence told me that he could not now recall having seen either Mr. Gibson-Leitch’s letter dated 27 May 1994 or that of Mr. Welch dated 3 June 1994, but he felt that he must have received them. However, at paragraph 34 of his witness statement dated 3 April 2003 Mr. Dainty asserted with confidence that:-

“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.”

Mr. Richard Rowswell was employed by Tesco in 1993 and 1994 as Fire and Structural Safety Manager. He retired on account of ill-health in 1996. However, he did make a witness statement which was put before me pursuant to the provisions of Civil Evidence Act 1995. At paragraph 7 of that witness statement Mr. Rowswell referred to the letters dated 19 October 1993 and 27 May 1994 written by Mr. Gibson-Leitch. He went on:-

“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…”

There was no real dispute about the facts which I have set out in this section of this judgment. However, it was an important part of the case of Costain that I should draw inferences in particular from the file note of Mr. O’Connor as to the participation of PHJ in the inspection made by Costain prior to Mr. Gibson-Leitch writing his letter dated 19 October 1993 to Tesco. I find it impossible to draw the suggested inferences. I have already indicated my view of the accuracy of the file note. The position on the evidence which I have indicated I accept is that it is not possible to say who on behalf of Costain made an inspection of the Store with a view to reaching a conclusion as to whether it had been constructed in accordance with its design and in accordance with applicable statutory regulations, or when, other than approximately. No witness asserted that the inspection had been made jointly with some representative of PHJ. The evidence on behalf of Costain went no further than to suggest that it would have been usual for an inspection of the kind in question to have been made with the architect who had in fact designed the building, and possible that that had happened in this case. However, Mr. Gibson-Leitch did not in either of his letters dated, respectively, 19 October 1993 and 27 May 1994 mention that an inspection had been made jointly with a representative of PHJ or that advice had been sought from PHJ as to whether its design of the Store did in fact comply with relevant statutory regulations. As Mr. Gibson-Leitch was contemplating a visual inspection of the Store to confirm that it had been constructed in accordance with the drawings of PHJ, there was no obvious reason for a representative of PHJ to attend at the inspection. The contribution which PHJ was, on Costain’s case, expected to make, was to confirm, or not, that the design complied with applicable statutory regulations. That was not specifically requested in Mr. Burley’s letter dated 9 September 1993, or at any other time, on the evidence. Had it been requested, what providing the relevant information involved was simply a consideration of the drawings against the background of a knowledge of the relevant regulations. That could have been done without whoever was entrusted with the task on behalf of PHJ leaving his desk. No one has been identified as the person who was likely to have attended an inspection on behalf of PHJ who is a viable candidate for the role. The only suggested person, Mr. Truman, no longer worked for PHJ at the relevant time, and was not appropriately qualified to advise as to compliance with relevant statutory regulations in any event.

In their closing submissions Mr. Marcus Taverner Q.C, and Mr. Simon Hargreaves, who appeared on behalf of Costain, called attention to the documents relating to the New Oscott Store which had by then become available and changed their focus somewhat from that which it had originally been – an invitation to infer that a representative of PHJ had made an inspection of the Store jointly with a representative or representatives of Costain – to an invitation to infer that following the request to Mr. Heckels to supply the fire precautions drawings for the Store PHJ had reconsidered the adequacy of the design of the fire precautions and assured Costain that those designs were satisfactory, as well as inspected the Store jointly with Costain. Given that the letter dated 7 September 1993 written by Mr. Heckels indicated, so far as it went, that PHJ had not undertaken a joint inspection of the New Oscott Store jointly with Costain, one can readily understand that alteration in focus. In fact it seems to me that there is no reason to infer that PHJ did reconsider the adequacy of its design of fire precautions at the Store following receipt of Mr. Burley’s letter dated 9 September 1993. Whereas the request in relation to the New Oscott Store had been dealt with by the job architect, Mr. Heckels, the request in relation to the Store was dealt with by someone who had no knowledge of the Store and was not even a qualified architect, Mr. O’Connor. The reconsideration by Mr. Heckels of his design of fire precautions for the New Oscott Store had not revealed any problems and that may well have reassured PHJ that there was nothing to reconsider in relation to the Store. The fundamentals of the design of fire stopping and inhibiting measures for each of the New Oscott Store and the Store seem to have been similar, although while the drawings for the New Oscott Store did show the lines of cavity barriers in the mono-pitched roof, those for the Store did not. It would seem that Costain did not request any representative of PHJ to attend any opening up at the New Oscott Store, and that circumstance also may have led PHJ to consider that there was no need to reconsider its designs in respect of the fire stopping and inhibiting works at the Store. In reality there appears to me to be nothing in the evidence to justify the drawing of the revised inference for which Mr. Taverner and Mr. Hargreaves contended.

As a further point which appeared to arise from the documents relating to the New Oscott Store and the further cross-examination of witnesses called on behalf of PHJ in relation to them, Mr. Taverner submitted that the letter dated 20 August 1993 from Tesco put the request contained in the letter dated 31 August 1993 written by Costain to PHJ in a context which could usefully also have informed PHJ’s response to the request contained in the letter dated 9 September 1993, namely that both Tesco and Costain were seeking reassurance as to the adequacy of the design by PHJ of fire stopping and inhibiting measures, and not simply seeking to be provided with copies of drawings. That that was so, Mr. Taverner contended, was plain both from the terms of the Tesco letter dated 20 August 1993 copied to PHJ, but also from the terms of the letter dated 31 August 1993 written by Costain. In particular, Mr. Taverner asserted that the sentence in the latter letter, “Please supply by return all relevant drawings indicating areas/details to be investigated”, was to be understood as a request by Costain not merely for copies of drawings which showed fire protection measures, but for advice as to which precise areas of the building or details within it needed to be investigated. Mr. Taverner sought to support that submission by reference to Mr. Heckels’s response in his letter dated 7 September 1993 in which, so Mr. Taverner contended, Mr. Heckels gave just the sort of advice which had been requested. The force of that submission was somewhat diminished by a whiff of a criticism that by the terms of his reply Mr. Heckels had suggested, erroneously, that all that needed to be considered was the fire protection to the structural steelwork. In fact, in my judgment, the submission was unsound. The sentence from the letter dated 31 August 1993 upon which Mr. Taverner relied does not seem to me to bear the meaning for which he contended. It was not, in my judgment, a request that PHJ identify what investigations Costain should carry out, or as to what Costain should look for in undertaking its inspection, as Mr. Taverner seemed to assert, but a simple request that PHJ should provide copies of the relevant drawings. In other words, the expression “indicating areas/details to be investigated” was adjectival, describing the drawings of which copies were wanted, and not equivalent to a conjunction and an infinitive, which is what Mr. Taverner’s submission would involve. That Mr. Heckels, by his response in his letter dated 7 September 1993 sought to explain why the drawings of which he sent copies showed what they did, and not something else, cannot remotely, as it seems to me, be taken as any giving of advice that the designs were proper designs or any indication that PHJ accepted a duty of care to Costain or anyone else in relation to the provision of the copy drawings or what was shown on them.

Mr. Nicholas Laird was employed by Costain in 1994 as an Area Manager. He wrote a letter dated 18 May 1994 to PHJ which was in these terms:-

“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.”

At paragraph 11 of the Amended Reply to the Defence of Costain in Action 07 reliance was sought to be placed upon Mr. Laird’s letter as an example of Costain “purporting to act as though there had been a novation in respect of PHJ’s Architect’s Appointment”. In fact it seems that reliance was sought to be placed on the letter as some sort of admission that there had been a novation of the PHJ Agreement, for the letter was written long after completion of the construction of the Store. It seems to me to be plain that, whatever the merits of the assertion that there was in fact a novation by conduct of the PHJ Agreement as between Costain, PHJ and Tesco, or the assertion that Costain is estopped from denying that there had been such a novation, the issue is not advanced by reliance on Mr. Laird’s infelicitous use of language as to a matter concerning which it would seem he had no knowledge, as it was not suggested that he had had any involvement in the construction of the Store or in the making of any contractual arrangements in relation to it. All he was really saying to PHJ in his letter, as it seems to me, was a question has arisen as to the structural safety of this building which you designed and I would like you to advise me about it. The building at which the incident to which Mr. Laird referred had taken place was in fact the New Oscott Store.

An agreement in writing dated 1 July 1999 (“the Costain Agreement”) was made between Costain and the Other Costain Company. A copy of the Costain Agreement was put in evidence. The recital to the Costain Agreement provided that:-

“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;”.

By clause 2 of the Costain Agreement provision was made for the sale and purchase of the Business and the Assets as follows:-

“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.”

The “Assets” the subject of the Costain Agreement were more specifically dealt with in clause 3 of the agreement. Clause 4 was concerned with “the Liabilities” and was in these terms:-

“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;”.

Clause 7 of the Costain Agreement was entitled “Contracts and Third Party Rights”. The expression “Third Party Rights” was defined in clause 1 of the Agreement as meaning:-

“(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.”

By clause 10 of the Costain Agreement it was provided that:-

“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.”

No attempt was in fact made to seek to novate as between Costain, the Other Costain Company and Tesco any contractual arrangement which there may have been as between Costain and Tesco in relation to the Store. Equally no attempt was made by Costain to assign to the Other Costain Company the benefit of any contractual arrangement relating to the Store. On its face the effect of the Costain Agreement, so far as was relevant to any claim made against Costain in Action 07 or Action 439, was simply to impose upon the Other Costain Company an obligation to indemnify Costain in respect of such claim.

It is convenient to consider the preliminary issues with which this judgment is concerned in nine categories, namely:-

It was a feature of the trial of preliminary issues that, although some issues were of direct interest only to Tesco and Costain, or only to Tesco and PHJ, each of Costain and PHJ sought, where it had no adverse implications for its own position to do so, to support the case of Tesco against the other. Nowhere was this more apparent than in relation to the Costain Contract Issues. While it seemed to me that the general nature of the case advanced on behalf of Costain by Mr. Taverner and Mr. Hargreaves was tolerably clear, namely that Costain only ever carried out work in connection with the Store pursuant to the terms of the letters dated, respectively 20 and 23 March 1989, the material parts of which I have set out earlier in this judgment, which were characterised as letters of intent, there seemed to be a considerable amount of forensic mystification expressed both on behalf of Tesco by Mr. Roger Stewart Q.C. and Mr. Graham Chapman, and on behalf of PHJ by Mr. Peter Coulson Q.C. and Mr. Derek Holwill as to whether Costain could possibly be contending that it had not entered into any contract at all with Tesco in relation to the Store. The position of each of Tesco and PHJ on this question seemed to be that it was so obvious that there was a contract that the contrary could not be advanced by someone in control of his facial muscles.

Mr. Stewart and Mr. Chapman at paragraph 46 of their written opening in relation to issue 1 said:-

“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 20^th 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. ”

The submissions on behalf of Tesco quoted in the preceding paragraph were echoed on behalf of PHJ in the written opening of Mr. Coulson and Mr. Holwill. At paragraphs 1.2.4 and 1.2.5 they wrote:-

“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.”

That said, I was reminded on behalf of each of Tesco, Costain and PHJ of relevant authority on the question of contract formation, and to that authority I now turn.

At paragraph 30 of their written opening Mr. Stewart and Mr. Chapman submitted, rightly as it seems to me, that the principles applicable to the question whether there was a concluded contract were conveniently set out in the judgment of Lloyd LJ in Pagnan SpA v. Feed Products Ltd. [1987] 2 Lloyd’s Rep 601 at page 619:-

“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”.”

My attention was drawn on behalf of each of Tesco, PHJ and Costain, but particularly on behalf of PHJ, to what Steyn LJ said about formation of contracts in G. Percy Trentham Ltd. v. Archital Luxfer Ltd. [1993] 1 Lloyd’s Rep 25 at page 27:-

“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. ”

A theme in the submissions of both Mr. Stewart and Mr. Chapman and those of Mr. Coulson and Mr. Holwill was that in order to find a contract it was not necessary in law for there to have been an offer made by one party which had been accepted unequivocally by the other. Mr. Stewart and Mr. Chapman at paragraph 29 of their written opening put it in this way:-

“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.”

At paragraph 1.2.3 of their written opening, after referring to the passage from the judgment of Steyn LJ in G. Percy Trentham Ltd. v. Archital Luxfer Ltd. which I have set out, Mr. Coulson and Mr. Holwill went on:-

“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.””

What both Mr. Stewart and Mr. Chapman, and Mr. Coulson and Mr. Holwill, seemed to be hinting at, at least, in the passages quoted in the two preceding paragraphs was that a contract came into existence as a matter of law, without more, provided only that the relevant parties were intending at some point to enter into a contract and the terms of the contemplated contract had been agreed. In other words, offer and acceptance were not really relevant, and a contract could, as it were, be imposed upon parties as a result of negotiations between them reaching a point at which nothing of substance was the continuing subject of discussion. It also appeared to be suggested that such a conclusion, namely that a contract had come into existence, was reinforced if the parties conducted themselves in the manner which would have been appropriate if the contract under negotiation had been concluded and come into effect. This approach to contract formation obviously ascribes little or no significance to formality as an indication one way or the other of an intention or not to enter into contractual relations and seems to come close to disregarding the injunction of Lloyd LJ in Pagnan SpA v. Feed Products Ltd., endorsing the expression of opinion of the trial judge, that it is the parties who are “the masters of their contractual fate”, that is to say, those who must decide whether they wish to be bound contractually to each other and, if so, by what terms. In place of that approach Mr. Stewart and Mr. Coulson appeared to be contending in effect that if parties in anticipation of concluding a contract acted as if the contemplated contract had been made, that contract would be imposed upon them as a matter of law. Not only that, but in the circumstances of the present case it seemed to be contended that there should be imposed upon Costain a contract which was to be treated as if it had been executed under seal, because the contract being negotiated, if it had been concluded would, or probably would, have been executed under seal. At paragraph 23 of their written opening Mr. Stewart and Mr. Chapman made this submission:-

“After the 19^th 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.

The English law of contract has evolved over many centuries in response to the needs of society in general, and, perhaps, the needs of commercial men in particular. It is, in my judgment, a strong strand in the policy guiding the development of the law over the years that the question whether or not a contract has been made should depend, fundamentally, upon the intention of the parties to the supposed contract, objectively ascertained, to make an agreement by which they desire to be legally bound. In other words, the law does not impose upon parties a contract which they have not made for themselves, any more than it imposes upon parties who have made a contract a term as an implied term which they have not themselves agreed just because the court considers that the term would be a beneficial addition to the contract. These points were made by Lord Pearson in Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 at page 609:-

“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.”

The court adopts an objective approach to ascertaining the intentions of the parties to a contract or supposed contract for purely practical reasons. The orderly conduct of affairs depends upon people being taken to mean what they say, rather than being able to avoid the consequences of what they say in reliance upon unexpressed reservations. Thus if, objectively, a person conducts himself, by speech, writing or behaviour, in such a way as to indicate that he intends to assume by agreement legally binding obligations the law visits upon him the objective consequences of his conduct. However, in so doing the law is not seeking to disregard what his actual intentions were, only to confine the scope of the enquiry as to his actual intentions to objective manifestations of those intentions. In their closing submissions Mr. Coulson and Mr. Holwill seemed to place great emphasis upon the evidence of various witnesses called before me, particularly on behalf of Tesco, as to their personal thoughts and beliefs in 1989 and 1990 as to whether a contract had been concluded between Tesco and Costain, and, if so, on what terms. I disregard that evidence as irrelevant to the enquiry. It is trite law that the test of contract formation is objective, as Steyn LJ pointed out in the passage from his judgment in G. Percy Trentham Ltd. v. Archital Luxfer Ltd. which I have quoted. The intentions of a possible contracting party are to be derived from his communications contemporaneously with the other supposed contracting party, and, perhaps, to a degree, from his conduct towards that party. They are not to be derived from private, unexpressed thoughts or feelings which he had at the time the contract was made, if it was made, still less from his thoughts and feelings after the event.

