HOW Engineering Services Ltd v Southern Insulation (Medway) Ltd [2010] EWHC 1878 (TCC)

Case No HT-10-80[2010] EWHC 1878 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 23 rd July 2010
Before
MR JUSTICE AKENHEAD
Between
HOW ENGINEERING SERVICES LIMITEDClaimantSOUTHERN INSULATION (MEDWAY) LIMITEDDefendant
Richard Wilmot-Smith QC and Karim Ghaly (instructed by Clyde & Co) for ClaimantMichael Soole QC and Clare Dixon (instructed by Kennedys) for DefendantHearing Hearing date: 9 July 2010
JUDGMENT

Introduction

[1]These proceedings are related to other proceedings, Linklaters Business Services v Sir Robert McAlpine Ltd and others, and a development at 1 Silk Street, London EC2, occupied as lessees by Linklaters, the solicitors. Developers in about 1995 engaged Sir Robert McAlpine Ltd (“McAlpine”) as main contractor who sub-contracted the mechanical and electrical (including air conditioning) services work to How Engineering Services Ltd (“How”). How sub-sub-contracted to Southern Insulation (Medway) Ltd (“Southern”) the work of insulating the steel pipework which was to carry the chilled water around the building for air conditioning purposes. Works having been finished in about 1996, problems are said to have emerged in the chilled water pipework in 2006 which led to the replacement of the pipework at a cost of some £3.5m.[2]Linklaters issued proceedings (HT-09-399-“the Linklaters proceedings”) in October 2009 against McAlpine which had provided to Linklaters a written collateral warranty (dated 13 February 1995) in effect that it would perform its work in accordance with its contract with the developers; McAlpine’s holding company provided a guarantee for their subsidiary’s due performance and so it was also sued. McAlpine joined in, as Third and Fourth Parties, How and its holding company which had also guaranteed its subsidiary’s performance. They in turn joined in Southern for a contribution on the basis that Southern owed a duty of care to Linklaters and it had been breached. On Southern’s application to strike out these Fifth Party proceedings, I decided that those Fifth Party proceedings should not be struck out (judgement 21 May 2010 [2010] EWHC 1145 TCC). I granted permission to appeal and the appeal is due to be heard, I was told, in mid-August 2010.[3]How and its holding company have issued these current separate proceedings (“the How proceedings”) for negligence against Southern on the basis that Southern owed it a concurrent duty of care in tort alongside the sub-sub-contract which it had with Southern. The collective proceedings are due to be tried in October 2010.[4]Unfortunately and possibly due to timing issues, Southern issued a separate application to be heard at a separate time to strike out the How proceedings. I say unfortunately because it would have been better dealt with at the time as its application in the Linklaters proceedings. There were three aspects to the current application, of which only one remains in issue between the parties. The two uncontentious aspects were that the How holding company could not be owed a duty of care by Southern and secondly that there is a triable issue in relation to whether, if there is a cause of action, it is barred by limitation. The remaining issue for determination is whether there is a duty of care owed by Southern to How and if the scope of any duty covers How’s liability to McAlpine and to Linklaters. The Facts, the Contracts and the Pleadings[5]I will not repeat the background facts which are set out above and in the judgement of 21 May 2010. One additional fact is that How gave to Linklaters a collateral warranty, dated 24 January 1996, to the effect that it, How, would carry out its sub-contract works in accordance with the sub-contract into which it had entered with McAlpine. In brief, the main chronology is as follows: Works carried out 1995/6 Collateral Warranty McAlpine/Linklaters* 13.2.95 McAlpine’s sub-contract with How* Feb/Oct 1995 How’s sub-sub-contract with Southern November 1995 Collateral Warranty Linklaters/How* 24.1.96 Contract Developers/McAlpine* 12.8.96 Practical completion of Main Works 20.9.96 Discovery of a leak July 2006 Linklaters inform McAlpine/ How of leaks 15.3 .07 Standstill Agreement 17.9.08 Linklaters’ claim against McAlpine issued 6.10 .09 McAlpine’s 20 claim against How 16.11 .09 How’s Part 20 claim against Southern 16.12 .09 Linklaters’ claim against How issued 4.2.10 How’s claim against Southern issued 9.4.10 * Executed as a deed or under seal[6]The Standstill Agreement was entered into between Linklaters, McAlpine and How together with the latter two parties’ holding companies and its purpose was in effect to freeze the limitation position for the purpose of any future proceedings by Linklaters against the other parties. It was terminable upon 28 days’ notice. Southern was not in any way involved or even knew about that Standstill Agreement.