Linklaters Business Services v McAlpine Ltd & Ors

Linklaters Business Services (“Linklaters”) is the service company of Linklaters LLP the well-known solicitors whose current address is One, Silk Street, London EC2 (“the Premises”). The litigation relates to those premises into which Linklaters moved as tenants on 25 year leases in late 1996 and, in particular, to widespread corrosion to steel chilled water pipes which served the air conditioning system throughout the Premises.

Sir Robert McAlpine Ltd ("McAlpine") was the main contractor employed in 1995 by DS Developments Ltd ("Dev Sec"), the developer of the premises, to carry out the major redevelopment of the Premises, which comprised two buildings, Shire House and Milton House. McAlpine sub-contracted the mechanical and electrical works (which included the insulated chilled water pipework for the air conditioning systems) to How Engineering Services Ltd ("How"). How sub-sub-contracted the installation of the insulation works to Southern Installation (Medway) Ltd (“Southern”).

Following completion of the works in September 1996 and of subsequent fitting out works by other contractors on behalf of Linklaters, Linklaters moved into the buildings and have used them as their national and international headquarters ever since. The offices are and were intended to be used 24 hours a day seven days a week, albeit not necessarily by the same staff. There are some 1200 fee earners and numerous support staff.

In June 2006, there was a leak from one of the sets of chilled water riser pipes in the Premises which was traced to a leak at the fifth floor. This led to insulation being taken off and corrosion of pipes was discovered. Further investigations revealed extensive corrosion throughout the chilled water pipework, which in turn led Linklaters, on advice, to replace the corroded pipework throughout the building with new pipework.

Linklaters pursue their Claims in two sets of proceedings against McAlpine (HT-09-399) and How (HT-10-45) through a contractual route because McAlpine and How provided written contractual warranties to it in effect that they had carried out or would carry out their respective main and sub-contract obligations properly. Southern are pursued by How for damages for breach of a duty of care in tort owed to it in (HT-10-80) and for a contribution in relation to breach of a duty of care in tort owed to Linklaters by Southern (in the other proceedings). I have already decided that Southern owed a concurrent duty of care in tort to How (my judgement is reported at [2010] EWHC 1878 (TCC)). There are issues between the parties as to whether and if so to what extent there are breaches of contract or negligence, whether any cause of action in negligence against Southern is barred by limitation, whether any established breaches caused condensation which led to the corrosion and finally on quantum, including whether the decision to replace as opposed to repair was a necessary or reasonable course of action for Linklaters to take. McAlpine’s and How’s holding companies are joined as guarantors of their subsidiaries’ performance.

Apart from this Introduction, there will be the following Chapter headings in this judgement:

Those most closely associated with Linklaters, the original and the remedial works were:

Many of the above named people gave evidence or, if not required for cross-examination, provided witness statements which otherwise stood as evidence. In broad terms this is not a case in which it has been suggested that any witness of fact was deliberately seeking to mislead the court. I proceed upon the basis that the factual witnesses were honest. It is difficult to form a view about the reliability of witnesses who did not physically attend to give evidence but one just has to assess the strength of their evidence as best one can, albeit by reference to other live witnesses or the contemporaneous documents. Of the factual witnesses who gave evidence I have the following impressions (in the order in which they gave evidence):

In addition to the witnesses who were required to attend for cross-examination, evidence in the form of witness statements was also provided by Messrs (Peter) Jones, Thornborrow, Hazlehurst, Ford, Wilde, Bonwick and Alexander, the last of whom was unable to attend for medical reasons. With my permission, the parties proceeded on the basis that by not seeking to cross-examine particular witnesses they were not necessarily accepting their evidence but could comment on it later.

So far as experts were concerned, there were 48 files’ worth of expert evidence, the bulk of which has proved to be largely immaterial and has not been referred to. Dr Arnold (for Linklaters), Mr Parsloe, Mr Wilkes (both for McAlpine) and Mr Swayne (for How) gave evidence about M&E, Building Services and insulation matters for Linklaters, McAlpine and How respectively. The corrosion experts were Dr Turgoose, Mr Osborne and Dr Parry respectively for those parties; Mr Osborne was not required for cross-examination. Mr Pontin and Mr Gray were the quantity surveying experts for Linklaters and How respectively. Southern did not call any experts although it had experts who had provided reports in each of the disciplines. McAlpine did not call its quantum expert Mr Harris; his expert report comprised 22 volumes. I will return to my assessment of the various experts as necessary later in this judgement. Substantial agreements were reached between them

The parties, and in particular their solicitors and Counsel, are to be congratulated on their pragmatism and efficiency in ensuring that the evidence, both factual and expert, was dealt with in just over six days’ worth of Court time. This demonstrates how with cooperation and effort even complex cases involving numerous witnesses can, fairly, be disposed of without any party feeling that it did not have sufficient time to put the relevant parts of its case. Somewhat less satisfactory however was the proliferation of paper, only a relatively small percentage of which ultimately has been relied upon or referred to during the course of the trial. There were 124 bundles and one can not help feeling that, in respect of the large volumes of material attached to Mr Harris’ eventually redundant report (21) and to Mr Gray’s Report (9), 19 bundles of "maintenance" documents and 18 files of quantum documentation, some rationalising curtailment was called for. It is also unfortunate that one chronological bundle of contemporaneous documentation could not be produced.

The Premises comprise the two linked buildings, Milton House and Shire House, which have 15 and 11 stories respectively. There was to be and is air conditioning throughout the buildings at least above basement level. For the air conditioning system, water is chilled in substantial chillers in a plant room in each building at basement level and by the use of pumps is circulated through chilled water mild steel pipework run from the plant room into and horizontally through an under-croft in each building into vertical riser shafts. There are 7 risers in each building and the pipes reach the highest floors in each building. It should be borne in mind that the riser shafts did not, at least initially, have any floors in them at the individual floor levels and they ran the full height of the buildings. On each floor, horizontal pipes come off the vertical pipes to service the air conditioning needs. The chilled water pipework work up to these points was done by McAlpine and How. Thereafter, through their fit out contractor, Mace, Linklaters provided distribution pipework to fan coil units in the office space; these units take the coldness from the chilled water pipes and circulate it to provide the required cooling to the offices.

The pipework is in different sizes with the largest diameter pipe at the lower levels. Unsurprisingly, because the pipework contains water chilled to some 6 to 8° C, it is and was necessary to insulate it. The purpose of the insulation is however twofold, the first being to keep the water as cool as practicable as it is circulated up the buildings. The second is to guard against condensation forming on the steel of the pipes and thus the insulation has to provide a vapour barrier to prevent the transmission of dampness in the air through the insulation and onto the pipe, thus causing condensation. If condensation forms on the steel, corrosion will occur and in broad terms that is not desirable. As will become clear, a double vapour barrier was specified for the insulation to the chilled water pipework.

The insulation which was to be provided was to be three layers of what was described in the Specification (Y50 8000) as "Class ‘O’…CFC free, closed cell, flexible, elastomeric nitrile rubber-based material and covered with a ‘foil-faced laminate’”. In practice the rubber based material was to be three layers of a proprietary brand of insulation called “Armaflex”, which, if properly detailed and installed, could provide a first vapour barrier whilst a separate foil faced laminate layer would provide the second vapour barrier. Insulation for water pipes often comes in preformed sections up to a metre long which are simply slipped around the pipe and then taped along the join. Armaflex came in loose sheets, 1m long, where the joints (at least) had to be glued.

The pipework is supported when it runs horizontally in the plant rooms and under-crofts by hangers or supports from the ceilings. Where the pipework runs vertically in the riser shafts, there are support brackets from the walls of the shafts which are and were intended to clamp the pipes. It is relatively obvious that the details at these supports had to be considered carefully so as to ensure that the insulation and the vapour seals were maintained in and around these supports. Within the clamps and around the steel pipes, there were to be support blocks which were in effect to provide an element of padding between the clamp and the steel but also to provide support; initially these were intended to be a proprietary support block made of the same material as the insulation, albeit denser.. This was changed to hardwood. The pipes came in sections which (although originally to be welded) were in fact joined by "Victaulic” coupling joints which essentially involved the use of a rubber-type gasket and a clamp.

A Development Agreement was entered into between Linklaters (then Hackwood), Dev Sec, Dev Sec’s holding company and the funder (later to become the freehold owner) on 13 February 1995 in relation to the development. This Agreement envisaged the appointments of a "Professional Team" which included architects and M&E engineers and of McAlpine as the Building Contractor. Clause 4.2 envisaged that McAlpine and specialist "Design Sub-Contractors" would provide direct contractual warranties to Linklaters in relation to the works which they were respectively being engaged to carry out. The Developer was to carry out the development works, which were referred to as the "Base Building" works. The funder was to grant to Linklaters leases of the bulk of the Premises within five days after Practical Completion of the Base Building works and Linklaters had an option over certain "Unlet Space". Linklaters was to procure the carrying out of the Tenant’s Works, which were effectively the fitting out works, which included the extension (from a one metre stub of horizontal pipe left on each floor from the vertical pipework as part of the Base Build works) of the chilled water installation into the office areas and the provision of air conditioning within them.

Prior to the date of the Development Agreement, Dev Sec had already retained Hoare Lea as its consultant for M&E matters and McAlpine, at least provisionally, as the Building Contractor. There were meetings in November 1994 between, amongst others, Hoare Lea and How which was clearly involved in advising amongst other things about air conditioning. Mr Chapman was also involved; he and his firm had been retained for many years prior to this by Linklaters in relation to their various buildings. It is clear that How prepared a number of the pre-Building Contract drawings and jointly prepared the specifications with Hoare Lea; this is recorded, for instance in a minute for a meeting attended by McAlpine, How, Hoare Lea and Mr Chapman on 30 November 1994 held at How’s offices in West Bromwich.

Although the Building Contract was signed later (in August 1996), the contractual relationship between Dev Sec and McAlpine was in place in February 1995 when possession of the site was given. The Works included the design of the M&E services, including the air conditioning works. The Works were extensive and involved substantial re-cladding and internal re-ordering; the Contract Sum was £43,500,000.

How, among others, had been asked by McAlpine to tender for the M&E work in December 1994 and submitted its tender in the sum of over £13m on 11 January 1995; following further negotiations, an order was placed by McAlpine in June 1995 in the sum of £11,385,000. How submitted drawings and details through McAlpine to Hoare Lea. On 20 July 1995, How also submitted to McAlpine a "Work Sequence" in respect of the risers which showed that fixings would be installed in each riser for safety harness brackets and thereafter about half the risers would be scaffolded. The various pipes and ducts would be fixed and tested before the insulation was applied.

How proposed the use of a wood block around the chilled water steel pipes at the points at which the support clamps were to go and it is clear that Hoare Lea accepted this idea. By 7 September 1995, How had produced a detail which showed the configuration for the proposed anchoring arrangements for the woodblocks and the clamps which was agreed between How and Hoare Lea. The latter had written to How on 22 August 1995 saying that a "heavy duty vapour barrier [was] to be incorporated between the wooden block and support bracket on chilled water pipework".

How submitted on 16 August 1995, through McAlpine, a request for a change in the specification in effect from the Armaflex insulation to the use of another proprietary brand, “Rocklap 800”. How wrote:

“For the following reasons we would not recommend the [specified] material:

(b)

In order to achieve specified thickness for insulation two or three layers of section/sheet material would have to be applied. Each layer being glued in place to achieve the vapour seal.

Due to restricted access and density of services in certain areas i.e. risers we do not consider that the specification would be practical in terms of application of the insulation/resulting vapour seal.

(c)

From the health and safety aspect the amount of solvents and adhesives being applied in confined spaces should be kept to an absolute minimum. This would not be a problem with the proposed alternative detailed below.

(d)

Achieving a satisfactory standard of finish bearing the above points would be very unlikely."

How then went on to promote the Rocklap material which came in pre-formed sections. However this request was rejected by Hoare Lea on 8 September 1995 and, although it seems to have been discussed again over the following few weeks, the issue was not actively promoted again by How.

On 8 September 1995, How invited Southern to quote for all the insulation works including insulation for the chilled water pipework in the risers. Southern was never asked to provide insulation in the basement plant rooms or the under-crofts. The drawings (later revised) and specification pages were sent to Southern with this invitation.

From late September 1995 through to the summer of 1996, Mr Chapman or other representatives of his firm and Voce representatives visited the site and produced notes or reports of what they had seen. Although Southern did not start work until late November 1995, it does seem that some insulation work was done on the chilled water pipes by others. For instance Mr Chapman’s firm reported that on their site visit on 15 November 1995 pipes were being insulated on the 12th floor of Milton House. However I am satisfied that there was only a relatively minimal amount of such insulation work done.

On 5 October 1995 Southern produced its first quotation. How responded on 2 November 1995 asking amongst other things Southern to "confirm any areas whereby you do not comply with the specification." Southern responded on 8 November 1995 listing items said not to be in compliance with the specification, none of which are material to the issues in this case. On 15 November 1995, Southern provided further quotations for, amongst other things, insulating the Victaulic couplings on the chilled water pipes in the riser shafts. Also on 17 November 1995 it provided a handwritten final quotation in the sum of £250,709, which was sent typed up to How on 21 November 1995. As far as is material, Southern offered to supply:

“Concealed pipework-Chilled To-insulate with Class ‘O’ Armaflex sections, joints glued and covered in bright Class ‘O’ foil with the joints taped…”

On 21 November 1995, Hoare Lea issued a note, intended for onward transmission to How, which, materially, stated:

“Provide at support points load bearing insulation extended on each side of the point of support complete with a section of insulation to ensure an unbroken vapour seal. At present the wood blocks installed are not sealed and do not extend past the support steels”.

There is no dispute that there was at least a simple contract entered into between How and Southern. I will return to this in dealing with the Contracts between the parties. A handwritten McAlpine labour return for the week ending 3 December 1995 shows that five workmen from Southern first attended on 27 November 1995 and thereafter. How let another sub-sub-contract for the basement and under-croft insulation work to Britannia Insulations Ltd.

How submitted to McAlpine on 1 December 1995 a "Technical Submission” in relation to the work to be done by Southern which broadly simply reproduced Southern’s quotation. This effectively confirmed that the Armaflex joints were being glued with no indication that there was to be any other gluing. Hoare Lea’s response on 17 January 1996 was that the technical submission was "substantially incomplete". There was no evidence that a further Technical Submission was prepared.

