Friends' Provident Life Office (A Firm) v Hillier Parker May & Rowden; Estates & General Plc and Others, third parties

JurisdictionEngland & Wales
JudgeLORD JUSTICE AULD,LORD JUSTICE SAVILLE,LORD JUSTICE ROSE
Judgment Date03 April 1995
Judgment citation (vLex)[1995] EWCA Civ J0403-3
Docket NumberNos: 95/5233/B, 94/6104/B &94/0333/B
CourtCourt of Appeal (Civil Division)
Date03 April 1995
Friends' Provident Life Office (a Firm)
and
Hillier Parker May & Rowden
and
Estates & General Plc (formerly Estates & General Investments PLC)
Castle Mall Securities Limited
and
Estates & General Project Management Limited

[1995] EWCA Civ J0403-3

On Appeal from His Honour Judge Havery QC

Before: Lord Justice Rose Lord Justice Saville and Lord Justice Auld

Nos: 95/5233/B, 94/6104/B &94/0333/B

IN THE SUPREME COURT OF JUDICATURE

THE COURT OF APPEAL (CIVIL DIVISION)

MR M HARVEY QC and MR A PHILLIPS (instructed by Cameron Markby Hewitt, London EC3) appeared on behalf of the Appellants.

MR C ROSS-MUNRO (instructed by Forsyte Kerman, London W1A) appeared on behalf of the Respondents.

1

Monday 3rd April 1995

LORD JUSTICE AULD
2

This is an appeal by the Defendant, Hillier Parker May & Rowden ("Hillier Parker") from an order of His Honour Judge Havery, QC on 7th February 1994 striking out its third party claims against the First and Second Third Parties, Estates & General PLC and Castle Mall Securities Limited ("the Developers") as disclosing no reasonable causes of action, and dismissing the third party proceedings as against them.

3

The litigation arises out of the construction of a shopping centre in Norwich called the "Castle Mall Shopping Centre" on land owned by Norwich City Council and Castle Mall, a subsidiary of Estates & General.

4

On 20th January 1988 the Developers entered into an agreement with the City Council and the Plaintiff ("Friends' Provident") for the development of the Centre ("the Principal Agreement"). In outline the Principal Agreement provided for Castle Mall to acquire and transfer to the City Council land which, together with land of the Council, would be leased to Friends' Provident and sub-leased by Friends' Provident to Castle Mall. Castle Mall was to develop the shopping centre, and the profits of the development were to be shared between the parties. Estates & General guaranteed to the City Council Castle Mall's performance of its obligations under the Agreement (Clause 17).

5

On the same day Friends' Provident and the Developers entered into an agreement ("the Finance Agreement") for the financing of the development. As in the case of the Principal Agreement, Estates & General guaranteed the performance of Castle Mall's performance of its obligations (Clause 18).

6

The Third Third Party, Estates & General Project Management Limited ("Project Management"), another subsidiary of Estates & General, was later appointed as project manager for the development. Project Management is not a party to this appeal.

7

By Clause 7 of the Finance Agreement, Friends' Provident and Castle Mall agreed to share the development costs in the proportions of 54/68ths and 14/68ths respectively up to a stated limit (later increased by variation). The development costs are defined in the Principal Agreement (Clause 5) and applied by the Finance Agreement "where the context so admits" (Recital B).

8

Clause 7 of the Finance Agreement deals with the payment of development costs. In particular, it required Friends' Provident to pay its share of the development costs as they arose in the course of the development. Its important provisions for the purpose of this appeal are paragraphs 7.2, 7.5.2 and 7.5.4. Paragraph 7.2 provided:

" It is agreed between the parties that the payments to be made by each party hereunder are non-refundable to the other save insofar as any sums are required to fulfil each party's liability for its share towards the Development Costs."

9

Paragraph 7.5.2 provided for the payment of construction costs qualifying as development costs, and Paragraph 7.5.4 made similar provision for all other items of development costs incurred by Castle Mall. Paragraph 7.5.2 provided, so far as material:

"In respect of sums due under the Building Contract Friends [Provident} shall on being given not less than ten working days notice accompanied by the Developer's [Castle Mall's] Architects certificate or other proper evidence of expenditure approved by Friends [Provident] or its consultants as to the amount due and payable deliver to the Developer a crossed cheque for Friends [Provident's] share of such sum … in favour of the Developer … on or before the date specified in such notice. … Provided that Friends [Provident] shall not be required to make any payment:—…

7.5.2.4in respect of any item which does not form part of Development Costs."

