Contractor claims for delay and disruption against third parties

25 September, 2018

The topic of delay and disruption has often featured in this blog.  Problem areas include both neutral events, eg bad weather, and interaction between the parties such as where the employer is unable to give sufficient access.  Other difficulties include actions by third parties such as adjoining owners or utility owners and, whilst the contractor may bear this risk, he will not usually have any contractual rights against them.

We review the extent to which an unlucky contractor may be able to recover his losses from such third parties in the light of a recent Scottish decision, Cruden Buildings and Renewal Ltd v Scottish Water (Cruden).

The legal framework

Tortious claims may be made against third parties for damage to, or interference with, property (tortious claims are claims under the general law where there is no contract).  Such claims may include any consequential financial losses but not, generally, pure economic losses not involving damage or interference to property.  The key question is does the claimant have sufficient interest in the relevant property?

In Cattle v Stockton Waterworks Company (1875) (Cattle), the landowner on both sides of a highway engaged the contractor to construct a connecting tunnel.  When the contractor discovered the mains pipe beneath the highway (for which the water authority was responsible) was leaky, the works were suspended pending repair and a claim made against the water authority for the additional expense caused by the delay.  The claim failed – the contractor’s interest in the land was purely contractual and could not provide a basis for a tortious claim against the water authority.

In 1987, a similar claim also failed in the Scottish appeal court.  In Nacap Limited v Moffat Plant Limited (Nacap), the contractor was laying a pipeline which was damaged by plant hirers.  However, his claim for costs of repair and associated losses against the plant hire company was rejected as he had only been granted possession for the specific purpose of laying the pipeline.  This case also clarified the level of property interest needed to succeed would be “similar to that of an owner” (eg tenants).

The Cruden case

Here the contractor, Cruden, sought damages from a water authority, Scottish Water (SW), for losses suffered due to an escape of foul water from a sewer, delaying its works on a site where it was constructing a housing development.  SW argued that Cruden did not have a sufficient interest in the site to bring the claim.

The building contract provided a right under licence to enter upon the part of the Site on which the relevant phase was to be constructed for the sole purpose of carrying out the works and expressly provided that no tenancy or other right in the site was granted.

Applying Nacap, the court rejected the claim – Cruden only had use of the site for limited purposes (ie to complete the development and make a profit).  This was a contractual right only and therefore it has no title to sue.

Implications

The Cruden decision clarifies contractual rights to access, or taking possession, of a site are usually insufficient to claim against third parties for damage or interference with the site even though there will inevitably be cases where the aggrieved have no remedy.

As always, the risk allocation under and drafting of the individual contract is key and, perhaps under more standard forms of contract which require an employer to grant possession (as opposed to make access of the site), where the contractor was effectively excluded from site due to a foul water escape, the contractor could argue the employer was in breach.

Cruden is more relevant where contractors have accepted a significant degree of site risk without recourse to the employer.  Here, contractors should now consider how to preserve rights of action against third parties.  One solution could be for the employer to grant the contractor a limited right to recover to the extent that the employer can recover from third parties causing disruption with an obligation on the contractor to pursue such claims in the employer’s name, while indemnifying the employer against the costs.