Legal Arguments To Pursue The Developer

The Developer’s obligation to the Client is based on and derived from the implied or express terms of the Development Agreement (the ‘Contract’) and Deed of Warranty. They also place on the Developer a duty of care [1] similar to that owed under tort.

It would seem likely that the Client has a case against the Developer for breach of contract and a concurrent breach of a duty of care in tort due to defective performance and professional negligence / liability. Also the Developer owes the Client a duty of care for damage that has been suffered as a result of his negligent misstatement.

The issues are considered under the following:

The defective construction of the Flooring [2] .

The Developer’s appointed agent didn’t check the design / works properly [3] .

The Developer didn’t enforce the defects liability / rectification period provisions appropriately [4] . After practical completion the contractor is obliged to rectify defects within the six month period [5] , this wasn’t done, ‘a certificate of practical completion may not be issued where there are patent defects’. [6]

The Developer agreed ‘to procure various duty of care deeds executed as deeds in the form annexed to the Development Agreement from: the Contractor, the Employer’s Agent and every sub-contractor [7] .’ This conflicts with amendments of the JCT contract between the Developer and the Contractor. As the Sub-contractor did not enter into the required duty of care deed, the Client cannot enforce the benefits. A possible remedy would be damages for breach of

contract [8] or request the court to force the Contractor to provide a signed duty of care deed [9] .

Breach of Contract

When a party to a contract fails to carry out their side of the obligation, they will be considered in breach of contract. Breach can arise, in practice, in three different ways: total non-performance, partial performance, or defective performance. This breach of contract is due to the defective performance of the Developer.

Remedies

Damages are a basic remedy available for breach of contract and are intended to compensate the innocent party for the loss have suffered as a result.

In order to recover damages the Client must show they have suffered actual loss; in making an award for damages the courts will consider what consequences of the breach is the Developer legally responsible for [10] and then the principle upon which the damage is measured can only be determined. The general rule governing remoteness was established in Hadley v Baxendale [11] ; we can establish from this that the damages the Client may expect to receive should be those: ‘as either arising naturally………………from the breach of contract itself, or as may be reasonably 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’.

The usual basis of compensatory damages is stated by Parke. B [12] ;” 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, with respect to damages, as if the contract had been performed”

In “design and construct” contracts, case law over the years has shown the Developer will be under an obligation to ensure the finished product will be (reasonably) “fit for its intended purpose” [13]

In Viking v T.H. White [14] , Judge John Davies said; “The virtue of an implied term of fitness for purpose is that it prescribes a relatively simple and certain standard of liability based on the “reasonable” fitness of the finished product, irrespective of considerations of fault and of whether its unfitness derived from the quality of work or materials or design”.

The defective construction work is a breach of contract by the Developer as they have failed to comply with the express requirements of the contract, and the implied terms indicating workmanship, quality and performance.

Hudson states: ‘On grounds of both principle and practicality, a contractor will be in immediate breach of contract whenever his work fails to comply with the contract descriptions or requirements,……….’

If the Developer doesn’t complete his part of the project properly, measure of damages will be the cost of finishing the project in a practical manner less the contract price [15] . Damages are based on the loss suffered by the injured party and not on the gain by the party in breach [16] . If there has been an overpayment to the Developer even though they have failed to complete, the Client can recover the overpayment even if he manages to get the work completed elsewhere [17] . The measure of damages is the cost of reinstatement when the defect was discovered [18] . If the Client waits for the result of this case before carrying out the remedial work they will generally not lose their entitlement to damages [19] .

In Boncristiano v Lohmann [20] there was a claim for damages by building owners for inconvenience and distress caused by defective workmanship. Winneke P referred to Baltic Shipping [21] finding that “………”awards of general damages can be made to building owners who have suffered physical inconvenience, anxiety and distress as a result of the builders’ breach of contract……”

Tortious Liability

The Developer owes a duty of care to the Client, in the contract this duty of care is governed by the interpretation of the terms, but in tort while alike, this duty of care has developed through the common law system. Tort of negligence introduces accountability for careless acts or failures to act which cause harm to other people [22] .

Remedies

The Developer could be held liable for damage and loss caused by their negligence. [23] In Hedley it was decided that liability for pure economic losses flowing from negligent statements made could, in theory and in the right circumstances, give rise to a liability for the pure economic loss which may have been caused. Murphy [24] determined that there should be no pure economic loss for ‘normal’ negligence, but it could apply ……….”if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise.”

The nature of the duty of care in contract or tort influences the measure of damages resulting in the breach. The remedy in contract demands that the claimant is entitled to the benefit of his bargain, whereas tort entails that he is restored to the position which he would have occupied but for the tort. So in claims against professionals, the contractual and tortious measures generally match.

‘An architect undertaking any work in the way of his profession accepts the ordinary liabilities of any man who follows a skilled calling. He is bound to exercise due care, skill and diligence………………he must bring to the task that he undertakes the competence and skill that is usual among architects practising their profession. And he must use due care. If he fails in these matters and the person who employed him suffers damage, he is liable to that person. This liability can be said to arise either from a breach of contract or in tort [25] .’

