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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> HOK Sport Ltd v Aintree Racecourse Company Ltd [2002] EWHC 3094 (TCC) (12 November 2002) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2002/3094.html Cite as: [2002] EWHC 3094 (TCC)

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In The High Court of Justice
Queen's Bench Division
Technology and Construction Court
In the Matter of an Arbitration Appeal

		Date Judgment Handed Down: 12 November 2002

Application for Permission to Appeal and Appeal From the Award of an Arbitrator a Question of Law Arising Out of the Award

This was an application for leave to appeal a question of law and the appeal of that question by an architect. The question of law involved a consideration of the applicability of South Australia Asset Management Co Ltd v York Montague Ltd to a claim against an architect based on a breach of a duty to warn the employer that a requirement of the design brief would not be met, thereby losing the employer the opportunity to reconsider its proposed course of action.

Result

1. The requirements of section 69 of the Arbitration Act 1996 for leave to appeal were fulfilled.
2. The court could and would redraft the proposed question of law so that it raised the actual question of law sought to be advanced by the applicant and omitted both the subsidiary questions of fact and the questions of law not arising out of the award contained in the question of law as drafted by the applicant.
3. Leave to appeal granted for the question of law arising out of the award as redrafted by the court.
4. The South Australia principles were applicable to this case and the question of law raising the question of the basis for the recoverability of loss was answered in accordance with those principles.
5. Appeal allowed. Award varied. Question and answer 8 and paragraphs l78A - 180 and 181.5 of the award remitted to the arbitrator with a direction to reconsider them in the light of the court's determination and then make a fresh award.

Key Words

Section 69 of the Arbitration Act 1996; question of law; rights of the parties; decision of the tribunal obviously wrong; decision of the tribunal open to serious doubt; question of law of general public importance; just and proper for court to determine the question; court amending question of law; application and appeal to be determined by reference to the award; inadmissibility of evidence, pleadings, submissions and other arbitration materials not forming part of the award; applicability and scope of South Australia; Nykredit Mortgage Bank Ltd v Edward Erdman Group Ltd (No 2); Aneco Reinsurance Ltd v Johnson; Petersen v Rivlin.

JUDGMENT No 2

1. Introduction

6. This judgment is concerned with HOK Sport Limited (formerly Lobb Partnership Limited) ("Lobb") 's application for leave to appeal a question of law arising out of the first award of an arbitrator pursuant to section 69(2) (b) of the Arbitration Act 1996. The judgment is also concerned with the appeal itself. Lobb was the respondent in an arbitration brought by Aintree Racecourse Company Limited (Aintree"). The arbitrator was Mr John Sims and he published a first award on 8 March 2002. Initially, the application was considered by Forbes J who directed that it should be determined without a hearing. The application was then rota'd to me in accordance with Technology and Construction Court practice.
7. I considered the application and then directed, pursuant to section 69(5) of the Arbitration Act that a hearing was required. I also directed that, if leave was granted, the substantive appeal would follow immediately after the leave hearing and would be determined at the same hearing. My reason for adopting this course was that the issues raised by the application required full argument so as to fully identify and clarify them and to reveal whether or not the statutory threshold requirement for granting leave was satisfied. That hearing would involve a detailed consideration of the question of law raised by the potential appeal and it would have been disproportionate of the court and the parties' time and of costs for that question potentially to be argued out twice.
8. There is no requirement for the substantive appeal, if one is directed, to be heard by a different judge to the judge who considers the leave application. I therefore exercised my powers of case management pursuant to CPR 1.4 and 3.1 to direct that I should, if necessary, hear both the leave application and the appeal. This practice is one which, in an appropriate case, is desirable since it saves costs, time and resources. Moreover, the Arbitration Act, CPR 62 and the practice direction to Part 62 which deal with arbitration applications and the practice direction concerned with TCC business do not contain anything which precludes such a direction or practice being adopted.
9. At the hearing, both counsel agreed to a procedure whereby their respective submissions concerning both the leave application and the question of law were prepared and presented together and I would be left to decide in one reserved judgment both the leave application and, if I granted leave, the appeal itself.

2. Background to the Application

10. Aintree is the lessee of Aintree racecourse and the organizer of the Grand National held annually in early April. The County Stand occupied a prominent position adjacent to the winning post. Much of this stand, which dated from 1885, had become unsuitable for use by 1995 and Aintree embarked on a scheme to replace its northern end with a new Stand which would be built after the 1997 Grand National and would be completed in time for the 1998 Grand National. The original architects were dismissed in October 1996 and were replaced by Lobb in November 1996. The new Stand was completed with a day to spare before the 1998 Grand National Meet, Lobb's appointment was terminated by Aintree in October 1998 and wide ranging disputes between the parties crystallised soon afterwards. These led to Aintree serving a notice to concur in the appointment of an arbitrator dated 31 March 1999, to Lobb disputing the validity of the arbitration agreement, to both a jurisdiction hearing and an award in favour of Aintree issued on 5 August 1999 and to a subsequent application to the court by Lobb which was dismissed on 22 November 1999.
11. The arbitration was concerned with 5 groups of issues including the group containing the issues that are material to this application which was called in the award: "the reduced occupancy issue". At the heart of this particular issue were the following questions: whether or not Lobb owed Aintree a duty to advise it that the completed designs of the new Stand involved a reduction in the numbers of racegoers who could occupy the Stand below the overall number specified by Aintree; whether Lobb was in breach of its duty owed to Aintree in failing to advise that that number would be reduced before Aintree finally decided to proceed with the new Stand scheme; what if anything Aintree would have done had such advice been given and what loss was recoverable for any proved breach of that advisory duty.
12. Aintree's case was that it required the new Stand to have a standing capacity of at least 2,800 paying spectators on the viewing terrace and a further 300 in front of the boxes, that these numbers were dictated and determined by the minimum annual income stream needed for the new Stand project to be financially viable, that the construction costs of the new Stand should not exceed £5.5m, that the gross floor area was to be 7,000 square metres and that the demolition and rebuilding work had to be carried out and successfully completed between the end of the 1997 Grand National Meet and the start of the 1998 Meet. As events unfolded, the maximum standing capacity provided for in the viewing terrace of the new Stand when completed was 2,000. The principle reasons for this loss of capacity were fourfold and they led to the loss of 685 standing places. These reasons were the change in the type of crush barrier to be installed from a staggered to a continuous configuration, a marginal reduction in the rake of the terrace, an increase in the width of the gangway and the redesign of the concourse and bar areas to eliminate congestion that resulted from the original design.
13. Aintree contended that Lobb should have advised it that the viewing terrace standing capacity of the projected stand had been reduced by at least 685 places and that that advice should have been given in sufficient time before Aintree's final decision to proceed was taken so as to have allowed a decision to have been taken to postpone the construction of a new Stand by one year whilst it was redesigned to achieve a stand of sufficiently greater capacity to provide the requisite income stream to finance the project. Had Lobb provided the necessary advice in time, Lobb could and would have taken the necessary postponement decision and a satisfactory stand would have been designed and constructed one year later.
14. Aintree's claim was for the financial loss it suffered by reason of the fact that the stand that was constructed did not have the capacity that Aintree had required the new Stand to have. The claim was made up of two components. The first component was based on the 685 lost places I have referred to. Aintree's relevant claim is based on capitalising the lost income stream for the loss of revenue arising from these 685 places. The second component of Aintree's claim was not defined in the award and is referred to as a claim for collateral benefits. I allowed the parties to explain briefly what the nature of this claim was without regarding myself or the arbitrator as being bound by this explanation. According to the parties, this claim was based on capitalising a further lost income stream that would have resulted from a redesigned stand had Aintree commissioned and built a redesigned stand as a response to the loss of the intended capacity resulting from Lobb's Stand. The redesigned stand would have provided additional benefits such as additional standing and seating badges and the replacement of two back boxes with the more valuable addition of two higher income producing front boxes resulting from the longer frontage of such a stand. The parties, and hence the arbitrator, referred somewhat inaccurately to this second head of claim as being a claim for "collateral benefits".
15. A long arbitration hearing was held in the early part of 2001, initially confined to the reduced occupancy issue and to two of the remaining groups of issues. The arbitrator worked on his award on these three groups of issues for some months after the hearing had been concluded and then notified the parties that he proposed first to complete his award on the reduced occupancy issue on liability and, if appropriate, then to complete his award on quantum on that issue following the delivery of this first liability award. The parties took no objection to this course albeit that no other formal order was then issued.
16. The effect of this arbitration management decision was that there would be a liability award followed by a quantum award on the reduced occupancy issue. There would also be a further award or awards on the other two groups of issues that had been dealt with at the hearing. Finally, a further hearing or hearings would be held followed by one or more awards to dispose of the remaining groups of issues.
17. The award on liability on the reduced occupancy issue, called by the arbitrator the "First Award on Substantive Issues", was made on 8 March 2002. The award, in its material part, was in favour of Aintree and Lobb issued this arbitration application seeking leave to appeal on 3 April 2002. On learning of the proposed application for leave to appeal, the arbitrator informed the parties in a letter dated 15 April 2002 that he would suspend the drafting of his award on quantum pending the determination of this appeal process since the appeal might have a considerable impact on quantum. Instead, the arbitrator stated that he would turn his attention to the awards on the other two issues he had already heard evidence about. A further award on substantive issues included in the hearing has since been published but at the time of the handing down of this judgment, at least one further award on substantive issues and the hearing on the two further groups of issues are still awaited.
18. The first award on substantive issues is an impressive document running to 181 paragraphs. It sets out the background facts, findings of fact, issues and the reasoning and conclusions with care. The core findings may be summarised as follows:

1. Lobb was not in breach of any contractual or other obligation to provide any specified number of standing places.

2. Lobb was in breach of an obligation to warn Aintree of the loss of 685 standing places which were matters which would have influenced Aintree in its decision to proceed with the construction of the Stand immediately following the 1997 Grand National Meet. Had that obligation been fulfilled, Aintree would have decided to postpone construction until after the 1998 Grand National Meet.

