England and Wales Court of Appeal (Civil Division) Decisions

IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
(ORDER MADE BY HH JUDGE GILLILAND Q.C.
(SITTING AS A JUDGE OF THE HIGH COURT)

		Royal Courts of Justice Strand, London, WC2A 2LL Wednesday 21 November 2001

LORD JUSTICE KEENE.:

1. This is an appeal from an order of His Honour Judge Gilliland, Q.C. sitting as a Deputy Judge of the High Court, whereby he struck our a Part 20 claim brought by the defendant in the action. The issue in this appeal concerns the circumstances in which a defendant is entitled to seek a contribution from another person under Section 1(1) of the Civil Liability (Contribution) Act 1978 ("the 1978 Act"). That sub-section provides as follows:

"Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover a contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)".

2. The issue arises in the following way. The claimant in the action is a builder and developer known as Hurstwood Developments Limited ("Hurstwood"). It contracted with Camfil Limited to design and build a factory and offices on a site in Lancashire. Hurstwood engaged a company called H.B. Boring and Company Limited ("HHB") to provide site investigation services and to report on the site. According to the pleadings in the case, which for present purposes are to be assumed to be well founded, HBB concluded that the most economic method of providing the foundations for the development was a vibro flotation process. It is alleged that Hurstwood duly employed that process but that, in the course of development, subsidence occurred, with the result that the factory premises was seriously weakened. Prima facie Hurstwood premises built in a good and workmanlike manner and fit for use.
3. Hurstwood consequently had to carry our remedial works on the site at a cost of approximately £500,000 and, it is alleged. It incurred a number of other expenses in connection with the failure of the foundations. It brought proceedings against the defendant, Motor and General and Aldersley and Company Insurance Services Limited ("MGM"). As the name may suggest, MGA are insurance brokers, Hurstwood's case against MGA is very broadly that it gave instructions to them to procure appropriate insurance cover in respect of any liabilities for design work which it might undertake, and that MGA failed to do so, with the result that Hurstwood has had to meet the costs of the remedial work and the other expenditure from its own resources. Therefore Hurstwood claimed against MGA in the main action in negligence and for breach of contract for failing to obtain the appropriate insurance cover.
4. MGA then issued Part 20 proceedings against HBB. In the Part 20 Particulars of Claim it is alleged that HBB owed a duty of care in both contract and tort to Hurstwood, that HBB was negligent and in breach of the implied terms of its retainer in relation to Hurstwood by proposing the vibro flotation process for the foundations, and that Hurstwood has suffered loss and damage as a result. It is then pleaded that any loss and damage suffered by Hurstwood and claimed against MGA has been caused by the negligence and/or breach of contract on the part of HBB. On that basis it is alleged by MGA that HBB is liable to make contribution or to give an indemnity in respect of any sums which MGA may be liable to pay Hurstwood.
5. In response to a request for further information about the nature of the damage suffered by the claimant Hurstwood, MGA referred to the heads of loss and damage set out in para.10(7) of the particulars of claim in the action. It then pleaded as follows:

"If, contrary to its case, MGA is found liable or accepts liability for all or any of the alleged loss and damage, MGA claims an indemnity or contribution from the Part 20 Defendant on the basis that the Part 20 Defendant is liable to the Claimant for the same loss and damage; namely the loss and damage alleged in para 10.7. The nature of the alleged damage which gives rise to the contribution claim and leads MGA to seek an indemnity or contribution from the Part 20 Defendant is therefore the loss and damage pleaded in para.10.7"

6. Paragraph 10.7 of the particulars of claim in the main action was the paragraph where Hurstwood claimed against MGA the costs of the remedial work and its other associated expenditure. Judge Gilliland rightly observed that "on the face of the pleadings the defendant is seeking to recover from the Part 20 defendant pound for pound the damages which are sought as against the defendant by the claimant".
7. The contribution which was sought by MGA was and is sought under section 1(1) of the 1978 Act, the terms of which have been set out at the beginning of this judgment. Under that provision contribution may only be recovered from a person who is

"liable in respect of the same damage (whether jointly with him or otherwise)".

