Case No. 0LS79020

Introduction 1. The claimants are the Trustees of the Ampleforth Abbey Trust (“the Trust”). The purposes of the Trust include the furtherance of education at Ampleforth College, a well-known school in North Yorkshire. For the purposes of this judgment it is unnecessary to explore or explain the distinctions and the relationships between the Trust, the College and the Abbey. At the time to which these proceedings relate the Procurator of the Trust—the employee with responsibility for managing the operational, administrative and estates affairs of the Trust—was Mr Peter Bryan, a chartered accountant with a background in finance.2. The defendant, Turner & Townsend Project Management Limited (“TTPM”), is a practice of construction professionals forming part of Turner & Townsend Group. Other parts of the Group provide services in quantity surveying, costs management and contractual management, and in this case as in others TTPM worked in conjunction with other parts of the Group to provide to its client an integrated service in a range of disciplines—a “one-stop shop”, as it has been put. In general, for simplicity’s sake, I shall refer simply to TTPM without distinguishing between TTPM and other parts of the Group, in particular Turner & Townsend Costs Management (TTCM), that were involved in the work to which these proceedings relate.3. Between 2000 and 2005 TTPM acted for the Trust as project managers on three construction projects for the provision of new boarding accommodation at Ampleforth College. This litigation relates to the third of those projects, in respect of what have been called “the H5 works”. The building contractor for the H5 works was Kier Northern, a division of Kier Regional Limited (“Kier”). Kier commenced works on site in December 2003 and completed them in November 2004. The works were satisfactory as to quality but were completed significantly later than had been envisaged. A dispute arose between Kier and the Trust: Kier contended that it was entitled to extensions of time and to additional payments in respect of the prolongation of the works; the Trust sought liquidated damages of £750,000 for delay. At a formal mediation, agreement was reached on the basis that Kier did not receive additional payments and the Trust did not receive liquidated damages.4. A striking thing about the H5 works is that from commencement to completion they were carried out by Kier under letters of intent that the Trust issued from time to time. The intended building contract mentioned in the letters of intent was executed only long after the works had been completed and then on terms, agreed at the mediation, that excluded any entitlement on the part of the Trust to liquidated damages for delay.5. In these proceedings, the Trust claims against TTPM damages for professional negligence. It alleges that, if TTPM had acted with the care and skill reasonably to be expected of a project manager, it would have procured Kier’s execution of the building contract and that in those circumstances Kier would have been liable to pay liquidated damages for delay and the Trust would have achieved a more advantageous outcome of the dispute with Kier.6. TTPM denies that it was negligent in its management of the H5 works. It also denies that anything it might have done would have led Kier to execute the building contract and contends that, even if the building contract had been executed, the Trust would have been in no better position in its dispute with Kier. By a counterclaim it seeks payment from the Trust of unpaid fees relating to the H5 works.7. In the course of the trial I heard evidence of fact for the Trust from Mr Bryan and from a solicitor, Mr Andrew Marsh, who as a partner in the firm of Beachcroft Wansboroughs acted for the Trust in its dispute with Kier. For TTPM I heard from a number of witnesses of fact. Mr Robert (Rob) Bullen had been closely involved in the previous two construction projects and was the project manager for the H5 works until he was transferred from TTPM to the Group’s management services division, TTMS, in August 2003. For some time after his formal transfer, however, he continued to provide significant levels of support to TTPM’s team on the H5 works in order to facilitate the handover to his successor, Mr James Mell (who did not give evidence). Mr Alan Talabani was the quantity surveyor for the H5 works and was employed by the Group’s cost management division, TTCM. Another quantity surveyor at TTCM, Mr Craig Kimber, reported to Mr Talabani. Mr James Fletcher was the director of TTPM with overall responsibility for the H5 works until April 2004, when his role was taken over by another director, Mr Stewart Binns. Finally, I heard evidence from Mr John O’Callaghan, the Commercial Director of Kier.8. I am grateful to counsel, Mr Martin Bowdery QC for the Trust and Mr Peter Fraser QC for TTPM, for their formulation of the issues that fall to be determined and for their extensive written and oral submissions, to which the short summary later in this judgment does scant justice.9. In view of the length of this judgment, I