i-law

Litigation in the technology and construction court

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CHAPTER 6

Defects claims

General nature of a defects claim

6.1 Conceptually, defects claims are very wide-ranging indeed. To the layman, a ‘defect’ will usually comprise some physical deficiency in the completed works, such as a leaking roof, or ill-fitting floorboards. Conversely, there may be nothing physically wrong with a structure, yet it is still ‘defective’ – for example, a building which is watertight yet has been finished in the wrong render (contrary to an agreed specification), or a door which has been painted in the wrong colour (against an employer’s instructions). Some buildings may exhibit signs of physical ‘defects’ which are not in fact attributable to any underlying breach, the classic example being shrinkage cracks in a large concrete slab, which generally speaking are unavoidable. 6.2 Matters become complicated when defects emerge which are not readily attributable to any particular cause (for example, a warehouse floor which is suffering from cracking). Time and time again the same story emerges: the design and build contractor asserts that such cracks are down to shrinkage, and usually passes all of the claims down the line without offering up any properly substantiated defence; the slab subcontractor blames the foundations subcontractor; and the foundations subcontractor blames the slab subcontractor. The employer, of course, blames everyone, only to then find himself criticised for inadequate maintenance, or unrealistic expectations when it comes to the scope of the necessary remedial scheme. 6.3 Every construction practitioner will have come across defects claims. For some, they will be a bread-and-butter part of practice. Many litigators loathe them, and even the most energetic lawyer is unlikely to be particularly enthused by their study; see, for example, the first paragraph of the recent case of Manorshow Ltd v Boots Opticians:1 ‘This is a dilapidations claim.’ 6.4 That said, defects claims form a central part of TCC business, and long will they continue to do so. Notwithstanding better design and construction teams, together with more efficient management and quality control, the human element in the process of construction means that defects are inevitable. As projects become larger and more complicated, sucking in construction professionals and consultants as well as contractors and their subcontractors, multi-party disputes are commonplace, and at times even the physical capacity of the Rolls Building Courts to accommodate the hearing is tested. In such circumstances, efficient management of such litigation is an important part of the TCC’s role. 6.5 One of the difficulties in writing a chapter of this sort is the general absence of any reported cases concerning the case management and presentation of such claims. As to case management, almost all of the important procedural decisions are made at CMC stage, with

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some spats continuing at (or developing by) the PTR. As to presentation, generally speaking, it is only where the process has gone wrong that comments will be made in the course of judgments to offer any ‘official’ insight into the presentational issues which often arise. 6.6 What follows, therefore, is a series of practical suggestions for the prosecution and defence of litigation concerning defects, together with the selection and deployment of appropriate expertise.

Prosecuting a defects claim

Structure of the statement of case

6.7 There is no right or wrong way to plead out a defects claim. Much will depend on the nature of the problems in question. For example, it may be apparent from an early stage that liability will not be a large issue in dispute, but scope of remedial works will be, in which case the primary focus of the draftsman may be on schemes of remediation, in telling the story as to how attempts to repair have failed, or in highlighting the intransigence of the defendants in attending to the problems. In other instances, liability will be hotly contested, but quantum more or less agreed. 6.8 There are, therefore, no hard and fast rules, but it is submitted that the following is a sensible structure which can be adapted as appropriate to suit the relevant dispute:
  • The parties. Who to sue will be driven by a variety of considerations. A design and build contractor with full design responsibility will often suffice, but there may be a need to bring in further parties (such as subcontractors under warranties, or consultant professionals under warranties or in tort) in the event of a lack of insurance, parlous financial circumstances or even out of an abundance of caution, especially where knowledge of the claim is not as advanced as it might be.
  • Obligations. This includes all relevant contracts and/or appointments and/or duties of care. Where contractual obligations are relied upon, and where appropriate, the scope of the relevant obligations should be identified. Often, documents such as the Employer’s Requirements, or specifications, or even standalone express terms of the contract itself, will import fitness for purpose obligations, or other sorts of ‘absolute’ obligations or performance requirements, which may be unfettered by the normal obligation to take reasonable skill and care (whether express or implied). Aside from express ‘fitness for purpose’ obligations, such requirements might include obligations for a floor to take particular loadings, for a process plant to meet specified output parameters or for a building to satisfy a certain ‘design life’ or ‘service life’. To this end see, for example, MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd 2 and 125 OBS (Nominees1) Ltd v Lend Lease Construction (Europe) Ltd.3 Contracts of this sort are often termed contracts of ‘double obligation’ and are a very powerful weapon to the claimant, as where absolute requirements can be made out, the reason why the requirements have not been satisfied is usually irrelevant.

