Co-Operative Group Ltd v Birse Developments Ltd & Ors

The Defendant [“Birse”] was the design and build main contractor for the construction of a large warehouse near Rugby, which has generated two actions now running concurrently. Birse’s subcontractors included the Third and Fourth Parties in action HT-13-204 [“Stuarts” – specialist industrial flooring subcontractor; and “Jubb” – engineering consultancy services] and the Defendant in action HT-13-69 [“Geofirma” – specialist geotechnical design, engineering and contractor services]. The litigation arises because defects are said to have developed in the external hardstanding, the drainage system and the floor slab as a consequence of inadequate design or construction. The Co-Operative Group Ltd [“Co-op”] is the long leaseholder of the premises and is the Claimant in action HT-13-204. Birse is the Defendant in that action and the Claimant in action HT-13-69. The structure of the two actions and the reasons why it has come about that there are two actions are not material for present purposes.

Co-op commenced proceedings on 14 September 2010, about 12 years after practical completion. Limitation is one of the many issues between the parties.

In addition to the main contract and various sub-contracts (of which more later), collateral warranties were given to the original leaseholder [“CRS”] by Birse, Stuarts and Jubb. The Stuarts and Jubb warranties provided that they could be assigned twice without the consent of the warrantor but that thereafter they could only be assigned with consent, which was not to be unreasonably refused. As appears in more detail later, there have been three agreements to assign the warranties and consent was not obtained for the third assignment, which was intended to assign them to Co-op.

On application being made by Jubb and Geofirma, the Court directed that preliminary issues should be tried and gave Stuarts and Co-op permission to make submissions at the trial of those issues. In the event, Stuarts made submissions while Co-op maintained a watching brief. The preliminary issues that were directed to be tried were:

For the reasons set out below, I decide the preliminary issues as follows:

This judgment follows the following course:

No provision was made for facts to be agreed in advance of the hearing, but the parties have now agreed the assumed facts set out in Annexe A for the purposes of this hearing.

Birse pleads its case in tort against Stuarts, Jubb and Geofirma in the same form, which is conventional in rehearsing the nature of Co-op’s claim against Birse and Birse’s denial of liability to Co-op and then making the claim over in the event that its denial of liability fails.

The material parts extracted from the Re-amended Particulars of Birse’s Additional Claim Against Jubb are set out in Annexe B.

I highlight the following features of the pleaded case against Jubb:

The particular allegations of breach giving rise to a claim for damages against Stuarts are different but in substantially the same form as the pleaded allegations against Jubb. In paragraph 38 of its Re-amended Particulars of Claim against Stuarts Birse alleges that Stuarts’ breaches “will have caused the defects … which are alleged by the Claimant and will have placed [Birse] in breach of its obligations to the Claimant under [Birse’s] Warranty.” The particulars of breach under paragraph 38 do not use the formula “and will in turn have placed [Birse] in breach of clauses [x,y,z] of [Birse’s main contract]”, but in respect of each allegation Birse pleads that the matters complained of “was in turn a breach of clauses [a,b,c] of the Building contract and/or of the implied terms set out [above] and hence … a breach of Stuarts’ duty of care at common law.” Birse’s claim for damages is identical in form to the claim at paragraph 46 of the Jubb pleading. There is no paragraph on the scope of Stuarts’ duty equivalent to paragraph 59 of the Jubb pleading.

It was not suggested that minor differences in Birse’s pleadings make any difference to the overall position and I am unable to detect any difference in substance in the case being advanced on the two pleadings.

The pleading against Geofirma is in substantially the same form as that against Stuarts.

The following points may be noted:

Once again, it was not suggested that minor differences in Birse’s pleadings make any difference to the overall position and I am unable to detect any difference in substance in the case being advanced on the various pleadings.

“A claim in tort based on negligence is incomplete without proof of damage. Damage in this sense is an abstract concept of being worse off, physically or economically, so that compensation is an appropriate remedy.” (Footnote: ²) The phrase “actionable damage” is typically used in two different contexts. It may be used to describe or define the nature of damage that is capable of satisfying the legal requirements for a complete cause of action in negligence; it may also be used in the context of discussing whether or not what has occurred in fact satisfies the legal requirements for the awarding of compensation, which typically involves questions of remoteness of damage. These two usages are separate and distinct.

Adopting the first usage, there are only two kinds of loss which are recognised as actionable damage for the tort of negligence, namely physical damage and pure economic loss. Not all damage will suffice to complete the cause of action: de minimis non curat lex. In the case of physical injury to persons or property the damage must be “beyond what can be regarded as negligible” or “real damage as distinct from purely minimal damage”: see Cartledge v Jopling [1963] AC 758, 772, 774. Cartledge also shows that a cause of action may accrue and time may run even though the claimant neither knows nor could know that he has suffered actionable damage, though the potential injustice that may flow from a claimant’s lack of knowledge is now addressed by s. 14A of the Limitation Act 1980. In cases of physical damage to persons or property, it is normally obvious what damage should be regarded as actionable, but that is not always so as the facts of Rothwell show. There was no doubt that the static pleural plaques that had developed on the lungs of claimants were unwanted physical changes: but the House of Lords held as a matter of legal policy that these physical changes did not constitute actionable damage.

Actionable damage is also an abstract concept when what is alleged to have been suffered is “pure economic loss”; but the boundaries of the losses that may amount to actionable damage in “pure economic loss” cases have been subject to less analysis and are less well defined than in cases of physical damage. That may be because the development of the law of negligence relating to the recovery of pure economic loss has developed since the landmark decision of Hedley Byrne v Heller & Co [1964] AC 465 and continues to develop by a series of incremental steps based upon a developing understanding of the types of relationship that may give rise to a duty to take reasonable care to prevent economic loss. In principle, however, the first question to be addressed in determining Issue 1 is what damage was capable of constituting actionable damage in the context of Birse’s relationship with its sub-contractors. That is a question of law and may require decisions of legal policy as the extent of liability for pure economic loss continues to develop.

Inevitably, the submissions of Counsel concentrated on the leading authorities on limitation in economic loss cases, of which Forster v Outred & Co [1982] 1 WLR 86, Law Society v Sephton & Co [2006] 2 AC 543 and AXA Insurance Ltd v Akther & Darby [2010] 1 WLR 1662 are the most important. But before turning to them, I find it helpful to take a step back and to consider the principles affecting the issue of remoteness in pure economic loss cases. Although the submissions of Counsel have not been based on questions of remoteness, the statements of principle in relation to that issue may cast light on the question that directly falls for decision now.

In Caparo Industries v Dickman [1990] 2 AC 605, the purpose for which the auditors had provided their report was held to be determinative of the conclusion that they had not owed any duty of care to the plaintiffs in respect of the purchase of shares which had caused them to lose money. At 620-621 Lord Bridge emphasised the importance of the fact that the person

“giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation.”

This approach was taken further by Lord Hoffmann in South Australia Asset Management Corp v York Montague Ltd [1997] AC 197 at 212 where he said:

“In the present case, there is no dispute that the duty was owed to the lenders. The real question in this case is the kind of loss in respect of which the duty was owed.

How is the scope of the duty determined? In the case of a statutory duty, the question is answered by deducing the purpose of the duty from the language and context of the statute: Gorris v. Scott (1874) L.R. 9 Ex. 125 . In the case of tort, it will similarly depend upon the purpose of the rule imposing the duty. Most of the judgments in the Caparo case are occupied in examining the Companies Act 1985 to ascertain the purpose of the auditor's duty to take care that the statutory accounts comply with the Act. In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking.”

In her article “Cause in Fact and the Scope of Liability For Consequences” (2003) LQR 388, Professor Stapleton argued that this analysis was flawed:

“In the tort of negligence C must establish five elements: that the claim relates to a form of actionable damage; duty; breach; historical involvement of the tortious conduct in C suffering actionable damage; and the scope of liability for consequences, the analytical step traditionally known as “remoteness” of damage in the Commonwealth and as “proximate cause” in the United States.

