Lewisham v MR Ltd

By its application dated 12 May 2003 the Defendant, MR Limited (“MR”), seeks to strike out certain parts of the Particulars of Claim. Its application is not brought on the ground that part of the Statement of Case discloses no reasonable cause of action but under CPR 24, as is clear from paragraph 1 of Attachment A to the application. MR applies for summary judgment against the Claimant, the Mayor and Burgesses of the London Borough of Lewisham (“Lewisham”), on certain issues raised by the Particulars of Claim on the ground that those issues stand no reasonable prospect of succeeding, the relevant causes of action having accrued before 11 October 1996, 6 years prior to the issue of the Claim Form and are now time-barred under section 14 Limitation Act 1980. No reliance is placed by Lewisham on Section 14A of that Act.

By the Order of His Honour Judge Havery QC dated 16 May 2003 these issues were to be tried on 30 June and 1 July 2003 and the matter came before me on those days for determination. MR’s application was supported by the witness statement of Mr. Pinsent (12 May 2003) and Lewisham filed 3 witness statements in response: those of Ms Salisbury (4 and 20 June 2003 – the second witness statement superseding the first) and Mr. Hartley (5 June 2003). No oral evidence was called and I therefore assume that the contents of those witness statements are true.

The Particulars of Claim the subject of MR’s application is dated 23 March 2003. However, by an application dated 11 June 2003, Lewisham sought to amend that Particulars of Claim, its Claim Form dated 11 October 2002 and its Reply dated 9 May 2003 to address some or all of MR’s complaints (see the draft Amended Claim Form, Amended Particulars of Claim and Amended Reply attached to Lewisham’s application). In the period leading up to the 30 June hearing and during the hearing itself, Miss Finola O’Farrell QC, Leading Counsel for Lewisham, sought to further amend these 3 drafts and the final version of Lewisham’s drafts were submitted to the Court shortly after the conclusion of the hearing. In this judgment those final drafts are referred to as Lewisham’s draft Amended Claim Form, draft Amended Particulars of Claim and draft Amended Reply. Mr. James Howells, Counsel for MR, accepted that the earlier versions of those drafts now have no relevance save in relation to questions of costs. Mr. Howells also agreed, again reserving his position on costs, that all the amendments sought by Lewisham in those 3 drafts should be allowed – save some in paragraph 44 of the draft Amended Particulars of Claim which will stand or fall on the result of MR’s application for summary judgment.

For the sake of completeness, I record that by paragraphs 2 and 3 of Attachment A to its application, MR had also applied, pursuant to CPR 3.4, to strike out certain parts of the Particulars of Claim dated 23 March 2003 and of the Reply dated 9 May 2003 on the ground that those parts were not particulars of claims made in Lewisham’s Claim Form of 10 October 2002. Once Lewisham produced its draft Amended Claim Form, draft Amended Particulars of Claim and draft Amended Reply, Mr. Howells agreed (again reserving his position on costs) not to pursue MR’s application for a strike-out under paragraphs 2 and 3 of its application.

On 13 November 1995 Lewisham entered into a building contract (“the Main Contract”) with John Laing Construction Limited (“the Main Contractor”) for building works, including overcladding works, to 2 residential tower blocks, Dolphin Tower and Mermaid Tower, Evelyn and Sayes Court Estate, Deptford, London SE8. The Contract Administrator was Floyd Slaski Partnership (“Floyd Slaski”).

The Specification for the Main Contract prepared by Floyd Slaski stipulated the use of Swisslab External Wall Insulation (“Swisslab”), a form of overcladding manufactured by MR. Swisslab is a proprietary overcladding system comprising 2 layers (an insulation layer of insulation batts fixed with adhesive onto the external elevations and an outer layer of cement based render). The Main Contractor sub-contracted the supply and installation of the Swisslab to Hollands Carter Construction Limited (“the Sub-Contractor”). The Sub-Contractor purchased the Swisslab from MR.

The overcladding works were carried out by the Sub-Contractor from about January to August 1996 and were certainly completed before 10 October 1996. Defects appeared between June and August 1996 (paragraphs 34.1 – 34.4 of the Particulars of Claim). Although MR inspected the Sub-Contractor’s works on (at least) 13 August and 5 September 1996, MR had no contractual relationship with Lewisham. All Lewisham’s claims are brought in tort. The date for Practical Completion was certified by Floyd Slaski (on 29 April 1997) as 8 November 1996. Lewisham alleges defects in the overcladding works (paragraph 40 of the Particulars of Claim), loss and damage estimated at £948,700 (paragraph 46 of the Particulars of Claim) and an intention to carry out remedial works in early 2004 (paragraph 48 of the Particulars of Claim).

