Rohan Construction Ltd v Insurance Corporation of Ireland Plc

• Jurisdiction: Ireland
• Judge: Keane J.
• Judgment Date: 07 March 1986
• Neutral Citation: 1986 WJSC-HC 1406
• Docket Number: 5032P/1984
• Court: High Court
• Date: 07 March 1986

1986 WJSC-HC 1406

THE HIGH COURT

5032P/1984

ROHAN CONSTRUCTION LTD v. INSURANCE CORPO OF IRELAND LTD

BETWEEN:-

ROHAN CONSTRUCTION LIMITED AND ROHAN GROUP PLC

PLAINTIFFS

and

INSURANCE CORPORATION OF IRELAND LIMITED

DEFENDANTS

Citations:

MACGILLIVRAY & PARKINGTON INSURANCE 7ED P433

Synopsis:

INSURANCE

Indemnity

Contractor - Building works - Sub-contract - Defendants issued policies indemnifying plaintiff sub-contractor - Plaintiff settling claim based on bad workmanship - Plaintiff the insured under professional indemnity policy and under public liability policy - Neither policy applicable to liability incurred by plaintiff - Plaintiff's claim dismissed - (1984/5032 P - Keane J. - 7/3/86) - [1986] ILRM 419

|Rohan Construction v. Insurance Corporation of Ireland|

1 JUDGMENT delivered the 7th day of March 1986 by Keane J.

2 In the year 1977 a company called Agrivest Limited decided to become involved in what seemed at the time the promising market of selling molasses to farmers in the South West of Ireland. With this in view, they proposed to store the molasses in a tank to be specially constructed for the purpose in a dry dock which they occupied under a lease from the Limerick Harbour Commissioners. The storage tank was constructed by the first-named Plaintiffs under their then title of Sitecast (Ireland) Limited.

3 The project unfortunately proved disastrous for nearly everyone concerned. For reasons which I will discuss in a moment, large quantities of water percolated into the tank and Agrivest Limited were unable to use it for the storage of molasses. They alleged that, as a result, they suffered serious financial losses and they accordingly instituted proceedings in which a number of parties, including the first-named Plaintiffs, were ultimately joined. In these proceedings, the sum of £2.6 million damages was claimed by Agrivest Limited and Co-operative Molasses Traders Limited.

4 The Plaintiffs were insured by the Defendants under two Professional Indemnity Policies (Nos. SP.1420 and SP. 1425) and notified the Defendants of the claim being made against them. Because of the relatively small Irish market in such insurance and the scale of the risks involved, it was customary in the insurance business to lay off such risks and, accordingly, the Defendants had effected reinsurance under both these policies in London. The London underwriters adopted the position that it had not been established to their satisfaction that these policies did apply and inconclusive correspondence and discussions took place on this matter over a considerable period of time. During the course of these discussions, the Irish solicitor for the underwriters suggested that the risk in question might be covered by a Public Liability Policy which the Plaintiffs also maintained with the Defendants, but which was not reinsured with the underwriters.

5 The uncertainty as to the Plaintiffs" insurance cover did not, of course, delay the progress of the action brought against the Plaintiffs and the other parties who were alleged to have been responsible for the defects in the storage tank. The Defendants, while maintaining that their liability or that of the reinsurers to indemnify the Plaintiffs under any of the policies had not been established to their satisfaction, appointed a firm of engineers, Messrs Rooney McLoughlin and Associates, to investigate the allegations against the Plaintiffs and prepare a report and also nominated Senior Counsel to appear on their behalf.