3. In consequence, Aintree was deprived of the opportunity to remedy the loss of 685 standing places and to gain other collateral benefits (the nature of which were not made the subject of findings in this award)

4. Aintree is entitled to recover from Lobb the financial consequences of the loss of the standing places and collateral benefits less the costs which Aintree would have incurred in gaining these lost spaces and benefits by having the Stand built for the 1998 Grand National Meet, the amounts to be determined in a further award.

3. The Application for Leave to Appeal

19. The terminology relating to arbitration leave applications now uses the word "leave" and the word "permission" as alternatives because the CPR refers to applications for permission to appeal whereas the underlying statute, being section 69 of the Arbitration Act 1996, still refers to applications for leave to appeal. Thus, either word may now be used.
20. The parties in this case prepared and served for use at the hearing of both the leave application and the appeal voluminous evidence and documentary materials which referred to or included, in addition to the award, parts of the pleadings and closing submissions in the arbitration and of the transcript of evidence. There was also evidence about the contents of what were said by Lobb to be late amendments by Aintree of its pleaded heads of loss and for which leave had not been obtained. Furthermore, the witness statements contained evidence about the arbitration hearing, summaries of certain passages of the lengthy award, argument, submissions of law and references to parliamentary materials relating to relevant clauses in the Arbitration Bill whilst this was passing through Parliament before enactment as the Arbitration Act 1996.
21. None of this material was admissible in relation to the question of law itself and little of it was admissible for a determination of the threshold questions that now arise under section 69 of the Arbitration Act 1996 in a consideration of whether or not a party should be granted leave to appeal. In relation to these matters, the practice of both the Commercial Court and the Technology and Construction Court is clear and was clearly set out in the judgment of Colman J in Foley's Ltd v City and East London Family and Community Services [1997] ADRLJ 401 at pages 402 - 403 where he stated:

"For the purposes of mounting this application [for leave to appeal made under the slightly differently worded section of the Arbitration Act 1979 to section 69 of the Arbitration Act 1996], there has been put before the court a bundle of documents including not merely the award and the originating notice of motion and summons for leave to appeal but also the pleadings in the arbitration (including requests for further and better particulars, replies and so on) . a witness statement by the respondents' expert on quantum, submissions in the arbitration by both parties, and a previous award which had been made in relation to which no relief is sought.

Mr Stimpson [counsel for the applicant] informs me that it is not infrequently the practice in the course of applications for leave to appeal which are referred to the Official Referees' Court [the name that the TCC had before it was renamed in 1999], for the court, upon the application for leave to appeal, to look at documents other than the originating motion, the summons and the award for the purpose of ascertaining whether leave should be given. I wish to make it absolutely clear that the Arbitration Act 1979 lays down a very specific procedural code for entertaining applications for leave to appeal. The jurisdiction provided under section 1 of the 1979 Act provides for the court to consider any question of law arising out of an award. For that purpose the court is to be provided with the award. If the award does not indicate in the reasons attached to it precisely the route which the arbitrator has followed from the submissions indicated in the award to the conclusion at which he has arrived, it is open to a party to apply under section 1(5) of the Arbitration Act for further reasons.

…That, and only that, is the available material upon which the court can determine applications for leave to appeal. ...".

22. This passage is as applicable to leave applications brought under section 69 of the 1996 Act as it was to those brought under its predecessor, section 1 of the 1979 Act, with which Colman J was concerned. My only comment about this passage is that, in referring to the then practice in the official referees' Court when dealing with leave applications, Colman J was misinformed as to the then practice being followed by that Court and he proceeded on the basis that the then official referees were operating Spanish or heretical practices in their conduct of arbitration leave applications. From at least the time when I was appointed as an official referee in 1994, it had been, and still remains in its successor court, the Technology and Construction Court, the practice of the judges of that Court to confine parties to the same nucleus of materials in leave applications as that summarised by Colman J as being admissible in such applications.
23. Whatever may have been the misconception of practitioners as to the applicable practice in the official referees' Court before Foleys case was decided in March 1997, it should now be clear to experienced practitioners in the TCC that extraneous materials are not to be referred to in arbitration appeal leave applications. It is also important to stress that such materials are not admissible in the hearing of appeals on questions of law arising out of awards, particularly since many construction arbitration appeals are brought without the applicant first having had to obtain the leave of the court. This is because many construction contracts contain an arbitration clause that provides the parties' joint consent to an appeal being brought without the need to first obtain the leave of the court.
24. It is, of course, now the case that most applications seeking leave to appeal a question of law are dealt with exclusively by the court on paper with no oral hearing. It is therefore necessary for the parties to present to the court their brief written submissions in support of and in opposition to the leave application. Such submissions need not be set out in a witness statement since that is a document that places admissible evidence and not legal argument before the court (see CPR 32.4(1)). All that the witness statement served by the parties should do is to identify the evidence relied on for the purpose of showing that the requirements of section 69(3) of the Arbitration Act 1996 are or are not met and that served by the defendant should additionally state the grounds of opposing the grant of permission. Thus, the witness statements should be succinct and confined to evidence (see CPR 62PD 12.1 - 12.3) . Any other document that is served in order to summarise a party's submissions on a leave application should also be succinct and confined to the specific questions that a court must consider that are set out in section 69 of the Arbitration Act 1996.
25. For these reasons, I have confined my consideration of the application to the grounds relied on in support of, and in opposition to, the application for permission. I have also considered that small part of the evidence that was served that was admissible in relation to a consideration of the matters referred to in section 69(3) of the Arbitration Act.

4. The Arbitrator's Reasoning

26. The arbitrator in his award contained the following relevant reasoning and findings:

1. Lobb was required to meet the standard of skill and care of a architect with special skill and experience in the design of spectator stands at racecourses and to design a stand of similar size, scope and complexity to that required to accord with the agreed specifications and design criteria and in full accordance with the cost plan (paragraph 46 of the award).

2. Lobb was appointed as a replacement architect following the dismissal of Aintree's previous architect for this project. Lobb was appointed on 28 November 1996 for a project where it was intended that demolition and the construction work of the new Stand would start immediately following the Grand National Meet in April 1997. Lobb's capability to resource the design work in the necessarily tight timescale that remained was specifically considered by Aintree before Lobb was appointed and Lobb provided Aintree with appropriate assurances who then confirmed Lobb's appointment (paragraph 23).

3. The agreed cost plan provided for a maximum estimated construction cost of £5.5m, a required capacity of 2,800 standing spectators and a further 300 spectators in front of the boxes and a gross floor area of 7,000 sq.m (paragraph 24)

4. Lobb's duty included a duty to warn Aintree, if it was the case, of the fact and size of any reduction in the overall number of standing spectators below the required capacity of 2,800 standing places that would result from any design changes being approved by Aintree. This duty was founded on Lobb's knowledge that the whole purpose of the project was to replace, so far as possible, the lost capacity of the north end of the County Stand, that it was important to Aintree to achieve the maximum capacity possible in the new Stand and that proceeding with the project in 1997 was a 'high risk strategy' (paragraphs 137 & l37B)

5. It was a foreseeable consequence of any failure by Lobb to warn Aintree of any loss of capacity that Aintree would be deprived of the opportunity to remedy those losses by postponement and reconsideration of the project (paragraph l37B)

6. Lobb was in breach of its duty to warn Aintree in respect of the reduction in 685 of the standing places that were originally designed for (paragraph 179) . However, 108 of those standing places did not reduce the maximum

standing capacity below 2,800 (paragraphs 112 and 148) . It would seem to follow from this finding that the total reduction in standing places was 920 since the required standing capacity was reduced to 2,000 places (paragraphs35A and 112) . Despite that apparent total reduction of

about 920, Aintree limited its claim to one based on a reduction of 685 standing places (paragraph 35).

