Home > Linking it all together: Russell v PSP [2019]

Linking it all together: Russell v PSP [2019]

6th August 2019

Linking it all together: Russell v PSP [2019]

Every professional negligence lawyer knows that establishing the necessary causative link between a professional’s breach of duty and the loss suffered by the client can be the most difficult aspect of any claim.  That can prove even more problematic in construction professional negligence cases, in particular those involving costs “overrun”, both because of the broader range of alternative hypotheticals and the number of other professionals involved with the project.  So, as stated by His Honour Judge Davies in William Clark Partnership Ltd v Dock St PCT Ltd [2015] EWHC 2923 (TCC):

“…establishing causation in construction related professional negligence claims against design professionals such as quantity surveyors and project managers is notoriously difficult precisely because of the difficulty in showing how things would have turned out differently even if the professional had not acted negligently.”

A recent case, citing this dicta, which operates as a timely reminder of the extent of the analysis a claimant must undertake to establish causation is the case of Russell v (1) Peter Stone (trading as PSP Consultants) and (2) PSP Consultants (A Firm) [2019] EWHC 831 (TCC)¹.

Facts

Mr and Mrs Russell bought their house in August 2006, shortly after they had married.  They had originally intended to live in the house and carry out a refurbishment, but having taken some cost advice they decided, instead, to embark on a complete demolition and re-build.  They engaged architects, CLA, to design the new house and a firm of quantity surveyors, Gleeds, produced a cost plan for the then design in the sum of £1,550,000.  Planning permission was obtained and tenders went out in October 2007.

In April 2008, the Russells were introduced to PSP and Gleeds’ involvement came to an end.  PSP was engaged to act as quantity surveyor, project manager and contract administrator.

In December 2008, the Russells decided to proceed with the new build but with a smaller and different scheme to the original design.  In November 2009, PSP produced its cost plan number 8 for that design in the amount of £1,989,000 excluding fees and VAT but including £50,000 as a client contingency and assuming a construction period of 50 weeks.  Invitations to tender were issued to 5 contractors and 4 of them returned tenders.    PSP produced a tender report which adjusted the 4 tenders to take account of items that had not been priced or where the contractor had included a lower provisional sum than allowed for by PSP.  Once those adjustments had been made the 4 tenders ranged from 7.51% higher than cost plan 8 to 5.2% lower.

PSP recommended that a post-tender interview be arranged with the lowest tenderer, Ibex.  Ibex’s tender was then increased and, to allow for the design additions of the inclusion of a basement and swimming pool, they made a revised offer.  On 22 June 2010, PSP issued a letter of intent to Ibex for the contract sum of £2,098,643.02 (which included a £50,000 client contingency) and a contract period of 48 weeks.  That letter of intent was signed by Ibex and works were to commence on 12 July 2010 and complete on 10 June 2011.

Progress was poor and the project fell into delay quickly.  On 14 October 2011, Ibex issued a forecast final account of £2,558,673 (excluding loss and expense), which was more than £500,000 over the Contract Sum.  PSP issued a non-completion certificate in January 2012 and in February 2012 Ibex finally withdrew from site with the works being incomplete and the Russells still being without any house.  Ibex subsequently entered into insolvency.

Another firm, TMD, took over project management from PSP.  PSP terminated the remainder of their engagement on 11 May 2012 for purported non-payment of fees.  TMD put the project back out to tender and a replacement contractor, Cameron Black, was appointed.  Unfortunately for the Russells Cameron Black also sought to terminate their contract with them in January 2012 and then went into administration.

In March 2014, with no further tendering process, DF Keane were engaged under a letter of intent to complete the works by 1 December 2014.  At that date, the house was still not complete and in May 2015 DF Keane’s engagement was also terminated following a payment dispute.

Works were eventually finished by individual tradesmen around 4 years after the original completion date.

Having set out the above chronology, the Judge, Mrs Justice Jefford said:

“There can be no doubt that from the Russells’ point of view this was a project beset with difficulty and, as homeowners undertaking a very personal project, one can only sympathise with them over their experience.  But that is not what this case is about.  Rather it is about PSP’s responsibility, and the extent of their responsibility, for what went wrong, and in particular what has been described in these proceedings as an “overspend” of nearly £1 million.” [38]

The Retainer

Although the focus of the judgment is on the alleged breaches of duty and their causative effect, it is worth noting in passing the Judge’s comments on the scope of PSP’s retainer.  The Judge observed that although there were a number of disputes as to precisely how and when PSP was engaged and on what terms as to fees, by the time of closing submissions it was agreed that many of those issues were irrelevant and the parties were agreed that the terms of engagement were set out in a schedule of services for PSP’s role as project manager and quantity surveyor and as contract administrator PSP was to perform the function and services of a contract administrator under the JCT contract.  There were, however, two points made by the Judge:

  1. The claimants could not rely on an earlier letter of engagement from Mr. Stone as a representation that PSP could “manage everything” as in any way extending the scope of the services set out in the subsequently agreed schedule of services.  This was an early letter which preceded the initial engagement and in which PSP were in effect only “selling themselves”. [45]
  2. Although engaged in three roles, PSP’s role, should be considered more as a whole; a rigid division of tasks (and expert evidence) amongst those roles was unhelpful and, in any event “contract administration” is not a distinct profession or expertise. [47]

Breach of Duty

The pleaded particulars of breach against PSP ran to 13 sub-paragraphs with numerous sub-sub-paragraphs which were then reflected in an agreed list of issues.

