House of Lords -British Telecommunications PLC v. James Thomson and Sons (Engineers) Ltd. (Scotland)

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You are here: Parliament home page > Parliamentary business > Publications and Records > Lords

Publications > Judgment Index > Judgment

Judgment - British Telecommunications PLC v. James Thomson and Sons (Engineers)Ltd. (Scotland) continued

(back to preceding text)

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.1and 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

House of Lords -British Telecommunications PLC v. James Thomson... http://www.publications.parliament.uk/pa/ld199899/ldjudgmt/jd98

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(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. theactings 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 o f 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 and22C.1 as between B.T. and the main contractor. However, in the light of further cons ideration and in particular of the reported

decision of the official referee in Kruger Tissue (Industries) 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 t he full cost of reinstatement irrespective of whether the loss or damage arose due to an act of

God o r 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 o f 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 t he 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 s ay, the policy

for insuring existing structures against specified perils.

It follows in my opinion that the terms of the provision for insurance of existing s tructures 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 o f all the provisions of themain 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 ob ligation on the employer to t ake out insurance against the specified

perils in respect of existing st ructures relieves the main contractor from responsibility that he otherwise would have had forthe negligence of subcontractors under clause 20.2, the risk of Thomsons actings causing such loss as part o f the

responsibility of the main contractor will be covered. However, in considering the nature of the risk undertaken by the insurer

the fact t hat the insurer will have a right o f subrogation against a domestic subcont ractor 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 sus tainable commercial objection to the s uccess of that argument since practicalconsiderations 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 o f that insurance were not important.

The question is whether or no t 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 o f 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 t he one hand and domestic subcontractors on the other in the terms of the insurance policy to

be provided by B.T. under t he 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 t o 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 ex isted. 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 ofcontract is recognised under some circumstances, different considerations might apply. It is unnecessary for the purposes of

the present case to cons ider 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 cons idered 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 pos ition taken in the Court o f

Sess ion, 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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House of Lords -British Telecommunications PLC v. James Thomson and Sons (Engineers) Ltd. (Scotland)