27. It was Lobb's duty to keep Aintree informed of any loss of the required number of standing spectators (paragraph 138) and it was a foreseeable consequence of any failure to do so that Aintree would be deprived of the opportunity to remedy those losses by a postponement and reconsideration of the project (paragraph l37B)
28. Lobb's duty to warn Aintree of the loss of capacity resulting from the increase in the width of the lateral gangway occurred in March 1997, of that resulting from the reduction in the gradient of the rake in May 1997 but the resulting reduction was insignificant, of that resulting from the change in the crush barrier configuration by early April 1997 and of that resulting from the re-arrangements in the concourse and bar areas as a response to congestion in those areas caused by the means of escape arrangements throughout the design process (paragraph 146).
29. The decision to proceed was taken by Aintree's Board on 7 March 1997 (paragraph 158) and the warnings that should have been given would have had to have been given by 29 April 1997 which was the date of Aintree's last Board meeting prior to the last date that Aintree could effectively act on the warning of the loss of capacity by postponing the demolition and reconstruction of the old stand which the new Stand was to replace (paragraph 162)

It follows that, by 29 April 1997, Lobb could and should have given Aintree all the relevant warnings.

30. Aintree initially decided that construction of the new Stand would start in June/July 1997 and would only be partially completed by the time of the 1998 Grand National Meet. In early June 1997, Aintree adopted the high risk strategy of attempting to achieve completion of the new Stand in time for the 1998 Grand National Meet (paragraph 160). Lobb was not a party to, nor involved in any consideration of, those decisions before they were taken (a conclusion arising from the findings about Aintree's decision-making contained in paragraphs 152 - 178).
31. Lobb had no duty to advise Aintree as to whether or not the project should be postponed (paragraph l37A) . Had Aintree been warned of the reduction in standing places substantially below 2,800 places, Aintree would at the least have itself considered whether postponement would not have been the better option and did not need to be advised to do so (paragraph l37A).
32. Had Aintree been warned of the reduction of standing capacity of 685, it is more likely than not that Aintree would have decided to postpone commencement of construction for one year (paragraph 171) .
33. The award does not contain a finding that Lobb had a duty to warn or advise Aintree of the loss of revenue or other adverse financial consequences of the reduction in the maximum standing capacity or of the steps Aintree could take to eliminate those adverse financial consequences.
34. I conclude that there is no such finding in the award despite two references in the award to Lobb's knowledge of the financial consequences of a reduction in the standing capacity of the new Stand. The first is a reference to Lobb's knowledge of the financial consequences arising from one of the causes of the reduction in standing capacity:

"... Mr Crook [a director of Lobb] made a rough calculation that this [particular reduction being the one arising from the redesign of the barriers] would result in a loss of between 200 and 300 standing spectators, ie somewhere between 7% and 11% of the required capacity of 2,800…..

This would have been a substantial loss of revenue as far as Aintree was concerned, and Mr Crook must have been aware of this, yet he did not warn Aintree of this possibility so that they could reconsider the decision to proceed with the project in 1997 in the light of the effect this would have on the financing of the project." (paragraph 142.6)

This reference does not, however, amount to a finding that within Lobb's scope of duty was a duty to warn or advise Aintree about the financial consequences of any variation in the specified requirements for the new Stand.

35. The second reference is where the arbitrator referred to Lobb's knowledge of the potential effect of a reduction in standing capacity on the financial viability of the project in the fifth question he posed:

"When did the duty [to warn] arise - i.e. when did Lobb become aware, or should Lobb have become aware, that there would be a significant reduction in the number of standing spectators that could be accommodated ... to the extent that the financial viability of the project may be in question and Aintree may wish to take action to avoid or mitigate the loss of capacity?" (paragraph 139)

It was in answer to that question that the arbitrator made his findings as to the various dates by which the duty to warn should have been performed that I have set out in paragraph 21.8 above.

36. However, the scope of Lobb's duty to warn that the arbitrator found to exist had already been stated in his answer to the fourth question he had posed and answered (paragraph 138). This was a duty to warn Aintree that the required number of 2,800 standing spectators could not be accommodated. That finding made no reference to the financial viability of the project and was the critical finding so far as the scope of Lobb's duty to warn was concerned.
37. It follows that neither of these references amounts to a finding that Lobb's scope of duty extended to a duty to warn or advise Aintree of the financial consequences of a reduction in the standing capacity of the Stand.
38. Having made the findings that I have already summarised, the arbitrator made findings as to what, on the balance of probabilities, Aintree would or could have achieved by way of a response to the information that the standing capacity of the new Stand had been reduced by 685 places in total or by 577 below the required number of 2,800. The findings were that:

1. There would have been a postponement of the construction of the new Stand for a year and a complete reconsideration of all aspects of the design including floor area and cost (paragraph 173). A new cost plan would probably have been prepared to allow for an enlargement of the building (paragraph 176). The alternative design adduced in evidence by Aintree formed a basis upon which to calculate both the additional revenue which Aintree would have been able to generate had it had the opportunity to reconsider the design and the probable additional building costs which it would have incurred (paragraph 178).

2. The alternative design would have restored the standing capacity lost but would also have provided certain "collateral benefits". These would have been a natural consequence of the redesign required to achieve the required standing capacity (paragraphs 175, 178 and 179).

39. The collateral benefits referred to in the award were not defined in the award and no findings were made as to their nature, size or extent. Lobb, however, believes that the collateral benefits referred in the award include that element of Aintree's claim that is based on the loss of additional revenue that would have been earned on further badges and front boxes that had not been contemplated or provided for in the new Stand it had designed.
40. Finally, the arbitrator posed and answered this question:

"What is the financial loss suffered by Aintree as a consequence of Lobb's breach or breaches?"

The answer he gave was as follows:

"…Aintree have been deprived of the opportunity to procure a building which would have had the required standing capacity and which, as a natural consequence of the redesign required to achieve that. would have had certain collateral benefits. The proper basis of calculation of Aintree's loss is the loss of the additional revenue that would have been earned, not only from the restoration of the full standing capacity (limited by Aintree's Statement of Case to an increase of 685 standing places only), but also the further revenue which would have accrued from the collateral benefits. ... I shall set off against that the additional costs which Aintree would have incurred in procuring the larger building and the benefits gained by having the Stand as built available for the 1998 Grand National meeting." (paragraph 179)

This crucial answer was summarised in the Summary of award as follows:

"4. that Aintree was thereby deprived of the opportunity to remedy the loss of 685 standing spaces and also of the opportunity to gain other collateral benefits;

5. that Aintree is entitled to recover from Lobb the financial consequences of loss of the standing spaces and collateral benefits less the costs which Aintree would have incurred in gaining those lost spaces and benefits and benefits gained by having the Stand available as built during the 1998 Grand National meeting, the amounts to be determined in a further award."

5. The Question of Law Raised by Lobb's Application for Leave to Appeal

41. Lobb makes a number of complaints about the arbitrator's answers to his question set out in paragraph 29 above and, in each respect, contends that the arbitrator was in error. These complaints are that:

1. The arbitrator did not ascertain Lobb's relevant scope of duty out of which, and as a foreseeable consequence of the breach of which, Aintree's recoverable loss was caused.

2. The arbitrator applied the wrong causation test in determining what loss was recoverable in that he applied a "but for" test rather than a foreseeability test.

3. As a result, the arbitrator identified an erroneous basis for calculating Aintree's loss. Instead of basing it on Aintree's loss of revenue from the omitted unreported standing spaces, he based it on Aintree's notional loss of revenue accruable from a redesigned stand with its unplanned additional spaces less the additional cost of constructing that stand.

These errors Lobb contended arose because the arbitrator failed to apply the principles as to quantification of loss identified by the recent decision of the House of Lords in South Australia Asset Management Co Ltd v York Montague Ltd [1997] AC 191, H.L. ("South Australia")

31. Lobb seeks to encapsulate its complaints by raising and seeking from the court an answer to this question:

"Does the proper measure of damages in cases where a professional has been found in breach of duty in failing to advise or warn about something (in this case about a particular loss of a number of standing places) and not upon or in respect of a course of action which could or should be taken (postponement and/or building a bigger stand), include liability for loss of all other benefits which in fact would have accrued had that course of action been taken (the loss of collateral benefits and/or additional lost places)?"

32. That question is not happily phrased since it jumbles together the questions of legal principle said to arise in this proposed appeal with questions of fact and it does not clearly delineate questions of law arising from the arbitrator's first award on substantive issues, loosely referred to in his preceding letter as liability issues, from questions still to be answered in his future award on quantum. These difficulties stem from a difficulty often encountered when liability is split from quantum in a case involving questions of professional duty. There is often no clear boundary in such cases between questions of duty, breach, causation, foreseeability, remoteness, heads of damage and quantification of damage. Additionally, the arbitrator had heard all evidence on all issues of liability and quantum before he decided, for good and commercial reasons, to deliver his award in two distinct and successive stages without first having defined in detail which issues that had arisen for determination would fall into his first stage award. As a result, there are, in relation to the loss of occupancy group of issues, specific issues involving the scope of Lobb's duty, causation, foreseeability and Aintree's heads of recoverable damage which clearly straddle the subject-matter of both awards and which involve a combination of questions of law, questions of fact and mixed questions of law and fact.

