Shepherd Homes Ltd v Encia Remediation Ltd

A claimant assessing loss after defective construction works must take reasonable steps to mitigate, judged by the circumstances existing at the time and without hindsight. Following competent expert advice is relevant, though not conclusive. The court must assess each affected property individually. Calculated engineering factors of safety are important, but the physical condition, location, ground conditions and load redistribution may justify a different conclusion. Remedial works should not be undertaken unnecessarily, but stabilisation should proceed promptly where required. Internal repiling was a reasonable remedial scheme where it was technically acceptable, approved by the NHBC and preferable on the evidence to demolition and rebuilding. An indemnity may cover reasonably foreseeable future liabilities, including diminution in value and householders’ consequential claims.

Shepherd Homes Limited claimed damages and an indemnity from Encia Remediation Limited for defective piling works supporting 94 houses at Eden Park. Encia admitted breach of the implied obligation to exercise reasonable skill and care in designing the piles, including failure to account for unsuitable piling methods and negative skin friction.

The principal issues were causation, the adequacy of individual foundations, the appropriate remedial works, whether Shepherd Homes had failed to mitigate by choosing internal repiling rather than demolition and rebuilding, and the recoverability of future liabilities to householders. The court also considered contractual indemnity rights for phase 2 properties.

1. Liability and assessment of foundations. Encia was in breach of contract in respect of all 94 properties. A pile with a factor of safety of 1.5 or more could generally be treated as satisfactory. A factor below 1 indicated inadequacy unless load was redistributed. Between 1 and 1.5, adequacy depended on all the circumstances. The court had to assess each property individually, considering the calculated factors of safety, the condition and location of the house, ground conditions, negative skin friction and load redistribution. Factors of safety were important and should not lightly be disregarded, but the physical condition of a property could prevail where the engineering calculations were unreliable or inconsistent with observed damage.
2. Causation and remedial classification. The claimant bore the burden of proving that foundations were inadequate. Properties were classified as requiring foundation remedial works, cosmetic works, or monitoring before a final decision. Red properties required substantial remediation. Blue and orange properties did not automatically require immediate underpinning; their circumstances and monitoring evidence had to be considered individually.
3. Mitigation. The court applied the principle that mitigation is judged by the circumstances prevailing when the decision was made, without hindsight. Shepherd Homes acted reasonably in internally repiling the 12 properties already remediated. The scheme had been devised by competent engineers, was technically acceptable and approved by the NHBC. The relative costs, planning delay, disruption to residents, reputational considerations and practical difficulties of demolition and rebuilding supported that conclusion. Sleeved piles were a reasonable precaution.
4. Future works and damages. Internal repiling was an appropriate scheme for the further 13 properties requiring foundation remediation, subject to consideration of jacking and competitive tenders. Shepherd Homes could choose demolition and rebuilding, but recovery was limited to the cost or notional cost of internal repiling. The court awarded nominal damages for 40 properties with adequate foundations and substantial damages and indemnities for 54 properties.
5. Diminution and indemnity. Diminution in value for the five repurchased and remediated properties was assessed at the judgment date. An indemnity was appropriate for reasonably foreseeable future liabilities to householders, including diminution in value, distress and inconvenience, loss of use and incidental expenses. The phase 2 contractual indemnity provided an additional legal basis for recovery but no greater monetary recovery.

There was judgment for the claimant.

This was a first-instance decision. The judgment records that a preliminary contractual issue between Encia and Green Piling had previously been determined by Christopher Clarke J, after which the third-party proceedings were resolved by a Tomlin order.