Construction project – Repair and refurbishment of hotel – Appellant engaging respondent firm of surveyors – Appellant agreeing to release all claims against respondent in relation to matters arising from its appointment as surveyor in return for assistance in arbitration against insurer – Subsequent claim for damages for damp penetration resulting from negligent work – Claim struck out as being excluded by release agreement – Whether claim within contemplation of parties at time of release agreement – Appeal dismissed
In 1998, the appellant engaged a firm of surveyors to undertake the design, specification and supervision of repair and refurbishment works to a hotel that had been damaged by fire. The works were begun in June 1998 but were delayed by disputes between the appellant and its insurers that went to arbitration. In 1999, the respondent acquired the surveyors’ business, retaining the services of O, who had previously dealt with the appellant’s works. In October 2000, O prepared a report on the state of the hotel.
Thereafter, O left the respondent’s employment in acrimonious circumstances. He gave evidence for the insurer in the arbitration, asserting that the appellant had failed to give full disclosure and that the respondent held relevant documents. The appellant sought the respondent’s assistance in rebutting those claims. In discussions, it transpired that O might have backdated documents to hide his own responsibility for delayed projects, including that of the appellant. The latter suspected that O had deliberately concealed his own negligence and considered that it had been overcharged in respect of O’s fees. Ultimately, the respondent agreed to assist the appellant on the terms of a letter dated March 2003, by which the appellant undertook not to issue proceedings against the respondent “in relation to matters arising from [the respondent’s] appointment as surveyors in relation to the… Hotel – irrespective of whether such appointment was conducted through [O] or otherwise”. It was also agreed that the issue of fees would be dealt with in the arbitration and that no proceedings would be brought in respect of them.
In 2005, the appellant discovered that the refurbished hotel had been affected by damp penetration. It brought a claim for damages against the respondent, contending that the damp was the result of O’s negligence in failing properly to specify and supervise the repairs and in failing to identify the inadequacy of the remedial works in his 2000 report. The respondent applied successfully to strike out the claim on the ground that it was barred by the March 2003 release agreement. On appeal, the appellant contended that the agreement was confined to claims of which the parties had been aware at the time, which did not include a claim in respect of the damp, or that it dealt only with the issue of the dispute over the respondent’s fees and with the services that it was providing in respect of the arbitration against the insurer.
Held: The appeal was dismissed.
A release agreement was to be construed in the ordinary way by ascertaining the parties’ intentions as a matter of interpretation in the light of the contractual matrix. The discussions and correspondence leading up to the March 2003 agreement showed that the appellant had been aware of the significance of the material that had come to light concerning O’s activities since it referred to negligence by O in the conduct of his responsibilities in respect of the hotels. Although the appellant had not at that time known of the latent defects that were subsequently revealed following the discovery, in 2005, of the damp, it had been on notice that O had prima facie been negligent and dishonest in the discharge of his responsibilities. The parties had been aware that there was a question mark over O’s competence and honesty and had considered that O’s defaults or errors could lead to claims against the respondent. Although the nature of those claims might depend on future events, the parties should be regarded as having contemplated the possibility that damage caused by previously latent defects in the works might come to light in the future. Although the courts applied a cautionary principle under which they would be slow, in the absence of clear language, to infer that a party intended to surrender rights and claims of which it could not have been aware at the time, claims arising out of latent defects were the type of claims that the parties to a construction contract might be expected to have considered: Bank of Credit & Commerce International SA (in liquidation) v Ali (No 1) [2001] UKHL 8; [2002] 1 AC 251 considered, Mostcash plc (formerly UK Paper plc) v Fluor Ltd (No 1) [2002] EWCA Civ 975; [2002] BLR 411 applied. The main focus of the 2003 release agreement was not the danger of claims from the appellant arising out of the provision of expert services for the arbitration, or in respect of fees, but concern over O’s negligence with regard to the hotel project. That was apparent from the appellant’s pleadings and the March 2003 agreement. In those circumstances, the cautionary principle did not assist the appellant since the appellant was a commercial concern that had made a deal with the assistance of its lawyers and in full awareness, knowing of the possibility of negligence or worse on the part of O, and had been willing to forgo claims that might arise out of those circumstances in order to buy the respondent’s help in succeeding in its arbitration against its insurer.
Lesley Anderson QC and Graham Sellers (instructed by Gregsons Solicitors, of Liverpool) appeared for the appellant; Alexander Nissen QC and Richard Coplin (instructed by CMS Cameron McKenna) appeared for the respondent.
Sally Dobson, barrister