Bovis Lend Lease Ltd v RD Fire Protection Ltd

Introduction

The underlying disputes that give rise to the preliminary issues with which this judgment is concerned arise out of the construction of a very large shopping and leisure centre in Braehead, Glasgow by Bovis Lend Lease Limited, then called Bovis Construction Limited (“Bovis”) for Braehead Glasgow Limited (“Braehead”). The contract was entered into on 18 December 1997 in a heavily amended JCT Standard Form of Building Contract, with Contractor’s Design, 1981 Edition and the Contract Sum was £184,240,776.00. The performance of this contract gave rise to wide ranging disputes between Braehead and Bovis of considerable factual complexity. Bovis claimed additional loss and expense and damages in the total sum of approximately £37.7m and Braehead counterclaimed recovery of alleged overpayments, liquidated damages and damages for defective work and mismanagement in the total sum of at least £65.8m. Thus, the sum total of the differences between the parties was at least £103.5m. This vast litigation between these parties was ultimately compromised by a settlement agreement dated 11 January 2002 and this agreement provides the basis of the preliminary issues.

Bovis acted as management contractor for the project and the works were sub-divided into works packages entered into by Bovis with a large number of different sub-contractors. Two of these intended works packages were for fire protection and dry lining works and a company, now called Baris UK Limited, (“Baris”) was appointed by Bovis to undertake this particular works package. Baris contends that no contract was ever entered into but Bovis contend that a sub-contract incorporating the tender documents and tendered standard conditions was agreed and governed the relationship.

There is no agreement between Bovis and Baris on the pleadings as to which of two companies carried out work for and, if there was a contract, contracted with Bovis. The company who tendered for the works package, Huthco Limited, sold all its assets to, and became a wholly owned subsidiary of, Baris who contends that it was the relevant company who contracted with Bovis, if there was a contract at all, and who carried out work for Bovis on a restitutionany basis after 12 August 1998 if there was not. Formally, however, Baris’ claims are brought by both companies jointly and severally against Bovis. In response, Bovis does not admit that Baris is the appropriate party to make claims against it but it claims an abatement, set-off and counterclaim solely against Baris. It would, therefore, appear to be accepted by both parties that Baris is the appropriate party if a contract was entered into. Baris would also appear to be the appropriate party for any restitutionary claim for work carried out after 12 August 1998. Both companies are, however, parties to, and will be bound by the answers to, the present issues. In this judgment, I will refer to Baris as the relevant party although, strictly speaking, that is a reference to Baris and Huthco Limited both collectively and individually.

Bovis appointed Baris on a date which has yet to be established to carry out the fire protection and dry lining works described in the two works packages, numbered 2500 and 4200. The work was defined in the main contract. The potential dates for carrying out this work were agreed to be, for the purpose of these issues, either 28 January 1998 or 12 February 1998. If, as Bovis contends, a sub-contract was entered into with Baris, that sub-contract was an essentially simple contract containing only certain essential terms or was one incorporating heavily amended standard DOM/2 Articles of Agreement used with heavily amended standard DOM/1 Conditions of Contract. No direct employer/subcontractor agreement between Baris and Braehead was ever entered into. Baris started work on site in April 1998 and was undertaking work on site until April 1999, by which time it had completed most but not all of the work contained within the two relevant works packages. However, Bovis had progressively removed parts of these works packages from Baris in reliance on clause 4.5 of the DOM/1 Conditions of Contract which allows a main contractor to employ other sub-contractors to take over parts of the works in place of a defaulting sub-contractor.

On 23 April 1999, Bovis appointed RD Fire to complete the fire protection works by means of a new works package numbered 4201. This sub-contract also contained the DOM/2 standard Articles of Agreement used with the DOM/1 standard Conditions of Contract, both being heavily amended in a similar way to the amendments to the sub-contract or attempted sub-contract with Baris. RD Fire continued to carry out these works up to Practical Completion of the main contract on 21 September 1999 and into 2000. On 10 March 1999, RD Fire provided Bovis with a warranty in respect of all the fire protection works whose terms are relied on by Bovis to make claims against RD Fire for defects and incomplete work arising in the totality of the fire protection work including that previously carried out by Baris. For the purpose of the trial and determination of the issues that I am currently concerned with, the parties agreed that it was to be assumed that Baris carried out approximately 90% of the fire protection works by value and RD Fire approximately 10%.

Two sets of proceedings were started. The principal proceedings were started by Bovis against Braehead on 14 May 2001 in which Bovis claimed the balance of the contract sum allegedly due to it under the main contract and damages for breaches of contract arising out of the delays and disruption it claimed that Braehead had caused it. It is these proceedings that gave rise to Bovis’ net claim for about £37.7m having taken into account the sum it had already been paid by Braehead of about £216.4m.

Braehead counterclaimed in these proceedings as well as maintaining defences to Bovis’ claims. In summary, Braehead contended that:

Bovis joined RD Fire as a part 20 defendant to the Braehead counterclaim, essentially claiming an indemnity for any loss or damages it had incurred as a result of Braehead’s claims based on defective or incomplete fire protection works including such works as Baris had undertaken. Bovis also brought into this action a number of other part 20 defendants, being various subcontractors and various bondsmen of sub-contractors who were concerned with other parts of the works that also formed part of Braehead’ s counterclaim.

In separate proceedings which had been started on 23 October 2000, Baris claimed additional sums and damages for the work it had carried out for Bovis. The net sum claimed was about £1.9m. In these proceedings, Bovis disputed the sum claimed and served a counterclaim which claimed damages arising out of Bovis’ alleged entitlement to remove work from Baris’ sub-contract with the consequent need to employ RD Fire to undertake at greater cost that part of Baris’ work. The counterclaim also arose out of Baris’ allegedly defective work. The defects included all of those relied on by Braehead in those areas where Baris undertook fire protection work. Thus, Bovis was seeking from Baris an indemnity for all losses that it considered arose or would arise out of Baris’ allegedly incomplete, delayed and defective fire protection works.

The two actions, in so far as they concerned the fire protection works, were ordered to be tried together since they involved many common facts and issues. The trial, had it taken place, would have started on 23 September 2002 for 14 working days. The trial of all remaining issues in both actions would have followed in separate trials immediately following this first trial.

The Bovis action against Braehead and Braehead’s counterclaim against Bovis were never tried because Bovis and Braehead settled all claims and counterclaims against each other in a settlement agreement dated 11 January 2002. This settlement was attached to the terms of an order dated 18 January 2002 staying the action between Bovis and Braehead. The terms of this order had been agreed to by both these parties.

Following the settlement, further directions were given in relation to the trial of Bovis’ outstanding claims against RD Fire and the other part 20 defendants and the claims and counterclaims in Baris’ action against Bovis. On 12 April 2002, the trial of all issues arising out of Bovis’ claims against RD Fire and Baris in relation to the fire protection works was fixed to start on 3 October 2002 for 6 working days.

The directions given in April 2002 for this trial were based on the state of the parties pleaded cases at that time. Bovis had not, by then, sought to amend its case so as to base its respective claims against RD Fire and Baris on the settlement it had reached with Braehead or even to rely on that settlement or adduce its terms in evidence. Bovis contended and still contends that, despite that settlement, it is entitled to present its claims against RD Fire and Baris on the same basis as it had pleaded them prior to its settlement with Braehead.

RD Fire had not, by then, pleaded a defence and Baris had not pleaded a defence to Bovis’ counterclaim. These pleadings were served on, respectively, 29 August 2002 and 6 September 2002. Both relied on the Bovis - Braehead settlement as providing a complete defence to the claims being advanced against them. If RD Fire and Baris succeed in these contentions, Bovis’ defective works claims against them will fail without the need to investigate the factual allegations on which they are based.

This development was coupled with common difficulties that the parties’ experts were experiencing in preparing for trial. These difficulties were not attributed to the default of any party and had been caused by difficulties in gaining access to the fine protection works on a site that was not in the parties’ control and which was a busy shopping mall open for trading for long hours seven days a week. This access was needed to enable the experts to investigate and report on the defects which Bovis was seeking both to rely on and to found its claims. As a result, shortly before trial, all parties were lacking vital factual, expert and valuation evidence that was needed for a fair trial of both liability and quantum.

As a result, the parties agreed, shortly before the date for trial, that preliminary issues as to whether the settlement barred Bovis’ claim on was relevant to that claim should be tried as issues of law on agreed assumed facts. I acceded to that suggested course since it was a proportionate and cost effective way of deciding these difficult threshold questions of law that arose out of the settlement.

Braehead’s relevant claims were based on Bovis’ general obligations to carry out and complete both the design and construction of the works. Braehead, indeed, contended that the effect of particular amended provisions of the standard conditions had the effect of making Bovis entirely responsible for the design of the works including the design work undertaken by consultants since their pre-existing engagements with Braehead were novated by the terms of the main contract in favour of Bovis. In relation to the fire protection works, it was alleged that these were defective or non-compliant with statutory requirements in containing excessive gaps between different component parts, inadequate or missing materials and inadequate workmanship. The result was to compromise the integrity of the fire protection system and health and safety generally. A detailed scott schedule accompanied the pleading. This listed each defect complained of and the particular provisions of the main contract relied on as giving rise to the breach. The greater part of the claim related to items of alleged bad workmanship. The claim was quantified at approximately £4.8m, a sum that was made up of costs which were, in the main, those described as being reasonably necessary to remedy the defects with a small additional sum being claimed which was described as additional work costs. A further schedule provided an abstract of these remedial costs. Various experts’ reports served by Braehead identified the nature, scope and location of the alleged defects.

Bovis did not serve a detailed defence to these allegations prior to the settlement but generally denied the allegations.

RD Fire

Bovis’ claim against RD Fire is based on the works package sub-contract entered into so as to obtain the completion of the fire protection works following the removal of parts of Baris’ work from Baris. The pleading continues:

“If and in so far as Bovis is liable to Braehead in respect of the alleged defects to the fire protection, as Braehead contends, then Bovis claims damages and/or an indemnity from RD Fire in respect of such liability.”

The same particulars of breach, remedial work, costs of repair and loss were pleaded as Braehead had pleaded against Bovis.

As its first alternative basis of claim, Bovis pleaded as follows:

“The sums claimed, being the value of Bovis’ contractual rights under the Main Contract with Braehead which were impaired by Braehead withholding payments against defects in the fire protection works under Clauses 13.4 and 30 of the Main Contract.”

One of the assumed facts is that the relevant withholding occurred at least from January 2001 following Bovis’ final application for payment, being application 60 made on 11 January 2001. A global sum of £23,787,962 was withheld from sums recommended for certification and payment by Braehead’s quantity surveyors and Bovis has elected to apportion the entirety of this particular claim by Braehead to that withholding. On a proportionate basis, the sum withheld is around 50% of the then size of the claim.

As its second alternative basis of claim, Bovis pleaded as follows:

“Further and in any event, Bovis has suffered its own loss and damage of the same kind and amount as suffered by Braehead, in that, as a result of the defects, Bovis’ performance interest under the Sub-Contract was damaged, because RD Fire did not provide Bovis with the benefit of the bargain entered into under the Sub-Contract, ie the benefit of a proper discharge of the Sub-Contract.”

At this point, Bovis and Braehead reached the settlement that lies at the heart of these issues. Following that settlement, Bovis served further pleadings aimed at elucidating its case against RD Fire in the light of that settlement. This reiterated the claim made in the original particulars of claim save that Bovis now accepted and averred that Braehead’s allegations were well-founded. Bovis alleged that the remedial works defined in the pleadings were reasonably necessary.

So far as the defects in work carried out by Baris were concerned, Bovis contended that RD Fire was liable as a result of the warranty RD Fire had provided in the sub-contract to the effect that it certified and guaranteed that all structural members which required fire protection had been carried out using specified boards. Bovis’ case is that the phrase in the warranty:

Bovis now indicated that the quantum of each of its separate bases of claim had increased to £6.4m. This sum included the entirety of Braehead’s claim against Bovis and further works and costs not claimed by Braehead. The overall claim was identified as being made on the basis of: Bovis having been exposed to a claim from and having incurred a liability to Braehead; an impairment of Bovis’ rights to payment under the main contract; and of a loss of Bovis’ performance interest under the subcontract. Overall, Bovis pleaded that it had suffered loss and damage of the kind and in the amount pleaded.

As for the settlement, Bovis pleaded that:

“The settlement ... was a global settlement in which no specific sum was attributed to the defects in the fire protection. ... the settlement reflected its liability to Braehead and the impairment of its rights [to payment].”

In a further exchange between counsel just before the preliminary issues trial started, which the parties accepted had the status of a pleading and was being pleaded against both RD Fire and Baris, Bovis contended that:

“Bovis did make a financial loss by entering into the settlement caused by RD Fire’s breaches amongst other causes. But it is impossible to say what that loss was and so no claim is made in respect of it.”

Bovis also applied at the hearing for permission to amend its claim to add this alternative plea which would only be pursued if its primary case for £6.4m failed:

“In entering into the settlement Bovis ... made a reduction of an unascertained amount from the sums otherwise due from Braehead to Bovis. The global settlement represented an overall discount on Braehead’s counterclaims of 22%. On a pro rata basis 22% of £6.4m is £1.4m.”

Overall, the amended pleading identified Bovis’ claim as now being made on each of the three basis previously claimed (reimbursement of loss and the impairment of Bovis’ contractual rights and its performance interest) but as now being a claim under each head for each of three alternative sums: £6.4m (the enhanced sum) or £4.8m (the sum claimed by Braehead and previously claimed by Bovis) or £1.4m (a new sum based on an arithmetical reduction of 22% of the claim for £6.4m. I must decide whether to grant Bovis permission to amend in this way.

It is agreed by all three parties that I should assume that, to date no remedial works have been carried out in relation to fire protection work, that Braehead does not intend to carry out any remedial works in relation to fire protection, that Bovis has no means of carrying out such work but that the remedial works described in the pleadings are reasonably necessary to rectify the incomplete and defective nature of the fire protection and that their likely total cost is £6.2m. However, the Building Control officers material to the shopping centre, it is agreed, have raised on concerns about the fire protection actually installed and they have inspected and passed the Centre. Furthermore, RD Fire’s works were certified as having been complete and free from patent defects in December 2001. The parties accept that Bovis has no legal right to enter the Centre to carry out remedy the fine protection works. It is also agreed that it is to be assumed that Baris carried out approximately 90% by value and RD Fire 10% by value of the fire protection works.

