Scottish Widows Services+scottiwh Widows Services Ltd V. Harmon /crm Facades Ltd (in Liq)+building Design Partnership+w.s.a. Inc+kershaw Mechanical Services Ltd+building Design Partnership
| Jurisdiction | Scotland |
| Judge | Lord Drummond Young |
| Neutral Citation | [2010] CSOH 42 |
| Date | 23 March 2010 |
| Docket Number | CA13/09 |
| Court | Court of Session |
| Published date | 23 March 2010 |
| OUTER HOUSE, COURT OF SESSION [2010] CSOH 42 | |
| CA13/09 and CA15/09 | OPINION OF LORD DRUMMOND YOUNG in the cause SCOTTISH WIDOWS SERVICES LTD Pursuers; against (FIRST) HARMON/CRM FACADES LTD (in liquidation); (SECOND) BUILDING DESIGN PARTNERSHIP; and (THIRD) W.S.A. INC Defenders; and in the cause SCOTTISH WIDOWS SERVICES LTD Pursuers; against (FIRST) KERSHAW MECHANICAL SERVICES LTD; and (SECOND) BUILDING DESIGN PARTNERSHIP Defenders: ________________ |
Pursuers: Dean of Faculty; Smith; Pinsent Masons LLP
Defenders: (Harmon) MacColl; HBJ Gateley Wareing LLP
(Building Design Partnership) Lake QC; Simpson & Marwick
(W.S.A. Inc) Ellis, QC; Cowie; Biggart Baillie LLP
(Kershaw) Jones, Solicitor; Brechin Tindall Oatts
23 March 2010
[1] This opinion relates to two separate actions brought to enforce a series of collateral warranties. Both relate to the construction of a new head office for the Scottish Widows Fund and Life Assurance Society ("the Society") at Port Hamilton, Edinburgh ("the Project"). Collateral warranties have become commonplace in construction projects following the decision of the House of Lords in Murphy v Brentwood District Council, [1991] 1 AC 398. The fundamental problem that they are designed to address is as follows. In a typical large-scale construction project, a significant number of parties will inevitably be involved. These will include the professional team and the main contractor or management contractor, together with a number of subcontractors or works contractors; the latter obviously do not have a direct contractual relationship with the employer. On the employer's side, the employer may be a developer whose active role is confined to arranging for the works to be carried out. The owner of the property on which the development is carried out will usually intend to transfer its interest to yet further parties, as disponees or assignees or tenants. Alternatively, even if the developer is the owner, it will typically be intended that the property should be let or transferred to other parties. In some cases the parties who are ultimately interested in the property are members of the same group of companies as the owner or developer; in other cases this is not so. If works are performed defectively, or if any member of the professional team acts negligently, it is likely that the party who actually suffers the loss will not be the employer in the building contract, who has either passed on his interest to another party or other parties or has been working on a development that has belonged throughout to another party. Instead, the loss will be suffered by one of those other parties, as owner or tenant of the property or as some form of transferee from the developer. The effect of Murphy was to curtail the delictual duties that are owed in that type of situation. The principle of privity of contract prevents any direct contractual action by the party who suffers the loss against subcontractors or works contractors or any member of the professional team. Consequently, in order to ensure that the party who suffers actual loss has a right of action against any party who has provided defective work or against any member of the professional team who has acted negligently, the practice has grown up of taking collateral warranties from all of those who carry out work under the project. A collateral warranty provides, in summary, that the person giving the warranty undertakes various contractual duties to the person who receives the warranty; where the warranty is given by a contractor the obligation is to perform the obligations undertaken in the contract with the employer or, as appropriate, the main or management contractor; and where the warranty is given by a member of the professional team the obligation is to perform the duties undertaken to the employer with due care and diligence. In this way the problem of the legal "black hole", whereby loss is sustained by a party who has no right of action and the party with the right of action suffers no loss, is avoided. Such warranties are an important feature of modern practice in the construction industry. In my opinion they must be construed in such a way as to further their essential purpose, namely to ensure that the party who suffers loss has a right of action against any contractor or member of the professional team who has provided defective work.
