[2004]JRC132
royal court
(Samedi Division)
27th July 2004
Before: |
M. C. St. J. Birt, Esq., Deputy Bailiff, sitting alone. |
Between |
Jersey Electricity Company |
Plaintiff |
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And |
Brocken & Fitzpatrick Limited |
Defendant |
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And |
Dewplan Limited |
Third Party |
Application to determine a question of law or construction of a document as a preliminary issue pursuant to Rule 7/8 of the Royal Court Rules.
Advocate D. J. Benest for the Plaintiff.
Advocate S. J. Young for the Defendant.
Advocate M. L. Preston for the Third Party.
judgment.
deputy bailiff:
1. This is a summons issued by the third party to determine a question of law or construction of a document as a preliminary issue pursuant to Rule 7/8 of the Royal Court Rules. The issue is raised in connection with the defendant's claim against the third party for a contribution pursuant to Article 5(1)(c) Law Reform (Miscellaneous Provisions) (Jersey) Law 1960 ("the 1960 Law"). I announced my decision at the conclusion of the hearing and now give my reasons.
The factual background
2. There has of course been no evidence and therefore no findings of fact, but the broad background would appear to be as follows. The plaintiff operates an electricity generation plant at La Collette Power Station ("the Power Station"). On 30th December 1997 the plaintiff entered into a written contract ("the Contract") with the third party for the design, manufacture, supply, installation and commission of a water treatment plant ("the Water Treatment Plant") at the Power Station. The works carried out by the third party included the provision within the Water Treatment Plant of two bulk hydrochloric acid storage tanks ("the Storage Tanks"). Following commissioning, the Water Treatment Plant was handed over to the plaintiff on 6th October 1998.
3. The Storage Tanks contained large quantities of hydrochloric acid. They were built within a concrete bund ("the Bund"). The third party designed and installed a valve at the base of one of the Storage Tanks for the purpose of drainage ("the Valve").
4. In 1999 the plaintiff contracted with the defendant for the erection of scaffolding in order to enable access to be obtained to the Storage Tanks for cleaning and repair. On 19th November 1999 the defendant was instructed to dismantle the scaffolding and it undertook the work that day. It is alleged that, during the course of that dismantling, an employee of the defendant dropped a scaffolding clip. The clip fell onto the Valve which suffered a brittle fracture and separated from the Storage Tanks. As a result hydrochloric acid drained out of the Storage Tanks into the Bund. The acid caused damage to the plaintiff's property. It is not entirely clear from the Order of Justice but the parties were content for the purposes of this hearing to proceed on the basis that the plaintiff's claim related to damage both to the Water Treatment Plant and to other parts of the Power Station.
5. By Order of Justice dated 12th November 2002 the plaintiff brought a claim for damages against the defendant in respect of the damage caused by the leak of hydrochloric acid as a result of the dropping of the scaffolding clip. The claim was brought both in contract and in tort, the alleged tortious duty being one to exercise reasonable skill and care in the exercise of the defendant's duties under its contract with the plaintiff.
6. By its answer the defendant denied liability to the plaintiff. Alternatively it claimed a contribution or indemnity from the third party. In essence it alleged that the third party owed a duty of care in tort towards the plaintiff to exercise reasonable skill and care in the performance of its duties under its contract with the plaintiff. It was further alleged that the third party had breached that duty in that, by reasons of failures on the part of the third party, the Valve was particularly brittle so that it broke when struck by the falling scaffolding clip whereas, if it had been properly designed and installed, it would not have so broken.
The 1960 Law
7. Article 5(1)(c) of the 1960 Law provides as follows:-
"(1) Where damage is suffered by any person as a result of a tort (whether a crime or not):- ......... (c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued have been, liable in respect of the same damage, whether the joint tortfeasor or otherwise so however that no person shall be entitled to recover contribution under this Article from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought."
