Parkwood Leisure Ltd v Laing O'Rourke Wales and West Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Akenhead |
| Judgment Date | 29 August 2013 |
| Neutral Citation | [2013] EWHC 2665 (TCC) |
| Docket Number | Case No: HT-13-283 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 29 August 2013 |
[2013] EWHC 2665 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Akenhead
Case No: HT-13-283
Justin Mort (instructed by Harrison Drury & Co Ltd) for the Claimant
Steven Walker QC (instructed by Pinsent Masons LLP) for the Defendant
Hearing date: 23 August 2013
These Part 8 proceedings raise an interesting issue as to if and in what circumstances a collateral warranty can amount to a construction contract for the carrying out of construction operations within the meaning of the Housing Grants, Construction and Regeneration Act 1996 (" HGCRA"). The proceedings have been brought, amongst other things, for a determination as to whether the Claimant can institute adjudication.
The Background
The Claimant, Parkwood Leisure Ltd ("Parkwood"), provides facilities management services in respect of a number of PFI projects, for amongst others, the Cardiff International Pool, a swimming and leisure facility. Cardiff City Council ("the Council") owns this facility but let it to Orion Land and Leisure (Cardiff) Ltd ("Orion") under a lease dated 25 April 2006 for a 25 year term. Orion sub-let the facility to Parkwood under a sub-lease dated 11 January 2008 for a term of about 10 years. Parkwood operates this swimming facility for Orion and the Council pursuant to an agreement dated 11 January 2008.
By a building contract dated 7 April 2006, Orion engaged Laing O'Rourke Wales & West Ltd ("LORWW") under a standard JCT design and build contract to complete the design for the facility and carry out and complete the construction. LORWW's primary obligation in Clause 2.1 was to:
"…upon and subject to the Conditions carry out and complete by Sections the Works referred to in the Employer's Requirements, the Contractor's Proposals…the Articles of Agreement, these Conditions and the Appendices in accordance with the aforementioned documents…"
The Works were due to commence contractually in April 2006 and to be completed by 21 December 2007. Article 10 stated:
"The Contractor shall upon request made from time to time by the Employer, forthwith execute a deed of warranty in the form set out in Appendix # in favour of Cardiff County Council and/or any person providing finance in connection with the works and/or any first purchaser of the Works or any significant part thereof and/or Parkwood Holdings plc and/or any mortgagee of the completed Works or any part thereof provided always that the maximum number of deeds of warranty that the Contractors shall be obliged to execute shall not exceed five."
On 6 December 2007 and before the Works were completed, a deed dated 6 December 2007 was executed between Parkwood and LORWW whereby the latter gave certain warranties, acknowledgements and undertakings to Parkwood (the "Collateral Warranty"). I will return later to the terms of the Collateral Warranty. It seems to be common ground that the Works did not reach Practical Completion until a date in 2008.
Parkwood occupied the facility which was opened to the public. A number of problems arose over the following 30 months with Parkwood making a number of complaints about alleged construction and commissioning defects. On 17 February 2011, Parkwood wrote to LORWW as follows:
"1. I am writing to you again in connection with the construction of the Cardiff International Pool…carried out by [LORWW] during 2006–8 under a contract dated 7 th April 2006 with Orion…
2. This letter is written in accordance with the Pre-Action Protocol for Construction and Engineering Disputes and constitutes our Letter of Claim.
Background
3. Following over 18 months of delay in resolving outstanding matters from the construction of the Cardiff International Pool, the issue was escalated to me early last year. You will recall that I wrote to you, at Reference B, on 10 th May 2010 to formally express some of the concerns held by Parkwood Leisure…
Items Remaining of Immediate Concern
6. It was an implied term of the contract that the works would be carried out in a proper and workmanlike manner and in compliance with the contractual documents (as varied) and to a reasonable standard. [LORWW] owed to Parkwood Leisure a duty of care and has failed to deliver/rectify or otherwise remedy the issues arising from the following major items:
…c. Air Handling Units (AHU). A number of AHU problems have led to excessive humidity and stained ceilings; both impact on building fabric and require urgent rectification before the degradation of affected areas becomes self perpetuating defect.
The direct costs to Parkwood Leisure of replacing and rectifying elements to allow the continued operation of the site, as outlined above are £41,339 and are detailed at Annex A.
