Contribution revisited

United Kingdom

The House of Lords’ Decision in CRS v Taylor Young Partnership Limited

The application of the law of contribution to construction disputes was reported on by Clare Collier in the December 2001 edition of the Bulletin. However, a recent case which has come before the courts has considered the application of the law of contribution specifically to the insurance provisions of a JCT contract. It produced a startling result concerning apportionment of liability between contractors and consultants, which may impact upon future insurance arrangements for construction projects and the extent of consultants’ liability pursuant to contracts of appointment.

In the case of Co-operative Retail Services Limited v Taylor Young Partnership Limitedthe House of Lords has held that a consultant, against whom a claim was made following a fire on a building site, was unable to claim a contribution from the contractor (regardless of whether the contractor was partly to blame) due to the drafting of the JCT insurance provisions. The result is that a consultant in such circumstances may be held liable for all the damages arising from the fire.

CRS – the facts

CRS had entered into a building contract with Wimpey for the construction of new office headquarters. The form of contract was the JCT standard form 1980 Edition Private with Quantities. Wimpey sub-contracted electrical work to Hall Electrical on the DOM/1 1980 Edition form of sub-contract. Hall’s responsibilities included the commissioning of an electrical generator. During the commissioning, a fire broke out which caused extensive damage to the building.

It was accepted between CRS, Wimpey and Hall that CRS’s insurers could not pursue either Wimpey or Hall as they were insured against the same risk under the same insurance policy. However, CRS brought a claim against Taylor Young and Hoare Lea Partnership (whom I shall refer to as the consultants) alleging that negligence or breach of contract on the part of the consultants resulted in the fire. The losses claimed by CRS were categorised as follows:

  • cost of reinstatement works
  • cost of additional professional fees
  • consequential losses arising from delay to the project.

Claim of contribution

The consultants claimed that they were entitled to a contribution from Wimpey and Hall pursuant to the Civil Liability (Contribution) Act 1978. To re-cap, section 1(1) of the Act states:

“Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from the other person liable in respect of the same damage (whether jointly with him or otherwise).

Applying this to the facts, the consultants case was that if they were liable in respect of the damage suffered by CRS, then they were entitled to seek a contribution from Wimpey and Hall, on the basis that they too were liable in respect of the same damage.

The parties agreed that the court should first be asked to address the preliminary issue of whether Wimpey or Hall could be liable to consultants pursuant to the provisions of the Act. For the purposes of the hearing of the preliminary issue, it was assumed that the fire resulted from breaches of obligations on the parts of the consultants, and also Wimpey and Hall.

The case was heard by His Honour Judge Wilcox in the Technology and Construction Court. Wimpey and Hall argued that there was no liability between themselves and CRS in relation to the cost of reinstatement of the works or associated professional fees as they were parties to the joint names insurance policy under the building contract. They claimed that there could be no liability between co-insured, following the established rule in the case of Petrofina (UK) Limited v Magnaload [1984] 1 QB 1227. Further, Wimpey and Hall argued that they were not liable to CRS for the consequential losses resulting from the delay to the project, as Wimpey were entitled to an extension of time in relation to the fire under the building contract. Accordingly, argued Wimpey and Hall, as they had no liability to CRS, the consultants were not entitled to claim a contribution from them.

The consultants argued that the fact that the other parties were co-insured under the joint names insurance policy did not affect the legal liability of Wimpey and Hall. Further, the consultants argued that it was inequitable for Wimpey and Hall to avoid liability under the law of contribution merely due to the insurance arrangements under the building contract.

Judge Wilcox held that neither Wimpey or Hall were liable to CRS for any damage arising from the fire and that it followed that they were not liable to make any contribution to the liability of the consultants to CRS. The consultants appealed to the Court of Appeal.

Court of Appeal Decision

There, Lord Justice Henry Brooke gave the appeal fairly short shrift. His conclusion was that the correct interpretation of the insurance provision in the building contract meant if an event such as a fire occurred, the redress for CRS was under the joint insurance policy for reinstatement works and associated professional fees. As regards consequential losses for delay, Wimpey were entitled to an extension of time but equally CRS were at liberty to cover such risk by a separate insurance policy. In conclusion, the fire did not give rise to any liability in law owed by either Wimpey or Hall to CRS.