42. There are, thus, a number of specific objections that can be made about Lobb's formulation of the question it seeks to have answered:

1. The question starts by referring to the proper measure of damages that should be applicable to the breaches of contract that have been identified in the award. However, the award is concerned with liability and measures of damages are, or are at least partly, concerned with quantum. Thus, that part of the question does not wholly arise out of the first award on substantive issues.

2. The question is confined in terms to "a professional". However, the question of law posed by the arbitrator in the relevant question is not confined to the liability of professionals but to liability arising out of a duty to warn. That liability has been found by the arbitrator to have arisen out of a particular duty and not out of a predetermined status or occupation of the defendant. Thus, a question confined to professionals does not arise out of the award.

3. The question refers to a suggested dichotomy between a liability to advise or warn and a liability in respect of a course of action which could be taken such as a postponement or the building of a bigger stand. However, any potential liability for a breach arising out of an act or omission which causes or fails to cause a postponement does not arise out of this award since the arbitrator has found that Lobb owed no duty to postpone or to advise on the postponement of the project. Thus, any consideration of such a duty gives rise to a question which does not arise out of the award.

4. The question refers to the loss of benefits including collateral benefits which would have accrued to Aintree had Lobb given the relevant advice. However, the arbitrator has made no findings about the nature or extent of either the benefits or collateral benefits which would have accrued to Aintree had Lobb given the requisite warning. Such findings are findings of fact and it would be necessary for these findings to have been made before any question of law as to their recoverability in law can arise. The arbitrator was correct in not having made appropriate factual findings since he had confined the first award to questions of liability and the questions that I have referred to are not only questions of fact but are ones that would only arise and require answer in the second quantum award. Thus, no question of law nor any question arising out of the award arises in relation to collateral benefits.

43. I am able, however, having heard full argument on both the leave application and on the question of law raised by Lobb, to identify the precise question of law that arises from the unnecessarily compendious question drafted by Lobb in its application notice which it contends arises out of the first award on substantive issues. This more limited question, which covers all the complaints about the award raised by Lobb that I have already identified, is as follows:

"On what basis should the quantum of damages recoverable by Aintree as a consequence of Lobb's breaches of its duty to warn Aintree be determined?"

44. It can be seen that this is, in essence, the same question that the arbitrator was seeking to answer in the award save that he worded the question somewhat differently:

"What is the financial loss suffered by Aintree as a consequence of Lobb's breach or breaches?"

The arbitrator's wording focused on the loss Aintree actually suffered as a result of Lobb's breaches of contract whereas the question that it is clear that he was actually seeking to answer

related to the damages that Aintree could recover in law from Lobb. It can readily be seen that the arbitrator's wording does not accurately identify the question he was seeking to answer when it is realised that it would not be relevant for the arbitrator merely to identify the loss actually suffered by Aintree, what would be relevant would be for him to identify the loss that could be recovered in law as a consequence of Lobb's breaches of contractual duty.

45. It follows that the question raised by Lobb in this appeal is the same question that the arbitrator himself sought to answer but rephrased so as to ask the actual question that the arbitrator had set himself to answer.

6. The Application for Leave to Appeal

46. The application for leave is governed by section 69 of the Arbitration Act 1996 which provides that leave to appeal may only appeal:

"(1) ... on a question of law arising out of an award made in the proceedings……

(2) An appeal shall no be brought under this section

except -

(b) with the leave of the court……

(3) Leave to appeal shall be given only if the court is satisfied-

(a) that the determination of the question will substantially affect the rights of one or more of the parties,

(b) that the question is one which the tribunal was asked to determine,

(c) that, on the basis of the findings of fact in the award:

(i) the decision of the tribunal is obviously wrong, or

(ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and

(d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.

(4) An application for leave to appeal under this section shall identify the question of law to be determined and state the grounds on which it is alleged that leave to

appeal should be granted."

(1) The Suggested Amendment of the Wording of the Question of Law

47. The first matter to consider is whether it is appropriate to amend the wording of the suggested question of law that is raised by Lobb's application and, if it is, whether it is open to me to amend unilaterally the wording of the question posed by Lobb.
48. The objections to Lobb's proposed wording that I have already highlighted might be said to lead to the conclusion that Lobb's application for leave should be dismissed on the short ground that the question raised by Lobb does not wholly arise out of the award and is not exclusively one of law. However, the real question that it is clear from the grounds of appeal and from Lobb's submissions is the question being raised by Lobb in this proposed appeal is the same question as that posed and then answered by the arbitrator in paragraphs l78A - 180 of the award albeit that the wording of the question as drafted by the arbitrator does not correctly identify the question that he is seeking to answer. Lobb contends that this question both arises out of the award and has been wrongly answered by the arbitrator. There is, in consequence, no good reason why the wording of Lobb's question should not be adapted so as to confine it to the question which Lobb contends arises since that question was, on analysis, both asked and then answered in the award.
49. For all these reasons, I will amend the question sought to be raised by Lobb so as to confine it to the question it seeks to have answered.

(2) Is the Question a "Question of Law Arising Out of an Award"?

50. The question as it now stands in the form that I have settled it seeks to determine what is the correct basis for determining the quantum of damages that are recoverable for Lobb's relevant breaches of duty. The rephrased question does not seek to identify what particular heads of loss are recoverable, it merely seeks to identify the correct approach that should be adopted in determining what part of the loss that Aintree alleges was caused by Lobb's breaches of duty is recoverable as damages for breach of duty. Both parties accepted that such a question is one of law and it is also, clearly, one which arises out of the relevant question that is posed and answered by the award.

(3) A Substantial Affect on a Party's Rights

51. It is now accepted by both parties that the determination of the question of what the correct basis is to the quantification of Aintree's recoverable damages will substantially affect the rights of one or both of the parties. This approach is one which the arbitrator himself has adopted since, in his letter to the parties dated 4 April 2002 in which he seeks confirmation that he should suspend work on the quantum of damages award pending a determination of this appeal process, he stated that:

".... if leave to appeal is granted, the outcome of the appeal will have a substantial effect on the quantum of damages arising from my other findings of my award."

(4) The Question is One the Tribunal was Asked to Decide

52. It was suggested by Aintree that the question in the form posed by Lobb was not one the arbitrator had been asked to decide. However, that submission is now to be considered by reference to the slimmed down version of the question that I have now posed. That question, as I have already shown, was the question the arbitrator actually posed for himself to answer, albeit that he chose different language to express the question. The award does not make it clear whether the arbitrator drafted the various questions that the award raises and answers or whether he was adopting an approach to the issues of liability suggested by the parties and their submissions. However, it is immaterial who was the originator of this approach, it is one which is found in, and arises out of, the award.
53. Aintree's principal submission was that Lobb, in its closing submissions, did not adopt the approach it now contends for and, indeed, did not rely on the authorities it now relies on. Aintree went so far as to exhibit extracts from Lobb's closing submissions to the arbitrator in an attempt to show that Lobb was then submitting that the correct approach to quantification was to apply a "but for" test. However, the arbitrator does not set out a summary of Lobb's contentions in his award. Instead, as he was entitled to, he sets out his own reasoning and conclusions in answer to the question posed. It would appear that the argument now advanced by Lobb is more extensive and reliant on more citation of authority than was the case before the arbitrator but there is nothing in the award to suggest that Lobb is now contending for an answer to the question which is at variance with its contentions before the arbitrator. The additional material put forward by Aintree in support of its contention that Lobb has departed from its stance before the arbitrator is both inadmissible and inconclusive as to what Lobb's stance before the arbitrator had been.
54. I, therefore, reject Aintree's submission that the arbitrator was not asked to determine the question in the form it now is in.

(5) Decision Obviously Wrong or Open to Serious Doubt

55. The arbitrator does not define what approach he has adopted in arriving at his conclusion as to how the recoverable loss is to be quantified. Both parties accepted that that approach should include a consideration of what loss was foreseeable. Lobb contended that, additionally, the arbitrator should have considered what loss fell within the scope of Lobb's relevant duty and, in so doing, should have excluded loss which was only recoverable if Lobb had been in breach of an express warranty or had been giving advice as to whether or not Aintree should proceed with the new Stand Lobb had designed. These contentions were to the effect that the applicable principles, were those that were defined by the House of Lords in South Australia. Thus, the threshold question I must answer on the leave application can be reduced to these questions:

1. Did the arbitrator apply a "but for" test?

2. Was it relevant to ascertain the scope of Lobb's duty that had been breached?

3. Should Aintree's recoverable loss be confined to loss which fell within that scope of duty?

4. Was it necessary to exclude loss which would only be recoverable if Lobb had been held to have been in breach of warranty or to have had a duty to give general advice?