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     Narrative of performance (i.e. in the case of a contractor, the works, and in the case of a designer or construction professional, performance of the relevant services). Where limitation is a potential problem, claimants may need to tread very carefully and it may be that this section is best left out if there are very real difficulties concerning dates of practical completion (regarding an action against a design and build contractor), breach (regarding an action in contract) or damage (regarding an action in tort). Limitation can always be addressed in reply if picked up by the defendant. That said, if limitation has already been flushed out in pre-action correspondence, it may be prudent to include material in the statement of case dealing with the issues to demonstrate confidence (even where there is little) in the claim.
  • Identification of the defects, including a narrative of how and when they emerged or were discovered, together with any reaction to them and/or involvement in remedials/attempted remedials by the defendants. The reaction of particular defendants in these periods may well prove important in the event that a limitation defence is subsequently advanced, as sometimes the conduct of parties may operate so as to extend time for limitation purposes.
  • Breach. These allegations should be set out ‘hierarchically’. For example, where there are breaches of fitness for purpose obligations, or failures to meet any other absolute performance requirements, these breaches should logically be pleaded out first. Following those should be any further breaches of express or implied terms of the contract. In defects claims, these breaches will usually comprise: (1) failure to comply with express obligations set out in contract documents; or (2) failure to comply with any express or implied obligation to carry out works or services with reasonable skill and care (or any analogous wording). Normally, the breaches can be categorised thematically, and it is submitted that it is good practice to do so, importing sub-headings and signposting wherever possible. Such categories will usually include: (1) defective design/specification; (2) defective workmanship; and (3) defective materials. Depending on the problems in question, there may be room for other residual breaches (for example, failures to warn). Often, it will be necessary to work backwards from each of the defects to identify the relevant operative breach(es) of contract and/or duty. Only operative breaches should ever be pleaded. Where alleging breach, and in particular breaches of the obligation to carry out works with reasonable skill and care, the draftsman should always identify (1) the steps which were taken but should not have been and (2) the steps which were not taken but should have been. Simply asserting that a defendant was in breach for either doing something or not doing something is an incomplete allegation and will be countered by any sensible defendant with a request for further particulars.
  • Factual/technical causation of the defect. This section should set out a description of how each of the breaches in question have caused and/or contributed to each of the defects in question. This is usually the most difficult and lengthy section of any defects statement of claim. Drafting it will often entail a detailed understanding and explanation as to how, for example, a breach led to particular forces or stresses being exerted on particular parts of the structure, such forces and/ or stresses then being the cause of particular physical damage. Sometimes more