There is some evidence, which I accept, that Southern at How’s request did some sort of a bench marking exercise which involved a demonstration by Southern to How of its insulation work, albeit probably not attended or seen by Mr Chapman or members of his firm. The object was to set a standard of workmanship following discussion as to what was required which was acceptable to How. There is no suggestion that Southern did not meet whatever the established benchmark was.

The conditions in which Southern’s employees worked were very poor. Mr Barnes, Southern’s lagger who gave evidence, said that the working conditions over several months around Christmas 1995 were "awful"; he says that it was very cold and damp and snow and rain came into the building; there were no windows yet in place. It was so cold sometimes that he could not feel his hands. He said it was hard to keep everything dry although he did the best he could. He said that the problem with the dampness was the effect on the adhesive. This is corroborated by a Chapman Bathurst report of a site visit on the 20 December 1995 which described water as cascading down through all floors in shafts and by a memorandum dated the 20 December 1995 from How to McAlpine complaining about water penetrating the roof, with the wood blocks on the pipe supports becoming wet. Mr Barnes described other practical difficulties on site. There was no scaffolding for the laggers to work off; therefore he had to work off what he described as a sort of "diving board" provided to enable the laggers to get access to the pipes to insulate them. This was four feet off the floor and weighed down at the opposite end with ballast. Although this provided access, it was precarious and unstable and reaching down below to insulate the lower parts of the pipes was difficult. He could not remember anyone inspecting their work or questioning what they were doing; indeed no one really came to talk to them. He just did the work as he was told. Mr Chapman said that he personally never saw the Armaflex insulation being installed and, indeed, he said he was "shocked" nine years later when he opened it up and found three layers of insulation. I accept Mr Barnes’ and Mr Chapman’s evidence in this regard.

Whilst I have no doubt that various supervisors could indeed look into the shafts from time to time for various purposes, I have formed the very clear view that it would have been difficult closely to inspect the insulation work in the risers as it was going on. This is for a number of reasons. The riser shafts were relatively narrow even before the various items of pipework and ductwork were put in. Once the pipes and ducts were put in, the space was and became even more congested. Secondly, the scaffolding and "gang plank" type arrangement described by Mr Barnes would itself have obscured and obstructed inspections. The fact that there were no floors in many or most of the riser shafts at the time would have made it a dangerous area in any event to inspect closely. Fourthly, the conditions on site at least over the winter were damp and cold and not conducive to lengthy inspections. Finally, there would not have been very much to see in terms of insulation; the layers of Armaflex were taken round the pipes and glued and then covered by a foil backed laminate layer which would have covered up what otherwise could have been seen.

The position in the basements and the under-crofts was different in this regard because the pipework and the pipework supports were readily and safely accessible for inspections from the ground.

On 15 January 1996, How requested Hoare Lea, through McAlpine, that a change be made with regard to the insulation for the basement chilled water pipework. It suggested that Kooltherm "Phenolic Foam and Aluminium Foil" be used instead of Armaflex. This alternative was put forward for various practical reasons, not least of which was that it would fit in the basement while Armaflex would not. This request was eventually agreed to by Hoare Lea. This followed some concern expressed in a memo dated the 17 January 1996 which called for an adhesive to be used to seal the longitudinal and butt joints of the Kooltherm and a further vapour barrier. Kooltherm wrote to How on 26 January 1996 saying that the insulation could be used on pipework where hardwood pipe supports were fitted but it was essential that the joints between the “aluminium foil jackets of the hardwood blocks” and the pipe insulation were fully sealed with aluminium foil and adhesive tape. The Building Contract Architect issued a formal instruction approving this on 12 February 1996.

Hoare Lea wrote on 9 February 1996 to McAlpine, copied to amongst others How and Mr Chapman:

“The fan coil chilled water insulation sample on the 15th floor was inspected…on the 8^th February and was considered satisfactory, subject to revising the chilled water block/hangar detail ie continuous foil between block and hanger, as previously noted to yourselves…

Brian Wilding has previously pointed out the foil needs to be continuously around two halves of a wooden block to achieve the vapour barrier that these need to be corrected in most cases before the insulation is applied elsewhere…”

Whilst the context of the letter relates to something other than vertical chilled water riser pipes, the importance of achieving an effective vapour barrier at the wooden block and hanger detail was clearly well understood by McAlpine and How.

A system of "inspection sign offs” was put in place. This is evidenced by a memorandum in March 1996 from Mr Turner of How, apparently copied to Southern, which envisaged, amongst other things, the insulation in the risers being inspected; if it had already being inspected and found wanting in some respect, it would be re-offered inspection after further "de-snagging” work.

It is clear that How at least monitored the progress of Southern. For example in a letterdated 23 April 1996 (wrongly dated February) to Southern, it listed all the outstanding items that were to be completed; this included finishing insulation work to risers as well as completing snagging to chilled water pipes in the risers. It follows at least that representatives of How must have looked into the risers from time to time to check on progress. On 1 May 1996, How wrote to McAlpine to say that amongst other things the chilled water insulation to risers had been completed to its satisfaction and asked for McAlpine's approval or comment.

Some damage was done to the insulation on the chilled water pipes. A memorandum of 18 July 1996 records agreement that McAlpine would pay for damage to insulation including some 11 items of damage to the vapour seal on this insulation.

Although Southern had completed most of its work, it is clear that insulation around certain valves had been held back, doubtless for the testing of the valves. It wrote to How on 22 July 1996 complaining about the delay.

On 1 August 1996, Hoare Lea wrote to McAlpine with a schedule of amongst other things defects to the insulation to the chilled water pipes. The schedule was in the form of a list of previous "Defects Sheets" issued by it and sets out whether work identified as being required had been resolved or completed. For instance, it referred to a Sheet of 22 February 1996 which identified that most of the chilled water required "vapour seal foil along the linear joints of the woodblocks" and that the "vapour seal must be continuous through its support bracket." It recorded that this work was "complete". A number of insulation defects are recorded, for instance:

In about August 1996, Southern submitted its payment Application No. 10 which recorded a contract value of £251,500 with various additions which included "dayworks to date" of over £21,000 and various deductions which included £8000 for "valves to floors".

By September 1996, the overall work was approaching Practical Completion. How wrote to Southern on 17 September 1996 complaining that it was having "great difficulty in getting any of your site staff interested in completing defects reported by Messrs HLP”, that whenever Southern "is approached we are told that you are too busy completing contract works” and that it should arrange an appointment "with regard to walking the site noting defects completed/uncompleted and agreeing dates the completion of same". Southern was warned that failure to comply would result in How "taking steps to carry out works on your behalf and deducting associated monies from your account”. It does not appear ultimately that there were such deductions.

McAlpine wrote to How on 19 September 1996 complaining that the only outstanding impediment to the issue of the Practical Completion Certificate was that the M&E work had not been completed to a satisfactory standard. This reflected a list of outstanding work issued by Hoare Lea on the same date which among a number of items included the fact that there remained some chilled water pipe insulation to be completed.

Notwithstanding this, the Building Contract Architect felt able to issue a Practical Completion Certificate for 20 September 1996. It is clear that Linklaters were not happy about this as it considered that the certificate was premature. A meeting was called to discuss this, amongst other things, on 14 October 1996 and concern was expressed for instance that the riser shafts were dangerous; Mr Upjohn "had been saved from falling down an open shaft by another member" of his team. A problem emerged in relation to microbiological contamination in the chilled water pipes which did involve some removal of insulation, as a note of a meeting of 9 December 1996 confirms How was to re-lag once balancing of the system was complete, although Southern seems not to have been involved in this.

Mace, Linklaters’ fit out contractor, had been retained by this stage. It identified in a memo dated 27 September 1996 that, amongst a large number of other connections and alterations to be made to the base build services, certain chilled water pipework at high level on the 11th floor in one riser in Shire House would need to be removed. This was revisited in Mace’s letter to Mr Chapman of 15 October 1996.

There is a dearth of evidence in relation to precisely what happened over the following months. Mr Alexander of How believed that How left the site in February or March 1997. The Defects Liability Period however ran for 12 months and, indeed, the Certificate of Completion of Making Good Defects was issued on 9 June 1998; I therefore proceed on the basis that McAlpine and its subcontractors did do some snagging work over that period. It seems that by November 1997 How and Southern had agreed a final account which, based on a handwritten note on a "Final Account Agreement" sent out on 13 November 1997, was £245,000. It appears, so far as is material to this case, that an allowance was made only of £863 in relation to mezzanine levels insulation being incomplete. On 10 July 1998 an interim certificate was issued by the Building Contract Architect to McAlpine in the sum of £43.244m. There has been no suggestion that a Final Certificate was issued. Operation and Maintenance (“O&M”) manuals were provided by How for the M&E work.

Linklaters retained PME, later to be taken over by Carillion, to carry out routine maintenance for its new building. Mr Rulton worked from 1997 until 1999 as PME’s Contract Manager for the Premises. When he started in October 1997 Linklaters were beginning to occupy parts of the buildings. There was a comprehensive maintenance system which included preventative maintenance. The maintenance was carried out and riser pipes and fittings were looked at initially every six months until about 2004 and thereafter on a yearly basis. There was not very much maintenance work actually required in the riser shafts although it is likely that members of the maintenance teams who operated what was called a "floor ownership system" would have looked into the shafts from time to time. It was not possible or practicable for these teams to do much more than a visual inspection because parts of the risers were impossible to access with much of the area within the risers being taken up by pipework and ductwork, mostly insulated, and because in some parts pipes were concealed, for instance in ceiling voids. It was much easier to inspect in the basement areas. There were no issues with leaks in or to the chilled water pipework until mid-2006. Up until then, there had been no need to take off any insulation on the chilled water pipework as part of the maintenance regime.

There is now no suggestion that the maintenance was carried out poorly and it is clear from the evidence that maintenance was in general terms carried out on the building and the services as required over the period.

On 21 June 2006 a puddle of water was found in the boiler room in Milton House. Mr Jones of PME was asked to investigate and he saw that there was a small trickle of water running down from the wall above. He went up to the under-croft area and found a small pool of water on the floor directly below the bottom of riser shaft M1A. He formed the view that this water seeped through the concrete floor of the under-croft into the boiler room below. He checked the riser shafts on the first floor and could see water shining on the surface of the aluminium foil coating of the pipe; it was trickling down slowly. He went up to the second and third floors and found the same state of affairs. When he opened the riser cupboard door on the fifth floor, he heard a hissing noise and formed the view that that was where the leak was occurring. He locked the door and reported what he had found to his superiors, in particular Mr Thornborrow, who arranged for, initially, small 2 inch square sections of insulation to be removed from the flow and return chilled water pipes in M1A. The insulation was completely saturated up to point on the fifth floor where the leak had been located.

Shortly thereafter a larger piece of insulation was removed at the fifth floor. Mr Thornborrow was present. He and Mr Rulton also heard the hissing sound. Once the insulation had been taken off, they could see that water had puddled on the wooden bracket supporting the pipework and it was also dripping down off the edge of the bracket and down the pipework. There was a wet patch on the wall behind the pipe which appeared to him to have been caused by water spray. They could not see a hole or exactly where the spray was coming from but he believed that the hole was probably directly underneath where the pipe was held by the wooden bracket. The pipework was and appeared to be very rusty and corroded. An Incident Report was prepared. Photographs were taken which showed very obvious corrosion immediately below and above one of the wooden supports and on and around a Victaulic coupling joint close by.

Mr Lowe of PME then arranged for a company, Industrial Pipe Freezing Services Ltd, to come in to freeze and then remove the section of pipe on the fifth floor in M1A where the problem had arisen. The section of pipe was then left for some time in the Milton House air handling room. Mr Thornborrow believed he could see a very small pinhole sized hole on the pipe in the area where the wooden bracket had been and he observed that the inside of the pipe was "quite clean".

At about this stage, Mr Chapman and his firm were called in to investigate and advise on the problem. On 12 July 2006 Mr Chapman visited the Premises. He looked at the length of removed pipe which he considered was seriously corroded on the outside, albeit that the inside was in relatively good condition. He looked at M1A on the fifth floor and PME, who were attending upon him, removed insulation above and below the replaced section. He observed that the Armaflex was glued neither to the foil itself nor to the pipe and the layers themselves were not glued to each other. The Armaflex was very wet to the touch as was the pipework surface. He went to another riser and the pipes were exposed again. The same problems were present and he found extensive corrosion along the length of pipe, particularly concentrated around the brackets and the Victaulic joints. He went to a riser in Shire House and the pattern was exactly the same. For comparison purposes, he also looked at the condition of the tenant fit out pipes, installed about 12 months later than the base build pipes, which, after the removal of the insulation, were in an as new condition with no visible signs of corrosion. Removed insulation was made good. He then reported to Mr Jones, via an e-mail dated 12 July 2006:

“1.

I think that we were all amazed at the extent of the corrosion to the section of pipework that was replaced following discovery of the leak…and I will arrange this pipework to be tested to provide supporting information and confidence that the leak was from the outside and the laboratory analysis should tell us a lot more about the cause.

2.

…my initial reaction is that the pipework is suffering from a lack of continuity in the vapour seal to the installation…I am researching the paint product that was used [on the pipes]…the three layers [of Armaflex]…[were] not glued to each other or the outer layer of foil. I believe the potential for air gaps and an ineffective vapour seal will result and my first reaction is that the method of insulating the shell and core risers is the cause of your problem…

4.

With PME I did a wider scan of the risers and found a mixture of equally bad pipework and some that was not as bad but still gives me serious concerns about longevity…”

At this stage given the severity and extent of corrosion throughout the Premises, he foresaw a major renewal exercise by way of remedial works.

On 15 July 2006 Mr Solly of CBP over a period of about 10 hours looked at some 8 risers at different levels which involved him opening up the insulation exposing the pipes and then taking photographs and making observations. He found that adhesive was not used between the Armaflex layers and the wooden blocks, that in places below the wooden blocks there were gaps between the top of the Armaflex layers and that they were not glued to each other, that the Armaflex was in places not glued at junctions between higher or lower levels of insulation, that the Armaflex layers were not installed or wrapped snugly around the pipes, that in places there were gaps where glue had not been applied all the way through to the pipe, that multiple sheets of Armaflex were used in some cases between the couplings and wooden blocks and that the seams between the sheets were not glued leaving gaps. He noted corrosion on the pipes throughout the Premises to varying degrees but the most severe locations were almost always around the wooden blocks and Victaulic couplings. He recorded that in places he saw some damaged foil insulation but that in general what he saw was that the foil insulation appeared to be intact; he assessed that there were small tears in the foil layer on approximately 5 to 10% of the pipes but which did not appear to pierce the Armaflex. The pipes were generally wet to the touch as was the Armaflex.

