| Date | 19 February 2003 |
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| Judgment | GD Construction (St Albans) Limited v Scottish & Newcastle plc, CA 22 January 2003 |
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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, the contractor will be protected by the joint names policy of insurance taken out by the employer in the event of loss to adjacent property occasioned by a fire, howsoever caused. |
printIn November 1996 a fire occurred on a construction site in Reading where GD Construction (St Albans) were renovating an inn called The Thatchers for the company Scottish and Newcastle. Employees of one of GD's subcontractors 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 of the inn. The roofer engaged in carrying out this work was using a blow torch 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 firefighters. 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. Scottish & Newcastle commenced proceedings against GD Construction to recover the cost of repair to the existing structures of the building amounting to approximately £430,000 and business losses of approximately £140,000 resulting from the delay in rebuilding the inn. GD accepted liability for the business losses, but contended that by the terms of the contract between the parties, they could not be liable for the cost of repairs to the building. The JCT forms of contract are far from clear and consistent in their approach to this question. In the 1997 case of the London Borough of Barking and Dagenham v Stamford Asphalt Co, the Court of Appeal held that under the JCT Minor Works form of contract, the contractor is liable for any fire damage to adjacent property arising out of the carrying out of the Works. This liability is not affected by the employer's obligation to take out insurance for existing structures against the risk of fire. The court held that the employer was simply not required by the terms of the JCT Minor Works contract to take out insurance for a fire caused by the negligence of the contractor or its subcontractors. Some doubt has been expressed as to whether that is to be treated as a sound decision and indeed in December 1998 the House of Lords came to a different view when considering a similar question under the JCT 80 form of contract in the case of BT v James Thompson and Sons. The findings in this case would equally apply under JCT 98. It was held that where the employer was required to take out an insurance policy to cover the existing structures of the building against the risk of the "specified perils", including fire, the main contractor was entitled to assume that it did not require to insure the existing structures against fire. The main contractor would benefit from the cover provided by the joint names policy taken out by the employer irrespective of how the fire was caused, and that benefit ousted any liability the contractor would otherwise have had towards the employer. The contract between Scottish & Newcastle and GD Construction was on the JCT Intermediate form of contract 1984, and once again the insurance and indemnity provisions differ from other JCT forms. Under clause 6.1.2 of the IFC 84 form, the contractor is held liable for and indemnifies the employer against any expense, liability or loss to any property, excluding the works themselves, arising in the course of carrying out the works. This liability and indemnity expressly excludes loss or damage caused by the 'specified perils' including fire, where the employer is required to take out relevant insurance. Despite that this arrangement is similar to JCT 80, His Honour Judge Seymour QC held 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". In his view, although the employer had undertaken to insure against the specified perils which included fire, such insurance did not extend to fire caused by the negligence of the contractor. GD's liability was therefore not excluded by the employer's obligation to insure. The Court of Appeal disagreed. Mr Justice Aitkins held that for nearly 200 years when the word 'fire' has been used in an insurance policy to describe one of the perils covered by the policy, the meaning of the word "fire" has been clear. Unless qualified, the policy covers all direct loss, whether the fire is caused by an accident, caused by the negligence of the insured or a third party, or caused by the deliberate act of a third party. In consequence, in such circumstances the contractor's liability did not extend to reinstatement costs following a fire. It made no difference that the fire was caused by the negligent act of the main contractor, its subcontractors or even by a deliberate act of a third party. Accordingly the appeal was allowed. Scottish and Newcastle could not recover its £430,000 bill for reinstatement of the damaged property. The fact that it had failed to take out the relevant insurance policies meant that Scottish and Newcastle would have no other means of recovering this loss.
CJ-0306
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