Liability for Fires: First Specify Your Peril

Contractual lawyers and draftsmen are accustomed to clauses transferring liability. The law is absolutely clear that they can be given effect, and has been settled so for centuries. An important area in construction contracts where this technique is used is liability for "insurable" losses or damage to the buildings being constructed or reconstructed, principally loss by fire. However, there has been a string of cases (starting in modern times at Scottish Special Housing Association v. Wimpey Construction UK Ltd [1986] 1 WLR 995 HL) which shows that this area is one in which the standard forms have failed to provide the industry with a uniform and clearly-understood position on the allocation of these risks.

This deficiency is important. It imposes extra bargaining costs on one of the United Kingdom's biggest industries. It can lead to litigation, particularly when the losses from a large fire are to be allocated. It may lead to unclear requirements for insurance, which in turn may leave individual parties uninsured, or paying for duplicated insurance cover. This article looks at a recent case to see if further clarity is being achieved, at least in respect of the standard form contract considered in that case.

It is easy to say that the problems arise from poor draftsmanship - and judges have done so. However, it is not easy to tell from the decided cases what words would be necessary to produce a clear position. The tendency to cite prior cases on similar points and also to insist in the same judgment that each set of words is to be judged only on its natural meaning leads to confusion about what is legal authority and what is obiter.

This article considers the decision of HH Judge Seymour QC in Scottish and Newcastle PLC v. GD Construction (St Albans) Ltd [2002] 19 Const. LJ 246 in the Technology and Construction Court. In this case, the parties had concluded a contract substantially in the IFC 84 standard form terms under which the defendant was to perform renovation works on the claimant's existing public house. The pub had a thatched roof and it caught fire when the defendant was working on it. There was serious damage to the existing structure and the issue was whether the Contractor or the Employer was liable to reinstate the works and the existing structure after the fire damage.

The reported part of the case was essentially a preliminary issue of law on assumed facts. The issue was whether the Defendant could be liable at all in...

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