Mr Jones reported on 17 July 2006 to his superiors within the Linklaters law firm that he anticipated that the remedial works would probably consist of renewing all the chilled water riser pipework in both buildings in a controlled and sequenced manner, sooner rather than later.

Mr Solly did a further survey on 24 July 2006 of the risers at levels which he had not looked at before. It would be fair to say that the results of this second survey were similar to those of the earlier survey save during the later survey he referred to the fact that the wooden blocks were "sodden". He also found evidence of a thin smear of adhesive on the wooden blocks but in those places the Armaflex came away cleanly.

On his two surveys, he saw extensive corrosion on the chilled water pipes with perhaps only 1% to 2% of the areas which he surveyed showing no signs of corrosion and with only about 5% having very little corrosion.

Mr Chapman passed on the results of Mr Solly’s surveys. The corrosion which he had seen and on which Mr Solly reported was the worst of some 500 separate chilled water systems’ pipework which he had seen over the years. By the end of July 2006 he was seriously concerned about the integrity and longevity of the system and he became more convinced that renewal was the appropriate option for Linklaters.

Mr Chapman asked CET Medway (“CET”) to carry out a radiographic inspection on the piece of pipe that had been removed from the fifth floor in M1A. Those tests were done at CET’s laboratory on 24 July 2006. The report dated 25 July 2006 reported in simple terms the results:

“Radiography of damaged/corroded area on 6” chilled water pipe. Radiographs confirm loss of wall thickness due to corrosion with pinhole sized pitting at the various depths”.

Mr Chapman received a verbal report from CET that the corrosion had perforated the pipe sample sent to it. However, he permitted CET to send the piece of pipe to be metallurgically tested; this was to be carried out by Bodycote Laboratories Ltd (“Bodycote”).

Bodycote reported on 18 August 2006. The report, somewhat obliquely, states in its Introduction that "X-Ray examination of the pipe had been carried out prior to receipt at Bodycote…which revealed no significant defects." I say "obliquely" because CET had reported a “loss of wall thickness due to corrosion with pinhole sized pitting of various depths”. Whilst Bodycote considered the paint on the piece of pipe, it also carried out electron microscopy. Material parts of the report are:

“3.1.1…The central area of the section was heavily corroded with a thick layer of corrosion products and little evidence of any paintwork remaining. Missing patches of this thick layer of corrosion product were evident.

3.1.3

Examination of the microsection taken through the region of heavy corrosion showed a thick layer of corrosion deposit…Underneath this deposit was a network of corrosion pits…The remaining wall thickness at the worst point was measured at approximately 4.17 mm.

Examination of the microsection taken through a blistered region showed a number of large pits with varying characteristics…the approximate wall thickness on this section was measured at 4.82 mm….

4.0

The majority of the fracture surface has been subject to general corrosion, with dispersed deep pits observed…

A band of heavy corrosion was observed in the centre of the pipe section received on closer examination showed the pipe surface to be covered in a thick layer of corrosion product, beneath which was a network of wide pits…

Loss of wall thickness was approximately 0.75 mm at the worst point and assuming the original wall thickness is 5 mm, this loss is 15% of the original wall thickness. No breach of the inner wall surface was observed or reported by the client and no evidence of cracking was found associated with pitting. It is not deemed an excessive amount of material loss to this pipe material in the situation described…”

The pipe looked at by CET and Bodycote has since been lost.

Mr Chapman also commissioned a survey of the horizontal pipework in the under-croft areas by Michael J Lonsdale (“MJL”) who reported in October 2006 that following removal of insulation:

Mr Chapman reported to Linklaters following receipt of Bodycote’s report. His “Preliminary Report on Corrosion to Chilled Water Pipework", initially dated August 2006, later resubmitted in October 2006, described his initial instructions and summarised what had been observed at the time of the leak, the initial inspections and the surveys by Mr Solly. He referred to the testing done by CET and Bodycote and Paragraph 6.3 stated:

“The report highlights the exposure of the pipework to surface water causing the corrosion and the accelerated corrosion (which led to the initial leak) under a strap or clamp.”

That reflected Mr Chapman’s belief, which had been corroborated orally by a discussion with CET, that it was the external corrosion which had caused the leak. That belief is expressed in Paragraph 7.1. He went on to explain how condensation had occurred which was in effect because the vapour barrier had failed; he attributed the failure in Paragraph 7.9 to the "work carried out by the trade contractor who applied the insulation in a manner that did not comply in any regard with good practice and specific manufacturer's instructions”. In Paragraph 7.10 he said that the "vertical pipework is so seriously corroded that it should be replaced" but that the horizontal pipework linking to the risers (in the basement and under-croft areas) "has less corrosion which could be wire brushed, the pipework treated and new insulation applied."

He went on:

“7.14

The installation as it currently stands presents a major risk to the tenants business. Loss of chilled water will render the space unoccupiable and the damage caused by major leaks could have far reaching impact and disruption of power and data systems as well as the physical damage.

7.15

Major leaks and periodic renewal of sections of corroded pipework will necessitate, in an emergency, to introduce fresh water into the system to replace that drained off to carry out the repairs [sic]

7.18

The risk to the tenants business is high as over time the corrosion will increase and penetration into the pipework wall thickness will become greater leading to potentially disastrous leaks.

7.21

A major part of the strategy will concentrate on risk assessments and the continuity of business by the tenants. The replacement exercise will present a risk of water quality problems as well but the strategy should allow for "doing things right" rather than "making do and mend" in an emergency situation.”

Thereafter, survey work was initiated by CBP in relation to the risers; this was to do with proposed remedial works. G&T was brought in to provide assistance in relation to costs planning and quantity surveying work. By December 2006, CBP had produced a Scope of Works Specification calling for replacement of the chilled water pipework in the risers, it being emphasised that this replacement had to be carried out "whilst the client’s staff still occupy the building".

In early January 2007, G&T produced a draft cost plan which estimated the cost to be £4.252m, of which the construction cost was £3.431m; the works were projected to last more than 45 weeks; the majority of work was to be undertaken at weekends and nights in order to cause the least amount of disruption to services to the office floors. The complexity of sequencing, working in confined spaces and risks associated with water treatment, together with the fact that the construction industry in Central London was generally very busy and there was a great demand for good pipe fitters were identified as significant factors.

Four contractors were invited to tender and the tender process was conducted by G&T for Linklaters. Tenders ranged between £2,453,667 (Como being the contractor in question) and £3,467,763. Following discussions with the two lowest tenderers, G&T reported that Como was the preferred tenderer, its price following discussions having increased slightly to £2,519,583.

A rent review process was occurring at about this time. Linklaters’ tenancies were originally to expire in about 2021 and Linklaters had a working party to consider the various options which included assignment or termination of its leases between 2010 and 2015. The problem arose in those circumstances in relation to the need to deliver the Premises back to the landlord in a state which was compliant with Linklaters’ repair obligations under the various leases and related agreements. An option to consider was what became known as the "make do and mend" scheme which involved removing the insulation, wire brushing or otherwise removing the corrosion and then re-insulating. This scheme was to cater for the possible option that repairs (as opposed to replacement) could allow the chilled water pipes safely to last until 2015. Mr Jones was always concerned that there was a residual risk in a repair scheme because of the difficulties or even impossibility of getting full access to the pipes in the riser shafts and supervising and inspecting the remedial works. Mr Chapman was asked to advise and, although it was not his favoured option, his firm was asked to prepare a repair Scope document which he did in September 2007, the document being called "Discussion Document related to Rectification Works to the Chilled Water System". This envisaged stripping all the insulation and then assessing the condition of the pipes; if the corrosion was unacceptable, the pipes would need to be replaced; if not, the pipe would be treated by being wire brushed, repainted and then re-insulated. Mr Chapman explained that there was a residual risk of the pipes still failing as the pipes themselves were not repaired properly or really at all. Mr Jones remained somewhat sceptical about this approach because he felt that, considering the detail and logistics, a contractor might not be able to get access to clean all of the corroded parts.

Como was asked to provide a price for the "make do and mend" scheme which had not been worked up into a fully fledged detailed design. Como came back on 20 November 2007 with an estimate of £2,304,675 which was significantly higher than G&T’s budget of £1,170,000 for such works. Following discussions with Como, G&T reported that there were a number of reasons for the apparent discrepancy. The main reason was that Como priced on the basis that six risers would have to be replaced in any event because they were difficult if not impossible to access. Another reason was that Como estimated that the "make do and mend" scheme, as revised by then, would take 45 weeks as opposed to the 30 week programme assumed by G&T in its budget costing. There were some increases in other un-amended work, such as the basement pipework, which were said to reflect Como’s better understanding of what was involved. Part of the explanation was that the market in Central London was such that there was plenty of M&E work available and that was putting up prices.

Given that the difference between the two schemes was considered to be small (£200,000 to £300,000), Linklaters decided to go ahead with the replacement scheme. This followed advice from CBP that replacement was the appropriate way forward. The big unknown, as described by Mr Jones, and risk was that Linklaters did not know how much pipe would need to be removed in the "make do and mend" scheme until all the insulation was removed and such a scheme could actually involve a lot of replacement depending on what might be discovered. This risk was explained for instance and articulated by Mr Upjohn in a letter dated 10 April 2008 to Mr Jones as follows:

“…I am writing to confirm the previous advice relating to the chilled water pipework installation….

Having reviewed both bids from the contractor [for “make do and mend” and replacement], it is the team’s recommendation to instruct a full replacement. The cost saving is small when measured against the risks involved with part renewal and part wire brush and paint scenario. We know that pipework adjacent supports is [sic] seriously corroded and needs to be replaced. The insertion of numerous new mini sections of pipework in the riser is illogical and presents potentially greater risks to the week to week programming of the work, the recommissioning and water treatment processes. Whilst the tender exercise demonstrates the potential saving, I consider this will be eroded by the need to issue instructions to deal with discovery items during the course of the work which would not be if a pipework renewal option is implemented.

When considering the value of both options, it is clearly the correct choice to have a replacement pipework system rather [than] one that has suffered corrosion.”

By about January 2008, Linklaters had decided to stay at the Premises at least until the end of the Leases but had also decided that there were other what became known as "Essential Infrastructure Works" which needed and could sensibly be done at the same time. Thus it was that the Essential Infrastructure Project was designed and put out to tender. Tender returns were submitted ranging between £6.881m (Como) to £9.09m. G&T allocated £2,600,188 within the lowest tender to the chilled water pipework element of the project.

The relevant senior committee of Linklaters considered the tenders and recommendations of its professional team and accepted Como’s tender and the remedial works and Essential Infrastructure contract was entered into with Como in August 2008. The remedial work started in September 2008 with practical completion of all the works occurring on 12 June 2009.

The replacement works in effect involved the provision of new pipes in new locations which had the advantage of ensuring that the existing chilled water pipes could still be used to deliver chilled water during the remedial work stage and thus air conditioning was available during that time. Once the new work was completed, there could be and was a switch over from the old to the new.

Because, in broad terms, the collateral warranties given by McAlpine and How warrant that each has performed its main contract and sub-contract respectively, it is necessary to consider these two contracts first. Given that there is little issue about the fundamental obligations in these two contracts, I can take the matter fairly shortly.

The Main Building Contract was under seal and, although signed in August 1996, was clearly intended to be retrospective. The contract was in the JCT Standard Form Private Edition 1981 revised July 1994 with Contractor’s Designed Portion Supplement with Quantities. One of the "Portions" within McAlpine's design responsibility was the M&E Services, which included the chilled water pipes. By Article 1, McAlpine undertook as follows:

“For the consideration hereinafter mentioned the Contractor will upon and subject to the Contract Documents (including the modifications to the Articles and Conditions and the Supplementary Appendix set out in the Schedule to these Articles and the further modifications to the Recitals, Articles and conditions set [out] in the "Schedule of Amendments to conditions of contract" annexed to these Articles carry out and complete the Works shown upon, described by or referred to in these Documents and for that purpose will complete such design for the Contractor’s Designed Portion as may be necessary in accordance with the directions which the Architect with for the integration of the design for the Contractor’s Designed Portion with the design for the Works as a whole subject to the provisions of clause 2.7."

The Contract Documents included the Drawings, the Bills of Quantities, the Articles and Conditions of Contract and the Employer’s Requirements.

Clause 1.4 as amended stated:

Clause 2 of the Contract Conditions contained some fundamental obligations:

“2.1.1

The Contractor shall upon and subject to the Conditions carry out and complete the Works in compliance with Contract Documents.

2.1.2

For the purpose of so carrying out and completing the Works, the Contractor shall, in accordance with the Contract Drawings and the Contract Bills where and to the extent that the same relevant, complete the design for the Contractor’s Designed Portion including the selection of any specifications for any kinds and standards of the materials and goods and workmanship to be used in the construction of that Portion so far as not described or stated in the Employer’s Requirements or Contractor’s Proposals, and the Contractor shall comply with the directions which the Architect shall give for the integration of the design for the Contractor’s Designed Portion with the design for the Works as a whole, subject to the provisions of clause 2.7.

2.1.3

Where and to the extent that approval of the quality of materials or of the standards of workmanship is a matter for the opinion of the Architect, such quality and standards shall be to the reasonable satisfaction of the Architect.

2.11.1

The Contractor warrants and undertakes to the Employer that:

2.11.1.1 the Works will be carried out using good up-to-date building practice with reference to relevant provisions of current British Standard Specifications and Codes of Practice;

2.11.1.2 the Works will, unless specifically otherwise instructed by the Architect, comprise only materials and goods which are new and of sound and merchantable quality;

2.11.1.3 upon the issue of the Certificate of Practical Completion…the Works as constructed will be in accordance with the Contract Documents as varied by any Architect’s instruction unless otherwise agreed in writing by the Employer.”

Although How was involved from 1994, its Sub-Contract with McAlpine was concluded at some stage between June and October 1995. It is accepted that it is evidenced by an Order/Agreement dated the 30 June 1995 from McAlpine to How. There is nominally an issue on the pleadings as to whether it was signed by How or made under seal, but, perhaps in the light of the broad indemnities given by How to McAlpine, nothing turns on this latter point. The Sub-Contract incorporated the DOM/1 Articles of Agreement 1980 Edition and the corresponding DOM/1 Sub-Contract Conditions. Particulars of the Sub-Contract Works were defined as:

“Carry out and complete the design, supply, installation, testing and commissioning of the mechanical, electrical, public health and fire engineering services in accordance with the Sub-Contract.”

