Linklaters Business Services v McAlpine Ltd & Ors

Contractual specifications are construed as a whole and with commercial and engineering common sense. A requirement for a double vapour barrier applied throughout chilled-water pipework therefore extended to supports and joints. Where defective workmanship causes physical damage, the prima facie measure is the reasonable cost of reinstatement. A claimant may recover the cost of an actually completed remedial scheme where the scheme was necessary and reasonable in the circumstances, including where competent expert advice supported it. The claimant must give credit for a non-gratuitous contribution specifically secured towards the remedial works. Contractual allocation of design responsibility is material when determining whether a sub-contractor caused the loss. A contractor is entitled to payment for instructed variations required to resolve discrepancies in remedial contract documents.

The claimant occupied two office buildings containing chilled-water pipework installed during redevelopment works. Extensive corrosion was discovered in 2006. The claimant pursued contractual claims under collateral warranties against the main contractor and mechanical sub-contractor, and related tort claims were brought against the insulation sub-sub-contractor.

The principal issues were whether defective insulation caused the corrosion, the scope of the contractual obligations, the liability of the insulation sub-sub-contractor, the recoverability of replacement costs, the effect of remedial contract variations, and whether a landlord’s contribution had to be credited against damages.

1. Liability. The Employer’s Requirements required a double vapour barrier over all chilled-water pipework, fittings, supports and Victaulic joints. The specification also required three layers of Armaflex, adhesive bonding between the layers and to the pipe, sealed supports, staggered joints and first-class workmanship. This construction followed from the wording of the specification read as a whole and from commercial and engineering common sense.
2. The widespread corrosion in the vertical risers was caused by condensation penetrating ineffective vapour barriers. The principal defects included unsealed wooden supports, inadequate bonding, gaps and defective treatment around supports and Victaulic joints. These defects were attributable to McAlpine and How and breached their contractual obligations and collateral warranties. Linklaters failed to prove liability for corrosion in the basement and under-croft areas, where the evidence was materially less complete and alternative causes, including later damage, remained possible.
3. Southern’s contractual scope was limited. It had not assumed responsibility for the design or detail of the supports and joints. Its proved workmanship deficiencies were not shown to have materially caused the corrosion. The claims against Southern therefore failed.
4. Remedial costs. Replacement of the riser pipework was necessary and reasonable. It removed the damaged pipework, avoided the risks of inaccessible residual corrosion and further leaks, reduced disruption to a continuously operating business, and restored the position which proper performance would have produced. The cost of the actual replacement works was therefore recoverable, subject to deductions for unproved basement work and other adjustments. The court applied the principles in Ruxley Electronics and Construction v Forsyth and Skandia v Thames Water, while distinguishing the latter on the facts.
5. Under the remedial works contract, builder’s work and re-routed pipework required by discrepancies or omissions in the contract documents were instructed variations. Clause 2A.1 did not transfer to the contractor the risk of work outside the defined Works or impose a design obligation. The claimant could recover the properly valued variations.
6. The landlord’s £200,000 payment was expressly a contribution towards the remedial works, not a gift. It arose from the same consequences of the breaches and had to be credited against damages.

Judgment was entered for Linklaters against McAlpine, How and their holding companies for £2,845,435.60. McAlpine was entitled to an indemnity from How. How’s claims against Southern were dismissed.

First-instance decision. The judgment does not state a prior appeal.