Theresa Mohammed (pictured left) is a partner and Laura Lintott is a senior partner at Trowers & Hamlins law firm
The recent case of Aviva vs. Shepherd Construction saw a post-Grenfell coating claim written off on the grounds that the right to sue had not been properly allocated to a new owner, under the commonly used JCT contract.
The contract in question was signed in 2007, with the developer Camstead as the employer and Shepherd Construction as the contractor. They entered into a JCT Design and Build 2005 contract, with amendments, signed as a deed, concerning the demolition of an existing building and the construction of student apartments in Cambridge. Freehold then changed hands twice, eventually ending up with Aviva.
Aviva began an investigation into the coating and fire hazards in the building following the Grenfell Tower tragedy in 2017, and in accordance with updated government guidelines released in January 2020 on Building Fire Risk Assessments of less than 18 meters in height. Flaws related to fire safety have been discovered, including cladding and subdivision issues, as well as other flaws unrelated to fire safety.
On September 24, 2020, Aviva filed its claim, alleging that defects resulted from Shepherd’s breaches of contract and claiming damages in excess of £ 4million for repair work.
Aviva applied to join Camstead as a Plaintiff under Part 19.5 of the Rules of Civil Procedure (CPR), relying on Clause 7.2 of the Deed and relying on a valid equitable assignment of contractual rights. In response, Shepherd requested that the claim be struck out under CPR 3.4 (2), arguing that the claim form and claim details did not disclose any reasonable grounds for Aviva’s claim.
“The result was a lesson in ensuring that specific terms of a contract were followed when assigning rights, and indeed in ensuring that this was done before initiating litigation.”
Madam Justice Jefford analyzed the relevant clauses of the act. Clause 7.1.1, as amended by the parties, spelled out the employer’s right to assign the contract to another party, but stipulated the need for 14 days written notice as well as the contractor’s right to file a reasonable objection within this notice period. The parties agreed that the notice of assignment was not given to Shepherd and his consent was not sought. Therefore, the alleged assignment to Aviva was based on the standard conditions remaining in clause 7.2.
Clause 7.2 stated that, in the event of a transfer of the frank or leasehold interest from the employer, “the employer may at any time after the practical completion of the work or of the relevant section, grant or assign to such assignee or lessee the right to bring proceedings on behalf of the Employer ”.
The judge analyzed a number of prominent authorities and noted that when the language of the contract is ambiguous, the court should adopt a meaning “consistent with good business sense”.
It was noted that although Clause 7.2 provided an exception to the notice requirement, there was no commercial sense in allowing Clause 7.2 to override the requirement of notice and implied consent set out in Clause 7.1. .1.
The conclusion regarding the assignment of rights was that it was not the original employer who transferred freehold ownership to Aviva. Therefore, the right to bring an action could not be assigned under clause 7.2. This single point was considered sufficient to strike out the claim in relation to any direct contractual claim from Aviva.
Regarding the right to bring an action on behalf of the original employer, it was held that this allowed Aviva to assert only the employer’s claims and not its own. Second, if clause 7.2 had allowed the employer to cede to Aviva the right to claim for breach of contract and its own losses, clause 7.1.1 would have been rendered unnecessary, as we have seen above.
As for claims in tort, it was held that clause 7.2 expressly provided for the assignment of contractual rights and not of tort rights. The conclusion was that there was only a duty of care arising from the contract, which was covered by clause 7.1.1. Using commercial common sense, the court ruled that the parties would not have established a consent process for the assignment of contractual rights while leaving open the possibility of a tort action.
Shepherd’s de-listing request was accepted, and Aviva’s offer to join Camstead as a plaintiff was unsuccessful, causing his pursuit of £ 4million in damages to fail.
The result was a lesson in ensuring that specific terms of a contract were followed when assigning rights, and in fact in ensuring that this was done before initiating litigation.