Where a professional is engaged, the duty of reasonable care and skill will be owed in contract and tort. Esso v Mardon [26] established that a victim of negligent professional advice could choose an action in tort, even though the victim had a contract with the adviser. In Robinson v PE Jones [27] , it was held that a contractor can owe a concurrent liability in contract and tort. The Murphy rule was rejected, as this wasn’t considered to exclude circumstances where there was a “special relationship of proximity” due to the parties’ contractual relationship. Henderson v Merrett [28] was considered establishing the existence of a contractual relationship with an express or implied obligation to exercise reasonable skill and care; this could defend an assumption of responsibility for pure economic loss, that the principle could be applied to cases involving the provisions of all services. Judge Davies agreed with the ruling in Tesco v Costain [29] that “no logical justification for making an exception in the case of a builder or the designer of a building”. Making it clear that there was no need to distinguish between the case of a professional designer and a contractor, especially if a company offered full design and build services. The court held, in principle, a contractor can owe a concurrent duty of care in contract and in tort in respect of economic loss.

Limitation

The Limitation Act 1980 regulates time limits for bringing legal claims; the most relevant for the construction industry are contractual and tortious claims.

The ‘Development Agreement’ and the ‘Deed of Warranty’ are executed as deeds; claims in relation to contracts executed as deeds must be made within twelve years from the date on which the cause of action arises. The date a cause of action arises can vary, but it is generally the date that the contract was breached [30] . The breach of contract on this occasion was before June 2004 but after June 2002, so it stands to reason that a claim can be made twelve years from these dates, which is between June 2014 and June 2016.

Claims in relation to negligence, must be made within six years from the date you suffer damage [31] , as a result of the breach of tortious duty. Hence, a claim can be made up to September 2010 as this is six years from September 2004 when the defect began to manifest itself. There are potentially better limitation periods here as time doesn’t accrue until the problem becomes known; subject to a counterclaim that it should have been discovered earlier [32] . It provides a further 3 years from expiry of the primary limitation period, subject to a longstop date of 15 years.

Legal arguments to pursue the Contractor

The Contractor’s obligation to the Client is based on and derived from the implied or express terms of the ‘Deed of Warranty’. The Contract has also placed on the Contractor a duty of care similar to that owed under tort.

As the Contractor is responsible for the design and construction of the works, he may be liable for a defect that is caused by negligent design, by poor workmanship or by a mixture of both [33] . It seems likely that the Client has case against the Contractor for breach of contract and a concurrent breach of a duty of care in tort due to defective performance and professional negligence / liability [34] .

The contractor failed to discharge his obligations to the building contract [35] due to the following:

The contractor is obliged to carry out and complete the works in a proper and workmanlike manner, compliant with the contract [36] . There is express reference to completing the design for the works, and reliance upon the contractor for materials, goods and workmanship otherwise necessary but not referred to in the documents [37] .

The contractor is liable for his own design to the extent that it warrants reasonable care and skill [38] .

After practical completion the contractor is obliged to rectify defects unless the employer decides otherwise and takes an appropriate deduction instead [39] .

Where work or materials do not comply with the contract, the employer may instruct the contractor to remove them from site [40] . The employer may also order any consequential changes necessary, which will not attract any extension of time or addition to the contract sum.

The contractor has failed to exercise all reasonable skill, care and diligence expected of a competent design and build contractor; due to the defective performance of the Flooring [41] .

Breach

The Contractor is in breach of contract as the JCT provides that any defective work or materials shall be corrected by the Contractor at no cost to the Client. The Contractor must put right his breach at his own cost, instead of the cost he will have to bear if the Client engages others to do the work. It may be that, in allowing the Contractor necessary access to do the work, the Client suffers other losses. Correcting the defects may cause disruption to the college which may require temporary accommodation. Additional costs may be recovered by the Client [42] .

As there is a contractual relationship with an implied or expressed obligation to use reasonable skill and care; this could be ample scope to defend an idea of responsibility in tort for pure economic loss [43] .The Contractor can in principle owe a concurrent duty of care to the Client in relation to economic loss [44] .

In Greaves v Baynham, [45] Lord Denning said; “Now, as between the building owners and the Contractors, it is plain that the owners made known to the Contractors the purpose for which the building was required, so as to show that they relied on the Contractors’ skill and judgement. It was therefore, the duty of the Contractors to see that the finished work was reasonably fit for the purpose for which they knew it was required. It was not merely an obligation to use reasonable care; the Contractors were obliged to ensure that the finished work was reasonably fit for the purpose”.

Limitation

As the ‘Deed of Warranty’ was executed as a deed and the breach of contract was between June 2002 and June 2004 a contractual claim can be made up to twelve years from the agreed breach of contract date i.e. before June 2016.

A tortious claim can be made up to September 2010 as this is six years from September 2004 when the breach was accrued.

