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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		26th February 2008

 


MR JUSTICE AKENHEAD :

1. The Defendants apply for summary judgment in respect of three of the four heads or types of loss and damage pleaded against them in this action.

Background

2. Landfast Limited ("Landfast") was a company which undertook land development. Landfast Anglia Limited, the Claimant in these proceedings ("Anglia") was formed on 23 April 2004 as the vehicle for the particular development to which this claim relates.
3. The Defendant is a company which practises as consulting engineers and building surveyors.
4. It is said that, by a deed of assignment dated 20 September 2007, Anglia is the assignee of all rights and causes of action formally vested in Landfast relating to and arising from advice given by the Defendants to Landfast in relation to the development. That is not formally challenged for the purposes of the defendant's application. The development in question is a residential development at a site known as and situate at Marsh Lane, Cobham near Great Yarmouth in Norfolk.
5. When I refer to the facts as follows in relation to what is pleaded, I am not making ultimate findings of fact. These are findings solely for the purpose of this application. So far as the facts pleaded by Anglia are concerned, it is said that, in about the middle of 2003, Landfast became aware of a possible residential development at the development site. This site was owned largely by a family known as Turner and it is pleaded that in September 2003 the Defendant was retained by Landfast with regard to commissioning site investigations and possibly to give other advice as well. It is pleaded that there were implied terms that the Defendant would exercise reasonable care and skill and that there was a duty of care owed in tort in connection with the provision of those contractual services.
6. Over the late summer and autumn of 2003 it is said that the Defendant invited various companies to submit tenders for geotechnical investigations and such tenders were obtained. Advice was given to Landfast about that and a variety of breaches of contract are alleged against the Defendant in respect of this period. It is unnecessary to set out the detail of those allegations but the consequence of those breaches is set out at Paragraphs 24, 25 and 26 of Anglia's Particulars of Claim:

"24. By reason of Fordham's breach of contract and/or negligence as aforesaid, the site investigation report commissioned did not address the risk of settlement across the site and Landfast was accordingly unaware that a conventional surface and foul water drainage system would not be appropriate and that special measures would need to be taken in respect of the construction of the roads.

25. Landfast prepared costs estimates on the basis of a conventional drainage and road system being suitable and appropriate for the Development Site. In early March 2005 and in reliance upon those estimates reflecting the nature of the work to be undertaken, Mr Robert Curry on behalf of Landfast made an offer of £1.5 million to the Turners for the Development Site, which Turners accepted.

26. By reason of the matters aforesaid, Landfast's estimates did not reflect the construction costs of an appropriate surface and foul water drainage system and/or stabilisation costs such that allowance was not made for the appropriate works to address settlement across the Development Site. Landfast therefore lost the opportunity to negotiate for and secure the Development Site at a lower price namely one that reflected the site conditions.

Particulars of Loss

Had Landfast been aware that a conventional surface and foul water drainage system was not appropriate and that either ground stabilisation works or a vacuum system would be required it would have offered £1,000,000 for the Development Site, reflecting the additional cost of a vacuum system and additional stabilisation works. Landfast will say that in all the circumstances that applied at the material time there was a 100% chance that the Turners would have accepted this lower offer. As assignee of the rights previously held by Landfast, Anglia claims the full value of the lost chance, namely £500,000."

7. The head of loss in Paragraph 26 I will call Head 1 – Lost Opportunity. The next head of loss, which I will call Head 2, Diminution in Value, is pleaded between Paragraphs 27 and 42 of the Particulars of Claim which were filed and it is said that, following the Turners' acceptance of the £1.5 million offer, Landfast entered into what is called a "lock-out agreement" with the Turners on 8 April 2004. The legal effect of that lock-out agreement is something I do not have to consider on this application. It appears at least that it was something short of an enforceable sale agreement.
8. In Paragraphs 29 and 30 of the Particulars of Claim it is essentially pleaded that the Defendant as from some time in April 2004 was involved with liaising with the Anglian Water Authority and considering the question of the conventional drainage system which it at least apparently, it is said, had endorsed or at least it proceeded on the basis that a conventional drainage system was appropriate for the site. In Paragraph 30 this is pleaded:

"By no later than 18^th June 2004 Fordham were aware that Anglia was to proceed with the development in Landfast's place. Fordham well knew at or about this time that Anglia was a single purpose vehicle and that Anglia had obtained bank funding to undertake the development. It was also envisaged by the parties that the completion of the first plots would take place in March 2006."

