Orchard Plaza Management Company Ltd v Balfour Beatty Regional Construction Ltd
|England & Wales
|Mr Justice Morris
|16 June 2022
| EWHC 1490 (TCC)
|Case No: HT-2021-000207
|Queen's Bench Division (Technology and Construction Court)
 EWHC 1490 (TCC)
THE HONOURABLE Mr Justice Morris
Case No: HT-2021-000207
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
Ben Patten QC (instructed by Reynolds Porter Chamberlain LLP) for the Claimant
William Webb (instructed by Clyde & Co) for the Defendant
Hearing date: 2 December 2021
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HONOURABLE Mr Justice Morris
This is an application by Orchard Plaza Management Company Limited (“the Claimant”) to strike out and/or for summary judgment in respect of one part of the defence of Balfour Beatty Regional Construction Limited (“the Defendant”). In short, by that defence, the Defendant contends that the Claimant's pleaded loss and damage is too remote to be recoverable.
By these proceedings commenced on 30 November 2020 the Claimant seeks to recover the costs of remedial works to a development at Orchard Plaza, Poole, (“the Property”) under the terms, and as assignee, of a collateral warranty given by the Defendant.
The development at the Property involved the conversion of an existing 1970s office block into 115 residential apartments and two commercial units. The development was designed and constructed by the Defendant (at the time called Mansell Construction Services Limited) during 2007 and 2008 pursuant to an amended JCT D & B contract with Coltham (Orchard) Limited (“Coltham”). Coltham was the then freeholder of the Property. The funder of the project was AIB Group (UK) plc (“AIB”); AIB lent sums to Coltham. On 22 October 2007 the Defendant granted an assignable collateral warranty to AIB (“the Collateral Warranty”).
In due course, Coltham granted long leases to the purchasers of the apartments, which are said to be in materially identical form (“the Leases”). The Claimant is the management company established to acquire and hold a long lease of the Property. Each lessee was required to be a member of the management company. On 1 January 2008 Coltham granted a separate lease of the Property to the Claimant (“the Coltham Orchard Lease”).
The Leases were sold with the benefit of Premier Guarantees, a specialist form of insurance for new build properties. Those guarantees were paid for by the Defendant. According to the Defendant, Premier appears to have admitted liability for many issues. However a funding agreement is in place under which the underwriters of Premier are refusing to pay the insurance proceeds until the present proceedings are resolved.
In 2015 the Claimant became aware of the possibility of defects in the rainscreen cladding to the development. It began obtaining reports, but did not carry out any remedial work.
On 28 June 2017 AIB assigned its rights under the Collateral Warranty to Coltham. On 10 July 2017 Coltham assigned its rights under the Collateral Warranty to the Claimant.
On 6 January 2020 Bournemouth, Christchurch and Poole Council issued an improvement notice to the Claimant (“the Improvement Notice”). A variation to that notice was issued on 11 May 2020. The Improvement Notice requires the Claimant to carry out works, including the replacement of the rainscreen cladding. As at the date of the Particulars of Claim, the Claimant proposed to carry out a scheme of works. Since that date it has entered into a building contract. By these proceedings, the Claimant seeks to recover from the Defendant the costs of remedial works sufficient to correct the defects said to arise from the Defendant's works.
By its application dated 24 August 2021, the Claimant initially sought summary judgment and/or strike out in respect of four paragraphs in the Defence, which in turn represented two different defences. The issues in respect of the first of those defences have now been resolved (and as a result the Particulars of Claim have been amended). The application concerns now only the second defence namely the “Performance Warranty Defence” set out at paragraphs 2.4 (2), 7.2 and 58.2 of the Defence: see paragraph 33 below. In summary, by that defence, the Defendant contends that the losses claimed by the Claimant are not the natural consequence of breaches of a warranty of the nature relied upon by the Claimant in this case and thus are too remote.
The relevant contractual materials The Building Contract
The building contract was made between Coltham as Employer and the Defendant as Contractor on 1 December 2007 and is in amended JCT Design and Build Contract form. Article 10 provides:
“The Contractor shall, within 14 days of a written request to do so by the Employer, execute and deliver to the Employer deeds of collateral warranty in the respective forms set out in Appendix 6 hereto in favour of any Fund, any Purchaser and any Lessee.”
