Remedies in Construction Law (Construction Practice Series) [2 ed.] 1138677744, 9781138677746

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RE ME D IE S IN C O N S TRUCTI ON LAW

CONSTRUCTION PRACTICE SERIES International Contractual and Statutory Adjudication Andrew Burr (2017)

Adjudication in Construction Law Darryl Royce (2016)

Construction Law Second Edition Julian Bailey (2016)

Chern on Dispute Boards: Practice and Procedure Third Edition Cyril Chern (2015)

Construction Insurance and UK Construction Contracts Third Edition Roger ter Haar QC, Marshall Levine and Anna Laney (2016)

Construction Contract Variations Michael Sergeant and Max Wieliczko Holman Fenwick Willan LLP (2014)

The Law of Construction Disputes Second Edition Cyril Chern (2016)

Remedies in Construction Law Roger ter Haar QC and Camilla ter Haar (2010)

Delay and Disruption in Construction Contracts Fifth Edition Andrew Burr (2016)

FIDIC Contracts: Law and Practice Ellis Baker, Ben Mellors, Scott Chalmers and Anthony Lavers (2010)

R EMEDI E S I N C ONST R U C T IO N L AW R OGER TER HAAR QC

S EC OND EDI T ION

Second edition published 2017 by Informa Law from Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Informa Law from Routledge 711 Third Avenue, New York, NY 10017 Informa Law from Routledge is an imprint of the Taylor & Francis Group, an Informa business © 2017 Roger ter Haar The right of Roger ter Haar to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. First edition published 2010 by Informa Law All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Whilst every effort has been made to ensure that the information contained in this book is correct, neither the author nor Informa Law can accept any responsibility for any errors or omissions or for any consequences arising therefrom. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Haar, Roger ter, author. Title: Remedies in construction law / by Roger ter Haar, QC. Description: Second edition. | Abingdon, Oxon [UK] ; New York : Routledge, 2017.   Series: Construction practice series Identifiers: LCCN 2017001201 | ISBN 9781138677746 (hbk) | ISBN 9781315559353 (ebk) Subjects: LCSH: Construction contracts—England. | Construction industry—   Law and legislation—England. | Remedies (Law)—England. Classification: LCC KD1641 .H33 2017 | DDC 343.4207/8624—dc23 LC record available at https://lccn.loc.gov/2017001201 ISBN: 978-1-138-67774-6 (hbk) eISBN: 978-1-315-55935-3 (ebk) Typeset in Times New Roman by Apex CoVantage, LLC

To my much loved daughter, Camilla

C O N T E NT S

Prefacexvii Table of Casesxix Table of Legislationlxvii CHAPTER 1

INTRODUCTION

1

CHAPTER 2

RECTIFICATION

3

CHAPTER 3

RESCISSION

19

CHAPTER 4

SPECIFIC REMEDIES UNDER CONTRACT

37

CHAPTER 5

QUANTUM MERUIT

39

CHAPTER 6

TERMINATION

55

CHAPTER 7

FRUSTRATION

69

CHAPTER 8

DAMAGES FOR BREACH OF CONTRACT: THE RULE IN HADLEY V BAXENDALE85

CHAPTER 9

DAMAGES FOR BREACH OF CONTRACT: MEASURE OF DAMAGES

97

CHAPTER 10 THE “BLACK HOLE” CASES

109

CHAPTER 11 DAMAGES FOR BREACH OF CONTRACT: SOME OTHER GENERAL PRINCIPLES

127

CHAPTER 12 DAMAGES IN TORT

147

CHAPTER 13 RECOVERY OF LOSS OF PROFITS AND OVERHEADS OR MANAGEMENT COSTS

169

CHAPTER 14 LIQUIDATED DAMAGES AND EXTENSIONS OF TIME

179

vii

Contents

CHAPTER 15 RECOVERY OF DAMAGES AND COSTS

205

CHAPTER 16 THE PROBLEM OF “GLOBAL” CLAIMS

227

CHAPTER 17 CLAIMS UNDER THE CIVIL LIABILITY (CONTRIBUTION) ACT 1978

247

CHAPTER 18 CLAIMING FINANCE COSTS AND INTEREST

265

CHAPTER 19 SET OFF AND ABATEMENT

277

CHAPTER 20 PROVISIONS EXCLUDING OR LIMITING LIABILITY

295

CHAPTER 21 INJUNCTIONS

321

CHAPTER 22 SPECIFIC PERFORMANCE

349

CHAPTER 23 DECLARATIONS

361

CHAPTER 24 LIMITATION

371

CHAPTER 25 DISPUTE RESOLUTION

389

Index

407

viii

D E TA I L E D C ONT E NT S

Prefacexvii Table of Casesxix Table of Legislationlxvii CHAPTER 1

INTRODUCTION

1

CHAPTER 2 RECTIFICATION Interpretation The scope of the remedy of rectification The standard of proof Mutual mistake Unilateral mistake The impact of contractual provisions Powers of an arbitrator to rectify Powers of an adjudicator to rectify A discretionary remedy

3 3 8 8 9 12 15 16 17 17

CHAPTER 3 RESCISSION 19 Grounds for rescission 19 Misrepresentation20 Need for a representation 20 Representation must be false 21 Representations of fact and representations of opinion or intention 22 Representations of law 23 Inducement, materiality and reliance 23 Duress24 Conflict of interest: bribery 25 How rescission is effected 26 The court’s power to award damages under the Misrepresentation Act 1967 27 Defences28 Affirmation 28 Delay (Laches) 29 Impossibility of restoration of the parties’ pre-contractual positions 29 The position of third parties 31 ix

DE TAI L E D C ontents

The effect of contractual provisions Rescission and arbitration CHAPTER 4

32 36

SPECIFIC REMEDIES UNDER CONTRACT

37

CHAPTER 5 QUANTUM MERUIT 39 Contractual claim for a “quantum meruit” 39 Quantum meruit in the law of restitution 40 Additional work going beyond a variation 41 Work done in anticipation of a contract 43 49 Work done under a contract discharged through breach Work done under a void or unenforceable contract 51 Adjudication52 Work done under a contract with one party for the benefit of another 53 CHAPTER 6 TERMINATION Repudiation at common law Termination under standard forms of contract Interplay of common law and contractual rights to terminate Consequences of termination

55 55 61 65 66

CHAPTER 7 FRUSTRATION 69 The doctrine of frustration 69 Effect of frustration 72 A doctrine not to be lightly invoked 72 Extrinsic evidence as to the assumptions of the parties 72 The application of the doctrine of frustration 73 Destruction of the subject matter of the contract 74 Delay74 Changes in price 75 Amount or significance of variations 76 Shortage of labour 76 Difficulties in obtaining supplies 77 Strikes78 Legislative changes 78 War78 Self-induced frustration 78 Effect of contractual provisions 80 Consequences of discharge through frustration 81 Similarities between the doctrine of frustration and the law of mutual mistake 83 CHAPTER 8

DAMAGES FOR BREACH OF CONTRACT: THE RULE IN HADLEY V BAXENDALE85 The “starting point” 85 Losses within reasonable contemplation 86 x

DE TAI L E D C ontents

CHAPTER 9

DAMAGES FOR BREACH OF CONTRACT: MEASURE OF DAMAGES 97 Cost of repairs or diminution in value? 97 Reliance upon advice 101 Betterment102 Date of assessment 103 Mitigation of loss 105

CHAPTER 10 THE “BLACK HOLE” CASES 109 Introduction109 109 The general rule The exception to the rule 110 The “rule” in Dunlop v Lambert111 The Albazero111 The St Martins extension 112 Panatown 113 Panatown – the facts 114 Panatown – the narrow ground 114 The narrow ground is good law 114 The narrow ground as a rule of law 115 The narrow ground will be displaced where there are other remedies115 Accountability to a third party 115 The narrow ground in summary 116 Panatown – the broad ground 116 Spectre of double recovery 118 Panatown – the result 118 Panatown – the future 119 The Buncefield explosion: Shell UK v Total UK120 Black holes and assignment 121 Contracts (Rights of Third Parties) Act 1999 123 Latent Damage Act 1986 124 CHAPTER 11 DAMAGES FOR BREACH OF CONTRACT: SOME OTHER GENERAL PRINCIPLES 127 Causation127 Standard of proof 131 Reliance and expectation damages 133 Contributory negligence 134 Foreign currency awards 137 Damages for mental distress and physical inconvenience 139 What benefits are to be taken into account? 141 Taxation 143 Account of profits/damages for “loss of opportunity to bargain” 143 Distinguishing damages claims from claims within a contract 145 xi

DE TAI L E D C ontents

CHAPTER 12 DAMAGES IN TORT 147 Negligence147 Physical damage and personal injury 148 Economic loss 149 Application of the rules relating to recovery of economic loss to cases arising out of construction projects 151 Causation154 Foreseeability156 Interrelationship between scope of duty, causation and foreseeability 158 Contributory negligence 162 162 Measure of damages Mitigation of loss 163 Betterment 163 Nuisance 163 Trespass164 Deceit166 Infringement of intellectual property rights 167 Claims for breach of statutory duty 167 The economic torts 167 CHAPTER 13 RECOVERY OF LOSS OF PROFITS AND OVERHEADS OR MANAGEMENT COSTS Loss of profits: recovery in contract Loss of profits: recovery in tort Recovery of overheads and management charges Exclusion and limitation of liability clauses

169 169 170 172 178

CHAPTER 14 LIQUIDATED DAMAGES AND EXTENSIONS 179 OF TIME Unenforceability of penalty clauses 180 The law before Cavendish Square Holdings v Makdessi180 Cavendish Square Holdings BV v Makdessi; ParkingEye Ltd v Beavis 183 The implications of the decision in Cavendish Square Holdings v Makdessi184 Can liquidated damages be increased or decreased? 185 The prevention principle 187 Extension of time clauses 189 Concurrent delay 195 Deduction of liquidated damages 202 CHAPTER 15 RECOVERY OF DAMAGES AND COSTS The simplest case: straightforward third party (Part 20) proceedings Passing on a claim for damages awarded in previous court proceedings to which the new defendant was not a party Recovery of damages awarded by a foreign court xii

205 205 207 209

DE TAI L E D C ontents

Passing on a claim for damages awarded in a previous arbitration to which the new defendant was not a party Recovery of monies paid in settlement of an earlier claim Recovery of costs Indemnity clauses CHAPTER 16 THE PROBLEM OF “GLOBAL” CLAIMS

211 212 221 224 227

CHAPTER 17 CLAIMS UNDER THE CIVIL LIABILITY (CONTRIBUTION) ACT 1978 247 248 “The same damage” “Liable”251 Assessment of contribution 257 Summary262 CHAPTER 18 CLAIMING FINANCE COSTS AND INTEREST 265 Recovery of “loss and expense” 265 Interest as damages 265 The Senior Courts Act 1981 266 The Arbitration Act 1996 269 Adjudication270 The Late Payment of Commercial Debts (Interest) Act 1998 270 CHAPTER 19 SET OFF AND ABATEMENT 277 Connected cross-demands 278 Mutual liquidated demands 278 Abatement279 Equitable set off 281 Contractual set off 282 Exclusion of rights of abatement and set off 283 Lapse of time 284 Limitation284 Set off in insolvency 284 Bankruptcy set off 285 Set off and corporate insolvency 287 Abatement and set off and the Housing Grants, Construction and Regeneration Act 1996 288 The old law 288 The new regime 289 Arbitration clauses and transaction set off 291 CHAPTER 20 PROVISIONS EXCLUDING OR LIMITING LIABILITY Incorporation of terms Sufficiency of notice Battle of the forms xiii

295 295 295 297

DE TAI L E D C ontents

Interpretation of exclusion (exemption) and limitation clauses Exclusion clauses are construed strictly Construction contra proferentem Liability for negligence Limitation clauses Liability for fraud Deliberate breach Repugnancy Consequential and indirect losses Entire agreement clauses Schemes allocating risks Unfair Contract Terms Act 1977 Remedies for misrepresentation Consumer contracts Defective Premises Act 1972 Terms implied by statute Contracts (Rights of Third Parties) Act 1999

300 300 301 302 306 306 307 308 309 312 312 314 319 319 320 320 320

CHAPTER 21 INJUNCTIONS Final prohibitory injunctions Final mandatory injunctions Interim injunctions Freezing injunctions Notification injunctions Damages in lieu of an injunction Assessment of damages for breach of an undertaking as to damages Contempt of court Forum shopping: anti-suit injunctions Injunctions to restrain proceedings brought in breach of an agreed dispute resolution procedure Injunctions in connection with arbitration proceedings Powers of an arbitrator Injunctions to restrain a nuisance or trespass Injunctions in respect of retention monies Injunctions to restrain a call on a bond Refusal of an injunction in respect of a tendering process

321 321 322 323 326 329 329 333 336 337

CHAPTER 22 SPECIFIC PERFORMANCE Introduction This is a remedy rarely granted Principles for the granting of specific performance When specific performance will not be decreed Courts are more reluctant to grant specific performance in construction contracts Exceptions to the general rule

349 349 349 349 350

xiv

342 344 346 346 347 348 348

351 352

DE TAI L E D C ontents

Other circumstances in which an order for specific performance may be granted Sufficient definition Contracts requiring constant supervision Specific performance may not be granted where it will cause injustice to the defendant Adequacy of damages Mutuality of remedy Co-ownership and specific performance The powers of an arbitrator The powers of an adjudicator Third parties

354 354 355 357 357 358 358 358 359 359

CHAPTER 23 DECLARATIONS Introduction Jurisdiction of the courts Exclusion of jurisdiction by agreement The legal effect of a declaratory judgment Advantages of declarations Summary of the principles applied by the courts to the grant of declarations Declarations of right Interim declarations Negative declarations Granting a declaration

361 361 362 362 362 363

CHAPTER 24 LIMITATION Claims in contract Claims in tort: negligence Claims in tort: negligence and latent damage The longstop date Fraud, concealment and mistake Claims for contribution under the Civil Liability (Contribution) Act 1978 Claims in tort: nuisance and trespass Defective Premises Act 1972 Acknowledgement Injunctions, specific performance and other equitable relief Amendments Arbitration Adjudication Tolling agreements

371 371 373 375 378 378 380 382 382 382 382 383 385 387 388

CHAPTER 25 DISPUTE RESOLUTION Litigation Arbitration

389 389 391

xv

363 363 364 365 369

DE TAI L E D C ontents

Confidentiality and privacy 392 Procedure 393 Expedition 395 Choice of arbitrator 395 Expense 396 Challenges to, appeals from, and enforceability of awards 396 Summary 398 Adjudication 399 Background 399 The approach of the Act 400 402 Alternative dispute resolution Mediation404 Mini-trial405 Dispute boards 405 Engineer’s decisions 406 Index

407

xvi

P R E FA C E

The first edition of this book was published seven years ago. It was a collaboration with my daughter. Sadly, in respect of the quality of this edition, but happily, because it results from the arrival of James into the world, she has felt unable to assist with this edition. The wider world is richer but the legal world poorer as a result. In those seven years the most heralded event has been the review by the Supreme Court of the law relating to penalties: however in my respectful view that review will change little in respect of construction contracts where the courts have generally upheld clauses imposing liquidated damages. On the other hand, the Supreme Court decision in Lawrence v Fen Tigers may herald a dramatic change in the willingness of the courts to grant injunctive relief in respect of nuisances or trespasses: it is too early to tell. It has also been fascinating to watch the rapid evolving attitude of the Court of Appeal to the construction of exclusion and limitation clauses. Otherwise the last seven years have seen a steady accumulation of examples of well-­ established principles, with some old chestnuts unresolved, particularly the proper approach to concurrent delays both in respect of extensions of time and in respect of financial relief. As so many disputes are resolved privately by mediation, adjudication or arbitration it may be that these old chestnuts will remain unresolved for some time to come. In preparing this edition I have been particularly assisted by Richard Sage in my chambers, who has co-written parts of the chapter on limitation, for which I am grateful. At my publishers, I have been gently pushed by Caroline Church who has combined helpfulness with patience. But most of all my gratitude and admiration is reserved for my wife Charlotte, who has endured the essay crisis associated with getting this edition prepared with love and tolerance. Roger ter Haar QC Temple London January 2017

xvii

TA B L E O F C AS E S

A Company, Re (1299 of 2001) (2001) CILL 1754..................................................................... 19.52 A Jacobs v Morton and Partners (1995) 72 BLR 92.................................................................... 12.20 A Roberts & Co Ltd v Leicestershire County Council [1961] 1 Ch 555....................................... 2.38 A v B (No 2) [2007] 1 Lloyd’s Rep 358...................................................................................... 15.57 Aaron’s Reefs Ltd v Twiss [1896] AC 273.................................................................................... 3.22 AB Contractors v Flaherty (1978) 16 BLR 8............................................................................... 19.19 AB Marintrans v Comet Shipping Co [1985] 1 WLR 1270........................................................ 11.24 Abbey Forwarding Ltd v Hone (No. 3) [2014] EWCA Civ 711; [2015] Ch 309............. 21.50, 21.54 Abbey National plc v Gouldman [2003] EWHC 925 (Ch); [2003] 1 WLR 2042........... 17.37, 17.58 Abbott v Will Gannon & Smith Ltd [2005] EWCA Civ 198; [2005] BLR 195............... 24.12, 24.13 Abidin Daver, The [1984] AC 398.................................................................................... 21.67, 21.69 Absalom v TRCU [2005] EWCA Civ 1586; [2006] 2 Lloyd’s Rep 129....................................... 2.15 ABTA v BA [2000] 2 Lloyd’s Rep 209......................................................................................... 2.15 AC Controls Ltd v British Broadcasting Corporation [2002] EWHC 3132 (TCC); 89 ConLR 53.............................................................................................................. 5.20 ACC Bank plc v Friends First Management Pension Funds Ltd [2012] IEHC 435.................... 14.21 ACE European Group Ltd v Chartis Insurance UK Ltd [2013] EWCA Civ 234; [2013] Lloyd’s Rep IR 485....................................................................... 11.14 Achilleas, The. Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48; [2009] 1 AC 61.................. 8.4, 8.9, 8.11 – 8.14, 8.15 – 8.18, 8.20, 8.23, 12.33 Aconcagua, The. Compania Sud Americana de Vapores v Sinochem Tianjin Ltd [2010] EWCA Civ 1403; [2011] BLR............................................................................................. 11.14 Acsim (Southern) Ltd v Danish Contracting and Development Co Ltd (1989) 47 BLR 55................................................................................................................. 19.18, 19.23 Adam v Newbigging (1888) LR 13 App Cas 308.......................................................................... 3.47 Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133............. 20.17, 20.38 Adams v Richardson & Starling Ltd [1969] 1 WLR 1645.......................................................... 20.18 Adapt Constructions Pty Ltd v Whittaker [2015] ACTSC 188................................................... 14.26 Adelfa, The. Adelfamar SA v Silos e Mangimi Martini [1988] 2 Lloyd’s Rep 466............. 7.35, 7.36 Adelfamar SA v Silos e Mangimi Martini (The Adelfa) [1988] 2 Lloyd’s Rep 466..................... 7.35 Adkin v Brown [2002] NZCA 59.................................................................................................. 6.11 ADM Asia-Pacific Trading PTE Ltd v PT Budi Semestra Satria [2016] EWHC 1427............... 21.70 Admiral Management Services Ltd v Para-Protect Europe Ltd [2002] EWHC 233 (Ch); [2002] 1 WLR 2722................................................................................ 13.37 Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm); [2011] BLR 384; 136 Con LR 190........................................................................................................ 14.66, 14.68 Aectra Refining & Manufacturing Inc v Exmar NV [1994] 1 WLR 1634............... 19.4, 19.5, 19.62

xix

TABL E OF C A SES

Aercap Partners 1 Ltd v Avia Asset Management AB [2010] EWHC 2431 (Comm); [20101] 2 CLC 578......................................................................... 11.17 Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3; [2007] Bus LR 726................................................. 9.10, 9.14, 9.20, 13.34, 13.35 AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35; [2013] 1 WLR 1889......................................................................... 21.73 Afovos Shipping Co SA v Pagnan and Lli (“The Afovos”) [1983] 1 WLR 195............................. 6.7 African Fertilizers and Chemicals Nig (Ltd) (Nigeria) v BD Shipsnavo GmbH & Co Reederei Kg [2011] EWHC 2452 (Comm); [2011] 2 Lloyd’s Rep 531............................... 23.42 A-G of Hong Kong v Ko Hon Mau (1988) 44 BLR 144............................................................... 21.6 A-G v Blake [1998] Ch 439, CA; affmd [2001] 1 AC 268, HL................................................ 1.3, 5.35, 11.55, 11.56, 11,57, 11.59, 12.58, 20.35, 21.35 A-G v Colchester Corp [1955] 2 QB 207.................................................................................... 22.18 A-G v Leveller Magazine Ltd [1979] AC 440............................................................................. 21.58 A-G v Times Newspapers Ltd [1992] 1 AC 191............................................................... 21.58–21.60 Ageas (UK) Ltd v Kwik-Fit (GB) Ltd [2014] EWHC 2178 (QB); [2014] Bus. LR 1338; [2015] Lloyd’s Rep IR 1.......................................................... 9.24, 11.46 Agenor, The. The President of India v Taygetos Shipping Co AG [1985] 1 Lloyd’s Rep 155..................................................................................................... 11.32 Aggeliki Charis Compania Maritima SA v Pagna SpA (“The Angelic Grace”) [1995] 1 Lloyd’s Rep 87....................................................................................................... 21.73 Agip SpA v Nazigazione Alta Italia SpA (“The Nai Genova”) [1984] 1 Lloyd’s Rep 353.............................................................................. 2.20, 2.23, 2.40, 2.41, 4.22 Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964........................................................................................................................... 20.28 Airbus Industrie GIE v Patel [1999] 1 AC 119................................................................. 21.68, 21.69 Airport Industrial GP Ltd v Heathrow Airport Ltd [2015] EWHC 3753 (Ch)................................................................................................................. 22.21 Akai Pty Ltd v People’s Insurance Co Ltd [1998] 1 Lloyd’s Rep 90.......................................... 23.39 Albazero, The [1977] AC 774................................................................................................... 10.3, 10.7, 10.9, 10.10, 10.12, 10.13, 10.15, 10.31, 10.32, 10.42, 10.49, 10.72 Alcoa Minerals of Jamaica Inc v Broderick [2002] 1 AC 371; [2000] BLR 279.................................................................................................. 9.25, 9.26, 12.49 Alderslade v Hendon Laundry Ltd [1945] KB 189..................................................................... 20.20 Aldgate Construction Company Ltd v Unibar Plumbing & Heating Ltd [2010] EWHC 1063 (TCC)................................................................................ 8.13 Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310....................................... 11.3 Alfa Finance Holding AD v Quarzwerke GmbH [2015] EWHC 243 (Ch)................................. 22.24 Alfred C Toepfer International v Itex Itagrani [1993] 1 Lloyd’s Rep 360..................................... 6.15 Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] EWHC 281 (TCC); [2005] BLR 271............................................................... 14.5, 14.10, 14.11 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518.................................... 8.2, 10.3, 10.6, 10.21 – 10.52, 10.72 Alfred McAlpine Homes North Ltd v Property and Land Contractors Ltd (1995) 76 BLR 65................................................................................................................. 13.30 Ali Shipping Corporation v Shipyard Trogir [1999] 1 WLR 314.......................... 15.26, 25.25, 25.29 Allen Stein v David Blake [1996] AC 243....................................................................... 19.36, 19.38 Allen v Universal Automobile Insurance Co Ltd (1933) 45 Ll L Rep 55..................................... 3.10 Alley v Rodgers 269 Ark 262, 599 SW 2d 739, 741 (Arkansas 1980)........................................ 14.24

xx

TABL E OF CASES

Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2014] SGCA 35; [2015] BLR 410............................................................................... 7.22, 7.27 Allied Maples v Simmons & Simmons 1995] 1 WLR 1602........................................... 11.17, 12.26 Allison, Re [1904] 2 KB 327......................................................................................................... 5.44 Al-Rawas v Pegasus Energy Ltd [2008] EWHC 617 (QB); [2009] 1 All ER 346, QBD; [2007] EWCA Civ 268, CA.................... 13.35, 21.28, 21.50, 21.52, 21.56 Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49........................................... 20.45 Alstom Signalling Ltd (t/a Alstom Transport Solutions) v Jarvis Facilities Ltd [2004] EWHC 1232 (TCC)...................................................................... 4.9 Amalgamated Building Contractors Co Ltd v Waltham Holy Cross UDC [1952] 2 All ER 452.................................................................................................... 14.35 Amec Building Ltd v Cadmus Investments Co Ltd (1996) 51 ConLR 105.................................................................................................................. 13.6, 13.32 Amec Capital Projects Ltd v Whitefriars City Estates [2004] EWCA Civ 1418; [2005] BLR 1.......................................................................................... 25.71 Amec Civil Engineering Ltd v Secretary of State for Transport [2005] BLR 227.................................................................................................................... 14.34 Amec Developments v Jury’s Hotel Management [2001] EGLR 81; (2001) 82 P & CR 22................................................................................................ 11.59, 21.44 AMEC Group Ltd v Universal Steels Scotland Ltd [2009] EWHC 560 (TCC); [2009] BLR 357...................................................................................................... 21.14 Amec Process & Energy Ltd v Stork Engineers & Contractors BV, unreported, 15 March 2002.................................................................................................. 13.37 Amer Energy, The. ASM Shipping Ltd of London v TTMI Ltd of England [2009] 1 Lloyd’s Rep 293....................................................................................................... 8.11 American Airlines Inc v Hope [1974] 2 Lloyd’s Rep 301............................................................. 2.22 American Cyanamid Co Ltd v Ethicon [1975] AC 396.................................................... 21.11, 21.12 American International Speciality Lines Insurance Co v Abbott Laboratories [2002] EWHC 2714 (Comm); [2003] 1 Lloyd’s Rep 267.................................................... 21.74 AMEVUDC Finance Ltd v Austin (1986) 162 CLR 170............................................................ 14.11 AMF International Ltd v Magnet Bowling Ltd [1968] 1 WLR 1028.......................................... 15.63 Amstrad plc v Seagate Technology Inc (1997) 86 BLR 34................................................ 9.34, 11.53 Amtrust Europe Ltd v Trust Risk Group SpA [2015] EWHC 1927 (Comm); [2015] 2 Lloyd’s Rep 231..................................................................................................... 21.75 Anchor Brewhouse Developments Ltd v Berkley House (Docklands Developments) Ltd (1987) 38 BLR 82.......................................................................................................... 21.85 Anderson v Tupeka County Council (1900) 19 NZLR 1............................................................. 14.40 Andre & Cie SA v Tradax Export SA [1983] 1 Lloyd’s Rep 254.................................................. 7.14 Andrė & Cie v Cook Industries Inc [1987] 2 Lloyd’s Rep 403..................................................... 6.20 Andrews v Australian and New Zealand Banking Group Ltd [2011] FCA 1376........................ 14.22 Aneco Reinsurance Underwriting Ltd (in liquidation) v Johnson & Higgins Ltd [2001] UKHL 51; [2002] 1 Lloyd’s Rep 157....................................................................... 12.36 Angelic Grace, The. Aggeliki Charis Compania Maritima SA v Pagna SpA [1995] 1 Lloyd’s Rep 87....................................................................................................... 21.73 Anglia Television Ltd v Reed [1972] 1 QB 60................................................................. 11.20, 11.21 Anglo-Egyptian Navigation Co v Rennie (1875) LR 10 CP 270.................................................. 7.18 Anna Bo, The. Southport Success SA v Tsingshan Holding Group Co Ltd [2015] EWHC 1974 (Comm); [2015] 2 Lloyd’s Rep 578............................................................... 21.74 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 ...................................... 2.14

xxi

TABL E OF C A SES

Antaios, The. Maritime Transport Overseas GmbH v Unitramp Salen Rederierna AB [1981] 2 Lloyd’s Rep 284................................................................. 15.58, 25.37 Antino v Epping Forest District Council (1991) 53 BLR 56......................................................... 6.12 Apex Frozen Foods Ltd v Ali [2007] EWHC 469 (Ch); [2007] 6 Costs LR 818........................ 21.54 Appleby v Myers (1867) LR 2 CP 651................................................................................. 5.31, 7.18 Arab Bank plc v John D Wood Commercial Ltd [2000] 1 WLR 857.......................................... 11.52 Arab Monetary Fund v Hashim (No 10), The Times, 17 June 1993............................................ 17.35 Arab Monetary Fund v Hashim (No 8) [2008] EWHC 1172 (QB); [2008] 1 WLR 2867........... 17.35 Architectural Installation Services v James Gibbons Windows (1989) 46 BLR 91............. 6.15, 6.31 Ariston SRL v Charly Records, CA, 13 March 1990.................................................................. 14.10 Armagas Ltd v Mundogas SA [1986] AC 717............................................................................... 3.26 Armchair Answercall Ltd v People in Mind Ltd [2016] EWCA Civ 1039................................... 7.11 Armstrong v Jackson [1917] 2 KB 822......................................................................................... 3.47 Arnison v Smith (1889) LR 41 Ch D............................................................................................. 3.21 Arnold and Co Ltd v Attorney-General of Hong Kong (1989) 47 BLR 129............................... 14.43 Arnold v Britton [2015] UKSC 36; [2015] AC 1619................................................... 2.9, 2–11, 2.16 Arthur Sanders Ltd, Re (1981) 17 BLR 125................................................................................ 21.88 Ashville Investments Ltd v Elmer Contractors Ltd [1989] 1 QB 488........................................... 2.51 ASM Shipping Ltd of London v TTMI Ltd of England (The “Amer Energy”) [2009] 1 Lloyd’s Rep 293..................................................................................................................... 8.11 Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38; [2015] 1 WLR 2961......................................................................................... 5.43, 24.50–24.55 Asphaltic Wood Pavement Co, Ex p Lee and Chapman, Re (1885) 30 Ch D 216...................... 19.19 Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of Zurich [2003] UKPC 11; [2003] 1 WLR 1041..................................... 15.26, 25.25, 25.29 Astilleros Canarios SA v Cape Hatteras Shipping Co Inc and Hammerton Shipping Co SA (“The Cape Hatteras”) [1982] 1 Lloyd’s Rep 518....................................... 5.16 AstraZeneca UK Ltd v Albemarle International Corp. [2011] EWHC 1574 (Comm); [2011] 2CLC 252.................................................................................................. 20.37 Athenian Harmony, The. Derby Resources AG v Blue Corinth Marine Co Ltd [1988] 2 Lloyd’s Rep 425..................................................................................................... 18.12 Atisa SA v Aztec AG [1983] 2 Lloyd’s Rep 579........................................................................... 7.14 Atlantic Lines & Navigation Co Inc v Hallam Ltd (“The Lucy”) [1983] 1 Lloyd’s Rep 188....... 3.37 Avon Insurance plc v Swire Fraser Ltd [2000] Lloyd’s Rep IR 535............................................. 3.10 AXA Insurance UK plc v Cunningham Lindsey UK [2007] EWHC 3023 (TCC)................... 9.3, 9.19, 9.20, 9.31, 11.7, 14.47, 15.43, 15.45 Axa Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133; [2011] 2 Lloyd’s Rep 1; [2012] Bus LR 203................................................................. 2.48, 3.63 Axel Johnson Petroleum AB v MG Mineral Group AG [1992] 1 WLR 270....................... 19.4, 19.6 Azimut-Benetti SpA (Benetti Division) v Darrell Marcus Healey [2010] EWHC 2234 (Comm); [2011] 1 Lloyd’s Rep 473; (2010) 132 Con LR 113....................... 14.11 B Hargreaves Ltd v Action 2000 Ltd (1992) 62 BLR 72.............................................................. 19.4 B v S [2011] EWHC 691 (Comm); [2011] 2 Lloyd’s Rep 18.......................................... 21.33, 21.81 Babcock Energy Ltd v Lodge Sturtevant Ltd (1994) 41 ConLR 45............................................ 13.33 Bacciottini v Gotelee and Goldsmith [2016] EWCA Civ 170; [2016] 4 WLR 98............. 9.37, 11.46 Backhouse v Bonomi (1861) 9 HL Cas 503................................................................................ 24.34 Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137............................................. 14.26 Bagot v Stevens Scanlan & Co Ltd [1966] 1 QB 197................................................................... 24.4 Baker v Willoughby [1970] AC 467.............................................................................................. 11.8 Balfour Beatty Building Ltd v Chestermount Properties Ltd (1993) 62 BLR 1 .............. 14.35, 14.36

xxii

TABL E OF CASES

Balfour Beatty Civic Engineering v Technical & General Guarantee Co Ltd (1999) 68 ConLR 180........................................................................................................................... 21.89 Balfour Beatty Construction (Scotland) Ltd v Scottish Power plc (1994) 71 BLR 20..................................................................................................................... 8.22, 8.23 Balfour Beatty Construction Ltd v London Borough of Lambeth [2002] EWHC 597 (TCC); [2002] BLR 288................................................................................... 14.56 Ballanbank v Taher [1995] 1 WLR 1056..................................................................................... 21.51 Ballinger v Mercer [2014] EWCA Civ 996; [2014] 1 WLR 3597.............................................. 24.40 Baltic Surveyor, The and The Timbuktu. Voaden v Champion [2001] 1 Lloyd’s Rep 739; [2002] EWCA Civ 89; [2002] 1 Lloyd’s Rep 623, CA................................................................................................ 9.12, 9.13, 9.23, 13.8 Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452................................................... 8.2, 9.33 Banham Marshalls Services Unlimited v Lincolnshire County Council [2007] EWHC 402 (QB)...................................................................................................... 18.33 Bank Line Ltd v Arthur Capel & Co [1919] AC 435............................................................ 7.10, 7.44 Bank of Australasia v Palmer [1897] AC 540................................................................................ 2.12 Bank of Credit and Commerce International SA (No 10), Re [1997] Ch 213............................. 19.40 Bank of Credit and Commerce International SA v Ali and others [2002] 1 AC 251..................... 2.15 Bankers Trust Co v PT Jakarta International Hotels & Development [1999] 1 Lloyd’s Rep 910................................................................................................................ 21.74 Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd; sub nom South Australia Asset Management Corp v York Montague Ltd (SAAMCO) [1997] AC 191; [1996] BLR 1 ................... 8.4, 8.13, 12.4, 12.5, 12.30, 12.33, 12.35, 12.36, 12.38, 12.42, 12.63, 13.11 Banque Paribas v Venaglass Ltd (1994) CILL 918........................................................................ 5.24 Barclays Bank plc v Fairclough Building Ltd (No 1) [1995] QB 215 ........................................ 11.26 Barclays Bank plc v Fairclough Building Ltd (No 2) (1994) 39 ConLR 144; (1995) 76 BLR 1................................................................................................. 9.22, 9.25, 12.21 Barclays Bank plc v Nylon Capital LLP [2011] EWCA Civ 826; [2012] Bus LR 542........................................................................................................................... 21.73 Barclays Bank plc v UniCredit Bank AG [2014] EWCA Civ 302; [2014] 2 Lloyd’s Rep 59.................................................................................................................... 3.58 Barker v Corus UK Ltd [2006] 2 AC 572; [2006] UKHL 20...................................................... 12.24 Barrie School v Patch 401 Md 497, 933 A 2d 382, 390, 225 Ed Law Rep 973 (Maryland 2007).................................................................................................... 14.24 Basildon District Council v JE Lesser (Properties) [1985] QB 839............................................ 11.24 Bath and North East Somerset District Council v Mowlem plc [2004] EWCA Civ 722; [2004] BLR 153............................................................................. 21.12, 21.42 Baxall Securities Ltd v Sheard Walshaw Partnership [2002] EWCA Civ 9; [2005] PNLR 564............................................................................................ 12.9 Beckhaus v Brewarrina No 2 [2004] NEWSC 1160.................................................................... 14.44 Bedfordshire County Council v Fitzpatrick Contracts Ltd (1998) CILL 1440................................ 6.9 Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] EWCA Civ 647; [2011] QB 357........................................................................................................................ 9.39 Bellefield Computer Services v E Turner & Sons Ltd [2002] EWCA Civ 1823; [2003] Lloyd’s Rep PN 53.......................................................................... 12.9, 12.20 Bellgrove v Eldridge (1954) 90 CLR 613........................................................................................ 9.7 Benarty (No 2), The [1987] 1 WLR 1614.................................................................................... 17.37 Benedetti v Sawaris [2013] UKSC 50; [2014] AC 938........................................................ 5.22, 5.24 Benfri, The and The Locri. Federal Commerce Navigation Co v Molen Alpha Inc [1979] AC 757.............................................................................................. 6.7

xxiii

TABL E OF C A SES

Berent v Family Mosaic Housing [2012] EWCA Civ 961; [2012] BLR 488.............................. 12.49 Bernhard’s Rugby Landscapes Ltd v Stockley Park Consortium Ltd (1997) 82 BLR 39............................................................................................................................ 14.26 Bernhard’s Rugby Landscapes Ltd v Stockley Park Consortium Ltd (1998) 14 Const LJ 329.................................................................................................................... 14.40 Beswick v Beswick [1968] AC 58................................................................................... 10.54, 22.46 Bhatti v Ashgar [2016] EWHC 1049 (QB); [2016] 2 Costs LR 493........................................... 24.41 Bhimji v Chatwani [1991] 1 WLR 989........................................................................................ 21.61 BHP Billiton Petroleum Ltd v Dalmine SpA [2003] BLR 271...................................................... 11.5 BHP Petroleum Ltd v British Steel plc [1999] 2 Lloyd’s Rep 583.............................................. 20.44 Bibby Factors Northwest Ltd v HFD Ltd [2015] EWCA Civ 1908; [2016] 1 Lloyd’s Rep 517..................................................................................................... 19.13 BICC Ltd and Cumbrian Industrials Ltd v Parkman Consulting Engineers [2002] BLR 64; 79 Con LR 112.......................................................................... 17.55 BICC Ltd v Cumbrian Industrial Ltd [2002] Lloyd’s Rep PN 526.................................. 15.55, 17.57 Biffa Waste Services Ltd, Biffa Leicester Ltd v Maschinenfabrik Ernst Hese GMBH, Outokumpu Technology Wenmec AB and Vanguard Industrial Ltd (t/a Pickfords Vanguard) (in liquidation) (Third Party) and Hese Umwelt GMBH (Fourth Party) [2008] EWHC 6 (TCC): [2008] BLR 155....................................................................................... 10.46 Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314.......................15.28, 15.33 – 15.41, 15.43, 15.48 Billyack v Leyland Construction Co Ltd [1968] 1 WLR 471.......................................... 20.17, 20.18 Bim Kemi AB v Blackburn Chemicals Ltd [2001] EWCA Civ 457; [2001] 2 Lloyd’s Rep 93....................................................................................................... 19.13 Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675.......................................... 17.8, 17.9, 17.12 Bisset v Wilkinson [1927] AC 177................................................................................................ 3.15 Blakemore LDP v Scott [2015] EWCA Civ 999; [2016] CR Rep 1............................................ 24.21 Blinderman Construction Co v United States (1982) 695 F 2d 552............................................ 14.54 Bloomberg LP v Sandberg [2015] EWHC 2858 (TCC); [2016] BLR 72......................... 17.41, 23.37 Blue Circle Industries plc v Holland Dredging Company (UK) Ltd (1987) 37 BLR 40............................................................................................................ 3.70, 5.16, 5.18 Bluewater Energy Services BV v Mercon Steel Structures BV [2010] EWHC 2132 (TCC); (2010 155 Con LR 85......................................................................... 14.11 Board of Governors of the Hospital for Sick Children v McLaughlin and Harvey (1987) 19 ConLR 25.................................................................................. 9.18, 9.19 Board of Trustees of State Institutions of Higher Learning v Johnson 507 So 2d 887, 890, 40 Ed Law Rep 592 (Mississippi 1987)..................................................... 14.24 Bocardo SA v Star Energy UK Onshore Ltd [2010] UKSC 35; [2011] 1 AC 380............................................................................................................................... 21.44 Bolton v Mahedeva [1972] 1 WLR 1009...................................................................................... 5.36 Bone v Seale [1975] 1 WLR 797................................................................................................. 12.49 Borag, The. Compania Financiera Soleada SA v Honour Tanker Corporation Inc [1981] 1 WLR 274................................................................................................................. 11.4 Borealis AB v Geogas Trading SA [2010] EWHC 2789 (Comm); [2011] 1 Lloyd’s Rep 482................................................................................................................ 11.10 Borrelli v Ting [2010] UKPC 21; [2010] Bus LR 1718................................................................ 3.23 Boss Group Ltd v Boss Finance SA [1997] 1 WLR 351............................................................. 23.38 Boston Deep Sea Fishing and Ice Co v Answell (1888) 39 Ch D 339.......................................... 5.36 Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd (1995) 75 BLR 1................. 20.28 Bovis Construction Ltd v Commercial Union Assurance Co plc [2001] 1 Lloyd’s Rep 418...... 17.14

xxiv

TABL E OF CASES

Bovis Lend Lease Ltd v RD Fire Protection Ltd [2003] EWHC 939 (TCC); 89 ConLR 169.............................................. 9.25, 15.45, 15.47, 15.64, 16.6 Bow, McLachlan & Co Ltd v Ship ‘Camosun’ [1909] AC 597................................................... 19.10 Bowlay Logging Ltd v Dolmar Ltd (1978) 4 WWR 105............................................................ 11.21 Boyajian v United States (1970) 423 F 2d 1231.......................................................................... 16.28 BP Chemicals Ltd v Kingdom Engineering (Fife) Ltd (1994) 69 BLR 113.......................................................................................................................... 18.18 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783; affmd [1981] 1 WLR 232, CA........................ 7.44, 7.48, 7.49, 18.11, 18.12, 18.14 BP Exploration Operating Co Ltd v Kvaerner Oilfield Products Ltd [2004] EWHC 999 (Comm); [2005] 1 Lloyd’s Rep 307.................................................................................................................... 2.9 BP plc v Aon plc [2006] EWHC 422 (Comm); [2006] Lloyd’s Rep IR 577.................................................................................................. 12.13, 12.14 Bradburn v Great Western Railway Co (1874) LR 10 Exch 1 .................................................... 11.50 Braes of Doune Windfarm (Scotland) Ltd v Alfred McAlpine Business Services Ltd [2008] EWHC 426 (TCC); [2008] BLR 321 .................................. 14.12 Bramall & Ogden Ltd v Sheffield City Council (1983) 29 BLR 73................................ 14.12, 14.43 Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All ER 497............................................................................................................... 7.22 Brazen v Bell Atlantic Corp, 695 A 2d 43, 48 (Delaware 1997)................................................. 14.24 BRB (Residuary) Ltd v Connex South Eastern Ltd [2008] EWHC 1172 (QB); [2008] 1 WLR 2867....................................................................................... 17.30, 17.35 Brede, The. Henriksens Rederi A/S v THZ Rolimpex [1974] QB 233.............................. 19.3, 19.10 Bremer Vulcan Schiffbau und Maschinenfabrik v South India Corporation Ltd [1981] AC 909........................................................................................... 21.78 Brewer Street Investments Ltd v Barclays Woollen Co Ltd [1954] 1 QB 428.............................. 5.21 Brian Warwicker Partnership v HOK International Ltd [2005] EWCA Civ 962; [2006] PNLR 5..................................................................................................................... 17.44 Brickfield Properties v Newton [1971] 1 WLR 862.................................................................... 24.40 Bridge UK Com Ltd v Abbey Pynford Plc [2007] EWHC 728 (TCC)....................................... 13.36 Bridge v Campbell Discount Co Ltd [1962] AC 600.................................................................. 14.10 Bridlington Relay Ltd v Yorkshire Electricity Board [1965] 1 Ch 436......................................... 21.5 Briess v Woolley [1954] AC 333................................................................................................... 3.12 Brignull v Albert 666 A 2d 82, 84, 11 IER Cas (BNA) 319 (Maine 1995)................................. 14.24 Brio Electronic Commerce Ltd v Tradelink Electronic Commerce Ltd CACV 271/2013................................................................................................................... 14.21 Britannia Hygienic Laundry Co v Thornycroft (1925) 41 TLR 667; revsd (1925) 95 LJ KB 237, CA.................................................................................................... 15.55 British Airways Board v Laker Airways Ltd [1985] 1 AC 58............................... 21.63, 21.64, 21.68 British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd (1994) 72 BLR 26........................................................................................................ 16.6, 16.17 British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137............................................................................................................... 19.13 British Crane Hire v Ipswich Plant Hire Ltd [1975] QB 303...................................................... 20.11 British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 2 All ER 390; [1975] 1 WLR 758........................................................................................ 19.40 British Fermentation Products Ltd v Compair Reavell Ltd [1999] BLR 352; 66 ConLR 1............................................................................................................... 20.62, 20.69

xxv

TABL E OF C A SES

British Movietone News Ltd v London and District Cinemas Ltd [1952] AC 166.......................................................................................................... 5.15, 7.8, 7.22, 7.29 British Racing Drivers’ Club v Hextall Erskine & Co [1996] 3 All ER 667......................................................................................................................... 15.55 British Steel Corporation v Cleveland Bridge & Engineering Co Ltd (1981) 24 BLR 100; (1982) 24 BLR 94........................................................ 5.2, 5.20, 5.23, 5.28 British Sugar plc v NEI Power Projects Ltd (1997) 87 BLR 42.................................................. 20.41 British Telecommunications plc v James Thomson & Sons (Engineers) Ltd [1999] 1 WLR 9............................................................................................................. 20.51 British Transport Commission v Gourley [1956] AC 185........................................... 8.2, 11.53, 12.1 British Westinghouse v Underground Electric Railways Co of London Ltd (No 2) [1912] AC 673........................................................... 9.23, 9.30, 10.2, 11.46 Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561.................................................................... 2.34 Brookfield Multiplex Ltd v Owners Corporation Strata Plan 6R288 [2014] HCA 36................ 12.18 Brooks v Bankson 248 Va 197, 445 SE 2d 473, 479 (Virginia 1994)......................................... 14.24 Brooks v Commission of Police for the Metropolis [2005] UKHL 24; [2005] 1 WLR 1495............................................................................................................. 12.14 Broster v Galliard Docklands Ltd [2011] EWHC 1722 (TCC); [2011] BLR 569......................................................................................................... 12.20, 24.12 Brown v KMR Services Ltd [1995] 2 Lloyd’s Rep 513.......................................... 8.14, 12.30, 12.34 Brown v Raphael [1958] Ch 636................................................................................................... 3.15 Brown v Royal Insurance Co (1859) 1 E & E 853........................................................................ 7.17 BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC); [2010] BLR 267........... 3.6, 3.10, 3.12, 3.15, 3.16, 3.20, 3.58, 6.31, 13.14, 20.33, 20.45 Buckinghamshire County Council v Y J Lovell & Son Ltd [1956] JPL 196............................... 20.50 Bunclark v Hertfordshire County Council (1977) 243 EG 381................................................... 12.47 Bunge Corporation, New York v Tradax Export SA, Panama [1981] 1 WLR 711....................... 6.16 Bunge SA v Huaya Maritime Corporation [2017] EWHC 90 (Comm)....................................... 21.59 Bunge SA v Nidera BV [2015] UKSC 43; [2015] Bus LR 487; [2015] 2 Lloyd’s Rep 469....... 11.46 Burgess v Lejonvarn [2016] EWHC 40 (TCC); (2016) 164 Con LR 165................................... 12.12 Burroughes v Abbott [1922] 1 Ch 86............................................................................................. 2.26 Bush v Whitehaven Port and Town Trustees, 2 Hudson’s Building Contracts, 4th edn, 122............................................................................................................................ 7.14 Bushby v Munday (1821) 5 Madd 297........................................................................................ 21.64 Business plc v Saunders [1988] 1 WLR 863............................................................................... 19.13 Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401........................................................................................................................... 20.12 BWP (Architectural) v Beaver (1988) 42 BLR 86...................................................................... 19.18 Byrne v Hall, Pain and Foster [1999] 1 WLR 1849.................................................................... 24.13 C & P Haulage v Middleton [1983] 1 WLR 1461 ...................................................................... 11.21 C & S Associates UK Ltd v Enterprise Insurance Company Plc [2015] EWHC 3757 (Comm)............................................................................................................. 6.20 CA Duqemin Ltd v Slater (1994) 65 BLR 124.............................................................................. 19.9 Caledonian North Sea Ltd v British Telecommunications plc [2002] BLR 139......................... 20.45 Cambridge Water Co v Eastern Counties Leather plc [1994] 2 AC 264..................................... 12.53 Camilla Cotton Oil Company v Granadex SA [1975] 1 Lloyd’s Rep 470, CA; revsd [1976] 2 Lloyd’s Rep 10, HL.............................................................................. 23.33 Cana Construction Co Ltd v The Queen (1973) 21 BLR 12......................................................... 5.16 Canada Steamship Lines Ltd v The King [1952] AC 192..................................... 20.20, 20.27, 20.28 Candy v Holyoake [2017] EWCA Civ 92.................................................................................... 21.18

xxvi

TABL E OF CASES

Caparo v Dickman [1990] 2 AC 605..................................................12.8, 12.11, 12.13, 12.14, 13.11 Cape Hatteras, The. Astilleros Canarios SA v Cape Hatteras Shipping Co Inc and Hammerton Shipping Co SA [1982] 1 Lloyd’s Rep 518.................................................................................................................. 5.16 Capita (Banstead 2011) Ltd v RFIB Group Ltd [2015] EWCA Civ 1310; [2016] 2 WLR 1429............................................................................................... 24.5 Capital Electric Co v US 729 F2d 743......................................................................................... 13.29 Capital Structures plc v Time & Tide Construction Ltd [2006] BLR 227..................................... 3.25 Captain George K, The. Palmco Shipping Inc v Continental Ore Corporation [1970] 2 Lloyd’s Rep 21 ............................................................................ 7.6, 7.31 Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525......................................... 3.29, 3.43 Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358; [2006] BLR 15........................................................................................ 25.72 Carillion Construction Ltd v Felix (UK) Ltd [2001] BLR 1......................................................... 3.24 Carillion JM Ltd v PHI Group Ltd [2011] EWHC 1379 (TCC)............................ 13.31, 13.36, 17.45 Carlish v Salt [1906] 1 Ch 335........................................................................................................ 3.7 Carlslogie SS Co Ltd v Royal Norwegian Government [1952] AC 292....................................... 11.9 Carpenter v Ebblethwaite [1939] 1 KB 347................................................................................ 23.18 Carpenters’ Estates Ltd v Davies [1940] Ch 160........................................ 22.19–21.22, 22.25, 22.39 Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273......................................................................... 13.6 Carillion Construction Ltd [2017] EWCA Civ 65....................................................................... 14.36 Carruthers Const Co LLC v City of South Hutchinson 288 Kan 743, 207 P 3d 231, 242 (Kansas 2009)................................................................................. 14.24 Cartledge v E Jopling & Sons Ltd [1963] AC 758........................................................................ 24.4 Casson v Ostley PJ Ltd [2001] EWCA Civ 1013........................................................................ 20.50 Castanho v Brown & Root Ltd [1981] AC 557........................................................................... 21.64 Catherine L, The. Unimarine SA of Panama v Canadian Transport Co of Vancouver BC [1982] 1 Lloyd’s Rep 484........................................................................ 15.58 Cathery v Lithodomus Ltd (1987) 41 BLR 76................................................................. 19.12, 19.13 Catlin Estates Limited and Stephen Catlin v Carter Jonas (A Firm) [2005] EWHC 2315 (TCC), [2006] PNLR 15..................................................................... 10.49 Catnic Components Ltd v Hill & Smith Ltd [1983] FSR 512..................................................... 12.67 Cave v E C Holdings Ltd (1966) 110 Sol Jo 710......................................................................... 24.56 Cave v Robinson, Jarvis & Rolf [2002] UKHL 18; [2003] 1 AC 384......................................... 24.29 Cavendish Square Holdings BV v Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67; [2015] 3 WLR1373............................... 14.5–14.7, 14.11–14.15, 14.20–14.22, 14.24 CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16...................................... 11.21 Cehave NV v Bremer Handelsgesellschaft mbH (“The Hansa Nord”) [1976] QB 44.................. 6.16 Cenk Kaptanoglu, The Progress Bulk Carriers Ltd v Tube City IMS LLC ([2012] EWHC 273 (Comm); [2012] Lloyd’s Rep 501......................................................... 3.23 Central Provident Fund Board v Ho Bock Kee (1981) 17 BLR 21............................................... 6.21 Century Projects Ltd v Almacantar (Centre Point) Ltd [2014] EWHC 394................................ 21.86 Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618; [2005] 2 Lloyd’s Rep 494...................................................................................................................... 21.77, 21.80 CFW Architects v Cowlin Construction Ltd [2006] EWHC 6 (TCC); 105 Con LR 116................................................................................................................... 14.11 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334......................... 21.72 Chaplin v Hicks [1911] 2 KB 786........................................................................... 11.18, 12.26, 16.9 Charge Card Services Ltd, In re [1987] Ch 150.......................................................................... 19.41 Charrington v Simons & Co Ltd [1971] 1 WLR 598.................................................................. 21.85

xxvii

TABL E OF C A SES

Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101. .................................................................... 2.16, 2.23, 2.28, 2.29, 2.31, 8.17 Charter plc v City Index Ltd [2007] EWCA Civ 1382; [2008] Ch 313....................................................................................................................... 17.27 Charter Reinsurance Co Ltd v Fagan [1997] AC 313...................................................................... 2.9 Chatbrown v Alfred McAlpine Construction (1986) 35 BLR 44................................................ 19.18 Chelmsford District Council v T J Evers (1983) 25 BLR 99......................................................... 24.5 Chermar Productions Pty Ltd v Pretest Pty Ltd (1989) 7 BCL 46.............................................. 22.18 Chester Grosvenor Hotel Company v Alfred McAlpine Management (1991) 56 BLR 115............................................................................................................... 20.69 Chester v Afshar [2004] UKHL 41; [2005] 1 AC 134................................................................. 12.26 Chetwynd v Tunmore [2016] EWHC 156 (QB); [2016] 3 WLR 1159........................................ 12.69 Chevron International Oil Co Ltd v A/S Sea Team [1983] 2 Lloyd’s Rep 356........................... 20.11 Chichester Joinery Ltd v John Mowlem & Co plc (1987) 42 BLR 100...................................... 20.14 Chief Constable of Hampshire Constabulary v Southampton City Council [2014] EWCA Civ 1541; [2015] PIQR P61......................................................................... 24.32 Chiemgauer Membran- und Zeltbau GmbH (formerly Koch Hightex GmbH) v New Millennium Experience Co Ltd (formerly Millennium Central Ltd) (No 1) [1999] CILL 1595..................................................................................................... 14.43 Chilean Nitrate Sales Corporation v Marine Transportation Co Ltd (The Hermosa) [1982] 1 Lloyd’s Rep 570............................................................................... 6.6 China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982................................................ 6.14 Chubb Fire Ltd v Vicar of Spalding [2010] EWCA Civ 981; [2010] 2 CLC 277....................... 11.10 Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502................................................ 3.3 CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC481 (TCC); [2015] 2 Costs LR 363............................................................................ 25.9 CIP Property (AIPT) Ltd v Transport for London [2012] EWHC 259 (Ch); [2012] BLR 202...................................................................................................................... 21.3 Circle Thirty-Three Housing Trust v Fairview Estates (Housing) Ltd (1984) 8 ConLR 1............................................................................................................................... 24.40 City & General (Holborn) Ltd v AYH plc [2005] EWHC 2494 (TCC); [2006] BLR 55................................................................................................................................. 15.22 City & General (Holborn) Ltd v Royal & Sun Alliance plc [2010] EWCA Civ 911..................................................................................................................... 24.34 City Inn Ltd v Shepherd Construction Ltd [2003] BLR 468; [2008] BLR 269; affmd [2010] CSIH 68; [2010] BLR 473.......................................................... 14.44, 14.45, 14.61 14.64, 14.66, 14.67, 16.29 City of London Corporation v Bovis Construction Ltd (1988) 49 BLR 1 .................................. 21.84 CJ Elvin Building Services Ltd v Noble [2003] EWHC 837 (TCC)............................................. 9.22 Classic Maritime Inc v Lion Diversified Holdings bhd [2009] EWHC 1142 (Comm); [2010] 1 Lloyd’s Rep 59................................................................... 8.11 Claxton Engineering Services Ltd v TXM Olaj-Es Gazkutato KFT [2011] EWHC 345 (Comm); [2011] 1 Lloyd’s Rep. 510..................................................... 21.76 Clay, Re [1919] 1 Ch 66................................................................................................... 23.32, 23.33 Claymore Services Ltd v Nautilus Properties Ltd [2007] BLR 452................................ 18.13, 18.14 Clough v London and North Western Railway Co (1871) LR 7 Ex 26......................................... 3.42 Clydebank Engineering and Shipbuilding Co v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6...................................................................................... 14.8 CNH Global NV v PGN Logistics Ltd [2009] EWHC 977 (Comm); [2009] 1 CLC 807................................................................................................................. 18.17

xxviii

TABL E OF CASES

Coal Pension Properties Ltd v Nu-Way Ltd [2009] EWHC 824 (TCC)........................................ 9.15 Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] 1 WLR 1752............ 5.21, 5.24 Coca Cola Finance Corporation v Finsat International Ltd [1998] QB 43.................................. 19.40 Cockburn v Edwards (1881) 18 Ch D 449................................................................................... 15.57 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337........................................................................................................ 7.13, 7.30, 7.51 Coe v Ashurst [1999] BPIR 662.................................................................................................. 19.41 Cohen v Kingsley Napley [2006] EWCA Civ 66........................................................................ 12.26 Colchester Borough Council v Smith [1991] Ch 448, affmd [1992] Ch 421................................ 3.59 Coleman Street Properties Ltd v Denco Miller Ltd (1986) 31 BLR 32....................................... 20.50 Coles v Hetherton [2013] EWCA Civ 1704; [2015] 1 WLR 160.............................. 9.10, 9.14, 11.53 Columbia Picture Industries Inc v Robinson [1987] Ch 38......................................................... 21.49 Comau UK Ltd v Lotus Lightweight Structures Ltd [2014] EWHC 2122 (Comm)................... 11.21 Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd [2016] EWHC 76 (TCC)......................................................... 14.42, 20.60, 20.69 Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259................... 2.41, 2.43 Commissioner of Main Roads v Reed & Stuart Pty Ltd (1974) 12 BLR 55................................. 13.6 Commissioner of Public Works v Hills [1906] AC 368............................................. 14.7, 14.8, 14.10 Compagnie Francaise des Chemins de Fer Paris-Orleans v Leeston Shipping Company Ltd [1919] Lloyd’s Rep 235..................................................... 3.46 Compania Financiera Soleada SA v Honour Tanker Corporation Inc (“The Borag”) [1981] 1 WLR 274......................................................................................... 11.4 Compania Sud Americana de Vapores v Sinochem Tianjin Ltd (“The Aconcagua”) [2010] EWCA Civ 1403; [2011] BLR................................................. 11.14 Company of the Proprietors of the Brecknock and Abergavenny Canal Navigation v Pritchard (1796) 6 TR 750..................................................................... 7.17 Comyn Ching & Co (London) Ltd v Oriental Tube Co Ltd (1981) 17 BLR 47.......................... 15.63 Conarken Group Ltd v Network Rail Infrastructure Ltd [2011] EWCA Civ 644; [2011] 2 CLC 1.............................................................................. 12.22, 13.09 Concorde Construction Co Ltd v Colgan Co Ltd (1984) 29 BLR 120........................................ 21.88 Connaught Restaurants v Indoor Leisure [1994] 1 WLR 501..................................................... 19.23 Constantine Ltd v Imperial Smelting Ltd [1942] AC 154............................................................... 7.9 Cooper v Joel (1859) 1 De Gex, Fisher & Jones 240.................................................................... 3.32 Cooper v Phibbs (1867) LR 2 HL 149........................................................................................... 3.17 Co-operative Group Ltd v Birse Developments Ltd [2013] EWCA Civ 474; [2013] BLR 383 and [2014] EWCA Civ 707; [2014] BLR 477.................................................................................................................... 24.40 Co-operative Group Ltd v Birse Developments Ltd [2014] EWHC 530 (TCC); 153 Con LR 103; [2014] BLR 359...................................................... 24.14 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1........................ 22.5, 22.6, 22.27, 22.28, 22.30, 22.33, 22.34, 22.37 Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] UKHL 17; [2002] 1 WLR 1419.......................................................... 17.37, 17.39, 20.50 Copley v Lawn [2009] EWCA Civ 580; [2010] Bus LR 83.......................................................... 9.39 Corby Group Litigation, Re [2008] EWCA Civ 463; [2009] QB 335......................................... 12.49 Cornwall v Henson [1900] 2 Ch 298............................................................................................. 6.14 Cory v Thames Ironworks and Shipbuilding Co Ltd (1868) LR 3 QB 181........................... 8.9, 8.14 Costain Civil Engineering Ltd v Zanen Dredging and Contracting Company Ltd (1985) 85 BLR 77........................................................................................... 5.16 Costain Ltd v Bechtel Ltd [2005] EWHC 1018 (TCC); [2005] CILL 2239................................ 14.34

xxix

TABL E OF C A SES

Costain Ltd v Charles Haswell & Partners Ltd [2009] EWHC B25 (TCC); [2009] EWHC 3140 (TCC); 128 Con LR 154............................................... 15.43, 15.45, 18.13 Countrywide Communications Ltd v ICL Pathway Ltd [2000] CLC 324..................................... 5.21 County Ltd v Girozentrale Securities [1996] 3 All ER 834........................................................... 11.6 CR Taylor (Wholesale) Ltd v Hepworths Ltd [1977] 1 WLR 659......................................... 9.9, 9.10 Cramaso LLP v Ogilvie-Grant [2014] UKSC 9; [2014] AC 1093................................................ 3.21 Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662.................................................................. 2.20 Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68.................................................................... 2.20 Craven-Ellis v Canons Ltd [1936] 2 KB 403................................................................................. 5.41 Crawford v Stirling (1802) 4 Esp 207............................................................................................ 19.4 Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 Lloyd’s Rep 767..................................................................................................... 21.69 Crema v Cenkos Securities plc [2010] EWCA Civ 1444; [2012] 1 WLR 2066........................................................................................................................... 2.11 Cremdean Properties v Nash (1977) 244 EG 547.......................................................................... 3.63 Crescendo Maritime Co v Bank of Communications Co Ltd [2015] EWHC 3364 (Comm); [2016] 1 Lloyd’s Rep 414............................................................... 21.74 Crossco No 4 Unltd v Jolan Ltd [2011] EWHC 803 (Ch)............................................................. 2.31 Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Lloyd’s Rep 55............................................................................................ 20.40, 20.41, 20.45 Crown House Engineering Ltd v Amec Projects Ltd (1989) 48 BLR 32...................................... 5.28 CTI Group Inc v Transclear SA (The Mary Nour) [2008] EWCA Civ 856; [2008] 2 Lloyd’s Rep 526....................................................................................... 7.4, 7.10, 7.26 Cullinane v British Rema Manufacturing Co Ltd [1954] 1 QB 292............................................ 11.21 Cushla Ltd, Re [1979] 3 All ER 415............................................................................................ 19.40 Customs & Excise Commissioners v Barclays Bank plc [2006] UKHL 28; [2007] 1 AC 181 ............................................................................................ 12.13, 12.14, 21.30 Cynat Products Ltd v Landbuild (Investment & Property) Ltd [1984] 3 All ER 513........................................................................................................................... 13.9 Cyril Leonard & Co v Simo Securities Trust [1972] 1 WLR 80................................................... 6.20 Czarnikow (C) Ltd v Koufos (The Heron II) [1969] 1 AC 350....................... 8.2, 8.6, 8.8, 8.10, 8.13 D & F Estates Ltd v Church Commissioners for England [1989] AC 177.................................................................................................11.25, 12.18, 12.19, 24.11 D & K Drost Consult GmbH v Foremost Leisure (Holdings) Ltd [2015] EWCA Civ 73; (2015) 159 Con LR 1........................................................................ 5.23 Dadourian Group International Inc v Simms [2007] EWHC 454 (Ch) ...................................... 15.55 Daintrey, Re [1900] 1 QB 546..................................................................................................... 19.45 Dairy Containers Ltd v Tasman Orient Line CV (“The Tasman Discoverer”) [2004] UKPC 22; [2005] 1 WLR 215....................................................................... 20.17, 20.18 Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm); [2006] 1 Lloyd’s Rep 599.............................................................................. 2.10, 6.18 Darbishire v Warran [1963] 1 WLR 1067...................................................................................... 9.31 Darley Main Colliery Co v Mitchell (1886) 11 App Cas 127...................................................... 24.34 Darlington Borough Council v Wiltshier Northern Ltd [1995] 1 WLR 68; 69 BLR 1 .........................................................................................................10.3, 10.39 – 10.41 Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153; [2012] 1 WLR 1333.................................................................................. 2.31 Davies v Swan Motor Co (Swansea) Ltd [1949] 2 KB 291........................................................ 12.41 Davis & Co (Wines) Ltd v Afa-Minerva (EMI) Ltd 1974] 2 Lloyd’s Rep 27............................... 3.40

xxx

TABL E OF CASES

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696.............................. 7.4 – 7.6, 7.10, 7.13, 7.14, 7.23, 7.24 Davy Offshore Ltd v Emerald Field Contracting Ltd (1991) 55 BLR 1......................................... 4.9 Dawnays Ltd v FG Minter Ltd [1971] 1 WLR 1205....................................................... 19.11, 25.61 Dawson v Great Northern and City Railways Company [1905] 1 KB 260................................. 10.54 DC Thomson & Co Ltd v Deakin [1952] Ch 646........................................................................ 12.71 DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117.............. 6.15 De Beers UK Ltd v Atos Origin IT Services UK Ltd [2010] EWHC 3276 (TCC); [2011] BLR 274; 34 Con LR 151.................................... 9.9, 14.53, 14.60 De Meza & Stuart v Apple Van Straten Shena & Stone [1975] 1 Lloyd’s Rep 498................................................................................................................ 11.24 De Molestina v Ponton [2002] 1 Lloyd’s Rep 271............................................................... 3.50, 3.51 Décor Ceilings Pty Ltd v Cox Constructions Pty Ltd (No 2) [2005] SASC 483; [2006] CILL 2311 ............................................................................................. 14.44 Deepak Fertilisers and Petrochemicals Corporation v ICI Chemicals and Polymers Ltd [1999] 1 Lloyd’s Rep 387................................. 2.46, 3.58, 3.59, 20.41, 20.45 Deerness v John R Keeble & Son (Brantham) Ltd [1983] 2 Lloyd’s Rep 260; [1983] Com LR 221.............................................................................................. 24.56 Delaware Mansions Ltd v City of Westminster [2002] 1 AC 321............................................... 12.47 Demo Investments & Commercial SA v SE Banken Forsakring Holding Aktiebolag [2005] EWHC 1398 (Comm); [2005] 2 Lloyd’s Rep 650................................. 25.54 Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265....................................... 7.9 Department of Economics, Policy and Development of the City of Moscow v Bankers Trust Co [2004] EWCA Civ 314; [2005] QB 207..................... 25.23, 25.29 Department of the Environment v Thomas Bates and Son Ltd [1991] 1 AC 499............................................................................................................................... 12.18 Derby Resources AG v Blue Corinth Marine Co Ltd (No 2) (“The Athenian Harmony”) [1988] 2 Lloyd’s Rep 425..................................................................................................... 18.12 Derry v Peek (1889) LR 14 App Cas 337...................................................................................... 3.32 Despina R, The. Owners of the Eleftherotria v Owners of the Despina R; sub nom Services Europe Atlantique Sud (SEAS) v Stockholms Rederi AB Svea (“The Folias”) [1979] AC 685................................................................... 11.33, 11.35 Dhanani v Crasnianski [2011] EWHC 926 (Comm)................................................................... 11.21 Diamond v Campbell-Jones [1961] Ch 22..................................................................................... 8.19 Die Elbinger AG v Armstrong (1874) LR 9 QB 473....................................................... 15.19, 15.20 Digital Equipment Corporation v Darkcrest Ltd [1984] Ch 512................................................. 21.49 Dillingham Construction Pty Ltd v Downs (1972) 13 BLR 97..................................................... 3.57 Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152................................................................................................................................. 3.23 Dimymi Corporation v Atlantic Lines and Navigation Co Inc [1989] 2 Lloyd’s Rep 108..................................................................................................................................... 4.9 Directors of the Reese River Silver Mining Company Ltd, The v Smith (1869) LR 4 HL 64.................................................................................................................... 3.28, 3.29 District Cablevision Ltd Partnership v Bassin 828 A 2d 714, 724, 51 UCC Rep Serv 2d 149 (Washington DC 2003).................................................................................... 14.24 Ditommaso Realty Inc v Moak Motorcycles Inc 309 Or 190, 785 P 2d 343 (1990)................... 14.24 Dixon v Radley House Partnership [2016] EWHC 2511 (TCC); [2016] 5 Costs LR 979.......... 24.41 DO Ferguson & Associates (a firm) v M Sohl (1992) 62 BLR 95................................................ 6.37 Dobson v Thames Water Utilities Ltd [2009] EWCA Civ 28; [2009] BLR 287......................... 12.49

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TABL E OF C A SES

Dodd Properties (Kent) Ltd v City of Canterbury [1980] 1 WLR 433; 13 BLR 45................. 9.3, 9.25, 9.26, 12.1, 12.50 Dole Dried Fruit and Nut Co v Trustin Kerwood Ltd [1990] 2 Lloyd’s Rep 309........... 19.13, 19.14 Dolling-Baker v Merrett [1990] 1 WLR 1205............................................................................. 15.26 Dominion Mosaics & Tiling Co v Trafalgar Trucking Co [1990] 2 All ER 246; (1989) ConLR 1 ............................................................................................................ 9.22, 9.23 Domsalla v Dyason [2007] EWHC 1174 (TCC); [2007] BLR 348............................................. 25.67 Donoghue v Stevenson [1932] AC 562.............................................................................. 12.8, 12.20 Donohue v Armco Ltd [2002] 1 All ER 749................................................................................ 21.63 Dormeuil Frères v Feraglow [1990] RPC 449............................................................................. 15.15 Dorset County Council v Southern Felt Roofing Co Ltd (1989) 48 BLR 96.............................. 20.50 Downs v Chappell [1997] 1 WLR 426........................................................................................ 17.44 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158......................................................... 12.61, 12.62 Drake & Scull Engineering Ltd v McLaughlin & Harvey plc (1992) 60 BLR 102........ 21.80, 22.45 DSL Group Ltd v Unisys International Services Ltd (1994) 67 BLR 117...................... 15.36, 15.41 DSND Subsea Ltd v Petroleum Geo-Services ASA [2000] BLR 530.................................. 3.23, 3.24 Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366............. 17.34, 17.48, 17.50 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847................... 10.3, 10.54, 10.66 Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79........................................................................................ 14.8 Dunlop v Lambert (1839) 6 Cl & F 600; (1839) 7 ER 824...................................................... 10.6, 10.7 – 10.9, 10.11, 10.15, 10.16, 10.28, 10.32, 10.48, 10.72 Durham Tees Valley Airport Ltd v BMIBaby Ltd [2010] EWCA Civ 485; [2011] 1 Lloyd’s Rep 68....................................................................................................... 11.21 Dyson v Attorney General [1911] 1 KB 410......................................................... 23.30, 23.31, 23.33 EA Grimstead & Son Ltd v McGarrigan [1999] EWCA Civ 3029............................................... 3.59 Eagle v Redlime Ltd [2011] EWHC 838 (QB); [2011] BLR 373.................................... 24.20, 24.22 Earl Terrace Properties Ltd v Nilsson Design Ltd [2004] BLR 273................... 8.24, 9.3, 10.52, 18.5 Earles v Barclays Bank plc [2009] EWHC 2500 QB; [2010] Bus LR 566................................. 25.10 East Ham Corporation v Bernard Sunley & Sons Ltd [1966] AC 406................................. 8.21, 9.24 East v Pantiles Plant Hire Ltd [1982] 2 EGLR 111....................................................................... 2.10 Eastgate Group Ltd v Lindsey Mordern Group Inc [2001] EWCA Civ 1446; [2002] 1 WLR 642......................................................................................... 17.13, 17.24, 17.28 Ecobank Transnational Inc v Tanoh [2015] EWCA Civ 1309; [2016] 1 WLR 2231......................................................................................................................... 21.70 Ecom Agroindustrial Corporation Ltd v Mosharaf Composite Textile Mill Ltd [2013] EWHC 1276 (Comm); [2013] 2 Lloyd’s Rep 196.................................................... 21.70 Econet Satellite Services Ltd v Vee Networks [2006] EWHC 1664 (Comm); [2006] 2 Lloyd’s Rep 423..................................................................................................... 19.62 Econet Wireless Ltd v Vee Networks Ltd [2006] EWHC 1568 (Comm).................................... 21.74 Economic Loss after Robinson v Jones, SCL Paper D128, November 2011................... 12.18, 12.19 Edgington v Fitzmaurice (1885) 39 Ch D 459............................................................................... 3.16 Edmund Murray Ltd v BSP International Foundations Ltd (1994) 33 ConLR 1........................ 20.69 Education 4 Ayrshire Ltd v South Ayrshire Council [2009] CSOH 164...................................... 14.42 Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (“The Sea Angel”) [2007] EWCA Civ 547; [2007] 2 Lloyd’s Rep 517........................................................... 7.7, 7.20, 7.43 Egan v Motor Services (Bath) Ltd [2007] EWCA Civ 1002; [2008] 1 WLR 1589.................... 25.86 Eichleay Corp ASBCA No 5183, 6 – 02 BCA ¶ at 13,573 affmd 61 – 1 BCA ¶2894.................... 13.29 Eliades v Lewis [2005] EWHC 2966 (QB)................................................................................. 21.52

xxxii

TABL E OF CASES

Ellerman Lines Ltd v Read [1928] 2 KB 144.............................................................................. 21.64 Ellis Mechanical v Wates Construction [1978] 1 Lloyd’s Rep 33............................................... 19.19 Ellis Tylin Ltd v Co-operative Retail Services Ltd [1999] BLR 205............................................ 6.21 Elvin Building Services Ltd v Noble [2003] EWHC 837 (TCC).................................................. 9.22 Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691................................................... 12.73 Emmanuel C, The. Industrie Chimiche Italia Centrale SpA v Nea Ninemia Shipping Co SA [1983] 1 Lloyd’s Rep 310.......................................................................... 20.25 Emmott v Michael Wilson & Partners [2016] EWHC 3010 (Comm)......................................... 21.74 Emmott v Michael Wilson & Partners Ltd [2008] EWCA Civ 184; [2008] Bus LR 1361................................................................................................... 21.74, 25.25, 25.26 Encia Remediation v Canopius [2007] EWHC 916 (Comm)........................................................ 2.15 Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295; [2015] 1 WLR 2309................................................................................ 21.18 English Churches Housing Group v Shine [2004] EWCA Civ 434............................................ 11.42 Environmental Services Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358................................................................................................................. 20.45 Equitable Debenture Assets Corporation Ltd v William Moss Group Ltd (1984) 2 ConLR 1........................................................................................................ 17.45, 24.5 Equity Syndicate Management Ltd v Glaxosmithkline plc [2015] EWHC 2163 (Comm); [2016] Lloyd’s LR IR 155........................................................ 2.20, 2.23 ERDC Group Ltd v Brunel University [2006] EWHC 687 (TCC); [2006] BLR 255.................................................................................. 5.20, 5.24, 5.26, 5.28, 5.29 Ericsson AB v EADS Defence and Security Systems Ltd [2009] EWHC 2598 (TCC); [2010] BLR 131................................................................................. 21.42 Eriksson v Whalley [1971] 1 NSWLR 397................................................................................... 6.21 Erlanger v New Sombrero Phosphate Co (1877–78) LR 3 App Cas 1218........................... 3.44, 3.48 Ernest Scragg & Sons Ltd v Perseverance Banking and Trust Co Ltd [1973] 2 Lloyd’s Rep 101 ...................................................................................................... 2.28 Essar Shipping Ltd v Bank of China Ltd (“The Kishore”) [2015] EWHC 3266 (Comm); [2016] 1 Lloyd’s Rep 427............................................................... 21.70 Esso Petroleum Co Ltd v Mardon & Co Ltd [1976] QB 801.................................. 9.38, 12.61, 13.14 Esso Petroleum Co Ltd v Niad [2001] All ER (D) 324 (Nov)............................................ 5.35, 11.57 Ethiopian Oilseeds & Pulses Export Corporation v Rio Del Mar Foods Inc [1990] 1 Lloyd’s Rep 86......................................................................................................... 2.51 Eu Asia Engineering Ltd v Wing Hong Contractors Ltd, unreported............................................ 6.11 Eugenia, The. Ocean Tramp Tankers Corp v V/O Sovfracht [1964] 2 QB 226..................... 7.6, 7.31 euNetworks Fiber UK Ltd v Abovenet Communications UK Ltd [2007] EWHC 3099 (Ch)................................................................................................................. 20.37 Evans Marshall & Co v Bertola [1973] 1 WLR 349................................................................... 21.35 Evia, The. Kodros Shipping Corporation v Empress Cubana de Fletes [1983] 1 AC 736..................................................................................................................... 7.14 Ewing v Osbaldiston (1837) 2 My and Cr 53................................................................................ 22.7 Excalibur Ventures LLP v Texas Keystone Inc [2011] EWHC 1624 (Comm); [2011] 2 Lloyd’s Rep 289..................................................................................................... 21.76 Excelsior Commercial and Industrial Holdings Ltd v Salisbury Ham Johnson [2002] EWCA Civ 879......................................................................................................... 15.50 Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323; [2003] FSR 46............................................................................................................. 5.35, 11.57 F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295................................................................................................ 21.52, 21.53, 21.54

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TABL E OF C A SES

F&G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53.............................................. 4.9 Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32; [2002] UKHL 22........................ 12.24 Farley v Skinner (2000) 73 ConLR 70, CA; revsd [2001] UKHL 49; [2002] 2 AC 732, HL............................................................................................................ 11.39, 11.40 Farm Assist Ltd v Secretary of State for Environment, Food and Rural Affairs [2008] EWHC 3079 (TCC); [2009] BLR 80.......................................................................... 3.23 Farmer Giles Ltd v Wessex Water Authority [1990] 1 EGLR 177.............................................. 12.56 Fearns v Anglo-Dutch Paint & Chemical Company Ltd [2010] EWHC 2366 (Ch); [2011] 1 WLR 366................................................ 11.35, 19.2, 19.13, 19.17 Federal Commerce and Navigation Co v Tradax Export [1977] QB 324................................................................................................................................. 11.31 Federal Commerce Navigation Co v Molen Alpha Inc (“The Benfri” and “The Locri”) [1979] AC 757; [1978] QB 927................................. 6.7, 19.13 Ferrara Quay Ltd v Carillion Construction Ltd [2009] BLR 367.................................................. 21.6 Ferryways NV v Associated British Ports [2008] EWHC 225 (Comm); [2008] 1 Lloyd’s Rep 639.......................................................................... 20.45, 20.60 FG Minter v Welsh Health Technical Services Organisation (1980) 13 BLR 1................... 18.2, 18.3 FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232; [2014] 1 WLR 2365..................................................................... 19.17, 19.23 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe, Barbour Ltd [1943] AC 32.......................................................................................................................... 7.41 Fickling and Walker Co v Giddens Cons. Co Inc 258 Ga 891, 376 SE 2d 655, 660 (Georgia 1989)..................................................................................... 14.24 Fillite (Runcorn) Ltd v Aqua-Lift (a firm) (1989) 45 BLR 27....................................................... 2.51 Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670.................. 21.12, 21.13 Finelvet AG v Vinava Shipping Co Ltd [1983] 1 WLR 1469....................................................... 7.31 Fiona Trust & Holding Corporation v Privalov [2006] EWHC 2583 (Comm), QBD; [2007] UKHL 40; [2007] Bus LR 1719, HL............................ 2.51, 3.22, 19.62 Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] Bus LR 1719................................................................................................................ 2.51, 19.62 First National Bank of Boston v Union Bank of Switzerland [1990] 1 Lloyd’s Rep 32.................................................................................................................. 23.37 Fisher v Schmeling 520 NW 2d 820, 822 (North Dakota 1994)................................................. 14.24 Fitzgerald v Lane [1989] AC 328................................................................................................ 12.43 Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC); [2009] BLR 505...................................... 3.7, 3.12, 3.16, 3.20, 3.34, 12.61 Fitzroy Robinson Ltd v Mentmore Towers Ltd (No 3) [2009] EWHC 3365 (TCC); [2010] BLR 165................................................................................. 18.34 Fletcher & Stewart Ltd v Peter Jay & Partners and others (1976) 17 BLR 38............................ 15.34 Flightwise Travel Service Ltd v Gill [2003] EWHC 3082 (Ch).................................................. 21.26 Flint v Brandon (1803) 8 Ves 159................................................................................................ 22.17 Flogas v Warrington (t/a Robin Sutton Gases & Calor Gas Ltd) [2007] EWHC 1303 (QB)...................................................................................................... 22.6 Floods of Queensferry Ltd v Shand Construction Ltd [2000] BLR 81................................ 3.37, 3.39 Foley v Classique Coaches Ltd [1934] 2 KB 1................................................................................ 5.2 Forsikringaktieselskapet Vesta v Butcher [1986] 2 All ER 488, QBD; [1989] AC 852, HL............................................................................................................... 11.24 Forslind v Bechely-Crundall [1922] SC (HL) 173.......................................................................... 6.5 Forster v Wilson (1843) 12 M & W 191...................................................................................... 19.29 Fortescue v Lostwithiel and Fowey Railway [1894] 3 Ch 621................................................... 22.18

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TABL E OF CASES

Fosse Motor Engineers Ltd v Condė Nast [2008] EWHC 2037 (TCC)...................................... 11.14 Foster Wheeler Wood Group Engineering Ltd v Chevron UK Ltd [1996] EWHC 381 (TCC).................................................................................................................. 6.17 Frank v Jansen 303 Minn 86, 226 NW 2d 739, 743 (Minnesota 1975)....................................... 14.24 Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450............. 2.20, 2.27 Freeman v Niroomand (1996) 52 ConLR 116............................................................................. 11.40 Friends Provident Life Office v Hillier Parker May & Rowden [1997] QB 85.............. 17.25, 17.27 FSA v Rourke [2002] CP Rep 14................................................................................................. 23.35 Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC); [2014] 1 CLC 353; 153 Con LR 203.................................................................................... 20.45 Fulton Shipping Inc v Globalia Business Travel SAU (“The New Flamenco”) [2015] EWCA Civ 1299; [2016] 1 WLR 2450; [2016] 1 Lloyd’s Rep 383................ 9.37, 11.46 Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd [1990] 1 Lloyd’s Rep 236.................................................................................................................. 3.17 Fyffes Group Ltd v Reefer Express Lines Ltd (“The Kriti Rex”) [1996] 2 Lloyd’s Rep 171.................................................................................................................. 7.42 G Percy Trentham Ltd v Archital Luxfer Ltd (1992) 63 BLR 44.................................................. 5.20 Gafford v Graham [1999] 3 EGLR 70......................................................................................... 11.59 Gallaher v Gallaher Pensions Ltd [2005] EWHC 42 (Ch); [2005] PLR 103....................... 2.29, 2.30 Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360........................................................... 11.3 Garden Cottage Foods Ltd v Milk Marketing Board [1984] AC 130.......................................... 21.41 Gardner v Marsh & Parsons [1997] 1 WLR 489.............................................................. 11.48, 11.50 Gaymark Investments Pty Ltd v Walter Construction Group Ltd (2000) 16 BCL 449.......................................................................................................................... 14.44 Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667; [2011] Bus LR Digest D61; 130 Con LR 37........................................................................ 19.13 General Feeds Inc Panama v Slobodna Plovidba Yugoslavia [1997] 1 Lloyd’s Rep 688.......................................................................................... 15.39, 15.42, 15.45 General Tire & Rubber Co v Firestone Tyre & Rubber Co [1975] 1 WLR 819......................................................................................................... 8.2, 12.67, 18.11 General Trading Company (Holdings) Ltd v Richmond Corporation Ltd [2008] EWHC 1479 (Comm); [2008] 2 Lloyd’s Rep 475.................................................... 14.11 Geoffrey Osbourne Ltd v Atkins Rail Ltd [2009] EWHC 2425 (TCC); [2010] BLR 363.................................................................................................................... 25.70 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284, CA; affmd [1983] 2 AC 803, HL........................................................................... 20.22 George Wimpey & Co Ltd v British Overseas Airways Corporation [1955] AC 169................. 17.41 George Wimpey UK Ltd v VIC Construction Ltd [2005] BLR 135.................................... 2.42, 2.43 Gerald Metals SA v Timis [2016] EWHC 2327 (Ch).................................................................. 21.81 Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443................................... 12.67 Gilbert & Partners v Knight [1968] 2 All ER 248......................................................................... 5.17 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689.......................................................................... 19.13, 19.23, 20.17, 20.18, 25.61 Gillespie Brothers & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400.................... 15.63, 20.23 Gingell, Son & Foskett v Stepney Borough Council [1908] 1 KB 115....................................... 23.29 GKN Contractors Ltd v Lloyds Bank plc (1985) 30 BLR 48...................................................... 21.89 Glasgow and South Western Railway Co v Boyd & Forrest [1918] SC (HL) 14; [1915] AC 526....................................................................................... 3.52 Glencore International AG v Exter Shipping Ltd [2002] 2 All ER (Comm) 1 ............................................................................................................. 21.69

xxxv

TABL E OF C A SES

Glencot Development v Ben Barrett [2001] EWHC 15 (TCC); (2001) 80 Con LR 14.............. 24.48 Glenluce Fishing Co Ltd v Watermota Ltd [2016] EWHC 1807 (TCC); [2016] 5 Costs LR 1021....................................................................................................... 24.42 Globe Master Management Ltd v Boulus-Gad Ltd [2002] EWCA Civ 313................................. 7.31 Glynn v Margetson & Co [1893] AC 351.................................................................................... 20.38 Goh Guan Chong v AspenTech Inc [2009] 3 SLR(R) 590............................................................ 2.16 Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 323 (TCC); [2010] BLR 235............................................................................ 7.11, 7.38 Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 12; [2007] 2 AC 353......................................... 9.24, 11.46 Golden Victory, The. Golden Strait Corporation v Nippon Yusen Kubishika Kaisha [2007] UKHL 12; [2007] 2 AC 353.................................... 9.24, 11.46 Gouriet v Union of Post Office Workers [1978] AC 435.................................................. 23.15, 23.17 Government of Gibraltar v Kenney [1956] 2 QB 410................................................................... 7.44 Government of Zanzibar, The v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333....................................................................................... 3.37, 3.58, 3.64 GPT Realisations Ltd v Panatown Ltd (1992) 61 BLR 88.......................................................... 21.88 Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93................... 22.18 Graham Nigel Richards (A Bankrupt), In the Matter of; sub nom (1) Sheila Pauline Williams (Formerly Dean and Richards) (2) Derek Williams v John Paul Bateman (Joint Trustee in Bankruptcy of Graham Nigel Richards) [2009] BPIR 973.................................................. 19.41 Gran Gelato Ltd v Richcliff (Group) Ltd 1992] Ch 560.................................................. 11.29, 12.64 Grant v Australian Knitting Mills Ltd [1936] AC 85..................................................................... 12.9 Granville Oil & Chemicals Ltd v Davis Turner & Co Ltd [2003] EWCA Civ 570; [2003] 2 Lloyd’s Rep 356......................................................................... 20.33 Graves v Brouwer [2015] EWCA Civ 595.................................................................................. 11.14 Great Eastern Hotel Co Ltd v John Laing Construction Ltd [2005] EWHC 181 (TCC); 99 ConLR 45............................................................................... 11.6, 14.55 Great Elephant Corporation v Trafigura Beheer BV (“The Crudesky”) [2013] EWCA Civ 905; [2014] 1 Lloyd’s Rep 1.................................................................... 7.42 Great Ormond Street case. See Board of Governors of the Hospital for Sick Children v McLaughlin and Harvey (1987) 19 ConLR 25 Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407; [2003] QB 679................................................................... 3.3, 7.4, 7.51, 7.52 Greater Nottingham Co-Operative Society Ltd v Cementation Piling and Foundations Ltd [1989] 1 QB 71......................................................................................... 12.21 Grebert-Borgnis v J & W Nugent (1885) 15 QBD 85..................................................... 15.20, 15.30 Green v Farmer (1768) 4 Burr 2214.............................................................................................. 19.3 Greene v West Cheshire Railway (1871) LR 13 Eq 44.................................................... 22.18, 22.21 Greene Wood McLean LLP v Templeton Insurance Ltd [2010] EWHC 2679 (Comm); [2011] Lloyd’s Rep IR 557................................................................................... 17.17 Greenhill v Isle of Wight Railway (1871) 23 LT 885.................................................................. 22.17 Greenmast Shipping Co v Jean Lion et Cie (The Saronikis) [1986] 2 Lloyd’s Rep 277............... 5.24 Greenore Port Ltd v Technical & General Guarantee Company Ltd [2006] EWHC 3119 (TCC)........................................................................................... 6.37, 6.38 Greenwich Millennium Village Ltd v Essex Services Group plc (No 2) [2014] EWHC 1099 (TCC).................................................................................................. 15.63 Greenwich Millennium Village Ltd v Essex Services Group plc [2013] EWHC 3059 (TCC).............................................................................................................. 17.45

xxxvi

TABL E OF CASES

Greenwich Millennium Village Ltd v Essex Services Group plc [2014] EWCA Civ 960; [2014] 1 WLR 3517....................................................................... 15.63, 20.27 Gregg v Scott [2005] UKHL 2; [2005] 2 AC 176........................................................................ 12.26 Grocon Constructions (QLD) Pty v Juniper Developer No. 2 Pty [2015] QSC 102................... 14.22 Grocutt v Khan [2003] Lloyd’s Rep IR 464................................................................................ 15.56 Gruschus v C.R. Davis Contracting Co 75 NM 649, 409 P 2d 500, 504, 2 UCC Rep Serv 1080 (New Mexico 1965)......................................................................... 14.24 GSK Project Management Ltd v QPR Holdings Ltd [2015] EWHC 2274 (TCC); [2015] BLR 715......................................................................................................... 25.9 Guaranty Trust Co of New York v Hannay [1915] 2 KB 536............................................. 23.6, 23.33 Guiliano v Cleo Inc 995 SW 2d 88, 100, 16 IER Cas (BNA) 1015, 139 Lab Cas (CCH) P 58713 (Tennessee 1999)................................................................... 14.24 Guinness plc v CMD Property Developments Ltd (1995) 76 BLR 44.......................................... 6.11 GUS Property Management Ltd v Littlewoods Mail Order Services Ltd 1982 SLT 533.............................................................................................................. 10.4, 10.54 H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791 ....................................... 8.14 Hadley Design Associates Ltd v Westminster London Borough Council [2003] EWHC 1617 (TCC).................................................................................................. 20.60 Hadley v Baxendale (1854) 9 Ex 341 ...................................................................................... 8.1, 8.5, 8.6, 8.7, 8.8, 8.11 – 8.13, 8.17, 8.18, 8.20, 8.26, 10.42, 13.2, 14.3, 15.12, 15.21, 15.37, 18.5, 20.39, 20.41 – 20.45, 21.53, 21.54 Hagen and others v ICI Chemicals & Polymers Ltd [2002] IRLR 31........................................... 3.16 Hall & Co Ltd v Pearlberg [1956] 1 WLR 244............................................................................ 12.58 Hall Tawse South Ltd v Ivory Gate Ltd (1999) 62 ConLR 117..................................................... 5.20 Halpern v Halpern (Nos 1 and 2) [2007] EWCA Civ 291; [2008] QB 195................................... 3.51 Halsey v Esso Petroleum Co Ltd [1961] 1 WLR 683.................................................................. 12.49 Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576; [2004] 1 WLR 3002............................................................................................................. 25.88 Hamilton Jones v David & Snape [2003] EWHC 3147 (Ch); [2004] 1 All ER 657............................................................................................................. 11.41 Hammond and Co v Bussey (1887) 20 QBD 79............................................. 8.6, 15.12, 15.48, 25.37 Hampton v Minns [2002] 1 WLR 1............................................................................................. 17.28 Hanak v Green [1958] 2 QB 9............................................................. 19.2, 19.6, 19.13, 19.16, 19.17 Hannah Blumenthal, The. Paal Wilson & Co A/S v Partenreederei Blumenthal [1983] AC 854.................................................................................................... 7.34 Hansa Nord, The. Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44.......................................................................................................................... 6.16 Hanson Development Co v East Great Plains Shopping Center, Inc 195 Conn. 60, 485 A 2d 1296, 1300 (Connecticut 1985)..................................................... 14.24 Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447.................. 9.22, 12.57 Hardwicks Game Farm v Suffolk Agricultural Poultry Producers Association [1966] 1 WLR 287, CA; affmd [1969] AC 31, HL.................... 20.11, 20.16, 20.17 Harooni v Rustins Ltd [2011] EWHC 1532 (TCC)..................................................................... 11.14 Harriette N, The. Statoil ASA v Louis Dreyfus Energy Services LP [2008] EWHC 2257 (Comm); [2008] 2 Lloyd’s Rep 685........................................................ 3.3 Harris Springs Ltd v Howes [2007] EWHC 3271 (TCC); [2008] BLR 229............................... 24.22 Harrison v Technical Sign Company Ltd [2012] EWHC 2887 (TCC); [2013] BLR 244...............................................................................................11.10, 11.28, 17.44 Hassneh Insurance Co of Israel v Steuart JMew [2003] 2 Lloyd’s Rep 243............................... 15.26 Haward v Fawcetts [2006] UKHL 9; [2006] 1 WLR 682................................................ 24.20, 24.22

xxxvii

TABL E OF C A SES

Hawl-Mac Construction Ltd v Candle River (1984) 60 BCLR 57.............................................. 14.40 HC Trading Malta Ltd v Tradeland Commodities SL [2016] EWHC 1279 (Comm); [2016] 2 Lloyd’s Rep 130..................................................................................................... 23.37 Healing (Sales) Pty Ltd v Inglis Electric Pty Ltd (1968) 121 CLR 584...................................... 19.10 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465................................................. 3.33 Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273............................................................................... 6.20 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145..............................11.25, 12.12 – 12.14, 12.21 Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC)................................... 14.70 Henriksens Rederi A/S v THZ Rolimpex (The Brede) [1974] QB 233.............................. 19.3, 19.10 Henry Boot Building Ltd v The Croydon Hotel & Leisure Co Ltd (1985) 36 BLR 41............................................................................................................................ 21.88 Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 ConLR 32............................................................................ 14.36, 14.59, 14.62, 14.66 Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2005] 1 WLR 3850........................................................................................................................... 24.6 Hercy v Birch (1804) 9 Ves 357.................................................................................................... 22.9 Hermcrest plc v G Percy Trentham Ltd (1991) 53 BLR 108, CA............................................... 19.23 Hermosa, The. Chilean Nitrate Sales Corporation v Marine Transportation Co Ltd [1982] 1 Lloyd’s Rep 570......................................................................................................... 6.6 Heron II, The. Czarnikow (C) Ltd v Koufos [1969] 1 AC 350............................................................................. 8.2, 8.6, 8.8, 8.10, 8.13, 12.33, 12.34 Heskell v Continental Express Ltd [1950] 1 All ER 1033; (1950) 83 Lloyd’s Law Rep. 438....................................................................................................... 11.6 Heyman v Darwins Ltd [1942] AC 356......................................................... 6.5, 6.7, 6.18, 6.34, 7.44 HIB Ltd v Guardian Insurance Co Ltd [1997] 1 Lloyd’s Rep 412.............................................. 23.38 High Mark (M) Sdn Bhd v Patco Malaysia Sdn Bhd (1984) 28 BLR 129.................................. 21.45 HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ 735; [2001] 2 Lloyd’s Rep 161............................................................................................... 20.9 HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6; [2003] 2 Lloyd’s Rep 61................................................................................. 20.22, 20.28, 20.31–20.33 Hi-Lite Electrical Ltd v Wolseley UK Ltd [2011] EWHC 2153 (TCC); [2011] BLR 629........11.10, 11.14 Hill v London Borough of Camden (1980) 18 BLR 31................................................................. 6.21 Hills v Sughrue (1846) 15 M & W 253......................................................................................... 7.26 Hirji Mulji v Chong Yue Steamship Co Ltd [1926] AC 497........................................................... 7.9 Hirschfield v The London, Brighton and South Coast Railway Company (1876) LR 2 QBD 1... 3.17 Hiscox Underwriting Ltd v Dixon [2004] EWHC 479 (Comm); [2004] 2 Lloyd’s Rep 438...... 21.77 Hochster v De la Tour (1853) 2 E & B 678..................................................................................... 6.5 Hoenig v Isaacs [1952] 2 All ER 176................................................. 5.29, 5.32, 5.36, 6.9, 7.1, 19.12 Hogan v Bentinck West Hartley Collieries (Owners) Ltd [1949] 1 All ER 588.......................... 11.10 HOK Sport v Aintree Racecourse Ltd [2003] BLR 155..........................................12.5, 12.36 – 12.38 Holbeck Hall Hotel Ltd v Scarborough Borough Council (1997) 57 ConLR 113, QBD; [2000] BLR 109, CA.............................................................................................................. 7.17 Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd [2011] 2 SLR 106................. 7.22, 7.27 Holding & Barnes plc v Hill House Hammond Ltd [2001] EWCA Civ 1334; [2002] 2 P & CR 11...................................................................................................................................... 2.10 Hollebone v Midhurst and Fernhurst Builders [1968] 1 Lloyd’s Rep 38.................................... 12.57 Hollier v Rambler Motors Ltd [1972] 2 QB 71........................................................................... 20.11 Holtby v Brigham & Cowan (Hull) Ltd [2000] 3 All ER 421..................................................... 12.24 Holyoake v Candy [2016] EWHC 970 (Ch); [2016] 3 WLR 357............................................... 21.34

xxxviii

TABL E OF CASES

Homburg Houtimport BV v Agrosin Private Ltd (“The Starsin”) [2003] UKHL 12; [2004] 1 AC 715...................................................................................... 20.17, 20.18 Home Office v Dorset Yacht Co Ltd [1970] AC 1004 .................................................................11.11 Hong Kong & Shanghai Bank v Kloeckner [1989] BCLC 776................................................... 19.40 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd; (“The Hongkong Fir”) [1962] 2 QB 26........................................................................... 6.9, 7.32 Hooper v Rogers [1975] 1 Ch 43............................................................................. 12.48, 21.9, 21.43 Hornibrook (Pty) Ltd v Eric Newham (1971) 45 ALJR 523......................................................... 5.26 Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] BLR 235....... 19.10, 20.43, 20.45 Hotson v East Berkshire Area Health Authority [1987] AC 750................................................. 12.26 Hounslow London Borough Council v Twickenham Developments [1971] Ch 233; (1978) 7 BLR 1.............................................................................................. 21.6, 22.18 Howden North America Inc v Ace European Group Ltd [2012] EWCA Civ 1624; [2013] Lloyd’s Rep IR 512..................................................................... 23.37 Howell v Coupland (1874) LR 9 QB 462; affmd (1876) 1 QBD 258........................................... 7.25 Howkins & Harrison v Tyler [2001] Lloyd’s Rep PN 1.............................................................. 17.17 Howmet Ltd v Economy Devices Ltd [2016] EWCA Civ 847; [2016] BLR 555............ 11.28, 12.09 Humber Oil Terminals Ltd v The Owners of the Ship Sivand [1998] 2 Lloyd’s Rep 97.............. 11.3 Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714; [2014] BLR 613............................... 24.21 Hunter v Fitzroy Robinson & Partners (1977) 10 BLR 84.......................................................... 21.45 Hurst Stores and Interiors Ltd v ML Europe Property Ltd [2004] BLR 249................................. 2.41 Hussain v New Taplow Paper Mills Ltd [1988] AC 514............................................................. 11.50 Hussey v Eels [1990] 2 QB 227................................................................................................... 11.47 Hutchinson v Harris (1978) 10 BLR 19........................................................................... 11.43, 19.12 Huyton SA v Distribuidora Internacional De Productos Agricolas SA de CV [2003] 2 Lloyd’s Rep 780......................................................................................................... 3.3 Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep 620............................................ 11.6 Hydrocarbons Great Britain Ltd v Cammell Laird Shipbuilders and Automotive Products Ltd (No 2) (1991) 58 BLR 123......................................................... 24.40 Hyundai Heavy Industries Co v Papadopoulos [1980] 1 WLR 1129................................... 6.18, 6.37 Ide v ATB Sales Ltd [2008] EWCA Civ 424; [2009] RTR 8....................................................... 11.14 Idemitsu Kosan Co Ltd v Sumitomo Corporation [2016] EWHC 1909 (Comm)........................... 3.9 IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm); [2007] 1 Lloyd’s Rep 264; affmd [2007] EWCA Civ 811; [2007] 2 Lloyd’s Rep 449, CA........................................................................................................... 3.10 IG Index Ltd v Ehrentreu [2013] EWCA Civ 95........................................................................... 19.4 Ikarian Reefer, The. National Justice Compania Naviera SA v Prudential Assurance Co Ltd [1993] 2 Lloyd’s Rep 68......................................................................... 25.12 Illingworth v Bushong 297 Or 675, 688 P 2d 379, 390, 39 UCC Rep Serv 903 (Oregon 1984)...................................................................................................................... 14.24 IMI plc v Delta Ltd [2016] EWCA Civ 773; [2016] 3 WLR 1595................................... 17.35, 24.32 Imperial College of Science and Technology v Norman & Dawbarn (1986) 2 Const LJ 280........................................................................................................................ 9.25 Independent Broadcasting Authority v EMI Electronics Ltd and BICC Construction Ltd (1980) 14 BLR 1..................................................................................................................... 11.6 Industrial Service (Telford) Ltd v Charles Ransford & Son Ltd [2005] EWCA Civ 662 ............ 5.16 Industrie Chimiche Italia Centrale SpA v Nea Ninemia Shipping Co SA (“The Emmanuel C”) [1983] 1 Lloyd’s Rep 310.............................................................................................. 20.25 Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611........................... 2.48, 3.58

xxxix

TABL E OF C A SES

Interface Europe Ltd v Premier Hank Dyers Ltd [2014] EWHC 2610 (QB); [2014] All ER (D) 98 (Sep).................................................................................................. 24.14 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433....................... 20.7 International Minerals & Chemical Corporation v Karl O Helm AG [1986] 1 Lloyd’s Rep 81.................................................................................................................... 18.5 Internet Broadcasting Corporation Ltd v MAR LLC [2009] EWHC 844 (Ch); [2009] 2 Lloyd’s Rep 295..................................................................................................... 20.34 Interoute Telecommunications (UK) Ltd v Fashion Gossip Ltd, The Times, 10 November 1999............................................................................................................... 21.26 Interstate General Government Contractors Inc v West (1993) 12 F3d 1053............................. 13.29 Invercargill City Council v Hamlin [1983] 2 AC 1.......................................................... 24.12, 24.13 Invertec Ltd v De Mol Holding BV [2009] EWHC 2471 (Ch)....................................................... 3.9 Inverugie Investments Ltd v Hackett [1995] 1 WLR 713........................................................... 12.54 Investors Compensation Scheme Ltd v West Bromwich Building Society (ICS) [1998] 1 WLR 896................................................................................................. 2.5, 2.14, 2.15 Ipson Renovation Ltd v The Incorporated Owners of Connie Towers [2016] HKCFI 2117........................................................................................................................... 6.15 Islamic Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association (Bermuda) Ltd [2010] EWHC 2661 (Comm); [2011] Lloyd’s Rep IR 145.................................................................................................................. 7.7 Islander Trucking Ltd v Hogg Robinson & Gardner Mountain (Marine) Ltd [1990] 1 All ER 826............................................................................................................. 24.18 Islington Vestry v Hornsey Urban District Council [1900] 1 Ch 695.......................................... 23.29 J Crosby & Sons Ltd v Portland Urban District Council (1967) 5 BLR 121.............................................................................................16.7, 16.10, 16.11 – 16.16 J Lauritzen AS v Wijsmuller BV (“The Super Servant Two”) [1990] 1 Lloyd’s Rep 1........................................................................................................ 7.6, 7.9, 7.10 J Murphy & Sons Ltd v Beckton Energy Ltd [2016] EWHC 607 (TCC); [2016] BLR 448.................................................................................................................... 14.70 J Murphy & Sons Ltd v Johnston Pre Cast Ltd [2008] 3024 (TCC).................................. 11.6, 19.12 J Sainsbury plc v Broadway Malyan (1998) 61 Con LR 31............................................. 15.55, 17.57 J Spurling Ltd v Bradshaw [1956] 1 WLR 461............................................................................. 20.8 Jack L Israel v Ocean Dynamic Lines SA (“The Ocean Dynamic”) [1982] 2 Lloyd’s Rep 88.................................................................................................................. 15.57 Jackson v Royal Bank of Scotland plc [2005] UKHL 3; [2005] 1 WLR 377............................... 8.14 Jacob & Youngs v Kent (1921) 129 NE 889.................................................................................... 9.7 Jaffray and others v Society of Lloyd’s [2002] EWCA Civ 1101.................................................. 3.15 Jaggard v Sawyer [1995] 1 WLR 269.............................................................................. 11.59, 21.35 James Archdale & Co Ltd v Comservices Ltd [1954] 1 WLR 459............................................. 20.50 James Scott & Sons Ltd v Del Sol [1922] SC 592.......................................................................... 7.4 Jameson v Central Electricity Generating Board [1998] QB 323.................................... 17.13, 17.42 Jarbay Developments Ltd, Re (1982) 22 BLR 134...................................................................... 21.88 Jarvis Facilities Ltd v Alstom Signalling Ltd [2004] EWHC 1285 (TCC).................................. 25.70 Jarvis v Swan Tours Ltd [1973] QB 233...................................................................................... 11.39 Jascobs v Sesame Ltd [2014] EWCA Civ 1410; [2015] PNLR 6................................................ 24.21 J-Corp Pty Ltd v Mladenis [2009] WASCA 157......................................................................... 14.26 JD Wetherspoon plc v Commissioners for Her Majesty’s Revenues & Customs [2007] UKSPC SPC00657.................................................................................... 13.17 JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583..................................................... 3.20 Jefferys v Jefferys (1841) Cr and Ph 138....................................................................................... 22.8

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TABL E OF CASES

Jefford v Gee [1970] 1 Lloyd’s Rep 107..................................................................................... 18.11 Jennings and Chapman Ltd v Woodman, Matthews & Co [1952] 2 TLR 409.............................. 5.21 Jervis v Howle and Talke Colliery Co Ltd [1937] 1 Ch 67........................................................... 2.20 Jessen v Jessen 810 P 2d 987, 990 (Wyoming 1991)................................................................... 14.24 Jeune v Queens Cross Properties Ltd [1974] 1 Ch 97................................................................. 22.23 JF Finnegan Ltd v Community Housing Association Ltd (1993) 65 BLR 103; 77 BLR 22....... 14.46 JF Finnegan Ltd v Ford Sellar Morris Developments Ltd (1991) 53 BLR 38............................ 21.88 JF Finnegan Ltd v Sheffield City Council (1968) 43 BLR 124................................................... 13.27 JIS (1974) Ltd v MCP Investment Nominees Ltd [2003] EWCA Civ 721................................... 2.29 JK Buckenham v Iron Trades Mutual Insurance [1990] 1 All ER 808........................................ 24.18 JMD Holding Corp v Congress Financial Corp. 4 NY 3D 373, 795 NYS 2d 502, 828 NE 2d 604, 609 (New York 2005)................................................................................. 14.24 Jobling v Associated Dairies [1982] AC 794................................................................................. 11.8 John Barker Construction Ltd v Portman Hotel Ltd (1996) 83 BLR 31..................................... 14.34 John D Wood & Co Ltd v Knatchbull [2002] EWHC 2822 (QB); [2003] 8 EG 131.................. 12.28 John Doyle Construction Ltd v Laing Management (Scotland) Ltd [2002] BLR 393, CS; [2004] BLR 295, IH............................... 14.39, 16.4, 16.18, 16.21, 16.32, 16.33 John F Hunt Demolition Ltd v ASME Engineering Ltd [2007] EWHC 1507 (TCC); [2008] BLR 115............................................................................................ 15.42, 15.43 John Grimes Partrnership Ltd v Gubbins [2015] EWCA Civ 37; [2013] BLR 126........................................................................................................................ 8.13, 8.16 John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 82 BLR 81................................................................... 16.18, 16.25, 16.28, 16.34 John Sisk & Sons Ltd v Carmel Building Services Ltd [2016] EWHC 806 (TCC); [2016] BLR 283....................................................................................................... 16.35 John Trenberth Ltd v National Westminster Bank Ltd (1980) 39 P & CR 104........................... 21.85 Johnson v Gore Wood & Co (No 1) [2002] 2 AC 1 .................................................................... 11.41 Johnson v Gore Wood & Co (No 2) [2003] EWCA Civ 1728............... 8.14, 12.5, 12.30, 12.34, 18.5 Johnson v Shrewsbury and Birmingham Railway (1853) 22 LJ Ch 921..................................... 22.17 Jolley v Sutton London Borough Council [2000] 1 WLR 1082.................................................... 12.8 Jones v Stroud District Council [1986] 1 WLR 1141.................................................................. 24.14 Jordan v Norfolk County Council [1994] 1 WLR 1353.............................................................. 12.57 Joscelyne v Nissen [1970] 2 QB 86............................................................................. 2.20, 2.28, 2.29 Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154........................... 7.34 JSB BTA Bank v Ablyazov (No 10) [2013] EWCA Civ 928; [2014] 1 WLR 1414; [2014] 1 Lloyd’s Rep 195.............................................................................. 21.25 JSC BTA Bank v Ablyazov (No 8) [2012] EWCA Civ 1411; [2013] 1 WLR 1331......................................................................................................................... 21.29 JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139; [2016] 1 WLR 160........................................................................... 21.17, 21.25, 21.29 Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520.................................................................. 12.21 K v P [1993] Ch 140.................................................................................................................... 17.47 Kaupthing Singer & Friedlander Ltd, Re [2009] EWHC 2308 (Ch); [2010] Bus LR 428................................................................................................................ 19.29, 19.37 KBC Bank v Industrial Steels (UK) Ltd [2001] 1 Lloyd’s Rep 370............................................ 15.15 Keeling v Schastey & Vollmer (1912) 124 P 445.......................................................................... 7.18 Kelly v Marx 428 Mass. 877, 705 NE 2d 1114, 1117 (Massachusetts 1999).............................. 14.24 Kemble v Farren, 6 Bing 141......................................................................................................... 14.8 Kitchen v Royal Air Force Association [1958] 1 WLR 563........................................................ 12.26 Kitt v The Laundry Building Ltd [2014] EWHC 4250 (TCC); [2015] BLR 170.......................... 5.45

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TABL E OF C A SES

Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349......................................... 3.18, 7.51 Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad [1989] 1 WLR 379........... 3.16, 5.20 Knightley v Johns [1982] 1 WLR 349......................................................................................... 12.29 KNS Industrial Services (Birmingham Ltd) v Sindall (2000) 75 ConLR 71.............................. 19.52 Knutton v Cofield 273 NC 355, 160 SE 2d 29, 34 (North Carolina 1968).................................. 14.24 Koch Marine Inc v D’Amica Societa di Navigatione [1980] 1 Lloyd’s Rep 75............................ 9.31 Kodros Shipping Corporation v Empress Cubana de Fletes (The Evia) [1983] 1 AC 736........... 7.14 Koenings v Joseph Schlitz Brewing Co 126 Wis 2d 349, 377 NW 2d 593, 600 (Wisconsin 1985).................................................................................................................. 14.24 Kolmar Group AG v Traxpo Enterprises PVT Ltd [2010] EWHC 113 (Comm); [2010] 2 Lloyd’s Rep 653....................................................................................................... 3.23 Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350.......................................... 12.33, 12.34 Kozlik v Emelco Inc 240 Neb 525, 483 NW 2d 114, 121, 127 Lab Cas (CCH) P 57599 (Nebraska 1992)..................................................................................................... 14.24 Kpohraror v Woolwich Building Society [1996] 4 All ER 119....................................................... 8.6 Kriti Rex, The. Fyffes Group Ltd v Reefer Express Lines Ltd [1996] 2 Lloyd’s Rep 171.................................................................................................................. 7.42 Kruger Tissue (Industrial) Ltd v Frank Galliers Ltd (1988) 57 ConLR 1................................... 20.50 Kruse v Questier & Co Ltd [1953] 1 QB 669................................................................................ 7.44 Kuczynski v Intensive Maintenance Care Inc 48 SW 3d 55, 57 (Montana 2001)....................... 14.24 Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] EWCA Civ 38; [2013] 2 Lloyd’s Rep 270................................................................ 20.37 Kuwait Airways Corporation v Iraqi Airways (Nos 4 & 5) [2002] UKHL 19; [2002] 2 AC 883................................................................................................................... 12.62 Kuwait Airways Corporation v Kuwait Insurance Company SAK [2000] EWHC 191 (Comm)............................................................................................................. 18.14 Laemthong International Lines Co Ltd v ARTIS (No 2) (The Laemthong Glory (No 2)) [2005] EWCA Civ 519; [2005] 1 Lloyd’s Rep 688................................................. 10.67 Lafarge (Aggregates) Ltd v London Borough of Newham [2005] EWHC 1337 (Comm); [2005] 2 Lloyd’s Rep 577....................................................................................... 2.10 Lagden v O’Connor [2003] UKHL 64; [2004] 1 AC 1067............................................................ 9.26 Lagunas Nitrate Company v Lagunas Syndicate [1899] 2 Ch 392............................. 3. 49, 3.47, 3.48 Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2002] BLR 393, CS; [2004] BLR 295, IH..................... 14.66, 16.4, 16.18, 16.21, 16.26, 16.32, 16.33 Lake Ridge Academy v Carney 66 Ohio St 3d 376, 613 NE 2d 183, 188, 82 Ed Law Rep 1181 (Ohio 1993)....................................................................................... 14.24 Lamb v Camden London Borough Council [1981] QB 625.........................................................11.11 Lambert (Iris Frances) v Lewis (Donald Richard). See Lexmead (Basingstoke) Ltd v Lewis [1982] AC 225.................................................................................................. 11.28 Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd (“The Raphael”) [1982] 2 Lloyd’s Rep 42............................................................................................ 20.20, 20.24 Lane v O’Brien Homes Ltd [2004] EWHC 303 (QB)................................................................. 11.59 Langstane Housing Association Ltd v Riverside Construction (Aberdeen) Ltd [2009] CSOH 52; (2009) 124 Con LR 211.................................................................... 17.46 Lansat Shipping Co Ltd v Glencore Grain BV (The “Paragon”) [2009] EWHC 551 (Comm); [2009] 1 Lloyd’s Rep 658, affmd [2009] EWCA Civ 855; [2009] 2 Lloyd’s Rep 688, CA.................................................................. 14.11 Lansing Linde Ltd v Kerr [1991] 1 WLR 251............................................................................. 21.12 Laserbore Ltd v Morrison Biggs Wall Ltd (1993) CILL 896........................................................ 5.24

xlii

TABL E OF CASES

Lauritzencool AB v Lady Navigation Inc [2004] EWHC 2607 (Comm); [2005] 1 Lloyd’s Rep 260, QBD; [2005] EWCA Civ 579; [2005] 1 WLR 3686, CA................................................................................................ 21.6, 21.42, 22.3 Lawrence v Fen Tigers Ltd [2014] UKSC 13; [2014] AC 822......................................... 21.39, 21.41 LE Cattan Ltd v A Michaelides & Co [1958] 1 WLR 717.......................................................... 15.58 LE Jones Ltd v Portsmouth City Council [2003] 1 WLR 427....................................................... 9.33 Lechouritis v Goldmile Properties Ltd [2003] EWCA Civ 49.................................................... 21.86 Lefemine v Baron 573 So 2d 326, 329 (Florida 1991)................................................................ 14.24 Les Laboratoires Servier v Apotex Inc [2008] EWHC 2347 (Ch); [2009] FSR 220................... 21.54 Les Laboratoires Servier v Apotex Ltd [2014] UKSC 55; [2015] AC 430................................. 21.57 Lesotho Highland Development Authority v Impregilo SpA [2005] UKHL 43; [2006] 1 AC 221.............................................................................................11.30, 11.31, 25.51 Lewis v Ward Hadaway [2015] EWHC 3503 (Ch); [2016] 4 WLR 6......................................... 24.41 Lewis v Yeeles [2010] EWCA Civ 326....................................................................................... 12.71 Lexmead (Basingstoke) Ltd v Lewis; sub nom Lambert (Iris Frances) v Lewis (Donald Richard) [1982] AC 225........................................................................... 11.28 Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 2688 (TCC); [2014] BLR 179........................... 2.23, 2.35, 2.36, 2.45, 6.18, 6.39, 22.24 Liberty Mercian Ltd v Dean & Dyball Construction Ltd [2008] EWHC 2617 (TCC); [2009] BLR 29................................................................................... 14.11 Liesbosch Dredger (Owners of) v Owners of SS Edison (The Liesbosch) [1933] AC 449............................................................................................................... 9.26, 13.8 Lilly Icos LLC v 8PM Chemists Ltd [2009] EWHC 1905 (Ch); [2010] Bus LR D43.................................................................. 21.47, 21.49, 21.54, 21.55, 21.57 Lim Chin San Contractors Pte Ltd v LW Infrastructure Pte Ltd [2011] SGHC 162................................................................................................................... 6.38 Lim Poh Choo v Camden and Islington Area Health Authority [1980] AC 174........................................................................................................................ 12.1 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd; St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85; (1992) 57 BLR 57.................................................................................. 10.3, 10.13 – 10.16, 10.18–10.20, 10.32, 10.39, 10.56 – 10.60 Lindenberg v Canning (1993) 62 BLR 147................................................................................. 17.45 Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221................................................ 3.44, 24.36 Linklaters Business Services v Sir Robert McAlpine Ltd [2010] EWHC 1145 (TCC); affmd [2010] EWCA Civ 999............................................................. 12.20 Linklaters Business Services v Sir Robert Mcalpine Ltd [2010] EWHC 2931 (TCC); [2011] BLR 108; 133 Con LR 211................................... 9.3, 12.20, 24.14 Linnett v Halliwells LLP [2009] EWHC 319 (TCC); [2009] BLR 312................................................................................................................................. 5.44 Linsen International Ltd v Humpuss Sea Transport Pte Ltd [2011] EWHC 2239 (Comm); [2011] 1 Lloyd’s Rep 663.................................................... 21.32 Lintest Builders Ltd v Roberts (1980) 13 BLR 38........................................................................ 6.11 Littman v Aspen Oil (Broking) Ltd [2005] EWCA Civ 1579; [2006] 2 P & CR 2.................................................................................................................. 2.10 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25................................................ 8.2, 10.2, 12.1 Lloyd v Stanbury [1971] 1 WLR 535................................................................................. 2.28, 11.22 Lloyds Bank plc v Guardian Assurance plc and Trollope & Colls Ltd (1986) 35 BLR 34................................................................................................................. 21.83

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TABL E OF C A SES

Lloyds Bank plc v Rogers [1999] 3 EGLR 83............................................................................. 24.40 Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657........................................ 21.13 Lockland Builders Ltd v John Kim Rickwood (1995) 77 BLR 38................................................ 6.31 Locri, The. Federal Commerce Navigation Co v Molen Alpha Inc (“The Benfri” [1979] AC 757................................................................................................... 6.7 Lodder v Slowey (1900) 20 NZLR 321; affmd [1904] AC 442, PC............................................. 5.34 Logicrose Ltd v Southend United FC [1988] 1 WLR 1256........................................................... 3.26 London Borough of Barking & Dagenham v Stamford Asphalt Co Ltd (1997) 82 BLR 25............................................................................................................................ 20.50 London Borough of Merton v Stanley Hugh Leach Ltd (1985) 32 BLR 51............................ 4.9, 16.10–16.16, 16.18, 16.34, 24.6 London Underground Ltd v Citylink Telecommunications Ltd [2007] EWHC 1749 (TCC); [2007] BLR 391..................................................................... 16.33, 25.54 Lord Elphinstone v Monkland Iron and Coal Co (1886) 11 App Cas 332.................................... 14.8 Lord Portarlington v Soulby (1834) 3 Myl & K 104................................................................... 21.64 Lord Wellesley v Earl of Mornington (1848) 11 Beav 180......................................................... 21.59 Lucky Lady, The. Navig8 Pte Ltd v Al-Riyadh Co for Vegetable Oil Industry [2013] EWHC 328 (Comm); [2013] 2 Lloyd’s Rep 104........................................... 21.70, 23.40 Lucy, The. Atlantic Lines & Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep 188.................................................................................................................. 3.37 Lumley v Wagner (1852) 1 De GM & G 604.............................................................................. 22.11 Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd (2006) 25 EG 210............................................................................................................................. 21.44 Lusty v Finsbury Securities (1991) 58 BLR 66............................................................................. 5.34 M & J Polymers v Imerys Minerals Limited [2008] EWHC 344 (Comm); [2008] 1 Lloyd’s Rep 541 .................................................................................... 14.11 M’Donald v Corporation of Worthington (1892) 9 TLR 21.......................................................... 7.15 MacDonald Dickens & Macklin v Costello [2011] EWCA Civ 930; [2012] QB 244........................................................................................................................ 5.46 Machenair Ltd v Gill and Wilkinson Ltd [2005] EWHC 455 (TCC).......................................... 19.53 Mac-Jordan Construction Ltd v Brookmount Erostin Ltd (1991) 56 BLR 1.............................. 21.88 Mackay v Dick (1881) 6 App Cas 251........................................................................................... 24.6 Mackenzie v Coulson (1869) LR 8 Eq 368................................................................................... 2.25 Macob Civil Engineering Ltd v Morrison Construction Ltd (1999) 1 BLR 93.............................................................................................................................. 25.71 MacShannon v Rockware Glass Ltd [1978] AC 795................................................................... 21.65 Maersk Colombo, The. Southampton Container Terminals Ltd v Schiffahrtsgesellschaft “Hansa Australia” MbH & Co [2001] EWCA Civ 717; [2001] 2 Lloyd’s Rep 275.............................................. 9.10, 9.13, 9.14, 10.44 Mafo v Adams [1970] 1 QB 548.................................................................................................. 12.59 Magellan Spirit APS v Vitol SA (“The Magellan Spirit”) [2016] EWHC Civ 454 (Comm); [2016] 2 Lloyd’s Rep 1.............................................................. 21.70 Mahme Trust Reg v Lloyds TSB Bank plc [2006] EWHC 1321 (Ch)........................................ 15.55 Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184......................................... 16.18 Mamidoil-Jetoil Greel Petroleum Co SA v Okta Crude Oil Refinery [2001] EWCA Civ 406; [2001] 2 Lloyd’s Rep 76.................................................................... 4.9 Man Nutzfahrzeuge AG and others v Freightliner Ltd [2005] EWHC 2347 (Comm); [2007] EWCA Civ 910, CA................................................................ 3.60, 12.14 Mannai Investment Ltd v Eagle Star Life Assurance Co Ltd 1997] AC 749.......................................................................................................................... 2.13, 2.14

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TABL E OF CASES

Manton Hire and Sales Ltd v Ash Manor Cheese Company Ltd [2013] EWCA Civ 548............. 9.36 Marathon Asset Management LLP v Seddon [2017] EWHC 300 (Comm)................................ 11.59 Marc Gilbard 2009 Settlement Trust v OD Developments and Projects Ltd [2015] EWHC 70 (TCC); [2015] BLR 213.......................................................................... 20.47 Marc Rich & Co AG v Bishop Rock Marine Co Ltd (“The Nicholas H”) [1996] AC 211............................................................................................................. 12.7, 13.12 Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (“The Mihalis Angelos”) [1971] 1 QB 164..................................................................... 6.7, 6.20 Mareva Cia Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509.................................................................................................... 21.21, 21.59 Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524................................................. 7.9 Maritime Transport Overseas GmbH v Unitramp Salen Rederierna AB (“The Antaios”) [1981] 2 Lloyd’s Rep 284....................................................... 15.58, 25.37 Mark Rowlands Ltd v Berni Inns Ltd [1986] QB 211................................................................. 11.52 Markerstudy Insurance Co Ltd v Endsleigh Insurance Services Ltd [2010] EWHC 281 (Comm)................................................................................................. 20.45 Marquess of Aberdeen & Temair v Turcan Connell [2008] CSOH 183; [2009] PNLR 18................................................................................................................... 11.48 Marston Construction Co Ltd v Kigass Ltd (1989) 46 BLR 109.................................................. 5.23 Mary Nour, The. CTI Group Inc v Transclear SA [2008] EWCA Civ 856; [2008] 2 Lloyd’s Rep 526....................................................................................... 7.4, 7.10, 7.26 Mason v Fakhimi 109 Nev 1153, 865 P 2d 333, 335 (Nevada 1993).......................................... 14.24 Masri v Consolidated Contractors International (UK) Ltd (No 3) [2008] EWCA Civ 625; [2009] QB 503.................................................................... 21.65, 21.66, 21.68 Matsoukis v Priestma & Co [1915] 1 KB 681; Lebeaupin v Crispin [1920] 2 KB 714..................................................................................................................... 7.42 Mattingley Bridge Co Inc v Holloway & Son Const Co 694 SW 2d 702, 705 (Kentucky 1985)............................................................................................... 14.24 Mayfield Holdings Ltd v Moona Reef Ltd [1973] 1 NZLR 309................................................. 22.18 Mayhaven Healthcare Ltd v Bothma [2009] EWHC 2634 (TCC); [2010] BLR 154...................................................................................................................... 8.26 McAlpine Humberoak Ltd v McDermott International Inc (No 1) (1992) 58 BLR 1.............................................. 7.21, 7.23, 14.29, 14.35, 16.19, 16.20 McCain Foods GB Ltd v Eco-Tec (Europe) Ltd [2011] EWHC 66 (TCC).................................................................................................................. 20.45 McConnell v Lynch-Robinson [1957] NI 70................................................................................. 17.5 McCrone v Boots Farm Sales Ltd 1981 SLT 103........................................................................ 20.58 McCutcheon v David McBrayne Ltd [1964] 1 WLR 125........................................................... 20.11 McEnroe v Morgan 106 Idaho 326, 678 P 2d 595, 600 (Idaho 1984)......................................... 14.24 McGhee v National Coal Board [1973] 1 WLR 1....................................................................... 12.24 McGill v Sports & Entertainment Media Group [2016] EWCA Civ 1063.................................. 11.17 McGlinn v Waltham Contractors Co Ltd [2007] EWHC 149 (TCC); [2008] Bus LR 233; (2007) 111 ConLR 1....................................................................... 9.3, 9.19 McIntyre v Gallagher (1882) 11 R. (Ct of Sess) 64..................................................................... 19.25 McLaren Murdoch & Hamilton Ltd v Abercromby Motor Group Ltd (2002) 100 ConLR 63.................................................................................................. 9.11, 10.50 McLaughlin and Harvey Ltd v Department of Finance & Personnel [2008] NIQB 25; [2008] BLR 603....................................................................................... 21.90 McRae v Commonwealth Disposals Commission (1950) 84 CLR 377...................................... 11.20 MDIS v Swinbank [1999] Lloyd’s Rep IR 516............................................................................. 2.15

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Meadows Indemnity Co Ltd v Insurance Company of Ireland plc [1989] 2 Lloyd’s Rep 298..................................................................................................... 23.17 Mediana, The. Owners of the Steamship Mediana v Owners of the Lightship Comet [1900] AC 113................................................................................................ 11.18, 16.9 Mellowes Archital Ltd v Bell Projects Ltd (1997) 87 BLR 26; (1997) 58 Con LR 22................................................................................................ 19.10, 19.18, 19.20 Mellows PPG v Snelling Construction (1989) 49 BLR 109........................................................ 19.18 Melville Dundas Ltd v Hotel Corporation of Edinburgh Ltd [2006] BLR 474; [2007] UKHL 18; [2007] 1 WLR 1136................................................... 19.23, 19.56 Memory Corporation plc v Sidhu (No 2) [2000] 1 WLR 1443................................................... 21.28 Menolly Investments Sarl v Cerep Sarl [2009] EWHC 516 (Ch); 125 Con LR 75....................... 23.3 Meretz Investments NV v ACP Ltd [2007] EWCA Civ 1303; [2008] Ch 244............................ 12.71 Merit Process Engineering Ltd v Balfour Beatty Engineering Services (HY) Ltd [2012] EWHC 1376 (TCC); [2012] BLR 364.......................................................... 4.9 Merryweather v Nixan (1799) 8 Durn & E 186............................................................................. 17.2 Mersey Steel & Iron Co Ltd v Naylor (1884) 9 App Cas 434................................................ 6.9, 6.14 Mertens v Home Freehold Company [1921] 2 KB 526............................................... 6.37, 7.33, 7.36 Messier-Dowty Ltd v Sabena [2000] 1 WLR 2040.................................... 23.32, 23.34, 23.38, 23.40 Metaalhandel JA Magnus BV v Ardfields Transport [1988] 1 Lloyd’s Rep 197................................................................................................................ 11.35 Metal Box Ltd v Currys Ltd [1988] 1 WLR 175......................................................................... 18.12 Metal Distributors (UK) Ltd v ZCCM Investment Holdings plc [2005] EWHC 156 (Comm); [2005] 2 Lloyd’s Rep 37........................................................ 19.63 Metropolitan Water Board v Dick, Kerr and Company Ltd [1917] AC 119.................................................................................................................. 7.29, 7.31, 7.41 Mid Essex Hospital Services NHS Trust v Compasss Group UK and Ireland Ltd [2013] EWCA Civ 200; [2013] BLR 265..................................................... 6.19 Mid-Glamorgan County Council v J Devonald Williams & Partner (1991) 29 ConLR 129...................................................................................................................... 16.16 Midgulf International Ltd v Groupe Chimiche Tunisien [2009] EWHC 963 (Comm); [2009] 2 Lloyd’s Rep 411 ................................................................ 21.74 Midgulf International Ltd v Groupe Chimiche Tunisien [2010] EWCA Civ 66; [2010] Lloyd’s Rep Plus 78........................................................................ 21.74 Midland Bank Ltd v Bardgrove Property Services Ltd (1992) 60 BLR 1................................... 21.43 Midland Bank plc v Laker Airways Ltd [1986] QB 689; [1986] 1 All ER 526............... 23.32, 23.37 Midland Great Western Railway of Ireland v Johnson (1858) 6 HLC 798................................... 3.17 Mihalis Angelos, The. Maredelanto Compania Naviera SA v Bergbau-Handel GmbH [1971] 1 QB 164...................................................................... 6.7, 6.20 Mileage Conference Group of the Tyre Manufacturers’ Conference Ltd’s Agreement, Re [1966] 1 WLR 1137.................................................................................... 21.61 Milers Specialist Joinery Co Ltd v Nobles Construction Ltd, 3 August 2001, unreported................................................................................................... 19.52 Miliangos v George Frank (Textiles) Ltd [1976] AC 443.................................................. 9.24, 11.30 Miller v LCC (1934) 50 TLR 479................................................................................................ 14.35 Millers Specialist Joinery Co Ltd v Nobles Construction Ltd, 3 August 2001, unreported............... 19.54 Milner v Carnival plc [2010 EWCA Civ 389; [2011] 1 Lloyd’s Rep 374................................... 11.39 Milton Keynes v Viridor (Community Recycling MK) Ltd (No. 2) [2017] EWHC 239 (TCC).................................................................................................................. 2.23 Ministry of Defence v Thompson (1993) 25 HLR 552................................................................. 5.23 Minster Trust Ltd v Traps Tractors Ltd [1954] 3 All ER 136........................................................ 19.8

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TABL E OF CASES

Mirant Asia-Pacific Construction (Hong Kong) Ltd v (1) Ove Arup and Partners International Ltd (2) Ove Arup and Partners Hong Kong Ltd [2004] EWHC 1750 (TCC); (2005) 97 ConLR 1; [2007] EWHC 918; [2008] Bus LR D1 ......................................................................................... 10.51, 10.52, 12.21 Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537; [2014] 1 WLR 795................................................................................................................. 25.9 Mitsui Construction Co Ltd v A-G of Hong Kong (1986) 33 BLR 1.................................................................................................................................. 2.8 Mobile Telesysatems Finance SA v Normhold Securities Ltd [2011] EWCA Civ 1040; [2012] 1 Lloyd’s Rep 6........................................................................... 21.31 Modern Engineering (Bristol) v Gilbert-Ash (Northern) Ltd [1974] AC 689............................................................................ 19.7, 19.11, 19.13, 19.22, 19.23 Molyneux v Richard [1906] 1 Ch 34..................................................................... 22.20, 22.28, 22.39 Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196........................ 8.2, 11.3 Monde Petroleum SA v Westernzagros Ltd [2016] EWHC 1472 (Comm); [2016] 2 Lloyd’s Rep 229....................................................................................... 6.19 Mondel v Steel (1841) 8 M & W 858.......................................................................... 19.2, 19.7, 19.8 Monmouthshire County Council v Costelloe and Kemple (1965) LGR 429; 5 BLR 83............................................................................................................. 23.10 Moore Large & Co Ltd v Hermes Credit & Guarantee plc [2003] EWHC 26 (Comm); [2003] Lloyd’s Rep IR 315 .................................................................. 3.43 Moore v Yakely Associates Ltd (1999) 62 ConLR 76, affmd [2000] CLY 810, CA........................................................................................................................ 20.69 Morley v Inglis (1837) 4 Bing NC 58............................................................................................ 19.4 Morris v Redland Bricks Ltd [1970] AC 652............................. 21.3, 21.8, 21.9, 21.36, 22.23, 22.26 Morrison Knudsen International Co Inc v The Commonwealth (1972) 13 BLR 114................................................................................................................. 3.57 Morrison-Knudsen v British Columbia Hydro and Power Authority (1978) 85 DLR (3d) 186; (1991) Const LJ 227...................................................................... 5.16 Morton-Norwich Products v Intercen (No 2) [1981] FSR 337.................................................... 15.15 Moschi v Lep Air Services Ltd (on appeal from Lep Air Services Ltd v Rollowin Ltd [1973] AC 331)............................................................................................. 6.14 Moseley v Virgin (1776) 3 Ves 184............................................................................................. 22.23 Most Honourable Alexander George Gordon, The, Marquess of Temair v Turcan Connell [2008] CSOH 183; [2009] PNLR 18............................................. 10.1 Motherwell Bridge Construction Ltd v Micafil Vakuumtechnik (2002) 81 ConLR 44............... 14.39 Mottram Consultants v Sunley [1975] 2 Lloyd’s Rep 197.......................................................... 19.23 Mouchel Ltd v Van Oord (UK) Ltd (No. 1) [2011] EWHC 72 (TCC).......................................... 17.8 Mouchel Ltd v Van Oord (UK) Ltd (No 2) [2011] EWHC 1516 (TCC); [2011] BLR 492.............................................................................................. 15.55, 17.44, 17.57 Mount Morgan (West) Gold Mine Ltd, Re the (1887) 56 LT 622................................................... 3.7 Mowlem plc v PHI Group Ltd [2004] BLR 421............................................................................ 5.17 Moy v Pettman Smith [2005] UKHL 7; [2005] 1 WLR 581....................................................... 17.29 MS Fashions Ltd v Bank of Credit and Commerce International SA [1993] Ch 425................. 19.29 MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789; [2016] Lloyd’s Rep Plus 66........................................................................ 6.19 Muirhead v Industrial Tank Specialities Ltd [1986] QB 507........................ 12.22, 12.31, 12.32, 13.9 Mul v Hutton Construction Ltd [2014] EWHC 1797 (TCC)......................................................... 9.36 Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC); [2007] BLR 195........................................................................ 14.44

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Munro v Bognor Urban Council [1915] 3 KB 167........................................................................ 3.70 Munt v Beasley [2006] EWCA Civ 370........................................................................................ 2.29 Murphy v Brentwood District Council [1991] 1 AC 398................ 12.18, 12.19, 12.21, 24.11, 24.12 Murphy v Merton London Borough Council [1991] 1 AC 398..................................................... 12.9 Murray v Budds, Hanahoe and Michael E Hanahoe [2017] IESC 4........................................... 11.41 Murray v Leisureplay plc [2005] EWCA Civ 963 ........................................................... 14.11, 14.23 Museprime Properties Ltd v Adhill Properties Ltd [1990] 2 EGLR 196....................................... 3.21 Nai Genova, The. Agip SpA v Nazigazione Alta Italia SpA [1984] 1 Lloyd’s Rep 353.............................................................................. 2.20, 2.23, 2.40, 2.41, 2.42 National Ability SA v Tinna Oils & Chemicals Ltd [2009] EWCA Civ 1330; [2010] Bus LR 1058............................................................................... 24.47 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675.................................................. 7.5 National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16; [2009] 1 WLR 1405............................................................................................ 21.24 National Justice Compania Naviera SA v Prudential Assurance Co Ltd (“The Ikarian Reefer”) [1993] 2 Lloyd’s Rep 68................................................................. 25.12 National Trust for Places of Historic Interest or Natural Beauty, The v Haden Young Ltd (1995) 72 BLR 1........................................................................... 20.50 National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd [1972] AC 785.................................................................................................... 19.40 National Westminster Bank plc v Rabobank Nederland [2007] EWHC 3163 (Comm); [2008] 1 Lloyd’s Rep 16................................................................. 15.57 Nationwide Building Society v Dunlop Haywards (DHL) Ltd [2009] EWHC 254 (Comm); [2010] 1 WLR 258..................................................... 12.43, 17.57 Navig8 Pte Ltd v Al-Riyadh Co for Vegetable Oil Industry (“The Lucky Lady”) [2013] EWHC 328 (Comm); [2013] 2 Lloyd’s Rep 104......... 21.70, 23.40 NEI Thompson v Wimpey Construction (1987) 39 BLR 65....................................................... 19.23 Neil Martin Ltd v Revenue & Customs Commissioners [2007] EWCA Civ 1041 .................... 12.14 Nelson v Rye [1996] 1 WLR 1378................................................................................................ 3.44 Nema (No 2), The. Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724...................................................................................... 7.5, 7.10, 7.14, 7.19, 7.28 Neptune Orient Lines Ltd v JVC (UK) Ltd [1983] 2 Lloyd’s Rep 438....................................... 20.11 Network Rail Infrastructure Group Ltd v Conarken Group Ltd [2010] EWHC 1852 (TCC); [2010] BLR 601; [2011] EWCA Civ 644; [2011] 2 CLC........................................................................................................................ 12.58 New Brunswick and Canada Railway and Land Co v Muggeridge (1859) 4 Drew 686............... 22.4 New Flamenco, The. Fulton Shipping Inc of Panama v Globalia Business Travel SAU [2015] EWCA Civ 1299; [2016] 1 Lloyd’s Rep 383.............................. 9.37, 11.46 New Hampshire Insurance Company v Aerospace Finance Ltd and others [1998] 2 Lloyds Rep 539.............................................................. 23.32, 23.37, 23.38 New Islington & Hackney Housing Association Ltd v Pollard Thomas and Edwards [2001] BLR 74....................................................................... 24.5 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154...................................................................................................................... 20.12 Newman v Pinto (1887) 57 LT 31.................................................................................................... 3.7 NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (No 1) and (No 2) [2015] UKPC 37; [2015] BLR 667......................................................................................................... 19.20, 19.23 Nicholas H, The. Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] AC 211............................................................................................................. 12.7, 13.12

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TABL E OF CASES

Nichols v Marsland (1876) 2 Ex D 1........................................................................................... 12.29 Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 (Comm); [2004] 1 Lloyd’s Rep 38....................................................................................................... 10.67 Nitrigin Eirann Teoranta v Inco Alloys Ltd [1992] 1 WLR 498...................................... 12.21, 24.11 Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128.................................... 20.16, 20.18 Nokia Corporation v InterDigital Technology Corporation [2006] EWHC 802 (Pat), 12 April 2006, unreported........................................................................................... 23.35 Nokia Corporation v InterDigital Technology Corporation (Application to Set Aside) [2006] EWCA Civ 1618; [2007] FSR 23.................................. 23.35 Nomihold Securities Inc v Mobile Telysystems Finance SA (No. 2) [2012] EWHC 130 (Comm); [2012] Bus LR 1289; [2012] 1 Lloyd’s Rep 442.................. 21.76 Normans Bay Ltd v Coudert Bros [2003] EWCA Civ 215; [2004] All ER (D) 458 (Feb)................................................................................................... 11.8, 11.17 Norscot Rig Management PVT Ltd v Essar Oilfields Services Ltd [2010] EWHC 195 (Comm); [2010] 2 Lloyd’s Rep 209............................................. 2.51, 19.62 North Eastern Marine Engineering Co v Leeds Forge Co [1906] 1 Ch 324............................................................................................................................... 23.36 North Sea Energy Holdings NV v Petroleum Authority of Thailand [1997] 2 Lloyd’s Rep 418; affmd on different grounds [1999] 1 Lloyd’s Rep 483, CA........................................................................................................... 8.13 Northern Developments (Cumbria) Ltd v J & J Nichol [2000] BLR 158................................... 19.53 Norwich City Council v Harvey [1989] 1 WLR 828....................................................... 12.21, 20.51 Nossen’s Letter Patent, In re [1969] 1 WLR 638......................................................................... 13.37 Nulty v Milton Keynes Borough Council [2013] EWCA Civ 15; [2013] 1 WLR 1183; [2013] Lloyd’s Rep IR 243................................................................ 11.14 Nykredit plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627........................ 12.35, 12.36 O’Driscoll v Dudley Health Authority [1998] Lloyd’s Rep Med. 210........................................ 24.20 Oastler v Pound (1863) 7 LT 852................................................................................................. 19.10 OBG Ltd v Allan [2007] UKHL 21; [2008] 1 AC 1......................................................... 12.71, 12.73 Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC)................................................................................... 14.42 Ocean Dynamic, The. Jack L Israel v Ocean Dynamic Lines SA [1982] 2 Lloyd’s Rep 88.................................................................................................................. 15.57 Ocean Tramp Tankers Corp v V/O Sovfracht (The Eugenia) [1964] 2 QB 226......................................................................................................................... 7.6, 7.31 Oceanbulk Shipping & Trading SA v TMT Asia Ltd [2010] EWCA Civ 79; [2010] 1 WLR 1803.................................................................................... 15.35 Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44; [2011] 1 AC 662................................................................................................. 15.35 Octoesse LLP v Trak Special Projects Ltd [2016] EWHC 3180 (TCC); [2017] BLR 82......................................................................................................... 14.70 Offer-Hoar v Larkstore Ltd (Technotrade Ltd Part 20 Defendant) [2006] EWCA Civ 1079; [2006] 1 WLR 2926; [2006] BLR 345.................... 10.6, 10.61, 10.62, 10.64 Office of Fair Trading v Abbesy National plc [2009] UKSC 6; [2010] 1 AC 696............................................................................................................................... 20.71 Office of Fair Trading v Ashbourne Management Service Ltd [2011] EWHC 1237 (Ch)................................................................................................................. 20.71 Office of Fair Trading v Foxtons Ltd [2009] EWCA Civ 288; [2010] 1 WLR 663........................................................................................................................... 20.71 Ogilvie Builders Ltd v Glasgow District Council 1995 SLT 15.................................................... 18.3

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OJSC Ank Yugraneft, Re [2008] EWHC 2614 (Ch); [2009] Bus LR D33.................................. 21.28 Olley v Marlborough Court Ltd [1949] 1 KB 532....................................................................... 20.10 Olympia Sauna Shipping Co SA v Shinwa Kaiun Kaiasha Ltd (The “Ypatia Halcoussi”) [1985] 2 Lloyd’s Rep 364.................................................... 2.41, 2.42 Omak Maritime Ltd v Mamola Challenger Shipping Co Ltd [2010] EWHC 2026 (Comm); [2011] Bus LR 212................................................................11.20, 11.46 Omnium v Sutherland [919] 1 KB 618.......................................................................................... 6.15 OMV Petrom SA v Glencore International AG (No. 2) [2016] EWCA Civ 778; [2016] 2 Lloyd’s Rep 432....................................................11.21, 11.46, 12.65 One-Step (Support) Ltd v Morris-Garner [2016] EWCA Civ 180; [2016] 3 WLR 1281............................................................................................................. 11.59 Orakpo v Manson Investments Ltd [1978] AC 95........................................................................... 5.9 Orient-Express Hotels Ltd v Assicurazioni Generali SA [2010] EWHC 1186 (Comm); [2010] Lloyd’s Rep IR 531............................................................... 11.5 Ossory Road (Skelmersdale) Ltd v Balfour Beatty Building Ltd [1993] CILL 882................................................................................................................... 20.50 Ottercroft Ltd v Scandia Care Ltd [2016] EWCA Civ 867.............................................. 21.41, 21.85 Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s Rep 273.......................................................................................... 20.68, 20.69 Overseas Tankship (UK) Ltd v Miller Steamship Co Pty (“The Wagon Mound”) (No 2) [1967] 1 AC 617................................................................. 12.53 Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd (The Wagon Mound) [1961] AC 388........................................................................ 12.30, 12.53 Owners of Cargo Lately Laden on Board the Tatry v Owners of the Tatry Case C-406/92 [1994] ECR I-5439; [1995] 1 Lloyd’s Rep 302........................... 23.32 Owners of the Eleftherotria v Owners of the Despina R (“The Despina R”); sub nom Services Europe Atlantique Sud (SEAS) v Stockholms Rederi AB Svea (“The Folias”) [1979] AC 685.........................................................11.33, 11.35 Owners of the Steamship Mediana v Owners of the Lightship Comet (“The Mediana”) [1900] AC 113................................................................................. 11.18, 16.9 Oxford Architects Partnership v Cheltenham Ladies College [2007] BLR 293............................ 24.5 Oxford University Fixed Assets Ltd v Architects Design Partnership (1999) 64 ConLR 12............................................................................................................. 17.38 Oxford University Press v John Stedman Design Group (1990) 34 ConLR 1............................... 15.47 Oxford v Provand (1868) LR 2 PC 135....................................................................................... 22.26 P & M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146.......................................... 6.11, 24.4 P & O Developments Ltd v The Guy’s and St Thomas’s National Health Service Trust [1999] BLR 3...................................................................................... 15.37 P Perl (Exporters) Ltd v Camden London Borough Council [1984] QB 342...............................11.11 Paal Wilson & Co A/S v Partenreederei Blumenthal (“The Hannah Blumenthal”) [1983] AC 854......................................................................... 7.34 Pacific Associates Inc v Baxter [1990] 1 QB 993........................................................................ 12.21 Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50......................... 14.22 Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28............................. 14.22 Page One Records Ltd v Britton [1968] 1 WLR 157................................................................... 21.12 Page v Hewetts [2012] EWCA Civ 805....................................................................................... 24.41 Page v Hewetts [2013] EWHC 2845 (Ch)................................................................................... 24.41 Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 ....................................................... 5.20 Palmco Shipping Inc v Continental Ore Corporation (“The Captain George K”) [1970] 2 Lloyd’s Rep 21 ............................................................................................................... 7.6, 7.31

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TABL E OF CASES

Palmers Ltd v ABB Power Construction Ltd [1999] BLR 426................................................... 19.50 Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 1671............................................. 5.46 Panama and South Pacific Telegraph Co v India Rubber, Gutta Percha, and Telegraph Works Co (1875) LR 10 Ch App 515............................................................. 3.26 Panamena Europea Navigation v Frederick Leyland & Co Ltd [1947] AC 428......................... 14.40 Pankhania v The London Borough of Hackney [2002] EWHC 2441 (Ch); [2002] NPC 123................................................................................................... 3.18, 3.19, 3.37 Paradine v Jane (1647) Aleyn 26..................................................................................................... 7.3 Paragon, The. Lansat Shipping Co Ltd v Glencore Grain BV [2009] EWHC 551 (Comm); [2009] 1 Lloyd’s Rep 658, affmd [2009] EWCA Civ 855, CA........ 14.11 Parker v McKenna (1874) LR 10 Ch App 96................................................................................ 3.26 Parkman Consulting Engineers v Cumbrian Industrials Ltd [2001] EWCA Civ 1621; 79 ConLR 112......................................................................................... 15.47 Parry v Cleaver [1970] AC 1....................................................................................................... 11.50 Patel v WH Smith (Eziot) Ltd [1987] 1 WLR 853...................................................................... 21.37 Pavey & Matthews Pty Ltd v Pavey [1987] HCA 5...................................................................... 5.22 Payne v John Setchell Ltd [2002] BLR 489; [2002] 7 PNLR 146.................................. 12.20, 12.21 Payzu v Saunders [1919] 2 KB 581............................................................................................... 9.36 Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd [1970] BLR 111.................................................................................. 14.28, 14.30, 14.35, 14.66 Pearce & High Ltd v Baxter [1999] BLR 101............................................................................... 9.36 Pearson Education Ltd v Charter Partnership Ltd [2007] BLR 324.............................................. 12.9 Peekay Intermark and Harish Pawani v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386; [2006] 2 Lloyd’s Rep 511; [2006] 1 CLC 582................................................................................. 3.11, 3.21, 3.59 Pegler Ltd v Wang (UK) Ltd [2000] BLR 218.................................. 9.22, 20.42, 20.43, 20.59, 20.66 Pell Frischman Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45; [2010] BLR 73.............................................................................. 11.59, 21.35, 21.44 Peninsula Balmain Pty Ltd v Abigail Contractors Pty Ltd [2002] NSWCA 211; (2002) 18 BCL 322....................................................................................... 14.44 Percy Bilton Ltd v Greater London Council [1982] 1 WLR 794; (1982) 20 BLR 1.................................................................................................................. 14.31 Perini Corporation v Australia (1969) 12 BLR 82......................................................................... 24.6 Perry v Sidney Phillips & Son [1982] 1 WLR 1297..................................................9.25 – 9.27, 11.42 Persimmon Homes Ltd v Ove Arup & Partners Ltd [2015] EWHC 3573 (TCC); [2016] BLR 112...................................................................................................... 20.26 Persimmon Homes Ltd v Woodford Land Ltd [2011] EWHC Ch 3109 (Ch); [2012] BLR 73.............................................................................................................. 2.55 Peter Lind & Co Ltd v Mersey Docks and Harbour Board [1972] 2 Lloyd’s Rep 234................................................................................................................. 5.20, 5.28 Petersen v Personal Representatives of Cyril Rivlin [2002] EWCA Civ 194; [2002] Lloyd’s Rep PN 386.................................................................................. 12.36 Petrofina (UK) Ltd v Magnaload [1984] QB 127........................................................................ 11.52 Peyman v Lanjani [1985] 1 Ch 457............................................................................................... 3.43 PGF II SA v Royal and Sun Alliance Insurance plc [2010] EWHC 1459 (TCC).............. 9.15, 10.44 Phelps v Hillingdon London Borough Council [2001] 2 AC 619............................................... 12.14 Philips v The Attorney General of Hong Kong (1993) 61 BLR 41............................................... 14.9 Phillips & Co v Whatley [2007] UKPC 28; [2007] Lloyd’s Rep PN 34.......................................... 12.26 Phillips v Phillips 820 SW 2d 785, 788 (Texas 1991)................................................................. 14.24 Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827............... 6.9, 6.16, 6.30, 20.18, 20.37

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Pierce Design International Ltd v Mark Johnston [2007] BLR 381............................................ 19.56 Pima Sav. and Loan Ass’n v Rodgers 168 Ariz. 297, 812 P 2d 1115, 1118 (Arizona Ct. App. Div. 2 1991).................................................................................... 14.24 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (No 2) [1982] AC 724................................................................................................. 7.5, 7.10, 7.14, 7.19, 7.28 Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1............................................................................................................ 24.12, 24.15 Plant Construction plc v Clive James Associates [2000] BLR 137............................................. 17.45 Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190............................. 12.36, 12.42 Polemis and Furness Withy & Co, Re [1921] 3 KB 560............................................................. 12.30 Polypearl Ltd v E.On Energy Solutions Ltd [2014] EWHC 3045 (QB)..................................... 20.45 Posner v Scott Lewis [1986] 3 All ER 513........................................................................... 22.5, 22.6 Potton Homes Ltd v Coleman Contractors (Overseas) Ltd (1984) 28 BLR 19........................... 21.89 Prekookeanska Plovidba v Felstar Shipping Corporation [1994] 2 Lloyd’s Rep 14................... 17.24 Prenn v Simmonds [1971] 1 WLR 1381............................................................................... 2.12, 2.13 President of India v La Pintada Compania Navigacion SA [1983] 1 Lloyd’s Rep 37; revsd [1985] AC 104, HL.............................................................. 18.6, 18.12 President of India v Lips Maritime Corporation [1988] AC 395................................................... 18.6 President of India, The v Taygetos Shipping Co AG (“The Agenor”) [1985] 1 Lloyd’s Rep 155..................................................................................................... 11.32 Price v Strange [1978] Ch 337............................................................................... 22.17, 22.18, 22.40 Primus Telecommunications plc v MCI WorldCom International Inc [2004] EWCA Civ 957; [2004] 2 All ER (Comm) 833..................................................... 3.8, 3.9 Prison Service v Beart (No 2) [2005] EWCA Civ 467; [2005] ICR 1206..................................... 11.8 Pritchard v Co-Operative Group Ltd [2011] EWCA Civ 329: [2012] QB 320........................... 11.23 Progress Bulk Carriers Ltd v Tube City IMS LLC (The “Cenk Kaptanoglu”) [2012] EWHC 273 (Comm); [2012] Lloyd’s Rep 501........................................................... 3.23 Pyrok Industries Ltd v Chee Tak Engineering Co Ltd (1988) 41 BLR 124................................ 14.46 Qimonda Malaysia Sdn Bhd v Sediabena Sdn Bhd [2012] CLD 38........................................... 21.88 QR Sciences Ltd v BTG International Ltd [2005] EWHC 670 (Ch); [2005] FSR........................ 2.41 Quadrant Visual Communications Limited and others v Hutchinson Telephone (UK) Limited and another [1993] BCLC 442........................................................................ 22.2 Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1988] 1 Lloyd’s Rep 205.................................................................................................................... 4.9 Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370.........................................................11.3, 11.24 R & Hall Ltd v WH Pim (Junior) & Co Ltd 33 Com Cas 324........................................................ 8.6 R & V Versicherung AG v Risk Insurance and Reinsurance Solutions SA [2006] EWHC 42 (Comm)................................................................................................... 13.36 R (on the application of Corner House Research) v Director of the Serious Fraud Office [2008] EWHC 246 (Admin).............................................................. 25.27 R v IRC ex parte Rossminster [1980] AC 952............................................................................. 23.24 R v Medicines Control Agency, ex p Smith & Nephew Pharmaceuticals Ltd (Primecrown Ltd intervening) [1999] RPC 705........................................................ 21.53, 21.54 R v Secretary of State for Transport, ex parte Factortame Ltd (No 2) [1991] 1 AC 603............................................................................................................................... 21.12 RA Lister & Co Ltd v EG Thomson (Shipping) Ltd (The Benarty) (No 2) [1987] 1 WLR 1614............................................................................................................. 17.37 Radford v De Froberville [1977] 1 WLR 1262.................................................................... 9.3, 10.38 Raflatac Ltd v Eade [1999] 1 Lloyd’s Rep 506; [1999] BLR 261............................................... 11.25 Raheja Universal Pvt. Ltd v B.E. Bilimoria Ltd (2016) 3 AIR Bom R 637................................ 14.24

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TABL E OF CASES

Rahman v Arearose Ltd [2001] QB 351 ......................................................................... 17.18, 17.19 Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm); [2011] Bus LR Digest D65........................................... 3.10, 3.59 Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 at paragraph 21......................................................................................................................... 2.7 Raphael, The. Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd [1982] 2 Lloyd’s Rep 42..................................................................................... 20.20, 20.24 Rapid Building Group Ltd v Ealing Family Housing Association (1984) 29 BLR 5.............................................................................................................................. 14.30 Rawlings v Rentokil Laboratories [1972] EGD 744........................................................................ 9.7 Rayack Construction Ltd v Lampeter Meat Co Ltd (1979) 12 BLR 30...................................... 21.88 Reardon Smith Line Ltd v Yngvar Hansen-Tangen 1976] 1 WLR 989........................................ 2.12 Redbus LMDS Ltd v Jeffrey Green & Russell [2006] EWHC 2938 (Ch); [2007] PNLR 12................................................................................................................... 15.55 Redpath v Belfast and County Down Railway [1947] NI 167.................................................... 11.50 Reed Executive plc v Reed Business Information Ltd [2004] EWCA Civ 887; [2004] 1 WLR 3026............................................................................................................. 25.88 Rees & Kirby v Swansea City Council (1985) 30 BLR 1............................................................. 18.3 Rees-Hough Ltd v Redland Reinforced Plastics (1985) 2 Con LR 109...................................... 20.11 Regalian Properties plc v London Docklands Development Corporation [1995] 1 WLR 212.................................................................................................................... 5.21, 5.22 Regan v Paul Properties DPG No 1 Ltd [2006] EWCA Civ 1319; [2007] Ch 135............................................................................................................ 21.38, 21.39 Regent International Hotels (UK) Ltd v Pageguide Ltd, The Times, 13 May 1985, Court of Appeal (Civil Division) Transcript No 164 of 1985......................... 21.6 Regus (UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361; [2009] 1 All ER Comm 586......................................................................................... 3.67, 20.36, 20.69 Reinwood Ltd v L Brown & Sons Ltd [2007] EWCA Civ 601; [2007] BLR 10................................................................................................................................. 19.20 Reinwood Ltd v L Brown & Sons Ltd [2008] EWCA Civ 1090, CA; [2008] UKHL 12; [2008] BLR 219, HL...................................................................... 6.20, 14.71 Renaudette v Barrett Trucking Co Inc 167 Vt 634, 712 A 2d 387, 388 (Vermont 1998)............ 14.24 Re-Source America International Ltd v Platt Site Services Ltd [2004] EWCA Civ 665; [2006] 2 Lloyd’s Rep60; (2004) 95 Con LR 1.......................................... 17.44 Reveille Independent LLC v Anotech International [2016] EWCA Civ 443; (2014) Con LR 79................................................................................................................... 5.19 Rhesa Shipping Co SA v Edmunds (“The Popi M”) [1985] 1 WLR 948; [1985] 2 Lloyd’s Rep 1......................................................................................................... 11.14 Rice v Great Yarmouth Borough Council [2003] TCLR 1............................................................ 6.11 Ringrow Pty Ltd v BP Australia Ltd [2005] HCA 71.................................................................. 14.11 Rio Claro, The. Transworld Oil Ltd v North Bay Shipping Corp [1987] 2 Lloyd’s Rep 173.................................................................................................................. 8.14 Riverlate Properties v Paul [1975] 1 Ch 133................................................................................. 2.39 Riyad Bank v Ahli United Bank (UK) plc [2006] EWCA Civ 780; [2006] 2 Lloyd’s Rep 292.................................................................................................... 12.13, 12.14 Robert Salzer Constructions Pty Ltd v Elmbee Pty Ltd (1990) 10 Aust Const LR 64............................................................................................................ 22.18 Roberts v Bettany [2001] EWCA Civ 109; [2001] NPC 45............................................ 11.10, 12.29 Robertson v French (1803) 4 East 130............................................................................................ 2.5 Robinson v Harman (1848) 1 Ex 850.............................................................................................. 8.3

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Robinson v P E Jones (Contractors) Ltd [2011] EWCA Civ 9; [2012] QB 44; [2011] BLR 206..................................................................... 12.18, 20.69, 24.14 Rochdale Borough Council v Anders [1988] 3 All ER 480......................................................... 23.24 Rohauer v Little 736 P 2d 403, 410 (Colorado 1987).................................................................. 14.24 Rohlin Const Co Inc v City of Hinton 476 NW 2d 78, 80 (Iowa 1991)...................................... 14.24 Rolls Razor Ltd v Cox [1967] 1 QB 552..................................................................................... 19.40 Rolls-Royce plc v Unite the Union [2009] EWCA Civ 387; [2010] 1 WLR 318........................................................................................................................... 23.16 Rookes v Barnard [1964] AC 1129.............................................................................................. 12.59 Rose v Pim..................................................................................................................................... 2.28 Ross T Smyth & Co v Bailey, Son & Co [1940] 3 All ER 60......................................................... 6.8 Rover International Sales Ltd v Cannon Film Sales Ltd [1989] 1 WLR 912................................ 5.39 Rowallan Group Ltd v Edgehill Portfolio No 1 Ltd [2007] EWHC 32 (Ch) ............................... 2.42 Rowley v Secretary of State for Work & Pensions [2007] EWCA Civ 598; [2007] 1 WLR 2861............................................................................................................. 12.14 Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; [2002] 2 AC 773................................................................................................................................... 3.7 Royal Brompton Hospital National Health Service Trust v Hammond and Lerche (No 1) [1999] BLR 162..................................................................................... 15.41 Royal Brompton Hospital NHS Trust v Hammond (No 3) [2002] UKHL 14; [2002] 1 WLR 1397......... 17.1, 17.5, 17.8, 17.15, 17.16, 17.17, 17.22, 17.27, 17.54 Royal Brompton Hospital NHS Trust v Hammond (No 7) (2000) 76 Con LR 148............................................................................................... 14.62, 14.64, 14.68 Royal Brompton Hospital v Hammond [2002] EWHC 2037 (TCC); 88 ConLR 1.......................................................................................................................... 14.58 Royscot Trust Ltd v Rogerson [1991] 2 Q.B. 297......................................................................... 3.38 RP Howard Ltd v Woodman Matthews [1983] BCLC 117......................................................... 12.14 RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14; [2010] 1 WLR 753; [2010] Bus LR 776....................... 5.20 Rupert Morgan Building Services LLC Ltd v Jervis [2003] EWCA Civ 1563........................... 19.52 Rush & Tompkins Ltd v Greater London Council [1989] AC 1280; 43 BLR 1.......................... 15.35 Rust v Victoria Graving Dock Co 1887) 36 Ch D 113....................................................... 9.15, 12.50 Ruttle Plant Hire Ltd v Secretary of State for the Environment, Food & Rural Affairs [2009] EWCA Civ 97; [2009] BLR 301............................... 18.34, 18.35 Ruxley Electronics and Construction Ltd v Forsyth [1994] 1 WLR 650, CA; revsd [1996] 1 AC 344, HL.......................... 9.5 – 9.8, 9.11 – 9.15, 10.44, 11.40 Ryan v Mutual Tontine Westminster Chambers Association [1893] 1 Ch 116........................................................................................................... 22.6, 22.18 Rylands v Fletcher (1868) LR 3 HL 330..................................................................................... 12.53 S (Hospital Patient: Court’s Jurisdiction), Re [1996 1 Fam 1...................................................... 23.34 S Pearson & Son Ltd v Dublin Corporation [1907] AC 351............................................ 20.29, 20.32 SAAMCO. See Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd; sub nom South Australia Asset Management Corp v York Montague Ltd (SAAMCO) [1997] AC 191; [1996] BLR 1 ........ 8.4, 8.13, 12.4, 12.5, 12.30, 12.33, 12.35, 12.36, 12.38, 12.42, 12.63, 13.11 Sabemo Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880........................................................................................................................ 5.22 Sabmiller Africa BV v East African Breweries Ltd [2009] EWHC 2140 (Comm); [2010] 1 Lloyd’s Rep 392................................................... 21.12, 21.35 Safari Inc v Verdoorn 446 NW 2d 44, 46 (South Dakota 1989).................................................. 14.24

