At a loss about 'no loss' arguments in construction claims?

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In the context of construction projects, 'employers', developers and funders may need to assign construction documents (e.g. building contracts, professional appointments, collateral warranties). 

For example:

  • an 'employer' may wish to assign the building contract to a purchaser taking over its interest in the project;
  • a developer may have to assign the professional appointments to a funder by way of security; or
  • a funder may wish to assign its collateral warranties to a replacement lender taking over the financing of the project.

The assignee will want to ensure that the benefits of the contract pass to them so that, if they suffer a loss caused by the consultant / contractor, they can bring a successful claim against them.

However, where such a claim is brought by an assignee, the contractor / consultant will often try to argue that the assignee cannot recover their loss because it is not the same loss as the assignor would have suffered.  This is one formation of what is known as the 'no loss' argument.

In order to attempt to kick this argument into the long grass, lawyers acting for assignors / assignees will often require the inclusion of a clause in the relevant construction document seeking to prevent the consultant/contractor from raising such an argument in defence of a claim brought post assignment.

However, the courts have indicated in a series of cases that they would not entertain such an argument in this type of situation in any event.

Most recently, in Saga Cruises BDF Ltd and another v Fincantieri SPA [2016] EWHC 1875 (Comm), Ms Sara Cockerill QC, the presiding judge, indicated that she would not have found any merit in this argument being used to prevent the recovery of damages by the assignee.  In this instance, Saga arranged for their vessel to be refurbished by a shipbuilding company, the defendant.  They then entered into a bareboat charter with Acromas, the claimant, entitling the claimant to operate the vessel as a cruise ship for one year.  However, there were issues with the luboil cooler which meant that the inaugural cruise had to be abandoned and, as a result, the claimant brought a claim for damages against the defendant. 

The defendant argued that the assignee could not recover their losses because those losses were of a different type to those which would have been suffered by the assignor had the bareboat charter not been concluded.  However, Ms Sara Cockerill QC's opinion was that it could be expected that the problems with the luboil cooler would cause loss in the operation of a cruise ship business.  This was the only conceivable purpose for which the vessel could be used and it was within the reasonable contemplation of the parties that the vessel would be used for such a purpose.  The fact that the assignor had not been operating the ship as a cruise business itself was irrelevant.

Whilst this is a 'shipping' case, clearly the same legal principles will apply to construction contracts.

The inclusion of such 'no loss' clauses in construction documents may be sensible for cautious 'employers', developers and funders.  However, it would appear from the run of case law that a potential claimant would not put itself at a loss by failing to include such a clause in a construction document.

If you would like to discuss further, please do not hesitate to get in touch with a member of our construction team.