House of Lords

The consultants appealed again. The key issue which the House of Lords was required to determine was summed up by Lord Hope as:

“Whether the effect of the contractual arrangements between the parties was to be taken that Wimpey and Hall were never under any obligation to pay compensation to CRS for fire damage caused by their negligence as the entire cost of making it good was to be recovered by insurers under the joint names policy.

Lord Hope’s conclusion was that:

“The position…is that there is no liability to pay compensation on either side. The employer has no claim for compensation against the contractor. All he can do is insist that the contractor must proceed with due diligence to carry out the reinstatement work and must authorise the release to him of the insurance monies. The contractor has no claim for compensation against the employer. All he can do is insist that the employer must use the insurance monies for payment of the cost of carrying out the reinstatement work. It makes no difference whether the fire was caused by the negligence of the contractor or by one of his sub-contractors or of the employer or of some third party whose acts or omissions neither of the parties to the contract is responsible. The ordinary rules for payment of compensation for negligence and for breach of contract have been eliminated. Whatever the cause of the fire, the obligation of the contractor is to carry out such work as is needed to put the matter right. His obligation is to restore the fire damage at his own cost, except insofar as the cost of doing so is met by sums recovered under the joint names insurance policy.

As a result, the Lords confirmed that the consultants were not entitled to a contribution from either Wimpey or Hall, given that neither could be held liable.

Implications of the decision

The Lords’ decision means that if it can be established that a consultant in such circumstances is to any extent liable for a fire or other insurable event, the consultant will be unable to seek contribution from the contractor, regardless of whether the contractor was in fact partly to blame. Theoretically, it may mean that the consultant is liable for all damages arising from an event such as a fire. However, it is important to bear in mind that the CRS case was tried as a preliminary issue on assumed facts, namely that both the consultants and Wimpey and Hall were all to an extent liable in respect of the fire. In order eventually to recover damages from either of the consultants, it would nevertheless be necessary for CRS to establish, as a matter of fact, that either or both of the consultants were liable. It is also important to note that the case applies specifically to the wording of the JCT standard form insurance provisions.

Nevertheless, the case has inevitably called into question the extent of consultants’ liability in building projects and the adequacy, from a consultant’s perspective, of the JCT insurance provisions.

The most practical solution would appear to be the inclusion of all project consultants as co-insureds under the all risks insurance policy. In this way, CRS would not be entitled to claim against any of the consultants for the same reasons that CRS was unable to claim against Wimpey and Hall. Any loss incurred would be recoverable only via the insurance policy. There is no reason in principle why consultants cannot be co-insured in this way. However, such an arrangement would inevitably lead to increased premiums, and the matter is therefore, to an extent, commercial.

A possible alternative means of protection for consultants may be the inclusion of net contribution clauses in their contracts of appointment. The purpose of a net contribution clause is to reverse the law of contribution, in order that the consultant can only be liable for his share of the contribution to the loss. Net contribution clauses are often seen in collateral warranties, though more rarely in contracts of appointment. It should be stressed however that careful drafting of an appropriate net contribution clause would be required to overcome the problem identified in the CRS case. Such clauses normally refer to the consultant’s liability in the context of the extent of other parties’ liabilities. On the basis that Wimpey and Hall were found to have no liability at all, a net contribution clause may not have the desired effect.

In any event, it is important that consultants are aware of the extent of their liability. Lord Bingham suggested that the circumstances of the CRS case had arisen because the consultants’ professional indemnity insurers had not taken steps to ensure that the consultants’ liability in this regard was covered. He concluded that the issues would not have arisen “had the right questions been asked at the right time. It remains to be seen whether consultants and their insurers will now ask those questions.

For further information please contact Andrew Tobin at [email protected] or on +44 (0)20 7367 3536.