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TABL E OF CASES

Saga Cruises BDF Ltd v Fincantierei SPA [2016] EWHC 1875 (Comm).................................................................................... 10.52, 11.25, 14.66, 14.68, 20.45 Salsi v Jet Air Services Ltd [1977] 2 Lloyd’s Rep 57.................................................................. 20.11 Salt v Stratstone Specialist Ltd [201] EWCA Civ 745; [2015] 2 CLC 269................................... 3.37 Salvage Association v CAP Financial Services Ltd [1995] FSR 654; 1993 WL 13005057)...................................................................... 13.36, 20.60, 20.67 Sanjay Lachhani v Destination Canada (UK) Ltd (1996) 13 Const LJ 279............. 5.26, 5.28, 5.39, 5.40 Santa Clara, The. Vitol SA v Norelf Ltd [1996] AC 800............................................................... 6.18 Sargasso, The. Stargas SpA v Petredec Ltd [1994] 1 Lloyd’s Rep 412............................................................................... 15.19, 15.23, 15.40, 15.42 Saronikis, The. Greenmast Shipping Co v Jean Lion et Cie [1986] 2 Lloyd’s Rep 277...................................................................................................... 5.24 Saunders v Brading Harbour Improvement Co [1885] WN 36................................................... 22.17 Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (“The Scaptrade”) [1981] 2 Lloyd’s Rep 81, QBD; [1983] 2 AC 694, HL................... 6.20, 21.6 Scaptrade, The. Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana [1981] 2 Lloyd’s Rep 81, QBD; [1983] 2 AC 694, HL............. 6.20, 21.6 Scarf v Jardine (1882) 7 App Cas 345 .......................................................................................... 3.42 Scheldebouw BV v St James Homes (Grosvenor Dock) Ltd [2006] BLR 113........................... 14.34 Schering Agrochemicals Ltd v Resibel NV SA, CA, 26 November 1992, unreported............... 11.28 Schuler (L) AG v Wickman Machine Tool Sales [1974] AC 235.................................................. 6.16 Scott v Rayment (1868) LR 7 Eq 112.......................................................................................... 22.10 Scott Wilson Kirkpatrick & Partners v Ministry of Defence (1999) 73 ConLR 52...................... 9.22 Scottish & Newcastle plc v GD Construction (St Albans) Ltd [2003] EWCA Civ 96; [2003] Lloyd’s Rep IR 809......................................................................... 20.50 Scottish Power UK PLC v BP Exploration Operating Co Ltd [2016] EWCA Civ 1045....................................................................................................... 20.17 Scullion v Bank of Scotland plc [2011] EWCA Civ 693; [2011] 1 WLR 3212; [2011] BLR 449............................................................................................. 12.12 Scutt v Lomax (2000) 79 P & C R D 31 ............................................................... 12.55, 12.57, 12.59 Sea Angel, The. Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd [2007] EWCA Civ 547; [2007] 2 Lloyd’s Rep 517.............................................................................. 7.7, 7.10, 7.20, 7.43 Seadrill Management Services Ltd and another v OAO Gazprom [2009] EWHC 1530 (Comm); 126 ConLR 130...................................... 6.15, 6.20, 20.17, 20.45 Sealion Shipping Ltd v Valiant Insurance Co (“The Toisa Pisces”) [2012] EWCA Civ 1625; [2013] 1 Lloyd’s Rep 108............................................................ 11.10 Secretary of State for the Environment v Essex Goodman & Suggitt [1986] 1 WLR 1432............................................................................................................. 24.13 Secretary of State for the Environment, Food and Rural Affairs v Drury [2004] EWCA Civ 200; [2004] 1 WLR 1906........................................................................ 21.4 Secretary of State for the Environment, Food and Rural Affairs v Meier [2008] EWCA Civ 903; [2009] 1 WLR 828............................................................... 21.4, 21.38 Secretary of State for Trade and Industry v Frid [2004] AC 506................................................. 19.41 Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326.................................................................. 3.10 Seele Austria GmbH & Co KG v Tokio Marine Europe Insurance Ltd [2009] 2066 (TCC); [2009] BLR 481.................................................................................. 24.40 Seismic Shipping Inc v Total E&P UK plc (The “Western Regent”) [2005] EWCA Civ 985; [2005] 2 Lloyd’s Rep 359.............................................................. 21.69 Selva Kumar a/l Murugiah v Thiagarajah a/l Retsanamy [1995] 1 MLJ 817.............................. 14.24

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Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34; [2008] 1 AC 561................................................................................................. 18.6, 18.7, 18.10 Senanayake v Cheng [1966] AC 63............................................................................................... 3.53 Serck Controls Ltd v Drake & Scull Engineering Ltd (2000) 73 ConLR 100.............................. 5.28 Shallow Brook Associates v Dube 135 NH 40, 599 A 2d 132, 137 (New Hampshire 1991)........................................................................................................ 14.24 Shawton Engineering Ltd v DGP International Ltd [2005] EWCA Civ 1359; [2006] BLR 1 ...................................................................................................... 14.29 Shearman v Folland [1950] 2 KB 43............................................................................................. 12.1 Shearson Lehman Hutton Inc v MacClaine Watson & Co Ltd [1990] 3 All ER 723.................. 18.14 Sheehan v Breccia and others [2016] IEHC 67........................................................................... 14.21 Sheffield v Conrad (1987) 22 ConLR 108..................................................................................... 6.20 Shelburne v Inchiquin (1784) 1 Bro CC 338................................................................................. 2.20 Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] AC 102................................. 24.29 Shelfer v City of London Electricity Lighting Co. [1895] 1 Ch 287........................................... 21.39 Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180; [2011] QB 86; [2010] 3 WLR 1192; [2010] 2 Lloyd’s Rep 467.......................................................... 10.53,12.11, 12.22, 13.09, 15.63, 20.20 Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 1710 (TCC); [2007] BLR 135........................................................ 9.19, 9.27, 20.4, 20.8 Shepherd Homes Ltd v Sandham [1971] Ch 340............................................................. 21.12, 21.13 Shiloh Spinners Ltd v Harding [1973] AC 691..................................................... 22.17, 22.30–22.33 Ship v Crosskill (1870) LR 10 Eq 73............................................................................................ 3.11 Shipway v Broadwood [1899] 1 QB 369....................................................................................... 3.26 Shore & Horwitz Construction Co Ltd v Franki of Canada [1967] SCR 589............................................................................................................................... 13.27 Shore v Wilson (1842) 9 Cl & Fin 355 ......................................................................................... 2.12 Shoreline Housing Partnership Ltd v Mears Ltd [2013] EWCA Civ 639; [2013] BLR 393.......................................................................................... 3.59 Sichel v Mosenthal (1862) 30 Beav 371 ..................................................................................... 22.10 Silver Coast Shipping Co v Union Nationale des Co-Operatives Agricoles des Céréales (The Silver Sky) [1981] 2 Lloyd’s Rep 95........................................................ 7.36 Silver Sky, The. Silver Coast Shipping Co v Union Nationale des Co-Operatives Agricoles des Céréales [1981] 2 Lloyd’s Rep 95........................................... 7.36 Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 QB 758.................................................................................................................. 12.21, 13.10 Sims v Foster Wheeler Ltd [1966] 1 WLR 769........................................................................... 20.27 Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corporation [2000] 1 Lloyd’s Rep 339........................................................................ 2.9 Siporex Trade SA v Comdel Commodities Ltd [1986] 2 Lloyd’s Rep 428................................. 21.28 Sir Lindsay Parkinson & Co Ltd v Commissioners of Works and Public Buildings [1949] 2 KB 632....................................................................... 5.16, 5.18, 7.41 Sisu Capital Fund Ltd v Tucker [2006] FSR 21.......................................................................... 13.37 Skandia Property (UK) Ltd v Thames Water [1999] BLR 338............................................ 9.19, 11.3 Skipsredittforeningen v Emperor Navigation SA [1997] 2 BCLC 398......................................... 3.67 Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 WLR 576...................................................... 22.22 SL Timber Systems Ltd v Carillion Construction Ltd [2001] BLR 516, Ct of Sess .................. 19.54 Slater v CA Duquemin Ltd (1992) 29 Con LR 24......................................................................... 6.36 Slowey v Lodder (1900) 20 NZLR 358......................................................................................... 5.34 Small v Middlesex Real Estates Ltd [1921] WN 245.................................................................. 19.19

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Smith & Service and Nelson & Sons, Re (1890) 25 QBD 545................................................... 22.13 Smith Newport Securities Ltd v Scrimgeour Vickers Ltd [1997] AC 254.......................12.61 – 12.63 Smith v Chadwick (1884) 9 AC 187..................................................................................... 3.20, 3.21 Smith v Day (1882) 21 Ch D 421................................................................................................ 21.49 Smith v Eric S Bush [1990] 1 AC 831............................................................................. 12.12, 12.14 Smith v Land and House Corporation (1884) LR 28 Ch D 7................................................. 3.6, 3.15 Smith v Littlewoods Organisation Ltd [1987] AC 1 ....................................................................11.11 Smith v South Wales Switchgear Ltd [1978] 1 WLR 165; 8 BLR 1 .................... 15.63, 20.21, 20.24 SmithKline Beecham plc v Apotex Europe Ltd [2006] EWCA Civ 658; [2007] Ch 71......................................................................... 21.46, 21.47, 21.48, 21.53 SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VR 391 .......................... 14.28, 14.30, 14.31 Smyth v Behbehani, The Times, 9 April 1999............................................................................. 23.40 Snamprogetti Ltd and another v Phillips Petroleum Company United Kingdom Ltd [2001] EWCA Civ 889............................................................... 2.33, 2.34 Société Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] 1 AC 871................... 21.66, 21.69 Society of Lloyd’s v Kitsons Environmental Services Ltd (1994) 67 BLR 102......................... 15.36 Soholt, The. Sotiros Shipping Inc and Aeco Maritime SA v Sameiet Solholt [1983] 1 Lloyd’s Rep 605....................................................................................................... 9.31 Solle v Butcher [1950] 1 KB 671.................................................................................................... 3.3 Solomon v Department of State Highways and Transp. 131 Mich App 479, 345 NW 2d 717, 719 (Michigan 1984)................................................................................ 14.24 Sopov (Cole) v Kane Construction Pty Ltd [2009] VSCA 141; [2009] BLR 468..................... 5.24, 5.34 Sotiros Shipping Inc and Aeco Maritime SA v Sameiet Solholt (The “Solholt”) [1983] 1 Lloyd’s Rep 605............................................................................. 9.31 South Australia Asset Management Corp v York Montague Ltd [1997] AC 191. See Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd; sub nom South Australia Asset Management Corp v York Montague Ltd (SAAMCO) [1997] AC 191; [1996] BLR ����������������������������������������������������������������������18.4, 8.13, 12.4, 12.5,                  12.30, 12.33, 12.35, 12.36, 12.38, 12.42, 12.63, 13.11 South Carolina Insurance Co v Assurantie Maatschappij “De Zeven Provincien” NV [1987] 1 AC 24............................................................................... 21.65, 21.69 South Wales Railway v Wythes (1854) 24 LJ Ch 87................................................................... 22.17 Southampton Container Terminals Ltd v Schiffahrtsgesellschaft “Hansa Australia” MbH & Co (“The Maersk Colombo”) [2001] EWCA Civ 717; [2001] 2 Lloyd’s Rep 275................................... 9.10, 9.13, 9.14, 10.44 Southpace Properties Inc v Acquisition Group 5 F 3d 500, 505 (11th Circuit applying Alabama law 1993).......................................................................... 14.24 Southport Success SA v Tsingshan Holding Group Co Ltd (“The Anna Bo”) [2015] EWHC 1974 (Comm); [2015] 2 Lloyd’s Rep 578....................... 21.74 Spartan Steel and Alloys v Martin & Co Contractors Ltd [1973] QB 27........................... 12.22, 13.9 Special Housing Association v Wimpey Construction UK Ltd [1986] 1 WLR 995........................................................................................................................... 20.50 Spence v Crawford [1939] 3 All ER 271, [1939] SC (HL) 52............................................. 3.48, 3.51 Spettabile Consorzio Veneziano di Amarto v Northern Ireland Shipbuilding Co Ltd (1919) 121 LT 635................................................................................ 23.1 Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221; [2010] 2 CLC 705......................................................................... 3.59 St Albans City and District Council v International Computers Ltd [1995] FSR 686; affmd [1996] 4 All ER 481, CA............................................................ 20.60, 20.69

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TABL E OF C A SES

St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd. See Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85...............................10.3, 10.13 – 10.16, 10.18–10.20, 10.32, 10.39, 10.56–10.60 Stadium Capital Holdings (No. 2) Ltd v St. Marylebone Property Company PLC [2011] EWHC 2856 (Ch)................................................... 11.59, 12.58 Standard Chartered Bank v Pakistan National Shipping Corporation [2001] CLC 825................................................................................................ 9.31, 13.25, 13.32 Standard Chartered Bank v Pakistan National Shipping Corporation (No 2) [2002] UKHL 43; [2003] 1 AC 959............................................................... 12.60, 12.64 Stanor Electric v R Mansell (1988) CILL 399............................................................................. 14.12 Stansbie v Truman [1948] 2 KB 48..............................................................................................11.11 Star Polaris LLC v HHIC-PHIL Inc [2016] EWHC 2941 (Comm)............................................ 20.45 Star Reefers Pool Inc v JFC Group Ltd [2012] EWCA Civ 14; [2012] 1 Lloyd’s Rep 376..................................................................................................... 21.69 Stargas SpA v Petredec Ltd (“The Sargasso”) [1994] 1 Lloyd’s Rep 412................................................................................................ 15.19, 15.23, 15.40, 15.42 Starlight Shipping Co v Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2007] 1 Lloyd’s Rep 230............................................................................ 21.74 Starsin, The. Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12; [2004] 1 AC 715...................................................................................... 20.17, 20.18 State of Tasmania v Leighton Contractors Pty Ltd [2005] TASSC 133...................................... 14.11 Static Control Components (Europe) Ltd v Egan 2004] EWCA Civ 392; [2004] 2 Lloyd’s Rep 429....................................................................................................... 2.15 Statoil ASA v Louis Dreyfus Energy Services LP (“The Harriette N”) [2008] EWHC 2257 (Comm); [2008] 2 Lloyd’s Rep 685........................................................ 3.3 Steamship Mutual Underwriting Association (Bermuda) Ltd v Sulpicio Lines Inc [2008] EWHC 914 (Comm); [2008] 2 Lloyd’s Rep 269....................... 21.74 Steamship Mutual Underwriting Association Ltd v Trollope & Colls (City) Ltd (1986) 33 BLR 77............................................................................................... 24.40 Steel UK Ltd v Morris [2012] EWCA Civ 1397; [2013] CP Rep 7............................................ 20.33 Stein v Blake [1996] AC 243; [2010] EWCA Civ 518; [2010] Bus LR 1500.......................... 19.29, 19.39, 19.41, 19.45 Stent Foundations Ltd v MJ Gleeson Group plc [2001] BLR 134........................ 20.16, 20.17, 20.18 Stephen Donald Architects Ltd v Christopher King (2003) 24 ConLR 1...................................... 5.21 Steria Ltd v Sigma Wireless Communications Ltd [2008] BLR 79................................ 14.11, 14.44 Sterling Hydraulics Ltd v Dichtomatik Ltd [2006] EWHC 2004 (QB); [2007] 1 Lloyd’s Rep 8.............................................................................................. 20.13, 20.69 Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 QB 600................................. 3.67, 19.24, 20.66 Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436............................ 6.20, 6.31 Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2009] 1 Lloyd’s Rep 461; [2009] BLR 196........................................ 6.9, 6.18, 6.20, 6.31, 6.32 Stooke v Taylor (1880) 5 QBD 569...................................................................................... 19.2, 19.4 Storer v Great Western Railway (1842) 2 Y & C Ch Cas 48....................................................... 22.18 Storey v Charles Church Developments Ltd (1996) 73 ConLR 1............................................... 12.21 Strachan & Henshaw Ltd v Stein Industrie (UK) Ltd (1997) 13 Const LJ 418.................................................................................................................... 12.61 Strathmore Building Services Ltd v Colin Scott Greig (2001) 17 Const LJ 72, Ct of Sess....................................................................................... 19.48, 19.50 Sudbrook Trading Estates Ltd v Eggleton [1983] 1 AC 444........................................................... 4.9

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TABL E OF CASES

Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361................................................................. 20.35 Sumpter v Hedges [1898] 1 QB 673.............................................................................................. 5.36 Sun Ridge Investors Ltd v Parker 1998 OK 22, 956 P 2d 876, 878 (Oklahoma 1998)............... 14.24 Super Servant Two, The. Lauritzen AS v Wijsmuller BV [1990] 1 Lloyd’s Rep 1.................. 7.6, 7.9 Supershield Ltd v Siemens Building Technologies FE Ltd [2009] EWHC 927 (TCC); 124 ConLR 158; [2010] EWCA Civ 7; [2010] BLR 145......................................................................................... 8.12, 8.17, 8.25, 15.44 Surefire Systems Ltd v Guardian ECL Ltd [2005] EWHC 1860 (TCC); [2005] 1 Lloyd’s Rep 534........................................................................................ 25.54 Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361........................................... 11.59 Sutcliffe v Chippendale and Edmondson (1971) 18 BLR 157...................................................... 6.12 Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1936] Ch 323................................ 12.67 Sutton v Sutton [1984] Ch 184...................................................................................................... 22.7 Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560; [2002] 2 EGLR 71................................................................................................... 2.23 Sweatfield Ltd v Hathaway Roofing Ltd (1997) CILL 1235......................................................... 6.14 Swingcastle Ltd v Alastair Gibson [1991] 2 AC 223..................................................................... 12.1 Swissmarine Services SA v Gupta Coal India Private Ltd [2015] EWHC 265 (Comm)............................................................................................................. 21.71 Swordheath Properties Ltd v Tabet [1979] 1 WLR 285.............................................................. 12.54 Swynson Ltd v Lowick Rose LLP [2015] EWCA Civ 629; [2016] 1 WLR 1045......................................................................................................................... 11.46 Sycamore Bidco Ltd v Breslin [2012] EWHC 3443 (Ch)............................................................... 3.9 Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd (“The Sylvia”) [2010] EWHC 542 (Comm)................................................................................................... 8.11 Symbion Power LLC v Venco Imtiaz Construction Company [2017] EWHC 348 (TCC)......................................................................................... 15.26, 25.26 Taberna Europe CDO II Plc v Selskabet [2016] EWCA Civ 1262..................................... 3.58, 20.18 Takamine, The. Wilhelmsen (Wilh) v Canadian Transport Co [1980] 2 Lloyd’s Rep 204......................................................................................... 15.58, 25.37 Talisman Property Co (UK) Ltd v Norton Rose [2006] EWCA Civ 1104; [2006] 3 EGLR 59................................................................................................................ 12.26 Tameside Metropolitan Borough Council v Barlows Securities Group Ltd [2001] EWCA Civ 1; [2001] BLR 113................................................................................... 24.4 Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm); [2010] All ER (D) 111 (Jan); [2010] 2 Lloyd’s Rep 668............................. 7.22, 14.11 Tara Civil Engineering Ltd v Moorfield Developments Ltd (1989) 46 BLR 72.............................................................................................................................. 21.6 Tarleton v McGawley (1794) Peake 270..................................................................................... 12.73 Tartsinis v Navona Management Company [2015] EWHC 57 (Comm)............ 2.16, 2.19, 2.23, 2.31 Tasman Discoverer, The. Dairy Containers Ltd v Tasman Orient Line CV [2004] UKPC 22; [2005] 1 WLR 215....................................................................... 20.17, 20.18 Tate and Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR 149..................................................................................................... 13.32, 13.33, 18.14 Tatry, The. Owners of Cargo Lately Laden on Board the Tatry v Owners of the Tatry Case C-406/92 [1994] ECR I-5439; [1995] 1 Lloyd’s Rep 302....................... 23.32 Taylor v Bhail [1995] ConLR 70............................................................................................ 5.8, 5.42 Taylor v Caldwell (1863) 3 B & S 826................................................................................... 7.4, 7.35 Taylor v Johnson (1983) 151 CLR 422............................................................................................ 3.3

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TABL E OF C A SES

Taylor v Laird (1856) 25 LJ Ex 329.............................................................................................. 5.10 Teekay Tankers Ltd v STX Offshore & Shipbuilding Co Ltd [2017] EWHC 253 (Comm)...................................................................................... 15.26, 25.26 Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209; [2010] 1 Lloyd’s Rep 357................................................................................... 20.12 Telford Homes (Creekside) Ltd v Ampunius Nu Homes Holdings Ltd [2013] EWCA Civ 577; [2013] BLR 400........................................................................ 6.13 Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30................................................................ 14.26 Teno, The [1977] 2 Lloyd’s Rep 289........................................................................................... 19.13 Tesco Stores Ltd v Costain Construction Ltd [2003] EWHC 1487 (TCC)................................. 12.21 Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208; [2006] 1 Lloyd’s Rep 441 ...................................................................................................... 7.22 Thane Investments Ltd v Tomlinson, The Times, 10 December 2002......................................... 21.26 Thanksgiving Tower Partners v Anros Thanksgiving Partners 64 F 3d 227, 232 (5th Circuit applying Texas law 1995).......................................................................... 14.24 Themehelp Ltd v West [1996] QB 84.......................................................................................... 21.89 Themis Avraamides v Bathroom Trading Company [2007] BLR 76.......................................... 10.67 Thomas Bates Ltd v Wyndham’s Ltd [1981] 1 WLR 505.................................................... 2.36, 2.39 Thomas v Harper (1935) 36 SR (NSW) 142............................................................................... 22.25 Thomas Witter Ltd v TBP Industries Ltd (1994) 12 Tr L 145; [1996] 2 All ER 573......................................................................................................... 3.37, 3.59, 3.64 Thorn v Mayor and Commonalty of London; sub nom Thorn v London Corporation (1875–76) LR 1 App Cas 120...................................................... 5.15, 7.23 Thornhill v Weeks [1913] 1 Ch 488............................................................................................. 23.29 Thornton Hall v Wembley Electrical Appliances [1947] 2 All ER 630......................................... 3.37 Tilcon Ltd v Land and Real Estate Investments Ltd [1987] 1 WLR 46...................................... 24.40 Timothy Taylor Ltd v Mayfair House Corp [2016] EWHC 1075 (Ch)....................................... 21.86 Titan Steel Wheels Limited v Royal Bank of Scotland [2010] EWHC 211 (Comm)............................................................................................................... 3.59 Tito v Waddell (No 2) [1977] Ch 106..................................... 22.9, 22.17, 22.28, 22.32, 22.36, 22.42 Toisa Pisces, The, Sealion Shipping Ltd v Valiant Insurance Co [2012] EWCA Civ 1625; [2013] 1 Lloyd’s Rep 108............................................................ 11.10 Token Construction Co Ltd v Charlton Estates Ltd (1976) 1 BLR 48........................................ 14.46 Tombs v Wilson Connolly Ltd [2004] EWHC 2809 (TCC); 98 ConLR 44................................ 20.11 Toomey v Eagle Star Insurance Co Ltd (No 2) [1995] 2 Lloyd’s Rep 88..................................... 3.10 Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209....................................... 6.16 Townsend v Stone Toms & Partners (a firm) (No 2) (1984) 27 BLR 26......................... 15.47, 17.42 Tozer Kemsley and Millbourn Holdings) Ltd v J Jarvis & Sons Ltd [1983] 1 Const LJ 79............................................................................................................ 24.13 Trafalgar House Construction (Regiod) Ltd v Railtrack plc (1995) 75 BLR 55................................................................................................................. 15.22 Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2011] WASC 150.................................................................................................................. 6.19 Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48; [2009] 1 AC 61......... 8.4, 8.9, 8.10, 8.11 – 8.14, 8.15 – 8.18, 8.20, 8.23, 12.33 Transocean Drilling UK Ltd v Providence Resources plc [2016] EWCA Civ 372; [2016] 2 Lloyd’s Rep 51; [2016] BLR 360.................................... 20.18, 20.45 Transworld Oil Ltd v North Bay Shipping Corp (The Rio Claro) [1987] 2 Lloyd’s Rep 173....................................................................................................... 8.14

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TABL E OF CASES

Trebor Bassett Holdings Ltd v ADT Fire & Security plc [2012] EWCA Civ 1158; [2012] BLR 441...................................................................................... 11.28 Trebor Bassett Holdings Ltd v ADT Fire and Security plc [2011] EWHC 1936 (TCC); [2011] BLR 661................................................................................. 20.12 Treml v Ernest Gibson [1955 – 1995] PNLR 228; 272 EG 71..................................................... 11.51 Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2008] EWHC 1686 (Comm); [2008] 2 Lloyd’s Rep 581; affmd on other grounds [2009] EWCA Civ 290; [2009] 1 Lloyd’s Rep 702, CA................. 3.59 Trollope & Colls Ltd v Atomic Power Constructions Ltd [1963] 1 WLR 333............................. 5.20 TSB Bank plc v Camfield [1995] 1 WLR 430............................................................................... 3.28 TSB Private Bank International SA v Chabra [1992] 1 WLR 231.............................................. 21.32 TSG Building Services plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC); [2013] BLR 484; (2013) 148 Con LR 228........................................... 6.19 Tucker v Bennett (1887) 38 Ch D 1...................................................................................... 2.20, 2.25 Tunnel Refineries v Bryan Donkin Co Ltd [1998] CILL 1392.................................................... 12.20 Turner Corporation Ltd (In Provisional Liquidation) v Co-Ordinated Industries Pty Ltd (1994) BCL 202............................................................... 14.44 Turner Corporation v Austotel Pty Ltd (1994) 13 BCL 378........................................................ 14.44 Turner Page Music Ltd v Torres Design Associates Ltd [1997] CILL 1263............................................................................................................................ 19.12 Turner v Green [1895] 2 Ch 205...................................................................................................... 3.7 Turner v Grovit [2002] 1 WLR 107.................................................................................. 21.63, 21.69 Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) 9 BLR 20; [1972] EGD 257................................................................................................... 5.20 Turriff Ltd v Richards & Wallington (Contracts) Ltd (1981) 18 BLR 13............................................................................................................................ 21.78 Turville Heath Inc v Chartis Insurance UK Ltd [2012] EWHC 3019 (TCC); [2013] BLR 302...................................................................... 21.72, 21.73 Tweddle v Atkinson (1861) 1 B & S 393; (1861) 25 JP 517; [1861 – 73] All ER Rep 396........................................................................................ 10.3, 10.66 Tyco Fire & Integrated Solutions (UK) Ltd v Rolls-Royce Motor Cars Ltd [2008] EWCA Civ 286; [2008] Lloyd’s Rep IR 617............................................................ 20.50 U&M Mining Zambia Ltd v Konkola Copper Mines plc [2014] EWHC 3250 (Comm)........................................................................................................... 21.74 UCB Bank plc v Hepherd Winstanley & Pugh [1999] Lloyd’s Rep PN 963.............................. 11.27 UCB Corporate Services Ltd v Thomason [2005] EWCA Civ 225; [2005] 1 All ER (Comm) 601................................................................................................. 3.40 UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555; [2003] 1 P & C R 12........................................................................................................................ 12.61 Ultramares Corporation v Touche [1931] 174 NE 441................................................................ 12.11 Unaoil Ltd v Leighton Offshore Pte Ltd [2014] EWHC 2965 (Comm); (2014) 156 Con LR 24.......................................................................................................... 14.12 Unilever plc v The Proctor & Gamble Co [2000] 1 WLR 2436.................................................. 15.35 Unimarine SA of Panama v Canadian Transport Co of Vancouver BC (“The Catherine L”) [1982] 1 Lloyd’s Rep 484................................................................... 15.58 Union Discount Co Ltd v Zoller [2002] 1 WLR 1517................................................................. 15.57 United Horse-Shoe and Nail Co Ltd v Stewart & Co (1888) 13 App Cas 401 ........................... 12.67 Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401; affmd in part [1957] 1 WLR 979; revsd in part [1958] 2 QB 254, CA................................................................. 6.5, 6.7

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TABL E OF C A SES

Universal Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366.................................................................................... 3.23 University Court of the University of Glasgow v William Whitfield (1988) 42 BLR 66................................................................................................................... 24.5 University of Keele, The v Price Waterhouse [2004] EWCA Civ 583; [2004] PNLR 43................................................................................................................... 20.28 University of Reading, The v Miller Construction Ltd (1994) 75 BLR 91................................. 21.79 Urban 1 (Blonk Street) Ltd v Ayres [2013] EWCA Civ 816; [2013] BLR 505............................. 6.13 Vacwell Engineering Co Ltd v BDH Chemicals Ltd [1971] 1 QB 88......................................... 12.30 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 182.................................................... 3.50 Vakis T, The. Vrinera Marine Company Ltd v Eastern Rich Operations Inc [2004] EWHC 1752 (Comm)............................................................................................... 15.58 Van Dal Footwear v Ryman [2009] EWHC 646 (TCC)................................................................ 9.23 Van de Garde BV v Force India Formula One Team [2010] EWHC 2373 (QB)................. 9.9, 11.59 Van Oord UK Ltd v Allseas UK Ltd [2015] EWHC 3074 (TCC)............................................... 14.42 Vates T, The [2004] EWHC 1752 (Comm).................................................................................. 25.37 Vaughan, ex p Fletcher, Re (1877) 6 Ch D 350........................................................................... 19.40 Vercoe v Rutland Fund Management [2010 EWHC 424 (Ch).................................................... 11.59 Vertex Data Science Ltd v Powergen Retail Ltd [2006] EWHC 1340 (Comm); [2006] 2 Lloyd’s Rep 591 ............................................................................................. 21.6, 22.6 VHE Construction plc v RBSTB Trust Co Ltd (2000) 70 ConLR 51......................................... 19.53 Viasystems (Tyneside) Ltd v Thermal Transfer (Northern) Ltd [2005] EWCA Civ 1151; [2006] QB 510........................................................................................ 17.50 Vickery v Ritchie (1909) 202 Mass 247........................................................................................ 5.40 Victoria Laundry (Windsor) v Newman Industries Ltd [1949] 2 KB 518.......................................................................................... 8.7, 8.14, 8.21, 20.42, 20.43 Victoria University of Manchester v Hugh Wilson [1984] 2 ConLR 43............................................................................................................................ 24.5 Vinergy International (PTY) Ltd v Richmond Mercantile Limited FZC [2016] EWHC 525 (Comm)................................................................................................... 6.31 Vinergy International (PVT) Ltd v Redhall Engineering Solutions Ltd [2013] EWHC 4030 (TCC).................................................................................. 6.13, 6.15, 6.31 Vinmar International Ltd v Theresa Navigation SA [2001] 2 Lloyd’s Rep 1 ............................... 9.38 Vitol SA v Norelf Ltd (“The Santa Clara”) [1996] AC 800........................................................... 6.18 Voaden v Champion (“The Baltic Surveyor” and “Timbuktu”) [2001] 1 Lloyd’s Rep 739; [2002] EWCA Civ 89; [2002] 1 Lloyd’s Rep 623, CA................................................................................ 9.12, 9.13, 9.23, 13.8 Volvox Hollandia, The [1988] 2 Lloyd’s Rep 36......................................................................... 23.37 Vrinera Marine Company Ltd v Eastern Rich Operations Inc (“The Vakis T”) [2004] EWHC 1752 (Comm).................................................................... 15.58 W Hanson (Harrow) Ltd v Rapid Engineering Ltd (1987) 38 BLR 106............................ 20.3, 20.11 W Hing Construction Co Ltd v Boost Investments Ltd [2009] HKCU 221; [2009] BLR 339................................................................................... 14.46, 14.66 Wadsworth v Lydell [1981] 1 WLR 598........................................................................................ 18.5 Wagon Mound, The. Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd [1961] AC 388.................................................................. 12.30, 12.53 Wagon Mound (No 2), The. Overseas Tankship (UK) Ltd v Miller Steamship Co Pty (“The Wagon Mound”) (No 2) [1967] 1 AC 617......................... 12.53 Wah v Grant Thornton International Ltd [2012] EWHC 3198 (Ch); [2013] 1 Lloyd’s Rep 11....................................................................................................... 21.74

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TABL E OF CASES

Walker v Boyle [1982] 1 WLR 495............................................................................. 3.12, 3.62, 3.65 Wall v Rederiaktiebolaget Luggude [1915] 3 KB 66.................................................................. 14.25 Wallace v Manchester City Council (1998) 30 HLR 1111.......................................................... 11.42 Wallis v Smith (1882) 21 Ch D 243............................................................................................... 14.8 Walter Lilly & Co Ltd v DMW Developments Ltd [2008] EWHC 3139 (TCC)........................ 25.70 Walter Lilly & Co Ltd v Mackay [2012] EWHC 1773 (TCC); [2012] BLR 503............................................................. 13.23, 13.31, 14.66, 14.69, 15.44, 16.34 Walters v Whessoe Ltd (1960) 6 BLR 23......................................................................... 15.63, 20.27 Ward v Cannock Chase District Council [1986] Ch 546............................................................. 12.57 Warner v Basildon Development Corporation [1991] Const LJ 146........................................... 12.20 Wasserman’s Inc v Township of Middletown 137 NJ 238, 645 A 2d 100, 107 (New Jersey 1994)................................................................................. 14.24 Waterdance Ltd v Kingston Marine Services Ltd [2014] EWHC 224 (TCC); [2014] BLR 141......................................................................................................... 9.14 Wates Construction (London) Ltd v Franthom Property Ltd (1991) 53 BLR 23............................................................................................................................ 21.88 Wates Ltd v Greater London Council (1983) 25 BLR 1................................................ 7.5, 7.13, 7.22 Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317; [2001] BLR 143.............................................................................. 3.59, 3.64, 3.66, 20.67, 20.69 Watkin Jones & Son v Lidl UK GmbH (No 2) [2002] CILL 1847.............................................. 19.54 Watson v Croft Promo-Sport Ltd [2009] EWCA Civ 15............................................................. 21.38 Watson v Ingram 124 Wash 2d 845, 881 P 2d 247, 250 (Washington 1994)............................... 14.24 Watts v Morrow [1991] 1 WLR 1421 .............................................................................. 11.38, 11.42 Watts, Watts & Co Ltd v Mitsui & Co Ltd [1917] AC 227............................................................. 8.3 Way v Latilla [1937] 3 All ER 759................................................................................ 5.2, 5.18, 5.25 Webster v Bosanquet [1912] AC 394............................................................................................. 14.8 Weldon Plant v Commission for New Towns [2000] BLR 496..................................................... 5.27 Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146; [2016] Ch 529............................................................................................ 8.9, 8.14, 11.17, 12.34 Welsh Development Agency v Redpath Dorman Long [1994] 1 WLR 1409; (1994) 67 BLR 1............................................................................................ 24.40 Wesiak v D&R Constructions (Aust) Pty Ltd [2016] NSWCA 353.............................................. 6.15 West London Commercial Bank Ltd, The v Kitson (1884) LR 13 QBD 360............................... 3.17 West Tankers Inc v Allianz SpA [2009] AC 1138........................................................................ 21.74 West Tankers Inc v Allianz SpA [2012] EWCA Civ 27; [2012] Bus LR 1701........................... 23.42 West v Ian Finlay & Associates [2014] EWCA Civ 316; [2014] BLR 324...................... 17.46, 20.69 Western Regent, The. Seismic Shipping Inc v Total E&P UK plc [2005] EWCA Civ 985; [2005] 2 Lloyd’s Rep 359.............................................................. 21.69 Westland Savings Bank v Hancock [1987] 2 NZLR 21................................................................ 2.29 Wharf Properties v Eric Cumine Associates (No 2) (1991) 52 BLR 1................. 16. 13, 16.15, 16.16 Wheeling Clinic v Van Pelt 192 W Va 620, 453 SE 2d 603, 609 (West Virginia 1994)............................................................................................................ 14.24 Whitaker v Dunn (1887) 3 TLR 602............................................................................................ 19.26 Whiteside v Whiteside [1949] 1 Ch 448........................................................................................ 2.26 Whiteways Contractors (Sussex) Ltd v Impresa Castelli Construction UK Ltd (2000) 75 ConLR 92.................................................................................... 19.52, 19.53 Whittal Builders Co Ltd v Chester-le-Street District Council (1987) 40 BLR 82............................... 24.3 Whittal Builders Company Limited v Chester le Street District Council, unreported....................... 13.27 Wickham Contracting Co Inc (1994) 12 F 3d 1574..................................................................... 13.29 Wickman Machine Tools Sales Ltd v LG Schuler AG [1974] AC 235........................................... 2.6

lxiii

TABL E OF C A SES

Widnes Foundry v Cellulose Acetate Silk Co [1931] 2 KB 393................................................. 14.25 Wilhelmsen (Wilh) v Canadian Transport Co (“The Takamine”) [1980] 2 Lloyd’s Rep 204......................................................................................... 15.58, 25.37 Wilkin & Davies Construction Co Ltd v Geraldine Borough [1958] NZLR 985.......................... 7.15 Wilkinson v Clements (1872) LR 8 Ch 96.................................................................................... 22.1 Willcock v Pickfords Removals Limited [1979] 1 Lloyd’s Rep 244............................................. 3.70 William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932................................................. 5.2, 5.23 William Sindall Ltd v Cambridgeshire County Council [1994] 1 WLR 1016..................... 3.39, 3.56 William Tomkinson and Sons Ltd v The Parochial Church Council of St Michael (1990) 6 Const LJ 319.......................................................................................... 6.11 Williwaw Lodge v Locke 601 P 2d 236, 239 (Alaska 1979)....................................................... 14.24 Wilson v Furness Railway (1869) LR 9 Eq 28............................................................................ 22.18 Wilson v Le Fevre Wood & Royle (1995) 66 ConLR 74............................................................ 24.26 Wilson v Northampton and Banbury Junction Railway Co (1874) 9 Ch App 279............................................................................................................. 22.20, 22.38 Wilson v Wilson [1854] 5 HL Cas 40............................................................................................ 2.10 With v O’Flanagan [1936] 1 Ch 575............................................................................................. 3.12 Wm Cory & Son Ltd v Wingate Investments (London Colney) Ltd (1980) 17 BLR 104..................................................................................................................... 9.3, 9.24 Wolverhampton Corporation v Emmons [1901] 1 KB 515.......................................................................22.19 – 22.22, 22.27, 22.28, 22.30, 22.39 Wong Lai Ying v Chinachem Investment Co Ltd (1979) 13 BLR 81......................... 7.17, 7.21, 7.41 Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] 2 WLR 1095............................. 2.7 Wood v Silcock (1884) 50 LT 251 .............................................................................................. 22.17 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277............. 10.5 Woodhaven Apartments v Washington 942 P 2d 918, 921 (Utah 1997)...................................... 14.24 Woodlands Oak Ltd v Conwell [2011] EWCA Civ 254; [2011] BLR 365.................................... 9.36 Woods Hardwick Ltd v Chiltern Air Conditioning [2001] BLR 23............................................ 19.52 Woollerton and Wilson Ltd v Richard Costain Ltd [1970] 1 WLR 411........................... 21.37, 21.85 Workers Trust and Merchant Bank Limited v Dojap Investments Ltd [1993] AC 573............... 14.10 Workspace Management Ltd v YJL London Ltd [2009] EWHC 2017 (TCC); [2009] BLR 497.................................................................................................................... 19.16 World Beauty, The [1970] P 144.................................................................................................... 9.38 World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2008] 1 WLR 445.............................................................................................................. 21.35 Worlock v SAWS and Rushmoor Borough Council (1982) 22 BLR 66..................................... 17.45 Wright v Lewis Silkin [2016] EWCA Civ 1308.......................................................................... 11.17 Wroth v Tyler [1974] Ch 30......................................................................................................... 12.30 Wrotham Park Estates Company v Parkside Homes [1974] 1 WLR 798........................ 11.59, 21.44 WW Gear Construction Ltd v McGee Group Ltd [2010] EWHC 1460 (TCC)........................... 14.42 X (Minors) v Bedfordshire County Council [1995] 2 AC 633........................................ 12.12, 12.14 Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB); [2013] BLR 147............................................................................... 3.38, 6.19 Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB); [2013] 1 Lloyd’s Rep 526............................................................ 11.20, 12.65 Yockey v Horn 880 F 2d 945, 953 14 Fed R Serv 3d 217 (7th Circuit applying Illinois law 1989)............................................................................... 14.24 Ypatia Halcoussi, The. Olympia Sauna Shipping Co SA v Shinwa Kaiun Kaiasha Ltd [1985] 2 Lloyd’s Rep 364.............................................. 2.41, 2.42

lxiv

TABL E OF CASES

Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC)..................................................................................................... 18.26, 20.60 Z Ltd v A-Z and AA-LL [1982] QB 558..................................................................................... 21.59 Zermalt Holdings v Nu-Life [1985] 2 EGLR 14......................................................................... 25.54 ZF Lemforder UK Ltd v Lemforder UK Pension Trustee Ltd [2005] EWHC 2882 (Ch)............. 2.30 Zockoll Group Ltd v Mercury Communications Ltd 1998] FSR 354......................................... 21.12

lxv

TA B L E O F L E G I S L AT I ON

United Kingdom Arbitration Act 1996����������������������18.15, 18.18, ���������������������������������������������18.28, 25.18, 25.23 s 1(1)(a)��������������������������������������������������25.16 (b)���������������������������������������������������25.30 5(1)�����������������������������������������������������25.15 9������������������������21.72, 21.73, 25.19, 25.20 ss 13, 14�������������������������������������������������24.43 s 13(1)�����������������������������������������24.42, 24.46 (2)���������������������������������������������������24.45 (3)���������������������������������������������������24.44 14(1)���������������������������������������������������24.46 (3)���������������������������������������������������24.46 (4)���������������������������������������������������24.46 (5)���������������������������������������������������24.46 18�������������������������������������������������������22.13 27�������������������������������������������������������22.13 30�������������������������������������2.52, 3.70, 21.78 41(3)���������������������������������������������������21.78 44��������������������������������������������21.76, 21.77 (3)���������������������������������������������������21.77 (5)���������������������������������������������������21.81 (6)���������������������������������������������������21.77 48�����������������������������������2.52, 21.82, 22.43 (2)������������������������������������������2.52, 21.83 (4)��������������������������������������������������� 11.30 (5)(a)��������������������������������������������������21.82 (c)�����������������������������������������������������2.52 49��������������������������������������������18.15, 18.17 52(4)���������������������������������������������������25.57 66���������������������������������23.42, 24.47, 25.56 67�������������������������������������������������������25.50 68���������������������������������16.33, 25.50, 25.51 (2)���������������������������������������������������25.51 (3)���������������������������������������������������25.50 69���������������������������������25.51, 25.52, 25.54 (2)���������������������������������������������������25.52 (3)���������������������������������������������������25.53

70(4)���������������������������������������������������25.57 73�������������������������������������������������������25.50 86�������������������������������������������������������25.19 93�������������������������������������������������������22.13 Chancery Amendment Act 1858 (Lord Cairns’s Act) s 2������������������������������������������������21.35, 21.44 Civil Liability (Contribution) Act 1978����15.47, 15.55, 17.1 et seq, 24.31 s 1������������������������������������������������17.29, 17.40 (1)�����������������������17.4, 17.12, 17.17, 17.18, 17.22, 17.26, 17.27, 17.34, 17.53 (2)���������������������������������������������������17.36 (3)�����������������������������17.36, 17.38, 17.41 (4)�����������������������������17.33, 17.34, 17.35 (5)���������������������������������������������������17.29 (6)�����������������������������17.30, 17.32, 17.38 2����������������������������������������������17.43, 17.51 (1)���������������������������������������������������17.52 (4)���������������������������������������������������17.58 6(1)������������������������������������������17.23, 17.26 Civil Procedure Act 1997 s 7�����������������������������������������������������������21.29 Civil Procedure Rules 1998, SI 1998/3132���������������23.5, 25.3, 25.5, 25.8 r 5.4C���������������������������������������������������������25.27 Part 7, 8������������������������������������������������������23.12 Part 17��������������������������������������������������������24.39 Part 20����������15.2, 15.4, 15.5, 15.7–15.9, 15.17,           15.18, 15.49, 25.8, 25.34 Part 25.1(b)������������������������������������������������23.26 r 25.1(1)(b)���������������������������������������������������23.7 (f)������������������������������������������������21.22 (g)�����������������������������������������������21.23 (h)�����������������������������������������������21.29 25.2������������������������������������������������������������25.27 Part 25, PD 25A�����������������������������������������21.15 para 3.1(2)��������������������������������������������������21.26

lxvii

TABL E OF LEG ISLATIO N

3.4��������������������������������������������������������������21.24 para 4����������������������������������������������������������21.24 para.5.1(1)�������������������������������������� 21.16, 21.19 (3)�������������������������������������������������� 21.19 para.5.1A��������������������������������������������������� 21.16 Part 31, PD 2A�������������������������������������������25.10 r 35.3����������������������������������������������������������25.12 Part 35, PD�������������������������������������������������25.12 Part 36��������������������������������������������������������15.52 r 36.14��������������������������������������������������������15.52 40.20�����������������������������������������23.5, 23.20 43.3����������������������������������������������������15.50 43.4����������������������������������������������������15.50 44.3����������������������������������������������������15.53 44.4(2), (3)�����������������������������������������15.50 62.10(3)(b)�����������������������������������������25.29 Companies Act 1985 s 36A��������������������������������������������������������24.3 Compensation Act 2006 s 1�����������������������������������������������������������12.14 Contracts (Rights of Third Parties) Act 1999 �������������������������������10.3, 10.51, 10.66, 20.74 s 1�������������������������������������10.67, 10.69, 10.73 (1)(b)����������������������������������������������10.67 (2)���������������������������������������������������10.67 (5)���������������������������������������������������10.68 2(1)�����������������������������������������������������10.69 (a)–(c)�����������������������������������������10.69 (4)���������������������������������������������������10.69 3���������������������������������������������������������10.70 (4)���������������������������������������������������10.70 ss 4, 5�����������������������������������������������������10.71 s 7(1)������������������������������������������������������10.73 10(2), (3)����������������������������������������������������10.66 Control of Pollution Act 1974��������������������21.84 s 60���������������������������������������������������������21.84 County Court Act 1984 s 38(1)������������������������������������������������������23.8 69���������������������������������������������������������18.9 Defective Premises Act 1972���������10.49, 20.72,                  24.34 s.1�����������������������������������������������������������24.34 (5)���������������������������������������������������24.34 6(3)�����������������������������������������������������20.72 Enterprise Act 2002������������������������������������19.46 Fatal Accidents Act 1976 s 5�����������������������������������������������������������17.43 Housing Grants, Construction and Regeneration Act 1996�����2.55, 4.9, 5.28, 5.37, 14.71, 19.48, 19.55, 23.10, 25.59, 25.62, 25.63

Part II���������������������������������������������������������25.67 s 104(1)��������������������������������������������������25.64 (2)���������������������������������������������������25.65 (3)���������������������������������������������������25.67 ss 104 – 107���������������������������������������������19.55 s 105�������������������������������������������������������25.66 (1), (2)��������������������������������������������25.66 106(1)(a)����������������������������������������������������25.67 108������������������������������������������22.44, 25.69 (3)���������������������������������������������������24.51 (5)����������������������������������������24.51, 25.70 109 �������������������������������������������5.37, 25.68 (3)���������������������������������������������������25.68 110 �����������������������������������������������������25.68 (2)����������������������������������������19.49, 19.59 (10)�������������������������������������������������19.56 110A���������������������������������������������������19.59 110B���������������������������������������������������19.59 111�6.37, 14.71, 19.48, 19.52, 19.61, 25.68 (1)�����������������������������19.48, 19.52, 19.56 (2), (3), (4)��������������������������������������19.50 112������������������������������������������������������25.68 113������������������������������������������������������25.68 (2)–(5)��������������������������������������������19.61 (10)�������������������������������������������������19.61 sch 30(1)(c)������������������������������������������������19.62 Insolvency Act 1986 s 98����������������������������������������������19.31, 19.46 247(2)�������������������������������������������������19.45 322(3)�������������������������������������������������19.41 323������������������ 19.30 – 19.32, 19.38, 19.40,              19.41, 19.44 (1)����������������������������������������19.31, 19.32 (2)�����������������������������19.33, 19.34, 19.42 (3)���������������������������������������������������19.34 382�����������������������������������������������������19.36 Insolvency (Amendment) Rules 2003, SI 2003/1730 sch 1, para 19���������������������������������������������19.46 Insolvency Rules 1986, SI 1986/1925 r 2.85����������������������������������������������������������19.45 4.90�������19.30, 19.31, 19.40, 19.41, 19.43,                  19.46 (1)����������������������������������������19.31, 19.43 (2)�����������������������������19.31, 19.42, 19.43 (3)�����������������������������19.44, 19.45, 19.46 (4)���������������������������������������������������19.45 Insurance Act 2015����������������������������������������3.7 Landlord and Tenant Act 1927 s18(1)�������������������������������������������������������9.15

lxviii

TABL E OF L E GI S LATIO N

Late Payments of Commercial Debts (Interest) Act 1998����������������������������������� 18.21 – 18.37 Part II���������������������������������������������������������18.24 s 1������������������������������������������������18.24, 18.28 2���������������������������������������������������������18.22 3���������������������������������������������������������18.28 4���������������������������������������������������������18.29 5����������������������� 18.32, 18.33, 18.33, 18.34 5A�������������������������������������������������������18.35 6���������������������������������������������������������18.30 8���������������������������������������������������������18.25 9���������������������������������������������������������18.26 Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order SI 2002/1675���18.31 Latent Damages Act 1986��������������10.74, 24.16,              24.26, 24.27 s 3���������������������������������������10.3, 10.74, 10.75 Law of Property (Miscellaneous Provisions) Act 1989��������������������������������������������������������24.3 Law Reform (Contributory Negligence) Act 1945������������������������������������������� 11.23, 12.64 s 1�����������������������������������������������������������17.43 (1)����������������������������� 11.23, 12.39, 12.41 Law Reform (Frustrated Contracts) Act 1943 ���������������������������������������7.1, 7.46, 7.49, 7.53 s 1(2)��������������������������������������������������������7.47 (3)�����������������������������������������������������7.48 (b)�������������������������������������������������7.48 2(3)���������������������������������������������������������������7.50 Law Reform (Married Women and Tortfeasors) Act 1935�������������������������������������������������17.2 s 6�����������������������������������������������������������17.26 Limitation Act 1939�����������������������������������24.37 Limitation Act 1980�����12.21, 17.41, 22.3, 24.1, 24.16 s 2�������������������������������������������������������������24.8 5�����������������������������������������������������������24.2 10�������������������������������������������������������24.31 (2) and (3)��������������������������������������24.32 (4)���������������������������������������������������24.32 11�����������������������������������������������24.8, 24.17 14A���������10.75, 24.16, 24.17–24.19, 24.26 (4)���������������������������������������������������24.17 (b)�����������������������������������������������24.19 (5)�����������������������������24.19, 24.20, 24.23 (6)���������������������������������������������������24.20 (a)�����������������������������������������������24.21 (7)���������������������������������������������������24.21 (8)����������������������������������������24.20, 24.21 (9)���������������������������������������������������24.23

(10)�������������������������������������������������24.24 (a)�����������������������������������������������24.24 (b)�����������������������������������������������24.24 14B�������������������������������10.74, 24.16, 24.27 24A�����������������������������������������������������10.74 28(5)(a)����������������������������������������������24.35 ss 29 – 31���������������������������������������������������24.7 s 32�����������������������������������24.28, 24.29, 24.30 (1)(b)����������������������������������������������24.29 (2)���������������������������������������������������24.29 33���������������������������������������������������������24.8 35�������������������������������������������������������24.38 (1)���������������������������������������������������19.27 36�������������������������������������������������������24.37 Local Democracy, Economic Development and Construction Act 2009������������������4.9, 19.56,               19.57, 25.68 s 144(1)��������������������������������������������������19.62 Misrepresentation Act 1967��������3.9, 3.28, 3.30,                 3.32, 12.64 s 1�������������������������������������������������������������3.28 s 2�������������������������������������������������������������3.38 (1)������������������������������������������ 3.33, 11.29 (2)������������������������ 3.28, 3.35, 3.39, 11.29 3������������������������������������������������3.61, 20.64 Misrepresentation Act 1968 s 3�����������������������������������������������������������20.70 Misrepresentation Act (Northern Ireland) 1967 s 3�����������������������������������������������������������20.64 Occupiers Liability Act 1957���������������������20.55 Occupiers’ Liability Act (Northern Ireland) 1957������������������������������������������������������20.55 Regulatory Reform (Execution of Deeds and Documents) Order 2005, SI 2005/190����24.3 Sale of Goods Act, 1893 s 53�����������������������������������������������������������19.2 Sale of Goods Act 1979����������������������3.43, 19.9 s 8(2)����������������������������������������������������������5.2 11����������������������������������������������������������6.16 ss 12 – 15�������������������������������������������������20.73 s 14�����������������������������������������������������������6.16 (3)��������������������������������������������������� 11.28 51(3)�������������������������������������������������������9.1 53(1)(b)������������������������������������������������19.9 (3)�����������������������������������������������������19.9 Scheme for Construction Contract (England and Wales) Regulations 1998, SI 1998/649���������������������18.19, 22.44, 24.50,              25.68, 25.70 Pt I��������������������������������������������������������������18.19

lxix

TABL E OF LEG ISLATIO N

Senior Courts Act 1981��������� 18.9, 18.11, 18.16, 18.28, 18.36, 21.65 s 35A��������������������������������������������������������18.9 51�������������������������������������������������������15.55 Supreme Court Act 1981�������������������18.9, 18.16 s 37(1)����������������������������������������������������21.65 Supreme Court of Judicature Act 1873 s 25(8)����������������������������������������������������21.65 Supreme Court of Judicature (Consolidation) Act 1925 s 45(1)����������������������������������������������������21.65 Torts (Interference with Goods) Act 1977 s 11���������������������������������������������������������12.60 Unfair Contract Terms Act 1977����14.42, 18.27, 19.24, 20.14, 20.22, 20.52, 20.61, 20.71 s 1(1)������������������������������������������������������20.55 (3)���������������������������������������������������20.62 2����������������������������������������������20.53, 20.62 (1)���������������������������������������������������20.53 3������������������������20.60, 20.61, 20.62, 20.68 (1), (2)��������������������������������������������20.56 4���������������������������������������������������������20.63 ss 4 – 7�����������������������������������������������������20.62 s 5�����������������������������������������������������������20.63 6������������������������20.63, 20.64, 20.65, 20.66 (1), (2)��������������������������������������������20.73 (3)���������������������������������������������������20.65 (4)����������������������������������������20.62, 20.65 7�������������20.57, 20.63, 20.64, 20.65, 20.66 (3)���������������������������������������������������20.65 8������������������������������������������������3.61, 20.70 11��������������������������������������������������������20.64 (1)�����������������������������������������������������3.61

(2)����������������������������������������20.63, 20.65 12�������������������������������������������������������20.57 13(1)(b)������������������������������������������������������19.24 17�������������������������������������������������������20.58 20�������������������������������������������������������20.65 21�������������������������������������������������������20.65 sch 2�������������������������20.63, 20.64, 20.65, 20.66,                20.68, 20.73 Unfair Terms in Consumer Contract Regulations 1999, SI 1999/2083���������������3.68, 14.15, 19.24 Reg 8����������������������������������������������������������14.15 European Council Directive 1993/13��������������19.24, 20.71 France Civil Code, Art 1152������������������������������������14.4 India Contract Act 1872, s 74������������������������������14.24 Korean Civil Code, Art 398������������������������������������14.23 Malaysia Contracts Act 1950, s 75����������������������������14.24 Russian Federation Civil Code, Art 333������������������������������������14.23 UAE Civil Code, Art 390������������������������������������14.23

lxx

CHAPTER  1

Introduction 1.1  The title of this book begs two questions: what is meant by the word “remedies” and what is meant by the expression “construction law”. 1.2  Taking the second question first: over the last 20 or 30  years the literature concerning the law as it applies to building, engineering and other technological projects has steadily grown. Some law is specific to those industries (the statutory regime relating to adjudication in construction contracts and the vast amount of case law that has built up about it being an example). In some cases the literature has grown up to discuss particular standard forms of contract. In other cases the literature relates to the application of the general law to particular problems prone to arise out of or in respect of construction projects. The expression “construction law” is used in that latter sense. 1.3  What, then, is meant by “remedies” in this book? The answer is unlikely to prove satisfactory to academics. In part this is because the term “remedies” is used differently by different lawyers. In Attorney-General v Blake1 Lord Nicholls said that “remedies are the law’s response to a wrong (or, more precisely, to a cause of action)”. In his invaluable textbook, Remedies for Torts and Breach of Contract,2 Professor Andrew Burrows said: “The concept of a remedy has rarely been subjected to rigorous analysis. Views may differ as to precisely what one is talking about. In this book, a remedy is used to denote the relief that a person can seek from a court. The focus is therefore entirely on judicial remedies, and not on what are sometimes termed ‘self-help’ remedies which are available without coming to court, such as out of court settlements, termination of contract, and the ejection of trespassers.”

1.4  In a very interesting treatise, Dr Zakrzewski analysed with care and in great detail the classification of remedies, describing the concept as “unstable”,3 saying:4 “This chapter will demonstrate that the concept of a remedy is unstable. The most obvious symptom of the lack of a stable concept is ambiguity. ‘Remedy’ is a very ambiguous word. It has multiple meanings, some of which overlap. Such a state of affairs is not conducive to clear thought and communication. We are in danger of misunderstanding what a speaker or writer means, of erring in our thoughts, or leading our listeners or readers astray. Ambiguity leads to inconsistent usage. As will be shown, remedy is used in different senses by different users. To complicate matters further, remedy is used in more than one sense by the same user.”

1.5  It is therefore with a good deal of trepidation that this book enters into any exposition of this topic. Some parts of this book deal with what any lawyer would recognise as a remedy, the award of damages and the grant of specific performance or permanent injunctions being examples. However this book goes wider than Professor Burrows in including   1 [2001] 1 AC 268 at 284.   2 3rd edition, Oxford University Press, 2004, page 1.   3 Rafal Zakrzewski, Remedies Reclassified, Oxford University Press, 2005, chapter 2.  4 Page 7.

1

Introduction

within its scope “self-help” remedies such as termination. On the other hand there is no attempt to deal with every type of remedy in the wider sense that might arise in respect of a construction project – thus in the list of “self-help” remedies referred to by Professor Burrows, ejection of trespassers could readily be seen to be relevant in that people trespass on building sites as they do on other property, but this book does not deal with the law on that subject. 1.6  There are other areas that this book does not attempt to tackle: there is no attempt to expound the law on damages for death and personal injuries even though both death (occasionally) and injury (frequently) occur in the course of construction projects – this is simply a pragmatic decision because the law in this area is extensive, so to set it out would greatly expand the length of this book and because it is well dealt with in a number of other textbooks. 1.7  Also, this book concentrates upon the problems that arise out of commercial construction projects, with the consequence that there is limited discussion of the increasing volume of law (mainly statutory) relating to consumer contracts. The reason for that is that it is perceived that the readers of the series of textbooks in which this book appears are principally practitioners (legal or otherwise) concerned with commercial projects. 1.8  Thus the topics discussed in this book are not included in an attempt to describe the law relating to the whole range of problems that may arise out of or in connection with construction projects. What has been attempted is to identify areas of the law of remedies (using that expression in a somewhat loose sense) that are likely to be of interest to practitioners concerned with commercial construction projects. 1.9  Finally, the focus of this book is the law of England, although some references are made to the law in other jurisdictions where this has seemed to us of relevance or interest; but the author acknowledges his lack of expertise in the law of those other jurisdictions. I have attempted to state the law as it is in January 2017.

2

CHAPTER  2

Rectification 2.1  Before any remedies in relation to a construction contract fall for consideration, it is first necessary to establish the terms of the contract and whether the terms of any written contract reflect the parties’ joint intentions. If they do not, then the court may be willing to rectify the terms of the contract as written. Interpretation 2.2  Relatively recent developments in the approach of the courts to construction or interpretation of contracts have reduced not only the need but also parties’ desire to put forward claims for rectification. 2.3  If a party can persuade a court (or an arbitrator) that its view of what a contract means is right, then as a matter of legal logic that party has no need to resort to a claim for rectification. 2.4  As will be seen below, the remedy of rectification is concerned with putting right mistakes in contracts evidenced in writing. However it is to be noted that the courts have a number of tools at their disposal to remedy mistakes by interpretation of contracts without resort to rectification. 2.5 Whilst the starting point in construing any contract is that words must be given their ordinary and natural meaning,1 that principle may well be departed from where its application would involve an absurdity. As Lord Hoffmann said in Investors Compensation Scheme Ltd v West Bromwich Building Society:2 “The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.”

2.6  The same approach is sometimes reflected in a refusal by the courts to apply the natural and ordinary meaning of words where to do so would lead to a very unreasonable result or to impose upon a party a responsibility that it could not reasonably be supposed that party meant to assume. Thus in Wickman Machine Tools Sales Ltd v LG Schuler AG,3 Lord Reid said: “The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can

 1 Robertson v French (1803) 4 East 130 at 135.   2 [1998] 1 WLR 896 at 913.   3 [1974] AC 235 at 251.

3

Rectification

have intended it, and if they do intend it the more necessary it is that they make their intention abundantly clear.”

2.7 Lord Reid’s dictum was considered and applied by Lord Clarke of Stone-cum-­ Ebony JSC in Rainy Sky SA v Kookmin Bank:4 “The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

2.8  Moreover, the more infelicitous the drafting of the contract, the more ready the court will be to adopt a construction that is not based upon the natural and ordinary meaning of its words. In Mitsui Construction Co Ltd v A-G of Hong Kong,5 Lord Bridge said of a building contract that the fact that the contract was poorly drafted:6 “affords no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language they have used interpreted in the light of the relevant factual situation in which the contract was made. But the poorer the quality of the drafting, the less willing any court should be to be driven by legal niceties to attribute to the parties an improbable and unbusinesslike intention, if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis.”

2.9  These dicta should not be applied too indiscriminately. In Charter Reinsurance Co Ltd v Fagan,7 Lord Mustill recited the dictum of Lord Reid set out in paragraph 2.6 above, and said: “This practical rule of thumb (if I may so describe it without disrespect) must however have its limits. There comes a point at which the court should remind itself that the task is to discover what the parties meant from what they have said, and that to force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court.”

The same point was emphasised by Mance LJ in Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corporation8 when he said that: “the Court cannot either re-write contracts or impose on parties to them what the Court may think would have been a reasonable contract.”9 The same point has been re-emphasised by Lord Neuberger of Abbotsbury JSC in Arnold v Britton.10   4 [2011] UKSC 50; [2011] 1 WLR 2900 at paragraph 21, recently cited by Lord Hodge JSC in Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] 2 WLR 1095 at paragraph [10].   5 (1986) 33 BLR 1.  6 At 14.   7 [1997] AC 313 at 388.   8 [2000] 1 Lloyd’s Rep 339 at 345, paragraph 29.   9 See also in this context the distinction drawn by Colman J in BP Exploration Operating Co Ltd v Kvaerner Oilfield Products Ltd [2004] EWHC 999 (Comm); [2005] 1 Lloyd’s Rep 307 at 321, paragraph [93](d), between the exercise of construing a contract and a claim for rectification. 10 [2015] UKSC 36; [2015] AC 1619 at paragraph 17.

4

Rectification

2.10  It is also clear that a court that comes to a conclusion that there has been a clear mistake on the face of the contract can give effect to that conclusion in its construction of the agreement: “If you find a clear mistake and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes – without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty.”11

Having cited the above, Brightman LJ said in East v Pantiles Plant Hire Ltd:12 “It is clear on the authorities that a mistake in a written instrument can, in certain limited circumstances, be corrected as a matter of construction without obtaining a decree for rectification. Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what construction ought to be made to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction. If they are not satisfied then either the claimant must pursue an action for rectification or he must leave it to a court of construction to reach what answer it can on the basis that the uncorrected wording represents the manner in which the parties decided to express their intention. In Snell’s Principles of Equity 27th edn, p 611 the principle of rectification by construction is said to apply only to obvious clerical mistakes or grammatical mistakes. I agree with that approach. Perhaps it might be summarised by saying that the principle applies where a reader with sufficient experience of the sort of document in issue would inevitably say to himself, ‘Of course X is a mistake for Y’.”

The decision in East v Pantiles Plant Hire has been applied in a number of cases.13 2.11  Another weapon in the hands of the courts has developed over the last decade or so, namely a willingness on the part of the courts to have regard to an increasingly wide range of material in ascertaining the true meaning of a contract, so long as that material was known or reasonably available to both parties to the contract.14 (This can include market practice falling short of trade usage,15 a point that may be of significance in construction cases.) 2.12  The old approach of the courts was to take a restrictive view as to the extent of material outside the very words of a written contract that could be taken into account in construing that contract.16 However, through the second half of the twentieth century the rigour of this rule was progressively relaxed. In Prenn v Simmonds,17 Lord Wilberforce referred to the need to look at the “matrix of facts” in which a contract to be construed was

11 Per Lord St Leonards in Wilson v Wilson [1854] 5 HLC 40. 12 [1982] 2 EGLR 111 at 112. 13 See for example Holding & Barnes plc v Hill House Hammond Ltd [2001] EWCA Civ 1334, [2002] 2 P & CR 11; Lafarge (Aggregates) Ltd v London Borough of Newham [2005] EWHC 1337 (Comm), [2005] 2 Lloyd’s Rep 577; Littman v Aspen Oil (Broking) Ltd [2005] EWCA Civ 1579, [2006] 2 P & CR 2; Dalkia Utilities Services plc v Celtech International Ltd [2006] EWHC 63 (Comm), [2006] 1 Lloyd’s Rep 599. 14 For this important caveat, see paragraph 21 of the judgment of Lord Neuberger in Arnold v Britton [2015] UKSC 36; [2015] AC 1619. 15 Crema v Cenkos Securities plc [2010] EWCA Civ 1444; [2012] 1 WLR 2066. 16 See for example Bank of Australasia v Palmer [1897] AC 540 at 545 (the parol evidence rule as expounded by Lord Morris); Shore v Wilson (1842) 9 Cl & Fin 355 per Tindal CJ at 565. 17 [1971] 1 WLR 1381.

5

Rectification

set. In Reardon Smith Line Ltd v Yngvar Hansen-Tangen,18 Lord Wilberforce returned to the subject and said:19 “No contracts are made in a vacuum; there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as ‘the surrounding circumstances’ but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

2.13 The issue as to the material to which a court may have regard in construing a written contract was the subject of consideration in three cases in which Lord Hoffmann expressed his views. In Mannai Investment Ltd v Eagle Star Life Assurance Co Ltd20 he said: “In the case of commercial contracts, the restriction on the use of background material has been quietly dropped. There are certain kinds of evidence, such as previous negotiations, express declarations of intent, which for practical purposes it is unnecessary to analyse, are inadmissible in aid of construction. They can be used only in an action for rectification. But apart from these exceptions, commercial contracts are construed in the light of all the background which could reasonably have been expected to have been available to the parties in order to understand what would objectively have been understood to be their intention: Prenn v Simmonds . . . The facts that the words are capable of a literal interpretation is no obstacle to evidence which demonstrates what a reasonable person with knowledge of the background would have understood the parties to mean, even if this compels one to say that they used the wrong words. In this area we no longer confuse the meaning of words with the question of what meaning the use of the words was intended to convey.”

2.14  He developed his views in a case to which reference has already been made, and which is now the first case to be cited in almost any case where a court is asked to construe a contract against a factual background, Investors Compensation Scheme Ltd v West Bromwich Building Society (ICS):21 “The principles may be summarised as follows: (1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them. 18 [1976] 1 WLR 989. 19 At 995–996. 20 [1997] AC 749 at 779F. 21 [1998] 1 WLR 896 at 912H–913F.

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(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd22 . . . (5) The ‘rule’ that ordinary words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB23 . . . ‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.”

2.15  The third case in which Lord Hoffmann expressed his views was Bank of Credit and Commerce International SA v Ali and others.24 It is convenient to summarise the effect of his views there expressed by reference to the judgment of Arden LJ in Static Control Components (Europe) Ltd v Egan:25 “When the principles in the ICS case were first enunciated, there were fears that the Courts would on simple questions of the construction of deeds and documents be inundated with background material. Lord Hoffmann recognised this by emphasizing in Bank of Credit and Commerce International SA v Ali . . . that his reference to ‘absolutely anything’ in his second proposition was to anything that a reasonable man would have regarded as relevant. Speaking for myself, I am not aware that the fears expressed as to the opening of the floodgates have been realized. The powers of case management in the Civil Procedure Rules could obviously be used to keep evidence within its proper bounds. The important point is that the principles in the ICS case lead to a more principled and fairer result by focusing on the meaning which the relevant background objectively assessed indicates that the parties intended.”

2.16  The authorities on construction or interpretation of contracts have been considered here at a little length because they significantly reduce the number of occasions upon which it is necessary to resort to rectification in order to do justice.26 The principal occasions upon which this is necessary are in cases where reference is made to negotiations leading to a concluded contract (which cannot be referred to in aid of construction27) and in cases of 22 Above. 23 [1985] AC 191 at 201. 24 [2002] 1 AC 251. 25 [2004] EWCA Civ 392; [2004] 2 Lloyd’s Rep 429 at 435: paragraph [29]. For other cases applying ICS see Absalom v TRCU [2005] EWCA Civ 1586; [2006] 2 Lloyd’s Rep 129 particularly at paragraph [7]; MDIS v Swinbank [1999] Lloyd’s Rep IR 516 at 521; ABTA v BA [2000] 2 Lloyd’s Rep 209 at 216, paragraph 34; Encia Remediation v Canopius [2007] EWHC 916 (Comm) at paragraph [175]. 26 In an interesting paper, Mr Peter Rees QC has suggested that the decision of the Supreme Court in Arnold v Britton (above) may promote an opposite trend towards an increase in the pleading of claims for rectification – see Where are we now on the interpretation of contracts? A cloak and dagger tale SCL Paper 196, January 2016 at page 19. 27 See the firm confirmation of this rule in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101. See also Tartsinis v Navona Management Company [2015] EWHC 57 (Comm) at paragraph 10. It

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unilateral mistake where the parties to the contract may not have had access to the same information before the contract was concluded. The scope of the remedy of rectification 2.17  The courts will intervene to rectify a contract contained in a written document where there has been a mistake. An important distinction is between cases where the mistake is shared by both parties (a “mutual mistake”) and cases where only one party was mistaken (a “unilateral mistake”). 2.18  In the case of a mutual mistake, the court will intervene in order to place the parties in the position both intended themselves to be. In the case of unilateral mistake, the unmistaken party is liable to be held to a bargain to which he positively did not wish to be held (see paragraphs 2.42 and 2.43 below). The standard of proof 2.19  Whether the party seeking rectification is relying upon a mutual mistake or a unilateral mistake, the courts require the claim to be established to a high standard.28 The underlying reason for this is to promote commercial certainty: parties are not lightly to be released from a bargain recorded in writing particularly where lawyers or other professionals have been involved in its production. If simple and/or obvious mistakes have been made, then the rules of construction referred to above can be deployed.29 If background evidence persuades the court that the contract does not mean what on the ordinary meaning of its words it appears to mean, then the court can take that into account in construing the contract contrary to that ordinary meaning.30 Thus the scope of the remedy of rectification is restricted to exceptional cases and the standard of proof required reflects that. 2.20  A number of different expressions of this principle can be found in the cases – the need for “very clear and distinct evidence”;31 “strong evidence”;32 “strong irrefragable evidence”;33 “convincing proof”;34 “high degree of conviction”;35 and “clear evidence”.36 In Joscelyne v Nissen, Russell LJ said:37 “In our judgment the law is as expounded by Simonds J in Crane’s case . . . We do not wish to attempt to state in any different phrases that with which we entirely agree, except to say that it may be of interest that the courts in Singapore appear to be moving away from the rigidity of this rule: see Goh Guan Chong v AspenTech Inc [2009] 3 SLR(R) 590. 28 See Tartsinis v Navona Management Company [2015] EWHC 57 (Comm) at paragraph 84. 29 See paragraph 2.10 above. 30 See paragraphs 2.11–2.15 above. 31 Tucker v Bennett (1887) 38 Ch D 1 at 15. 32 Tucker v Bennett (above) at 16. 33 Shelburne v Inchiquin (1784) 1 Bro CC 338 at 341, cited in Jervis v Howle and Talke Colliery Co Ltd [1937] 1 Ch 67 at 71. 34 Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at 664, cited by Russell LJ in Joscelyne v Nissen [1970] 2 QB 86 at 95. See also Equity Syndicate Management Ltd v Glaxosmithkline plc [2015] EWHC 2163 (Comm); [2016] Lloyd’s LR IR 155 at paragraph [28]. 35 Sir Wilfrid Greene MR on the appeal in Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68 at 71, cited by Singleton LJ in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450 at 458. 36 Agip SpA v Nazigazione Alta Italia SpA (“The Nai Genova”) [1984] 1 Lloyd’s Rep 353 at 359. 37 Above at 98.

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is in our view better to use only the phrase ‘convincing proof’ without echoing an old-fashioned word such as ‘irrefragable’ and without importing from the criminal law the phrase ‘beyond all reasonable doubt’. Remembering always the strong burden of proof that lies on the shoulders of those seeking rectification, and that the requisite accord and continuance of accord of intention may be the more difficult to establish if a complete antecedent concluded contract be not shown, it would be a sorry state of affairs if when that burden is discharged a party to a written contract could, on discovery that the written language chosen for the document did not on its true construction reflect the accord of the parties on a particular fact, take advantage of the fact.”

Russell LJ was considering a case of common intention, but a similarly high standard of proof is required in cases of unilateral mistake. 2.21  Consideration is now given to what it is that must be established to this high standard of proof. Mutual mistake 2.22 In American Airlines Inc v Hope38 Lord Diplock defined the remedy of rectification as follows: “Rectification is a remedy which is available where parties to a contract, intending to reproduce in a more formal document the terms of an agreement upon which they are already ad idem, use in that document words which are inapt to record the true agreement between them. The formal document may then be rectified so as to conform with the true agreement which it was intended to reproduce, and enforced in its rectified form.”

2.23  For a modern statement of what must be established in a claim for rectification in a case of mutual mistake, see the judgment of Peter Gibson LJ in Swainland Builders Ltd v Freehold Properties Ltd:39 “The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.”40

2.24  In order better to understand these elements of the grounds for rectification for mutual mistake it is helpful to consider shortly the development in the law in this area. 2.25 In Mackenzie v Coulson41 the court refused a claim for rectification saying firstly that “Courts of Equity do not rectify contracts; they may and do rectify instruments purporting to have been made in pursuance of the terms of contracts.” Sir WM James V-C 38 [1974] 2 Lloyd’s Rep 301 at 307. 39 [2002] EWCA Civ 560; [2002] 2 EGLR 71 at 74 – cited with approval by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at paragraph [48]. Applied by Ramsey J in Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 2688 (TCC); [2014] BLR 179 at paragraph 120; by Leggatt J in Tartsinis v Navona Management Company [2015] EWHC 57 (Comm) at paragraph 83 and by Males J in Equity Syndicate Management Ltd v Glaxosmithkline plc [2015] EWHC 2163 (Comm); [2016] Lloyd’s LR IR 155 at paragraph [23] and by Coulson J in Milton Keynes v Viridor (Community Recycling MK) Ltd (No. 2) [2017] EWHC 239 (TCC). 40 See also the general statement of principle to the same effect in The Nai Genova [1984] 1 Lloyd’s Rep 353 at 359. 41 (1869) LR 8 Eq 368.

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continued,42 “it is always necessary for a plaintiff to shew that there was an actual concluded contract antecedent to the instrument which is sought to be rectified”. The search for “an actual concluded antecedent contract” finds echoes in the later cases, but the courts have moved away from that requirement. However, such a case is the simplest case to support a claim for rectification – for example where an agreement is contained in heads of agreement signed by both parties, the terms of which are intended to be later incorporated into a more formal contract, perhaps negotiated by the parties’ lawyers. In such a case reference to the heads of agreement may show that the more formal agreement does not truly reflect the intentions of the parties. In Tucker v Bennett43 the Court of Appeal referred to the need for “some definite arrangement” prior to the more formal document. 2.26 In Whiteside v Whiteside,44 Harman J at first instance clarified that “a prior agreement in a binding sense is not necessary for rectification”.45 In the Court of Appeal it was held that rectification could be granted where there was no mistake as to the words used (ie, both parties’ lawyers agreed on the wording to be used) but there was a mutual mistake as to the legal effect of the wording used,46 rectification could be granted.47 2.27 In Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd,48 Denning LJ drew a distinction between what the parties intended and what the parties agreed: “Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and, in this regard, in order to ascertain the terms of their contracts, you do not look into the inner minds of the parties – into their intentions – any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice.”

2.28  Rose v Pim was considered by the Court of Appeal in Joscelyne v Nissen.49 In that case the party resisting rectification argued that there could be no rectification unless there had been a complete antecedent concluded oral contract between the parties. This submission was rejected. The court held that what had to be shown was that the final written contract was contrary to a common intention reflected in “some outward expression of accord”.50 Apart from its significance as a statement of general principle, this case is useful as it confirms that in establishing the common intention it is legitimate for the court to look at “subject to contract” correspondence.51 The decision in Rose v Pim has 42 At 375. 43 Above at 13. 44 [1949] 1 Ch 448. 45 At 454. 46 [1950] 1 Ch 65 at 74. 47 Although the Court of Appeal recognised that lawyers’ mistakes could found a claim for rectification, it declined to alter the first instance judge’s decision to refuse to rectify the deed under consideration. That a mistake of law could be corrected had been established in 1921: see Burroughes v Abbott [1922] 1 Ch 86 at 95. 48 [1953] 2 QB 450. 49 Above. 50 See 98D. For cases applying Joscelyne v Nissen see for example Brightman J in Lloyd v Stanbury [1971] 1 WLR 535; and the Court of Appeal in Ernest Scragg & Sons Ltd v Perseverance Banking and Trust Co Ltd [1973] 2 Lloyd’s Rep 101. 51 See page 98F.

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now been expressly approved by the House of Lords in Chartbrook Ltd v Persimmon Homes Ltd.52 2.29  Whilst statements of the principles upon which the courts will order rectification continue to refer to the need for “an outward expression of accord”, applying the decision of the Court of Appeal in Joscelyne v Nissen, recent authorities have explained that this is not a formal legal requirement but rather an evidential factor to be taken into account in deciding whether the parties had a continuing common intention in respect of a particular matter.53 Thus no such outward expression of accord is necessary where the party resisting rectification had in fact admitted that his true state of belief when entering into the transaction was the same as that of the other party.54 This is of considerable practical forensic significance: it opens up the prospect, for example, that an admission founding a claim for rectification might be obtained in cross-examination so that a claim for rectification not apparent on the documents available at the outset of proceedings might emerge during the course of proceedings. 2.30  An aspect of the development of the law in this regard (ie, the development of the law away firstly from a requirement of a concluded antecedent agreement, and then from the need for there to be in all cases an outward expression of accord) is that the courts are now willing to look at conduct after the date of the contract that it is sought to rectify as evidence of the intention of the person effecting the contract at the time of the transaction and as objectively manifesting that intention.55 2.31  One aspect of the requirement for an “outward expression of accord” that has been the subject of judicial debate has been whether the existence of such an accord should be determined by reference to the parties’ subjective intentions and understanding or by the application of an objective test. In Chartbrook Ltd v Persimmon Homes Ltd,56 Lord Hoffmann appears to have favoured an objective approach. This has been criticised in the Court of Appeal57 and at first instance.58 2.32  The combination of developments in the material that the courts are willing to consider in construing documents, as explained above, coupled with the increasingly wide nature of the material that courts are willing to consider in considering whether to order rectification might be thought to make substantial inroads into the traditional approach of the courts to consider the effect of contracts as written with only limited reference to extraneous material. In practice this prospect may be more theoretical than practical. Emphasis must be placed again on the high standard of proof required by the courts: fishing expeditions intended to 52 [2009] UKHL 38; [2009] 1 AC 1101 at paragraph [60] where Lord Hoffmann cited the passage from Denning LJ’s judgment set out above. 53 The expression “common continuing intention” is taken from the speech of Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at paragraph [60]. 54 See per Mummery LJ in Munt v Beasley [2006] EWCA Civ 370 at paragraph [36], citing Gallaher v Gallaher Pensions Ltd [2005] EWHC 42 (Ch), [2005] PLR 103 at paragraphs [116]–[118]; Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 29, 30; JIS (1974) Ltd v MCP Investment Nominees Ltd [2003] EWCA Civ 721 at paragraphs [33]–[34]. 55 Per Warren J in ZF Lemforder UK Ltd v Lemforder UK Pension Trustee Ltd [2005] EWHC 2882 (Ch) paragraph [41] citing Gallaher Ltd v Gallaher Pensions Ltd (above) at paragraph [141]. 56 [2009] UKHL 38; [2009] 1 AC 1101 at paragraphs [57]–[66]. 57 Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153; [2012] 1 WLR 1333, particularly in the judgment of Toulson LJ. See also P Davies, Rectifying the Course of Rectification (2012) 75 MLR 412. 58 Crossco No 4 Unltd v Jolan Ltd [2011] EWHC 803 (Ch) at paragraph [253], per Morgan J and Tartsinis v Navona Management Company [2015] EWHC 57 (Comm) at paragraphs [90]–[97] per Leggatt J.

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bolster weak cases upon the true meaning of words used are likely to be met with robust treatment by the courts. In one of the few construction cases concerning a claim for rectification based upon mutual mistake that have come before the courts, the Court of Appeal accepted a submission that where each side was represented by experienced commercial negotiators in negotiations lasting for many months the strong presumption was that the parties intended to be bound by precisely the words they used in the contract.59 Tuckey LJ said:60 “In short we do not think the Judge’s findings are sufficient to found a claim for rectification. After months of negotiation experienced negotiators finally reduced their agreement into a detailed, lengthy document. The task of showing that this document did not represent the parties’ intention was formidable.”

2.33  A feature of the contract being considered in the Snamprogetti case was the presence of an entire agreement clause. Such a clause is commonly to be found in carefully drafted construction contracts. Where there is such a clause it is likely to be taken to be a powerful consideration discouraging courts from ordering rectification of contracts.61 2.34 A further indication of the courts’ approach to carefully negotiated commercial contracts is the following dictum of Hobhouse LJ in Britoil plc v Hunt Overseas Oil Inc:62 “It can accordingly be asked what then is the basis for the defendant’s claim for rectification in the present case. It is the first sentence of art. 8 of the heads of agreement. It is contended that this sentence in this informal document which is not intended to have legal effect is to be treated as a superior statement of the parties’ agreement and is to displace the clear language of the carefully considered and carefully drafted definitive agreement. It can immediately be seen that this proposition needs to be carefully considered. As a matter of logic it can lead to the result that where there is a succession of documents leading up to a final considered legal document, the ascertainment of the actual agreement between the parties can be thrown back to the successively less formal, less considered and less carefully drafted earlier documents. This cannot be right. The process of negotiation and progressing towards a complete and formalised agreement is one which may contain many ambiguities. The purpose of the final document is to remove those ambiguities and to define authoritatively and clearly what the parties’ respective rights and obligations are to be.”

2.35  For an unsuccessful attempt to rectify on the grounds of mutual mistake in the context of a construction contract, see Liberty Mercian Ltd v Cuddy Civil Engineering Ltd.63 Unilateral mistake 2.36  In order to establish an entitlement to rectification based upon a unilateral mistake, it must be shown64 “first that one party A erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, 59 Snamprogetti Ltd and another v Phillips Petroleum Company United Kingdom Ltd [2001] EWCA Civ 889 at paragraphs [34]–[35]. 60 At paragraph [36]. 61 See further paragraphs 2.46–2.48 below. 62 [1994] CLC 561 at 573, cited in Snamprogetti (above) at paragraph [33]. 63 [2013] EWHC 2688 (TCC); [2014] BLR 179. 64 Per Buckley LJ in Thomas Bates Ltd v Wyndham’s Ltd [1981] 1 WLR 505 at 516A–B. See also Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 2688 (TCC); [2014] BLR 179 at paragraphs [139]–[141].

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mistakenly, it did contain; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. If these requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A’s intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake.”

2.37  This general statement of the law requires expanded consideration as to what is meant by “B was aware of the omission or mistake” and also as to the extent to which B’s conduct was unconscionable. 2.38 In A Roberts & Co Ltd v Leicestershire County Council,65 a construction company had entered into a building contract believing that the period for completion was 18 months when in truth it was 30 months. The mistake came about because the contract presented for signature differed from the tender that the plaintiff had submitted. Pennycuick J rejected a claim for rectification based upon common mistake (because the local authority employer knew what the contract said), but allowed the claim upon the basis that he found “beyond reasonable doubt” that the relevant officer of the council was aware of the company’s erroneous belief. He did not find it necessary to consider whether the officer of the council had been dishonest. 2.39  Pennycuick J’s decision was considered by the Court of Appeal in Riverlate Properties v Paul,66 a landlord and tenant case. There the Court of Appeal declined to order rectification, opining that in a claim based upon unilateral mistake the party against whom rectification is claimed must be guilty of at least “a degree of sharp practice”.67 The Court of Appeal considered that suggestion in Thomas Bates Ltd v Wyndham’s Ltd.68 Buckley LJ said:69 “The reference to ‘sharp practice’ may thus be said to have been an obiter dictum. Undoubtedly I think in any such case the conduct of the defendant must be such as to make it inequitable that he should be allowed to object to the rectification of the document. If this necessarily implies some measure of ‘sharp practice’ so be it; but for my part I think that the doctrine is one which depends more on the equity of the position. The graver the character of the conduct involved, no doubt the heavier the burden of proof may be; but, in my view, the conduct must be such as to affect the conscience of the party who has suppressed the fact that he has recognised the presence of a mistake.”

2.40 In The Nai Genova,70 Slade LJ, having reviewed the authorities, suggested that the court could only order rectification in a case where the defendant had actual knowledge of the plaintiff’s mistake at the time that the contract was signed. He continued at page 365: “While it is not necessary to go so far for the purpose of this present decision, I might perhaps add that I strongly incline to the view that in the absence of estoppel, fraud, undue influence or a fiduciary relationship between the parties, the authorities do not in any circumstances permit the rectification of a contract on the grounds of unilateral mistake, unless the defendant had actual knowledge of the existence of the relevant mistaken belief at the time when the mistaken plaintiff signed the contract.” 65 [1961] 1 Ch 555. 66 [1975] 1 Ch 133. 67 At 140B. 68 Above. 69 At 515G–H. 70 [1984] 1 Lloyd’s Rep 353 at 361–362.

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2.41 In Commission for the New Towns v Cooper (Great Britain) Ltd,71 the Court of Appeal gave further consideration to the nature of conduct on the part of one party to a contract that would entitle an innocent counterparty to claim rectification. Simple mistake in interpretation would not be sufficient.72 At the other end of the spectrum, fraud in the form of a dishonest misrepresentation would amount to unconscionable behaviour entitling the innocent party to its remedy.73 What of the middle ground? Stuart-Smith LJ said, having referred to the views expressed by Slade LJ in The Nai Genova:74 “It is only with great diffidence that I venture to think that this may not be an exhaustive statement of the law, although it undoubtedly covers the majority of situations. But were it necessary to do so in this case, I would hold that where A intends B to be mistaken as to the construction of the agreement, so conducts himself that he diverts B’s attention from discovering the mistake by making false and misleading statements, and B in fact makes the very mistake that A intends, then notwithstanding that A does not actually know, but merely suspects, that B is mistaken, and it cannot be shown that the mistake was induced by any misrepresentation, rectification may be granted. A’s conduct is unconscionable and he cannot insist on performance in accordance with the strict letter of the contract; that is sufficient for rescission. But it may also not be unjust or inequitable to insist that the contract be performed according to B’s understanding, where that was the meaning that A intended that B should put upon it.”

He went on to say75 that in his view wilfully shutting one’s eyes to the obvious or wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make were in law categories of actual knowledge. Evans LJ expressly agreed that “knowledge in this context includes shut-eye knowledge”.76 2.42  These conflicting dicta of the Court of Appeal may not matter much in the vast majority of cases – it will only be in rare cases that a court will contemplate acceding to a claim based upon unilateral mistake. The courts have emphasised on more than one occasion that rectification on the grounds of unilateral mistake is a harsh remedy because it imposes upon the defendant a contract that the defendant did not wish to make.77 It is also an intrusion into the general rule that negotiations are at arm’s length without there being any duty on the parties to speak. 2.43  The conceptual difficulties to which these cases give rise was summarised by Sedley LJ in George Wimpey UK Ltd v VIC Construction Ltd:78 “There is, as it seems to me, a paradox in the notion of what an honourable and reasonable person would do in the context of an arm’s length commercial negotiation. This is a context in which honour (or honesty) and rationality (or reasonableness) are frequently not on speaking terms. . . .

71 [1995] Ch 259. 72 Per Stuart-Smith LJ at 277E–F, referring to Olympia Sauna Shipping Co SA v Shinwa Kaiun Kaiasha Ltd [1985] 2 Lloyd’s Rep 364 at 371. 73 See 277G–H. 74 At 280B–D. 75 At 280F–281E. 76 At 292F. See also Hurst Stores and Interiors Ltd v ML Europe Property Ltd [2004] BLR 249 at paragraph [19]; and QR Sciences Ltd v BTG International Ltd [2005] EWHC 670 (Ch); [2005] FSR 43 at paragraph [46]. 77 Per Slade LJ in The Nai Genova (above) at 360; per Bingham J in Olympia Sauna Shipping Co SA v Shinwa Kaiun Kaisha Ltd (The “Ypatia Halcoussi”) [1985] 2 Lloyd’s Rep 364 at 371; per Blackburne J in George Wimpey UK Ltd v VIC Construction Ltd [2005] BLR 135 and per Lightman J in Rowallan Group Ltd v Edgehill Portfolio No 1 Ltd [2007] EWHC 32 (Ch) at paragraph [14]. 78 Above at paragraphs [58]–[62].

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Take the present case. An honourable person negotiating for VIC would probably have asked Wimpey if they realised that E had been left out, but I very much doubt whether a reasonable negotiator would have done so. His first duty would have been to his own principal, whose interests undoubtedly lay in leaving E out and not alerting Wimpey to the omission. The phrase ‘honourable and reasonable’ is not a term of art. It is a judicial attempt to sketch a line beyond which conduct may be regarded as unconscionable or inequitable. Its duality, however, is a recognition that honesty alone is too pure a standard for business dealings because it omits legitimate self-interest; while reasonableness alone is capable of legitimising Machiavellian tactics. Mistake is a concept which sits awkwardly in this space. Absent a prior accord which has simply not been carried into effect, absent also a dishonest inducement to contract, one is looking for a mistake on the claimant’s own part which the defendant was honour-bound, despite his own legitimate business interests, to point out to him. I am unable to accept that this was such a case on any tenable view of the evidence. There are at least two kinds of mistake. One is a literal misunderstanding of some fact material to the proposed contract. The other is an error of judgement in entering into the contract. I find it difficult to think that the second kind has any relevance to the law of unilateral mistake. Nobody is bound, even in honour, to help his opposite number to negotiate to the best advantage.”

In the Wimpey case the first judgment had been given by Peter Gibson LJ. He held that in order to bring a claim for unilateral mistake, dishonesty or sharp practice must be shown.79 He accepted80 the Court of Appeal’s views expressed in Commission for the New Towns v Cooper (Great Britain) Ltd81 that shut-eye knowledge would be sufficient. 2.44  Thus Buckley LJ’s summary of what must be shown in order to claim rectification on the grounds of unilateral mistake set out at paragraph 2.36 above must be expanded with the following qualifications: (1) Even where actual knowledge of the mistake on the part of the defendant is shown, it must nevertheless have been unconscionable for the defendant to have remained silent and not to have corrected the claimant’s mistake.82 (2) “Shut-eye” knowledge is sufficient.83 (3) Even where actual or shut-eye knowledge is not established there may be cases where a court would grant relief, but such cases would be rare – an example being where misrepresentation, falling short of deceit, induces the claimant’s mistake.84 2.45  For an unsuccessful attempt to rectify on the grounds of unilateral mistake in the context of a construction contract, see Liberty Mercian Ltd v Cuddy Civil Engineering Ltd.85 (As already pointed out above, mutual mistake was also pleaded unsuccessfully in this case.) The impact of contractual provisions 2.46  Reference has already been made to the fact that many construction contracts contain “entire agreement” clauses, and that the existence of such a clause in a contract may 79 At paragraph 45. 80 Also at paragraph 45. 81 Above. 82 Paragraph 2.39 above. 83 Paragraph 2.41 above. 84 Paragraph 2.41 above. 85 [2013] EWHC 2688 (TCC); [2014] BLR 179.

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weigh with the court when deciding whether to order rectification.86 An example of such a clause can be found in Deepak v Imperial Chemical Industries plc:87 “This contract comprises the entire agreement between the PARTIES . . . and there are not any agreements, understandings, promises or conditions, oral or written, express or implied, concerning the subject matter which are not merged into this CONTRACT and superseded thereby.”

2.47  Such a clause cannot prevent an attempt to rectify the contract, but can act as a powerful hindrance to such an attempt. 2.48 In Inntrepreneur Pub Co (GL) v East Crown Ltd88 Lightman J considered an entire agreement clause in the context of a claim based upon an alleged collateral warranty. He said:89 “The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence as is suggested in Chitty on Contracts, 28th ed (1999), vol 1, para 12–102: it is to denude what would otherwise constitute a collateral warranty of legal effect”

2.49  Whilst an entire agreement clause cannot preclude an application for rectification (for example, it is conceptually possible that there was a prior accord that there should be no entire agreement clause, although such a situation seems unlikely – other more likely examples can easily be envisaged) the existence of such a clause may discourage a party “from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim” for rectification (to adapt Lightman J’s words). 2.50  Under certain standard forms of construction contract there is a provision allowing for errors to be corrected – see for example clause 2.14 of the JCT Standard Form of Building Contract (2005 Edition) or clause 55(2) of the 7th Edition of the ICE Form of Contract. Where there is such a provision a claim for rectification will be inappropriate if the party seeking rectification has a remedy under the contract. Powers of an arbitrator to rectify 2.51  Many construction contracts contain arbitration clauses. It is a matter of construction of a particular arbitration clause as to whether an arbitration clause confers upon an arbitrator appointed thereunder jurisdiction to decide whether a contract should be rectified. It is clear that the courts lean towards construing such clauses as conferring that 86 See paragraph 2.33 above. 87 [1999] 1 Lloyd’s Rep 387. 88 [2000] 2 Lloyd’s Rep 611. 89 Paragraph 7 at page 614. This passage was cited with approval by Stanley Burnton LJ in Axa Sun Life Services Ltd v Campbell Martin Ltd [2011] EWCA Civ 133; [2012] Bus LR 203.

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jurisdiction.90 An arbitration clause referring to arbitration disputes “arising out of” a contract91 or “in connection with” a contract92 confers jurisdiction upon an arbitrator to decide claims for rectification. On the other hand such claims are not disputes as to the “construction” of a contract93 nor are such disputes “under” the contract.94 2.52  By reason of section  30 of the Arbitration Act 1996 an arbitrator could decide whether he had jurisdiction to entertain an application for rectification, unless the parties had agreed that he did not have power to make that decision. By section 48 of the 1996 Act “unless otherwise agreed by the parties”95 an arbitral tribunal “has the same powers as the court . . . to order the rectification . . . of a deed or other document”.96 2.53  The state of the authorities in respect of interpretation of contracts has been set out in a little detail above. If there is any doubt as to the power of an arbitrator to rectify, resort to arguments based upon construction will not only be the appropriate first logical step, but (if successful) will avoid such jurisdictional problems. Powers of an adjudicator to rectify 2.54  Where an adjudicator is appointed under a contractual provision, it will be a matter of the construction of that contract as to whether he has power to consider a claim for rectification. 2.55  Where the adjudicator is appointed under the provisions of the Housing Grants, Construction and Regeneration Act 1996 it seems likely that he has no power to rectify a contract absent agreement by the parties conferring such a power. Indeed, even if the parties were to agree to confer such a power upon an adjudicator, it is well arguable that such purported grant of power would be ineffective: see the decision of Henderson J in respect of the power of an expert.97 A discretionary remedy 2.56  Rectification being a discretionary remedy, a court (or arbitrator) has a residual discretion to refuse the remedy because it will serve no purpose, because of delay in bringing the application or if the interests of third parties will be affected. 2.57  It is respectfully suggested that if the relatively high threshold to establish a right to rectification is passed, it will be an exceptional case where the claim is nevertheless dismissed as a matter of discretion. 90 See for example Ashville Investments Ltd v Elmer Contractors Ltd [1989] 1 QB 488; Ethiopian Oilseeds & Pulses Export Corporation v Rio Del Mar Foods Inc [1990] 1 Lloyd’s Rep 86. The decision in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] Bus LR 1719 marks a liberalisation in the approach of the courts to the construction and ambit of arbitration clauses – per Burton J in Norscot Rig Management PVT Ltd v Essar Oilfields Services Ltd [2010] EWHC 195 (Comm); [2010] 2 Lloyd’s Rep 209. 91 Ethiopian Oilseeds & Pulses Export Corporation v Rio Del Mar Foods Inc (above). 92 Ashville Investments Ltd v Elmer Contractors Ltd (above). 93 Ashville Investments Ltd v Elmer Contractors Ltd (above). 94 Fillite (Runcorn) Ltd v Aqua-Lift (a firm) (1989) 45 BLR 27. 95 Section 48(2) of the 1996 Act. 96 Section 48(5)(c) of the 1996 Act. 97 Persimmon Homes Ltd v Woodford Land Ltd [2011] EWHC Ch 3109 (Ch); [2012] BLR 73 at paragraph [21].

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CHAPTER  3

Rescission Grounds for rescission 3.1  Under English law the principal grounds upon which a construction contract might be rescinded are: (1) misrepresentation; (2) duress; (3) conflict of interest. 3.2  Other grounds for rescission of a contract can include: (1) (2) (3) (4)

undue influence; impaired capacity; unconscionable bargains; third-party wrongdoing.

As these grounds for rescission have seldom been invoked in respect of construction contracts, the reader is left to investigate these matters in other textbooks.1 3.3  At one time it appeared to be the law that there was an equitable remedy of rescission in cases of mistake falling short of circumstances in which the common law would regard the contract as being void – in other words that there was a category of cases where the contract was not void but voidable at the discretion of the court: see Solle v Butcher.2 However it has now been held firmly by the Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd3 that there is no such equitable jurisdiction, at least in so far as cases of common mistake are concerned. It is also probably the case in English law that there is no equitable jurisdiction to rescind on the grounds of unilateral mistake.4 The position appears to be different under the law of Australia5 and of Singapore.6 3.4 Indeed, the law reports are perhaps surprisingly free from reports of claims for rescission in respect of construction contracts – the reason for this may be that in a very   1 For example, O’Sullivan, Elliott and Zakrzewski, The Law of Rescission, Oxford University Press, 2nd edition, 2014.   2 [1950] 1 KB 671.   3 [2002] EWCA Civ 1407; [2003] QB 679.   4 Per Aikens J in Statoil ASA v Louis Dreyfus Energy Services LP (“The Harriette N”) [2008] EWHC 2257 (Comm); [2008] 2 Lloyd’s Rep 685 refusing to follow a tentative suggestion that subject to certain limitations such a jurisdiction might exist: see Huyton SA v Distribuidora Internacional De Productos Agricolas SA de CV [2003] 2 Lloyd’s Rep 780 at paragraph [455].  5 Taylor v Johnson (1983) 151 CLR 422 at 432.  6 Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502.

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large proportion of cases a claim to rescind a construction contract would be defeated by the inability of the rescinding party to offer restitutio in integrum. Misrepresentation 3.5  A party induced to enter into a contract by misrepresentation by the other party is in principle entitled to elect to avoid that contract, subject to the defences discussed below. Need for a representation 3.6  The starting point is that there must be a representation – usually something communicated in words either written or spoken. In most cases the representation can be easily identified – for example, “this painting is a genuine work by Vincent van Gogh”. However the representation may not always be so easily identified: thus a statement by an art dealer that “I believe this painting is a genuine work by Vincent van Gogh” may hide within itself a representation that the art dealer has some basis for that belief. Particularly if the facts are not known equally to both parties, a statement of opinion by the one who knows the facts best may be taken as a statement of material fact upon the basis that the representor impliedly states that he knows facts that justify his opinion.7 3.7  Whilst a representation will usually be in words, it need not necessarily take that form. Thus a representation might be contained in or on a plan or map8 or in a photograph.9 It could be contained in a gesture – thus a thumb held upwards might amount to a representation by affirmation of a proposition put forward. The general rule is that a representation cannot be implied from mere silence in negotiations10 because generally there is no obligation upon a negotiating party to volunteer information.11 There are exceptions to this general principle.12 3.8  It is a matter of fact in each case whether any representation was made and, if so, what were its terms. In Primus Telecommunications plc v MCI WorldCom International Inc13 Mance LJ said: “As I presently see the position, whether there is a representation and what its nature is must be judged objectively according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee.”

  7 Per Ramsey J in BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC) at paragraph [304] citing Smith v Land and House Corporation (1884) LR 28 Ch D 7.  8 For example, Re the Mount Morgan (West) Gold Mine Ltd (1887) 56 LT 622.  9 Newman v Pinto (1887) 57 LT 31. 10 Turner v Green [1895] 2 Ch 205 at 208; Carlish v Salt [1906] 1 Ch 335 and 338. 11 Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC); [2009] BLR 505 at paragraph [103]. 12 For example in the law of insurance and reinsurance – see ter Haar, Levine and Laney, Construction Insurance and UK Construction Contracts, 3rd edition, 2016, pages 18–23, although in the United Kingdom this common law obligation has been significantly restricted by the Insurance Act 2015. Another example can be found in the law of guarantees – Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; [2002] 2 AC 773. See also the position in respect of unilateral mistake below. 13 [2004] EWCA Civ 957; [2004] 2 All ER (Comm) 833, at paragraph [30].

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3.9  Some representations will be disregarded as being mere “sales talk” – the question there being “whether the representee was entitled to take the statement seriously and so rely on it in deciding whether to enter into the contract”.14 There are conflicting first instance decisions as to the circumstances in which a warranty in a contract can also be relied upon as a representation giving rise to a claim for misrepresentation.15 Representation must be false 3.10  Obviously a statement which is true does not found a right to rescind. One question is whether the inaccuracy in the representation is substantial (or not de minimis). What is or is not substantial will depend upon the circumstances of the transaction. A representation would not be substantially untrue if the difference between what was represented and the truth would not have been likely to induce a reasonable person in the position of a representee to enter into the contract.16 3.11  Important issues can arise as to the timing of the misrepresentation: to found a right of rescission the representation must be false at the time that the contract is entered into, because it is at that time that it takes effect. Thus where the representation was false when made but true at the later date of contract a claim for rescission will fail.17 If the representee actually discovers the truth between the time of representation and the date of contract the representation will cease to be an effective inducement for the representee to enter into the contract.18 3.12  Conversely, if a representation was true when made, but becomes untrue between then and the date of contract, the representor is under a duty to bring the truth to the attention of the representee.19

14 Per Mance LJ in Primus Telecommunications (loc cit). 15 Invertec Ltd v De Mol Holding BV [2009] EWHC 2471 (Ch); Sycamore Bidco Ltd v Breslin [2012] EWHC 3443 (Ch); Idemitsu Kosan Co Ltd v Sumitomo Corporation [2016] EWHC 1909 (Comm). 16 See Avon Insurance plc v Swire Fraser Ltd [2000] Lloyd’s Rep IR 535 at paragraph 17; BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC) at paragraph [313]. For examples of representations held not to be substantial see: Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326; Allen v Universal Automobile Insurance Co Ltd (1933) 45 Lloyd’s Rep 55; Toomey v Eagle Star Insurance Co Ltd (No 2) [1995] 2 Lloyd’s Rep 88. When dealing with an express statement the court “has to consider what a reasonable person would have understood from the words used in the context in which they were used”: per Toulson J in IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm); [2007] 1 Lloyd’s Rep 264 at paragraph [50], upheld in the Court of Appeal: [2007] EWCA Civ 811; [2007] 2 Lloyd’s Rep 449. The answer to that question may depend on the nature and content of the statement, the context in which it was made, the characteristics of the maker and of the person to whom it was made, and the relationship between them: per Christopher Clarke J in Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm) at paragraph [82]. 17 Ship v Crosskill (1870) LR 10 Eq 73. 18 See Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386; [2006] 2 Lloyd’s Rep 511; [2006] 1 CLC 582 at paragraph 40. 19 With v O’Flanagan [1936] 1 Ch 575; Briess v Woolley [1954] AC 333 at 354 (Lord Tucker citing with approval from Halsbury’s Laws: “the representor is deemed to be repeating his representation at every successive moment . . . unless he withdraws or modifies it by timely notice to the representee in the meantime”); Walker v Boyle [1982] 1 WLR 495; Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC); [2009] BLR 505 at paragraph 104; BSkyB Ltd v Enterprise Services UK Ltd [2010] EWHC 86 (TCC); [2010] BLR 267 at paragraph [304].

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Representations of fact and representations of opinion or intention 3.13  In order to found a claim for rescission, the representation relied upon may be either of fact or of law. The latter is dealt with below – here the question considered is what is meant by a representation of fact. 3.14  Some representations are unarguably factual assertions – eg “this chair is made of wood”. Other representations require greater analysis because the law is that a representation or statement of opinion cannot give rise to right to rescind. Thus a representation that “I think this chair is made of wood” may be argued by the representor to be no more than a statement of opinion. Other examples of such differing representations have already given in paragraph 3.6 above. 3.15  Where a statement is made in terms “I think that . . .” or “I believe that . . .” it is not only a statement of belief or opinion, it is also a statement of fact, namely that the representor does in truth have that thought or hold that opinion.20 Not only that, but the statement may also contain within it an implicit assertion that the representor knows facts that justify his opinion or has a reasonable basis for that belief: “It is often fallaciously assumed that a statement of opinion cannot involve the statement of fact. In a case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. The statement of such opinion is in a sense a statement of fact, about the condition of the man’s own mind, but only of an irrelevant fact, for it is of no consequence what the opinion is. But if the facts are not equally well known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion.”21

3.16  Similar problems arise where one party makes to the other a statement as to his intentions. Thus, for example, in Edgington v Fitzmaurice22 a prospectus inviting subscriptions for debentures stated the purposes to which the monies raised thereby would be put. Bowen LJ said:23 “A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action for deceit. There must be a misstatement of an existing fact: but the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact.”

20 Brown v Raphael [1958] Ch 636 at 641 cited by Ramsey J in BSkyB Ltd v HP Enterprise Services UK Ltd [2010] 86 (TCC); [2010] BLR 267 at paragraph 309. 21 Per Bowen LJ in Smith v Land and House Property Corporation (1884) 28 Ch D 7 at 15 cited by Lord Merrivale in Bisset v Wilkinson [1927] AC 177 at 182–183 and by Lord Evershed MR in Brown v Raphael [1958] 1 Ch 636 at 642. See also Jaffray and others v Society of Lloyd’s [2002] EWCA Civ 1101; BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC); [2010] BLR 267 at paragraphs [304] and [310]. 22 (1885) 39 Ch D 459. 23 At 483. See in this context Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad [1989] 1 WLR 379 where a letter of comfort was treated as being merely a statement of present intention and not a promise as to future conduct. See also Hagen and others v ICI Chemicals & Polymers Ltd [2002] IRLR 31 at paragraph [131]; Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC); [2009] BLR 505 at paragraph [99]; BSkyB Ltd v HP Enterprise Services Ltd [2010] EWHC 86 (TCC); [2010] BLR 267 at paragraph [311].

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Rescission

Representations of law 3.17  It was for a long time the position in English case law that an innocent misrepresentation of law could not found a claim for rescission, on the basis that ignorance of law was no excuse.24 Where the representation as to the effect of a deed was fraudulent, there was a right to rescind.25 The unsatisfactory position that resulted in many cases led to fine distinctions, such as that a representation as to a matter of private law could be relied upon26 or that a representation as to authority was a representation of fact, not law,27 or that matters of foreign law were questions of fact.28 3.18  A way forward was opened up by the decision of the House of Lords in Kleinwort Benson Ltd v Lincoln City Council.29 In that case the House of Lords held that money could be recovered where it had been paid under a mistake of law. In Pankhania v The London Borough of Hackney30 Mr Rex Tedd QC, sitting as a Deputy Judge of the High Court, held (admittedly obiter) that the old rule preventing reliance upon a misrepresentation as to a matter of law had now gone. 3.19  The circumstances in which a court will recognise a right to rescind upon the basis of a misrepresentation as to a matter of law remain to be worked through by the courts. It is suggested that a minimum requirement (absent fraud) must be that the representor is in a position such that he will be assumed by the representee to have some special knowledge as to the law. A paradigm case would be where the representation is made by a solicitor acting on behalf of one party, but other examples might be a planning officer employed by a local authority (as in Pankhania31) or other civil servant, or possibly other professionals (for example an architect making a statement as to the effect of the Building Regulations). It is further suggested that it will be important in such cases to keep firmly in mind the dictum of Mance LJ set out at paragraph 3.8 above: not only will it be significant to ascertain whether the representor had some special knowledge of the law, but also as to whether the representor might be thought to have a greater knowledge of the law than the representee or the representee’s advisers. Not every assertion as to the law will be one upon which the representee can safely rely – it will be a highly important factor if the representee has the benefit of legal advice or, even if he does not, if he might reasonably be supposed to be likely to seek such advice. Inducement, materiality and reliance 3.20  In order to found a right to rescission the misrepresentation must have an effect upon the representee – firstly the representee must rely upon the misrepresentation, and secondly the representee must be induced by the misrepresentation to enter into a contract into which he would not otherwise have entered. However, it need not be the only factor inducing the innocent party to enter into the contract32 – indeed it seldom will be. Thus, 24 Midland Great Western Railway of Ireland v Johnson (1858) 6 HLC 798. 25 Hirschfield v The London, Brighton and South Coast Railway Company (1876) LR 2 QBD 1. 26 Cooper v Phibbs (1867) LR 2 HL 149. 27 The West London Commercial Bank Ltd v Kitson (1884) LR 13 QBD 360. 28 Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd [1990] 1 Lloyd’s Rep 236. 29 [1999] 2 AC 349. 30 [2002] EWHC 2441 (Ch); [2002] NPC 123. 31 Above. 32 Smith v Chadwick (1884) 9 AC 187; JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583 at pages 588 and 589; BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC); [2010] BLR 267 at paragraph

23

Rescission

to take the example given above, the purchaser of a painting believing it to be by Vincent van Gogh may well also be influenced by a desire to invest in the art market, a love of late nineteenth-century art and a wish to fill vacant space on the wall of his drawing room. 3.21 In Museprime Properties Ltd v Adhill Properties Ltd,33 Scott J summarised the approach taken by the courts: “A representation is material, in my opinion, if it is something that induces the person to whom it is made, whether solely or in conjunction with other inducements, to contract on the terms on which he does contract. I would gratefully adopt the view expressed in Goff and Jones on the Law of Restitution, 3rd edn at page 168, which reads: ‘In our view any misrepresentation which induces a person to enter into a contract should be a ground for rescission of that contract. If the misrepresentation would have induced a reasonable person to enter into the contract then the court will, as we have seen, presume that the representee was so induced and the onus will be on the representor to show that the representee did not rely on the misrepresentation either wholly or in part. If, however, the misrepresentation would not have induced a reasonable person to contract, the onus will be on the representee to show that the representation induced him to act as he did. But these considerations relate to the onus of proof. To disguise them under the cloak of “materiality” is misleading and unnecessary.’ And as the learned editors say a little way above that passage, the cases have tended to treat materiality as synonymous with inducement. I respectfully agree with that view of the law and intend to apply it in this case.”34

3.22  It is no answer to a claim based upon misrepresentation for the representor to say that the representee could have found out that the statement was untrue if he had used due diligence.35 Duress 3.23  It is now well established that economic duress may render a contract voidable.36 In DSND Subsea Ltd v Petroleum Geo-Services ASA,37 Dyson J said: “The ingredients of actionable duress are that there must be pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim, (b) which is illegitimate, [325]; Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC); [2009] BLR 505 at paragraph [107]. 33 [1990] 2 EGLR 196 at 201M–202A. 34 To the same effect, see Lord Halsbury LC in Arnison v Smith [1889] LR 41 Ch D 348 at 369: “It was said, and I think justly, by Sir G Jessel in Smith v Chadwick, that if a Court sees on the face of the statement that it is of such a nature as would induce a person to enter into the contract, or would tend to induce him to do so, or that it would be a part of the inducement to enter into the contract, the inference is, if he entered into the contract, that he acted on the inducement so held out, unless it is shewn he knew the facts, or that he avowedly did not rely on the statement whether he knew the facts or not.” See also Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386; [2006] 2 Lloyd’s Rep 511; [2006] 1 CLC 582 at paragraph 40; Cramaso LLP v Ogilvie-Grant [2014] UKSC 9; [2014] AC 1093 at paragraph [20] for cases as to the effect of the true position coming to the claimant’s attention before entering into a contract. 35 See Aaron’s Reefs Ltd v Twiss [1896] AC 273 at 279. See also Fiona Trust & Holding Corporation v Primalov [2006] EWHC 2583 (Comm) at paragraph [36]. 36 See Universal Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366; Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152. 37 [2000] BLR 530 at 545 cited by Ramsey J in Farm Assist Ltd v Secretary of State for Environment, Food and Rural Affairs [2008] EWHC 3079 (TCC); [2009] BLR 80 at paragraph [8] and followed by Christopher Clarke J in Kolmar Group AG v Traxpo Enterprises PVT Ltd [2010] EWHC 113 (Comm); [2010] 2 Lloyd’s Rep 653. See also Borrelli v Ting [2010] UKPC 21; [2010] Bus LR 1718 and Progress Bulk Carriers Ltd v Tube City

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and (c) which is a significant cause inducing the claimant to enter into the contract  .  .  . In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract. These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.”

3.24  In the DSND Subsea case the allegation of duress failed. By contrast, in Carillion Construction Ltd v Felix (UK) Ltd,38 Dyson J upheld a claim of economic duress based upon a threat by a subcontractor to withhold deliveries.39 3.25 In Capital Structures plc v Time & Tide Construction Ltd,40 HH Judge Wilcox held that a consequence of a contract being held to be voidable for duress is that if the victim elects to rescind the contract, any arbitration or adjudication clause in the contract ceases to be effective. Conflict of interest: bribery 3.26  A contract obtained through the bribery (or other conflict of interest) of a fiduciary may be rescinded. The position was summarised by Millett J in Logicrose Ltd v Southend United FC:41 “It is well established that a principal who discovers that his agent in a transaction has obtained or arranged to obtain a bribe or secret commission from the other party to the transaction is entitled, in addition to other remedies which may be open to him, to elect to rescind the transaction ab initio or, if it is too late to rescind, to bring it to an end for the future: Panama and South Pacific Telegraph Co v India Rubber, Gutta Percha, and Telegraph Works Co42 and Armagas Ltd v Mundogas SA.43 The remedy is not confined to cases where the agent has taken a bribe or secret commission in the strictest sense. It is available whenever, without his principal’s knowledge and consent, the agent has put himself in a position where his interest and his duty may conflict. A principal is entitled to the disinterested advice of his agent free from the potentially corrupting influence of an interest of his own. Any such private interest, whether actual or contemplated, which is not known and consented to by his principal, disqualifies him: see the Panama Case44 and Parker v McKenna.45 It is immaterial whether the agent’s mind has been affected or whether the principal has suffered any loss as a result: ‘the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that’: Parker v McKenna46 . . . and Shipway v Broadwood47 . . .The principal, having been deprived by the other to the transaction

IMS LLC (The “Cenk Kaptanoglu”) [2012] EWHC 273 (Comm); [2012] Lloyd’s Rep 501, which contains a useful review of the authorities. 38 [2001] BLR 1. 39 For a discussion of these two decisions, see Dr Hamish Lal, Commercial Exploitation in Construction Contracts: The Role of Economic Duress and Unjust Enrichment [2005] ICLR 466. 40 [2006] BLR 227. 41 [1988] 1 WLR 1256 at 1260–1261. 42 (1875) LR 10 Ch App 515. 43 [1986] AC 717, 742–743. 44 (1875) LR 10 Ch App 515 at 528–529. 45 (1874) LR 10 Ch App 96 at 118. 46 (1974) LR 10 Ch App 96 at 124–125 per James LJ. 47 [1899] 1 QB 369 at 373 per Chitty LJ.

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of the disinterested advice of his agent, is entitled to a further opportunity to consider whether it is in his interests to affirm it.”

3.27  In a case where a surveyor who had been engaged to supervise building works to be carried out by a building company subsequently became managing director of that company, it was held that this was a breach of contract going to the root of his contract with the employer.48 How rescission is effected 3.28  At common law rescission could be said not to be a “remedy” because rescission is not effected by the court. There are a number of authorities that make this clear. Thus in TSB Bank plc v Camfield,49 Roch LJ said: “The right to set aside or rescind the transaction is that of the representee, not that of the court. The court’s role in a disputed case will be to decide whether the representee has lawfully rescinded the transaction or is entitled to rescind it. Normally, if the representee is entitled to rescind the legal charge, that will have been effected by the representee’s pleading that the transaction has been or should be set aside; that is to say, the transaction would have been set aside before the matter reaches the court. The court is not being asked to grant equitable relief; nor is it, in my view, granting equitable relief to which terms may be attached. If this analysis . . . is correct, then the provisions of the Misrepresentation Act 1967 become, in my view, of the utmost significance. Section 1 of that Act is in terms consistent with the right to rescind being that of the person to whom the misrepresentation has been made. Section 2(2) gives the court power, where such a person has rescinded or is entitled to rescind a contract, to declare the contract to be subsisting and to award damages in lieu of rescission in certain circumstances. That implies that but for that subsection the court does not have the power to declare the contract to be subsisting when, as in this case, the representee has exercised her right to set aside the transaction.”50

3.29  What is required is that an election or decision to rescind, in order to be effective, must be exercised unequivocally or “in the plainest and most open manner competent”51 – service of proceedings would normally be regarded as an unequivocal communication of a decision to rescind. 3.30  The court’s role is therefore firstly to declare whether the party claiming to rescind had a right to rescind and whether the contract has or has not been effectively rescinded and then to consider the discretion to declare the contract subsisting pursuant to the Misrepresentation Act 1967 and to award damages in lieu of rescission. The court also has a role in determining the mechanics of restoring the parties to their pre-contractual position – see below in respect of restitutio in integrum. 3.31  However, whether rescission is truly to be regarded jurisprudentially as a remedy available at the discretion of the court or not, the court’s decision-making role in relation to the defences of affirmation and laches mean that in practice whether or not a claim to rescind succeeds will depend upon the tribunal’s assessment of the justice of allowing the claim to succeed.

48 Thornton Hall v Wembley Electrical Appliances [1947] 2 All ER 630 at 634. 49 [1995] 1 WLR 430 at 438–439. 50 See also The Directors of the Reese River Silver Mining Company Ltd v Smith (1869) LR 4 HL 64 at 73. 51 Per Lord Hatherley LC in Reese River (above) at 74 cited by Davies LJ in Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 at 558.

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The court’s power to award damages under the Misrepresentation Act 1967 3.32  There is an important distinction between claims for damages based upon misrepresentation and claims for rescission. It has long been the law that a fraudulent misrepresentation would entitle the innocent representee to a remedy in damages or to rescission of the contract entered into upon the strength of the fraudulent misrepresentation.52 At common law a non-fraudulent or innocent representation would entitle the representee to rescind the contract53 but not to damages. 3.33  In so far as claims for damages are concerned, section 2(1) of the Misrepresentation Act 1967 now gives a right to damages for misrepresentation even where fraud is not established, whilst the law of tort has developed to allow damages to be recovered in certain circumstances for negligent misrepresentation.54 3.34  The law remains that an innocent misrepresentation even without proof of negligence on the part of the representor will entitle the representee to rescind a contract. Because of the draconian nature of this remedy, the courts have been understandably slower to recognise a right to rescind in the case of an innocent misrepresentation. Very different policy considerations apply where the misrepresentation was fraudulent.55 3.35  The intervention of statute has now introduced an important distinction between fraudulent and innocent misrepresentations: in the latter case, section 2(2) of the Misrepresentation Act 1967 gives the courts a discretion to award damages in lieu of rescission: “Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party.”

3.36  This provision does not affect the right of a party to rescind on the basis of fraudulent misrepresentation. The intent of the section is to give a tribunal a discretion to alleviate the effect upon a party “guilty” of an innocent misrepresentation. 3.37 This section only gives a tribunal a right to award damages where the right to rescind remains alive at the time the matter comes before it.56 Thus, if the right to rescind has been lost, for example by reason of laches or affirmation, the tribunal has no power to award damages under this section. 3.38  Damages under section 2 of the Act are calculated in the same way as if the representation had been made fraudulently: accordingly the claimant is entitled to recover

52 Derry v Peek (1889) LR 14 App Cas 337. 53 Cooper v Joel (1859) 1 De Gex, Fisher & Jones 240. 54 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. 55 Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC); [2009] BLR 505 at paragraphs [109]–[111]. 56 Salt v Stratstone Specialist Ltd [201] EWCA Civ 745; [2015] 2 CLC 269, resolving differences between first instance judges: Atlantic Lines & Navigation Co Inc v Hallam Ltd (“The Lucy”) [1983] 1 Lloyd’s Rep 188; The Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333; Floods of Queensferry Ltd v Shand Construction Ltd [2000] BLR 81; Pankhania v The London Borough of Hackney (above), taking the view now endorsed by the Court of Appeal. Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573 was to the opposite effect but has now been overruled.

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compensation for all loss directly flowing from the transaction induced by the misrepresentation, whether or not the loss was reasonably foreseeable and including any consequential losses.57 3.39  In a case relating to the purchase of property on the basis of a misrepresentation, the primary measure of damages under this section is the difference between the value of the property as represented and its true value, or possibly the cost of remedial works to put the property into the condition represented,58 referred to sometimes as the “contractual measure”.59 3.40  As stated above, a tribunal can award consequential losses under this section – see Davis & Co (Wines) Ltd v Afa-Minerva (EMI) Ltd.60 In UCB Corporate Services Ltd v Thomason,61 Latham LJ said that the word “loss” in the section includes financial loss. He continued “It seems to me capable, also, of including what might loosely be described as ‘detriment’. That is because the nature of the exercise required by the section is essentially a balancing exercise in order to determine what would be ‘equitable’ in the circumstances.” Defences Affirmation 3.41 A party with a right to rescind a contract has a choice – he may either elect to rescind the contract or he may elect to affirm it. Once he has elected to affirm the contract, he then loses the right to rescind. 3.42  The party with the right to rescind generally is under no obligation to make his election within any particular time, but this principle is not unqualified: “We think that so long as he has made no election he retains the right to determine it either way, subject to this, that if in the interval whilst he is deliberating, an innocent third party has acquired an interest in the property, or if in consequence of his delay the position even of the wrong-doer is affected, it will preclude him from exercising his right to rescind. And lapse of time without rescinding will furnish evidence that he has determined to affirm the contract; and when the lapse of time is great, it probably would in practice be treated as conclusive evidence to shew that he has so determined.”62

3.43  A party will generally not be held to have elected to affirm a contract unless he had knowledge not only of the facts that justify rescission, but also of his right to rescind: “The plaintiff can therefore rely on his own unchallenged ignorance of the law, unless he is precluded from doing so either by what he has done or by his solicitor’s knowledge of

57 Royscot Trust Ltd v Rogerson [1991] 2 Q.B. 297 followed by Leggatt J (reluctantly) in Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB); [2013] BLR 147 at paragraphs 204–206. 58 William Sindall Ltd v Cambridgeshire County Council [1994] 1WLR 1016: in Chitty on Contracts, 32nd edition, 2015, at paragraphs 7–109 and in O’Sullivan, Elliott and Zakrzewski, The Law of Rescission, 2nd edition, 2014, paragraphs 28.20–28.26, persuasive critiques of this decision are presented. 59 In one of the very few construction cases in respect of rescission, HH Judge Humphrey LLoyd QC said that this was the contractual measure he would have adopted if awarding damages under section 2(2) of the 1967 Act: Floods of Queensferry Ltd v Shand Construction Ltd [2000] BLR 81 at 93. 60 [1974] 2 Lloyd’s Rep 27. 61 [2005] EWCA Civ 225; [2005] 1 All ER (Comm) 601 at paragraph [37]. 62 Per Mellor J in Clough v London and North Western Railway Co (1871) LR 7 Ex 26 at 35. See also Scarf v Jardine (1882) 7 App Cas 345 at 360–361.

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the law.”63 Generally affirmation requires words or conduct that “unequivocally manifests an intention to affirm”,64 but a party can lose his right to rescind if the other party alters his position to his detriment: “Waiver or election is always a question of intention to be decided on the evidence as a question of fact (unless determined by a statute like the Sale of Goods Act 1979). In fact and in law men’s intentions must be judged by their actions, and a man’s acts may convey to any reasonable person standing in the shoes of the other party to a contract, as clearly as any words, an intention to repudiate or to affirm the contract. If the other party, relying on acts having the latter effect, suffers detriment or prejudice, there is unequivocal, and irrevocable, affirmation.”65

Delay (Laches) 3.44  The factual circumstances that might amount to affirmation are often relied upon supporting the defence of laches. In Lindsay Petroleum Company v Hurd66 Sir Barnes Peacock summarised the doctrine of laches as follows: “Now the doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has by his conduct done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material. But in every case, if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances, always important in such cases, are, the length of the delay and the nature of the facts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.”

This passage was quoted by Lord Blackburn in Erlanger v New Sombrero Phosphate Co who then continued: “I  have looked in vain for any authority which gives a more distinct and definite rule than this; and I think, from the nature of the inquiry, it must always be a question of more or less, depending on the degree of diligence which might reasonably be required, and the degree of change which has occurred, whether the balance of justice or injustice is in favour of granting the remedy or withholding it. The determination of such a question must largely depend on the turn of mind of those who have to decide, and must therefore be subject to uncertainty; but that, I think, is inherent in the nature of the inquiry.”67

Impossibility of restoration of the parties’ pre-contractual positions 3.45  A right to rescind will be lost if it is impossible to achieve restitutio in integrum, that is to say if it is not possible to restore the parties to their pre-contractual positions. 63 Per Stephenson LJ in Peyman v Lanjani [1985] 1 Ch 457 at 487. See also Moore Large & Co Ltd v Hermes Credit & Guarantee plc [2003] EWHC 26 (Comm); [2003] Lloyd’s Rep IR 315 at 334. 64 Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 at 550. 65 Per Stephenson LJ in Peyman v Lanjani [1985] 1 Ch 457 at 488. 66 (1874) LR 5 PC 221 at 239–240. 67 (1877–78) LR 3 App Cas 1218 at 1279–1280. For a relatively recent application of these principles see Nelson v Rye [1996] 1 WLR 1378.

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3.46 As already pointed out, a right to rescind arises not only where there has been fraud or other impropriety, but also where there has been innocent misrepresentation. It is therefore a right with potentially severe effects upon the misrepresenting party who may be innocent of anything morally blameworthy. It is at least in part for this reason that the courts have allowed rescission only where the parties can return to their ­pre-contractual position. What this means was summarised by Roche J in Compagnie Francaise des Chemins de Fer Paris-Orleans v Leeston Shipping Company Ltd:68 “It is said on behalf of the defendant Company that the plaintiffs come too late because restitutio ad integram was an essential element of the right to rescind. In other words, you could not grant rescission unless restitutio ad integram was possible, and it is said that is not so here. I agree with the statement of principle, but I do not agree that restitutio ad integram means putting the parties back in the same position as they were in. That is impossible in this changing world, where time and circumstances pass by. It means putting the parties in as good a position as they were before. To use charter-party phraseology, ‘as near thereto as may be reasonably possible’.”

3.47 There are many cases where it is impossible for the parties to return to their pre-contractual position but rescission will still be allowed; for example where the misrepresentation was as to the solvency of a business, the fact that the financial position of the business continues to deteriorate would not be a bar to rescission;69 indeed, in Armstrong v Jackson70 McCardie J pointed out that “it is only in cases where the plaintiff has sustained loss by the inferiority of the subject-matter or a substantial fall in its value that he will desire to exert his power of rescission”. He continued, “[I]f mere deterioration of the subject-matter negatived the right to rescind, the doctrine of rescission would become a vain thing.” 3.48  The generality of the rule is also modified in equity by the rule that where compensation can be made for deterioration in property or improvement to property, such deterioration or improvement is not a bar to rescission, but only a ground for compensation.71 3.49  Summarising the principles applied by the courts of equity, in Lagunas Nitrate Company v Lagunas Syndicate, Rigby LJ said:72 “The obligation of the vendors to take back the property in a deteriorated condition is not imposed by way of punishment for wrongdoing, whether fraudulent or not, but because on equitable principles it is thought more fair that they should be compelled to accept compensation than that they should go off with the full profit of their wrongdoing. Properly speaking, it is not now in the discretion of the Court to say whether compensation ought to be taken or not. If substantially compensation can be made, rescission with compensation is ex debito justitiae.”

3.50  But this does not entitle the court or an arbitrator to rewrite the contract: “These authorities do, in my judgment, make it very clear that the principle that there cannot be partial rescission is part of the wider requirement that there cannot be rescission unless there can be restitutio in integrum. Further, that requirement is the conceptual consequence of the basic nature of the remedy of rescission which is to discharge all the parties from the bargain 68 [1919] Lloyd’s Rep 235 at 238. 69 Adam v Newbigging (1888) LR 13 App Cas 308; Lagunas Nitrate Company v Lagunas Syndicate [1899] 2 Ch 392; Armstrong v Jackson [1917] 2 KB 822. 70 Above at 829. 71 Lagunas Nitrate Company v Lagunas Syndicate (above) at 456; Erlanger v The New Sombrero Phosphate Company (1878) 3 App Cas 1218; Spence v Crawford (above) at 70. 72 Above at 457.

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into which the misrepresentor has induced them to enter. It is not and never has had the function of providing compensation for the misrepresentation or some hybrid solution to reflect what would be fair between the parties having regard to the nature of the representation and the extent to which one party has been misled by another. Consistent with that, the Court has no power to create a new bargain for the parties. What has been induced is the original bargain and it is the purpose of the remedy to return the parties to their position before that particular bargain was made. There is therefore no room for any form of equitable engineering directed to reconstructing the fabric of the original contract.”73

3.51  A court will be likely to apply these principles more flexibly in a case of fraud than in a case of innocent misrepresentation. In Spence v Crawford74 Lord Wright said: “[T]he Court will be more drastic in exercising its discretionary powers in a case of fraud than in a case of innocent misrepresentation.” So also, Colman J in De Molestina v Ponton75 said: “The court will be less ready to pull a transaction to pieces where the defendant is innocent, whereas in the case of fraud the court will exercise its discretion to the full in order, if possible, to prevent the defendant from enjoying the benefit of his fraud at the expense of the innocent plaintiff.”

The decision of the Court of Appeal in Halpern v Halpern (Nos 1 and 2)76 suggests that the courts may be moving towards a more flexible approach towards the requirement of what has been described as “counter-restitution”. 3.52  It is a rare case in the context of building and engineering contracts in which rescission will be allowed because it is the nature of such contracts that once works start restitutio in integrum is generally impractical if not impossible.77 Where a claim is successful in this area of enterprise it is likely to be because there has been impropriety (for example duress), improper practices (most obviously use of bribery) or fraud. Once a building project has started it is unlikely that a claim for rescission for innocent misrepresentation will ­succeed – either because restitution is impractical or because damages are an adequate remedy. The position of third parties 3.53  Where an innocent third party’s rights would be affected by rescission, generally rescission will not be permitted.78 3.54 This may be regarded as another aspect of the principle that rescission will be permitted only when restitution is possible. In most construction projects of anything other than the greatest simplicity numerous third parties would be affected if the principal construction contract were to be rescinded. For example, subcontractors are likely to have

73 Per Colman J in De Molestina v Ponton [2002] 1 Lloyd’s Rep 271 at 286–287, paragraph 6.2. In the next paragraph he usefully described the power to make adjustments referred to in paragraphs 3.46 and 3.47 of this chapter as making “adjustments ancillary to and in aid of restitution”. See also paragraph 6.7 at 288 where Colman J held that the decision of the High Court of Australia in Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 182 adopting a more flexible approach to achieve justice did not reflect the law of England. 74 Above at 77. 75 Above at 287, paragraph 6.3. 76 [2007] EWCA Civ 291; [2008] QB 195 particularly at paragraph [76]. 77 See for example Glasgow and South Western Railway Co v Boyd & Forrest [1918] SC (HL) 14 and [1915] AC 526. 78 Per Lord Morris of Borth-y-Gest in Senanayake v Cheng [1966] AC 63 at 80F.

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employed labour or arranged subsubcontracts and suppliers may have entered into long lead contracts with manufacturers. The effect of contractual provisions 3.55  A right to rescind or a potential right to rescind may be negated by the terms of the contract. 3.56  First, a term of the contract may operate to allocate risk so as to prevent any right to rescind arising. An example of a case where a claim to rescind for mistake failed for this reason is Wm Sindall plc v Cambridgeshire County Council.79 3.57  Thus in the context of a construction contract a clause as to allocation of risk for particular ground conditions might be such a clause. For example, in clause 4.10 of the FIDIC “Red Book” (Conditions of Contract for Construction) and “Yellow Book” (the Conditions of Contract for Plant and Design-Build)80 it is provided: “Site Data The Employer shall have made available to the Contractor for his information, prior to the Base Date, all relevant data in the Employer’s possession on sub-surface and hydrological conditions at the Site, including environmental aspects. The Employer shall similarly make available to the Contractor all such data which come into the Employer’s possession after the Base Date. The Contractor shall be responsible for interpreting all such data. To the extent which was practicable (taking account of cost and time), the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Tender or Works. To the same extent the Contractor shall be deemed to have inspected and examined the Site, its surroundings, the above data and other available information, and to have been satisfied before submitting the Tender as to all relevant matters including (without limitation): (a) the form and nature of the Site, including sub-surface conditions, (b) the hydrological and climatic conditions, (c) the extent and nature of the work and Goods necessary for the execution and completion of the Works and the remedying of any defects, (d) the Laws, procedures and labour practices of the Country, and (e) the Contractor’s requirements for access, accommodation, facilities, personnel, power, transport, water and other services.”

Such a clause allocates risk to the contractor and therefore prevents a claim to rescind arising based upon misrepresentation as to soil conditions.81 3.58 Many properly drawn construction contracts will contain an “entire agreement” clause, such as “the parties have negotiated this contract on the basis that the terms and conditions set out herein represent the entire agreement between them”.82 Such a clause is

79 [1994] 1 WLR 1016 – see in particular pages 1034H–1035E in relation to rescission for mistake. 80 In each case the reference is to the 1999 edition. 81 Attempts to circumvent this by relying upon a duty of care in tort owed by the employer are likely to fail: see Morrison Knudsen International Co Inc v The Commonwealth (1972) 13 BLR 114; Dillingham Construction Pty Ltd v Downs (1972) 13 BLR 97. 82 See also paragraphs 2.46–2.49 above.

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ineffective to exclude a right to rescind for misrepresentation unless the misrepresentation has become a term of the contract.83 Courts tend to construe entire agreement clauses strictly.84 3.59  However there is no general principle against including a provision effectively excluding the effect of misrepresentations so long as the clause is drawn in sufficiently clear terms to have that effect.85 As Moore-Bick LJ said in Peekay Intermark and Harish Pawani v Australia and New Zealand Banking Group Ltd:86 “There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not. For example, it may be desirable to settle a disagreement as to an existing state of affairs in order to establish a clear basis for the contract itself and its subsequent performance. Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel: see Colchester Borough Council v Smith.”87

Clauses may provide that each party acknowledges that it has not entered into the contract on the basis of any representation; for example, “the parties further agree that neither party has placed any reliance whatsoever on any representations agreements statements or understandings whether oral or in writing made prior to the date of this contract other than those expressly incorporated or recited in this contract”. Such a clause may operate as an evidential estoppel88 or as an estoppel by contract.89 Again, such clauses are frequently found in construction contracts. To be effective such a clause must be in clear terms: “Unless it is manifestly made clear that a purchaser has agreed only to have a remedy for breach of warranty I am not disposed to think that a contractual term said to have this effect by a roundabout route does indeed do so. In other words, if a clause is to have the effect of excluding or reducing remedies for damaging untrue statements then the party seeking that protection

83 Deepak Fertilisers and Petrochemicals Corporation v ICI Chemicals and Polymers Ltd [1999] 1 Lloyd’s Rep 387 at 395, paragraph 34; Government of Zanzibar v British Aerospace Ltd [2000] 1 WLR 2333 at 2344D; Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611 at paragraph 8. See also the extensive discussion of this subject by Ramsey J in BSkyB Ltd v HP Enterprise Services Ltd [2010] EWHC 86 (TCC); [2010] BLR 267 at paragraphs [358]–[389]. 84 Barclays Bank plc v UniCredit Bank AG [2014] EWCA Civ 302; [2014] 2 Lloyd’s Rep 59 at paragraph 28. See also Taberna Europe CDO II plc v Selskabet AF/I [2016] EWCA Civ 1292; [2017] 2 WLR 803. 85 A clause simply stating that “this contract is the entire agreement between the parties” was conceded not to be effective to bar a claim in misrepresentation: see Shoreline Housing Partnership Ltd v Mears Ltd [2013] EWCA Civ 639; [2013] BLR 393 at paragraph 16. 86 [2006] EWCA Civ 386; [2006] 2 Lloyd’s Rep 511; [2006] 1 CLC 582 at paragraph [56]. 87 [1991] Ch 448, affirmed on appeal [1992] Ch 421. 88 EA Grimstead & Son Ltd v McGarrigan [1999] EWCA Civ 3029; Watford Electronics Ltd v Sanderson [2001] EWCA Civ 317; [2001] 1 BLR 143. For a discussion of this subject, see Thomas, Laying Siege to “Four Walls” Entire Agreements: The Parol Evidence Rule and Estoppel in Construction Contracts [2009] ICLR 188. 89 Colchester Borough Council v Smith [1991] Ch 448 at 496; Peekay Intermark Ltd v Australia and New Zealand Banking Group [2006] EWCA Civ 386; 2006] 1 CLC 582; [2006] 2 Lloyd’s Rep 511 particularly at paragraphs [56] and [70]; Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2008] EWHC 1686 (Comm); [2008] 2 Lloyd’s Rep 581 at paragraph [33] (affirmed on other grounds at [2009] EWCA Civ 290; [2009] 1 Lloyd’s Rep 702); Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221; [2010] 2 CLC 705 at paragraphs [441]–[165]; Titan Steel Wheels Limited v Royal Bank of Scotland [2010] EWHC 211 (Comm) at paragraphs [85], [89], [91], [93] and [97]; Raffeisen Zentralbank v Royal Bank of Scotland [2010] EWHC 1392 (Comm) at paragraph [314]; [2011] Bus LR Digest D65. See the discussion of this topic by Alexander Trukhtanov, Misrepresentation: Acknowledgement of Non-Reliance as a Defence (2009) 125 LQR 648.

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cannot be mealy-mouthed in his clause. He must bring it home that he is limiting liability for falsehoods he may have told.”90

3.60 In Man Nutzfahrzeuge AG and others v Freightliner Ltd91 Moore-Bick LJ considered a clause in the following terms: “This Agreement together with the Ancillary Agreements constitutes the entire agreement between the Parties and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties. There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the Parties in connection with the subject matter of this Agreement except as specifically set forth herein and none of the Parties has relied on or is relying on any other information, discussion or understanding in entering into and completing the transactions contemplated in this Agreement and the Ancillary Agreements . . . Nothing in this Section 14.10 shall affect any Party’s liability for fraud or fraudulent misrepresentation.”

It was bravely argued that this clause had the effect of excluding any liability for misrepresentation whether fraudulent or not. The judge held that it was effective to exclude liability for innocent or negligent misrepresentations, but not for fraudulent misrepresentation. He said:92 “While recognising that this clause specifically excludes fraud from the scope of its operation, Mr Vos submitted that it was clearly intended to prevent the purchaser from seeking relief of any kind based on innocent or negligent misrepresentations. He argued that either MN relied on misrepresentations or it did not. It made no sense to say that MN did not rely on representations if they were made innocently or negligently, but did rely on representations if they were made fraudulently. I can see the logic of that submission, but in my view it fails to have sufficient regard to the parties’ intentions in including this provision in the agreement. The first two sentences are in my view intended to make it clear that the agreement contains the definitive statement of the parties’ rights and liabilities arising out of the negotiations. Although the second sentence is worded in terms of an absence of any representations etc. outside the agreement itself, it does in fact operate as a contractual renunciation of the right to rely on anything said or done in the course of the negotiations as giving rise to a ground of complaint, or indeed for any other purpose. To that extent the clause does alter the parties’ positions, but it is subject to the exception in the final sentence which makes it clear that they did not intend to give up the right to hold each other liable for fraud or fraudulent misrepresentations made before entering into the agreement.”

3.61  Section  3 of the Misrepresentation Act 1967, as substituted by section  8 of the Unfair Contract Terms Act 1977, limits the ability of a party to prevent the other party to a contract obtaining a remedy for misrepresentation: “If a contract contains a term which would exclude or restrict: (a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or (b) any remedy available to another party to the contract by reason of such misrepresentation 90 Per Jacob J in Thomas Witter Ltd v TBP Industries Ltd (1994) 12 Tr L 145 at 168C cited by Rix J at first instance in Deepak v Imperial Chemical Industries plc [1998] 2 Lloyd’s Rep 139 at 167. 91 [2005] EWHC 2347 (Comm). 92 At paragraphs [127] and [128].

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that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does.”

3.62  This section has been held to apply to a condition of sale stating that “no error, mis-statement or omission in any preliminary answer concerning the property . . . shall annul the sale”.93 Similar wording might be found applying to answers given in respect of inquiries by a contractor seeking clarification of the terms of a tender. 3.63  It has also been held to apply to a term asserting that no representation had been made.94 3.64  There are conflicting authorities as to whether the section applies to non-reliance clauses.95 3.65  Where the Act does apply, a term is not necessarily reasonable because of the fact that both parties were represented by solicitors or because the contract takes a common or standard form.96 3.66  As general guidance to the court’s approach in an area where each case is likely to turn very much on its own facts, one can refer to the following passage from the judgment of Chadwick LJ in Watford Electronics Ltd v Sanderson CFL Ltd:97 “Where experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement . . . they should in my view be taken to be the best judge of the commercial fairness of the agreement which they have made; including the fairness of each of the terms in that agreement. They should be taken to be the best judge on the question whether the terms of the agreement are reasonable.”

3.67  In respect of exclusion clauses in the context of an exclusion against misrepresentation, Mance J said in Skipsredittforeningen v Emperor Navigation SA:98 “The consequence of the approach adopted in Stewart Gill99 is (as the present case shows) that the court may hear arguments that a term is or may be unreasonable (and so wholly void in relation to misrepresentation or breach of contract claims, as the case may be) for reasons or in respects that have nothing to do with the facts of the actual case. Assuming that the whole term will be invalid in this way if it fails the requirement of reasonableness, the court should, I think, take care to consider the clause as a whole in the light of the circumstances when the contract was made, in order to judge in the round whether it satisfies the requirement of reasonableness. The court should not be too ready to focus on remote possibilities or to accept arguments that a clause fails the test by reference to relatively uncommon or unlikely situations.”

  93 Walker v Boyle [1982] 1 WLR 495.  94 Cremdean Properties v Nash (1977) 244 EG 547 at 551. See also Axa Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133; [2011] 2 Lloyd’s Rep 1 at paragraphs [48]–[51].  95 In Watford Electronics Ltd v Sanderson CFL Ltd (above) at paragraph [40] Chadwick LJ doubted whether the section did apply. But to contrary effect see Jacob J in Thomas Witter Limited v TBP Industries Ltd [1996] 2 All ER 573 at 598; HH Judge Raymond Jack QC in Government of Zanzibar v British Aerospace Ltd (above) at 2347.  96 Walker v Boyle (above) at pages 507–508.  97 Above at paragraph 55.  98 [1997] 2 BCLC 398 at 413, cited with approval (“it is well to remember the wise words of Mance J”) by Rix LJ in Regus (UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361; [2009] 1 All ER Comm 586 at paragraph [36].  99 Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 2 QB 600.

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3.68  In consumer contracts the Unfair Terms in Consumer Contract Regulations 1999100 may apply. Rescission and arbitration 3.69  If a party is entitled to rescind a contract, then any arbitration clause in the contract will fall away with the contract. Thus if a dispute as to the validity of an election to repudiate is referred to arbitration, the arbitrator may in effect be required to determine his own jurisdiction. 3.70  Whether the arbitrator has power so to do depends upon the terms of any applicable arbitration clause101 – see in this context the discussion in Chapter 2 above. Unless otherwise agreed by the parties an arbitral tribunal may rule on its own substantive jurisdiction.102

100 SI 1999/2083. 101 See section  30 of the Arbitration Act 1996. In the light of this provision authorities such as Munro v Bognor Urban Council [1915] 3 KB 167; Willcock v Pickfords Removals Limited [1979] 1 Lloyd’s Rep 244; and Blue Circle Industries plc v Holland Dredging Company (UK) Ltd (1987) 37 BLR 40 should be treated with some caution on this point. 102 Section 30 of the Arbitration Act 1996.

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CHAPTER  4

Specific remedies under contract 4.1  The previous two chapters have considered circumstances in which a contract may be altered from its written form by court order (rectification – see Chapter 2) or effectively brought to an end by rescission (see Chapter 3). In each case the terms of a contract may limit the availability of the remedy (see paragraphs 2.46–2.50 and 3.55–3.68). 4.2  In the case of most of the remedies now to be considered, any contractual provision governing the relationship between the parties may itself grant equivalent relief, which may have the effect of limiting or excluding any other remedy at law or outside the contract. There may also be limitation or exclusion clauses restricting the availability of remedies outside the contract – Chapter 20 summarises the principles applicable to exclusion and limitation clauses. 4.3  The purpose of this short chapter is to give signposts to the sort of provisions to be found in construction contracts conferring specific remedies. 4.4  Chapter 6 discusses termination of contracts – in many cases a right to accept a contract as having come to an end arises at common law (see Chapter 6, paragraphs 6.4–6.19) but also standard forms of contract will generally confer express rights of termination (see paragraphs 6.20–6.28). Paragraphs 6.29–6.31 discuss authority as to the extent that an express contractual remedy excludes a common law remedy. 4.5  Chapter 7 discusses the doctrine of frustration – here, contractual provisions relating to “force majeure” will often have the scope for arguing the application of what the common law would recognise as the doctrine of frustration – see paragraphs 7.38–7.43. 4.6  Chapters  8–16 and 18 are concerned with recovery of financial losses either by way of damages or in certain circumstances under contract. In such claims the starting point must always be to see what sums are due under any applicable contract. A claim for damages is generally unlikely to arise to the extent that an express entitlement to compensation is provided under a contract – to take an example: assume that an employer is late in providing drawings. This might give rise to an express entitlement to recompense under an express contractual provision (eg, under clause 1.9 of the FIDIC Red Book1) or for damages under an implied term of cooperation. Some courts or arbitrators might reject the damages claim upon the basis that there is no need to imply such a term where an express provision exists in the contract to deal with instances of non-cooperation by the employer. Others might hold that the damages claim would fail because any loss suffered by the contractor would be covered by the express provision for compensation. (It used to be common to see such claims pursued in parallel as here suggested, but has become less common in recent years as a result of improved drafting of the standard forms of contract.)

 1 Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer, 1st edition, 1999, published by the Fédération internationale des ingénieurs-conseils.

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4.7  Abatement (discussed in Chapter 19) is a remedy that occurs at common law but may also be reflected in contractual machinery; for example, where an engineer or architect is called upon to value work and will allow for any deficiencies in that work. Well-drafted contracts often include a provision permitting set-off; for example, for liquidated damages (see for example clause 14.13 of the FIDIC Red Book2 and clause 2.23.1 of the JCT 05 Standard Building Contract). 4.8  Thus, in each case where a remedy is sought, it is important to see first what rights are granted by any applicable contract – if an adequate remedy is to be found within the contract, then that should be the claimant’s first port of call. If there is no adequate remedy within the contract, then the remedy must be sought under the common law or in statute. In each case careful consideration should be given as to whether there are any applicable and effective contractual restrictions upon the extra-contractual remedy sought. 4.9  Even if there is a remedy in the contract, the machinery may prove to be ineffective or inoperable; for example, if there is no engineer or other certifier appointed to determine payments due. There is a body of cases dealing with the situation where contractual machinery (particularly for certification of payments due to the contractor) has broken down. In such cases the court will intervene to ensure that the intent of the contract (eg, that the contractor gets paid for his work) is not frustrated.3 Those problems have become less frequent and of lesser significance because of the payment provisions introduced by the Housing Grants, Construction and Regeneration Act 1996 (and now the Local Democracy, Economic Development and Construction Act 2009) and the associated ability of contractors in UK domestic contracts to go to adjudication. A similar problem can arise where the parties have left some element of the contract to be determined (eg, a bonus mechanism). Rather than allow the contract to fail because of lack of agreement on such a point, the courts (or arbitrators and adjudicators) will in appropriate cases intervene to make good the gap;4 however this will not always be possible.5

 2 Above.   3 See for example Sudbrook Trading Estates Ltd v Eggleton [1983] 1 AC 444; London Borough of Merton v Stanley Hugh Leach Ltd (1985) 32 BLR 51 at pages 109–111; Davy Offshore Ltd v Emerald Field Contracting Ltd (1991) 55 BLR 1 at 77–78.  4 F&G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53; Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1988] 1 Lloyd’s Rep 205; Dimymi Corporation v Atlantic Lines and Navigation Co Inc [1989] 2 Lloyd’s Rep 108; Mamidoil-Jetoil Greel Petroleum Co SA v Okta Crude Oil Refinery [2001] EWCA Civ 406; [2001] 2 Lloyd’s Rep 76; Alstom Signalling Ltd (t/a Alstom Transport Solutions) v Jarvis Facilities Ltd [2004] EWHC 1232 (TCC).   5 See for example Merit Process Engineering Ltd v Balfour Beatty Engineering Services (HY) Ltd [2012] EWHC 1376 (TCC); [2012] BLR 364.

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CHAPTER  5

Quantum meruit 5.1  Courts (and, to a greater extent, arbitrators and adjudicators) are called upon relatively frequently to determine claims for a quantum meruit. This is a significant area in which the law of remedies intervenes in the world of businessmen concerned in the construction industry. 5.2  A claim for a quantum meruit is a claim for the value of services provided.1 A similar claim described as a claim for a quantum valebat is a claim for the value of goods transferred.2 Contractual claim for a “quantum meruit” 5.3  A claim for a quantum meruit is often brought where a contract is entered into for the provision of work and materials without the amount payable having been determined – for example, a plumber is asked to attend to replace a defective sink. Very often no price will have been agreed in advance. In such a case the law implies an obligation that the person asking for the goods and services to be provided should pay a reasonable sum for what has been provided. 5.4  Similarly, if in a simple contract extra works are ordered, such extras amount to a variation or variations to the contract for which a reasonable additional sum will be payable. 5.5  As a matter of legal concept these are simple matters, although in the rough and tumble of human relationships the valuation of works for which no prior price has been agreed can generate heated disputes. What is a reasonable sum will depend upon a number of factors that may include such matters as the going rate for the work in a particular trade in a particular place, any prior history of work done for the recipient of the services, whether the work was done as a matter of urgency, particularly out of ordinary working hours. The tradesman is generally entitled to a reasonable profit for the work done. 5.6  Where what is to be valued is a variation to an existing contract, then the prices or rates agreed in that contract will be highly relevant and often determinative in deciding what should reasonably be paid for the additional work. To take a simple example: a carpenter asked to fit 10 ft of bookshelves is then asked to fit a further 5 ft. The starting point would be that he would be paid an extra 50% of what he had agreed to receive for the original job. But it might be different if the additional book shelves were in a more awkward position taking more work to install, or if the cost of wood had gone up dramatically in the meantime.   1 See for example Way v Latilla [1937] 3 All ER 759; William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932; British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1982] 24 BLR 94.   2 See Sale of Goods Act 1979, section 8(2); Foley v Classique Coaches Ltd [1934] 2 KB 1.

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5.7  Any construction contract of more than the greatest simplicity should have a mechanism within it for valuing the original contract sum (whether as a fixed price or otherwise) and any variations ordered. A considerable portion of the standard forms of contract is directed towards these ends. Quantum meruit in the law of restitution 5.8  Leaving on one side claims for a “quantum meruit” in contract, the right of a party to make a claim for a quantum meruit arises as part of the law of restitution. A general statement of when a claim in quantum meruit lies can be found in the judgment of Millett LJ in Taylor v Bhail:3 “A claim in quantum meruit lies in restitution, or, as it was formerly called, in quasi-contract. It arises whenever one party supplies goods or services to another in expectation of payment but no enforceable contract for payment has been entered into. In the absence of such a contract, the court enforces the implied promise of the recipient of the goods or services to pay a reasonable sum (quasi-contract) or orders restitution to prevent his unjust enrichment. But the existence of a valid contract for payment is a bar to the remedy. If there is no contract at all, or if there is a contract which is void for a reason other than illegality, a claim in quantum meruit will lie. But if there is a contract which is void for illegality it will not.”

5.9  The theoretical basis for claims in restitution, and in particular claims for a quantum meruit, is discussed in the textbooks on restitution. At one time the basis was ascribed to an implied contract, but this view no longer holds favour.4 In the field of quantum meruit claims in respect of construction projects, most decisions can be explained by reference to the principles of unjust enrichment. 5.10  A considerable academic debate has taken place about the role of “free acceptance” in determining whether a party has been unjustly enriched by work done by another party in a situation where there is no contract for the work. The problem that arises is whether it is ever just to compel a defendant to make recompense for services rendered, even by an officious claimant, if he did not want to receive them, or at least to receive them if he knew he had to pay for them.5 The question was posed neatly by Pollock CB:6 “One cleans another’s shoes; what can the other do but put them on?” 5.11  Professor Birks put forward an example many years ago, which has been much discussed:7 “Suppose that I see a window-cleaner beginning to clean the windows of my house. I know that he will expect to be paid. So I hang back unseen till he has finished the job; then I emerge and maintain that I will not pay for work which I never ordered. It is too late; I have freely accepted the service. I had my opportunity to send him away. I chose instead to let him go on. I must pay the reasonable value of his work.”

  3 [1995] Con LR 70 at 77.  4 See Orakpo v Manson Investments Ltd [1978] AC 95.   5 This formulation of the issue comes from Professor Jones’s article, Restitutionary Claims for Services Rendered (1977) 93 LQR 273.  6 Taylor v Laird (1856) 25 LJ Ex 329 at 332.   7 See for example Birks, An Introduction to the Law of Restitution,1988, page 266, discussed by Professor Burrows in Free Acceptance and the Law of Restitution (1988) 104 LQR 576 and Geoffrey Mead, Free Acceptance: Some Further Considerations (1989) 105 LQR 460.

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Q uantum meruit

Professor Burrows has commented in response8 that the window-cleaner was simply a disappointed risk-taker: “Yet surely on any common-sense view there would be no injustice in my not paying a risk-taker. For even if I can be said to have acted shabbily, this is matched by the fact that the plaintiff was a risk-taker – without any inducement he gambled on my willingness to pay.”9 5.12  In many of the cases in which a claim is made for a quantum meruit in respect of an abortive construction project, it is just this tension that is at the heart of the dispute between the parties. In practice the courts grant a quantum meruit where the circumstances suggest that it is just to do so without much reliance upon a philosophical analysis of why the result is justified. Additional work going beyond a variation 5.13 A claim for a quantum meruit can arise in a situation where there is already in existence a building contract but additional works are ordered. 5.14  If the additional work ordered is properly regarded as a variation, then what is recoverable, in the absence of express agreement as to price for the variation, is a reasonable sum for that work, which is a contractual entitlement (see above). 5.15  However the additional work may be such that it is not properly to be regarded as a variation, either because it is so different in nature from the original work or so extensive in content as not reasonably to be regarded as a variation to the existing contract. In such a case the contractor has no contractual right to payment for the additional work, but will be entitled to payment of a quantum meruit. The principle was laid down by Lord Cairns in Thorn v Mayor and Commonalty of London:10 “My Lords, it appears to me, that under those circumstances, the appellant must necessarily be in this dilemma, either the additional and varied work which was thus occasioned is the kind of additional and varied work contemplated by the contract, or it is not. If it is the kind of additional or varied work contemplated by the contract, he must be paid for it, and will be paid for it, according to the prices regulated by the contract. If, on the other hand, it was additional or varied work, so peculiar, so unexpected, and so different from what any person reckoned or calculated upon, that it is not within the contract at all; then, it appears to me, one of two courses might have been open to him; he might have said: I entirely refuse to go on with the contract – non haec in foedera veni: I never intended to construct this work upon this new and unexpected footing. Or he might have said, I will go on with this, but this is not the kind of extra work contemplated by the contract, and if I do it, I must be paid a quantum meruit for it.”

5.16  Sir Lindsay Parkinson & Co Ltd v Commissioners of Works and Public Buildings11 was such a case. In that case there was a contract between public works authorities

  8 See the article referred to in the last footnote.   9 (1988) 104 LQR at 578. 10 (1876) 1 AC 120 at 127. See also British Movietone News Limited v London and District Cinemas Limited [1952] AC 166 particularly at 185. 11 [1949] 2 KB 632. In Construction Contracts: Law and Practice, paragraphs 3.16 and 3.17, Mr WilmotSmith QC has argued that this case is “demonstrably wrongly decided and . . . cannot stand scrutiny with later authority”. A different view is possible: the decision is justifiable on the basis that the work was so significantly different as to amount to something radically different from what was contemplated by the contracting parties. Whilst others might have reached a different conclusion on the circumstances before the court, the principle applied was in accordance with well-established principles.

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and a builder for the building of a plant that made provision for the possible large increase in the services to be performed during the course of the contract. The contract was on a cost plus basis and it provided that the amount to be paid to the contractor should be calculated in accordance with its terms but should be not less than the cost of the works plus a net profit or remuneration of £150,000 and not more than such cost of works plus £300,000. Those amounts were calculated as being a percentage on the works as they were originally contracted for or as they might be extended to, but the extensions in fact ran to a total cost of not merely £5,000,000 but £6,683,000. It was held that on the true construction of the deed of variation it was not within the contemplation of the parties at the execution of the deed that there would be such large increases in the amount of work to be executed; and at that time both parties contemplated work that, with the introduction of exceptional methods, would cost approximately £5,000,000 and it was on that basis that the maximum profit agreed to was £300,000. The Court of Appeal held that the contractor was not limited to the profit of £300,000, but could recover reasonable remuneration in respect of the excess cost over that anticipated.12 For examples of cases where the type of additional work was so different as to be outside the contract, see Blue Circle Industries plc v Holland Dredging Company (UK) Ltd;13 The Cape Hatteras14 and Costain Civil Engineering Ltd v Zanen Dredging and Contracting Company Ltd.15 5.17  If the party carrying out extra work cannot show that it is outside the contract, then he will be bound by the terms of the contract, which may mean that he is bound by a fixed price and not entitled to any additional payment.16 5.18  Establishing that additional work ordered is outside the contract can bring substantial advantages: first, the contractor may be entitled to refuse to do the work at all,17 giving him a distinct commercial advantage – he may be able to dictate advantageous terms for doing the work; secondly, it may mean that the contractor is not bound by a fixed price or price cap in the contract;18 thirdly the contractor will not be bound by rates in the contract in the valuation of the additional work (although these may be relevant in determining what is a reasonable rate for that work19); fourthly, the contractor will not be bound by any contractual time limit for the execution of works or any contractual machinery for the extension of such time limits – thus any notice requirements that might apply in respect of a claim for an extension of time following variations within the

12 This decision has been applied in Canada in Cana Construction Co Ltd v The Queen (1973) 21 BLR 12. For another case where the quantity of additional work to be done was such as to be outside the original contract, see Industrial Service (Telford) Ltd v Charles Ransford & Son Ltd [2005] EWCA Civ 662. 13 (1987) 37 BLR 40 – the case concerned the application of the arbitration clause in a varied contract. 14 Astilleros Canarios SA v Cape Hatteras Shipping Co Inc and Hammerton Shipping Co SA, The Cape Hatteras [1982] 1 Lloyd’s Rep 518 particularly at 524. 15 (1985) 85 BLR 77. See also the Canadian case of Morrison-Knudsen v British Columbia Hydro and Power Authority (1978) 85 DLR (3d) 186; (1991) Const LJ 227. 16 See for example Gilbert & Partners v Knight [1968] 2 All ER 248 where a surveyor was held to a fixed fee for supervising building works even though there was a very substantial increase in the amount of building works carried out; and Mowlem plc v PHI Group Ltd [2004] BLR 421 where a quantum meruit was refused on the basis that additional works carried out were not solely for the benefit of the employer but were for the mutual benefit of contractor and employer. 17 See the passage from the speech of Lord Cairns set out at paragraph 5.15 above. 18 See Sir Lindsay Parkinson & Co Ltd v Commissioners of Works and Public Buildings (above). 19 See by way of analogy Way v Latilla [1937] 2 All ER 759, referred to at paragraph 5.25 below.

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contract would fall away; and, finally, the contractor may not be bound by an arbitration clause in the contract.20 Work done in anticipation of a contract 5.19  In an ideal legal world, before anybody concerned with a building project starts work, fully thought-through contracts would be in place. However in the world as it is, it very often happens that a developer’s interest in commencing building works means that works start before a complete contract for the works has been drafted, agreed and signed by developer and contractor. This often gives rise to disputes as to whether a contract (albeit less formal, or oral rather than written) was in fact concluded,21 and, if not, whether anything (and, if so, what) is payable to a contractor if the project is later aborted or if for some other reason the contractor is not asked to complete the project. 5.20  In many cases work will start ahead of a formal agreement being concluded, but a formal agreement then follows. In such a situation the formal agreement usually will expressly or impliedly include provision for payment for work done before the formal contract was concluded.22 Moreover, good practice is for works carried out in anticipation of a contract to be the subject of a letter of intent that will regulate the parties’ relationship until the principal contract is concluded. This may give rise to arguments as to whether there is a legally binding agreement to pay for the anticipatory works.23 In ERDC Group Ltd v Brunel University,24 HH Humphrey LLoyd QC said of letters of intent: “Letters of intent come in all sorts of forms. Some are mere expressions of hope; others are firmer but make it clear that no legal consequences ensue; others presage a contract and may be subject to contract; others are in reality that contract in all but name. There can therefore be no prior assumptions, such as looking to see if words such as letter of intent have or have not been used. The phrase letter of intent is not a term of art. Its meaning and effect depend on the circumstances of each case.”

This part of this chapter is concerned with what happens where it is held that the parties’ relationship is not governed by contract. 20 Blue Circle Industries plc v Holland Dredging Company (UK) Ltd (above). 21 See for example Reveille Independent LLC v Anotech International [2016] EWCA Civ 443; (2014) Con LR 79. 22 See for example Trollope & Colls Ltd v Atomic Power Constructions Ltd [1963] 1 WLR 333. See also RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14; [2010] 1 WLR 753; [2010] Bus LR 776. 23 See for example Turriff Construction Ltd v Regalia Knitting Mills Ltd [1972] EGD 257 where a binding contract for anticipatory works was held to have been created and Peter Lind & Co Ltd v Mersey Docks and Harbour Board [1972] 2 Lloyd’s Rep 234, where the claim succeeded on a restitutionary rather than contractual basis. For a discussion of these cases see SN Ball, Work Carried out in pursuance of Letters of Intent – Contract or Restitution? (1983) CLJ 572. For a summary of the legal principles relating to the nature and effect of letters of intent, see the judgment of HH Judge Thornton QC in AC Controls Ltd v British Broadcasting Corporation [2002] EWHC 3132 (TCC); 89 Con LR 53 at paragraph [35] citing Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) 9 BLR 20; British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1982] 24 BLR 94; Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601; Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1989] 1 WLR 379 and G Percy Trentham Ltd v Archital Luxfer Ltd (1992) 63 BLR 44. See also RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14; [2010] 1 WLR 753. 24 [2006] EWHC 687 (TCC); [2006] BLR 255 at paragraph [27]. See also the judgment of HH Judge Thornton QC in Hall Tawse South Ltd v Ivory Gate Ltd (1999) 62 Con LR 117 at 118.

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5.21  Where a contract is not concluded, the issue is often whether, to borrow Professor Burrows’s expression,25 the contractor who carried out work was simply a “disappointed risk-taker” who will not be paid for his work. Two cases illustrate the issue. In Regalian Properties plc v London Docklands Development Corporation,26 Rattee J held that costs incurred by a prospective developer were not incurred by way of accelerated performance of an anticipated contract, but for the purpose of putting the developer in a position to obtain and then perform the contract.27 By contrast, in Cobbe v Yeoman’s Row Management Ltd28 the House of Lords held that a prospective developer was entitled to payment from a property owner for work done in obtaining planning permission for a prospective development of the property owner’s property.29 5.22  The general principle is that where one party to an expected contract expressly requests the other party to perform services or supply goods that would have been performable or suppliable under the expected contract when concluded, in advance of the contract, that party should have to pay a quantum meruit if the contract does not materialise.30 The process of analysis was summarised by Lord Clarke of Stone-cum-Ebony JSC in Benedetti v Sawaris as follows:31 “It is now well established that a court must first ask itself four questions when faced with a claim for unjust enrichment as follows. (1) Has the defendant been enriched? (2) Was the enrichment at the claimant’s expense? (3) Was the enrichment unjust? (4) Are there any defences available to the defendant?”

