The claimant, a development company, issued proceedings for negligence against the defendant, their retained architectural consultants, as a result of water penetration into the rear basement structure of a number of houses in a terrace which the claimant was refurbishing for investment purposes. The defendant issued Part 20 proceedings against the claimant’s contractor on the basis that he had failed to install the damp proofing membrane in accordance with the designs applied by the defendant. At the case management conference, the three parties applied for a trial of two preliminary issues concerning the recoverability of damages. They did so prior to disclosure of documents or assessment by the court of the scope of the duty of care owed to the claimant, in a hope that a commercial settlement could subsequently be negotiated.
The court was asked to decide the following preliminary issues:

1. Whether the claimant was entitled to be compensated by way of interest on funds held in the project longer than they had anticipated because of the delay (a) at the rate of 2% above the London Interbank Offered Rate (LIBOR), or (b) interest rates which reflected the actual cost to the claimant of borrowing the funds that it had invested in the project during the period of delay.

2. Whether the claimant was obliged to give credit for any corresponding benefit which accrued to it as a result of the delay, in particular for the increase in value of the properties which occurred during the period of delay.

Reference

1. The claimant was entitled to be compensated by way of interest for the loss of opportunity to make commercial use of the funds at a reasonable rate of commercial interest that could have been paid or earned on those funds over the period of delay.
2. The sale of the properties was not sufficiently close to the defendant’s involvement, and did not arise out of the defendant’s breach of contract or duty. This would not therefore be taken into account in assessing the claimant’s recoverable damages, whether this would be to the claimant’s or to the defendant’s advantage.

**Full case details
Earls Terrace Properties Limited (Claimant) vs Nilsson Design Limited (Defendant/Part 20 Claimant) and Charter Construction plc (Part 20 Defendant), 20 February 2004, Technology & Construction Court, judgment of His Honour Judge Thornton QC.

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Postscript

The parties in this case had attempted to settle their dispute by mediation but had failed. During the mediation process, however, they had identified the main sticking points between them to a commercial settlement. They came back to the court with these sticking points, and asked the court to decide them as preliminary issues. The judge noted that it was unusual for the court to be asked to decide fact-sensitive questions of law at such an early stage, but directed trial of the preliminary issues at the parties’ joint request nonetheless in furtherance of the overriding objective of saving expense and dealing with the case proportionately and expeditiously. The judge’s conclusions were necessarily tentative, but he accepted in principle that the claimant had a claim for the loss of use of money by analogy with claims for loss of use of chattels, and he denied the defendant credit for the rise in value of the properties during any period of delay for which they were liable. The case is a good illustration of a truly active role for the court in facilitating alternative dispute resolution, which the parties made possible by involving the court to the extent they considered necessary to enable a settlement to be achieved. In this case, millions of pounds were in issue, but in smaller cases, the benefits in terms of proportionality may be much greater if deadlocks can be broken with some well-chosen questions to the court at an early stage.