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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Balfour Beatty Ltd v Gilcomston North Ltd & Anor [2006] ScotCS CSOH_81 (23 May 2006)
URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_81.html
Cite as: [2006] CSOH 81, [2006] ScotCS CSOH_81, 2006 SCLR 717
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OUTER HOUSE, COURT OF SESSION [2006] CSOH 81 |
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A1769/00 |
OPINION OF LORD UIST in the cause BALFOUR BEATTY LIMITED Pursuers against (FIRST) GILCOMSTON NORTH LIMITED (formerly GILCOMSTON CONSTRUCTION LIMITED and (SECOND) O TURNER INSULATION LIMITED Defenders ________________ |
Pursuers: Martin QC, Francis; Brechin Tindal Oatts
First Defenders: Hodge QC, Primrose; Simpson & Marwick WS
Second Defenders: Cullen QC, Crawford; Dundas & Wilson CS
23 May 2006
Introduction
[1] On
the morning of
Procedural
history
The
Parties
[3] MacFish Limited ("the employer"), who owned premises in Watermill Road,
Fraserburgh entered into a contract ("the main contract") with the pursuers
("the contractor") for the construction of a cold store with associated loading
docks, plant rooms, offices and external works ("the cold store") at a site
there adjacent to their then existing premises. The first defenders
("Gilcomston") were subcontractors for cladding and structural steel under a
subcontract ("the Gilcomston subcontract"). The second defenders ("Turner")
were subcontractors for insulation under a subcontract ("the Turner
subcontract"). The parties are not in agreement about the terms of the main
contract and the two subcontracts, but consideration of the relevancy of the
pursuers' case must proceed on the basis of their averments.
The
Fire
[4] The pursuers' averments about the outbreak of the fire are briefly as
follows. The second defenders were engaged in lining the cold store walls with
225 mm expanded polystyrene ("EPS") pre-fabricated composite panels constructed
so that the EPS was sandwiched between layers of pressed steel. The exposed
face of the panels was white polyester coated, the concealed face was
galvanised and EPS was exposed at the ends of the panels before installation
was completed, rendering them flammable, as the first defenders knew. On
[5] In response the first defenders aver that the pursuers as main
contractors were in overall charge of the site and responsible for safety and
fire precautions, that their site agent Blair spoke to Smith and Johnston while
they were welding on 9 October, that he was aware all that day and the
following day that they were welding but did not advise them as to the
flammability of the insulation panels or instruct them to use fire blankets or
a fire extinguisher, and that although on 9 October Halldorsson warned him of
the risk of fire presented by the fire operation he did not arrange for a fire
watch to be maintained . The first defenders also aver that in terms of their
contractual obligations they provided the pursuers with a pack of method
statements and a risk assessment
including a document "Fire Prevention - Insulated Panels" which stated
that panels were to be protected during hot work, that such work was to be
closely monitored and that the use of blowtorches and naked flames was to be
avoided, as a result of which the pursuers and their site agents were aware of
the risk of carrying out hot work in the proximity of the insulation panels.
The second defenders make similar averments about having provided the pursuers
with a risk assessment containing the said document and aver that the advice
and warning given by Halldorsson and the information contained in the risk
assessment were not acted upon by the pursuers, that the pursuers did not
prohibit smoking in the cold store, where there were no "no smoking" notices
and where employees of Dave Walsh Electrical smoked.
The
main contract
[6] The main contract between the employer and the pursuers was in terms of
the Second Edition (1995) of the NEC Engineering and Construction Contract Core
Clauses with option clauses A, G, M, P, R and U subject to certain amendments
(no 6/1 of process). Core clause 8 deals with risks and insurance. It is in the
following terms:
"80 Employer's risks
80.1 The Employer's risks are
ˇ
Claims,
proceedings compensation and costs which are due to
ˇ
use or
occupation of the Site by the works or
for the purpose of the works which is
the unavoidable result of the works,
ˇ
negligence,
breach of statutory duty or interference with any legal right by the Employer or by any person employed by or
contracted to him except the Contractor or
ˇ
a fault of
the employer or a fault in his design.
ˇ
Loss of or
damage to Plant and Materials supplied to the Contractor by the Employer,
or by Others on the Employer's behalf,
until the Contractor has received and
accepted them.
ˇ
Loss of or
damage to the works, Plant and
Materials due to
ˇ
war, civil
war, rebellion, revolution, insurrection, military or usurped power,
ˇ
strikes,
riots and civil commotion not confined to the Contractor's employees,
ˇ
radioactive
contamination.
ˇ
Loss of or
damage to the parts of the works taken
over by the Employer, except loss or
damage occurring before the issue of the Defects Certificate which is due to
ˇ
a Defect
which existed at take over,
ˇ
an event
occurring before takeover which was not itself an Employer's risk or
ˇ
the
activities of the Contractor on the
Site after take over.
ˇ
Loss of or
damage to the works, and any
Equipment, Plant and Materials retained on the Site by the Employer after a termination, except loss and damage due to the
activities of the Contractor on the
Site after the termination.
ˇ
Additional
Employer's risks stated in the
Contract Data.
81 The Contractor's risks
81.1 From the starting date until the Defects Certificate
has been issued the risks which are not carried by the Employer are carried by the Contractor.
82 Repairs
82.1 Until the Defects
Certificate has been issued and unless otherwise instructed by the Project Manager the Contractor promptly replaces loss of and repairs damage to the works, Plant and Materials.
83 Indemnity
83.1 Each party indemnifies the
other against claims, proceedings, compensation and costs due to an event which
is at his risk.
83.2 The liability of each
Party to indemnify the other is reduced if events at the other Party's risk
contributed to the claims, proceedings, compensation and costs. The reduction
is in proportion to the extent that events which were at the other Party's risk
contributed, taking into account each Party's responsibilities under the
contract.
84 Insurance Cover
84.1 The Contractor provides the insurances stated in the Insurance Table
except any insurance which the Employer is
to provide as stated in the Contract Data.
84.2 The insurances are in the
joint names of the Parties and provide cover for events which are at the Contractor's risk from the starting date until the Defects
Certificate has been issued.
INSURANCE
TABLE
|
Insurance against |
Minimum amount of cover or minimum limit of liability |
|
Loss
of or damage to the works, Plant
and Materials |
The replacement cost, including the amount
stated in the Contract Data for the replacement of any Plant and Materials
provided by the Employer |
|
Loss
of or damage to equipment |
The replacement cost |
|
Liability for loss
of or damage to property (except the works,
Plant and Materials and Equipment) and liability for bodily injury to or
death of a person (not an employee of the Contractor)
caused by activity in connection with this contract |
The amount stated in the Contract Data for
any one event with cross liability so that the insurance applies to the
parties separately. |
|
Liability for
death of or bodily injury to employees of the Contractor arising out of and in the course of their employment
in connection with this contract. |
The greater of the
amount required by the applicable law and the amount stated in the Contract
Data for any one event. |
85
Insurance Policies
85.1 The
Contractor submits policies and
certificates for the insurance which he is to provide to the Project Manager for acceptance before
the starting date and afterwards as
the Project Manager instructs. A
reason for not accepting the policies and certificates is that they do not
comply with this contract.
85.2 Insurance
policies include a waiver by the insurers of their subrogation rights against
directors and other employees of every insured except where there is fraud.
85.3 The
Parties comply with the terms and conditions of the insurance policies.
85.4 Any
amount not recovered from an insurer is borne by the Employer for events which are at his risk and by the Contractor for events which are at his
risk.
85
If the Contractor
does not insure
86.1 The
Employer may insure a risk which this
contract requires the Contractor to
insure if the Contractor does not
submit a required policy or certificate. The cost of this insurance to the Employer is paid by the Contractor.
86
Insurance by the Employer
87.1 The
Project Manager submits policies and
certificates for insurances provided by the Employer
to the Contractor for acceptance
before the starting date and
afterwards as the Contractor instructs.
