H.H. Judge Richard Seymour Q. C. :
The Nordic Group
- The Claimant in this action, Nordic Holdings Ltd. ("Nordic"), is the parent company of a group of companies. The other companies in the group which are relevant for the purposes of this action are, respectively, Nordic Forest Terminals Ltd. ("NFT") and Nordic Recycling Ltd. ("Recycling"). All of these companies were incorporated in England under the provisions of Companies Act 1985 ("the 1985 Act").
- Various returns under the 1985 Act and Financial Statements relating to Nordic, NFT and Recycling were put in evidence. Although the Certificate of Incorporation of Nordic was not put in evidence, there were introduced in evidence Group Financial Statements for the period 27 October 1995 to 31 December 1996. The directors of Nordic as listed in those Statements were Mr. Patrik von Hacht, Mr. Colin Price, Mr. Bruno Boesch and Mr. Lennart Brunnberg. The Report of the Directors in those Statements included:-
"INCORPORATION AND CHANGE OF NAME
The company was incorporated on 27th October 1995 as Super Trooper Limited. On 16th February 1996 the company passed a special resolution changing its name to Nordic Holdings Limited.
"PRINCIPAL ACTIVITY
The principal activities of the Group in the period under review was [sic] that of port operators and waste paper balers.
"REVIEW OF BUSINESS
On the 21st December 1995 the company acquired from its holding company the entire ordinary share capital of Nordic Recycling Limited and Nordic Management Limited as part of a group reconstruction…"
The Group Financial Statements recorded that Mr. von Hacht and Mr. Price had been appointed directors on 8 December 1995, while Mr. Boesch and Mr. Brunnberg had been appointed on 28 January 1997.
- Notes to the Group Financial Statements for the period 27 October 1995 to 31 December 1996 showed that Nordic paid £700,000 for the issued share capital of Recycling and Nordic Management Ltd. and held 100% of the issued shares in those companies. The notes also showed that Nordic held 100% of the issued shares in NFT.
- Financial statements in relation to NFT for the period 11 October 1995 to 31 December 1996 included a Report of Directors which explained that:-
"The company was incorporated on 11th October 1995 and commenced trading on 6th January 1996. The company passed a special resolution on 16th February 1996 changing its name from Astral Ram Limited to Nordic Forest Terminals Limited."
- The Group Financial Statements of Nordic for the period 27 October 1995 to 31 December 1996 included a note that:-
"ULTIMATE PARENT GROUP
The Group's ultimate parent company is Shipventures Inc., a company incorporated in the British Virgin Islands. "
According to the evidence of Mr. Elling Ellingsen, who gave evidence before me, Shipventures Inc. is a company the issued shares in which are owned by a trust the beneficiaries of which are his children. Shipventures Inc. was, until about the end of 1995, called Shiplink Finance Inc. Mr. Ellingsen was anxious that I should understand that he himself had no beneficial interest in the trust. He is not, and never has been, a director of Nordic or NFT. His role, he said, was that of an adviser. I was told nothing about the trust which owns the shares in Shipventures Inc. beyond who the beneficiaries are, and that there are both trustees and a protector. Mr. Ellingsen told me that he is not one of the trustees. He said that the protector is Mr. Boesch. From the fact that the trust has both trustees and a protector it seems that the governing law of the trust is that of some territory outside England and Wales.
- Recycling is registered as company number 02963790, as can be seen from Abbreviated Financial Statements relating to Recycling for the period 25 August 1994 to 31 December 1995 which were put in evidence. From an Annual Return concerning company number 02963790 for the period to 25 August 1995 to which my attention was drawn, it appears that Recycling was, until about the end of 1995, called Ship-link Recycling Ltd., and that it had three directors, Mr. von Hacht, Mr. Ellingsen and a company called Trumpwise Ltd. Of 300,002 issued shares in Ship-link Recycling Ltd. as at the date of the return, 300,000 were said to be held by Shiplink Finance Inc., and one each by Trumpwise Ltd. and a company called Easy Circuit Ltd. From a Certificate of Incorporation on Change of Name dated 8 January 1996 which was put in evidence it appears that Ship-link Recycling Ltd. changed its name to EE Recycling Ltd. at the beginning of 1996. A further Certificate of Incorporation on Change of Name dated 19 January 1996 recorded the change of the name of EE Recycling Ltd to Nordic Recycling Ltd. Following the changes in the name of Ship-link Recycling Ltd. Mr. Ellingsen and Trumpwise Ltd. ceased to be directors and Mr. Price became one.
- While the precise details are somewhat obscure, although Mr. Ellingsen gave some account of them in his evidence, the Nordic Group appears to be the successor in a number of respects to a group of companies which might be termed the Shiplink Group. As I have already remarked, Shipventures Inc., the company the shares in which, according to Mr. Ellingsen, are held by trustees for his children, was previously called Shiplink Finance Inc. There were put in evidence the Group Financial Statements of a company called Ship-link (UK) Ltd. for the year ended 31 December 1994. Those Financial Statements included, in the Report of Directors:-
"Change of Parent Undertaking
On 6th July 1994 EMEA Shipping AB sold all of its shareholdings in Ship-Link (UK) Limited to Ship-Link Finance Limited."
In the Report of Directors Mr. Ellingsen was named as the Chairman of Ship-link (UK) Ltd.. Listed in the notes to the Financial Statements as a wholly-owned subsidiary of Ship-link (UK) Ltd. was a company called Ship-link Terminals Ltd. ("Terminals").
- The Annual Return of Terminals under the 1985 Act for the period ended 31 March 1995 was put in evidence. In the Return Mr. Ellingsen and Mr. von Hacht were listed as the only directors. The 2,788,500 issued shares in Terminals were said to be held by Ship-link (UK) Ltd. The Financial Statements of Terminals for the year ended 31 December 1994 were put before me. In the Report of Directors in those Financial Statements it was recorded that Mr. Ellingsen and Mr. von Hacht were appointed directors of Terminals on 5 July 1994. The principal activity of Terminals was described in the Report of Directors as "port operators and wharfingers". From the Financial Statements it appears that Terminals traded profitably in the year ended 31 December 1994, making some £629,000, but that accumulated deficits meant that there was a deficit carried forward at the year end of £2,527,000. Shareholders' funds amounted to only £262,000
- The Abbreviated Financial Statements of Recycling for the period 25 August 1994 to 31 December 1995 showed its net current assets as at 31 December 1995 to be £418,705 and shareholders' funds to amount to £435,380, including a profit of £135,378. Thereafter the picture presented by the financial statements of Recycling, as amplified by information derived from notes to the consolidated Group Financial Statements of Nordic because until the Financial Statements for the year ended 31 December 1998 the Financial Statements were in abbreviated form, is of initial losses, £249,179 in 1996 and £9,191 in 1997 followed by profits before tax of £345,627 in 1998 and £872,738 in 1999. Shareholders' funds increased from £216,121 in 1996 to £405,357 in 1998, after a slight fall in 1997 to £211,930. In 1999 the value of shareholders' funds increased substantially to £1,042,579. Throughout the period 1996 to 1999, however, there was an excess of current liabilities over current assets, the net current liabilities being £1,640,046 in 1996, £1,401,876 in 1997, £952,928 in 1998 and £107,701 in 1999. Once full Financial Statements were prepared a Report of Directors was included. That recorded the principal activity of Recycling as "Waste paper collection and baling".
- The Financial Statements prepared on behalf of NFT which were put in evidence were all in full form. Each included a Report of Directors. In all such reports the principal activity of NFT was said to be "Port Operator". NFT showed also a pattern of broadly rising profits before tax over the period from its incorporation until the end of 1999, which is that to which the available Financial Statements relate. From incorporation to 31 December 1996 the profit made was £29,150. That increased to £304,282 in 1997, and to £750,132 in 1998, but fell back to £617,107 in 1999. Turnover increased from £2,806,225 in the first period of trading to £3,734,307 in 1997, then to £4,175,650 in 1998 before declining to £3,696,390 in 1999. The value of shareholders' funds, however, steadily increased, from £313,400 as at 31 December 1996, to £520,542 in 1997, £1,026,262 in 1998 and £1,451,862 in 1999. For the three years for which figures were put before me, 1996, 1997 and 1998, current liabilities exceeded current assets by amounts of over £2,000,000.
- Nordic itself had Abbreviated Financial Statements prepared for the period 27 October 1995 to 31 December 1996, but full Financial Statements thereafter. In the Reports of Directors included in the full Financial Statements the principal activity of Nordic was described as "Management company". Nordic seems to have derived its entire turnover from providing services to its subsidiary companies. That turnover was £475,000 in the period ended 31 December 1996, £775,000 the following year, and £740,000 in each of the succeeding two years. The profits before tax were initially modest, £36,112 in the first period, £35,954 in 1997 and £64,637 in 1998. However, in 1999 the profit before tax was £225,017. Net current assets were £3,026,248 as at 31 December 1996, £403,723 as at 31 December 1997, £1,176,539 as at 31 December 1998 and £1,029,542 as at 31 December 1999. The value of shareholders' funds increased steadily, if undramatically, from £1,036,112 as at 31 December 1996 to £1,197,282 as at 31 December 1999.
- A consideration of the consolidated Group Financial Statements shows that the principal operating companies within the Nordic Group have, since about December 1995, been NFT and Recycling. Group turnover was £6,071,364 in the period 27 October 1995 to 31 December 1996, £7,896,039 in 1997, £7,627,178 in 1998 and £6,916,439 in 1999. In the first of those periods a loss of £208,581 was made. Thereafter the annual profit before tax was £352,818 in 1997, £1,254,641 in 1998 and £1,498,709 in 1999. The value of shareholders' funds increased from £811,112 as at 31 December 1996 to £1,033,546 as at 31 December 1997, £1,825,930 as at 31 December 1998 and to £2,877,014 as at 31 December 1999. Throughout the period under consideration there was an excess of current liabilities over current assets. The figures fluctuated widely. The highest was £3,406,642 as at 31 December 1997. The lowest was £661,447 as at 31 December 1996.
The Dock
- The registered office of each of Nordic, NFT and Recycling has at all times since about December 1995 been at Berth 6, Basin 3, Chatham Dockyard, Gillingham, Kent. I shall call those premises in this judgment "the Dock". By an underlease ("the Underlease") dated 7 December 1995 and made between (1) Medway (Chatham) Dock Company Ltd. ("the Landlord") and (2) Recycling the Landlord demised the Dock to Recycling for a term of thirty years from 7 December 1995 at an initial rent of £121,700 per annum. At the time of the demise there stood upon the Dock a building used as a warehouse to which I shall refer in this judgment as "the Original Warehouse". The Original Warehouse still stands, but it has been extended twice since the grant of the Underlease. I have had the benefit of a view of the Dock and I have seen the Original Warehouse. The floor of the Original Warehouse consists of concrete block paviors.
- By a Transfer ("the Transfer") dated 21 October 1997 and made between (1) Recycling and (2) NFT Recycling assigned to NFT the residue of the term created by the Underlease. So far as the evidence put before me goes, the position is that the residue of the term created by the Underlease remains vested in NFT.
Works at the Dock
- It seems that in about April 1994 consideration was being given to the possibility of constructing an extension to the Original Warehouse. The evidence was not clear as to the nature of the interest which Terminals held in the Dock at that time, but there was put before me a report entitled "Report on Ground Investigation at Chatham Dockyard for Shiplink Terminals Limited" prepared by Contest Melbourne Weeks Ltd. ("the CMW Report"). At paragraph 1.2 of the CMW Report appeared the following:-
"It is proposed to extend the existing warehouse facilities near No. 3 Basin at the Chatham Dockyard at Gillingham. A ground investigation was requested by the Client to provide information on the subsoil conditions for the design and construction of foundations for the proposed scheme."
The CMW Report ran to some eleven pages. Section 5 was entitled "Discussion and Recommendations". At paragraph 5.1.4 it was stated that:-
"The Client requested advice and recommendations with regard to foundations and the use of ground bearing floor slabs and likely settlements."
