China – How Parties Structure Their Relationship May Affect Tortious Liability.

5 August 2020
 

In John Innes Foundation and Others v. Vertiv Infrastructure Limited [2020] EWHC 19 (TCC), England’s Technology and Construction Court had to decide whether a sub-contractor to a managing agent maintaining standby power equipment was liable to the owners of premises for failure to make site visits and therefore identify that batteries (said to have caused a fire on the premises) needed replacing. The claim was for loss and damage to the premises, machinery and equipment, arising from the fire. The Court granted summary judgment in the Defendant’s favour. It held that although risk of damage if maintenance was not carried out was foreseeable, there was insufficient proximity between any of the Claimants and the Defendant and no basis for saying that (i) the Defendant had assumed any responsibility to any of the Claimants to carry out the maintenance; or (ii) that any of the Claimants relied upon the Defendant to do so. The Court said that the way in which the parties had structured their relationship was inconsistent with an assumption of responsibility.
 

Background Facts
 

JIF, the first Claimant, owned the freehold in the Genome Centre and the other Claimants occupied and had interests in other parts of the Centre. In 2006, the Defendant, a specialist in maintenance and repair of standby power equipment, contracted with JIF for the maintenance of standby and emergency power equipment at the Centre, which included two service visits a year. In 2012, the third Claimant (JIC), second Claimant and two non-parties to the proceedings engaged NBI as managing agent of the Centre and from 2012 NBI, rather than JIC, engaged the Defendant, and JIC had no continuing contractual relationship with the Defendant. None of the other three Claimants had ever had a contractual relationship with the Defendant. There was a fire at the Centre in 2015 and the Claimants brought an action in tort against the Defendant for loss and damage caused by the fire, which they claimed was caused by the Defendant’s lack of maintenance. The action had to be brought in tort, rather than for breach of contract, as the Claimants had no contractual relationship with the Defendant. The Defendant applied to strike out the claim, or alternatively for summary judgment, on the basis that it did not owe any duty of care to any of the Claimants.
 

The Claimants’ Case
 

The Claimants’ case was that the Defendant owed them a duty of care in tort as owners and occupiers of the Centre, to prevent damage to their property by carrying out the maintenance regime with reasonable care and skill and were in breach of that duty by its failure to carry out maintenance visits and identify that batteries, which caused the fire in the lighting system, needed replacing.
 

The Defendant’s Case
 

The Defendant’s case was that it did not owe any duty of care to the Claimants because there was no foreseeability or proximity between the Claimants and Defendant and it would not be fair, just and reasonable to impose a duty of care upon the Defendant.
 

Did the Defendant owe the Claimant a duty of care?
 

The Court said that the law recognises a spectrum of cases. At one end of the spectrum are cases where the claimant suffers physical injury as a result of a negligent act, in which case, the law readily recognises a duty of care to avoid such injury. At the other end of the spectrum are cases of pure economic loss, where often but not always, it is necessary for the claimant to establish an assumption of responsibility on the part of the alleged tortfeasor. Between those two extremes are cases of physical damage. The Court said that the authorities establish that where a negligent act of a person causes physical damage, that type of damage will normally be actionable. However, physical damage causes loss of an economic type and in some cases the loss may be an indirect loss to property interests. It said that where a novel situation arises, like the present one (where the allegation of negligence was based on the Defendant’s failure to carry out contractual site visits as per its contract with the managing agent appointed by the Claimants), authorities make it clear that the court should approach the development of law incrementally by reference to analogous decided cases, applying the threefold Caparo test. The Caparo test states that (i) the harm must be reasonably foreseeable as a result of the defendant’s conduct; (ii) the parties must be in a relationship of proximity; and (iii) it must be fair, just and reasonable to impose liability.
 

The Court decided that the appropriate approach was to consider the application of the Caparo test to the claims, whilst bearing in mind the willingness of the courts to find that a duty of care exists in respect of acts causing physical damage. The Court referred to the distinction between cases of omissions and cases of positive acts of negligence. Although the distinction is not determinative, the Court said that in the case of omissions, a duty to act is more easily found where the alleged tortfeaser is found to have assumed a responsibility to act, which will usually involve some form of relationship between the claimant and tortfeaser. Here, the claim against the Defendant rested on an allegation of failure on its part to make the contracted service visits.
 

Contractual Chain
 

The Court said that the authorities make it clear that whether a contractual chain exists is relevant to deciding whether or not a duty of care exists. In the present case, the Court found that there was a very carefully constructed chain of contracts and the way in which the parties had structured their relationship was inconsistent with an assumption of responsibility.
 

Conclusion
 

The Court had no difficulty in concluding that the Claimants could show that the risk of damage if tests were not carried out was foreseeable. The purpose of the service visits which should have taken place, was in part to ensure that the risk of fire from the emergency lighting unit was minimised. However, it found that it was impossible to discern any factual basis upon which it could be said that the Defendant had assumed any responsibility to any of the Claimants to make the service visits or to issue reminders, nor that any of the Claimants relied upon them to do so. Further, the parties had so structured their relationship that it was inconsistent with the assumption of responsibility.

 

Comment
 

Liability in negligence is a difficult area of law, especially for economic loss and physical damage cases. This case demonstrates that careful structuring of the relationship amongst parties is important for managing the risk of tortious liability.