Multi-party problems

It is common for claims regarding construction defects to evolve in multi-party proceedings where the various defendants are seeking to pass the potential liability down the chain. If you are the claimant in such a claim and it is clear that there is a defect (even if it is not clear who is ultimately responsibleis there a way to avoid having to incur the time and costs of a full trial before getting your money? A recent Court of Appeal decision suggests that often there will be no easy way out.

The Honourable Edward Illiffe and Mrs Teleri Illiffe engaged Feltham Construction Limited as the main contractor for the construction of a luxurious timber house in Poole Harbour.

One aspect of the works involved the fitting of a log burning stove. The design and installation of the mechanical system for the stove was subcontracted by Feltham to Affleck Mechanical Services Limited, who had already undertaken most of the design work on behalf of the Illiffes. Parts of these works were further subcontracted out by Affleck.

Shortly before the project completed, an extensive fire in the roof of the house caused an estimated £3.5m worth of damage to the property.

The Illiffes claimed against Feltham for the losses suffered. They first tried an adjudication in which they were unsuccessful. Subsequently, they commenced court proceedings. This led to an application for summary judgment in which they were awarded £3m on account. The Technology and Construction Court judge held that all of the possible causes of the fire arose from the defective installation of the flue and therefore Feltham must be liable to the Illiffes for the losses suffered as a result of the fire.

Feltham was not happy. It was concerned that, depending upon how the evidence turned out in the main trial, the end result could be that they recovered nothing in the proceedings down the line but remained under a substantial liability to the Illiffes.

They therefore appealed on the following three grounds:

• The judge erred in holding that defective installation was the only possible cause of the fire
• The judge erred in holding that the Illiffes and Feltham had entered into a contract for the execution of the relevant works. Alternatively, he erred in holding that that contract included a design obligation
• It is unjust in multi-party proceedings to enter summary judgment before all parties have pleaded out their cases.

The Court of Appeal found for Feltham. The court held that it was not sufficiently clear to establish, for summary judgment purposes, that Feltham’s contract included responsibility for the design of the heating system. It was at least arguable that the design responsibility of Feltham was limited to only part of the mechanical works. The fact that Affleck had carried out most of the design work, which was reflected in the fee arrangement, supported this conclusion.

Further, the Court of Appeal had concerns about the cause of the fire. It held that one or more design and/or workmanship defects could have caused the fire and it was not clear as to which of the alleged defects was ultimately responsible.

Finally, the Court of Appeal found that as there was going to be a full trial anyway between the various defendants, summary judgment was not justified because the costs saved would be much less compared to normal summary judgment circumstances. The Illiffes would have to participate in the trial anyway to prove their quantum.

Defects claims can often be complicated with numerous potential defendants down the contractual chain.

This case shows the difficulties that claimants can face in recovering even when it is clear that someone else should ultimately be responsible for their losses. They may have to wait while the other parties fight it out between themselves and this can significantly increase their costs and the time they have to wait to recover their losses.

Steven Carey is partner in the real estate, construction and engineering team at Charles Russell Speechlys