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The meaning of a 'no greater liability' clause

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

In the recent case Oakapple Homes (Glossop) Ltd v DTR (2009) Ltd (in liquidation) and Others [2013] EWHC 2394 (TCC), the Court found that the Defendant architectural practice, DTR, would not be entitled to defend claims by Beneficiaries to collateral warranties on the basis of the contractor’s contributory negligence; and an exclusion clause would not entitle the Defendant’s Insurers to decline to indemnify the Beneficiaries for any liability which it might have.

Background

The Claimant property developers, Oakapple Homes were appointed as architects for the redevelopment of a nineteenth century former cotton mill into residential apartments and commercial units. DTR was obliged to enter into collateral warranties for the benefit of purchasers and tenants of the properties (the beneficiaries).

Oakapple entered into a building contract with the contractor Oakapple Construction,  and DTR was  obliged by the Appointment to enter into a novation agreement with Oakapple Construction, which it later did.

Once the works were completed, the majority of the residential flats were let and occupied. However, in April 2007, the property was largely destroyed by fire. Oakapple Homes alleged that there were breaches by DTR of its design and inspection duties which had led to the fire and its rapid spread through the property.

Consequently, Oakapple Homes called on DTR to execute collateral warranties in favour of those identified as residential lessees of the property. However, DTR’S liquidator sought to disclaim the obligation to enter into the warranty.

Contractual Interpretation

The parties identified two issues of contractual interpretation to be determined by the Judge before Oakapple Homes’s challenge to the disclaimer could be considered:

1)    Would DTR be entitled to defend claims by beneficiaries to the warranties on the basis of Oakapple Construction’s negligence as a contractor?

2)    If not, would exclusion clause 5.9 of DTR’s insurance policy entitle its Insurers to decline to indemnify DTR for any liability which it might have to the beneficiaries of the warranties?

Exclusion clause 5.9 stated: “the benefit of such Warranty or Agreement is no greater or longer lasting than that in the original contract to which it relates.”

Oakapple Homes argued that contributory negligence apportionment is only permissible where a defendant’s contractual liability is the same as its liability in negligence, and a duty of care at common law arises independently of any contract. DTR argued that Oakapple Homes were both the beneficiary and the joint employer under the collateral warranty and as such, DTR would be permitted to rely on defences based on Oakapple Homes being responsible for any defaults of its contractor (Oakapple Construction).

Oakapple Homes also argued that the phrase “the benefit of such Warranty … than in the original contract” should be interpreted as a reference to the nature of the rights conferred by the warranty, and not to the amount of the damages recoverable by beneficiaries. In contrast, DTR’s Insurers argued that any liability established under the collateral warranty would come within exclusion clause 5.9 of the insurance policy.

The Decision

The Court held that DTR would not be entitled to defend claims by beneficiaries to the warranties (if executed) on the basis of Oakapple Construction’s contributory negligence as the contractor. The damages could not be reduced on this basis, because an employer under a construction contract is not liable for the negligence of the contractor. Exclusion clause 5.9 would not entitle DTR’s  Insurers to decline to indemnify DTR for any liability which it might have to the beneficiaries. In reaching this conclusion, the Judge found that the reference to the “original contract” in exclusion clause 5.9 was a reference to the original appointment, and not the appointment as novated. The liability of DTR to the beneficiaries is therefore no greater or longer than in the original appointment.

The Judgment does not formally record whether DTR would be compelled to enter into the collateral warranties in favour of the residential tenants.

Conclusions

Contact

For further information, please contact John Wevill, Senior Associate on 0207 280 8948

By John Wevill

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