Construction projects may seem simple to most members of the public, but as any construction contractor will know, they are in fact extremely complicated and often involve multiple layers of subcontractors. In such an environment the contractors higher up the chain often enter into contractual indemnities to protect them if one of their subcontractors causes damage to a development.
What was not always clear however was whether this indemnity would be enforceable if the main contractor failed to notice the damage by the time the work was completed. Luckily, the Court of Appeal clarified this point in the case of Greenwich Millennium Village Ltd v Essex Services Group plc and others [2014].
Greenwich Millennium Village Ltd v Essex Services Group plc and others
Greenwich concerned the issue of liability for workmanship defects that caused flooding in a block of flats.
The flooding was the result of various failures in construction, and which caused £4.75 million worth of damage. The complexity and ineptitude of the contractual arrangements involved were so severe that Mr Justice Coulson branded the arrangement “death by sub-contracting”.
At issue in the case were the causes of two separate but related failures in the building’s cold water system, and which parties were responsible for those causes.
At first instance Mr Justice Coulson ruled that although the senior contractor was principally liable to the customer, the senior contractor could non-the-less rely on an indemnity clause to transfer its liability to the sub-contractor who had actually performed the defective work. This was even though the senior contractor had not spotted the defective work before the completion of the project.
The sub-contractor appealed.
The Appeal
The principal issue in the appeal was whether the senior contractor’s failure to detect the defects precluded it from relying on the indemnity clause. The Court ruled that the senior contractor could still rely on the contractual indemnity even though they had not noticed the damage at the time.
In justification for this the Court relied on its interpretation of the ‘commercial context’. The Court ruled that construction companies enter into such indemnities to protect against liability up the contractual chain. In that context, the parties did not envisage that the beneficiary’s failure to spot a defect would defeat the indemnity. Consequently the indemnity remained enforceable.
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