The Court of Session recently rejected a novel claim brought by a contractor against a third party who caused delay to a construction contract. Stuart Pemble investigates
During my time as one of the editors of Legal Notes, I have not been slow to criticise judges who don’t follow precedents that should be binding on them. So, I was pleasantly surprised to read Lord Bannatyne’s opinion in Cruden Building & Renewals Ltd v Scottish Water [2017] CSOH 98, where an attempt to establish a claim for delay caused by a leaking sewer fell foul (no pun intended) of well-established legal precedent.
The robust way in which the judge was able to reject the argument also suggests that the decision will be remembered as an interesting judicial footnote rather than the first in a new line of cases.
The facts
In 2015, Cruden Building (the pursuer) began constructing a housing development at Prospecthill Circus, Toryglen, Glasgow. The ultimate client was Glasgow Housing Association Ltd, which had entered into a development and licence agreement with another Cruden company – Cruden Holdings (West) Ltd – in 2013. Cruden Building then carried out the construction on Cruden Holdings’ behalf, although the judgment is silent as to what, if any, agreement was reached between the two group companies.
In March 2015, sewage leaked onto two separate parts of the site for between 13 and 15 weeks. It took another four weeks for the bacterial contamination to die off; a total delay of between 17 and 19 weeks. There was no provision in the development and licence agreement with the housing association entitling either Cruden company to recover more time and money for what could be categorised as a force majeure event. And whatever agreement existed between the two Cruden companies would simply have resulted in one claiming costs from the other, which would have been irrecoverable against the housing association.
Cruden Building therefore looked to recover the losses it suffered from Scottish Water, which was the party actually responsible for the sewage leak. Because there was no contract between Cruden Building and Scottish Water, it had to bring its claim in delict (the Scottish legal term for tort).
The legal obstacle
The problem Cruden Building faced is that there is a long-established line of authority (including Cattle v Stockton Waterworks Co (1875) LR 10 QB 453, the more recent decision of the House of Lords in Leigh and Sullivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] 2 WLR 902 and the appellate decision of the Inner House of the Court of Session in Nacap Ltd v Moffat Plant Ltd 1897 SLT 221) that in order to bring a cause of action in tort or delict for physical damage to a property, the claimant or pursuer must have legal or possessory title to the property – in effect, own the freehold or occupy under a lease.
Cruden Building did not have legal or possessory title to occupy the site. Rather, it occupied under the terms of a licence granted by the housing association to Cruden Holdings under the 2013 agreement. The position would have been the same if Cruden Building had been carrying out the work under a more conventional building contract, where the usual approach is for the contractor to enjoy a licence rather than a lease.
The main line of argument Cruden Building adopted to overcome this problem (it lost on its other points as well) was to try to persuade the judge that the relevant authorities which apparently stopped it from being able to bring proceedings in delict related to the recovery of damage to, or arising out of damage to, the site itself. This claim was for economic loss arising from the delay caused by the damage and, as such, was properly recoverable in tort or delict as economic loss.
Lord Bannatyne disagreed. In doing so, he was influenced by Cattle, where a tunnelling contractor was delayed by a leak from the defendant’s water main. The damages claimed by the contractor in Cattle were for compensation of the same type of economic loss that was suffered by Cruden Building. The restriction on not being able to bring a claim in tort or delict unless it enjoyed legal or possessory title still applied.
The judge noted that in the decision of the Privy Council in Candlewood Corporation v Mitsui Ltd [1986] AC 1, which was referred to with approval in Nacap, Lord Fraser of Tullybelton, when referring to Cattle and another case noted: “These two cases… have stood for over 100 years and have frequently been cited with approval in later cases both in the United Kingdom and elsewhere. They show… that the justification for denying a right of action to a person who has suffered economic damage through injury to the property of another is that for reasons of practical policy it is considered inexpedient to admit his claim.”
Significance of the decision
While it may remain an interesting legal footnote, the decision does raise the question of the extent to which parties to a construction contract should specifically deal with damage to the site caused by third parties.
Taking the JCT suite as an example, most third-party damage is covered by the joint names all risks insurance policy (and the standard wording includes “escape of water from any water tank, apparatus or pipe”). However, certain risks – radiation and pressure waves are two examples – are excluded. Other types of damage might be caught by the concept of force majeure.
However, many contracts might have specific concerns that will need to be dealt with by explicit drafting or risk falling foul of the prohibition on claims being brought in tort.
Stuart Pemble is a partner at Mills & Reeve