In the context of work done and materials supplied in anticipation of a contract which does not materialise, the answer to those questions will normally be (1) Yes, (2) Yes, (3) Yes and (4) No, so that the person obtaining the benefit of work done and materials supplied is required to pay for that work and those materials. 5.23  In the context of construction contracts, reference is usually made to the decision of Robert Goff J in British Steel Corporation v Cleveland Bridge and Engineering Co Ltd.32 In that case the defendant had successfully tendered for the fabrication of steel to be used in the construction of a building. It entered into negotiations with the plaintiff for 25 See paragraph 5.11 above. 26 [1995] 1 WLR 212. 27 An important factor in Rattee J’s judgment was that the parties’ negotiations were conducted “subject to contract”, indicating that each party accepted that in the event of no contract being entered into any resultant loss should lie where it fell – see [1995] 1 WLR 231. For another example of a case where a quantum meruit was refused (in that case for architects’ fees) see Stephen Donald Architects Ltd v Christopher King (2003) 24 Con LR 1. 28 [2008] UKHL 55; [2008] 1 WLR 1752. 29 A similar contrast in the context of works done by a landlord at a potential tenant’s request can be drawn between Jennings and Chapman Ltd v Woodman, Matthews & Co [1952] 2 TLR 409 in which case a claim for a quantum meruit failed and Brewer Street Investments Ltd v Barclays Woollen Co Ltd [1954] 1 QB 428, where it succeeded. It is not easy to reconcile these cases. Another case in which a claim succeeded was Countrywide Communications Ltd v ICL Pathway Ltd [2000] CLC 324. 30 In Regalian Properties plc v London Docklands Development Corporation (above) Rattee J declined to follow as a part of English law a suggestion in an Australian case, Sabemo Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880, that there is a principle of law entitling a contractor to recompense where the other party unilaterally decides to abandon the project without bona fide reasons for so doing. See the discussion of the Regalian case by Justin Mannolini, Restitution where an Anticipated Contract Fails to Materialise (1996) 59 MLR 111. For a leading Australian decision in which a claim for unjust enrichment in respect of building works succeeded, see Pavey & Matthews Pty Ltd v Pavey [1987] HCA 5. 31 [2013] UKSC 50; [2014] AC 938 at paragraph [10]. 32 (1981) 24 BLR 100.

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a sub-contract whereunder the plaintiff would supply certain steel nodes that would form part of the relevant steelwork. It was proposed that the sub-contract would be in a standard form used by the defendant. The defendant requested the plaintiff to commence work on the steel nodes immediately “pending the preparation and issuing to you of the official form of sub-contract”. The intended formal contract was not entered into, because the parties failed to agree certain terms to go into it. The plaintiff produced and delivered to the defendant all but one of the steel nodes. The defendant refused to pay for them, and instead sought to recover from the plaintiff damages for late delivery of the nodes. The plaintiff sued for the value of the nodes it had supplied by way of quantum meruit. The defendant counterclaimed for damages inter alia for late delivery of the nodes, alleging that a binding contract had come into existence between the parties. Robert Goff J, having rejected the argument that a contract existed, turned to the claim for a quantum meruit:33 “Now the question whether in a case such as the present any contract has come into existence must depend on a true construction of the relevant communications which have passed between the parties and the effect (if any) of their actions pursuant to those communications. There can be no hard and fast answer to the question whether a letter of intent will give rise to a binding agreement; everything must depend on the circumstances of the particular case. In most cases where work is done pursuant to a request contained in a letter of intent, it will not matter whether the contract did or did not come into existence; because if the party who has acted on the request is simply claiming payment, his claim will usually be based upon a quantum meruit, and it will make no difference whether that claim is contractual or quasi-contractual. Of course, a quantum meruit claim (like the old actions for money had and received and for money paid) straddles the boundaries of what we now call contract and restitution; so the mere framing of a claim as a quantum meruit claim, or a claim for a reasonable sum, does not assist in classifying the claim as contractual or quasi-contractual. But where, as here, one party is seeking to claim damages for breach of contract, the question whether any contract came into existence is of crucial importance. . . . Both parties confidently expected a formal contract to eventuate. In these circumstances, to expedite performance under that anticipated contract, one requested the other to commence the contract work, and the other complied with that request. If thereafter – as anticipated – a contract was entered into, the work done as requested will be treated as having been performed under that contract; if, contrary to their expectation, no contract was entered into, then the performance of the work is not referable to any contract of which the terms can be ascertained, and the law simply imposes an obligation on the party who made the request to pay a reasonable sum for such work as has been done pursuant to that request, such an obligation sounding in quasi-contract or, as we now say, in restitution. Consistently with that solution, the party making the request may find himself liable to pay for work which he would not have had to pay for as such if the anticipated contract had come into existence.”

In reaching his decision, Robert Goff J referred to and applied William Lacey (Hounslow) Ltd v Davis34 in which a firm of builders was held entitled to be paid for work done at the defendant’s request falling outside the normal work that a builder performed gratuitously when asked to submit a tender. 5.24  How is such a claim to be valued? What is to be valued is the recovery of a benefit unjustly gained by a defendant at the expense of the claimant. The starting point of that

33 24 BLR at 119 and 121–122. The second of the two passages here cited was referred to and applied by HH Judge Bowsher QC in Marston Construction Co Ltd v Kigass Ltd (1989) 46 BLR 109. 34 [1957] 1 WLR 932. For an example of a case in which William Lacey has recently been cited, see D & K Drost Consult GmbH v Foremost Leisure (Holdings) Ltd [2015] EWCA Civ 73; (2015) 159 Con LR 1.

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valuation has been clarified by the decision of the Supreme Court in Benedetti v Sawaris: namely the objective market value or market price of the services provided.35 In cases prior to Benedetti v Sawaris concerning building works, the courts generally have awarded a sum based upon either cost plus a reasonable profit or a reasonable market rate for the work. Thus in one case, HH Judge Bowsher QC held that the better approach is to ask: “What would be a fair commercial rate for the services provided?”36 As he pointed out, in that case (as in many others), to make an award on a cost plus basis would be unfair where the contractor had not expected to need to keep and had not kept accurate cost records. On the other hand, in ERDC Group Ltd v Brunel University37 (an unusual case in that the claim was partly for payment for works after a contractual relationship had expired rather than in anticipation of a contract), HH Judge LLoyd QC said that “the assessment of a quantum meruit is usually based on actual cost (which will include on and off site overheads, with in the latter case some estimates or extrapolations being required), provided that it was reasonable (which can frequently be checked by the use of standard rates and prices such as Spon) and was reasonably and not unnecessarily incurred, plus an appropriate addition for profit”. Following Benedetti v Sawaris, the starting point should be the reasonable market price for the work, but it is suggested that in practice that will usually be the same as the cost of the work plus a reasonable profit. However there is a caveat to be noted: in Benedetti v Sawaris38 it was held that the objective price or value to be taken is the price or value to the particular defendant.39 Thus it is legitimate to take into account whether the defendant has a strong buying power in the relevant market40 and possibly to perform a “subjective devaluation” if the defendant can prove that the subjective value to the defendant is less than what would otherwise be the objective market value41 but proof of such subjective devaluation would only arise in exceptional circumstances,42 the presumption being that the value to the defendant will be the market value.43 An example is where persons occupying premises show that they would never have occupied particular premises at the prevailing market rate.44 5.25  Although no contract has been entered into, very often there will have been negotiations in respect of the terms of the expected contract, maybe even going so far as the production of priced bills of quantities or the like. The terms of such negotiations will be relevant in determining what is a fair price. In Way v Latilla45 the House of Lords con-

35 [2013] UKSC 50; [2014] AC 938 at paragraphs [15], [180]. 36 Laserbore Limited v Morrison Biggs Wall Limited (1993) CILL 896 at 897, following Greenmast Shipping Co v Jean Lion et Cie (The Saronikis) [1986] 2 Lloyd’s Rep 277 at 279. Other cases in which remuneration was based upon a reasonable remuneration for the work done rather than a valuation of the value of the work to the person benefited include Banque Paribas v Venaglass Ltd (1994) CILL 918; Cobbe v Yeoman’s Row Management Ltd (above) and Sopov (Cole) v Kane Construction Pty Ltd [2009] VSCA 141; [2009] BLR 468 at paragraphs [9]–[14]. 37 [2006] EWHC 687 (TCC); [2006] BLR 255 at paragraph [42]. 38 [2013] UKSC 50; [2014] AC 938. 39 At paragraph [17]. 40 At paragraphs [17] and [184]. 41 At paragraphs [18], [136], [186] and [187]. 42 At paragraphs [34] and [191]. 43 At paragraph [181]. 44 Ministry of Defence v Thompson (1993) 25 HLR 552 at p. 554 cited by Lord Clarke in Benedetti at paragraph [24]. 45 [1937] 2 All ER 759.

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sidered a claim for a quantum meruit in respect of services provided by an individual. Although not a construction case, the following guidance from the speech of Lord Atkin can be adapted to apply in claims relating to construction projects:46 “[I]f no trade usage assists the court as to the amount of the commission, it appears to me clear that the court may take into account the bargainings between the parties, not with a view to completing the bargain between them, but as evidence of the value which each of them puts upon the services. If the discussion had ranged between 3 per cent on the one side and 5 per cent on the other, all else being agreed, the court would not be likely to depart from somewhere about those figures, and would be wrong in ignoring them altogether and fixing remuneration on an entirely different basis, upon which, possibly, the services would never have been rendered at all. This seems to me to be good law, and to give effect to a principle which has been adopted regularly by the courts not only in fixing remuneration for services, but also in fixing prices, sums due for use and occupation and indeed in all cases where the court has to determine what is a reasonable reward for the consideration given by the claimant.”

5.26  In a thoughtful and useful judgment in Sanjay Lachhani v Destination Canada (UK) Ltd,47 Mr Colin Reese QC, sitting as a Recorder, applied similar principles:48 “To sum up, in my view, as a general rule, whenever it is clear that a property owner wished to obtain the goods and/or services in question and was prepared to pay a market price or the best reasonably obtainable negotiated price therefore, it is obvious that such prices must normally include some profit element. However, in my opinion, that general rule does not apply in all circumstances. When fixing the appropriate level of remuneration, any pricing level at which the building contractor had indicated it was prepared to undertake the works in question ought, I think, to be taken into account. A building contractor should not be better off as a result of the failure to conclude a contract than he would have been if his offer had been accepted, ie, in practical terms, in a case such as this, the price which the building contractor thought he was to get for the works (because he thought his offer had been accepted) must be the upper limit of the remuneration to which he could reasonably claim to be entitled, even if at that level of pricing the building contractor would inevitably have ended up showing an overall loss. Thus, although in many cases a ‘fair value’ may be calculated on a ‘cost plus’ basis, the fact that the allowable remuneration may fall to be ‘capped’ by reference to a pricing level put forward by the contractor is one indication that the appropriate valuation figure which is ‘fair’ as between any two particular parties can only be judged by reference to the particular facts of the case.”

5.27  These authorities show that there are no hard-and-fast rules as to the way in which in practice a quantum meruit will be quantified. In Weldon Plant v Commission for New Towns the Court of Appeal cited with approval the following sentence from the 6th edition of Keating on Building Contracts:49 “Useful evidence in any particular case may include abortive negotiations as to price, prices in a related contract, a calculation based on the net cost of labour and materials used plus a sum for overheads and profit, measurements of work done and materials supplied, and the opinion of quantity surveyors, experienced builders or other experts as to a reasonable sum.”

46 At 764. 47 (1996) 13 Const LJ 279. 48 At 284. Part of this passage was cited with approval by HH Judge LLoyd QC in ERDC Group Ltd v Brunel University (above) at paragraph 44. See also as to taking into account abortive negotiations as to price Hornibrook (Pty) Ltd v Eric Newham (1971) 45 ALJR 523. 49 [2000] BLR 496 at 502.

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5.28 Applying these authorities, a contractor carrying out work in anticipation of a contract that does not in the event materialise will often, perhaps generally, share with a contractor carrying out work pursuant to a contract an entitlement to be paid for the work done. However, a contract will generally not only contain agreed rates or prices for the work to be done but will also contain express or implied terms as to when payment is to be made, which will not be present where the contractor has to rely upon a restitutionary claim for a quantum meruit. Because there is no contract in place the valuable statutory right to go to adjudication contained in the Housing Grants, Construction and Regeneration Act 1996 will not be available. On the other hand, the contractor will not be bound to complete within a particular time, nor to work with due diligence, nor indeed to complete the work at all.50 This produces a potential injustice to the building owner who may find himself with a dilatory “contractor” whom the owner must pay for the work done even if it is done unreasonably slowly. Where there is a contract, this injustice is resolved either by a term of the contract that the contractor will proceed to an agreed timescale or an express or implied term that the contractor will proceed with due diligence. In a quantum meruit case the solution suggested by the authorities is that the reasonable sum payable to the contractor should be adjusted to take such delay into account.51 An even more difficult area is whether the contractor in such a situation would have any liability for consequential losses suffered by the building owner in consequence of such delays; for example, loss of rent or liabilities on the part of the owner to third parties. As HH Judge Hicks QC pointed out in Serck Controls Ltd v Drake & Scull Engineering Ltd,52 there are difficulties in such a case in identifying the duty upon the contractor, for breach of which the contractor would be liable to recompense the owner. 5.29  Where works are carried out defectively there is little conceptual difficulty in reducing the amount payable to reflect the defects.53 The assessment of a quantum meruit in such a situation was considered in ERDC Group Ltd v Brunel University.54 HH Judge LLoyd QC held that the fact that the work done was defective was to be taken into account in valuing the quantum meruit. However the allowance for defective work is not the same as assessment of damages for breach of a contractual obligation to carry out works to a reasonable standard – for example, professional fees on the cost of remedial work could never be taken into account. Further, there can never be a negative result – so whilst the works being valued might be regarded as worthless so that no quantum meruit was payable, the

50 British Steel Corporation v Cleveland Bridge and Engineering Co Ltd (above); Peter Lind & Co Ltd v Mersey Docks and Harbour Board [1972] 2 Lloyd’s Rep 234. 51 In Crown House Engineering Ltd v Amec Projects Ltd (1989) 48 BLR 32 at 54 Bingham LJ left this point open whilst clearly being disposed to think that such an adjustment could be made. Mr Colin Reese QC in Sanjay Lachhani v Destination Canada (UK) Ltd (above) at 284 also left the point open as did HH Judge Hicks QC in Serck Controls Ltd v Drake & Scull Engineering Ltd (2000) 73 Con LR 100 at 113–115. In ERDC Group Ltd v Brunel University (above) at paragraph 45 HH Judge LLoyd QC dealt with this by saying “whether the assessment is made by reference to cost or to rates and prices, it is in my view clear from the authorities that the party paying for the benefit is not to be required to pay for delay or inefficiency”. 52 (2000) 73 Con LR 100 at 115, paragraphs 58 and 59 of the judgment. The editors of Goff & Jones, The Law of Restitution 9th edition,2016, paragraph 5–51 and 5–52 share HH Judge Hicks’s doubts. 53 The situation would be analogous to a case where a lump sum otherwise payable by agreement is reduced to reflect defective works – see Hoenig v Isaacs [1952] 2 All ER 176. 54 (Above) at paragraph 127 of the judgment.

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contractor would not be liable to make a payment to the employer in respect of the cost of putting the works right.55 Work done under a contract discharged through breach 5.30  Valuation under a quantum meruit is sometimes appropriate where a contract is discharged through breach. 5.31  A contract for building works will sometimes be construed as a contract to do the contract works for a lump sum – see for example Appleby v Myers.56 The question that can arise is what is to happen if such a contract is discharged through breach before the works are complete. 5.32  It was held in Hoenig v Isaacs57 that in an action on a contract for work and labour and articles supplied for a lump sum payable on completion the defendant cannot repudiate liability on the ground that the work, though substantially performed, is in some respects not in accordance with the contract. In such a case the building owner will be obliged to pay the lump sum less a deduction based on the cost of making good the defects or omissions proved. 5.33  If the contract is terminated by reason of the employer’s repudiation before the works are substantially complete, it would be an affront to justice were the contractor to go unpaid for the incomplete works, and that is not the law. The contractor in such a situation is without doubt entitled to insist upon receiving his entitlement under the contract – see paragraphs 6.35 and 6.36 below. 5.34  What is more doubtful is the extent to which in the situation where an employer wrongfully terminates a contract, the contractor is entitled to disregard the contractual prices and rates and, by claiming a quantum meruit, release himself from the chains of a loss-making contract.58 A possible view is that given that the fundamental principle is to do justice between the parties, it would be wrong for the contractor to receive an uncovenanted windfall by reason of the employer’s breach. Accordingly, in deciding what is fair remuneration for the work done, the contractor should not be able to invite the court to ignore the rates and prices that the contractor thought reasonable when entering into the contract. On the other hand, to hold the contractor to a pro-rata apportionment of the contract price might also be unjust. There is authority to say that solution is not right – see Lodder v Slowey.59 In that case, the plaintiff, who had partly completed a tunnel in accordance 55 Of course, if the defective works caused property damage; for example, if a defective joint in a pipe caused water damage to the contents of a house, a claim in tort may well be available. 56 (1867) LR 2 CP 651. 57 [1952] 2 All ER 176. 58 See in this regard the views of the learned editors of Keating on Construction Contracts, 10th edition, 2016, at paragraph 9–062 and the editors of the Building Law Reports in their commentary on Lusty v Finsbury Securities (1991) 58 BLR 66. Professor Burrows contributed to the debate in Free Acceptance and the Law of Restitution (1988) 104 LQR 576 at page 586. Professor Burrows now considers that Lodder v Slowey [1904] AC 442 was incorrect: see Burrows, Remedies for Tort and Breach of Contract, 3rd edition, 2004, page 396 and footnote 3. For a feisty and thorough discussion of this topic see also Julian Bailey, Repudiation, Termination and Quantum Meruit, SCL Paper 132, May 2006. See also the views expressed by the Court of Appeal of Victoria in Sopov (Cole) v Kane Construction Pty Ltd [2009] VSCA 141; [2009] BLR 468 at paras 9–14. 59 [1904] AC 442, affirming (1900) 20 NZLR 321. In respect of academic views of this decision, see footnote 58 above.

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with a contract repudiated by the defendant, was held to be entitled to a quantum meruit for the work done. The Privy Council impliedly approved the lower court’s view that the plaintiff was not restricted to a pro-rata contract price. It is arguable that the judgment in the court below went too far in suggesting that what would have happened if the repudiated contract had continued in existence was entirely irrelevant.60 A court would be entitled to take into account a number of factors, such as whether demobilisation costs had been recovered before the date of repudiation or were only to be recovered at a date after that date, or that the economic cost of carrying out works had been fundamentally altered (eg, if only a small fraction of a particular part of the works had been carried out rendering the cost of that work uneconomic at contract rates). In principle, whether by way of damages or as an award of a quantum meruit, the contractor should always be entitled to receive a profit he had contracted to receive. The justice of holding a contractor to the full measure of a loss he would have suffered if the contract had continued to its full term but for the employer’s repudiation is less obvious, not least because by the repudiation the contractor has lost the chance of seeing if he could turn the profitability of the contract around. 5.35  In the case of a particularly cynical repudiation of contract by the employer, it is possible that an enhanced remedy might now be available in damages rather than restitution – see Attorney-General v Blake;61 Esso Petroleum Co Ltd v Niad;62 and Experience Hendrix LLC v PPX Enterprises Inc.63 However, the application of that line of authority to the normal run of cases concerning construction contracts is unlikely. These cases are referred to in Chapter 11 below. 5.36  What if it is the contractor who repudiates the contract? The traditional view is that if a contractor wrongfully fails to complete a lump sum contract, he loses his right to any payment whatsoever – see Sumpter v Hedges.64 In that case the plaintiff had contracted with the defendant to build two homes and stables on the defendant’s land. The plaintiff did a good deal of the building work but later became insolvent and was unable to continue. He claimed a quantum meruit for the work done but this was denied by the Court of Appeal, although he did recover the value of materials left behind and used by the defendant. This aspect of the law is likely to give rise to substantial injustice: there have been proposals for law reform by statute,65 but no reform has yet been enacted. 5.37  In practice, absent express agreement, the courts will generally find that a contract is not a contract for a lump sum, but that the contractor is entitled to payments by way of instalments. In contracts to which the Housing Grants, Construction and Regeneration Act 1996 applies, a right to payment by instalments, stage payments or other periodic payments 60 Per Williams J at (1900) 20 NZLR 358. In this context the analysis of the court in Sopov (Cole) v Kane Construction Pty Ltd (above, footnote 58) is of assistance and persuasive: the court held that where evaluating a quantum meruit in circumstances where the employer had repudiated the contract, the original contract price did not set a ceiling upon the amount recoverable, although it might provide a guide to the reasonableness of the remuneration claimed. The basis there adopted was the total cost of the works incurred by the contractor to the extent that those costs were fair and reasonable, together with a margin for profit and overheads. It was held that it was for the contractor to show that the works were carried out within a reasonable time. 61 [2001] AC 268. 62 [2001] All ER (D) 324 (Nov). 63 [2003] EWCA Civ 323; [2003] FSR 46. 64 [1898] 1 QB 673. See also Boston Deep Sea Fishing and Ice Co v Answell (1888) 39 Ch D 339; Bolton v Mahedeva [1972] 1 WLR 1009; Hoenig v Isaacs (above) at 181. 65 Law Commission Report No 121 (1983), Law of Contract: Pecuniary Restitution on Breach of Contract.

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is given by statute66 unless it is specified in the contract that the duration of the work is to be less than 45 days or it is agreed between the parties that the duration of the work is estimated to be less than 45 days. Accordingly this area of the law is of less importance than it was before the passing of that Act. Moreover, the vast majority of properly drafted contracts, including the standard forms of contract, contain express provisions not only as to payment by instalments but also as to what is to happen in the event of termination by one party or the other. Work done under a void or unenforceable contract 5.38  It sometimes happens that parties enter into a contract believing the same to be effective when in truth it is either void or unenforceable. 5.39  Rover International Sales Ltd v Cannon Film Sales Ltd67 was a case concerned with film distribution arrangements. It was held that the agreement in dispute was void ab initio by reason of mutual mistake of fact. It was held that the party that incurred distribution expenses was entitled to recover a quantum meruit in respect of these expenses. Because there was held never to have been a contract, it was held that no account was to be taken of what would have been breaches of the contract had it been effective.68 The court also declined to consider what would have been the relative position of the parties had the contract been effective.69 Sanjay Lachhani v Destination Canada (UK) Ltd,70 to which reference has been made at paragraph 5.26 above, was a claim for a quantum meruit in which both parties wrongly believed that they had entered into a contract for the execution of construction works. As has been seen, in that case the court took into account the rates and prices for which the contractor had been willing to undertake the work. Whilst it would be illogical, and contrary to the authority of the Court of Appeal in Rover International Sales, to seek to apply the void contract, it is suggested that the provisions of such a contract are a material factor in deciding what is a fair price for work done. 5.40  The facts of an American case illustrate the dilemma that can face a court. In the Massachusetts case of Vickery v Ritchie71 an architect fraudulently induced the defendant to believe that the plaintiff had contracted to build him a Turkish bath-house for $23,200 and the plaintiff to believe that the defendant had agreed to pay him $33,721 for his services. The fraud was not discovered until after the bath-house was built. There was no contract because there was no agreement as to price. The plaintiff was allowed to recover the reasonable cost of the work done ($32,950), although the building of the bath-house only increased the market value of the property by $22,000. It is notable that what was awarded was not the amount that the plaintiff thought he had contracted to receive but an objectively reasonable sum for the work done.72 However, viewed from the perspective of the building owner, the result might not have appeared fair. It is possible to conceive of cases where the 66 Section 109 of the 1996 Act. 67 [1989] 1 WLR 912. 68 Per Kerr LJ at 928E. 69 Per Kerr LJ at 928D. 70 (1996) 13 Const LJ 279. 71 (1909) 202 Mass 247. 72 In Sanjay Lachhani v Destination Canada (UK) Ltd (above) at 283, the judge questioned whether if cost rather than cost plus profit was awarded the result was a fair one.

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difference between value conferred (eg, increase in the value of a property improved) and the cost of doing the works in a case such as Vickery v Ritchie would lead to a judge holding that two innocent victims of a fraud should effectively share the losses suffered equally. There is a significant difference in what is equitable in a case such as this from a case where works are carried out on a quasi-contractual basis, as in the case of works carried out in anticipation of a later contract. 5.41 In Craven-Ellis v Canons Ltd73 the contract was held to be void for want of authority. The plaintiff was appointed managing director of the defendant company in pursuance of a resolution of directors who were unqualified to act because they had failed to take up their qualification shares. Moreover, the directors had power to appoint only one of their own number as managing director, and the plaintiff was unqualified to act because he held no shares. The agreement was therefore void, although all parties believed it to be valid. The Court of Appeal held that the plaintiff was entitled to recover in quasi-contract for the services he had rendered as managing director. In such a case there is obvious justice in the plaintiff receiving what all parties believed he was going to receive under the contract had it not been void. 5.42  If the contract is unenforceable by reason of illegality, then no claim lies for a quantum meruit: see Taylor v Bhail,74 referred to at paragraph 5.8 above. Adjudication 5.43  Where an adjudication decision is made in one party’s favour under a binding statutory scheme, which results in payment by the losing party in the adjudication but is subsequently overturned by a court (or arbitrator), the paying party has a right to repayment by the winning party that arises as a claim in restitution as well as in contract.75 5.44 In Linnett v Halliwells LLP76 the claimant was appointed to act as an adjudicator. The responding party in the adjudication, Halliwells, objected to the jurisdiction of the adjudicator. It asked the adjudicator to make a non-binding decision as to his jurisdiction and, thereafter, if he did not withdraw, to adjudicate on the merits of the dispute. The judge held that there was a contract formed between Halliwells and the adjudicator by conduct. However, he went further and held that if no contract had been formed, the adjudicator would have been entitled to recover on the basis of unjust enrichment.77 If the responding party took no part at all in the adjudication and the reference to adjudication were later to be held to have been invalid on jurisdictional grounds, it is difficult to see any basis upon which the responding party would be liable for the adjudicator’s fees.78 5.45 In Kitt and another v The Laundry Building Ltd,79 both parties to an adjudication agreed to discharge an adjudicator’s fees. In the event the losing party did not pay its share

73 [1936] 2 KB 403. 74 [1995] Con LR 70 at 77. 75 Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38; [2015] 1 WLR 2961 at paragraph [24]. 76 [2009] EWHC 319 (TCC); [2009] BLR 312. 77 See paragraph [78] of the judgment. 78 See by analogy the position of a liquidator in the case of an invalid liquidation considered in Re Allison [1904] 2 KB 327. 79 [2014] EWHC 4250 (TCC); [2015] BLR 170.

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of the adjudicator’s fees. The winning party was obliged to pay the losing party’s share because the adjudication agreement made both parties jointly and severally liable to the adjudicator for his fees. Akenhead J held80 that the winning party could recover the amount paid in respect of the losing party’s portion as a claim in restitution (as well as on a number of other bases). Work done under a contract with one party for the benefit of another 5.46  It often happens that a contractor will carry out works pursuant to a contract with party that benefits party B. The principle of unjust enrichment cannot be invoked in such a case to require party B to satisfy party A’s contractual obligations. Thus in MacDonald Dickens & Macklin v Costello,81 Mr and Mrs Costello were sole shareholders and directors of a company with whom the claimant contracted to erect houses on land owned by the Costellos. When that company defaulted it was held that the Costellos were not liable to a claim for unjust enrichment. The general rule is that restitutionary relief for unjust enrichment is not available against a defendant who had benefited from the claimant’s services rendered pursuant to a contract to which that defendant was not a party.82

80 At paragraph [34](a). 81 [2011] EWCA Civ 930; [2012] QB 244. 82 Applying Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 1671.

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CHAPTER  6

Termination 6.1  Often the remedy an employer under a construction contract most fervently desires is to procure the departure of the contractor from site and, as a result, bring the contract to an end. Similarly, a contractor may regard the way in which a contract has been administered as intolerable and may wish to leave site as soon as possible. 6.2  Termination of a construction contract is a serious matter, not only because of the direct financial consequences discussed below, but also because of the damage potentially done to a contractor’s reputation. News of termination of a major construction contract tends to be disseminated rapidly through word of mouth and through the trade press. A contractor’s bankers will usually require an explanation, particularly if the employer couples termination with a call upon a performance bond (a move that will directly affect the contractor’s capital available to support other projects). Public authorities in particular may be dissuaded from employing a contractor on other projects if that contractor has been ejected from a site on the basis of failure to perform a contract expeditiously or competently. For a small contractor the termination of a contract is also potentially disastrous – he may have relied upon the income from a project for the coming months – if the project is brought to an end (like a larger contractor, but perhaps with less means to bear the burden) he may be unable to fill the gap in his income. 6.3  Because of the seriousness of these consequences, standard forms of contract deal in some detail with the circumstances in which either party may terminate the contract. Some of these provisions are referred to below; but first it is necessary to consider rights to terminate recognised at common law. Repudiation at common law 6.4  At common law one party to a contract is entitled to treat a contract as discharged if the other party has “repudiated” the contract. 6.5  The principles upon which a court will find that there has been a repudiation of a contract entitling the innocent party to treat the contract as discharged were summarised by Devlin J in Universal Cargo Carriers Corporation v Citati:1 “The law on the right to rescind is succinctly stated by Lord Porter in Heyman v Darwins Ltd2 . . . as follows: ‘The three sets of circumstances giving rise to a discharge of contract are tabulated by Anson as: (1) renunciation by a party of his liabilities under it; (2) impossibility created by his own act; and (3) total or partial failure of performance. In the case of the first two, the renunciation may occur or impossibility be created either before or at the time for   1 [1957] 2 QB 401 at pages 436–437.   2 [1942] AC 356 at 397.

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performance. In the case of the third, it can occur only at the time or during the course of performance.’ The third of these is the ordinary case of actual breach, and the first two state the two modes of anticipatory breach. In order that the arguments which I have heard from either side can be rightly considered, it is necessary that I should develop rather more fully what is meant by each of these two modes. A renunciation can be made either by words or by conduct, provided it is clearly made. It is often put that the party renunciating must ‘evince an intention’ not to go on with the contract. The intention can be evinced either by words or by conduct. The test of whether an intention is sufficiently evinced by conduct is whether the party renunciating has acted in such a way as to lead a reasonable person to the conclusion that he does not intend to fulfil his part of the contract. This application is fully discussed in Forslind v Bechely-Crundall3 . . . and forms the basis for the arbitrator’s findings. Of the two modes, renunciation has since the decision in Hochster v De la Tour4 . . . established itself as the favourite. The disadvantage of the other is that the party who elects to treat impossibility as an anticipatory breach may be running a serious risk. Suppose, for example, that a man promises to marry a woman on a future date, or to execute a lease or to deliver goods; and that before the day arrives he marries another, or executes the lease in favour of another, or delivers the goods to a third party. The aggrieved party may sue at once. ‘One reason alleged in support of such an action’, Campbell CJ observed in Hochster v De la Tour5 ‘is, that the defendant has, before the day, rendered it impossible for him to perform the contract at the day: but this does not necessarily follow; for, prior to the day fixed for doing the act, the first wife may have died, a surrender of the lease executed might be obtained, and the defendant might have repurchased the goods so as to be in a situation to sell and deliver them to the plaintiff.’ But if the plaintiff treats the defendant’s conduct as amounting to renunciation and justifies his rescission on that ground, the defendant could not avail himself of this defence. I said that it was after Hochster v De la Tour that renunciation established itself as the favourite, because until then it was not certain that a man who said ‘I will not perform’ would be held to his word. In Hochster v De la Tour it was argued that he could change his mind, and that the fact that at one time he said he was not ready and willing did not necessarily mean that he would be unwilling when the time for performance came. Hochster v De la Tour established that a renunciation, when acted upon, became final. Thus, if a man proclaimed by words or conduct an inability to perform, the other party could safely act upon it without having to prove that when the time for performance came the inability was still effective.”

6.6 In The Hermosa6 Donaldson LJ emphasised the following points: “(a) Dissolution of a contract upon the basis of renunciation is a drastic conclusion which should only be held to arise in clear cases of a refusal to perform contractual obligations in a respect or respects going to the root of the contract. (b) The refusal must not only be clear, but must be absolute. Where a party declares his intention to act or refrain from acting in a particular way on the basis of a particular appreciation of his obligations, either as a matter of fact or of law, the declaration gives rise to a right of dissolution only if in all the circumstances it is clear that it is not conditional upon his present appreciation of his obligations proving correct when the time for performance arrives. (c) What does or does not amount to a sufficient refusal is to be judged in the light of whether a reasonable person in the position of the party claiming to be freed from the contract would regard the refusal as being clear and absolute?

  3 [1922] SC (HL) 173.   4 (1853) 2 E & B 678.  5 At 688.  6 Chilean Nitrate Sales Corporation v Marine Transportation Co Ltd (The Hermosa) [1982] 1 Lloyd’s Rep 570 at pages 572–573.

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One further proposition must be added . . . that (d) the conduct relied upon is to be considered as at the time when it is treated as terminating the contract, in the light of the then existing circumstances. These circumstances will include the history of the transaction or relationship. Later events are irrelevant, save to the extent that they may point to matters which the parties should have considered as hypothetical possibilities at the relevant time.”

6.7  Thus the simplest example of repudiation is a case of anticipatory breach, where one party to a contract indicates by words or conduct that he simply will not perform a contract at all (“renunciation” of the contract7). For example, a builder who has contracted to build a house might indicate that he has found a more profitable contract and intends to do that work in preference to his existing commitment. The question is whether the party alleged to be guilty of anticipatory breach has expressed an intention to break the contract, or acts in such a way as to lead a reasonable person to the conclusion that he does not intend to perform his part of the bargain.8 The innocent party does not have to wait until the day for performance arrives before treating the contract as discharged if the conduct of the other party is such as to lead a reasonable person to the conclusion that he will not be able to perform when the time for performance does arrive.9 6.8  More often the alleged repudiation occurs after performance of the contract has commenced. The common law gives a party a right to treat a contract as discharged if there has been a “fundamental breach of contract” or a breach of “condition” on the part of the other party to the contract. The repudiation at this stage may take the form of renunciation (see paragraphs 6.5 and 6.7 above – the evincing by one party of an intention not to continue to perform his part of the contract or only to do so in a manner substantially inconsistent with his obligations10) or a total or partial failure of performance, sometimes referred to as a fundamental breach of contract. 6.9  A “fundamental breach of contract” occurs when a breach (or a number of breaches taken together) on the part of one party to the contract is such as to deprive the other party of substantially the whole benefit that it was the intention of the parties that he should obtain from the contract,11 or, to use a different formulation of the same test, when the breach of contract “goes to the root of the contract”.12 A simple example of this is where a contractor walks off site without lawful excuse, refusing to do any further work.13 6.10  When an employer wishes to determine a construction contract, usually the complaint will be of defective work or lack of due progress/delay, or both. Leaving aside express contractual provisions, neither will necessarily justify termination.   7 Renunciation of a contract can take place before or at the time for performance of the contract – Heyman v Darwins Ltd (above).  8 Universal Cargo Carriers Corporation v Citati above at 436 (affirmed in part [1957] 1 WLR 979 and reversed in part [1958] 2 QB 254). See also Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (“The Mihalis Angelos”) [1971] 1 QB 164; Federal Commerce Navigation Co v Molen Alpha Inc (“The Benfri” and “The Locri”) [1979] AC 757 at 778; Afovos Shipping Co SA v Pagnan and Lli (“The Afovos”) [1983] 1 WLR 195 at 203.  9 Universal Cargo Carriers Corporation v Citati (above) at 438. 10 Ross T Smyth & Co v Bailey, Son & Co [1940] 3 All ER 60 at 72. 11 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd; (“The Hongkong Fir”) [1962] 2 QB 26 at 69–70; Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827 at 849 (per Lord Diplock); Bedfordshire County Council v Fitzpatrick Contracts Ltd (1998) CILL 1440. 12 Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2009] 1 Lloyd’s Rep 461; [2009] BLR 196 at paragraphs 14 and 15. 13 Mersey Steel & Iron Co Ltd v Naylor (1884) 9 App Cas 434; Hoenig v Isaacs [1952] 2 All ER 176.

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6.11  Where defects are the subject of complaint, the contractor will often argue that they are merely “temporary nonconformities”; that is, the contractor may argue that the time to judge the adequacy of his work product is when the works are said by him to be substantially complete. This expression was used by Lord Diplock in a dissenting speech in P & M Kaye Ltd v Hosier & Dickinson Ltd:14 “Provided that the contractor puts it right timeously I do not think that the parties intended that any temporary disconformity should of itself amount to a breach of contract by the contractor.” However it has since been doubted to what extent this dissenting dictum represents any general principle of law.15 Those doubts have been expressed in the context of whether a contractor who carries out defective work is at that point in breach of contract, even if in due course the defects are later corrected. The concept of a “temporary disconformity” is important in the context of deciding whether an employer has a right to terminate a contract – a court will be reluctant to hold that a contract can be terminated simply because the contractor has made some errors that can, and probably will, be put right in due course.16 6.12  On the other hand, there are cases where the overall picture presented will demonstrate that the contractor has neither the ability, competence nor willingness to complete the works in the manner required by the contract17 and the court will hold the contractor to have been in repudiatory breach of contract. Such cases are rare, and the facts would have to be very clear – even if a large number of defects are shown, a contractor will very often be able to show that he is doing his best to put them right. 6.13  Similarly, in the absence of express provisions, it is usually difficult for an employer to establish repudiatory breach by reason of lack of due progress or delay. Mere delay on the part of a contractor, or a failure by the contractor to make due progress, does not of itself evince an intention on the part of the contractor not to be bound by the contract, nor does it necessarily deprive the employer of substantially the whole benefit that it was the intention of the parties that he would obtain from the contract – generally it can be said that the employer will still get the building the construction of which is the subject of the contract, albeit later than agreed.18 Even if the contractor has been guilty of repudiatory conduct by failing to get on with works, the right to accept such repudiation may be lost if the contractor resumes work before the repudiation has been accepted.19 6.14  What acts on the part of an employer will constitute a repudiatory breach of contract? If the employer simply refuses to carry out his side of the bargain at all, that will be

14 [1972] 1 WLR 146 at 165. 15 See for example the very helpful paper by Mr Ellis Baker and Professor Lavers, Temporary Disconformity Revisited, May 2007, Society of Construction Law paper 139, citing Lintest Builders Ltd v Roberts (1980) 13 BLR 38 at 8; William Tomkinson and Sons Ltd v The Parochial Church Council of St Michael (1990) 6 Const LJ 319; Guinness plc v CMD Property Developments Ltd (1995) 76 BLR 44. 16 See for example Rice v Great Yarmouth Borough Council [2003] TCLR 1; Adkin v Brown [2002] NZCA 59; Eu Asia Engineering Ltd v Wing Hong Contractors Ltd, unreported; referred to by Ellis and Lavers, op cit, in footnote 52. 17 See for example Sutcliffe v Chippendale and Edmondson (1971) 18 BLR 157 at 161; Antino v Epping Forest District Council (1991) 53 BLR 56. 18 See Vinergy International (PVT) Ltd v Redhall Engineering Solutions Ltd [2013] EWHC 4030 (TCC); Telford Homes (Creekside) Ltd v Ampunius Nu Homes Holdings Ltd [2013] EWCA Civ 577; [2013] BLR 400; Urban 1 (Blonk Street) Ltd v Ayres [2013] EWCA Civ 816; [2013] BLR 505. 19 Telford Homes (Creekside) Ltd v Ampunius Nu Homes Holdings Ltd [2013] EWCA Civ 577; [2013] BLR 400 at paragraph [63].

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a repudiatory breach of contract:20 examples of this are a total or substantial refusal to give possession of a site, ejecting a contractor from site, or employing alternative contractors to carry out the contract works.21 Merely underpaying a contractor will not necessarily amount to a repudiatory breach,22 but a particularly serious pattern of non-payment may do,23 as may persistent breach of an obligation for punctual payment.24 6.15  A situation that often occurs is where one party wrongly relies upon an express termination clause – that is, the contractor walks off site or the employer ejects the contractor in each case standing upon what the party (wrongly) believes to be its contractual rights. Generally such a wrongful exercise of a purported right of termination will be held to be a repudiatory breach on the part of the person wrongly claiming to be entitled to terminate, since that party will have indicated the clearest indication of an intention not to perform its side of the contract.25 However, merely entering into a contract with another party to do the work will not of itself necessarily amount to repudiation of the contract, unless acted upon: see the judgment of Saville J in Alfred C Toepfer International v Itex Itagrani:26 “As to inability to perform, the sellers first advanced the proposition that where one party makes a contract, but has or undertakes inconsistent obligations under another engagement with a third party, he is to be treated in law as being unable to perform the contract. In my judgment this proposition does not represent English law. What must be established (apart from the other requirements of repudiation) is quite simple: namely that on the balance of probabilities the party in question cannot perform his obligations. The fact that that party has entered into inconsistent obligations does not in itself necessarily establish such inability, unless those obligations are of such a nature or have such an effect that it can truly be said that the party in question has put it out of his power to perform his obligations. The case of Omnium v Sutherland27 . . . is not an authority in favour of the sellers’ proposition. In that case a shipowner had sold the vessel and had thus indeed on the face of it put it out of his power to perform the charter that he had made. It was argued that this was not so, since the ex-owners might be able to get the new owners to agree to let them have the vessel back to perform the charter: but the Court of Appeal considered that this chance was not sufficient to displace the conclusion that in truth the owners simply did not have the means of performing their bargain, as they no longer had the right to the vessel they had agreed to charter. In the present case, however, the mere fact that the sub-buyers had contracted to load other goods on the vessel did not, in itself, establish that the buyers could not perform – at most that established that the buyers might not be able to perform. Unlike the case cited, it could not be said that the buyers had on the face of it or otherwise put it out of their power to perform. In the case cited there was only a chance that the owners might be able to perform – in the present case there was only a chance that the buyers would be unable to perform.”

20 Mersey Steel & Iron Co Ltd v Naylor (above). 21 Sweatfield Ltd v Hathaway Roofing Ltd (1997) CILL 1235. 22 Cornwall v Henson [1900] 2 Ch 298. 23 Moschi v Lep Air Services Ltd (on appeal from Lep Air Services Ltd v Rollowin Ltd) [1973] AC 331 at 353. 24 China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982. 25 Architectural Installation Services v James Gibbons (1989) 46 BLR 91 at 100; Vinergy International (PVT) Ltd v Redhall Engineering Solutions Ltd [2013] EWHC 4030 (TCC); DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117; Wesiak v D&R Constructions (Aust) Pty Ltd [2016] NSWCA 353; Ipson Renovation Ltd v The Incorporated Owners of Connie Towers [2016] HKCFI 2117. 26 [1993] 1 Lloyd’s Rep 360 at 362, cited and followed by Flaux J in Seadrill Management Services Ltd and another v OAO Gazprom [2009] EWHC 1530 (Comm); 126 Con LR 130 at paragraphs [259] and [260]. 27 [1919] 1 KB 618.

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6.16  Thus far, the cases considered have been cases where the contract properly construed does not provide that breach of a particular term of the contract by one party will entitle the other party to treat himself as being discharged from any further obligation to perform the contract. The common law recognises that it is open to the parties to any contract to agree that a particular term is a “condition”; that is, a term having that effect even if the breach complained of is trivial.28 In some cases, the court will hold that a term of a contract has this effect even if the parties have not expressly so stipulated,29 but will lean against such a construction.30 Sometimes a statute will provide that a particular term of a contract is a condition of the contract.31 6.17  In practice a court or arbitrator construing a sophisticated construction contract containing express terms stipulating when either party may terminate the contract is unlikely to construe any other clause of the contract as being a condition conferring the same right in the absence of clear words to that effect.32 In consequence the relevance of a common law right to treat the contract as repudiated will normally be in the context of allegations of a fundamental breach of contract in the sense explained above. 6.18  Where one party is guilty of a repudiatory breach of contract, the other party has the right but no obligation to treat the contract as discharged by that breach. The innocent party is put to his election – he is free to affirm the contract, retaining any rights he may have to sue for damages but otherwise holding the party in breach to the terms of the contract, or he may accept the repudiation and treat the contract as discharged, thus relieving the innocent party of any further obligation to perform the primary obligations under the contract (the innocent party will still be bound by any secondary obligations, such as an obligation to refer any disputes to arbitration;33 an obligation on the part of an employer to pay or give credit for work done by a contractor;34 or an obligation to supply a performance bond or a parent company guarantee35). Affirmation and election have been discussed in the context of a right to rescind for misrepresentation at paragraphs 3.41 to 3.43 above. Unlike a right to rescind for misrepresentation, a right to treat a contract as discharged through breach does not have the effect of rescinding the contract ab initio (hence following repudiation secondary obligations continue) but the principles as to the circumstances in which a party will be held to have affirmed a contract following repudiatory breach are similar to those following upon misrepresentation. In The Santa Clara,36 Lord Steyn said: “An act of acceptance of a repudiation requires no particular form: a communication does not have to be couched in the language of acceptance. It is sufficient that the communication or

28 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849; Bunge Corporation, New York v Tradax Export SA, Panama [1981] 1 WLR 711 at 714–715. 29 Schuler (L) AG v Wickman Machine Tool Sales [1974] AC 235; Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209. 30 Cehave NV v Bremer Handelsgesellschaft mbH; (“The Hansa Nord”) [1976] QB 44 at 70. 31 See eg sections 11 and 14 of the Sale of Goods Act 1979. 32 For an example of a case where such arguments were considered by HH Judge Humphrey LLoyd QC see Foster Wheeler Wood Group Engineering Ltd v Chevron UK Ltd [1996] EWHC 381 (TCC). 33 Heyman v Darwins [1942] AC 356. 34 Hyundai Heavy Industries Co v Papadopoulos [1980] 1 WLR 1129. 35 Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 2688 (TCC); [2014] BLR 179. 36 Vitol SA v Norelf Ltd (“The Santa Clara”) [1996] AC 800 at 810–811; Dalkia Utility Services plc v Celtech International Ltd [2006] EWHC 63 (Comm); [2006] 1 Lloyd’s Rep 599 at paragraph [143]; Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2009] 1 Lloyd’s Rep 461; [2009] BLR 196 at paragraph 44.

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conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end.”

6.19  There has been a suggestion at first instance that a party’s right to terminate might be restricted by an obligation of good faith,37 but any general principle to that effect has been denied by the Court of Appeal.38 However, where the commercial purpose of a contract has come to an end as a result of frustrating delay, the innocent party is not entitled to keep the contract in existence simply for the purpose of recovering delay damages.39 6.20  Where one party alleges that the other party is guilty of repudiatory breach, it is usual (and good practice) to identify the grounds upon which that allegation is based – often this is expressly required by the contract. If it later appears that the matters put forward by the aggrieved party were unfounded (or if no reasons are given), at common law the party electing to terminate the contract may rely upon any other breaches of contract going to the root of the contract that would have justified termination even if not known at the time he made his election,40 unless the “point which was not taken could have been put right”.41 However, where what is relied upon is an alleged renunciation of the contract, this principle needs to be approached with a little caution. In order to establish renunciation of a contract the innocent party must establish that the contract-breaker “evinced an intention” not to be bound by the contract, an essential element of which is that the words or action said to be renunciatory must have been communicated to or otherwise known by the innocent party. Thus an intention by one party not to stand by a contract that is never communicated to the other party cannot later be relied upon by the innocent party to justify a termination.42 Termination under standard forms of contract 6.21  Sophisticated construction contracts will generally contain clauses giving contractor and employer express rights of termination. Because of the serious consequences of termination, generally such clauses are strictly construed: any stated preconditions to 37 Yam Seng Ptr v International Trade Corporation Ltd [2013] EWHC 111 (QB); [2013] 1 Lloyd’s Rep 526; [2013] BLR 147. 38 Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200; [2013] BLR 265; MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789; [2016] Lloyd’s Rep Plus 66. See also the very full analysis of the authorities in Monde Petroleum SA v Westernzagros Ltd [2016] EWHC 1472 (Comm); [2016] 2 Lloyd’s Rep 229. For a TCC case refusing to recognise an implied term restricting an express contractual right to terminate, see TSG Building Services plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC); [2013] BLR 484; (2013) 148 Con LR 228. For an Australian decision to the same effect, see Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2011] WASC 150. 39 MSC Mediterranean Shipping Co SA v Cottones Anstalt [2016] EWCA Civ 789; [2016] Lloyd’s Rep Plus 66. 40 Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (“The Mihalis Angelos”) [1971] 1 QB 164 at 195; Cyril Leonard & Co v Simo Securities Trust [1972] 1 WLR 80 at 85, 87 and 89; Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana; (“The Scaptrade”) [1981] 2 Lloyd’s Rep 81; Reinwood Ltd v L Brown & Sons Ltd [2008] EWCA Civ 1090 at paragraph [51]; Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436 at paragraph [32]; Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75;[2010] QB 27; [2009] 1 Lloyd’s Rep 461; [2009] BLR 196 at paragraph [42]. 41 Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273 at 1278; Sheffield v Conrad (1987) 22 Con LR 108; Andrė & Cie v Cook Industries Inc [1987] 2 Lloyd’s Rep 403. For a discussion of the authorities see C&S Associates UK Ltd v Enterprise Insurance Company Plc [2015] EWHC 3757 (Comm). 42 See Seadrill Management Services Ltd and another v OAO Gazprom [2009] EWHC 1530 (Comm); 126 Con LR 130 at paragraph [265].

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a right to terminate must usually be followed to the letter if the termination is to survive scrutiny by a court or arbitrator.43 6.22  Two examples are considered here, first under the FIDIC “Red Book”44 and then under the Standard Building Contract (the example taken is the JCT 2005 Edition Standard Building Contract with Quantities (SBC/Q):45 the more recent JCT 2011 forms of contract do not differ in any material respect). 6.23  Considering first the provisions for termination by the employer: the SBC provides: “Termination by employer Default by contractor 8.4.1 If, before practical completion of the Works, the Contractor: 8.4.1.1 without reasonable cause wholly or substantially suspends the carrying out of the Works or the design of the Contractor’s Designed Portion; or 8.4.1.2 fails to proceed regularly and diligently with the Works or the design of the Contractor’s Designed Portion; or 8.4.1.3 refuses or neglects to comply with a written notice or instruction from the Architect/Contract Administrator requiring him to remove any work, materials or goods not in accordance with this Contract and by such refusal or neglect the Works are materially affected; or 8.4.1.4 . . . 8.4.1.5 . . . The Architect/Contract Administrator may give to the Contractor a notice specifying the default or defaults (the ‘specified default or defaults’). 8.4.2 If the Contractor continues a specified default for 14 days from receipt of the notice under clause 8.4.1, the Employer may on, or within 10 [21] days from, the expiry of that 14 day period by a further notice to the Contractor terminate the Contractor’s employment under this Contract. 8.4.3 If the Employer does not give the further notice referred to in clause 8.4.2, (whether as a result of the ending of any specified default or otherwise) but the Contractor repeats a specified default (whether previously repeated or not) then, upon or within a reasonable time after such repetition, the Employer may by notice to the Contractor terminate that employment.”

6.24  The Red Book provides: “Notice to correct 15.1 If the Contractor fails to carry out any obligation under the Contract, the Engineer may by notice require the Contractor to make good the failure and to remedy it within a specified reasonable time Termination by employer 15.2 The Employer shall be entitled to terminate the Contract if the Contractor: (a) fails to comply with Sub-Clause 4.2 [Performance Security] or with a notice under Sub-Clause 15.1 [Notice to Correct], 43 See Eriksson v Whalley [1971] 1 NSWLR 397; Hill v London Borough of Camden (1980) 18 BLR 31; Central Provident Fund Board v Ho Bock Kee (1981) 17 BLR 21. In Ellis Tylin Ltd v Co-operative Retail Services Ltd [1999] BLR 205, HH Judge Bowsher QC reviewed these authorities but adopted what he described as a commercial approach. 44 The Conditions of Contract for Construction for Building and Engineering Works designed by the Employer, 1999 edition. Extracts reproduced with kind permission from FIDIC, World Trade Center II, 29 route de Prés-Bois, Geneva Airport, CH-1215 Geneva, Switzerland. 45 JCT Standard Building Contract with Quantities 2005 edition. Extracts reproduced with kind permission from The Joint Contracts Tribunal Limited, 28 Ely Place, London EC1N 6TD, UK.

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(b) abandons the Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract, (c) without reasonable excuse fails: (i) to proceed with the Works in accordance with Clause 8 [Commencement, Delays and Suspension], or (ii) to comply with a notice issued under Sub-Clause 7.5 [Rejection] or Sub-Clause 7.6 [Remedial Work], within 28 days after receiving it, (d) subcontracts the whole of the Works or assigns the Contract without the required agreement, (e) becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events, or (f ) gives or offers to give (directly or indirectly) to any person any bribe, gift, gratuity, commission or other thing of value, as an inducement or reward: (i) for doing or forbearing to do any action in relation to the Contract, or (ii) for showing or forbearing to show any favour or disfavour to any person in relation to the Contract, or if any of the Contractor’s Personnel, agents or Subcontractors gives or offers to give (directly or indirectly) to any person such inducement or reward as is described in this sub-paragraph (f ). However, lawful inducements and rewards to Contractor’s Personnel shall not entitle termination. In any of these events or circumstances, the Employer may, upon giving 14 days’ notice to the Contractor, terminate the Contract and expel the Contractor from the Site. However, in the case of sub-paragraph (e) or (f ), the Employer may by notice terminate the Contract immediately. The Employer’s election to terminate the Contract shall not prejudice any other rights of the Employer, under the Contractor or otherwise. The Contractor shall then leave the Site and deliver any required Goods, all Contractor’s Documents, and other design documents made by or for him, to the Engineer. However, the Contractor shall use his best efforts to comply immediately with any reasonable instructions included in the notice (i) for the assignment of any subcontract, and (ii) for the protection of life or property or for the safety of the Works. After termination, the Employer may complete the Works and/or arrange for any other entities to do so. The Employer and these entities may then use any Goods, Contractor’s Documents and other design documents made by or on behalf of the Contractor. The Employer shall then give notice that the Contractor’s Equipment and Temporary Works will be released to the Contractor at or near the Site. The Contractor shall promptly arrange their removal, at the risk and cost of the Contractor. However, if by this time the Contractor has failed to make a payment due to the Employer, these items may be sold by the Employer in order to recover this payment. Any balance of the proceeds shall then be paid to the Contractor.”

6.25  The significance of these provisions is that the forms of contract give specific rights of termination in circumstances where for the reasons set out above the employer may be uncertain as to his rights to terminate at common law – thus a notice can be given requiring a defect to be remedied, or a notice can be given making time of the essence thus entitling the employer to terminate the contract for lack of progress. 6.26  The standard forms also make provision for the contractor to terminate the contract. In particular, it is to be noted that provision is made for termination in the event of late payment or non-payment by the employer (contrast in this respect the position at common law referred to at paragraph 6.14 above). Thus in the SBC it is provided by Clauses 8.9 and 8.10: 63

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“Termination by contractor Default by employer 8.9.1 If the Employer: 8.9.1.1 does not pay by the final date for payment the amount properly due to the Contractor in respect of any certificate and/or any VAT properly chargeable on that amount; or 8.9.1.2 interferes with or obstructs the issue of any certificate under this Contract; or 8.9.1.3 . . . 8.9.1.4 . . . the Contractor may give to the Employer a notice specifying the default or defaults (the ‘specified default or defaults’). 8.9.2 If before practical completion of the Works the carrying out of the whole or substantially the whole of the uncompleted Works is suspended for a continuous period of the length stated in the Contractor Particulars by reason of: 8.9.2.1 Architect/Contract Administrator’s instructions under clause 2.15, 3.14 or 3.15; and/or 8.9.2.2 any impediment, prevention or default, whether by act or omission, by the Employer, the Architect/Contract Administrator, the Quantity Surveyor or any of the Employer’s Persons (but in either case excluding such instructions as are referred to in clause 8.11.1.2), then, unless in either case that is caused by the negligence or default of the Contractor or of any of the Contractor’s Persons, the Contractor may give to the Employer a notice specifying the event or events (the ‘specified suspension event or events’). 8.9.3 If a specified default or a specified suspension event continues for 14 days from the receipt of notice under clause 8.9.1 or 8.9.2, the Contractor may on, or within 10 [21] days from, the expiry of that 14 day period by a further notice to the Employer terminate the Contractor’s employment under this Contract. 8.9.4 If the Contractor for any reason does not give the further notice referred to in clause 8.9.3, but (whether previously repeated or not): 8.9.4.1 the Employer repeats a specified default; or 8.9.4.2 a specified suspension event is repeated for any period, such that the regular progress of the Works is or is likely to be materially affected thereby, then, upon or within a reasonable time after such repetition, the Contractor may by notice to the Employer terminate the Contractor’s employment under this Contract. Insolvency of employer 8.10.1 If the Employer is Insolvent, the Contractor may by notice to the Employer terminate the Contractor’s employment under this Contract; 8.10.2 the Employer shall immediately inform [notify] the Contractor in writing if he makes any proposal, gives notice of any meeting or becomes the subject of any proceedings or appointment relating to any of the matters referred to in clause 8.1; 8.10.3 as from the date the Employer becomes Insolvent, the Contractor’s obligations under clauses 2.1 and 2.2 [Article 1 and these Conditions] to carry out and complete the Works and the design of the Contractor’s Designed Portion shall be suspended.”

6.27  Similarly the Red Book provides: “Termination by the contractor 16.2  The Contractor shall be entitled to terminate the Contract if: (a) the Contractor does not receive the reasonable evidence within 42 days after giving notice under Sub-Clause 16.1 [Contractor’s Entitlement to Suspend Work] in respect of a failure to comply with Sub-Clause 2.4 [Employer’s Financial Arrangements],

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(b) the Engineer fails, within 56 days after receiving a Statement and supporting documents, to issue the relevant Payment Certificate, (c) the Contractor does not receive the amount due under an Interim Payment Certificate within 42 days after the expiry of the time stated in Sub-Clause 14.7 [Payment] within which payment is to be made (except for deductions in accordance with SubClause 2.5 [Employer’s Claims]), (d) the Employer substantially fails to perform his obligations under the Contract, (e) the Employer fails to comply with Sub-Clause 1.6 [Contract Agreement] or SubClause 1.7 [Assignment], (f ) a prolonged suspension affects the whole of the Works as described in Sub-Clause 8.11 [Prolonged Suspension], or (g) the Employer becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events. In any of these events or circumstances, the Contractor may, upon giving 14 days’ notice to the Employer, terminate the Contract. However, in the case of sub-paragraph (f ) or (g), the Contractor may by notice terminate the Contract immediately. The Contractor’s election to terminate the contract shall not prejudice any other rights of the Contractor, under the Contract or otherwise.”

6.28  Both contracts then contain provisions dealing with the consequences of termination. 6.29  Other textbooks deal in detail with the application of these provisions:46 the intention here is merely to set out illustrations of the type of termination clauses commonly found. The characteristics are: very specific provisions as to the circumstances in which a contract may be terminated, provision for this to happen after expiry of a period of notice during which the contract-breaker has an opportunity to remedy his breach (save for such extreme cases as insolvency), and specific provisions as to what consequences follow upon termination. Interplay of common law and contractual rights to terminate 6.30  It is a matter of construction in each case whether it is the intention of the parties that an aggrieved party should be limited to rights of termination granted under a contract to the exclusion of any common law rights. It is clear that parties are free to agree between themselves that what might otherwise be regarded as a repudiatory breach entitling the innocent party to treat the contract as discharged should not be so regarded,47 but absent any contractual rights of termination a court would be slow to come to such a conclusion. 6.31  In a decision concerning a construction contract, HH Judge Bowsher QC held in 1989 that the mere fact that a contract contains express termination provisions does not necessarily exclude common law remedies available upon repudiation unless the contract expressly or impliedly provides that the rights conferred by the contract are to be the exclusive remedy for the breaches in question.48 His view has recently been comprehensively 46 See for example Crown Office Chambers, Emden’s Construction Law, looseleaf; Ellis, Mellors, Chalmers and Lavers, FIDIC Contracts: Law and Practice, 2010; Ndekugri and Rycroft, The JCT 05 Standard Building Contract: Law and Administration, 2nd edition, 2009; Keating on Construction Contracts, 10th edition, 2016. 47 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. 48 Architectural Installation Services v James Gibbons Windows (1989) 46 BLR 91 at 100.

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vindicated, firstly in the judgment of Rix LJ in Stocznia Gdanska SA v Latvian Shipping Co49 and more recently and more emphatically by Moore-Bick LJ in Stocznia Gdynia SA v Gearbulk Holdings Ltd.50 However, if the parties have agreed a specific procedure and remedy for dealing with a particular situation, then a wider common law remedy may be impliedly excluded.51 6.32  One question which has troubled practitioners has been whether in a situation in which as a matter of construction of the contract a breach gives rise to two remedies – a right to terminate under the express terms of the contract and a right to treat the contract as discharged at common law – the aggrieved party may find himself forced to make an election. Assume a case where the contract provides a right to terminate upon giving a set period of notice (say 14 days). If a notice is served, is the service of the notice to be taken to be an affirmation of the contract? The recent Stocznia decision52 appears to answer this question:53 absent any express or implied provision to the contrary, the exercise of a contractual right to terminate, being an additional remedy, does not preclude the aggrieved party from also relying upon repudiation at common law. Consequences of termination 6.33  If a contract contains express termination provisions, usually there will also be express provisions for what is to follow upon termination. 6.34 As set out at paragraph 6.18 above, at common law acceptance of repudiation brings to an end the innocent party’s primary obligations, but leaves extant secondary obligations, such as an agreement to arbitrate.54 6.35  Where it is the contractor who validly terminates the contract, the contractor is entitled to be placed in the same position as he would have been in had the contract been performed by the employer in accordance with its terms. Thus prima facie he is entitled to the contract sum less what it would have cost him to complete his obligations under the contract.55 It would be open to the employer to attempt to show that the contract would have been loss making so that the contractor suffered no loss. Alternatively, the contractor faced

49 [2002] 2 Lloyd’s Rep 436 at paragraph [88]. 50 [2009] EWCA Civ 75; [2010] QB 27; [2009] 1 Lloyd’s Rep 461; [2009] BLR 196 at paragraph [20]. For a decision to the same effect in a construction context, see Vinergy International (PVT) Ltd v Redhall Engineering Solutions Ltd [2013] EWHC 4030 (TCC). In Vinergy International (PTY) Ltd v Richmond Mercantile Limited FZC [2016] EWHC 525 (Comm) an attempt to apply notice provisions drafted to apply to termination on express contractual grounds to termination on the grounds of common law repudiation failed. 51 Lockland Builders Ltd v John Kim Rickwood (1995) 77 BLR 38 at 45–46. BSkyB v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC); [2010] BLR 267. 52 [2009] EWCA Civ 75; [2010] QB 27; [2009] 1 Lloyd’s Rep 461; [2009] BLR 196 at paragraphs [26]–[42]. 53 The phrase “appears to answer this question” is used because some doubts have been expressed about the extent to which the Court of Appeal have given an answer which will be followed – see for example Edwin Peel, Affirmation by Termination in [2009] LQR 125. 54 Heyman v Darwins [1942] AC 356. 55 In an interesting article (The Quantification of Termination Claims in Construction [2008] ICLR 299) Dr Mastrandrea argues that in this position the contractor is entitled to recover any contribution to head office overheads that would have been generated by the contract had it proceeded to full term: subject to any question of whether the contractor has been able to mitigate its loss by taking on alternative contracts, it is respectfully agreed – that contribution was one of the benefits which the contractor was entitled to receive under the contract had the employer honoured its terms.

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with repudiation by the employer under a construction contract appears to be entitled to claim upon the basis of a quantum meruit – see paragraph 5.34. 6.36  If the works were defective at the date of termination, then the cost of remedying any such defects would fall to be taken into account in calculating the contractor’s loss.56 It is also suggested that where compensation is sought by reference to the contract, rather than upon a quantum meruit, if the contractor was inevitably going to finish late for reasons that were not the employer’s responsibility, then any liability to liquidated damages should also be taken into account since if that liability were not taken into account the contractor might be in a better position than he would have been in had the employer not been in breach of contract. 6.37  If it is the employer who validly terminates the contract, the measure of his loss is the cost to him of completing the works in a reasonable manner, less the contract price.57 Consistent with this, the employer remains liable for any accrued entitlement on the part of the contractor to be paid for work done;58 however, in principle he is entitled to set that liability against the cost of engaging another contractor to carry out the works left incomplete by the defaulting contractor. (However, it is to be noted that a right to withhold instalments which have already fallen due is subject to an obligation to serve a withholding notice under section 111 of the Housing Grants, Construction and Regeneration Act 1996 where that Act applies.) 6.38  If the employer terminates the contract, it will very often (if not almost always) be the case that the completion of the construction project will be delayed beyond the date for completion of the works in the now terminated contract. In the Greenore Port case,59 in which the employer was held to have validly terminated a contract, Jackson J awarded liquidated damages up to the date of termination and “damages for breach of contract assessed on conventional principles in respect of delay” in respect of the period of delay after termination. His reasoning was short on the remedy after termination – a mere four lines saying: “[T]he position after repudiation is different. No liability for liquidated damages can accrue . . . after the contract has come to an end” – but it may be open to question as to whether this part of his decision was right in principle: if the purpose of damages is to put the claimant into the position he would have been in had the contractor not been guilty of breach of contract, it can be argued that post-termination damages, like pre-termination damages, should be awarded at the rate agreed in the contract.60 6.39  Following termination, secondary obligations to supply a parent company guarantee, a performance bond and warranties may continue, and, if so, may be enforced by specific performance.61

56 Slater v CA Duquemin Ltd (1992) 29 Con LR 24. 57 Per Jackson J in Greenore Port Ltd v Technical & General Guarantee Company Ltd [2006] EWHC 3119 (TCC) at paragraph [191] citing Mertens v Home Freehold Company [1921] 2 KB 526. 58 Hyundai Heavy Industries Co v Papadopoulos [1980] 1 WLR 1129. But note DO Ferguson & Associates (a firm) v M Sohl (1992) 62 BLR 95 where the employer was held to be entitled to recover sums “overpaid” to a defaulting contractor. 59 Above, [2006] EWHC 3119 (TCC) at paragraphs [226] and [227]. 60 See, to the same effect as Greenore Port the Singapore High Court decision in Lim Chin San Contractors Pte Ltd v LW Infrastructure Pte Ltd [2011] SGHC 162. 61 Liberty Mercian Ltd v Cuddu Civil Engineering Ltd [2013] EWHC 2688 (TCC); [2014] BLR 179.

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Frustration 7.1  Chapter 5 discussed the circumstances in which the common law would allow recovery of payment for work done upon a quantum meruit. At common law a quantum meruit could also be recoverable where a partly executed contract for building works failed because of frustration or impossibility.1 In English law the consequences of frustration, if not anticipated and dealt with by contract, are now regulated by the Law Reform (Frustrated Contracts) Act 1943. The doctrine of frustration 7.2  As Professor Treitel has described, the law of frustration is concerned with a conflict between two principles.2 The first is the principle of sanctity of contract, which insists on the literal performance of contracts in spite of the fact that events occurring after the contract has been made have interfered with the performance of one party, or reduced its value to the other. The second, “counter-principle”, is that the first principle is qualified by the recognition that parties who enter into contracts often do so on the basis of certain shared, but unexpressed assumptions. The effect of this is that contractual obligations may be discharged by a change or circumstances so significant as to destroy a basic assumption that the parties had made when they entered into the contract. 7.3  Common law support for the first principle can be found in Paradine v Jane.3 The facts of that case were that the tenant of a farm, who was sued for rent, pleaded that for part of the period for which rent was claimed he had been dispossessed by “Prince Rupert, an alien born, enemy to the King and kingdom . . . with an hostile army of men”. It was held that the tenant was nevertheless liable for rent during the period when he was dispossessed. 7.4  The emergence of the counter-principle, and the foundation of the modern law of frustration, can be found in Blackburn J’s judgment in Taylor v Caldwell:4 “as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor . . . The principle seems to us to be that, in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance. In none of these cases is the promise in words other than positive, nor is there any express stipulation that the destruction of the person or thing shall excuse the performance; but that excuse is

  1 See for example Denning LJ in Hoenig v Isaacs [1952] 2 All ER 176 at pages 181H–182A.  2 Treitel, Frustration and Force Majeure, 2nd edition, 2004, at paragraph 1–001.   3 (1647) Aleyn 26.   4 (1863) 3 B & S 826 at pages 833–834 and 839 (cited by Lord Phillips of Worth Matravers MR in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407; [2003] QB 679 at paragraph [69]).

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by law implied, because from the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of the particular person or chattel.”

In later cases it has been held that a contract may be held to have been frustrated even if it is not impossible to perform.5 (Conversely, merely because a contract has become impossible to perform does not necessarily mean it has been frustrated.6) It has also been held that the basis of the doctrine does not lie, as Blackburn J suggested, in the implication of any term into the contract.7 7.5  The modern doctrine of frustration was summarised by Lord Simon of Glaisdale in National Carriers Ltd v Panalpina (Northern) Ltd:8 “Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.”

That formulation built upon the speeches of the House of Lords in Davis Contractors Ltd v Fareham Urban District Council.9 In what has been described as the “classic statement of the doctrine”10 Lord Radcliffe said:11 “[F]rustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract . . . Non haec in foedera veni. It was not this that I promised to do.”

7.6  The object of the doctrine is “to give effect to the demands of justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances”.12 The effect of the event on the performance of the contract “must be more than merely more onerous or more expensive. It must be positively unjust to hold the parties bound”.13   5 See paragraph 7.19.   6 See for example CTI Group Inc v Transclear SA (The Mary Nour) [2008] EWCA Civ 856; [2008] 2 Lloyd’s Rep 526 at paragraph 14.   7 Objection to the implied term analysis was put charmingly by Lord Sands in James Scott & Sons Ltd v Del Sol [1922] SC 592, 597, cited by Lord Reid in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 720: “A tiger has escaped from a travelling menagerie. The milk girl fails to deliver the milk. Possibly the milkman may be exonerated from any breach of contract; but, even so, it would seem hardly reasonable to base that exoneration on the ground that ‘tiger days excepted’ must be held as written into the milk contract.”   8 [1981] AC 675 at 700 cited in Great Peace Shipping (above) at paragraph [70]. This statement of principle must be read subject to the proviso that the parties may make express provision for what is to happen in the event of what would otherwise be a frustrating event – see below at paragraphs 7.38–7.43 and 7.48.  9 [1956] AC 696. 10 By Lord Roskill in Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 751 and by Purchas LJ in Wates Ltd v Greater London Council (1983) 25 BLR 1 at 27. 11 [1956] AC 729. 12 Per Bingham LJ in J Lauritzen A.S. v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1 at 8. 13 Per Lord Denning MR in Ocean Tramp Tankers Corp. v V/O Sovfracht (The Eugenia) [1964] 2 QB 226 at 239. To the same effect, per Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council (above) at 729: “[I]t is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would,

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7.7 In Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The “Sea Angel”)14 Rix LJ15 expanded upon Bingham LJ’s dictum referred to in paragraph 7.6 above: “In my judgment, the application of the doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances. Since the subject matter of frustration is contract, and contracts are about the allocation of risk, and since the allocation and assumption of risk is not simply a matter of express or implied provision but may also depend on less easily defined matters such as ‘the contemplation of the parties’, the application of the doctrine can often be a difficult one. In such circumstances, the test of ‘radically different’ is important: it tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances. What the ‘radically different’ test, however, does not in itself tell us is that the doctrine is one of justice, as has been repeatedly affirmed on the highest authority. Ultimately the application of the test cannot safely be performed without the consequences of the decision, one way or the other, being measured against the demands of justice. Part of that calculation is the consideration that the frustration of a contract may well mean that the contractual allocation of risk is reversed. A time charter is a good example. Under such a charter, the risk of delay, subject to express provision for the cessation of hire under an off-hire clause, is absolutely on the charterer. If, however, a charter is frustrated by delay, then the risk of delay is wholly reversed: the delay now falls on the owner. If the provisions of a contract in their literal sense are to make way for the absolving effect of frustration, then that must, in my judgment, be in the interests of justice and not against those interests. Since the purpose of the doctrine is to do justice, then its application cannot be divorced from considerations of justice. Those considerations are among the most important of the factors which a tribunal has to bear in mind.”

7.8 In British Movietonews Ltd v London and District Cinemas Ltd, the House of Lords emphasised that discharge through frustration is not something effected through the exercise of a judicial discretion:16 “It is of the utmost importance that the action of a court, when it decides that in view of a supervening situation the rights and obligations under a contract have automatically ceased, should not be misunderstood. The suggestion that an ‘uncontemplated turn of events’ is enough to enable a court to substitute its notion of what is ‘just and reasonable’ for the contract as it stands, even though there is no ‘frustrating event’, appears to be likely to lead to some misunderstanding. The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate – a wholly abnormal rise or fall in prices, a sudden depreciation, or the like. Yet this does not of itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the if performed, be a different thing from that contracted for.” The Eugenia was followed and applied by Mocatta J in Palmco Shipping Inc v Continental Ore Corporation (the Captain George K) [1970] 2 Lloyd’s Rep 21 – when the Suez Canal was closed due to hostilities the cost of shipping around the Cape rather than through the canal as expected was held merely to amount to an increase in expense, not a frustrating event. 14 [2007] EWCA Civ 547; [2007] 2 Lloyd’s Rep 517. 15 At paragraphs [111] and [112]. Followed in Islamic Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association (Bermuda) Ltd [2010] EWHC 2661 (Comm); [2011] Lloyd’s Rep IR 145 at paragraphs [105] and [106]. 16 [1952] AC 166, per Viscount Simon at 185.

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light of circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point – not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation.”

Effect of frustration 7.9  The effect of frustration is that it brings the contract to an end forthwith, without more and automatically:17 “[W]hen frustration occurs, it is automatic, and . . . its legal effect depends not on the intention of the parties or even on their knowledge as to the event, but on its occurrence in such circumstances as to show it to be inconsistent with the further prosecution of the adventure.”

Thus it is not necessary for a party to elect to bring the contract to an end, nor possible for a party to elect to affirm the contract. As Lord Simon put it in Constantine Ltd v Imperial Smelting Ltd,18 “it kills the contract itself”. A doctrine not to be lightly invoked 7.10 In J Lauritzen AS v Wijsmuller BV19 Bingham LJ said “since the effect of frustration is to kill the contract and to discharge the parties from further liability under it, the doctrine is not to be lightly invoked, must be kept within very narrow limits and ought not to be extended”. Extrinsic evidence as to the assumptions of the parties 7.11  The essence of the doctrine of frustration is release from the chains of a contract where supervening events render performance of that contract radically or substantially different from that which was contemplated by the parties when entering into the contract. Thus it is relevant to consider what were the common assumptions (if any) of the parties at the time of contracting, including what was actually foreseen by the parties since an event that is actually foreseen cannot ordinarily found a claim for frustration.20 In this regard, if an event or type of event is expressly anticipated by the contract, the contract itself shows

17 Per Lord Wright in Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 at 276. See also Hirji Mulji v Chong Yue Steamship Co Ltd [1926] AC 497 at 510; Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 at 527; J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1 at 8. 18 [1942] AC 154 at 163. 19 Above (footnote 17) at 8, citing Bank Line Ltd v Arthur Capel & Co [1919] AC 435 at 459; Davis Contractors Ltd v Fareham Urban District Council (above) at pages 715 and 727 (per Lord Radcliffe – “Frustration is not to be lightly invoked as the dissolvent of a contract”); Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (No 2) [1982] AC 724 at 752. See also Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) [2007] EWCA Civ 547; [2007] 2 Lloyd’s Rep 517 and CTI Group Inc v Transclear SA (The Mary Nour) [2008] EWCA Civ 856; [2008] 2 Lloyd’s Rep 526 where in each case the Court of Appeal emphasised that courts are reluctant to invoke the doctrine of frustration in order to enable a party to escape from what has turned out to be an improvident bargain. 20 Per Christopher Clarke LJ in Armchair Answercall Ltd v People in Mind Ltd [2016] EWCA Civ 1039 at paragraph [30].

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that the circumstances in which the contract is actually performed were contemplated by the parties and therefore cannot found the discharge of the contract by frustration.21 7.12  Sometimes no evidence may be necessary – the court might take judicial notice that an earthquake in central London is unusual and perhaps unforeseeable. On the other hand a court might require evidence as to whether earthquakes or hurricanes (for example) were foreseeable at the site of a construction project overseas. 7.13  The authorities discussed in Chapter 2 illustrate the extent to which courts are now willing to admit evidence of background materials as an aid to construction, but stopping short of admitting evidence as to what was said in negotiations. However, such evidence is admissible in deciding whether a contract should be rectified. Given the root of the doctrine of frustration in what is just and reasonable in circumstances unforeseen by either party, there would seem to be justice in allowing evidence as to what was said in negotiations in order to determine whether supervening events were indeed unforeseen.22 The application of the doctrine of frustration 7.14  I turn now to give examples from the cases where the doctrine has been applied, but first record a warning as to the citation of cases on frustration:23 “[I]t is clear from the speech of Lord Roskill in Pioneer Shipping Co Ltd v BTP Tioxide (The Nema)  .  .  . that when questions of frustration arise the proper approach is first to consider what, on the true construction of the contract, were the respective obligations of the parties, next to find the facts and finally to apply the proper tests for frustration to such facts and reach a conclusion, which is a conclusion of fact, on the final question whether the contract was frustrated. In reaching a conclusion on that final question different tribunals may well reach different conclusions on the same facts and the Court will only interfere with the decision in an arbitration if it is satisfied that the wrong test has been applied or that, albeit the right test was applied, no reasonable person could on those facts have reached the arbitrators’ conclusion. This being so, an examination of decided cases is unlikely to provide much assistance and in accordance with Lord Roskill’s observation24 . . . that where the relevant legal principles have been authoritatively determined massive citation of authority should be firmly discouraged, I discouraged Mr Rix from citing all but a very limited number of the cases which he had been minded to cite.” 21 Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 323 (TCC); [2010] BLR 235. 22 There is some discussion as to the admissibility of parole evidence in decision of the High Court of Australia in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. Wates Ltd v Greater London Council (1983) 25 BLR 1 at 22 is authority for the proposition that the evidence admissible in respect of frustration is the same as that admissible in construing a contract but it is respectfully suggested that the parallel may not be exact and that the full extent to which evidence might be admissible remains to be explored. Support for the introduction of evidence on a wider basis comes from the speech of Lord Reid in Davis Contractors Ltd v Fareham Urban District Council (above) at page 719: “[I]f the question is truly one of construction I find it difficult to see why we should not apply the ordinary rules regarding the admissibility or extrinsic evidence, whereas if it is only a matter of comparing the contemplated with the actual position, evidence might be admissible on a wider basis.” 23 Per Parker J in Atisa SA v Aztec AG [1983] 2 Lloyd’s Rep 579 at 584. The reluctance of courts to interfere with decisions of experienced tribunals in respect of decisions as to frustration is also shown in Kodros Shipping Corporation v Empress Cubana de Fletes (The Evia) [1983] 1 AC 736 and Andre & Cie SA v Tradax Export SA [1983] 1 Lloyd’s Rep 254. Extensive citation of authority in this area may also be discouraged by the comments of the House of Lords in Davis Contractors Ltd v Fareham Urban District Council at pages 732 (Lord Radcliffe) and 734 (Lord Somervell of Harrow) in respect of Bush v Whitehaven Port and Town Trustees 2 Hudson’s Building Contracts, 4th edition, 1914, 122. 24 [1982] AC 724 at 751.

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Destruction of the subject matter of the contract 7.15  It frequently happens that during the course of a construction contract, events happen that destroy the subject matter of the contract – a fire burns down the house under construction, a flood washes away foundations, or a hurricane destroys partially erected walls. The doctrine of frustration will only come into play if the event occurs after the commencement of the contract25 – thus a builder who fails to overcome antecedent obstacles cannot avoid responsibility.26 Moreover the doctrine of frustration has no part to play where on its true construction the contract has allocated the risk for the event that occurs.27 7.16 An important distinction is to be drawn between cases where the contract is to build an entire new structure and where the contract is to do work to an existing structure. 7.17  The general rule is that where the contract is to build a new structure, absent any contractual provision to the contrary, the structure is at the builder’s risk until completion.28 This rule certainly applies in respect of frequently occurring risks, such as fire, which would in any event very often be the subject of express contractual terms.29 However, even where the contract is to build a completely new structure the doctrine of frustration can apply – see for example Wong Lai Ying v Chinachem Investment Co Ltd,30 a case concerning the destruction of a 13-storey block of flats in Hong Kong by an unforeseeable landslide. 7.18  Where the damage occurs to an existing structure upon which work is being carried out, it is easier to find that the contract has been frustrated. Thus in an American case where the contract was to re-roof a house, the contract was discharged when the house was destroyed by fire.31 In Appleby v Myers32 a contract to install machinery in a factory was discharged when the factory was burnt down. Delay 7.19  In order for a contract to be frustrated it is not necessary for it to be impossible for the contract to be performed. It can be sufficient that the contract is substantially delayed so as to make the performance of the contract radically different from that which was

25 See the distinction between the law of mutual mistake and the law of frustration at paragraph 7.48. 26 M’Donald v Corporation of Worthington (1892) 9 TLR 21; Wilkin & Davies Construction Co Ltd v Geraldine Borough [1958] NZLR 985. The same result is justified upon the basis that the builder should have discovered such obstacles. 27 See paragraph 7.11. 28 See for example Company of the Proprietors of the Brecknock and Abergavenny Canal Navigation v Pritchard (1796) 6 TR 750; Brown v Royal Insurance Co (1859) 1 E & E 853. 29 See paragraph 7.40 below. Such terms would often require one party or other to take out all risks insurance – see in respect of such policies ter Haar, Levine and Laney, Construction Insurance and UK Construction Contracts, 3rd edition, 2016, chapter 11. 30 (1979) 13 BLR 81 – this was a case where completion of the project was not impossible, but completion within The Timescale contemplated by the contract was impossible. In Holbeck Hall Hotel Ltd v Scarborough Borough Council (1997) 57 Con LR 113 at 152–153 it was assumed that a lease would be frustrated where a hotel collapsed and fell into the sea due to ground slippage. The point did not arise for consideration in the Court of Appeal: [2000] BLR 109. 31 Keeling v Schastey & Vollmer (1912) 124 P 445. 32 (1867) LR 2 CP 651. For a similar case from the world of shipping, see Anglo-Egyptian Navigation Co v Rennie (1875) LR 10 CP 270 where it was held that a contract to install new machinery in a ship would be discharged by the loss of the ship.

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undertaken by the contract. In Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (No 2)33 Lord Roskill said this: “[I]n some cases where it is claimed that frustration has occurred by reason of the happening of a particular event, it is possible to determine at once whether or not the doctrine can be legitimately invoked. But in others, where the effect of that event is to cause delay in the performance of contractual obligations, it is often necessary to wait upon events in order to see whether the delay already suffered and the prospects of further delay from that cause, will make any ultimate performance of the relevant contractual obligations ‘radically different’, to borrow Lord Radcliffe’s phrase, from that which was undertaken by the contract . . . Often it will be a question of degree whether the effect of delay suffered, and likely to be suffered, will be such as to bring about frustration of the particular adventure in question.”

7.20  However, it is important not to take too simplistic an approach. Paragraph 7.7 above sets out a passage from the judgment of Rix LJ in Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The “Sea Angel”)34 in which he emphasised the need to take a “multi-factorial approach”. In The Sea Angel, the Court of Appeal rejected what it described35 as a “single-factored” approach to a claim that a contract had been frustrated based simply upon alleged delay as being “too blunt an instrument”. Amongst the factors leading to the Court of Appeal holding that the contract under consideration had not been frustrated were that the event complained about (the case concerned unlawful detention of a vessel by government authorities) came at the very end of a charter and that the contractual risk of delay caused by detention by government authorities “was firmly on the charterers”, even though the contract did not expressly allow for the event that happened. 7.21  As pointed out above, Wong Lai Ying v Chinachem Investment Co Ltd36 is an example of a case of frustration through delay in respect of a construction contract. Changes in price 7.22  Wates Ltd v Greater London Council37 was a case where it was argued that delays in dealing with increases in prices were such as to frustrate the contract. The argument was rejected by the Court of Appeal. In typically terse style, Stephenson LJ38 dealt with the point as follows: “[T]hings may have turned out differently from what the parties contemplated in that inflation increased not at a trot or a canter, but at a gallop. But that difference in degree and tempo was not so radical a difference from the inflation contemplated and provided for as to frustrate the contract.”

However, it is clear from the judgments that the Court of Appeal contemplated that as a matter of general principle changes in prices could be so extreme as to amount to frustration.39 It 33 [1982] AC 724 at 752. 34 [2007] EWCA Civ 547; [2007] 2 Lloyd’s Rep 517. 35 In paragraph [118]. 36 (1979) 13 BLR 81. By contrast, in McAlpine Humberoak Limited v McDermott International Inc (No 1) (1992) 58 BLR 1 a claim that a contract was frustrated by delay failed on the facts. 37 (1983) 25 BLR 1. 38 At 35. British Movietonews Ltd v London and District Cinemas Ltd [1952] AC 166 was another case in which an increase in prices was held not to be a frustrating event. 39 A more recent case in the context of a force majeure clause was Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208; [2006] 1 Lloyd’s Rep 441 where a buyer of gas was held to its contract despite an

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is some time since a major trading currency completely collapsed (there was a short period after the Iraqi invasion of Kuwait in 1990 when the Kuwaiti Dinar might be thought to have ceased to exist, but before that the last occasion was when the Nazis invaded Czechoslovakia in the 1930s) but such an event would appear to be capable of being well within the principles of frustration. Amount or significance of variations 7.23 In McAlpine Humberoak Ltd v McDermott International Inc (No 1),40 the case took an unusual turn. At first instance,41 the judge held that the contract under consideration had been frustrated even though that was not a conclusion for which the plaintiffs had contended before him. Accordingly it was not surprising that the Court of Appeal overturned his decision in that regard. However the first instance decision illustrates that it is possible that there are cases where the number of variations ordered by an engineer under a construction contract could be such as to frustrate a contract. It is possible that this could happen (if at all) in a case where both parties thought (contrary to the fact) that a design was fully or substantially developed, with the consequence that the contract became in reality something so completely different from that contemplated at the time of contract as to be discharged for frustration. However, given the power to issue variation instructions contained in most construction contracts of any substance, it seems likely that the power within the contract to vary it would be an answer to a claim by the contractor that the contract had been discharged through frustration. If the “variations” ordered are such as not to amount to variations,42 then the consequence would appear to be that the contractor is simply not obliged to carry out the varied work – however the position may be different if the project as a whole cannot be completed without the additional or different work being carried out.43 Thus, in this situation the contractor may in practical terms be able to elect whether to treat the contract as frustrated, contrary to the general principle set out at paragraph 7.8 above.44 Shortage of labour 7.24 In Davis Contractors Ltd v Fareham Urban District Council45 the argument was that shortage of labour outside the contractor’s control amounted to frustration. The increase in prices. In Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm); [2010] All ER (D) 111 (Jan); [2010] 2 Lloyd’s Rep 668, Hamblen J followed Thames Valley, saying (at paragraph [40]) that “it is well established under English Law that a change in economic/market circumstances, affecting the profitability of a contract or the ease with which the parties’ obligations can be performed, is not regarded as a force majeure event”. A rare hint of a view to the contrary is to be found, obiter, in Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All ER 497. See also the reference to the possible effect of an “astronomical” price rise in Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2014] SGCA 35; [2015] BLR 410 at paragraph [39], citing Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd [2011] 2 SLR 106 at paragraph [53]. 40 (1992) 58 BLR 1. 41 51 BLR 34. 42 See in this context paragraphs 5.15 and 5.16. 43 As in Thorn v London Corporation (1875–76) LR 1 App Cas 120 cited by Lord Reid in Davis Contractors Ltd v Fareham Urban District Council (above) at 721. 44 As to the analysis of the contractual relationship, see per Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council at 732. 45 [1956] AC 596.

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House of Lords rejected this argument. In their Lordships’ judgment (particularly that of Lord Radcliffe) it was significant that in making his tender the contractor would take into account obvious risks of delay and could have protected himself by appropriate contractual provisions.46 Difficulties in obtaining supplies 7.25  Where there is a contract for supply of specific goods from a specific place, the impossibility of obtaining such goods may be a frustrating event: see for example Howell v Coupland47 where a seller of potatoes to be grown on specific land was held not to be liable when the crop failed as a result of potato blight, without any default of the seller. By analogy, a contract to build a house using materials obtainable only from one supplier (eg, proprietary cladding materials) might be held to be frustrated if those materials were to become unobtainable. 7.26  However, the general rule is that a failure by a supplier does not discharge a contract between the supplier’s customer and a third party. Thus in Hills v Sughrue,48 a charterer was not excused from performance of his undertaking to provide a full cargo of guano merely by reason of the fact that, on the ship’s arrival at the port of loading, there was no guano there. In CTI Group Inc. v Transclear SA (The Mary Nour),49 Moore-Bick LJ reviewed the authorities and summarised their effect as follows:50 “These authorities . . . make it clear that the principles of frustration are capable of applying to a contract for the sale of unascertained goods of a specified origin . . . However, they also make it clear that, in the absence of some exceptional supervening event, such a contract will not be frustrated simply by a failure on the part of the ultimate supplier to make goods available for delivery. The reason for that is not far to seek: it is implicit in a contract of this kind that the supplier will either supply the goods himself or (more likely) will make arrangements, directly or indirectly, for the goods to be supplied by others. In other words, he undertakes a personal obligation to procure the delivery of contractual goods and thereby takes the risk of his supplier’s failure to perform. That obligation will be discharged if a supervening event not contemplated by the contract renders that performance impossible or fundamentally different from what was originally envisaged, but most events which result in the failure of a supplier to provide the goods will not fall into that category. A few, however, such as a prohibition of export rendering the shipment of the goods unlawful, usually will.”

7.27  Where materials are needed for a construction project, generally if one supplier cannot or will not supply what is needed, another somewhere in the world will usually be able and willing to do so – accordingly, difficulties of supply would rarely operate to discharge a construction contract. However, there will be cases where what is needed can only come from one supplier who is unable or unwilling to make the supply or where a worldwide shortage of a particular material might frustrate a contract, but such a situation would very rarely occur.51 46 Per Lord Radcliffe at 731. 47 (1874) LR 9 QB 462, affirmed (1876) 1 QBD 258. 48 (1846) 15 M & W 253. 49 [2008] EWCA Civ 856; [2008] 2 Lloyd’s Rep 526. 50 At paragraph [23]. 51 For cases where supply difficulties were successfully relied upon as founding claims for frustration of a construction contract, see Holcim (Singapore) Pte Ltd v Kwan Yong Construction Pte Ltd; [2009] 2 SLR 193;

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Strikes 7.28 In Pioneer Shipping Ltd v BTP Tioxide Ltd52 the House of Lords held that there was no reason in principle why a strike should not be capable of causing frustration of an adventure by delay, but Lord Roskill53 pointed out that in the past most attempts to invoke strikes as a cause of frustration had failed. Legislative changes 7.29 In Metropolitan Water Board v Dick, Kerr and Company Ltd,54 the House of Lords held that a contract to construct a reservoir was frustrated when a notice given by the Ministry of Munitions under statutory powers required the contractors to cease work. In contrast, in British Movietonews Ltd v London and District Cinemas Ltd55 a legislative change leading to an increase in prices was held not to be a frustrating event. 7.30  A case on somewhat special facts is the Australian case of Codelfa Construction Pty Ltd v State Rail Authority of NSW,56 to which reference has already been made. In that case the High Court of Australia held that it was open to an arbitrator to decide that there was frustration where the parties made erroneous assumptions as to the hours during which construction works (the works consisting of the construction of an underground railway) would be permitted so as to be immune from injunctive relief. War 7.31  In principle, the outbreak of hostilities could operate to frustrate a contract, but it would be necessary for it to be established that the hostilities were outside the contemplation of the parties when the contract was entered into. In many cases this will not be established.57 It may also be possible for the parties to avoid the effects of the hostilities, even if additional expense is involved.58 On the other hand, the regulations and restrictions following upon the outbreak of war may frustrate contracts.59 Self-induced frustration 7.32  All the formulations of the doctrine of frustration make it clear that a contract is discharged if the contract is frustrated “without default of either party”, or similar expressions.60 Where there is a deliberate breach of contract on one party’s part, then the position is clear. However the extent of this caveat remains in some respects uncertain. Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2014] SGCA 35; [2015] BLR 410. 52 Above. 53 At 754. 54 [1917] AC 119. 55 [1952] AC 166. 56 (1982) 149 CLR 337. 57 See for example Globe Master Management Ltd v Boulus-Gad Ltd [2002] EWCA Civ 313. See also in this context Finelvet AG v Vinava Shipping Co Ltd [1983] 1 WLR 1469. 58 See The Eugenia and The Captain George K referred to at footnote 13 above. 59 See for example Metropolitan Water Board v Dick, Kerr and Company Ltd (above). 60 In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 66, Diplock LJ expressed the principle as follows: “Where the event occurs as a result of the default of one party, the party in

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7.33  For an example of a case where a contract was held not to have been discharged by reason of the default of a contractor, see Mertens v Home Freehold Ltd.61 In that case the contractor, after working diligently on a contract for some time, decided that he would like to be released from it. Performance of the contract (to build a house) was prevented by war-time legislation requiring such work to be licensed. The builder deliberately worked slowly so as to ensure that the licence would be refused. The Court of Appeal held that he was not released from the contract since the refusal arose out of his deliberate failure to proceed with the work diligently. 7.34  It is an open question as to whether “default” means a deliberate act or omission on the part of a party or whether negligence will suffice.62 Where the “innocent” party could have brought the events alleged to have given rise to frustration to an end, the contract is not discharged through frustration.63 7.35  The acts of a third party will not be attributed to either of the parties – this general principle would appear to extend to a case where the supervening event is caused by an independent contractor employed by one of the contracting parties. Thus in Taylor v Caldwell64 a contract to let a music hall was held to have been frustrated when a careless plumber employed by the defendants started a fire that destroyed the music hall. The rationale appears to have been that the plumber was an independent contractor. In Adelfamar SA v Silos e Mangimi Martini (The Adelfa),65 a ship which had been chartered was arrested by the receivers of the cargo: the charterers were held able to rely on the resulting long delay in unloading as a ground of discharge since they were not vicariously liable for the acts of the receivers. 7.36  Prior breach by one party will not prevent the discharge of a contract for frustration where that breach is irrelevant to the circumstances in which the contract becomes impossible to perform.66 On the other hand, if the effective cause of the supervening event having effect is one party’s prior breach of contract the fact that impossibility later supervenes will not discharge the contract – see Mertens v Home Freehold Ltd.67 7.37 A situation of particular application to construction contracts involves the situation where a supervening event occurs the effects of which could be mitigated or avoided by the issue of a variation instruction by or on behalf of the employer – for example if a supervening event will cause a long period of delay. Can the problem be solved by a grant default cannot rely upon it as relieving himself of the performance of any further undertakings on his part, and the innocent party, although entitled to, need not treat the event as relieving him of the further performance of his own undertakings. This is only a specific application of the fundamental legal and moral rule that a man should not be allowed to take advantage of his own wrong.” This appears to be an exception to the general principle set out above (see paragraph 7.9) that frustration operates automatically. 61 [1921] 2 KB 526. 62 See Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154 at pages 166, 195 and 200 and Paal Wilson & Co A/S v Partenreederei Blumenthal (The Hannah Blumenthal) [1983] AC 854 at 910. 63 See The Hannah Blumenthal (above) where it was held that a party to an arbitration who sat back and sought no directions from an arbitral tribunal whilst the opposing party did nothing to pursue a claim in arbitration was not entitled to claim that the arbitration agreement had been frustrated. 64 (1863) 3 B & S 826. 65 [1988] 2 Lloyd’s Rep 466. 66 See The Adelfa (above) and Silver Coast Shipping Co v Union Nationale des Co-Operatives Agricoles des Céréales (The Silver Sky) [1981] 2 Lloyd’s Rep 95 at pages 97–98, where it was said that charterers could rely on orders of a party to a civil war even though when that order was given they were in breach, through delay, of their obligation to unload. 67 Above.

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of an extension of time? If so, is it in the discretion of an independent supervisor (such as an engineer) to grant such an extension? Or, can the employer direct that an extension be granted? Would the engineer be in breach of his duty if he failed to issue an extension of time? In most cases the answer to this conundrum is that if the event that occurs is within the contemplation of the parties (expressed or inferred as a matter of construction of the contract) the contract will dictate the response, so that there is no room for the operation of the doctrine of frustration. If, on the other hand, the event was outside the contemplation of the parties, then a claimed exercise of a power to vary the contract, or to extend time, would probably be outside the powers of a supervising officer or the employer. Effect of contractual provisions 7.38  Where the parties have expressly or impliedly agreed between themselves as to how a risk is to be allocated, there is no room for the operation of the doctrine of frustration. (An example of an implied allocation of risk is that discussed at paragraph 7.26 above, namely that generally an obligation to supply unascertained goods is a personal obligation upon the seller that will not be discharged through frustration simply because such goods are difficult or even impossible to obtain.) Similarly, as pointed out at paragraph 7.11 above, if an event or type of event is expressly anticipated by the contract, the contract itself shows that the circumstances in which the contract is actually performed were contemplated by the parties and therefore cannot found the discharge of the contract by frustration.68 Thus, as emphasised in the authorities, the starting point in any claim that a contract has been discharged through frustration is to construe the contract.69 7.39  Most standard forms of contract, and most well-drawn ad hoc contracts, make specific provision for the types of event or circumstances that might otherwise give rise to claims that a contract has been frustrated. 7.40  For example, the risk of fire is well understood. The allocation of that risk is the subject of specific provisions in standard forms of contract, usually agreeing to transfer the risk to insurers.70 Similarly most standard form contracts expressly deal with allocation of risk if war breaks out.71 7.41  Many events that might otherwise give rise to claims that a contract has been discharged through frustration are the subject of extension of time clauses. To give but one example: clause 44(1)(d) of the 7th edition of the ICE form of contract entitles a contractor to an extension of time if delayed by “exceptional adverse weather conditions”. An extension of time clause may thus prevent a contract being discharged through frustration; however, the extent of delay is relevant: “A contract often provides that in the event of ‘delay’ through specified causes, the contract is not to be dissolved, but merely suspended, yet such a provision has been held not to apply

68 Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 323 (TCC); [2010] BLR 235. 69 See for example the citation at paragraph 7.3 above. 70 For detailed consideration of the provisions allocating risk to insurance in standard forms of contract, see chapters 16–26 of ter Haar, Levine and Laney, Construction Insurance and UK Construction Contracts, 3rd edition, 2016. 71 See for example clause 63(2) of the 7th Edition of the ICE Form of Contract.

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where the delay was so abnormal, so pre-emptive, as to fall outside what the parties could possibly have contemplated in the suspension clause. In other words, ‘delay’, though literally describing what has occurred, has been read as limited to normal, moderate, delay, and as not extending to an interruption so differing in degree and magnitude from anything which could have been contemplated as to differ from it in kind.”72

7.42  Some contracts will contain terms directed at regulating the parties’ relationship in the event that something which might otherwise amount to frustration occurs – thus for example in the 7th edition of the ICE Form of Contract, clause 63(1) is headed “frustration” and clause 19 of the FIDIC “Red Book”73 deals with “force majeure”. So also the standard 2011 JCT Standard Building Contract suite of contracts provides that “force majeure” is a “relevant event” entitling a contractor to an extension of time, but without defining the meaning of that expression. There is limited English authority on the meaning of that expression.74 Where such provisions are incorporated there is limited (if any) scope for the operation of the doctrine of frustration.75 7.43 Even if contractual provisions do not expressly contemplate the event said to frustrate a contract, the allocation of risk in the contract may be a significant factor in deciding whether it is just to regard the contract as having been frustrated: see Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The “Sea Angel”),76 referred to at paragraphs 7.7 and 7.20 above. Consequences of discharge through frustration 7.44  If a contract is discharged through frustration both parties are released from any obligation to perform any outstanding primary obligations under the contract. However secondary obligations may survive; for example, an arbitration clause in the contract will normally remain effective77 or a prohibition clause intended upon the true construction of the contract to continue to bind in the changed circumstances.78 The question is whether the parties intended a provision to be applicable in the event of frustration.79

72 Per Asquith LJ in Sir Lindsay Parkinson & Co Ltd v Commissioners of His Majesty’s Works and Public Buildings [1949] 2 KB 632 at 665. See also Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119; Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe, Barbour Ltd [1943] AC 32; and Wong Lai Ying v Chinachem Investment Co Ltd (1979) 13 BLR 81 in each of which the presence of an extension of time clause failed to prevent a conclusion that the contract had been frustrated. 73 The Construction Contract (Conditions of Contract for Building and Engineering Works, Designed by the Employer), 1999 edition. 74 See Matsoukis v Priestma & Co [1915] 1 KB 681; Lebeaupin v Crispin [1920] 2 KB 714. Great Elephant Corporation v Trafigura Beheer BV (“The Crudesky”) [2013] EWCA Civ 905; [2014] 1 Lloyd’s Rep 1. For discussions on the scope of frustration clauses, see Kratochvilova and Mendelblat, Force Majeure Clauses (2012) 28 Const LJ 12; Adrian Williamson QC, Force Majeure and Construction Contracts SCL Paper 172, February 2012; Ewan McKendrick, Preparing for the Unexpected: Force Majeure and Hardship Clauses in Practice SCL Paper D153, January 2013. 75 But such force majeure clauses may themselves be strictly construed: see for example Fyffes Group Ltd v Reefer Express Lines Ltd (“The Kriti Rex”) [1996] 2 Lloyd’s Rep 171. 76 [2007] EWCA Civ 547; [2007] 2 Lloyd’s Rep 517. 77 Heyman v Darwins Ltd [1942] AC 356; Kruse v Questier & Co Ltd [1953] 1 QB 669; Government of Gibraltar v Kenney [1956] 2 QB 410. 78 Per Robert Goff J in BP Exploration Co (Libya) Ltd v Hunt (No 2) 783 at 829. 79 See Bank Line Ltd v Arthur Capel & Co [1919] AC 435 and the Court of Appeal decision in BP v Hunt [1981] 1 WLR 232 at 241.

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7.45  Because discharge through frustration released both parties from any obligation to further perform primary obligations under the contract, if a building contract was an entire contract, at common law the contractor would receive no payment if such a contract was frustrated before payment under the contract was due. On the other hand, if the contract was a contract for payment by instalments, the contractor would be entitled to any instalments falling due before the contract was frustrated.80 7.46  The position is now governed by the Law Reform (Frustrated Contracts) Act 1943. 7.47  Section 1(2) of the Act provides: “All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged (in this Act referred to as ‘the time of discharge’) shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be payable: Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.”

Thus if a building contract is frustrated, the contractor is prima facie obliged to repay the employer any sums received by him before frustration, but may be allowed to keep (or be paid) his expenses in carrying out the contract (but not profit on those expenses) if the court thinks it just. 7.48  Section 1(3) provides: “Where any party to the contract has, by reason of anything done by another party thereto in, or for the purpose of, the performance of the contract, obtained a valuable benefit (other than a payment of money to which the last subsection applies) before the time of discharge, there shall be recoverable from him by the other party such sum (if any), not exceeding the value of the said benefit to the party obtaining it, as the court thinks just, having regard to all the circumstances of the case, and, in particular, (a) the amount of any expenses incurred before the time of discharge by the benefited party in, or for the purpose of, the performance of the contract, including any sums paid or payable by him to any other party in pursuance of the contract and retained or recoverable by that party under the last foregoing subsection, and (b) the effect, in relation to the benefit, of the circumstances giving rise to the frustration of the contract.”

In BP Exploration Co (Libya) Ltd v Hunt (No 2)81 Robert Goff J held that the reference to “not exceeding the value of the benefit” placed a limit on the amount payable by a party receiving a non-monetary benefit – thus if the frustrating event was the total destruction by fire of an almost complete house so that no value was received by the employer, the employer would not be liable to make any payment under this section.82 Or, in another example, the work done to the date of discharge may be of no value – the judge gave the example of “redecoration to the defendant’s execrable taste of rooms which are in good decorative order”.83 “It is quite plain that, in section 1(3)(b), the word ‘benefit’ is intended to refer . . . to the actual improvement to the building, because that is what will be affected by 80 See Professor Treitel’s analysis in Frustration and Force Majeure, 2nd edition, 2004, at paragraphs 15–056– 15–058. 81 Above. 82 At 801G-H. 83 At 803C–D.

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the frustrating event; the subsection therefore contemplates that, in such a case, the benefit is the end product of the plaintiff’s services, not the services themselves.”84 7.49  BP v Hunt was a case about a frustrated oil exploration venture. There are no reported cases of which we are aware in which the effects of the 1943 Act have been considered in relation to a construction contract. 7.50  Section 2(3) of the Act provides that the court shall give effect to any provisions in the contract “intended to have effect in the event of circumstances arising which operate, or would but for the said provision operate, to frustrate the contract, or is intended to have effect whether such circumstances arise or not”. Similarities between the doctrine of frustration and the law of mutual mistake85 7.51  The doctrine of frustration has much in common with the law of mutual mistake – this is why in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd,86 a case concerned about the law of mistake, there is extensive discussion of the law relating to frustration. An Australian judge, Mason J, summarised the distinction as follows:87 “The doctrine of frustration is closely linked to the concept of mutual mistake. However, in general, relief on the ground of mutual mistake is confined to mistakes of fact, not of law. If the common contractual assumption is of present fact it is a case of mutual mistake; if the assumption is of future fact it is a case of frustration . . . the distinction being that in one case the contract is void ab initio and in the other it is binding until the assumption is falsified. Here the mistake is not one of present fact; it is either a mistake as to future fact or a mistake of law. Even if it be a mistake of law, this is not, I think, fatal to the application of the doctrine of frustration. The unsatisfactory distinction between a mistake of fact and one of law has not so far been carried over into frustration and I see no reason to further complicate the doctrine by invoking this distinction.”

Since 1982, when that judgment was delivered, the law as to mistake and the law as to frustration have moved closer together as it has now been held that mistakes of law can found a right to relief.88 7.52  An important distinction is that in order for a contract to be held to be void for mistake, “the non-existence of the state of affairs must render the performance of the contract impossible”89 – impossibility is not required for a contract to be discharged for frustration. The Court of Appeal in Great Peace Shipping90 suggested that: “Circumstances where a contract is void as a result of common mistake are likely to be less common than instances of frustration. Supervening events which defeat the contractual adventure will frequently not be the responsibility of either party. Where, however, the parties agree that something shall be done which is impossible at the time of making the agreement, it is much more likely that, on the true construction of the agreement, one or other will have undertaken responsibility for the mistaken state of affairs. This may well explain why cases where contracts have been found void in consequence of common mistake are few and far between.” 84 At 801H. 85 For a more detailed discussion of this subject, see Treitel, Frustration and Force Majeure, 2nd edition, 2004, paragraphs 1–005–1–010. 86 Above. 87 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 360. 88 See Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 and paragraphs 3.17–3.19, above. 89 Great Peace Shipping (above) at paragraph [76]. 90 At paragraph [85].

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7.53  There are important distinctions as to the effect of the two principles. A contract entered into on the basis of a common mistake is void ab initio, with the consequence that all contractual obligations fall away (including, for example, the application of an arbitration clause) whilst where a contract is discharged due to frustration the parties’ mutual rights and obligations up to the date of discharge remain extant (subject to the operation of statute). The words in parenthesis in the previous sentence also point to another significant distinction, namely that the effects of frustration are regulated by the Law Reform (Frustrated Contracts) Act 1943: there is no comparable statute regulating the position of the parties to a contract rendered void by common mistake.

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CHAPTER  8

Damages for breach of contract The rule in Hadley v Baxendale 8.1  Damages for breach of contract will only be recoverable if falling with the rule in Hadley v Baxendale as developed by the courts in later cases. This chapter considers the scope of that principle. The “starting point” 8.2 In Livingstone v Rawyards Coal Co,1 Lord Blackburn defined the measure of damages as “that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation”.

This has been frequently cited with approval.2 8.3  Where the claim is for breach of contract, the general principle is that:3 “Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation as if the contract had been performed.” 8.4  Whilst Parke B’s dictum in the previous paragraph has often been taken as the starting point for discussions as to recoverability of particular losses, in two cases Lord Hoffmann said that this is wrong. In Transfield Shipping Inc. v Mercator Shipping Inc (The Achilleas),4 he said: “In their submissions to the House, the owners said that the ‘starting point’ was that damages were designed to put the innocent party, so far as it is possible, in the position as if the contract had been performed: see Robinson v Harman . . . However in Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd (sub nom South Australia Asset Management Corp v York Montague Ltd) [1997] AC 191, 211, I said (with the concurrence of the other members of the House): ‘I think that this was the wrong place to begin. Before one can consider the principle on which one should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation. A correct description of the loss for which the valuer is liable must precede any consideration of the measure of damages.’

  1 (1880) 5 App Cas 25 at 39.  2 Banco de Portugal v Waterlow [1932] AC 452 at 474; Monarch Steamship Co Ltd v A/B Karlshamns Oljefabriker [1949] AC 196 at 221; British Transport Commission v Gourley [1956] AC 185 at 197; Czarnikow (C) Ltd v Koufos [1969] 1 AC 350 at 420; General Tire & Rubber Co v Firestone Tyre & Rubber Co [1975] 1 WLR 819 at 824; Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 at 562.   3 Per Parke B in Robinson v Harman (1848) 1 Ex 850 at 855, approved in Watts, Watts & Co Ltd v Mitsui & Co Ltd [1917] AC 227 at 241.   4 [2008] UKHL 48; [2009] 1 AC 61 at paragraphs [14] and [15].

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In other words, one must first decide whether the loss for which compensation is sought is of a ‘kind’ or ‘type’ for which the contract-breaker ought fairly to be taken to have accepted responsibility.”

Losses within reasonable contemplation 8.5  In deciding for what kinds or types of loss a contract-breaker ought fairly to be taken as having accepted responsibility, lawyers turn to the case of Hadley v Baxendale5 as developed in later authority. In that case Alderson B said:6 “Now we think the proper rule in such a case as the present is this: where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such contract should be such as may fairly and reasonably be considered either arising naturally, ie according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the claimants to the defendants and thus known to both parties, the damages resulting from breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, would only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them.”

8.6  Within the first sentence of that dictum can be found what are often described as the first and second rules in Hadley v Baxendale summarised by Lord Upjohn in C Czarnikow Ltd v Koufos (The Heron II):7 “Though stated by the learned baron in one sentence it contains and has always been interpreted as containing two branches and for my part I care not whether it is regarded as stating two rules or two branches of one rule, though I prefer the latter. Thus: (1) Damages should be such as may naturally and usually arise from the breach, or (2) Damages should be such as in the special circumstances of the case known to both parties may be reasonably supposed to have been in the contemplation of the parties, as the result of a breach, assuming the parties to have applied their minds to the contingency of there being such a breach. See Hammond and Co v Bussey8 approved in this House in R & Hall Ltd v WH Pim (Junior) & Co Ltd.9 However, there is no dichotomy between these two branches for as Lord Shaw of Dunfermline pointed out in the last-mentioned case ‘they may run into each other and, indeed, be one’.10”   5 (1854) 9 Ex 341.   6 At 355.   7 [1969] 1 AC 350 at 421.   8 (1887) 20 QBD 79.   9 33 Com Cas 324. 10 See to much the same effect, Evans LJ in Kpohraror v Woolwich Building Society [1996] 4 All ER 119 at pages 127–128: “The contentions for both parties were presented as if in a straitjacket imposed by the strict application of the rule in Hadley v Baxendale so as to require the separate consideration of each of the two limbs . . .

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8.7  The courts have tried in many other cases to explain or clarify the two rules. In Victoria Laundry (Windsor) v Newman Industries Ltd11 Asquith LJ reformulated the principles as follows: “(1) It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed. This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognised as too harsh a rule. Hence, (2) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach. (3) What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties, or, at all events, by the party who later commits the breach. (4) For this purpose, knowledge ‘possessed’ is of two kinds; one imputed, the other actual. Everyone, as a reasonable person, is taken to know the ‘ordinary course of things’ and consequently what loss is liable to result from a breach of contract in the ordinary course. This is the subject matter of the ‘first rule’ in Hadley v Baxendale. But to this knowledge, which a ­contract-breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possesses, of special circumstances outside ‘the ordinary course of things,’ of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the ‘second rule’ so as to make additional loss also recoverable. (5) In order to make the contract-breaker liable under either rule it is not necessary that he should actually have asked himself what loss is liable to result from a breach. As has often been pointed out, parties at the time of contracting contemplate not the breach of the contract, but its performance. It suffices that, if he had considered the question, he would as a reasonable man have concluded that the loss in question was liable to result. (6) Nor, finally, to make a particular loss recoverable, need it be proved that upon a given state of knowledge the defendant could, as a reasonable man, foresee that a breach must necessarily result in that loss. It is enough . . . if he could foresee that it was likely so to result. It is indeed enough if the loss (or some factor without which it would not have occurred) is a ‘serious possibility’ or a ‘real danger’. For short, we have used the word ‘liable’ to result. Possibly the colloquialism ‘on the cards’ indicates the shade or meaning with some approach to accuracy.”

8.8 In The Heron II12 the House of Lords generally endorsed this statement of the law save that it was felt that it understated the degree of likelihood required to found liability and their Lordships disagreed with the reference to reasonable foreseeability as the touchstone. Thus Lord Reid said:13 “I am satisfied that the court did not intend that every type of damage which was reasonably foreseeable by the parties when the contract was made should either be considered as arising naturally, ie, in the usual course of things, or be supposed to have been in the contemplation of the parties. Indeed the decision makes it clear that a type of damage which was plainly foreseeable as a real possibility but which would only occur in a small minority of cases cannot be regarded as arising in the usual course of things or be supposed to have been in the contemplation of the I would prefer that the starting point for any application of Hadley v Baxendale is the extent of the shared knowledge of both parties when the contract was made (. . . including the possibility that knowledge of the defendant alone is enough”). When that is established, it may often be the case that the first and the second parts of the rule overlap, or at least that it is unnecessary to draw a clear line of demarcation between them.” 11 [1949] 2 KB 518 at pages 539–540. 12 Above. 13 At 385.

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parties: the parties are not supposed to contemplate as grounds for the recovery of damage any type of loss or damage which on the knowledge available to the defendant would appear to him as only likely to occur in a small minority of cases.”

The other members of the House of Lords used slightly different language, but to the same effect. Lord Hodson said:14 “I find guidance in the use of the expression ‘in the great multitude of cases’ which is to be found in more than one place in the judgment in Hadley v Baxendale and indicates that the damages recoverable for breach of contract are such as flow naturally in most cases from the breach, whether under ordinary circumstances or from special circumstances due to knowledge either in the possession of or communicated to the defendants. This expression throws light on the whole field of damages for breach of contract and points to a different approach from that taken in tort cases.”

8.9  Their Lordships emphasised that the test of reasonable foreseeability applicable in claims in tort was inappropriate in claims for breach of contract. In contract, the party seeking protection against a particular risk is free to communicate that risk to the other party, to require precautions to be taken to avoid or reduce that risk, and to require damages to be payable if that risk eventuates and causes loss.15 On the other hand the victim of a tort (particularly in the case of a tort involving physical loss of or damage to property) would not usually have that opportunity to protect himself in advance.16 Where liability is based upon contractual and tortious duties existing side by side, the court will apply the narrower contractual test for remoteness.17 8.10  The facts of The Heron II18 were that a cargo of sugar was delivered late with the consequence that the charterers sold the sugar for less than it would have reached had the delivery been made on time. It was held that although the shipowner did not know that the charterers intended to sell the sugar promptly on arrival, the shipowner did know that the charterers were sugar merchants and that there was a sugar market at the place of delivery (Basrah). As the shipowner knew that there was a serious possibility or real danger that the market price of the sugar might fall if it were delivered late, it was held liable for the loss in market value. 8.11  The House of Lords returned to the subject in The Achilleas to which reference has already been made. Their Lordships held that in construing a contract to determine whether a defendant is liable for losses caused by a breach of contract, a court (or arbitrator) is required to consider in the relevant commercial context the kinds or types of loss for which a contract-breaker should be taken to have accepted responsibility, particularly having regard to the understanding of the relevant sector of commercial activity. Commenting 14 At 411. In The Achilleas (above) at paragraph [49], Lord Rodger of Earlsferry said that “like Lord Hodson . . . I find guidance in Alderson B’s use of the expression ‘in the great multitude of cases’ ” and then cited this passage from Lord Hodson’s speech. 15 Thus, as Blackburn J said in Cory v Thames Ironworks and Shipbuilding Co Ltd (1868) LR 3 QB 181 at 190–191, if the damage were exceptional and unnatural it would be hard on a party to be made liable for it because, had he known what the consequences would be, he would probably have stipulated for more time or made greater exertions if he had known the extreme mischief that would follow from the non-fulfilment of his contract. 16 See, for example, per Lord Reid at 386 and per Lord Pearce at 313. See also in this context paragraphs 31 and 32 of the speech of Lord Hope of Craighead in The Achilleas (above). 17 Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146; [2016] Ch 529. 18 Above.

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upon The Achilleas, in ASM Shipping Ltd of London v TTMI Ltd of England (The “Amer Energy”),19 Flaux J said: “I do not consider that the House of Lords (at least the majority of their Lordships) were intending to lay down some completely new test as to recoverability of damages in contract and remoteness different from the so-called rule in Hadley v Baxendale as refined in subsequent cases.”

Flaux J’s dictum was cited and approved by Cooke J in Classic Maritime Inc v Lion Diversified Holdings bhd20 and by Hamblen J in The Sylvia.21 Thus, in most cases, applying Lord Hoffmann’s dicta in The Achilleas will not produce a different result from what would have been decided before (although the somewhat special facts in The Achilleas may be an exception to this). However those dicta produced a new articulation amongst practitioners of the principles of remoteness in contract. In The Sylvia,22 Hamblen J disapproved of this trend (in the context of disputes before arbitrators): “In my judgment, it is important that it be made clear that there is no new generally applicable legal test of remoteness in damages. It appears that in a number of cases this is being argued and that decisions are being challenged for failing to recognize or apply the assumption of responsibility test. This results in confusion and uncertainty. In the vast majority of cases tribunals of fact can and should be able to apply the well established remoteness test with which they are familiar and which, in the vast majority of cases, works perfectly well.”

8.12  The Court of Appeal considered the effect of The Achilleas in Supershield Ltd v Siemens Building Technologies FE Ltd.23 The dispute in that case arose out of a contract to build a new office building. The parties were a little way down the contractual chain from the main contract. Siemens was a sub-subcontractor responsible for supply and installation of a sprinkler system. Supershield was a sub-sub-subcontractor engaged to install that sprinkler system. The sprinkler system was installed defectively so that water flowed out of a water tank. This should not have caused significant damage because the tank was in a bunded area so that any water released should have been able to drain away. Unfortunately the drains in the bunded area were blocked. This resulted in significant water damage to electrical equipment. Proceedings were brought making claims down the contractual chain. Siemens settled with the parties up the chain and claimed against Supershield. One of the arguments put forward by Supershield was that the tank room was designed and constructed with drains; that the usual or natural course of any water that overflowed from the sprinkler tank would have been to run away via the drains into a sewer; and that the blockage of all the drains was a most unfortunate and unlikely occurrence, which prevented the water from running away as it would have done in the normal course of things. Thus, it was said, the damage did not fall within the first rule in Hadley v Baxendale, and Supershield was not liable to Siemens.

19 [2009] 1 Lloyd’s Rep 293 at paragraph [17]. 20 [2009] EWHC 1142 (Comm); [2010] 1 Lloyd’s Rep 59 at paragraph [71]. 21 Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd (“The Sylvia”) [2010] EWHC 542 (Comm) at paragraphs [45]–[49]. 22 At paragraphs [49] and [50]. 23 [2010] EWCA Civ 7; [2010] BLR 145.

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8.13  The Court of Appeal rejected this argument. Toulson LJ referred to The Heron II and The Achilleas and said:24 “The law on remoteness of damage in relation to claims for breach of contract is grounded on the policy that the loss recoverable by the victim should be limited to loss from which the party in breach may reasonably be taken to have assumed a responsibility to protect the victim. It follows that the question of remoteness cannot be isolated from consideration of the purpose of the contract and the scope of the contractual obligation. The underlying policy is implicit in Lord Reid’s speech in Czarnikow v Koufos (The Heron II), where he referred to what the parties may be supposed to have contemplated as grounds for the recovery of damages and linked this to the question whether the loss was sufficiently likely to result from the breach to make it proper to hold that loss of that kind should have been in the contract breaker’s contemplation.”

Later, he continued:25 “Hadley v Baxendale remains a standard rule but it has been rationalised on the basis that it reflects the expectation to be imputed to the parties in the ordinary case: i.e. that a contract breaker should ordinarily be liable to the other party for damage resulting from his breach if, but only if, at the time of making the contract a reasonable person in his shoes would have had damage of that kind in mind as not unlikely to result from a breach. However, South Australia26 and Transfield Shipping27 are authority that there may be cases where the court, on examining the contract and the commercial background, decides that the standard approach would not reflect the expectation or intention reasonably to be imputed to the parties. In those two instances the effect was exclusionary; the contract breaker was held not to be liable for loss which resulted from its breach although some loss of the kind was not unlikely. But logically the same principle may have an inclusionary effect. If, on the proper analysis of the contract against its commercial background, the loss was within the scope of the duty, it cannot be regarded as too remote, even if it would not have occurred in ordinary circumstances.”

This latter passage underlines the point made in paragraph 8.11 above: that, in the vast majority of cases, reliance upon The Achilleas is unlikely to produce a different result.28 By way of example, in Aldgate Construction Company Ltd v Unibar Plumbing & Heating Ltd,29 Akenhead J reviewed the authorities following Hadley v Baxendale without reference to The Achilleas. He summarised the effect of the authorities in a passage containing a helpful illustration:30 “So far as the ‘but for’ test is concerned, it is (almost) axiomatic that all recoverable losses proved to have been caused by the breach of duty would not have been incurred but for the breach of duty. It does not follow from this logic that all losses incurred which would not have been incurred but for the breach of duty are necessarily recoverable or will necessarily have been caused by the breach of duty. One can take an example of a taxi driver effectively employed by a claimant to drive him to a shop, which sells lottery tickets; the claimant is planning to buy a lottery ticket on the basis of the numbers of his date of birth but by reason of the taxi driver’s negligence is

24 At paragraph [40]. 25 At paragraph [43]. 26 South Australia Asset Management Corp v York Montague Ltd [1997] AC 191. 27 The Achilleas. 28 See also in this regard paragraph [20] of the judgment of Sir David Keene in John Grimes Partrnership Ltd v Gubbins [2015] EWCA Civ 37; [2013] BLR 126: “It seems to me quite clear that Lord Hoffmann was not seeking to depart wholesale from the ‘reasonably foreseeable’ test of remoteness, but rather to stress that what was reasonably foreseeable might sometime not prevail as the test if there were particular circumstances demonstrating that the parties could not have contracted on the basis that the defendant was to bear the liability of a particular kind of loss, even though reasonably foreseeable as a ‘not unlikely’ consequence of breach.” 29 [2010] EWHC 1063 (TCC). 30 At paragraph [22].

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injured and, because he has to go to hospital, he does not buy the lottery ticket which he would have bought; the lottery draw on that day, for which the prize is £10 million, just happens to be for the numbers comprised in the claimant’s birth date. But for the negligence of the taxi driver, the claimant would have won £10 million. However that does not mean that the claimant will recover the £10 million. The loss may be essentially irrecoverable for the twin reasons that it is not within the reasonable contemplation of the parties as being the type of loss which can or should be recovered and that factually the loss cannot be considered to have been caused by the negligence. Similarly, if a claimant suffers business disruption as a reasonably foreseeable consequence of the breach of contract in question, it will not be able to recover all business disruption which follows which merely might not have been suffered if the breach had not occurred. There can be no presumption of fact that all losses within a recoverable category which are incurred after the breach by the claimant are caused by the breach. It is necessary factually to analyse the facts and the history to see if on a balance of probabilities the losses at different stages were caused by the initial breach. The onus of proof remains on the claimant seeking to establish the losses. Of course it is open to the Court to make appropriate inferences of fact as well.”

8.14  If the type of damage is within contemplation as being likely to incur in the event of breach, then generally the claimant is entitled to recovery even if the amount of the loss may be much greater than could have been anticipated.31 In this respect there is alignment between recovery in contract and recovery for the tort of negligence. However if a particularly large loss flows from unusual factors the result may be different – for example in North Sea Energy Holdings NV v Petroleum Authority of Thailand at first instance,32 sellers of oil failed to recover a substantial anticipated profit from their buyers because that profit depended upon a particularly advantageous contract between the sellers and the sellers’ own suppliers. The rationale was explained by Thomas J as follows:33 “In the same way that the general measure of damages is limited to the difference between the contract and market price, so where a contract that the innocent party has entered into is used as the basis of a claim for damages, that can only be used to the extent that it is not an unusual or extravagant contract. In my judgment, loss of profits claimed by reference to an extravagant or unusual bargain are not of the same type as damages referable to bargains that are usual.”

In Victoria Laundry v Newman itself, where the contract was for the supply of a large-scale industrial boiler, it was held that, whilst the supplier should not be held liable for losses arising out of particularly lucrative contracts of which the supplier had no knowledge, it did not follow that the plaintiffs were precluded from recovering some general, and “perhaps conjectural”, sum for loss of business in respect of contracts reasonably to be expected and accordingly the case should be remitted to the Official Referee to assess such damages.34 In this respect the court in Victoria Laundry v Newman followed Cory v Thames Ironworks Co35 in which Cockburn J said:36 “The buyer has lost the larger amount, and there can be no hardship or injustice in making the seller liable to compensate him in damages so far as the seller understood and believed 31 See H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791; Transworld Oil Ltd v North Bay Shipping Corp (The Rio Claro) [1987] 2 Lloyd’s Rep 173 at 175; Brown v KMR Services Ltd [1995] 2 Lloyd’s Rep 513; Johnson v Gore Wood (No 2) [2003] EWCA Civ 1728; Jackson v Royal Bank of Scotland plc [2005] UKHL 3; [2005] 1 WLR 377; Wellesley Partner LLP v Withers LLP [2015] EWCA Civ 1146; [2016] Ch 529 at paragraph [86]. 32 [1997] 2 Lloyd’s Rep 418; affirmed on different grounds [1999] 1 Lloyd’s Rep 483. 33 At 438. 34 In The Achilleas Lord Walker at paragraph [82] drew particular attention to what the Court of Appeal did and did not order in Victoria Laundry v Newman. See also paragraph [86] his speech. 35 (1868) LR 3 QB 181. 36 At 190.

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that the article would be applied to the ordinary purposes to which it was capable of being applied.”

8.15  Thomas J’s formulation of principle set out above has been vindicated by the decision in The Achilleas. As explained by Lord Hoffmann,37 the reason why certain losses are not recoverable is because they are “not of the type or kind for which [the contract-breaker] can be treated as having assumed responsibility. What is the basis for deciding whether loss is of the same type or a different type? It is not a question of Platonist metaphysics. The distinction must rest upon some principle of the law of contract. In my opinion, the only rational basis for the distinction is that it reflects what would have been regarded by the contracting party as significant for the purposes of the risk he was undertaking.”

8.16 The question whether a particular type or kind of loss is within the actual or assumed contemplation of the parties overlaps with the actual or assumed knowledge of the parties. Thus in the case of the oil contract referred to above, the loss suffered was not of a type recoverable because it was so unusual as to be outside the contemplation of the ­contract-breaker (it was, of course, well within the contemplation of the claimant). This is consonant with the emphasis placed by the House of Lords in The Achilleas upon the necessity of construing contracts against the relevant commercial background in order to understand what risks the contract-breaker could reasonably have understood he was undertaking. In John Grimes Partnership Ltd v Gubbins38 Sir David Keene said:39 “It seems to me right to bear in mind, as Lord Hoffmann emphasised in The Achilleas, that one is dealing with the law of contract, where the situation is governed by what has been agreed between the parties. If there is no express term dealing with what types of losses a party is accepting potential liability for if he breaks the contract, then the law in effect implies a term to determine the answer. Normally, there is an implied term accepting responsibility for the types of losses which can be foreseen at the time of contract to be not unlikely to result if the contract is broken. But if there is evidence in a particular case that the nature of the contract and the commercial background, or indeed other relevant special circumstances, render that implied assumption of responsibility inappropriate for a type of loss, then the contract-breaker escapes liability. Such was the case in The Achilleas.”

8.17  There are practical aspects of the decision in The Achilleas still to be worked out, in particular the delineation of the material that can be put before a tribunal in order for it to decide what was within the actual or assumed contemplation of the parties or the actual or assumed knowledge of the parties. As the second passage from Toulson LJ’s judgment in Supershield v Siemens cited at paragraph 8.13 above indicates, the commercial background of the contract under consideration is relevant. If the particular risk is reflected in the express words of the contract, then no evidential problem will arise. A problem is only likely to arise where the search is for extraneous evidence that the contract-breaker knew or should have known of the losses likely to flow from a breach of contract. The House of Lords has recently affirmed the general principle that in construing a contract regard cannot

37 The Achilleas, at paragraphs [21] and [22]. 38 [2013] EWCA Civ 37; [2013] BLR 126. 39 At paragraph [24].

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be had to what was said in negotiations;40 however, for the second limb of the rule in Hadley v Baxendale to be effective it seems that the law should recognise an exception to that general principle and admit evidence of what the contract-breaker was told at or before the time of contracting about the types of loss that might be caused by breach of contract. In other words, although pre-contractual negotiations are irrelevant to the proper construction of the contract, nevertheless, once the meaning of the contract has been ascertained (without regard to such negotiations), pre-contractual negotiations are relevant to the assessment of the damages for which the contract-breaker is to be taken to have assumed responsibility. 8.18  If both parties are in the same business or profession, or in allied businesses or professions, then it will be easier for the claimant to recover losses if they are the type or kind of losses that are normally recoverable in a particular market or area of commercial activity. In his speech in The Achilleas, Lord Walker of Gestingthorpe said:41 “Businessmen who are entering into a commercial contract generally know a fair amount about each other’s business. They have a shared understanding (differing in precision from case to case) as to what each can expect from the contract, whether or not it is duly performed without breach on either side. No doubt they usually expect the contract to be performed without breach, but they are conscious of the possibility of breach . . . The consequence is that although the fundamental principle in Hadley v Baxendale applies to contracts of every sort . . . particular types of contract in regular use in different parts of commercial, industrial and financial life (such as charterparties, construction contracts, and agreements for the sale and purchase of a controlling shareholding in a large company) have inevitably become specialised subjects.”

8.19  In the context of building contracts, a contractor may well know in general terms that if the contract is delayed the employer is likely to suffer loss – for example loss of rent if the property is to be rented, or loss of operating profits if the building is to be used by the employer as a factory or a shop – but the contractor may not know the extent of potential loss. For this, amongst other reasons, building contracts normally contain provisions for the payment of liquidated damages in the event of delay. In Diamond v ­Campbell-Jones,42 a buyer of a leasehold house in Mayfair, who was in business as a dealer in real estate, claimed in an action against a repudiating seller the profit he would have made upon the conversion of the house into flats and offices. This claim was rejected because the seller was unaware of this potential profit – the court awarded the difference between contract price and market price. Presumably the result might have been different if the vendor had brought to the attention of the seller what his intention was; the result would almost certainly have been different if this purpose had been expressly reflected in the contract (although such a term in a standard conveyancing transaction would be unusual). By analogy a contractor who completes a construction project late would not be liable for damages suffered by the employer because of loss of a particular onward sale unless the risk of loss of that transaction had been expressly brought to the attention of the contractor and reflected in the terms agreed between the parties to the building contract. 8.20 Where a contractor is in breach of a construction contract, the consequences normally fall within one of four categories: (1) the works are defective requiring repair

40 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101. 41 Chartbrook above: at paragraphs[69] and [70]. 42 [1961] Ch 22.

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or replacement or left incomplete, requiring completion; (2) personal injury is caused; (3) damage to property other than the contract works is caused; or (4) there is delay in completion of the works. In most cases, the consequences of the first three situations are of a type as to give no grounds for argument as to the application of the rule (or rules) in Hadley v Baxendale. In the fourth situation, the consequences will very often be anticipated by the express terms of the contract through provision for liquidated damages. For these reasons it is perhaps unsurprising that there are few cases discussing the application of Hadley v Baxendale in respect of construction projects. It seems likely that following the decision in The Achilleas, contract-breakers will be tempted to argue that particular losses are not of the type or kind for which contractors normally accept responsibility. In practice it seems unlikely that this will change much, given that most construction contracts are drafted on a basis that reflects such common practice – thus any such argument might be more than a little circular! In the following paragraphs we consider some of the construction cases in which issues of remoteness have arisen. 8.21 In East Ham Corporation v Bernard Sunley & Sons Ltd43 a contractor built a school for the local authority under a building contract under the then RIBA form of contract that allowed for the issue by a supervising architect of a final certificate. The principal issue before the House of Lords was as to the effect of such a certificate – it was held not to preclude a claim by the local authority in respect of defects that would not have been disclosed by a reasonable inspection by the architect at the end of the defects liability period. A subsidiary argument was that a reasonable inspection by the architect at the time of his visits to the works would have revealed the defects, and that accordingly the costs of remedial works should be assessed as at the date of those visits rather than when the defects were discovered many years later. This optimistic argument was rejected by the trial judge and by the House of Lords on the basis (applying Victoria Laundry v Newman) that it “was not at all surprising and very much on the cards”44 that the architect might not notice defective works and accordingly that the recoverable cost of remedial works should be assessed at the date of discovery of the defects. 8.22 In Balfour Beatty Construction (Scotland) Ltd v Scottish Power plc,45 Balfour Beatty had a contract with Scottish Power for a temporary supply of electricity that Balfour Beatty needed to operate a concrete batching plant. The concrete batching plant was needed to enable Balfour Beatty to construct a concrete aqueduct to carry a canal over a road that it was constructing. The electricity failed with the consequence that the batching plant shut down. This in turn meant that the construction of the aqueduct could not be completed by continuous pouring of concrete. Balfour Beatty had to demolish the aqueduct and start again. The House of Lords held that the claim for the resultant additional costs failed. Lord Jauncey of Tullichettle said:46 “It must always be a question of circumstances what one contracting party is presumed to know about the business activities of the other. No doubt the simpler the activity of the one, the more readily can it be inferred that the other would have reasonable knowledge thereof. However, when the activity of A involves complicated construction or manufacturing techniques, I can

43 [1966] AC 406. 44 Per Lord Pearson at 451. 45 (1994) 71 BLR 20. 46 (1994) 71 BLR 20 at 29.

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see no reason why B who supplies a commodity that A intends to use in the course of those techniques should be assumed, merely because of the order for the commodity, to be aware of the details of all the techniques undertaken by A and the effect thereupon of any failure or deficiency in that commodity. Even if the Lord Ordinary had made a positive finding that continuous pour was a regular sort of industrial practice it would not follow that in the absence of any other evidence suppliers of electricity such as the Board should have been aware of that practice.”

8.23 Following The Achilleas, the Balfour Beatty decision could also be justified upon the basis that the risk of it being necessary to rebuild the aqueduct in the event of an interruption of the power supply was not the type of risk for which as a matter of commercial common sense the electricity supplier could be taken to have accepted responsibility. 8.24 In Earl Terrace Properties Ltd v Nilsson Design Ltd,47 the claimant was a property developer developing a row of Georgian houses. Nilsson were architectural consultants. It was alleged that Nilsson had been in breach of their agreement with the claimant in that a waterproof membrane was either designed or specified negligently or because the installation of the membrane had not been supervised properly. HH Judge Thornton QC was asked to decide preliminary issues as to the damages recoverable in law. In particular, it was said that losses in respect of “holding costs” resulting from delays to the project caused by the membrane problems were not recoverable. He held that in principle such losses were recoverable:48 “The conclusion to be drawn from these authorities is that delay in completing a commercial development gives rise to a claim for losses caused by there having been a period of delay in the completion of the development. Such losses can include the loss arising from the loss of use of capital and financing funds locked into the development during the period of delay. The claimant developer must show that he did lose the use of the funds in the sense that he must show that he would have put the funds to commercial use by investment, by reducing overdraft or other borrowing costs or by investing in the business to obtain capital development. He must, in other words, provide evidence that there was a release of funds generated by the completion of the development and that the actual date of release and a delay in release was causally linked at least in general terms to the defendant’s breach of contract and duty. He must also show what he would have done with the funds during the delay period had they been released earlier. If the claimant can establish that he has lost the opportunity to use the funds for a commercial purpose but he cannot establish the precise loss that arose or cannot quantify it, the claimant may then quantify the loss by reference to a reasonable rate of return that could have been achieved from the funds.”

8.25  The facts of Supershield v Siemens Building Technologies49 have been set out at paragraph 8.12 above, and passages of general application from the judgment of Toulson LJ at paragraph 8.13. Applying those general principles to the facts of the case (which is the sort of problem likely to occur from time to time in construction projects) he said:50 “The distinctive feature of the present case is that the ball valve and the drains were both designed to control the flow of water involved in the operation of the sprinkler system. None of the cases cited to us had any comparable feature (ie simultaneous failure of separate protection measures) and, surprisingly as it may seem, counsel were not able to find any. It is

47 [2004] BLR 273. 48 At paragraphs [89] and [90]. 49 [2010] EWCA Civ 7; [2010] 145. 50 At paragraphs [44] and [45].

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not uncommon in the case of a sophisticated engineering project (whether an aircraft, a car, a tunnel or a building) for the designer to incorporate multiple safety devices in the reasonable expectation that the risk of simultaneous failure of both or all the protection devices will be minimal. But the fulfilment of that expectation will depend on those responsible for the protection devices doing as they ought. If those responsible fail to do so, and the unlikely happens, it should be no answer for one of them to say that the occurrence was unlikely, when it was that party’s responsibility to see that it did not occur. As Mr Lord observed, the reason for having a number of precautionary measures is for them to serve as a mutual back up, and it would be a perverse result if the greater the number of precautionary measures, the less the legal remedy available to the victim in the case of multiple failures. Mr. Cannon may be right in his submission that a failure of the connection between the ball valve and lever arm was very unlikely to result in a flood, because the probability was that the water would escape through the drains, but I do not accept that this made the loss resulting from the flood too remote to have been recoverable by Haden Young from Siemens. Siemens was responsible to Haden Young for supplying and installing the sprinkler system in such a way that the water used for the system was properly contained, and it therefore assumed a contractual responsibility to prevent its escape. The ball valve was the first means of protection against water causing damage to other parts of the building and it failed. It was always possible that the second means of protection, the drains, might also fail. As the judge observed, drains do block, drain pumps malfunction, building management systems do not always operate and maintenance is not always effective. I would conclude that the flood which resulted from the escape of water from the sprinkler tank, even if it was unlikely, was within the scope of Siemens’ contractual duty to prevent. But that is to go further than is strictly necessary. Siemens had only to show that it was reasonable to settle the claims made against it as it did. I see no proper reason for overturning the judge’s conclusion that it was reasonable.”

8.26  Mayhaven Healthcare Ltd v Bothma51 concerned a claim arising out of delay in completion of works to a nursing home. The arbitrator awarded damages on the basis of lost income from occupation by rooms by elderly physically disabled persons, rather than young physically disabled persons, which would have been more profitable, holding that the latter loss was not recoverable under the first limb of Hadley v Baxendale. Ramsey J rejected an appeal of law as to this decision, which turned upon the arbitrator’s detailed factual findings. 8.27 In John Grimes Partnership Ltd v Gubbins,52 the Court of Appeal upheld an award of damages against a firm of consulting engineers arising out of losses caused by a fall in the value of a development project as a result of a falling property market during a period of delay caused by a need to remedy defective works caused by design defects for which the engineers were responsible, rejecting an argument that such losses were too remote in law. An extract from the judgments in that case is set out at paragraph 8.16 above.

51 [2009] EWHC 2634 (TCC); [2010] BLR 154. 52 [2013] EWCA Civ 37; [2013] BLR 126.

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Damages for breach of contract Measure of damages1 9.1  The appropriate measure of damages for breach of contract depends in the first place upon the nature of the breach of contract. Thus, if the claim is for breach of a contract to supply goods where there is an available market for the goods in question, the measure of damages is prima facie the difference between the contract price and the market or current price at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver:2 so, for example, if there is a contract to supply radiators at £100 each, which is not honoured so that a contractor has to buy radiators from the local builders’ merchant at £105 per radiator, the measure of loss is £5 per radiator. 9.2  If the result of the breach of contract is delay in completion of a project as a consequence of delay by the contractor, then loss suffered by the employer may be loss of profits either because the date when profits are received is deferred or because the opportunity to make a profit (or a particular profit) is lost for ever, or it may be measured by additional expenses incurred, for example the cost of additional financing costs. If the result of the breach of contract is delay in completion of a project as a consequence of delay by the employer, the contractor is likely to suffer loss represented by the costs of remaining on site for an additional period. Cost of repairs or diminution in value? 9.3  If the result of the breach of contract is that a building is defective, then there are two alternative methods of assessment of the claimant’s loss. The first is the difference between the capital value of the property as it stands and its value had the contract been properly performed. The second is the cost of carrying out remedial works to make good the breach of contract. The court has to choose between these two alternative methods of assessment and select which of the two is the more appropriate (which means the fairer) in the circumstances of the particular case. If the result of the breach of contract (or tort) is that repairs have to be carried out, generally it will be the cost of the remedial works that will be awarded,3 particularly if the remedial works have already been carried out.4

  1 Much of the discussion in this chapter is equally applicable to the measure of damages in tort.   2 Section 51(3) of the Sale of Goods Act 1979.   3 This principle is applied day-in day-out by courts and arbitrators. See for example Radford v De Froberville [1977] 1 WLR 1262; Dodd Properties (Kent) Ltd v City of Canterbury [1980] 1 WLR 433; 13 BLR 45; Wm Cory & Son Ltd v Wingate Investments (London Colney) Ltd (1980) 17 BLR 104, and in particular the judgment of Ormrod LJ at 121; Earl Terrace Properties Ltd v Nilsson Design Ltd [2004] BLR 273 at paragraph [54]; McGlinn v Waltham Contractors Co Ltd [2007] EWHC 149 (TCC); [2008] Bus LR 233; (2007) 111 Con LR 1, at paragraph [787]; Axa Insurance UK plc v Cunningham Lindsey UK [2007] EWHC 3023 (TCC) at paragraph [261].  4 Linklaters Business Services v Sir Robert Mcalpine Ltd [2010] EWHC 2931 (TCC); [2011] BLR 108; 133 Con LR 211 at paragraph [125].

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9.4  If the claimant elects to sell a house containing defects, rather than execute repairs, then the diminution in the value of the house as a result of the defects is likely to be held to be the appropriate measure of damage.5 9.5  The circumstances in which a court has to choose between an award of damages based upon reinstatement and damages based upon diminution in value were discussed in Ruxley Electronics and Construction Ltd v Forsyth.6 In that case the two plaintiffs were contractors, one of whom had built a swimming pool for Mr Forsyth in his garden, and the other of whom had built the enclosure to the swimming pool. The contract specified that the pool should have a diving area 7 ft 6 in deep. On completion the pool was suitable for diving but the diving area was in part only 6 ft deep. The trial judge held that there was no adverse effect on the value of Mr Forsyth’s property. The estimated cost of rebuilding the pool to the specified depth was £21,650. There was considerable doubt whether Mr Forsyth, if awarded that cost, would use it to rebuild the pool. The trial judge dismissed Mr Forsyth’s counterclaim for breach of contract save to the extent of awarding him £2,500 for loss of amenity. 9.6  In the Court of Appeal7 Mr Forsyth’s appeal was allowed by a majority. Staughton LJ reasoned that the problem was not one of mitigation – in order to put Mr Forsyth in the position he would have been in had the contract been performed the only option was to rebuild the pool, and accordingly he was entitled to damages on his counterclaim of that cost. 9.7  The House of Lords reversed that decision. In his speech, Lord Lloyd of Berwick dealt with the ordinary measure of damages for defective performance under a building contract:8 “In building cases, the pecuniary loss is almost always measured in one of two ways; either the difference in value of the work done or the cost of reinstatement. Where the cost of reinstatement is less than the difference in value, the measure of damages will invariably be the cost of reinstatement. By claiming the difference in value the plaintiff would be failing to take reasonable steps to mitigate his loss. In many ordinary cases, too, where reinstatement presents no special problem, the cost of reinstatement will be the obvious measure of damages, even where there is little or no difference in value, or where the difference in value is hard to assess. This is why it is often said that the cost of reinstatement is the ordinary measure of damages for defective performance under a building contract. But it is not the only measure of damages. Sometimes it is the other way round.”

Lord Lloyd then referred to the judgment of Cardozo J in the American case of Jacob & Youngs v Kent9 and continued:10 “Cardozo J’s judgment is important, because it establishes two principles, which I believe to be correct, and which are directly relevant to the present case; first, the cost of reinstatement is not the appropriate measure of damages if the expenditure would be out of all proportion to the benefit to be obtained, and, secondly, the appropriate measure of damages in such a case is the difference in value, even though it would result in a nominal award.”

  5 See for example Rawlings v Rentokil Laboratories [1972] EGD 744.   6 [1996] 1 AC 344.   7 [1994] 1 WLR 650.   8 [1996] 1 AC 344 at 366C–E.   9 (1921) 129 NE 889. 10 At 367B.

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This he followed with reference to the decision of the High Court of Australia in Bellgrove v Eldridge11 saying:12 “Once again one finds the court emphasising the central importance of reasonableness in selecting the appropriate measure of damages. If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the Plaintiff’s loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.”

9.8  In his speech Lord Jauncey of Tullichettle referred to the same Commonwealth authority and said:13 “What constitutes the aggrieved party’s loss is in every case a question of fact and degree. Where the contract breaker has entirely failed to achieve the contractual objective it may not be difficult to conclude that the loss is the necessary cost of achieving that objective. Thus if a building is constructed so defectively that it is of no use for its designed purpose the owner may have little difficulty in establishing that his loss is the necessary cost of reconstructing. Furthermore in taking reasonableness into account in determining the extent of loss it is reasonableness in relation to the particular contract and not at large. Accordingly if I contracted for the erection of a folly in my garden which shortly thereafter suffered a total collapse it would be irrelevant to the determination of my loss to argue that the erection of such a folly which contributed nothing to the value of my house was a crazy thing to do . . . However where the contractual objective has been achieved to a substantial extent the position may be very different.”

9.9  In deciding whether the cost of reinstatement is the reasonable measure of damage the intention of the claimant is relevant but not conclusive – the claimant is not necessarily obliged to establish that he would use the damages towards reinstatement.14 9.10  Not infrequently claims for reinstatement costs are brought as subrogated actions pursued by insurers in the name of their insured. Often the insurers will have been obliged under their policy to pay out the insured on a new-for-old or replacement basis. This is irrelevant to deciding whether the cost of reinstatement is the appropriate measure of damages as between the insured and a contract-breaker or tortfeasor.15 9.11  Commenting on the application of Ruxley in a Scottish case,16 Lord Drummond Young said that the cost of reinstatement remains the norm, subject to an exception where that cost is seriously disproportionate to the good to be obtained, and continued:17 “In my opinion . . . a pursuer will be entitled to the cost of making the works conform to contract except in two situations: firstly, where the cost involved is manifestly disproportionate to any benefit that will be obtained from it, in which case the court should take notice of the 11 (1954) 90 CLR 613. 12 At 368B. 13 At 358D–G. 14 Per Lord Jauncey at 359 C and Lord Lloyd at 372C–373E. See also CR Taylor (Wholesale) Ltd v Hepworths Ltd [1977] 1 WLR 659 where the judge found that the plaintiff had no intention of rebuilding a disused billiard hall which was gutted by a fire. See also De Beers UK Ltd v Atos Origin IT Services UK Ltd [2010] EWHC 3276 (TCC); [2011] BLR 274 at paragraph [345] following Van de Garde BV v Force India Formula One Team [2010] EWHC 2373 (QB). 15 CR Taylor (Wholesale) Ltd v Hepworths Ltd (above); Southampton Container Terminals Ltd v Schiffahrtsgesellschaft “Hansa Australia” MbH & Co (“The Maersk Colombo”) [2001] EWCA Civ 717; [2001] 2 Lloyd’s Rep 275 at paragraph [10]. Coles v Hetherton [2013] EWCA Civ 1704; [2015] 1 WLR 160 at paragraph [35]. See also Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3; [2007] Bus LR 726, referred to at footnotes 20 and 29 below. 16 McLaren Murdoch & Hamilton Ltd v Abercromby Motor Group Ltd (2002) 100 Con LR 63. 17 (2002) 100 Con LR 63 at 80.

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disproportion; and, secondly, where the defender leads evidence to show that there is a significant disproportion between the cost and the benefit. Even in the latter category of case, I consider that the balance between cost and benefit should not be weighed too finely.”

It is respectfully agreed that in practice courts are likely to be slow to refuse to allow claimants to recover reasonable costs of repair. 9.12  At first instance in Ruxley the trial judge had awarded Mr Forsyth £2,500 for loss of amenity. That claim was abandoned before the House of Lords for tactical reasons, but Lord Lloyd indicated that such a claim would be sustainable.18 The circumstances in which the courts will award damages in contract for non-pecuniary losses are considered at paragraphs 11.36 to 11.44 below. 9.13 Whilst Ruxley concerned a claim for breach of contract, it has since been applied in tortious claims for damages for negligence.19 9.14  Where the claim is for the cost of repair or reinstatement to a chattel, Ruxley is applicable, but there are differences to be noted. Firstly, whilst it may be relatively easy in a market place to purchase a replacement chattel, a house will often, perhaps generally, have unique features close to the heart of its owners. Thus it may well be reasonable in the case of damage to a residential property to reinstate the building to its condition before damage, or to the condition it should have been in had the contract been honoured. Secondly, a building is generally a long-lived structure – accordingly the benefit to be obtained from carrying out remedial works must be measured by reference to the likely future use in the ownership of a claimant. In respect of the cost of repair of a chattel that has been damaged, Clarke LJ in The Maersk Colombo20 endorsed the following approach: “(1) On proof of the tortious destruction of a chattel, the owner is prima facie entitled to damages reflecting the market value of the chattel ‘as is’. (2) He is so entitled whether or not he intends to obtain a replacement. (3) The market or resale value is to be assessed on the evidence, there being no standard measure applicable to all circumstances. (4) If the claimant intends to replace the chattel, and if the market or resale value as assessed is inadequate for that purpose, then the higher replacement value may, in the event, be the appropriate measure of damages. (5) When and if replacement value is claimed, the claimant can only succeed to the extent that the claim is reasonable; that is, that it reflects reasonable mitigation of its loss. (6) The claim will ordinarily be reasonable if it is reasonable to replace the chattel and the cost of replacement is reasonable.”

The same principles would apply if a chattel is damaged by a breach of contract. Because the measure of loss for damage to a chattel is the diminution in value of the chattel as a result of the damage, there is no duty to mitigate loss: if excessive cost is incurred in repairing the chattel, that may cause the cost of repair to exceed the diminution in value of the 18 At pages 373–375. See also Voaden v Champion (“The Baltic Surveyor” and “Timbuktu”) [2002] EWCA Civ 89; [2002] 1 Lloyd’s Rep 623 at paragraph [97]. 19 The Maersk Colombo and The Baltic Surveyor, footnotes 15 and 18 above. 20 Above at paragraph [71]. For a case where damages were assessed on the basis of replacement cost, even though that cost was in excess of the economic value of the chattels damaged, see Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3; [2007] Bus LR 726. In that case (which related to the destruction of an archive of photographic material) Longmore LJ commented at paragraph [49]: “It must be very rare when the cost of reimbursement will be awarded to someone who does not intend to reinstate in fact.” See also Waterdance Ltd v Kingston Marine Services Ltd [2014] EWHC 224 (TCC); [2014] BLR 141 at paragraph [18].

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chattel, making the actual cost of repair an unreliable measure of the diminution in value of the chattel.21 Events occurring after the infliction of damage to a chattel are irrelevant to calculation of diminution in value of the damaged chattel.22 9.15 Where the claimant is the lessor of premises claiming damages for damage to a property that has been let out, the prima facie measure of damages is the diminution in the value of the reversion of the freehold: see Rust v Victoria Graving Dock Co,23 applied in Coal Pension Properties Ltd v Nu-Way Ltd.24 Where, however, the landlord has a contractual obligation to tenants to reinstate, it is likely that the cost of repairs will be recovered. Reliance upon advice 9.16  In arguing that the costs of repairs is a reasonable measure of damage, the claimant must not only satisfy the court (or an arbitrator) that judgment based upon the cost of repairs rather than diminution in value is the appropriate approach, but also that the cost claimed is itself reasonable. Where remedial works are carried out, they are very often carried out based upon the advice of independent experts – indeed any properly advised claimant intending later to pursue a claim for the cost of repairs would obtain independent advice as to what should be done before works are carried out. 9.17 When in due course proceedings are commenced in such a situation the claimant will wish to rely upon the advice given as establishing the reasonableness of the cost claimed. Often a defendant, particularly a defendant who was not given the opportunity to comment before the works were carried out, will argue that the works were unnecessary or that a different method of repair would have achieved the same result at a lesser cost. In such a case the court is called upon to judge the solution proposed by the independent expert. 9.18  The advice of an expert may well be a material factor in the determination of what was a reasonable course of action for an innocent claimant to take. In Board of Governors of the Hospital for Sick Children v McLaughlin and Harvey,25 the court found that the plaintiff was entitled to damages for the remedial solution adopted by it on the advice of its expert in relation to putting right certain defects for which the defendants were culpable. There was a choice and the plaintiff adopted the more extensive and expensive solution, which “was the product of caution and a resolve not to leave anything to chance which could be reasonably avoided”. The expert upon whose advice they relied had not been negligent in giving the advice. 9.19 In McGlinn v Waltham Contractors Co Ltd26 HH Judge Peter Coulson QC set out the principles to be applied as follows: “Now let us assume that I am wrong to distinguish the Great Ormond Street case on the facts and/or that I am bound by whatever principle it is said that Judge Newey articulated in his 21 Coles v Hetherton [2013] EWCA Civ 1704; [2015] 1 WLR 160 at paragraph [31]. 22 Waterdance Ltd v Kingston Marine Services Ltd [2014] EWHC 224 (TCC); [2014] BLR 141 at paragraphs [18] and [19]. 23 (1887) 36 Ch D 113. 24 [2009] EWHC 824 (TCC). For a case concerned with the implications of Ruxley on a landlord’s claim under section 18(1) of the Landlord and Tenant Act 1927 see PGF II SA v Royal and Sun Alliance Insurance plc [2010] EWHC 1459 (TCC). 25 (1987) 19 Con LR 25. 26 [2007] EWHC 149 (TCC); [2008] Bus LR 233; (2007) 111 Con LR 1, at paragraph [827] applying Skandia Property (UK) Ltd v Thames Water [1999] BLR 338. The passage cited in the text was cited and followed by Akenhead J in AXA Insurance UK plc v Cunningham Lindsey United Kingdom [2007] EWHC 3023 (TCC),

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

In that case the court refused to award damages upon the basis of the demolition and reconstruction of a building, the judge saying27 that demolition of a building was an extreme course of action that should only be considered as a last resort and would ordinarily only be justified where the building was dangerous or structurally unsound. 9.20  If the expert advises that other work not caused or necessitated by the defendant’s breach of contract should be carried out at the same time as the remedial works, that cost will not be payable by the defendant.28 If repairs have not been carried out by the date of trial, but for some reason costs are assessed as at a date prior to trial, interest on those costs is likely to be awarded.29 Betterment 9.21  When damage is caused to a building, the remedial works may result in the claimant having a better building than he had before – for example if a fire occurs in the kitchen of a private home, the claimant may get a new kitchen in replacement for a kitchen that was several years old. In this situation the defendant may argue that a reduction in damages should be made for betterment. 9.22 In Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd30 the defendant’s breach of contract caused the total destruction of the plaintiff’s mill building, which it used for a profit-making industrial business. The plaintiff built a brand new two-storey building in place of the elderly five-storey building that had been destroyed. The Court of Appeal rejected the argument that there should be credit for betterment. The plaintiff had no option but to rebuild in order to carry on its business. Widgery LJ said31 that to require such a credit to be given “would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them”. Generally no paragraph [269]. McGlinn was also the subject of express agreement by Jackson J in Shepherd Homes Ltd v Encia Remediation Ltd [2007] EWHC 1710 (TCC) at paragraph [481]. 27 At paragraph [817]. 28 See for example per Akenhead J in AXA Insurance UK PLC v Cunningham Lindsey United Kingdom (above) paragraphs [267] and [270]. 29 Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3; [2007] Bus LR 726. 30 [1970] 1 QB 447. 31 At 217C.

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credit for betterment will be required where damage is caused to a building necessitating remedial works.32 One case in which a reduction for betterment was made is Scott Wilson Kirkpatrick & Partners v Ministry of Defence.33 9.23  As to the basis for assessing whether or not any credit should be given for betterment, in The Baltic Surveyor34 Rix LJ said: “I suspect . . . that the true principle is that in the relevant cases the betterment has conferred no corresponding advantage on the claimant. Take the ordinary case of the repair of some part of a machine. Where only a new part can be fitted or is available, the betterment is likely to be purely nominal: for unless it can be posited that the machine will outlast the life left in the damaged part just before it was damaged, the betterment gives the claimant no advantage; and in most cases any such benefit is likely to be entirely speculative. So in the case of replacement buildings: the building may be new, but buildings are such potentially long-lived objects that the mere newness of a building may be entirely by the way. Of much more importance to a business owner is whether the replacement answers the needs of his business. Even where the replacement is of a moderately bigger size (Dominion Mosaics v Trafalgar Trucking), in the absence of any reason for thinking that the bigger size is of direct benefit to the claimant, he has merely mitigated as best he can. If, however, it were to be shown that the bigger size (or some other aspect of betterment) were of real pecuniary advantage to the claimant, as where, for instance, he was able to sublet the 20  per cent extra floor space he had obtained in his replacement building, I do not see why that should not have to be taken into account. It is after all a basic principle that where mitigation has brought measurable benefits to a claimant, he must give credit for them: see British Westinghouse v Underground Electric Railways,35 where defective machines were replaced by new machines of superior efficiency.”

Date of assessment 9.24  The general rule (which applies to claims in tort as well as in contract) is that damages are assessed at the date when the cause of action arises:36 however this general principle has been so qualified that it may be more accurate to say simply that “the date of assessment of damages is one which must be judged by considering all the facts of the case including in particular the conduct of the defendants”.37 In contract the cause of action arises at the date of the breach of contract; in the tort of negligence it arises when damage occurs as a result of the negligent act or omission of the tortfeasor. This means that in the case of a claim arising out of a defect in a building the claim in contract will typically arise much earlier than the claim in tort if, as is very often the case, the defect in the building does not cause damage until some years after the building works were carried out in breach of contract. Thus in times of cost 32 See for example Barclays Bank plc v Fairclough Building (No 2) (1994) 39 Con LR 144; Dominion Mosaics & Tiling Co v Trafalgar Trucking Co [1990] 2 All ER 246; (1989) Con LR 1; Pegler Ltd v Wang (UK) Ltd [2000] BLR 218; CJ Elvin Building Services Ltd v Noble [2003] EWHC 837 (TCC). 33 (1999) 73 Con LR 52. 34 Footnote 18, above, at paragraph [85]. See also Van Dal Footwear v Ryman [2009] EWHC 646 (TCC) in which economic repair was possible but the claimant decided to repair an item in disrepair with a new design (replacing an existing seventeenth century fabric with new and modern materials). HHJ Wilcox held that this was not a reasonable repair. 35 [1912] AC 673. 36 Miliangos v George Frank (Textiles) Ltd [1976] AC 443 at 468; Ageas (UK) Ltd v Kwik-Fit (GB) Ltd [2014] EWHC 2178 (QB); [2014] Bus. LR 1338; [2015] Lloyd’s Rep IR 1. 37 The quotation is from the judgment of Walton J in Wm Cory & Son Ltd v Wingate Investments (London Colney) Ltd (1980) 17 BLR 104 at 118. For a discussion of the cases in which the courts depart from the normal rule see Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] UKHL 12; [2007] 2 AC 353 at paragraphs [8]–[21].

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inflation, to take the date of breach of contract as being the date when the breach of contract occurred is likely to leave the innocent claimant out of pocket: for example in East Ham Corporation v Bernard Sunley & Sons Ltd,38 building works were completed in May 1954, some panels fell in 1959 revealing that the works were defective and remedial works were carried out between 1960 and 1961. Between 1954 and 1961 the cost of the building works had increased by almost 50%. The 1961 cost was taken as the measure of damages. 9.25  Because of the obvious injustice in most cases where the measure of loss is the cost of repairs or reinstatement of taking the date at which the cause of action arose as being the date of assessment of damages, whether the claim is in contract or in tort the courts generally assess damages at the date when the repairs or reinstatement were carried out or (if they have not been carried out at the date of trial) when they are likely to be carried out,39 unless the defendant can show that the claimant has failed to mitigate his loss by not carrying out works earlier. 9.26  It was at one time thought to be the law, following The Liesbosch,40 that delay in execution of remedial works because of impecuniosity would not justify taking a later date of assessment than the date when the cause of action arose on the grounds that loss caused by the claimant’s impecuniosity was too remote to be recoverable, but this is not the law.41 9.27  Where damages are assessed on the basis of the diminution in value of property, the date of assessment is more likely to be the date when the cause of action arose, so long as that fits the justice of the case.42 Thus, for example, if the defects are not discovered for many years, during which time house prices have increased substantially, to assess damages on the basis of diminution in value at the time when the house was built defectively would be unlikely to be just. Even the date of discovery may not be the just date to take – for example, after discovery of defects it may take time to establish the implications of defects discovered and then to sell a house in a defective condition; during that time damages assessed on the basis of the difference in value between the house in good condition and the house in defective condition at the date of discovery may leave the claimant unable to buy an equivalent house in good condition out of the resulting damages. In Shepherd Homes Ltd v Encia Remediation Ltd,43 Jackson J assessed damages for diminution in the value of houses caused by foundation defects in certain cases at the date of trial44 and in other cases, where the diminution in value was as yet uncertain but might be suffered at a later date, he granted an indemnity in respect of future diminution.45 9.28 Where damages are assessed on the basis of expenses incurred (eg, expenses incurred by a contractor as a result of delays caused by the employer) then the date of assessment is usually the date when the expenses were incurred.

38 [1966] AC 406. 39 Dodd Properties (Kent) Ltd v City of Canterbury [1980] 1 WLR 433; 13 BLR 45; Perry v Sidney Phillips & Son [1982] 1 WLR 1297 at 1301; Imperial College of Science and Technology v Norman & Dawbarn (1986) 2 Const LJ 280; Barclays Bank plc v Fairclough Building (No 2) (1994) 39 Con LR 144; Alcoa Minerals of Jamaica Inc v Broderick [2002] 1 AC 371; Bovis Lend Lease Ltd v RD Fire Protection Ltd [2003] EWHC 939 (TCC) at paragraph [63]. 40 Liesbosch Dredger (Owners of ) v Owners of SS Edison [1933] AC 449. 41 Dodd Properties (Kent) Ltd v City of Canterbury, Perry v Sidney Phillips & Son; Alcoa Minerals of Jamaica Inc v Broderick (above); Lagden v O’Connor [2003] UKHL 64; [2004] 1 AC 1067. 42 Perry v Sidney Phillips & Son (above). 43 [2007] EWHC 1710 (TCC). 44 At paragraphs [721]–[723]. 45 At paragraph [736].

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Mitigation of loss 9.29  It has been seen already that the measure of recoverable damages in each case depends upon concepts of reasonableness – issues of reasonableness permeate the courts’ approach as to whether cost of reinstatement or diminution in value is the appropriate measure of damage, as to whether the scope of works carried out is reasonable as between claimant and defendant and as to whether the date of assessment of damage should be an earlier or later date. 9.30  In many of the situations considered, the issue can be stated as being whether the claimant has taken reasonable steps to avoid loss or “to mitigate his loss”. It is a fundamental principle of the law (in tort as in contract) that when assessing the damages due to a claimant in any given case the court will not allow recovery in respect of losses that he or she could reasonably have avoided. The principle was stated as follows by Viscount Haldane LC in British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd (No 2):46 “The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a claimant the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.”

9.31  Although Viscount Haldane’s formulation is in terms of a “duty” to take reasonable steps, as Sir John Donaldson MR pointed out in one case, there is not in truth a duty to mitigate – merely consequences as to recoverability of loss if reasonable steps to avoid loss are not taken:47 “A plaintiff is under no duty to mitigate his loss, despite the habitual use by the lawyers of the phrase “duty to mitigate”. He is completely free to act as he judges in his best interests. On the other hand, a defendant is not liable for all loss suffered by the plaintiff in consequence of his so acting. A defendant is only liable for such part of the plaintiff’s loss as is properly to be regarded as caused by the defendant’s breach of duty.”