shall provide in paragraph 10 a short summary of my decision, which will demonstrate the bare bones of the analysis that follows. Then I shall set out in chronological order sufficient facts to explain how the events giving rise to this litigation unfolded. Despite the length of the narrative, I shall not recite large amounts of the witness evidence. Finally, I shall identify and discuss the issues that arise, mentioning such other particular facts and parts of the evidence as are in my view most relevant to the determination of those issues. A summary of my decision 10. (1) TTPM owed to the Trust a duty to exercise reasonable care and skill for the purpose of procuring from Kier an executed building contract (paragraphs 72 to 77). (2) TTPM was in breach of that duty, in that it failed to exercise sufficient focus on the matters holding up execution of the contract or to exert sufficient pressure on Kier to finalise the contract (paragraphs 97 to 126). (3) That breach of duty caused the Trust loss, because if TTPM had not been in breach of duty:(a) the Trust would have taken sufficient steps to ensure that, so far as lay within its power, it procured a contract (paragraphs 135 to 140);(b) there would have been a real and substantial chance of Kier executing a contract that contained a provision for liquidated damages (paragraphs 129 to 134, and 141);(c) the existence of such a contract would have been a material benefit to the Trust in its dispute with Kier when completion of the H5 works was delayed (paragraphs 142 to 146, and 170 to 186).(4) Regarding the quantum of the Trust’s loss:(a) the probability is that, if there had been a contract in existence, the Trust and Kier would have negotiated a reasonable settlement of their dispute. The value of such a settlement to the Trust, over and above the settlement it negotiated in the absence of a contract, would have been £340,000, taking into account the probable price that the Trust would have had to pay to achieve the execution of the contract (paragraphs 187 to 191).(b) the Trust is entitled to recover two-thirds of that amount, having regard to the size of the chance that Kier would indeed have signed the contract (paragraphs 150 to 169, and 192).(c) Although the terms of TTPM’s contract with the Trust included a limitation clause, TTPM is not entitled to rely on that clause to limit its liability for damages to the Trust (paragraphs 193 to 202).(d) Therefore the quantum of damages is £226,667 (paragraph 203).(5) TTPM is entitled to recover £37,167 for additional fees on its counterclaim (paragraphs 204 to 208). The main facts 11. By a memorandum of agreement made in March 2000, the Trust appointed TTPM as project manager for the first of the three construction projects, known as “the H2 works”. The wide range of services to be provided by TTPM was set out in a “Schedule of Services” appended to the memorandum. These services encompassed not only project management—including determining the type and form of the building contract and overseeing the formal award of contracts—but quantity surveying and planning supervision.12. A contractor for the H2 works, Clugston Construction (“Clugston”), was selected and a form of JCT contract was identified as suitable for use. However, while certain matters of necessary agreement remained outstanding between the Trust and Clugston, the H2 works were commenced in September 2000 pursuant to a letter of intent drafted by TTPM and issued by the Trust. Shortly afterwards, the contract documents were issued to Clugston and duly executed. The contract provided that Clugston should pay to the Trust liquidated damages of £51,500 for each week or part of a week that practical completion was delayed. In the event, practical completion was delayed by some five weeks and, at the end of the H2 works in August 2001, the Trust deducted from its payment to Clugston liquidated damages of £257,500.13. The second construction project, known as “the H3 works”, commenced in late 2001. Again the project manager was TTPM and the contractor was Clugston and the works commenced under a letter of intent issued in early December 2001 before the contract documents were executed in the latter part of January 2002. The greater part of the liquidated damages deducted by the Trust in respect of the H2 works was returned to Clugston as “incentive payments” under the contract for the H3 works; £50,000 of the incentive payment was to be paid, and was paid, to Clugston upon its execution of the contract documentation.14. Shortly after the completion of the H3 works the Trust began to make arrangements for a further project, the H5 works, for the provision of residential accommodation. These works involved the construction of a three-storey accommodation block containing sixty-four single student bedrooms, twenty double student bedrooms, six dormitories and a housemasters’ block. The student accommodation at H5 was specifically intended for girls: for the first time in its history the College was to become co-educational for students of the ages of thirteen and upwards, and the provision of this new accommodation was intended by the Trust to form a major plank of the College’s efforts to recruit girls.15. Relations between the Trust and TTPM had been good throughout the earlier projects, and the Trust did not actively consider appointing different project managers for the H5 works. Mr Bryan invited TTPM to submit a fee bid in relation to the H5 works. His evidence, which I accept, was to the effect that he invited the fee bid because he wanted to know what fees would be payable to TTPM and when they would be payable, not because he expected any alteration in the terms of the engagement; he took it for granted that the services to be provided by TTPM would remain unaltered from what they had been in respect of the H2 and H3 works, unless TTPM told him expressly to the contrary.16. On 27th November 2002 Mr Bullen wrote to Mr Bryan, enclosing a fee proposal “including cash flow for fees and indicative project programme”. There was also enclosed with the letter an eleven-page document headed “Terms of Appointment”, which purported to stipulate the terms that would apply to the parties’ relationship in respect of the H5 works. Mr Bryan said candidly that he had not looked closely at the Terms of Appointment because he expected that, if the terms of TTPM’s engagement were to differ in any material respect from those which had obtained in respect of the earlier projects, TTPM would have drawn his attention to the fact. There were no discussions between the parties concerning the Terms of Appointment or the scope of the services set out in the fee proposal.17. On 20th March 2003 Mr Bryan wrote to Mr Bullen by email to confirm that he had “confirmed the fees” of TTPM and the various consultants with Father Abbot. It is in issue between the parties whether acceptance of the fee proposal implied acceptance of the accompanying Terms of Appointment. The other members of the design team also remained unchanged from the earlier projects: Associated Architects were the architects; Shire Consulting Ltd (“Shire”) were the structural engineers; and Halcrow Gilbert were the mechanical and electrical consultants. As the building contract was to be a “design and build” contract, it was intended that, upon execution of the building contract, each of the consultants would enter into direct contractual relations with the building contractor; TTPM alone would remain employed by the Trust.18. An initial design meeting had been held on 18th November 2002; Mr Bryan, Mr Kimber and Mr Bullen were present, as was a representative of Associated Architects. The minutes of the meeting record that Mr Bryan stated that the budget for the H5 works would be fixed and that the Trust wanted, if possible, to have one house ready for March 2004 and the other available for May or June 2004. Although details developed and changed over time, both the existence of a budget and the presence of a sense of urgency on the part of the Trust remained constant. The budget became fixed at £5m, which was the amount of a term loan facility given to the Trust by Allied Irish Bank (“AIB”) for the purpose of funding the works. TTPM costed the works at £4.9m. The urgency of the project related to the desire to have the entirety of the accommodation ready for use by students at the start of the academic year in September 2004. As time passed and the commencement of the works became increasingly delayed, hopes of completion by that date were put aside. However, in the interests of persuading parents to send their children to study at the College the Trust nonetheless wanted to ensure that those parents would be able to see evidence of substantial building works at an early date.19. Progress towards commencement of the H5 works was delayed by, in particular, difficulties in selecting the specific site on which the new accommodation would be built. However, by early July 2003 TTPM was in a position to issue tender documentation for the construction works. It had been decided that Clugston would not be invited to tender for the H5 works but that larger contractors, operating nationally, should be approached. Accordingly on 7th July tender documentation was issued to Kier, Willmott Dixon and Laing O’Rourke, with a return date of noon on 1st September.20. Kier’s tender return was the lowest, but at £5,568,058 it was nonetheless significantly in excess of the budget. The possibility of a re-tender was considered but was rejected because it would lead to delay and additional cost and would not guarantee that further tenders would be within the budget. In a Preliminary Tender Report dated 11th September 2003 Mr Talibani explained that it would be necessary to bring the project within budget by means of a strategy of value engineering (“VE”). Priced VE returns were received from the three contractors by mid October. Kier’s revised tender was within budget, at something slightly in excess of £4.7m. The VE exercise had resulted in the scaling down of the works, resulting among other things in a slight reduction of places for students. By an email on 15th October Mr Bullen warned of the urgent need to appoint a contractor and make an order because “the Abbey will not accept any failure on our parts to achieve a start on site pre-Christmas 2003 with a completion date end November 2004.” A number of matters remained unresolved with Kier, including the finalisation of the contract sum following the VE exercise, and it was clear that it would not be possible to complete the contract before works started on site. On 31st October 2003 Mr Bullen sent to the design team an email that read in part as follows: “As you are aware, it has now been decided that we will ‘run’ with Kier on H5 and we have agreed the ‘technical solution’ for constructing the building. There are still a number of commercial/technical issues to resolve over the course of the next week, but we must be in a position by the 7th November 20003 where we can place a Letter of Intent with them in order to enable them to make as early a start on site as possible. Alan [Talabani] will be leading the negotiations on resolving this in terms of a fixed price, however could you all please assist him in doing this by issuing information ASAP where possible.”21. While discussions were ongoing with a view to finalising the terms of a letter of intent, on 11th November 2003 Kier wrote to Mr Talabani with a list of comments on the Trust’s proposed contractual terms. Clause 24.2.1 of the draft contract provided for liquidated damages of £50,000 per week for late completion. Kier’s comment on that provision was: “We would wish to agree that L and AD’s do not exceed 1% of Contract price.” TTPM responded on 13th November, expressing disappointment that matters of contractual detail were being raised belatedly. The response in respect of clause 24.2.1 of the draft contract was: “Level of LAD’s to remain as ER’s [Employer’s Requirements]. This issue is not negotiable.”22. On 14th November a Pre-Contract Meeting took place between representatives of the Trust, TTPM and Kier. Part 4.1 of the minutes of that meeting records that modifications had been agreed to the letter of intent; these reflected a basic programme for the works and an agreement that liquidated damages would be waived for a period of two weeks following the agreed date for practical completion.23. Pursuant to that agreement, on 17th November 2003 the Trust issued the First Letter of Intent to Kier. As with all the subsequent letters of intent, the contents and the drafting of the First Letter of Intent were attended to by TTPM and the role of the Trust was simply to issue it. In his witness statement Mr Bryan stated that the Trust “acted on instructions from” TTPM; although strictly that reverses the relationship, it gives expression to the reality of the Trust’s dependence on TTPM. The First Letter of Intent and the letters of intent subsequently issued were not mere expressions of intention to contract in the future; they were in the nature of offers to contract on strictly limited terms and on a short-term basis, coupled with an expression of intention to enter in due course into a full and formal building contract, the terms of which would not however bind the parties until it was executed. Because the letters of intent are central to these proceedings, I shall set out much of the text of the First Letter of Intent. “We confirm that it is our intent to enter into a contract with you for the above project. The form of contract will be the JCT Standard Form of Building Contract With Contractor’s Design 1998 Edition with Amendments 1, 2 and TC/94/WCD as modified by Article 8 (sectional completion). The programme dates are as follows:•Site Possession Date — 1st December 2003•Start on Site Date — 15th December 2003•Practical Completion Date — 26th November 2004. The following matters remain outstanding:1. Finalisation of the Contract Sum. The current tender sum of £4,747,112 to be amended to reflect the latest version of the VE savings menu as discussed at the meeting of 24/10/2003.2. Finalisation of Drawings and Specifications.3. Agreement of documentation forming contract documents. It is our intention that[,] once these matters are agreed, they will be reflected in a written contract document. Neither of us will be bound by the intended contract unless and until the written document is executed by each of us.In the meantime, please proceed from Monday 10 November with the following works:- [a list of works was set out].In the event that the intended contract is not concluded between us, we will reimburse you your reasonably incurred expenditure upon the project up to a limit of £75,000.00 excluding VAT, or such other amount as we may agree in writing, and you will not be entitled to any further payment whether by way of quantum meruit or otherwise. The timescale covered by this letter of intent is from 10 November 2003 to 15 December 2003.In consideration for the Works carried out by you pursuant to this letter of instruction, payment shall be in accordance with the payment conditions within the JCT Standard Form of Building Contract With Contractor’s Design 1998 Edition with Amendments 1, 2 and TC/94/WCD as modified by Article 8 (sectional completion).Each of us shall