Baris

The same claims in factual detail are made against Baris. Thus, the same defects, breaches of contract, remedial works and costs are alleged, albeit that these are confined to the work undertaken by Baris. In quantifying its claims following the settlement, Bovis relied on exactly the same remedial works and costs relating to the entirety of the fire protection works totalling £6.4m as it is claiming from RD Fire. However, in a subsequent pleading, Bovis made it clear that it was limiting its claim to that part of the fire protection work actually installed by Baris. Bovis also claimed so-called domestic losses, being ones that could not be passed onto Braehead and which were not accommodated in the settlement, totalling £2.lm. Bovis has given notice that it will seek to amend its counterclaim against Baris to allege that, if no sub-contract was ever concluded, Baris owed Bovis a duty of care and was negligent. The same facts to support the existence of this duty and its breach and the resulting loss to Bovis will be relied on as have been alleged in relation to the breach of contract.

The same bases of claim are put forward as are relied on against RD Fire and the same case concerning the settlement is also pleaded. However, these claims are pleaded as set offs, abatements on counterclaims against Baris’ substantial claims for further payment for its works.

Finally, Bovis seeks equivalent amendments against Baris as it seeks against RD Fire.

RD Fire

As between RD Fire and Bovis, the final account value of RD Fire’s work has been agreed in the sum of £2,459,617.39. This made no allowance for defective or incomplete work or Bovis’ counterclaim. All but £4,025.78 of this sum had been agreed by Braehead prior to the settlement.

Baris

Bans claims a total of £5,770,750 as the value of its work. Bovis has agreed that £3,876,062.00 of this sum is due to Baris on the basis that it takes no account of defective and incomplete work or of Bovis’ counterclaims. Braehead had agreed that the value of Baris’ work was £3,898,454.00 so that the difference between Bovis and Baris’ valuation was £1,894,688.00 with a further £49,387.19.

Braehead’s Withholding

Braehead withheld at least £23,787,962 from sums recommended for payment to Bovis by Braehead’s quantity surveyors following Bovis’ final application for payment submitted on 19 January 2001. This withholding was on account of alleged overpayments to Bovis and Braehead’s claims based on alleged mismanagement, liquidated damages, defective work and interest. If the sum withheld is apportioned amongst the totality of these claims, a sum of about £2.0m, being less than half of the sum then being claimed for fire protection defects, would have been withheld.

The parties’ agreed wording of the preliminary issues was not as clear as it could have been and I have redrafted the wording so as to retain the substance of the previous meaning but with the issues set out in a cleaner and more convenient way. As redrafted, the issues read:

(1) What is the effect of the decision in Pacific Associates v Baxter [1990] 1 QB 993 on Bovis’ claims against RD Fire and Baris insofar as these claims are based on Braehead’s pleaded claims against Bovis based on the direct cost of repairs?

As to Bovis’ application to amend its replies against RD Fire and Baris and RD Fire and Baris’ applications to strike out Bovis’ those replies:

Bovis maintains that the settlement is irrelevant because it is entitled to elect to claim from RD Fire and Baris without taking it into account and because it is not possible to place a value on its relevant losses resulting from the settlement nor to establish what sum was included within it for Braehead’s fire protection works claims albeit that the settlement contains some loss on account of those claims. In consequence, Bovis has elected not to establish that the settlement was reasonable and has to date adduced no evidence as to how the settlement was negotiated; as to the background facts needed to understand the content, effect and financial consequences of its crucial terms; as to the breakdown of the figures it provides for; or as to the value to be placed on any of its various provisions. However, Bovis alleges, without particularisation on supporting evidence, that it has been caused some, albeit unidentifiable, loss by the settlement as a result of RD Fire and Baris’ defaults.

RD Fire and Baris, in turn, do not contend that the settlement was unreasonable but both assert that unless and until the value or loss attributable to the defects in the fire protection works within the settlement is identified, no claim for such works can be maintained by Bovis against them. Both sub-contractors also dispute Bovis’ entitlement in law to claim from them direct claims, which are not linked to any claim brought against Bovis by Braehead.

A potential procedural difficulty arises in that the issues, which the parties agreed should merely be preliminary issues, are being determined on assumed facts with no other written or oral evidence being adduced. Some of the material facts being assumed might turn out to have been incorrectly assumed when the evidence that is adduced at the subsequent trial is considered. It is also possible that a party will wish to apply to adduce further evidence or amend its pleaded case once the result of these preliminary issues is known. Furthermore, Bovis’ pleaded case is included, in part, in an exchange of emails between counsel just before the trial was opened and this pleading is to be taken to aver that Bovis incurred some loss in the settlement caused by RD Fire and Baris’ defaults but which it is impossible to identify. This averment has neither been particularised by Bovis nor responded to by RD Fire and Baris.

The possibility that, once the issues have been answered, a party might apply for permission to adduce evidence to show that the assumed facts were incorrectly assumed arises because the parties agreed was that the facts were only assumed: “solely for the purpose of the resolution by the Court of the above preliminary issues” and each party has indicated that it might seek to amend its case to plead a new case based on the answers given to these issues.

In the light of these difficulties, I will merely seek to answer the issues that I have been posed and leave over for later consideration what if any amendments, further evidence on further issues should be allowed, considered or determined once the parties have had an opportunity to consider both my answers and the terms of any application or response from other parties made in the light of those answers.

It is necessary to set out much of the settlement agreement. The salient parts read as follows:

“The terms of settlement contained herein constitute the terms of settlement of the disputes that exist between…. Bovis and ... Braehead (“the Parties”) which are the subject of the present proceedings (“the Proceedings”) in the Technology and Construction Court (“the Disputes”) concerning the management, design and construction of the works carried out by Bovis and/or any related remedial works concerning the contract between the parties dated 18 December 1997 (“the Contract”) …

The Parties shall settle the Disputes by further payments by Braehead to Bovis of:

(i)

the sum of £10,000,000 together with all accrued interest on the sum paid by Braehead into Court: and

(ii)

the sum of £2,500,000 if and when a formal binding Agreement is entered into for the Chaplefield development;

(iii)

the sum of £2,500,000 if and when a formal binding Agreement is entered into for the Chaplefield development;

(together the “Settlement Sum”) on the terms set out below:

1.

Payment of the initial sum and of the interest on the initial sum shall be effected by the payment out of court to Bovis of the sum of £10,000,000 paid into Court by Braehead on 3 August 2001 together with all accrued interest thereon, on the express basis that there shall be no order as to costs ...

2.

The first further payment shall be paid by Braehead to Bovis within 5 working days after the date on which (i) the Heads of Terms relating to the Chaplefield development which are intended to be entered into contemporaneously herewith by Lend Lease Norwich Limited and Capital Shopping Centres plc shall have been entered into, and (ii) Capital Shopping Centre plc has received from Lend Lease Chaplefield Partnership an exclusivity letter which provides that negotiations in relation to the Chaplefield development will be held exclusively with Capital Shopping Centres plc throughout the period up to and including 31 March 2002.

3.

The second further payment shall become payable to Bovis only if and when a formal binding Agreement for the Chaplefield development has been entered into as envisaged in the Heads of Terms. Payment by Braehead of the second further payment shall be made to Bovis within 5 working days after the date on which such formal binding agreement is entered into. For the avoidance of doubt, if no such formal binding Agreement is entered into, the Disputes shall nevertheless be settled in accordance with these settlement terms but on the basis that only the initial sum together with interest on the initial sum and the first further payment shall be payable to Bovis….

5.

These settlement terms are accepted by both parties in full and final settlement of all costs, claims, liabilities and demands between the parties arising out of or in connection with the Disputes including claims for contractual entitlement (including but not limited to the operation of clause 19 of the Contract), breach of contract, negligence and breach of statutory duty…. Bovis acknowledges and agrees that the Settlement Sum represents payment in full of all sums due to Bovis in respect of or in connection with the Works…..

6.

Save as expressly provided in these settlement terms, neither the Contract nor Bovis’ employment thereunder shall be terminated by the agreement of these settlement terms or by the payment to Bovis of the Settlement Sum. Without prejudice to any other provisions of these settlement terms, the following provisions of the Contract ... shall be modified and/or exhausted as follows:

(d)

clauses 30.5 to 30.8 inclusive of the Contract [concerning the ascertainment of the Final Account], together with the related provisions of the Employer’s Requirements ... and together with any obligations on Bovis concerning the right of the Quantity Surveyor ... to undertake an audit on behalf of Braehead, shall be exhausted; and

(e)

clause 30.9 of the Contract shall apply only to any future claims by Braehead in relation to latent defects as provided for in paragraph 7 below….

8.

On the execution of these settlement terms Bovis shall deliver to Braehead all of the Employer/Sub-Contractor Agreements which Bovis has ‘to date obtained from its sub-contractors. Bovis shall in addition use all reasonable endeavours to obtain further Employer/Sub-Contractor Agreements in the form required by clause 18.2.5 of the Contract from all of its other sub-contractors and shall promptly deliver all further Employer/Sub-Contractor Agreements so obtained.

9.

Bovis expressly acknowledges and agrees that:

(a)

payment of any and all amounts due or which may become due from Bovis to any of its sub-consultants or sub-contractors (including, without limitation, on the finalisation and settlement of final accounts with its sub-consultants and sub-contractor) or to any other settlement of final accounts ... arising under or in conse- quence of the Contract or the Disputes is and shall be solely and entirely the responsibility of Bovis and Bovis accordingly has and shall have no claim against Braehead in respect thereof, and shall have no obligation to account to Braehead for any proceeds arising therefrom and shall have no further obligation to liase or consult with Braehead in relation thereto;

(b)

it will not make any claim against Braehead in respect of and/or by any of its sub-consultants or sub-contractors or any other third party in proceedings brought by Bovis against such entities and/or in proceedings brought by any of such entities against Bovis in connection with the design and/or construction of the Works or otherwise arising under or in consequence of the Contract or the Disputes whensoever and howsoever arising, whether present or future and of whatsoever nature (including, without limitation, in actions Nos. [the present actions.

11.

Each Party shall provide all reasonable assistance, including access to members of its staff and access to and copies of all relevant documentation pertaining to the subject matter of the Disputes and/or the Contract, as may be required by the other Party for the purposes of finalising its financial arrangements with ... subcontractors ... arising from the design and/or construction of the Works and/or for the purposes of any claims or proceedings which the other party has commenced or may contemplate or commence in the future ... or which has been commenced or which may be contemplated or commenced against the other Party by any such third party

12.

Neither Party shall seek any contribution or indemnity from the other Party respect of, or shall otherwise seek to join the other Party in as a party to, any existing or future proceedings with any third party concerning or arising in any way from any of the matters which are hereby settled between the Parties. ...“.

It can be seen that the parties agreed that Bovis’ maximum monetary recovery under the settlement was £15m together with some interest and VAT. However, this sum takes no account of any further commercial benefits of the settlement agreement including those relating to the potential development referred to in the agreement. As a matter of arithmetic only, and taking into account only the monetary recovery, Bovis recovered 22% of the total amount in dispute in Bovis’ claims and Braehead’s counterclaims.

Bovis’ claim against both RD Fire and Baris arises because each was engaged or instructed to undertake predefined fire protection work for Bovis who was undertaking the entire works in question as a management contractor to Braehead. Bovis’ overall obligation was to carry out and complete the works referred to in Braehead’s requirements, its own proposals and both the Articles of Agreement and the Conditions of Contract comprised the main contract. Bovis was not, however, to perform any of the work itself, save to a limited and relatively inconsequential extent. Instead, it was to arrange for the performance of the work by sub-contracting out predefined parcels or work packages using sub-contracts with terms that were defined by the main contract. Bovis was to manage and co-ordinate this work and was to present a completed shopping and leisure centre to Braehead at practical completion of the main contract works within a contractually defined timescale. This management function included some design responsibilities, particularly in relation to the preparation of the Contractor’s Proposals incorporated into the main contract and in on-going design work necessary to enable each works package to be executed and completed so that it co-ordinated with and fitted into the overall works being performed by Bovis.

Bovis’ remuneration was to be whatever sum emerged as the total of the sums due to each sub-contractor from Bovis by the operation of the accounting provisions of each sub-contract with additional sums defined by the main contract to remunerate Bovis for the use of its own labour and management involved in its own management, co-ordination and design work and to provide for its overheads, commercial risk and profit.

An important feature of the overall contractual scheme was that the main contract provided that each works package sub-contractor was to enter into a direct warranty agreement with Braehead in the terms identified in the main contract which provided warranties directly to Braehead which were, correspondingly, directly enforceable by Braehead. These warranties promised Braehead that the work, labour and materials supplied to the overall works by that sub-contractor as part of its works package responsibilities would be of reasonable quality and standards of workmanship and, where any selection of materials was involved, the materials in question would be fit for their respective purposes. It would appear that no direct warranty agreement was in fact procured by Bovis from either RD Fire on Baris on that either of these parties entered into such an agreement with Braehead. Certainly, none was referred to at, or introduced into, the hearing.

RD Fire contracted to carry out the same fire protection works as Bovis had to complete in the main contract in compliance with the sub-contract documents and to observe and comply with the provisions of the main contract in so far as they related to the sub-contract works. RD Fire also agreed to indemnify Bovis against any breach or non-performance by it of any of the provisions of the main contract or against any act or omission of the sub-contractor which involved Bovis in any liability to Braehead under the main contract. Thus, Bovis now, in its principal claims, seeks recompense from RD Fire for all sums it has to pay Braehead as damages for breach of the main contract which have resulted from RD Fire’s breach of the sub-contract. These claims are put forward by way of claims for damages for breach of contract and by way of a claim for an indemnity for the loss it has suffered as a result of its liability to Braehead for the defective and incomplete sub-contract fire protection work, a claim which is made under the sub-contract indemnity.

Bovis’ claim against Baris is more widely based since the basis upon which Baris undertook work for Bovis is still in dispute. On Bovis’ case, its contractual arrangements with Baris were similar to those with RD Fire since it contends that there was in place a formal sub-contract incorporating the same DOM/2 Articles of Agreement and DOM/1 Conditions of Contract as were incorporated into the RD Fire sub-contract.

On Baris’ case, the work it carried out was not undertaken under any contract at all so that its claim for additional payment is based upon a restitutionary entitlement to be paid a quantum meruit or reasonable sum for the work actually undertaken for Bovis’ benefit.

