Factual and Procedural Background
These proceedings concern claims by freehold owners of homes built by the Defendant, Company A, at a housing development at Eden Park in The City between 2002 and 2004. The development was constructed on a former landfill site and comprised 94 detached houses built in two phases. The houses were founded on piled foundations of differing types between the two phases. Defects emerged in a number of properties, prompting the claims. The properties had cover under a warranty scheme operated by Company B, with supervision by Company C. However, claims against these two parties are currently stayed, and they did not participate in the trial.
Company A purchased the land in two phases, piling and constructing the houses accordingly. Cracking was first noticed in 2003 at certain plots, leading to investigations by various engineering consultants and piling contractors. Company A initiated proceedings against the piling contractor, with a judgment delivered in 2007 finding negligence in design and construction of the piling.
Company A repurchased some houses and undertook remedial works including repiling on several properties. The present proceedings commenced in 2008. An agreement was entered into between Company A and Company B dividing responsibility for remedial works under the warranty scheme. The trial concerned claims by ten lead Claimants against Company A, with the intention that findings would assist resolution of claims for the remaining properties.
Legal Issues Presented
- Whether the Defendant's obligations under the contracts for sale included an implied or express duty to carry out works, including design and construction, with reasonable skill and care and to complete the works so that the properties were fit for habitation.
- Whether the entire agreement clauses excluded any implied terms relating to skill, care, and fitness for habitation.
- Whether contractual obligations merged on conveyance or survived completion of the sale.
- Whether statutory controls, including the Unfair Terms in Consumer Contracts Regulations 1999 and the Unfair Contract Terms Act 1977, affected the enforceability of contractual terms.
- The interpretation and application of section 1 of the Defective Premises Act 1972 regarding the duty to build dwellings properly.
- Whether notice requirements under the warranty scheme (Buildmark cover) were satisfied or waived.
- Issues of liability and quantum of damages for the ten lead Claimants under the contracts, statutory provisions, and warranty cover.
Arguments of the Parties
Appellants' Arguments (Claimants)
- Clause 7.1 of the sales contracts imposes an obligation to carry out all works, including design and construction, in a good and workmanlike manner with reasonable skill and care.
- The works must be made ready for occupation, implying fitness for habitation.
- If such obligations are not express, they should be implied at common law or under the Supply of Goods and Services Act 1982.
- Entire agreement clauses do not exclude implied terms as they relate to collateral agreements and pre-contractual representations, not unexpressed contractual terms.
- The statutory controls render unfair any terms that significantly imbalance the parties' rights to the detriment of consumers, particularly clauses limiting claims after completion.
- The Defective Premises Act 1972 imposes a threefold duty: work must be done in a workmanlike manner, with proper materials, and result in dwellings fit for habitation.
- Notice under the warranty scheme was given orally or constructively, and any failure to give written notice was waived by the Defendant's conduct.
- Damages should include the cost of repiling and remedial works to restore the properties to the condition contracted for, as well as compensation for distress and diminution in value.
Defendant's Arguments (Company A)
- The obligation in Clause 7.1 is limited to completion of works in a good and workmanlike manner at or after the contract date and does not encompass design obligations or fitness for habitation.
- Entire agreement clauses exclude any terms not expressly included, including implied terms.
- Contractual obligations merge on conveyance, terminating claims after completion.
- The statutory controls do not prevent the application of the contractual terms as drafted, especially given the Claimants had legal advice.
- The Defective Premises Act 1972 imposes a single duty, with no breach unless the dwelling is unfit for habitation when completed.
- No written notice was given within the warranty period for some properties, and oral or constructive notice is insufficient.
- The cost of repiling is an unreasonable measure of damages; diminution in value is the appropriate remedy.