[7]The Particulars of Claim in How’s proceedings against Southern sets out some details of the claims made against How in the two sets of Linklaters proceedings against McAlpine and How respectively. At Paragraphs 10 and 11 How pleads that, if it is found liable to McAlpine on the Part 20 Proceedings or to Linklaters on the direct proceedings against How, it “claims damages from Southern by reason of the breach of the duty of care owed by Southern to” How. It then goes on in Paragraphs 12 to 17 to set out the "Contractual Framework", pleading various terms of the sub-sub-contract, including the exercise of reasonable skill and care. Paragraph 16 explains that "Due to the passage of time,, [How] is unable to provide additional particulars of the Southern Contract”. It is in Paragraphs 18 and 19 that How pleads the duty of care owed to it: “18. It was reasonably foreseeable to Southern that:(a) because the provision of collateral warranties was common practice, [How] would or might provide collateral warranties to persons other than its own employer warranting that the Subcontract Works (which included the Southern Contract Works) had been and/or would be performed with reasonable skill and care;(b) if the Southern Contract Works were not properly performed then [How] might sustain economic loss in the form of a contractual and/or tortious liability to [McAlpine] and/or [McAlpine’s holding company] and/or a liability under the terms of any collateral warranty which it had provided, alternatively pursuant to any duty of care owed to LBS and/or a liability pursuant to the provisions of the [Civil Liability (Contribution) Act 1978 Act] 19. In the premises, Southern owed [How] a duty at common law, coextensive with its contractual duty, to carry out its obligations with reasonable skill and care so as to protect [How] from any such economic loss.” (a) because the provision of collateral warranties was common practice, [How] would or might provide collateral warranties to persons other than its own employer warranting that the Subcontract Works (which included the Southern Contract Works) had been and/or would be performed with reasonable skill and care; (b) if the Southern Contract Works were not properly performed then [How] might sustain economic loss in the form of a contractual and/or tortious liability to [McAlpine] and/or [McAlpine’s holding company] and/or a liability under the terms of any collateral warranty which it had provided, alternatively pursuant to any duty of care owed to LBS and/or a liability pursuant to the provisions of the [Civil Liability (Contribution) Act 1978 Act][8]It needs to be borne in mind that the damages which are being claimed by Linklaters and down the line to How and Southern are, at least currently, limited to the cost of remedial work and related professional and other fees. The remedial work involved the substantial removal and replacement of the allegedly offending pipework and insulation. The total claim is some £3.5m.[9]The damages claimed by How against Southern are the sums for which How, if at all, will be held liable to McAlpine in connection with the Sub-Contract in contract or in tort or to Linklaters pursuant to How’s Collateral Warranty or in tort. If How is liable to McAlpine, then McAlpine’s liability primary arises out of its own Collateral Warranty to Linklaters. The Arguments[10]It is accepted for the purposes of Southern’s application to strike out How’s claim against it that the provision of collateral warranties was in 1995 common practice. It is denied by Southern, although it was not pleaded against it, that Southern was aware that How had provided a collateral warranty to Linklaters or to any other party. I certainly proceed upon the basis that How has pleaded all that it wishes to plead by way of material facts supporting its assertion that a duty of care was owed in the terms pleaded.[11]Southern argues that How has no reasonable prospect of demonstrating that the duty of care pleaded by How to arise exists, that Southern owes How no concurrent duty of care to prevent How from suffering any pure economic loss, and that Southern owes How no duty of care to prevent a loss arising out of a collateral undertaking to Linklaters let alone to protect How from a liability arising under or in connection with the Standstill Agreement. Southern classify the kind of loss being claimed against it as a liability to a future purchaser, perhaps in contradistinction to a liability to the original developers. It argues that the scope of any duty of care owed does not extend to cover sums due pursuant to a liability of How to Linklaters. It points to the absence of any indemnity arrangements in the pleaded sub-sub-contract between Southern and How. It feels particularly aggrieved that it might continue to be held liable for well beyond any contractual limitation periods which might otherwise be applicable and particularly in circumstances in which the other parties, without reference to Southern, entered into the Standstill Agreement in effect, if How is right, extending limitation as between the other parties by several years.