This was further amplified in Clause 1.3 to include the works "described in the Numbered Documents", which included Volumes 1 and 2 of the Employer’s Requirements, an Addendum to Specification No1 Revision can be dated March 1995. There is no issue that the chilled water pipework and its insulation was part of How’s scope.

Relevant clauses in the DOM/1 Conditions were:

“4.1.1

The Sub-Contractor shall carry out and complete the Sub-Contract Works in compliance with the Sub-Contract Documents and in conformity with all reasonable directions and requirements of the Contractor (so far as they may apply) regulating for the time being the reasonable carrying out of the Works.

4.1.2

All materials and goods shall, so far as procurable, be of the kinds and standards described in the Sub Contract Documents or, to the extent that no such standards are specified in the Sub-Contract Documents, shall be the standard appropriate to the Sub-Contract Works provided that where and to the extent that approval of the quality and standards of materials and goods is a matter for the opinion of the Architect such standards shall be to the reasonable satisfaction of the Architect.

4.1.2

All workmanship shall, so far as procurable, be of the kinds and standards described in the Sub Contract Documents or, to the extent that no such standards are specified in the Sub-Contract Documents, shall be the standard appropriate to the Sub-Contract Works provided that where and to the extent that approval of the quality and standards of workmanship is a matter for the opinion of the Architect such standards shall be to the reasonable satisfaction of the Architect.

4.1.3

All work should be carried out in a proper and workmanlike manner.

5.1

[The Sub-Contractor shall]

.1 observe, perform and comply with all the provisions of the Main Contract as referred to in the Appendix, part one, on the part of the Contractor to be observed, performed and complied with so far as they relate and apply to the Sub-Contract Works… Without prejudice to the generality of the foregoing, the Sub-Contractor shall observe, perform and comply with the following provisions of the Main Contract Conditions: clauses 2 (where the Sub-Contractor is providing any elements of Design in connection with the Works)…

.2 indemnify and save harmless the Contractor against and from

.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 in so far as they relate and apply to the Sub-Contract…

.3 any claim, damage, loss or expense and due to or resulting from any negligence or breach of duty on the part of the Sub-Contractor, his servants or agents…”

It is now accepted as between McAlpine and How that there is in contractual and legal terms a complete back-to-back relationship such that, if McAlpine is liable for breach of contract and for damages occasioned thereby, McAlpine, in the context of this case, is entitled to a 100% indemnity from How.

The question of what Southern’s sub-sub-contract comprised is somewhat more problematical on the evidence because, although both How and Southern accept in the relevant pleadings that it was evidenced by Southern’s quotation dated 21 November 1995, all that the material part of that document stated was that Southern would "insulate with Class ‘O’ Armaflex sections, joints and glued and covered in bright Class ‘O’ foil with joints taped". I do not consider that there is room for a necessary inference that the sub-sub-contract incorporated a requirement as such for Southern to comply contractually with the Employer’s Requirements in relation to insulation. My reasons for this view are:

The most that can be said is that by its sub-sub-contract Southern undertook to supply and install the insulation set out in its later quotation with reasonable care and skill and to supply materials of merchantable quality. There is no room for an implication that the materials would be reasonably fit for purpose given in effect that the materials had been specified by How.

The collateral warranty as between Linklaters and McAlpine and its holding company, dated 13 February 1995, was to the effect that McAlpine warranted to Linklaters that it had performed and would continue to perform all of its duties and obligations under the Building Contract in full accordance with its terms and provisions. Its holding company guaranteed to Linklaters that McAlpine would perform this warranty.

There was a comparable collateral warranty dated the 24 January 1996 as between Linklaters and How and How's holding company whereby How warranted the due performance of its duties and obligations under its Sub-Contract with McAlpine and its holding company guaranteed the due performance of all How’s obligations under the warranty.

No legal issues arise as between the parties in relation to the effect and impact of these collateral warranties. Put another way, both McAlpine and How accept that, if each was materially in breach of the Building Contract and the Sub-Contract respectively, each would be to that extent in breach of the relevant collateral warranty.

Some points were taken in relation to the adequacy of the specification for the painting of the steel chilled water pipes but those have been abandoned by the Defendants and it is therefore unnecessary to consider the detail of that part of the specification. Y10-11020 of the Employer’s Requirements required the pipe to “have all mill scale, corrosion and grease removed and be protected by zinc phosphate anticorrosion primer paint at manufacturer’s works”. It follows from this that, if water or condensation penetrated through the outer vapour barriers provided by the insulation, there would be some retardation of the corrosion process provided by the primer paint on the steel pipes. It is accepted however that the paint does not provide a particularly long lasting barrier against water.

It is in Section Y50 that one finds the insulation requirements for the pipework. Paragraph 1000 identifies British Standard 5970 (Code of practice for thermal insulation pipework and equipment (in the temperature range -100°C to +870°C)) as a standard to be complied with. Paragraph 2000 states that one of three specialist companies was to execute the insulation works. Whilst Britannia Ltd is named and was used for the insulation works to the plant rooms and under-crofts, Southern was not named. Material parts of this paragraph are:

“Only first class workmanship will be accepted…Insulating material, however fixed, shall be in contact with the surface to which it is applied.

Sectional pipe insulation…sections shall fit snugly on the diameter of the pipe to be insulated.

Where ‘foil-faced laminate’ is specified this shall mean a factory produced laminate of craft paper and suitable aluminium foil finish, with a minimum thickness of 0.008 mm, sandwiching a glass fibre reinforcing mat, all having a Class ‘O’ surface spread of flame fire rating.

Factory applied or site applied ‘foil-faced laminate’ and sectional pipe insulation shall be sealed on all longitudinal and circumferential joints with manufacturer’s selfseal overlap all with 100 [mm] wide self adhesive ‘foil-faced laminate’ tape adding a minimum thickness of 0.05 mm. Care should be taken to ensure that the services to be jointed are free from dust and moisture etc. Additional suitable adhesive shall be applied to the joint as necessary to provide a neat, firm and continuous joint.

For all pipework…specified as having a ‘double vapour barrier’ it shall be formed as follows:

.1 First barrier-the insulation plus vapour sealant.

.2 Second barrier-the special ‘foil-faced laminate’.

Both insulation and facing materials shall be impervious and continuous and shall not be punctured or fouled by the supports. The insulating material shall be cellular and all circumferential and longitudinal joints shall be sealed with a suitable waterproof bonding adhesive (reference B.S. 5970) which also acts as a filler. The supporting insulation at supports shall be a material suitable for the temperature condition and of sufficient compressive strain to take the load is transmitted to the supports without deforming. The load bearing insulation shall be extended on each side of the point of support and a short section of the insulation finish shall be fixed in place when the pipework…and saddle are installed to ensure an unbroken vapour seal finish is achieved. This requirement necessitates co-ordination between the thermal insulation installer and the pipework…installer. The outer ‘double vapour barrier’ is a technical requirement and it shall not be used as the exposed surface finish where there is a risk of damage…

To complete the ‘double vapour barrier’ 100mm wide self adhesive ‘foil-faced laminate’ tape adding a minimum total thickness of 0.05mm shall be applied to ‘foil-faced laminate’, and should be over lapped onto itself at terminations by at least 50 mm. A suitable primer shall be applied on the foil surface before applying the tape, [as] recommended by the manufacturer…The ‘vapour barrier’ shall be continuous unless the pipework…is alternatively protected. All sectional pipe…shall be further secure with aluminium alloy bands of not greater than 300 mm intervals….

Standards and types of materials and workmanship not specifically covered by this specification shall be as B.S. 5970.”

Y50-8000 specifically stated that "all chilled water pipework and fittings shall have a ‘double vapour barrier’ and be insulated to the thicknesses shown on the table” set out in the paragraph. It was these thicknesses which determined that three layers of Armaflex were required. The following was also stated in relation to what was to be provided:

“Class ‘O’ (ie. Grey), CFC free, closed cell, flexible, elastomeric nitrile rubber base material and covered with a ‘foil-faced laminate’. Suitable adhesive shall be used as recommended by the manufacturer, providing both a secure bond and a continuous vapour seal.”

Paragraph 15020 stated:

“All valves flanges and pumps shall be coated with a 50 mm thickness of ‘Densofill’ anti-condensation insulation, over wrapped with suitable ‘Denso’ tape to provide a ‘ vapour barrier’ and completely sealed with a foil-faced laminate, then encased in mattresses as described in clause 15010. The interconnecting insulated pipework shall have the external vapour barrier sealed around the ends of the pipework insulation”

Relevant parts of BS 5970 are as follows:

“22.1

Insulating materials should be kept dry in store and during erection.

22.2

Apart from certain load bearing materials, most types of insulating materials should be left supported or reinforced when applied; they also should be secured to the surface to be insulated…

22.3

All insulating materials, however fixed, should be in close contact with the surfaces to which they are applied, unless an air space is especially required.

22.4

Where the main insulation consists of preformed or flexible material, all edges or ends should be closely butted; for multilayer work all joints should be staggered.

24.3.6

…Where wood is used [as a pipe support], all surfaces shall be coated with a sealant before assembly.

24.4.2

Provision should be made to permit the removal of bolts. Fittings should be insulated with moulded or prefabricated flange/valve blocks but if these are not available they should be insulated with oversize sections of the same material thickness as the insulation on the adjacent pipework. (See Figure 13 and Figure 14.)

25.4.3

For vertical and near-vertical piping, it is important to prevent downward displacement of flexible insulating materials; whereas support from below is suitable for many preformed materials, flexible insulating materials should be suspended from above."

There was some doubt as to what precisely the manufacturer's recommendations were in relation to the use of Armaflex. There have been obtained the recommendations current in 1985 and later in 1997. Mr Popplewell, who was in no way involved with the project, said in his statement that a representative of Armacell, which provided the Armaflex, demonstrated, at some stage, to all the Southern operatives how to install Armaflex. He makes comments in his statement about compliance with the recommendations. In the earlier edition, various "Golden rules" are identified including recommendations that no water should be on the surfaces to be covered and that the material should never be stretched when sealing joints. Another golden rule was that when insulating low temperature installations the material should be attached at both ends with adhesive. The earlier edition is much concerned with using preformed sections of insulation. It does at Page 73 envisage that the pipe supports should be attached to the insulation "by a coating of adhesive covering the entire contact surface".

These "golden rules" are largely repeated in the 1997 manual. Golden Rule 10 states that "in double layer work apply insulation with side and end joints staggered”. The separate “Golden Rules when Insulating Low Temperature Installations" materially state:

“Rule 2

Attach each end of the Armaflex tube to the pipe with Armaflex adhesive, and make sure the adhesive joints [are applied to] critical points such as flanges, T-sections, elbows, supports, etc…

Rule 4

On chilled water and refrigeration pipework use Armaflex in conjunction with pre-insulated Armaflex Pipe Supports whenever possible…”

The 1997 manual identified that the Armaflex adhesives had "tack times from 3 to 10 minutes [but] the time will vary according to the grade, ambient temperature and relative humidity." In discussing the handling of Armaflex sheet material correctly, the manual expressly envisages the application of "adhesive to the metal surface" (Note 3). Where a number of layers of insulation were to be provided, all butt joints and seams were to be staggered; an illustration indicates a 90° offset between layers.

A legal issue has arisen as to the interpretation of Y50-2000 in relation to whether a "double vapour barrier" was required not only along the general lengths of pipe but also at the joints or the pipe supports. I have no doubt that what was specified was a double vapour barrier at all locations, my reasons being:

Bringing all these requirements together, and bearing in mind the expert observations of at least Dr Arnold, whose evidence I found convincing on the topic, in my judgement there were the following contractual requirements imposed on McAlpine and How by the terms of the Employer’s Requirements, so far as are material to this case:

It is necessary and helpful to consider and determine first of all what the actual causes of the corrosion were. There is, now, no difference between the relevant experts as to the primary cause of the extensive corrosion which was found over a very large percentage of the pipework. The corrosion experts expressly agreed that the “only credible sources of external water are condensation of water that penetrated ineffective vapour barriers or leakage of chilled water whether through the pipe wall or from malfunctioning Victaulic joints and potentially other sources e.g. leaking valves.” It is now accepted that there are unlikely (to any significant extent) to have been malfunctioning joints or valves, or at least any which could or would materially have contributed to the condensation and corrosion problems. There is no suggestion that there was any extensive, or indeed any, leakage through pipe walls. It follows that I accept what I have been told to this effect by the experts.

Therefore, the condensation has formed on the pipes (causing the requisite corrosion) as a result of dampness penetrating through the foil-faced laminate, the Armaflex and wooden blocks to the pipes below. It is rightly accepted that there has been an extensive failure of the vapour barriers. However, in reality, there are only two possible causes for this to have occurred: either there was original poor workmanship in the sense of non-compliances with the contractual specifications or detailing of the design or there were reasons arising after the departure of How and McAlpine which are not the responsibility of McAlpine, How or Southern, such as poor or careless maintenance or accidental damage, by maintenance contractors or personnel or by other contractors employed by Linklaters such as Mace during the fitting out works.

There may have to be some differentiation between the insulation to the vertical riser pipes and the horizontal pipework in the plant rooms and the under-crofts. However, what is common to both sets of insulated pipework is that the provision of a double vapour barrier in both types of location should have had the advantage that, if the outer barrier, the foil-faced laminate, was accidentally damaged, the inner layer should have been able, all things being equal and if proper detailing and workmanship had been applied, to resist the penetration of water.

In my judgement, accidental damage is unlikely to have led to the penetration of dampness through to the steel pipes in the risers, for the following reasons:

Although all the liability experts sought to assist and were nothing less than professional in their approaches and contributions, I was particularly and most impressed by Dr Arnold. He has immense both practical and academic experience as a Buildings Services Engineer and has been extensively involved amongst other things with chilled water pipework. He gave his evidence with an energy and enthusiasm which demonstrated an absolute belief that what he was saying was right. I formed the view that this was no groundless or illogical enthusiasm. Much of what he said was agreed to by other experts, although I necessarily accept that in some key areas it was not. What he said particularly about the extent to which the visual (including photographic) evidence of the insulation, as it was opened up initially and later, revealed what were clearly non-compliances with the specification requirements was demonstrably and obviously right. Where there were material differences between his evidence and that of the other experts, I prefer his evidence.