Section 5.3 was entitled "Floor Construction". Within that part of the CMW Report was included the following:-
"5.3.1 The investigation has established that poor ground conditions (i.e. loose Fill and Alluvium) prevail on site. Any floor slabs founded on these soils would be expected to suffer significant total and differential settlements. Indeed it is understood that ground bearing slabs elsewhere on the site have undergone up to 300mm of settlement. It would therefore be normal engineering practice to construct a suspended floor slab in such conditions if it is required to effectively eliminate the risk of subsequent settlement problems. This would entail the use of a piled slab, with piles taken down to bear within the River Gravels or Upper Chalk, as discussed in Section 5.2
"5.3.2 The Client requested that an estimate of possible settlements beneath a ground bearing floor slab also be made; a "global" loading of about 35 kN/m2 has been indicated. Calculation based on the oedometer test results and assuming a slab width of 15m or greater, suggest that long term primary consolidation settlement within the Alluvium might be about 250mm. Under such settlement levels, provision would need to be made for periodic relevelling and resurfacing of the floor. "
- It appears that the boreholes made as part of the ground investigation by Contest Melbourne Weeks Ltd. were not actually on the site of the Dock, but adjacent to it on other land occupied by Terminals. The proposed extension to the Original Warehouse was not constructed in 1994. Mr. Ellingsen told me in evidence that the CMW Report was commissioned on behalf of Terminals by a Mr. Tony Spray. Mr. Ellingsen described Mr. Spray as a relatively junior employee of Terminals, a maintenance manager.
- The possibility of proceeding with the construction of an extension to the Original Warehouse seems to have resurfaced in about July 1995. There were put in evidence a number of minutes of meetings made by representatives of a company called Industrial Roofing Contracts (Southampton) Ltd. ("IRC"). The principal taker of minutes was Mr. Julian Billing, a Senior Contracts Manager employed by IRC. Mr. Billing gave evidence before me. He said, and I find, that insofar as he took the minutes – and he may have taken all of them – he believed them to be an accurate record of what was discussed. Certainly none of those who gave evidence before me who was recorded as attending any of the meetings of which IRC minutes were put before me suggested that what was minuted was inaccurate. I therefore find that the minutes give an accurate account of the discussions which they purport to record.
- IRC is now in receivership, but it has been succeeded by another company, Industrial Roofing & Cladding (Southern) Ltd. The Managing Director of IRC was Mr. Les Holbrook. Mr. Holbrook is also the Managing Director of Industrial Roofing & Cladding (Southern) Ltd. Mr. Holbrook gave evidence at the trial. He told me that, for personal reasons, he also uses the surname Bryant. That name appears on some of the documents which were put in evidence. Mr. Billing and Mr. Holbrook told me that the business of IRC was that of roofing contractors.
- The earliest set of minutes taken by representatives of IRC which were put in evidence related to a meeting held on 24 July 1995. Those who attended the meeting were Mr. Spray, recorded as attending on behalf of "Shiplink", Mr. Holbrook, Mr. Billing and a Mr. Robert Tutton, who were all described as representing IRC, although Mr. Tutton was in fact an architect in private practice as such. The form in which those attending the meeting were described in the minutes suggests that the minutes were intended to be circulated to those attending the meeting and that IRC wished to create the impression that Mr. Tutton was an employee of IRC. The minutes included:-
"RT [ie Mr. Tutton] raised the question of foundations generally and TS [ie Mr. Spray] said that in the past all bases had been piled because of the ground contamination, water table and poor load bearing properties.
"Slabs are normally cast independently of the bases and allowed to subside levels being made back up with fill and block paving…
"As far as floor loadings generally are concerned TS considered approximately 9 tonne/m2 would be required. "
- According to the minutes produced in evidence, a further meeting took place on 25 July 1995 between Mr. Ellingsen, Mr. Holbrook and Mr. Billing. The minutes indicate that Mr. Ellingsen took a full interest in the details of the proposed extension to the Original Warehouse, interesting himself in structural issues to the extent that, according to the minutes:-
" E.E. pointed out that a very heavy structure runs along both flank walls of Building 54 to carry Gantry Cranes and he would expect the extension to the rear of 54 to be supported off the existing steel."
- Minutes put in evidence indicate that a meeting was held on 1 August 1995 attended by Mr. Ellingsen, Mr. von Hacht, Mr. Spray, Mr. Holbrook, Mr. Billing and Mr. Tutton. The minutes included:-
"E.E. [ie Mr. Ellingsen] asked how quickly could he have "Budget Prices". L.H. [ie Mr. Holbrook] confirmed middle of week commencing 7 August.
Prices to exclude:
a) Electrics
b) Flooring/Paving
c) Drainage
Price to include:
i) Foundation costs based on 8m deep piles
IRC to engage Engineer to look at foundations and ring beam which would be independent of the floor slab existing or new."
- Mr. Tutton wrote a letter dated 11 August 1995 to IRC, marked for the attention of "Mr. L Bryant", that is, Mr. Holbrook, which was put in evidence. The letter referred to a consulting engineer approached by Mr. Tutton and went on:-
"We enclose copies of his letter detailing approximate costings for the piling, pile caps and concrete ring beam. These costings are based on the soil report received from Messrs. Ship-Link Recycling Limited and our preliminary sketch drawings. "
It appears that the soil report referred to was the CMW Report, as it has not been suggested that any other ground investigation report had been prepared prior to the date of Mr. Tutton's letter.
- As the process of consideration by Mr. Tutton of the design of a possible extension to the Original Warehouse continued it appears that he consulted a firm of engineers. Minutes of a meeting held on 1 September 1995 attended by Mr. Holbrook, Mr. Billing and Mr. Tutton put in evidence included:-
"Before progress can be made on design of foundations etc RT said the Engineers would need further soil test results which would come from the additional trial holes. He commented that he would require 2 No. pits/bores in the Machinery Building area
"The Engineers would like to make arrangements for Contest Melbourne Weeks Limited to carry out the trial pits/bores.
"RT said the following information was needed from Shiplink:..
e) Location Drawing for trial hole positions on previous Soil Report."
In the event Mr. Gordon Spicer of a firm of engineers called R.J. Godsell & Associates ("Godsell") sent to Mr. Spray a facsimile transmission dated 5 September 1995 which included:-
"Plan attached showing current proposals as discussed. Your recollection of the April 1994 locations for the 3 BOREHOLES would be very helpful, also the sequence if at all possible."
Mr. Spray replied on the same day, also by facsimile transmission:-
"I have discussed this matter with Mr. Eddie Taylor (Terminal Manager) and we are very positive with our locations and the sequence."
A drawing enclosed with the facsimile transmission marked the positions of the boreholes and numbered them 1, 2 and 3.
- Godsell produced a report entitled "Chatham Docks, Kent, Adjacent to No.3 Basin Report of a Site Investigation at the Chatham Docks Adjacent to No.3 Basin for Proposed Warehouse and Factory Facilities for Ship-Link Terminals Ltd. by R J Godsell & Associates" ("the Godsell Report") dated 27 October 1995. The Godsell Report was concerned with the question of the appropriate type of foundations for the structure of the proposed extension to the Original Warehouse. It recommended as the most cost effective solution the use of driven piles.
- Mr. Tutton produced a design for the proposed extension which utilised driven piles as the foundation for the structural steel columns which held up the roof and sides of the extension. His design for the floor was for concrete block paviors to be laid on a prepared base lying directly on the ground. In the jargon of this action that design was for a ground-bearing floor. Such a design of floor is to be distinguished from a suspended floor. A suspended floor is one in which the load of the floor is transferred to foundations such as piles or ground beams, rather than being borne by the ground underlying the floor by the imposition of the weight of the floor and the base upon which it immediately lies directly on the ground.
- From the minutes of such meeting, once again apparently taken by a representative of IRC, it seems that a meeting was held on 21 November 1995 attended by Mr. Ellingsen, Mr. von Hacht, Mr. Holbrook, Mr. Billing and Mr. Tutton, for the first part. They were, according to the minutes, joined for the second part of the meeting by a Mr. Fry and a Mr. Lee of Cliffe Construction. The minutes of the first part of the meeting included:-
"4. Contract Sum
Discussion took place on the elements included/excluded in the Contract Sum for the Extension to Building 15. [ie the Original Warehouse]
In brief the discussions highlighted:
Included:
a) Piling
b) Pile Caps
c) Steel Frame
d) Block Paving"
In the second part of the meeting the minutes recorded:-
"c) EE [ie Mr. Ellingsen] then outlined the immmediate requirement Ship-Link had for approximately 2 acres of hardstanding and asked for comments on the specification and price he had been provided with.
d) Cliffe Construction said they would like to see the site and the meeting re-convened at Chatham.
e) After a general survey of the site and further discussions Cliffe's [sic] said they would consider a spec. and provide a price for IRC.
An immediate indicative price was give [sic] as £16.00/m2
f) EE said price too high so reconsider with minimum suitable specification.
Cliffe to respond to IRC as soon as possible
- In a letter dated 23 November 1995 to IRC Mr. Tutton wrote so far as is presently material as follows:-
"Further to our meeting held in the offices of Messrs Ship-link Recycling Limited on Tuesday 21 November 1995 and your facsimile today we have been instructed to issue you with instructions to proceed with the construction works required for this project.
"It is the intention of Messrs Ship-link Recycling Limited to enter into a JCT Intermediate Form of Contract (IFC 84) with you in accordance with the minutes of the meeting held on Tuesday 21 November 1995 based on the preliminaries, schedule of rates and specifications to be submitted by you. The Contract and other Conditions contained in the preliminaries and specifications will apply. The named subcontractors are to enter into Form of Tender and Agreement NAM/T contracts.
"The agreed dates to be entered into the Form of Contract will be:
Date of Possession - 27th November 1995
Date of Completion - 12th April 1996"
- What happened thereafter is revealed by the minutes of a meeting held on 19 December 1995 apparently taken by Mr. Tutton. Those listed as attending the meeting, apart from Mr. Tutton, were Mr. Ellingsen, Mr. Holbrook, Mr. Billing, a Mr. D. Sands of Bourne Steel Ltd., and Mr. C. Dyson and Mr. M. Negus of Cliffe Construction Ltd. The material part of the minutes for present purposes read as follows:-
"1.00 E.E tabled a press statement detailing a brief history of the development of Ship-Link Terminals Ltd and Ship-Link Recycling Ltd.
"2.00 E.E confirmed that SE-Banken had appointed an administrative receiver to put the Group of Ship-Link (UK), Ship-Link Terminals Ltd and Baltic Terminals Ltd into receivership.
"3.00 E.E confirmed that Ship-Link Recycling Ltd and Ship-Link Management were formed a year ago and that these companies will be moving to the new Terminal and Recycling Plant to be constructed at Berth No 6, Basin No 3, Chatham Dockyards.
"4.00 E.E confirmed that Ship-Link Recycling Ltd and Ship-Link Management were never part of the Ship-Link (UK) Group and have no economical links with this Group.
"5.00 E.E confirmed that the Group had received an offer of £3.5 million for the lease of the Rochester site and E.E has made an offer of £1.2 million to purchase part of the Group at Berth no 8, Basin No 3, Chatham Dockyards.
"6.00 Ship-Link Recycling Ltd has just signed a thirty year lease with Medway Docks Ltd for Berths No 6 and No 7 Chatham Dockyards.
"7.00 C.D and D.S asked how the warehouse contract was to be financed and E.E confirmed that Ship-Link Recycling Ltd was not relying on banking finance and that the off shore facilities of Ship-link Finance was providing the capital for this project."
- By an agreement in writing dated 21 December 1995 and made between (1) Recycling and (2) IRC Recycling engaged IRC to undertake work described as:-
"Alterations and extensions to Unit 15, No 3 Basin Chatham Docks, Chatham, Kent."
Those works I shall refer to in this judgment as "the First Contract Works". The First Contract Works included the construction of an extension to the Original Warehouse which I shall refer to in this judgment as "Extension 1".
- After part of the floor of Extension 1 had been laid Recycling began to use it. An agreement in writing had been made between (1) Recycling and (2) Holmen Paper Ltd. ("Holmen UK") on behalf of Holmen Paper AB ("Holmen AB"), signed on behalf of Holmen UK on 3 October 1995, by which it was provided that Recycling would undertake for Holmen AB the storage of paper. Although the agreement was not limited to the storage of newsprint, in practice, as I understand it, newsprint was the type of paper stored. Recycling was bound under the agreement to unload ships laden with paper, to store the paper until it was required by a customer of Holmen AB, and then to deliver the paper out of storage to a vehicle provided by the customer. Movement of paper from ship to warehouse, within the warehouse and out of the warehouse to customer's lorry was undertaken by heavy-duty fork-lift truck and/or on heavy-duty trailers. The newsprint stored typically came in reels weighing about one tonne, although sizes of reels did vary. The value of a reel weighing about one tonne was, apparently about £400.
- According to the evidence of Mr. Holbrook, virtually as soon as Recycling's vehicles began to traffic that part of the floor of Extension 1 which had been made available for use, ruts appeared. That evidence was not disputed. It was also not in dispute that the cause of the rutting was what is called a shear failure in the upper surface of the new concrete block paving floor.
