Settlement of flood damage had been reasonable

In October 2001, a nut and bolt connection on a float valve had failed, causing water from a storage tank to overflow and flood the basement of a new office building. Originally, proceedings were commenced against the contractor, Skanska, by the lessee of the premises, Trucidator Ltd., the occupiers, Slaughter and May, and by the freeholder/ lessor, Deka Immobilien Investment GMBH.

Skanska had built the offices under a contract with the developer Helical Bar, and provided warranties to Trucidator, Slaughter and May, and Deka. Skanska joined the M&E subcontractor, Haden Young, which had been retained by Skanska to install the sprinkler system as part of the M&E works. In turn, Haden Young joined Siemens Building Technologies FE, who had entered into a subcontract with Haden Young for the supply and installation of the sprinkler system. Siemens then joined Supershield Ltd., to whom they had subcontracted the installation of the sprinkler system.

The judge had concluded that the probable cause of the failure of the nut and bolt connection between the lever arm and the ball valve had been inadequate tightening when it had been installed, and that Supershield had been under a contractual obligation to not only install the ball valve and lever arm but to check that it was operating correctly. In addition, the judge had found that, on the balance of probabilities, Supershield had installed the ball valve.

Supershield challenged Siemens’ claim that the settlement it had reached with Haden Young, but the judge had rejected this, and awarded Siemens £2,864,080.00 on its Part 20 claim.

Supershield appealed, arguing that the judge had misinterpreted the contract, and had been wrong in finding that it had been Supershield which had installed the ball valve and that the settlement had been reasonable.

The subcontract between Haden Young and Supershield had described Siemens’ works as being “Supply and installation of fire protection sprinkler system inclusive of incoming fire main from point of connection, sprinkler tank, skid mounted pump set, and all associated design works.” The sprinkler tank and flat valve had obviously been part of this.

The description of the works in the contract between Siemens and Supershield was contained in two schedules, which the court described as being“sloppily completed”. It did state that Supershield was “to supply site opertives (sic) for the installation of the sprinkler system complete with all sprinkler control valves, pumps and assosiated (sic) pipework, valves starter & controlers (sic) floor zone valves with all equipment and risers.”

Siemens had had a separate contract with AC Plastics for the supply and installation of the water tank, but not the associated pipework and valves. The key question was whether the proper interpretation of the contract drawing with its reference to AC Plastics installing the tank had the effect of excluding the installation of the ball valve from the scope of the subcontract works. The court differentiated between the tank itself and the tank with valves and pipework attached to it, internally and externally.

The proper connection and adjustment of the ball float valve, lever arm and pipework were an integral part of the proper installation of the sprinkler system. Despite the argument proposed by Supershield, the Court of Appeal was not persuaded that the judge had been wrong. The ball valve had been part of the complete sprinkler system which Supershield had been responsible for installing.

Supershield then went on to argue that Siemens had had complete defences to the claims made against it so that the settlement it had made had been unreasonable, as Siemens had not attempted to mitigate its loss. Supershield argued that the effective cause of the flood had been the drains being blocked and that even if the overflow from the tank had been the partial cause, it had been too remote a consequence. The judge had found that the overflowing of water from the sprinkler tank, which resulted from the failure of the connection between the ball valve and lever arm, had been an effective cause of the flood. The blocked drain had not reduced the damaging effect of the overflow.

It had been unlikely that Siemens would have been successful on the issue of causation. The loss resulting from the flood had not been too remote for Haden Young to recover it from Siemens. Siemens had been responsible for the supply and installation of the sprinkler system so that the water used in it was properly contained. Therefore, Haden Young had assumed responsibility for preventing the escape of the water. The ball valve had been the first line of defence and it had failed. It had been within the scope Siemens’ contractual duty to prevent this. Siemens had only had to show that it had been reasonable for it to settle the claims against it as it had. The Court saw no reason to overturn the decision of the judge.

Author: Ann Glacki

Date: January 2010

Commentary

The case does not provide any significant new guidance on the law, however it does highlight the need to take care when settling a claim to make sure the settlement is, and can be evidenced to be, reasonable and necessary. Only if these criteria can be satisfied will it be recoverable (all other things being equal) from another Party up or down the contractual chain. Settlements are not automatically recoverable just because they have been agreed.

For more information please contact Lorne Alway by telephone 01295 275975 or by email on lorne.alway@alway-associates.co.uk

Lorne Alway

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