House of Lords -British Telecommunications PLC v. James Thomson...

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Clause 22.3 as similarly modified provides:

"(1) The contractor where clause 22A applies, and the employer where either clause 22B or clause 22C applies shall ensure that the joint names policy referred to in clause 22A.1 or clause 22A.3 or the policies referred to in clause 22B.1 or in clause 22C.1 and 22C.2 shall either provide for a recognition of each subcontractor nominated by the architect as an insured under the relevant joint names policy or include a waiver by the relevant insurers of any right of subrogation which they may have against any such nominated subcontractor in respect of loss or damage by the specified perils to the works and site materials where clause 22A or clause 22B or clause 22C.2 applies and, where clause 22C.1 applies, in respect of loss or damage by the specified perils to the existing structures

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House of Lords -British Telecommunications PLC v. James Thomson...

http://www.publications.parliament.uk/pa/ld199899/ldjudgmt/jd9812...

(which shall include from the relevant date any relevant part to which clause 18.1.3 refers) together with the contents thereof owned by the employer or for which he is responsible; and that this recognition or waiver shall continue up to and including the date of issue of the certificate of practical completion of the subcontract works (as referred to in clause 14.2 of the subcontract NSC/4 or NSC/4) or the date of the determination of the employment of the contractor (whether or not the validity of that determination is contested) under clause 27 or clause 28 or, where clause 22C applies, under clause 27 or clause 28 or clause 22C 4.3, whichever is the earlier. The provisions of clause 22.3.1 shall apply also in respect of any policy taken out by the employer under clause 22A.2 or by any joint names policy taken out by the contractor under clause 22B.2 or under clause 22C.3 in respect of a default by the employer under clause 22C.2. "(2) Except in respect of the policy referred to in clause 22C.1 (or the joint names policy referred to in clause 22C.3 in respect of a default by the employer under clause 22C.1) the provisions of clause 22.3.1 in regard to recognition or waiver shall apply to domestic subcontractors. Such recognition or waiver for domestic subcontractors shall continue up to and including the date of issue of any certificate or other document which states that the domestic subcontract works are practically complete or the date of determination of the employment of the contractor as referred to in clause 22.3.1 whichever is the earlier."
In the definition of specified perils fire is the first and therefore it is agreed that the damage in question in the present case was due to one of the specified perils. The crux of the argument for Thomson as put by the Lord Justice Clerk at 1997 S.C. 59, 67B-C is:

"If the subcontractor is aware that the employer has undertaken to insure against the risk of negligence on the part of the subcontractor, then the latter is entitled to assume not merely that he need not himself insure but that he is not under any duty of care to the employers with regard to any loss or damage caused by their actings." (i.e. the actings of the subcontractor and his servants)
Adopting this as their basis counsel for Thomson argue that having regard to the wording of the relevant provisions of the main contract the risk of fire being caused to existing structures while the works were being carried out was assumed, from the outset, by B.T. In argument in the courts below counsel for B.T. accepted that this was the result of clauses 20.2 and 22C.1 as between B.T. and the main contractor. However, in the light of further consideration and in particular of the reported decision of the official referee in Kruger Tissue (I ndustries) Ltd. v. Frank Gallyers Ltd. (1998) 57 Con. L.R. 1, in your Lordships' House, he did not repeat this concession. It is true, as counsel for Thomson argue, that B.T. were obliged to obtain insurance cover in respect of the existing structures, together with the contents thereof, owned by them, for the full cost of reinstatement, repair or replacement of loss or damage due to inter alia fire. The contractual arrangements therefore envisaged in the event of fire, B.T. would be indemnified by its insurers for the full cost of reinstatement irrespective of whether the loss or damage arose due to an act of God or an act or omission on the part of the main contractor or a subcontractor such as Thomson. So far, I think that Thomson's argument can be supported. However, a question arises as to the terms of the insurance cover which B.T. were obliged to take out. In ordinary circumstances the insurer being obliged to indemnify B.T. would be entitled to the benefit of any rights of action that B.T. had against any party whose actions caused or contributed to the loss in question. This aspect of the matter is expressly dealt with under the main contract by the provision that any subcontractor nominated by the architect is to have the benefit of an insured under the policy or have the benefit of a waiver by the relevant insurers of any right of subrogation which they may have against any such nominated subcontractor. There is no such provision in the case of a domestic subcontractor in respect of the policy referred to in clause 22C.1, that is to say, the policy for insuring existing structures against specified perils. It follows in my opinion that the terms of the provision for insurance of existing structures in respect of specified perils, while they provide for the recognition of a nominated subcontractor as an insured under the policy or that such nominated subcontractor shall have the benefit of a waiver of any right of subrogation which the insurer may have against him, provide no such protection for any domestic subcontractor. It is true, as was pointed out by the Lord Ordinary and the majority of the Second Division, that the absence of a protection against the right of subrogation does not of itself establish such a right but in considering whether the terms of the insurance policy which required to be taken out under the main contract are such as to make it unjust, unfair or unreasonable