The retainers of the Defendant
- Following the appearance of rutting in the floor of Extension 1 Mr. Holbrook sought advice as to suitable experts to advise what should be done and was given the name of the Defendant, Mott MacDonald Ltd. ("MM"). Contact seems initially to have been made by telephone on or about 13 March 1996. That contact led to Mr. Michael Blyth, a Divisional Director writing to Nordic a letter dated 15 March 1996 marked for the attention of Mr. Ellingsen. The material part of that letter for present purposes was in the following terms:-
"CHATHAM DOCKYARD WAREHOUSE
Failure of Blockwork Pavement
We are pleased to offer our services to you for the investigation, report and design advice following the failure of the new blockwork pavement in your warehouse at Chatham Dockyard.
"We propose to allocate this work to C R Tyrrell, whose curriculum vitae is enclosed for your information. He has been involved in the past with similar problems with blockpaving."
- Mr. Colin Tyrrell gave evidence before me. He told me that, after being given the assignment of investigating the failure of the concrete block paving in Extension 1, he visited the site. He noted that the Dock had been built in about 1860. He noted that the floor of the Original Warehouse consisted of concrete block paviors and that that floor seemed to be behaving quite adequately. On the basis of that assessment he felt, he told me, that differential settlement must have been considered as a part of the original design process and that it was not an issue which he needed to reconsider as part of the assignment which had been entrusted to him. In answer to a suggestion from Mr. Stephen Furst Q.C., who appeared at the trial on behalf of Nordic, that his investigation should have included a consideration of whether the failure which he did see in the floor of Extension 1 was due to settlement Mr. Tyrrell said:-
"Well, if there had been any evidence that the failure was due to settlement, I would have considered that; but there was no evidence at all, and every evidence to the contrary, that the failure was due to collapse of the pavement structure itself."
I accept that evidence of Mr. Tyrrell as to what he saw on his inspection of the floor of Extension 1 and as to how he approached the task assigned to him.
- Mr. Tyrrell set out his opinion as to the cause of the failure which he observed in a facsimile transmission dated 15 March 1996 to Mr. Holbrook, which was also copied to Mr. Ellingsen. In short his view as set out in the facsimile transmission was:-
"..that the block pavement as provided in the warehouse is grossly under-designed for the purpose for which it is to be used….The problem has been exacerbated by the contamination of the granular material with clay."
In the facsimile transmission Mr. Tyrrell referred to a British Ports Federation publication "The Structural Design of Heavy Duty Pavements for Ports and Other Industries" and set out his provisional design recommendations.
- A meeting was held on 18 March 1996 attended by, amongst others, Mr. Ellingsen, Mr. Holbrook, Mr. Billing, Mr. Tyrrell and representatives of Messrs. James R. Knowles, a firm of claims consultants. Minutes of the meeting were prepared by the representatives of Messrs. James R. Knowles. The minutes included:-
"1.1 The primary purpose of the new warehouse facilities was to provide the employer, Nordic, with storage, movement and handling of paper reels. Accordingly, it was of paramount importance for the design and construction of the internal paving to be able to withstand the anticipated loadings including the use of laden rubber tyred vehicles such as forklift trucks. With these criteria in mind, the employer had opted for a block paving finish. Such a surface would provide relatively simple maintenance in the event of localised settlement, compared with that which would be required if the paving was of a concrete slab construction.
"1.2 Pursuant to clause 2.1 of the conditions of the building contract, on Friday 8th March, 1996, Nordic occupied approximately 2950 sq m of the 5300 sq m of completed block paving for storage of paper reels. Nordic commenced such occupation with distribution and handling, and storage of the paper reels on Saturday 9th March 1996, but, within a short time it became obvious that the block paving construction had failed and would not support any continued use. Rutting had taken place in several areas and in a number of places complete upheaval and collapse had occurred. Nordic took the decision to discontinue its occupation of the completed area of block paving.
"1.3 Colin Tyrrell, of Mott MacDonald, was commissioned by Nordic to carry out an investigation into the failure of the block paving, from which he concluded the design was ineffectual for the purposes to which the paving was to be put.
"1.4 The purpose of the meeting was to consider the implications of the failed paving, including the rectification works necessary to overcome the problem in terms of both time and cost…. "
- The meeting held on 18 March 1996 was part of a process of consideration of what should be done following the failure of the surface of the new concrete block paving in Extension 1. The end of the process was the production by MM of a report dated 25 March 1996 entitled "Report and Recommendations following the failure of Pavement Flooring Unit 15 Chatham Dockyard." ("the First MM Report"). The First MM Report included an account of the way in which MM's consideration of an appropriate design to tackle the problems with the floor of Extension 1 progressed, as follows:-
"An initial response was given by fax on 15 March confirming that Mott MacDonald considered the original design to be grossly underdesigned. Two options were identified in the response for rectifying the failure which were then subject to review by the client, the Quantity surveyor, the main contractor and his subcontractors. A further option, using a fibre reinforced concrete overslab was raised by the main contractor on 23 March and circulated to Mott MacDonald for consideration. All parties then met on the 21st March with Mott MacDonald and later with a specialist flooring subcontractor (Seamless Flooring) to consider the options and agree on the best course of action."
- The First MM Report set out the three principal remedial work options as follows:-
"The three primary options considered for rectifying the failure of the flooring were:
i) Removal of the existing pavement flooring and replacement with an adequately specified design as above.
ii) Remedial works to the existing flooring and construction of a fibre reinforced concrete overslab.
iii) Remedial works to the existing flooring and construction of a traditionally steel reinforced concrete overslab."
In the First MM Report those options were respectively described as "Option 1", "Option 2"and "Option 3". Of those options the First MM Report said:-
"Each of the options were assessed with regard to time required and risk of construction, cost, compatibility with the existing warehouse area and suitability of finished surfaces."
The assessment made in the First MM Report as to the time required for the carrying out of the various options was that Option 2 would take the least time, 2-4 weeks, that Option 3 would take 5-7 weeks, while Option 1 would take the longest, 8-10 weeks. The risks identified were, for Option 1, "Possibility of contamination", and, for Options 2 and 3, "Crack control. Differential settlement." The extent of any possible differential settlement was not set out in the First MM Report. In relation to "Finished Surfaces" the First MM Report said that Option 1 "Will match existing & will enable local repairs if reqd.", while each of Option 2 and Option 3 was "Different to existing & difficult to repair any failures". Option 2 was that which MM recommended in the First MM Report and that which it was decided to adopt.
- In a facsimile transmission dated 22 March 1996 to Mr. Ellingsen Mr. Richard Staniforth of MM wrote, so far as is presently material, as follows:-
"Further to the various discussions and meetings with reference to the above, I confirm that we are able to offer our services as "The Supervising Officer" in lieu of the project architect, whom we understand is being discharged from this project. We have already commenced the preparation of a report to make recommendations to you on which option should be implemented to rectify the failure of the floor, and similarly have started drawing the construction details for the new floor slab. These can be made available on Monday 25th March pending your instructions.
"I am aware that you have already received a separate fee offer for the time spent by Colin Tyrrell for the design of the floor slab solution, which is excluded from this offer for Supervising Officer.
"Our role on site will in the first instance be principally directed towards resolution of the problem with the failure of the flooring. From thereon , we will consider the other areas of outstanding information and any problems of detail design for both the warehouse and the bailing station which are raised on site.
"Clearly, we will not be able to take responsibility for the design work, drawings, specifications, or contract documentation previously provided by the architect. Should it be required then we would be able to undertake to review any areas of concern on the designs identified to us and report to you on any inadequacies found. This would require an extra fee over and above our offer.
"It is clear that the target completion dates of 12 April and 30 April will require a very quick response from us on all queries and a very regular attendance to site to monitor both the installation of the replacement flooring and the completion of all other works for the two buildings. While no-one can yet guarantee that these dates will be achieved in full (in terms of final contract completion) I do believe however, that it will be possible for you to benefit from some use of the buildings within a week or so of these target dates."
Mr. von Hacht replied in a facsimile transmission also dated 22 March 1996:-
"We confirm that we should like to appoint you as Supervising Officer for our project – as detailed in your fax of today's date."
Thus, MM was retained to undertake the role of Supervising Officer in place of Mr. Tutton for the purposes of the contract dated 21 December 1995 made between Recycling and IRC.
- In a facsimile transmission dated 26 March 1996 to Mr. von Hacht Mr. Staniforth wrote, amongst other things:-
"With regard to design responsibility, I confirm that Seamless Floors do not need to include for design responsibility for the flooring providing that they fully comply with the "Instructions for Use" of the fibre reinforcement issued by the manufacturers Bekaert NV of Belgium.
"Design responsibility for the slab and substructure rests with us, based on calculations for the slab reinforcement undertaken for us by the fibre manufacturer Bekaert NV."
- By a letter agreement dated 28 March 1996 Recycling engaged Seamless Floors (GB) Ltd. to undertake the laying of a steel fibre reinforced concrete slab over the top of the concrete block paving in Extension 1. MM certified that the first part of the remedial works was completed on 6 April 1996. Completion of the remainder of the works of laying a slab over the concrete block paving in Extension 1 was certified as having taken place on 27 April 1996. Practical completion of the whole of the First Contract Works was certified by MM as having been achieved on 31 May 1996.
- Mr. Tyrrell prepared a formal report ("the Second MM Report") entitled "Failure of Block Pavement at Nordic Holdings Warehouse, Chatham Dockyard" which he sent to Mr. Ellingsen under cover of a letter dated 24 April 1996. In the Second MM Report the conclusion to which I have already referred as to the cause of the failure of the concrete block paving in Extension 1 was restated.
- At the time of the construction of Extension 1 it seems that Recycling had only one customer, Holmen AB. By an agreement in writing dated 1 August 1996 and made between (1) NFT and (2) Korsnas BPP Distribution ("Korsnas") NFT agreed to store paper for Korsnas in the period 1 September 1996 to 31 December 1998. The making of that agreement, and, perhaps, an increase, or an anticipated increase in the volume of business coming from Holmen AB, seems to have prompted Nordic, or Recycling, or NFT, or some combination of them, at about the beginning of 1997 to contemplate the construction of a further extension to the Original Warehouse as extended by Extension 1. In this judgment I shall call this further extension "Extension 2". A new agreement, dated 21 February 1997, was in fact made between NFT and Holmen AB covering the period 1 January 1996 to 31 December 2000, and continuing thereafter until 31 December 2002 unless notice was given by Holmen AB prior to 1 April 2000.
- How Nordic went about organising for the construction of Extension 2 was explained by Mr. Holbrook at a meeting held on 11 February 1997 with Mr. Staniforth and Mr. David Greenhalgh of MM which was also attended by Mr. Price of Nordic. According to MM minutes of the meeting, the accuracy of which was not challenged, Mr. Holbrook explained that:-
"The new (second) extension had been procured to date with a minimum of professional involvement. The superstructure had been ordered on the basis of the previous design for the steelwork with the same section sizes and connections being used. With regards the substructures the client has decided that piled foundations were too expensive and IRC have provided spread foundations approx. 2.0m deep by 2.0m square in place of the piles and pile caps previously used. The client is fully aware of the possible problems associated with settlement of the frame and was prepared to accept these.
"The latest extension had currently not been given either planning or Building Regulations permission. It was not anticipated that there would be any problems in that obtaining these, but if there was these would remain the responsibility of the client
"LH [ie Mr. Holbrook] further explained that the client required MM's involvement at this stage so as to ensure that the concrete slab to the new extension would be of equal quality to that previously laid. The slab is key to the successful operation of his business and it must operate correctly."
Mr. Ellingsen was evasive in his answers in cross-examination as to whether he had been involved in the decisions to proceed with Extension 2 with a minimum of professional involvement and to run the risks set out in the minutes in the passage which I have quoted, but eventually he accepted that the decision in question was taken "By me or with me.", that is to say, with his input.
- There was put before me a copy of a facsimile transmission dated 28 January 1997 sent by Toni Stewart of NFT to Mr. Holbrook. That facsimile transmission was in the following terms:-
"As you are aware, we are becoming increasingly concerned about the floor laid by Seamless Floors in 1996.
"Every aisle has cracks which are now expanding causing stones to damage reels. These cracks need to be permanently repaired urgently.
"There is also an area which appears to be sinking and needs attention. These faults are unacceptable as the floor is only 10 months old. Would you please arrange an urgent inspection and suggested plan of action."
