Laing O'Rourke Delivery Ltd v Sweett (UK) Ltd

Hearing dates: 21 and 22 March 2024

Date of handing down in draft: 1 May 2025

Approved Judgment

This judgment was handed down remotely at 12noon on Wednesday 8 May 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

I Introduction

This litigation arises out of a PFI (Private Finance Initiative) contract relating to Roseberry Park Hospital in Middlesborough (a mental health hospital). There was a Project Agreement dated 12 December 2007 (“Project Agreement”) between the Tees Esk and Wear Valleys NHS Foundation Trust (“the Trust”) that provides a range of mental health service and Three Valleys Healthcare Limited (here referred to as “Project Co”, although referred to as “TVH” in the pleadings). The Project Agreement was for the development of a site at the hospital and certain related services.

On 12 December 2007, Project Co and the Claimant (“LOR”) entered into a building contract in respect of the hospital (“the Building Contract”) under which LOR acted as the design and build contractor. Days earlier, on 4 December 2007, LOR appointed an architect, Medical Architecture and Art Projects Ltd (“MAAP”) as its lead consultant and architect under what is referred to as “the Services Agreement”.

Also on 12 December 2007, the Trust, TVH, LOR and funders engaged Nisbet as “Independent Tester” for the project (“the Appointment”). Pursuant to a Collateral Warranty, Nisbet warranted to LOR its performance of its obligations under the Appointment. Subsequently, Nisbet was acquired by Sweett (UK) Limited (“Sweett”) and, pursuant to a Deed of Novation, Sweett stepped into Nisbet's shoes in respect of the Appointment and Collateral Warranty. There is no dispute in relation to these novation arrangements.

The Hospital was handed over to the Trust in phases, from about March 2010 onwards. Project Co became insolvent and a consequence was that the Project Agreement has been terminated. The Trust brought proceedings against Project Co, claiming the sum due on termination (“the Upstream Litigation”). This included an amount claimed as due in relation to defects in the design and construction of the Hospital.

A number of years into its operation, the Trust appointed consultants to examine the fire safety of the Hospital, which then identified serious concerns and instigated several years of investigations.

In February 2020, the Trust issued a letter of claim against Project Co., claiming sums in excess of £125 million in respect of various defects, and they included fire safety defects. Project Co in turn sought to pass that claim down to LOR. On 22 July 2021, LOR settled that claim by way of the Settlement Agreement and agreed to pay Project Co in excess of £18 million.

LOR later served Particulars of Claim against its architect, MAAP (in June 2022) in action HT-2019-000432. MAAP issued a Part 20 Claim against LOR's roofing subcontractor Deeside Timberframe Limited (“Deeside”) on 23 September 2022.

In this action brought in July 2022 between LOR and Sweet, LOR claims breach of contract against Sweett, it having acquired the liabilities of the Independent Tester by novation, seeking to pass on liability for the defects.

The proceedings between the Trust and Project Co were still live (HT-2019-000449) when this application was heard, but settled prior to the handing down of this Judgment. The expert reports in those proceedings were obtained by LOR and make allegations these defects were all non-compliant with the Project Agreement and were endemic throughout the Hospital. It is said by LOR that the experts in that action agree that this was the case.

LOR brought the present proceedings against Sweett (and also proceedings against MAAP) in order to recover the losses incurred in the Settlement Agreement in relation to fire safety defects (and smaller defects relating to vanity units and ensuite doors), as well as the costs of replacing the roofs. The Settlement Agreement also settled claims in respect of certain other defects. LOR does not seek to pass on Sweett / MAAP the sums paid in respect of those other defects. Both Sweett and MAAP have liability caps of £10m in their respective contracts with LOR.

