Casson & Anr v Ostley P.J. Ltd & Ors

An insurance and risk-allocation clause does not exempt a builder from liability for loss caused by the builder’s own negligence unless that meaning is made clear by the contract.

Where the clause is ambiguous, it is construed against the proferens. The Canada Steamship approach remains applicable, although it is not a statutory code. A realistic head of liability apart from negligence may prevent broadly worded language from covering negligence. An insurance obligation primarily provides a fund against the insured risk; it does not, without clear language, redefine the parties’ substantive obligations.

The claimants engaged the first defendant to renovate a farm. Their contract incorporated the builder’s standard terms, including clauses allocating the risk of fire to the clients, requiring them to insure, and dealing separately with materials and other property damage.

A fire occurred during the works. For the preliminary issues, the builder accepted that the fire was caused by its negligence or that of its employees or subcontractors. The deputy High Court judge held that clause 15 placed the risk of fire on the clients and excluded the builder’s liability, even for negligent conduct.

The claimants appealed. The central issue was whether clause 15, properly construed with the other contractual provisions, exempted the builder from liability for negligently causing the fire.

1. Appeal allowed. Clause 15 did not exempt the builder from liability for loss caused by its own negligence.
2. The Court applied the principles stated by Lord Morton in Canada Steamship Lines v The King. First, an express exemption for negligence must be given effect. Secondly, words not expressly referring to negligence must be sufficiently wide to cover it, with ambiguity resolved against the proferens. Thirdly, even wide words will not ordinarily cover negligence where a realistic alternative head of liability exists.
3. Clause 15 was not framed as an exemption clause. Read with clauses 6 and 16, its operation created an unresolved tension. Clauses 6 and 16 expressly preserved the builder’s responsibility for loss caused by its negligence in related contexts. That tension, together with the contra proferentem principle, meant that clause 15 could not sensibly be treated as clearly exempting negligent fire damage.
4. The words were nevertheless wide enough at the second stage of the Canada Steamship approach. The third stage was fatal to the builder’s argument because there were realistic, non-fanciful examples of fire-related liability without negligence, including liability connected with defective goods or work supplied by the builder.
5. The insurance provision did not alter the result. Insurance was primarily intended to provide a fund if the risk occurred, rather than to define the parties’ obligations inter se. The approach to exemption clauses was therefore not inapplicable merely because the contract required insurance.
6. Lord Justice Sedley agreed. He emphasised that contractual interpretation must address the words’ application to the facts and that no clear assent to exemption from negligence was shown. Sir Murray Stuart-Smith agreed. The appeal was allowed, with costs below and in the appeal subject to detailed assessment. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): [2001] EWCA Civ 1013. Appeal allowed.
• High Court, before Lord Brennan Q.C. sitting as a Deputy Judge: [2000] Building Law Reports 126. The judge held that clause 15 excluded liability for fire damage, including damage caused by the builder’s negligence.