Hilson Moran Partnership v Environment Agency

A professional consultant giving a collateral warranty must exercise proper professional skill and care in relation to the development and in performing relevant contractual duties. Conduct intended to assist the developer by misrepresenting the state of the works may breach that warranty, even before the beneficiary becomes contractually involved. Causation may be established by reasonable inferences where the trial judge has assessed incomplete evidence realistically. However, damages must be confined to loss caused by the breach. Remedial works attributable to a later failure by another contractor, rather than the original failure to commission the system, were not recoverable.

The Environment Agency, formerly Thames Water Authority, brought proceedings against Hilson Moran Partnership under a deed of collateral warranty relating to mechanical and electrical services at an office development. The trial judge found that Hilson Moran had issued misleading letters stating that the installations had reached practical completion, causing defects to remain undiscovered and unremedied. Judgment was entered for £50,568.

Hilson Moran appealed on liability, causation and the assessment of one item of loss. The central issues were whether the conduct breached the warranty, whether the breach caused the claimed losses, and whether later remedial works were attributable to the original breach.

1. Appeal allowed in part. The judgment was varied from £50,568 to £12,318.
2. The collateral warranty required Hilson Moran to exercise all proper professional skill and care in relation to the development and in performing their duties under their contract with the developer. They knew that a warranty in favour of the purchaser would be required. Issuing a letter which falsely represented that the mechanical and electrical installations had reached practical completion was thoroughly unprofessional and constituted a breach of the warranty.
3. The trial judge was entitled to infer that, without the breach, proper testing, commissioning and inspection would have revealed the defects and that the defects would have been remedied without cost to the purchaser. Appellate intervention was therefore unwarranted on the principal causation issue, despite the evidence being incomplete in several respects.
4. Item 19 was different. The 1986 remedial works were no less than would have been required in 1984 had the system been properly commissioned. The later problems were caused by the failure of chemicals introduced and maintained by KJ Water Treatment Limited. The original breach therefore did not cause the 1988 remedial works claimed under item 19.
5. Lord Justice Mance added that the warranty could not be treated as applying regardless of waiver, estoppel or express variation affecting the underlying contract. He considered it unnecessary to decide whether the wording was conjunctive or disjunctive, since the conduct breached the warranty on either construction. Lord Justice Kennedy agreed with both judgments.
6. The first defendants were ordered to pay half the plaintiffs’ costs below, and the plaintiffs were ordered to pay half the appeal costs.

• Court of Appeal (Civil Division): Appeal from the judgment of His Honour Judge Havery QC in the Queen’s Bench Division, Official Referees Business. Judgment varied to £12,318.