GD Construction (St Albans) Ltd. v Scottish & Newcastle Plc

This is an appeal from a decision of HHJ Seymour QC, sitting as a judge of the Technology and Construction Court, on a preliminary issue of law. The decision of Judge Seymour is reported at 80 ConLR 76. Permission to appeal was refused by the judge but granted by Dyson LJ. The case arises out of a building contract on a standard form published by the Joint Contracts Tribunal of the Standard Form of Building Contracts, known as “IFC 84”. The contract, which was concluded on 30 September 1996, concerned refurbishment work to a public house in Reading. The terms of the contract provided that the Employer, who is the Claimant in this case, should take out an insurance policy in the joint names of both the Employer and the Contractor. This policy should have insured against any damage to the existing structure caused by a number of specified perils, including “fire”. In fact the Employer failed to take out the policy. During the refurbishment there was a fire which damaged the existing building of the public house. For the purposes of the preliminary issue it has been assumed that this fire was caused by the negligence of sub – contractors when they were doing work on the roof of the public house. The Employer has sued the Contractor for damages, including the cost of rebuilding the existing structure. The Employer relies principally, if not exclusively, on a liability and indemnity clause in the Contract to recover its loss and damage. This is Clause 6.1.2 of the standard IFC 84 terms. The Contractor relies on the same liability and indemnity clause in the contract to exempt it from this liability. It says that it has no liability for any loss or damage that would have been covered by the insurance policy that the Employer should have taken out.

The preliminary issue before the judge and this Court is, briefly, whether liability for damage to identified property which results from a negligently caused fire is excluded, because the parties have agreed that a clause defining the Contractor’s liability and obligation to indemnify the Employer excludes loss or damage to the identified property which is required to be insured by the Employer against specified perils, one of which is “Fire”. The identified property here was the existing structure of the public house. The judge held that the Contractor’s liability for such damage was not excluded by the terms of the contract. The Contractor now appeals. The outcome depends ultimately on the correct construction of three principal clauses in the contract: clause 6.1.2; clause 6.3C.1 and clause 8.3, together with some ancillary clauses.

The relevant Contract Terms

The wordings of the relevant terms of the contract provide as follows:

The Assumed Facts concerning the fire and the ensuing damage

The allegations pleaded by the Employer against the Contractor

In addition the Employer also pleaded that there was an implied term in the Contract that the Contractor would carry out all its services with reasonable care and skill. Furthermore the Employer also pleaded that the Contractor owed the Employer a duty of care to exercise all reasonable skill and care in the performance of its duties and obligations, presumably under the Contract.

The Particulars of Claim allege that the fire was caused by the Contractor’s breaches of the contractual and common law duties to take care that are said to derive from Item 260 of the Preliminaries; Clause 1.1 of IFC 84 and the implied terms and duty that I have referred to above. As an alternative it is pleaded that the fire was caused by the negligence of the sub – contractors doing the work on the roof. It is alleged that, by the express terms of Clause 6.1.2 of the Contract, the Contractor accepted liability for and agreed to indemnify the Employer against any loss or damage to property that resulted from the sub – contractors’ negligence.

It will be noted that the Employer’s pleaded case is that the Contractor is liable to the Employer by virtue of alleged breaches of contractual or common law duties to take care. There is no allegation that the Contractor has been in breach of any strict or absolute contractual obligation, save for the alleged obligation to indemnify the Employer as a result of the other breaches of contract that have been pleaded. This reliance on breaches of duties to take care is, I think, of great importance when considering the proper construction of Clause 6.1.2 and related clauses.

The Employer claimed two heads of loss and damage as a result of the alleged breaches of the Contractor. These were the cost of repair to the existing structure (£436,301.59) and business losses resulting from the delay in rebuilding the public house (£138,415.00). As an alternative the Employer claims to be indemnified under Clause 6.1.2 in respect of the losses.

