| Date | 23 May 2001 |
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| Judgment | Scottish & Newcastle plc -v- G D Construction (St Albans) Ltd TCC 29 March 2001 |
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| The Issue | Whether a contractor may be liable for reinstatement costs in the event of a fire caused by negligence. |
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| Implication |
Under the JCT Intermediate form and the minor works form a contractor will be protected by the joint names policy of insurance only in the event of fire caused by an act of God. |
printIn recent years the insurance and liability provisions of the JCT forms have caused some difficulty in interpretation. One question that has received attention is whether, in the event of a fire on site caused by the negligence of the contractor, the contractor will be liable to the employer for its losses. The recent case of Scottish & Newcastle plc -v- G D Construction (St Albans) Ltd examined this question in the context of the JCT Intermediate form of contract. G D Construction were engaged by Scottish & Newcastle for the refurbishment of an existing public house called The Thatchers, in Reading. Employees of one of G D's sub-contractors were in the process of applying a layer of bituminised felt to a piece of board fitted between the vertical wall of the brick building and the original thatched roof over the first floor kitchen at the public house. The roofer engaged in carrying out this work was using a blowtorch to heat the felt when he ignited a section of the straw thatch on the roof. As might be imagined, the consequences were immediate and disastrous. The ensuing fire spread rapidly through the thatch and down into the building itself, causing extensive damage. The thatched roof over the entire premises was burnt, and much of it had to be destroyed or dragged off the roof by the fire fighters. The majority of the roof timbers were destroyed along with the manager's accommodation on the ground and first floors. The destruction was made complete by the collapse of water tanks above the new kitchen area. The court was asked to clarify whether the contractor would benefit from the insurance policy taken out by Scottish and Newcastle under the terms of the contract to cover the 'specified perils' (which include fire) or whether the contractor would have to meet the losses incurred by Scottish and Newcastle. In December 1998, the House of Lords considered a similar question under the JCT 80 contract in the case of BT -v- James Thomson & Sons. Clause 22C of the JCT 80 Form required the employer to take out, in the joint names of itself and the contractor, an insurance policy in respect of the existing structures of the building, for the full cost of re-instatement, loss or damage due to one or more of the "specified perils". The specified perils were defined to mean fire, lightning, explosion, storm, tempest, flood and other such matters, generally assumed within the insurance industry to be matters which result from acts of God. The main contractor would therefore assume that they did not require to insure the existing structures against the risk of fire, since they would benefit from the cover provided by the joint names policy taken out by the employer. The House of Lords held that whilst the main contractor and its nominated subcontractors might be entitled to such protection under JCT 80, such an arrangement would not necessarily operate for the benefit of a domestic sub-contractor. It was concluded that a domestic sub-contractor who had negligently started a fire which caused extensive damage to a building, would be held to be in breach of a duty of care owed towards the employer. In February 1998, the Court once again looked at these provisions under the JCT 80 form in the case of Kruger Tissue (Industrial) -v- Frank Galliers. The case again confirmed that a main contractor who negligently causes a fire may avoid liability for the cost of reinstatement works on the basis that such costs are covered under the insurance provisions. The case however confirmed the important point that this contractual scheme of protection for the main contractor did not extend to claims for consequential loss or loss of profit or business interruption claims. Just to make matters slightly more complicated, the JCT Minor Works Form deals with these matters in a slightly different manner. This was examined by the Court of Appeal in the 1997 case of London borough of Barking and Dagenham -v- Stamford Asphalt Company. Under this contract, it was held that a fire caused by the negligence of the contractor or one of its sub-contractors would not be caught within the definition of the 'specified perils'. The surprising result was that though the employer was obliged to insure the works from damage caused by the specified perils (including 'fire') in the joint names of the employer and contractor, such an insurance did not extend to cover the consequence of a fire caused by the negligence of the contractor or sub-contractor. A contractor engaged under the Minor Works form will therefore be obliged to pay the full cost of reinstatement, without any opportunity to claim under the insurance policy taken out by the employer. Returning to the present case, under clause 6.1.2 of the IFC 84 form the contractor is held to be liable for and to indemnify the employer against any expense, liability and loss arising out of or in the course of carrying out the works. This liability and indemnity expressly excludes loss or damage caused by the 'specified perils' where the employer is required to take out relevant insurance. His Honour Judge Seymour QC recalled the principle that it was "inherently improbable that one party to a contract should intend to absolve the other party from the consequences of the latter's own negligence". Nevertheless, he recognised that it would be a short step to conclude that the parties had intended to exclude liability for negligence if one of them had agreed to obtain insurance which would provide cover in respect of loss caused by such negligence. However, following the Stamford Asphalt case, Judge Seymour concluded that the fire caused by the contractor's negligence was not a 'specified peril', and not within the exclusion contained in Clause 6.1.2. In conclusion, G D Construction were held to be liable to Scottish & Newcastle for the cost of reinstatement of damage to the existing structure of the public house and to business interruption, resulting from a fire caused by its sub-contractor's negligence.
CJ-0120
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