“The Contractor shall upon request made from time to time by the Employer, forthwith execute a deed of warranty in the form set out in Appendix # in favour of Cardiff County Council and/or any person providing finance in connection with the works and/or any first purchaser of the Works or any significant part thereof and/or Parkwood Holdings plc and/or any mortgagee of the completed Works or any part thereof provided always that the maximum number of deeds of warranty that the Contractors shall be obliged to execute shall not exceed five.”
“1. I am writing to you again in connection with the construction of the Cardiff International Pool…carried out by [LORWW] during 2006-8 under a contract dated7th April 2006 with Orion… 2. This letter is written in accordance with the Pre-Action Protocol for Construction and Engineering Disputes and constitutes our Letter of Claim. Background 3. Following over 18 months of delay in resolving outstanding matters from the construction of the Cardiff International Pool, the issue was escalated to me early last year. You will recall that I wrote to you, at Reference B, on10th May 2010 to formally express some of the concerns held by Parkwood Leisure… Items Remaining of Immediate Concern 6. It was an implied term of the contract that the works would be carried out in a proper and workmanlike manner and in compliance with the contractual documents (as varied) and to a reasonable standard. [LORWW] owed to Parkwood Leisure a duty of care and has failed to deliver/rectify or otherwise remedy the issues arising from the following major items: …c. Air Handling Units (AHU). A number of AHU problems have led to excessive humidity and stained ceilings; both impact on building fabric and require urgent rectification before the degradation of affected areas becomes self perpetuating defect. The direct costs to Parkwood Leisure of replacing and rectifying elements to allow the continued operation of the site, as outlined above are£41,339 and are detailed at Annex A. Further Items Requiring Remedy 7. The list at Annex B details further items requiring attention. Whilst these are less urgent they are of equal importance and must be remedied as soon as it is practicable to do so and certainly before30th June 2011 . The Photographs elaborating some of these issues were provided at Reference A…”
“As you will be aware from the exchange of correspondence last summer and your subsequent site inspection on18th October 2012 [Parkwood] considers that the air handling units at Cardiff International Pool are defective and/or not fit for purpose. Further, [LORWW] has failed or refused to undertake any remedial works in respect of the air handling units. Parkwood therefore has had no option other than to enforce its legal rights under the Collateral Warranty dated6th December 2007 . Accordingly, please regard this letter as formal notification of Parkwood’s claim under the Collateral Warranty dated6th December 2007 . For the avoidance of doubt, this letter raises entirely new and separate issues to those which were raised by Parkwood in its letter of Claim dated17th February 2011 and which was the subject of a concluded compromise on19th March 2012 … Summary of Claim 1. This claim concerns the defective design and/or installation of the air handling units (AHU) during the construction of Cardiff International Pool… 4. Under the terms of the Collateral Warranty, Laing warrants, acknowledges and undertakes that, inter alia: (i) It has carried out and shall carry out and complete the Works (as more particularly described in the Contract)… 5. It is Parkwood’s case that Laing was responsible for the design and installation of the AHU’s under the Contract and that the said design and installation is defective… 7. Despite a further exchange of correspondence and a site visit to inspect the AHU’s, Laing has failed or refused to undertake any remedial works and has to date refused to accept liability for the defects… Evidence of Defects 10. [This refers to a report commissioned by Parkwood from Hoare Lea into the defects which was attached at Annex A] 12. Full particulars of the defects that have been identified with the AHU’s are set out in detail in section 2 of the Hoare Lea report, but in summary those defects are as follows: • The wet AHUs are not compliant with the employers brief. • The design of the units is not suitable for a coastal atmosphere and [sic] of the potential for corrosion from salt and chlorine laden air. • The fans…are not suitable for purpose. • The motors are oversized leading to probable overheating issues. • The construction of the unit is considered to be poor with panel/seal failures occurring. • There is severe corrosion to air handling units control panels (external units). • The infill panels and access doors are poorly fitted. • There is extensive rusting on the pulleys and other internal components. • There is little or no internal protective coating on the units. • The supply intake and discharge for each unit is too close… 14. Hoare Lea has recommended that all of the AHUs are immediately replaced, together with all associated controls… 15 and 16 [These paragraphs set out work to two AHUs which fall short of full replacement]… Remedies Sought 17. Laing has failed to carry out and complete the Works in accordance with the Contract and/or it has failed to exercise reasonable skill and care in the design and/or completion of the Works and is therefore in breach of the Collateral Warranty dated7th December 2007 . 