Tate Gallery (Board of Trustees of) v Duffy Construction Ltd & Anor (No. 2)

This judgment is in six parts, namely, Part 1 “Introduction”; Part 2 “The Course of Proceedings since February 2007”; Part 3 “The Present Application”; Part 4 “The Law”; Part 5 “Should the Reply and the Appendix be struck out?”; Part 6 “Conclusion”.

This is an application to strike out part of the claimant’s pleadings or, alternatively, for summary judgment on one issue.

The present judgment is a sequel to the judgment of this court in The Board of Trustees of The Tate Gallery v Duffy Construction Limited [2007] EWHC 361 (TCC). Anyone listening to or reading this judgment is assumed to be familiar with the contents of the previous judgment.

As before, the claimant is The Board of Trustees of The Tate Gallery, to whom I shall refer as “the Trustees”. The first defendant is Duffy Construction Limited, to which I shall refer as “Duffy”. The second defendant is Specialist Services (Electrical) Limited (in Liquidation), to which I shall refer as “SSEL”.

As at the previous hearing counsel for the Trustees are Mr. Andrew Bartlett QC and Mr. Julian Field. Counsel for Duffy are Mr. Richard Wilmot-Smith QC and Mr. Karin Ghaly. I am grateful to all counsel for their assistance.

The facts giving rise to the present litigation have been set out in Part 2 of the previous judgment and will not be repeated. I shall use the same abbreviations in this judgment as I used previously. The history of the present litigation, up to February 2007, has been set out in Part 3 of the previous judgment and will not be repeated. Instead, my first task must be to outline the course of proceedings since that time.

On 16^th March 2007 the Trustees served their reply. In that reply the Trustees advanced the following contentions. Duffy was in breach of general condition 4(a) of the policy. As a consequence of this breach Duffy is not entitled under policy CR954980140 to any indemnity in respect of the flood which occurred in April 2000. Accordingly, Duffy is deprived of the co-insurance defence that would otherwise be available. A further consequence is that Duffy became in breach of clause 14.5 of the trade contract. That breach deprives Duffy of its contractual defence under clause 14.4 of the trade contract.

Thus, it can be seen that the whole of the Trustees’ reply hinges upon the allegation that Duffy was in breach of general condition 4(a) of the policy. I shall therefore examine that allegation in greater detail.

The Trustees contend that general condition 4(a) has two limbs. The first limb is that Duffy must take all reasonable precautions to prevent loss or damage. The second limb is that Duffy must cause such precautions to be taken. The breaches of the two limbs of general condition 4(a) are pleaded as follows in the reply:

“7.

In breach of the first limb of General Condition 4(a) to the Policy Duffy failed to take all reasonable precautions to prevent loss and damage by the escape of water from the connection.

Particulars

7.1

as set out in paragraph 10 of the Amended Particulars of Claim, the escape of water was caused by the absence of any or any sufficient external restraint to the connection assembly or the flexible pipe.

7.2

Duffy was aware of the need for external restrain by reason of the fact that:

(a)

as set out at paragraph 7.4 of the Defence of the Second Defendant (“SSEL”), upon completion of the repair SSEL expressly informed servants or agents of Duffy of the need for a concrete restraint to be fitted as soon as possible; and/or

(b)

the warning label on the coupling referred to at paragraph 11(5) of the Amended Particulars of Claim was still attached to the coupling when those servants or agents of Duffy carried out their inspection of the repair, as referred to in paragraph 7.4 of SSEL’s Defence;

(c)

as set out in paragraph 7.5 of SSEL’s Defence, SSEL handed to those servants or agents of Duffy the product literature for the coupling which contained warnings about the need for external restraint set out at paragraphs 11(4) and/or 11(6) of the Amended Particulars of Claim.

7.3

The failure on the part of those servants or agents of Duffy to provide external restrain in the face of their knowledge of the need for such restraint (as set out in (2) above) was unreasonable and was reckless.

7.4

The failure on the part of those servants or agents of Duffy to provide external restraint constitutes a failure on the part of Duffy to take all reasonable precautions, one or other or both of those servants or agents being the individuals within Duffy’s organisation responsible for ensuring that the external restrain was provided and whose knowledge, acts and omissions are to be attributed to Duffy for this purpose. Further particulars of the status and responsibilities of the said servants or agents will be provided following disclosure. Without prejudice to the foregoing, on a date unknown but prior to the escape of water, Mana Chetty was or was acting as Duffy’s Project Manager. For the avoidance of doubt, Tate does not admit that as at the date of the reinstatement of the water supply, either Mana Chetty or Kieran were supervising foremen, as alleged by SSEL in its Defence.

