Appeal Court dismisses council’s damages claim against architects over failed social housing development

Lord Carloway
Lord Carloway

A Scottish local authority which raised an action for £12 million in damages over the loss of a social housing development claiming that a firm of architects appointed as lead consultant had “assumed responsibility” for the other contractors’ negligence has had its claim dismissed following an appeal.

The Inner House of the Court of Session upheld a decision of a commercial judge, who ruled that the imposition of liability on the firm for a breach of contract by any of the other contractors would be a “striking departure from ordinary legal principle”.

The Lord President, Lord Carloway, sitting with Lord Menzies and Lord Drummond Young, heard that the pursuers Midlothian Council had raised the action against Bracewell Stirling Architects(first defenders), Raeburn Drilling & Geotechnical Ltd (second defenders) and RPS Planning & Development Ltd (third defenders) in respect of the loss of the development of 64 social homes at a site in Gorebridge, Midlothian, which were rendered uninhabitable as a result of the ingress of carbon dioxide from disused mine workings.

Framework Agreement

The pursuers maintained that the ground investigations, which were carried out on their instructions by the second defenders in about 2005, had revealed concentrations of the gas which ought to have prompted a recommendation to install a ground gas defence system.

The pursuers sued the second defenders for failing to make that recommendation and sued the third defenders, who had been appointed by them in 2004 to “peer review” the second defenders’ reports.

The appeal concerned only the pursuers’ case against the first defenders, who had been appointed as lead consultant in terms of a Framework Agreement in 2005, on the basis that, according to the pursuers’ interpretation of the contract, the first defenders had assumed responsibility for the work, including the ground investigations carried out by the second defenders and the review conducted by the third defenders.

The commercial judge held that the imposition of liability on the first defenders for a breach of contract by any of the other consultants or contractors, regardless of their contractual relationship with the first defenders and even if they were appointed before the first defenders had become involved, would be a “striking departure from ordinary legal principle”.

Clause 5.1 was concerned with conferring rights on the pursuers in respect of work carried out by them, or on their instructions. On that interpretation of clause 5.1, the first defenders “assumed no responsibility” for site investigations carried out by anyone other than themselves or their sub-consultants or sub-contractors.

This interpretation avoided the anomaly whereby, on the pursuers’ preferred construction, the first defenders would be “strictly liable” for breaches of contract by third parties, while only being required to exercise “reasonable skill and care” in the provision of their own services by virtue of clause 7.

Assumed responsibility

However, the pursuers appealed against the commercial judge’s decision to dismiss the action against the first defenders, arguing that the “plain and unambiguous language” of the Framework Agreement and the Build Specific Agreement imposed liability on the first defenders for the acts and omissions of others in connection with the site investigations.

It was submitted that under clause 5.1, it was the first defenders’ responsibility to identify the site investigation works and surveys and that it was “implicit” from the wording of other clauses that the agreement imposed obligations on the first defenders which they would not otherwise have had at common law.

The first defenders had agreed, in terms of clause 5.1, to be “wholly responsible” for those matters, “irrespective of any cub-consultants, contractor(s) or others appointed”. That phrase imposed liability not just for the contractors appointed by them, but also for others appointed by the pursuers.

It was also argued that even if the contractual language was not clear and unambiguous, there was no material before the commercial judge to support his assertion that entering into such an onerous obligation would not accord with usual commercial practice.

There was “nothing uncommercial” about a contractual scheme which imposed “primary liability” on the lead consultant, particularly when the lead consultant had identified the site investigation works for which they were to be wholly responsible.

The appeal judges observed that the legal principles to be applied in relation to the construction and interpretation of the agreements were not in dispute. The court required to ascertain the “intention of the parties” by determining what a reasonable person, having the background knowledge of the parties, would have understood the language selected by them to have meant (Arnold v Britton  AC 1619).

Business common sense

Having considered the terms of the agreement, the court agreed with the commercial judge’s assessment of the meaning of clause 5.1.

Delivering the opinion of the court  the Lord President said: “The structure of the agreement is one which appoints the first defenders as the lead consultant (clause 3.8). As such, they are made responsible for the overall progress of the particular ‘build’; in this case the Gorebridge site. They carry the full responsibility for the ‘whole design’ of the development (3.15A).

“However, that obligation is intended to embody the architect’s usual responsibilities for overall co-ordination of the design works. It is not to be construed as an acceptance of liability for anything that might ultimately go wrong with the design, no matter what its cause.

“Clause 5.1 is prospective in outlook; it is referring to work to be carried out in the future in respect of a particular build. It renders the consultant ‘wholly responsible’ for the site investigation works and surveys referred to in any build… It is referring to work sub-contracted by the first defenders and thus over which they would have had some measure of control and contractual rights against the sub-contractor.

“For these reasons, applying the test in Arnold v Britton (supra) the parties’ intention, derived from the language used in its context, was not to impose any responsibility on the first defenders for a breach of contract, including negligent actings, by the second and third defenders. In respect of the work of these defenders, the first defenders required only to use reasonable skill and care.”

“Even if that construction were not the only possible one,” Lord Carloway added, “it is that which was consistent with business common sense. Although it may be open to a commercial enterprise to assume responsibility for the actings of another, with whom they have had no contractual relationship, whose specialist expertise would be outwith their own skill base and whose appointment preceded their own, it would be an unusual step and one carrying very considerable risks.”

© Scottish Legal News Ltd 2020

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