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    than one breach will cause and/or contribute to the force and/or stress in question, and by extension the relevant defect. Careful analysis with the assistance of the appointed technical experts is essential at pleadings stage and should not, as is regrettably too frequently the case, be the subject of investigation and development after close of pleadings, which leads to rounds of amendments, counter-amendments and unnecessary expenditure of costs.
  • Legal causation. This section should explain how each of the breaches has caused and/or contributed to each of the losses in question, which will normally entail a description of how the defects have led to the need to remediate and/or a diminution in value of the asset. This section can usually be relatively concise, as tying in each of the defects to the breach(es) in question will have already been accomplished in the ‘causation of the defect’ section above.
  • Loss. For a claimant, this will normally be the costs of reinstatement together with ancillary claims (for example, loss of rent, business disruption, wasted management time, professional fees, etc). In some instances, this section may need to include material anticipating and refuting any allegations of a failure to mitigate loss. One important tactical consideration for a claimant at this stage is whether or not to plead alternative remedial schemes, particularly where lesser or cheaper proposals have been historically advanced by the defendants. It is submitted that where proposals have been put forward, and they are unfeasible for technical or other reasons, claimants should deal with them upfront, even if further detail needs to follow in the Reply. Where the issue becomes a particularly acute consideration, however, is where limitation is in issue: see, for example, Cooperative Group Ltd v Birse Developments Ltd,4 where the Court of Appeal had refused an earlier attempt to amend pleadings concerning the appropriate remedial scheme, and a further attempt to amend was refused on the basis that the claimant could and should have pleaded its true case much earlier in the proceedings. Where limitation is looming, one practical consideration might be to append a list of all facts and matters known to the claimant in relation to both the construction of the property and the defects, and to require the defendants to plead to it, so at the very least, there is a good chance that all relevant facts and matters concerning the problems will be the subject of the parties’ pleaded cases, thus (with a fair wind) removing, or at least lessening, the risk that amendments to introduce and rely on alternative schemes will be refused on the basis that they do not arise out of the facts and matters in issue between the parties (any claim arising out of ‘new’ facts and matters being time-barred). The safest option, however, is always to plead properly and fully first time around.
6.9 Generally speaking, prolixity is to be discouraged. It is obviously necessary to plead full particulars, especially in relation to breach and causation, and where claims are complicated or involve multiple parties, length is often unavoidable. However, it will often be more appropriate to relegate certain matters to appendices in order for the statement of case to remain comprehensible and readily navigable by both the Court and the defendants.

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Elements which can be appended include: lists of express terms from the contract (which are often lengthy); detailed narrative of the works and/or manifestation of the defects; and particulars of the relevant remedial scheme or schemes.

Defending the case

Liability defences

6.10 The starting point for any defendant is to resist a claim on the basis that breach is either not made out or any breach did not cause the damage complained of. 6.11 For contractual claims, building contracts frequently contain a myriad of obligations, some of which, on analysis, are conflicting, or incorporate performance requirements which are somewhat opaque (again, see MT Hojgaard). It may be that the obligations asserted by a claimant are not as extensive as the claimant might like, or that what are alleged to be performance requirements are in fact subject to some dilution (for example, being limited to the operation of a reasonable skill and care as opposed to the satisfaction of an absolute obligation). 6.12 To this end, there really is no substitute for careful analysis of all relevant contract documentation, which may (in the case of historic claims) necessitate disclosure requests from the claimant in order to obtain full copies of the contract itself. 6.13 Where the documentation does not reveal the existence of a stand-out contractual defence, investigation of the specific allegations with the assistance of experts is crucial. At the very least, this may give rise to the opportunity to pull in other parties by way of contribution proceedings – for example, if it transpires that the failure of a particular element can be attributed to both design and workmanship deficiencies. 6.14 Further, where claims are brought against construction professionals, the terms of the relevant appointment are, of course, paramount, and increasingly often will contain express limitations on liability, or net contribution clauses. The latter in particular may well give rise to a powerful defence even if breach cannot realistically be defended.

Quantum defences

6.15 In defects claims, quantum defences usually focus on two issues, namely that (1) the pleaded remedial scheme is disproportionate or otherwise excessive or (2) the claimant has failed to mitigate its loss. 6.16 Rival remedial schemes are almost inevitable where the claimed remedial scheme is extensive. They should, however, be investigated carefully, and ought not to be put forward where they are technically doubtful (see, for example, the Court’s rejection of ‘resin jacking’ as a viable remedial scheme to a sinking floor slab in Cooperative Group Ltd v John Allen Associates Ltd).5 6.17 The credibility of any rival remedial scheme will, it is submitted, also suffer in the event that it is put forward in a defence either (1) as part of a large menu of alternative options or (2) without any adequate particulars. The first tends to suggest a certain level of desperation, and the latter a lack of belief in the suitability of the proposed solution.