[12]How argues that there can be and is a concurrent duty of care as between contracting parties, unless excluded by the terms of the contract (which is inapplicable in this case). The concurrent duty arises, it argues, because there is sufficient proximity and, via the sub-sub-contract, the requisite assumption of responsibility as between the two contracting parties. It goes on to assert that essentially the duty of care owed by Southern extended to carrying out the sub-sub-contract works with reasonable care and skill so as to avoid just the type of damage which is said to have occurred here (corrosion to the pipes which the insulation work was provided to avoid) and that it must, objectively speaking, have been within the reasonable contemplation of (or reasonably foreseeable) by Southern that How would become liable to McAlpine in contract or in tort or to Linklaters via the type of collateral warranty which was commonly provided to the end user of development buildings or in tort. The Law[13]The House of Lords considered the question of concurrent duties of care in tort in the Lloyds litigation in Henderson v Merrett[1995] 2 AC 145. Lord Goff delivered the principal judgement. Having reviewed Hedley Byrne & Co v Heller & Partners [1964] AC 465, he said:
“From these statements, and from their application in Hedley Byrne, we can derive some understanding of the breadth of the principle underlying the case. We can see that it rests upon a relationship between the parties, which may be general or specific to the particular transaction, and which may or may not be contractual in nature…Again, though Hedley Byrne was concerned with the provision of information and advice, the example given by Lord Devlin of the relationship between solicitor and client, and his and Lord Morris’s statements of principle, show that the principle extends beyond the provision of information and advice to include a performance of other services. ” (page 180C-F) His Lordship reviewed the authorities and approved particularly and in some depth the judgement of Oliver J in Midland Bank Trust Co Ltd v Hett Stubbs & Kemp [1979] Ch 384 which was a solicitor’s negligence case in which it was held that a solicitor could be sued either in contract or in tort so that the client could take advantage of the more favourable limitation position in tort. He acknowledged that a concurrent liability in tort could not be admitted to circumvent or avoid a contractual exclusion or limitation of liability or indeed widen the contractual scope. He went on to say at page 193B: “Yet the law of tort is the general law, out of which parties can, if they wish, contract; and, as Oliver J. demonstrated, the same assumption of responsibility may, and frequently does, occur in a contractual context. Approach is a matter of principle, therefore, it is right to attribute to that assumption of responsibility, together with its concomitant reliance, a tortious liability, and then to enquire whether or not that liability is excluded by the contract because the latter is inconsistent with it. This is the reasoning which Oliver J., found implicit, where not explicit, in the speeches in Hedley Byrne. With his conclusion I respectfully agree. But even if I am wrong in this, I am of the opinion that this House should now, if necessary, develop the principle of assumption of responsibility as stated in Hedley Byrne so as to make it clear that a tortious duty of care may arise not only in cases where the relevant services are rendered gratuitously, but also where they are rendered under a contract." At Page 193H, he said: “My own belief is that, in the present context, the common law is not antipathetic to concurrent liability, and that there is no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy. The results may be untidy; but, given that the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties, I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him, subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that, in accordance with the ordinary principle, the parties must be taken to have agreed that the tortious remedy is to be limited or excluded.”
