England and Wales High Court (Technology and Construction Court) Decisions

1. This is a trial of Preliminary Issues. Upon applications for further and better discovery of documents during preparations for trial of this action, it became clear that issues were raised going beyond discovery to the conduct of the trial of a part of the action.

2. With the agreement of the parties, I therefore ordered the trial of certain preliminary issues with a view to making rulings for the guidance of the parties in preparations for trial and in the conduct of the trial.

3. The parties have agreed certain assumptions of fact for the purpose of the trial of these preliminary issues only, but to understand those agreed assumptions, it is necessary to state something of the background. In giving an account of the background, I shall endeavour to give a simplified account of that part of the background as it affects the issues before me now. I hope that that account will not be so over-simplified as to be misleading. The issues before me now concern only a very small part of the multitude of issues and sub-issues arising in the action as a whole.

4. This action arises out of a part of a new building development of Guy's Hospital, London SE1. The part concerned is Stage 2 of Phase 3 of Philip Harris House, on the site of the existing main hospital building.

5. The defendants to the main action (Guy's) were the employers. They employed Higgs & Hill Management Contracting Limited (Higgs & Hill) as management contractor pursuant to a Management Contract dated 12 April, 1991. That agreement required Higgs & Hill to enter into contracts employing many Works Contractors.

6. Guy's employed a management team which included the plaintiffs by original action (P&O) as project managers, the second and third defendants by counterclaim (AA) as Mechanical and Electrical Services Engineers, Beard Dove as Quantity Surveyors, and Watkins Gray International as Architects.

7. There were delays to the project in respect of which the Architects granted extensions of time, and the parties to this action seek to cast the blame for those delays in various directions.

8. The action began with a claim by P&O for payments under their contract, including payments related to extensions of time. Guy's counterclaim against P&O and AA for damages for having caused a part of those delays by producing late and inadequate information and otherwise failing adequately to programme and manage the project.

9. A part of the counterclaim brought by Guy's, which is the part with which this preliminary trial is concerned, relates to claims brought by certain Works Contractors.

10. Works Contractors brought claims against Higgs & Hill with whom they had contracted. Those claims were, in part only, brought in respect of the delays which it is alleged can be traced back in part to delays caused by P&O and AA. The Management Contract required Guy's to recompense Higgs & Hill in respect of certain claims made against Higgs & Hill by the Works Contractors.

11. In 1994, the project was in disarray. Completion dates were past. Costs were rising. Guy's were open to liabilities which were difficult to quantify. To resolve their problems, Guy's took advice from distinguished surveyors, Davis Langdon and Everest and others. After consideration, Davis Langdon and Everest made a substantial report in writing in October, 1994 recommending a commercial agreement or "wrap-up deal" with Higgs & Hill. Following that advice, an agreement was made between Guy's and Higgs & Hill on 21 December, 1994.

12. By the 21 December, 1994 agreement, Higgs & Hill agreed amongst other things to complete Stage 2 by a fresh agreed date and to meet their own and the Works Contractors' claims without further recourse to Guy's. By that agreement, Guy's agreed to pay and did pay to Higgs & Hill £83.9 million (somewhat more than had been recommended by Davis Langdon and Everest). There was no agreement with Higgs & Hill as to how the £89.3 million was to be applied by Higgs & Hill. In particular, there was no agreement as to what, if any, sums were to be paid by Higgs & Hill to individual Works Contractors. That was a matter for negotiation between Higgs & Hill and the Works Contractors.

13. In the October, 1994 report, Davis Langdon and Everest made provision of individual sums for the claims made by Higgs & Hill and the individual Works Contractors.

14. In this action, Guy's contend that those provisions made by Davis Langdon and Everest are the starting point for the computation of that part of Guy's damages claim which relates to sums paid to Higgs & Hill in relation to delay claims by the Works Contractors.

