Download PDF

Lendlease Construction Limited v AECOM Limited [2023] EWHC 2620

December 2023

Overview

On 1 November 2023, the Technology and Construction Court handed down Judgment in Lendlease Construction (Europe) Limited v AECOM Limited [2023] EWHC 2620 (TCC). Sheena Sood of Beale & Company Solicitors LLP, Lynne McCafferty KC and Matthew Thorne acted for AECOM, the successful party. Lendlease’s claim was dismissed in its entirety with costs awarded in AECOM’s favour.

The Judgment addresses several important points which regularly feature in construction claims including the scope and standard of care of a consultant’s obligations, the circumstances in which a continuing duty to review, advise or warn will arise, contractual limitation periods and the reasonableness of prior settlements.

The Project

The dispute concerned a new Oncology Centre at St James’s University Hospital, Leeds, which had been delivered under the Government’s Private Finance Initiative. The Leeds Teaching Hospitals NHS Trust had entered into a project agreement with St James’s Oncology SPC Limited (Project Co) for the design, construction, operation and maintenance of the Oncology Centre. Project Co had in turn engaged Lendlease as the design and build contractor and they had engaged AECOM to provide MEP and fire engineering services (the “Consultancy Agreement”).

Practical completion of the Hospital was achieved in December 2007. Following practical completion, a fee dispute arose between Lendlease and AECOM which was settled in September 2012.

The Upstream Claims 

Following the discovery of defects in respect of the design and construction of the Hospital, two separate claims were brought against Lendlease in the Technology and Construction Court; one from Project Co and another from Engie Buildings Limited who maintained the Oncology Centre for the Hospital.

The claims against Lendlease included defects related to the basement plantroom at the Hospital (claimed by Project Co) and other defects known as the non-plantroom defects (claimed by Project Co and Engie).

The proceedings against Lendlease resulted in (i) a settlement between Lendlease, Project Co and Engie in relation to the non-plantroom defects in the sum of £2.9 million (the “Tri-Party Settlement”); and (ii) the Judgment of Joanna Smith J in St James’s Oncology SPC Limited v (1) Lendlease Construction (Europe) Limited (2) Lendlease Construction Holdings (Europe) Limited  [2022] EWHC 2504 (TCC) which found Lendlease liable for the plantroom defects in the sum of £5,048,534.39 plus costs (the “Upstream Judgment”).

Lendlease Claim against AECOM

On 30 May 2019, in parallel with the upstream proceedings, Lendlease issued proceedings against AECOM in the Technology and Construction Court. Lendlease sought to pass down to AECOM, liability in respect of matters which it contended were the consequence of AECOM’s breaches of its obligations under the Consultancy Agreement. Lendlease contended that the plantroom defects were all the consequence of AECOM’s breaches and that it was entitled to be indemnified in the full amount of its liability to Project Co; and Lendlease attributed nine of the non-plantroom defects to matters of MEP design, which it contended were the responsibility of AECOM.

Key Issues

• The scope of the Consultancy Agreement and AECOM’s obligations under it. Two key issues were considered (i) the extent to which AECOM was obliged to achieve a particular outcome or attain a particular standard as opposed to exercising reasonable care and skill and (ii) whether AECOM had a continuing duty to review and/or to advise and/or warn Lendlease after having provided its design originally or upon being asked to provide an updated fire strategy report close to practical completion.
• The Fire Strategy produced by AECOM had undergone a number of revisions. The final revision (“Rev 19”) was issued in November 2007 very shortly before practical completion. Lendlease claimed AECOM had been in breach in producing this version. The responsibility for Rev 19 and its relationship to the as-built state of the plantroom, together with the causative effect of the updated report, was a key part of the case.
• Whether or not the claims against AECOM were statute-barred. AECOM advanced two limitation defences. Firstly, AECOM submitted that the Consultancy Agreement operated as a simple contract and not as a deed. Secondly, even if the Consultancy Agreement was a deed, then the causes of action in respect of all alleged defects, save those resulting from the issue of the updated Fire Strategy, accrued more than 12 years prior to the issue of proceedings and were statute-barred.
• The proper interpretation and effect of the earlier settlement agreement between Lendlease and AECOM. This included a consideration of whether the defects that Lendlease now relied on ought reasonably to have been known to it at the time of the earlier settlement and, if so, whether the agreement precluded the bringing of a claim in respect of those defects.
• The impact of the Tri-Party Settlement between Lendlease, Project Co and Engie and the impact of the Upstream Judgment.

The Judgment

Mr Justice Eyre dismissed the claim against AECOM in its entirety. It was held that the majority of the claims made were statute-barred and/or compromised by the prior settlement between AECOM and Lendlease. The Court held that even if the claims in respect of some of the individual defects had not been statute-barred, those claims would have failed on liability and causation. The following key points from the decision should be noted.