The Contractor accepts the policies
and certificates if they comply with this contract.
87.2 The
Contractor's acceptance of an insurance
policy or certificate provided by the Employer
does not change the responsibility of the Employer to provide the insurances stated in the Contract Data.
87.3 The
Contractor may insure a risk which
this contract requires the Employer to
insure if the Employer does not
submit a required policy or certificate. The cost of this insurance to the Contractor is paid by the Employer."
The pursuers aver that in terms of their respective subcontracts the
defenders are deemed to have inspected the main contract. The first and second
defenders aver in their answers that the precise terms of the main contract are
not known and not admitted.
The
subcontracts
"80 The Employer's and Contractor's risks
80.1 The Employer's
and Contractor's risks are
ˇ
Claims,
proceedings, compensation and costs payable which are due to
ˇ
use or
occupation of the Site by the works or
for the purpose of the works which is
the unavoidable result of the works,
ˇ
negligence,
breach of statutory duty or interference with any legal right by the Employer or the Contractor or by any person employed by or contracted to them
except the Subcontractor or
ˇ
a fault of
the Employer or Contractor or a fault in their designs.
ˇ
Loss of or
damage to Plant and Materials supplied to the Subcontractor by the Employer
or Contractor or by Others on the
Employer's or Contractor's behalf, until the Subcontractor
has received and accepted them.
ˇ
Loss of or
damage to the works, Plant and
Materials due to
ˇ
war, civil
war, rebellion, revolution, insurrection, military or usurped power,
ˇ
strikes,
riots and civil commotion not confined to the Subcontractor's employees,
ˇ
radioactive
contamination.
ˇ
Loss of or
damage to the parts of the subcontract
works taken over by the Employer or
Contractor, except loss or damage
occurring before the issue of the Defects Certificate which is due to
ˇ
Defect (sic)which existed at take over,
ˇ
an event
occurring before take over which was not itself an Employer's or Contractor's risk
or
ˇ
the
activities of the Subcontractor on
the Site after take over.
ˇ
Loss of or
damage to the subcontract works and
any Equipment, Plant and Materials retained on the Site by the Employer or Contractor after a termination, except loss and damage due to the
activities of the Subcontractor on
the Site after the termination.
ˇ
Additional
Employer's or Contractor's risks stated in the Subcontract Data.
81 The
Subcontractor's risks
81.1 From the subcontract
starting date until the Defects Certificate has been issued the risks which
are not carried by the Employer or
the Contractor are carried by the Subcontractor.
82 Repairs
82.1 Unless the Defects Certificate has been
issued and unless otherwise instructed by the Contractor the Subcontractor promptly
replaces loss of and repairs damage to the subcontract
works, Plant and Materials.
83 Indemnity
83.1 Each party indemnifies the other against
claims, proceedings compensation and costs due to an event which is at his
risk. The Contractor indemnifies the Subcontractor against all claims and
liabilities against which the Employer indemnifies
the Contractor under the main
contract.
83.2 The liability of the Subcontractor to indemnify the Contractor
is reduced if events at the Employer's
or Contractor's risk contributed
to the claims, proceedings, compensation and costs. The reduction is in
proportion to the extent that events which were at the Employer's or Contractor's risk
contributed, taking into account the responsibilities of each Party under this
subcontract.
83.3 The liability of the Contractor to indemnify the Subcontractor
is reduced if events at the Subcontractor's
risk contributed to the claims, proceedings compensation and costs. The
reduction is in proportion to the extent that events which were at the Subcontractor's risk contributed, taking
into account the responsibilities of each Party under this subcontract.
84 Insurance Cover
84.1 The Subcontractor
provides the insurances stated in the Insurance Table except any insurance
which the Employer or the Contractor is to provide as stated in
the Subcontract Data.
84.2 The
insurances are in the joint names of the Parties and provide cover for events
which are at the Subcontractor's risk
from the subcontract starting date until
the Defects Certificate has been issued.
INSURANCE TABLE
|
Insurance against |
Minimum amount of cover or minimum limit of
indemnity |
|
Loss of or damage to the subcontract works, Plant and Materials |
The replacement cost, including the amount stated in the
Subcontract Data for the replacement of any Plant and Materials provided by
the Employer or Contractor. |
|
Loss of or damage to Equipment |
The replacement cost |
|
Liability for loss of or damage to property (except the subcontract works, Plant and Materials and Equipment) and liability for bodily injury to or death of a person (not an employee of the Subcontractor) caused by activity in connection with this subcontract. |
The amount stated in the Subcontract Data for any event with cross liability so that the insurance applies to the Parties separately. |
|
Liability for death of or bodily injury to employees of the Subcontractor arising out of and in the course of their employment in connection with this subcontract . |
The greater of the amount required by the applicable law and the amount stated in the Subcontract Data for any one event |
85 Insurance Policies
85.1 The
Subcontractor submits policies and
certificates for the insurance which he is to provide to the Contractor for acceptance before the subcontract starting date and afterwards
as the Contractor instructs. A reason
for not accepting the policies and certificates is that they do not comply with
this subcontract.
85.2
Insurance policies include a waiver by the insurers of their subrogation rights
against directors and other employees of every insured except where there is
fraud.
85.3 The
Parties comply with the terms and conditions of the insurance policies.
85.4 Any
amount not recovered from an insurer is borne by the Employer or Contractor for
events which are at their risk, and by the Subcontractor
for events which are at his risk.
86 If the Subcontractor does not insure
86.1 The
Contractor may insure a risk which
this subcontract requires the Subcontractor
to insure if the Subcontractor does
not submit a required policy or certificate. The cost of this insurance to the Contractor is paid by the Subcontractor.
87
Insurance
by the Employer or the Contractor
87.1 The
Contractor submits policies and
certificates for insurance provided by the Employer
or the Contractor to the Subcontractor for acceptance before the subcontract starting date and afterwards
as the Subcontractor instructs. The Subcontractor accepts the policies and
certificates if they comply with this subcontract.
87.2 The
Subcontractor's acceptance of an
insurance policy or certificate provided by the Employer or Contractor does
not change the responsibility of the Employer
or Contractor to provide the
insurances stated in the Subcontract Data.
87.3 The
Subcontractor may insure a risk which
this contract requires the Employer or
Contractor to insure if the Contractor does not submit a required
policy or certificate. The cost of this insurance to the Subcontractor is paid by the Contractor."
The
pursuers' claims
[8] The
pursuers aver that by virtue of clauses 81.1 and 82.1 of the main contract they
had to rebuild the whole structure at their own cost and that by adjudication
of
Submissions
of junior counsel for the first defenders
[9] Mr Primrose for the first defenders made four separate submissions
(other than his submission on the breach of contract claims, which I need not
now deal with).