Logically the first of these elements to be addressed is that the complaint refers to a type of harm that is actionable in this tort. Other elements of the tort such as duty, breach and cause-in-fact as well as the limitation issue are dependent on what types of interference have been allowed to form the gist of the action. “Damage” is the gist of the action in negligence. But not all types of interference with a person's interests are accepted by the law as actionable damage in this tort. For example, though mere annoyance by noise is actionable in nuisance it is not actionable in negligence. The list of types of harm that are accepted as actionable is not closed. For example, Hedley Byrne & Co Ltd v Heller & Partners Ltd is widely taken to be the case that added pure economic loss to that list for the tort of negligence. The argument advanced by C in Hotson v East Berks AHA was that this list should be expanded to include the loss of a chance to avoid a particular outcome. This “reformulation of actionable damage” is one of five principal forms of the “loss-of-a-chance” argument that have arisen in case law.

In relation to the duty of care, the case law reveals a diverse range of concerns regarded as relevant to the issue of whether a duty should be recognised. Some concerns are of general application, such as the concern with indeterminacy of liability. Some are only rarely raised by the facts, such as the concern that the law should not positively encourage abortion. Moreover, a concern may weigh in favour of the recognition of a duty in one case and weigh against such recognition in another.

The formulation of the duty, which group of defendants owes which group of persons a duty, can have a profound effect on the focus of the cause-in-fact issue, especially where the allegedly tortious conduct is nonfeasance. Suppose a parent fails to feed his or her baby who then dies from starvation. If the parent is viewed merely as a citizen, the parent's conduct is identical to that of the rest of society. But viewed against a comparator group of parents and those in loco parentis, the parent's conduct is exceptional. By restricting the duty of affirmative action in these cases to this comparator group the law ensures that the cause-in-fact issue is focused on the specific conduct raising concern.

The duty of care should not be framed as being a duty only with respect to particular kinds of consequence. This “scope of the duty” or “scope of the risk ” approach which asks “what kind of harm was it the defendant's duty to guard against” at best conflates inquiries that it is clearer to keep separate and at worst encourages circular reasoning. It is preferable to keep “duty” as the issue that considers general concerns relating to whether the obligation of care should be recognised between the parties and without regard to the consequences of breach in the particular case. Where it is owed, the “scope of the duty” is simply to act reasonably in the circumstances. The breach analysis considers what reasonableness entails in the circumstances. Cause-in-fact provides the link between the breach and C suffering actionable damage. Finally, “scope of liability” then considers which of the stream of consequences of the tort that happened on this particular occasion should be judged to be within the scope of D's liability.”

Lord Hoffmann accepted the validity of this approach extra-judicially:

“Just as the terms and policy of the rule imposing liability may enlarge the consequences for which one is liable, beyond those of the standard criteria, so it may restrict them. A good example is liability for negligent misstatement, where liability is imposed because the defendant has expressly or impliedly undertaken to use reasonable care in providing some information. If he is negligent, what are the consequences for which he should be liable? Should the damages be the extent to which the claimant is worse off than he would have been if he had acted upon information which was correct? Or should they be all the consequences of the claimant not having received the correct information? There may not at first sight seem to be much of a difference, but it emerges in the cases about the liability of valuers who negligently overvalue land offered to their clients as security for a loan. If one asks: what has the lender lost by lending on a valuation which was too high, the answer is the difference between the security he thought he was getting and the security he actually got. If one asks: what were the consequences of his being given the wrong information, it may turn out that if he had known the true value, would for some reason not have lent at all. In that case, the loss is whatever loss the lender has suffered from having made a loan. It will include losses due to a fall in the property market which the lender would have suffered even if he had lent on the correct valuation. It seemed to the House of Lords unfair to make the valuer liable for the fall in the property market. So the consequences for which the valuer could be liable were more restrictively defined. He was to be liable only for the consequences of the lender having had too little security. He was not to be liable for all the consequences of the lender having lent.

In the South Australia case, I said that such a restriction followed from the scope of the duty of care in that particular case. Other judges have also spoken about the scope of the duty. Professor Jane Stapleton has pointed out that the language is inappropriate. The scope of the duty of care is to take reasonable care to get the valuation right. It has nothing to do with the extent of the consequences for which the valuer is liable. When one considers what causal relationship is required, one is really speaking about extent of the liability and not about the scope of the duty. Professor Stapleton is right. I shall try to mend my language in future. But I will say this. There is a close link between the nature of the duty and the extent of liability for breach of that duty. In the pollution case (Footnote: ³), liability extended to the acts of third parties because the nature of the duty was strict. In the valuer's case, liability was confined to the consequences of the client having too little security because the valuer had not been asked to advise on whether the client should lend. The valuation was to be only one factor which the client would take into account in making his own decision about whether to lend.” (Footnote: ⁴)

Lord Hoffmann’s clarified approach appears to me to be consistent with the approach of Lord Nicholls in Nykredit Plc v Edward Erdman Ltd [1997] 1 WLR 1627, 1630F-G:

“I add only the cautionary reminder that the loss must be relevant loss. To constitute actual damage for the purpose of constituting a tort, the loss sustained must be loss falling within the measure of damage applicable to the wrong in question”

I respectfully agree with the approach advocated by Professor Stapleton and as clarified extra-judicially by Lord Hoffmann. However, when considering the scope of liability for the consequences of breach, it is relevant on either approach to consider what was the purpose behind the advice given and the expectation of the recipient of that advice; or, in other words, what was the risk that should have prompted the putative tortfeasor to take reasonable care. This approach is applicable generally and not merely where it is alleged that the Claimant has entered into a specific transaction as a result of the negligent advice.

What then were the purpose and expectation that underlie the sub-contractors’ duty to exercise reasonable care? And what was the risk that a sub-contractor should have in mind when undertaking design and inspection services in relation to part of the development that the main contractor is constructing for an employer? Even if the sub-contractors had not known the terms of the main contract, they knew that part of Birse’s obligations under the main contract had been subcontracted to them and that Birse’s reasonable expectation was that they would provide design or inspection services that were appropriate to the proper discharge of those obligations as required by the terms of their sub-contracts. Equally, if their design was defective, the risk was that Birse would build in accordance with it, which would have two consequences: first, the building as built would be defective in Birse’s hands and would consequently be less valuable because of the need to remedy it in order to bring it to an acceptable standard; and, second, if the building was handed over to the employer in its defective condition, Birse was likely to be placed in breach of contract, whether or not it appreciated it or accepted it at the time.

It is of course true that, because damage is not a necessary constituent of a claim for breach of contract, Birse could theoretically be in breach of its contract with the employer without the employer suffering or being able to pass on to Birse any loss that would amount to actionable damage for the purposes of a cause of action in negligence. However, where what is being contemplated is a failure to design or inspect a building under construction, the likelihood is that negligent failures by the sub-contractor will cause the main contractor to incur liabilities that are financially measurable and significant. The consequences of a negligent failure to inspect are predictably similar. I conclude that, in a case where the development is being constructed for someone other than the main contractor, the primary risk that should be in the contemplation of the parties will be that the main contractor will build and hand over a defective building to the employer and thereby incur liability. His liability will usually be measured by the cost to the main contractor of undertaking repairs or the sums necessary to compensate the main contractor for the defects.