If the consideration of whether, in a particular case, parties have entered into a legally binding agreement is to amount to more than a consideration of how to impose liability upon a party which is viewed as morally deserving of it, that consideration must involve the application of known principles in a predictable fashion. It is in this context that the notions of offer and acceptance are of significance. If parties execute an agreement in writing, then, subject to any expressed reservations that what has been agreed is “Subject to Contract”, or some similar suspensive condition, it may usually be taken that they intend to be legally bound by that which they have agreed. In any other case in which it is said that a legally binding agreement has been made, but that is disputed, it is necessary to consider, first, whether an agreement has actually been made, and, second, if so, whether the parties to it intended to be legally bound by it. Conceptually an agreement is a meeting of minds as to a state of affairs or as to mutual rights and obligations. An agreement which is not contained in a single document executed by both parties will normally be the result of one party indicating to the other his views or proposals, and the other indicating his assent to those views or proposals. Using the traditional language of the English law of contract, one party makes an offer to the other and the other indicates his acceptance. Thus the offer and the acceptance in the first place both establish that there has been an agreement and what are the terms of the agreement. Those terms are likely also to indicate whether the parties intend to be bound in law to observe the terms of the agreement. Consequently, the notions of offer and acceptance are, in my judgment, of the highest importance in any consideration of the issues whether an agreement has been made and, if so, what were the terms of the agreement and whether the parties intended to be legally bound by those terms.

The views which I have expressed in the preceding paragraphs are not novel or controversial. They echo those expressed by Lord Diplock in Manchester City Council v. Gibson [1979] 1 WLR 294 at page 297:-

“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.”

They also echo the views of Lawton LJ in Butler Machine Tool Co. Ltd. v. Ex-Cello Corporation (England) Ltd. [1979] 1 WLR 401 at page 409:-

“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 18^th 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. ”

Mr. Coulson, in particular, seemed to come close to submitting that once a transaction had been performed on both sides, as in the case of the design and construction of the Store, it was too late for either of the parties to the transaction to contend that there had been no contract between them in relation to the transaction. He appeared to rely in support of that suggestion especially upon the observations of Steyn LJ in G. Percy Trentham Ltd. v. Archital Luxfer Ltd. in the passage which I have quoted already, and also upon those passages from the judgment of Hale LJ in Stent Foundations Ltd. v. Carillion Construction (Contracts) Ltd. (2000) 78 Con LR 188 which were set out in paragraph 1.2.3 of his written opening. The observations of Steyn LJ were the subject of some comment in HTA Architects Ltd. v. Countryside Properties Plc [2002] EWHC 482 (TCC). However, for present purposes, in my judgment, it is material to note that what Steyn LJ considered could be the relevance of the fact that a transaction was performed on both sides was that it “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.” None of these things was said to be an inevitable consequence of a transaction being performed on both sides. Steyn LJ did not in terms consider at all the case in which the parties contemplated the making of a formal agreement which in the event was never executed. He cast no doubt on the general proposition that the normal mechanism of contract formation is the coincidence of offer and acceptance.

As it seems to me, the comments of Hale LJ in Stent Foundations Ltd. v. Carillion Construction (Contracts) Ltd., upon which both Mr. Coulson and Mr. Stewart relied, need to be considered in the context of the issue in that case. What had happened was that the owner of a site in the London Docklands decided to develop it. A contractor, Wimpey Construction Management (“WCM”), in May 1988 submitted a tender for the undertaking of the development as a management contractor. Part of the work necessary to the undertaking of the development was the building of a piled retaining structure around the site. Stent Foundations Ltd. (“Stent”) was invited in June 1988 by a quantity surveyor acting on behalf of the site owner to submit a tender for the piling work. That tender was accepted on 29 June 1988, by which time WCM was the front runner for selection as the contractor for the development. On 14 July 1988 a meeting took place at which representatives of Stent, WCM and the quantity surveyors attended. WCM made clear at the meeting the form of contract which it intended should be made between it and Stent. On 17 August 1988 the quantity surveyors, acting on behalf of the site owner, instructed Stent to commence work and indicated that it would be required to enter into a sub-contract with WCM. At a meeting on 28 September 1988 WCM indicated to Stent that it would be entering into a form of management contract with all package contractors. Stent started work on 19 October 1988 and completed it by 31 January 1989. WCM said that it could not enter into a formal contract with Stent until it had entered into a contract with the site owner. That did not happen until 17 January 1989. At first instance there was an issue as to whether in those circumstances all of the terms essential to the making of a contract between WCM and Stent had been agreed. That point was not pursued on appeal. On appeal the sole issue was whether the parties intended to enter into an agreement other than formally in writing. That issue had been decided against WCM at first instance and the appeal against that finding was dismissed. Thus the context of the observations of Hale LJ was simply a consideration of the issue whether the agreement which it was accepted in the Court of Appeal had been made in terms sufficient to amount to a contract was “Subject to Contract”. In that context it is hardly surprising that Hale LJ should call attention to those aspects of the case which indicated that the parties, far from behaving as if they did not intend to give effect to their agreement until it had been formalised, actually gave effect to it in their dealings after the agreement had been made. However, in a case in which the issue is whether an agreement has been made at all the conduct of the parties towards each other may have little or no relevance to the enquiry. As Lord Sumner pointed out in Love and Stewart Ltd. v. S. Instone & Co. Ltd. (1917) 33 TLR 475 at page 477 even a statement by one party in negotiation for a contract to the other party to the negotiation that there was now a contract was not of any real assistance in answering the question whether there was in fact a contract, for the statement could simply be wrong as a matter of law. Equally, as it seems to me, the fact that parties have behaved towards each other in anticipation of the conclusion of a contract between them in the manner which would have been appropriate if they had in fact concluded the contract concerning which they were in negotiation is of little value in resolving the issue whether there was in fact a concluded contract.

In his oral submissions Mr. Stewart contended that on any view an agreement was concluded between Tesco and Costain by the despatch by Tesco of the letter dated 20 March 1989 to Costain and the return of that letter countersigned on behalf of Costain under cover of Costain’s letter dated 30 March 1989. He drew attention to the use of wording in the letter dated 20 March 1989 which he described as the language of contract, such as “in consideration of the issuance of this letter” and “please return a copy of this letter (enclosed) with your signature to acknowledge your agreement to its terms”. Mr.Taverner and Mr. Hargreaves in their written opening seemed to contend that the letter dated 20 March 1989 as countersigned and returned to Tesco did not amount to any agreement of any sort. Rather, they appeared to submit, it was a simple request to Costain to commence work which was sufficient to support a claim to payment on a restitutionary basis for work done pursuant to the request, had such been necessary. They reminded me of the decision of Robert Goff J in British Steel Corporation v. Cleveland Bridge and Engineering Co. Ltd. [1984] 1 All ER 504, in which it was held that the effect of the letter of intent in that case was that it was a mere request without any contractual force. However, in the course of his judgment, at pages 509 to 510, Robert Goff J said this:-

“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.”

It is part of the folklore of the construction industry that there exists a mythical beast, “the Letter of Intent”, the legal effect of which, if it is acted upon, is that it entitles a contractor to payment for what he does, but does not expose him to any risk because it imposes no contractual obligations upon him. As Robert Goff J pointed out in the passage quoted in the preceding paragraph, in fact the legal effect of a letter of intent depends upon the true construction of the communications between the parties and the effect, if any, of their actions pursuant to those communications.

In my judgment the principles to be applied to the construction of communications between parties in order to determine whether they have made a contract by correspondence are the same as the principles adumbrated by Lord Hoffman in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896 at pages 912H to 913F in relation to the construction of a contract in writing. As enunciated by Lord Hoffman:-

“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.”

It has become increasingly common in recent years in the construction industry for a form of “letter of intent” to be employed which, while it does indeed contain a request to a contractor to commence the execution of works, also seeks to circumscribe the remuneration to which he will be entitled in respect of work done pursuant to the request in the event that no contract is concluded. Typically the “letter of intent” will seek to provide that the remuneration of the contractor will not include any element of profit in addition to out of pocket expenses incurred in doing the relevant work or that the remuneration payable will be ascertained by someone like a quantity surveyor employed by the person making the request for work to be done. It is also likely to request that the addressee indicates his agreement to the terms set out in the “letter of intent”. The natural interpretation of a “letter of intent” of the sort now under consideration is that it is an offer to engage the addressee to commence the execution of work which it is anticipated will, in due course, be the subject of a more formal or detailed contract, but upon terms that, unless and until the more formal or detailed contract is made, the requesting party reserves the right to withdraw the request and its only obligation in respect of the making of payment for work done before the more formal or detailed contract is made is that spelled out in the “letter of intent”. If an offer in those terms is accepted either expressly, as, for example, it could be by countersigning and returning a copy of the “letter of intent” to indicate agreement to its terms, or by conduct in acting upon the request contained in the letter, it would seem that a binding contract was thereby made, albeit one of simple content.

Mr. Stewart submitted during his oral opening that the letter dated 20 March 1989 as countersigned and returned on behalf of Costain did indeed represent just such a contract as that considered in the preceding paragraph, although he emphasised that in his submission it was superseded by the agreement upon which Tesco seeks to sue Costain. Mr. Taverner in his oral opening was disposed to accept that the letter dated 20 March 1989 as countersigned and returned under cover of Costain’s letter dated 30 March 1989 might indeed be a contract of a simple kind. However, he was at pains to submit that, even if that were so, Costain did not under the simple contract accept any responsibility for the adequacy of design work done in relation to the Store by PHJ or any other party than itself. Mr. Stewart disputed that submission and contended that, upon proper construction, even under the simple contract Costain accepted contractual responsibility for all of the design work done in connection with the Store.

In support of their submissions summarised in the preceding paragraph both Mr. Stewart and Mr. Taverner called attention to the introductory paragraph of the letter dated 20 March 1989 and to the expressed contemplation that the formal, more detailed, contract into which Tesco and Costain expected to enter would be in the terms of the Issue 7 Main Contract under clause 2 of which Costain would warrant the quality of the design work done by whomsoever in relation to the Store. Mr. Stewart, supported by Mr. Coulson, submitted that the work which Costain was being invited by the letter dated 20 March 1989 to undertake, and agreed to undertake, was the totality of the work which it was anticipated would later form the subject matter of a formal contract in the terms of the Issue 7 Main Contract, that is to say, both the construction and the design of the Store. Mr. Taverner submitted that it was plain from the structure of Issue No. 7 that it was not anticipated that a contractor entering into an Issue 7 Main Contract, and thereby accepting contractual responsibility for design work done by others already selected and engaged by Tesco, would actually enter into the Issue 7 Main Contract unless and until those for whose design work he was expected to accept contractual responsibility had entered into formal agreements with Tesco in the form of the Issue 7 Architect’s Agreement, or whichever was the relevant form of agreement in Issue No. 7, and an Issue 7 Novation Agreement had been made between the relevant professional firm, Tesco and the contractor. Thus, he submitted, against that factual background, upon proper construction of the letter dated 20 March 1989, all Costain was being invited to do, and agreed to do, in advance of the making of a formal contract in the terms of the Issue 7 Main Contract, was to commence the execution of the work which it itself, or sub-contractors engaged by it, were expected to undertake in relation to the Store, and not work which it was not contemplated that it would do itself or by sub-contractors, but only assume contractual responsibility for. So far as work which it was contemplated Costain in due course would assume contractual responsibility for, submitted Mr. Taverner, that had been commissioned by Tesco, possibly under agreements made between the relevant professional and Tesco, as was the case with the PHJ Agreement, coincidentally concluded by countersignature on behalf of PHJ on 20 March 1989 itself, and had possibly in part, as was the case with the work the subject of the PHJ Agreement, already been done before the letter dated 20 March 1989 was written.

Mr. Taverner relied upon the same points as those summarised in the preceding paragraph in answer to Mr. Stewart’s submission that by acting after about 20 March 1989 until completion of the Store in the manner in which it would have done had a contract in the form of the Issue 7 Main Contract been concluded in respect of the Store Costain was indicating that it did agree to the terms proposed on behalf of Tesco as those of the contract between them concerning the Store, namely those indicated in the original invitation to tender or in the letter of 20 March 1989 itself. I have to say that there was an intangible quality about how exactly Mr. Stewart contended that the contract upon which Tesco sought to sue had been made and what precisely were said to be the terms of it. He did, I think, accept that he could not point to anything which was an identifiable offer or an identifiable acceptance. At times he seemed to be submitting little more than that it was notorious that Tesco would only engage contractors to build supermarkets on its own standard terms, that Costain had undertaken contractual responsibility for the design and construction of other supermarkets before the Store on the terms of the Standard Documentation, and thus should be considered as having agreed the same in respect of the Store. Certainly Mr. Coulson’s submissions in relation to the contractual arrangements between Tesco and Costain in respect of the Store amounted to little more than that. Obstacles to this approach were presented by the fact that it was undoubtedly contemplated that Employer’s Requirements and Contractor’s Proposals should be incorporated into any formal agreement between Tesco and Costain in respect of the Store. On the evidence, although both Employer’s Requirements and Contractor’s Proposals were agreed between Costain and Tesco, acting by Bucknalls, this did not happen until about 3 April 1990 in the case of the Employer’s Requirements and about 15 March 1990 in the case of the Contractor’s Proposals, by each of which dates the construction of the Store seems to have been completed. Both Mr. Stewart and Mr. Coulson appeared attracted by the solution of dealing with the inconveniently late dates of the agreement of these documents by contending that the contract between Tesco and Costain incorporating the Issue 7 Main Contract should be considered as having been made without including Employer’s Requirements or Contractor’s Proposals. This would be a rather bizarre solution, as it would mean that the documents specific to the Store which indicated what precisely Tesco wanted built and what exactly Costain was going to do for the price which it was intending to charge would not be included within the contract.

Mr. Taverner contended that the words in the letter 20 March 1989, “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”, were important and supported his submission as to the proper construction of the letter. He emphasised the word “consider” and suggested that it indicated that Costain was being invited to proceed as if a state of affairs existed which all relevant parties knew did not. He drew a parallel with the line in the popular song, “Consider yourself part of the family”, which he submitted had the meaning, “act as a member of the family even though you are not”. Mr. Taverner also emphasised that what Costain was being invited to consider itself was not “contractually responsible for design work”, but only “as part of the design team”, a body which comprised PHJ, Sibley, Green and Arup. What Costain’s role in relation to the “design team” was anticipated as being, submitted Mr. Taverner, one could discern from the terms of Costain’s letter dated 30 March 1989, in which it said that it would “work with the design team”, which formulation was apparently acceptable to Tesco at the time.

By contrast, Mr.Coulson, in particular, submitted that that to which Costain was agreeing in agreeing to “consider your company as part of the design team”, was that Costain was to lead “the design team” and to co-ordinate its activities. This, he seemed to consider, was equivalent to accepting contractual responsibility for the performance of the whole team so far as Tesco was concerned.

