Liability at Common Law

You are a solicitor in private practice and are asked to advise a pension fund who are interested in purchasing a city centre shopping mall. The shopping mall was completed 5 years ago and is still owned by the original developer. It is fully occupied by tenants who have full repairing and insuring leases. You have been provided with a surveyor's report which identifies a number of defects. The most significant is a water penetration problem through the patent glazing system. Repair work has been carried out from time to time by the original main contractor but the problem persists.

The pension fund advise you that they wish to proceed with the purchase notwithstanding the defects. However, they do wish to be able to seek relief from the contractor and/or the original design team in respect of the defects. You are told that the work was procured under a JCT 2005 design and build contract and that the design team were novated across. You are asked in the first instance to provide the pension fund with a report which explains what recourse would be available to the pension fund in respect of the defects. You are asked to set out what further information you require and why it is required.

You are also asked to advise the pension fund how best it can protect itself. The pension fund have an in house lawyer who has indicated that relevant case law should be quoted. Introduction: The main aim of this assignment is to give a proper advice to the pension fund for the best available recourse which can be provided to it, since it is interested in purchasing a shopping mall which has defects and it is fully occupied by tenants who have full repairing and insuring leases. Available recourse and information needed: According to the facts of this case, the shopping mall was procured under a JCT Design and Build 2005(JCT D&B).

However, a proper advice would include both recourse available through the JCT D&B form and recourse provided at Common Law. JCT D&B is a single source of responsibility contract. Through Co-operative Insurance Society Limited v. Henry Boot Scotland Limited1 , it can be seen that in a Design and Build Contract all liability for the design and construction process of the project is gathered under the contractor's wings. Therefore, what has to be initially examined is whether the pension fund is able to bring a claim for recourse against the Design and Build Contractor.

Contractor's liability under the JCT D&B 2005: According to Section 7 clause 7. 2 of the Contract, if this clause is stated in the Contract's Particulars, then the pension fund will be able to claim for the enforcement of the terms of the Contract against the Contractor, in the name of the Employer. Therefore, if it is proved that the pension fund is able to stand in the shoes of the Employer and bring proceedings against the Contractor it can seek for recourse through the liability of the Contractor through the JCT D&B 2005. Contractor's liability in the D&B Contract lies under the clause 2.

17. 1. According to this clause the Contractor is under the absolute obligation to meet the Employer's requirements and to perform with the standard professional reasonable skill and care for the designing and construction process of the project. Nevertheless it has to be said that clause 2. 17. 1 most of the times is being amended from the contractual parties because under this particular clause the Contractor is considered to be solely responsible for the design no matter if it is carried out by someone else. If it is appeared that clauses 7. 2 and 2. 17.

1 apply to our case, then the pension fund has the right to be indemnified from the Contractor as it is defined under the clause 6. 2. At the same time the pension fund might have the opportunity to make use of the rights to recourse the defects against the Contractor through the Third Parties Rights which are included into Section 7 of the Contract. These rights can be found in the preliminary clauses 7A (Third Party Rights from Contractor) and 7C (Contractor's Warranties for P&T); but in order to be applicable they need to be stated into Part 2 of the Contract Particulars.

According to provision of clause 7A at Schedule 5 paragraph 1, the Contractor warrants to the Purchaser that the Work was carried out according to the terms of the Contract. In the case where the defects of the shopping mall constitute a breach of this warranty, the Contractor will be liable to repair, renew or reinstate the defects. In addition, in paragraph 5 of the same provision, it is also stated that the Contractor is responsible for maintaining Professional Indemnity insurance for the Works under the terms stated in the clause 6. 11 of the Contract.

Consequently, where this insurance is available, the Contractor has to provide indemnification to the pension fund for any losses related to the defects. Moreover, clause 7C of Section 7 of the Contract refers to the Collateral Warranties which might be provided to the pension fund from the Contractor. 'A collateral warranty is one way to overcome the restriction on remedies created by the doctrine of privacy'2. Thus such a collateral warranty will enable the pension fund to step in the Contract and have a direct claim against the Contractor. Applying De Lassale v.