9. Between Paragraphs 31 and 34 there is then pleaded what is said to be the documentation leading to an agreement between the Defendant and Anglia, and it is said (and on this application it is accepted as arguable) that a contract between the Defendant and Anglia was established in law and in fact on 23 June 2004. I hasten to say that the Defendant does not accept that but, through its Counsel, accepts that it is at least sufficiently arguable for the purpose of this application.
10. In Paragraphs 36 and 37 implied terms of reasonable care are pleaded, and in Paragraph 38 this is pleaded:

"Further or in the further alternative it is averred that Fordham owed Anglia a duty of care to exercise all due professional skill and care in the performance and provision of its services to Anglia."

11. So it is therefore pleaded by the Claimant that by some time on 23 June 2004 the Defendant was engaged to carry out various design and detailing obligations with regard to the drainage systems on the site.
12. In Paragraph 40 of the pleading it is pleaded that the Defendant failed to advise or warn Anglia that a conventional drainage system would not be appropriate. It is also pleaded that the Defendant should have advised that special measures would need to be undertaken.
13. At Paragraph 41 of the Particulars of Claim, it is pleaded:

"On 24 June 2004 Anglia entered into a sale contract with the Turners for the development site for the total contract price of £1,500,000 unaware that a conventional surface and foul water drainage system would not be appropriate; further or alternatively, that special measures would need to be taken in respect of the construction of the roads; further or in the further alternative, that additional ground investigation works would need to be undertaken."

14. So far as loss and damage is concerned for Head 2, Paragraph 42 pleads this:

"By reason of the matters aforesaid Anglia has suffered loss and damage.

Particulars of Loss

Anglia claims the diminution in value between the value of the Development Site on the basis that a conventional road and drainage system could be constructed - as maintained by Fordham's - and the true condition of the Development Site had the true nature of the ground conditions and the consequent impact on construction methods been known. Anglia assesses the diminution in value as £1,115,000, being the difference between the price at which Anglia agreed to purchase the Development Site (£1,500,000) and the value of the Development Site had the true ground conditions been known and understood (£385,000)."

15. The third head of loss (Head 3) relates to the period primarily after 24 June 2004 when it is said, rightly or wrongly, that it was discovered that the conventional drainage system which had been designed by the Defendant unsuitable and that by early 2005 it had become apparent that there were problems with the drainage.
16. In Paragraph 50 of Anglia's pleading, there are extensive assertions of breach of contract and negligence, and it is then said in Paragraph 51 that, by April 2005, Anglia had resolved to replace the conventional drainage system with a vacuum system and to support the roads upon expanded polystyrene in order to reduce settlement. It is said that such works commenced some time after early May 2005 with the first house sale being completed in September 2006.
17. In Paragraph 52 there are pleaded various heads of loss and damage about which no complaint is made so far as this application is concerned, although it is challenged in the defence.
18. In Paragraphs 53 to 57, however, appears the third head of loss with which this application is concerned and it relates to additional financing and associated costs. In Paragraphs 54 and 55, Anglia plead that it was unable to obtain funding from its bank or other banks approached and that:

"In order to mitigate its loss, Anglia … attempted to secure additional financing for the development rather than surrendering its interests in the development to the bank. In anticipation of an agreement being reached with a new investor, Anglia was advanced funds through a company called Bastia Investments Limited totalling £850,000 with interest being charged at 3% per month. This agreement was not executed and the demand for repayment of the sums advanced and interest was made on 6 February 2006".

19. In Paragraph 57 the loss flowing under this head of claim is pleaded. In the particulars there are two types of loss claimed:

"(a) Additional Management time and professionals fees: £234,558.75

Robbett Limited: £126,252.75

Anglia claims the costs of employing Robert Curry through his management company incurred in his dealing with the defective design, evaluation and consideration of remedial schemes and works and management of the Development that he would not otherwise have been involved in and but for the failure of Fordham's design and the costs of employing him to secure alternative financing for the project when the bank withdrew support due to the discovery of the defective design and the additional forecast costs.

Holmes & Hills

Anglia claims its solicitors costs of advising upon and drawing up contracts and agreements for alternative financing when the bank withdrew support due to the discovery of the defective design and the forecast additional costs.

