Scottish Court of Session Decisions

Some time prior to the accident aftermentioned the pursuers ("Lindsay") hired to the defenders ("Norwest") a JCB vehicle. That vehicle was so supplied with an operator, Mr Winning. On or about 4 July 1993 a Mr Stirling, a labourer employed by Norwest at a building site in Castlemilk, Glasgow, was working on that site in the course of his employment. He was assisting Mr Winning who was there operating the JCB in furtherance of the hire arrangement made with Lindsay. Mr Stirling sustained injury in the course of that operation when his right lower leg and foot were pinned between part of the JCB and a pavement and kerb.

Mr Stirling raised proceedings in the Court of Session for damages. He convened as defenders Norwest, his employer, and Lomond Plant Limited ("Lomond"). Lomond, it appears, was the owner of the JCB and the employer of Mr Winning. According to Lindsay's averments in the present action the JCB (with Mr Winning as operator) had in or about April 1993 been hired by Lindsay from Lomond. The grounds of action pled by Mr Stirling against Norwest were negligence at common law and breach of statutory duty. The cases at common law were based on alleged breaches of duties to take reasonable care to provide a safe place of work, safe plant and equipment and a safe system of working. The statutory cases were based on alleged breaches of seven separate regulations, namely, regulations 26(3) and 49(1) of the Construction (Lifting Operations) Regulations 1961, regulation 6(2) of the Construction (Working Places) Regulations 1966 and regulations 5, 8, 9 and 10 of the Provision and Use of Work Equipment Regulations 1992. The grounds of action pled by Mr Stirling against Lomond were also negligence at common law and breach of statutory duty. The case at common law was based on the proposition that Mr Winning had negligently operated the JCB and that Lomond as his employer was vicariously liable for his acts and omissions. Mr Stirling also pled a case against Lomond on the basis of alleged breach of regulation 26(3) of the Construction (Lifting Operations) Regulations 1961.

Lomond convened Lindsay to Mr Stirling's action by third party notice on an allegation that, under the terms of the relative contract of hire, Lindsay was in a question between them liable for any damages, losses, charges or expenses arising out of or as a consequence of any accident involving any vehicle hired under that contract. They thus claimed indemnity from Lindsay. The relevancy of Lomond's averments directed against Lindsay was discussed at procedure roll before Lord Macfadyen. On 29 June 1996 his Lordship granted decree of dismissal in Lindsay's favour (Stirling v Norwest Holst Ltd 1997 S.L.T. 973).

The case directed against Norwest and Lomond then proceeded to proof before answer. At the diet of proof before Lord Eassie the defenders, after the evidence of the pursuer had been led, intimated to the court that liability was admitted by each of them and that an apportionment between them of their joint and several liability to Mr Stirling had been agreed extrajudicially (Stirling v Norwest Holst Ltd (No.2) 1998 S.L.T. 1359 at p.1360). The case proceeded on the issue of quantum only. Lord Eassie assessed the damages payable to Mr Stirling in the sum of £231,717 inclusive of interest and "in respect of the minute of liability number 49 of process" found Norwest and Lomond jointly and severally liable to Mr Stirling in that sum (p.1370). That minute was not before me at the debate in this action but the terms on which liability was dealt with in the earlier action are sufficiently clear from Lord Eassie's opinion. In this action it is averred that the extrajudicial agreement between Norwest and Lomond was to the effect that Lomond would, as between them, be liable for 15% of any damages and expenses awarded to Mr Stirling.

The discussion before Lord Macfadyen referred to above was directed to a claim for relief under clause IV(2) of the conditions of contract there discussed. It proceeded on the assumption that insurance, as provided for under clause III(1), was in force. It subsequently emerged that that assumption was mistaken. In those circumstances Lomond made an extrajudicial claim for relief against Lindsay under a different provision of those conditions, namely, clause III(2). That claim was for relief in respect of 15% of the damages (and judicial interest) and expenses which Lomond claimed to have paid in furtherance of the extrajudicial agreement on apportionment. Lomond also claimed relief against Lindsay in respect of its own expenses in Mr Stirling's action. In the present action Lindsay having, as it avers, made payment to Lomond of the sums claimed by it seeks indemnity from Norwest in respect of those payments.

