House of Lords
|Session 2001- 02
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|Judgments - Co-Operative Retail Services Limited and Others (Respondents) v. Taylor Young Partnership and Others (Appellants)
HOUSE OF LORDS
Lord Bingham of Cornhill Lord Mackay of Clashfern Lord Steyn Lord Hope of Craighead Lord Rodger of Earlsferry
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
CO-OPERATIVE RETAIL SERVICES LIMITED AND OTHERS
TAYLOR YOUNG PARTNERSHIP AND OTHERS
(APPELLANTS) AND OTHERS
ON 25 APRIL 2002
 UKHL 17
LORD BINGHAM OF CORNHILL
1. I agree that this appeal should be dismissed for the reasons given by my noble and learned friend Lord Hope of Craighead, whose summary of the facts, the contract and the legislation I gratefully adopt and whose abbreviations I use. I also agree with the reasons given by my noble and learned friend Lord Rodger of Earlsferry for reaching the same result.
2. CRS commissioned Wimpey as main contractor to build a large new office block. Hall was the electrical sub-contractor. TYP and HLP were engaged as architects and consulting engineers respectively. Within the extended period for completion of the contract the new building was extensively damaged by fire. For purposes of legal argument at this stage it is assumed (although it has not been proved) that the fire was caused by negligence in breach of their respective contracts on the part of each and all of Wimpey, Hall, TYP and HLP. CRS has claimed damages against TYP and HLP, who have in turn claimed contribution against Wimpey and Hall under section 1(1) of the Civil Liability (Contribution) Act 1978. TYP and HLP would in principle be entitled to such contribution, if any, as is found to be just and equitable under section 2 of the Act, but only if Wimpey and Hall are persons liable to CRS, together with them, in respect of the same damage. In this appeal the issue does not, as in Royal Brompton Hospital National Health Service Trust v Hammond  UKHL 14, relate to the identity of the damage; the issue is whether Wimpey and Hall are "liable" to CRS, because if they are not they cannot be called upon to contribute.
3. In the ordinary way, and in the absence of any contractual exemption or limitation or statutory immunity, a party who breaches a contract with or commits a tortious act against another is liable to that other. Where there are multiple breaches or tortious acts many parties may be so liable. The 1978 Act provides, in the cases to which it applies, for the sharing of common liabilities. Our code of civil procedure is designed to enable claims, cross-claims and claims against third parties to be resolved justly, consistently, comprehensively and expeditiously.
4. It is however open to contracting parties (subject to certain statutory constraints not relevant for present purposes) to vary by agreement the ordinary rules which impose legal liability for breaches of contract or tortious acts on those responsible for committing them. The House recently had occasion to consider such a scheme in Caledonian North Sea Limited v British Telecommunications Plc (Scotland) etc  UKHL 4 where the parties, in accordance with the prevailing practice in the offshore oil industry, agreed that liability for death or personal injury should in general be borne by the employer of the victim, whether or not the employer had broken its contract with the victim or committed any tortious act against him. Mark Rowlands Ltd v Berni Inns Ltd  QB 211 considered another such scheme, very different on its facts but somewhat similar in principle. In the present case, it is said, CRS had agreed with Wimpey and Hall that in a contingency such as is assumed to have arisen it should not be entitled to recover compensation from them, with the result that they are not liable in respect of the damage suffered by CRS (section 6(1) of the Act) and TYP and HLP cannot accordingly recover contributions from them (section 1(1) of the Act). Two main questions in my opinion arise:(1)
5. As Lord Hope has convincingly demonstrated, the answer to question (1) is plainly Yes. Fire was one of the specified perils defined in clause 1.3 of the main contract against which Wimpey was obliged by clauses 22A.1 and 22.3.1 to take out and maintain all risks insurance providing cover or protection for (among others) itself and Hall. Clause 22A made detailed provision for investigating, repairing and paying for damage caused by fire to the works included in the main contract and clause 25 provided for time to be extended to allow for delay thereby caused. No doubt because fire is not a rare or unforeseen event, the standard forms of contract used by CRS, Wimpey and Hall made detailed arrangements to govern the consequences if it should unhappily occur.
