Quantum issues

In theory it all sounds very simple. A building owner or occupier affected by a defect which comes to light after completion, assuming that he has contractual arrangements in place, will be able to sue the guilty party and recover the amount of damages necessary to place him in the position he would have been had the work been done properly.

Good news, because building defects can cause major disruption to business continuity. But does that mean that he can recover whatever it costs to rectify the defect? Well, yes, so long as he acted entirely reasonably and complied with his duty to mitigate his losses. But that is where the real problems lie.

This is vividly illustrated by the litigation concerning defects that came to light long after City solicitors firm, Linklaters, had moved into their swanky new offices in London’s Silk Street. I have already written about some of the liability issues involved in that litigation. If anything, the quantum issues were more problematic. Mr Justice Akenhead’s detailed consideration of this area of law, where there is plenty of authority about the principles to be applied, but not much that casts light on how they work in practice, is valuable.

One of the first things they did was to bring in a building services expert to advise. The position was not straightforward

Linklaters is a major international legal practice with over 2,000 lawyers turning over more than £1bn annually. It discovered widespread and severe corrosion affecting the chilled water pipework that served the air conditioning system within the two linked buildings of its flagship offices. This could have resulted in much of the office space becoming uninhabitable, disrupting the firm’s power and data systems. One can therefore understand why the management found itself under considerable pressure to act decisively and quickly.

One of the first things it did was to bring in a building services expert to advise. The position was not straightforward. As is so often the case, it was not easy to ascertain the full extent of the problem, and the remedial options extended from patching up the existing pipework in situ, to wholesale replacement. The expert’s advice was mercifully clear. The sensible option in all the circumstances was to go for replacement and that is what the management decided to do - at a cost of about £2.6m.

When Linklaters commenced litigation to recover those costs from the guilty parties, the quantum side of the claim was met with the predictable refrain that the firm had not acted reasonably in deciding to replace the pipework as a whole and that it had failed to mitigate its losses. Interestingly, the difference between the cost of replacing the pipework and the cost of patching up the existing pipework was actually only £200,000.

In considering the recoverability of the remedial costs, the judge extracted from the case law the basic requirement that it turned on whether the claimant had acted reasonably. In his view, although advice given by an expert could be a “material factor”, it would not be conclusive.

In deciding which of various competing remedial options to go for, and where it is difficult to carry out full investigations, there is a place for assumptions, such as the extent of the damage caused by the defect, where it is physically impossible to investigate fully. Crucially, the judge acknowledged that none of this is an exact science. It followed that a cautious approach, which could subsequently be shown to have been rather more expensive or extensive than was strictly necessary, was justifiable and should not result in a reduced recovery.
A particularly relevant factor in this case was that Linklaters was subject to the onerous terms of a full repairing lease, under which they would potentially be liable for any continuing damage to the pipework.

Finally, in allowing recovery of the damages in full, the judge felt that this situation was easily distinguishable from the Court of Appeal’s decision in Skandia vs Thames Water, which involved recoverability of remedial costs incurred following a flood caused by the defendant’s negligence. The Court of Appeal in that case disallowed the costs that the claimant had incurred in replacing a waterproofing system on the advice of its expert. It subsequently transpired that this had nothing to do with the incident in question. Conversely, in Linklaters’ case, all the costs in issue had doubtless flowed from the defendants’ actions and should therefore be recoverable.

Dominic Helps is a consultant for construction law specialist Corbett & Co