"The risk giving rise to these proceedings was
that of the first et separatim second defenders in terms of
clause 81.1. In terms of clause 84.1 of
such respective subcontracts the first et separatim second
defenders were bound to provide insurances stipulated in the Insurance Table
set forth in 84.2 (sic). In terms of clause 84.2 such insurances were
to be in the joint names of the parties (as defined) to the respective
subcontracts. Such insurances were to
provide cover for events which were at the risk of the first et separatim
second defenders from the starting date until the defects certificate had been
issued. In terms of the Insurance Table
the first et separatim second defenders were bound to effect such
insurance against loss of or damage to the respective subcontract works, Plant
and Materials. Under the column heading
there 'minimum amount of cover or minimum limit of indemnity' it is provided
that such cover should be for the replacement cost including the amount stated
in the Subcontract Data for the replacement of any Plant and Materials (as
defined) provided by the Employer or Contractor. In terms of the Insurance Table the first et
separatim second defenders were bound to effect such insurances against
liability for loss of or damage to property (except the subcontract works Plant
and Materials and Equipment) caused by activity in connection with the
respective subcontracts. Loss and damage
was caused to such property by activity of the first et separatim
second defenders in connection with the respective subcontracts. Under the column heading there 'minimum amount
of cover or minimum limit of indemnity' it is provided that such cover should
be for 'The amount stated in the Subcontract Data for any one event with cross
liability so that the insurance applies to the parties separately'. In the Subcontract Data of the subcontracts
between the pursuers and the first et separatim second defenders
it is provided 'Any amount not recovered from an insurer is borne by the
Employer or Contractor for events which are at their risk, and by the
Subcontractor for events which are at his risk.' It is unknown to the pursuers whether the
defenders effected the cover which they were bound to effect under the
Insurance Table. No amounts have been
recovered by the pursuers under the subcontract in respect of any of the heads
of cover falling to be effected by the first et separatim second
defenders. The defenders were bound so
to insure and the pursuers thus believe and aver that they did as they were
bound. Esto the defenders have
not insured as they were bound, the pursuers have suffered loss and damage by
reason of such failure to insure. In any
event, in the circumstances, the first et separatim second
defenders are bound to make payment to the pursuers of the amounts which remain
unrecovered from insurers. Reference is
made to the averments of loss hereinafter set forth."
Nothing in the subcontract obliged the
defenders to make payment to the pursuers of insurance claim proceeds. That was patently clear from clauses 84 and
85, and also from clause 86, which provided what should happen if the
subcontractor did not insure. Clause
85.4, which provided that any amount not recovered from an insurer was borne by
the subcontractor for events which were at his risk, was important. By virtue of clause 86 the contractor insured
at the subcontractor's expense if the latter did not take out insurance. Looking at all these provisions together,
they had nothing to do with who should pay out in the event of a loss occurring. The contractor should have taken out
insurance if the subcontractor had not done so, but here it was averred
(condescendence 10, p 54C) that the pursuers did not know whether the defenders
had taken out the insurance which they were bound to effect under the Insurance
Table. Clause 85.4 governed what
happened in the event that the subcontractor did not take out insurance. Then one had to look back at the allocation
of risk events under clauses 80, 81 and 82.
[11] The insurance claim in condescendence 10 was misconceived on a further
basis, namely, it was an attempt by the pursuers to recover the whole loss of
about Ł2.6 million on the basis of an alleged failure to insure. It was not open to the pursuers to make such a
claim because clause 85.4 of the subcontract took one back to the allocation of
risk in clauses 80 and 81. The pursuers
were attempting to recover their whole loss and so obtain more than they were
entitled to under clause 83. In the
absence of insurance, each party bore the risks in accordance with the
Insurance Table. The pursuers should
have been aware if there was no insurance, certainly no joint names insurance
under clause 84.2.
[12] Mr Primrose's second submission was that the pursuers' claim in condescendence
10 about an alleged breach of clause 82 by the defenders was irrelevant on the
basis that the first defenders had, as the pursuers aver, carried out the
necessary repair work following the fire damage. The averments at p 55A-B are
as follows:
"Separatim, esto the first et
separatim second defenders are not so liable in respect of amounts
falling so to be insured, the first et separatim second defenders were
nevertheless liable in terms of clause 82 of the respective subcontracts to
replace loss of and repair damage to the respective subcontract works, Plant
and Materials. Such replacement and
repair of the respective subcontract works, Plant and Materials was undertaken
at the expense of the pursuers pursuant to their counterpart obligation to the
Employer in terms of clause 82 of the main contract."
Clause 82 had nothing to do with the question
of who would be liable to pay for reinstatement works in the event of a loss. In condescendence 14 at p 77D-E the pursuers
averred:
"The works of reinstatement were undertaken by,
amongst others, the pursuers and the respective defenders."
Accordingly, even on the pursuers' own
averments, the obligation in clause 82 had been fulfilled and the passage at p
55A-C fell to be deleted as clearly irrelevant.
[13] Mr Primrose's third submission was that any indemnity owed by the first
defenders to the pursuers was subject to clause 83.2 and fell to be reduced by
the contribution of fault on the part of the pursuers and, on the hypothesis of
fact put forward by the pursuers, the contribution of fault by the second
defenders. This raised the correct
interpretation of clause 83, the indemnity clause. The first defenders' contention was set out in
answer 10 at p 58D-E to p 59B as follows:
"Esto the fire was started by the first
defenders' employees and esto it was caused by their negligence, any
liability of the first defenders falls to be reduced in terms of clauses 80.1
and 83.2 in proportion to the extent that the pursuers' negligence and breach
of statutory duty contributed to the fire and (on the hypothesis of fact upon
which the pursuers proceed) to the extent that the second defenders' negligence
or breach of statutory duty contributed to the occurrence of the fire."
The pursuers' contention to the contrary was
set out in paras 3 and 4 of their Supplementary Note of Argument (no 25 of
process). (This document refers to the
main contract as "the ECC" and the subcontract as "the ECS". For ease of comprehension I shall substitute
"the main contract" for "ECC" and "the subcontract" for "ECS". I shall also substitute the word "clause" for
the word "paragraph" where the latter is wrongly used. In addition, I shall
correct the punctuation when reproducing these paragraphs.) Paras 3, 4 and 5 (the last of which I include
for the sake of completeness) are in the following terms:
"3. In general, core clause 8 of the main
contract and core clause 8 of the subcontract which includes the Insurance
Table and other relevant provisions referred to above provides a comprehensive
scheme of risk allocation and insurance amongst the Employer, Contractor
(Pursuers) and Subcontractors (Defenders). The risks allocated to the Employer under the
bullet points contained in clause 80.1 of the main contract remain with the
Employer. Amongst other things, risks of
loss of or damage to the works other
than from the happenings stipulated under the third bullet point fell to the
Pursuers under clause 81.1. In a
question with the Employer the risk of such loss etc of the works in the circumstances condescended
upon passed to the Pursuers. Under
clause 84.2 of the main contract the Pursuers were bound to insure (a) for
replacement cost loss of or damage to the works;
and (b) liability for loss of or damage to property except the works, Plant and Materials and Equipment
caused by activity in connection with the main contract. The Pursuers were
bound to repair the works and offer
to prove that they did that.
4. Under
the subcontracts between the Pursuers and the First et separatim Second Defenders, the risks allocated to the Pursuers
were those coming within the bullet points contained in clause 80.1. Amongst other things, risks of loss of or
damage to the works other than from
the happenings stipulated under the third bullet point fell to the respective
defenders under clause 81.1. In a
question with the Pursuers the risk of such loss etc of the works in the circumstances condescended
upon passed to the Defenders. Under
clause 84.2 of the subcontract, the Defenders were bound to insure (a) loss of
or damage to the subcontract works for
replacement cost; (b) liability for loss
of or damage to property except the subcontract
works, Plant and Materials and Equipment in connection with the
subcontract. The Defenders were obliged
by clause 82 to repair the respective subcontract
works: neither Defender did that. The Pursuers offer to prove circumstances
showing that loss of or damage to the works
under exception of the subcontract
works was caused by the Defenders' activity in connection with their
respective subcontracts. If so, the risk
of liability for such loss or damage was one which arose from the subcontract works and passed to the
respective Defenders.
5. In
construing the subcontract regard may be had mutatis mutandis to principles stated in the main contract Guidance
Notes (see p 106). Among these are: 81.1
'The Contractor's risks include those
stated in the insurance table even when such risk is covered by insurance
procured by the Employer' and 87.2: 'Whilst
the Contractor is entitled to rely upon the Employer providing the insurances
as stated in the Contract Data, it is important that the Contractor recognises
that his risks include those shown in the Insurance Table'. In terms of page 106 of the Guidance notes it
is stated under reference to Risks and Insurance: 'The Employer's risks remain,
and the Contractor passes those of his risks under the main contract to the
Subcontractor, where they apply to the subcontract
works'. The risk of loss of or
damage to the works, Plant and
Materials which the Contractor is bound to insure under clause 84.2 of the main
contract passes to the Subcontractor under the equivalent clause of the
subcontract (i) in so far as it relates to the subcontract works, Plant and Materials; and (ii) in so far as it
relates to liability for loss of or damage to property except the subcontract works, Plant and Materials
caused by activity in connection with the subcontract."
