High Court delivers decision on damages in Toppan Holdings Ltd & Anor v Augusta 2008 

In the latest in a long line of judgments arising from the (1) Toppan Holdings Limited, (2) Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) dispute, the High Court has provided a useful reminder as to key principles underlying the credibility of witness evidence and claimants’ entitlement to damages. 

Material facts 

Toppan Holdings Limited (Toppan), the first claimant, is the freehold owner of the property Abbey Healthcare (Mill Hill) Ltd (Abbey), the second claimant, is the leaseholder of the property.  

In June 2015, Sapphire Building Services Ltd entered into a contract with the defendant, Simply Construct (UK) LLP (Simply) to design and construct the property. The contractual works were completed in October 2016.  

This contract was subsequently novated to Toppan in June 2017, and Toppan granted a 21-year lease of the property to Abbey in August 2017.   

In August 2018, Toppan discovered alleged fire safety defects at the property.  

When Simply did not comply with Toppan’s request to rectify the defects, Toppan engaged a third party to carry out the remedial works at the property.  

Toppan commenced specific performance proceedings against Augusta (formerly Simply Construction (UK) LLP, referred to in this article as ‘Simply’). In September 2020, after the commencement of these proceedings, Simply executed a collateral warranty in favour of Abbey, warranting that they had performed their contractual obligations diligently and with reasonable skill, care and diligence.  

In December 2020, both Toppan and Abbey referred the dispute regarding the alleged defects and the cost of remedial works to adjudication.  

The adjudication and Supreme Court decision: collateral warranties 

Although this article does not purport to focus on the issues considered by the courts preceding this litigation, it is instructive to first briefly recount the decisions of the lower courts in respect of the adjudication.  

In December 2020, both Toppan and Abbey referred the dispute regarding the alleged defects and the cost of remedial works to adjudication. Toppan’s claim was brought pursuant to the building contract; Abbey’s claim was brought pursuant to the collateral warranty.  

Simply challenged the adjudicator’s jurisdiction in respect of Abbey’s claim on the basis that the collateral warranty was not a construction contract for the purpose of s 104 of the Housing Grants, Construction and Regeneration Act 1996 (the Act). That is, Simply submitted that a collateral warranty was not a contract “for… the carrying out of construction operations” such that it triggered the Act’s mandatory adjudication procedure. If it was not, Simply submitted, then the adjudicator acted outside the scope of its jurisdiction.  

Toppan and Abbey were ultimately successful in the adjudication but were required to commence enforcement proceedings in the TCC when Simply failed to pay.   

The key question for the TCC – and indeed for the Court of Appeal and Supreme Court, when the TCC’s decision was ultimately appealed – was whether the adjudicator had acted outside the scope of their jurisdiction on the basis that the collateral warranty was not a construction contract for the purposes of the Act such that the mandatory adjudication procedure did not apply.  

The Supreme Court ultimately decided that, whilst a collateral warranty could constitute a contract “for… the carrying out of construction operations” within the meaning of the Act, to attract mandatory adjudication, in this case, the collateral warranty in favour of Abbey was not a construction contract for the purpose of the Act as it merely promised that the construction operations would be done, rather than “giving rise to the carrying out of such [construction] operations”.  

For more information on the Supreme Court’s decision, please see our article. 

High Court decision: key takeaways 

The High Court considered Toppan and Abbey’s entitlement to various heads of damages claimed and the quantum of those claims.  

Judge Martin Bowdery KC, sitting as Deputy Judge of the High Court, helpfully provided a chronology of milestone events in respect of these proceedings at paragraph 27 of his judgment. Relevantly for the below discussion of damages, in June 2018, Toppan and BlackRock had agreed heads of terms subject to contract for the sale of the freehold of the property for approximately £22.5 million, which the court accepted subsequently, fell through as a result of the discovery of the fire safety defects.  

Witness evidence 

The court gave helpful direction as to the value of witness testimony. Simply questioned the credibility of Toppan’s witness evidence, including on the basis of the “danger of treating a witness’ recollection of events that happened a long time ago as firm evidence” (at [18]), considering that the court should value documentary evidence with greater credibility. However, the court commented that “reliance upon contemporaneous documentation is not without its own difficulties” and that a “dogmatic preference for documentary evidence over witness’ recollections … is unhelpful”. In concluding that the claimants’ witnesses were not “inherently unreliable”, the court set out the following “main tests” for assessing witness’ credibility at paragraph 21: 

“- the consistency of witness’ evidence with what is agreed or clearly shown by other evidence to have occurred 

– the internal consistency of the witness’s evidence 

– the demeanour of the witness.” 

Although the court’s comments in respect of witness evidence were not novel, Judge Martin Bowdery KC provided a useful and concise summary of the value of witness evidence.  

Damages 

In summary, the claimants claimed the following damages: 

• Abbey 
  • Loss of trading profits. 
  • Abortive legal costs and disbursements for the aborted sale to BlackRock. 
  • Overdraft charges. 

• Toppan 
  • Loss of sale of the property. 
  • Abortive legal costs and disbursements for the aborted sale to BlackRock. 
  • Increased interest charged by Toppan’s lenders and investment losses on what would have been the proceeds of the abortive sale. 
  • Interest charges. 

The court analysed the claimants’ entitlement to each of the above heads of loss in turn.  

In doing so, the court reiterated the widely recognised principles relating to damages: 

1. Objective: to put the claimant in the position they would have been in had the breach of contract not occurred.  

2. Remoteness: Hadley v Baxendale: 

“… the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either [1] arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or [2] such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”. 

The High Court’s interrogation of each of the claimed heads of damage serves as a useful worked example of these principles.  

1. Loss of trading profits 

Abbey claimed a loss of trading profits, being the difference between the actual profits made and the profits that they would have made had Simply not breached the contract.  

Although there was a dispute between the parties as regards the timing and quantum in respect of the hypothetical ‘but for position’, the court ultimately found Abbey’s evidence more compelling and held that Abbey was entitled to the quantum of loss as claimed by Abbey.  

2. Abortive legal costs and disbursements for the aborted sale to BlackRock 

Both Abbey and Toppan claimed the legal costs and disbursements paid in respect of the BlackRock deal, which, they asserted, would not have been aborted and wasted costs but for Simply’s breaches of duty.  

The court ultimately concluded that Abbey and Toppan were entitled to recover these costs. In doing so, at paragraphs 53 to 55, the court accepted that these costs were abortive in the sense that any future sale would require “the renewal, instead of the re-use, of such costs and disbursements and the underlying work” and that they were caused by Simply’s breaches of duty.  

3. Overdraft charges 

Abbey claimed that they were entitled to the overdraft charges that they were required to incur as a result of additional use of its overdraft facility during the remedial works.  

The court held that these costs were too remote and so irrecoverable. In reaching this conclusion, the court noted that Simply had no knowledge of how Abbey would fund the cost of the remedial works and were not satisfied that these charges were Simply’s responsibility.  

4.  Loss of sale of the care home 

Toppan claimed the loss of the BlackRock deal. Simply denied that Toppan was entitled to this loss, on the basis that it was too remote, the discovery of the defects did not in itself prevent the sale from progressing, and that, in any event, Toppan suffered no loss as a result of the deal with BlackRock falling through.  

First, the court considered that the loss was not too remote. At paragraph 71, the court concluded that “the alleged losses associated with the proposed sale to BlackRock did arise naturally according to the usual course of things as a result of Simply’s breaches and the defects” and were in the “reasonable contemplation of the parties at the time of contract”. The court also emphasised that, unlike the overdraft charges, Simply had actual knowledge regarding the likelihood of the sale.   

Second, the court was satisfied that, on the balance of probabilities, but for the defects caused by Simply’s breaches, the BlackRock deal would have completed.  

However, having provided a thorough financial analysis, the court nonetheless concluded that Toppan suffered no loss. In coming to this conclusion, the court considered that the alleged loss flowing from the failure of the BlackRock deal was less than the hypothetical compensation that Toppan would have had to pay to Abbey had the deal completed. As such, Toppan was not entitled to recover any loss in respect of this head of damage.  

5. Increased interest charged by Toppan’s lenders and investment losses on what would have been the proceeds of the abortive sale 

Toppan claimed (1) the continued interest payments made under its loan, which it asserted would have been discharged had the BlackRock sale completed, and (2) the profits it says it would have made by investing the proceeds of the lost sale to BlackRock. However, Toppan did not advance any expert evidence in support of this claim.  

At paragraphs 103 to 108, the court deemed these losses too remote to be recoverable, considering that there was “simply too much speculation and too little credible evidence to support this fanciful claim”.  Moreover, that the claimed rate of return was “far fetched and … meaningless” as it failed to be justified by rigorous financial analysis.   

6. Interest charges 

 The court concluded that Toppan was entitled to recover the interest charges claimed, being satisfied that Simply’s breaches had caused Toppan to be subject to higher rates of interest charges than it would have incurred had the breaches not occurred.  

Breach of obligation to notify the insurers 

The court readily accepted that Simply had breached their obligation pursuant to cl 6.13A of the building contract to notify the insurers immediately of claims made against them. However, the court was ultimately not asked to opine on the losses flowing from this breach.  

Conclusion  

The central question for the High Court in Toppan Holdings Ltd  & Anor v Augusta 2008 was in respect of the quantum claimed by Toppan and Abbey in respect of fire safety defects discovered at the property constructed by Simply. The court’s decision is a welcome restatement and analysis of key principles regarding the comparative credibility of witness and documentary evidence and the appropriate measure of damages and limitations thereof.  

The Birketts view   

From a practical perspective, the High Court’s decision in Toppan Holdings Ltd & Anors v Augusta 2008 highlights the importance of obtaining rigorous witness evidence, where possible, to substantiate your claim, as it may be compelling in its capacity both as factual evidence and in its underlying support of expert evidence.  

Additionally, the court’s interrogation of each of the heads of claim serves as a useful reminder of the principles of remoteness. Ultimately, if a party wishes to ensure that a particular head of loss will not be irrecoverable on the grounds of remoteness, it should ensure that it is specifically referred to in the contract.  This will then preclude any argument that the loss was not within the reasonable contemplation of the parties at the point of entering into the contract.  

For advice on drafting or litigating in respect of construction contracts, please contact our team of specialist construction lawyers.