Our recent trip to the Court of Appeal has paid off (AJ 22.6.00). Good news for our contractor clients but perhaps not so good for design professionals. The case, which was originally decided in the Technology and Construction Court (AJ 3.2.00), concerned liability for fire damage to a new building.
The fire started when the generator was commissioned. The actual cause has yet to be decided. If I tell you that the generator's steel flue passed through a wooden roof, you might have an inclination as to what could have happened. The joint names insurance, held by the employer, the contractor and domestic subcontractors as required by clause 22A of JCT 80 paid to have the building rebuilt. The employer then sued the architects and the engineers for the rebuilding costs, associated professional fees and other delay-related losses. The professionals objected to being the sole object of the criticism and maintained that both the contractor and the subcontractor were at least partly to blame for the fire.
They sought to join them into the action under the Civil Liability (Contribution) Act 1978.
The contractors argued that they were not liable to the employer for fire damage. They said that the parties to the joint names insurance ought, for these purposes, to be considered as one. Why, the contractors asked rhetorically, did the employer not sue us in the first place? Answer, the employer would have said, if asked, 'because we are all jointly insured it would be like suing yourself '. So, argued the contractors with flawless logic, if we are not liable to the employer, you professionals can not claim a contribution from us. Of course, it was not as straightforward as all that. The professionals said that you should not take insurance into account when deciding a question of liability. It was, they said, 'res inter alios acta ', which - as we all know in this post-Woolfian world without Latin - is the same as 'mind your own business'.
The Court of Appeal agreed with this as far as it went. It described as 'trite law' the fact that if a party has insured against a loss caused by another, the fact that the insurance company pays up does not preclude the injured party from bringing a claim against the wrongdoer.
This case was said to be different because the parties to JCT 80 had all agreed what was to happen in the event of fire. First of all, the fire damage would be covered by the joint names policy taken out by the employer and contractor.
Thus once the insurers had paid out, they could not bring an action against the contractors in the employer's name because the same insurers had agreed to indemnify the contractors under the same policy in respect of the same losses. Second they had agreed, under JCT 80, that any delay caused by the fire would entitle the contractor to an extension of time. The contractor would not be liable to pay liquidated damages for time that the works were being rebuilt.
By the same token, the contractor would not be entitled to recover any loss and expense. In effect, the JCT contract presented a complete code that would click effortlessly into operation after a fire. This would replace some of the cross claims and associated accusations that would otherwise arise.
The professionals argued that it was not fair.
They were not party to this arrangement and, although it was debated in court, it was not clear whether they could join the joint insurance band wagon. The law of joint and several liability could mean that although they were only 10 per cent to blame for the fire, they could be held to be 100 per cent liable for the losses it caused.
The Court of Appeal was unmoved by this plea. If it was unfair, it said, the court could not make it fairer by inventing liability for those who had the defence provided by the complete contractual code. Anyway, it was not that unfair since the professionals would have their own professional indemnity insurance. It does seem, however, that if the professionals want to avoid claims in similar circumstances they, or their insurers, should investigate the possibility of joining the joint names policy.