Michael Reynolds and Uma Ramani Does the employer’s obligation to insure for loss and damage continue into the defects period or end at completion? A clause in the JCT minor works form has confused the matter, but now the Court of Appeal has stepped in …
Ever since the Agreement for Minor Building Works was first published by the JCT in 1968 it has proved to be a popular form of contract. However, users should be warned that omissions in the contract can leave them open to claims.
It is over such an omission that judges have recently been called upon to give their views in the Court of Appeal.
Clause 6.3B of MW80 (the JCT minor works form of contract) is silent about how long an employer is obliged to insure loss and damage to a structure in the joint names of the employer and contractor.
In TFW Printers Ltd vs Interserve Projects Services Ltd (27 June 2006), TFW’s factory suffered flood damage, allegedly as a result of bad workmanship on the part of the defendant. The court was asked to assume for the purposes of a preliminary issue that the defendant was responsible for the flooding of the factory. The court also assumed that the alleged conduct giving rise to the claim occurred during the defects period.
The issue in question was “did the obligation to insure continue until the end of the defects period or did the obligation to insure come to an end when a certificate of practical completion was issued?” If the obligation continued after practical completion, then the claim would be barred by virtue of the co-insurance clause.
In the Court of Appeal, TFW argued that the lower court’s decision (that TFW’s obligation to carry joint insurance carried on past practical completion) had led to MW80 falling out of line with all the other main contracts in the JCT suite of standard form contracts.
TFW argued there was no mechanism in the minor works contract for altering the value of the works after practical completion in the event that loss or damage occurred at that stage requiring a variation of the works. Similarly, there was no machinery for rescinding the certificate of practical completion to reflect the fact that new work had been instructed by the architect after practical completion, and for reissuing it once that work had been completed. Thirdly, there was no mechanism for extending the contract period to reflect the time involved in complying with such instructions.
The Court of Appeal held that the employer’s insurance obligation ceased at practical completion
The Court of Appeal agreed with TFW and held that the employer’s insurance obligation ceased at practical completion. Lord Justice Dyson considered it unlikely that the draftsman had intended the joint insurance provision under clause 6.3B to cover materials or goods brought onto site after practical completion to make good defects in the defects liability period.
Second, Dyson held that it could not have been intended that the architect should be authorised to issue instructions under clause 3.5 and 6.3B after practical completion, as he would have been obliged to do if the obligation under 6.3B continued past practical completion.
Third, the obligation to insure to practical completion under clause 6.3A supported the view that the obligation to insure under 6.3B should cease at the same time. There was no valid reason why the obligations in the two clauses should cease at different times.
Fourth, on practical completion, possession of the site passed to the building owners. It would therefore make better commercial sense (and was more likely to have been intended) that, once the contractor restored possession to the employer, the insurance of the building and contents should be a matter for the employer alone.
Finally, Lord Justice Sedley commented that as a matter of common sense it would be odd if the contractor were able to look to the employer to effect insurance for him while he remedied the work.
As a result of this decision, there can no longer be any misunderstanding by employers, contractors or other interested parties such as insurers, over the longevity of the employer’s insurance obligation under clause 6.3B.
It may be helpful if the JCT reconsiders the wording of clause 6 in the light of this judgment, but this case puts the point beyond argument.
Michael P Reynolds and Uma Ramani are solicitors at insurance litigation specialist Davies Lavery Solicitors