9.32  The burden of proving that the claimant has unreasonably failed to avoid loss lies upon the defendant. 9.33  The standard of reasonableness expected of the victim of a breach of contract or of a tort was explained by Lord Macmillan in Banco de Portugal v Waterlow & Sons Ltd:48 “Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticize the steps which have been taken to meet it, but such criticism does not come well

46 [1912] AC 673 at 689. 47 Sotiros Shipping Inc and Aeco Maritime S.A. v Sameiet Solholt (The “Solholt”) [1983] 1 Lloyd’s Rep 605 at page 608. See also, to the same effect, the judgment of Pearson LJ in Darbishire v Warran [1963] 1 WLR 1067; Koch Marine Inc v D’Amica Societa di Navigatione [1980] 1 Lloyd’s Rep 75 at 88; Standard Chartered Bank v Pakistan National Shipping Corp. [2001] CLC 825 at paragraph [41]; Axa Insurance UK plc v Cunningham Lindsey UK [2007] EWHC 3023 (TCC) at paragraph [260]. 48 [1932] AC 452 at 506. For application of this dictum in the context of the execution of remedial works (underpinning to deal with subsidence caused by nuisance) see LE Jones Ltd v Portsmouth City Council [2003] 1 WLR 427.

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from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the costs of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.”

9.34  In assessing what steps it is reasonable for a claimant to take, the claimant’s level of technical competence will be a relevant factor.49 9.35  In construction cases allegations of failure to mitigate emerge in some of the cases already considered. Thus a court may be asked to reduce damages because of the claimant’s delay in carrying out works. Such arguments tend to be unsuccessful.50 Another argument often put forward is that repairs carried out are unnecessary or extravagant. If the court is satisfied that this is a well-justified criticism then to the extent that it is made out the costs are likely to be held to be causally unconnected with the breach of contract or tort, but the excess costs may also be rejected on the grounds of a failure to mitigate. 9.36  A claimant may be unable to claim in respect of loss that could have been avoided by accepting an offer made by the party in breach himself, but the claimant is only required to act reasonably and the standard of reasonableness is not high in view of the fact that the defendant is an admitted wrongdoer.51 Such an offer may include an offer by a contractor to rectify defects.52 The word “may” is significant: the question is what is reasonable in all the circumstances. There are cases where it would be unreasonable to expect a plaintiff to consider any offer made by a contractor in view of the treatment the claimant has received from the defendant.53 9.37  Generally, where attempts to mitigate have been successful, the claimant cannot recover more than his actual loss.54 However, as discussed in Chapter 11 below, certain benefits reducing a claimant’s loss may not be taken into account. 9.38  Sometimes steps carried out in an attempt to mitigate, far from reducing the cost to the defendant, have the effect of increasing the overall costs of putting things right. In such a case the costs of reasonable but unsuccessful attempts to mitigate will be recoverable from the contract-breaker or tortfeasor.55 Thus, for example, it not infrequently happens that the true scale of a problem or true cause of a problem in a building is not appreciated for some time. Steps may be taken to deal with the problem as perceived, which may later prove to have been ineffective or even positively harmful. If the steps were reasonable in the claimant’s state of knowledge and understanding when carried out, the costs will be

49 Amstrad plc v Seagate Technology Inc (1997) 86 BLR 34. 50 See paragraphs 9.27 and 9.28 above. 51 Per Tomlinson LJ at paragraph [31] in Manton Hire and Sales Ltd v Ash Manor Cheese Company Ltd [2013] EWCA Civ 548. 52 Pearce & High Ltd v Baxter [1999] BLR 101; Woodlands Oak Ltd v Conwell [2011] EWCA Civ 254; [2011] BLR 365. 53 Payzu v Saunders [1919] 2 KB 581 at page 588; Mul v Hutton Construction Ltd [2014] EWHC 1797 (TCC) at paragraph [25]. 54 Fulton Shipping Inc of Panama v Globalia Business Travel SAU (“The New Flamenco”) [2015] EWCA Civ 1299; [2016] 1 Lloyd’s Rep 383; Bacciottini v Gotelee and Goldsmith [2016] EWCA Civ 170; [2016] 4 WLR 98 at paragraph [45]. 55 Esso Petroleum Co Ltd v Mardon [1976] QB 801; The World Beauty [1970] P 144 at 156; Vinmar International Ltd v Theresa Navigation SA [2001] 2 Lloyd’s Rep 1.

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recoverable even if in hindsight they were not the most economical way of dealing with problems. 9.39  Questions of mitigation are questions of evaluation and judgment, not findings of fact: accordingly there is no reason why the Court of Appeal should not interfere with a judgment at first instance if the judge’s conclusions are, in the Court of Appeal’s considered opinion, wrong.56

56 Copley v Lawn [2009] EWCA Civ 580; [2010] Bus LR 83 at paragraph [23]. See by contrast Beechwood Birmingham Ltd v Hoyer Group UK Ltd [2010] EWCA Civ 647; [2011] QB 357 at paragraph [29].

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CHAPTER  10

The “black hole” cases “I am not wholly convinced that it is helpful to compare the situation of a person who finds himself out of pocket on account of the breach of a contract to which he was not a party with the extraordinary gravitational pull of the dense collections of mass in outer space that are colloquially known as black holes but, one way or another, that is how they have come to be known.”1

Introduction 10.1  In a series of cases over the last 20 years or so, defendants have attempted to escape liability by contending that the person who has a cause of action is not the person who suffered the relevant loss. The “black hole” cases, in the construction contract context, arise where loss has been suffered, not by a contracting party, but by a third party, usually due to the fact that the contracting party does not own the property on which the construction was carried out. Such a problem may arise, for example, because the property has been assigned by the original employer who engaged a contractor to build a building, or because the employer’s tax arrangements result in different interests vesting in different companies. Damages are said to have fallen down a black hole, since the third party (who has suffered the loss) cannot claim damages due to the problem of privity of contract; nor can the employer claim, due to the fact that he is said to have suffered no loss, not being the owner of the land in question either at all or when the damage occurs. The courts have steadfastly resisted these optimistic attempts to avoid liability, but the basis on which justice has been done has been a process of evolution of the law. The general rule 10.2  Damages will be awarded to a claimant where there has been a breach of contract to put him in the position in which he would have been had the contract been performed properly.2 Damages are compensatory: in construction contracts their measure is usually the cost of repairs.

  1 Per Lady Smith, The Most Honourable Alexander George Gordon, Marquess of Temair v Turcan Connell [2008] CSOH 183; [2009] PNLR 18 at paragraph [45]. For further reading please see David Friedman QC, “Black Hole Cases” (2008) Const LJ 24; IN Duncan Wallace QC, Defects and Third Parties: No Peace for the Wicked (1999) Const LJ 245; IN Duncan Wallace QC, “Still No Answer: Third Party Damage and the Legal Black Hole” [2001] ICLR 113–121; Ewan McKendrick, “The Common Law at Work: The Saga of Panatown Limited v Alfred McAlpine Construction Limited” [2003] OUCLJ 2003, 3(2) 145; Brian Coote, The Performance Interest, Panatown and the Problem of Loss (2001) 117 LQR 81.  2 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39; British Westinghouse v The Underground Railway of London [1912] AC 673. (See also paragraphs 8.2 and 8.3 above.)

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10.3  The general rule is that the innocent party to a breach of contract cannot recover substantial damages where he has suffered no loss.3 The existence of the general rule was clear from The Albazero4 and St Martin’s.5 Further, subject to the Contracts (Rights of Third Parties) Act 1999, addressed in paragraphs 10.66 to 10.72 below and section 3 of the Latent Damages Act 1986 referred to at paragraphs 10.74 to 10.76 below, no one but the parties to a contract can be entitled under it or bound by it.6 Therefore (subject to those exceptions) a third party cannot sue on a contract to which it was not a party, even if it suffered loss. The exception to the rule 10.4  The general rule set out in paragraph 10.3 above, if strictly adhered to, would mean that in many situations, “the claim to damages would disappear, as the Lord Ordinary [Lord Stewart] put it, into some legal black hole, so that the wrong-doer escaped scotfree”.7 This, according to Lord Keith, would be absurd. 10.5  There are exceptions to the rule, which are not, when properly analysed, exceptions; for example, where one party expressly enters a contract as agent or trustee for another,8 in which case the contracting party may be entitled to recover damages for the loss that his principal has suffered. 10.6  There is a true exception to the rule, principally in the line of cases stretching from Dunlop v Lambert9 and culminating in Alfred McAlpine Construction Limited v Panatown   3 The Albazero [1977] AC 774; St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85. In Alfred McAlpine Construction Limited v Panatown Limited [2001] 1 AC 518 at 538–539, Lord Goff was of the opinion that there was no such general rule of English Law that (apart from nominal damages) a party to a contract can only recover for its breach such actual loss as he himself sustained: “[S]o far as Lord Diplock’s statement of law is concerned, the function of his proposition, for which he cited no authority, was simply to provide a peg on which to hang a truly exceptional case . . . It would be an extraordinary defect in our law if, where (for example) A enters into a contract with B that B should carry out work for the benefit of a third party, C, A should have no remedy in damages against B if B should perform his contract in a defective manner . . . It is not surprising therefore to discover that the authority for the supposed rule which excludes such a right to damages is very thin, and that its very existence has been doubted by distinguished writers – I refer in particular to articles by Professor GH Treitel in ‘Damages in Respect of a Third Party’s Loss’ (1998) 114 LQR 527 and by Mr Duncan Wallace QC, ‘Third Party Damage: No Legal Black Hole?’ (1999) 115 LQR 394.” Such a rule has now been confirmed as existing, notwithstanding that its genesis may have been based on a misunderstanding of the law.  4 The Albazero [1977] AC 774.  5 St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85.  6 Tweddle v Atkinson (1861) 1 B & S 393; Darlington BC v Wiltshier Northern Ltd [1995] 1 WLR 68; See also Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 853. “Our law knows nothing of a jus quaestium tertio arising by way of contract.”   7 Per Lord Keith, GUS Property Management Ltd v Littlewoods Mail Order Services Ltd [1982] SLT 533. In this case, a building in Glasgow was damaged by works carried out to a neighbouring property. After the damage had occurred, the building was transferred to GUS, a company in same group as the original owner; GUS carried out repairs to the building, subsequently the original owner assigned its causes of action to GUS and GUS sued for cost of repairs or diminution in value of the building. The defendant’s defence was that the original owner had received value from GUS and therefore had suffered no loss. The defence failed since the House of Lords held that this was an irrelevant internal arrangement, the original owner was held to have suffered loss, and the question was how to quantify it.  8 Woodar Investment Development Ltd v Wimpey Construction U.K. Ltd [1980] 1 WLR 277.   9 (1839) 7 ER 824.

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Limited,10 which, for the reasons set out in paragraphs 10.49 to 10.52 of this chapter, is unlikely to be the last word on the matter: “Underlying all these cases can be heard the drum beat of a constant theme, which could possibly be described as ubi ius ibi remedium, the maxim that where there is a right there is a remedy; but it could also be said that the courts are anxious to see, if possible, that where a real loss has been caused by a real breach of contract, then there should if at all possible be a real remedy which directs recovery from the Defendant towards the party which has suffered loss . . . The authorities in this area demonstrate the courts’ striving to ensure that wrongdoers do not escape from their liabilities by reference to the general principle that a person can only recover for his own loss because of happenstance that a course of action lies in the hands of someone other than the person who has suffered the loss. The courts are concerned to see that justice is done between the parties.”11

The “rule” in Dunlop v Lambert 10.7 The rule, or “exception to the general rule”,12 in Dunlop v Lambert,13 as explained by Lord Diplock in The Albazero,14 provides a remedy, preventing damages from falling down the legal black hole, where no other would be available for a breach of contract in circumstances where it was in the contemplation of the contracting parties that breach by one would be likely to cause loss to an identified or identifiable stranger to the contract. 10.8  Dunlop v Lambert15 was a case concerning the loss of a cargo consisting of a puncheon of whisky while in the course of carriage between Leith and Newcastle. Lord Cottenham LC held that although title in the goods had passed from the consignor, Dunlop, to the consignee, the consignor of the goods was held to be able to recover substantial damages for lost or damaged goods from the carrier under a contract of carriage, since the risk of the loss of cargo remained with Dunlop, the consignor.16 Dunlop v Lambert provided an exception to the rule that a party who had suffered no loss could not claim substantial damages. The Albazero 10.9  The “rule” in Dunlop v Lambert was explained and developed by Lord Diplock in The Albazero.17 In The Albazero the right of the consignor to sue the carrier was recognised even where the risk as well as the ownership had passed to the consignee as long as there was a special contract between the consignor and the carrier.

10 [2001] 1 AC 518. 11 Per Rix LJ in Offer-Hoar v Larkstore Ltd, (Technotrade Ltd Part 20 Defendant) [2006] 1 WLR 2926; [2006] BLR 345. 12 Per Lord Clyde, Alfred McAlpine Construction Limited v Panatown Limited [2001] 1 AC 518 at 523. 13 (1839) 7 ER 824. 14 [1977] AC 744. 15 (1839) 6 Cl & F 600; (1839) 7 ER 824. 16 Dunlop shipped the cargo on a vessel belonging to Lambert, to be delivered to Robson. 17 [1977] AC 774.

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10.10  The Albazero exception, as described by Lord Diplock, was “that the consignor may recover substantial damages against the ship-owner if there is privity of contract between him and the carrier for the carriage of goods; although, if the goods are not his property or at his risk, he will be accountable to the true owner for the proceeds of his judgment”.18 10.11  Lord Diplock treated the rule in Dunlop v Lambert:19 “[A]s an application of the principle . . . that in a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of them both, is to be treated in law as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into.”

10.12  The justification for the Albazero exception was the necessity of avoiding the disappearance of a substantial claim into a legal black hole. The exception is essentially that loss suffered by a third party is transferred to the promisee who is then accountable to the third party. As set out below, this exception was not to apply where as part of the contractual arrangements it was contemplated that a separate contract would be entered into with the third party. The St Martins extension 10.13 The Albazero exception was extended to building cases in St Martins Property Corporation v Sir Robert McAlpine,20 which involved a claim for damages for defective work under a construction contract. 10.14 In St Martins the contract maker and original owner, “Corporation”, had transferred the property (which was the subject of the contract), to “Investments” (a company within the same group), for full market value and had made an ineffective21 assignment of rights. The breach occurred after the transfer of the property and the purported assignment of rights; the repair costs were to be met by Investments. Both Corporation and Investments claimed the sum of remedial works. The assignor Corporation, rather than the assignee, Investments, was held to be entitled to recover the cost of repairs from the contractors, despite the fact that Corporation had suffered no loss on resale or liability for repair costs. 10.15  Lord Browne-Wilkinson, with whom all the others agreed, held that the case fell within the Dunlop v Lambert/Albazero exception:22 “[I]n my judgment the present case falls within the rationale of the exceptions to the general rule that a plaintiff can only recover damages for his own loss . . . it seems to me proper, as in the case of carriage of goods by land, to treat the parties as having entered into the contract on 18 [1977] AC 774 at 844. 19 [1977] AC 774 at 847. 20 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd; St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85. 21 The majority found that the assignment was invalid, since the right to receive performance could be assigned but not the cause of action. 22 St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 at 114–115.

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the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who had suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach. It is truly a case in which the rule provides ‘a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it’.”

10.16  Lord Browne-Wilkinson said, a little later:23 “[I]f, pursuant to the terms of the original building contract, the contractors have undertaken liability to the ultimate purchasers to remedy defects appearing after they acquired the property, it is manifest the case will not fall within the rationale of Dunlop v Lambert 6 Cl & F 600. If the ultimate purchaser is given a direct cause of action against the contractor (as is the consignee or endorsee under a bill of lading) the case falls outside the rationale of the rule.”

Thus making it clear that this exception did not apply where there are other remedies available for a third party. 10.17  This basis of exception is known as the “narrow ground”. 10.18  Lord Griffiths would have decided the matter on what has become known as the “broader ground”: this was essentially that “in cases such as the present24 the person who places the contract has suffered financial loss because he has to spend money to give him the benefit of the bargain which the defendant has promised but failed to deliver”.25 Lord Griffiths held that Corporation should be entitled to recover the cost of remedying the defect in the work as the normal measure of damages. 10.19  It should not matter that the work was not done on property owned by Corporation: Lord Griffiths held that who the person is who actually pays for the repairs is of no concern to the party who broke the contract but “the court will of course wish to be satisfied that the repairs have been or are likely to be carried out but if they are carried out the cost of doing them must fall upon the defendant who broke his contract”.26 10.20  Lord Browne-Wilkinson, along with the other members of the House of Lords, supported the broad ground but refused to give a concluded view without the benefit of academic consideration.27 Panatown 10.21  The question arose in Alfred McAlpine Construction Limited v Panatown Limited28 whether Panatown was debarred from recovering substantial as opposed to nominal damages by reason of the fact that it was not (and never had been) the owner of the land on which the defective building under a contract had been carried out, and that the loss that Panatown, the contracting party, claimed in damages for breach of contract was considered to be suffered by a third party. 23 St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 at 115. 24 Where a builder is engaged under a construction contract and fails to perform the services contracted for, the employer suffers a loss and that loss can be recovered on the basis of the cost of remedial work. It is no defence that the employer has no proprietary interest in the development or that he will not incur the remedial cost. St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 at 96–98. 25 St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 at 97. 26 St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 at 97. 27 St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 at 112. 28 [2001] 1 AC 518.

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10.22  In the period between the Court of Appeal judgment and the House of Lords hearing, various academics offered their views, including Mr Duncan Wallace QC, who was of the opinion that “allowing a defence that, in such cases, the contracting party is entitled only to nominal and not substantial damages has the incidental effect, of course, of conferring a virtual immunity or licence for failures of performance, however serious, by the defaulting contracting party, and creates extreme anomalies affecting the abatement or defence remedies available if a defaulting party sues for payment under the original contract.”29

Panatown – the facts 10.23  McAlpine entered into a contract with Panatown to build and design an office building and multi-storey car park on JCT standard terms. The building was completed but Panatown alleged that it was seriously defective to the extent that it would have to be demolished and rebuilt and that therefore McAlpine were in breach of contract. 10.24  Panatown was the employer under the contract; however it was not, and never had been, the owner of the building. The owner was Panatown’s associated company Unex Investment Properties Limited (“UIPL”). The arrangements were designed to avoid the construction contract becoming liable to VAT. 10.25 Panatown had a remedy under the building contract, which it chose not to exercise.30 10.26  In addition to the building contract, McAlpine had entered into a duty of care deed (“the DCD”) with UIPL under which UIPL acquired a direct remedy against McAlpine with regards to any failure by McAlpine to exercise reasonable care, skill and attention in respect of any matter within the scope of McAlpine’s responsibilities under the building contract. 10.27  Panatown sought to recover the loss that UIPL had suffered. Panatown – the narrow ground 10.28  The House of Lords was required to consider whether Panatown was entitled to substantial damages for the breach pursuant to the “narrow ground” (the extension of the rule in Dunlop v Lambert), being the innocent party to a breach of contract’s entitlement to sue, where the innocent party is treated as suing on behalf of a third party, not party to the contract, who has sustained loss as a result of the breach. Under the narrow ground, the innocent party is then bound to account to the person suffering the loss for the damages recovered on its behalf. The narrow ground is good law 10.29  In the leading judgment, Lord Clyde held that the “rule” was good law: “It seems to me that a more realistic and practical solution is to permit the contracting party to recover damages for the loss which he and a third party has suffered being duly accountable to 29 IN Duncan Wallace QC, Defects and Third Parties: No Peace for the Wicked (1999) Const LJ 245. 30 Under the terms of the building contract, as employer it could have had defective works remedied and completed by someone else and could have claimed additional costs and possibly other heads of loss from McAlpine.

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them in respect of their actual loss, than to construct a theoretical loss in law on the part of the contracting party, for which he may be under no duty to account to anyone since it is to be seen as his own loss. The solution is required where the law will not tolerate a loss caused by breach of contract to go uncompensated through an absence of privity between the party suffering the loss and the party causing it. In such a case, to avoid the legal black hole the law will deem the innocent party to be claiming on behalf of himself and any others who have suffered loss.”31

The narrow ground as a rule of law 10.30  Lord Clyde held that the narrow ground was not dependent on the intention of the parties, preferring the view that the narrow ground was a rule of law since, in reality, the parties may not have applied their minds to the point. Contemplation that there may be losses to third parties is not therefore essential.32 The narrow ground will be displaced where there are other remedies 10.31 In The Albazero, Lord Diplock specified that there was an exception to his “exception to the rule” in that it would not apply to contracts for the carriage of goods that contemplate that the carrier will also enter into separate contracts of carriage with whoever may become the owner of the goods in question. Similarly, the House of Lords in Panatown held that in the construction context, the rule would be displaced where the third party had been provided with a direct entitlement to sue the contractor in the event of a failure in the contractor’s performance,33 if the contracting parties “deliberately provided for a remedy for a third party it can readily be concluded that they have intended to exclude the operation of a solution which would otherwise have been imposed by law. The terms and provisions of the contract will then require to be studied to see if the parties have excluded the operation of the exception.”34 10.32  It was not suggested in The Albazero or St Martin’s that the Dunlop v Lambert rule would only be displaced by the provision of a remedy for the third party identical to the remedy of the innocent contracting party. Panatown confirmed that the important point was that the third party, as a result of the main contract, had any right to recover substantial damages, since damages would not disappear altogether down a black hole. In Panatown therefore the fact that the DCD existed, albeit with substantially different remedies available, meant that the narrow ground was displaced. Accountability to a third party 10.33  The House of Lords held that a claimant may sue for all the losses sustained by a third party and is accountable to the third party to the extent of their particular losses. However, although the third party needs the cooperation of the original contracting party, he 31 Per Lord Clyde: [2001] 1 AC 518 at 535. Lords Jauncey, Browne-Wilkinson and Millett concurred that this was good law, although Lords Goff and Millett were of the opinion that the narrow ground was inappropriate where, as in this case, there had been no transfer of property. 32 Per Lord Clyde: [2001] 1 AC 518 at 535. 33 Lords Jauncey, Browne-Wilkinson and Goff were in agreement that an alternative remedy would displace the exception. 34 Per Lord Clyde: [2001] 1 AC 518 at 530.

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may have no means of compelling cooperation; therefore it follows that it may be sensible to have some form of collateral warranty in place between the employer and the third party. 10.34  With regards to the quantum of damages, any anxiety that the exception would permit an employer to receive excessive damages “should be set at rest by the recognition of the basic requirement for reasonableness which underlies the quantification of an award of damages”.35 The narrow ground in summary 10.35  An innocent contracting party may sue for all the losses sustained by a third party pursuant to a breach of contract, and is accountable to the third party to the extent of their particular losses, provided that the third party has no direct cause of action, notwithstanding that its remedies may be different to those available to the contracting party. Panatown – the broad ground 10.36  The House of Lords was also asked to consider whether Panatown was entitled to recover substantial damages on the ground that it had not received the bargain for which it had contracted, irrespective of the fact that it had no proprietary interest in the building and had not suffered any financial loss (“the broader ground”). 10.37  The rationale of the broader ground is that the innocent party should recover damages for himself as compensation for what is seen to be his own loss, this being his defeated expectation, not having received the benefit of the bargain he was promised; the compensation for such loss being the fulfilling of the expectation, the cost of remedial repairs. 10.38  Elements of the “broader ground” could be seen in a forerunner case, Radford v De Froberville,36 in which case Oliver J said that37 “if he contracts for the supply of that which he thinks serves his interests . . . then if that which is contracted for is not supplied by the other contracting party, I do not see why in principle he should not be compensated by being provided with the cost of supplying it through someone else or in a different way, subject to the provision of course that he is seeking compensation for a genuine loss.”

10.39  The broader ground was considered in Darlington Borough Council v Wiltshier Northern Ltd.38 In this case, the Court of Appeal followed and extended the decision in St Martin’s where the majority decided the matter on the narrow basis; however, Steyn LJ would have adopted the broader ground.39 35 Per Lord Clyde: [2001] 1 AC 518 at 535. 36 [1977] 1 WLR 1262. In this case, a landlord of tenanted flats sold an adjacent plot. The purchaser covenanted that he would build a garden wall. He failed to do this. Despite the judge finding that the beneficiaries of such a wall would be the occupying tenants and not the landlord’s reversionary interest, Oliver J awarded the landlord the cost of building the wall. 37 [1977] 1 WLR 1262. 38 [1995] 1 WLR 68; 69 BLR 1. 39 Darlington wanted to develop land but could not borrow money to pay for the development, Morgan Grenfell agreed to pay for the works and to contract with the builder and it was agreed that they would be reimbursed by Darlington. In breach of contract, the building was defective. A side agreement required Morgan Grenfell to assign claims to Darlington. Claims were assigned and Darlington sued as assignees. The Court of Appeal held that the narrow ground covered or should be extended from St Martins to this case. Morgan Grenfell could have

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10.40  Steyn LJ expanded on Lord Griffiths’s dicta that in order to claim damages under this head, the claimant must intend to build: he was of the opinion that40 “it is no concern of the law what the plaintiff proposes to do with his damages . . . it is also no precondition for recovery of substantial damages that the plaintiff does propose to undertake the necessary repairs”. 10.41 In Panatown, the majority of the House of Lords rejected Panatown’s claim for damages under the broader ground, that it was entitled to recover damages having merely suffered the loss of a bargain or expectation interest, either because Panatown would not and had not incurred expenditure or on the basis of the rejection that an employer could not claim for “loss of bargain or of expectation interest”.41 10.42  Lord Clyde, in the leading speech, rejected the broader ground as not being good law, for the following reasons:42 “First, if the loss is the disappointment at there not being provided what was contracted for, it seems to me difficult to measure that loss by consideration of the cost of repair. A more apt assessment of compensation for the loss of what was expected should rather be the difference in value between what was contracted for and what was supplied. Secondly, the loss constituted by the supposed disappointment may well not include all the loss which the breach of contract has caused. It may not be able to embrace all consequential losses, or losses falling within the second head of Hadley v Baxendale (1854) 9 Exch 341 . . . Thirdly, there is no obligation on the successful plaintiff to account to anyone who may have sustained actual loss as a result of the faulty performance. Some further mechanism would then be required for the court to achieve the proper disposal of the monies awarded to avoid a double jeopardy. Alternatively, in order to achieve the effective solution, it would seem to be necessary to add an obligation to account on the part of the person recovering the damages. But once that step is taken the approach begins to approximate to The Albazero exception. Fourthly, the ‘loss’ constituted by a breach of contract has usually been recognised as calling for an award of nominal damages not substantial damages.”

10.43  Lord Browne-Wilkinson assumed it was good law but would be knocked out by other remedies.43 Lord Jauncey felt that it would be applied if the claimant spent or intended to spend money on repairs but that it would be displaced if the third party had another remedy.44 10.44  The two dissenting judges, Lords Goff and Millett, found that it was good law and under it would have found McAlpine liable to Panatown in substantial damages. Neither

recovered substantial damages and so could Darlington. Dillon and Waite LLJ suggested obiter that if Morgan Grenfell had sued they could have recovered as constructive trustees. In this case the narrow ground exception was applied to prevent injustice and to provide a remedy where there might otherwise have been a black hole. The extension was required as Morgan Grenfell had never had a proprietary interest in the property. 40 [1995] 1 WLR 68. 41 This was Steyn LJ’s phrase in Darlington Borough Council v Wiltshier Northern Limited, [1995] 1 WLR 68 at 80E–F: “The rationale of Lord Griffiths’s wider principle is essentially that, if a party engages a builder to perform specified work and the builder fails to render the contractual service, the employer suffers a loss. He suffers a loss of bargain or of expectation interest. And that loss can be recovered on the basis of what it would cost to put right the defects. While other members of the House of Lords expressed sympathy with this view they did not decide the point. The point has now been argued in some depth before us . . . Subject to one qualification, it will be clear from what I said earlier that I am in respectful agreement with the wider principle. It seems to me that Lord Griffiths based his principle on classic contractual theory.” 42 Per Lord Clyde: Alfred McAlpine Construction Limited v Panatown Limited [2001] 1 AC 518 at 533–534. 43 [2001] 1 AC 518 at 577. 44 Per Lord Jauncey of Tullichettle: [2001] 1 AC 518 at 574.

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considered that the existence of the DCD, or indeed other direct third party remedies, displaced it since Panatown had suffered its own loss. They were also of the opinion that what the claimant proposed to do with his damages was of no concern to the party in breach.45 10.45  Lord Goff, in the minority, approved and restated Lord Griffiths’s principle:46 “[T]he employer under a building contract may in principle recover substantial damages from the building contractor, because he has not received the performance which he was entitled to receive from the contractor under the contract, notwithstanding that the property was vested in a third party.”

Spectre of double recovery 10.46  The majority were concerned that if Panatown could recover under the broad ground, there would be a risk of double recovery. Lord Goff considered that this could be overcome by a joinder of the relevant party,47 whilst Lord Millett considered that this could be resolved by a stay in the proceedings:48 “By giving the third party a cause of action, it raises the spectre of double recovery. Even though the plaintiff recovers for his own loss, this obviously reflects the loss sustained by the third party. The case is, therefore, an example, not unknown in other contexts, where breach of a single obligation creates a liability to two different parties. Since performance of the primary obligation to do the work would have discharged the liability to both parties, so must performance of the secondary obligation to pay damages. Payment of damages to either must pro tanto discharge the liability to both . . . While . . . I do not accept that Panatown’s claim to substantial damages is excluded by the existence of the DCD, I think that an action like the present should normally be stayed in order to allow the building owner to bring his own proceedings, The court will need to be satisfied that the building owner is not proposing to make his own claim and is content to allow his claim to be discharged by payment to the building employer before allowing the building employer’s action to proceed.”

Panatown – the result 10.47 In Panatown it was held that in circumstances where there was a construction contract between a builder and an employer, who was not the owner of the land, the employer could seek substantial damages from the builder for any defects in the building, but only where the third party actually suffering the loss had no direct remedy against that builder. 45 Compare the approach of the House of Lords in Ruxley Electronics and Construction Limited v Forsyth [1996] 1 AC 344; 73 BLR 1 (discussed in Chapter 9 above) in which a claimant’s intention to carry out repairs was considered a crucial ingredient in deciding whether it was reasonable to claim the cost of repairs when higher than the difference in value. A rationalisation for this seeming diversity of approach was provided by Clarke LJ in Southampton Container Terminals Ltd v Schiffahrtsgesellschaft “Hansa Australia” MbH & Co (The “Maersk Colombo”) [2001] EWCA Civ 717; [2001] 2 Lloyd’s Rep 275 at paragraph [56]: “Ruxley also supports the proposition that, although what a claimant does with any damages is irrelevant, his intention to reinstate or not to reinstate, whilst not conclusive, is relevant to the question whether it would be reasonable to reinstate the property.” See also PGF II SA v Royal & Sun Alliance Insurance plc [2010] EWHC 1459 (TCC) at para [703]. 46 [2001] 1 AC 518 at 547. 47 [2001] 1 AC 518 at 561. 48 [2001] 1 AC 518 at 595. In Biffa Waste Services Limited, Biffa Leicester Ltd v Maschinenfabrik Ernst Hese GMBH, Outokumpu Technology Wenmec AB and Vanguard Industrial Ltd (t/a Pickfords Vanguard) (in liquidation) (Third Party) and Hese Umwelt GMBH (Fourth Party) [2008] EWHC 6 (TCC): [2008] BLR 155, the court held that the mechanism of a stay would help the court to overcome the spectre of double recovery.

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10.48  As is set out above, the majority held that the existence of the DCD, giving the third party a direct entitlement to sue the contractor, despite its remedies being different to those under the contract, meant that an exception could not be admitted to the rule in Dunlop v Lambert that substantial damages can only be claimed by a party who has suffered substantial loss.49 Panatown – the future 10.49  The narrow ground is good law; however, any direct cause of action is likely to prevent the application of either The Albazero exception (narrow ground) or the broader ground.50 However without a direct cause of action a promisee will be able to claim under the narrow ground, and, it appears, under the broader ground, since there was not a majority against the validity of the broader ground. 10.50  Panatown was considered in the Scottish case of McLaren Murdoch & Hamilton v Abercromby Motor Group Limited.51 In McLaren Murdoch it was held that no ‘black hole’ existed, since Abercromby had been the owner of the building at the date of completion, had sustained the loss and therefore was entitled to sue. The Scottish Court adopted the view of Lord Clyde, that an innocent party to a breach of contract can recover substantial damages even if that loss has been sustained by another party but must account to that other party for the damages recovered. 10.51  Panatown has been followed in Mirant Asia-Pacific Construction (Hong Kong) Limited v (1) Ove Arup and Partners International Limited (2) Ove Arup and Partners Hong Kong Limited52 where an issue was whether Mirant was entitled to recover from Arup 49 The Court of Appeal quoted from Panatown’s skeleton argument: “It is an extraordinary proposition that, because there is a duty of care deed which gives a limited warranty to the building owner, the employer should be unable to enforce any of his rights under the building contract by claiming damages.” The House of Lords did not appear to agree that there was anything extraordinary about that proposition. See also “Black Hole Cases” by David Friedman QC (2008) 24 Const LJ 10 at 18. 50 However see Catlin Estates Limited and Stephen Catlin v Carter Jonas (A Firm) [2005] EWHC 2315 (TCC), [2006] PNLR 15, in which HH Judge Toulmin QC considered Panatown. He concluded that the third party did not have an alternative claim under the Defective Premises Act 1972, however, he said, at paragraph [302], that “In any event I conclude that The Albazero principle would not have debarred Mr Catlin from claiming through CEL. A claim under the Defective Premises Act is a separate and distinct claim and is not a direct claim in contract or tort which he is entitled to bring on his own behalf.” The judge felt that the conditions on which a claim would be brought were different and the exception would not therefore be displaced. 51 (2003) 100 Con LR 63. Jus quaestium tertio is recognised in Scots law and provides a remedy in many cases; however, it is limited and would not provide a general solution to the problem of the legal black hole. The solution favoured by the minority in Panatown is not in accordance with the underlying principles of the Scots law contract law. Lord Drummond Young was of the opinion that Scots law should adopt the same general rule as that applied by the majority of the House of Lords; that is, that if a breach of contract occurs, causing loss that can be measured in financial terms, the innocent party may recover substantial damages even if that loss has been sustained by another person. If a loss has been sustained by a person other than the contracting party, however, the contracting party must sue on behalf of that other, and must accordingly account to that other for the damages recovered. This is a right conferred by law, which will not be deemed to exist where the third party has a direct right of action. 52 [2007] EWHC 918; [2008] Bus LR D1. Paragraphs [610]–[626] of the judgment contain a useful review of the authorities in this area of the law of damages. This was a case in which a company involved in a consortium project for the construction of a power station, which has entered into a contract with consultant engineers for its design, could in principle have recovered damages on behalf of a sister company against the consultants for losses incurred as a result of the consultants’ contractual breaches, even though the sister company had not been a party to the contract, on the basis that it had not received the performance of the contractual bargain. However, as

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losses incurred by the third party, SCC, either as its own loss under the broader ground, or damages under the narrow ground, and would account to SCC. HH Judge Toulmin CMG, QC held that: “CEPAS may in principle recover damages in respect of losses caused to SCC as a consequence of the breach of contract by Arup because it did not receive from the defendants the performance of the bargain which it contracted for . . . in order for Mirant to recover damages the court has, however, to be satisfied that the claimants are seeking compensation for a genuine loss and not seeking an uncovenanted profit.”53

10.52  There is considerable merit in the view of the late Duncan Wallace QC, who said that “the speeches of Lord Goff of Chieveley and Lord Millett must be regarded as at the jurisprudential ‘cutting edge’ of current judicial thinking, where defeated contract expectation and ‘performance interest’ factors raise measure of damages problems”.54 Whilst, as stated above, there was no majority opinion against the existence of the broad ground as sound law, in the future there is scope for the courts to find that the broader ground can be a basis for liability. The courts have shown a considerable willingness to ensure that meritorious claimants do not find themselves deprived of a remedy.55 The Buncefield explosion: Shell UK v Total UK 10.53  That is illustrated by the decision of the Court of Appeal in Shell UK Ltd v Total UK Ltd:56 this was part of the litigation arising out of the Buncefield explosion. An explosion and fires at an oil storage terminal were caused by the negligent overfilling of a fuel storage tank located on one of the three main sites that comprised the terminal. In consequence, fuels storage tanks, pipelines and associated equipment at the terminal in which the claimant stored its oil or through which it distributed its oil were destroyed or seriously damaged. Legal title to the tanks and pipelines was vested in two companies, which held them on trust for the claimant and others and in which the claimant and others held the entire issued share capital. The defendants accepted liability for the destruction of anything that was the claimant’s property, but disputed liability for the loss of profits that the claimant claimed flowed from the destruction of, or damage to, the tanks or pipelines, relying upon authority that only a legal owner or someone with an immediate right to possession liability for the sister company’s losses could not, as a matter of factual causation, be attributed to the consultants, the claim failed. This is another case pre-dating the Contract (Rights of Third Parties) Act 1999 which, as set out below, enables a third party in its own right to enforce a term of the contract under certain conditions. 53 [2007] EWHC 918 (TCC); [2008] Bus LR D1, at paragraph [628]. 54 IN Duncan Wallace QC, Still No Answer: Third Party Damage and the Legal Black Hole [2001] ICLR 113 at 114. 55 In Earl Terrace Properties Limited v Nilsson Design Limited [2004] BLR 273, HH Judge Thornton QC said (at paragraph [70]): “English law ordinarily requires the loss claimed by and payable to a claimant to be its own loss. However, this general principle is now susceptible to so many exceptions that it is doubtful whether it is any longer supportable as representing a statement of the general law. Instead, the court’s starting point is to consider whether the loss was incurred by the claimant and, if not, whether the contract in question contemplated or provided that any breach would incur the contract breaker in a liability for losses suffered by a third party, whether such losses fell within the scope of the duty broken, whether the claimant has some equitable or other duty (eg, by way of a duty imposed by principles of subrogation) to pursue and recover the loss on behalf of another or whether there is some other particular basis recognised by the law that allows for the recovery of the claimant’s loss.” See also Saga Cruises BDF Ltd v Fincantierei SPA [2016] EWHC 1875 (Comm) at paragraphs [212] and [213]. 56 [2010] EWCA Civ 180; [2011] QB 86.

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had the right to claim damages for consequential economic loss. The Court of Appeal held that the claimant as beneficial owner of the tanks and pipelines could recover its loss of profits. The Court confessed to being influenced by “the impulse to do natural justice”.57 Black holes and assignment 10.54  There is a principle that an assignee cannot recover more than an assignor could have recovered.58 Unless there has been an effective assignment of the benefit of the contract, a third party cannot generally sue for damages on a contract to which he was not a party.59 The narrow ground is important where, in JCT standard forms, the employer’s rights cannot be assigned to a third party. 10.55  It is important to consider assignment with regards to black holes since, by their nature, assignments will often lead to exactly the type of problem that is the subject of this chapter. 10.56 In Linden Gardens60 the question arose as to the damages that could be recovered by the employer who had made two contracts for the removal of asbestos, but had sold the property to a third party before the breach had occurred. The works were not performed properly and the asbestos was not removed. The employer transferred its interest at full market value to Linden Gardens, subsequently assigning all its claims against the two asbestos removal contractors to Linden Gardens. A couple of years later, Linden Gardens sued the two contractors, in part for the cost of the remedial works carried out by the employer, in part for remedial works carried out by Linden Gardens. 10.57  The breaches occurred before the transfer of the property and before the assignment. At the date of assignment, the assignor had a right to sue for substantial damages although not all breaches had been discovered and the cost of remedy was not known. 10.58  The Court of Appeal (whose decision was subsequently overturned by the House of Lords) held that the assignment was valid and that Linden Gardens (the assignee) could recover the cost of remedying the damage.61 The House of Lords held on the other hand that the employer (the assignor) could recover substantial damages, this being the cost of curing the defects in the work, despite the fact that it no longer had a proprietary interest in the property at the time of the breach; this also despite the fact that the cost of the repairs had been borne by the assignee and not by the employer. 10.59  The House of Lords held that the assignor could recover substantial damages, because, to the knowledge of the parties, the development was to be occupied or purchased by a third party so that damage to a subsequent owner was foreseeable and the prohibition on assignment meant that the parties were treated as having entered into the contract on the 57 Paragraph [143]. 58 Dawson v Great Northern and City Railways Company [1905] 1 KB 260; GUS Property Management Limited v Littlewoods Mail Order Stores Limited [1982] SLT 533 at 537. 59 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847; Beswick v Beswick [1968] AC 58. It must also be noted that personal contracts are not assignable. 60 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd; St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85. The Linden Gardens appeal was heard together with St Martins. 61 Thus implying it to be irrelevant that the assignor had received the full value of the property. Also, see Staughton LJ: “In the particular case of damages to a building which is later sold, in my judgment there is no rule of law that the damages must necessarily be nominal. If, however, a subsequent owner also has a claim in his own right in respect of the same damage, the law must find some solution to prevent double recovery.”

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basis that the assignor would be entitled to recover substantial damages on behalf of third parties who would suffer from defective performance of the construction contract, but who would be unable to acquire rights under it. 10.60  Although not considered by the House of Lords, the Court of Appeal in Linden Gardens held that “the assignee can recover no more damages than the assignor could have recovered if there had been no assignment and if the building had not been transferred to the assignee”.62 10.61  The Court of Appeal considered this matter again in Offer-Hoar v Larkstore Ltd (Technotrade Ltd Part 20 Defendant),63 confirming Staughton LJ’s analysis that where the assignment is the cause of action for damages, the assignee can recover no more than the assignor could have recovered if there had been no assignment and if the building had not been transferred to the assignor. The Court of Appeal confirmed that the assignee is not limited to the recovery of the loss that could have been proved at the date when the breach first occurred or the cause of action first arose. 10.62 In Technotrade, the original landowner, Starglade, wanted to develop his land and so commissioned a geotechnical report to satisfy a condition of planning permission for the development. There was no prohibition against assignment. Starglade sold to Larkstore who came into possession of the report (though it was not assigned to it) and used it for obtaining planning permission. It was used again for a second development, during which a landslip occurred causing damage to neighbouring properties. The neighbours commenced proceedings against Larkstore and the builder. Larkstore then obtained assignment of the benefit of the report and commenced Part 20 proceedings against Technotrade, the author of the report. 10.63  The breach occurred when the property was owned by Starglade: the landslip occurred when it was owned by Larkstore. 10.64  The court held that the assignment was valid, the Court of Appeal held that the cause of action and not the loss had been assigned, and that this was not limited to the loss that had been suffered at any particular time. Mummery LJ held that the purpose of the assignment principle was64 “to protect the contract breaker/debtor from being prejudiced by the assignment in having, for example, to pay damages to the assignee which he would not have had to pay the assignor, had the assignment never taken place. The principle is not intended to enable the contract-breaker/ debtor to rely on the fact of the assignment in order to escape all legal liability for breach of contract.”

Mummery LJ said65 that Technotrade’s increased exposure to damage was a consequence of the landslip, not a consequence of the assignment. 10.65  Mummery LJ held that what was assigned by Starglade was a cause of action for breach of contract against Technotrade. This included the remedy, which was for breach of contract, and not in principle limited to the loss suffered as at the date of the accrual of the cause of action, or as at any particular point of time thereafter.66 62 Per Staughton LJ, (1992) 57 BLR 57 at 80. 63 [2006] EWCA Civ 1079; [2006] 1 WLR 2926. 64 [2006] EWCA Civ 1079; [2006] 1 WLR 2926 at paragraph [42]. 65 At paragraph [43]. 66 See paragraph [41].

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Contracts (Rights of Third Parties) Act 1999 10.66  The 1999 Act came into force on 11 November 1999 with the aim of creating an exception to the doctrine of privity,67 and to enable a third party to acquire rights under the contract if that is what the parties to the contract intend.68 The Act applies only to contracts entered into on or after 11 May 2000 and to contracts entered into between those dates that expressly provide for the Act to apply.69 10.67  Section 1 gives a third party the right to enforce a term of the contract if the contract expressly provides that he may do so, or the relevant term purports to confer a benefit on him, unless (as provided by section 1(2) of the Act) on a proper construction of the contract, the parties did not intend the term to be enforceable by the third party.70 The third party must be expressly identified by name or by reference to a class or as answering to a particular description but need not be in existence when the contract is entered into. It is not enough that the third party can merely be identified by a process of construction or implication.71 10.68  Section 1(5) of the Act stipulates that for the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract. 10.69  Section 2(1) states that subject to the provisions of the section, where a third party has a right under section 1 to enforce a term of the contract, the parties to the contract may not, by agreement, rescind the contract, or vary it in such a way as to extinguish or alter his entitlement under that right, without his consent if the third party had communicated his assent to the term to the promisor, the promisor was aware that the third party has relied on the term or the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it. Section 2(1) is subject to any express term of the contract under which the parties to the contract may by agreement rescind or vary the contract without the consent of the third party or the consent of the third party is required in circumstances specified in the contract instead of those set out in section 2(1)(a)–(c).72 10.70  Section 3 gives guidance as to the defences available to the promisor as against the third party: the promisor can rely upon any defence and set off as against the third party

67 Tweddle v Atkinson (1861) 25 JP 517, [1861–73] All ER Rep 396; Dunlop Pneumatic Tyre Co Ltd [1915] AC 847. 68 Privity of Contract: Contracts for the Benefit of Third Parties; Law Commission Report, Com No 242 (1996). Discussions of the effect of the Act can be found in Burrows, The Contracts (Rights of Third Parties) Act 1999 and its implications for commercial contracts [2000] LMCLQ 540 and Andrews, Strangers to Justice No Longer: The Reversal of the Privity Rule Under the Contracts (Rights of Third Parties) Act 1999 [2001] CLJ 353. 69 Sections 10(2) and (3) of the 1999 Act. 70 Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 (Comm); [2004] 1 Lloyd’s Rep 38 – a third party was entitled to the benefit of an arbitration clause contained in time charters. See also Laemthong International Lines Co Ltd v ARTIS (No 2) (The Laemthong Glory (No 2)) [2005] EWCA Civ 519; [2005] 1 Lloyd’s Rep 688 where the Court of Appeal held that the mere fact of the existence of a chain of contracts did not per se rebut any presumption under section 1(1)(b) of the Act that a party in such a chain of contracts was entitled to “jump the chain”. However there may be cases where that is the proper conclusion from the existence of such a chain. 71 Themis Avraamides v Bathroom Trading Company [2007] BLR 76. 72 Section 2(4) of the 1999 Act.

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if it would have been available to him had the proceedings been brought by the promisee and arises from, or in connection with, the contract, and is relevant to the term or an express term of the contract provides for it to be available to him in relation to any proceedings brought by the third party. The promisee can rely upon any defence or set off and any counterclaim that would have been available to him if the third party had been a party to the contract.73 10.71  Section 4 of the Act stipulates that the Act is not to affect any right of the promisee to enforce any term of the contract. Pursuant to section 5, where the promisee has recovered a sum in respect of the third party’s loss or the expense to the promisee of making good to the third party the default of the promisor then, in any proceedings brought by the third party, any award to the third party is to be reduced as appropriate to take account of the sum recovered by the promisee. 10.72  The 1999 Act is silent regarding the right of the promisee to recover losses on behalf of a third party as per The Albazero/Dunlop v Lambert exception. Further, the 1999 Act would not have made a difference to the outcome of Panatown since there was no clause in the contract giving UIPL a right to enforce the contract. 10.73  It was not the intention of the Act to change the law for cases not covered by the statute74 nor was it intended that it should affect the development of the common law.75 Latent Damage Act 1986 10.74  Section 3 of the Latent Damage Act 1986 provides another statutory exception to the doctrine of privity of contract. Paragraphs 24.16 to 24.26 below discuss the effect of sections 14A and 14B of the Limitation Act 1980 introduced by amendment through the Latent Damage Act 1986. 10.75  Parliament contemplated that a situation might arise where the benefits of the statute were lost because of an assignment of property between the date when a cause of action in negligence arose and when the facts giving rise to that cause of action were or could have been discovered. Accordingly section 3 provides: “(1) Subject to the following provisions of this section, where – (a) a cause of action (‘the original cause of action’) has accrued to any person in respect of any negligence to which damage to any property in which he has an interest is attributable (in whole or in part), and (b) another person acquires an interest in that property after the date on which the original cause of action accrued but before the material facts about the damage have become known to any person who, at the time when he first has knowledge of those facts, has any interest in the property; a fresh cause of action in respect of that negligence shall accrue to that other person on the date on which he acquires his interest in the property. 73 Section 3(4) of the 1999 Act. 74 Privity of Contract: Contracts for the Benefit of Third Parties; Law Commission Report, Com No 242 (1996) page 149. Also see section 7(1) of the Act: “Section 1 does not affect any right or remedy of a third party that exists or is available apart from this Act”. 75 Privity of Contract: Contracts for the Benefit of Third Parties; Law Commission Report, Com No 242 (1996) page 67.

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(2) A cause of action accruing to any person by virtue of subsection (1) above – (a) shall be treated as if based on breach of a duty of care at common law owed to the person to whom it accrues; and (b) shall be treated for the purposes of section 14A of the 1980 Act (special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual) as having accrued on the date on which the original cause of action accrued.”

10.76  This might be of significance in cases where parallel duties to take care are owed in contract or in tort, although because of the developments in the case law limiting the circumstances in which damages can be recovered in tort for defects caused by negligence, the practical significance of this section is much reduced.

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CHAPTER  11

Damages for breach of contract Some other general principles 11.1  Some other general principles that can affect the amount of damages recoverable for breach of contract are now considered. Causation 11.2  If there has been a breach of contract, the contract-breaker is liable to pay at least nominal damages. To recover more than nominal damages the claimant must prove what loss he has suffered – or, in legal terms, he must prove what losses have been “caused” by the breach of contract. 11.3  If a breach of contract by a defendant is to be held to entitle a claimant to recover damages, it must first be held that the breach was an “effective” or “dominant” cause of his loss.1 The courts distinguish between a breach that is the cause of a loss and a breach that is merely the occasion for loss.2 This distinction was illustrated by an Australian judge, Mahoney JA as follows:3 “If a defendant promises to direct me where I should go and, at a cross-roads, directs me to the left road rather than the right road, what happens to me on the left road is, in a sense, the result of what the defendant has done. If I slip on that road, if it collapses under me, or if, because I am there, a car driving down that road and not down the right road strikes me, my loss is, in a sense, the result of the fact that I have been directed to the left road and not the right road. But, in my opinion, it is not everything which is a result in this broad sense which is accepted as a result for this purpose in the law. Thus, if, being on the left road, I slip and fall, the fact alone that it was the defendant’s direction, in breach of contract, which may put me there will not, without more, make the defendant liable for my broken leg. I say ‘without more’: if there be added to the breach the fact that, for example, the left road was known to be dangerous, I may, of course, be liable. But, in relation to losses of that kind, the fact that the breach has initiated one train of events rather than another is not, or at least may not, be sufficient in itself. It is necessary, to determine whether there is a causal relationship, to look more closely at the breach and what (to use a neutral term) flowed from it.”

To the question, how does the court decide whether the breach of duty was the cause of the loss or merely the occasion for the loss, the court gives the answer “by the application of

  1 Per Glidewell LJ in Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360 at 1374 applying Monarch Steamship Co Ltd v Karlshamns Oljefabriker A/B [1949] AC 196.  2 Galoo Ltd v Bright Grahame Murray (above) applying Quinn v Burch Bros (Builders) Ltd [1966] 2 QB 370. For an application of this principle in a construction case, see Skandia Property (UK) Ltd v Thames Water Utilities [1999] BLR 339, particularly at 344.   3 Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 333, cited by Glidewell LJ in Galoo Ltd v Bright Grahame Murray (above) at 1372.

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the court’s common sense”.4 This was explained further by Evans LJ in Humber Oil Terminals Ltd v The Owners of the Ship Sivand:5 “The reference to common sense must be accompanied by a reminder that this is not a subjective test, which would be an unreliable guide. It implies full knowledge of the material facts and that the question is answered in accordance with the thinking processes of a normal person. The reference to ‘material’ facts means that some mental process of selection is required. It is not enough, in my judgment, to specify ‘commonsense’ standards without identifying the reasoning involved.”

11.4  In many cases the court’s decision as to whether a loss has been caused by a breach of contract often overlaps with a decision as to whether a loss is too remote to be recoverable.6 11.5  If the claimant would have suffered the loss claimed in any event, then the claim will fail because he will fail to establish that the loss would not have occurred “but for” the defendant’s breach of contract.7 In BHP Billiton Petroleum Ltd v Dalmine SpA,8 Rix LJ cited with approval the following passage from paragraph 2–06 of the 17th edition of Clerk & Lindsell on Torts: “The first step in establishing causation is to eliminate irrelevant causes and this is the purpose of the ‘but for’ test. The Courts are concerned, not to identify all of the possible causes of a particular incident but the effective cause of the resulting damage in order to assign responsibility for that damage. The ‘but for’ test asks: would the damage of which the claimant complains have occurred ‘but for’ the negligence (or other wrongdoing), or to put it more accurately, can the Claimant adduce evidence to show that it is more likely than not, more than 50% probable that ‘but for’ the defendant’s wrongdoing the relevant damage would not have occurred. In other words, if the damage would have occurred in any event the defendant’s conduct is not a ‘but for’ cause.”

Thus, failure to pass the “but for” test will cause a claim for damages to fail. However often two causes come together, neither sufficient in itself, but together causative of the loss in respect of which the claim is brought. 11.6  The law’s answer to this problem is that what must be shown is that the breach of contract is an effective cause of the loss, not the sole effective cause of the loss.9 Thus, for example, if a house is constructed defectively by reason of a contractor’s breach of a building contract and an architect is also in breach of contract in failing to notice and draw  4 Galoo Ltd v Bright Grahame Murray (above) at 1375. For an interesting discussion of “factual” and “legal” causation see: Nicholas Baatz QC, “Factual” and “legal” Causation in Construction & Infrastructure Law: A Thorny Subject, SCL Paper 202, November 2016.   5 [1998] 2 Lloyd’s Rep 97 at 102.   6 See for example in Compania Financiera Soleada SA v Honour Tanker Corporation Inc (“The Borag”) [1981] 1 WLR 274 at 285 where the issue was the recoverability of interest charges paid on a loan taken out by the claimant as a consequence of the defendant’s breach of contract, Templeman LJ wrapped together a number of grounds for rejecting the claim: “[I]n the present case if the interest charges were unreasonable, they were too remote; they were not caused by the breach; they were not part of a reasonable form of mitigation; all these matters hang together.”  7 See Orient-Express Hotels Ltd v Assicurazioni Generali SA [2010] EWHC 1186 (Comm); [2010] Lloyd’s Rep IR 531.   8 [2003] BLR 271.  9 Heskell v Continental Express Ltd [1950] 1 All ER 1033 at 1047–1048; (1950) 83 Lloyd’s Law Rep. 438 at 458; Independent Broadcasting Authority v EMI Electronics Ltd and BICC Construction Ltd (1980) 14 BLR 1; County Ltd v Girozentrale Securities [1996] 3 All ER 834; Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep 620 at page 636; Plant Construction plc v Clive Adams Associates [2000] BLR 205; Great Eastern Hotel Co Ltd v John Laing Construction Ltd [2005] EWHC 181 (TCC); 99 Con LR 45 at paragraph [314]; J Murphy & Sons Ltd v Johnston Pre Cast Ltd [2008] 3024 (TCC) at paragraph [181].

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attention to the defects in the course of his inspection of the works, the breach of contract by the architect will not relieve the contractor of liability for the defects. 11.7  The problem of concurrent causes is frequently raised in the context of delays in completion of construction projects. Commenting on this problem Akenhead J said:10 “[W]here there are two coeffective and concurrent causes of delay to a construction project, one of which is the defendant’s breach of contract and one which is not, the claimant can recover its loss to that extent in full from the defendant. Although this is a topic much discussed and a point much raised, it happens less in practice upon analysis than practitioners sometimes think.”

It is important in this context to distinguish different situations in which claims are made: if a contractor claims an extension of time for delay, he will generally be entitled to an extension of time if the employer prevents completion by a contractually stipulated date even if his own delays would have prevented him completing in due time in any event – this result is achieved by the application of the “prevention principle” discussed in Chapter 14 below. This will also result in the employer losing his right to liquidated damages to the extent that time for completion has been extended. Conversely, if the contractor suffers loss by reason of delayed completion of the project, he will not be able to recover that loss if and to the extent that it would have been suffered in any event, because to that extent the claimant will fail to pass the “but for” test. 11.8  Another problem often encountered arises when it is argued that the breach of contract is not the effective cause of loss, but rather some intervening cause (in the words of the lawyers’ Latin tag a novus actus interveniens). This concept causes considerable problems in personal injury claims11 but less frequently in claims for damages for physical damage or economic loss concerning construction projects. Three classes of intervening causes fall for consideration – intervening natural causes, intervening acts of a third party and intervening acts of the claimant. (The Court of Appeal has held that intervening negligence of a defendant cannot be relied upon by the defendant to break the chain of causation.12) 11.9  An example of a case where natural causes broke the chain of causation is Carlslogie SS Co Ltd v Royal Norwegian Government.13 In that case the claimant’s ship was damaged in a collision for which the defendant was wholly responsible. After temporary repairs rendering the ship seaworthy, she set out on a voyage to the United States of America. On that voyage she suffered extensive damage due to heavy weather. The House of Lords considered that there was certainly no question of the defendant being liable for the heavy weather damage. By analogy, one can envisage a case where the contractor lays parts of a roof to a standard below that required by the contract, but before repairs are carried out unusually high winds cause damage to the roof requiring complete replacement of all the roof tiles. In that case the contractor would not be liable for the cost of the replacement of the roof even, arguably, that part that would have had to be relaid had the storm not occurred.14 10 AXA Insurance UK plc v Cunningham Lindsey United Kingdom [2007] EWHC 3023 (TCC) at paragraph [265]. 11 See for example Baker v Willoughby [1970] AC 467; Jobling v Associated Dairies [1982] AC 794. 12 Normans Bay Ltd v Coudert Bros [2003] EWCA Civ 215; [2004] All ER (D) 458 (Feb), followed in Prison Service v Beart (No 2) [2005] EWCA Civ 467; [2005] ICR 1206. 13 [1952] AC 292. 14 The position would of course be different if the contractor had been contractually obliged to provide a roof capable of withstanding the storm.

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11.10 In Roberts v Bettany15 Buxton LJ16 summarised the proper approach to a suggestion that a novus actus interveniens by a third party breaks the chain of causation: “I have to say, with respect, that I do not think that the judge’s approach to this question was an adequate one. I do not know what authorities were directly put to him on this application but he does not refer to any of the considerable amount of available learning and authority on the doctrine of novus actus interveniens. As he describes the matter, it seems to me that he comes close to saying that any incompetent intervention by a third party will suffice to break the chain of causation or, alternatively, will suffice for, indeed will necessarily fulfil, the doctrine of novus actus. I also have to say that, in his moderate and concise submissions before us, Mr Wood for the respondent, equally it seemed to me, came close to advancing that proposition. That such an approach is not one that is correct in law can be seen by reference to works of authority. I will cite some paragraphs from the 18th edition of Clerk & Lindsell on Tort. I cite the book without going to the underlying authorities because, having scrutinized the passages carefully, I am satisfied that they are borne out by the authorities to which they refer. First of all, at paragraph 2–41 the learned authors say this: ‘The question of the effect of a novus actus ‘can only be answered on a consideration of all the circumstances and, in particular, the quality of that later act or event.’ ” For that internal quotation the authority is cited of Lord Simmons in Hogan v Bentinck West Hartley Collieries (Owners) Limited.17 The quotation from Clerk & Lindsell continues: “Four issues need to be addressed. Was the intervening conduct of the third party such as to render the original wrongdoing merely a part of the history of the events? Was the third party’s conduct either deliberate or wholly unreasonable? Was the intervention foreseeable? Is the conduct of the third party wholly independent of the defendant, ie, does the defendant owe the claimant any responsibility for the conduct of that intervening third party?” Then, dealing with the nature or quality of the conduct of a third party, at paragraph 2–45 of the report the learned authors say this: “The more unreasonable the conduct of the third party, the more likely that conduct is to constitute a novus actus. A defendant creating an obstruction on the road likely to trigger further accidents may normally expect to bear responsibility for the further consequences of his initial negligence. If a subsequent collision is caused by outright recklessness, or total bungling by those involved in dealing with the first incident, the chain of causation may be broken.” The learned authors go on to emphasise that it is not only deliberate or wholly unreasonable conduct that can constitute a novus actus. What is necessary, however, is to look carefully at the nature of the intervening conduct in the context in particular of the original act of negligence. “A further observation that I have found of assistance is contained in paragraph 2–24 of the 17th edition of Clerk & Lindsell, which was the edition then current when the authorities now before the court were made up. This particular piece of guidance does not seem to be repeated in the 18th edition of Clerk & Lindsell: which, for my part, I feel to be a pity, because it seems to me to be cogent. The authors of the 17th edition said this: ‘Whatever its form the novus actus must constitute an event of such impact that it rightly obliterates the wrongdoing of the defendant. The question which ought to be asked is

15 [2001] EWCA Civ 109; [2001] NPC 45. 16 [2001] EWCA Civ 109; [2001] NPC 45 at paragraphs [16]–[21]. 17 [1949] 1 All ER 588 at 593.

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‘whether that intervening cause was of so powerful a nature that the conduct of the [defendants] was not a cause at all but was merely a part of the surrounding circumstances.’ ”

It may be that some judges would reach the same conclusion on the basis that loss referable to the intervening conduct of a third party does not fall within the scope of a defendant’s duty of care (whether under contract or in tort).18 Whether the intervening cause breaks the chain of causation is a highly fact-sensitive inquiry.19 11.11  A distinction is to be drawn between a case where the contract breaker was under a duty to guard against such a third party’s acts and a case where there was no such duty. The problem has arisen in a number of cases involving damage by criminals.20 In Stansbie v Truman,21 a decorator was at work in a house. He left the house for a time to get wallpaper. He was alone and had been told by the claimant householder to lock the front door if he left the premises. He left the door unlocked: whilst he was away a thief entered and stole jewellery and other property. The decorator was held liable because the act of negligence (leaving the premises unoccupied and unlocked) consisted in the “failure to take reasonable care to guard against the very thing that in fact happened”.22 Contrasting cases (in tort) where the defendant was held not liable for the acts of criminals include Lamb v Camden London Borough Council,23 P Perl (Exporters) Ltd v Camden London Borough Council24 and Smith v Littlewoods Organisation Ltd.25 11.12  In the context of construction projects, whether an intervening act of a third party relieves a contract-breaker from a liability that might otherwise exist to pay damages for a breach of contract is likely in most cases to turn upon the express allocation of risk for such events in the contract. 11.13  The intervening acts of the claimant may break the chain of causation where the claimant acts unreasonably so as to increase loss, or so as not to minimise loss. These situations may best be regarded as aspects of the law as to mitigation of loss considered in the previous chapter. Standard of proof 11.14  The general position is that a claimant must prove his losses on the balance of probabilities.26 But a distinction is to be drawn between cases where what the court has to 18 See also Borealis AB v Geogas Trading SA [2010] EWHC 2789 (Comm); [2011] 1 Lloyd’s Rep 482 at paragraphs [42]–[47]; Chubb Fire Ltd v Vicar of Spalding [2010] EWCA Civ 981; [2010] 2 CLC 277; Hi-Lite Electrical Ltd v Wolseley UK Ltd [2011] EWHC 2153 (TCC); [2011] BLR 629 at paragraphs [202]–[208]; Harrison v Technical Sign Company Ltd [2012] EWHC 2887 (TCC); [2013] BLR 244. 19 Sealion Shipping Ltd v Valiant Insurance Co (“The Toisa Pisces”) [2012] EWCA Civ 1625; [2013] 1 Lloyd’s Rep 108. 20 See in particular Home Office v Dorset Yacht Co Ltd [1970] AC 1004, a case in tort, not contract. 21 [1948] 2 KB 48. 22 Per Tucker LJ at 52. 23 [1981] QB 625. 24 [1984] QB 342. 25 [1987] AC 1. 26 “The civil ‘balance of probabilities’ test means no less and no more than that the court must be satisfied on rational and objective grounds that the case for believing that the suggested means of causation occurred is stronger than the case for not so believing. . . . When judging whether a cause for believing that an event was caused in a particular way is stronger than the case for not so believing, the process is not scientific (although it may obviously include evaluation of scientific evidence) and to express the probability of some event having

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consider are past events and consideration of future events. In determining what did happen in the past, a court decides on the balance of probabilities. Anything that is more probable than not it treats as certain. If there are two competing theories either of which is improbable, if the judge can reject one of those two grounds, it is logical to accept the remaining theory as being the cause on the balance of probabilities,27 but this is not a necessary conclusion.28 (There have been a number of fire claims where the problem of choosing between improbable causes has been acute.) However, in assessing damages that depend upon its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate as to what the chances are that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages that it awards. 11.15  In paragraph 11.9 above, the example is given of a case where damage was caused to a roof by a storm. Assume a case in which the claimant alleges that an architect should have designed a roof to withstand a storm of a particular intensity; the claimant contends that when the storm struck the fact that the roof was lost was because the architect’s design was negligent. The architect argues that defects in his design did not cause the loss of the roof, but rather construction defects perpetrated by the building contractor. The court will decide what caused the loss of the roof on a balance of probabilities. 11.16  Take by contrast a different example of alleged negligence by an architect: the claimant contends that, basing himself upon the advice of the architect as to the appropriate design, he entered into a contract to build a house for £500,000, but that if an appropriate design had been produced a building satisfying his requirements (and his brief to the architect) could have been built for significantly less than £500,000. In that situation the claimant would have to establish for what price the house could have been built. In some cases it may be possible to adduce firm evidence that a particular contractor would have been willing to construct the house to the alternative design for (say) £400,000. In that case, assessment on the balance of probabilities would be possible. However, if the evidence was less firm, it might be appropriate for the court to assess damages on the basis that there was a 40% chance of the alternative design being realised for £400,000. Assessment on the basis of a loss of a chance would in that situation match the interests of justice more closely than a refusal to award any damages because the court could not be satisfied on the balance of probabilities for what price the work would have been done. 11.17 The examples given above are taken from possible cases of claims for professional negligence. This is no accident because in the context of construction projects it is in that class of case that problems of assessment of loss of a chance most frequently arise. In this area the authority to which reference is most often made is the judgment of

happened in percentage terms is illusory”: per Toulson LJ in Nulty v Milton Keynes Borough Council [2013] EWCA Civ 15; [2013] 1 WLR 1183; [2013] Lloyd’s Rep IR 243 at paragraph [35]. 27 Per Thomas LJ in Ide v ATB Sales Ltd [2008] EWCA Civ 424; [2009] RTR 8 at paragraph [6], followed in ACE European Group Ltd v Chartis Insurance UK Ltd [2013] EWCA Civ 234; [2013] Lloyd’s Rep IR 485 at paragraph [35]. See also Rhesa Shipping Co SA v Edmunds (“The Popi M”) [1985] 1 WLR 948; [1985] 2 Lloyd’s Rep 1; Hi-Lite Electrical Ltd v Wolseley UK Ltd [2011] EWHC 2153 (TCC); [2011] BLR 629; Graves v Brouwer [2015] EWCA Civ 595. 28 Compania Sud Americana de Vapores v Sinochem Tianjin Ltd (“The Aconcagua”) [2010] EWCA Civ 1403; [2011] BLR 101. Fosse Motor Engineers Ltd v Condė Nast [2008] EWHC 2037 (TCC); Harooni v Rustins Ltd [2011] EWHC 1532 (TCC).

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Stuart-Smith LJ in Allied Maples v Simmons & Simmons,29 a case concerning solicitors’ negligence in respect of a conveyancing transaction. In his judgment, Stuart-Smith LJ distinguished between three categories of situation. In the first category come cases in which the defendant’s negligence consists in some positive act or omission and the question is one of historical fact. In this situation any facts necessary to establish the claimant’s case must be established on the balance of probabilities. In the second category come cases where the defendant’s negligence consists of an omission where causation depends not on a question of historical fact but upon the answer to the hypothetical question what would the claimant have done if there had been no negligence; in this case how what the claimant would have done is again to be determined on the balance of probabilities – thus in the example given in the previous paragraph, whether the claimant would have wanted to proceed on the basis of a different design from that produced negligently by the architect is decided on the balance of probabilities.30 In the third category are cases in which the claimant’s loss depends upon the hypothetical action of a third party, whether in addition to action by the claimant or independently of it; in this situation the claimant need only show that he had a substantial chance of the third party acting in such a way as to benefit him. Thus, to return to the example given, the claimant would not have to establish that a contractor would have been willing to enter into a contract for less than £500,000 if a different design had been produced – only that there was a substantial chance that a contractor would have been willing to do so.31 11.18  In many cases the assessment of damages may cause the court considerable difficulties in assessing what did happen or what would have happened or might have happened in certain hypothetical circumstances. Whilst mere difficulty of assessment is no ground for a court refusing to award damages,32 there are many cases in which the court cannot assess damages because of the absence of a sufficiently firm basis on which to do so. Reliance and expectation damages 11.19  The measure of damages for breach of contract is generally that sum that places the claimant in the same position as if he had received the benefit he expected to receive had the contract been fulfilled. These damages are referred to as “expectation damages”. Thus if a building contractor agrees to build a house with five bedrooms, but in breach of contract builds a house with four bedrooms, the employer is entitled to damages to place 29 [1995] 1 WLR 1602 at 1604–1611. However, in respect of the citation of this case, it may be salutary to note what Waller LJ said in Normans Bay Ltd v Coudert Bros [2003] EWCA Civ 215; [2004] All ER (D) 458 (Feb) at paragraph [30]: “It is not always convenient to divide up the issues to be tried in a case as happened here, and as happened in Allied Maples . . . between liability, causation and quantification because a division may take an eye off the ball for example as to what the claimant is actually claiming.” 30 The author once acted for some architects whose client’s case in negligence would have turned upon whether the client’s evidence was accepted that he would not have gone ahead with the project had he known how much providing a “love-tub” (a heart-shaped bath capable of accommodating two people) and a floor strong enough to support a water bed was going to cost. Regrettably the case settled before the interesting factual issues were aired in court! 31 For recent discussion of recovery of damages on a loss of a chance basis, see Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146; [2016] Ch 529, followed and applied in McGill v Sports & Entertainment Media Group [2016] EWCA Civ 1063 and in Wright v Lewis Silkin [2016] EWCA Civ 1308. A claim based on evaluation on a loss of chance basis failed in Aercap Partners 1 Ltd v Avia Asset Management AB [2010] EWHC 2431 (Comm); [20101] 2 CLC 578. 32 Chaplin v Hicks [1911] 2 KB 786 at 792; Owners of the Steamship Mediana v Owners of the Lightship Comet (“The Mediana”) [1900] AC 113 at 116.

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him in the position he would have been if a building with five rather than four bedrooms is provided (for reasons discussed elsewhere33 there may be a debate as to whether the calculations of those damages should be on the basis of difference in value or cost of reconstruction to provide what was contracted). 11.20 However there are cases where “reliance” rather than “expectation” damages are awarded. In this situation the claimant recovers damages measured by reference to expenses incurred in reliance upon the contract. This is the measure likely to be adopted in cases where the claimant finds it difficult to prove what position he would have been had the contract been performed.34 11.21  At the claimant’s election, reliance damages rather than expectation damages can be claimed even if proof of expectation damages is not impossible.35 However a court will not put the claimant in a better position than if the contract had been performed. Thus a claimant cannot get out of the consequences of a bad bargain by claiming reliance damages.36 A consequence of this principle is that a claimant cannot recover amounts that place him in a better position than he would have been in had the defendant relied upon all contractual points available to him.37 This principle was summarised by Patten LJ in Durham Tees Valley Airport Ltd v BMIBaby Ltd as follows:38 “The court, in my view, has to conduct a factual inquiry as to how the contract would have been performed had it not been repudiated. Its performance is the only counter-factual assumption in the exercise. On the basis of that premise, the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted. The judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind.”

11.22 Where reliance damages are recoverable, pre-contractual expenditure can be recovered where the costs were of “performing an act required to be done by the contract”.39 Contributory negligence 11.23  At common law contributory negligence was a complete defence to many torts (but not to intentional torts40) and possibly also to claims in contract. In 1945 the Law 33 See Chapter 9. 34 The leading English case is Anglia Television Ltd v Reed [1972] 1 QB 60, but see also the Australian case of McRae v Commonwealth Disposals Commission (1950) 84 CLR 377. Omak Maritime Ltd v Mamola Challenger Shipping Co Ltd [2010] EWHC 2026 (Comm); [2011] Bus LR 212; Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB); [2013] 1 Lloyd’s Rep 526 at paragraph [187]. 35 Cullinane v British Rema Manufacturing Co Ltd [1954] 1 QB 292; Anglia Television Ltd v Reed (above); CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16, particularly at 32. 36 See C & P Haulage v Middleton [1983] 1 WLR 1461; CCC Films (London) Ltd v Impact Quadrant Films Ltd (above). See also the Canadian case of Bowlay Logging Ltd v Dolmar Ltd (1978) 4 WWR 105. 37 Dhanani v Crasnianski [2011] EWHC 926 (Comm) at paragraph [109]. 38 [2010] EWCA Civ 485; [2011] 1 Lloyd’s Rep 68 at paragraph 79. See also Comau UK Ltd v Lotus Lightweight Structures Ltd [2014] EWHC 2122 (Comm). Note, however, that the position is different in a case involving fraud: OMV Petrom SA v Glencore International AG (No. 2) [2016] EWCA Civ 778; [2016] 2 Lloyd’s Rep 432. 39 Lloyd v Stanbury [1971] 1 WLR 535 at 546. 40 Pritchard v Co-Operative Group Ltd [2011] EWCA Civ 329: [2012] QB 320 – accordingly the 1945 Act does not apply to such torts.

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Reform (Contributory Negligence) Act 1945 made contributory negligence a partial defence. By section 1(1) it is provided: “Where any person suffers damage as a result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage.”

11.24  It took many years before the courts considered definitively the application of this section to claims in contract.41 The position was finally resolved by the Court of Appeal in Forsikringaktieselskapet Vesta v Butcher,42 which adopted the analysis put forward by Hobhouse J at first instance distinguishing three categories of case:43 “(1) Where the defendant’s liability arises from some contractual provision which does not depend on negligence on the part of the defendant. (2) Where the defendant’s liability arises from a contractual obligation which is expressed in terms of taking care (or its equivalent) but does not correspond to a common law duty to take care which would exist in the given case independently of contract. (3) Where the defendant’s liability in contract is the same as his liability in the tort of negligence independently of the existence of any contract.”

11.25  The Court of Appeal agreed with Hobhouse J that the Act would not apply to cases in categories (1) or (2), but would apply in category (3). Thus for the Act to apply there must be a concurrent liability in tort and contract. Following the decision of the House of Lords in Henderson v Merrett Syndicates Ltd,44 most cases falling within category (2) will also fall within category (3). A  rare case falling within category (2) but not category (3) is Raflatac Ltd v Eade.45 Raflatac was a case in which the defendant contractor was held to be in breach of a contractual duty of care to the claimant by reason of the carelessness of a subcontractor. However Colman J held, following the decision of the House or Lords in D & F Estates Ltd v Church Commissioners for England,46 that the main contractor was not in breach of any duty of care in tort by reason of the acts of an independent subcontractor. Accordingly the case was a category (2) case in which the Act was inapplicable. 11.26  Barclays Bank plc v Fairclough Ltd47 was a case held by the Court of Appeal to fall within category (1). The defendant was held to be in breach of its strict contractual liability to clean the asbestos cement roof of the claimant’s warehouse to a specified standard, causing contamination with asbestos that required expensive remedial work. At first instance the judge held that the claimant was to a very significant extent responsible for

41 In Quinn v Burch (Builders) Ltd [1966] 2 QB 370 and De Meza & Stuart v Apple Van Straten Shena & Stone [1975] 1 Lloyd’s Rep 498 the courts favoured the view that the Act did apply to claims in contract, whilst Basildon District Council v JE Lesser (Properties) [1985] QB 839 and AB Marintrans v Comet Shipping Co [1985] 1 WLR 1270 were to the opposite effect. 42 [1989] AC 852; the case was considered by the House of Lords on other points. 43 [1986] 2 All ER 488 at 508 and [1989] AC 852 at 860. 44 [1995] 2 AC 145. 45 [1999] 1 Lloyd’s Rep 506; [1999] BLR 261. Raftatac was distinguished in Saga Cruises BDF Ltd v Fincantierei Spa [2016] EWHC 1875 (Comm) at paragraphs [180]–[191]. 46 [1989] AC 177. 47 [1995] QB 215.

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failing to heed or stop the negligent method of cleaning.48 The Court of Appeal held that this was a category (1) case, because the breach was of a strict contractual obligation rather than an obligation to take care, and that accordingly there should be no reduction in the amount recoverable by the claimant for contributory negligence. 11.27  By contrast, in UCB Bank plc v Hepherd Winstanley & Pugh,49 a reduction for contributory negligence was made where a solicitor was held to owe a duty of care in tort as well as in contract – it was held to be a category (3) case.50 11.28  Where the Act does not apply, principally category (1) cases, the claimant’s contribution to damage is liable to have the effect that the claimant’s claim fails in its entirety.51 Professor Burrows52 cites as an example of this Schering Agrochemicals Ltd v Resibel NV SA.53 The claimants manufactured and bottled certain inflammable chemicals. The defendants supplied them with equipment that heat-sealed caps onto bottles. The equipment contained a safety alarm whereby the heat sealer would be switched off if a bottle was stationary for too long and thereby exposed to excessive heat. Two months after the equipment was operational, there was a serious fire at the claimants’ premises caused by a defect in the safety system of the heat sealer. On appeal, the defendants accepted that they were in breach of a strict contractual obligation in supplying equipment that was not reasonably fit for its purpose, contrary to section 14(3) of the Sale of Goods Act 1979. The defendants understandably pointed to the fact that three weeks before the fire there had been an incident (unreported higher up the management chain), observed by two of the claimants’ employees and reported to a supervisor, in which the safety system did not switch off when it should have done, resulting in a small explosion in one or more of the bottles and an orange flash. The Court of Appeal held that the claimants’ unreasonable failure to close down the bottling line pending investigations meant that no damages at all should be awarded for the loss caused by the fire: the result was justified on the alternative grounds that the claimants had failed in their duty to mitigate their loss or had broken the chain of causation. Professor Burrows says that this seems a harsh result, which could have been avoided had the court been able to award damages reduced for the claimants’ contributory negligence.54 The author would respectfully agree, although the result is consistent with other Sales of Goods Act

48 Indeed the trial judge apportioned responsibility to the claimant to an extent which was far beyond that expected by leading and junior counsel for the defendant! Had the defence of contributory negligence not been so successful at first instance it is likely that the case would not have troubled the Court of Appeal. The success at first instance was a tribute to the silver tongue and advocacy skills of Mr Anthony Butcher QC. 49 [1999] Lloyd’s Rep PN 963. 50 As long ago as 1990 the Law Commission made proposals for law reform in this area (Law Commission Working Paper No 114) leading to Law Commission Report no 219 in 1993 (Contributory Negligence as a Defence in Contract) but no progress has been made. For a description of the Law Commission’s deliberations see Professor Andrew Burrows, Limitations on Compensation, 2003, in Commercial Remedies: Current Issues and Problems at pages 40–43. 51 See Harrison v Technical Sign Company Ltd [2012] EWHC 2887 (TCC); [2013] BLR 244 for a case where it was held that there was no deduction for contributory negligence because it was a Category (1) case, but it was held that the matters relied upon did not break the chain of causation. 52 Remedies for Torts and Breach of Contract, 3rd edition, 2004, pages 141 and 142; Limitations on Compensation, 2003, in Commercial Remedies: Current Issues and Problems at page 42; (1993) 109 LQR 175. 53 Court of Appeal, 26 November 1992, unreported. 54 In an interesting paper published in July 2008, Professor Doug Jones argues the case for moving towards proportionate liability or net contribution provisions: Professor Doug Jones, Proportionate Liability: Reform or Regression? SCL Paper 147.

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cases.55 In Trebor Bassett Holdings Ltd v ADT Fire & Security plc56 the Court of Appeal upheld a judgment rejecting an argument that knowledge on the part of a claimant of a previous fire that had not been extinguished by a fire suppression system did not break the chain of causation, but justified a 75% reduction for contributory negligence. In Howmet Ltd v Economy Devices Ltd57 the Court of Appeal upheld a first instance decision rejecting a fire claim where a previous incident put the claimant on notice of potential hazard, but each member of the Court differed in the route to that decision, illustrating the causation difficulties arising in fire claims where the claimant has prior warning of potential problems. 11.29 In Gran Gelato Ltd v Richcliff (Group) Ltd,58 Sir Donald Nicholls VC held that the Act would apply to claims for damages under section 2(1) of the Misrepresentation Act 1967 for negligent misrepresentation. By contrast the Act would not apply (and would in any event be difficult to apply) to claims under section 2(2) of the 1967 Act relating to innocent misrepresentation, because there would be no liability at common law concurrent to the statutory liability. Foreign currency awards 11.30  English courts have power to make awards in currencies other than sterling where the claim is for a debt due in a foreign currency.59 Similarly in respect of arbitrations, section 48(4) of the Arbitration Act 1996 provides that unless otherwise agreed by the parties, “the tribunal may order the payment of a sum of money in any currency”. It was held in Lesotho Highland Development Authority v Impregilo SpA60 that section 48(4) did not entitle arbitrators to disregard the substantive law in relation to foreign currency obligations. 11.31 International construction contracts often include provision for payments in respect of particular elements of the works in different currencies (this was the case in the contract considered in the Lesotho case). Such provisions will be upheld by the courts. This is a reflection of the principle established in Federal Commerce and Navigation Co v Tradax Export61 in which Lord Denning MR said:62 “Once it is recognised that judgment can be given in a foreign currency, justice requires that it should be given in every case where the currency of the contract is a foreign currency: otherwise one side or the other will suffer unfairly by the fluctuations of the exchange.”

11.32  Similarly, contracts may contain a provision as to currency of account and a different provision for the currency of payment, often with a specified rate of exchange. In “The Agenor”,63 Staughton J said:64 “[A] different solution is appropriate where the contract provides, as it does here, an agreed exchange rate between the money of account and the money of payment. In such a case I consider that the judgment or award should prima facie be in the money of payment.” 55 Particularly Lexmead (Basingstoke) Ltd v Lewis [1982] AC 225, usually cited as Lambert v Lewis. 56 [2012] EWCA Civ 1158; [2012] BLR 441. 57 [2016] EWCA Civ 847; [2016] BLR 555. 58 [1992] Ch 560. 59 Miliangos v George Frank (Textiles) Ltd [1976] AC 443. 60 [2005] UKHL 43; [2006] 1 AC 221. 61 [1977] QB 324. 62 At 342. 63 The President of India v Taygetos Shipping Co AG (“The Agenor”) [1985] 1 Lloyd’s Rep 155. 64 At 158.

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11.33  Even if a contract provides for a particular currency to be the currency of the contract, it does not necessarily follow that awards of unliquidated damages will be in the same currency. This is clear from the decision of the House of Lords in The Despina R65 in which Lord Wilberforce said:66 “The first step must be to see whether, expressly or by implication, the contract provides an answer to the currency question. This may lead to selection of the ‘currency of the contract’. If from the terms of the contract it appears that the parties have accepted a currency as the currency of account and payment in respect of all transactions arising under the contract, then it would be proper to give a judgment for damages in that currency. But there may be cases in which, although obligations under the contract are to be met in a specified currency, or currencies, the right conclusion may be that there is no intention shown that damages for breach of the contract should be given in that currency or currencies. In the present case the fact that US dollars have been named as the currency in which payments of hire and other contractual payments are to be made, provides no necessary or indeed plausible reason why damages for breach of the contract should be paid in that currency. The terms of other contracts may lead to a similar conclusion.”

He continued:67 “If then the contract fails to provide a decisive interpretation, the damage should be calculated in the currency in which the loss was felt by the plaintiff or ‘which most truly expresses his loss’. This is not limited to that in which it first and immediately arose. In ascertaining which this currency is, the court must ask what is the currency, payment in which will as nearly as possible compensate the plaintiff in accordance with the principle of restitution, and whether the parties must be taken reasonably to have had this in contemplation.”

11.34  To take an example – a contract for the erection of a power station in France might provide for the contract price to be paid in US dollars, perhaps because the contractor is an American corporation. So the currency of the contract would be US dollars and in accordance with the above authorities payments for work done (including for example payments for variations) would absent some unusual events be ordered in US dollars – that would be fair because the parties at the time of contracting addressed their minds to the applicable currency and could, for example, have hedged the currency risk on the foreign exchange market. However if there was a breach of contract, it would not necessarily be fair to make an award in that currency – for example if the plant did not work so that the employer suffered loss of profits in euro, it would be natural to think of making an award in the currency of the loss. Or, to take another example, if a steam turbine was damaged in an explosion caused by the contractor’s negligence and had to be replaced by a steam turbine bought from a Japanese manufacturer, an award in yen would probably be appropriate. 11.35  In deciding which currency most truly reflects a claimant’s loss, the currency in which the claimant normally conducts his business may well be the appropriate currency to award,68 particularly if the claimant uses that currency to buy other currencies to make good losses he has suffered, but this is not necessarily so, particularly where the currency in which the claimant keeps his own books of account is not a currency in the contemplation 65 Owners of the Eleftherotria v Owners of the Despina R (The “Despina R”) [1979] AC 685 – two cases were considered together, The Despina R, and The Folias. 66 At pages 700–701. 67 At 701. 68 Per Lord Wilberforce in The Despina R at page 697.

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of the parties when entering into the contract.69 If late payment of a debt causes a currency exchange loss, that loss can be reflected in an award of damages.70 Damages for mental distress and physical inconvenience 11.36  The parts of this book concerning damages for breach of contract are principally concerned with the principles upon which courts (or arbitrators) award damages for pecuniary losses. In this section the circumstances are considered in which the courts will make awards of damages for non-pecuniary losses. 11.37  If a breach of contract causes personal injuries or death, compensation will be payable. There is extensive legislation and case law on the subject and this book does not attempt to summarise their effect. Readers are advised to consult such books as Kemp & Kemp: The Quantum of Damages or McGregor on Damages. 11.38  Very often a breach of contract will cause the victim mental distress or physical inconvenience falling short of personal injury. In Watts v Morrow71 (a surveyor’s negligence case) Bingham LJ summarised the legal position as follows:72 “A contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party. The rule is not, I think, founded on the assumption that such reactions are not foreseeable, which they surely are or may be, but on considerations of policy. But the rule is not absolute. Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead. If the law did not cater for this exceptional category of case it would be defective. A contract to survey the condition of a house for a prospective purchaser does not, however, fall within this exceptional category. In cases not falling within this exceptional category, damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort.”

11.39  It was cases concerning disappointed holidaymakers that first illustrated the existence of the exceptional category.73 The principle was considered by the House of Lords in Farley v Skinner.74 The claimant engaged the defendant surveyor to survey a house that he was thinking of buying about 15 miles from Gatwick Airport. The surveyor was specifically asked to consider whether the property was affected by aircraft noise but failed to give the claimant the advice he was seeking. After buying the property and moving in, the claimant discovered that aircraft bound for Gatwick flew over the house. The house was substantially affected by aircraft noise. Despite the noise, he decided not to sell. The trial judge held that he had suffered no financial loss because the price he had paid for the house reflected its true market value, but he awarded £10,000 for distress and inconvenience 69 See for example Metaalhandel JA Magnus BV v Ardfields Transport [1988] 1 Lloyd’s Rep 197 particularly at 205. 70 Per George Leggatt QC in Fearns v Anglo-Dutch Paint & Chemical Company Ltd [2010] EWHC 2366 (Ch) at paragraph [53]. 71 [1991] 1 WLR 1421. 72 At 1445. 73 Particularly Jarvis v Swan Tours Ltd [1973] QB 233. For recent judicial consideration, see Milner v Carnival plc [2010 EWCA Civ 389; [2011] 1 Lloyd’s Rep 374. 74 [2001] UKHL 49; [2002] 2 AC 732.

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caused by the noise. The Court of Appeal allowed an appeal against this award,75 but the House of Lords restored it. The claimant had asked for advice as to the noise – it was an important object of the contract for him to be advised about and satisfied as to the noise. 11.40 In Ruxley Electronics and Construction Ltd v Forsyth,76 the House of Lords indicated that it would have allowed an award of £2,500 for “loss of amenity”. The principle upon which this would have been awarded would be because the defendant’s breach of contract (there failing to construct a swimming pool as deep as specified in the contract) resulted in a loss of expectation of performance or satisfaction of a personal preference.77 Whilst the justice of Farley v Skinner is easy to understand – it must have been infuriating for Mr Farley to put up with the aircraft noise – the justification for Ruxley is harder to find given that Mr Forsyth’s upset at the depth of the swimming pool had not been held sufficient to entitle him to recover the cost of obtaining what he had contracted to have built. 11.41 In Johnson v Gore Wood,78 a solicitor’s negligence case, the House of Lords denied a claim for general damages for mental distress in a case where the solicitor’s negligence had destroyed the claimant’s financial stability, causing him to leave his marital home, get divorced and to lead a hand-to-mouth existence for a decade and more. The claimant lost because it was not the object of the solicitor’s retainer to prevent him suffering mental distress.79 11.42  Even where one of the objects of the contract is not to provide pleasure, relaxation, peace of mind or freedom from molestation, damages are recoverable for physical inconvenience and discomfort caused by a breach and mental suffering directly related to that inconvenience and discomfort. Thus, for example, in Watts v Morrow,80 the defendant surveyor negligently surveyed a house, failing to notice or report upon significant defects. The Court of Appeal held that a husband and wife were each entitled to recover £750 for the physical inconvenience and directly related mental distress of living at weekends in a house undergoing extensive repairs necessitated by the defects. In Watts v Morrow the Court of Appeal followed an earlier decision of the Court of Appeal, Perry v Sydney Phillips & Son,81 where, following a negligent survey, the plaintiffs moved into a property that suffered from a leaking roof and a defective septic tank, and had to live in considerable physical discomfort from the incursion of water and noxious smells. 11.43 In Hutchinson v Harris,82 the plaintiff owned a house that she intended to convert into maisonettes and a flat for letting, and engaged the defendant architect for that purpose. The defendant carried out her duties of supervision and certification negligently. The plaintiff’s claim for damages for distress failed. Had the plaintiff been intending to occupy the

75 (2000) 73 Con LR 70. 76 [1996] AC 344. 77 Ruxley was applied by the Court of Appeal in Freeman v Niroomand (1996) 52 Con LR 116. 78 [2002] 2 AC 1. 79 A bias should be declared here: the author was counsel for Mr Johnson! It would be fair to point out that in a case bristling with interesting points of law, the issue of general damages was peripheral and occupied very little time in the arguments on behalf of either party. Contrast Hamilton Jones v David & Snape [2003] EWHC 3147 (Ch); [2004] 1 All ER 657. See also Murray v Budds, Hanahoe and Michael E Hanahoe [2017] IESC 4. 80 Above. 81 [1982] 1 WLR 1297. Some comparison may be possible with awards of damages in cases of physical inconvenience and discomfort consequent upon a landlord’s breach of repairing covenant, eg Wallace v Manchester City Council (1998) 30 HLR 1111; English Churches Housing Group v Shine [2004] EWCA Civ 434. 82 (1978) 10 BLR 19.

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converted premises and suffered physical inconvenience the result might well have been different. 11.44  Thus the circumstances in which general damages for breach of contract will be awarded are limited, and (save in respect of personal injuries or death) the scale of any damages awarded is likely to be relatively modest. What benefits are to be taken into account? 11.45  When a breach of contract causes loss, often the loss is reduced by benefits of different kinds. Sometimes these are taken into account; sometimes they are not. 11.46 In British Westinghouse Co v Underground Electric Railways Company of London Ltd,83 the defendants supplied the plaintiffs with turbines that were defective. The plaintiffs subsequently replaced them with other turbines. The new turbines were more efficient and profitable than the original ones would have been if they had not been defective, to the extent that the extra profit gained from the new turbines was more than the losses caused by the original turbines being defective. The House of Lords held that the plaintiffs were only entitled to nominal damages because their losses had been completely mitigated by the extra profit gained from the plaintiffs’ steps taken to avoid the consequences of the breach. In this case the additional profit was taken into account because it was directly related to the breach. The general position is that if loss is avoided by the claimant receiving or enjoying a benefit directly flowing from a breach, that benefit will be brought into account in reduction of damages,84 although different principles apply in a case of deceit85 11.47  By contrast one can refer to two cases in the Court of Appeal where no credit was given for benefits received by the victim of a breach of contract. First, Hussey v Eels:86 the plaintiffs were induced to buy a bungalow from the defendants by a negligent misrepresentation in answer to pre-contract inquiries that the property had not been subject to subsidence. It was estimated that the plaintiffs had paid £17,000 more than the property was worth had the truth about the subsidence been known. The plaintiffs did not carry out repairs but on the contrary sought and obtained planning permission to replace the bungalow with two new ones. It took time for them to obtain that planning permission, but eventually it was obtained. The plaintiffs then sold the bungalow and adjoining land for £23,000 more than they had paid for it. The judge in the county court held that the plaintiffs were not entitled to any damages for the negligent misrepresentation because they had fully mitigated their loss by the resale. The Court of Appeal reversed that decision, holding that the resale was not part of a continuous transaction of which the purchase of the property 83 [1912] AC 673. 84 See in addition to British Westinghouse, The Golden Strait Corp v Nippon Yusen Kubishika Kaisha (“The Golden Victory”) [2007] UKHL 12, [2007] AC 353; Omak Maritime Ltd v Mamola Challenger Shipping Co [2010] EWHC 2026 (Comm); [2011] Bus LR 212; Ageas (UK) Ltd v Kwik-Fit (GB) Ltd [2014] EWHC 2178 (QB); [2014] Bus. LR 1338; [2015] Lloyd’s Rep IR 1; Bunge SA v Nidera BV [2015] UKSC 43; [2015] Bus LR 487; [2015] 2 Lloyd’s Rep 469; Fulton Shipping Inc v Globalia Business Travel SAU (“The New Flamenco”) [2015] EWCA Civ 1299; [2016] 1 WLR 2450; [2016] 1 Lloyd’s Rep 383; Bacciottini v Gotelee and Goldsmith [2016] EWCA Civ 170; [2016] 4 WLR 98. See by contrast the cases discussed in paragraphs 11.47 and 11.48 and Swynson Ltd v Lowick Rose LLP [2015] EWCA Civ 629; [2016] 1 WLR 1045 (which contains a powerful dissenting judgment from Davies LJ: the Supreme Court allowed an application for permission to appeal). 85 OMV Petrom SA v Glencore International AG (No. 2) [2016] EWCA Civ 778; [2016] 2 Lloyd’s Rep 432. 86 [1990] 2 QB 227.

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was the inception. Thus the benefit obtained was too indirect to call for a credit to be given against the loss suffered by the plaintiffs when they purchased the property at too high a price having regard to its condition. 11.48 Second: Gardner v Marsh & Parsons:87 this was a surveyor’s negligence case in which the surveyor for the purchaser had failed to notice certain defects. Before trial the landlord of the property had repaired the defects. Thus the property was now in the condition as described by the surveyor. Nevertheless the Court of Appeal held that the repairs carried out by the landlord should be disregarded when assessing the plaintiffs’ loss. Peter Gibson LJ dissented. Hirst LJ held that the acts of the landlord were not sufficiently directly connected with the surveyor’s negligence to be taken into account. Pill LJ agreed, but his judgment also relied upon the authorities as to the circumstances when benefits from third parties are to be taken into account, which are discussed below. This is not an easy case – it would seem to the author that the plaintiffs received an uncovenanted windfall. The property as repaired by the landlord was worth what it would have been had the surveyor not been negligent. The plaintiffs’ loss was effectively avoided. 11.49  Many cases concern benefits received by the victim of a tort or breach of contract from third parties that have the effect that the victim’s loss is diminished or remediated. 11.50  As already explained, Gardner v Marsh & Parsons88 was a case in which repairs by a landlord developer were disregarded – the decision can be justified on the basis that the repairs were too indirect a transaction or event to require credit to be given. In other cases benefits are disregarded where they are the product of benevolence – the courts taking the view that there is no reason why a tortfeasor or contract-breaker should benefit from the benevolence of others.89 Benefits from a third party are also disregarded where they are the consequence of the victim’s own thrift, for example in a claim for loss of earnings if the victim contributes to a pension scheme.90 11.51  The cases in which this principle has been established (of which leading cases are cited at footnotes 89 and 90 below) were usually cases of assessment of damages for personal injuries or death. Cases in which the victims of breach of contract or of tort benefit from benevolent payments from third parties in the context of construction projects are infrequent, but it is possible to conceive of such cases – for example if a wealthy parent were to pay for repairs to a house negligently constructed for one of the parent’s offspring. As a matter of principle, it would be irrelevant to the negligent contractor’s liability in such a case that repairs had been funded by the parent, even if the parent was not expecting to be repaid the monies laid out. One example of the consideration of the principle in the context of a claim arising out of defects in a building is Treml v Ernest Gibson.91 This was a claim for damages against a firm of valuers who, when valuing a residential property, had failed to notice and report upon significant physical defects in the house. The local authority had made a substantial grant towards the costs of repairs. The question was whether the 87 [1997] 1 WLR 489: Gardner v Marsh & Parsons has recently been distinguished by Lady Smith in Marquess of Aberdeen & Temair v Turcan Connell [2008] CSOH 183; [2009] PNLR 18. 88 Above. 89 Redpath v Belfast and County Down Railway [1947] NI 167. 90 Bradburn v Great Western Railway Co (1874) LR 10 Exch 1; Parry v Cleaver [1970] AC 1. But see by contrast Hussain v New Taplow Paper Mills Ltd [1988] AC 514 where a tortfeasor employer was entitled to credit for sick pay paid under an employer’s health insurance scheme. 91 [1955–1995] PNLR 228; 272 EG 71.

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plaintiff was required to give credit for this grant in the assessment of damages payable by the defendants. Popplewell J held that no credit was to be given, firstly because the credit was irrelevant to the true measure of damage, namely the difference between the price paid for the property and its true value, and secondly because the grant fell to be treated in the same way as a charitable donation or public benevolence. 11.52  Where physical damage is caused, very often property insurers are involved to give indemnity to the owner of the property. Usually payments made by an insurer are disregarded – because insurers are entitled to pursue claims against wrongdoers exercising rights of subrogation there is no risk of double recovery.92 However sometimes the existence of an insurance policy will prevent any right of recovery arising and, in other cases, particularly if the cost of insurance has been borne in part by the contract-breaker, the proceeds of insurance will be taken into account.93 Thus where a tenant who had paid an insurance rent negligently started a fire, the landlord was held unable to recover damages.94 In cases where there is a Project Contractors All-Risks Policy covering the interests of numerous parties including the employer, main contractor and subcontractors, this is likely to lead to a conclusion that one party to the policy cannot be sued by the insurers exercising subrogation rights in the name of another insured party.95 Taxation 11.53  If damages consist of monies, such as loss of profits, upon which the claimant would have had to pay tax if the monies had been received in the ordinary course of events, damages will be assessed so as to ensure that the claimant is no better compensated than if the breach of contract had not occurred.96 A slightly complicated application of this principle is the decision of HH Judge Humphrey LLoyd QC in Amstrad plc v Seagate Technology Inc.97 Contractual damages were awarded by the judge for loss of profits from the sale of some 67,500 computers. The corporation tax on the profits, had they been received at the proper time, would have been at rates of 33–35%. When received, the damages would be subject to a lower tax rate of 31%. The judge adjusted the award of damages so that the plaintiffs were not overcompensated by reason of the fact that tax rates had fallen. Account of profits/damages for “loss of opportunity to bargain” 11.54  Generally damages for breach of contract are assessed on a purely compensatory basis – the claimant is compensated for the loss he or she has suffered as a consequence of the breach of contract. However in exceptional cases damages may be awarded by reference to the profit made by the wrongdoer as a consequence of the breach of contract. 92 Arab Bank Plc v John D Wood Commercial Ltd [2000] 1 WLR 857; Coles v Hetherton [2013] EWCA Civ 1704; [2015] 1 WLR 160. For a discussion of insurers’ rights of subrogation see ter Haar, Levine and Laney, Construction Insurance and UK Construction Contracts, 3rd edition, 2016, paragraphs 2.151–2.159. 93 This complex subject is discussed in ter Haar, Levine and Laney, Construction Insurance and UK Construction Contracts, 3rd edition, 2016, chapter 13. 94 Mark Rowlands Ltd v Berni Inns Ltd [1986] QB 211. 95 See for example Petrofina (UK) Ltd v Magnaload [1984] QB 127. 96 See British Transport Commission v Gourley [1956] AC 185. 97 (1998) 86 BLR 34.

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11.55  The leading case on this topic in the House of Lords decision in Attorney General v Blake.98 The defendant in that case was the notorious spy, George Blake, who wrote an autobiography, substantial parts of which were based on information he had acquired whilst serving in the British Secret Services, and which he divulged in breach of his duty of confidentiality to his former employers. The House of Lords ordered him to pay to the Attorney General on behalf of the British government whatever was due to be paid to him by his publishers. 11.56 In his speech, with which the majority of the House of Lords agreed, Lord Nicholls said:99 “An account of profits will be appropriate only in exceptional circumstances. Normally the remedies of damages, specific performance and injunction, coupled with the characterisation of some contractual obligations as fiduciary, will provide an adequate response to a breach of contract. It will only be in exceptional cases, where those remedies are inadequate, that any question of accounting from profits will arise. No fixed rules can be prescribed. The court will have regard to all the circumstances, including the subject matter of the contract, the purpose of the contractual provision which has been breached, the circumstances in which the breach occurred, the consequences of that breach and the circumstances in which relief is being sought. A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant’s profit-making activity and, hence, in depriving him of his profit.”

The circumstances in which such an award will be made are not clearly delineated. Blake was on any view an exceptional case. In his judgment Lord Nicholls sounded this note of caution:100 “Lord Woolf MR101 . . . also suggested three facts which should not be a sufficient ground for departing from the normal basis on which damages are awarded: the fact that the breach was cynical and deliberate; the fact that the breach enabled the defendant to enter into a more profitable contract elsewhere; and the fact that by entering into a new and more profitable contract the defendant put it out of his power to perform his contract with the plaintiff. I agree that none of these facts would be, by itself, a good reason for ordering an account of profits.”

11.57 In Blake the defendant was deprived of all his profits. The same happened in Esso Petroleum Co Ltd v Niad.102 However, even where awards depriving the wrongdoer of his profits are made (which, as Lord Nicholls’s speech points out, will only happen in exceptional cases) it will be very rare that all the profits are made the subject of an award. More often the courts may award a proportion of the profits made and this will be put on the fictional compensatory basis that it represents the fee that could reasonably have been charged for releasing the defendant from the obligation breached (this is a fiction because often the claimant would never have been willing to permit the prohibited breach at any price – see for example Experience Hendrix LLC v PPX Enterprises Ltd103). 11.58  The comment has already been made at paragraph 5.35 above, when considering cases of repudiation of contract by an employer, that the application of this line of authority to the normal run of cases concerning construction contracts is unlikely.  98 [2001] 1 AC 268.  99 At 285. 100 At 286E–F. 101 [1998] Ch 439 at pages 457–458. 102 [2001] All ER (D) 324 (Nov). 103 [2003] EWCA Civ 323; [2003] FSR 46.

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11.59  However there is a class of case where such awards have been made – namely where a development proceeds in breach of a restrictive covenant or in breach of an agreement as to the number of houses to be built on a plot of land. In such cases damages calculated by reference to a licence fee related to the profit to be made by the developer out of his breach have been awarded.104 For “Wrotham Park” damages to be awarded there must be the following features: firstly, a deliberate breach by the defendant of its contractual obligations for its own reward; secondly, that the claimant would have difficulty in establishing financial loss from the defendant’s breach; and, thirdly, that the claimant has a legitimate interest in preventing the defendant’s profit-making activity in breach of contract.105 Distinguishing damages claims from claims within a contract 11.60  Damages are awarded for breach of contract, that is as compensation for acts or omissions on the part of the contract-breaker contrary to the terms of the contract. Often the same act or omission may entitle the wronged party both to damages and to a remedy under the contract. For example an act of hindrance by an employer may be both a breach of an implied term of the contract not to hinder the contractor in his work and something entitling the contractor to relief under the contract; for example, to recover his costs occasioned by the act of hindrance. 11.61  It is important to keep this distinction in mind since claims for damages may be precluded or capped by terms of the contract, whilst contractual remedies are often conditional upon compliance with procedural requirements, particularly notice requirements.

104 See Wrotham Park Estates Company v Parkside Homes [1974] 1 WLR 798; Jaggard v Sawyer [1995] 1 WLR 269; Gafford v Graham [1999] 3 EGLR 70; Amec Developments v Jury’s Hotel Management [2001] EGLR 81; Lane v O’Brien Homes Ltd [2004] EWHC 303 (QB). A decision of the Court of Appeal refusing damages, Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361, appears difficult to reconcile with Blake. The principle in the Wrotham Park case was summarised by Lord Nicholls in Blake at page 283H – 284A as follows: “The Wrotham Park case, therefore, still shines, rather as a solitary beacon, showing that in contract as well as tort damages are not always narrowly confined to recoupment of financial loss. In a suitable case damages for breach of contract may be measured by the benefit gained by the wrongdoer from the breach. The defendant must make a reasonable payment in respect of the benefit he has gained.” See also Pell Frischman Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45; [2011] 1 WLR 2370; [2010] BLR 73 referred to at paragraph 21.35 below; Vercoe v Rutland Fund Management [2010 EWHC 424 (Ch), discussing at paragraph [292] how damages are to be calculated; Van der Garde v Force India Formula One Team Ltd [2010] EWHC 2373 (QB). For a careful review of the authorities on assessment of the notional licence fee, see Stadium Capital Holdings (No. 2) Ltd v St. Marylebone Property Company PLC [2011] EWHC 2856 (Ch) at paragraphs [56]–[69]. 105 One-Step (Support) Ltd v Morris-Garner [2016] EWCA Civ 180; [2016] 3 WLR 1281. At the time of going to press an appeal to the Supreme Court was awaited. See also: Marathon Asset Management LLP v Seddon [2017] EWHC 300 (Comm).

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Damages in tort 12.1  Lord Blackburn said in Livingstone v Rawyards Coal Co1 that the measure of damages is “that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation”. Livingstone v Rawyards Coal was a tort case, a claim for trespass to goods, and thus applies not only to claims in contract (hence the citation at paragraph 8.2 above), but also to tort cases.2 12.2  An important distinction between claims in contract and claims in tort is that claims in contract always arise out of a consensual relationship between the parties and the valuation of damages reflects the parties’ expectations in respect of that relationship whilst in the case of claims in tort although some claims may arise out of a relationship between the parties, particularly claims for damages for economic loss, in many other cases the parties have no prior relationship or even knowledge of the other’s existence – for example a claimant injured by a collapsing wall might well have no prior knowledge of the existence or role of the architect whose negligent design led to the collapse of that wall. 12.3  This chapter considers the recovery of damages in relation to certain individual torts that are particularly liable to arise out of construction projects. Negligence 12.4  The question of the measure of damages for which a defendant is liable for breach of the tort of negligence is inseparable from the question, what (if any) duty of care did the defendant owe to the claimant? In particular, what (if any) was the type of damage in respect of which the defendant owed the claimant a duty of care? Emphasis is placed in the cases upon the principle that the damage claimed must be within the scope of the duty imposed on the defendant. This principle emerged out of the leading case, one case in a mass of litigation arising out of the collapse of the property market in the United Kingdom at the end of the 1980s. In Banque Bruxelles SA v Eagle Star3 (usually referred to by legal practitioners as “SAAMCO” because of the parties concerned when the case finally reached the House of Lords) the House of Lords

  1 (1880) 5 App Cas 25 at 39.   2 See for example Shearman v Folland [1950] 2 KB 43 and 49; British Transport Commission v Gourley [1956] AC 185 at 187; Lim Poh Choo v Camden and Islington Area Health Authority [1980] AC 174 at 186 and following; Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433 at 456; Swingcastle Ltd v Alastair Gibson [1991] 2 AC 223.   3 South Australia Asset Management Co Ltd v York Montague Ltd [1997] AC 191; [1996] BLR 1.

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considered the extent of valuers’ liability for negligence in valuation of property. Lord Hoffmann4 said: “A duty of care such as a valuer owes does not exist in the abstract. A plaintiff who sues for breach of a duty imposed by the law . . . must show that the duty was owed to him and it was a duty in respect of the kind of loss which he has suffered.”

12.5  This principle has particular application in respect of claims for damages in respect of economic losses flowing out of negligent advice. The defendant will not necessarily be held liable for all losses flowing from negligent advice given by a defendant.5 Thus in SAAMCO itself the negligent valuers were held not to be responsible for loss attributable to a fall in the property market, but only for the difference between the valuation given and a true valuation.6 12.6  Accordingly this chapter starts with some analysis of how the courts approach the question, what duty is owed to avoid what loss? Then consideration is given to the issue of scope of duty and its interrelationship with issues of causation and remoteness at paragraphs 12.35–12.38 below. 12.7  In deciding whether or not a duty of care exists, the court is more likely to hold that a duty of care should be imposed where the damage caused is personal injury than if it is pure property damage, and significantly more likely to hold that a duty of care should be imposed if personal injury or property damage is caused than if the loss is pure economic loss.7 Physical damage and personal injury 12.8  Where the loss that is the subject of the claim arises out of physical damage to property or personal injury that is a direct consequence of the defendant’s conduct, the establishment of a duty of care is relatively straightforward.8 For practical purposes, the test is whether the harm in question was reasonably foreseeable in accordance with the principles laid down by the House of Lords in the seminal case of Donoghue v Stevenson.9 12.9  In respect of claims arising out of physical damage, an important point is to be noted where physical damage arises out of defects in buildings or chattels namely that the claimant must establish that there has been no reasonable opportunity for intermediate inspection – ie that the defect complained about is latent.10 This principle was applied in a claim against an architect for negligence,11 where the architect was held not to be liable   4 At page 211.   5 See for example Johnson v Gore Wood (No 2) [2003] EWCA Civ 1728 where the application of the SAAMCO principle was of central importance in deciding the extent of a solicitor’s liability for negligent advice given.   6 For an example of the application of this principle in a construction context, see HOK Sport v Aintree Racecourse Ltd [2003] BLR 155, an architect’s negligence case, discussed further at paragraphs 12.36–12.38 below.  7 Marc Rich & Co v Bishop Rock Ltd [1996] AC 211.  8 See Caparo v Dickman (above) per Lord Oliver at page 632; Jolley v Sutton London Borough Council [2000] 1 WLR 1082, per Lord Hoffmann at page 1091.   9 [1932] AC 562. 10 Grant v Australian Knitting Mills Ltd [1936] AC 85 at 105 and 106; Murphy v Merton London Borough Council [1991] 1 AC 398 at 462 and 488. 11 Baxall Securities Ltd v Sheard Walshaw Partnership [2002] EWCA Civ 9; [2005] PNLR 564. See also Bellefield Computer Services v E Turner  & Sons Ltd [2002] EWCA Civ 1823; [2003] Lloyd’s Rep PN 53.

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for very significant defects in an industrial unit that could and should have been discovered by the surveyor engaged by a subsequent purchaser of the unit. If the defect came to the attention of the claimant before damage was done, it ceases to be “latent” and the claim in negligence will fail. This can give rise to difficult questions as to whether knowledge on the part of an employee can be attributed to an employer.12 Economic loss 12.10  Many of the leading decisions on the law of tort over the last 20 years have concerned the extent to which the courts will recognise a duty to avoid economic loss. Types of economic losses are numerous, but examples include: losses following upon reliance upon a statement made or advice given (eg, advice given by a solicitor or accountant); the cost of repairs to defective goods or property (such as the cost of rebuilding a defective wall); “consequential losses” (such as loss of profit following upon destruction of physical property). 12.11  The courts have been cautious in imposing liability for economic loss because of the potential for parties being found liable for large and unpredictable losses.13 One control mechanism developed by the courts has been the adoption of the three requirements laid down by the House of Lords in Caparo v Dickman14 in which it was held that for a duty of care to be found to exist, three requirements must be satisfied: (1) the damage in respect of which the claim is brought must be reasonably foreseeable; (2) there must be a relationship of proximity between the claimant and the tortfeasor; and (3) it must be fair, just and reasonable to impose a duty of care. 12.12  In assessing whether there is a relationship of “proximity” between claimant and defendant, and in assessing whether it is “fair, just and reasonable” to impose a duty upon a defendant to protect a claimant against a particular loss, one of the most important indicia is whether the alleged tortfeasor has assumed responsibility towards the claimant, and whether the claimant has relied upon the alleged tortfeasor in material respects.15 The assumption of responsibility may not always be a direct assumption of responsibility by one party for another (thus in Smith v Eric S Bush16 valuers engaged by potential mortgagees to value property for the purpose of establishing the value of property as security for However, it is to be noted that concern about the reasoning in Baxall was expressed by the Court of Appeal in Pearson Education Ltd v Charter Partnership Ltd [2007] BLR 324. 12 See Howmet Ltd v Economy Devices Ltd [2016] EWCA Civ 847; [2016] BLR 555 at paragraphs [67]–[74]. 13 Described by a leading American judge as “liability in an indeterminate amount for an indeterminate time to an indeterminate class”, per Cardozo CJ in Ultramares Corporation v Touche [1931] 174 NE 441 at 444. For a recent decision of the Court of Appeal considering the scope of a duty to avoid economic loss see Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180; [2010] 3 WLR 1192. 14 Above. 15 See Smith v Eric S Bush [1990] 1 AC 831; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. For a recent TCC decision where it was held that services provided gratuitously could found a claim in tort but not in contract see Burgess v Lejonvarn [2016] EWHC 40 (TCC); (2016) 164 Con LR 165. 16 Above. Smith v Bush was distinguished by the Court of Appeal in Scullion v Bank of Scotland plc [2011] EWCA Civ 693; [2011] 1 WLR 3212; [2011] BLR 449.

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a loan were held liable to the potential purchaser of the property with whom they had no direct relationship) and the reliance may not always be by the person who suffers loss (eg, where advice is given to parents for the benefit of a child – see X (Minors) v Bedfordshire County Council17). 12.13  The search to find a test by which it can be determined whether a duty of care is owed for economic losses has continued to trouble the courts. In an insurance broker’s negligence case, a judge at first instance, Colman J, expressed the view that in respect of cases concerning the negligent provision of services the assumption of responsibility test is the primary test rather than application of the threefold Caparo v Dickman approach.18 The House of Lords returned to the subject in Customs & Excise Commissioners v Barclays Bank plc19 in which the various approaches were considered. The effect of that decision appears to be that if an assumption of responsibility is established it may be sufficient to establish a duty of care, but that to establish an assumption of responsibility is not necessary to establish a duty of care. In Riyad Bank v Ahli United Bank (UK) plc20 the Court of Appeal considered this area of the law in the context of a chain of advisory contracts. In many commercial contexts (such as the provision of investment advice with which the Riyad Bank case was concerned) the parties give careful consideration as to which parties will contract with which other parties and upon what terms. Longmore LJ21 said that in the “usual situation” a chain of contracts would be inconsistent with the imposition of a duty of care, but “there cannot be a general proposition that, just because a chain exists, no responsibility for advice is ever assumed to a non-contractual party”. This is of significance in the construction context where chains of subcontracts and sub-subcontracts are common. Generally the existence of such a chain will be a significant indication that the parties did not intend that a party at the top of the chain would be able to sue parties at the bottom of the chain directly in tort. In Henderson v Merrett,22 Lord Goff referred to the example of a small building contract as a situation in which duties of care would not be superimposed over and above the contractual relationships that the parties had chosen. The building owner would not usually be able to sue the subcontractor or the subsupplier because the structure of the parties’ contractual relationships was inconsistent with any assumption of responsibility to the owner on the part of the subcontractor or subsupplier. 12.14  The adoption of different but overlapping approaches to the question of whether a duty of care is owed may appear inconsistent, but is understandable. The cases in which assumption of responsibility has been emphasised have tended to be cases where a professional person gives advice or makes a statement in a commercial setting23 in which the imposition of a duty in tort is either a parallel obligation to an existing obligation in contract24 or where the relationship is very close to a contractual relationship.25 On the other hand the public policy element of the third limb of the Caparo v Dickman test (“fair, 17 [1995] 2 AC 633. 18 See BP plc v Aon plc [2006] EWHC 422 (Comm); [2006] 1 Lloyd’s Rep IR 577 at paragraphs [86] and [87]. 19 [2006] UKHL 28; [2007] 1 AC 181. 20 [2006] EWCA Civ 780; [2006] 2 Lloyd’s Rep 292. 21 At paragraph [32]. 22 Above. 23 For example Smith v Eric S Bush (above); BP plc v Aon plc (above); Riyad Bank v Ahli United Bank (UK) Plc (above); Man Nutzfahrzeuge AG v Freightliner Ltd [2007] EWCA Civ 910. 24 For example Henderson v Merrett Syndicates Ltd (above). 25 See for example RP Howard Ltd v Woodman Matthews [1983] BCLC 117.

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just and reasonable”) has been applied in the numerous cases concerning the liability of government and other public authorities.26 This public policy has now found statutory expression in section 1 of the Compensation Act 2006 which provides: “Deterrent effect of potential liability A court considering a claim in negligence or breach of statutory duty may, in determining whether the defendant should have taken particular steps to meet a standard of care (whether by taking precautions against a risk or otherwise), have regard to whether a requirement to take those steps might – (i) prevent a desirable activity from being undertaken at all, to a particular extent or in a particular way, or (ii) discourage persons from undertaking functions in connection with a desirable activity.”

12.15  The Explanatory Notes to the Act say of this section: “This provision reflects the existing law and approach of the courts as expressed in recent judgments of the higher courts.” It seems that the provision will apply both as to whether a duty of care is held to exist and as to whether there has been a breach of a duty held to exist. Application of the rules relating to recovery of economic loss to cases arising out of construction projects 12.16  As already set out, the courts generally find little difficulty in holding that a duty of care to avoid personal injury should be imposed, and only slightly more difficulty in holding that a duty of care to avoid physical damage should be imposed. But difficulties have arisen in deciding what is physical damage for this purpose, and whether liability for mere defects should be imposed. The primary vehicle for allocating responsibility for defects in construction projects is through contract – either the primary construction contract between employer and main contractor, down the contractual chain of employer to main contractor, main contractor to subcontractor and so on, or by a secondary or collateral warranty given by a party lower down the chain to a party higher up the chain, or a warranty given by a party to the construction process to a third party (eg, a warranty given by an architect to a later purchaser of a building). 12.17  There are often good reasons for a claimant to seek to impose an obligation in tort – either because the party suffering a loss as a result of a building being defective has no contractual remedy at all, or only has a contractual remedy against a party without sufficient financial resources to satisfy a judgment, or because the limitation period in contract has expired.27 12.18 After earlier decisions of the courts imposing extensive obligations in tort for defects in building, the law has now retreated with the courts regarding the machinery of contract as being the principal vehicle by which recompense for defects will be obtained. In

26 For example X (Minors) v Bedfordshire County Council; Phelps v Hillingdon London Borough Council [2001] 2 AC 619; Brooks v Commission of Police for the Metropolis [2005] UKHL 24; [2005] 1 WLR 1495; Customs & Excise Commissioners v Barclays Bank plc (above); Rowley v Secretary of State for Work & Pensions [2007] EWCA Civ 598; [2007] 1 WLR 2861; Neil Martin Ltd v Revenue & Customs Commissioners [2007] EWCA Civ 1041. 27 For a discussion of the principles underlying cases of concurrent liability in contract and tort, see Sir Rupert Jackson, Concurrent Liability: Where have Things gone Wrong? SCL Paper 191, February 2015.

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D & F Estates Ltd v Church Commissioners for England28 the House of Lords considered a claim arising out of defective plasterwork in a flat. It was held that the cost of renewing the defective plasterwork was pure economic loss that was not recoverable in tort. The House of Lords returned to the topic in Murphy v Brentwood District Council29 in which it was held that where a defect was discovered in a house before any injury to person or health or damage to property other than the house had been done, the expense incurred by a subsequent purchaser of the house in putting the defect right was pure economic loss for which a local authority carrying out building regulation control would not be held responsible. Although it did not arise directly for decision in that case, the House of Lords also held that a building contractor would also not be liable in such circumstances “in the absence of a special relationship of proximity”. Another judgment delivered by the House of Lords on the same day in Department of the Environment v Thomas Bates and Son Ltd30 effectively confirmed the position in respect of building contractors, holding that a building contractor was not liable to the lessee of a part of a tower block for the cost of carrying out works to remedy structural weaknesses in supporting columns. It has now been firmly decided by the Court of Appeal in Robinson v P E Jones (Contractors) Ltd31 that a manufacturer of a product or a builder of a building, absent some (unusual) assumption of responsibility, does not owe a duty of care to avoid economic loss. A builder/vendor of a building does not assume any liability in the tort of negligence in relation to defects in the building giving rise to purely economic loss. 12.19  These decisions left open the question what was the scope of duty in respect of damage to other property. In some cases the problem could be quite simple – if a wall fell down without damaging any other property, the cost of rebuilding the wall would be economic loss for which the careless builder would not normally be liable in tort. However, if the wall fell over and damaged a car parked beside it, the owner of the car could sue the careless builder for the costs of repairs to the car. To give another example, if a building on one plot of land were to fall onto a building on an adjacent plot of land, the adjoining property owner would be able to sue the negligent designer of the collapsed building for negligent defects in the design that led to the collapse. However problems arise in defining the limits of this potential liability. In D & F Estates v Church Commissioners32 it was suggested that in some cases one part of a “complex structure” such as a house could be regarded as distinct from the other parts so that damage to one part of the structure caused by a hidden defect in another part might trigger tortious liability. In Murphy v Brentwood District Council33 Lord Jauncey expressed the view that the only potential application of the “complex structures” theory would be where “one integral component of the structure was built by a separate contractor and where the defect in such a component caused damage to other parts of the structure”.34 28 [1989] AC 177. 29 [1991] 1 AC 398. 30 [1991] 1 AC 499. 31 [2011] EWCA Civ 9; [2012] QB 44. There is a useful discussion of this decision by Philip Harris, Economic Loss after Robinson v Jones, SCL Paper D128, November 2011. For an Australian decision to the same effect, see Brookfield Multiplex Ltd v Owners Corporation Strata Plan 6R288 [2014] HCA 36. 32 Above. 33 Above. 34 In his paper Economic Loss after Robinson v Jones (SCL Paper D128, November 2011), Mr Philip Harris points out that intellectual property law habitually categorises parts of a structure or machine into different separate components.

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12.20  It has been left to the lower courts to attempt to apply these thoughts in practice. With the exception of one first instance decision,35 the courts have shown a marked reluctance to find that one part of a structure can be regarded as a separate part of the structure for the purposes of establishing a liability in tort.36 Where damage is caused to a part of a building by a defect in another part of the same building then if the two parts were designed and/or built by the same person or company, the courts are likely to hold that the cost of remedying the damaged part is not recoverable in tort. However, the position may be different if more than one designer or builder is involved, and different and discrete parts of the building were designed and constructed at different times. In these circumstances the court is able to make a clearer conceptual distinction between one part and the other, and it is respectfully submitted that there is scope for liability on the basis of ordinary Donoghue v Stevenson principles to attach (without the need to resort to abstract theories of complex structures). 12.21  A final point is that in Murphy v Brentwood District Council37 it was suggested (as noted above) that a building contractor might be held to owe a duty of care in tort to avoid economic loss resulting from defects in a building if there was a “special relationship of proximity”. This arose out of an earlier House of Lords decision, Junior Books Ltd v Veitchi Co Ltd,38 but it is now clear that the cases in which such a “special relationship” will be found to exist will be so rare as to be effectively non-existent.39 For practical purposes, the only situation in which the courts are likely to hold that such a relationship exists is where there is a contractual relationship between claimant and alleged tortfeasor in which case the courts may be willing, following Henderson v Merrett Syndicates Ltd40 to hold that there is a duty owed in tort that is concurrent and coextensive with a contractual duty to exercise reasonable care and skill41 – the main distinction between the contractual and tortious basis of liability being that there is (arguably in this context) a longer limitation period available in tort than there is in contract.42

35 A Jacobs v Morton and Partners (1995) 72 BLR 92. 36 See Warner v Basildon Development Corporation [1991] Const LJ 146; Tunnel Refineries v Bryan Donkin Co Ltd [1998] CILL 1392; Bellefield Computer Services Ltd v E Turner & Sons Ltd [2000] BLR 97; Payne v John Setchell Ltd [2002] BLR 489. The issue was recently commented upon but left open by Akenhead J on a summary judgment application in Linklaters Business Services v Sir Robert McAlpine Ltd [2010] EWHC 1145 (TCC); 130 Con LR 111; [2010] BLR Plus 38. An appeal against Akenhead J’s judgment failed in the Court of Appeal for lack of time: [2010] EWCA Civ 999. However, when Akenhead J heard the trial, he decided that the insulated, chilled water pipework which was the subject of the litigation was essentially one “thing” for the purposes of tort: [2010] EWHC 2931 (TCC); 133 Con LR 211 at paragraph [119]. A further decision of Akenhead J is Broster v Galliard Docklands Ltd [2011] EWHC 1722 (TCC); [2011] BLR 56. 37 Above. 38 [1983] 1 AC 520. 39 See for example Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 QB 758; Greater Nottingham Co-Operative Society Ltd v Cementation Piling and Foundations Ltd [1989] 1 QB 71; Norwich City Council v Harvey [1989] 1 WLR 828; Pacific Associates Inc v Baxter [1990] 1 QB 993; Nitrigin Eirann Teoranta v Inco Alloys Ltd [1992] 1 WLR 498. 40 Above. 41 See for example Barclays Bank plc v Fairclough Building Ltd (No 2) (1995) 76 BLR 1; Storey v Charles Church Developments Ltd (1996) 73 Con LR 1; Tesco Stores Ltd v Costain Construction Ltd [2003] EWHC 1487 (TCC); Mirant Asia-Pacific Construction v Ove Arup at first instance [2004] EWHC 1750 (TCC); (2005) 97 Con LR 1. Compare Payne v John Setchell Ltd [2002] 7 PNLR 146. 42 Under the Limitation Act 1980 the limitation period for a claim for breach of contract where the contract is not under seal is six years from the date of breach of contract (12 years if the contract is under seal) whilst in tort

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12.22  Where economic loss is a direct consequence of physical damage, an element of economic loss may be recoverable without the need to show a duty of care to avoid economic loss as such. Thus in Spartan Steel and Alloys v Martin & Co Contractors Ltd43 the defendant negligently damaged an electricity cable, thereby cutting off the electricity supply to the plaintiff’s factory for 14 hours. As a result a “melt” then in the furnace was damaged. The plaintiff recovered damages for the damaged melt, and the profit that would have been made on that melt, but not the profits on four further melts that would have been processed but for the absence of electricity. The profit for the further melts was denied as being pure economic loss. A similar approach was applied in Muirhead v Industrial Tank Specialities Ltd,44 discussed at paragraphs 12.31 and 12.32 below. Loss of profit was awarded as a foreseeable consequence of physical loss in Shell UK Ltd v Total UK Ltd,45 where the issue was whether such a claim could be made by a beneficial owner: it was held that the beneficial owner of property damaged could recover when the property was damaged. Similarly, in Conarken Group Ltd v Network Rail Infrastructure Ltd,46 train operating companies were held to be able to recover financial losses suffered by them when the railway infrastructure in different ownership was damaged. In Conarken Jackson LJ set out four relevant principles derived from the authorities:47 “(i) Economic loss which flows directly and foreseeably from physical damage to property may be recoverable. The threshold of foreseeability does not require the tortfeasor to have any detailed knowledge of the claimant’s business affairs or financial circumstances, so long as the general nature of the claimant’s loss is foreseeable. (ii) One of the recognized categories of recoverable economic loss is loss of income following damage to revenue generating property. (iii) Loss of future business as a result of damage to property is a head of damage which lies on the outer fringe of recoverability. Whether the claimant can recover for such economic loss depends upon the circumstances of the case and the relationship between the parties. (iv) In choosing the appropriate measure of damages for the purpose of assessing recoverable economic loss, the court seeks to arrive at an assessment which is fair and reasonable as between the parties.”

Causation 12.23  There is an onus of proof on a claimant to show that the damage resulted from the defendant’s breach of duty. The claimant must adduce evidence from which, on a balance of probabilities, the connection between the two may be fairly drawn. Often the “but for” test is used; that is, the defendant’s act or omission may be the factor without which the damage would not have occurred. Complications arise where two factors unite in inflicting damage on the plaintiff or where there are mutually exclusive but equally possible factors causing the damage.

the limitation period is six years from the date that the cause of action accrued, which means in the case of alleged negligence from the date that damage was caused by the negligent act or omission. See below. 43 [1973] QB 27. 44 [1986] QB 507. 45 [2010] EWCA Civ 180; [2011] QB 86. 46 [2011] EWCA Civ 644; [2011] 2 CLC 1. 47 At paragraph [145].

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12.24 Although the principles of assessing personal injuries are outside the scope of this book, some personal injury cases illustrate the difficult problems of causation that can arise. In McGhee v National Coal Board48 the House of Lords held that it is sufficient for the claimant to show that the defendant’s breach of duty made the risk of injury more probable even though it remained uncertain whether it was the actual cause. The issue of causation has been explored in the context of claims arising out of industrial diseases. In the difficult cases considered together in Fairchild v Glenhaven Funeral Services Ltd49 it was held that a claimant could recover in respect of injury that could have been caused by one or more of a number of defendants, but it was not possible to say which one. In Barker v Corus UK Ltd50 the House of Lords held that it was sufficient to establish causation that one source of the risk of injury was the tortious conduct of the defendant, even if one of the other sources was the fault of the claimant himself. In Barker it was held that where more than one employer had contributed to an industrial disease (in that case mesothelioma) each employer was liable to the extent that that employer had increased the risk of the disease. In respect of mesothelioma, the result has been reversed by section 3 of the Compensation Act 2006 (making all the employers in such a case 100% liable) but in respect of other diseases the decision remains good law (see for example Holtby v Brigham & Cowan (Hull) Ltd51) although its application is limited to what are referred to as “single agent” cases (cases where the claimant’s injury or disease was caused by a number of agencies operating in substantially the same way). 12.25  For the reasons explained above, there has been a distinct trend in the authorities limiting the circumstances in which a duty of care will be recognised in respect of defects or damage in construction cases. As a result, the issues of concurrent causes in tort cases that have troubled the courts in personal injury cases have not been reflected in construction cases. However it may be that the application of these cases to construction claims may in due course fall for consideration by the courts. Generally in respect of construction claims because liability usually turns upon liability under contracts and subcontracts the issues for consideration are those relating to concurrent causes in contract – as to which see paragraphs 11.2–11.13 above. 12.26  In cases where the claim is for economic loss following upon negligent advice, the courts will often award damages on the basis of the loss of a chance.52 A typical case where this approach is adopted is where a solicitor’s negligence has caused a client to lose the prospects of a successful outcome of a transaction.53 Difficult distinctions are drawn between these cases and cases where the claimant has failed to establish on a balance of probabilities that an act of negligence caused an unwanted outcome, such as cases in a personal injury context where on a balance of probabilities it is not shown that an operation carried out competently rather than incompetently would have produced a cure or a better

48 [1973] 1 WLR 1. 49 [2003] 1 AC 32; [2002] UKHL 22. 50 [2006] 2 AC 572; [2006] UKHL 20. 51 [2000] 3 All ER 421. 52 See for example Chaplin v Hicks [1911] 2 KB 786; Kitchen v Royal Air Force Association [1958] 1 WLR 563; Cohen v Kingsley Napley [2006] EWCA Civ 66; Talisman Property Co (UK) Ltd v Norton Rose [2006] EWCA Civ 1104; [2006] 3 EGLR 59; Phillips & Co v Whatley [2007] UKPC 28; [2007] Lloyd’s Rep PN 34. 53 See for example Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602.

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result.54 In Allied Maples Group Ltd v Simmons & Simmons55 the Court of Appeal distinguished between three types of case: (1) cases where the defendant is guilty of a positive statement or act that was negligent. In that case the issue is what would have happened if the defendant had not so acted or advised; (2) cases where the defendant is guilty of a negligent omission to act or advise. In that case the issue is, what would the claimant have done had the defendant acted or advised competently; (3) cases where the issue is what a third party would have done had the defendant acted or advised competently. 12.27  In the first type of case, the claimant has to prove on the balance of probabilities what would have happened had the defendant acted or advised competently. In the second type of case, the claimant has to prove on the balance of probabilities that he would have acted differently if advised competently or if the negligent omission had not occurred. In the third type of case the claimant is entitled to damages based upon an assessment of the chance that the third party would have acted or omitted to act so as to produce a situation more advantageous to the claimant than what actually happened. 12.28  An example of the award of damages on a loss of a chance basis is John D Wood & Co Ltd v Knatchbull56 in which in a claim against a surveyor for professional negligence the court awarded damages of £120,000 in compensation for the loss of a 60% chance of selling a property for an additional £200,000. Examples of the recovery of damages for loss of a chance have been discussed at paragraphs 11.16 and 11.17 above. 12.29  Sometimes the intervening act of a third party will be held to have broken the chain of causation.57 This problem has been considered at paragraphs 11.8 to 11.13: in this area the principles applicable to claims in tort and claims in contract are substantially similar. In a tortious context an important consideration will always be whether the type of loss caused was a loss within the scope of the defendant’s alleged duty of care. Foreseeability 12.30  It was established in The Wagon Mound58 that the defendant is only liable in tort for damage resulting as a reasonably foreseeable consequence of his negligent act. The question of what is a reasonably foreseeable consequence is a mixed question of fact and law. In addition to the requirement of foreseeability of damage to the claimant, there must

54 See for example Hotson v East Berkshire Area Health Authority [1987] AC 750; Gregg v Scott [2005] UKHL 2; [2005] 2 AC 176. See also Chester v Afshar [2004] UKHL 41; [2005] 1 AC 134, where a claimant recovered damages where the defendant surgeon had not warned the claimant of risks attendant upon an operation. Lord Steyn at paragraph 146 described this latter case as a “narrow and modest departure from traditional causation principles”. 55 Above. 56 [2002] EWHC 2822 (QB); [2003] 8 EG 131. 57 See for example Nichols v Marsland (1876) 2 Ex D 1; Knightley v Johns [1982] 1 WLR 349; Roberts v Bettany [2001] EWCA Civ 109. 58 Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd [1961] AC 388.

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be foreseeability of the kind of damage59 – “It is the kind of loss, and not its size, that matters.”60 (As set out above, however, the type of loss must be a loss that it is the defendant’s duty to take reasonable steps to avoid – see SAAMCO61.) So in Vacwell Engineering Co Ltd v BDH Chemicals Ltd,62 the defendants supplied a chemical and carelessly failed to attach a warning that it was liable to explode in water. A scientist working for the claimants placed a consignment in a sink and a violent explosion ensued causing extensive damage. The defendants were held liable because a minor explosion causing damage to some property was reasonably foreseeable, and it did not matter that the magnitude of the explosion and the actual extent of the damage could not reasonably have been foreseen. 12.31 In Muirhead v Industrial Tank Specialities Ltd,63 the plaintiff, a wholesale fish merchant, engaged the first defendant to install a tank for the storage of lobsters, into which seawater was to be pumped, and circulated for the purpose of oxygenation, by means of pumps supplied by the second defendant through a chain of sales. The electric motors for the pumps were manufactured and supplied to the second defendant by the third defendant. Following installation, the pumps frequently cut out because the motors were not suited to the United Kingdom range of voltages, and one such cut-out caused the plaintiff’s entire stock of lobsters to die from lack of oxygen. The plaintiff claimed, inter alia, special damages in negligence from the defendants for the loss of the lobsters and the economic loss suffered as a result thereof, including loss of the profit that the plaintiff had hoped to make by keeping the lobsters for sale at Christmas. 12.32  The Court of Appeal held that the manufacturers owed no duty of care to the plaintiffs to protect them against pure economic loss, but that the manufacturers were liable for the loss of the plaintiff’s entire stock of lobsters and any financial loss immediately associated with that loss. On the issue of foreseeability of the type of loss, Goff LJ said:64 “[T]he true question to which the judge should have addressed his mind was simply whether physical damage of the relevant type was reasonably foreseeable by the manufacturers, ie physical harm to fish stored in a tank at a fish farm . . . If he had found that damage of that type was reasonably foreseeable, then the fact that, by reason of the full stocking of the relevant tank, the fish died more quickly or in greater quantity was of no relevance, unless it could be said that overstocking of the tank constituted the sole or contributory cause of the disaster which took place.”

12.33  A difficult area of the law is the extent to which the different formulations of the requirements of foreseeability in contract and in tort produce different results in practice. Until recently the cases in contract, particularly The Heron II,65 suggested that the degree of likelihood of the loss occurring required to found an action in tort is less than that required in contract so that losses that are too remote in contract may not be too remote in tort. However, as pointed out at paragraph 8.4 above, in The Achilleas,66 Lord ­Hoffmann drew a 59 Re Polemis and Furness Withy & Co [1921] 3 KB 560 and The Wagon Mound (above). 60 Per Arden LJ in Johnson v Gore Wood (No 2) [2003] EWCA Civ 1728 at paragraph [93] citing Wroth v Tyler [1974] Ch 30 and Brown v KMR Services Ltd [1995] 2 Lloyd’s Rep 513. 61 Above. 62 [1971] 1 QB 88. 63 [1986] QB 507. 64 [1986] QB 507 at 532. 65 Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350. 66 Transfield Shipping Co Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48; [2009] 1 AC 61 at paragraphs [14] and [15].

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comparison with the approach to assessment of damages in negligence cases (SAAMCO67) and remoteness in contract. 12.34  It has been pointed out at paragraph 12.2 above that a significant difference between claims in contract and in tort is that in the former the parties are always in a relationship whilst that is not necessarily true in tort cases. In The Heron II68 Lord Reid pointed out: “In contract, if one party wishes to protect himself against a risk which to the other party would appear unusual, he can direct the other party’s attention to it before the contract is made, and I need not stop to consider in what circumstances the other party will then be held to have accepted responsibility in that event. In tort however, there is no opportunity for the injured party to protect himself in that way and the tortfeasor cannot reasonably complain if he has to pay for some very unusual but nevertheless foreseeable damage which results from his wrongdoing.”

In a case where there are parallel claims available in contract and in tort, for example for breach of a duty in contract and in tort to advise such as that owed by an architect or surveyor to his client, the contractual test of remoteness will be applied for the reason given by Lord Reid in the first sentence of the above passage. This has been confirmed by the Court of Appeal in Wellesley Partners LLP v Withers LLP.69 Examples of this are cases where substantial sums in respect of financial losses have been awarded where the defendant owes parallel duties in contract and in tort, or owes a duty of care only in tort, but where that liability arises out of a proximity or relationship analogous to a contractual relationship.70 However, where the tort affects a complete stranger (as in the example given above of a negligently designed wall falling on a passerby) then the second sentence of the above passage would be applicable. Interrelationship between scope of duty, causation and foreseeability 12.35  A further difficulty in this area of the law is that questions of scope of duty and questions of remoteness often converge, or may appear to be the same question. Thus a particular loss might be said to be outside the types of loss that the defendant had a duty to take steps to prevent because it was so unlikely to arise as to be outside that duty, whilst the same claim might be defeated on the basis that the loss was not reasonably foreseeable. In Nykredit plc v Edward Erdman Group Ltd (No 2)71 Lord Hoffmann made it clear that the SAAMCO “cap” is different conceptually from arguments based upon causation or remoteness: “It was not suggested that the possibility of a fall in the market is unforeseeable or that there was any other factor which negatived the causal connection between lending and losing the money. There was, for example, no evidence that if the lender had not made the advance in question, he would have lost his money in some other way. Nor, if one started from the proposition that the 67 South Australia Asset Management Co Ltd v York Montague Ltd [1997] AC 191; [1996] BLR 1. 68 Above at pages 285–386. 69 [2015] EWCA Civ 1146; [2016] Ch 529. 70 See for example Brown v KMR Services Ltd [1995] 2 Lloyd’s Rep 513; Johnson v Gore Wood (No 2) [2003] EWCA Civ 1728 at paragraph [93]. 71 [1997] 1 WLR 1627 at 1638.

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valuer was responsible for the consequences of the loan being made, could there be any logical basis for limiting the recoverable damages to the amount of the overvaluation. The essence of the decision was that this is not where one starts and that the valuer is responsible only for the consequences of the lender having too little security.”

12.36  In a lengthy and helpful analysis, in HOK Sport Ltd v Aintree Racecourse Company Ltd,72 HH Judge Thornton QC considered the effect of SAAMCO and a number of the cases which followed it both in the House of Lords and elsewhere. There the judge was considering the liability of an architect in respect of alleged failure to advise as to the number of spectators who would be accommodated in a new stand to be built at Aintree. The judge’s analysis is set out at length because of its commendable clarity and completeness. He held:73 “65.  In essence, Lord Hoffmann held as follows:   1. It is first necessary to identify the correct description of the kind of loss for which the claimant is entitled to compensation. A correct description of the loss for which the claimant is to be liable must precede any consideration of the measure of damages.   2. The precise scope and purpose of the duty owed to the claimant by the defendant must then be ascertained. The reason for undertaking this exercise is to determine whether that scope and purpose was in respect of the kind of loss which the claimant has suffered.   3. The scope of duty is to be determined by reference to the express or implied terms of the engagement or, where there is no relevant contract, by the general law. The process of contractual determination is one of construction of the agreement as a whole in its commercial setting.   4. The duty that is identified in this way must then be analysed to determine whether it is a duty to advise whether a particular course of action should be undertaken or a duty to convey information.   5. Where the duty is to advise whether or not a particular course of action should be undertaken, the adviser must take reasonable care to consider all the potential consequences of that course of action and, if negligent, will be responsible for all the foreseeable loss which is a consequence of that course of action having been taken.  6. Where the duty is only to supply information, the information-giver must take reasonable care to ensure that the information is correct and, if negligent, will be responsible for the foreseeable consequences of the information being wrong.   7. The measure of damages for a breach of duty to take care to provide accurate information is to be distinguished from the measure of damages for breach of a warranty that the information is accurate.   8. In the case of inaccurate information: (1) The measure of damages is the loss attributable to the inaccuracy of the information which the claimant has suffered by reason of having entered into the transaction on the assumption that the information was correct. (2) Damages are computed by comparing the loss actually suffered with what the claimant’s position would have been if he had not entered into the transaction. (3) The tribunal then awards the element of this loss that is attributable to the inaccuracy of the information. (4) The loss is, therefore, a measure of the extent to which the claimant is worse off because the information is wrong. 72 [2003] BLR 155. 73 At paragraphs [65]–[67].

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  9. In the case of a warranty: (1) Damages are computed by comparing the claimant’s position as a result of entering into the transaction with what it would have been if the information had been accurate. (2) The tribunal then awards a sum which reflects the value of the difference between these two positions. (3) The loss is, therefore, a measure of the extent to which the claimant would have been better off if the information had been right. 10. In each case, whether it is advice-giving or information-giving and, in the latter case, the supply of, or the warranty of the accuracy of, information, it is only such loss as is foreseeable and within the scope and purpose of the loss that the defendant’s duty has an obligation to avoid which is recoverable. 11. Thus, the recoverable damages are limited by: the kind of loss being claimed by the claimant, the scope and purpose of the duty of the defendant, the loss having to be a foreseeable consequence of the particular breach, whether the duty is to provide information or advice and whether the information being provided, if any, is warranted. 12. The application of these principles will sometimes, but not invariably, produce a cap on the recoverable damages. When applicable, a cap will arise as a result of the application of two separate requirements: first, that the claimant must prove that he has suffered loss, and, second, that the claimant must establish that the loss fell within the scope and purpose of the duty he has owed. 13. The distinction between a ‘no-transaction’ case and a ‘successful transaction’ case is not based on any principle and should be abandoned. 14. It is only such damages as survive the imposition of all these tests or considerations which are recoverable from the defendant. 66. It is worth quoting from a passage in the subsequent speech of Lord Hoffmann in Nykredit74 since that speech is unusual in that it amounts to a second confirmatory speech by the same judge in the same case, albeit in the guise of the second limb of the appeal in one of the conjoined cases decided in South Australia. Lord Hoffmann stated, at page 1638: ‘The principle approved by the House was that the valuer owes no duty of care to the lender in respect of his entering into the transaction as such and that it is therefore insufficient, for the purpose of establishing liability on the part of the valuer, to prove that the lender is worse off as a lender than he would have been if he had not lent the money at all. What he must show is that he is worse off as a lender than he would have been if the security had been worth what the valuer said. But in order to establish a cause of action in negligence he must show that his loss is attributable to the overvaluation, that is, that he is worse off than he would have been if it had been correct.’ 67. The South Australia principles have been glossed to some extent by subsequent authority. Of particular significance are the following glosses: ‘1. The defendant is not liable for all foreseeable consequences of the advice being supplied being incorrect (principles 6 and 11 above). Even if the loss in question is foreseeable, it will not be recoverable from the defendant if it would have arisen even if the advice had been correct (Lord Nicholls in Nykredit at page 1631). This glosses principles 5 and 10 stated above which, in any event, must be qualified in this way as a result of principles 8, 9 and 11.   2. Where the basic loss of a lender, in a claim against a valuer, exceeds the amount of the overvaluation, the lender’s right of recovery from the valuer is limited to the

74 Nykredit v Edward Erdman Group (No 2) [1997] 1 WLR 1627.

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  3.

  4.

 5.

 6.

extent of the overvaluation (Lord Hobhouse in Platform Home Loans Ltd75 at page 201G). This explains principles 8, 9 and 11. South Australia was an example of a long standing principle that a defendant is not liable in damages in respect of losses which fall outside the scope of his duty of care. The South Australia case is an example of a special class of case where the defendant’s duty was confined to the giving of specific information (Aneco Reinsurance,76 the majority decision summarised in holding (1) in the headnote at page 92). This explains principle 2. It is open to question whether the South Australia principles should be based on or grounded in a distinction between the recoverable loss resulting from the supply of erroneous information and that resulting from a breach of warranty of its accuracy (Lord Steyn’s opinion in Aneco Reinsurance at page 99). However, this question was neither explored nor answered in Aneco Reinsurance. This queries principle 7. In determining the measure of damages, South Australia requires a comparison between the state of affairs upon the inaccurate information which was provided and the state of affairs had the information been correct. These actual and hypothetical states of affairs essentially concern what the recipient of the information thinks since it is “that which became or would have become the relevant ingredient of his decision to proceed with the transaction” (May LJ in Petersen77 at paragraph [32]). This explains principle 8. In South Australia, which was a composite appeal involving three separate cases, the claimants would not have proceeded with the mortgage transactions if they had been provided with accurate information. This was regarded as relevant in Petersen by May LJ at paragraph 30. As it happened, Nykredit (being the second part of the hearing of one of the three South Australia appeals), Aneco and Petersen were all “no-transaction” cases but in none of them was Lord Hoffmann’s view in South Australia at page 218 questioned that the distinction between “no-transaction” and “successful transaction” cases should be abandoned. However, Petersen was a “no-transaction” case so that this question did not arise for decision in that case and principle 13 remains unaffected by Petersen.’ ”

12.37 In HOK the arbitrator whose award was under challenge before HH Judge Thornton had applied a simple “but for” test as to causation. Having directed himself as to the law and authorities in accordance with the lengthy passage cited above, the judge held that the arbitrator’s approach was wrong and that damages should be determined as follows:78 “The basis upon which the quantum of damages should be determined is as follows: 1. 2.

The loss being claimed by Aintree that it alleges is attributable to Lobb’s failure to warn Aintree that the standing capacity of Lobb’s new Stand had been reduced below Aintree’s requirements should first be identified. That part of the loss identified in stage 1 is recoverable which is: (1) a foreseeable consequence of Lobb’s failure to warn Aintree that the standing capacity of Lobb’s new Stand had been reduced below Aintree’s requirements; (2) attributable to Lobb’s failure to warn Aintree that the standing capacity of Lobb’s new Stand had been reduced below Aintree’s requirements and which Aintree has suffered by reason of having decided to construct Lobb’s new Stand on the assumption that it complied with Aintree’s requirements; and

75 Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190. 76 Aneco Reinsurance Underwriting Ltd (in liquidation) v Johnson & Higgins Ltd [2001] UKHL 51; [2002] 1 Lloyd’s Rep 157. 77 Petersen v Personal Representatives of Cyril Rivlin [2002] EWCA Civ 194; [2002] Lloyd’s Rep PN 386. 78 [2003] BLR 155 at 174–175.

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(3) within the scope and purpose of Lobb’s duty to warn Aintree of any substantial reduction in standing capacity so as to deprive Aintree of its opportunity to postpone the building of Lobb’s new Stand in order to reconsider all aspects of that course of conduct.”

12.38 Thus HOK provides not only a useful summary of the SAAMCO principle as explained in later cases, but also a worked example in the context of a case involving a construction project of the interrelationship between the importance of identifying the scope of the duty owed, causation and remoteness. Contributory negligence 12.39  Any award of damages in favour of a claimant for negligence can be reduced or (in highly exceptional cases) defeated completely for contributory negligence under section 1(1) of the Law Reform (Contributory Negligence) Act 1945. 12.40  In order to justify a reduction for contributory negligence, the defendant must show that: (1) the claimant was at fault or negligent towards himself or his business; (2) the claimant’s negligence was a factual cause of the loss applying the “but-for” test; (3) the claimant’s negligence exposed him to the particular risk of the type of damage suffered. 12.41  The amount of any reduction is that reduction in damages that the “court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage”.79 The court will consider both the causal potency and the comparative blameworthiness of the parties’ conduct.80 12.42 In Platform Home Loans Ltd v Oyston Shipways Ltd81 the House of Lords held that the reduction for contributory negligence applies to the overall loss attributable to negligent overvaluation and not to the claimant’s legally recoverable loss under the SAAMCO principle. This is because the causative effect of the claimant’s own negligence was responsible for that portion of the entire loss suffered by the claimant. 12.43  Where a claim for contribution between defendants falls for consideration, the court will consider the amount of the reduction for contributory negligence applicable in the assessment of damages against each defendant before assessing contribution between defendants.82 Measure of damages 12.44  The principles discussed in Chapter 9 above are applicable in tort claims as in contract claims. 79 Section 1(1) of the 1945 Act. 80 Per Denning LJ in Davies v Swan Motor Co (Swansea) Ltd [1949] 2 KB 291 at 326. 81 [2000] 2 AC 190. 82 Nationwide Building Society v Dunlop Haywards (DHL) Ltd [2009] EWHC 254 (Comm); [2010] 1 WLR 258, discussed in Chapter 17 below. See also Fitzgerald v Lane [1989] AC 328 in which the claimant was hit by two cars one after another on a pedestrian crossing. The claimant and each of the drivers were found to have been equally to blame for the claimant’s injuries. The House of Lords held that because the plaintiff was 50% to blame for his own injuries damages should be reduced by half not by a third, as the judge at first instance had held.

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Mitigation of loss 12.45  See paragraphs 9.29–9.39 above. Betterment 12.46  See paragraphs 9.21 to 9.23 above. Nuisance 12.47  Where a nuisance causes damage to property, the prima facie measure of damage is the diminution in value of the property – however this will very often be taken as the cost of remedial works.83 However it may be in certain cases that even after remedial works have been carried out there may be a remaining diminution in value that will sound in damages: thus in Bunclark v Hertfordshire County Council84 where damage was caused to a block of flats by the extraction of water beneath the block by treeroots, the plaintiff recovered not only the cost of remedial works but also damages in respect of continuing reduction in the value of the flats. 12.48  Where the nuisance consists of infringement of interests in land, damages in nuisance can be awarded for the cost of carrying out any necessary works to deal with damage that has been caused, but not in respect of future damage; however, the courts have awarded damages in respect of the cost of avoiding potential future damage as an award for damages in lieu of an injunction: see Hooper v Rogers85 referred to at paragraphs 21.9 and 21.43 below. 12.49  If the nuisance causes no physical damage, then the court may award “negotiating damages”, that is to say a sum representing the sum that the claimant could reasonably have charged for permitting the nuisance to occur – see paragraphs 11.59 above and 21.44 below. In addition the court can award damages for annoyance, inconvenience, and discomfort.86 Damages for personal injury are recoverable in cases of public nuisance but not private nuisance.87 The reason for this is because conceptually damages in nuisance are for injury to the property, not to the sensibilities of the occupier(s),88 although in practice damages are assessed taking into account the effects of the nuisance upon the occupier of the land.89 Awards of this type are typically modest: for example in the case of damage to a residential property by tree roots, the Court of Appeal held that damages at a rate of £200 per annum were appropriate.90 12.50  Loss of profits caused by a nuisance can also be recovered.91 83 See for example Delaware Mansions Ltd v City of Westminster [2002] 1 AC 321. 84 (1977) 243 EG 381 and 455. 85 [1975] 1 Ch 43. 86 Halsey v Esso Petroleum Co Ltd [1961] 1 WLR 683; Bone v Seale [1975] 1 WLR 797; Alcoa Minerals of Jamaica plc v Broderick [2002] 1 AC 371; [2000] BLR 279. 87 In re Corby Group Litigation [2008] EWCA Civ 463; [2009] QB 335. 88 Dobson v Thames Water Utilities Ltd [2009] EWCA Civ 28; [2009] BLR 287 at paragraph [31]. 89 Dobson v Thames Water Utilities Ltd [2009] EWCA Civ 28; [2009] BLR 287 at paragraph [35]. 90 Berent v Family Mosaic Housing [2012] EWCA Civ 961; [2012] BLR 488. 91 Rust v Victoria Graving Dock Co (1887) LR 36 Ch D 113; Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433.

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12.51 As to measure of damages generally, mitigation of loss and betterment, see Chapter 9. 12.52  In theory a claim for damages in nuisance could be reduced for contributory negligence, but examples of cases in which this would be appropriate are difficult to envisage. 12.53  The test of remoteness set out in the Wagon Mound92 (see paragraph 12.30 above) was applied to the tort of nuisance in The Wagon Mound (No 2)93 and to liability under Rylands v Fletcher94 in Cambridge Water Co v Eastern Counties Leather plc.95 Trespass 12.54  Trespass can take many forms: the trespass may be to goods or to land. In the context of construction projects claims are most likely to arise out of alleged trespass to land. Where the trespass consists of occupying land that could have been let out by its lawful owner and occupier, the claimant is entitled to recover the rental value of the property so far as it can be fairly calculated. It is not necessary for the claimant to bring evidence that he could or would have let out the property in the absence of the trespassing defendant.96 It is irrelevant whether the trespasser derived any actual benefit from the use of the property.97 12.55  Where the trespass takes the form of, or includes, damage to the property, the following general propositions apply:98 (1) The claimant will ordinarily be entitled to the diminution in value of the property unless the reasonable claimant would have reinstated the land at less cost. (2) The claimant who has in fact reinstated the property will ordinarily be entitled to recover the reasonable cost of doing so, even if the cost is greater than the diminution in value, unless he has acted unreasonably in reinstating the property. (3) Where the claimant has not in fact yet reinstated the property (subject to (4) and (5) below) he will ordinarily be entitled to recover the reasonable cost of reasonable reinstatement, even if it is greater than the diminution in value. (4) In assessing what is the reasonable cost of reasonable reinstatement, the court will consider whether the amount awarded is objectively fair; that is, fair to both parties. In particular, the court will not award a sum that is out of all proportion to the benefit conferred on the claimant. (5) In assessing what steps it is reasonable to take by way of reinstatement, the court will take account of the cost of reinstatement. Thus it may not be reasonable fully to reinstate the property because the cost of doing so may not be justified. All will depend on the circumstances of the particular case.

92 Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd [1961] AC 388. 93 Overseas Tankship (UK) Ltd v Miller Steamship Co Pty (The Wagon Mound)(No 2) [1967] 1 AC 617. 94 (1868) LR 3 HL 330. 95 [1994] 2 AC 264. 96 Swordheath Properties Ltd v Tabet [1979] 1 WLR 285 at 288; Inverugie Investments Ltd v Hackett [1995] 1 WLR 713. 97 Inverugie Investments (above) at page 718B. 98 See Scutt v Lomax (2000) 79 P & C R D 31 at paragraphs [42]–[46].

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12.56  In assessing what is reasonable, as proposition (4) suggests, the correct approach is the objective one. In Farmer Giles Ltd v Wessex Water Authority,99 Russell LJ said: “In reality, therefore, in making that award, I take the view that the judge has done no more than reflect in the damages the true diminution in value of this site in the circumstances of this case caused by the destruction of the building. The award, particularly when contrasted with the cost of full reinstatement, in my judgment, also passes the test of reasonableness. I add that test of reasonableness because the authorities to which we have been referred indicate that reasonableness always has to be taken into account. The judge must stand back, when he has done his arithmetic, and ask himself whether the figure achieved by his findings is fair both to the plaintiff and the defendants.”

12.57  In assessing whether the reinstatement works were reasonable, the court is entitled to take into account any special value to the claimant of the particular property damaged by the trespass, its use, position, features, seclusion, locality, uniqueness of rarity.100 In two cases the costs of extensive replanting of trees has been held to be unreasonable.101 12.58  Where the trespass results in temporary loss of use of land, the measure of damages is usually the rent or fee that the claimant would have recovered if the use of the land had been agreed between the parties.102 So also, where the trespass consisted of the unauthorised erection of an advertising hoarding in the claimant’s airspace, damages were to be assessed on a restitutionary basis, namely the user principle, i.e. a hypothetical licence fee.103 Directly consequential damages resulting from a trespass will be recoverable.104 12.59  The court can award general damages for trespass in respect of loss of amenity:105 indeed it is open to the court to make an award of exemplary damages for trespass if the case fits into the second category in Rookes v Barnard;106that is: “Where a defendant with a cynical disregard for a plaintiff’s rights has calculated that the monies to be made out of his wrongdoing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity. However, even if those motives are not established,107 aggravated damages can be awarded when a tort is committed in such a way as to aggravate the damages suffered by the claimant.108

12.60  The circumstances in which an award for damages for trespass are likely to be reduced for contributory negligence are difficult to imagine, but in so far as a trespass is intentional it appears that the defence of contributory negligence is not available, since the  99 [1990] 1 EGLR 177 at 179C–D. 100 Scutt v Lomax (above) at paragraph 53, citing Hollebone v Midhurst and Fernhurst Builders [1968] 1 Lloyd’s Rep 38; Harbutt’s “Plasticine” Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447; Ward v Cannock Chase District Council [1986] Ch 546. 101 Jordan v Norfolk County Council [1994] 1 WLR 1353; Scutt v Lomax (2000) 79 P&CR D31. 102 Attorney General v Blake [2001] 1 AC 268 at page 278. See for example Hall & Co Ltd v Pearlberg [1956] 1 WLR 244. 103 Stadium Capital Holdings (No. 2) Ltd v St. Marylebone Property Company plc [2010] EWCA Civ 952. The Court of Appeal remitted the case for assessment of damages on that basis. The judgment of Vos J on the remitted hearing contains a detailed and helpful analysis of the authorities: [2011] EWHC 2856 (Ch) at paragraphs [56]–[69]. 104 Per Akenhead J in Network Rail Infrastructure Group Ltd v Conarken Group Ltd [2010] EWHC 1852 (TCC); [2010] BLR 601 at paragraph [75]. The scope of damages for trespass was not discussed on appeal: [2011] EWCA Civ 644; [2011] 2 CLC 1. 105 Scutt v Lomax (2000) 79 P&CR D31 at paragraph [90]. 106 [1964] AC 1129 at 1227. 107 The burden of proving such motives being upon the claimant: Mafo v Adams [1970] 1 QB 548. 108 Scutt v Lomax (above) at paragraph [87].

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reasoning of the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corporation (No 2)109 appears to be that that defence is unavailable in respect of intentional torts. By statute it is unavailable as a defence to intentional trespass to goods.110 Deceit 12.61  In the rare case where deceit or fraudulent misrepresentation is established, damages are assessed on the basis that the claimant will be put in the position he would have been in had the representation made not been made111 – this is in contrast with the position in contract where a claimant is entitled to be put in the position he would have been in had the representation been true. A claim for deceit or fraudulent misrepresentation is normally based upon the claim that, but for the fraud, the claimant would not have entered into a particular contract. Because it is usually a fair inference that but for the fraudulent misrepresentation the claimant would not enter into a contract made following such a representation, generally the claimant will be awarded such damages as will put him back in the financial position he was in before the contract was made.112 12.62  The requirement of reasonable foreseeability applicable to the tort of negligence does not apply to cases of deceit. In Doyle v Olby (Ironmongers) Ltd,113 Lord Denning said: “[T]he defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement . . . All such damages can be recovered: and it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen.”

12.63 The SAAMCO principle discussed above114 does not apply to claims in deceit.115 12.64  The Law Reform (Contributory Negligence) Act 1945 does not apply to claims in deceit,116 but does apply to claims for negligent misrepresentation under the Misrepresentation Act 1967.117 12.65  In a claim for deceit, damages are measured at the date of the misrepresentation, with the consequence that later events that might otherwise reduce the amount of damages payable are not taken into account;118 similarly the court will not make a reduction in damages to take account of the possibility that if no misrepresentation had been made, the 109 [2002] UKHL 43; [2003] 1 AC 959. 110 Torts (Interference with Goods) Act 1977, section 11. 111 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, confirmed by the House of Lords in Smith Newport Securities Ltd v Scrimgeour Vickers Ltd [1997] AC 254. See also Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC); [2009] BLR 505 at paragraph [109]. 112 Esso Petroleum v Mardon Co Ltd [1976] QB 801; Strachan & Henshaw Ltd v Stein Industrie (UK) Ltd (1997) 13 Const LJ 418; UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555; [2003] 1 P & C R 12; Fitzroy Robinson Ltd v Mentmore Towers Ltd (above) at paragraph [110]. 113 Above at 167. The approach set out by Lord Denning was approved by the House of Lords in Smith Newport Securities Ltd v Scrimgeour Vickers Ltd (above). See also Kuwait Airways Corporation v Iraqi Airways (Nos 4 & 5) [2002] UKHL 19; [2002] 2 AC 883 at paragraph [104] applying the Doyle v Olby approach to a claim in conversion where the defendant acted dishonestly. 114 See paragraph 12.5: South Australia Asset Management Co Ltd v York Montague Ltd [1997] AC 191; [1996] BLR 1. 115 See Smith Newport Securities Ltd v Scrimgeour Vickers Ltd (above). 116 Standard Chartered Bank v Pakistan National Shipping Corporation (No. 2) [2002] UKHL 43; [2003] 1 AC 959 at paragraph [11]. 117 Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560. 118 OMV Petrom SA v Glencore Internatonal AG (No. 2) [2016] EWCA Civ 778; [2016] 2 Lloyd’s Rep 432.

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claimant might still have entered into a similar agreement at a later date and lost money anyway.119 Infringement of intellectual property rights 12.66  There are many circumstances in connection with construction contracts in which there can be an infringement of intellectual property rights – for example use of plans in breach of an architect’s copyright or use of patented technology without a licence. 12.67  Where the infringement consists of copyright infringement, the measure of damages is the depreciation caused by the infringement to the value of the copyright, as a chose in action.120 Such depreciation will often be represented by an award of loss of profits: indeed in cases of infringement of intellectual property rights, in so far as such infringement causes the claimant loss of profit (eg lost sales) generally that lost profit is recoverable.121 In the leading case of General Tire Co v Firestone Tyre Co Ltd122 damages were assessed on the basis of a royalty assessed on the basis of the going rate for the grant of a licence to use a patent. 12.68  Often damages for infringement of intellectual property rights are awarded in lieu of an injunction – see paragraph 21.44 below. Claims for breach of statutory duty 12.69  Where a statute grants a right to compensation in certain specified circumstances, it may not be necessary to show that the loss suffered was foreseeable, but causation on a “but for” basis must be established.123 The economic torts 12.70  The profits to be made from successful development projects can, of course, lead to unscrupulous behaviour. Two torts give remedies in respect of such behaviour. 12.71  First, the tort of inducing a breach of contract – for example if a contractor were to persuade an employer to break a contract with another building contractor and instead engage him to do the work. The elements of the tort were spelled out by the Supreme Court in OBG Ltd v Allan.124 Inducing a breach of contract is a tort of accessory liability. An intention to cause a breach of contract is a necessary and sufficient requirement for liability. In order to be liable a person has to know that he is inducing a breach of contract and to intend to do so with knowledge of the consequences; a conscious decision not to inquire into the existence of a fact can be treated as knowledge for the purposes of the tort. 119 Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB); [2013] 1 Lloyd’s Rep 526 at paragraph [221]. 120 Per Lord Wright in Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1936] Ch 323 at 336. 121 United Horse-Shoe and Nail Co Ltd v Stewart & Co (1888) 13 App Cas 401; Catnic Components Ltd v Hill & Smith Ltd [1983] FSR 512; Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443. 122 [1975] 1 WLR 819. 123 Chetwynd v Tunmore [2016] EWHC 156 (QB); [2016] 3 WLR 1159. 124 [2007] UKHL 21; [2008] 1 AC 1. Followed and discussed by the Court of Appeal in Meretz Investments NV v ACP Ltd [2007] EWCA Civ 1303; [2008] Ch 244.

