Toppan Holdings Limited & Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) [2025] EWHC 1691 (TCC) provides a tangible warning to contractors operating in the commercial real estate sector. The Court held that certain purely financial losses due to defects in the design and building were not remote and satisfied the test in Hadley v Baxendale (1854) 9 Ex 341. Although, loss sounding as overdraft charges was held to be remote, Toppan Holdings will drive the desire for contractors to negotiate a cap on overall liability and to exclude certain categories of loss.
The Development
The dispute arose out of the design and construction of a care home with a view to it being sold on in due course. The two claimants were the freeholder (who had stepped into the shoes of the original employer by way of a novation of the construction contract), and the leaseholder (who operated the care home). Both were the beneficiaries of collateral warranties from the contractor, Simply. Readers may be aware of the previous proceedings between the leaseholder and the contractor that were the subject of an adjudication considered by the UK Supreme Court in Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) [2024] UKSC 23, [2024] 4 All ER 905.
In 2018, Toppan Holdings began negotiations with BlackRock regarding the sale and leaseback of the care home. During diligence, BlackRock discovered defects in the design and construction, as to the fire resistance of the structural frame, and issues with fire protection, fire stopping, and fire doors. The “BlackRock deal” thus collapsed. As the defects were not remedied by Simply, the care home operator also sought loss sounding as loss of trading profits incurred in remedying defects.
Remoteness of Loss
Remoteness of loss was key to the loss said to be caused by the collapse of the “BlackRock deal”. The legal principles applicable to remoteness of loss are well settled in English law. The Court adopted the test in Hadley v Baxendale (1854) 9 Ex 341 and analysed whether, at the time of making the design and build contract, the loss would: (i) be fairly and reasonably considered to arise naturally from the breach; or (ii) reasonably have been in the contemplation of the employer and the contractor.
Loss of Trading Profits
Abbey claimed that due to the remedial work the care home could not operate at full capacity and so there was a loss of trading profits. The Court said at [43]: “[The care home operator] seeks, rightly I consider and so find, that it should be put in the position it would have been but for [the contractor]’s admitted breaches of duty. This exercise requires a comparison of the profit earned in fact in the relevant period (the “actual position”) with the profit which could have been earned but for [the contractor]’s breaches of duty (the “but for position”).” The Court concluded that the loss of trading profits was £4,260,000 premised on an occupancy growth of 2 per month up to September 2021 (i.e. the “but for” profit in the period 2018 to September 2021 of £8,046,000 less actual agreed profit of £3,786,000 in the same period at [49]).
Collapse of the “BlackRock Deal”
Both claimants sought to recover legal costs and disbursements for the aborted sale of the home. Typically, where at the time of contracting it is not envisaged that the asset would be sold, a subsequent loss of sale claim may be too remote. But, on the specific facts the Court found that: “the alleged losses associated with the proposed sale to BlackRock did arise naturally according to the usual course of things as a result of Simply’s breaches and the defects. The alleged losses were in the reasonable contemplation of the parties at the time of contract and as stated by Mr Savage Simply and the Claimants had special knowledge regarding the very real likelihood of the sale of newly constructed care homes.” The Court rejected, however, a claim for £7,400.39 in respect of overdraft charges because such a loss was far too remote, the contractor having had no knowledge of how the remedial works were to be funded [58].
The freeholder claimed that it had lost the sale after a valuable offer and had not received any offer at, or close to, the offer from BlackRock. The contractor argued that the alleged loss was too remote; that the discovery of the defects did not in itself prevent the sale going ahead; that in any event the freeholder suffered no loss because of the deal collapsing. The Court held, as discussed above, that the loss was not remote; that issues or difficulties such as with planning permission, a VAT clawback, updated trading information would not have prevented the sale going ahead. As regards actual loss, examining the terms of the sale and leaseback with BlackRock, the Court found that the potential loss caused by the collapse of the deal was expunged by the additional amounts that Toppan would have had to pay Abbey to allow it to meet the increased rent under the “BlackRock deal”. So, the collapse of the sale caused no loss.
The ‘Warning’
Toppan Holdings provides a reality check for all those involved in commercial real estate projects. More specifically, where there could be defects claims that include heads of loss relating to financial consequences in addition to the cost of repairs based on loss of opportunity, contractors and insurers will be keen to see exclusions of liability for certain types of financial loss and very keen to see an overall cap on liability. Such debates are of course not new but often a high-profile decision of the Court can catch the industry’s attention. Developers may also now need to take a pragmatic approach.