18. Parkwood requires Laing to undertake the following remedies under Clause 12 of the Collateral warranty: a. Damages. Laing O’Rourke shall compensate Parkwood for the loss and costs it has incurred to date in the sum of£337,693 made up as follows: (1) [Professional fees]…£6,710 (2) The cost of rectification works…to date and identified in Annex B£68,047.30 (3) A contribution of£16,652.58 towards Parkwood’s increased maintenance costs incurred to date in relation to the air maintenance units… more particularly in respect of remedial maintenance required... on the building infrastructure, furniture, fixtures and fittings décor…or any other damage attributable to the inadequate functioning of the air handling system…£14,421.50 (4) A contribution of£19,194.75 towards the increased utility costs that Parkwood has incurred directly as a result of the specific and acute failure of the AHUs in October 2011 further details of which are provided at Annex C… (5) A contribution of£2,750 towards the increased management costs that have been incurred specifically to deal with this issue … (6) Loss of income as a result of a fall in memberships since July 2011 as a direct result of the discomfort caused by the excessive heat and humidity in all areas caused by the repeated failure of the AHUs since July 2011 specifically as a result of the acute failure in October 2011, further details of which are provided at Annex D£226,569.75 …”
“1.2.1 The subject matter of the current claim and the claim made by Parkwood in hits letter dated17 February 2011 are the same. The claim has been settled… 2.5 Our position is as follows: 2.5.1 The subject matter of the earlier claim and the present claim are the same; i.e. the AHUs. 2.5.2 The earlier claim was to the effect that the AHUs did not work properly. The present claim is about the reasons for the failure to work properly. It cannot be brought because the claim relating to the AHU’s was settled. 2.5.3 The original claim was caused by the matters about which complaint is now made… 2.5.6 Clause 2.42 [sic] of the Settlement Agreement preserved Parkwood’s ability to claim in respect of "new matters relating to the subject matter of the Settled Claims which do not exist as at the date of this Agreement". Expressly, and by necessary implication, it excluded Parkwood’s ability to claim in respect of other matters relating to the subject matter of the Settlement Claim… 2.6 For these reasons, the current matter is a Settled Claim which is subject to clause 2.4.2 of the Settlement Agreement where Parkwood "undertakes not to make any further or future demand all claims against LORWW…under the Collateral Warranty"”. 11. The Proceedings 12. On29 July 2013 , Parkwood issued Part 8 proceedings seeking “…determination of the following question: whether the parties’ contract entitled Contractor/Beneficiary Warranty Deed, and dated6 December 2007 , is a construction contract for the purposes of partII of the Housing Grants Construction and Regeneration Act 1996 ." Parkwood sought a declaration that this contract was "a construction contract on the basis that it contains the Defendant’s express agreement to carry out construction work", section 104(1)(a) being engaged. It also sought a determination of another question: “…whether the Claimant’s claim in respect of defective air handling units, intimated in a letter of claim dated5 February 2013 , (or any part of that claim,) was compromised in a settlement agreement made by the parties dated19 March 2012 " In relation to this question claimant sought a declaration: “that the said claim has not been compromised. Whilst the parties did compromise some earlier claims that the Claimant had made in relation to the same handling units the material claims were not." 13. The Collateral Warranty 14. This was executed as a Deed (under seal), with LORWW named as the “Contractor” and Parkwood as the "Beneficiary". Relevant parts of it are: “RECITALS A. The Contractor has entered into a contract dated7 April 2006 ("the Contract") with Orion…("the Employer") for the design, carrying out and completion of the construction of a pool development…(“the Works”) as more particularly described in the Contract. B. By an agreement dated8 April 2006 and made between the Employer (1) the Beneficiary (2) Parkwood Holdings PLC (3) and the County Council of the City and Council of Cardiff (4) ("the Agreement") the Beneficiary has agreed to acquire an interest as tenant in the Works or part of them. C. Pursuant to Article 10 of the Contract Contractor has agreed to execute a deed in the form of this deed in favour of the Beneficiary… NOW IT IS AGREED in consideration of the payment of£1 … and without prejudice to the rights and obligations of the Contractor under any contract or sub-contract to which the Contractor is a party, the following warranties and undertakings