- The cracking to which Toni Stewart referred evidently did not cause Nordic or Recycling or NFT to have any doubts that the floor which should be laid in Extension 2 should be the same as that which MM had recommended be laid, and was laid, in Extension 1. It seems that on or about 15 January 1997, according to the evidence of Mr. Staniforth, which I accept on this point, he was contacted by Mr. Holbrook and told that IRC had erected a 20 metre warehouse extension to the Original Warehouse as extended by Extension 1. Mr. Staniforth then went to the Dock on 22 January 1997 and met Mr. Holbrook and Mr. Billing. By about 29 January 1997 it had become apparent that it was desired that MM design the floor for Extension 2 and supervise the work of constructing it. Mr. Tyrrell undertook the preparation of the design. He sent a design note and specification to Mr. Billing under cover of a facsimile transmission dated 29 January 1997. Mr. Staniforth wrote to Mr. Price a letter dated 30 January 1997 in which he set out his understanding of what MM was being asked to do. That included:-
"1 To draw up an IFC form of contract between Nordic Holdings and IRC Construction for works associated with extending the flooring to the north of gridline A plus ancillary repair works to shrinkage joints and cracks in the existing flooring
"2 Prepare a design and specification for the concrete pavement flooring for an area approximately 3200m2 along the area north of gridline A under the recently erected roofed area
"3 Obtain quotations for the temporary filling of shrinkage joints and for repairs to cracks in the flooring to the existing warehouse areas".
- The minutes of the meeting held on 11 February 1997 recorded that the duties set out in Mr. Staniforth's letter dated 30 January 1997 were discussed and it was agreed that:-
"a. Contact would be for the new extension with Seamless as a sub-Contractor. If Seamless would not contract to IRC a contract would be made with Nordic as before.
"b. Prepare a design and specification for the 3200sqm of the second extension alone. A renegotiation with Seamless will be required as they had priced a 12,000 sq m job. The project must start on site wc 17 Feb.
"c. Investigate cracking in Extension No 1 and obtain quotes for suitable repairs."
- By an agreement in writing dated 19 February 1997 and made between (1) Recycling and (2) Seamless Floors (GB) Ltd. Recycling engaged Seamless Floors (GB) Ltd. to undertake work described as "Construction of concrete floor slab to the second extension of Unit 15 Chatham Docks 3030 m2 slab area". A floor to Extension 2 identical to that provided in Extension 1, save that it did not cover pile caps, as there were none in Extension 2, was constructed under the supervision of MM.
- Mr. Greenhalgh was entrusted by MM with the supervision of the works of constructing the floor of Extension 2. He was also asked to consider the cracking in the floor of Extension 1. He wrote a letter dated 24 February 1997 to Recycling for the attention of Mr. Price in which he said:-
"To minimise surface cracking and differential settlement of the industrial slab at Extension 2 of the Chatham Dockyards, it is important that the use of this slab be closely managed in its early life. To minimise the extent of cracking in the slab, we recommend the need for regular variation in the loading patterns and the need to not load the slab until some degree of shrinkage has occurred.
"Evident in the industrial slab of Extension 1 are the very defined aisle cracks where the slab has not been loaded. It is important in Extension 2 that these quite distinct crack systems not be allowed to develop. To minimise such cracking, it is recommended that in the first six months of the extension's commercial use, the layout of the paper storage be changed regularly. In the first month, weekly variation of layout would be recommended and for the following five months, a monthly variation would be recommended. The essential feature of the layout change is to convert all aisle areas in the following stock layout.
"Another issue is to avoid early loading of the slab. It is recommended that no vehicular traffic of any sort be allowed to drive over the slab before Friday 28 February. It is further recommended that the new slab should not be loaded at all before Friday 7 March as the concrete strengths will not have achieved their design strength before then.
"It is recognised that there may be commercial implications due to these recommendations however we must underline the importance of managing the slab in its early life to minimise future problems. To embrace these recommendations would minimise future problems arising from surface cracking or differential settlement."
What seems to have prompted the writing of that letter was a concern on the part of Mr. Greenhalgh and others at MM that the design produced by Mr. Tyrrell for the floor of Extension 1 may not have been appropriate in fact because of the likely extent of differential settlements in the floor of Extension 1. In cross-examination Mr. Greenhalgh accepted that there were such concerns by about the end of February 1997.
- MM certified that the laying of the floor of Extension 2 was complete on 22 February 1997.
- A meeting, described as "Progress Meeting No.1", was held on 10 March 1997 between Mr. Greenhalgh and Mr. Benjamin Mackey of MM, Mr. Price, and Mr. Holbrook and Mr. Billing of IRC. MM, probably Mr. Mackey, took minutes of the meeting which were put in evidence. Minute 4.0 included:-
"Discussion of ACU drain levels (as shown on Drawing) being due to the soil conditions beneath the slab of Extension One. DJG [ie Mr. Greenhalgh] suggested total settlement in time of up to 500mm under load given the soil conditions at site. Importance of managing block loading to minimise differential settlement was again discussed.
"DJG stated he had been impressed with Seamless' behaviour in this Contract given the previous problems in Extension One. LH stated that Peter Usmar was also pleased with performance. DJG stated that the agreed cost achieved for this work had been "good value for money" for the Client as the price was originally tendered on 12,000m2 and the rate for this 2868m2 had been agreed on a pro-rata basis. This was agreed by all parties."
Mr. Greenhalgh agreed in cross-examination that this was the first occasion upon which anyone at MM had quantified for anyone at Nordic, Recycling or NFT the extent of the settlement likely in the floor of Extension 1 or Extension 2. At minute 8.0 of the minutes of the same meeting it was recorded of aisle cracking that:-
"DJG suggested that this cracking was a MM or Nordic issue and the scale of Works would define the progression of this liability problem."
Mr. Greenhalgh accepted that that comment meant that he may well have felt at that time that MM was exposed to liability to Nordic.
- Mr. Greenhalgh produced two reports which were put in evidence. One of the reports was entitled "The General Performance of the Concrete Floor Slab to the Extension of Unit 15 Chatham Docks", to which I shall refer in this judgment as "the Third MM Report", while the other, to which I shall refer as "the Fourth MM Report", was entitled"The Specific Performance of the Concrete Floor Slab in the Substation Area of the Slab to the Extension Of Unit 15 Chatham Docks". Each of these reports bore on its cover the date April 1997, but each was in fact delivered in July 1997. At section 3.1 of the Third MM Report it was said that:-
"With the building subject to heavy design loads, we would anticipate long term settlement of the slab, drainage systems and foundations to be in the region of 500mm. The key to maintaining the serviceability of the slab as well as the drainage system beneath is for the rigid slab to spread the load effectively over a sufficiently large area of soil that will enable the slab to settle evenly."
At section 4.1 of the Third MM Report appeared the following:-
"Settlement of the slab will occur given the magnitude of loading and poor ground conditions at site. Without a full site investigation and geotechnical study, accurate estimates of settlement and rate of consolidation cannot be performed. It is fair to say that settlements of over 500mm might occur in the long-term given the nature of the soil and the loads applied to the ground. "
Settlement
- It is not in dispute that the concrete slab floor in Extension 1 has sustained substantial differential settlement, in places up to about 170 millimetres, and that this has manifested itself not only by a reduction of the level of the floor over many areas to differing extents, but also by significant cracking in the floor. I have inspected the floor myself. As I have indicated, the foundations for the steel frame of Extension 1 were piles and the concrete floor slab was laid over the pile caps. That has meant that the parts of the floor over the pile caps are held fixed while the slab in other areas, with one particular exception, has been able to settle as the ground beneath has compressed. The particular area other than over the pile caps where the slab has been supported to a degree and so has not been able to settle with the rest of the floor is in the area of a former electricity substation. As part of the First Contract Works a new electricity substation was constructed a short distance from the existing substation. Once the new substation had been brought into operation the former substation was decommissioned and the equipment removed, leaving a concrete base upon which the equipment had formerly stood. The new concrete floor slab designed by Mr. Tyrrell was laid over the concrete base of the former substation. It is unclear on the evidence given before me whether the base of the former substation itself had foundations. However, it was in the area of the former substation that the first signs of differential settlement appeared. It was this area which was described in Toni Stewart's facsimile transmission to Mr. Holbrook dated 28 January 1997 as "an area which appears to be sinking and needs attention."
- The floor of Extension 2 has also sunk from the level at which it was originally constructed. However, because the foundations for the structural steel frame of Extension 2 were not piled, but spread foundations, and because, on the advice of MM the concrete floor slab as constructed was separated structurally from the foundations, the settlement has been more uniform. However, there are still cracks in the floor.
The claims made in this action
- The Claimant in this action is Nordic. Neither Recycling nor NFT is a party. For reasons which I confess I do not understand, the parties before me have treated Nordic as representing not only itself but also its subsidiaries, and as the party which contracted with MM, although one of the contracts upon which it is sought to sue would, on a conventional analysis, seem to have been made between Recycling and MM. No point was taken as to the appropriateness of Nordic being the only Claimant in the Amended Defence and Counterclaim, and Mr. Furst, when I drew attention to the matter, submitted that on the statements of case in the action it was not a point which should or could properly concern me. I accept that submission and hereafter in this judgment I shall proceed on the basis that all relevant contracts were made with, and any relevant loss was suffered by, Nordic.
- Nordic claims damages against MM for alleged breach of three contracts and for negligence. There is no dispute on the parties' respective statements of case as to the fact of the making of the three contracts. Subject to one matter, there is no dispute as to the manner in which the contracts were made. That matter leads to a dispute as to the terms of one of the relevant contracts, for the question in difference is whether a particular document was incorporated into the relevant contract. It is not in dispute that it was an implied term of each of the relevant contracts that MM would exercise the care and skill of reasonably competent engineers in performing its duties under the relevant contract and that MM owed a duty of care in tort to like effect.
- The three contracts to which I have referred are called, in the statements of case of the parties, respectively "the First Engagement", "the Second Engagement" and "the Third Engagement". It is convenient to adopt the same terminology in this judgment.
- The First Engagement is pleaded in the Particulars of Claim as follows:-
"7. In or about March 1996 the Claimant entered into a written agreement in relation to Extension One with the Defendant which was contained in and/or evidenced by the Defendant's letter to the Claimant dated 15th March 1996…
"8. There was an express term of the First Engagement, inter alia, as follows:
"We are pleased to offer our services to you for the investigation, report and design advice following the failure of the new blockwork pavement in your warehouse at Chatham Dock."."
- The Second Engagement and its alleged terms are pleaded in the Particulars of Claim thus:-
"12. The Second Engagement was made in writing and was contained in and/or evidenced by the following documents:
(a) The Defendant's letter to the Claimant dated 22nd March 1996.
(b) The Claimant's facsimile to the Defendant dated 22nd March 1996.
(c) The Defendant's facsimile to the Claimant dated 26th March 1996.
"13. There were express terms of the Second Engagement, inter alia, as follows:
(a) By the Defendant's letter of 22nd March1996:
"Further to the various discussions and meetings with reference to the above, I would confirm that we are able to offer our services as "The Supervising Officer" in lieu of the project architect, whom we understand is being discharged from this project. We have already commenced the preparation of a report to make recommendations to you on which option should be implemented to rectify the failure of the floor, and similarly have started drawing the construction details for the new floor slab. These can be made available on Monday 25th March pending your instructions.
"I am aware that you have already received a separate fee offer for the time spent by Colin Tyrrell for the design of the floor slab solution, which is excluded from this offer for Supervising Officer.
"Our role on site will in the first instance be principally directed towards resolution of the problem with failure of the flooring..
(b) By the Defendant's facsimile of 26th March 1996:
"With regard to design responsibility, I confirm that Seamless Floors do not need to include for design responsibility for the flooring provided that they fully comply with the "Instructions for Use" of fibre reinforcement issued by the manufacturers Bekaert NV of Belgium.
"Design responsibility for the slab and substructure rests with us, based on calculations for the slab reinforcement undertaken for us by the fibre manufacturer Bekaert NV. "
MM's case is that the Second Engagement was agreed by the exchange of facsimile transmissions on 22 March 1996, so that the facsimile transmission dated 26 March 1996 was post-contractual and its terms were not incorporated into the Second Engagement. In his closing submissions Mr. Furst seemed disposed to accept the analysis for which Mr. Richard Wilmot-Smith Q.C., who appeared on behalf of MM, together with Miss Juliet May, contended in relation to how the Second Engagement was agreed and what documents were incorporated into it. Mr. Furst said that he suspected that the facsimile transmission dated 26 March 1996 was "properly analysed, confirmation" of the obligations which MM had assumed under the First Engagement. In my judgment, for the reasons advanced by Mr. Wilmot-Smith the facsimile transmission dated 26 March 1996 did not form part of the Second Engagement.