Having excluded as improbable any material causative influence of events or matters which occurred after completion of the original base building works, one is left with the likelihood that it must have been non-compliances with the specification which caused the double vapour barriers in the vertical riser chilled water pipework insulation to fail. There was abundant evidence which I accept that the insulation work was poorly detailed and executed in breach of the requirements of the Employer’s Requirements. The primary faults were as follows:

The position is different in relation to the basement and under-croft pipework insulation. This is partly but significantly because the type of insulation was changed by way of a Variation ordered by the Building Contract Architect; this changed the specification in effect from an Armaflex solution to Kooltherm "Phenolic Foam and Aluminium Foil". The real difficulty for Linklaters is that towards the end of his evidence Dr Arnold was asked a series of questions about alleged deficiencies in the basement areas on Day 7 of the trial and (at transcript Page 65) he accepted that he saw none of the insulation because it had all been removed; all that he saw was two ends of some corroded pipe and corrosion in and around the area of a wooden block in some of the pipework which has been left in place since the remedial works. Mr Solly did not inspect or survey the insulation in those areas. There seem to have been very few and no helpful photographs. The transcript continues at pages 67 at 68:

“MR JUSTICE AKENHEAD: What is it that has caused the ingress or presence of water on the pipes that has led to the corrosion there (in the basement)?

A. I didn't find anything, any information that I could determine during my inspections and the preparation of my report that assisted me in that matter, my Lord.

MR JUSTICE AKENHEAD: So is this right: can you say whether the corrosion in the basement is attributable to some bad workmanship or not?

A. I cannot, my Lord.

MR TURNER: If you cannot say what has caused the ingress or presence of water on the pipes that has led to the corrosion in the basement, does it follow from that that you cannot say that it is the absence of the double vapour barrier that was critical?

A.

I can say that a double vapour barrier wasn't applied. I cannot say that the absence of the second vapour barrier was the cause of the corrosion.”

There has been little or no evidence about the application of the Kooltherm insulation in the basement and under-croft areas and as to whether what was put in did or did not comply with the Employer’s Requirements or the British Standard. There is no evidence as to whether any Kooltherm recommendations were or were not complied with. Dr Arnold hardly, if at all, analyses the extent to which, if at all, there were examples of bad workmanship or inadequate details. For instance, there simply is no evidence as to whether in a horizontal location this type of insulation needed to be stuck to the pipe or as to what the recommended detail was at joints such as over and around pipe supports or Victaulic joints.

It is difficult to conclude on a balance of probabilities, in effect by inference, that there must have been causative bad workmanship in these lower areas. These areas were very much more accessible by the laggers employed by Britannia and eminently more easily inspected and monitored by supervisors of different types. These are also areas which are very much more prone to damage by visitors, contractors or maintenance personnel because, for instance in the under-croft areas where the ceilings and the pipes are no more than about 5 feet from the floor while the plant room ceilings from which much of the pipework is suspended are only about 7-8 feet from the floor; in both types of location, the pipework itself is even closer to the floor and is readily more prone to accidental damage. These are also areas in which it is more likely that works to and on the pipes have been done and the insulation disturbed. For instance, as set out in the History above, the MJL report of October 2006 about the basement says that Victaulic joints had recently been replaced; it is not clear how recently or why they were replaced. The report suggests that the corrosion was nowhere near as bad as in the vertical riser shafts.

For these reasons, I am unable to infer that there was necessarily or at all such extensive bad workmanship as is likely to have caused any significant corrosion. Suspicion is not enough and it was always open to Linklaters and their consultants and experts to have investigated and analysed what produced the corrosion, such as it was, in the basement and under-croft areas. Accordingly, Linklaters has simply not proved, on a balance of probabilities, its case on liability against McAlpine and How with regard to the basement and under-croft areas.

It is instructive to consider how and why all the failings in the vertical risers came to occur. In the presentation of its defence, How, particularly sought to argue that there could not be any, or at least any widespread, deficiencies because How, McAlpine, Hoare Lea, Voce and CBP (and possibly others) would have picked them up during supervision and checks. I consider however that, in so far as this has any relevance, this point is not borne out on the facts. By all accounts, and in particular that of Mr Barnes, the insulation work in the shafts was carried out in wet, cold and miserable conditions and in many places with limited and precarious access at best. Access was restricted. Logically, in many positions within the riser, at least half if not more of the insulation around the pipes, supports and joints could not actually be seen from the riser entrance because it was masked by the front of the pipes and in many places the pipes were beside walls. It is inherently unlikely that assiduous and overall inspection was practicable. That is attributable to the way in which the work was in practice required to be done. Mr Chapman confirmed that he personally never looked into the risers because access was difficult, if not dangerous. Whilst it is clear that How and Hoare Lea did pick up some deficiencies in the insulation as work went along, it would be surprising if given the access problems that they were able to pick up all deficiencies. Mr Alexander says that Hoare Lea and he would use mirrors on a stick to check the back of the pipework but there is a suggestion that this was a random and occasional check; there is certainly no evidence that this was assiduously adopted for all the insulation. Whilst it is clear that discontinuities or tears in the foil were from time to time picked up, this could have been obvious from a superficial look.

The second and important reason why at least How did not pick up many of the defects which have been identified as such by Dr Arnold is that How probably did not know or appreciate that some of the more serious ones were or might actually be defects. How was not assisted in this area of its defence by the absence of any or any compelling evidence that it understood what was required. For instance, it did not have the the evidence of Mr Brendan Turner who was the How project manager in effect for the whole period of time over which the insulation work was done (November 1995 to September 1996); Mr Alexander, whose written statement stands as evidence (but who could not attend at trial), only took over the Project Manager role in September 1996. He was on site as a Senior Engineering Supervisor "from around March 1996". He accepts for instance that he was aware that the Armaflex sheets had not been glued to each other and to the steel pipe. His statement suggests that he was fully aware of the detail that was adopted in and around the wooden pipe supports but expresses no suggestion that there was anything wrong with it. He seems to have been aware of what was being done at the Victaulic joints but appears to have had no understanding or belief that the arrangement was neither a sensible one nor one that complied with the British Standard. The lack of understanding on the part of How is illustrated by the vestigial technical submission which it made to Hoare Lea in December 1995 and which was rejected a few weeks later as substantially incomplete; by this stage a substantial amount of insulation had already been provided and there is no suggestion or evidence that a further technical submission was made. The failure to appreciate that the use of unsealed wood for supports was unacceptable and contrary to the British Standard demonstrates a clear lack of understanding of what it had to achieve. For all these reasons, it is therefore unsurprising that the all pervasive defects, such as those around the wooden blocks and the Victaulic joints were not picked up.

I have formed the very clear view that How always knew that the specification for the vertical riser chilled water insulation was going to be difficult to achieve. That is why it asked for a change request in August 1995. That having been refused, it was incumbent on How to effect fail-safe measures to secure that a double vapour barrier was achieved throughout the heights of the pipes at all points. It had undertaken to provide a double vapour barrier and to provide a first class standard of workmanship and it had to do what was necessary to achieve that. It failed to do so.

I now turn to consider the extent, if at all, that How has established on a balance of probabilities that any significant corrosion to the riser pipework has been caused by any want of reasonable care on the part of Southern. It is uncontroversial (and rightly so) that it is necessary to determine what Southern was contractually employed to do. For reasons adumbrated earlier in this judgement, the evidence only goes to establish that Southern was employed to “insulate with Class ‘O’ Armaflex sections, joints glued and covered in bright Class ‘O’ foil with the joints taped…”. It is rightly not suggested that Southern was responsible for the provision of the wooden supports or, indeed, there being no reliable evidence to support this, that Southern applied or stuck the foil on to the outer face of the wood. I also find that it is difficult to see how, on the evidence, it can be suggested that Southern was responsible or assumed responsibility for the decision as to whether or not to glue top and bottom edges of the Armaflex sheets to the wooden blocks. There is no evidence that Southern was responsible or assumed responsibility for the detail which was actually adopted in terms of insulation around the Victaulic joints. Indeed in this regard, there may well be a reason for that which is that originally what was called for was welded pipes but at some stage McAlpine or more likely How decided to use sections of pipe that were connected by these joints; there is no evidence that it was ever contractually expected of Southern that there should be any particular detail at these points and it is a reasonable inference that Southern simply did what it was asked and expected by How to do in this area; certainly, it has not been proved that Southern probably did otherwise.

I have formed the view that, even assuming Southern owed a duty of care either to How or to Linklaters to exercise reasonable care and skill in doing what it was employed to do, the evidence does not support a finding on a balance of probabilities that Southern was materially in breach of such a duty, materially in the sense that it can be demonstrated on a balance of probabilities that any breach of this duty actually caused any or any significant corrosion. My reasons for this view are as follows:

It follows that I am satisfied that on a balance of probabilities McAlpine and How are in breach of their respective Building Contract and Sub-Contract and of their respective collateral warranties to Linklaters and that these breaches led to and caused substantial and excessive corrosion to the riser pipe work. I am not satisfied on a balance of probabilities that there were any such breaches in relation to the insulation to the pipework in the plant rooms and the under-crofts. I am not satisfied on a balance of probabilities that was any breach of any duty of care in tort owed by Southern to either How or to Linklaters.

No particular issues of law arise (other than those dealt with as a matter of contractual construction) in relation to the liability of McAlpine and How for breach of contract or in relation to its causing widespread and serious corrosion to the pipes.

Substantial issues of law arose in relation to the claims in tort by How against Southern. Technically, in the light of my factual findings, it is unnecessary to decide all of these issues. I will, out of deference to the arguments of Counsel, relatively briefly set out what my views would have been if I had had to deal with them. There was a large amount of authority referred to in relation to these issues which I have considered in detail but accordingly will not set out detailed references from them.

There were two duties of care said to be owed by Southern, one to How arising out of their contractual relationship and the second owed to Linklaters. I have already decided in my judgement dated 23 July 2010 [2010] EWHC 1878 (TCC) that:

“32.

I conclude therefore that on the pleaded facts there is a concurrent duty of care owed by Southern to How to exercise reasonable care and skill in carrying out the insulation works which it was contractually engaged by How to execute. The scope of the duty is such as to enable How to recover from Southern as damages the losses which it is liable to pay McAlpine and to Linklaters in relation to the reasonable costs of putting right negligently executed insulation work carried out by Southern.”

In effect by agreement, I left over the question, which it was thought could only be dealt with following evidence at trial, as to whether any cause of action in relation to the duty of care owed by Southern to How was barred by limitation.

So far as the duty of care said to be owed to Linklaters is concerned, the primary issues which arise are (a) whether any cause of action can be said to arise in relation to physical (corrosion) damage caused to the pipework caused by carelessly installed insulation, (b) whether Linklaters had a sufficient interest in the pipework such as to give rise to a duty of care being owed to it.

So far as when the cause of action for any breach of the duty of care owed by Southern to How arose, one needs to bear in mind what the scope and context of the duty was. Southern knew and must be taken to have known that any material defects in its insulation work (which had not been put right during the course of the sub-sub-contract works) would or could well go undetected and, in terms of corrosion, would not cause significant corrosion for some years. Thus any claim based on its carelessness could be some years in the coming. It was a sub-sub-contractor to a well-known specialist sub-contractor which it was reasonably foreseeable would owe contractual obligations and have contractual liabilities for the consequences of the careless workmanship of its sub-sub-contractor. There was unchallenged evidence that collateral warranties would commonly be provided by sub-contractors in How’s position to the end user of the property. The duty of care therefore encompassed a situation where How could be claimed against at any time either by McAlpine or directly or indirectly by an end user such as Linklaters after completion of the work in question. Obviously, limitation considerations may impinge on any claim, the later any claim emerges.

If Southern had been materially in breach of this tortious duty, I would have decided that the claim for damages against Southern was not barred by limitation. One needs to have regard, in the context of a duty of care, such as this, which permits the recovery of economic loss, to determine when the relevant loss arises. By relevant loss I mean "loss falling within the measure of damage applicable to the wrong in question" (per Lord Nicholls in Nykredit v Edward Erdman Ltd [1997] 1 WLR 1627 at 1603F). In this case the relevant loss arises from the claim made by Linklaters against How (and McAlpine) and accordingly the earliest at which the relevant loss can be said to have been incurred was the time when the claim was first intimated (March 2007). In one sense, the date when a claim is intimated can be thought to be a haphazard date because theoretically the claim in a case like this could have been raised in, say 2006, when the corrosion problem was discovered, or even earlier if by chance a maintenance person had discovered it then. However, the duty of care was intended to guard How against the financial loss directly flowing from the breach of duty in question and the reality is that How would not in practice or in fact have incurred that loss prior to the time that the claim was intimated. Of course, How was liable in breach of contract as from the date, if not before, that it handed over its work (including any carelessly executed insulation work) but the tortious duty of care arose to protect it from the economic consequences of Southern’s breach of duty which would not arise and indeed did not arise until much later. In forming this view I have also had regard to the House of Lords case of Law Society v Sephton [2006] 2 AC 543.

But so far as any duty of care owed to Linklaters by Southern is concerned, I am satisfied on the facts of this case that Linklaters had a sufficient interest in the property (in this case in effect the pipework) for any duty of care to arise. Although it did not expressly as such have the pipework demised to it under the leases, the Property Management Agreements (which I analyse below) were supplemental to the leases and in effect required and placed the obligation on Linklaters to keep the pipework in good and substantial repair and to renew as necessary. In reality, the effect of these agreements was to put Linklaters in exactly the same position as if it had initially leased the whole of the Premises with a full repairing obligation. In reality, the care and control of the pipework was put in the hands of Linklaters as well as the financial risk and obligation of ensuring that it was kept in a proper condition. I have had regard to the House of Lords case of Leigh & Sullivan Ltd v Aliakmon Shipping Company [1986] AC 785, The Winkfield [1902] P 42 and Biffa Waste Services Ltd v Maschinen Ernst Hesse Gmbh [2008] BLR 155. In my view, one needs to look at the reality of the position of the person to whom the duty of care is said to be owed to determine whether it has a sufficient interest in the property which needs to be put right.

The final area of issue relates to that which I considered that I could not finally decide in the judgement issued in May 2010. Southern had applied to strike out How’s claim against it for a contribution on the basis that no duty of care could arise in relation to (corrosion) damage caused to the pipework covered by any carelessly applied insulation. The argument in essence, based on authority, was that the scope of any duty of care did not cover damage caused to the thing itself. I am not going to set out all the arguments or authorities relied upon by the parties in May of this year which led to that judgement; those arguments have been repeated and amplified.

Essentially, the arguments between the parties can be summarised as follows. How argues that there is a duty of care which extends to damage to the steel pipework caused by careless insulation work. Southern says that it does not so extend and that one can not and should not differentiate between two components (insulation and pipework) which go to make up one installation (the insulated chilled water pipework); thus, damage to the pipework is damage "to the thing itself”. It is uncontroversial that, in the case of physical damage negligence, damage to the carelessly manufactured designed or constructed “thing itself” does not found a cause of action.

