| Date | 10 February 1999 |
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| Judgment | British Telecommunications Plc -v- James Thompson & Sons (Engineers) Ltd, House of Lords 10 December 1998 |
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| The Issue | Whether a sub-contractor owes an employer a duty of care in respect of fire caused to the building works. |
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| Implication |
The contractual insurance provisions between employer, main contractor and sub-contractor do not negative the existence of a duty of care on the part of a domestic sub-contractor towards the employer. |
printIn August 1997 I reported the case of BT-v-James Thompson & Sons. Thompson were engaged as domestic sub-contractors working on the roof of premises owned by BT in Glasgow. A fire was started which caused extensive damage to the roof and interior of the building. It was alleged by BT that the fire had been started as consequence of negligent acts or omissions of the sub-contractor. Since there was no contract between the parties, BT sued Thompson in negligence to recover its losses suffered as a consequence of the fire. The main contractor had been engaged on a standard JCT80 form of contract. The domestic sub-contract with Thompson stipulated "Your work shall be carried out to the same specification, terms and conditions of contract as those ruling between ourselves and our client. These conditions shall take precedence over any you may have in your offer". The usual clauses in relation to liability and insurance were contained within the main contract whereby under clause 22c the employer was required to take out and maintain an insurance policy in respect of the existing structures of the building, together with their contents, for the full cost of reinstatement, repair or replacement or loss or damage due to one or more of the specified perils. The contractual scheme of things therefore was that the employer would insure against and bear the risk of damage by fire. As these provisions were stepped down into the sub-contract it would therefore be proper for the sub-contractors to proceed on the basis that they did not require to insure the existing structures and their contents against the risk of fire due to any act or omission on their part, and for them to price their tender for the sub-contract works accordingly. I commented when reviewing this case in August 1997 that it is very easy to see the essential commercial justification for this arrangement. Complicated construction projects involve many parties and there are some risks which can be efficiently insured against by one party. Indeed whilst it is commercially possible to obtain insurance against fire in the name of the employer which covers the defaults of all the contracting parties and under which the insurers have no right of subrogation, such insurance will continue to be more attractive to the employer than the preservation of its rights in contract and tort against contractors and sub-contractors. Thompson's position was therefore quite clear. It argued that it would neither be fair, just, nor reasonable to impose a duty of care on a sub-contractor towards an employer, in the context of a contractual arrangement whereby the employer had undertaken to place an insurance policy to cover such risks. At first instance, and on appeal to the Inner House of the Court of Session in Scotland, the court agreed with Thompson. The contractual provisions were relevant circumstances in considering the existence of a duty of care, and since under the terms of the contract the main contractor and sub-contractor was to be held to have no liability in such circumstances, Lord Ross held that it would not be fair, just and reasonable to impose a duty of care on the sub-contractor. In a dissenting judgment however, Lord Morrison was strongly of the view that the principles which established the existence of a duty in care in tort should override such contractual considerations. This whole matter has finally been heard in the House of Lords. Their lordships were particularly interested in the nature of the undertaking by BT to insure. They expressed doubt that the contractual scheme provided an arrangement whereby the insurance to be provided by BT would necessarily operate for the benefit of a domestic sub-contractor. The clauses provided for the recognition of nominated sub-contractors as insured under the policy, but made no direct mention of other sub-contractors. Their Lordships also considered that it was necessary to closely examine the nature of the insurance which the employer was required to take out under the contract. By way of example, in London Borough of Barking-v-Stamford Asphalt Company, the court held that where the employer was to take out insurance under the JCT minor works form for damage caused to the works by specified perils (fire, lightning, explosion, storm etc), such insurance would be required only in respect of those perils which resulted from natural phenomena, i.e. acts of God. The clause in question therefore did not oblige the employer to insure against the risk of a fire caused by a contractor or sub-contractor's negligence. Taking such factors into account their lordships concluded that the insurance arrangements under the contract would be insufficient to negative a duty of care owed by a sub-contractor to an employer. "In my view the contractual provisions reinforce, rather than negative, the existence of a duty of care towards BT by Thompson in the circumstances of the present case".
CJ-9906
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