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Judgments - Co-Operative Retail Services Limited and Others (Respondents) v. Taylor Young Partnership and Others (Appellants)

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    30. Section 1 of the Civil Liability (Contribution) Act 1978 provides:

    "(1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).

    (3) A person shall be liable to make contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, unless he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based.

    (6) References in this section to a person's liability in respect of any damage are references to any such liability which has been or could be established in an action brought against him in England and Wales by or on behalf of the person who suffered the damage. . . . "

    31. Section 2(3) of the 1978 Act provides:

    "Where the amount of the damages which have or might have been awarded in respect of the damage in question in any action brought in England and Wales by or on behalf of the person who suffered it against the person from whom the contribution is sought was or would have been subject to -

    (a) any limit imposed by or under any enactment or by any agreement made before the damage occurred;

    the person from whom the contribution is sought shall not by virtue of any contribution awarded under section 1 above be required to pay in respect of the damage a greater amount than the amount of those damages as so limited or reduced."

    32. Section 6(1) of the 1978 Act provides:

    "A person is liable in respect of any damage for the purposes of this Act if the person who suffered it (or anyone representing his estate or dependants) is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise)."

The issues

    33. The claims which are made by TYP and HLP, in terms of the third party notices which they have served on Wimpey, are for an indemnity or a contribution from Wimpey pursuant to section 1 of the 1978 Act. This is sought if and to the extent that CRS proves that TYP and HLP are liable to it in respect of the fire, and for such, if any, losses as CRS may prove to be recoverable in the action which it has raised against them. The claims for relief against Wimpey are made on the ground that the start of the fire was caused or contributed to by breaches by Wimpey of one or more terms of its contract with CRS. The claims for an indemnity or a contribution against Hall are made on the ground that Hall is liable to CRS in contract for breach of its warranty.

    34. As Brooke LJ explained in his judgment in the Court of Appeal, [2000] 2 All ER (Comm) 865, 869-870, paras 5 and 6, it is common ground that CRS's insurers, acting through rights of subrogation, cannot pursue in CRS's name an action against Wimpey or Hall, since all three parties are insured against the same risk under the same insurance policy. But TYP and HLP say that this principle is not effective to prevent them from claiming an indemnity or a contribution from Wimpey and Hall under section 1(1) of the 1978 Act. Wimpey and Hall, for their part, have two answers to this argument. The first is that, as they had a complete defence in contract to any claim that CRS might bring against them for the fire damage, they are not "persons liable in respect of the same damage" within the meaning of section 1(1) of the Act as that for which TYP and HLP are liable. The second is that any such claim is barred by the fact that they and CRS are all insured under the same joint names policy, as Wimpey and Hall would simply have passed on the claim to the insurers who had caused the action to be raised in the first place.

    35. Against this background the first question in this appeal relates to the meaning and effect of the main contract between Wimpey and CRS. It is whether on its proper construction the effect of the main contract was to exclude Wimpey's liability to CRS for loss and damage caused by the fire in so far as this was due to its breach of contract; or whether its effect was that Wimpey was liable to pay compensation to CRS for the loss and damage which it sustained in the fire except to the extent to which the amount of such loss and damage was recoverable from the insurers under the joint names policy.

    36. Mr Blackburn QC for TYP and HLP accepted that, if the effect of the main contract was to exclude Wimpey's liability to pay compensation to CRS for the fire damage, that would be an end of the appeal. He accepted that no distinction was to be drawn as to the result in Wimpey's case between the cost of making good the fire damage which was covered by the joint names policy, and the losses consequential on the delay to the project which were not covered by that policy. This was because the occurrence of the fire was an event which entitled Wimpey to an extension of time under its contract with CRS. The effect of its agreement with CRS was to place a limit on CRS's entitlement to damages within the meaning of section 2(3)(a) of the 1978 Act which excluded any liability in damages for the delay.

