British Telecommunications Plc v James Thomson & Sons (Engineers) Ltd

When deciding whether a contractor or subcontractor owes a duty of care for physical damage, the court considers foreseeability, proximity and whether the duty is fair, just and reasonable. These considerations overlap and form a pragmatic inquiry.

A contractual insurance scheme may affect that inquiry, but all relevant terms must be examined. An employer’s obligation to insure existing structures against fire does not exclude a domestic subcontractor’s duty where the contract neither recognises that subcontractor as an insured nor requires a waiver of subrogation against it. In that setting, the contractual allocation reinforces rather than negatives the ordinary duty of care.

British Telecommunications plc sought damages in delict from a domestic subcontractor whose servants allegedly caused a fire while undertaking steelwork at a telephone switching station. For the preliminary debate, the averments of fault were treated as true.

The Lord Ordinary dismissed the action as irrelevant. A majority of the Second Division affirmed that decision: 1997 S.C. 59. They treated the employer’s obligation under the main building contract to insure the existing structures against fire as inconsistent with a duty of care owed by the domestic subcontractor.

The central issue was whether the entire contractual insurance scheme, particularly its different treatment of nominated and domestic subcontractors, made it unfair, unjust or unreasonable to impose the ordinary duty of care.

1. The appeal was allowed unanimously. Lord Mackay of Clashfern delivered the leading speech. Lord Lloyd of Berwick, Lord Mustill, Lord Cooke of Thorndon and Lord Hutton agreed with his reasoning. The action was remitted to the Court of Session for proof before answer.

2. Per Lord Mackay, the existence of a duty of care depended upon foreseeability, proximity and whether its imposition was fair, just and reasonable. These considerations overlap and provide approaches to the pragmatic question whether a duty should be imposed in the particular circumstances. The approach in Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] 1 AC 211 was applied.

3. A contractual framework may bear upon whether a duty is fair, just and reasonable. Where reliance is placed upon that framework, however, the court must consider all contractual terms relevant to the issue. Earlier decisions concerning materially different insurance provisions illustrated the approach but did not determine the present case.

4. The employer was required to insure its existing structures and contents against fire for their full reinstatement, repair or replacement cost. That insurance would respond whether the fire resulted from an accidental event or the act or omission of a contractor or subcontractor. This obligation alone did not settle whether the domestic subcontractor owed a duty.

5. The contract required nominated subcontractors to be recognised as insured persons or protected by a waiver of the insurer’s subrogation rights. It provided no corresponding protection for domestic subcontractors under the policy covering existing structures. Although the absence of protection did not itself create a right of subrogation, it was crucial when the insurance provisions were considered as a whole. A right of recourse against a negligent domestic subcontractor could legitimately affect the insurer’s premium, so the suggested objection based on double insurance was unsustainable.

6. The contractual provisions therefore reinforced rather than negatived the domestic subcontractor’s duty of care. The House left unresolved the wider criticism that considering contracts to which the litigants were not both parties might conflict with privity principles. Costs followed success in the House and the Court of Session.

1. House of Lords: Unanimously allowed the appeal from the Second Division and remitted the action to the Court of Session for proof before answer.

2. Second Division of the Inner House of the Court of Session: By a majority, affirmed the Lord Ordinary’s dismissal of the action: 1997 S.C. 59. Lord Morison dissented.

3. Lord Ordinary: Following a procedure-roll debate, Lord Rodger of Earlsferry dismissed the action as irrelevant in law.