Rohan Construction Ltd v Insurance Corporation of Ireland Plc

• Jurisdiction: Ireland
• Court: Supreme Court
• Judge: GRIFFIN J
• Judgment Date: 01 January 1988
• Neutral Citation: 1987 WJSC-SC 1080
• Docket Number: 106/86
• Date: 01 January 1988

ROHAN CONSTRUCTION LTD & ANOR v. INSURANCE CORPORATION OF IRELAND PLC

ROHAN CONSTRUCTION LIMITED AND ROHAN GROUP PLC

v.

INSURANCE CORPORATION OF IRELAND PLC

1987 WJSC-SC 1080

Finlay C.J.

Griffin J.

Hederman J.

106/86

THE SUPREME COURT

Synopsis:

CONTRACT

Construction

Document - Intention - Words used - Circumstances of contract - Policy of insurance - (106/86 - Supreme Court - 10/4/87)

Rohan Construction v. Insurance Corporation of Ireland|

INSURANCE

Indemnity

Contractor - Building works - Sub-contract - Defendants issued policies indemnifying plaintiff sub-contractor - Indemnities applicable to specified liabilities - By a contract made between a site owner and a contractor, the latter agreed to construct a tank (for storing molasses) in part of a dry dock - The plaintiffs agreed with the contractor to construct the entire of the works specified in the initial contract - The site owner brought an action against (inter alia) the plaintiffs claiming damages for loss incurred by reason of the alleged negligence of the plaintiffs in performing the said works - The site owner's action was settled for #735,000 and costs, and the plaintiffs agreed to pay #150,000 and a proportionate part of those costs - The defendants repudiated the plaintiffs" claim to be indemnified by the defendants for the plaintiffs" share of the damages and costs payable pursuant to the settlement - The plaintiffs" claim was made in reliance upon (inter alia) a professional indemnity policy, issued by the defendants, whereby the defendants agreed to indemnify the plaintiffs for any sums (not exceeding a stated limit) which the plaintiffs might become liable to pay as a direct result of any negligent act in the performance by the plaintiffs of (inter alia) the "management of projects, contracts or works, supervision, contract co-ordination, quantity surveying and procurement (of material, equipment, plant, material things and technical services) under the direction of architects, engineers, surveyors and/or project or contract managers" - The site owner had appointed a firm of architects to supervise the performance of the contract works - At the trial of the plaintiffs" action, the trial judge held (7/3/86) that liability of the plaintiffs arising from their negligent performance of construction work was not covered by the professional indemnity policy - The trial judge held that the plaintiffs" settlement of the site owner's action was reasonable - Held, on appeal by the plaintiffs, that the plaintiffs" claim to an indemnity was covered by the reference to "management of projects, contracts or works ... procurment (of material ...)" in the professional indemnity policy - Held that the defendants were not liable to indemnify the plaintiffs for such loss by reason of a public liability policy issued by the defendants whereby the defendants agreed to indemnify the plaintiffs against all sums legally payable by the plaintiffs as compensation for "accidental loss or damage to property" - Appeal allowed in part - (106/86 - Supreme Court - 10/4/87) [1988] ILRM 373

|Rohan Construction v. Insurance Corporation of Ireland|

Citations:

WEST WAKE PRICE & CO V CHING 1957 1 WLR 45

FINLAY V MURTAGH 1979 IR 249

REARDON SMITH LINE LTD V HANSEN-TONGEN 1976 3 AER 570

STAFFORDSHIRE AREA AUTHORITY V SOUTH STAFFORDSHIRE WATERWORKS CO 1978 2 AER 769

FENTON V THORLEY 1903 AC 443

1 JUDGMENT delivered the 10th day of April 1987 by GRIFFIN J. [NEM DISS]

2 The question for determination on this appeal is whether, under either or both of two policies of insurance effected by the Plaintiffs with the Defendants, the Plaintiffs are entitled to be indemnified against the sum of £150,000 and costs which they have agreed to pay to Agrivest Limited ("Agrivest") as their contribution towards settlement of an action brought by Agrivest against them and two other Defendants. In the High Court, the learned trial judge held that the Defendants were not obliged to indemnify the Plaintiffs under either policy and it is against that decision that this appeal has been brought by the Plaintiffs.

