The application before the Court is the First Defendant’s application as follows:

The First Defendant (“Croydon”) is an investment company.

By a building contract dated 22 December 2015 (“the Building Contract”), Croydon engaged the Second Defendant (“RGB”) to carry out and complete the works to convert an office complex into 82 residential apartments at 5 Bedford Park in Croydon (“the Property”). The Contract Sum was £7,120,564.82.

Croydon engaged the Third Defendant (“Stroma”) as its Building Regulations Approved Inspector.

On 5 December 2016, the Employer’s Agent certified that the Works had achieved practical completion and provided an “on-going Defects Liability Schedule” (essentially, a snagging list). Under the terms of the Building Contract, the Rectification Period was to last 12 months from the date of practical completion of the Works.

Shortly thereafter, by a Sale and Purchase Agreement dated 16 January 2017 (“the SPA”), the Claimant (“WOL”) agreed to purchase the Property from Croydon for the sum of £22,958,621. The sale was completed on 23 January 2017.

It is WOL’s case that it wanted to ensure that the building it had just purchased would be free from defects. WOL says that it achieved this by agreeing terms in the SPA under which, essentially, Croydon would continue to administer the Building Contract as employer, would procure that RGB complied with its obligations under the Building Contract, and would not issue the Notice of Completion of Making Good Defects until all outstanding defects were made good. The parties disagree as to the meaning to be attached to the relevant parts of the SPA, and the intention behind that agreement.

It is WOL’s case that, in the event, Croydon did nothing after it had divested itself of the Property; that it made no attempt to procure the rectification of the defects; and that it made no attempt to issue the Notice of Completion of Making Good.

WOL’s case is that, after purchasing the Property, it discovered that the Property contained very substantial defects, including problems with the ventilation system, the hot and cold water supply, the external cladding system and the fire compartmentation.

WOL’s case is that it paid significant sums of money to rectify some, but not all, of these defects. Thereafter, instead of pursuing an expensive programme of further rectification works, WOL decided to sell the Property at its true value, including the defects. On 14 December 2022, WOL sold the Property for £8,300,000 to Bedford Park Ltd. On WOL’s case, the sale was an arms-length commercial transaction to an independent third party with no links to or association with WOL.

WOL says that by reason of the defects in the Property, it has lost £16,264,980. This comprises the difference between the price paid for the Property and the price realised upon its eventual sale (£14,658,621), sums paid to rectify the snagging defects (£165,176), sums paid to rectify defects in the ventilation system (£85,583), the costs of investigating and managing the fire defects (£704,074) and the loss of rent as vacant possession of the flats was obtained (£1,285,193).

WOL has brought these proceedings against:

The SPA is dated 16 January 2017. It is between Croydon (defined as “Seller One”) and another company defined as Seller Two, on the one hand, and “LHIF (5) LLP” as buyer. As I understand the position, LHIF (5) LLP is the same entity as WOL, renamed since the SPA was concluded.

Clause 23 of the SPA provides:

Schedule 5 is headed “Construction Schedule”, and Schedule 5A is headed “Bedford House Property”.

Paragraph 1 of Schedule 5A contains Definitions, including:

Paragraph 4 of Schedule 5A provides:

Paragraph 5.1 of Schedule 5A provides:

Paragraph 4 refers to obligations under the Building Contract. The Building Contract incorporated the terms of the JCT Design and Build 2011 Conditions subject to some bespoke alterations. As thus amended, Clauses 2.35, 2.35A and Clause 2.36 provided:

Part 1 of the Contract Particulars to the Building Contract provided that the Rectification Period was 12 months from the date of practical completion.

Until 2018 Stroma was known as BBS Building Control Ltd. In that name it entered into a Collateral Warranty by Clause 1 of which it gave a warranty as follows:

Broadly speaking, Stroma’s task was to attempt to ensure compliance by RGB with the Building Regulations.

The second collateral warranty to which I have been referred is between WOL and RGB. This is dated 5 November 2018 and provides:

Both collateral warranties required the warrantor to take out insurance. There was some discussion before me as to whether RGB was required to take out insurance wider in cover than a standard professional indemnity policy. Whilst I have considerable reservations about this, I assume for the purpose of this judgment that RGB was required to take out insurance to cover any liability it had under the Building Contract for workmanship as well as design or specification errors.

Croydon’s application has three limbs:

Before examining these submissions, it is appropriate to set out the test which must be satisfied if the application is to succeed and the proper approach to construction of the SPA.

In his skeleton argument, Dr. Sampson, appearing for Croydon, drew my attention of the guidance given by Lewison J. in Easyair Ltd v Opal Telecom [2009] EWHC 339 at paragraph [15]:

I accept that that guidance is applicable.

Insofar as this application requires me to construe the SPA, Mr Polli KC, for WOL, submits that the following observations from the judgment of Lord Neuberger PSC in Arnold v Britton [2015] UKSC 26; [2015] AC 1610 at paragraphs [17] to [22] are applicable:

Again, I accept that that guidance is applicable to the exercise of construction which I must carry out.

Before going further, I should deal with a threshold evidential point.

Croydon submitted a witness statement from Mr Asif Aziz, Chief Executive Officer of Criterion Capital Ltd, which is the managing agent for Croydon. The important part of the witness statement sought to put into evidence certain emails prior to the conclusion of the SPA passing between the solicitors for the parties to the SPA which were said to be relevant to construction of the SPA.

I indicated during the hearing that I was not willing to admit this evidence: firstly because it was evidence of the parties’ negotiations which many decisions at the highest level (including Prenn v Simmonds [1971] 1 WLR 1381 and Chartbrook v Persimmon Homes [2009] UKHL 38) have determined is inadmissible as an aid to construction of written agreements; and secondly because the entire agreement clause (clause 23) renders such exchanges irrelevant even if the general law did not do so.

Although I have separated out the two limbs of argument (as to (1) the relevance of the collateral warranties and (2) as to the scope if defects for which Croydon could be held liable), I recognise that in Croydon’s approach these are cumulative points rather than separate and distinct points. Nevertheless, as a matter of analysis it seems to me helpful to consider the strands separately.

Mr. Polli for WOL described this part of the argument as Croydon’s three legged stool argument, i.e. that it was an argument that WOL has three separate routes to recover damages for defects: under one or other of the collateral warranties, or under the SPA.

In support of his argument, Dr Sampson points to the probability that at the time of entering into the SPA, the parties thereto believed that the warrantors had substantial assets or means of satisfying any liability – in the case of RGB from its own assets as a successful business or from insurance, and in the case of Stroma from insurance.

I am willing to accept that that may have been the expectation of the parties, but that would not preclude an agreement that Croydon was accepting a primary liability in respect of defects in the Property which was additional to that accepted by the two warrantors. Such an acceptance by Croydon would be entirely normal in development and construction industries.

In my judgment the obligations accepted by Croydon in paragraph 4 of Schedule 5A are arguably clear on their face and are not interrelated with the scope of the collateral warranties.

Paragraph 4.1 requires Croydon to comply with its duties and obligations under the Building Contract: these included making sure that any defects were remedied by RGB.

The position is arguably even stronger under paragraph 4.2 which requires Croydon to “procure” that the obligations of RGB under the Building Contract are complied with.

I keep in mind that at this stage in respect of this application I do not have to decide what was the true construction of the SPA, but only whether WOL’s construction is properly arguable.

I have no doubt that WOL’s case as to the proper construction of the SPA as effectively meaning that Croydon has an obligation close to a guarantee to ensure that RGB would comply with its obligations under the Building Contract is well arguable – Mr Polli referred to authority which lends substantial support to his client’s case (Barnicoat v Knight [2004] EWHC 330 (Ch); and Nearfield Ltd v Lincoln Nominees Ltd [2006] EWHC 2421 (Ch)).

Thus, as a matter of construction WOL has a well arguable case that the existence of the collateral warranties does not restrict the scope of Croydon’s liability in the event that RGB does not remedy defects in the Property.

The second limb of Croydon’s application asserts that the scope of defects for which Croydon can be held liable is limited to defects of a snagging nature or similar.

Croydon does not rely upon any express language of the SPA to reach this conclusion. What it does is to submit, firstly, that a comparison needs to be made between the definition of “defects” in Schedule 5A (which includes the word “snagging”) and the scope of “defects” referred to in Clauses 2.35 to 2.36 of the Building Contract where no reference is made to “snagging” as a category of relevant defects.

Secondly, Croydon places considerable reliance upon the nature of defects which had been identified by the time the SPA was concluded, and the relatively limited retentions permitted by the SPA from the purchase price to allow for defects which might have to be rectified.

In considering these submissions, I have to keep firmly in mind the exercise in which I am engaged, namely considering whether there is a case for Croydon that its construction of the SPA is beyond any realistic contradiction.

I conclude that Croydon cannot discharge that heavy burden. Firstly, it seems to me that the definition of “defects” in paragraph 1 of Schedule 5A is well arguably capable of encompassing all the defects alleged by WOL in the Amended Particulars of Claim: insofar as the wording is different in the SPA from the Building Contract, it is well arguable that the draftsman of the SPA intended to describe a wider definition than that contained in the Building Contract in order to avoid the argument that a “snagging” item was not a “defect”. I do not need to decide that point: I only need to determine, as I have done above, that the definition of “defects” in paragraph 1 of Schedule 5A is well arguably capable of encompassing all the defects alleged by WOL in the Amended Particulars of Claim.

Secondly, as to the point as to what the parties’ understanding was at the time of entering into the SPA as to the scope of defects, this seems to me to be a matter upon which evidence is necessary. As the respective submissions of Mr Polli for WOL and Ms Gillies for Stroma demonstrated, there is at present considerable doubt about who knew what about the state to the Property. Certainly I could not form a view at this stage that there was a joint understanding of the state of the Property such as to form a common factual matrix upon the basis of which the parties entered into the SPA such as to assist the Court at this stage in construing the SPA. Of course, this may change by the time evidence has been adduced and tested at a trial.

Croydon argues that on the pleadings WOL fails to make out an arguable case against it as to causation.

The case is pithily put at paragraph 65 of Dr Sampson’s skeleton argument:

This point is then developed in the following paragraphs.

In my judgment this argument is valid, in that the Amended Particulars of Claim the claim against Croydon is not expressly set out, particularly in the section headed “Causation” starting at paragraph 69. Similarly paragraphs 66 to 67 and 68 to 68E set out cases of breach against RGB and Stroma but there is no equivalent case pleaded against Croydon.

That said, it seems to me tolerably clear from the pleading and from the argument before me what is the nature of the case against Croydon which WOL wishes to put forward. However Croydon is entitled to have the case properly pleaded against it.

Accordingly, this seems to me to be a case where an order striking out the claim would be inappropriate. However, it seems to me that WOL should be required to provide a re-amended pleading clearly setting out the case relied upon by it against Croydon.

I invite submissions from the parties as to the order which I should make to reflect the conclusions I have reached in this judgment.