Building contract – Independent contractor – Second claimant entering into contract with council for construction of recycling plant – First claimant undertaking to discharge duty and engaging first defendant to design and build plant – First defendant providing warranty in favour of second claimant – First defendant subcontracting work to associated company (H) – H contracting with second defendant to design, supply and install plant part – P carrying out further work on plant part – Fire breaking out during works due to actions of H and P – Fire causing delay to plant production – Claimants suing defendants for breach of contract and negligence – Whether first defendant having limited liability for liquidated damages – Whether defendants liable for actions of H and P – Claim allowed
The second claimant entered into a PFI contract with the council to collect, recycle and dispose of its domestic waste, which necessitated the construction of a recycling plant. A key part of the plant was the ball mill – a large rotating drum containing steel balls that broke down the waste into smaller material for separating. On the same date, the land upon which the plant was to be built, the buildings and structures were demised by the council to the second claimant for a term of 25 years.
The second claimant entered into a back-to-back contract with the first claimant associated company, which effectively undertook to discharge the second claimant’s obligations in respect of the construction of the plant. The first claimant then engaged the first defendant to design and build the plant under a contract that provided for liquidated damages if it failed to comply within a specified time limit. These were t6he only monies due from the contractor for such default. The first defendant also gave a warranty in favour of the second claimant.
The first defendant subcontracted the work to the main contractor (H), which in turn entered into a contract with the second defendant to design, supply and install the ball mill. Following installation, further works were carried out by a third party (P). A fire broke out causing substantial damage to parts of the plant resulting in a delay of 217 days before production could be recommenced. The claimants brought an action against the defendants for breach of contract and negligence. Expert reports indicated that the fire had most probably been caused by P, with contributions from H. An issue arose, inter alia, as to whether the second defendant was liable for the actions of P and H.
Held: The claim was allowed.
A person who employed an independent contractor was liable for the negligence of that contractor where it was engaged to carry out “extra-hazardous or dangerous operations” which, by their nature, involved special danger to others, including removing support from adjoining houses, dangerous work on the highway, or creating fire or explosion. Such operations were inherently dangerous, although if carefully and skilfully performed would cause no harm. The employer was under a non-delegable duty to ensure that all reasonable precautions were observed, otherwise it would be responsible for the consequences. The employer was liable even if it had stipulated that all reasonable precautions should be taken by the independent contractor, together with an indemnity.
In the instant case, the fire was caused, or materially contributed to, by the negligence of H and P. However, the first defendant accepted that it had agreed under the design and building contract to be responsible for the acts, defaults and neglects of any subcontractor as if they were its own and admitted an implied term that it would carry out its duties with reasonable skill and care. Therefore, the first defendant owed the first claimant a contractual and non-delegable duty to carry out its duties with reasonable skill and care and was in breach of that non-delegable duty: Honeywill & Stein Ltd v Larkin Brothers Ltd [1934] 1 KB 191 applied.
On the true construction of the design and build contract, the first defendant’s liability both in contract and tort were limited to sums payable by way of liquidated damages. By adopting the mechanism of a stay, the court could overcome the spectre of double recovery. If the first defendant paid the first claimant liquidated damages, it would comply with the terms of the contract in full so that the second claimant would be able to recover nothing: Panatown Ltd v Alfred McAlpine Construction Ltd [2001] 1 AC 518 applied.
The second defendant was liable to pay damages to the claimants and the first defendant for negligence for the delay resulting from the fire. The second defendant was vicariously liable for the negligence of P’s employees who had caused or contributed to the fire since it had been entitled to control the way in which P carried out its work, particularly as regards precautions against the risk of fire: Mersey Docks and Harbour Board v Coggins & Griffiths (Liverpool) Ltd [1947] AC 1 applied.
David Turner (instructed by Herbert Smith) appeared for the claimants; James Medd (instructed by Kennedys) appeared for the first defendant; David Allen (instructed by Ince & Co) appeared for the second defendant.
Eileen O’Grady, barrister