The facts

3 In October 1977 Agrivest contracted with Fairclough Mulcahy Limited ("Fairclough"), a firm specialising in building and civil engineering works, for the construction of what is effectively a storage tank for the storage of molasses in part of a dry dock at Limerick owned by Limerick Harbour Commissioners. Agrivest appointed a firm of architects to supervise the work on their behalf, and Fairclough engaged Ove Arup and Partners ("Ove Arup"), a firm of consulting engineers, to prepare the necessary drawings and specifications for the work and to supervise the project. Fairclough did not themselves execute any part of the work. They sub-contracted the construction work to the Plaintiffs (who were then known as Sitecast Ireland Limited), a building company who were primarily engaged in construction work on industrial estates. The Plaintiffs were the main sub-contractors in respect of the work to be performed by Fairclough under the contract.

4 The work to be performed by the Plaintiffs was mainly the erection of the storage tank within the existing dry dock by constructing re-inforced concrete retaining walls, pouring what is known as "no-fines concrete" on the floor and sides of the tank to receive a proprietary waterproof PVC tank liner known as "Trocal", and the construction of transfer pipe work under the tank to allow the remaining portion of the dry dock retained by the Harbour Commissioners to be drained of water when the latter required to do so for their own purposes. The draining of that portion of the dock was to be effected by means of a pumping system through the transfer pipes. The design and specification for the works provided for one 350 mm. diameter Wavin pipe on the North side of the tank and a similar pipe on the South side, the pipes to have a 100 mm. surround of dense concrete to assist in maintaining water pressure. The Trocal lining work was to be done by Rucon Limited, a firm specialising in that type of work.

5 After the Plaintiffs commenced work it transpired that Wavin pipes were not available, and the Plaintiffs proposed that what are known as a spigot and socket type of concrete pipe should be used. These also were not available, and OG concrete pipes - pipes used mainly for land drains and of lower grade than the other two - were used by the Plaintiffs. In addition, in the course of rock blasting operations it became apparent that the removal of rock was easier on the North side of the tank. Instead therefore of laying the pipes on the North and South sides of the tank, a decision was made to lay both pipes in a single trench on the North side. This decision was itself subsequently altered to one in which one 450 mm. OG pipe was substituted for the two 350 mm. pipes. The learned trial judge has found that these alterations had the approval, tacit or express, of the consulting engineers.

6 Although the work was under the over-all supervision of Ove Arup, the Plaintiffs also provided an engineer and surveyor to supervise the work being performed by them.

7 When the work was completed there was what was described as a massive leak in the transfer system and water penetrated the lining of the tank. The system did not therefore function as a water retaining membrane and was for all practical purposes useless for the storage of molasses. Tests were carried out on the works in the presence of engineers from all interested parties (including the Plaintiffs and the Defendants in this action). These tests disclosed (as was accepted by the parties) that:

8 a 1 (a) the pipes had not been properly jointed with the result that ingress of surrounding concrete had occurred and that at some points a significant part of the diameter of the pipe was blocked by this concrete;

9 (b) the pipes had not been laid to the correct linear level - in other words, that the Plaintiffs did not dig or excavate sufficiently to allow for a depth of 100 mm. on top of and below the pipes and still remain within the floor level;

10 2. the concrete surround for the pipes was not constructed as specified - it varied in thickness and was in places down to as little as one quarter of that specified;

11 3. the concrete used was not of the quality specified - it varied between a highly cemented state and a poorly cemented, even loose, state.

12 Although there was no dispute as to what had actually occurred, there was a dispute as to the responsibility for the problem that arose. The Plaintiffs" engineer apportioned 75 per cent responsibility for the damage caused to the Plaintiffs, whilst the Defendants" engineer considered that the main problem was one of design and therefore a problem for Ove Arup.

13 Agrivest instituted proceedings against three Defendants - Fairclough, Ove Arup, and the Plaintiffs, claiming damages for breach of contract against Fairclough and for negligence against Ove Arup and the Plaintiffs. Ove Arup and the Plaintiffs claimed contribution or indemnity against the architect and Rucon Limited in Third Party proceedings. The proceedings were settled for £735,000 of which the Plaintiffs agreed to pay £150,000 with an appropriate proportion of the costs. The learned trial judge did not consider it necessary to decide the conflict hereinbefore referred to between the engineers called for the Plaintiffs and the Defendants respectively, as he was satisfied that the settlement entered into by the Plaintiffs was reasonable and prudent in the circumstances, and further that it would have been folly in the extreme for the plaintiffs to have rejected the advice of their lawyers and thus commit themselves and their Insurers to litigation which would have been expensive and at best uncertain. Although the question of the reasonableness of the settlement was in issue in the High Court...