Balfour Beatty faces a claim from Orchard Plaza Management in respect of an office block conversion project, and alleged non-compliant cladding.
Orchard were issued an improvement notice by Bournemouth Council to remediate the cladding issues, and it is now seeking the costs of this from Balfour.
The conversion project was undertaken in 2007-2008 by Mansell Construction Services, now Balfour Beatty. Balfour issued the funder of the project a collateral warranty, which passed to Orchard when they acquired the development.
Part of Balfour’s defence to Orchard’s claim was that the remediation losses were not in the contemplation of the parties to the warranty at the time. Balfour contended that a loss facing a funder would be reduction in the value of its security, and not repair costs.
The remoteness defence was referred to the Technology & Construction Court (TCC) for a preliminary decision. The TCC struck out the defence on a number of points. Firstly, a repair loss could conceivably have been suffered by a lender (and particularly bearing in mind “step in” provisions). Secondly, the warranty was assignable, and therefore likely types of losses which could be suffered by an assignee of a warranty would be within the contemplation of the parties. Finally, the warranty contained a clause at its 12.3 which stated:
“The Contractor agrees with the Beneficiary not to contend or argue that any person to whom the benefit of this Deed is assigned shall be precluded or prevented from recovering under this Deed any loss or damage resulting from any breach of this Deed by the Contractor by reason of the fact that such person is an assignee only or otherwise is not the original beneficiary or because the loss or damage suffered has been suffered by such person only and not by the original beneficiary, or because such loss is different to that which would have been suffered by the original beneficiary.”
The TCC concluded that clause 12.3 prevented Balfour from asserting remoteness of Orchard’s loss.
The case is therefore to go forward to trial.
James Burgoyne of Brunel Professions commented: “The court’s decisions in this case followed the working interpretations of those dealing with construction professionals’ appointments and collateral warranties on a day-to-day basis, and in this sense, they were not a surprise. However, the case is useful in affirming these interpretations and especially in the context of cladding claims. The underlying facts of this particular case are not unusual, and the decision is useful in understanding how these cases will be approached by the courts.”
A report about the case has been published by FieldFisher.