8. There is no dispute between the parties that this right of contribution only applies where a tortfeasor seeks to recover from another tortfeasor in respect of the same damage. In England, the equivalent statutory provision was Section 6 Law Reform (Married Women and Tortfeasors) Act 1935. The report of the Law Commission (Law Comm No 79) in 1977 recommended that the statutory right to obtain a contribution should be widened to cover the situation where one or other of the parties (or both) was not a tortfeasor but was liable to the plaintiff for breach of contract, breach of trust or other breach of duty. That was achieved by the passing the Civil Liability (Contribution) Act 1978. But in Jersey the position remains unaltered. It follows that the defendant may only seek a contribution from the third party if the third party could be liable in tort to the plaintiff, if sued, in respect of the damage which is the subject of the claim in the Order of Justice. What the third party says in this case is that any tortious duty which would otherwise have been owed by the third party to the plaintiff has been excluded by the terms of the contract between the plaintiff and the third party. The third party could only be liable to the plaintiff in contract and accordingly could not be ordered to make a contribution to the defendant under the 1960 Law.
Concurrent liability in tort and contract
9. Whatever may have been the doubts in earlier years, it has been authoritatively held by the House of Lords in Henderson -v- Merret Syndicates Limited and Others (1995) 2 AC 145 that concurrent claims in tort and contract may arise in the context of a contractual relationship. I have been much assisted by reading the judgment of Lord Goff which deals with this topic at pages 184-194. There are certain passages in the judgment which are worth quoting.
10. At page 191 Lord Goff quotes with approval a statement by Oliver J in the case of Midland Bank Trust Co Limited -v- Hett Stubbs and Kemp (1979) Ch 384 at 522:-
"A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence."
At page 193:-
"Yet the law of tort is the general law, out of which the parties can, if they wish, contract; and, as Oliver J demonstrated, the assumption of responsibility may, and frequently does, occur in a contractual context. Approached as a matter of principle, therefore, it is right to attribute to that assumption of responsibility, together with its concomitant reliance, a tortious liability and then to enquire whether or not that liability is excluded by the contract because the latter is inconsistent with it."
At page 194:-
"The result may be untidy; but, given that the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties, I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him, subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that, in accordance with ordinary principle, the parties must be taken to have agreed that the tortious remedy is to be limited or excluded."
Finally on the same page:-
"And in consequence, unless his contract precludes him from doing so, the plaintiff, who has available to him concurrent remedies in contract and tort, may choose that remedy which appears to him to be the most advantageous."
11. As Lord Goff reminds us, a tortious duty is imposed by the general law. If the requirements for the imposition of such a duty are present (i.e. proximity, foreseeability and it being just and reasonable) a duty of care will arise as a matter of law. One then has to examine the contract in order to see if, by agreement, the parties have chosen to limit or exclude altogether the liability in tort which would otherwise arise by operation of law in the event of a breach of that duty.
12. The defendant alleges that the relationship between the plaintiff and the third party was such as to give rise to a tortious duty of care on the part of the third party in connection with the works which it was undertaking. Whether there was such a duty of care will of course depend upon the evidence and cannot be resolved at this stage. But it is pleaded by the defendant and, for today's purposes, I must proceed on the assumption that there was such a duty of care. The question is whether the terms of the Contract are such as to limit or exclude it.
13. Henderson is of course an English case but none of the parties before me have sought to argue that Jersey law differs from English law in this respect. Tort is an area of law where the law of Jersey is strongly influenced by English law.
Do the terms of the contract limit or exclude a remedy in tort?
14. Mr Preston argues that, as a matter of construction, the Contract between the plaintiff and third party excludes any liability in tort for the damage which occurred in this case so that the third party cannot be a tortfeasor vis-à-vis the plaintiff. I must therefore refer to the relevant provisions of the Contract.
15. Clause 13.1 imposes what one might call a conventional contractual duty of care. The first sentence of the clause reads:-
"The Contractor shall, subject to the provisions of the Contract, with due care and diligence, design, manufacture, deliver to Site, erect and test the Plant, execute the Works and carry out the Tests on Completion within the Time for Completion."