"The loss, damage and liabilities incumbent
upon the defenders in respect of which the pursuers proceed were not claims,
proceedings and compensation and costs coming within clause 83.1."
Quite simply that was wrong. After the fire the employer must have made
some kind of claim against the pursuers and the pursuers must then have paid
out on that claim. The pursuers were now
seeking to recover the whole cost of the claim from the first and second
defenders. The words "claims,
proceedings, compensation and costs" in clause 83.2 were patently wide enough
to cover the situation which prevails in this case. Following the basic rules of construction and
giving the words their natural meaning, there was no room for any doubt that the
phrase covered this situation. In Crosse v Bankes (1886) 13 R (HL) 40 Lord
Chancellor Halsbury said:
"The ordinary rule of construction of an
instrument is that you should not, except to effectuate the plain intention of
the parties, imply words which are not there, and that you should give effect
to every word which is there if you can."
In the Oxford English Dictionary (2nd
Ed) at p 988 the word "cost" was defined as "that which must be given or
surrendered in order to acquire, produce, accomplish or maintain something; the
price paid for a thing". The cost to the
pursuers here was that which had to be given to rebuild the works. At p 261 the word "claim" was defined as "a
demand for something as due; an assertion of a right to something". Here there had been a demand by the employer
for the rebuilding of the works based on an assertion of a right by them to
have the works rebuilt. At p 601
"compensation" was defined as "the action of compensating, or condition of
being compensated; counterbalance, rendering of an equivalent, requital,
recompense". Here the pursuers had
compensated the employer for the damage caused by the fire. So far as proceedings were concerned, the
averments of loss in condescendence 13 at p 75C made reference to an adjudication
having taken place. In condescendence 13
practically every single loss was described as "costs".
[15] Mr Primrose's fourth submission was that the pursuers' claim based on
unjustified enrichment was irrelevant and should be deleted. The averments in support of that claim were
set out in condescendence 10 from p 55C to p 56C in the following terms:
"The respective subcontract works were carried
out by the first et separatim second defenders. The pursuers failed to comprehend that the
first et separatim second defenders were bound to carry out such
works at the cost of (through their being indemnified by) the respective
insurers of the subcontract works. The
pursuers met the cost of such work in the erroneous belief that they rather
than the insurers of the first et separatim second defenders
required, in the first instance at least, to do so. The final certificate (sic) issued to and docketed and acknowledged by the first et
separatim second defenders are referred to for their whole respective
terms which, in the interests of brevity, are herein held incorporated. Further, and in any event, it was not the
intention of the pursuers gratuitously to confer a benefit upon the first et
separatim second defenders. The
first et separatim second defenders have thereby been enriched in
respect that there has been performed at the pursuers' expense the replacement
and repair of the subcontract works, which things were contractually incumbent
upon those defenders. It is just and
equitable that the pursuers should have repetition of, or esto they
should not have repetition of, be recompensed for the cost to them of doing
that in which the first et separatim second defenders were
bound."
"The plea of repetition allows recovery of money which has been paid in circumstances where it would be unjust for the defender to keep the money. The cases are grouped under headings which reflect the Roman Law origins of some of the principles involved and the terminology used in some of the cases: the condictio indebiti; the condictio causa data causa non secuta; the condictio ob turpem vel injustam causam and the condictio sine causa (a term not much used in Scottish writings). These terms are not straitjackets but merely serve to distinguish various situations in which repetition may be available, and it may be that some cases could be classified under more than one heading."
"Money paid by the pursuer under the mistaken
belief that it was due to be paid under a legal obligation to the recipient can
be recovered in a personal action against the recipient, unless the defender
establishes factors which would make retention of the money equitable. The pursuer's mistake may be as to the facts
or as to the law relating to the transaction."
Recompense was wider than repetition and was described in para 28.12 as follows:
"While unjustified enrichment by the payment or
taking of money is dealt with under repetition, and unjustified enrichment by
the transfer or taking of property is dealt with under restitution, cases where
the defender has been unjustifiably enriched by the pursuer's expenditure,
services or other actings, or by the defender's use of the pursuer's property,
are generally treated in Scots Law under the heading of recompense."
At para 28.13 it is stated:
"Except in special circumstances, the pursuer must have no other legal remedy. So where a local authority refused to comply with their statutory duty to construct sewers, and contractors constructed the sewers themselves, the contractors were not entitled to recover their costs because they could have brought proceedings to enforce the local authority's statutory duty."
The case
referred to in the footnote to the second sentence in that passage was Varney (
"Recompense
is an equitable doctrine. That being so,
it becomes a sort of court of last resort, recourse to which can be had only
when no other legal remedy is or has been available. If a legal remedy is available at the time
when the action which gives rise to the claim for recompense has to be taken,
then normally that legal remedy should be pursued to the exclusion of a claim
for recompense."
Moreover, a better result than would be
obtained under the contract cannot be obtained by basing the claim on
recompense. Gloag on Contract (2nd
Ed) stated at p 320:
".... it is
conceived that if the relations of the parties are regulated by a contract of
which there is competent evidence, neither can ignore it and obtain better terms by framing his case as a
claim for recompense."
The general principle
had been stated by Lord President Boyle in Smail
v Potts (1847) 9D 1043 at p 1045
as follows:
"When a
contract is reduced to writing, it must in the general case be held to regulate
all questions between the parties, otherwise it is of no use to enter into a
written contract at all. The contract is
subject to a rational, not a judicial, construction; but if it is conceived in
plain and explicit terms, it must form the rule by which the rights of parties
are to be fixed."
Submissions
of junior counsel for the second defenders
[18] Miss Crawford's first submission was that clause 83 was the only
conceivable basis of a claim for payment by the pursuers against the second
defenders and that since there were no relevant averments that the second
defenders were at risk she sought dismissal of the action in so far as directed
against them. If she was wrong in that,
she adopted the submissions of Mr Primrose about the averments which should be
deleted (p 52C to p 55A) and moved that the pursuers' first and second
pleas-in-law be deleted.
[19] Core clause 8 of the subcontract set out a framework and mechanism as
regards the parties' rights and obligations. It was headed "Risks and Insurance" and structured
into three parts: (i) allocation of
contractual risks between the parties; (ii)
provision for indemnities in respect of such risks as were carried by the
parties; and (iii) provisions for insurance to be in the joint names of the
parties. Clause 80 set out the risks of
the employer and contractor and clause 81 set out the risks of the
subcontractor. (Concomitant provisions
in the main contract contained equivalent provisions as between the employer
and the contractor.) Under clause 81.1
the subcontractors were only at risk in respect of matters which were not risks
carried by the contractor. Under the
first bullet point in clause 80.1 the employer's and contractor's risks
included "claims, proceedings, compensation and costs" due to the matters
mentioned. Clause 83 contained the
indemnity provision which "kicked in" when a party was carrying the risk. It provided a mechanism where one party made a
claim against another for items at the latter's risk. Under clause 80.1 the
pursuers were at risk for the first defenders. The subcontractors in the Subcontract Data
were Turner, the second defenders (see clause 11, the definition clause). On the averments made there was no question of
the second defenders being at risk: the
pursuers were at risk as a result of the first defenders' negligence and the
pursuers' own negligence. The
construction of the phrase "claims, proceedings, compensation and costs"
proposed on behalf of the first defenders was adopted on behalf of the second
defenders. It was averred in
condescendence 14 that the pursuers paid the employer, and it must be the case
that they did so as a result of the obligations incumbent upon them under the
main contract. In a question with the
employer the pursuers carried the risk. It
is clear that the pursuers met the employer's claim or right or entitlement to
payment. When one was asked who, if
anyone, was to pay for the loss in a question between the pursuers and their
subcontractor, one had first to go to the subcontract, which set out the terms
and conditions under which the parties contracted, ask what happened and why
and finally who was at risk for that event. If the pursuers asserted the second defenders
were at risk, as they did in condescendence 10 at p 52C, then they next had to
go to clause 83.1 and invoke the indemnity. If it was not clause 83 to which one looked to
see who was to pay, one may ask - what is the point of clause 83? Why was it there in a clear, structured
mechanism in core clause 8?
