Darlington Borough Council v Wiltshier Northern Ltd

JurisdictionEngland & Wales
Judgment Date28 June 1994
Judgment citation (vLex)[1994] EWCA Civ J0628-8
Date28 June 1994
CourtCourt of Appeal (Civil Division)
Darlington Borough Council
Wiltshier Northern Ltd

[1994] EWCA Civ J0628-8

On Appeal from Judge Newey QC

Before: Lord Justice Dillon Lord Justice Steyn and Lord Justice Waite



Mr S Furst QC and Mr A Nissen (instructed by Pannone & Partners, London) appeared on behalf of the Appellant.

Mr J Blackburn QC (instructed by Druces & Attlee, London) appeared on behalf of the Respondent.


( )


This is an appeal by the plaintiff in the action, the Darlington Borough Council ("Darlington") against an Order of the late Judge Newey Q. C. Made on the 13th October 1993. The respondent to the appeal is the first defendant in the action Wiltshier Northern Ltd ("Wiltshier"). By his Order the Judge decided a number of preliminary issues in the action, but only some of the issues which he decided are reopened on this appeal.


In 1977 and the years that followed Darlington wanted to create a new recreational centre on land at Darlington which Darlington already owned. The straight-forward way of going about that would have been for Darlington to enter into a building contract with a construction company, and to raise the finance to pay for the work by borrowing. However there were then, as since, restrictions on local authority borrowing and it was feared that Ministerial consent for the requisite borrowing would not be forthcoming.


Consequently it was decided to approach an institution to see if the finance could be provided by some means other than borrowing.


The upshot was that the desired recreational centre, known as the Dolphin Centre, was built, in two Phases, under two building contracts under seal —one for each Phase —in the JCT Standard Form of building contract for use with quantities, local authorities edition 1963 (July 1977 revisions) dated respectively the 29th October 1979 and the 1st December 1981. Wiltshier entered into each of these building contracts as "the Contractor" under its then name of Leslie and Company Ltd, but "the Employer" under each of the building contracts was not Darlington, but a company called Morgan Grenfell (Local Authorities Services) Ltd of 23 Great Winchester Street, London ("Morgan Grenfell"). The Judge held, on one of the preliminary issues on which his decision is not challenged, that Morgan Grenfell entered into the building contracts with Wiltshier as a principal and not as agent for Darlington. So far as this judgment is concerned, nothing turns on any of the terms of the building contracts.


Collaterally to the building contract for Phase 1, Darlington and Morgan Grenfell entered into a Covenant Agreement which is also dated the 29th October 1979. But this Covenant Agreement was replaced by a Covenant Agreement dated 1st August 1980, which relates to both Phases, and it is sufficient to refer to clauses in the 1980 Covenant Agreement.


Clause 2(1) recorded the intention of the parties that Morgan Grenfell would continue to develop the Site by procuring the erection of the Building thereon —i. e. the Dolphin Centre —and would pay Wiltshier all sums falling due under the building contracts, and all fees for the professionals etc up to an aggregate not exceeding the Maximum Costs as defined.


By Clause 2(2) Darlington agreed to pay Morgan Grenfell all amounts expended by Morgan Grenfell under Clause 2(1) and by Clause 2(3) Darlington granted Morgan Grenfell all necessary rights and powers to enable it, inter alia, to erect the Building.


Clause 3 sets out the obligations of Morgan Grenfell.


Under subclause (1) it was to pay Wiltshier all moneys due under the building contracts.


By subclause (2) Morgan Grenfell appointed Darlington to be its Agent for all purposes of the building contracts (save the negotiation execution or determination thereof and the liability to pay the Contract sum) to the intent that Darlington by itself or its employees should exercise all the duties and rights (save as aforesaid) under the building contracts.


Subclause (3) excludes all warranties by Morgan Grenfell as to the design or quality of the Building or its fitness for any purpose or as to the performance by Wiltshier of the building contracts.