There is very little direct, non obiter, authority in this country on the topic. As indicated in my judgement of 21 May 2010 (EWHC 1145 TCC), there are some obiter dicta, particularly in Murphy v Brentwood District Council [1991] 1 AC 398 which give examples of what might give rise to a cause of action in negligence, such as carelessly installed electrical wiring causing fire damage to the building (Lord Keith). Another example was given in D&FEstates v Church Commissioners [1989] AC 177 by Lord Oliver at Page 211G:

“If I buy a second-hand car to which there has been fitted a pneumatic tyre which, as a result of carelessness in manufacture, is dangerously defective and which boasts, causing injury to me or the car, no doubt the negligent manufacturer is liable in tort on the ordinary application of Donoghue v Stevenson…”

These examples however do not satisfactorily deal with components of the offending installation such as the reinforcement within a tyre or a valve within a boiler, causing damage only to the tyre or the boiler. The question therefore arises as to whether in English law as a matter of authority or policy (if different) there is or should be a distinction. I would be slow to suggest that the obiter dicta of eminent members of the House of Lords were wrong as a matter of principle but it is clear that they were not applying their minds to a carelessly installed or manufactured component causing damage to the thing or installation of which it was merely a component.

Southern’s Counsel have assiduously researched relatively recent authorities in the USA. The reason for doing so was the approving references in the Murphy case to the USA Supreme Court decision in East River S.S. Corp v Transamerica Delaval 476 US 858 (1986). That case involved claims in tort by the charterers of ships against the manufacturers of turbine engines within the ships said to have been defective. The Court regarded each turbine as "a single unit" noting with approval the case of Northern Power & Engineering Corp v Caterpillar Tractor Co 623 P 2d 324, 330 (Alaska 1981):

“Since all but the very simplest of machines have component parts, [a contrary] holding would require a finding of ‘property damage’ in virtually every case where a product damages itself. Such a holding would eliminate the distinction between warranty and strict product liability.”

This approach has been followed in a number of other American cases such as Shipco 2295 Inc v Avondale Shipyards Inc 825 F 2d 925 (5^th Cir 1987). Of course, one must appreciate that American law in general and the law of individual States is or may be different to English Law. The legislative background is or may be different, an example being that in many states there is a product liability law which may in certain circumstances give rise to statutory remedies. There does however seem to be logic as well as common sense in this line of authority.

Having now heard and understood the evidence, I have formed the view that the insulated chilled water pipework was essentially one "thing" for the purposes of tort. One would simply never have chilled water pipework without insulation because the chilled water would not remain chilled and it would corrode. The insulation is a key component but a component nonetheless. It would follow that no cause of action arises in tort as between Southern and Linklaters. That is not at all unreasonable in any way because Linklaters or people in their position can protect themselves, as Linklaters did, with the securing of contractual warranties from relevant parties such as the key contractors in any given development.

If I had found that Southern had been materially negligent, this would not have been a case in which what would be called the usual apportionment of responsibility would have been made. In most cases in which a negligent sub-contractor has been responsible for providing the offending work, an apportionment as between it and the careless supervising main contractor would be about 75%:25%. However, in this case, if any carelessness on the part of Southern had materially contributed to the excessive corrosion, How would in any event have had to bear the lion's share. That would be because How was responsible for the design or management decisions in relation to the insulation around the wooden supports and Victaulic joints. As the large part of the corrosion was attributable to the deficiencies in those areas, the apportionment would have been closer to 10%:90% in favour of Southern.

Substantial issues arise in relation to quantum and, although most of these issues can and will be resolved as a matter of fact, it is necessary at least generally to review the law in relation to the recoverability (as damages) of the costs of an actual remedial scheme, that is one where the remedial works have actually being carried out, as opposed to the approach to damages for remedial works that have not at the date of trial actually yet been carried out by a successful claimant.

It is axiomatic that a successful claimant is in principle entitled to be put back into the position it would have been in if the unsuccessful defendants had properly performed their contracts. A recent dictum of Lord Carswell in the House of Lord's case, Golden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] UKHL 12 spells this out simply:

“57.

Damages for breach of contract are a compensation to the claimant for the loss of his bargain: McGregor onDamages, 17th ed, (2003), para 2-002. He is entitled to be placed, as far as money can do it, in the position which he would have occupied if the contract had been performed: Sally Wertheim v Chicoutini Pulp Co [1911] AC 301, 307, per Lord Atkinson.”

In British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673Viscount Haldane LC said (Page 688-9):

“The quantum of damage is a question of fact, and the only guidance the law can give is to lay down general principles which afford at times but scanty assistance in dealing with particular cases ... Subject to these observations I think that there are certain broad principles which are quite well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach ...”

In East Ham BC v Bernard Sunley & Sons Ltd[1966] AC 406 at 434-435 Lord Cohen said:

“...the learned editors of HUDSON'S BUILDING AND ENGINEERING CONTRACTS (8th edn, 1959) say, at p. 319, that there are in fact three possible bases of assessing damages, namely, (a) the cost of reinstatement; (b) the difference in cost to the builder of the actual work done and work specified; or (c) the diminution in value of the work due to the breach of contract. They go on (ibid.): "There is no doubt that wherever it is reasonable for the employer to insist upon re-instatement the courts will treat the cost of re-instatement as the measure of damage." In the present case it could not be disputed that it was reasonable for the employers to insist on re-instatement and in these circumstances it necessarily follows that on the question of damage the trial judge arrived at the right conclusion.”

In the same case, Lord Upjohn stated that in respect of defective building work reinstatement was the normal measure of damages (at Page 445).

One needs to differentiate between cases in which the remedial work, whether reinstatement or some lesser repair work has actually been done and those in which it has not been. In the latter case the judge will be left with a decision based on the evidence as to what is the appropriate solution which will, all things being equal, reasonably put the claimant back into the position it would have been if there had been no material breaches of contract. An example is the House of Lord's case of Ruxley Electronics and Construction v Forsyth (1995) 73 BLR 1, in which it was clear that the innocent party was not actually intending to carry out any remedial works.

Somewhat (albeit not entirely) different considerations apply when the remedial works have been done. Lord McMillan’s oft repeated dictum in Banco De Portugal v Waterlow & Sons [1932] AC 452 at page 506 explains why this is so:

“Where the sufferer from a breach of contract finds himself in consequence of the breach placed in a position of embarrassment the measures which you may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of the duty owed to him had acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.”

Lord Lloyd in the Ruxley case quoted with approval an Australian judgement:

“Next, chronologically, is a decision of the High Court of Australia. In Bellgrove v Eldridge (1954) 90 CLR 613 the builder built a house with defective foundations, as a result of which the house was unstable. The building owner brought an action against the builder claiming the cost of reinstatement. His claim was upheld on the facts. But the statement of principle is instructive. Having said that the building owner is, as a general rule, entitled to have a building which conforms with the contract plans, the High Court continued (at 618-619):

'The qualification, however, to which this rule is subject, is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt. No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks. In such circumstances the work of demolition and re-erection would be quite unreasonable or it would, to use a term current in the United States, constitute "economic waste" ... We prefer, however, to think that the building owner's right to undertake remedial works at the expense of a builder is not subject to any limit other than is to be found in the expressions "necessary" and "reasonable", for the expression "economic waste" appears to us to go too far and would deny to a building owner the right to demolish a structure which, though satisfactory as a structure of a particular type, is quite different in character from that called for by the contract. Many examples may, of course, be given of remedial work, which though necessary to produce conformity would not constitute a reasonable method of dealing with the situation and in such cases the true measure of the building owner's loss will be the diminution in value, if any, produced by the departure from the plans and specifications or by the defective workmanship or materials. As to what remedial work is both "necessary" and "reasonable" in any particular case is a question of fact."

Once again one finds the court emphasising the central importance of reasonableness in selecting the appropriate measure of damages. If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the plaintiff's loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.”

Another authority quoted with approval by Lord Lloyd was Steyn LJ’s dictum in Darlington BC v Wiltshier Northern Ltd[1995] 1 WLR 68, 79:

“...in the case of a building contract, the prima facie rule is cost of cure, i.e., the cost of remedying the defect: East Ham Corporation v. Bernard Sunley & Sons Ltd. ([1965] 3 All ER 619, [1966] AC 406). But where the cost of remedying the defects involves expense out of all proportion to the benefit which could accrue from it, the court is entitled to adopt the alternative measure of difference of the value of the works ...”

He followed on in his own judgement in Ruxley:

“It seems to me that in the light of these authorities - and many other authorities cited were to the same effect, including CR Taylor (Wholesale) Ltd v Hepworths Ltd [1977] 2 All ER 784, [1977] 1 WLR 659, Minscombe Properties Ltd v Sir Alfred McAlpine & Sons Ltd (1986) 2 Const LJ 303 and leading textbooks both here and in the United States—Mr McGuire QC was right when he submitted, and Dillon LJ was right when he held, that mitigation is not the only area in which the concept of reasonableness has an impact on the law of damages.”

The Court of Appeal case of Skandia and another v Thames Water [1999] BLR 338 involved issues on damages in circumstances in which the claimant’s basement was flooded by water from a pipe owned by the utility company and it was (wrongly) advised by experts that the flood had damaged the effectiveness of the waterproofing system present in the building prior to the flood and that a particular tanking system was the only practical solution for repairing the water damage to the building and eliminating the risk of further water damage. Waller LJ said:

“In my view, the reason why Vala should not be entitled to recover can be put very simply on the basis that the assumption that Vala and its experts made that damage had been caused to a comprehensive waterproofing system was not reasonable, and it was thus not reasonable to replace what was there with such a system. That being the simple answer it is not really necessary to explore the situation that the judge had in mind on the basis that the assumption that there was a comprehensive waterproof system prior to the flood, was reasonable. But since some argument was addressed to us on this aspect I would simply put the matter in the following way. If there has been an escape of water that causes some physical damage then prime facie it is only the cost of reinstatement of that physical damage which is recoverable. If a plaintiff is to recover damages for something beyond the cost of reinstatement of physical damage then he must on any view show that it was reasonable to incur expenditure beyond that quantifiable figure. It might in certain circumstances be reasonable to assume that physical damage had been incurred where a full investigation of the same was not reasonably possible. It would certainly be appropriate that a plaintiff should recover the reasonable costs of investigating the damage inflicted. During argument for example, the question arose as to what would be the situation if a plaintiff was advised that certain wiring hidden in the wall might have been damaged. If the advice was that it was impossible to check the accuracy or otherwise of that advice then the cost of putting in fresh wiring might well be recoverable. What should be emphasised is that it must be rare if ever that a plaintiff will be able to establish the reasonableness of any assumption of damage to something which is accessible and inspectable. Certainly, simple reliance by a plaintiff on an expert cannot be the test as to whether a plaintiff has acted reasonably in making an assumption, albeit, provided the plaintiff has provided the expert with all material facts and the expert has made all reasonable investigations, the advice will be a highly significant factor.”

InAXA Insurance UK Plc v Cunningham Lindsey United Kingdom [2007] EWHC 3023, the Court referred to the various authorities:

“268.

The advice of an expert may well be a material factor in the determination of what was a reasonable course of action for an innocent claimant to take. Thus in the Great Ormond Street case, Board of Governors of the Hospitals forSick Children v McLaughlin and Harvey and Others [1987] 19 Con LR 25, the Court found that the plaintiff was entitled to damages for the remedial solution adopted by it on the advice of its expert in relation to putting right certain defects for which the defendants were culpable. There was a choice and the plaintiff adopted the more extensive and expensive solution which "was the product of caution and a resolve not to leave anything to chance which could be reasonably avoided" (page 105). The expert upon whose advice they relied had not been negligent in giving the advice.

269.

In McGlinn v Waltham Contractors Co Ltd [2007] 111 Con LR 1, HHJ Peter Coulson QC in this Court said at paragraph 827 as follows:

"Now let us assume that I am wrong to distinguish the Great Ormond Street case on the facts and/or that I am bound by whatever principle it is said that Judge Newey articulated in his judgment in that case. It might well be said that his decision is authority for the relatively narrow proposition that, if two remedial schemes are proposed to rectify a defect which is the result of defendant's default, and one scheme is put in hand in on expert advice, the defendant is liable for the costs of that built scheme, unless it could be said that the expert advice was negligent. For what it is worth, I consider that, subject to one potentially vital qualification, set out below, this narrow proposition is generally in accordance with other authority and correct in law. On that basis, therefore, I reject the submission made by [one of the defendants] that the judgment in the GreatOrmond Street case was wrong and should not be followed. The important qualification that needs to be made is that outlined by Waller LJ in the Skandia Property (UK) case [1999] BLR 338 to this effect: although reliance on an expert will always be a highly significant factor in any assessment of loss and damage, it will not on its own be enough, in every case, to prove that the claimant has acted reasonably. Moreover, in the Skandia Property (UK) case, Waller LJ made clear (at 344) that to put in issue the reasonableness of a decision based on expert advice 'does not require proof of conduct amounting to professional negligence or something of that sort'. That seems to me, with respect, to be entirely right …"

In my view, that statement of the law by HHJ Coulson QC is correct and should be applied in this case.

270.

As indicated above, whilst the advice of an expert may well (if not invariably) assist in establishing the reasonableness of a decision to adopt one remedial solution rather than another it will rarely, if ever, justify the recovery of the cost of remedial works relating to putting right a default or defect for which the defendant is not culpable.”

One can bring together all these various strands in the context of this particular case as follows:

One can give examples of the distinction between the reasonableness element of damages and the unreasonableness involved in the failure to mitigate. The claimants are supplied wooden windows which are so poorly manufactured and badly installed by the defendant that they leak and ruin all the internal furnishings; the claimants replace either (a) with identical reasonable quality wooden ones, or (b) with more expensive UPVC double glazing ones or (c) with such UPVC windows which are on offer and 50% cheaper than new wooden ones. There can be no complaint about (a) because the claimants are simply reinstating what they had the right to expect and it is not unreasonable to do so. Alternative (b) is more problematic but the extra cost would not be recoverable even if the claimants believed that they were acting reasonably and on the bona fide advice of the specialist UPVC supplier that this would remove the risk of any future rain penetration; either the extra cost does not flow from the breach because it is doing more than putting right the problems for which the defendant is liable or because it is unreasonable to expect the defendant to have to pay the extra cost; of course, if the reason why UPVC was put in was that it would take one day as opposed to two weeks to replace and the claimants would have had to stay in a hotel at significant extra cost, this alternative might well be justified. Alternative (c) involves the claimants, having reduced their loss, being limited to their actual loss; there would however be no failure to mitigate if they did not go down this route because they had bargained for wooden windows.

