In certain cases, a contract breaker will be liable for damage resulting from his breach, even if the damage would not have occurred in ordinary circumstances.
Supershield Limited v Siemens Building Technologies FE Limited concerned the allocation of responsibility for damage caused by a flood in a leading law firm’s offices.
There was a flood in Slaughter and May’s new office building, which led to extensive damage to electrical equipment. The flood was caused by water overflowing from a storage tank for the sprinkler system, as a result of the failure of a connection on a float valve, and escaping from the tank room. Although there were drains (for overflowing water) in the tank room floor, these were blocked by material on the floor.
Proceedings were brought against the contractor who had constructed the building. Siemens Building Technologies FE Limited was joined in the proceedings as they had entered into a sub-contract to install the sprinkler system. Siemens likewise joined Supershield Limited, who had a sub-contract with Siemens to install the sprinkler system. Mediation took place which led to Siemens settling the claims with the parties up the contractual chain for £2,864,080 plus interest and Siemens claimed that amount against Supershield.
At first instance, the High Court found that the probable cause of the failure of the connection was insufficient tightening when the valve was installed and that Supershield’s sub-contract obliged it to install the valve and carry out adjustments necessary to ensure it operated correctly. The Court gave judgment for Siemens, rejecting Supershield’s argument that the settlement amount was unreasonably high in view of the strength of Siemens’ defences to the claims against it. Supershield appealed.
The Court of Appeal accepted the lower court’s finding that Supershield’s sub-contract obliged it to install the valve and then considered whether the settlement amount was reasonable. Supershield argued that Siemens had complete defences to the claims against it based on causation and remoteness. On any reasonable view, Supershield contended, the effective cause of water escaping from the tank room was the blockage of the drains and, if the overflow of the tank was a partial cause, the escape was too remote a consequence for Siemens to have been liable, in view of the “unlikely” occurrence of the blocked drains.
The Court rejected Supershield’s argument, seeing no error in the lower court’s conclusion that the overflowing of the tank, resulting from the failure of the connection, was an effective cause of the flood. The blockage of the drains did not take away the potency of the overflow to cause damage, but rather failed to reduce it.
The Court considered Supershield’s “remoteness” argument. Ordinarily, a contract breaker would be liable only for damage, which a reasonable person in his shoes would consider not unlikely to result from the breach. However, there may be cases where the court, on examining the contract and commercial background, decides that this standard approach would not reflect the parties’ intentions. If, on examining the contract against its commercial background, the loss is within the scope of the duty, the loss cannot be regarded as too remote, even if it would not have occurred in ordinary circumstances.
In the case, the valve and the drains were both designed to control the flow of water. Even though Supershield may have correctly argued that the valve’s failure was very unlikely to result in a flood, because the water would probably escape through the drains, this did not make the loss resulting from the flood too remote to have been recoverable from Siemens.
Siemens was responsible for installing the sprinkler system so that the water was properly contained and it, therefore, assumed a contractual duty to prevent its escape. The valve was the first means of protection and it failed. The flood which resulted from the escape of water, even if it was unlikely (in view of the drains), was within the scope of Siemens’ duty.
In any event, Siemens had only to show that the settlement amount was reasonable. The Court was satisfied that it had done so and dismissed Supershield’s appeal.