Given the
large part played by subcontractors in the building industry, one might assume
that the legal principles governing liability for their defaults would by now
have been thoroughly worked out. However, as a recent case illustrates, a
simple act of negligence can still raise questions which go to the very roots
of our law of contract and tort.
The law has
traditionally seen the problem of default by subcontractors in exclusively
contractual terms. The client would take action against the main contractor in
accordance with the terms of the contract between them; the main contractor
would then proceed down the line on the basis of a breach of the subcontract.
However, this attractively simple view of the world was rudely shattered by the
decision of the House of Lords in Junior Books Ltd v Veitchi Co Ltd
[1983] 1 AC 520, where it was held that, within certain limits, the client
could sue the subcontractor directly in the tort of negligence. What those
‘certain limits’ are need not concern us here, with one exception: Lord Roskill
in Junior Books specifically acknowledged that an exemption clause in
the main contract might have the effect of restricting or excluding the
subcontractor’s liability in tort.
The recent
case mentioned above, Norwich CC v Briggs Amasco Ltd and
Harvey (November 2 1987, unreported), concerned a swimming pool complex
which was owned and operated by the plaintiffs. In 1981, the plaintiffs entered
into a contract (JCT Standard Form, 1963 edition, 1977 Revision for Local
Authorities) for the construction of an extension to this complex, and the main
contractors subcontracted certain felt roofing work to the defendants. In the
course of this work, an employee of the defendants used a blow torch
negligently, causing a fire which damaged both the extension and the main
building.
The
plaintiffs did not take action against the main contractors in respect of the
damage. Nor was this surprising. The main contract, while specifying certain
types of damage in respect of which the contractors would have to indemnify the
client, and requiring the contractor to insure against that liability,
specifically provided that, as regards fire, the property and the works were at
the client’s sole risk and must be insured by him. Such a clause had been held
by the House of Lords in Scottish Special Housing Association v Wimpey
Construction UK Ltd [1986] 2 All ER 957 to mean that, even where the fire
was caused by negligence on the part of the contractor, he would not be liable
for it.
The
plaintiffs (or more accurately their insurers) accordingly turned their
attention to the subcontractors (or more accurately their insurers),
arguing that the subcontractors’ liability in tort for causing the fire could
not be affected by the terms of the main contract, to which they were not
party. The defendants, however, asserted that, when the overall contractual
scheme and the nexus of duties were considered, the inescapable conclusion was
that the risk of damage to the property by fire was one which had been assumed
by the clients. This seemed an attractive proposition, but it remained to be
seen whether it could be turned into a recognisable legal principle sufficient
to satisfy the judge.
The
defendants’ first attempts met with little success. Their argument that a
‘collateral contract’ could be discovered between subcontractor and client was
rejected by Garland J as one which ‘would strain artificiality to the point of
legal fiction’. Nor could the main contractors be said to have received the
benefit of the main contract (with its assumption of risk by the clients) as
agents or trustees for the subcontractors — this approach, which was based on
the case of New Zealand Shipping Co Ltd v AM Satterthwaite & Co
Ltd [1975] AC 154, would require evidence that the main contractors
actually were acting as agents, and there was no such evidence here.
There
remained the possibility envisaged in Junior Books, namely, that the
presence of an exemption clause in the main contract might indicate that the
client was voluntarily assuming the risk of damage and that the duty of care
which he might otherwise be owed by a subcontractor should be to that extent
qualified. Garland J acknowledged that this suggestion had been roundly
criticised by Lord Brandon in Leigh & Sillavan Ltd v Aliakmon Shipping
Co Ltd [1986] AC 785 but, pointing out that the exemption clause in that
case had actually been contained in the subcontract, his lordship
regarded the Junior Books approach as still valid.
The judge
held the defendants not liable for the damage, explaining as follows: ‘The
matter must be approached as one of principle: is the duty owed by the
defendants to the plaintiffs qualified by the plaintiffs’ contract with the
main contractor or, to put it more broadly, by the plaintiffs’ propounding a
scheme whereby they accepted the risk of damage by fire and other perils to
their own property (existing structures and contents) and some property which
does not belong to them (unfixed materials and goods the value of which has not
been included in any certificate) while requiring the contractor to indemnify
them against liabilities arising from the omission or default of both the
contractor and of any subcontractor; then requiring the contractor to insure
and to cause any subcontractor to insure against the liabilities included in
the indemnity? I am left in no doubt
that the duty in tort owed by the subcontractor to the employer is so
qualified.’
professional negligence
We
considered in ‘Legal Notes’ (1986) 280 EG 781 the case of GP & P Ltd
v Bulcraig & Davies (1986) 280 EG 356, in which a firm of
advertising agents, having taken the lease of office premises in ng Acre,
discovered to its horror that a condition attached to a grant of planning
permission restricted the use of the premises to offices in connection with the
printing trade. The plaintiffs, having found themselves thus saddled with an
expensive white elephant (and having failed, despite taking all reasonable
steps, to find a purchaser for the lease), were ultimately forced to negotiate
a surrender with their landlords. They then brought an action against the first
defendants (their solicitors) and John D Wood & Co (their surveyors),
alleging professional negligence in failing to discover the restriction and
warn the plaintiffs about it.
Our previous
note dealt mainly with the trial judge’s views as to the respective duties of a
solicitor and a surveyor in this situation which led him to conclude that
liability in the present case rested on the solicitors alone. We did not, for
reasons of space, go on to discuss the question of the damages which were
awarded to the plaintiffs, but that topic is now worth a mention, since the
award has recently been the subject of a successful appeal (see [1987] NPC 94).
The trial
judge, having rejected the defendants’ claim that the plaintiffs would have
taken the lease even if they had been told of the planning restriction (an
assertion which, if true, would have led to an award of nominal damages),
quantified the plaintiffs’ gross recoverable loss as £386,000, a sum consisting
mainly of the £350,000 spent by the tenants on refurbishment. He then
considered what should be deducted from this figure in respect of the benefits
which the plaintiffs had received from their lease. Clearly, the plaintiffs
must bring into account the £145,000 which they had received from the landlords
on surrendering the lease; more difficult was the value to be placed on the 18
months’ occupation which the plaintiffs had enjoyed.
The
valuation evidence which was accepted by the judge showed the rental value of
the premises, as improved by the tenants, to be £118,000 pa, as against a
rental value of £88,000 in unimproved condition. Since the defendants had
already been held liable to pay damages reflecting the cost of these improvements,
it followed that the difference in rental values, taken over the 18 month
period, was a benefit for which the plaintiffs must account; to hold otherwise
would allow the plaintiffs to take the benefit twice over.
In reaching
this decision, the trial judge treated as irrelevant the fact that the rent
actually paid by the plaintiffs during their occupancy was a mere £35,000 pa,
and it was this aspect of his decision which has now been overturned. As the
Court of Appeal pointed out, the plaintiffs would not have taken the lease at
all had they known the truth, and the damages awarded should therefore seek to
put them into the position they would then have been in. This meant in effect
that the plaintiffs must give up the benefit of the favourable bargain which
they had made with the landlords (a property with a rental value of £88,000 for
only £35,000), since this was a profit which they would not have made but for
the defendants’ breach. The correct approach was to deduct from the gross
figure the full benefit received by the plaintiffs, namely, the difference
between the improved rental value (£118,000) and the rent actually paid
(£35,000).