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 6.18 That said, where a feasible and proportionate alternative remedial scheme does exist, and where it is properly pleaded out (ideally with an itemised and priced scheme prepared with the assistance of technical and quantum experts), a claimant who chooses to ignore it does so at its peril, particularly if it later seeks to adopt it, but its claim faces limitation problems (see Coop v Birse). 6.19 One word of caution, however. A properly advised claimant should be alert to any presentational deficiencies in an alternative remedial scheme put forward by defendants. Defendants should not expect to be granted indulgences by the Court to rely on alternative remedial schemes as and when their experts develop their thinking as the case progresses post close of pleadings. Any sensible claimant will insist on an amendment which, at the very least, will have costs consequences for the defendant in question. Finessing an alternative scheme during the course of the litigation (and following discussions between experts under CPR 35.12) is one thing, but a rambling development of different schemes not only poses a practical problem for the Court and the parties (in dealing with round after round of amendments and re-amendments), but will also affect credibility of that party’s case (and the reliability of its expert) if the goalposts are continually moving. 6.20 Alleging a failure to mitigate will face complications in the event that the claimant has acted on apparently competent advice (see, for example, Hospitals for Sick Children v McLaughlin & Harvey 6), or where the work has in fact been done (see, for example, Banco de Portugal v Waterlow & Sons 7 and Linklaters v Sir Robert McAlpine Ltd 8). Nevertheless, even given the fact that the duty to mitigate is not a heavy one, there will be instances where points can legitimately be taken, and time will be wisely spent by a defendant in looking into what points might sensibly be advanced.

Limitation

6.21 One factor of which defendants should be acutely aware at all times is the possibility of a limitation defence. Many defects claims, particularly those involving multiple parties or those concerning chronic failures manifesting themselves over a long period of time, are by their nature pretty sterile, and often litigation is a last resort embarked upon to prevent claims becoming time-barred. Even then, deadlines are often missed. Indicators of potential weaknesses in a claimant’s case in this regard might include reliance on a duty of care in tort (in an attempt to extend time to the date of damage, as opposed to the date of breach), or as intimated above, vague or woolly pleading concerning the dates upon which work or services were carried out and/or completed. Avenues for limitation defences may also appear where deeds are improperly executed or delivered. 6.22 Defendants should always be alert to the possibility of running such defences and should not treat the claimant’s pleaded case as gospel. Further, in tort in particular, the case law in relation to limitation continues to develop (see, for example, Coop v Birse,9 in which it was held that a contractor’s cause of action in tort against its subcontractors accrued on the date of practical completion, when the building was handed over by the contractor to

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the employer, and not on the date that the contractor itself suffered financial loss (for example, when claims were in fact brought)). 6.23 To counter any such limitation defences, claimants should look, if they can, for indemnity provisions, to which different (and favourable) limitation rules apply. Sometimes wording amounting to an indemnity can be found in the text of collateral warranties (such as where an action is brought by a subsequent purchaser or tenant with the benefit of a direct or assigned warranty), or, again, upon careful scrutiny of the contract documents (and, in particular, material such as the Employer’s Requirements and/or tender documentation which is commonly appended to and expressly incorporated into the contract). Where the date of completion of works is unclear (and often unknown to the claimant, particularly if it was not party to the original building contract), piecing together the precise chronology of events (accompanied by appropriate disclosure requests of the defendants) is essential, and more frequently than not may reveal an uncertainty over the actual date of completion which at the very least might permit a successful defence to any early strike out or summary judgment application prosecuted on limitation grounds.

Controlling, policing and challenging the presentation of defects claims

6.24 Defects claims frequently suffer from inadequate particularisation. There are many reasons for this: sometimes claims are issued in a rush, on account of limitation deadlines or other commercial considerations; on other occasions, the draftsman may lack sufficient information and/or an understanding as to the level of detail which is required to properly articulate a complicated claim for breach of contract. 6.25 A common occurrence in this regard is the eliding of the concepts of breach of contract on one hand and defects on the other. A defect, of course, is the physical manifestation of a breach or breaches of contract. But the breach still needs to be identified. All too frequently, defendants find themselves defending what is no more than a list of defects (and often a rudimentary one at that) which is presented as particulars of breach. In fact, that list is no more than what presumably it was originally intended to be, namely a list of problems with a building or facility. Such lists often disclose no discernible cause of action. 6.26 Another familiar tactic is to attach a schedule or report to the relevant pleading, usually one which has been prepared by a professional of sorts, and often for negotiation purposes. The report is then offered up in lieu of providing proper particulars of breach and/or causation, presumably from a (misguided) perception that costs can be saved in this way. 6.27 Finally, there will always be claimants who cut corners when it comes to pleading causation, leaving the defendant to unpick a generalised allegation such as ‘The defects below were caused and/or contributed to by the breaches set out above’, which is self-evidently unhelpful, but nevertheless commonplace. 6.28 Such practices have the potential to drive up unnecessary cost if they are not dealt with swiftly and robustly. The obvious time to do so formally is at the CMC, but it is submitted that the party facing a poorly articulated claim ought to prepare itself early by:
  • issuing correspondence pointing out the failings in question and putting that party on notice in relation to costs (and this is the very least that should be done);