The discussion before me included consideration of two sets of conditions of hire, namely (1) those said by Lindsay to have been incorporated in a contract between it and Lomond ("the Lomond conditions") and (2) those said by Lindsay to have been incorporated in a contract between it and Norwest ("the Lindsay conditions"). In this action Norwest does not admit that there was any contract of hire between Lindsay and Lomond (nor what terms were incorporated into any such contract). It admits that Lindsay hired to it the JCB together with Mr Winning but it does not (due to an inability to trace relative documentation) admit that the conditions averred by Linsday were incorporated into the contract with it. However, for the purposes of the debate on relevancy Lindsay's averments of these contractual arrangements must be taken pro veritate.

The Lomond conditions include the following:

The Lindsay conditions include the following:

Condition 1 of those conditions defines "Owner" as meaning "the person, firm or company letting out the plant on hire" and "Hirer" as meaning "the person, firm or company or other party taking the plant on hire".

On behalf of Norwest Mr Clancy's primary motion was that the action be dismissed on the grounds, first, that there were no relevant averments to instruct the proposition that Lindsay had had any liability to Lomond and, second and in any event, that there were no relevant averments that Norwest was obliged to indemnify Lindsay in respect of any such liability. Although Mr Clancy's submissions addressed the second issue first, it is convenient to narrate the arguments in the alternative order.

Mr Clancy submitted that the Lomond conditions had no application to circumstances, such as those which had occurred, where Lindsay had sub-let the JCB (with Mr Winning) to another party, such as Norwest. These conditions, in contrast to the Lindsay conditions, did not contemplate sub-letting. No express provision was made for that. Clause III(2) did not refer to liability arising from the actions of the operator. The general thrust of these conditions was that the vehicle, being retained in the hirer's possession, would be operated under its direction and control. Reference was made to clauses II(1) and (5). Any claim made by Lomond against Lindsay would in these circumstances properly be one for breach of contract. It could not have been in the contemplation of Lindsay and Norwest that the latter under the contract between them would indemnify the former for breach by it of another contract. In any event, the proferens under the Lomond conditions was Lomond, the employer of Mr Winning. The law presumed that a party would not readily be granted an indemnity against a loss caused by his own negligence (Chitty on Contracts (28^th ed.) para.14-015). The three tests relative to the construction of exclusion clauses identified by Lord Morton of Henryton in Canada Steamship Lines Ltd v The King [1952] AC 192 at p.208 were applicable also to indemnity clauses. Those tests were discussed in Chitty at paras. 14-010 to -013. In the present case there was clearly no express reference in clause III(2) to negligence on the part of the proferens or its employees. Nor was the clause wide enough to include negligence. The phraseology of the clause could be contrasted with the expressions discussed in Chitty at para. 14-011. "Against all loss" was apt to embrace all heads of damage but not all causes of damage, including negligence. In any event there was a strong doubt whether it was so apt. Moreover, the third test was not satisfied. It was possible to identify circumstances in which the proferens would wish indemnity other than in respect of negligence on the part of the operator. Such circumstances would include liability arising, whether at common law or for statutory breach, relative to the state of the vehicle. They would also include liability for statutory breaches arising out of the operation of the JCB. Reference was made to the Provision and Use of Work Equipment Regulations 1992, regulations 4, 5(1), (2) and (3), 6, 8(1) and (2), 9, 10 and 11(1) and to the Construction (Lifting Operations) Regulations 1961, regulation 26(3). Statutory liabilities might also arise under the Motor Vehicles (Construction and Use) Regulations (if the JCB was driven, as it might be, on a public road). It was irrelevant to the issue of construction whether Lomond's liability to Mr Stirling had been on the basis of negligence by Mr Stirling or on some other ground, though it was very difficult, if not impossible, to conclude that there could have been any other valid ground. Although Mr Stirling had averred that Lomond (as well as Norwest) had been undertaking building operations on the site and had alleged against it a breach of the Construction (Lifting Operations) Regulations 1961, it was difficult to see how such a case could have been factually or legally well founded. In any event any liability founded on a breach by Lomond of a statutory duty incumbent on it personally could not found a claim for indemnity against Norwest under the Lindsay conditions; indemnity under the latter related only to claims arising out of the actions of the operator.