The Consultancy Agreement

It was Lendlease’s position that its obligations to Project Co under the D&B Contract were stepped down to AECOM, such that AECOM was obliged to achieve the outcome which Lendlease had contracted to achieve under the D&B Contract. It was held by Justice Eyre that the Consultancy Agreement “did not operate to step down to Aecom Lendlease’s obligations to Project Co under the D&B Contract”.

Furthermore, Lendlease relied on MT Hojgaard A/S v E.ON Climate [2017] UKSC 59 and Martlet Homes Ltd v Mulalley & Co Ltd  [2022] EWHC 1813 (TCC) for the proposition that AECOM was liable for strict compliance with prescribed criteria. However, it was held that none of the clauses in the Consultancy Agreement could be seen as laying down competing requirements for specified performance criteria of the kind referred to in Hojgaard nor could they readily be seen as setting out inconsistent design obligations.

In reaching this decision, Justice Eyre gave careful consideration to clauses 1.01 and 4.01 of the Consultancy Agreement.

• Clause 1.01: “the Consultant shall be deemed to have notice of and shall observe the Employer’s Requirements and/or the Project Agreement and/or the Principal Agreement to the extent the same shall have been issued to the Consultant by the Contractor and to that extent shall be deemed to have full knowledge of the terms and conditions of the Employer’s Requirements and/or the Project Agreement and/or the Principal Agreement. To the extent of the obligations of the Consultant as set out in this Agreement, the Consultant shall ensure that no act, default or omission of the Consultant shall cause or contribute to any breach by the Contractor of any of its obligations contained in the Employer’s Requirements and/or the Project Agreement and/or the Principal Agreement.”

• Clause 4.01: “The Consultant warrants that he has exercised and will exercise all reasonable skill care and diligence in conformity with the normal professional standards of a consultant holding himself out as a competent consultant experienced in the provision of such services for projects similar in scope and complexity to the Works and having regard for the dates and periods stated in the Contract Programme and Design Service Programme and duties herein described and will comply in all respects with the requirements of the local authority, statutes, regulations, and codes of practice in force and relevant to the design of the Works, including but not limited to fire, health and safety”.

The final sentence of clause 4.01 (the overriding reasonable skill and care clause) was considered by Justice Eyre to be of particular significance. This read:

• “Notwithstanding any other clause in this Agreement or the Principal Agreement or term implied by statute or common law, the Consultant shall not be construed to owing [sic] any greater duty in relation to this Agreement than the use of necessary reasonable skill, care and diligence pursuant to this Clause 4.01.”

It was held that the natural meaning of clause 4.01 was that it purports to have a qualification on the strict duties which would otherwise be owed by AECOM under clause 1.01.

Continuing duty to warn and review

Lendlease argued that AECOM should have warned Lendlease that the configuration of the plantroom in the final version of the Fire Strategy was not compliant with good practice or the applicable Health Technical Memoranda (“HTM”). Lendlease argued that this was a continuing duty. By contrast, AECOM argued that there was no continuing duty to warn or advise and that any cause of action against AECOM accrued when it handed over its design to Lendlease for construction alternatively when construction of the plantroom occurred in accordance with that design.

Justice Eyre held that the determination of any duty to review designs and/or to warn of the same is based on the contract terms in question.

The following commentary was provided:

• Where the contractual obligation is solely that of providing a design, the contract is unlikely to be interpreted as imposing an obligation on the designer to review the design after it has been supplied; and
• Where there are duties going beyond the provision of a design, there can be a contractual obligation to review the design. Where there are such further duties, the court can find that there is an obligation on the designer to review the design up to the time it is incorporated in the construction.

In considering that AECOM was not a pure designer (and it had obligations and responsibilities which continued after the provision of its design), Justice Eyre found that in the period after the construction of the plantroom, there was no duty on AECOM to review the design or construction nor to warn Lendlease as to non-compliance with HTM 81.

The responsibility for the final Fire Strategy

The circumstances in which the final version of the Fire Strategy Report came to be produced and the responsibility for it were matters of significant dispute.

It was held that AECOM was not in breach of its obligations under the Consultancy Agreement in producing the final revision. In reaching this decision, Justice Eyre was persuaded by a series of contemporaneous emails that evidenced that AECOM was being requested to update the report (so that Lendlease could achieve practical completion) and Lendlease was not seeking advice from AECOM at that stage.