Although there were a number of allegations made against PSP, one of the key ones, and the one which this Article focuses on, is the allegation that PSP “failed properly to manage and/or advise on the tender process” (issue 6) that led to the appointment of Ibex.  There were 13 specific instances of the alleged negligent conduct or management of that process (at issue 6(a) to 6(m)).

In analysing how those allegations of breach had been pleaded and drawn together in the list of issues, the Judge stated [at 51-52]:

“Importantly, this case was advanced on the basis that there was a single breach.  What that meant was that, in order to find PSP negligent, I would not need to find that they were negligent in each of the pleaded respects but equally, a finding that they were negligent in one pleaded respect, might not be sufficient to make a finding that the management of the tender process as a whole was negligent.  The mere identification of some “failing” is not sufficient for a finding that PSP failed to exercise reasonable care and skill but, in the way in which the claimants’ case was expressed, cumulative failings might lead to that conclusion.  Nothing in that, however, changes the essential test to be applied.  I can do no better than quote Ms McCafferty QC’s written submissions:

“The burden is on the Claimants to prove that PSP’s advice about the tender and the management of the tender process in the circumstances at the material time fell below the standard of a reasonably competent quantity surveyor, project manager, and contract administrator, causing them to suffer the loss claimed.”

On the claimants’ case, however, and as set out above, whether some act or omission of PSP is negligent is not a question to be asked in isolation from other conduct.  That creates a potentially complex factual matrix and an impressionistic task for the court.  It also means that this is not a case in which there is or is alleged to be a simple linear relationship between a discrete breach and a discrete loss but, rather the maters which cumulatively are alleged to have amounted to negligence caused the tenders (and in particular Ibex’s tender) to be too low and, on the other hand that PSP failed to advise the Russells that Ibex’s tender was too low and/or as to the extent of risk in Ibex’s tender….”

The Judge found that only one of the 13 specified instances of alleged negligent conduct in the tender process amounted to negligence, namely taking no steps to verify that the programme of 39 weeks put forward by Ibex in their tender was achievable and failing to give sufficient advice or warnings to the Russells on this particular aspect.

However, the Judge considered this to be: “a very particular aspect of the management of the tender process and I do not consider that it goes any further than this particular issue.  In other words, it is not sufficient to make out the single breach of failure properly to manage the tender process.” [140]

This reflected the risk inherent in pleading the case in respect of the tender process on the basis of cumulative allegations going to a single breach, as set out at paragraphs 51-52 of the judgment quoted above, and resulted in the Judge concluding that PSP did not fail properly to manage and/or advise on the tender process.

Causation and Loss

In terms of the causative effect of the alleged failure properly to manage and/or advise on the tender process, the claimants’ pleaded case was that but for that breach they would have had, and taken, the opportunity to postpone the appointment of Ibex until a proper and thorough review had taken place, following which negotiation with either Ibex or others could and would have been undertaken or the Russells would not have embarked on the project.  The claimants pleaded that by reason of the premature appointment of Ibex they had had to spend significantly more than they ought to have done to complete the project.  They accepted that PSP was not responsible for each and every overspend on the project but only for those losses they said were caused by PSP and therefore the loss claimed was based on an adjustment of the Ibex tender to ascertain what would have been a reasonable price for carrying out the Project and they claimed the loss incurred in excess of that sum.

The Judge stated that even if she had found PSP to be negligent in the management of the tender process, the Russells’ case would have failed on the issue of causation.  In attempting to summarise the claimants’ case she stated:

“So far as the group of issues concerned with the Ibex tender is concerned, there were a number of strands to the claimants’ case on causation which were not always easy to disentangle.  By the close of the trial, the case came down to the contention that if PSP had, on the claimants’ case, properly advised them as to the inadequacies in Ibex’s tender; they would have taken the opportunity to re-consider or to re-evaluate the project.  It was not the case that they would then have been able to proceed with the same project at the same cost…but that they would have been able to proceed with a project which had been modified so as to be at the same cost.  That itself was yet another shift in the claimants’ case.” [163]

The Judge considered there to be a number of problems with that case.

If that case was founded on the Ibex tender being too low in monetary terms it involved the proposition that PSP ought to have advised the Russells not to accept the lowest tender and there was nothing to support a case that they should have so advised.  The tender was within the reasonable bounds of PSP’s cost plan 8 which had not been criticised.

The case the Russells actually focused on at trial, however, was not the price of the tender but that PSP ought to have warned the Russells of the risks inherent in the tender.  However, the Judge said that even if PSP ought to have given any warnings about risk, there was a factual issue as to what the Russells would then have done and what they might have done or not done would vary according to the nature and extent of the risks identified.  The problem was that [166-167]:

“…the Russells now say, and I have no doubt honestly say, that they would not have gone ahead but would have taken time to reconsider their position.  They draw no distinction between different types of risks and responses and the case is binary, in the sense that the course they would have taken is said to be one thing or another and nothing in between.