- At paragraph 19 of the Particulars of Claim the Third Engagement is pleaded in the following terms:-
"In or about January 1997 the Claimant entered into a written agreement in relation to a further extension to the Warehouse ("Extension Two") with the Defendant which was contained in and/or evidenced by the Defendant's letter to the Claimant dated 30th January 1997… "
- The alleged breaches of contract and negligence relied on on behalf of Nordic are pleaded at paragraph 26 of the Particulars of Claim. That paragraph reads:-
"The defects in the flooring set out at paragraph 25 above were caused by the Defendant's breach of the express and/or implied terms set out at paragraphs 8,9,13,14,20 and 21 above and/or the duties set out at paragraphs 10,15 and 22 above in that:
(a) The Defendant failed to undertake any or any adequate ground investigations or enquired if any existed prior to carrying out the design of the floor to Extension One and Extension Two.
(b) The Defendant based the aforesaid design on CBR Values which test the competence of the compaction of the upper layer of the soil only.
(c) The Defendant failed to notice and/or take any or any adequate account in its design of the following;
(i) The rear surface ground conditions at the Warehouse consisted of non-engineered fill overlying soft organic clays.
(ii) These strata are characterised by large initial settlements due to compression or primary consolidation and significant long term creep behaviour.
(iii) Given the anticipated loading regime in the Warehouse used for the storage of paper, significant settlements and differential settlements within the floor area and between the piled structural frame and the ground bearing slab were inevitable."
(d) The Defendant specified a fibre reinforced concrete slab floor to Extension One and Extension Two which was inadequate in the circumstances set out at 26(c)(i) – (iii) above in that it could not accommodate the significant and differential settlement between the piled structural frame and the ground bearing slab.
(e) The Defendant failed to specify the construction of a suspended floor slab which would have been normal engineering practice in the circumstances set out at 26(c)(i) – (iii) above."
- MM counterclaims a sum of £13,799.31 in respect of unpaid fees. Subject to setting off against that sum its own claim for damages, Nordic does not resist that claim.
The main issues at trial
- The parties' respective statements of case do not reveal very clearly what the issues between them, as such emerged at trial, really were. As matters turned out, the first and most fundamental issue proved to be exactly what MM by the First Engagement had agreed to do. Mr. Furst submitted that on proper construction of the words in Mr. Blyth's letter dated 15 March 1996 to Nordic for the attention of Mr. Ellingsen "our services for the investigation, report and design advice following the failure of the new blockwork pavement in your warehouse at Chatham Dockyard" MM had agreed to undertake a comprehensive review of the design of the floor of Extension 1. It was common ground that MM had not done that, so if Mr. Furst's submission were well-founded, it followed without more that MM was in breach of the First Engagement. However, Mr. Wilmot-Smith submitted that, on proper construction, the effect of the words in question was that MM agreed to investigate, report on and give design advice concerning the remedying of the particular failure which had manifested itself as at the date of the First Engagement, namely the shear failure at surface level in the concrete block paving. Mr. Furst sought to counter that submission by submitting that even if, as a matter of construction, Mr. Wilmot-Smith's submission were well-founded, on the basis of the agreed statement of the expert witnesses retained on behalf of the parties, proper performance of such a retainer required that MM consider all aspects of the ground conditions at the Dock down to any level that could affect a floor under heavy uniform loading, such as that in Extension 1. Again, it was common ground that MM had not considered ground conditions below the level of the support for the sub-base upon which the concrete block paving had been laid.
- The next issue, logically, which had some importance at trial, was whether the only proper design for MM to have produced for remedying the defects in the concrete block paving in Extension 1 was a suspended floor. Although pleaded in the Particulars of Claim as what would have been "normal engineering practice in the circumstances", as the case developed the nature of the issue seemed to change. A reading of the Particulars of Claim suggests that what was being contended was that, given the nature of the ground conditions which in fact existed at the Dock as shown, for example, by the CMW Report, any competent engineer could only have specified a suspended floor as a remedy for the visible defects in the concrete block paving in Extension 1 at the time of the First Engagement. However, the position ultimately adopted on behalf of Nordic seems to have been that a suspended floor should have been recommended unless MM advised Nordic of the likely possible settlement if any ground-bearing floor design was utilised, and Nordic, having been given appropriate advice, made an informed decision to accept whatever risks were involved in the adoption of a ground-bearing floor design. That was a refinement on the pleaded case, but Mr. Wilmot-Smith indicated in his closing submissions that his client did not wish to rely on a point of pleading.
- Another issue which at trial assumed a greater importance than might be said to have been foreshadowed in the parties' respective statements of case was what would Nordic have done if it had been given the advice which it was contended on behalf of Nordic it should have been given by MM, whether to have a suspended floor constructed over the concrete block paving in Extension 1 and then in Extension 2, or as to the risks of differential settlements of up to 500 millimetres if it did not. It was, in my judgment, always for Nordic to prove, if it was to be able to recover substantial damages for any breach of contract, that, if it had been given the advice which it was contended it should have been given, it would probably have acted upon it. The need for such proof was pointed by Harman LJ in Sykes v. Midland Bank Executor & Trustee Co. Ltd. [1971] 1 QB 113 at page 123:-
"Whether the defendants are entitled to anything more than nominal damages remains to be considered. The plaintiffs' claim is that Mr. Rignall's omission was a breach of duty he owed his clients, that following on that breach they entered into the underlease and that, therefore, the damage was the consequence of the breach of duty. This appears to me to beg the question, for, as it seems to me, it is necessary for the plaintiffs to prove something more, namely, that the solicitor's omission did make a difference to them and was at least one of the elements, although there may be others, which influenced their minds to enter into the underlease. "
In the same case Salmon LJ said at pages 127-128:-
"Out of respect for Mr. Le Quesne's very able argument in this court, I should mention that he sought to persuade us that the evidence showed that Mr. Rignall's wrong advice or lack of advice about the material clause in the underleases was a cause of the plaintiffs' executing the underleases. I cannot accept this argument because, as I have already indicated, the evidence did not show that, if the defendants had received proper advice, they would have acted in any way contrary to the way in which they did act. Indeed, in my view the probabilities are that they would have acted just as they did."
- While it would be wrong to say that such was accepted in terms on behalf of Nordic, the course which the argument took in closing submissions indicated that it was by that time recognised that the important issues related to the nature and performance of the First Engagement. The general nature of the Second Engagement was to supervise the undertaking of the remedial works devised under the First Engagement and the completion of so much of the First Contract Works as remained unfinished at the date of the First Engagement. Subject, perhaps, to two matters, there was no suggestion that the supervision of the execution of the remedial works was deficient. Those two matters, neither of which was a pleaded matter of complaint, and both of which featured principally as alleged deficiencies in the design of the remedial works were the carrying of the concrete floor slab over the pile caps and the laying of the concrete floor slab over the base of the former electricity substation. The complaint about the Third Engagement was really that MM simply adopted the same floor design for Extension 2 as it had for Extension 1. It was submitted on behalf of MM that that is what MM was asked to do. That was not really disputed by Mr. Furst on behalf of Nordic, so the issue became identified with the issues arising in relation to the First Engagement. The point for practical purposes was that it was contended that the provision of a defective floor for Extension 2 was a consequence of the failure to perform the First Engagement properly.
- Issues of quantum were, by direction of His Honour Judge Toulmin C.M.G., Q.C., dealt with by a single joint expert, Mr. Ian Robinson. Mr. Robinson's evaluations departed to some extent from the amounts pleaded in the Particulars of Claim, but the parties before me proceeded on the basis that no formal permission to amend the Particulars of Claim to bring the pleaded claims into line with Mr. Robinson's assessments needed to be sought.
The Expert Evidence
- Mr. Peter Woodward was called as an expert witness on behalf of Nordic and Professor John Knapton was called on behalf of MM. In addition, Mr. Tyrrell, Mr. Staniforth and Mr.Greenhalgh of MM were called as witnesses of fact. Inevitably, given the nature of the claims against MM, Mr. Tyrrell and Mr. Greenhalgh, in particular, were cross-examined about engineering matters. I have already mentioned the role of Mr. Robinson.
- As matters turned out, the need for expert evidence on engineering matters was limited. The two main issues in relation to which expert engineering evidence was relevant were, first, in what circumstances any competent engineer would advise the construction of a suspended floor, and, second, what steps an engineer asked to investigate, report on, and give design advice in respect of, the failure of the concrete block paving in Extension 1 would have taken to investigate the nature of the ground below Extension 1.
- I regret to say that I did not find the evidence of Mr. Woodward or that of Professor Knapton helpful. What I did find helpful was the evidence of Mr. Greenhalgh, in particular, but also that of Mr.Tyrrell, on technical issues. I formed the view that both Mr. Greenhalgh and Mr. Tyrrell are extremely competent and knowledgeable engineers in their respective fields and that I could accept their evidence on engineering matters with confidence.
- Mr. Greenhalgh told me, and I accept, that it is not the case that any engineer asked to design a floor at ground level for an industrial building or a warehouse would, in all circumstances, seek to produce a design for a floor which would not settle or which would not settle differentially. If a floor settles uniformly, the result of settlement is simply that, once it has settled, the floor is at a lower level than it was when first constructed. That circumstance may have no effect whatsoever on the usefulness of the floor. Even if a floor at ground level settles differentially, depending upon the use to which it is desired to put it, that fact may not affect its utility. Constructing a floor which is ground-bearing is considerably cheaper than constructing a suspended floor, and there is a balance to be struck between investing a larger capital sum in the construction of a suspended floor which will not settle, on the one hand, and laying out a smaller capital sum initially on a ground-bearing floor but running the risk that cost will need to be incurred in repairing the floor during its life. It is a matter for the building owner to decide where, in the context of his business, the balance of advantage lies. Mr. Greenhalgh has considerable experience of buildings in ports. He said in cross-examination:-
"In dockside developments, you either have to decide to manage settlements or eliminate settlements. When you have got situations where you have got exceedingly high loads, which you have at this site, because we are stacking high paper bales up to very high levels – and I cannot remember exactly, but I believe the figure is 70 kiloNewtons per metre squared, which is an exceedingly high loading. It is very expensive and normally impractical to actually provide a piled or rigid solution, and the normal solution is to manage settlements. "
- From his evidence in cross-examination it seemed to me that Mr. Woodward has little experience of designing buildings in ports and little or no recent experience of designing buildings with ground-bearing floor slabs. I formed the view that he had got it fixed in his mind that Nordic for the purposes of its business needed to have floors in Extension 1 and Extension 2 which would not crack, that the only way in which an engineer could design a floor at ground level over poor ground with certainty that it would not crack was to design the floor as a suspended slab, and so that is what MM should have done. That analysis is no doubt impeccable if the correct premise is that Nordic had made it clear to MM that it wanted a floor which could be guaranteed not to crack, but there was no evidence in the present case that such were the instructions given to MM at any time. Had Mr. Woodward been able to put from his mind, as it seemed to me he was not able to, what Nordic now says it wants, and, perhaps, if he was more familiar with the task of designing floors for industrial buildings and warehouses, I think he would have accepted that whether, in any given case, an engineer would have designed an expensive suspended floor or a cheaper ground-bearing floor would depend upon what the client wanted from his floor, and how the client perceived the balance between increased capital outlay, but reduced or non-existent maintenance burden, and reduced capital outlay, but continuing maintenance burden. In my judgment it is simply not the case, contrary to what Mr. Woodward sought to persuade me, that poor ground conditions means that the only possible answer for a competent engineer is a suspended floor.
- Professor Knapton has a very considerable knowledge of ports and the construction of buildings in ports. He is the author of the standard design guide produced by British Ports Federation, "The Structural Design of Heavy Duty Pavements for Ports and Other Industries". My difficulty with the evidence of Professor Knapton was twofold. First, he seemed to assume that it was a matter of common notoriety that the ground in Britain's ports is poor, so that everyone knows that a ground-bearing slab constructed in a port is liable to settle differentially. That may be quite widely known amongst those who operate in ports, but I do not think that it can be taken to be a matter of common general knowledge. Secondly, and perhaps as a consequence of the first matter which I have mentioned, from the terms of his report in this case it appeared to me that he had stepped outside the proper role of an expert and was acting in his evidence as an advocate for MM.
The proper construction of the First Engagement
- I have set out earlier in this judgment the respective contentions of Mr. Furst, on behalf of Nordic, and of Mr. Wilmot-Smith, on behalf of MM, as to the proper construction of the words "our services to you for the investigation, report and design advice following the failure of the new blockwork pavement in your warehouse at Chatham Dockyard". It seems to me that the principles to be applied in construing those words are those indicated by Lord Hoffman in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896 at pages 912 to 913 as follows:-
"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
"(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
"(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
"(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax…
"(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v. Salen Rederierna AB, The Antaios [1985] AC 191 at 201:
"…if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."".