shall apply as between the Contractor and the Beneficially – 1. The Contractor warrants, acknowledges and undertakes that:- 1 it has carried out and shall carry out and complete the Works in accordance with the Contract; 2. subject to this Deed, it owes a duty of care to the Beneficiary in the carrying out of its duties and responsibilities in respect of the Works; 3 in the design of Works or any part of the Works, in so far as the Contractor is responsible for such design under the Contract, it has exercised and will continue to exercise all reasonable skill and care to be expected of an architect or, as the case may be, other appropriate professional designer… 4 all materials and goods supplied or to be supplied for incorporation into the Works are or shall be of a quality, kind and standard which complies with the express and implied terms of the Contract; 5 all materials and goods recommended or selected or used by or on behalf of the Contractor shall be in accordance with good building practice and the relevant provisions of British Standard documents to the extent required by the Contract; 6 all workmanship, manufacture and fabrication shall be in accordance with the Contract; 7 it has complied and will continue to comply with the terms of regularly and diligently carry out its obligations under the Contract Provided that the Contractor shall have no greater liability, duties or obligations under this Deed than it would have had if the Beneficiary had been named as joint employer with the Employer under the Contract and the Contractor shall be entitled in any action or proceedings by the Beneficiary to rely on any limitation or term in the Contract and to raise the equivalent rights in defence of liability as it would have against the Employer under the Contract… 3. Nothing in the Contractor’s tender or in any specification, drawing, programme or other document put forward by or on behalf of the Contractor and no approval, consent or other communication at any time given by or on behalf of the Employer or the Beneficiary shall operate to exclude or limit the Contractor’s liability for any breach of its obligations hereunder provided that nothing in this Deed shall preclude the Contractor from raising the defence of contributory negligence. 5. Insofar as the beneficial ownership of copyright and any other intellectual property right in the same is vested in him, the Contractor hereby grants to the Beneficiary an irrevocable, royalty-free and non-exclusive licence to use and reproduce any and all drawings, specifications and other design information and industrial and construction know-how…which has been or will be prepared by or on behalf of the Contractor for the purposes of the Works… 8. This Deed shall be governed by English law and the parties hereby submit to the jurisdiction of the English Courts. 10. The Contractor shall have no liability under this Deed or at all for and in respect of any delay in the progress and/or completion of the Works or any part of them. 11. No action or proceedings arising under out of or in connection with this Deed…shall be commenced against the Contractor after the expiry of 12 years from the date of Practical Completion. 12. In the event of any breach of this Agreement the Contractor shall be liable for the reasonable cost of repair renewal and/or reinstatement of any part or parts of the Works to the extent that the Beneficiary incurred such costs and/or the Beneficiary is liable either directly or by way of financial contribution for such costs. The Contractor shall also be liable for further or other losses or damages or costs incurred or suffered by the Beneficiary as a result of breach of this Agreement by the Contractor including without limitation loss of use, loss of profit or other consequential losses up to a maximum aggregate sum of£2,500,000 ”. 1 it has carried out and shall carry out and complete the Works in accordance with the Contract; 2. subject to this Deed, it owes a duty of care to the Beneficiary in the carrying out of its duties and responsibilities in respect of the Works; 3 in the design of Works or any part of the Works, in so far as the Contractor is responsible for such design under the Contract, it has exercised and will continue to exercise all reasonable skill and care to be expected of an architect or, as the case may be, other appropriate professional designer… 4 all materials and goods supplied or to be supplied for incorporation into the Works are or shall be of a quality, kind and standard which complies with the express and implied terms of the Contract; 5 all materials and goods recommended or selected or used by or on behalf of the Contractor shall be in accordance with good building practice and the relevant provisions of British Standard documents to the extent required by the Contract; 6 all workmanship, manufacture and fabrication shall be in accordance with the Contract; 7 it has complied and will continue to comply with the terms of regularly and diligently carry out its obligations under the Contract Provided that the Contractor shall have no greater liability, duties or obligations under this Deed than it would have had if