The pleaded response of the Contractor

The Preliminary Issue before the Judge and his decision

The arguments of the parties on this appeal

The arguments of the Employer, put attractively by Mr Taverner QC, were: (i) Clause 6.1.2 of the Contract makes the Contractor liable to the Employer for loss and damage which, (a) is caused not only by the Contractor’s negligence but that of others, for whom the Contractor might not be responsible at common law; (b) in circumstances which might not amount to negligence or breach of contract by the Contractor and (c) covers an extensive range of losses that might not be recoverable in an action for negligence. (ii) Clause 6.3C.1 obliges the Employers to take out an insurance policy in respect of particular property (ie. the existing structures), but it does not define precisely the “specified peril” of “fire”. (iii) Therefore the Employer would have fulfilled its contractual obligation to the Contractor if the Employer had taken out an insurance policy that did not cover “negligently caused fire”. It is important to note that the Employer was not obliged to take out an “All Risks” policy. (iv) The last sentence of Clause 6.1.2 is to be read as an exclusion of the Contractor’s liability or obligation to indemnify in respect of certain types of loss and damage covered by the insurance policy to be taken out by the Employer. That exclusion must be construed like all other exceptions clauses on which the party otherwise liable seeks to rely. Thus, if the clause does not expressly exclude liability for negligence, then such liability is only to be excluded by the clause if, on a reasonable reading, it is wide enough to include liability for negligence and it cannot reasonably cover any other ground of liability. As set out in (i) above, that is not the case here, so liability for negligently caused fire is not excluded by the wording of Clause 6.1.2; Clause 6.3C.1 and the word “fire” in the “specified perils”. (v) Clause 6.1.2 and 6.3C.1 together have the same effect as the clauses in building contracts that were considered by the Court of Appeal cases of Dorset CC v Southern Felt Roofing Ltd (1989) 29 ConLR 61 and London Borough of Barking and Dagenham v Stamford Asphalt Co Ltd (1997) 54 ConLR 25. In both cases the Court of Appeal held that the contractor’s liability for damage caused by a fire started by its negligence was not excluded by the simple word “fire” in, respectively, an employer’s responsibility clause in a building contract, and an employer’s obligation to insure clause in a building contract. Mr Taverner submitted that the House of Lords’ cases on which Mr Eklund relied were distinguishable on the facts and the terms of the contracts involved.

Analysis

With that in mind it is necessary to consider the scope of Clause 6.1.2 of the Contract. It was accepted by both Counsel that although cases concerning other wordings may contain general principles that this court must follow, there are no cases which have considered precisely this wording. Therefore I will consider the proper construction of the clauses first and then I shall consider the cases as may be necessary.

Construction of Clause 6.1.2

There are several points to note about this group of phrases. The first is that the Clause is, in my view, defining the scope and limits of the liability of the Contractor to the Employer for certain types of default. Secondly the type of defaults which are covered by this Clause are all based on negligence of one form or another. Hence the phrase “to the extent that [loss, injury or damage] is due to any negligence, breach of statutory duty, omission or default [of the Contractor etc]”. In my view the words “omission or default” are intended to embrace failures by the Contractor to fulfil contractual obligations to take care.

Thirdly, in agreement with the submission of Mr Taverner QC, this first group of phrases enlarges the classes of person for whose acts or omissions the Contractor is liable. That is the effect of the wording “…servants, agents or of any person employed upon or engaged upon or in connection with the Works or any part thereof” and so forth to the end of that sentence. Fourthly, again in agreement with Mr Taverner’s submissions, this group of phrases widens the class of loss or damage for which the Contractor is liable to the Employer and for which the Contractor has to indemnify the Employer.

In short, the first group of phrases lays down the general scope of the Contractor’s liability and obligation to indemnify the Employer as a result of all types of failure to take care, whether contractual or non – contractual.

As part of defining the scope of the Contractor’s liability and obligation to indemnify, there are qualifying words in the second group of phrases in the last sentence of Clause 6.1.2. This sentence limits the Contractor’s liability and its obligation to indemnify the Employer in several ways. First, this sentence cuts down the property embraced by the liability and obligation to indemnify. Thus “The Works” and other matters are excluded from the ambit of Clause 6.1.2 by virtue of the terms of Clause 6.1.3.

Next, this sentence deals with a case when (as under this Contract) Clause 6.3C.1 applies. In such cases the “liability and indemnity….excludes loss or damage to any property required to be insured [under Clause 6.3C.1] caused by a Specified Peril”. In my view this means that the general scope of the “liability and indemnity” embraced by the first part of the Clause is cut down, when Clause 6.3C.1 applies. From the general scope of Clause 6.1.2 is excluded any loss or damage to any property required to be insured under Clause 6.3C.1, where the loss or damage complained of has been caused by a Specified Peril. Therefore it is necessary to identify three things in order to work out the precise extent of the exclusion of the Contractor’s liability and obligation to indemnify the Employer when Clause 6.3C.1 applies. The first is: what type of property has to be insured under Clause 6.3C.1. The second is the nature of the Specified Perils to be covered by the insurance. The third is whether the loss or damage complained of was caused by one of those Specified Perils.