    37. Mr Blackburn also accepted that, if the effect of the main contract was that Wimpey was not liable to CRS for loss and damage caused by the fire, it would not be open to him to argue that Hall was liable to CRS in respect of that loss and damage on the ground that Hall was in breach of its warranty. This was because the contractual arrangements between the parties would preclude any such claim. But he submitted that, if the effect of the contractual arrangements was that Wimpey and Hall were liable to pay compensation to CRS for the cost of making good the fire damage except to the extent that its losses were recoverable under the joint names policy, Hall (unlike Wimpey) was also liable to CRS for losses caused by the delay. This was because there was no provision in the warranty given by Hall which imposed a contractual limit on the amount of its liability to CRS in damages.

    38. The second question relates to the effect of the joint names policy. It arises only if the liability of Wimpey and Hall for the fire damage was not excluded by their contractual arrangements with CRS. It is whether Wimpey and Hall are liable in respect of the same damage as TYP and HLP on the ground that they are persons from whom CRS were entitled to recover compensation in respect of that damage within the meaning of section 6(1) of the 1978 Act, despite the fact that they and CRS were all insured against the fire damage under the same insurance policy.

Were Wimpey and Hall ever "liable" to CRS in respect of the fire damage?

    39. The issue which lies at the heart of this question is whether the effect of the contractual arrangements between these parties is to be taken to be that Wimpey and Hall were never under any obligation to pay compensation to CRS for fire damage caused by their negligence, omission or default, as the entire cost of making it good was to be recovered from the insurers under the joint names policy; or whether they were under an obligation to pay compensation for that damage to CRS until it was made good in the event that the insurance cover failed or proved to be inadequate.

    40. The argument for TYP and HLP is that the latter alternative is the true effect of these arrangements. They rely on what was said by Dillon LJ in Surrey Heath Borough Council v Lovell Construction Ltd (1990) 48 BLR 108, 121:

    "The effect of the contractual agreement must always be a matter of construction. Parties are free to contract as they like. It may be the true construction that a provision for insurance is to be taken as satisfying or curtailing a contractual obligation, or it may be the true construction that a contractual obligation is to be backed by insurance with the result that the contractual obligation stands or is enforceable even if for some reason the insurance fails or proves inadequate."

    41. In that case it was held that the indemnity under clause 20.2 of the conditions of contract extended to all damage to the property of the employer even if it was damage which was subject to insurance under clause 22A of the contract. Mr Blackburn submitted that the Court of Appeal in this case had misunderstood the building contract. As he put it, the question was simply whether on its true construction its effect was to exclude liability or whether the risk remained with Wimpey. In this case, he said, the risk remained with Wimpey. This was because Wimpey was obliged by its contract with CRS to carry out all the work that was needed to restore the fire damage and to replace or repair any lost or damaged materials, irrespective of whether the cost of doing so was met by the insurance policy. The risk that the insurers would not pay for this was with Wimpey. So it was wrong to conclude that Wimpey's liability to make good the consequences of a fire caused by its breach of contract had been excluded and replaced by the joint insurance scheme.

    42. Mr Blackburn referred to the well-known rule that clear words are needed to exclude liability for negligence. In James Archdale & Co Ltd v Comservices Ltd [1954] 1 WLR 459 and Scottish Special Housing Association v Wimpey Construction UK Ltd [1986] 1 WLR 995 it was held that on the true construction of the standard form it was intended that the employer should bear the whole risk of damage to the works by fire, including fire caused by the negligence of a contractor or sub-contractors. He pointed out that in each of these cases work was being carried out to an existing building or existing buildings, and that in each of these cases the contract provided expressly that the existing structures and the works were to be at the sole risk of the employer as regards loss or damage by fire. He said that he was unable to find any such clear exclusion of liability in the contract between the parties in the present case.

    43. The Court of Appeal did not accept these arguments. Brooke LJ referred at p 882, para 62 of his judgment to the importance of paying careful attention to the terms of the contract actually made between the parties. As he pointed out, in the Surrey Heath case the court was concerned with the JCT Standard Form of Building Contract with Contractor's Design, 1981 Edition. Clause 20.2 of that contract did not (unlike clause 20.3 in the present case) expressly exclude the works from the property in relation to which the contractor provided the employer with an indemnity if it was damaged through his negligence. As to the situation in the present case, he said, at p 885, para 73:

    "To put it quite simply, [Wimpey and Hall], like CRS, had entered into contractual arrangements which meant that if a fire occurred, they should look to the joint insurance policy to provide the fund for the cost of restoring and repairing the fire damage (and for paying any consequential professional fees) and that they would bear other losses themselves (or cover them by their own separate insurance) rather than indulge in litigation with each other."