15. Guy's contend that the Court should take the sums provided for by Davis Langdon and Everest in respect of those Works Contractors alleged to be relevant and decide what proportion of those provisions should be attributed to the delays caused by Guy's and AA. The resultant figures should then be taken to be the sums paid by Guy's to Higgs & Hill in respect of relevant delays suffered by Works Contractors as part of the £83.9 million and recovered as damages from P&O and AA. P&O and AA contend that that is far too simple an approach and that a much deeper enquiry should be made by both discovery of documents and by evidence at the trial into the relevant damage in fact suffered by the Works Contractors.

16. Guy's submit that by arriving at a global settlement with Higgs & Hill, within which were incorporated allocations for the delay and disruption claims of Higgs & Hill itself and the affected works contractors, Guy's established - so long as the global settlement figure itself was reasonable - the actual cost to Guy's of the delay and disruption claims.

17. Guy's contend that the settlement figure was primarily derived from the advice of Davis Langdon and Everest, and Guy's case is that so long as the advice given by Davis Langdon and Everest as to figures was reasonable, that was as far as Guy's needed to go in order to establish the reasonableness of the settlement. The consultants, P&O and AA contend that it is not enough for Guy's to accept and act upon apparently reasonable advice: on the contrary it is necessary to look behind the face of the advice, to examine the workings and the working papers of Davis Langdon and Everest and to investigate whether the advice given was in fact correct.

18. The parties have agreed assumptions of fact in the following terms:

1. The parties have agreed issues as follows:

15. "The following issues of law are to be decided upon the basis that the agreed assumptions of fact are true.

16. A. If Guy's proves that the sum, £ 83,876,354, at which it reached a global settlement with HH was reasonable:

20. B. In order to prove that the global settlement was reasonable, is it sufficient for Guy's to prove that:

23. Alternatively, is it necessary to investigate whether the advisers upon whom Guy's relied themselves acted reasonably in giving their advice ?

24. C. If Guy's prove that breaches of contract and/or duty by P&OD and/or AA, as the case may be, caused delay and disruption to works contractors, is the measure of damages recoverable:

2. The issues before me concern the assessment of damages, but it has to be remembered that the assessment of damages is preceded by issues of duty, breach, and causation.

3. To the issues agreed between the parties there has to be added an assumption for present purposes that P&O and AA or one of them, are found to be in breach of duties owed to Guy's, otherwise the issues would not arise. (Of course, whether breaches will be proved remains an open question). But it is impossible at this stage to identify the precise duties breached. What is certain only is that the duties are duties owed by P&O and AA to Guy's, not duties owed by P&O and AA to Higgs & Hill or the Works Contractors. The damages under consideration are defined by those duties owed to Guy's and also by different duties owed by Guy's to Higgs & Hill and by yet further different duties owed by Higgs & Hill to various of the Works Contractors, though not to all of them.

4. The breaches assumed to be proved against P&O will clearly be different breaches from the breaches proved against AA and the consequences of those breaches cannot be assumed to be identical. Important questions of causation will arise in assessing damages. What was caused by breaches of each of P&O and AA individually, and what was caused by each individually to the work of each of the Works Contractors selected by Guy's as allegedly affected? It is accepted by Guy's that not all of the Works Contractors were affected, so it will be necessary to prove which ones were affected and how they were affected. Since they were doing different work at different times, those affected (if any) are likely to have been (or at any rate may have been) affected in different ways and to different extents: that is reflected in item (10) of the Agreed Facts.

5. In case authority is necessary to support the approach adopted in the immediately preceding paragraphs, I cite from a discussion of the authorities in my judgment in the British Library Case, Department of National Heritage v. Steensen Varming Mulcahy and ors (1998) Internet Court Service Site, 21 July, 1998:

6. I turn from those considerations to the contentions put forward on behalf of Guy's.

7. As expressed by counsel, Guy's primary case is that:

8. Guy's also put forward an alternative case,

9. Counsel for Guy's adds,

10. Both the primary and the alternative cases put by counsel for Guy's are in my judgment wrong in law in that they are contrary to the decision of the Court of Appeal in Biggin v. Permanite [1951] 2 KB 314. In considering that much cited decision, it is always important to bear in mind what it did not decide.