Clause 6.3C.1; “Joint Names Policy” and “Specified Perils”

The “Specified Perils” includes “fire”. As a matter of fact a fire can, of course, be caused by accident, inadvertence, negligence and a deliberate act of the assured or of third parties. So can some of the other perils identified as “Specified Perils”, such as “bursting of water tanks”. But yet other “Specified Perils”, such as “earthquake” or “lightning”, can have no element of human act or omission in their cause or creation.

The Link between Clause 6.1.2; Clause 6.3C.1 and the “Specified Perils” in cases when Clause 6.3C.1 applies

What is meant by “fire” in the “Specified Perils” clause?

Under Clause 6.3C.1 of the Contract, the Employer had a contractual obligation to take out and maintain a Joint Names Policy in respect of the existing structures which would pay for the full cost of reinstatement, repair or replacement of loss or damage due to the Specified Peril (amongst others) of “fire”. If the Employer had fulfilled that obligation, then in my view that policy would have paid on a loss of the existing structure of the public house which was caused by a fire that was the result of the negligence of the Contractor’s sub – contractors. Moreover, if the Employer had fulfilled its contractual obligation under Clause 6.3.1 of IFC 84, the insurance policy would have contained a clause that stated that the insurer had no right to use the name of the Employer to sue (by subrogation) the Contractor, who would also be named as an assured under the policy. The effect of this “no recourse” provision in Clause 6.3.1 would have been to prevent the insurers from using the name of the Employer to sue the co - assured Contractor for damages on account of the negligence of its sub – contractors. (See: Co – operative Retail Services Ltd v Taylor Young Partnership Ltd and others [2002] 1 WLR 1419 at para 65 per Lord Hope of Craighead. Lords Bingham, Mackay and Steyn agreed with Lord Hope on this point). I discuss this case more fully below. The point to note here is that the contractors had to take out an “all risks” policy against loss or damage in relation to a new construction site. Both the contractor and employer were named as joint assureds. Lord Hope concluded that the very existence of such a policy in joint names would prevent it being contended that the contractor was liable to the employer for damage resulting from a fire caused by the negligence of the contractor. The present case is even stronger, because of the existence of the “no right of recourse” provision in clause 6.3.2 of the contract.

In this case the Employer failed to take out policy it should have done. But that cannot detract from the conclusion that I reach on the proper construction of these clauses. This is that the whole scheme of Clauses 6.1.2; 6.3.2; 6.3C.1, the provisions defining a “Joint Names policy” and “Specified Perils” was to divide and allocate the risk of loss and damage to different types of property to the Employer and the Contractor. In my view, by the wording of those clauses the parties allocated to the employer the risk of loss and damage to existing structures by a fire which was caused by the negligence of a sub – contractor. The Employer’s losses were to be covered by the Joint Names insurance policy that the Employer was contractually bound to take out and maintain. If the Employer had fulfilled its obligations, then it would have obtained the insurance proceeds because, under clause 6.3C.1, the Contractor was obliged to authorise the insurer to pay the insurance proceeds of a claim to the Employer.

The Case law.

The first case, which was relied on by Mr Eklund for the Contractor, is Archdale (James) & Co Ltd v Comservices Ltd [1954] 1 WLR 459. In that case the claimant employers contracted with the defendant contractor to decorate their premises. Clause 14(b) of the contract provided that the contractor should indemnify the claimant against and should insure against any liability, loss or claim in respect of any injury or damage whatsoever to any property. The damage had to arise out of or in the execution of the works and be caused by any negligence of the defendants, their servants or agents. The clause also stated: “subject also as regards loss or damage by fire to the provisions contained in Clause 15”. Clause 15(b) of the contract stated that the existing structures and the works and unfixed materials (with certain exceptions) should be at the sole risk of the claimant employer as regards loss or damage by fire and the claimants should maintain a proper policy of insurance against that risk.