have the right to refer any dispute arising under these arrangements to adjudication in accordance with the Royal Institute of British Architects adjudication rules.In the event that the intended contract is concluded, then such contract shall apply retrospectively in place of these arrangements, and payments made under these arrangements shall be treated as on account of our payment obligations thereunder.”24. Pursuant to the letter of intent, Kier commenced works on site in early December 2003. At this stage, although the VE exercise was substantially complete, the costs of the works provided for had not been finalised in all respects, because the Trust had not accepted all aspects of Kier’s re-tender but had asked Kier to continue to review the design.25. It was at about this time that Mr Bullen cut down significantly on his residual role with the H5 works, having already handed over day to day management of the project to another of TTPM’s project managers, Mr James Mell. Mr Mell was recently qualified, having graduated in 2001. In early December 2003 Mr Bullen sent an email to one of his colleagues, in which he expressed reservations about Mr Mell: “Have been thinking about Ampleforth … I don’t think the replacement PM is up to the job!!! Have not decided how to play this with Jim Fletcher as yet because I do not want to prolong my involvement with the project—I’ll let you know how it goes.” At the trial, Mr Bullen said that those remarks should be attributed to his own arrogance and his very positive experiences of working with the Trust and Mr Bryan. He insisted that Mr Mell was sufficiently experienced to deal with the project and that there were no issues concerning his technical competence; such concerns as he had related more to the fact that Mr Mell was a quieter character than he and, consequently, to Mr Mell’s ability to maintain the good relationship with the Trust.26. On 4th December 2003 Mr Mell sent an email to the design team, identifying the design information required by Kier before it could finalise the price and the contract and emphasising the importance of providing the information without delay and thereby avoiding slippage of the programme. On the same day, Mr Talabani sent an email to Mr Colin McNeil, a director of Kier, in which he said that, if the contract were not in place by mid December, he would prefer to proceed by a further letter of intent than to enter into a contract with a large number of provisional items outstanding. Mr McNiel was in agreement with that course. On 15th December Mr Talabani sent an email to Mr Bryan: “As Kier are not yet in a position to confirm fixed costs for all of the VE items, we [are] not yet in a position to conclude the formal contract documents for H5. We therefore need to issue a revised Letter of Intent as the previous one expired today.”27. Accordingly on 19th December the Trust issued Letter of Intent (Revision A); it was dated 15th December 2003. This was in the same terms as the First Letter of Intent, save for a number of specific revisions: the list of works was expanded; the reimbursement figure of £75,000 was replaced with a figure of £382,500; and the timescale covered by the letter of intent extended until 19th January 2004.28. When it tendered for the H5 works, Kier was not aware that the Trust was proposing to fund the project by means of borrowing from a bank. In December 2003 the matter was discussed between Mr McNeil and Mr Talabani, and Kier requested a letter from the lender. At Mr Bryan’s request, on 22nd December AIB wrote to Kier to confirm that it and the Trust were close to finalising a loan facility to finance the cost of developing the proposed new accommodation block, with only a small number of procedural issues outstanding; it was anticipated that those would be resolved within a couple of days. On 5th January 2004 Kier replied that it required to know as soon as funding was formally in place and asked that it be advised as soon as matters were concluded.29. The period covered by Letter of Intent (Revision A) expired on 19th January 2004. Kier’s Progress Report No. 2, dated 21st January 2004, stated: “FURTHER LETTER OF INTENT REQUIRED IMMEDIATELY.” Issues regarding the VE position were delaying the finalisation of the contractual documentation, but on 28th January Kier informed Mr Mell that it was confident that the remaining issues could be concluded within an anticipated timescale, and on 30th January Mr Talabani informed Mr Mell that Kier’s fixed costs for the VE items, which would enable the contract sum to be calculated, would be issued on 2nd February; meanwhile, he would prepare a further letter of intent for Mr Bryan to issue to Kier.30. Accordingly, the Trust issued the third letter of intent, Revision B, which was dated 30th January 2004. The reimbursement limit was stated to be £1,200,000 and the period covered by the letter of intent was from 19th January to 27th February 2004.31. TTPM received Kier’s consolidated and final VE Schedule on 3rd February 2004. Its response was given by Mr Talabani’s letter of 26th February, which indicated that the