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    issuing a Request for Further Information (RFI) prior to the CMC hearing, so that any inadequate responses to the RFI can be ventilated before the Judge, or, if no responses have been forthcoming, requesting an order that proper responses are submitted by a particular date.
6.29 One benefit of this technique is that it tends to flush out the likely approach of the Court at an early stage and, given the TCC’s aspiration that the trial of each case will take place before the Judge who has managed the case since the first CMC (see paragraph 5.1.5 of the TCC Guide), any such application will provide a useful insight into that particular Judge’s attitude to the claim in question. So, if the Court is satisfied that the complaints about poor presentation or particulars are merited, then it is likely to make noises in this regard in the friendly-ish atmosphere of the first CMC. By contrast, if a defendant is judged to be playing games, or as being overly pedantic, then its requests are likely to be treated with less sympathy. 6.30 Ultimately, it is a matter of balance. The Court has the power to order re-pleading of particular parts of a case if it will lead to inefficiency in the proceedings (see paragraphs 5.1.6 and 5.5.5 of the TCC Guide), and if a defects claim is truly obscure then parties should consider taking advantage of such powers, particularly where a party has tried without success to obtain further information. 6.31 Consideration should also be given to Scott Schedules, but, it is submitted, only on the basis that sensible and useful column headings can be agreed by the parties, and in the absence of any such agreement, it is essential that the Court is involved to adjudicate at the first CMC, given the tendency of such documents to spiral out of control in terms of content and costs if they are not carefully policed. See further at paragraphs 5.6.1 to 5.6.3 of the TCC Guide. 6.32 By contrast, in lower value cases, the Court may consider the pleading will suffice, despite a degree of vagueness, and the defendant will just have to do its best. 6.33 Where defects are manifest, parties should give strong thought to saving costs by agreeing a protocol to try defects by sample. Ultimately, this is a matter which the parties need to consent to, but practical (and, it is submitted, fair) ways to achieve a result might include:
  • trying the highest value items and agreeing a process of pro rata extrapolation across the remainder;
  • picking items at random and again agreeing a process of pro rata extrapolation across the remainder; and
  • grouping defects into categories and trying a particular item or items in that category (again with some form of extrapolation across the remainder).

Instructing appropriate expertise

Appointment of experts

6.34 Expert evidence has been dealt with generally in . In this section, specific issues relating to expert evidence in defects cases are discussed. 6.35 Defects claims have a tendency to draw in a multiplicity of experts, with disciplines seemingly endless and ever more esoteric. That said, in the post-Jackson era, with

