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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Royal Brompton Hospital National Health Service Trust v Watkins Gray International (UK) [2000] EWCA Civ 120 (10 April 2000)
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Cite as: [2000] EWCA Civ 120
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Case No: QBENI 99/1082/A2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE TECHNOLOGY AND
CONSTRUCTION COURT (HH JUDGE HICKS QC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Monday 10 April 2000
LORD JUSTICE STUART-SMITH
LORD JUSTICE WARD
and
LORD JUSTICE BUXTON
THE ROYAL BROMPTON HOSPITAL NATIONAL HEALTH SERVICE TRUST |
Respondent | |
- and - |
||
WATKINS GRAY INTERNATIONAL (UK) |
Appellant |
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
__________________________________
Marcus Taverner (instructed by Messrs Fishburn Morgan Cole for the Appellant)
Antony Edwards-Stuart QC & Mark Cannon (instructed by Messrs Masons for the Respondent)
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE STUART-SMITH:
Introduction
1. The Royal Brompton Hospital in Chelsea underwent major building works between 1987 and 1990 as phase 1 of a programme of development. Unfortunately it has given rise to lengthy and intractable litigation between the Claimants (`Brompton') and the contractors, Taylor Woodrow Construction (Holdings) Ltd (`TW') and a large number of Brompton's professional advisers. In this appeal we are concerned with the architects Watkins Gray International (UK), the 8th Defendant, and two partners of the firm: Ivor Gordon Berresford (14th Defendant) and Keith Pegden Smith (15th Defendant), whom I shall refer to collectively as WGI.
2. TW made claims against Brompton under the contract for extra payments and loss and expense for variations, delay, disruption and other matters amounting to some £22 million, against which, on the advice of their quantity surveyor, Brompton paid £5.2 million. TW were not satisfied. The contract contained an arbitration clause and TW in due course began arbitration proceedings claiming, with interest, some £15 million more. Brompton counterclaimed some £6.6 million. The arbitration was settled on 19 December 1995 on terms that Brompton paid to TW some £6.2 million in satisfaction of the claim, after taking into account the counterclaim. Brompton also bore its own costs, said to be about £2 million and some £13,000 paid to the arbitrator. It was a term of the settlement that Brompton should indemnify TW against any claim for compensation made against TW by the Defendants.
3. It is an unfortunate feature of this litigation that since the decision in North Regional Health Authority v Derek Crouch Construction Co Ltd [1984] QB 644, it was not, or not thought, possible to stay an arbitration on the grounds that there were claims against other parties arising out of the same subject matter, which would normally be a good reason for a stay, so that all issues can be tried in one forum, because it was thought that the Court, unlike an arbitrator who is given express powers to do so, could not reopen certificates. The result of this decision was that a building owner who might have claims against the contractor or his professional adviser or both, had to litigate against the contractor in arbitration proceedings and against the professional adviser in Court, unless all parties agreed to submit to one tribunal. The decision in The Crouch case has now been overruled in Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266, and the law has now returned to what it was widely believed to be before 1984. Nevertheless, The Crouch case has had a baleful effect on this litigation.
4. The writ in the present action was issued on 21 January 1993, after the arbitration was begun, but before the settlement. The Statement of Claim was served on 5 August 1997 and the pleading refers to the settlement. Brompton alleges against the various Defendants, including WGI, contractual and common law duties of professional care and skill, breaches of those duties and resulting damage. The Defendants deny those allegations and in addition blame each other and TW.
5. WGI joined TW by Third Party proceedings, which by the procedural changes of 26 April 1999 have become Part 20 proceedings. In those proceedings WGI allege that if they are liable to Brompton in respect of various claims against them, then TW are bound to contribute under the Civil Liability (Contribution) Act 1978, (`the Act'), on the ground that TW is or was liable to Brompton in respect of the same damage.
