Subcontractor – Defective work – Damages — Claimant bringing action for breach of warranty in respect of works carried out by defendant subcontractors — Whether defendants in breach of warranty — Whether claimant entitled to damages – Claim allowed in part
The claimant was the service company of a firm of solicitors that, in 1996, had moved into premises under 25-year leases following the redevelopment of the property. The first defendant was the main contractor to carry out the redevelopment of the premises, which comprised two buildings. The first defendant subcontracted the mechanical and electrical works (which included the insulated chilled-water pipework for the air-conditioning systems) to the third party, which sub-subcontracted the installation of the insulation works to the fifth party.
In June 2006, a leak from one of the sets of chilled-water riser pipes was traced to the fifth floor. Investigations revealed extensive corrosion throughout the pipework, which led the claimant to replace the corroded pipework throughout the building.
The claimant sought damages against the first defendant and the third party through a contractual route because they had provided written contractual warranties that they would properly carry out their respective main and sub-contract obligations. The fifth party was pursued by the third party for damages for breach of a duty of care in tort and for a contribution in respect of the breach of a duty of care owed to the claimant by the fifth party.
The court decided that the fifth party owed a concurrent duty of care in tort to the third party ([2010] EWHC 1878 (TCC)). There were issues between the parties as to whether, and if so to what extent,; (ii) there were breaches of contract or negligence; (ii) any cause of action in negligence against the fifth party was barred by limitation; (iii) any established breaches had caused condensation leading to the corrosion; and (iv) the decision to replace the pipes was a necessary or reasonable course of action. The holding companies of the first defendant and the third party (the second defendant and the fourth party) were joined as guarantors of their subsidiaries’ performance.
Held: The claim was allowed in part.
On a balance of probabilities, the first defendant and the third party were in breach of their respective building contract and subcontract and of their collateral warranties to the claimant. Those breaches led to and caused substantial and excessive corrosion to the riser pipework. However, the court was not satisfied that there were any such breaches in respect of the insulation to the pipework in the plant rooms and the undercrofts or that the fifth party had breached its duty of care in tort to either the third party or to the claimant.
With regard to quantum, the loss had to flow naturally from and be causatively linked to the established breach of contract; one then needed to determine, in the case of reinstatement or repair, whether it involved correcting the defect or physical damage. If a breach had caused physical damage, prime facie, the cost of reinstatement of that physical damage was recoverable. It would then be necessary to determine whether, and if so to what extent, the remedial solution actually adopted was reasonable in all the circumstances. The advice of an expert might be a material factor in the determination of what was a reasonable course of action for an innocent claimant to take.
One had to determine whether the claimant, as a matter of mitigation, had acted reasonably in pursuing the remedial solution and, in that context, the court should have regard to whether the claimant had acted on the advice of its experts. Moreover, the claimant had a duty to mitigate its loss; in most cases, the duty was not to act unreasonably in the context of incurring loss. The burden of proving a breach was on the defendant, which had to show that the claimant had acted unreasonably. In considering reasonableness, the court had to consider all the facts and, in particular, the circumstances in which the claimant found itself at the time it committed itself to a particular remedial course of action.
In the instant case, the claimant’s decision to replace the pipes was reasonable and necessary. Replacement remedied the problems of extensive defects in the insulation and extensive corrosion in the pipework. It had the advantage of certainty, which ensured that the claimant would not be liable under the leases for a dilapidations liability for the deteriorated condition of the pipes at the end of the leases. That the claimant was responsible for repairing and maintaining the chilled-water pipework was not in issue.
It was reasonable that the first defendant and the third party should pay damages based on the actual replacement costs for the replacement works to the risers. Since no liability was established for the insulation work in the basement and undercroft, the damages could not include costs relating to those areas. The claimant was also entitled to payment in respect of all those categories of work. They were all payable as legitimate variations to the remedial works contract: Skandia Property (UK) Ltd v Thames Water Utilities Ltd [1999] BLR 338 distinguished.
The claimant had to give credit for the £200,000 that it had received from its landlord as a contribution towards the remedial works for which it sought recovery. The payment was not gratuitous. Accordingly, there would be judgment for the claimant against both the first defendant and the third party in the sum of £2,845,435.60, reflecting the various adjustments to be made. Both the first and second defendants were entitled to an indemnity from the third and fourth parties. The third party’s claim against the fifth party would be dismissed.
Stephen Dennison QC and Mark Chennells (instructed by Linklaters LLP) appeared for the claimant; Peter Fraser QC and Piers Stansfield (instructed by Glovers Solicitors LLP) appeared for the first and second defendants; David Turner QC and Richard Liddell (instructed by Kennedys LLP) appeared for the third and fourth parties; Richard Wilmot-Smith QC and Karim Ghaly (instructed by Clyde & Co LLP) appeared for the fifth party.
Eileen O’Grady, barrister