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A person who knowingly induces a breach of contract as a means to an end has the requisite intent even if he is not motivated by malice but acts with the motive of securing an economic advantage for himself. Because the tort is a tort of accessory liability the tort is not committed unless there is actually a breach of contract. Mere advice on the contractual facts is not procurement or persuasion to break a contract.125 12.72  The person entitled to sue is the person who has lost the benefit of the contract, who is entitled to recover the loss flowing from that lost benefit. 12.73  The second tort to be considered is the tort of causing loss by unlawful means, again considered in OBG ltd v Allan.126 The essence of the tort is (a) wrongful interference with the actions of a third party in which the claimant has an economic interest and (b) an intention thereby to cause loss to the claimant.127 There are overlaps between the two torts, but there are important distinctions, not least that for the tort of causing loss by unlawful means it is not necessary for the claimant to show that there is a concluded contract that has been affected by the tortfeasor’s actions.128 Thus taking steps to prevent a third party entering into a contract with the claimant will suffice. The most obvious actions constituting the tort are acts whereby a third party is intimidated into not entering into a contract or not fulfilling a contract with the claimant. An exotic example from the old cases was where the master of a ship anchored off the coast of West Africa deprived a rival British ship of trade by using his cannon to drive away a canoe that was approaching from the shore.129 An example of conduct constituting both torts is where union officials threatened a building contractor with a strike unless he terminated a subcontract for the supply of labour.130

125 DC Thomson & Co Ltd v Deakin [1952] Ch 646 at page 686; Lewis v Yeeles [2010] EWCA Civ 326 at paragraph [22]. 126 Above. 127 Per Lord Hoffmann in OBG Ltd v Allan at paragraph [47]. 128 Per Lord Hoffmann in OBG Ltd v Allan at paragraph [8]. 129 Tarleton v McGawley (1794) Peake 270. 130 Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691.

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CHAPTER  13

Recovery of loss of profits and overheads or management costs 13.1  Very often claims are advanced for what are referred to as “consequential” or “indirect” losses such as loss of profits, overheads or management costs. The extent to which these are recoverable is sensitive to the legal basis upon which such claims are put forward and associated control mechanisms recognised by the courts. Loss of profits: recovery in contract 13.2  Chapter 8, above, has discussed the concept of remoteness in contract and the rule in Hadley v Baxendale. In most cases concerning construction projects, it would be within the contemplation of the parties that a breach of contract on the part of one party would cause the other party to suffer loss of profits. 13.3  Frequently claims for profit are a part of a claim for additional payment for variations under a contract, or part of a claim for compensation as a consequence of delays to a project. 13.4  Where a contract is varied by the addition of work, the law will normally allow the contractor to recover profit on that additional work. In a simple contract the additional works will be valued at a reasonable rate for the items of work. Sometimes the contract will expressly provide for an amount of profit to be allowed for any extra works. In other contracts, such as contracts under the ICE and FIDIC forms of contract, it is provided that variations are to be valued by reference to the rates or prices agreed in the contract before variation – thus if the original contract anticipated a profit rate of 5% across the board in all rates and prices, when a variation comes to be valued it is likely that a profit margin of that same profit rate of 5% will be allowed. This is no more than a reflection of the principle that someone carrying out work is entitled to fair recompense for what he does or what he supplies. There can be considerable scope for argument as to what a fair profit margin might be. 13.5  Monies in respect of profit are frequently claimed as a consequence of delays – a claim often seen is one that claims a rate per week of “loss and expense” or “prolongation”, which includes a claim for an element of profit. The starting point is to look at the contract and to see upon what basis any claim can be made – thus under ICE and FIDIC conditions provisions are made for a contractor to recover “cost” flowing from delays, which does not include profit. Similarly under the JCT forms of contract entitling a contractor to recover “loss and expense” suffered, at first sight profit is not recoverable. However in some cases it will be possible for a delayed contractor to show a loss of profits – for example if the delays cause the contractor to lose a following contract and thus lose the profit on that contract. Where breach of contract on the part of the contractor causes the employer to suffer loss of profits (eg, because the employer suffers loss of rent expected from a building once 169

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completed) such loss would normally be recoverable subject to issues of remoteness – such losses are usually anticipated by the inclusion in the contract of provisions for the recovery of liquidated damages.1 13.6  Claims for loss of profit can arise if work is omitted from a contract – standard forms of contract very often include an express power for the employer or the employer’s representative to vary the contract by the omission of works that formed a part of the work to be done when the contract was concluded. If this is done for the purpose of giving the work to another contractor, the employer is likely to be found to be in breach of contract and liable to recompense the original contractor for the profit he would have earned on the work had he done it.2 Loss of profits: recovery in tort 13.7  The law leans against the recovery of lost profits as damages in tort. This is a matter of policy based upon the enormous and potentially unsustainable losses that might otherwise be imposed upon tortfeasors. 13.8  To take what might appear to be a simple case – a profit-earning piece of equipment such as a ship is damaged so as to be unable to earn the profits that might have been expected but for the damage. If the ship is totally destroyed or is destroyed beyond economic repair, then the measure of damages is the value of the destroyed ship – which value will reflect its value as a potential generator of profits.3 Where a ship is destroyed, the owner may also be able to be compensated for trading losses during the period from the loss of the vessel up to the time when it could be expected that it would be replaced.4 13.9  Spartan Steel and Alloys v Martin & Co (Contractors) Ltd5 is a case closer to the construction industry. In that case, the defendants had negligently damaged an electricity cable, with the result that the electricity supply to the plaintiffs’ premises was cut off for 14 hours. The plaintiffs manufactured stainless steel. As a result of the failure of the electricity supply the plaintiffs had to pour molten metal out of their furnace to prevent the metal solidifying and damaging the furnace. As the plaintiffs could not keep the metal at the correct temperature and complete the “melt” the metal depreciated in value by £368 and they lost a profit from the sale of the metal from that melt of £400. They could also have completed four further melts during the power cut and their loss of profit from those melts was £1,767. The defendants accepted liability for the £368 as representing damages for physical damage to the contents of the furnace. The Court of Appeal held that the plaintiffs were also entitled to recover the £400 but not the further £1,767. Thus the loss of profit consequent upon the physical damage was held to be recoverable, but not the further loss of profits. Spartan Steel was followed and applied in Muirhead v Industrial Tank Specialities

  1 See Chapter 14.  2 Carr v JA Berriman Pty Ltd (1953) 27 ALJR 273; Commissioner of Main Roads v Reed & Stuart Pty Ltd (1974) 12 BLR 55; Amec Building Ltd v Cadmus Investments Co Ltd.(1996) 51 Con LR 105.   3 Owner of the Liesbosch v Owners of the Edison (The Liesbosch) [1933] AC 449 at 463–464.  4 Voaden v Champion (The Baltic Surveyor) at first instance: [2001] 1 Lloyd’s Rep 739 at paragraph [23].   5 [1973] QB 27.

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Ltd.6 Loss of profits or commercial revenue following upon physical damage was also held to be recoverable in Shell UK Ltd v Total UK Ltd7 and Conarken Group Ltd v Network Rail Infrastructure Ltd.8 13.10  However, where economic loss is caused by negligence that does not result in physical damage, then generally the loss is not recoverable – see Simaan General Contracting Co v Pilkington Glass (No 2).9 13.11  As has become clear through a succession of decisions in the House of Lords, the key question in each case is whether the law recognises a duty of care to prevent loss of the type suffered by the claimant. In Caparo Industries Ltd v Dickman10 it was held that for a duty of care to be found to exist, three requirements must be satisfied: (1) the damage in respect of which the claim is brought must be reasonably foreseeable; (2) there must be a relationship of proximity between the claimant and the tortfeasor; and (3) it must be fair, just and reasonable to impose a duty of care. To these three requirements the decision of the House of Lords in Banque Bruxelles SA v Eagle Star11 emphasises a fourth element: (4) the duty owed by the alleged tortfeasor was a duty in respect of the kind of loss that the claimant has suffered. 13.12  In assessing these factors to decide whether or not a duty of care exists, the court is more likely to hold that a duty of care should be imposed where the damage caused is personal injury than if it is actual physical property damage, and significantly more likely to hold that a duty of care should be imposed if personal injury or property damage is caused than if the loss is pure economic loss.12 13.13  Loss of profits is therefore generally only recoverable to a very limited extent in the tort of negligence. A significant exception is where there is a professional relationship between claimant and tortfeasor – for example if the defendant is an architect or planning consultant. In such a case the law is very likely to hold that the defendant professional has assumed a duty to take care to prevent a client suffering economic loss, extending in an appropriate case to a duty to avoid loss of profits – for example if an architect were to design a building that simply could not be used for the purposes of a particular business. 13.14  Where the claim is based upon negligent misrepresentation, the measure of damages is such sum as will put the claimant in the position he would have been in had the misrepresentation not been made. This can include damages foregone by reason of reliance

  6 [1986] QB 507. See also Cynat Products Ltd v Landbuild (Investment & Property) Ltd [1984] 3 All ER 513 – recovery of economic losses following collapse of a building.   7 [2010] EWCA Civ 180; [2011] QB 86.   8 [2011] EWCA Civ 644; [2011] 2 CLC 1.   9 [1988] QB 758. 10 [1990] 2 AC 605. 11 [1997] AC 191 (usually referred to by legal practitioners as “SAAMCO” because of the parties concerned when the case finally reached the House of Lords). 12 Marc Rich & Co AG v Bishop Rock Marine Co Ltd (“The Nicholas H”) [1996] AC 211.

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upon the misrepresentation – see for example Esso Petroleum Co Ltd v Mardon.13 (What is not recoverable in tort, in contrast with the measure of damages recoverable in contract for breach of warranty, is the profit that would have been earned had the representation been true.) Recovery of overheads and management charges 13.15  All businesses incur indirect costs as part of the expense of conducting their economic activities – in the case of a one-man contracting business this might consist of the cost of buying a computer upon which to keep accounting records or the cost of tools with which to execute contract works. At the other end of the scale, large international firms of contractors will have a network of offices with a large workforce including such necessary employees as estimators and accountants. 13.16  In order to avoid making a loss, to the direct costs of carrying out a contract such as labour and materials the contractor must add an element to recoup these indirect costs. To this is then added a figure to enable a profit to be made. In the construction industry these additional sums are often lumped together into a figure for overheads and profit. 13.17  Whether the employer will know the amount charged for overheads and profit will depend upon the contract. If the contractor quotes a single lump sum for the work, the employer will usually have no means of knowing what is charged for either element. In other contracts parts of the overheads may be revealed in the tender under the description “preliminaries”;14 in others the figure for overheads and profits may be included in rates or prices contained in bills of quantity for particular items of work and not shown expressly to the employer; or in other cases the rates and prices in the bills may be net figures to which an agreed rate for overheads and profit will be added. 13.18  The indirect costs that a contractor incurs are usually divided into on-site costs and off-site or head office costs. On-site overheads will include the costs of setting up the site (eg, delivery to site and positioning of Portacabin offices) and of managing the project (eg, employing a project manager, a quantity surveyor and supervisors) and running the project (eg, weekly hire of Portacabin offices and hire of tower cranes) and of demobilising at the end of the project (eg, taking away the Portacabins and leaving the project clean and tidy). 13.19  Off-site, or head office, overheads will include costs that may be directly related to the project, such as cost of project-specific insurances or costs incurred in tendering for the project, and costs that are not directly related to the project but that are nevertheless essential, such as the cost of providing and maintaining the head office premises. 13.20  Where the contract is varied by the omission of work, the contractor is liable to suffer an under-recovery of the contribution to overheads that he expected to obtain from the contract. Up to a point in a contract that permits the employer to omit work (as do most 13 [1976] QB 801 at 821. See also BSkyB Ltd v HP Enterprise Services Ltd [2010] EWHC 86 (TCC); [2010] BLR 267. 14 In JD Wetherspoon plc v Commissioners for Her Majesty’s Revenues & Customs [2007] UKSPC SPC00657 a Special Commissioner for Taxes said: “Preliminaries are global costs covering several different items which are not readily attributable to specific items . . . Preliminaries generally refer to the building contractor’s necessary costs which are not usually tangibly reflected in the finished works as opposed to costs directly related to the quantity of items of work, ie materials, tradesmen and site labour, tools and small plant.”

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traditional standard form contracts), this is a risk that the contractor agrees to bear when entering into such a contract – however under such contracts as the ICE or FIDIC forms, if there is a significant reduction in work, the contractor may become entitled to compensating allowances.15 In similar fashion, if the works are varied by the addition of works, the contractor will be entitled to recover overheads and profit in respect of the additional works as well as the direct labour and material costs of carrying out those works. 13.21  Claims for recovery of overheads are frequently made as part of a claim by a contractor for compensation for delays allegedly caused by, or contractually the responsibility of, the employer. Claims for overheads (often referred to in this context as management charges or management expenses) are also encountered as part of a claim for damages for breach of contract; for example, where a building is defective causing the claimant’s management to spend a great deal of time dealing with the necessary repairs. In these cases (subject to any express terms of the contract to the contrary) the claimant is entitled to be put in the position he would have been in had the delay, a breach of contract, not occurred. This chapter  considers below how the law deals with the quantification of such claims. A separate category of case is where management time is spent in pursuing the claimant’s remedy against the contract-breaker. In this situation the law grants only limited recompense for time so spent. 13.22  Considering first the case where a contract is delayed: the starting point will be to consider the terms of the contract that may permit the contractor to obtain an extension of time but not any losses suffered as a result of the delay. Thus, for example, under the FIDIC “Red Book” contract16 if there is delay caused by “Authorities”, the contractor may obtain an extension of time but not any costs occasioned thereby. Under the JCT 05 Standard Building Contract an extension of time may be obtained for delay caused by exceptionally adverse weather conditions17 but there is no provision for loss and expense caused by such a delay to be recovered.18 In other instances the contract may expressly provide for the recovery of overheads – to take the FIDIC Red Book as an example again, clause 1.1.4.3 defines “Cost” as meaning “all expenditure reasonably incurred (or to be incurred) by the Contractor, whether on or off the Site, including overhead and similar charges, but does not include profit” and a number of provisions provide for the recovery of cost as so defined.19 13.23 Assuming that there is a contractual entitlement to recover costs incurred as a result of a particular delay, how are such costs to be quantified?20 Some costs will be relatively easy to identify. There should be little difficulty in associating on-site costs with the project delayed. Amongst the on-site costs some costs will be obviously time-related – for example, the hire of Portacabins, if hired on a weekly basis. Other costs will be easy to exclude because they are not time-related; for example, the initial setting up costs of 15 See, for example, clause 52(5) of the ICE Conditions of Contract – Measurement Version. 16 The Conditions of Contract for Construction for Building and Engineering Works designed by the Employer, 1999 edition, clause 8.5. 17 Clause 2.29.8. 18 Clauses 4.23 and 4.24 define the circumstances in which loss and expense may be recovered – delay caused by exceptionally adverse weather conditions is not one of the relevant events triggering such an entitlement. 19 See, for example, clause 1.9, where issue of drawings or instructions is delayed, and clause 8.9 where works are suspended. 20 For interesting and useful discussions of this subject, see Dr Franco Mastrandrea, The Evaluation of Preliminaries (or Site Overheads) in Construction Prolongation Claims [2009] ICLR, page 429; and Dr Ronan Champion, Prolongation Costs: Where Now after Costain v Haswell? SCL Paper 170, September 2011.

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the site. It may be more difficult to identify whether other costs are time-related or not; for example, it is usually necessary to consider each employee’s role separately to see whether delay has caused additional staffing expenditure. It is also necessary to be careful to consider whether the overhead costs are being recovered elsewhere; for example, if additional work is instructed causing delay to completion of a project, the recovery of overheads within the price paid for the additional work may compensate for the additional costs incurred by that delay. Most disputes as to recovery of on-site overheads are determined in arbitration with the consequence that there is no public record of the Tribunal’s decision. A rare exception is Walter Lilly & Co Ltd v Mackay where Akenhead J, a High Court judge with immense experience in this field, made substantial awards in respect of “thickened” and time-related on-site overheads.21 13.24  Identifying and recovering off-site or head-office overheads is usually more difficult. In some cases it may be possible to identify some specific costs incurred off-site as a result of delay, but such cases are relatively rare – an example is where a delay causes a performance bond’s period of validity to be extended. However, where the overhead cost is a cost that would have been incurred in any event, such as the rent of the contractor’s head office premises, there are substantial problems in recovery. If the contractor can establish that as a result of delay to project A the contractor was unable to carry out project B with a resultant loss of overhead contribution from project B, then in principle, just as the profit on project B would be recoverable, so also would the loss of contribution to overheads. But such cases are exceptional. 13.25  Notwithstanding the difficulties of proof, courts and arbitrators are willing to allow some recovery of overheads – this was recognised for example by Potter LJ in Standard Chartered Bank v Pakistan National Shipping Corporation:22 “[B]uilding contractors who, by reason of delay, suffer increased costs attributable to a particular job which costs are irrecoverable elsewhere, may claim for a proportion of their fixed overheads, (including head office salaries) as part of their claim for consequential loss.”

13.26  Such claims are often put forward based upon the application of one of three formulae: “the Hudson Formula”, “the Emden Formula” or the “Eichleay Formula”.23 13.27  The Hudson Formula24 calculates loss as an average overhead and profit allowance per week of delay, based on the contract period and percentage mark-up included in the bills. Commenting upon this formula Sir William Stabb QC said:25 “It is generally accepted that, on principle, a contractor who is delayed in completing a contract due to the default of his employer, may properly have a claim for head office or off-site overheads during the period of delay, on the basis that the work-force, but for the delay, might have had the opportunity of being employed on another contract which would have had the effect of funding the overheads during the overrun period. This principle was approved in the Canadian case of Shore & Horwitz Construction Co Ltd v Franki of Canada,26 and was also applied 21 [2012] EWHC 1773 (TCC) at paragraphs [505]–[539]. 22 [2001] CLC 825 at paragraph [49]. 23 For a discussion of these formulae and a useful summary of how each is calculated, see Harvey J Kirsh, The Eichleay Formula: Computing and Recovering Unabsorbed Head Office Overheads Incurred by Contractors as a Result of Employer-Caused Delay (1995) 11 Const LJ 90. 24 Hudson’s Building Contracts, 13th edition, 2015, paragraph 6.070. 25 In JF Finnegan Ltd v Sheffield City Council (1968) 43 BLR 124 at pages 124–125. 26 [1967] SCR 589.

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by Mr Recorder Percival QC, in the unreported case of Whittal Builders Company Limited v Chester le Street District Council. Furthermore, in Hudson’s Building Contracts, at page 599 of the 10th edition, a simple formula is set out to determine the amount of the loss of funding of overheads and profit during the period of overrun.”

In that case the judge applied a modified version of the Hudson formula. 13.28  The Emden Formula27 differs from the Hudson Formula in that the overheads are taken as an average percentage from the contractor’s accounts. 13.29  The Eichleay Formula has been developed and used in the United States of America.28 This formula attempts to calculate the shortfall in contribution to overheads resulting from delay. The average weekly contribution necessary to run the contracting company is calculated from the company’s accounts and is multiplied by the period of delay. The resulting figure, which represents what the accounts show it has cost to run the company during the delay period, is reduced pro rata to reflect the share of the total contribution required from the company’s contracts in order for the project in delay to pay its way. This formula has the merit of reflecting the way in which many substantial American corporations approach the recovery of overheads for their internal management purposes. 13.30  Commenting upon these formulae, HH Judge Humphrey LLoyd QC said:29 “The Emden formula . . . is one of a number of methods conventionally applied in an attempt to arrive at an approximation of the damages supposedly incurred by a contractor when there has been delay to the progress of the works whereby completion is similarly delayed. The theory is that because the period of delay is uncertain and thus the contractor can take no steps to reduce its head office expenditure and other overhead costs and cannot obtain additional work there are no means whereby the contractor can avoid incurring the continuing head office expenditure, notwithstanding the reduction in turnover as a result of the suspension or delay to the progress of the work. The reduced activity no longer therefore pays its share towards the overhead costs. This type of loss (sometimes called a claim for ‘unabsorbed overheads’) is however to be contrasted with the loss that may occur if there is a prolongation of the contract period which results in the contractor allocating more overhead expenditure to the project than was to have been contemplated at the date of contract. The latter might perhaps be best described as ‘additional overheads’ and will, of course, be subject to proof that the additional expenditure was in fact incurred. Furthermore the Emden formula, in common with the Hudson formula . . . and with its American counterpart the Eichleay formula, is dependent on various assumptions which are not always present and which, if not present, will not justify the use of a formula. For example the Hudson formula makes it clear that an element of constraint is required . . . ie in relation to profit, that there was profit capable of being earned elsewhere and there was no change in the market thereafter affecting profitability of the work. It must also be established that the contractor was unable to deploy resources elsewhere and had no possibility of recovering cost of the overheads from other sources, eg from an increased volume of the work. Thus such formulae are likely only to be of value if the event causing delay is (or has the characteristics of ) a breach of contract.”

13.31 This judgment illustrates a clear trend amongst judges and arbitrators against accepting claims based upon the application of these formulae. This is not surprising 27 From Emden’s Construction Law. 28 Eichleay Corp ASBCA No. 5183, 6–02 BCA ¶ at 13,573 affirmed 61–1 BCA ¶2894, approved in Capital Electric Co v US 729 F2d 743, Interstate General Government Contractors Inc v West (1993) 12 F3d 1053 and Wickham Contracting Co Inc (1994) 12 F3d 1574. 29 In Alfred McAlpine Homes North Ltd v Property and Land Contractors Ltd. (1995) 76 BLR 65 at 70–71.

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because the underlying assumption that a delay to a particular project will cause the contractor to suffer either increased head office overheads or a loss of recovery of overhead contribution from an alternative project that might otherwise have been carried out usually defies factual reality. The trend is to assimilate the requirements of proof in a claim for lost overhead recovery as a result of delays to a construction project with the approach adopted by the common law in assessing damages generally. An exception to this trend is the decision of Akenhead J in Walter Lilly & Co Ltd v Mackay. He awarded overheads on a formula basis, referring to various authorities including HH Judge Humphrey LLoyd’s judgment cited at paragraph 13.30 above saying:30 “Considering these various authorities, the following conclusions can be drawn: (a) A contractor can recover head office overheads and profit lost as a result of delay on a construction project caused by factors which entitle it to loss and expense. (b) It is necessary for the contractor to prove on a balance of probabilities that if the delay had not occurred it would have secured work or projects which would have produced a return (over and above costs) representing a profit and/or a contribution to head office overheads. (c) The use of a formula, such as Emden or Hudson, is a legitimate and indeed helpful way of ascertaining, on a balance of probabilities, what that return can be calculated to be. (d) The ‘ascertainment’ process under Clause 26 does not mean that the Architect/Quantity Surveyor or indeed the ultimate dispute resolution tribunal must be certain (that is sure beyond reasonable doubt) that the overheads and profit have been lost. HHJ Lloyd QC was not saying that assessment could not be part of the ascertainment process. What one has to do is to be able to be confident that the loss or expense being allowed had actually been incurred as a result of the Clause 26 delay or disruption causing factors.”

13.32 In Tate and Lyle Distribution Ltd v Greater London Council31 Forbes J considered a claim by the plaintiffs put forward on the basis that they had expended managerial and supervisory resources in attending to problems associated with dredging costs in respect of silt deposits that prevented access to their barges as a result of negligence and nuisance on the part of the defendants. He said:32 “I have no doubt that expenditure of managerial time in remedying an actionable wrong done to a trading concern, can properly form the subject matter of a head of special damage. In a case such as this it would be wholly unrealistic to assume that no such additional managerial time was in fact expended. I would also accept that it must be extremely difficult to quantify. But modern office arrangements permit of the recording of the time spent by managerial staff on particular projects. I do not believe that it would have been impossible for the plaintiff in this case to have kept some record to show the extent to which their trading routine was disturbed by the necessity for continual dredging sessions. In the absence of any evidence about the extent to which this occurred the only suggestion Mr. Clarke can make is that I should follow Admiralty practice and award a percentage on the total damages . . . While I am satisfied that this head of damage can properly be claimed, I am not prepared to advance into an area of pure speculation when it comes to the quantum. I feel bound to hold that the plaintiffs have failed to prove that any sum is due under this head.”

30 At paragraph [543]. Akenhead J had allowed overheads in a previous decision in another case, but without discussion of the authorities: Carillion JM Ltd v PHI Group Ltd [2011] EWHC 1379 (TCC) at paragraph [194]. 31 [1982] 1 WLR 149. 32 At pages 151–152, cited with approval by Potter LJ in Standard Chartered Bank v Pakistan National Shipping Corporation [2001] CLC 825 at paragraph [48].

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In Amec Building Ltd v Cadmus Investments Co Ltd33 Mr Recorder Kallipetis QC applied that decision to a claim arising out of delay to a construction project. 13.33  It is not necessary to show that salary expenses of management staff involved in dealing with a breach of contract would not have been incurred but for the breach of contract. In Babcock Energy Ltd v Lodge Sturtevant Ltd34 the court considered a claim arising out of the supply of equipment for a power station that did not comply with the specification. The plaintiffs’ management spent a considerable amount of time dealing with the resultant problems. HH Judge Humphrey LLoyd QC (having cited the above passage from Tate & Lyle) held:35 “Mr Royce for the defendants submitted Babcock’s claim should be similarly rejected: in essence the defendants’ case was that the plaintiffs might have been entitled to the additional cost of agency staff and the additional cost of farming out work for that would be the measure of loss caused by the need for the permanent staff to devote themselves to solving the problems created by the defendants. The fixed staff costs would have been incurred in any event. However I reject the latter proposition as did Forbes J in the Tate and Lyle Distribution Ltd case. Managers are of course employed to sort out problems as they arise. If however the magnitude of the problem is such that an untoward degree of time is being spent on it then their costs are recoverable.”

13.34 In Aerospace Publishing Ltd v Thames Water Utilities Ltd36 Wilson LJ summarised the law as follows: “I consider that the authorities establish the following propositions. (a) The fact and, if so, the extent of the diversion of staff time have to be properly established and, if in that regard evidence which it would have been reasonable for the claimant to adduce is not adduced, he is at risk of a finding that they have not been established. (b) The claimant also has to establish that the diversion caused significant disruption to its business. (c) Even though it may well be that strictly the claim should be cast in terms of a loss of revenue attributable to the diversion of staff time, nevertheless in the ordinary case, and unless the defendant can establish the contrary, it is reasonable for the court to infer from the disruption that, had their time not been thus diverted, staff would have applied it to activities which would, directly or indirectly, have generated revenue for the claimant in an amount at least equal to the costs of employing them during that time.”

13.35  In some cases the court may reach a decision in favour of a claimant by the exercise of common sense – in Al-Rawas v Pegasus Energy Ltd,37 Jack J had to consider what damages to award on an undertaking as to damages given as a condition of the grant of a search and seizure order. Having referred to the above passage in Wilson LJ’s judgment in Aerospace Publishing, he said: “Mr Charles Graham submitted on behalf of the defendants that there is no evidence that any business was disrupted by the search. That is literally true. However the application of common sense may fill the gap. I am satisfied by the sheer scale and time of the search that the ordinary business carried on at the two offices must have been seriously disrupted, and that the cost of the time spent in dealing with the search can be taken as a measure of the loss thereby caused.” 33 (1996) 51 Con LR 105. 34 (1994) 41 Con LR 45. 35 At pages 104–105. 36 [2007] EWCA Civ 3; [2007] Bus LR 726 at paragraph [86]. 37 [2008] EWHC 617 (QB) at paragraph [23]; [2009] 1 All ER 346.

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13.36  Thus where delay to a contract, breach of contract or the commission of a tort causes a claimant to expend management time, tribunals are likely to make an award in respect of extraordinary management time expended.38 However the prospects of recovering other head office overheads appears to be restricted before most tribunals by the modern approach to assessment of damages, and older authorities referring to any of the three formulae referred to above should be approached with some caution. 13.37  A different category of management expense has already been mentioned, namely expense incurred in pursuing a claimant’s legal remedies. In general the cost of work done by a party’s employees in investigating, formulating and prosecuting a claim by legal proceedings cannot be recovered.39 An exception to this is if the claimant uses the services of employees as experts to carry out work that would otherwise have been carried out by independent experts, but such costs would not include any element of overhead recovery or profit.40 Although a decision of HH Judge Thornton QC41 suggests a more liberal approach, it is inconsistent with the cases cited at footnote 40, and, it is respectfully suggested, is unlikely to be followed. Exclusion and limitation of liability clauses 13.38  Because of the extent of potential liability for losses of the type considered in this chapter, contracts frequently contain clauses excluding or limiting liability for “consequential losses”, “indirect losses” or “loss of profits”. The case law on this subject is considered in Chapter 20 below.

38 In addition to the examples already given see Salvage Association v CAP Financial Services Ltd [1995] FSR 654 (permission to appeal on this point being refused on 9 September 1993: 1993 WL 13005057); Bridge UK Com Ltd v Abbey Pynford Plc [2007] EWHC 728 (TCC); R & V Versicherung AG v Risk Insurance and Reinsurance Solutions SA [2006] EWHC 42 (Comm); Carillion JM Ltd v PHI Group Ltd [2011] EWHC 1379 (TCC); 39 See Admiral Management Services Ltd v Para-Protect Europe Ltd [2002] EWHC 233 (Ch); [2002] 1 WLR 2722. 40 Admiral Management Services Ltd v Para-Protect Europe Ltd (above) at paragraph [38], following In re Nossen’s Letter Patent [1969] 1 WLR 638, Sisu Capital Fund Ltd v Tucker [2006] FSR 21. 41 Amec Process & Energy Ltd v Stork Engineers & Contractors BV, unreported, 15 March 2002.

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CHAPTER  14

Liquidated damages and extensions of time 14.1  Most construction contracts contain clauses entitling the employer to an agreed sum described as liquidated damages (or liquidated and ascertained damages) for each day or week of delay beyond a specified completion date. In more complex projects there may be provisions for sectional completion with the employer having an entitlement to recover liquidated damages for delay to parts or sections of the work. 14.2  Whilst clauses imposing an agreed liability for delay to a project are those most commonly found, similar provisions are sometimes included to provide for agreed damages in respect of failure to achieve performance targets in a contract; for example, a contract for the design and construction of a power station may contain a clause that requires the contractor to pay specified damages should the power station fail to deliver a defined power output. Such provisions are often required by bankers financing such a project in order to ensure that if the power station does not achieve the design output upon which the financial model for the project was based, there will be funds available (from the contractor) to enable payments of interest and repayments of capital to be made to the bank. 14.3 Liquidated damages clauses serve useful purposes – most obviously such a clause enables the employer who has suffered loss as a result of a contractor’s breach of contract to recover damages without having to go through what may sometimes be a laborious, expensive, difficult and lengthy process of proving the precise amount of that loss. The inclusion of such a clause also avoids difficulties arising out of the Rule in Hadley v Baxendale (see Chapter 8 above) – the contractor cannot argue that a particular type of loss was not in the contemplation of the parties if a liquidated damages clause expressly contemplates the payment of compensation for such a loss. For his part, the contractor has the advantage of knowing in advance the liability to which he is exposed in the event of delay. 14.4  Historically the courts were suspicious of such clauses, sensing that they could be instruments of oppression – hence clauses that were regarded as “penalty” clauses were held to be unenforceable.1 A particular problem that troubled the courts, and still troubles the courts, is a situation in which a liquidated damages clause would entitle an employer under a construction contract to recover liquidated damages for delay where that delay was partly the employer’s responsibility – this has led to the development of what is sometimes described as “the prevention principle”.

  1 Other legal systems share this cautious approach and have mechanisms for controlling or striking down penal damages provisions – see for example Article 1152 of the French Civil Code. (See further at paragraphs 14.23 and 14.24 below.)

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Unenforceability of penalty clauses The law before Cavendish Square Holdings v Makdessi 14.5  One might expect that in the context of major construction contracts between large and sophisticated parties, the law would leave the parties at liberty to include whatever provisions they thought commercially acceptable as to what is to happen in the event of breach of contract (the position of consumer contracts would give rise to different considerations). However that is not the law – as Jackson J said in Alfred McAlpine Capital Projects Ltd v Tilebox Ltd2 “it is an anomalous feature of the law of contract that the court will strike down penalty clauses”. 14.6  The law of England relating to penalty clauses has recently been reviewed by the Supreme Court in two appeals heard together.3 The law as understood before those cases is reviewed first, and then the effect of the Supreme Court judgments is considered. Put shortly, those judgments are widely regarded as restricting the extent to which the courts will intervene to alter the parties’ bargain, although how far in practice they will affect construction contracts is doubtful. 14.7  Before the Cavendish case was decided, two speeches of Lord Dunedin were usually cited as summarising the principles that the courts apply in determining whether a clause is unenforceable as being a penalty clause. The first was in Commissioner of Public Works v Hills:4 “The general principle to be deduced from that judgment seems to be this, that the criterion of whether a sum – be it called penalty or damages – is truly liquidated damages, and as such not to be interfered with by the Court, or is truly a penalty which covers the damage if proved, but does not assess it, is to be found in whether the sum stipulated for can or can not be regarded as a ‘genuine pre-estimate of the creditor’s probable or possible interest in the due performance of the principal obligation’. The indicia of this question will vary according to circumstances. Enormous disparity of the sum to any conceivable loss will point one way, while the fact of the payment being in terms proportionate to the loss will point the other. But the circumstances must be taken as a whole, and must be viewed as at the time the bargain was made.”

14.8  The second was in Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited:5 “1. Though the parties to a contract who use the words ‘penalty’ or ‘liquidated damages’ may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case. 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Shipbuilding Co v Don Jose Ramos Yzquierdo y Castaneda6). 3. The question whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular   2 [2005] EWHC 281 (TCC); [2005] BLR 271 at paragraph [35].   3 Cavendish Square Holdings BV v Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67; [2015] 3 WLR 1373.   4 [1906] AC 368 at 375–376.   5 [1915] AC 79 at 86–88.  6 [1905] AC 6.

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contract, judged of as at the time of the making of the contract, not as at the time of the breach (Public Works Commissioner v Hills7 and Webster v Bosanquet8). 4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are: (a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. (Illustration given by Lord Halsbury in the Clydebank case9). (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid (Kemble v Farren10). This, though one of the most ancient instances, is truly a corollary to the last test. Whether it had its historical origin in the doctrine of the common law that when A. promised to pay B. a sum of money on a certain day and did not do so, B. could only recover the sum with, in certain cases, interest, but could never recover further damages for nontimeous payment, or whether it was a survival of the time when equity reformed unconscionable bargains merely because they were unconscionable, – a subject which much exercised Jessel MR in Wallis v Smith11 – is probably more interesting than material. (c) There is a presumption (but no more) that it is a penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage” (Lord Watson in Lord Elphinstone v Monkland Iron and Coal Co12). On the other hand: (d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties (Clydebank Case, Lord Halsbury; Webster v Bosanquet, Lord Mersey).”

14.9 In Philips v The Attorney General of Hong Kong13 Lord Woolf said: “Except possibly in the case of situations where one of the parties to the contract is able to dominate the other as to the choice of the terms of a contract, it will normally be insufficient to establish that a provision is objectionably penal to identify situations where the application of the provision could result in a larger sum being recovered by the injured party than his actual loss. Even in such situations so long as the sum payable in the event of non-compliance with the contract is not extravagant, having regard to the range of losses that it could reasonably be anticipated it would have to cover at the time that the contract was made, it can still be a genuine pre-estimate of the loss that would be suffered and so a perfectly valid liquidated damages provision. The use in argument of unlikely illustrations should therefore not assist a party to defeat a provision as to liquidated damages. As the Law Commission stated in Working Paper No 61 (page 30): ‘The fact that in certain circumstances a party to a contract might derive a benefit in excess of his loss does not  .  .  . outweigh the very definite practical advantages of the  7 Above.   8 [1912] AC 394.  9 Above. 10 6 Bing 141. 11 (1882) 21 Ch D 243. 12 (1886) 11 App Cas 332. 13 (1993) 61 BLR 41 at 58–59.

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present rule upholding a genuine estimate, formed at the time the contract was made of the probable loss.’ ”

14.10 In Alfred McAlpine Capital Projects Ltd v Tilebox Ltd,14 to which reference has already been made, Jackson J reviewed the authorities and made the following observations: “1. There appear to be two strands in the authorities. In some cases judges consider whether there is an unconscionable or extravagant disproportion between the damages stipulated in the contract and the true amount of the damages likely to be suffered. In other cases the courts consider whether the level of damages stipulated was reasonable. Mr. Darling submits, and I accept, that these two strands can be reconciled. In my view, a pre-estimate of damages does not have to be right to be reasonable. There must be a substantial discrepancy between the level of damages stipulated in the contract and the level of damages which is likely to be suffered before it can be said that the agreed pre-estimate is unreasonable. 2. Although many authorities use or echo the phrase ‘genuine pre-estimate’, the test does not turn upon the genuineness or honesty of the party or parties who made the pre-estimate. The test is primarily an objective one, even though the court has some regard to the thought processes of the parties at the time of contracting. 3. Because the rule about penalties is an anomaly within the law of contract, the courts are predisposed, where possible, to uphold contractual terms which fix the level of damages for breach. This predisposition is even stronger in the case of commercial contracts freely entered into between parties of comparable bargaining power. 4. Looking at the bundle of authorities provided in this case, I note only four cases where the relevant clause has been struck down as a penalty. These are Commissioner of Public Works v Hills,15 Bridge v Campbell Discount Co Limited,16 Workers Trust and Merchant Bank Limited v Dojap Investments Limited17 and Ariston SRL v Charly Records.18 In each of these four cases there was, in fact, a very wide gulf between (a), the level of damages likely to be suffered, and (b), the level of damages stipulated in the contract.”

14.11  Even before the Cavendish decision, the predisposition of the courts to uphold such clauses was reflected in a number of cases since the Alfred McAlpine decision.19 A rare exception was a case concerning late redelivery of a ship let on a charterparty: Lansat Shipping Co Ltd v Glencore Grain BV (The “Paragon”).20 In that case, although the ship was redelivered just under seven days late, the delay payment amounted to the equivalent of 30 days’ hire. This was held to be a penalty.

14 Above, at paragraph [48]. 15 Above. 16 [1962] AC 600. 17 [1993] AC 573. 18 Court of Appeal, 13 March 1990. 19 Murray v Leisureplay plc [2005] EWCA Civ 963; CFW Architects v Cowlin Construction Limited [2006] EWHC 6 (TCC); 105 Con LR 116; Steria Ltd v Sigma Wireless Communications Ltd [2008] BLR 79; M & J Polymers v Imerys Minerals Limited [2008] EWHC 344 (Comm); [2008] 1 Lloyd’s Rep 541; General Trading Company (Holdings) Limited v Richmond Corporation Limited [2008] EWHC 1479 (Comm); [2008] 2 Lloyd’s Rep 475; Liberty Mercian Limited v Dean & Dyball Construction Limited [2008] EWHC 2617 (TCC); [2009] BLR 29; Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm); [2010] 2 Lloyd’s Law Rep 668; Azimut-Benetti SpA (Benetti Division) v Darrell Marcus Healey [2010] EWHC 2234 (Comm); [2011] 1 Lloyd’s Rep 473; (2010) 132 Con LR 113; Bluewater Energy Services BV v Mercon Steel Structures BV [2010] EWHC 2132 (TCC); (2010 155 Con LR 85. See also the Australian cases of AMEVUDC Finance Ltd v Austin (1986) 162 CLR 170; Ringrow Pty Ltd v BP Australia Ltd [2005] HCA 71; State of Tasmania v Leighton Contractors Pty Ltd [2005] TASSC 133. 20 [2009] EWHC 551 (Comm); [2009] 1 Lloyd’s Rep 658, affirmed [2009] EWCA Civ 855.

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14.12  In recent years before the Cavendish decision, there had been very few recorded cases of a provision for the payment of liquidated damages by reason of late completion of a project being held to be unenforceable as being a penalty.21 Cavendish Square Holdings BV v Makdessi; ParkingEye Ltd v Beavis 14.13  As stated above, the Supreme Court considered two appeals together.22 Neither was a construction case. 14.14  In the first case, Cavendish Square Holdings BV v Makdessi, the defendant agreed to sell to the claimant a controlling interest in the advertising and marketing company that he had founded. The claimant agreed to pay up to $147m, depending on a calculation of profits, in instalments, with a large amount reflecting goodwill. The agreement provided that for a period after the sale, the defendant was not to compete with his old business and that, if he did, he would not be entitled to any further payments and the claimant would acquire an option to buy his remaining shares at a price that disregarded goodwill. When the defendant breached the non-competition provision, the claimant sought declarations that he was not entitled to further payments and was obliged to sell his shares to it. The judge at first instance rejected the argument that the relevant provisions were penal and therefore unenforceable and made the declarations sought. The Court of Appeal allowed the defendant’s appeal, holding that the clauses were not genuine pre-estimates of loss, but rather their effect was to act as a deterrent, and, therefore, both clauses were unenforceable penalties. The claimant appealed, contending that the clauses were not penal and that, in any event, the common law rule that contractual penalty clauses were unenforceable should be abolished or at least restricted so as not to apply to commercial transactions where the parties were or equal bargaining power and each acted on skilled legal advice. 14.15  In the second case, ParkingEye Ltd v Beavis, the defendant parked his car in a privately owned shopping centre car park, which was managed by the claimant. Notices prominently displayed at the entrance and throughout the car park stipulated that the maximum permitted stay was two hours, that parking was free up to that time, but that £85 would be charged to those who stayed longer, reducible to £50 if paid within 14 days. The defendant drove out of the car park nearly an hour after the permitted time and was charged £85 by the claimant, which he did not pay. The claimant brought proceedings in the county court to recover the charge. The judge gave judgment for the claimant, rejecting the defendant’s argument that he should not have to pay the charge because (i) it was unenforceable at common law because it was a penalty, and/or (ii) it was unfair and, therefore, unenforceable by virtue of regulation 8 of the Unfair Terms in Consumer Contracts Regulations 1999. The Court of Appeal dismissed the defendant’s appeal. 14.16  In both cases the Supreme Court refused to rule that the provisions under scrutiny were unenforceable. However the Supreme Court did not go so far as was requested 21 Some instances of such clauses being held to be unenforceable are Bramall & Ogden Limited v Sheffield City Council (1983) 29 BLR 73, Stanor Electric v R Mansell (1988) CILL 399 and the arbitrator’s award under consideration in Braes of Doune Windfarm (Scotland) Ltd v Alfred McAlpine Business Services Ltd [2008] EWHC 426 (TCC); [2008] BLR 321. See also Unaoil Ltd v Leighton Offshore Pte Ltd [2014] EWHC 2965 (Comm); (2014) 156 Con LR 24 where a liquidated damages clause that was held not to be a penalty clause at the outset was held to have been rendered penal when the contract sum, to which the calculation of the stipulated sum was related, was reduced without a commensurate reduction in the liquidated damages. 22 [2015] UKSC 67; [2015] 3 WLR 1373.

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and abolish the common law rule that a term in a contract that constituted a penalty is unenforceable. What the Supreme Court did was to move away from treating the question whether the amount stipulated was a genuine pre-estimate at the time of contract of loss as the benchmark of whether a clause is or is not unenforceable as a penalty. 14.17  The first judgment was given jointly by Lord Neuberger of Abbotsbury PSC and Lord Sumption JSC. They said:23 “In our opinion, the law relating to penalties has become the prisoner of artificial categorisations, itself the result of unsatisfactory distinctions: between a penalty and genuine pre-estimate of loss, and between a genuine pre-estimate of loss and a deterrent. These distinctions originate in an over-literal reading of Lord Dunedin’s four tests and a tendency to treat them as almost immutable rules of general application which exhaust the field.”

They continued:24 “The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative performance. In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect that Lord Dunedin’s four tests would usually be perfectly adequate to determine its validity. But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter’s primary obligations.”

The reference to “Lord Dunedin’s four tests” is to the tests lettered (a) to (d) at the end of the citation at paragraph 14.8 above. 14.18  Lord Mance expressed the principle in similar words:25 “What is necessary in each case is to consider, first, whether any (and if so what) legitimate business interest is served and protected by the clause, and, second, whether, assuming such an interest to exist, the provision made for the interest is nevertheless in the circumstances extravagant, exorbitant or unconscionable. In judging what is extravagant, exorbitant or unconscionable, I consider (despite contrary expressions of view) that the extent to which the parties were negotiating at arm’s length on the basis of legal advice and had every opportunity to appreciate what they were agreeing must be at least a relevant factor”.

14.19  Lord Hodge stated the principle as follows:26 “the correct test for a penalty is whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract”.

The implications of the decision in Cavendish Square Holdings v Makdessi 14.20  Unsurprisingly, the Cavendish decision has attracted a great deal of interest and comment.27 However, in so far as the rule as to penalty clauses applies to liquidated dam23 At paragraph [31]. 24 At paragraph [32]. 25 At paragraph [152]. 26 At paragraph [255] expressly endorsed by Lord Toulson at paragraph [293]. 27 See for example Alex Radcliffe Radcliffe and Erin Vickers, The rule of penalties subjected to a thorough going over (2015) 236 EHL 24–26; Hamish Lal, A new test for penalties (2015) 46 Building 50–51; James

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ages provisions in construction contracts, it is doubtful if the decision will have much practical impact, given the firm trend in the courts, referred to at paragraphs 14.11 and 14.12 above, to uphold such clauses. The Cavendish decision will reinforce that trend. 14.21 The Cavendish decision is binding authority in England and Wales and in Scotland (the Scottish jurisprudence having been extensively reviewed in that case by Lord Hodge). Outside the United Kingdom, it has been held that the courts in Ireland are still bound by the “old” law,28 and in a recent case in Hong Kong,29 the Court of Appeal applied the “old” law without discussing any effect of the Cavendish decision. 14.22  In Australia the Full Court of the Federal Court of Australia has said that the dichotomy between a penalty, and an obligation to pay an amount that is a genuine preestimate of loss, is still “central to the operation of the penalty doctrine”.30 On appeal in that case, the High Court of Australia emphasised that Lord Dunedin’s guidance was still applicable and doubted whether the Supreme Court in Cavendish had properly understood the approach adopted in the Australian courts insofar as the Supreme Court suggested that the law as applied in Australia was significantly extended beyond the law of the United Kingdom.31 The majority of the High Court of Australia agreed with the Supreme Court in the United Kingdom that the court should take into account the legitimate interests of the innocent party in the enforcement of the clause. However, this debate is likely to be academic in practice: in a relatively recent case the Supreme Court of Queensland declined to hold that a liquidated damages clause in a development contract constituted a penalty, holding rather that it was a genuine attempt between the parties to pre-estimate the loss that the developer would suffer in practical completion was delayed.32 Thus in Australia, as in England, a liquidated damages clause in a construction contract is likely to be upheld. Can liquidated damages be increased or decreased? 14.23 In English law there is no middle ground between a clause that operates as a penalty and a clause that is held not to be a penalty.33 Thus an English court cannot adjust the stipulated sum so as to make what would otherwise be a penal clause non-penal. Accordingly a penal clause, once so identified, falls away (subject to the point discussed in paragraph 4.25 below) leaving the employer to recover what he can prove by way of unliquidated damages. This is in contrast with the position in many civil law countries where powers are granted to a court or tribunal to reduce the liquidated damages or vary

Schackleton, Penalties and liquidated damages law revisited (2015) 26 (10) Cons Law 14–16; Michael Fletcher, A masterclass in penalties (2015) 165 (7679) NLJ 14; Natalie Appleby, Where are we now? (2015) 337 PLJ 6–11; Paul Joukabor and Nathan Searle, Offside: a new test for penalty clauses (2015) 64 Co LJ 4–7; Theo Barclay, Fair is foul and foul is fair 159 (42) SJ 38–39; Joanna Smith QC, Liquidated Damages or Penalty: Cavendish v Makdessi SCL Paper 195, December 2015; Mathias Cheung, Shylock’s construction law: The brave new life of liquidated damages? SCL Paper 199, May 2016. 28 See Sheehan v Breccia and others [2016] IEHC 67 at paragraph [82] applying ACC Bank plc v Friends First Management Pension Funds Ltd [2012] IEHC 435. 29 Brio Electronic Commerce Ltd v Tradelink Electronic Commerce Ltd CACV 271/2013. 30 Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50 at paragraph [97]. 31 Per Gageler J at paragraphs [118]–[127] in Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28 analysing Andrews v Australian and New Zealand Banking Group Ltd [2011] FCA 1376. 32 Grocon Constructions (QLD) Pty v Juniper Developer No. 2 Pty [2015] QSC 102. 33 Per Buxton LJ in Murray v Leisureplsy plc [2005] EWCA Civ 963 at paragraph [111].

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compensation payable to make the compensation equal to the actual loss.34 Some civil law jurisdictions even allow a tribunal to increase the amount payable.35 14.24  Under English law the question of whether a clause is penal is decided by considering the clause at the time of contract.36 In contrast, the civil law codes often permit the tribunal to consider the position taking into account the situation when the loss comes to be assessed. In the common law world, the position varies: in the United States of America many states adopt the English “single look” approach,37 whilst other states adopt a “second look” approach, applying a retrospective test for determining the reasonableness of the stipulated damages, judging that reasonableness against the party’s actual loss caused by the breach.38 In India, the statutory provision of section 74 of the Indian Contract Act 1872 requires proof of the actual loss suffered, although such proof may be exempted when proof is not possible, provided that the liquidated damages stipulated are a genuine

34 See for example Article 333 of the Civil Code of the Russian Federation, Article 398 of the Korean Civil Code and Article 390 of the UAE Civil Code. 35 See for example Article 390(2) of the UAE Civil Code. 36 See paragraph [9] in Cavendish. 37 Williwaw Lodge v Locke 601 P 2d 236, 239 (Alaska 1979); Pima Sav. and Loan Ass’n v Rodgers 168 Ariz. 297, 812 P 2d 1115, 1118 (Arizona Ct. App. Div. 2 1991); Alley v Rodgers 269 Ark 262, 599 SW 2d 739, 741 (Arkansas 1980); Rohauer v Little 736 P 2d 403, 410 (Colorado 1987); Hanson Development Co v East Great Plains Shopping Center, Inc 195 Conn. 60, 485 A  2d 1296, 1300 (Connecticut 1985); Brazen v Bell Atlantic Corp 695 A 2d 43, 48 (Delaware 1997); District Cablevision Ltd Partnership v Bassin 828 A 2d 714, 724, 51 UCC Rep Serv 2d 149 (Washington DC 2003); Lefemine v Baron 573 So 2d 326, 329 (Florida 1991); Fickling and Walker Co v Giddens Cons. Co Inc 258 Ga 891, 376 SE 2d 655, 660 (Georgia 1989); Carruthers Const Co LLC v City of South Hutchinson 288 Kan 743, 207 P 3d 231, 242 (Kansas 2009); Kelly v Marx 428 Mass. 877, 705 NE 2d 1114, 1117 (Massachusetts 1999); Brignull v Albert 666 A 2d 82, 84, 11 IER Cas (BNA) 319 (Maine 1995); Barrie School v Patch 401 Md 497, 933 A 2d 382, 390, 225 Ed Law Rep 973 (Maryland 2007); Solomon v Department of State Highways and Transp. 131 Mich App 479, 345 NW 2d 717, 719 (Michigan 1984); Frank v Jansen 303 Minn 86, 226 NW 2d 739, 743 (Minnesota 1975); Board of Trustees of State Institutions of Higher Learning v Johnson 507 So 2d 887, 890, 40 Ed Law Rep 592 (Mississippi 1987); Kuczynski v Intensive Maintenance Care Inc 48 SW 3d 55, 57 (Montana 2001); Gruschus v C.R. Davis Contracting Co 75 NM 649, 409 P 2d 500, 504, 2 UCC Rep Serv 1080 (New Mexico 1965); JMD Holding Corp v Congress Financial Corp. 4 NY 3D 373, 795 NYS 2d 502, 828 NE 2d 604, 609 (New York 2005); Fisher v Schmeling 520 NW 2d 820, 822 (North Dakota 1994); Sun Ridge Investors Ltd v Parker 1998 OK 22, 956 P 2d 876, 878 (Oklahoma 1998); Safari Inc v Verdoorn 446 NW 2d 44, 46 (South Dakota 1989); Guiliano v Cleo Inc 995 SW 2d 88, 100, 16 IER Cas (BNA) 1015, 139 Lab Cas (CCH) P 58713 (Tennessee 1999); Woodhaven Apartments v Washington 942 P 2d 918, 921 (Utah 1997); Brooks v Bankson 248 Va 197, 445 SE 2d 473, 479 (Virginia 1994); Renaudette v Barrett Trucking Co Inc 167 Vt 634, 712 A 2d 387, 388 (Vermont 1998); Watson v Ingram 124 Wash 2d 845, 881 P 2d 247, 250 (Washington 1994). 38 Thanksgiving Tower Partners v Anros Thanksgiving Partners 64 F 3d 227, 232 (5th Circuit applying Texas law 1995); Yockey v Horn 880 F 2d 945, 953 14 Fed R Serv 3d 217 (7th Circuit applying Illinois law 1989); Southpace Properties Inc v Acquisition Group 5 F 3d 500, 505 (11th Circuit applying Alabama law 1993); McEnroe v Morgan 106 Idaho 326, 678 P 2d 595, 600 (Idaho 1984); Rohlin Const Co Inc v City of Hinton 476 NW 2d 78, 80 (Iowa 1991); Mattingley Bridge Co Inc v Holloway & Son Const Co 694 SW 2d 702, 705 (Kentucky 1985); Kozlik v Emelco Inc 240 Neb 525, 483 NW 2d 114, 121, 127 Lab Cas (CCH) P 57599 (Nebraska 1992); Mason v Fakhimi 109 Nev 1153, 865 P 2d 333, 335 (Nevada 1993); Shallow Brook Associates v Dube 135 NH 40, 599 A 2d 132, 137 (New Hampshire 1991); Wasserman’s Inc v Township of Middletown 137 NJ 238, 645 A 2d 100, 107 (New Jersey 1994); Knutton v Cofield 273 NC 355, 160 SE 2d 29, 34 (North Carolina 1968); Lake Ridge Academy v Carney 66 Ohio St 3d 376, 613 NE 2d 183, 188, 82 Ed Law Rep 1181 (Ohio 1993); Illingworth v Bushong 297 Or 675, 688 P 2d 379, 390, 39 UCC Rep Serv 903 (Oregon 1984) (disapproved on other grounds by Ditommaso Realty Inc v Moak Motorcycles Inc 309 Or 190, 785 P 2d 343 (1990); Phillips v Phillips 820 SW 2d 785, 788 (Texas 1991); Wheeling Clinic v Van Pelt 192 W Va 620, 453 SE 2d 603, 609 (West Virginia 1994); Koenings v Joseph Schlitz Brewing Co 126 Wis 2d 349, 377 NW 2d 593, 600 (Wisconsin 1985); Jessen v Jessen 810 P 2d 987, 990 (Wyoming 1991).

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pre-estimate of loss.39 The law of Malaysia under section 75 of the Malaysian Contracts Act 1950 is similar.40 14.25  A possibly open question is whether an employer seeking to claim unliquidated damages for delay where a liquidated damages clause has been held to be unenforceable as a penalty clause can recover more than the sum stipulated in the contract by way of unliquidated damages – in other words, does the amount stipulated in the unenforceable clause act as a cap on recoverable damages?41 This is a “possibly” open question because in the commentaries cited at footnote 41 above, the editors of Keating and Professor Jones treat the matter as being open on the authorities, whilst the late Mr McGregor disagreed. There is strength in Mr McGregor’s view that the authorities hold that the employer is not restricted in this situation to the sums stipulated.42 14.26  A situation that occurs surprisingly often is where the parties forget to insert a figure for liquidated damages. In Temloc Ltd v Errill Properties Ltd,43 the contract provided that liquidated damages would be payable for delay at the rate specified in the appendix. The appendix specified that “liquidated and ascertained damages” would be awarded “at the rate of £nil”. The Court of Appeal held that by specifying “£nil” the parties intended that liquidated damages of nil would be an exhaustive agreement as to damages for failure to complete works on time. This left no room for a claim for damages in an unliquidated amount. By contrast, where a contract simply left the sum blank, an Australian court held that this left the liquidated damages clause inoperable, but did not exclude a claim for unliquidated damages.44 The prevention principle 14.27  The existence of liquidated damages clauses gives rise to an important legal principle, often referred to as the prevention principle. This comes into play where an employer under a construction project causes additional delay to a project also delayed by a contractor’s default – for example if the contractor’s performance has already resulted in a delay to completion of six months but the employer then causes a further delay of three months by issuing a variation requiring extra work. If the liquidated damages clause simply required the contractor to pay £1,000 for each month of delay, then at first sight the employer would be entitled to £9,000 even though one-third of that delay was his contractual responsibility. Relying on the principle that the employer ought not to be compensated for delays caused by his own act of prevention, in such a case the court would refuse to enforce the liquidated damages clause.

39 Raheja Universal Pvt. Ltd v B.E. Bilimoria Ltd (2016) 3 AIR Bom R 637. 40 See Selva Kumar a/l Murugiah v Thiagarajah a/l Retsanamy [1995] 1 MLJ 817. 41 See Keating on Construction Contracts, 10th edition, 2016 at paragraph 10–029; McGregor on Damages, 19th edition, 2014, at paragraphs 15–026 and 13–027; Professor D Jones AO, Can Prevention be Cured by Time Bars? [2009] ICLR 57 at 59 and 60. 42 Wall v Rederiaktiebolaget Luggude [1915] 3 KB 66; Widnes Foundry v Cellulose Acetate Silk Co [1931] 2 KB 393. 43 (1987) 39 BLR 30. 44 Adapt Constructions Pty Ltd v Whittaker [2015] ACTSC 188. See also Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137 and J-Corp Pty Ltd v Mladenis [2009] WASCA 157.

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14.28  The approach of the courts was explained by Salmon LJ in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd:45 “A clause giving the employer liquidated damages at so much a week or month which elapses between the date fixed for completion and the actual date for completion is usually coupled, as in the present case, with an extension of time clause. The liquidated damages clause contemplates a failure to complete on time due to the fault of the contractor. It is inserted by the employer for his own protection; for it enables him to recover a fixed sum as compensation for delay instead of facing the difficulty and expense of proving the actual damage which the delay may have caused him. If the failure to complete on time is due to the fault of both the employer and the contractor, in my view the clause does not bite. I cannot see how, in the ordinary course, the employer can insist on compliance with a condition if it is partly his own fault that it cannot be fulfilled . . . I consider that unless the contract expresses a contrary intention the employer, in the circumstances postulated, is left to his ordinary remedy; that is to say, to recover such damages as he can prove flow from the contractor’s breach. No doubt if the extension of time clause provided for the postponement of the completion date on account of delay caused by some breach or fault on the part of the employer, the position would be different. This would mean that the parties had intended the employer could recover liquidated damages notwithstanding that he was partly to blame for the failure to achieve the completion date. In such a case the architect would extend the date for completion, and the contractor would then be liable to pay liquidated damages as from the extended completion date. The liquidated damages and extension of time clauses in printed forms of contract must be construed contra proferentem. If the employer wishes to recover liquidated damages for a failure by the contractors to complete on time in spite of the fact that some of the delay is due to the employer’s own fault or breach of contract, any extension of time clause should provide, expressly or by necessary inference, for an extension on account of such fault or breach on the part of the employer.”

For a useful discussion of the prevention principle, see the Australian decision of Brooking J in SMK Cabinets v Hili Modern Electrics Pty Limited.46 14.29  If the prevention principle applies, it has the effect of rendering the liquidated damages provision inoperable, since there is now no set date from which those damages can accrue. Time is often said in that situation to be “at large”,47 the contractor now being under an obligation to complete the works within a reasonable time rather than by the date specified in the contract. In Shawton Engineering Ltd v DGP International Ltd,48 the Court of Appeal held that what is a reasonable time has to be judged at the time when the question arises, in the light of all relevant circumstances. 14.30  As the Court of Appeal held in Peak49 and also in Rapid Building Group Limited v Ealing Family Housing Association,50 the prevention principle will apply even where the employer’s delays form only part of the causes of the overall delay and even if the contractor would have been unable to complete on time in the absence of delay on the part of the employer.51 14.31  The prevention principle is only applicable where delay is caused by a breach of contract by the employer or where delay is caused by something for which the employer 45 [1970] BLR 111 at 121. 46 [1984] VR 391. 47 McAlpine Humberoak Limited v McDermott International Inc (1992) 58 BLR 1 at 21–22; Shawton Engineering Limited v DGP International Limited [2005] EWCA Civ 1359; [2006] BLR 1 at paragraph [29]. 48 [2005] EWCA Civ 1359; [2006] BLR 1. 49 Above. 50 (1984) 29 BLR 5. 51 See SMK Cabinets (above) at 398–400.

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is contractually responsible (an example of the latter is delay caused by the exercise by the employer of a right to instruct variations52). If the delay occurs by reason of an event that is not the contractor’s fault but also not the contractual responsibility of the employer, the prevention principle does not apply and the contractor will as a result be under a liability to pay liquidated damages.53 Extension of time clauses 14.32  In order to enable the employer to perpetrate acts of prevention yet still maintain a fixed completion date and with it an entitlement to deduct liquidated damages, the employer may extend time for completion for specified events for which the employer would otherwise be liable. Accordingly, the inclusion in a well-drafted contract of an extension of time clause is important in order to protect the employer’s entitlement to levy liquidated damages, since in most cases the contractor can argue that some part of the delay is attributable to matters for which the employer is contractually responsible. 14.33  The terms of such clauses vary, but all have in common the intent of making the liquidated damages regime workable.54 A number of problems arise on a recurrent basis. 14.34  Typically the extension of time clause will place the power to grant an extension of time in the hands of a supervising officer, usually the architect or the engineer named in the contract. In this form of contract the contract specifies a representative of the employer (for example the architect in the JCT Standard Form of Building Contract or the engineer in the ICE Standard Conditions of Contract) who is to grant extensions of time. It was held that under a predecessor of the current JCT Form of Contract, in granting an extension of time the architect acted quasi-arbitrally, and had a duty to act fairly, lawfully, rationally and logically.55 Under clause 2(8) of the ICE Conditions the engineer is required to act “impartially”. In a case concerning the role of a construction manager, Jackson J held that the construction manager had a duty to act in a manner that was independent, impartial, fair and honest.56 Such a duty is probably also imposed upon the project manager under the NEC forms of contract.57 14.35  Each extension of time clause falls to be construed on its own terms: such clauses may be construed as only empowering the grant of an extension of time before completion of the project in accordance with the original contract date or an extended completion date that had been fixed previously.58 However most standard form contracts will permit

52 See SMK Cabinets (above). 53 Percy Bilton Limited v Greater London Council [1982] 1 WLR 794; (1982) 20 BLR 1. 54 For a helpful review of extension of time clauses to be found in a range of standard form contracts, see Keith Pickavance and Wendy MacLaughlin A Little of Time at Large: Proof of a Reasonable Time to Complete in the Absence of a Completion Date, October 2005 published by the Society of Construction Law. 55 John Barker Construction Limited v Portman Hotel Limited (1996) 83 BLR 31. 56 Scheldebouw BV v St James Homes (Grosvenor Dock) Ltd [2006] BLR 113 – where it was held that these “concepts are overlapping but not synonymous. They connote that the decision-maker must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours the interests of the employer.” See also Amec Civil Engineering Ltd v Secretary of State for Transport [2005] BLR 227. 57 See Costain Limited v Bechtel Limited [2005] EWHC 1018 (TCC); [2005] CILL 2239, but see to the contrary the trenchant views of HH Humphrey LLoyd QC in Some Thoughts on NEC 3 in [2008] ICLR 468 particularly at 475–476. 58 Miller v LCC (1934) 50 TLR 479.

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an extension of time to be granted retrospectively.59 Commenting upon an argument that the true construction of the then current JCT Standard Form of Contract did not permit an architect to grant an extension of time retrospectively, Colman J said:60 “It was common ground that if the contract failed to provide for power to grant an extension of time on account of delays caused by an act of prevention, the effect of the act of prevention was to prevent the employer relying on the completion date/liquidated damages provisions in the contract. The obligation to complete the works was to be performed within a reasonable time, there could be no extensions on account of relevant events and the employer’s only hope of compensation would be to recover unliquidated damages for delay: see Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd . . . The remarkable consequences of the application of this principle could therefore be that if, as in the present case, the contractor fell well behind the clock and overshot the completion date and was unlikely to achieve practical completion until far into the future, if the architect then gave an instruction for the most trivial variation, representing perhaps only a day’s extra work, the employer would thereby lose all right to liquidated damages for the entire delay right up to practical completion or, at best, on the respondents’ submission, the employer’s right to liquidated damages would be confined to the period up to the act of prevention. For the rest of the delay he would have to establish unliquidated damages. What might be a trivial variation instruction would on this argument destroy the whole liquidated damages regime for all subsequent purposes.61 So extreme a consequence for the future operation of the contract would hardly reflect the common intention, particularly having regard to the very specific distribution of risk provisions which are agreed to be applicable in respect of relevant events occurring before the completion date. It is certainly a construction which is most improbable in the absence of some other express provision supporting it.”

14.36 Another argument that recurs was also considered by Colman J in the Balfour Beatty case62 (and touched upon in the passage just cited). The question was, assuming that a variation was granted late in a contract when the contractor was already much delayed, how was an extension of time to be calculated? To give an example, assume that a contract required completion by 1 April, the contractor having been given possession on 1 January. Thus the contract period was three calendar months, but the contractor was dilatory so that as at 31 May the works were only nearing completion, but completion would be achieved the following day, 1 June, two calendar months late. If on 31 May the employer issued an instruction with the effect that the works could not be completed until 1 July, what extension should be granted? The court had to decide between two rival approaches: (1) what was described as the “gross” method said that as the contractor would not be able to complete before 1 July he was entitled to an extension of time to that date, effectively a threemonth extension wiping out the contractor’s liability to liquidated damages arising from the contractor’s earlier delays; and (2) what was described as the “net” method would grant him an extension of one month, that being the additional delay caused by the employer’s exercise of his right to issue a variation. The judge held that the net method was the correct

59 See for example Amalgamated Building Contractors Co Ltd v Waltham Holy Cross UDC [1952] 2 All ER 452; Balfour Beatty Building Ltd v Chestermount Properties Ltd (1993) 62 BLR 1. 60 In Balfour Beatty Building Ltd v Chestermount Properties Ltd (above) at 27. 61 A similar suggestion was condemned by the Court of Appeal in McAlpine Humberoak Limited v McDermott International Inc (above) at 35. 62 Above.

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method on the terms of the contract before him. The effect of this decision was summarised by Dyson J as follows:63 “[T]he completion date as adjusted was not the date by which the contractor ought to have achieved practical completion, but the end of the total number of working days starting from the date of possession within which the contractor ought fairly and reasonably to have completed the works.”

14.37  In a perfect world when a delaying event occurs entitling the contractor to an extension of time, the engineer, architect or other person having the power and duty to extend time would be able to do so and would do so straight away. However in the real world extensions of time are often not given straight away for a number of reasons – it may be that the contractor is late in giving notification of delay, or gives inadequate information. It may simply be impossible to assess the full consequences of a delaying event; for example, will it take two weeks or two months to deal with unforeseen ground conditions? In other cases the contractor and the employer’s representative may take different views as to whether the event causing delay is one for which the employer or one for which the contractor takes the risk. 14.38  This can create a problem for the contractor. Delay on a major project carries the risk of the contractor incurring liquidated damages, possibly wiping out any profit on the project. If the contractor believes that he is entitled to an extension of time, and has the courage to stick by his judgment, he can just continue as before in the belief that in due course his view will be vindicated. But if he is wrong, then he may not obtain an extension of time and may by his inaction be liable for liquidated damages. On the other hand the contractor might be able to take steps to mitigate the delay, for example by persuading his workforce to work overtime at enhanced rates, but might incur considerable expense in so doing. 14.39  Where this tension arises, a contractor will often claim that he has been forced to “accelerate”, that is to say to increase resources in order to accommodate the effects of an event that would cause delay to completion were such resources not deployed. Where a contractor deploys such additional resources under the duress created by the prospect of otherwise facing a liability for liquidated damages, the contractor will often claim that the failure on the part of the employer or the employer’s representative to grant an extension of time amounts to a “constructive instruction to accelerate”. This concept, although often deployed in claims (and having found some favour in the United States of America64), has not been endorsed in English reported cases, doubtless because many such cases, if not resolved amicably, are resolved through adjudication or arbitration. However in one case a very experienced judge has awarded additional expense arising from a contractor’s attempts to complete on time in the absence of an extension of time.65 This is not an easy area of the law – if the delay arises as a consequence of a variation being instructed then 63 In Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32 at paragraph [12]. See also the Court of Appeal in Carillion Construction Ltd [2017] EWCA Civ 65. 64 See footnote 50 to Geoffrey Smith and James Perry, The Evolution of Global Claims and Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2005] ICLR 212 at 240. 65 Motherwell Bridge Construction Ltd v Micafil Vakuumtechnik (2002) 81 Con LR 44, a decision of HH Judge Toulmin CMG, QC. It is to be noted that the delay was caused by the instruction of additional works by the employer (see paragraphs [543]–[548]). Thus for reasons explained in the text above, the recovery of additional costs was not difficult conceptually.

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acceleration costs may be regarded as part of the cost associated with the variation. If the failure by the employer’s representative arose out of an obstinate refusal to recognise the contractor’s rights, perhaps for commercial reasons, then the recovery of additional costs may be justifiable as damages for breach of contract, of course subject to any contractual provisions limiting liability for damages. However if the circumstances giving rise to delay were wholly unforeseeable and the amount of time to which the contractor was entitled was impossible to assess, then the failure to grant an extension of time may not have been a breach of contract, and the legal basis for recovery by the contractor of additional costs incurred in mitigating the delay may be somewhat uncertain. This is an area little explored in the decided cases, but of considerable practical importance to a contractor assessing what to do in the face of an event delaying the works.66 14.40  It has been held in some Commonwealth authorities that if the employer or his representative fails to operate the extension of time machinery at the right time, or at all, this may result in time being set at large, rather than it being found that there has been a constructive instruction to accelerate. In Anderson v Tupeka County Council,67 Williams J in the New Zealand Court of Appeal said: “If no date is specified within which the works are to be completed, how is it possible for the contractor to complete the works by a specified date? Or how can he have broken a contract to complete on a specified date if he did not know beforehand what the date was on which he was under an obligation to complete? A proviso which was intended to preserve to the contractee the right to recover penalties in any event which, had it not been for the proviso, would have deprived him of that right, should be expressed in clear and unambiguous terms. If it had been intended to allow the Engineer to decide ex post facto whether there was a breach of contract to complete, it should have been very plainly stated.”

This decision was followed in the Canadian decision of Hawl-Mac Construction Ltd v Candle River68 in which Wallace J held that an engineer’s failure to issue his decision before the expiry of the original completion date had the effect of setting time at large so that no liquidated damages could be claimed by the employer: “The extension clause in the present contract . . . provides that the time for completion shall be extended for the time lost due to the owner-caused delays and that the engineer, upon receipt of an extension of time, shall fully and fairly consider it and fix the time of the extension. Having failed to perform this obligation before the time for completion of the contract period, it is my opinion there was no longer a specified date within which the contract was to be completed or from which penalties could be imposed.”

The English case law, referred to at paragraph 14.36 above, suggests that (subject to the precise terms of a particular contract) the English courts are not averse to the extension of time even after the end of the contract period, thus taking away the foundation of these Commonwealth authorities. However in Bernhard’s Rugby Landscapes Ltd v Stockley Park 66 There is also a further problem discussed in Mellors, Baker, Lavers and Chalmers FIDIC Contracts: Law and Practice, looseleaf, at paragraphs 5.189 and 5.190 as to whether an instruction to accelerate is a permissible instruction in the absence of express power to do so. Usually a power to vary the contract does not include a power to order the contractor to complete contract works within a shorter period than allowed in the contract, especially where the contractor may contend that the instruction is impossible. Such an instruction may be extremely unwelcome as it will often require the contractor to divert resources urgently needed on another project. 67 (1900) 19 NZLR 1. 68 (1984) 60 BCLR 57.

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Consortium Ltd,69 HH Judge Humphrey LLoyd QC suggested that there could come a point at which the extension of time machinery could be said to have broken down: “A breakdown of the contractual machinery occurs when without material default or interference by a party to the contract, the machinery is not followed by the person appointed to administer and operate it and, as a result, its purpose is not achieved, and is either no longer capable of being achieved or is not likely to be achieved. It can for most practical purposes be equated to interference by a contracting party in the process whereby the other is deprived of a right or benefit, e.g., the failing of an employer to re-appoint an administrator or certifier on the resignation of a previously appointed person: see Panamena Europea Navigation v Frederick Leyland & Co Ltd.70 Noncompliance with the machinery by the administrator is not itself sufficient: the effect must be that either or both of the parties to the contract do not in consequence of the breakdown truly know their position or cannot or are unlikely to know it. Either is then free to have its position established by the appropriate means available: litigation or arbitration (preceded, if the contract so requires, by recourse to adjudication or the like). If the true position is or can be established by other contractual means then the breakdown is likely to be immaterial even where the result of the breakdown is that one party does not obtain the contractual right or benefit which would or might otherwise have been established by the machinery, e.g., the issue of a certificate, provided that the true position can be restored by the operation of other contractual machinery.”

14.41  Thus the position in English law appears to be that if a supervising officer, engineer, architect or other employer’s representative, fails to grant extensions of time during the currency of the contract, it may be that this will be construed as being a constructive instruction to accelerate or possibly as a breakdown of the extension of time machinery so that time is set at large. However, given that most construction contracts of any sophistication will contain machinery to enable disputes to be resolved expeditiously and during the currency of the contract (including statutory rights to go to adjudication) it is more likely that courts or arbitrators will hold that such dispute resolution machinery negates either of those results.71 14.42  A difficult and much debated problem arises out of provisions limiting the contractor’s right to claim an extension of time in the event of non-compliance with notice provisions.72 Most modern construction contracts not only contain extension of time clauses but also require the contractor to give notice of an alleged right to an extension of time.73 A much-debated issue is how such provisions affect or are affected by the application of the prevention principle. To give an example, assume that the giving of notice by the contractor is a condition precedent to the grant of an extension of time based upon an

69 (1998) 14 Const LJ 329 at page 357. 70 [1947] AC 428. 71 See in this context Cowan and Bellhouse, Common Law “Time at Large” Arguments in a Civil Context [2007] Const LJ 598. 72 For one amongst many articles discussing this problem, see Crispin Winser, Shutting Pandora’s Box: the Prevention Principle after Multiplex v Honeywell (2007) 23(7) Const LJ 511. 73 For cases applying such notice provisions so as to prevent a claim being made for an extension of time, see WW Gear Construction Ltd v McGee Group Ltd [2010] EWHC 1460 (TCC); Education 4 Ayrshire Ltd v South Ayrshire Council [2009] CSOH 164; Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) (the notice issue was not discussed on appeal); Van Oord UK Ltd v Allseas UK Ltd [2015] EWHC 3074 (TCC). A  notice provision may be rendered inoperative by the application of the Unfair Contract Terms Act 1977: see Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd [2016] EWHC 76 (TCC).

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employer’s breach of contract.74 If the contractor by oversight fails to give notice, then the employer may be entitled to claim liquidated damages as a result of delay caused by his own breach of contract. Does the prevention principle operate to stop this unmeritorious right to recover liquidated damages? 14.43  The starting point is that as a liquidated damages clause is usually inserted in contracts for the benefit of the employer who will seek to rely upon it, such clauses are construed contra proferentem, that is to say that any ambiguities are construed strictly against the interest of the employer.75 Even where a time-bar clause appears to be a condition precedent, a court or arbitrator may refuse to construe it as such if the result would be a “commercial nonsense”.76 However, it is then necessary to consider what the result is, if on its true construction a notice provision is truly a condition precedent, and if on the face of the contract a contractor who does not give notice in accordance with its terms will lose his right to an extension of time and thus be exposed to a liability for liquidated damages. 14.44  An Australian case, Gaymark Investments Pty Ltd v Walter Construction Group Ltd,77 suggests that the contractor is relieved of the liability to complete by the stipulated date even if notice has not been given. This view was been supported by the editors of Keating on Construction Contracts78 and Professor Jones.79 On the other hand, there is a formidable body of authority suggesting that parties should be held to the terms of their agreement.80 74 For examples of such clauses in widely used standard forms, see clause 61.3 of the NEC3 form and clause 20.1 of each of the FIDIC 1999 standard forms of contract, both of which require the contractor to give notice at peril of losing a right to claim an extension of time if notice is not given. For a discussion of the practical effect of these clauses, see Ronan Champion, Variations, Time Limits and Unanticipated Consequences, SCL Paper No 138. 75 See the passage from the judgment of Salmon LJ cited at paragraph 14.28 above. 76 This expression comes from the judgment of Chadwick LJ in Chiemgauer Membran- und Zeltbau GmbH (formerly Koch Hightex GmbH) v New Millennium Experience Co Ltd (formerly Millennium Central Ltd) (No 1) [1999] CILL 1595 at 1597. Similarly, if extension of time provisions are poorly drafted so that they are inherently uncertain or unworkable, they may be held to fail altogether. See Bramall and Ogden Ltd v Sheffield City Council (1983) 29 BLR 76 and Arnold and Co Ltd v Attorney-General of Hong Kong (1989) 47 BLR 129. 77 (2000) 16 BCL 449. 78 In the 8th edition at paragraph 9–025 but not in the 10th edition at paragraph 8–032. 79 In the article already cited above, Can Prevention be Cured by Time Bars? [2009] ICLR 57. See also the carefully thought through contribution of Tony Marshall in Delay, Progress and Programming [2010] ICLR 137 and Mathew Stulic, Prevention and the Allocation of the Risk of Project Delays: Evolution or Revolution? SCL Paper No 163, May 2010. 80 Turner Corporation v Austotel Pty Ltd (1994) 13 BCL 378; Turner Corporation Ltd (In Provisional Liquidation) v Co-Ordinated Industries Pty Ltd (1994) BCL 202; City Inn Ltd v Shepherd Construction Ltd [2003] BLR 468 at paragraph 23 – construing a time-bar clause as giving a contractor an option whether to apply for an extension of time; Beckhaus v Brewarrina No 2 [2004] NEWSC 1160; Décor Ceilings Pty Ltd v Cox Constructions Pty Ltd (No 2) [2005] SASC 483; [2006] CILL 2311; Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC); [2007] BLR 195; Steria Ltd v Sigma Wireless Communications Ltd [2008] BLR 79. Commentaries suggesting that Gaymark is wrong include Ian Duncan Wallace, Liquidated Damages Down Under: Prevention by Whom? (2002) 7:2 Construction and Engineering Law 23, and Prevention and Liquidated Damages: A Theory Too Far? (2002) 18 BCL 82; Baker, Bremen and Lavers, The Development of the Prevention Principle in English and Australian Jurisdictions [2005] ICLR 197; Dr Hamish Lal, The Rise and Rise of TimeBar Clauses for Contractors’ Claims: Issues for Construction Arbitrators SCL Paper No 142, September 2007. The two Australian Turner cases referred to above were affirmed by the New South Wales Court of Appeal in Peninsula Balmain Pty Ltd v Abigail Contractors Pty Ltd [2002] NSWCA 211; (2002) 18 BCL 322: this decision needs to be considered with some care: it has been suggested that it lends support to Gaymark, but appears to turn upon the specific power conferred upon the supervising officer to unilaterally extend time – a power exercised by the referee in the dispute resolution process. Thus in the result the contractor was relieved to an extent of a liability for liquidated damages despite not having served notice timeously. Thus the contractor lost its entitlement to an

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14.45  In many cases these problems do not arise if the employer is held to have waived compliance with the condition precedent. Thus in City Inn Ltd v Shepherd Construction Ltd,81 the contractor’s claim for an extension of time was subject to a condition precedent that the contractor was to provide details of the estimated effect of an architect’s instruction within ten days. During the employer’s detailed discussions with the contractor in relation to extension of time, the employer did not once cite the contractor’s failure to comply with the condition precedent as the reason for its refusal to grant an extension of time. The Court of Session held that the employer’s silence in respect of the condition precedent clearly demonstrated that it had departed from and abandoned its contractual right to insist that the contractor had to comply with the notice provision. 14.46  Less controversially, if the contract contains a condition precedent to the employer’s right to recover liquidated damages, that will be given due effect (and any such clause will be construed against the employer’s interest).82 Concurrent delay 14.47  At paragraph 11.7 above Akenhead J’s comment has been cited that:83 “[W]here there are two coeffective and concurrent causes of delay to a construction project, one of which is the defendant’s breach of contract and one which is not, the claimant can recover its loss to that extent in full from the defendant. Although this is a topic much discussed and a point much raised, it happens less in practice upon analysis than practitioners sometimes think.”

14.48  It may be questioned whether the problem is as infrequent as the quotation suggests. If nothing else, the problem is frequently encountered at the time when claims are first put forward, when cases are pleaded in formal written pleadings, and when negotiations take place. It may be worthwhile considering why these problems recur. It will be seen that some of the difficulties arise from attempts to define what is meant by “concurrent delays” or “concurrent causes of delay”. 14.49  As Akenhead J said, by the time cases come for final decision, whether in arbitration or litigation, questions of causation tend to have been simplified by the blunt instrument of the facts – for example, despite the employer’s protestations, it becomes obvious that a culture of indecision on the part of the employer or the employer’s representative in issuing instructions, or a tendency to instruct variations, has blown the contractor off course and made it impossible for the contractor to execute the works efficiently and economically; or, in the opposite direction, the evidence discloses that the contractor has relied upon every minor variation in an attempt to distract attention from a failure to mobilise timeously and work efficiently. In either of these cases the deciding tribunal may have no difficulty in extension of time but was granted a discretionary extension of time. It is suggested that the judgment of Hodgson JA is supportive of the approach supported by the authorities referred to in this footnote rather than the Gaymark approach. 81 [2010] CSIH 68; [2010] BLR 473. 82 Token Construction Co Ltd v Charlton Estates Ltd (1976) 1 BLR 48; Pyrok Industries Ltd v Chee Tak Engineering Co Ltd (1988) 41 BLR 124; JF Finnegan Ltd v Community Housing Association Ltd (1993) 65 BLR 103 at p. 113 and 77 BLR 22, and W Hing Construction Co Ltd v Boost Investments Ltd [2009] BLR 339 paragraphs 131 and 149. 83 AXA Insurance UK plc v Cunningham Lindsey United Kingdom [2007] EWHC 3023 (TCC) at paragraph [265].

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deciding that the real cause of delay was the employer’s or the contractor’s responsibility, as the case may be. However, other cases may prove more complicated, and certainly may appear more complicated at an early stage when the parties seek advice, or when the person responsible for granting extensions of time has to make his or her decisions. 14.50  Certain influences are capable of clouding the issue, not least the programming tools available through modern computer power. Managing a construction site with many trades, some of which can operate concurrently and others of which can only act consecutively, is an immensely complicated task. That skill has been assisted by modern programming professionals using such software as Primavera. The availability of such skills, and the expectation that competent contractors will avail themselves of these human and technological resources has led to the widespread requirement in contracts that the contractor provide and update a CPM (critical path method) or similar programme for the works. The intent is that the employer should be able to know how the contractor intends to carry out the works – amongst other things: this enables the employer to assess whether the contractor is up to speed or not, and whether a variation to the works would or would not cause delay to completion of the whole or part of the works. 14.51  Part of these programming skills is to identify whether there is a critical path84 through the works and, if so, where it goes. Sometimes it is obvious – to take a simple contract to build one dwelling house replacing an existing house, you cannot erect walls until you have laid foundations. You cannot lay foundations until the site has been cleared. You cannot knock down the house that is on the site until you have possession. Thus the critical path, at least in the early stages, runs through obtaining possession of the site, knocking down the existing building, laying foundations, building walls. However, if there are two separate dwellings to be built, the path may not be so obvious (eg, is it necessary that one house be constructed before the other?). If there are 100 houses to be built, the assessment of the critical path becomes even more complicated. 14.52  These programming problems have a tendency to interconnect with a legal distinction that is not always made with sufficient clarity. The JCT forms of contract (and their predecessors, the RIBA forms) produced a mentality in the United Kingdom that tended to link extensions of time with recovery of loss and expense, so that if the contractor established that an extension of time was due, the expectation was that the contractor would recover loss and expense for the losses suffered by the contractor during the delay period for which an extension of time was granted. 14.53  However, the legal concepts applicable to the grant of an extension of time and the award to a contractor of losses suffered during a period of delay are distinct.85 In respect of the first, where there are concurrent causes of delay at least one of which is the contractual responsibility of the employer, the prevention principle, as explained above, has the effect that the courts are reluctant to allow the employer to recover liquidated damages in respect of a period of delay that would have been suffered by the employer in any event by reason of matters for which the employer is contractually responsible.

84 One definition of “critical path” is in BS 6079–2.2000, Part 2, paragraph 2.41: “The sequence of activities through a project network from start to finish, the sum of whose durations determines the overall Project duration.” 85 See in this context De Beers UK v Atos Origin IT Services [2010] EWHC 3276 (TCC); 34 Con LR 151 at paragraph [177].

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14.54  The same principle applies to the converse case, where the contractor is claiming recompense for expenses suffered by him during a period of delay. It is offensive to justice for a contractor to recover his standing costs or preliminaries from an employer if he would have incurred those costs in any event because (for example) of his own delays in mobilisation.86 14.55  Thus it is important always to keep in mind who is claiming damages or expenses and who is resisting recovery of such damages or expenses. This distinction can be obscured by the reliance upon programming evidence of the type referred to above. If a computer program is used during a contract to help plan the work, the program will be helpful in reaching a decision as to what needs to be done next in order to attempt to complete the project by the earliest possible date, and in any event (if possible) by any date stipulated in the contract for the whole or sections of the works. But in assessing liabilities after completion of the contract such programming materials can be misleading,87 not least because they concentrate upon establishing the critical path – thus the critical path might be shown as going through section A of the site, but section B may be only days behind on a separate “sub-critical” path. Thus if, for example, the employer manages to show that by reason of his defaults the contractor was likely to finish a year late, this may defeat the contractor’s claim for loss and expense during that year – because the contractor would always have suffered that loss. Even if the evidence shows that because of the employer’s variations the contractor could not have completed less than 364 days late, the contractor should not recover “loss and expense”. On the other hand, the employer’s recovery of liquidated damages should be limited to that measured by one day of delay – being the difference between the contractor’s one-year delay and the employer’s 364-day delay. Moreover, reliance upon computer programs creates a tendency to encourage the view that greater precision as to causes of delay is possible than is truly realistic in the jumble of events that occur for differing reasons on construction projects. 14.56  This is not to say that computer programming evidence has no part to play in presenting or defending a claim for an extension of time – very far from it; the point is simply that the purpose for which such evidence is to be deployed must be kept clearly in mind. The contemporaneous computer programme prepared by the contractor may be very powerful evidence of how the contractor intended to carry out the works. Revisions to that programme may be useful evidence to show the impacts that delays had upon the contractor during the course of the works. Recreation of such a programme may be a useful way for the employer to illustrate that the contractor did not keep to his own programme for reasons that were not of the employer’s making. In Balfour Beatty Construction Ltd v London Borough of Lambeth88 HH Judge Humphrey LLoyd QC said: “By now one would have thought that it was well understood that, on a contract of this kind, in order to attack, on the facts, a clause 24 certificate for non-completion (or an extension of 86 These principles are well understood in the USA where if both parties contribute to overall project delay, neither party can be compensated for associated damages: see, for example, Blinderman Construction Co v United States (1982) 695 F 2d 552 at 559. 87 See for example the criticism made by HH Judge Wilcox QC of evidence given in Great Eastern Hotel Co Ltd v John Laing Construction Co Ltd [2005] EWHC 181 (TCC) at paragraphs [306]–[308]: the defendant’s delay expert “carefully constructed three critical paths starting at the beginning of the project in July 1997 . . . At best they are theoretical constructs identified retrospectively once the project was completed. These are not paths which were identified by either party during the project itself.” 88 [2002] EWHC 597 (TCC); [2002] BLR 288 at paragraph [30].

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time determined under clause 25), the foundation must be the original programme (if capable of justification and substantiation to show its validity and reliability as a contractual starting point) and its success will similarly depend on the soundness of its revisions on the occurrence of every event, so as to be able to provide a satisfactory and convincing demonstration of cause and effect. A valid critical path (or paths) has to be established both initially and at every later material point since it (or they) will almost certainly change. Some means has also to be established for demonstrating the effect of concurrent or parallel delays or other matters for which the employer will not be responsible under the contract.”

14.57  Experience of extension of time disputes reveals proponents for different approaches to analysis of events.89 The United Kingdom Society of Construction Law attempted in 2002 to bring some uniformity to this subject, publishing The Society of Construction Law Delay and Disruption protocol. The first edition did not meet with universal approval: a rider was produced in 2015, followed in February 2017 by a second edition, which addresses many of the concerns about the first edition. In practice, a method of analysis that most closely adheres to the facts rather than highly theoretical approaches tends to find favour with most tribunals. 14.58  An issue that occurs from time to time is who is entitled to any “float” in a contract programme. For example, a contractor entering into a contract with a one-year contract period may plan to complete the work within 11 months – what happens if the employer is guilty of delay eating into that float? There is authority for the proposition that the “float” should be available to the contractor if, absent any express contractual provision, he would become liable to pay liquidated damages if the float were extinguished by preceding employer-risk delays. This principle is supported by the judgment in Royal Brompton Hospital v Hammond.90 The contractor is entitled to an extension of time for a project delay reflecting float in an agreed contract programme if that extension would enable it to avoid paying liquidated damages. 14.59  When the evidence has been heard, and the analysis of the programmers has been considered, it will often then be necessary to consider how to proceed if it is apparent that delay has been caused by both the employer and the contractor. Considering this problem, in Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd91 Dyson J said: “[I]t is agreed that if there are two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event. Thus, to take a simple example, if no work is possible on a site for a week not only because of exceptionally inclement weather (a relevant event), but also because the contractor has a shortage of labour (not a relevant event), and if the failure to work during that week is likely to delay the works beyond the completion date by one week, then if he considers it fair and reasonable to do so, the architect is required to grant an extension of time of one week. He cannot refuse to do so on the grounds that the delay would have occurred in any event by reason of the shortage of labour.”

As a statement of the application of the prevention principle, this was entirely in line with the authorities cited at paragraph 14.31 above: it is to be noted that the contractor in the Henry Boot case was seeking to avoid the application of liquidated damages – accordingly the decision says nothing as to the effect of concurrent causes of delay on a contractor’s claim for recovery of his losses consequent upon alleged delay on the part of the employer. 89 See for example The Great Delay Analysis Debate, SCL Paper 130, March 2006. 90 [2002] EWHC 2037 (TCC); 88 Con LR 1 at paragraph [246]. 91 (1999) 70 Con LR 32 at paragraph [13].

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14.60 In De Beers UK Ltd v Atos Origin IT Services UK Ltd92 Edwards-Stuart J summarised the interrelationship between the employer’s ability to recover liquidated damages and a contractor’s ability to recover damages for delay as follows: “The general rule in construction and engineering cases is that where there is concurrent delay to completion caused by matters for which both employer and contractor are responsible, the contractor is entitled to an extension of time but he cannot recover in respect of the loss caused by the delay. In the case of the former, this is because the rule where delay is caused by the employer is that not only must the contractor complete within a reasonable time but also the contractor must have a reasonable time within which to complete. It therefore does not matter if the contractor would have been unable to complete by the contractual completion date if there had been no breaches of contract by the employer (or other events which entitle the contractor to an extension of time), because he is entitled to have the time within which to complete which the contract allows or which the employer’s conduct has made reasonably necessary. “By contrast, the contractor cannot recover damages for delay in circumstances where he would have suffered exactly the same loss as a result of causes within his control or for which he is contractually responsible.”

14.61  In a Scottish case, City Inn Ltd v Shepherd Construction Ltd,93 Lord Drummond Young, commenting upon Dyson J’s decision, said: “[I]n the application of clause 25, a relevant event may still be taken into account even though it operates concurrently with another matter that is not a relevant event. In other words, the ‘but for’ rule of causation, that an event A will only be a [cause] of a result B if B would not have occurred but for A, has no application. In the example given by Dyson J in para 13, the delay would have occurred as a result of the shortage of labour by itself, regardless of the bad weather. On the approach to causation found in the general law of contract and delict, it could not be said that the bad weather caused the delay because the delay would have occurred in any event. Under clause 25, however, the architect may take the bad weather into account to the extent that he considers it fair and reasonable to do so. This perhaps emphasises the general notion underlying clause 25, that it is designed [to achieve] fairness as between the contractor and the employer, and the architect is given a reasonably wide discretion in order to achieve that result.”

The fairness that the clause is intended to achieve is that the employer should not recover liquidated damages when his own delays would have prevented the project completing on time – it could be said that this is an application of the “but for” test to which Lord Drummond Young referred, but applied to the employer’s claim for liquidated damages. 14.62 In Royal Brompton Hospital NHS Trust v Hammond (No 7)94 HH Judge Seymour QC, having referred to what Dyson J had said in the Henry Boot case, said: “However, it is, I think, necessary to be clear what one means by events operating concurrently. It does not mean, in my judgment, a situation in which, work already being delayed, let it be supposed, because the contractor has had difficulty in obtaining sufficient labour, an event occurs which is a relevant event and which, had the contractor not been delayed, would have caused him to be delayed, but which in fact, by reason of the existing delay, made no difference. In such a situation although there is a relevant event, ‘the completion of the Works is [not] likely to be delayed thereby beyond the Completion Date.’ The relevant event simply has no effect upon the completion date. This situation obviously needs to be distinguished from a situation in which, as it were, the works are proceeding in a regular fashion and on programme, when two things happen, either of which, had it happened on its own, would have caused delay, and 92 [2010] EWHC 3276 (TCC); (2010) 34 Con LR 151 at paragraphs [177] and [178]. 93 [2008] BLR 269 at paragraph 15. Affirmed on appeal – see below. 94 (2000) 76 Con LR 148 at paragraph [31].

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one is a relevant event, whilst the other is not. In such circumstances there is a real concurrency of causes of the delay. It was circumstances such as these that Dyson was concerned with in Henry Boot.”

14.63  This dictum illustrates the importance of being clear as to the principle being applied and the facts to which that principle is being applied. What the judge appears to us to be saying was that if a later event for which the employer is responsible has no effect at all upon a delay already caused by the contractor’s default, no extension of time would be justified in respect of that event: this seems an obvious statement of common sense. Thus, for example, if when the contract is a year in delay the employer issues an instruction for a variation that would have caused a month’s delay to an undelayed contract, the issue of the variation would not entitle the contractor to an extension of time. This is because on the facts the employer does not fall foul of the prevention principle – nothing he did in fact prevented the contractor from completing in time. 14.64  Commenting upon the passage in the Royal Brompton case cited in paragraph 14.62 above, Lord Drummond Young said:95 “In that passage Judge Seymour gave a further explanation of what is meant by ‘events operating concurrently’. He drew a distinction between on one hand a case where work has been delayed through a shortage of labour and a relevant event then occurs and on the other hand a case where Works are proceeding regularly when both a relevant event and a shortage of labour occur, more or less simultaneously. Judge Seymour considered that Dyson J had only been concerned with the latter situation, and not with the former; in the former situation the relevant event had no effect upon the Completion Date. I have some difficulty this distinction. It seems to turn upon the question whether the shortage of labour and the relevant event occurred simultaneously; or at least it assumes that the shortage of labour did not significantly predate the relevant event. That, however, seems to me to be an arbitrary criterion. It should not matter whether the shortage of labour developed, for example, two days before or two days after the start of a substantial period of inclement weather; in either case the two events operate concurrently to delay completion of the Works. In my opinion both of these cases should be treated as involving concurrent causes, and they should be dealt with in the way indicated in clause 25.3.1 by granting such extension of time as the architect considers fair and reasonable.”

If what HH Judge Seymour was contemplating was a situation where two causes operate concurrently but one (for which the contractor is responsible) just happens to commence before the other (for which the employer is responsible) then the author would agree with this criticism of his decision. On appeal to the Inner House this passage of Lord Drummond Young’s opinion was upheld by the majority of the Extra Division of the Inner House96 However, if as is suggested above, HH Judge Seymour was considering a much simpler situation where causes of delay can be separated more definitively, then it may be that the criticism is ill-founded. 14.65  Having reviewed other (older) authorities Lord Drummond Young continued:97 “While delay for which the contractor is responsible will not preclude an extension of time based on a relevant event, the critical question will frequently, perhaps usually, be how long an extension is justified by the relevant event. In practice the various causes of delay are likely to interact in a complex manner; shortages of labour will rarely be total; some work may be

95 City Inn Ltd v Shepherd Construction Ltd (above) at paragraph [16]. 96 [2010] CSIH 68; [2010] BLR 473 at [39]. 97 At paragraph [18].

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possible despite inclement weather; and the degree to which work is affected by each of these causes may vary from day to day. Other more complex situations can easily be imagined. What is required by clause 25 is that the architect should exercise his judgment to determine the extent to which completion has been delayed by relevant events. The architect must make a determination on a fair and reasonable basis. Where there is true concurrency between a relevant event and a contractor default, in the sense that both existed simultaneously, regardless of which started first, it may be appropriate to apportion responsibility for the delay between the two causes; obviously, however, the basis for the apportionment must be fair and reasonable. Precisely what is fair and reasonable is likely to turn on the exact circumstances of the particular case.”

14.66  Soon after it was promulgated, the decision of Lord Drummond Young was criticised in so far as it might be suggested that it represents the law of England98 (a similar suggestion had been made in an earlier Scottish case, Laing Management (Scotland) Ltd v John Doyle Construction Ltd99) – in particular it has been said to be inconsistent with Peak v McKinney and the Henry Boot case. Three first instance decisions have now refused to follow the City Inns apportionment approach as it is not the law of England.100 On the other hand City Inn has been followed in a case in Hong Kong.101 14.67  The decision of the Lord Ordinary, Lord Drummond Young, was appealed:102 his decision was upheld on appeal. After a review of the authorities, Lord Osborne said:103 “In the first place, before any claim for an extension of time can succeed, it must plainly be shown that a relevant event is a cause of delay and that the completion of the works is likely to be delayed thereby. In the second place, the decision as to whether the relevant event possesses such causative effect is an issue of fact which is to be resolved, not by the application of philosophical principles of causation, but rather by the application of principles of commonsense. In the third place, the decision-maker is at liberty to decide an issue of causation on the basis of any factual evidence acceptable to him. In that connection, while a critical path analysis, if shown to be soundly based, may be of assistance, the absence of such an analysis does not mean that a claim for extension of time must necessarily fail. In the fourth place, if a dominant cause can be identified as the cause of some particular delay in the completion of the works, effect will be given to that by leaving out of account any cause or causes which are not material. Depending on whether or not the dominant cause is a relevant event, the claim for extension of time will or will not succeed. In the fifth place, where a situation exists in which two causes are operative, one being a relevant event and the other some other event for which the contractor is to be taken to be responsible, and neither of which could be described as the dominant cause, the claim for extension of time will not necessarily fail. In such a situation, which could, as a matter

 98 See the editorial in [2008] BLR 270–271; Jeremy Winter, How Should Delay be Analysed – Dominant Cause and its Relevance to Concurrent Delay, SCL Paper 153. By contrast Dr Mastrandrea in Concurrent Causation in Construction Claims [2009] ICLR 75 at 96 has commented: “Although the decision has generated a flurry of excitement, this seems unwarranted. Thus, a direction to equivalent effect had been set out more than 25 years earlier in the judgment of Salmon LJ in relation to the evaluation of delays, some of which were and some of which were not the subject of extension of time provisions in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd.” In The Evolution of Global Claims and Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2005] ICLR 212 at 242 James Perry comments upon the American courts’ differing approaches to apportionment.  99 [2004] BLR 295. 100 Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm); Walter Lilly v Mackay [2012] EWHC 1773 (TCC); [2012] BLR 503 at paragraph 370; Saga Cruises BDF Ltd v Fincantieri SPA [2016] EWHC 1875 (Comm). 101 W Hing Construction Co Ltd v Boost Investments Ltd [2009] HKCU 221; [2009] BLR 339 at paragraph [61]. 102 City Inn Ltd v Shepherd Construction Ltd [2010] CSIH 68; [2010] BLR 473. 103 At paragraph [42].

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of language, be described as one of concurrent causes, in a broad sense. . . ., it will be open to the decision-maker, whether the architect, or other tribunal, approaching the issue in a fair and reasonable way, to apportion the delay in the completion of the works occasioned thereby as between the relevant event and the other event. In that connection, it must be recognised that the background to the decision making, in particular, the possibility of a claim for liquidated damages, as opposed to one for extension of time, must be borne in mind and approached in a fair and reasonable manner.”

14.68  In the most recent decision on the topic in England, the learned deputy judge referred to the decision of Hamblen J in Adyard Abu Dhabi v SD Marine Services104 and said:105 “[Adyard] lays out some of the important groundwork for any such analysis. In particular the learned judge: adopts from John Marrin QC’s analysis of Concurrent Delay in (2002) 18 Const LJ no 6 436 the proposition that concurrent delay is ‘a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal potency’ (see also Keating on Construction Contracts 10th ed 8–025); ii) highlights the importance in concurrency arguments of distinguishing between a delay which, had the contractor not been delayed would have caused delay, but because of an existing delay made no difference and those where further delay is actually caused by the event relied on: ‘There is only concurrency of both events in fact cause delay to the progress of the works and the delaying effect of the two effects is felt at the same time’ (paragraph 279 and see also Royal Brompton paragraph 31); iii) notes the parallel reasoning in the prevention principle cases which establish that ‘The act relied on must actually prevent the contractor from carrying out the works within the contract period or, in other words, must cause some delay’ (paragraph 282); iv) soundly rejects the idea of reliance on ‘notional or theoretical delay’ as contrasted with proof that the event or act causes actual delay to the progress of the works (paragraph 264).” i)

14.69  Put shortly, the effect of the authorities in English law is that a tribunal will seek to determine what is the actual cause (or causes) of delay. A tribunal will not resort to apportionment. However, it may be that in cases where numerous causes are very difficult to disentangle, some being to the account of the employer and some to the account of the contractor, a tribunal under English law might resort to apportionment rather than refuse to grant any extension of time. None of the English cases have yet had to consider such a case, which is likely to be highly exceptional, and would require the authorities referred to above, particularly the Walter Lilly decision, to be distinguished, not followed, or overruled. Deduction of liquidated damages 14.70 Most carefully drawn construction contracts contain a provision entitling the employer to deduct liquidated damages from sums otherwise due, often after the issue of a certificate such as a certificate of non-completion provided for under clause 24.1 of the 1998 JCT Standard Form of Building Contract Private with Quantities. The issue of such a certificate will often be a condition precedent not only to deduction of liquidated damages 104 [2011] EWHC 848 (Comm). 105 Saga Cruises BDF Ltd v Fincantieri SPA [2016] EWHC 1875 (Comm) at paragraph [249].

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but also to recovery of liquidated damages at all.106 However the failure of an engineer or contract administrator to operate an extension of time mechanism may not of itself debar an employer from deducting liquidated damages.107 In one case on a contract based on the FIDIC “Red Book” form of contract but containing significant modifications from the standard form, it was held that a certificate of the engineer was not required as an essential precondition for the deduction of liquidated damages.108 In contrast, the absence of a Contract Administrator’s certificate of non-completion under the JCT Intermediate Building Contract (IC 2011) was held fatal to an employer’s claim to deduct liquidated damages.109 14.71  In cases to which the Housing Grants, Construction and Regeneration Act 1996 applies, it will also be necessary for the employer to give a “withholding notice” complying with section 111 of that Act.110

106 See paragraph 14.46 above. 107 Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC). 108 J Murphy & Sons Ltd v Beckton Energy Ltd [2016] EWHC 607 (TCC); [2016] BLR 448. 109 Octoesse LLP v Trak Special Projects Ltd [2016] EWHC 3180 (TCC); [2017] BLR 82. 110 See in this context Reinwood Ltd v L Brown & Sons Ltd [2008] UKHL 12; [2008] BLR 219.

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CHAPTER  15

Recovery of damages and costs 15.1  One person’s breach of contract or tort will often cause another to incur legal liability to a third party – for example in a simple chain of contracts where A is the employer under the main contract with B, and B subcontracts to C, C’s breach of his subcontract with B may place B in breach of his main contract with A. This chapter considers the circumstances in which losses consisting of a liability to pay damages to a third party or costs of third party proceedings may be recovered. This raises a number of procedural issues as well as issues of substantive law. The simplest case: straightforward third party (Part 20) proceedings 15.2  Conceptually and procedurally the easiest category of cases are claims under a chain of back-to-back contracts that are dealt with by third party proceedings under Part 20 of the Civil Procedure Rules in the High Court in England or Wales (or similar procedures in other courts). 15.3  To take a simple example: assume that there is a main contract to build a house. The main contractor employs a plumber to install a basin. The plumber does his work negligently so that water escapes causing damage. The householder sues the main contractor for breach of contract in that the basin was not installed with due skill and care. In this situation the main contractor wants to be sure that, if he is found liable, the plumber reimburses him for any monies that he, the main contractor, is obliged to pay to the householder. 15.4  The simplest way of achieving this is for the main contractor, who in this example is the defendant at the suit of the claimant householder, to join the plumber to the proceedings by way of Part 20 proceedings. The court will make directions for the conduct of the main proceedings (between householder and main contractor) and of the Part 20 proceedings (between main contractor and plumber). The court will normally direct that the Part 20 defendant (the plumber) can attend at the trial of the main action and take such part in those proceedings as may be appropriate, and that the Part 20 defendant will be bound by the result of the main proceedings. Thus, to elaborate the example given, the plumber may say that he installed the basin correctly, but the householder blocked the basin thus causing the escape of water. The same judge will decide the main proceedings (considering whether what the plumber says exonerates the main contractor from liability under the main contract) and the Part 20 proceedings (considering whether what the plumber says exonerates the plumber from liability under the subcontract). 15.5  If the two sets of proceedings were not joined in this way, it would be possible that the main contractor would fight the main proceedings not knowing of the potential defence available through the subcontractor and being found liable to the householder, but not being able to recover those damages from the subcontractor when the plumber reveals all in the Part 20 proceedings (where the householder might well not be present to gainsay 205

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the plumber’s story). With the two actions joined, in this simple example where the main contractor has not himself been responsible for the problem save that he is contractually liable to the householder for his subcontractor’s errors, the main contractor will be able to deploy against the householder any defence that the plumber may come up with; and if that defence fails, will be able to pass on the liability to the plumber. 15.6  In this example the judge has a full discretion to order the costs to be paid by whichever of the parties before the court the judge thinks should bear them. 15.7  This is the simple example: there are a number of variants of this simple example that need to be considered. First, the problem that gives rise to the main contractor’s liability to the householder may not have been exclusively the plumber’s fault; in certain situations the plumber’s liability to the main contractor can be reduced for the main contractor’s contributory negligence (see paragraphs 11.23–11.29 above). In this situation, Part 20 proceedings would allow not only the main contractor’s liability to the householder but also the relative blameworthiness as between the main contractor and the plumber to be determined by the same judge at the same time, which in most cases will be the most economical way of resolving such disputes. 15.8 Greater complications can arise when the defendant in the main action wishes to pass on his potential liability to more than one third party. This is far from being an unusual situation in building disputes. To return to the example of a householder who has a main contract with a contractor, in this case a contract for the main contractor to erect a new dwelling house. Assume that after the house has been handed over by the main contractor to the householder, the householder claims that there are numerous defects, for example some affecting the brickwork, some affecting the plumbing and some affecting the electrics. In this situation Part 20 proceedings can be commenced by the main contractor against each of the responsible subcontractors (bricklayer, plumber and electrician) so as to pass on any liability that the main contractor may be under to the householder to the responsible subcontractors. 15.9  This procedure will also enable any disputes between each of the third parties to be determined. To take a variant on the above example, assume that the householder’s claim is for delay in completion of the house, as a result of which the householder has suffered loss. In the main proceedings it may be that the main contractor (and possibly also the subcontractors) may allege that part of the delay to completion was caused by the householder’s own fault (for example by providing designs late or by delaying access to the site). In the main proceedings the judge can determine what delay was caused, and whether any part of that delay is the main contractor’s contractual responsibility (eg, the judge might decide that out of 20 weeks delay in completion, ten was the employer’s responsibility and ten the main contractor’s responsibility) under the main contract as between the householder and main contractor. Usually directions would have been given for each of the Part 20 defendants to take such part in the proceedings as the court regarded as appropriate and for each of them to be bound by the result of the main proceedings. The main contractor could then claim against the third parties – thus it might be said that the plumber caused four weeks of the ten-week delay for which the main contractor has been held liable. The plumber might then in turn contend that his works were delayed, but that delay was in turn caused by the bricklayer being late with his works. All these disputes and cross-allegations could then be disposed of within the same set of associated proceedings. 206

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15.10 This is conceptually simple in cases where all parties are brought within the umbrella of proceedings under the control of one court. However the situation is often not that simple. Passing on a claim for damages awarded in previous court proceedings to which the new defendant was not a party 15.11  The situation now considered is that where a party seeks to recover from another party damages awarded in previous proceedings to which the proposed payer was not a party. The late Mr Harvey McGregor QC’s1 references to the “now claimant” and the “now defendant” to identify the parties in which such recovery is sought is gratefully adopted. 15.12  It is well established that a now claimant can claim damages from a now defendant in respect of damages awarded in previous proceedings to which the now defendant was not a party. As with any other claim for damages, the now claimant must establish a cause of action. If the claim is in contract, the now claimant must establish the now defendant was in breach of contract and that the breach of contract resulted in the now claimant being held liable in damages to the claimant in the previous proceedings. He must also overcome the hurdle of establishing that the loss was not too remote to be recoverable (for a general discussion of this topic see Chapter 8 above). In Hammond v Bussey,2 the defendant sold coal to the plaintiff knowing that the plaintiff intended to re-sell it for use in steamers. The plaintiff did re-sell it, was successfully sued by his sub-buyer on account of its bad quality, and then himself brought an action against the now defendant to recover the damages he had paid to the third party and the costs of defending the action. The Court of Appeal held that the parties must have contemplated that a subsale would be made, since the rule in Hadley v Baxendale3 would apply to the case of a subcontract that within the knowledge of the defendant was in the ordinary course of business sure to be made so that a breach by the seller would mean a claim against the buyer by his sub-buyer. 15.13  It is possible to contemplate cases where the application of principles of remoteness to construction cases might prevent recovery of damages in previous proceedings as damages in later proceedings. An example might be where some product normally used in a different commercial application is used for an unusual application in a construction project. Alternatively it may be that a supplier does not have sufficient knowledge of the types of losses likely to flow from his breach to be made liable for liability later incurred by his customer: for example a builder’s merchant fulfilling an order for a supply of bricks to a building contractor might well be held not to have had in contemplation that the bricks would be used in a commercial building so that delay in delivery of the bricks might render the builder liable to the employer under a building contract for liquidated damages representing agreed liability for delay causing the employer loss of rent. In such a case, were the builder to be held liable to the employer for such damages, he would probably not be able to recover those damages from the brick supplier unless he had drawn to the supplier’s  1 McGregor on Damages, 17th edition, 2003, chapter 17.   2 (1880) 20 QBD 79.   3 (1859) 9 Ex 341.

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attention this potential risk (in which event the supplier would have been able to consider excluding or limiting his liability by agreement under the supply contract). Paragraphs 15.19–15.21 below deal with a particular aspect of remoteness that arises where damages sought to be recovered are damages previously awarded by a foreign court. 15.14  If the now claimant’s cause of action is in negligence, then the now claimant would have to show that the duty of care owed by the now defendant extended to preventing or avoiding the now claimant incurring such damages – this might well be a difficult task as such damages would constitute economic loss, with all the restrictions upon recoverability discussed in Chapter 12 above. 15.15  Whether the claim be in the tort of negligence or in another tort,4 it would be necessary for the now claimant to establish that the liability in damages was a foreseeable consequence of the tort – that is, that it was foreseeable that the claimant might become involved in legal proceedings with a third party.5 15.16  It is suggested that the number of cases in which a claim to recover damages in previous proceedings as damages in tort in later proceedings in connection with construction proceedings are likely to be few and far between because in most cases the parties’ relationship will be governed by a contract or subcontract. “Claims over” are likely to be passed up and down the contractual chain. 15.17  The fact that the now defendant was not joined as a third party/Part 20 defendant to the previous proceedings in which the damages were awarded is not in itself a bar to the now claimant recovering those damages in a claim against the now defendant. This may have come about by a deliberate choice on the part of the now claimant; because for some reason that is not the responsibility of the now claimant, it was not possible to join the now defendant to the previous proceedings: for example, because the first set of proceedings have to be heard in a foreign jurisdiction and the later proceedings in England. If the now claimant could have joined the now defendant to the earlier proceedings, the now claimant may find it gets little sympathy if the now defendant points to steps that could have been taken, evidence that could have been adduced or arguments that could have been advanced in the earlier proceedings that would have avoided or reduced the liability that the now claimant seeks to reflect in damages in the later proceedings. Such arguments may persuade the court in the later proceedings that the chain of causation between the now defendant’s breach of contract or tort and the judgment against the now claimant in the previous proceedings has been broken. 15.18  On the other hand, if this step (bringing in the now defendant as Part 20 defendant/third party in the original proceedings) was not an available option to the now claimant in the previous proceedings (whether in previous proceedings in England or overseas) the court hearing the later proceedings will be less attracted by the now defendant arguing that points were open to the now claimant in the earlier proceedings that would have prevented liability being established in those proceedings against the now claimant.   4 Other than the tort of deceit: see KBC Bank v Industrial Steels (UK) Ltd [2001] 1 Lloyd’s Rep 370 at 376–377.   5 See for example the cases of infringement of intellectual property – Morton-Norwich Products v Intercen (No 2) [1981] FSR 337 (infringement of patent) and Dormeuil Frères v Feraglow [1990] RPC 449 (infringement of trade mark).

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Recovery of damages awarded by a foreign court 15.19  One factor relating to foreign judgments but not to English awards of damages of relevance to the matters considered in this chapter is a particular aspect of remoteness. It can happen that the basis upon which a foreign court awards damages is different from the basis upon which an English court awards damages. In Die Elbinger AG v Armstrong,6 the defendant agreed to supply the plaintiffs with a quantity of wheels and axles. At the time of the agreement the plaintiffs were under a contractual obligation to supply similar goods to a Russian company. That contract contained a penalty clause in the event of delay. The defendant knew about that contract but neither the precise day of delivery nor the penalty clause was brought to his attention. As a result of delay in delivery by the defendant, the plaintiffs became liable to pay a penalty to the Russian company, which they agreed between them at £100 13s. The plaintiffs brought an action against the defendant for delay and claimed the £100 13s by way of damages. The trial judge directed the jury to enter a verdict for £100 13s. The matter came before the Court of the Queen’s Bench on the issue of whether the plaintiffs were only entitled to nominal damages. It was argued that the loss was too remote – this was rejected on the basis that the natural and almost inevitable consequence of the delay was that the plaintiffs would suffer loss. Blackburn J said:7 “We have had more difficulty in determining whether the plaintiffs are entitled to keep the verdict for the amount as it stands. If we thought that this amount could only be come at by laying down as a proposition of law that the plaintiffs were entitled to recover the penalties actually paid to the Russian company, we would pause before we would allow the verdict to stand.”

He continued, a little later:8 “As the plaintiffs did not actually lose more than a rouble a day, which they paid, that forms the extreme limit of the damage they can recover, for they are not entitled to make a profit out of the defendant’s default. Had the amount of damages been actually left to the jury, the question would have been whether the defendants were liable for as much. If the judge had told the jury expressly that the penalties as such could not be recovered, but that the plaintiffs were entitled to such damage as in their opinion would be fair compensation for the loss which would naturally arise from the delay, including therein the probable liability of the plaintiffs to damages by reason of the breach through the defendant’s default of that contract to which, as both parties knew, the defendant’s contract with the plaintiffs was subsidiary, the direction would not, at all events, have been too unfavourable to the defendant.”

Having cited this passage, Clarke J commented in The Sargasso:9 “The Court appears to have thought that the jury should have been told that the amount settled could not be recovered as such but that it would be for the jury to arrive at fair compensation with an upper limit of the amount of the settlement. It is not however clear how the jury were to arrive at what was fair compensation or what role the amount agreed was to play in their consideration.”

  6 (1874) LR 9 QB 473.   7 At pages 477–478.  8 At 479.  9 Stargas SpA v Petredec Ltd (“The Sargasso”) [1994] 1 Lloyd’s Rep 412 at 420.

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15.20  Die Elbinger AG v Armstrong10 was considered by the Court of Appeal in Grebert-Borgnis v J & W Nugent.11 In that case the defendants contracted to sell goods to the plaintiff. When the contract was made, the defendants knew that except as to price the terms of the contract were the same as the terms of a contract that the plaintiff had entered into with a French customer. The defendants were in breach of contract with the result that the plaintiff was in breach of his contract with his French customer. As a result, the plaintiff was held liable by a French court to pay £28 damages to their customer. The trial judge (Denman J) awarded the plaintiff the £28. On appeal the defendants argued that the sum of £28 should not have been awarded on the ground that there was no case in which penalties had been recovered by way of damages. Commenting upon Die Elbinger AG v Armstrong, Brett MR said that the exact amount of the penalties had not been made known to the defendant but that it had been made known that if the defendant broke his contract the plaintiff would be bound to pay damages to his customer. He said:12 “Therefore the Court said, the defendant must pay damages; then how were they to be ascertained? The Court said, you must not take the amount of penalties which the plaintiff has been made to pay in Russia, and say the law thereupon determines the amount of the damages, but the Court allowed the jury to look to the amount of penalties as a circumstance to regulate them in finding what it was reasonable the defendant should pay the plaintiff . . . Now apply that to the present case. Here the defendants knew that there was a sub-contract with a person in France, and they knew the terms of such contract to the extent that there were to be deliveries at different times . . . What must they then have known, as men of business, but that if the plaintiff did not supply the skins . . . to his customer in France, the plaintiff would have to pay damages to that customer. How then was Denman J to estimate the damages? He himself acted upon the rule which to my mind is expressly laid down in Elbinger AG v Armstrong. He said he must not take the damages given by the French Court and say, as a matter of law, those were the exact figures he must give; but he said that he came to the conclusion that in all probability the French Court did that which was reasonable, and that, therefore he should take that into account, and as a matter of fact find that sum as the reasonable amount of damages. I think he was entitled to do that, and that so far from going against any case, he has followed Elbinger AG v Armstrong.”

15.21  Where the now claimant is seeking to recover damages awarded in previous proceedings in a foreign court as damages for breach of contract, the following principles would apply: (1) The claimant must establish that the award of damages in a foreign court was caused by a breach of contract on the part of the now defendant. (2) The claimant must establish that it was within the reasonable contemplation of the parties at the time of entering into the contract that breach of contract on the part of the now defendant might result in a claim for damages being brought against the now claimant. (3) If it was brought to the now defendant’s attention (or if he ought to have known by reason of custom in a particular trade or business) that if there was a breach of contract on his part the now claimant was liable to be held liable to a third party for damages on a basis different from the basis upon which an English court

10 Above. 11 (1885) 15 QBD 85. 12 At 91–92.

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would assess damages, damages assessed on that different basis would not be too remote to be recoverable in the later proceedings.13 (4) However if that different basis of damages was not within the reasonable contemplation of the parties at the time that the contract was entered into, then the amount awarded by the foreign court will not in itself form the basis of assessment of damages in later proceedings between the now claimant and the now defendant, but the now claimant can recover a reasonable sum by way of damages assessing that reasonable sum by reference to the measure of damages recoverable had the original proceedings against the now claimant been brought in English rather than foreign proceedings. (5) The award of damages by the foreign court will set a ceiling upon the damages that the now claimant can recover from the now defendant in later proceedings. Passing on a claim for damages awarded in a previous arbitration to which the new defendant was not a party 15.22  It is a commonplace for construction contracts to provide for disputes arising out of such disputes to be resolved by arbitration. Generally where such disputes are resolved by arbitration, the proceedings are bipartite and there is no provision for a third party to be joined to the proceedings. There is, however, an increasing trend for contracts to contain arbitration clauses that enable related disputes to be heard by the same arbitrator.14 15.23  The circumstances in which liability under an arbitration award can found a claim for damages in later proceedings was considered by Clarke J in The Sargasso,15 to which reference has already been made. His decision was in the context of back-to-back shipping charter-parties, but the same principles would apply to claims under a chain of contract, subcontract and sub-subcontract under a construction contract. He said:16 “It seems to me that where the breach of the two charter-parties is proved to be the same and the arbitrators have held the charterer to be liable to a sub-charterer in a particular amount the better view as a matter of principle is to say that the cause of the liability so determined was the breach of the charter-party. Any other conclusion would or might cause injustice to the charterer because the charterer may not have available evidence which is available to the owner or disponent owner. On the other hand the conclusion which I have reached does not seem to me to be unjust to the owner or (in this case) disponent owner because if he has available relevant evidence which will assist the charterer in his defence to the sub-charterer’s claim he can make it available to him. If for some reason he does not and the charterer acts reasonably throughout, the charterer should in my judgement be able to pass his liability to the owner. That is in my judgment so even if it can later be shown that the arbitrators have made an error of fact or law. It does not seem to me that such an error should be held to break the chain of causation between the breach of contract and the loss sustained by the charterer as quantified 13 The author cannot point to authority which expressly endorses this proposition, but it is suggested that it follows from the application of the second rule in Hadley v Baxendale, and appears to be implicit from the authorities to which reference has been made. 14 Such clauses were considered by HH Judge Humphrey LLoyd QC in Trafalgar House Construction (Regiod) Ltd v Railtrack plc (1995) 75 BLR 55, particularly at pages 85–86, and by Jackson J in City &General (Holborn) Ltd v AYH plc [2005] EWHC 2494 (TCC); [2006] BLR 55. For an example of such a clause, see rule 3 of the JCT Construction Industry Model Arbitration Rules (“CIMAR”) published in 2005. 15 Stargas SpA v Petredec Ltd (“The Sargasso”) [1994] 1 Lloyd’s Rep 412. 16 At page 417.

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by the arbitrators unless the charterer has failed to mitigate his loss (as for example by failing to adduce evidence which was or ought to have been available to him or to advance a defence available to him in law or perhaps to make an application for leave to appeal or for remission to enable him to adduce fresh evidence before the arbitrators) or unless the arbitrators have acted perversely or have reached a conclusion which no reasonable arbitrators could have reached on the evidence before them. In any other case the breach of charter-party remains an effective cause of the charterer’s loss even if it can be said that there was another cause of the loss, namely an error made by the arbitrators. The position would of course be different if it was not reasonably foreseeable that the liability of the charterer to the sub-charterer would be ascertained in a particular way, as for example by arbitration in some wholly unexpected forum.”

15.24  Accordingly, where in a construction context one party to a chain of contracts has been held liable at arbitration to a third party (eg, where the main contractor is held liable to the employer), that liability can be passed down the contractual chain by way of awards of damages in arbitration or litigation between main contractor and subcontractor and onwards down the chain. That recovery will be prevented if the award of damages at any one strand in the chain is held not to have been reasonably foreseeable to the parties at a lower strand in the chain, or if the chain of causation is broken by a failure of the party found liable in the earlier arbitration to take reasonable steps in defence of that earlier arbitration. 15.25  In order to prevent a party lower down the contractual chain arguing that an arbitration was not defended with reasonable care, it is always sensible for the assistance of a party upon whom the ultimate liability for damages may be said to rest to be given an opportunity to assist with the defence of the higher level arbitration. 15.26  This is not without complications: the precise ambit of confidentiality in arbitration is an evolving area of the law. There have been cases where courts have ruled that confidentiality in an arbitration prevents the materials generated in that arbitration being used for the purposes of later proceedings;17 however the better view in English law is that disclosure will be ordered where it is reasonably necessary for the purposes of establishing a cause of action against a third party.18 Recovery of monies paid in settlement of an earlier claim 15.27  Thus far what has been considered have been cases where what the now claimant seeks is damages in respect of liability established by a definitive judgment of a court (in England or elsewhere) or by an arbitral award. However in very many cases what the now claimant seeks to recover is a sum paid in reasonable compromise of earlier proceedings either threatened or anticipated on the one hand, or commenced but concluded by compromise on the other hand. These cases give rise to some particular problems that have troubled the courts.19 17 Dolling-Baker v Merrett [1990] 1 WLR 1205; Ali Shipping Corporation v Shipyard Trogir [1999] 1 WLR 314. See by contrast Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of Zurich [2003] UKPC 11; [2003] 1 WLR 1041. For recent decisions in favour of disclosure of arbitration awards, see Teekay Tankers Ltd v STX Offshore & Shipbuilding Ltd [2017] EWHC 253 (Comm) and Symbion Power LLC v Venco Imtiaz Construction Company [2017] EWHC 348 (TCC). 18 Per Colman J in Hassneh Insurance Co of Israel v Steuart JMew [2003] 2 Lloyd’s Rep 243. See the discussion by Burn and Pearsall in Exceptions to Confidentiality in International Arbitration at pages 28–30 of Confidentiality in Arbitration, ICC 2009 Special Bulletin, 2009. 19 The author acknowledges with gratitude the assistance derived from Coulson J’s paper, Catching Water in a Net: The Elusive Concept of ‘A Reasonable Settlement’ SCL Paper 149, September 2008.

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15.28  The starting point in this area of the law is the Court of Appeal decision in Biggin & Co Ltd v Permanite Ltd.20 The plaintiff bought from the defendant 2,300 tons of a form of bituminous adhesive called Permasec. The defendant knew that the plaintiff had bought this in order to sell it on to the Dutch government. The product proved to be unsatisfactory – although it had been sold on the basis that it could be applied cold, when applied by the end user in the winter the results were “unsatisfactory”. The Dutch government claimed damages and withheld payment for other goods sold to them by the plaintiff. The government refused to submit to the jurisdiction of the English courts, but consented to the dispute being submitted to arbitration in England. Acting on legal advice, the plaintiff settled the case agreeing to pay the Dutch government £43,000 and the cost of the proceedings. The plaintiff claimed to recover this amount from the defendant. The highly respected trial judge, Devlin J, ruled that the settlement was wholly irrelevant and that evidence of the settlement was inadmissible. 15.29  The plaintiff argued that, if it could be shown that a settlement had been made under competent advice and if the advisers were submitted to cross-examination, that was enough. This argument might be thought to have a considerable attraction: the plaintiff found itself in arbitration by reason solely of the defendant’s breach of contract. So long as the plaintiff entrusted defence of the arbitration proceedings to competent advisers, it might be thought that the defendant would have little reason to complain. If, but only if, the advisers proved not to be competent might the chain of causation be said to be broken. Such might be thought to be a simple, just and therefore compelling solution, but that is not how the law has developed. The Court of Appeal rejected that argument.21 15.30  The first judgment was given by Somervell LJ. He referred22 to Grebert-Borgnis v Nugent,23 from which he derived the propositions: first, that whatever had been paid in respect of the previous proceedings was the ceiling upon what the now claimant could recover from the now defendant; and, secondly, that the court had to consider whether what had been paid to the other party in the original proceedings was a reasonable sum. He continued24 by recording a concession on the part of the plaintiff’s counsel that “it is open to the defendant to show that the plaintiff was not liable to pay anything, and therefore could not say that what he did pay was a sum which he could recover against the defendant”. That concession may have been unfortunate for the later development of the law. It might be thought that so long as the now claimant acted reasonably in the original proceedings it would be irrelevant whether the judge in the later proceedings thought that had the earlier proceedings gone to trial the now claimant would have avoided liability. What (it might be thought) mattered was that the now defendant had exposed the now claimant to a risk which the now claimant had reasonably valued and settled. 15.31  Somervell LJ said:25 “I think that the judge here was wrong in regarding the settlement as wholly irrelevant. I think, though it is not conclusive, that the fact that it is admittedly an upper limit would lead to the 20 [1951] 2 KB 314. 21 In this rejection, there is parallel development of the law in this regard with the approach of the courts where a claimant relies upon independent advice as to what remedial scheme to adopt – see paragraphs 9.16–9.19 above. 22 At 319. 23 Footnote 11 above. 24 At 320. 25 At 321.

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conclusion that, if reasonable, it should be taken as the measure. The result of the judge’s conclusion is that the plaintiffs must prove their damages strictly to an extent to show that they equal or exceed £43,000; and that if that involves, as it would here, a very complicated and expensive inquiry, still that has to be done. The law, in my opinion, encourages reasonable settlements, particularly where, as here, strict proof would be a very expensive matter. The question, in my opinion, is: what evidence is necessary to establish reasonableness? I think it relevant to prove that the settlement was made under advice legally taken. The client himself could do that, but I do not think that the advisers would normally be relevant or admissible witnesses. I say ‘normally’. It may be that in special cases they might be. The plaintiff must, I think, lead evidence, which can be cross-examined to, as to facts which the witnesses themselves prove and as to what would probably be proved if, as here, the arbitration had proceeded, so that the court can come to a conclusion whether or not the sum paid was reasonable. The defendant may, by cross-examination, as was done here, seek to show – and perhaps successfully show – that it was not reasonable. He may do so, or call evidence which leads to the same conclusion. He might in some cases show that some vital matter has been overlooked.”

15.32  The other full judgment in the case was that of Singleton LJ. He said:26 “The claim of the plaintiffs was for damages. They said that the damages should be the sum of £43,000, the amount of the settlement, which they claimed was reasonable. They did not ask for more. The plaintiffs must prove their loss. It is not enough for them to say: ‘We were advised to settle for £45,000, we did so, and we now claim that sum.’ Before the court can award a sum as damages, there must be evidence on which it can act. Therefore, in a case such as this, the plaintiffs must call evidence to establish their case. If the evidence which they call satisfies the judge or jury that the settlement was a reasonable one, the damages awarded will be the amount of the settlement and the costs reasonably incurred. I do not think that any good purpose is served by calling counsel who advised the settlement to say that he did so advise, even if the evidence is admissible. It could only be followed by questions why he so advised, and that would be asking him to do the work of the judge. Moreover, the duty of the judge at the trial is to determine the damages; and the facts proved before him might be quite different from those known to counsel at the time of his advice to settle for so much. The trial judge must make up his own mind on the facts he finds proved before him. At the same time, I am far from saying that a settlement ought to be disregarded. No one can think that a person or a company will agree to pay £43,000 damages lightly. It is a matter for consideration that the settlement was arrived at under advice, the more so as the party settling may be quite uncertain as to whether he can recover anything against someone else. If, upon the evidence, the judge is satisfied that the damages would be somewhere around the figure at which the plaintiffs had settled, he would be justified in awarding the settlement figure. I do not consider that it is part of his duty to examine every item in those circumstances. The plaintiffs put forward their claim and call evidence to establish it. The defendants have an opportunity of cross-examining the plaintiffs’ witnesses and of calling evidence themselves. The plaintiffs must establish a prima facie case that the settlement was a reasonable one. If the defendants fail to shake that case, the amount of the settlement can properly be awarded as damages. The position is much the same, though perhaps not quite so strong, as in a case in which damages have been assessed in a suit between other parties involving the same facts. The judgment is not binding, but the court will not lightly disregard it in the absence of fresh evidence or new factors . . . The question is not whether the plaintiffs acted reasonably in settling the claim, but whether the settlement was a reasonable one; and, in considering it, the court is entitled to bear in mind the fact that costs would grow every day the litigation was continued.”

15.33  The approach of the Court of Appeal was far more satisfactory than that of the trial judge, who would not have regard to the settlement at all, but it could not be regarded 26 At 323–324.

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as necessarily fair. On the basis of the dicta in the case, if the now claimant, placed in a position of facing litigation as a result of the now defendant’s breach of contract, settled the previous litigation on the basis of what is then known to him, it appeared to be open to the now defendant to deploy evidence or arguments not in the knowledge of the now claimant at the time of settlement to defeat the later claim for damages. This might have been thought to be an unjust allocation of the risks of the successive proceedings. The decision in Biggin v Permanite has been the starting point for all the later decisions. Happily, as will be seen, in those later decisions the courts have moved away from the rigidity and potential injustice of a strict application of the reasoning in that case. 15.34  It was many years before the Court of Appeal was asked to consider the principle in Biggin v Permanite again. In 1976 an ambitious attempt was made to persuade the Court of Appeal that a settlement of a main action relieved the defendant in the original proceedings of the obligation to prove liability as between the defendant and a third party.27 Megaw LJ rejected that suggestion saying28 that Biggin v Permanite “is most certainly not an authority for the proposition that a settlement made between A and B, however reasonable it may be from the point of view of A and B, can affect the position of C, who is not a party to that settlement and who has not assented to it, in respect of an issue as to C’s liability to B”. Although the argument was understandably rejected, the case illustrates a problem that recurs, namely that a party willing to settle proceedings involving numerous parties may be commercially infuriated by one out of the many parties refusing to join in reasonable and sensible settlement discussions, thus putting the defendant willing to settle in the position that he has a choice either of settling and later being told by a court that the settlement was ill-founded in fact or law, or going through the inconvenience and expense of contesting proceedings to which he is pretty sure (but may not be certain) there is no defence. This recurrent problem has been much mitigated by the prevalence of mediation. 15.35  There is a group of cases in which it proved necessary to analyse the judgments in Biggin v Permanite in order to decide to what extent advice given at the time of the settlement could be investigated and what evidence can be admitted about the circumstances leading to the settlement. An important decision in the House of Lords, Rush & Tompkins Ltd v Greater London Council,29 held that offers of settlement are the subject of without prejudice privilege and therefore cannot be disclosed to third parties save by agreement of all parties to the relevant without prejudice negotiations (the privilege being that of any parties to such offers, so that no one party would have the right to waive privilege unilaterally) or in certain other circumstances designed to avoid abuse of the without prejudice process.30 The effect of this is that evidence as to what might be regarded as an important factor in deciding whether a settlement was reasonable, namely offers and counter-offers in negotiations leading to a settlement, will often not be available.

27 Fletcher & Stewart Ltd v Peter Jay & Partners and others (1976) 17 BLR 38. 28 At 43. 29 [1989] AC 1280; 43 BLR 1, discussed by the Supreme Court in Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44; [2011] 1 AC 662. 30 Discussed by Robert Walker LJ in Unilever plc v The Proctor & Gamble Co [2000] 1 WLR 2436 at pages 2444–2446 cited by Lord Clarke of Stone-cum-Ebony JSC in Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44; [2011] 1 AC 662 at paragraph [32].

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15.36  As set out above, in Biggin v Permanite the Court of Appeal rejected the argument that all that was necessary was for the now claimant to show that he settled the earlier proceedings upon the basis of competent legal advice – that, it was thought, would mean that the advising lawyer would be usurping the function of the court. However, this left open the question, is it relevant in deciding whether a settlement was reasonable, to have regard to advice leading up to settlement? In Society of Lloyd’s v Kitsons Environmental Services Ltd,31 HH Judge Havery QC held that where a party seeks to rely on the reasonableness of a settlement he has entered into, he may seek to rely in support on the fact or nature of legal advice pursuant to which he has entered into the settlement: “[I]f he does, the existence, nature and terms of the advice are themselves material facts; but in my judgment not otherwise.” In that case he ordered disclosure of documents relating to the advice given in respect of the settlement there relied upon. Shortly thereafter, HH Judge Hicks QC returned to the same subject in DSL Group Ltd v Unisys International Services Ltd.32 Again, there was an application for disclosure of documents relating to legal advice given in respect of the settlement relied upon as being the measure of recoverable damages. HH Judge Hicks held that HH Judge Havery had wrongly applied Biggin v Permanite and declined to order disclosure. He said:33 “I have no doubt that on a fair reading of both of the reasoned judgments the ratio decidendi of Biggin is that where a defendant is liable for the cost to the plaintiff of meeting a claim by a third party which the plaintiff has settled, the plaintiff can recover as damages the amount paid out under the settlement upon showing that the settlement was a reasonable one, but not merely by showing that he acted reasonably in reaching it. On that test it seems to me that in principle the question what advice, if any, the plaintiff received must be irrelevant. It goes only to the excluded issue whether he acted reasonably, not to the reasonableness in fact of the settlement reached. The judgments in Biggin are consistent with that view that in agreeing that advisers should not be called, nor the content of any advice enquired into. That being so, the difficulty lies in the acceptance in both judgments of the admissibility of evidence that the plaintiff was acting under advice. It may, of course, as here, be quite apparent that the plaintiff was legally represented, and no-one would suggest that there must be a futile attempt to suppress that fact, but if he deliberately leads evidence that he entered into the settlement under advice it is difficult to see what purpose that serves unless he wishes the court to draw the inference that the advice was competent and that he acted in accordance with it; indeed it would surely be improper for such evidence to be led without qualification if the truth were that the advice had been against acceptance of the settlement terms.”

15.37  This judicial difference may not be surprising because it reflects a tension within the judgments in Biggin v Permanite: the Court of Appeal there held that the fact that legal advice was taken was relevant, but, seemingly, not the nature of that advice. A third judge of the Technology and Construction Court looked again at this issue in P & O Developments Ltd v The Guy’s and St. Thomas’s National Health Service Trust:34 in that case HH Judge Bowsher QC disagreed with HH Judge Hicks. He analysed Biggin v Permanite as applying an evidentiary rule (that the settlement sets a ceiling on recoverable damages as well, if reasonable, as being at least some evidence of the true value of the claim made against the now claimant) and also as establishing that a settlement is material upon which a tribunal can determine whether the second rule in Hadley v Baxendale might be satisfied 31 (1994) 67 BLR 102. 32 (1994) 67 BLR 117. 33 At 135–136. 34 [1999] BLR 3.

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(because the reasonable settlement of claims may be a matter that parties may be held to have had in reasonable contemplation for the purposes of that rule). He rejected the rigidity of HH Judge Hicks’s approach, saying35 that “advice received by the plaintiffs might go either to the question whether the plaintiffs acted reasonably or to the question whether the settlement was reasonable, or both. Moreover, whether the plaintiffs acted reasonably may have an evidential bearing on whether the settlement was reasonable.” It is suggested that this is the approach likely to be adopted by the courts, rather than that of HH Judge Hicks. 15.38  In an interesting passage, he commented upon what might be regarded as a reasonable settlement:36 “When it is said that a party may be held to have contemplated a reasonable settlement, it is important that one should be clear about what is meant by a reasonable settlement. In some exceptional cases, the anticipated consequences of a breach might be so extreme that a party might be taken to have contemplated a settlement at a sum avowedly in excess of what might normally be regarded as the expected legal liability: for example, where completion of a project was planned to meet some immovable event such as the Millennium, a party who delayed the project might be taken to have contemplated that any settlement with sub-contractors might have to be made at grossly inflated rates. I would not rule out the possibility that in some very exceptional cases, the law might impose on a wrongdoer liability computed by reference to a settlement which in the eyes of the law is unreasonable. But as a general rule, a party would be taken to have in contemplation a settlement which is reasonable in the sense that it is based on an assessment of what is legally due from the plaintiff to the third party. That was certainly the approach of the Court of Appeal in Biggin v Permanite . . . Whether it is reasonable to enter into a settlement may raise quite different issues. A businessman asking himself whether it is reasonable to enter into a proposed settlement with another businessman with whom he is engaged in an ongoing project, is unlikely to limit himself to asking the same question as a judge considering whether a proposed settlement of litigation brought on behalf of an infant is reasonable, even supposing the businessman asks himself a question of the latter type at all. Circumstances may dictate to a businessman that it is reasonable to enter into an overall settlement even though some of the details are unreasonable. There, the overall settlement may be reasonable even though the details are not. In such a case . . . it would be wrong to pick out the details and rely upon them against the wrongdoer.”

Thus the exercise of assessing what is a reasonable settlement goes beyond trying in the later proceedings what should have been the result of the earlier proceedings had it been fully litigated. In particular, commercial considerations might lead to the conclusion that a settlement in excess of the original claimant’s strict legal entitlement not only might be regarded as reasonable, but also might be recoverable from the contract-breaker in the later proceedings. 15.39  This sensible and flexible approach is also reflected in a decision of Colman J in the Commercial Court. In General Feeds Inc Panama v Slobodna Plovidba Yugoslavia,37 the court had before it a claim for damage to cargo upon a ship. The question arose as to whether the settlement sued upon was unreasonable. Colman J referred to Biggin v Permanite and said:38 “[T]he overall exercise which the Court must do is to consider whether the specified eventuality (in the case of an indemnity) or the breach of contract (in a case such as the present) has caused the loss incurred in satisfying the settlement. Unless the claim is of a sufficient strength 35 At 14. 36 At 13–14. 37 [1997] 1 Lloyd’s Rep 688. 38 At 691–692.

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reasonably to justify a settlement and the amount paid in settlement is reasonable having regard to the strength of the claim, it cannot be shown that the loss has been caused by the relevant eventuality or breach of contract. That is not to say that unless it can be shown that the claim is likely to succeed it will be impossible to establish that it was reasonable to settle it. There may be many claims which appear to be intrinsically weak but which common prudence suggests should be settled in order to avoid the uncertainties and expenses of litigation. Even the successful defence of a claim in complex litigation is likely to involve substantial irrecoverable costs. It is thus an every day event for shipowners or their P & I clubs to settle cargo damage claims based on allegations of bad stowage or unseaworthiness for well under 50 per cent of the claim where the alternative explanation for the damage is the inherent condition of the goods or some other cause for which owners are not liable. Unless it appears on the evidence that the claim is so weak that no reasonable owner or claim would take it sufficiently seriously to negotiate any settlement involving payment, it cannot be said that the loss attributable to a reasonable settlement was not caused by the breach by reason of which the goods are in a damaged condition.”

Thus, even if on detailed analysis the claimant in the earlier proceedings would have failed in its claim, a reasonable commercial settlement of those earlier proceedings can form the measure of damages in the later proceedings against the now defendant unless the original claim was so weak as to render the settlement unreasonable. This would break the chain of causation between the now defendant’s breach of contract and the settlement. 15.40  A separate point of significance in the judgment is that Colman J held that the material facts for assessing the reasonableness of the settlement were those known to the now claimant at the time of settlement.39 It is not easy to reconcile this with the dicta in Biggin v Permanite, but is to be welcomed as a sensible and just approach. 15.41  HH Judge Hicks returned to this area of the law in Royal Brompton Hospital National Health Service Trust v Hammond and Lerche,40 in which he referred to his earlier decision and adhered to his view there expressed that “Biggin v Permanite must be taken, for reasons which I gave in DSL Group Ltd v Unisys International Services Ltd . . . to have clearly established that the test is whether the terms of the settlement were (objectively) reasonable terms.” It appears that Colman J’s decision was not cited to him. 15.42  In this unsatisfactory state of the authorities, the issue once again came before the Technology and Construction Court in John F. Hunt Demolition Ltd v ASME Engineering Ltd.41 In that case HH Judge Coulson QC carefully reviewed the authorities and followed Colman J:42 “I consider that the judgment of Colman J in General Feeds provides a cogent explanation of the proper approach in cases of this sort, where A’s liability to B may be difficult, if not impossible, to establish. The court must consider whether the breach of contract caused the loss incurred in satisfying the settlement. Unless the claim was (or was reasonably considered to be) of sufficient strength to justify a settlement, and the amount paid in settlement is reasonable having regard to the strength of the claim, it cannot be shown that the loss has been caused by the relevant breach of contract. On the other hand, the settlement of an intrinsically weak claim in order to avoid the uncertainties and expenses of litigation may well be reasonable; on Colman J’s analysis (with which I respectfully agree) a claim will usually have to be so weak as to be obviously hopeless before it could be said that the settlement of the claim was

39 At page 693, citing part of the judgment of Clarke J in The Sargasso [1994] 1 Lloyd’s Rep 412, to which reference has been made reference above. 40 [1999] BLR 162. 41 [2007] EWHC 1507 (TCC); [2008] BLR 115. 42 Paragraphs [61] and [62].

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unreasonable . . . it is not necessary to prove that the claim settled . . . would probably have succeeded . . . and . . . it is enough to establish that [the claim] had sufficient substance for the settlement of it to be regarded as reasonable. In addition, I should also refer to the associated problem of the time at which the weakness (or otherwise) of the claim is to be ascertained and on what evidence a court might conclude that, because A was not liable to B, the settlement was unreasonable. What if A reasonably thought, at the time of the settlement that there was a liability to B, only for it to emerge later that, following a landmark decision of the House of Lords, there was not? The authorities again suggest that the question of reasonableness has to be judged at the time of settlement, not at a later date, although it is right to note that, as Clarke J pointed out in The Sargasso . . . this point has not been definitively decided. Again, that only serves to emphasise that this is an area of law where the points of principle are few, whilst the possibilities on the facts are many and varied.”

15.43  This decision and that of Colman J are difficult to reconcile with the judgments in Biggin v Permanite. However, the trend of the authorities is clear, and much to be desired. The decision in John F. Hunt Demolition Ltd v ASME Engineering Ltd has been cited and followed by Akenhead J in AXA Insurance UK plc v Cunningham Lindsey United Kingdom.43 15.44 In Supershield Ltd v Siemens Building Technologies FE Ltd,44 Toulson LJ said: “Megarry J once described the law reports as charts of the wrecks of unsinkable cases. Because of its uncertainty and expense, prudent parties usually try to avoid litigation where possible. It has to be borne in mind that the ‘settlement value’ of a claim is not an objective fact (or something which can be assessed by reference to an available market) but a matter of subjective opinion, taking account of all relevant variables. Often parties may have widely different perceptions of what would be a fair settlement figure without either being unreasonable. The object of mediation or negotiation is then to close the gap to a point each finds acceptable. When a judge is considering the reasonableness of a settlement he will have in mind these factors and another: that he is likely to have a less complete understanding of the relative strengths of the settling parties than they had themselves (unless he is to embark on a disproportionately detailed investigation), and especially so in complex litigation. The issue which the judge has to decide is not what assessment he would have made of the likely outcome of the settled litigation, but whether the settlement was within the range of what was reasonable. If he decides that it was, an appellate court will not interfere with his decision unless persuaded that he erred in principle or (which is intrinsically unlikely) that his decision was incapable of justification on any reasonable view.”

15.45 In AXA Insurance UK plc v Cunningham Lindsey United Kingdom45 Akenhead J summarised the principles to be derived from the authorities as follows: (a) If there is no effective causal link between the breaches of duty of the defendant and the need for the claimant to enter into the settlement with a third party or

43 [2007] EWHC 3023 (TCC) at paragraphs [272] and [273], cited and applied by Mr Richard Fernyhough QC, sitting as a Deputy High Court Judge, in Costain Ltd v Charles Haswell & Partners Ltd [2009] EWHC 3140 (TCC); 128 Con LR 154 at paragraph [245]: in that case the court held that the causal link had not been established (see paragraph [253] of the judgment). 44 [2010] EWCA Civ 7; [2010] BLR 145 at paragraph [28]. The analysis of the authorities by the judge at first instance, Ramsey J, is full and helpful: [2009] EWHC 927 (TCC); 124 Con LR 158; [2010] BLR 145, especially at paragraph [80]. Cited and applied by Akenhead J in Walter Lilly & Co Ltd v Mackay [2012] EWHC 1773 (TCC) at paragraph [563]. 45 [2007] EWHC 3023 (TCC) at paragraphs [272] and [273], cited and applied by Mr Richard Fernyhough QC, sitting as a Deputy High Court Judge, in Costain Ltd v Charles Haswell & Partners Ltd [2009] EWHC B25

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the payment of the sums pursuant to the settlement agreement, there will be no liability to pay the settlement sums irrespective of whether the settlement was reasonable. (b) The onus of proof in establishing the reasonableness of the settlement is upon the claimant. Thus, there must be some reliable evidence for the court to conclude that it was a reasonable settlement. (c) The mere fact that the claimant is not liable to the third party either at all or for all the sums payable pursuant to the settlement is not necessarily a bar to recovery or to the establishment of the reasonableness of the settlement. However, the fact that the claimant was not liable to the third party either at all or for anything approaching the sums payable may be a factor in determining that the settlement was unreasonable. (d) Where a settlement is not established as reasonable, it is still open to the claimant to recover from the culpable defendant elements of the sums paid pursuant to the settlement to the third party to the extent that it can be proved that there is an effective causal link between the payment of those sums and the established breaches of duty.46 In those circumstances, it is legitimate for the court to consider and establish what was likely to have been payable as a matter of fact and law to the third party as the foreseeable result of the defendant’s breaches. 15.46  To those principles the following principles can be added: (e) In deciding whether a settlement is reasonable, it is relevant that the now claimant acted upon legal advice (see paragraphs 15.36 and 15.37 above). (f ) In deciding upon the reasonableness of a settlement the issue is not what assessment the judge would have made of the likely outcome of the settled litigation, but whether the settlement was within the range of what was reasonable. If the judge decides that it was, an appellate court will not interfere with his decision unless persuaded that he erred in principle or that his view was incapable of justification on any reasonable view (see paragraph 15.44 above). (g) If a party wishes to rely upon the fact that a settlement was reached after receipt of legal advice, that advice will be disclosable (there will be an implied waiver of privilege in such advice) (again paragraphs 15.36 and 15.37 above); (h) In deciding whether a settlement was reasonable, a court or arbitrator is probably limited to looking at the information available to the settling party at the time of the settlement (see paragraphs 15.40 and 15.42 above, but note to the contrary paragraphs 15.30–15.33, 15.36 and 15.41 above). (i) In exceptional cases, the law may even impose on a wrongdoer liability computed by reference to a settlement that in the eyes of the law is unreasonable (suggested by HH Judge Bowsher QC; see paragraph 15.38 above).

(TCC) at paragraph [245]: in that case the court held that the causal link had not been established (see paragraph [253] of the judgment). 46 See in this connection the judgment of HH Judge Thornton QC in Bovis Lend Lease Ltd v RD Fire Protection Ltd [2003] EWHC 939 (TCC); 89 Con LR 169 at paragraph [113], following Colman J in General Feeds Inc Panama v Slobodna Plovidba Yugoslavia [1999] Lloyd’s Rep 688 at 691.

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15.47  Particular problems arise where the settlement relied upon is a settlement of a number of claims between the original warring parties. This is a common problem in construction projects – the main contractor will often settle with an employer with the settlement compromising on the one hand claims by the employer against the main contractor, for example for liquidated damages and the cost of remedial works for defects, and on the other hand claims by the main contractor against the employer for sums outstanding under the main contract, and possible claims for loss and expense as a result of delays in the project said to have been caused by the employer. The main contractor might then wish to recover from a subcontractor part of the sum that the main contractor had paid to the employer, or possibly part of a credit allowed to the employer in the overall settlement by reason of elements of the disputes caused by the subcontractor’s breach or breaches of contract. Bovis Lend Lease Ltd v RD Protection Ltd47 was such a case. HH Judge Thornton QC held that a settlement of that nature did not prevent recovery against the sub-contractor. The settlement would create a ceiling on the potential recovery by the main contractor against the subcontractor, but within or below that ceiling the court would be entitled to determine what part of the overall settlement of a multi-party or multi-issue dispute was attributable to the relevant breaches of contract of the relevant subcontractor. As he pointed out,48 the process of assessment would be similar to that carried out by the court where a claimant settled against one defendant of two and in continuing against the remaining defendant had to give credit for monies received in settlement from the departing defendant,49 or where the court had to carry out an apportionment of responsibility for the purposes of the Civil Liability (Contribution) Act 1978.50 In practice such assessment is difficult. Recovery of costs 15.48 Where the party to the previous proceedings (who has been described above as the “now claimant”) is able to recover damages awarded in previous proceedings as damages against the “now defendant” in later proceedings, he will usually be able also to recover as damages in those later proceedings costs incurred in the earlier proceedings – thus both in Hammond v Bussey51 and Biggin & Co v Permanite Ltd,52 the damages awarded included the costs of earlier proceedings. 15.49  As discussed at paragraphs 15.2–15.10 above, where the “claim over” is made by the defendant in the original proceedings by way of third party/Part 20 proceedings in the same set of proceedings, the court has a full discretion to award costs as it thinks just. Thus if the original claimant succeeds in his claim, he will normally be entitled to an award of costs in his favour against the original defendant, and the original defendant, if successful against the third party/Part 20 defendant, will usually be entitled to an award in his favour against the third party/Part 20 defendant in respect of the costs of the claimant awarded 47 [2003] EWHC 939 (TCC); 89 Con LR 169. 48 At paragraphs [87]–[96]. 49 A situation considered by the court of Appeal in Townsend v Stone Toms & Partners (a firm) (No 2) (1984) 27 BLR 26. 50 He cited as examples Oxford University Press v John Stedman Design Group (1990) 34 Con LR 1 and Parkman Consulting Engineers v Cumbrian Industrials Ltd [2001] EWCA Civ 1621; 79 Con LR 112. 51 (1880) 20 QBD 79, referred to at paragraph 15.12 above. 52 [1951] 2 KB 314, referred to at paragraphs 15.28 and following above.

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against him, of the costs of defending the main action and of the costs of the third party/Part 20 proceedings. However this general proposition is subject to a number of qualifications. 15.50  First, the usual order in High Court cases is for costs to be “assessed on the standard basis”. Assessment is either carried out “summarily”; that is, by the court making the costs order at the time of making that order,53 or by “detailed assessment”, that is by a costs officer (usually a costs judge).54 Where a court orders assessment on the standard basis the court will “(a) only allow costs which are proportionate to the matters in issue; and “(b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party”.55

The alternative basis of costs is the indemnity basis. Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.56 An order for costs on an indemnity basis is exceptional.57 15.51  In practice, where costs are assessed on the standard basis, the recovering party seldom recovers 100% of the costs that that party is liable to pay his lawyers. The shortfall may come about because the client has agreed to pay the solicitors or barristers instructed by him amounts that are found by the costs judge to be unreasonable, or because the costs judge decides that some of the work carried out was unnecessary. Whilst this process may be just as between recovering party (payee) and paying party, because it enables the paying party to challenge what it may regard as unreasonable bills, it leaves the recovering party in the position where it has entrusted the proceedings to lawyers whom it trusts, only to find that it cannot recover all of the costs incurred. 15.52  Secondly, the trial judge may decline to make an order for costs at all in favour of an otherwise successful claimant if that party has failed to “beat” a Part 36 offer of settlement. This is an increasingly complex area of procedure, but, put shortly, CPR Part 36 enables a defendant to make an offer of settlement to a claimant – if the claimant does not recover more than what was offered he will be treated as the “unsuccessful” party and will be liable to bear his own costs and those of the defendant from the date of expiry of the offer.58 15.53  Thirdly, a successful party otherwise entitled to his costs may be awarded less than 100% of his costs if the court regards a partial award of costs to be the just award because of his conduct or because he has not been successful on parts of his case.59 15.54  Where the unsuccessful defendant in the original proceedings has not joined the third party as a party to the original proceedings, he will usually seek to recover his costs as damages in the later proceedings. As set out in paragraph 15.48 above, this will usually be possible. The costs that the now claimant will usually seek to recover will be those

53 CPR 43.3. 54 CPR 43.4. 55 CPR 44.4(2). 56 CPR 44.4(3). 57 See Excelsior Commercial and Industrial Holdings Ltd v Salisbury Ham Johnson [2002] EWCA Civ 879. 58 CPR 36.14. 59 CPR 44.3.

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that he was liable to pay the original claimant and his own costs of defending the original proceedings. 15.55  The costs paid to the original claimant will usually cause little trouble in the later proceedings – they will usually be whatever has been assessed should be paid. Apart from a claim for damages, where a party settles a claim brought against it by another party, and in doing so pays costs to that other party, the court has power under section 51 of the Senior Courts Act 1981 to order that a party liable to make contribution to the paying party should pay the costs paid out.60 The costs paid out by the paying party may also give rise to the right to contribution under the Civil Liability (Contribution) Act 1978.61 However, where the defence costs are claimed as damages, the present state of the authorities is that the now claimant can recover only what he would have recovered as costs on the standard basis not his full costs.62 This state of the law was the subject of detailed criticism by Mr Harvey McGregor QC.63 The author respectfully agrees with his view that the present state of the law is unsatisfactory. 15.56  Where the now defendant’s breach of contract has resulted in the now claimant incurring costs of defending the earlier proceedings, the question may arise as to whether the now claimant can recover those costs from the now defendant. Given that, upon this hypothesis, the original claimant has brought proceedings and failed in them, the now claimant’s first port of call is to seek his costs from the original claimant. However that may not be sufficient. First the original claimant may not be worth powder and shot;64 secondly, if the original claimant was publicly funded, the usual position is that only a conditional order for costs would be made against the original claimant making him only liable to make an actual payment if the original claimant’s financial position alters (what is sometimes referred to as a “football pools order”).65 Thirdly, the difference between costs assessed on a standard basis and actual costs incurred may leave the successful defendant in the original proceedings out of pocket (see above). Assuming there were no other problems of remoteness or foreseeability, that shortfall ought in each case be to be recoverable unless there had been extravagance in the manner of defending the original proceedings, but it may be that for the reasons given in paragraph 15.55 above a shortfall because of the difference between costs recovered on a standard basis and actual costs incurred will not sound in damages in the later proceedings. 15.57 There have been cases in which a claim has been made in later proceedings for costs incurred by the now claimant against a defendant who was a party to earlier 60 Mouchel Ltd v Van Oord (UK) Ltd Co 2 [2011] EWHC 1516 (TCC); [2011] BLR 492 following BICC Ltd v Cumbrian Industrials Ltd [2001] EWCA Civ 1621; [2001] BLR 64; [2002] Lloyd’s Rep PN 526. 61 Mouchel Ltd v Van Oord (UK) Ltd Co 2 [2011] EWHC 1516 (TCC); [2011] BLR 492 disapproving J Sainsbury plc v Broadway Malyan (1998) 61 Con LR 31. 62 British Racing Drivers’ Club v Hextall Erskine & Co [1996] 3 All ER 667; Mahme Trust Reg v Lloyds TSB Bank plc [2006] EWHC 1321 (Ch); Redbus LMDS Ltd v Jeffrey Green & Russell [2006] EWHC 2938 (Ch); [2007] PNLR 12; Dadourian Group International Inc v Simms [2007] EWHC 454 (Ch). 63 McGregor on Damages, 18th edition, 2009, at paragraphs 17–005 and following: now 19th edition, 2011, at paragraphs 20–005 and following. 64 An example of a case where the original claimant was a man of straw is Britannia Hygienic Laundry Co v Thornycroft: at first instance the now claimant recovered costs not recovered from the impecunious claimant in earlier proceedings: (1925) 41 TLR 667. The decision was reversed by the Court of Appeal on the facts (1925) 95 LJ KB 237. 65 It seems that in this situation the costs would be recoverable – some support for this proposition comes from Grocutt v Khan [2003] Lloyd’s Rep IR 464.

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proceedings between the same parties. These claims have been unsuccessful66 except where the now defendant was in breach of an exclusive jurisdiction clause67 or breach of an antisuit clause.68 The same would probably apply to the costs incurred by breach of an agreement to arbitrate.69 15.58  Paragraphs 15.22 to 15.26 above refer to the circumstances in which an amount awarded as damages in a previous arbitration can be recovered as damages in later proceedings. The costs of earlier arbitration proceedings can also be recovered in later proceedings, whether arbitral or court proceedings, either by an order for an indemnity against the costs of the previous proceedings70 or as damages.71 Indemnity clauses 15.59  Construction contracts very frequently contain indemnity clauses that enable one party to recover from the other party damages incurred at the suit of a third party or costs incurred in connection with such a claim. 15.60  Any properly drafted contract contains an indemnity against liability for injury to persons or property. Clause 6.1 of the JCT Standard Building Contract (SBC/Q) 2007 is typical of the sort of clause commonly found: “The Contractor shall be liable for, and shall indemnify the Employer against, any expense, liability, loss, claim or proceedings whatsoever in respect of personal injury to or the death of any person arising out of or in the course of or caused by the carrying out of the Works, except to the extent that the same is due to any act or neglect of the Employer or any of the Employer’s Persons.”

15.61  Similarly indemnities in respect of damage to third party property. So, for example, the FIDIC Red Book72 has an indemnity clause that not only covers personal injuries, but also damage to property. It is also mutual, as can be seen: “The Contractor shall indemnify and hold harmless the Employer, the Employer’s Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of: (a) bodily injury, sickness, disease or death, of any person whatsoever arising out of or in the course of or by reason of the Contractor’s design (if any), the execution and completion of the Works and the remedying of any defects, unless attributable to any negligence, willful act or breach of the Contract by the Employer, the Employer’s Personnel, or any of their respective agents, and (b) damage to or loss of any property, real or personal (other than the Works), to the extent that such damage or loss:

66 Cockburn v Edwards (1881) 18 Ch D 449; Jack L Israel v Ocean Dynamic Lines SA (“The Ocean Dynamic”) [1982] 2 Lloyd’s Rep 88. See the discussion by Louise Merrett, Costs as Damages (2009) 125 LQR 468. 67 Union Discount Co Ltd v Zoller [2002] 1 WLR 1517. 68 National Westminster Bank plc v Rabobank Nederland [2007] EWHC 3163 (Comm); [2008] 1 Lloyd’s Rep 16. 69 A v B (No.2) [2007] 1 Lloyd’s Rep 358. 70 LE Cattan Ltd v A Michaelides & Co [1958] 1 WLR 717; Wilhelmsen (Wilh) v Canadian Transport Co (“The Takamine”) [1980] 2 Lloyd’s Rep 204; Unimarine SA of Panama v Canadian Transport Co of Vancouver BC (“The Catherine L”) [1982] 1 Lloyd’s Rep 484. 71 Maritime Transport Overseas GmbH v Unitramp Salen Rederierna AB (“The Antaios”) [1981] 2 Lloyd’s Rep 284 at 289; Vrinera Marine Company Ltd v Eastern Rich Operations Inc (“The Vakis T”) [2004] EWHC 1752 (Comm), where the claim for damages failed on causation. 72 FIDIC Conditions of Contract for Construction, 1st edition, 1999, clause 17.1.

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(i) arises out of or in the course of or by reason of the Contractor’s design (if any), the execution and completion of the Works and the remedying of any defects, and (ii) is attributable to any negligence, willful act or breach of the Contract by the Contractor, the Contractor’s Personnel, their respective agents, or anyone directly or indirectly employed by any of them. The Employer shall indemnify and hold harmless the Contractor, the Contractor’s Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of (1) bodily injury, sickness, disease or death, which is attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer’s Personnel, or any of their respective agents, and (2) the matters for which liability may be excluded from insurance cover, as described in sub-paragraphs (d)(i), (ii) and (iii) of Sub-Clause 18.3 [Insurance against Injury to Persons and Damage to Property].”

15.62  Typically the indemnity provisions are underpinned by an obligation on the part of the party obliged to give indemnity to obtain insurance covering that liability. 15.63  It is well established that indemnity clauses will be construed on much the same principles as exemption clauses (see Chapter 20 below). In many cases it has been held to be an important principle of construction that absent express terms an exclusion clause will be construed as not exempting a party from the consequences of his own negligence. In Smith v South Wales Switchgear Ltd73 the House of Lords held that principle also applies to indemnity clauses (as had been held earlier in the lower courts74). Viscount Dilhorne said:75 “While an indemnity clause may be regarded as the obverse of an exempting clause, when considering the meaning of such a clause one must, I think, regard it as even more inherently improbable that one party should agree to discharge the liability of the other party for acts for which he is responsible. In my opinion it is the case that the imposition by the proferens on the other party of liability to indemnify him against the consequences of his own negligence must be imposed by very clear words.”

However, if clear enough language is used, an indemnity clause can be construed as requiring an indemnity against the negligence of the other contracting party,76 and there is a move away from prior rigidity of application of that rule of construction.77 Where costs are awarded under an indemnity clause, they will usually be awarded on the basis of the claimant’s actual costs (i.e. on an indemnity basis) rather than costs as assessed on a standard basis by a costs judge.78 15.64  The presence of an indemnity clause removes arguments based upon foreseeability or remoteness as any liability expressly covered will obviously be within the reasonable contemplation of the contracting parties.79 73 [1978] 1 WLR 165; 8 BLR 1. 74 See Walters v Whessoe Ltd (1960) 6 BLR 23; AMF International Ltd v Magnet Bowling Ltd [1968] 1 WLR 1028; Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180; [2010] 2 Lloyd’s Rep 467. 75 [1978] 1 WLR 165 at 168D; 8 BLR 1 at 6. 76 Gillespie Brothers & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400; Comyn Ching & Co (London) Ltd v Oriental Tube Co Ltd (1981) 17 BLR 47. 77 See chapter 20 below and particularly in the case of indemnity clauses Greenwich Millennium Village Ltd v Essex Services Group plc [2014] EWCA Civ 960; [2014] 1 WLR 3517. 78 See the review of authority by Coulson J in Greenwich Millennium Village Ltd v Essex Services Group plc (No 2) [2014] EWHC 1099 (TCC) at paragraphs [122]–[129]. 79 See in this regard Bovis Lend Lease Ltd v R D Protection Ltd [2003] EWHC 939 (TCC); 89 Con LR 169 at paragraph 65.

