Under the warranty, Hilson Moran guaranteed TWA that it had exercised and would continue to exercise “all proper professional skill and care in relation to the development”. About a week before the warrant was issued, Hilson Moran had written two letters to Speyhawk. One was addressed to “Mr Winter”, confirming that the M&E engineering services’ installations were in a state of practical completion, and that major commissioning works had been completed. It mentioned a schedule of defects to which “acceptance” of the installations was subject.
A further letter, sent at the same time, stated that the other letter was not “strictly correct” because of poor workmanship on the electrical installation, the need to replace the main switchgear buzz bar, and so on.
The architect then issued its certificate of practical completion stating that the works had been practically completed on 20 August. Not surprisingly, TWA, having occupied the building, experienced recurring problems, particularly with the central heating and air-conditioning systems. It issued a writ against both Hilson Moran and the architect, claiming negligence. The judge at first instance agreed with TWA. Hilson Moran appealed. The Court of Appeal also agreed with TWA.
The appeal judge summarised the findings at first instance: “Put shortly, his conclusion was that Hilson Moran had acted thoroughly unprofessionally in writing one letter for their client and another for the world, knowing that the second was untrue and misleading.”
Hilson Moran suggested on appeal that there was no evidence that the architect had seen its letter or relied on it. It also asserted that, although it was known that Speyhawk wanted the conclusion of construction so that it could include the proceeds of the sale within its financial year, which was about to close, there was no evidence that TWA did not also want early possession in order to advance its occupation. The appeal court ignored all of this: “The warranty cannot conceivably be satisfied by conduct by Hilson Moran, at Speyhawk’s insistence, calculated to assist Speyhawk to misrepresent the state of the development to others, particularly the architect and through it TWA. This has more of the flavour of conspiracy than contractual performance.”
If the collateral warranty had contained the common wording to the effect that Hilson Moran was entitled to “raise the equivalent rights in defence of liability as it would have had against the client under the appointment”, then the position might have been different. There can be no doubt at all that Hilson Moran warned Speyhawk that the building was not practically completed but was urged nevertheless by Speyhawk to confirm practical completion to facilitate inclusion of the proceeds of sale in the year-end accounts. In other words, it was not negligent vis-à-vis its client. Speyhawk knew full well what was going on and, certainly, Hilson Moran would have had a defence to a claim by its client.
However, it was obvious that it was the particular way that Hilson Moran behaved that so upset the court, and even with the usual wording, it is not by any means certain that it would not have found a way of holding Hilson Moran responsible to TWA.
The other fascinating aspect of the judgment is quantum and costs and the court’s remarks in relation to both. The damages claimed by TWA were approximately £450 000. The architect settled but Hilson Moran contested every issue. The first instance judgment was given against it in the sum of £50 568 plus interest. In a skeleton argument prepared by Hilson Moran’s QC, he apparently “stressed that the judgment sum represented 11.5% of the plaintiff’s pleaded claim and that ‘the parties have probably incurred in excess of £1m on costs’”.
The Court of Appeal accepted some of Hilson Moran’s argument on one element of the claim and further reduced TWA’s recovery to £12 318, which it calculated to be 2.8% of what was claimed in the amended statement of claim.
As the appeal judge stated: “I express my dismay at the futility of the litigation. Hopefully, the Woolf reforms will ensure that similar cases no longer develop.”
With legal costs after the appeal presumably well in excess of the £1m apparently incurred by April 1999, the real argument was about who should pay them.
It is easy, as always, to blame fat cat lawyers but the truth is that the parties obviously continued the litigation knowing that the costs far outstripped any possible award. Why? Although the Woolf reforms offer the courts more opportunity to bang heads together at an earlier stage, it is not clear that they can prevent an intransigent party pursuing ultimate end if it so chooses. If further litigation is to be avoided, parties must start to take a more pragmatic view.
Ann Minogue is a partner in solicitor CMS Cameron McKenna.