Plead poorly at your peril

The Court of Appeal ("CA") has dismissed an appeal by appellant residential leaseholders, Mr and Mrs Wilson, against the striking out of substantial heads of loss pleaded within their Schedule of Loss against the respondent, HB (SWA) Ltd ("the defendant").

The CA held that the Wilsons' losses had properly been struck out by the TCC, as inadequately pleaded, unparticularised and outside the framework of the leaseholder's statement of claim.

The case provides important clarification regarding the scope of pleadings in construction defect claims and damages under the Defective Premises Act 1972 ("DPA").

Background and TCC decision

The original dispute concerned the discovery of a number of fire safety and other defects at the Celestia Development in Cardiff.

Mr and Mrs Wilson were two of forty one individual leaseholders, as well as the management company, CMCL, bringing claims for damages against the defendant for breach of contract (in Mr and Mr's Wilson's case, for breach of implied terms in the leases) and/or for breach of the duty owed pursuant to Section 1 of the DPA arising as a result of the defects.

Of note was that the defendant and CMCL agreed a works license which permitted the defendant to carry out a comprehensive programme of remedial works at no cost to the leaseholders. This explained why there was no claim in the proceedings for the cost of the remedial works.

Mr and Mrs Wilson personally presented a Schedule of Loss in accordance with a direction given by the Court after many years of litigation. The Schedule drastically departed from the framework as pleaded on behalf of all claimants in the Re-Re-Re-Amended Particulars of Claim. Mr and Mrs Wilson's Schedule purported to advance nine different heads of loss for which they sought damages including service charges, interest, capital losses (including diminution in value of their former flats), investment losses and losses relating to their tax liabilities.

The defendant applied to strike out most of the Schedule, arguing that that the alleged losses were not pleaded in the particulars of claim, or in any event were unrecoverable, being ‘purely speculative or imaginary’, or advanced only vaguely. At first instance, His Honour Judge Keyser KC upheld the defendant's application.

The Wilsons appealed.

CA decision

The appeal was dismissed. The leading judgment by Coulson LJ, endorsed the TCC's approach and noted that the Wilsons’ Schedule of Loss was over-complicated, unclear, and lacking in even the basic information necessary to identify and support the disputed heads of loss.

The CA did not introduce any fundamental new legal principles, but dealt with a number of important overarching points:

Amendments to statements of case

Mr and Mrs Wilson submitted that in respect of certain heads of loss, they should have been given another chance to rectify their schedule by way of amendment. However, they did not provide any proposed amendments. The CA therefore endorsed the approach in Kim v Park [2011] EWHC 1781 (QB)) that it is very difficult for the court to conclude 'there is a reason to believe that the claimant would be in a position to put the defect right' if there is no proposed amendment which seeks to do just that.

Losses recoverable for breach of contract vs losses recoverable for breach of the DPA

The CA confirmed, in the context of this matter, that there was not any material difference between the quantum contractual damages and those recoverable for breach under the DPA. Of course, parties should be mindful that different case circumstances may yield different outcomes in future cases.

Damages for defective work generally

Where there is defective or incomplete construction work, a claimant is entitled to claim the amount by which the work is worth less by reason of the defects; that is a traditional diminution in value claim. Case law provides that this is usually best measured by reference to the reasonable cost of reinstatement works

In a case where it has been agreed that the original contractor can return to carry out the remedial works, the owners cannot claim the cost of those remedial works as damages, they will never incur the cost of such works, or a liability for those costs, so they cannot recover damages by reference to them.

But that does not mean that the owner will not suffer a residual diminution in value, even after the remedial works have been completed, commonly known as "blight". Residual diminution in value is a proper head of loss in such circumstances.

Procedure

Claims made for the first time in the Schedule of Loss, where the basis of the claim is not explained or even referred to in the statement of claim are impermissible and can lead to unfairness and prejudice.

It is wrong for claims which appear to be obviously too remote to be allowed to limp on to trial in the hope that something comes along to save them.

A claimant will normally be able to recover (subject to proof) losses which can be properly identified as flowing from the breaches pleaded. The Court will not entertain "Micawberism", that is hopeless claims lacking proper basis.

Practical takeaways

• This case is a clear reminder that poorly particularised Schedules of Loss will be stopped early by the courts.

• Schedules of loss should align completely with the pleaded claim and with actual proof of loss evidenced. They should not expand on what has been pleaded and if new heads of loss are required, it is advisable to seek the Court's permission to amend, including providing the Court with a draft of those amendments.

• Schedules of Loss should not be over complicated and provide clear information as necessary to identify and support the heads of loss as claimed.

• Losses should be based on quantifiable facts and not hypothetical, remote or unparticularised. Generalities and obviously speculative heads of loss will be struck out by the Court early on in the claim and parties should expect robust judicial scrutiny of pleadings and quantum.

• Where damages are claimed for breach of contract and/or breach of the DPA, there is unlikely to be a significant difference in the recoverable losses, subject to the facts of the case.