6. TW applied for an order that the Part 20 proceedings against it be struck out or dismissed or that the order giving leave for their commencement be set aside on the ground that the statutory requirement of liability on the part of the two parties concerned `in respect of the same damage' is not met. In view of the indemnity given by Brompton to TW on the settlement, TW's application has been conducted by Brompton's solicitors and counsel. His Honour Judge Hicks QC, sitting in the Technology and Construction Court, by judgment given on 23 July 1999 acceded to TW's application and ordered that the Third Party Notice be struck out and the Part 20 claim be dismissed. WGI appeal that order with leave of this Court.
7. The judge correctly directed himself as to two preliminary questions of law. First, in order to strike out WGI's pleading it must be `plain and obvious' that it discloses no reasonable ground for bringing the claim. Secondly, although as part of the settlement TW were released from any liability to Brompton that does not exclude the operation of the Act (see Section 1(3)).
The Statutory Provisions
8. Section 1(1) of the Act provides as follows:
"Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)."
That has to be read in conjunction with the interpretation section: Section 6(1) provides:
"A person is liable in respect of any damage for the purpose of this Act if the person who suffered it (or anyone representing his estate or dependants) is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise)."
Brompton's claim against WGI and WGI's claim against TW.
9. The Statement of Claim is divided into ten sections identified by capital letters A to J. A is introductory and J is concerned with loss and damage. B, C, E, F and G contain allegations of negligence and breach of contract against WGI. In their Third Party Notice WGI plead the matters on which they rely to bring themselves within Section 1(1) of the Act by reference to Sections C, F and G. It is common ground that if WGI cannot succeed in relation to Section G, they cannot succeed at all.
10. The main contract was in the JCT Standard Form of Building Contract 1980, Local Authorities Edition with Quantities, with Amendment No. 1 of 1984. WGI were the Architect/Supervising Officer. Article 5 contains the arbitration agreement and Article 5.3 contains the Arbitrator's power to `open up, review and revise any certificate, opinion, decision, requirement or notice, and to determine all matters in dispute which shall be submitted to him in such manner as if no such certificate, opinion, decision, requirement or notice had been given' by the Architect.
11. The contract overran by 43 weeks. WGI certified that TW were entitled to an extension of time of 43 weeks. In the arbitration Brompton sought to recover £2,319,169 which had been paid to TW by way of loss and expense, quantified by the quantity surveyors, which Brompton had had to pay TW as a result of WGI's certification. They also sought to recover £2,021,000 by way of liquidated damages (calculated on the basis of £47,000 per week) for delay in completion. They sought to reopen WGI's certificates granting the extension. If, and to the extent that, the extension should not have been granted, then TW were liable to repay some or all of the £2,319,169 and were liable to pay liquidated damages up to £2,021,000. In the settlement Brompton did not recover anything like the full amount of these claims. There was in fact no break down between the claims and counterclaims in the settlement.
12. Brompton allege that WGI were negligent in issuing the certificates granting the extensions of time. For the purpose of the strike out application it must be assumed that they were. Mr Taverner, on behalf of WGI submits that (a) as a matter of pleading and (b) if it is not so pleaded, it could be, that Brompton are claiming £2,319,169 and £2,021,000 (less the sums recovered from TW for which credit must be given) from WGI. This is because, he submits, the payment of the former and the inability to recover the latter sum, resulted from WGI's negligent certification. Hence the claim against WGI is in respect of the same damage as that claimed against TW. This is the basis of the claim for contribution.
13. Mr Edwards-Stuart QC, on behalf of TW and Brompton, submits that this is neither how the claim is pleaded against WGI nor could it be. The question of how the claim is pleaded is a matter of construction of the document. I do not intend to set it out in any detail. I am quite satisfied that the judge was right to hold that Mr Taverner's construction was wrong. What he said was this:
"The nature of the damage (that is the loss) allegedly suffered by the Claimant by reason of WGI's alleged breaches is in my view plain, although it can be expressed in various ways - as the weakening or impairment of its prospects of success, or the increase of its prospects of defeat, as against TW in arbitration or negotiation, or as a reduction in the value of its chance of success or an increase in the value of its chance of defeat.