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increasing focus on cost-efficient litigation, the Court will expect proper justification at CMC stage before approving the instruction of such personnel. It goes without saying that parties should pay careful attention to which disciplines are in fact required. Sometimes the parties will find that they are not required at all (as was the case, for example, with delay experts in Van Oord UK Ltd v Allseas UK Ltd 10 – a discipline which many commentators consider is not an area of expertise in any event). 6.36 With a little thought, there will frequently be more parsimonious ways to deal with any issues requiring expert input than by individual instruction of multiple experts by each and every party. In the context of a defects claim, those might include:
  • consideration of a jointly instructed expert or experts, particularly where there are multiple defendants who might usefully combine resources on specific issues (such as, for example, the sharing of valuation experts by defendants facing claims for diminution in value in the alternative to the costs of reinstatement);
  • agreeing to dispense with quantum expert evidence and instead to source commercial quotations for particular remedial works;
  • requesting liberty to apply at a later stage for expert evidence in a particular discipline in the event that it turns out to be required, its necessity not being readily apparent at CMC stage when the dispute is still relatively nascent; and
  • appointing an expert who is capable of opining in more than one discipline, particularly where there is an overlap (as may be the case with disputes concerning both geotechnical and structural engineering, for example).
6.37 One factor which is frequently overlooked when it comes to the appointment of experts is the general needs of the Court. Putting the parties’ requirements and wishes aside, Judges will nevertheless often expect to see particular matters dealt with by experts, and to be assisted by the same. For example, in HSM Offshore BV v Aker Offshore Partner Ltd 11 at [170], the Judge commented that the absence of quantity surveying (QS) expert evidence (which had not been requested by either party) was a ‘grievous loss to comprehension and clarity’. In that case, this loss contributed to all of the claimant’s claims failing for (among other things) want of proper substantiation and presentation in accordance with the terms of the contract, which are two matters which any decent QS expert would be expected to address in an expert report. A salutary tale indeed for the claimant in that case, but also a reminder that it should not be seen as impertinent to enquire at the CMC stage as to whether the Court would be helped by the instruction of particular experts.

Investigations

6.38 It is unusual for parties to defects litigation to be on an equal footing when it comes to the extent of any physical investigations. A claimant will almost always have the best knowledge, especially if they are living with the problems on a day-to-day basis. By contrast, some party-appointed experts may not have even visited the building in question, and

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in other instances it may be impossible to do so as the defects no longer exist (whether on account of demolition or prior remediation). 6.39 From the claimant’s perspective, it is obviously better if the defendants’ experts have had an opportunity to physically inspect themselves, and approaches should be made to ensure that this happens at an early stage, ideally pursuant to an agreed protocol. If the defendant then refuses to do so, and an audit trail is available in this regard, then this may well be important at a later date. 6.40 It may be necessary to involve the Court at the CMC stage (or sooner) if one party faces a particularly recalcitrant opponent in this regard. The Court has power to order service of information not reasonably available to another party (see CPR 35.9) and can order inspection of and experiments with property (see, for example, CPR 25.1(1)(c)–(d)). Applications in this regard are not unheard of, particularly in claims where invasive investigation is required, and the asset in question is operational. The TCC will expect parties to have given consideration to the necessity and scope of any testing before the first CMC and at every subsequent pre-trial stage of the action (see paragraph 13.3.4 of the TCC Guide and paragraph 13.3.5, which empowers the TCC to make directions in this regard).

Independence of experts and quality of expert evidence

6.41 While it may be seen to be stating the obvious, the Court will rightly expect experts to act independently at all times, consistent with their overriding duty to the Court. In some cases, however, experts are found wanting in this area, which might be seen as somewhat surprising given the rapid expansion of the expert witness industry and, one would have thought, increased awareness on the part of such experts of their role in modern-day dispute resolution. See, for example, the relatively recent case of Van Oord v Allseas for an example of an expert who lost his way (in that case, quite literally, the gentleman in question leaving Court prior to the conclusion of his testimony, never to return). 6.42 The behaviour of experts in the witness box during a defects claim is obviously difficult to both predict and control, so for these reasons, personal reputations and recommendations do play, and will continue to play, a central role in the appointment of experts. 6.43 That said, it is submitted that experts who continue to play an active operational role in their relevant industry, as opposed to that of the ‘career expert’, make invariably more persuasive witnesses, even though they are likely to require more guidance or even hand-holding through the litigation process. See, again, 125 OBS (Nominees1) v Lend Lease Construction, in which the claimant’s expert (who had not testified previously) found considerable favour with the Court. 6.44 The above gives rise to inevitable questions as to where to find good people. Aside from the aforementioned personal recommendations, and the usual industry bodies, parties should not overlook that the answer may well best lie with the client, who will usually have day-to-day involvement in the relevant practice area or, if not, should have access to a professional team who can perhaps point the lawyers in the correct direction.