London Borough Of Barking & Dagenham v Stamford Asphalt Company Ltd & Ors

Where one clause in a building contract imposes unqualified liability for negligent property damage and another requires insurance against specified perils, the insurance clause does not qualify or transfer that liability without clear words. In this standard JCT contract, fire formed part of a class of largely non-culpable hazards and did not include fire caused by the contractor’s negligence. The employer’s failure to arrange joint insurance did not give the contractor a notional insurance benefit, set-off or counterclaim. Any insurable interest or intended benefit had to arise from the contract’s actual allocation of rights and obligations. Commercial convenience could not enable a negligent contractor to avoid liability.

The employer engaged the contractor under the JCT standard form for minor building works. A subcontractor was assumed to have negligently caused a fire damaging the school building and contents, as well as the works.

Condition 6.2 made the contractor liable for negligent damage to property other than the works and required it to insure that liability. Condition 6.3B required the employer to arrange joint insurance of the existing structures, contents and works against specified perils, but the employer failed to do so. The Deputy Official Referee held that condition 6.3B did not displace the contractor’s liability under condition 6.2. The central issue on appeal was whether the contractor could obtain the benefit of the notional insurance and thereby reduce its liability.

1. Appeal dismissed. Lord Justice Auld delivered the substantive judgment, with Lord Justices Millett and McCowan agreeing. Leave to appeal to the House of Lords was refused.
2. The contract had to be construed on its own terms, rather than by speculating about the effect of insurance which might have been arranged. Condition 6.2 was concerned primarily with liability and required the contractor to insure its liability for negligent damage to property other than the works. Condition 6.3B was concerned with insurance against specified perils and contained no words qualifying condition 6.2.
3. The provisions did not overlap in respect of damage outside the specified perils, damage to the works, or consequential loss. In the context of a list largely comprising natural hazards or events not ordinarily caused by either party, fire meant fire occurring without the contractor’s negligence. A condition 6.3B policy could therefore exclude negligent damage for which the contractor was liable under condition 6.2.
4. An obligation to insure did not, without more, transfer liability to the insured or limit liability imposed elsewhere in the contract. The contractor was already required to insure its negligent liability, so interpreting condition 6.3B as covering the same risk would create unnecessary duplication.
5. The arguments based on insurable interest, commercial convenience and an alleged agency or trust for the employer failed. The contractor’s contractual rights and obligations had to be determined first. They did not justify allowing it to recover the cost of reinstating the employer’s building and contents or to set off losses caused by its own negligence. The reasoning of Otton J in National Trust v Haden Young was preferred to the potential-overlap reasoning of Nourse LJ on appeal.

• Court of Appeal (Civil Division) — [1997] EWCA Civ 1293: dismissed the contractor’s and insurer’s appeal and refused leave to appeal to the House of Lords.
• High Court of Justice, Official Referee’s Business — Mr Recorder Playford QC, sitting as Deputy Official Referee, decided the preliminary issue in favour of the employer, holding that condition 6.3B did not displace the contractor’s liability under condition 6.2.