On 14 October 1996 MR produced a written report for Lewisham (“MR’s Report”) following its inspections, in which it expressed opinions on the state of the overcladding and made certain recommendations (paragraphs 35 – 36 of the Particulars of Claim). On 6 November 1996 MR also gave 10 year warranties for each Tower pursuant to the terms of the registration agreement between MR and the Sub-Contractor (paragraph 38 of the Particulars of Claim). On 29 April 1997 Lewisham and the Main Contractor entered into a deed whereby, notwithstanding the issue of a Practical Completion Certificate, Floyd Slaski could call upon the Main Contractor to carry out remedial works under the Main Contract if the overcladding works were below the contractual standard after the expiry of the 12 months defect liability period (paragraph 9 of the Particulars of Claim).

In its draft Amended Particulars of Claim, Lewisham alleges that MR assumed responsibility to Lewisham and owed a duty of care to Lewisham in relation to inter alia MR’s Report so as not to cause Lewisham economic loss (paragraph 25 of the draft Amended Particulars of Claim). Lewisham does not advance any claim against MR for damages for negligent pre-tender advice or misrepresentation. Although MR is alleged to have advised Lewisham in August 1996 that the “difficulties” on both Towers would weather with time (paragraphs 34.4 and 34.5 of the Particulars of Claim), Lewisham does not allege it relied on such advice. It is common ground that if Lewisham can establish successfully a duty of care, reliance, breach (paragraph 44.10 of the draft Amended Particulars of Claim) and loss in relation to MR’s Report, this tortious claim is not statute-barred.

In paragraph 25 of its draft Amended Particulars of Claim, Lewisham also alleges that MR assumed responsibility to Lewisham and owed a duty of care to Lewisham in relation to MR’s “supervision and inspection services provided during the works” [i.e. in September 1996 or prior] so as not to cause Lewisham economic loss. The existence of such a duty of care is denied strenuously by MR but I do not need to resolve this issue – I have to assume Lewisham will make good its assertion.

MR’s relevant acts and/or omissions are pleaded in paragraphs 44.1 – 44.8 of the draft Amended Particulars of Claim and these are the sub-paragraphs the subject of MR’s application for summary judgment on the ground that the alleged cause of action is statute-barred. I set out the relevant wording below:

“MR’s ACTS AND/OR OMISSIONS

44.

MR breached the common law duty of care set out at paragraph 25 hereinabove in that it:

44.1

Failed to provide full and proper work and quality control procedures for its Registered Contractor on site and/or failed to provide adequate supervision and/or carry out adequate inspections of the making good of holes left by scaffolding ties:

44.1.1

MR failed to ensure that reasonable care was taken to blend the filled holes into the surrounding render so that the finished surface of the patch repair and the surrounding area would be smooth and even;

44.1.2

MR failed to check that the same batches of material were used for the patches and surrounding surface areas and/or that where material from different batches was used for the patches and surrounding surface areas such material had consistency of colour contrary to Paragraph 1.15 of the MR Revised Specification;

44.1.3

MR failed to ensure that the holes left by the scaffolding ties were patched immediately after the rendering of the surrounding surface areas and/or in the same temperature and weather conditions and/or using render mixes with the same volume of water additions and/or using the same gangs of applicators;

44.1.4

MR failed to ensure that the patch repairs were carried out so as to achieve a reasonable standard of finish that blended in with the surrounding rendered surfaces on the tower blocks.

44.2

[not used]

44.3

[not used]

44.4

Failed to exercise adequate product quality control by providing full and proper work and quality procedures for its Registered Contractor on site and/or failed to provide adequate supervision and/or carry out adequate inspections in order to avoid colour variations:

44.4.1

MR failed to check that the same batches of material were used for adjacent surface areas and/or that where material from different batches was used for adjacent surface areas such material had consistency of colour contrary to Paragraph 1.15 of the MR Revised Specification;

44.4.2

MR failed to ensure that the application of the Swisslab System was commenced from the top of the parapet down and completed in one continuous operation;

44.4.3

MR failed to ensure that, where breaks in the continuity of work were required, the Swisslab System was applied to adjacent surface areas in the same temperature and weather conditions and/or using render mixes with the same volume of water additions and/or using the same gangs of applicators;

44.4.4

MR failed to ensure that any colour variations were minimised.

