Tesco Stores Ltd v David Constable & Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tuckey,Lord Justice Thomas,Lord Justice Hughes |
| Judgment Date | 16 April 2008 |
| Neutral Citation | [2008] EWCA Civ 362 |
| Docket Number | Case No: A3/2007/2313QBCMF |
| Court | Court of Appeal (Civil Division) |
| Date | 16 April 2008 |
[2008] EWCA Civ 362
Lord Justice Tuckey
Lord Justice Thomas and
Lord Justice Hughes
Case No: A3/2007/2313QBCMF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
MR JUSTICE FIELD
Insert Lower Court NC Number Here
Royal Courts of Justice
Strand, London, WC2A 2LL
Justin Fenwick Q.C. and Mark Cannon Q.C. (instructed by Berwin Leighton Paisner Llp) for the Appellant
Colin Edelman Q.C. and Richard Harrison (instructed by Messrs Davies Lavery) for the Respondents
The question in this case is whether Tesco, the claimant insured, can recover from the defendant excess public liability insurers a large sum which it became liable to pay under the terms of a deed of covenant for economic loss to a third party affected by its activities. At a trial of preliminary issues Field J. decided that it could not ( [2007] EWHC 2088 (Comm)). Tesco say he took too restrictive a view of the cover.
In 2003 Tesco embarked on a project to build a supermarket over a railway cutting near Gerrards Cross station. The railway was to be enclosed in a tunnel and the supermarket was to be built upon the infill site above it. Whilst this work was being carried out on 30 June 2005 part of the tunnel collapsed. The railway line between Beaconsfield and Denham stations had to be closed for 51 days.
The railway track and surrounding land were owned by Network Rail. Chiltern Railway Co. Limited operated the railway under a Track Access Agreement with Network Rail which gave it a contractual licence to run trains on the track and carefully defined rights to compensation if it was unable to do so. But additionally Chiltern entered into the deed of covenant with Tesco to which I have referred which by clause 4.2 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.
The deed, to which Network Rail was also party, imposed other obligations on Tesco which are not relevant for present purposes. It has not been alleged that the deed was shown to the insurers.
As a condition of carrying out licensed activity on the railways Tesco were required by the rail regulator to take out public liability insurance of £155m. “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 the activities authorised by each licence holder”.
To this end Tesco obtained its first £5m. layer of public liability cover as part of a Project Insurance Package written by Royal and Sun Alliance. The excess layers above £5m were written on separate slips by the 1 st to 5 th defendants (£15m) and the 1 st and 4 th to 7 th defendants (£30m). The insurers of the layers above this level are not involved.
The public liability cover on each of the excess insurances was “as per underlying policy wording”– in other words in the same terms as the public liability cover provided in the Project Insurance Package. This was a standard form combined policy which also provided cover for construction all risks, increased costs of construction and non-negligence. The insured included Tesco and all its contractors, sub-contractors, suppliers, manufacturers and consultants. Cover was provided as if separate policies had been issued to each insured and the insurers agreed to waive all rights of subrogation which they might have against any of them, absent fraud or the like.
The relevant terms of the public liability section of the policy are as follows:
SECTION 3
PUBLIC LIABILITY
DESCRIPTION OF COVER
The insurers will indemnify the Insured against all sums for which The Insured 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.
…….
EXCEPTIONS TO SECTION 3
The insurers shall not be liable in respect of:
………
6. liability
a) arising solely under fines, pre-determined penalty or liquidated damages clauses in any contract or agreement, or any punitive or exemplary damages
……
EXTENSIONS TO SECTION 3
[1] Contractual Liability
Other than as may be stated or implied in The Contract, liability assumed by The Insured 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.
………
Fortunately no-one was injured by the collapse of the tunnel. The track and signalling equipment belonging to Network Rail were damaged and the track was obstructed but there was no damage to any property belonging to Chiltern. It had a claim against Network Rail under the Track Access Agreement which public liability insurers have paid on the basis that this claim could have been passed on by Network Rail to Tesco as part of a claim in tort because its liability to Chiltern flowed directly from the damage to its property or property interests.
The major part of Chiltern's claim under the deed of covenant was for loss of passenger revenues from the time the line was reopened to 2010. Tesco has agreed its liability for this claim in a confidential settlement agreement. If Tesco are entitled to be indemnified against this liability it will involve the first and second excess layers – the underlying cover is already exhausted.
The preliminary issues determined by the judge were:
Issue 1. Are any of the losses claimed by Chiltern under the deed of covenant properly describable as damages in respect of (i) loss or damage to material property (ii) obstruction, (iii) loss of amenities, (iv) nuisance and/or (v) any like cause, within the meaning of the insuring clause?
Issue 2. Are the defendants liable to indemnify Tesco for such part or parts of its liability to Chiltern as is or are in respect of one or more of (i) loss or damage to material property, (ii) obstruction, (iii) loss of amenities, (iv) nuisance, and/or (v) any like cause?
These issues were to be decided on the basis of a statement of agreed facts which I have summarised and on the assumption that no proprietary interest of Chiltern was affected, no material property of Chiltern was lost or damaged and that Tesco's liability to Chiltern arose solely under the deed of covenant. In other words it was liability for a claim in contract for pure economic loss. The judge answered “No” to both questions noting, correctly I think, that the questions posed were essentially the same. He did not decide a third issue relating to quantum because it was unnecessary to do so.
The judge essentially accepted the submissions of Mr Edelman Q.C. counsel for the insurers. He said that the fact that this was public liability insurance was very important. Public liability policies covered liability to the public at large for claims in tort or for the type of damage protected by the law of tort; they were not generally regarded as affording cover against liability in contract for pure economic loss. The words of the insuring clause had to be read as a whole. Each of paragraphs a), b) and c) contemplated harm for which there was liability in tort. Giving due weight to the linking phrase “in respect of” the judge had no doubt that the core meaning of the words “all sums for which the insured shall be liable at law” was all sums for which the insured shall be liable at law in the torts of nuisance and trespass and such torts as provide compensation for the harm identified in paragraphs a), b) and the balance of c). Although this was the core meaning of the words used the clause was nevertheless to be construed as covering any liability in contract which was co-extensive with the liability in tort comprehended by paragraphs a), b) and c). The contractual liability extension did not radically extend the cover. It did no more than provide cover for an insured who was liable in contract for a tort comprehended by a), b) or c) committed by another party in the course of a project.
There is no issue between the parties that the wording of the cover has to be construed as a whole and that the words used have to be given their ordinary and natural meaning in the contractual and commercial setting in which they appear. This of course includes the requirement for public liability insurance by the rail regulator and the fact that the deed of covenant was not seen by the insurers.
There is however an issue as to the importance to be attached to the fact that this was a public liability insurance. Mr Fenwick Q.C. for Tesco submits that the judge attached too much...
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