(b) Increased costs of financing: £493,235"

The principles to be applied

20. This is an application for summary judgment under CPR Part 24. It seems to me that the principles to which I should have regard are those set out or referred to in the cases of Three Rivers District Council v Bank of England No. 3 [2001] 2 All ER 513 and Chan U Seek v Alvis Vehicles Ltd [2003] EWHC 1238 (Ch). It is probably as helpful if I quote from the judgment of Neuberger J in the latter case which refers to the Three Rivers case. Neuberger J in that case, which was a strike-out application but also an application under CPR Part 24, says this at paragraphs 19, 20, 21 and 44:

"19. The Master divided his approach into consideration of dismissing the claim under CPR 3.4(2) and dismissing the claim under CPR 24. In agreement with counsel for the defendant and with Mr Martin Mann QC and Mr Stuart Adair, who appeared for Mr Chan, it seems to me that ultimately the question is singly whether or not the claim stands any real chance of success. Whether one approaches that issue under one or other of the CPR Rules does not seem to me to matter – a view which seems consistent with the approach in the House of Lords in The Three Rivers case.

20. Ultimately it is normally wrong that a claim should be allowed to proceed if the court can decide at an interlocutory stage that it stands no chance of success. Equally, however, if the court considers that the claim, though very weak, stands a chance of success, it is not consonant with basic principles of English justice or indeed, as I see it, with Human Rights Law, for a party seeking to pursue such a claim to be barred from proceeding with it. However much one may seek to apply the rules of proportionality, it is not and cannot be the court's function to stifle a claim merely because it looks very weak and unlikely to succeed.

21. Quite apart from principle, everyone concerned with litigation, whether a solicitor, a barrister or a judge, has seen cases which at an interlocutory stage look remarkably weak (or where defences look remarkably weak) where after disclosure, exchange of witness statements and cross-examination and full argument the case (or the defence) succeeds. Furthermore, it is important to bear in mind the well-established principle that it is not the function of a court at an interlocutory [stage] to carry out a mini trial.

44. I accept that the court should be slow to permit a claim to proceed beyond an interlocutory stage where it involves the hope that something will turn up. None the less, as again is clear from the speeches from Lord Hope and Lord Hutton in the Three Rivers case, each interlocutory application to dismiss a claim on the basis that there is no evidence to support it must be judged by reference to the particular facts of the case."

21. I must also have in mind the Overriding Objective, which it is unnecessary to set out. That said, I do not agree with the observation made by Miss Laney that, in some way, pleadings should be considered as being supplemented by witness statements. It is still important that parties know where they stand as a matter of pleading and it is the witness statements which support the pleadings. They may, indeed, purport to go further than the pleadings, but, if they do so, then one would expect an application to amend the pleadings. The pleadings in the TCC, as elsewhere in courts up and down the country, are supposed primarily to set an agenda or terms of reference for the trial. Whilst the court will not be slow to allow amendments to reflect the true nature of the disputes between the parties unless there is a good reason not to allow such amendments, none the less the judgment ultimately in this case will be given by reference to the pleadings as they stand.
22. That said, it seems to me inappropriate, certainly in the light of the Overriding Objective, to adopt too close a syntactical analysis of a pleading on an application like this where it is clear that a simple amendment might easily be made to clarify an ambiguity or abstruse plea. Furthermore, it seems ultimately to be fairly pointless for the court to be asked to strike out or dismiss a claim or a defence where it is clear essentially on the pleadings over all what the real issues between the parties are or are likely to be.
23. With those principles in mind, I now look at the three heads of financial claim which are criticised in effect in this application as being unrealistic and with no realistic prospect of success.

Head 1 – Lost Opportunity

24. The arguments put forward by Mr Wilmot-Smith QC and Miss Connors for the Defendant in relation to Head 1 are essentially that Anglia is seeking to claim a loss or lost opportunity which it is said was suffered or incurred by Landfast; since Landfast never purchased the site – it was Anglia which purchased the site – the loss claimed, £500,000, cannot be recovered on the basis that it is currently pleaded. If there is an assignment, it is argued, in relation to an opportunity or chance lost by the assignor, if that loss or lost opportunity is suffered by another party, albeit the assignee, then the assignee cannot recover anything because it is seeking to recover a loss or lost opportunity which is not suffered by the assignor and therefore nothing of value was assigned to it. That is challenged by Miss Laney for the Claimant for a variety of reasons, which it is unnecessary to set out.
25. I put to the parties at the beginning of the hearing a case in the Court of Appeal decided two years ago Technotrade Ltd v Larkstore [2006] BLR 345 on the basis that it seemed to me at first sight that it was or could be of some relevance. Mr Wilmot-Smith QC said it was eminently distinguishable. Miss Laney prayed it in aid. In that case, there was an assignment of a cause of action in contract and, albeit that the loss was not suffered by the assignor, it was or was arguably suffered by the assignee. The Court of Appeal held (and I quote from the headnote in that case with some trepidation because I drafted it myself):

"What was assigned was a cause of action and not an assignment of loss. The assignment included the remedy in damages which was not limited to the loss suffered as at the date of the accrual of the cause of action or as at any particular time thereafter."

