Rowlands (Mark) Ltd v Berni Inns Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE KERR,LORD JUSTICE GLIDEWELL,LORD JUSTICE CROOM-JOHNSON |
| Judgment Date | 31 July 1985 |
| Judgment citation (vLex) | [1985] EWCA Civ J0731-4 |
| Docket Number | 85/0465 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 1985 |
[1985] EWCA Civ J0731-4
Lord Justice Kerr
Lord Justice Croom-Johnson
Lord Justice Glidewell
85/0465
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
MR M.J.TURNER, Q.C., & MR J.R.W.HARVEY, instructed by Messrs. Lawrence Graham, appeared for the Appellants (Plaintiffs).
MR M.L.T.HARVEY, Q.C., & MR R.E.L.TER HAAR, instructed by Messrs. Hewitt Woollacott & Chown, appeared for the Respondents (Defendants).
This is an appeal from a judgment delivered by Lord Justice Stephen Brown on 25th November 1983 sitting as a judge of the Queen's Bench Division. It raises an issue of far-reaching importance in relation to fire insurance. In brief, this is whether a landlord's fire insurers can recover damages by subrogation from a tenant by whose negligence the insured building has been destroyed or damaged by fire when the lease provided that: (i) the landlord should insure the whole building against (inter alia) fire, (ii) the tenant was to contribute to the cost of the insurance, (iii) the tenant was to be relieved from his repairing obligations in the event of damage to the building by fire, and (iv) the landlord would lay out the insurance monies to rebuild the demised premises. It was common ground that similar provisions are frequently to be found in leases for commercial and residential premises and that this issue has not previously arisen for decision in our courts, although it has been extensively litigated in Canada and the United States. Since the insurers' right of subrogation depends on the rights of the landlord, the issue can also be stated as being whether under a lease in such terms a landlord who has been fully indemnified by his insurers under an ordinary policy covering the risk of fire, whether caused by accident or negligence, can nevertheless recover damages from the tenant on the ground that the fire had been caused by his negligence. Lord Justice Stephen Brown decided this issue in favour of the tenant, and the landlord's insurers, suing in the name of the landlord by virtue of their right of subrogation, are now appealing against this decision. We were told that in the present case the effective defendants are the tenant's liability insurers, but the issue would of course be precisely the same in proceedings brought against tenants who have no such insurance.
In the early hours of 27th January 1980 a serious fire broke out in a building known as 10/12 Lambs Lane and 6/12 Albion Place in Leeds and effectively destroyed the whole building. The plaintiffs were the freeholders but did not occupy any part of the building. The fire originated in what is described as the ceiling void of the basement part of the premises in which a quantity of flammable material had been stored or deposited. The basement and part of the ground floor were occupied by the defendants and used as a restaurant under a lease from the plaintiffs dated 28th July 1970. The remainder of the building was occupied by another tenant of the plaintiffs, originally John Peters (Furnishing Stores) Ltd., and subsequently Waring & Gillow Ltd., and was used for the storage and sale of furniture. The immediate cause of the fire was electrical and the plaintiffs had originally joined the electrical contractors as additional defendants. However, they were subsequently dismissed from the action and this has proceeded on the basis that the defendants' negligence was the effective cause of the fire. The quantum of the plaintiffs' claim for damages has been agreed in the sum of £1,429,166. This is effectively the cost of reinstating the whole building, as happened, with the monies which the plaintiffs received from their insurers, the Legal and General Assurance Society Ltd., and it is also common ground that the plaintiffs themselves have suffered no additional loss which they can claim in the action. The pleadings went through many stages, but the only remaining issue, which was raised by a late amendment, is whether in these circumstances the plaintiffs can maintain an action for negligence against the defendants.
The terms of the lease, and to a lesser extent of the insurance policy, are of crucial importance to this issue, and I must accordingly begin by setting out their provisions in so far as these are material.