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CHAPTER  16

The problem of “global” claims 16.1  Construction contracts frequently produce difficult problems of the causative impact of numerous events acting simultaneously or sequentially, causing delay, disruption and expense. Contractors often argue that separating out and identifying individual events and tying those events to specific effects, be the effect delay, disruption or expense, is impossible or impractical. Employers often contend in response that the contractor must do just that – identify the event relied upon, the contractual basis for claim, and the consequence of the event. In front of courts or arbitrators the cry will come from the employer that the claim put forward is underparticularised and should be regarded as an impermissible “global claim”, a “total cost claim” or a “total time claim”. Sometimes the contractor is capable of better particularising the claim but wishes for tactical reasons not to do so. Sometimes it simply is impossible for the contractor to do so. Very often the reality lies somewhere in between these two positions. 16.2  Underneath the manoeuvrings of parties and their representatives, there are often real problems. From a claimant contractor’s point of view it may be very difficult to do more than point to a large number of events that have conspired together to make a project late or expensive. Usually at least some of these will be the contractor’s responsibility under the contract. For an employer this presents a difficulty in tackling a many-headed claim. 16.3  The tensions presented by such claims have been well described in an article by Geoffrey Smith and James Perry:1 “A global claim, in its crudest form, alleges that the entire difference between the contractor’s tender price and his actual costs has arisen from a number of breaches by the employer, and makes little or no attempt to link the alleged effects to individual breaches. In the event that the contractor has himself made a material contribution to this increase in costs, either by under-pricing his tender, by his own inefficiencies or otherwise, the employer would be unduly penalised if the courts were to accept such a claim without imposing strict conditions. The courts have therefore chosen to reject global claims where the employer has been able to show that the contractor has made more than a trivial contribution to the alleged damage. This position has, unfortunately, often led to a result which is equally unjust. Not infrequently, it is the employer who has obtained a windfall, a contractor’s claim that is justified to a large extent being rejected because of a single cause of delay attributable to the contractor himself for which it is impossible or impracticable to isolate the effects. On large projects, which cost hundreds of millions of dollars or euros, employing thousands of workers, it is not unusual to encounter thousands of causes of delay and/or loss. Some of these causes can be treated in isolation and their effects evaluated and proved; inevitably, and no matter what records the contractor maintains, others cannot and must be treated globally. (An example is the loss of productivity that may result from a number of variations instructed with respect to the same work, within a short period.)”

  1 Geoffrey Smith and James Perry, The Evolution of Global Claims and Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2005] ICLR 212.

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16.4  That article discussed the first instance decision in the Scottish case of John Doyle Construction Ltd v Laing Management (Scotland) Ltd. That decision was unsuccessfully appealed.2 Those decisions have been controversial.3 16.5  This chapter reviews some of the authorities concerning “global claims”. In that review, it is important to note that most of the decided cases concern battles about the sufficiency of pleadings. These help to elucidate what is or is not an acceptable pleading, but each case turns on very particular facts. Generally, attempts to have cases struck out on the basis of inadequate pleading of the claim document have failed. In practice, experienced judges, arbitrators and adjudicators usually find it possible to find a way through the difficulties presented by inadequately particularised, or often significantly overparticularised, claims – if a genuine claim exists. 16.6  Before embarking upon the review, it is to be noted that the circumstances in which problems are put forward are various, but the context is important. Categories of claims include the following: (1) Claims for an extension of time: not infrequently it is contended that numerous events acting together have caused delay to a project or a section of a project. The debate today often turns upon the evidence of programming experts opining upon what was the critical path on the project in an attempt to work out which of those events delayed the eventual completion date. (2) Financial claims for loss and expense resulting from delays to overall completion of a project. (3) Claims for financial losses resulting from disruption: within this category are claims for delay to “sub-critical elements” of the works, where delay is caused to work not on the critical path for the project as a whole, but where delay causes loss – for example if a hotel project is delayed, delay to a swimming pool that is part of the project might not cause delay to the project as a whole, but might cause significant and identifiable costs to that part of the project. Other disruption claims concern loss of productivity on a project where the contractor manages to bring the project in on time despite having to cope with loss of productivity resulting from an employer’s actions – often such a claim is put forward as an “acceleration” or “constructive acceleration” claim. (4) Claims for additional payment under payment clauses in a contract: this overlaps with category (3) above, but may include cases where it is said that the number of variations instructed has caused the financial balance of the contract to alter entitling the contractor to revision of rates and prices in the contract. (5) Claims where numerous defects combine to reduce the value of a building.4 (6) Claims where a party has settled with a third party in respect of varying elements in dispute and claims over to recover part of such a settlement. An example

  2 [2002] BLR (Court of Session) and [2004] BLR 295 (Inner House).   3 Messrs Smith and Perry welcomed the decisions. Jeremy Winter was much less enthusiastic  – Jeremy Winter, Global Claims and John Doyle v Laing Management-Good English Law? Good English Practice? SCL Paper 140, July 2007.  4 For example British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd (1994) 72 BLR 26 discussed at paragraph 16.17 below.

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is Bovis Lend Lease Ltd v R D Protection Ltd,5 referred to at paragraph 15.47 above. The authorities discussed in this chapter generally concern cases in categories (1), (2), (3) or (4) above. 16.7 In J Crosby & Sons Ltd v Portland Urban District Council6 Donaldson J had to consider questions of law arising out of a case stated by an arbitrator. There had been delay to the project of 46 weeks. The arbitrator had decided that part of the delay arose out of matters for which the claimants were responsible under the contract and for which the claimants were not entitled to any extension of time or to any money payment. Part of the delay arose out of matters for which under the contract the claimants were entitled to an extension of time, but no money. Thirty-one weeks of the delay were found by the arbitrator to be matters for which the respondents were solely responsible, which resulted in the claimants’ overhead expenses being increased and the productivity of their plant and labour being reduced. Some of the clauses under which the claimants claimed monies would entitle them only to extra costs and others would entitle them to extra costs and profit. The arbitrator proposed to make an award without attributing periods of delay or amounts of money to particular clauses of the contract. The employer contended that in arriving at the amount of his award the arbitrator should build up the sum by finding amounts due under each of the individual heads of claim upon which the contractor relied in support of the overall claim for delay and disruption. The judge rejected that suggestion.7 “The claimants . . . say that where you have a series of events which can be categorised as denial of possession of part of the site, suspension of work, with variations, the result is, or may be, that the contractor incurs the extra costs by way of overhead expenses and loss of productivity: these extra costs are all recoverable directly under clause 40 or clause 42 or indirectly under clauses 51 and 52. I say ‘indirectly’ because any revised rate or price and the scheduled day work rates must include a large cost element even if they go further than this and also cover profit. Since, however, the extent of the extra cost incurred depends upon an extremely complex interaction between the consequences of the various denials, suspensions and variations, it may well be difficult or even impossible to make an accurate apportionment of the total extra cost between several causative events. An artificial apportionment could of course have been made; but why, they ask, should the arbitrator make such an apportionment which has no basis in reality? I can see no answer to this question. Extra costs are a factor common to all these clauses, and so long as the arbitrator does not make an award which contains a profit element, this being permissible under clauses 51 and 52 and not under clauses 41 and 42, and provided he ensures that there is no duplication, I can see no reason why he should not recognise the realities of the situation and make individual awards in respect of those parts of the claim which can be dealt with in isolation and supplementary award in respect of the remainder of these claims as a composite whole. This is what the arbitrator has done . . . He has further ensured that there is no duplication . . . and there is no profit element in this particular award.”

16.8  This is a rare reported case concerned not with pleadings, but with a final award. At the pleading stage different factors apply: the employer might want to know whether profit is being claimed upon the whole or only part of the claim, possibly so as to consider   5 [2003] EWHC 939 (TCC); 89 Con LR 169.   6 (1967) 5 BLR 121.   7 At pages 135–136.

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making an offer of settlement. If particular periods of delay are alleged to be caused by particular events, the employer is entitled to know that so that a factual or legal answer can be prepared (conversely the contractor would be entitled to know if the employer has a positive case as to the reason for a particular period of delay). However when the dust of the pleading battle has long since settled and the evidence has been heard, debated and considered, there is no objection in legal principle to the arbitrator saying that, whether or not profit is payable, he has found that the contractor is entitled to prolongation costs for a particular period of time under one or more of a number of clauses. In the situation in which the arbitrator had found himself, if he was minded to award profit as well as cost, he would have had to identify the clauses under which he was making that enhanced award and the factual basis for that enhancement. 16.9  The upholding of the arbitrator’s approach reflected the general principle that mere difficulty of assessment is no ground for refusing an award of damages.8 16.10  Eighteen years later the High Court was asked to consider whether Donaldson J had been right in his approach. In London Borough of Merton v Stanley Hugh Leach Ltd 9 an arbitrator had heard a large number of preliminary issues of law. Vinelott J was called upon to consider an appeal against the arbitrator’s conclusions on those issues. Accordingly this was not a dispute on the adequacy of pleadings, but was an appeal in respect of conclusions reached without evidence having yet been called. One of the issues was as follows: “Do the terms of the contract permit [the contractor] to recover direct loss and/or expense under Clause 11(6) or 24(1) in respect of any alleged event when it is not possible for [the contractor] to state in respect of any such event the amount of loss and/or expense attributable thereto?”

It was common ground that the employer’s suggested answer to this question (“No”) was inconsistent with Donaldson J’s decision in Crosby, but it was said that that decision was wrong. 16.11  The contract under consideration was the July 1971 revision of the 1963 RIBA Standard Form of Contract. Clause 11(6) entitled a contractor to recover loss and expense caused by a variation and clause 24(1) entitled a contractor to recover loss and expense if the regular progress of the works was materially affected by certain specified matters. There was potential overlap in entitlement under these clauses. Vinelott J said:10 “The case for Merton is shortly as follows. It is said that under the terms of clause 11(6) and 24(1) upon written application by the contractor the architect must form an opinion whether for the reason there set out the contractor has been involved in direct loss or expense in consequence of one of the causes there mentioned; if the architect is of the opinion that he has, the architect must ascertain or instruct the quantity surveyor to ascertain the amount of direct loss stemming from that clause. It is said that under those provisions the architect cannot make an award unless he is in a position to ascertain the direct loss stemming from a specific cause identified in the application and cannot therefore make an award if the loss stemming from the two different causes cannot be separated and each separate part identified as the direct cost stemming from each cause. In this respect the arbitrator cannot be in any better position than the architect: although his function is not purely arbitral (he has power to open up and review  8 Chaplin v Hicks [1911] 2 KB 786 at 792; Owners of the Steamship Mediana v Owners of the Lightship Comet (“The Mediana”) [1900] AC 113 at 116, referred to at paragraph 11.18 above.   9 (1985) 32 BLR 51. 10 At pages 101–102.

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any decision of the architect) nonetheless to the extent that he does so he stands in the shoes of the architect. This broad submission is clearly and admittedly inconsistent with the decision of Donaldson J in Crosby. In Crosby the arbitrator rolled up several heads of claim under different heads and indeed claims for which the contract provided different bases of assessment. The question accordingly is whether I should follow that decision. I need hardly say that I would be reluctant to differ from a judge of Donaldson J’s experience in matters of this kind unless I was convinced that the question had not been fully argued before him or that he had overlooked some material provisions of the contract or some relevant authority. Far from being so convinced, I find his reasoning compelling. The position in the instant case is, I think, as follows. If application is made (under clause 11(6) or 24(1) or under both sub-clauses) for re-imbursement of direct loss or expense attributable to more than one head of claim and at the time when the loss or expense comes to be ascertained it is impracticable to disentangle or disintegrate the part directly attributable to each head of claim, then, provided of course that the contractor has not unreasonably delayed in making the claim and so has himself created the difficulty the architect must ascertain the global loss directly attributable to the two causes, disregarding, as in Crosby, any loss or expense which would have been recoverable if the claim had been made under one head in isolation and which would not have been recoverable under the other head taken in isolation.”

Part of that passage has been emphasised: it could well be that a case is fully and properly pleaded, but it is at the time of making the decision that the arbitrator or judge (or architect under the contract machinery) finds difficulty on the facts as established by the evidence adduced. It is this latter situation that the judge was considering. He continued: “I think I should nonetheless say that it is implicit in the reasoning of Donaldson J, first, that a rolled up award can only be made in a case where the loss or expense attributable to each head of claim cannot in reality be separated and secondly that a rolled up award can only be made where apart from that practical impossibility the conditions which have to be satisfied before an award can be made have been satisfied in relation to each head of claim.”

16.12 At its most extreme, a global or total cost claim says simply that but for the employer’s defaults, the contractor would have completed the project for £X, but instead it cost £Y as a consequence of which the contractor claims the difference between X and Y. Neither Crosby nor Merton v Leach was such a case: both of those were cases in which the position being considered was one where an arbitrator either had decided or might decide that the contractor was entitled to compensation under one clause or another and awarded the lowest common denominator of entitlement under those clauses. 16.13  The next two cases for consideration were both cases concerning adequacy of pleading. The first is a decision of the Privy Council on appeal from a decision of the Court of Appeal in Hong Kong, Wharf Properties Ltd v Eric Cumine Associates (No 2).11 The Privy Council made it clear that they had given leave to appeal “having regard particularly to the impact which it was suggested that it might have upon two decisions of the High Court in England relating to the ascertainment of damages in cases in which there are allegations of delay in the performance of contractual obligations” (ie, Crosby and Merton v Leach). However, as Lord Oliver explained:12 “[A]s the argument has progressed . . . it has become apparent that the case, whilst of obvious importance to the parties because of the sums involved, raises no question of any general

11 (1991) 52 BLR 1. 12 At page 8.

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importance, so that, in the event, their Lordships’ Board has been, exceptionally, concerned with a pure point of pleading peculiar to this particular dispute in which the parties are engaged.”

16.14  Despite this clear declaration by the Privy Council of the fact that its decision was specific to the case before it, the case has been frequently cited as setting out general principles. The Privy Council struck out the case on the basis that it was inadequately pleaded: an important point to note is that the plaintiffs had failed to comply with directions of the court in Hong Kong – the Privy Council described the breach of the order of the court in Hong Kong as “avowed and contumacious”.13 The only statement of general principle is to be found at pages 20–21 of the report in the Building Law Reports, where, having held that the claim was inadequately pleaded, Lord Oliver said: “As has already been observed, the pleading is hopelessly embarrassing as it stands and their Lordships are wholly unpersuaded by Mr Butcher’s submission that the two cases of [Crosby and Merton v Leach] provide any basis for saying that an unparticularised pleading in this form ought to be permitted to stand. Those cases establish no more than this, that in cases where the full extent of extra costs incurred through delay depend upon a complex interaction between the consequences of various events, so that it may be difficult to make an accurate apportionment of the total extra costs, it may be proper for an arbitrator to make individual financial awards in respect of claims which can conveniently be dealt with in isolation and a supplementary award in respect of the financial consequences of the remainder as a composite whole. This has no bearing upon the obligation of a plaintiff to plead his case with such particularity as is sufficient to alert the opposite party to the case which is going to be made against him at the trial. ECA are concerned at this stage not so much with the quantification of the financial consequences – the point with which the two cases referred to were concerned – but with the specification of the factual consequences of the breaches pleaded in terms of periods of delay. The failure even to attempt to specify any discernible nexus between the wrong alleged and the consequent delay provides, to use Mr Thomas’ phrase, ‘no agenda’ for the trial.”

16.15  The editors of the Building Law Reports in their commentary on this case draw general guidance from the case, saying:14 “It must therefore follow from the decision of the Privy Council in Wharf Properties v Eric Cumine Associates that Crosby and Merton are to be confined to matters of quantum and then only where it is impossible and impracticable to trace the loss back to the event. The two cases are not authority for the proposition that a claimant can avoid providing a proper factual description of the consequences of the various events upon which reliance is placed before attempting to quantify what those consequences were to him. Thus, taking the example before the Privy Council, it seems that it will in future be necessary for a plaintiff to be quite specific as to the delay which it is alleged was caused by an event such as a breach of contract or an instruction giving rise to a variation. This in turn will mean that those responsible for the preparation and presentation of claims of this kind will need to work hard with those who have first-hand knowledge of the events so as to provide an adequate description of them. Equally, it will mean that proper records will need to be kept or good use will have to be made of existing records to provide the necessary detail. It will no longer be possible to call in an outsider who will simply list all the possible causes of complaint and then by use of a series of chosen ‘weasel’ words try to avoid having to give details of the consequences of those events before proceeding to show how great the hole was in the pocket of the claimant. There must be, as the Privy Council points out an ‘agenda’ for the trial: there must be a discernible connexion between the wrong and, where delays are relied on, the consequent delay.”

13 At page 21. 14 At pages 5–6.

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There is no doubt of the desirability, indeed the necessity, of grounding any claim in the facts established as thoroughly (and as contemporaneously) as possible. Beyond that, no general principle is to be derived from the decision beyond what had been decided in Crosby and Merton v Leach. 16.16  The Privy Council decision in Wharf Properties v Eric Cumine Associates was delivered in February 1991. In September of that year Mr Recorder Tackaberry QC, who had been counsel in Merton v Leach, gave judgment in a dispute about the adequacy of a pleaded case, Mid-Glamorgan County Council v J Devonald Williams & Partner.15 He reviewed the authorities: “In the light of the above, and with particular reference to Crosby it seems to me possible (at least in the context of construction cases) to summarise the principles to be applied to the pleading of complicated cases as follows: (1) A proper cause of action has to be pleaded. (2) Where specific events are relied upon as giving rise to a claim for monies under the contract then any pre-conditions which are made applicable to such claims by the terms of the relevant contract will have to be satisfied, and satisfied in respect of each of the causative events relied upon. (3) When it comes to quantum, whether time based or not, and whether claimed under the contract or by way of damages, then a proper nexus should be pleaded which relates each event relied upon to the money claimed. (4) Where however a claim is made for extra costs incurred through delay as a result of various events whose consequences have a complex interaction that renders specific relation between event and time/money consequence impossible or impracticable, it is permissible to maintain a composite claim.”

16.17 In British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd,16 the Court of Appeal heard an appeal against the striking out of a statement of claim upon the grounds of underparticularisation. It allowed the appeal. The claim arose out of alleged defects in a building. The plaintiffs claimed that to remedy the defects would have cost £3.3m, but that this loss was mitigated by the sale of the head lease of the building at £3.1m less than the amount for which it would otherwise have been sold. The pleading was attacked upon the basis that the statement of claim did not set out the remedial cost of each alleged defect and did not ascribe to each defect the amount by which it contributed to the alleged diminution in value. The Court of Appeal held that the judge at first instance had been wrong to strike out the pleading but should instead have allowed the plaintiffs to serve further particulars of their claim. Thus the case turned upon the events of the particular piece of litigation. However some general guidance was given. Reliance had been placed by the defendants upon a passage from the 11th edition of Hudson’s Building and Engineering Contracts which reads as follows: “It is submitted that, in the English and related Commonwealth jurisdictions, claims on total costs basis, a fortiori, in respect of a number of disparate claims, will prima facie be embarrassing and an abuse of the process of the court, justifying their being struck out and the action dismissed at an interlocutory stage.”

15 (1991) 29 Con LR 129. 16 (1994) 72 BLR 26.

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Saville LJ said:17 “The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basic purpose and to seek particularisation even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the court pore over endless pages of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to deal with it. Pleadings are not a game to be played at the expense of the litigants, nor an end in themselves, but a means to the end, and that end is to give each party a fair hearing. Each case must of course be looked at in the light of its own subject matter and circumstances. Thus general statements to the effect that global or composite claims are embarrassing and justify striking out, to be found for example in Hudson (11th edn) paragraph 8–204 are not automatically applicable to every case.”

16.18  Yet another challenge to the particularity of pleadings was reported in 1996, but now the report was of a decision of a very experienced judge in Australia: Byrne J, judge in charge of the Building Cases List in the Supreme Court of Victoria, in John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd.18 Byrne J had studied the subject of total cost and global claims and had published a paper on the subject.19 He had knowledge not only of Australian and English jurisprudence but also of cases in the United States of America Court of Claims. His analysis in the John Holland case20 was later cited with approval by the Scottish courts in the John Doyle decisions to which reference has already been made in paragraph 16.4 above: “Where a plaintiff establishes a breach of contract it will not be denied relief on the ground only that it is difficult to estimate the losses which flow from that breach . . . This being the case, it may be said that a statement of claim which is unable to set out with precision the amount of loss claimed ought not to be struck out. But even in such a case, the plaintiff must identify what is the loss alleged to have been suffered and which cannot be quantified and how it is that this loss was caused by the breach. The amount of loss claimed here is not the problem: it is the causal link between this and the breaches of contract. Next, any question of the causal link must be examined in a pragmatic way. Where the loss is caused by a breach of contract, causation for the purposes of a claim for damages must be determined by the application of common sense to the logical principles of causation . . . Finally, it is possible to say that a given loss was in law caused by a particular act or omission notwithstanding that other acts or omissions played a part in its occurrence. It is sufficient that the breach be a material cause . . . This last matter may be of particular importance in a case like the present where a number of potentially causal factors may be present. But, as will be seen, the form of the present pleading avoids these matters by implying rather than stating the necessary causal relationship.”

For the authorities establishing the general propositions as to causation in the above passage, see paragraphs 11.2–11.7 above. The judge continued: “The claim as pleaded . . . is a global claim, that is, the claimant does not seek to attribute any specific loss to a specific breach of contract, but is content to allege a composite loss as a result of all of the breaches alleged or presumably as a result of such breaches as are ultimately proved. Such claim has been held to be permissible in the case where it is impractical 17 At pages 33–34. 18 (1996) 82 BLR 81. Discussed in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184. 19 Total Costs and Global Claims (1995) 11 BCL 397. 20 (1996) 82 BLR 81 at pages 84–86.

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to disentangle that part of the loss which is attributable to each head of claim, and this situation has not been brought about by delay or other conduct of the claimant [citing Merton v Leach].”

Thus far, Byrne J had gone little further than the English authorities already discussed in this chapter. He now turned to the concept of “total cost claims”: “Further, this global claim is in fact a total cost claim. In its simplest manifestation a contractor, as the maker of such claim, alleges against a proprietor a number of breaches of contract and quantifies its global loss as the actual cost of the work less the expected cost. The logic of such a claim is this: (a) The contractor might reasonably have expected to perform the work for a particular sum, usually the contract price; (b) The proprietor committed breaches of contract; (c) The actual reasonable cost of the work was a sum greater than the expected cost. The logical consequence implicit in this is that the proprietor’s breaches caused that extra cost or cost overrun. This implication is valid only so long as, and to the extent that, the three propositions are proved and a further unstated one is accepted: the proprietor’s breaches represent the only causally significant factor responsible for the difference between the expected cost and the actual cost. In such a case the causal nexus is inferred rather than demonstrated. For present purposes, I ignore any adjustment that may have to be made for variations and extras. The unstated assumption underlying the inference may be further analysed. What is involved here is two things: first, the breaches of contract caused some extra cost; secondly, the contractor’s cost overrun is this extra cost. The first aspect will often cause little difficulty but it should not, for this reason, be ignored. The likelihood and nature of some extra cost flowing from the breaches of contract may be readily apparent from the nature of each of the breaches and a general understanding of its impact on the building project. It may also be apparent in what precise way this breach has led to the extra cost. In most, if not all, cases, however, there is an intervening step relating the extra cost to the breach. For example, it may be that a breach means that work has to be redone, or that work takes longer to perform, or that its labour or material cost increases, or perhaps that there was extra cost due to disruption or loss of productivity. Again, in the given case this may be readily apparent but difficulties will arise for the parties and the tribunal of fact where the global nature of the claim involves the interaction of one or more of these intervening steps, particularly where they and their role are not, in terms, identified and explained. It is the second aspect of the unstated assumption, however, which is likely to cause the more obvious problem because it involves an allegation that the breaches of contract were the material cause of all of the contractor’s cost overrun. This involves the assertion that, given that the breaches of contract caused some extra cost, they must have caused the whole of the extra cost because no other relevant cause was responsible for any part of it.”

Later21 the judge underlined that “it is for the parties and not the court, even in a judge-managed list, to determine how their case should be framed. It is not for the court to impose upon them a manner or form of pleading which it thinks better than their own.” 16.19 Thus Byrne J was discouraging of pre-emptive strikes designed to strike out claims on the basis of underparticularisation of pleadings. He was however conscious of the burden that a total cost claim places upon a defendant, saying:22 “This burden may involve the defendant in extensive discovery of documents relating to the performance of the project; it may mean that at trial the defendant must cross-examine the plaintiff’s witnesses to expose the flaws in a claim which assumes that the defendant is, itself, responsible for every item of the plaintiff’s cost overrun; it may mean that the defendant must 21 At page 87. 22 At page 90.

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lead evidence to explain what, in fact, was the impact of each of the acts complained of on the project, as was done in McAlpine Humberoak Ltd v McDermott International Inc (No 1)23 . . . Litigation inevitably imposes burdens on the parties; the court must exercise its powers to ensure that, as far as possible, these burdens are not unreasonable and are not unnecessarily imposed.”

It can be added that badly pleaded claims, particularly claims pleaded with great generality, impose a significant additional burden upon tribunals resolving disputes. This is liable to increase the chances of a tribunal falling into error, to the disadvantage of one or other party, or (particularly in the case of adjudicators) deciding that the claim is simply unintelligible with the result that the claim is rejected for lack of proof. 16.20  Byrne J concluded his judgment with these words of warning:24 “In my opinion, the court should approach a total cost claim with a great deal of caution, even distrust. I would not, however, elevate this suspicion to the level of concluding that such a claim should be treated as prima facie bad . . . Nevertheless, the point of logical weakness inherent in such claims, the causal nexus between the wrongful acts or omissions of the defendant and the loss of the plaintiff, must be addressed. I put to one side the straightforward case where each aspect of the nexus is apparent from the nature of the breach and loss alleged. In such a case the objectives of the pleading may be achieved by a short statement of the facts giving rise to the causal nexus. If it is necessary for the given case for this to be supported by particulars, this should be done. But, in other cases, each aspect of the nexus must be fully set out in the pleading unless its probable existence is demonstrated by evidence or argument and further, it is demonstrated that it is impossible or impractical for it to be spelt out further in the pleading. Moreover, the court should be assiduous in pressing the plaintiff to set out this nexus with sufficient particularity to enable the defendant to know what is the case it is required to meet and to enable the defendant to direct its discovery and its attention generally to that case. And it should not be overlooked that an important means of achieving the result that, once it starts, the trial should be conducted without undue prejudice, embarrassment and delay, is by ensuring that, when it begins, the issues between the parties including this nexus are defined with sufficient particularity to enable the trial judge to address the issues, to rule on relevance and generally to contain the parties to those issues . . . And if, in such a case, the plaintiff fails to demonstrate this causal nexus in sufficient detail because it is unable or unwilling to do so, then this may provide the occasion for the court to relieve the defendant of the unreasonable burden which the plaintiff would impose on it.”

16.21  To return to the Scottish case of John Doyle Construction Ltd v Laing Management (Scotland) Ltd:25 this was, again, a battle about the pleaded claim, but the attack was not so much on the adequacy of the particulars given as on the underlying assumptions and sustainability of the pleading. Firstly, the pursuers (claimants) sought an extension of time. The pleaded claim was that delay “was caused by the pursuers’ compliance with Instructions. Delay was caused by the pursuers not receiving in due time necessary instructions, drawings, details and levels duly requested from the Professional Team.” It was said that the “pursuers [were] unable to take any practicable steps to avoid or reduce the said delay”. It was also averred in terms that none of the delays were attributable to the fault of the pursuers. This part of the pleading was unsuccessfully challenged, not as being a global claim, but upon other grounds.

23 (1991) 58 BLR 1 at page 28 per Lloyd LJ. 24 At pages 90–91. 25 [2002] BLR 393 (Court of Session) and [2004] BLR 295 (Inner House).

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16.22  The pursuers also claimed loss and expense as a result of disruption. The pleading contained the following: “During the contract works, the pursuers estimated that their recoverable uneconomic labour costs amounted to £1,649,505. That analysis depended upon a comparison between pre-contract estimates and actual costs. The causes of delay and disruption which led to the uneconomic use of labour are enumerated in the pursuers’ claims submissions . . . These narrative sheets are produced herewith as Schedule A . . . Despite the pursuers’ best efforts, it is not possible to identify causative links between each such cause of delay and disruption, and the cost consequence thereof. As the narrative sheets at Schedule A show, the effects of late issue of information were concurrent with, and superimposed upon, variations on construction scope and detail. In these circumstances, although it is not possible to show direct cause and effect, the pursuers have analysed labour costs in the following fashion, as set out in the Report entitled ‘Uneconomic Use of Labour’. They have compared labour productivity actually achieved by them on site when work was largely free from disruption (‘normal’ work) with labour productivity achieved when the work was disrupted (‘disrupted’ work).”

16.23  The defenders did not suggest that a global claim could not be made. Moreover they accepted that because of the averment that “despite the pursuers’ best efforts, it is not possible to identify causative links between each such cause of delay and disruption, and the cost consequence thereof”, a global claim could be advanced. The judge at first instance reserved his opinion as to whether such an averment was essential, what it would be necessary to do to establish that averment, and what the consequences would be if the averment were not established.26 The point taken by the defenders was that not all of the causes of disruption put forward by the pursuers were matters for which the defenders were contractually responsible, and other causes of disruption put forward by the pursuers were matters that the pursuers were contractually barred from pursuing. Accordingly, it was said, since some or all of the disruption was or might not be capable of being claimed against the defenders, the global claim must fail. The judge, Lord Macfadyen, conducted a full and careful review of the authorities in England, Australia and America. 16.24  To a very considerable extent he accepted the defenders’ arguments, saying:27 “35. Ordinarily, in order to make a relevant claim for contractual loss and expense under a construction contract (or a common law claim for damages) the pursuer must aver (1) the occurrence of an event for which the defender bears legal responsibility, (2) that he has suffered loss or incurred expense, and (3) that the loss or expense was caused by the event. In some circumstances, relatively commonly in the context of construction contracts, a whole series of events occur which individually would form the basis of a claim for loss and expense. These events may inter-react with each other in very complex ways, so that it becomes very difficult, if not impossible, to identify what loss and expense each event has caused. The emergence of such a difficulty does not, however, absolve the pursuer from the need to aver and prove the causal connections between the events and the loss and expense. However, if all the events are events for which the defender is legally responsible, it is unnecessary to insist on proof of which loss has been caused by each event. In such circumstances, it will suffice for the pursuer to aver and prove that he has suffered a global loss to the causation of which each of the events for which the defenders is responsible has contributed. Thus far, provided the pursuer is able to give adequate specification of the events, of the basis of the defender’s responsibility for each of them, of the fact of the defender’s involvement in causing his global loss, and of the method of 26 [2002] BLR 393 at paragraph [33]. 27 At paragraphs [35]–[37].

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computation of that loss, there is no difficulty in principle in permitting a claim to be advanced in that way. 36. The logic of a global claim demands, however, that all the events which contribute to causing the global loss be events for which the defender is liable. If the causal events include events for which the defender bears no liability, the effect of upholding the global claim is to impose on the defender a liability which, in part, is not legally his. That is unjustified. A global claim, as such, must therefore fail if any material contribution to the causation of the global loss is made by a factor or factors for which the defender bears no legal liability . . . The point has on occasions been expressed in terms of a requirement that the pursuer should not himself have been responsible for any factor contributing materially to the global loss, but it is in my view clearly more accurate to say that there must be no material causative factor for which the defender is not liable. 37. Advancing a claim for loss and expense in global form is therefore a risky enterprise. Failure to prove that a particular event for which the defender was liable played a part in causing the global loss will not have any adverse effect on the claim, provided the remaining events for which the defender was liable are proved to have caused the global loss. On the other hand, proof that an event played a material part in causing the global loss, combined with failure to prove that that event was one for which the defender was responsible, will undermine the logic of the global claim. Moreover, the defender may set out to prove that, in addition to the factors for which he is liable founded on by the pursuer, a material contribution to the causation of the global loss has been made by another factor or other factors for which he has no liability. If he succeeds in proving that, again the global claim will be undermined.”

16.25  However the judge refused to accede to the defenders’ request, which was in effect to dismiss the claim. After the passage set out above, he continued: “38. The rigour of that analysis is in my view mitigated by two considerations. The first of these is that while, in the circumstances outlined, the global claim as such will fail, it does not follow that no claim will succeed. The fact that a pursuer has been driven (or chosen) to advance a global claim because of the difficulty of relating each causative event to an individual sum of loss or expense does not mean that after evidence has been led it will remain impossible to attribute individual sums of loss or expense to individual causative events. The point is illustrated in certain of the American cases. The global claim may fail, but there may be in the evidence a sufficient basis to find causal connections between individual losses and individual events, or to make a rational apportionment of part of the global loss to the causative events for which the defender has been held responsible. 39. The second factor mitigating the rigour of the logic of global claims is that causation must be treated as a common sense matter (Holland v Kvaerner, per Byrne J at 84I). That is particularly important, in my view, where averments are made attributing, for example, the same period of delay to more than one cause.”

16.26  The defenders appealed unsuccessfully. The judgment of the Court of Session was given by Lord MacLean.28 He set out what it is necessary to establish for a loss and expense claim to succeed:29 “For a loss and expense claim under a construction contract to succeed, the contractor must aver and prove three matters: first, the existence of one or more events for which the employer is responsible; secondly, the existence of loss and expense suffered by the contractor; and, thirdly, a causal link between the event or events and the loss and expense. (The present case involves a works contract concluded between a management contractor and a works contractor; in such a case the management contractor is obviously in the position of

28 [2004] BLR 295. 29 At paragraph [10].

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the employer and the works contractor in the position of the contractor.) Normally individual causal links must be demonstrated between each of the events for which the employer is responsible and particular items of loss and expense. Frequently, however, the loss and expense results from delay and disruption caused by a number of different events, in such a way that it is impossible to separate out the consequences of each of those events. In that event, the events for which the employer is responsible may interact with one another in such a way as to produce a cumulative effect. If, however, the contractor is able to demonstrate that all of the events on which he relies are in law the responsibility of the employer, it is not necessary for him to demonstrate causal links between individual events and particular heads of loss. In such a case, because all of the causative events are matters for which the employer is responsible, any loss and expense that is caused by those events and no others must necessarily be the responsibility of the employer. That is in essence the nature of a global claim. A common example occurs when a contractor contends that delay and disruption have resulted from a combination of the late provision of drawings and information and design changes instructed on the employer’s behalf; in such a case all of the matters relied on are the legal responsibility of the employer. Where, however, it appears that a significant cause of the delay and disruption has been a matter for which the employer is not responsible, a claim presented in this manner must necessarily fail. If, for example, the loss and expense has been caused in part by bad weather, for which neither party is responsible, or by inefficient working on the part of the contractor, which is his responsibility, such a claim must fail. In each case, of course, if the claim is to fail, the matter for which the employer is not responsible in law must play a significant part in the causation of the loss and expense. In some cases it may be possible to separate out the effects of matters for which the employer is not responsible.”

16.27  Having in that passage referred to “global claims” he expanded upon the meaning of that expression and allied expressions: “The expression ‘global claim’ has normally been used in Scotland, England and other Commonwealth countries to denote a claim calculated in the foregoing manner. In the United States the corresponding expression is ‘total cost claim’. In the American cases before the Court of Claims, however, a further category is recognised, that of a ‘modified total cost claim’. In the American terminology, a total cost claim involves the contractor’s claiming that the whole of his additional costs in performing the contract have been the result of events for which the employer is responsible. A modified total cost claim is more restrictive, and involves the contractor’s dividing up his additional costs and only claiming that certain parts of those costs are the result of events that are the employer’s responsibility. This terminology has the advantage of emphasising that the technique involved in calculating a global claim need not be applied to the whole of the contractor’s claim. Instead, the contractor can divide his loss and expense into discrete parts and use the global claim technique for only one, or a limited number, of such parts. In relation to the remaining parts of the loss and expense, the contractor may seek to prove causation in a conventional manner. This may be particularly useful in relation to the consequences of delay, as against disruption. The delay, by itself, will invariably have the consequence that the contractor’s site establishment must be maintained for a longer period than would otherwise be the case, and frequently it has the consequence that foremen and other supervisory staff have to be engaged on the contract for longer periods. Costs of that nature can be attributed to delay alone, without regard to disruption. Moreover, because delay is calculated in terms of time alone, it is relatively straightforward to separate the effects of delay caused by matters for which the employer is responsible and the effects of delay caused by other matters. For example, delay caused by late instructions and delay caused by bad weather can be measured in a straightforward fashion, subject only to the possibility that the two causes operate concurrently.”

16.28 Lord MacLean set out substantial passages of the judgment of Byrne J in Holland v Kvaerner (see paragraph 16.18 above) and from a decision of the American 239

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Court of Claims.30 He then continued, giving approval to and expanding upon Lord Macfadyen’s two “mitigating considerations” referred to at paragraph 16.25 above, making three points. The first two were as follows:31 “14. We agree with the foregoing statements of the law by Byrne J and the Court of Claims. It is accordingly clear that if a global claim is to succeed, whether it is a total cost claim or not, the contractor must eliminate from the causes of his loss and expense all matters that are not the responsibility of the employer. This requirement is, however, mitigated by the considerations discussed by the Lord Ordinary at paragraphs [38] and [39] of his opinion. In the first place, it may be possible to identify a causal link between particular events for which the employer is responsible and individual items of loss. On occasion that may be possible where it can be established that a group of events for which the employer is responsible are causally linked with a group of heads of loss, provided that the loss has no other significant cause. In determining what is a significant cause, the ‘dominant cause’ approach described in the following paragraph is of relevance. Determining a causal link between particular events and particular heads of loss may be of particular importance where the loss results from mere delay, as against disruption; in cases of mere delay such losses as the need to maintain the site establishment for an extended time can often readily be attributed to particular events, such as the late provision of information or design changes . . . 15. In the second place, the question of causation must be treated by ‘the application of common sense to the logical principles of causation’ . . . In this connection, it is frequently possible to say that an item of loss has been caused by a particular event notwithstanding that other events played a part in its occurrence. In such cases, if an event or events for which the employer is responsible can be described as the dominant cause of an item of loss, that will be sufficient to establish liability, notwithstanding the existence of other causes that are to some degree at least concurrent.”

16.29  Lord MacLean’s third point was that32 “even if it cannot be said that events for which the employer is responsible are the dominant cause of the loss, it may be possible to apportion the loss between the causes for which the employer is responsible and other causes. In such a case it is obviously necessary that the event or events for which the employer is responsible should be a material cause of the loss. Provided that condition is met, however, we are of opinion that apportionment of loss between the different causes is possible in an appropriate case. Such a procedure may be appropriate in a case where the causes of the loss are truly concurrent, in the sense that both operate together at the same time to produce a single consequence. For example, work on a construction project might be held up for a period owing to the late provision of information by the architect, but during that period bad weather might have prevented work for part of the time. In such a case responsibility for the loss can be apportioned between the two causes, according to their relative significance. Where the consequence is delay as against disruption, that can be done fairly readily on the basis of the time during which each of the causes was operative. During the period when both operated, we are of opinion that each should normally be treated as contributing to the loss, with the result that the employer is responsible for only part of the delay during that period. Unless there are special reasons to the contrary, responsibility during that period should 30 Boyajian v United States (1970) 423 F 2d 1231 at 1243: “This theory [the total cost method of calculation] has never been favoured by the court and has been tolerated only when no other mode was available and when the reliability of the supporting evidence was fully substantiated . . . The acceptability of the method hinges on proof that (1) the nature of the particular losses make it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the plaintiff’s bid or estimate was realistic; (3) its actual were reasonable; and (4) it was not responsible for the added expenses.” 31 Paragraphs [14] and [15]. 32 Paragraph [16]. This was followed by the Extra Division of the Inner House in City Inn Ltd v Shepherd Construction Ltd [2010] CSIH 68; [2010] BLR 473 at paragraph [49].

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probably be divided on an equal basis, at least where the concurrent cause is not the contractor’s responsibility. Where it is his responsibility, however, it may be appropriate to deny him any recovery for the period of delay during which he is in default.”

The suggestion that responsibility for delay can be apportioned has been discussed at paragraphs 14.65 and 14.69 above. As to apportionment of loss and expense caused by disruption, Lord MacLean said:33 “Apportionment in this way, on a time basis, is relatively straightforward in cases that involve only delay. Where disruption to the contractor’s work is involved, matters become more complex. Nevertheless, we are of opinion that apportionment will frequently be possible in such cases, according to the relative importance of the various causative events in producing the loss. Whether it is possible will clearly depend on the assessment made by the judge or arbiter, who must of course approach it on a wholly objective basis. It may be said that such an approach produces a somewhat rough and ready result. This procedure does not, however, seem to us to be fundamentally different in nature from that used in relation to contributory negligence or contribution among joint wrongdoers. Moreover, the alternative to such an approach is the strict view that, if a contractor sustains a loss caused partly by events for which the employer is responsible and partly by other events, he cannot recover anything because he cannot demonstrate that the whole of the loss is the responsibility of the employer. That would deny him a remedy even if the conduct of the employer or the architect is plainly culpable, as where an architect fails to produce instructions despite repeated requests and indications that work is being delayed. It seems to us that in such cases the contractor should be able to recover for part of his loss and expense, and we are not persuaded that the practical difficulties of carrying out the exercise should prevent him from doing so.”

16.30  As noted above, the court rejected the appeal (it refused the “reclaiming motion”). Lord MacLean explained what the pursuers would have to establish in respect of disruption costs during the 22-week period in question:34 “The pursuers must nevertheless establish that their actual labour costs were reasonable, but we consider that that is a matter that can only be determined at proof, when consideration can be given to what actually happened during the 22-week period. The pursuers must also demonstrate that neither they nor factors outwith the control of either party were responsible for any of the causes of the increased labour costs during the relevant 22-week period. Their averments are compatible with that proposition, however. As explained above in paragraph 23, the pursuers contend that the only causes of the delay and disruption arising during the 22-week period were late instructions and variations, which are both matters for which the employer is normally responsible. Whether those averments are justified is, of course, a matter for proof. Finally, the pursuers must also establish that it is impossible or highly impracticable to determine the actual additional labour costs arising out of each variation or late instruction; that is the averment referred to at the start of paragraph 25 above. Once again, however, we are of opinion that it is impossible to determine this issue without proof.”

16.31  He concluded:35 “We are accordingly of opinion that the pursuers’ averments should proceed to a proof before answer. In the course of such proof, it may emerge that the causation of the pursuers’ additional labour costs is not as simple as that averred; other concurrent causes may be operative. In that event, the principles discussed above . . . may be relevant. First, the pursuers may be able to identify elements of their loss and expense that can be attributed to individual variations or 33 At paragraph 17. See City Inn Ltd v Shepherd Construction Ltd referred to at footnote 32 above. 34 Paragraph [30]. 35 Paragraph [31].

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instances of late instructions, or to specific groups of such variations and late instructions. Secondly, even if other causes, such as bad weather or a degree of inefficiency on the pursuers’ part are operative, it may be possible to say that the variations and late instructions are the dominant cause of the pursuers’ increased labour costs. Thirdly, even if matters for which the defenders are solely responsible cannot be said to be the dominant cause of the pursuers’ increased labour costs, it may be possible to use a process of apportionment to divide the pursuers’ increased costs between the two sets of causes. In every case, of course, adequate notice must be given in the pursuers’ pleadings.”

16.32  As noted at paragraph 16.4 above, the first instance and Court of Session decisions in John Doyle v Laing have been controversial. For the reasons given at paragraphs 14.66 to 14.69 above the decision in so far as it relates to apportionment may not represent the law of England. However, in so far as the decision relates to pleading and proving a “global” claim, the author would suggest that it is rightly decided. 16.33  As already pointed out, few of the decisions relate to a judgment or award given after a full hearing. This is probably because experienced judges, arbitrators and adjudicators are capable of telling the wood from the trees. In one case John Doyle v Laing was applied by a very experienced High Court judge in the Technology and Construction Court refusing to interfere with an arbitration award by a very experienced arbitrator.36 In the LUL case a claim for an extension of time in a very complex case was put forward on a number of bases and in a number of ways. Most of those ways of putting the claim failed, but the arbitrator was persuaded that there had been a substantial act of prevention in relation to one part of the claim put forward. Ramsey J cited from both decisions in John Doyle v Laing at a little length. There was no challenge to the reasoning of those decisions before him and he accepted the approach adopted by the Scottish courts37 (he was not concerned with a case of apportionment). He said: “142. The essence of a global claim is that, whilst the breaches and the relief claimed are specified, the question of causation linking the breaches and the relief claimed is based substantially on inference, usually derived from factual and expert evidence . . . 144. The consequence of the undermining of a global claim in one of a number of ways, including those suggested by the Lord Ordinary at first instance in Laing v Doyle at paras 36 and 37, is that the claim will fail as a global claim. As in this case, within the global claim there may remain pleaded events for which a party is responsible which, on the evidence, have caused delay. Necessarily there will be no specific pleaded case that the remaining pleaded events caused a particular element of the delay. As Lord McFadyen said at para [20] of Laing v Doyle the pleading of causation need not be over elaborate covering every possible combination of contractual events that might exist or, as applied to this case, covering the delay that might be said to flow from every possible combination of such events. Instead as the Lord Ordinary put it in para 38: ‘[T]here may be in the evidence a sufficient basis to find causal connections between individual losses and individual events, or to make a rational apportionment of part of the global loss to the causative events.’ 145. The surviving or remaining claim will therefore emerge from the evidence which has been adduced to establish or deal with the global claim. There will clearly be a need for analysis

36 Ramsey J rejecting an application under section 68 of the Arbitration Act 1996 in respect of an award issued by John Marrin QC, London Underground Ltd v Citylink Telecomminications Inc [2007] EWHC 1749 (TCC); [2007] BLR 391. 37 Paragraph [141].

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of the existing evidence to see if there is a sufficient basis for establishing causation. Where the case has proceeded on the basis of a global claim, it will be at the stage when the tribunal has determined what events can be relied upon that it will be possible to carry out that analysis. Necessarily, in such a case, as in many cases where there is partial success, neither party will have a specific opportunity to deal with a case based on the tribunal’s particular findings. Tribunals frequently have to deal with cases where a claim or a defence has not wholly succeeded and it is necessary to determine what result flows from the partial success or failure. Provided that the result is based on primary facts which have been in issue in the proceedings, there can in principle be no objection to a tribunal taking such a course. There will, though, be limits and it will be a matter of fact or degree in a particular case whether the findings made by the arbitrator fall outside the limits and fairness requires the arbitrator to seek further submissions from the parties.”

16.34  One case in which a High Court judge did decide an allegedly “global” claim after a full trial was Walter Lilly & Co Ltd v Mackay.38 Akenhead J reviewed the authorities referred to above, and summarised the effect of the authorities as follows:39 “Drawing together all the relevant threads together, it can properly be concluded as follows in relation to ‘global’ or ‘total’ cost claims: (a) Ultimately, claims by contractors for delay or disruption related loss and expense must be proved as a matter of fact. Thus, the Contractor has to demonstrate on a balance of probabilities that, first, events occurred which entitle it to loss and expense, secondly, that those events caused delay and/or disruption and thirdly that such delay or disruption caused it to incur loss and/or expense (or loss and damage as the case may be). I do not accept that, as a matter of principle, it has to be shown by a claimant contractor that it is impossible to plead and prove cause and effect in the normal way or that such impossibility is not the fault of the party seeking to advance the global claim. One needs to see of course what the contractual clause relied upon says to see if there are contractual restrictions on global cost or loss claims. Absent and subject to such restrictions, the claimant contractor simply has to prove its case on a balance of probabilities. (b) Clause 26 in this case lays down conditions precedent which, if not complied with, will bar to that extent claims under that clause. If and to the extent that those conditions are satisfied, there is nothing in Clause 26 which states that the direct loss and/or expense cannot be ascertained by appropriate assessments. (c) It is open to contractors to prove these three elements with whatever evidence will satisfy the tribunal and the requisite standard of proof. There is no set way for contractors to prove these three elements. For instance, such a claim may be supported or even established by admission evidence or by detailed factual evidence which precisely links reimbursable events with individual days or weeks of delay or with individual instances of disruption and which then demonstrates with precision to the nearest penny what that delay or disruption actually cost. (d) There is nothing in principle ‘wrong’ with a ‘total’ or ‘global’ cost claim. However, there are added evidential difficulties (in many but not necessarily all cases) which a claimant contractor has to overcome. It will generally have to establish (on a balance of probabilities) that the loss which it has incurred (namely the difference between what it has cost the contractor and what it has been paid) would not have been incurred in any event. Thus, it will need to demonstrate that its accepted tender was sufficiently well priced that it would have made some net return. It will need to demonstrate in effect that there are no other matters which actually occurred (other than those relied upon in 38 [2012] EWHC 1773 (TCC); [2012] BLR 503. 39 At paragraph [486].

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its pleaded case and which it has proved are likely to have caused the loss). It is wrong, as Counsel suggested, that the burden of proof in some way transfers to the defending party. It is of course open to that defending party to raise issues or adduce evidence that suggest or even show that the accepted tender was so low that the loss would have always occurred irrespective of the events relied upon by the claimant contractor or that other events (which are not relied upon by the claimant as causing or contributing to the loss or which are the ‘fault’ or ‘risk’ of the claimant contractor) occurred may have caused or did cause all or part of the loss. (e) The fact that one or a series of events or factors (unpleaded or which are the risk or fault of the claimant contractor) caused or contributed (or cannot be proved not to have caused or contributed) to the total or global loss does not necessarily mean that the claimant contractor can recover nothing. It depends on what the impact of those events or factors is. An example would be where, say, a contractor’s global loss is £1 million and it can prove that but for one overlooked and unpriced £50,000 item in its accepted tender it would probably have made a net return; the global loss claim does not fail simply because the tender was underpriced by £50,000; the consequence would simply be that the global loss is reduced by £50,000 because the claimant contractor has not been able to prove that £50,000 of the global loss would not have been incurred in any event. Similarly, taking the same example but there being events during the course of the contract which are the fault or risk of the claimant contractor which caused or cannot be demonstrated not to cause some loss, the overall claim will not be rejected save to the extent that those events caused some loss. An example might be (as in this case) time spent by WLC’s management in dealing with some of the lift problems (in particular the over-cladding); assuming that this time can be quantified either precisely or at least by way of assessment, that amount would be deducted from the global loss. This is not inconsistent with the judge’s reasoning in the Merton case that ‘a rolled up award can only be made in the case where the loss or expense attributable to each head of claim cannot in reality be separated’, because, where the tribunal can take out of the ‘rolled up award’ or ‘total’ or ‘global’ loss elements for which the contractor cannot recover loss in the proceedings, it will generally be left with the loss attributable to the events which the contractor is entitled to recover loss. (f ) Obviously, there is no need for the Court to go down the global or total cost route if the actual cost attributable to individual loss causing events can be readily or practicably determined. I do not consider that Vinelott J was saying in the Merton case (at page 102 last paragraph) that a contractor should be debarred from pursuing what he called a ‘rolled up award’ if it could otherwise seek to prove its loss in another way. It may be that the tribunal will be more sceptical about the global cost claim if the direct linkage approach is readily available but is not deployed. That does not mean that the global cost claim should be rejected out of hand. (g) DMW’s Counsel’s argument that a global award should not be allowed where the contractor has himself created the impossibility of disentanglement (relying on Merton per Vinelott J at 102, penultimate paragraph and John Holland per Byrne J at page 85) is not on analysis supported by those authorities and is wrong. Vinelott J was referring to unreasonable delay by the contractor in making its loss and/or expense claim; that delay would have led to their being non-compliance with the condition precedent but all that he was saying otherwise was that, if such delay created difficulty, the claim may not be allowed. He certainly was not saying that a global cost claim would be barred necessarily or at all if there was such delay. Byrne J relied on Vinelott J’s observations and he was not saying that a global cost claim would be barred but simply that such a claim ‘has been held to be permissible in the case where it is impractical to disentangle that part of the loss which is attributable to each head of claim, and this situation has not been brought about by delay or other conduct of the claimant’. In principle, unless the contract dictates that a global cost claim is not permissible if

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certain hurdles are not overcome, such a claim may be permissible on the facts and subject to proof.”

16.35  That passage was substantially cited and was applied by Carr J. in John Sisk & Sons Ltd v Carmel Building Services Ltd.40 It is likely to be the passage most cited to courts and arbitrators for the foreseeable future.41

40 [2016] EWHC 806 (TCC); [2016] BLR 283. 41 For a discussion of evaluation of recoverable costs, see Christopher Ennis, Evaluation Disruption Costs on Major Construction Projects SCL Paper D125, July 2011.

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CHAPTER  17

Claims under the Civil Liability (Contribution) Act 1978 17.1  The Civil Liability (Contribution) Act 1978 was passed so that one party liable to a claimant in respect of damage suffered by that claimant could recover a contribution from any other party liable in respect of the same damage.1 The law had for many centuries recognised the existence of situations in which, if B is called upon to discharge a legal obligation owed to A, fairness demands that B should be entitled to claim a contribution from other parties subject with him to that obligation. Thus a rule first developed to cover parties to a common maritime adventure was over time extended to cover co-sureties, co-trustees, co-contractors, partners, co-insurers, co-mortgagors, co-directors and ­co-owners. “The common link between all these situations was the obvious justice of requiring that a common liability should be shared between those liable.”2 17.2  However, the old rule in Merryweather v Nixan3 forbade claims for contribution or indemnity between joint tortfeasors – even where acts of negligence by different parties resulted in one injury and gave rise to a cause of action against each party there could be no contribution between them. This situation as between tortfeasors was addressed by the Law Reform (Married Women and Tortfeasors) Act 1935. 17.3  Following a report from the Law Commission in 1977, the right of contribution was widened by the Civil Liability (Contribution) Act 1978 so that it was not limited to contribution between tortfeasors. 17.4  Section 1(1) of the Act provides that (the letters A, B and C have been added to aid explanation of the effects of this section): “Subject to the following provisions of this section, any person [B] liable in respect of any damage suffered by another person [A] may recover contribution from any other person [C] liable in respect of the same damage (whether jointly with him or otherwise).”

17.5 In a simple case A may sue B for damages and obtain judgment. B will then seek contribution from C who would, if he had been sued by A, have been liable to A as well. Thus, to take an example from a construction context: assume that a householder (A) engages an architect (B) to design a house and supervise its construction and also engages a contractor (C) to build the house. The walls are defective causing A to spend money repairing them. A sues B claiming that had B supervised the construction of the walls, he would have noted the defects and required C to remedy them. Assume this claim against B succeeds so that A recovers damages from B. B can then turn to C and claim contribution upon the grounds that if A had chosen to sue C in the same action, C would also have been

 1 In Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14; [2002] 1 WLR 1397 at paragraphs [1]–[4], Lord Bingham helpfully set out the background to the Act, which is summarised in the text above.   2 Per Lord Bingham in Royal Brompton Hospital at paragraph [2].   3 (1799) 8 Durn & E 186.

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held liable to A for the same damage, namely the defective walls requiring repair.4 The same claim could be made by B against C if, as would commonly be the case, A had joined B and C to the same proceedings as codefendants. In such a case, normally the court would deliver one judgment in which it decided whether either or both of B and C were liable to A and, if so, the contribution each should give to the other. 17.6  Thus in any claim for contribution under the 1978 Act three questions always arise: (1) What damage has A suffered? (2) Is B liable to A in respect of that damage? (3) Is C also liable to A in respect of that damage or some of it? “The same damage” 17.7  For a right to contribution to arise, B and C must be liable in respect of “the same damage”. This provision has given rise to a number of decisions. 17.8  The expression “damage” does not mean “damages”,5 but refers to the damage loss or harm suffered by A. The leading case on this topic is Royal Brompton Hospital v Hammond.6 The earlier cases referred to below need to be read in the context of their Lordships’ speeches in that case. 17.9 In Birse Construction Ltd v Haiste Ltd, a water authority contracted with the plaintiff, Birse, for the design and construction of a reinforced concrete storage reservoir. Birse engaged Haiste as consulting engineers. 17.10  The water authority also engaged another engineer, Mr Newton, to act as engineer for the purpose of the contract between the water authority and Birse and to issue all necessary certificates required by statute. 17.11 The reservoir was defective. The water authority claimed against Birse: Birse agreed to build a new reservoir at its own expense. Birse then claimed against Haiste under the consultancy agreement. This was a claim for damages in contract. Haiste then sought to claim contribution against Watson. 17.12  The Court of Appeal held that Haiste had no right of contribution. On the true construction of section 1(1), it was held, “the same damage” referred to the damage suffered by the person to whom the party seeking contribution was liable. The damage suffered by the water authority, namely the physical defects in the reservoir, and the damage suffered by Birse, namely the financial loss of having to construct a second reservoir for the water authority, were not “the same damage”. 17.13  However, the “damage” can be “the same” even though the amount recoverable by way of damages may vary according to the cause of action that the original claimant might have been entitled to enforce.7   4 The factual situation here discussed is very similar to the facts of McConnell v Lynch-Robinson [1957] NI 70 referred to by Lord Hope in the Royal Brompton Hospital case at paragraph [40] as the sort of case to which the 1978 Act was intended to apply.   5 Per Roch LJ in Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675 at 682, cited with approval by Lord Bingham in Royal Brompton Hospital at paragraph 6. Applied by Ramsey J in Mouchel Ltd v Van Oord (UK) Ltd (No. 1) [2011] EWHC 72 (TCC) at paragraphs [147] and [148].  6 Above.  7 Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675 per Roch LJ at 682C; Jameson v Central Electricity Generating Board [1998] QB 323 at 353C; Eastgate Group Ltd v Lindsey Mordern Group Inc [2001] EWCA Civ

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17.14 In Bovis Construction Ltd v Commercial Union Assurance Co plc8 the question was whether a claim against a builder for defective work was “the same damage” as an insurance company’s liability under a policy of insurance. David Steel J held:9 “Bovis was liable for the flood damage to Friendly House: CU was liable under a policy of insurance. It is a misconception to describe those as liabilities ‘in respect of the same damage’. The damage inflicted by the builder was a defective building susceptible to flooding damage and consequential loss of rent. CU has not inflicted that damage: the only damage it could inflict would have been a refusal to pay on the policy (which in any event excluded consequential loss), thereby imposing financial loss. This is not the same damage.”

17.15 In Royal Brompton Hospital NHS Trust v Hammond,10 the House of Lords considered the meaning of the phrase. The claimants (RBH) entered into a standard building contract with a contractor, Taylor Woodrow, as main contractor for the development and construction of part of new hospital premises. The works were not finished by the date originally set in the contract. Architects employed by RBH granted Taylor Woodrow extensions of time, thus relieving Taylor Woodrow of liability to pay liquidated damages. Taylor Woodrow sought loss and expense from RBH in respect of its losses caused by the overrun of the contract. The claims between RBH and Taylor Woodrow were compromised. 17.16 RBH then sued the architects claiming damages for negligence in respect of the issue of certificates extending time. The architects sought contribution from Taylor Woodrow. 17.17  The claim for contribution failed before the judge at first instance, HH Judge Hicks QC, before the Court of Appeal, and before the House of Lords. Lord Steyn11 said that the phrase, “the same damage”, is not to be interpreted as meaning “substantially or materially similar damage”. He continued “it must be interpreted and applied on a correct evaluation and comparison of claims alleged to qualify for contribution under section 1(1). No glosses, extensive or restrictive, are warranted. The natural and ordinary meaning of ‘the same damage’ is controlling.” Lord Steyn then cited the following test to determine the statutory criterion of “the same damage” that had been proposed by Sir Richard Scott V-C in Howkins & Harrison v Tyler:12 “Suppose that A and B are the two parties who are said each to be liable to C in respect of ‘the same damage’ that has been suffered by C. So C must have a right of action of some sort against A and a right of action of some sort against B. There are two questions that should then be asked. If A pays C a sum of money in satisfaction, or on account, of A’s liability to C, will that sum operate to reduce or diminish, depending upon the amount, B’s liability to C? Secondly, if B pays C a sum of money in satisfaction or on account of B’s liability to C, would that operate to reduce or extinguish A’s liability to C? It seems to me that unless both of those questions can 1446; [2002] 1 WLR 642 at paragraph [16]. (The House of Lords decision in Jameson is considered at paragraph 17.42 below.)   8 [2001] 1 Lloyd’s Rep 418.   9 At paragraph [28]. Bovis was distinguished by Cooke J in Greene Wood McLean LLP v Templeton Insurance Ltd [2010] EWHC 2679 (Comm); [2011] Lloyd’s Rep IR 557 at paragraphs [76]–[79]. 10 Above. 11 At paragraph [27]. 12 [2001] Lloyd’s Rep PN 1 at paragraph 17. It is to be noted that the House of Lords in Royal Brompton Hospital disapproved the Court of Appeal’s decision in this case. Lord Steyn at paragraph [33] made it clear that the Court of Appeal was wrong to hold that a claim by an employer against a contractor for negligent site investigation services and a claim by the employer against insurance brokers for failure to insure against the contingency are claims for the same damage, entitling the insurance brokers to claim a contribution against the contractor.

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be given an affirmative answer, the case is not one to which the 1978 Act can be applied. If the payment by A or B to C does not pro tanto relieve the other of his obligations to C, there cannot, it seems to me, possibly be a case for contending that the non-paying party, whose liability to C remains un-reduced, will also have an obligation under section 1(1) to contribute to the payment made by the paying party.”

17.18  An important commercial consideration is the ability of potential defendants to satisfy an award of damages. If the claimant can obtain judgment in the same sum against two defendants, then he has two chances of recovering his damages in full. If however he can only recover X% of his damages against A and Y% against B, then he is vitally concerned in the ability of both A and B to satisfy the judgments. On the other hand if he can recover judgment in full against both A and B, then he needs to find that only one of the two has a deep pocket – in that situation the credit risk passes from the claimant to the defendant with deep pockets who has to seek contribution from his possibly less affluent co-defendant. This is illustrated by the case of Rahman v Arearose Ltd13 in which the Court of Appeal had before it a claim for personal injuries. The claimant was employed by the first defendants as branch manager of a fast food chain. Two youths assaulted him, fracturing the orbital wall of his right eye. In hospital he was given an orbital bone graft in order to prevent the eye from sinking into its socket. Through negligence on the part of the hospital, the bone graft impinged on the optic nerve, blinding him in his right eye. In addition he developed post-traumatic stress disorder. It was agreed that this was largely but not entirely a reaction to the loss of the eye. The question arose as to whether contribution could be ordered as between the employers (who, it was held, had not taken sufficient steps to protect the plaintiff from the risk of assault) and the hospital. The Court of Appeal held that the 1978 Act did not apply as the damage caused in the assault was not the “same damage” as that caused by the hospital’s negligence. Giving the judgment of the court, Laws LJ said:14 “The reason for the rule that each concurrent tortfeasor is liable to compensate for the whole of the damage is not hard to find. In any such case, the claimant cannot prove that either tortfeasor singly caused the damage, or caused any particular part or portion of the damage. Accordingly his claim would fall to be dismissed for want of proof of causation. But that would be the plainest injustice: hence the rule. However, the rule was a potential source of another injustice. A defendant against whom judgment had been given, under the rule, for the whole of the claimant’s damages had at common law no cause of action against his fellow concurrent tortfeasor to recover any part of what he had to pay under the judgment; so that the second tortfeasor, if for whatever reason he was not sued by the claimant, might escape scot free. Hence the Act of 1978 and its predecessor the Law Reform (Married Women and Tortfeasors) Act 1935. It provides a right of contribution between concurrent tortfeasors. The expression ‘same damage’ in section 1(1) therefore means (and means only) the kind of single indivisible injury as arises at common law in a case of concurrent torts . . . Now, the clearest instance of concurrent torts is one where the injury in question would not have occurred but for both torts: where, if only one had been committed, the injury would not have occurred at all . . . Suppose that two assailants, not acting in concert, shoot a man, who dies in consequence; but the expert evidence is that either shot on its own, while causing grave injuries, would not have been fatal. The death is entirely and only the result of both shots. This case is like that given by the American author Prosser, in which oil put in the stream by both defendants is ignited, and burns the plaintiff’s

13 [2001] QB 351. 14 At paragraphs 18, 19 and 23.

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barn. It is also like the wholly artificial case which I put to counsel in the course of argument, where two surgeons are simultaneously but independently operating on the claimant, each on one eye. Both are negligent, so that the sight in each eye is lost when it should not have been. But of course the combined effect is that the claimant is entirely blind: that is the single indivisible damage for which he is entitled to be compensated in full by either defendant . . . Upon the correct view of the sense to be accorded to ‘concurrent’ tortfeasors, the case before us is, in my judgment, not one of concurrent tortfeasors. The reason is that on the evidence the respective torts committed by the defendants were the causes of distinct aspects of the claimant’s overall psychiatric condition, and it is positively established that neither caused the whole of it.”

17.19  In paragraph 17.5 above an example is given of a case where architect and contractor might both be held liable for the same damage, namely a defective wall. To adapt that example to bring it within the considerations in Rahman v Arearose, one could assume that the contractor builds the wall defectively and then the architect proposes a remedial scheme that in the event makes matters worse – in that case no claim for contribution would arise. The court’s task would be to assess damages separately against each party for his contribution to the overall loss suffered by the claimant. 17.20  From the defendants’ point of view this would do justice because each would be liable only for that portion of loss caused by himself. However, the consequence for a claimant can be disadvantageous where one of two defendants is impecunious. If one assumes in the example given in paragraph 17.5 that the builder has no assets but the architect’s liability is insured with a solvent insurance company, the claimant could sue the architect and recover in full from him, leaving the architect with a valueless right of contribution against the contractor. In the example given in the previous paragraph the claimant would only recover the damages that the solvent architect could pay leaving the claimant nursing that portion of his loss that he cannot recover from the insolvent contractor. “Liable” 17.21  For a right of contribution to arise both parties (the party seeking contribution and the party from whom contribution is sought) must have been “liable” to the original claimant. 17.22  As has already been seen, the purpose of the 1978 Act was to extend the right of contribution beyond those liable in tort to the original claimant. The words “liable in respect of the same damage” in section 1(1) of the 1978 Act applies where “the person from whom contribution is sought is liable for the same harm or damage, whatever the legal basis of his liability”.15 17.23  This intent is made explicit by section 6(1) of the 1978 Act which provides: “A person is liable in respect of any damage for the purposes of this Act if the person who suffered it (or anyone representing his estate or dependants) is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise).”

17.24  The fact that a defendant’s liability is contractual, and thus strict, does not mean for that reason only that it is not liability for the same damage as that of the potential contributor where that liability is a tortious liability in negligence: see Prekookeanska 15 Per Lord Hope at paragraph [47] in Royal Brompton Hospital.

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Plovidba v Felstar Shipping Corporation16 where contribution was ordered between the owners of a colliding ship and the charterers of the damaged ship whose liability was the strict contractual liability for ordering the ship into an unsafe berth. 17.25  Questions have arisen as to the scope of application of the Act to restitutionary liabilities. In Friends Provident Life Office v Hillier Parker May & Rowden,17 there was an agreement between developers, a city council and Friends Provident for the construction of a shopping centre, the profits of the development to be shared between the parties. There was also a further agreement for the financing of the development under which Friends Provident and one of the developers were to bear the development costs in unequal proportions. Friends Provident engaged Hillier Parker (a firm of surveyors) as adviser and development consultant, part of whose responsibilities included checking the developer’s claims for Friends Provident’s share of the development costs. Friends Provident’s case against Hillier Parker was that it made payments that were not due to the developer in reliance upon Hillier Parker’s recommendations. Hillier Parker sought contribution from the overpaid developer. 17.26 The developer argued that Hillier Parker could have no right to contribution because any liability the developer would have been under to Friends Provident would have been a liability to make restitution for money had and received, which, it was argued, was not a liability to give “compensation” as required by section 6(1). The Court of Appeal rejected this argument. Auld LJ said:18 “In my judgment, despite the distinction between a claim for restitution and one for damages, each may be a claim for damage under sections 1(1) and 6(1) of the Act of 1978. The difference between asking for a particular sum of money back or for an equivalent sum of money for the damage suffered because of the withholding of it is immaterial in this statutory context, which is concerned with ‘compensation’ for ‘damage’. The purpose and effect of the Act were to provide for contribution beyond that of joint tortfeasors for which section 6 of the Law Reform (Married Women and Tortfeasors) Act 1935 had previously provided. The contribution is as to ‘compensation’ recoverable against a person in respect of ‘any damage suffered by another’ ‘whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise.’ It is difficult to imagine a broader formulation of an entitlement to contribution. It clearly spans a variety of causes of action, forms of damage in the sense of loss of some sort, and remedies, the last of which are gathered together under the umbrella of ‘compensation’.”

17.27 In Royal Brompton Hospital Lord Steyn doubted the correctness of the Friends Provident decision on the ground that “a claim for restitution cannot be said to be a claim to recover compensation within the meaning of section 1(1)”.19 However, the Court of Appeal has since followed Friends Provident, holding in Charter plc v City Index Ltd20 that a claim for contribution could be based upon the liability of the party from whom contribution is sought for the tort of knowing receipt of money. The members of the Court of Appeal were united in the result, but differed as to the width of application of the 1978 Act. Arden LJ distinguished between a liability to repay monies had and received (a liability to pay

16 [1994] 2 Lloyd’s Rep 14 cited with approval by Longmore LJ in Eastgate Group Ltd v Lindsey Morden Group Inc [2001] EWCA Civ 1446; [2002] 1 WLR 642 at paragraph [6]. 17 [1997] QB 85. 18 At 102G–103B. 19 At paragraph [33]. 20 [2007] EWCA Civ 1382; [2008] Ch 313.

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compensation which could found a claim for contribution) and a liability to account for profits (a restitutionary liability that could not found such a claim). 17.28  These cases illustrate that the scope of the liability to give contribution is wide, but there are limitations: one, as seen, is that a liability to account for profits may not found a claim for contribution. Another accepted restriction is that a person who is liable to a claimant in debt cannot seek contribution from a person who is liable to the claimant in damages.21 Further, the Act does not apply to claims between co-guarantors or co-securities.22 17.29  If proceedings have been concluded in which the person against whom contribution is sought has been held not to be liable to the original claimant, that will be conclusive as to liability for the purposes of section 1 of the Act – section 1(5) provides: “A judgment given in any action brought in any part of the United Kingdom by or on behalf of the person who suffered the damage in question against any person from whom contribution is sought under this section shall be conclusive in the proceedings for contribution as to any issue determined by that judgment in favour of the person from whom the contribution is sought.”

It was argued in Moy v Pettman Smith23 that “judgment” referred to any first instance judgment, so that it would be conclusive even if successfully appealed: unsurprisingly the House of Lords rejected this argument. 17.30  On the other hand, if the person against whom contribution is sought has been held liable to the original claimant, then that will establish liability for the purpose of the Act – see section 1(6) referred to below. A judgment of the court will be conclusive as between the parties as to the liability of the person seeking contribution to the original claimant unless and until it was set aside, even if demonstrably wrong in law.24 17.31  However, often no such decision will have been made, either because the original claimant chose to sue only one of those potentially liable, or because the party seeking contribution has settled with the original claimant. The Act deals with this possibility. 17.32  Firstly, section 1(6) provides: “References in this section to a person’s liability in respect of any damage are references to any such liability which has been or could be established in an action brought against him in England or Wales by or on behalf of the person who suffered the damage.”

This makes it clear that it is not necessary for the person seeking contribution to have been held liable to the original claimant – it is sufficient that he would have been liable if he had been sued. 17.33  Secondly, section 1(4) provides: “A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established.”

21 Per Longmore LJ in Eastgate Group Ltd v Lindsey Mordern Group Inc [2001] EWCA Civ 1446; [2002] 1 WLR 642 at paragraph [7]. 22 Hampton v Minns [2002] 1 WLR 1. 23 [2005] UKHL 7; [2005] 1 WLR 581. 24 BRB (Residuary) Ltd v Connex South Eastern Ltd [2008] EWHC 1172 (QB); [2008] 1 WLR 2867.

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The purpose of this subsection is to allow a party who faces a claim from the original claimant to settle with the claimant and then to seek contribution. 17.34  The effect of section 1(4) was considered by the House of Lords in Dubai Aluminium Co Ltd v Salaam.25 In his speech in that case, Lord Hobhouse said:26 “Section 1(1) of the 1978 Act requires the person claiming a contribution to prove that he was a ‘person liable in respect of’ the damage suffered by the injured party. But subsection (4) qualifies this where the person claiming the contribution has made a bona fide settlement or compromise of the claim against him in which case all he need prove is that he would have been liable ‘assuming that the factual basis of the claim against him could be established’. This raises the question: how is the factual basis of the claim against him to be identified? The answer to this question must depend upon the circumstances. The claim may have been settled or compromised without the commencement of legal proceedings or it may only be settled later after the exchange of pleadings or during the trial. Some proceedings may be governed by strict procedural rules, others may allow a party to inform the other of the factual basis of his claim with greater informality. Pleadings may be dispensed with. In the Commercial Court factual allegations may be particularised informally in a number of ways.”

17.35  It is always open to the person from whom contribution is sought to argue that he is not and never was liable to the original claimant – the burden of showing that he was liable rests upon the person claiming contribution. However, section 1(4) places a limitation upon what the person claiming contribution must prove in respect of the claim made against him that he has settled. This has been explained by the Court of Appeal in IMI plc v Delta Ltd:27 all the party claiming contribution in respect of a settled claim has to show is that the factual basis of the claim as originally made against him would have disclosed a reasonable cause of action against the party now claiming contribution so as to make him liable in law in respect of the damage alleged in the original claim. If the party claiming contribution can do that, then it is not open to the party from whom contribution is claimed to raise any other argument directed at showing that the claiming party was not liable to the original claimant. This assumes that the settlement made was bona fide. 17.36  Sometimes timing issues arise. Section 1(2) and (3) provide: “(2) A person shall be entitled to recover contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, provided that he was so liable immediately before he made or was ordered or agreed to make the payment in respect of which the contribution is sought. (3) A person shall be liable to make contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, unless he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based.”

17.37 In The Benarty (No 2),28 Hobhouse J said of these subsections: “The [1978 Act] is drafted on the basis that the word ‘liability’ is used potentially in the widest possible sense . . . Subsections (2) and (3) of section 1 of the Act make provision for the 25 [2002] UKHL 48; [2003] 2 AC 366. 26 At paragraph [69]. 27 [2016] EWCA Civ 773; [2016] 3 WLR 1595, overruling Arab Monetary Fund v Hashim (No 8) The Times, 17 June 1993 which had been followed by Cranston J in BRB (Residuary) Ltd v Connex South Eastern Ltd [2008] EWHC 1172 (QB); [2008] 1 WLR 2867. 28 RA Lister & Co Ltd v EG Thomson (Shipping) Ltd (The Benarty) (No 2) [1987] 1 WLR 1614 at 1620–1621.

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situation where either the person claiming the contribution or the person responding to that claim has ceased to be liable in respect of the relevant damage at the time the claim for compensation was made. Section 1(3) deals with the position of the respondent to the contribution claim and makes it clear that provided the respondent was initially liable in respect of the same damage it does not matter that he has ceased to be liable by the time the claim for contribution is made unless that cesser of liability arises from the expiry of a period of limitation or prescription which has extinguished the right on which his initial liability in respect of the relevant damage was based. It does not otherwise have to be a continuing or present liability.”29

17.38  Section 1(3) was considered by HH Judge Humphrey LLoyd QC in Oxford University Fixed Assets Ltd v Architects Design Partnership.30 In that case he held that an architect was not entitled to contribution from the contractor in respect of a claim by the employer for damages for negligence and breach of contract that was barred as between the employer and the contractor by the issue of the final certificate. He rejected an argument that the final certificate was to be disregarded because it merely constituted a cessation of liability of the kind contemplated by section 1(3): “The person claiming contribution must nevertheless still establish that prior to the cessation the person was liable, as defined by section 1(6). If the liability is in contract the question will be whether a breach of contract can be established. All the facts and all the terms of the contract have to be examined. If the contract were to say that no action shall be brought in respect of a certain default which is otherwise recognised as a breach of contract then liability for that breach could not be established. It would be perverse to describe that situation as one where liability has ceased.”

17.39  This decision was approved by Lord Hope in Co-operative Retail Services Ltd v Taylor Young Partnership Ltd.31 In that case the building owner (CRS) entered into a standard form contract with the main contractors (Wimpey) for the construction of new office premises. CRS engaged architects (TYP) and engineers (HLP) for the purposes of the project. Wimpey engaged electrical subcontractors (Hall). The House of Lords held that the effect of the main contract was that in the event of a fire, the parties would look to insurers to pay for the cost of remedying any damage. A fire occurred. CRS’s insurers brought proceedings in the name of CRS against TYP and HLP for negligence on the basis that the fire was caused by the negligence of TYP and/or HLP. TYP and HLP sought contribution from Wimpey and Hall. A preliminary issue was tried as to whether a claim in contribution could be brought assuming negligence were to be established. The House of Lords held that the effect of the contractual arrangement as to insurance was that, even if the fire had been caused by negligence on the part of Wimpey or Hall, CRS would have no claim against them for compensation. The result of this was that the claim for contribution failed because neither Wimpey nor Hall were or could ever have been liable to CRS for the same damage as that in respect of which CRS sued TYP and HLP. 17.40  However, a subsidiary issue was considered by the Court of Appeal and, on appeal, by the House of Lords. This issue was, at what date is the liability of a potential contributor

29 Cited by Simon Berry QC, sitting as a Deputy High Court Judge in Abbey National plc v Gouldman [2003] EWHC 925 (Ch); [2003] 1 WLR 2042 at paragraph [11]. Note that the Lord Hope in Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] UKHL 17; [2002] 1 WLR 1419 at paragraphs [55]–[59] disagreed with other parts of Hobhouse J’s decision in The Benarty. 30 (1999) 64 Con LR 12. 31 [2002] UKHL 17; [2002] 1 WLR 1419.

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to be considered for the purposes of section 1 of the Act? In a short paragraph,32 Lord Bingham said simply that “I agree, for reasons persuasively given by the Court of Appeal, that the liability of a person in respect of damage suffered by another person is to be judged as at the date when contribution is claimed against him.” Lord Hope dealt with the issue at greater length. The argument put before the House of Lords was, in effect, that all the parties to the project who were negligent were liable to CRS for the damage caused by the fire. However, it was argued that the true analysis of the position of Wimpey and Hall was not that they never had been liable to CRS, but that they only ceased to be liable to CRS when CRS was indemnified by insurers for the cost of remedying the fire damage. Accordingly, it was said, Wimpey and Hall had originally been liable to CRS but had ceased to be liable: however, for the purpose of the Act, Wimpey and Hall’s liability to give contribution was to be considered at the time when they were first liable (ie, before indemnity had been granted by the project insurers). Lord Hope rejected this argument. Like HH Judge LLoyd, he held that the time for considering whether a contribution was payable was when it was sought: if the person against whom the claim for contribution was then sought had ceased to be liable to the original claimant then the claim for contribution would fail. 17.41  A point to be noted on section 1(3) is the phrase “unless he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based”. These words were introduced by statute to reverse the decision under the previous legislation in George Wimpey & Co Ltd v British Overseas Airways Corporation,33 in which it had been held that a person could escape liability in contribution proceedings under the old legislation if he had been sued unsuccessfully by an injured party because his action was statute-barred under statutory limitation provisions. There is a distinction between cases where a party was never liable to the ultimate claimant (in which cases the effect of section 1(3) is that contribution is not available) and cessation of liability cases where the party from whom contribution is sought was liable to the ultimate claimant at an earlier time but that liability had since ceased. The effect of section 1(3) in this category of case is that contribution becomes unavailable in only one particular sub-category of claim (ie where the expiry of a period of limitation or prescription has extinguished the right on which the claim against him in respect of the damage was based). Neither judgment, nor settlement, nor the expiry of other periods of limitation (whether statutory or contractual) bar the right to contribution. The important point in practice is that the effect of statutory limitation under the Limitation Act 1980 is not to extinguish a right, but merely to introduce a procedural bar to proceeding.34 17.42  A situation in which a potential contributor can cease to be liable for the purposes of the Act is where the original claimant’s claim has been fully satisfied by one of several tortfeasors. This is what happened in Jameson v Central Electricity Generating Board.35 A few days before his death in 1988 from malignant mesothelioma, Mr Jameson agreed to accept £80,000 in “full and final settlement and satisfaction of all the causes of action in respect of which the plaintiff claimed in the statement of claim”, which was 32 Paragraph 9. 33 [1955] AC 169. 34 Bloomberg LP v Sandberg [2015] EWHC 2858 (TCC); [2016] BLR 72. 35 [2000] 1 AC 455.

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for negligence and/or breach of statutory duty in causing the disease by exposing him to asbestos in the premises of the defendant, CEGB, for whom the employer had undertaken work. By the time payment of the settlement sum was made by the employer, Mr Jameson had died. The £80,000 was significantly less than the full liability value of his claim. Mr Jameson’s executors now brought proceedings against CEGB. The House of Lords held that once a plaintiff’s claim had been satisfied by one of several tortfeasors his cause of action was extinguished against all of them and that the effect of a compromise was to fix the amount of a plaintiff’s claim in just the same way as if the plaintiff had obtained judgment after a trial. The effect was that the settlement by the employer had the effect of discharging the defendant CEGB from liability. Lord Clyde36 said that the result would have been different if the settlement agreement provided that this was a settlement only of the deceased’s claims against the employer without prejudice to any claims he might make against anybody else. He observed37 that where proceedings have been brought against both concurrent tortfeasors, release of one may more readily be seen as a reservation of rights against another, as in Townsend v Stone Toms & Partners (No 2),38 where the claims partially overlapped and account had to be taken of the sum recovered by agreement from the one party in the continuation of the action against the other. He continued:39 “In principle it seems to me that where settlement is sought with one alone, where the others are not involved in the proceedings, the intention of the parties should usually be taken to be that they are achieving a complete termination to any claims by the creditor and a complete freedom for the future for the debtor. On the one hand the creditor is being fully compensated for the value of his claim so as to exhaust any right to pursue it further in any direction. On the other hand the debtor is being discharged from any possible liability in contribution so that the creditor would be in breach of the agreement were he to sue a third party and create such a liability. Particular circumstances and particular terms in the agreement may obviate such consequences, but, where the matter has been left open and unclear, it seems to me that those are the consequences which should follow upon the settlement of one co-obligant in a joint and several obligation which has been carried out in the absence of any other co-obligant.”

Assessment of contribution 17.43  Section 2 of the Act provides: “Assessment of contribution (1) Subject to subsection (3) below, in any proceedings for contribution under section 1 above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person’s responsibility for the damage in question. (2) Subject to subsection (3) below, the court shall have power in any such proceedings to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity. (3) Where the amount of the damages which have or might have been awarded in respect of the damage in question in any action brought in England and Wales by or on behalf

36 At 481H. 37 At 482B. 38 (1984) 27 BLR 26. 39 At 484G–485A.

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of the person who suffered it against the person from whom the contribution is sought was or would have been subject to – (a) any limit imposed by or under any enactment or by any agreement made before the damage occurred; (b) any reduction by virtue of section 1 of the Law Reform (Contributory Negligence) Act 1945 or section 5 of the Fatal Accidents Act 1976; or (c) any corresponding limit or reduction under the law of a country outside England and Wales; the person from whom the contribution is sought shall not by virtue of any contribution awarded under section 1 above be required to pay in respect of the damage a greater amount than the amount of those damages as so limited or reduced.”

17.44  This section confers upon the court a wide discretion to order contribution. In the ordinary case, not involving fraud, causative potency is likely to be the most important factor in the assessment of relative responsibility that the court has to make40 but blameworthiness is also relevant in exercising what is a general discretion.41 In BICC Ltd and Cumbrian Industrials Ltd v Parkman Consulting Engineers42 the Court of Appeal cited the following passage from the judgment of HH Judge Thornton Q.C. in the court below: “In its context, the ‘responsibility’ referred to relates to factual responsibility in a causal sense, moral responsibility in the sense of culpability and organizational responsibility in the sense of where in the hierarchy of decision-making and in the organizational structure leading to the damage the contributing party was located.”

The court held that the judge was entitled to approach the case in the way he did. In assessing contribution a court is entitled to take into account non-causative factors,43 but causative responsibility is the most important factor and non-causative factors should play a secondary and potentially limited role compared to causative factors in deciding apportionment and there would have to be a sufficient relationship between the non-causative action and the damage in question.44 17.45  A situation frequently encountered is where loss or damage is caused by negligent supervision or inspection on the part of a designer (usually an architect or engineer) and defective workmanship on the part of a contractor. In that situation the apportionment to the supervisor is normally in the range 20–331/3%.45 What might be said to be converse cases arise where it has been held that a contractor should have noticed and drawn to the 40 Ramsey J at paragraph [153] in Mouchel Ltd v Van Oord (UK) Ltd [2011] EWHC 72 (TCC) citing Downs v Chappell [1997] 1 WLR 426 at page 445 and Re-Source America International Ltd v Platt Site Services Ltd [2004] EWCA Civ 665; [2006] 2 Lloyd’s Rep60 at paragraph [51]. 41 HH Judge Grant in Harrison v Technical Sign Company Ltd [2012] EWHC 2887 (TCC); [2013] BLR 244 at paragraph [108] following Brian Warwicker Partnership v HOK International Ltd [2005] EWCA Civ 962; [2006] PNLR 5. 42 [2002] BLR 64 at paragraph [106]. 43 Re-Source America International Ltd v Platt Site Services Ltd [2004] EWCA Civ 665; (2004) 95 Con LR 1 at paragraph [51]. 44 Brian Warwicker Partnership Plc v HOK International Ltd [2005] EWCA Civ 962; [2006] PNLR 5 at paragraphs [45] and [51]. 45 BICC Ltd and Cumbrian Industrials Ltd v Parkman Consulting Engineers [2002] BLR 64; 79 Con LR 112 at paragraph [102]. See also Worlock v SAWS and Rushmoor Borough Council (1982) 22 BLR 66 where the Court of Appeal overturned an apportionment of 60/40 between contractor and local authority responsible for Building Regulation inspection and substituted an apportionment of 75/25. The authorities were considered with care by Akenhead J in Carillion JM ltd v PHI Group Ltd [2011] EWHC 1379 (TCC) at paragraphs [247]–[258]. In a case

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designer or employer’s attention defects in a design. In those cases the apportionment to the contractor has been in the bracket 15–25%.46 17.46  The apportionment between the parties may be affected by contractual provisions such as a net contribution clause.47 17.47  Some of the authorities concern the approach to contribution where one party is said to have been fraudulent and another only negligent. In K v P,48 the plaintiffs brought an action for damages against the defendants for, inter alia, conspiracy to defraud the plaintiffs by the obtaining of inflated fees and commission payments in respect of a number of property transactions conducted by the defendants on the plaintiffs’ behalf. One of the defendants issued a third party notice against the plaintiffs’ accountant claiming an indemnity or contribution in respect of any liability that he might be under to the plaintiffs, on the ground that the accountant had negligently failed to warn the plaintiffs of the risks inherent in the defendants’ transaction. The accountant contended that as the basis of the defendant’s liability was the defendant’s illegal activities the doctrine of “ex turpi causa non oritur actio” would prevent the defendant obtaining any contribution, and therefore asked for the contribution claim to be struck out. Ferris J not only refused to hold that the maxim precluded any claim under the 1978 Act, but also refused to assume that the consequence of an assessment of contribution between a party guilty of dishonesty and a negligent professional would necessarily be that the negligent professional would be exempted from any liability to contribute. 17.48  Contribution in the context of dishonesty causes difficult questions for the courts, questions that might be thought to be as much moral as legal. In Dubai Aluminium Co Ltd v Salaam49 the plaintiffs claimed to recover commission and other payments made as a result of a fraudulent scheme involving sham contracts. It was alleged that a solicitor was a participant in the fraud. The solicitor’s partners were personally innocent of any wrongdoing, and the allegedly “guilty” solicitor had not benefited from the fraud apart from relatively modest sums paid to firms in which he had been a partner. 17.49  The House of Lords held that because the liability of the innocent parties for the acts of the vicarious party was vicarious, their liability was as great as that of the allegedly fraudulent solicitor. The trial judge had been Rix J. Commenting upon Rix J’s views, Lord Nicholls said:50 “On the approach of Rix J an employer is in a better position, vis-à-vis co-defendants, than the employee for whose wrong the employer is vicariously liable. A co-defendant is worse placed to resist a contribution claim from an employer than he is from the wrongdoing employee. This cannot be right. It would mean that a co-defendant’s liability to make a contribution payment differs, according to whether contribution is being sought by the employer or the employee. An employer could obtain contribution from a co-defendant in circumstances where where a mechanical engineer had design and inspection responsibilities, an apportionment of 40% to the engineer was made: Greenwich Millennium Village Ltd v Essex Services Group plc [2013] EWHC 3059 (TCC). 46 Plant Construction plc v Clive James Associates [2000] BLR 137 at first instance 20%; Equitable Debenture Assets Corporation v William Moss Group Ltd [1984] Con LR 1, 15%; Lindenberg v Canning (1993) 62 BLR 147, 25%. 47 See Langstane Housing Association Ltd v Riverside Construction (Aberdeen) Ltd [2009] CSOH 52; (2009) 124 Con LR 211; West v Ian Finlay & Associates [2014] EWCA Civ 316; [2014] BLR 324. 48 [1993] Ch 140. 49 [2002] UKHL 48; [2003] 2 AC 366. 50 At paragraphs [46]–[48].

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the wrongdoing employee could not. If an employee was one of two wrongdoers equally to blame, his ‘innocent’ employer could look to the other, blameworthy wrongdoer for a contribution even though the employee could not. Or take a more extreme case, where an employee is four-fifths responsible and a co-defendant one-fifth. If the employer’s blamelessness could be taken into account in contribution proceedings, the co-defendant could find himself saddled with responsibility for more than a one-fifth share of the damages. The personally ‘innocent’ employer, vicariously responsible for the acts of the employee who bears most of the responsibility for the accident, could recover contribution amounting to an indemnity from the individual wrongdoer whose blameworthiness, as between two individual wrongdoers, is assessed at only one-fifth. Examples such as these point irresistibly to the conclusion that vicarious liability involves the notion that, vis-à-vis third parties, the employer, although personally blameless, stands in the shoes of the wrongdoer employee. This is so, both for the purposes of liability to the plaintiff claimant and for the purposes of contribution proceedings. In both cases the employer’s liability is vicarious, that is, substitutional, not personal. The employer is liable for the fault of another . . . Rix J was minded to treat cases of dishonesty differently from cases of negligence. I can see no basis for drawing such a distinction. The consequences of vicarious responsibility do not differ according to the nature of the wrong, with the employer being able to rely on his personal blamelessness in a case of dishonesty but not in a case or negligence. Nor is there anything unjust in this approach. An employer is only required to assume vicarious liability for his employee’s dishonesty when the dishonest act was so closely connected with acts the employee was authorised to do that it may fairly and properly be regarded as done by the employee in the course of his employment.”

In consequence, the personal innocence of parties liable for allegedly fraudulent activities of a partner was held to be irrelevant in assessing contribution. On the other hand, in assessing contribution regard was had to the amounts payable by each party under a compromise agreement with the claimant and the amounts of the claimant’s money each still had in hand. 17.50  In so far as the Dubai Aluminium case determined that an employer is liable vicariously to give contribution to the same extent as the employee, it was followed in Viasystems (Tyneside) Ltd v Thermal Transfer (Northern) Ltd.51 Thus someone vicariously liable for the negligence of another will be liable to pay contribution to the like extent as the wrongdoer, regardless of his personal blamelessness. 17.51  The proper approach to assessment of contribution under section 2 of the Act has more recently been considered by Christopher Clarke J in Nationwide Building Society v Dunlop Haywards (DHL) Ltd.52 This was another in a long line of mortgage fraud cases. The building society suffered loss as a result of making two loans to a company in reliance on fraudulently overstated valuations of a property. In a single action it claimed damages in deceit, alternatively negligence, against the valuers (DHL), and damages in negligence against its own solicitors (Cobbetts). The solicitors settled with the claimant for £5.585 million and a substantial sum in respect of costs. The solicitors claimed contribution from the valuers. 17.52  The total claimed in the proceedings was a little over £15.5 million after giving credit for the monies received from the solicitors: the judge held that as against the valuers the measure of damages was slightly less than this figure – just under £15.5 million, or just over £21 million before giving credit for the sum received from the solicitors. The judge 51 [2005] EWCA Civ 1151; [2006] QB 510. 52 [2009] EWHC 254 (Comm); [2010] 1 WLR 258.

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considered what was meant by “the damage in question” in section 2(1). On the facts of the case before him, was that damage the claimant’s loss of some £21 million, or the amount that the solicitors had paid, namely £5.585  million. If it were the former, as he pointed out, then if responsibility were to be apportioned 75/25 with the valuers bearing the 75% responsibility, the solicitors would receive virtually no contribution since 25% of £21 million would be roughly what they had paid. 17.53  The judge started by considering whether and to what extent the defendants were liable for the same damage within the meaning of section 1(1) of the Act. In his view the valuers, who were liable in deceit, were liable to pay damages on a more liberal basis than the solicitors because in deceit the claimant could recover from the valuers losses that were not reasonably foreseeable.53 17.54 He continued that it was necessary to distinguish between three different circumstances:54 “It is, however, necessary to distinguish between three different circumstances viz: (1) D1 and D2 are not liable for the same damage because they are responsible for different things; (2) D1 and D2 are both liable for the same damage and in the same amount; (3) D1 and D2 are liable for the same damage but D2 is liable for less than D1, for example because he has available to him defences which reduce what would otherwise be his liability for the damage in question, for example contributory negligence and contractual or statutory limitation. Royal Brompton Hospital . . . falls within category (1) . . . Many, perhaps most, contribution cases fall within category (2). A claim brought by an injured passenger against two negligent drivers is a paradigm example. The present case falls partly within category (1) and partly within category (2). DHL and Cobbetts are, to some extent . . . liable for the same damage. To the extent that they are . . . Cobbetts have available to them (but [the valuers] do not) defences of contributory negligence and contractual limitation. As a result any damages awarded against them in respect of that damage will be less than those awarded against DHL.”

17.55  The judge decided that the first step to be taken was to assess what part of the total of £21 million was damage for which both defendants were responsible. He held that that was £13.2 million before the application of any reduction for contributory negligence.55 No reduction was to be made for contributory negligence so far as the fraudulent valuers were concerned. However he reduced the figure so far as the solicitors were concerned by 50% for contributory negligence; that is, to £6.6 million. 17.56  The solicitors had the benefit of a limitation clause limiting their liability to £5 million per transaction. It was argued that the £6.6 million should be reduced further to allow for that limitation. The judge declined to do so.56 It will be interesting to see if this part of his judgment is followed in later cases. 17.57  Contribution can also be recovered in respect of sums paid by a defendant to a claimant,57 probably including any costs paid to the original claimant by way of settlement.58

53 Paragraph [47]. 54 Paragraphs [50]–[52]. 55 Paragraph [71]. 56 Paragraph [75]. 57 Per Christopher Clarke J in Nationwide Building Society (above) at paragraphs [81]–[83], following BICC Ltd v Cumbrian Industrial Ltd [2002] Lloyd’s Rep PN 526. 58 Mouchel Ltd v Van Oord (UK) Ltd Co 2 [2011] EWHC 1516 (TCC); [2011] BLR 492 disapproving J Sainsbury plc v Broadway Malyan (1998) 61 Con LR 31.

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17.58  Section 2(4) of the Act refers to a “bona fide” settlement or compromise of a claim. There is little authority on what will be regarded as not being a “bona fide” settlement.59 Summary 17.59  Some of the principal conclusions to be derived from the above are as follows:   (1) “Damage” refers to the damage, loss or harm suffered by the original claimant (paragraph 17.7 above).   (2) The “damage” for which the person from whom contribution is sought must be the same “damage” as that suffered by the person to whom the person seeking contribution was liable (paragraphs 17.9–17.12 above).   (3) The “damage” can be the same damage even if the amount recoverable by way of damages may vary according to the cause of action that the original claimant might have been able to enforce (paragraph 17.13 above).   (4) For a right of contribution to arise, both parties (the party seeking contribution and the party from whom contribution is sought) must have been “liable” to the original claimant (paragraph 17.21 above).   (5) If the person from whom contribution is sought has been held by a court not to be liable, that is a conclusive answer to a claim for contribution (paragraph 17.29 above).   (6) Conversely, if the person from whom contribution is sought has been held by a court to be liable, that is a conclusive answer as to liability for the purposes of a claim for contribution (paragraph 17.30 above).   (7) A party who has bona fide settled a claim against him is entitled to rely upon that as evidence of his liability to the original claimant. The person against whom contribution is claimed can only resist such reliance if there was no reasonable cause of action pleaded by the original claimant (paragraphs 17.33 and 17.35 above).   (8) The burden of showing that a person against whom contribution is claimed was liable to the original claimant lies with the person claiming contribution, so that the person against whom contribution is claimed can avoid such a claim if the court holds that he was never liable to the original claimant (paragraphs 17.34 and 17.35 above).   (9) When considering the amount of contribution to be awarded, a party vicariously liable is liable to the same extent as a party liable personally (paragraphs 17.48 to 17.50 above). (10) Where there is no question of fraud, the court has a general discretion in assessing contribution, having regard particularly to causative potency and blameworthiness, but also taking into account non-causative factors as a secondary factor in appropriate cases (paragraph 17.44 above).

59 The point arose for consideration in Abbey National plc v Gouldman [2003] EWHC 925 (Ch); [2003] 1 WLR 2042, but the case concerned a striking out application – the judge went no further than indicating that there were matters to be investigated as to the nature of the complicated and unusual settlement agreement there under consideration.

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(11) There are particular difficulties in assessing contribution when one party is liable for non-dishonest liability and the other for liability arising out of dishonesty (paragraphs 17.51 to 17.56 above). (12) When assessing contribution, the first step is to assess for what part of the overall liability to the claimant were both defendants responsible. Then any liability for contributory negligence is to be taken into account in respect of each liable party separately (paragraph 17.55 above).

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CHAPTER  18

Claiming finance costs and interest 18.1  The circumstances in which a recovery can be made in respect of losses suffered by a party as a result of being kept out of money have been the subject of significant legal changes over recent years, both legislative and judicial in origin.1 Recovery of “loss and expense” 18.2  It was established some years ago that where a project is delayed by circumstances for which the employer is contractually responsible, the contractor is entitled to recover as part of loss and expense recoverable for the delay interest payments made on an overdraft as a result of late payments. In FG Minter v Welsh Health Technical Services Organisation,2 the Court of Appeal construed a contractual right to “direct loss and/or expense” under the 1963 RIBA Standard Form of Contract as including a right to be paid finance charges on other primary loss and expense. In Minter the contractor had been delayed by variations and the late receipt of drawings as a consequence of which the contractor received payments later than it would otherwise have done. The amount awarded was limited to finance charges relating to the period between loss and expense being incurred and the making of a written application for reimbursement. This meant that each monthly application would have had to include an updated application for interest costs. 18.3  Minter was followed in Rees & Kirby v Swansea City Council,3 in which certification and payment of a final account was unreasonably delayed. Both cases were approved and followed in Scotland – see Ogilvie Builders Ltd v Glasgow District Council.4 18.4  In the recognition of the justice in awarding compound interest to reflect the real costs to a party of delayed cash flow, construction law was somewhat ahead of legal developments elsewhere. Interest as damages 18.5 Until recently, the courts have been unwilling to allow awards of damages in respect of interest incurred save in restricted circumstances – first, in contract where the claim for damages could be brought within the “second rule in Hadley v Baxendale”;5 and, secondly, where there was a contractual or tortious duty to prevent the claimant suffering   1 The author acknowledges the assistance obtained in writing this chapter from HH Judge Thornton QC’s paper, Compound Interest and Financing Claims: The Sempra Metals Revolution, SCL Paper 150, October 2008.   2 (1980) 13 BLR 1.   3 (1985) 30 BLR 1.   4 [1995] SLT 15.  5 Wadsworth v Lydell [1981] 1 WLR 598 – for a discussion of the rule in Hadley v Baxendale, see Chapter 8 above.

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such financial losses.6 The policy of the law was reflected in the following dictum of Hobhouse J:7 “The surviving principle of legal policy is that it is a legal presumption that in the ordinary course of things a person does not suffer any loss by reason of the late payment of money. This is an artificial assumption, but is justified by the fact that the usual loss is an interest loss and that compensation for this has been provided for and limited by statute.”

18.6  The consequence of this approach was that damages could not be recovered for late payment of a debt – a principle upheld by the House of Lords more than once.8 However, those decisions were effectively overruled by the House of Lords in Sempra Metals Ltd v Inland Revenue Commissioners.9 The House of Lords there decided that “it is always open to a claimant to plead and prove his actual interest losses caused by late payment of a debt. These losses will be recoverable, subject to the principles governing all claims for damages for breach of contract, such as remoteness, failure to mitigate and so forth.10 . . . the court has a common law jurisdiction to award interest, simple and compound, as damages on claims for non-payment of debts as well as on other claims for breach of contract and in tort.”11

Lord Nicholls further explained:12 “In the nature of things the proof required to establish a claimed interest loss will depend on the nature of the loss and the circumstances of the case. The loss may be the cost of borrowing the money. That cost may include an element of compound interest. Or the loss may be loss of an opportunity to invest the promised money. Here again, where the circumstances require, the investment loss may need to include a compound element if it is to be a fair measure of what the plaintiff lost by the late payment. Or the loss flowing from the late payment may take some other form. Whatever form the loss takes the court will, here as elsewhere, draw from the proved or admitted facts such inferences as are appropriate. That is a matter for the trial judge. There are no special rules for the proof of facts in this area of law.”

18.7  Thus much of the complication of this area of the law of damages appears to have been stripped away. 18.8  However, as set out below, the law of damages works in this area alongside statutory schemes for the award of interest. The Senior Courts Act 1981 18.9  Faced with the refusal of the courts to award damages for late payment of damages, Parliament intervened to give the courts power to award interest. In its most recent

 6 Johnson v Gore Wood & Co (No. 2) [2003] EWCA Civ 1728 (a solicitor’s negligence case); Earl Terrace Properties Ltd v Nilsson Design Ltd [2004] BLR 273 (an architect’s negligence case).  7 International Minerals & Chemical Corporation v Karl O. Helm AG [1986] 1 Lloyd’s Rep 81 at 104.  8 President of India v La Pintada Compania Navigacion SA [1985] AC 104; President of India v Lips Maritime Corporation [1988] AC 395.   9 [2007] UKHL 34; [2008] 1 AC 561. 10 Per Lord Nicholls at paragraph [94]. 11 Per Lord Nicholls at paragraph [100]. 12 At paragraph [95].

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form, the power of the High Court to award interest is in section 35A of the Senior Courts Act 1981 (previously known as the Supreme Court Act 1981):13 “(1) Subject to rules of court, in proceedings (whenever instituted) before the High Court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and (a) in the case of any sum paid before judgment, the date of the payment; and (b) in the case of the sum for which judgment is given, the date of the judgment.”

[Sub-section (2) applies to claims for personal injuries or death]. (3) Subject to rules of court, where – (a) there are proceedings (whenever instituted) before the High Court for recovery of a debt and (b) the defendant pays the whole debt to the plaintiff (otherwise than in pursuance of a judgment in the proceedings), the defendant shall be liable to pay the plaintiff simple interest at such rate as the court thinks fit or as rules of court may provide on all or any part of the debt for all or any part of the period between the date when the cause of action arose and the date of the payment. (4) Interest in respect of a debt shall not be awarded under this section for a period during which, for whatever reason, interest on the debt already runs” . . . (6) Interest under this section may be calculated at different rates in respect of different periods.”

18.10 As has been seen, following Sempra Metals, the courts will award compound interest by way of damages on a wider basis than before: by contrast this statutory provision allows only the award of simple interest, and that award is not an entitlement (as is an award of damages) but is in the discretion of the judge. 18.11  The way in which that discretion will normally be exercised has been established in a number of cases. In a judgment concerned with a previous statute containing very similar powers to the 1981 Act, Robert Goff J said:14 “The fundamental principle is that interest is not awarded as a punishment, but simply because the plaintiff has been deprived of the use of the money which was due to him . . . the power to award interest is discretionary, and there is certainly no rule that interest will invariably run from the date of loss. It is no part of my task to attempt to define the circumstances in which the court will depart from the fundamental principle; indeed, since the discretion to award interest is unfettered, it would be improper to do so. There appear, however, to be three main groups of cases in which, in the exercise of its discretion, the court may depart from the fundamental principle. The first group of cases concerns the position of the defendant. The court may consider, in the light of all the circumstances, that his position was such that it would not be just to make the defendant pay interest from the date of the loss. It may do so if, for example the circumstances were such that the defendant neither knew, nor reasonably could have been expected to know, that the plaintiff was likely to make a claim, and so was in no position either to tender payment, or even to make provision for payment if the money should be found due. In such a

13 Similar power is given to a County Court by section 69 of the County Court Act. 14 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 at 845–847.

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case, the court may in its discretion only grant interest from the date of the plaintiff’s claim, or even from such date as will allow reasonable investigation of the claim. Again, to quote from Lord Wilberforce’s speech in the Firestone case,15 at 836: ‘In a commercial setting, it would be proper to take account of the manner in which and the time at which persons acting honestly and reasonably would pay.’ On that principle, the majority of the House took account of a normal commercial practice under which royalties in respect of use before grant of a patent are not expected to be paid until grant, and so awarded interest only from the date of the grant. There are no doubt other examples. The second group of cases concerns the conduct of the plaintiff. If, for example, the plaintiff has been guilty of unreasonable delay in prosecuting his claim, the court may decline to award interest for the full period from the date of loss. This may be to encourage plaintiffs to prosecute their claims with diligence, and also because such conduct may lull a defendant into a false sense of security, leading him to think that the claim will not be pursued against him . . . The third group consists of other cases in which it would be unjust, in all the circumstances, to award interest from the date of loss. Into this group fall those cases on which an assessment of damages is made on such a basis that it would be just to award interest from a later date, as for example was held in Jefford v Gee, in respect of interest on general damages . . . The basic principle is, however, that interest will be awarded from the date of loss. Furthermore, the mere fact that it is impossible for the defendant to quantify the sum due until judgment has been given will not generally preclude such an award . . . Similarly, the mere fact that it is doubtful whether the plaintiff’s claim will succeed, and it is reasonable to contest his claim, will not generally require any departure from the general principle; nor generally will any doubt, however justified, as to the principles of law which will be applied. Another matter which is generally ignored is the financial situation of the plaintiff; it should make no difference even, if, for example, it could be shown that a plaintiff in a personal injury action was a person who would simply have paid the damages, if received earlier, into his current account at the bank which was permanently in credit.”

18.12  It is not uncommon to find that there has been delay in proceeding on the part of the claimant. On occasions the court responds by reducing the rate of interest that it is ordered that the defendant should pay16 or the period for which interest is ordered,17 or even no interest at all.18 Commenting upon such cases, Colman J said:19 “If interest is withheld, the defendant receives a windfall. He has free use of funds which, if he had performed his obligation to pay, would not have been in his hands. Since the English Courts have no jurisdiction to order compound interest, the defendant will enjoy the further benefit of relatively inexpensive use of inexpensive funds even if finally ordered to pay interest for the entire period from the cause of action arising until judgment . . . In cases where the delay and the degree of fault are so substantial that the predominant cause of the plaintiff being out of his money can be seen to be his own failure to prosecute the claim, rather than the defendant’s maintenance of his defence, it is not difficult to see that the policy should be that a successful plaintiff should not be compensated for loss of use of the money. However, in order for it to be said that the plaintiff’s fault has displaced the defendant’s fault as the predominant cause of the plaintiff being kept out of his money, the delay in question would have to be very substantial and not merely relatively short periods of weeks or months during which in commercial

15 General Tire & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819. 16 La Pintada at first instance, [1983] 1 Lloyd’s Rep 37 at 44. 17 Metal Box Ltd v Currys Ltd [1988] 1 WLR 175. 18 BP v Hunt (above). 19 In Derby Resources AG v Blue Corinth Marine Co Ltd (No 2)(“The Athenian Harmony”) [1988] 2 Lloyd’s Rep 425 at 427.

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litigation lulls in litigation inevitably occur and the plaintiff’s fault would have to be very substantial, as where an action has been inexcusably allowed to go to sleep for years.”

18.13 In Claymore Services Ltd v Nautilus Properties Ltd,20 Jackson J reviewed the above and other more recent authorities and summarised their effect as follows: “(1) Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest. (2) In exercising that discretion the court must take a realistic view of delay. In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else. Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period. (3) When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant had the use of the money during that period of delay.”21

18.14  There is a substantial body of cases that suggest that in “commercial” cases, ie claims between business enterprises, the rate of interest to be awarded (barring a reduction for delay on the part of the claimant) should be 1% over base rate unless the judge is satisfied that a higher rate reflects the rate that the claimant pays on borrowed money.22 The Arbitration Act 1996 18.15  Section 49 of the Arbitration Act 1996 provides: “(1) The parties are free to agree on the powers of the tribunal as regards the award of interest. (2) Unless otherwise agreed by the parties the following provisions apply. (3) The tribunal may award simple or compound interest from such dates, at such rates and with such rests as it considers meets the justice of the case – (a) on the whole or part of any amount awarded by the tribunal, in respect of any period up to the date of the award; (b) on the whole or part of any amount claimed in the arbitration and outstanding at the commencement of the arbitral proceedings but paid before the award was made, in respect of any period up to the date of payment. (4) The tribunal may award simple or compound interest from the date of the award (or any later date) until payment, at such rates and with such rests as it considers meets the justice of the case, on the outstanding amount of any award (including any award of interest under subsection (3) and any award as to costs). (5) References in this section to an amount awarded by the tribunal include an amount payable in consequence of a declaratory award by the tribunal. (6) The above provisions do not affect any other power of the tribunal to award interest.” 20 [2007] BLR 452. 21 This passage was cited and applied by Mr Richard Fernyhough QC in Costain Ltd v Charles Haswell & Partners Ltd [2009] EWHC 3140 (TCC); 128 Con LR 154 at paragraphs [279]–[287]. 22 Claymore Services v Nautilus Properties (above) at paragraphs [70]–[81] and the cases reviewed in those paragraphs, including Tate and Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR 149; BP v Hunt (above); Shearson Lehman Hutton Inc v MacClaine Watson & Co Ltd [1990] 3 All ER 723; Kuwait Airways Corporation v Kuwait Insurance Company SAK [2000] EWHC 191 (Comm).

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18.16  In contrast to the 1981 Act, the default provisions of the Arbitration Act allow an arbitral tribunal at its discretion to award compound interest – that this practice should normally be followed, but in all other respects substantially to follow the practices of the courts under the 1981 Act. 18.17  Not to exercise the power under section 49 of the 1996 Act may be a substantial injustice to a claimant.23 18.18  Where no sum becomes due or payable until the award is made, no interest can be awarded under the 1996 Act.24 Adjudication 18.19 Schemes for adjudication often grant the adjudicator power to award interest. Under the “Statutory” scheme in the Scheme for Construction Contract Regulations 1998,25 paragraph 20 of Part I provides: “[The adjudicator] may . . . (c) having regard to any term of the contract relating to the payment of interest decide the circumstances in which, and the rates at which, and the periods for which simple or compound rates of interest shall be paid.”

18.20  As will be seen below, legislation now implies a term as to interest into certain contracts. The Late Payment of Commercial Debts (Interest) Act 1998 18.21 This Act received relatively little attention for some time (doubtless in part because of delay in it being brought into force), but some decisions have highlighted the significant effects of its provisions. 18.22  Section 2 of the Act provides that: “(1) This Act applies to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, other than an excepted contract. (2) In this Act “contract for the supply of goods or services” means – (a) a contract of sale of goods; or (b) a contract (other than a contract of sale of goods) by which a person does any, or any combination, of the things mentioned in subsection (3) for a consideration that is (or includes) a money consideration. (3) Those things are – (a) transferring or agreeing to transfer to another the property in goods; (b) bailing or agreeing to bail goods to another by way of hire or, in Scotland, hiring or agreeing to hire goods to another; and (c) agreeing to carry out a service.”

23 This appears to be the effect of CNH Global NV v PGN Logistics Ltd [2009] EWHC 977 (Comm); [2009] 1 CLC 807. 24 BP Chemicals Ltd v Kingdom Engineering (Fife) Ltd (1994) 69 BLR 113. 25 SI 1998/649.

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Claiming finance costs and interest

18.23  The effect is that all construction contracts except those involving consumers are caught by the Act. The Act has no effect upon claims brought in tort. 18.24  Section 1 provides for “statutory interest” in the following terms (implying a term into applicable contracts): “(1) It is an implied term in a contract to which this Act applies that any qualifying debt created by the contract carries simple interest subject to and in accordance with this Part. (2) Interest carried under that implied term (in this Act referred to as ‘statutory interest’) shall be treated, for the purposes of any rule of law or enactment (other than this Act) relating to interest on debts, in the same way as interest carried under an express contract term. (3) This Part has effect subject to Part II (which in certain circumstances permits contract terms to oust or vary the right to statutory interest that would otherwise be conferred by virtue of the term implied by subsection (1).”

18.25  Section 8 (in Part II) sets out the circumstances in which the terms as to statutory interest can be ousted: “(1) Any contract terms are void to the extent that they purport to exclude the right to statutory interest in relation to the debt, unless there is a substantial contractual remedy for late payment of the debt. (2) Where the parties agree a contractual remedy for late payment of the debt that is a substantial remedy, statutory interest is not carried by the debt (unless they agree otherwise). (3) The parties may not agree to vary the right to statutory interest in relation to the debt unless either the right to statutory interest as varied or the overall remedy for late payment of the debt is a substantial remedy. (4) Any contract terms are void to the extent that they purport to – (a) confer a contractual right to interest that is not a substantial remedy for late payment of the debt, or (b) vary the right to statutory interest so as to provide for a right to statutory interest that is not a substantial remedy for late payment of the debt, unless the overall remedy for late payment of the debt is a substantial remedy. (5) Subject to this section, the parties are free to agree contract terms which deal with the consequences of late payment of the debt.”

18.26  The reference to “a substantial remedy” is explained by section 9: “(1) A remedy for the late payment of the debt shall be regarded as a substantial remedy unless – (a) the remedy is insufficient either for the purpose of compensating the supplier for late payment or for deterring late payment; and (b) it would not be fair or reasonable to allow the remedy to be relied on to oust or (as the case may be) to vary the right to statutory interest that would otherwise apply in relation to the debt. (2) In determining whether a remedy is not a substantial remedy, regard shall be had to all the relevant circumstances at the time the terms in question are agreed. (3) In determining whether subsection (1)(b) applies, regard shall be had (without prejudice to the generality of subsection (2)) to the following matters – (a) the benefits of commercial certainty; (b) the strength of the bargaining positions of the parties relative to each other; (c) whether the term was imposed by one party to the detriment of the other (whether by the use of standard terms or otherwise); and (d) whether the supplier received an inducement to agree to the term.”

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Claiming finance costs and interest

It was not the intention of Parliament to treat a contractual rate of interest for late payment as not meeting the “substantial remedy” test in section 9 simply because it is materially lower than the statutory rate.26 18.27  Thus, if the contract provides no remedy for late payment, statutory interest is payable. If a remedy is provided, then prima facie the statutory scheme is ousted, but subject, inter alia, to similar considerations to those applicable under the Unfair Contract Terms Act 1977 (see Chapter 20). However, unlike the position under the 1977 Act, the onus of showing that an agreed provision is unreasonable seems to be upon the person making that suggestion: the effect of the Act appears to be to lean towards upholding parties’ bargains as to a remedy for late payment, but to impose a punitive regime if the parties do not themselves address the issue in their contract. There is no reported case of which the author is aware showing the courts’ approach to these ousting provisions. It is not hard to imagine, however, that any main contractor abusing its commercial power to deny a smaller subcontractor an adequate remedy for late payment would find a hostile reception in a court applying these provisions. 18.28  Section 3 defines what are “qualifying debts”: “(1) A debt created by virtue of an obligation under a contract to which this Act applies to pay the whole or any part of the contract price is a “qualifying debt” for the purposes of this Act, unless (when created) the whole of the debt is prevented from carrying statutory interest by this section. (2) A debt does not carry statutory interest if or to the extent that it consists of a sum to which a right to interest or to charge interest applies by virtue of any enactment (other than section 1 of this Act). This subsection does not prevent a sum from carrying statutory interest by reason of the fact that a court, arbitrator or arbiter would, apart from this Act, have power to award interest on it. (3) A debt does not carry (and shall be treated as never having carried) statutory interest if or to the extent that a right to demand interest on it, which exists by virtue of any rule of law, is exercised.”

Thus if some other provision entitles the creditor to interest, the 1998 Act does not apply. However the availability of the provisions of the Senior Courts Act 1981 and the Arbitration Act 1996 do not take a case out of the machinery of the 1998 Act. 18.29  Section 4 provides for the period over which statutory interest runs: “(1) Statutory interest runs in relation to a qualifying debt in accordance with this section (unless section 5 applies). (2) Statutory interest starts to run on the day after the relevant day for the debt, at the rate prevailing under section 6 at the end of the relevant day. (3) Where the supplier and the purchaser agree a date for payment of the debt (that is, the day on which the debt is to be created by the contract), that is the relevant day unless the debt relates to an obligation to make an advance payment. A date so agreed may be a fixed one or may depend on the happening of an event or the failure of an event to happen. (4) Where the debt relates to an obligation to make an advance payment, the relevant day is the day on which the debt is treated by section 11 as having been created. (5) In any other case, the relevant day is the last day of the period of 30 days beginning with – (a) the day on which the obligation of the supplier to which the debt relates is performed; or

26 Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC) at paragraph [88].

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Claiming finance costs and interest

(b) the day on which the purchaser has notice of the amount of the debt or (where that amount is unascertained) the sum which the supplier claims is the amount of the debt, whichever is the later.”

18.30  Section 6 provides for the rate of statutory interest: “(1) The Secretary of State shall by order made with the consent of the Treasury set the rate of statutory interest by prescribing – (a) a formula for calculating the rate of statutory interest; or (b) the rate of statutory interest. (2) Before making such an order the Secretary of State shall, among other things, consider the extent to which it may be desirable to set the rate so as to – (a) protect suppliers whose financial position makes them particularly vulnerable if their qualifying debts are paid late; and (b) deter generally the late payment of qualifying debts.”

18.31  The rate is currently 8% over the official dealing rate of the Bank of England.27 18.32  Even where the provisions for statutory interest would otherwise apply, section 5 provides for “remission of interest”: “(1) This section applies where, by reason of any conduct of the supplier, the interests of justice require that statutory interest should be remitted in whole or part in respect of a period for which it would otherwise run in relation to a qualifying debt. (2) If the interests of justice require that the supplier should receive no statutory interest for a period, statutory interest shall not run for that period. (3) If the interests of justice require that the supplier should receive statutory interest at a reduced rate for a period, statutory interest shall run at such rate as meets the justice of the case for that period. (4) Remission of statutory interest under this section may be required – (a) by reason of conduct at any time (whether before or after the time at which the debt is created); and (b) for the whole period for which statutory interest would otherwise run or for one or more parts of that period. (5) In this section “conduct” includes any act or omission.”

18.33  The effect of section 5 is the area in which the 1998 Act has so far received most substantial consideration by the courts. In Banham Marshalls Services Unlimited v Lincolnshire County Council,28 Eady J said: “It is perhaps unfortunate that there is no guidance on the circumstances in which the court should exercise its discretion to remit statutory interest, but in that situation I need to proceed from first principles. It seems clear that the legislature decided that discipline should be brought to bear on debtors through the imposition of what Mr Ramsden described as a ‘punitive’ rate of interest (Mr Lenon was content with the label ‘enhanced’). What seems to be clear is that the court has a wide discretion to enforce or remit the statutory rate according to what are considered to be the ‘interests of justice’ in the particular case. It is no doubt necessary to have in mind that the mischief to which the statute appears to be primarily directed is that of casual or feckless non-payment. The extent to which the ‘interests of justice’ 27 SI 2002/1675. 28 [2007] EWHC 402 (QB) at paragraphs [68]–[71].

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Claiming finance costs and interest

require that it shall be enforced also upon those who withhold payment because of a bona fide dispute requires careful consideration. Mr Ramsden points to the considerable delay in bringing these proceedings (well over two years after the relevant debts accrued). Mr Lenon, on the other hand, unsurprisingly referred to the six year limitation period. I cannot accept, however, that it is appropriate for a creditor to delay without any particular reason for several years and then to expect to recover interest at the enhanced rate. I have little doubt that ‘conduct’, as used in s.5 of the statute, would embrace conduct prior to or in the course of litigation to recover the debt. Although I am conscious that there is, from a moral or public policy perspective, a distinction to be drawn between those who choose not to pay their outstanding debts and those who refuse to pay because of a genuine legal dispute, it would be wrong for me to approach the issue on the basis that the statutory interest is not to apply at all in cases of bona fide dispute. That would be to detract from the broad discretion which Parliament clearly intended when formulating s.5 in the terms set out above.”

18.34 In Ruttle Plant Hire Ltd v Secretary of State for the Environment, Food & Rural Affairs,29 the Court of Appeal considered a case in which inaccurate invoices were submitted by the claimant. Jacob LJ said:30 “[The trial judge’s] basic point is that the invoices were based on the wrong rates, so that is Ruttle’s fault, and so there should be no interest. With respect, I think that is such a disproportionate response to Ruttle’s mistaken but honestly held view about the plant hire rates as to be outwith the ambit of a proper exercise of discretion. For it means that Ruttle is deprived of all interest even on sums clearly owing. And the paying party gets the benefit of hanging on to the money. The interests of justice do not require such a draconian measure. If it were otherwise, the effect would be that the supplier was put to an election: either do not pursue a bona fide claim to proper resolution or forego all statutory interest. That cannot be in the interests of justice. One must not overlook here that DEFRA could have avoided any interest by paying at the plant hire rate which it considered (in the event correctly) was right. Perhaps, lurking behind the ‘decision’ . . . was also the judge’s view that the ‘penal base rate plus 8’ is itself a relevant factor in the exercise of a section 5 discretion . . . If he considered that a relevant factor then he would have been wrong: only the conduct of the supplier and the interests of justice are. . . . My own exercise of the discretion would be to work on this principle: that interest should only be remitted wholly or in part in respect of only any sums in respect of which the supplier had created or allowed uncertainty. There should be no remission in respect of sums which from the paying party’s point of view were clearly payable. The interests of justice do not require that the supplier be deprived of interest on sums which are clearly due from that point of view. In the present case that means there should be no remission.”

He further indicated that if a court was going to remit statutory interest by reason of the delay of the supplier, then the period of interest remitted ought to be clearly identified and its cause investigated.31 The decision in Ruttle was followed by Coulson J in Fitzroy Robinson Ltd v Mentmore Towers Ltd (No 3).32 18.35  In addition to interest payable as set out above, the 1998 Act also provides by section 5A for compensation to be payable: “(1) Once statutory interest begins to run in relation to a qualifying debt, the supplier shall be entitled to a fixed sum (in addition to the statutory interest on the debt). 29 [2009] EWCA Civ 97; [2009] BLR 301. 30 At paragraphs [50]–[53]. 31 At paragraph [55]. 32 [2009] EWHC 3365 (TCC); [2010] BLR 165.

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Claiming finance costs and interest

(2) That sum shall be – (a) for a debt less than £1,000, the sum of £40; (b) for a debt of £1,000 or more, but less than £10,000, the sum of £70; (c) for a debt of £10,000 or more, the sum of £100. (3) The obligation to pay an additional fixed sum under this section in respect of a qualifying debt shall be treated as part of the term implied by section 1(1) in the contract creating the debt.”

18.36  It was also held in Ruttle that where statutory interest was payable under the 1998 Act, no interest was payable under the Senior Courts Act 1981. The difference between the two regimes is illustrated by the court’s holding that under the 1998 Act Bank of England base rate plus 8% was payable, whilst under the 1981 Act what was payable was 2% over the base rate. 18.37  It has taken time for the full implications of the 1998 Act to be realised but, now it has received attention from the courts, it is likely that there will be increasing resort to its generous provisions where available.

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CHAPTER  19

Set off and abatement 19.1  When a construction project gets into difficulties, the linked remedies of abatement and set off are useful – indeed often the most natural remedies to which to turn.1 19.2  The defence of abatement arises where a party asked to pay for work done or materials supplied can show that by reason of a claimant’s breach of contract the value of the subject matter of a contract is less than a price agreed in that contract. The defence of set off allows a defendant to set against a sum otherwise due to a claimant an amount due from the claimant to the defendant.2 Thus, for example, a building may have been constructed with perfect workmanship and materials, but completed late: the defendant would be able to set off against the contract price any damages payable by the claimant for delay in completion. Historically there was an important distinction between abatement and set off: the common law did not recognise a right of set off but did recognise a right of abatement. When a sum was due to the claimant, the defendant would be ordered to make payment and would have to bring a separate claim to enforce any debt owed by the claimant to the defendant. The courts of equity on the other hand would allow recognition to be given to the defendant’s position by granting an injunction to prevent the claimant enforcing his judgment without giving credit for the amount due from the claimant to the defendant. Statute law then established a right of set off and counterclaim. The position following the intervention of Parliament was summarised by Morris LJ in Hanak v Green:3 “The position is, therefore, that since the Judicature Acts there may be (1) a set-off of mutual debts; (2) in certain cases a setting up of matters of complaint which, if established, reduce or even extinguish the claim, and (3) reliance upon equitable set-off and reliance as a matter of defence upon matters of equity which formerly might have called for injunction or prohibition. The basis of (1) was explained in Stooke v Taylor,4 in which case Cockburn CJ pointed out that in the case of a setoff, the existence and the amount of a set-off must be taken to be known to a plaintiff who should give credit for it in his action against the defendant. He pointed out that that reasoning did not apply to a counterclaim, which to all intents and purposes is an action by the defendant against the plaintiff, and in which the claims are not confined to debts or liquidated damages. In the same case he said:5 ‘Set-off and counterclaim are both the creation of statute, the common law not admitting of the action of a plaintiff against a defendant being met by an independent claim of the   1 For an overview of the development of the law of set off and abatement, see Sir Anthony May, Set Back to Set Off, SCL Paper 184, September 2013.  2 In Fearns v Anglo-Dutch Paint and Chemical Co Ltd [2010] EWHC 2366 (Ch); [2011] 1 WLR 366 George Leggatt QC, sitting as a deputy High Court Judge, said at paragraph [11]: “The term ‘set-off’ as it is used in English law has no uniform meaning and is therefore a ready source of confusion. In one sense it refers to a process by which one sum is netted off against another so as to leave only a single liability for the balance. But the term is also used to refer to rights which do not have this effect but which prevent a person in certain circumstances from enforcing a claim where there is a cross-claim against him while leaving both liabilities intact.”   3 [1958] 2 QB 9 at 23–24.   4 (1880) 5 QBD 569 at 576.   5 (1880) 5 QBD at 575.

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defendant against the plaintiff, but leaving the defendant to his cross-action. The effect of these two modes of proceeding must, therefore, be sought in the statutes by which they were introduced, and in their results; and when these are looked at, it will be seen how essentially these two forms of procedure differ. By the Statutes of Set-off this plea is available only where the claims on both sides are in respect of liquidated debts, or money demands which can be readily and without difficulty ascertained. The plea can only be used in the way of defence to the plaintiff’s action, as a shield, not as a sword.’ The cases within group (2) are those within the principle of Mondel v Steel,6 to which I have referred. In these cases there is a defence to the claim which the law recognizes (compare Sale of Goods Act, 1893, s 53). The cases within group (3) are those in which a court of equity would have regarded the cross-claims as entitling the defendant to be protected in one way or another against the plaintiff’s claim. Reliance may be placed in a court of law upon any equitable defence or equitable ground for relief: so also any matter of equity on which an injunction against the prosecution of a claim might formerly have been obtained may be relied on as a defence. This may involve that there will have to be an ascertainment or assessment of the monetary value of the cross-claim which, as a matter of equity, can be relied on by way of defence. But this does not mean that all cross-claims may be relied on as defences to claims.”

Consideration will now be given (after a short diversion) to Morris LJ’s three categories, (1), (2) and (3). Connected cross-demands 19.3  Morris LJ did not include this within his categorisation, but where parties have a series of debts and credits that are closely connected to the same underlying transaction in the manner of a running account, it is the balance on the account that is regarded, as a matter of common law, as the debt, so that no question of set off arises.7 Mutual liquidated demands 19.4  Morris LJ’s category (1) was in respect of mutual debts or demands. A set off at common law is available if the claims made on both sides are in respect of liquidated debts or money demands which can readily and without difficulty be ascertained, rather than by litigation and arbitration:8 “For set-off to be available at law the claim and cross-claim must be mutual, but they need not be connected. They need not be debts strictly so-called, but may sound in damages. The question is, in the language of Tindal CJ in Morley v Inglis9 . . . ‘whether the demand is capable of being liquidated, or ascertained with precision at the time of pleading’. A claim under a guarantee, therefore, cannot be set off until the amount of the liability in respect of which the guarantee was given has been established. As Lord Ellenborough said in Crawford v Stirling10 . . . ‘To make the sum admissible as a set-off, the sum must be settled in moneys numbered’.”11

 6 Above.  7 Green v Farmer (1768) 4 Burr 2214, 2221; Henriksens Rederi A/S v THZ Rolimpex (The Brede) [1974] QB 233 at 246.  8 Stooke v Taylor (1880) 5 QBD 569 at 575; Axel Johnson Petroleum AB v MG Mineral Group AG [1992] 1 WLR 270; B Hargreaves Ltd v Action 2000 Ltd (1992) 62 BLR 72.   9 (1837) 4 Bing NC 58 at 71. 10 (1802) 4 Esp 207 at 209. 11 Per Leggatt LJ in Axel Johnson Petroleum AB v MG Mineral Group AG [1992] 1 WLR 270 at 272G–H.

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The set off at law is available even if the defendant’s right to payment of the liquidated sum is disputed.12 Unlike equitable set off, considered below, legal set off does not affect the substantive rights of the parties against each other. It addresses questions of procedure and cashflow. As a matter of procedure, it enables a defendant to require his cross-claim (even if based upon a wholly different subject matter) to be tried together with the claimant’s claim instead of having to be the subject of a separate action. In this way it ensures that judgment will be given simultaneously on claim and cross-claim and thereby relieves the defendant from having to find the cash to satisfy a judgment before his cross-claim has been determined.13 19.5  Such set off can only be put forward if the defendant is entitled to have the merits of his claim tried in the tribunal in which he asserts such a set off.14 Thus in Aectra Refining & Manufacturing Inc v Exmar NV15 the claim could be brought in court, but the proposed set off was in respect of a claim under a contract containing an arbitration clause: it was held by the Court of Appeal that because the court had no jurisdiction to determine the subject matter of the cross-claim no set off arose. 19.6  It can be seen that the requirements to establish a set off of mutual debts at law are somewhat technical. In Axel Johnson Petroleum AB v MG Mineral Group AG, Staughton LJ said:16 “It can be said that there is a case for reform of the law, which has to be discovered in a number of diverse rules, based on no coherent line of reasoning. But in practice masters and judges, for whom the problem is of almost daily occurrence, manage to solve it without any great difficulty. Since the landmark case of Hanak v Green [1958] 2 QB 9 a broad interpretation of the doctrine of equitable estoppel (sic), or the grant of a stay of execution pending the trial of a counterclaim, has generally been sufficient to safeguard the defendant’s cashflow when justice requires that result, and not if the defendant does not deserve indulgence. It is rare indeed in my experience that legal set-off is mentioned, and even rarer for there to be such an elaborate and skilful argument as we have had in this case. So perhaps, we can continue to tolerate the law as it stands.”

Abatement 19.7  Morris LJ’s category (2) contains those cases where abatement can be set up as a defence. As stated above, the defence of abatement arises where a party asked to pay for work done or materials supplied can show that by reason of a claimant’s breach of contract the value of the subject matter of a contract is less than a price agreed in that contract:17 “[A] building contract is an entire contract for the sale of goods and work and labour for a lump sum price payable by instalments as the goods are delivered and the work is done. Since the turn of the 19th century at least . . . there has been a principle of law which is applicable to contracts of this type . . . that principle is stated authoritatively in the judgment of Parke B in Mondel v

12 Axel Johnson v Mineral Group (above); Aectra Refining & Manufacturing Inc v Exmar NV [1994] 1 WLR 1634, CA. 13 Per Lewison LJ in IG Index Ltd v Ehrentreu [2013] EWCA Civ 95at paragraph [35]. 14 Aectra Refining Inc v Exmar NV (above). 15 [1994] 1 WLR 1634. 16 [1992] 1 WLR 270 at 276C. 17 Per Lord Diplock in Modern Engineering (Bristol) v Gilbert-Ash (Northern) Ltd [1974] AC 689 at 717B–717F.

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Steel18 . . . the principle is that when the buyer of the goods or the person for whom the work has been done is sued by the seller or contractor for the price it is competent for the defendant . . . not to set off, by a proceeding in the nature of a cross action, the amount of damages which he has sustained by breach of the contract, but simply to defend himself by showing how much less the subject matter of the action was worth, by reason of the breach of contract . . . This is a remedy which the common law provides for breaches of warranty in contracts for sale of goods and for work and labour . . . It is available as of right to a party to such a contract. It does not lie within the discretion of the court to withhold it. It is independent of the doctrine of ‘equitable set-off’.”

19.8  Thus if a building is built defectively, the building owner may refuse to pay the whole contract price but pay only a reduced price to reflect the defects in the building – the usual amount of the reduction being what it will cost to put right the defects.19 Being a right of defence, abatement will not assist a building owner to recover the cost of repair of defects if they exceed the contract price. 19.9  In a contract for the sale of goods (such as a consignment of steel for incorporation into a building project), the Sale of Goods Act 1979 provides a statutory right of abatement.20 The measure of statutory abatement for breach of a seller’s contractual undertaking as to the quality or condition of goods is the difference between the value of the goods if they complied with the undertaking measured at the time and place of delivery and the actual value of the goods in their actual condition at the same time and place.21 In CA Duqemin Ltd v Slater22 HH Judge Newey QC said that in assessing abatement under section 53(3) “cost of repair cannot be taken into account”. The editors of the Building Law Reports23 suggest hat this is probably not correct. Their suggested approach, which accords with principle, is as follows: “(1) The principle of abatement amounts to no more than saying that a party selling goods or supplying goods and services is not entitled to be paid to the extent that the goods are or the goods and services are defective. (2) The rationale upon which the right of abasement is based is simply that a defective performance does not give the performer the right to be paid the full consideration. (3) It follows from (1) and (2) that an abatement can act only to reduce a claim by the performer for the price or consideration for performance. (4) The valuation of the amount of the abatement is not subject to any firm rules, although prima facie in a sale of goods case the provisions of section 53(3) will apply. In a suitable case the cost of repair may be relevant.”

19.10  There are however limits to what can be deployed by way of a defence of abatement: the defendant is only entitled to an abatement to the extent that at the time of delivery the value of the subject matter of the contract has been reduced as a result of the breach

18 (1841) 8 M & W 858. 19 See Minster Trust Ltd v Traps Tractors Ltd [1954] 3 All ER 136 at 156D; Mondel v Steel (1841) 8 M & W 858. 20 Section 53(1)(b): “Where there is a breach of warranty by the seller . . . the buyer is not by reason only of such breach of warranty entitled to reject the goods, but he may (a) set up against the seller the breach of warranty in diminution or extinction of the price.” Note also that in respect of a consumer contract for the sale of goods, section 48C gives a right “to require the seller to reduce the purchase price of the goods in question to the buyer by an appropriate amount”, thus creating a new form of statutory abatement. 21 Section 53(3). 22 (1994) 65 BLR 124 at 134. 23 At 127.

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of contract:24 thus if a problem only occurs after the date of completion of a building it is arguable that no right of abatement may arise. Significantly, abatement only applies to the extent that the value of the subject matter of the contract is diminished, so that no claim to abate by reason of “consequential” losses can arise:25 thus, for example, damages for delay cannot be applied to abate a liability.26 19.11  It was thought at one time that the defence of abatement was not available in construction cases in which the price was to be paid by instalment on certificate,27 but this view was firmly overruled by the House of Lords in Modern Engineering (Bristol) v Gilbert-Ash (Northern) Ltd.28 19.12 In Hutchinson v Harris,29 it was doubted whether abatement would apply in relation to a claim for professional services: in this case an architect (per Stephenson LJ, with whom Waller and Cumming-Bruce LJJ agreed). The same view has been expressed in relation to a consulting engineer.30 It would seem however that the principle can apply, at least with regards to the work not done:31 the principle was applied successfully in a case concerning services provided by an interior decorator and designer.32 Equitable set off 19.13  Turning now to Morris LJ’s category (3). Set off in equity is available where a cross-claim is so closely connected with the claim that it would be unjust to allow the claim without taking account of the cross-claim.33 Liquidated and unliquidated damages not exceeding the amount of the claim and arising under the same contract can usually be 24 Bow, McLachlan & Co Ltd v Ship “Camosun” [1909] AC 597 at 605; Henriksens Rederi A/S v THZ Rolimpex (The Brede) [1974] 1 QB 233 at 248; Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] BLR 235 at 239. 25 Mellowes Archital Ltd v Bell Projects Ltd (1997) 87 BLR 26. 26 Oastler v Pound (1863) 7 LT 852; Henriksens Rederi A/S v THZ Rolimpex (The Brede) [1974] 1 QB 233 at 248; Healing (Sales) Pty Ltd v Inglis Electric Pty Ltd (1968) 121 CLR 584 at 618. 27 Dawnays Ltd v FG Minter Ltd [1971] 1 WLR 1205. 28 [1974] AC 689. 29 (1987) 10 BLR 24. 30 Cathery v Lithodomus Ltd (1987) 41 BLR 76, 82. On the other hand, a cross claim for professional negligence and breach of duty may give rise to an equitable set off. 31 Turner Page Music Ltd v Torres Design Associates Ltd [1997] CILL 1263. 32 Hoenig v Isaacs [1952] 2 All ER 176. 33 Hanak v Green [1958] 2 QB 9 CA; Gilbert-Ash (Northern) Limited v Modern Engineering (Bristol) Limited [1974] AC 689 at 717; The Teno [1977] 2 Lloyd’s Rep 289 at 297; British Anzani (Felixstowe) Limited v International Marine Management (UK) Ltd [1980] QB 137 at pages 144 and 145; Federal Commerce v Molena Alpha [1978] QB 927 at 974; Cathery v Lithodomus (1987) 41 BLR 76 at 82; Business Plc v Saunders [1988] 1 WLR 863 at 870; Dole Dried Fruit and Nut Co v Trustin Kerwood Ltd [1990] 2 Lloyd’s Rep 309; Bim Kemi AB v Blackburn Chemicals Ltd [2001] EWCA Civ 457; [2001] 2 Lloyd’s Rep 93. The Court of Appeal has recently reviewed and clarified the law on equitable set off, as Rix LJ considered there to be some uncertainty on the subject, in the case of Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667; [2011] Bus LR Digest D61; 130 Con LR 37. At paragraph [43], Rix LJ reviewed the jurisprudence and held that “for all these reasons, I would underline Lord Denning’s test (expressed in 1978 in ‘The Nanfri’), freed of any reference to the concept of impeachment as the best restatement of the test, and the one that most recently referred to and applied, namely ‘cross claims . . . so closely connected with [the plaintiff’s] demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim’, restating that the test was one of legal principle and not discretion.” See also Fearns v Anglo-Dutch Paint & Chemical Co Ltd [2010] EWHC 2366 (Ch); [2011] 1 WLR 355. The Geldof decision was analysed in Frances Pigott, Equitable Set-Off- A New Direction after Geldof? SCL Paper D180, August 2015 and followed by the Court of Appeal in Bibby Factors Northwest Ltd v HFD Ltd [2015] EWCA Civ 1908; [2016] 1 Lloyd’s Rep 517.

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set off against the claim. The test for equitable set off involves considerations of both the closeness of the connection between claim and cross-claim, and of the justice of the case. There is both a formal element in the test and a functional element. The importance of the formal requirement is to ensure that the doctrine of equitable set off is based on principle and not discretion. The importance of the functional element is to remind litigants and courts that the ultimate rationality of the regime is equity. The two elements cannot be divorced from each other.34 19.14  It is not necessary that the subject matter of the cross-claim actually reduces the claim itself, as is the test for abatement.35 19.15  The essence of equitable set off is a situation in which it would be inequitable for the claimant to seek to enforce his rights against the defendant without recognising the defendant’s claims against the claimant. Thus the court will recognise an equitable set off if it is unconscionable for a creditor to regard the debtor as being indebted to the extent of the debtor’s cross-demand: the court will take the view that the creditor cannot take any action against the debtor that is predicated upon the debtor having failed to pay – a court of equity can protect the debtor’s position by means of injunction and a declaration. 19.16  In the leading case of Hanak v Green36 the plaintiff employer sued the builder for damages arising out of a failure to complete building works properly. The builder succeeded in setting off: (1) his quantum meruit claims for additional work; (ii) his loss caused by the plaintiff’s refusal to allow his men access; and (iii) his claim for trespass to his tools.37 19.17  An equitable set off operates as a defence to the claim and will therefore have costs implications since if it exceeds the amount claimed the claim will be treated as having failed.38 However equitable set off is not merely procedural – it affects substantive rights.39 An equitable right to set off that might otherwise arise can be precluded by a suitably drafted no set-off clause.40 Contractual set off 19.18  Many forms of contract contain express rights of set off, particularly in respect of liquidated damages for delay. On the other hand, some standard forms of subcontract contain elaborate provisions that attempt to regulate and limit a contractor’s right to set off cross-claims against sums due to the subcontractor:41 such a clause, effective in some respects, has been construed as not preventing reliance on abatement.42 34 Geldof Metaalconstructie NV v Simon Carves Ltd (above) at paragraph [43](v). 35 Dole Dried Fruit v Trustin Kerwood [1990] 2 Lloyd’s Rep 309. 36 Above. 37 For a recent discussion of the law of set off in a case arising out of a construction contract, see Workspace Management Ltd v YJL London Ltd [2009] EWHC 2017 (TCC); [2009] BLR 497. 38 Hanak v Green [1958] 2 QB 9. 39 Per George Leggatt QC in Fearns v Anglo-Dutch Paint & Chemical Co Ltd (above) at paragraph [21]. This judgment contains a useful and detailed discussion of the effect of equitable set-off upon substantive rights. 40 FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232; [2014] 1 WLR 2365. 41 Chatbrown v Alfred McAlpine Construction (1986) 35 BLR 44; BWP (Architectural) v Beaver (1988) 42 BLR 86; Mellowes Archital Ltd v Bell Projects Ltd (1997) 87 BLR 26. 42 Acsim (Southern) Ltd v Danish Contracting and Development Co Ltd (1989) 47 BLR 55; Mellows PPG v Snelling Construction (1989) 49 BLR 109.

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19.19  Many construction contracts will contain provisions that enable set off if made in accordance with the detailed provisions of the contract: such deduction would usually be available in any case as a legal or equitable set off, except that an employer cannot set off a claim arising under another unconnected contract with the same contractor unless he has been given express power by the contract upon which the contractor claims43 or there are circumstances sufficiently connecting the two claims to sustain an equitable set off. 19.20  Such examples have included the requirement that the employer, as against the contractor, or the contractor as against the subcontractor, serve a notice of such set off.44 Such a clause may not preclude an employer from raising an abatement argument.45 19.21  To be effective, contractual provisions as to set off and abatement have to be drafted so as to make clear any limitations upon the rights of set off and abatement which otherwise exist. Exclusion of rights of abatement and set off 19.22 In Modern Engineering (Bristol) v Gilbert-Ash (Northern) Ltd,46 Lord Diplock said: “It is, of course, open to the parties to a contract . . . for work and labour . . . to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law . . . But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption. In the case of building contracts no question of usage arises to rebut the presumption.”

19.23  Despite that presumption, rights of set off and/or abatement can be excluded or restricted by appropriate draftsmanship.47 Often the contract will contain conditions precedent to a right of set off or abatement: if so, it is essential that the party seeking set off under the contract does so in full compliance with the relevant notice provisions since these may well be construed as an exhaustive machinery for effecting a contractual set off.48 In drafting such provisions, for them to be effective it is also important to stipulate that both defences of set off and abatement are excluded: in Acsim (Southern) Ltd v Danish Contracting and Development Co Ltd49 the Court of Appeal held that the contract was effective to prevent a cross-claim for damages for bad workmanship that was quantified outside the required period from being employed as an equitable set off; however, there were not sufficiently clear and express words to exclude the common law defence of abatement. 43 Re Asphaltic Wood Pavement Co, Ex p Lee and Chapman (1885) 30 Ch D 216; Ellis Mechanical v Wates Construction [1978] 1 Lloyd’s Rep 33; cf Small v Middlesex Real Estates Ltd [1921] WN 245; AB Contractors v Flaherty (1978) 16 BLR 8. 44 Reinwood Ltd v L Brown & Sons Ltd [2007] EWCA Civ 601; [2007] BLR 10. NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (No 1) and (No 2) [2015] UKPC 37; [2015] BLR 667. 45 Mellowes Archital Ltd v Bell Products Ltd (1997) 58 Con LR 22 at pages 25–30. 46 [1974] AC 689 at 717. 47 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717; Mottram Consultants v Sunley [1975] 2 Lloyd’s Rep 197; NEI Thompson v Wimpey Construction (1987) 39 BLR 65 at 73; Connaught Restaurants v Indoor Leisure [1994] 1 WLR 501; Melville Dundas Ltd v Hotel Corporation of Edinburgh Ltd [2006] BLR 474; FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232; [2014] 1 WLR 2365; NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (No. 1) and (No. 2) [2015] UKPC 37; [2015] BLR 667. 48 Hermcrest plc v G Percy Trentham Ltd (1991) 53 BLR 108, CA. 49 (1989) 47 BLR 55.

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19.24  A clause contained in standard terms of business seeking to exclude rights of set off in wide terms has been held to come within section 13(1)(b) of the Unfair Contract Terms Act 1977 – the term taken as a whole, failed to satisfy the requirement of reasonableness so was held to be ineffective.50 In addition, the Unfair Terms in Consumer Contracts Regulations 1999 implement Council Directive 1993/13 and subject terms in consumer contracts to a requirement of fairness. These provisions are additional to, not a substitution for, the provisions of the Unfair Contract Terms Act 1977. Lapse of time 19.25  Lapse of time, subject to the rules of limitation and subject to any express provisions in the contract, does not debar a building owner from complaining of defective work;51 however, as a matter of practical reality, the effect of lapsed time may make it more difficult to prove that the damage was caused by the defective work. 19.26  Unless the work is expressly to be done to the satisfaction of the building owner and there is evidence that this has been expressed, his mere knowledge of defects at the time when the work was done does not prevent him later complaining of the defects.52 Limitation 19.27  A set off or counterclaim is deemed to have commenced on the same date as the original action (Limitation Act 1980, section 35(1)). Set off in insolvency 19.28  The difference between set off and abatement will be felt by the parties materially in an insolvency context. In insolvency, where there is a defence of abatement, the solvent party will be obliged to pay his debt in full after allowance for such abatement to the trustee in bankruptcy. In contrast, in the case of insolvency set off, the balance of the parties’ mutual dealings will be taken into account, and therefore the solvent party will only be required to pay the balance owing. The substantive rights of the parties are thereby affected since creditors of the insolvent party may effectively use their indebtedness to the bankrupt or company as a form of security. 19.29  The purpose of insolvency set off is “to do substantial justice between the parties”,53 the justification being that it would be unreasonable to expect the solvent party to pay his debts in full yet only receive a percentage of what was owed to him by the insolvent party:54 “The general and long established rule in liquidations is that where, before a company went into liquidation, there had been mutual credits, mutual debts or mutual dealings between the company and any proving creditor then an account was to be taken of what was due to each party 50 Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600. 51 McIntyre v Gallagher (1882) 11 R (Ct of Sess) 64. 52 Whitaker v Dunn (1887) 3 TLR 602. 53 Forster v Wilson (1843) 12 M & W 191 per Parke B at 204. For a more detailed analysis of insolvency set off see Bailey and Groves, Corporate Insolvency: Law and Practice, 3rd edition, 2007, chapter 26. 54 Per Norris J in Re Kaupthing Singer & Friedlander Ltd [2009] EWHC 2308 (Ch); [2010] Bus LR 428 at paragraph [9], citing MS Fashions Ltd v Bank of Credit and Commerce International SA [1993] Ch 425 and

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from the other in respect of those dealings, the sums due from one party being set off against the sums due from the other, and only the balance being provable in the liquidation or being recoverable by the liquidator as part of the assets (depending on how the balance was struck).”

19.30  Rule 4.90 of the Insolvency Rules 1986 sets out the right to insolvency set off in the case of a company going into liquidation; section 323 of the Insolvency Act 1986 applies to set off in the case of bankruptcy. 19.31  Insolvency set off is considerably wider than common law and equitable set off, since it covers virtually all mutual dealings between the creditor and the company:55 section 323 and rule 4.90 provide that where there have been “mutual credits, mutual debts or other mutual dealings” between the bankrupt or company and a creditor proving a debt, an account is to be taken of what is due from each party to the other in respect of mutual dealings, and sums due from one party shall be set off against the sums due from the other. Bankruptcy set off 19.32  As set out above, section 323 applies where, before the commencement of the bankruptcy, there have been mutual credits, mutual debts or other mutual dealings between the bankrupt and any creditor of the bankrupt proving or claiming to prove for a bankruptcy debt.56 19.33  Pursuant to section 323(2) an account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other. Bankruptcy set off requires an account to be taken of liabilities that, at the time of the bankruptcy, may be due but not yet payable or may be unascertained in amount or subject to contingency. 19.34  Sums due from the bankrupt to another party shall not be included in the account taken under section 323(2) if that other party had notice at the time they became due that a bankruptcy petition relating to the bankrupt was pending (section 323(3)).

Stein v Blake [1996] AC 243. This decision on the merits was overturned by the Court of Appeal: [2010] EWCA Civ 518; [2010] Bus LR 1500. 55 Section 323(1) of the Insolvency Act 1986 sets out that the section applies to mutual credits, mutual debts or other mutual dealings; rule 4.90(1) is similarly widely construed, save that rule 4.90(2) sets out excluded debts: “(2) The reference in paragraph (1) to mutual credits, mutual debts or other mutual dealings does not include – (a) any debt arising out of an obligation incurred at a time when the creditor had notice that – (i) a meeting of creditors has been summoned under section 98; (ii) a petition for the winding up of the company was pending; (b) any debt arising out of an obligation where – (i) the liquidation was immediately preceded by an administration; and (ii) at the time the obligation was incurred the creditor had notice that an application for an administration order was pending or a person had given notice of intention to appoint an administrator; (c) any debt arising out of an obligation incurred during an administration which immediately preceded the liquidation; or (d) any debt which has been acquired by a creditor by assignment or otherwise, pursuant to an agreement between the creditor and any other party where that agreement was entered into – (i) after the party went into liquidation; (ii) at a time when the creditor had notice that a meeting of creditors had been summoned under section 98; (iii) at a time when the creditor had notice that a winding up petition was pending; (iv) where the liquidation was immediately preceded by an administration, at a time when the creditor had notice that an application for an administration order was pending or a person had given notice of intention to appoint an administrator; (v) during an administration which immediately preceded the liquidation. Debts due from the bankrupt or company cannot be taken into account in this way if the creditor has notice that a bankruptcy or winding up petition is pending at the time the debt becomes due, not when it is incurred.” 56 Section 323(1) Insolvency Act 1986.

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19.35 After the account is taken, the original chose in action ceases to exist and is replaced by a claim to a net balance. 19.36 In Allen Stein v David Blake57the House of Lords considered the difference between legal and bankruptcy set off: “Legal set-off does not affect the substantive rights of the parties against each other, at any rate until both causes of action have been merged in a judgment of the court . . . As a matter of procedure it enables a defendant to require his cross-claim (even if based upon a wholly different subject matter) be tried together with the plaintiff’s claim instead of having to be the subject of a separate action . . . Bankruptcy set-off, on the other hand, affects the substantive rights of the parties by enabling the bankrupt’s creditor to use his indebtedness to the bankrupt as a form of security. Instead of having to prove with other creditors for the whole of the debt in the bankruptcy, he can set off pound for pound what he owes the bankrupt and prove for or only pay the balance.”58

Legal set off is confined to debts that, at the time when the defence of set off is filed, were due and payable and either liquidated or in sums capable of ascertainment without value or estimation. Bankruptcy set off has a much wider scope. It applies to any claim arising out of mutual credits or other mutual dealings before the bankruptcy for which a creditor would be entitled to prove as a “bankruptcy debt”.59 19.37  Legal set off must be pleaded and is given effect only on the judgment of the court, whereas bankruptcy set off is automatic, self-executing and takes effect on the bankruptcy date.60 19.38  Legal set off is invoked when pleaded: in contrast, section 323 takes effect on the bankruptcy date automatically without any step having to be taken by either of the parties.61 As a consequence, a claimant’s claim and defendant’s counterclaim will cease to exist on operation of the section and will be replaced by a claim to the net balance. There is no need for proof in order to activate the operation of the section: it is not linked to any step in bankruptcy or litigation procedure. 19.39 In Stein v Blake, the House of Lords concluded that it was possible for the trustee in bankruptcy to assign the net balance of the claim vested in the estate once a s­ elf-executing right of set off has been accounted for.

57 [1996] AC 243. 58 [1996] 1 AC 243 at 251. Per Lord Hoffmann. 59 Ibid at 251. A bankruptcy debt is defined by section 382 of the Insolvency Act 1986, and construed widely, to mean, “(1) . . . any of the following – (a) any debt or liability to which he is subject at the commencement of the bankruptcy, (b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy . . . (3) For the purposes of references in this Group of Parts to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in this Group of Parts to owing a debt are to be read accordingly.” 60 In Re Kaupthing Singer & Friedlander Ltd [2009] EWHC 2308 (Ch); [2010] Bus LR 428 at paragraph [9], Norris J cited the following passage from Goode, Principles of Corporate Insolvency Law, 3rd edition, 2005: “Set-off on insolvency represents a major incursion into the pari passu principle, for its effect is that a creditor who owes money to the company on a separate account may resort to self help by setting off the debt due to him against his own indebtedness to the company, thus [ensuring] payment of his claim ahead of other creditors.” As noted at footnote 54 above, Norris J’s decision on the merits was overturned by the Court of Appeal. 61 [1996] 1 AC 243 at 253.

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19.40  The application of section  323 and rule 4.90 is mandatory in that they cannot be waived62 or excluded by the parties63 and there is no discretion in the court to disapply them.64 19.41  Set offs under section 323 also apply to liabilities that are contingent at the date of bankruptcy or when the calculation falls to be made.65 Similarly, it is not necessary, under rule 4.90, that the mutual debts should have been due and payable before the date of insolvency so long as they resulted in quantified money claims by the time the claim to set off was made.66 19.42  Only the balance (if any) of the account taken under subsection (2) is provable as a bankruptcy debt, or as the case may be, to be paid to the trustee as part of the bankrupt’s estate. The liquidator may only deal with the balance of the account. Set off and corporate insolvency 19.43  Rule 4.90 applies where, before a company goes into liquidation, there have been mutual credits,67 mutual debts or other mutual dealings between the company and any creditor of the company proving or claiming to prove for a debt in the liquidation.68 19.44  Rule 4.90(3) sets out that an account shall be taken of what is due from each party to the other in respect of the mutual dealings, and the sums due from one party shall be set off against the sums due from the other. Like section 323, the rule is mandatory. 19.45  Mutuality means the existence of liabilities between the same debtor and creditor at the relevant time; the debts must be owed or held in the same right as the insolvent party’s debt. The mutual debts must have arisen before the company went into liquidation (even if they give rise to a future debt).69 62 Re Cushla Ltd [1979] 3 All ER 415. 63 National Westminster Bank Ltd v Halesowen Presswork and Assemblies Limited [1972] AC 785; Re Vaughan, ex p Fletcher (1877) 6 Ch D 350; Rolls Razor Ltd v Cox [1967] 1 QB 552; British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 2 All ER 390, [1975] 1 WLR 758. Compare the position between solvent parties (Coca Cola Finance Corporation v Finsat International Ltd [1998] QB 43 and Hong Kong & Shanghai Bank v Kloeckner [1989] BCLC 776). 64 Re Bank of Credit and Commerce International SA (No 10) [1997] Ch 213. 65 Stein v Blake [1996] AC 243, In the Matter of Graham Nigel Richards (A Bankrupt) sub nom (1) Sheila Pauline Williams (Formerly Dean and Richards) (2) Derek Williams v John Paul Bateman (Joint Trustee in Bankruptcy of Graham Nigel Richards) [2009] BPIR 973. 66 Secretary of State for Trade and Industry v Frid [2004] AC 506; In re Charge Card Services Ltd [1987] Ch 150 at 182. In Coe v Ashurst [1999] BPIR 662 it was held that the expression in section 323 of the Insolvency Act 1986 “at the time they became due” referred to the creation of an obligation rather than the time when payment should have been made. See also, Lord Hoffmann in Stein v Blake [1996] AC 243 at 252: “But the winding up of the estate of a bankrupt or insolvent company cannot always wait until all possible contingencies have happened and all the actual or potential liabilities which existed at the bankruptcy date have been quantified. Therefore the law adopts a second technique, which is to make an estimate of the value of the claim. Section 322(3) says: “[T]he trustee shall estimate the value of any bankruptcy debt which, by reason of it being subject to any contingency or contingencies or for any other reason, does not bear a certain value.” This enables the trustee to quantify the creditor’s contingent or unascertained claim, for the purposes of set off or proof, in a way which will enable the trustee safely to distribute the assets of the company, even if subsequent events show that the claim was worth more. 67 These must be of such a nature that it will eventually become a debt. 68 Insolvency Rules 1986, rule 4.90(1). See rule 4.90(2) for the excluded debts. 69 Insolvency Act 1986, section 247(2) and Insolvency Rules 1986, rule 4.90(3) and (4); Re Daintrey [1900] 1 QB 546; Stein v Blake [1996] AC 243. See also rule 2.85 of the Insolvency Rules 1986.

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19.46  Rule 4.90 has always applied in a winding-up context; it now applies to a company in administration thanks to the enactment of the Enterprise Act 2002.70 19.47  Insolvency set off applies equally to contingent debts owed by and owed to the company. Abatement and set off and the Housing Grants, Construction and Regeneration Act 1996 The old law 19.48  Section 111(1) of the 1996 Act provides that a party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment.71 Such notice must be in writing.72 19.49  Notice under section 110(2) of the Act may suffice as a notice of intention to withhold payment if it complies with the requirements of section 111 of the Act. 19.50  Pursuant to section 111(2) of the Act, to be effective such a notice must specify: “(a) the amount proposed to be withheld73 and the ground for withholding payment, or (b) if there is more than one ground, each ground and the amount attributable to it, and must be given not later than the prescribed period before the final date for payment.”

Subsection (3) and (4) continue: “(3) The parties are free to agree what that prescribed period is to be. In the absence of such agreement, the period shall be that provided by the Scheme for Construction Contracts. (4) Where an effective notice of intention to withhold payment is given, but on the matter being referred to adjudication it is decided that the whole or part of the amount should be paid, the decision shall be construed as requiring payment not later than – (a) seven days from the date of the decision, or (b) the date which apart from the notice would have been the final date for payment, whichever is the later.”74

19.51 As set out above, abatement and set off are defences; therefore there has been much discussion as to whether, where these defences exist, there is in fact a sum becoming legally due.

70 The Enterprise Act 2002 introduced new provisions relating to set off and insolvent companies, particularly in relation to administrations. Sums due from a company to another party will not now be taken into account for set-off purposes if, at the time they became due: (a) that other party had notice at the time they became due that a meeting of creditors had been summoned under section 98 of the Insolvency Act 1986; (b) the liquidation was immediately preceded by an administration and the sums became due during the administration; or (c) the liquidation was immediately preceded by an administration, and the other party had notice, at the time that the sums became due, that an application for an administration order was pending, or any person had given notice of intention to appoint an administrator. Insolvency Rules 1986, rule 4.90(3) as inserted with effect from 15 September 2003 by Schedule 1, paragraph 19 of the Insolvency (Amendment) Rules 2003, SI 2003/1730. 71 Section 111 Housing Grants, Construction and Regeneration Act 1996. 72 Strathmore Building Services Ltd v Greig (2001) 17 Const LJ 72, Ct of Sess. 73 Palmers Limited v ABB Power Construction Limited [1999] BLR 426. 74 The notice cannot be served before the application for payment is received, see Strathmore Building Services Ltd v Colin Scott Greig (2001) 17 Const LJ 72.

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19.52  It is unclear whether the provision applies to set off and abatement. Section 111(1) refers to a sum due under the contract, not a sum alleged to be due, or a sum that would have been due under the contract. Decisions with regards to abatement are not consistent, since it is often argued that where there is abatement, the abated amount is never due under the contract.75 19.53  With regard to equitable set off, there is nothing due, so far as equity is concerned, to the extent of the set off. Whilst it is well established that the failure to serve a withholding notice does affect a party’s ability to exercise a right of set off,76 it does not affect that party’s ability to pursue a counterclaim.77 19.54  The absence of a withholding notice does not relieve the claiming party from proving entitlement to the sum claimed:78 nor does such a failure to serve automatically mean that the amount claimed under an invoice will be treated as a sum due under a contract.79 19.55  Where a subcontract is subject to the provisions of the Housing Grants, Construction and Regeneration Act 1996 (the provisions of this Act only apply to certain contracts: see sections 104–107) payment to the subcontractor can only be withheld if the conditions as to notice have been complied with. 19.56 In Melville Dundas Ltd v George Wimpey UK Ltd,80 the contractor applied for an interim payment but by the date for payment the employer had not made a payment, nor had he served a withholding notice. The contractor became insolvent and the employer determined the contract on the grounds of the contractor’s insolvency. It was held that the words of clause 27.5.5.1 of the JCT Standard Form of Building Contract (With design 1998 edition) were clear and that the contractor ceased to be entitled to any further payment once the contract had been determined: it was held that there was no conflict between this clause and section 111(1) of the Act and that therefore failure to serve a withholding notice in respect of the interim payment did not affect the parties’ rights. This decision is problematic for contractors seeking payment, especially where there has been a determination.81 The effect of this decision has been largely neutralised by section 110(10) of the Act as introduced by the Local Democracy, Economic Development and Construction Act 2009 (see below). The new regime 19.57  Substantial changes were introduced by the Local Democracy, Economic Development and Construction Act 2009. 75 Whiteways Contractors (Sussex) Ltd v Impresa Castelli Construction UK Ltd (2000) 75 Con LR 92 and Milers Specialist Joinery Co Ltd v Nobles Construction Ltd (3 August 2001, unreported) – the argument that the amount abated was never due was rejected. See also Re: A Company (1299) of 2001) (2001) CILL 1754, where section 111 was held to extend to abatement. In contrast, see Woods Hardwick Ltd v Chiltern Air Conditioning [2001] BLR 23 and KNS Industrial Services (Birmingham Ltd) v Sindall (2000) 75 Con LR 71. The courts are likely to look to the contract to determine whether a sum is due under the contract. See also Rupert Morgan Building Services LLC Ltd v Jervis [2003] EWCA Civ 1563, where a party who failed to serve a valid notice under section 111 was entitled to raise the defence of abatement. 76 VHE Construction plc v RBSTB Trust Co Ltd (2000) 70 Con LR 51; Northern Developments (Cumbria) Ltd v J & J Nichol [2000] BLR 158; Whiteways Contractors (Sussex) Ltd v Impresa Castelli (2000) 16 Const LJ 453. 77 Machenair Ltd v Gill and Wilkinson Ltd [2005] EWHC 455 (TCC) per Jackson J, at paragraphs [48]–[49]. 78 SL Timber Systems Ltd v Carillion Construction Ltd [2001] BLR 516, Ct of Sess., affirmed obiter in Watkin Jones & Son v Lidl UK GmbH (No 2) [2002] CILL 1847. 79 Millers Specialist Joinery Co Ltd v Nobles Construction Ltd, 3 August 2001, unreported. 80 [2007] UKHL 18; [2007] 1 WLR 1136. 81 The decision was applied in Pierce Design International Ltd v Mark Johnston [2007] BLR 381.

