Oakapple Homes (Glossop) Ltd v DTR (2009) Ltd and others

Oakapple Homes (Glossop) Ltd v DTR (2009) Ltd and ors [2013] EWHC 2394 (TCC)

Amongst the issues raised in this case, the Defendant Architect, DTR Limited, was ordered to execute warranties in favour of residential tenants in respect of a mixed use development in Derbyshire. The property was destroyed by fire and a claim brought against the Defendant for design and inspection breaches which caused the fire. In order for the tenants to bring claims against the Defendant, executed warranties were required in their favour from the Defendant.

The main issues for the court to unravel were: (i) Could the Defendant raise the defence of contributory negligence against the Contractor in defence of claims by beneficiaries of warranties to reduce the amount of damages payable to them and (ii) could the Defendant’s professional indemnity insurers deny coverage of claims due to an exclusion in the policy?

Background

Oakapple Homes (Glossop) Ltd (“the Employer”) appointed the Defendant in 2004 to assist in its conversion of a former mill in Derbyshire into residential apartments and commercial units.

The Defendant’s appointment contained a clause requiring it to execute collateral warranties in favour of the usual parties: the funder, first purchaser/tenant as well as residential tenants of the property. No warranties were executed in favour of these residential tenants (“the tenants”).

The Employer entered into a building contract with a related company, Oakapple Construction Ltd (“the Contractor”) for the design and construction of the property. The Defendant’s appointment was novated to the Contractor by a deed of novation which required post novation warranties back to the employer which were given.

On 6 April 2007 the property was destroyed by fire and on 19 August 2009 the Defendant went into creditor’s voluntary liquidation. In a letter of claim against the Defendant, the Employer and the tenants alleged there were breaches by the Defendant of their design and inspection duties causing the fire and its rapid spread through the property and thereby causing them loss. The letter of claim emanated from the property’s building insurers through a subrogated claim to the rights of the Employer. The claim required the Defendant to execute collateral warranties in favour of the tenants.

In respect of the first issue, the Defendants claimed contributory negligence against the Contractor by departing from its design and/or redesigning the Defendant’s design. In order to raise a successful defence of contributory negligence there must co-exist a parallel duty in tort. The judge, Mr Justice Ramsey, found that such an independent tortious duty did not exist, this being a claim brought in contract and that any contributory negligence on the Contractor’s part could not be imputed to the beneficiaries in order to reduce the level of damages due to them. The contributory negligence defence therefore failed.

The second issue concerned the terms of the Defendant’s professional indemnity insurance policy exclusion clause. The PI insurers were a Lloyds syndicate and the policy was a standard form RIBA Insurance Agency APIA-RIBA 2005 wording with endorsements. The policy provided cover for any civil liability arising out of breach of the professional duty of care owed by the Defendant but excluded claims arising out of warranties, guarantees, penalty or liquidated damages clauses unless they would have arisen any way. Collateral warranties were however covered provided that “(a) the benefit of such Warranty...is no greater or longer lasting than in the original contract to which it relates.....”

This wording in the insurance policy was reflected in the draft warranty the Defendant agreed to provide to the tenants as follows: “The Consultant has no liability...which is greater or of longer duration than it would have had if the Beneficiary had been party to the Appointment as joint employer PROVIDED THAT the Consultant shall not be entitled to raise under this Deed any set-off or counterclaim in respect of sums due under the Appointment.”

The judge determined that the issue depended on the meaning of the policy covering the Defendant’s liability under the collateral warranties. The PI insurers had argued that the similar clauses in the policy and warranties could be construed as referring to damages claimable under the warranty but the judge dismissed this and held that “The benefit of the warranty is the benefit in providing contractual liability by the Defendant to the beneficiaries. It cannot be a reference to the quantum of damages.” The correct interpretation of these clauses refers to the scope, extent and duration of the liability of the Defendant and not to any damages payable by it and arises from long established principles of contractual construction giving words their objective and purposive meaning. In other words, there would be cover under the policy to beneficiaries of the warranties which the Defendant was required to execute to the tenants.

This article was created by construction lawyer --Najma Dunnett as part of an ongoing series of legal articles. Follow Najma on Twitter to keep up to date with the latest changes in construction law @NDunnett_Cons.