Although this does not arise for decision in this case, because no negligence is alleged against Linklaters’ consultants (CBP in this context), if a largely unnecessary or extravagant remedial solution is adopted as a result of the negligence of a claimant’s expert, it can properly be argued that the actual or at least extra-over cost of that solution does not flow from or is not caused by the breach in question. There is in effect an intervening cause for which the original wrongdoer should not be held responsible. There is no injustice in that approach because the claimant theoretically has a cause of action against its expert for negligently advising it to waste money on unnecessary work.

Whilst there has been a considerable agreement on figures by the quantum experts and the parties, there are essentially four key areas of disagreement:

Replacement of steel pipes or not

It is first necessary to consider the cause of the leak which undoubtedly occurred in mid-2006 to the steel pipework. There is no doubt in my mind that Mr Chapman believed and indeed was told by CET, the specialist laboratory, that there was a leak through the steel in effect through a pinhole caused by corrosion; indeed, he recorded it in writing at the time. There were grounds for that belief in that a number of PME personnel heard a hissing sound and there was evidence of a fine water spray from the leakage point. This was corroborated or at least not contradicted apparently by the CET report which talked of “pinhole sized pitting at the various depths”. It is true that the Bodycote report did not report any actual penetration all the way through the steel of the pipework but Bodycote apparently examined only certain micro-sections albeit through highly specialised equipment.

Linklaters and Mr Chapman did not bring in and did not consider bringing in corrosion experts (and there is no criticism of them in this regard) but rather relied upon the results of the various surveys, Mr Chapman’s belief that the leak had been caused by corrosion and by factors such as it being extraordinary that there was for an installation of this age (10 years old) corrosion of this extent and severity. The corrosion experts, latterly called in for the purposes of the trial, however are agreed as follows:

“13.

We have seen no conclusive evidence that identifies the leak site on the pipe surface. We do not believe external corrosion could have been the sole cause of the leak and it is possible that the leak was not associated with corrosion at all.

14.

If the leak was through the pipe we believe this was the result of an existing internal pipe defect of manufacturing origin, for example at a seam weld, in addition to the combined effects of internal and external corrosion.

15.

It is also possible that the leak was the result of a malfunctioning Victaulic coupling joint. External and/or internal corrosion may have contributed to such a leak but it could have resulted from other causes such as deterioration of the elastomeric sealing material or possibly leaking valves.”

Put another way, in the light of a later unchallenged concession that the joints are unlikely to have leaked, the leak could have been caused by corrosion associated with an inherent weakness in the manufacture of the pipe. Given the fact that the leak occurred after 10 years, I would doubt very much whether, even if the manufacturing fault was a cause, corrosion had not exacerbated it. If it had been a manufacturing fault unaffected by corrosion, I would be surprised in logic why it did not manifest itself when the pipes were first tested under pressure in 1996 or shortly thereafter as opposed to ten years later.

In the light of the experts’ views, I can not and do not form a view on a balance of probabilities that the leak in mid-2006 was caused as such by corrosion. However, whether the leak was caused by corrosion or not, there was undoubtedly a properly and genuinely held belief by Mr Chapman and Linklaters that there was a real risk of failure or leakage by corrosion, unless something was done by way of what on any count were always going to be substantial remedial works.

All the experts and parties rightly accept that it was necessary, and reasonable for Linklaters to remove and replace the insulation. It had failed and, unless it was replaced, dampness would continue to penetrate to the pipework and corrosion would continue. It is also correctly accepted that, as soon as an effective insulated vapour barrier is provided, the dampness can no longer penetrate and the corrosion process would cease.

One then must turn to a consideration of what the corrosion experts have said in relation to whether it was truly necessary to replace the pipework. In broad terms, they all say that the various but limited test results from Bodycote and later, since the commencement of the litigation, by RCAshow that the maximum by which the thickness of the steel had been reduced by corrosion was about 15% or possibly up to 20%, or 1 mm. The steel pipes were between 4mm and 5mm thick; there is a manufacturing tolerance on these pipes of + or - 10% and so a nominal 4mm or 5mm pipe could legitimately be 3.6mm or 4.5mm within tolerance and still be within specification. Thus a loss of, say, 15% on 3.6mm or 4.5mm would reduce the thickness to 3.06mm or 3.825mm. The experts say that this should be serviceable and tolerant of the pressure and use to which the pipes would be subject, assuming that the external corrosion ceases. It is again accepted that there will be some internal corrosion from the treated water which is used within the pipes of about 0.03mm per year; the worst observed corrosion loss from internal corrosion observed by RCA was 0.3mm.

The problem with these analyses is that they are based on a very limited number of samples (no more than 11) from hundreds of linear metres of pipe removed from the building. I agree with Dr Turgoose, Linklaters’ corrosion expert, that it is likely that, given the small number of samples, there were occasions elsewhere where the corrosion went deeper than that suggested by the samples; indeed all the experts expressly agree that the corrosion rate under a number of the wooden support blocks may have been higher than elsewhere. I also agree with him, in logic, that corrosion would in all probability not have started in any significant way on completion of the original works. The insulation and the paint on the pipe work would have held up the penetration of dampness and the onset of corrosion for a period of time. The rates of corrosion therefore on an annual basis need to be based not lineally from Day 1 but from some later date although I accept the experts’ agreement that corrosion initiated at some sites "relatively early in the life of the system".

Dr Turgoose, who I generally found reliable, gives unequivocal evidence that the proper or preferred solution would have been replacement of the pipework; he says that it would provide an external pipe condition such as that which would reasonably have been expected in 2006 and returned the probability of failure of the pipework and the risks associated to that expected for a 10 year old well installed system. He supports, unsurprisingly, the view of all the corrosion experts that to do nothing was not acceptable. He is of the view, correctly in my judgement, that it would be impossible to remove all surface rust from the pipes in situ, by reason of the restricted access and that this approach would, obviously, not replace the metal already lost by corrosion or provide a system in the condition expected of a 10-year-old system. There was also some evidence which at least inferred that the rigourous rubbing down of the steel pipework, with wire brushing or grinders would inevitably remove more metal from the pipework. That would not be desirable. No-one has suggested that it would be possible or practicable in situ to build up the thickness of the pipes to restore it to its pre-corroded state.

There has been an extensive discussion between the experts about the economic, design or actual life of the pipes. This was in some ways a fruitless discussion as all the experts accepted that the economic life of 30 years was more of an accounting figure and that in real life steel pipes such as these would, properly maintained and protected, actually last for much longer than that.

It is necessary to move on to consider the possible liability of Linklaters under the various leases which it had with its landlords. In broad terms, it is accepted that the Premises, as demised to Linklaters expressly excluded "all Plant serving the Building" as per Schedule 1 to the leases. It is accepted that Plant included the chilled water pipework. In return for a Service Charge payable by Linklaters, the landlord undertook to carry out the Services including the repair and maintenance amongst other things of the chilled water pipework. However by the time of the conclusion of the original works by McAlpine, it was clear that Linklaters was to take leases on the whole of the two buildings, Milton House and Shire House, whereas before there had been some doubt as to whether Linklaters would take 100% of the space. The Property Management Agreements were then entered into. Relevant terms were:

The competing remedial schemes in the litigation were replacement as was actually done or the remedial scheme along the lines of the “make do and mend” alternative which was actually considered by Linklaters in 2008 and a very late variant on this. It is accepted in any event that the 2008 alternative type scheme can not stand because it is accepted that, due to access problems, at least 6 of the 14 riser pipes would have to be replaced in any event.

I have formed the clearest view that not only was Linklaters’ decision to replace a wholly reasonable one but it was probably the right and necessary one. My reasons, not in order of importance, are as follows:

For all these reasons, the decision made by Linklaters to replace the pipes was from all standpoints the right one and certainly reasonable not only from its own standpoint but also on a damages basis. It is reasonable in those circumstances that McAlpine and How should pay damages on that basis. One major difference between this case and the Skandia case (on which much reliance has been based by the Defendants) is that the replacement in this case actually put right the pipes actually damaged as the result of the Defendants’ breaches of contract. In Skandia, damage which was not the fault or consequence of the fault of the defendant was being put right so that a complete new weatherproofing system was provided to the basement in circumstances in which the old one had not been damaged by the defendant’s breach of duty.

In the result, in this case, the Como costing was ultimately actually used by the Defendant’s legal teams as the basis of seeking to cost what a make do and mend scheme might have cost. This was a departure from the position partly adopted by them before which involved re-costing de novo based on costing manuals and the like which produced much lower figures; that approach was abandoned in effect by the time of the final speeches. The approach based on the Como costing was equally artificial to the earlier approach in that it unjustifiably and optimistically assumed that Como would actually have agreed to major reductions in its estimate for the “make do and mend” scheme. Thus, it assumes that, where Como allegedly for no good reason increased its prices in this estimate for work priced by it in its acceptable tender for the replacement works, the market price would have come down correspondingly. Mr Pontin’s view on this, which I accept, was that this belated approach to quantum of the defendants did not necessarily reflect the market at the time.

There was substantial evidence and argument relating to various alternative versions of remedial works, as opposed to replacement works. It is not necessary in the light of my finding above to seek in any detail to analyse those schemes and costings. The variant scheme referred to above was effectively only put forward by How in the dying hours of the evidence in this case, which was a scheme which involved replacing six risers but for the remainder simply removing and replacing the insulation, without removing the corrosion or dealing with the Victaulic joints. This was put forward so late that it was not put to any of the witnesses of fact or indeed most of the experts. Indeed when raised with Mr Gray who was the last expert (relating to quantum) to give evidence, he explained in effect that he had simply not considered it.

It follows from the above that damages should be based on the actual replacement costs for and in connection with the replacement works to the risers. As there is no liability established for the basement and under-croft work insulation, the damages can not and should not include for the costs related to those areas.

Essentially, the issue here arises out of the extent to which certain builder’s work and essential alterations can be classified as variations to the replacement works contract. These works were not expressly described in the contract documents and involved changes being required for instance in the line or location of parts of various pipe runs from that specified or builder’s work, such as demolition, which had not been expressly specified but was required to enable access to install the new pipes. They can be put into two categories:

Although it is clear that Linklaters relied reasonably on G&T and its other advisors in paying to Como the certified sums in respect of these works and indeed Linklaters was contractually obliged to pay such sums as they were certified, reasonableness and that obligation would not in themselves be enough to justify the recovery of these sums as damages if it was paying out sums to which Como was not in fact entitled. There would be a break in the chain of causation. It would or might be different if the items to which the certified sums related were factually and contractually due and the only issue was, arguably, that too much had been certified.

The remedial works contract was in the standard 2005 JCT form, without Quantities Revision 1 2007, albeit as amended. Material terms of the contract are:

The real issue between the parties in respect of these items of work relates to the impact of Clause 2A.1. The argument propounded by the Defendants is in substance that, if builder’s work, albeit not shown on the Contract Drawings or described in the Specification or Pricing Schedules, was necessary to enable the pipework to be done and that even if the specified route of the pipework had to be changed to overcome physical difficulties or obstructions, Clause 2A.1 operates to impose the financial and contractual risk upon the Contractor which is accordingly not entitled to any additional payment because there would be no Variation.

In my judgement, the Claimant’s argument on this aspect of quantum is correct and the Defendants are wrong; my reasoning is as follows:

It follows from the above that Linklaters is entitled to payment in relation to all these categories of builder’s work. They were all payable as legitimate Variations to the remedial works contract. The Defendants should have no real cause for upset because it is likely that, if all these specific works had been spelt out fully and correctly in the original tender documentation, I presume that the Contract Sum would have been correspondingly higher in any event.

On 11 June 2008 Linklaters and its landlord signed a memorandum of agreement which was expressed as compromising the rent reviews in relation to the Premises. This was complicated partly by the fact that there were three rent review dates under the five leases being considered. The agreement confirms a compromise that there was to be a "nil uplift" in terms of the rent and that (under paragraph 4) the landlord would pay for an arbitrator’s costs of an arbitration in relation to two of the leases. Paragraph 6 states:

“Defective chilled water pipework: Linklaters…agree for purposes of all future rent reviews of leases of any parts of One Silk Street and/or Milton House that the defects in the chilled water pipework identified in the course of Lease 2 and 5 rent reviews had been remedied as at 20 December 2006. This is subject to [the landlord] contributing towards the remediation costs the sum of £200,000 (exclusive of VAT) and making the payment referred to in paragraph 4. [The landlord] shall against the provision of a proper tax invoice therefore, pay an amount equal to the sums referred to in this paragraph and paragraph 4 plus VAT to Linklaters…”

It is therefore clear that there were discussions and negotiations leading up to this agreement such that Linklaters secured a payment of £200,000 towards the pipe and insulation replacement works. It is a reasonable inference which I draw that, if Linklaters had not been about to enter into a construction contract to carry out, amongst other things, these works, it would not have secured this payment. Mr Plant gave some evidence about this but, although I hasten to say that he was trying to be helpful, I did not find his evidence on this in any way convincing as providing some type of justification for not giving credit in the damages claim for this £200,000. What he said was that the contribution "was agreed as part of an overall settlement in what turned out to be a very complex and protracted rent review negotiation…and this was the outcome…of lengthy discussions” (Day 3 page 166). He accepts however that it was not a gift as such. He was not aware what was uppermost in the minds of the landlord. When he was asked why the money was being given, albeit not as a gift, he did not provide a clear answer; for instance he said: “So in return for having our ability to introduce the disrepair in any future reviews, sort of an agreement was reached. I'm afraid it may not have been particularly scientific. Looking at it now, it may seem as if it was put together in that way, but that is how it was negotiated, and nothing more than that, actually.”

So far as it is necessary to make any actual findings, I am satisfied that this £200,000 payment was not a gift and that it was, as the memorandum says, expressly secured as a contribution towards the very remedial works costs with which this case is concerned. But for the breaches of contract on the part of McAlpine and How, it would obviously not have been secured from the landlord. Dealing with rent reviews on its Premises was part of the ordinary course of business of Linklaters.

