Legalese: Linklaters Business Services v Sir Robert McAlpine
A landmark case on corroded pipes in a solicitors’ office is a cautionary tale for architects, writes Mark Klimt
It is perhaps fitting that a case that featured prominently in the High Court for much of 2010 concerned the refurbishment of a solicitors’ office. The case did not create new law, but it does provide a useful guide to issues relevant to architects’ liability, such as the importance of properly drafted subcontracts, identifying where a duty of care is owed and discussing what type of loss is recoverable in tort. The judgement also deals with the reasonableness of a decision to undertake replacement rather than patchwork repair.
Linklaters Business Services v Sir Robert McAlpine and the associated case of How v Southern involved corroded pipes in the air-conditioning system of the offices of Linklaters, which came to light some 10 years after major refurbishment in 1995. The main contractor, McAlpine, subcontracted the M&E works to How Engineering Services who in turn subcontracted the installation of the pipes to Southern Installations (Medway).
As tenants, Linklaters engaged a development company for the refurbishment, but McAlpines and How had signed collateral warranties with them. Once a leak from one of the chilled auto-riser pipes revealed substantial corrosion throughout the system, Linklaters’ claim for a contractual indemnity was relatively straightforward, resulting in judgement against McAlpines and How in the sum of £2.8 million. It is, though, in the subcontractor remedies that interesting lessons can be learned.
Whether a party brings an action in contract or in tort will depend on such things as whether a contract in fact exists, how contractual obligations compare to tortious remedies, whether the loss claimed amounts to ‘pure economic loss’ (rendering it irrecoverable according to the rules in tort). It would also depend on whether the limitation period in contract, but not in tort, has expired.
Previous generations of litigators have had to grapple with arguments that where a contract exists between two parties, there is not a concurrent duty of care in tort. But when How pursued Southern for damages for breach of duty of care, it was decided that such a duty did exist in parallel with the contractual duties that Southern had signed up to. But it was also decided that Southern, as sub-subcontractor, owed a duty of care all the way up the line to Linklaters as tenants, on the grounds that Linklaters had a ‘sufficient interest’ in the property that had been damaged.
The next consideration was whether Southern had in fact breached that duty of care, and it was held that it had not. There had also been legal argument as to whether a claim in tort against Southern would be ruled out because it amounted to pure economic loss. Much has been written and decided in the courts as to what constitutes pure economic loss, and the rule that has emerged is that damage to ‘the thing itself’ is classified as economic loss and irrecoverable, whereas damage to ‘other property’ would be recoverable.
For example, where a contractor is responsible for the overall construction of a building, that building will tend to be regarded as a composite single structure. However, attempts have been made to characterise individual subcontractor duties as separate, divisible components (complex structure theory), so that damage caused by a breach of that subcontractor duty amounts to damage to other property. This was not accepted in the Linklaters case, so tortious liability did not attach and there was no contractual liability because Southern had not signed a collateral warranty.
As for the remedial scheme for which Linklaters was reimbursed, the High Court reaffirmed the principle that it is reasonable for a claimant to be compensated where it has taken appropriate and independent expert advice and acted upon it. In this case, therefore, as comprehensive replacement of the pipework had been recommended, that was the measure of damage.
The case is therefore mixed news for construction team members. On the one hand, it curtails arguments of betterment and ‘over the top’ remedial schemes. On the other, it protects subcontractors at the end of the line from having liability dumped upon them. Aside from the helpful excursion into duties of care owed and recoverable losses, the cases are significant from an architect’s point of view in that they once again demonstrate the importance of having a proper and unified set of contractual documents, including collateral warranties from all parties. That way, a client (whether a developer or a design and build contractor) can use the contracts it enters into to control the demarcation of obligations and the recoverable consequences of these not being met. Very often a client will look to its architect to make sure this is done properly.
- Mark Klimt is a partner at Fishburns and specialises in professional indemnity insurance, advising architects and engineers, and defending them against claims. He is legal advisor to the RIBA and operates the RIBA Legal Helpline.