- In my judgment, it is important to construe the letter dated 15 March 1996 against the background that what had prompted Nordic to make contact with MM was the fact that rutting had appeared in the surface of the concrete block paving originally laid as the floor of Extension 1 almost as soon as the trafficking of it began. That was the problem in connection with which the advice of MM was sought.
- Mr. Woodward did not seriously dispute that the only defect which had manifested itself by the date of the retainer of MM in March 1996 was the shear failure in the upper surface of the new concrete block paving. He was rather grudging in his evidence on this point, but eventually the following exchange took place between Mr. Wilmot-Smith and Mr. Woodward:-
"Q. Well, the only reason why the floor had settled at the time Mott MacDonald had been taken on was the failure we were talking about, namely either the shear or elastic failure at the surface, was it not?
A. It would appear so, but I was not there, so I do not know "
On the evidence "shear failure" and "elastic failure", despite what the form of the question may appear to suggest, are alternative descriptions of the same type of failure, not descriptions of two alternative types of failure.
- It seems to me that, against the background that it was the rutting which was the physical manifestation of the problem, the proper construction of the letter dated 15 March 1996 is that MM's retainer by the First Engagement was to investigate and report on the problem of which that was the physical manifestation and to give advice as to how the floor of Extension 1 should be redesigned so as to avoid that problem. It was not an engagement to undertake a complete review of the design of the floor prepared by Mr. Tutton.
Whether the First Engagement was performed
- Mr. Woodward accepted in cross-examination that Mr. Tyrrell's design for the fibre reinforced concrete slab in Extension 1 provided a base which was correct and was adequate to deal with the shear failure. However, he asserted that, as part of its retainer, MM should have considered the soil at lower levels below the floor and thus, in effect, have reconsidered the whole question whether a ground-bearing floor was appropriate. Mr. Furst, in opening Nordic's case, drew attention to clause 2.1 of an agreement made between Mr. Woodward and Professor Knapton on 14 March 2001, which was in the following terms:-
"It would be the Engineer's duty, as in all civil engineering projects, to consider all aspects of ground conditions down to any level that would affect a floor under heavy uniform loading such as used here. It would further be the Engineer's duty to provide his client with an indication of the order of magnitude of the settlements and differential settlements that would occur to a floor under such loading"
Mr. Furst sought to rely upon that agreement as Nordic interpreted it. Mr. Furst also drew attention to a letter dated 26 April 2001 written by Professor Knapton to Mr. Woodward which included:-
"As to item 2.1,[ ie the passage just quoted] I agree this minute as it stands. However, if it is the case that Motts were appointed to provide a limited engineering service (which is an issue for the court), Motts' consideration of CBR values may represent the limit of their responsibility. For example, if they were instructed to replace Tutton's pavement with one which would eliminate the defects which had occurred in Tutton's pavement, then they have achieved this. On the other hand, if they were appointed as Engineer with full design responsibility, then Motts' responsibilities become wider."
Mr. Furst sought to suggest that Professor Knapton was seeking in that passage to go back on what he had agreed with Mr. Woodward at clause 2.1 of the agreement, which I have quoted. He invited me to take that into account in assessing the credibility of Professor Knapton.
- Mr. Furst also invited me to take into account in reaching a conclusion as to what proper performance of the First Engagement required, even if to be properly construed as I have construed it, the indications that, at about the end of February 1997, while engaged upon the performance of the Third Engagement, Mr. Greenhalgh and others on behalf of MM appeared to be concerned that MM might be liable in respect of the design produced in performance of the First Engagement. Their concerns, he suggested, gave some inkling as to what they thought they should have done.
- Mr. Wilmot-Smith, by way of answer to the submissions of Mr. Furst to which I have referred in the two preceding paragraphs, reminded me of what Oliver J., as he then was, had said in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch 384 at pages 402-403:-
"This new plea does however raise an issue of law not apparent upon the original pleadings, namely, what is the scope of a solicitor's duty when he is consulted about a particular aspect of a problem – is he entitled to confine himself to the particular matters for which he is retained to advise or must he consider all the circumstances affecting the underlying data including hypothetical circumstances or risks to which his attention is not directed and upon which his advice is not specifically sought?
"As to this, I have heard the evidence of a number of practising solicitors. Mr. Harman modestly contented himself with calling just one; but Mr. Gatehouse – mindful, no doubt, of what is said to be the divine preference for big battalions – called no less than three. I must say that I doubt the value, or even the admissibility, of this sort of evidence, which seems to be becoming customary in cases of this type. The extent of the legal duty in any given situation must, I think, be a question of law for the court. Clearly, if there is some practice in a particular profession, some accepted standard of conduct which is laid down by a professional institute or sanctioned by common usage, evidence of that can and ought to be received. But evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the court; whilst evidence of the witnesses' view of what, as a matter of law, the solicitor's duty was in the particular circumstances of the case is, I should have thought, inadmissible, for that is the very question which it is the court's function to decide.
"Predictably, the witnesses differed. Mr. Gibbon, an experienced conveyancing solicitor from Grimsby, told me that if he were consulted about any aspect of an option, he would make a search to see if it had been registered – assuming, of course that there was no documentary evidence of registration already on the file. Mr. Gatehouse's witnesses, on the other hand, concurred in saying that if they were consulted in the terms of Mr. Kewley's letter of June 20, 1967, it would not occur to them to query whether the option was registered or not. It would depend, as Mr. Stebbings put it, upon whether there was anything in the circumstances or the instructions to direct the solicitor's mind in that direction.
"This seems to me, if I may say so, to be obvious common sense and I find nothing in the evidence of these gentlemen, helpful as they all tried to be, establishing a practice or general standard which assists me in this case. Mr. Harman sought to rely upon the fact that Mr. Stubbs was Geoffrey's solicitor under some sort of general retainer imposing a duty to consider all aspects of his interest generally whenever he was consulted, but that cannot be. There is no such thing as a general retainer in that sense. The expression "my solicitor" is as meaningless as the expression "my tailor" or "my bookmaker" in establishing any general duty apart from that arising out of a particular matter in which his services are retained. The extent of his duties depends upon the terms and limits of that retainer and any duty of care to be implied must be related to what he is instructed to do.
"Now no doubt the duties owed by a solicitor to his client are high, in the sense that he holds himself out as practising a highly skilled and exacting profession, but I think that the court must beware of imposing upon solicitors – or upon professional men in other spheres – duties which go beyond the scope of what they are requested and undertake to do. It may be that a particularly meticulous and conscientious practitioner would, in his client's general interests, take it upon himself to pursue a line of inquiry beyond the strict limits comprehended by his instructions. But that is not the test. The test is what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession, and cases such as Duchess of Argyll v. Beuselinck [1972] 2 Lloyd's Rep. 172; Griffiths v. Evans [1953] 1 W.L.R. 1424 and Hall v. Meyrick [1957] 2 Q.B. 455 demonstrate that the duty is directly related to the confines of the retainer…"
- Mr. Wilmot-Smith submitted that any agreement of Mr. Woodward and Professor Knapton as to what was or was not "the Engineer's duty" was simply irrelevant so far as what, in the circumstances of this case, proper performance by MM of its obligations under the First Engagement, the Second Engagement or the Third Engagement involved. What MM was bound to do depended, and depended solely, upon the proper construction of each of the relevant retainers.
- Seizing upon Oliver J.'s reference to "a particularly meticulous and conscientious practitioner", Mr. Wilmot-Smith submitted that it was not relevant that, after the event, Mr. Greenhalgh, and others within MM, thought that MM might be exposed to liability in respect of the design of the fibre reinforced concrete floor slab in Extension 1. It may well be that, with the benefit of hindsight, Mr. Greenhalgh and others within MM thought that MM could have done better at the time the new floor for Extension 1 was designed, but, submitted Mr. Wilmot-Smith, that was no evidence that MM had been in breach of its duty. He drew to my attention a comment of Somervell LJ in Griffiths v. Evans [1953] 1 WLR 1424 at 1427:-
"I have found the question of negligence a difficult one. I think that the defendant, being wise after the event, may well reproach himself for not having gone outside the question put to him and made inquiries as to the accident generally. The variety of matters with which a solicitor has to have some familiarity increases annually. The case may well be on the border line, but I am not satisfied that the plaintiff has made out a case of negligence."
- In my judgment, as Oliver J. pointed out in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp, expert evidence in professional negligence cases needs to be approached with considerable caution. In such cases it is impossible to address the question of what was required of the defendant without considering, first and foremost, what it was that the defendant agreed to do. It is not a valid criticism of a surveyor who agreed to inspect a dwelling for rising damp in the ground floor rooms that he did not discover an infestation of Death Watch Beetle in the roof. Similarly it is not a valid criticism of a doctor consulted in relation to a broken leg that he did not ascertain that the patient had a heart condition. Quite simply, if the defendant in a professional negligence case never agreed to provide a particular service, he is not liable for not providing it. I respectfully agree with Oliver J. that the question what service a professional person agreed to provide depends wholly upon the proper construction of his contract of retainer, and that the proper construction of his retainer is a matter of law for the court. So, coming to the facts of this case, and to the agreement between Mr. Woodward and Professor Knapton as to what is "the Engineer's duty", in my judgment no engineer has any duty other than to perform his contract with his client. To seek to address the question of what is "the Engineer's duty" other than in the context of a particular retainer is just not a meaningful exercise.
- Where there is, or may be, legitimate scope for expert evidence is in addressing the question what, in practical terms, needs to be done in order to perform, with the care and skill of a reasonably competent member of whatever the relevant profession is, what has been determined as a matter of law to be the service which the defendant agreed to provide. However, even in this context it seems to me that expert evidence needs to be approached with caution. It is often the case that the expert evidence put before the court amounts, adapting slightly the words of Oliver J. in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp,
"to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants. "
A particular problem which in practice is presented by expert evidence of what a reasonably competent member of a particular profession would do in order to perform a particular service is that those who are called to give the evidence usually aspire to provide a level of service better than that provided by the ordinary run of members of the particular profession. After all, one of the ways in which members of a profession compete as between themselves for business is by seeking to provide a service superior to that provided by their fellows. The standards of the expert in relation to the provision by him of his own professional services are, therefore, likely to be higher than those of the ordinarily competent member of his profession. It requires, I think, a particular skill to put aside one's own, hopefully high, professional standards and to concentrate upon the standards of the ordinary practitioner.
- A further particular problem with expert evidence in a professional negligence case of what an ordinarily competent member of the relevant profession would have done to perform a particular service in particular circumstances is that the expert witness always knows what actually happened. Unless the expert takes especial care, he can easily succumb to the temptation to ask himself first, as he knows what actually happened, what steps needed to have been taken to avoid that happening. Once he has identified those steps, he may readily persuade himself that he would not have failed to take them. From there it is but a short distance to persuading himself that any reasonably competent member of his profession would have taken them, particularly if he regards himself as the personification of the reasonably competent member of his profession.
- Of course, in most professional negligence cases in which liability is in dispute an expert witness is called on behalf of the defendant to say that the defendant performed his contract to the standard of the reasonably competent member of his profession. In each case the court must evaluate the evidence in the usual way and reach a conclusion, but as long as the evidence of the witness or witnesses called on behalf of the defendant is not unworthy of acceptance, the task of the court is to apply a test along the lines of that formulated by McNair J. in Bolam v. Friern Hospital Management Committee [1957] 2 All ER 118 at page 121:-
"…I must explain what in law we mean by "negligence". In the ordinary case which does not involve any special skill, negligence in law means this: Some failure to do some act which a reasonable man in the circumstances would do, or doing some act which a reasonable man in the circumstances would not do; and if that failure or doing of that act results in injury, then there is a cause of action. How do you test whether this act or failure is negligent? In an ordinary case it is generally said, that you judge that by the action of the man in the street. He is the ordinary man. In one case it has been said that you judge it by the conduct of the man on the top of a Clapham omnibus. He is the ordinary man. But where you get a situation which involves the use of some special skill or competence, then the test whether there has been negligence or not is not the test of the man on the top of a Clapham omnibus, because he has not got this special skill. The test is the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest expert skill at the risk of being found negligent. It is well-established law that it is sufficient if he exercises the ordinary skill of an ordinary competent man exercising that particular art. I do not think that I quarrel much with any of the submissions in law which have been put before you by counsel. Counsel for the plaintiff put it in this way, that in the case of a medical man negligence means failure to act in accordance with the standards of reasonably competent medical men at the time. That is a perfectly accurate statement, as long as it is remembered that there may be one or more perfectly proper standards; and if a medical man conforms with one of those proper standards then he is not negligent…."
The fact that credible expert evidence is led in support of the contention that the defendant met the standards of the ordinarily competent member of his profession must lead almost inevitably to the conclusion that he was not negligent.
- The fact that most reputable professional people seek to provide to their clients a service better than that provided by their competitors also means that they tend to wish to enjoy a good professional reputation, and, if they do, to be jealous of it. If something goes wrong which could put a good reputation in jeopardy it is not to be wondered at that, with the benefit of hindsight, a professional man may reproach himself or his firm. Such seems to have been contemplated by Somervell LJ in the passage from his judgment in Griffiths v. Evans which I have quoted. However, the fact that he does reproach himself or his firm in my judgment tells one nothing, of itself, as to whether he or his firm fell below the standards of the reasonably competent member of the relevant profession in performing the particular retainer in relation to which the reproach arises. Such reproach is consistent with negligence but not, without more, demonstrative of it.
- In my judgment MM did not agree by the First Engagement, on proper construction, to undertake a comprehensive review of the design of the floor of Extension 1. I do not accept that it was necessary, in order to perform the assignment which MM did agree to undertake, for MM to consider anything other than the immediate cause of the rutting in the floor of Extension 1, that is to say, the shear failure of the concrete block paving. I reject the evidence of Mr. Woodward that a reasonably competent engineer given the task which MM agreed to undertake would have considered whether it was appropriate to have a ground-bearing floor at all. I am inclined to doubt that, by his agreement to the notes of his meeting with Mr. Woodward on 14 March 2001, Professor Knapton in fact assented to the proposition to which Mr. Furst contended he had assented. The use, by Mr. Woodward in his notes at paragraph 2.1, of a capital E on "Engineer" certainly meant that that paragraph could be understood in the sense in which Professor Knapton said in his letter dated 26 April 2001 to Mr. Woodward he did understand it. The suggestion by Mr. Furst that Professor Knapton had gone back on what he had agreed was, it seems to me, unjustified and unfair.
- I derive no assistance, in considering whether MM in fact performed the First Engagement to the standard of reasonably competent engineers, from the concerns later expressed by Mr. Greenhalgh and others within MM that MM could be liable in respect of the defects in the floor in Extension 1. I am convinced that Mr. Greenhalgh himself has very high standards and that he is conscious of the formidable reputation enjoyed by MM. That, once it became apparent that the floor of Extension 1 had settled and sustained significant cracking, Mr. Greenhalgh wished that MM had done better, is no evidence, in my judgment, that MM did not perform the First Engagement properly.
- In my judgment the allegation that MM failed to perform the First Engagement fails.
Whether the Second Engagement was performed
- The only respects in which it was suggested that MM might have failed to perform the Second Engagement were that the fibre reinforced concrete floor of Extension 1 was laid over the pile caps, and not separated structurally from them, and also over the base of the original electricity substation. There was a hint of a suggestion that, while supervising the remedial work to the floor of Extension 1, MM should have prevented these things happening. I characterise the allegations as "a hint of a suggestion" because there were no pleaded allegations to this effect and no real evidence about these matters. They were raised by Mr. Furst in his opening submissions, or at any rate it was only at that stage that any particular significance was sought to be attributed to them. That significance was in any event not really focused on allegations of failure on the part of MM to supervise properly the execution of the remedial works, but rather something relied upon in support of an allegation that MM should have considered the nature of the ground below Extension 1 at depth in designing the remedial works if the new floor was to be carried over the pile caps, as that assumed that there would be no significant settlement. As I have said, Mr. Woodward accepted in cross-examination that the design of the remedial scheme was appropriate to deal with the shear failure in the concrete block paving. He did not suggest that that design was not properly carried into effect. I reject any allegation that MM did not properly perform the Second Engagement.
Whether the Third Engagement was performed
- It was, I think, accepted in the end by Mr. Furst that, if the First Engagement was properly performed, it was not possible realistically to contend that the Third Engagement had not been adequately performed. The point is that if, on proper construction, it was no part of the duties assumed by MM under the First Engagement to investigate the nature of the ground at depth below Extension 1, it is difficult to see how it could be contended that MM did assume such an obligation in relation to the Third Engagement. In my judgment, what, on proper construction MM agreed to do by the Third Engagement was, in essence, to design a floor for Extension 2 the same as that in Extension 1, and to supervise the construction of such a floor. There is no dispute that MM carried out both of those tasks.
Conclusion as to liability
- For the reasons set out earlier in this judgment the claims in this action fail.
Causation
- In case I am wrong in relation to the proper construction of the First Engagement, it is necessary for me to consider what would have happened if MM had put forward as the appropriate remedy for the rutting of the concrete block paving in Extension 1 the construction of a suspended floor or had warned that a ground-bearing floor might settle differentially by up to 500 millimetres.
- It was not, I think, in dispute that the cost of constructing a suspended floor in Extension 1 would have been substantially greater than the cost of the fibre reinforced concrete slab in fact constructed. The evidence indicated that prior to the construction of a suspended floor further ground investigation was likely to have been necessary and that the process of construction would have taken longer.
- Before coming to a consideration of what Nordic would have done if advised to have a suspended floor in Extension 1 or if warned that a ground-bearing floor might settle differentially by up to 500 millimetres, it is necessary to consider which individual or individuals would have made any relevant decision in response to such advice.
- I have already recorded that Mr. Ellingsen was anxious that I should understand that his role was simply as an adviser to the protector of the trust which held the issued shares in Shipventures Inc. for his children beneficially, and as an adviser to the trustees of that trust and to the boards of directors of the various companies in the Nordic Group. That that should be so is no doubt desirable for tax reasons in whatever jurisdiction Mr. Ellingsen is domiciled for fiscal purposes. However, I am satisfied that it is just a pretence. The true position emerged, in my judgment, when Mr. Ellingsen was being cross-examined as to whether Nordic could have afforded in 1996 to have ordered the construction of a suspended slab. One of his answers was:-
"If I was told at that time by the specialist that we called in that we will end up with a floor that looks like what we have today with such enormous settlement I will most probably have gone back to the trust and said that we have to spend more money because this is a solution that we cannot live with and it has to be rectified and that would have been the – in fact the money would have been there and it would not have had a long impact on the profitability of the company as you would see from Company House if you take – see what Nordic is making per year."
That answer, which is typical of a number towards the end of Mr. Elligsen's cross-examination, shows, first, that Mr. Ellingsen considered that it was his decision whether or not money should be spent by Nordic, and not, as one might have supposed from his explanation of his role as an adviser, a decision to be taken by the board of directors of Nordic. The answer also shows that it was Mr. Ellingsen's expectation that the trustees and protector of the trust which held the issued shares in Shipventures Inc. would comply with his wishes if he asked for money from the trust for some purpose of Nordic. The reality, I am sure, is that for all practical purposes the assets of the trust are at Mr. Ellingsen's disposal and that he is accustomed to his "advice" to the trustees and the protector of the trust being accepted instantly, enthusiastically and without question. Equally, I am confident that he is accustomed to a similarly welcoming reception to any "advice" which he tenders to any of the boards of directors of companies in the Nordic Group.
- Mr. Ellingsen is, in my judgment, a shrewd, sophisticated and successful businessman. He is familiar with the need in business to evaluate commercial risks and to make judgments as to the balance of advantage between incurring expenditure so as to achieve certainty and avoiding unnecessary expenditure. If advised that Nordic should incur additional expenditure in order to have a suspended floor constructed in Extension 1, or if advised that there was a risk that any ground-bearing floor in Extension 1 would settle differentially by up to 500 millimetres, I am satisfied that he would have made his own decision what to do. He would not simply have accepted professional advice. I reach that conclusion for a number of reasons.
- In answer to a direct question as to what he would have done if he had been told that, if the fibre reinforced concrete floor slab solution were adopted for Extension 1 Mr. Ellingsen said:-
"I most probably would have raised a number of questions about alternative, what other alternative there could be and what sort of impact that would have had on further settlement. "
- Mr. Ellingsen agreed in cross-examination that he, in common with the rest of Nordic, was prepared to take risks with regard to the structures which it commissioned to be built. Those risks, I find, Mr. Ellingsen was prepared to take in the search for speed and cheapness of construction. I hasten to say that I do not find that Mr. Ellingsen always sought the cheapest solution to any construction he wished to have erected, but that he saw no reason to spend more money than the minimum necessary to achieve his ends. This approach can be seen in operation in his contribution at the meeting with Mr. Holbrook and Mr. Billing on 25 July 1995, where his motivation seems to have been to see whether the cost of the structure could be reduced. It can be seen again in his request at the meeting on 21 November 1995 for a reconsideration of the price quoted for a hardstanding "with the minimum suitable specification."
- Another indication that Mr. Ellingsen made his own decisions about matters in cases where another man might simply have sought and acted upon professional advice is the way in which the project to construct Extension 2 was undertaken. Not only was there a minimum of professional involvement, according to the minutes of the meeting held on 11 February 1997 to which I have referred, but Mr. Ellingsen decided to reject what might seem a logical extrapolation of the advice to have a piled foundation for the steel framework of Extension 1 in order to save money. He took a risk, justified as it appears, that it was not necessary to have a piled foundation for the structure of Extension 2.
- A further example of Mr. Ellingsen's approach designed to avoid expenditure which he considered unnecessary is the curious employment of IRC as main contractor for the First Contract Works and, it seems, as a sort of project manager. IRC was a roofing contractor. It is not usual to employ a roofing contractor as a main contractor for works which include substantial amounts of building work. It is not usual to leave it to a roofing contractor to engage an architect to design a structure or to organise other contractors. That Nordic did this indicates that there was a concern on the part of Mr. Ellingsen not to spend money unnecessarily and a confidence on his part that he could decide when professional assistance was needed.
- Mr. Wilmot-Smith urged upon me that Mr. Ellingsen's denial of ever having seen the CMW Report was not credible, and that I should find that Mr. Ellingsen had seen it. If I did make that finding, it would mean that Mr. Ellingsen was aware from before construction of Extension 1 commenced that there was a risk that the floor would settle differentially by as much as 300 millimetres and had simply decided to run that risk. I confess that I do find it surprising that Mr. Ellingsen should not have seen the CMW Report. However, he assured me that he had not and I am prepared to accept his evidence on this point.
- So what decision would Mr. Ellingsen have made if given the advice to have a suspended floor constructed in Extension 1 or if advised that, if Nordic did not have such a floor constructed, there was a risk of a ground-bearing floor settling differentially by up to 500 millimetres? I have already identified as a factor, a highly material factor, a desire to avoid expenditure which he considered unnecessary. How would he have approached the issue whether expenditure on a suspended floor was necessary or the issue whether the risk of differential settlement of up to 500 millimetres in the floor of Extension 1 was acceptable? He told me in cross-examination that:-
"..during the Shiplink time we have laid probably, most probably, hundreds if not thousands of square metres of concrete slab both in Rochester and Chatham. We had some settlement but nothing even close to what we have experienced here."
A little later he said:-
"..all the slabs that has been laid by Shiplink over all the years since we had it from 1976 onward has always been ground-bearing slab solutions."