If the Russells would have paused and revisited the project, then there needed to be some articulated and particularised case as to what they would have done and what the outcome would have been on the balance of probabilities.  There simply was nothing other than a generalised assertion.  I note also that the case was never put on the basis of the loss of a chance.”

As a result, the Judge asked the claimants’ counsel to clarify in closing submissions how the claimants put their case which resulted in the following clarification:

“Firstly, had they known how much the works would cost or were likely to cost (i.e. Ibex’s scope of works properly priced on the basis of adequate tender documentation), they would have cut their coat according to their cloth and changed the scope of works/specification to avoid the “overrun”.  Secondly, had they been properly advised they would either not have gone ahead with the project (in its current form) at all or; using an expression which I introduced they would have paused and reflected (and not then proceeded until the project was fully designed and properly costed)…they said in answer to the questions I had posed that the most likely option was that they would have made changes to bring the cost back down to something close to cost plan no. 8.” [170]

The Judge found as a matter of fact that it was highly unlikely that the Russells would have decided not to proceed because of the sorts of risks which it was contended they ought to have been warned of.

However, even if she was wrong about this the Judge considered the claimants’ case was “still fraught with difficulty” because of the well-known principles set out by Lord Hoffman in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 1991 (“SAAMCO”).  Relying on Lord Hoffman’s statement of principle, Mrs Justice Jefford drew the following comparison:

“In the case of a lender, the measure of loss will usually be the difference between the amount of the overvaluation and the true value, but if he would have used it on some equally disastrous adventure, then there is no loss.  If, improbably, the lender would have lent the same amount for less security, there is no loss.  It is inherent in that analysis that the lender must establish that had he been properly advised he would have done something different.  In the loan case, as Lord Hoffman indicated, it would normally be self-evident that the lender would have lent a lesser amount or nothing at all.  The same is true in this case, namely that the Russells must establish that they would have done something different. That cannot be that they would not have built the house at all because that would result in their having something for nothing.  For the reasons I have set out above, I do not accept that they would have done something different but, for completeness, I consider the proposition on the basis of the assumption that they would have done something different.” [177]

The problem however was that the case “was put in the most generalised way” with there being no evidence of what changes could or would have been made to bring the cost back down.  The Judge therefore stated that:

“The failure in this case to consider with any particularity what advice the claimants allege they ought to have been given and what they would have done given that advice leaves the court with no point of comparison that would be analogous to the true value on the SAAMCO basis.” [182]

Even if the Judge had been prepared to find that, on the balance of probabilities, the Russells would have proceeded with the same works but at greater cost, she had no reliable evidence as to what that greater cost would have been because the sum claimed was based on an unsatisfactory exercise by the claimants’ expert in comparing the final Cameron Black contract sum to the Ibex tender which was confused and made insufficient attempt to compare the designs at those two very different stages.

In summing up on this issue, the Judge therefore stated [197-198]:

“…the claimants cannot by putting the case on a “no transaction” or “different transaction” basis avoid any consideration of what actually happened and whether the alleged risks in the Ibex tender materialised.  It might have been argued that the Cameron Black tender reflected what would have been the outcome if Ibex had proceeded further with the works, but that would only be the case if the risks which it is alleged were inherent in the tender had materialised.  Thus the claimants’ case has to be that I can infer that the risks would have materialised and would have had that impact on the Ibex price (which could have been avoided if the Russells had been properly advised). As I have already observed, despite the promise in opening submissions, there were no examples of any of the particular alleged failings causing any problems or having any practical effect and there is no evidence from which I could draw that inference.

In my judgment, ingenious though all these arguments are, they cannot get around the fact that, had I found the defendants to be negligent, there is simply no causative link or no sufficient evidence from which I can infer that any monies expended by the claimants which exceeded the Ibex tender were expended by reason of the defendants’ negligence.”

Conclusion

This case is a warning case for practitioners to bear in mind a number of principles in bringing such a claim:

  1. It is perfectly possible to plead a single breach of duty, reliant on cumulative instances of particular conduct, however, that inevitably makes the case, both in respect of breach and causation ,harder for a claimant to prove.
  2. Although, as a matter of principle, a judge can draw inferences from the evidence both as to negligence and causation in this sort of case that is not a straightforward exercise and causation of loss does not follow just from a finding of negligence without more.
  3. It is essential to exercise as much particularity as possible as to precisely what it is alleged the professional ought to have done or ought not to have done and then establish what the client would then have done if the professional had acted accordingly and what the difference would have been in terms of the monies expended.  In other words, there must be a proper and specific link drawn between the alleged negligence, what the client would then have done, and how that caused any overspend.  This does not tell us anything new in terms of principle but the facts of the Russell case do highlight how difficult, practically, this can sometimes be and how essential it is to carry out the analysis at the very start of any dispute.

¹No issue was raised in the proceedings as to whether Mr. Stone personally or his firm was engaged and the Judge therefore simply referred to “PSP” throughout without distinguishing.

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