[14]It is therefore reasonable to conclude from the above that a concurrent duty of care in tort can exist as between the two parties to a contract for services or for the supply of goods and services. That duty of care will be definable by reference to the contractual responsibilities and liabilities assumed by the parties to the contract and, if for instance, certain types of loss are, on the proper interpretation of the contract, excluded or otherwise irrecoverable, the duty of care is similarly circumscribed.[15]A next step is to consider the relevance of the scope of the contractual or tortious duty. Lord Hoffman in South Australia Asset Management Corporation v York Montague Ltd [1996] UKHL 10 said: “8. Much of the discussion, both in the judgment of the Court of Appeal and in argument at the Bar, has assumed that the case is about the correct measure of damages for the loss which the lender has suffered. The Court of Appeal began its judgment, at pp. 401-402, with the citation of three well known cases (Robinson v. Harman (1848) 1 Exch. 850, 855; Livingstone v. Rawyards Coal Co. (1880) 5 App.Cas. 25, 39; British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd. [1912] A.C. 673, 688-689) stating the principle that where an injury is to be compensated by damages, the damages should be as nearly as possible the sum which would put the plaintiff in the position in which he would have been if he had not been injured. It described this principle, at p. 403, as "the necessary point of departure." 9. 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. For this purpose it is better to begin at the beginning and consider the lender’s cause of action. 14. A duty of care such as the valuer owes does not however exist in the abstract. A plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply. He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered. Both of these requirements are illustrated by Caparo Industries Plc. v. Dickmanhttp://www.bailii.org/uk/cases/UKHL/1990/2.html[1990] 2 A.C. 605. The auditors’ failure to use reasonable care in auditing the company’s statutory accounts was a breach of their duty of care. But they were not liable to an outside take-over bidder because the duty was not owed to him. Nor were they liable to shareholders who had bought more shares in reliance on the accounts because, although they were owed a duty of care, it was in their capacity as members of the company and not in the capacity (which they shared with everyone else) of potential buyers of its shares. Accordingly, the duty which they were owed was not in respect of loss which they might suffer by buying its shares. As Lord Bridge of Harwich said, at p. 627: "It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless." In the present case, there is no dispute that the duty was owed to the lenders. The real question in this case is the kind of loss in respect of which the duty was owed. 15. How is the scope of the duty determined? In the case of a statutory duty, the question is answered by deducing the purpose of the duty from the language and context of the statute: Gorris v. Scott (1874) L.R. 9 Ex. 125. In the case of tort, it will similarly depend upon the purpose of the rule imposing the duty. Most of the judgments in the Caparo case are occupied in examining the Companies Act 1985 to ascertain the purpose of the auditor’s duty to take care that the statutory accounts comply with the Act. In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking.” "It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless."[16]These dicta were considered in the House of Lords again in Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48, a contract case, again by Lord Hoffmann: “15. 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…. 22. 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 reasonable have been regarded by the contracting party as significant for the purposes of the risk he was undertaking. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, where the plaintiffs claimed for loss of the profits from their laundry business because of late delivery of a boiler, the Court of Appeal did not regard "loss of profits from the laundry business" as a single type of loss. They distinguished (at p 543) losses from "particularly lucrative dyeing contracts" as a different type of loss which would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to attribute to him acceptance of liability for such losses. The vendor of the boilers would have regarded the profits on these contracts as a different and higher form of risk than the general risk of loss of profits by the laundry.” (a). The Court must determine for what kind of loss the innocent party to a breach of contract is entitled to compensation. (b). One does that by way of contractual construction (obviously in the light of any relevant matrix of fact) to ascertain what kind or kinds of loss are envisaged. One needs to consider the consequences for which the contract breaker was contractually responsible; one does this by having regard to the express obligations assumed by the contract breaker. (c). With that exercise, one seeks to give effect to the presumed commercial intentions of the parties. (d). Once one has determined the kind of loss which the innocent party is contractually entitled to expect to recover, that measure of loss can effectively be applied to the breach of any concurrent duty of care in tort, save and to the extent there is some overriding principle in the law of tort which prevents it (if any). Generally, at least, the damages recoverable in negligence will not exceed what would have been recoverable in contract.