Building in course of construction – Fire damage – Employer suing architect and consulting engineer – Defendants seeking contribution from contractor – Damage covered by insurance policy in joint names of employer and contractor – Whether contribution claim precluded by existence of policy and relevant contractual provisions
By separate written contracts dated 18 May 1993, the claimant (CRS) appointed the first defendant (TYP) and the second defendant (HLP) as architect and mechanical and electrical engineer respectively for the purpose of the construction of a new headquarters on the claimant’s Ashdale Valley site in Rochdale. The main contractor was Wimpey Construction UK Ltd (Wimpey), which was engaged by the claimant under a contract (the main contract) on the JCT Standard Form 1980 ed. Wimpey entered into a subcontract with an electrical installation company then trading as Hall Electrical (Hall).
In October 1993 Hall entered into a warranty with CRS and Wimpey. Pursuant to its obligations under clause 22A of the main contract, Wimpey procured an all-risk, joint names policy which insured CRS, Wimpey and Hall in respect of loss or damage to the works caused by fire or other specified peril, such insurance to cover the cost of reinstatement work and related professional fees.
In March 1995, after the intended completion date (December 1994) but before practical completion, the new building was badly damaged by a fire that broke out while an electrical generator was being commissioned. Reinstatement work, paid for out of the proceeds of the policy, was carried out by Wimpey under time extensions allowed for by the main contract. Practical completion was certified by TYP in February 1996.
In January 1998 CRS brought proceedings (the main proceedings) against TYP and HLP, alleging that the fire was attributable to their negligence or breach of contract, and claiming: (i) the cost of the reinstatement works (including professional fees), amounting to £679,000; and (ii) consequential losses arising from the delayed completion amounting to £305,000, such losses having been covered under a separate policy taken out by CRS alone.
In April 1998 TYP and HLP brought third party proceedings against Wimpey and Hall, claiming that, in the event of TYP and HLP being found liable in the main proceedings, they would be entitled to a contribution from Wimpey and Hall under the Civil Liability (Contribution) Act 1978.
At a hearing concerned solely with the third party proceedings, it fell to be determined as a preliminary issue whether, on the assumption that the fire was attributable to the negligence and/or breach of contract of all four parties to those proceedings, Wimpey and Hall (the third parties) were correct in maintaining that neither of them was, in the language of section 1(1) of the 1978 Act, a “person liable in respect of the same damage” for which TYP and HLP was liable.
Held: No claim could lie under the 1978 Act.
1. As regards the reinstatement and related costs, it was common ground that, since the interests of CRS and the third parties were both insured under the joint names policy, the effect of the policy, taken together with the terms of the main contract and the subcontract, was that no action lay against the third parties, whether at the suit of CRS or the insurance company; the latter having, in those circumstances, no claim under the doctrine of subrogation: Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127, applying Commonwealth Construction Co Ltd v Imperial Oil Ltd (1976) 69 DLR (3d) 558. TYP and HLP could not rely on Benarty (No 2) [1987] 3 All ER 1032 as showing that the rule in Petrofina did not extinguish the liabilities incurred by the third parties, but merely imposed a procedural bar designed to avoid circuity of action. The Petrofina rule stemmed from an implied term that the insurer should not be in a position to subject a co-assured to a liability for loss caused by a peril that had been insured against for his own benefit: see per Colman J in National Oilwell (UK) Ltd v Davy Offshore [1993] 2 Lloyd’s Rep 582 at p613.
2. Nor could TYP and HLP rely on the general rule, as applied, for example, in Parry v Cleaver [1970] AC 1, that required damages in the main action to be assessed without regard to insurance benefits received by CRS. That rule had no application where, as here, it had been contractually agreed that insurance was to be taken into account: Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211.
3. Although not covered by the joint names policy, the consequential losses did not give rise to a liability for the purpose of the 1978 Act, as both the main contract and the subcontract in effect provided for each party to bear its own loss in the present circumstances: see Temloc Ltd v Errill Properties Ltd [1982] 39 BLR 30.
John Slater QC and Julian Horne (instructed by Kennedys) appeared for the defendants; Andrew Bartlett QC and Kim Franklin (instructed by Berrymans Lace Mawer) appeared for the first third party; Simon Henderson (instructed by James Chapman, of Manchester) appeared for the second third party.
Alan Cooklin, barrister