Bovis claims an abatement from Baris’ entitlement to be paid on account of Baris’ defective and incomplete work. That abatement is not a claim for damages but is, on analysis, a plea that such work as was defective or incomplete should not be valued for payment at all or should be valued on a reduced basis to reflect those defects on incomplete elements about which both Braehead and Bovis complain. However, Bovis alleges that the basis of that abated valuation is to first ascertain the reasonable value of the work valued on the assumption that it was properly performed and then to set against that value the whole of Braehead’s claim against Bovis based upon the cost to Braehead of remedying on completing that work coupled with the additional direct cost to Bovis that has resulted from the same defects and incompleteness. The resulting net alleged overpayment already made by Bovis to Baris is claimed back by Bovis on the basis of an alleged restitutionany entitlement to reclaim overpaid sums.

Alternatively, if it is decided that a sub-contract came into being, Baris contends that that sub-contract was a simple sub-contract for the provision of work and materials and that it did not incorporate the DOM/2 Articles of Agreement and DOM/l Conditions of Contract so that any claim by Bovis is one for damages for breach of that sub-contract with no additional entitlement to claim under a contractual indemnity. Moreover, the relevant conditions of the main contract would not form part of that simple contract. On this basis, Bovis’ claim against Baris is maintained as both a set off against Baris’ contractual entitlement and as a counterclaim.

Bovis maintains two further bases of claim. It contends firstly that the value of its contractual rights under the sub-contract were impaired as a result of RD Fire’s and Baris’ breaches of their respective sub-contracts. This impairment is quantified by reference to the withholding of payments by Braehead that Bovis suggested occurred under the main contract on account of defect in the respective sub-contract works. Secondly, Bovis claims damages for breach of each sub-contract based on its own entitlement to receive from each sub-contractor satisfactory, timeous and defect-free performance and completion of the sub-contract. This basis of claim is made irrespective of any liability Bovis might have to Braehead for any breaches of either of the sub-contracts or of any loss that Bovis might have incurred as a result of such breaches of the sub-contracts or of any consequent operation of any of the terms of the main contract by Braehead.

Thus, Bovis is seeking to recover: (1) loss pursuant to an indemnity; (2) loss arising from breaches of each sub-contract quantified by reference to its own liability under the main contract; (3) loss resulting from the impairment of its financial recovery under the main contract as a direct result of such breaches of sub-contract and (4) damages on loss resulting directly from the non or mis-performance of each sub-contract quantified without reference to any liability or obligation it has incurred under the main contract. Additionally, from Baris, Bovis seeks restitutionary recovery if no sub-contract relationship was concluded between these parties.

The first two heads of claim are direct claims in the sense that they rely on and are grounded in the loss incurred or to be anticipated from Bovis’ liability to Braehead as a result of the relevant defaults or from direct and allegedly provable expenditure that Bovis has incurred itself. Equally, the fifth head of claim is based on the same direct claims but arises only if there was no contractual relationship between Bovis and Baris with the result that Baris’ entitlement to payment is a quantum meruit or restitutionary claim for the work it carried out.

The third and fourth heads of claim rely on Bovis’ interest and contractual entitlement in seeing the sub-contracts fully and properly performed. This gives rise to claims based on interference with two additional interests of Bovis that are described in some of the authorities and text-books as a performance interest and a reliance interest. These interests allegedly arise and the resulting interference and loss is allegedly caused whether or not Bovis suffered direct loss from meeting on settling claims made against it by Braehead. The relevant loss includes commercial and so-called contract impairment losses, wasted expenditure and the loss of net profit incurred by Bovis as a result of the breaches of sub-contract in question.

RD Fire and Baris’ response to these claims is, essentially, four-fold. Firstly, they contend that Bovis has now compromised all liability it has to Braehead, including any liability it had previously to account to Braehead for damages recovered from each of them. Thus, each of these sub-contractor’s potential liability to indemnify Bovis on to pay Bovis damages is limited to such sum as can be shown to have been included in that settlement by way of a payment to Braehead or an allowance made by it from payments it received fnom Braehead on account of RD Fire’s and Baris’ breaches of their respective sub-contracts. However, each contends that that liability was nil or is not capable of ascertainment and, therefore, neither has any liability under this head of claim.

Secondly, both sub-contractors maintain that the settlement has broken the chain of causation between any breach by them and the loss now claimed by Bovis.

Thirdly, both sub-contractors maintain that there is no separate potential liability to Bovis for any impairment of Bovis’ financial recovery under the main contract. Either such potential liability has been satisfied by the settlement between Bovis and Braehead or it never existed and is not recognised in law.

Fourthly, both sub-contractors contend that the law does not entitle Bovis to recover damages for loss of so-called performance benefits, that is loss based on its entitlement to receive a completed sub-contract performance irrespective of any liability it might have incurred to Braehead. Furthermore, the terms of the formal sub-contracts that might be said to provide for such a liability in this case do not have that effect.

It is first helpful to consider the general basis for the recovery of damages for breach of contract. A party who has suffered loss by reason of a breach of contract is to be placed, so far as money can do it, in the same position with respect to damages as if the contract had been performed. Thus, the measure of damages is such as will put the party suffering loss in the same position as he would have been in if he had not sustained the breach for which compensation is now being paid.¹

The usual measure of damages for the breach of contract of a contractor or sub-contractor undertaking building work under a contract for work and labour where the breach has given rise to defective on incomplete work is the cost of reinstatement. Where reinstatement is not possible on it is wholly unreasonable to reinstate because the cost is out of all reasonable proportion to the benefit to be obtained, this general measure can be replaced by one based on the diminution of either the market or amenity value of the completed property as appropriate occasioned by the relevant breaches or on the difference in cost to the builder between the actual work done and the work specified.²

Thus, in Ruxley’s case, where a swimming pool had not been constructed as deep as required by the specification at the diving end but was still deep enough for safe and risk-free diving, Lord Lloyd of Benwick stated:

“In building cases, the pecuniary loss is almost always measured in one of two ways: either the difference in value of the work don or the cost of reinstatement. Where the cost of reinstatement is less than the difference in value, the measure of damages will invariably be the cost of reinstatement. ... That is why it is often said that the cost of reinstatement is the ordinary measure of damages for defective performance under a building contract.”³

However where it is not reasonable to reinstate, Lord Lloyd stated:

“If the court takes the view that it would be unreasonable for the plaintiff to insist on reinstatement, as where, for example, the expense of the work involved would be out of all proportion to the benefit to be obtained, then the plaintiff will be confined to the difference in value.”

In Ruxley’s case, the trial judge found that it was unreasonable to insist on reinstatement and also assessed the decrease in value of the pool by virtue of its reduced depth as being nil. Instead, he awarded, and the House of Lords upheld, an award for loss of amenity of £2,500. This award was explained by Lord Lloyd as follows:

“... If the tour operator is in breach of contract by failing to provide what the contract called for, the plaintiff may recover damages for his disappointment: see Jarvis v Swans Tours Ltd [1975] 1 WLR 1468.

This was, as I understand it, the principle which [the trial judge] applied in the present case. He took the view that the contract was one ‘for the provision of a pleasurable amenity’. In the event, Mr Forsyth’s pleasure was not so great as it would have been if the swimming pool had been 7 feet 6 inches deep. This was a view which the judge was entitled to take. If it involves a further inroad on the rule in Addis v Gramophone Co Ltd (1909] AC 488, then so be it. But I prefer to regard it as a logical application or adaptation of the existing exception.”⁴

Finally, Lord Lloyd dealt with the situation where it would be unreasonable to reinstate, where there was no discernable diminution in value of the work and where there was no loss of amenity. In such a situation, Lord Lloyd stated:

“Is there any reason why the court should not award by way of damages for breach of contract some modest sum, not based on difference in value, but solely to compensate the buyer for his disappointed expectations? Is the law of damages so inflexible, as I stated earlier, that it cannot find some middle ground in such a case? I do not give a final answer to that question in the present case. But it may be that it would have afforded an alternative ground for justifying the judge’s award of damages. And if the judge had wanted a precedent, he could have found it in Sir David Cairn’s judgment in G.W. Atkins Ltd v Scott, 7 Cnst.LJ 215, where, it will be remembered, the Court of Appeal upheld the judge’s award of £250 for defective tiling. Sir David Cairns said, at p. 221:

‘There are many circumstance where a judge has nothing but his common sense to guide him in fixing the quantum of damage, for instance, for pain and suffering, for loss of pleasurable activities or for inconvenience of one kind or another.”⁵

3.

ibid., page 366.

4.

ibid., page 374.

5.

ibid., page 374.

The time for assessment of damages is ordinarily the date of the breach. However, the appropriate date for assessment will usually be postponed until a date after the discovery of the breach until a time following a reasonable period within which to have undertaken the remediation work. If it was reasonable to postpone that work until after the claim against the defaulting contractor has been settled on determined, a yet further postponement of the date for assessment will be allowed. These principles are equally applicable in tort claims where the relevant measure of damages in favour of a building owner following a finding of negligence against a contractor is one based on the cost of reinstatement of the damaged premises.⁶

Where the claim is for an indemnity resulting from the default of a sub-contractor, the relevant date for assessing the size of the sum to be recovered is the date on which the loss in question has been incurred. An indemnity is, in general terms, an undertaking to reimburse or pay for loss. The circumstances in which, and the loss for which, the indemnity is to be met are those defined by the wording of the indemnity itself. The relevant indemnity in the DOM1 form, in clause 5.2, required both RD Fire and Baris, assuming that clause 5.2 formed part of a subcontract with Baris, to:

:

“indemnify and save harmless the Contractor against and

from:

5.2.1

any breach, non-observance or non-performance by the Sub-Contractor or his servants or agents of any of the provisions of the Main Contract as they relate and apply to the Sub-Contract; and

5.2.2

any act or omission of the Sub-Contractor or his servants or agents which involves the Contractor in any liability to the Employer under the provision of the Main Contract in so far as they relate and apply to the SubContract; and

5.2.3

any claim, damage, loss or expense due to or resulting from any negligence or breach of duty on the part of the Sub-Contractor, his servants or agents (including any wrongful user by him or them of the scaffolding referred to in this Sub-Contract or other property belonging to or provided by the Contractor).”

It is to be noted that this contractual indemnity covers acts on omissions of the sub-contractor which involved Bovis in any liability to Braehead under the main contract and separately covers any loss or expense that resulted from any negligence, which would include contractual negligence, on the part of the sub-contractor. This latter indemnity is not restricted to loss that arose from claims made by Braehead but is wide enough in its scope to include any loss or expense suffered by Bovis directly which was due to or resulted from the negligence of the subcontractor.

It follows that a claim based on the indemnity is not confined to loss recoverable under the traditional tests for determining recoverable loss resulting from a breach of contract, the causation tests imposed by Hadley v Baxendale and Victoria Laundry v Newman.⁷ Any loss which “involves [Bovis] in any liability to [Braehead]” is covered by this indemnity clause so long as that loss involves any act or omission of the sub-contractor. If default by a sub-contractor leads to a claim and then proceedings being brought against the main contractor by the employer, no loss has yet occurred and no claim is yet payable under that indemnity. The loss occurs when the claim or proceedings are compromised or a judgment results leading, in each case, to a payment to, or the non-recovery of sums otherwise due from, the employer. At that point, loss occurs. The loss is either the sum paid out by the main contractor or its liability to the employer as crystallised in a settlement agreement or judgment. Indeed, once a settlement occurs, the only liability or loss for which the main contractor could make a claim under the indemnity is the sum payable as a result of that settlement since that is the only loss that has arisen as a result of Bovis’ liability to Braehead. This loss is covered by and recoverable from the sub-contractor as a result of the indemnity.

This conclusion arises from the wording of the indemnity clause which covers not only claims by Braehead and judgments obtained by Braehead from Bovis but extends also to any reasonable settlement of those claims and any loss incurred, on payment made, by Bovis in consequence of that settlement. This is clear from Comyn Ching v Oriental Tube 17 BLR 56, CA where the relevant indemnity was in identical terms to clause 5.2.2 of the DOM/1 sub-contract conditions and the loss related to sums paid by a sub-contractor under a settlement agreement, following separate actions brought against the sub-contractor by the main contractor (under the sub-contract) and the employer (under a direct guarantee provided by the sub-contractor to the employer). Brandon LJ stated:

“The indemnity relied on by the plaintiffs is an indemnity against claims. That expression is somewhat telescopic; what it means is an indemnity against loss sustained in consequence of claims. A loss will be sustained in consequence of a claim if it arises from a reasonable settlement of a claim which had some prospect or a significant chance of success.”⁸

8.

ibid., page 93.

Claims for damages for breach of the sub-contract brought by the main contractor against the sub-contractor can include claims for reimbursement of damages payable by the main contractor to the employer that have arisen as a direct result of breaches of the sub-contract which are separately and independently breaches of the main contract. Such claims are inherent in any chain of contracts whether for the supply of goods or services since they flow directly and naturally from the breach and are cleanly foreseeable, at least where the contractual setting is a chain of building contracts.

If the main contractor’s claim against the sub-contractor is tried or settled before the employer’s claim against the contractor has been tried or settled, the main contractor’s claim can only be quantified by reference to the best estimate of the quantum of that claim. However, if the main contract claim is determined by way of a judgment before the claim against the subcontractor has been tried, the judgment sum against the main contractor will provide the basis of the claim over against the sub-contractor since it would not be reasonable to quantify that claim on any other basis. This is an obvious and clean example of the displacement of the ordinary rule that damages in breach of contract cases are assessed as at the date of the breach.

Until Biggin v Permanite [1951] 2 KB 314, CA, it was not clear that a sum paid by way of a reasonable settlement could be recovered as damages from a sub-contractor or a sub-seller whose breach of the sub-contract or sub-sale caused the main contractor’s liability to the employer or the seller’s to the buyer under the main contract or main sale. In Biggin’s case, the plaintiff bought adhesive from the defendant to be used as an adhesive of roofing felt and which the defendant knew would be resold by the plaintiff to the third party. The adhesive was unsatisfactory and the plaintiff received and ultimately compromised the buyer’s resulting claims. The plaintiff then claimed as damages from the defendant the sums it had paid the third party in settlement of the third party’s claims against the plaintiff. At first instance, Devlin J rejected the plaintiff’s claim for recovery of the sum paid in compromise of the third party’s claims. He held that the appropriate measure of damages was the diminution in market value of the adhesive or, where the adhesive had been sold on by the plaintiff and had given rise to a claim against the plaintiff, the reasonable sum paid to settle that claim (see [1951] 1 KB 422). The judge held that the settlement sum was irrecoverable, stating:

“I, therefore, have to determine whether the defendants should have regarded it as a serious possibility that one of the consequences of their breach would be that the plaintiffs would compromise the claim. Was the compromise a foreseeable consequence of the making of the claim? In my judgment, it was not a consequence in the legal sense at all. It flowed from the voluntary act of the plaintiff s.”⁹

In other words, the judge held that the settlement was not caused by the relevant breach and therefore could not be a foreseeable consequence of it.