44.5

Failed to ensure that the level of protection needed during the application of Swisslab or after its application was achieved by providing full and proper work and quality control procedures for its Registered Contractor on site and/or failed to provide adequate supervision and/or carry out adequate inspections to ensure that the necessary protective measures were undertaken:

44.5.1

MR failed to ensure that the application of the Swisslab System was carried out in suitable weather conditions as stipulated in Paragraph 1.12 of MR’s Revised Specification;

44.5.2

MR failed to ensure that the application of the Swisslab System was carried out in suitable temperatures as stipulated in Paragraph 1.13 of MR’s Revised Specification;

44.5.3

MR failed to ensure that the concrete to the parapets was completed and the concrete allowed to dry and shrink prior to commencement of the application of the Swisslab System;

44.5.4

MR failed to ensure that adequate protective sheeting was provided to avoid water penetration and/or exposure to drying winds during early curing of the render finish.

44.6

Failed to carry out its obligations as to quality assurance on site adequately or at all, and in particular:

44.6.1

Failed to ensure that all surfaces would be finished to the highest possible standards;

44.6.2

Failed to ensure that scaffold pole marks on the render were made good;

44.6.3

Failed to ensure that its Registered Contractor complied with its application procedures, and in particular those which related to the carrying out of the works in suitable weather conditions;

44.6.4

Failed to advise on and/or address consistently low levels of workmanship by its Registered Contractor;

44.6.5

Failed to ensure that its Registered Contractor’s operatives had received appropriate levels of training from MR in the use and application of the company’s products and systems.

44.7

Failed to supervise its Registered Contractor adequately or at all. The particulars under paragraph 44.6 above are repeated.

44.8

Failed to inspect the works carried out by the Registered Contractor adequately or at all. The particulars under paragraph 44.6 above are repeated.”

Counsel agreed that the 2 issues to be decided are:

Nature of Damage to avoid

The pleaded duty of care is now confined to a duty not to cause Lewisham economic loss (paragraph 25 of the draft Amended Particulars of Claim). Miss O’Farrell argued that MR owed a duty that extended beyond the provision of information and advice (no breach of any ‘classic’ Hedley Byrne duty is alleged) to the performance of services. She relied on the speech of Lord Goff of Chieveley in Henderson v Merrett Syndicates Limited [1995] 2 AC 145, HL:

“…..though Hedley Byrne was concerned with the provision of information and advice, the example by Lord Devlin of the relationship between solicitor and client [[1964] AC 465 at 526 and 528-529], and his and Lord Morris’s statements of principle [at 502-503], show that the principle extends beyond the provision of information and advice to include the performance of other services…..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 that other in respect of economic loss which flows from the negligent performance of those services” [180-181].

Mr. Howells suggested that I should be cautious about Henderson because, as Lord Goff recognised at 195-196, the situation was “most unusual”:

“….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…..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” [195-196].

I believe that what Lord Goff had in mind at 180-181 were ‘professional’ services performed (maybe without consideration) for a ‘client’.

As I have stated I am not required to decide whether in fact any duty of care not to cause economic loss was owed by MR to Lewisham. However, if there was any duty, it is said by Lewisham to have arisen during the overcladding works when MR (allegedly) failed to act on site as it should have done. I agree with Mr. Howells that the pleaded “failures” of MR are failures to “ensure” a particular result (e.g. paragraphs 44.1.1, 44.1.3, 44.1.4, 44.4.2 – 44.4.4, 44.5.1 – 44.5.4, 44.6.1 – 44.6.3 and 44.6.5 of the draft Amended Particulars of Claim). The nature of the damage that MR owed any duty of care to avoid was therefore (on Lewisham’s pleaded case) allowing a result to be achieved which was not in conformity with the Main Contract.

When did damage occur?

Miss O’Farrell had argued originally for a number of possible dates when damage occurred e.g. the date when some of the defects in the cladding allegedly became manifest (post October 1996), or the date the 10 year warranties were issued (6 November 1996) or the date the Certificate of Practical Completion was issued (29 April 1997), but her final position was that damage occurred only on 8 November 1996, the date of Practical Completion.

Mr. Howells submitted that the latest date upon which it could be said Lewisham suffered damage by reason of MR’s (assumed) breaches of duty was when the Swisslab was poorly installed/applied. He says Lewisham relied on MR’s conduct by permitting the works to continue. The dates when some defects first became apparent (June-August 1996), although legally irrelevant, are said to be evidentially significant as showing (i) the latest date of defective workmanship by the Sub-Contractor and of any negligent inspection/ supervision by MR and (ii) Lewisham’s knowledge of the same.