Causation

Justice Eyre agreed with AECOM’s case on causation. It was held that Lendlease had not produced any evidence to establish that it would have acted any differently if AECOM had warned that the plant room was non-compliant. Justice Eyre held that if Lendlease would have acted in a different way had AECOM warned, then this should have been expressly pleaded and supported by evidence. Furthermore, Justice Eyre found that Lendlease would have needed to give credit for the considerable expenses that would have been incurred had there been a reconfiguration in 2007 as a result of Lendlease acting on advice from AECOM.

Limitation

Justice Eyre concluded that the Consultancy Agreement took effect as a deed and so there was a twelve-year limitation period running from the accrual of the cause of action in respect of any breach of that agreement. Justice Eyre agreed with AECOM that the claims in respect of the remaining defects were all statute-barred.

The Lendlease/AECOM Settlement Agreement

Justice Eyre found that a number of the alleged defects included in Lendlease’s claim would have been covered by the wide wording of the settlement agreement that had been negotiated by AECOM and Lendlease following the fee dispute. The release clause in the Settlement Agreement had provided:

“the Parties agree to waive and unconditionally and forever release each  other, their insurers, their parents, subsidiaries, affiliates and associate companies (included but not limited to their respective directors, officers, employees, agents, successors, assigns and heirs) from (a) the Notified Claims and/or (b) any other claims and counterclaims, liabilities or debts (of whatever nature) which are known  to the Parties or which ought reasonably to have been known to the Parties as at the date of this Agreement arising out of or in connection with AECOM’s provision of services pursuant to the Appointment”.

The settlement agreement was held to be a complete defence in respect of any claim based on a defect which existed at that date and of which Lendlease knew or ought to have known.

The Tri-Party Settlement  

The question as to whether Lendlease had satisfied the requirements for the sums paid in this settlement to be recoverable against AECOM was considered. Justice Eyre held that, while there is a low hurdle that needs to be overcome to show that a settlement was reasonable, in relation to a number of defects, Lendlease had failed to surmount that hurdle. The importance of there being sufficient material from which the Court or other parties could assess whether the settlement figure was reasonable in the particular circumstance (such as independent quantum expert evidence) was emphasised. It was considered that “a party must do more than assert that the settlement was for less than was being claimed”.

The Upstream Judgment

This point was academic in light of the decision reached on limitation and the effect of the settlement agreement. However, it was nonetheless considered.

Justice Eyre held that, if all the plantroom defects were to be established against AECOM, then the Hollington v Hewthorn “carve-out” can safely be applied and the award made in the Upstream Judgment can be seen as being the measure of the loss caused to Lendlease subject to AECOM establishing that it was not the true measure. However, very different considerations would apply if Lendlease failed to establish AECOM’s liability for all the defects. In those circumstances, Lendlease would not be able to rely on the “carve-out” in respect of a smaller number of defects and would have to prove their loss without reliance on the upstream award.

Key points

There are a number of key points to take away from this judgment.

Firstly, the judgment emphasises the importance of ensuring that contracts, which are intended to be deeds, are correctly executed as deeds. Where the formalities are not complied with, arguments could be raised in due course as to whether or not a contract took effect as a deed.

The judgment shows that, where it is intended that a consultant will have a duty to review its design, and such a duty is to be continuing, this will need to be appropriately reflected in the contract terms.

The case also demonstrated the importance of adducing relevant witness and contemporaneous documents and gave an indication as to the circumstances in which a Court may be inclined to draw adverse inferences from the absence of the same. Furthermore, the judgment made it clear that the Court will expect all parties’ positions on causation and quantum to be properly pleaded and supported by appropriate evidence.

With regard to limitation, in reaching his decision, Justice Eyre emphasised a number of important points: (i) firstly, that a cause of action in contract in respect of a claim for defective design accrued at the latest when the construction to accord with such design was complete; (ii) any causes of action in contract relating to a failure to review or advise will give rise to a separate cause of action and each such cause of action will accrue when the failure occurs; (iii) any contractual provision which reads “No action or proceedings under or in respect of this Agreement in contract or for breach of statutory duty shall be commenced against the Consultant after the expiry of 12 years after the Completion Date for the Works” should be interpreted as per the findings in The Oxford Architects Partnership v The Cheltenham Ladies College [2006] EWHC 3156, namely, as a contractual longstop provision, providing a protection against claims brought after a certain date but not as extending the period in which claims which would otherwise be statute-barred could be brought; and (iv) in seeking to demonstrate that a party had carried out services beyond the completion of its design, it is necessary to show acts or omissions in breach of contract that are causative of the particular defects.

Finally, the decision reiterates the importance of an overriding reasonable skill and care clause in consultant’s contracts. This had the required effect of defeating any argument that the consultant had agreed to strict obligations or compliance with specified criteria.

The decision is important for consultants and their professional indemnity insurers as it provides much support for consultants seeking to defend claims where elevated duties are alleged.

Download PDF