During the works a fire, caused by the negligence of the contractor’s servants, caused damage to the building. The claimant employer sued the contractor for damages and argued that Clause 15(b) constituted an exceptions clause and it did not exclude liability for the negligence of those for whom the contractor was responsible. The Court of Appeal rejected this argument. As I read the judgments of Somervell, Denning and Romer LJJ, the Court of Appeal made two points. First it recognised that Clauses 14(b) and 15(b) of the contract set out a scheme of liability of the two parties for damage by defined causes. Secondly the Court emphasised the fact that the clauses linked the two parties’ liability for damage to an obligation to insure against that liability. These two points led the Court to conclude that, under the contract wording, the contractor was not liable for damage to the building by a fire that was started negligently.

Scottish Special Housing Asociation v Wimpey Construction UK Ltd [1986] 1 WLR 995 was also relied on by Mr Eklund. The owners of houses contracted with a contractor to modernise them. The contract contained similar wording to that in the Archdale case. When work was being carried out on one of the houses it was damaged by fire. The parties agreed a Special Case for the opinion of the Court of Session on whether the contractor was liable to the owners on the assumption that the fire had been caused by the negligence of the contractor. The Court of Session said that the contractor was liable. Its decision was reversed in the House of Lords. Lord Keith of Kinkel gave the leading speech. He stated (at page 998H):

“Clause 20(C) provides that the existing structures and contents owned by the employer are to be at his sole risk as regards damage by inter alia fire. No differentiation is made between fire due to the negligence of the contractor and that due to other causes. The remainder of the catalogue of perils includes some which could not possibly be caused by the negligence of the contractor, such as storm, tempest and earthquake, but others which might be, such as explosion, flood and the bursting or overflowing of water pipes. There is imposed upon the employer an obligation to insure against loss or damage by all these perils, in quite general terms. I have found it impossible to resist the conclusion that it is intended that the employer shall bear the whole risk of damage by fire, including fire caused by the negligence of the contractor or that of sub – contractors.”

Lord Keith also considered the Archdale case and noted that it contained similar clauses. He regarded that case as correctly decided and “indistinguishable from the present case”. (See page 999E). In my view the approach of Lord Keith to the construction of the contract terms in Scottish Housing Association case lends support to the construction I have given to the contract in the present case.

Mr Taverner QC (for the Employer) relied on Dorset County Council v Southern Felt Roofing Co Ltd (1989) 4 BBLR 96. The County Council concluded a contract with Southern Felt Roofing Co Ltd to repair and replace the flat roof of a school. The contract contained two relevant clauses. The first, (Clause 1.7) provided that the contractor would indemnify the council against any loss in respect of damage to property and that the contractor “shall, without prejudice to this liability to indemnify the council, [insure] or cause any sub – contractor to insure against the above risk….”. The second clause (Clause 2.1) provided that the council “….shall bear the risk of loss or damage of….existing structures….by fire, lightning, explosion, aircraft and other aerial devices or articles dropped therefrom”. During the works the school caught fire and the building and contents were severely damaged. The council sued the contractor for damages. The Court heard a preliminary point on whether the contractor was liable. The Court of Appeal held that it was.

Slade LJ (with whom Balcombe and Butler Sloss LJJ agreed) concluded that Clause 1.7 imposed an obligation on the contractor to indemnify the employer only against third party claims. He held that it did not impose any further contractual liability on the contractor except to insure. Therefore there was no express contractual liability on the contractor to compensate the council for loss caused by the fire to the school. However the contractor could still be liable in tort or under a contractual duty to take care. Slade LJ went on to hold that because clause 2.1 stated that one party to the contract should bear the risk of certain specified heads of damage, the clause “may be capable of exempting the other party from tortious liability under the common law which he might otherwise incur in respect of damage of that kind”. If Clause 2.1 was to be considered as an exceptions clause, then it had to be construed in accordance with the principles set out by Lord Morton of Henryton in Canada Steamship Lines Ltd v R [1952] AC 192. Clause 2.1 did not expressly exempt the contractor from liability resulting from a fire caused by negligence. Moreover, in respect of the cause “fire”, Clause 2.1 had content if the word “fire” was held to embrace only non – negligent fires. Therefore the parties “in referring to fire in clause 2.1, intended to refer to fire occurring otherwise than by reason of the Contractor’s negligence”.