Reference is made there to Paragraph 41 in the judgment of Mummery LJ with which Rix LJ and Peter Smith J agreed.

26. Rix LJ said at Paragraph 83 this as a matter of generality:

"Underlying all these cases can be heard the drumbeat of a constant theme which could possibly be described as ubi jus ibi remedium – the maxim that, where there is a right, there is a remedy. But it could also be said that the courts are anxious to see, if possible, that where a real loss has been caused by a real breach of contract then there should, if at all possible, be a real remedy which directs recovery from the defendant towards the party which has suffered the loss. In the case of property development where it is readily contemplated that a party which prepares the development will transfer the fruits of his work to one or more partners or successors, there is a particular need for some such solution."

27. There was a reference in that case, both in argument and in the judgments, to what is called a "black hole" where an assignor assigns a cause of action but has not suffered loss and where the assignee has suffered the loss in relation to the assigned cause of action. The argument in that case was that the assignee standing in the shoes of the assignor could only recover such losses as had been suffered by the assignor. Since there were none suffered by the assignor, it was argued that the assignee could claim nothing. The Court of Appeal disagreed.
28. Mr Wilmot-Smith QC took me in some detail to what Paragraph 26 of the Particulars of Claim is actually claiming. He says that, in reality and based on the pleading, what is pleaded here is that it was Landfast's loss or Landfast's loss of opportunity.
29. I reject that argument for the following reasons. First, it is clear from the pleading taken overall, not just up to Paragraph 26, that it was Anglia who purchased the site at a cost of £1.5 million and, secondly, there is no challenge on this application to the effectiveness or validity of the assignment pleaded earlier in the particulars of claim. Although it has been pleaded on the basis of Landfast's lost opportunity to negotiate and secure for the site a lower purchase price, it seems clear to me that the way that it is put at the end of Paragraph 26 just enables the Claimant to argue that, although it was Landfast's opportunity which was lost, Anglia, having suffered the loss, can claim the full value of the lost sums. I do have regard to Technotrade v Larkstore, which suggests that the assignment of the cause of action, at least in contract, may or may not necessarily carry any accrued losses with it. But the cause of action is breach of contract and, given that Anglia, looking at the rest of the pleading, can argue properly that it suffered the loss, that is arguably the value of the lost opportunity. The fact that Landfast, if it had purchased, would have suffered that loss is neither here nor there. It was Anglia who, it is said, suffered the loss because Anglia purchased, and the particulars of loss simply evaluate the lost opportunity at £500,000. It seems to me therefore arguably immaterial that Landfast suffered no loss and it was Anglia that suffered the loss. I am not saying by that that a clarification to the pleading would not be sensible. I strongly suspect that it would be, but I do not think that a case has been made out in all the circumstances to enter judgment against the Claimant with regard to that loss.