Both Counsel agreed that Lewisham’s cause of action in tort accrued when relevant “damage” was first suffered: Cartledge v E. Jopling & Sons Limited [1963] AC 758, HL, per Lord Reid at 771-772 and Pirelli General Cable Works Limited v Oscar Faber & Partners [1983] 2 AC 1, HL, per Lord Fraser of Tullybelton at 18H-19A.

Miss O’Farrell also referred me to the Privy Council case of Invercargill City Council v Hamlin [1996] AC 624, where the New Zealand Plaintiff’s cause of action for pure economic loss had been held by the New Zealand Court of Appeal to accrue when defects first became known or manifest (or should have become) and the Judicial Committee did not disturb that finding. However, the Privy Council expressly followed Murphy v Brentwood District Council [1991] 1 AC 398, HL, and preserved a different state of the law in the UK:

“Lord Keith [in Murphy] went on, at pp. 467-468, to quote with approval a lengthy passage from the judgment of Deane J. in Sutherland Shire Council v Heyman, 157 C.L.R. 424, 503-505 “…the respondents’ claim…is for the loss or damage represented by the actual inadequacy of the foundations, that is to say, it is for the cost of remedying a structural defect in their property which already existed at the time when they acquired it. …It is arguable that any such loss or injury should be seen as being sustained at the time of acquisition when, because of ignorance of the inadequacy of the foundations, a higher price is paid (or a higher rent is agreed to be paid) than is warranted by the intrinsic worth of the freehold or leasehold estate that is being acquired. Militating against that approach is the consideration that, for so long as the inadequacy of the foundations is neither known nor manifest, no identifiable loss has come home: if the purchaser or tenant sells the freehold or leasehold estate within that time, he or she will sustain no loss by reason of the inadequacy of the foundations.”” [per Lord Lloyd of Berwick at 647-648].

The fact that English law has not followed New Zealand law has been confirmed by Dyson J. in New Islington and Hackney Housing Association Limited v Pollard Thomas and Edwards Limited [2001] BLR 74, TCC (paragraph 39). In my view, a sale before the discovery of defects and before an actual fall in market value does not illustrate a lack of a cause of action (because there is no loss) but a mitigation – albeit an ignorant one – of the vendor’s loss. I conclude that Invercargill is of no assistance here.

Miss O’Farrell also relied on Nykredit Mortgage Bank Plc v Edward Erdman Group Limited (No. 2) [1997] 1 WLR 1627, HL and on New Islington in support of her Practical Completion date.

In Nykredit the House of Lords considered an example of a cause of action accruing when a building is handed over:

“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 he paid” [per Lord Nicholls of Birkenhead at 1630].

However, as Lord Hoffmann observed at 1638-1639:

“In order to decide when the cause of action arose, it is first necessary to recall, by reference to your Lordships’ earlier judgment, precisely what the cause of action was. It was for breach of the duty of care owed by the valuer to the lender, which existed concurrently in contract and in tort. Your Lordships identified the duty as being in respect of any loss which the lender might suffer by reason of the security which had been valued being worth less than the sum which the valuer had advised. The principle approved by the House was that the valuer owes no duty of care to the lender in respect of his entering into the transaction as such and that it is therefore insufficient, for the purpose of establishing liability on the part of the valuer, to prove that the lender is worse off than he would have been if he had not lent the money at all. What he must show is that he is worse off as a lender than he would have been if the security had been worth what the valuer said. It is of course also the case that the lender cannot recover if he is, on balance, in a better or no worse position than if he had not entered into the transaction at all. He will have suffered no loss. The valuer does not warrant the accuracy of his valuation and the lender cannot therefore complain that he would have made more profit if the valuation had been correct. But in order to establish a cause of action in negligence he must show that his loss is attributable to the overvaluation, that is, that he is worse off than he would have been if it had been correct. It is important to emphasise that this is a consequence of the limited way in which the House defined the valuer’s duty of care and has nothing to do with questions of causation or any limit or “cap” imposed upon damages which would otherwise be recoverable…It follows that in the present case…loss will be suffered when the lender can show that he is worse off than he would have been if the security had been worth the sum advised by the valuer. The comparison is between the lender’s actual position and what it would have been if the valuation had been correct. There may be cases in which it is possible to demonstrate that such loss is suffered immediately upon the loan being made. The lender may be able to show that the rights which he has acquired as lender are worth less in the open market than they would have been if the security had not been overvalued. But I think that this would be difficult to prove in a case in which the lender’s personal covenant still appears good and interest payments are being duly made. On the other hand, loss will easily be demonstrable if the borrower has defaulted, so that the lender’s recovery has become dependent upon the realisation of his security and that security is inadequate. On the other hand, I do not accept Mr. Berry’s submission that no loss can be shown until the security has actually been realised. Relevant loss is suffered when the lender is financially worse off by reason of a breach of the duty of care than he would otherwise have been.”