This finding was reversed by the Court of Appeal. Somervell LJ relied on the earlier decision of the Court of Appeal in Hammond & Co v Bussey (1887) 20 QBD 79, CA, and in particular, on the judgment of Bowen LJ, in reaching his decision. Singleton LJ’s judgment is in similar terms and Birkett LJ agreed with both judgments. Somervell LJ stated:

“Parties, Bowen LJ said, have been held to contemplate litigation in the sort of circumstances which have arisen here. It would, I think, be unfortunate if they were not also held to contemplate reasonable settlements in the type of circumstances which have arisen here.”¹⁰

10.

ibid., page 322.

Ordinarily, a main contractor who stands in the middle of disputes raised by an employer and resisted by a sub-contractor as to the quality of a sub-contractor’s workmanship and suchlike will wish to adopt any settlement terms it might reach with the employer and pass on to and recover from the sub-contractor the sum agreed by way of settlement. Biggin’s case shows that in principle a main contractor may adopt that course of action, subject to proof that the settlement was reasonable,¹¹ that the sub-contractor was in breach of the sub-contract and that those breaches caused breaches of the main contract, the resulting claim and its subsequent settlement. This is because such a settlement is within the reasonable contemplation of parties lower down the contractual chain of the kind in question in this case. A question that arises is, however, whether the main contractor is bound to base its claim on the settlement or whether it can elect, instead, to seek to prove the cost of reinstatement and recover that cost irrespective of whether or not that cost is to be, or has been, incurred by the employer or was included in full in the settlement. In other words, it must be decided whether the main contractor can elect to continue and seek to recover its claim from the sub-contractor in full even if it has already settled the employer’s corresponding claim in either a lesser sum or an unidentifiable sum.

Bovis contends that it can adopt such a course and has chosen neither to rely on the settlement nor to seek to prove that it was reasonable. The particular reason for adopting that course put forward is that it is not possible, as Bovis sees the situation, to show what the overall value of the settlement was nor what part of the settlement, whatever its overall value, is attributable to Braehead’s claims against Bovis for the fire protection works. Thus, in the absence of any settlement sum attributable to Bovis’ claims over against RD Fire and Baris, Bovis seeks to recover the cost of reinstatement of the work it contends were defective even though it would appear from the terms of the settlement that whatever value was actually placed on Braehead’s fire protection claims by the parties to the settlement or, if none was, whatever part of the settlement might reasonably be ascribed to those claims, is much lower than the value of the claim as originally presented by Braehead and passed on by Bovis.

The situations in which Biggin v Permanite and the authorities that have followed it have been concerned with have involved a chain of potential liability arising from a tier of linked or related contracts. The decided cases have involved chains concerned with the sale of goods (from a supplier to a sub-buyer to a buyer); building contracts (from a sub-contractor to a main contractor to an employer) and shipping contracts (from cargo owners to shipowners to charterers).

These situations all had certain features in common. The defendant lower in the chain had breached its relevant contract in such a way that the claimant in the middle of the chain was itself caused to break its related contract with the third party. The third party and the claimant then settled the third party’s consequent claim against the claimant. It was foreseeable to the defendant that its contract was one of a series of at least two contracts and that its contractual obligations would be directly linked to those to be performed by the other contracting party under the contract forming the next link in the chain. Thus, it was foreseeable to the defendant that a breach of its contract with the claimant could give rise to a breach by the claimant of that other contract, to a consequent claim by the third party against the claimant and to a settlement of that claim by the claimant. Finally, in all cases in the Biggin line of authority, the claimant was seeking to rely on the existence and content of the settlement in order to recover from the defendant its loss measured by the amount of the payment that had been made by it to the third party under the settlement.

It is to be observed that the settlement in these situations is said to be relevant in two respects, firstly as the limit of what is claimable by the claimant who is relying on the settlement and secondly as primary evidence of what should be paid by the defendant to meet the claimant’s claim.

The first respect in which the settlement is relevant, namely that the settlement is being used as the basis of the claim over against the defendant, arises because the claimant is standing between the Scylla of liability to the third party and the Charybdis of loss caused by the defendant. The claimant’s loss consists of, and its claim against the defendant is measured by, its liability to the third party in honouring the settlement. Following the settlement, the maximum that the claimant can recover from the defendant is a sum representing the claimant’s liability to the third party under the settlement. Any pre-existing potential liability of the defendant to the claimant that had previously been asserted by the claimant had been based on the third party’s original claim but, in so far as that claim exceeded the sum paid by the claimant in settlement, it no longer represents loss and, if recovered by the claimant, would represent an uncovenanted profit for the claimant. It follows that both the claimant’s pre-existing potential liability to the third party and the defendant’s consequent potential liability to the claimant have been subsumed into and replaced by the settlement.

This aspect of the Biggin line of authority can be seen from the judgment of Devlin J at first instance. The judge had found, albeit erroneously as the Count of Appeal subsequently held, that the settlement could not be relied upon since it was irrelevant and inadmissible. The plaintiff sub-buyer therefore had to prove its loss in the conventional way by establishing the diminution in value of the adhesive and any liability that the plaintiff had to the buyers for reinstatement costs. However, the overall claim that the plaintiff could present to the defendant was limited to the sum by which it had settled its liability to the buyer. This is made clear in the judgement as follows:

“I have next to consider a measure of damages alternative to the £43,000 [the sum paid in settlement] which is raised by an amendment to the statement of claim which I permitted at the trial. Under this alternative the plaintiffs claim that they were liable to pay the Dutch government [the buyers] damages in respect of breach of contract under two heads. The first head, quantified at £49,300, relates to the loss sustained by the Dutch government in respect of 1,400 tons which were not used. The second head, quantified at £52,270, covers the cost of repairs necessitated by the defects in the Permasec. In case it is not quite clear from the form of pleading, I should say that the plaintiffs do not claim more than the £43,000 odd which they paid to the Dutch government. The figures which I have given are designed to show that the plaintiffs’ liability was not less than that sum.”¹¹

The Court of Appeal also accepted without adverse comment that the settlement figure imposed an upper limit on the sum recoverable from the defendant. Thus, Somervell LJ stated:

“the [settlement] is admittedly an upper limit”

and Singleton LJ stated:

“The claim of the plaintiffs was for damages. They said that the damages should be the sum of £43,000, the amount of the settlement, which they claimed was reasonable, They did not ask for more.”¹²

11.

ibid.; page 431.

12.

ibid., at pages 321 and 324 respectively. See also the Royal Brompton Hospital case, paragraphs

25 (quoting from Biggin at page 321 and DSL Group No 1 at paragra

phs 5 - 8) and paragraph 30) and the P & 0 case ibid., at page 13, left hand column: ‘The settlement sets a maximum to the claim”.

The second respect in which the settlement is relevant is as a source of primary evidence of the size of the claim being made by the claimant against the defendant. The claimant seeks to use the contents of the settlement as a source of evidence of, and as a means of proving, the quantum of its claim over against the defendant without recourse to other more detailed evidence of the minutiae of the original claim brought by the third party against the claimant which the claimant is seeking to pass onto the defendant.

It is necessary to consider the Biggin line of authorities with some care in order to ascertain the detailed nature of the principles and rules of evidence that they have created. The relevant cases are:

34 Con LR 1, QBD (official referee), Judge Esyr Lewis QC;

The following conclusions may be deduced from the Biggin line of authorities:

Introduction

With these principles in mind, it is necessary to resolve a number of disputed issues as to how the Biggin principles are to be applied in this case that were raised in argument. These issues are:

Quantification of Damage or Mitigation?

The first disputed question to be resolved is whether it is for Bovis to establish what sum, if any, was included in the settlement agreement or, if they wish to rely on the settlement agreement to limit or eliminate their liability to pay damages, for RD Fire and Baris to establish this.

The answer to this procedural conundrum lies in determining the nature of the Biggin principles. If they are substantive rules of law relating to causation and to the quantification of damages, then it is for Bovis to establish its loss which means that it has the burden of proving what sum Braehead’s claims were settled for when there has been a settlement of the claim it seeks to pass on. Conversely, if the Biggin principles are procedural rules relating to the evidence that is admissible to prove loss, then a claimant may elect to prove its loss in some other way without reference to the settlement. In such circumstances, it will be for the defendant to adduce evidence as to what was included in the settlement for the claims or causes of action in question if the defendant regards the settlement as relevant. A defendant who wished to rely on the settlement in this way would be seeking to show that the claimant, in seeking the full claim and not the reduced sum contained in a settlement agreement, had failed to mitigate its loss. It is clear that a defendant bears the burden of proof to establish that a claimant has failed to mitigate its loss.

These rival positions can be illustrated by considering the P & 0 case and The World Beauty [1970] P 144, CA. In the P & 0 case, Judge Bowsher QC had to consider why the terms of a settlement were admissible at all. He stated:

“Why is an agreement made with a person not a party to the action relevant or

ibid., page 13. See also the discussion on this topic by Judge Hicks in the Royal Brompton Hospital case, ibid., at paragraphs 19 - 20.

The World Beauty concerned a claim for collision by the owner of a tanker which, prior to the collision in April 1958, had been chartered on a seven year time charter at very high rates to commence no earlier than August 1958. After the collision, the tanker was taken out of service for repairs. Meanwhile, freight rates had dropped significantly so that, on being recommissioned, the time charter was advanced by 100 days to commence in July 1958. The defendants contended that an allowance should be made to it in the assessment of damages for the financial benefit to the owner arising from the advancement of the high rated time charter following the tanker’s lay off at a time when freight rates were very low. In dealing with this contention and the method by which that financial off-set should be calculated, Lord Denning MR stated:

“I do not like either of those mathematical ways [suggested by the judge whose judgment was under appeal] of calculating the value of the advancement. ... It is entirely uncertain and speculative. It must be remembered too, that it is for the defendant to prove the value of the advancement. It is he who prays it in aid in mitigation of damage. He must prove, therefore, the value of it.”¹⁴

ibid., page 154F - G.

Had the Biggin principles merely been rules of evidence, they could be disregarded by Bovis and it would then have been for the sub-contractors, if they wished to contend that a ceiling had been placed on Bovis’ possible recovery by the settlement, to have established what that ceiling was. This is because, like the defendant in The World Beauty, they would be seeking to identify and prove a factor mitigating Bovis’ damage. The settlement at a lower figure would be similar to the financial advantage of the advancement to the owner of the damaged tanker that the defendant had the burden of establishing in that case. However, since the Biggin principles are also rules that govern and affect causation and remoteness of damage in settlement cases, they vitally shape the loss that the law allows Bovis to recover and, as such, impose a burden on Bovis to establish what if any financial detriment occurred as a result of the settlement.

Assessment by the Court

In this case, Bovis has elected not to adduce any evidence of the circumstances of the settlement; of the negotiations leading up to the settlement; of the make up or contents of the settlement; as to the reasonableness of the settlement; as to the reasonableness of its having settled with Braehead on the terms and at the time that it did; or as to any assessment or valuation of the settlement terms. Furthermore, it contends that it made a financial loss by entering into the settlement caused by RD Fire and Baris’ breaches of their respective sub-contracts, but yet it is impossible to say what that loss was. However, Bovis has elected not to adduce any evidence to explain the respects in which it is impossible to identify its loss arising from the settlement nor to explain why it is impossible to identify, assess, value or allocate such a loss from the overall settlement terms. Instead, Bovis merely laconically assents that: “no claim is made in respect of the settlement”.

The settlement is undoubtedly complex and it does not expressly identify any sum that can be attributed to the fire protection works. The settlement is of all claims in each direction being made by Braehead and Bovis and of all liabilities (save for latent defects not apparent at the date of the settlement) each party has or might in the future have that arise out of the main contract. The settlement is made up by three elements, being: (1) an overall lump sum monetary payment by Braehead payable in instalments with two of the instalments being conditional on successful completion of two successive stages of the second element of the settlement; (2) the provision of an opportunity for a company related to Braehead to become involved in the development of a site owned by a company related to Bovis and (3) a release of any liability that Bovis might otherwise have to account to Braehead for any recovery it subsequently obtains from any sub-contractor in any existing or future action.

This settlement relates to a large number of claims and counterclaims including many claims of sub-contractors being passed onto Braehead by Bovis relating to the value of subcontractors’ work and many other claims of Braehead being passed onto sub-contractors by Bovis relating to defective and incomplete work. It does, however, only involve two parties. It provides three related difficulties for the court when attempting to evaluate it: (1) Bovis has provided only minimal evidence of its breakdown and value; (2) any overall valuation of the settlement must include an evaluation of the second and third non-monetary elements of the settlement and (3) there is little material currently available to assist in any apportionment of the overall value of the settlement to defects in the fire protection works except for the pleadings.

However, it does not follow from these difficulties that it is impossible to allocate either an overall value to the settlement or a value of that part of the settlement that is, attributable to defects in the fire protection works. Even rudimentary evidence of how the settlement was arrived at would enable it to be determined whether anything was included for fire protection works claims and as to whether the overall value of the individual component claims being settled should be pro rated or assessed in some other way. If such an apportionment or assessment is not possible given the nature of the settlement negotiations, that difficulty could be explained and proved by evidence. Moreover, similar valuation exercises to those required for this settlement regularly have to be undertaken by accountants, loss adjusters, valuers, actuaries, tax inspectors and businessmen in a wide variety of situations including the assessment of tax liabilities, the identification of consideration for the sales of businesses on assets, for insurance risk assessment and claims settlement purposes and as part of the work involved in preparing accounts. Thus, without both factual and expert evidence to support the assertion, the court cannot and will not proceed on the basis that neither a global valuation of the settlement nor an appropriate allocation of the settlement to the fire protection works claims is possible.