Birse accepts that the incurring of liability may give rise to recoverable economic loss, as it claims damages amounting to an indemnity against such sums as it has to pay to discharge its liability. It pleads against Jubb and Stuarts (but not against Geofirma) that recoverable loss is not suffered until the loss is ascertained, which in the context of the present issue is presumed to be at some future trial. It did not pursue this line of argument at the hearing and, subject to any authority to the contrary, I would consider that to be unprincipled and unacceptable. It is unprincipled for two main reasons. First, the liability that will be “ascertained” at a future trial has existed since the date on which Birse acted in breach of contract and has not changed in its character. Second, the effect of the breach of contract would be to reduce the current value of Birse’s rights under the main contract because it would give rise to a financial liability to make good the breach either by carrying out remedial works or paying damages; and the costs of remedial works or damages are quantifiable. It is unacceptable because, if correct, it would mean that Birse could determine when its cause of action against the sub-contractors accrued by denying liability to the employer even if it knew perfectly well that liability should be accepted. I rebel against the notion that the accrual of a cause of action can be delayed almost indefinitely by an unjustified and unjustifiable denial of liability.

These considerations suggest that Birse’s cause of action in negligence accrued when Birse incurred actual liability to its employer as a result of the negligent design or inspection which is the subject of its claim over against the sub-contractors. However, Birse submits that this conclusion is precluded by previous decisions of high authority.

In Forster v Outred & Co, the Court of Appeal accepted a formulation advanced by Leading Counsel for the Defendants:

“Mr. Stuart-Smith contends, on behalf of the defendants, that when she signed the mortgage deed she suffered actual damage. By entering into a burdensome bond or contract or mortgage she sustained immediate economic loss; her valuable freehold became encumbered with a charge and its value to her was diminished because she had merely the equity of redemption, varying in value at the whim of her son's creditors; she could not sell the land without discharging the mortgage; she could not prevent her son from borrowing on the security of her mortgage to the extent of the full value of the land; she could have sued the defendants in February 1973 for an indemnity or for damages on the basis of the diminished value of the land or the amount of the outstanding debt to the mortgagor.”

Leading Counsel had also provided a formulation of what is meant by actual damage in the following terms, which contained a troublesome ambiguity:

“What is meant by actual damage? Mr. Stuart-Smith says that it is any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has no control; things like loss of earning capacity, loss of a chance or bargain, loss of profit, losses incurred from onerous provisions or covenants in leases. They are all illustrations of a kind of loss which is meant by “actual” damage.” [Emphasis added]

It was central to this formulation that the detriment, loss or liability should be “capable of assessment in money terms”, as were all the examples subsequently given. All but one of the examples would conventionally be regarded as a present loss, the exception being “loss of profit”, where the Court recognises that the loss is future but seeks to arrive at the present day value of that future loss. The need for a present loss that was capable of assessment in monetary terms was made clear by the submission that what happened to the plaintiff on signing the deed providing security for her son’s debts constituted actual damage for the tort of negligence:

“because there was an immediate reduction in the value of her equity and a contingent liability — contingent, it is true, but nevertheless a liability — to repay the principal and interest on demand and that that was capable of assessment in money terms.”

Dunn LJ at 100A-C concentrated on the immediate reduction in the value of the Plaintiff’s equity of redemption, which was a quantifiable loss. He avoided the use of the word “contingency” but, referring to Sykes v Midland Bank Executor and Trustee Co Ltd [1969] 2 QB 518, made clear the basis of his approach: in a case where financial loss should be foreseen the damage crystallises and the cause of action is complete at the date when the plaintiff, in reliance on negligent advice, acts to his detriment provided that he has then suffered a loss that is capable of quantification in terms of money: see 99F-H.

The central fact in Law Society v Sephton was that the misappropriations of client funds by the solicitor did not create any liability for or impose any liability on the Law Society. It created the possibility of a future liability, but for that to happen it was necessary that the misappropriation should not otherwise be made good and that a claim should be made in proper form. It could not be said that the misappropriations affected the value of the compensation fund or subjected the Law Society to an immediate detriment that was measurable in financial terms. Lord Hoffmann addressed the Forster v Outred ambiguity head on at [14]ff. He adopted the reasoning of the High Court of Australia in Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 and rejected the broad interpretation of Forster v Outred that would have led to a conclusion that any possible future (i.e. “contingent”) liability is sufficient to constitute actionable damage for the tort of negligence: see [18]. At [30] he concluded his opinion as follows:

“30 In my opinion, therefore, the question must be decided on principle. A contingent liability is not as such damage until the contingency occurs. The existence of a contingent liability may depress the value of other property, as in Forster v Outred & Co [1982] 1 WLR 86 , or it may mean that a party to a bilateral transaction has received less than he should have done, or is worse off than if he had not entered into the transaction (according to which is the appropriate measure of damages in the circumstances). But, standing alone as in this case, the contingency is not damage.

31 The majority of the Court of Appeal appear to have decided the case on the basis that the Law Society did not enter into any transaction giving rise to the contingent liability. It did nothing and the contingent liability was created by the misappropriations and the previous existence of the compensation fund and the rules which governed its administration. No doubt in most cases in which a party incurs a contingent liability as a result of entering into a transaction, that liability will result in damage for the reasons already discussed in relation to bilateral transactions. But I would prefer to put my decision on the simple basis that the possibility of an obligation to pay money in the future is not in itself damage.”

Lord Walker at [43-47] reviewed cases (including Forster v Outred) where the client through the negligence of his professional adviser ended up with “a package of rights less valuable than he was entitled to expect – damaged or defective goods, to pursue the metaphor, rather than the undamaged and serviceable goods which he should have got.” At [48] he said:

“In all these cases the claimant has as a result of professional negligence suffered a diminution (sometimes immediately quantifiable, often not yet quantifiable) in the value of an existing asset of his, or has been disappointed (as against what he was entitled to expect) in an asset which he acquires, whether it is a house, a business arrangement, an insurance policy, or a claim for damages. Your Lordships have not, I think, been shown any case in which the imposition on a claimant of a purely personal and wholly contingent liability, unsecured by a charge on any of the claimant's assets, has been treated as actual loss. That would have been the position if the claimant in the Forster case … had given a personal covenant guaranteeing her son's debts (which she seems not to have done-she paid them simply to prevent enforcement of the security on her farm) and if she had not given any security over any of her own assets.”

Lord Mance at [76-82] identified the ability to assess a detriment in financial terms, a change in the claimant’s legal position and diminution in the value of an asset as key constituents of actual damage.

Sephton was analysed in detail by the Court of Appeal in Axa Insurance v Akther & Darby and ors [2010] 1 WLR 1662. The central facts were that the solicitors were meant to vet their clients’ claims and subsequently to monitor them and to report to Axa if the claims’ prospects of success fell below a stipulated minimum. The purpose of the vetting and monitoring was to ensure that Axa only issued and subsequently maintained policies of ATE insurance to cover some or all of the potential costs of proceedings if the claims had reasonable prospects of success. The risk was that, if (as was alleged) the solicitors negligently failed to vet or monitor the claims, Axa would either take on or fail to avoid a risk that was worse than it should have been. The issue was whether damage was suffered when Axa issued or maintained a policy because of the solicitors’ negligent failure to report that prospects were inadequate, or when a claim was made under the policy. The Court of Appeal held that it was the former.

Arden LJ (with whom Longmore LJ agreed) recognised that the cases may contain anomalies, and regarded the distinction between the position of Mrs Outred and the giver of an unsecured personal guarantee as one such anomaly: see [17], [22] and [28]. She identified two categories of case endorsed by Sephton where a possible future liability may give rise to an actual present liability, namely:

These categories of case are not closed – see [32-33]:

“In my judgment, the damaged asset rule and the package of rights rule are best regarded not as a series of independent qualifications on the basic rule in the Sephton case that the assumption of a “contingent liability” does not cause the limitation period to start to run, but as different cases in which the courts have tried to express a central idea. That idea has to be found by seeking the ultimate ratio in the Sephton case, that is, a ratio which expresses the reason for the decision on which, despite the differences in expression, all the members of the House in that case were agreed. As I see it, the concept on which all the members of the House agreed was that there had to be measurable loss before time began to be run, that is to say, loss which is additional to the incurring of a purely contingent liability. In my judgment, for this purpose, rights of contribution or subrogation must be ignored because those rights arise by operation of law, unless excluded by agreement or statute. If they were taken into account, they would undermine the basic rule which is clearly established in [Sephton] that a pure contingent liability is not damage.

In my judgment, the central idea in the Sephton case is that there has to be loss additional to that resulting from the incurring of a purely contingent liability.”

Thus far I have been referring to authorities that are binding on me. Birse relies in addition upon dicta of Akenhead J in Linklaters Business Services v Sir Robert Mcalpine Ltd and Ors [2010] EWHC 2931 (TCC). Having concluded that one of the parties (“Southern”) had not acted so as to be materially in breach of any duty of care to another party (“How”) the learned Judge set out his views “relatively briefly” on other issues which would have arisen had he held Southern to be in breach of duty. At [113] he said:

“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 [Sephton]http://login.westlaw.co.uk/maf/wluk/app/document?src=doc&linktype=ref&context=122&crumb-action=replace&docguid=I6F9E1950E43611DA8FC2A0F0355337E9.”

On the basis of these authorities, Birse’s first submission is that the existence of a purely contingent liability (i.e. a possible future liability which may or may not arise, depending upon the occurrence or non-occurrence of contingencies) is not of itself enough to constitute actionable damage. That is clearly right. What is required is present damage which will require something other than and in addition to a purely contingent liability. However, it does not follow that the existence of a purely contingent liability may not contribute to the existence of present actionable damage e.g. by depressing the value of other property: see Sephton at [30] and Axa at [32-33].

Birse continues by submitting that the existence of an accrued present liability to a third party is not necessarily actionable damage for the purposes of a claim over against another in negligence. That also is right on current authority, as is shown by the example of the giver of a personal guarantee: the creditor’s cause of action against the guarantor arises at the moment of the debtor’s default and the limitation period then starts to run as between the creditor and the guarantor: see Lep Air Services v Rolloswin Ltd [1973] AC 331, 348A-E. Despite that, the guarantor’s cause of action against a negligent adviser would not arise until later: see Axa at [17], [22] and [28]. However, that is anomalous and is not the basis for any general rule.

Birse then submits that the present case does not fall within the “damaged asset rule” or the “package of rights rule”. Although it pleaded against Stuarts and Jubb that no relevant loss was suffered or will be suffered until any liability it may be under to Co-op (based on its original liability to the employer) is ascertained, at the hearing it submitted that it was suffered on notification by Co-op of the claim under the main contract and the warranty it had given. Here lies the nub of the dispute, though the more extreme pleaded case remains relevant.

The “damaged asset” in Forster v Outred was Mrs Forster’s interest in her property which was devalued by becoming encumbered. I am unable to identify any reason in principle why what is devalued must be an interest in physical property. So the measurable devaluation of a person’s beneficial interest in a trust should be capable of constituting actual damage whether that devaluation occurs wholly or partly as a result of a contingent (i.e. possible future) liability or otherwise. Equally, if a person’s interest in the benefit of a contract is devalued, that should be capable of constituting actual damage in accordance with established principles. Whether it does so will be determined by whether the devaluation is measurable and by reference to the purpose and expectations that underpin the finding of a failure to exercise reasonable care, together with the risks that the putative tortfeasor should have had in contemplation.

Although the full terms of the main contract have not been explored in the present hearing, it has proceeded on the conventional assumption that Birse was responsible for the construction until handover of the whole or sections of the development or, at the latest, until practical completion. Thereafter (subject to the precise terms of the contract) possession, risk and ownership would be transferred to the employer. It follows that, until handover or practical completion, Birse had at least a possessory interest in the development as well as accrued rights under the contract. Those accrued rights will have included the right to payment and will have been subject to the requirement for remedying defects either before or after handover or, failing that, for liability in damages for breach of contract. To my mind, Birse’s interest in the development and in the benefit of its contractual rights are properly to be regarded as “assets” within the scope of “the damaged assets rule”. The object of the sub-contracts was to provide the necessary design and inspection to ensure that the development as built was satisfactory and Birse’s rights were not prejudiced. The “assets” are capable of being devalued and the devaluation is measurable by reference to the cost of remedying the defects, whether that is undertaken by Birse or by the employer.

Wardley and Sephton are clearly distinguishable on their facts. In each of those cases there was nothing more than a purely contingent liability and no other financially measurable detriment to the Claimant’s interest until (in the case of Wardley) the Claimant had proceeded to the fullest extent of its rights against others and made demand on the Claimant or (in the case of Sephton) the misappropriation had not been made good and a client had made a claim in proper form against the fund. In the present case there was a present liability which arose at the latest on practical completion and Birse had suffered measurable financial detriment before then on constructing the development in accordance with the defective design or as allowed by the negligent inspection.

In my judgment, therefore, the requirements of “the damaged asset rule” were satisfied and time began to run by practical completion at the latest.

In Sephton at [48] Lord Walker spoke in terms of a claimant being “disappointed … in an asset which he acquires.” In Axa the Court of Appeal at [31] defined the “package of rights rule” as being where there was a bilateral transaction under which the claimant should have received certain benefits but owing to the negligence of his professional adviser did not do so. The examples cited both in Sephton and Axa included cases where, as a result of the negligent advice, the Claimant entered into a transaction. However, it is not clear (at least to me) why it should be necessary that the Claimant’s disappointment should be “in an asset which he acquires”.

In Knapp v Ecclesiastical Insurance [1998] Lloyds Rep IR 390, the broker’s negligence meant that the insurance policy acquired by the Claimants was voidable. At 402 (col 2) and 404 (col 1) Hobhouse LJ said:

“From these authorities it can be seen that the cause of action can accrue and the plaintiff have suffered damage once he has acted upon the relevant advice “to his detriment” and failed to get that to which he was entitled. He is less well off than he would have been if the defendant had not been negligent. Applying this to the present case, the plaintiffs paid their renewal premium without getting in return a binding contract of indemnity from the insurance company. They had acted to their detriment: they did not get that to which they were entitled. The fact that how serious the consequences of the negligence would be depended upon subsequent events and contingencies does not alter this; such considerations go to the quantification of the plaintiffs' loss not to whether or not they have suffered loss. The risk of loss existed from the outset and in the absence of better evidence would have to be evaluated and assessed as a risk and damages awarded accordingly.

…

The plaintiffs suffered loss as soon as they received an insurance contract which was not binding upon the insurers. The subsequent events, the question whether or not the insurers would thereafter avoid the policy and with what consequences, went only to the quantification of loss not to the identification of the first moment at which a plaintiff suffered loss and the tort became actionable.”

The reasons for this decision would apply equally if the facts had been that the Claimants were already possessed of a (valid) policy and the intervention of the brokers had rendered that existing package of rights voidable either directly or by causing the Claimants to act in such a way as to make it so.

The Court of Appeal in Knapp relied upon Bell v Peter Browne [1990] QB 495. There the Claimant transferred the matrimonial home into the sole name of his wife on terms that he should receive one sixth of the gross proceeds of sale. The wife should have executed a trust deed in his favour and his interest should have been protected by lodging a caution but the solicitors negligently failed to do either of those things. The Court of Appeal held that damage was suffered when the solicitors failed to register the caution, despite the fact that their error would have been remediable if it had been identified at any stage before the wife sold the house. At 503 Nicholls LJ said:

“The solicitors' breach of duty in 1978 was remediable by the plaintiff, but that was only possible after he became aware that there had been a breach of duty. Apart from any other consideration, to treat the plaintiff's ability to remedy the breach himself without the concurrence of his former wife as a ground of distinction between this case and cases such as Baker v. Ollard would be to disregard the unlikelihood in practice of the plaintiff ever being in a position to remedy the breach. Once the solicitors closed their file, it was unlikely that failure (b) [the failure to register the caution] would come to the notice of the plaintiff or the defendants, until the house was sold and it was too late. That, on the pleaded facts, is exactly what happened. The first the plaintiff knew was his one-sixth share was not properly protected was after it had gone beyond recall. So his ability to remedy the breach before the house was sold was a matter of more theoretical interest than practical importance.

In considering whether damage was suffered in 1978 one can test the matter by considering what would have happened if in, say 1980 the plaintiff had learned of his solicitors' default and brought an action for damages. Of course, he would have been entitled at least to recover from the defendants the cost incurred in going to other solicitors for advice on what should be done and for their assistance in lodging the appropriate caution. The cost would have been modest, but not negligible.”

And at 513 Mustill LJ said:

“The transaction caused the plaintiff to exchange his valid legal estate for an equitable interest in the proceeds of sale which was dependent on the goodwill and solvency of the wife unless and until protected by a formal declaration of trust and the lodging of a caution. The failure to see that these steps were taken promptly meant that the plaintiff was actually and not just potentially worse off than if the solicitors had performed their task competently. The sale in 1986 simply meant that the breach and its consequences were unremediable. As Nicholls L.J. has pointed out, the solicitors' negligence had two different aspects: the wife's participation in a formal instrument, and the failure to protect the interest by a caution, but I respectfully agree with his view that this characteristic forms no ground for distinguishing Baker v. Ollard and Moore v. Ferrier which are binding on this court.”

The identification of the failure to register the charge as a separate ground for complaint is relevant to the present case, as it was a failure to protect an existing package of rights (i.e. the Claimant’s contractual right to 1/6 of the proceeds of sale from the matrimonial home). In my judgment Bell (which was cited with approval in Sephton) is direct and binding authority that the “package of rights rule” may apply not merely where the Claimant acquires a disappointing package of rights as a result of the Defendant’s negligence but also where the Claimant has an existing package of rights that is rendered less valuable. The reasoning in Knapp (which was also cited with approval in Sephton) supports the same conclusion.

The Court of Appeal in Axa did not suggest that the “damaged asset rule” and the “package of rights rule” were mutually exclusive, nor was it attempting to provide a rigid codification of the circumstances in which actual damage should be held to have occurred. I conclude that the present case is within the “package of rights rule” because when Birse transferred the defective development to the employer, its legal position changed to its financial detriment as it became a contract-breaker whose rights under the main contract were devalued by its liability to the employer.

As happened in Bell one can test the matter by considering what would have happened if Birse had learned of the sub-contractors’ default shortly after transferring the development to the employer. As in Bell, it could have recovered from the sub-contractors the cost incurred in going to solicitors for their advice on what should be done; but, more importantly, it could have recovered the cost of belatedly complying with its contractual obligations to the employer or making good its earlier failure to do so by payment of damages or otherwise.

This conclusion appears to me to be consistent with and supported by the central idea in Sephton as identified by Arden LJ at [32]-[33] of Axa. This is not a case of a purely contingent liability; rather it is a case of an accrued liability that immediately affects the value of Birse’s interest in the development and of its rights under the main contract.

I have already indicated why I consider that it would be unacceptable to hold that time does not run until Birse’s liability to Co-op is “ascertained” at trial. The liability will be precisely the same immediately after the decision of the court as it is now and until immediately before that decision. This preliminary issue proceeds on the assumption that Birse was liable to the employer and is liable to Co-op and that its liability will involve significant (i.e. non-negligible) financial obligation. On that assumption, Birse is a contract breaker which has consistently failed to acknowledge its liabilities: that seems to me to be an unpromising starting point for Birse’s pleaded case. For the reasons I have outlined above, I reject it.

It follows that I reject the suggestion that notification of Co-op’s claim was a material event. Once again, notification was not an event that altered Birse’s legal position in any way. This is not a case like Wardley or Sephton where notification was a pre-requisite to actual (as opposed to purely contingent) liability. It also follows that I respectfully question the correctness of the obiter dictum of Akenhead J at [113] of the Linklaters case. I am not persuaded to follow it, for the reasons set out above.

Part of Birse’s submission focussed on the potential disadvantage to a party if its cause of action in negligence accrued without its knowledge. The fact that knowledge is irrelevant to the accrual of the cause of action and that the Court should apply the relevant principles rigorously is established beyond argument by Cartledge. Birse did not advance any separate argument based on s. 14A of the Limitation Act 1980.

If I were wrong in my conclusion that the present case is within the “rules” identified by the Court of Appeal in Axa, I would hold that it is so closely analogous to each of them, and shares sufficient of the characteristics of cases within those rules that the law should take the incremental step and recognise the facts of the present case as giving rise to an actual and actionable loss so that Birse’s cause of action against the sub-contractors accrued, at the latest, on practical completion. Since the Court of Appeal in Axa has already indicated that this area of the law is ripe for further consideration by the higher courts, I leave more detailed analysis of that question of legal policy to those higher and better placed than I am.

For these reasons I conclude that Birse’s causes of action in tort against Jubb and Geofirma are time barred by virtue of section 2 of the Limitation Act 1980.

The sub-contractors’ warranties included a prohibition against assignment in the following terms:

“The benefit of this agreement may be assigned on two occasions only without the consent of the Consultant. The benefit of this agreement may not be assigned further without the prior written consent of the Consultant, which consent shall not be unreasonably withheld or delayed.”

The benefit of the sub-contractors’ warranties were first assigned on 2 April 2000 on the statutory transfer of assets and engagements from CRS to Co-op. The second occurred on 21 March 2001 when Co-op assigned the benefit of the warranties to Woolworths. Neither of these assignments needed consent and each was valid and effective. Woolworths went into administration on 27 November 2008 and, as a result, the administrators wanted to assign the benefit of the warranties back to Co-op. On 23 June 2010 they were included in a schedule of warranties attached to a deed made between Woolworths acting by its administrators and Co-op which was intended to effect that assignment.

The deed recited that “the Assignor has now agreed to assign the benefit of the Warranties (in each case, so far as the Assignor can assign the same) to the Assignee on the terms of this deed.” It then recorded that in consideration of the payment of £1 “the assignor warrants that it has the full and unfettered benefit of the Warranties and it hereby assigns absolutely to the Assignee all such rights title or interest as the Assignor has in the Warranties… .”

The makers of the deed clearly appreciated that consent was needed for the assignment of the Birse warranty as provision was made for the necessary consent to be obtained. It is equally clear that the makers of the deed did not appreciate the need for consent for the assignment of the Stuarts and Jubb warranties as otherwise they would evidently have made similar provision as in respect of the Birse warranty. Although the reason for this lack of appreciation is not evidenced, Birse’s suggestion that the parties had failed to appreciate the significance of the original assignment on the statutory transfer from CRS to Co-op seems likely to be correct.

It is now well established that an assignment that fails because of a prohibition or lack of necessary consent, may be effective as between the assignor and assignee. In Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 AC 85, 108 Lord Browne-Wilkinson said

“…a prohibition on assignment normally only invalidates the assignment as against the other party to the contract so as to prevent a transfer of the chose in action: in the absence of the clearest words it cannot operate to invalidate the contract as between the assignor and assignee and even then it may be ineffective on the grounds of public policy.”;

This is not contentious and it has not been argued that the attempted assignments in the present case are ineffective as between the assignor (Woolworths) and assignee (Co-op).

It is also well established that a failed assignment of the benefit of a warranty may have effect as a declaration of trust by the assignor in favour of the assignee. If that happens, the trustee may enforce the warranty on behalf of the beneficiary; furthermore, the beneficiary may require the trustee to enforce the warranty for the benefit of the beneficiary and, if the trustee refuses to do so, the beneficiary may sue in his own name provided he joins the trustee as a defendant using the procedure established by Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70, 79.

The three authoritative stepping stones on which Birse primarily relies are In re Turcan (1889) 40 Ch D 5, Don King Productions Inc v Warren and others [2000] Ch 291 and Barbados Trust Co Ltd v Bank of Zambia [2007] 1 CLC 434.

In In re Turcan the settlor covenanted that if at any time during his marriage he should become possessed or entitled during his marriage by devise, bequest, purchase or otherwise, of or to any property or estate, whether real or personal, he would “convey or assign his estate and interest therein to the trustees of [his] marriage settlement, that the same might be held by them upon the trusts thereinbefore declared concerning the trust estate comprised in the said settlement.” He later effected policies of life assurance, one of which contained a prohibition on assignment. The Court of Appeal held that the prohibition, though effective to prevent an assignment, did not prevent the settlor from dealing with the beneficial interest in it in accordance with his covenant. It was held by the Court below that the executor of the (now deceased) settlor was bound by the covenant. The Court of Appeal upheld the judge’s decision, holding that a Court of Equity in the lifetime of the covenantor would have enforced the covenant to settle the policy notwithstanding the condition against assignment.

The protagonists in Don King Productions Inc v Warren were leading boxing promoters from either side of the Atlantic who entered into an ill-starred partnership. Their initial agreement provided that Mr Warren would assign to the partnership the full benefit and burden of all existing promotion and management contracts with boxers to which he was a party. That assignment could not take effect as the contracts involved the rendering of personal services and most also contained express prohibitions against assignment. However, they did not expressly prohibit a party from declaring himself trustee of the contract in question. The partners subsequently entered into a second agreement which provided that:

“… [Don King, Frank Warren or Sports Network Limited] (as appropriate) shall hold all promotional and management agreements relating to the business of the partnership … to the benefit of the partnership absolutely without separate compensation therefor.”

Lightman J set out (at 311G-H) the principles governing his construction of the two agreements in terms which paraphrased but did not wholly replicate the principles of contract construction as explained by the House of Lords and Supreme Court in cases such as ICS Ltd v West Bromwich BS [1998] 1 WLR 896, Chartbrook v Persimmon [2009] 1 AC 1101, and Rainy Sky SA v Kookmin Bank [2011] 1 W.L.R. 2900. His summary was that:

“The essential task in construction is to deduce, if this is possible, from the two agreements construed as a whole against their commercial background the commercial purpose which the businessmen and entities who were parties to them must as a matter of business common sense have intended to achieve by entering into them; and if such intent can fairly be deduced and if this is necessary to effectuate that intent, the court may have to require what may appear to be errors or inadequacies in the choice of language to yield to that intention and be understood as saying what (in the light of that purpose) that language must reasonably be understood to have been intended to mean.”

Having reviewed the two agreements, Lightman J concluded (at 316E) that the intention of the parties was that the management or promotion agreements held by either partner should be “assigned to or be held for the benefit of the partnership absolutely” – this conclusion closely mirrored the terms of the first and second agreements respectively. Having reminded himself (at 317A-C) of the long-established principle that “the wholesale importation into commercial law of equitable principles would be inconsistent with the certainty and speed which are the essential requirements for the orderly conduct of business affairs”, he observed that “there can however be no sustainable objection on these grounds to recognition of a trust if the parties have manifested their intention to do so, a fortiori when this is necessary to achieve justice between the parties.” He then provided a summary of general principles (at 318Dff) which I respectfully adopt and which included the following that are of particular relevance to the present case:

“The applicable principles emerging from the authorities in a field still undeveloped are as follows. (1) It is not possible (save pursuant to statutory authority) without a novation to transfer the burden of a contract to a third party. … (3) The only assignment in respect of a contract which is legally possible is an assignment of the benefit of the contract (i.e. the rights thereby created) or some benefit (e.g. the profits) derived by the assignor from the contract. The distinction is between the assignment of rights under the contract and of what is referred to as "the fruits." A provision for the assignment of a contract is to be construed as the assignment of the benefit of the contract: see Linden Gardens Trust Ltd. v. Lenesta Sludge Disposals Ltd. [1994] 1 A.C. 85, 103. … (5) The contract may expressly or impliedly permit assignment of rights not otherwise so assignable: see Devefi Pty. Ltd. v. Mateffy Pearl Nagy Pty. Ltd. [1993] R.P.C. 493, 503. The contract may likewise prohibit assignment of rights otherwise prima facie assignable. Such contractual provisions are legally effective. The purpose of the non-assignment clause is the genuine commercial interest of a party of ensuring that contractual relations are only with the person he has selected as the other party to the contract and no one else. This is particularly important in areas such as building contracts which are "pregnant with disputes:" see the Linden Gardens case [1994] 1 A.C. 85, 107, 108. Such a clause avoids the possibility of a third party being enabled to raise issues of set-off not available to the other contracting party. … (7) A declaration of trust in favour of a third party of the benefit of obligations or the profits obtained from a contract is different in character from an assignment of the benefit of the contract to that third party: see the Devefi case [1993] R.P.C. 493, 505. Whether the contract contains a provision prohibiting such a declaration of trust must be determined as a matter of construction of the contract. Such a limitation upon the freedom of the party is not lightly to be inferred and a clause prohibiting assignments is prima facie restricted to assignments of the benefit of the obligation and does not extend to declarations of trust of the benefit.”

In applying the principles he had set out to the facts of that case, Lightman J concluded at 322F that:

“I accordingly hold that the clear intent of the parties manifested in the first and second agreements was that the [promotion and management] agreements should be held by the partnership or by the partners for the benefit of the partnership absolutely, and that this intent should be given fullest possible effect. The agreements have accordingly at all times been held by the partners as trustees for the partnership. Accordingly the ordinary equitable principles apply (including the rule in Keech v. Sandford (1726) Sel.Cas.Ch. 61) and the partnership assets include all renewal and replacement agreements obtained by any partner during the partnership and over the period between dissolution and the completion of winding up.”

The Court of Appeal upheld the judge’s decision. In doing so, Morritt LJ said at [26]:

“I agree with the judge that In re Turcan, 40 Ch.D. 5, 10 shows clearly that the court will protect the interests of those contractually entitled to have the benefit of an inalienable asset before the fruits of the asset have been realised. In that case, as the House of Lords considered in Linden Gardens Trust Ltd. v. Lenesta Sludge Disposals Ltd. [1994] 1 A.C. 85, 106, the court gave effect to the intention of the parties by means of a declaration of trust.”

Birse submitted that Don King is an example of a case where the Court has been prepared to recognise the existence of a trust in the absence of an express declaration of trust in either the contractual document being considered or the admissible factual matrix. That is a significant point since the other two cases upon which Birse primarily relies included express declarations of trust and Counsel was not able to identify any other examples of the Court recognising the existence of a trust in the absence of an express declaration. However, accepting for the purposes of the submission that the words “shall hold all promotional and management agreements relating to the business of the partnership … to the benefit of the partnership absolutely” were not an express declaration of trust, the language used is redolent of the language of trusts and it is easy to see why the agreements when read together were construed as showing a contractual intention that gave rise to a declaration of trust, applying normal principles of construction.

Morritt LJ was influenced in his conclusion by the fact that unless the Court recognised the existence of a trust, Mr Warren was unable to give effect to the intention of the parties that the promotion and management contracts should be brought into the partnership. At [30] he said:

“There can be no doubt that it was the intention of the parties as demonstrated by clause 6.1 of the first agreement that the full benefit of the management and promotion agreements … should be partnership property. … Given the terms of clause 6.1 of the first agreement and the legal inability of Mr. Warren to assign the benefit of the agreements to the partners jointly a trust … was the only way the evident intention of the partners could be achieved. For the reasons I have given earlier, the fact that the benefit of the agreements could not be sold and were otherwise unassignable is no reason to refuse to recognise the trust which was necessary to give effect to the manifest intention of the partners.” [Emphasis added]

Where the contractual intention of the parties is evident and manifest and it cannot legally be achieved without recognition of a trust, modern principles of contractual interpretation are flexible enough to justify the conclusion that a declaration of trust was intended even though that was not the normal meaning that would be ascribed to the words used by the parties. However, that imperative does not exist if the expressed contractual intention of the parties could have been or could be achieved without resorting to a trust. The “legal inability” in Don King was because of the personal nature of the contracts and the absolute prohibition that some of them contained. There is no such “legal inability” in cases such as the present where the contract in question is not a contract for personal services and the assignment can be effective provided that the parties take the contractually agreed course of obtaining consent to make it so.

In Barbados Trust Co v Bank of Zambia, a facility that had been traded on the distressed debt market was the subject of a purported assignment that was ineffective because of lack of consent by the obligor Bank of Zambia. The intended assignee made an express declaration of trust in favour of BT. A second issue raised by the Bank of Zambia was that, because an assignment to BT was prohibited by the terms of the facility, the declaration of trust in its favour would also be ineffective. Because of the Court’s decision that the purported assignment to the intended assignee was ineffective, this second issue was not necessary for the decision but the Court considered it.

At [43] Waller LJ pointed out that assignments and declarations of trust are different creatures; and he held that the prohibition against assignment did not prohibit a declaration of trust. At [87ff] Rix LJ expressed his conclusions as follows:

“87 … The fact that a prohibition on assignment between A and B cannot allow a third party, C, as A's purported assignee, to bring a direct contractual claim against B is not in dispute. It was held in Linden Gardens to be the consequence of the contractual prohibition. As Lord Browne-Wilkinson said (at 108F):

‘Therefore the existing authorities establish that an attempted assignment of contractual rights in breach of a contractual prohibition is ineffective to transfer such contractual rights. I regard the law as being satisfactorily settled in that sense. If the law were otherwise, it would defeat the legitimate commercial reason for inserting the contractual prohibition, viz. to ensure that the original parties to the contract are not brought into direct contractual relations with third parties.’

88 The ineffectiveness of the assignment in breach of a prohibition on assignment is understandable. It is not merely a matter of contract but of property. Although the would-be assignor has legal title to property in the form of a chose in action, he lacks the power, because of the terms on which the property is held, to transfer that property so as to entitle the transferee to exercise those contractual rights himself against the other party to the contract. However, he does not lack the power to render himself a trustee in equity of the property concerned. He would only do that if the prohibition on assignment extended as far as prohibiting a declaration of trust.”

The greatest encouragement for Birse’s submissions in the authorities appears to be another obiter dictum of Rix LJ, in Explora Group Plc v Hesco Bastion Ltd and The Trading Force Ltd [2005] EWCA Civ 646. The Trial Judge had held that commission under a contract known as the DSCC contract was not assignable. The Court of Appeal reversed that decision. Having done so, Rix LJ continued:

“In these circumstances, I feel entitled to deal with issue 8(b) relatively briefly. The judge thought that if the commission in respect of the DSCC contract had not been assignable even in the absence of an express prohibition, then it would have been irrelevant that it had been expressly assigned by TTF to Explora. He rejected Mr Purle's submission that the ineffective assignment would have taken effect as a trust in favour of Explora (para 98). I would merely say that I do not see why such a trust would not take effect: see Linden Gardens at 108D, Don King at 320A/B, Chitty at 19–045. Therefore, if there is any commission still due under the 1995 agency agreement which falls within the assignment under the CSA agreement, TTF holds that in trust for Explora”

This brief discussion gives little insight into the features of the case that led Rix LJ to his conclusion. What can be deduced, however, is that it is premised upon the assumption that the commission was not assignable (i.e. there was an absolute prohibition on assignment) in which case the passage from the judgment of Morritt LJ at [30] of Don King is in point.

On the assumption that a prohibition of an assignment without consent does not also prohibit a declaration of trust of the benefit of the warranties, the decisive issue will then be whether the party asserting the existence of the trust has shown that the Court should recognise it. In addressing this question I accept the submission made on behalf of Jubb that the Court should be careful to distinguish between two different circumstances. The first is where the Court infers from the words of the contract being construed (in the context of the admissible factual matrix) an intention on the part of the parties to the contract to create a trust; the second is where the court imposes a trust in order to prevent an unconscionable result, typically by the imposition of a constructive trust.

Resolution of this issue depends upon the application of two strands of principle. The first relates to the construction of commercial contracts; the second relates to the requirements of equity.

The principles concerning the construction of commercial contracts have been developed by a succession of cases of the highest authority and do not require detailed rehearsal here. They include the following:

The requirements of equity may be briefly summarised.

“An express trust is created by the actual intention of the person in whom the property is vested, … . The intention may be apparent from the express use of the words “trust” in the relevant instrument or gathered by inference from … words or conduct.

…

No particular form of expression is necessary for the creation of a trust if, on the whole, it can be gathered that a trust was intended. It is unnecessary for the settlor to use the word “trust”: the court construes the substance and effect of the words used, against the background of any relevant surrounding circumstances. Indeed, the settlor need not even understand that his words or conduct have created a trust if they have this effect on their proper legal construction.” (Snell on Equity, 32^nd Edition, 21-019, 22-013)

Whether or not there was an intention to create a trust by a failed assignment will depend upon the construction of the contract adopting normal principles. While the commercial purpose of the contract may be part of the relevant matrix, that purpose is most often to be found in the terms of the contract concluded by the parties, particularly when the words of the contract are clear and unambiguous.

I have already referred to the long-established principle that “the wholesale importation into commercial law of equitable principles would be inconsistent with the certainty and speed which are the essential requirements for the orderly conduct of business affairs.” I am not convinced that there is any tension between common law and equitable principles in a case such as this, provided that the Court is scrupulous in its interpretation of the contract when looking for the intention of the “assignor”. A warning to this effect was provided by In re Schebsman [1944] 1 Ch 83, 89, where Lord Greene MR said:

“The first question which arises is whether or not the debtor was a trustee for his wife and daughter of the benefit of the undertaking given by the English company in their favour. An examination of the decided cases does, it is true, show that the courts have on occasions adopted what may be called a liberal view on questions of this character, but in the present case I cannot find in the contract anything to justify the conclusion that a trust was intended. It is not legitimate to import into the contract the idea of a trust when the parties have given no indication that such was their intention. To interpret this contract as creating a trust would, in my judgment, be to disregard the dividing line between the case of a trust and the simple case of a contract made between two persons for the benefit of a third.”

To the same effect, at 104 du Parcq LJ said:

“It now remains to consider the question whether, and if so to what extent, the principles of equity affect the position of the parties. It was argued by Mr. Denning that one effect of the agreement of September 20, 1940, was that a trust was thereby created, and that the debtor constituted himself trustee for Mrs. Schebsman of the benefit of the covenant under which payments were to be made to her. Uthwatt J. rejected this contention, and the argument has not satisfied me that he was wrong. It is true that, by the use possibly of unguarded language, a person may create a trust, as Monsieur Jourdain talked prose, without knowing it, but unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention.”

Pulling these strands together, I derive the following principles that are of prime relevance to this issue. First, the existence of a trust is dependent upon the intention of the parties. Second, when deciding whether a failed contract of assignment gives rise to a trust, the intention of the parties is to be derived from that contract and the admissible factual matrix. Third, if there is a manifest intention to transfer the benefit of a contract and that cannot legally be achieved except by virtue of a trust, that will be a factor in favour of a conclusion that there should be a declaration of trust. Fourth, assignments and declarations of trust are different legal creatures, not least because an assignment transfers the legal and beneficial interest but a trust does not.

The words of the failed assignment are clear. The Assignor intended to assign all of the rights title or interest (legal or beneficial) as it had in the warranties to the Assignee. There is no language in the deed of assignment that is in any way redolent of the language of trusts. There is no prior covenant to settle, no express declaration of trust, and no statement of intention to hold the benefit of the warranty for the benefit of the intended assignee. The deed was a formal document executed by commercial parties and, as such, should normally be given its ordinary meaning. If the assignment had not failed, it would never have been suggested that the deed was meant to be a declaration of trust: the express intention of the parties was to assign, not to hold on trust. The meaning of the deed does not change simply because the parties failed to obtain a consent that was necessary to render the assignment effective. Nor is this a case where assignment was a legal impossibility: it only failed for want of consent.

