Pullman Foods Ltd v The Welsh Ministers & Anor

A lease covenant requiring premises to be delivered up in good and substantial repair and condition may require works extending beyond repair strictly so called. The objective standard is assessed by reference to the covenant, the premises and the relevant circumstances. A contractual licence may, on its proper construction, require completion of works necessary to achieve the underlying lease obligations, including removal of subsequently discovered asbestos-containing materials. An implied term requiring disclosure of newly discovered contamination may arise where it is necessary for business efficacy and obvious. Contractual indemnities depend on their wording: a true indemnity may exclude ordinary remoteness and mitigation rules, but recovery still requires common-sense causation and reasonable expenditure.

Pullman was the former lessee of an industrial site owned by the Welsh Ministers. After the lease ended, Pullman and its parent company, BFS, undertook demolition and clearance works under licences granted by the Welsh Ministers. Buried asbestos-containing material was discovered but was not adequately disclosed. It was later disturbed and spread across the site during further works.

The Welsh Ministers counterclaimed against Pullman for breach of the lease covenant and against BFS for breach of the licences, including claims under contractual indemnities. The central issues were the source and timing of the contamination, the scope of the lease and licence obligations, the effect of alleged breaches of the Control of Asbestos Regulations 2012, and the recoverability of remediation costs.

1. Liability under the lease. Pullman breached clause 2(10) by failing to remove the concrete slabs, including embedded asbestos materials, and by failing to remove the gravel-trap asbestos. The covenant to remove buildings extended to discarded components of those buildings. Independently, the obligation to deliver up the premises in good and substantial repair and condition required removal of the contamination.
2. The court adopted a five-stage analysis for repair covenants: identify the physical subject matter; determine whether it is damaged or deteriorated; identify the standard required; identify the necessary work; and consider whether the work falls outside the covenant as a matter of fact and degree. The word “condition” extended the covenant beyond repair strictly so called. The Welsh Ministers’ judgment as to the necessary remedial works was subject to an objective standard of reasonableness.
3. Liability under the April Licence. Properly construed, the April Licence required BFS to complete the works necessary to comply with clause 2(10) and to remove all asbestos-containing materials. BFS therefore breached the licence by failing to remove the gravel-trap asbestos. It also breached an implied obligation to inform the Welsh Ministers of its existence and location.
4. BFS’s failure to warn Zenith and its contractors was not, viewed in isolation, an act done on the property or damage caused to it. However, the licences extended obligations not to allow acts to be done and to use best endeavours to prevent them. BFS’s failure to warn therefore placed it in the same position as if it had itself permitted the disturbance and distribution of the asbestos. The April and July Licences were breached.
5. Control of Asbestos Regulations 2012. The Regulations applied to the site. BFS breached several duties concerning assessment, identification, planning, information and prevention of exposure. Regulation 16 was not breached because there was no evidence of asbestos being spread outside the site. These statutory breaches did not themselves enlarge the contractual claims: the Regulations protected persons from health and safety risks, not property owners from remediation loss.
6. Indemnity and quantum. The licence indemnities were true indemnities which excluded contractual remoteness rules and did not permit a mitigation defence. They nevertheless required a causal connection between BFS’s defaults and the expenditure. The Welsh Ministers’ chosen remediation strategy was reasonable in the circumstances, and the full remediation costs arose from BFS’s defaults.
7. BFS was liable for the full remediation costs. Pullman was liable for damages for breach of clause 2(10), subject to the statutory limitation in section 18(1) of the Landlord and Tenant Act 1927; the amount was left for later determination if not agreed.

First-instance decision. The judgment determined the Welsh Ministers’ counterclaim against Pullman and BFS. Liability was established, with the amount of Pullman’s damages deferred if necessary.