#6589 - Vesta V. Butcher - Commercial Remedies BCL

Vesta v. Butcher

Facts

In September 1978 a very severe Gale struck the coast of Norway and caused damage to a fish farm operated by Fjordlaks Tafjord A/S. Fjordlaks was insured in respect of the loss and damage sustained under a policy issued by Vesta, a large Norwegian insurance company. Vesta reinsured 90 per cent. of the risk in Lloyds and the first defendant is the representative underwriter. The second and third defendants are brokers in London.

The contracts of insurance and reinsurance each contained a clause that Fjordlaks would keep a 24-hour watch over the site. At all material times Fjordlaks was in breach of that clause. The clause was a safety regulation within the meaning of the Norwegian Insurance Contracts Act 1930. By section 51 a breach of a safety regulation is no defence to a claim under the policy unless the loss was caused by the breach. Here the loss had nothing to do with an absence of a 24-hour watch and in due course Vesta settled the claim of Fjordlaks for 2.75 million Norwegian Krona and it is not suggested that that settlement was other than reasonable and proper.

One might have expected that that would have been an end of the matter, but it was not to be. Reinsurers refused to pay their 90 per cent. on the ground that the 24-hour watch clause was a warranty in a contract governed by English law and the breach entitled them to refuse to pay regardless of the position in Norway.

Claim by Vesta against Brokers: To guard against the possibility that they might not succeed against the reinsurers Vesta joined the brokers, claiming against them that if the reinsurance was ineffective this was due to their breach of duty in failing to obtain back-to-back cover from the reinsurers.

Brokers allege contributory negligence of Vesta: the brokers argument was that that Vesta were guilty of contributory negligence in that Mr. Kolbeinson [the plaintiffs' manager] should have remembered that he had had no reply from Mr. Hewett on the 24-hour watch problem; (v) that fault should be apportioned 75 per cent. on Vesta and 25 per cent. on the brokers.

Question

The important issue of law is whether on the facts of this case there is power to apportion under the Law Reform (Contributory Negligence) Act 1945 and thus reduce the damages recoverable by Vesta.

Holding

Brokers were concurrently liable under tort and contract

I start by pointing out that Vesta pleaded its claim against the brokers in contract and tort. This is but a recognition of what I regard as a clearly established principle that where under the general law a person owes a duty to another to exercise reasonable care and skill in some activity, a breach of that duty gives rise to a claim in tort notwithstanding the fact that the activity is the subject matter of a contract between them. In such a case the breach of duty will also be a breach of contract. The classic example of this situation is the relationship between doctor and patient.

Since the decision of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 the relationship between the brokers and Vesta is another example.

First limb of the definition of fault – only tortious acts are covered – “other”

The opening words of section 1(1) are very wide: “Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons…” When considering the “fault of any other person or persons” it is the first part of the definition in section 4 that applies: “negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort”. In my judgment the phrase “which gives rise to a liability in tort” defines the kind or type of negligence etc. which is to rank as “fault” when considering “the fault of any other person or persons”.

When considering the fault of the person who suffers damage both parts of the definition apply. The second part is necessary because, whereas the defendant cannot be at fault unless in breach of duty owed to the plaintiff, the plaintiff's contributory negligence may or may not involve a breach of duty owed to the defendant. Thus the drivers of two motor cars which collide at crossroads because both failed to keep a good look out are both within the first part of the definition, regardless of which is plaintiff and which defendant. In contrast, the injured front seat passenger not wearing a seat belt is at fault only within the second part of the definition (at all events vis-a-vis the driver of the car in which he was not a passenger; I say that lest it be suggested that he owed a duty to his own driver not to damage the windscreen).

Adopting the reasoning of Prichard J. in Rowe v. Turner Hopkins & Partners [1980] 2 N.Z.L.R. 550:

“To my mind, the Act provides its own interpretation if it is acceptable to regard the definition of ‘fault’ in section 2 as comprising two limbs — the first referable to the defendant's conduct, the second to the plaintiff's conduct. Section 2 defines ‘fault’ as meaning ‘negligence, breach of statutory duty, or other act or omission which gives rise to a liability in tort’ (the first limb). It then goes on to include any act or omission which ‘would, apart from this Act, give rise to the defence of contributory negligence’ (the second limb). In my view, the first limb of the definition is plainly directed to defining ‘fault’ as it relates to the conduct of the defendant — in other words, as it relates to the plaintiff's cause of action. This phrase is...