    44. Having reviewed the provisions of the contract, he said, at p 886, para 75, that the cost of the reinstatement work and the professional fees attendant on that work was completely provided for under the contractual scheme. In these circumstances there could be no question of Wimpey being liable to CRS for anything once the contractual scheme had worked itself out, even if otherwise allegations of negligence might have been sustained against them.

    45. I have reached the same conclusion on this issue, and I am unable to find any fault in the Court of Appeal's reasoning. As Brooke LJ said, the question is: what does the contract provide? The conditions of the standard form of building contract which was in use in this case are different in several important respects from those in use in the Archdale, Scottish Special Housing Association and Surrey Heath cases. So I do not think that any assistance is to be gained from those decisions. In any event this case is concerned with new works and not with works carried out in or as extensions to an existing structure. It is the effect of the contractual scheme that was adopted in this case that must determine the issue which TYP and HLP have raised.

    46. There is no doubt that both the main contract and the sub-contract contain provisions which have the effect in the clearest terms of excluding liability for damage to the works, work executed and site materials due to the negligence, breach of statutory duty, omission or default of the contractor and the sub-contractor respectively: see clause 20.3 of the main contract and clause 6.4 of the sub-contract. This has not been disputed by Mr Blackburn. It is also plain that the purpose of the all risks insurance which the contractor is required to take out and maintain in joint names of the employer, the contractor and the sub-contractors is to provide funds for the reinstatement of the works in the event of their being damaged up to and including the date when the certificate of practical completion is issued, whatever the cause of the fire. But the contractual scheme does not end there. For an understanding of its true effect it is necessary to pay close attention to the provisions of clause 22A.4, which deal with what is to happen in the event of loss or damage affecting work executed or any site materials occasioned by any one or more of the risks covered by the joint names policy.

    47. The effect of clause 22A.4 may be summarised in this way. On the one hand there is the position of the employer. He is not entitled to deduct anything from the sums payable to the contractor under or by virtue of the contract as compensation for any loss and damage which he has sustained due to the fire. This is so even if the fire was caused by the contractor's act or omission or default or by anyone else for whose acts, omissions or defaults he would otherwise be responsible. Clause 22A.4.2 provides that the occurrence of such loss or damage shall be disregarded in computing any amounts payable to the contractor under or by virtue of the contract. On the other hand there is the position of the contractor. Clause 22A.4.3 requires him with due diligence to restore the work that has been damaged by the fire, to replace or repair any site materials that have been lost or damaged by it and to proceed with the carrying out and completion of the works. Clause 22A.4.4 requires him to authorise the insurers to pay all monies that are payable from the insurance in respect of the fire to the employer, who is required in his turn to use this money for the purpose of paying the contractor and the associated professional fees for the restoration work. Clause 22A.4.5 provides that the contractor is not to be entitled to any payment for the reinstatement work other than the monies received under the insurance policy. As the contractor is entitled to an extension of time under clause 25, he is not liable to the employer for losses due to any delay caused by the fire in the completion of the works under the contract.

    48. The position therefore is that there is no liability to pay compensation on either side. The employer has no claim for compensation against the contractor. All he can do is insist that the contractor must proceed with due diligence to carry out the reinstatement work and must authorise the release to him of the insurance monies. The contractor has no claim for compensation against the employer. All he can do is insist that the employer must use the insurance monies for payment of the cost of carrying out the reinstatement work. It makes no difference whether the fire was caused by the negligence of the contractor or one of his sub-contractors or of the employer or of some third party for whose acts or omissions neither of the parties to the contract is responsible. The ordinary rules for the payment of compensation for negligence and for breach of contract have been eliminated. Whatever the cause of the fire, the obligation of the contractor is to carry out such work as is needed to put the matter right. His obligation is to restore the fire damage at his own cost, except in so far as the cost of doing so is met by sums recovered under the joint names insurance policy.