LOR's claim against Sweett alleges, in broad summary, as follows:

(a) the fire protection designs (and, to a lesser extent, the vanity units and en suite designs) were deficient and not compliant with Schedule 8 of the Project Agreement;

(b) the workmanship was also, in certain respects, deficient and non-compliant with the Project Agreement;

(c) Sweett's review of the relevant designs was negligent, in that, contrary to its obligation to verify the designs for compliance with Schedule 8, it failed to identify (and notify) that the designs were non-compliant;

(d) Sweett negligently inspected the works and, as a result, failed to identify (and notify) that the works were non-compliant, contrary to its obligation to monitor compliance of the works with the Project Agreement during inspections;

(e) as a result of those breaches, LOR was liable to TVH for breaches of the Building Contract and that resulted in loss in the form of the Settlement Agreement and the roofing repair works;

(f) the sum claimed is £20.4m (which excludes interest and certain ancillary heads of claim yet to be ascertained).

The claim against Sweett has at its core two obligations that it owed pursuant to the Appointment — a design review obligation and a site inspection obligation, as follows:

(a) The design review obligation:

(i) “The Independent Tester shall carry out an initial full review of the design of the Works and thereafter shall monitor the development of the design to verify that it complies with the design as described in Schedules 8 and 10 of the Project Agreement”: see paragraph 3.1 of Appendix 1 of the Appointment. It is common ground that the relevant Schedule for the purpose of this claim is Schedule 8 (and not Schedule 10);

(ii) “ The Independent Tester shall not by virtue of its obligations under this paragraph 3 of this Part I of Appendix 1, be responsible for the carrying out of the design of the Works or any part of them and the liability for the design of the Works shall remain with Project Co or any other Project Co Party. The Independent Tester shall not be required to approve or consent to the suitability of the design of the Works”: see paragraph 3.3 of Appendix 1.

(b) The site inspection obligation:

“Visit the Site and monitor and inspect the Works on a regular basis in accordance with the Project Agreement to monitor compliance of the Works with the Project Agreement”: see paragraph 5.4 of appendix 1 of the Appointment.

Schedule 8 of the Project Agreement contained the Trust's Construction Requirements (in Part 3) and the Project Co's Proposals (in Part 4).Parts 3 and 4 are in excess of 900 pages comprising a detailed specification and/or concept design for the Hospital. Schedule 8 required that the Hospital complied with inter alia HTM 05 (Firecode for hospitals); Good Industry Practice (a defined term); the Building Regulations; relevant British Standards and codes of practice; Health Building Notes (HBNs) and Health Technical Memoranda (HTMs).

Sweett's skeleton (para. 42) refers to common ground that:

(i) Sweett's obligation was to exercise reasonable skill and care: see LOR's Reply para. 11.2.

(ii) Sweett's obligation was to review the design produced by LOR with the “ design as described in” (specifically) Schedules 8 and 10 of the Project Agreement, in order to “ verify compliance” with the Schedule 8 and 10 design: see Sweett's Defence para.28(a) and LOR's Reply para.12.1. In fact, the pleading of LOR's Reply is not the same in that a part of it reads as follows, namely “Paragraph 3.1 required Sweett to (i) carry out an initial, full review of the design and (ii) thereafter, to monitor the design as it developed, so as to “verify that it complies with” Schedules 8 and 10 of the Project Agreement. LOR will rely on the terms of paragraph 3.1 for their full meaning and effect.” The nature of the difference between the parties is discussed below in this judgment.

(iii) Sweett was not required to express approval of or consent that the design was suitable or fit for purpose, as opposed to verifying that the design was compliant with Schedules 8 and 10 of the Project Agreement, which it was required to do: see LOR's Reply para. 12.2(c).

Project Co issued a claim form against Sweett on 24 November 2023. However in the period between hearing the applications and the handing down of this judgment, that claim was discontinued.

II The Applications

The Court has before it two applications, namely:

(i) Sweett's application dated 4 December 2023 to strike out various parts of the Particulars of Claim pursuant to CPR 3.4(2) (“the Strike Out Application”).

(ii) LOR's application to amend dated 10 November 2023 (“the Amendment Application”). That application was in relation to the third version draft of LOR's amended pleadings. LOR served a fourth version of its draft Amended Particulars of Claim and a fourth version of its draft Amended Response to the Request for Further Information with its evidence in response to the Strike Out Application on 1 March 2024. It is assumed that LOR seeks permission to amend in the terms of...