16. Clause 36 is headed 'Defects Liability'. It defined 'Defects Liability Period' which in the circumstances of this case was the period of 12 months following the date of the handing over of the works, which was said to be 6th October 1998. Clause 36.2 provided that the contractor would be responsible for making good any defect in or damage to any part of the works appearing during the Defects Liability Period and which arose from either any defective materials, workmanship or design or from any act or omission of the contractor done or omitted during the Defects Liability Period. Clause 36.10 provided for an extension of the liability period in respect of latent defects so that if any defect of the type referred to in Clause 36.2 appeared within a period of 3 years after the date of handover, the same would be made good by the contractor by repair or replacement provided that the defect was caused by the gross misconduct of the contractor and would not have been disclosed by a reasonable examination prior to the expiry of the Defects Liability Period.
17. The key provision is Clause 44 which I set out in full:-
"Limitations of Liability
Mitigation of Loss
44.1 In all cases the party establishing or alleging a breach of contract or a right to be indemnified in accordance with the Contract shall be under a duty to take all necessary measures to mitigate the loss which has occurred provided that he can do so without unreasonable inconvenience or cost.
Indirect or Consequential Damage
44.2. Except as expressly provided in Sub-Clauses 34.1 (Delay in Completion) and 35.8 (Consequences of Failure to Pass Performance Tests) for the payment or deduction of liquidated damages for delay or failure to achieve performance and except for those provisions of the Conditions whereby under Sub-Clause 41.2 (Allowance for Profit on Claims) the Contractor is expressly stated to be entitled to receive profit, neither the Contractor nor the Purchaser shall be liable to the other by way of indemnity or by reason of any breach of the Contract or of statutory duty or by reason of tort (including but not limited to negligence) for any loss of profit, loss of use, loss of production, loss of contracts or for any financial or economic loss or for any indirect or consequential damage whatsoever that may be suffered by the other.
Limitation of Contractor's Liability
44.3 In no circumstances whatsoever shall the liability of the Contractor to the Purchaser under the Conditions for any one act or default exceed the sum stated in the Appendix or if no sum is so stated, the Contract Price. The Contractor shall have no liability to the Purchaser for or in respect or in consequence of any loss of or damage to the Purchaser's property which shall occur after the expiration of the Defects Liability Period except as stated in Sub-clause 36.10 (Latent Defects).
Exclusive Remedies
44.4 The Purchaser and the Contractor intend that their respective rights, obligations and liabilities as provided for in the Conditions shall be exhaustive of the rights, obligations and liabilities of each of them to the other arising out of, under or in connection with the Contract or the Works, whether such rights, obligations and liabilities arise in respect or in consequence of a breach of contract or of statutory duty or a tortious or negligent act or omission which gives rise to a remedy at common law. Accordingly, except as expressly provided for in the Conditions, neither party shall be obligated or liable to the other in respect of any damages or losses suffered by that other which arise out of, under or in connection with the Contract or the Works, whether by reason or in consequence of any breach of contract or of statutory duty or tortious or negligent act or omission."
18. Mr Preston submits as follows:-
(i) Clause 44.4 excludes any liability whatsoever in tort.
(ii) If that is wrong, there can nevertheless be no tortious liability in respect of the particular damage in this case because:-
(a) it is pure economic loss to the extent that the damage was caused to the Water Treatment Plant itself; and
(b) to the extent that damage was caused to parts of the Power Station outside the Water Treatment Plant, such damage was either 'financial or economic' or was 'consequential' and is therefore excluded under Clause 44.2.
I will take these points in turn.
19. Mr Preston submitted that clause 44.4 was a total exclusion of any tortious liability. It was as if it read something along the lines "The Contractor shall not be under any liability in tort in any circumstances whatsoever arising out of or in connection with the Contract or the Works". He pointed to the use of the word 'exhaustive' and contended that this must mean that there could be no rights, obligations or liabilities except as provided for in the Conditions. Mr Young, on the other hand, submitted that the effect of the wording was simply to confine any tortious liability so that it existed only to the same extent as and did not exceed the contractual liability. The nature and extent of any tortious remedy were confined by the contractual terms but such a remedy was not excluded.
20. In my judgment, Mr Young's construction is to be preferred. I so conclude for the following reasons:-
(i) As a matter of general principle, clear words are required to exclude altogether a tortious liability for negligence. As Lord Goff made clear, a contract may limit or exclude a tortious remedy. If the words used in a contract are equally capable of being words of limitation rather than words of exclusion, the former is to be preferred.
(ii) I do not read the first sentence of the Sub-Clause as necessarily excluding altogether any tortious remedy; I consider that it is more consistent with an intention to confine the tortious remedy so that it is exactly co-extensive with the contractual remedy.
(iii) Support for this construction is obtained from the second sentence of the Sub-Clause. Reducing it to the bare minimum, the second sentence (which is after all an explanation of the consequences of the first sentence) reads "Accordingly, except as expressly provided for in the Conditions, neither party shall be ............ liable to the other ........... by reason ....... of any ...... tortious or negligent act............." (emphasis added). Mr Preston submits that this means that there can be no liability for any tortious or negligent act. In my judgment it would have been easy to say that if that was desired. One could simply have deleted the words "except as expressly provided for in the Conditions". The existence of the exception implies that there can be a tortious liability if the exception applies. In my judgment the sentence is saying that there can be liability for a tortious or negligent act provided that it is in accordance with the Conditions of the Contract.
(iv) Mr Preston's interpretation can be tested by undertaking the same exercise in relation to a breach of contract. This would read "Accordingly, except as provided for in the Conditions, neither party shall be ............ liable to the other .............. by reason ........ of any breach of contract ................" Mr Preston accepted that this could not possibly mean that there could be no liability for any breach of contract. What it means is that there can be no liability for breach of contract other than as envisaged in the Conditions. If the wording of the provision does not wholly exclude any liability for breach of contract but only for any contractual liability which goes beyond that envisaged in the Conditions, why does the same principle not apply in respect of tortious liability so that the Clause does not exclude any liability for tort but only any tortious liability which is inconsistent with what is set out in the Conditions?
(v) Support for the interpretation which I prefer can also be derived from Clause 44.2. Again, stripping away unnecessary wording, this provides "Except as expressly provided in Sub-Clauses 34.1...... 35.8 .............. and .....41.2 ............. the Contractor ............ shall [not] be liable ............ by reason of tort (including but not limited negligence) for any loss of profit ............." Thus the Clause expressly envisages that, in relation to Sub-Clauses 34.1, 35.8 and 41.2, there could be a liability in tort for loss of profit. That is inconsistent with Mr Preston's interpretation of Clause 44.4 which, he says, excludes any possibility of any liability whatsoever in tort.
(vi) Further support can be derived from Sub-Clause 36.9. This is part of Clause 36 which sets out the circumstances in which the third party, as Contractor, will be liable in respect of defects. The Sub-Clause reads:-
"The Contractor's liability under this Clause shall be in lieu of any contract term implied by law as to the quality or fitness for any particular purpose or the workmanship of any part of the Works taken over under Clause 29 (Taking-Over) and, save as expressed in this Clause 36, neither the Contractor nor his Sub-Contractors, their respective servants or agents shall be liable, whether in contract, in tort (including but not limited to negligence) or by reason of breach of statutory duty or otherwise, in respect of defects in or damage to such part, or for any damage or loss of whatsoever kind attributable to such defects or damage or any work done or service or advice rendered in connection therewith..........."
Again, leaving out irrelevant wording, the Sub-Clause reads:-
"The Contractor's liability under this clause shall be in lieu of any contract term implied by law ..................... and, save as expressed in this Clause 36 ........... the Contractor shall [not] be liable in tort (including but not limited to negligence) in respect of defects ....... or damage".
Thus the Sub-Clause envisages that there could be a liability in tort to the extent that it is expressed in (i.e. consistent with) Clause 36.
21. For these reasons I hold that Clause 44.4 does not exclude the possibility of any remedy in tort. What it provides is that the remedy in tort is to be limited so as to be exactly co-extensive with the liability in contract.
22. Mr Preston next submitted that, if I were to be against him on his primary submission (that there could be no liability in tort), there could be no tortious liability in respect of the particular damage referred to in this case. In the first place, he sought to categorise the loss as pure economic loss. He appeared to submit two grounds in support. In the first place he argued that, because the defendant had not suffered damage to its own property, its claim for contribution against the third party was therefore one for pure economic loss. But, with all respect to him, that does not appear to lead anywhere. The claim brought by the defendant against the third party is not a claim under the general law of tort (where if it is a claim for pure economic loss, issues may arise as to whether there is a relevant duty of care). It is a claim for contribution pursuant to a remedy created by statute. Inevitably, whenever a claim for contribution is made by a defendant against a third party, that claim will be for a purely economic loss in that the loss claimed will be the financial liability of the defendant to a plaintiff. In the end I did not understand Mr Preston to maintain this point.
23. His second point on this aspect was that any claim by the plaintiff against the third party in respect of the losses referred to in the Order of Justice would be a claim for pure economic loss and would therefore, even if a tortious claim, be excluded under Clause 44.2. He accepted that the claim arose out of physical damage to the Power Station but he submitted that, to the extent that the damage was to the Water Treatment Plant itself, it was a purely economic loss. This was because damage to the very property supplied by the third party (even though owned by the plaintiff at the time of the damage) constituted only a pure economic loss. He was unable to cite any authority to support this proposition and I must confess to having had some difficulty with it. It seems to me that the claim in this case relates to the cost of remedying physical damage to the plaintiff's property and I do not see how this can be categorised as pure economic loss. Even if Mr Preston were correct, it would not assist him in this particular summons, as it would not be possible to determine without hearing evidence how much of the sum claimed related to damage to the Water Treatment Plant and how much to other parts of the Power Station, which were not supplied by the third party. However, in the absence of any authority to support Mr Preston's proposition, I reject his contention that the claim in respect of the particular damage in this case, if brought by the plaintiff against the third party, would have amounted to pure economic loss.
24. I turn to Mr Preston's next point, namely that the damage sustained in this case by the plaintiff was 'financial' or 'economic' or 'consequential' and that accordingly, given that the claim is not brought under Sub-Clauses 34.1, 35.8 or 41.2 of the Contract, there could be no liability for such damage (even if a claim in tort were theoretically possible) because it is excluded by Clause 44.2.
25. I do not accept this contention. I regard Clause 44.2 as being a fairly typical clause which is aimed at excluding liability for what one might call secondary or indirect loss. A classic example is where there is physical damage to a factory causing it to be shut down for some time so that it is unable to produce any goods. The cost of repairing the physical damage to the factory is the primary or direct head of loss. However there will often be some secondary or consequential loss; for example there will be loss of profit while the factory is not working, customers may take their business elsewhere and not come back because of the failure to supply the product, new business opportunities may be lost for the same reason and so forth. There are endless possibilities. In my judgment the expressions 'financial' 'economic' and 'consequential' all refer to losses of this nature. The Sub-Clause is intended to confine liability to the primary or direct loss. Assuming that any claim brought against the third party would be similar terms to that brought against the defendant, the plaintiff's claim in this case, apart possibly from one item, appears to be for the costs of repairing physical damage to its property. I do not consider therefore that it falls within any of the exemptions contained in Clause 44.2.
26. In his written submissions Mr Preston submitted that there could be no tortious liability on the part of the third party towards the plaintiff because, by reason of Clause 44.3, there could be no liability after the 12- month period following handover save in respect of latent defects. He asserted that the plaintiff's claim did not relate to latent defects. However, he accepted at the hearing that this was a matter of evidence and the Court could not make any ruling at this stage on whether the claim arose out of latent defects (so as to extend the relevant period to 3 years) or not. He did not therefore press the point. I would add that, although this was not touched upon at the hearing, there must be a question as to whether this is a relevant consideration. It would seem from the case of Bell -v- Heating and Ventilation Engineering Company Limited (1985/86) JLR 241 that the fact that a tortious claim by the plaintiff might be prescribed against the third party is not a prohibition on a defendant (against whom proceedings have been started in time) seeking a contribution from the third party. However I reach no conclusion on that point as it is not material for disposing of the present application and has not been argued.
