Peabody Donation Fund (Governors of) v Sir Lindsay Parkinson & Company Ltd

LORD JUSTICE LAWTQN: This is an appeal by the third defendants, the London Borough of Lambeth (Lambeth) from part of a judgment given by His Honour Judge Oddie, sitting as a Deputy Official Referee, on January 24, 1983 whereby he adjudged that Lambeth were liable to pay the plaintiffs (Peabody) damages to be assessed, for breach of their statutory duty to Peabody under the Ninth Schedule to the London Government lot 1963. The damages may be very large. One estimate, which is not accepted by either Peabody or Lambeth, is that they will be about £1,000,000. The principal issue in the appeal is this: if an Inner London Borough (and Lambeth is one) approves the design of a drainage system for a building development and through one of its inspectors, whom it has appointed to inspect the construction of that system, fails to notice that the developer's architect, acting as an independent contractor, without its approval, alters the design and instructs the developer's contractor to build one which, before the completion of the development, is found to be unsatisfactory, can the developer recover from the Borough the cost of re-doing the drainage work plus any other reasonably forseeable damages.

In or about 1972 Peabody decided to build 245 houses on a hillside site known as Knight's Hill, Lambeth. The site was a difficult one on which to build. It had to be terraced and any drainage scheme for it had to take into account the fact that the sub-soil was London olay which tends to expand and contract with the changes of the seasons. Peabody engaged the well-known contractors, Sir Lindsay Parkinson and Co., to do the building work and Messrs. Austin Vernon and Partners as the architects. It was their function to design a drainage system for the site and that of the contractors to construct drains in accordance with the architects' instructions.

By about 1972 architects and civil engineers had come to appreciate that the traditional drainage system, consisting of rigid pipes, was unsuitable for a housing development of this size and kind on a difficult sub-soil like London clay. Movement in the sub-soil was likely to cause breaks in the pipes. The architects knew this. They designed a flexible system which would allow for sub-soil movements. Pursuant to drainage By-laws made by the Greater London Council under various statutory powers and applicable in Lambeth, on April 6, 1972 the architects applied, on behalf of Peabody, for leave to construct a flexible system on the site. They deposited plans. The application form which they completed stated that the drainage system would be constructed to the satisfaction of Lambeth and in accordance with statutory requirements and "By-laws, Regulations and other statutory requirements". The By-laws contained detailed provisions for the construction of drains. Lambeth would have been unable to decide whether most of these provisions had been complied with once the drains had been covered. By testing it could find out whether when completed the drains were effective as such but not how they had been constructed. Ho doubt because of this problem, paragraph 15(1)(b) of the Ninth Schedule to the 1963 Act provided that "no person shall…begin to make any drains…unless at least 7 days previously, he has given to the borough council notice of his intention so to do…" Soon after the plans had been deposited Lambeth's civil engineering department, the senior members of which had professional qualifications, intimated that the suggested drainage design seemed to be satisfactory but formal approval in writing was not given until February 14, 1973: it was stated to be "in principle".

By the beginning of 1973 the contractors were ready to start constructing the drainage system. The architects had on site, supervising for them, a trainee architect named Mitchell. The contractors had a site engineer. The drainage inspector appointed by Lambeth to inspect the drainage work on site was a man named Marlow. He had no professional qualifications but he had had long experience in the building trade. On February 2, 1973 Mitchell and Marlow net and made an agreement. That agreement is going to cost either Peabody or Lambeth a lot of money. This appeal will decide who is going to pay. The reason is this: these two professionally unqualified men decided that the drains should be constructed in the traditional way and not in the way set out in the design plans deposited with Lambeth and which were to receive formal approval by Lambeth a few days later. In Mr. Owen's words this change of design was doomed to failure. The evidence about this meeting was confused. The trial judge was not satisfied that Marlow had required Mitchell to make the change; but that an agreement to which Marlow had been a party had been made was clear beyond any doubt. The terms of it were set out in a letter written by the architects to the contractors' site engineer dated February 7, 1973. The judge found that Marlow had no authority from Lambeth to be a party to this agreement. Thereafter the contractors were instructed by the architects to construct the drainage system in the traditional, unsuitable way. This they did. Shortly after the work on the drainage system began, Marlow was succeeded as Lambeth's drainage inspector for the site by a man named Toogood. Like Marlow he too had no professional qualifications. He had only been a drainage inspector for a short time before carrying out inspections on this site. His previous occupation had been that of a plumber. Between the time when he started working on this site and May 4, 1973, he carried out 20 inspections. There was no evidence as to what he did or what he saw. On May 3, 1973 he asked the contractors' site agent for some information about the drains and what was being used for their construction. He was given the information in a letter dated May 4, 1973. Peabody have based their case against Lambeth upon this letter. It was admitted by Lambeth at the trial that Toogood on reading this letter should have appreciated that the contractors were constructing a drainage system which was different from the approved design set out in the plans to which he had access. Toogood did not show this letter to his superiors. He let the contractors go on constructing the drainage system in a way which was doomed to failure. His inaction, submit Peabody, amounted to a breach of duty which caused them great loss.

Although he did nothing to stop the contractors from departing from the approved design, he went on inspecting their work. Peabody have not suggested that he made his inspections negligently.

During 1975 and the early part of 1976 and before the development had been completed, testing of the drains revealed that a substantial number of them had failed.

As a result of the failures the drainage system had to be reconstructed by the contractors at a cost which they estimate to have been £118,139. The development was delayed for about three years. Peabody lost rents which they would have received if the delay had not occurred. The contractors have claimed that under their contract with Peabody they are entitled to be paid substantial additional sums because of the delay. Peabody started proceedings against the contractors, the architects and Lambeth claiming to be reimbursed by one or other or all of them for the losses they had sustained. The contractors issued a writ against Peabody for the sums they alleged were due to them under their contract. The two actions were consolidated. There was a lengthy trial on preliminary issues as to whether first, the cause of the replacement of the original drains was the unsuitability of the architects' design or the contractors' defective workmanship and, secondly, the contractors were entitled to extra payments under their contract with Peabody. The judge found that the cause of the failure of the drains was their unsuitable design and not the contractors' workmanship and that the contractors were entitled to be paid various sums, to be assessed, under their contract with Peabody. His finding against Lambeth is set out in the order as follows: that Peabody were entitled to payment of damages from Lambeth representing such part of the sums for which Peabody were liable to the contractors arising out of the failure of the rigid drainage system as would not have been incurred had Lambeth, following the receipt of the letter from the contractors dated May 4, 1973 taken steps to ensure that the system of drainage then being installed complied with the original drainage scheme approved by Lambeth. The judge made no finding against the architects because, before judgment, Peabody's claim against them had been settled. It is to be inferred from what the judge said in his judgment that he would have found the architects negligent had Peabody's claim against them not been settled. He assessed Lambeth's proportion of liability at 15%. This could only have been...