There is a substantial amount of legal authority on and around this point. For instance, an insured does not have to give credit for sums received from its insurer, whether or not the insurer is exercising its subrogation rights. It is not altogether irrelevant to consider the law and practice relating to successful attempts to mitigate the loss. In McGregor on Damages, the editors say this at Paragraph 7-097:

“Frequently a claimant will have taken the required steps in mitigation and thereby have avoided such part of the loss as was avoidable. No difficulty arises in such circumstances. But the claimant may have gone further and by sound action have avoided more consequences than the dictates of the law required of him. In such circumstances the position has been definitively stated by Viscount Haldane LC in the leading case of British Westinghouse Co v Underground Ry. He put the rule thus

‘When in the course of his business he [the plaintiff] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act’

…He emphasised, however, that the subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business.”

It may well therefore not matter whether or not in the context of this case Linklaters was theoretically or consciously seeking to mitigate its loss in relation to its claims against McAlpine and How, even though it was obviously seeking to reduce the cost to it of the impending remedial works.

There has for some time been a recognition by the Courts, when an innocent claimant has been helped out by friends or family to pay for various items which are recoverable otherwise as damages from a defendant, that this factor will not go to reduce the damages. In Hamilton-Jones v David & Snape [2004] 1 WLR 924, Mr Justice Neuberger, as he then was, referred to Parry v Cleaver:

“72.

In my judgment, despite the submissions of Mr Cross on this issue, it would be wholly inappropriate to make any such deduction. In the first place, I consider that it would be wrong to make any such deduction in light of the wholesome principle identified by Lord Reid in Parry v Cleaver[1970] AC 1 at 14, where he said:

"It would be revolting to the ordinary man's sense of justice, and therefore contrary to public policy, that the sufferer should have his damages reduced so that he would gain nothing from the benevolence of his friends or relations or of the public at large and that the only gainer would be the wrongdoer."

73.

More recently, that principle appears to have been approved and applied by the House of Lords in Hunt v Severs[1994] 2 AC 350.

75.

It is suggested on behalf of the defendants that this principle is limited to personal injury claims. Although it is true that the cases in which the principle has been considered and applied involve claims for personal injury, I can see no reason, in logic or policy, as to why the principle should be limited to personal injury claims. On the contrary. In essence, it seems to me that the principle can be said to be based on the proposition that the gratuitous payment of money by third parties to the claimant is res inter alios acta, as between the claimants and the defendants. There is no reason why payments made to the claimant by third parties, particularly when those payments are made out of natural love and affection for the claimant, should be credited to the benefit of the person whose negligence has harmed the claimant, and to the disadvantage of the claimant. Indeed, it would seem almost absurd if that were the law.”

This has no particular application here because the payment made by the landlord was not a gift or gratuitous or made "out of natural love and affection".

Reliance has been placed by Linklaters on the Court of Appeal case of Mobil North Sea Ltd v PJ Pipe & Valve Co [2001] 2 All ER 289. The facts in the case were very different from the current case. The first claimant employed the second claimant as main contractor to construct a gas processing facility and the second claimant employed the defendant as a subcontractor supplying valves. The valves were defective and the claimants commenced proceedings against the defendant claiming the cost of replacing the valves. The claimants resolved between themselves their differences “in full and final settlement" of any claim which either might have against the other in connection with the valves. Proceeds of the litigation would be received by the first claimant but not the second claimant who was to receive a guaranteed minimum payment; an unrelated claim by the second against the first claimant compromised also. Lord Justice Rix said:

“14.

The agreement said nothing expressly about whether Fluor was obliged to carry on litigation against PJ Pipe in the absence of a joint decision not to do so, nor did it deal expressly with what was to happen with the first £500,000, taking that as the figure up to twice the guaranteed minimum payment of any recovery from PJ Pipe. In my judgment that is because the underlying premise of the settlement agreement was that Fluor would continue to be under an obligation, in the absence of a joint decision not to proceed, to carry on litigation against PJ Pipe and that the recoveries from such litigation would continue to go to Mobil, subject to the express term that a recovery over twice the guaranteed payment allowed was to be split 50/50. It was also, in my judgment, the implicit premise of this whole agreement that, pending resolution of the prospective litigation against PJ Pipe, Fluor remained liable to Mobil and that it was in part that liability which might be the subject matter of Fluor's claim against PJ Pipe. This settlement agreement varied but did not entirely supersede the main contract in relation to the problem of the defective valves. Although the agreement was "in full and final settlement" of inter alia any claim against Fluor, that did not mean that the agreement itself did not mean that the agreement itself did not mention a liability of Fluor to Mobil subject to its own terms.”

He then referred to the British Westinghouse case and said this:

“In my judgment these are standard and classical principles arising in the context of mitigation. Everything that the learned editors of Chitty in those passages say, everything that Viscount Haldane was talking about in British Westinghouse relate to the context of the rule of mitigation and steps arising out of attempts to mitigate. Of course, in this matter of mitigation an innocent party may either fall behind his obligation or may meet his obligation or may go much further than his obligation. If he falls behind his obligation, then he cannot complain of the loss caused by his unreasonable conduct. Mitigation, although not being the same as causation, is a very closely allied concept. If he meets his obligation of mitigation, then the consequences of his so acting have to be brought into account for good or ill. But if in his attempts to mitigate he even goes beyond his obligation, the position remains the same: he is entitled to bring his loss into account but must give credit for any benefit. If one considers how closely allied the concept of mitigation is with that of causation, one can understand why that is so. As a result of a breach of contract a party is obliged to mitigate. In his attempts to mitigate he may go beyond his obligation, but that is his reaction to the problem caused by the breach and the consequences of the rules of mitigation follow. It is quite different if the transaction, which is relied upon as avoiding loss, is an entirely independent and collateral matter arising not in the context of mitigation at all.”

In my judgement, the agreements reached in the Mobil case and the current case are completely different in essence. In the former, there was a compromise between two claimants on implicit terms that pending the outcome of the litigation against the defendant one claimant remained liable to the other. That does not in any way apply here.

Reliance was also placed by Linklaters upon the case of Gardner v Marsh & Parsons 1997] 1 WLR 489, which again is completely different to the current case on both facts and law. It was a negligent valuation case in which the surveyor did not pick up certain defects in the leasehold premises then acquired by the plaintiffs in reliance upon the valuation. Authority of great weight applied to the effect that the measure of damages was the difference between the price paid and true market value at the time of purchase. The fact that after the purchase the landlord remedied at its own cost the defect in question did not mean that the purchaser plaintiffs had not paid more than they should have. Mitigation or reduction of damages therefore did not come into the equation.

I therefore conclude on the basis of the facts of this case that Linklaters must give credit for the £200,000 which it received from its landlord as a contribution towards the remedial works for which it seeks recovery in these proceedings. In all probability, this payment was secured by Linklaters simply and solely because it was about to embark upon the remedial works in question. Linklaters had already notified McAlpine and How about the defects and had intimated a claim against them. Linklaters were also at the very time at which it entered into the agreement with the landlord about to enter into the remedial works contract. I have no real doubt that this payment was secured on the basis of a partly accepted assertion by Linklaters that by replacing the old insulated pipe work with new it was conferring a benefit on the landlord which was at least reflected in the payment negotiated. The payment was clearly neither gratuitous nor made out of love or affection.

There are a number of other quantum issues, although it is not absolutely clear from the written closing submissions what necessarily all of them are. However I will address those which appear to be live. I have had particular regard to the Third and Fourth Agreed Statements of the Quantum experts.

There was an issue relating to preliminaries and profit. Linklaters and its quantum experts had based their preliminaries costs and overheads and profit on an apportionment which Como put forward at or about the time when the remedial work contract was let to it by Linklaters. The experts had, however agreed a pro rata basis as an alternative reasonable basis, that is pro rata as between the value of the chilled water pipework and the overall value of all the works. However, there was ultimately agreement between all parties that preliminaries should be evaluated as claimed by Linklaters.

There was an issue between the parties in relation to the upgrading of the pumps in relation to the chilled water. The Defendants said in effect that this was an unwarranted improvement. However Mr Upjohn of CBP gave evidence that the reason why the pumps had to be upgraded was because the new riser pipework was in different positions, unsurprisingly, from the existing riser pipework positions but had to be connected to the branch pipework on each floor (which was in its old positions) so that the chilled water could get through to the air-conditioning systems on each floor. Therefore, the riser pipework overall was in simple terms longer than it had been and higher rated pumps were required to circulate the water to accommodate the extra length. I am satisfied that this evidence is true and that the provision of new pumps to accommodate the altered and extended pipework configuration was therefore justified as damages closely associated with the replacement. This has now been confirmed as conceded by the Defendants.

Various heads of cost are claimed as damages which the Defendants claim are only recoverable, if at all, as costs in connection with the proceedings as opposed to damages. These items are referred to as EIW06b and EIW 20 and relate respectively to transport and storage costs incurred in relation to the pipes which were removed as part of the remedial works contract to be taken to a site in Kent (Hook Green) for further inspection by all parties’ experts and to what were called "witness procedure" items which involved amongst other things labelling of the pipes and possibly other items of material which were removed; this latter time also included time spent and attendance whilst the Defendants or their experts witnessed various works at the premises.

In relation to these costs, as a matter of causation, they arose clearly in consequence of the actual or impending litigation. In the case of Ian McGlinn v Waltham Contractors Limited and others [2007] EWHC 149 (TCC), HHJ Coulson QC (as he then was) refused as damages certain items of professional fees relating to the identifying and recording in minute detail the defects which existed at the Claimant’s house, in circumstances in which the principal role of the professionals in question was to identify such matters for the purposes of the imminent litigation.

There is little direct evidence as to what the principal reason was for these two items of work. However, I do infer that the main reason was in connection with the impending litigation, the threat of which had already been intimated to the defendants in March 2007; proceedings were actually started in 2009 and it is clear that the Defendants specifically asked for pipes and the like to be labelled and later transported to a storage facility in Kent so that they could be examined at leisure by the experts in the case. Indeed it is clear from various expert reports that the various experts have indeed been to the facility and inspected the pipes. In the light of these factual findings, I am satisfied that, although the costs are agreed and although it was a wholly reasonable thing to do, the costs relating to these two items are not properly classifiable as damages as such but as costs of and occasioned by the litigation. Although I would not seek to tie the hands of the Costs Judge in this case, I can see no good reason (and indeed no good reason has yet been advanced) why these items at the cost levels reasonably agreed by the experts should not be recoverable as costs.

There is an issue in relation to the fitting of barriers and grills to cover redundant risers. There was nothing in the remedial works contract which called for the fitting of barriers and grills to cover the gaps created by the removal of redundant riser pipework. Como was instructed by way of Variation to do this. The work was at the very least desirable if not essential for safety purposes because gaps about 18" x 2' were left after the pipework had been removed. For similar reasons to those set out above in relation to the builder’s work items, this was properly classifiable as a Variation and is recoverable as damages.

An issue has been raised in respect of the fees of Hurst Pierce & Malcolm who were consulting engineers. The sum of £12,337.50 is claimed by Linklaters. In essence the ground for challenge was that one invoice, 15374, was not, like the other invoices from this firm, annotated with the reference relating it to the chilled water replacement pipework. Mr Jones when questioned about this said that he had checked it with a relevant partner at the firm who had confirmed that the invoice specifically related to work in connection with the chilled water pipework. I am satisfied that the full amount of this claim has accordingly been proved.

There was an issue raised in relation to architects’ fees in respect of Pringle Brandon, which was whether or not there had been a proper apportionment of their fees as between the chilled water pipework and the other works. Mr Jones said that the whole amount claimed, £21,036.50, related to the chilled water works but Mr Povey, also called on behalf of Linklaters, said that he thought only the £7,675 related to the chilled water work. Originally, G&T allocated £7,675; this was a view which was supported by Mr Pontin. I have formed the view that Linklaters has not proved its case on the balance of probabilities beyond the lower amount, namely £7,675.

Issues arise between the parties out of the sums paid by Linklaters to PME. Although the total sum claimed by Linklaters is £52,913.99, Mr Pontin accepts in the light of later evidence and discussions with Mr Gray that an appropriate adjustment would produce a figure of £48,516.84. I accept the evidence of Mr Jones and Mr Lowe on behalf of Linklaters which justified this claim. The Defendants’ assertions were speculative and unsupported. For instance in relation to PME Invoices 21129229 to 21156148, How’s Counsel simply, for no given good reasons, reduces the invoice total of £14,809.30 by half; in any event, How accepts £24,544.69; this concession may have related to a remedial scheme which was less than full replacement. In an Appendix to its Closing Submissions, it conceded that £43,936.94 was due. In my judgement, Linklaters has established an entitlement on the balance of probabilities to the sum accepted by Mr Pontin, namely £48,516.84.

The next area of dispute relates to sums claimed as damages in relation to security services provided to Linklaters by a firm called Wilson James. A total of £126,947.94 is claimed. The issue is not whether security services were provided in relation to the chilled water pipework but whether the invoices upon which this claim is based allowed for security provided in relation to the other £4 million’s worth of work being done at the premises at the same time. There are some discrepancies in the evidence put forward by Linklaters. For instance, Linklaters wrote to How’s solicitors on 12 October 2010 disclosing various documents evidencing the fees paid to Wilson James in relation to other security services (unrelated to the chilled water pipework works), including Invoice No. 42796 in the sum of £1514.82. However Mr Jones in his witness statement says that this invoice relates to the chilled water pipework. Mr Jones amended his original witness statement which said that none of the other work packages required extra guarding to read "additional guarding for other EIW packages is not included in the following invoices and were paid separately”. Invoice No. 42796 was in the total sum of £10,371.36 and it is not clear how Linklaters in their October 2010 letter was able to extract an element of it as relating to other security work. Whilst I generally accept Mr Jones’ evidence on this area of the quantum, I have sufficient doubts about whether the total sum claimed has been wholly accurately allocated that by way of assessment and on a balance of probabilities I find that only £110,000 of this claim has been proved. This calculation is based upon the proportion of Invoice No. 42796 said by Linklaters in its letter not to relate to the chilled water pipework carried across all the invoices referred to by Mr Jones, and rounded up.

So far as I can ascertain (and it has not been wholly obvious), that disposes of all the individual matters in dispute on the quantum. I will leave the parties to agree the final arithmetical amounts but, in summary, the quantum allowed as damages should reflect the following;

There will be judgement for Linklaters against McAlpine in Claim No. HT-09-399 and How in Claim No. HT-10-45 and their respective holding companies. The total judgement sum will be £2,845,435.60, reflecting the various adjustments as set out above, the calculation for this being agreed. Both McAlpine companies are entitled to an indemnity from both How companies and there will be judgement against both How companies in favour of both McAlpine companies in respect of the same judgement sum in Claim No. HT-09-399. How’s claims against Southern are dismissed and there will be judgement for Southern.