Conclusion
27. The contention of the third party was that the claim for contribution by the defendant against the third party should be dismissed on the ground that, as a matter of construction of the Contract, the third party could not be a tortfeasor in respect of the damage suffered by the plaintiff. It could only be liable to the plaintiff in contract. It could not therefore be liable to make a contribution to any liability of the defendant pursuant to Article 5(1)(c) of the 1960 Law. I have found against the third party in this respect in that I consider that the Contract does not wholly exclude any tortious liability on the part of the third party to the plaintiff but merely makes any such liability concurrent and co-extensive with any contractual liability. The case will therefore have to proceed to trial in order to determine in the light of the evidence whether the defendant is liable to the plaintiff in tort and if so, whether the third party is a fellow tortfeasor and therefore liable to contribute.
Procedure
28. Before leaving the matter I would wish to refer briefly to one procedural matter. Rule 7/8(1) provides as follows:-
"The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any proceedings at any stage of the proceedings where it appears to the Court that:-
(a) such question is suitable for determination without a full trial of the action; and
(b) such determination will finally determine (subject only to any possible appeal) the entire proceedings or any claim or issue therein."
Rule 7/9 goes on to say that an application under Rule 7/8 may be made by summons or may be made orally in the course of any interlocutory application to the Court. It is clear from Rule 7/8 and 7/9 that the Court (in the shape of the Master or the trial judge, as the case may be) has to exercise a discretion as to whether to order that a preliminary issue be tried under Rule 7/8. It may only do so where the criteria in paragraphs (a) and (b) are satisfied. It is clear that a party who wishes to suggest that the Court should order the trial of a preliminary issue should make an application by summons for determination of whether there should be such a trial. The application must formulate the relevant point of law or construction. The other parties may be heard and the Court will consider whether the criteria are met and whether the efficient disposal of the case would be best served by ordering the trial of a preliminary issue or not.
29. That did not occur in this case. No summons was issued for decision as to whether a preliminary issue should be ordered. The third party simply issued a summons for determination of five listed issues and obtained a date for the hearing of the summons from the Bailiff's Judicial Secretary. The matter appeared in the Court's list as the hearing of a preliminary issue without the Court ever having decided that this was a suitable course of action.
30. As it turns out, I agree that issue 4 and 5 in the summons were suitable for determination as a preliminary issue in that both paragraphs (a) and (b) of Rule 7/8(1) were satisfied. Had I decided the point of construction on tort in favour of the third party it would have brought the third party proceedings to an end. However in its summons, the third party also raised three other issues as issues 1-3. The third party's skeleton argument went into these in great detail and quoted numerous authorities. It was only upon lodging of the defendant's skeleton argument in response that it became clear that these issues were not relevant to the question of a contribution under Article 5(1)(c) of the 1960 Law. Had a summons been taken out before the Master in the ordinary way so that he could consider whether trial of a preliminary issue should be ordered, there is a reasonable likelihood that the difficulties in respect of issues 1-3 would have been identified at that stage and unnecessary costs would have been saved.
31. Be that as it may, the point that I wish to make clear is that it is not open to a party simply to attend before the Judicial Secretary to seek a date for the hearing of a preliminary issue under Rule 7/8. There must first be an application (usually to the Master but sometimes to the trial judge) for determination as to whether it is an appropriate case for the Court to order the trial of a preliminary issue.
Authorities
Royal Court Rules 1992: Rules 7/8.
Law Reform (Miscellaneous Provisions) (Jersey)Law 1960: Article 5(1)(c).
Henderson -v- Merret Syndicates Ltd & Ors (1995) AC 145.
Midland Bank Trust Co. Ltd -v- Hett, Stubbs and Kemp (1979) Ch. 384 at 522.
Bell -v- Heating & Ventilation Engineering Co. Ltd. [1985-86] JLR241.