6 The report prepared by Messrs Rooney McLoughlin and Associates concluded that the work carried out by the Plaintiffs had complied with the drawings and specifications and that the problems were caused by a failure in design. The consulting engineers responsible for the design, Messrs Ove Arup and Partners, and the consulting architects to the project, Messrs Frank Murphy and Partners, had also been joined in the proceedings. On the basis of Messrs Rooney McLoughlin's report, it seemed as though the Plaintiffs had a reasonably good prospect of resisting the claim made against them. When the trial loomed nearer, however, as so often happens, matters became less clear-cut, particularly since it transpired that the consulting engineers retained by Agrivest Limited, Messrs M.J O'Connor and Associates, took a radically different view and were assigning a significantly greater part of the blame for what went wrong to the Plaintiffs. It also was becoming obvious to all concerned, and their legal advisers, that, having regard to the complexity of the technical issues and the magnitude of the claim as to damages which had to be investigated, the case would probably be relatively lengthy. This gave an added stimulus to the eve of trial negotiations and ultimately the case was settled. The damages were scaled down to £735,000 and, of this, the Plaintiffs agreed to pay £150,000, together with an appropriate proportion of the costs. The greater part of the damages was paid by Messrs Ove Arup and Partners, Messrs Frank Murphy and Partners also making a contribution. The Defendants were aware of the plaintiffs" proposal to settle the proceedings, but reserved their position as to their liability under the respective policies. The Defendants having failed to admit liability under these policies, the present proceedings were instituted in which the Plaintiffs claim a declaration that the Defendants are liable to indemnify them under one or other of these policies.

7 The first issue that arises for determination is as to whether the settlement effected by the Plaintiffs was in the circumstances a reasonable and prudent compromise of the proceedings brought against them. The material facts on this aspect of the case can be shortly summarised.

8 The Plaintiffs carried out the works in question under a sub-contract with a firm called Fairclough Mulcahy Limited. All the relevant works were, however, sub-contracted. It followed that the main contractors were in a position to transfer any liability they might be under to Agrivest Limited to the Plaintiffs and/or other parties. The other parties concerned were the consulting engineers, the consulting architects and a firm called Rucon Limited who supplied the waterproof lining of the tank. But although the last-named firm were joined in the proceedings, it was accepted during the course of the settlement negotiations that no blame attached to them and they did not contribute in any way to the settlement.

9 The works done by the Plaintiffs consisted mainly of the erection of the storage tank within the dry dock by constructing a number of reinforced concrete retaining walls, pouring "no-fines" concrete on the floor and sides of the tank to receive the waterproof lining and constructing two lines of transfer pipe work under the tank which would allow the remaining dry dock to be empty of water when required. (That portion was being retained by the Limerick Harbour Commissioners who envisaged requiring it for use as a dry dock from time to time.) The contract drawings required that these pipes be laid on the north and south sides of the tank, but because of difficulties experienced in rock-blasting it was decided to alter this arrangement and to lay the pipes in one trench on the north side. It was also decided to substitute for the two wavin pipes a single ogee concrete pipe, this change being necessitated by the unavailability of the wavin pipes or the alternative spigot and socket type of concrete pipe. It also appears that the level of the transfer pipe work was lowered at the same time. It was not in dispute that these alterations had the approval, tacit or express, of the consulting engineers who were responsible for the design and supervision of the project.

10 Mr. Michael O'Connor, the consulting engineer who was retained by Agrivest Limited as an independent expert, gave evidence of tests which had been carried out in order to establish why water had penetrated the lining of the tank. His conclusion was that the penetration was due to three factors:

11 (1) the transfer pipes had not been laid in the correct manner;

12 (2) the concrete surround of the pipes was not as specified;

13 (3) in certain cases, the concrete was not of the quality specified.

14 Mr. O'Connor said that, had he been apportioning liability as an arbitrator, he would have attributed 75% of the responsibility for the subsequent mishaps to the Plaintiffs. He said that the fact that the works were being supervised by consulting engineers and architects did not relieve the sub-contractors as an experienced firm from their duty to perform the work in a reasonable manner and alert the engineers and architects to any risks that were inherent in the way the work was being done.

15 Mr. Dermot Rooney, who as has been noted was retained by the Defendants to protect their interests, took a different view. He considered that the work carried out by the Plaintiffs complied with the drawings and specifications and that such deviations as there were, were minor in nature and not the cause of the problems. He...