Plugging the JCT hole

The JCT Minor Works Contract has for a long time been a popular and versatile contract for the administration of small building projects. However, when the Court of Appeal examined its contents in the recent case of TFW Printers vs. Interserve Project Services, the JCT’s insurance clause was found wanting.

On 28 September 1998, TFW entered into a contract with Interserve to carry out various building works in Silverton, London. The agreement incorporated the terms of the Standard JCT Agreement for Minor Building Works (1993 revision).

The project reached practical completion on 5 February 1999. Some four months later, heavy rainfall caused flooding to part of the building. The flood happened because the contractor had removed part of the downpipe to the valley gutter and had not replaced it by the time of the storm. TFW alleged that the flood was caused by Interserve’s breach of contract and/or negligence and claimed £22,442 for its uninsured losses. Interserve claimed that the event was covered by the joint insurance, required under clause 6.3B, and this acted as a bar against the claim.

Clause 6.3B of the JCT Minor Works Contract says that ‘the employer shall, in joint names, insure against loss or damage to the works caused by elements such as fire, lightening and flood. If such a loss occurs, then the architect shall issue an instruction for the making good of the damage and that instruction shall be valued accordingly.’

Obligations a clause for concern

So it’s simple. It’s a matter for the employer’s insurance. But is it? Does the insurance obligation in clause 6.3B continue until the date of practical completion or the date when the contractor’s defect obligations have been discharged? The contract offers little assistance so it fell to the courts to decide when the obligation ceased.

TFW, which was seeking to pursue Interserve for the loss, claimed the insurance cover should only run to practical completion. Interserve disagreed, maintaining that the insurance was intended to cover the entirety of the contractor’s work and should remain in place until the defects were complete.

The case originally found itself before His Honour Judge Brian Knight QC. He decided that the obligation to insure continued for the duration of the defects liability period and the employer’s claim against the contractor for damages was therefore barred by clause 6.3B. TFW appealed. During the appeal, the judges made some interesting observations in respect of the JCT Minor Works Contract:

What the appeal judges said:

• The JCT practice notes did not assist with the interpretation of the contract. Even if the notes gave a clear indication of how long the JCT intended the insurance to last, it is uncertain whether that would have been admissible as an aid to the true construction of the clause.
• When clause 6.3B refers to ‘the works’, the judges found that was a reference to the work carried out under the contract, and not the finished state of the building. This led to the conclusion that the obligation to insure ceases upon practical completion.
• The Judges also considered the architect’s instruction required under clause 6.3B. They found that clause 6.3B required the architect to issue an instruction to remedy the insurance damage. They also noted that the architect was not entitled to issue variations instructions after practical completion. Lord Justice Dyson concluded that: “In my judgment, the architect cannot issue instructions under clause 6.3B after practical completion for the same reason as he cannot issue instructions for a variation under clause 8.6 after practical completion.”
• The judges found that it made better commercial sense (and is therefore more likely to have been the intent of the parties) that, once the contractor restores possession of the site to the employer, the insurance of the building and contents should be a matter for the employer alone.

By a majority decision the Court of Appeal overturned the previous decision and found that the obligation to insure under clause 6.3B ceases at the date of practical completion.