11. A settlement between A and B, however reasonable it may be from the point of view of A and B, cannot determine C's liability to B. A submission to the contrary was firmly rejected by a strong Court of Appeal in Fletcher & Stewart v. Jay & Partners (1976) 17 BLR 38 (Megaw, James and Geoffrey Lane LJJ.). In that case, the Court of Appeal approved the statement of the Official Referee, Sir William Stabb Q.C.:

43. The case before me is an even stronger case than that before Sir William, because the present is not a case where the obligations of the third party to the defendant are the same as the obligations of the defendant to the plaintiff. As I have already pointed out, the nature of the causes of action and to whom they are owed has to be identified.

12. The arguments and the judgments in Biggin v. Permanite proceeded on the footing that Biggin had settled with the Dutch Government on a basis which broadly sought to include the legal liability of the Dutch Government to others. The transcript of the judgments of the Court of Appeal shows that the Court of Appeal, having rejected the approach of the trial judge to the evidence, itself heard evidence of the amount of the claims and made its own assessment of that evidence. The Court of Appeal decided the case on the basis of that evidence as well as on the evidence of the settlement. Their judgments show that even where a party shows that a settlement with a third party was entered into reasonably, that is not sufficient on its own to prove the amount of damages. At page 321, Somervell L.J. said,

45. In the event, the Court of Appeal had heard evidence and as a result of that evidence concluded that the Dutch Government would probably have recovered in an arbitration more than the amount of the settlement of £43,000. That evidence heard by the Court of Appeal was on broad lines and did not go into every detail which would have been canvassed in an arbitration. It was on that basis that the settlement was held by the Court of Appeal to have been reasonable in amount. Reasonableness was there related to what was reasonable in relation to a potential finding by an arbitrator.

13. In the same case Singleton L.J. said, at page 324 ff:

14. By way of explanation of Biggin v. Permanite, counsel for Guy's relies on certain authorities which, upon examination, I do not find helpful in the circumstances of this case.

15. Counsel for Guy's submits that his primary contention is supported by the decision of His Honour Judge Esyr Lewis Q.C. in Oxford University Press v. John Steadman Design Group (1990) 34 Con LR 1. In that case, the judge found that a global settlement was reasonable and then went on to make an apportionment of the global figure to various heads. That decision does not assist Guy's. The apportionment made in that case was made pursuant to the provisions of the Civil Liability (Contribution) Act, 1978 and totally different considerations arose which do not arise in this case. There is no question of any statutory right of contribution in the present case. The nature of the cause of action is an essential feature of the assessment in each case.

16. Counsel for Guy's also relies on the decision of the Court of Appeal in Comyn Ching & Co. (London) Limited v. Oriental Tube Co. Limited (1979) 17 BLR 86. Here again, an examination of the cause of action shows that the decision is not relevant to the present case. There the plaintiffs relied on a contractual indemnity. The difference in approach is demonstrated most succinctly by some words of Brandon L.J. at page 92:

17. Anything said by the Court of Appeal in Comyn Ching which might be thought inconsistent with the decision of the Court of Appeal in Biggin v. Permanite is explicable simply by the fact that the two decisions concerned totally different causes of action. That consideration explains, amongst other matters, a point taken by counsel for Guy's labelled by others "the hindsight point". For Guy's it is submitted that it is irrelevant to hear evidence of what has been learnt about the matter which was not before the advisers advising the settlement. Counsel relies on a passage in the judgment of Goff L.J.at page 78. Goff L.J. said that one of the questions before the court was to decide, "Whether what went wrong was something for which Ching were or at the date of the compromise might reasonably be expected to be found liable". But that question is related to the terms of the indemnity then before the court. In the present case, what is to be considered is not what at the date of the compromise might reasonably be expected, but what ought to have been in the contemplation of the parties at the time of the breach, namely, a reasonable settlement.

18. The decision of His Honour Judge Newey Q.C. in The Board of Governors of the Hospitals for Sick Children and another v. McLaughlin Harvey PLC and ors (1987) 19 Con LR 25 (The Great Ormond Street Hospital Case) also was relied on by Guy's. The question at issue in the part of the judgment relied on (pages 94 - 99) was quite different from the question in issue before me. In that part of his judgment, Judge Newey was considering what method of repair of the building could be regarded as reasonable for the purpose of computing damages, a quite different question.

