Smith v South Wales Switchgear Co Ltd

A contractual indemnity covers liability caused by the beneficiary’s own negligence only where clear language produces that result. An express indemnity requires the word negligence or an unmistakable synonym; general words such as “any liability whatsoever” do not suffice.

The guidelines in [1952] AC 192 apply to indemnity as well as exemption clauses, with particular force because an indemnity imposes the more unusual burden. They are aids to construction, not statutory rules. The court must construe the whole contract in context and consider any realistic alternative purpose for the indemnity.

An electrical contractor undertook an annual overhaul at a motor manufacturer’s factory. One of the contractor’s fitters was seriously injured. The manufacturer was held solely responsible in negligence and for breach of statutory duty, and sought indemnity from the contractor under clause 23 of its General Conditions of Contract.

The Lord Ordinary held that the conditions were incorporated and that the manufacturer was entitled to indemnity. The Second Division affirmed that decision. The contractor appealed, disputing both incorporation and the construction of the indemnity.

The central questions were which edition of the General Conditions formed part of the contract and whether clause 23 required the contractor to indemnify the manufacturer against liability caused solely by the manufacturer’s own negligence.

1. Appeal allowed unanimously. Lord Fraser of Tullybelton and Lord Keith of Kinkel delivered the principal speeches. Lord Wilberforce, Viscount Dilhorne and Lord Salmon agreed in the result and reasoning. The House held that the respondents were not entitled to indemnity for liability caused by their own negligence.

2. Per Lord Fraser and Lord Keith, the General Conditions were incorporated by the purchase order. The reference to conditions obtainable on request sufficiently identified how their terms could be ascertained. Objectively, the reference was to the edition current when the contract was made, namely the March 1970 revision. Viscount Dilhorne agreed.

3. Per Lord Fraser, Viscount Dilhorne and Lord Keith, the three guidelines stated in Canada Steamship Lines Ltd v The King [1952] AC 192 apply to both exemption and indemnity clauses. They are aids derived from ordinary contractual construction and the contra proferentem principle. They must not be treated as statutory provisions. An indemnity against the beneficiary’s negligence is the less usual and more burdensome arrangement, so particularly clear language is required.

4. Per Lord Fraser and Viscount Dilhorne, general language such as “any liability whatsoever” was not an express reference to negligence. The first guideline requires the word negligence or an unmistakable synonym. The contrary conclusion expressed in Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 was rejected, although the decision in that case was accepted.

5. Per Lord Fraser and Lord Keith, clause 23 had to be read as a whole. Its preamble, its concern with work performed by the supplier, the words connecting liability with execution of the order, and the surrounding provisions indicated protection against consequences of the supplier’s acts or omissions. They did not extend the indemnity to liability caused solely by the purchaser’s negligence. Lord Keith regarded the injured fitter’s presence at the factory as too fortuitous a connection with execution of the work.

6. Per Lord Fraser, Viscount Dilhorne and Lord Keith, realistic alternative applications also defeated the respondents’ construction. The clause could protect against liabilities imposed on the purchaser through acts or omissions of the supplier, including occupiers’ liability, nuisance, contractual liability or statutory responsibility. The purchaser’s possible common-law right of relief did not make an express indemnity for those risks redundant.

1. House of Lords: Allowed the contractor’s appeal unanimously and held that clause 23 did not indemnify the respondents against liability caused solely by their own negligence.

2. Second Division of the Court of Session: Affirmed the Lord Ordinary’s decision that the General Conditions had been incorporated and that the respondents were entitled to indemnity.

3. Lord Ordinary: After a separate proof on indemnity, held that the respondents were entitled to be indemnified. At an earlier proof, the accident had been held wholly caused by the respondents’ negligence and breach of statutory duty.