Moreover, the court can undertake its own assessment of the value and appropriate apportionment to be placed on a settlement with only very limited material to work with. A particularly relevant example of the court’s powers is provided by Townsend & another v Stone Toms & Partners (a firm) (1985) 27 BLR 26, CA. In that case a householder had engaged an architect and a contractor to undertake extensive renovation works of an old farmhouse. The project went disastrously wrong and the householder sued both in the same action. The claims against the contractor were based on allegedly defective workmanship and overpayment and those against the architect were based on allegedly defective design and negligent supervision and certification. There were three categories of claims: those that were concurrent and brought against both defendants and those which were brought either solely against the contractor or solely against the architect. At a late stage before trial, the contractor paid a sum into court in satisfaction of all claims made against it, whether concurrently with the architect or solely against it. This sum was a global figure and was not apportioned or broken down in any way. The householder accepted this payment in and the action against the architect continued to judgment. The architect was found liable for some of the concurrent claims and the question arose as to what part of the sum paid into court represented payment against those concurrent claims also being brought against the architect for which credit would have to be given by the householder. The householder argued that no credit should be given since it was not possible to apportion the payment into court in any way. He therefore contended that he could elect to attribute the payment into court entirely to claims that did not involve the architect. The judge disagreed and undertook a rudimentary assessment of the value of the claims against the contractor and concluded that these were worth less than the sum paid into court. In consequence, he held that the householder had already recovered in full for the concurrent claims and awarded nothing for those claims. The assessment was undertaken solely by reference to an examination of the contents of the pleaded claims.

The Court of Appeal upheld the approach adopted and the conclusions arrived at by the judge. Oliver LJ said this:

“But granted for the moment that there may appear to be a question of apportionment of the sum between claims which are good, claims which are bad, and claims which are not concurrent, the mere fact that this may not be altogether straightforward does not, to my mind, absolve the judge from attempting the task. It is said that the burden lies on the defendant to show that a part of the claim against him has already been satisfied, and to demonstrate the extent to which recovery has already been completed by the plaintiff; and reliance is placed on the decision of The World Beauty [1970] P 144, CA. Allowing this, however, it seems to me that that initial burden is discharged when the defendant shows acceptance of a payment in, in respect of causes of action where there are concurrent claims against him. If it is to be said that the payment in relates to some claims which are not concurrent, or which could not succeed against the defendant, the only person capable of providing that guidance is the plaintiff himself, who has accepted the payment. That the payment has to be taken into account in some way seems to me to be beyond doubt, and it is, of course, always open to a plaintiff who wishes to accept a payment in or thinks that its acceptance may cause him some embarrassment in the matter of apportionment to request an amendment of the notice of payment in to apportion the sum paid among the causes of action in respect of which it is paid. In the ordinary way that would, I think solve any difficulty, though I would like to reserve the position - which of course does not arise here- where there may be grounds for asserting that the apportionment is collusive or not made bona fide.

Where, as here, the party who has to bring the money into account himself provides no material to show how any apportionment should be made (or, as in this case, invites the judge to deal with it in a particular way) the judge has to do his best with what material he has, and the only material he had in this case was the claims themselves. What he had to ascertain was what the plaintiffs had lost, and to what extent that loss had been mitigated or satisfied by what had been received. There was really no other reliable way of doing this except by assessing the true value of the plaintiffs’ claim against [the contractor], and comparing it with the £30,000 received.”¹⁵

15.

ibid., pages 41 - 42.

The Townsend case was said by Bovis to be irrelevant since it concerned a payment into court and involved a relatively simple apportioning exercise in a case involving only two defendants and a modest number of concurrent or overlapping claims. However, although the nature and extent of the apportioning exercise is very different and far more complex than that required of the judge in the Townsend case, it is a task which is, in principle, identical to the apportioning exercise required in this case. Moreover, as in the Townsend case, an apportioning exercise is necessary. Furthermore, in the Townsend case, the defendant prayed in aid and put into evidence the settlement, being the acceptance of a payment into court, and in similar fashion here the defendants pray in aid and put into evidence the terms of Bovis’ settlement with Braehead. Finally, in both cases, the only relevant evidence of the content and apportionment of the settlement figure that could be given is that capable of being given by the plaintiff or claimant and it was in the hands of those parties to provide that evidence. In Bovis’ case, it could have had inserted into the settlement an allocation or, at the very least, have provided its own allocation with supporting evidence to justify a subjective allocation.

The rudimentary form of assessing damages adopted by the court in Townsend’s case is not unusual. Courts frequently assess the quantum of damages in a rough any ready way with little more than judicial common sense to guide the judge. An examples of this is to be found in the Biggin case where Devlin J, faced with virtually no evidence of the size of the diminution in value of the damaged adhesive, undertook an assessment based on a price allowance estimated at 50%. He stated:

“Is the plaintiff to recover nominal damages only because he cannot prove against either defendant what part of the depreciation in value was due to his acts? It is one thing to say, as I have said, that this is the sort of situation which parties in contemplating the measure of damages would be glad to avoid, and it is another thing to say that it is one which must necessarily result in an injured plaintiff obtaining no satisfaction. I think in such a situation the court is bound to the best that it can It is no more difficult to estimate a plaintiff’s loss in such circumstances than it is to estimate the loss of earning power caused by physical disablement. ... It is a common practice in the commercial world to deal with this type of case by way of a price allowance; and claims for damaged goods are constantly met to the satisfaction of both parties by the fixing of an allowance by an adjustor or some person skilled in the trade. …”.¹⁶

ibid., pages 438 – 439.

Many similar examples of courts using rough and ready methods to assess damages can be given including cases where the court assesses damages for pain and suffering, loss of amenity and the loss of a chance and in the apportioning exercises required when giving effect to the Contribution Act 1979. Indeed, under the 1979 Act, the courts have successfully apportioned a sum contained in a reasonable settlement arrived at by a claimant with a third party which then has to be apportioned amongst several defendants or causes of action (see Oxford University Press v John Steadman Design Group (1990) 34 Con LR 1, QBD (official referee), Judge Esyn Lewis QC and Parkman Consulting Engineers v Cumbrian Industrials Ltd 79 Con LR 112, CA affirming 78 Con LR 18 QBD (TCC), Judge Thornton QC.) In such cases, the evidence and available material used by the court is often as fragmentary as that currently available to the court in this case.

It follows that it ought to be possible for the court to undertake the two necessary tasks of placing an overall value on the settlement and of apportioning from that an appropriate and reasonable overall value a value for the fire protection works including, if necessary, an allocation of a nil value. These tasks ought to be capable of being undertaken although it would be a matter of argument and investigation whether they could be performed without the admission of some albeit limited additional evidence. What is clear is that the court should not accept Bovis’ assertion that these tasks are impossible. The court could only proceed on that basis if it first had received and had then accepted clear and satisfactory factual and expert evidence to support it.

By-passing the Settlement

Bovis seeks to recover from RD Fire on the basis of the full cost of reinstatement of the allegedly defective fire protection works irrespective of the size of the claims for such defects made against it by Braehead and irrespective of the settlement. At this stage, I am only concerned with Bovis’ case that although it is claiming an indemnity for any loss it might be caused by having to meet Braehead’s claims for these defects, nonetheless it can ignore the settlement and proceed as if that settlement had never taken place.

The settlement creates a ceiling on the total potential recovery by Bovis from the fire protection sub-contractors. This is because the loss for which Bovis is claiming an indemnity or reimbursement is its loss in reimbursing Braehead. This is made up of the sums within the settlement that Bovis has had to pay or forego in order to settle the fire protection works. Any additional sum to those sums would not be a loss incurred by Bovis but would amount to a profit obtained from the sub-contractors by Bovis since it would exceed Bovis’ loss. The authorities, particularly Biggin show that the settlement sum creates a ceiling of recovery.¹⁷ Thus, in relation to the first two bases of claim advanced by Bovis¹⁸, such sum as is to be taken to have been included in the settlement for fire protection defects creates a ceiling or upper limit on the sum that Bovis can recover.

Bovis contends that Biggin gives rise to a rule of evidence that allows, where the case is applicable, a claimant a possible means of proving its damages. Since it is for the claimant to determine whether or not to adopt this manner of proof, it may chose, if it wishes, to prove its damages in any other admissible way. Indeed, the judgments in Biggin envisaged that reliance on a settlement was not the only way for a claimant to prove its entitlement to damages where the claim that was to be passed on to the defendant had been the subject of that settlement.

However, as already discussed, Biggin provides both a rule of evidence and a rule concerned with the quantification of damages. This latter rule provides that the sum by which a claimant settled a claim provides a ceiling of recovery from a defendant from whom recovery is being sort. Thus, even if a claimant elects to prove its claim in some other way than by relying on the settlement, it is prevented from recovering more than the sum included in the settlement even if a greater sum is proved by that alternative means.

Impossibility of Allocation

The two sub-contractors contend that, if a claimant in Bovis’ position cannot establish what part of the settlement related to or was allocatable to their breaches of contract, it follows that Bovis can recover nothing. Bovis, on the other hand, contends that in such circumstances it can claim and recover from the sub-contractors as if there had been no settlement. Otherwise, it would have lost out by settling with Braehead. This would be most unfair and would constitute the reverse of what the law seeks to encourage, namely the settlement of disputes rather than their litigation.

This issue is being considered in the face of uncertainty as to the precise nature and content of the settlement. Bovis has pleaded that: “the settlement ... was a global settlement in which no specific sum was attributed to the defects in the fire protection” and that: “Bovis did make a financial loss by entering into the settlement caused by RD Fire’s breaches amongst other causes. But it is impossible to say what that loss was and so no claim is made in respect of it.” Thus, Bovis is able to allege, and presumably will seek to prove, that it made a financial loss by entering into the settlement. What it asserts it cannot do is to attribute a specific sum from the global sum provided for in the agreement or a specific part of the overall consideration provided by both parties to the fire protection works. As already discussed, this assertion needs to be proved by evidence but Bovis has to date offered none and none is alluded to in the statement of assumed facts. Equally, Bovis will need to prove what loss it is referring to and why it can assert that such a loss was incurred and yet it can give no idea as to the order of magnitude of that loss nor any indication of its size, nature and extent. Clearly, the loss must be more than minimal for Bovis to be able to assert that it made a financial loss at all.

If Bovis was able to prove that it was neither possible to attribute any sum to the fire protection works nor reasonable for the court to assess such an attribution, one or other of two possibilities would emerge, depending on the evidence. It might be concluded that no sum could be attributed because, in truth, no sum was included within the settlement. If so, Bovis would recover nothing from the sub-contractors since, following such a settlement, it had lost nothing as a result of their breaches of the sub-contracts. On the other hand, the evidence might establish that there was certainly something included within the settlement for fire protection defects but that it was not possible to ascertain that sum. If so, it might nonetheless be reasonable for the court to assess a reasonable sum that it should take to represent the value of the fire protection claims contained within the settlement. A further possibility might be that it was neither possible to ascertain that sum nor reasonable to assess it. It would then be necessary to determine why it was unreasonable to make an assessment. If this unreasonableness arose as a result of some inequitable or self induced conduct by Bovis, it would follow that Bovis’ claims over against the sub-contractors would fail since it could not establish what sum it had lost. If it was unreasonable to make an assessment as a result of factors for which Bovis could not be held factually or equitably responsible, the conclusion might well be that there had not been, on the facts of such a settlement, any significant reduction in the loss incurred by Bovis as a result of the settlement so that Bovis would be able to proceed on the basis that it had lost the entirety of the claim that Braehead could have established at a trial and the settlement imposed no ceiling on its recovery.

Thus, all the circumstances surrounding the make up and finalisation of the wording of the settlement and as to why the necessary attribution could not be made yet it could be seen that some identified loss had been suffered by Bovis need to be ascertained before the consequences of an inability to make an attribution can be identified.

The Reasonableness of the Settlement

Bovis does not seek to establish that the settlement was reasonable nor that it was reasonable for it to have settled with Braehead in the terms it did. It is, of course, open to Bovis to seek to establish the size of its actual liability to Braehead and then to establish the sub-contractors’ actual liability to it based on that actual liability to Braehead. The recovery that Bovis may then make from the sub-contractors will be whichever is the smaller of the sum included in the settlement for fire protection defects on the sum that it has established as being due from the sub-contractors.

RD Fire, however, contends that the settlement cannot have been a reasonable one. Firstly, it points to the fact that it must have included a sum for elements of Bovis’ claim against it which had never been included in Braehead’s claim against Bovis. In other words, the settlement with Braehead must have included within it and provided for sums or claims which Braehead was not in fact claiming from Bovis. That does not, however, of itself render the settlement unreasonable. This is shown by the Comyn case where the settlement did include claims that were not being advanced on the pleadings by the employer against the sub-contractor. In relation to those elements of the settlement, Brandon LJ said this:

“Goff LJ referred in his judgment to the possibility of the [employer] succeeding on the basis of express terms contained in the specifications ... in their pleaded case the [employer] did not rely on those express terms. ... In effect, what was being said on behalf of the [employer] was that they would rely on implied terms only, at any rate unless they gave prior notice of an intention to rely on others.

But as was pointed out by [counsel for the sub-contractor] in his argument, this action if it had been fought and gone on for many days, and the possibility of an amendment being made or notice being given indicating an intention to rely on these further express terms, was clearly a possibility.

In these circumstances, the fact that no reliance was expressly placed on those terms in the pleadings did not mean the possibility of those terms ultimately being relied upon did not have to be taken into account.”¹⁹

Thus, the extent and reasonableness of including unpleaded claims or losses in a settlement must depend on the circumstances and on the possibility, however remote, that the claimant’s ultimate liability to the third party might include such potential or unpleaded claims. The mere provision for them in a settlement does not make that settlement unreasonable.

RD Fire’s second argument was to the effect that its overall potential liability to Bovis was so small compared to the overall value of Braehead’s claims that, in truth, nothing had been included in the settlement for that liability. The extent of RD Fire’s liability has still to be established and would not be as marginal as RD Fire suggests if Bovis establish that the warranty provided by RD Fire extended to the whole of the fire protection work. Thus, it cannot be determined without evidence whether or not the settlement provided for RD Fire’s liability.

The Consequences of the Settlement being Unreasonable

If the settlement is found to have been unreasonable, it can provide no evidential foundation to establish Bovis’ loss. However, the settlement would still provide a ceiling of recovery. If it could be shown that the settlement contained a definable sum attributable to the claims and causes of action in question, Bovis could still seek to prove by conventional means what damages were recoverable from it by Braehead and its claim over would be limited to that sum rather than to any greater sum contained within the unreasonable settlement. On the other hand, if it could be shown that the settlement constituted a break in the chain of causation or was a wholly unreasonable failure to mitigate Bovis’ loss, nothing would be recoverable from the sub-contractors.