"The Claimant has, by settling its dispute with TW and relying on the terms of that settlement in order to establish the measure of its claim for damages against the Defendants, precluded itself from seeking to recover from them those sums as such. Mr Taverner himself was at pains to point out, for other purposes, that payments wrongly made during the course of a contract are recoverable and that conversely liquidated damages not deducted at the time can be claimed later. I accept that submission, but it is fatal to the contention that the Claimant could be, any more than it actually is, claiming those sums, pound for pound, as damage which it has suffered at the hands of WGI. What the payment or non-deduction respectively of those sums, on WGI's decisions, did was (the Claimant says) to weaken its hand and strengthen TW's in the disputes between them and in the resolution of those disputes by settlement. Whether it will establish that that weakening occurred is an issue of fact, but only by doing so will it become entitled to an award of damages, and the amount of any such award will depend on the extent of the weakening proved."
14. The quantification of the loss in Brompton's claim against WGI demonstrates that this is the way the claim is put. It is said that Brompton only recovered a proportion of the sums overpaid to TW, for example 15% or 25% depending on the strength of the particular point. Against WGI Brompton claims damages up to 85% or 75% of the amount on the basis that its claim against WGI was weakened, though clearly 85% or 75% is a ceiling and probably unrealistic.
15. Mr Edwards-Stuart submits that Brompton's case is, in effect, that as a result of WGI's breaches of duty Brompton entered the arbitration with one hand tied behind its back. Thus as a result of the extensions of time:
(i) Liquidated damages had not been deducted
(ii) £2.3 million had been paid for prolongation costs
(iii) TW was claiming further sums
(iv) Brompton had to persuade the arbitrator that WGI had been wrong in circumstances in which (a) WGI were not going to support that case and (b) TW could contend that WGI had been there at the time, whereas the arbitrator had not.
Brompton therefore faced an uphill struggle in an arbitration which was estimated to last 40 weeks.
16. On the other hand if the extensions of time had not been granted, then:
(i) Brompton would have deducted liquidated damages
(ii) Brompton would not have paid £2.3 million for prolongation costs
(iii) TW would have had to consider whether to seek to obtain extensions of time in the arbitration
(iv) If TW had commenced an arbitration (and Brompton claim that they probably would not have), then it would have been very different from the arbitration which in fact occurred in that Brompton's position would have been supported by WGI, and TW would have faced an uphill struggle in trying to persuade the arbitrator that WGI were wrong. Damages are claimed on the difference financially between the two positions.
17. The position can be demonstrated by an example. The work is delayed. TW claim 40 week's extension of time and say £8 million by way of consequent loss and expense. If WGI reject TW's claim for an extension (and hence the claim for loss and expense), Brompton will have to assess the commercial settlement value of those claims in the light of WGI's decision and the anticipated support of WGI in the arbitration and would have deducted £2 million liquidated damages (40 weeks at £50,000 per week). The settlement value of TW's claims might be assessed at say:
Extension of time.................................. 10 weeks
Loss and expense...................................£2 million
Repayment of liquidated damages.........£0.5 million
Retention of liquidated damages............£1.5 million
Net cost to Brompton............................ £1 million (£2.5 m less £1.5m)
18. On the other hand if WGI had granted 30 weeks extension of time, so that say £6 million is assessed by the quantity surveyors for TW's loss and expense, the commercial settlement value changes significantly. Brompton now have to persuade the arbitrator, not only that TW is wrong in its claim for a further 10 weeks extension and £2 million loss and expense, but that WGI was wrong in granting the extension that it did. Brompton has only deducted £0.5 million liquidated damages. In these circumstances TW's position is stronger (the settlement value of its claims has increased). They might be assessed as follows:
Extension of time.................................20 weeks
Loss and expense.................................£4 million
Liquidated damages.............................£1 million
Net cost to Brompton...........................£3 million (£4m less £1m).
19. In this example Brompton's claim is for £2 million against WGI, being the difference between the two positions. Mr Edwards-Stuart submits, rightly in my judgment, that that is not the same `damage' as Brompton's claims against TW in the arbitration. It is for the difference in financial terms between the ability to recover sums overpaid (in loss and expense) or to enforce their claim for sums underpaid (by way of liquidated damages), in the two different situations. While the quantification of Brompton's claim against WGI, and hence the damages recoverable, have to be calculated by reference to the amount claimed against TW, the damage is not the same. As was pointed out in Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675 by Roch LJ at p682 the word in s.1(1) of the Act is damage not damages and the two things are quite different. Damages are the financial compensation for the damage, whatever it is that is sustained.