5. Should the arbitrator have applied the South Australia principles?

(i) The "But For" Test

56. The arbitrator posed the question he had to answer in these terms: "what is the financial loss suffered by Aintree as a consequence of Lobb's breach or breaches?" His answer was that Aintree was entitled to the loss of additional revenue from direct and collateral benefits that would have been earned less the additional costs of procuring the larger building in question. No further reasoning is provided for the adoption of this test and no reference is made to any need for the relevant loss to have been foreseeable or within the scope of Lobb's duty to warn Aintree.
57. Lobb contends that this finding is tantamount to a finding that Aintree is entitled to recover all loss that Lobb's breach provided the opportunity or occasion for Aintree to incur. Aintree contends that if this finding is taken in conjunction with earlier findings, it is clear that the arbitrator is identifying a classic test of remoteness of damage based on foreseeability of loss. It points to the earlier findings in the award, at paragraphs 78 and 137B, that Lobb was aware from the outset that capacity was an important factor in Aintree's decision to proceed with the project and that it was both foreseeable that Aintree might well have considered the option of postponing the project if it was aware of any significant loss of capacity and that it was a foreseeable consequence of a failure to warn of a loss of capacity that Aintree would be deprived of the opportunity to remedy those losses by postponement.
58. The difficulty with the arbitrator's finding is that it is made in a vacuum without any findings as to the quantum of loss in question. However, that difficulty is inherent in the manner in which the awards are being prepared and is one that is accepted by the parties in their consent to that approach and in their acceptance that this application should be determined before the second quantum award is prepared and issued. Thus, I must consider the arbitrator's stated approach in that constrained context. If I do so, it is clear to me that the arbitrator's stated approach is a "but for" approach. The correct approach would be for the arbitrator to start by considering what loss would be reasonably foreseeable as a direct consequence of the relevant breach of duty.
59. It is clear that the award does not, in terms, find that the relevant test is a foreseeability test. The foreseeability test referred to by the arbitrator is not concerned with recoverable loss but with a question that had to be answered before any question of recoverable loss arose. That earlier test was concerned with the question of what Aintree would have done had it been informed of the loss of standing places in time. The arbitrator correctly applied a foreseeability test to answer that question. Having decided that Aintree would have postponed the project and called for a redesign, it was then necessary to apply a second foreseeability test to determine what loss flowed from being deprived of that opportunity. That is a second and different foreseeability test and the finding in question does not in terms refer to it.
60. Thus, in failing to refer to foreseeability and in apparently imposing a "but for" test, the arbitrator was obviously wrong.

(ii) The South Australia Test

61. The law relating to recoverable damage in professional negligence actions has been the subject of four decisions in the House of Lords in the last five years starting with South Australia. The extent to which the reasoning of those decisions is generally applicable to claims for breach of duty, as opposed to being confined to the more limited field of professional valuations and the loss caused by a market collapse in property values, is both uncertain and controversial. The arbitrator did not give effect to, refer to or consider this line of authority in determining the basis upon which Aintree's financial loss would be recoverable from Lobb as a result of its breaches of its obligation to warn Aintree of the loss of standing places. As a result, there is no reference in his answer to the need to consider the scope of Lobb's duty nor whether the obligation to avoid the nature and extent of the loss being claimed by Aintree fell within this scope. It is at least arguable that these authorities and the principles that they define are applicable and should have been given effect to in the answer given by the arbitrator.
62. The arbitrator's determination of the basis upon which he is to award damages is, given the absence of any reference to the scope of Lobb's relevant duty, open to serious doubt. At the very least, the arbitrator should have given brief reasons why the South Australia line of authority was not applicable to this case. The question of whether and to what extent the South Australia line of authority is applicable to professional negligence claims against architects, engineers and quantity surveyors is one which exercises construction professionals and litigation involving such professionals and the question raised by this potential appeal is one of general public importance.
63. I will therefore give Lobb leave to appeal the question of law I have already set out.

(6) Just and Proper in all the Circumstances for the Court to Determine the Question

64. The final threshold requirement that an applicant must surmount in order to obtain leave to appeal is that it is just and proper in all the circumstances for the court to determine the question even though the parties have agreed to resolve the dispute by arbitration. This requirement is new to the Arbitration Act 1996 and the Act gives no guidance as to the circumstances in which this requirement should preclude leave being granted where, otherwise, leave would be granted.
65. Clearly, the court should take account of, and give weight to, the policy that ordinarily party autonomy should dictate that all questions in dispute, including questions of law, should be decided by the arbitrator. However, in circumstances where the arbitrator is obviously wrong and his erroneous decision might substantially affect one of the parties, the Arbitration Act 1996 envisages that the affected party will be allowed leave to appeal. It follows that, in such circumstances, the responding party must show that it would suffer substantial injustice if leave to appeal is granted.
66. The injustice complained of by Aintree is principally that of delay. Aintree contended that Lobb had already taken every conceivable objection to the arbitral process which, on analysis, was a reference to Lobb's jurisdictional challenge which, as it was entitled to, it first mounted before the arbitrator and then mounted separately by way of an application to the Commercial Court which was dealt with by Colman J. These two challenges were unsuccessful but were nonetheless of sufficient moment that Colman J's judgment was reported in the Building Law Reports1.

1. As Lobb Partnership Ltd v Aintree Racecourse Company Ltd [2000] BLR 65, Commercial Court.

67. The jurisdictional challenge held up the arbitration by a period of 7 months between April and November 1999. Since then, the parties have collaborated in getting the dispute to a hearing and have agreed to the procedure adopted by the arbitrator in dividing the dispute into five groups, on initially proceeding to a hearing on only three of these groups, on splitting the awards arising from that hearing so that the first award was concerned with liability on the reduced occupancy issue, the second with liability on further issues and with other awards still awaited including a quantum award in relation to the groups of issues I am concerned with. As a result, an appeal arising out of part of the first award on substantive issues will substantially delay the overall progress of the arbitration nor add substantially to the costs.

(7) Conclusion - Leave Application

68. My overall conclusion is that Lobb should be granted leave to appeal this question of law:

"On what basis should the quantu.m of damages recoverable by Aintree as a consequence of Lobb's breaches of its duty to warn Aintree be determined?"

7. The Applicability of South Australia

7.1. The Authorities

69. The South Australia decision and two subsequent decisions of the House of Lords and one of the Court of Appeal were cited in argument² and a further subsequent decision of the House of Lords was also referred to³. Additionally, I am aware of two decisions of my own, not referred to in argument, that seek to apply the South Australia decision to the potential liability of construction professionals⁴ and various further authorities are referred to in footnotes⁵ in the relevant textbooks which deal with the scope and applicability of the South Australia decision at length⁶. Finally, the scope and appropriateness of the South Australia decision has attracted significant academic discussion⁷ as well as having been considered, not entirely favourably, in Scotland, Australia and New Zealand⁸. It cannot therefore be said that the South Australia decision and the subsequent authorities are without relevance, interest or difficulty when questions of remoteness and recoverability of damage are being considered in a construction professional negligence context.

2. South Australia Asset Management Co Ltd v York Montague Ltd [1997] AC 191, H.L.; Nykredit

Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627, H.L.; Aneco Reinsurance Ltd

v Johnson [2002] Lloyd's Law Reports Insurance and Reinsurance [2002] 91, H.L, Petersen v The

personal representatives of Cyril Rivlin (unreported, C.A., 31 January 2002, [2002] EWCA Civ 194.

3. Oyston Shipways Ltd v Platform Home Loans Ltd [1990] 2 A.C. 190, H.L.

4. Urban Regeneration Authority v Mott Macdonald Group Ltd unreported, HH Judge Thornton QC sitting as a judge of the High Court, QBD, 22 February 1999, BALLI website, Woolfson v Gibbons, unreported, HH Judge Thornton, TCC, 15 January 2002.

5. Department of National Heritage v Steesen Warming Mulcahy (1998) 60 Con.L.R. 33, TCC, HH Judge

Bowsher QC; Hancock v Tucker [1999] Lloyd's Rep. P.N. 814, QBD, Toulson J.; Try Build Ltd v Invicta

Leisure Tennis Ltd (2000) 71 Con.L.R. 141, TCC, HH Judge Bowsher QC; Hartle v Laceys [1999] Lloyd's

P.N. 315, C.A.; Colin Bishop one of the Bristol and West Building Society cases reported in [1997]

4 All E.R. 582, Ch.D., Chadwick J.; Intervention Board for Agricultural Produce v Leidig [2000]

Lloyd's Rep.P.N. 144, C.A.; B.C.C.I. v Price Waterhouse (No. 3) (unreported), The Times 2 April

1998, Ch.D., Laddie J.; Cossey v. Lonnkvist [2000] Lloyd's Rep.P.N. 885, CA.

6. Jackson & Powell on Professional Negligence, fifth edition, paragraphs 8-263 - 8-266, 8-283, 9-

113 - 9-116; Chitty on Contracts, twenty-eighth edition, volume 1, paragraphs 27-078 - 27-081;

Clerk & Lindsell on Torts, eighteenth edition, paragraphs 7-154 - 7-158, 28-26; keating on Building

Contracts, seventh edition, paragraph 7-02. The most recent edition of Hudson on Building

Contracts, the eleventh edition, pre-dates the decision in South Australia and therefore contains

no discussion of this topic.