It seems to me that in considering, objectively, the intentions of Tesco and Costain in respect of the Store in 1989 and 1990, and in particular in considering the proper construction of the letter dated 20 March 1989 written by Tesco to Costain, a factor of the first importance is that Tesco had caused to be prepared with great care a package of documents, Issue No. 7, itself the successor to a similar package of documents, Issue No. 6, which it wished to use to regulate contractually the construction of all of its supermarkets. The package contemplated a particular mechanism for structuring relations between those likely to be involved in any particular project, namely in the first instance identification by Tesco itself of the professional firms to be involved in the design of the relevant supermarket, the making of appropriate contracts of engagement directly between Tesco and each of the relevant firms, the subsequent identification of a contractor actually to build the supermarket, the novation of the engagements of the designers to the contractor and the making of a contract between Tesco and the contractor under which the contractor accepted as against Tesco contractual responsibility for the performance of all those engaged in the particular project as designers or constructors. Moreover, all of the contractual arrangements which the package contemplated were either intended to be executed under seal, as was the position in relation to the Issue 7 Main Contract, or contained a provision like clause 9.1 of the PHJ Agreement which was apparently intended to produce by contract the same result as if the agreement had been executed under seal. Plainly, therefore, it was considered important by Tesco that those entering into agreements in the form of one of those in the package should be liable to Tesco for any breach of contract for a period of twelve years, rather than the six year period for contractual claims provided for in Limitation Act 1980 s.5. No one soundly in possession of his critical faculties could contemplate for a moment accepting contractual responsibility for the specialist design work of another whom he has not selected and over whose terms of engagement he has had no control for a period of twelve years unless at very least he is in a position to enforce for his own benefit those terms of engagement in the event that he faced a claim based upon his acceptance of contractual responsibility for the work of that other. I am entirely satisfied that neither Tesco nor Costain had any thought of entering into a binding agreement under which Costain accepted contractual responsibility for the design work of PHJ, or others selected initially by Tesco, in relation to the Store unless and until, first, contracts of engagement had been concluded in the relevant standard form used by Tesco for the professional discipline in question between Tesco and each relevant professional firm, and, second, novation agreements in the terms of the Issue 7 Novation Agreement had been concluded between, in each case, Tesco, Costain and the relevant professional firm. The conduct of the parties during the period of Mr. Paine’s correspondence with Bucknalls demonstrates that this was the case, and it demonstrates that the issue of the execution of the Issue 7 Main Contract under seal was also of significance. Mr. Taverner relied in particular in his oral closing submissions on the rejection by Mr. Paine in his letter dated 2 November 1990 of the suggested “solution” to the difficulty presented by the non-availability of documents executed by Arup proposed in Miss Bell’s letter dated 30 October 1990 and her failure to seek to insist upon that “solution” as plain evidence that the parties did not intend to make a contract in the terms of the Issue 7 Main Contract in relation to the Store unless and until all relevant agreements by members of the design team had been concluded as between the relevant member and Tesco and had been novated as between the original parties and Costain, or otherwise than under seal. I accept that submission.

In my judgment, Tesco had no thought of letting Costain off with only accepting contractual responsibilty for a period of six years. It was, objectively, important to it to have the Issue 7 Main Contract in relation to the Store executed by Costain under seal and it did not intend to make a binding contract superseding the letter dated 20 March 1989 in any other way.

The matters considered in the two preceding paragraphs are not “Subject to Contract” issues or questions whether there was any continuing negotiation over the terms of a contract to be made between Tesco and Costain, so it is no answer to it that the expression “Subject to Contract” was never used in contemporaneous exchanges between Tesco and Costain or that the only active negotiations between Tesco, acting by Bucknalls, and Costain seemed to have been over price and to have been resolved by about 28 June 1989. The latter point was particularly urged upon me by Mr. Stewart. He was also keen that I should notice that the expression “Subject to Contract” did not feature in exchanges between Tesco and Costain. The matter to which I have referred goes to the issue of intention to enter into contractual relations. It may be that in many cases it is appropriate to draw the inference from the carrying of a project to completion that any earlier reservations as to entering into a binding contract had been overcome, as Steyn LJ suggested in G. Percy Trentham Ltd. v. Archital Luxfer Ltd. However, I see no warrant for drawing that inference in circumstances in which to do so would involve postulating that a commercial party had assumed contractually responsibility for the specialist design work of others against whom it had no recourse and the other party had forgone the benefit of a period of limitation which was commercially important to it.

Mr. Coulson evidently saw the force in the points made at the end of the preceding paragraph, for he sought to deal with them by contending that the difficulties could be overcome in part by implying a term into the contract which he submitted had been made between Tesco and Costain to the effect that Tesco would procure the making of appropriate contracts between itself and the designers for whose work he asserted Costain was to be responsible and the novation of those contracts as between Tesco, Costain and the appropriate designer in each case. However, the implication of the sort of terms for which Mr. Coulson contended could not, in my judgment, be justified by application of the test formulated by Lord Pearson in Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board. It would not represent the actual, but unexpressed agreement of Tesco and Costain, but rather the imposition of terms upon them in order to overcome an obstacle which obviously existed to the conclusion of a binding contract between them. Mr. Coulson’s suggested answer to the significance attributed by Tesco to the sealing of an Issue 7 Main Contract was that it was a matter of administration and no doubt Tesco would rather have had a contract with a six year limitation period than no contract at all. As the issue is what, objectively, Tesco and Costain intended in relation to the sealing of an Issue 7 Main Contract at a time when they were addressing the making of a formal contract, it is no answer to postulate what Tesco’s position would have been if it had known then what it knows now, namely that no contract would be sealed.

Given that, for the reasons which I have explained, neither Tesco nor Costain had any thought, contemporaneously, of entering into any contract which incorporated the terms of the Issue 7 Main Contract in advance of the making of appropriate contracts of engagement between Tesco and each of those involved in the project to construct the Store as designers, and the novation of such contracts as between Tesco, Costain and the relevant professional firm, it is in no way surprising that Tesco did not make any offer to Costain to enter into such a contract and that Costain did not make any such offer either. Rather it is plain from the contemporaneous exchanges between the parties, in Tesco’s case acting by Bucknalls, that the execution of appropriate contracts of engagement and novation agreements was what each party recognised as necessary before there could be any question of Costain entering into a contract incorporating the Issue 7 Main Contract in relation to the Store. I have little doubt that, had such contracts of engagement and novation agreements been made in respect of each of those involved in any way as designers of some part of the Store, Costain would, following agreement of the price to be paid to it, the Employer’s Requirements and the Contractor’s Proposals, have entered into a form of Issue 7 Main Contract in relation to the Store, and executed such form of contract under seal. It had done so in other cases, and the tone of Mr. Paine’s correspondence in the present case indicated a willingness to do so again. However, it just did not happen, and I see no justification for treating Costain in law as in the same position as if that which did not happen had happened.

A curious issue which surfaced rather late, in fact only really during the hearing of the preliminary issues, was an alleged previous course of dealing. I have set out earlier in this judgment the terms of paragraphs 4A-4D of the Re-Amended Reply to the Defence of Costain and the Other Costain Company in Action 07, in which the issue was formally raised. I have already set out the evidence that in three cases prior to the project concerning the Store Costain had executed forms of the then standard version of the Tesco Main Contract before at least one of those involved in the design of the relevant project had executed an appropriate novation agreement. For the reasons which I have indicated that may have been unwise, although it does not seem to have mattered as things turned out in relation to any of the three cases. However, Mr. Stewart submitted that the fact that Costain executed forms of contract with Tesco in these three cases indicated that the absence of executed novation agreements with members of the design team in relation to the Store was no obstacle to the conclusion of a binding agreement between Tesco and Costain in the terms of the Issue 7 Main Contract concerning the Store. I confess that I just did not see the point of this submission. Whatever had happened in other cases, in the present case Costain never did execute a contract in the form of the Issue 7 Main Contract. The fact that Costain may have acted foolishly in other cases does not seem to me to present any hindrance to it acting wisely in this case. What Mr. Stewart seemed to be striving towards was some suggestion that a contract could come about as a result of a course of dealing. However, there is not the slightest justification, in my judgment, for any such suggestion. Whether, in any particular case, parties who may have dealt with each other before have concluded a binding agreement must depend upon the circumstances of that case. The relevance, if they do conclude a contract, of the fact that they have engaged in a course of dealing in the past, is simply that, if their previous dealings have been on a particular set of standard terms and their present contract is silent as to the terms which are to govern it, it can be implied from their previous course of dealing that the terms of the previous transactions are to apply – see, for example, McCutcheon. v. David MacBrayne Ltd. [1964] 1 WLR 125 per Lord Reid at page128.

In the result I find that 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, thus the answer to Issue 1 is affirmative.

The contract which I find was made was a simple contract in the terms of Tesco’s letter dated 20 March 1989 as countersigned and returned to Tesco under cover of Costain’s letter dated 30 March 1989. That is the answer to Issue 2 (ii). No other contract was made between Tesco and Costain in relation to the Store.

I further find that, by the contract which I have held was made, all Costain agreed expressly to do was to commence the work which it, rather than those for whose work it would have accepted contractual responsibility had a contract in the terms of the Issue 7 Main Contract been concluded in respect of the Store, was to undertake in relation to the Store either directly or by sub-contractors. In my judgment the “works” which Costain was instructed to “put in hand” by the letter dated 20 March 1989 could only sensibly be those works which Costain was itself, directly or by sub-contractors, to undertake, rather than works of design which others had already undertaken or agreed directly with Tesco to undertake. It is not without significance, as it seems to me, that in the further letter dated 23 March 1989 which was written by Mr. Fletcher before Costain replied to his original letter dated 20 March 1989 he described the works which Tesco wanted Costain to commence as “the main contract works”, a form of words which in the construction industry traditionally is used to refer to the works of construction which a main contractor carries out. By no stretch of the imagination was the request to Costain to accept contractual responsibility towards Tesco for work of design done by PHJ, Green, Sibley or Arup. Thus the answer to Issue 2(iii) is that none of the express terms alleged at paragraph 15 of the Re-Amended Particulars of Claim were terms of the contract. The material express terms were simply that Costain would commence the execution of the work of constructing the Store and in return Tesco would make payment in accordance with the terms set out in the letter dated 20 March 1989.

It seems to me that it was a term of the contract which I have found, implied as a matter of law, that Costain would perform any construction work which it undertook under the contract in a good and workmanlike manner. That term is usually implied into a building contract which is silent as to the quality of the work to be undertaken – see, for example, Hancock v. B. W. Brazier (Anerley) Ltd. [1966] 1 WLR 1317.

In Hancock v. B. W. Brazier (Anerley) Ltd. the claimant purchased from a builder a house in course of construction. It was held that, in addition to the term to which I have just referred, terms should be implied into the contract between the parties that the builder would supply good and proper materials and that the house would be reasonably fit for human habitation on completion.

While it is usually a term of a construction contract, by implication if not expressly, that the contractor will supply materials of good quality – see Young & Marten Ltd. v. McManus Childs Ltd. [1969] 1 AC 454 – this is not invariably so, in particular if the contractor has been directed by his client to enter into a contract with a third party to obtain particular materials on terms which exclude or limit liability for defects – see Gloucestershire County Council v. Richardson [1969] 1 AC 480. In the present case nothing turns on the quality of materials supplied for the construction of the Store and it is unnecessary for me to reach any conclusion as to what term, if any, it would be appropriate to imply into the contract which I have found concerning the quality of materials.

It may be appropriate to imply into a construction contract a term that the structure to be erected will, when complete, be reasonably fit for its intended purpose, but that will only be so if and insofar as the structure is to be designed by the contractor. The existence of the term in that type of case was explained by Lord Denning MR in Greaves & Co. (Contractors) Ltd. v. Baynham Meikle and Partners [1975] 1 WLR 1095 at page 1098. However, it is clear from the decision of the Court of Appeal in Lynch v. Thorne [1956] 1 WLR 303 that there is no such implied term in a case in which the contractor undertakes to build to a particular specification already, at the date of the relevant contract, devised by or on behalf of the employer, and it must follow that there is no such implied term if the contractor agrees to build in accordance with plans or specifications to be produced in the future by others. However, as May LJ pointed out in Bellefield Computer Services v. E. Turner & Sons Ltd. [2002] EWCA Civ 1823 at paragraph 76 of his judgment:-

“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.

Thus the answer to Issue 2(iv) is that there were implied terms of the contract which I have found that Costain would perform any construction work which it undertook under the contract in a good and workmanlike manner and, 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.

The short answer to Issue 2(i) in the light of my findings as to the contract between Tesco and Costain is negative. However, I have to say that, even if I had been persuaded that Tesco had made out its case that Costain had agreed to undertake the design and construction of the Store on the terms of the Issue 7 Main Contract, I should still have reached the same conclusion on this issue. Mr. Stewart frankly accepted that Tesco’s case that it was a term of the contract for which it contended that the limitation period in respect of any breaches should be twelve years was difficult. Absent at least a term like clause 9.1 of the PHJ Agreement, the effect of which I consider later in this judgment, it seems to me that Tesco’s case on this issue is unarguable.

Having indicated my conclusions on Issues 1 and 2 I turn to consider Issues 3, 4, 5 and 6. Those issues do not arise unless I reached conclusions such as those which I have reached on Issues 1 and 2. The common theme in each of Issues 3. 4. 5 and 6 is estoppel. So far as Issues 3. 4 and 6 are concerned, essentially what was contended was that Costain was not entitled to rely upon the fact that the contract which Tesco sought to rely upon had not actually been concluded. In relation to Issue 5 what was contended was, in reality, that Costain was not entitled to rely upon the fact that it had not actually sealed a form of Issue 7 Main Contract in respect of the design and construction of the Store.

Once more Mr. Stewart on behalf of Tesco and Mr. Coulson on behalf of PHJ made common cause against Costain in respect of Issues 3, 4, 5 and 6. The type of estoppel for which they each contended was an estoppel by convention.

The exposition of the law set out by Mr. Stewart and Mr. Chapman in their written opening seemed rather to lack conviction. All they said, at paragraph 36, was:-

“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).”

Mr. Coulson and Mr. Holwill put considerably more enthusiasm into their submissions as to the relevant law. They reminded me that estoppel by convention assumed its current prominence in English law as a result of the decisions of Robert Goff J and the Court of Appeal in Amalgamated Investment & Property Co. Ltd. v. Texas Commerce International Bank Ltd. [1982] 1 QB 84. In the Court of Appeal in that case both Eveleigh LJ and Brandon LJ approved the explanation of estoppel by convention set out in Spencer Bower and Turner, Estoppel by Representation, 3^rd edition (1977), at page 157:-

“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.”

Apart from relying also on the decision of H. H. Judge Esyr Lewis Q.C. in Mitsui Babcock Energy Ltd. v. John Brown Engineering Ltd. Mr. Coulson and Mr. Holwill drew to my attention the judgment of Bingham LJ in The Vistafjord [1988] 2 Lloyd’s Rep 343, to the decision of the Court of Appeal in The Amazonia [1990] 1 Lloyd’s Rep 236 and to some observations of Lord Goff of Chieveley in Johnson v. Gore Wood & Co. [2002] 2 AC 1. To these decisions and comments I now turn.

In Mitsui Babcock Energy Ltd. v. John Brown Engineering Ltd. H.H. Judge Esyr Lewis Q.C. in fact found that a binding contract had been made between the parties to the action. Having cited a passage from the decision of Peter Gibson J in Hamel-Smith v. Pycroft & Jetsave Ltd. quoted by Bingham LJ in The Vistafjord, to which I shall come, and comments of Lord Denning MR in Toepfer v. Cremer [1975] 2 Lloyd’s Rep 118 and of Donaldson J in Surrey Shipping Co. Ltd. v. Cie Continentale (France) SA [1978] 1 Lloyd’s Rep 191, all of which were in rather general terms, Judge Lewis indicated that, had it been necessary to do so, he would have held that the claimant before him was estopped from denying that it had entered into the contract contended for.

The passages to which Mr. Coulson and Mr. Holwill specifically drew my attention in the judgment of Bingham LJ in The Vistafjord were in fact quotations from the judgment of Peter Gibson J in the unreported case of Hamel-Smith v. Pycroft & Jetsave Ltd. of which Bingham LJ indicated his approval. They were, first, a comment quoted at page 351:-

“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.”

Mr. Coulson and Mr. Holwill relied upon the decisions in The Vistafjord and The Amazonia as cases in which:-

“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.

Leaving aside for a moment the question whether it is possible to found a cause of action upon an estoppel by convention, as to which Mr. Taverner and Mr. Hargreaves drew to my attention the recent decision of the Court of Appeal in Baird Textile Holdings Ltd. v. Marks & Spencer Plc [2001] EWCA Civ 274, there is, as it seems to me, an obvious conceptual problem to be faced in relation to a submission that a party is estopped by convention from denying the existence of a contract which a fortiori has not actually been made. That is that it is plain from the authorities to which I have been referred that the essence of an estoppel by convention, if it is to exist, is an agreement between the relevant parties as to the state of affairs upon the assumption as to which they will conduct their dealings. At the same time it is fundamental to the making of a contract in English law that the parties to it should have reached agreement, quite apart from the necessity for other elements, such as consideration, in a binding contract. If the parties are actually agreed that there exists a binding contract between them, then the correct conclusion as a matter of law would seem to be that they have made the contract which they are agreed that they have made. If, for whatever reason, the correct conclusion in a particular case is that parties have not made a binding contract – and unless that is the conclusion the issue of whether there was an estoppel by convention in relation to a contract cannot arise – then it is logically impossible to see how there could nonetheless be agreement between them sufficient to give rise to an estoppel by convention that they have made the contract which actually they have not made.

The point which I have made in the preceding paragraph does not seem ever to have been considered in any of the decisions to which my attention was drawn. That is probably because it seems only in relation to construction cases that it has ever occurred to anyone to seek to establish an estoppel by convention that a contract which had not in fact been made had been agreed to have been made. Of the two reported cases in which this adventurous course had been taken, in Mitsui Babcock Energy Ltd. v. John Brown Engineering Ltd., in which it found a degree of favour, it was not a matter necessary for the decision of the case, while in Russell Brothers (Paddington) Ltd. v. John Lelliott Management Ltd. (1995) 11 Const. LJ 377, to which Mr. Coulson and Mr. Holwill very properly drew my attention, H.H. Judge James Fox-Andrews Q.C. found that the attempt failed because it was not possible to found a cause of action upon an estoppel by convention. Although Mr. Coulson and Mr. Holwill called my attention to the comments of Lord Goff of Chieveley in Johnson v. Gore Wood & Co. at page 40 of the report that, “ I accept that in certain circumstances an estoppel may have the effect of enabling a party to enforce a cause of action which, without the estoppel, would not exist.”, more relevant in the present context is what he said a little earlier. At the foot of page 39 of the report he cited a passage from what he described as “the scholarly and much admired third edition (1977) by Sir Alexander Turner” of Spencer Bower & Turner, The Law Relating to Estoppel by Representation at pages 167-168:-

“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.

During the course of the openings on behalf of the various parties I expressed some interest in receiving submissions on the point which I have just been considering. That seemed to prompt Mr. Stewart and Mr. Chapman, at least, in their closing submissions to concentrate more attention upon the proposition that, once a contract had been established, there could be an estoppel by convention as to its terms, than upon the proposition that there could be an estoppel by convention which prevented a party from denying that a contract which had not actually been made had been made. However, that does not actually deal with the problem, in my judgment, it merely alters slightly the precise nature of it. If one supposes that a contract has been made on set of terms A, the sort of estoppel upon which Mr. Stewart and Mr. Chapman concentrated their attention in their closing submissions involves the proposition that the parties to the contract on set of terms A are prevented from denying that it also incorporated set of terms B because they have agreed that their contract should be treated as incorporating set of terms B. However, if they really had agreed to incorporate set of terms B into their contract, the natural analysis would be that they had varied their original contract by subsequent agreement. If that were not actually the case, then again it is difficult to see that they had made a sufficient agreement to be estopped from denying that set of terms B had been introduced into their contract.

In their written opening Mr. Taverner and Mr. Hargreaves analysed the statements of case of the parties in relation to allegations of estoppel by convention carefully and submitted that, while Tesco’s pleaded case depended on there being a contract between Tesco and Costain in respect of which it was said that Costain was precluded from denying that the terms of the Issue 7 Main Contract were incorporated in it, PHJ’s case in paragraph 5 of its Defence to Costain’s Part 20 proceedings amounted to an assertion that the contract which it contended for had been in effect made by estoppel. That relatively clear-cut distinction between the two cases became blurred during the course of oral submissions. However that may be, the answer, submitted Mr. Taverner and Mr. Hargreaves, was to be found in the decision in Baird Textile Holdings Ltd. v. Marks & Spencer Plc. In that case, as in this, what was contended, so far as presently relevant, was that the defendant was estopped from denying that it had entered into a contract with the claimant. The leading judgment in the Court of Appeal in that case was that of the Vice-Chancellor. At paragraph 34 of his judgment he set out the submissions of Counsel for Marks & Spencer Plc as follows:-

“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.”

The other members of the Court of Appeal in Baird Textile Holdings Ltd. v. Marks & Spencer Plc, Judge LJ and Mance LJ, agreed with the conclusions of the Vice-Chancellor. In the course of his judgment Mance LJ made some comments as to the relationship between contract and estoppel by convention which seem to me to be consistent with my view as to the conceptual difficulties in seeking to establish a convention that parties have agreed that they have made a contract which a fortiori they have not made. He said:-

“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.”

In his closing submissions Mr. Coulson, supported to a degree by Mr. Stewart, sought to persuade me that in Baird Textile Holdings Ltd. v. Marks & Spencer Plc the Court of Appeal had misunderstood what had been decided in Amalgamated Investment & Property Co. Ltd. v. Texas Commerce International Bank Ltd. or that there was some material distinction between the facts of the Baird case and the facts of the present case. However, he did not clearly articulate what the distinction for which he contended was. The decision in Baird Textile Holdings Ltd. v. Marks & Spencer Plc is, in my judgment, plain in holding that a cause of action cannot be founded upon an estoppel by convention. That decision is binding upon me. In seeking to rely upon an estoppel by convention that a contract which has not been made was made, or that a contract which contained set of terms A in fact incorporated set of terms B so as to be able, in the one case to sue on the contract and in the other to sue on set of terms B, it is obvious that Tesco is seeking to found a cause of action upon the estoppel.

It is, perhaps, implicit in my identification of the logical difficulties to which either version of the case on estoppel by convention gives rise, but I should make explicit, that I find that neither version of the supposed convention is made out on the evidence led before me. Each version of the case is in fact, as it seems to me, a construct by means of which it is sought to impose a fanciful legal conclusion on substantially undisputed facts. The material facts, in summary, are that, as I find, in anticipation of the making of a contract in terms which were substantially agreed as from the date of the letter dated 20 March 1989 written by Mr. Fletcher to Costain, subject to finalisation of the Employer’s Requirements, drafting and agreement of the Contractor’s Proposals, and agreement of the price, Costain, PHJ and Tesco each conducted themselves in the manner which would have been appropriate had the contract eventually been concluded and had retrospective effect. The fact that each party so conducted itself in anticipation of the happening of that which did not in fact happen does not, in my judgment, lead to the conclusion that any of them is estopped from relying on the facts as they actually were and the legal conclusions which follow from those facts. It often happens in life that people make arrangements in anticipation of events. To hold that by so doing they are to be taken in law to be in the same position as if those events had occurred would be to elevate wishful thinking into a principle of the common law of England and Wales.

In the result it must follow, in my judgment, that the answer to Issue 3 is negative. It is not in law possible, as it seems to me, to establish an estoppel by convention that a contract which has not actually been made has been agreed to have been made. That is so for all of the reasons to which I have referred. Even if the conceptual difficulty which seems to me to exist could be overcome, the only purpose of seeking to establish a convention that a contract which has not in fact been made was made can be so as to be able to advance claims which depend upon such contract being treated as having been made, in other words to found a cause of action. The formulation of Issue 3 is in fact ambiguous as to whether the issue is whether Costain is estopped from denying that it had made a contract with Tesco at all, or whether the issue is whether, on the footing that there was in fact a contract, Costain is estopped from denying that that contract was on the terms of the Issue 7 Main Contract. It may be that in some circumstances it is possible to establish a convention, where parties have in fact entered into a contract, that some term actually agreed cannot be relied upon, although it might be more straightforward to analyse such a situation in terms of waiver or variation. However, what seems quite impossible is to establish a convention either that a contract which has not been made has been made or that terms not actually agreed should be treated as terms of a contract which has been made on different terms. In fact in the present case it seems that, because of the impact of the relevant provisions of Limitation Act 1980, Tesco is not seeking to rely directly upon the contract which it contends was made between it and Costain in 1989, but rather to rely upon duties of care in tort which are said to mirror the duties said to have been assumed by Costain under the contract contended for. That circumstance does not seem to me to make the case any less one in which Tesco is seeking to establish a cause of action by estoppel.

The formulation of Issue 4 is somewhat baffling. It seems to proceed on the basis that “design and build contractor” is not a shorthand, and rather imprecise, way of describing a particular type of contractual relationship, but a status to which legal incidents are attached. As a party can only assume obligations to design or build anything under a contract, and as the contract will prescribe the incidents of the relationship, there can obviously be no such thing as a “design and build contractor” in the abstract. As between Costain and Tesco, therefore, Issue 4 is essentially a reformulation in less precise terms of Issue 3. As between Costain and PHJ it is impossible to see how the issue, if otherwise sensible, could arise. It seems to be something of a stalking horse for Issue 6 or some other case that, by virtue of the status of Costain as “Tesco’s design and build contractor”, the contractual or tortious duties owed by PHJ to Tesco were somehow modified or discharged. The clear answer to Issue 4, whatever precisely it is supposed to comprehend, is negative, in my judgment.

Issue 5 received but little attention from Mr. Stewart and Mr. Chapman in their written opening. All they said about it was this:-

“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 questions of law to which Issue 6 gives rise are in fact the same as those to which Issue 3 gives rise, for the expression “novation” simply describes a type of contract under which a new party becomes substituted for one of the existing parties in a contract which has already been made. The questions of fact which arise are similar to those which are relevant to the determination of Issue 3, namely whether it is appropriate to conclude from how the parties actually behaved towards one another during the period in which the Store was being constructed that there was a convention between them that the PHJ Agreement had been novated as between PHJ, Tesco and Costain. The answer to Issue 6 is thus the same as the answer to Issue 3 for the same reasons.

In the light of the submissions of Counsel, it is plain that the real question to which these issues give rise, notwithstanding the terms of Issue 7, is not whether Costain owed any duty of care to Tesco at all in relation to the work which it did in connection with the construction of the Store in 1989 and 1990, but what were the nature and scope of that duty of care. Before coming to consider in detail the relevant authorities and applicable principles it is, perhaps, helpful to remind oneself of the essential features of this case from Costain’s point of view. The basis of the claim in tort against it is that it owed a duty of care to Tesco to exercise reasonable skill and care in the design and construction of the Store, in particular to include appropriate fire stopping and inhibiting measures in the structure. Costain’s main answer to that allegation is that it did not itself make the relevant design decisions in relation to fire stopping and inhibiting measures, PHJ did. Tesco’s counter to that answer is, in essence, that Costain assumed responsibility by contract for the adequacy of the design of the Store, and it therefore owed a duty of care in respect of the design which mirrored its contractual obligations. However that may be, and it is a point to which I shall return, the alleged deficiencies in design did not themselves cause any damage to anything. Rather they meant that damage in fact caused quite independently of Costain or any work it did, namely by the fire which broke out on 4 August 2001, was more extensive than it would have been, so it is contended, if appropriate fire stopping and inhibiting measures had been in place in the Store. In consequence not only was the Store itself damaged severely, but the contents of the Store, in the form of stock and plant and machinery, were damaged, as was an extension to the Store constructed in 1997. Moreover, Tesco lost profits, so it is said, as a result of the Store being unable to trade, or to trade to its normal capacity, for a period whilst it was being rebuilt. These features of the case give rise to a number of important questions of principle.

The approach which I was urged on behalf of Tesco to adopt to questions of the nature and scope of duties of care, where those matters were raised by the preliminary issues, was set out in the written opening of Mr. Stewart and Mr. Chapman as follows:-

“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 7^th Ed. at paras. 7-01 and 7-31B and Hudson’s Building and Engineering Contracts 11^th 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.

The submissions of Mr. Stewart and Mr. Chapman in their written opening specifically in relation to Issues 7 and 8 were brief. At paragraph 59 the submissions in relation to Issue 7 were simply, “Yes. See further Issue 8 below.” The only slightly more extensive submissions in respect of Issue 8 were:-

“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).”

In their written closing submissions Mr. Stewart and Mr. Chapman rather concentrated on the questions in relation to the alleged duty of care of Costain to Tesco in respect of the design and construction of the Store in 1989-1990 at the expense of the questions as to whether a contract had been made between Costain and Tesco, and, if so, on what terms. Mr. Stewart accepted in his oral closing submissions that the existence of a duty of care of the nature and having the scope for which Tesco contended, namely a duty of care to provide as the Store a building fit for its intended use, depended upon Tesco establishing that Costain had accepted a contractual obligation to like effect. As I have held that Costain had not accepted such an obligation, that is a short answer to Mr. Stewart’s submission. However, he did rely in support of it upon a decision of H.H. Judge Sir William Stabb Q.C., Cynat Products Ltd. v. Landbuild (Investment and Property) Ltd. [1984] 3 All ER 513, to which it is approriate to refer.

So far as is presently material, the issue in Cynat Products Ltd. v. Landbuild (Investment and Property) Ltd. was whether a building contractor which had entered into a contract with a customer under which it agreed that:-

“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.”

Mr. Stewart candidly accepted that the decision of Judge Stabb in Cynat Products Ltd. v. Landbuild (Investment and Property) Ltd. was the only case which he had been able to find in which it had been held that a contractor owed a duty of care in tort to its customer in relation to the performance by independent contractors of obligations which, by its contract, the contractor had assumed to its customer. He very properly drew to my attention that, so far as his researches went, Judge Stabb’s decision had only been referred to in two other cases, the decision of the House of Lords in D & F Estates Ltd. v. Church Commissioners for England [1989] AC 177 and the decision of Potter J in Aiken v. Stewart Wrightson Members Agency Ltd. [1995] 1 WLR 1281, in each of which it had been distinguished. For present purposes it is enough to quote from the judgment of Potter J in the latter case, for in the course of the relevant passage he cited the material comments of Lord Bridge of Harwich in the former. At pages 1303-1305 of the report of his decision in Aiken v. Stewart Wrightson Members Agency Ltd. Potter J said:-

“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, 5^th ed. (1991), p.161, nor in Hudson’s Building and Engineering Contracts, 11^th 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, 20^th 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.”

Mr. Taverner and Mr. Hargreaves on behalf of Costain in their written opening dealt with the question of a duty of care in a very straightforward manner:-

“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.”

I did not find helpful the attempts by Mr. Stewart and Mr. Chapman to distinguish between what they called “the Donoghue v. Stevenson duty” and what they called “the Henderson duty”. The decision in Donoghue v. Stevenson [1932] AC 562 can now be seen as, in a sense, the end of the beginning of the development of the English law of negligence. It is principally referred to nowadays for the statement of the underlying principle of the law of negligence in the speech of Lord Atkin at page 580:-

“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.

The initial focus of the development of the law of negligence following the decision in Donoghue v. Stevenson was in the area of physical damage caused by the acts of the alleged wrongdoer. However, it was made clear by the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 that, in certain circumstances, a duty of care might exist not simply not to cause physical damage by one’s actions, but also not to cause economic damage by the careless use of words. Following that development of the law, and in particular during the 1970s and 1980s, there was a period of rapid, and to a degree ill-considered, development of the law in the area of economic loss and the circumstances in which such could be recovered as damages for negligence. For present purposes the conclusion of that phase of development may be considered to have been marked by the decision of the House of Lords in Murphy v. Brentwood District Council [1991] 1 AC 398. The actual issue in that case was whether a local authority owed to the purchaser of a house a duty of care in performance of its functions as the body charged with securing compliance with Building Regulations such that if it failed to ensure that the plans of the house complied with the relevant requirements of Building Regulations it was liable to compensate the purchaser for any difference between the value of the house as built and the value which it would have had if constructed in accordance with Building Regulations. In the House of Lords the issues arose of whether the builder of the house owed a duty of care and, if so, what sort of damages were recoverable in respect of any breach of that duty. Those issues in fact arose in the context of a consideration of whether it would be fair, just and reasonable to impose a duty of care upon the local authority, as the body charged with securing compliance, if the defaulting builder would not also owe a duty of care to the purchaser. The principal speech was that of Lord Keith of Kinkel. All of their Lordships concurred in the analysis which he expounded. In the course of a lengthy consideration of the relevant authorities he made this comment upon the decision of the House of Lords in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [19883] 2 AC 1 at page 466D-G:-

“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.

The actual decision in Murphy v. Brentwood District Council was that the previous decision of the House of Lords in Anns v. Merton London Borough Council [1978] AC 728 was wrong and that a local authority charged with securing compliance with Building Regulations did not owe a duty of care in the performance of that function to building owners such that building owners could recover damages in respect of economic loss sustained as a result of breach of Building Regulations which the local authority ought to have detected and prevented. A convenient, succinct rehearsal of the relevant considerations so far as the liability of the builder is concerned can be found in the speech of Lord Bridge of Harwich at page 475A-H:-

“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.

Other issues which have arisen during the course of the development of the law of negligence have included the question of liability for omissions, rather than acts of commission, and the question of the interrelationship of liability in contract, on the one hand, and in negligence, on the other. In respect of the latter issue Lord Scarman, delivering the advice of the Privy Council in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. [1986] AC 80 at page 107 did say, obiter:-

“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.”

The provisional expression of view of the Privy Council in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. that a duty of care in tort should not co-exist with obligations arising under a contract has not, in the event, prevailed. The question whether a party which had entered into a contract under which it was a term that it would undertake the provision of a service with reasonable skill and care also owed a duty of care to like effect to the other contracting party fell for determination as a matter of decision in Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145. The leading speech was that of Lord Goff of Chieveley. All the other members of the House of Lords agreed with his speech. He considered that the answer to the question whether a duty of care could co-exist with contractual obligations depended upon the correct identification of the principle underlying the earlier decision in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. Having set out passages from the speeches of Lord Morris of Borth-y-Gest and Lord Devlin in that case, Lord Goff went on, at pages 180C-181F:-

“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.”

At page 194C-E of the report of Henderson v. Merrett Syndicates Ltd. Lord Goff summarised the principle which he considered was applicable in this way:-

“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.”

The passage which I have quoted in the preceding paragraph followed a little way after this passage, at pages 193G-194B, which set the context for it and which seems to me to provide useful assistance in understanding it:-

“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 19^th 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.”

In the course of his speech Lord Goff did comment, at page 186F, upon the passage from the advice of the Privy Council in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. which I have already quoted:-

“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.”

At pages 195G-196C Lord Goff made some observations as to the relevance to the issue of the existence of a duty of care in tort of the contractual relationships between the relevant parties, with specific reference to the sort of contractual arrangements which are not uncommon in the construction industry:-

“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.”

I shall return to the matter of what principles applicable to the circumstances of the present case can be distilled from the decision of the House of Lords in Henderson v. Merrett Syndicates Ltd., and in particular the passages from the speech of Lord Goff which I have cited, a little later in this judgment. First, however, it is convenient to address the question of the nature and extent of the duty of care of a party which has assumed responsibility by contract to another party in the manner contemplated by Lord Goff in Henderson v. Merrett Syndicates Ltd. That matter was considered by the House of Lords in South Australia Asset Management Corporation. v. York Montague Ltd. [1997] AC 191. The case concerned the liability of a valuer of real property whose valuation of property offered as security for a loan was undertaken carelessly. The leading speech, indeed the only substantive speech, was that of Lord Hoffman. At pages 211F-214F of the report Lord Hoffman said:-

“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, 2^nd 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.”

In Stovin v. Wise [1996] AC 923 the principal point at issue was whether a highway authority was liable for injuries sustained by a person involved in a road traffic accident. The basis upon which it was contended that the highway authority was liable was that it had failed, negligently so it was said, to use its statutory powers to insist upon the removal of an earth bank which obstructed sight lines at the junction at which the accident occurred. Lord Hoffman in his speech, at page 943 of the report, said in relation to the issue of liability in tort for omissions:-

“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.”

The passage from Lord Hoffman’s speech in Stovin v. Wise which I have cited in the preceding paragraph was considered by the Court of Appeal in a recent case upon which Mr. Stewart placed considerable reliance in support of his argument as to the existence of the duty of care on the part of Costain for which he contended, but which he sought to distinguish in relation to the finding as to the damages which were recoverable for breach of the duty. That case was Bellefield Computer Serivces Ltd. v. E. Turner & Sons Ltd. [2000] BLR 96 (to which I shall refer hereafter in this judgment as “Bellefield No.1”, to distinguish it from the other case with the same name to which I have already referred). The facts of the case were, in my judgment, important to an understanding of what actually was decided. The defendant building contractors had constructed a dairy building between 1981 and 1983 under a contract by which they undertook to construct the building in compliance with the relevant Building Regulations and, in particular, so that a particular wall (“the Wall”) was constructed as a firebreak. The Wall was not in fact constructed as a firebreak in that it was not constructed sufficiently high. The building was subsequently sold to the appellants. A fire, which was not in any way the responsibility of the defendants, broke out in 1995. It spread across the Wall and caused damage on the other side from that upon which it had started. Had the Wall been constructed as a firebreak the fire would not have been able to spread to the far side of the Wall from that upon which it had commenced. On a trial of preliminary issues Bell J held that the defendants had owed a duty of care to the purchasers of the building to safeguard them from damage other than to the building itself, but that damages were not recoverable in respect of damage to that part of the building which lay on the far side of the Wall from the seat of the fire. The defendants appealed against the finding that they owed a duty of care to the purchasers of the building, while the purchasers appealed against the finding that damages were not recoverable in respect of damage to the building on the side of the Wall remote from the seat of the fire. Both appeals failed. The leading judgment was that of Schiemann LJ. On the question of the duty of care, at pages 100 and 101 of the report, he quoted the passage from the speech of Lord Hoffman in Stovin v. Wise which I have cited. He then referred to a consideration of the issue of liability for nonfeasance in Atiyah’s Accidents, Compensation and the Law. Following citation from that work he stated his conclusions briefly:-

“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 other members of the Court of Appeal in Bellefield No.1 were Tuckey LJ and Wall J. Both of them agreed with the judgment of Schiemann LJ and with the judgments of each other. Tuckey LJ did not deal separately with the question of the duty of care of the defendant. His judgment was concerned only with the justification for dismissing the appeal of the purchasers. Wall J did indicate in his judgment that he considered that the appeal of the defendants was that which presented the less difficulty. He also stated his views of the relevant considerations and conclusions quite briefly, at page 107 of the report:-

“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…”

It is plain, in my judgment, from the consideration of the issue by both Lord Goff in Henderson v. Merrett Syndicates Ltd. and Lord Hoffman in Stovin v. Wise that the existence of a duty of care positively to act, rather than simply to take care while engaged in some action, depends upon the existence of circumstances which in some way justify the imposition of such a duty. The focus of the attention of Lord Hoffman in the passage which I have quoted from his speech in Stovin v. Wise was whether it could be said, according to common sense principles of causation, that the omission complained of had caused the relevant damage. That was an approach which led in that case to the conclusion that the local authority had not owed a duty of care because nothing it had done had caused the accident in which the claimant sustained his injuries. However, it does not seem to me that Lord Hoffman could have been intending to suggest that the test of whether a duty of care was owed in respect of omissions was simply causation of the damage which eventuated in any particular case. If that were so, it would mean that there existed a general duty in law not to cause harm to others by act or omission from which an alleged wrongdoer would be excused if his default had not actually caused the damage in question. Such a general duty would represent a radical departure from the more traditional approach explained by Lord Hoffman himself in South Australia Asset Management Corporation v. York Montague Ltd. in the passage which I have quoted. Rather I think that in his comments in Stovin v. Wise Lord Hoffman was seeking to do no more than to emphasise that in general a mere failure to act – a pure omission – cannot cause any loss. It is, of course, the case that traditionally a claim for damages for alleged negligence is pleaded by setting out all those things which it is contended that the defendant ought to have done, but did not do. In a sense, therefore, it can be said that all claims in negligence are based upon omissions. However, that is manifestly not the sense in which the term “omission” is used in the discussion of liability for omissions in the passages from the speeches of Lord Hoffman and Lord Goff now under consideration. In those passages the issue being addressed is in what circumstances it can be said that a person who has actually done nothing should have done something, which had it been done would have been to the advantage of the claimant and failure to do which deprived him of that advantage. Lord Goff in Henderson v. Merrett Syndicates Ltd. indicated that in circumstances in which a party had agreed by contract to do something the necessary ingredient for the creation of a duty of care in tort to act positively was present. That seems to me, with respect, not to be a particularly adventurous analysis, at least in relation to services which by his contract a party has undertaken personally to perform. It is difficult to see any circumstances other than where a party has specifically agreed to do something in which it would be appropriate to fix him with a duty to act positively, rather than simply to take care while doing something upon which he has decided to embark.

Mr. Stewart submitted that, properly understood, what Lord Goff held in Henderson v. Merrett Syndicates Ltd. was that a party to a contract owed to any other party to the contract who was affected a duty of care in tort in effect to perform his contractual obligations, whatever they were. Although Mr. Stewart did not in terms seek to rely upon it, the analysis of Lord Goff of the position under a chain of contracts in the construction industry might be considered, at first blush, as supporting his submission. It could be said that it was implicit in the consideration of a sub-contractor not owing a duty of care directly to the employer because of the chain of contractual arrangements which the parties had chosen, that the main contractor did owe not merely contractual, but also tortious duties to the employer in relation to the work of sub-contractors. However, that would be an extraordinary position, were it correct. A party to contract may assume a wide variety of obligations which do not require the doing of any act or the providing of any advice or information. He may give a guarantee of the performance by another of his obligations. He may warrant that a state of affairs is so. In relation to the performance of any obligation which does not require any act to be performed or any advice or information to be given the concept of negligence is not really meaningful. An obligation of such character is either performed or it is not. If it is not performed, there will be a cause of action for breach of contract. If it is proved that substantial, as opposed to nominal, damages have been suffered as a result of the breach of contract, they will be recoverable. Carelessness or not in the performance of the obligation just is not relevant to whether it has been performed. Moreover, by contract a party may accept liability to answer for the default of others who in fact are quite independent of him. In the context of liability for physical damage to person or property there is a well-understood principle that a person is not liable for the acts of his independent contractors. Mr. Stewart’s submission would seem to involve a negation of that principle in any case in which a party has by contract accepted obligations which are to be performed by sub-contractors. In my judgment it is clear that Lord Goff was not intending to lay down any proposition nearly as wide as that for which Mr. Stewart contended.

As a sort of fall back position Mr. Stewart submitted that a party to a contract who agreed to undertake particular work owed a duty of care to the other relevant contracting parties in relation to the execution of that work, even if he did not undertake the work himself. It was in this context that the decision of Judge Stabb in Cynat Products Ltd. v. Landbuild (Investment and Property) Ltd. was of importance. That decision is now almost twenty years old and was made at a relatively early point in the modern development of the law of negligence. The justification advanced by Judge Stabb himself for his conclusion was an application of the test of the existence of a duty of care formulated by Lord Wilberforce in Anns v. Merton London Borough Council, nothing else. Potter J in Aiken v. Stewart Wrightson Members Agency Ltd. spent some time, at page 1304 of his judgment, in demonstrating exactly how unloved an orphan the decision seemed to be so far as academic writers were concerned. Lack of academic approbation is not traditionally a ground upon which a decision can be distinguished, nor is the fact that the unsuccessful party did not appear at the trial which resulted in the decision. As a decision at first instance the judgment in Cynat Products Ltd.v. Landbuild (Investment and Property) Ltd. is not binding upon any other judge sitting at first instance. As the law has developed it is clear, in my judgment, that the anticipation of Judge Stabb that the law of negligence was expanding its scope to broaden the categories in which a party owed a personal, non-delegable duty into the area of taking on contractual responsibilities in relation to work to be done by others was incorrect. It seems to me that the decision in Cynat Products Ltd.v. Landbuild (Investment and Property) Ltd. should be put out of its misery and recognised as simply wrong.

The approach adopted by Judge Stabb in Cynat Products Ltd. v. Landbuild (Investment and Property) Ltd. was not in any way supported by the decision of the House of Lords in Henderson v. Merrett Syndicates Ltd. The actual principle relevant to this part of my consideration laid down by the decision in that case, in my judgment, was, quite simply, that where, by contract, a party has agreed personally to do something and it is an express or an implied term of the contract that that thing will be done with reasonable care and skill, the party owes to other relevant contracting parties a like duty of care in tort unless the existence of such duty of care is excluded or modified by the contract. Exceptionally, as on the particular facts of that case, but not usually, such a duty of care might be owed to a person higher up a chain of contracts than those immediately party to the relevant contract. The House of Lords was not concerned in that case to broaden the nature or scope of duties of care, so as to impose a duty of care upon a person in relation to something actually done by someone else, but simply to make plain that it was no answer to the suggestion that a party should be able to sue in negligence another party who had failed to exercise reasonable care and skill in doing something and had thereby caused the first party loss, to contend that the parties were in a contractual relationship and that their mutual rights and obligations should be determined exclusively under their contract.

The other matter which is presently relevant which was the subject of decision in Henderson v. Merrett Syndicates Ltd. concerns economic loss. In that the only compensation which a court can award in respect of loss is money, all loss with which the court is concerned is economic. However, in the law of negligence the distinction between physical damage and economic loss, which is well-established in principle, even if its detailed application has not always been straightforward, has as its object the imposition of some limitation upon the scope of the consequences of his actions for which a negligent tortfeasor is held liable. It is in this area of the law that the concepts of the nature and scope of a duty of care (as to which see the extract from the speech of Lord Hoffman in South Australia Asset Management Corporation v. York Montague Ltd. set out earlier in this judgment), causation (as to which see the extract from the speech of Lord Hoffman in Stovin v. Wise set out earlier in this judgment) and foreseeability shade into one another. However, the essential point in relation to the distinction between physical damage and economic loss is that physical damage is the immediate, and generally obvious, consequence of an act of negligence, while economic loss may not be. Thus if a duty of care is to be owed not to cause economic loss there needs to be some feature of the relationship between the parties which makes it fair, just and reasonable that the scope of the duty should extend to the avoidance of economic loss. That is most obviously so if the party alleged to owe a duty having that scope has consciously assumed obligations towards the party to whom the duty is said to be owed by entering into a contract with him in respect of those obligations. That point was made by Lord Goff in Henderson v. Merrett Syndicates Ltd. However, it is plain from the decision of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd that that is not the only situation in which the scope of a duty of care will extend to not causing economic loss. At the same time, it is clear from the decision of the House of Lords in South Australia Asset Management Corporation v. York Montague Ltd. that where the scope of a duty of care does extend to not causing economic loss the extent of the economic loss to which it extends is not without limit.