[2] The contractual structure in the Project was as follows. In 1996 a company known as Edinburgh Construction Services Ltd ("ECSL") entered into a management contract with Laing Management (Scotland) Ltd ("LMS") in terms of which LMS was to act as management contractor on behalf of ECSL in the Project. Under that contract, ECSL was the employer. The management contract was the Scottish Management Contract Phased Completion Edition (March 1988) incorporating the conditions of the Standard Form of Management Contract 1987 as amended by a schedule of amendments agreed between ECSL and LMS. Harmon/CFEM Facades (UK) Ltd, the first defenders in the Harmon action, and Kershaw Mechanical Services Ltd, the first defenders in the Kershaw action, were works package contractors engaged by LMS in connection with the project. Harmon are now in liquidation. Building Design Partnership ("BDP"), the second defenders in both actions, are a firm of architects. They were engaged by ECSL to provide architectural services for the Project. W.S.A. Inc ("WSA"), the third defenders in the Harmon action, are incorporated in the United States and were the parent company of Harmon. In that capacity they entered into a parent company guarantee relating to Harmon's obligations under a collateral warranty granted by them. ECSL, although the employer for the purposes of the management and works contracts, had no interest as proprietor or tenant of either the site or the development. Consequently collateral warranties were granted by inter alios Harmon, BDP and Kershaw in favour of various parties who either had or might come to have an interest in the site or development as proprietor or tenant. It is those collateral warranties that form the subject matter of the present actions.
[3] The Project involved the construction of a building consisting of three five-storey rectangular blocks (Blocks A, B and C) and one eight-storey curved block (Block D/E) set over a two-storey car park and services structure built below ground level. The building had a concrete frame, and was enclosed using a combination of stone or concrete cladding panels and aluminium framed curtain walling and windows. Harmon's works package related to the glazing element, and included curtain walling systems, windows, and other glazing and aluminium elements. Kershaw's works package involved the design and construction of the standing seam roof. In each case the relevant works package contract was the standard form of works contract (Works Contract/1/Scot and Works Contract/2/Scot).
Pursuers' averments
[4] I will begin by summarizing the history of the parties' transactions as narrated in the pursuers' pleadings. In certain parts of the defenders' submissions the precise sequence of events is important, and accordingly I will give a chronological account. On 28 March 1994, a company known as Edinburgh Development Group Ltd ("EDG") took a lease of the land on which a new head office for the Scottish Widows Fund and Life Assurance Society ("the Society") was to be constructed. Some time thereafter, in July 1995, LMS, the prospective management contractor, engaged Harmon to undertake the glazing systems works package. On 1 December 1995, Harmon entered into a collateral warranty in favour of the Society and a further collateral warranty in favour of a company known as Scottish Widows (Port Hamilton) Ltd ("Port Hamilton"). The terms of the Port Hamilton warranty are considered in detail at paragraphs [25] and [26] below. In March 1996 LMS engaged Kershaw to undertake the works package for the design and construction of the standing seam roof. Subsequently, on 28 November 1996, Kershaw entered into a collateral warranty in favour of the Society; the terms of that warranty were similar to the Harmon warranty. On 15 May 1996 ECSL, the employer, entered into the management contract referred to at paragraph [2] with LMS, the management contractor.
[5] During 1996 ECSL also entered into an agreement with BDP to provide architectural and other professional services for the project; the terms of the agreement are found in a letter of engagement. At about the same time BDP entered into a collateral warranty in favour of the Society; its terms are considered in detail at paragraphs [20]-[24] below. Two further events occurred at about this time. First, WSA entered into a parent company guarantee with Port Hamilton; and secondly, LMS granted a collateral warranty in favour of the Society.
[6] On 21 August 1997 EDG, who held the tenant's interest under the lease of the land, granted a part assignation of their rights under the lease to Port Hamilton. Shortly thereafter, during the winter of 1997/98, the roofs of blocks D and E suffered damage. Then on 10 March 1998 Harmon went into receivership, having ceased work on site a few weeks earlier. Practical completion took place on 23 March 1998. On 13 May 1998 EDG granted a further part assignation of their rights under the head lease to Port Hamilton. On 8 July 1999 Port Hamilton granted a sublease in favour of the Society, and on the same date the tenant's rights under that sublease were assigned by the Society to the pursuers.
[7] Four years later, in 2003, various transfers of rights were made by the Society and Port Hamilton to the pursuers. First, on 10 July 2003, the Society assigned to the pursuers the full benefit of its interests and rights under the collateral warranty granted by BDP in 1996, together with all rights to sue or take action in respect of any breach. On the same date the...
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