Tesco Stores Ltd v David Constable & Others
|England & Wales
|Mr Justice Field
|14 September 2007
| EWHC 2088 (Comm)
|Queen's Bench Division (Commercial Court)
|Case No: 2006 Folio No. 1367
|14 September 2007
 EWHC 2088 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
Mr Justice Field
Case No: 2006 Folio No. 1367
Justin Fenwick QC and Mark Cannon (instructed by Berwin Leighton Paisner LLP) for the Claimant
Colin Edeleman QC and Richard Harrison (instructed by Davies Lavery) for the Defendants
Hearing dates: 25 th and 26 th July 2007
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
In 2003 work began on an ambitious construction project. The plan was to enclose a section of the railway that ran through a cutting near Gerrards Cross by installing concrete tunnel sections over the cutting and then building a supermarket on top of the site. The supermarket was to be operated by the claimant (“Tesco”). The railway track and surrounding land were owned by Network Rail. The company operating the railway was Chiltern Railway Company Limited (“Chiltern”) which was granted a contractual right to run trains on the track by a Track Access Agreement made with Network Rail.
The rail regulator, formerly the Strategic Rail Authority, later the Office of the Rail Regulator, required Tesco to take out public liability insurance cover of £155 million “in respect of legal liability which may be incurred by [the insured] in respect of death or bodily injury to any person and loss or damage to property arising from activities authorised by each licence holder.” Prior to the commencement of the project, Tesco entered into a Deed of Covenant (“the Deed”) with Chiltern which granted Chiltern a very wide contractual indemnity up to £155 million. Clause 4.2 of the Deed required Tesco to pay Chiltern “on demand such sums as shall from time to time fairly compensate them for all and any costs, losses or expenses arising out of or resulting (directly or indirectly) from …. the carrying out of the Works …. on its existing and/or future railway passenger business.”
On 30 June 2005 a section of the tunnel collapsed onto the railway lines below. Much debris fell upon the lines but no property belonging to Chiltern was damaged. The railway line between Beaconsfield and Denham stations was closed for 51 days with the result that Chiltern was unable to operate its train service through Gerrards Cross during this period. Chiltern accordingly made a claim under the Deed which was settled on 29 th June 2007. The major part of the claim was for loss of passenger revenues up to 2010. The precise sums specified in the settlement are confidential but it is known that the settlement includes a sum or sums by way of compensation for loss of business to Chiltern resulting from a falling-off of passenger revenue after the line was re-opened compared with the position before the closure.
Tesco arranged an Underlying Policy of Insurance in respect of the project in the form of a Standard Project Insurance Package consisting of five numbered Sections: (1) Construction/Erection All Risks– covering the works, plant, equipment, site buildings, existing structures and employee possessions etc. against all risks of physical loss, destruction or damage; (2) Increased Cost of Construction– covering against additional costs of construction due to loss or damage to permanent or temporary works covered under Section 1 and associated expenditure upon expediting potential delayed completion; (3) Public Liability– providing the cover at issue in this claim; (4) Non-Negligence– covering expense, liability, loss which Tesco as Employer incurred by reason of damage to property other than the works caused by collapse, subsidence, heave etc, happening or consequent upon a cause occurring during the Construction Period and arising out of or in connection with The Project; (5) Advanced Business Interruption– covering financial losses of commercial operations due to delayed completion, consequent upon Damage to property insured under Section 1. This cover was the one Section not taken up by Tesco.
Tesco was also insured under Excess Policies which provided cover in various layers in excess of £5 million in respect of Section 3 (Public Liability) and Section 4 (Non-Negligence) in the Underlying Policy. Tesco's total cover for public liability was up to £155 million.
Tesco maintain that they are entitled to an indemnity under the Public Liability Section of the Insurance in respect of the sums they have agreed to pay Chiltern under the Deed. The defendant underwriters of the Excess Policies disagree. They say that Tesco's liability in contract under the Deed is not within the Public Liability cover provided by Section 3 and is accordingly not covered by the Excess Policies. The First Excess Policy was for £15 million above £5 million and the Second Excess Policy for £30 million above £20 million. The settlement sum is within the limit of indemnity of the Second Excess Policy and accordingly the claim against the higher Excess Policies underwritten by the eighth defendant is not pursued.
Put shortly, the defendants contend that the Public Liability Section of the Underlying Policy only covers the liability of Tesco to third parties who as a result of the carrying on of the project works have suffered the kind of harm that would give rise to an action in tort. Chiltern suffered no such harm because it lacked a sufficient proprietary interest in the track to ground an action in tort whether in negligence or nuisance. Accordingly, the damage suffered by Chiltern was pure financial loss recoverable only in contract under the Deed and it follows that the liability for such loss is not within the Public Liability cover. The defendants also argue that even if liability for pure financial loss in contract is within the cover, the cover does not extend to liability for losses resulting from decisions taken by former passengers after the re-opening of the line to travel by means other than by Chiltern's trains.
As a consequence of the closure of the line, Chiltern was entitled to receive compensation from Network Rail under the Track Access Agreement, subject to defined limitations of scope and value. Network Rail, whose track and signalling were damaged as a result of the collapse, could have pursued a tortious claim against those insured under the Excess Policies, claiming its liabilities to Chiltern under the Track Access Agreement as a head of damages flowing directly from the damage to its property, which in turn would have led to a claim by the relevant insured under Section 3 of the Excess Policies. However, the underwriters of the Excess Policies have agreed to indemnify Tesco directly for its liability to Chiltern insofar as a liability could be established against Network Rail under the Track Access Agreement and is otherwise recoverable under the terms of the Excess Policies. In this way, claims by Network Rail and other insured parties have been avoided and Chiltern has been compensated in respect of the collapse to the extent covered by the Track Access Agreement. But, in implementing this scheme, the defendants have not accepted that Tesco is entitled to an indemnity under the Excess Policies in respect of any contractual liability it might have had to Chiltern in respect of the same losses under the Deed.
Chiltern's entitlement to compensation from Network Rail under the Track Access Agreement is less generous than its entitlement to compensation against Tesco under the Deed. Hence the claim under the Deed, the settlement and Tesco's claim for an indemnity against the defendant underwriters in this action.
To assist in determining Tesco's claim, three preliminary issues were ordered to be tried and it is the answers to those questions with which this judgement is concerned. I set out the wording of the issues below.
The relevant provisions in the Public Liability Section in the Underlying Policy
The Insuring Clause
The Insurers will indemnify the Insured against all sums for which [Tesco] shall be liable at law for damages in respect of a) death of or bodily injury to or illness or disease of any person b) loss or damage to material property….c) obstruction, loss of amenities, trespass, nuisance or any like cause, happening or consequent upon a cause occurring during the Construction Period or any extension thereof and arising out of and in connection with The Project.
The Contractual Liability Extension
Other than as may be stated or implied in The Contract, liability assumed by [Tesco] under contract or agreement and which would not have attached in the absence of such contract or agreement shall be the subject of indemnity under this Section only if the conduct and control of any claim so relating is vested in The Insurers and subject to the Exceptions and Extensions of this Section.
Exception 6 a
The Insurers shall not be liable in respect of … liability: (a) arising solely under fines, pre-determined liability or liquidated damages clauses in any contract or agreement.
General Policy Extensions 1 a) and f)
Under these provisions each of the insureds – Tesco and its subsidiaries, the Project Manager, all contractors and sub-contractors, suppliers and manufacturers...
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