I believe that Nykredit says no more than if Lewisham was alleging negligent advice by MR, the cause of action would, in accordance with Forster v Outred & Co. [1982] 1 WLR 86 CA per Stephenson L.J. at 94C, 95C-H and 98D-F and per Dunn L.J. at 99F, accrue on the date of reliance. Here, there can be no reliance later than Lewisham’s knowledge of the defects by August 1996. Nykredit is a useful reminder that it is the date of relevant damage that triggers the cause of action for negligent advice (there the ‘damage’ of entering into the transaction as such is irrelevant – the relevant ‘damage’ is that caused by the security being worth less than the sum advised by the valuer).

In New Islington the architect’s duties were governed by his conditions of engagement and he was required to review his design up until Practical Completion (paragraph 14). I respectfully agree with the conclusion of Dyson J. (paragraphs 29-36 and 43) that the obiter remarks of Lord Fraser of Tullybelton in Pirelli (at 18G) about the accrual of a cause of action for negligent advice coinciding with the occurrence of physical damage need to be revisited, post-Murphy, following the “re-interpretation” in that case of the tortious liability in Pirelli as a Hedley Byrne duty to take reasonable care not to cause economic loss (at 466D-H). The cause of action in Pirelli would then have accrued even earlier than the cracking of the chimney, when the Plaintiffs relied on the advice of the consulting engineers by instructing them to proceed with the construction of the chimney. The sound insulation in New Islington was inadequate from handover (at least). It was never capable of being fit for the purpose, so ‘damaging consequences’ were immediately effective. From handover the building suffered from the defect even if no occupant had yet suffered from that defect (paragraph 41). Nevertheless, the accrual of the cause of action in New Islington at handover (at the latest) was because it was at that date that the ‘risk’ of a defective building passed from the architect to the employer under the contract. Here, MR’s duties were not referable to or in any way connected with the date Floyd Slaski chose to certify as the date of Practical Completion.

MR had no duty to do any work itself or to complete any work or to achieve Practical Completion. Its “supervisory” duties arose during the Sub-Contractor’s works and did not continue through until Practical Completion. MR had no duty to see that poor workmanship was remedied (at all or by a certain date), only that the Sub-Contractor’s work was done properly in the first place. MR had no duty to intervene in the Main Contract. The “paragraph 44 failures” are all during the overcladding works, not later. By the date the Sub-Contractor’s works were completed the building was suffering from a defect. The fact that those defects continued until Practical Completion does not have the effect of postponing the accrual of any cause of action against MR.

I accept Mr. Howells’ basic submission that the date of Practical Completion is irrelevant. Practical Completion is a creature of the Main Contract and may well give rise to a (final) cause of action in contract or tort against the Main Contractor and/or the Contract Administrator. It has no relevance to a tortious claim against the Swisslab manufacturer. Lewisham’s cause of action against MR accrued when MR failed to ensure the Sub-Contractor carried out proper work. It could have commenced proceedings in say September 1996. Those proceedings would not have been susceptible to strike-out on the ground of an imperfect/incomplete cause of action, any more than a client who sues his solicitor for services performed negligently in relation to a purchase of realty in circumstances where the negligence was discovered prior to exchange of contracts but after the client had sustained causative loss (e.g. the cost of the survey): see Murphy per Lord Keith at 466B-H. Once the Sub-Contractor ceased its work MR’s duties came to an end, unlike the duties of the Sub-Contractor or Floyd Slaski which continued until (at least) Practical Completion.

In my judgment Lewisham has no real prospect of succeeding on the tortious claim that MR negligently and in breach of the common law duty of care failed to provide full and proper work and quality control/assurance procedures for the Sub-Contractor on site and/or to provide adequate supervision and/or to carry out adequate inspections (as pleaded in paragraphs 44.1, 44.4 - 44.8 and 44.11 of the draft Amended Particulars of Claim and in paragraphs 5 and 6 of the draft Amended Reply). There is no other compelling reason why that issue should be disposed of at a trial. I would also refuse Lewisham’s applications to add to paragraph 8.6 of its Claim Form, to amend paragraphs 44.1, 44.4, 44.5 and 44.11 of its Particulars of Claim and to amend paragraphs 5 and 6 of its Reply as pointless amendments. I will hear further submissions from Counsel on the precise form of Order to be made on MR’s and Lewisham’s applications.