The lease between the plaintiffs as landlord and the defendants as tenant was for a term of thirty years from 1st January 1970. It defined "the landlord's premises" as the whole building and "the demised premises" as the basement and part of the ground floor to which I have already referred. I must set out the tenant's covenants under clauses 3(3) and (4): "(3) To pay to the Landlord a sum or sums of money equal to the amount or amounts (whether increased by any Act or omission of the Tenant or not which the Landlord shall from time to time expend in effecting or maintaining the insurance of the demised premises and being a fair proportion as certified by the Landlord's Surveyor (whose Certificate shall be final and binding in all respects on the parties hereto) acting as an expert of premiums paid in respect of insuring the Landlord's premises in their full re-building value for the time being including three years rack rent of the demised premises and the Architects and Surveyors and other fees and incidental expenses consequent upon rebuilding and reinstating against loss or damage by fire storm tempest lightning explosion aircraft and such other risks as the Landlord shall from time to time during the said term reasonably deem necessary (all which perils are hereinafter referred to as 'the insured risks') and such sum or sums made payable by this Sub-Clause shall be paid to the Landlord on demand on the rent day in each year next following the expenditure thereof by the landlord and if not so paid shall be recoverable as rent in arrear."
This provision was conveniently referred to as requiring the tenant to pay an "insurance rent". The amount paid by the defendants was at first five seventeenths and later about 25% of the annual premiums paid by the plaintiffs.
"(4) At all times during the said term well and substantially to repair cleanse and keep in good and substantial repair and condition all parts of the interior of the demised premises and all additions thereto including all glass in the windows and doors and all internal walls drains sewers watercourses and all sash cords and door furniture and all Landlord's fixtures and fittings and appurtenances thereto belonging and to replace all missing locks and keys (damage by or in consequence of any of the insured risks excepted save where the insurance effected by the Landlord shall be vitiated in whole or in part by any act or omission by the Tenant or by any person acting for or under the Tenant)."
The tenant's covenants under clauses 3(5) and (6) dealt with his obligation to paint and decorate the demised premises every seven years and to yield up the premises in a proper state of repair on termination of the lease. It is unnecessary to set out these provisions save to say that in both cases there was a similar exemption from these obligations in cases of damage by or in consequence of the insured risks, as in the brackets at the end of clause 3(4).
The tenant's covenant under clause 3(11) was in the following terms, so far as material: "To insure and keep insured with such Insurance Office as the Landlord shall nominate and in the joint names of the landlord and the tenant—(a) the Third Party and Property Owners Liability Risks of the demised premises…"
This provision is of no direct relevance for present purposes, but Mr Turner, Q.C., representing the plaintiffs, placed some reliance on the express requirement for the tenant to insure in joint names, which does not appear in the corresponding insurance covenants by the landlord. These and the landlord's repairing covenants are contained in clause 4 as follows: "4(2) To keep the landlord's premises including the demised premises insured against loss or damage by the insured risk and to lay out any monies received under such insurance in rebuilding and reinstating as quickly as possible the demised premises or such parts thereof as shall be destroyed or damaged.
"(3) To keep the main walls main timbers boundary walls and main services of the demised premises in good and tenantable repair and condition".
Finally I must set out clause 6(4) as follows: "If the demised premises or any part or parts of the Landlord's premises are so damaged or destroyed by any of the insured risks as to make the demised premises unfit for occupation or use and insurance in respect thereof has not become vitiated by any wilful or reckless act or omission of the Tenant or any person acting under the Tenant then the rent hereby reserved or a proper proportion thereof according to the extent of the damage sustained shall from the date of such damage or destruction and until the demised premises shall have been reinstated or made fit for occupation or use (as the case may be) or for a period not exceeding three years whichever period is the shorter cease to be payable".
I then turn to the insurance policy which the plaintiffs took out pursuant to clause 4(2) of the lease. The first peril insured against was "Fire (whether resulting from explosion or otherwise)", with immaterial qualifications, and there was also cover against lightning and explosion which is irrelevant for present purposes. The subject-matter of the insurance was the entire building, an agreed sum for loss of rent (cf. clause 6(4) of the lease) and...
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