7. Professor Dugdale, A Purposive Analysis of Professional Advice: Reflections on the B.B.L.

Decision, (1995) J.B.L. 533, (a commentary on the decision of the Court of Appeal's decision in

South Australia before that decision was reversed by the House of Lords) Professor

Stapleton, Falls in the Property Market, (1997) 113 LQR 1; McLauchlan, Negligent Valuer Liability,

(1997) 113 LQR 421; Professor Dugdale, The Impact of SAAMCO, Professional Negligence, Vol 16, No

4, 1 10 2000 - 1 12 2000; Evans, The Scope of the Duty Revisited (2001) 17 P.N. 146.

70. Scotland: Kvaerner Construction (Regions) Ltd v. Kirkpatrick & Partners Consulting Engineers Ltd (1999) S.C. 291, Court of Session (divided opinions on the applicability of South Australia);

Australia: Kenny & Good v. MGICA (1999) 163 A.L.R. 611 High Court of Australia, (divided opinions within the full court on the applicability of South Australia on appeal from Lindgren J., 140 (1993) 140 A.L.R. 313 at pages 362-374 who declined to follow South Australia); New Zealand: Bank of New Zealand v. New Zealand Guardian Trust Co. Ltd [1999] 1 N.Z.L.R. 664, C.A. (followed South Australia)

71. My starting point is to seek to summarise the speech of Lord Hoffmann in the South Australia case, being a speech with which the other four Law Lords concurred, then to summarise the effects or glosses on that decision resulting from the principal subsequent decisions before, finally, drawing together the relevant strands of this line of authority which have relevance to this case. Only then can the applicability or otherwise of these authorities to this case be considered and then determined.
72. The essential background to the South Australia case, as is well known, was the lending boom that afflicted the English property market in the late l980s that had been fuelled by an unprecedented amount of development and property acquisition that was made possible by borrowed funding secured against the property being developed or acquired. This boom was immediately followed by a crash in property values almost overnight in March 1990. When lenders then sought to enforce their securities, it was discovered that there had been wholesale negligence and fraud by both valuers and solicitors in conducting valuations and other professional work associated with the obtaining of these loans from banks and building societies in the late l980s. The result was a mass of litigation by financial institutions against initially valuers and then, when the professional indemnity cover of valuers became exhausted, against solicitors. The losses that the financial institutions were, on analysis, seeking to recover fell into two compartments or layers. Firstly, there were the losses associated with the excessive and negligent valuations that had originally been provided. Secondly, there were the further huge losses resulting from the exceptional and dramatic collapse in property values generally in and after March 1990. The Court of Appeal, in South Australia (then called B.B.L.), held that both types of losses were recoverable from valuers. The House of Lords reversed that decision and held that only the losses directly related to the negligent valuation of the valuers in question were recoverable.
73. Lord Hoffmann's speech is particularly intricate and diffuse and, for a relatively short speech, is unusually redolent with pronouncements of legal principle. It is therefore necessary to attempt a summary since I am concerned with an appeal from an arbitrator which is fact specific and which will be the subject of particular scrutiny by the arbitrator when he resumes his consideration of Aintree's claims in a case where the arbitration hearing on all issues has now been closed. I have been, however, much assisted by the written and oral submissions of both parties' counsel, Mr Taverner QC and Mr Livesey QC, in formulating this summary.
74. In formulating this summary, I have not taken into account the dissenting speech of Lord Cooke of Thorndon in Platform Home Loans Ltd where he expressed the minority opinion that the decision in South Australia had been controversial, nor Lord Lloyd's suggestion in Aneco, at paragraph 13, that South Australia is no more than an example of a special class of case where the scope of the defendant's duty is confined to the giving of specific information, nor the opinion of Lindgren J. in the Australian case of MBICA who declined to follow South Australia, nor the opinion of Professor Stapleton who questioned the validity of any reliance upon the distinction between the giving of information and the giving of a warranty, nor the other views contained in the materials that I have referred which question some or all of the South Australia principles. These opinions provide indications of the direction in which the law in this area and in this jurisdiction may develop or be pinned back but they cannot be taken by a judge sitting at first instance, albeit as a judge on appeal from the award of an arbitrator, as representing the currently applicable law for a tribunal sitting in England and Wales.
75. In essence, Lord Hoffmann held as follows:

1. It is first necessary to identify the correct description of the kind of loss for which the claimant is entitled to compensation. A correct description of the loss for which the claimant is to be liable must precede any consideration of the measure of damages.

2. The precise scope and purpose of the duty owed to the claimant by the defendant must then be ascertained. The reason for undertaking this exercise is to determine whether that scope and purpose was in respect of the kind of loss which the claimant has suffered.

3. The scope of duty is to be determined by reference to the express or implied terms of the engagement or, where there is no relevant contract, by the general law. The process of contractual determination is one of construction of the agreement as a whole in its commercial setting.

4. The duty that is identified in this way must then be analysed to determine whether it is a duty to advise whether a particular course of action should be undertaken or a duty to convey information.

5. Where the duty is to advise whether or not a particular course of action should be undertaken, the adviser must take reasonable care to consider all the potential consequences of that course of action and, if negligent, will be responsible for all the foreseeable loss which is a consequence of that course of action having been taken.

6. Where the duty is only to supply information, the information-giver must take reasonable care to ensure that the information is correct and, if negligent, will be responsible for the foreseeable consequences of the information being wrong.

7. The measure of damages for a breach of duty to take care to provide accurate information is to be distinguished from the measure of damages for breach of a warranty that the information is accurate.

76. In the case of inaccurate information:

(1) The measure of damages is the loss attributable to the inaccuracy of the information which the claimant has suffered by reason of having entered into the transaction on the assumption that the information was correct.

(2) Damages are computed by comparing the loss actually suffered with what the claimant's position would have been if he had not entered into the transaction.

(3) The tribunal then awards the element of this loss that is attributable to the inaccuracy of the information.

(4) The loss is, therefore, a measure of the extent to which the claimant is worse off because the information is wrong.

77. In the case of a warranty:

(1) Damages are computed by comparing the claimant's position as a result of entering into the transaction with what it would have been if the information had been accurate.

(2) The tribunal then awards a sum which reflects the value of the difference between these two positions.

(3) The loss is, therefore, a measure of the extent to which the claimant would have been better off if the information had been right.

78. In each case, whether it is advice-giving or information-giving and, in the latter case, the supply of, or the warranty of the accuracy of, information, it is only such loss as is foreseeable and within the scope and purpose of the loss that the defendant's duty has an obligation to avoid which is recoverable.
79. Thus, the recoverable damages are limited by: the kind of loss being claimed by the claimant, the scope and purpose of the duty of the defendant, the loss having to be a foreseeable consequence of the particular breach, whether the duty is to provide information or advice and whether the information being provided, if any, is warranted.
80. The application of these principles will sometimes, but not invariably, produce a cap on the recoverable damages. When applicable, a cap will arise as a result of the application of two separate requirements: first, that the claimant must prove that he has suffered loss, and, second, that the claimant must establish that the loss fell within the scope and purpose of the duty he has owed.
81. The distinction between a "no-transaction" case and a "successful transaction" case is not based on any principle and should be abandoned.
82. It is only such damages as survive the imposition of all these tests or considerations which are recoverable from the defendant.
83. It is worth quoting from a passage in the subsequent speech of Lord Hoffmann in Nykredit since that speech is unusual in that it amounts to a second confirmatory speech by the same judge in the same case, albeit in the guise of the second limb of the appeal in one of the conjoined cases decided in South Australia. Lord Hoffmann stated, at page 1638:

"The principle approved by the House was that the valuer owes no duty of care to the lender in respect of his entering into the transaction as such and that it is therefore insufficient, for the purpose of establishing liability on the part of the valuer, to prove that the lender is worse off as a lender than he would have been if he had not lent the money at all. What he must show is that he is worse off as a lender than he would have been if the security had been worth what the valuer said. ... But in order to establish a cause of action in negligence he must show that his loss is attributable to the overvaluation, that is, that he is worse of than he would have been if it had been correct."

84. The South Australia principles have been glossed to some extent by subsequent authority. Of particular significance are the following glosses:

1. The defendant is not liable for all foreseeable consequences of the advice being supplied being incorrect (principles 6 and 11 above). Even if the loss in question is foreseeable, it will not be recoverable from the defendant if it would have arisen even if the advice had been correct (Lord Nicholls in Nykredit at page 1631) . This glosses principles 5 and 10 stated above which, in any event, must be qualified in this way as a result of principles 8, 9 and 11.

2. Where the basic loss of a lender, in a claim against a valuer, exceeds the amount of the overvaluation, the lender's right of recovery from the valuer is limited to the extent of the overvaluation (Lord Hobhouse in Platform Home Loans Ltd at page 201G) .This explains principles 8, 9 and 11.

3. South Australia was an example of a long standing principle that a defendant is not liable in damages in respect of losses which fall outside the scope of his duty of care. The South Australia case is an example of a special class of case where the defendant's duty was confined to the giving of specific information (Aneco Reinsurance, the majority decision summarised in holding (1) in the headnote at page 92) . This explains principle 2.