20. The point can be illustrated by the all too common case of the solicitor who fails to issue a writ in time in a personal injury action. The damage suffered by the Claimant for which he sues the original tortfeasor is the personal injury for which he claims to be compensated in money by an award of damages. The damage for which he sues the negligent solicitor is the loss of his chance of obtaining damages against the tortfeasor. The value of the claim is assessed by reference to the quantum of the personal injury claim and the prospects of success against the tortfeasor; but the damage is not the same. In the one case the damage is physical injury, in the other it is financial loss.
21. The analogy can be taken further if one postulates that the Claimant in this example sues the tortfeasor and seeks to rely on s.14 of the Limitation Act 1980 (date of knowledge) or to disapply the provisions of s.11 of the Limitation Act 1980, relying on s.33 (the Court's discretion). Absent the solicitor's negligence in failing to issue the writ, the settlement value of the claim against the tortfeasor is £x. But if reliance has to be placed on proving a later date of knowledge or the Court's discretion, the settlement value of the claim is only a percentage of £x, say £y, depending on the strength of the case on s.14 or s.33. The claim against the solicitor is the difference between £x and £y.
22. I also agree with Mr Edwards-Stuart that the damage to Brompton occurs at the time of the negligent certification because it is at that moment that its position vis-à-vis TW is altered and weakened, though the quantification of the damages payable to compensate for the damage cannot be assessed until later. That quantification will depend on what happens vis-à-vis TW. If, in this situation a contractor goes into liquidation, with the result that nothing can be recovered from him, then the quantification of the damage caused by the architect's negligence is the full amount of the overpayment of cost and expense and under-recovery of liquidated damages. But where the contractor is solvent, and there are two sets of proceedings, as in the present case, the quantification of the damages recoverable from WGI is calculated by reference to amount claimed against the contractor, less what is recovered from him, that being the ceiling amount. The actual amount will be less because a settlement is determined by the perceived strength or weakness of the two opposing cases.
23. The question of what is meant by `damage' was considered in the context of the period of limitation and the accrual of a cause of action against a negligent solicitor in Forster v Outred & Co. [1982] 1 WLR 86, at p94 Stephenson LJ said:
"What is meant by actual damage? [Counsel] says that it is any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has no control; things like loss of earning capacity, loss of chance or bargain, loss of profit, losses incurred from onerous provisions or covenants in leases."
Stephenson LJ accepted this submission. This judgment was approved by Lord Nicholls of Birkenhead in Nykredit plc v Edward Erdman Ltd [1997] 1 WLR 1627 at p1630. The damage in the present case caused by the negligence of WGI is the detriment to or impairment of its bargaining position vis-à-vis TW in relation to costs and expenses overpaid pursuant to the certificate and liquidated damages unrecovered. The damage caused by the breach of contract of TW is the delay in completion of the building and the consequent inability of Brompton to use it. Compensation for that damage is the recovery of liquidated damages which are a pre-estimate of the actual damages and recovery of the amount overpaid in expenses.
24. Mr Taverner submits that even if that is not how the case is pleaded, WGI could by amendment be exposed to a claim for the £2.3 million and £2 million (less the recovery from TW). Indeed he described this as the `traditional claim'. He relies on the words in section 1(6) of the Act which provides:
"References in this section to a person's liability in respect of any damage are references to any such liability which has been or could be established in an action brought against him......."