These potential consequences of an unreasonable settlement were explained by Colman J in the General Feeds Inc. Panama case as follows:

“The effect of these judgments is, in my view, that, assuming that loss attributable to a payment in settlement is not too remote, the plaintiff must prove that the fact and amount of the settlement were reasonable in all the circumstances. Unless he proves that, he fails to establish that the loss was caused by the relevant breach of contract by the defendant, for if and to the extent that an unreasonable settlement has been entered into, the loss has been caused not by the breach but by the plaintiff’s voluntary assumption of liability under the settlement. Proving the existence of the settlement thus goes only part of the way to proving the recoverable loss. It would also be consistent with the duty to mitigate a loss to hold that if and to the extent that a plaintiff is unable to establish that the settlement on which he founds his claim has been reasonably entered into, he has to that extent failed to mitigate his loss.”²⁰

20.

ibid., page 691.

Bovis argued that it could by-pass the settlement if it chose to because it had an option as to whether or not to adopt the Biggin principles whatever the views on wishes of the defendants. In support of this argument, Bovis contended that since it had an option whether or not to rely on the Biggin principles when the settlement was unreasonable, it followed that it also had such an option when the settlement was reasonable.

This suggested feature of the Biggin principles that arose when the settlement was reasonable was, apparently, to be seen from the fact that if a settlement was unreasonable, a claimant in Bovis’ position could simply ignore the settlement and recover in full. However, as I have sought to demonstrate, that is not the consequence of a finding that a settlement is unreasonable. It follows that the consequences of a finding that a settlement was unreasonable do not lend any support to Bovis’ argument that it can ignore or by-pass the settlement if it chooses to do so.

Thus, if the settlement is unreasonable and those unreasonable features can be isolated, it is only those unreasonable features that are irrecoverable. If, on the other hand, the nature of the settlement is such that its entirety creates a clean break between the sub-contractors’ breaches and any resulting loss by the main contractor, nothing is recoverable, a consequence brought about by the voluntary act of the main contractor in settling on such unfavourable and unreasonable terms.

Introduction

The parties have assumed in their formulation of the wording of the first issue that the settlement is a “global” settlement by which is meant that the settlement contains within it the entirety of both the bargain and the consideration being provided by each party in settling their disputes. The statement of assumed facts refers to the settlement as containing “the total settlement sum of £15,000,000” and as being “global”. However, although the settlement was clearly in full and final settlement of the relevant disputes, the consideration was left open-ended in one particular and material respect.

The settlement envisaged, although it did not require, that associated companies of the two parties would enter into heads of agreement for the development of a particular site owned by the company associated with Bovis followed by a lock out agreement for a period of time when only those parties would negotiate the terms of a potential development agreement followed, finally, by the conclusion of a development agreement and the subsequent development of the site. The second and third tranches of the lump sum of £15m also payable by Braehead to Bovis were dependent on the successful conclusion of, firstly, the lock out agreement and, secondly, the development agreement. Clearly, the financial benefit or detriment of this agreement to the parties to the settlement depended on their precise relationship to the proposed developing parties and to the way that these future events and the development itself turned out.

Despite my reservations as to the characterisation of the settlement as being a “global” settlement, given this feature of the settlement, I will, for the purposes of issue 1, treat the settlement as being one which has a defined and all embracing consideration which is what the parties appear to have assumed for the purpose of this issue.

It is also necessary to record a further difficulty created by deciding the issues on assumed facts. RD Fire and Baris’ final accounts were the subject of claims from Braehead and the settlement compromised all claims including all final account claims as well as an overall claim by Bovis based on a final valuation of the main contract works. The claim for the valuation of RD Fire and Baris’ work and Braehead’s claim based on defects in the work are, in truth, mirror images of each other. Both were, therefore, settled in the settlement and such loss as Bovis suffered following that settlement was represented by any shortfall in net recovery from Braehead for fire protection works once both claims and counterclaims had been taken into account.

However, the parties appear to have assumed that the settlement resulted in full recovery by Bovis for the value of RD Fire and Baris’ work and that there was no shortfall in the recovery of those sums as a result of the settlement. No indication is given as to why it is assumed that there was no shortfall in recovery for the value of the work of these subcontractors’ as a result of the settlement or how it can be ascertained that the “global” settlement fully recompensed Bovis for this work.

Issue 1(1)

Since the settlement is a global one, Bovis is precluded from recovering the sums pleaded from RD Fire and Baris. This is because Bovis asserts that the settlement has caused it loss that had been, in turn, caused by RD Fire and Baris’ breaches of contract but yet it has made no attempt to show what part of the settlement relates to that loss and those breaches. Since there has been a settlement, the sum contained in the settlement, being the loss asserted by Bovis; provides the ceiling of recovery and it is incumbent on Bovis to establish what that ceiling is. However, Bovis has adduced no evidence to show what that ceiling is, what the nature and extent of its loss was even in general terms on why it is able to assert that it has incurred loss yet is unable to identify in specific or general terms what that loss was. Further it has adduced no evidence as to why an attribution of its loss is impossible, as to why, in the absence of evidence of an appropriate attribution, it would be inequitable and unreasonable for a court to make an assessment of an appropriate attribution or as to why, if an attribution can neither be made nor assessed, the loss incurred by Bovis that has resulted from RD Fire and Baris’ breaches was, or is to be taken to have been, the entirety of the cost of remedying the defects in question. It is for Bovis to prove its loss and in the absence of evidence or an assessment of what part of the global settlement related to RD Fire and Baris’ breaches of contract, it has failed to prove any loss.

So far as RD Fire is concerned, the global settlement precludes recovery both because Bovis cannot establish any relevant loss against which to claim an indemnity nor any foreseeably recoverable damages. So far as Baris is concerned, if a formal sub-contract was entered into, the same reasoning applies. If only a simple sub-contract was entered into, the second of these two reasons applies since Braehead would not have established that it has incurred foreseeably recoverable damages. If the relevant relationship requires the ascertainment of a quantum menuit, the situation is more problematic. This ascertainment will have to be undertaken as a one stage exercise, namely an ascertainment of what the reasonable value of Baris’ work was. That valuation must take into account the value of the work to Bovjs as well as the cost of undertaking the work by Baris. The extent to which any defective work is valued and taken into account must depend on such factors as what Bovis has been paid for that work already by Braehead, what loss Bovis has made as a result of that work, the extent to which it is reasonable to disallow Baris’ costs for the defective work and the extent to which it is reasonable to make an allowance for any costs of remediation given that no remediation is likely to take place.

All that can be said at this stage and until evidence is adduced as to the circumstances and make up of the settlement, is that that quantum meruit valuation would have to proceed on the basis that Bovis has made no loss on account of any defective work in the sense that it has not had to incur and will not incur loss by way of payments to Braehead on account of the defects nor has suffered reduced payments for the work from Braehead on that account. This is also the position for each of the other issues 1(2) - 1(6).

The short answer to this issue, given the assumed facts being used as the basis for its decision, is, therefore: “Yes”.

Issue 1(2)

This issue is based on an assumption which does not appear to be supported by the pleadings. With some reservation, I will answer the issue as posed. Bovis’ most recent pleading states that “Bovis did make a financial loss by entering into the settlement caused by RD Fire’s [and Baris’] breaches amongst other causes. But it is impossible to say what that loss was and so no claim is made in respect of it”. Thus, the pleaded case is that it is impossible to identify what the quantum of Bovis’ loss was but nonetheless it is possible to show that Bovis did suffer loss and, by inference, has evidence available if and when necessary to establish that it did suffer some loss. If that evidence is available, its seems improbable that it is sufficient to show that there was loss but insufficient to enable an assessment of the quantum of that loss to be made. Despite that pleading, the issue assumes that it is not even possible to show that there was some albeit indefinable loss.

On this basis, the only answer is “Yes” since the burden of proving what loss arose as a result of the settlement lies on Bovis in circumstances where the relevant action and causes of action were settled at a loss to Bovis. If Bovis fails to discharge that burden, its claim must fail for want of proof. If, however, the issue is posed on the basis of Bovis’ pleaded case, the answer is:

“If, but only if, it is not possible or reasonable to identify or assess a sum attributable to the default of either RD Fire on Baris despite it being established that Bovis has incurred some unidentifiable loss for such defaults as a result of the settlement: Yes.”

Issue 1(3)

The issue assumes that there is no acceptable means to measure, calculate, value or assess the loss assented by Bovis. I have already shown that a court will be ready to undertake an assessment on rudimentary material and that it is unlikely that it could be persuaded that it is impossible to undertake such an exercise. It does, however, apppear that Bovis is neither ready nor willing to undertake it or to seek such an assessment from the court. In the absence of any method being contended for and on the assumption that there is no such method available even if sought, Bovis is precluded from recovering the sums pleaded for the same reasons as set out in answer to issues 1(1) and 1(2).

The short answer to this issue is, therefore: “Yes”.

Issue 1(4)

This issue adds nothing to the previous issues and proceeds on the erroneous basis that there is “no basis included in the pleaded case” to support a case that Bovis has sustained loss in the settlement despite Bovis pleading, albeit at a late stage, that it had sustained some loss. Bovis’ difficulty is its election not to adduce any evidence even to explain its difficulty in quantifying or assessing its loss in the face of being able to assert that it had suffered loss.

On the assumption that Bovis has suffered loss but neither can nor will put forward any basis for identifying and quantifying that loss, the short answer to this issue is: “Yes”.

Issue 1(5)

The answer to this issue is clearly: “Yes”. Bovis’ loss is reflected by the settlement and not by Braehead’s pre-existing claim that was being settled.

Issue 1(6)

This issue presupposes both that Bovis is not required to carry out remedial schemes and that no remedial scheme will even be carried out. However, the assumed facts also suppose that “the remedial works described in [the schedule to Braehead’s pleaded claim being passed onto RD Fire and Baris] are reasonably necessary in order to rectify the incomplete and/or defective nature of the fire protection”. It follows that, even if Braehead had and has no intention to rectify the defects, it is to be assumed that the remedial work was reasonably necessary. Furthermore, neither sub-contractor is, as yet, asserting that the settlement was unreasonable. Thus, to the extent that the settlement relies on, on incorporates recovery for such remedial schemes, it is not being asserted that it was unreasonable.

It is not necessarily unreasonable for a party to claim or recover damages based on the cost of repairing defects which that party has no intention of repairing. Thus, in Ruxley’s case, Lord Lloyd set out with approval this statement of principle:

“I fully accept that the courts are not normally concerned with what a plaintiff does with his damages. But it does not follow that intention is not relevant to reasonableness, at least in those cases where the plaintiff does not intend to reinstate. ... The relevance of intention to the issue of reasonableness is expressly recognised by the respondent [contractor] in this case. [The respondent’s counsel] says:

‘The respondent accepts that the genuineness of the parties’ indicated predilections can be a factor which the court must consider when deciding between alternative measures of damages. Where a plaintiff is contending for a high as opposed to a low measure of damages the court must decide whether in the circumstances of the particular case such high cost measure is reasonable. One of the factor that may be relevant is the genuineness of the plaintiff’s desire to pursue the course which involves the higher cost. Absence of desire (indicated by untruths about intention) may undermine the reasonableness of the higher cost measure.’

I can only say that I find myself in complete agreement with that approach.”²¹

Where a party states that it has no intention of reinstating but intends to use any damages recovered for a different purpose, the reason for adopting that course will need to be investigated and that intention, although not fatal to recovery on the basis of the cost of reinstatement, may also readily point to the unreasonableness of awarding damages on that basis.

The answer to this issue is: “Bovis may not recover more than it lost in the settlement for fire protection defects claims. In doings so, if it was reasonable for the settlement to be based on the recovery of the cost of “hypothetical” remedial schemes but not otherwise, it may recover loss and damages from RD Fire and Baris on the basis of such a settlement.

RD Fire and Baris contend that the settlement has broken the chain of causation between their breaches of contract and the loss caused to Bovis. Firstly, it is suggested that the settlement acts as a complete break between the two since Bovis’ claim is based on the cost of repairs necessitated by the sub-contract breaches whereas the loss actually incurred was the admitted albeit indefinable loss arising out of the settlement. Secondly, it is suggested that the settlement constituted a release from liability so that Bovis never did, in fact, incur any loss. Thirdly, it is suggested that the settlement incurred Bovis in unnecessary loss and was, in consequence, unreasonable.

The foundation for these submissions is the decision of the Court of Appeal in Pacific Associates v Baxter [1990] 1 QB 993, CA. In that case, the plaintiff undertook massive dredging work in the Persian Gulf and encountered unforeseeable conditions which it claimed caused it considerable delay and extra expense. The contract allowed recovery for additional costs incurred in working in unforseen ground conditions. It alleged that the engineer under the contract had prepared inaccurate reports of the conditions which the claimant had relied on and that these inaccuracies had contributed to its failure to foresee the actual conditions. The claims were rejected by the engineer and referred to arbitration which was compromised at a fraction of the sum being claimed. The claimant then sued the engineer alleging that the engineer had owed it a duty of care in relation to the performance of its duties under the contract, had negligently broken that duty in negligently under certifying and had incurred loss being the difference between what had been paid, including the payment following the arbitration settlement with the employer, and what it was entitled to be paid had the remuneration conditions of contract been fully and properly operated.

This claim was struck out on a number of grounds. Most importantly, the Court of Appeal held that the engineer owed no duty of care to the contractor and, in the light of a disclaimer of responsibility in the contract, the economic loss being claimed was neither foreseeable nor proximate and it was not just to impose liability on the engineer. However, the three members of the Court of Appeal alluded at the end of their respective judgments to a yet further ground for striking out the claim. This was that the loss being claimed had been claimed from the employer in the arbitration by way of claims based upon an alleged entitlement to have opened up, reviewed and revised the engineer’s allegedly under certified certificates. These claims were then settled at a significantly reduced figure. Thus, the surviving loss being passed onto the engineer was, in truth, loss resulting from a poor settlement and a bad bargain in settling, it had not resulted from any negligent administration of the contract.

This break in the chain of causation was explained by Ralph Gibson LJ as follows:

“Nothing suggests that the alleged negligence of the engineer was a cause of the contractor choosing to settle its claim as it did. If the engineer were not to blame for the circumstances which caused the contractor to choose to settle the claim for a fraction of what was properly due to the contractor, and if such an outcome was not a foreseeable consequence of any negligence on the part of the engineer in dealing with the contractor’s claims - and it is not alleged that it was - the negligence of the engineer in rejecting the contactor’s claims could be regarded as relegated to no more than part of the history and circumstances in which the contractor’s decision was made to settle those arbitration proceedings.”²²

The judgments of the other two members of the court, Purchas and Russell LJJ, were in similar terms.