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that Thomson should have a duty of care to B.T., it is in my opinion necessary to take full account of all the provisions of the main contract with regard to the requirement for insurance and the terms on which such a policy should be taken out. It is true also that insofar as the existence of the obligation on the employer to take out insurance against the specified perils in respect of existing structures relieves the main contractor from responsibility that he otherwise would have had for the negligence of subcontractors under clause 20.2, the risk of Thomsons actings causing such loss as part of the responsibility of the main contractor will be covered. However, in considering the nature of the risk undertaken by the insurer the fact that the insurer will have a right of subrogation against a domestic subcontractor such as Thomson will legitimately affect the question of premium. I conclude therefore that any element of double insurance which may be involved in giving effect to B.T.'s argument is not a sustainable commercial objection to the success of that argument since practical considerations of premium will be affected by the right which the insurer has under the contract in particular, his right or recourse against Thomson if Thomson has a duty of care toward B.T. Counsel for Thomson faced the hurdle to the success of his argument which I have stated in the preceding paragraph very squarely but in essence his answer was that in considering whether or not a duty of care should be held to be imposed upon Thomson by the circumstances of this case the existence of the obligation to insure on B.T. should determine the matter and that the terms of that insurance were not important. The question is whether or not it is fair, just and reasonable to impose a duty of care and in considering that question if the terms of a contract are to be taken into account it must be right to take account of all the terms of the contract that are relevant to the question. In my opinion it is of crucial significance in the present case that a distinction is made between nominated subcontractors on the one hand and domestic subcontractors on the other in the terms of the insurance policy to be provided by B.T. under the contract. In my view the contractual provisions reinforce rather than negative the existence of a duty of care toward B.T. by Thomson in the circumstances of the present case. Accordingly, in my opinion, this appeal succeeds and the case should be remitted to the Court of Session for a proof before answer. The view which I have reached is in accordance with the weight of opinion expressed by textbook writers who have considered this subject and to whose views we were referred. Counsel for B.T. referred also to criticisms of allowing contractual provisions to which parties to litigation were not themselves parties to be considered in deciding whether or not a duty of care between the parties to the litigation existed. These criticisms were based on the view that to do so was to deviate unjustifiably from the rules on privity of contract. Under the law of Scotland, where exception to the doctrine of privity of contract is recognised under some circumstances, different considerations might apply. It is unnecessary for the purposes of the present case to consider these arguments since the contractual provisions founded on do not, in my view, alter the situation between B.T. and Thomson which would obtain if they did not require to be considered at all, and it is unnecessary and it would be in my view undesirable in the present case to cast any doubt on the correctness of the authorities to which we were referred dealing with this matter. Although the position taken up by B.T. in argument in this House differed somewhat from the position taken in the Court of Session, it seems to me to be a case where cost should follow success and B.T. should be entitled to its costs against Thomson both here and in the Court of Session. LORD MUSTILL My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Mackay of Clashfern. For the reasons he has given I would also allow the appeal. LORD COOKE OF THORNDON My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Mackay of Clashfern. For the reasons he has given I would also allow the appeal. LORD HUTTON My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Mackay of Clashfern. I agree with it and for the reasons which he has given I would allow this appeal.

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