Council’s £12m damages claim against engineers over botched social housing development dismissed

Midlothian Council raised an action against Blyth & Blyth Consulting Engineers Ltd and others following the demolition of the the 64-home scheme, which became “uninhabitable” because of the danger to the health of tenants caused by gas ingress.

However, a judge in the Court of Session dismissed the action after upholding the company’s plea that any obligation to make reparation to the council has been extinguished because the proceedings were raised more than five years after the loss occurred.

‘Uninhabitable’ 

Lord Doherty heard that the commercial action arose out of a social housing development built between December 2007 and June 2009 above coal strata and former mine workings at Gorebridge, which had to be demolished between May 2015 and June 2016. 

The fourth defenders Blyth & Blyth Consulting Engineers advised the pursuer Midlothian Council in relation to site investigation and assessment. 

In reliance on the advice the pursuer built a development of 64 houses on the site, but it had no ground gas defence system. 

The houses were occupied by tenants without incident until 7 September 2013, when one of the houses became ill after dangerous levels of toxic gas leaked into the houses. 

The tenants and their families were all decanted and the homes subsequently demolished.

The council, which proposes to re-build housing on the site with a ground gas defence system, raised the present action for damages on 4 September 2018, seeking £12m for the demolition and rebuild costs and the costs associated with re-housing the tenants, claiming that the defenders failed to advise it that a ground gas defence system was required to prevent noxious gas seeping up into the houses.

‘Extinction of obligation’

However, the fourth defender maintained that any right the pursuer had to claim damagers from it had been extinguished by the operation of the short negative prescription in terms of section 6 of the Prescription and Limitation (Scotland) Act 1973.

It was argued that the breach of contract occurred in 2006 - that was the date of injuria.

Damnum occurred between December 2007 and June 2009 when the pursuer incurred some £6  million in costs constructing the development, which in hindsight was wasted expenditure was which was sufficient awareness of the occurrence of loss.

Accordingly, it was submitted that any obligation upon the fourth defender to make reparation to the pursuer had been extinguished in June 2014 - more than four years before the action against the fourth defender was raised on 4 September 2018.

While the council did not dispute the principle that wasted expenditure could be loss, injury or damage, it maintained that the pursuer’s loss here had been that it had been left with a development which was uninhabitable because it had no ground gas defence system. 

There had been loss as a result of the fourth defender’s breach, which had not occurred until June 2009 - when practical completion of the development had been achieved, but the pursuer had not become aware of having suffered loss, and could not with reasonable diligence have become so aware, until 7 September 2013 at the earliest when the first complaint was made by a tenant.

‘Wasted expenditure’

Dismissing the action, the judge held that the loss, injury or damage suffered by the council was the “wasted expenditure” involved constructing in the development.

In a written opinion, Lord Doherty said: “In my opinion the pursuer suffered loss, injury or damage before practical completion. As soon as the pursuer accepted the fourth defender’s advice and acted upon it there was damnum. The pursuer (and the construction professionals and contractors it engaged) relied upon the advice in determining the development’s design and in carrying out its construction. 

“The pursuer entered into contractual obligations, and it incurred expenditure, upon the basis of the advice. Unfortunately, the design and construction of the development were destined to fail from the start because they were based on the advice which the fourth defender had given.

“In my opinion the expenditure which the pursuer incurred constructing the development between December 2007 and June 2009 was loss, injury or damage caused by the fourth defender’s breach. The expenditure was wasted. It did not achieve its purpose. The whole development required to be, and was, demolished.”

He continued: “The pursuer averred that it was not aware before 7 September 2013 (at the earliest) that it had suffered loss, injury or damage. I agree that on the pursuer’s averments it was unaware before that date that anything had gone wrong, or that it had suffered a detriment. 

“However, it knew between December 2007 and June 2009 that it was incurring expenditure on construction of the development in reliance on the fourth defender’s advice. It did not know at the time it was being incurred that the expenditure was wasted or would fail to achieve its purpose.

“Nevertheless, as a matter of objective fact, and with the benefit of hindsight, the expenditure was wasted and it did fail to achieve its purpose. As a matter of objective fact it was ‘loss, injury or damage’.”

“In my opinion,” Lord Doherty concluded, “for the foregoing reasons, it follows that the pursuer was aware of having suffered loss, injury or damage more than five years before the action was raised on 4 September 2018; and that, accordingly, the obligation of the fourth defender to make reparation has been extinguished by the short negative prescription.”