The issue is, therefore, did the settlement give rise to a situation in which it relegated the sub-contractors’ breaches of contract to no more than part of the history of the circumstances in which Braehead’s claims were settled? This issue is being considered without any evidence that the settlement was unreasonable.

The Issues

What is the effect of the decision in Pacific Associates v Baxter [1990] 1 QB 993 on Bovis’ claims against RD Fire and Baris insofar as these claims are based on Braehead’s pleaded claims against Bovis based on the direct cost of repairs?

The Pacific Associates case is relevant to Bovis’ claims since they are based on Braehead’s claims which are, in turn, based on the cost of repairs. However, those claims have been settled and it is now clear that neither Bovis nor Braehead will be undertaking any repairs. Thus, the settlement has led to a complete break between the sub-contractors’ breaches of contract and the loss alleged both because such loss as has arisen is contained within the settlement and because no repairs have been or will be carried out. The estimated cost of remedying the defects is now merely part of the history and is no longer capable of being a direct and foreseeable consequence of the sub-contractor’s breaches of contract.

The answer is, therefore: “Yes”.

Is it the case that the settlement between Bovis and Braehead acted as a break in the chain of causation in respect of any or all of Bovis’ claims for loss based on the direct cost of repairs?

RD Fire alleges that the settlement has broken the chain of causation between its assumed breaches of contract and any loss incurred by Bovis. This is because it is suggested that the settlement agreement releases Bovis of all liability to Braehead for the fire protection works defects so that any loss it has suffered as a result of the settlement is not attributable to those defects but to the fact that Bovis entered into the settlement on the terms it did.

This contention is not sustainable given the wording of the relevant provisions of the settlement agreement. The agreement is stated to “constitute the terms of settlement of all disputes that exist between Bovis and Braehead”. The settlement terms are then stated to be accepted by both parties “in full and final settlement of all costs, claims, liabilities and demands between the parties”. In a later clause, the settlement agreement provides that “Bovis shall have no further liability for defects in the Works other than latent defects”.

Thus, Bovis are not being released from liability. Rather, such liability as Bovis has is being compromised by certain payments and other consideration passing in both directions and, as a result of that multiple exchange of consideration, the defects claims are being compromised. It follows that if the effect of the settlement is that, in order to “buy off” the defects claims including the claims associated with the fire protection works, Bovis has had to pay something into the settlement or to give an allowance which would not otherwise have been given, Bovis has lost out as a result of the defects by virtue of those features of the settlement albeit that, as a result, Braehead had no further ability to sue Bovis for damages arising from those defects. Braehead had, on that assumption, however, received something for the defects and it is that “something” which Bovis is entitled to maintain a claim for from RD Fire and Baris.

It follows that the settlement does not create a break in the chain of causation. At best, it has the effect of reducing or eliminating Bovis’ loss and, hence, the sum it can claim from the two sub-contractors.

The answer is, therefore, “No”.

Is it the case that the settlement extinguished all or any of the losses claimed by Bovis based on the direct cost of repairs?

It is clear, from Biggin’s case, that a sum payable as a consequence of a reasonable settlement is in principle recoverable in circumstances such as exist in this case since it is a foreseeable consequence of the sub-contractor’s breaches of contract that Bovis would incur loss by virtue of a claim against it by Braehead which would be settled at a cost to, or loss by, Bovis. Thus, if the settlement is reasonable, the sum payable as a result is both foreseeably connected with the original breaches and provides a ceiling of recovery. To the extent, however, that the settlement is unreasonable:

“[the claimant fails to establish that the loss was caused by the relevant breach of contract by the defendant, for if and to the extent that an unreasonable settlement has been entered into, the loss has been caused not by the breach but by the claimant’s voluntary assumption of liability under the settlement.”²³

In this case, there is no suggestion currently pleaded that the settlement was unreasonable. Moreover, the parties have assumed that the remedial work pleaded by Bovis is reasonably necessary to remedy the incomplete and defective nature of the fire protection work and that the pleaded cost of approximately £6.4m is also reasonable. It follows that whatever loss is included in the settlement for fire protection defects constitutes a reasonable settlement of Braehead’s claims for such defects.

The answer to issue 2(3) is, therefore: “On the assumption that the settlement was reasonable, No. In determining whether the settlement was reasonable, regard may be had to the assumed facts that the remedial work pleaded by Bovis was reasonably necessary in order to rectify the incomplete and defective nature of the fire protection and its likely total cost was approximately £6.4m as also pleaded by Bovis.”

RD Fire and Baris’ applications to strike out Bovis’ replies

Bovis’ replies added a plea which it was contended created a new cause of action which, given the lateness with which it has been pleaded, should be struck out. A further reason for striking it out, it was contended, was that this new claim was hopeless and could not possibly succeed.

The new plea was as follows:

“Therefore, it is impossible to know what sum was allowed by the parties against the sum of £6,485,601 [being claimed by Bovis]. .. In entering into the settlement Bovis reasonably mitigated its loss be securing a release from Braehead’s claim for £6,485,601 by making a reduction of an unascertained amount from the sums otherwise due from Braehead to Bovis; the global discount made against all Braehead’s counterclaims was £22,778,226/£103,584,365 = 22%. ... Bovis gave value in the settlement against this claim for 22% of the sum of £6,485,601 ie £1,426,832.”

The first objection that this plea was pleading a new cause of action was based on the fact that Bovis was previously claiming the cost of repair, now it was adding, so it was alleged, a second alternative claim based on the settlement. However, that is to misstate the nature of a claimant’s claim following a settlement. The cause of action remains the same, all that has occurred is that the loss being recovered has had imposed on it a ceiling or cap. The loss itself can either be proved by reliance on the settlement sum or, at the election of the claimant, by recourse to exactly the same methods of proof and evidence as would have been relied on had there been no settlement. If that later method of proof is used, however, any loss in excess of the settlement sum that is proved is irrecoverable. If it is impossible to prove what sum was included in the settlement, the overall claim fails because the claimant has failed to establish causation not quantum of damage.

Thus, the first objection fails.

The second objection is that the 22% pleaded is a pure arithmetical exercise. No evidence is to be adduced to support that method of establishing the nature or extent of the loss contained in the settlement, indeed the pleading also alleges that it is impossible to know what loss resulted from the settlement for the fire protection defects. In consequence, the claim for 22% of the overall sum, based on an arithmetical reduction of that claim with no evidence to support that as the appropriate method of ascertaining the loss and no pleaded basis for suggesting that that would be a reasonable assessment of loss, is both inconsistent with the pleading and is bound to fail.

On both grounds, therefore, paragraphs 3.9 - 3.10 and 3.11.2 of Bovis’ replies should be struck out.

Bovis’ applications to amend the replies

The objections to the proposed amendments are similar to those raised in respect of the replies. The contentious passage in the proposed replies reads as follows:

“The global settlement represented an overall discount on Braehead’s counterclaims of £22,778,226/£103,584,365 = 22%. On a pro rata basis 22% of £6,485,601 is £1,426,832 … Bovis claims the above mentioned loss limited to 22% of the amount claimed by Braehead ... by reason of the mitigation [in entering into the settlement] ... “.

This plea does not raise a new cause of action but it imposes a limit on the loss created by the settlement of 22% of the loss claimed by reference to the overall cost of repair. The objections to this way of presenting Bovis’ case are, in summary:

I therefore will not allow those parts of the proposed amended replies which introduce or rely on a 22% discount on the money sum provided for in the settlement. This ruling does not preclude any subsequent application in different terms by Bovis to amend any part of its pleaded case so as to advance a case based on an ascertainable ceiling of loss contained within the settlement if, in the light of this judgment, it chooses to make such an application. If it is subsequently made, any such application must be dealt with on it merits, and any decision must be based on the terms of the proposed amendment and on all the circumstances prevailing at the time of that application.

The answer to these two issues is, therefore:

“3(1) Paragraphs 3.9, 3.10 and 3.11.2 of each reply is struck out.”

“3(2) Permission is granted to amend the replies save for the last sentence of Paragraph 3(ix), paragraphs 3(x) and 3(xii)(b) and the words ‘alternatively (b)’ in paragraphs

3(xii)(c) and (d for which permission is refused.”

The impairment of Bovis’ contractual rights that is alleged is limited. Bovis contends that once the nature and existence of the fire protection defects, which on its case were latent, had been discovered, Braehead withheld from sums otherwise due and payable a sum representing at least part of the then value of its claim for these defects quantified by reference to the estimated cost of repair. The withholding occurred soon after submission by Bovis if its final application for payment in January 2001 and the settlement occurred in January 2002.

This claim is therefore based on three potentially different heads of loss. The first head of loss is based on the loss incurred by Bovis in having to meet a claim from Braehead which Braehead had asserted by exercising its contractual rights of set off against sums otherwise to be paid under the main contract. The loss claimed by this head of claim is the same as the loss claimed under the first two heads of claim that are reliant on the indemnity and the claim for damages for breach of the sub-contract although the claim is also based on the further contractual terms relating to payment and withholding under the main contract which were incorporated into on formed part of the background to, RD Fire and Baris’ sub-contracts.

The second potential head of loss is of the use of money otherwise payable by Braehead to Bovis in the period starting in January 2001 until that money was finally paid by the settlement or, subsequently, by RD Fire and Baris. Such a claim is ordinarily made by reference to the interest lost on that sum which could have been earned had the sum been paid. In other words, it is a claim for interest on late payment. Ordinarily, such a claim will fail but, if the relevant loss can be brought within the second limb of Hadley v Baxendale, it is in principle recoverable (see Wadsworth v Lydall [1981] 1 WLR 598,CA and The President of India v La Pintada Compania Navigacion [1985] AC 104, HL). Given that the sub-contracts provided that the subcontractor had notice of the terms of the main contract, the basis for such a claim might well be present in this case but no such claim for interest on late payments has been advanced.

The third potential head of loss is for such damage to the commercial reputation of Bovis or such disruption and consequent loss to the running of the main contract as could be shown to have resulted from the late payments in issue. No such loss is alleged or pleaded.

Issue 4(1)

The only loss that could be sustainable on the basis of the impairment of Bovis’ rights is for interest on the delayed recovery of sums equal to those withheld by Braehead on account of the fire protection defects or for other direct and ascertainable loss resulting from the withholding and late recovery of this money. No such claims are advanced. The loss that is pleaded, namely the cost of repairs, is recoverable in law on the basis of the impairment of Bovis’ rights but, like the primary claims for an indemnity and for damages for breach of contract, is susceptible to the ceiling of recovery imposed by the loss incurred by Bovis in the settlement. This is because the loss claimed is identical to the loss claimed under these other two heads of claim and must, therefore, be susceptible to the same reduction arising from the application of the law relating to remoteness and foreseeability.

The answer to this issue is, therefore: “The claim advanced by Bovis, being one confined to the cost of repairs, is recoverable in law but is not recoverable having regard to the fact and nature of the settlement and to the assumptions being made about that settlement for the purposes of these issues.”

Issue 4(2)

Bovis accepts that it was caused some loss by the settlement but that its claims for payment under the main contract were settled. Thus Bovis has recovered all that it is entitled to recover by virtue of the settlement save for that part of the settlement which has caused Bovis’ direct loss that has arisen from the defects. This loss can, of course, be claimed in any event subject to proof of its extent. Any non-recovery, save for that part directly linked to Bovis’ loss in the settlement, has occurred because of the settlement and not because of the defects.

It follows that any loss, save for the loss already recoverable from the settlement and arising from the ceiling imposed by the settlement, has not flowed from the sub-contractors’ breaches of contract. The chain of causation has been broken and the claim is as unsustainable on this ground as was the claim in the Pacific Associates case.

The answer to this issue is, therefore: “Yes”.

Bovis’ case is that it is entitled to recover damages from RD Fire and Baris as a result of their interference with its contractual performance interest in each sub-contract. These claims are based on Bovis’ contention that it is entitled to receive, but did not receive, a complete and defect-free performance from RD Fire and Baris of their respective sub-contracts. Instead of receiving these contractual benefits, Bovis was provided with a performance which included significant and extensive breaches of these sub-contracts since their work was left in a defective and incomplete state. In consequence, Bovis claims to be entitled to recover substantial damages from each sub-contractor irrespective of the fact that Bovis itself has no interest in the land or buildings under construction and has incurred no, or no identifiable, loss under its main contract with Braehead in consequence of these breaches, albeit that the same breaches have interfered with its performance interest entitling it to damages quantified on the basis of the cost of reinstatement. Such damages are said to be recoverable even though neither Bovis nor the building owner has incurred these costs directly since the cost of reinstatement is the normal measure of damages for defective construction in a contract for the provision of work and materials.

It is therefore necessary to have regard to the two-fold nature of Bovis’ performance interest claims. Firstly, these claims are made by a main contractor with no interest in the land or buildings in question against sub-contractors. Secondly, these claims are made by a party that has incurred no loss in undertaking repairs or any other provable loss. Instead, that party’s sole liability to the land owner is real but unquantifiable, is not identifiable as the cost of repairing the relevant defects and arises as a direct result of the settlement of all disputes with the landowner including those arising out of the defects. Moreover, Bovis has no liability or obligation to account to the land owner for any recovery that it might receive from the sub-contractors as damages for breach or impairment of its performance interests.

It was traditionally thought that an employer who was a party to a building contract and who had no interest in the land that was the subject of that contract could not claim damages for defects in the work since it had no interest in performing that work or in undertaking any reinstatement or in incurring the cost of such reinstatement. The absence of a remedy was thought to arise because the building employer with no interest in the property had no legal entitlement or liability to reinstate and therefore, on traditional views as to what constituted recoverable loss, incurred no loss recognised by law that was both foreseeable and recoverable.

This view was not supported by any direct authority and, in modern times, has had to be supported by reference to the law concerning carriage of goods where, certainly since the authoritative pronouncements of Lord Diplock in The Albazero [1977] AC 774, HL, it has been accepted that, if goods are consigned by the owner, ownership passes to the consignee whilst they are in transit and the goods are damaged by the carrier, the consignee is the appropriate party to bring proceedings. However, if the consignee is not a party to the contract of carriage, it will have no contractual remedy against the carrier. Normally, nowadays, a consignee has a statutory remedy against the carrier. The Albazero confirms that there is an exception to the rule of law that makes recovery for damage to the goods dependent upon a contractual or statutory relationship with the carrier. This rule is not applicable where the intention of the parties to the contract of carriage is that the consignor should be able to maintain a claim against the carrier even after ownership in the goods has passed to the consignee and where, otherwise, the owner of the goods would be left without a remedy.