The striking difference between the wording in the Dorset CC case and the present case is that in the former there was no clause that set out the scope of the Contractor’s liability to indemnify the Employer for loss and damage caused by either the Contractor or those for whom he was to be held responsible under the contract terms. Nor was there any link between such a clause and a subsequent clause which placed the particular risk of loss or damage by fire on the Employer. Slade LJ recognised the importance of the absence of this combination of clauses, because he emphasised this fact when distinguishing the wording of the contract in the Dorset CC case from the wording in the Archdale case and the Scottish Special Housing case. He concluded that those cases gave no assistance in the Dorset CC case. That may be so. The converse is the case here, because the scheme of the contract wording in the Archdale and Scottish Special Housing cases is much closer to the wording in the present case.

Mr Taverner next relied on London Borough of Barking & Dagenham v Stamford Asphalt Co Ltd (1997) 82 BLR 25, a decision of this court. He submitted that this case was strongly in favour of his argument. The Council had engaged the contractor to do building work on the terms of the JCT Agreement for Minor Building Works, in the October 1988 revision. Under the terms of the contract the Council, as employer, was obliged to effect insurance in the joint names of the employer and contractor to cover loss or damage to the existing structures, the works and materials against specified perils, which included “fire”. The employer failed to do so. During the works there was a fire that damaged the building and its contents. The employer then sued the contractor, claiming damages. A preliminary issue was heard on the issue of whether, given the contract terms, the contractor was exempted from liability to the employer. For the purposes of the issue, it was assumed that the fire was caused by the negligence of the contractor’s sub – contractor. The deputy official referee held that the contractor was not exempt from liability. That decision was upheld by the Court of Appeal.

The two critical clauses in the contract were clause 6.2 and 6.3B, which contain similar elements to clauses 6.1.2 and 6.3C.1 of the contract in the present case. The clauses in the Barking & Dagenham case read as follows:

“Clause 6.2:The Contractor shall be liable for, and shall indemnify the Employer against any expense, liability, loss, claim or proceedings in respect of any injury or damage whatsoever to any property real or personal (other than injury or damage to the Works) insofar as such injury or damage arises out of or in the course of or by reason of the carrying out of the Works and to the extent that the same is due to any negligence, breach of statutory duty, omission or default of the Contractor upon nor in connection with the Works or any part thereof, his servants or agents. Without prejudice to his obligation to indemnify the Empoly6er the Contractor shall take out and maintain and shall cause any sub contractor to take out and maintain insurance in respect of the liability referred to above in respect of i jury or damage to any property real or personal other than the Works…”

Clause 6.3B: Insurance of the Works – Fire etc – Existing Structures

The Employer shall in the joint names of the Employer and Contractor insure against loss or damage to the existing structures (together with the contents owned by him or for which he is responsible) and to the Works…..by fire, lightning, explosion, storm, tempest, flood, bursting or overflowing of water tanks, apparatus or pipes, earthquake, aricraft and other aerial devices or articles dropped therefrom, riot and civil commotion….”

Auld LJ gave the leading judgment. He concluded that clause 6.2 was primarily concerned with liability and clause 6.3B was concerned with insurance. He said that the “critical question” was whether the two overlapped. He decided that there was in fact no overlap between the two provisions; clause 6.2 governed liability for damage culpably caused by the contractor, whereas clause 6.3B required insurance for certain damage not culpably caused by the contractor: (page 36). He concluded that neither clause referred to or qualified the other, and in this respect the contract differed from the Archdale case and the Scottish Special Housing Association case. Moreover, if the Employer had effected an insurance in accordance under clause 6.3B, it would have fulfilled its obligations (and acted consistently with clause 6.2) by excluding from the cover obtained any loss or damage caused by the contractor’s negligence.

I would respectfully doubt whether Auld LJ was right to conclude that the Employer would have fulfilled its contractual duties if it had obtained a policy that did not cover negligently caused fire. There may also be argument on whether this decision is consistent with the analysis of the House of Lords in the most recent case of Co – operative Retail Services Ltd v Taylor Young Ltd [2002] 1 WLR 1419, which I consider further below. But in any case there are clear differences between the contract wording in the Barking & Dagenham case and the present case. In particular in the former case there is no link between clause 6.2, setting out the liability of the Contractor, and clause 6.3B, setting out the insurance obligations of the Employer. Because of this lack of connection Auld LJ could say that the provision that governed the contractor’s liability was clause 6.2 alone and that the insurance provision was subordinate to it. That construction cannot be adopted in the present case for the reasons that I have given above.

