Management

Richard Hildrick's Case notes: Nov/Dec10

11 November 2010

Richard Hildrick MCIOB

How Engineering Services v Southern Insulation (Medway)

Technology and Construction Court, July 2010

How Engineering was the M&E subcontractor to Sir Robert McAlpine on the development of an office building in Silk Street, London in 1995-96. Southern Insulation carried out insulation works to the air conditioning chilled water pipework under a subcontract with How.

In 2006, the building’s tenant discovered a problem with the chilled water pipework, which was replaced at a cost of £3.5m. Late in 2009, the tenant raised a claim to recover these costs against McAlpine under the terms of its collateral warranty, and McAlpine subsequently claimed against How as its subcontractor responsible for the pipework. How in turn raised proceedings against Southern Insulation for negligent workmanship on the basis that Southern owed it a duty of care under “tort”, or common law, which ran alongside its contractual obligations.

The judge agreed that Southern owed a duty of care to carry out the works with reasonable skill and care. This tortious duty ran in parallel to Southern’s contractual responsibilities to How, and the extent of the duty of care was defined by the contractual liabilities under the sub-sub-contract.

This common law duty of care was key as it impacted upon the limitation periods applicable to Southern’s liability. Under a contract executed as a deed, limitation would normally kick in as a valid defence 12 years after the cause of action; in this case, the alleged negligent work was carried out some 14 years earlier. However, under section 14b of the Limitation Act 1980, as amended by the Latent Damage Act 1986, the long-stop date with regards to negligence claims is 15 years from the alleged breach of duty — so How’s claim potentially remained live.

Southern also argued that, as any liability upon How only arose as a consequence of McAlpine’s contractual liability through the tenant’s collateral warranty, this fell outside of the scope of the duty of care it owed, as re-affirmed by the absence of any indemnity within the wording of its sub-subcontract. However, the judge held that Southern could reasonably have expected to be liable for the costs of putting right any carelessly executed insulation work; hence such costs fell within the scope of both its common law duty of care, and its contractual liability.

The fact that How’s liability came via a collateral warranty between the main contractor and tenant, rather than down the direct contractual chain from developer to main contractor to subcontractor, made no real difference to Southern’s legal position, as the use of collateral warranties was commonplace and thus foreseeable.

The judge held that Southern owed a common law duty of care to How, the scope of which potentially extended to damages.

Richard Hildrick’s analysis

This decision is a reminder of the principles established in Henderson v Merrett (1995), to the effect that a duty of care under tort exists alongside contractual obligations relating to performance of services.

The scope of this duty of care will mirror the liabilities defined within the contract, hence a widely-defined contractual liability will give rise to an equally wide liability in common law. Conversely, any limitations on liability the parties negotiate into their contract should be reflected in the common law position. A well-drafted clause can exclude such concurrent liability in tort altogether.

In this case, How elected to follow the common law path against Southern, because it kept alive a negligence claim which was no longer open to it in contract, as the 12-year limitation period had expired. Parties thus also need to be aware of the potential implications of the 15-year limitation period (from the negligent act) which applies to such concurrent liability.

The case also highlights the issue of potential broadening of liability through collateral warranties. The tenant was able to raise its claim because it held such a warranty from the main contractor, and the court held that this source of future claim was foreseeable down the contractual chain, by the sub-subcontractor.

Richard Hildrick MCIOB is a quantity surveyor, contracts consultant and adjudicator. Tel: 01347 811155; richard@rjhconsulting.co.uk

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