Greenwich Millennium Village Ltd v Essex Services Group Plc (First Defendant) Hoare Lea (A Firm)(Second Defendant/Fifth Party) HS Environmental Services Ltd ((in Administration)) (Respondent/Third Party) DG Robson Mechanical Services Ltd (Appellant/Sixth Party)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jackson,Lord Justice Beatson,Lady Justice Gloster |
| Judgment Date | 11 July 2014 |
| Neutral Citation | [2014] EWCA Civ 960 |
| Docket Number | Case No: A1/2013/3306 |
| Court | Court of Appeal (Civil Division) |
| Date | 11 July 2014 |
[2014] EWCA Civ 960
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE TECHNOLOGY AND CONSTRUCTION COURT, THE HIGH COURT OF JUSTICE
MR JUSTICE COULSON
HT12116
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Jackson
Lord Justice Beatson
and
Lady Justice Gloster
Case No: A1/2013/3306
and
and
and
Mr Roger ter Haar QC and Mr Alexander Macpherson (instructed by Fox Hartley) for the Appellant
Mr Simon Hargreaves QC and Mr Karim Ghaly (instructed by Clyde & Co) for the Respondent
Hearing dates: 25 th and 26 th June 2014
This judgment is in seven parts, namely:
| Part 1. Introduction | paragraphs 2 to 9 |
| Part 2. The facts | paragraphs 10 to 29 |
| Part 3. The present proceedings | paragraphs 30 to 41 |
| Part 4. The appeal to the Court of Appeal in relation to the Core 2 flood | paragraphs 42 to 47 |
| Part 5. Challenges to the judge's findings of fact | paragraphs 48 to 62 |
| Part 6. The operation of the indemnity clause | paragraphs 63 to 101 |
| Part 7. Conclusion | paragraphs 102 to 103 |
This is an appeal by a labour only sub-sub-sub-contractor against a decision of Mr Justice Coulson that it is liable to indemnify the respondent, who was the party above it in the contractual chain, for workmanship defects which caused flooding in a block of flats. The principal issue in this appeal is whether the respondent's failure to detect those defects precludes recovery under an indemnity clause, alternatively prevents recovery of the same sum as damages for breach of contract. There are also challenges to the judge's findings of fact.
The employer and building owner, which is claimant in the litigation, is Greenwich Millennium Village Ltd ("GMVL"). The main contractor, which is not a party to the action, is Laing O'Rourke Plc ("LOR"). Hoare Lea ("HL") is a firm of engineers whom LOR engaged. HL is second defendant and fifth party in the action.
Essex Services PLC ("Essex") is a specialist sub-contractor and is the first defendant in this action. HS Environmental Services Ltd ("HSE") is a specialist sub-sub-contractor. HSE is third party in the litigation and respondent in the appeal.
DG Robson Mechanical Services Ltd ("Robson") is the labour only sub-sub-sub-contractor whose workmanship errors the judge held to have caused the flood. Robson is sixth party in the action and appellant in the present appeal.
I shall use the following abbreviations:
"BMCWS" means boosted mains cold water system.
"IV" mean isolation valve.
"NRV" means non-return valve.
"TCC" means Technology and Construction Court.
When asking the judge to grant permission to appeal, Robson produced its draft grounds of appeal and skeleton argument. In his judgment refusing permission the judge amplified the reasons for his original decision. I have wondered whether it is legitimate to take into account the second judgment. My conclusion is that it is appropriate to take that judgment into account. In English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605; [2002] 1 WLR 2409 at [25] the Court of Appeal said that at the permission stage the judge may take or be given the opportunity to provide additional reasons for his judgment. In Emery the Court of Appeal was considering the position where the appellant complains about lack of reasons. In the present case the notice of appeal complains about lack of reasons in one respect. Furthermore in other respects the judge's additional reasons are helpful. I shall therefore refer to the judge's judgment on the permission application (the "supplemental judgment") as and when appropriate.
For the assistance of the reader, I annexe to this judgment four diagrams illustrating how the flooding in question occurred. I shall refer to these four diagrams as "figure 1", "figure 2", "figure 3" and "figure 4".
After these introductory remarks, I must now turn to the facts.
During 2004–2006 LOR constructed two blocks of flats, known as Holly Court and Becquerel Court, for GMVL on the Greenwich Peninsula in south east London. This was part of the Millennium Village project. The main contract incorporated the JCT (With Contractor's Design) Form, 1998 edition.
Pursuant to a contract dated 20 th October 2006 LOR engaged HL as its mechanical and electrical consulting engineer. Such an arrangement is common when a design and build contractor is obliged to complete the design commenced by that same consultant. The contractual services provided by HL included design development, the preparation of production information for construction purposes, the examination of the trade contractors' drawings and details, and visiting the site at agreed intervals, "to see that" the works were completed in accordance with the contract documents.
On 30 th October 2006 HL executed a warranty in favour of GMVL that it would properly perform its design and inspection obligations in its contract with LOR.
LOR engaged Essex as its sub-contractor for the design and installation of mechanical and electrical works. On 23 rd January 2006 Essex warranted to GMVL that it would properly perform its obligations under that sub-contract.
Essex was a company specialising in electrical, but not mechanical, works. It entered into a joint venture with HSE, a company specialising in mechanical works, for the purposes of this and other projects. By a sub-sub-contract made on 4 th April 2005 Essex sub-sub-contracted the design and installation of mechanical works to HSE. Clause 7.1 of the sub-sub-contract provided that it would be back to back with the sub-contract between Essex and LOR. HSE operatives often wore Essex branded work clothes. Thus Essex and HSE gave the impression to others that Essex were carrying out both the mechanical and electrical works.
HSE sub-sub-sub-contracted the labour element of the mechanical works to Robson. The contractual documents as between HSE and Robson were the following:
i) Robson's quotation dated 7 th December 2004, offering to install the pipework services at Holly Court and Bequerel Court for £500,000 plus VAT;
ii) HSE's order dated 8 th July 2005 accepting that quotation;
iii) HSE's terms and conditions.
Clause 2 of HSE's terms and conditions provided, so far as material:
"The Sub-contractor hereby agrees to indemnity HS Environmental Services Ltd against each and every liability which HS Environmental Services Ltd may incur to any other person or persons and further to indemnity HS Environmental Services Ltd in respect of any liability, loss, claim or proceedings of whatsoever nature such as shall arise by virtue of the breach or breaches of this Subcontract Agreement by, or act, default or negligence of the Subcontractor."
I shall refer to this clause as "the indemnity clause" or "clause 2".
Let me now turn to the design of the boosted mains cold water system ("BMCWS"). In both Becquerel Court and Holly Court the main water tanks were located in the basement, not the roof. This meant that water could not descend to the flats by operation of gravity. Instead mains water had to be pumped up vertical pipes, known as "riser mains" or "risers", in order to reach the flats at each level. The risers were made of plastic, not copper.
Figure 1 annexed to this judgment shows in diagrammatic form the arrangement of the riser mains within two cores of Holly Court, namely Core 2 and Core 3.
One problem with this form of cold water system is that if water is pumped up the riser at excessive speed, it will cause a "water hammer". A water hammer may lead to a burst pipe. If for any reason there is a vacuum within the riser and the mains water pump is operating, water is liable to surge upwards and cause just such a water hammer with disastrous consequences.
In early 2005 HL became aware of this risk because of flooding which had occurred at another building with which they were dealing. HL alerted all their engineers to the issue.
On 9 th November 2005 HL sent an email to Essex explaining the risk of water hammer and advising that surge arrestors be installed at the top of each of the risers. The function of a surge arrestor is to let air into the riser if the water level drops, thus preventing a vacuum from forming. Essex asked LOR as main contractor to issue an instruction for the supply and installation of surge arrestors.
On 2 nd May 2006 LOR issued an instruction to Essex for the installation of surge arrestors in Cores 1, 2 and 3 of Holly Court. On the same day, HSE recorded that Essex had instructed them to install surge arrestors in those three cores, so as to prevent hydraulic shock within the BMCWS.
On 20 th June 2006 Robson provided a quotation to HSE for the installation of surge arrestors in Cores 1, 2 and 3 of Holly Court. There is no written record of HSE accepting that quotation. Nevertheless, as the judge has found and Robson does not now challenge, Robson installed those three surge arrestors during July or early August 2006.
HSE and Robson completed most of their works at Holly Court in August 2006. On 17 th August Mr Dayal and Mr Gilbert of HL carried out the pre-handover inspection of the mechanical works in Holly Court. In the course of that inspection they took a photograph of the pipework and valves inside the riser cupboard at level 8...
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