19. Why is an agreement made with a person not a party to the action relevant or admissible at all? Biggin v. Permanite provides two answers to that question.

50. (a) A rule of evidence. The Court of Appeal in Biggin v. Permanite stressed that it is the policy of the Court to encourage settlements. For that reason, there may be a readiness to accept that individuals settling a claim between them may be taken to have as their purpose trying to reach a settlement at a fair figure related to the claim. The extent to which the settlement may be taken as a matter of evidence to be in the right area will depend on all the circumstances. Sometimes it is not the main purpose of the parties to agree upon a figure which is related to an assessment of legal liability. A settlement may be made on over-generous terms for the sake of future business. Sometimes, the bargaining capacity of the parties will have been so uneven that the evidential value of the settlement will be of little weight - for example, where a defendant settles with a Legally Aided litigant with a nil contribution. In those circumstances, a settlement might be reasonable in the sense that it could be justified to the shareholders of the paying company, but it would not be reasonable as regards third parties to the agreement. But in many cases, it is inherently unlikely that businessmen, particularly those acting on competent advice, would settle a third party's claim at a figure significantly in excess of its true value. As Singleton L.J. said in Biggin v. Permanite at page 325, "No one can think that a person or a company will agree to pay £43,000 damages lightly," but I would add that the reason for the paying party agreeing to make the payment has to be examined. So if a third party's claim is settled, proof of the settlement may be some evidence of its true value, though not conclusive. The settlement sets a maximum to the claim, and depending on the weight to be attached to it as evidence, it may reduce the degree and detail of evidence required to prove the claim in the action.

51. (b) The second rule in Hadley v. Baxendale. The reasonable settlement of claims may be a matter which parties may be held to have had in reasonable contemplation under the second rule in Hadley v. Baxendale (1854) 9 Ex 341. At pages 318, 319 of his judgment in Biggin v. Permanite, Somervell L.J. cited a passage from the judgment of Bowen L.J. in Hammond & Co. v. Bussey (1887) 20 QBD 79. Bowen L.J. referred to the possibility of the plaintiff purchasers of coal being sued by sub-purchasers and if they failed in their defence,

53. Somervell L.J. commented at pages 321, 322:

20. To regard Biggin v. Permanite as applying both an evidentiary rule and the second branch of the rule in Hadley v. Baxendale is workable and sensible, and I intend so to apply that authority. The application of both aspects of that authority, the evidentiary rule and the Hadley v. Baxendale approach must be fashioned to the facts of the individual case.

21. When it is said that a party may be held to have contemplated a reasonable settlement, it is important that one should be clear what is meant by a reasonable settlement. In some exceptional cases, the anticipated consequences of a breach might be so extreme that a party might be taken to have contemplated a settlement at a sum avowedly in excess of what might normally be regarded as the expected legal liability: for example, where completion of a project was planned to meet some immovable event such as the Millennium, a party who delayed the project might be taken to have contemplated that any settlement with sub-contractors might have to made at grossly inflated rates. I would not rule out the possibility that in some very exceptional cases, the law might impose on a wrongdoer liability computed by reference to a settlement which in the eyes of the law is unreasonable. But as a general rule, a party would be taken to have in contemplation a settlement which is reasonable in the sense that it is based on an assessment of what is legally due from the plaintiff to the third party. That was certainly the approach of the Court of Appeal in Biggin v. Permanite.

22. What the parties should be held to have contemplated, and whether they should be held to have contemplated a reasonable settlement at all, must depend on the facts of each case. On the facts of Biggin v. Permanite, a sale of goods case with sub-sales in contemplation, Somervell L.J. considered that the parties should be "held to contemplate reasonable settlements in the type of circumstances which have arisen here". For the "type of circumstances" which Somervell L.J. had in mind on the facts before him, one has to look at the transcript of the full judgments of the Court of Appeal in that case.