the Beneficiary had been named as joint employer with the Employer under the Contract and the Contractor shall be entitled in any action or proceedings by the Beneficiary to rely on any limitation or term in the Contract and to raise the equivalent rights in defence of liability as it would have against the Employer under the Contract… 3. Nothing in the Contractor’s tender or in any specification, drawing, programme or other document put forward by or on behalf of the Contractor and no approval, consent or other communication at any time given by or on behalf of the Employer or the Beneficiary shall operate to exclude or limit the Contractor’s liability for any breach of its obligations hereunder provided that nothing in this Deed shall preclude the Contractor from raising the defence of contributory negligence. 5. Insofar as the beneficial ownership of copyright and any other intellectual property right in the same is vested in him, the Contractor hereby grants to the Beneficiary an irrevocable, royalty-free and non-exclusive licence to use and reproduce any and all drawings, specifications and other design information and industrial and construction know-how…which has been or will be prepared by or on behalf of the Contractor for the purposes of the Works… 8. This Deed shall be governed by English law and the parties hereby submit to the jurisdiction of the English Courts. 10. The Contractor shall have no liability under this Deed or at all for and in respect of any delay in the progress and/or completion of the Works or any part of them. 11. No action or proceedings arising under out of or in connection with this Deed…shall be commenced against the Contractor after the expiry of 12 years from the date of Practical Completion. 12. In the event of any breach of this Agreement the Contractor shall be liable for the reasonable cost of repair renewal and/or reinstatement of any part or parts of the Works to the extent that the Beneficiary incurred such costs and/or the Beneficiary is liable either directly or by way of financial contribution for such costs. The Contractor shall also be liable for further or other losses or damages or costs incurred or suffered by the Beneficiary as a result of breach of this Agreement by the Contractor including without limitation loss of use, loss of profit or other consequential losses up to a maximum aggregate sum of£2,500,000 ”
“(1) In this Part a "construction contract" means 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 sub contract to him or otherwise; (c) providing his own labour, or the labour of others, for the carrying out of construction operations. (2) References in this Part to a construction contract include an agreement – (a) to do architectural, design, or surveying work, or (b) provide advice on building, engineering, interior or exterior decoration or on the laying-out of landscape, in relation to construction operations…” "Construction operations" are defined in Section 105 which also identifies certain operations which are not to be construction operations within the meaning of the Act. Section 106, broadly, excludes construction contracts with residential occupiers. (a) the carrying out of construction operations; (b) arranging for the carrying out of construction operations by others, whether under sub contract to him or otherwise; (c) providing his own labour, or the labour of others, for the carrying out of construction operations. (a) to do architectural, design, or surveying work, or (b) provide advice on building, engineering, interior or exterior decoration or on the laying-out of landscape, Section 108 provides parties to construction contracts with the right to refer disputes arising under the contract to adjudication with provision made for the Scheme for Construction Contracts to apply if the contract does not make adequate provision for adjudication. There is no authority directly on the proposition as to the extent to which (if at all) contracts such as the Collateral Warranty in this case are to be considered as construction contracts for the purposes of Part II of the HGCRA. There is little or nothing in the Act itself other than the simple wording of section 104 (1) which illuminates what an agreement "for…the carrying out of construction operations" means. It could be said that the words are unambiguous and therefore there is no need to resort to the Hansard transcripts of the debate in Parliament on the bill as it then was. It can be said that there is a verbal difference (at least of emphasis) between sub-sections (1) and (2). Sub-section (1) talks about an agreement with the person for the carrying out of construction operations whilst sub-section (2) talks about an agreement "to do architectural, design, or surveying work". The former is broader whilst the latter requires the doing of various aspects of professional work. Undoubtedly, sub-section (1) is drawn very widely albeit that the term "construction operations" is more closely defined. Mr Justice Coulson in his book "Coulson on Construction Adjudication" 2nd edition says that the effect of Sections 104 and 105 are that "the 1996 Act applies to all contracts related to the carrying