[17]Reliance was also placed on the Court of Appeal case in Greater Nottingham Cooperative Society Ltd v Cementation Piling and Foundations Ltd [1989] 1 QB 71 in which a piling subcontractor who had given a collateral warranty to the employer (but not in relation to the manner in which the piling work was executed) carelessly caused damage to a building on an adjoining site. This caused a delay to the overall construction project and consequential costs and loss. In broad terms, the employer could not recover the loss associated with the delay because there was no general liability in tort for pecuniary loss unrelated to actual or apprehended physical damage to the claimant’s property. Much of the case is concerned with an analysis of the House of Lord's case, Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 785, and distinctions to be drawn with that case. Purchas LJ starting at Page 99 said:
“The terms of the direct contractual relationship between the subcontractors and the employers involve the warranties already set out in this judgement and no other obligations imposed upon the sub-contractors or by way of a direct duty towards the employers. In line with the approach of Robert Goff LJ in Muirhead v Industrial Tank Specialities Ltd 1986 QB 507 and that of Bingham LJ in Simaan v General Contracting Co v Pilkington Glass Ltd (No 2) [1988] QB 758 in considering whether there should be a concurrent but more extensive liability in tort as between the two parties arising out of the execution of the contract, it is relevant to bear in mind-(a) the parties had an actual opportunity to choose their relationship by means of contract and took it; and (b) that the general contractual structure as between the employers, the main contractors and sub-contractors as well as the professional advisers provided a channel of claim which was open to employers such as Bingham LJ in Simaan v General Contracting Co v Pilkington Glass Ltd (No 2) as being available in that case to the Sheikh. Although this is new ground, doing the best I can to distil from the mass of authorities which have already been considered in detail in the two judgements of Robert Goff LJ and Bingham LJ, I do not believe that it would be in accordance with the present policy to extend Junior Books Ltd v Veitchi Co Ltd[1983] 1 AC 785 rather than to restrict it. This does give rise to an apparent inconsistency, namely the effect of enhancing the close relationship upon which Lord Roskill based his duty in tort in Junior Books Ltd v Veitchi Co Ltd by adding a direct contractual relationship does not confirm a duty to avoid economic loss but negatives that liability. But in this compartment of consideration it is not only the proximity of the relationship giving rise to reliance which is critical but also the policy of the law as to whether or not in these circumstances damages for pecuniary loss ought to be recoverable… …In order to establish what might be called the Hedley Byrne type of liability, it must be possible to cull from the close relationship of the parties the assumption by the tortfeasor of a duty not to cause pecuniary loss to the victim. In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 the relationship was not affected by a direct contractual relationship and this was also the position in Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520, and there was, therefore, no contractual influence on the relationship. In the present case the tortfeasor had contracted to be liable for failure to use reasonable skill and care in the design of the pile driving operation and in the selection of materials and goods…but the contract was significantly silent as to liability for the manner in which the work was executed. Once it is established that there is no general liability in tort for pecuniary loss dissociated from physical damage…it would be difficult to construct a special obligation of this nature in tort to which liabilities created by a collateral contract did not extend…”
[18]I am by no means convinced that the Greater Nottingham case, important though it was at that time, adds much if anything to the debate in the current case. It was concerned in substantial measure with distinguishing itself from the Junior Books case, which is, at best, nowadays regarded simply as a case on its own particular facts rather than one which lays down any point of principle. The distinction was that the parties in theGreater Nottingham case did have a warranty but one which did not address workmanship.[19]I have not been asked to address the law on limitation in any detail but there are a number of possible contenders for the time when limitation might begin to run in a negligence case where economic loss is recoverable. I list them not in order (necessarily) of priority but simply in terms of time:(a) It could be when the negligently executed sub-sub-contract work is handed over up the line on the basis that there what is handed over is something which is worth financially less than it would have been if the work had been properly carried out.(b) It could be when the negligently executed subcontract all main contract works are handed over up the line on the same basis.