Macfarlanes secures important judgment in long-running PFI hospital dispute

There have been an increasing number of disputes arising from problems with the initial design and construction of buildings that have been procured by the Government through the PFI (Private Finance Initiative) framework. Few of those disputes, however, go all the way through to a High Court trial, and even fewer with the building contractor maintaining throughout that their works were not defective – as was the case here.

As with most PFI projects, the NHS Trust engaged Project Co to design, construct and maintain the Oncology Centre. Those obligations were, in turn, subcontracted by Project Co to the building contractor.

The current dispute arose when, following detailed technical surveys and investigations, Project Co identified a number of serious safety and electrical engineering deficiencies and defects in the plant room (the central electrical and mechanical hub) of the Oncology Centre. Those defects ranged from inadequate fire compartmentation and fire stopping to a failure to properly protect the power supply to important plant and machinery. As a result, a fire or fault could disable the primary and secondary power supplies to all medical equipment and facilities in the Oncology Centre.

Project Co claimed that this constituted a breach of the contractor’s building contract, which required the contractor to comply with various applicable design and safety standards, including Health Technical Memoranda that apply specifically to hospitals and other healthcare buildings.

The building contractor denied the claim, on the basis that the design and construction of the Oncology Centre complied with the fire strategy that had allegedly been signed off by the relevant parties. At trial, the building contractor also argued that Project Co had no intention of carrying out any remedial works and that, in any event, a more limited remedial scheme would be more appropriate.

The Court rejected all of the building contractor’s arguments and gave judgment for Project Co. In particular, the Court:

• recognised all of the defects identified by Project Co;
• rejected the building contractor’s fire strategy defence;
• found that the practical completion certificate and Building Control sign off were also no defence to the claim;
• determined that the defects constituted departures from the fire strategy, breaches of applicable technical standards and, therefore, breaches of the relevant provisions of the building contract; and
• was satisfied that Project Co’s interim “priority” remedial works and its permanent remedial scheme were necessary, practical and proportionate.

Project Co also sought declarations about the building contractor’s potential future liabilities (pursuant to various indemnities in the building contract). However, the Court decided that this question should only be determined at a later date, if and when such liabilities actually arose.

As well as dealing with the particular facts of this case, the judgment also provides a helpful summary of the law relating to:

• the appropriate measure of damages in defective design/construction claims;
• the relevance of the timing of, and intention to carry out, remedial works;
• how the Court should decide between competing remedial schemes; and
• the interplay between a PFI project company’s contractual rights against a building contractor and its contractual rights against a maintenance contractor, when it comes to liability for defects.

The Macfarlanes team acting for Project Co was led by litigation partner Mark Lawrence, alongside associate Philip Kershaw, with support from other members of the litigation team. Counsel for Project Co were Jonathan Selby KC and Charlie Thompson of Keating Chambers.