REUTERS | Lee Jae-Won

What are the chances of it all going horribly wrong?

Today, most M&E systems contain multiple safety devices, all of which are intended to kick in, in the event of a failure. But, what happens if they all fail at the same time? Is the installer of one of those so called safety devices liable for all the damage caused, or is the chance of all the systems simultaneously failing so remote that the installer should not be liable for the resulting damage?

This is one of the “interesting” points that the Court of Appeal had to tackle in Supershield Limited v Siemens Building Technologies FE Limited.

Briefly put, a nut and bolt valve on a float broke. (Commonly known as a “ballcock“, these are generally found in toilet cisterns. When the water reaches a certain point, the ballcock turns the water off.) Here the valve failed. The water did not turn off. The tank overflowed. The water escaped into a bunded area that was designed to retain any overflowing water. The overflowing water was meant to escape into drains in the bunded area. However, the drains were blocked (perhaps as a result of a lack of maintenance). The water levels rose and overflowed from the bunded area and into the building. An alarm flashed but no one was monitoring it. Substantial damage was caused.

On the basis of that old chestnut, Hadley v Baxendale (1854) 9 Ex 341, it was argued that the loss did not arise in “the usual course of things”. In “the usual course of things”, the water would have escaped down the drain. What happened was most unlikely.

The question which the court had to answer was whether the loss was sufficiently likely to result from the breach, so that the type of loss which occurred should have been in the contract breaker’s contractual contemplation. The answer should not be based on probability but answered in light of the commercial background (i.e. the purpose of the contract) and whether the contract breaker assumed contractual responsibility to prevent that type of loss from occurring. Or put it another way, what did the parties have in mind, having regard to the nature and objective of their contract?

Hadley v Baxendale, so the Court of Appeal tells us, remains the “standard rule” on remoteness of damage but, apparently, it has been “rationalised” to reflect the parties’ intentions.

As a result, it appears that today the contract breaker will be liable if, at the time of entering into the contract, the reasonable person riding the Clapham omnibus would have thought, after considering the commercial background, that the type of damage which occurred was not unlikely to occur as a result of breach.  South Australia reminds us that “not unlikely” is, on its own, insufficient. There, a downturn in the market was not, in itself, unlikely, but the commercial background was such that the surveyor did not have a duty to protect the lender from that sort of loss.

So back to our broken ball valve and blocked drains. What was the answer? Was the contract breaker liable? The unlikely happened (all safety devices failed at the same time). But, was it the contract breaker’s responsibility to see that the valve switched off when required and that the premises were not damaged by way of a flood? Yes, said the court. The ball valve was one of the means of prevention. It was always going to be possible for the other safety mechanisms to also fail (which they did). Drains block, pumps malfunction, building management systems do not always work, maintenance is not always effective. The damage was unlikely, but it was within the contract breaker’s contractual obligation to prevent it. Not too remote at all.  Liable.

So, just as the House of Lords has been rationalised and modernised, so the apparently timeless classics, like Hadley v Baxendale, also move on and adapt. I guess that is one of the things which makes the law interesting and why we can never put away our school books…

Share this post on: