UK: January To June 2013 Case Review

Last Updated: 30 July 2013
Article by Becky Johnson

Following on from our case law updates for 2012, please see the below selection of cases decided in the first half of 2013 which may be of interest to our clients and contacts in the property and construction sectors:

No right to direct payments

A.J. Building and Plastering Limited v Turner, Munday & Dalling [2013] EWHC 484 (QB)

A.J. Building were sub-contractors hired by Rok (on behalf of Zurich) to complete insurance repairs. Rok failed to pay A.J. Building before going into administration. A.J. Building sought to recover payment directly from the householders, stating that they had a direct contractual obligation to do so as the householders had signed a "Work Authority Mandate".
The judge rejected the claims on the basis that it was understood by all parties involved that Zurich would pay for the repairs. Furthermore, the householders had no discussion or input into the price of the works. The effect of the Mandate was that the insurer (Zurich) was responsible for covering the insured losses, while the householder was responsible for any payment over and above that of the insurance repairs (policy excess and additional works not covered by the policy). These claims, though for small amounts, served as test cases and confirmed that sub-contractors cannot recover where they do not have a direct contractual relationship or other express right to be paid directly.

Duties to third parties for defects

Hunt and others v Optima (Cambridge) Ltd and others [2013] EWHC 681 (TCC)

In this case, parties who had purchased long leasehold interests in flats sought to claim substantial damages for numerous defects from Optima (the developer) and Strutt & Parker ("S&P" who were responsible for providing certificates in respect of the works). The developer was held liable for breach of sale agreements and repairing covenants. The court also had no doubt that S&P owed a duty of care to the residents – the certificates amounted to a negligent misstatement and also a breach of warranty. Consultants therefore need to keep in mind that they may owe duties to third parties, even if they have not entered into a direct contract with them. The issues discussed in respect of the Limitation Act in this case also highlight the need to bring claims swiftly to avoid being time-barred. This case is also a reminder of the importance for consultants to make their own enquiries when certifying that works are satisfactory. It is not advisable to rely on what other members of the construction team have stated.

Net contribution clauses

West v Ian Finlay & Associates [2013] EWHC 868 (TCC)

Net contribution clauses seek to restrict a party's liability to the amount that would be apportioned to them by a court where more than one party is responsible for a loss. Without a net contribution clause the claiming party could sue for 100% of the loss. The defending party would then seek to recover the relevant parts of the loss from the other party responsible – which becomes a problem if that other party is insolvent. This was the position the architect found himself in in this case. After an apparently disastrous residential project, the Wests pursued the architect for damages. He sought to rely on a net contribution clause. Based on the facts of this case, the judge held that this clause did not exclude the architect's liability when the other party at fault was the main contractor. Consultants and their insurers should therefore be careful to ensure that their net contribution clauses are carefully drafted.

Signing as a company or an individual

Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470

The Court of Appeal confirmed that a contract evidenced by letter had been entered into by an individual, even though he had signed his name above and below the name of a trading company. The individual had not made it clear that he was not intending to contract in his personal capacity, and the fact that the other party to the contract could have made the connection between the signatory and the trading name of the company by using publicly available sources was not relevant. If you intend to contract as a company you must therefore make it clear you are doing so to avoid personal liability.

Take care over absolute obligations

Mueller Europe Ltd v Central Roofing (South Wales) Ltd [2013] EWHC 237

This case highlights the caution required where an employer needs to continue operating its business whilst construction works are in progress at its premises. Birdcage scaffolding was erected so that works could be carried out to a factory roof. Gas heaters caused a significant fire. The roofing contractor was held to be liable and the Mueller was awarded over £21m in respect of the damage caused. Although Mueller was in breach of its obligations under the contract to isolate some of the heaters, the breach of the roofing contractor's responsibility to safely carry out the works at all times was held to be the effective cause. Several of the contractor's breaches related to strict obligations under the contract (i.e. they were not subject to exercising reasonable skill and care) – where a party is in breach of such a term it cannot rely on the other party's contributory negligence. Parties should be careful therefore when agreeing to include absolute obligations to comply, and should in any event take care throughout the works to ensure that both parties are performing their own obligations as to safety.

Privilege does not extend to accountant's advice

R (Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1

The Supreme Court in this case refused to permit the doctrine of legal advice privilege to extend to cover tax law advice which is provided by accountants. Therefore it remains that only legal advice given to clients by their lawyers is protected by privilege – advice given by other professions (such as accountants) will not therefore be privileged.

Fall in property values not too remote to recover

John Grimes Partnership Ltd v Gubbins [2013] EWCA Civ 37

A breach of contract by an engineer in this case resulted in delays to a development. The Court of Appeal found that the losses arising out of the reduction in the market value of the development, were recoverable by the developer. The Court confirmed the position that a party entering into a contract will be liable for the losses which were reasonably foreseeable at the time of entering into the contract (although there are some exceptions to this). Here, the reduction in the development value was foreseeable and therefore the engineer was liable. If contracting parties want to exclude liability for particular types of loss it remains the case that they should expressly do so in the contract Otherwise, defendants will have to rely on proving that the type of loss was not reasonably foreseeable at the time the contract was entered into.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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