[20] If the above approach was correct, one ought then to turn to the Record
to see what happened, why and whether it was due to a risk carried by the
second defenders who were then bound under clause 83 to indemnify the pursuers.
There were no relevant averments on
Record which pointed to the second defenders being at risk and therefore liable
to indemnify the pursuers. On record
there were averments of a fire which, so far as the pursuers were concerned,
was due to the negligence of the first defenders, and, so far as the first and
second defenders were concerned, was due to negligence by the pursuers. There were no averments on Record sufficient
to support the contention that the second defenders carried the risk of the
fire. The averments did not identify the
respects in which the second defenders were at risk. The second defenders were subcontractors for
insulation works and had nothing to do with welding.
[21] Turning to the averments, it was averred in condescendence 5 at p 28C
that the second defenders were engaged in lining the cold store with expanded
polystyrene composite panels and the pursuers believed it to be true that
Halldorsson, the second defenders' employee, warned the pursuers' site agent
Blair of the fact of the welding by the first defenders. At p 29D the pursuers
averred:
"Welding products have an obvious potential for igniting other things."
There was nothing in condescendence 5 to
suggest negligence by the second defenders. In condescendence 6 it was averred that on
[22] The averments in condescendence 13 were directed against the second
defenders. It was based on their alleged
failure to comply with the pursuers' Code of Practice on Fire Prevention on
Construction Sites (no 6/14 of process), in particular clause 3.7 (c) and (d). It was not averred how the second defenders
did not comply with the Code. They had
supplied and installed insulation and supplied a risk assessment saying
"beware!". At p 72B the pursuers averred:
"It was an implied term that the second defenders would not assist other
subcontractors in breaching the terms of that Code."
It was not averred how the second defenders had
"assisted" the first defenders. In what
circumstances were insulation installers required to do the things set out in
the Code and in what circumstances did they assist the first defenders to break
the Code? The alleged implied term was a
strange and unusual one: on what basis
could it said to be implied into and form part of the subcontract? The averment about an implied term was just an
assertion. There was no averment that
the second defenders were even aware of what was happening on
[23] To summarise the first submission, there were no relevant averments
anywhere on Record of the respects in which the second defenders could be said
to have carried the risk for the fire and that they were therefore bound to
indemnify the pursuers for the loss and damage arising therefrom. That being so, the action should be dismissed
insofar as directed against the second defenders.
[24] Miss Crawford's second submission was that the pursuers' averments in
respect of the alleged failure to obtain insurance were irrelevant. On this point she adopted the submission of Mr
Primrose. He had submitted that the
insurance provisions did not circumvent the indemnity provisions, but a better
way to put it was to say that the insurance provisions in clauses 84-87 were
not concerned with the question which fell to be answered in this case, namely,
who is to pay? The insurance provisions
were nothing to the point: they dealt with the question "who is to insure, and
for what?". The pursuers' averments
about insurance were to be found in condescendence 10 between p 52C and p 55A. To talk of loss arising from a failure to
insure was somewhat of a non-sequitur. There
was no obligation on the second defenders to account or to pay by reason of the
insurance clauses in the subcontract. The insurance clauses did no more than set out
a duty to insure and what was to happen in the event of no insurance having
been taken out. They did not found a
basis for any subsequent claim for damages and were neither here nor there so
far as the present action was concerned.
[25] The question had to be asked - why were the insurance provisions in core
clause 8 of the subcontract, and did they provide a fit dealing with allocation
of risk and indemnity? The answer was
that they provided a perfect fit consistent with the submission made by Mr
Primrose on behalf of the first defenders. Risk, indemnity and insurance all formed part
of a mechanism. Clause 84.1 dealt with
insurance cover and clause 84.2 provided that insurance was to be in joint names.
It followed that the contractor was able
to make a claim under the joint names insurance for any loss covered by it, so
in this case the pursuers could make a claim under the policy. No separate obligation arose under the
insurance clauses to pay for loss arising from the fire. Clauses 84-86 provided a mechanism in the
subcontract which would in effect avoid the need for litigation at all as
claims were to be made under the insurance policy in joint names. The insurance had to cover the subcontractor's
liability for loss in connection with the subcontract. The effect of joint names insurance was to
exclude the pursuers from exercising their rights of subrogation against the
subcontractors. If the pursuers had
claimed against any joint names insurers as opposed to claiming under their own
policy then their rights of subrogation against the subcontractors would be
excluded: they could not sue the second defenders because a right of
subrogation could not be exercised against a co-assured. This pointed clearly to the fact that the
insurance clauses did not give to the pursuers a separate right under which a
claim for payment in respect of the loss arising from the fire could be made.
[26] The subcontract clearly set out the intention of the parties: they had
worked out matters relating to (1) allocation of risk; (2) indemnity; and (3)
insurance of the risk. Each clause
dealing with these three separate areas performed its own distinct and discrete
role. It would make no sense, and it
would be wrong, to try to construct out of that some form or series of separate
obligations. In this case the parties
had agreed in the subcontract that they would not sue and the pursuers
therefore could not construct some separate action under the insurance
provisions. That insurance in joint
names excluded subrogation was clear from MacGillivray
on Insurance, p 610, para 22-100, which states as follows:
"It has recently been stated by the House of
Lords (Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419) that ...... where two or more parties are co-assureds in respect of the
same loss or damage which has occurred, there is an implied term of the
contract of insurance that an insurer will not seek by the exercise of rights
of subrogation to recoup from a co-assured the indemnity which he has paid to
the assured. ...... The recent authorities
indicate that there should be little difficulty in implying such a term where
the contract which is the source of the obligation to insure requires the policy
to be taken out in joint names. The courts will view this as a compelling
indication that both parties are intended to have the benefit of the insurance,
because the law will not allow an action between two or more persons who are
insured under the same policy against the same risk (see Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419, 1423 per Lord Bingham and 1437, per Lord
Hope)."
Reference was also made to Scottish Special Housing Association v Wimpey Construction Limited 1986 SC (HL) 57 per Lord Keith of
Kinkel at p 68, in which it was held that the employer could not sue the
contractor for negligence in causing a fire because the terms of the contract
provided that the employer should bear the whole risk of damage by fire,
including fire caused by the contractor's negligence. In this case the pursuers and second defenders
had agreed in the subcontract that they would not sue one another. They could not therefore construct some
separate action under the insurance provisions. It would be nonsensical if, the risk,
indemnity and insurance having been set out in the subcontract, a claim could
be made against the party said to have been at fault under the insurance
provisions. That cannot have been
intended by the pursuers and second defenders.