As regards the Lindsay conditions, Mr Clancy submitted that these conditions were intended to apply, where an operator was provided with plant, only where that operator was an employee of the Owner as defined, not where the operator was, as here, the employee of a third party (Lomond). In the latter circumstances the Owner would not be in a position to instruct or direct the operator or to require him to work under the supervision and instructions of the Hirer. It could not have been Norwest's intention to indemnify Lindsay for losses arising from negligence on the part of an operator employed by a third party. The purpose of condition 6 was to give the Owner the protection of an indemnity in respect of liability for negligence on the part of its own employee while under the control of the Hirer. There was no sensible rationale in seeking to indemnify the owner against the acts and omissions of an operator for whose actings he could not be held liable. Moreover, it could not, as earlier submitted, have been the intention of Norwest to indemnify Lindsay against a claim which depended on a completely separate contract to which Norwest was not a party and of which it had no notice. The claim for which Lindsay was suing in this action was not, on a sound construction of condition 6, a claim arising from the actions of the operator but was a claim arising from the terms of a separate contract (and from an alleged breach of it).

The motion, as finally formulated, made by Mrs Wolffe for Lindsay was to allow a proof or in any event a proof before answer. Many of Mr Clancy's arguments, she submitted, proceeded on a basis which ignored the realities of the factual situation. In particular, it was plain that Mr Winning, as operator, had in fact been provided by Lomond along with the JCB. The contract of hire between Lomond and Lindsay had to be construed in that context. In such circumstances it could not be right that Lomond had not intended its conditions to apply to circumstances where an operator was provided with the plant. Nor could it be right that the Lomond conditions were not intended to apply where there had been a sub-let. Everyone knew that the JCB and Mr Winning had been supplied on by Lindsay to Norwest. In the pleadings in Mr Stirling's action it had been averred by him that Lomond was undertaking building operations on the site. It was inappropriate to construe the conditions otherwise than in the factual matrix of the relative contracts and having regard to the commercial realities of each situation. Reference was made to Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd 1994 S.C. 351, per Lord President Hope at pp.357-8 and 363 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, per Lord Hoffmann at pp.912-3. In these circumstances it might be necessary that the proof should address not only the incorporation of the relative conditions but the whole surrounding circumstances.

As regards the Lomond conditions, it was inappropriate, she argued, in construing these to have regard to the terms in which the Lindsay conditions were expressed. On a sound construction of the Lomond conditions, there was no reason why these should not apply to circumstances where an operator was provided by Lomond with the machine. The absence of any express reference to such a situation was immaterial; claims arising from the use or operation of the vehicle could readily embrace circumstances where the operator was an employee of Lomond. Clause II(1) was concerned with the use to which the vehicle could be put, not to the employment status of the operator; clause II(5) did not in the particular circumstances have the effect of excluding lawful sub-hire. Even if Lindsay had been in breach of its contract with Lomond (which was not accepted), Lindsay could not have relied on that breach to elide its liability under clause III(2).

It was accepted that the tests identified in Canada Steamship Lines Ltd v The King relative to exclusion clauses were applicable also to indemnity clauses (Smith v U.M.B. Chrysler (Scotland) Ltd 1978 SC (HL) 1). It was also accepted that clause III(2) made no express reference to negligence. The words used were, however, Mrs Wolffe submitted, wide enough, in their ordinary meaning, to cover negligence on the part of an employee of Lomond. Negligence on the part of its employee actively operating the machine was an obvious risk against which Lomond would seek an indemnity. "Use" might be a wider concept than "operation". Reference was made to Murray v Caledonia Crane & Plant Hire Ltd 1983 S.L.T. 306. Loading and unloading (which were specifically covered) might be an aspect of use. "Arisen from" might also be wider than "caused by" (North of Scotland Hydro-Electric Board v D & R Taylor 1956 SC 1). As regards the third test, it was not accepted that any of the statutory provisions referred to by Mr Clancy provided a ground (other than one which was fanciful or remote) on which liability might be based. The only real risk of liability being incurred by Lomond from the use and operation of the vehicle was of liability for the negligence of its employee in operating it. In any event, the issue of interpretation arose as a live issue only if there had been a finding (as in North of Scotland Hydro-Electric Board v D & R Taylor) or an admission of negligence on the part of Mr Winning. Here there had been neither. What had occurred in Mr Stirling's action was, on a proper analysis, a compromise on the issue of liability, only the issue of damages having gone to judicial determination. The distinction between a compromise and a finding of liability (for the purposes of indemnity) was pointed by Comyn Ching & Co Ltd v Oriental Tube Co Ltd [1979] 17 B.L.R. 47. In Nelson v Atlantic Power and Gas Ltd 1995 S.L.T. 102 the personal injuries action had been settled with the pursuer. There the respondents had, on the indemnity aspect, conceded that a ground on which the personal injuries claim had been settled was a ground to which, they also conceded, the indemnity applied. Here there was at least doubt whether Lomond had settled on the basis of negligence on the part of its employee. (E E Caledonia Ltd v Orbit Valve Co Europe [1994] 1 W.L.R. 1515 was also mentioned).