Quite apart from the fact that Brompton would not be allowed to amend on these terms having made it quite clear that that is not its case, I do not think as a matter of law Mr Taverner's submission is correct. He cited in support of his submission the case of Wessex Regional Health Authority v HLM Design Ltd (1994) 71 BLR 32. That is a complicated case and I do not derive any assistance from it or from the lengthy citation of authority in it. Care must be taken to distinguish between cases of negligent failure by the architect to condemn and require rectification of defective work by the contractor (this is an example of what Mr Taverner calls the traditional claim), and a claim such as the present for wrongful certification of extensions of time. In the former case the damage is the defective building; both contractor and architect are liable in respect of that damage. In the present case the damage, as I have indicated, caused by TW's breach of contract is the failure to provide the building on time; the damage caused by WGI is the impairment of the ability to obtain financial recompense in full from TW.
25. Moreover, I consider that this is in accordance with principles of remoteness of damage. In the case of defective workmanship which through failure of supervision the architect does not detect and requires to be rectified, the foreseeable damage caused by the architect's breach of duty is the cost of making good the defective work. That is the same measure as that for which the contractor is liable. But in the case of wrong certification of an extension of time, what the parties reasonably foresee is that the contractor will repay the sums that he has received for loss and expense, because he has been unjustly enriched to that extent and he will be liable to pay damages for delay caused by his breach of contract. The damages which are reasonably foreseeable as a result of the architect's breach of duty are not damages for the delay which they have neither caused nor failed to detect. What is foreseeable is the additional expense to which the owner is put in trying to enforce its claims against the contractor, the financial value to be put upon the weakening of those claims as explained earlier, and only if the contractor is insolvent, the full amount of the claims is claimed against him, and not recovered.
26. In my judgment the authorities support this conclusion which I have reached in principle. In the Birse case (supra) a water authority contracted with the plaintiffs for the design and construction of a reinforced concrete storage reservoir. The plaintiffs retained the defendants as consulting engineers. The third party was employed by the water authority, who appointed him as engineer for the purpose of the contract with the plaintiffs and as the construction engineer for the purpose of the Reservoir Act 1975 to issue all necessary certificates. The reservoir proved to be defective. The water authority's claim against the plaintiffs in respect of the defective reservoir and consequential loss was settled by an agreement under which the plaintiffs were to construct a new reservoir at its own expense. The plaintiffs sued the defendants who in turn claimed contribution under the Act against the third party. The judge held that the third party's liability to the defendants was in respect of the same damage as the defendants' liability to the plaintiffs and that the defendant was entitled to claim under the Act. The Court of Appeal allowed the appeal. It was held that the damage suffered by the water authority was the physical defects in the reservoir, while the damage suffered by the plaintiffs was the financial loss of having to construct a second reservoir and these were not the same damage.
27. At p680 Sir John May said:
"Further, the simple approach necessarily involves that the statutory draftsman intended that "the same damage" should be damage suffered by the same person. I do not think that the loss suffered by Anglian in not having a completed properly working reservoir at the time that they expected, the loss sustained by Birse in having to construct a second reservoir as a result of their compromise with Anglian, or the damages which Haiste may have to pay Birse or for which Mr Newton may be liable to Anglian for their respective breaches of contract or negligence, or for both, are "the same damage" within section 1(1) of the Act, even though each may have been brought about because the first reservoir was badly constructed by Birse."
Roch LJ put it succinctly at p682E:
"The damage suffered by Anglian in this case was the physical defects in the reservoir. The damage suffered by Birse was the financial loss of having to construct a second reservoir for Anglian. Anglian and Birse did not suffer the same damage."