I am confident that he would have taken into account in deciding what to do the experience which he had had since 1976 with ground-bearing floor slabs. That experience led him to expect some settlement with a ground-bearing floor slab, but nothing which would cause operational difficulties with his, or rather Nordic's , business. I am sure that Mr. Ellingsen would have reminded himself that the existing floor of the Original Warehouse was ground-bearing and comprised concrete block paviors. That floor, which I have seen, has settled in places and has been repaired, but by and large it remains serviceable. Mr. Ellingsen told me that no decision has yet been made to do anything about the floors in Extension 1 and Extension 2, although he said that a decision is likely to be made soon. Notwithstanding that Mr. Woodward was first retained to advise Nordic as long ago as August 1998, I was told that it was only three weeks before the trial that Mr. Woodward was instructed to prepare a detailed proposal for remedial works to the floors of Extension 1 and Extension 2. As no decision has yet been made to undertake any remedial works at all, the only purpose in preparing a detailed proposal for remedial works appears to have been so that it could be relied upon in support of the claim for damages. Indeed, the occasion for the preparation of the detailed proposal seems to have been a comment by Mr. Robinson, the single joint expert as to quantum, that he was unable adequately to price the scheme advocated by Mr. Woodward in his expert report. At the beginning of this judgment I analysed the financial performance of Nordic and its subsidiaries since the Nordic Group came into existence. From that analysis it is clear that Nordic was not able in 1996 or 1997 to undertake substantial capital expenditure without borrowing. I am satisfied that, given Mr. Ellingsen's general reluctance to spend money if it can be avoided he would not have been prepared for Nordic to borrow to finance the construction of a suspended floor in Extension 1. That is, I think, abundantly clear from the fact that, by 1998 or 1999, Nordic would have been able out of its own resources to finance the undertaking of remedial work to the floors in Extension 1 and Extension 2 had Mr. Ellingsen wished it to do so, but he did not. Indeed, it is possible to take the view that, given the profits which Nordic and its subsidiaries have been able to make notwithstanding the condition of the floors in Extension1 and Extension 2, any expenditure on remedial works beyond sealing of cracks is unnecessary even now. Mr. Ellingsen seems to take that view, for he has not actually been prepared for Nordic to spend either its own money or that of the trust on any substantial repairs up to now. In the result I am satisfied that, if Nordic had been advised in 1996 that it should have a suspended floor constructed in Extension 1 Mr. Ellingsen would not have accepted that advice, but would have asked to be advised of cheaper solutions and of the risks associated with those cheaper solutions. If advised that the solution in fact recommended by MM, which otherwise would have been the best, carried with it the risk that the floor might settle differentially by up to 500 millimetres, I am satisfied that Mr. Ellingsen would have considered that assessment, in the light of his own experience, particularly with the Original Warehouse, to have been alarmist and would have run the risk. It is not without significance, it seems to me, that a new building with a ground-bearing floor slab has, so Mr. Holbrook told me, been constructed at the Dock for the storage of paper bales.
- In the result, even if, contrary to my view, MM was in breach of the First Engagement in failing to advise the construction of a suspended floor slab or in failing to point that, if a ground-bearing slab was constructed, there was a risk that the slab might settle differentially by up to 500 millimetres, I am satisfied that Nordic has suffered no loss. The claims in this action would in any event fail for that reason.
Damages
- In the light of the conclusions expressed so far in this judgment it is unnecessary for me to consider Nordic's claim for damages in any detail. As pleaded at paragraph 27 of the Particulars of Claim damages are claimed under four heads, as follows:-
"1.Wasted cost of laying the fibre reinforced concrete floors to Extension One and Extension Two…
2. Additional cost of constructing suspended floor slab to Extension One and Extension Two…
3. Disruption costs whilst suspended floor slab is being constructed…
4. Temporary remedial works to date…£22,910.68 "
The sum claimed in respect of temporary remedial works was not in dispute as a figure. There was no claim for the continuing cost of repairs as an alternative to heads 1,2 and 3 in the event that I found that those heads were not made out. There was a claim to statutory interest on damages for temporary remedial works.
- Had I been persuaded that MM was in breach of the First Engagement or the Third Engagement, and had I been persuaded that Mr. Ellingsen, if advised to have suspended floors constructed in Extension 1 and Extension 2, would have accepted that advice, or, if advised that there was a risk that ground-bearing floors in those extensions would settle differentially by up to 500 millimetres, would have instructed that suspended floors be provided, I should still not have been satisfied that Nordic intends now to have the floors in Extension 1 and Extension 2 replaced. The reasons are, first, that there is no obvious need to replace them. It is correct that the floors have settled differentially, that in Extension 1 being worse than that in Extension 2. It is true that the floor in Extension 1, particularly, has sustained quite severe cracking in places. However, each floor remains in use as a floor on which paper is stored, and each floor has been so used since it was constructed. Only modest repairs have been carried out. Nordic has itself the means to finance the replacement of the floors, if it wished to, and seems to have had the means to do so since about 1998, but it has not done so. According to the evidence of Mr. Ellingsen, his children's trust had the means to finance the replacement of the floors before 1998 and would have been able to finance the construction of suspended floors in 1996 and 1997. By use of the floors Nordic and its subsidiaries have been able to build up a profitable business and make substantial sums. Apart from the evidence of Mr. Roger Vian of Holmen AB at the trial, there is no evidence that either of the principal customers whose products are stored at the Dock is dissatisfied with the conditions of storage. Mr. Vian's evidence was, I felt, very lukewarm. The furthest he went was to say at paragraph 7 of his witness statement:-
"We are unhappy with the quality of the floor because there is a danger of loose stones getting around the warehouse floor."
Neither Holmen AB nor Korsnas had ever put any concern about storage conditions in writing to Nordic, Recycling or NFT. Mr. Price's evidence in his second witness statement was that something of the order of ½% of paper stored at the Dock was damaged from some cause, principally, I imagine, during handling. The evidence of Mr. David Steele, Operations Manager at the Dock, supported by that of Mr. Vian, was that only 37 reels of paper had been damaged by loose stones from cracks in the floors. The value of 37 reels of paper, on the evidence that a typical reel was worth £400, is something of the order of £14,800. Mr. Steele gave evidence that Nordic needs more storage space, but the obvious way in which to provide that is to construct a new extension to the warehouse at the Dock, or a new warehouse, not to disrupt the existing operation to do work to the floors of Extension 1 and Extension 2.
- The next reason why I am not satisfied that Nordic intends to replace the floors of Extension 1 or Extension 2 is that, as I have already mentioned, no decision has been made to do so. There is no obvious reason why no decision has been made, at least in principle, if there is any likelihood of it ever happening. I asked Mr. Ellingsen if a decision had been deferred pending the outcome of this action, which is something which one could readily understand, given the amount of the likely cost of replacement, but he said not. The point that the undertaking of the replacement of the floors is unlikely is underlined by the fact that no detailed scheme for the replacement of the floors was formulated by Mr. Woodward until three weeks before the trial, and then only, as it seems, for the purpose of permitting Mr. Robinson to calculate a cost in the context of the claim for damages.
- The consequence of the matters considered in the two preceding paragraphs, it seems to me, is that even if Nordic had succeeded on the issues of liability and causation, it would only have been entitled to recover as damages the agreed cost of temporary repairs to date, plus statutory interest thereon. Mr. Furst submitted that in fact what Nordic did with any damages was no concern of MM. He referred me to two decisions in support of that proposition. The first was the decision of the Court of Appeal in Darlington Borough Council v. Wiltshier Northern Ltd. [1995] 1 WLR 68. That was a case in which a local authority had entered into an agreement with a finance company under which the finance company would make the contractual arrangements with a building contractor, and, in the first place, pay, for the construction of a recreation centre which the local authority wished to have. The finance company was to be reimbursed its expenditure by the local authority. The recreation centre was built, but it proved to be defective. The finance company assigned to the local authority its rights against the building contractor. The question arose whether the finance company, and thus the local authority as assignee of the finance company, had any cause of action for substantial damages as the finance company would not incur any expenditure in relation to the defects in the recreation centre. At page 80 in the report Steyn LJ, as he then was, said:-
"The rationale of Lord Griffiths's wider principle is essentially that, if a party engages a builder to perform specified work and the builder fails to render the contractual service, the employer suffers a loss. He suffers a loss of bargain or of expectation interest. And that loss can be recovered on the basis of what it would cost to put right the defects…
"The qualification is, however, important. Lord Griffiths observed, at p.97:
"The court will of course wish to be satisfied that the repairs have been or are likely to be carried out but if they are carried out the cost of doing them must fall upon the defendant who broke his contract."
"There was apparently no argument on this point in the House of Lords. For my part, I would hold that in the field of building contracts, like sale of goods, it is no concern of the law what the plaintiff proposes to do with his damages. It is also no precondition to the recovery of substantial damages that the plaintiff does propose to undertake the necessary repairs. In this field English law adopts an objective approach to the ascertainment of damages for breach of contract."
- The other authority to which Mr. Furst directed my attention in support of this part of his submissions was Ruxley Electronics and Construction Ltd. v. Forsyth [1996] AC 344. Lord Lloyd of Berwick said at pages 372-373:-
"Intention
I fully accept that the courts are not normally concerned with what a plaintiff does with his damages. But it does not follow that intention is not relevant to reasonableness, at least in those cases where the plaintiff does not intend to reinstate. Suppose in the present case Mr. Forsyth had died and the action had been continued by his executors. Is it to be supposed that they would be able to recover the cost of reinstatement, even though they intended to put the property on the market without delay?
"There is, as Staughton LJ observed, a good deal of authority to the effect that intention may be relevant to a claim for damages based on cost of reinstatement. The clearest decisions on the point are those of Sir Robert Megarry V-C in Tito v. Waddell (No.2) [1977] Ch. 106, and Oliver J. in Radford v. De Froberville [1977] 1 WLR 1262. One of the many questions in the former case was whether the plaintiffs could recover the cost of replanting the plots of land in question, or whether the recovery of damages was limited to the difference in the market value of the land by reason of the work not having been done. Sir Robert Megarry V-C said [1977] Ch. 106,332:
"Again, some contracts for alterations to buildings, or for their demolition, might not, if carried out, enhance the market value of the land, and sometimes would reduce it. The tastes and desires of the owner may be wholly out of step with the ideas of those who constitute the market; yet I cannot see why eccentricity of taste should debar him from obtaining substantial damages unless he sues for specific performance. Per contra, if the plaintiff has suffered little or no monetary loss in the reduction of value of his land, and has no intention of applying any damages towards carrying out the work contracted for, or its equivalent, I cannot see why he should recover the cost of doing work which will never be done. It would be a mere pretence to say that this cost was a loss and so should be recoverable as damages."
"In the present case the judge found as a fact that Mr. Forsyth's stated intention of rebuilding the pool would not persist for long after the litigation had been concluded. In these circumstances it would be "mere pretence" to say that the cost of rebuilding the pool is the loss which he has in fact suffered. This is the critical distinction between the present case and the example given by Staughton LJ of a man who has had his watch stolen. In the latter case, the plaintiff is entitled to recover the value of his watch because that is the true measure of his loss. He can do what he wants with the damages. But if, as the judge found, Mr. Forsyth had no intention of rebuilding the pool, he has lost nothing except the difference in value, if any. "
- In my judgment, the authorities which Mr. Furst cited do not support the general proposition that it is no concern of a defendant what a claimant does with his damages, if, by that, it is sought to suggest that it is never open to a defendant to contend that he should not have to pay damages because the claimant has not demonstrated that he intends to repair or replace some item which is alleged to be defective as a result of some failure on the part of the defendant. As Lord Lloyd pointed out in Ruxley Electronics and Construction Ltd. v. Forsyth, considerations of reasonableness are relevant. However, before one gets to any consideration of reasonableness, as it seems to me, it is necessary to analyse exactly what is the alleged foundation for the claim for damages. Where, as a result of the wrongdoing of the defendant, an asset belonging to the claimant has been damaged, no challenge to the imagination is involved in the notion that the defendant is entitled to compensation for the diminution in the value of his asset, whether or not he actually intends to repair or to replace it. If he does intend to repair or to replace the asset, he will be put to expense in doing so. If he decides to accept the asset in its damaged condition, the value of his asset is diminished, and the cost of repair or of replacing the asset, had that been what the claimant wanted to do, may well be evidence of the extent of the diminution in value. In principle, it is not obvious that, subject to considerations of reasonableness, a different approach should be adopted where the fault of the defendant consists not in damaging an existing asset of the claimant, but in producing an asset, such as a building, which is less perfect than it would have been had the defendant properly performed his contract. However, neither of these cases is the present case. In the present case what is said is that if MM had properly performed the First Engagement Nordic would have had a suspended floor constructed in 1996 in Extension 1, rather than the fibre reinforced concrete floor in fact constructed, so that the expenditure on the fibre reinforced concrete floor was wasted, and it will now cost more than it would have done in 1996 to have a suspended floor constructed in Extension 1 and will put Nordic to expense in disruption of its business. A similar analysis is applied to the Third Engagement and Extension 2. What is claimed in each case is the alleged wasted cost of constructing the floor which is there, and the alleged extra cost now, as opposed to in 1996 or 1997, as the case may be, of constructing a suspended floor, together with the alleged costs of disruption now, rather than then. It is critical to whether any loss has been suffered at all in relation to these heads of alleged damage that Nordic should actually intend to construct suspended floors in Extension 1 and Extension 2. If it does not, but intends to continue to use the existing floors in Extension 1 and Extension 2, as it has for the last four or five years, the postulated expenditure will never be incurred and the expenditure on the existing floors has not been wasted. Failure on the part of Nordic to prove that it does actually intend to replace the existing floors with suspended floors means, in my judgment, that, even if Nordic had succeeded on liability and causation, I should only have awarded damages of £22,910.68 plus interest.
Conclusion
- For the reasons which I have set out, this action fails and is dismissed. There will be judgment for MM on the counterclaim for the sum of £13,799.31, plus interest, as to which I will hear Counsel.