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19.58  The basic entitlement of a party to receive regular payments under a construction contract was not altered. Further, the construction contract still needed to have an “adequate mechanism” for determining what payments are due and to provide for a final date for payment. What changed was the regime of payment and withholding notices. 19.59 The original section 110(2) payment notices was replaced with section 110A notices, which are “payer” notices of sums considered due. A  “specified person” (ie, a person specified in the contract as an architect, engineer or employer’s agent) may issue a “payer notice” on behalf of an employer. This notice is to be given not later than five days after the payment due date. Provision is also made for “payee notices” under section 110B where the payer fails to give the appropriate notice under section 110A. Both types of notice must specify the amount the party considers due and the basis of the calculation of that sum. The amount set out in the notice becomes the “notified sum” (even if the notified sum is nil). 19.60  Where the payer has failed to issue the appropriate payer notice, and in circumstances where the payee has already submitted a payment application as part of the payment process, the payment application becomes the “payee notice”.82 19.61  The learning as to meaning of what is meant as a sum “due” under section 111 of the 1996 Act as originally enacted was rendered largely redundant as the original section 111 was substituted by section 144(1) of the Local Democracy, Economic Development and Construction Act 2009 by a new section 111. The new section provided: “Requirement to pay notified sum (1) Subject as follows, where a payment is provided for by a construction contract, the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment. (2) For the purposes of this section, the “notified sum” in relation to any payment provided for by a construction contract means – (a) in a case where a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice; (b) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice; (c) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with section 110B(2), the amount specified in that notice. (3) The payer or a specified person may in accordance with this section give to the payee a notice of the payer’s intention to pay less than the notified sum. (4) A notice under subsection (3) must specify – (a) the sum that the payer considers to be due on the date the notice is served, and (b) the basis on which that sum is calculated. It is immaterial for the purposes of this subsection that the sum referred to in paragraph (a) or (b) may be zero.

82 See section 110B(2) taken with section 110B(4).

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(5) A notice under subsection (3) – (a) must be given not later than the prescribed period before the final date for payment, and (b) in a case referred to in subsection (2)(b) or (c), may not be given before the notice by reference to which the notified sum is determined. (6) Where a notice is given under subsection (3), subsection (1) applies only in respect of the sum specified pursuant to subsection (4)(a). (7) In subsection (5), “prescribed period” means – (a) such period as the parties may agree, or (b) in the absence of such agreement, the period provided by the Scheme for Construction Contracts. (8) Subsection (9) applies where in respect of a payment – (a) a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract (and no notice under subsection (3) is given), or (b) a notice under subsection (3) is given in accordance with this section, but on the matter being referred to adjudication the adjudicator decides that more than the sum specified in the notice should be paid. (9) In a case where this subsection applies, the decision of the adjudicator referred to in subsection (8) shall be construed as requiring payment of the additional amount not later than – (a) seven days from the date of the decision, or (b) the date which apart from the notice would have been the final date for payment, whichever is the later. (10) Subsection (1) does not apply in relation to a payment provided for by a construction contract where – (a) the contract provides that, if the payee becomes insolvent the payer need not pay any sum due in respect of the payment, and (b) the payee has become insolvent after the prescribed period referred to in subsection (5)(a). (11) Subsections (2) to (5) of section 113 apply for the purposes of subsection (10) of this section as they apply for the purposes of that section.”

Arbitration clauses and transaction set off 19.62  Paragraph 19.5 above makes reference to the Court of Appeal decision in Aectra Refining & Manufacturing Inc v Exmar NV.83 A similar problem that arises is where a party wishes to assert a counterclaim in defence of a claim brought in arbitration. The extent to which this is possible ultimately depends upon the width of the relevant arbitration clause. Sometimes an arbitration clause will be construed as entitling a respondent to raise a counterclaim only to the extent that it arises out of the same contract as the contract upon which the claimant’s claim was based.84 Often the arbitration clause will be construed somewhat 83 [1994] 1 WLR 1634. 84 See for example Econet Satellite Services Ltd v Vee Networks [2006] EWHC 1664 (Comm); [2006] 2 Lloyd’s Rep 423.

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more widely as enabling a counterclaim to be raised where it arises out of the same or a closely related contract.85 The relevant principles were summarised by Cresswell J in Metal Distributors (UK) Ltd v ZCCM Investment Holdings plc:86 “1. In civil proceedings before the Courts of England and Wales a person who begins proceedings in general gives the Court jurisdiction to entertain a counterclaim against him or her which may extend to cases in which, if separate proceedings were to be brought, permission to serve process out of the jurisdiction might not be obtainable . . . 2. In civil proceedings in England and Wales, it is necessary to distinguish between independent set-off and transaction set-off. In his judgment in Aectra (supra) at 1648 and following, Hoffmann LJ said ‘. . . it is necessary to distinguish between what Mr Philip Wood, in his valuable book on English and International Set-off 1989 calls “independent set-off” and “transaction setoff”. Independent set-off, as its name suggests, does not require any relationship between the transactions out of which the cross claims arise . . . Transaction set-off, on the other hand, is a cross-claim arising out of the same transaction or one so closely related that it operates in law or in equity as a complete or partial defeasance of the plaintiff’s claim . . . The question of actionability or jurisdiction can arise in different ways, of which the most common will be where, as in this case, the cross-claim is subject to an arbitration clause or where, by reason of a foreign jurisdiction clause, it is subject to the jurisdiction of the Courts of another country . . . In the case of transaction set-off, the authorities are in favour of allowing the set-off to be pleaded, notwithstanding its submission to arbitration or a different jurisdiction . . . In cases of transaction set-off, this obviously makes good sense . . . This argument is not nearly so strong in the case of independent set-off, which is not a substantive defence to the claim but a procedure for taking an account of the balance due between the parties . . . It entitles the defendant to require that the merits of an unrelated cross-claim be tried in the same action and converts the plaintiff’s original cause of action into the right to a balance due on the taking of an account . . . it is of the essence of independent set-off in English law that the defendant should be entitled to have the merits of his cross-claim tried by the Court in which he has been impleaded. The machinery of the Statutes of Set-off simply cannot operate unless this is possible. Philip Wood, in his admirable and monumental work on ‘English and International Set-off’ defines a transaction set-off (abatement, equitable set-off and United States recoupment) as follows: at para 1–20 Transaction set-off arises where the reciprocal claims flow out of the same transaction or closely connected transactions in circumstances, generally, where the creditor claiming his primary claim has defaulted in performance of the very obligation for which he is seeking payment. Unlike independent setoff, the remedy is self-help and neither claim need be liquidated. The seller who claims the price of goods can be required to bring into account damages for defective goods. A shipowner claiming charter-hire can be required to bring into account losses caused to the charterer by reason of the owner’s wrongful withholding of the vessel. A landlord claiming rent can be required to bring into account damages for breaches of the tenancy agreement. 3. Arbitration is a consensual process and this will usually prevent the introduction into the arbitration of claims or parties which were not within the scope of what the contracting parties agreed to . . .

85 The decision in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] Bus LR 1719 marks a liberalisation in the approach of the courts to the construction and ambit of arbitration clauses – per Burton J in Norscot Rig Management PVT Ltd v Essar Oilfields Services Ltd [2010] EWHC 195 (Comm); [2010] 2 Lloyd’s Rep 209. 86 [2005] EWHC 156 (Comm); [2005] 2 Lloyd’s Rep 37 at paragraph [18].

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4. Whether in any particular case a dispute falls within an agreement to arbitrate depends primarily upon the wording of the agreement . . . 5. Thus the jurisdiction of arbitrators depends upon what matters have been submitted to arbitration in accordance with the particular arbitration agreement (see schedule 30(1)(c) of the 1996 Act) and the true construction of the particular arbitration agreement. 6. An award should not deal with a dispute not contemplated by or not falling within the terms of the submission to arbitration or contain decisions on matters beyond the scope of the submission to arbitration . . . 7. As (1) the jurisdiction of arbitrators depends upon what matters have been submitted in accordance with the particular arbitration agreement and the true construction of the particular arbitration agreement and (2) arbitration agreements are found in numerous different and varying terms domestically and internationally, any attempt at statements of general principle must always be subject to the caveat that regard must be had to the true construction of the particular arbitration agreement in question. 8. Where the claimant has a disputed claim which falls within an arbitration agreement, and the respondent raises a cross-claim which lies outside the clause, the arbitrator does not have jurisdiction to entertain the cross-claim unless it provides a true defence.”

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CHAPTER  20

Provisions excluding or limiting liability 20.1  This chapter considers some of the many ways in which a party to a contract will seek to limit liability (whether in contract or tort) to another party. Incorporation of terms 20.2  The first task in construing or interpreting a contract is to identify its terms. This will be simple enough if the terms are contained in one document or a clearly defined set of interrelated documents. However it is often the case that clauses excluding or limiting liability are introduced in a more informal way. Arguments about incorporation tend to turn upon two issues – sufficiency of notice of clauses relied upon and competing terms (“the battle of forms”). 20.3  The problem often arises because a party seeks to rely upon an exclusion of limitation clause contained in its standard terms of trading (usually contained in the small print on the back of a document such as an invitation to quote, a quotation or an acceptance of order).1 The problem is compounded if two potential contracting parties both have standard terms of business on documents exchanged between them. Consideration is given first to the problems of incorporation where there is simply one set of conditions in play, and then to the more complicated problem of competing conditions. Sufficiency of notice 20.4 In Shepherd Homes Ltd v Encia Remediation Ltd,2 Christopher Clarke J cited with approval the following statement of the law from Chitty on Contracts: “It is not necessary that the conditions contained in the standard form document should have been read by the person receiving it, or that he should have been made subjectively aware of their import or effect. The rules which have been laid down by the courts regarding notice in such circumstances are three in number: (1) If the person receiving the document did not know that there was writing or printing on it, he is bound; (2) If he knew that the writing or printing contained or referred to conditions, he is not bound;

  1 Not only exclusion clauses, but also other clauses in standard written terms of contract conferring benefits upon the party putting forward those terms cause arguments about incorporation – retention of title clauses are an example of the types of clause often found in standard terms (see for example W Hanson (Harrow) Ltd v Rapid Engineering Ltd (1987) 38 BLR 106). For a discussion of principles of incorporation see Masood Ahmad, Arbitration Clauses: Fairness, Justice and Commercial Certainty (2010) 26 Arbitration International 409.   2 [2007] EWHC 70 (TCC); [2007] BLR 135 at paragraph [57].

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(3) If the person tendering the document did what was reasonably sufficient to give the other party notice of the conditions, and if the other party knew that there was writing or printing on the document, but did not know it contained conditions, then the conditions will become the terms of the contract between them.”

20.5  Thus the key requirement is the giving of sufficient notice. 20.6  As Christopher Clarke J observed,3 these are rules designed to cater for circumstances in which someone, usually a member of the public, makes use of services provided by another in exchange for a ticket. The principles therefore need to be treated with a little caution when applied to construction contracts – there is an important distinction between contracts to which both parties are commercial organisations and contracts between commercial organisations and inexperienced clients. The range of situations that come for consideration before the courts is wide. 20.7  The sufficiency of notice of a clause will depend, in part, upon the nature of the transaction and the character of the parties to it. In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd,4 Bingham LJ said: “In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as ‘playing fair,’ ‘coming clean’ or ‘putting one’s cards face upwards on the table.’ It is in essence a principle of fair and open dealing. In such a forum it might, I think, be held on the facts of this case that the plaintiffs were under a duty in all fairness to draw the defendants’ attention specifically to the high price payable if the transparencies were not returned in time and, when the 14 days had expired, to point out to the defendants the high cost of continued failure to return them. English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness. Many examples could be given. Thus equity has intervened to strike down unconscionable bargains. Parliament has stepped in to regulate the imposition of exemption clauses and the form of certain hire-purchase agreements. The common law also has made its contribution, by holding that certain classes of contract require the utmost good faith, by treating as irrecoverable what purport to be agreed estimates of damage but are in truth a disguised penalty for breach, and in many other ways. The well known cases on sufficiency of notice are in my view properly to be read in this context. At one level they are concerned with a question of pure contractual analysis, whether one party has done enough to give the other notice of the incorporation of a term in the contract. At another level they are concerned with a somewhat different question, whether it would in all the circumstances be fair (or reasonable) to hold a party bound by any conditions or by a particular condition of an unusual and stringent nature. . . . The tendency of the English authorities has, I think, been to look at the nature of the transaction in question and the character of the parties to it; to consider what notice the party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the circumstances it is fair to hold him bound by the condition in question. This may yield a result not very different from the civil law principle of good faith, at any rate so far as the formation of the contract is concerned.”

  3 Ibid at paragraph [58].   4 [1989] 1 QB 433 at 439 and 445.

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20.8  A second significant factor is whether the clause under consideration is particularly onerous or unusual. In Shepherd Homes Ltd v Encia Remediation Ltd,5 Christopher Clarke J also cited with approval the following additional statement of the law from Chitty on Contracts: “Although the party receiving the document knows it contains conditions, if the particular condition relied on is one which is a particularly onerous or unusual term, or is one which involves the abrogation of a right given by statute, the party tendering the document must show that it has been brought fairly and reasonably to the other’s attention. ‘Some clauses which I have seen’ said Denning LJ,6 ‘would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient’.”

20.9  However, merely because a term is unusual will not necessarily result in the clause being held not to have been incorporated.7 20.10  Notice of the term relied upon must be given before the contract is concluded.8 20.11  Often there will have been a course of dealing between the parties whereby a party may be held bound to the other party’s standard terms if these have been habitually used or referred to in the course of previous transactions. The essence of such cases is consistent dealing to a substantial extent9 upon one party’s terms so that the court infers that one party has accepted that the business between two parties is to be conducted upon the other party’s terms and conditions of contract, even if in respect of a later transaction nothing is said in terms to that effect.10 It is not necessary for the party seeking to establish incorporation of terms to prove that the other party had actual notice of those terms: it is sufficient that notice of the terms was given.11 Battle of the forms 20.12  “The paradigm battle of the forms occurs where A offers to buy goods from B on its (A’s) conditions and B accepts the offer but only on its own conditions.”12 In that situation of conflict, the traditional analysis is the “last shot” doctrine, namely that where conflicting communications are exchanged, each is a counter-offer, so that if a contract results at all (eg, from an acceptance by conduct) it must be on the terms of the final document of   5 [2007] EWHC 70 (TCC); [2007] BLR 135 at paragraph [59].  6 In J Spurling Ltd v Bradshaw [1956] 1 WLR 461.  7 See HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ 735; [2001] 2 Lloyd’s Rep 161.  8 Olley v Marlborough Court Ltd [1949] 1 KB 532.  9 Chevron International Oil Co Ltd v A/S Sea Team [1983] 2 Lloyd’s Rep 356; McCutcheon v David McBrayne Ltd [1964] 1 WLR 125; Hollier v Rambler Motors Ltd [1972] 2 QB 71; British Crane Hire v Ipswich Plant Hire Ltd [1975] QB 303; Salsi v Jet Air Services Ltd [1977] 2 Lloyd’s Rep 57; Neptune Orient Lines Ltd v JVC (U.K.) Ltd [1983] 2 Lloyd’s Rep 438. Two examples of such cases from the construction industry are ReesHough Ltd v Redland Reinforced Plastics (1985) 2 Con LR 109; W Hanson (Harrow) Ltd v Rapid Civil Engineering Ltd (1987) 39 BLR 106. 10 Where a relationship has commenced upon one set of terms and conditions, it does not mean that the relationship is necessarily to be conducted upon that basis for ever after, as was in effect suggested (and rejected) in Tombs v Wilson Connolly Ltd [2004] EWHC 2809 (TCC); 98 Con LR 44. 11 Hardwicks Game Farm v Suffolk Agricultural Poultry Producers Association [1966] 1 WLR 287 at 316H–317B, 339C–340C (Court of Appeal); [1969] AC 31. 12 Per Dyson LJ in Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ 1209; [2010] 1 Lloyd’s Rep 357 at paragraph [24]. Tekdata was followed and applied by Coulson J in Trebor Bassett Holdings Ltd v ADT Fire and Security plc [2011] EWHC 1936 (TCC); [2011] BLR 661 at paragraphs [152]–[157].

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the series leading to the conclusion of the contract.13 However whilst the last document normally wins, this is not necessarily the case. In Tekdata Interconnections Ltd v Amphenol Ltd,14 Longmore LJ referred to a judgment of Lord Denning MR in Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd15 in which Lord Denning had said:16 “I have much sympathy with the judge’s approach to this case. In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out of date. This was observed by Lord Wilberforce in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd.17 The better way is to look at all the documents passing between the parties – and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points – even though there may be differences between the forms and conditions printed on the back of them.”

He commented:18 “[W]hile accepting that, as Lord Denning said, there will be cases when one must glean from the documents passing between the parties and from their conduct whether agreement has been reached. The way in which I would put it is to say that the traditional offer and acceptance analysis must be adopted unless the documents passing between the parties and their conduct show that their common intention was that some other terms were intended to prevail.”

He added later:19 “I think it will always be difficult to displace the traditional analysis, in a battle of forms case, unless it can be said that there was a clear course of dealing between the parties.” To the same effect, Dyson LJ said:20 “[T]he rules which govern the formation of contracts have been long established and they are grounded in the concepts of offer and acceptance. So long as that continues to be the case, it seems to me that the general rule should be that the traditional offer and acceptance is to be applied in battle of the forms cases. That has the great merit of providing a degree of certainty which is both desirable and necessary in order to promote effective commercial relationships.”

20.13  An example of a case where the last document in the sequence was held not to prevail is Sterling Hydraulics Ltd v Dichtomatik Ltd,21 where the judge held that the last document in the sequence did not contain sufficient notice of the terms referred to thereon to trump the previous document (a purchase order). This was an interesting example where the principle that sufficient notice must be given so as to incorporate terms into a contract interacts with the principle of offer and acceptance governing the battle of the forms. HH Judge Havelock-Allan QC said:22 “The key lies in identifying precisely when the contract was concluded. But that involves analysing the exchanges between the parties in terms of offer and acceptance. For the purposes of such analysis it is often necessary to decide the meaning and effect of the rival terms in order to 13 Per Dyson LJ in Tekdata (above) at paragraph [23]. 14 Referred to in footnotes [12] and [13] above. 15 [1979] 1 WLR 401. Applied by Coulson J in J. Murphy & Sons Ltd v Johnston PreCast Ltd [2008] EWHC 3024 (TCC) at paragraphs [83]–[88] and Trebor Bassett Holdings Ltd v ADT Fire and Security plc [2011] EWHC 1936 (TCC); [2011] BLR 661 at paragraphs [152]–[157]. 16 At page 404F–G. 17 [1975] AC 154 at 167. 18 At paragraph [11]. 19 At paragraph [21]. 20 At paragraph [25]. 21 [2006] EWHC 2004 (QB); [2007] 1 Lloyd’s Rep 8. 22 At paragraph [11].

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determine (1) whether the response of party B to the offer of party A was an acceptance of the offer or was a counter-offer, and (2) whether either party did enough to bring its terms to the attention of the other for those terms to be incorporated into the contract. The more radical the term, the greater the notice required if it is to become part of the contract.”

He expanded upon this interrelationship of principles later in his judgment:23 “The test of consensus is an objective one. On the face of it a contract is concluded when a purchase order is sent which contains all the essential terms for a contract, and that order is accepted by a written acknowledgement. For the acknowledgement not to result in a contract it must be plain to anyone reading the two documents that the acknowledgement introduces fresh terms which so add to, modify or contradict the terms in the order that the two sets of terms cannot form part of a binding agreement without further assent from the purchaser.”

20.14  Chichester Joinery Ltd v John Mowlem & Co plc24 was a case concerning a construction contract in which the issue before HH Judge Fox-Andrews QC turned on a “battle of the forms”. He gave these words of advice:25 “This case highlights the risks facing parties who seek to impose their own respective conditions rather than using some well established form of contract commonly used for the supply of goods to a main contractor for incorporation in construction work. Unless such a form of contract is used, the courts may be faced (as here) with what is essentially an artificial state of affairs. The legal advisers to each party use their best endeavours to provide a form of standard conditions which will satisfactorily operate in a variety of different circumstances. Although there is no such evidence here, it is not uncommon for the parties to be advised by their respective solicitors to ensure that whenever an invitation to treat, a quotation, an offer, an order, an acknowledgement of acceptance, etc is sent, that a copy of the conditions is endorsed on or annexed to the document. It often occurs that the typed-in portions do not correspond with the printed description of the document.”

Thus, where possible (and often this is not practicable) it is best for the parties to enter into an agreement spelling out the terms agreed between them. This will not only ensure that the terms are incorporated, but may prevent the application of the Unfair Contract Terms Act 1977, or (if that Act applies) may increase the chances of any exclusion or limitation clause being held to be reasonable. The problems of relying upon standard documentation with terms and conditions printed on the back of such documents as invitations to quote or quotations are illustrated by the Chichester Joinery case, where the defendant’s invitation to quote was sent out on Mowlem’s standard form – however an original was not sent, but rather a photocopy that copied the front (which referred to Conditions “on the reverse hereof”) but not the back, so that the reference was meaningless. Such errors are understandably commonplace in busy estimating or purchasing departments, thus negating the efforts of lawyers to find ways of introducing clauses carefully drafted to protect their clients from liability through the use of such standard documentation. Even where such errors are not made, the persons handling such negotiations are often not knowledgeable enough (or are too busy) to notice and understand that the documentation coming back from the other party contains terms inconsistent with those originally proposed, thus amounting to a counteroffer “killing” the terms originally proposed by the first party.

23 At paragraph [21]. 24 (1987) 42 BLR 100. 25 At 104–105.

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20.15  As pointed out at paragraph 20.2 and footnote 1 above, the problems of incorporation arise not only in respect of exclusion or limitation clauses, but also other clauses including retention of title clauses and provisions as to time for payment. This chapter is concerned with clauses limiting or excluding liability. There are well-established rules of construction applying to such clauses. Interpretation of exclusion (exemption) and limitation clauses 20.16 In Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association,26 Diplock LJ said: “The expression ‘exemption clause’ is loosely used to include both clauses in contract which negative or modify what I have called above original rights and liabilities which arise by implication of law from the nature of the contract itself and also clauses in contracts which negative or modify those substituted rights which a party acquires by implication of law upon failure by the other party to perform an original liability; but the basic rule of construction applicable to both kinds of exemption clause is the same.”

An example of the first category is a clause saying that all implied terms are excluded. An example of the second is a clause saying that a particular head of damages for breach of contract is excluded. Exclusion clauses are construed strictly 20.17  The nature of exclusion clauses is an attempt by one party to a contract to deprive the other party to that contract of rights or benefits which, but for such a clause, that other party would enjoy. For that reason clauses excluding or limiting liability have traditionally been construed strictly.27 The rules of construction set out below are reflections of this principle. However there is a marked tendency in the courts now to emphasise that where commercial parties of equal bargaining agree terms that are clear, the courts will be reluctant to interfere with their bargain. Thus in Nobahar-Cookson v The Hut Group Ltd28 Briggs LJ said:29 “recent decisions about exclusion clauses have continued to affirm the utility of the principle that, if necessary to resolve ambiguity, they should be narrowly construed, including in relation to commercial contracts. . . . In my judgment the underlying rationale for the principle that, if necessary to resolve ambiguity, exclusion clauses should be narrowly construed has nothing to do with the identification

26 [1966] 1 WLR 287 at 341–342. 27 Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133 at 158 and 161; Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 at 105B–C; Homburg Houtimport BV v Agrosin Private Ltd (“The Starsin”) [2003] UKHL 12; [2004] 1 AC 715 at paragraph [144]; Dairy Containers Ltd v Tasman Orient Line CV (“The Tasman Discoverer”) [2004] UKPC 22; [2005] 1 WLR 215 at paragraph [12]. For the application of this principle in the context of building contracts, see Billyack v Leyland Construction Co Ltd [1968] 1 WLR 471 (per Edmund Davies LJ at 475H: “It requires very clear words to debar a building owner from exercising his ordinary rights of suing if the work is not done in accordance with the contract”) and Stent Foundations Ltd v M.J. Gleeson Group plc [2001] BLR 134 at paragraph 15(a). 28 [2016] EWCA Civ 128. 29 At paragraphs [16], [18] and [19]. Paragraph [19] of that judgment was cited and followed in Scottish Power UK PLC v BP Exploration Operating Co Ltd [2016] EWCA Civ 1045 at paragraph [29].

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of the proferens, either of the document as a whole or of the clause in question. Nor is it a principle derived from the identification of the person seeking to rely upon it. Ambiguity in an exclusion clause may have to be resolved by a narrow construction because an exclusion clause cuts down or detracts from the general law such as (in the present case) an obligation to give effect to a contractual warranty by paying compensation for breach of it. The parties are not lightly to bed taken to have intended to cut down remedies which the law provides for breach of important contractual obligations without using clear words having that effect: see Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 per Lord Diplock at 717H, applied in Seadrill Management Services Ltd v OAO Gazprom [2010] EWCA Civ 691, by Moore-Bick LJ at para 29. This approach to exclusion clauses is not now regarded as a presumption, still less as a special rule justifying the giving of a strained meaning to a provision merely because it is an exclusion clause. Commercial parties are entitled to allocate between them the risks of something going wrong in their contractual relationship in any way they choose. Nor is it simply to be mechanistically applied wherever an ambiguity is identified in an exclusion clause. The court must still use all its tools of linguistic, contextual, purposive and common-sense analysis to discern what the clause really means. In the Seadrill Management case Moore-Bick LJ described the principle as: ‘essentially one of common sense; parties do not normally give up valuable rights without making it clear that they intend to do so’.”

Construction contra proferentem 20.18  The citation in the previous paragraph refers to a “proferens”. An English contract lawyer would recognise that as a reference to the maxim that exclusion clauses are to be construed contra proferentem, that is to say against the person who sought to have the clause included in the contract. There are two aspects to this principle: first, because the party seeking to rely upon an exclusion clause bears the burden of proving that the case falls within its provisions, any doubt or ambiguity will be resolved against him and in favour of the other party.30 Secondly, if the clause is found to be ambiguous, the clause will be construed against the interest of the party who introduced the clause into the contract (who will usually be the party now seeking to rely upon the clause).31 In Transocean Drilling UK Ltd v Providence Resources plc32 Moore-Bick LJ set out the modern approach to the contra proferentem principle of construction:33 “In my view the judge was wrong to invoke the contra proferentem principle in this case. It is an approach to construction to which resort may properly be had when the language chosen by the parties is one-sided and genuinely ambiguous, that is, equally capable of bearing two distinct meanings. In such cases the application of the principle may enable the court to choose the meaning that is less favourable to the party who introduced the clause or in whose favour it operates. Unfortunately, it seems now to be used by some as synonymous with the principle in Gilbert-Ash, although the two are quite distinct: see Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128 per Briggs L.J. at paragraphs 12 to 20. It has no part to play, however,

30 Homburg Houtimport BV v Agrosin Private Ltd (“The Starsin”) [2003] UKHL 12; [2004] 1 AC 715 at paragraph [144]; Dairy Containers Ltd v Tasman Orient Line CV (“The Tasman Discoverer”) [2004] UKPC 22; [2005] 1 WLR 215 at paragraph [12]; Stent Foundations Ltd v MJ Gleeson Group plc [2001] BLR 134 at paragraph 15(c). 31 See for example Billyack v Leyland Construction Co Ltd [1968] 1 WLR 471 at 477B; Adams v Richardson & Starling Ltd [1969] 1 WLR 1645 at 1653H; Stent Foundations Ltd v MJ Gleeson Group plc [2001] BLR 134 at paragraph 15(d). 32 [2016] EWCA Civ 372; [2016] 2 Lloyd’s Rep 51; [2016] BLR 360. 33 At paragraphs [20] and [21]. See also Taberna Europe CDO II Plc v Selskabet [2016] EWCA Civ 1262.

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when the meaning of the words is clear, as I think they are in this case; nor does it have a role to play in relation to a clause which favours both parties equally, especially where they are of equal bargaining power. In the case of a mutual clause such as the present clause 20 it is impossible to say who is the proferens and who the proferee. Nor, with respect, can I accept that resort to the contra proferentem principle can be justified by reference to Gilbert-Ash. Lord Diplock’s observation34 must be read in that context. Their Lordships were concerned in that case with the question whether, by agreeing to pay the contractor against certificates issued by the architect under a building contract, the contractor had agreed to forego its right of abatement or set-off under the general law. Such rights have a particular importance and it is no doubt correct to presume that parties do not intend to give them up unless they have made that intention clear, but that is to say no more than their intention to do so must be apparent from the language they have used, fairly construed. Since the decision in Photo Production any presumption that parties to a contract do not intend to give up their right to claim damages for breach of contract must likewise give way to the language of the contract.”

Liability for negligence 20.19  Numerous cases have stated the principle that because it is inherently improbable that one party to a contract would intend to absolve the other party from the consequences of the latter’s own negligence, the courts will presume a clause not to have that effect unless the contrary is plainly shown by clear words. 20.20 In Canada Steamship Lines Ltd v The King,35 Lord Morton of Henryton set out the following principles: “(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called ‘the proferens’) from the consequence of the negligence of his own servants, effect must be given to that provision.36 (2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens . . . (3) If the words used are wide enough for the above purpose, the court must then consider ‘whether the head of damage may be based on some other ground than that of negligence’, to quote . . . Lord Greene37 . . . The ‘other ground’ must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, which is no doubt to be implied from Lord Greene’s words, the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants.”

20.21  These guidelines have often been considered by the courts. In Smith v South Wales Switchgear Co Ltd,38 Lord Keith of Kinkel, describing the above “rules” as “guidelines”, said: “[T]he matter is essentially one of ascertaining the intention of the contracting parties 34 Ie that there is a presumption that neither party to the contract intends to abandon any remedies for its breach which clear words are required to rebut: Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at page 717H. 35 [1952] AC 192 at 208. This was recently applied in Shell UK Ltd v Total UK Ltd [2010] EWCA Civ 180; [2010] 2 Lloyd’s Rep 467. 36 In Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd (“The Raphael”) [1982] 2 Lloyd’s Rep 42 at 51 Stephenson LJ commented that “The Courts are not often confronted with a clause so barefaced as to claim exemption for, or an indemnity against, a party’s own negligence in express terms.” 37 In Alderslade v Hendon Laundry Ltd [1945] KB 189 at 192. 38 [1978] 1 WLR 165 at 177.

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from the language they have used, considered in the light of surrounding circumstances which must be taken to have been within their knowledge.” 20.22 In HIH Casualty and General Insurance Ltd v Chase Manhattan Bank,39 Lord Hoffmann said: “In applying the Canada Steamship guidelines, it must also be borne in mind that, as Lord Denning M.R. pointed out in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd40 . . . (a perception which was adopted on appeal by the House of Lords41 . . .), they date from a time before the Unfair Contract Terms Act 1977, when the Courts had no remedy but construction to relieve consumers from the burden of unreasonable exclusion clauses.”

20.23 In Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd,42 Buckley LJ said: “It is however a fundamental consideration in the construction of contracts of this kind that it is inherently improbable that one party to a contract would intend to absolve the other party to the contract from the consequences of the latter’s own negligence. The intention to do so must therefore be made perfectly clear, for otherwise the court will conclude that the exempted party was only to be free from liability in respect of damage occasioned by causes other than negligence for which he is answerable.”

20.24 In The Raphael,43 Donaldson LJ44 echoed what the House of Lords had said in Smith v South Wales Switchgear Ltd,45 and said of Lord Morton’s guidelines: “[I]t would be a fatal error to regard them as if they were the words of a codifying and, still worse an amending, statute. They provide a very lucid and useful summary of well settled law, but have to be construed in the light of that law.”

He continued:46 “It is the third of Lord Morton’s propositions which is liable to mislead, unless full force is given to his caveat that the ‘other ground’ must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it. The duty of the Court is to divine from the words used what, in the circumstances in which they were used, the parties must have intended by their bargain. When parties make an agreement governing their future relationship, human nature being on balance more inclined to optimism than pessimism, the parties are more likely to be thinking of non-negligent rather than negligent performance of the contract. The law reflects this fact of life by assuming that if there are two potential grounds of liability, both of them real and foreseeable, but one involves negligence, prima facie any words of exemption will be directed at the non-negligent ground of liability.”

To the same effect, May LJ said:47 “Before I turn to the third of Lord Morton’s tests, I should refer to the point which Lord Justice Donaldson has also mentioned. Underlying Counsel for the respondents’ particular submissions on the respective tests there was a more general one. This was to emphasize that although they are described as tests, this is really a misdescription. They are and were only intended to be 39 [2003] UKHL 6; [2003] 2 Lloyd’s Rep 61 at paragraph [63]. 40 [1983] QB 284 at 297–298. 41 [1983] 2 AC 803 at 812–813. 42 [1973] QB 400 at 419. 43 Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd (“The Raphael”) [1982] 2 Lloyd’s Rep 42. 44 At 45. 45 Above. 46 Ibid. 47 At 48.

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guidelines, not words in a statute, and at the end of the day the duty of the Court is just to construe the relevant clause.”

He explained:48 “Thus, if an exemption clause of the kind we are considering excludes liability for negligence expressly, then the Courts will give effect to the exemption. If it does not do so expressly, but its wording is clear and wide enough to do so by implication, then the question becomes whether the contracting parties so intended. If the only head of liability upon which the clause can bite in the circumstances of a given case is negligence, and the parties did or must be deemed to have applied their minds to this eventuality, then clearly it is not difficult for a Court to hold that this is what the parties intended – that this is its proper construction. Indeed to hold to the contrary would be contrary to commonsense. On the other hand if there is a head of liability upon which the clause could bite in addition to negligence then, because it is more unlikely than not that a party will be ready to excuse his other contracting party from the consequences of the latter’s negligence, the clause will generally be construed as not covering negligence. If the parties did or must be deemed to have applied their minds to the potential alternative head of liability at the time the contract was made then, in the absence of any express reference to negligence, the Courts can sensibly only conclude that the relevant clause was not intended to cover negligence and will refuse so to construe it. In other words, the Court asks itself what in all the circumstances the parties intended the alleged exemption clause to mean.”

20.25 In The Emmanuel C,49 Bingham J reviewed the authorities and derived the following general conclusions:50 “1. Since it is inherently improbable that one party to a contract should intend to absolve the other party from the consequences of the latter’s own negligence, the court will presume a clause not to have that effect unless the contrary is plainly shown by clear words or by implication. 2. Statements made in one case may assist in deciding another but cannot literally determine the decision, since in each case the task is one of construction to ascertain the actual or imputed intention of the parties to the contract in question. 3. In carrying out that task of construction, the court should not treat commercial parties as if they were law students . . . Often the test of what would be understood or intended by the ordinarily literate and sensible person will be appropriate . . . counsel for the owners suggested that the court should adopt the standard of the intelligent lawyers. I accept that this will in many cases be an appropriate standard. But where a contract is made in a specialised business by two practitioners in that business I think a somewhat different standard is indicated, approximating to that of the reasonably informed practitioner in the field in question. 4. Where the words used are wide enough to cover negligent as well as non-negligent acts or omissions but practically speaking the clause lacks substance if it is not construed as covering negligent acts or omissions, the court may in the circumstances of a given case infer that the parties intended the clause to cover negligence . . . but it need not do so . . . All depends on the proper inference to be drawn in the instant case.”

20.26  A useful review of the authorities in this area is to be found in the judgment of Stuart-Smith J in Persimmon Homes Ltd v Ove Arup & Partners Ltd:51 “The recognition that parties may chose to allocate risks and liabilities in a way that may at first sight seem unlikely to an outsider has grown in the field of commercial contracts in general and

48 At 49–50. 49 Industrie Chimiche Italia Centrale S.p.A. v Nea Ninemia Shipping Co SA (“The Emmanuel C”) [1983] 1 Lloyd’s Rep 310. 50 At 312–313. 51 [2015] EWHC 3573 (TCC); [2016] BLR 112.

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contracts related to construction in particular where the allocation of risk has been a commonplace in standard forms of building contracts for years. . . .52 These statements establish that the court’s task is essentially the same when interpreting what is said to be an exclusion or limitation clause as it is when interpreting any other provision of a contract: it is to identify what a reasonable person having all the background knowledge which would reasonably have been available to the parties would have understood the parties to have meant. And in pursuing that task, the commercial and contractual context may53 make it improbable that one party would have agreed to assume responsibility for the relevant negligence of another, so that clear words are needed. What matters most, to my mind, is not that the words should initially seem clear (though that often makes life seem easier. . . .) but that, at the end of the interpretative process their meaning should be clear and established.”

20.27  In the context of construction contracts, the application of the above principles often arises in the context of chains of subcontracts and sub-subcontracts. In Greenwich Millennium Village Ltd v Essex Services Group plc,54 a contractor had been held liable when it failed to notice workmanship defects perpretated by its subcontractor. It was argued that the contractor could not take advantage of an indemnity clause in the subcontract because the contractor would be seeking an indemnity in respect of its own negligence. That argument was firmly rejected by the Court of Appeal. Jackson LJ said:55 “The Canada Steamship principle is a rule of construction, not a rule of law. As Devlion LJ stated in Walters v Whessoe the rule of construction rests upon the presumed intention of the parties. In most situations, as Devlin LJ said, ‘it is so unlikely that one man would agree to indemnify another man for the consequences of that other’s own negligence that he is presumed not to intend to do so unless it is done by express words or by necessary implications’. In a chain of building contracts, however, it is not inherently unlikely that each party will agree to be liable for shortcomings in its own work, even if superior parties in the chain fail to detect these shortcomings. In all the construction cases where the Canada Steamship principle has been successfully invoked the indemnitee has committed a positive act of negligence which was causative of the damage. In Walters v Whessoe56 the indemnitee negligently left a drum containing highly explosive vapour near where Whessoe’s works were taking place. In the Sims57 case the indemnitee sent seven of its own employees to work on a suspended staging erected by a sub-contractor without ensuring it was safe. In the AMF 58 case. . . . The indemnitee invited an independent contractor (the plaintiff ) to bring valuable property onto the site when there was an obvious risk of flood damage. Let me now draw the threads together. In my view the rule of construction stated in the Canada Steamship case and Walters v Whessoe is of general application. Nevertheless it is based upon the presumed intention of the parties. In applying that rule the court must have regard to the commercial context of the contract under consideration. In the case of a construction contract a failure by the indemnitee to spot defects perpetrated by its contractor or ­sub-contractor should not ordinarily defeat the operation of an indemnity clause even if that clause fails expressly to encompass damage caused by the negligence of the indemnitee.”

52 Paragraph [26]. 53 This emphasis is in the original judgment. 54 [2014] EWCA Civ 960; [2014] 1 WLR 3517. 55 At paragraphs [91]–[94]. 56 (1960) 6 BLR 23. 57 Sims v Foster Wheeler Ltd [1966] 1 WLR 769. 58 AMF International Ltd v Magnet Bowling Ltd [1968] 1 WLR 1028.

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Limitation clauses 20.28 In Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd,59 Lord Fraser of Tullybelton said that the Canada Steamship guidelines were “not applicable in their full rigour” to clauses that limited rather than excluded liability. (However Lord Hoffmann’s note of caution should be heeded: “I doubt, however, whether Lord Fraser intended to introduce one mechanistic rule (a distinction between limiting and excluding liability).”60 Liability for fraud 20.29  If it is improbable that one party to a contract would intend to absolve the other party entirely from the latter’s own negligence; it is virtually inconceivable that a party would absolve the other party from liability for fraud. 20.30 In S Pearson & Son Ltd v Dublin Corporation,61 the question was whether a clause in a building contract that provided that the contractor should satisfy himself as to the dimensions, levels and nature of all existing works excluded an action based on alleged fraudulent representations by the council’s engineers as to the position of an existing wall. Lord Halsbury said:62 “The action is based on the allegation of fraud, and no subtlety of language, no craft or machinery in the form of contract, can estop a person who complains that he has been defrauded from having that question of fact submitted to a jury.”

Lord Loreburn LC said:63 “It seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other person may not rely upon them.” 20.31  Having cited the above passage from Lord Halsbury’s speech, in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank64 Lord Hoffmann said: “[I]t is extraordinarily unlikely that parties to a contract will agree a term which excludes liability for fraud with sufficient clarity to raise squarely the question of whether it should be lawful to do so.” 20.32 In HIH Casualty the issue was whether a term in insurance policies excluded the consequences of fraud on the part of an agent. The House of Lords held that on its terms the clause did not have that effect. In distinguishing fraud on the part of a principal and fraud on the part of an agent, Lord Bingham said:65 “It is clear that the law, on public policy grounds, does not permit a contracting party to exclude liability for his own fraud in inducing the making of the contract. The insurers have throughout contended for a similar rule in relation to the fraud of agents acting as such . . . I do not however think that the question need be finally resolved in this case. For it is in my opinion plain beyond 59 [1983] 1 WLR 964 at 970. See also Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd (1995) 75 BLR 1 at 10 and The University of Keele v Price Waterhouse [2004] EWCA Civ 583; [2004] PNLR 43 at paragraph [43]. 60 HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6; [2003] 2 Lloyd’s Rep 61 at paragraph [63]. 61 [1907] AC 351. 62 At 356. 63 At 353–354. 64 [2003] UKHL 6; [2003] 2 Lloyd’s Rep 61 at paragraph [81]. 65 At paragraph [16].

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argument that if a party to a written contract seeks to exclude the ordinary consequences of fraudulent or dishonest misrepresentation or deceit by his agent, acting as such, inducing the making of the contract, such intention must be expressed in clear and unmistakable terms on the face of the contract . . . General words, however comprehensive the legal analyst might find them to be, will not serve: the language used must be such as will alert a commercial party to the extraordinary bargain he is invited to make. It is no doubt unattractive for a contracting party to propose a term clearly having such effect, because of its predictable effect on the mind of the other contracting party.”

To like effect, Lord Hoffmann said:66 “I agree with Lord Justice Rix that fraud is quite different from negligence: ‘Parties contract with one another in the expectation of honest dealing’, particularly in an insurance context. I think that in the absence of words which expressly refer to dishonesty, it goes without saying that underlying the contractual arrangements of the parties there will be a common assumption that the persons involved will act honestly. As Lord Loreburn L.C. said of the exempting clauses in S Pearson & Son Ltd v Dublin Corporation67 . . . ‘They contemplate honesty on both sides and protect only against honest mistakes’.”

20.33  HIH Casualty was followed and applied by the Court of Appeal in Granville Oil & Chemicals Ltd v Davis Turner & Co Ltd.68 Deliberate breach 20.34  Similarly, in construing exclusion clauses, it may be that courts will presume that at the time of contracting the parties did not intend to absolve either party of liability for deliberate breach. After a careful review of the authorities, in Internet Broadcasting Corporation Ltd v MAR LLC,69 Gabriel Moss QC, sitting as a deputy High Court judge, summarised the principles applicable to deliberate, repudiatory breach involving personal wrongdoing as follows: “(1) There is no rule of law applicable and the question is one of construction; (2) There is a presumption, which appears to be a strong presumption, against the exemption clause being construed so as to cover deliberate, repudiatory breach; (3) The words needed to cover a deliberate, repudiatory breach need to be very ‘clear’ in the sense of using ‘strong’ language such as ‘under no circumstances. . . .’; (4) There is a particular need to use ‘clear’, in the sense of ‘strong’, language where the exemption clause is intended to cover deliberate wrongdoing by a party in respect of a breach which cannot, or is unlikely to be, covered by insurance. Language such as ‘including deliberate repudiatory acts by [the parties to the contract] themselves. . . .’ would need to be used in such a case; (5) Words which, in a literal sense, cover a deliberate repudiatory breach will not be construed so as to do so if that would defeat the ‘main object’ of the contract; (6) The proper function between commercial parties at arm’s length and with equal bargaining power of an exemption clause is to allocate insurable risk, so that an exemption clause should not normally be construed in such cases so as to cover an uninsurable risk or one very

66 At paragraph [68]. 67 [1907] AC 351 at 354. 68 [2003] EWCA Civ 570; [2003] 2 Lloyd’s Rep 356. See also BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC); [2010] BLR 267 at paragraph [434]; Mir Steel UK Ltd v Morris [2012] EWCA Civ 1397; [2013] CP Rep 7. 69 [2009] EWHC 844 (Ch); [2009] 2 Lloyd’s Rep 295 at paragraph [33].

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unlikely to be capable of being insured, in particular deliberate wrongdoing by a party to the contract itself (as opposed to vicarious liability for others); (7) Words which in a literal sense cover a deliberate repudiatory breach cannot be relied upon if they are ‘repugnant’.”

20.35  This judgment should be treated with a little caution: there is not a body of authority clearly spelling out the above principles with the crispness with which the learned deputy High Court judge set them out. There are conceptual difficulties: the judgment is concerned with repudiatory breaches – in the rough and tumble of commercial life a party may often regard it as being in its commercial interests to walk away from a contract and take the consequences. It is not immediately obvious why the consequences should be different in a case where a party purports to terminate a contract believing (wrongly) that it is entitled to do so, and a case where that party purports to terminate a contract knowing or believing that it is not entitled so to do. It is to be noted that in the context of awards of damages the courts have held that the fact a breach is cynical and deliberate is not a sufficient ground for departing from the normal basis on which damages are awarded.70 In Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale,71 Lord Wilberforce said that to “create a special rule for deliberate acts is unnecessary and may lead astray”. However, there is strong authority supporting the proposition that deliberateness is a relevant factor, not least in the same speech of Lord Wilberforce:72 “Some deliberate breaches . . . may be, on construction, within an exceptions clause (for example, a deliberate delay for one day in loading.) This is not to say that ‘deliberateness’ may not be a relevant factor: depending on what the party in breach ‘deliberately’ intended to do, it may be possible to say that the parties never contemplated that such a breach would be excused or limited.”

20.36  An exemption clause will normally be presumed not to cover wilful damage.73 Repugnancy 20.37  If an exclusion clause is widely drawn, it may be so widely drawn as to be repugnant to the main purpose of the contract. In such a situation a court may hold that the clause is ineffective. In euNetworks Fiber UK Ltd v Abovenet Communications UK Ltd,74 Briggs J summarised the applicable principles: “The principles applicable to the construction and effectiveness of contractual limitations on liability such as [the clause he was considering] are to be found set out in detail in Photo Production Ltd v Securicor Transport Ltd75 . . . and may be summarised as follows: ‘(1) There is no principle that a party may not exclude liability for fundamental breach of contract. 70 Per Lord Nicholls in Attorney General v Blake [2001] 1 AC 268 at page 286E–F, cited at paragraph 11.56 above. 71 [1967] 1 AC 361 at 435. 72 At 435. 73 Regus (UK) Ltd v Epcot Solutions Ltd [2008] EWCA Civ 361; [2009] 1 All ER (Comm) 586. At paragraph [34]. 74 [2007] EWHC 3099 (Ch) at paragraph [257]. Cited and approved in Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] EWCA Civ 38; [2013] 2 Lloyd’s Rep 270. See also AstraZeneca UK Ltd v Albemarle International Corp. [2011] EWHC 1574 (Comm); [2011] 2CLC 252. 75 [1980] AC 827.

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(2) In relation to a commercial contract (where the parties are usually bargaining on equal terms and free to insure against risks) the parties are at liberty to apportion the risks arising from breach of contract as they think fit, so that the extent of an exclusion clause is merely a question of construction. (3) Nonetheless, if the effect of an exclusion clause is to deprive the agreement of the legal characteristics of a contract, by conferring on one party the liberty to ignore his obligations with impunity, the exclusion may be held to be repugnant to the contract and of no effect.’ ”

20.38  This principle can be traced back to the House of Lords decision in Glynn v Margetson & Co76 in which Lord Halsbury LC said forthrightly:77 “Looking at the whole of the instrument, and seeing what one must regard, for a reason which I will give in a moment, as its main purpose, one must reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract.”

Consequential and indirect losses 20.39  Commercial contracts frequently contain clauses excluding liability for “consequential losses”, or “indirect losses”, frequently coupled with an exclusion of liability for loss of profits. Such clauses are important, because without them a party might be exposed to substantial liabilities the extent of which it is difficult or impossible to predict in advance. There are many authorities dealing with the effect of such provisions. Recent cases have reflected an approach that is less rule bound than the earlier cases considered below; in particular there has been a move away from necessarily aligning such exclusions with the losses falling within the second limb of Hadley v Baxendale. 20.40 In Croudace Construction Ltd v Cawoods Concrete Products Ltd,78 the defendants had agreed to sell to the plaintiffs quantities of masonry blocks to be used in building a school. It was the plaintiffs’ case that the delivery of the blocks was late and that, as a result, the plaintiffs not only suffered loss in respect of men and materials being kept on the site without work but also suffered inflation costs and faced a claim for costs incurred by subcontractors. The defendants relied upon a provision in the contract that “we are not under any circumstances to be liable for any consequential loss or damage caused by reason of late supply”. The Court of Appeal held that the clause was ineffective to exclude the losses claimed. It was held that the word “consequential” does not cover any loss that directly and naturally results in the ordinary course of events from late delivery. 20.41 In British Sugar plc v NEI Power Projects Ltd,79 the plaintiffs engaged the defendants to design, supply, deliver and commission electrical equipment. The plaintiffs’ case was that the equipment was poorly designed and badly installed resulting in breakdowns in the power supply, which in turn caused damage consisting mainly of increased production costs and loss of profits due to those breakdowns. There was an exclusion clause that imposed an obligation in respect of faulty or unsuitable goods or materials but limiting

76 [1893] AC 351. 77 At 357, cited by Lord Reid in Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC133 at 174. 78 [1978] 2 Lloyd’s Rep55. 79 (1997) 87 BLR 42.

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(not excluding) liability for “consequential loss” to the value of the contract. The Court of Appeal referred to and applied Croudace. Waller LJ said:80 “On a proper reading of that clause, an obligation was being placed on the defendants to pay such damages as flowed naturally and directly from any supply by the defendants of faulty goods or materials, with the limitations being imposed in relation to some other type of loss which did not flow so directly, for example, damage which might flow from special circumstances and come within the second limb in Hadley v Baxendale. It seems to me that the judge was right and that on the true construction of this contract the parties simply agreed to limit the defendants’ liability for loss and damage not directly and naturally resulting from the defendants’ breach of contract to an amount equal to the value of the contract.”

Again in Deepak Fertilisers and Petrochemicals Corporation v ICI Chemicals and Polymers Ltd81 the Court of Appeal applied Croudace as to the meaning of “indirect or consequential damages”. 20.42 In Pegler Ltd v Wang (UK) Ltd,82 Wang had agreed to supply computer hardware and software. The plaintiffs claimed damages for lost sales, lost opportunity to increase margins and make staff cost savings and wasted management time. HH Judge Bowsher QC had to consider an exclusion clause in the following terms: “Wang shall not in any event be liable for any indirect, special or consequential loss, howsoever arising (including but not limited to loss of anticipated profits or of data) in connection with or arising out of the supply, functioning or use of the Hardware, the Software or the Services even if Wang shall have been advised of the possibility of such potential loss and shall not be liable for any loss except as provided for in this Contract.”

Unsurprisingly, Wang relied upon this clause generally, but particularly the express exclusion of liability for loss of profits. The judge held that the words “indirect, special or consequential loss, howsoever arising (including but not limited to loss of anticipated profits or of data)”, particularly coupled with the words, “even if Wang shall have been advised of the possibility of such potential loss”, referred to loss under the second limb of Hadley v Baxendale (see Chapter 8) and that, “the reference by the words in brackets to loss of anticipated profits does not mean that the exclusion effected by this clause includes all loss of profits: it is plain from the context that only loss of profits which are of the character of indirect, special or consequential loss are referred to. As was explained in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd83 . . . claims for loss of profits may fall into either the first or the second rule in Hadley v Baxendale, depending on the circumstances.”84

20.43  Shortly after HH Judge Bowsher delivered judgment in Pegler v Wang, the Court of Appeal delivered judgment in Hotel Services Ltd v Hilton International Hotels (UK) Ltd.85 The circumstances of that case were that Hotel Services Ltd had installed in Hilton’s hotels “Robobars”, which were minibars that contained a feature that guests would be automatically billed on their account for removal of any of the Robobars’ contents. These 80 At 51. 81 [1999] 1 Lloyd’s Rep 387 at 402–403. 82 [2000] BLR 218. 83 [1949] 2 KB 528 at 536. 84 [2000] BLR 227 at paragraph 50. 85 [2000] BLR 235.

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malfunctioned. Amongst the losses claimed by Hilton was the loss of profit from the use of the minibars. The relevant exclusion clause excluded liability in the following terms: “The Company will not in any circumstances be liable for any indirect or consequential loss, damage or liability arising from any defect in or failure of the System or any part thereof or the performance of this Agreement or any breach hereof by the Company or its employees.”

The court held that the loss of profit was recoverable, reiterating that the dividing line between exclusion and recovery was along the divide between the first and second rules in Hadley v Baxendale. As an example of a loss of profit that might have been excluded by the clause, Sedley LJ referred to profitability of the hotel itself rather than of the Robobars.86 He said:87 “We prefer therefore to decide this case, much as Victoria Laundry was decided, on the direct ground that if equipment rented out for selling drinks without defalcations turns out to be unusable and possibly dangerous, it requires no specially known fact to establish the immediacy both of the consequent cost of putting it where it can do not harm and – if when in use it was showing a direct profit – of the consequent loss of profit. Such losses are not embraced by the exclusion clause, read in its documentary and commercial context.”

20.44  Sedley LJ referred to a first instance decision of Rix J in which the judge had applied the same test, but in which the exclusion clause was held to be effective: BHP Petroleum Ltd v British Steel plc.88 Rix J pointed to a conceptual difficulty. If the claim falls within the first rule in Hadley v Baxendale, then the loss will be recoverable and the exclusion clause ineffective. On the other hand, if the claim falls within the second limb of Hadley v Baxendale, the loss might not be recoverable in any event, in which case the exclusion clause would be redundant. He pointed out that in very few cases (only one prior to his decision in the case before him) had such clauses been effective in excluding “consequential” losses. 20.45 In Caledonian North Sea Ltd v British Telecommunications plc,89 Lord Hoffmann left open the question whether “Hotel Services” and similar cases were correctly decided. In Transocean Drilling UK Ltd v Providence Resources plc,90 to which reference has been made in paragraph 20.18 above, Moore-Bick LJ referred to Croudace and Deepak and said that it is questionable whether some of those cases would be decided in the same way today.91 However there are many examples of application of the reasoning in that line of cases: see Ferryways NV v Associated British Ports,92 Seadrill Management Services Ltd v OAO Gazprom,93 BSkyB Ltd v HP Enterprise Services UK Ltd,94 Markerstudy Insurance

86 See paragraph 13. 87 At paragraph 20. 88 [1999] 2 Lloyd’s Rep 583. 89 [2002] BLR 139 at paragraph [100]. 90 [2016] EWCA Civ 372; [2016] 2 Lloyd’s Rep 51; [2016] BLR 360. 91 At paragraph [15]. For another doubting voice, see Phillip Ashley, Bob Palmer and Judith AlderseyWilliams, An International Issue: “Loss of Profits” and “Consequential Loss” (2015) 15 Business Law International 261. Australian cases have held that such clauses are not necessarily limited to excluding losses falling within the second limb in Hadley v Baxendale: Environmental Services Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358; Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49. 92 [2008] EWHC 225 (Comm); [2008] 1 Lloyd’s Rep 639 particularly paragraphs [81]–[83]. 93 [2009] EWHC 1530 (Comm); 127 Con LR 130 at paragraph [303]. 94 [2010] EWHC 86 (TCC); [2010] BLR 267 at paragraphs [408] and [409].

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Co Ltd v Endsleigh Insurance Services Ltd,95 McCain Foods GB Ltd v Eco-Tec (Europe) Ltd,96 Polypearl Ltd v E.On Energy Solutions Ltd,97 and Saga Cruises BDF Ltd v Fincantieri;98 on the other hand, in Star Polaris LLC v HHIC-PHIL Inc99 Cooke J considered an exclusion of “consequential or special losses, damages or expenses” and in Fujitsu Services Ltd v IBM United Kingdom Ltd100 Carr J considered an exclusion of liability for “loss of profits, revenue, business, goodwill, indirect or consequential loss or damage”: in each case the judge held that the clause under consideration did not simply exclude such losses, damages or expenses as fall within the second limb of Hadley v Baxendale. There is a discernible trend away from the application of maxims of construction in the relatively rigorous manner that once was common in the courts to giving language of contracts its natural meaning. Entire agreement clauses 20.46  Entire agreement clauses may have the effect of excluding liability for misrepresentations, but recent authority has emphasised that this is not necessarily so. The cases where these clauses are discussed are those at paragraphs 2.46 to 2.49 and 3.58 to 3.60 above. Schemes allocating risks 20.47  Whilst this chapter is primarily concerned with contractual provisions expressly excluding or limiting liability, it is important to note that the exclusion of liability is sometimes achieved by clauses expressly allocating responsibility for particular matters to one party, by implication excluding the other party from liability for those matters. For example a commonly found clause exempts a contractor from liability for patent defects once a “final certificate” has been issued.101 20.48  Another important example of this is in respect of responsibility for fire under standard contracts, particularly the JCT Forms of Contract. The essence of these provisions is to require one party to take out insurance for the risk on the understanding that both parties will look to insurers for recompense if the insured risk eventuates, rather than to claim in contract or in tort for damages against a negligent party. 20.49  The authorities on this subject are numerous and sometimes inconsistent. These are discussed at length in chapter 13 of ter Haar, Levine and Laney Construction Insurance and UK Construction Contracts, 3rd edition, from which the following two paragraphs are substantially taken.102

 95 [2010] EWHC 281 (Comm).  96 [2011] EWHC 66 (TCC).  97 [2014] EWHC 3045 (QB).  98 [2016] EWHC 1875 (Comm) at paragraph [198].  99 [2016] EWHC 2941 (Comm). 100 [2014] EWHC 752 (TCC); [2014] 1 CLC 353; 153 Con LR 203. 101 See, for example, Marc Gilbard 2009 Settlement Trust v OD Developments and Projects Ltd [2015] EWHC 70 (TCC); [2015] BLR 213. 102 Paragraphs 13.114 and 13.115.

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20.50  Firstly, the effect of the cases on construction of the standard forms of contract: (1) If the claimant and the defendant are in contractual relationship, the dominant factor is the effect of the terms of the contract between them, which is a matter of construction. (2) The courts are slow to construe a contract as relieving a party from liability for his own, or a subcontractor’s, negligence. (3) If there is an indemnity clause expressly made subject to an insuring clause, which provides that some peril is at the sole risk of an employer with the obligation to insure, that will be effective to relieve the contractor for liability for negligence in respect of damage covered by that policy.103 (4) In that relatively simple form of contract, even if liability for damage covered by the policy is excluded, the contractor remains liable for losses outside the policy such as consequential losses.104 (5) In the simple form of contract, the contractor will not be relieved of liability in the absence of words making the indemnity clause subject to the insuring clause.105 (6) Under some forms of JCT contract, the obligation to take out a joint names policy may not include an obligation to effect insurance against damage caused by the negligence or breach of contract of a contractor or subcontractor.106 (7) It is possible that even if the existence of an insuring clause does not relieve a contractor of liability, credit may have to be given for the proceeds of the insurance policy.107 (8) Where the contract is in the more modern forms of JCT standard form whereby provision is made for the policy of insurance not only to be in joint names but also for the policy to contain a waiver of subrogation clause and where insurance monies to be laid out in reinstatement of the works coupled with an obligation on the part of the contractor to carry out the restoration works, the contractor will be under no liability at all to the employer.108 20.51  Secondly, turning to the position of parties not in a contractual relationship with each other: (1) If the main contractor is not liable to the employer by reason of the terms and structure of the main contract, then that may negate any duty of care that might otherwise have been owed by a subcontractor to the employer.109 103 James Archdale & Co Ltd v Comservices Ltd [1954] 1 WLR 459; Coleman Street Properties Ltd v Denco Miller Ltd (1986) 31 BLR 32; Special Housing Association v Wimpey Construction UK Ltd [1986] 1 WLR 995. 104 Kruger Tissue (Industrial) Ltd v Frank Galliers Ltd (1988) 57 Con LR 1; London Borough of Barking & Dagenham v Stamford Asphalt Co Ltd (1997) 82 BLR 25. 105 Buckinghamshire County Council v Y J Lovell & Son Ltd [1956] JPL 196; Dorset County Council v Southern Felt Roofing Co Ltd (1989) 48 BLR 96; Casson v Ostley PJ Ltd [2001] EWCA Civ 1013. 106 London Borough of Barking & Dagenham v Stamford Asphalt Co Ltd (above); Tyco Fire & Integrated Solutions (UK) Ltd v Rolls-Royce Motor Cars Ltd [2008] EWCA Civ 286; [2008] Lloyd’s Rep IR 617; but query whether these cases can stand with Scottish & Newcastle plc v GD Construction (St Albans) Ltd [2003] EWCA Civ 96; [2003] Lloyd’s Rep IR 809. 107 Per Nourse LJ in The National Trust for Places of Historic Interest or Natural Beauty v Haden Young Ltd (1995) 72 BLR 1; but it is doubtful if this suggestion survives Rix LJ’s analysis in Tyco Fire & Integrated Solutions (UK) Ltd v Rolls-Royce Motor Cars Ltd (above). 108 Ossory Road (Skelmersdale) Ltd v Balfour Beatty Building Ltd [1993] CILL 882; Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] UKHL 17; [2002] 1 WLR 1419. 109 Norwich City Council v Harvey [1989] 1 WLR 828.

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(2) However, if the clear intention is that protection should only be afforded to the main contractor and nominated subcontractors, then a domestic subcontractor may be liable in tort.110 Unfair Contract Terms Act 1977 20.52  The extent to which parties to contracts governed by the law of the United Kingdom can exclude or limit liability has been significantly affected by the Unfair Contract Terms Act 1977. 20.53 Section 2 applies to what is described as “negligence liability”. Section 2(1) applies to liability for death or personal injury resulting from negligence: “(1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.”

Thus the prohibition against excluding or limiting liability for negligently caused death or personal injury is absolute. 20.54  In respect of other loss or damage liability can be restricted so far as any term or notice relied upon satisfies “the requirement of reasonableness”: “(2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness. (3) Where a contract term or notice purports to exclude or restrict liability for negligence a person’s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.”

20.55  Section 1(1) defines negligence: “For the purposes of this Part of this Act, ‘negligence’ means the breach – (a) of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract; (b) of any common law duty to take reasonable care or exercise any reasonable skill (but not any stricter duty); (c) of the common duty of care imposed by the Occupiers Liability Act 1957 or the Occupiers’ Liability Act (Northern Ireland) 1957.”

20.56  The requirement of satisfying the requirement of reasonableness is also applied by section 3(1) “as between contracting parties where one of them deals as a consumer or on the other’s written standard terms of business”. Where section 3(1) applies, then by section 3(2): “As against that party, the other cannot by reference to any contract term – (a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or 110 British Telecommunications plc v James Thomson & Sons (Engineers) Ltd [1999] 1 WLR 9.

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(b) claim to be entitled – (i) to render a contractual performance substantially different from that which was reasonably expected of him, or (ii) in respect of the whole or any part of his contractual obligation, to render no performance at all, except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.”

20.57  Section 12 defines what is meant by “dealing as a consumer”: “(1) A party to a contract ‘deals as consumer’ in relation to another party if – (a) he neither makes the contract in the course of a business nor holds himself out as doing so; and (b) the other party does make the contract in the course of a business; and (c) in the case of a contract governed by the law of sale of goods or hire purchase, or by section 7 of this Act [which relates to certain contracts under which possession or ownership of goods passes], the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption. (1A) But if the first party mentioned in subsection (1) is an individual paragraph (c) of that subsection must be ignored. (2) But the buyer is not in any circumstances to be regarded as dealing as consumer – (a) if he is an individual and the goods are second hand goods sold at public auction at which individuals have the opportunity of attending the sale in person; (b) if he is not an individual and the goods are sold by auction or by competitive tender. (3) Subject to this, it is for those claiming that a party does not deal as a consumer to show that he does not.”

20.58 The expression “deals on the other’s written standard terms of business” is not defined in the Act, but has been the subject of judicial consideration. In McCrone v Boots Farm Sales Ltd,111 Lord Dunpark considered the words “standard form contract” in the part of the Act applicable to Scotland and said: “The Act does not define ‘standard form contract’, but its meaning is not difficult to comprehend. In some cases there may be difficulty deciding whether the phrase properly applies to a particular contract . . . Since Parliament saw fit to leave the phrase to speak for itself, far be it from me to attempt to formulate a comprehensive definition of it. However, the terms of s 17 in the context of this Act make it plain to me that the section is designed to prevent one party to a contract from having his contractual rights, against a party who is in breach of contract, excluded or restricted by a term or condition, which is one of a number of fixed terms or conditions invariably incorporated in contracts of the kind in question by the party in breach, and which have been incorporated in the particular contract in circumstances in which it would be unfair and unreasonable for the other party to have his rights so excluded or restricted. If the section is to achieve its purpose, the phrase ‘standard form contract’ cannot be confined to written contracts in which both parties use standard forms. It is, in my opinion, wide enough to include any contract, whether wholly written or partly oral, which includes a set of fixed terms or conditions which the proponer applies, without material variation, to contracts of the kind.” 111 [1981] SLT 103 at 105.

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20.59  This judgment was cited by HH Judge Bowsher QC in Pegler Ltd v Wang (UK) Ltd.112 He explained further: “A standard term is nonetheless a standard term even though a party putting forward that term is willing to negotiate some small variations of that term. . . . For the Act to apply, it is not necessary for the whole of the contract to be ‘on the others’ written standard forms of business’.”

20.60  For an extensive discussion of what is meant by “written standard terms of business” see Yuanda (UK) Co Ltd v WW Gear Construction Ltd113 referring to: Salvage Association v CAP Financial Services Ltd;114 St Albans City and District Council v International Computers Ltd;115 Hadley Design Associates Ltd v Westminster London Borough Council;116 Ferryways NV v Associated British Ports;117 Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd.118 20.61  An open question is whether and, if so, how section 3 of the Act applies where a contract is entered into on one of the industry standard forms. In British Fermentation Products Ltd v Compair Reavell Ltd,119 HH Judge Bowsher QC had to consider the application of section  3 of the Act to a contract incorporating the Institution of Mechanical Engineers Model Form C. He said:120 “I shall not attempt to lay down any general principle as to when or whether the 1977 Act applies in the generality of cases where use is made of model forms drafted by an outside body. However, if the Act ever does apply to such model forms, it does seem to me that one essential for the application of the Act to such forms would be proof that the model form is invariably or at least usually used by the party in question. It must be shown that either by practice or by express statement a contracting party has adopted a model form as his standard terms of business. For example, an architect might say, ‘My standard terms of business are on the terms of the RIBA Form of Engagement’. Without such proof, it could not be said that the form is, in the words of the Act, ‘the other’s’ standard terms of business. I leave open the question what would be the position where there is such proof, and whether such proof either alone or with other features would make s 3 of the Act applicable.”

20.62  By section 1(3), sections 2 and 3 of the Act (along with the greater part of sections 4 to 7) are applied only to business liability: “In the case of both contract and tort, sections 2 to 7 apply (except where the contrary is stated in section 6(4)) only to business liability, that is liability for breach of obligations or duties arising – (a) from things done or to be done by a person in the course of a business (whether his own business or another’s); or (b) from the occupation of premises used for the business purposes of the occupier; and references to liability are to be read accordingly.”121 112 [2000] BLR 218 at paragraphs 71 and 72. 113 [2010] EWHC 720 (TCC); [2011] Bus LR 360. 114 [1995] FSR 654. 115 [1996] 4 All ER 481. 116 [2003] EWHC 1617 (TCC). 117 [2008] EWHC 225 (Comm); [2008] 1 Lloyd’s Rep 639. 118 [2016] EWHC 76 (TCC). 119 [1999] BLR 352; 66 Con LR 1. 120 At paragraph 46. 121 The section makes further provision in relation to this definition in the context of occupiers’ liability.

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20.63 Section 4 of the Act applies the requirement of reasonableness to indemnity clauses in consumer contracts. Section 5 limits the ability to restrict or exclude liability in consumer guarantee contracts. Section 6 applies to sale of goods and hire-purchase contracts and section 7 to “miscellaneous contracts under which goods pass”. These sections have minimal application in respect of construction contracts. However it is to be noted that where sections 6 and 7 refer to the requirement of reasonableness, section 11(2) takes the reader to Schedule 2 of the Act, as explained below. 20.64  Section 11 makes provision as to the “reasonableness” test: “(1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act (Northern Ireland) 1967 is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. (2) In determining for the purposes of section 6 or 7 above whether a contract term satisfies the requirement of reasonableness, regard shall be had in particular to the matters specified in Schedule 2 to this Act; but this subsection does not prevent the court or arbitrator from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract. (3) In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen. (4) Where by reference to a contract term or notice a person seeks to restrict liability to a specified sum of money, and the question arises (under this or any other Act) whether the term or notice satisfies the requirement of reasonableness, regard shall be had in particular (but without prejudice to subsection (2) above in the case of contract terms) to – (a) the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and (b) how far it was open to cover himself by insurance. (5) It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does.”

20.65  As already noted, section 11(2) provides that in determining for the purposes of sections 6 and 7 whether a contract term satisfies the requirement of reasonableness, regard shall be had in particular to the matters specified in Schedule 2 to the Act. Schedule 2 is headed “Guidelines for application of reasonableness test” and provides: “The matters to which regard is to be had in particular for the purposes of sections 6(3), 7(3) and (4), 20 and 21 are any of the following which appear to be relevant – (a) the strength of the bargaining positions of the parties relevant to each other, taking into account (amongst other things) alternative means by which the customer’s requirements could have been met; (b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having a similar term; (c) whether the customer knew or ought reasonably to have known of the existence and the extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); (d) where the term excludes or restricts any relevant liability if some condition was not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;

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(e) whether the goods were manufactured, processed or adapted to the special order of the customer.”

20.66  Although Schedule 2 is only applied by the Act to sections 6 and 7, the guidelines set out in that Schedule are usually regarded as of general application to the question of reasonableness.122 20.67 In Watford Electronics Ltd v Sanderson CFL Ltd123 Chadwick LJ said in respect of the application of the Act124 in a non-consumer context: “Where experienced businessmen representing substantial parties of equal bargaining power negotiate an agreement, they may be taken to have regard to the matters known to them. They should, in my view, be taken to be the best judge of the commercial fairness of the agreement which they have made, including the fairness of each of the terms in that agreement. They should be taken to be the best judge on the question whether the terms of the agreement are reasonable. The court should not assume that either is likely to commit his company to an agreement which he thinks is unfair, or which he thinks includes unreasonable terms. Unless satisfied that one party has, in effect, taken unfair advantage of the other – or that a term is so unreasonable that it cannot properly have been understood or considered – the court should not interfere.”

In the same case Peter Gibson LJ125 approved the following:126 “Generally speaking, where a party well able to look after itself enters into a commercial contract and, with full knowledge of all relevant circumstances, willingly accepts the terms of the contract which provides for apportionment of the financial risks of that transaction, I think it is very likely that those terms will be held to be fair and reasonable.”

20.68 In Overseas Medical Supplies Ltd v Orient Transport Services Ltd,127 Potter LJ summarised relevant considerations extracted from the authorities: “(1) The way in which the relevant conditions came into being and are used generally is relevant . . . (2) Although not specifically applicable to cases falling within s. 3 of the 1977 Act, the five guidelines as to reasonableness set out in Schedule 2 are nonetheless relevant to the question of reasonableness, while bearing in mind that the Court is dealing with a commercial and not a consumer transaction. . . . (3) In relation to the question of equality of bargaining position, the Court will have regard not only to the question of whether the consumer was obliged to use the services of the supplier but also to the question of how far it would have been practicable and convenient to go elsewhere. . . . (4) The question of reasonableness must be assessed having regard to the relevant clause viewed as a whole: it is not right to take any particular part of the clause in isolation, although it must also be viewed against a breach of contract which is the subject matter of the present case. . . . (5) The reality of the consent of the customer to the supplier’s clause will also be a significant consideration . . . 122 Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600 at 608; Pegler Ltd v Wang (UK) Ltd [2000] BLR 218 at paragraph 76. 123 [2001] EWCA Civ 317; [2001] BLR 143. 124 At paragraph 55. 125 At paragraph 63. 126 From the judgment of HH Judge Thayne Forbes QC in The Salvage Association v CAP Financial Services Ltd [1995] FSR 654 at 656. 127 [1999] 2 Lloyd’s Rep 273 at 276–277.

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(6) In cases of limitation rather than exclusion of liability, the size of the limit compared with other limits in widely used standard terms may also be relevant . . . (7) While the availability of insurance to the supplier is relevant, it is by no means a decisive factor . . . (8) The presence of a term allowing for an option to contract without the limitation clause but with a price increase in lieu is important . . . However . . . if the condition works in such a way as to leave little time to put such option into effect, this may effectively eliminate the option as a factor indicating reasonableness.”

20.69 Examples of cases where terms have been held to be unreasonable include St Alban’s City and District Council v International Computers Ltd,128 Edmund Murray Ltd v BSP International Foundations Ltd,129 Overseas Medical Supplies Ltd v Orient Transport Services Ltd,130 Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd.131 Cases where the court reached the opposite conclusion include not only Watford Electronics Ltd v Sanderson CFL Ltd132 but also Chester Grosvenor Hotel Company v Alfred McAlpine Management,133 Moore v Yakely Associates Ltd,134 British Fermentation Products Ltd v Compair Reavell Ltd,135 Sterling Hydraulics Ltd v Dichtomatik Ltd,136 Regus (UK) Ltd v Epcot Solutions Ltd,137 Robinson v PE Jones (Contractors) Ltd,138 West v Ian Finlay & Associates.139 Remedies for misrepresentation 20.70  Section 3 of the Misrepresentation Act 1968, as substituted by section 8 of the Unfair Contract Terms Act 1977, limits the ability of a party to prevent the other party to a contract obtaining a remedy for misrepresentation. This is discussed at paragraphs 3.61–3.68 above. Consumer contracts 20.71  The Unfair Terms in Consumer Contracts Regulations 1999 implement Council Directive 1993/13 and subject terms in consumer contracts to a requirement of fairness. These provisions are additional to, not a substitution for, the provisions of the Unfair Contract Terms Act 1977.140

128 [1995] FSR 686, affirmed [1996] 4 All ER 481. 129 (1994) 33 Con LR 1. 130 Above. 131 [2016] EWHC 76 (TCC). 132 Above. 133 (1991) 56 BLR 115. 134 (1999) 62 Con LR 76, affirmed [2000] CLY 810. 135 (1999) 66 Con LR 1. 136 [2006] EWHC 2004 (QB); [2007] 1 Lloyd’s Rep 8. 137 [2008] EWCA Civ 361; [2009] 1 All ER (Comm) 586. 138 [2010] EWCA Civ 9; [2011] BLR 206. 139 [2014] EWCA Civ 316; [2014] BLR 324. 140 Cases considered under these regulations include: Office of fair trading v Foxtons Ltd [2009] EWCA Civ 288; [2010] 1 WLR 663, Office of Fair Trading v Abbesy National plc [2009] UKSC 6; [2010] 1 AC 696; Office of Fair Trading v Ashbourne Management Service Ltd [2011] EWHC 1237 (Ch).

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Defective Premises Act 1972 20.72  Section 6(3) of this Act provides that any term of an agreement that purports to exclude or restrict, or has the effect of excluding or restricting, the operation of any of the provisions of the Act, or any liability arising by reason of any such provision, shall be void. Terms implied by statute 20.73  Sections 12 to 15 of the Sale of Goods Act 1979 imply various terms into contracts for the sale of goods – by section 6(1) of the Unfair Contract Terms Act 1977 as amended, the implied undertaking as to title in section 12 of the Sale of Goods Act 1979 cannot be excluded or restricted, and the implied terms as to conformity with description or sample (section 13), as to quality or fitness (section 14) and in respect of sales by sample (section 15) cannot be excluded or restricted as against a person dealing as a consumer (section 6(2) of the 1977 Act, and in other cases the effect of those three sections can only be restricted or excluded in so far as any relevant terms satisfies the requirement of reasonableness (reference to Schedule 2 of the Act being relevant). Contracts (Rights of Third Parties) Act 1999 20.74  This Act has been discussed at paragraphs 10.66–10.72 above. Under its provisions it is possible for parties to a contract to agree to limit or exclude liability of another party who is not a party to their contract.

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CHAPTER  21

Injunctions 21.1  An injunction is a judgment or order to do or refrain from doing a particular thing. It is either (a) interim or interlocutory, that is an order until the hearing of an action or further order; or (b) final or perpetual, that is a judgment determining and concluding the right in litigation. An injunction is also either (a) prohibitory or restraining, when it inhibits the doing of anything; or (b) mandatory, when it orders the doing or restoring of anything. Final prohibitory injunctions 21.2  Perpetual or final injunctions are granted after a final determination of the rights of the parties. As set out above, injunctions can be divided into restraining or prohibitory injunctions on the one hand and mandatory injunctions on the other. 21.3  A further sub-class of injunction is a “quia timet” injunction.1 Such an injunction may be a prohibitory injunction or a mandatory injunction – it is most commonly the former. In Morris v Redland Bricks Ltd2 Lord Upjohn said of such injunctions: “[Q]uia timet actions are broadly applicable to two types of cases: first, where the defendant has as yet done no hurt to the plaintiff but is threatening and intending (so the plaintiff alleges) to do works which will render irreparable harm to him or his property if carried to completion . . . those cases are normally, though not exclusively, concerned with negative injunctions. Secondly, the type of case where the plaintiff has been fully recompensed both at law and in equity for the damage he has suffered but where he alleges that the earlier actions of the defendant may lead to future causes of action.”

21.4  If a trespass is threatened, the courts can and will issue a quia timet injunction.3 21.5  If the defendant is willing to carry out remedial works without having an order made against him, it would generally be wrong in the exercise of the court’s discretion to grant a quia timet injunction.4 21.6  The fact that a negative or prohibitory injunction may leave the defendant with no option but to perform a contract (and thus may be tantamount to an order for specific performance) is not necessarily a reason for not granting such an injunction.5 Thus, for

  1 See in this regard CIP Property (AIPT) Ltd v Transport for London [2012] EWHC 259 (Ch); [2012] BLR 202 at paragraphs [27]–[30] where a quia timet injunction was refused because there was no imminent threat justifying grant of the injunction.   2 [1970] AC 652 at 665B–C.   3 Secretary of State for the Environment, Food and Rural Affairs v Drury [2004] EWCA Civ 200; [2004] 1 WLR 1906; Secretary of State for the Environment, Food and Rural Affairs v Meier [2008] EWCA Civ 903; [2009] 1 WLR 828.  4 Bridlington Relay Ltd v Yorkshire Electricity Board [1965] 1 Ch 436 at 445C–D.  5 Lauritzencool AB v Lady Navigation Inc [2005] EWCA Civ 579; [2005] 1 WLR 3686, explaining Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694.

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example, an injunction can be issued to restrain a party from terminating a contract.6 In principle such an injunction could be made with the effect of requiring a contractor to carry on working on a construction site.7 However such an injunction will not be granted so as to have the effect of enforcing performance of a contract for services where the nature of the services to be provided and the relationship of the parties makes that unworkable, for example where a contract requires extensive mutual cooperation.8 Final mandatory injunctions 21.7 A mandatory injunction orders the party against whom the order is obtained to do something. Such an order has the potential to impose a very substantial burden upon a defendant, which may be out of all proportion in its effects upon the defendant to the effects upon the claimant of the defendant’s wrongdoing. This difficult balance is reflected in the leading case in respect of such injunctions. 21.8 In Morris v Redland Bricks Ltd9 Lord Upjohn set out the principles applicable to the grant of mandatory injunctions: “1. A mandatory injunction can only be granted where the plaintiff shows a very strong probability upon the facts that grave damage will accrue to him in the future . . . It is a jurisdiction to be exercised sparingly and with caution but in a proper case unhesitatingly. 2. Damages will not be a sufficient or adequate remedy if such damage does happen . . . 3. Unlike the case where a negative injunction is granted to prevent the continuance or recurrence of a wrongful act the question of the cost to the defendant to do works to prevent or lessen the likelihood of a future apprehended wrong must be an element to take into account: (a) where the defendant has acted without regard to his neighbour’s rights, or has tried to steal a march on him or has tried to evade the jurisdiction of the court, or, to sum it up, has acted wantonly and quite unreasonably in relation to his neighbour he may be ordered to repair his wanton and unreasonable acts by doing positive work to restore the status quo even if the expense to him is out of all proportion to the advantage thereby accruing to the plaintiff . . . (b) but where the defendant has acted reasonably, though in the event wrongly, the cost of remedying by positive action his earlier activities is most important for two reasons. First, because no legal wrong has yet occurred (for which he has not been recompensed at law and in equity) and, in spite of gloomy expert opinion, may never occur or possibly only upon a much smaller scale than anticipated. Secondly, because if ultimately heavy damage does occur the plaintiff is in no way prejudiced for he has his action at law and all his consequential remedies in equity.

  6 See for example Regent International Hotels (UK) Ltd v Pageguide Ltd, The Times, 13 May 1985, Court of Appeal (Civil Division) Transcript No 164 of 1985, considered and followed by the Court of Appeal in Lauritzencool AB v Lady Navigation Inc (above).   7 Per HH Judge Toulmin QC in Ferrara Quay Ltd v Carillion Construction Ltd [2009] BLR 367 at paragraphs [76] and [77]. There are conflicting and somewhat old authorities as to whether a contractor can obtain an injunction entitling it to continue to work on site: Hounslow London Borough Council v Twickenham Developments [1971] Ch 233; (1978) 7 BLR 1; A-G of Hong Kong v Ko Hon Mau (1988) 44 BLR 144; Tara Civil Engineering Ltd v Moorfield Developments Ltd (1989) 46 BLR 72.  8 Vertex Data Science Ltd v Powergen Retail Ltd [2006] EWHC 1340 (Comm); [2006] 2 Lloyd’s Rep 591.   9 [1970] AC 652 at 665G–666H.

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So the amount to be expended under a mandatory order by the defendant must be balanced with these considerations in mind against the anticipated possible damage to the plaintiff and if, on such balance, it seems unreasonable to inflict such expenditure upon one who for this purpose is no more than a potential wrongdoer then the court must exercise its jurisdiction accordingly. Of course, the court does not have to order such works as upon the evidence before it will remedy the wrong but may think it proper to impose upon the defendant the obligation of doing certain works which may upon expert opinion merely lessen the likelihood of any further injury to the plaintiff’s land . . . 4. If in the grant of its discretion the court decides that it is a proper case to grant a mandatory injunction, then the court must be careful to see that the defendant knows exactly in fact what he has to do and this means not as a matter of law but as a matter of fact, so that in carrying out an order he can give his contractors the proper instructions.”

21.9 In Morris v Redland Bricks the House of Lords held that the grant of a mandatory injunction was disproportionate to the damage likely to be suffered by the plaintiff. By contrast, in Hooper v Rogers,10 the Court of Appeal upheld the grant of relief in the alternative to an injunction that would otherwise have been granted. The plaintiff and the defendant were owners of adjacent farmhouses and owners and occupiers in common of the immediately surrounding land, which sloped steeply down from the plaintiff’s farmhouse. The defendant, using a bulldozer, deepened a track, which cut across the slope, thereby interfering with its natural angle of repose and exposing it to a process of soil erosion that would eventually deprive the footings of the plaintiff’s farmhouse of support and cause it to collapse. Because no damage had yet occurred, no damages could be recovered by the plaintiff in nuisance. However it was held that he was entitled to a mandatory injunction requiring the defendant to carry out works to reinstate the track, with an order to pay £750 in lieu of carrying out the works. In his judgment Russell LJ said:11 “In different cases differing phrases have been used in describing circumstances in which mandatory injunctions and quia timet injunctions will be granted. In truth it seems to me that the degree of probability of future injury is not an absolute standard: what is to be aimed at is justice between the parties, having regard to all the circumstances.”

Interim injunctions 21.10 The object of an interim injunction (formerly referred to as an interlocutory injunction) is to preserve matters pending the trial of matters in dispute and is often granted ex parte (ie, without notice to the party from whom the injunction is sought) in an emergency. 21.11  The general approach of the court to the exercise of its powers to grant an interim injunction was set out in American Cyanamid Co Ltd v Ethicon.12 If the court is satisfied that there is a serious issue to be tried, it must go on to consider whether the claimant would be adequately compensated in damages and whether the defendant would be in a financial position to pay them. If the answer to both those questions is in the affirmative, no injunction should normally be granted. If not the court must consider whether the defendant 10 [1975] 1 Ch 43. 11 At 50C–D. 12 [1975] AC 396.

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would be adequately compensated under the claimants’ undertaking as to damages in the event of his succeeding at trial. If the answer to that question is “yes” the fact that the defendant may succeed at trial is no bar to the grant of an injunction. Where there is doubt as to the adequacy of damages for both parties the court must determine where the balance of convenience lies. If matters are evenly balanced it may be wise to take such measures as are calculated to preserve the status quo. 21.12  The summary of the American Cyanamid guidelines in the previous paragraph comes from the judgment of Christopher Clarke J in Sabmiller Africa BV v East African Breweries Ltd.13 He continued:14 “These guidelines derived from the speech of Lord Diplock in American Cyanamid Co Ltd v Ethicon Ltd . . . are just that. They are not a fetter on the court’s jurisdiction under section 37 to grant an injunction where it is just to do so: see Lord Goff in R v Secretary of State for Transport, ex parte Factortame Ltd (No 2)15 . . . and Mance LJ (as he then was) in Bath and North East Somerset District Council v Mowlem plc.16 A fundamental principle is that the court should take whatever course appears to carry the lower risk of injustice if it should turn out to have been the ‘wrong’ course in the sense that the court either grants an injunction which should have been refused or refuses to grant an injunction that should have been granted: Factortame17 . . . approving Hoffmann J in Films Rover International Ltd v Cannon Film Sales Ltd18 . . . Further, the question whether damages are an adequate remedy is to be asked in the context of the underlying purpose of the jurisdiction, namely that of doing what is just . . . Three further guidelines are potentially relevant. Firstly, the court has, on an interlocutory application, a greater reluctance to grant mandatory as opposed to prohibitive injunctions, or injunctions which would carry the same risk of injustice as mandatory injunctions. Generally speaking the Court requires a much higher degree of assurance that the applicant will ultimately be successful on the merits: Shepherd Homes Ltd v Sandham19 . . . (for mandatory injunctions the case must be ‘unusually strong’); Zockoll Group Ltd v Mercury Communications Ltd20 . . . Secondly, a court will not, generally, make an order (whether in positive or negative form) the effect of which would be to compel the person enjoined either to remain idle or to perform the positive covenants of an agreement for personal services: Page One Records Ltd v Britton21 . . . That is not, however, an absolute rule. Much depends on the nature of the services. Thirdly, if in practice it would not be possible to hold a trial before the time at which the relevant restrictions expire, the court will not confine itself to considering whether there is a serious issue to be tried: see Lansing Linde Ltd v Kerr,22 per Staughton LJ23 . . . ‘If it will not be possible to hold a trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired, it seems to me that justice requires some consideration whether the plaintiff would be likely to succeed at a trial. In those circumstances it is not enough to decide merely that there is a serious issue to be tried. The assertion of such an issue should not operate as a lettre de cachet, by which the defendant is prevented from doing that which, as it later turns out, he has a perfect right to do, for the whole or substantially the whole of the period in question.’ ” 13 [2009] EWHC 2140 (Comm); [2010] 1 Lloyd’s Rep 392 at paragraph [47]. 14 At paragraphs [48]–[50]. 15 [1991] 1 AC 603 at 671E–674A. 16 [2004] BLR 153 at paragraph [12]. 17 At 683. 18 [1987] 1 WLR 670 at 680. 19 [1971] Ch 340. 20 [1998] FSR 354. 21 [1968] 1 WLR 157. 22 [1991] 1 WLR 251. 23 At 258.

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21.13 As the above passage indicates, a mandatory injunction can be granted on an interlocutory application, but in the absence of special circumstances it will not normally be granted; however, if the case is clear and one that the court thinks ought to be decided at once, or if the act done is a simple and summary one that can be easily remedied, or if the defendant attempts to steal a march on the plaintiff, a mandatory injunction will be granted on an interlocutory application.24 21.14  An interesting recent example of an interim mandatory injunction was the decision of Coulson J in AMEC Group Ltd v Universal Steels Scotland Ltd,25 in which he ordered the delivery up of certain quality assurance documentation held by a steel supplier relating to some steel piles, without which the contractor could not install the piles. 21.15  Practice Direction 25A – Interim Injunctions (Practice Direction 25A PD to CPR Rule 25) sets out the court’s expectations as to practice in respect of seeking an interim injunction. 21.16  Unless the court orders otherwise, the person applying for an interim injunction must always give an undertaking to pay damages to the person against whom the order is made26 (and, if appropriate, third parties affected by the order27) in the event that it turns out at the hearing that he was in the wrong. 21.17  The requirement to give a cross-undertaking as to damages is imposed as a matter of fairness rather than because of likelihood of loss: at the stage when the freezing order is granted nothing has been decided so the court cannot be seen to prefer the interests of one litigant over the other. In consequence the court does not have to be satisfied of the likelihood of loss before ordering that a cross-undertaking be granted.28 The default position is that an applicant for an interim injunction must give an unlimited cross-undertaking in damages, but the extent of the cross-undertaking is a matter of discretion for the judge who grants the injunction.29 21.18  The court may order that the cross-undertaking should be “fortified”, that is that the claimant should provide some form of security or other assurance that the crossundertaking will be honoured in due course. When deciding whether a party should provide fortification of its cross-undertaking in damages, the following three requirements should be satisfied: (i) that the court has made an intelligent estimate, being informed and realistic although not necessarily entirely scientific, of the likely amount of any loss that might be suffered by the applicant for fortification by reason of making the interim order; (ii) that the applicant has shown a sufficient level of risk or loss to require fortification, namely showing a good arguable case to that effect; and (iii) that the making of the interim order is or was a cause without which loss would not be or would not have been suffered.30 24 Shepherd Homes Ltd v Sandham [1971] Ch 340; Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657 at 663H. However for a view perhaps more favourable towards mandatory interlocutory judgments, see the judgment of Hoffmann J in Films Rover Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670. 25 [2009] EWHC 560 (TCC); [2009] BLR 357. 26 Practice Direction 25A, paragraph 5.1(1). 27 Practice Direction 25A, paragraph 5.1A. 28 JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139; [2016] 1 WLR 160 at paragraphs [77] and [78]. 29 JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139; [2016] 1 WLR 160 at paragraphs [68] and [69]. 30 Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295; [2015] 1 WLR 2309. See also Candy v Holyoake [2017] EWCA Civ 92, where an offer of an insurance policy as fortification was rejected because of the risk of avoidance by the insurers if the defendants were found guilty of dishonesty.

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21.19  Such an injunction is usually issued until the hearing of the cause or until further order.31 An interim injunction does not assume finally to dispose of any question of legal right, but will only impose such restraint as may suffice to stop the mischief complained of or to preserve the status quo. 21.20  As to the very important and onerous obligation of disclosure when seeking an interim injunction without notice see paragraphs 21.27 and 21.28 below. Freezing injunctions 21.21  One of the most important types of injunctions sought in and granted by the courts is a freezing injunction (which used always to be called (and still often is called by practitioners) a Mareva injunction after one of the earliest cases in which such an order was made32). Such orders freeze a defendant’s assets either pending a trial or in order to secure execution of a judgment. 21.22  The Civil Procedure Rules (CPR) 1998, rule 25.1(1)(f ) identifies a freezing injunction as being an order “(i) restraining a party from removing from the jurisdiction assets located there; or (ii) restraining a party from dealing with any assets whether located within the jurisdiction or not.”

21.23  CPR 25.1(1)(g) identifies an associated power of the court to make “an order directing a party to provide information about the location of relevant property or assets or to provide information about relevant property or assets which are or may be the subject of an application for a freezing injunction.”

21.24  The basis for a freezing injunction is the prospect that if the order is not made the defendant will dispose of his assets so that enforcement of a judgment will prove impossible. It is most commonly granted in cases of alleged dishonesty. Because the basis of the application is a fear that the defendant will attempt to thwart the due process of law, applications are very often made without notice to the defendant. Where an application is made without notice to the defendant, the applicant must explain on affidavit why notice was not given.33 A judge should not entertain a without notice application unless either giving notice would enable the defendant to take steps to defeat the purpose of the application or there has been no time to give notice, but even in this latter category of cases the applicant should give notice at least by telephone.34 21.25 In JSB BTA Bank v Ablyazov (No 10),35 Beatson LJ identified three guiding principles in respect of the grant of freezing orders: “(i) The enforcement principle. The first and primary principle is that the purpose of a freezing order is to stop the injuncted defendant dissipating or disposing of property which could be the 31 If issued without notice, the order must contain a return date: Practice Direction 25A, paragraph 5.1(1)(3). 32 Mareva Cia Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509. A typically lively description of the introduction of this remedy is to be found in Lord Denning, The Due Process of Law, 1980, pages 134–140. 33 Practice Direction 25A, paragraph 3.4. 34 National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16; [2009] 1 WLR 1405. 35 [2013] EWCA Civ 928; [2014] 1 WLR 1414; [2014] 1 Lloyd’s Rep 195 set out by Lewison LJ in JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139; [2016] 1 WLR 160 at paragraph [21].

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subject of enforcement if the claimant goes on to win the case it has brought, and not to give the claimant security for his claim. (ii) The flexibility principle. The jurisdiction to make a freezing order should be exercised in a flexible and adaptable manner so as to be able to deal with new situations and new ways used by sophisticated and wily operators to make themselves immune to the courts’ orders or deliberately to thwart the effective enforcement of those orders. (iii) The strict interpretation principle. Because of the penal consequences of breaching a freezing order and the need of the defendant to know where he, she or it stands, such orders should be clear and unequivocal, and should be strictly construed.”

21.26  Because of the potentially draconian consequences of a freezing order, for example upon the conduct of a legitimate business, certain requirements are imposed in practice upon the applicant: (1) a duty to give an undertaking as to damages;36 (2) a duty to give an undertaking to serve the application, supporting evidence and order as soon as practicable;37 (3) a duty to provide the defendant with a note of any without notice hearing;38 (4) a duty to draw to the attention of the court and the respondent on a return hearing any respects in which the draft order then sought differs from the original without notice order.39 21.27  To this list of obligations can be added an obligation that is of the greatest importance and that often leads to substantial arguments in practice, namely that an applicant applying for an interim remedy without notice is under a duty to investigate the facts and fairly present the evidence on which he relies. As this duty gives rise most frequently to arguments arising out of freezing injunctions the requirements are dealt with here; but the requirements apply whenever an interim injunction is sought without notice. 21.28  The principles were summarised by Bingham J in Siporex Trade SA v Comdel Commodities Ltd:40 “The scope of the duty of disclosure of a party applying ex parte for injunctive relief is, in broad terms, agreed between the parties. Such an applicant must show the utmost good faith and disclose his case fully and fairly. He must, for the protection and information of the defendant, summarize his case and the evidence in support of it by an affidavit or affidavits sworn before or immediately after the application. He must identify the crucial points for and against the application, and not rely on general statements and the mere exhibiting of numerous documents. He must investigate the nature of the cause of action asserted and the facts relied on before applying and identify any likely defences. He must disclose all facts which could or would be taken into account by the Judge in deciding whether to grant the application. It is no excuse for an applicant to say that he was not aware of the importance of matters he has omitted to state. If the duty of full and fair disclosure is not observed the Court may discharge the injunction even if after full enquiry the view is taken that the order made was just and convenient and would probably have been made even if there had been full disclosure.” 36 A general requirement where interim injunctions are obtained: see paragraphs 21.16 and 21.17 above. 37 Practice Direction 25A, paragraph 3.1(2). 38 Interoute Telecommunications (UK) Ltd v Fashion Gossip Ltd, The Times, 10 November 1999; Thane Investments Ltd v Tomlinson, The Times, 10 December 2002. 39 Flightwise Travel Service Ltd v Gill [2003] EWHC 3082 (Ch). 40 [1986] 2 Lloyd’s Rep 428 at 437.

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In Memory Corporation plc v Sidhu (No 2),41 Mummery LJ said of this duty: “It cannot be emphasised too strongly that at an urgent without notice hearing for a freezing order, as well as for a search order or any other form of interim injunction, there is a high duty to make full, fair and accurate disclosure of material information to the court and to draw the court’s attention to significant factual, legal and procedural aspects of the case. It is the particular duty of the advocate to see that the correct legal procedures and forms are used; that a written skeleton argument and a properly drafted order are prepared by him personally and lodged with the court before the oral hearing; and that at the hearing the court’s attention is drawn by him to unusual features of the evidence adduced, to the applicable law and to the formalities and procedure to be observed.”

The ability of the court to set its order aside, and to refuse to renew it, is the sanction by which the obligation of disclosure is enforced and others are deterred from breaking it. Such is the importance of the duty that, in the event of any substantial breach, the court strongly inclines towards setting its order aside and not renewing it, so as to deprive the defaulting party of any advantage that the order may have given him.42 In Al-Rawas v Pegasus Energy Ltd,43 Moore-Bick LJ said: “The court does, of course, retain a discretion to allow an order to stand even where there has been material non-disclosure, but the more serious the non-disclosure, the less likely it is to do so and in a case where the judge is satisfied that the court has been deliberately misled, he should think long and hard before exercising his discretion in the claimant’s favour.”

21.29  As set out at paragraph 21. 23 above, a freezing order often contains an order for disclosure of documents, and may also include a “search order”, previously known as an Anton Piller order – see CPR 25.1(1)(h) and section 7 of the Civil Procedure Act 1997. The test for deciding whether to order disclosure is whether there is a reasonable possibility based upon credible evidence that documents exist that provide information about relevant property or assets that are or may be the subject of an application for a freezing injunction.44 If a defendant fails to comply with an order for disclosure or a search order, the court has power to debar the defendant from defending the claims against him until he has complied with the order.45 21.30  Freezing orders are generally served upon any bank known to hold an account in the name of the defendant. If that bank does not comply with the terms of such an order it may be liable to punishment for contempt of court, but will not be liable to an action for negligence at the suit of the creditor.46 21.31  A freezing order can be made in support of enforcement of an arbitration award.47 21.32  The court has jurisdiction in appropriate cases to pierce the corporate veil of a defendant corporation to attach assets under the control of a connected company, but this is an exceptional jurisdiction. Such an injunction is called a Sabra injunction.48 41 [2000] 1 WLR 1443 at 1459H–1460B. 42 Re OJSC Ank Yugraneft [2008] EWHC 2614 (Ch); [2009] Bus LR D33. 43 [2007] EWCA Civ 268 at paragraph [54]. 44 JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139; [2016] 1 WLR 160 at paragraphs [48]–[52]. 45 JSC BTA Bank v Ablyazov (No 8) [2012] EWCA Civ 1411; [2013] 1 WLR 1331. 46 Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28; [2007] 1 AC 181. 47 Mobile Telesysatems Finance SA v Normhold Securities Ltd [2011] EWCA Civ 1040; [2012] 1 Lloyd’s Rep 6. 48 TSB Private Bank International SA v Chabra [1992] 1 WLR 231. See for a discussion of the applicable principles Linsen International Ltd v Humpuss Sea Transport Pte Ltd [2011] EWHC 2239 (Comm); [2011] 1 Lloyd’s Rep 663.

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21.33 An appropriately drafted clause may prevent a court granting a freezing order before an award has been issued through an agreed arbitral procedure.49 Notification injunctions 21.34  There can be cases where a freezing injunction is not justified, but nevertheless there is some risk of dissipation justifying judicial intervention. In those circumstances the court may make a notification order restraining disposal of assets by one party if made without prior notification to the other party. As with a freezing order, a notification order can be made either to restrain disposal of an asset over which the claimant asserted some substantive right or to prevent the defendant from breaching his obligation to the claimant not to dissipate his assets for the purpose of, or with the effect of, rendering any judgment being capable of being satisfied. The principles underlying the grant of notification order are closely tied to those underlying the grant of a freezing injunction: to justify a notification order the same degree of risk of dissipation needs to be shown before the court can be persuaded to intervene. In order to justify a notification injunction it is necessary to show that the claimant has a good arguable case on the merits of the substantive claim. These principles were set out by the Court of Appeal in Holyoake v Candy.50 Damages in lieu of an injunction 21.35  If the court takes the view that damages would be an adequate remedy, it may refuse in its discretion to grant an injunction.51 The court has power to award damages in lieu of an injunction: this jurisdiction can be traced back to a statute in 1858.52 The court may award damages in lieu of an injunction even if an injunction was not actually claimed in the proceedings, and even if there was no prospect of the facts of it being granted.53 21.36  If the defendant’s wrongful acts can only by remedied by the claimant going onto the defendant’s land to carry out remedial works, it is likely that a court would regard damages as not being an adequate alternative remedy to a mandatory injunction.54 However, that problem could be solved by the defendant granting any necessary rights of access. 21.37  If a trespass causes no damage, then the court may take the view that damages are not an adequate remedy.55 21.38  Until recently, it was possible to turn to a set of seemingly well-settled rules as to the circumstances in which damages would be ordered in lieu of an injunction. Thus it was 49 B v S [2011] EWHC 691 (Comm); [2011] 2 Lloyd’s Rep 18. 50 [2017] EWCA Civ 92 on appeal from [2016] EWHC 970 (Ch); [2016] 3 WLR 357. 51 In Evans Marshall & Co v Bertola [1973] 1 WLR 349 at 379H, Sachs LJ suggested that “the standard question in relation to the grant of an injunction, ‘Are damages an adequate remedy?’, might perhaps, in the light of the authorities of recent years, be rewritten: ‘Is it just, in all the circumstances, that a plaintiff should be confined to his remedy in damages?’.” This was cited by Clarke J in Sabmiller Africa BV v East African Breweries Ltd [2009] EWHC 2140 (Comm); [2010] 1 Lloyd’s Rep 392 at paragraph [49]. 52 That is, Lord Cairns’s Act – section 2 of the Chancery Amendment Act 1858. 53 Jaggard v Sawyer [1995] 1 WLR 269 at 281; A-G v Blake [2001] 1 AC 268 at 282; World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2008] 1 WLR 445 at paragraph 54; Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45; [2010] BLR 73 at paragraph 48(5). 54 Per Lord Upjohn in Redland Bricks Ltd v Morris (above) at 665E. 55 Woollerton and Wilson Ltd v Richard Costain Ltd [1970] 1 WLR 411. Patel v WH Smith (Eziot) Ltd [1987] 1 WLR 853.

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said that in general the court should grant an injunction necessary to uphold legal rights against a threatened invasion unless there is some factor that is sufficiently weighty to displace this general rule;56 and that an injunction, not damages, will be the normal remedy for interference with a right to light.57 The relevant principles as then understood were set out by Mummery LJ in Regan v Paul Properties DPF No, 1 Ltd:58 “(1) A claimant is prima facie entitled to an injunction against a person committing a wrongful act, such as continuing nuisance, which invades the claimant’s legal right; (2) The wrongdoer is not entitled to ask the court to sanction his wrongdoing by purchasing the claimant’s rights on payment of damages assessed by the court. (3) The court has jurisdiction to award damages instead of an injunction, even in cases of a continuing nuisance; but the jurisdiction does not mean that the court is a tribunal for legalizing wrongful acts ‘by a defendant, who is able and willing to pay damages’. . . . (4) The judicial discretion to award damages in lieu should pay attention to well settled principles and should not be exercised to deprive a claimant of his prima facie right ‘except under very exceptional circumstances’. . . (5) Although it is not possible to specify all the circumstances relevant to the exercise of the discretion or to lay down rules for its exercise, the judgments indicated that it was relevant to consider the following factors: whether the injury to the claimant’s rights was small; whether the injury could be estimated in money; whether it could be adequately compensated by a small money payment; whether it would be oppressive to the defendant to grant an injunction; whether the claimant had shown that he only wanted money; whether the conduct of the claimant rendered it unjust to give him more than pecuniary relief; and whether there were any other circumstances which justified the refusal of an injunction.”

21.39  However a recent decision of the Supreme Court has signaled a marked shift of principle. The case upon which the cases referred to in the previous were based was Shelfer v City of London Electricity Lighting Co.59 In Lawrence v Fen Tigers Ltd60 Lord Neuberger said61 that Regan (from which the statement of principles in paragraph 21.38 above is a citation) puts forward an insufficiently flexible approach. Lord Sumption said:62 “In my view, the decision in Shelfer . . . is out of date, and it is unfortunate that it has been followed so recently and so slavishly. It was devised for a time in which England was much less crowded, when comparatively few people owned property, when conservation was only beginning to be a public issue, and when there was no general system of statutory development control. The whole jurisprudence in this area will need one day to be reviewed in this court. There is much to be said for the view that damages are ordinarily an adequate remedy for nuisance and that an injunction should not normally be granted in a case where it is likely that conflicting interests are engaged other than the parties’ interests. In particular, it may well be that an injunction should as a matter of principle not usually be granted in a case where a use of land to which objection is taken requires and has received planning permission. However, at this stage, in the absence of argument on these points, I can do no more than identify them as calling for consideration in a case in which they arise.”

56 Per Arden LJ (in respect of a threatened trespass by travellers) in Secretary of State for the Environment, Food and Rural Affairs v Meier [2008] EWCA Civ 903; [2009] 1 WLR 828 at paragraph 53. 57 Regan v Paul Properties DPG No 1 Ltd [2006] EWCA Civ 1319; [2007] Ch 135. 58 [2006] EWCA Civ 1319; [2007] Ch 135 at paragraph [36] cited and applied in Watson v Croft Promo-Sport Ltd [2009] EWCA Civ 15 at paragraph [46]. 59 [1895] 1 Ch 287. 60 [2014] UKSC 13; [2014] AC 822. 61 At paragraph [119]. 62 At paragraph [161], a passage expressly the subject of agreement by Lord Clarke at paragraph [171].

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21.40  The context of the Supreme Court’s deliberations was an attempt by the claimants to obtain an injunction in respect of activities on the part of the defendants for which the defendants had obtained planning permission, but that the claimants contended constituted a nuisance actionable by them. Thus there was a tension between public law rights and procedures and the private law of nuisance. In such cases the law as to when damages will be an adequate remedy remains to be explored on a case-by-case basis.63 It also leaves some considerable doubt about how the courts will proceed generally. There will certainly be a tendency towards the award of damages in lieu of an injunction, but the extent to which previous authorities are now relevant is uncertain. 21.41  There is no reason to doubt the continuing applicability of the principle that damages would be an inadequate remedy if in the absence of an injunction “a man’s trade was liable to be absolutely destroyed or ruined”.64 Following Lawrence v Fen Tigers the Court of Appeal has reaffirmed the principle that an injunction may be an appropriate remedy if the defendant has acted in a highhanded manner.65 21.42  In assessing the inadequacy of damages so as to justify an injunction, the court can probably still take into account not only the unquantifiability of damages to be suffered and the difficulty of assessment, but the irrecoverability of damages at law because of a liquidated damages or exception clause or because loss is suffered not by the applicant himself but by others or in some intangible way. The purpose of an interlocutory injunction is protection not just against loss, which would sound in damages, but against violation of any right where damages would not be adequate compensation. Loss of goodwill, loss of reputation and loss of competitiveness or marketability are all matters that can be taken into account.66 Thus the justification for upholding liquidated damages clauses in cases where it is difficult to quantify losses that might flow from a breach is turned on its head when considering adequacy of damages in the context of the grant of injunctions – the fact that the liquidated damages recoverable may not represent the claimant’s true loss is capable of being a factor to be taken into account in favour of granting an injunction. 21.43  In some cases, particularly in the context of physical problems caused by construction activities, the award of damages in lieu of an injunction may be measured by reference to the cost of carrying out remedial works, particularly where damages are awarded in lieu of a mandatory injunction: see for example Hooper v Rogers,67 referred to at paragraph 21.9 above. It is to be noted that in that case the award of damages took into account damage that might occur in the future – damages for which compensation could not be given as damages in tort.68

63 Per Lord Clarke at paragraph [173]. 64 Per Lord Wilberforce in Garden Cottage Foods Ltd v Milk Marketing Board [1984] AC 130 at 153. 65 Ottercroft Ltd v Scandia Care Ltd [2016] EWCA Civ 867 at paragraphs [13] and [14]. 66 The first three sentences of this paragraph contain a citation from paragraph [39] of the judgment of Cooke J in Lauritzencool AB v Lady Navigation Inc [2004] EWHC 2607 (Comm); [2005] 1 Lloyd’s Rep 260 applying the decision of the Court of Appeal in Bath and North East Somerset District Council v Mowlem plc [2004] EWCA Civ 722; [2004] BLR 153. We would respectfully agree with the editors of the Building Law Reports that the decision of Akenhead J in Ericsson AB v EADS Defence and Security Systems Ltd [2009] EWHC 2598 (TCC); [2010] BLR 131, particularly at paragraph [40], may be inconsistent with these authorities. 67 [1975] 1 Ch 43. 68 See also Midland Bank Ltd v Bardgrove Property Services Ltd (1992) 60 BLR 1 where the plaintiff failed to recover damages for preventative works carried out to deal with interference with a right of support to land. It is not entirely easy to reconcile the decision in Hooper v Rogers with dicta in Midland Bank v Bardgrove to

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21.44  In other cases the appropriate measure of damages in lieu of an injunction may be assessed on the basis of what has been referred to as “negotiating damages” or “Wrotham Park damages”.69 Such an award is appropriate where the defendant has infringed a right of the claimant’s in circumstances where the claimant would otherwise have been entitled to charge the defendant for consent to do whatever it is he has done – for example where the claim is for breach of copyright, for breach of confidentiality or a trespass causing no permanent damage to land. In Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd70 Lord Walker said of such damages: “Several of the recent cases have explored the nature of the hypothetical negotiation called for the assessment of Wrotham Park damages. It is a negotiation between a willing buyer (the contract-breaker) and a willing seller (the party claiming damages) in which the subject-matter of the negotiation is the release of the relevant contractual obligation. Both parties are to be assumed to act reasonably. The fact that one or both parties would in practice have refused to make a deal is therefore to be ignored . . . Another issue is how far the court is entitled in its assessment of Wrotham Park damages, to take account of events occurring after the time at which the hypothetical negotiation takes place (and in particular, to take account of how profitable the outcome has been for the contractbreaker). This issue sometimes tends to get confused with the wider issue of whether the court is awarding compensatory or restitutionary damages. Their Lordships consider that the right approach is that of the Court of Appeal in Lunn Poly,71 in which Neuberger LJ observed, after citing the judgment of Mr Anthony Mann QC in AMEC Developments Ltd v Jury’s Hotel Management (UK) Ltd72 . . . Paragraphs 11 to 13: ‘27. It is obviously unwise to try to lay down any firm general guidance as to the circumstances in which, and the degree to which, it is possible to take into account facts and events that have taken place after the date of the hypothetical negotiations, when deciding the figure at which those negotiations would arrive. Quite apart from anything else, it is almost inevitable that each case will turn on its own particular facts . . . 29. In my view, the proper analysis is as follows. Given that negotiating damages under the Act73 are meant to be compensatory, and are normally to be assessed or valued at the date of breach, principle and consistency indicate that post-valuation events are normally irrelevant. However, given the quasi-equitable nature of such damages, the judge may, where there are good reasons, direct a departure from the norm, either by selecting a different valuation date or by directing that a specific post-valuation-date event be taken into account.’ ”

21.45 In Hunter v Fitzroy Robinson & Partners,74 an injunction was refused on the basis that damages would be an adequate remedy for a breach of copyright in some plans.75

the effect that damages could not have been awarded in lieu of a quia timet injunction. Hooper v Rogers was not referred to by the Court of Appeal. 69 Wrotham Park Estates Company v Parkside Homes [1974] 1 WLR 798; Bocardo SA v Star Energy UK Onshore Ltd [2010] UKSC 35; [2011] 1 AC 380 at paragraphs [116]–[125] – see also paragraph 11.59 above: as noted there, this area of the law is likely to be reviewed by the Supreme Court soon after this book goes to press. 70 Above at paragraphs 49 and 50. 71 Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd (2006) 25 EG 210. 72 (2001) 82 P & CR 22. 73 That is, Lord Cairns’s Act – section 2 of the Chancery Amendment Act 1858. 74 (1977) 10 BLR 84. 75 The High Court of Malaysia did grant an injunction in somewhat similar circumstances, taking into account the loss of credibility which the designers would suffer if others used their designs without permission: High Mark (M) Sdn Bhd v Patco Malaysia Sdn Bhd (1984) 28 BLR 129.

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Assessment of damages for breach of an undertaking as to damages 21.46 As noted above, the usual practice on the grant of an interim injunction is to require the applicant to give an undertaking as to damages. The old form of undertaking used to be that the applicant “will abide by any order which this court may make as to damages, in case this court shall be of opinion that the defendant shall have sustained any, by reason of this order, which the plaintiff ought to pay”. More recently the usual form of undertaking is in the following or similar words: “Upon the claimants agreeing to comply with any order this court may make if the court later finds that this order for an injunction has caused loss to the defendants and decides that the defendants should be compensated for that loss.”76 The shift in emphasis is from reference to “damage” or “damages” to “compensation for loss”. 21.47 The purpose of a cross-undertaking in damages is to ensure that the parties affected by the injunction are compensated if it later turns out that the injunction was wrongly granted.77 The reason for requiring the cross-undertaking is that the court at the interlocutory stage does not know who will be the ultimate winner. By requiring the cross-undertaking the court ensures that the party against whom the injunction is obtained will have a remedy if the injunction was granted but the case ultimately failed.78 21.48 A party who is granted an interim injunction but who ultimately loses the full trial is not regarded as a wrongdoer because he got an interim injunction. Sometimes, for convenience and want of a better term, the expression “wrongful injunction” is used, but in truth there is nothing wrongful about it. The decision whether or not to grant it is made on the basis of a necessarily incomplete picture. The decision depends on all the circumstances of the case, generally whether or not damages to an ultimately victorious claimant would be an adequate remedy, whether the claimant can show a serious issue to be tried and so on.79 21.49  The basic principle applicable to an inquiry under a cross-undertaking is that the cross-undertaking should be enforced in accordance with its terms.80 The court’s primary task is to compensate the beneficiaries of the cross-undertaking, not to punish the parties that obtained the injunction or to require those parties to make restitution of any benefits that they may have gained as a result of the injunction.81 However, despite that general principle, aggravated damages can be awarded82 and it is possible that exemplary damages could be awarded.83 21.50  General damages for the effect upon a business in consequence of a freezing or search order can be ordered for upset, stress, loss of reputation, general loss of business opportunities, and general business and other disruption including adverse effects of the

76 See for example SmithKline Beecham plc v Apotex Europe Ltd [2006] EWCA Civ 658; [2007] Ch 71 at paragraph [7]. 77 Per Arnold J in Lilly Icos LLC v 8PM Chemists Ltd [2009] EWHC 1905 (Ch); [2010] Bus LR D43 at paragraph [8]. 78 Per Jacob LJ in SmithKline Beecham (above) at paragraph [23]. 79 This paragraph is a direct quotation from the judgment of Jacob LJ in SmithKline Beecham (above) at paragraph 25. 80 Per Arnold J in Lilly Icos LLC v 8PM Chemists Ltd (above) at paragraph [9]. 81 Per Arnold J in Lilly Icos LLC v 8PM Chemists Ltd (above) at paragraph [10]. 82 Columbia Picture Industries Inc v Robinson [1987] Ch 38. 83 Smith v Day (1882) 21 Ch D 421 at 428; Digital Equipment Corporation v Darkcrest Ltd [1984] Ch 512 at 516.

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inappropriate policing of the injunction on the injunctees,84 although in most cases it will be necessary for there to be some evidence to support such an award.85 21.51  The court can refuse to order an inquiry under a cross-undertaking even if the injunction in question is discharged.86 21.52  For many years the starting point for assessment of damages has been the obiter dictum of Lord Diplock in F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry:87 “The undertaking is not given to the defendant but to the court itself. Non-performance of it is contempt of court, not breach of contract, and attracts the remedies available for contempts, but the court exacts the undertaking for the defendant’s benefit. It retains a discretion not to enforce the undertaking if it considers that the conduct of the defendant in relation to the obtaining or continuing of the injunction or the enforcement of the undertaking makes in inequitable to do so, but if the undertaking is enforced the measure of the damages payable under it is not discretionary. It is assessed on an inquiry into damages at which principles to be applied are fixed and clear. The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction.”

The contractual analogy suffers from the problem that, unlike a contract into which two parties enter willingly, the object of an interim injunction will generally be a very unwilling participant. Moreover at the time that the injunction is first granted if the application is made without notice, the defendant has no idea that the order is being made. The applicant will be very well aware of what he seeks to gain by the injunction, but may be unaware or inadequately informed as to the consequences of the order upon the defendant. 21.53  In consequence until relatively recently there appeared to be a move in the authorities away from Lord Diplock’s approach. In SmithKline Beecham plc v Apotex Europe Ltd88 Jacob LJ said:89 “Lord Diplock, in [Hoffmann-La Roche] expressed the view, obiter, that quantification of compensation under a cross-undertaking should be on the basis of a breach of a notional contract between the parties to the effect that the injunctor would not prevent the injunctee from doing the injuncted acts. That brings into play the rule in Hadley v Baxendale90 . . . briefly, the ‘wrongful’ injunctor will pay only for such damage as he could reasonably foresee would be caused to the injunctee by the injunction, either from his personal knowledge of the circumstances or from his knowledge of the particular circumstances of the injunctee. In the Primecrown case91 . . . I reviewed the rather exiguous authorities on the principle by which compensation is to be assessed and concluded that the notional breach of a notional contract basis may be too narrow in some cases. For present purposes that does not matter. What matters is that the entire discussion in these cases is about how the compensation which the injunctor has undertaken to pay the injunctee (or other party identified in the cross-undertaking) 84 Abbey Forwarding Ltd v Hone (No. 3) [2014] EWCA Civ 711; [2015] Ch 309 at paragraph [150]. 85 Al-Rawas v Pegasus Energy Ltd (above) at paragraph [39]. 86 Ballanbank v Taher [1995] 1 WLR 1056. 87 [1975] AC 295 at 261. For examples of cases applying this dictum, see Eliades v Lewis [2005] EWHC 2966 (QB); Al-Rawas v Pegasus Energy Ltd [2008] EWHC 617 (QB); [2009] 1 All ER 346. 88 Above. 89 At paragraphs 83 and 84. 90 (1854) 9 Exch 341. 91 R v Medicines Control Agency, ex p Smith & Nephew Pharmaceuticals Ltd (Primecrown Ltd intervening) [1999] RPC 705.

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is to be assessed. Whether it is the contractual or wider basis, one must not lose sight of what it is that is being quantified.”

In that case the Court of Appeal declined to order payment of compensation to a party affected by the injunction but not the beneficiary of the cross-undertaking.92 21.54  Following upon the judgment of Jacob J in the Primecrown case to which Jacob LJ referred in the above passage, a number of other first instance judges expressed doubts or qualifications about the “contractual” basis for assessment of damages,93 particularly in so far as the principle in Hadley v Baxendale as to foreseeability of loss is applicable in this context. However in Abbey Forwarding Ltd v Hone (No 3)94 the Court of Appeal conducted a full review of the authorities and concluded that foreseeability is relevant. McCombe LJ said:95 “I reach the conclusion that the law as to recoverability of loss suffered by reason of a crossundertaking is as stated by Lord Diplock in his dictum in the Hoffmann-La Roche case, but with this caveat. Logical and sensible adjustments may well be required, simply because the court is not awarding damages for breach of contract. It is compensating for loss caused by the injunction which was wrongly granted. It will usually do so by applying the useful rules as to remoteness derived from the law of contract, but because there is in truth no contract there has to be room for exceptions. In my judgment, the law also meets the justice of the matter. A defendant wrongly injuncted should be compensated for losses that he should not have suffered, but a claimant should not be saddled with losses that no reasonable person would have foreseen at the time when the order was made, unless the claimant knew or ought to have known of other circumstances that was likely to give rise to the particular type of loss that occurred in the case at hand. A claimant may, however, find himself liable for losses which would not usually be foreseen in particular cases. One such case may be if a loss, not usually foreseeable, arises before a defendant has had any real opportunity to notify the claimant of the likely loss or sensibly to apply to the court for a variation.”

21.55  Apart from the now limited point as to what the applicant for an injunction may be able to foresee as to the defendant’s potential losses discussed above, there is a further difference between an assessment of damages for breach of contract and assessment of damages in this context. In a contractual case, assessment of damages is normally carried out as at the date of the breach alleged. However that is not the rule when assessing damages for breach of an undertaking: “In my judgment, the general contractual rule is not applicable to the case of a claim under a cross-undertaking. The defendant will usually (although not always . . .) sustain the loss claimed after the date of the notional breach of contract, ie the date of the injunction. Often, the loss will be a continuing one down to the date of discharge of the injunction. Furthermore, it would be artificial to regard the assessment as valuing the loss of a contractual benefit of which the defendant has been deprived. Rather, the defendant is being compensated for being prevented from carrying on its business in the way in which it would normally have done. Accordingly, I consider that the correct approach is that adopted by equity when awarding compensation for breach of fiduciary duty, namely to consider the position with the benefit of hindsight.”96 92 Paragraphs 83–97. 93 Warren J in Apex Frozen Foods Ltd v Ali [2007] EWHC 469 (Ch); [2007] 6 Costs LR 818 at paragraphs [15] and [16]; Norris J in Les Laboratoires Servier v Apotex Inc [2008] EWHC 2347 (Ch); [2009] FSR 220 at paragraph [7]; Arnold J in Lilly Icos (above) at paragraphs 12–20. 94 [2014] EWCA Civ 711; [2015] Ch 309. 95 At paragraphs [63] and [64]. 96 Per Arnold J in Lilly Icos (above) at paragraph [40].

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21.56  Often the effect of an interim injunction (particularly if coupled with extensive disclosure requirements) is to cause extensive expenditure of management time. The cost of such time is recoverable on a commonsense basis.97 21.57  A court will not award compensation under a cross-undertaking for the loss sustained by an unlawful business or where the beneficiary of the undertaking has to rely to a substantial extent upon his own illegality to establish the loss.98 In this context illegality means conduct in respect of which the public interest is engaged and includes criminal acts, and “quasi-criminal” acts including dishonesty or corruption but not the commission of torts (other than those of which dishonesty is an essential element), breaches of contract or statutory or other civil wrongs that offend against interests that are essentially private.99 Contempt of court 21.58  The court has power to punish those who are guilty of contempt of court – a contempt of court being an interference with the due administration of justice either in a particular case or more generally as a continuing process.100 21.59  If the terms of an injunction are not observed, the court has power to visit the consequences of such non-observance upon those responsible as being a contempt of court. The principles were set out by Eveleigh LJ in Z Ltd v A-Z and AA-LL:101 “I think that the following propositions may be stated as to the consequences which ensue when there are acts or omissions which are contrary to the terms of an injunction. (1) The person against whom the order is made will be liable for contempt of court if he acts in breach of the order after having notice of it. (2) A third party against whom the order is made will be liable for contempt if he knowingly assists in the breach, that is to say if knowing the terms of the injunction he wilfully assists the person to whom it was directed to disobey it. This will be so whether or not the person enjoined has had notice of the injunction . . . I will give my reasons for the second proposition and take first the question of prior notice to the defendant. It was argued that the liability of a third party arose because he was treated as aiding and abetting the defendant (ie was an accessory) and as the defendant could himself not be in breach unless he had notice it followed that there was no offence to which the third party could be an accessory. In my opinion this argument misunderstands the true nature of the liability of the third party. He is liable for contempt of court committed by himself. It is true that his conduct may very often be seen as possessing a dual character of contempt of court by himself and aiding and abetting the conduct of another, but the conduct will always amount to contempt of court by himself. It will be conduct which knowingly interferes with the administration of justice by causing the order of the court to be thwarted.”

In that case the court was concerned with issues arising out of a Mareva or freezing order – the question arose as to the position of a bank that had been served with a copy of an injunction freezing certain assets and so had notice of it, but the defendant concerned had not yet been so served. The effect of the court’s judgment was to render the bank liable to sanctions  97 See Al-Rawas v Pegasus Energy Ltd [2008] EWHC 617 (QB); [2009] 1 All ER 346 referred to at paragraph 13.34 above.  98 Lilly Icos (above) at paragraph 287.  99 Les Laboratoires Servier v Apotex Ltd [2014] UKSC 55; [2015] AC 430. 100 Per Lord Diplock in A-G v Leveller Magazine Ltd [1979] AC 440 at 449, cited by Lord Ackner in A-G v Times Newspapers Ltd [1992] 1 AC 191 at 208H–209A and by Lord Jauncey at 227G. 101 [1982] QB 558 at 578, cited with approval in A-G v Times Newspapers Ltd (above) by Lord Brandon at 205C–F, Lord Ackner at 214C–G, Lord Oliver at 218 C–E and Lord Jauncey at 229G–H. It is most unusual for a deliberate contempt of court to go unpunished, particularly if the contempt is repeated: see Bunge SA v Huaya Maritime Corporation [2017] EWHC 90 (Comm) where a sentence of 18 months imprisonment was imposed.

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if it disposed of assets governed by the injunction even if the bank’s client was unaware of the court’s order. An old case confirming the liability of secondary parties to proceedings for contempt is Lord Wellesley v Earl of Mornington.102 Lord Wellesley had obtained an injunction against the Earl of Mornington restraining him from cutting timber on certain land. Subsequently one Batley, who was an agent of the Earl and knew of the injunction against him, cut timber on the land concerned. There followed two applications by Lord Wellesley for the committal of Batley for contempt of court. The first application was for committal for breach of the injunction. It failed because the injunction was not against Batley but only against his principal, the Earl. The second application, the bringing of which was encouraged by observations in the court’s judgment on the first application, was for committal for knowingly assisting in a breach on the injunction. The second application succeeded. 21.60  It is not hard to imagine situations in a construction context where this potential liability could be significant. For example, assume that a householder obtains an injunction against a neighbouring landowner preventing the neighbour carrying out building works that might withdraw support from the claimant’s house. Good practice would generally be to claim such an injunction against any contractor as well as against the neighbour; however, any contractor given notice of the injunction would be well advised to treat the injunction as binding upon him even if he were not a party to the proceedings in which the injunction was obtained. An example somewhat similar to that was given by Lord Brandon in Attorney-General v Times Newspapers Ltd:103 “Suppose that there is an action between A and B in which B claims, but A disputes, that B is entitled to demolish A’s house and that in that action the court grants A an interlocutory injunction restraining B from demolishing A’s house pending the trial of the action. Suppose further that C, of his own volition and in no way aiding and abetting B, himself demolishes A’s house while the action between A and B is still pending. On those facts C would, in my opinion, be committing a contempt of court, because he would be knowingly impeding or interfering with the administration of justice by the court in the action between A and B.”

It is to be noted that in this example, the “outsider”, C, is liable even if he acts without the knowledge and approval of the person against whom the injunction had been obtained. His liability arises because he knowingly impedes the administration of justice in the proceedings between the other two parties. 21.61  In deciding what, if any, penalty to impose, the court will take into account the fact, if it be the case, that the defendant acted on legal advice, but acting on such advice would not stop a breach being a breach.104 Forum shopping: anti-suit injunctions 21.62  Construction projects very often involve an employer of one nationality contracting with a contractor of a different nationality sometimes in respect of a project in yet a third country. In this situation there are frequently advantages to one or other party if any dispute is conducted in one country rather than another. In these circumstances the 102 (1848) 11 Beav 180. 103 [1992] 1 AC 191 at 206C–D. 104 Re Mileage Conference Group of the Tyre Manufacturers’ Conference Ltd’s Agreement [1966] 1 WLR 1137; Bhimji v Chatwani [1991] 1 WLR 989.

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court may be asked to issue an injunction effectively determining the country in which the dispute will be heard. 21.63  Where the parties have agreed that a particular dispute is to be within the exclusive jurisdiction of a particular court, that gives rise to a contractual right that generally will be enforced by the courts by the order of a stay or an anti-suit injunction.105 However the position is more complicated where no such agreement exists. 21.64  In a number of cases the courts have developed the principles upon which the court will intervene in circumstances where there is no such right to have proceedings determined in a particular court. The origin of the court’s acceptance of such a jurisdiction goes back to the early part of the nineteenth century: “Injunction, being an equitable remedy, operates in personam. It has been used to order parties amenable to the court’s jurisdiction ‘to take, or omit to take, any steps and proceedings in any other court of justice, whether in this country, or in a foreign country’; Leach V-C in Bushby v Munday106 . . . The English court, as the Vice-Chancellor went on to say, ‘does not pretend to any interference with the other court; it acts upon the defendant by punishment of his contempt in his disobedience to the order of the court’. The jurisdiction, which has been frequently exercised since 1821, was reviewed by the Court of Appeal in Ellerman Lines Ltd v Read107 . . . Scrutton LJ in that case quoted with approval a passage from the judgment of Brougham LJ in Lord Portarlington v Soulby108 . . . where the Lord Chancellor affirmed that ‘the injunction was not directed to the foreign court, but to the party within the jurisdiction here’. I would not, however, leave Ellerman’s case without a reference to the warning of Eve J, at p. 158: ‘No doubt the jurisdiction is to be exercised with caution’.”109

21.65  There is in the authorities much debate about whether the right to obtain an antisuit injunction must be ancillary to some other right enforceable in an English court. In South Carolina Insurance Co v Assurantie Maatschappij “De Zeven Provincien” NV110 Lord Brandon said this: “It will be helpful in the first instance to state certain basic principles governing the grant of injunctions by the High Court. The first basic principle is that the power of the High Court to grant injunctions is a statutory power conferred on it by section 37(1) of the Supreme Court

105 Per Lord Diplock in British Airways Board v Laker Airways Ltd [1985] 1 AC 58 at 81D; Donohue v Armco Ltd [2002] 1 All ER 749; Turner v Grovit [2002] 1 WLR 107 at paragraph [25]. 106 (1821) 5 Madd 297 at 307. 107 [1928] 2 KB 144. 108 (1834) 3 Myl & K 104 at 107. 109 Per Lord Scarman in Castanho v Brown & Root Ltd [1981] AC 557 at 572F–573A. Note, to an extent Lord Scarman in his speech in British Airways Board v Laker Airways Ltd [1985] AC 58 at 95D–G later qualified the width of some of his dicta in Castanho v Brown & Root: “The approach has to be cautious because an injunction restraining a person within the jurisdiction of the English court from pursuing a remedy in a foreign court is, however disguised and indirect, an interference with the process of justice in that foreign court. Caution is needed even in a ‘forum inconveniens’ case, ie a case in which a remedy is available in the English as well as in the foreign court. Caution is clearly very necessary where there is no remedy in the English court in respect of the cause of action which, if the facts be proved, is recognised and enforceable by the foreign court. Nevertheless, even in the latter case, the power of the English court to grant the injunction exists, if the bringing of the suit in the foreign court is in the circumstances so unconscionable that in accordance with our principles of a ‘wide and flexible’ equity it can be seen to be an infringement of the equitable right of the applicant. The right which is an entitlement to be protected from a foreign suit the bringing of which by the defendant to the application is in the circumstances unconscionable and so unjust. This equitable right not to be sued abroad arises only if the inequity is such that the English court must intervene to prevent injustice. Cases will, therefore, be few: but the jurisdiction exists and must be sustained.” 110 [1987] 1 AC 24 at 39H–40G – note Lord Goff’s reservations as to whether Lord Brandon’s dicta were too restrictive – see 44G–45B.

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Act 1981,111 which provides that ‘the High Court may by order (whether interlocutory or final) grant an injunction in all cases in which it appears to the court to be just and convenient to do so’. That provision is similar to earlier provisions of which it is the successor, namely, section 45(1) of the Supreme Court of Judicature (Consolidation) Act 1925 and section 25(8) of the Supreme Court of Judicature Act 1873. The second basic principle is that, although the terms of section 37(1) of the Act of 1981 and its predecessors are very wide, the power conferred by them has been circumscribed by judicial authority dating back many years . . . The effect of these authorities, so far as material to the present case, can be summarised by saying that the power of the High Court to grant injunctions is, subject to two exceptions to which I shall refer shortly, limited to two situations. Situation (1) is when one party to an action can show that the other party has either invaded, or threatens to invade, a legal or equitable right of the former for the enforcement of which the latter is amenable to the jurisdiction of the court. Situation (2) is where one party to an action has behaved, or threatens to behave, in a manner which is unconscionable. The third basic principle is that, among the forms of injunction which the High Court has power to grant, is an injunction granted to one party to an action to restrain the other party to it from beginning, or if he has begun from continuing, proceedings against the former in a foreign court. Such jurisdiction is, however, to be exercised with caution because it involves indirect interference with the process of the foreign court concerned. The latter form of injunction may be granted in such circumstances as to constitute an exception to the second basic principle above. This may occur where one party has brought proceedings against another party in a foreign court which is not the forum conveniens for the trial of the dispute between them, as that expression was defined and applied in MacShannon v Rockware Glass Ltd112 . . . In such a case the party who has brought the proceedings in the foreign court may not, by doing so, have invaded any legal or equitable right of other party, nor acted in an unconscionable manner. The court nevertheless has power to restrain him from continuing his foreign proceedings on the ground that there is another forum in which it is more appropriate, in the interests of justice, that the dispute between the parties should be tried.”

In so far as this passage deals with the absence of a need to establish a threatened invasion of a legal or equitable right, or a separate cause of action, it remains good law.113 21.66  On the other hand, in Masri v Consolidated Contractors International (UK) Ltd (No 3)114 Lawrence Collins LJ pointed out that what was said in that passage of Lord Brandon’s speech about forum conveniens is no longer good law: the position now is that where a remedy for a particular wrong is available both in an English court and in a foreign court, the English court will, generally speaking, only restrain the claimant from pursuing proceedings in the foreign court if such pursuit would be vexatious or oppressive. This presupposes that, as a general rule, the English court must conclude that it provides the natural forum for the trial of the action; and further, since the court is concerned with the ends of justice, that account must be taken not only of injustice to the defendant if the claimant is allowed to pursue the foreign proceedings, but also of injustice to the claimant if he is not allowed to do so. So the court will not grant an injunction if, by doing so, it will deprive the claimant of advantages in the foreign forum of which it would be unjust to deprive him. However that problem can often be overcome by appropriate undertakings given by the defendant, or by granting an injunction upon appropriate terms.115 111 Now the Senior Courts Act 1981, following the establishment of the Supreme Court. 112 [1978] AC 795. 113 Masri v Consolidated Contractors International (UK) Ltd (No 3) [2008] EWCA Civ 625; [2009] QB 503 at paragraph [48]. 114 Masri v Consolidated Contractors International (UK) Ltd (No 3) (above) at paragraph 47. 115 The contents of the paragraph (other than the reference to Masri) are in substance directly taken from the opinion of Lord Goff in Société Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] 1 AC 871 at 896F–H.

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21.67  In deciding whether to exercise the discretion of the court in this area of concern, a fundamental question is whether proceedings are already on foot elsewhere. If a claimant has already started proceedings against a defendant in another jurisdiction that is a natural and appropriate forum for the resolution of the dispute between them, and the defendant seeks to institute as claimant an action in England about the same matter to which the person who is claimant in the foreign suit is made defendant, then the additional inconvenience and expense that must result from allowing two sets of proceedings to be pursued concurrently in two different countries where the same facts are in issue and the testimony of the same witnesses required, can only be justified if the would-be claimant can justify objectively by cogent evidence that there is some personal or juridical advantage that would be available to him only in the English action which is of such importance that it would cause injustice to him to deprive him of it.116 21.68  The English courts will also on occasion grant anti-suit injunctions in a “single forum case” to prevent a party from proceeding in a foreign court that alone has jurisdiction over the relevant dispute. In order to justify the restraint of proceedings in such a case, the pursuit of such proceedings must be such as to be unconscionable.117 However, such an injunction is a very rare form of order since as a general rule (both in respect of alternative forum cases and in single forum cases) before an anti-suit injunction can properly be granted by an English court to restrain a person from pursuing proceedings in a foreign jurisdiction, comity requires that the English forum should have a sufficient interest in, or connection with, the matter in question to justify the indirect interference with the foreign court that an anti-suit injunction entails.118 This will generally be much harder to establish in a single forum case than in an alternative forum case.119 A particular area in which antisuit injunctions are granted relatively frequently is where there is an agreement to refer disputes to a particular form of dispute resolution procedure – such cases are considered in paragraphs 21.72 and following below. 21.69 In The Western Regent,120 Clarke LJ approved the following summary of the relevant principles to be derived from the above cases: “(i) Under English law a person has no right to be sued in a particular forum, domestic or foreign, unless there is some specific factor that gives him that right, but a person may show such a right if he can invoke a contractual provision conferring it on him or if he can point to clearly unconscionable conduct (or the threat of unconscionable conduct) on the part of the party sought to be restrained: Turner v Grovit121 . . . (ii) There will be such unconscionable conduct if the pursuit of foreign proceedings is vexatious or oppressive or interferes with the due process of this Court: South Carolina Insurance 116 Per Lord Diplock in The Abidin Daver [1984] AC 398. 117 British Airways Board v Laker Airways Ltd [1985] AC 58; Masri v Consolidated Contractors International (UK) Ltd (No 3) [2008] EWCA Civ 625; [2009] QB 503 at paragraphs [42]–[44]. 118 Per Lord Goff in Airbus Industrie GIE v Patel [1999] 1 AC 119 at 138G. 119 See in this connection Masri v Consolidated Contractors International Ltd (No 3) above at paragraph 56 where Lawrence Collins LJ said “it would be a highly unusual case in which the English court would grant an anti-suit injunction in a single forum case against a non-English party, and, I would add, an even rarer case in which it would have jurisdiction to do so”. 120 Seismic Shipping Inc v Total E&P UK plc (The “Western Regent”) [2005] EWCA Civ 985; [2005] 2 Lloyd’s Rep 359 at paragraph [44]. See also the full review of the authorities in Star Reefers Pool Inc v JFC Group Ltd [2012] EWCA Civ 14; [2012] 1 Lloyd’s Rep 376. 121 [2002] 1 WLR 107 at paragraph [25] per Lord Hobhouse.

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Co v Assurantie Maatschappij de Zeven Provincien NV122 . . . Glencore International AG v Exter Shipping Ltd123 . . . (iii) The fact that there are such concurrent proceedings does not in itself mean that the conduct of either action is vexatious or oppressive or an abuse of court, nor does that in itself justify the grant of an injunction: Société Nationale Industrielle Aerospatiale v Lee Kui Jak124 . . . Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd125 . . . Airbus Industrie GIE v Patel126 . . . (iv) However, the court recognises the undesirable consequences that may result if concurrent actions in respect of the same subject matter proceed in two different countries: that ‘there may be conflicting judgments of the two courts concerned’ or that there ‘may be an ugly rush to get one action decided ahead of the other in order to create a situation of res judicata or issue estoppel in the latter’: see The Abidin Daver127 . . . (v) The court may conclude that a party is acting vexatiously or oppressively in pursuing foreign proceedings and that he should be ordered not to pursue them if (a) the English that the action should be allowed to proceed in the foreign court, and more specifically, that there is no advantage to the party sought to be restrained in pursuing the foreign proceedings of which he would be deprived and of which it would be unjust to deprive him: Société Aerospatiale128 . . . (vi) In exercising its jurisdiction to grant an injunction, ‘regard must be had to comity and so the jurisdiction is one which must be exercised with caution’: Airbus Industrie129 . . . Generally speaking in deciding whether or not to order that a party be restrained in the pursuit of foreign proceedings the court will be reluctant to take upon itself the decision whether a foreign forum is an inappropriate one: Turner v Grovit.130”

21.70  The court is likely to refuse to grant an anti-suit injunction if there has been undue delay in seeking the injunction – the discretion to refuse to grant such an injunction is not limited to cases where the delay is unconscionable or has caused prejudice to the respondent. The court is particularly unlikely to grant such an injunction after judgment in the overseas court.131 Even if an injunction is not granted, the court may in exceptional cases make a declaration as to jurisdiction instead of an injunction:132 it may also make a declaration in addition to granting an injunction.133 21.71  If a party pursues a claim in the “wrong” jurisdiction in breach of a law and jurisdiction clause, the court may award as damages any costs incurred in the overseas jurisdiction.134

122 [1987] AC 24 at 41D. 123 [2002] 2 All ER (Comm) 1 at paragraph [42]. 124 [1987] AC 817 at 894C. 125 [1999] 1 Lloyd’s Rep 767 at 781. 126 [1999] 1 AC 119 at 133G–H. 127 [1984] AC 398 at 423H–424A per Lord Brandon. 128 Above at 895D and 896F–G. 129 Above at 133F. 130 Above at paragraph 25. 131 Ecobank Transnational Inc v Tanoh [2015] EWCA Civ 1309; [2016] 1 WLR 2231; Essar Shipping Ltd v Bank of China Ltd (“The Kishore”) [2015] EWHC 3266 (Comm); [2016] 1 Lloyd’s Rep 427; Magellan Spirit APS v Vitol SA (“The Magellan Spirit”) [2016] EWHC Civ 454 (Comm); [2016] 2 Lloyd’s Rep 1; ADM AsiaPacific Trading PTE Ltd v PT Budi Semestra Satria [2016] EWHC 1427 [2017] Lloyd’s Rep. Plus 1. 132 Navig8 Pte Ltd v Al-Riyadh Co for Vegetable Oil Industry (“The Lucky Lady”) [2013] EWHC 328 (Comm); [2013] 2 Lloyd’s Rep 104. 133 Ecom Agroindustrial Corporation Ltd v Mosharaf Composite Textile Mill Ltd [2013] EWHC 1276 (Comm); [2013] 2 Lloyd’s Rep 196. 134 Swissmarine Services SA v Gupta Coal India Private Ltd [2015] EWHC 265 (Comm).

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Injunctions to restrain proceedings brought in breach of an agreed dispute resolution procedure 21.72  Section 9 of the Arbitration Act 1996 gives power to the English courts to stay proceedings brought in those courts in breach of an arbitration agreement:135 “(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter. (2) An application may be made notwithstanding that the matter is to be referred to arbitration only after the exhaustion of other dispute resolution procedures. (3) An application may not be made by a person before taking the appropriate procedural step (if any) to acknowledge the legal proceedings against him or after he has taken any step in those proceedings to answer the substantive claim. (4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”

21.73  Section 9 is relevant where a party seeks to commence court proceedings in the United Kingdom in breach of an arbitration agreement. In addition to that statutory power to uphold an agreement to arbitrate disputes, the courts will grant an anti-suit injunction to prevent a party from failing to comply with an agreed dispute resolution procedure such as reference of a dispute to a panel of experts136 or to prevent a party who has agreed to arbitration proceeding with court proceedings overseas (in such a case the English court has no power to order a stay under section 9 but acts instead by the grant of an anti-suit injunction137). Of such injunctions Millett LJ said:138 “I . . . wish only to add a few observations of my own on the approach which the Courts should adopt when asked to exercise its undoubted jurisdiction to restrain a party from taking or continuing proceedings in a foreign Court in breach of an agreement to refer the dispute to arbitration. In my judgment, the time has come to lay aside the ritual incantation that this is a jurisdiction which should only be exercised sparingly and with great caution. There have been many statements of great authority warning of the danger of giving an appearance of undue interference with the proceedings of a foreign Court. Such sensitivity to the feelings of a foreign Court has much to commend it where the injunction is sought on the ground of forum non conveniens or on the general ground that the foreign proceedings are vexatious or oppressive but where no breach of contract is involved. In the former case, great care may be needed to avoid casting doubt on the fairness or adequacy of the procedures of the foreign Court. In the latter case, the question whether proceedings are vexatious or oppressive is primarily a matter for the Court before which they are pending. But in my judgment there is no good reason for diffidence in

135 The English Courts have an inherent jurisdiction also to stay proceedings brought in contravention of dispute resolution procedures other than arbitration: Turville Heath Inc v Chartis Insurance UK Ltd [2012] EWHC 3019 (TCC); [2013] BLR 302. 136 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334; Barclays Bank plc v Nylon Capital LLP [2011] EWCA Civ 826; [2012] Bus LR 542. The Court can also stay proceedings thus requiring any dispute to go to an alternative dispute procedure: see Turville Heath Inc v Chartis Insurance UK Ltd [2012] EWHC 3019 (TCC); [2013] BLR 302. 137 AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35; [2013] 1 WLR 1889. 138 In Aggeliki Charis Compania Maritima SA v Pagna SpA (The Angelic Grace) [1995] 1 Lloyd’s Rep 87 at 96.

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granting an injunction to restrain foreign proceedings on the clear and simple ground that the defendant has promised not to bring them.”

21.74  Obviously, before such an injunction is granted, the court must be satisfied that there is a sufficiently certain dispute resolution process that is legally binding.139 Despite frequent disputes as to whether there is such a binding process, injunctions restraining the commencement of proceedings in breach of agreements to refer disputes to arbitration are routinely granted unless there are strong reasons for not doing so. An example of the grant of such an injunction is Midgulf International Ltd v Groupe Chimiche Tunisien,140 in which there was a dispute as to whether a dispute was caught by a claimed London arbitration clause (“claimed” because there was a dispute as to whether there was such a clause in one of two contracts). Teare J granted an injunction pending trial. He said:141 “This is a case where an anti-suit injunction is sought at the interlocutory stage of proceedings. However, if the injunction is granted its effect is likely to be final because it will end the Tunisian proceedings and enable the arbitration proceedings to be completed. In such circumstances this court has required the applicant for an anti-suit injunction to establish ‘a high degree of probability’ that its case against the respondent is right and that it is indeed entitled as of right to restrain the respondent from taking proceedings abroad.”142

The judge directed a speedy trial as to whether the dispute was governed by the claimed arbitration clause: he held on that trial that the relevant contract did not contain a London arbitration clause. That decision was overturned on appeal.143 There is an important exception to the jurisdiction available to the English courts: a court of a Member State of the EU cannot make an order restraining a person from commencing or continuing proceedings before the courts of another members state on the ground that such proceedings would be contrary to an arbitration agreement.144 21.75 However, if there is an argument as to whether an arbitration clause applies, an injunction will be refused if there is an arbitration agreement with a foreign seat. In such a case usually the tribunal will first determine its jurisdiction under the principle of ­kompetenz-kompetenz and leave any dispute as to the correctness of the tribunal’s jurisdictional decision to the court of the foreign seat of arbitration.145 The courts have jurisdiction not only to grant an injunction to force a party to go to arbitration, but also has the mirror 139 For a useful review of the authorities, see Wah v Grant Thornton International Ltd [2012] EWHC 3198 (Ch); [2013] 1 Lloyd’s Rep 11. 140 [2009] EWHC 963 (Comm); [2009] 2 Lloyd’s Rep 411. Other examples of the grant of such injunctions include Econet Wireless Ltd v Vee Networks Ltd [2006] EWHC 1568 (Comm); and U&M Mining Zambia Ltd v Konkola Copper Mines plc [2014] EWHC 3250 (Comm); Southport Success SA v Tsingshan Holding Group Co Ltd (“The Anna Bo”) [2015] EWHC 1974 (Comm); [2015] 2 Lloyd’s Rep 578 Crescendo Maritime Co v Bank of Communications Co Ltd [2015] EWHC 3364 (Comm); [2016] 1 Lloyd’s Rep 414; Emmott v Michael Wilson & Partners [2016] EWHC 3010 (Comm); [2017] Lloyd’s LR Plus 3. 141 At paragraph 36. 142 Referring to Bankers Trust Co v PT Jakarta International Hotels & Development [1999] 1 Lloyd’s Rep 910 and American International Speciality Lines Insurance Co v Abbott Laboratories [2002] EWHC 2714 (Comm); [2003] 1 Lloyd’s Rep 267. 143 [2010] EWCA Civ 66; [2010] Lloyd’s Rep Plus 78. In Steamship Mutual Underwriting Association (Bermuda) Ltd v Sulpicio Lines Inc [2008] EWHC 914 (Comm); [2008] 2 Lloyd’s Rep 269, Walker J granted an antisuit injunction requiring a party to submit to arbitration proceedings. See also Starlight Shipping Co v Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2007] 1 Lloyd’s Rep 230. 144 West Tankers Inc v Allianz SpA [2009] AC 1138. 145 Amtrust Europe Ltd v Trust Risk Group SpA [2015] EWHC 1927 (Comm); [2015] 2 Lloyd’s Rep 231.

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image power to prevent a party going to arbitration (an “anti-arbitration” injunction); however such an injunction is unusual because the court will usually leave it to the arbitral tribunal in the first instance to decide issues of jurisdiction in accordance with the principle of kompetenz-kometenz.146 Injunctions in connection with arbitration proceedings 21.76  Section 44 of the Arbitration Act 1996 provides: “(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purpose of and in relation to legal proceedings. (2) These matters are (a) the taking of the evidence of witnesses (b) the preservation of evidence (c) making orders relating to property which is the subject of the proceedings or as to which any question arises in the proceedings for the inspection, photographing, preservation, custody or detention of the property, or (ii) ordering that samples may be taken from, any observation be made of or experiment conducted upon, the property and for that purpose authorising any person to enter any premises in the possession or control of a party to the arbitration (i)

(d) the sale of any goods the subject of the proceedings (e) the grant of an injunction or the appointment of a receiver. (3) If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets. (4) If the case is not one of urgency, the court shall act only on the application of a party to the arbitral proceedings (upon notice to the other parties and to the tribunal) made with the permission of the tribunal or the agreement in writing of the other parties. (5) In any case the court shall act only if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively. (6) If the court so orders, an order made by it under this section shall cease to have effect in whole or in part on the order of the tribunal or of such arbitral or other institution or person having power to act in relation to the subject matter of the order.”

21.77 In Hiscox Underwriting Ltd v Dixon,147 Cooke J granted an order under section  44(3) that an underwriting agent comply with its contractual obligation to allow inspection of its records. Arbitration proceedings had been commenced but the judge held that without such an order the insurers could suffer substantial losses before the arbitral tribunal could itself make the necessary orders – it is frequently the case that appointing a panel of arbitrators can take weeks or months, for example where a three-arbitrator tribunal is appointed. In that period the arbitral tribunal, not being constituted, can make no 146 Claxton Engineering Services Ltd v TXM Olaj-Es Gazkutato KFT [2011] EWHC 345 (Comm); [2011] 1 Lloyd’s Rep. 510; Excalibur Ventures LLP v Texas Keystone Inc [2011] EWHC 1624 (Comm); [2011] 2 Lloyd’s Rep 289; Nomihold Securities Inc v Mobile Telysystems Finance SA (No. 2) [2012] EWHC 130 (Comm); [2012] Bus LR 1289; [2012] 1 Lloyd’s Rep 442. 147 [2004] EWHC 479 (Comm); [2004] 2 Lloyd’s Rep 438.

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orders to preserve evidence.148 In that situation the power of the court under section 44(3) is of great practical utility. However the Court of Appeal held that Cooke J’s approach was too wide in so far as the justification for the order went wider than the preservation of evidence or assets and that a court should only make an order under section 44 if it is necessary for that purpose; that is, the preservation of evidence or assets.149 In reaching such a decision the court is entitled, if necessary to its decision, to form a view of the merits of the dispute.150 Such an order may take the form of an interim mandatory injunction but not a final injunction.151 As is usual in respect of any interim injunction, a cross-undertaking in damages will be required of the applicant together (if appropriate) with the provision of security for that undertaking.152 Once the tribunal is seized of the matter, then usually control over such matters as preservation of evidence is retained by the tribunal – note the provisions of section 44(6) above. Such a direction would often be appropriate. In Cetelem SA v Roust Holdings Ltd153 the court granted a freezing order preventing a respondent from disposing or otherwise dealing with shares in order to protect a disputed right to purchase under a share purchase agreement. The court considered that “assets” for the purposes of section 44 could include contractual rights and that there was no bar to the grant of an interim mandatory injunction to protect rights that would be the subject of the arbitration. 21.78  There is power to restrain proceedings when there has been a repudiatory breach of an arbitration agreement bringing an arbitration to an end,154 but the power conferred by section 41(3) to dismiss a claim renders the old cases on this subject largely of historical interest in practice. Again, old authority confirming power for a court to grant an injunction restraining proceedings where the arbitrator has no jurisdiction has largely been sidelined by the power confirmed by section 30 of the 1996 Act for the arbitrator to determine his own jurisdiction. 21.79  An injunction may be granted to restrain further pursuit of an arbitration if substantially the same dispute is being pursued in a court.155 21.80 In Drake & Scull Engineering Ltd v McLaughlin & Harvey plc,156 an adjudicator had ordered the defendant contractor to pay certain sums arguably due to a subcontractor into a trustee stakeholder account pending an arbitration. HH Judge Bowsher QC granted a mandatory injunction to enforce the adjudicator’s decision pending the arbitration. It may

148 Once constituted, an arbitral tribunal customarily has powers to preserve assets: for example Article 23(1) of the ICC Rules of Arbitration provides that “Unless the parties have otherwise agreed, as soon as the file has been submitted to it, the Arbitral Tribunal may, at the request of a party, order any interim or conservatory measure as it deems appropriate. The Arbitral Tribunal may make the granting of any such measure subject to appropriate security being furnished by the requesting party. Any such measure shall take the form of an order, giving reasons, or of an Award, as the Arbitral Tribunal considers appropriate.” Article 23(2) expressly contemplates application to a national court to obtain an order for preservation of evidence before the tribunal has been constituted. Similar provisions are to be found in Article 25 of the LCIA Arbitration Rules. 149 Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618; [2005] 2 Lloyd’s Rep 494. 150 Cetelem (above) at paragraph [62]. 151 Cetelem (above) at paragraph [64]. 152 Ibid. 153 Above. 154 Bremer Vulcan Schiffbau und Maschinenfabrik v South India Corporation Ltd [1981] AC 909; Turriff Ltd v Richards & Wallington (Contracts) Ltd (1981) 18 BLR 13. 155 The University of Reading v Miller Construction Ltd (1994) 75 BLR 91. 156 (1992) 60 BLR 102.

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be that the jurisdictional basis of this decision would call for reconsideration following the decision of the Court of Appeal in Cetelem157 were a similar application now to be made. 21.81  In recent years arbitral institutions around the world have introduced expedited tribunal and emergency arbitrator procedures designed to avoid the delays that had been experienced very frequently in the appointment of arbitral panels. The English High Court has considered the effect of these procedures on the exercise of the court’s discretion to grant relief: in Gerald Metals SA v Timis158 the court held that the effect of section 44(5) of the Arbitration Act (that a court may only act to the extent that the arbitral tribunal has no power or is unable for the time being to act) meant that it did not have power to grant urgent relief to preserve evidence or assets where there had been time for the claimant to seek relief from an emergency arbitrator under LCIA rules (albeit that in that case an application to the LCIA for the appointment of an emergency arbitrator had been considered and dismissed). Leggatt J. held that the requirement of “urgency” in the Act was not satisfied. As a reflection of the same underlying principle of respecting the parties’ choice of dispute resolution, an appropriately drafted clause may prevent a court granting a freezing order before an award has been issued through an agreed arbitral procedure.159 Powers of an arbitrator 21.82  By section 48 of the Arbitration Act 1996 “unless otherwise agreed by the parties”160 an arbitral tribunal “has the same powers as the court . . . to order a party to do or refrain from doing anything”.161 Injunctions to restrain a nuisance or trespass 21.83  Building operations are often noisy. If the noise is unreasonable, then a neighbouring occupier may claim an injunction restraining the employer of a contractor and the contractor from making excessive noise.162 Any such injunction must be carefully and precisely drafted so that the prohibited activities are unambiguously defined and so as not to be an unreasonable fetter on legitimate construction activities – in a residential district the injunction might prevent building operations during the hours of sleep, whilst in a commercial district the restriction might be on carrying out activities during working hours. 21.84  Local authorities on occasion take proceedings to prohibit activities that amount to a criminal offence. For example, in City of London Corporation v Bovis Construction Ltd,163 Bovis were the construction managers of a site where extensive demolition and construction work was being carried out adjacent to a residential area. Bovis itself did not do the construction work but under its contract with the developers it was deemed to be in possession of the site and in control of the building operations and was obliged to ensure compliance by those on the site with, inter alia, the Control of Pollution Act 1974. There 157 See paragraph 21.63 above. 158 [2016] EWHC 2327 (Ch). 159 B v S [2011] EWHC 691 (Comm); [2011] 2 Lloyd’s Rep 18. 160 Section 48(2) of the 1996 Act. 161 Section 48(5)(a) of the 1996 Act. 162 See for example Lloyds Bank plc v Guardian Assurance plc and Trollope & Colls Ltd (1986) 35 BLR 34. 163 (1988) 49 BLR 1.

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were numerous contraventions of a notice served under section 60 of that Act restraining the hours of working. The Corporation issued an injunction restraining Bovis broadly in terms of the section 60 notice. The Court of Appeal considered the circumstances in which an injunction would be granted in aid of the criminal law. Bingham LJ said:164 “The guiding principles must, I think, be: (1) that the jurisdiction is to be invoked and exercised exceptionally and with great caution . . . (2) that there must certainly be something more than mere infringement of the criminal law before the assistance of civil proceedings can be invoked and accorded for the protection or promotion of the interests of the inhabitants of the area . . . (3) that the essential foundation for the exercise of the court’s discretion to grant an injunction is not that the offender is deliberately and flagrantly flouting the law but the need to draw the inference that the defendant’s unlawful operations will continue unless and until effectively restrained by the law and that nothing short of an injunction will be effective to restrain them.”

21.85  Where air space is necessary for the satisfactory use of land below, it may be a trespass to intrude into its air space. In Anchor Brewhouse Developments Ltd v Berkley House (Docklands Developments) Ltd,165 an injunction was granted to prevent a crane oversailing the plaintiffs’ air space.166 An injunction may be granted if there is an infringement of a right of light, particularly if committed in a highhanded manner.167 21.86  In appropriate cases a court can grant an injunction at the suit of a tenant to restrain a landlord from carrying out development works that are unreasonable and therefore in breach of the covenant of quiet enjoyment in the lease.168 Injunctions in respect of retention monies 21.87  Most construction contracts contain a provision for a portion of the monies due to the contractor at the date of substantial or practical completion of a project to be retained by the employer in case defects appear during a defined period (the defects liability period). This can give rise to fears on the part of the contractor that the employer will not repay the monies at the end of the period, for example if the employer were to become insolvent. 21.88  In a number of cases the courts have issued injunctions requiring the employer to keep such funds separate and on trust.169 Such an order will not be made if there are triable issues as to the employer’s existing right of set-off170 if it will interfere with an existing liquidation,171 if a bank’s floating charge has crystallised,172 or if there is an existing certificate 164 At 27. 165 (1987) 38 BLR 82. 166 See also Woollerton & Wilson Ltd v Richard Costain Ltd [1970] 1 WLR 411; Charrington v Simons & Co Ltd [1971] 1 WLR 598; John Trenberth Ltd v National Westminster Bank Ltd (1980) 39 P & CR 104. 167 Ottercroft Ltd v Scandia Care Ltd [2016] EWCA Civ 867. 168 Lechouritis v Goldmile Properties Ltd [2003] EWCA Civ 49; Century Projects Ltd v Almacantar (Centre Point) Ltd [2014] EWHC 394; Timothy Taylor Ltd v Mayfair House Corp [2016] EWHC 1075 (Ch). 169 Rayack Construction Ltd v Lampeter Meat Co Ltd (1979) 12 BLR 30; Re Arthur Sanders Ltd (1981) 17 BLR 125; Concorde Construction Co Ltd v Colgan Co Ltd (1984) 29 BLR 120 (a decision of the High Court of Hong Kong); Qimonda Malaysia Sdn Bhd v Sediabena Sdn Bhd [2012] CLD 38. 170 GPT Realisations Ltd v Panatown Ltd (1992) 61 BLR 88. 171 Re Jarbay Developments Ltd (1982) 22 BLR 134. 172 Mac-Jordan Construction Ltd v Brookmount Erostin Ltd (1991) 56 BLR 1.

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in existence certifying that liquidated damages to the amount of the retention monies are payable,173 even if that certificate is the subject of challenge.174 However such an order will be made if all the employer has done is to give notice of an intention to deduct liquidated damages.175 Injunctions to restrain a call on a bond 21.89  The courts will not issue an injunction to prevent a bank honouring a call on a performance bond (because that would interfere with the normal course of banking transactions), but may issue an injunction against the beneficiary of such a bond from making a call on the bond or may issue a freezing order against the beneficiary as to the disposal of the proceeds of such a call in the beneficiary’s hands.176 Refusal of an injunction in respect of a tendering process 21.90  In a case decided in Northern Ireland, McLaughlin and Harvey Ltd v Department of Finance & Personnel,177 Deeny J was asked to grant an injunction where it was argued that the claimant had been wrongfully left off a list of framework contractors to whom work would be allocated, in breach of procurement procedures. The application was refused since the effect of an injunction would be to cause delay in the commencement of public works construction contracts, thereby affecting allocation of expenditure in later years.

173 Wates Construction (London) Ltd v Franthom Property Ltd (1991) 53 BLR 23. 174 Henry Boot Building Ltd v The Croydon Hotel & Leisure Co Ltd (1985) 36 BLR 41. 175 JF Finnegan Ltd v Ford Sellar Morris Developments Ltd (1991) 53 BLR 38. 176 Potton Homes Ltd v Coleman Contractors (Overseas) Ltd (1984) 28 BLR 19; GKN Contractors Ltd v Lloyds Bank plc (1985) 30 BLR 48; Themehelp Ltd v West [1996] QB 84; Balfour Beatty Civic Engineering v Technical & General Guarantee Co Ltd (1999) 68 Con LR 180. As to the circumstances in which a court will restrain a call on a performance bond, see ter Haar, Levine and Laney, Construction Insurance and UK Construction Contracts 3rd edition, 2016, at paragraphs 14.31–14.41. 177 [2008] NIQB 25; [2008] BLR 603.

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CHAPTER  22

Specific performance “It is settled that, as a general rule, the court will not compel the building of houses.”1

Introduction 22.1  Specific performance is the court’s remedy to compel a party to perform a contractual obligation. The remedy did not exist at common law: it is an equitable remedy, granted at the discretion of the court, never as of right, which grew out of situations where damages were deemed to be inadequate compensation to a claimant for a contractual breach. It follows therefore that, as in the case of injunctions,2 the remedy will only be granted where damages will be inadequate compensation. 22.2  The court’s discretion to refuse specific performance cannot be excluded by the terms of the contract.3 22.3  The time for making a claim for specific performance is not limited under the Limitation Act 1980 but is subject to the equitable doctrine of laches, that is that an order will not be made if there has been undue delay in pursuing a remedy.4 This is a remedy rarely granted 22.4  The discretionary remedy of specific performance is seldom granted, and, for the reasons set out in this chapter, it is a remedy granted even more rarely in construction contracts. In fact it is widely thought that a court will not normally grant specific performance of a building contract;5 however as explained below this is not the case. Principles for the granting of specific performance 22.5  There are no binding rules regarding when specific performance should be granted; however there are settled principles.6 As set out above, this is a discretionary remedy. It will only be granted where damages would be inadequate and where the contract is sufficiently certain.7   1 Sir G Mellish LJ in Wilkinson v Clements (1872) LR 8 Ch 96 at 112.   2 See paragraphs 21.35–21.45 above.   3 Quadrant Visual Communications Limited and others v Hutchinson Telephone (UK) Limited and another [1993] BCLC 442. The parties by their contract cannot fetter the discretion of the court.  4 LauritzenCool AB v Lady Navigation Inc [2005] EWCA Civ 579; [2005] 1 WLR 3686.  5 New Brunswick and Canada Railway and Land Co v Muggeridge (1859) 4 Drew 686 at 697, per Kindersley V-C.   6 Per Lord Hoffmann in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at 9F. The court may and should see that its practice accords with modern requirements.  7 Posner v Scott-Lewis [1986] 3 All ER 513, per Mervyn Davies J.