4. It is open to question whether the South Australia principles should be based on or grounded in a distinction between the recoverable loss resulting from the supply of erroneous information and that resulting from a breach of warranty of its accuracy (Lord Steyn's opinion in Aneco Reinsurance at page 99) . However, this question was neither explored nor answered in Aneco Reinsurance. This queries principle 7.

5. In determining the measure of damages, South Australia requires a comparison between the state of affairs upon the inaccurate information which was provided and the state of affairs had the information been correct. These actual and hypothetical states of affairs essentially concern what the recipient of the information thinks since it is 'that which became or would have become the relevant ingredient of his decision to proceed with the transaction (May LJ in Petersen at paragraph 32) . This explains principle 8.

6. In South Australia, which was a composite appeal involving three separate cases, the claimants would not have proceeded with the mortgage transactions if they had been provided with accurate information. This was regarded as relevant in Petersen by May LJ at paragraph 30. As it happened, Nykredit (being the second part of the hearing of one of the three South Australia appeals), Aneco and Petersen were all "no-transaction" cases but in none of them was Lord Hoffmann's view in South Australia at page 218 questioned that the distinction between "no-transaction" and "successful transaction" cases should be abandoned. However, Petersen was a "no-transaction" case so that this question did not arise for decision in that case and principle 13 remains unaffected by Petersen.

7.2. Are the South Australia Principles Applicable?

85. On Aintree' s behalf it was submitted that the South Australia principles are not applicable to this case at all nor to the quantification of Aintree's recoverable damages, since Lobb is an architect and not a valuer. Alternatively, the South Australia principles are not applicable since they are only applicable to those who Lord Lloyd in Aneco Reinsurance described as "valuers and their like, that is to say, those who undertake to provide specific information (paragraph 12)" and Lobb was not, when failing to warn Aintree, someone of that kind. There were four stands to this submission:

1. The South Australia principles are only applicable to cases involving claims against valuers and their like, particularly where part of the claimed loss against a valuer is directly linked to a fall in market values after the impugned valuation had been made.

2. Lobb was not providing information but instead was providing a full range of professional services including advisory services.

3. This case, unlike South Australia, is what Aintree's submissions described as an "alternative-transaction" case rather than a "no-transaction" case. That type of case is one where the purpose of the information was to enable Aintree to make a choice whether to continue with the present transaction or to adopt an alternative one instead.

4. The question of what basis Aintree can recover damages is, in this case, a question of fact and it is no longer open to challenge the arbitrator's answer to that question in an appeal which may only be brought in relation to questions of law.

(1) Only Applicable to Valuers

86. The suggestion that South Australia is narrowly confined and is only applicable to cases involving valuers and their like is derived from the fact that the case was a direct result of the turmoil arising from the market collapse in England in 1990 and from the ensuing avalanche of claims against valuers that followed. Moreover, the language of Lord Hoffmann's speech is directed to claims against valuers in the fact specific context of catastrophic market collapse. However, the speech is constructed from general principles which, on the face of it, are applicable to any situation where professional information and not advice is being provided as an ingredient in, but not as determinative of, a decision being taken by a client. Thus, Lord Lloyd, in paragraph 13 of Aneco, referred to the applicability of the case to any situation "where the scope of the defendant's duty is confined to the giving of specific information". Equally, May LJ, in paragraph 19 of Petersen, referred to the South Australia principles as being: "of general application ... where there has been a negligent failure to provide accurate information . . .". The principles have been applied to accountants (B.C.C.I.), solicitors (Petersen), structural engineers (Woolfson), consulting engineers undertaking field studies in connection with the reclamation of a brown field site (Urban Regeneration Agency) and insurance brokers (Aneco) although in this last case the scope of the duty was such as not to bring the principles into play.
87. Aintree submitted that Aneco was a case involving the breach of a duty by insurance brokers to provide information of a single important fact yet the House of Lords held that all the foreseeable loss resulting from the brokers' breaches of duty was recoverable and that there was no basis for limiting recovery to loss falling within a narrow duty to provide information. This, so Aintree submitted, showed that the application of the South Australia principles was to be was confined to a narrow range of activities involving valuers and persons of that kind. However, the basis of the decision was that the brokers were not merely providing information about the nature of the reinsurance that was available, they were also providing advice as to the current market assessment of the risks associated with the overall insurance transaction that the claimant was proposing to undertake and for which the further reinsurance was being obtained. Thus, the brokers were participating in, and giving advice as to, the underlying decision that had to be taken as well as providing information relevant to the taking of that decision. The brokers' breaches of duty therefore fell on the other side of the line to the valuers in South Australiaor Lobb in this case and the recoverable loss was not in any way circumscribed by a narrow duty to provide information.
88. The ambit of the South Australia principles is still somewhat unclear. At the very least, however, it can be seen from the South Australia, Aneco Reinsurance and Petersen decisions that they are applicable where: (1) a professional is engaged to provide information for a specific transaction or project; (2) the client is to decide whether or not to proceed with that transaction or project; (3) the information to be supplied is to be relied on by the client as part of the information to be used in that decision-making process; (4) the decision as to whether to proceed with that project or transaction is neither to be participated in by the professional nor is dependent on the advice of that professional. Lobb contends that these four requirements are met in this case, the effect of Aintree's objections would be that none of these requirement were met.

(2) The Scope of Lobb's Duty

89. In order to determine whether the South Australia principles are applicable, the relevant scope of Lobb's duty to warn must be ascertained. Although the engagement imposed on Lobb included a wide-ranging duty to provide architectural services, the relevant duty which the arbitrator has found Lobb to be in breach of was Lobb's duty to warn which arose in connection with a very carefully defined project, being the provision of a new Stand at a defined racecourse with a world famous annually held Meet and where the new Stand had a defined capacity, cost limit, area, start date for construction and defined timing for that construction. In connection with this project, Lobb had a duty to: "warn Aintree that the required number of standing spectators could not be accommodated". However, as the arbitrator found, Lobb did not have: "a duty to advise Aintree as to whether the project should be postponed in the light of the factors of which they should have warned" Aintree. In connection with this duty to warn, Lobb: "were aware from the outset that capacity was an important factor in Aintree's decision to proceed with the project" and "knew that Aintree considered that proceeding with the project in 1997 was a 'high risk strategy'". Finally: "it was a foreseeable consequence of their failure to [warn] that Aintree would be deprived of the opportunity to remedy those losses by postponement and reconsideration of the project".
90. It follows from these findings that Lobb's duty was to provide information and not to provide advice. It is true that the scope of the relevant duty that was defined by the arbitrator

is worded by reference to a duty to warn. However, what Lobb was required to do was to provide Aintree with information, if the situation arose, that the standing capacity of the proposed stand had dropped below 2,800. It is clear that, within the scope of this duty, was the duty to provide information to enable Aintree to decide, if the standing capacity was reduced, whether or not to postpone the project. Thus, in the absence of Lobb giving Aintree information that the standing capacity of the Stand had been reduced, Aintree could proceed to a decision as to whether or not to go ahead with the project on the basis that the Stand that had been designed had the requisite standing capacity.

91. Despite these findings of the arbitrator, it was suggested by Aintree that Lobb was not providing information but instead was providing a full range of professional services including advisory services. It was also suggested that the avoidance of the loss of the full benefits of an alternative stand was within the scope of Lobb's duty.
92. However, although Lobb was providing a wide-ranging architectural service to Aintree, the relevant service with which this case is concerned formed only a small part of that overall service. The only respect in which the arbitrator has found that Lobb was in breach of duty in relation to the reduced occupancy claim was in respect of its duty to warn as to reduced occupancy. This duty is similar to the duty of giving specific information, a duty which Lord Lloyd recognised in Aneco, at page 95, as being capable of bringing the duty into the special class of case where damages are limited to the loss arising from entry into the course of action in question that are provided for in South Australia. It is true that the arbitrator has also found that it was a foreseeable consequence of that failure both that Aintree would lose the opportunity to reconsider the project and that that reconsideration would lead to a redesign which, in turn, would as a natural consequence, produce a larger and more costly stand with an additional spectator and revenue producing capacity.
93. However, although these consequences of a failure to warn were foreseeable, they were not necessarily within the scope of Lobb's duty to warn. It was, for example, also foreseeable that the result of a loss of capacity would be a reconsideration of the project followed either by its abandonment altogether or by a decision to proceed with the reported reduced capacity on account of planning, budgeting or other constraints precluding the construction of a larger stand. Lobb was not privy to the other factors which would affect Aintree's consideration of the project nor was it privy to Aintree's decision-making process. Lobb had merely accepted a short term commission at short notice with a very detailed brief and an obligation to warn Aintree if any of the constituent parts of that brief were not capable of being fulfilled by the designs it produced in sufficient time to enable Aintree to reconsider the project. In those circumstances, the scope of Lobb's duty to warn would appear to be confined to a duty to avoid such losses as would result from a failure to give the warning and from Aintree taking a decision to proceed with the project on the basis that the Stand in question had a standing capacity of 2,800 spectators when in fact its standing capacity was significantly less.

(3) A "No-Transaction" Case

94. Aintree also suggested that this case was not a "no-transaction" case but what it described as an "alternative transaction" case. In other words, Aintree would have designed and constructed an alternative stand had it known of the deficiencies of the Stand as built with the continuing help of Lobb. This submission does not accurately summarise the findings of the arbitrator. He found that Aintree would have reconsidered the project and, following that reconsideration, would have commissioned a redesign of the Stand. The arbitrator also found that it was probable that Lobb would have continued as architects and would themselves have changed the design to achieve what Aintree wanted as far as possible and that: "what would have been involved would have been a complete reconsideration of all aspects of the design including area and cost. It is probable that a new cost plan would have been prepared to allow for the enlargement of the building".
95. These findings show that the transaction or project in question was the limited transaction to build the Stand actually designed by Lobb. That transaction would not have been proceeded with had accurate information been provided to Aintree. Instead, a different transaction, involving a complete reconsideration of all aspects of the design, including the area and, following the preparation of a new cost plan, the cost. These facts, in the language of Lord Hoffmann in South Australia, make this case a "no-transaction" case, which is a case where the course of action in question would not have been proceeded with. This limited meaning of "no-transaction" can be seen from this passage in Lord Hoffmann's speech where he refers to the provision of information for the purposes of choosing a course of action (see page 214):

"The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take".

96. The course of action in this case was the construction of the Stand as designed by Lobb in purported compliance with the design brief that Lobb had been provided with. It would be erroneous to describe the relevant course of action in more general terms by reference to the overall project of replacing the relevant part of the old stand. Any redesign of the Stand, although forming part of that overall project, would have formed part of a different course of action to that that Lobb had been retained to provide information for.
97. Furthermore, Lord Hoffmann makes it clear that the application of the South Australia principles are not dependent upon the case being a "no-transaction" or "no course of action" case. He makes it clear that that distinction should be abandoned (see page 218)

"Every transaction induced by a negligent valuation is a "no-transaction" case in the sense that ex hypothesi the transaction which actually happened would not have happened. A "successful transaction" in the sense in which that expression is used by the Court of Appeal (meaning a disastrous transaction which would have been somewhat less disastrous if the lender had known the true value of the property) is only the most common example of a case in which the court finds that, on the balance of probability, some other transaction would have happened instead. The distinction is not based on any principle and should in my view be abandoned."

(4) Conclusion

98. In the light of these considerations, the South Australia principles are applicable to this case. This case is a "no-transaction" case where Lobb was providing Aintree with information in the form of warnings and was not providing advice and where the relevant course of action was embarked upon following reliance on that lack of warnings. The scope of Lobb's duty was to provide warnings or information in circumstances where Lobb could reasonably foresee that a failure to provide these warnings could lead to the loss by Aintree of an opportunity to postpone the project and then to reconsider the project.
99. It follows that the arbitrator's formulation of the basis upon which damages are to be determined is erroneous since that formulation was based upon the financial loss that had been suffered by Aintree without any direct reference either to foreseeability or to the loss that was within Lobb's scope of duty.
100. It is clear from an application of the South Australia principles that Aintree's recoverable damages should be determined in two stages:

1. The loss being claimed by Aintree that it alleges is attributable to Lobb's failure to warn Aintree that the standing capacity of Lobb's new Stand had been reduced below Aintree's requirements should first be identified.

2. That part of the loss identified in stage 1 is recoverable which is:

(1) a foreseeable consequence of Lobb's failure to warn Aintree that the

standing capacity of Lobb's new Stand had been reduced below Aintree's

requirements;

(2) attributable to Lobb's failure to warn Aintree that the standing capacity of

Lobb's new Stand had been reduced below Aintree's requirements and which

Aintree has suffered by reason of having decided to construct Lobb's new Stand

on the assumption that it complied with Aintree's requirements; and

(3) within the scope and purpose of Lobb's duty to warn Aintree of any substantial reduction in standing capacity so as to deprive Aintree of its opportunity to postpone the building of Lobb's new Stand in order to reconsider all aspects of that course of conduct.

101. Both parties made detailed submissions as to whether particular elements of the loss claimed by Aintree were recoverable and as to whether these were covered or should be covered by the arbitrator's formulation of the basis upon which Aintree's loss should be calculated. These elements included:

1. The loss of the so-called collateral benefits.

2. The loss attributable to the 108 standing places which Aintree should have been warned about which did not reduce the standing capacity of the Stand below 2,800.

102. Furthermore, although not the subject of submissions, the loss attributable to the further lost standing places, in addition to the 685 lost places used as the basis of Aintree's claim, which reduced the standing capacity to 2,000 might also need to be considered. Although these additional places were the subject of a decision by Aintree not to make a claim in relation to these places, the basis of that decision was not explained in the award and there might seem little reason in principle to treat the losses from these lost places any differently from the first two heads of loss I have referred to. However, Aintree submitted that no conclusion as to whether or not other parts of its claim were recoverable should be drawn from its decision not to pursue a claim for these particular lost standing places and, in the absence of any finding as to why that decision had been taken, that submission would appear to have some force.
103. A further subject of detailed submissions was the question of whether, and if so what, set off, deduction or allowance should be made to account for the increased cost to Aintree of constructing the hypothetical new stand compared with the actual cost of constructing the Lobb designed new Stand. It was suggested by each party that some allowance had to be made but the principle to be used in determining what if any allowance should be made was neither clearly identified in the award nor by either party. Although the arbitrator made a finding in paragraph 180 of the award as to the basis upon which a deduction should be made for this increased cost, there remains a dispute as to whether the deduction should reflect the whole cost of providing a redesigned stand or only part of that cost. I neither can nor will make any determination in relation to this aspect of the dispute in this judgment.
104. Finally, submissions were also directed to whether, and if so what, claim could be made or set off, deduction or allowance claimed to account for the new Stand being available for the 1998 Grand National Meet compared with the hypothetical new stand not being available until at least the 1999 Grand National Meet.
105. I am not able to make any determination in relation to any of these vexed questions for several reasons. Firstly, the arbitrator made no findings of fact as to the nature and extent of Lobb's losses or as to the set offs, deductions and allowances being claimed and the questions raised by these detailed disputes are ones which are dependent on factual findings which have yet to be made. Secondly, these questions arise within the scope of the second quantification hearing and are not strictly covered by either the scope of the first award as to substantive issues or the question of law that I have to determine. Thirdly, many of these questions are essentially questions of fact and such questions are not therefore susceptible to court determination at all.
106. I will therefore limit my answer to the question of law to the answer given in paragraph 83 above. It will be for the arbitrator to give effect to this answer. He should not re-open the hearing to enable the parties to submit further evidence but he should allow the parties the opportunity to address further submissions to him albeit that the decision as to whether these should be written submissions or oral submissions or both and as to their timing is one for him.
107. In the light of the court's answer to the question of law, the appeal will be allowed. In consequence, the award will be varied by the omission of the wording of Question 8 and of finding 5 in paragraph 181 of the award, being the paragraph containing a summary of the relevant part of the award and by substituting in their place the question of law and the answer to that question of law set out in the appendix to this judgment. Question 8 and the answer, as varied, and Paragraphs l78A - 180 and 181.5 of the first award as to substantive issues are to be remitted to the arbitrator with a direction that he should reconsider them in the light of the court's determination. This variation should be coupled with a direction that the arbitrator is to give effect to the reasoning contained in this judgment rather than the reasoning contained in paragraphs l78A -180 of the award. The arbitrator is then to make a combined fresh award in respect of this remitted part of the first award on substantive issues and a second award on quantum by 28 February 2003, being approximately 15 weeks from the date of the order giving effect to this judgment.

HH Judge Thornton QC

Technology and Construction Court

Appendix to Judgment

The question of law arising out of the award is as follows:

"On what basis should the quantum of damages recoverable by Aintree as a consequence of Lobb's breaches of its duty to warn Aintree be determined?"

The answer is as follows:

"The basis upon which the quantum of damages should be determined is as follows:

1. The loss being claimed by Aintree that it alleges is attributable to Lobb's failure to warn Aintree that the standing capacity of Lobb's new Stand had been reduced below Aintree's requirements should first be identified.

2. That part of the loss identified in stage 1 is recoverable which is:

(1) a foreseeable consequence of Lobb's failure to warn Aintree that the standing capacity of Lobb's new Stand had been reduced below Aintree's requirements;

(2) attributable to Lobb's failure to warn Aintree that the standing capacity of Lobb's new Stand had been reduced below Aintree's requirements and which Aintree has suffered by reason of having decided to construct Lobb's new Stand on the assumption that it complied with Aintree's requirements; and

(3) within the scope and purpose of Lobb's duty to warn Aintree of any substantial reduction in standing capacity so as to deprive Aintree of its opportunity to postpone the building of Lobb's new Stand in order to reconsider all aspects of that course of conduct."