The principle that allows a consignor to recover damages for goods damaged in transit although no longer the owner of the goods has been extended to building contracts in two decisions of the House of Lords in St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85, HL and Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, HL. The St Martins case established that an employer under a building contract may recover damages for defective work where the employer has assigned its ownership in the land to a third party who has no direct contractual claim for these damages and where the panties contemplated ownership in that land might be transferred after the building contract had been entered into. This is a direct application of the principle of law confirmed for goods in The Albazero.

In that case, however, the employer also contended for a wider principle of recovery to the effect that a party to a building contract who did not own the land had a performance interest in that contract so that, even if it did not own the land in question, it was nonetheless entitled to damages if the building contract was not properly performed. The majority of the Law Lords in the St Martins case preferred not to decide the case on that wider ground but left it open for further consideration in a later case once academic consideration had been given to it.

The McAlpine case attempted to answer that wider question. The House of Lords unanimously held that such a claimant did have an entitlement to damages following a breach or interference with its performance interest. However, whereas two of the Law Lords, who dissented, would have recognised a wide ranging performance interest claim, the majority would only allow such a claim in limited and defined circumstances when certain conditions were satisfied. Bovis contends that it can bring itself within the conditions set out in the McAlpine case for the recovery of performance interest damages and can recover these damages from the sub-contractors based on the cost of repairs even though it has incurred no loss and has not undertaken those repairs.

It is important to note that in neither case was the claimant in the position of having incurred no loss. Thus, for Bovis to bring itself within the category of case for which the interference of a contractual performance interest is to be allowed, it must show that it is immaterial that it suffered no loss and that the two recent decisions of the House of Lords are nonetheless still applicable.

It is not necessary to examine the speeches of the Law Lords in the St Martins and McAlpine cases in any great detail. It is sufficient to note that, in the St Martins case, two of the Law Lords stated that they were prepared to contemplate a remedy for a breach of a performance interest where an employer did not have an interest in the property under construction so as to enable it to claim damages for defective work. This is clear from the speeches of Lord Griffiths and Lord Browne-Wilkinson. Lord Griffiths stated:

“I cannot accept that in a contract of this nature, namely for work, labour and the supply of materials, the recovery of more than nominal damages for breach of contract is dependent upon the plaintiff having a proprietary interest in the subject matter of the contract at the date of the breach. In everyday life contracts for work and labour are constantly being placed by those who have no proprietary interest in the subject matter of the contract.”²⁴

Lord Browne-Wilkinson stated:

“It is therefore necessary to consider [counsel for the main contractor’s] principle argument in some detail. … Since before the date of any breach of contract by [the main contractor], [the employer] had disposed of all its interest in the property on which the building works were carried out, [the employer] has suffered no loss. ... This is a formidable, if unmeritorious, argument since it is apparently soundly based on principle and is supported by authority.

Notwithstanding the apparent logic of [counsel for the main contractor’s] submission, I have considerable doubts whether it is correct. A contract for the supply of goods or of work, labour and materials (a supply contract) is not the same as a contract for the carriage of goods. A breach of a supply contract involves a failure to supply the very goods or services which the defendant has contracted to supply and for which the plaintiff has agreed to pay. If the breach is discovered before payment of the contract price, the price is abated by the cost of making good the defects: see ... as to building contracts Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689, HL. [Counsel for the main contractor] accepted that this right to abatement of the price does not depend on ownership by the plaintiff and it would be odd if the plaintiff’s rights arising from breach varied according to whether the breach was discovered before or after payment of the price.

There is therefore much to be said for drawing a distinction between cases where the ownership of goods or property is relevant to prove that the plaintiff has suffered loss through the breach of a contract other than a contract to supply those goods or property and the measure of damages in a supply contract where the contractual obligation itself requires the provision of those goods on services. ... In my view the point merits exposure to academic consideration before it is decided by this House. Nor do I find it necessary to decide the point since, on any view, the facts of this case bring it within the class of exceptions to the general rule to which Lord Diplock was referring in the Albazero.”²⁵

24.

ibid., page 96.

25.

ibid., pages 111 -112.

The other members of the House of Lords sitting on the St Martins appeal agreed with Lord Browne-Wilkinson. Thus, that case decided that, in principle, an employer in a building contract who had no interest in the subject matter of the property could still claim damages. However, the House of Lords was not prepared to decide this question once and for all until academic opinion had been obtained. That opportunity to decide the question arose in the McAlpine case eight years later.

In the McAlpine case, the employer with no interest in the land failed in its claim for damages from the contractor because the building owner had entered into a duty of care deed with the contractor. However, two Law Lords dissented on the grounds that the employer’s performance interest entitled it to recover substantial damages notwithstanding the duty of care deed. A short summary of the views of the majority of the Law Lords may be obtained from these extracts from the speeches of the three Law Lords who were in the majority in that case:

Thus, the majority accepted that a performance interest could be pursued where:

The minority, consisting of Lord Goff of Chievely and Lord Millet, would have gone further and, in addition to accepting that the employer need not have any interest in the land or buildings, would have gone further and would have been prepared to award that employer damages without requiring the employer to account to the building owner for the damages it received and did not regard the existence of a second direct contract as being either material or fatal to the recovery of damages based on an interference with the employer’s performance interest.

However, all five Law Lords regarded it as essential that the employer had incurred substantial loss in paying for remedial work to be carried out even if it had no interest in the land in question.

It follows that the employer need not have an interest in the subject matter of the dispute but, in the present stage of development of the law in this field, the recovery of performance interest damages is governed by the other qualifications imposed by the majority of the Law Lords in the McAlpine case including the requirement that the claimant should have incurred loss on should be accountable to the party that has incurred loss for any damages it recovers.

There seems no reason in principle why the same imposition of liability for interference with a party’s performance interest should not occur when the party in the position of the employer is not the employer seeking recovery from a contractor but is instead a management contractor seeking recovery from a sub-contractor. A management contractor undertakes no, or only a limited, part of the construction of the works and is in a very similar position to the employer with no interest in the property in both the St Martins and McAlpine cases.

However, any such extension of liability based on the recognition of Bovis’ performance interest must, on the present state of the authorities, be limited to situations where, although Bovis has no legal liability to pay for or carry out the repairs, the repairs have been or will be carried out and paid for and any damages recovered by Bovis will find their way to the person who is thereby out of pocket. If the loss that has been incurred is not remedial costs but diminution in value or other tangible loss, there again seems no reason in principle why that cannot be recovered by the employer or main contractor with no interest in the land. However, the other requirements for the recovery of performance interest damages imposed by the House of Lords in the McAlpine case would still be applicable.

The issue defined

The Answer

The claim advanced by Bovis is not sustainable in law for two separate reasons if the settlement is not taken into account and, if it is, for an additional third reason. The three reasons will now be considered separately.

The main contract provided that:

“The Contractor shall procure and deliver to the Employer an Employer/Sub-Contractor Agreement in the form set out in Appendix G to the Conditions duly executed as a deed by each sub-contractor or supplier who is undertaking a responsibility for the preparation of design for the Works or any parts thereof ...“.

The form of Agreement provided for in Appendix G provided that the sub-contractor warranted to the employer, amongst other warranties:

“1.1

insofar as the Sub-Contract Works have been or will be designed by or on behalf of the Sub-Contractor, it has exercised and will continue to exercise all the reasonable skill, care and diligence to be expected of a professionally qualified and competent designer experienced in designing work of a similar scope, nature, complexity and size to the Sub-Contract Works;…

1.5.

all workmanship, manufacture and fabrication shall be in accordance with the terms of the Sub-Contract;…

2.

The Sub-Contractor also warrants to the Employer that:-

2.1.

in all respects it has carried out and fulfilled and shall continue to carry out and fulfil the duties of a Contractor set out in the Construction (Design and Management) Regulations 1994 ...“.

Moreover, as can be seen from paragraph 8 of the settlement agreement²⁹, Bovis agreed to use its reasonable endeavours to secure from those sub-contractors who had not entered into a direct employer/sub-contractor agreement (who included both RD Fire and Baris), such an agreement and deliver it to Braehead after the conclusion of the settlement and the settlement agreement had taken effect.

It is clear that Bovis should have obtained such a employer/sub-contractor agreement from both RD Fire and Baris and the circumstances in which such agreements were not obtained either before each started work or following the settlement agreement were not explained in the assumed facts document. Equally, the reason why Bovis was unable to procure such agreements following the settlement was not explained. However, the main contract was entered into on the basis that all relevant sub-contract work would be undertaken by sub-contractors who had already executed a direct contract and had delivered that executed contract to Bovis for safe-keeping. I must therefore construe and apply the main contract and the sub-contracts on the basis that there was a clear contemplation that separate contracts would be entered into by each of the sub-contractors with Braehead. This way of applying the contractual scheme arise because, to use the words of Lord Clyde in the McAlpine case:

“As part of the contractual arrangements entered into between Panatown and McAlpine there was a clear contemplation that separate contracts would be entered into by McAlpine, the contracts of the deed of duty of care and the collateral warranties. The duty of care deed and the collateral warranties were not of course in themselves building contracts. But they did form an integral part of the package of arrangements which the employer and the contractor agreed upon and in that respect should be viewed as reflecting the intentions of all the parties engaged in the arrangements that the third party should have a direct cause of action to the exclusion of any substantial claim by the employer, and accordingly that the exception should not apply. ... Panatown cannot then, in the light of these deeds, be treated as having contracted with McAlpine for the benefit of the owner or later owners of the land and the exception is plainly excluded.”³⁰

A similar line of reasoning was adopted by Lord Browne-Wilkinson who stated:

“Therefore, the whole contractual matrix relating to this development envisaged that McAlpine’s obligations under the building contract were to be enforceable against McAlpine not only be Panatown but also to a very substantial extent by [the owner of the land] and its successors in title under the deed”.³¹

Lord Jauncey also adopted this reasoning:

“What is important, as I see it, is that the third party should as a result of the main contract have the right to recover substantial damages for breach under his contract even if those damages may not be identical to those which would have been recoverable under the main contract in the same circumstances. In such a situation the need for an exception to the general rule ceases to apply.³²

30.

ibid., page 532.

31.

ibid., page 576.

32.

ibid., page 568.

The majority of the House of Lords in the Panatown case were

Thus, Lord Browne-Wilkinson stated:

“I will assume that the broader ground is sound in law and that in the ordinary case where the third party has no direct cause of action against the building contractor, the employer can recover damages from the building contractor on the broader ground. Even on that assumption, in my judgment Panatown has no right to substantial damages in this case because the owner of the land has a direct cause of action under the [duty of care deed]. ... If, as in the present case, the whole contractual scheme was designed, inter alia, to give the owner of the land and its successors a legal remedy against the building contractor for failure to perform the building contract with due care, I cannot see that the employer has suffered any damage to its performance interests; subject to any defence based on limitation of actions, the physical and pecuniary damage suffered by the owner of the land can be redressed by the owner of the land exercising its own cause of action against the contractor.”³³

The speeches of Lord Clyde and Lord Jauncey were to the same effect.

Thus, unless Bovis can point to some reason to justify its apparent failure to procure these direct agreements and can show that their absence is not the result of any breach of its contractual obligation imposed by the main contract requirement that it should procure such contracts, the exclusion of an enforceable performance interest provided for in the McAlpine case must take effect. Since no such justification is alleged by Bovis, it has no such enforceable interest against RD Fire and Baris since the contractual scheme was devised on the basis that Braehead would have a direct claim against both RD Fire and Baris.

Bovis will not incur, either with or without a legal obligation to incur it, any expenditure in undertaking remedial work. All five law lords in the McAlpine case regarded it as axiomatic that such expenditure had been or would be incurred before a performance interest claim could succeed. Thus, Lord Jauncey stated:

“I respectfully agree with [Lord Goff’s] rejection of the proposition that the employer under a building contract is unable to recover substantial damages for breach of the contract if the work in question is to be performed on land or buildings which are not his property. In such a case the employer’s right to substantial damages will, in my view, depend upon whether he has made good or intends to make good the effects of the breach.”³⁰

30.

ibid., page 574.

It is clear from the assumed facts that Bovis neither intends to undertake remedial work nor has the power to do so. It also appears that Braehead has no such intention either. It follows that Bovis’ potential performance interest claim must fail.

The effect of the settlement is that Bovis has no further liability to pay Braehead anything and is relieved of all obligation to account to it for any recovery it might make. In the McAlpine case, the majority of the law lords regarded it as imperative that an employer recovering performance interest damages had either itself already incurred the loss in question or would be under a duty to account to the land owner for the recovery made from the contractor. Thus, Lord Browne Wilkinson again:

“The theoretical objection to giving the contracting party substantial damages for breach of the contract by the contractor for failing to provide the owner of the land wit a benefit which it itself can enforce against the contractor is further demonstrated by great practical difficulties which such a view would entail. ... What if the employer itself was entitled to, and did, sue for and recover damages from the contractor? Presumably the contractor could not in addition be liable to the owner of the land for breach of the duty of care deed: yet the employer would not be liable to account to an assignee of the duty of care deed for damages for breach of the duty of care deed it had recovered from the contractor. The result would therefore be another piece of legal nonsense; the party who had suffered real, tangible damage (the assignee) could recover nothing but the employer which hack ‘suffered no real, tangible loss could recover damages.”³¹

Had Bovis been seeking from RD Fire and Baris the loss it had incurred by entering into the settlement directly attributable to breaches of their sub-contracts, there is no good reason why that loss could not be recovered as damages for interference with Bovis’ performance interest. The McAlpine principles are not confined to remedial work costs but, as is clear from the Ruxley case³² , these principles can be extended to any other direct loss arising from an interference such as loss of value or loss arising from an impairment of expectation. However, Bovis seeks to go further and to recover the entirety of the cost of repair when its loss is limited or capped by the settlement to a lower figure.

The answer to issue 5 is, therefore, “Both as a matter of law and having regard both to the fact and nature of the settlement, No”

The issues and the answers to those issues decided by this judgment are set out in the annexed schedule. The parties must, in the light of these answers, decide whether to seek to add to or amend their pleadings. Once any application for that purpose has been heard and determined, I must then decide what parts of Bovis’ claims against both RD Fire and Baris are, in the light of the answers to these preliminary issues, still maintainable, which parts should be struck out and what defendant’s summary judgment should be entered on behalf of RD Fire and Baris without further evidence being served. Such parts of the two actions that survive that procedural investigation must then go to trial.