    49. This is not to say that the contractor may not be found liable to the employer for any loss or damage which the employer may sustain due to his failure to take out and maintain the joint names policy, or his failure to fulfil his obligation with due diligence to carry out the reinstatement works under clause 22A.4.3. But this feature of the contractual scheme is of no assistance to Mr Blackburn. Any liability which the contractor may be under to pay compensation to the employer for those breaches of contract is entirely separate and distinct from the liability of those who caused or contributed to the fire. It could not be said in that event that Wimpey were liable to CRS "in respect of the same damage" within the meaning of section 1(1) of the 1978 Act read together with section 6(1) of that Act. CRS would not be entitled to compensation from Wimpey for the same harm or the same wrong as that for which TYP and HLP are said to be liable, as the harm for which Wimpey would be liable would be that resulting from its failure to insure or its failure to carry out the reinstatement works.

    50. For these reasons I consider that the Court of Appeal were right to dismiss the appeal by TYP and HLP against the answers which the judge gave to the preliminary issue. In my opinion the meaning and effect of the main contract was to exclude Wimpey's liability to CRS for loss and damage caused by the fire in so far as this was due to its breach of contract. Mr Blackburn accepted that the same reasoning must be applied in Hall's case also. So, as Wimpey and Hall are not persons from whom CRS is entitled to recover compensation in respect of the fire damage, it is not open to TYP and HLP to recover contribution from either Wimpey or Hall in respect of the fire damage for which they are said to be liable.

    51. For completeness however I should like to comment briefly on two other points which were examined with great care by Brooke LJ in his helpful judgment and on which both parties made submissions in the course of the argument before your Lordships. The first point relates to a submission which Mr Blackburn made under reference to section 1(3) of the 1978 Act about the time at which it is to be determined whether a person is liable. The second point relates to the second issue about the effect of the joint names policy.

The time for determining whether a person is liable

    52. Section 1(3) of the 1978 Act provides that a person shall be liable to make contribution by virtue of section 1(1) of the Act notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred. This rule is qualified by a proviso to the effect that the rule does not apply if he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based. As Brooke LJ observed, at p 874, para 27 of his judgment, the effect of this subsection is to reverse the decision in George Wimpey & Co Ltd v British Overseas Airways Corporation [1955] AC 169. In that case the House held by a majority that a person could escape liability in contribution proceedings under section 6(1)(c) of the Law Reform (Married Women and Tortfeasors) Act 1935 if he had been sued unsuccessfully by the injured person because his action was statute barred as it was brought outside the relevant limitation period.

    53. Mr Blackburn submitted that the time for determining whether the person was liable in respect of the same damage for the purposes of section 1(3) was the time when the damage occurred. According to his argument, Wimpey's and Hall's liability did not need to be an existing or continuing or present liability at the time when the contribution was sought to be recovered. So the fact that the fire damage was subsequently made good at the cost of the insurers under the joint names policy did not mean that Wimpey and Hall were not persons from whom TYP and HLP could recover contribution under section 1(1) of the Act. For Wimpey and Hall Mr Bartlett and Mr Blunt submitted that at the date when contribution was sought they were not liable to CRS because the fire damage was covered by the joint names policy required by clause 22A.1 of the main contract and the damage had been made good, without additional expense to CRS, under those arrangements.

    54. Support for Mr Blackburn's argument is to be found in R A Lister & Co Ltd v E G Thomson (Shipping) Ltd (No 2) (The Benarty (No 2)) [1987] 1 WLR 1614, where it was claimed by the charterers under reference to section 1(6) of the 1978 Act that a contribution notice by the shipowners should be struck out because liability to the cargo owners could not be established in an action brought against them in England and Wales because the action against them in this jurisdiction had been stayed. Hobhouse J rejected this argument for two reasons. The first was that on its true construction section 1(6) was concerned with the character of the liability which gave rise to a claim for contribution and not with the procedural considerations of how that liability might be enforced. The second was that, even if a procedural criterion was applied, the scheme of the Act showed that its requirements were satisfied because the charterers' liability had the character of a liability at the time the damage was suffered. His second reason is the one that is relevant to Mr Blackburn's argument.

    55. Hobhouse J said, at p 1623B-C, that the charterers' argument about the effect of section 1(6) was inconsistent both expressly and by implication with section 1(3):

    "The liability of the respondent does not need to be procedurally enforceable as a current and subsisting liability; it can be subject to a procedural time bar. What is required is that it should have had the character of a liability at the time the damage was suffered by the injured party. The submission of the charterers before me cannot be fitted in with this because they say that the procedural position at the later stage is critical. Their argument must be rejected."

    56. There is however some authority on this point to the contrary. In Logan v Uttlesford District Council, 14 June 1984 (unreported), Sir John Donaldson MR said at p 5 that the material time in relation to the determination of liability was probably the moment when proceedings are begun for the purpose of enforcing the claim for contribution or when that claim is first advanced in the course of existing proceedings. In Oxford University Fixed Assets Ltd v Architects Design Partnership (1999) 64 ConLR 12 Judge Humphrey Lloyd QC held that an architect was not entitled to contribution from the contractor in respect of a claim by the employer for damages for negligence and breach of contract which was barred as between the employer and the contractor by the issue of the final certificate. He rejected an argument that the final certificate was to be disregarded because it merely constituted a cessation of liability of the kind contemplated by section 1(3). He said at p 30, para 23, that section 1(3) was dealing solely with a technical point. This was that a person could not resist being called upon to contribute simply because liability had ceased:

    "The person claiming contribution must nevertheless still establish that prior to the cessation the person was liable, as defined by section 1(6). If the liability is in contract the question will be whether a breach of contract can be established. All the facts and all the terms of the contract have to be examined. If the contract were to say that no action shall be brought in respect of a certain default which is otherwise recognised as a breach of contract then liability for that breach could not be established. It would be perverse to describe that situation as one where liability has ceased."

    57. Brooke LJ accepted Wimpey's and Hall's argument that Hobhouse J's remarks in The Benarty (No 2) were inconsistent with the terms of the 1978 Act and with the decision of the judge in the Oxford University case. He did so for reasons which I too find to be compelling.

    58. First there is the language of section 1 of the 1978 Act. The reference in section 1(1) to the recovery of contribution from "any other person liable in respect of the same damage" suggests that liability to the injured party is be seen at the time when contribution is being sought. The fact that it was thought necessary to include section 1(3) is consistent with this approach, as it would be irrelevant that the person from whom contribution was being sought had ceased to be liable if the test was whether he was liable at the time when the damage was suffered by the injured party. It is only under the first part of section 1(3) that, exceptionally, the court is asked to look at the position at an earlier date than the time when the contribution is being sought. Then there is the fact that section 1(6) refers to liability "which has been or could be established in an action." This suggests that the question is not whether liability could have been established in the past but whether it has been established or could be established as at the time when the contribution is being sought. As for the decision in The Benarty (No 2), Brooke LJ observed, at pp 877-878, para 45 that these arguments did not affect it at all. At the time when the judge was considering whether to order contribution the charterer's liability to the shipowners had not ceased for a reason permitted by section 1(3), as it could still be established in an action brought against them in England and Wales had that action not been stayed because of the procedural bar.

    59. Then there are two other points which I would add to those mentioned by Brooke LJ. The long title to the Act states that it is an Act to make new provision for contribution between persons "who are jointly or severally, or both jointly and severally, liable for the same damage." [Emphasis added] The use of the present tense fits in well with the indications which are to be found in the language of section 1. A further indication is to be found in the fact that Parliament chose not to adopt the form of words about timing in the equivalent clause in the Law Commission's draft Bill, which would have had the contrary effect. It read:

    "Subject to the following provisions of this section, any person who is liable in respect of any damage suffered by another person at the time when the damage in question occurs may recover contribution from any other person who is liable in respect of the same damage at that time (whether jointly with him or otherwise). [Emphasis added]

 
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