23. The transcript of the judgments of the Court of Appeal in Biggin v. Permanite shows that the settlement was based on the sort of evidence which might normally be accepted by businessmen negotiating settlement of a commercial claim. About half of the claim of the Dutch Government was in respect of unsold material left on its hands. As to that, without going into all the details, it is enough to say that there was evidence to support a loss of profit claim to the extent of £24,600 by reference to the sale price of some of the material before the defective nature of the material became known and evidence of the price obtainable after the defect was known. The balance of the claim of the Dutch Government related to claims made against the Government by others. As to £1,000, the amount of the claim was supported by an arbitration award (not conclusive) in favour of a Mr. Boll. £8,000 was supported by an actual payment to a Mr. Kramer. £23,000 was supported by invoices submitted by contractors for remedial works supported by the evidence of the Director of the Bureau of Tar Products of the Dutch Government and other claims amounting to £10,000. Somervell L.J. considered that it would be safe to conclude that the Dutch Government would have been able to recover at least half of the £23,000 invoiced, and disregarding the other claims for £10,000, the aggregate was substantially in excess of the sum for which Biggin settled. It is to be noted that firstly, the Court of Appeal did not find that the settlement proved that the amount of each claim by contractors was reasonable (in fact quite the contrary); and secondly, the Court of Appeal (reversing Devlin J.) did not require that the amount of each contractor's claim be proved strictly.

24. Whether it was reasonable to enter into a settlement may raise quite different issues. A businessman asking himself whether it is reasonable to enter into a proposed settlement with another businessman with whom he is engaged in an ongoing project, is unlikely to limit himself to asking himself the same question as a judge considering whether a proposed settlement of litigation brought on behalf of an infant is reasonable, even supposing the businessman asks himself a question of the latter type at all. Circumstances may dictate to a businessman that it is reasonable to enter into an overall settlement even though some of the details are unreasonable. There, the overall settlement may be reasonable even though the details are not. In such a case (which according to P&O and AA may well be the present case), it would be wrong to pick out the details and rely on them against the wrongdoer. No doubt, it was that sort of consideration which Singleton L.J. had in mind when he said in Biggin v. Permanite at page 326:

56. But (contrary to the view expressed by Judge Hicks Q.C. in DSL Group v. Unisys International (1994) 67 BLR 127 at 136) I take the view that advice received by the plaintiffs might go either to the question whether the plaintiffs acted reasonably or to the question whether the settlement was reasonable, or both. Moreover, whether the plaintiffs acted reasonably may have an evidential bearing on whether the settlement was reasonable.

25. Without having heard the evidence, it would be wrong for me to determine in advance what the parties ought reasonably to have contemplated as the likely consequence of breach in this case because that question must depend on the facts of the case. But it may assist the parties if I express a purely provisional view, based on the documents I have seen in this case, and my experience of building litigation. As a purely provisional view, it seems to me at this stage in the action that it is likely to be decided that the parties ought reasonably to have contemplated that if Guy's had settled with Higgs & Hill for the claims made by the Works Contractors alone, they would have settled in reliance on advice by competent and reputable advisers who would require the production of the sort of documents which would normally be required by competent quantity surveyors to "vouch" the claims of the Works Contractors and would advise on the basis of that material so as to produce figures representing what was legally due to the Works Contractors. A settlement of the Works Contractors' claims reached in that way would be reasonable, but it would only be evidence of the amount of the claim of any one Works Contractor if the adviser considered each Works Contractor individually rather than considering the Works Contractors generally so as to make an overall judgment.

26. On the facts of this case, the argument of Guy's is as follows. Suppose that critical delays did occur and those critical delays entitled Higgs & Hill and the Works Contractors to make claims. The Works Contractors could claim against Higgs & Hill under individual works contracts and Higgs & Hill could claim against Guy's under the Management Contract. Higgs & Hill could claim against Guy's the value of their own legitimate delay and disruption claims and the total of their exposure to similar claims from Works Contractors. The argument for Guy's continues, that the effect of the wrap up deal was to discharge any obligation of Guy's to Higgs & Hill in respect of the entirety of the delay and disruption claims. So far, the argument follows a logical progression, but it omits any reference to cause of action, breach or causation and hence fails to deal with any legal responsibility of P&O or AA. The argument then concludes with the question and answer,

32. I therefore answer the questions before me as follows: