| Date | 18 September 2002 |
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| Judgment | Co-operative Retail Services Limited -v- Taylor Young Partnership and Hoare Lee and Partners, HL 25 April 2002 |
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| The Issue | Whether parties to a joint names policy can be liable to a third party who is successfully sued under rights of subrogation. |
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| Implication |
Under JCT 80, main contractors and sub-contractors who benefit from a joint-names policy of insurance cannot be sued for contribution to the losses incurred by a third party found liable for fire damage. |
printIn 1993, Co-operative Retail Services Limited (CRS) entered into a contract with Wimpey Construction (later Tarmac, now Carillion) as main contractor under a JCT 80 form of contract for the construction of a new headquarters building in Rochdale. Wimpey in turn entered into a domestic sub-contract with Hall Electrical for the electrical installations. CRS also engaged Taylor Young as architects and Hoare Lea as M&E engineers for the project. In March 1995, after the intended completion date but before practical completion, a fire occurred at the site when a generator was being commissioned. The building was extensively damaged. This event led to legal proceedings which were taken all the way to the House of Lords which gave judgment in April of this year. The direct losses occasioned by the fire were covered by the joint names insurance policy taken out by Wimpey in accordance with Clause 22A of the main contract. Clause 22A provides a code which determines what happens where the works suffer physical loss or damage. In essence, the main contractor must make good the damage and must complete the works at its own expense within the contract period, or such extended period as may be allowed in the circumstances. The contractor is not entitled to any extra payment, but is instead entitled to be paid for the reinstatement works by means of the insurance policy. That policy will cover the cost of the remedial works, together with any additional professional fees incurred by the employer. The main contract further provides that the employer and the main contractor should effectively bear their own losses by reason of any delay caused by the fire. Thus the contractor will become entitled to an extension of time for the "specified perils", including fire, thereby releasing the contractor from liability for liquidated damages for delay. Correspondingly the contractor is unable to recover its prolongation costs during the periods of delay under Clause 26. Similar provisions are stepped down to the nominated and domestic sub-contractors. Against this background, Wimpey progressed with the reinstatement works and was paid the relevant proportion of the insurance proceeds, amounting to approximately £700,000. Up to this point, everything is just as one might expect it to be. From this point on, matters become more complex. It will come as no surprise to learn that an insurer who has paid out £700,000 in accordance with the terms of its insurance policy, will want to recover those monies where it can establish that some third party owed a liability to the policy holder in respect of this loss. Where it is thought that such a liability can be established, the insurer may well commence proceedings in the name of the policyholder (in this case CRS) applying what are called "subrogation rights" against the third party it considers liable. In this case, the insurer took the view that the fire had been caused by the negligence or breach of duty of Wimpey, the sub-contractor Hall, the architect Taylor Young and the engineer Hoare Lee. It contended that the fire resulted, to a greater or lesser extent, from the breaches of obligation owed to CRS by each and all of those four companies. There would, of course, be no point in suing Wimpey or Hall, since these two firms were both covered by the same joint-names insurance policy and thus the insurer would be obliged to indemnify both companies in respect of the same loss. There would therefore be what is called a "circuity of action". However, such a concern would not apply to Taylor Young and to Hoare Lee, as neither firm would benefit from the insurance policy taken out under Clause 22A. The insurers therefore commenced proceedings in the name of CRS, alleging that the fire resulted from the negligence or breach of contract on the part of both Taylor Young and Hoare Lee. Again it will come as no surprise that Taylor Young and Hoare Lee considered that such an action was inequitable. They denied liability in any event, but also argued that if they were liable, that liability was to be shared with Wimpey and Hall who were at least in part to blame for the fire. Accordingly, Taylor Young and Hoare Lee instituted third party proceedings against Wimpey and Hall in reliance on the Civil Liability (Contribution) Act 1978. Whether or not they were entitled to do this was the subject of the action decided finally by the House of Lords. The House concluded that, regardless of whether Wimpey and Hall were in part responsible for the fire, under the terms of the JCT contract, they were never liable to CRS for the losses incurred. All that the employer, CRS, could do under the terms of the contract was insist that the contractor should proceed with due diligence to carry out the reinstatement work. Moreover, since Wimpey and Hall were co-insured parties with CRS under the joint names policy, CRS's insurers could not, acting through rights of subrogation, pursue in CRS's name an action against Wimpey or Hall. This being the case, neither Wimpey nor Hall were "persons liable in respect of the same damage", borrowing words from the Civil Liability (Contribution) Act upon which Taylor Young and Hoare Lee relied. It was therefore not open to Taylor Young and Hoare Lee to recover a contribution from either Wimpey or Hall. It was recognised by the House that this conclusion could lead to an apparently inequitable result, such that Taylor Young and Hoare Lee might be required to bear the entire financial consequences of the fire, even though they may have had only a very minor responsibility for causing it. However, this was the effect of the JCT standard form, which was a form of contract of which Taylor Young, Hoare Lee and their professional indemnity insurers were to be taken to have been aware.
CJ-0236
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