What’s right is right

There have been a couple of pieces in these pages about the case of Technotrade Ltd vs Larkstore Ltd, in which the Court of Appeal allowed substantial damages to be recovered by a developer that had relied on a site investigation report produced for a second developer.

Briefly, a company known as Starglade commissioned Technotrade to produce a site investigation report in 1998. The contract between them did not prohibit the assignment of the benefit of that agreement to a third party. Starglade sold the site to Larkstore in phases in June 1999 and August 2000. Larkstore then obtained planning permission for the development of a number of two-storey houses. During the works, a landslip occurred that damaged properties on the site. The property owners sued Larkstore, which sued Technotrade. Larkstore’s claim was based on an assignment dated February 2004, the terms of which included the right to sue over breaches by Technotrade in respect of the report.

The significant issue was that the assignment took place after the damage had occurred and a long time after the sale of the property by Starglade. At the time of the damage, Starglade did not own the site and had no loss, and, although Larkstore had a loss when the landslip occurred, it had no contract with Technotrade, since the assignment had not been concluded. So Technotrade argued that as Starglade could not assign to Larkstore more than it had, and it did not have a claim for substantial damages; Larkstore’s recovery should therefore be nominal.

It is fair to say that this is consistent with the advice we generally give to purchasers of sites who want to rely on the benefit of site investigation carried out before completion of the purchase. We always suggest that the assignments of the benefit of investigations should occur contemporaneously with purchase of the site. This is difficult where consent is required under the relevant contracts – the fear has been that the slightest slip up on timing could invalidate the right to rely on the report, requiring a new one to be commissioned at significant expense.

This is the sort of semantic argument that lets the guilty off scot-free and does the legal system’s reputation no favours

Other columnists have reacted to the case by advising consultants to tighten up their procedures (Rachel Barnes, 25 August). But surely, as Dominic Helps suggested, the case is to be welcomed to avoid any repeat of these facts, not just by developers and purchasers as he suggested, but by all of us. Technotrade’s argument – if successful – would have let it escape all potential contractual liability for damage caused by its breach of contract. If Starglade had not sold the site, it could have recovered. If Starglade had made the assignment at the time of sale, Larkstore could have recovered. But because of an accident of timing in relation to the assignment, neither could recover. Surely this is the sort of semantic argument that lets the guilty go scot-free and does the reputation of the legal system no favours?

Even more significant than the decision itself is a comment from Lord Justice Rix who, having reviewed the authorities, noted that “the courts are anxious to see, if possible, that where a real loss has been caused by a real breach of contract, then there should, if at all possible, be a real remedy. In the case of property development, where it is readily contemplated that a party that prepares the development will transfer the fruits of his work to one or more partners or successors, there is a particular need for such solutions”.

This is surely exactly the sort of approach the courts should be taking to these sort of claims. Wrong-doers should not escape liability for breach of contract on a technicality, whatever their lawyers think …