10

Friends' Provident engaged Hillier Parker, a firm of chartered surveyors, as adviser and development consultant in connection with the development. Part of Hillier Parker's responsibilities was to check and authorise payment of Castle Mall's claims for Friends' Provident's share of the development costs. In addition Friends' Provident had the services of its own surveyor, Simon Lacey, to advise it.

11

Between December 1989 and June 1992, the Castle Mall, through the medium of Estates & General, made 32 claims to Friends' Provident for payment of development costs, including in the claimed sums a figure for "notional interest". In fact, each claim was submitted to Hillier & Parker accompanied by records of expenditure and other supporting documents. Hillier Parker checked each claim and recommended Friends' Provident to pay it, including the figure for notional interest. Friends' Provident did so.

12

In July 1992 Friends' Provident wrote to the Developers demanding the repayment of the notional interest in respect of 31 of the payments, maintaining that it was not part of the development costs under the Finance Agreement and should not have been claimed or paid. The total amount of interest involved is agreed to be £6,706,378. The Developers rejected the demand. Friends' Provident refused to pay the next claim for development costs. Litigation then began with Friends' Provident claiming the return of the notional interest and the Developers counter-claiming damages for breach of contract. However, the litigation soon settled with Friends' Provident abandoning its claim for the return of the notional interest and the Developers, who were in financial difficulty, giving up most of their interest in the development.

13

Friends' Provident then issued proceedings against Hillier Parker claiming damages in negligence and breach of contract for the latter's failure to advise it before payment that the 31 claims for development costs wrongly included notional interest. The damages claimed were equal to the amount of the allegedly wrongly paid interest. Friends' Provident maintained in its pleading that its settlement with the Developers had been a reasonable attempt to mitigate its loss, but that it had derived no financial benefit from it. It also pleaded that the sum was irrecoverable from them because of Clause 7.2 of the Finance Agreement, or because it had been paid under a mistake of law, or because it was estopped as against them from denying that the interest was due, and, in any event, because they had not the means to repay it.

14

Hillier Parker, in its defence, admitted that the notional interest was not part of the development costs and that it should not have been paid by Friends' Provident to the Developers, but denied negligence or breach of contract or that Friends' Provident had suffered any loss, and alleged contributory negligence.

15

Hillier Parker issued third party proceedings against the Developers and Project Management, claiming contribution pursuant to the Civil Liability (Contribution) Act 1978. In those proceedings it alleges that:

1.Friends' Provident paid the notional interest under a mistake of fact or for no consideration so that the Developers were liable to repay it to Friends' Provident;

2.the Developers' receipt of the notional interest made them trustees of it, that they were in breach of trust by using it for their own purposes and/or by failing to repay it and/or by asserting that it was theirs, and that they were, therefore, liable to Friends' Provident for damages for breach of trust in the sum of £6.7m;

3.the Developers were in breach of express or implied terms in the Finance Agreement in applying for notional interest to which they were not entitled, thereby causing damage to Friends' Provident in the sum of £6.7m; and

4.Project Management was in breach of implied terms in its agreement with Friends' Provident and negligent in its management of the development, causing damage to Friends' Provident in the sum of £6.7m..

16

The Developers' case would be, if required to make it, that they were entitled to the payments of notional interest as part of the development costs. However, they applied to His Hon. Judge Havery QC to strike out the Third Party Notice against them on the grounds that it disclosed no reasonable cause of action and/or that it was frivolous, vexatious or an abuse of the process of the Court, alternatively to determine certain questions of law under RSC Order 14A r.1. The Judge, on 7th February 1994, struck out the whole of the third party proceedings against the Developers, leaving only the third party claim against Project Management. In doing so he took the view that it was not necessary to decide whether, as a matter of construction of the Finance Agreement, development costs included notional interest. I agree that a decision on that matter is not necessary at this stage. In any event, having heard some argument in the course of an application by Mr. Harvey, Q.C., on behalf of Hillier Parker, to re-re-amend the Third Party Notice, it is clearly a matter that will require further argument and evidence.

17

The Judge found:

1.that Hillier Parker had no right of contribution under the 1978 Act in respect of any...

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