A decision of the Court of Appeal last week has considered the correct approach to remoteness in cases where there is concurrent liability in contract and tort. The court’s decision renders broader tortious rules inapplicable in such cases and adds to previous developments restricting the usefulness in a construction context of parties bringing concurrent claims in tort as well as contract.
Concurrent liability in construction claims
Claims for defective or poorly performed construction work have in the past been commonly made both in contract and under the general law of “tort” (or “delict” as it is known in Scotland) which imposes liability for certain negligent acts. Tortious liability arises independently of any contract but may also apply alongside contractual duties (a situation known as “concurrent liability”). Concurrent tortious liability can sometimes provide an advantage over contractual liability. In particular, a later limitation period may apply, contractual provisions against assignment can be side-stepped and the rules applicable to causation and the recoverability of certain types of losses (known as the rules of “remoteness”) are often broader in tort than in contract.
A number of cases in recent years have restricted the ability of parties to rely on concurrent tortious duties in a construction context:
- In 2011, the Court of Appeal held (in Robinson v PE Jones), contrary to what many had believed to be the position, that no concurrent duty in tort would arise in the case of an ordinary building contract. Such a duty would arise for architects or other designers, but the position in relation to design and build contracts remains uncertain.
- Tortious claims were thought to have potentially provided an extended limitation period for claims against sub-contractors on the basis that a tortious claim might arise or “accrue” only at the point a claim was made against a main contractor or superior sub-contractor. Two cases last year have rejected this line of argument, finding that tortious claims would ordinarily accrue at the same point as contractual claims upon practical completion of the sub-contract works. To read our previous Law-Now on this development, please click here.
- In a decision given last week, the Court of Appeal has decided that the rules for recoverability of damage in tortious claims (i.e. remoteness), which are ordinarily broader than in contract, are to be limited to the contractual position in cases of concurrent liability.
Wellesley Partners LLP v Withers LLP
Wellesley, an executive search consultancy, sued its former solicitors, Withers, for what it alleged to be the negligent drafting of a partnership agreement. One issue arising in the proceedings was whether Wellesley could claim for its inability to expand into the USA and win a profitable contract as a result of a deterioration in its financial position said to have arisen due to the mis-drafted partnership agreement. The judge at first instance had held that such a loss would be too remote for a claim in contract, but would be recoverable through a claim in tort.
Under the law of contract, a loss is ordinarily recoverable only if it may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of a breach. By contrast, tortious claims permit all losses to be recovered which are reasonably foreseeable at the time the tort occurred. The tortious test of reasonably foreseeability is therefore wider than the contractual test. In claims where non-typical losses arise or knock-on consequences are relevant, such as those alleged by Wellesley, the broader tortious position can prove to be important.
Although the Court of Appeal disagreed that the loss claimed by Wellesley was too remote for a claim in contract, it concluded that the tortious rule should mirror the contractual position in cases of concurrent liability.
The court placed particular emphasis on the fact that when entering into a contract parties have the opportunity to assess whether there are special circumstances which might lead to losses outside the usual contractual rule as to remoteness. They can therefore make specific provision for these losses in their contract or communicate those special circumstances to the other party (which would bring them within an extended definition to the contractual rule as to remoteness). The tortious rule as to remoteness, on the other hand, is primarily aimed at parties who before the tortious act in question were strangers. They do not therefore have an opportunity to regulate legal affairs between themselves and are entitled to a more generous measure of loss.
Conclusions and Implications
The present case is the first to consider the applicable rules as to remoteness in cases of concurrent liability in tort and contract. In favouring the contractual rules as to remoteness, the Court of Appeal has removed one reason for potentially bringing concurrent claims in tort and contract. An issue not addressed by the court, but which arises potentially by way of analogy, is whether the broader rules as to causation which ordinarily apply in tortious claims are also to be aligned with the narrower contractual position in cases of concurrent liability.
The present decision will be welcome news for contractors, construction professionals and their respective insurers, as providing a safeguard against the more uncertain level of losses which are recoverable under the tortious rules as to remoteness of loss. The case should also in certain cases reduce the need, in conjunction with the other developments mentioned above, for additional legal costs to be spent in formulating complex claims in tort alongside more simple contractual claims.