Mr Taverner relied also on the unreported decision of Casson and another v Osterley PJ Ltd and another (decided on 20 June 2001), which is also a decision of this court. The claimants engaged the first defendant to do renovations to a farm building. The works included renewing the plumbing. The first defendants subcontracted the plumbing work to the second defendants. Whilst that work was being carried out there was a fire, which caused substantial damage to the farm building.

The claimants sued the two defendants for damages. There was a preliminary issue between the claimant and the first defendant on whether, given clause 15 of the contract between those parties, the first defendant could be liable to the claimant. For the purposes of the preliminary issue it was assumed that this fire was caused by the negligence of the contractor or its subcontractor. Clause 15 provided:

“Works covered by this estimate, existing structures in which we shall be working, and unfixed materials shall be at the sole risk of the clients as regards loss or damage by fire and the client shall maintain a proper policy of insurance against that risk in an adequate sum. If any loss or damage affecting the works is so occasioned by fire, the client shall pay to us the full value of all the work and materials then executed and delivered”.

Clause 16 of the contract provided:

“The clients shall indemnify us against all liability, loss, costs, claims or demands in respect of injury to persons and/or damage to property arising from any cause other than our negligence or that of our employees”.

The first defendants had successfully argued before the Deputy Judge that clause 15 exempted them from liability for loss and damage if the fire was caused by their negligence or that of their subcontractors. The Court of Appeal reversed this decision. Schiemann LJ, who gave the first judgment, held that clause 15 had to be considered as an exemption clause and so had to be construed in accordance with the principles propounded by Lord Morton of Henryton in the Canada Steamship case. Schiemann LJ characterised the issue as being whether the words of clause 15, construed in context, could sensibly be regarded as exempting the builder from liability for causes other than his own negligence. He held that there were a number of ways (none “fanciful”) in which a builder could be held liable for a fire resulting from either goods being supplied or work done by him. He concluded that “the application of the third of Lord Morton’s tests is fatal to the builder’s contentions”: (paragraph 24). Schiemann LJ also stated that his view was not altered by virtue of the fact that clause 15 had an “insurance aspect”. He considered that “insurance provisions are primarily in a contract in order to provide a fund in the event of the risk eventuating. They are not there primarily for defining the obligations of one party to the other”: (paragraph 25).

Sedley LJ, whilst agreeing with Schiemann LJ, also held that clause 15 was not framed as an exemption clause at all but as in insurance clause. He concluded that “the fact that the purpose of clause 15 is simply to require the client to insure both parties against fire damage, whilst powerful, is not sufficient to overcome the law’s disinclination to let people contract out of the consequences of their own neglect”; (paragraph 34). So he too allowed the appeal. Sir Murray Stuart –Smith agreed.

The structure of the contract in the Osterley case is very different to that in the present case. Thus the Osterley case contract does not have the following important characteristics that are present in this case: (1) here the contract provisions set out much more fully the ambit of the liability of the Contractor and the Employer; (2) here the clause defining the liability of the Contractor is specifically qualified by reference to the clause imposing an obligation on the Employer to take out a Joint Names insurance against Specified Perils; (3) “fire” is one of those perils and so that word should be construed as it is normally in an insurance policy context.

Lastly there is the most recent House of Lords case, Co – operative Retail Services Ltd v Taylor Young Partnership Ltd and others [2002] 1 WLR 1419. Mr Eklund relied in particular on this case. Co – operative Retail Services Ltd (“CRS”) engaged Wimpey, as contractors, to build an office block. Wimpey engaged Taylor Young Partnership (“TYP”) and Hoare Lea and Partners (“HLP”) as architect and consulting engineers. Hall Electrical were the electrical subcontractors. During construction the office block was damaged by fire. For the purposes of the litigation it was assumed that the fire was caused by negligence and breach of contract of Wimpey, TYP, HLP and Hall Electrical. CRS were paid by their indemnity insurers, who then exercised their right of subrogation and sued TYP and HLP for damages. (CRS could not sue either Wimpey or Hall directly because they were joint assured with CRS on the indemnity policy, which had been taken out by Wimpey in accordance with its contractual obligations, to which I will refer below). TYP and HLP then claimed contribution from Wimpey and Hall Electrical under section 1(1) of the Civil Liability (Contribution) Act 1978. But Wimpey and Hall Electrical would only be liable to make a contribution if they were, themselves, persons who were liable to CRS in respect of the same damage. They denied that they were liable to CRS. The question of whether they were liable to CRS was tried as a preliminary issue by HHJ Wilcox. He held that Wimpey and Hall Electrical were not be liable to CRS. The Court of Appeal upheld that judgment and so did the House of Lords.

Lord Hope of Craighead gave the leading speech. He set out the key terms in the contract between CRS and Wimpey. The scheme is similar to the contract in the present case. Thus Clause 20.2 dealt with liability for damage to property as follows:

“The contractor shall, subject to clause 20.3 and, where applicable, clause 22.C.1 be liable for and shall indemnify the employer against any expense, liability, loss, claim or proceedings in respect of any injury or damage whatsoever to any property real or person in so far as such injury or damage arises out of or in the course of or by reason of the carrying out of the works, and to the extent that the same is due to any negligence, breach of statutory duty, omission or default of the contractor….”

Clause 20.3, to which clause 20.2 was subject, provided:

“the reference in clause 20.2 to “property real or personal” does not include the works, work executed and/or site materials up to and including the date of issue of the certificate of practical completion…”

The question of provision of insurance for the subject matter of clause 20.3 was dealt with by clause 22, which provided for different options in different situations. Because this was a contract for the construction of a new building and the contract provided that Wimpey was to take out a joint names policy, the relevant provision applicable was clause 22A. Clause 22.A.1 provided:

“The contractor shall take out and maintain a joint names policy for all risks insurance for cover no less than that defined in clause 22.2 for the full reinstatement value of the works…..and shall…..maintain such joint names policy up to and including the date [of completion]…..”

The phrase “all risks insurance” was defined in clause 22.2 as insurance providing cover against any physical loss or damage to work executed and site materials with irrelevant exceptions. Clause 22.3 provided that nominated and domestic subcontractors would have the benefit of the joint names policy in respect of loss or damage by “specified perils” to the works and materials. Those perils were defined and included fire. Clause 24 dealt with the mechanism by which the contractor would claim on the joint names policy which it had taken out and also provided that the contractor must authorise payment of the insurance proceeds to the employer.

Lord Hope concluded that the effect of these clauses in the main contract, taken together, was that the contractor was not liable to the employer for loss or damage to the works by a fire which had taken place before completion. This was so even if that fire had been caused by the contractor’s negligence. “Instead the funds necessary to pay for the restoration of the physical damage caused to the works by fire….are to be provided by means of insurance under the joint names policy”: (paragraph 26).

Lord Hope then considered the terms of the sub – contract between Wimpey and Hall. Its terms were identical in effect to those of the main contract. In addition CRS, Wimpey and Hall had entered into a warranty agreement whereby Hall warranted to CRS that it had and would exercise all reasonable skill and care in the design and fulfilment of the sub – contract works. In that way there was a direct contractual link between Hall and CRS. It was accepted in argument that the position of Wimpey and Hall were the same for the purposes of determining the issue of whether they were persons liable to CRS.

Lord Hope held that both the main and sub – contracts contained provisions that have the effect “in the clearest terms” of excluding liability for damages to the works, works executed and site materials due to the negligence, breach of statutory duty, omission or default of the contract and the sub – contractor respectively. He also concluded that the purpose of the all risks insurance, which the contractor was obliged to take out and maintain in joint names, was to provide funds for the reinstatement of the works if they were damaged during construction. He further emphasised the effect of clause 24 dealing with the mechanism whereby the contractor was to authorise payment of the insurance proceeds to the employer in the event of a claim under the policy.

Accordingly, Lord Hope decided (at paragraph 50: all the other law lords agreed with him) that any liability of Wimpey or Hall to CRS for damage done by fire was excluded by the terms of their contracts and the warranty. Therefore no contribution could be sought from either of them by TYP and HLP.

Lord Hope also stated (at paragraph 65) that Wimpey and Hall would have been able to resist liability to CRS on a separate ground, which I have already referred to above. This was that CRS, Wimpey and Hall were all jointly insured under one policy in respect of the same damage to the contract works. Lord Hope concluded that where two parties entered into a contract which stipulated that one party had to obtain an insurance in the joint names for both, then one joint insured could not sue another joint insured for damages where the loss was covered by the insurance because there was an implied term in the contract preventing such action. That is the position in the present case. Mr Tavener was unable to provide a reason why the same result should not apply in this case, particularly given the addition of the “no right of recourse” provision in the contract. In my view, as I have already stated, this is another reason why the Contractor is not liable to the Employer here.

Mr Taverner naturally relied upon the differences in the contract wording in the CRS case and in particular the express exclusion (in clause 20.3) of the contractor’s liability for damage to the works executed. He also emphasised the fact that in the CRS case the contractor was obliged to take out an “all risks” insurance policy in joint names. He submitted that an “all risks” policy necessarily covered loss and damage from a fire caused by negligence and that contrasted with the position in the present case.

I accept that the wording of clause 20.3 in the CRS case makes it absolutely clear that the contractor is not liable for any damage to the works, even if caused by negligence. But Lord Hope emphasised that his conclusion was based on the entire contractual structure; not only the exclusory wording of clause 20.3, but also the insurance provisions in clauses 22 and 22A.4. It was the totality of these provisions that led to his conclusion that there was no liability on either side to pay compensation to the other. Likewise I have concluded that it is the totality of the contract structure in the present case that leads me to the conclusion that the Contractor is under no liability to the Employer in respect of the cost of repairs to the existing structure.

I regard the fact the policy in the CRS case was to be on “all risks” terms as an irrelevant difference. For the reasons that I have already given, an insurance policy that has “fire” as a specified peril will usually cover damage resulting from fires caused by negligence, just as a policy covering “all risks” does.

The Judge’s Reasons.

The judge points out (in paragraph 21) that the definition of the expressions “Specified Perils” in clause 8.3 of the IFC 84 terms is identical to that found in the Dorset CC case and the London Borough of Barking and Dagenham case. Fortified by the views of Slade LJ and Auld LJ in those cases as to the ambit of the term “fire”, the judge concluded that “fire caused by the negligence of [the Contractor] was not a “Specified Peril” and not within the exclusion contained in the last sentence of clause 6.1.2”. For the reasons that I have already given, I have concluded that the construction of the word “fire” in this contract is broader than that given to it in those earlier cases. As I have already pointed out, the word is used in a quite different context in the present case.

Conclusion.

I agree with Aikens J that this appeal should be allowed for the reasons which he gives. The combination of:

The judge in the present case was, with respect to him, beguiled by observations of this court in Dorset County Council v Southern Felt Roofing Co Ltd (1989) 48 BLR 96 and London Borough of Barking and Dagenham v Stamford Asphalt Co Ltd (1997) 82 BLR 25 in relation to the extent of the employer’s obligation to insure; in these cases there was no express link between the exclusion of the contractor’s liability for liability for fire and the employer’s obligation to insure. It was thus an open question whether it was the parties’ intention to exclude liability for a fire caused by the negligence of the contractor or those for whom he was responsible. No one could quarrel with a decision that that was not the intention of the parties. In that context the courts observed that the obligation of the employer to insure against fire did not extend to an obligation to insure against fire negligently caused by the contractor. Thus Auld LJ said of the relevant insurance obligation (condition 6.2), in the latter case, at page 36, that it:-

“contains no words indicating that the employer must insure against the specified perils in such a way as to suggest that they include those caused by the contractor’s negligence. For example, it does not require the employer to insure against loss or damage ‘howsoever caused’ or ‘whether or not it is loss or damage for which the contractor is liable . . . .’ . . . . the employer ‘could properly and consistently with condition 6.2, have excluded from cover any loss or damage caused by the contractor’s negligence’.”

These observations must, however, be read in their context and cannot apply to cases where it is expressly agreed that the insurance policy is to be in joint names and without recourse to rights of subrogation as between the co-insured. In such cases it would be absurd to exclude, from the ambit of the obligation to insure, fire negligently caused by one of the co-insured since that is the very instance in which subrogation would normally arise.

But whatever the position in general might be, if a building contract exempts one of the parties from liability for loss or damage caused by specified perils which it then requires should be insured by a joint policy without right of subrogation between co-insured, it makes no sense for the contract to be construed to permit loss or damage caused by the specified perils to be recoverable by one of the parties in cases where the peril occurs as a result of the negligence of the other party or those for whom he is responsible. I would allow the appeal.

I so fully agree with my Lords’ judgments that there is nothing I can usefully add. This appeal will therefore be allowed and the preliminary issue answered in the negative as set out in the conclusion of the judgment of Aikens J.