| Date | 15 August 1996 |
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| Judgment | Alfred McAlpine Construction Ltd -v- Hannah Reed and Others 24 May 1996 |
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| The Issue | Pleading of case for contribution from subcontractors and subconsultants against contingent liability to building owner. |
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| Implication |
Precise back to back contracts and duty of care deeds are essential for main contractors facing allegations of defective design or workmanship. |
printFew people need to be told that construction litigation can be an extremely expensive process. Even with an apparently straight forward case between two parties, the complexity of the issues and tactics of case management can cause seemingly endless delay and legal costs. When there are no less than thirty-seven parties, as in the case of Alfred McAlpine Construction Ltd -v- Hannah Reed and Others, the whole process can take more twists and turns than a bowl of spaghetti. The problems go back to November 1989 when Alfred McAlpine entered into a design and build contract on the JCT 81 form with Panatown Ltd for the construction of an office block and car park for a contract sum of £ 10.4 million. Panatown was a special vehicle set up to develop the project on behalf of the developers as a ruse to avoid paying VAT on the works. In the event the project has been a nightmare. There have been allegations of major design faults including that the foundations and structural frame are inadequately calculated and constructed. The air conditioning plant has apparently been beset with problems, the roof leaks and the windows are alleged to be unsatisfactory. As if this was not enough, it is claimed that the car park is too small and the employer is asking for this to be demolished and re-built at a cost of £ 1.7m for this item alone. Nearly £ 1m in liquidated damages has also been withheld from the contractor. These and other problems have so far been the subject of two arbitrations and numerous writs which have really only scratched the surface. One particular strand of argument which has kept everyone busy is whether Panatown could properly claim damages for delay and for defective or incomplete work, even though they are not the owners of the property. Initially the arbitrator, sitting with a legal assessor, held they could, but an appeal to the High Court on this decision was successful. In other words Panatown had no proprietary interest and therefore its claim for damages could be no more than nominal. Leave to appeal that decision to the Court of Appeal has recently been granted and the outcome is still awaited. It may be that this issue will follow the path pursued in the two cases of Linden Gardens Trust and St Martin's Property Corporation which were finally decided in the House of Lords in 1994. In the eyes of some the House of Lords departed from orthodoxy in these cases in holding that the ultimate developer could recover substantial damages from the contractor for its assumed breach of contract, even though the breach had occurred after transfer to an associate company where all the losses had been incurred. Should however the developer fail in this appeal, all is not lost for they have entered into a separate duty of care agreement with the contractor. This duty of care deed was executed under seal and therefore is subject to longer limitation periods than would appear to apply to the majority of McAlpine's subcontracts. Not surprisingly the developers, UIPL, have been playing cat and mouse with this document. They have not commenced proceedings under this agreement, but have indicated that they would do so should they fail to recover their full measure of damages via Panatown. They have threatened that this would only be done after the statute of limitations has expired between McAlpine and its subcontractors, in an attempt to force settlement on McAlpine. This has placed McAlpine in a quandary. They worry that they may be deprived of their entitlement to seek indemnities from the consultants and subcontractors who actually designed and carried out the works. They have so far refused to be bullied into a hasty and unjustified settlement with the developer in order to be in a position to attempt to recover from their consultants and subcontractors before problems of limitation arise. Accordingly they commenced proceedings against everyone themselves. In effect McAlpine could see no reason why they could not make a pre-emptive strike in order that all the legal and factual issues arising out the developer's claim could be heard before the same tribunal, together with the questions arising out of Panatown's claims, without further delay which might prejudice the success of its subcontractor claims. His Honour Judge Humphrey Lloyd QC perfectly understood the position in which McAlpine found themselves and accordingly refused the developer's application that the proceedings against them should be struck out. He held however that they should be stayed until the judgement of the Court of Appeal is given in the Panatown case. Despite this McAlpine are still not out of the woods. Their pre-emptive action means they will have great difficulty in properly pleading their case against all the parties. Ordered to specify clearly what obligations or duties are said to have been broken by the various subcontractors and designers, and how those breaches have given rise to the defects alleged but not yet properly particularised by the building owner, they may well still find that they are in a trap of fiendish proportion which not even Houdini could have escaped from.
CJ-9627
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