revised contract sum appeared to be £4,951,365, raised a number of specific queries in respect of the VE Schedule, and said: “Please respond to these items at your earliest convenience so that the outputs can be incorporated in the Contract documents. If not, they will not form post contract variations as the execution of the Contract Documents should not be delayed further. A draft copy of the Contract documents will be dropped off at your offices this evening. Please forward any comments you may have on these to Alan Talabani at the above address.” The contract documents were delivered by TTPM to Kier either on 26th February or very shortly afterwards. After the end of February 2004, no further changes were made to the VE schedule or to the contract price.32. On 2nd March 2004 Mr McNeil sent to Mr Talabani an email in the following terms: “Thanks for the contract docs which have been the subject of discussions S Phillips/yourself. Their checking, the receipt of warranties and finalising consultants appointments incl the issue of the extra fees they seek for VE work, will all take more time and it is to be noted that the current Letter of intent expired Friday 27th Feb. I will have for you in short timescale a request for further cover to take us to 26th March, the date by which realistically we should have all these outstanding matters resolved. I have again to record disappointment that despite conversations with Allied Irish, with Peter Bryan including letters, and direct contact from our Regional Financial director, no letter in the reqd form has been received re Loan facility being in place for Ampleforth and the building works which relate to the subject Contract. I am having serious problems in appeasing our masters in HQ that our position is secure bearing in mind that various unfulfilled promises via P Bryan and the bank direct, have been given.” The reference to “warranties” was to the terms of the warranties that would be given to the Trust by sub-contractors and consultants whose contractual relationship was to be with Kier. (A distinct issue concerning warranties subsequently arose when AIB required, as a precondition of its agreement to advance funding for the project, a warranty from Kier.) The reference to “extra fees” for VE work related in particular to the demand of Shire that either Kier or the Trust pay them additional fees for the time they had spent on the VE exercise; I shall say more of that below. For the present it may be noted that Mr McNeil expected that all outstanding matters would be resolved by the end of March 2004.33. On 8th March and again on 11th March Mr McNeil spoke to Mr Mell by telephone and repeated his request that AIB provide written confirmation of the loan facility. In the second conversation he stated that Kier would issue a seven-day notice to walk off site if the confirmation were not produced. Mr Bryan’s evidence was to the effect that the Trust considered Kier’s request impertinent and insulting; the Trust was well-endowed, its financial position was beyond question and the particular manner of funding for the project was none of Kier’s business. That stance was reflected in Mr Mell’s email to Mr Talabani on 12th March, which was written after discussions with Mr Bryan. Mr Bryan also stated that Kier’s request gave rise to a Catch-22 situation, because AIB was unwilling to provide confirmation of funding before a signed construction contract was in place. As a matter of practicality, it might be thought that the situation required no more than communication and co-ordination and was hardly a Catch-22.34. Nonetheless, on 11th March 2004 the Trust issued Letter of Intent (Revision D). (There does not appear to have been a Revision C.) The reimbursement limit was stated to be £1,885,000 and the timescale covered by the letter of intent was from 10th November 2003 to 31st March 2004. The matters recorded as still outstanding were only “Finalisation of Drawings and Specifications” and “Agreement of documentation forming contract documents”; the first outstanding item mentioned in the First Letter of Intent, namely “Finalisation of the Contract Sum”, had by now been resolved.35. In mid March 2004 TTPM sought to address the outstanding matters with Kier. The impasse regarding confirmation of funding from AIB was the subject of a conversation between one of TTPM’s directors, Mr Nick Townsend, and a director of Kier. Mr Townsend asked Kier to be pragmatic about the situation and received the assurance that Kier would not leave site over the issue, although the letter of confirmation would be required eventually. On 16th March Mr Talabani met with a representative of Kier in order to discuss the contract documents. His email of that date to Mr Mell and Mr Bryan concluded: “We are still aiming for signed and executed contracts in place by the end of March. This should then enable AIB to issue formal confirmation of funding.”36. The position as between Kier and the Trust, except with regard to the confirmation from AIB, was summarised by Mr Talabani in his letter of 22nd March 2004 to Mr Simon Phillips of Kier.“1.