As regards the Lindsay conditions, Mrs Wolffe submitted that the wording of condition 6 was clear. The indemnity applied to claims made against Lindsay as Owner arising out of the actions of the operator. It was irrelevant in a question under the indemnity whether Mr Winning was or was not an employee of Lindsay. In any event, it should not be assumed that, whatever the position in a question with Mr Stirling, Mr Winning was, as between Lindsay and Norwest, an employee of Lomond. Looking at the contract terms as a whole there was nothing to support the contention that condition 6 was not intended to apply to circumstances such as had occurred here. In any event the Lindsay conditions could not satisfactorily be construed without consideration of their factual matrix.

I have come to the view that many of the legal issues raised at debate cannot satisfactorily be resolved without the relative factual background being established by evidence. It is, however, possible to reach some conclusions, albeit provisionally, at this stage. As that may inform the future of this action, I express them.

In the present action Lindsay claims indemnity from Norwest under condition 6 of the Lindsay conditions. I assume for present purposes that those conditions were effectually incorporated into the contract of hire between Lindsay and Norwest and that they, including condition 6, were applicable where an operator provided with plant was a person in the general employment of a third party such as Lomond. As Mr Clancy pointed out, the obligation of the Hirer under condition 6 is to free and relieve the Owner of and from "all claims ... arising from the actions of the operator ...". The obligation of relief does not extend to claims arising (immediately or more remotely) otherwise than from the actions, in this case, of Mr Winning. Accordingly, a claim arising from breach of any personal obligation of Lomond could not found a relevant basis for relief under condition 6. In his action Mr Stirling founded his claim against Lomond on the basis of alleged negligence on the part of Mr Winning (for whose acts and omissions Lomond were averred to be vicariously responsible) and of alleged breach by Lomond of regulation 26(3) of the Construction (Lifting Operations) Regulations 1961. The obligation imposed by that regulation rests personally on a contractor and on an employer of workmen undertaking building operations. Although Mr Stirling had an averment that both defenders (namely, Norwest and Lomond) were undertaking building operations on the site, that bald averment is not elaborated insofar as concerns Lomond and is denied by Lomond. Prima facie is difficult to see how Lomond, whose sole connection with the site appears to have been as owner of the hired JCB and as general employer of Mr Winning, could have been a party on whom an obligation under regulation 26(3) was incumbent. The claim on that basis does not in these circumstances appear to be one which ever had a reasonable prospect of success. But, even if it had, any claim (or established liability) on that ground, not being one arising from the actions of the operator, could not relevantly found a claim by Lindsay against Norwest under condition 6. Thus the only claim potentially relevant for the latter purpose is Mr Stirling's claim that his accident was caused by the negligence of the operator, Mr Winning, Lomond's employee.

The claim made against Lindsay was not one made by Mr Stirling but by Lomond who had met in part Mr Stirling's claim for damages. But I see no reason to suppose that condition 6 was intended to be restricted to claims made against the Owner by persons immediately affected by the actions of the operator. Accordingly, Norwest could under condition 6, in my view, be liable to relieve Lindsay of a claim made against it by Lomond provided that the claim against Lomond in turn arose from the actions of the operator. The latter claim, insofar as relevant for the purposes of condition 6, was Mr Stirling's claim based on negligence on the part of Mr Winning.