28. Mr Taverner places reliance on Friends Provident Life Office v Hillier Parker May & Rowden [1997] QB 85. In that case the plaintiff had funded part of the cost of a property development in expectation of a share of the profits. The defendants were surveyors engaged to advise the plaintiff and to check and authorise payment of the developers' claims for the plaintiff's share of the cost. Payments of such claims were by the contract between the plaintiff and the developers expressed to be "non-refundable" to the other party. The plaintiff sued the defendants in negligence and breach of contract for allegedly authorising overpayments, having abandoned an earlier action against the developers for repayment. The defendants joined the developers as third parties, claiming contribution under the Act on the grounds (among others) that (i) the overpayments, if established, were made under a mistake of fact or for no consideration, and so repayable by the developers, or (ii) the developers were trustees of any money overpaid and liable to compensate the plaintiff for breach of trust. The claims for contribution were struck out as disclosing no reasonable cause of action but restored by the Court of Appeal. Auld LJ, with whom Saville and Rose LJJ agreed, quoted from sections 1 (1) and 6(1) of the Act. Dealing with the first, restitutionary, ground of alleged liability on the part of the developers to the plaintiffs, he said:
"In my judgment, despite the distinction between a claim for restitution and one for damages, each may be a claim for compensation for damage under sections 1(1) and 6(1) of the Act of 1978. The difference between asking for a particular sum of money back or for an equivalent sum of money for the damage suffered because of the withholding of it is immaterial in this statutory context, which is concerned with "compensation" for "damage".........[After considering the purpose of the Act and quoting again from sections 1(1) and 6(1) he continued:] It is difficult to imagine a broader formulation of an entitlement to contribution. It clearly spans a variety of causes of action, forms of damage in the sense of loss of some sort, and remedies, the last of which are gathered together under the umbrella of "compensation."
He then addressed an argument that restitution was akin to debt, and that debt was implicitly recognised by section 3 of the Act, in the phrase "debt or damage", as being distinct from damage, and dismissed it as follows:
"......even if the judge was right in associating a claim for restitution in quasi-contract with an action for debt, that would not exclude it from being a claim for compensation in respect of damage......within the meaning of sections 1(1) and 6(1) of the Act of 1978."
He then considered the claim in breach of trust and came to the same conclusion.
29. The distinctions relied upon without success in that case to take the claims outside the Act concerned the form of remedy. Both at first instance and on appeal the argument and judgments turned on whether the alleged liability of the developers was one in respect of damage, rather than whether it was the same damage. The question raised in this appeal did not arise. Moreover, I think that Mr Edwards-Stuart is right when he says that the certificate issued by the HPMR carried no rights provisional or otherwise. It did not affect rights of the parties under the contract and the issue of the certificate by itself caused no damage. It was not until payment was made that any damage was suffered.
30. The third case is Jameson v Central Electricity Generating Board [1998] QB 32. The Court of Appeal held that a claim by a deceased workman against his former employer for negligence and breach of statutory duty was a claim in respect of the same damage for the purpose of the Act as one by his executors under section 1 of the Fatal Accidents Act 1976 for the loss of dependency, since the relevant damage was the wrong which caused both the injury and the death (per Auld LJ at p353E). I confess to finding some difficulty in understanding how the tort or wrong can be the damage as opposed to the injury or disability caused by the wrong. And it is difficult to reconcile this reasoning with that in the Birse case. But it does not assist WGI's case. The decision was reversed in the House of Lords at [1999] 1 All ER 193 and judgment was entered for the defendant CEGB. The point was not argued in the House of Lords because the employers did not appeal and in any event the claim failed and with it the third party proceedings. But the point about that case was that CEGB and the employers were concurrent tortfeasors in respect of the same harm, since the deceased worked for the employers in dangerous conditions at the CEGB's factory (see per Lord Hope of Craighead at p200h).
31. In the course of argument our attention was drawn to a number of cases where the question at issue was whether the action is one where the "damages claimed by the Plaintiff consist of or include damages in respect of personal injuries to any person" within Section 11 of the Limitation Act 1980 or its predecessor Acts (see for example Akbar v C.F. Green & Co. Ltd [1975] 1 QB 582, Howe v David Brown Tractors (Retail) Ltd [1994] 4 All ER 30). After the argument was concluded our attention was drawn to a recent decision of this Court in Norman v Ali and others The Times 25 February 2000, where a similar point was considered. For my part I have not derived any assistance from considerations of these cases, or the further written submissions which we have had from both counsel. I find nothing in this line of cases which is contrary to the conclusion to which I have come.
