Dangers With Direct Agreements

Profession:Herbert Smith
 
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Have you always considered that there is a legal difference between assignment and novation? Not according to the findings by the Court of Session in a recent Scottish case Blyth & Blyth Limited v. Carillion Construction Limited.

This was a case where the employer, THI Leisure (Fountainpark) Limited, engaged engineering consultants, Blyth & Blyth Limited, pursuant to a Deed of Appointment. Blyth & Blyth prepared the technical information for the tenders for engagement of the building contractor, Carillion Construction Limited. Under the Deed of Appointment, Blyth & Blyth were required to enter into a novation agreement with Carillion. Inaccuracies or deficiencies were contained in the pre-tender information prepared by Blyth & Blyth. Carillion relied on such information in tendering for the building contract and after such inaccuracies were discovered it incurred extra costs and sought to recover these from Blyth & Blyth. Carillion claimed that Blyth & Blyth had breached contractual duties owed to the original employer, THI, under the Deed of Appointment occurring before the date of the novation agreement i.e. Carillion were seeking to recover losses in relation to pre-novation breaches.

The court held that the Carillion did not have the right to recover such losses based on an alleged breach of duty by Blyth & Blyth committed prior to the date of novation and in relation to duties then owed to THI. The courts reasoning behind this decision was that, as Carillion were engaged on a fixed price building contract and therefore as THI had suffered no loss as a...

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