In the course of Mr Stirling's action Lomond, along with Norwest, admitted liability to him. In a question between Mr Stirling and Lomond that was a clear and unqualified admission. In my view it cannot properly be characterised as a compromise, even if it may have been a position adopted for economic reasons. Between those parties it was as effectual as an admission of liability made in the pleadings or as a judicial finding of liability after a contested proof. It can properly be equiparated with the finding of liability by the Sheriff-substitute referred to in North of Scotland Hydro-Electric Board v D & R Taylor. It was not, of course, binding on Lindsay. When Lomond came, as it did, to claim indemnity against Lindsay, the latter might have maintained that that admission of liability was not reasonably made and that in such circumstances Lindsay was not liable to indemnify Lomond. Lindsay did not, it appears, do so but paid Lomond the claim made by it. In these circumstances, for the purposes of the present action, Lindsay must, in my view, be taken to have accepted that the unqualified admission of liability made by Lomond was reasonably made. That admission did not identify the basis on which it was made. But as a claim (including an admitted claim) based on regulation 26(3) is of no assistance to Lindsay under condition 6 of the Lindsay conditions, the only claim of importance for present purposes is that based on negligence on the part of Mr Winning. It may be thought very likely that the admission by Lomond of liability turned on an appreciation of Mr Stirling's prospects of success against it on the common law basis. However that may be, the admission by Lomond is not, in any event, critical. Clause III(2) of the Lomond conditions includes an obligation to indemnify against loss claimed to have been caused by or to have arisen from the use or operation of a hired vehicle as well as from loss or liability in fact so caused or arising. So, even if Lomond had settled Mr Stirling's claim without any admission of liability, Lomond would have had a claim for indemnity against Lindsay which, subject to any challenge to the reasonableness of the settlement, Lindsay would have been obliged to meet (Comyn Ching & Co Ltd v Oriental Tube Co Ltd, per Goff L.J. at pages 83-4). For these reasons Mrs Wolffe's submissions relative to the absence of circumstances to which clause III(2) might apply are, in my view, unsound.

Accordingly I turn to the construction of that clause. As is accepted, the canons of construction applied in Canada Steamship Lines Ltd v The King to exclusion clauses are applicable also to indemnity clauses (North of Scotland Hydro-Electric Board v D & R Taylor; Smith v U.M.B. Chrysler (Scotland) Ltd). It is conceded that the clause does not expressly entitle Lomond to indemnity from the consequences of its own negligence (including that of its employee for which it is in law responsible). Accordingly, the first test is not met. The second test is whether the words used are wide enough, in their ordinary meaning, to cover such negligence. In my view the words used in clause III(2) are sufficiently wide for that purpose. It is true that words of emphatic comprehensiveness such as "howsoever" or "no matter how" are not used in relation to the cause or source of the loss, liability and expense. However clause III(2) must, in my view, be read in the context of clause III as a whole (Smith v U.M.B. Chrysler (Scotland) Ltd, per Lord Fraser at p.13). That clause provides in the first instance for insurance and, against the insurance stipulated for not for one of several reasons being effective, for indemnity. The scheme is primarily for insurance with supplementary protection by indemnity (Stirling v Norwest Holst Ltd, per Lord Macfadyen at p.976E-F). The insurance provided for is "full comprehensive insurance in accordance with the use and operation of each vehicle hired hereunder". Such insurance would, in my view, cover loss caused by or arising from the negligent use or operation of the vehicle by the operator of it. Subject to the argument that the Lomond conditions did not apply to circumstances in which an operator employed by Lomond was provided with the vehicle, such an operator would include such an employee. Indeed, in such circumstances negligence on the part of such an operator would be a circumstance which would readily have come to mind as a prospective cause of loss, liability or expense. It would be surprising if the indemnity provision, designed as it was to come into play if there was no effective insurance, did not cover negligent operation by such an operator. Subject again to the argument referred to above, no material doubt, in my view, arises on this matter. Accordingly, my provisional conclusion is that the second test is satisfied.

As regards the third test, it would at this stage be inappropriate to hazard even a provisional view. Much will depend on the context in which the contract between Lindsay and Lomond was placed - including whether it was then known that Mr Winning would be provided with the hired vehicle and that he and the vehicle would or might then be sub-hired to a third party; against such and possibly other factual matters it will necessary to determine what exposure of Lomond to loss, liability or expense and on what basis "must be taken to have been in the contemplation of parties" (Smith v U.M.B. Chrysler (Scotland) Ltd, per Lord Keith at p.18).

In the circumstances it would also be inappropriate, without first being apprised of the relevant factual matrix, to reach any view on the applicability of the Lindsay conditions to circumstances where the operator was a person not in the employ of Lindsay.

As both factual and legal issues remain to be resolved it will be necessary, in my view, in due course to proceed to a proof before answer. The case will be put out By Order to consider what procedural steps are required before such inquiry is formally allowed.