8. HBB applied to strike out the Part 20 claim against them on the basis that they were not liable for the same damage as MGA. It was said that the damage suffered by Hurstwood in respect of the alleged negligence by HBB was not the same damage as that suffered by Hurstwood as a result of the alleged negligence of MGA. That, in essence, is the short point which arises on this appeal.
9. Judge Gilliland analysed with considerable care a number of the leading authorities on this topic, although he did not have available to him a more recent decision of the Court of Appeal in Eastgate Group Ltd v Lindsay Morden Group Inc. [2001] EWCA Civ 1446. He noted that the cases drew a distinction between "damage" as used in section 1(1) and "damages", and that section 6(1) of the 1978 Act clearly distinguished between the compensation, which flowed from the damage, and the damage itself. He then identified the damage for which Hurstwood was seeking to make MGA liable in the main action as being the absence of insurance cover. His judgment then continues:-

"That is quantified by reference to the remedial works, but the remedial works themselves are in no way the damage caused by the defendants. The defendant simply has nothing to do with the carrying out of the construction works on site. It does seem to me that there has to be some causal relation in relation to the damage in that both the person seeking to recover contribution must have caused the damage and the person against whom contribution is sought must also have caused that damage."

10. Judge Gilliland observed that there was no causal relationship between any acts of omissions of MGA and the situation in which Hurstwood found itself "vis-à-vis the state and condition of the premises and [its] legal liability in respect of it." The claim against MGA was based on the absence of insurance cover, to which Hurstwood could have had recourse, irrespective of any negligence on the part of HBB. He then concluded that HBB had not contributed to that loss, that the claim against MGA was for a very different kind of damage from that forming the basis of the claim against HBB, and that therefore MGA's Part 20 claim should be struck out.
11. MGA now challenge that decision. On their behalf, Mr Berry, QC, emphasises that section 6(1) of the 1978 Act makes it clear that contribution may be sought even though the liability of the two parties does not arise from the same cause of action. It is submitted that the judge was wrong to approach the issue on the basis that there had to be some causal relation between the acts and omissions of both parties and the damage suffered. The issue is simply: are they liable in respect of the same damage? The judge was influenced by the reference to !responsibility for the damage" in section 2(1) of the 1978 Act, which deals with the apportionment of contribution on a just and equitable basis, but the Court of Appeal has said in Friends' Provident Life Office v Hillier Parker [1997] Q.B. 85 that the operation of section 1(1) is not to be confined to liability arising from breach of duty or default. As that case emphasised, the 1978 Act was intended to be given a wide interpretation.
12. Mr Berry contends that the damage or harm in the present case suffered by Hurstwood was the same. Hurstwood had to pay from its own resources, "put its hand in its own pocket", to compensate Camfil Limited. That was the result of HBB's negligence over its site investigation and the result of MGA's failure to put in place the requisite insurance. Reliance is placed on the "simple test" propounded by Sir Richard Scott, V.C., in the Court of Appeal case of Howkins and Harrison v Tyler [2001] Lloyds LR: Prof. Neg. 1, at para. 17, namely would payment by either of the parties relieve the other pro tanto of its obligations to the claimant? In the present case it would, and this mutual discharge of liabilities is not merely a necessary condition for contribution under section 1(1) but is also normally sufficient to establish such contribution. The "mutual discharge" test has been endorsed recently in the Eastgate case at Court of Appeal level, where the roles played by the parties were completely different, yet contribution was fund to be due.
13. On behalf of the respondent, HBB, Mr Furst, QC, submits that the judge's reasoning was sound. The damage caused by MGA to Hurstwood was exposing the latter to claims in respect of which it should have had a right to indemnity from insurers. In contrast, the damage or harm done by HBB was exposing Hurstwood to claims by the liability to Camfil Limited under the terms of the building contract. A party cannot be liable for contribution under the 1978 Act unless it has in some sense caused the damage for which the other party is liable. It is argued that it is significant that HBB is not even named in the claim pleaded by Hurstwood against MGA. That is not surprising: it was not a necessary ingredient of the insurance policy which MGA allegedly should have arranged that HBB or any party in a similar position should have been at fault.
14. The respondent contends that the Friends Provident case provides no authority for a wide interpretation of the phrase "the same damage", since that was not the issue in that case. Insofar as the Eastgate case interprets the Friends Provident decision in that way, it is wrong. Mr Furst submits that the mutual discharge test described in decision in that way, it is wrong. Mr Furst submits that the mutual discharge test described in Howkins and Harrison v Tyler is appropriate as a threshold, a necessary condition to be met before contribution can be due, but it is not a sufficient condition for liability to contribute. However, he concedes that on the facts of the present case the mutual discharge test would be met, that is to say, not merely would payment by HBB to Hurstwood reduce pro tanto MGA's liability to Hurstwood, but the converse would also be true: payment by MGA would reduce HBB's liability.
15. Those then are the rival contentions. The 1978 Act itself does not define what is meant by the words "the same damage", no doubt because of the variety of factual situations likely to arise for consideration. There is no shortage of authority at Court of Appeal level where the court has had to deal with different sets of facts and to decide whether the parties were liable for the same damage. The outcome of some of those decisions is not always easy to reconcile with the outcome of others, although it is possible to find some basis for the distinctions drawn. What matters for present purposes is to try to ascertain the approach to the construction of section 1(1) which emerges from those decisions.
16. It is clear that "damage" in that sub-section is not to be equated with "damages": see Birse Construction Limited v Haiste [1996] 2 WLR 675, at 682C. That can readily be seen from the use of the word "damages" in section 2(3) of the 1978 Act, a deliberately different expression from the word "damage" used by the draftsman in section 1(2) and section 2(1). Several of the cases have treated the term "damage" as amounting to the same thing as harm: see Royal Brompton Hospital Trust v Hammond [2000] Lloyds L.R. Prof. Neg. 643, para. 30; Birse Construction, p.682C. That, however may not be thought to advance matters very substantially.
17. What has given rise to some of the difficulties experienced in construing section 1(1) is that it is evident from section 6(1) of the 1978 Act that contribution may be claimed from a person liable for the same damage, even though the original claimant's cause of action against that person may be different from his cause of action against the person claiming contribution. Section 6(1) provides:

"A person is liable in respect of any damage for the purposes of this Act if the person who suffered it (or anyone representing his estate or dependants) is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability whether tort, breach of contract breach of trust or otherwise)."

18. That, together with the reference in section 1(1) to "whether jointly with him or otherwise", shows that the legal basis of liability may be different. This was one of the considerations which persuaded the court in the Friends Provident case that a claim for restitution and a claim for damages in negligence and breach of contract could still fall within the provisions of the 1978 Act, Auld L.J. saying (p.103A):

"It is difficult to imagine a broader formulation of an entitlement to contribution. It clearly spans a variety of causes of action, forms of damage in the sense of loss of some sort, and remedies, the last of which are gathered together under the umbrella of "compensation". The Act was clearly intended to be given a wide interpretation……."

19. It is necessary, therefore, not to be over-influenced by the possibility of formulating the measure of damages or even the damage, for which one party is liable to the claimant, in different words from that which may be employed to define or describe that for which another party is liable. Since the cause of action against each of them may differ, a different formulation of the damage for which they are liable may be possible. That cannot be conclusive.
20. In Friends Provident, it was argued by the developers, who had been overpaid on a development contract, that they could not be required to contribute in respect of the plaintiffs' claim against the surveyors, who authorised the over-payments, because they were not to be seen as responsible for the plaintiffs' loss. The developers (see p.91 F/G) relied on section 2(1) of the 1978n Act. Insofar as material for present purposes, that provides:

"In any proceedings for contribution under section 1 above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question".

21. The developers' argument was not accepted by the court, Auld L.J. (with whom the rest of the court agreed) saying at page 103C-E:

"As to the judge's reliance on the word "responsibility" in section 2(1) of the Act, it is "a word which, in my view, has some elasticity of meaning in this context. It may or may not, depending on the circumstances, connote some notion of breach of duty or default. It has an obvious role when apportionment on "just and equitable" principles has to be made, but it is not to be so narrowly construed as to restrict the wide language of section 6(1). The final words of that provision, in particular, "whatever the legal basis of his liability" and "or otherwise" make plain that it was not intended to confine the operation of section 1(1) to liability arising from breach of duty or default."

22. For my part I can see the difficulties described by the judge below in the present case if and when it becomes necessary to carry out an apportionment exercise under section 2 of the 1978 Act. Normally under that statutory provision the court takes account of both culpability, in the sense of the seriousness of the parties' respective failings, and the causative relevance of the parties' acts or omissions: see Downs v Chappell [1997] 1 WLR 426. But, if one adopts the approach to "responsibility" commended by Auld L.J., it is possible for a court to form a view on the relative contributions to be made by MGA and HBB in the present case. It would require a broad judgment as to their relative responsibilities, but the exercise would be no more difficult than that required in the Friends Provident case. Section 2 cannot be used to alter the wording of section 1(1) from "liable in respect of the same damage" to "who caused the same damage."
23. The Friends Provident decision was distinguished in the case of Howkins and Harrison v Tyler where a building society which had lent money to a company secured on a property sued the valuers of the property when the security proved to be inadequate. The valuers settled the claim by payment of the major part of the claim but then sought contribution from the directors of the defaulting company, those directors having guaranteed the repayment of the loan. It was held that the damage for which the guarantors were liable was not the same as that for which the valuers were liable. However, the significance of the case derives not so much from the result, which turned upon the particular facts of the case, but from the test put forward in the judgment of Sir Richard Scott, VC (with whom Aldous and Sedley LJJ agreed) at paragraph 17:

"But it seems to me that a simple test should be applied to identify a claim capable of being one to which the 1978 Act can apply. That test is this: Suppose that A and B are the two parties who are said each to be liable to C in respect of "the same damage" that has been suffered by C. So C must have right of action of some sort against A and a right of action of some sort against B. There are two questions that should then be asked. If A pays C a sum of money in satisfaction, or on account, of A's liability to C, will that sum operate to reduce or extinguish, depending upon the amount, B's liability to C? Secondly, if B pays C a sum of money in satisfaction or on account of B's liability to C, would that operate to reduce or extinguish A's liability to C. It seems to me that unless both of those questions can be given an affirmative answer, the case is not one to which the 1978 Act can be applied. If the payment by A or B to C does not pro tanto relieve the other of his obligations to C, there cannot, it seems to me, possibly be a case for contending that the non-paying party, whose liability to C remains un-reduced, will also have an obligation under section 1(1) to contribute to the payment made by the paying party."

24. It was that test which was described in the Eastgate case as one of "mutual discharge". The Court of Appeal in Eastgate applied that test initially as a necessary condition which had to be satisfied if section 1(1) was to operate. But the court in that case went further. Longmore LJ with whom Potter LJ agreed, said this at para. 19:

"Although Sir Richard Scott V-C in Howkins & Harrison posed the mutual discharge question as a necessary threshold question for the purpose of identifying whether a claim to contribution was capable of being a claim to which the 1978 Act could apply, I cannot believe that he intended that the answer to what can itself be quite a difficult question would not ordinarily resolve also the question whether the relevant parties were liable for the same damage. If this were not so, questions of contribution would become unnecessarily complex and there would be a danger that the Act would not be given the wide interpretation it was intended to have."

25. For my part, I can see the force of that. It is difficult to envisage a situation where there would be mutual discharge of liabilities, in the sense described by Sir Richard Scott, VC in respect of damage which was not the same, and counsel, when this was raised during argument, were unable to suggest such a situation. It is not a substitute for the statutory words, but the mutual discharge test is a valuable method of ascertaining whether the liabilities are in respect of the same damage. It should normally be sufficient to indicate that the subsection applies, and as a matter of principle it is not easy to see why there should not be contribution in cases where payment by either party would, pro tanto, discharge the liability of the other. In short, it makes good sense.
26. What is the consequence of applying the mutual discharge test to the present case? I had initially some doubts as to whether it would be met. Clearly, any payment made by HBB will reduce any liability of MGA, but dies the same apply in reverse? Had there been an insurance policy in existence, the liability of HBB would not have been reduced by any payment made by the insurers under the policy to Hurstwood, and at first sight the insurance brokers MGA might be thought to be standing in the insurers' shoes when it came to assessing MGA's liability, in the sense that their liability could not exceed any liability which the insurers might have had under the policy which should have been in force. But no such point is taken on behalf of HBB. Mr Furst, having considered it, concedes that there would here be mutual discharge of liabilities, with payment by MGA discharging pro tanto HBB's liability to Hurstwood, as well as vice versa.
27. In that situation, it seems that the formulation of liability advanced by Mr Berry must be accepted, namely that the damage for which MGA was liable to Hurstwood was the latter having to compensate from its own resources Camfil Limited for the subsidence of the building and that the damage for which HBB was liable to Hurstwood was the same. I conclude, therefore, that the terms of section 1(1) of the 1978 Act were met in this case and that MGA is entitled to recover contribution from HBB in respect of the damage suffered by Hurstwood and for which, on the basis of the pleadings, MGA may be liable to Hurstwood. I would allow the appeal against the striking out order and restore the Part 20 claim brought by MGA.

LADY JUSTICE HALE

28. I agree.

THE PRESIDENT

29. I also agree.
Order: Appeal allowed with costs here and below subject to detailed assessment forthwith. Part 20 claim to be restored. Respondent to repay £19,000 with the interest earned. Permission to appeal was refused. (Order does not form part of the approved judgment)