The Collateral Warranty
The Collateral Warranty was entered into on 22 October 2007 between the Defendant as Contractor, AIB as Funder and Coltham as Employer. It recites the fact that AIB had funded the works to be carried out and completed at the Property.
The “Works” is defined as the design and construction of the Property. In clause 1, the “Contract” is defined as the Building Contract; the “Project” is defined as the buildings comprising the Works which are to be carried out and completed at the Property.
The Collateral Warranty goes on to provide, inter alia, as follows:
“ 3. WARRANTY OF PERFORMANCE
3.1 The Contractor warrants and undertakes to the Funder that it has exercised and shall continue to exercise all the reasonable skill and care and diligence to be expected of a competent contractor experienced in the carrying out work and services of a similar size, scope, value, purpose and complexity to the Contract Works in
(a) the design and the approval of the design of the Contract Works and of any other part or parts of the Project to the extent that the Contractor has been or will be responsible for such design or such approval; and
(b) the selection of materials, goods, equipment and plant for the Contract Works or any part or parts of the Project to the extent that such materials, goods, equipment and plant have been or will be selected by or on behalf of the Contractor.
3.2 The Contractor further warrants and undertakes to the Funder that:
(a) it has performed and will continue to perform its obligations under the Contract;
(b) it has carried out and completed and will carry out and complete the Contract Works in accordance with the Contract Works and in a timely and workmanlike manner using up-to-date building practices and good quality materials;
(c) the Contract Works will on completion of the Project comply with all applicable British standards, Codes of Practice and statutory requirements, and will satisfy any standard, performance specification or requirements contained or referred to in the Contract;
(d) the Contract Works and all the materials, goods, equipment and plant comprised in them will correspond as to description, quality and condition with the requirements of the Contract and will be of sound manufacture and workmanship;
(e) it will comply with the requirements of the Health and Safety Executive, the Health & Safety at Work etc Act 1974 and all rules codes and regulations made thereunder (including the Construction (Design & Management) Regulations 1994 to the extent provided for in the transitional arrangements in the Construction (Design & Management) Regulations 2007), and all other legislation and laws relating to the health and safety of workers and to the undertaking of construction work; and
3.3 The warranties contained in this clause 3 shall extend to any work (including without limitation any work of design or selection of materials, goods, equipment and plant) carried out prior to the entering into of the Contract
7.1 The Contractor shall not:
7.1.1 terminate the Contract or its employment thereunder;
7.1.2 treat the Contract as having been repudiated by the Employer;
7.1.3 treat its employment as determined under the Contract;
7.1.4 discontinue the carrying out of the Works
before giving the Funder 28 days' prior notice. The notice shall give particulars of any alleged breach of the Contract by the Employer.
7.2 The Funder
7.2.1 upon breach of the Contract by the Employer;
7.2.2 within the 28 day notice period referred to in clause 7.1;
may give notice to the Contractor that the Contractor is to accept the instructions of the Funder or its nominee instead of the Employer under the Contract. Upon receipt of the notice, the Contractor shall comply with it and shall not do any of the actions referred to in clauses 7.1.1 to 7.1.4. The Contract shall continue as if it had been entered into at the outset between the Contractor and the Funder or its nominee instead of the Employer.
7.3 Any notice which the Funder gives under clause 7.2 shall state that the Funder or its nominee accepts all the obligations of the Employer under the Contract, including payment of any part of the contract sum due to the Contractor and unpaid on the date of the notice.
7.4 Any notice which is given under clause 7. 1 or 7.2 shall be copied concurrently to the Employer.
7.5 The Employer acknowledges that the Contractor shall:
7.5.1 be entitled to rely upon a notice which the Beneficiary gives to it under clause 7.2 as conclusive evidence, for the purpose of clause 7.2, that the Employer has breached the Contract
7.5.2 not breach the Contract if the Contractor complies...
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...did to its responsiveness to matters related to the COVID-19 pandemic). (3) In Orchard Plaza Management Co Ltd v Balfour Beatty  EWHC 1490 (TCC), Morris J rejected the claimant's application for summary judgment in respect of one aspect of the defendant's case, namely that losses cla......