| Date | 29 September 1999 |
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| Judgment | AMEC Civil Engineering Ltd -v- Cheshire County Council Technology and Construction Court, 26 April 1999 |
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| The Issue | Whether the contractor is obliged to account to its employer for insurance receipts |
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| Implication |
Insurances for loss or damage to the works such as ICE, 5th Edition, Clause 21 are primarily for the benefit of the contractor. In certain circumstances, the employer may not benefit from monies paid out under the insurance policy. |
printIn common with many other standard forms of construction contract the ICE conditions of contract require the contractor to make good, at his own cost, any damage caused to the works from whatever cause with the exception of certain specified risks. The contractor is also required to take out policies of insurance in the joint names of the contractor and employer to cover such reinstatement costs. Most construction practitioners would assume that where a contractor was making a claim for delay and disruption during periods of construction activity when an insured event occurred, the contractor would be obliged to pass on to the employer the benefits of any payment received from the insurers. Otherwise it might reasonably be supposed that the contractor would obtain a double recovery, being paid by the employer for the delay and disruption events for which it was entitled to recompense under the contract, whilst at the same time being paid by the insurer for the same events which, at least in part, contributed to the delay and disruption. These matters were examined in the case of AMEC Civil Engineering Limited -v- Cheshire County Council. It was held, perhaps surprisingly, that in the particular circumstances of this case that the contractor did not have to pass on the benefits of receipts from the insurer. AMEC Civil Engineering and Alfred McAlpine were joint venture contractors for the construction of a bypass on the A34 near Manchester for Cheshire County Council. The works suffered various delays for which it was agreed the joint venture was not responsible. Accordingly the parties entered into an agreement whereby the works would be accelerated, in order that the original programmed date for completion would be maintained. Notwithstanding these measures, further delays occurred, in particular as a consequence of a period of exceptionally inclement weather which caused flooding to a culvert. Accordingly, a further agreement was made between the parties that the joint venture would use its best endeavours to meet the completion date and in so doing, it would be paid its reasonable costs. The contractor completed the works for all practical purposes by the completion date. As might be expected however, disputes arose as to how these reasonable costs might be quantified. In court it was held that the agreement should be construed that the joint venture would be entitled to its actual costs for completing the project, less what the work would have cost in the absence of the delaying and disrupting events. Allowance would also have to be made for events which were the responsibility of the joint venture. In essence, therefore, this agreement allowed for the global quantification of the contractor's entitlement on the basis of a total costs assessment. Whilst it cannot be said that in the absence of an express agreement between the parties such an approach will always be appropriate, it must also be recognised that the evaluation of acceleration costs is often difficult, if not impossible, by any other means. In most circumstances, it would be unreasonable to expect a contractor to quantify acceleration costs by an analysis of individual items of work. In the event, therefore, the joint venture was to be paid its total actual costs incurred as a consequence of the various delaying events. Wrapped up within these events was the flood, previously mentioned, and it soon came to the employer's attention that the contractor had made an insurance claim for costs incurred directly as a consequence of this flood and had been paid by the insurers a sum approaching £600,000. Unsurprisingly, the employer argued that in any quantification of the contractor's entitlement under the agreement to pay reasonable costs for acceleration, this £600,000 should be deducted. His Honour Judge Gilliland QC found otherwise. The insurance taken out by the contractor under Clause 21 of the ICE conditions was primarily for the benefit of the joint venture (since under the terms of the main contract the joint venture would be responsible to repair the damage caused by the flood at its own cost). Though in the joint name of the employer, the insurance was only incidentally for its benefit, in circumstances such as the insolvency of the contractor. The employer could not be entitled to the benefit of the proceeds obtained under the insurance, as this would contradict the underlying provisions of the main contract whereby the joint venture was fully liable to the employer for such loss. The complaint that the contractor would thereby obtain a windfall was unfounded. Any monies which the joint venture obtained under the acceleration agreement and which could be attributed to the flood, would require to be accounted to the insurers under the terms of the insurance policy.
CJ-9937
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