6. As Lord Hope has again convincingly demonstrated, the answer to question (2) is also Yes. Under clause 20 of the main contract Wimpey accepted a liability against which (by clause 21) it was obliged to insure. But damage to the new works to be carried out under the main contract was expressly excluded from the scope of clause 20, and clauses 22 and 22A applied to such damage a markedly different contractual regime. If damage were caused to the new main contract works by fire Wimpey was obliged to make it good (clause 22A.4.3) and was to be paid for doing so out of a fund provided by insurers under the joint names policy (clause 22A.4.4) and not otherwise (clause 22A.4.5). The contractual scheme did not protect CRS and Wimpey (or Wimpey's sub-contractors) against the possibility of loss if damage was caused to the new works by fire. Such fire damage would in all probability lead (as in this case it did) to an extension of the contract period, which would be a source of loss to CRS for which it could not recover liquidated damages. The extension would also involve expense for Wimpey and its sub-contactors for which they would not be fully compensated. Thus the contract provided for loss to be shared between CRS, Wimpey and Wimpey's sub-contactors. But it plainly precluded any claim for compensation by CRS against Wimpey or a sub-contractor such as Hall: their duty was to make good, not to compensate.
7. Under the contract and Wimpey's all risks insurance policy, CRS would be effectively indemnified by the insurers' provision of a fund enabling it to pay Wimpey for repairing the fire damage. The insurers could not then make a subrogated claim against Wimpey because Wimpey was a party co-insured (with CRS) under the policy, and the insurers would be obliged to indemnify Wimpey against any liability which might be established, an obvious absurdity. The rationale of this rule may be a matter of some controversy (although I lean towards the explanation favoured by the Court of Appeal) but the rule itself is not in doubt. Similarly, the insurers could not make a subrogated claim against Hall, because Hall also was a party co-insured (with CRS) under the policy. Thus any claim by CRS against either Wimpey or Hall was effectively barred.
8. It is of course theoretically possible that a contractor in Wimpey's position might fail in breach of contract to perform its duty to make good under clause 22A.4.3 (although that is not what happened here: Wimpey duly did what it was contractually bound to do). If it did default, the employer would have a claim for damages for breach of contract. But it would be a claim arising from breach of the contractual obligation to make good and not from negligence in causing the fire, and that is not damage for which architects or consulting engineers could themselves be liable.
9. I agree, for reasons persuasively given by the Court of Appeal, that the liability of a person in respect of damage suffered by another person is to be judged as at the date when contribution is claimed against him.
10. TYP and HLP complain with some force that the conclusion expressed above may lead to a very inequitable result: the bearing of the entire financial consequences, of a catastrophe by a party which may have had a very minor responsibility for causing it. This is indeed a possible outcome, and may be the case here. But this is the effect of the standard form contract which CRS, Wimpey and Hall made, and it is a standard form of which TYP, HLP and their professional indemnity insurers must to taken to have been aware. It would no doubt have been open to TYP and HLP to seek to be included as co-insured in the joint names insurance, or to have made other arrangements. In reality, the present issue arises between TYP and HLP's indemnity insurers on one side and the joint names insurers on the other. The latter have provided the full indemnity they undertook to give. The real complaint of the former is the failure to take steps to guard against the contingency which has in fact occurred, a contingency which could in my opinion have been foreseen had the right questions been asked at the right time.
LORD MACKAY OF CLASHFERN
11. I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Bingham of Cornhill, Lord Hope of Craighead and Lord Rodger of Earlsferry. I agree with them that this appeal should be dismissed for the reasons they give. I also agree with Lord Hope of Craighead in his conclusions on the two further points which were raised in argument, although these conclusions are not necessary for the determination of the present appeal.
12. For the reasons given by my noble and learned friends Lord Bingham of Cornhill, Lord Hope of Craighead and Lord Rodger of Earlsferry, I would also dismiss the appeal.
LORD HOPE OF CRAIGHEAD
13. On 16 March 1995 a fire occurred at a site in Rochdale where a new head office headquarters building was being constructed for Co-operative Retail Services Ltd ("CRS"). The generator was being commissioned, and the works were already far advanced. But the certificate of practical completion had not yet been issued. The building was extensively damaged, and CRS sustained loss for which they seek damages in this action. They allege that the fire resulted from negligence or breach of contract on the part of their architects, Taylor Young Partnership Ltd ("TYP"), and their mechanical and engineering consultants, Hoare Lea & Partners ("HLP"). TYP and HLP have joined as third parties the main contractors, Carillion Construction Ltd (formerly Wimpey Construction UK Ltd ("Wimpey")), and the electrical sub-contractors, East Midlands Electricity Electrical Installations Services Ltd (trading as Hall Electrical ("Hall")). TYP and HLP allege that the fire was caused by breaches of the main contract by Wimpey and by breaches by Hall of a warranty entered into by Hall with CRS and Wimpey. This appeal follows the trial of a preliminary issue between TYP and HLP on the one hand and Wimpey and Hall on the other.