[31] The
law of unjust enrichment and the appropriate remedies were considered by Lord
President Roger in Shilliday v Smith 1998 SC 725, particularly at pps
727D-728C. An unjust enrichment, a
conferral of a benefit on the defender, was required. In this case there was no
such conferral of a benefit on the second defenders. Whatever the correct classification of the remedy
may be, no relevant basis or cause of action was pleaded. There was a contractual obligation owed by the
pursuers to the employer under clause 82 of the main contract to repair and
replace damage to the works and the pursuers did just that. There was a separate subcontract between the
pursuers and second defenders. The
second defenders replaced the subcontract works and in turn received payment
from the pursuers. The second defenders
had no contract with or engagement to the employer. Payment by the pursuers to the employer was
not made in implement of any debt owed by the second defenders to the employer,
and it therefore followed that there had been no conferral of a benefit on the
second defenders. There had been no
unjust enrichment. The pursuers
complained that they had lost, but the second defenders had not been enriched
by the pursuers' separate obligation to pay the employer. As Lord President Rodger, having reviewed the
relevant cases, put the matter Shilliday
at p 730G-I:
"For present purposes the essential point which
these cases vouch is that, if a person spends money or otherwise acts in his
own interest (in suo), but his
expenditure or actings incidentally benefit someone else, the first person
cannot seek any payment from the other on the basis that his expenditure or
actings have resulted in a benefit to that other person. The cases denying
recovery involve situations where the only
alleged basis for the pursuer's claim for recompense is that he has
expended money or done work from which the defender has derived an incidental
benefit. The law rejects the claim: a defender is not regarded as being
unjustly enriched just because he enjoys an incidental benefit from expenditure
or work which a pursuer has made or carried out for his own purposes."
The same result was arrived at from following
the first defenders' submission that the subcontract here provided the remedy
and that the remedies of repetition or recompense had no part to play. Here the cause of action was contained within
the subcontract itself: the benefits were retained and recovered under that
contract, that is, with cause. Unjustified
enrichment was invoked where what was sought was the recovery of benefits
retained without cause (Shilliday per
Lord President Rodger at p 730B). It was
not possible to seek both contractual and equitable remedies at the same time.
Submissions of junior counsel for
the pursuers
"In order to apply the doctrine of subrogation
, it seems to me that the full and absolute meaning of the word must be used,
that is to say, the insurer must be placed in the position of the assured. Now it seems to me that in order to carry out
the fundamental rule of insurance law, this doctrine of subrogation must be
carried to the extent to which I am now about to endeavour to express, namely,
that as between the underwriter and the assured the underwriter is entitled to
the advantage of every right of the assured, whether such right consists in
contract, fulfilled or unfulfilled, or for remedy for tort capable of being
insisted on or already insisted on, or in any other right, whether by way of
condition or otherwise, legal or equitable, which can be, or has been exercised
or has accrued, and whether such right could or could not be enforced by the
insurer in the name of the assured by the exercise or acquiring of which right
or condition the loss against which the assured is insured , can be or has been
diminished."
That passage was recently approved by Lord
President Rodger in the Inner House in Caledonia
North Sea Ltd v London Bridge
Engineering Ltd 2000 SLT 1123 at p 1135L-1136B.
Here one found two tiers of insurance. The policy of the law was to treat co-assured
as a single assured. The employer had no
right against the pursuers in this case.
That indirectly confirmed the rightness of the pursuers' approach.
Mr Francis' motion on this limb of the case was
that I should delete in answer 10 for the second defenders the averments from
the words "The second defenders" at p 63B to the word "excluded" at p 63D.
[39] Mr
Francis then turned to deal with the second defenders' submission that the loss
of or damage to the property was not caused by activity in connection with
their subcontract works. He submitted
that the pursuers did not need to aver negligence or to show that the activity
was in connection with the loss of or damage to the subcontract works. The pursuers and the second defenders
differed on how the word "caused" should be regarded, but the pursuers had said
enough in the pleadings. One was dealing
with something which was purposely open-textured language. The activity in question need not be the
execution of the subcontract works themselves: it could be something in or
about those works. It was averred that
Mr Bryan, the second defenders' foreman insulator, perceived a problem with
people welding and that there could be damage to the panels. He knew what the first defenders' employees
were doing and how they were doing it. He
knew, from his own employer's risk assessment, of the need for fire blankets. He knew that the removable combustible
material should not have been there. One
could say that omission (by the second defenders) was a cause. Activity included inactivity in the face of
known risks. The tops of the panels were
open so that resin was exposed. The
taking of inadequate precautions in the face of a known risk could amount to
"caused by". Silence by Mr Bryan in the
face of known risks would be activity. In
Environment Agency v Empress Car Co [1999] 2 AC 22, a case of a prosecution for the offence of causing polluting matter to
enter controlled waters, Lord Clyde said at p 36F-G:
"In many cases an omission may be analysed as
the provision or operation of an inadequate system."
[40] It
was accepted that the welding was not activity in connection with the second
defenders' subcontract. There were two
causes of the fire - (1) the first defenders' welding; and (2) the failure to
take adequate precautions. "Caused" was
a word of broad ambit which took its colour from the context (Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32 per Lord Bingham of
Cornhill at p 45, para 12). The question
of blame did not arise here: it was a simple contractual test. The context was risk allocation and a
restrictive approach should not be taken; if anything, the opposite approach
should be taken. Here we were a million miles away from the
attribution of blame in delict or tort. The
second defenders participated in the taking of inadequate precautions for
protecting the works.
Submissions by senior counsel for
the first defenders
(1) The principal claims by the pursuers are in
contract, and one had to look to the subcontract to see the legal bases for
recovery.
(2) The issue in this case, the works of
reinstatement having been carried out, was which of the parties was liable in
contract to pay for those works of reinstatement and the consequential damage
from the fire, for which the contractor (the pursuers) had disbursed
compensation.
(3) The reasons why the provisions allocating risk
within the subcontract exclude other forms of claim by the pursuers against the
first defenders outside the subcontract are:
(i)
the
subcontract created a regime for the allocation of risks in respect of the
subcontract, the aim being to create a simple regime by which the recovery
could be effected;
(ii)
the
parties envisaged insurance policies in joint names would cover most of the
risks relevant in this case and exclude recourse by subrogation against a party
named in the policy; and
(iii)
to allow
claims for breach of contract or delict for allocated risks would be to create a parallel regime for a different and
inconsistent allocation of risk from the main contract and the subcontract. (A concession to this effect had now been
rightly made by on behalf of the pursuers and was in no sense overdue.)
(4) The claims for unjustified enrichment were
irrelevant for the reasons given by Mr Primrose. Mr Francis had not attempted to answer what
had been said in the cases.
(1) While it was accepted that risk events in the
insurance table in clause 84.2 were of loss or damage, the contractor's risk
event included liability under bullet point 1.
(2) Certain risks set out in clauses 80 and 81 fell
within the clause 83 indemnity mechanism and were subject to the reduction in
clause 83.2. Where something went to the
subcontractor under clause 81, clause 83 could apply.
(3) The pursuers appeared to accept that there was
an implied limit on clause 81 to the effect that the risks were in connection
with the subcontract.
(1) The risks allocated to the subcontractor which
were to be insured under clause 84 flowed from an irreversible allocation of
risks.
(2) There were no relevant risk events to set off
against the subcontractor's risk. This
involved the construction of clause 80. It
was suggested that the first bullet point did not overlap with the other bullet
points, and that the other bullet points effectively delimited the liability of
the contractor and employer. The second
point under bullet point 1 related to third party claims against the contractor.
The first defenders took issue with that
approach. An interpretative approach and
the practical operation of the provisions of a commercial agreement were
against it. So far as irreversible
allocation of insured risk was concerned, the pursuers accepted that clause
83.1 applied and clauses 83.1 and 83.2 had to be read together. In ordinary English usage clause 83 required
a party to indemnify another party in respect of a loss arising from any event
at the former's risk. Events at the
contractor's risk were all of the listed events in clause 80. Events at the subcontractor's risk were all
of the risks which fell within clause 81.
Clause 81 risks included, but were not co-extensive with, the insured
risks in clause 84. Nothing in clause
83.2 suggested that all risk events were not covered in clause 83.1. There could be an event which arose from more
than a single risk. For the pursuers'
submission to be correct it would be necessary to write in a restriction in
clause 83.2 in line 1 after the word "contractor", namely, "in respect of an
event which is at his risk (other than an event listed in the insurance table
in clause 84.2)". There was no mention
of insurance in clause 83. The pursuers
said that because the insurance was in joint names there could be no reduction
exercise, but how would clause 83.3 work if the pursuers were right? The risk
would be that of the subcontractor, full stop.