Mr. Taverner submitted that, whatever may be the implications of the decision in Henderson v. Merrett Syndicates Ltd. in the ordinary case, the position of a builder in respect of liability under a contract was different. A builder, contended Mr. Taverner, did not owe a duty of care not to cause economic loss to anyone, even a party with whom it had entered into a contract to build the building in question. That, he submitted, was the effect of the decision in Murphy v. Brentwood District Council, as a contractual relationship was not a sufficient special relationship to displace the ordinary rule, and the position had not been affected by the decision in Henderson v. Merrett Syndicates Ltd. While he accepted that H.H. Judge John Hicks Q.C. had held in Storey v. Charles Church Developments Ltd. (1996) 12 Const LJ 206 that a contractor which took on design responsibilities did owe a duty of care to its client not to cause economic loss, he invited me not to follow that decision. He drew to my attention a decision of H.H. Judge Humphrey Lloyd Q.C., Samuel Payne v. John Setchell Ltd. [2002] BLR 489, and invited me to adopt the approach indicated in that case instead.

In Samuel Payne v. John Setchell Ltd. Judge Lloyd was concerned with a claim against a company which had undertaken a ground investigation and, on the basis of that investigation, had made recommendations as to the design of the foundations of a number of cottages. The foundations proved to be inadequate. A number of issues were ordered to be tried as preliminary issues. One was whether the defendant designer of the foundations owed a duty of care to the original owners of the cottages which extended to avoiding causing them economic loss because the foundations of the cottages proved unsatisfactory. Following a lengthy, and scholarly, analysis of the authorities which concentrated on the decisions in Murphy v. Brentwood District Council and Department of the Environment v. Thomas Bates and Son Ltd. [1991] 1 AC 499 and did not include reference to Henderson v. Merrett Syndicates Ltd. in this context, Judge Lloyd concluded, at paragraph 28 of his judgment, on page 505 of the report, what they established was:-

“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.”

In the light of his reading of the authorities and his conclusion quoted in the preceding paragraph Judge Lloyd set out at paragraph 31 of his judgment, at pages 507-508 of the report, his assessment of the policy issues which arose:-

“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.”

I differ from the analysis of Judge Lloyd with great hesitation, but I have to say that it does not seem to me that Murphy v. Brentwood District Council and the other authorities to which he referred do establish the proposition that a builder never owes a duty of care which extends to not causing economic loss, only that he does not do so in the absence of “a special relationship”. It seems to me clear that all of the attention in Murphy v. Brentwood District Council, so far as the builder was concerned, was on his relationship with what Lord Oliver of Aylmerton at page 489E called “a remote owner”, that is to say (page 489C) “a derivative owner with whom he has no contractual or other relationship”. While the terms of the speeches in Murphy v. Brentwood District Council may themselves have been somewhat elliptical in relation to the position of a builder in respect of owing a duty of care in tort not to cause economic loss to someone with whom he was in a contractual relationship, there are indications in the passages from the speeches which I have quoted that the position was, or might be, different from that as between a builder and a party with whom he was not in a contractual relationship. Any ambiguity or obscurity on this point has now, in my judgment, been clarified by the decision in Henderson v. Merrett Syndicates Ltd. If the position now is, as I consider that it is, that anyone who undertakes by contract to perform a service for another upon terms, express or implied, that the service will be performed with reasonable skill and care, owes a duty of care to like effect to the other contracting party or parties which extends to not causing economic loss, there seems to be no logical justification for making an exception in the case of a builder or the designer of a building. My reading of the authorities does not require or permit the making of such exception. I draw comfort in my analysis from the observation of Schiemann LJ in Bellefield No. 1 that in his view the builder in that case did owe a duty of care to the original owner in respect of damage to the building itself.

What was decided in Bellefield No. 1 was, first, that a contractor who assumed by contract obligations to construct the Wall as a firebreak and to comply with Building Regulations owed a duty of care in tort to do those things with reasonable skill and care not only to the other party to the contract, but also to subsequent purchasers. The second matter decided was that the scope of that duty of care in the case of subsequent purchasers did not extend to avoiding damage to the building constructed under the contract. The latter decision was simply application to the facts of the case of the decision of the House of Lords in Murphy v. Brentwood District Council. The novel point decided was thus that a duty of care to perform obligations which the contractor had undertaken to the other party to the contract under which the relevant building was built with reasonable skill and care was also owed to successors in title as owners of the building. That is not a point which arises in the present case, but the analysis provides no support for any submission that such a duty would have been owed in the absence of a contract or that the duty extended to work which the contractor did not itself undertake to do personally. It may be that the implications of the decision of what I have described as the novel point in Bellefield No. 1 will require careful consideration, particularly the suggestion in the judgments of Schiemann LJ and Tuckey LJ that the terms of the contract may be relevant to the existence and scope of any duty of care to the successor in title. Tuckey LJ in his judgment cited a passage from the dissenting speech of Lord Brandon in Junior Books Ltd. v. Veitchi Co Ltd. [1983] 1 AC 520 in which the sort of issues to which such a suggestion can give rise were identified.

In the light of my finding that all Costain agreed by the contract constituted by the letter dated 20 March 1989 as signed and returned to do was to commence the construction of the Store I find that Costain assumed a duty of care to Tesco to carry out the work which it itself, rather than any sub-contractor, in fact did pursuant to that agreement with the care and skill to be expected of a reasonably competent building contractor. That work potentially included both physical work of construction and the making of decisions as to design, in the sense explained by May LJ in the passage which I have cited from his judgment in the second Bellefield case. I find that that duty did extend to not causing economic loss, for the reasons which I have endeavoured to set out.

Had I found that Costain had entered into a contract with Tesco in the terms for which Tesco contended I should still have found that the duty of care assumed by Costain was that which I have indicated in the previous paragraph. That is for a number of reasons. The first is that it is contrary to principle to impose upon a party a duty of care in respect of work which everyone knows is to be, and is in fact, undertaken by someone else. Such a duty of care cannot sensibly be characterised as a duty on the relevant party to do something with reasonable skill and care, for he is not doing anything. Rather it would be in the nature of a guarantee that the party actually doing the relevant work would do it with reasonable skill and care. The second is that the duty of care contended for in the present case was actually not simply a duty that design work would be undertaken with reasonable skill and care, but that the appropriate fire stopping and inhibiting works which should have been designed would then be constructed, and constructed without additional cost to Tesco. That goes far beyond any obligation to take care or to see that care is taken, involving, as it would, incurring expense in order to provide an amenity to Tesco. The law does, in limited circumstances, impose a duty upon a landowner to incur expense in order to deal with the consequences of a nuisance. However, the sort of obligation contended for arising under a duty of care in the present case is manifestly one that can, in my judgment, only arise under a contract. In considering the duty of care contended for in the present case it is also material, as it seems to me, to notice that the breach of it is not said itself to have caused any loss directly. No part of the Store collapsed as a result of the absence of appropriate fire stopping and inhibiting works, or anything like that. What is contended is that, had the appropriate works been undertaken, the consequences of a fire, for which neither Costain nor PHJ were in any sense responsible, would have been less severe. On analysis the nature and scope of the duty contended for were thus a duty not to cause Tesco the economic loss resulting from the fire. Shorn of its legal sheep’s clothing the duty contended for amounts to a duty to provide effective fire stopping and inhibiting works or to assume the risk of damage by fire to the Store and its contents. Even if, which I do not consider would be right, it were appropriate to impose upon Costain a duty of care to design and supply without additional cost to Tesco appropriate fire stopping and inhibiting works, it is well-arguable, it seems to me, that the scope of such duty was only to save Tesco from having to incur the cost of providing the relevant fire stopping and inhibiting measures. That would have been the obvious direct consequence of not designing and supplying the missing fire stopping and inhibiting works. To contemplate that the scope of the duty extended to saving Tesco harmless from the consequences of a fire the effects of which would or might have been less severe had the missing fire stopping and inhibiting works been present seems to me to raise precisely the same issue considered by the House of Lords in South Australia Asset Management Corporation v. York Montague Ltd. and illustrated by Lord Hoffman’s example of the mountaineer and his knee. It would seem that the absence of fire stopping and inhibiting works in the present case no more caused the fire which destroyed the Store than the negligent assessment of the knee by the doctor in Lord Hoffman’s example caused the mountaineer’s accident. However, I have not had the benefit of full argument on this point and it is not actually material to any issue which I have to decide at this stage. It may be necessary to grapple with it in the second round of this action.

During the course of the hearing before me the answers to these issues were agreed between Mr. Stewart on behalf of Tesco and Mr. Taverner on behalf of Costain to be:-

“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.”

I agree with the answers to the Costain 1993-1994 Tortious Duties Issues set out in the agreed formulation, insofar as there given, and I also agree that the issues left over cannot be resolved on the evidence which has been led in the present trial.

Because of the possible implications of the answers to these issues, with which PHJ was not directly concerned, for issues with which it was directly concerned, PHJ, by Mr. Coulson and Mr. Holwill, took an active interest in these issues and adopted a position somewhat different to that adopted on behalf of Costain by Mr. Taverner and Mr. Hargreaves in respect of Issue 11. Mr. Coulson and Mr. Holwill submitted that a cause of action of the type contemplated by Issue 11 accrued at the latest in about February 1990 when Tesco took up occupation of the Store, while Mr. Taverner and Mr. Hargreaves submitted that any permissible claim of the type contemplated by Issue 11 only accrued when the fire occurred on 4 August 2001. Somewhat different positions were adopted on behalf of Costain and on behalf of PHJ also in relation to the answers to Issues 12 and 13. Mr. Coulson and Mr. Holwill submitted that in each case a cause of action accrued when Tesco relied upon the relevant letter. Mr. Taverner and Mr. Hargreaves submitted that a cause of action accrued in each case after the lapse of a reasonable time from the date of the letter to afford Tesco an opportunity to make a further inspection, by, so it was said, 1997 at the latest. Mr. Stewart and Mr. Chapman submitted that the answer to each of Issue 11, Issue 12 and Issue 13 was the date of the fire, 4 August 2001.

Mr. Stewart and Mr. Chapman set out their submissions in relation to Issue 11 at two paragraphs numbered 67 of their written opening and their submissions in relation to Issues 12 and 13 in paragraph 68. The submissions were as follows:-

“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. ”

In his closing submissions Mr. Coulson made a point by reference to the decision of the Court of Appeal in Knapp v. Ecclesiastical Insurance Group Plc [1998] PNLR 172 which was important, and, I think, not ultimately in dispute. If it was disputed to any extent, I find that it was a good point. The point was that a cause of action in negligence accrues when the claimant first sustains real damage, meaning other than purely minimal damage, and that it is irrelevant that later other damage is suffered or that the damage originally suffered becomes more serious. The issue was explained by Hobhouse LJ at page 178C-D of the report in this way:-

“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.”

Although I think that I have summarised sufficiently for present purposes the effect of the submissions made on behalf of PHJ in relation to the Costain Accrual of Cause of Action Issues and those made on behalf of Costain in relation to Issues 12 and 13, it is convenient to set out the whole of the answer to Issue 11 for which Mr. Taverner and Mr. Hargreaves contended in their written opening:-

“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.

There are two strands of authority to which my attention was drawn during the argument in relation to the date of accrual of a cause of action for negligence. Those strands, as they originally developed, largely reflected the distinction, to which I have already referred, between physical damage and economic loss. However, the strands have become somewhat confused as a result of a recognition, in Murphy v. Brentwood District Council, of the fact that, although previously categorised as giving rise to physical damage, the proper analysis of a case in which a building contained a defect which was discovered before it caused any damage to person or property was that the damage in question was economic loss – see, for example, per Lord Bridge of Harwich at page 475A-G.

It is convenient to begin the review of the relevant authorities cited to me with the decision of the House of Lords in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners [1983] 2 AC 1. In that case the defendant consulting engineers were engaged by the claimants to design an addition to their factory which included a chimney. The chimney was built during June and July 1969. A material which was unsuitable was used in the construction of the chimney. No later than April 1970 cracks appeared at the top of the chimney. The damage to the chimney was not discovered until November 1977 and it was held that it could not with reasonable diligence have been discovered earlier than October 1972. The principal issue in the case in the House of Lords was whether, in the circumstances, a cause of action in negligence accrued when the cracks appeared in the chimney, when the existence of the cracks was discovered or when the existence of the cracks could, with reasonable diligence have been discovered. The only substantive speech was that of Lord Fraser of Tullybelton. At page 16F-H of the report he said this:-

“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.”

I shall refer to other authority falling in date between the two cases, but it is logical to come straight after the citation from the speech of Lord Fraser in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners to the decision of the Privy Council in Invercargill City Council v. Hamlin [1996] AC 624, which was an appeal from the Court of Appeal of New Zealand. An issue in that case was when the cause of action of a building owner against a local authority for negligent discharge of its functions of inspecting a house under construction accrued. Under English law, in the light of the decision of the House of Lords in Murphy v. Brentwood District Council, there would be no cause of action at all in such circumstances, but, as the Privy Council made plain, the common law of New Zealand has developed differently from English law in this respect. The house construction of which gave rise to the claim was built in 1972, cracks began to appear in 1974, but the action was not commenced until 1990. The advice of the Privy Council was given by Lord Lloyd of Berwick. At page 648C-649C Lord Lloyd said, so far as is presently material:-

“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 (4^th) 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.”

The comments of Lord Lloyd in Invercargill City Council v. Hamlin which I have quoted in the preceding paragraph put the first instance judge in England and Wales in a strange position. It was fundamental to the reasoning of the House of Lords in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners as to when a cause of action in negligence accrued in respect of defects in a building that the nature of that damage was physical. Later decisions of the House of Lords have recognised that that is a mischaracterisation and that properly such defects should be regarded as giving rise to economic loss. That notwithstanding, the decision in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners has not been formally reconsidered by the House of Lords and remains technically binding upon lower courts as the law of England. Although, however regrettable, it is possible conceptually for the common law of New Zealand to be different from the common law of England and Wales, what is not logically possible is for the characterisation of a defect in a building which has not caused damage to person or property to be different in England and Wales, on the one hand, and in New Zealand, on the other. The difficulties of the first instance judge are compounded, rather than reduced, by a consideration of the comments which Lord Keith of Kinkel made in Murphy v. Brentwood District Council at page 466D-G concerning the decision in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners. I have quoted the relevant comments earlier in this judgment. One thus seems to have at least two fairly broad hints, one from Lord Keith and those who agreed with him in Murphy v. Brentwood District Council, and the other from Lord Lloyd and those who concurred in the advice of the Privy Council in Invercargill City Council v. Hamlin, that, should it ever be necessary to do so, the House of Lords may well be disposed to reconsider the decision in Pirelli General Cable Works Ltd. v. Oscar Faber & Partners. Meanwhile the reasoning underlying it has been recognised as being flawed.

A decision which followed Pirelli General Cable Works Ltd. v. Oscar Faber & Partners was that of the Court of Appeal in London Congregational Union Incorporated v. Harriss & Harriss [1988] 1 All ER 15. In that case the defendants were architects who were engaged by the claimants in 1969 to design a church hall. After it was constructed in 1970 the church hall flooded on a number of occasions. In 1977 proceedings were commenced in which it was alleged that the causes of the flooding were the negligent design by the defendants of the drains serving the church hall and the omission from the design of a damp proof course. The defendants contended that the cause of action of the claimants had accrued when the church hall had been constructed and thus that it was statute-barred by the date of the commencement of the action. The trial judge rejected that contention and the defendants appealed. The leading judgment was that of Ralph Gibson LJ. At page 22 of the report he said:-

“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.”

A little later in his judgment, at page 23G-J, Ralph Gibson LJ said this:-

“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.”

At page 25A-D of the report Ralph Gibson LJ considered an alternative argument on behalf of the defendants:-

“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.

The second strand of authority to which I have referred may be considered for present purposes as commencing with the decision of the Court of Appeal in Forster v. Outred & Co. [1982] 1 WLR 86. In that case a lady executed a legal charge over her home in February 1973 to secure loans to be made to her son. The defendant solicitors acted for her in relation to the execution of the legal charge and did not advise her as to risks which she was assuming by entering into the charge. A demand was made under the charge in January 1975 and the lady repaid the loan. In January 1977 proceedings were commenced on behalf of the lady against the solicitors, but those proceedings were not pursued with diligence and in February 1980 an application was made on behalf of the solicitors that the action be dismissed for want of prosecution. In March 1980, in anticipation of the hearing of that application a further writ was issued on behalf of the claimant. The main question in the Court of Appeal was whether the action commenced by the second writ was statute-barred at the date it was issued. The leading judgment was that of Stephenson LJ. At page 98D he indicated that he accepted the submissions of Mr. Murray Stuart-Smith QC, as he then was, on the issue. Those submissions were summarised by Stephenson LJ in his judgment first at page93D-F of the report in this way:-

“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.

The decision in Forster v. Outred & Co. was followed by the Court of Appeal in a number of other cases concerned with the alleged negligence of solicitors, in particular, D. W. Moore & Co. Ltd. v. Ferrier [1988] 1 WLR 267 and Bell v. Peter Browne & Co. [1990] 2 QB 495. It was approved by the House of Lords in Nykredit Mortgage Bank Plc v. Edward Erdman Group Ltd. [1997] 1 WLR 1627, which was something of a sequel to the decision of the House in South Australia Asset Management Corporation v. York Montague Ltd. The leading speech was that of Lord Nicholls of Birkenhead. At page 1630C-F of the report he cited the summary made by Stephenson LJ in Forster v. Outred & Co. at page 94C-D of the submission of Mr. Stuart-Smith and indicated that he agreed with the acceptance of it by Stephenson LJ. He went on:-

“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.”

Later in his speech Lord Nicholls considered the nature of the loss for which a valuer was liable, and, in particular, at what point a cause of action accrued. At page 1631E he identified as “the basic comparison” “a comparison between the plaintiff’s position had he not entered into the transaction in question and his position under the transaction”. At pages 1631H-1633B he said, so far as is presently material:-

“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.”

As I have already remarked, the present is not a case in which it is said that the Store as constructed by Costain was defective in the sense that it contained some component which was destined to fail at some point or would not serve its intended purpose. The whole focus of the complaint in relation to initial design and construction is simply that the Store did not incorporate fire stopping and inhibiting measures which it ought to have done. By reason of the lack of those qualities the Store was exposed to the risk that, if a fire did occur, the extent of the damage which that fire caused would be greater than if the relevant fire stopping and inhibiting measures had been incorporated into the structure. Although Mr. Stewart did not accept the point and so whether it is right or not will have to be determined in the second round of this litigation, it would seem likely that, so far as initial design and construction were concerned, the Store was less valuable as a supermarket at completion than it would have been with better fire protection. If that were so, the nature of the loss which Tesco sustained in relation to any breach on the part of Costain of any duty of care which it owed in relation to the initial design or construction of the Store would plainly be economic. Because the nature of the alleged deficiency in the Store was not some feature such as the use of the unsuitable materials in the Pirelli case which meant that the chimney would develop cracks, or the defective drains in London Congregational Union Incorporated v. Harriss & Harriss, but simply the lack of a desirable attribute which would be of no consequence whatever unless there were to be a fire, it seems to me that I do not need to grapple with the thorny issue of the current status for a judge sitting at first instance of those two decisions. The answer to Issue 11 is quite simply that, on the assumption that the Store was at such date less valuable than it would have been had it had the fire stopping and inhibiting measures incorporated in it which it is contended it should have had, any cause of action in tort arose no later than the date of practical completion of the Store. If that factual hypothesis proves unsound once the relevant evidence is heard, the cause of action would have accrued at such later date as evidence establishes as a date at which Tesco sustained economic loss in respect of the Store by reason of its lack of the relevant fire stopping and inhibiting measures. For example, if Tesco would have had to have paid extra for the appropriate fire stopping and inhibiting measures to be carried out as part of the original construction of the Store, the cause of action would have accrued at the date at which the cost of the necessary works increased above what it would have been had the work been done by Costain.

The whole purpose of the inspection of the Store which Tesco wanted carried out in the autumn of 1993 was so that it could be reassured that adequate fire protection measures were in place in the Store or it could take steps to have appropriate measures provided. In writing to Tesco the letters dated, respectively, 19 October 1993 and 27 May 1994 Costain was representing to Tesco that it had investigated the position at the Store in relation to the presence of appropriate fire stopping and inhibiting works and that what should have been there was there. In my judgment, by making such representations Costain assumed a duty of care to Tesco the scope of which extended to compensating Tesco for the consequences of the fire stopping and inhibiting measures which should have been there being absent. I emphasise that I do not at this stage make any finding as to what fire stopping and inhibiting measures should have been present. That is a matter to be determined in the second round of this action. However, it does seem to me obvious that Costain knew that Tesco would be likely to rely, and intended Tesco to rely, upon the terms of its reports in deciding what, if any, steps needed to be taken to provide fire protection at the Store. Whether Tesco did actually rely upon the terms of the reports is again a matter for the second round of the action. All I am indicating at present is that in my judgment the scope of the duty of care which Costain assumed in writing the letters dated 19 October 1993 and 27 May 1994 was one which extended to compensating Tesco for the consequences of any fire which occurred at the Store which consequences would have been avoided if the terms of the reports had been accurate, on the assumptions that they were not in fact accurate and that reasonable care was not taken in making them.

While, as I have indicated, it seems to me that the duty of care which Costain assumed by writing the letters dated 19 October 1993 and 27 May 1994 extended to liability for the consequences of any fire which consequences would not have been suffered had the terms of the reports in the letters been accurate, that is not the only liability which Costain would have incurred as a result of a breach of its duty of care in relation to either letter. Adopting the basic comparison analysis explained by Lord Nicholls in Nykredit Mortgage Bank Plc v. Edward Erdman Group Ltd., on the assumption that Tesco relied on the two letters, what it did in reliance upon them in the first instance was not cause fire protection works to be undertaken at the Store in 1993 or 1994. If, contrary to the findings which I have already indicated, Costain owed a duty of care to Tesco to undertake the provision of the necessary works without cost to Tesco, Tesco would probably have been put to some trouble and expense in chasing Costain to carry out the necessary works and to some disruption to its trading activities at the Store, and cost, while the works were carried out, assuming that Costain was in fact prepared to undertake the works in question. If Costain was not obliged to carry out the appropriate works without cost to Tesco, as I have found, Tesco would have had to fund the cost of the works itself. That would also have been the case, at least in the first instance, if Costain was in fact obliged to carry out the works, but declined to do so. The probability is that, in whichever way Tesco was going to sustain expense, the amount of that expense would at some point have been greater as a result of the passing of time and general inflation, than it would have been if incurred in 1993, following receipt of a non-negligent report in a letter of about 19 October 1993, or 1994, following receipt of a non-negligent report in a letter of about 27 May 1994. Whether there would in fact have been such an increase in cost, and, if so, when it would have occurred, are matters to be decided in the second round of this action. However, in principle, if there would have been such increase in cost the date at which it occurred is the date at which a cause of action would have accrued in respect of the letter of 19 October 1993 or the letter of 27 May 1994, as the case may be. That is the answer to Issues 12 and 13.

During the course of the hearing of the preliminary issues Tesco discontinued its claims against the Other Costain Company. That seems to me to have been a belated recognition of the plain fact that the claims against the Other Costain Company were unsustainable as a matter of law. It seems to me to be elementary that the rights of a third party, such as Tesco, against Costain could not in law be prejudiced by the terms of the Costain Agreement, to which it was not a party, and that, equally, it could obtain no rights under that agreement.

The terms in which Issue 15 is expressed are somewhat misleading in relation to the point which Mr. Coulson and Mr. Holwill on behalf of PHJ actually wanted decided. As Mr. Coulson explained the point orally, all it amounted to was whether, in determining the quality of the performance required of PHJ of its obligations in respect of design under the PHJ Agreement, it was appropriate to have regard to the fact that it was actually doing its design work for an experienced building contractor, Costain, and it was always envisaged that it would be doing its design work for an experienced contractor. This relatively straightforward and uncontroversial point was complicated not only by the somewhat unclear terms in which Issue 15 was framed, but also by a concern on the part of Mr. Coulson to seek to have the mantra “design and build contractor” included in the answer. His preferred answer to Issue 15 as put forward during the hearing was:-

“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 formulation which I have quoted in the preceding paragraph was agreed between Mr. Coulson and Mr. Stewart but it is susceptible of a number of objections. Not the least of them is that the issue, as explained by Mr. Coulson, seems to raise simply a question of construction of the PHJ Agreement, yet it was sought to rely in support of the construction for which PHJ contended on events after the making of the PHJ Agreement – what Costain actually did. To construe a contract by reference to the conduct of the parties subsequent to the making of the contract is not permissible – see James Miller & Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. [1970] AC 583. Further, the beliefs of a party to a contract, if not shared with the other party or parties, are of no materiality to the construction of the contract. Construction of the contract falls to be approached in the manner indicated by Lord Hoffman in Investors Compensation Scheme Ltd. v. West Bromwich Building Society in the passage which I quoted earlier in this judgment. Leaving these points on one side, it was common ground that, in considering what was the nature of a duty of care in tort to give advice, it is material to have regard to the extent to which the advisee appears to need advice. Mr. Coulson referred me to the decision of the Court of Appeal in Carradine Properties Ltd.v. D. J. Freeman & Co. [1999] Lloyd’s Rep PN 483. Although fully reported only relatively recently the decision actually dates back to 1982. The material passage was referred to by Leggatt LJ in giving the judgment of the Court of Appeal in another unreported case, Virgin Management Ltd. v. De Morgan Group Plc, in which judgment was handed down on 24 January 1996. The material part of the judgment is at pages 27D-29A of the transcript:-

“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 23^rd 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.”

In the light of the way in which the law of negligence has developed in respect of its relationship to contractual obligations to perform services with reasonable skill and care, it seems unlikely that the real question in a case such as Carradine Properties Ltd. v. D. J. Freeman & Co. or Virgin Management Ltd. v. De Morgan Group Plc is whether a duty of care is owed in tort which is wider in scope than the duty assumed under the relevant contract. Rather the true question would seem to be what, on proper construction of the relevant contract, is the scope of the duty, whether in contract or in tort. That said, it seems to me that the sort of considerations identified by Leggatt LJ in the passage which I have quoted must be relevant to a construction of the relevant contractual obligations in the application of the principles expounded by Lord Hoffman in Investors Compensation Scheme Ltd. v. West Bromwich Building Society. The answer to Issue 15 is thus that it is relevant in construing the nature of the obligations assumed by PHJ under the PHJ Agreement in respect of the design of the Store to have regard to the fact that it was always envisaged and intended that the Store as designed by PHJ would be constructed by an experienced contractor. What that conclusion may mean in practice in terms of what should have been included in designs prepared by PHJ is a matter for the second round of this action.

Issue 16 as formulated also does not indicate what the real point is. It was not in dispute that the PHJ Agreement was not in fact a specialty for the purposes of Limitation Act 1980 s.8 because it was not actually executed under seal. The real question is what, if any, was the effect of clause 9.1 of the PHJ Agreement, by which it was provided that, “For all purposes the Terms and Conditions contained in this letter shall be deemed to have been made under Seal by the parties”. That matter was certainly raised by Issue 17 if not by Issue 16.

Tesco’s case in relation to Issues 16 and 17 was, in essence, that upon proper construction of clause 9.1, PHJ agreed as a matter of contract not to seek to rely, by way of answer to any claim which Tesco might bring against it for breach of the PHJ Agreement, upon the provisions of Limitation Act 1980 until a period of twelve years had elapsed from the date of the alleged breach.

PHJ’s answer, as set out in paragraph 17.3 of the written opening of Mr. Coulson and Mr. Holwill, was:-

“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.”

The provisions of Limitation Act 1980 ss. 2 and 5 are not mandatory, in the sense that they apply regardless of the wishes of those potentially able to place reliance upon them. In each case in which it is possible to rely upon the provisions of either of the sections as a procedural bar to a claim a party has a free choice whether to seek to rely upon them or not, as is illustrated by the decision in Ketteman v. Hansel Properties Ltd. [1987] AC 187. Consequently, it seems to me that there is no reason in principle why parties to a contract should not be able to abandon or to modify the entitlement which they would otherwise have to avail themselves in case of need of the provisions of Limitation Act 1980 s.2 or s.5.

In the context of the exercise of a common law right of set-off Lord Diplock said in Gilbert-Ash (Northern) Ltd. v. Modern Engineering (Bristol) Ltd. [1974] AC 689 at page 717:-

“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.”

It is no doubt appropriate to approach any suggestion that a party has by his contract abandoned or modified his ability to avail himself of a defence given to him by statute with similar caution to that indicated by Lord Diplock as necessary in a case in which the defence allegedly given up arises at common law. However, that said, it is ultimately, as it seems to me, a question of construction of the relevant contract whether a party has abandoned or modified the right which he would otherwise have to rely upon the provisions of Limitation Act 1980 ss. 2 and 5. In the present case it is impossible, commercially, to give any intelligible meaning to, or to attribute any worthwhile significance to the inclusion in the PHJ Agreement of, clause 9.1 unless it is intended to mean that each party agreed that its rights and obligations towards the other were to be those which they would have been had the PHJ Agreement been executed under seal. The principal, perhaps the only, significance of the question whether the PHJ Agreement had been executed under seal is the limitation period applicable to claims for damages for breach of it. The only sensible construction of clause 9.1 of the PHJ Agreement thus seems to me to be that by it the parties agreed that neither would rely as against the other upon a limitation defence unless and until a period of twelve years had elapsed from the date of any alleged breach of the agreement. That is the answer to Issues 16 and 17.

Issue 18 concerns Tesco’s pleaded case that terms were to be implied into the PHJ Agreement that:-

“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”.

Mr. Coulson and Mr. Holwill submitted by way of answer to Tesco’s case in respect of Issue 18 that there was no warrant for implying into the PHJ Agreement the terms for which Tesco contended. They submitted that the PHJ Agreement was comprehensive and that no implication was necessary or appropriate. They relied in particular upon the inclusion in the PHJ Agreement of a Schedule A which set out a number of work stages, all introduced by the words, “The duties to be provided by the Architect shall comprise all or any of the following as may be necessary in the particular case”. The ground which it was sought to cover by the alleged implied terms was covered, they contended, by these provisions in Schedule A:-

“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…”

In my judgment the test to be satisfied if a term is to be implied into a contract is that set out in the passage from the speech of Lord Pearson in Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board which I have set out earlier in this judgment. I do not see how it can sensibly be said that it is necessary to imply into the PHJ Agreement the terms for which Tesco contended or that such terms represented the actual, but unexpressed, agreement of the parties. Furthermore, it is not, in law, permissible to imply into a contract terms which contradict the express terms – see, for example, Miller v. Emcer Products Ltd. [1956] Ch 304; Lynch v. Thorne [1956] 1 WLR 303. For both of these reasons, therefore, the answer to Issue 18 is that none of the terms contended for was to be implied.

So far as Issue 19 is concerned it seemed to be accepted on all sides that the considerations relevant to answering it were essentially the same as those which arose in relation to Issue 11, with the difference that the focus was now the performance by PHJ in 1989 and 1990 of its obligations assumed under the PHJ Agreement in respect of design of the Store and inspection of work in progress. In my judgment that is a realistic assessment. As I have rehearsed at some length in my consideration of Issue 11 the relevant authorities and the principles to be derived from them it is enough to say that I hold that scope of the duty of care assumed by PHJ to perform, with the care and skill to be expected of a reasonably competent architect, the work of design and inspection which it agreed under the PHJ Agreement to carry out did include not causing economic loss. When any economic loss was incurred by Tesco would fall to be established in the same manner as would be necessary for the purposes of Issue 11.

For the reasons which I have already set out, it seems to me that it is arguable that the scope of the duty of care owed by PHJ did not extend to bearing the consequences of the absence of fire stopping and inhibiting measures in the event of fire, but was limited to the loss, if any, occasioned to Tesco as a result of the Store being less valuable when completed than it would have been if PHJ had performed its duty of care, or to the additional cost of providing the appropriate measures, if Tesco would have had to have paid extra for them if they had been provided in 1989 or 1990 as part of the original construction of the Store. It was not up to PHJ itself to provide appropriate fire stopping and inhibiting measures, in the sense of installing them or paying for others to instal them, so that PHJ’s duty could have been no greater than to have included the necessary design details in its drawings or specifications and then to have taken reasonable steps to satisfy itself that the Store had been constructed in accordance with its designs. Had it performed its duty in respect of design, assuming for present purposes that it did not, Tesco would have known what fire stopping and inhibiting measures were appropriate, but it may have had to pay for them to be provided. If they were included within the price which Tesco had to pay anyway, Tesco’s loss as a result of them being omitted was the amount by which the Store was worth less, when completed, than it would have been with appropriate fire stopping and inhibiting measures having been provided. If they were not included within the price, Tesco sustained loss at the point at which the cost of providing them exceeded the cost had they been provided at the time of construction of the Store.

The essential question to which Issue 20 gives rise is whether an architect owes a continuing duty to his client to review his design, such that a contractual failure to prepare competent designs is a breach which continues until completion of the structure which he has designed. It also gave rise to the question, to which the answer is pretty obvious, whether an architect’s duty to inspect requires him to inspect that which cannot be seen because it has been covered up.

Mr. Stewart and Mr. Chapman submitted in their written opening that the answer was that there was a continuing duty. They relied, at paragraph 78, upon a dictum of Sachs LJ in Brickfield Properties Ltd. v. Newton [1971] 1 WLR 862 at page 873F that:-

“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.”

The notion that a professional person owes a continuing duty to review the quality of the performance of his retainer or engagement is not a straightforward one unless it is intended simply as a transparent mechanism for delaying artificially the commencement of some period of limitation. In the ordinary conduct of human affairs a task which is considered to have been completed satisfactorily is put behind one as the next task is embraced. To expect someone in real life continuously to review what he or she is doing is to expect them to be paralysed into substantial inactivity by anxious traversing of old ground until eternity. A more realistic approach is to recognise, as Oliver J did in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch 384 at page 403C that:-

“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.”

Mr. Coulson and Mr. Holwill, at paragraph 20.2.2 of their written opening, reminded me of the consideration of this issue by Dyson J, as he then was, in New Islington and Hackney Housing Association Ltd. v. Pollard Thomas & Edwards Ltd. [2001] PNLR 515. In paragraphs 14 to 20 he grappled with, and resolved, the relevant considerations in a manner which I find, with respect, entirely convincing. He said, omitting his citation of the passages from the judgments of Sachs LJ and Oliver J which I have already set out:-

“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, 4^th 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.”

In the light of those observations of Dyson J I find that the answer to Issue 20 is that any cause of action in respect of any relevant breach of contract accrued at the point at which the relevant design was completed by PHJ or the relevant inspection made, and did not continue beyond that point. The answer to the question whether PHJ owed any obligation to inspect work which had been covered up is that it did not.

The answer to Issue 21 depends entirely upon my findings of fact in the light of the evidence as to who, if anyone, made any inspection of the Store in the autumn of 1993.

Mr. Stewart submitted that on the evidence as a whole no one made any inspection. He pointed, in particular, to the facts that it was not possible for Costain to identify who had made any inspection and that there was no contemporaneous record of an inspection, such as notes or an annotated drawing or a file memorandum. He also drew attention to the fact that the evidence from the marking on the “Received” stamp applied by PHJ to the reverse of Costain’s letter dated 9 September 1993 was that drawings were only despatched in response to the request in that letter on 12 October 1993 and, assuming receipt of the drawings in the ordinary course of post, that left little time for the inspection of the Store to have been carried out before Mr. Gibson-Leitch wrote his letter dated 19 October 1993. It seemed to be common ground that it would take two or three days to do a proper fire inspection of the Store. All of this is true, but it is implicit in this submission that Mr. Gibson-Leitch, when he wrote his letters of 19 October 1993 and 27 May 1994, knew that what he was writing was untrue. Having seen and heard Mr. Gibson-Leitch give evidence I reject that implicit submission absolutely. I was impressed by Mr. Gibson-Leitch. I consider him to be a man of the highest integrity, and, moreover, as I have said, a careful and cautious man. He would have had no reason to write as he did unless he considered that he had good grounds for what he wrote. He personally was totally unaffected whether or not an inspection had been carried out, and whatever it was that an inspection revealed. It is obvious from the evidence put before me that material in relation to the inspection of other Tesco stores in the Midlands which resulted in letters being written by Costain which were logged by Tesco as having been received, but now cannot be found, that relevant documentation has gone missing. I accept the evidence of Mr. Gibson-Leitch that he delegated the task of inspection to someone – to whom, it is no longer possible to say – who seemed to him competent to undertake an inspection of the fire stopping and inhibiting works at the Store, and that that person subsequently reported to Mr. Gibson-Leitch in terms which persuaded him that a proper inspection had been carried out and that the appropriate works had been properly carried out in the first place.

Mr. Taverner submitted that I should find that an inspection of the Store had been made on behalf of Costain in the autumn of 1993 before Mr. Gibson-Leitch wrote his letter dated 19 October 1993, and that on that inspection the representative or representatives of Costain had been accompanied by a representative or representatives of PHJ. He relied heavily upon the terms of the notes made by Mr. O’Connor on 16 and 17 May 1994 which recorded Mr. Gibson-Leitch as having said at that time that he recollected joint inspections with architects at the four Tesco stores in the Midlands area built by Costain and Mr. Heckels as having said that he had undertaken an inspection at New Oscott and as having surmised that an inspection had been undertaken by someone at PHJ, probably Mr. Truman, at the Store. Mr. Taverner also relied upon the fact, as to which Costain witnesses spoke, and which seems to have been accepted at least in general terms by Mr. Heckels, that Tesco’s usual practice was to require a joint inspection by the relevant architect and contractor. Further, he also attention to the fact that there was no positive evidence that there had not been a joint inspection.

Mr. Coulson contended that there was no substance in the points made by Mr. Taverner which I have summarised in the preceding paragraph.

It was, as it turned out, not in dispute that Mr. Truman had left the employment of PHJ at the beginning of 1993 before the question of an inspection of the Store had arisen. That meant, as it seems to me, first, that Mr. Truman could not have been the person who made a joint inspection, if joint inspection there was, of the Store with a representative of Costain. Second, it meant that Mr. O’Connor’s note upon which Mr. Taverner relied either recorded accurately inaccurate information as to Mr. Truman provided by Mr. Heckels or recorded inaccurately what Mr. Heckels said. I have already recorded that both Mr. Heckels and Mr. O’Connor were called to give evidence, but neither had any recollection of their conversation independent of the note made by Mr. O’Connor. In my judgment the possibility of misunderstanding at the time of the conversation was increased by the fact that neither Mr. Heckels nor Mr. O’Connor had any involvement with the Store apart from this conversation and, in the case of Mr. Heckels, being the PHJ person who was asked to provide the relevant fire precautions drawings to Costain. Mr. Gibson-Leitch in his evidence spoke of Mr. O’Connor’s note being inaccurate insofar as it suggested that Mr. Gibson-Leitch personally had carried out surveys of Tesco stores. A further mystery concerning the notes made by Mr. O’Connor was that they referred to Costain, according to Mr. Gibson-Leitch, having no record of having reported to Tesco following the inspection of the Store, when in fact Mr. Gibson-Leitch had done so in his letter dated 19 October 1993. As I have already indicated, it seems to me that it would not be safe to draw any inference from the terms of Mr. O’Connor’s notes. For whatever reason they were not accurate in a number of respects.

Mr. Coulson also drew attention to the fact that, if Costain had wanted PHJ to inspect the Store jointly with it, the logical point at which to make such request would have been in Mr. Burley’s letter dated 9 September 1993. That is a fair point. Moreover, in none of the subsequent written communications between Costain and PHJ was there any reference to any joint inspection. Mr. Gibson-Leitch’s letter dated 19 October 1993 was copied to PHJ, but that referred only to what “we”, meaning in the context Costain, had taken it upon itself to do. There was no suggestion in the letter that the inspection had been made jointly with PHJ. While what prompted Mr. Dainty of Tesco to write his letter to PHJ dated 28 April 1994 was obscure, the responses to it did indicate a number of things relevant to the question whether PHJ had made a joint inspection with Costain in the previous autumn. If there had been a joint inspection one would have expected that that would have been recollected then by relevant personnel on both sides, specifically Mr. Gibson-Leitch on the Costain side and Mr. Welch on the PHJ side. One might have expected the fact of a joint inspection to have been mentioned in correspondence to Tesco, given that by his letter dated 28 April 1994 Mr. Dainty was specifically asking for PHJ to undertake an inspection. However, in his letter dated 27 May 1994 to Tesco Mr. Gibson-Leitch spoke only of what “we”, that is Costain, could confirm. Mr. Welch in his letter to Tesco dated 3 June 1994 in terms referred to the inspection as having been carried out by Costain. He made that point in his letter to Mr. Gibson-Leitch dated 3 June 1994. While it is always possible that a response from Costain challenging that assertion has gone missing, given the terms of Mr. Gibson-Leitch’s letters to which I have referred, that seems unlikely.

In the result I conclude that the answer to Issue 21 is that Costain alone made an inspection of the Store in the autumn of 1993 and that PHJ made no inspection.

These were rather curious issues in that they did not arise as between Tesco and PHJ, each of which agreed that PHJ owed no duties either to Tesco or to Costain in relation to the Store in 1993 and 1994. It was only Costain which contended that PHJ owed any duties to Tesco or to Costain.

The way in which Mr.Taverner and Mr. Hargreaves put Costain’s case in relation to these issues in their written opening was as follows:-

“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 3^rd 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 3^rd 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 3^rd June 1994 was not a proper response to Tesco’s letter dated 28^th April 1994.”

The exposition of Costain’s case which I have quoted in the preceding paragraph demonstrated, as it seemed to me, the fallacies in it. To the extent to which it depended upon a finding that PHJ had inspected the Store jointly with Costain in the autumn of 1993, it failed because I have not made the requisite finding. In the absence of such a finding it seems to me that the case is all but unarguable. It is, with the greatest respect to Mr. Taverner and Mr. Hargreaves, verging on the absurd to suggest that by supplying, in response to a request, “all drawings relevant to fire protection/prevention works at the Redditch store” PHJ was making any statement as to whether they did, or did not, indicate compliance with relevant statutory regulations. The request was a request to be supplied the drawings in fact prepared and used for construction, and the supply of drawings in response to such a request involved no more than an implicit statement that the drawings sent were the correct drawings. What PHJ had no reason to suppose, at the time it supplied the drawings requested, was that Costain would be so stupid as to represent to Tesco that the works shown on the drawings, if carried out properly, were such as complied “with the requirements of the design and statutory regulations prevailing at the time of construction”, unless it was competent to do so. Yet, unless it is contended that PHJ should have envisaged that possibility, the alleged duty of PHJ is ridiculous. In his final closing submissions Mr. Taverner told me that it will be Costain’s case in the second round of the trial that, upon proper construction, Costain’s letters dated 19 October 1993 and 27 May 1994 meant no more than that Costain had made such inspection as could reasonably be expected of a contractor. I say nothing about that submission at this stage, save that it is not obviously easy to reconcile with the submission currently under consideration.

As for the suggestion that, by copying PHJ in on correspondence with Tesco or by indicating to PHJ in May 1994 that it had dealt with Tesco’s enquiry concerning the Store in 1993, PHJ thereby assumed a duty of care to Tesco or to Costain in effect to consider whether it agreed with what Costain had told Tesco in its letters of 19 October 1993 and 27 May 1994 and, if not, to speak out, that seems to me to be preposterous. It would be wrong in principle to impose a duty of care upon a party which has done nothing to assume one, but has merely received correspondence or copies of correspondence in which another party has expressed opinions or made statements of fact.

The answer to Issue 22 is, therefore, that PHJ assumed no duty of care to either Tesco or Costain in relation to the Store in 1993 or 1994.

In the circumstances answering Issue 23 does not seem to be particularly sensible. However, theoretically the answer seems to be the same as the answers to Issues 12 and 13.

For the reasons which I have set out earlier in this judgment the answers to the preliminary issues are as follows:-

In the light of the answers which I have given to the preliminary issues it would seem that, subject to establishing that Costain was in breach of the duty of care which it was agreed it owed to Tesco in respect of its inspection of the Store in the autumn of 1993 and the reports contained in Mr. Gibson-Leitch’s letters dated, respectively, 19 October 1993 and 27 May 1994, and subject to whatever benefit from reliance upon the provisions of Limitation Act 1980 ss.14A and 32 Tesco may yet derive, Costain will be liable to Tesco only if the cost to Tesco of causing to have carried out whatever works it would have caused to be carried out if it had known of deficiencies in the fire stopping and inhibiting works at the Store in 1993/1994 would not have increased between then and 9 January 1996, the date six years before the commencement of Action 07. That, of course, assumes that, if there were any earlier breach of a duty of care, a cause of action in respect of it accrued some time round about 1990 and that no reliance could successfully be placed upon the provisions of Limitation Act 1980 ss. 14A and 32 in relation to it. It also assumes that the scope of any earlier duty of care extended to the economic losses caused to Tesco by the fire at the Store on 4 August 2001.

So far as PHJ is concerned, whether it has any liability to Tesco for breach of the PHJ Agreement would seem to depend upon proof of some deficiency in its work of design completed after 9 January 1990, or proof of some failure after that date to react appropriately to some trigger which ought to have prompted it to review its design, or proof of some failure to carry out a competent inspection after that date. Whether PHJ has any liability in tort to Tesco would seem to depend upon proof of a breach of a duty of care, the proper scope of that duty in relation to the type of losses to which it extended, and the benefit, if any, which Tesco can derive from the terms of Limitation Act 1980 ss. 14A.