Head 2 – Diminution in Value

30. The argument of Mr Wilmot-Smith QC and Miss Connors is an attractively simple argument. It says, with some justification, that, if the contract between Anglia and the Defendant was entered into at some time on 23 June, it is, at worst for them, highly unlikely that it could be said that the Defendant was in breach of contract by the time on 24 June when Anglia entered into the sale contract with Turners and thus at least on the pleading became committed to purchase the site at £1.5 million. The loss is not pleaded on a lost opportunity basis, although it is at least argued before me that it could be. There has been evidence put before me, which is in itself not challenged, that there was at least a realistic chance that between sale and completion the Turners (the vendors) could have been persuaded to reduce the price. That may be, but that is not what is pleaded. What is pleaded in Paragraph 42 is a diminution in value. Put another way, Anglia paid more for this development site than it was worth; it would have had to pay much less, if it had purchased at all, if it had been given the right advice by the Defendant.
31. Miss Laney challenges the application under this head broadly on the basis that it is at least possible in the light of the involvement or alleged involvement of the Defendant prior to 24 June 2004, there was a breach between 23 and 24 June 2004.
32. I will deal with that first. It seems to me that it is just arguable, although as pleaded it falls into the arguably "weak" category referred to by Neuberger J (as he then was), that, given the Defendant's alleged involvement in the months leading up to 24 June, the Defendant should have advised Anglia about the risks or potential risks of adopting a conventional drainage system. I have been referred to some evidence which suggests (and I make no findings) that as from early April 2004 the Defendant was fully aware that Anglia was to be the vehicle to purchase; it is said that the Defendant agreed to provide a backdated invoice to Anglia in respect of services that had been provided in April, May and June, and possibly even before then. It seems to me that it is at least arguable that, when all the evidence is in before the eventual trial judge, the failure to advise or warn, albeit in a short window, is one that might conceivably be made out. That said, again, the Claimant might wish, although it is entirely a matter for it, to consider whether some clarification in its pleadings may be required. At the moment there is a very narrow and arguably weak window period in which there is a "just about arguable" case on the facts. So I am not prepared to give judgment against the Claimant on that basis.

Head 3 – Financing and Associated Costs

33. The final head of loss relates to financing and associated costs. It is accepted by the Defendant, both in argument and indeed on the pleading, that the heads of loss claimed within this overall head, that is additional management time and professional fees and increased costs of financing, are in principle arguable or arguably recoverable heads of loss. The complaint made is that the sums claimed in relation to those items are so excessive – indeed so grossly excessive – that they are extremely unlikely to succeed. Mr Wilmot-Smith QC and Miss Connors urge upon me that the appropriate thing to do is to give summary judgment against the Claimant, with their undertaking not to argue on any res judicata or issue estoppel basis that an application to amend would not then be challenged on the basis that I had given a judgment under Part 24 against them.
34. It seems to me that this part of the application has no reasonable prospect of success. It is true that, on its face, the claim for additional financing and associated costs appears to be excessive in this sense. Interest at the rate of 36% per year, possibly more once compounding is allowed for, does on its face appear to be excessive. Given numerous authorities at all levels in the courts that parties are limited in their recovery of damages to what is reasonable, there may well be thought to be something of merit in that point. However, there is pleaded in Paragraph 55 an assertion that, in effect, although the rates were high, this was done to mitigate loss. I can readily understand the possible danger that a developer faces if it has to fund substantial additional work for which it has not secured appropriate funding beforehand. If it does not obtain the funding, then the project may be delayed. A balance has to be sought, it might be argued, between the costs of delay and securing funding, albeit at what appears to be a wholly excessive rate. Therefore, although I have some real doubts about the strength of a case which seeks interest at the rate of 36% per year or more, it will be inappropriate to give judgment under Part 24 because it is at least arguable that, when all the evidence is in, either the sum claimed or something less would be recoverable.
35. So far as the claims for additional management time and professional fees are concerned, some £126,000 is claimed in respect of management time provided by employing a company called Robbett Limited, who employed Mr Curry, who provided, it is said, a substantial amount of management time. I cannot decide on the basis of this application – certainly on the evidence that has been put before me – whether this sum is an excessive sum. It may or may not be. It seems to me the most appropriate time for that to be resolved is at the trial.
36. The solicitors' costs claim of £108,000 relating to a firm of solicitors, Holmes & Hills, like the funding claim, does appear on its face to be very large for what it is said to relate to, but again it is not for me on an application like this to decide that it is obviously too large. It seems to me that that must be resolved as a matter of evidence at the trial and therefore it would be inappropriate on that basis to give judgment to the Defendant.

Conclusion

37. So, for all those reasons, I dismiss the application. Having said that, it was not an unreasonable application to be brought, at least so far as the first two heads of loss were concerned. It has highlighted several possible lacunae in the Claimant's pleading and, although that has not been sufficient to achieve success, it should at least have the advantage of ensuring that the pleading agenda for the trial is clarified well in time before the trial. Of course I am not urging either party to amend their pleadings. They will be aware of the consequences – or at least the risks – of not doing so in so far as it may be necessary.
38. The final thing I would like to say is to congratulate solicitors, Counsel and clients for putting together this application in such an efficient and time-effective manner. It was set down for one day and due to the efforts of the parties and their legal advisers this has been achieved in under half a day. That is down to the efforts of the parties and their legal advisers.