8.

Further or alternatively, Duffy is in breach of the second limb of General Condition 4(a) in that it failed to cause one or other or both of the supervising foremen to take all reasonable precautions and provide the necessary external restraint.

9.

Further or alternatively, Duffy is in breach of the first and/or second limbs of General Condition 4 by reason of the fact that Duffy knew that, by reason of the facts and matters set out in Appendix 1, its servants and agents engaged upon the Trade Contract were not competent and/or not willing to meet Duffy’s contractual obligations, and failed to take steps to allocate competent and/or willing persons in their place. In the premises, by entrusting the reinstatement of the water supply to those servants and agents, Duffy failed to take or cause to be taken all reasonable precaution to prevent loss or damage.

The Particulars set out in Appendix 1 are the best Particulars that Tate is presently able to provide. Further particulars will be provided upon disclosure.”

Appendix 1 to the reply is wide ranging; it makes allegations against Duffy which I would summarise as follows. Duffy mismanaged its works in a variety of ways, thus causing delay and disruption. Instead of accepting responsibility for these matters Duffy put forward unjustified claims for delay, disruption, extra payment, and loss and expense. Duffy failed to secure appropriate approvals. Duffy used incorrect documentation. Duffy produced defective design. Duffy unjustifiably challenged instructions that were given. Duffy failed to comply with instructions or with the project health and safety plan. Duffy caused various damage to the property of others whilst working on site. Duffy had a high turn over of staff with poor internal co-ordination and communication.

Duffy contends that the matters pleaded in paragraphs 7 to 9 of the reply, and in the accompanying appendix, do not amount to a breach of general condition 4(a). Accordingly, in order to test that contention Duffy issued the present application.

By an application notice issued on 28^th March 2007 Duffy applied pursuant to CPR r 3.4(2) to strike out the Trustees’ reply and the appendix to the reply on two grounds. The first ground is that the reply and the appendix disclose no reasonable grounds for the contention that Duffy was in breach of general condition 4(a). The second ground is that the reply and the appendix are likely to obstruct the just disposal of the proceedings.

The second part of Duffy’s application is an application for summary judgment pursuant to CPR r 24.2 on one issue in the case. That issue is whether Duffy was in breach of general condition 4(a). Duffy contends that the Trustees have no real prospect of success in this regard. Accordingly, summary judgment should be given against the Trustees on that issue.

The grounds of Duffy’s application have been foreshadowed some time in advance. A date for the hearing, namely 29^th March 2007, has been reserved in the diaries of the court, counsel and solicitors. In those circumstances, Duffy’s application proceeded to a full hearing on Thursday 29^th March, the day after the issue of that application. No objection has been taken to the late issue of the application notice.

Neither party has served or wishes to serve any evidence in relation to Duffy’s application beyond that which is already before the court. Counsel’s submissions in relation to Duffy’s application occupied the whole of Thursday 29^th March. I have had the opportunity to consider those submissions over the weekend.

Before tackling the issues raised by Duffy’s application I must first review the relevant law.

In Woolfall and Rimmer Limited v Moyle [1942] 1 KB 66, the plaintiff, a small construction company, took out an employers’ liability policy which included condition 5 in the following terms:

“The assured shall take reasonable precautions to prevent accidents and to comply with all statutory obligations”.

An accident occurred when a scaffolding plank, upon which several of the plaintiff’s employees were standing, gave way. One man was killed and others were injured. The accident was caused by the negligence of Mr. Gaskell, the plaintiff’s foreman, whose job it was select the scaffolding planks and to superintend the erection of scaffolding. The foreman had selected a scaffolding plank which was too weak. The plaintiff was held liable in damages to the workmen who were injured and to the dependants of the deceased. The plaintiff made a claim on its employers’ liability policy which underwriters resisted on grounds of breach of condition 5. The plaintiff succeeded against the insurers both at first instance and on appeal.

Lord Greene M.R. said this at page 72:

“In approaching the construction of that condition it is important to remember the context in which it is found… In the present case the duty which this condition purports to impose is a contractual duty imposed on the plaintiffs towards the underwriters, who are indemnifying the plaintiffs against a variety of risks, an important proportion of which arise in cases of negligence either by the plaintiffs themselves or by persons for whose negligence they are vicariously responsibility to their employees… The argument that was presented to us with great skill and ingenuity by Mr. Beney was that the condition in question imposed on the plaintiffs a duty to take care co-terminous with and similar in quality to the obligation to take care which lies on an employer vis-à-vis his workmen. In my judgment, that is the wrong method of approach to this question. The effect of Mr. Beney’s argument would be to exclude from the scope of the indemnity which the policy purports to give a very large and important class of case which in the body of the policy is expressed to fall within in.”

Lord Greene went on to say that if underwriters wished to cut down their liability to a surprising extent they should use clear words, which they had not done in the instant case. Lord Greene construed condition 5 as requiring the plaintiff to take precautions which were reasonable as between assured and underwriters. The plaintiff had done so by employing Mr. Gaskell on whom it reasonably relied.

Goddard L.J. expressed his conclusions on condition 5 as follows at pages 76 to 77:

“The fallacy which underlies Mr. Beney’s contention becomes apparent when it is borne in mind that we here construing words in a contract between underwriters and assured and not works in a contract between employer and employed. When that is appreciated it becomes reasonably clear that condition 5 is introduced for the protection of the underwriters, to limit the field of their liability to the extent that they must be regarded as saying: “We will ensure you against the consequences of your negligence, but please understand that we do so on the footing that you are not to regard yourselves as free to carry on your business in a reckless manner, but that you must take the reasonable precautions to prevent accidents which ordinary business people take, that is to say, you are to run your business in the ordinary way and not in a way which invites accidents.” If an employer provided no lights where there were stairs which could not be seen in the dark, or failed to provide fencing where, if there were no fencing, it would be reasonable to expect people to fall, or if in his business he used explosives and left them about where any youth who was employed could tamper with them and cause damage and destruction, I think it would be said that he was not taking reasonable precautions to prevent accidents, but, in my opinion, it is fallacious to read this condition as meaning that the underwriters are to be excused from indemnifying the assured if they are guilty of any breach of the duty which the law imposes as between employer and employed in not taking some precaution which a jury or a court think ought to have been taken, and so become liable to the employed for negligence. That would be granting an indemnity with one hand and taking it away with the other.”

Du Parcq L.J. said this at page 78:

“The plaintiffs never warranted that everybody whom they employed would take reasonable precautions, or, indeed, that anybody except themselves would take reasonable precautions, and they took reasonable precautions. It is not right to say that they delegated to another the duty which they owed to the underwriters. In its nature that is a duty which they cannot delegate, and when they appointed another person to see that provision was made for the safety of their workmen they were not delegating their duty to take reasonable precautions, but were performing it.”

In Fraser v B.N. Furman (Productions) Ltd [1967] 1 WLR 898, the plaintiff recovered damages for personal injuries against her employers in respect of an accident when her hand became trapped in welding machine. The defendant employers were held liable both in negligence and for breach of statutory duty under section 14 of the Factories Act 1961. In third party proceedings the defendants claimed an indemnity against their insurance brokers for failing to procure appropriate employers’ liability insurance. It was common ground that any such insurance policy would have contained the following clause: “The insured shall take reasonable precautions to prevent accident and disease.” Accordingly, a causation issue arose in the defendants’ claim against the brokers. That issue was whether the insurers would have paid out if the brokers had done their duty and arranged employers’ liability insurance. The defendants succeeded against the brokers both at first instance and on appeal.

Diplock L.J. gave the leading judgment in the Court of Appeal, with which Winn and Wilmer L.JJ. agreed. At pages 905 to 906 Diplock L.J. said this:

“The first point to consider is the question of construction of that condition. It must be construed, of course, in the context of a policy of insurance against specified risks. The risks so specified, which are “liability at law for damages” are liability for breach of statutory duty, for which the power or occupier of the factory would always be personally liable, negligence at common law of the employer, for which he would be personally liable, and also the negligence of his servants, for which he would vicariously liable. Therefore, when one approaches the construction of the condition, one does so in this context, and applies the rule that one does not construe a condition as repugnant to the commercial purpose of the contract.

There are three considerations to be borne in mind on the wording of this condition. (1) It is the insured personally who must take reasonable precautions. Failure by an employee to do so, although the employer might be liable vicariously for the employee’s negligence or breach of statutory duty, would not be a breach of the condition. That was established in, and was the ratio decidendi of Woolfall & Rimmer Ltd v Moyle. (2) The obligation of the employer is to take precautions to prevent accidents. This means in my view to take measures to avert dangers which are likely to cause bodily injury to employees. (3) The third word to be construed in this context is “reasonable.” “The insured shall take reasonable precautions to prevent accidents…” “Reasonable” does not mean reasonable as between the employer and the employee. It means reasonable as between the insured and the insurer having regard to the commercial purpose of the contract, which is inter alia to indemnify the insured against liability for his (the insured’s) personal negligence. That, too, is established by the case which I have cited. Obviously, the condition cannot mean that the insured must take measures to avert dangers which he does not himself foresee, although the hypothetical reasonably careful employer would foresee them. That would be repugnant to the commercial purpose of the contract, for failure to foresee dangers is one of the commonest grounds of liability in negligence. What, in my view, is “reasonable” as between the insured and the insurer, without being repugnant to the commercial object of the contract, is that the insured should not deliberately court a danger, the existence of which he recognises, by refraining from taking any reasons to avert it… What, in my judgment, is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognise a danger should not deliberately court it by taking measures which he himself knows are inadequate to avert it. In other words, it is not enough that the employer’s omission to take any particular precautions to avoid accidents should be negligent; it must be at least reckless, that is to say, made with actual recognition by the insured himself that danger exists, and not caring whether or not it is averted.”

In W & J Lane v Spratt [1970] 2 QB 480, the plaintiffs, a firm of haulage contractors, took out a goods in transit insurance policy, clause 9 of which provided:

“The insured shall take all reasonable precautions for the protection and safeguarding of the goods and/or merchandise and use such protective appliances as may be specified in the policy and all vehicles and protective devices shall be maintained in good order.”

The plaintiffs took on a new driver about whom they made very little enquiry. On his first day the driver disappeared with a valuable lorry load of bacon. Roskill J. held that the plaintiffs were entitled to recover on their policy for the loss of the bacon. In relation to clause 9, Roskill J. held (a) that this did not extend to the taking of all reasonable precautions in the selection of staff, and (b) that even if it did so extend, the plaintiffs were not in breach of clause 9. In relation to the latter point Roskill J. noted the reasoning of Diplock L.J. in Fraser v Furman. At page 493 Roskill J. said this:

“It is plain that the plaintiffs in the person of the two Mr. Cannons were well aware that the danger existed, but to say that they did not care whether or not it was averted is a very different matter. Having seen them, I have not the slightest doubt that they cared deeply about it. They are carriers of repute. The last thing in the world they would have wanted would have been wittingly to have taken on a dishonest employee, and to suggest that they refrained on this occasion from taking the normal precautions because they knew that they were covered against loss by the policy would be to impute to them a though which I am certain never for one moment entered into their heads.

It seems to me, therefore, that applying that test enunciated by Diplock L.J. underwriters have failed to show that the assured were reckless, and even if, therefore, I had accepted Mr. Evan’s suggested construction of the opening words of the clause, I should still have decided this case in the plaintiff’s favour on the ground that it has not been shown that they were reckless in the way they acted even though they neglected to take reasonable precautions.”

In Sofi v Prudential Assurance Co. Ltd. [1993] 2 Lloyd’s Rep 559, the plaintiff insured his family’s possession under two policies. Each policy contained a clause requiring the plaintiff to take all reasonable steps to safeguard any property insured. The plaintiff left some jewellery in the glove compartment of his car which was parked, while he and his family went to visit a castle. Whilst they were away from the car there was a theft in which the jewellery was stolen from the glove compartment. Both the county court judge and the Court of Appeal held that the plaintiff was entitled to recover against his insurers. Lloyd L.J. gave the leading judgment, with which Glidewell and Woolf L.JJ. agreed. Lloyd L.J. held that in relation to a reasonable precautions clause recklessness was the appropriate test to apply. The test was the same whether that clause appeared in a policy of property insurance or a policy of liability insurance. On the facts of that case recklessness had not been established.

From this review of the authorities I derive three propositions relevant to the present case:

With the benefit of this guidance from the authorities I must now address the present application to strike out.

The first question to consider is whether general condition 4(a) in policy CR954980140 is any more onerous than the reasonable precautions clauses which feature in the authorities. Mr. Bartlett submits that clause 4(a) is more onerous because it includes the words “take and cause to be taken”. Mr. Bartlett submits that because of these words clause 4(a) imposes an obligation not only upon Duffy but also upon all of its employees, however junior, and its sub-contractors.

I reject that submission. If such an onerous obligation had been intended, clear words should have been used. For example, clause 4 could have begun: “The insured shall take and shall cause all its employees and sub-contractors to take all reasonable precautions…” If insurers intend substantially to cut down the cover which the insured is reasonably expecting to receive, it behoves insurers to do so expressly and with clarity. (See Woolfall at pages 73 to 74). In the present case the insurers have not drafted general condition 4(a) in language which achieves the result for which Mr. Bartlett contends. I shall therefore treat general condition 4(a) as a reasonable precautions clause in the conventional form.

The next question to consider is whether the reply advances a case of recklessness. If the allegations set out in paragraph 7 of the reply are proved, these matters will undoubtedly constitute negligence and they may also constitute recklessness on the part of Duffy’s employees who were dealing with the pipe connection. It appears from the reply that these employees were or included two men called Mana Chetty and Kieran.

The next question which arises is whether the negligence of Mana Chetty or Kieran, or their colleagues on site, can be imputed to Duffy. For the purpose of general condition 4(a) the recklessness must be committed by people of such seniority within Duffy that their recklessness will be attributed to the company itself.

Counsel have cited a number of cases on attribution, in particular Meridian Global Funds Management Asia Limited v Securities Commission [1995] 2 AC 500, KR v Royal & Sun Alliance PLC [2006] EWCA Civ 1454, and Manifest Shipping & Co. Ltd. V Uni-Polaris Insurance Co. Ltd. [1997] 1 Lloyd’s Law Reports 360. Having considered those authorities, I conclude that the question of attribution must be determined at trial after evidence has been called concerning the organisation of Duffy and the respective roles of Mana Chetty, Kieran and the other staff on site. I am bound to say that on the present material I regard it as unlikely that any recklessness on the part of any individuals on site will be attributed to the company. Nevertheless, this is not a question which I am prepared to decide in the context of a strike out application. It therefore follows that the claimants’ reply will not be struck out.

Let me turn now to the appendix. Mr. Wilmot-Smith submits that even if the reply survives, nevertheless, the appendix should be struck out. As Mr. Wilmot-Smith points out, the appendix ranges over a large mass of allegations, none of which have any bearing on the coupling failure or the flood of April 2000. The scatter of complaints set out in the appendix are of a kind which commonly feature in claims and counterclaims at the end of a construction project.

Mr. Bartlett in his oral submissions very fairly accepted that Duffy cannot be criticised for engaging Mana Chetty or Kieran to work on the Tate Gallery project. Mr. Bartlett submitted, however, that because of the incompetence of staff on site Duffy was reckless not to remove them and replace them with others who were more competent. In my judgment, the appendix to the reply does not support a case along those lines. The fact is that Duffy carried out and completed its works at the Tate Gallery. After Duffy had performed its contract there were arguments about delay, and those arguments were resolved by a commercial settlement. That pattern of events is not unusual. There is no pleaded basis for the proposition that Duffy was reckless to retain either Mana Chetty or Kieran or any other individuals on site.

Mr. Bartlett, in an attempt to save the appendix from being struck out, has also advanced an alternative argument. He submits that the appendix demonstrates other breaches of general condition 4(a). This is said to be a further reason why Duffy are not insured in relation to the flood and, therefore, the appendix should remain part of the pleadings. I reject this submission for three reasons:

Let me know draw the threads together. For the reasons set out above I refuse to strike out the reply. Nevertheless, pursuant to CPR r 3.4(2)(b) I shall make an order striking out the appendix to the reply on the grounds that it is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of these proceedings.

It follows from the reasoning in Part 5 that this is not a case in which summary judgment is appropriate. In relation to the question whether the alleged recklessness of certain individuals can be attributed to the company, evidence will be required.

I have already indicated my view that the Trustees’ prospects of success on this issue are bleak. I do not resile from that view. Nevertheless, on the present state of the evidence, I do not feel able to say that the Trustees have no real prospect of success. In the result, therefore, this court will make an order striking out the appendix to the reply. The remainder of Duffy’s application is dismissed.