- Claims for distress and inconvenience are generally not recoverable except in exceptional contracts for enjoyment, which does not apply here.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Hancock v Brazier (Anerley) Ltd [1966] 1 WLR 1317 |
Implied terms in building contracts relating to workmanship, materials, and fitness for habitation. |
Used to interpret Clause 7.1 obligations and implied terms under the contracts for sale. |
| Bellefield Construction v Turner [2002] EWCA Civ 1823 |
Blurred boundary between design and workmanship obligations in construction contracts. |
Supported the inclusion of design obligations within workmanship duties. |
| Alexander v Mercouris [1979] 1 WLR 1270 |
Interpretation of section 1 of the Defective Premises Act 1972 as a single continuing duty. |
Binding authority on the court to construe the statutory duty as continuing but with breach only if dwelling unfit for habitation. |
| Lawrence v Cassel [1930] 2 KB 83 |
Doctrine of merger in conveyancing contracts. |
Rejected merger of building obligations on conveyance. |
| Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9 |
Reasonableness of contractual clauses limiting builders' liability in light of warranty schemes. |
Considered but distinguished from the present case regarding statutory controls and fairness. |
| UK Housing Alliance v Francis [2010] EWCA Civ 117 |
Definition of "individually negotiated" terms under the 1999 Regulations. |
Applied to determine that terms were not individually negotiated despite legal advice. |
| Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd's Rep 611 |
Effect of entire agreement clauses on implied terms. |
Guided interpretation of Clause 8 and the scope of implied terms. |
| Seadrill Management Services Ltd v OAO Gazprom [2009] EWHC 1530; [2010] EWCA Civ 691 |
Whether implied terms of reasonable skill and care can coexist with exclusion clauses. |
Supported implication of terms despite exclusion clauses unless clear words exclude them. |
| Marchant v Caswell and Redgrave Ltd [1976] EGD 172 |
Doctrine of waiver and estoppel in contractual notice requirements. |
Applied to find waiver of notice requirements under warranty cover. |
| Kosmar Villa Holidays PLC v Trustees of Syndicate 1243 [2008] EWCA Civ 147 |
Doctrine of waiver by election and affirmation in contract law. |
Applied to find waiver of notice requirements by Defendant's conduct. |
| East Ham Corporation v Bernard Sunley & Sons Ltd [1966] AC 406 |
Measure of damages for defective building work; reinstatement as primary remedy. |
Applied to establish damages principles for defective premises. |
| Ruxley Electronics v Forsyth [1996] AC 344 |
Reasonableness in awarding damages for defective works; loss of amenity damages. |
Guided assessment of damages and reasonableness of reinstatement claims. |
| Addis v Gramophone Co Ltd [1909] AC 488 |
General rule excluding damages for mental distress in breach of contract. |
Applied to limit damages for distress except in exceptional cases. |
| Watts v Morrow [1991] 1 WLR 1421 |
Damages for distress and inconvenience related to physical consequences of breach. |
Applied to assess damages for distress and inconvenience claims. |
| Farley v Skinner [2001] UKHL 49; [2002] 2 AC 732 |
Exception to general rule on damages for distress where contract's object includes pleasure or peace of mind. |
Considered in relation to claims for damages for loss of amenity and distress. |
| Bellefield Construction v Turner [2002] EWCA Civ 1823 |
Integration of design and workmanship obligations. |
Supported Claimants' submissions on design obligations within Clause 7.1. |
| Batty v Metropolitan Realisations Ltd [1978] 1 QB 554 |
Interpretation of express warranty terms in building contracts. |
Discussed in relation to fitness for habitation and implied terms. |
Court's Reasoning and Analysis
The court first analysed the contractual obligations under the sales contracts, focusing on Clause 7.1. It concluded that the obligation to complete the works "in a good and workmanlike manner" includes both design and construction responsibilities and an implied or express requirement that the properties be fit for habitation. The court rejected the Defendant's narrower interpretation limiting the obligation to work done after the contract date or excluding design obligations.
The court considered implied terms and found that even if the express terms did not include design and fitness for habitation, such terms would be implied under common law and statute. It further held that the entire agreement clause did not exclude these implied terms, as such exclusion would require clear and unequivocal language not present here.
Regarding merger of contractual obligations on conveyance, the court found that the building obligations did not merge and survive completion, relying on established precedents.
The court addressed statutory controls under the 1999 Regulations and UCTA, concluding that the relevant contract terms were standard form, not individually negotiated, and that the terms contended for by the Defendant would cause a significant imbalance detrimental to consumers and thus be unfair and unenforceable. The court rejected the Defendant's reliance on legal advice to the Claimants as removing the imbalance.
In interpreting section 1 of the Defective Premises Act 1972, the court followed binding authority holding that the statutory duty is a single continuing duty to carry out work in a workmanlike manner with proper materials so that the dwelling will be fit for habitation when completed. The court found that the properties were not fit for habitation due to foundation defects causing structural movement and cracking.
The court found that notice requirements under the warranty scheme were satisfied by oral and constructive notice and that any failure to give written notice was waived by the Defendant's conduct and admissions.
On liability, the court accepted the expert evidence that the piling was negligently designed and constructed, resulting in inadequate factors of safety and foundation movement causing damage. The court gave particular weight to the Defendant's expert's assessment of low risk of significant future damage but accepted the Claimants' expert's view on the cause of cracking.
On quantum, the court held that the appropriate measure of damages is generally the cost of reinstatement unless unreasonable, in which case diminution in value applies. The court found repiling to be unreasonable given the low risk of significant future damage and the minor nature of existing damage, and that diminution in value was the proper remedy. The court accepted that damages for distress and inconvenience are recoverable only to the extent of physical inconvenience and related distress, and awarded modest sums accordingly.
The court resolved valuation disputes by adopting a gradated approach reflecting mortgageability and market conditions, applying discounts to reflect limited marketability and risk. The court made detailed findings on each lead property, assessing liability, diminution in value, remedial costs, and damages for distress.
The court left some quantum issues, particularly costs of minor remedial works and external areas, for further expert agreement or directions.
Holding and Implications
DISPOSED OF
The court found that Company A is liable to the Claimants for breaches of the sales contracts (except for two subsequent purchasers), the Defective Premises Act 1972, and the warranty scheme. The court awarded damages primarily based on diminution in value of the properties, modest damages for distress and inconvenience, and allowed for costs of minor remedial works to be determined. The court rejected claims for the cost of repiling as unreasonable and found that contractual terms limiting claims after completion were unfair and unenforceable under statutory controls.
The decision directly affects the parties by quantifying liabilities and damages for the lead Claimants and setting a framework for resolving remaining claims. No new legal precedent was established beyond the application and clarification of existing principles concerning contractual obligations, statutory duties, and consumer protection in the context of defective residential properties.