14. The preliminary issue arises in this way. As is commonplace in major construction projects, contractors' all risks insurance cover against physical loss and damage to the works and materials on site caused by fire was provided by means of a joint names policy which insured CRS, Wimpey and any sub-contractor including Hall. The purpose of this arrangement was to keep to a minimum the difficulties that are bound to arise where several different parties are working on a construction site. It had the obvious advantage of making it unnecessary for any investigation to be carried out into the duties owed to each other by the various parties under their respective contracts in the event of loss or damage to the works from a cause such as fire. But the separate interests of TYP and HLP, who had their own insurance arrangements, were not covered by this policy.
15. It is to be assumed for present purposes that the various allegations which the parties make against each other can be proved and that the fire resulted from breaches of obligation on the part of each and all of them. The losses claimed by CRS consist of (i) the cost of works of reinstatement, (ii) the cost of associated professional fees and (iii) losses consequential on delay. The losses falling under the first two of these three categories were borne by the insurer under the joint names policy. The losses falling under the third category were borne by a different insurer under a separate insurance in the name of CRS.
16. It is common ground that CRS's insurers, acting through rights of subrogation, could not pursue in CRS's name an action against Wimpey or Hall, since all three parties were all insured against the same risk under the same insurance policy. TYP and HLP nevertheless claim that they are entitled to seek a contribution from Wimpey and Hall under section 1 of the Civil Liability (Contribution) Act 1978. They do so on the basis that Wimpey and Hall are liable to pay compensation to CRS in respect of the same damage as that for which they themselves are said to be liable. The question is whether this argument can be maintained, having regard to the provisions of the main contract, the sub-contract, the joint names policy and the 1978 Act.
17. On 21 December 1999, following a trial of the preliminary issue in the Technology and Construction Court, Judge Wilcox held that TYP and HLP were not entitled to maintain their claim for a contribution from either Wimpey or Hall in these circumstances. On 4 July 2000 the Court of Appeal (Peter Gibson, Brooke and Robert Walker LJJ) affirmed the decision of the trial judge and dismissed the appeal by TYP and HLP, who have now appealed against this decision to your Lordships' House.
18. The main contract between CRS and Wimpey was entered into on 8 April 1993. It incorporated the JCT Standard Form of Building Contract 1980 Edition, Private with Quantities, incorporating amendments 1-2 and 4-11. The sub-contract between Wimpey and Hall was entered into on 25 March 1993. It incorporated the Sub-Contract Conditions for use with the Domestic Sub-Contract DOM/1 1980 Edition, with amendments 1-3 and 5-9, published by the Construction Confederation. On 11 October 1993 Hall entered into warranty with CRS and Wimpey to the effect that it had exercised and would exercise all reasonable skill and care in the performance of the sub-contract.
19. The contractual date for completion of the main contract was 23 December 1994. During the course of the works TYP issued extensions of time under clause 25 of the main contract covering the period up to 18 September 1995. Practical completion was certified under clause 17 on 26 February 1996. A certificate of non-completion was issued under clause 24 on 21 November 1997, in respect of which Wimpey paid liquidated damages to CRS for the period from 18 September 1995 to 26 February 1996. In the result, the whole of the time from the original contractual completion date to the date of practical completion has been accounted for either by the granting of extensions of time by TYP or by the deduction from the contract sum of liquidated damages.
20. Clause 2.1 of the conditions of the contract between CRS and Wimpey describes the contractor's primary obligations under the main contract in these terms:
The "works", as defined in clause 1, were those briefly described in the first recital to the contract as "the construction of a five storey office building and associated external works at Ashfield Valley, Rochdale" and shown upon, described by or referred to in the contract documents including any changes made to those works in accordance with the contract.
21. Clause 20 of the main contract deals with injury to persons and property. Clause 20.1 provides that the contractor is to be liable for all claims for personal injury arising out of or in the course of or caused by the contract works and for the employer to be indemnified by the contractor against any liability for any such claims. In regard to liability for damage to property, clause 20.2 provides:
22. Clause 21 provides that the contractor shall take out and maintain insurance in respect of claims arising out of his liability in clauses 20.1 and 20.2. Insurance of the works, injury or damage to which is the subject of the exception stated in clause 20.3, is provided for in clauses 22 and following. Clause 22.1 provides for a choice to be made between three alternative clauses. Clause 22A applies to the erection of new buildings where the contractor is required to take out a joint names policy for all risks insurance for the works. Clause 22B applies where the employer has elected to take out such a joint names policy. Clause 22C is to be used for alterations of or extensions to existing structures under which the employer is required to take out a joint names policy for all risks insurance for the works and also a joint names policy to insure the existing structures and their contents against loss or damage thereto by perils such as fire. As this was a contract for the erection of new buildings and Wimpey were required to take out the joint names policy, the relevant clause in this case was clause 22A.
23. Clause 22A .1 provides:
The phrase "all risks insurance" is defined in clause 22.2 as insurance which provides cover against any physical loss or damage to work executed and site materials, subject to certain exceptions which are not material to this case. Clause 22.3 provides that nominated and domestic sub-contractors are to have the benefit of the joint names policy referred to in clause 22A in respect of loss or damage by the specified perils to the works and site materials. The phrase "specified perils" as defined in clause 1.3 includes fire.
24. Clause 22A.4 provides:
25. Clause 23 provides for possession of the site to be given to the contractor, who is thereupon to begin the works, proceed with them and complete the same on or before the completion date. Clause 24 provides for the payment or allowance of liquidated damages in the event of the contractor's failure to complete the works by the completion date. Clause 25.3.1 gives power to the architect to give to the contractor an extension of time for their completion if he is of the opinion that the cause of the delay is a relevant event and the completion of the works is likely to be delayed thereby beyond the completion date. Clause 25.4.3 provides that one of the relevant events referred to in clause 25 is loss or damage occasioned by any one or more of the specified perils which, as already mentioned, includes fire. Clause 26 provides for payments to be made to the contractor for loss and expense in the event that the regular progress of the works is materially affected by any one or more of the matters referred to in clauses 26.2. But the matters referred to in clause 26.2 do not include any of the specified perils, and in particular they do not include fire.
26. The effect of these clauses is that the contractor is not liable to pay compensation to the employer for loss and damage to the works which may have been caused by fire prior to the date of practical completion. Clause 20.3 excludes the contractor's liability for any such loss or damage, even though the fire was caused by his negligence, breach of statutory duty or default. Instead the funds necessary to pay for the restoration of the physical damage caused to the works by fire, including the associated professional fees, are to be provided by means of insurance under the joint names policy. As for delay caused by the fire, the contract leaves it to each party to bear its own losses arising from the delay. The employer cannot claim damages from the contractor for any delay which the fire may have caused to the completion of the works. This is because the contractor is entitled to an extension of time for their completion under clause 25. The additional cost of extending the period for the completion of the contract works falls on the contractor, as he is not entitled to payment for this additional loss and expense under clause 26.
27. These features of the clauses which regulated the main contract between CRS and Wimpey are reproduced in the clauses which regulated the sub-contract between Wimpey and Hall. Clause 6.3 of the conditions of the sub-contract provides that the sub-contractor shall be liable for and indemnify the contractor against any expense, liability, loss, claim or proceedings in respect of any loss, injury or damage whatsoever to any property real or personal in so far as such loss, injury or damage arises out of or in the course of or by reason of the carrying out of the sub-contract works. But clause 6.4 provides:
Clause 6.1 provides that the term "terminal dates" means the date of practical completion of the sub-contract works, the date of the issue of the certificate of practical completion of the works under clause 17.1 of the conditions of the main contract or the date of the determination of the employment of the sub-contractor.
28. Clause 8.1 of the conditions of the sub-contract, which deals with loss or damage to the works and to the sub-contract works, provides that clause 8A shall apply where it is stated in the appendix to the sub-contract that clause 22A shall apply to the main contract. Clause 8.5 provides:
Clause 8A.1 provides:
Clause 11 provides for the extension of time for the completion of the sub-contract works by reason of delay caused by a relevant event as defined in clause 11.10, which includes loss or damage occasioned by one or more of the specified perils such as fire.
29. The contractual arrangements between CRS and Wimpey and between Wimpey and Hall were supplemented by the warranty which was entered into between CRS, Wimpey and Hall, by which Hall warranted that it had exercised and would exercise all reasonable care and skill in the design of the sub-contract works, in the selection of the kinds of materials and goods for the sub-contract works and the satisfaction of any performance specification or requirement included or referred to in the description of the sub-contract works. The requirements of clause 22A of the main contract were fully complied with by Wimpey, by whom a contractors' all risks insurance policy in the joint names of the contractor, the employer and any subcontractor was effected with Commercial Union Assurance Co plc. Subject to a small deduction described in the policy as the insured's retained liability, the cost of the reinstatement works and the associated professional fees resulting from the fire was fully covered by the joint names policy.