32. A second case, Howkins v Harrison (a firm) v Robert Edward Taylor and another, a decision of HH Judge Behrens QC sitting as a High Court Judge and delivered on 18 February 2000, has also been drawn to our attention and written submissions have been made by counsel. The case is more in point. The facts are that in 1992 the lender advanced £634,000 to borrowers on security of property valued by the claimant valuers. In 1995 the lender started proceedings against the valuers for negligence and breach of contract. The lender sold the property as mortgagee for £250,000. A demand for £503,000 was made against the borrowers but they paid nothing and the lender did not take proceedings. The valuers settled the lender's claim for £400,000. The valuers sought to recover a contribution from the borrowers under S.1(1) of the Act and their entitlement to a contribution was tried as a preliminary issue. The judge held that the damage (if it was damage) suffered by the lender in respect of non-payment of the borrowers' liability under the facility letter was not the same damage as that suffered by the lender as a result of the negligent valuations. The decision appears to me to be in tune with the conclusion I have reached.
33. For these reasons I would dismiss this appeal.
LORD JUSTICE WARD:
34. I have much greater difficulty with this case than My Lords, whose judgments I have had the benefit of reading in draft. My hesitation arises firstly from the irony that, for the Law Commission whose Report on Contribution (Law Com. No. 79) led to the Civil Liability (Contribution) Act 1978, it was `a variety of legal problems that seem to call for law reform,' and those problems included the following:-
"Co-contractors and co-tortfeasors may claim contribution from one another but not where each of the two (for example architect and builder) is liable for breach of his separate contract."
See paragraph 1 of the report. The precise problem which they identified was the example of negligent supervision by the architects of negligent work carried out by the builder. It is easier there to see that if through negligent supervision defective work remains undetected, then the owner is left with the building which remains in a damaged state, that damage having been caused by the builder's failure to do the work in a good workmanlike manner. The damage is unquestionably the same. So that mischief has been cured. Damage flowing from the negligent issue of certificates may be more convoluted, but it ought to have been within the scope of the Law Commission's survey. On my Lords' views, that problem will not have been resolved.
35. Yet, and this is my second anxiety, I accept, indeed I totally agree with, the judgment of Auld L.J. in Friends' Provident Life Office v Hillier Parker May and Rowden [1997] QB 85, 102/103 where he points out:-
"The contribution is as to `compensation' recoverable against a person in respect of `any damage suffered by another' `whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise.' It is difficult to imagine a broader formulation of an entitlement to contribution. It clearly spans a variety of causes of action, forms of damage in the sense of loss of some sort, and remedies, and the last of which are gathered together under the umbrella of `compensation.' The Act was clearly intended to be given a wide interpretation ..."
36. Accordingly, and painting with that recommended broad brush, the hospital's loss - which constitutes their damage - and for which they seek compensation is the loss of £2.3m. for prolongation costs, which the hospital would not have paid, and £2.1m. liquidated damages, which the hospital did not deduct from sums payable to Taylor Woodrow and would have recovered from them respectively but for the negligent issue of the certificates. It was compensation for those sums which the hospital sought to recover from Taylor Woodrow in the arbitration. It is thus arguable that the architects are `liable in respect of (that) damage' given the broad interpretation provisions in section 6 of the Act to the effect that `a person (the architect) is liable in respect of any damage if the person who suffered it (the hospital) is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability)'. I have added the emphasis. I adopt the explanation of the words `in respect of' given by Mann C.J. in Trustees Executors & Agency Co. Ltd. v. Reilly [1941] V.L.R. 110,111 approved in Paterson v. Chadwick [1974] 1 W.L.R.890:
"The words `in respect of' are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the order refers."
The compensation to which the hospital is entitled from the negligent architect does have some connection with the compensation to which it is entitled from the builders. If, like Croom-Johnson J in Ackbar v. C F Green & Co Ltd. [1975] Q.B. 582, 587, one asks `What have the hospital lost?' and `What is this action all about?' the answer is that the hospital have lost £2.3m. plus £2.1m. and the action is all about their trying to get a contribution towards that loss from their architects. The fact that the cause of action against the architects is quite different from the cause of action against the builders does not matter: the hospital is looking to both the builders and the architects between them to compensate for their loss. It seems to me difficult to see why the negligent architects would not be entitled to a contribution from the unjustly enriched and negligent builders if the action had been commenced against the architects for recovery of the two sums as damage flowing naturally from the negligent issue of certificates and there had been no reference to arbitration. The availability of a remedy for just and equitable apportionment should not depend on who brought what action when.
37. I am, however, reluctantly persuaded that it is not quite as simple as that. What the hospital have actually lost, so far as the architects are concerned, is that proportion of those sums which the hospital failed to recover from Taylor Woodrow in the arbitration because of the handicap the hospital there faced that their own architects' certificates were against them. Looked at in that narrow light, the damage is different. My Lords have analysed that difference closely and I cannot fault the analysis. I therefore agree with the dismissal of the appeal, though I remain distinctly uncomfortable about it.
LORD JUSTICE BUXTON:
38. I agree that this appeal should be dismissed, for the reasons given by Stuart-Smith LJ.
39. The only issue in the appeal is whether WGI were correct in asserting, in paragraph 9 of their Third Party Notice, that:
"If...WGI was negligent as alleged by Brompton in granting extensions of time to TW to which TW was not entitled, and liable to Brompton for the liquidated damages and/or loss and expense paid to TW as alleged in the Amended Statement of Claim, then TW is and/or was also liable to Brompton in respect of the same damage the subject matter of this part of the action against WGI."
40. Mr Taverner summarised his assertion that the "damage" was the same in each case by saying that the damage was Brompton's loss of capital, to which both TW and WGI had made a major causative contribution. Any difference between the amounts actually recovered or recoverable from the two parties was merely a matter of quantification: it did not affect the nature of the damage itself.
41. I did not find the cases to which we were taken of assistance in determining this issue. Its solution, rather, flows from consideration of the way in which WGI itself put its case. If WGI was negligent in granting an extension of time, then the damage inflicted on Brompton was that grant of an extension itself. That is established, whether the claim is made in contract or in tort, by the passage in Nykredit plc v Erdman [1997] 1 WLR 1627 at p1630C-F to which my Lord refers: because by the grant of the extension the architect alters the building-owner's position, and sets in train a course of events that may result in actual financial loss to the building-owner unless he takes recuperative steps by arbitration or in litigation. The point was also clearly made in the context of incorrect certification in a passage with which Mr Taverner said he did not disagree, the observations of Oliver LJ in Townsend v Stone Toms (1985) 27 BLR 26 at p46.
42. It must, I think, be plain that TW is not liable to Brompton in respect of that damage: since whatever TW is liable to pay to Brompton does not result from, and is not to be measured in terms of, any negligent extension of time given by WGI. Moreover, that WGI cannot recover from TW is in the interests of economy of litigation, and not unfair to WGI. As WGI contends, in paragraph 152 of its Defence to Brompton's claim, WGI is only liable for loss actually caused by its negligence. Brompton will therefore only recover from WGI in respect of sums paid to TW if (i) Brompton did not owe those sums to TW; and (ii) it was WGI's negligence that led to Brompton being unable to recover those sums. If TW has no liability to Brompton, and that would, as WGI asserts, have been established had Brompton persisted with the arbitration, then Brompton's claim against WGI will, in terms of quantification, be limited to inconvenience and expense that may have been caused to it through difficulty in establishing TW's liability. But Brompton's claim, and the damage in respect of which that claim is brought, will still persist: because it is a claim for damages in respect of WGI's original act of negligence or breach of contract, rather than a claim, as against TW, in respect of wrong payment of, or failure to recover, sums certain.
43. The foregoing analysis in my view marches with that advanced by my Lord in paragraph 24 and 25 of his judgment, with which I respectfully agree. Where there is negligent failure to supervise defective workmanship, the architect's initial and continuing act of negligence is failure to prevent defective work. The damage that he inflicts on the building-owner is thus possession of a defective building. The contractor inflicts the same damage, though by negligent building rather than by lack of supervision. The contractor cannot defend himself by saying that the architect should have prevented his negligent work; whereas the contractor can at least aspire to defend himself where there has been negligent certification on the basis of that certification. That in my view further demonstrates that in the latter case the building-owner's complaint is in respect of the damage done to his relations with the contractor, rather than in respect of any damage inflicted on him by the contractor.
(Order does not form part of the approved judgment)