Legal arguments to pursue the Agent

The Agent entered into a Duty of Care Deed with the Client to check the design (the “Services”) at the new College. The Client considers that the Agent should be held responsible for professional negligence as parts of the Services were carried out negligently. The defective Flooring shouldn’t have been being signed off to achieve practical completion. Practical completion is achieved where the works are so substantially complete and that the building can be put to its intended use with safety and convenience [46] .

The Agent has a duty of care [47] to ensure that their Services are carried out in a good and workmanlike manner, in accordance with good practice and reasonable skill and care [48] .

It would seem likely that the Client would have a case against the Agent for a breach of contract or breach a duty of care in tort, due to his professional negligence.

Breach

The ability for recovery of economic loss in tort is detailed in Hedley; the Agent is liable in negligence as the advice given and relied upon by the Client has been detrimental to the project. In Henderson v. Merrett [49] Lord Goff held that Hedley was a supposition of responsibility by the person offering information to the claimant coupled with trust by the claimant. Once established it is unnecessary to consider whether it is “fair, just and reasonable” to impose liability.

The Agent is under a duty to exercise reasonable care and skill. The required standard of care and skill is that of the ordinary skilled person of the same discipline. It is often referred to as the Bolam principle [50] . But in Gloucestershire v Torpy [51] it was held that the standard of care expected from specialist engineers may be more onerous than general practice engineers.

The case of Jarvis v Westminster [52] makes it clear, if there is a significant omission or defect to the Works that affects the functionality of the development at the time that completion is sought then completion cannot be certified. Thus, if the project exhibits any such defect then it would automatically fail.

Viscount Dilhorne said [53] : “One would normally say that a task was practically completed when it was almost, but not entirely finished; but practical completion suggests that that is not the intended meaning and what is meant is the completion of all work that has been done”. He added that the certificate could not be issued if there are patent defects.

Negligence was defined in Blyth v Birmingham Waterworks [54] as “doing something, which a prudent or reasonable man would not do”. A victim of negligent professional advice can choose a tortuous based action even if there is a contract in place [55] . The duty of reasonable skill and care owed in a contract by a professional is also the duty of care in negligence. In Greaves v. Baynham Meikle [56] , it was held that the engineers were in breach not only of their duty to exercise reasonable care and skill but also of an implied duty that the factory floor would be reasonably fit for the purpose for which it was required.

Limitation

A tortious claim can be made up to July 2013 as this is six years from July 2007 when the breach was accrued i.e. when the client wrote to the Agent.

Legal arguments to pursue the Sub-Contractor

It seems likely that the Client has a case against the Sub-Contractor for a breach of a duty of care in tort [57] , due to his defective performance, in respect of the supply and installation of the Flooring.

A Duty of Care Deed was to be procured between the Client and the Sub-Contractor but this has been omitted by the amendments of the JCT contract, so we cannot pursue the Sub-Contractor in contract.

Tortious Liability

It was laid down in Donoghue that a manufacturer of products would be liable for negligently causing personal injury or property damage to a consumer notwithstanding the absence of a contract between them. The Sub-Contractor owes the Client a duty of care in tort so that he can be restored to the position which he would have occupied but for the careless act.

Remedies

The measures of suing for the costs of repairs in tort due to defective work was laid down in Anns v Merton [58] and continued to be recoverable with Junior Books v Veitchi [59] ; but this method provoked criticism from the courts as it couldn’t distinguish between a ‘defect’ and ‘dangerous defect’ . It was eventually removed by two important decisions; D & F Estates [60] held that liability in tort is limited to defects which cause physical damage to property other than the building itself or injury to persons. Damage to the building itself is regarded as pure economic loss and therefore irrecoverable. The final step was taken in Murphy where the ruling in Anns was declared wrong, emphasising again that loss suffered by defects is ‘pure economic loss, which is not recoverable in tort.

So it would seem that recovering costs from the Sub-contractor for ‘pure economic loss’ is a no go area; but there is hope, with Henderson it has become apparent that this principle has wide-ranging applications. Professionals provide information / advice and contractors provide services, all of which is relied upon by the employer. In Barclays v. Fairclough [61] it was held that a specialist sub-contactor owed a duty of care to the contractor with regard to the economic loss suffered by it (i.e. remedial works). The court stated “A skilled contractor undertaking maintenance work to a building assumes a responsibility which invites reliance no less than the financial or other professional adviser does in undertaking his work.”

There is also a premise called the ‘Complex Structure Theory’. Prior to Murphy, it was considered there could be situations where an element of a building could be different from another, that damage to one part of the structure caused by another, might qualify as “other property” and therefore recoverable in tort. So as the Sub-contractor has installed a particular component which is defective there is a question as to whether that loss is recoverable on the basis that the damage was to “other property In Linklaters v McAlpine [62] the court’s opinion was that a sub-subcontractor could owe a duty of care to the occupant; that any damage to the building apart from damage caused to his own works, as a result of defective works, could in theory, be recoverable in tort. Hence, pure economic loss could be recoverable.

As discussed liability in tort is applicable to defects which cause injury; the Developer can sue the Sub-contractor in this respect as and a number students have tripped over the defective floor.

Limitation

A tortious claim can be made up to September 2010 as this is six years from September 2004 when the breach was accrued.