Further Items Requiring Remedy
7. The list at Annex B details further items requiring attention. Whilst these are less urgent they are of equal importance and must be remedied as soon as it is practicable to do so and certainly before 30 th June 2011. The Photographs elaborating some of these issues were provided at Reference A…"
Annex A contains a detailed list of remedial works supporting a figure of £41,339, some £6,800's worth expressly relating to various repairs to various AHUs ("Cool Solution" and "2A's/Electranet"). Annex B contains some 23 items listing various alleged defects and various comments apparently from LORWW as to their intentions as to how to deal with some of them. There is reference to "missing interlocks" relating to "all 13 AHUs" and to remedial works including decoration relating to staining to ceilings which was linked "to previous AHU fault".
On 19 March 2012, Parkwood, its holding company, Orion and LORWW entered into a "Settlement Agreement", the terms of which I will return to later in this judgment.
The evidence does not relate in detail what happened thereafter until Parkwood wrote another letter dated 5 February 2013, also said to be a Pre-Action Protocol letter, to LORWW, which materially said as follows:
"As you will be aware from the exchange of correspondence last summer and your subsequent site inspection on 18 th October 2012 [Parkwood] considers that the air handling units at Cardiff International Pool are defective and/or not fit for purpose.
Further, [LORWW] has failed or refused to undertake any remedial works in respect of the air handling units.
Parkwood therefore has had no option other than to enforce its legal rights under the Collateral Warranty dated 6 th December 2007. Accordingly, please regard this letter as formal notification of Parkwood's claim under the Collateral Warranty dated 6 th December 2007.
For the avoidance of doubt, this letter raises entirely new and separate issues to those which were raised by Parkwood in its letter of Claim dated 17 th February 2011 and which was the subject of a concluded compromise on 19 th March 2012…
Summary of Claim
1. This claim concerns the defective design and/or installation of the air handling units (AHU) during the construction of Cardiff International Pool…
4. Under the terms of the Collateral Warranty, Laing warrants, acknowledges and undertakes that, inter alia:
(i) It has carried out and shall carry out and complete the Works (as more particularly described in the Contract)…
5. It is Parkwood's case that Laing was responsible for the design and installation of the AHU's under the Contract and that the said design and installation is defective…
7. Despite a further exchange of correspondence and a site visit to inspect the AHU's, Laing has failed or refused to undertake any remedial works and has to date refused to accept liability for the defects…
Evidence of Defects
10. [This refers to a report commissioned by Parkwood from Hoare Lea into the defects which was attached at Annex A]
12. Full particulars of the defects that have been identified with the AHU's are set out in detail in section 2 of the Hoare Lea report, but in summary those defects are as follows:
• The wet AHUs are not compliant with the employers brief.
• The design of the units is not suitable for a coastal atmosphere and [sic] of the potential for corrosion from salt and chlorine laden air.
• The fans…are not suitable for purpose.
• The motors are oversized leading to probable overheating issues.
• The construction of the unit is considered to be poor with panel/seal failures occurring.
• There is severe corrosion to air handling units control panels (external units).
• The infill panels and access doors are poorly fitted.
• There is extensive rusting on the pulleys and other internal components.
• There is little or no internal protective coating on the units.
• The supply intake and discharge for each unit is too close…
14. Hoare Lea has recommended that all of the AHUs are immediately replaced, together with all associated controls…
15 and 16 [These paragraphs set out work to two AHUs which fall short of full replacement]…
Remedies Sought
17. Laing has failed to carry out and complete the Works in accordance with the Contract and/or it has failed to exercise reasonable skill and care in the design and/or completion of the Works and is therefore in breach of the Collateral Warranty dated 7 th December 2007.
18. Parkwood requires Laing to undertake the following remedies under Clause 12 of the Collateral warranty:
a. Damages. Laing O'Rourke shall compensate Parkwood for the loss and costs it has incurred to date in the sum of £337,693 made up as follows:
(1) [Professional fees]…£6,710
(2) The cost of rectification works…to date and identified in Annex B £68,047.30
(3) A contribution of £16,652.58 towards Parkwood's increased maintenance costs incurred to date in relation to the air maintenance units… more...
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