The contractor's indemnity did not arise if there were a clause 84.2
risk.
(1) There was no mutual exclusivity between the
bullet points listed in clause 80. There
was no suggestion that claims or costs due to the negligence of the contractor
or subcontractor in some way excluded costs relating to damage to the works or
subcontract works. There were no words
of limitation in the first bullet point.
It did not say "other than those relating to loss and damage set out in
the following bullet points" or "other than costs relating to loss and damage
at the risk of the subcontractor under clause 81". Prima
facie the contractor's liability was available for a clause 83.2 reduction
exercise if the costs were due to those persons' negligence.
(2) The natural interpretation was that costs
covered by the bullet point could and would cover loss covered by damage to the
works and the subcontract works: see the third sub-bullet point in bullet point
1.
(3) Clause 80 was not restricted to third party
claims. The party with the enumerated
risks in bullet point 1 must have incurred a liability to someone else or have
himself incurred costs. The liability of
the contractor could be to any person, including the employer or the
subcontractor. In the case of the
subcontractor, the employer was a third party as the subcontractor had no
contractual link with him. The
contractor indemnified the subcontractor for claims at the contractor's risk. If the contractor had liability to the
employer or incurred costs for the negligence of the contractor or
subcontractor, that liability or those costs was a risk event which the
subcontractor could plead against the contractor under clause 83.2. In both clauses there was an absence of any
restrictive words. In this case there
was no insurance policy as between the pursuers and the first defenders.
[48] The
following points required to be made:
(1) The subcontractor has strict liability for the
clause 81 risks. That was clear from the
risks set out in the insurance table and the whole edifice of allocation of
risk.
(2) The subcontract envisages joint insurance and
in most cases that will cover the bulk of the subcontractor's risk. It does not cover consequential loss.
(3) Where joint insurance is in place, the
contractor will be paid by the insurer for risks covered by the insurance table
without any claim being made against the subcontractor. (None of points (1) to (3) is controversial
but there was a difference between the pursuers and first defenders from
hereon.)
(4) The subcontract had a different regime where,
as here, there was no joint insurance policy, where there was a joint insurance
policy not covering the particular risk and where there was a joint insurance
policy but the insurer was entitled to refuse indemnity.
(5) In the "no insurance world", insurance does not
remove disputes between the parties, but the parties must claim from one
another in relation to events at the other's risk. That was done through the mechanism of
indemnity. The pursuers accepted the
claim was against the subcontractor under clause 83.1. We could set the insurance table to one side
and address the indemnity.
(6) The pursuers suggested that if the risk were
allocated to the subcontractor in clause 81 and fell within the list in the
insurance table, that risk was irrevocably and irreducibly allocated to the
subcontractor. They prayed in aid clause
85.4, which did not say that unrecovered losses arising from risks in the
insurance table fell on the subcontractor alone. What clause 85.4 said was quite clear. It pointed to the clause 83 indemnity regime,
including the balancing exercises under clauses 83.2 and 83.3. If the pursuers were correct, clause 85.4
would say that any amount not recovered by the insurer was at the
subcontractor's risk.
(7) Clause 83 in its entirety governed in the "no
insurance world". Where the contractor
has paid for loss and damage for which the subcontractor is liable, the
contractor claims in the first event from the subcontractor under clause 83.1,
but if an event at the contractor's risk has contributed to the loss, then
clause 83.2 applies. If there has been
negligence, the circumstances have to be examined to determine the extent of
the reduction.
(8) (A summary of points 1-7 above) In most cases,
joint insurance prevents claims between the parties to the subcontract, at
least to the extent of events listed in the insurance table. Where there is no insurance, clause 83
applies in its entirety and the subcontractor who has strict liability for
clause 81 risks is protected from liability for loss caused by the negligent
activities of the employer, contractor or another subcontractor, or any other
risk event allocated to the employer or a contractor.
(9) The above was a sensible and fair arrangement,
particularly where there may be the contractor and many subcontractors working
on a large site at the same time. It was
also consistent with the policy of the law, which did not like the person
deriving benefit from an indemnity being able to obtain from the indemnifier an
indemnity against loss caused by his own negligence. This
policy was set out in
"It has already been seen ..... in the particular context of insurance that
it is a rule of construction when interpreting indemnity clauses ....... that they will be strictly construed if an
indemnitee beneficiary of such a clause seeks to argue that it is to apply in
his favour even in a situation caused by his own negligence or breach of
contract. In the case of indemnity
clauses, therefore, while there will be no difficulty in applying them to cases
where the indemnitor is not at fault,
they will be very strictly construed if the
indemnitee seeks to enforce the clause in spite of his own negligence or
fault."
The above principle was applied by the House of Lords in the case of Smith v UMB Chrysler (
"While an indemnity clause may be regarded as
the obverse of an exemption clause, when considering the meaning of such a
clause one must, I think, regard it as even more inherently improbable that one
party should agree to discharge the liability of the other party for acts for
which he is responsible. In my opinion
it is the case that the imposition by the proferens on the other party of liability to indemnify him against the
consequences of his own negligence must be imposed by very clear words."
At pps 11-12 Lord Fraser said:
"The principles which are applicable to clauses
which purport to exempt one party to a contract from liability were stated by
Lord Greene in Alderslade v Hendon Laundry Ltd [1945] KB 189, 192
and were quoted with approval by Lord Morton of Henryton in the Privy Council
in Canada Steamship Lines Ltd v The King [1952] AC 192, 208 where he
summarised them as follows:- '(1) If the clause contains language which
expressly exempts the person in whose favour it is made (hereafter called 'the
proferens') from the consequence of the negligence of his own servants, effect
must be given to that provision. (2) If
there is no express reference to negligence, the court must consider whether
the words used are wide enough, in their ordinary meaning, to cover negligence
on the part of the servants of the proferens.
If a doubt arises at this point it must be resolved against the
proferens. (3) If the words used are
wide enough for the above purpose the court must then consider whether 'the
head of damage may be based on some ground other than that of negligence', to
quote again Lord Greene in the Alderslade
case. The 'other ground' must not be
so fanciful or remote that the proferens cannot
be supposed to have desired protection against it; but subject to this
qualification, which is no doubt to be implied from Lord Greene's words, the
existence of a possible head of damage other than that of negligence is fatal
to the proferens even if the words used are prima
facie wide enough to cover negligence on the part of his servants'. These rules were stated in relation to
clauses of exemption, but they are in my opinion equally applicable to a clause
of indemnity which in many cases, including the Canada Steamship Lines Ltd, is merely the obverse of the exemption. The statement has been accepted as
authoritative in the law of
See also Lord Keith of Kinkel at pps 16-18.
[50] Turning
to the first defenders' case, the first two of the four propositions set out at
the outset of these submissions were not contested. So far as the third proposition was
concerned, if the first defenders were correct, the phrase "claims,
proceedings, compensation and costs" were wide enough to cover the pursuers'
losses. If the pursuers accepted they
had a claim against the subcontractor, then these words covered the pursuers'
entitlement to claim from the two defenders.
It did not matter if the employer claimed against the contractor or the
contractor carried out the works of reinstatement. Here the employer must have made a claim
against the contractor: see the claim for loss in condescendence 14 at pps 96-7
based on the employer's business interruption, and the averments relating to a
deliverance in a contractual adjudication of
[51] It
was not being suggested that there was a general rule that every indemnity or
insurance clause excluded breach of contract or delict claims. What had to be considered was whether in the
context of the particular agreement the parties had allocated risk in a way
exclusive of other bases of claim. Reliance
had to be placed on the actual words used in the contract and how the contract
worked. As Lord Hope of Craighead said
in Co-op Retail Services Ltd v Taylor Young Ltd [2002] 1 WLR 1419 at
p1433B, para 45, echoing what Brooke LJ had said in the Court of Appeal, "the
question is: what does the contract provide?".