out of construction operations" (Paragraph 2.17), albeit that he was not obviously applying his considerable experience specifically to the issue raised in the current case. In my judgment, there can be no doubt that the reference to a "contract" must mean a contract under English law, however it is formed (simple, in writing, oral, under seal or otherwise) and that it is by reference to that contract that one must determine whether or not it is a construction contract under the HGCRA. Put another way, it must be primarily by reference to the contract entered into between the requisite parties that one determines whether the contract is one for the carrying out of construction operations, the arranging of the carrying out of construction operations by others or the provision of labour or the labour of others for the carrying out of construction operations. One must then apply ordinary contractual interpretation principles to determine this aspect of the contract. In that context therefore, one can draw the following conclusions: (a). The fact that the construction contract (if it is one) is retrospective in effect is not a bar to it being a construction contract. It is common for contracts to be finalised after the works have started and to be retrospective in effect back to the date of or even before commencement. If that is what the effect of the parties’ agreement is, then that can not prevent it from being a construction contract for the carrying out of construction operations. Put another way, a construction contract does not have to be wholly or even partly prospective. (b). One must be careful about adopting a peculiarly syntactical analysis of what words mean in this statute when it is clear that Parliament intended a wide definition. An agreement "for…the carrying out of construction operations” is a broad expression and one should be able, almost invariably at least, to determine from the contract in question whether it fits within those words, without what could be a straight-jacketed judicial interpretation. (c). Usually and possibly invariably, where one party to a contract agrees to carry out and complete construction operations, it will be an agreement "for the carrying out of construction operations". 43. Reference was made byMr Mort to the Construction Contract (England and Wales) Exclusion Order 1998 as support for his proposition that the word "for" in sub-section (1) meant "in relation to". There were extensive arguments based on authority as to whether and the extent to which a later statutory instrument could be deployed in the interpretation of the original statute. The authorities were Regina (A) v Director of Establishments of the Security Service[2009] UKSC 12 and Hanlon v The Law Society[1981] AC 124 . In the later Supreme Court case, Lord Hope was prepared to regard the enabling statute which received the Royal Assent on28 July 2000 and the statutory instrument made on28 September 2000 as all part of the same legislative exercise. In the earlier House of Lords case, Lord Lowry in an authoritative judgement starting at page 193G stated as follows: “A study of cases and of the leading textbooks… appears to me to warrant the formulation of the following propositions: (1) Subordinate legislation may be used in order to construe the parent Act, but only where power is given to amend the Act by regulation or where the meaning of the Act is ambiguous. (2) Regulations made under the Act provide a Parliamentary or administrative contemporanea expositio of the Act but do not decide or control its meaning: to allow this would be to substitute the rule-making authority of the judges as interpreter and would disregard the possibility that the regulation relied on was misconceived or ultra vires. (3) Regulations which are consistent with a certain interpretation of the Act tend to confirm that interpretation. (4) Where the Act provides a framework built on by contemporaneously prepared regulations, the latter may be a reliable guide to the meaning of the former. (5) The regulations are a clear guide, and may be decisive, when they are made in pursuance of a power to modify the Act, particularly if they come into operation on the same day as the Act which they modified. (6) Clear guidance may also be obtained from regulations which are to have effect as if enacted in the parent Act”
“A number of AHU problems have led to excessive humidity and sustained ceiling; both impact on building fabric and require urgent rectification before the degradation of affected areas becomes self perpetuating defect.” (c). There was no evidence before the court as to what these "AHU problems" actually were historically. One would need to look at the factual background to determine, in interpreting this letter what these "problems" actually were. Doubtless there are some letters between the parties which precede this February 2011 letter and they may cast some relevant light; no such correspondence was provided to the Court and there was no evidence to explain with any precision what the "problems" were. (d). It is clear that what was being settled was AHU problems which had led to "excessive humidity and stained ceilings”