The High Court has struck out a defence that damage claimed was too remote in a claim to recover the cost of remedial works to cladding in Orchard Plaza Management Company Ltd v Balfour Beatty Regional Construction Ltd [2022] EWHC 1490 (TCC), a decision which will be of interest to those concerned with collateral warranties.
The claimant, a management company, which held a long lease of a property at Orchard Plaza, Poole, Dorset, sought to recover the cost of remedial works to the property under the terms of a collateral warranty given by the defendant. In 2007/08, the property was converted from a 1970s office block into 115 residential apartments and two commercial units. The development was designed and constructed by the defendant, under contract with the then freeholder of the property.
The defendant warranted to the funder of the development that it would/had exercised all reasonable skill, care and diligence to be expected of a competent contractor experienced in carrying out work and services similar to the contract works including the design, approval of the design for the works, and the selection of materials. The warranty was assignable and under clause 12.3 the defendant agreed not to argue that any beneficiary was precluded from recovering any loss or damage by reason of being an assignee or because the loss was different to that which would have been suffered by the original beneficiary. The warranty was assigned to the claimant in July 2017.
In 2015, defects in the rainscreen cladding to the development became apparent and the local authority issued an improvement notice requiring the claimant to replace it. The claimant alleged that the defects were due to the defendant’s failure to comply with the building contract, the warranty and building regulations. While the defendant admitted some of the defects, it contended that no loss had been suffered. It also admitted breach of the warranty but denied liability to the claimant since the warranty was issued to a funder and at the time it was entered into the losses claimed were not a natural, likely or foreseeable consequence of breach.
A party to a breach of contract is entitled to recover such part of the loss actually resulting as was, at the time the contract was made, reasonably contemplated as liable to result from the breach. The test for remoteness is whether, at the time of contracting, the type of loss was within the parties’ reasonable contemplation as a serious possibility (Attorney General of the Virgin Islands v Global Water Associated Ltd [2020] UKPC 18) and an assignee can recover no more than an assignor could have done.
The court concluded that loss in the form of the costs of repairs incurred by the claimant was within the reasonable contemplation of the defendant as being a serious possibility at the time that the warranty was concluded. Such loss incurred by the funder was certainly so. Consequently, the loss claimed by the claimant was not too remote. Even if it was too remote, the defendant was precluded by clause 12.3 of the warranty from so contending.
Louise Clark is a property law consultant and mediator