Birse submitted that the factual matrix sheds light on the intention of the deed, referring to the previous assignments. In my judgment, those transactions do not assist Birse precisely because they were undoubtedly assignments. If anything can be admissibly deduced from the fact of previous assignments, which I doubt, it is that transactions that looked like assignments were intended to take effect as such. It is not justifiable to conjure up some vague notion that the previous transactions show a wish for the long leaseholder to be able to bring proceedings and to use that to subvert the clear meaning of the words that the parties chose to use in the later deed of assignment.

In the course of submissions Mr Soole QC, for Birse, was asked whether the logical consequence of Birse’s submissions was that every failed assignment would act as a declaration of trust. His reply was “not necessarily”; but apart from the fact of the previous successful assignments he was unable to identify any feature of the current case that marked it out for special treatment. In my judgment, where the words of the deed are so clear and assignment was a legal possibility, there is no justification for interpreting the deed as a declaration of trust.

For these reasons I find that the attempt to assign the benefit of Jubb’s warranty did not give rise to a trust of the benefit of the warranty in favour of Co-op.

Birse was engaged as a contractor by Kingspark Developments Ltd (“Kingspark”) to design and build a large warehouse near Rugby. Birse and Kingspark entered into a written building contract dated 20 February 1998. The express terms of the building contract include those pleaded at paragraphs 12, 13 and 14 of the Claimant’s Particulars of Claim.

Birse in turn engaged Jubb to provide structural engineering services in connection with the project. These included both design services and inspection services. Birse and Jubb entered into a retainer dated 30 March 1998. The express terms of Jubb’s retainer include those pleaded at paragraph 23 of the Defendant’s Particulars of Claim against Jubb. In or about January 1998, Birse engaged Geofirma by way of sub-contract to undertake soil stabilisation works in relation to the external and warehousing areas of the site. Geofirma’s works were completed and handed over by or about July 1998.

Kingspark entered into an agreement for lease dated 20 February 1998 in respect of the development with Co-operative Retail Services Ltd (“CRS”). Subsequently by a lease dated 5 October 1998 CRS leased the completed development to CRS. Both Birse and Jubb executed deeds of warranty in favour of CRS. The warranties are at [C1/0.1 and C1/1]. Birse’s warranty to CRS was executed on 11 June 1998. Jubb’s deed of warranty was executed on 25 August 1998 [C1/1].

Clause 7.1 of Jubb’s warranty provided:

“The benefit of this agreement may be assigned on two occasions only without the consent of the Consultant. The benefit of this agreement may not be assigned further without the prior written consent of the Consultant, which consent shall not be unreasonably withheld or delayed.”

Practical Completion was certified on 18 September 1998.

On 25 March 2000 CRS passed a special resolution to transfer its engagements to the Claimant (“Co-op”). The effect of that resolution inter alia was to transfer the benefit of Jubb’s warranty to Co-op. It is common ground between Jubb and Birse that this transfer is to be regarded as an assignment for the purposes of clause 7.1 of Jubb’s warranty.

On 31 January 2001 Co-op (who was now lessee of the development by virtue of the transfer mentioned above) executed a deed of assignment under which it assigned its leasehold interest in the property to Woolworth plc (“Woolworth”).

On 21 March 2001 Co-op executed a further deed of assignment in favour of Woolworth [C1/9]. Under that deed of assignment Co-op “assigns absolutely to [Woolworth] all such right title or interest as the Assignor may have in the Contracts”. The “Contracts” included Jubb’s warranty.

Following Woolworth’s collapse in 2008, the Co-op took an overriding lease of the development pursuant to section 19 of the Landlord and Tenant Act 1995. It also took a surrender of the lease from Woolworth pursuant to a Deed of Surrender dated 23 June 2010.

Pursuant to a separate Deed of Assignment, dated 23 June 2010 [C1/271] Woolworth purported to assign the benefit of a number of warranties to the Co-op, including Jubb’s warranty. Jubb’s consent to this assignment was neither sought nor given.

By 2004 some physical damage had occurred at the development which resulted in the following letters being written:

Proceedings were commenced on 14 September 2010 by Co-op against three defendants: Birse, Stuarts Industrial Flooring Ltd (“Stuarts”) and Jubb. However the Co-op subsequently discontinued its claims against Stuarts and Jubb.

The proceedings were stayed to allow the parties to comply with the Pre-Action Protocol. Once the stay was lifted, Birse served Claim Forms (which had been issued on 29 December 2011) on both Stuarts and Jubb naming them as additional parties.

Birse subsequently commenced proceedings against Geofirma on 8 March 2013. Those proceedings were served on 28 June 2013.

Birse accepts that its contractual claim against Geofirma is time-barred and its claim is therefore advanced in tort only. As between Birse and Geofirma it is common ground that any tortious claim against Geofirma is time-barred if the cause of action accrued on or before 8 March 2007.

… As appears from its Amended Defence in the main action, the Defendant denies that it is liable to the Claimant upon its claim. If, contrary to its defence in the main action, the Defendant is found liable to the Claimant in respect of the Hardstanding Claim and/or in respect of the Drainage Claim and/or in respect of the Warehouse Slab Claim, the Defendant claims from the Fourth Party damages equivalent to an indemnity in respect of all sums (whether damages, interest or costs) which the Defendant is held liable to pay to the Claimant and/or contribution equivalent to an indemnity pursuant to section 1 of the Civil Liability (Contribution) Act 1978.

The Defendant provided to CRS a collateral warranty (“the Warranty”) dated 11 June 1998. The express terms of the Warranty included the following:

The benefit of the Warranty was transferred from CRS to the Claimant by the statutory transfer of engagements … .

The express terms of the Building Contract included the following:

…

Further, the Employer’s Requirements which formed part of the Building Contract contained the Specification, which provided as follows:

SUBSTRUCTURE

The Claimant contends that the following were terms necessarily implied into the Building Contract:

The Defendant contends, rather, that the following were implied terms of the Building Contract:

By the letter of appointment … dated 30 March 1998 (“the Appointment”), Jubb was appointed to provide the Engineering Services … on the terms and conditions set out in the Appointment. The Appointment was executed as a deed by Jubb.

Jubb’s express obligations under the Appointment included the following:

The Consultant Engineering Services to be provided by you are detailed as follows:

There were implied terms of the Appointment that:

Further, Jubb owed to the Defendant a duty of care at common law which was concurrent and co-extensive with the implied contractual duty of care set out at Paragraph 24.1 above.

As an incident of the duty of care at common law referred to at Paragraph 25 above or otherwise, Jubb owed to the Defendant an obligation properly to review its design(s) for the Development in the event that it was or ought reasonably to have been aware of matters which any reasonably competent civil and structural engineer would regard as good reason to review its design(s).

… in the event and to the extent that the Claimant’s claim is not statute-barred and the Claimant establishes that the Defendant is liable as alleged … in respect of loss consequent upon defects in the hardstanding and/or in the drainage system and/or in the warehouse slab which were caused in the manner alleged by the Claimant, the Defendant will contend as follows against Jubb:

Damages for breach of the Appointment and/or for negligence

The Defendant’s liability to the Claimant will have been caused by Jubb’s breaches of its obligations to the Defendant. Jubb will have been in breach of its express and/or implied obligations under the Appointment and/or negligent in all or any of the respects set out below. Such breach by Jubb will have caused the defects in the hardstanding and/or in the drainage system and/or in the warehouse slab which the Claimant alleges and placed the Defendant in breach of its obligations to the Claimant.

As to the Defendant’s claim in tort: