Two weeks ago we ran the story of the consultant that got caught up in a legal wrangle over a landslip. The case then proceeded to the Court of Appeal, where it attempted an impossible escape …

In her most recent piece (25 August) Rachel Barnes discussed the case of Offer-Hoare vs Larkstone, which illustrates the risks run by consultants and others who produce reports or other written advice in the context of property development transactions.

Rachel explained the factual background to this matter. In summary, a consultant called Technotrade produced a soil investigation report for the owner of a property in 1998. The property was later sold to a developer called Larkstone and it proceeded to redevelop the site. Larkstone obtained a copy of the report, which was used for planning purposes. During construction work on the site, a landslip occurred exposing Larkstone to a claim from the owners of neighbouring properties and the cost of the necessary stabilisation work.

Larkstone tried to pass these costs on to Technotrade by bringing a claim based on a formal assignment of the original owner’s contractual rights in respect of the report. A formal assignment can be made simply by writing a letter to the other contracting party giving them notice that the assignment has taken place. This led to the case in the Technology and Construction Court, and later to a case in the Court of Appeal.

Whereas the TCC case required the court to examine the contractual effect of the assignment and the possibility of Larkstone bringing a claim for breach of common law duty, the case before the Court of Appeal was limited to the assignment issue.

The crux of Technotrade’s defence was its reliance on a principle derived from previous case law that, where one contracting party (party A) assigns the rights it has under a contract with party B to party C, there is an established rule that party C cannot recover more by way of damages from party B than party A would have been able to recover had the assignment not taken place.

Applying that test to the circumstance of this case, Technotrade argued that since by the time the assignment took place party A had sold the property at full market value to party C, and given the fact that the substantial damage occurred after the property had been sold to party C but before the assignment to party C, party A had clearly not suffered a loss. It must follow therefore that party C could not recover damages.

Technotrade’s case proceeded on the assumption that what had been assigned to Larkstone was ‘a loss’

Lord Justice Mummery, in delivering the principal judgment of the Court of Appeal, rejected Technotrade’s approach as a misapplication of the principle upon which Larkstone’s claim was based.

The purpose of that principle, the judge explained, was to protect a party from being prejudiced as a result of an assignment by, for instance, exposing the other party to a greater liability than had the assignment not taken place. What Technotrade was attempting, in the judge’s words, was “by a legal conjuring trick worthy of Houdini” to use the fact of the assignment as a means of driving a perfectly good claim into a legal “black hole”.

Crucially, Technotrade’s case proceeded on the assumption that what had been assigned to Larkstone was “a loss”, whereas what had in fact been transferred was a “cause of action” or the right to recover damages in respect of relevant losses whenever they occur. On that basis, the Court of Appeal unanimously rejected Technotrade’s appeal.

This is clearly an important decision that casts further helpful light upon how the complex principles surrounding assignment should be applied. No doubt, the outcome will be welcomed by developers and others purchasing interests in the context of property development transactions where the need for clear and flexible remedies is most keenly felt.

The lesson for consultants is also clear: they should write into their reports a provision that makes their assignment to a third party dependent upon prior consent being obtained.