June 5, 2020

COVID-19 UK: Claims against construction professionals – foreseeability of loss

This article looks at ways in which remedial works arising out of construction projects could be impacted by COVID-19 and who might be responsible for bearing added losses arising from such works.

Whilst the Government has not ordered construction sites to close, and industry leaders have encouraged co-operation and fair dealing between parties on existing construction projects, there remains a high level of disruption and interruption to many construction projects from the virus. This ranges from a shortage of labour, plant, equipment and material and social distancing guidelines, making work harder, to a complete closure of some construction sites.

On a practical level, remedial works to existing defective construction works are likely to be affected in just the same way as work on current projects. How the remedial works are being paid for, and by whom the works are carried out, will of course vary from case to case.

One type of remedial work impacted by COVID-19 is Aluminium Composite Material (ACM) re-cladding work. Post lockdown, the Ministry of Housing, Communities and Local Government has emphasised that re-cladding work is “critical to public safety” and should continue where it is safe to do so.  In April, the Housing Secretary and metropolitan mayors issued a joint statement insisting that replacement of flammable cladding remains a priority.  

However, ACM re-cladding works which were underway before the COVID-19 'lockdown' have, in some cases, been paused, whilst other re-cladding works, which were due to be commenced during this period have, at least for the time being, now failed to get off the ground.

Costs arising from the impact of COVID-19 on remedial works will be wide-ranging but could include: higher loss of rent to employers, or building owners, if tenants have been moved out the property whilst the remedial works are underway and the remedial works will now take longer; and the cost of new materials and equipment introduced to ensure the works can be carried on safely.

The impact of COVID-19 on live construction projects, and who might bear the resulting costs, will, to a large extent, be dictated by the terms of the contract documents. But the impact of COVID-19 on remedial works, where there is a pre-existing breach of contract and / or breach of duty of care by the contractor, or other construction professional, will require an altogether different analysis relating to causation, to determine where the additional losses arising out of COVID-19 correctly sit. The contract documents relevant to remedial works may also of course include a remedial works contract.

Questions concerning: foreseeability of the loss suffered; and the extent to which COVID-19 could be said to break the chain of causation between the wrongdoer's initial action (or lack thereof) and the subsequent losses altogether, become relevant.

The Cases

The Wagon Mound (No1) case introduced a remoteness rule for causation in negligence cases. The Court held that a wrongdoer can only be responsible for the kind of loss or damage which is a foreseeable consequence of its breach. The Court in the well-known SAAMCO case expanded upon this foreseeability approach and essentially found that, even if the type of loss was foreseeable, if the way in which it came about and / or the extent of the loss was not, then the wrongdoer's liability could be limited accordingly. The loss also has to fall within the category of losses against which it was the defendant's duty to safeguard the claimant.

In relation to breach of contract claims, and cases where there is a concurrent claim in contract and in tort, the case of Hadley v Baxendale provides that a loss can only be recoverable from a wrongdoer if the loss was in the contemplation of the parties "in the ordinary course of things".

In Rubenstein v HSBC, which relates to losses arising from the financial market crash in 2008, the Court of Appeal did find that given the type of loss suffered by the claimant was foreseeable, it was irrelevant that the extent of the loss was so high. In other words, the scale of the loss did not limit HSBC's liability for negligent advice. However, we think this approach could be limited to 'advice' type cases.

Applying the cases

Delays to remedial works, and the losses arising therefrom, are not, in themselves, unforeseeable types of consequences arising from a wrongdoer's breach of duty, if we apply Wagon Mound. One can see how it could be foreseeable to a wrongdoer that remedial works might ensue following its breach of duty whilst carrying out the original works, and that works - remedial or otherwise - may be affected by typical delays / relevant events (for instance bad weather). 

However, looking to the more recent SAAMCO judgment, whilst the types of losses in contemplation might be foreseeable, the way in which the losses in question have come about i.e. because of an unprecedented global pandemic, as well as the extent of the type of loss suffered, is arguably unforeseeable; which might help the wrongdoer. Similarly in pure contract claims, as well as concurrent tort and contract claims, it could be said that the losses arising from COVID-19 have not come about in the ordinary course of things and again, are not foreseeable.

However, thinking about what an employer who is at risk of picking up the tab for the increased costs might say, arguably COVID-19 is not, in fact, an unprecedented pandemic. The world has seen pandemics before, one of the more recent ones being swine flu, and sadly it will likely see them again. Some contracts and insurance policies specifically provide for situations where pandemics arise. What perhaps is unprecedented is the speed with which COVID-19 has spread, from epidemic to outbreak – aided by easy global travel nowadays - and the response to the virus.  The same or similar governmental responses to future crises will perhaps be less 'unprecedented'.

The success of 'foreseeability' arguments, whichever way they go, will of course depend on what the precise loss is, taking into account the extent to which the wrongdoer has mitigated its losses.

Policy arguments may also be in play. Wrongdoers will no doubt seek to argue that being expected to pay for remote consequences of their actions is simply too expansive a burden. On the other hand, why should an employer, or main contractor, be held liable for losses which would never have been incurred 'but for' the wrongdoer's original action? One option is for the consequential costs arising from the pandemic to be split. But it remains to be seen how the courts will respond to cases on these points, which are points that are likely to be hard-fought by the parties.

Authors: Jonathan Brown, Celia Lewis