See also paras 14, 21-29, 38, 45 and 65.
In Scottish & Newcastle PLC v GD Construction (St Albans) Ltd [2003]
BLR 131 there was an allocation of fire risk to the existing premises to the
employer, who failed to take out joint insurance in the name of itself and the
contractor, as required by the contract, and the Court of Appeal held that the
contract prevented the employer claiming against the main contractor. These cases interpreted different contractual
provisions, but the court held that the contract in question had made an
exclusive allocation of risk and gave effect to the intention of the parties.
Submissions by senior counsel for
the second defenders
(1) The
first plea-in-law for the second defenders should be sustained and the action
dismissed so far as directed against them.
(2) Alternatively,
plea-in-law 1 for the second defenders should be sustained to the extent of
excluding from probation those averments of the pursuers intended to instruct a
case based on clauses 84 and 85 (that is, in condescendence 10 from the words
"The risk" at p 52C to the words "set forth" at p 55A), and the pursuers' first
plea-in-law should be repelled.
(3) As
a further alternative, the second defenders' third plea-in-law should be
sustained and the pursuers' averments in condescendence 10 from the words "Separatim, esto" at p 55A to the words
"within clause 83.1" at p 56C, which sought to instruct cases based on clause
82 and on repetition and recompense, should be deleted, and the pursuers'
second and fifth pleas-in-law should be repelled.
(4) As
a further alternative, the pursuers' fourth plea-in-law should be repelled. Mr Francis had accepted that there was no
independent case of breach of contract open to the pursuers. It followed that condescendence 13 should be
deleted, since the averments therein could be read only as supporting a breach
of contract case, and not some other case, as suggested by Mr Francis. Averments in pleadings had to be understood in
the context in which they were presented and it was not appropriate in the
course of a procedure roll debate to twist them to suit some other purpose. Condescendence 13 also included breach of
clause 11.2(4) and breach of an implied term (p 74A-B).
(5) The
pursuers' seventh and eighth pleas-in-law (to the relevancy of the defences)
should be repelled.
(1) Core
clause 8 of the subcontract contained a comprehensive risk allocation regime. It also envisaged joint insurance being
taken, thereby excluding subrogation between the insured parties, but it did
not exclude "vertical subrogation" (a point not argued by Miss Crawford).
(2) A
telling weakness of the pursuers' approach was that only some of the heads of
claim arising from the risks allocated to the subcontractor were said to be
excluded from the clause 83.2 mechanism.
It was very difficult to understand why that should be so. The pursuers' submission that this made
commercial sense was undermined because they accepted that not all risks were
excluded from the mechanism in clause 83.2.
Such an approach detracted from the simplicity of the scheme, which was
one of its avowed aims.
(3) It
was clear that the clause 83.2 mechanism related to all the risk events covered
by clause 83.1. Clauses 83.1, 83.2 and
83.3 had to be read together: that was why they were all contained within
clause 83. Events at the contractor's
risk were all of the items listed in clause 80, and all other events were at
the risk of the subcontractor. Events
could arise because of more than one risk.
In clause 83 there was no reference whatsoever to the insurance table. That was because clause 83 was concerned with
something different. Mr Hodge had made
an important submission about clause 83.3 - that that clause simply would not
work unless the insurance table risks came back into clause 83. If that was correct, it did very substantial
damage to a central pillar of Mr Francis's submission. It must have been envisaged that risks within
the insurance table would fall within clause 83.3.
(4) This
case did concern the operation of provisions in core clause 8 in circumstances
where clause 85.4 applied. The second
defenders also inhabited the "no insurance world". Mr Hodge submitted that it was fundamental
that a different regime applied when there was no insurance cover. In that event clause 85.4 applied and one was
directed to the cross-indemnity system in clause 83.2. In the "no insurance world" it did not help
to consider what would have happened if there had been insurance and claims had
been made under it. Instead, one just
had to look at what the subcontract provided about claims by one party against
the other in such circumstances. Clauses
83.2 and 83.3 carried out the apportionment exercises. It did not matter why the risks were
uninsured. The pursuers' submission must
be that clause 83.2 applies to risks which should have been insured.
(5) Mr
Cullen agreed with what Mr Hodge had said about bullet point 1 of clause 80: it
was not subject to any limitation to the effect that it could not apply to the
subcontract works. There were no such
words of limitation anywhere in clause 80.
The second defenders asked that that clause should be given its ordinary
and natural meaning, bearing in mind the tract of authority referred to by Mr
Hodge. Very clear words would be
required to bring about the result contended for by Mr Francis, namely,
imposition of liability on the subcontractor for negligence of the contractor
and others. There were no such clear
words. It was accepted that under the
insurance table the cost of reinstating the second defenders' subcontract works
was a risk prima facie allocated to
the second defenders alone, but the matter did not stop there, because in the
no insurance world that prima facie allocation
of risk was not the end of the matter. Where
the loss was contributed to by events at the contractor's risk, there had to be
an apportionment of liability under clause 83.2.
(i) The second defenders' supervisor
Halldorrson warned the pursuers' site agent Blair that the first defenders'
employees were welding (p 34C-D).
(ii) The
second defenders' foreman insulator Bryan warned the first defenders' employees
of the fire risk borne by the second defenders' panels (p 32D-E). That warning was given on
Submission
of senior counsel for the pursuers
[68] Fifthly,
so far as loss of or damage to property (referred to in the third column of the
insurance table) was concerned, exactly the same point could be made: this was
an event at the risk of the defenders as long as it could be established as
having been caused by activity in connection with the subcontract. That phrase was of broad ambit. The activity which caused the loss or damage
need not be the execution of the subcontract works themselves, and it need not
even be delictual. It included
inactivity in the face of a known risk to the subcontract works.
Discussion and Conclusions
(i) The subcontractor's liability
to indemnify the contractor:
construction of clause 83.2 of the subcontract
[77] In
order to test the pursuers' proposition it is, in my opinion, first of all
necessary to consider and thereafter apply the proper legal approach to the
construction of indemnities. The first
decision in Scotland to deal with this topic in relatively modern times is that
of the Second Division in North of
Scotland Hydro-Electric Board v D
& R Taylor 1956 SC 1, in which the defenders contracted to carry out
work for the pursuers. A clause in the
contract provided: "The contractor shall indemnify the Board against all claims
from third parties arising from his operations under the contract". One of
the defenders' employees who was injured by an electric shock recovered damages
from the pursuers on the ground that his injuries were caused by their
negligence. The pursuers then sought to
be indemnified by the defenders in terms of the above clause. The Second Division, applying the decision of
the Court of Appeal in Alderslade v Hendon Laundry [1945] KB 189 and the
decision of the Privy Council in Canada
Steamship Lines v The King [1952] AC 192, held that the clause did not entitle the pursuers to be indemnified
against claims based on their own negligence and dismissed the action as
irrelevant. Lord Justice-Clerk Thomson
stated at p7:
"The law has ....
in certain circumstances set a limit to the scope of such a clause of
indemnity. A party is to be indemnified
against a claim for which he would be legally responsible in virtue of his own
negligence only if it is clear that the other party consented to the
situation."
The decision of the Second Division was
followed by the House of Lords in Smith v UMB Chrysler Limited 1978 SC (HL) 1. It is, in my opinion, clear from those two
decisions that, for an indemnity clause to have the effect of indemnifying a
party for the consequences of his own negligence it must contain the word
"negligence" or some synonym for it.
(ii)
Unjust Enrichment
(iii) The claim based on the
defenders' failure to insure
(iv) The indemnity claim against
the second defenders based on "caused by activity in connection with this
subcontract"
[88] At
its highest the case pleaded by the pursuers against the second defenders is as
follows. The second defenders were the
subcontractors for insulation works under their subcontract. The fire was caused on the morning of
(v)
The averments in condescendence 13
(vi)
The form of the first Conclusion
Decision