Subclause (4), which is important, provided comprehensively for Morgan Grenfell to assign to Darlington all rights it had against, among others, Wiltshier. It reads as follows:


"At the end of the Construction Period or whenever called upon so to do the Company will at the request and cost of the Council assign to the Council the benefit of any rights against the Contractors (or any of them) the Architect the Consultant Structural Mechanical and Electrical Engineers or any other Consultant to which the Company may then be or become entitled. If any cause of action accrues to the Company against the Contractors or any of them the Architect theConsultant Structural Mechanical and ElectricalEngineers or any other Consultant and the Councilgives written notice to the Company of its wish to pursue the same the Company shall at the cost ofthe Council be obliged to assign and the Council shall be obliged to take an assignment of the benefit of such rights or cause of action and any agreement entered into between the Company and a Contractor the Architect the Consultant Structural Mechanical and Electrical Engineers or any other Consultant as the case may be."


Clause 4 contains obligations on the part of Darlington. It is sufficient to set out Subclause (5):


"The Council agrees that the Company shall not be liable to the Council for any liability cost claim demand loss damage or expense of any kind or nature caused directly or indirectly by out of or by the use of any part or the whole of any of the Building or the Landscaping or for any incompleteness thereof or any inadequacy thereof for any purpose or any deficiency or defect therein or the use or maintenance thereof or any repairs servicing or adjustments thereto or any delay in providing or failure to provide any such or any interruption or loss of service or use thereof or any loss of business or any damage whatsoever and howsoever caused. The Council agrees to indemnify and hold the Company harmless from and against all and any such liabilities costs claims demands losses damages and expenses."


There follow in Clause 5 further provisions as to payments by Darlington to Morgan Grenfell which are not material for this judgment.


As supplemental to each of the building contracts and of the same date a tripartite Deed was entered into by Morgan Grenfell, Wiltshier and Darlington which gave Darlington direct contractual rights against Wiltshier for any liquidated damages for failure to complete the construction of either Phase on time under the building contracts. In the events which have happened there has been no occasion for Darlington to seek to claim such liquidated damages. But the fact that such provision was made for the liquidated damages in the tripartite Deeds is relied on by counsel for Wiltshier as an indication that Darlington has no right to any other damages as against Wiltshier as no comparable provision was made for other damages. As I see it, that is not a point of great weight. For the liquidated damages to be recoverable, it would be necessary to show that they were a fair pre estimate of loss which would be occasioned by delay in completion of the Dolphin Centre. But the liquidated damages could only be a fair pre-estimate of loss occasioned by delay in completion if they were payable to Darlington to compensate Darlington's los. Delay in completion plainly would not cause Morgan Grenfell any loss at all.


There were also letters from Wiltshier to Morgan Grenfell dated the 25th October 1979 and 18th November 1981 which were relied on before the Judge as constituting, with the assignment of Morgan Grenfell's rights to Darlington as envisaged in Clause 3(4) some form of novation agreement in Darlington's favour. But the Judge held that those letters amounted to no more than an agreement to agree and had no effect in law; that decision, on the preliminary issues relating to the letters, is not challenged.


Morgan Grenfell paid all moneys due to Wiltshier under the building agreements against architect's certificates issued by the Borough Architect as the Architect nominated in the building contracts. The Judge held, on another preliminary issue on which his decision is not challenged,that the Final Certificates of the Architect under each building contract do not afford Wiltshier a defence to Darlington's claims under those contracts.


That brings me to matters which are in dispute.


Darlington claims that there are serious defects in the Dolphin Centre which are due to bad workmanship, or other breaches of provisions in the building contracts, on the part of Wiltshier. It is said for instance that all the masonry walls of the Centre are defective and dangerous, principally because of defects in the mortar used. It is said also that roofing tiles used in the flat roofs have deteriorated prematurely under the effects of normal weathering and were not of merchantable quality. It is said also that parts of the structural steelwork columns and beams were not provided with adequate fire protection. Darlington claims that it will incur expenses of the order of £2m in carrying out repairs to remedy these defects.


Whether the defects exist and are the fault of Wiltshier has, of course, not yet been tried. We are only concerned with preliminary issues and for the purposes of those issues it is to be assumed that there are such defects, and that they are the...

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