JCT standard agreement for minor building works — Flooding folowing practical completion — Whether employer’s insuring obligation ending at practical completion — Judge holding insurance to continue until contractor’s post-completion obligation to remedy defects discharged — Appeal allowed
The appellant engaged the respondent as a contractor to carry out building works, including the replacement of a gutter, to a property of which it was the leaseholder. The contract incorporated the terms of the JCT standard agreement for minor building works. Clause 2.5 imposed a liability upon the contractor to make good, at its own cost, any defects in the works that appeared within 12 months of practical completion and that resulted from the use of materials or from workmanship that did not accord with the contract. It also included a provision for certification by the architect of the date when the contractor’s obligations had been discharged. Clause 3.5 provided for the architect to issue written instructions that the contractor was obliged to carry out. Clause 6.3B required the employer to insure, in the parties’ joint names, in respect of “loss or damage to the existing structures (together with the contents owned by him or for which he is responsible) and to the Works and all unfixed materials and goods delivered to, placed on or adjacent to the Works and intended therefore”, but did not stipulate the duration of that obligation. It also made further provision for the architect to issue instructions for the reinstatement and making good of such loss or damage.
Following practical completion of the works, heavy rainfall resulted in flooding to part of the building. The appellant brought proceedings against the respondent for damages, alleging that the flooding had been caused by the respondent’s breach of contract or negligence. Preliminary issues were tried as to whether the employer’s insurance obligation under clause 6.3B ceased upon practical completion or continued until the contractor had discharged its liability under clause 2.5, and whether the appellant’s claim was barred by clause 6.3B. The judge found that there were sound practical and commercial reasons why the insuring obligation should continue for the duration of the respondent’s defects liability period, and held that the appellant’s claim was barred. The appellant appealed.
Held: The appeal was allowed.
The employer’s insurance obligation ceased upon practical completion. By that date, all “unfixed materials and goods intended for the Works” referred to in clause 6.3B would have been fixed. Moreover, the phrase “the Works” referred to the work and materials that were required by the contract to bring the project to a finished state; it did not refer to the building in that finished state. If the obligation to insure against loss or damage to the unfixed materials and the works ceased upon practical completion, then it could not have been intended that the obligation in respect of the existing structures and contents should be for a different period. Moreover, the only mechanism by which the reinstatement and making good of loss or damage could be effected under clause 6.3B was by the issue of instructions under clauses 3.5 and 6.3B, and it had not been intended that the architect should be authorised to issue instructions after practical completion. Such instructions were to be treated as variations, which could not be required after practical completion; if the employer wanted a variation, the relevant works should be the subject of a separate agreement.
The judge had been wrong to find that there were sound practical and commercial reasons to continue the insuring obligation after practical completion. Once the contractor had achieved practical completion, possession of the site was passed to the employer, which, as building owner in possession, bore the risk of damage to the building and contents. At that date, the insurance of the building and contents should be a matter for the employer alone, since the contractor no longer had an interest in the works once these were completed.
Peter Aeberli (instructed by Davies Lavery, of Chelmsford) appeared for the appellant; David Sears QC (instructed by Davies Arnold Cooper) appeared for the respondent.
Sally Dobson, barrister
