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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 41
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OPINION OF
LADY CLARK OF
CALTON
in the cause
SCOTTISH AND
SOUTHERN ENERGY PLC
Pursuers;
against
LERWICK ENGINEERING
& FABRICATION LIMITED
Defenders:
ญญญญญญญญญญญญญญญญญ________________
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Pursuers: Dunlop;
Dundas & Wilson
Defenders: O'Brien;
McClure Naismith
7 March 2008
Summary
[1] The
pursuers own and operate Lerwick Power Station.
They entered into a contract with the defenders in terms of which the
defenders carried out work on boilers located therein. The terms of the contract are admitted and
incorporated into the pleadings. As part
of the work the defenders carried out burning and grinding work on
boiler 23 and a fire thereafter occurred.
It is averred that the pursuers suffered loss and damage and they claim
from the defenders under and in terms of the contractual provisions agreed by
the parties.
[2] This
case called on the procedure roll for discussion in respect of the preliminary
pleas for both parties. Procedure roll
discussion took place over two days on 30 November and 4 December 2007.
Notes of argument (11 and 12 of process) were lodged in advance on
behalf of both parties. At the Bar,
counsel for the defenders lodged a Minute of Amendment (14 of process) which
was not opposed. I granted amendment of
the Closed Record in terms thereof. It
was agreed that the case would be put out By Order after the issue of my
opinion to consider any consequential effect on the pleadings and to deal as
appropriate with the pleas-in-law.
The contract
[3] The contract between the
parties comprised a number of documents including the invitation to tender
which is subject to the pursuers' conditions of contract, the tender and the
award letter. For present purposes it is
unnecessary to consider the details of these documents. The parties were in agreement that for the
purposes of procedure roll discussion the only relevant terms of the contract to
be considered were Clause 13.1 and Clause 6.1 of the pursuers' general
terms and conditions.
[4] Clause
13 states:
"INDEMNITY
13.1 The Supplier shall indemnify
the Purchaser against the following:
(i) loss, damage or personal
injury (including death) whatsoever wheresoever and whensoever arising, due to
the negligent act or omission of the Supplier or its servants, agents, or
sub-contractors or arising from any breach of any terms and conditions of the
Order or any alleged fault or defect (howsoever arising) in the materials,
workmanship or quality of the Services supplied to the Supplier and against all
claims, demands, proceedings, damages, costs, charges and expenses whatsoever
in respect thereof or in relation thereto:
(ii) loss or damage to
property of the Purchaser or third parties and all claims in respect of
personal injury (including death), howsoever caused to or by any of the
employees, servants, agents, or sub-contractors of the Supplier while on the
Purchaser's premises in performance of this Order."
Clause 6 states:
"6. QUALITY
6.1 Without prejudice to the
Purchaser's statutory rights or rights under these terms and conditions, it is
a condition of this Order that the Services shall:
...
(ii) be of the very best materials and
workmanship; ......."
It is not disputed by the parties that
the reference to "the Supplier" is a reference to the defenders and the
reference to "the Purchaser" is a reference to the pursuers for present
purposes. In this opinion I have
therefore substituted these terms when referring to the terms of the clauses.
Submissions by counsel for the pursuers
[5] Counsel for the pursuers
invited me to sustain the first and the third plea-in-law for the pursuers, to
grant decree de plano and
restrict inquiry to quantum. As a subsidiary submission, in the event that
I considered evidence was required in relation to causation, he invited me to
restrict inquiry to causation and quantum. He also invited me to sustain the pursuers' second
plea-in-law, delete the defenders' averments about mitigation of loss et separatim contributory negligence in
relation to the pursuers' claims which are supported by the defenders'
pleas-in-law five to seven.
[6] Counsel
for the pursuers submitted that on the basis of the admitted facts, the
contractual obligation to indemnify arose in this case and that no proof in
respect of that was required. He pointed
out that the terms of the contract are admitted (Answer 2, page 5D) and
that the terms include the indemnity clause in clause 13 of the General Terms
and Conditions. The defenders also admitted
that the fire developed in the pursuers' premises and that the fire was ignited
by works carried out by the defenders (Answer 3, page 6C-D). He submitted that the first issue to be
determined is whether the terms of the indemnity clause, properly construed,
cover the loss suffered by the pursuers.
He rejected the defenders' position that it is a defence to aver that
the loss or damage suffered by the pursuers was wholly or substantially as a
result of the pursuers' own negligence and/or that there was any obligation to
mitigate loss. Counsel for the pursuers summarised
the issues in this way. On a proper construction of the contractual terms,
there was a contractual requirement on the defenders under clause 13(i) to
pay for damage caused by the defenders' employees. There was no defence of the type averred by
the defenders. He submitted that on the
admitted averments of fact it was therefore open to the Court to conclude at
the stage of procedural roll that the indemnity provision in this case was satisfied
and restrict proof accordingly.
[7] Counsel
for the pursuers then attempted to anticipate submissions on behalf of the
defenders based on authorities relating to the construction of indemnity
provisions. He sought to distinguish those cases relied on
by the defenders on the basis of the particular contractual provisions in the
present case. He emphasised the
importance of construing the particular wording agreed by the parties. He first referred to McBryde, The Law of Contracts in Scotland 3rd
Edition, paras.8.63 and 8.66, in support of his submission about the importance
of analysing the particular wording and type of clause agreed by the
parties. He submitted that an indemnity
clause performs a different function from an exclusion clause. The common use of the words "indemnity
clause" was in a situation where a person who has had or may have to make a
payment to a third party and seeks to recover his loss from the other party to
the contract. He submitted that although
there was a well established line of jurisprudence dealing with indemnity
clauses, the jurisprudence should be understood with reference to the
particular wording used in the cases and in the context of the accepted underlying
policy reasons.
[8] Counsel
for the pursuers sought to analyse authorities relied on by the defenders. He submitted that, if properly understood,
these authorities did not assist the defenders.
He correctly anticipated that the wording of clause 13(i) which
includes the words "howsoever caused" would be a lengthy part of the procedural
roll discussion. He referred to Joseph Travers & Son Ltd v Cooper [1915] 1 K.B.73 and in particular
the passage by Kennedy, L.J. at page 93 where it was stated
"... that the
presence of such words (referring to the words "however caused") creates an
essential difference; and that, whilst
it is settled law that a contractual exemption, whether from loss or damage
generally or from certain enumerated forms of loss or damage... will not be read
as protecting the carrier from liability for loss or damage if the loss or
damage is proved to arise from the carrier's negligence, ...a different position
in regard to the carrier's liability is created if the exemption clause is so
worded as, according to the natural interpretation of its language, clearly to
comprehend all loss or damage, however that loss or damage may originate. ...".
Counsel for the pursuers developed
this principle of interpretation by reference to E Farr Ltd v Admiralty
[1953] 1 W.L.R.965 where it was held that the words "any cause whatsoever" were
as wide as they could be and should be read as including negligent navigation
...and that once that construction was applied to the condition there was no room
for any implied term which would limit the effect of those words. Counsel submitted that Scots law was no
different. He referred to McCuaig v Redpath Dorman Long 1972 S.L.T. (Notes) 42, in particular
Lord Dunpark at pages 45-46. He
pointed out that Lord Dunpark having been referred to a long line of English
authority including Joseph Travers &
Son Ltd v Cooper, accepted the
need for clear words of exclusion. Lord Dunpark
noted the distinction between words which direct attention to "any loss" and
words which direct attention to the "causes" of loss and accepted that, where words
such as "however caused" are used, these words are recognised as clear words of
exclusion. Counsel for the pursuers made
similar points in relation to White v
Blackmore & Others [1972] 2
Q.B.400. Counsel for the pursuers made a
detailed analysis of Smith v UNB Chrysler 1978 SC (HL) 1. He accepted the general principle that in
indemnity clauses, as in exemption clauses, if a party seeks to exempt himself
from his own negligence this must be done by clear words and he did not seek to
question the tripartite test summarised by their Lordships in Canada Steamship Lines Ltd v The King (1952) AC 192 at p. 208. He submitted, however, that the terms of the
contract considered in Smith were
different and in particular there was no specific reference to causation. He submitted that the well-developed line of
authority, of which Joseph Travers &
Son Ltd was an example, was not disapproved in the Smith case. He also
submitted that Hinks v Fleet [1986] 2 E.G.L.R.243, which
post-dated Smith, and in which
reference was made to Smith supported
his submission. He invited me to
conclude that the only sensible interpretation to give the relevant wording of clause 13(i)
in the present case, is that damage "caused by the defenders" must be paid for by
the defenders.
[9] Counsel
for the pursuers was critical of the attempt by the defenders to escape the
indemnity clause based on the defenders' averments at Answer 5,
page 9C. The defenders there aver
that "...properly construed, the contractual indemnity provision on which the
pursuers rely does not apply to loss or damage suffered by the pursuers wholly
or substantially as a result of their own negligence. The loss or damage condescended upon by the
pursuers is of such a character.
Accordingly the indemnity provision does not apply". Counsel for the pursuers conceded that a novus actus interveniens break in the
chain of causation, if averred, might be relevant but that was not the basis of
the defenders' averments in this case.
He submitted that the defenders' factual averments were in any event
irrelevant on the basis of the weaker alternative rule. At best for the defenders, they were seeking
to prove an alternative case of contributory negligence which he submitted was
also irrelevant. I summarise the reasons he advanced for this proposition in paragraph 11. Counsel for the pursuers submitted that if the
defenders were attempting to rely on the "last opportunity" rule of causation,
rather than averring a novus actus
interveniens, the averments were irrelevant. He prayed in aid Leyland Shipping v Norwich
Union [1918] 1 A.C.350 and Grant
v Sun Shipping Co Ltd 1948
S.C.(H.L.) 73.
[10] Counsel for the pursuers then dealt with the defenders claim in
respect of contributory negligence. Following
the amendment procedure (referred to in paragraph 2), the defenders have
two pleas directed to contributory negligence. Plea 6 is directed to the indemnity claim
and plea 7 is directed to the claim by the pursuers under
paragraph 6(ii) of the General Terms and Conditions. Counsel for the pursuers submitted that the paragraph 6(ii)
claim was a contractual claim not a claim based on negligence. He submitted that the defenders' averments
and pleas-in-law directed both to the paragraph 13 and paragraph 6
claims were misconceived as in neither case was contributory negligence a
defence recognised in law.
[11] Counsel for the pursuers made reference to the Law Reform
(Contributory Negligence) Act 1945, section 1(1) which states:
"Where any
person suffers damage as the result partly of his own fault and partly of the
fault on the part of any other person ...."
He submitted that the pursuers are
seeking to found on contractual terms under clause 13 and clause 6 and
that both claims are independent of fault.
He submitted that contributory negligence is no defence in law to such
contractual claims made by the pursuer. He
made reference to Basildon District
Council v J E Lesser (Properties) Ltd
[1985] Q.B.839; Lancashire Textiles (Jersey) Ltd v Thomson Shepherd & Co 1986 S.L.T.41 and Barclays Bank plc v Fairclough
Building Ltd [1995] Q.B.214.
[12] Counsel for the pursuers then turned to deal with what he described
as the defenders' attempt to elide in part the indemnity obligation by averring
that there had been a failure by the pursuers to mitigate loss. I was invited to exclude from probation the
defenders' averments about mitigation of loss in Answer 5 at 9C-D. These averments state:
"Esto the indemnity provision applies to
loss and damage condescended upon (which is denied), in any event the pursuers
have failed to mitigate their loss by failing to extinguish the fire after it
was brought to their attention".
This averment was made under
reference to Answer 3. Answer 3
sets out averments by the defenders to the effect that the defenders carried
out a firewatch, doused the boiler and left at 5.15pm
on 26 August 2003, their
work permit having ended. It is averred
that the pursuers' supervisor was asked to keep firewatch but allegedly failed
to do so and the pursuers failed to take action until 4.00am on 27
August 2003 (Answer 3, page 6C-8A).
Counsel for the pursuers submitted that the indemnity claim under
clause 13 is a claim for payment not a claim for damages. Under reference to Abrahams v Performing Rights
[1995] I.C.R.1028 and Royscot v Ismail (Court of Appeal, unreported,
29 April 1993) he submitted that the concept of mitigation of loss does
not apply for a claim for payment due under a contract. I understood him to pray these cases in aid
in relation to the claims in respect of both clause 13 and clause 6.
[13] Finally, to anticipate the defenders' attack on the pursuers'
pleadings in relation to the claim under clause 6, counsel for the pursuers
submitted that the pursuers were offering to prove that such services if carried
out to the standard of best workmanship in terms of clause 6(ii) do not
result in a major fire. He submitted
that the pursuers did not have to aver more to give fair notice for inquiry as the
defenders were not pleading a case in delict.
Submissions by Counsel for the Defenders
[14] Counsel for the defenders
invited me to repel the first and second pleas-in-law for the pursuers, and
sustain the first and second pleas-in-law for the defenders seeking dismissal
of the action. Failing which, he invited
me to delete Article 6 of Condescendence and allow a proof before answer
on the remaining averments.
[15] Counsel for the defenders agreed that a critical issue for determination
in the case is the scope of the indemnity and in particular, whether it is a
relevant complete defence to the indemnity claim that the pursuers' loss and
damage was caused by their own alleged negligent failure to watch and
extinguish the fire. Dealing with the
indemnity claim and the defence thereto, he submitted that counsel for the
pursuers invited a literal reading of the indemnity clause 13 to the
effect that, if the defenders started the fire while they were doing the work,
then all the fire damage is covered by the indemnity. He submitted that the logical consequence of
that would be to permit the pursuers to stand back and let the building burn
down and then claim from the defenders in respect of the loss and damage. Such an interpretation was not correct and
was not supported by the authorities. Counsel
for the defenders submitted that the principle, supported by the authorities on
which he relied, was that a party cannot claim indemnity for losses suffered
through negligence of that party unless either the indemnity expressly provides
for recovery of such losses or there is no other loss that the clause might
relate to. In developing his submission,
he relied firstly on Canada Steamship
Lines Ltd v The King [1952] A.C .192, in particular
Lord Morton of Henryton at pages 207-208, 211 and 213-214. Counsel for the defenders submitted that in
the absence of clear terms, the indemnity must be construed as relating to a
liability not based on negligence. He
also pointed to the policy considerations which underlay the law. It was recognised that to impose liability for
someone else's negligence is very burdensome and if that is to be imposed, it
must be imposed by very clear words. He
then referred to North of Scotland
Hydro-Electric Board v D & R
Taylor 1956 S.C. 1 as the first Scottish case on the
subject. He pointed out that
Lord Justice Clerk Thomson, at page 7 thereof, summarised English
authorities, applied them and followed the general approach adopted in Canada Steamship Lines Ltd v The King. Counsel then prayed in aid Smith v UMB Chrysler (Scotland) Ltd 1978 S.C. (H.L) 1. He submitted that the factual background of
that case is very similar in essential matters to the present case. He noted that the terms of the indemnity
clause were very broad, as in the present case.
Counsel founded in particular on the speech of Lord Fraser dealing
with the question of construction at pages 11-14. Lord Fraser stated at page 12: "I do not see how a clause can 'expressly'
exempt or indemnify the proferens against
his negligence unless it contains the word "negligence" or some synonym for
it ... The word 'whatsoever'
occurs ... but in my opinion it is no more than a word of emphasis and it
cannot be read as equivalent to an express reference to negligence. ...". He
also prayed in aid passages by Viscount Dilhorne at page 79, Lord Keith
of Kinkell at page 16 and he noted the concurrence of
Lord Wilberforce and Lord Salmon.
He submitted that the English Appeal Court
decision in Hinks v Fleet was a "rogue" decision which although
it referred to Smith, did not appear
to adopt and apply the reasoning which was clearly set out therein. Counsel was unaware of any criticism in later
cases or in the literature of the decision in Hinks v Fleet. Counsel then referred to a recent case, Balfour Beatty v Gilcomston North Ltd 2006 S.C.L.R. 717. He accepted that the contractual provisions
in that case were different because there was an express contractual mechanism
for reducing damages in certain circumstances.
He referred to the obiter observations by the Lord Ordinary at
paragraph 78. In drawing together his
submissions on this point, he concluded that the courts have consistently
refused to allow parties to claim indemnity for their own negligence unless
express provision for that is made on the basis explained in Smith.
He submitted that the case law mainly deals with situations where the
claimant was entirely to blame but the same principle must apply in logic if
the claimant is partly rather than fully to blame.
[16] The defenders' counsel then addressed the relevancy of the
mitigation of loss defence. He criticised the position adopted on behalf
of the pursuers to the effect that the pursuers had no duty to mitigate their
loss. He said the logic of that position
was to imply that the pursuers were entitled to simply watch the building burn
down but that could not have been intended by the parties. He submitted that the right to indemnity is
not open ended. He prayed in aid two
cases which he accepted were not directly in point. He referred to them in order to illustrate his
general proposition that liability, even in an indemnity case, is not open
ended. He referred to Smith v Howell (1851) 6 Ex. 730 in particular, Lord Chief
Baron Pollock at page 742.
Secondly, he referred to Scottish
& Newcastle plc v Raguz[2007]
Bus L.R. 841 particularly Lloyd L.J. 53-54 where he stated at
paragraphs 53-54:
"I am prepared
to assume that, notwithstanding the wide express terms of the covenant, there
is a limitation on the scope of the indemnity to expense which is fairly and
reasonably incurred, along the lines indicated in Smith v Howell."
[17] Counsel for the defenders submitted that there was some overlap
with his submissions in relation to mitigation of loss and his submissions in
relation to the relevance of the contributory negligence defence.
[18] He dealt firstly with the indemnity claim. He accepted that there are limitations in the
Contributory Negligence Act 1945 but submitted that where both parties are
at "fault", the defenders, as in this case, are entitled to pray in aid
contributory negligence simply because there is no express reference in
clause 13 to wording encompassing the pursuers' own negligence. Counsel prayed in aid the obiter remarks of the
Lord Ordinary in Balfour Beatty v
Gilcomston North Ltd referred to supra.
He submitted Counsel for the
defenders said that this approach was in keeping with the underlying
policy which prevented a party who was culpable from shifting all liability to
another party without express words to that effect. Concluding this part of his submissions,
counsel for the defenders submitted that both the mitigation and the
contributory negligence defences were relevant and should be allowed to proceed
to proof before answer.
[19] The defenders' counsel dealt separately with the issue of
contributory negligence in relation to the breach of contract claim in
Article 6 of Condescendence. He
submitted that the pursuers' counsel was wrong in his submission that
contributory negligence is not available as a defence to the pursuers' claim
based on clause 6(1)(ii). He
accepted the requirement in the Law Reform Contributory Negligence
Act 1945 that both parties must be at "fault", but submitted that the
statutory definition of "fault" is wide enough to cover a wrongful act such as
a breach of contract under clause 6.
He submitted that on the averments made by the pursuers, it is
inevitable that the pursuers will require to make out a case of negligence as
there is no specification given in the pleadings about a higher standard. In such circumstances, relying on the cases
of Lancashire Textiles (Jersey) Ltd v Thomson Shepherd & Co Ltd 1985
S.C. 135 and Concrete Products
(Kirkcaldy) Ltd v Anderson and
Menzies 1996 S.L.T. 587, he submitted contributory negligence is
available to the defenders as a defence.
[20] In conclusion, counsel for the defenders criticised the
pursuers' averments in Article 6 and 7 of Condescendence which relate
to the claim based on clause 6(1)(ii) of the general terms and
conditions. Counsel for the defenders
did not dispute the principle that such
a claim may be relevantly averred and proved.
His criticism was that the pursuers made bare averments and seemed to be
proceeding on a res ipsa loquitur
basis. He did not submit that it was
essential as a matter of pleading to aver res
ipsa loquitur. He submitted that this
is not a case where the only issue is that the defenders started a fire causing damage. It is a case in which the defenders left some
smouldering embers which, after being allowed by the pursuers to burn for a
further eleven hours, resulted in a major fire.
The bare averments in support of the claim under clause 6(1)(ii) were
so lacking in specification that the pursuers were not entitled to proceed to a
proof before answer in respect of these averments.
Discussion
[21] The issues raised on behalf
of the parties were well presented by both counsel and are not without
difficulty. It is plain, even from the
limited selection of authorities to which I was referred, that there is much
scope for discussion and disagreement. The
specific contractual terms agreed by the parties underlie the dispute. The obvious starting point for a
consideration of this case is clause 13(1)(ii) of the contract, the full
terms of which are set out in paragraph 4.
There was no dispute that in considering the proper interpretation of
the clause, it is necessary to consider in detail the particular words used by
the parties. In considering said clause 13,
it is plain that parties have agreed a clause of indemnification in wide terms
covering a number of different eventualities.
I was not invited by either party to draw assistance from any part of
the contract, other than clause 13, to form a view about interpretation.
[22] Clause 13(ii) is inelegantly phrased and seeks to cover
distinct liabilities in different terms.
It may be helpful to separate the clause into two parts. The first part deals with loss or damage to
property. The second part deals with
personal injuries claims. In my opinion the
clause provides that the defenders shall indemnify the pursuers against "loss
or damage to property of the pursuers... howsoever caused...by any of the
employees, servants, agents or sub-contractors of the defenders while on the
pursuers' premises in performance of this Order". It is important to understand that the
pursuers found their claim upon the first part of the clause. The other part of the clause provides that
the defenders shall indemnify the pursuers against "all claims in respect of
personal injury (including death), howsoever caused to or by any of the
employees, servants, agents or sub-contractors of the defenders while on the
pursuers' premises in performance of this Order". I consider the meaning of the indemnity is
different depending on whether the indemnity covers loss or damage to property
compared with some claims in respect of personal injury. In respect of the former, I consider that the
only natural reading is the one which I have set out in this paragraph in which
the indemnity covers loss or damage to property of the pursuers howsoever
caused by any of the employees etc. of the defenders. In respect of some claims of personal injury,
I consider that a wider meaning exists.
That is because the clause is capable of being read as covering claims
in respect of personal injury howsoever caused to any of the employees etc. of
the defenders or by any of the employees etc. of the defenders. In my opinion, it is only in respect of
personal injury claims to any of the employees etc. of the defenders that
the issues canvassed in the cases referred to and summarised in
paragraphs 8 and 15 arise. These
cases are concerned with the wording which is required to transfer to defenders
the pursuers' liability in respect of the pursuers' own negligence. I say that because where, for example, an
employee of the defenders is injured while on the pursuers' premises in
pursuance of the Order, there are provisions in clause 13(1)(ii) which prima facie entitle the pursuers to an
indemnity from the defenders. That
applies even if the injury was not caused in any way by the defenders and was
caused by the pursuers. A question may
arise in that situation as to whether the ratio
of Smith v UNB Chrysler applies. Such a
question might arise if the pursuers sought indemnity from the defenders for
injury to the defenders' employee caused
by the pursuers' own negligence. But
that is not the basis of the present case.
[23] In this case the pursuers are seeking an indemnity in respect
of loss and damage to their property caused by the defenders' servants. They are not entitled to avoid an
investigation about causation, as they might be entitled, if they were relying on
a clause of indemnity covering loss or damage "howsoever caused". Despite the submissions by counsel for the
defenders, I was not persuaded that the terms of the indemnity in the present
case were such that the reasoning in Smith
must be applied. I consider that their
Lordships in Smith were dealing with
different contractual provisions and a different problem. In that case the contractual conditions did not
refer specifically to causation. That
was one difficulty for the pursuer who sought unsuccessfully to maintain that
the words used in the parties' contract were sufficiently wide to allow the
pursuer to claim indemnity for the pursuer's own negligence. That is to be contrasted with the line of
cases referred to by counsel for the pursuers and summarised in paragraph 8. In these cases the parties in their
contractual terms did make reference to causation. This is illustrated for example, in White v Blackmore where Roskill L.J. stated at p.677D-E:
"It will be
observed that the exclusion is of 'all liabilities arising out of accidents
causing damage or personal injury (whether fatal or otherwise) howsoever
caused'. Wider words of exemption are
difficult to conceive. Indeed the words 'howsoever
caused' have become in the last half century and more a classic phrase whereby to
exclude liability for negligence".
I turn now to consider Hinks v Fleet which counsel for the defender submitted was wrongly decided as
the Court of Appeal had plainly misinterpreted and failed to apply the decision
in Smith. The contractual provisions in Hinks v Fleet provided inter alia
for an exclusion of liability for loss or damage"... however such loss or damage
may be caused". I consider that the Court
of Appeal considered that the words used by the parties did amount to an
express provision as required in Smith. (See
May L.J. at page 245H). The
Court apparently did not consider it necessary
in the light of the existing authorities for the parties to refer expressly to
"negligence". I reject as ill-founded
the criticisms made by counsel for the defenders of this decision. I consider my observations to be obiter because for the reasons explained in my opinion, the present case turns on
the express words used by the parties which I consider to be different from the
words used in Smith. In contrast to the situation in Smith, the pursuers are not seeking to
rely on the indemnity except insofar as they claim loss or damage to their
property howsoever caused by the defenders' employees while on the pursuers'
premises. That is the basis of their
averments and what they are offering to prove.
This is not a case in which the pursuers are seeking to obtain an indemnity
for loss of damage to their property caused by themselves or anyone other than
the defenders' employees. In my opinion,
the critical issue for the pursuers is to offer to prove that the loss or
damage to their property was caused by the defenders' employees. The terms of the indemnity make it
unnecessary for the pursuers to prove fault or intent on the part of the
defenders but it is essential that the pursuers aver and offer to prove that
the loss or damage was caused to their property by the defenders' employees in
terms of clause 13.
[24] In his submissions (summarised in paragraph 6) the pursuers'
counsel invited me to find on the admitted facts that the terms of the
indemnity were satisfied. I am not
prepared to make such a finding. Where
the terms of the indemnity relied on make it plain that a party is liable for
damage "howsoever caused", there may be no need in some cases to investigate the
sometimes vexed question of causation. Issues
of causation may be very complex.
Causation is sometimes described in case law as a web or chain but such
descriptions are inadequate, in my opinion, to deal with the complex
interaction of events which may occur. I
was not addressed about the jurisprudential approaches and problems considered,
for example, in Hart and Honore Causation
in the Law. Obviously there is much
room for philosophical debate. But I am
faced with a case where there appears to be a pragmatic approach intended by
the parties. This is a case in which the
parties have agreed in clause 13 that the defenders are responsible for
loss or damage to the pursuers' property caused by the defenders'
employees. There is no reference in clause
13 to the defenders being responsible in circumstances where the defenders' employees
contributed to some extent or to a material extent to the loss and damage
suffered by the pursuers. In my opinion the intention of the parties, as I
interpret the clause, means that it will be necessary for the pursuers to prove
that the pursuers' loss or damage was in a sense recognised by the law caused
by the defenders' employees. The Courts regularly
deal with this task of identifying causation.
Various descriptions have been given to attempts to decide causation in
a legal sense. The most common description
perhaps is the identification of the effective or dominant cause in
contra-distinction to other remote causal or collateral contributing
factors. In this case, I do not consider
that the Court can make a proper informed judgement about causation on the
basis of the pleadings and a proof in relation to that is essential. If the pursuers are unable to establish
causation, the pursuers will fail. To
the extent that the defenders deny the pursuers' averments about causation and
have averments that the pursuers' negligence caused the loss and damage, I am
of the opinion that the defenders are entitled to proof of these
averments. In my opinion the defenders
are entitled to challenge the causation averred by the pursuers and put forward
competing averments pointing to a different effective cause. I consider that the averments of the
defenders about causation coupled with their general denial of causation
averred by the pursuers are sufficient for this purpose. That is different from a defence based on
contributory negligence, whether that is intended as a complete defence to the
indemnity or designed to reduce damages.
[25] I turn now to deal with the submissions about contributory
negligence in relation to the defenders plea-in-law 6. In my opinion it is plain that clause 13
is not a clause which depends upon proof of fault. It is a contractual indemnity clause in which
parties have agreed in advance where liability should lie in respect of various
matters. I consider that counsel for the
pursuers, for the reasons he advanced, is well founded in his submission that
the Law Reform (Contributory Negligence) Act 1945 is not applicable. I do not accept that any particular
assistance can be drawn from the case of Balfour
Beatty v Gilcomston North Limited
referred to by counsel for the defenders.
In that case there were different and special contractual terms. In addition, in my opinion, there is no
policy objection to the law enforcing a contractual indemnity agreement which
has the effect that loss and damage to the pursuers caused by the defenders'
employees should be paid in full. There
are many mechanisms, such as the mechanism in the contract in the aforesaid
case whereby parties can moderate that effect.
It should also be noted that in the present case, in the event of a
decision that the loss and damage were not caused by the defenders, the
defenders would have no liability under clause 13.
[26] I consider that in order to put into context the submissions
about contributory negligence in relation to the defenders' seventh
plea-in-law, it is necessary also to deal with the criticisms made by the
defenders' counsel about the pursuers' case in Article 6 of condescendence
based on clause 6(1)(iii). The
pleadings in respect of this part of the pursuers' case are very sparse. I have reservations about the relevance of
these pleadings and the pursuers may have difficulty in advancing a case,
without objection for lack of notice, based on such sparse pleadings. Nevertheless my understanding is that the
pursuers are not seeking to advance a case in delict based on a failure to take reasonable care. I do not consider that there are relevant
averments to found such a case. The
pursuers aver and seek to prove that employees using the very best workmanship (a
higher standard than reasonable care) would not cause a fire in the
circumstances averred. I am not
persuaded that the pursuers' case must necessarily fail despite these sparse
averments. I am prepared to allow proof
of the averments despite the criticisms made by counsel for the defenders. I have concluded that there are no relevant
averments of fault in relation to the claim under clause 6. This is not a claim based on fault but on a contractual
duty of a higher standard. Standing this
conclusion, when I take into account the definition of fault in section 5 of
the 1945 Act, I am not satisfied in the circumstances averred by the defenders
that there are relevant averments of fault for the purposes of the 1945 Act. It follows that the averments do not disclose a
situation in which the provisions of the Law Reform (Contributory Negligence)
Act 1945, section 1(1) apply. The pursuers'
averments founding on clause 6(1)(ii), do not disclose a claim by a person
who has suffered damage and is seeking to claim wholly or partly as a result of
fault on the part of the defenders in respect of that damage.
[27] The submissions by counsel relating to the issue of mitigation
of loss were short and there was little reference to authority. Counsel for the pursuers made no particular
criticism of the specification of the defenders' averments in relation to
mitigation of loss but relied on what he said was a point of principle. He submitted that the claims made were claims
for payment due in contract not claims for damages. In these circumstances mitigation of loss was
not applicable. In contrast, counsel for
the defenders relied mainly on a reference to the general intention of the
parties. He submitted that the parties
could not have intended that the pursuers were entitled to simply watch the
building burn down. He was unable to
refer to any cases directly in point.
The two cases to which he referred Smith
and Scottish & Newcastle plc were
not in my opinion of assistance.
[28] The principle of mitigation of loss has been developed in
relation to claims for damages. I am of
the opinion that in the present case, the claim under clause 13 is not a
claim for damages for breach of contract.
It is a claim for indemnification for loss occasioned caused by the
defenders' employees regardless of their fault or intention. In some
indemnities there may be a formula or principles agreed by the parties in
advance to regulate the calculation of loss.
I consider that the cases cited by counsel for the pursuer, namely Abrahams v Performing Rights and Royscot
v Ismail may fall into this
category. In other cases an analysis of the contractual
provisions may enable averments to be made about implied terms in relation to
mitigation of loss. Express terms dealing
with this are not only possible but may be desirable. But in the present case there is no attempt
to aver a case based on some implied term and there are no express terms. In such circumstances, I do not consider that
the averments about mitigation of loss by the defenders are relevant because I
do not consider this is a defence to the express terms of the indemnity
clause 13(ii). That clause, as I
have explained, does require a causal connection between loss and damage and
the defenders' servants. In the absence
of that causal connection, the defenders will not be liable under the indemnity
clause. To that extent the liability is
not open ended. In conclusion, I consider that the submission of the pursuer's
counsel in relation to mitigation of loss and the claim in terms of clause 6
is ill founded. I accept that the claim
is based in contract but it is a claim for damages for breach of clause 6
of the contract. The principle of
mitigation of loss is not restricted to claims for damages in delict and in my opinion plainly applies
also to claims for damages in contract.
[29] As explained in paragraph 2 the case will now be appointed to
the By Order Roll.