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22.6 In Posner v Scott Lewis,8 Mervyn Davies J held that making an order for specific performance should be contingent on the following considerations: (1) Is there a sufficient definition of what has to be done in order to comply with the order of the court? (2) Will enforcing compliance involve superintendence by the court to an unacceptable degree? (3) What are the respective prejudices or hardships that will be suffered by the parties if the order is made or not made? When specific performance will not be decreed 22.7  As set out above, specific performance will not be granted where damages would be an adequate remedy. It will not be granted where the material contract is illegal or immoral, or if granting the remedy would be contrary to public policy.9 22.8  Specific performance will not be granted where there is an agreement without consideration, since equity will not help a volunteer.10 22.9  When exercising its discretion a court will take into account the fact that equity will not act in vain. It will not therefore enforce pointless contracts nor those that will be impossible to enforce. Contracts for transient interests will not therefore be enforced.11 Likewise, an order for specific performance was denied in Tito v Waddell12 where damages were seen to be a far more suitable remedy: the order asked for involved the replanting of 15 small and scattered plots of land. Specific performance was not decreed since it was seen to be an order of futility and waste and one that was wholly disproportionate to the meagre and long-delayed benefit. 22.10  Partnership agreements will not be specifically enforced: the exception to this rule is that they may be enforced where the partners have commenced acting upon their agreement.13 22.11  Contracts involving personal skill will not be specifically enforced, since the court will be unable to do so.14 It has also been considered, for the same reason, that contracts requiring constant supervision would not be subject to specific enforcement. However, see paragraphs 22.29–22.35 below, the court has differentiated between contracts requiring a defendant to achieve a particular result and those requiring the defendant to carry on an activity. 22.12  As set out above, the court will not order specific performance of a contract that is insufficiently certain, due to the subsequent difficulty in establishing whether it has been complied with.   8 [1986] 3 All ER 513 at 521. See also Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (above); Flogas v Warrington (t/a Robin Sutton Gases & Calor Gas Ltd) [2007] EWHC 1303 (QB) and Vertex Data Science Ltd v Powergen Retail Ltd [2006] EWHC 1340 (Comm); [2006] 2 Lloyd’s Rep 591, see Ryan v Mutual Tontine Westminster Chambers Association [1893] 1 Ch 116.  9 Sutton v Sutton [1984] Ch 184; Ewing v Osbaldiston (1837) 2 My and Cr 53. 10 Jefferys v Jefferys (1841) Cr and Ph 138. 11 Hercy v Birch (1804) 9 Ves 357. 12 Tito v Waddell (no 2) [1977] Ch 106. 13 Scott v Rayment (1868) LR 7 Eq 112; Sichel v Mosenthal (1862) 30 Beav 371 at 375, 376. 14 Lumley v Wagner (1852) 1 De GM & G 604.

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22.13  Old authority suggested that contracts for alternative dispute resolution will not be specifically enforced since equity will not directly appoint an arbitrator.15 However, the court can and will intervene to give support to agreement for alternative dispute resolution: thus the court may stay an action where the subject matter of proceedings should be resolved by alternative means; further the court does have statutory powers to appoint arbitrators16 or to act itself as an arbitrator;17 and, as set out at paragraphs 21.59 and 21.60 above, the court will grant injunctions that have the effect of keeping parties to their agreements as to how disputes should be resolved. 22.14  As set out in paragraphs 22.36 and 22.37 below, specific performance will only be granted where it is just so to do. This will mean therefore that it will not be granted where it would involve hardship to the defendant, unfairness or surprise, or where the claimant has behaved unconscionably. Further, specific performance will not be decreed where there has been mistake, misrepresentation or delay. 22.15  Conditional contracts will not be enforced where any condition precedent has not been fulfilled or waived. Courts are more reluctant to grant specific performance in construction contracts 22.16  The general principles, set out above, also apply to cases regarding construction contracts. 22.17  Although it has jurisdiction to do so, in practice a court will only very rarely order specific performance of a building contract18 because of: (1) the difficulty of supervision, since construction contracts may require constant supervision; (2) the difficulty of ascertaining the precise extent of the work required;19 (3) the fact that damages may be an adequate remedy, especially if another builder can be employed to carry out the work and the claimant can recover any loss from the defendant in damages;20 (4) the courts will not normally make orders for specific performance where cases involve personal services, trust or skill.

15 Re Smith & Service and Nelson & Sons (1890) 25 QBD 545. 16 Arbitration Act 1996, sections 18 and 27. 17 Arbitration Act 1996, section 93. 18 For cases where courts have been reluctant to decree specific performance, see Johnson v Shrewsbury and Birmingham Railway (1853) 22 LJ Ch 921: Knight-Bruce and Turner LJJ held that specific performance could not be granted where a railway company agreed that a firm of contractors should work the line and keep the engines and rolling stock in repair for certain remuneration; South Wales Railway v Wythes (1854) 24 LJ Ch 87: the defendant had agreed to construct a railway yet refused to carry out the agreement; Greenhill v Isle of Wight Railway (1871) 23 LT 885: Malins V-C held that specific performance of an agreement to employ Greenhill as a contractor, in the construction of a railway, could not be ordered; Wood v Silcock (1884) 50 LT 251; Saunders v Brading Harbour Improvement Co [1885] WN 36. 19 Shiloh Spinners Ltd v Harding [1973] AC 691; Tito v Waddell (No 2) [1977] Ch 106 at 321; Price v Strange [1978] 1 Ch 337. 20 Flint v Brandon (1803) 8 Ves 159 at 163.

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22.18  If those conditions can be satisfied, the court will be more willing to order specific performance,21 especially where it appears that to do otherwise would cause hardship to the claimant.22 In Price v Strange23 Goff LJ said: “Although the court does not often order specific performance of a contract to build or do repairs, either because of difficulty in ascertaining precisely what has to be done, or more usually because of the difficulty of supervising performance, still it has jurisdiction to do so, and sometimes does: see Chitty on Contracts, 23rd edn (1968), vol 1, para 1531, pp 714–715: ‘Building contracts. The general rule is that a contract to erect a building cannot be specifically enforced. There seem to be three reasons for this rule. First, damages may be an adequate remedy if another builder can be engaged to do the work. Secondly, the contract may not specify the work to be done with sufficient certainty. And thirdly specific performance may require “constant supervision”. But specific performance of a contract to build will be decreed if (i) the work is precisely defined; (ii) damages will not adequately compensate the plaintiff; and (iii) the defendant is in possession of the land on which the work is to be done.’ ”

Exceptions to the general rule 22.19  As the citation from the judgment of Goff LJ set out above shows, as an exception to the general rule, a court will be willing to order specific performance of a construction contract where there has been the purchase or lease of land and as part of the contractual consideration, it is agreed that one party will carry out building works.24 In Carpenters’ Estates Ltd v Davies, Farwell J held that it was not essential that the defendant should have obtained possession of the land on which the work was to be done by virtue of the material 21 Price v Strange [1978] 1 Ch 337 at 359; A-G v Colchester Corp [1955] 2 QB 207 at 216; Storer v Great Western Railway (1842) 2 Y & C Ch Cas 48; Wilson v Furness Railway (1869) LR 9 Eq 28; Greene v West Cheshire Railway (1871) LR 13 Eq 44; Fortescue v Lostwithiel and Fowey Railway [1894] 3 Ch 621. The latter four cases concerned covenants by railway companies to build stations or sidings; Hounslow London Borough Council v Twickenham Garden Developments [1971] Ch 233 at 251. The decision in Hounslow was controversial, and the New Zealand High Court has refused to follow it (Mayfield Holdings Ltd v Moona Reef Ltd [1973] 1 NZLR 309) as have some Australian courts: Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93; Chermar Productions Pty Ltd v Pretest Pty Ltd (1989) 7 BCL 46; Robert Salzer Constructions Pty Ltd v Elmbee Pty Ltd (1990) 10 Aust Const LR 64. Hounslow was not a claim for specific performance, but rather a claim for damages for trespass and for an injunction restraining the defendants from trespassing on the site. Megarry J considered whether the contract was specifically enforceable, since an injunction to evict the contractor could not be granted if the contractor was entitled to a decree for specific performance to compel performance of the contract. Megarry J would have favoured the specific enforceability of the contract since the work was sufficiently defined, damages would not be an adequate remedy, and the contractors obtained possession of the land under the contract. This case may also be authority for the proposition that a builder can also compel an owner to allow him to complete the work contracted for. This is a surprising conclusion, since a landowner may be compelled to accept the building of a building which he does not want. 22 Storer v Great Western Railway Company (1842) 2 Y and C Ch Cas 48; Ryan v Mutual Tontine Westminster Chambers Association [1893] 1 Ch 116; Price v Strange [1978] Ch 337. The court will take into account any hardship or prejudice that may arise if specific performance is not ordered, the extent to which damages will give adequate protection and the extent of the burden of enforcement: the court will grant specific performance if in all the circumstances it is just to do so. 23 [1978] Ch 337 at 359. 24 Wolverhampton v Emmons [1901] 1 KB 515 is an example of the type of building case excepted from the general rule that specific performance of a construction contract will not be ordered, that is if, per Smith M-R, at page 522, “there is a definite contract, by which a person, who has acquired land in consideration thereof, has agreed to erect on the land so acquired a building, of which the particulars are clearly specified, and the erection of which is of an importance to the other party which cannot adequately be measured by pecuniary damages”.

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contract: “What the plaintiff has to establish is that the defendant is in possession of the land on which the work is contracted to be done.”25 22.20  The court is likely to order specific performance of a building contract where the conditions set out below are satisfied: (1) the building work is sufficiently defined by the contract; for example, the claimant has detailed plans;26 (2) the plaintiff has a substantial interest in the performance of the contract of such a nature that damages would not compensate him for the defendant’s failure to build; and (3) the defendant is in possession of the land (on which the work is contracted to be done) so that the claimant cannot employ another person to build without committing a trespass.27 22.21  The following cases are examples of where specific performance of a contractual obligation has been decreed in a building contract context, under this exception: (1) Greene v West Cheshire Railway:28 an agreement was entered into between the railway company and Greene, by which the railway company, who had taken away some of Greene’s land as part of the agreement, was required to construct a siding on land in the possession of Greene in accordance with the terms of an agreement. Bacon V-C held that this could be specifically enforced. (2) Wolverhampton Corporation v Emmons:29 in this case, referred to frequently in this chapter, an urban sanitary authority sold land to Emmons: Emmons agreed to build buildings thereon within a certain time. In consideration of further time, Emmons agreed to erect further special buildings, however subsequently failed to do so: the Court of Appeal held that this came within the exception to the general rule so specific performance could be granted. (3) Carpenters Estates Ltd v Davies:30 Davies sold land to Carpenters Estates Ltd for building development and covenanted to build certain roads, sewers, drains on land retained by him. Davies failed to do so: specific performance was held to be the only adequate remedy. (4) Airport Industrial GP Ltd v Heathrow Airport Ltd:31: Morgan J granted specific performance requiring the construction of a car park at Heathrow Airport.

25 [1940] Ch 160 at 164. The judge ordered the defendant to carry out the agreement to lay sewers and drains on her land, because if it was not carried out the plaintiffs could never build on the land she had sold to them. 26 “The particulars of the work are so far definitely ascertained that the court can sufficiently see what is the exact nature of the work of which it is asked to order the performance”, per Romer LJ in Wolverhampton Corp v Emmons (above) at 525, CA; Molyneux v Richard [1906] 1 Ch 34. In Wilson v Northampton and Banbury Junction Railway Co (1874) 9 Ch App 279, Bacon V-C refused to grant a decree for specific performance to construct a station since the simplicity of the word “station” was fatal to such a decree as there was nothing else to indicate the nature, materials, style, dimensions or indeed anything else. 27 See also Farwell J in Carpenters Estates Ltd v Davies [1940] Ch 160 at 164. 28 (1871) LR 13 Eq 44. 29 [1901] 1 QB 515. 30 [1940] Ch 160. 31 [2015] EWHC 3753 (Ch).

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Other circumstances in which an order for specific performance may be granted 22.22  There may be special circumstances in the case of building contracts where there is no element of a transaction in land where specific performance will be granted. This is most likely to arise where there are specialised works and no other contractor is available to perform them32 or where an owner has parted with possession of the land and he may therefore be unable to complete work himself or be compensated in damages, so specific performance may be the only effective remedy.33 22.23  The following conditions would have to be fulfilled: (1) (2) (3) (4)

the works would have to be exactly defined;34 the defendant must be capable of carrying them out; damages would not be an adequate remedy; it must be just in all the circumstances for the order to be made.

22.24  The court may order specific performance of obligations in construction contracts other than to carry out construction works. Thus in Liberty Mercian Ltd v Cuddy Civil Engineering Ltd35 Ramsey J ordered at a second stage of two separate hearings that a contractor should supply certain warranties. However he declined to order the provision of a performance bond, ordering instead that the contractor should pay £420,000 into court. Specific performance may be granted to enforce an obligation to provide documentation in accordance with a contractual obligation.36 Sufficient definition 22.25  In order for specific performance to be granted, there must be a complete, definite contract conferring on the claimant a right to performance of the obligation. The certainty of the contract in the first instance goes towards establishing whether there is in fact a contract.37 22.26  The contractual obligation sought to be enforced needs to be sufficiently certain so that the court may determine whether there has in fact been due performance and so that it may be able to direct the defendant as to what it is he has to do.38 32 Sky Petroleum Ltd v VIP Petroleum Ltd [1974] 1 WLR 576 (a contract for the supply of petrol enforced at a time when other supplies might not be available). 33 Wolverhampton Corporation v Emmons (above); Carpenters Estates Ltd v Davies [1940] Ch 160 at 162. 34 Morris v Redland Brick Ltd [1970] AC 652; Jeune v Queens Cross Properties Ltd [1974] 1 Ch 97 regarding an order requiring landlord to reinstate stone balcony in discharge of a landlord’s repairing covenant. See also Moseley v Virgin (1976) 3 Ves 184, in which Loughborough LC said: “[I]f the transaction and agreement is in its nature defined, perhaps there would not be too much difficulty to decree specific performance; but if it is loose and undefined, and it is not expressed distinctly what the building is, so that the court could describe it as a subject for the report of the master, the jurisdiction could not apply.” 35 [2013] EWHC 2688 (TCC); [2014] BLR 179; and [2014] EWHC 3584 (TCC); [2015] BLR 242. 36 Alfa Finance Holding AD v Quarzwerke GmbH [2015] EWHC 243 (Ch). 37 Carpenter Estates Limited v Davies (above); Thomas v Harper (1935) 36 SR (NSW) 142. 38 Redland Bricks Limited v Morris (above). See also Oxford v Provand (1868) LR 2 PC 135. Provand agreed in writing with Oxford that he would build houses on certain land in consideration of Oxford taking the transfer of the unexpired term of a lease thereof at a certain rent. It was further agreed that Oxford’s wishes should be consulted in building, and that a formal contract should be drawn up by a named solicitor. This contract was never

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22.27  The particulars of the work must be so far definitely established that the court can accurately ascertain what is the exact nature of the work of which it is asked to order the performance.39 The contract does not, however, need to be so specific that it leaves no room for doubt.40 In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd41 Lord Hoffmann said: “Precision is of course a question of degree and the courts have shown themselves willing to cope with a certain degree of imprecision in cases of orders requiring the achievement of a result in which the plaintiffs’ merits appeared strong; like all the reasons which I have been discussing, it is, taken alone, merely a discretionary matter to be taken into account: see Spry, Equitable Remedies, 4th edn (1990), p 112. It is, however, a very important one.”

22.28  Whether there is sufficient definition to enable specific performance is a question of fact, and the court will consider the burden on the court of succeeding in enforcement and the hardship on the defendant, whose defaults may result in contempt of court. In order to establish and define the contractual obligation, the court will consider the agreement, the surrounding circumstances, the conduct of the parties and what has already been carried out. Obligations may be further defined by the drawing up of plans or subsequent acts of the parties: the indefinite nature of the initial contract is not fatal to the claim.42 In Tito v Waddell (No 2)43 Sir Robert Megarry V-C said: “The real question is whether there is sufficient definition of what has to be done in order to comply with the order of the court. That definition may be provided by the contract itself, or it may be supplied by the terms of the order, in which case there is the further question whether the court considers that the terms of the contract sufficiently support, by implication or otherwise, the terms of the proposed order.”

Lord Hoffmann more recently warned that:44 “If the terms of the court’s order reflecting the terms of the obligation cannot be precisely drawn, the possibility of wasteful litigation over compliance is increased. So is the oppression caused by the defendant having to do things under threat of proceedings for contempt. The less precise the order, the fewer the signposts to the forensic minefield which he has to traverse.”

Contracts requiring constant supervision 22.29  As is set out above, traditionally the court has been reluctant to decree specific performance of a construction contract due to the difficulty of supervision. In a trio of cases there has been debate as to the true nature and extent of this principle.

drawn up but possession was given and Provand altered the buildings at Oxford’s request. The Privy Council held that specific performance could be decreed and that the court could have regard to the parties in dealing with the property in considering whether the agreement was sufficiently clear in intention. 39 Romer LJ in Wolverhampton Corp v Emmons (above) at 525. 40 Molyneux v Richard (above). 41 Above at 14G. 42 Wolverhampton Corporation v Emmons (above). 43 Above at 322. 44 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (above) at 13H. See also Wolverhampton Corporation v Emmons (above) in which Romer LJ said that the first condition for specific performance of a building contract was that “the particulars of the work are so far definitely ascertained that the court can sufficiently see what is the exact nature of the work of which it is asked to order the performance”.

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22.30  The courts have been willing to order specific performance in building contracts where they can distinguish between orders specifying that the defendant carry out particular activities and those decreeing the achievement of a specific result.45 In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd, Lord Hoffmann stated:46 “The possibility of repeated applications for rulings on compliance with the order which arises in the former case does not exist to anything like the same extent in the latter. Even if the achievement of the result is a complicated matter which will take some time, the court, if called upon to rule, only has to examine the finished work and say whether it complies with the order.”

22.31  As to the difficulty of supervision as a reason against granting relief, in Shiloh Spinners Ltd v Harding Lord Wilberforce said:47 “[T]he fact is a reality, no doubt, and explains why specific performance cannot be granted of agreements to this effect but in the present context it can now be seen . . . to be an irrelevance: for what the court has to do is satisfy itself, ex post facto, that the covenanted work has been done, and that it has ample machinery, through certificates, or by enquiry, to do precisely this.”

22.32  A few years later, in Tito v Waddell (No 2), Sir Robert Megarry V-C considered Shiloh Spinners, citing it as authority for a rejection of difficulty of supervision as an objection, even in cases of orders to carry on an activity and said:48 “[I]n cases of this kind it was at one time said that an order for the specific performance of the contract would not be made if there would be difficulty in the court supervising its execution . . . the real question is whether there is a sufficient definition of what has to be done in order to comply with the order of the court. That definition may be provided by the contract itself, or it may be supplied by the terms of the order, in which case there is the further question whether the court considers that the terms of the contract sufficiently support, by implication or otherwise, the terms of the proposed order.”

22.33 In Co-operative Insurance Society Limited v Argyll Stores49 Lord Hoffmann considered the extent to which difficulty of supervision remains as a reason for refusal of a decree of specific performance. He said that there appeared to have been a misreading on the part of Sir Robert Megarry of Lord Wilberforce’s remarks in Shiloh Spinners, since in his view, it was “plainly a remark about cases involving the achievement of a result, such as doing repairs, and, within that class, about making compliance a condition of relief against forfeiture”.50 In Lord Hoffmann’s view, Lord Wilberforce was “drawing attention to the fact that the collection of reasons which the courts have in mind when they speak of difficulty of supervision apply with much greater force to orders of specific performance, giving rise to the possibility of committal for contempt, than they do to conditions for relief against forfeiture. While the paradigm case to which such objections apply is the order to carry on an activity, they can also apply to an order requiring achievement of a result.”51

45 Wolverhampton Corporation v Emmons (above); Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd at 13 and 14. 46 Per Lord Hoffmann in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (above) at page 13D–E. See also Shiloh Spinners Ltd v Harding [1973] AC 691 at 724. 47 [1973] AC 691 at 724. 48 [1977] Ch 106, Per Sir Robert Megarry V-C at 321. 49 Above. 50 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (above) at 14G. 51 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (above) at 15A.

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Lord Hoffmann was firmly of the view that arguments based on the difficulty of supervision remain powerful. 22.34  This does not mean that the requirement cannot be overcome. In Co-operative Insurance Society Ltd v Argyll Stores it appears that it was not only the requirement of constant supervision that prevented the court from giving relief, but also the heavy-handed mechanism of contempt proceedings, the injustice of compelling the defendant to continue to carry on business at a loss, the public interest, and the fact that the claimant could be compensated: “[T]he cumulative effect of these various reasons, none of which would be sufficient on its own, seems to me to show that the settled practice is based upon sound sense.”52 22.35  It appears therefore that, provided there is sufficient certainty in the obligation to be carried out, some degree of supervision is no bar to a decree of specific performance. Specific performance may not be granted where it will cause injustice to the defendant 22.36  The court will only award specific performance where it will do more perfect and complete justice than an award of damages.53 22.37 In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd, Lord Hoffmann said that an order for specific performance may be declined if it would cause injustice: “There is a further objection to an order requiring the defendant to carry on a business . . . this is that it may cause injustice by allowing the claimant to enrich himself at the defendant’s expense. The loss which the Claimant may suffer through having to comply with the order, (for example by running a business at a loss for an indefinite period) may be far greater than the plaintiff would suffer from the contract being broken. . . . From a wider perspective, it cannot be in the public interest for the courts to require someone to carry on business at a loss if there is any plausible alternative by which the party can be given compensation. It is not only a waste of resources but yokes the parties together in a continuing hostile relationship. The order for specific performance prolongs the battle.”54

Adequacy of damages 22.38  As set out above, specific performance grew out of cases where the common law remedy of damages for breach of contract inadequately compensated the claimant. The courts are developing a more flexible approach to the circumstances in which they will decree specific performance; however, the court will give specific performance instead of damages only when it can by that means do more perfect and complete justice.55 At paragraphs 21.35 and following the principles applicable to the award of damages in lieu of an injunction have been set out: similar considerations apply in the exercise by the court of its discretion whether or not to order specific performance.

52 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (above) at 16B. 53 Per Megarry V-C in Tito v Waddell (No 2) (above) at 322. Here the relevant question was whether specific performance would do more than perfect justice rather than whether damages would be an adequate remedy. 54 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (above) at 15. 55 Wilson v Northampton and Banbury Junction Railway Co (1874) LR 9 Ch App 279 at 284, per Lord Selbourne.

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22.39  As set out above, some building works may be carried out by another builder, in which case damages are likely to be adequate compensation for a builder’s failure to complete contractual work. However, where a builder has a special skill, or particular materials or access to the land on which the project is to be built are needed, damages may often not be sufficient compensation.56 Mutuality of remedy 22.40  In order for a court to order specific performance, there must be mutuality of remedy. In Price v Strange, Buckley LJ said that57 “[i]t is easy to understand that as the equitable jurisdiction to enforce specific performance of contractual obligations developed it should have become an accepted rule that equity would not compel one party to perform his obligations specifically in accordance with the terms of the contract unless it could also ensure that any unperformed obligations of the other party would also be performed specifically.”

22.41  This appears to be a factor that will be taken into account by the court while exercising its discretion rather than a condition that alone will determine whether or not the order is made. Co-ownership and specific performance 22.42  There is a general rule that all the parties to a contract should be parties to the claim for specific performance: “[A]s a matter of principle it seems to me that no order for specific performance . . . should be made at the suit of one co-owner in proceedings to which any other co-owner is not a party . . . A plaintiff who seeks specific performance can obtain it only if there is before the court every other person entitled to join with him in enforcing the contract. Second, if that is not the case, he cannot cure the defect by seeking a form of order which leaves the views of those whom he ought to have brought before the court to be ascertained after he has involved the defendant in contesting an action for specific performance.”58

The powers of an arbitrator 22.43  Section 48 of the Arbitration Act 1996 provides that unless otherwise agreed by the parties an arbitrator will have the following powers with regards to remedies: the making of declarations; the ordering of a sum of money in any currency and the same powers as the court (a) to order a party to do or refrain from doing something; (b) to order specific performance of a contract (other than a contract relating to land); and (c) to order the rectification, setting aside or cancellation of a deed or other document. Accordingly, the extent of an arbitrator’s jurisdiction to order specific performance depends on the proper

56 Wolverhampton Corporation v Emmons [1901] 1 QB 515; Molyneux v Richard [1906] 1 Ch 34; Carpenters Estates Limited v Davies [1940] Ch 160. 57 Price v Strange [1978] 1 Ch 337 at 360. 58 Tito v Waddell (No 2) [1977] 1 Ch 106, 324–325.

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construction of the relevant arbitration agreement, but the default position is that the arbitrator has such jurisdiction. The powers of an adjudicator 22.44  The powers of an adjudicator are whatever powers the parties agreed to confer subject to the requirements of section 108 of the Housing Grants Construction and Regeneration Act 1996, which sets out the minimum requirements. If a construction contract falling within the compass of that Act does not satisfy those minimum requirements, then the statutory scheme applies.59 That scheme includes what amounts to a power to order specific performance: paragraph 23 provides: “(1) In his decision, the adjudicator may, if he thinks fit, order any of the parties to comply peremptorily with his decision or any part of it. (2) The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or if the parties otherwise agree to arbitration) or by agreement between the parties.”

22.45  Such a decision might be enforced by a court through the issue of a mandatory injunction – see Drake & Scull Engineering Ltd v McLaughlin & Harvey plc,60 referred to at paragraph 21.80 above. Third parties 22.46 It can be argued that damages will always be an inadequate remedy when a claimant is attempting to secure a third party’s position; this is because the doctrine of privity will only allow nominal damages, if any. Specific performance has been used to avoid the problems created by the doctrine of privity.61

59 The Scheme for Construction Contracts (England and Wales) Regulations 1998, SI 1998/649. 60 (1992) 60 BLR 102. 61 Beswick v Beswick [1968] AC 58.

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CHAPTER  23

Declarations

“[The declaration is] one of the most valuable contributions that the courts have made to the commercial life of this country.”1

Introduction 23.1  Seeking a declaration or a decision as to legal principle is often an extremely speedy and efficient way of unlocking a dispute under a construction contract. This can be done by court proceedings or by seeking a decision under contractual machinery (for example from an engineer or a dispute board appointed under a contract) or through an adjudication (whether under the statutory scheme referred to below or by agreement) or in arbitration. 23.2 A declaratory judgment is a formal statement by a court pronouncing upon the existence, or lack thereof, of a legal state of affairs: this is not an executory judgment that can be enforced by the courts. An arbitrator may similarly make a declaration in an arbitral award. A declaration may be as to a point of interpretation of a contract or as to the rights of the parties. 23.3  Whether in court proceedings or in an arbitration, a claim for a declaration may also be added to other claims in order to resolve disputed questions of interpretation that may have further repercussions in the future. Thus for example a claim document might seek a declaration as to a point of law as a remedy in addition to seeking damages.2 In many cases a decision on the point of law assuming the claimant’s version of the facts to be true (and thus taking the claimant’s case at its highest) if resolved against the claimant may render detailed factual investigations unnecessary. On the other hand, a decision of such a point of law in a claimant’s favour may tip the commercial balance in a dispute so comprehensively against the defendant or respondent as to persuade the parties to settle their differences. Identifying such pivotal points in a dispute is a valuable skill in the hands of experienced litigators. 23.4  Accordingly, a claim for a declaration does not of itself give rise to any other remedy, such as the payment of damages, but may pave the way for other relief to follow by agreement or otherwise. 23.5  A court may make binding declarations whether or not any other remedy is claimed.3 Under the Civil Procedure Rules (“CPR”) governing procedure in the High Court, the  1 Per Lord Atkin, Spettabile Consorzio Veneziano di Amarto v Northern Ireland Shipbuilding Co Ltd (1919) 121 LT at 635.   2 For an example of a case in which there was a decision in principle by a judge which the judge expected to obviate further arguments as to the financial consequences, see Menolly Investments Sarl v Cerep Sarl [2009] EWHC 516 (Ch); 125 Con LR 75.   3 CPR rule 40.20.

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power to make declarations appears to be unfettered; however, there are some limits: the courts will not make declarations where the matter is not justiciable, nor may the courts grant declarations on matters that are outside their general jurisdiction. The jurisdiction of the court is also restricted by various statutory provisions for example, which prescribe a special procedure, time limit or granting exclusive jurisdiction to a certain tribunal. 23.6  The High Court may make a declaration where no other relief is claimed or can be claimed.4 23.7  The High Court may grant an interim declaration.5 23.8  The High Court and the county court have identical powers to grant declaratory relief.6 Jurisdiction of the courts 23.9 Proceedings for a declaration can only be brought if the dispute is within the jurisdiction of the court in a territorial sense. Further, courts may not have jurisdiction to declare foreign legislation or acts of state invalid but they may declare foreign judgments invalid.7 Exclusion of jurisdiction by agreement 23.10  Parties can agree that prior to commencing proceedings, a point be referred to a particular person or body before being litigated in court, or that determination by a particular person or body be conclusive of questions of fact. Thus, under the ICE Forms of Contract prior to the 7th (1999) edition, there was a requirement that any dispute should be first decided by the engineer appointed under the contract before any other form of dispute resolution could take place.8 The 7th edition changed this to reflect the statutory right to adjudication introduced by the Housing Grants, Construction and Regeneration Act 1996, but a similar provision remains in the FIDIC forms of contract whereby disputes are first to be referred to a dispute advisory board. The legal effect of a declaratory judgment 23.11  The controversy between the parties is determined and is res judicata as a result of the declaration being granted: if the defendant acts contrary to the declaration he will not be able to challenge the unlawfulness of his conduct in subsequent proceedings. The claimant may then go to court again for damages or a decree to enforce the rights established by the declaration. A claimant may claim, at the same time as seeking a declaration, an award of damages, order for specific performance, an injunction or any other remedy to which he is entitled.

 4 Guaranty Trust Co of New York v Hannay [1915] 2 KB 536.   5 CPR rule 25.1(1)(b).   6 Section 38(1) County Court Act 1984.   7 For more with regards to this matter see Dicey, Morris and Collins, Conflicts of Law, 15th edition, 2016.   8 See in this connection Monmouthshire County Council v Costelloe and Kemple (1965) LGR 429; 5 BLR 83.

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Advantages of declarations 23.12  They can be expeditious and cheap, particularly if thoughtfully limited to a single issue or a small number of issues. If there are no factual disputes, the costly and time-consuming process of preparing and adducing evidence may be avoided, for example by using agreed statements of facts. Where there are no factual disputes, proceedings may be issued under Part 8 rather than Part 7 of the CPR; this is quicker and avoids pleadings, which add to expense. 23.13  Declarations may also be a way of resolving a dispute amicably: parties may recognise the significance of a particular issue and agree that the matter should be referred for resolution either in court or by arbitration. 23.14  There may also be occasions where a court will grant a declaration where it would not have been willing to grant any other remedy. 23.15  The court has to be satisfied that there is a real rather than a hypothetical dispute but it is not necessary to show infringement of any right.9 Summary of the principles applied by the courts to the grant of declarations 23.16 In Rolls-Royce Plc v Unite the Union,10 Aikens LJ summarised the principles that the courts apply in deciding whether to grant a declaration as follows: (1) The power of the court to grant declaratory relief is discretionary. (2) There must, in general, be a real and present dispute between the parties before the court as to the existence or extent of a legal right between them. However the claimant does not need to have a present cause of action against the defendant. (3) Each party must, in general, be affected by the court’s determination of the issues concerning the legal rights in question. (4) The fact that the claimant is not a party to the relevant contract in respect of which a declaration is sought is not fatal to an application for a declaration, provided that it is directly affected by the issue. (5) The court will be prepared to give declaratory relief in respect of a “friendly action” or where there is an “academic question” if all parties so wish, even on “private law” issues. This may particularly be so if it is a “test case” or it may affect a significant number of other cases, and it is in the public interest to decide the issue concerned. (6) The court must be satisfied that all those affected are before it or will have their arguments put before the court. (7) In all cases, assuming the other tests are satisfied, the court must ask: Is this the most effective way of resolving the issues raised? In answering that question it must consider the other options of resolving this issue. Declarations of right 23.17  Older authorities indicate that declarations should only be granted as declarations of right: the jurisdiction of the court is not to declare the law generally or to give advisory  9 Gouriet v Union of Post Office Workers [1978] AC 435. 10 [2009] EWCA Civ 387; [2010] 1 WLR 318 at paragraph [120].

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opinions; it is confined to declaring contested legal rights (however, if parties are agreed that an “academic question” should be resolved, the court may be willing to entertain an application for a declaration). Lord Diplock summarised the approach of the courts as follows:11 “The power to grant a declaration is discretionary; it is a useful power and over the course of the last hundred years it has become more and more extensively used – often as an alternative to the procedure by way of certiorari in cases where it is claimed that a decision of an administrative authority which purports to affect rights available to the plaintiff in private law is ultra vires and void. Nothing that I have to say is intended to discourage the exercise of judicial discretion in favour of making declarations of right in cases where the jurisdiction to do so exists. But that there are limits to the jurisdiction is inherent in the nature of the relief: a declaration of rights. The only kinds of rights with which courts of justice are concerned are legal rights; and a court of civil jurisdiction is concerned with legal rights only when the aid of the court is invoked by one party claiming a right against another party, to protect or enforce the right or to provide a remedy against that other party for infringement of it, or is invoked by either party to settle a dispute between them as to the existence or nature of the right claimed. So for the Court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation, either as a subsisting right or as one which may come into existence in the future conditionally on the happening of an event. The early controversies as to whether a party applying for declaratory relief must have a subsisting cause of action or a right to some other relief as well can now be forgotten. It is clearly established that he need not. Relief in the form of a declaration of right is generally superfluous to a plaintiff who has a subsisting cause of action. It is when an infringement of the plaintiff’s rights in the future is threatened or when, unaccompanied by threats, there is a dispute between parties as to what their respective rights will be if something happens in the future, that the jurisdiction to make declarations of right can be most usefully invoked. But the jurisdiction of the court is not to declare the law generally or to give advisory opinions; it is confined to declaring contested legal rights, subsisting or future, of the parties represented in the litigation before it and not those of anyone else.”

23.18  In order to determine the rights of parties, the court must also find any facts necessary to found the determination of the parties’ rights or do so upon the basis of agreed or assumed facts. Whilst a court can probably grant declarations on factual questions, old authority suggests that courts will be slow to grant declarations that are purely determinations of questions of fact.12 Arbitrators, on the other hand, will not feel themselves so constrained, and it is unlikely that courts would now have much hesitation about embarking upon factual enquiries in suitable cases: if the commercial interests of the parties are served by the court deciding issues of fact and making declarations in that respect, the court (particularly the Technology and Construction Court, a part of the High Court), which regards serving the needs of the construction industry by just and expeditious resolution of disputes as its principal purpose), would act in the same way as arbitrators. Interim declarations 23.19  A court may grant an interim declaration: the CPR has not defined the ambit and extent of this power; however it is potentially wide. 11 Gouriet v Union of Post Office Workers (above) at 501; applied in Meadows Indemnity Co Ltd v Insurance Company of Ireland plc [1989] 2 Lloyd’s Rep 298. 12 Carpenter v Ebblethwaite [1939] 1 KB 347.

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23.20  CPR rule 40.20 states that the court may make “binding declarations” and may do so whether or not any remedy is claimed. 23.21  The court may make interim rulings on matters of fact and law, anticipatory to applications for summary judgments. 23.22  This remedy may be helpful in construction litigation in isolating particular points and will be useful where disputes arise on long and continuing projects. 23.23  Interim declarations are potentially useful where parties seek guidance pending the final determination of their dispute. 23.24 It has been doubted whether interim declarations would have any use except in proceedings against the Crown;13 however, there are cases where an interim declaration would be a useful tool, for example where a court is reluctant to grant an interim injunction.14 23.25  Before the introduction of the CPR the authorities established that courts had no jurisdiction to grant interim declarations, since they only had the power to grant declarations of right and that this must mean final legal rights and also because it was seen to be undesirable. 23.26  CPR Part 25.1(b) expressly grants the courts power to grant interim declarations. 23.27  This interim remedy could prove to be very useful in construction litigation where it would be possible to isolate particular issues: it could also be useful where disputes arise on long and continuing projects. The remedy is also available (when urgent or in the interests of justice) before an action is commenced (CPR rule 25.2) so specific disputes may be resolved before litigation is commenced. The court will be unlikely to give a declaration without the agreement of the parties in cases where there are concurrent dispute resolution proceedings. Negative declarations 23.28  Declarations that the claimant is under no liability are a useful tactical manoeuvre to seize the initiative and give the claimant a degree of control over a claim that he can foresee may be brought imminently. However, certainly so far as declarations are sought in court proceedings, the courts approach the grant of negative declarations with some caution. 23.29  At one end of the scale, negative declarations will be readily granted where the defendant has already committed an unlawful act and probably intends to continue or repeat it15 or threatens to act unlawfully.16 Conversely, a court will be slower to grant one where there has been no such threat. 23.30  The courts have the power to grant declarations that a party has no cause of action against another party, in cases where the matter has not been brought to court, merely threatened.17 13 R v IRC ex p Rossminster [1980] AC 952, per Lord Wilberforce at 1002. 14 Rochdale Borough Council v Anders [1988] 3 All ER 480. 15 Islington Vestry v Hornsey Urban District Council [1900] 1 Ch 695; Gingell, Son & Foskett v Stepney Borough Council [1908] 1 KB 115. 16 Thornhill v Weeks [1913] 1 Ch 488. 17 Dyson v Attorney General [1911] 1 KB 410. Threatened with criminal prosecution for non-compliance with an administrative notice, Dyson obtained a declaration that he was not bound to comply with it.

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23.31 It was explicitly recognised by Cozens Hardy MR in Dyson v Attorney General18 that there was a danger of litigants abusing the power of the courts to grant negative declarations: “I desire to guard myself against the supposition that I hold that a person who expects to be made a defendant, and who prefers to be [claimant], can, as a matter of right, attain his object by commencing an action to obtain a declaration that his opponent has not good cause of action against him. The court may well say: ‘Wait until you are attacked and then raise your defence’ and may dismiss the action with costs.”

However modern practice is more favourable to the grant of negative declarations when there is a good commercial reason for it being sought. 23.32  The leading case on this topic is Messier-Dowty Ltd v Sabena.19 English authorities before Messier-Dowty Ltd v Sabena were less sympathetic to the grant of negative declarations than courts elsewhere:20 in particular European jurisprudence had treated negative declarations in the same way as claims for positive declarations.21 The Court of Appeal therefore held in Messier-Dowty that there was no valid reason for taking an adverse view of negative declarations.22 Indeed, even before Messier-Dowty, one judge in particular had advocated a more liberal approach to the grant of negative declarations. 23.33  In the Court of Appeal in Camilla Cotton Oil Company v Granadex SA,23 Lord Denning had said:24 “It has been said that a declaration as to non-liability ought very rarely to be made, see Dyson v Attorney General . . . and Guaranty Trust Company of New York v Hannay & Company. . . . And Re Clay [1919] 1 Ch 61, is sometimes cited for the proposition that it cannot be made. But nothing is of the kind. In modern times, I think a declaration of non-liability can be made whenever it will serve a useful purpose. I would not limit it in any way.”

However, the House of Lords reversed the Court of Appeal decision,25 Lord Wilberforce suggesting26 that “careful scrutiny” is necessary in respect of applications for negative declarations. 18 [1911] 1 KB 410. 19 [2000] 1 WLR 2040. 20 Re Clay [1919] 1 Ch 66; Midland Bank Plc v Laker Airways Limited [1986] QB 689; New Hampshire Insurance Company v Aerospace Finance Limited and others [1998] 2 Lloyds Rep 538. 21 See dicta of Advocate General Tesauro in “the Tatry” Case C/406/92 [1994] ECR 1 5439: “23. It should also be borne in mind that the bringing of proceedings to obtain a negative finding, which is generally allowed under the various national procedural laws and is entirely legitimate in every respect, is an appropriate way of dealing with genuine needs on the part of the person who brings them. For example, he may have an interest, where the other party is temporizing, in securing a prompt judicial determination – if doubts exist or objections are raised – of the rights, obligations or responsibilities deriving from a given contractual relationship.” 22 Messier-Dowty v Sabena [2000] 1 WLR 2040; Re Clay (1919) 1 Ch 66 and Midland Bank plc and another v Laker Airways Ltd and others [1986] 2 WLR 707 considered. In Messier-Dowty it was held that the claims for negative declarations were an abuse of process. It was no longer possible for all the issues between the parties to be disposed of in just one set of proceedings since Sabena had issued proceedings against Airbus in France under which the convention had exclusive jurisdiction in relation to those proceedings. It was wrong to require Sabena to litigate in two countries especially when it was doubtful that Sabena would ever have cause to make a claim against Dowty: the joinder of Sabena was not justified. 23 [1975] 1 Lloyds Rep 470. 24 At 474–475. 25 [1976] 2 Lloyd’s Rep 10. 26 At 15.

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23.34 In Messier-Dowty, Lord Woolf MR considered the different views of Lord Denning and Lord Wilberforce and said that:27 “Lord Wilberforce and Lord Denning MR differed in the circumstances of that case as to whether the declaration would serve a useful purpose. However, if it would, that it would then be appropriate to grant a declaration was agreed. The approach is pragmatic. It is not a matter of jurisdiction. It is a matter of discretion. The deployment of negative declarations should be scrutinised and their use rejected where it would serve no useful purpose. However, where a negative declaration would help to ensure that the aims of justice are achieved the courts should not be reluctant to grant such declarations. They can and do assist in achieving justice. For example, where a patient is not in a position to consent to medical treatment declarations have an important role to play. Without the use of negative declarations, recent extensions in the use of declaratory relief, including the beneficial intervention of the courts in cases concerning mentally incapacitated people would not have been possible. As Sir Thomas Bingham MR said in In re S (Hospital Patient: Court’s Jurisdiction)28 . . .: ‘Any statutory rule, unless framed in terms so wide as to give the court an almost unlimited discretion, would be bound to impose an element of inflexibility which would in my view be wholly undesirable.’ He considered that the different situation he was there considering was ‘pre-eminently an area in which the common law should respond to social needs’. So in my judgment the development of the use of declaratory relief in relation to commercial disputes should not be constrained by artificial limits wrongly related to jurisdiction. It should instead be kept within proper bounds by the exercise of the courts’ discretion. While negative declarations can perform a positive role, they are an unusual remedy in so far as they reverse the more usual roles of the parties. The natural defendant becomes the claimant and vice versa. This can result in procedural complications and possible injustice to an unwilling ‘defendant’. This in itself justifies caution in extending the circumstances where negative declarations are granted, but, subject to the exercise of appropriate circumspection, there should be no reluctance to their being granted when it is useful to do so.”

23.35  More recently, in Nokia Corporation v InterDigital Technology Corporation,29 Pumfrey J reviewed the authorities and held30 that the line of authorities culminating in FSA v Rourke31 established three relevant principles: (1) The correct approach to the question of whether to grant negative declarations was one of discretion rather than jurisdiction. (2) The use of negative declarations should be scrutinised and their use rejected where it would serve no useful purpose; but where such a declaration would help ensure that the aims of justice were achieved, the court should not be reluctant to grant a negative declaration. (3) Before a court can properly make a negative declaration, the underlying issue must be sufficiently clearly defined to render it properly justiciable.32 27 At paragraph 42. 28 [1996 1 Fam 1 at 19. 29 [2006] EWHC 802 (Pat). 30 At paragraph 20. 31 [2002] CP Rep 14. 32 Nokia Corp v InterDigital Technology Corp [2006] EWHC 802 (Pat), 12 April 2006, unreported, (Pumfrey J), at paragraph [20].

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His decision was upheld by the Court of Appeal, where Jacob LJ said that in respect of applications for negative injunctions “the need for caution remains”.33 23.36  A relevant factor in the exercise by the court of its discretion is that generally a claimant is entitled to choose when to enforce a cause of action, and not to be hurried into litigation before he is ready for it. In North Eastern Marine Engineering Co v Leeds Forge Co34 Joyce J made a strong statement against awarding declarations at the instance of a person threatened with civil proceedings. 23.37  The courts will be reluctant to allow a claimant to gain a jurisdictional advantage by commencing proceedings in this jurisdiction for a negative declaration when it would be more appropriate for the proceedings to be brought by a defendant who would prefer to litigate abroad and would be planning on so doing.35 The courts would be particularly reluctant if the declaration would serve no useful purpose,36 proceedings had properly been commenced elsewhere,37 where there was an arbitration clause under which it was agreed that disputes should be determined by arbitrators,38 or injustice would occur to an unwilling defendant.39 23.38  Under the former RSC Order 11 the court had jurisdiction to grant leave to serve proceedings outside the jurisdiction for a negative declaration, provided the claimant was acting reasonably in commencing proceedings and it was an appropriate jurisdiction to determine the matter.40 23.39 In Akai Pty Ltd v People’s Insurance Co Ltd,41 the court considered that it was appropriate to grant a negative declaration when it was the only way that the parties’ contractual rights could be determined in accordance with the agreed proper law of the contract. 23.40  The court is more willing to grant relief where it would enable a consistent resolution of disputes between a number of parties42 and less willing where this is not possible because the matter was being litigated in other jurisdictions;43 however (by contrast) the court may be willing to grant a declaration where that would assist the determination of

33 [2006] EWCA Civ 1618; [2007] FSR 23 at paragraph [31]. 34 [1906] 1 Ch 324. 35 Midland Bank v Laker Airways [1986] 1 All ER 526; The Volvox Hollandia [1988] 2 Lloyd’s Rep 36; New Hampshire Insurance v Aerospace Finance Ltd [1998] 2 Lloyd’s Rep 539. 36 See for example Howden North America Inc v Ace European Group Ltd [2012] EWCA Civ 1624; [2013] Lloyd’s Rep IR 512; Bloomberg LP v Sandberg [2015] EWHC 2858 (TCC); [2016] BLR 72. 37 First National Bank of Boston v Union Bank of Switzerland [1990] 1 Lloyds Rep 32; HC Trading Malta Ltd v Tradeland Commodities SL [2016] EWHC 1279 (Comm); [2016] 2 Lloyd’s Rep 130. 38 HC Trading Malta Ltd v Tradeland Commodities SL [2016] EWHC 1279 (Comm); [2016] 2 Lloyd’s Rep 130. 39 Messier-Dowty Ltd v Sabena [2000] 1 WLR 2040. 40 HIB Ltd v Guardian Insurance Co Ltd [1997] 1 Lloyd’s Rep 412; New Hampshire Insurance v Aerospace Finance Ltd [1998] 2 Lloyds Rep 539. This was especially the position if an international convention governing the proceedings made the High Court the only or most appropriate jurisdiction for commencing the proceedings: Boss Group Ltd v Boss Finance SA [1997] 1 WLR 351; Messier-Dowty Ltd v Sabena [2000] 1 WLR 2040. Parties should not be criticised for commencing proceedings for negative declarations in circumstances where the convention entitled them so to do. For an interesting discussion, see Bell, The Negative Declaration in Transnational Litigation (1995) 111 LQR 674. 41 [1998] 1 Lloyd’s Rep 90. 42 Smyth v Behbehani, The Times, 9 April 1999. 43 Messier-Dowty Ltd v Sabena [2000] 1 WLR 2040.

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disputes in an overseas court not familiar with English law and where English law is the agreed governing law of a relevant contract:44 “The mere fact that A. is supposed to contemplate the bringing of an action against B., or that A. may have stated that he has grounds for such an action, does not, in my opinion, entitle B. to institute an action against A. to have it declared that A. has not a good cause of action against B. Ordinarily an intending [claimant] may postpone his action as long as he pleases, at the risk of finding himself ultimately barred by some Statute of Limitations, and he may choose his own time for commencing proceedings. He is entitled to wait until he has collected the necessary evidence, or has made such enquiries as he thinks fit, or has obtained the requisite funds, or what not.”45

23.41  Thus the authorities show a considerable caution on the part of the courts in the grant of negative declarations. Arbitrators asked to make such declarations do not generally feel the same reluctance. It is in the essence of an arbitration agreement that the parties agree that disputes should be resolved through the agreed dispute resolution process. There is no reason why one party should have a greater access to that dispute resolution process than the other, so long as no injustice is done thereby. The same is true of questions raised for consideration by an engineer or dispute board under such forms of contract as the ICE or FIDIC forms, and of matters raised for decision by an adjudicator. Of course in each case there would have to be a genuine dispute between the parties so as to trigger the relevant dispute resolution process. 23.42  There is one category of cases where the courts are particularly willing to grant declarations including negative declarations: that is where an arbitral tribunal has determined to grant a declaration as relief in an arbitration. In that situation, a court is likely to be willing to grant a declaration (whether negative or not) as a means of enforcement of the award either under common law powers or under section 66 of the Arbitration Act 1996: the advantage of this procedure is that a judgment of a court is likely to have an effect of precluding the relitigation of issues determined in the arbitration as a result of being reopened in another court in a different jurisdiction, because in international law judgments of a court of competent jurisdiction are more generally recognised in courts of other jurisdictions than arbitral awards.46 Granting a declaration 23.43  The existence of other forms of relief will not generally exclude the court’s supervisory jurisdiction to grant declaratory relief although the existence of such relief may be taken into account when it exercises its discretion whether or not to grant declaratory relief.

44 Navig8 Pte Ltd v Al-Royadh Co for Vegetable Oil Industry (“The Lucky Lady”) [2013] EWHC 328 (Comm); [2013] 2 Lloyd’s Rep 104. 45 The Court of Appeal affirmed this decision. It might have been different if the declaration had been the only possible remedy. 46 African Fertilizers and Chemicals Nig (Ltd) (Nigeria) v BD Shipsnavo GmbH & Co Reederei Kg [2011] EWHC 2452 (Comm); [2011] 2 Lloyd’s Rep 531; West Tankers Inc v Allianz SpA [2012] EWCA Civ 27; [2012] Bus LR 1701.

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Limitation 24.1  The law’s intent that wrongs should be remedied is balanced by the view that stale claims that are not pursued with reasonable promptness should be allowed to die. The latter policy finds reflection in the Limitation Act 1980 as amended. Claims in contract 24.2  Section 5 of the Limitation Act 1980 provides that an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued. 24.3  Where a contract is by deed (a “specialty”) the time limit is 12 years rather than six. Historically a deed had to be effected under seal. That is no longer necessary: following the passage of the Law of Property (Miscellaneous Provisions) Act 1989 individuals could enter into a deed by making that intention clear on the face of the document, together with a signature and attestation. Since the bringing into effect of the Regulatory Reform (Execution of Deeds and Documents) Order 2005,1 a deed is validly executed by an individual if it is signed by him in the presence of a witness who attests to the signature and if it is delivered as a deed (usually by writing “signed as a deed”). Under section 36A of the Companies Act 1985 there is a procedure for a company to execute a contract as a deed without affixing a seal. In one case it was held that a 12-year limitation period applied because the defendant was stopped from denying that a contract was executed as a deed, even though it was not so executed.2 Given that generally a 12-year limitation period only arises in cases in which there is a degree of formality and therefore in which both parties are likely to have copies of the executed contract, the circumstances in which an estoppel will be established will be very rare indeed. 24.4  The cause of action for breach of contract accrues on the date of breach – accordingly the limitation period runs from the date of breach.3 Where a building is defective, the cause of action in contract will generally run from the date when possession of the property is given to the building owner, which will generally be the date of practical completion.4 We have discussed at paragraph 6.11 above the issue of whether a contractor is in breach of contract when there is a “temporary disconformity” during the course of the works.5 The answer to that issue will not normally be significant for limitation purposes   1 SI 2005/190, effective in respect of instruments executed after the 15 September 2005.  2 Whittal Builders Co Ltd v Chester-le-Street District Council (1987) 40 BLR 82.   3 Cartledge v E Jopling & Sons Ltd [1963] AC 758 at 782; Bagot v Stevens Scanlan & Co Ltd [1966] 1 QB 197.  4 Tameside Metropolitan Borough Council v Barlows Securities Group Ltd [2001] EWCA Civ 1; [2001] BLR 113.   5 See for example, per Lord Diplock in P & M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 WLR 146 at page 165.

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because whether or not there was an earlier breach of contract, the contractor would be in breach of contract in handing over a building in a defective condition. 24.5  If the defects in the building are design defects, then a cause of action against the designer will generally accrue at the time when the design is completed and handed over to enable construction work to begin because at that time the designer is likely to be in breach of his obligations under the design contract – however very often the designer will be an architect having an ongoing involvement with the project during the construction phase, or will be a contractor under a design and build contract. In these cases the court is likely to find a continuing contractual obligation up to the last moment of the designer’s involvement or the time the design was included in the construction work – and indeed in appropriate cases the court may even find a continuing duty on the part of the designer to review a design up to the time of practical completion if defects then become apparent.6 However, the mere fact that advice is given by a professional man to a client after a mistake has been made does not necessarily mean that there is an obligation to correct the earlier mistake if the fresh advice sought is in respect of a separate aspect of the professional retainer.7 24.6  Looking at the circumstances in which an employer may be liable to the contractor, this will generally be in respect of failure to make payments to the contractor. In a leading case, the question before the Court of Appeal was when a cause of action arose in respect of sums certified on interim certificates leading up to a final certificate. A judicial arbitrator (HH Judge Humphrey LLoyd QC) held that in respect of works done in the period leading up to a date when an interim certificate was issued or ought to have been issued, the cause of action accrued at the time when the works were carried out. The Court of Appeal disagreed, holding that where payment for contract works was to be made by reference to interim certificates leading up to a final certificate, a cause of action accrued at the time when each interim certificate should have been issued but was not issued (or was issued in a lesser amount than the contractor’s true entitlement) and that a fresh cause of action accrued when the final certificate was not issued when it should have been, or was issued in a sum less than it should have been.8 In such a case the contractor’s cause of action arose out of the failure by the employer or his representative to certify sums due. In other cases the employer’s liability might arise out of a breach of an implied or express term of a contract to cooperate with the contractor,9 for example by failing to grant possession of the site when required, or to make available any necessary drawings. In such a case a cause of action would arise at the time of the failure to cooperate, but a fresh cause of action might arise if the terms of the contract were such as to impose upon the employer or his representative an obligation to include monies to compensate for such a failure in interim or final payment certificates.

 6 Chelmsford District Council v T J Evers (1983) 25 BLR 99 at 106; Equitable Debenture Assets Corporation Ltd v William Moss Group Ltd [1984] 1 Con LR 1 at 24; Victoria University of Manchester v Hugh Wilson [1984] 2 Con LR 43 at 73; University Court of the University of Glasgow v William Whitfield (1988) 42 BLR 66; New Islington & Hackney Housing Association Ltd v Pollard Thomas and Edwards [2001] BLR 74 at paragraphs 14–26 (which contain a very helpful review of the authorities); Oxford architects Partnership v Cheltenham Ladies College [2007] BLR 293.  7 Capita (Banstead 2011) Ltd v RFIB Group Ltd [2015] EWCA Civ 1310; [2016] 2 WLR 1429.  8 Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2005] 1 WLR 3850.   9 See for example Mackay v Dick (1881) 6 App Cas 251 at 263; London Borough of Merton v Leach (1985) 32 BLR 51 at 81; Perini Corporation v Australia (1969) 12 BLR 82.

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24.7  Under sections 29–31 of the 1980 Act, if a person liable or accountable for a debt or other liquidated pecuniary claim acknowledges the claim in writing or makes any payment in respect of it, the right is treated as having accrued on and not before the date of the acknowledgement or payment. Claims in tort: negligence 24.8  Section 2 of the 1980 Act provides that an action founded on tort (other than in respect of a claim for personal injuries10) shall not be brought after the expiration of six years from the date on which the cause of action accrued. 24.9  This provision requires analysis in each case of when the cause of action accrued, which will vary from tort to tort. In some cases the analysis is simple – proof of damages is a necessary element of establishing a cause of action in the tort of negligence. Accordingly, if a defect in process pipework causes an explosion at an industrial plant, any cause of action in negligence will accrue at the date when the damage occurred – in that example on the date of the explosion. 24.10  Because damage is a necessary ingredient of the tort of negligence, no cause of action in tort arises at the date of negligence unless damage also then occurs. Thus if an architect is negligent in his design of a house, no liability in tort arises until some loss flows from that negligence, usually not before the construction phase for the house has begun. By contrast, as explained above, in contract the cause of action accrues at the date of the breach of contract, even if no damage has then occurred. 24.11  The question, when did the cause of action accrue, becomes more difficult to answer where damage lies hidden for some time. In Nitrigin Eireann Teoranta v Inco Alloys Ltd11 the issue of limitation was decided upon assumed facts as follows: the case concerned damage caused by an explosion at a chemical plant, which in turn was caused by a cracked pipe. The pipe alleged to have been defective was manufactured by the first defendants and supplied in the summer of 1981. “Damage” in the form of cracking occurred in the pipe itself in or before July 1983, and was discovered by the plaintiffs in that month. Despite reasonable investigation, the plaintiffs were unaware of the cause of the cracking, but took steps to repair the pipe by grinding out the crack. On or about 27 June 1984 the pipe again cracked and burst causing “damage” to the structure of the plant around the pipe. The writ was issued on 21 June 1990 alleging negligent manufacture and the plaintiffs alleged that the writ was issued within six years of the accrual of their cause of action in negligence. For the purposes of the preliminary point, it was assumed that the pipe in both 1983 and 1984 was defective and cracked by reason of negligence in manufacture, namely inadequate distribution of titanium. Prior to this case it had been decided in the House of Lords that no action in tort could be maintained simply because as a result of carelessness something supplied or built was defective.12 Accordingly in this case it was decided that no cause of action accrued in 1983 because at that stage, although the pipe was defective, 10 Note that in respect of personal injuries by reason of section 11 of the 1980 Act the period of limitation is three years not six years, subject to a power in the court to allow an action to proceed outside that time limit – see section 33 of the Act. The law relating to claims for personal injuries is outside the scope of this book. 11 [1992] 1 WLR 498. 12 D&F Estates Ltd v Church Commissioners for England [1989] AC 177; Murphy v Brentwood District Council [1991] 1 AC 398.

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no damage had been caused by the alleged negligence in manufacture. However damage was caused in 1984 so that a cause of action then accrued. 24.12  In an earlier case in the House of Lords, it had been held that where damage occurred progressively, the cause of action accrued when damage first occurred.13 Whilst that case may be thought no longer to be good law in so far as the House of Lords proceeded on the basis that a claim in negligence could be pursued by reason merely that as a result of negligence damage had occurred to the built structure under consideration,14 it is still good law in so far as it was held that when damage sufficient to found a cause of action first occurs, the cause of action then accrues even if further damage is caused later by the same negligent act or omission.15 One theory that sometimes is put forward by a claimant seeking to avoid the argument that there has been no “damage” when a building is defective is that the building must be considered to be made up of many parts – the “complex structure” theory discussed, for example, in Murphy v Brentwood District Council.16 This theory has been discussed at paragraph 12.19 above. In such a case it is necessary to identify with care whether “damage” occurred so as to decide whether there is a cause of action at all and, if so, when that damage occurred so as to determine when the limitation period in tort started to run.17 24.13  If a negligent design causes no physical damage but only economic loss (eg, diminution in the value of a building), then assuming that the defendant owes a duty of care to avoid such economic loss, the cause of action arises when that economic loss occurs, this being the “damage” for which the claim for negligence can in such circumstances be brought.18 Where a surveyor carries out a survey negligently upon which a claimant relies when buying a property, the cause of action accrues when the claimant commits himself to the purchase.19 24.14  Thus in deciding at what date a cause of action in negligence accrues, it is vital first to analyse the duty of care owed by the defendant and the type of damage for which the defendant can be made liable, and then to determine when that type of damage first occurred.20 Where the claim in tort is by a main contractor against a subcontractor for defective works, the cause of action arises at practical completion, since it is at that date that the subcontractor’s negligence renders the main contractor a “contract-breaker”.21

13 Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1. 14 This is probably a question which can only be resolved by the Supreme Court – see Abbott v Will Gannon & Smith Ltd [2005] BLR 195 where Tuckey LJ said at paragraph [17]: “So what is the present state of the law of England? With three House of Lords’ cases to guide us it ought to be possible to give a clear answer to this question, but I regret that I feel unable to do so with any confidence. Murphy establishes that, absent a special relationship, a claimant may only sue in tort for personal injury or damage to property caused by a latent defect in a building. But it is not clear whether this extends to damage to the building itself before the defect is discovered.” 15 See also Invercargill City Council v Hamlin [1983] 2 AC 1. 16 [1991] 1 AC 398. 17 See for example Broster v Galliard Docklands Ltd [2011] EWHC 1722 (TCC); [2011] BLR 569. 18 Tozer Kemsley and Millbourn Holdings) Ltd v J Jarvis & Sons Ltd [1983] 1 Const LJ 79; Invercargill City Council v Hamlin (above); Abbott v Will Gannon & Smith Ltd [2005] EWCA Civ 198; [2005] BLR 195 at paragraph [20]. 19 Secretary of State for the Environment v Essex Goodman & Suggitt [1986] 1 WLR 1432; Byrne v Hall, Pain and Foster [1999] 1 WLR 1849. 20 See for example Jones v Stroud District Council [1986] 1 WLR 1141. 21 Co-operative Group Ltd v Birse Developments Ltd [2014] EWHC 530 (TCC); 153 Con LR 103; [2014] BLR 359; Interface Europe Ltd v Premier Hank Dyers Ltd [2014] EWHC 2610 (QB); [2014] All ER (D) 98 (Sep).

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However the firm trend of authority is to cut down the circumstances in which a duty of care in tort will be overlaid on a contractual structure.22 24.15  It may well be that this damage might occur at a time or in circumstances in which it was not discoverable by the claimant – this does not prevent the cause of action accruing;23 however, the rigour of the law in this regard has been mitigated by the provisions as to latent damage discussed at paragraphs 24.16–24.19 below. Claims in tort: negligence and latent damage 24.16  The Latent Damage Act 1986 amended the 1980 Act by introducing two new sections: 14A and 14B. 24.17  Section 14A provides a special time limit where facts relevant to a cause of action are not known at the date of accrual of that cause of action. That section applies to any action for damages for negligence other than one to which section 11 of the Act applies24 and does not apply to claims in contract.25 For the section to apply, the starting date for reckoning the period of limitation under section 14A(4)(b) must fall after the date on which the cause of action accrued. Section 14A provides: “Special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual (1) This section applies to any action for damages for negligence, other than one to which section 11 of this Act applies,26 where the starting date for reckoning the period of limitation under subsection (4)(b) below falls after the date on which the cause of action accrued. (2) Section 2 of this Act shall not apply to an action to which this section applies.27 (3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below. (4) That period is either – (a) six years from the date on which the cause of action accrued; or (b) three years from the starting date as defined by subsection (5) below, if that period expires later than the period mentioned in paragraph (a) above. (5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action. (6) In subsection (5) above “the knowledge required for bringing an action for damages in respect of the relevant damage” means knowledge both – (a) of the material facts about the damage in respect of which damages are claimed; and (b) of the other facts relevant to the current action mentioned in subsection (8) below. In both cases the judge disagreed with the analysis of Akenhead J in Linklaters Business services v Sir Robert McAlpine Ltd [2010] EWHC 2931 (TCC); 133 Con LR 211; [2011] BLR 108. 22 Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9; [2012] QB 44; [2011] BLR 206. 23 See Pirelli General Cable Works Ltd v Oscar Faber & Partners (above). 24 Ie personal injury claims. 25 JK Buckenham v Iron Trades Mutual Insurance [1990] 1 All ER 808; Islander Trucking Ltd v Hogg Robinson & Gardner Mountain (Marine) Ltd [1990] 1 All ER 826. 26 Section 11 applies to personal injuries claims. 27 That is, the normal six-year rule – see paragraph 24.8 above.

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(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment. (8) The other facts referred to in subsection (6)(b) above are – (a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and (b) the identity of the defendant; and (c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant. (9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above. (10) For the purposes of this section a person’s knowledge includes knowledge which he might reasonably have been expected to acquire – (a) from facts observable or ascertainable by him; or (b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek; but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.”

24.18  As already pointed out, section 14A only applies to claims in tort for negligence, not to claims in contract.28 24.19  Where section 14A applies, an action cannot be brought after the expiration of either six years from the date on which the cause of action accrued (ie the normal limitation period) or three years from the starting date defined by section 14A(5) if this period expires later than that six-year period.29 Section14A(5) provides that the starting date for reckoning the period of limitation for that second three-year period is the earliest date on which the plaintiff (now the expression would be claimant) or any person in whom the claim was vested before him30 first had both the knowledge required for bringing an action for damages in respect of the relevant damage and the right to bring such an action. 24.20  Section 14A(6) explains that in section 14A(5) the expression “the knowledge required for bringing an action for damages in respect of the relevant damage” means knowledge both (a) of the material facts about the damage in respect of which damages are claimed; and (b) of certain other facts relevant to the current action mention in section  14A(8). In this context “knowledge” means knowing with sufficient confidence to justify embarking on the preliminaries to the issue of a writ.31

28 JK Buckenham v Iron Trades Mutual Insurance [1990] 1 All ER 808; Islander Trucking Ltd v Hogg Robinson & Gardner Mountain (Marine) Ltd [1990] 1 All ER 826. 29 Section 14A(4). 30 For example, if the original claimant has died, the claimant’s executor or the administrator of his estate. 31 Haward v Fawcetts [2006] UKHL 9; [2006] 1 WLR 682 at paragraph [9]. In O’Driscoll v Dudley Health Authority [1998] Lloyd’s Rep Med. 210, Simon Brown LJ distinguished between investigations that need to be undertaken before the claimant can be said to have sufficient knowledge to go to a solicitor, and investigations which occur thereafter. See also Eagle v Redlime Ltd [2011] EWHC 838 (QB); [2011] BLR 373.

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24.21  Section 14A(7) provides that the “material facts about the damage” for the purposes of section 14A(6)(a) are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages, who did not dispute liability and was able to satisfy a judgment.32 24.22  The “other matters” set out in section 14A(8) are (a) that the damage was attributable in whole or in part to the act or omission that is alleged to constitute negligence; and (b) the identity of the defendant; and (c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant. An example of (a) might be where it is obvious that a house is cracking, but the fact that the cracking was caused by negligence in the design of the foundations by an engineer was not immediately obvious. An example of (b) in a similar situation might be where the fact that the foundations had not been properly designed was known, but not who designed the foundations. An example of (c) might be where it was known that the designer of the foundations was an identified person, Mr A, but it was not known for some time that Mr A was employed by a firm of structural engineers, BC & Co. In considering whether the claimant had knowledge that damage was attributable in whole or in part to the act or omission that is alleged to constitute negligence, the word “attributable” has been interpreted by the courts to mean a real possibility, and not a fanciful one, a possible cause of damage as opposed to a probable one;33 thus time does not begin to run against a claimant until he knows there is a real possibility his damage was caused by the act or omission in question. 24.23  The general principle that a party cannot rely upon ignorance of the law to give himself an advantage is reflected in section 14A(9), which provides that knowledge that any acts or omissions did or did not involve negligence is irrelevant for the purpose of determining the “starting date” under section 14A(5). 24.24  Nor can a potential claimant take advantage of his failure to keep his eyes open – section 14A(10)(a) provides that a person’s knowledge includes knowledge that he might reasonably have been expected to acquire from facts observable or obtainable by him. If an alert claimant should have taken advice, but did not do so, then section 14A(10)(b) provides that a person’s knowledge includes knowledge that he might reasonably have been expected to acquire from facts ascertainable by him with the help of appropriate expert advice that it is reasonable for him to seek. However both section 14A(10)(a) and (b) are qualified by the provision that a person shall not be taken by virtue of section 14A(10) to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice. 24.25  Cases in which the above provisions have been considered by the courts are few because generally the law as now developed in the United Kingdom recognises a limited

32 See for example Blakemore LDP v Scott [2015] EWCA Civ 999; [2016] CR Rep 1; Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714; [2014] BLR 613; Jascobs v Sesame Ltd [2014] EWCA Civ 1410; [2015] PNLR 6. 33 Haward v Fawcetts [2006] UKHL 9; [2006] 1 WLR 682 at paragraph [11]. In Harris Springs Ltd v Howes [2007] EWHC 3271 (TCC); [2008] BLR 229 HH Raynor QC questioned whether there were inconsistencies in the approach of different members of the House of Lords in this case. In Eagle v Redlime Ltd [2011] EWHC 838 (QB); [2011] BLR 373, Eder J had no such difficulties.

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range of situations in which damages for loss or damage (other than personal injuries) arising out of negligence are available. 24.26  The editors of Keating on Construction Contracts34 comment that “[i]t now seems that the main provisions [of the Latent Damage Act] will have little effect in construction contract cases, since the kind of damage with which it was intended to deal is damage for which there is now no cause of action, ie damage to the building itself and damage which, once it becomes known, is irrecoverable economic loss”.

This appears right. An unusual case concerned with building works in which section 14A fell for consideration was Wilson v Le Fevre Wood & Royle35 in which the central factual issue was whether the plaintiff believed the defendant consultant’s assurances that work that had been done under his supervision was not defective – the court held that within the limitation period the plaintiff had rejected the defendant’s assurances. The longstop date 24.27  Section 14B of the 1980 Act, also introduced by the Latent Damage Act, provides a “longstop”: “Overriding time limit for negligence actions not involving personal injuries (1) An action for damages for negligence, other than one to which section 11 of this Act applies, shall not be brought after the expiration of fifteen years from the date (or, if more than one, from the last of the dates) on which there occurred any act or omission – (a) which is alleged to constitute negligence; and (b) to which the damage in respect of which damages are claimed is alleged to be attributable (in whole or in part). (2) This section bars the right of action in a case to which subsection (1) above applies notwithstanding that – (a) the cause of action has not yet accrued; or (b) where section 14A of this Act applies to the action, the date which is for the purposes of that section the starting date for reckoning the period mentioned in subsection (4)(b) of that section has not yet occurred; before the end of the period of limitation prescribed by this section.”

Fraud, concealment and mistake 24.28  It would obviously be unjust if a contract-breaker or tortfeasor were to be able to avoid the consequences of his wrongdoing because he had hidden the evidence of his wrongdoing until after a period of limitation had expired. In recognition of this, section 32 of the 1980 Act provides: “Postponement of limitation period in case of fraud, concealment or mistake (1) Subject to subsections (3) . . . below, where in the case of any action for which a period of limitation is prescribed by this Act, either –

34 10th edition at paragraph 16–034. 35 (1995) 66 Con LR 74.

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(a) the action is based upon the fraud of the defendant; or (b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or (c) the action is for relief from the consequences of a mistake; the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it. References in this subsection to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent. (2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty. (3) Nothing in this section shall enable any action – (a) to recover, or recover the value of, any property; or (b) to enforce any charge against, or set aside any transaction affecting, any property; to be brought against the purchaser of the property or any person claiming through him in any case where the property has been purchased for valuable consideration by an innocent third party since the fraud or concealment or (as the case may be) the transaction in which the mistake was made took place. (4) A purchaser is an innocent third party for the purposes of this section – (a) in the case of fraud or concealment of any fact relevant to the plaintiff’s right of action, if he was not a party to the fraud or (as the case may be) to the concealment of that fact and did not at the time of the purchase know or have reason to believe that the fraud or concealment had taken place; and (b) in the case of mistake, if he did not at the time of the purchase know or have reason to believe that the mistake had been made. . . . (5) Sections 14A and 14B of this Act shall not apply to any action to which subsection (1) (b) above applies (and accordingly the period of limitation referred to in that subsection, in any case to which either of those sections would otherwise apply, is the period applicable under section 2 of this Act).”

24.29  Section  32 of the 1980 Act has been of significance in construction cases, for example where foundations have been dug incompetently, a fact only discovered when the building erected on the defective foundations starts to crack. In a solicitor’s negligence case, Cave v Robinson, Jarvis & Rolf,36 the House of Lords considered the scope of the “deliberate concealment” provisions in section 32. Lord Scott said:37 “I agree that deliberate concealment for section 32(1)(b) purposes may be brought about by an act or an omission and that, in either case, the result of the act or omission, ie, the concealment, must be an intended result. But I do not agree that that renders subsection (2) otiose. A claimant who proposes to invoke section 32(1)(b) in order to defeat a Limitation Act defence must prove the facts necessary to bring the case within the paragraph. He can do so if he can show that some fact relevant to his right of action has been concealed from him either by a positive act of concealment or by a withholding of relevant information, but, in either case, with the intention of concealing the fact or facts in question. In many cases the requisite proof of intention might be quite difficult to provide. The standard of proof would be the usual balance of probabilities standard and inferences could of course be drawn from suitable primary facts but, none the

36 [2002] UKHL 18; [2003] 1 AC 384. 37 At paragraph [60].

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less, proof of intention, particularly where an omission rather than a positive act is relied on, is often very difficult. Subsection (2), however, provides an alternative route. The claimant need not concentrate on the allegedly concealed facts but can instead concentrate on the commission of the breach of duty. If the claimant can show that the defendant knew he was committing a breach of duty, or intended to commit the breach of duty – I can discern no difference between the two formulations; each would constitute, in my opinion, a deliberate commission of the breach – then, if the circumstances are such that the claimant is unlikely to discover for some time that the breach of duty has been committed, the facts involved in the breach are taken to have been deliberately concealed for subsection (1)(b) purposes. I do not agree with Mr. Doctor that the subsection, thus construed, adds nothing. It provides an alternative, and in some cases what may well be an easier, means of establishing the facts necessary to bring the case within section 32(1)(b).”

He continued:38 “There is one further point I  want to make on the construction of section  32(1)(b) and section 32(2). Mr Davidson, counsel for the appellants, submitted that some degree of unconscionability in the conduct of a defendant was necessary before the defendant could be deprived under section 32(1)(b), with or without the help of section 32(2), of a Limitation Act defence. This was, I think, based mainly on Lord Browne-Wilkinson’s comment in Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd39 . . . that ‘unconscionable behaviour by deliberately concealing the facts relevant to the plaintiffs’ cause of action’ was ‘the underlying rationale’ of section 32. ‘I respectfully agree that it is difficult to think of a case of deliberate concealment for section 32(1)(b) purposes that would not involve unconscionable behaviour and that most cases of deliberate commission of breach of duty for section  32(2) purposes would be in the same state. But the statutory language does not require that the behaviour of the defendant be unconscionable and its addition as a criterion to be satisfied before a case can be brought within section 32 is, in my opinion, unnecessary and unjustified. The plain words of the statutory requirements, “deliberately concealed” and “deliberate commission of a breach of duty” need no embellishment.’ ”

In that case their Lordships were considering a solicitors’ negligence case, but the same would apply to claims arising out of a construction contract. 24.30  Although of limited relevance in construction cases, it is to be noted that nothing in section 32 enables any action (a) to recover, or recover the value of, any property; or (b) to enforce any charge against, or set aside any transaction affecting, any property, to be brought against the purchaser of the property or any person claiming through him in any case where the property has been purchased for valuable consideration by an innocent third party since the fraud or concealment or (as the case may be) the transaction in which the mistake was made took place. Claims for contribution under the Civil Liability (Contribution) Act 1978 24.31  Claims for contribution have been discussed at Chapter 17 above. There are particular rules in the Limitation Act in respect of claims for contribution – the need for special rules arises firstly because, until the party claiming contribution has had a claim made against him, he may not know that there is any claim in respect of which to claim contribution; and, secondly, because until the party claiming contribution has been held liable 38 At paragraphs 64 and 65. 39 [1996] AC 102 at 145H.

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in respect of which contribution has been claimed it is premature to seek contribution. In recognition of these points, section 10 of the 1980 Act provides as follows: “Special time limit for claiming contribution (1) Where under section 1 of the Civil Liability (Contribution) Act 1978 any person becomes entitled to a right to recover contribution in respect of any damage from any other person, no action to recover contribution by virtue of that right shall be brought after the expiration of two years from the date on which that right accrued. (2) For the purposes of this section the date on which a right to recover contribution in respect of any damage accrues to any person (referred to below in this section as “the relevant date”) shall be ascertained as provided in subsections (3) and (4) below. (3) If the person in question is held liable in respect of that damage – (a) by a judgment given in any civil proceedings; or (b) by an award made on any arbitration; the relevant date shall be the date on which the judgment is given, or the date of the award (as the case may be). For the purposes of this subsection no account shall be taken of any judgment or award given or made on appeal in so far as it varies the amount of damages awarded against the person in question. (4) If, in any case not within subsection (3) above, the person in question makes or agrees to make any payment to one or more persons in compensation for that damage (whether he admits any liability in respect of the damage or not), the relevant date shall be the earliest date on which the amount to be paid by him is agreed between him (or his representative) and the person (or each of the persons, as the case may be) to whom the payment is to be made. (5) An action to recover contribution shall be one to which sections.. 32 and 35 of this Act apply.”

24.32  Sections  10(2) and (3) provide the date on which a right to recover contribution accrues if the person from whom contribution is sought is held liable by a judgment given in any civil proceedings, the date on which the judgment is given or, if that person is held liable by an award made on any arbitration, the date of the award. In many cases the person seeking contribution will have settled with the claimant. In such a case section 10(4) is relevant providing that if the person seeking contribution makes or agrees to make any payment to one or more persons in compensation for damage (whether he admits any liability in respect of the damage or not) the date on which the right to recover contribution accrues is the earliest date on which the amount to be paid by him is agreed between him (or his representative) and the person (or each of the persons, as the case may be) to whom the payment is to be made. Where there has been a bona fide settlement, the court does not reopen an issue as to whether a limitation defence in the original action was available to the defendant claiming contribution: all that defendant has to show is that if the factual basis of the original claim against him had been made out he would have been liable to the original claimant.40 Where litigation is settled by acceptance of a Part 36 offer, the period of limitation runs from the date of acceptance of that offer, not from the date of a subsequent consent order embodying the settlement agreement.41 40 IMI plc v Delta Ltd [2016] EWCA Civ 773; [2016] 3 WLR 1595. 41 Chief Constable of Hampshire Constabulary v Southampton City Council [2014] EWCA Civ 1541; [2015] PIQR P61.

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Claims in tort: nuisance and trespass 24.33  Where there is a continuing wrong such as a nuisance consisting of unreasonable smells or trespass by an overhanging crane, every fresh continuance is a fresh cause of action. 24.34  Where the tort consists of the withdrawal of support, each subsidence gives rise to an independent cause of action with a fresh period of limitation starting.42 It is an open question as to whether this principle can be applied to claims under an insurance policy for damage caused by repeated ingresses of water.43 Defective Premises Act 1972 24.35  In certain circumstances the Defective Premises Act 1972 gives a statutory right to damages in respect of defects in dwellings. The period of limitation for a breach of the statutory duty created by section 1 of the 1972 Act is six years from the date on which the dwelling is completed.44 Acknowledgement 24.36  Where any right of action has accrued to recover any debt or other liquidated pecuniary claim and the person liable or accountable for the claim acknowledges the claim or makes any payment in respect of it, the right shall be treated as having accrued on and not before the date of the acknowledgement or payment.45 Injunctions, specific performance and other equitable relief 24.37  It has already been pointed out in the relevant chapters that the courts are likely to refuse equitable relief where the claimant has delayed unreasonably in bringing forward his claim. In particular it is a general principle applied in the Courts of Chancery but now applied by any court considering a claim for equitable relief that the court will refuse such relief where the claimant has delayed unreasonably in bringing forward his claim.46 24.38  Section 36 of the Limitation Act 1980 makes provision that reflects this general principle: “36 Equitable jurisdiction and remedies (1) The following time limits under this Act, that is to say – (a) the time limit under section 2 for actions founded on tort; . . . (b) the time limit under section 5 for actions founded on simple contract;

42 Backhouse v Bonomi (1861) 9 HLC 503; Darley Main Colliery Co v Mitchell (1886) 11 App Cas 127. 43 City & General (Holborn) Ltd v Royal & Sun Alliance plc [2010] EWCA Civ 911 at paragraph [90]. 44 Section 1(5). 45 Section 28(5)(a) of the Limitation Act 1980. 46 Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221 at pages 239–240.

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. . . (d) the time limit under section 8 for actions on a specialty; . . . shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any such time limit may be applied by the court by analogy in like manner as the corresponding time limit under any enactment repealed by the Limitation Act 1939 was applied before 1st July 1940. (2) Nothing in this Act shall affect any equitable jurisdiction to refuse relief on the ground of acquiescence or otherwise.”

Amendments 24.39  Where existing proceedings are on foot that have been brought within a relevant time limit, the claimant may seek to bring a fresh claim that the defendant may argue is a new claim, which is statute barred. Section 35 of the Act deals with such new claims: “New claims in pending actions: rules of court “(1) For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced – (a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and (b) in the case of any other new claim, on the same date as the original action. (2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either – (a) the addition or substitution of a new cause of action; or (b) the addition or substitution of a new party; and ‘third party proceedings’ means any proceedings brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought by joining any such person as defendant to any claim already made in the original action by the party bringing the proceedings. (3) Except as provided by section 33 of this Act or by rules of court, neither the High Court nor any county court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim. For the purposes of this subsection, a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action. (4) Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose. (5) The conditions referred to in subsection (4) above are the following – (a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and (b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.

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(6) The addition or substitution of a new party shall not be regarded for the purposes of subsection (5)(b) above as necessary for the determination of the original action unless either – (a) the new party is substituted for a party whose name was given in any claim made in the original action in mistake for the new party’s name; or (b) any claim already made in the original action cannot be maintained by or against n existing party unless the new party is joined or substituted as plaintiff or defendant in that action. (7) Subject to subsection (4) above, rules of court may provide for allowing a party to any action to claim relief in a new capacity in respect of a new cause of action notwithstanding that he had no title to make that claim at the date of the commencement of the action. This subsection shall not be taken as prejudicing the power of rules of court to provide for allowing a party to claim relief in a new capacity without adding or substituting a new cause of action. (8) Subsections (3) to (7) above shall apply in relation to a new claim made in the course of third party proceedings as if those proceedings were the original action, and subject to such other modifications as may be prescribed by rules of court in any case or class of case.”

24.40  In High Court proceedings in England, the relevant rules of court are contained in Part 17 of the Civil Procedure Rules. 24.41  There are numerous reported decisions reflecting the above provisions and their predecessors, but (unsurprisingly) they turn upon their own particular facts.47 A claim for damages is a new claim, even in the same amount as originally claimed, if the claimant seeks, by amendment, to justify it on a different factual basis from that originally pleaded.48 The onus is upon a party seeking to amend to plead a new cause of action to persuade the court that the defendant does not have a reasonably arguable case on limitation that will be prejudiced by the new claim so that they can bring themselves within the conditions prescribed by the statute and the rules.49 24.42  One aspect of the rules that has been considered by the courts recently has been when a claim is “brought” for the purposes of the Limitation Act. The principle that has been applied by the courts has been that a claim is “brought” when the claimant (or the claimant’s legal representative) has done all that he could reasonably do to bring the matter before the court for the court’s process to follow. Thus where the claimant’s solicitor miscalculates the court fee it has been held that the claim is not brought until the correct fee

47 See, for example, Brickfield Properties v Newton [1971] 1 WLR 862; Circle Thirty-Three Housing Trust v Fairview Estates (Housing) Ltd (1984) 8 Con LR 1; Steamship Mutual Underwriting Association Ltd v Trollope & Colls (City) Ltd (1986) 33 BLR 77; Tilcon Ltd v Land and Real Estate Investments Ltd [1987] 1 WLR 46; Hydrocarbons Great Britain Ltd v Cammell Laird Shipbuilders and Automotive Products Ltd (No 2) (1991) 58 BLR 123; Co-operative Group Ltd v Birse Developments Ltd [2013] EWCA Civ 474; [2013] BLR 383 and [2014] EWCA Civ 707; [2014] BLR 477. 48 Lloyds Bank plc v Rogers [1999] 3 EGLR 83; Seele Austria GmbH & Co KG v Tokio Marine Europe Insurance Ltd [2009] 2066 (TCC); [2009] BLR 481 at paragraph [48]; Ballinger v Mercer [2014] EWCA Civ 996; [2014] 1 WLR 3597. 49 Welsh Development Agency v Redpath Dorman Long [1994] 1 WLR 1409; (1994) 67 BLR 1; Seele Austria GmbH & Co KG v Tokio Marine Europe Insurance Ltd [2009] 2066 (TCC); [2009] BLR 481 at paragraph [48]; Ballinger v Mercer [2014] EWCA Civ 996; [2014] 1 WLR 3597.

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has been paid. At present this has resulted in some claims being dismissed,50 but this is a developing area of law, and it may be that some of the cases dismissing claims may need to be treated with some caution in the absence of abusive behaviour.51 Arbitration 24.43  Generally, the Limitation Acts apply to arbitral proceedings as they apply to legal (ie court) proceedings;52 however claims that are subject to a requirement that they be resolved by arbitration raise some particular problems. 24.44  Sections 13 and 14 of the Arbitration Act 1996 provide: “Section 13: Application of Limitation Acts (1) The Limitation Acts apply to arbitral proceedings as they apply to legal proceedings. (2) The court may order that in computing the time prescribed by the Limitation Acts for the commencement of proceedings (including arbitral proceedings) in respect of a dispute which was the subject matter – (a) of an award which the court orders to be set aside or declares to be of no effect, or (b) of the affected part of an award which the court orders to be set aside in part, or declares to be in part of no effect, the period between the commencement of the arbitration and the date of the order referred to in paragraph (a) or (b) shall be excluded. (3) In determining for the purposes of the Limitation Acts when a cause of action accrued, any provision that an award is a condition precedent to the bringing of legal proceedings in respect of a matter to which an arbitration agreement applies shall be disregarded. (4) In this Part “the Limitation Acts” means – (a) in England and Wales, the Limitation Act 1980, the Foreign Limitation Periods Act 1984 and any other enactment (whenever passed) relating to the limitation of actions; . . . “Section 14: Commencement of arbitral proceedings (1) The parties are free to agree when arbitral proceedings are to be regarded as commenced for the purposes of this Part and for the purposes of the Limitation Acts. (2) If there is no such agreement the following provisions apply. (3) Where the arbitrator is named or designated in the arbitration agreement, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties a notice in writing requiring him or them to submit that matter to the person so named or designated. (4) Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter. (5) Where the arbitrator or arbitrators are to be appointed by a person other than a party to the proceedings, arbitral proceedings are commenced in respect of a matter when one 50 Page v Hewetts [2012] EWCA Civ 805; Page v Hewetts [2013] EWHC 2845 (Ch); Lewis v Ward Hadaway [2015] EWHC 3503 (Ch); [2016] 4 WLR 6; Bhatti v Ashgar [2016] EWHC 1049 (QB); [2016] 2 Costs LR 493. 51 Glenluce Fishing Co Ltd v Watermota Ltd [2016] EWHC 1807 (TCC); [2016] 5 Costs LR 1021; Dixon v Radley House Partnership [2016] EWHC 2511 (TCC); [2016] 5 Costs LR 979. 52 Arbitration Act 1996, section 13(1).

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party gives notice in writing to that person requesting him to make the appointment in respect of that matter.”

24.45  The first problem relating to arbitration addressed by the above provisions is that some contracts provide that obtaining an arbitration award is a condition precedent to the bringing of legal proceedings – this is addressed by the Arbitration Act 1996, section 13(3), which provides that such a provision is to be disregarded. 24.46  A second problem is that where an arbitration award has to be obtained before legal proceedings are commenced, a claimant may be prejudiced if because of some procedural irregularity the necessary award is set aside, so that the claimant has got to go back to square one in obtaining an award to enable court proceedings to be commenced. This situation is catered for by section 13(2) of the Arbitration Act 1996, which provides that a court may order that in computing the time prescribed by the Limitation Acts for the commencement of proceedings (including arbitral proceedings) in respect of a dispute that was the subject matter (a) of an award that the court orders to be set aside or declares to be of no effect, or (b) of the affected part of an award that the court orders to be set aside in part, or declares to be in part of no effect, the period between the commencement of the arbitration and the date of the relevant order shall be excluded. 24.47  The effect of the provision in the section 13(1) of the Arbitration Act 1996 that the Limitation Acts apply to arbitral proceedings as they apply to legal proceedings is that if an arbitration is commenced, the respondent can raise as a defence that the cause of action relied upon arose more than six years before the arbitration was commenced (this is a separate matter from the period of limitation for enforcement of an award once made, which is considered below). Thus the question arises, when is an arbitration to be taken as having been commenced? This is dealt with by section 14(1) of the Arbitration Act 1996, which provides that the parties are free to agree when arbitral proceedings are to be regarded as commenced for the purposes of this Part and for the purposes of the Limitation Acts. If there is no such agreement, then by section 14(3), where the arbitrator is named or designated in the arbitration agreement, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties a notice in writing requiring him or them to submit that matter to the person so named or designated. By section 14(4), where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter. And, finally, by section 14(5), where the arbitrator or arbitrators are to be appointed by a person other than a party to the proceedings, arbitral proceedings are commenced in respect of a matter when one party gives notice in writing to that person requesting him to make the appointment in respect of that matter. 24.48  There are two methods of enforcing an arbitration award in England and Wales – firstly by an ordinary action on an award and secondly an application to enforce an arbitration award in the same manner as a judgment under section 66 of the Arbitration Act 1996. Both methods of enforcement are subject to a limitation period of six years from the date of the award.53 53 National Ability SA v Tinna Oils & Chemicals Ltd (“The Amazon Reefer”) [2009] EWCA Civ 1330; [2010] Bus LR 1058.

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Adjudication 24.49  Adjudications are neither “legal proceedings” nor arbitrations. In consequence, the commencement of an adjudication (even if a necessary precursor under contractual conditions to the commencement of court or arbitral proceedings) does not stop time running for the purpose of limitation proceedings unless the contrary is agreed between the relevant parties.54 24.50  A question has been raised as to whether an unsuccessful party to an adjudication, who has complied with the decision of the adjudicator, but who wishes to have the dispute finally determined by legal proceedings, has a fresh claim to have the dispute finally determined, thereby restarting the limitation period, or whether the limitation period remains the same as it did in the dispute decided by the adjudicator. 24.51  This question has now been resolved by the Supreme Court in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc.55 The Supreme Court held that, in a case of statutory adjudication to which the scheme56 applied, there was an implied term that a paying party had a right to recover any overpayment to which the adjudicator’s decision could be shown to have led. Since the paying party’s cause of action arises from payment, and is only for repayment of the balance that it has paid, it may be brought at any time within six years after the date for payment.57 24.52  The term identified in Aspect v Higgins was necessarily implied by the terms of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996), especially section 108(3), and paragraph 23(2) of the scheme. It follows that such a term will not be implied in a construction contract where there are express terms to the contrary, provided these express terms are not themselves inconsistent with the Act, in which case the scheme, and therefore the implied term, applies: see section 108(5) of the Act. For example, the same term would not be implied in the New Engineering Contract, third edition 2013, which provides at W2.3(11) that “The adjudicator’s decision is final and binding if neither party has notified the other within the times required by this contract that he is dissatisfied with a matter decided by the adjudicator and intends to refer the matter to the tribunal”. 24.53  In deciding whether or not there has been an overpayment by the paying party, the court or arbitrator is entitled to look at the whole of the dispute that was referred to the adjudicator to decide. The parties will not be limited to the points that the adjudicator decided in favour of the paying party.58 If the defence to the adjudication included a defence of set-off, the court or arbitrator could also be asked to determine the merits of this defence in deciding whether or not there had been an overpayment.59

54 Glencot Development v Ben Barrett [2001] EWHC 15 (TCC); (2001) 80 Con LR 14. 55 [2015] UKSC 38; [2015] 1 WLR 2961. See Andrew Bartlett QC and Isabel Hitching, A Clearer Perspective on a Novel Legal Beast: Some Implications of Aspect v Higgins SCL Paper 197; April 2016. 56 Scheme for Construction Contracts (England and Wales) Regulations 1998, SI 1998/649. 57 This is the case whether in terms of implied contractual terms, or by virtue of an independent restitutionary obligation: Aspect Contracts (Asbestos) Ltd v Higgins Constructions plc [2010] UKSC 38; [2015] 1 WLR 2961 at paragraph [25]. 58 Aspect Contracts (Asbestos) Ltd v Higgins Constructions plc [2010] UKSC 38; [2015] 1 WLR 2961 at paragraph [32]. 59 Aspect Contracts (Asbestos) Ltd v Higgins Constructions plc [2010] UKSC 38; [2015] 1 WLR 2961 at paragraph [32].

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24.54  The implied term identified by the Supreme Court in Aspect v Higgins only allows a paying party to recover an overpayment. Thus, if the successful party in the adjudication was only partially successful, the decision in Aspect does not mean it has a further six years from the adjudicator’s decision to seek to recover the balance where it was unsuccessful. If a party is only partially successful in an adjudication, and wishes to recover the balance through legal proceedings, it must commence those proceedings within the limitation period applicable to that original cause of action.60 24.55  It follows from the above that if the paying party brings a claim for repayment of sums paid pursuant to an adjudicator’s decision, the successful party cannot rely on the implied term in Aspect to bring a counterclaim seeking recovery of those parts of the adjudicator’s decision on which it was unsuccessful. The implied term only confers a right to recover an overpayment. 24.56  If an adjudication dispute consists of claims and cross-claims, as is commonly the case, the implied term still only allows the paying party to seek to recover the balance. If the paying party wishes to seek payment on the cross-claim, it has to bring it within the limitation period applicable to that cross-claim.61 Tolling agreements 24.57  Where parties agree to alternative dispute resolution procedures, they will often agree that time shall stop running for the purpose of the Limitation Acts. This will often happen when parties are discussing settlement. Such agreements are sometimes referred to as “tolling agreements”. The advantage of such agreements is that the expense of legal proceedings brought simply to prevent a cause of action becoming barred when there is a chance of avoiding legal proceedings altogether is avoided. However, if such an agreement is concluded, it should be in clear terms.62

60 Aspect Contracts (Asbestos) Ltd v Higgins Constructions plc [2010] UKSC 38; [2015] 1 WLR 2961 at paragraph [33]. 61 Aspect Contracts (Asbestos) Ltd v Higgins Constructions plc [2010] UKSC 38; [2015] 1 WLR 2961 at paragraph [28]. 62 Cave v E C Holdings Ltd (1966) 110 Sol Jo 710. For an example of a case where it was held that there was no such agreement, see Deerness v John R Keeble & Son (Brantham) Ltd [1983] 2 Lloyd’s Rep 260; [1983] Com LR 221.

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Dispute resolution 25.1  When a dispute arises, how is it to be resolved? This chapter consider litigation, arbitration, adjudication, and alternative dispute resolution.1 Litigation 25.2  Smaller claims may be determined in the Small Claims Court or the county court, and it is undoubtedly the case that for low value claims these can be sensible places in which to resolve disputes. 25.3  For any significant dispute, the court in which it will be determined will be the High Court. Proceedings in the High Court are governed by the Civil Procedure Rules (usually abbreviated to CPR), which lay down a comprehensive code. It is not intended to attempt to describe here in more than a superficial way the CPR and the procedures in the High Court. The purpose of what follows is primarily intended to flag up some material distinctions between litigation and arbitration. 25.4  Major disputes arising out of construction projects, if commenced in court in London, are likely to be started in or transferred to the Technology and Construction Court. If commenced outside London they are likely to be started in the regional parts of the Technology and Construction Court. 25.5  Since the introduction of the CPR, one method used by the courts to encourage settlement of disputes has been to require parties to comply with a pre-action protocol designed to encourage parties to reach a better understanding of each other’s case before proceedings are commenced.2 There is at least a school of thought that this has tended to increase the costs of litigation, particularly in cases where settlement is unlikely. 25.6 Assuming that the protocol procedure does not lead to settlement or that it is impractical to comply with the protocol procedure (eg, because a statutory limitation period is about to expire, or because the point at issue is a matter of general principle upon which the construction industry wants a definitive ruling) proceedings are commenced by issue and service of a claim form, the form of which will vary depending upon whether it is anticipated that there will be factual disputes requiring witness evidence to be adduced. If no factual disputes are likely to arise then proceedings can usually proceed without the necessity for procedural steps that generally apply in witness actions such as disclosure. An

  1 For a survey of trends in the use of different forms of dispute resolution, see Robert Gaitskell QC’s article Current Trends in Dispute Resolution (2005) 71 Arbitration 288. For a thorough discussion of the various techniques for resolution of construction disputes, see Cyril Chern, The Law of Construction Disputes 2nd edition, 2016.   2 These can be found in Section C of Civil Procedure (the “White Book”). The most relevant of the preaction protocols for present purposes is likely to be that at section C3 which relates to construction and engineering disputes. A new Protocol for the Technology and Construction Court came into effect in November 2016.

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example of such a case is where the only point in dispute is a debate as to the application of a construction contract to an agreed set of facts. 25.7  In a case where there are factual disputes the claimants and defendants (whether one or more defendants) will be required to set out their respective cases in the pleadings that may be of greater or lesser complexity. 25.8  Often when the defendant considers its position, it will be regarded as desirable to bring other parties into the proceedings so as to reach a result binding on more than one party – thus, for example, a developer might bring a claim for professional negligence against an engineer or architect, which professional indemnity insurers contend is not covered by their policy. In such circumstances the convenient course is often for the developer’s claim against the professional adviser to be heard at the same time as the professional adviser’s claim against insurers. The CPR provide a machinery for this to be done (“Part 20 proceedings”). 25.9  The courts maintain a close watch over the proceedings through case management conferences and pre-trial reviews at which substantial amounts of information are provided to the relevant court to enable the judge to make management decisions.3 An important part of current procedures before the Technology and Construction Court are procedures for “cost budgeting”, allowing the court to exercise a considerable element of control over costs in that court.4 25.10  Following close of pleadings, it is normal for the court to order all parties to disclose to each other all relevant documents in their possession, subject to considerations of whether such disclosure is reasonable and proportionate. Particular problems arise out of electronic documents, such as emails, where production of documentation by one party and consideration of that documentation by the other party can be vastly time consuming and therefore both disruptive and expensive.5 Accordingly the courts now require careful consideration to be given to the implications in each case of “e-disclosure”.6 25.11  Directions will be given as necessary for service by each party of statements of any witnesses whom a party wishes to call. Consideration will also be given as to whether expert evidence is necessary – if so there are possibilities of a single joint expert in a particular discipline appointed by the parties, or a court-appointed expert, but in the majority of cases each party is likely to retain an independent expert witness to advise them and, if necessary, to give evidence. It is usual for experts of like disciplines to meet to seek to reach such agreement as may be possible, and, in so far as agreement is not possible, to identify areas of disagreement. Experts are expected to produce agreed statements of   3 The practice in relation to “CMCs” and “PTRs” varies from court to court. It is necessary to consult each court’s practice direction to discover what is involved.   4 There is a substantial body of case law growing concerning this process, the details of which are outside the scope of this book. See for example CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 481 (TCC); [2015] 2 Costs LR 363; GSK Project Management Ltd v QPR Holdings Ltd [2015] EWHC 2274 (TCC); [2015] BLR 715; Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537; [2014] 1 WLR 795.   5 For discussions as to the problems posed by e-disclosure (which affect arbitration and litigation with similar intensity), see Tse and Peter, Confronting the Matrix: Do the IBA Rules Require Amendment to Deal with the Challenges Posed by Electronically Stored Information? (2008) 74 Arbitration 28 and Smit and Robinson, E-Disclosure in International Arbitration 24 Arbitration International 105; Troy Harris, Disclosure of Electronic Documents: The Issues and Guidelines in International Construction Arbitration [2009] ICLR 161. See the guidance of HH Judge Simon Brown QC in respect of disclosure of electronic documents in Earles v Barclays Bank plc [2009] EWHC 2500 (Mercantile); [2010] Bus LR 566.   6 See section 2A of the CPR Practice Direction to CPR Part 31.

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matters upon which they are agreed and upon which they cannot agree. Thereafter experts will produce reports to be served on the other party or parties, which will form the basis of their evidence at trial. 25.12  The courts place very substantial emphasis upon the need for expert witnesses to maintain their independence and to recognise that their prime responsibility is to the court not to a party retaining the expert.7 25.13  Absent earlier settlement, the dispute will generally be determined at a hearing at which witnesses are called, experts give their evidence and advocates (or the parties themselves if unrepresented) make written and oral submissions. 25.14  In court proceedings a reasoned judgment is always given whether orally or in writing. A dissatisfied litigant does not have an automatic right of appeal: permission to appeal will be refused if the appeal has no realistic prospect of success. Permission to appeal will rarely be granted on a question of fact where the decision is based on the judge’s evaluation of oral evidence as to the primary facts or if an appeal would involve an examination of the fine detail of a judge’s factual investigation. However, permission to appeal is more likely to be given where what is being challenged is the judge’s inference from the primary facts or where the judge has not received any particular benefit from having seen the witness and it is properly arguable that materially different inferences should be drawn from the evidence. Where the question being appealed is one for the discretion of the judge, the Court of Appeal will not interfere unless it is satisfied that the judge was wrong. The burden on the appellant is a heavy one and therefore permission to appeal will rarely be appropriate. Arbitration 25.15  Arbitration is a process whereby a dispute between two (sometimes more) parties is resolved privately by a third party or a by a tribunal of their choice. The arbitrator’s decision will be binding between the parties and enforceable by the courts. It is necessary for the parties to agree in writing to arbitration.8 This may be an agreement to refer existing or future disputes to arbitration. 25.16  The objectives usually include securing efficient, economic and speedy resolution of disputes9 and the available procedures should be tested against a number of specific criteria including confidentiality and privacy, efficacy, procedure, speed and expense, quality of judgment and enforceability of any award. 25.17  Most of the significant standard form construction contracts contain an arbitration clause. 25.18  Arbitration in England and Wales is governed by the Arbitration Act 1996. The underlying philosophy of the 1996 Act is to support and promote arbitration in particular by respecting parties’ agreement to arbitrate, by upholding arbitral autonomy and by clearly

  7 See CPR rule 35.3, the Practice Direction to Part 35 of the CPR and National Justice Compania Naviera SA v Prudential Assurance Co Ltd (“The Ikarian Reefer”) [1993] 2 Lloyd’s Rep 68.   8 Section 5(1) of the Arbitration Act 1996.   9 Section 1(1)(a) of the Arbitration Act 1996 states that “the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense”.

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defining the limited role of the courts in supervising arbitral proceedings and enforcing awards. 25.19  Section 9 of the 1996 Act gives effect to agreements to arbitrate. It achieves this objective by imposing upon the court an obligation to stay legal proceedings in respect of any matter that under the agreement is to be referred to arbitration. Although the Act contains a provision in section 86 giving the court a discretion to stay the proceedings in respect of a domestic arbitration agreement, that section has not been brought into force. Accordingly, as the law now stands, the court has no discretion but to stay proceedings unless the party seeking the stay has taken a step in the substantive court proceedings, or the arbitration agreement is null and void, inoperative, or incapable of being performed. In appropriate cases the court will grant an anti-suit injunction to prevent a party continuing with court proceedings outside the United Kingdom in breach of an agreement to arbitrate (see Chapter 21 above). 25.20  If, despite the existence of an agreement to arbitrate, court proceedings are started, the party against whom the proceedings have been brought can acquiesce in the dispute being heard in court by simply deciding not to apply to the court for a stay under section 9. If the party against whom court proceedings have been brought takes a substantive step in the action (eg, by serving a defence), then the right to apply for a stay is lost. 25.21  It is, of course, possible for parties to refer disputes to arbitration by ad hoc agreement even in the absence of an arbitration agreement. 25.22  Many arbitrations will appear to the observer to be indistinguishable from High Court proceedings, often involving pleadings, exchanges of witness statements and experts’ reports, disclosure and oral proceedings. In those circumstances, what are the advantages and disadvantages of referring disputes to arbitration? Confidentiality and privacy 25.23  Arbitration is conducted in private attended only by the parties, their witnesses, experts and advisers. The award will only be published to the parties. Consequently, privacy and confidentiality are thought to be major advantages of arbitration. The Departmental Advisory Committee on Arbitration Law, which reported on what became the 1996 Act, recorded that “there is . . . no doubt whatever that users of commercial arbitration in England place much importance on privacy and confidentiality as essential features”.10 25.24  However, those interested can usually find out fairly easily the result of an arbitration, particularly where the subject matter is of general commercial interest. 25.25  There need be no public notification of any arbitration reference. Although it is accepted that arbitration proceedings are private, the jurisprudential basis for this is now uncertain: in the Court of Appeal decision of Ali Shipping Corporation v Shipping Trogir,11 Potter LJ characterised the duty of confidentiality as an implied term of an arbitration

10 Paragraphs 10–17 at pages 8–9 cited by the Court of Appeal in Department of Economics, Policy and Development of the City of Moscow v Bankers Trust Co [2004] EWCA Civ 314; [2005] QB 207 paragraph [2]. For a discussion of confidentiality in international arbitration, see ICC 2009 Special Supplement: Confidentiality in Arbitration. 11 [1999] 1 WLR 314.

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agreement. This view has since been doubted by the Privy Council12 but has since been reaffirmed by the Court of Appeal.13 The jurisprudential debate may be of practical significance as the extent of privacy and confidentiality recognised by the English courts may turn upon the true basis for what is undoubtedly a general principle. 25.26 In Emmott v Michael Wilson & Partners Ltd14 the Court of Appeal affirmed that parties to an arbitration are under an obligation of confidentiality to use documents disclosed or generated in an arbitration only for the purposes of the arbitration even if the documents did not contain anything that was in itself confidential. Such documents cannot be disclosed to a third party without the consent of the other party or pursuant to an order of the court. The court does not have a general and unlimited jurisdiction to consider whether an exception to confidentiality exists and applies. The exceptions to the basic rule of confidentiality include compulsion by law, (perhaps) public interest, protection of a party’s legal rights and consent. 25.27 Litigation is generally perceived as being more exposed to publicity, primarily because statements of case are (subject to certain restrictions) public documents15 and hearings in open court frequently attract press interest. However, only a small proportion of all cases ever come to trial and media interest in those that do come to trial is generally limited. 25.28  In a tough commercial world, the confidentiality principle serves at least two interests: first, the parties may wish to resolve their dispute without fear of any publicity, no matter how slim the chance of that publicity – if nothing else, the news of a defeat could involve loss of face by the losing party in a small world, particularly if issues of credibility or honesty are involved. Secondly, highly confidential information (such as trade secrets or industrial and commercial know-how) may be involved and arbitration is better suited than litigation to maintain confidentiality. 25.29  Arbitration therefore is likely not to have such an adverse effect on commercial reputation as does litigation. However, it is to be noted that the confidentiality is far from absolute: apart from the difficulties in practice of keeping matters secret, the confidentiality recognised by the law may be lost in some cases if an award in one arbitration can legitimately be deployed in a subsequent arbitration,16 or an appeal or procedural challenge is brought in respect of an arbitration or the resulting award.17 Procedure 25.30  Arbitration has its basis in agreement between the parties to submit disputes to resolution by a sole arbitrator or an arbitration panel. Accordingly, arbitration affords comparative flexibility, so that, for example, the parties can stipulate the procedure in detail in 12 Associated Electric and Gas Insurance Services Ltd v European Reinsurance Co of Zurich [2003] UKPC 11; [2003] 1 WLR 1041 at paragraphs [19] and [20]. 13 Emmott v Michael Wilson & Partners Ltd [2008] EWCA Civ 184; [2008] Bus LR 1361 at paragraph [81]. 14 Above. For recent decisions on use of awards despite the principle of confidentiality, see Teekay Tankers Ltd v STX Offshore & Shipbuilding Co Ltd [2017] EWHC 253 (Comm); Symbion Power LLC v Venco Imtiaz Construction Company [2017] EWHC 348 (TCC). 15 See CPR rule 5.4C and R (on the application of Corner House Research) v Director of the Serious Fraud Office [2008] EWHC 246 (Admin). 16 See AEGIS Ltd v European Re (above) reaching a different conclusion as to use of an award from the Court of Appeal in different factual circumstances in Ali Shipping Corporation v Shipyard Trogir (above). 17 Such appeals or challenges, referred to procedurally as “arbitration claims” start “in private” under CPR rule 62.10 (3)(b) but are later liable to become public – see Dept of Moscow v Bankers Trust Co (above).

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advance in the arbitration clause. Alternatively, various arbitration institutions, particularly international arbitration institutions such as the International Chamber of Commerce, have their own procedural rules, which are often incorporated by reference. Reflecting these principles, section 1(1)(b) of the 1996 Act sets out as one of the principles of arbitration that “the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest”. 25.31  If the arbitration agreement does not itself deal with procedure, such matters can be dealt with at an initial meeting with the arbitrator. The tribunal has a wide discretion as to the procedures to be adopted, provided that the rules of natural justice are applied to the particular circumstances of the dispute. As already stated, very often the procedures adopted will be based broadly on High Court procedure. It should be possible to tailor the arbitration to suit the size and complexity of the dispute in question. Furthermore, where both liability and quantum are in dispute it will often be sensible to deal with the issues in two stages (first liability, then quantum), thereby saving issues relating to quantum to be debated only if liability is established. In this situation, quantum is often agreed. However, the very lack of formal procedure, at least in complicated disputes, can result in further disputes and delay. Where a three-person tribunal has been appointed, it is advisable for the chairman or umpire to have full power to decide interlocutory points, with a reference to the full tribunal only on important points of principle. 25.32  A further advantage of arbitration is that some disputes can be resolved quickly and relatively cheaply with the minimum of evidence – for example, in smaller disputes it may be possible to adopt a “documents only” procedure whereby both parties make written submissions and only adduce written evidence. Alternatives include documents plus written representations, or documents plus site visit, or examination of property in dispute. However, generally, the positive cooperation of both parties is required for such procedures to be adopted, because most arbitrators are reluctant to deny a party who has asked for it the opportunity to make oral representations. 25.33  However, arbitration has significant disadvantages compared to litigation where more than one contract is involved. Arbitration has its basis in agreement, and therefore only involves those parties specifically agreeing to the arbitration clause and any contract to which it refers; therefore only parties to a particular contract will be involved. For example, in many cases where an employer and contractor are required to submit their disputes to arbitration, the contractor will have a claim down the contractual chain to a subcontractor. 25.34  Unfortunately, the consensual nature of arbitration does not admit of third party proceedings similar to those available in the High Court,18 with the consequence that the same question may be tried more than once with the attendant risk of different results. For the same arbitral tribunal to decide all the disputes, agreement between the parties is required, and in practice at least one party is likely to find it in its commercial interests to refuse to cooperate. 25.35  Although it is always possible, given sufficient foresight, to draft the arbitration agreement so that all parties involved in any complex series of contracts can arbitrate at the same time if necessary, this type of back-to-back agreement has historically required the consent of many parties, which will often (perhaps normally) not be forthcoming. Even

18 Where, under the CPR, they are referred to as “Part 20” proceedings – see paragraph 25.8 above.

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where such agreement has been forthcoming, it may not be sufficient where legal questions falling outside the scope of the contracts to which they relate are involved. By contrast, litigation procedures enable joinder of all appropriate claims and parties in one single hearing or such other mode of resolution as will best promote a just result in the circumstances. However changes to various arbitral institution rules has now changed the landscape – see for example Article 7 of the current ICC Arbitration Rules and Article 8 of the 2014 LCIA Rules. These are early days of these new procedures, but they are likely to bring about significant changes in practice. 25.36  Under arbitration, an innocent party may well find itself issuing two or more separate sets of proceedings in two or more different tribunals (because there may be different or incompatible arbitration clauses or no arbitration provision in one relevant contract). Two or more separate sets of procedures will clearly involve the tribunals in a repetition of evidence, increase in costs and, at the worst, inconsistent verdicts could result. 25.37  One solution to these problems is to appoint the same arbitrator or tribunal for all the separate proceedings. This will mitigate the problems (if it can be achieved, which is not always the case) but does not remove them. The arbitrator or tribunal may see issues differently when fresh arguments or evidence not presented in the first proceedings are presented in the later proceedings. Moreover in “string” arbitrations there are substantial limitations on an arbitrator’s ability in later proceedings to make a costs award in respect of the costs of earlier proceedings: see The Takamine,19 although it is sometimes possible for an arbitrator to award damages in a later arbitration to reflect costs incurred in previous proceedings.20 Expedition 25.38  Arbitration proceedings can move very rapidly, but for this to be achieved the parties’ cooperation is essential. Usually the arbitrator will make himself available to deal with interlocutory matters without undue delay. However, appointing a suitable arbitrator may not be easy as the more popular ones may be booked for a substantial period in advance. Choice of arbitrator 25.39  The parties to an arbitration agreement are free to agree on a choice of arbitrator whereas in litigation the parties have no choice and will submit to the jurisdiction of the judge allocated to their case. 25.40 Arbitration is particularly suitable where disputes are technically complex and legally comparatively straightforward especially where the arbitrator appointed by the parties has professional qualifications and technical experience. On the other hand, the High Court judges now assigned to the Technology and Construction Court have particular experience of construction matters. 19 Wilhelmsen v Canadian Transport Co [1980] 2 Lloyd’s Rep 204 at pages 208–209 and paragraphs 15.22– 15.26 above. 20 See Hammond v Bussey (1880) 20 QBD 79; Maritime Transport Overseas GmbH v Unitramp Salen Rederierna AB (The Antaios) [1981] 2 Lloyd’s Rep 284 at 298 and 299; The Vates T [2004] EWHC 1752 (Comm).

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25.41  Many disputes involve determination of whether an experienced contractor could have foreseen at the time of tender the exact nature of the work required. Under most engineering contracts, the contractor is deemed to be experienced and therefore able to understand the information made available to him at the time of tendering, which information may include borehole and test results. If unfavourable conditions are encountered that could not reasonably have been foreseen, such as unfavourable subsoil, generally the contractor is entitled to the extra cost incurred in dealing with them. An experienced civil engineer appointed as arbitrator can clearly decide such a question, but is it clear whether a judge could do so? 25.42 Although in litigation an expert would be appointed to explain the technical issues, it is generally the case that experts will be appointed by both parties and the judge will have to decide between the conflicting opinions and might in some cases be influenced more by capable presentation than by technical merit. Expense 25.43  Arbitrations are inherently more expensive than litigation. An arbitrator charges for the services provided, whilst a judge is a civil servant. There will also be considerable incidental expenses to be met by the parties, particularly the costs of the arbitration venue. The introduction of cost-budgeting procedures in the Technology and Construction Court is believed to lead to reduced levels of costs in proceedings in that court. As yet, such procedures are very unusual in arbitration. 25.44  To a large extent, the cost of the arbitration will depend upon how the parties choose to run it. If the arbitration is conducted as though it were litigation, the preparation will cost much the same amount. However, a certain economy can be achieved, first by reducing dependence upon expert witnesses as a technical arbitrator does not need the technical experts required by a judge. Secondly, the time taken at the hearing is accordingly reduced as the laborious explanation of technicalities involved in court proceedings is avoided. 25.45  The parties in an arbitration involving a construction dispute will frequently be represented by technically qualified advocates, or possibly by counsel who is both legally qualified and experienced in construction skills. In this case both the arbitrator and the advocates talk in the same technical language. 25.46  A third way of achieving economy is through cooperation between the parties, particularly in a quick and uncomplicated reference. Parties are well advised to choose an appropriate procedure and to be represented appropriately in relation to the size and legal and/or technical complexity of the dispute. 25.47  Whatever may be other relative advantages or disadvantages of arbitration and litigation, it is doubtful if, once lawyers are involved, either form of dispute resolution has a significant cost advantage over the other. Challenges to, appeals from, and enforceability of awards 25.48  In no area does hindsight affect the perceptions of parties quite so much as the matters now considered. 396

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25.49  The limitations upon the right to appeal from a judgment in the High Court have been discussed above. The right to challenge an arbitral award is very much more limited. 25.50  Section 67 of the 1996 Act gives an aggrieved party a right to challenge an award on the grounds that the arbitrator or tribunal lacked substantive jurisdiction. Section 68 gives an aggrieved party a right to challenge an award on the ground of serious irregularity, which includes a failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties, a failure by the tribunal to deal with all the issues that were put to it, uncertainty or ambiguity as to the effect of the award, that the award was obtained by fraud amongst other grounds. If a party takes part or continues to take part in the proceedings without objection, then the right to challenge is likely to be lost.21 If the real grumble of the aggrieved party is that the arbitral tribunal is against it on the merits (whether as to fact or law), the right to challenge under section 68 is of limited assistance since the usual remedy is to remit the matter to the arbitral tribunal for reconsideration.22 25.51  The decision of the House of Lords in Lesotho Highlands Development Authority v Impregilo SpA23 is important as underlining and supporting the autonomy of arbitrators. The House of Lords decided that an error of law is not a procedural irregularity engaging a right to challenge an arbitral award without the necessity to obtain the leave of the court. If an attack is to be made upon an award upon the basis of an error of law, it must be made through the appeal provisions of section 69. In his speech24 Lord Steyn pointed out that the requirement of “substantial irregularity” imposes a high threshold and it must be established that the irregularity caused or would cause substantial injustice to the applicant. He said that these requirements were “designed to eliminate technical and unmeritorious challenges”. The irregularity must fall within the closed list of categories in section 68(2) and nowhere in that subsection is there any hint that a failure to arrive at the “correct” decision is a ground for challenge under section 68. 25.52  Section 69 provides a route to appeal to the court on a question of law arising out of an award made in the proceedings. An appeal shall not be brought except with the agreement of all other parties to the proceedings or with the leave of the court.25 25.53  Leave to appeal is only to be given if the court is satisfied that:26 (1) the determination of the question will substantially affect the rights of one or more of the parties. (2) the question is one that the tribunal was asked to determine. (3) on the basis of the finding of facts in the award – (i) the decision of the tribunal on the question is obviously wrong, or (ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and (4) despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question. 21 See section 73. 22 See section 68(3). 23 [2005] UKHL 43; [2006] 1 AC 221. 24 [2006] 1 AC 235, paragraphs 28 and 29. 25 See section 69(2). 26 Section 69(3).

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25.54  These conditions are substantial restrictions upon the right to appeal. The starting point to bear in mind is that the courts strive to uphold arbitration awards.27 Section 69 gives no right to appeal against findings of fact in an award, even when based upon no evidence.28 25.55  Thus it will only be in unusual cases that construction contract disputes settled by arbitration will be overturned.29 To many commercial people, the finality of arbitral decisions by comparison with the uncertainty, delay and expense attendant upon appeals against court decisions is a substantial attraction. 25.56  By section 66 of the 1996 Act an award may, by the leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect. Summary 25.57  Having compared the relative merits of litigation and arbitration, the following points fall for consideration when deciding upon the form of arbitration, although every case will depend on its facts: (1) Do connected arbitration provisions “interlock” properly? That is, do they allow for the joinder in a single reference of related disputes under linked agreements? (2) Which procedural rules will apply? How much procedural detail should be specified in advance? Should procedure be left entirely to the beginning of the reference? (3) How many arbitrators are needed? A single arbitrator or a panel of three (or more) including a chairman? (4) How should the arbitrators be chosen? Should the tribunal consist of technical experts or lawyers or a mixture of both? Should any of them be named in advance? If so, how will this affect the timing of the arbitration? (5) What limitations should be imposed on the conduct of a reference? What sort of evidence should be permissible? What scope should there be for written submissions and when should these be put forward? What scope should be allowed for evidence and disclosure of documents? Should legal representation be permitted? Should the arbitrator(s) be obliged to give reasons for the award?30 (6) Should the arbitrator’s award be a condition precedent to the enforcement of any contractual right, therefore barring the claimant’s right to litigation? (7) If a contract has an international element, how should this be allowed to affect the arbitration? Where should the arbitration take place? What should be the 27 Per Bingham J in Zermalt Holdings v Nu-Life [1985] 2 EGLR 14. 28 Per Ramsey J in London Underground Ltd v CityLink Telecommunications Ltd [2007] EWHC 1749 (TCC); [2007] BLR 391, following the decision of Cooke J in Demo Investments & Commercial SA v SE Banken Forsakring Holding Aktiebolag [2005] EWHC 1398 (Comm); [2005] 2 Lloyd’s Rep 650, in preference to the decision of Jackson J in Surefire Systems Ltd v Guardian ECL Ltd [2005] EWHC 1860 (TCC); [2005] 1 Lloyd’s Rep 534. 29 See in this context, Dame Elizabeth Gloster, Attempts to Thwart the Arbitration Process: Current Examples of How the Court Makes Parties Stick to their Agreement to Arbitrate 73 Arbitration 407. 30 Under section 52(4) of the 1996 Act an award must contain the reasons for the award unless it is an agreed award or the parties have agreed to dispense with reasons. Section 70(4) gives the court power to order the tribunal to state its reasons if the award does not contain the tribunal’s reasons, or does not set out the tribunal’s reasons in sufficient detail to enable the court properly to consider an application or appeal.

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proper law of the contract (this should tie in with the proper law of the arbitration agreement and the reference itself ). How will the enforceability of the award be affected by the international element of the contract? Adjudication 25.58  Since 1998 the resolution of disputes arising out of construction contracts in the United Kingdom has in most cases been affected by the introduction of statutory provisions in respect of adjudication. 25.59 With effect from 1 May 1998 (1 June 1998 in Northern Ireland) the Housing Grants Construction and Regeneration Act 1996 has introduced provisions relating to payment and adjudication that parties to construction contracts will have to bear in mind. Background 25.60  Obtaining payment under construction contracts has always been a major consideration. With the shift from payment in a lump sum on completion to periodical payments, some method had to be devised of striking an appropriate balance between contractors who wished to be paid for work done to date and employers who wished to be satisfied that the work they were paying for had been satisfactorily completed. The method adopted by most standard forms, supported by the common law, was to require the employer’s representative – the architect or engineer – to “wear two hats” and to act impartially in issuing a certificate of interim payment that fairly reflected that balance. That method worked well for many years but, mainly for economic reasons, employers began to make much greater use of contra accounts (matters contractually outwith the remit of architects or engineers) with the result that the chain of payment (memorably described as the “lifeblood” of the construction industry) became constricted. 25.61  An attempt in the case of Dawnays v Minter31 to appeal to the common law for a solution resulted – for a very brief time – in the creation by a Court of Appeal led by Lord Denning MR of what became known as “Dawnays’ Rule” under which interim certificates were to be regarded as being as good as bills of exchange under the axiom “Pay Now And Argue Later”. That attempt was later struck down by the House of Lords in the case of Gilbert Ash (Northern) Limited v Modern Engineering (Bristol) Limited32 as being a step too far for the common law; but in doing so the House of Lords accepted that the common law rights of diminution and set off could competently be varied by contract. 25.62  Contractors (and, in particular, subcontractors) were not slow to take the hint. At the same time, a level of dissatisfaction had arisen in relation to the practice of architects/ engineers “wearing two hats”. A preference arose for any disputes being resolved by an independent person (who became known as an adjudicator). The doyens of the English Bar got to work and in due course many of the standard forms were amended to provide for the independent adjudication of disputes – originally for set-off disputes only but latterly for any kind of dispute. That was the position when Sir Michael Latham was appointed by the government of the day and the UK construction industry to carry out a review 31 [1971] 1 WLR 1205. 32 [1974] AC 689.

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of the industry and it was a position that he endorsed. Largely as a result of a change of government, the Latham Report (which contained a large number of inter-locking recommendations) met the same fate as the reports that had preceded it. However, the prevailing adversarial climate was sufficiently serious for contractors (and in particular subcontractors) to lobby the new government and, as a result, provisions relating to payment and adjudication were lifted from the Latham Report and inserted into a passing Bill dealing with housing grants and the like, which ultimately received the Royal Assent and became the Housing Grants, Construction and Regeneration Act 1996. The approach of the Act 25.63  The 1996 Act adopts a restrictive definition of the type of contract to which it applies and permits the parties to such contracts to adopt whatever provisions they like, provided that those provisions comply with the minimum standards set down in the Act for payment and adjudication. 25.64  So far as the application of the Act is concerned, section 104(1) defines a “construction contract” as meaning an agreement with a person for any of the following: (a) the carrying out of construction operations; (b) arranging for the carrying out of construction operations by others, whether under subcontract to him or otherwise; and (c) providing his own labour, or the labour of others, for the carrying out of construction operations. 25.65  By section 104(2) references to a “construction contract” include agreements (a) to do architectural, design or surveying work; or (b) to provide advice on building, engineering, interior or external decoration or on the laying out of landscape. 25.66  “Construction operations” are defined in the complex provisions of section 105 of the Act. It expressly includes (section 105(1)) matters such as construction, alteration, repair, maintenance, demolition and other works to buildings or structures forming or to form part of the land and installation in any building or structure or the installation of certain specified systems. It expressly excludes (section 105(2)) a wide variety of works including certain operations relating to water, power or nuclear plant and drilling for oil or natural gas (the lobby of these industries persuaded the government that their payment and dispute resolution procedures were adequate). 25.67  Contracts of employment are expressly excluded by section 104(3); as are construction contracts with residential occupiers (section 106(1)(a)) and any other description of construction contract excluded by order of the Secretary of State. Each of the areas (England and Wales; Scotland and Northern Ireland) then has been the subject of its own exclusion order, which excluded from the application of the Act such matters as private finance initiatives, finance agreements and development agreements. The Act makes express provision for these orders to be varied in the future (probably now by regulatory order). In short, it will be necessary for parties to a contract for construction to have regard to the detailed provisions of the Act to ascertain whether or not Part II of that Act applies to their contract but in general most forms of general construction contract (except those with residential occupiers33) are likely to be caught including contracts with professional advisors. 33 Although there is, of course, no impediment to residential occupiers entering into binding and enforceable agreements to submit disputes to adjudication – see for example Domsalla v Dyason [2007] EWHC 1174 (TCC); [2007] BLR 348.

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25.68  For those “construction contracts” covered by the terms of the Act, provision is made for an entitlement to stage payments (section 109) and for an “adequate mechanism” for dates of payment in a section (section 110) that have proved troublesome in practice. The most significant provision in practice, however, has been section 111, which provides for service of a notice in order to validly withhold payment. There is also a right to suspend performance for non-payment (section 112) and certain forms of conditional payment provision are prohibited (section 113). As earlier noted, the parties are free to agree in their contract the amounts of the payments and the intervals at which or the circumstances in which they become due, but in the absence of such agreement section 109(3) applies (by implying into the parties’ contract) the relevant payment provisions of a scheme for construction contracts (one of which has been provided by secondary legislation for each of the UK areas34). These provisions were substantially modified by the Local Democracy, Economic Development and Construction Act 2009 (see paragraphs 19.48–19.61 above). 25.69  Where agreement cannot be reached as to payment then a party to a “construction contract” has the right (note that it is not an obligation) to refer a dispute arising under the contract for adjudication. It should be noted that there is no restriction upon the type of dispute that can be referred for adjudication but in practice the overwhelming majority of disputes has involved payment in some form or other. The minimum requirements that, in respect of adjudication, must be contained within the parties’ contract are contained within section 108 and are as follows: The contract shall: (i)

enable a party to give notice at any time of his intention to refer a dispute to adjudication; (ii) provide a timetable with the object of securing the appointment of the adjudicator and the referral of the dispute to him within seven days of such notice; (iii) require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred; (iv) allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred; (v) impose a duty on the adjudicator to act impartially; (vi) enable the adjudicator to take the initiative in ascertaining the facts and the law; (vii) provide that the decision of the adjudicator is binding until the dispute is finally determined by agreement, arbitration (if the contract so provides or the parties agree) or litigation; (viii) provide that the adjudicator has immunity. 25.70  Provided that these minimum requirements are included, the parties are free to agree such other adjudication or other terms that they like. In the absence of such agreement section 108(5) applies, by implying into the parties’ contract the relevant payment provisions of a scheme for construction contracts (one of which has been provided by secondary legislation for each of the UK areas35). Any decision by an adjudicator (right or wrong) is, of course, in the absence of a successful jurisdictional challenge, then by law

34 That for England and Wales is SI 1998/649. 35 The scheme for England and Wales is SI 1998/649.

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temporarily binding upon the parties until the dispute is finally determined by agreement, arbitration (if the parties so agree or the contract so provides) or by litigation.36 25.71  There appears to have been no difficulty in practice in securing the appointment of an adjudicator (although, surprisingly, the government imposed no requirement in relation to the qualifications of adjudicators) and many of the fears appear to have been unfounded. The bare bones of the legislation were clothed by Dyson J in the vital first case of Macob Civil Engineering Ltd v Morrison Construction Limited.37 Since then, there has been a steady stream of cases in which the courts have resolutely supported the concept of adjudication and also clothed it with the necessity to provide natural justice.38 25.72 In Carillion Construction Ltd v Devonport Royal Dockyard Ltd39 the Court of Appeal reviewed the circumstances in which a court would decline to enforce an adjudicator’s decision. Chadwick LJ said this:40 “The objective which underlies the Act and the statutory scheme requires the courts to respect and enforce the adjudicator’s decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It will be only in rare circumstances that the courts will interfere with the decision of an adjudicator.”

The decision contains a useful analysis and summary of the law in this area. 25.73  Since their introduction in 1998, the payment and adjudication provisions appear to have worked reasonably well in practice (it is, perhaps, a measure of that success that only a tiny minority of disputes appear to be being taken forward from adjudication for some form of “final determination”). The important point is that where their contract falls within the definition of a “construction contract” then these provisions cannot be avoided. Even if the parties’ contract were entirely silent upon the subject of payment and adjudication (an unlikely event) then, if it fell within the definition of a “construction contract”, these provisions would apply. They cannot validly be avoided by contract. Alternative dispute resolution 25.74  Alternative dispute resolution (“ADR”) is a concept that originated in the United States of America. For some time there had been increasing concern in the United States that the litigation system had become unwieldy, inefficient and too expensive. By the mid 1970s serious consideration was being given to alternatives. At this time the ADR lobby emerged.

36 In an appropriate case a point of law arising out of such a decision can be decided at the time that an application is made for enforcement: see Jarvis Facilities Ltd v Alstom Signalling Ltd [2004] EWHC 1285 (TCC); Walter Lilly & Co Ltd v DMW Developments Ltd [2008] EWHC 3139 (TCC); Geoffrey Osbourne Ltd v Atkins Rail Ltd [2009] EWHC 2425 (TCC); [2010] BLR 363. 37 (1999) 1 BLR 93. 38 The leading case on the possibility of challenges for bias or breach of natural justice is the Court of Appeal decision of Amec Capital Projects Ltd v Whitefriars City Estates [2004] EWCA Civ 1418; [2005] BLR 1. See Philip Britton, Court Challenges to ADR in Construction: European and English Law SCL Paper 152, January 2009. 39 [2005] EWCA Civ 1358; [2006] BLR 15. 40 [2006] BLR 35 paragraph [85].

402

Dispute resolution

25.75  Some of the main problems with the existing UK (and US) court systems, which have prompted consideration of ADR, include the following: (1) The majority of cases settle, although frequently very late in the trial process. (2) The result of litigation is always uncertain and there is always the possibility of an appeal. (3) There is a risk as to costs, which are likely to be unpredictable in their size. (4) There is inevitable delay involved. (5) Litigation is a drain on executive time. (6) The parties lose control of the dispute. (7) Commercial relations between the parties may be affected for the future. 25.76  ADR essentially involves private resolution of disputes without resort to litigation. There are five main types of ADR that have emerged: (1) mediation; (2) mini-trial; (3) dispute boards; (4) mutual fact finding; and (5) mutual expert. Of these, the most widely used by far is mediation. 25.77  The main intention behind ADR is to resolve disputes by a consensual rather than an adjudicative method. The parties are required to find the best commercial solution, one advantage of which is that, unlike litigation, the relationship between the parties is less likely to be affected when the proceedings are concluded. 25.78  ADR can be contrasted with litigation and arbitration, which essentially take a judgmental view of the dispute. The traditional court system involves reference of a dispute to a judge, or a panel of judges, who hear the arguments of the parties and then deliver a judgment, enforceable in and by the courts, apportioning liability between the parties on the basis of the case before the court. Arbitration offers an alternative to the judicial process in its procedural flexibility and confidentiality but, particularly where the procedure adopted is analogous to High Court proceedings, is still an adversarial procedure. Thus litigation and arbitration essentially involve apportionment of liability for a dispute, rather than a decision as to how the problem resulting in the dispute can be most readily resolved. 25.79  Under ADR, an independent third party does not usually have a judgmental role but is more of a neutral facilitator and his primary role is to assist the parties to resolve the dispute themselves rather than impose a decision on the parties.41 The advantage of ADR procedures is that they are non-binding, flexible and involve management and often a thirdparty facilitator. 25.80  The ADR process will not normally be binding, therefore, should it fail, the parties will still be able to pursue litigation or arbitration for resolution of the dispute. If, however, the ADR procedure is successful, the outcome may be recorded in a legally binding 41 Sometimes a mediator will be asked to give a non-binding evaluation of the merits of the issues under dispute if the mediation fails to achieve a settlement.

403

Dispute resolution

form. Experience has shown that even where ADR has failed, a settlement has frequently followed within a relatively short time thereafter. 25.81  Frequently, as part of the ADR settlement, a new business arrangement may be included. Mediation 25.82  By far the most frequently encountered form of ADR is mediation, which has steadily gained in popularity with commercial organisations and lawyers over the last 20 years. Initially there was widespread scepticism as to what mediation offered that was any significant improvement over settlement discussions between experienced businessmen or their advisers. Experience has shown that skilled mediators can produce surprising results in seemingly wholly intractable disputes. 25.83  Mediation is a private and voluntary process under which the parties, very often with the help of their lawyers, select a neutral party to assist them in reaching an acceptable agreement. The qualifications required of the neutral party will depend on the nature of the dispute. 25.84  Mediation may sometimes take the form of a meeting between the parties and the mediator to decide the issues for resolution including informal presentations in a joint session. A series of meetings between the mediator and the parties follows in which the parties can discuss candidly with the mediator the merits and disadvantages of each party’s case in the knowledge that what is revealed to the mediator will not be revealed to any other party without consent. The mediator will judge whether the process will be promoted by bringing the parties face to face at suitable intervals. An important part of the mediator’s skill is to persuade the parties to see not only the strengths of their position, but also the weaknesses. This often involves getting each party to gain an understanding of how the other party sees the issues in the case. 25.85  The success of this process will depend very much on the quality of the mediator. It is also essential that those involved with the mediation have sufficient authority to negotiate a settlement. It should be stressed, however, that the process described above, and that described below for the mini-trial, is by no means rigid and the parties may well adopt aspects of both procedures for their particular circumstances. 25.86  The advantages of mediation have not been lost on the English judiciary.42 Seminars on the merits of mediation have been held for the senior judiciary (ie, those sitting in the High Court and in the Court of Appeal) and a module on mediation is included in the Judicial Studies Board course on civil litigation. It is now standard practice for parties in Commercial Court and Technology and Construction Court cases to be asked whether they have considered ADR, and for directions given by the court to include provision at an appropriate point in the proceedings for the matter to be stayed for a period with a view to ADR taking place.

42 See for example the judgment of Ward LJ in Egan v Motor Services (Bath) Ltd [2007] EWCA Civ 1002; [2008] 1 WLR 1589 at paragraph [53]; and the articles by Sir Brian Neill, Mediation and its Future Prospects (2007) 73 Arbitration 2, Sir Gavin Lightman, Mediation, an Approximation to Justice (2007) 73 Arbitration 400 and Sir Anthony Colman, Mediation and ADR: a Judicial Perspective (2007) 73 Arbitration 403.

404

Dispute resolution

25.87  The merits of mediation have been recognised by the European Mediation Directive, which requires provisions as to mediation to be incorporated into domestic procedures of the courts of the Member States. 25.88  If a party unreasonably refuses to engage in ADR, there can be costs consequences.43 25.89  Where mediation is successful, a great deal of time and cost is likely to be saved. However, many mediations are themselves expensive (it not being uncommon for tens of thousands of pounds being spent between the parties), a consideration that means that if settlement can be achieved without the need for mediation, so much the better. Mini-trial 25.90  The mini-trial is a private, consensual process whereby each party is represented by a lawyer who makes a presentation of their case before a mini-trial panel. Such a panel is likely to consist of one member of management from each party and a third-party neutral adviser. Such representatives should not have been directly involved in the dispute and it is essential that they have settlement authority and sufficient seniority to participate in creating a solution. The neutral third party is intended to advise and give objective views on matters of fact and/or law as appropriate. 25.91  Prior to the case, the parties will have provided each other with limited disclosure in order to define issues and consider the strengths and weaknesses of each other’s case. Experts and other witnesses may be called as appropriate. 25.92  Following the presentation before the panel, the two representatives of the two parties on the panel will attempt to settle the dispute and will be assisted in this process by the neutral adviser. Clearly the length and timing of the negotiating sessions will depend on the complexity and number of issues under consideration. If settlement is not reached immediately following the presentation to the panel, the parties may request the neutral adviser to provide a non-binding opinion on the probable outcome of litigation. This may well prompt further investigations between the parties. Dispute boards 25.93  A relatively new method of resolving disputes is the creation of dispute boards. Such boards have been in existence for many years; for example, such a board was created in connection with the original Channel Tunnel project and a very successful scheme was implemented in respect of the new airport at Chep Lap Kok in Hong Kong. The success of these schemes has encouraged provision for such boards being included in many major contracts, particularly in respect of large infrastructure projects of the type mentioned.44 25.94  The usual structure of such schemes is to have in place a panel of (usually) three experienced, respected and impartial members who are appointed at the outset of the

43 Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576; [2004] 1 WLR 3002; Reed Executive plc v Reed Business Information Ltd [2004] EWCA Civ 887; [2004] 1 WLR 3026. 44 For a detailed treatment of the practices of dispute boards, see Chern on Dispute Boards, 3rd edition, 2015. See also Ellis Baker, Is it all necessary? Who benefits? Provision for multi-tier dispute resolution in international construction contracts, SCL Paper 154, January 2009.

405

Dispute resolution

contract and act throughout its performance, visiting the project on a regular basis and being regularly updated on its progress through written reports submitted by one or both parties. 25.95  The traditional methods of arbitration or ADR focus on trying to resolve a dispute after it has already arisen. By the time an arbitrator, mediator or conciliator has been brought on board, both sides have generally retained lawyers and costs are beginning to escalate. Frequently ADR is attempted only after litigation or arbitration has already commenced and the parties are seeking a less expensive way to deal with their differences. They will have already expended considerable amounts of time and money – not to mention goodwill, which may have evaporated. 25.96  The major difference between traditional ADR methods and dispute boards is that the parties at the very outset of their contractual relationship set up the dispute board, when the contract is entered into. The idea behind a standing dispute board is that its members accompany the project throughout its duration and can be called upon at any stage to deal with a problem between the parties as soon as it emerges. A board also visits the site at regular intervals and its members are continually updated on the progress of the implementation of the contract. This first-hand information puts the board in a unique position to make determinations about any dispute that the parties bring before it. Dispute boards not only resolve disputes brought before them, they also provide the parties with a regular forum for discussion of difficult or contentious matters. Engineer’s decisions 25.97  Certain forms of contract, particularly the ICE and the older FIDIC forms of contract contain provisions for disputes to be referred to the engineer appointed to administer the contract. This procedure has the advantage that disputes can be resolved relatively quickly by a professional closely involved in, and therefore familiar with, the project. The FIDIC forms of contract have moved away from this form of intermediate tier dispute resolution towards dispute boards. In domestic UK contracts, the advent of adjudication has done much to reduce the significance of such provisions.

406

INDEX

Abatement 19.1 – 19.62 exclusion of rights 19.22 – 19.24 Housing Grants, Construction and Regeneration Act 1996 19.48 – 19.61 limits 19.10 – 19.12 nature of 19.2, 19.7 statutory 19.9 Account of profits 11.54 – 11.59 Adjudication 25.58 – 25.73 approach of Act 25.63 – 25.73 background 25.60 – 26.62 construction operations 25.66 courts, and 25.71, 25.72 limitation 24.48 – 24.55 quantum meruit, and 5.43 – 5.45 reference of dispute to 25.69 success of 25.73 Adjudicator powers to rectify 2.54, 2.55 specific performance, and 22.44, 22.45 Affirmation rescission, and 3.41 – 3.43 Alternative dispute resolution 25.74 – 25.96 binding effect 25.80 Anticipatory breach 6.7 Anti-suit injunctions forum shopping 21.62 – 21.71 Arbitration 25.15 – 25.57 agreements to arbitrate 25.19 appeals from awards 25.48 – 25.56 Arbitration Act 1996 25.18 challenges to awards 25.48 – 25.56 choice of arbitrator 25.39 – 25.42 confidentiality 25.23 – 25.29 decision on form 25.57 disadvantages 25.33 – 25.35 discretion of tribunal 25.31 documents only procedure 25.32 enforceability of awards 25.48 – 25.56 expedition 25.38 expense 25.43 – 25.47 injunction, and 21.76 – 21.82

limitation 24.42 – 24.47 objectives 25.16 privacy 25.23 – 25.29 procedure 25.30 – 25.37 rescission, and 3.69, 3.70 separate proceedings 25.37 Arbitration clauses Set-off, and 19.62 Arbitrator powers 21.82 specific performance, and 22.43 power to rectify 2.51 – 2.53 Assignment black holes, and 10.54 – 10.65 Bankruptcy Set-off in 19.32 – 19.42 Battle of the forms 20.12 – 20.15 Betterment measure of damages, and 9.21 – 9.23 Black hole cases 10.1 – 10.76 assignment, and 10.54 – 10.65 Buncefield explosion see Buncefield explosion Contracts (Rights of Third Parties) Act 1999 10.66 – 10.73 Dunlop v Lambert, rule in 10.7 – 10.52 exception to rule 10.4 – 10.6 general rule 10.2, 10.3 Latent Damage Act 1986 10.74 – 10.76 loss suffered by third party 10.1 Panatown see Panatown the St Martins extension 10.13 – 10.20 Breach of statutory duty, damages for 12.69 Bribery rescission, and 3.26, 3.27 Buncefield explosion 10.53 Call on bond injunction restraining 21.89 Causation damages, and 11.2 – 11.13 damages in negligence, and 12.23 – 12.29

407

I ND EX

Causing loss by unlawful means 12.73 Civil Liability (Contribution) Act 1978 17.1 – 17.59 ability of defendants to satisfy award of damages 17.18 – 17.20 aim of 17.1 assessment of contribution 17.43 – 17.58 discretion of court 17.44 dishonesty 17.48 one party fraudulent and another negligent 17.47 proper approach 17.51 – 17.56 vicarious liability 17.49, 17.50 sums paid by defendant to claimant 17.57, 17.58 damage, meaning 17.8 – 17.13 “liable” 17.21 – 17.42 factual basis of claim 17.34 restitutionary liabilities 17.25 – 17.28 timing issues 17.36 – 17.42 questions arising 17.6 the same damage 17.7 – 17.20 Claiming finance costs and interest 18.1 – 18.37 Commercial construction projects 1.7 Concurrent delay 14.47 – 14.69 analysis of events 14.57 causation 14.49 causative effect 14.47, 14.68 caused by employer and contractor 14.59 computer programming evidence 14.50, 14.55, 14.56 critical path through works 14.51 determination of actual cause 14.69 employer and contractor 14.60, 14.61 extension of time, and 14.53 float in contract programme 14.58 later event for which employer responsible 14.63, 14.64 programming tools 14.50, 14.55 – 14.56 Conflict of interest rescission, and 3.26, 3.27 Construction law meaning 1.2 Contempt of court 21.58 – 21.61 Contracts (Rights of Third Parties) Act 1999 10.66 – 10.73 Contributory negligence damages, and 11.23 – 11.29 negligence damages, and 12.39 – 12.43 Co-ownership specific performance, and 22.42 Corporate insolvency Set-off, and 19.43 – 19.47

Damages additional profit 11.46 adequacy specific performance, and 22.38, 22.39 assessment of loss of chance 11.17 benefits to be taken into account 11.45 – 11.52 benevolent payments from third parties 11.51 causation 11.2 – 11.13 “but for” 11.5 concurrent causes 11.7 effective 11.3 – 11.6 novus actus interveniens 11.8 – 11.13 contributory negligence 11.23 – 11.29 distinguishing claims from claims within contract 11.60, 11.61 expectation 11.19 – 11.22 foreign currency awards 11.30 – 11.35 in lieu of injunction 21.35 – 21.45 interest as 18.5 – 18.8 see also interest loss of opportunity to bargain 11.54 – 11.59 mental distress, for 11.36 – 11.44 Misrepresentation Act 1967, under 3.32 – 3.40 negligence 12.4 – 12.46 see also Negligence, damages in payments by insurers 11.52 physical inconvenience, for 11.36 – 11.44 reliance 11.19 – 11.22 standard of proof 11.14 – 11.18 balance of probabilities 11.14 taxation 11.53 tort see Tort, damages in Damages for breach of contract 8.1 – 9.39 Hadley v Baxendale see Hadley v Baxendale losses within reasonable contemplation 8.5 – 8.27 measure of damages see Measure of damages Deceit, damages for 12.61 – 12.65 date of misrepresentation 12.65 Declarations 23.1 – 23.43 added to other claims 23.3 – 23.5 advantages 23.1, 23.12 – 23.15 exclusion of jurisdiction by agreement 23.10 granting 23.43 interim 23.19 – 23.27 jurisdiction of courts 23.9 legal effect of judgement 23.11 nature of 23.2 negative 23.28 – 23.42 abuse of power 23.31 – 23.35 enforcement of arbitration, and 23.42 jurisdictional advantage 23.37 reluctance of courts to grant 23.41 resolution of disputes 23.40

408

I NDE X

rights, of 23.17, 23.18 summary of principles 23.16 Defective Premises Act 1972 exclusion clauses, and 20.72 Delay concurrent see Concurrent delay damages for breach of contract, and 8.19 frustration, and 7.19 – 7.21 loss of profit, and 13.5 rescission, and 3.44 Dispute boards 25.93 – 25.96 Dispute resolution 25.1 – 26.97 Dunlop v Lambert, rule in 10.7 – 10.52 The Albazero 10.9 – 10.12 Duress rescission, and 3.23 – 3.25 Economic torts 12.70 – 12.73 Engineer’s decision 25.97 Equitable relief limitation 24.36 – 24.37 Exclusion clauses 20.1 – 20.74 battle of the forms 20.12 – 20.15 consequential losses 20.39 – 20.45 construction contra proferentem 20.18 consumer contracts 20.71 Contracts (Rights of Third Parties) Act 1999 20.74 Defective Premises Act 1972 20.72 deliberate breach 20.34 – 20.36 entire agreement clauses 20.46 fraud, and 20.29 – 20.33 incorporation 20.2 – 20.15 indirect loses 20.39 – 20.45 interpretation 20.16 – 20.51 liability for negligence 20.19 – 20.27 remedies for misrepresentation, and 20.70 repugnancy 20.37, 20.38 schemes allocating risks 20.47 – 20.51 strict construction 20.17 sufficiency of notice 20.4 – 20.11 terms implied by statute 20.73 Unfair Contract Terms Act 1977 20.52 – 20.69 Extension of time clauses 14.32 – 14.46 acceleration 14.39 calculation 14.36 construction 14.43, 14.35 delay, and 14.37, 14.38 failure to operate machinery 14.40, 14.41 provisions limiting right to claim 14.42 supervising officer 14.34 waiver of compliance with condition precedent 14.45

Foreign court recovery of damages awarded by 15.19 – 15.21 Foreign currency awards 11.30 – 11.35 Forum shopping Anti-suit injunctions 21.62 – 21.71 Fraud exclusion clauses, and 20.29 – 20.33 limitation 24.28 – 24.30 limitation clauses, and 20.29 – 20.33 rescission, and 3.51 Frustration 7.1 – 7.53 acts of third party 7.35 amount or significance of variations 7.23 application of doctrine 7.14 – 7.31 consequences of discharge through 7.44 – 7.50 default of contractor, and 7.32 – 7.34 delay 7.19 – 7.21 destruction of subject matter of contract 7.15 – 7.18 difficulties in obtaining supplies 7.25 – 7.27 doctrine 7.2 – 7.8 doctrine not to be lightly invoked 7.10 effect 7.9 effect of contractual provisions 7.38 – 7.43 extrinsic evidence as to assumptions of parties 7.11 – 7.13 foundation of modern law 7.4 Law Reform (Frustrated Contracts) Act 1943 7.46 – 7.50 legislative changes 7.29, 7.30 modern doctrine 7.5 multi-factorial approach 7.7 mutual mistake, and 7.51 – 7.53 object of doctrine 7.6 price, changes in 7.22 sanctity of contract, and 7.2, 7.3 secondary obligation, and 7.44 self-induced 7.32 – 7.37 shortage of labour 7.24 standard forms provisions 7.39 – 7.43 strikes 7.28 variation instruction, and 7.37 war, and 7.31 Fundamental breach repudiation, and 6.8, 6.9 Global claims 16.1 – 16.35 adequacy of pleading 16.13 – 16.25 apportionment of loss and expense caused by disruption 16.29 – 16.32 categories 16.6

409

I ND EX

effect of authorities 16.34 essence of 16.33 loss and expense claim 16.26 meaning 16.27 pleadings stage 16.8 – 16.11 sufficiency of pleadings 16.5 tensions presented by 16.3 Good faith repudiation, and 6.19 Hadley v Baxendale 8.1 – 8.27 acceptance of responsibility 8.11 – 8.13 categories of consequences of breach of construction contract 8.20 commercial background of contract 8.17, 8.18 damage likely to incur 8.14 delay, and 8.19 effect of final certificate 8.21 falling property market, and 8.27 holding costs, and 8.24 knowledge of business activities 8.22, 8.23 losses within reasonable contemplation 8.5 – 8.27 particular type or kind of loss 8.15, 8.16 reasonable foreseeability 8.8, 8.9 reformation of principles 8.7 two rules 8.6 Housing Grants, Construction and Regeneration Act 1996 19.48 – 19.61 abatement, and 19.48 – 19.61 set-off, and 19.48 – 19.61 Indemnity clauses 15.59 – 15.64 construction 15.63 FIDIC Red Book 15.61 JCT Standard Building Contract (SBC/Q) 2007 15.60 Inducing breach of contract 12.71 Infringement of intellectual property rights 12.66 – 12.68 Injunctions 21.1 – 21.90 anti-suit forum shopping 21.62 – 21.71 arbitration proceedings, and 21.76 – 21.82 contempt of court, and 21.58 – 21.61 damages in lieu 21.35 – 21.45 final mandatory 21.7 – 21.9 final prohibitory 21.2 – 21.6 freezing 21.21 – 21.33 interim 21.10 – 21.20 limitation 24.36 – 24.37 notification 21.34 nuisance, and 21.83 – 21.86 powers of arbitrator 21.82

refusal in respect of tendering process 21.90 restraining call on board 21.89 restraining proceedings bought in breach of agreed dispute resolution procedure 21.72 – 21.75 retention monies, and 21.87 – 21.88 trespass, and 21.83 – 21.86 Insolvency Set-off in 19.28 – 19.47 Interest damages, as 18.5 – 18.8 adjudication 18.19, 18.20 Arbitration Act 1996 18.15 – 18.18 delay, and 18.12, 18.13 exercise of discretion 18.11 Late Payment of Commercial Debts (Interest) Act 1998 18.21 – 18.37 rate 18.14 Senior Courts Act 1981 18.9 – 18.14 Interim injunctions 21.10 – 21.20 Laches rescission, and 3.44 Lapse of time 19.25, 19.26 Late Payment of Commercial Debts (Interest) Act 1998 18.21 – 18.37 compensation 18.35 discretion of court 18.33 inaccurate invoices, and 18.34 ousting of statutory interest 18.25 period over which statutory interest runs 18.29 qualifying debts 18.28 rate of interest 18.30, 18.31 section 2 18.22 statutory interest 18.24 substantial remedy 18.26 Latent Damage Act 1986 10.74 – 10.76 Legislative changes frustration, and 7.29, 7.30 Letter of intent quantum meruit, and 5.20 Limitation 24.1 – 24.56 acknowledgement 24.35 adjudication 24.48 – 24.55 amendment of proceedings 24.38 – 24.41 arbitration 24.42 – 24.47 claims for contribution under Civil Liability (Contribution) Act 1978 24.31 – 24.32 claims in tort 24.8 – 24.26 concealment 24.28 – 24.30 contract by deed 24.3 contract claims 24.2 – 24.7 accrual of cause of action 24.4 – 24.7 Defective Premises Act 1972 24.34

410

I NDE X

equitable relief 24.36 – 24.37 fraud 24.28 – 24.30 injunctions 24.36 – 24.37 longstop date 24.27 mistake 24.28 – 24.30 negligence 24.8 – 24.15 accrual of cause of action 24.11 – 24.15 negligence and latent damage 24.16 – 24.26 date of knowledge 24.20 – 24.26 knowledge 24.20 – 24.26 starting date 24.19 nuisance 24.33, 24.34 specific performance 24.36 – 24.37 tolling agreements 24.56 trespass 24.33, 24.34 Limitation clauses 20.1 – 20.74 battle of the forms 20.12 – 20.15 Contracts (Rights of Third Parties) Act 1999 20.74 fraud, and 20.29 – 20.33 incorporation 20.2 – 20.15 interpretation 20.16 – 20.51 sufficiency of notice 20.4 – 20.11 Unfair Contract Terms Act 1977 20.52 – 20.69 Liquidated damages 14.1 – 14.31 decrease 14.23 – 14.26 deduction 14.70, 14.71 increase 14.23 – 14.26 prevention principle 14.27 – 14.31 purposes 14.3 Litigation 25.2 – 25.14 case management 25.9 directions 25.11 expert witnesses 25.12, 25.13 part 20 proceedings 25.7 pre-action protocol 25.5, 25.6 reasoned judgement 25.14 Loss and expense, recovery of 18.2 – 18.4 Loss of profits 13.2 – 13.14 additional work 13.4 delays 13.5 exclusion clauses 13.38 limitation of liability clauses 13.38 recovery in contract 13.2 – 13.6 recovery in tort 13.7 – 13.14 duty of case 13.11, 13.12 negligent misrepresentation 13.14 work omitted from contract 13.6 Measure of damages 8.2 – 8.4, 9.1 – 9.39 advice of expert 9.18 betterment 9.21 – 9.23 cost of repairs 9.3 – 9.15 date of assessment 9.24 – 9.28 date of cause of action 9.24

date of repairs or reinstatement 9.25 defective performance 9.7, 9.8 delay in completion 9.2 delay in remedial works 9.26 diminution in value 9.3 – 9.15 diminution in value of property 9.27 diminution in value of reversion of freehold 9.15 disproportionate cost, and 9.11 expenses incurred 9.28 mitigation of loss 9.29 – 9.39 see also Mitigation of Loss nature of breach, and 9.1 reliance upon advice 9.16 – 9.20 replacement chattel 9.14 subrogated actions 9.10 Mediation 25.76, 25.82 – 25.89 form of 25.84 judiciary, and 25.86 nature of 25.83 Mental distress damages for 11.36 – 11.44 Misrepresentation rescission, and 3.5 – 3.22 Mistake limitation 24.28 – 24.30 Mini-trial 25.90 – 25.92 Mitigation of loss 9.29 – 9.39 appeal, and 9.39 burden of proof 9.32 construction cases 9.35 duty to take reasonable steps 9.31 increase of overall costs, and 9.38 standard of reasonableness 9.33, 9.34 Misrepresentation Act 1967 3.32 – 3.40 consequential losses 3.40 damages under 3.32 – 3.40 distinction between fraudulent and innocent misrepresentation 3.35 purchase of property on bases of misrepresentation 3.39 Mutual mistake frustration, and 7.51 – 7.53 rectification, and 2.22 – 2.35 Negligence exclusion clauses, and 20.19 – 20.27 limitation 24.8 – 24.15 Negligence and latent damage limitation 24.16 – 24.26 Negligence, damages in 12.4 – 12.46 causation 12.23 – 12.29 concurrent causes 12.25 intervening act of third part7 12.29 negligent advice 12.26 – 12.28 personal injury cases 12.24

411

I ND EX

contributory negligence 12.39 – 12.43 economic loss 12.10 – 12.22 cases arising out of construction projects 12.16 – 12.22 control mechanism 12.11 damage to other property 12.19, 12.20 deterrent effect of potential liability 12.14, 12.15 direct consequence of physical damage 12.22 duty of care 12.13, 12.14 proximity 12.12 special relationship of proximity 12.21 foreseeability 12.30 – 12.34 contract and tort 12.33, 12.34 kind of damage 12.30 interrelationship between scope of duty, causation and foreseeability 12.35 – 12.38 measure of damages 12.44 personal injury 12.8, 12.9 physical damage 12.8, 12.9 scope of duty 12.4 – 12.7 Novus actus interveniens 11.8 – 11.13 Nuisance injunction, and 21.83 – 21.86 limitation 24.33, 24.34 Nuisance, damages in 12.47 – 12.53 diminution in value 12.47 negotiating damages 12.49 Panatown 10.21 – 10.52 broad ground 10.36 – 10.46 facts 10.23 future developments 10.49 – 10.52 narrow ground 10.28 – 10.35 accountability to third party 10.33, 10.34 displaced where other remedies 10.31, 10.32 good law 10.29 rule of law, as 10.30 summary 10.35 result 10.47, 10.48 spectre of double recovery 10.46 Penalty clauses 14.5 – 14.26 Cavendish Square Holdings B V v Makdessi; ParkingEye Ltd v Beavis 14.13 – 14.19 implications of decision 14.20 – 14.22 law before Cavendish Square Holdings v Makdessi 14.5 – 14.12 unenforceability 14.5 – 14.26 Physical inconvenience damages for 11.36 – 11.44 Prevention principle see Liquidated damages Price, changes in frustration, and 7.22

Quantum meruit 5.1 – 5.46 additional work going beyond variation 5.13 – 5.18 adjudication 5.43 – 5.45 construction contracts 5.23 contract not concluded 5.21 contract terminated before works complete 5.33 contract void for want of authority 5.41 contract works for lump sum 5.31, 5.32 contractual claim 5.3 – 5.7 cynical repudiation of contract 5.35 defective works 5.29 disputes as to valuation 5.5 free acceptance, role of 5.10 letter of intent, and 5.20 loss-making contract, and 5.34 meaning 5.2 negotiations in respect of terms of expected contract 5.25 – 5.26 payment by instalments, and 5.37 quantification 5.24 – 5.29 questions for court 5.22 repudiation by contractor 5.36 restitution, and 5.8 – 5.46 theoretical basis 5.9 valuation of claim 5.24 – 5.29 variation, and 5.13 – 5.18 variation to existing contract 5.6, 5.7 work done in anticipation of contract 5.19 – 5.29 work done under contract discharged through breach 5.30 – 5.37 work done under contract with one party for benefit of another 5.46 work done under void or unenforceable contract 5.38 – 5.42 Recovery of costs 15.48 – 15.58 assessment 15.50 – 15.58 discretion of court 15.49 Recovery of damages foreign court, awarded by 15.19 – 15.21 passing on claim awarded in previous arbitration 15.22 – 15.26 passing on claim awarded in previous proceedings 15.11 – 15.18 recovery of monies paid in settlement of easier claim 15.27 – 15.47 third party (part 20) proceedings 15.2 – 15.10 defendant wishing to pass potential liability to more than one third party 15.8 disputes between third parties 15.9 joinder of proceedings 15.4 Recovery of damages and costs 15.1 – 15.64

412

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Recovery of monies paid in settlement of earlier claim 15.27 – 15.47 competent legal advice 15.36, 15.37 evidence of settlement 15.35 reasonable settlement 15.38 – 15.46 relevance of settlement 15.28 – 15.34 settlement of number of claims 15.47 Recovery of overheads and management charges 13.15 – 13.37 delays, and 13.21 – 13.23 Eichleay Formula 13.29, 13.30 Emden Formula 13.28, 13.30 expense incurred in pursuing claimant’s legal remedies 13.37 formula basis 13.31 Hudson Formula 13.27 off-site 13.19, 13.24 omission of work, and 13.20 on-site 13.18 salary expenses 13.33 search and seizure order 13.35 Rectification 2.1 – 2.57 adjudicator, powers of 2.54, 2.55 aim of 2.4 arbitrator, powers of 2.51 – 2.53 carefully negotiated commercial contracts, and 2.34 conduct after date of contract 2.30 contractual provision allowing correction of errors 2.50 contractual provisions, impact of 2.46 – 2.50 discretionary remedy 2.56, 2.57 entire agreement clause, and 2.33, 2.46 – 2.49 intention of parties 2.27, 2.28 material ascertaining true meaning of contract 2.11 – 2.15 mistake on face of contract 2.10 mutual mistake 2.22 – 2.35 ordinary and natural meaning of words 2.5 – 2.9 outward expression of accord 2.29, 2.31 scope of remedy 2.17, 2.18 standard of proof 2.19 – 2.21 unilateral mistake 2.36 – 2.45 awareness of omission or mistake 2.38 – 2.40 conceptual difficulties 2.43 degree of sharp practice 2.39 Remedies classification 1.4 meaning 1.3 Remedies under contract 4.1 – 4.9 machinery 4.9 rights granted 4.8

Repudiation at common law 6.4 – 6.20 acts on part of employer 6.14 after performance contract 6.8 anticipatory breach 6.7 condition of contract, and 6.16 delay 6.13 election by innocent party 6.18 fundamental breach, and 6.8, 6.9 good faith, and 6.19 identification of grounds 6.20 lack of due progress 6.13 principles 6.5, 6.6 temporary nonconformities 6.11 wrong reliance on expenses termination clause 6.15 Rescission 3.1 – 3.70 affirmation 3.41 – 3.43 arbitration, ad 3.69, 3.70 bribery 3.26, 3.27 clause allocating risk, and 3.56, 3.57 clause excluding effect of misrepresentations 3.59, 3.60 conflict of interest 3.26, 3.27 contractual provision, effect 3.55 – 3.68 defences 3.41 – 3.44 delay 3.44 duress 3.23 – 3.25 election or decision 3.29 entire agreement clause, and 3.58 fraud, and 3.51 grounds 3.1 – 3.4 how effected 3.28 – 3.31 impossibility of restoration of parties’ pre-contractual positions 3.45 – 3.52 innocent misrepresentation 3.34 laches, and 3.44 misrepresentation, and 3.5 – 3.22 form of representation 3.7 inducement 3.20 – 3.22 materiality 3.20 – 3.22 reliance 3.20 – 3.22 representation must be false 3.10 – 3.12 representation, need for 3.6 – 3.9 representation of fact 3.13 – 3.16 representation of law 3.17 – 3.19 representation of opinion or intention 3.13 – 3.16 sales talk 3.9 remedy, whether 3.28 – 3.31 restriction of liability, and 3.61 – 3.68 right to rescind 3.30 third parties, and 3.53, 3.54 voidable contract 3.2 Restitution

413

I ND EX

quantum meruit, and 5.8 – 5.46 Retention monies injunctions, and 21.87 – 21.88 Set-off 19.1 – 19.62 arbitration clauses, and 19.62 bankruptcy 19.32 – 19.42 connected cross-demands 19.3 contractual 19.18 – 19.21 corporate insolvency, and 19.43 – 19.47 equitable 19.13 – 19.17 exclusion of rights 19.22 – 19.24 Housing Grants, Construction and Regeneration Act 1996 19.48 – 19.61 insolvency, in 19.28 – 19.47 limitation 19.27 mutual liquidated demands 19.4 – 19.6 nature of 19.2 Shortage of labour frustration, and 7.24 Specific performance 22.1 – 22.46 adequacy of damages 22.38, 22.39 adjudicator, and 22.44, 22.45 arbitrator, powers of 22.43 contracts requiring constant supervision 22.29 – 22.35 co-ownership, and 22.42 exceptions to general rule 22.19 – 22.21 injustice to defendant 22.36, 22.37 limitation 24.36 – 24.37 mutuality of remedy 22.40, 22.41 nature of 22.1 principles for granting 22.5, 22.6 reluctance of courts to grant in construction contracts 22.16 – 22.18 remedy rarely granted 22.4 special circumstances 22.22 – 22.24 sufficient definition 22.25 – 22.28 third parties 22.46 when not decreed 22.7 – 22.15 Strikes frustration, and 7.28 Taxation damages, and 11.53 Temporary nonconformities

repudiation, and 6.11 Tendering process refusal of injunction in respect of 21.90 Termination 6.1 – 6.39 consequences 6.33 – 6.39 contractor’s reputation, and 6.2 defective works at date of 6.36 interplay of common law and contractual rights 6.30 – 6.32 loss, and 6.35 measure of loss 6.37 Red Book 6.24, 6.27 SBC 6.23, 6.26 standard forms of contract, under 6.21 – 6.29 The Albazero 10.9 – 10.12 Third parties see Black hole cases Tolling agreements 24.56 Tort, damages in 12.1 – 12.73 Trespass injunction, and 21.83 – 21.86 limitation 24.33, 24.34 Trespass, damages in 12.54 – 12.60 loss of amenity 12.59 reasonable cost of reinstatement 12.55, 12.56 Undertaking as to damages 21.46 – 21.57 assessment of damages for breach 21.46 – 21.57 Unfair Contract Terms Act 1977 20.52 – 20.69 application in non-consumer context 20.67 – 20.69 business liability 20.62 deals as consumer 20.57 deals on the other’s written standard terms of business 20.58 – 20.60 negligence 20.55 negligence liability 20.53 reasonableness 20.54, 20.56, 20.63, 20.64 – 20.66 standard forms, and 20.61 Unilateral mistake rectification, and 2.36 – 2.45 War frustration, and 7.31

414