COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISON
Mr IAN GLICK QC
(sitting as a Deputy High Court Judge)
2002 Folio 853
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE MANCE
LORD JUSTICE KEENE
| Horbury Building Systems Limited
|- and -
|Hampden Insurance NV
Graham Charkham (instructed by Davies Arnold Cooper, London EC4Y 8DD) for the Respondent
Hearing dates : 11 March 2004
Crown Copyright ©
Lord Justice Keene:
"6. The cinema premises obtained from Manchester City Council a licence under the Cinemas Act 1985. The licensing system allowed the Council time to evaluate the premises before deciding whether to grant the licence. At all material times the practice of the Council was to obtain reports from the City Architects, the Building Control Department, the Environmental Health Department, and the Police and Fire authorities, before deciding whether to grant the licence.
7. The licence contained the following (among other) provisions:
"1. The licensed premises shall not be open for the purposes for which this Licence is granted on any occasion when the Licensing Authority may signify their desire in writing to the occupier or other person having at the time the care and management of such premises that the same should not be open.
33. All parts of the premises and fittings and apparatus therein, including the seating, door fastenings and notices, and the lighting, electrical heating, ventilating, mechanical and other installations, shall be maintained at all times in good order and condition."
8. The licence was subject to the proviso that
"... subject to the provisions of the said regulations", [The Cinematographic (Safety) Regulations 1955 (as amended)] "made by the Secretary of State, such licence shall be liable to be suspended by the said Council in the event of any failure on the part of the licensee to carry out the said Regulations, or of the building becoming otherwise, unsafe, or of any material alteration being made in the building or enclosure without consent of the said Council."
11. Some of Horbury's work had been carried out unskilfully and not in conformity with contract, in that:
11.1 In the following locations the wrong washers had been used throughout or effectively throughout Horbury's work:
11.2 In Auditorium 4 approximately half the hangers had the wrong washers and half had the correct ones.
16. AMC's closure of the complex was a voluntary decision. AMC provided assurances to Manchester City Council that the complex would not be re-opened until such time as the problem had been fully investigated and a programme of remedial works implemented, satisfactory to Manchester City Council.
18. The City Council's officers considered the situation so dangerous that they would not allow Council staff onto the premises until satisfied with temporary protective measures.
19. The cause of the collapse of the ceiling of auditorium 6 was identified as being and was the use of the wrong washers.
20. The effect of the use of the wrong washers was that individual hangers disconnected. Each disconnection (1) removed or significantly reduced the support which that hanger had provided to the suspended ceilings (2) increased the load on adjacent hangers and (3) removed or significantly reduced the support which that hanger had provided for the ductwork.
21. All other auditoria were checked. Of these, 11 were discovered to be virtually free from defect. However, it was discovered that the wrong washers had been used almost throughout auditorium 10, 12 and 15, and in about half of auditorium 4. In each of these auditoria some individual hangers had disconnected.
22. Had remedial measures not been taken it is probable that some or all of the ceilings in auditoria 4, 10, 12 and 15 would have collapsed in due course either in part or in the same way as that of auditorium 6."
"23 Alternative A
No damage had occurred to any part of auditoria 4, 10, 12 and 15 (as distinct from damage to the complex as a whole).
One or more or all of those auditoria were damaged in whole or in part in that the electrical ductwork and therefore the wiring which it contained was no longer securely fixed in position within the meaning of regulation 22(2) of the Cinematographic Act (Safety) Regulations 1955. The fixing was insecure because of the loss of support from some hangers and the risk of disconnection of others."
"24. Auditorium 6 was cleared, reconstructed and refurbished.
25. The suspension systems in auditoria 4, 10, 12 and 15 were reconnected.
26. When but only when satisfied that the licensing officers were themselves satisfied with the state of affairs did AMC re-open the complex to the public."
7.1 Any goods or products (including containers labelling instructions or advice provided therewith) sold supplied erected repaired altered treated or installed or work carried out by or on behalf of the Insured in the course of the Business from or in Great Britain Northern Ireland the Channel Islands and the Isle of Man.
8.1. Material property."
The schedule to the policy defines "The Business" as including
"Dry lining, Partitioning and Suspended Ceiling Contractors and Fire Proofing and Plant Hirers."
"4. Insurance Cover
The Company will indemnify the Insured against liability at law for damages and claimants costs and expenses in respect of Injury to any person and loss of or damage to Property occurring within the Territorial Limits during the period of insurance and caused by any Products after they have ceased to be in the custody or under the control of the Insured.
Exceptions to Part B
5 The Company will not indemnify the Insured against liability in respect of
5.3. Contractual Liability
Injury loss of or damage to Property which is assumed by the Insured by agreement (other than liability arising out of a condition or warranty of goods implied by law) unless such liability would have attached in the absence of such agreement.
5.4 Damage to Products Serviced or Treated
The cost of recalling removing replacing repairing reapplying rectifying or refunding payment for anything sold supplied constructed erected installed repaired serviced or treated by the Insured caused by any defect therein or the unsuitability thereof for its intended purpose."
"if the Insured are liable to third party claimants in terms which include liability for loss of profits calculated by reference to the closure of the cinema complex as a whole from 21 December 2001 to 25 January2002, then the liability of the Defendants to indemnify extends to include the Insured's liability for such loss of profits."
"... whether, assuming the cinema owners (directly or through the main building contractors) can recover damages from the Insured which extended to the loss of income from the auditoria in which physical collapse did not occur, the Insurer's liability to indemnify the insured extends to cover that loss of income claim."
"74. Horbury (in my view correctly) concedes that if the faults in the suspension system for the ceiling of cinema 6 had been discovered before any collapse, and the collapse had been prevented, Hampden would not be liable for Horbury having to pay damages for profits lost by closing cinema 6. Moreover, of course, Hampden would not be liable if, in such a case, the rest of the complex had been closed to see if the faults were repeated elsewhere, and Horbury held liable in damages for the resulting lost profits. That must be because, in relation to both cinema 6 and to the rest of the complex, and independently of clause 5.3, such damages would not be in respect of damage to material property. Indeed, ex hypothesi there would have been no damage to material property.
75. In the present case there was damage to material property in and about cinema 6. Damages for profits lost as a result of closing that cinema would be, as Hampden (in my view correctly) concedes, damages in respect of damage to material property. But the closure of the rest of the complex was not itself damage to material property. Nor was it the consequence of damage to material property. It was the consequence of a prudent and foreseeable decision or instruction to close the whole complex until the faults that had resulted in the collapse that had caused damage to material property were discovered; until the rest of the complex had been inspected to see if similar faults existed elsewhere; and until any necessary remedial works had been completed.
76. As Hobhouse L.J. said in Rodan [Rodan International Ltd -v- Commercial Union  Lloyd's Rep IR 495] in words I regard as equally applicable to the policy in the present case:
"A products liability policy in which the cover provided is defined in words such as those used in the present policy is confined to liability for physical consequences caused by the commodity or article supplied.
The closure of the rest of the complex was not such a consequence. Thus it does not seem to me that lost profits relating to the rest of the complex are any more covered by the policy when the ceiling in cinema 6 has actually collapsed than when the faults have been detected in time to forestall such a collapse."
77. Finally it seems to me clear that under the policy Hampden's liability to Horbury is not intended to be co-extensive with Horbury's liability to third parties. The policy contemplates circumstances in which Horbury will be liable to third parties, but Hampden will not be liable to Horbury: for example where Horbury has to pay damages pursuant to an exclusively contractual liability."
"legally liable to pay in respect of ... loss or damage happening anywhere in the world ...during the period of insurance and caused by goods (including containers) manufactured, sold supplied, repaired, altered, serviced, installed or treated in the course of the business ..."
Hobhouse LJ, with whom Aldous LJ agreed, held that the words "loss or damage" must be construed in context as something that related to a physical event. He accepted that the claimants could show that the goods they had treated had caused damage - a physical event - to the packaging and to the Maltesers. He then said this:
"One then asks whether the legal liability to pay is in respect of that loss or damage. It is at this point that, in my judgment, the train of reasoning upon which the plaintiff's argument has to be based breaks down.
They have to progress from legal liability in respect of the damage to the packaging and damage to the Maltesers to a loss of goodwill by LMG and loss of profits over a period in the future. The loss of profit in 1990, 1991 and 1992 are not events which are either directly or indirectly covered by this policy. They cannot be correctly described as loss or damage which has happened somewhere; nor have they happened at least partially during the period of insurance.
The conclusion at which I arrive is similar to that of the judge: the relevant head of loss is not caused by any defects in the packaging but is caused by Mars choosing not to place further orders with LMG. The same point can be demonstrated by appreciating that causation is, in the context of this cover, a physical concept: the loss or damage has to happen physically during the period of insurance. It is not possible to treat a liability to pay compensation in respect of an economic loss which arises from a loss of goodwill as being in respect of physical loss or damage physically caused. Loss of goodwill is not covered by this policy. The plaintiffs have failed to bring themselves within the relevant part of the cover. The declaration made by the judge was correct."
"loss of or physical damage to physical property not belonging to the insured or in the charge or under the control of the Insured."
Rodan had supplied 80 tons of soap powder which was not of merchantable quality. Liquid constituents in the powder migrated into cardboard cartons into which it had subsequently been packed by a company called Newbrite, who supplied retailers. Both the cartons and in turn the powder itself sustained damage. Newbrite successfully claimed damages against Rodan, which in turn claimed an indemnity under the policy with the defendant. The claim concerned a number of different items of loss or damage for which Rodan had been held liable to Newbrite.
"They certainly do not relate to any physical consequence of the damage to the cartons in which the 80 tons were packed by Newbrite's packers. The phrase "in respect of" carries with it a requirement that the liability relate to the identified Occurrence. It is not sufficient that it should simply have had some connection with the Occurrence.
The effect of the decision of the judge to treat the words "in respect of the Occurrence" as meaning no more than "in connection with the same causes of action as gave rise to the liability for the Occurrence" transforms this cover from a products liability cover to a policy covering general contractual liabilities. A products liability policy in which the cover provided is defined in words such as those used in the present policy is confined to liability for physical consequences caused by the commodity or article supplied. The liability of the assured in damages will have to be expressed in terms of money but that liability must be in respect of the consequences of the physical loss or damage to physical property (or some personal - "bodily" - injury). Provided that the commodity or article supplied has caused the physical consequence, the compensation payable by the assured to the third party will include, and the liability of the insurer to indemnify the assured, will extend to the totality of the loss which the third party is entitled to recover from the assured by way of damages in respect of that physical consequence. Thus, if a defective article supplied by the assured causes bodily injury to the third party disabling him or, for example, causes his premises to be destroyed by fire, the third party will be entitled to recover from the assured the full value of what he has lost which will, in the two examples I have given, include compensation for future loss of earnings. They are part of what the third party has lost as a consequence of the physical loss or injury and they are accordingly part of the liability of the assured in respect of that physical consequence."
Lord Justice Mance:
Lord Justice Peter Gibson: