The decision in Harrison v Shepherd Homes Limited whilst not controversial, provides helpful guidance on issues relating to the interpretation of building contracts, the incorporation of implied terms, the Defective Premises Act, unfair contract terms, the NHBC Buildmark Scheme, and the measurement of damages.
The facts are straightforward: between 2001 and 2004 Shepherd built a housing development on a former landfill site. The foundations were constructed with concrete beams over piles. In March 2003 cracking appeared in a couple of the properties. Cracking subsequently appeared in other properties. It was discovered that there had been some settlement of uncompacted landfill. In effect, the piling was found to be inadequate.
The proceedings related to 10 “test” cases commenced by home owners.
The Contract
The contract required Shepherd to complete the works “in a good and workmanlike manner”. The Court held this. This amounted to an obligation to carry out the works with proper skill and care, and where the contractor undertook both design and construction, the requirement to exercise proper skill and care applied to both.
The contract also required the properties to be “made ready for occupation”. The Court held that fit for occupation was the same as fit for habitation, and that the properties should be fit for that purpose.
In any event, the Court said that even if this was not correct, it would have implied a term under the Supply of Goods and Services Act that Shepherd was under an obligation to carry out and complete the works with “reasonable skill and care”.
The Court also held that whilst the Entire Agreement Clause precluded any reference to pre-contract negotiations and representations, it did not preclude such an implied term. To do so would have required clear and unequivocal words.
Shepherd also relied on a clause which precluded any claim under the building contract once the sale had been completed. A so-called “non merger” clause. The Court held that there could have been no intention that the rights and obligations relating to the building contract should cease once the sale had been completed. In any event, having considered the Unfair Terms in Consumer Contracts Regulations and the Unfair Contract Terms Act, the Court held that such a clause was unreasonable.
Defective Premises
The Court expressed its disagreement with a previous Court of Appeal decision on the interpretation of the Defective Premises Act but was bound to follow that decision. However, the Court still held that there had been a breach on the basis that the foundation works had not been carried out in a professional or workmanlike manner which rendered the properties unfit for habitation.
The Court said that it was a question of “fact and degree” and in this case whilst the damage caused by the defective foundations (i.e. cracking) did not make the properties unfit for habitation, the defective foundations themselves did.
NHBC Notice Provisions
Shepherd relied on the requirement that notice of defects be given in writing within the relevant 2 year period.
The Court held that (a) a homeowner reporting defects personally at the site office was sufficient to give rise to a written record of the complaint, and that in any event the key point was that notice had been given; (b) that in any event, during 2004 Shepherd became aware the problems relating to the development generally, and so had constructive notice of the defects; and (c) by writing to the home owners acknowledging the existence of the defects Shepherd had waived the strict notice requirements.
Assessment of Damages
The Court held that the correct measure of damages was the diminution in the value of the properties. One of the reasons for this was that the risk of future settlement was minimal and therefore the cost of re-piling the properties was disproportionate and not strictly necessary.
Further, whilst the Court refused to award damages for loss of amenity, modest damages were awarded for distress and inconvenience.
COMMENT: Whilst the judgment is lengthy and wide-ranging, it provides very useful guidance as to how the Court will approach the various different types of claim which may arise out of a claim for defective building works.