Guilford3, it can be said that 'such a warranty will give an additional cause of action to one of the parties to that transaction'4 so in our case such a warranty might be essential for the pension fund so as to bring a claim against the Contractor at Common Law as well. 1. Contractor's design liability at Common Law: Contractor's design liability at Common Law was considered in IBA v. EMI & BICC5. In this case Lord Scarman laid down that when a Contractor is being asked to design and build a project knowing the purpose of its use, then in the absence of any express language to the contrary, he will have a fitness for purpose obligation.

Furthermore applying Viking Grain Storage v. TH White Installations6, the Contractor of the shopping mall might be liable for professional negligence if it is proved that a professional designer under the same circumstances would have performed differently in respect to the defective design. This can be established by asking the opinion of other professionals, or through the expert witnesses. However in Saif Ali v. Sidney Mitchell & Co7 it was argued by Lord Diplock that the fitness for purpose obligation is an absolute one.

The defense based on 'the state of the art' cannot exist for the defendant under such obligation, and this contrasts with the requirement of reasonable skill and care for negligence. Despite that, applying Row v. Ministry of Health8 the defendant who breached his fitness for purpose obligation, succeeded on its defense, based on 'the state of the art' and avoided liability. Implicitly, such defense might be available for the Contractor if he proves that by using that method it was not reasonably foreseeable that he was creating a danger.

In order to examine whether the pension fund is able to claim for economic loss as at Common Law we have to look through the decisions of some very important cases. In the leading case of Junior Books v. Veitchi Co Limited9 it was decided that the sub-contractor would be liable against the Employer even in the absence of a contractual link, as a close relationship could justify the existence of an element of proximity. Nevertheless, this case has only limited scope and it is rarely being followed. The standing legal position was laid down in Murphy v.

Brentwood District Council10, according to which parties are not able to recover for defects on the buildings unless they have a contractual relationship. The pension fund according to Murphy case11 would be able to claim as a Third Party at Common Law only if the defects caused an injury/death, or damage to another property not the building itself or in the situation where those defects caused the building collapse. This happens, although in Technotrade v. Larkstore12, the assignee was allowed to bring an action against the defendant despite the fact that there was not an actual contractual relationship.

Though the assignee was only able to recover damages under the breach of contract (assignor-defendant), thus economic loss was not available for him. On the other hand if it is appeared that the Contractor issued collateral warranties to the pension fund as it was prementioned in clause 7C of Section 7 of the JCT D&B 2005. Such a collateral warranty would enable the pension fund to use the Contract as a basis for his direct claim against the Contractor at Common Law and claim for economic loss. 2. Recourse provided from the design team:

According to Clause 7D of Section 7, Collateral Warranties may also be provided to the pension fund from the Sub-Contractors. Having in mind that the design team became a Sub-Contractor after it novated across to the JCT D&B, this clause allows the pension fund to seek for recourse through the JCT form, from the design team as well. Applying Shanklin Pier Ltd v. Detel Product13 if collateral warranties were provided to the pension fund from the design team, then the team would be contractually bind to the pension fund under the form of a collateral contract.

Thus if the defects are the result of defective designing from the design team then the pension fund will be able to claim for breach of contract to recover any damages it sustained. 3. Limitation: In conclusion, it is important to inform the pension fund that according to paragraph 8 of Schedule 5 of the Contract, the time to bring an action for any breach of its rights as a Purchaser is limited. The limit is 6 years, if the Contract is executed under hand or 12 years, if under seal. The mall was completed 5 years ago, so it is essential for the pension fund to know how the initial parties executed their Contract.

Best recourse for the pension fund-Conclusion: To sum up, in order to decide which of the available recourse would cover the pension fund's interests best, there has to be considered that suffering economic loss is preferred than claiming damages for breach of contract because the pension fund will be able to a grater amount of compensation. Furthermore, since the design team was already working for the Developer until it novated across with the Contractor into the JCT D&B, Blyth & Blyth Ltd v.

Carillion Construction Ltd14 is applicable and pension fund's right to recover damages through the Contractor's liability into the Contract is limited up to the point the novation took place. In the case where the defects are a result of the work done before the novation, then the pension fund can only recover damages through the Collateral Warranties, either from the Contractor or the design team. Under the JCT D&B their liability is limited, but through the Collateral Warranties this restriction is being overcome.