(c) It could be when physical damage first occurred.(d) It could be when the economic loss, that is in this case arguably the cost of the remedial works, was incurred by Linklaters.(e) It could be when (and if) judgement is entered against How and it incurs an enforceable liability to pay any sums awarded. By not asking me to address, the issue as to when any cause of action in negligence accrues, the parties have not required me to address with any precision what the economic loss actually must be. Discussion[20]There can be no doubt from the authorities that there can be a concurrent duty of care in tort, that is a duty of care which is concurrent with a contractual duty, in particular a contractual duty to exercise reasonable care and skill. There is nothing on the face of the pleadings between How and Southern which suggests that the sub-sub-contract would exclude a duty of care in tort in principle; there would be in that simple sub-sub-contract an obligation on the part of Southern to exercise reasonable care and skill in and about the execution of the installation work.[21]Counsel did not in writing or orally advance a number of points which were taken by their solicitor in a witness statement (Victor Rae-Reeves 1st statement) which were said to militate against a concurrent duty to prevent economic loss. As these were not expressly abandoned, I should deal with them lest they remain relevant. The three points were that the sub-sub-contract works were relatively simple, that Southern are not treated as having any design obligations and that the works were undertaken under the supervision of How and a contract administrator. It should be noted that none of these points has been pleaded by Southern. It is clear if nothing else from Linklaters’ pleading that there is likely to be a factual issue as to how simple the works really were; from that pleading, the insulation works were important and went beyond simple works. The fact that there were no design obligations is not particularly material if the insulation work has to be carried out with reasonable care and skill and given that the complaint is poor workmanship; the execution of insulation work clearly involves some special skill and I have no doubt that How would in broad terms have relied upon Southern to do their insulation work with reasonable care and skill. I do not see that the fact that the works were undertaken under the supervision of others is particularly material either; it might go to raise a contributory negligence (partial) defence; it might be different if Southern was simply required to provide labour and to do only exactly what it was told to do. That is not said to be the case here.[22]I therefore consider that, based on the pleaded facts, a concurrent duty of care in tort was owed by Southern alongside its contractual duty to exercise reasonable skill and care.[23]One next turns to considering the scope of that duty of care. In simple terms, it involves the execution by Southern of the works, which it was contractually employed to carry out, with reasonable care and skill. The purpose and scope of the works was the insulation of steel pipes which were to carry chilled water around the building. The kind or type of loss for which Southern could realistically and reasonably expect to be liable if they did not do their insulation work with reasonable care and skill was the reasonable costs associated with putting right any carelessly executed insulation work. Put simply, the cost of remedial works was the, or one, kind of loss which was within the scope of both the contractual and tortious duties.[24]Almost inevitably, a sub-sub-contractor in Southern's position would, objectively speaking, foresee or anticipate that, if it did work badly, (assuming that it itself did not do the remedial works) it would have to pay up the line through the sub-sub-contract damages or compensation for the cost of putting that bad work right. Taking the assumed (pleaded) fact that collateral warranties represented common practice at the time, it could probably be said to be within the reasonable contemplation of the parties that How and McAlpine would provide collateral warranties to the end user, in this case Linklaters.[25]The question that necessarily arises from the arguments deployed by Counsel for Southern is: is the kind or type of loss in some material way altered if it comes down through a chain of collateral warranty (Linklaters/McAlpine), collateral warranty (McAlpine/How) and sub-sub-contract as opposed to a chain of main contract, sub-contract and sub-sub-contract? I venture to suggest that it does not make any real difference at all. The basic loss represents the cost of remedial work for what is said to be carelessly executed insulation work by the sub-sub-contractor. The contractual route through which it comes does not alter intrinsically the kind of loss it is. There is nothing (at least on the pleaded case) unusual or uncommon in a system of collateral warranties. Given that this was a commercial development and that air conditioning was being put in what were presumably obviously offices, it must have been reasonably foreseeable that tenants such as Linklaters would move in and occupy the building and could ultimately claim damages for carelessly executed insulation work.[26]Counsel for Southern pray in aid the Greater Nottingham case; that in reality only decided that there was no duty of care which extended to economic loss in circumstances in which there was no material contractual duty of care between the parties. In the current case there is no issue that there was a relatively simple contract between the parties which necessarily had implied into it a term that Southern would exercise reasonable care and skill in relation to its workmanship. If the claim had been in contract in the current case, and How simply sued Southern for breach of contract, it would be a very un-meritorious argument by How that, whilst it would be liable for the remedial work costs as damages if the claim for them had emanated from the developer through McAlpine and How, it would not be liable for the same costs if they came down through the collateral warranty route from the ultimate end user. It needs to be borne in mind that the Greater Nottingham case preceded the Henderson v Merrett case which has laid down more clear guidelines on concurrent duties of care.[27]However, the reality is that here in addition to the collateral warranty route, McAlpine proceeds against How for breach of the sub-contract (under seal) and therefore, part of the route at least is contractual.[28]Southern argue that it cannot be responsible for How and McAlpine voluntarily undertaking to be liable to Linklaters, through the Collateral Warranties, where no liability would exist at common law. That however ignores the commercial realities in relation to commercial developments when, as it is pleaded, collateral warranties to end users like Linklaters were common.[29]Southern also argue that the effect of the Standstill Agreement was in effect to extend the period of liability of McAlpine and How under the Collateral Warranties which they gave to Linklaters respectively. Southern, it is said, can not owe How a duty in respect of the claim made pursuant to a standstill agreement entered into 12 years after the works were completed and to which was not a party. That argument, however, is flawed. All that the Standstill Agreement did was to freeze limitation so that, to the extent that Linklaters’ claim was already time-barred, it remains time-barred; to the extent that Linklaters’ claim was not time-barred, it froze the position until any party gave 28 days notice. It is a reasonable inference that, if the Standstill Agreement had not been issued, that Linklaters would simply have issued proceedings forthwith and sought to persuade this Court to grant an appropriately generous extension of time whilst a Pre-Action Protocol process was gone through and whilst detailed information for Particulars of Claim were collated. It is wrong to speak of a claim being made pursuant to the Standstill Agreement; the claim is made by Linklaters primarily through the Collateral Warranties said to have been breached by McAlpine and How. It must also be borne in mind in English Law that limitation is a defence unlike some countries in which a party is prescriptively not entitled to initiate proceedings which are more than a given period after the requisite cause of action arose.[30]An argument was sought to be made on the merits that it is very unfair for Southern to face a liability for something which happened what is now 14 years or more ago. Southern of course do not have to face a claim in contract, doubtless because How realise that there would be an absolute limitation defence. However, the Limitation Act 1980, as amended to reflect the Latent Damage Act 1986. Section 14B states:
“(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.”
There is thus a 15 year "long stop" with regards to negligence claims (except for personal injuries claims) of 15 years from the alleged breach of duty. As indicated earlier in this judgment, the parties have not addressed me on the date when limitation accrued in this case because it is accepted that there is a triable issue on this topic and it is not so cut and dried as to merit a striking out application. before the end of the period of limitation prescribed by this section.”[31]However, one can assume that, objectively, parties in the position of Southern can be taken to know the law and therefore of the need, if appropriate, to make provision by way of insurance, enhanced pricing, negotiation of limitation clauses and the like to guard themselves against the risk, such as it may be, that they might be sued for a period up to 15 years for negligence in connection with work which they have done on or to buildings. The Court, of course, does not know whether Southern is insured against the types of liability raised in these proceedings and, indeed, it would not be relevant if it was so insured.[32]I conclude therefore that on the pleaded facts there is a concurrent duty of care owed by Southern to How to exercise reasonable care and skill in carrying out the insulation works which it was contractually engaged by How to execute. The scope of the duty is such as to enable How to recover from Southern as damages the losses which it is liable to pay McAlpine and to Linklaters in relation to the reasonable costs of putting right negligently executed insulation work carried out by Southern. Decision[33]Southern’s application to strike out How’s claim in these proceedings (HT-10-80) is dismissed. There is no summary judgement application by How for declarations that a duty of care was owed and indeed Counsel for How made it clear that his clients were not seeking final declarations.

Cited in 4 later judgments