Housing association - Local authority - Negligence

Community Gateway Association Ltd v Beha Williams Norman Ltd: Queen's Bench Division, Technology and Construction Court (Mr Justice Akenhead): 12 September 2011

The claimant was a housing association looking after the transferred housing stock for Preston local authority (the authority).

In order to transfer the stock to the claimant, the authority had to secure the agreement of the relevant tenants through a vote on an 'offer' put forward by the authority. The offer contained promises to the tenants substantially to improve their dwellings. In the instant case, the authority offered that £80m would be spent on repair and improvement work within the first five years following the transfer.

The offer document indicated that the dwellings would be improved to the 'Gateway Homes Standard' which had been developed by the authority, tenants and tenant representatives over the months leading up to the offer. Although specific promises were made in the document, the Gateway Homes Standard was a more high-level list of 11 types of improvement aims which were to be applied. The defendant provided specialist housing consultancy and advisory services to housing associations in relation to the transfer of housing stock.

The defendant was retained initially by the authority and later by the claimant as their lead consultant. The authority also retained an estate agent to product a stock condition survey (SCS). The functions to be undertaken by the defendant included preparing and advising on a business plan for the claimant which would cover details of the stock to be transferred, as well as cash flow and other financial matters, advising on the offer document and the valuation of the housing stock.

The defendant owed duties in contract and in tort to exercise reasonable care and skill with a view to ascertaining at least broadly whether sufficient was allowed within the business plan to cover for works which were promised to tenants or which were otherwise intended to be done.

The defendant owed the claimant a duty of care which arose before its incorporation and carried on thereafter. Disputes arose and the claimant brought proceedings against the defendant for breach of contract and breach of duty for allegedly negligent advice provided in 2004 and 2005.

The claimant submitted that behind and underlying the Gateway Homes Standard was a list of more detailed works contained in a document entitled 'Draft 1 Preston Homes Standard' (Draft 1), which had been promised to the tenants.

It further submitted that the defendant had failed to identify the value of the works under Draft 1 (which amounted to £16m) which materially differed from the SCS reports and that therefore it failed to appreciate that the proposed budget of £80m could be inadequate and that extra works needed to be costed to determine the business plan funding requirements.

Consequently, it was submitted that the claimant had lost, or had lost the opportunity of securing, funding equivalent to that £16m. Included in the claimant's claim was a separate claim relating to an underestimate of costs for 'disability adaptations'. The issues were, inter alia: (i) whether there was any breach of contract or duty by the defendant; (ii) whether the claimant was to succeed in its 'disability adaptations' case; (iii) whether any breach of duty caused the claimant loss. The claim would be refused.

(1) In the instant case, the claimant had established that the defendant had failed to act with reasonable care and skill in the period of discussions up to the end of October 2004 in blandly confirming prior to viewing the offer document that there was sufficient in money terms in the then business plan to cover the works within the Preston Homes Standard.

That was because the defendant had not sought to ascertain or investigate the extent to which there had been a correlation between the works envisaged by the SCS reports and the Preston Homes Standard.

The carelessness or negligence continued until at least he saw the 11 or 12 high level points Preston Homes Standard document and probably until he saw the offer document. There was however nothing in the offer which would have revealed that there was or would have been any exceptional work which had been promised to the tenants and which were not obviously budgeted for within the business plan as it then stood.

The offer was intended to be read as a standalone document and Draft 1 was not intended to represent or record promises made to the tenants (see [168]-[169], [183], [191] of the judgment).

With regard to the breach of duty established in the period up to the end of October 2004, that could only be a breach of the tortious duty because there was no contract in place until later (see [182] of the judgment).

(2) in the instant case there was no real evidence for a conclusion that there was any potential budgetary problem in relation to the cost of disabled adaptations. No breach of contract was established as against the defendant in that context (see [181] of the judgment).

Although the defendants were in breach of duty to the end of October no loss was caused by the breach. Further argument would be heard as to whether nominal damages were appropriate (see [195], [198] of the judgment).

Paul Darling QC, Graham Chapman and Emilie Jones (instructed by DLA Piper UK LLP) for the claimant. Andrew Onslow QC, Neil Hext and David Thomas (instructed by Kennedys) for the defendant.