British Telecommunications Plc v. James Thomson and Sons (Engineers) Ltd (Scotland)

The House of Lords held that, despite contractual arrangements under the Joint Contracts Tribunal standard form requiring the employer to insure existing structures against specified perils, the contractual insurance provisions did not automatically negate a subcontractor's duty of care in delict to the employer. The court applied the familiar tripartite approach to duty of care (foreseeability, proximity and considerations of fairness, justice and reasonableness, as explained in Marc Rich), and concluded that the distinction in the contract between nominated subcontractors (who benefit from recognition or waiver of insurers' rights of subrogation) and domestic subcontractors (who do not) was crucial. Because the policy required by the main contract did not protect domestic subcontractors from insurers' subrogation, the contractual regime reinforced rather than negatived a duty of care by the domestic subcontractor to the employer. The appeal was allowed and the case remitted for proof before answer.

The pursuer and appellant, British Telecommunications Plc (B.T.), sued the defender and respondent, James Thomson and Sons (Thomson), in delict for damages arising from a fire started while Thomson's employees were carrying out steelwork at B.T.'s telephone switching station. The Lord Ordinary dismissed the action as irrelevant in law. On reclaiming, the Second Division of the Inner House of the Court of Session affirmed that decision by a majority. B.T. appealed to the House of Lords.

The main factual premise taken for the purposes of the procedural stages was that Thomson's servants were at fault and that the fire and firefighting efforts caused loss to B.T. The legal question was whether, in the contractual context of the JCT standard form building contract (local authorities edition 1980, as amended and with the Scottish supplement and bills of quantities), Thomson as a domestic subcontractor owed a duty of care in delict to B.T., the employer.

The House considered the applicable law on duty of care, invoking the tripartite test of foreseeability, proximity and whether it is fair, just and reasonable to impose a duty (as discussed in Marc Rich and Dorset Yacht). The court examined the contract provisions, in particular clause 35 (nominated versus domestic subcontractors), clause 20.2 (contractor's liability and indemnity), clause 22C.1 (employer's obligation to insure existing structures against specified perils including fire) and clause 22.3 (recognition or waiver for nominated subcontractors). The court noted that while the employer was obliged to insure the existing structures against fire, the policy provision gave nominated subcontractors protection from insurers' subrogation but did not extend that protection to domestic subcontractors such as Thomson.

The issue framed was whether the contractual requirement that the employer insure against specified perils made it unfair, unjust or unreasonable to impose a delictual duty of care on the domestic subcontractor. The House rejected the submission that the mere requirement to insure should determine the matter without regard to the detailed terms of the contract. Because the insurer under the policy for existing structures retained rights of subrogation against domestic subcontractors, the contractual regime did not shield domestic subcontractors from liability and thus did not displace the ordinary delictual duty of care. The House therefore allowed the appeal and remitted the case to the Court of Session for proof before answer. The House also ordered that costs should follow success in favour of B.T.

Appeal allowed. The House of Lords held that the JCT contract provisions requiring the employer to insure against specified perils did not, as a matter of law, negate a domestic subcontractor's duty of care to the employer. The distinction between nominated subcontractors (protected by recognition or waiver of insurers' subrogation) and domestic subcontractors (not so protected) was decisive; because domestic subcontractors remained exposed to insurers' subrogation, it was fair, just and reasonable to impose a duty of care. The matter was remitted to the Court of Session for proof before answer.

At first instance the Lord Ordinary (Lord Rodger of Earlsferry) dismissed the action as irrelevant in law. On reclaiming the Second Division of the Inner House of the Court of Session affirmed the dismissal by a majority (reported at 1997 S.C. 59), Lord Morison dissenting. The appellant appealed to the House of Lords which allowed the appeal ([1998] UKHL 46) and remitted the case to the Court of Session for proof before answer.