The Court of Appeal has confirmed that a party is bound by an indemnity clause it signed up to in its contract.   

Coulson J had held in the Technology and Construction Court that the labour only sub-contractor, Robson had caused the flood damage as a result of defective workmanship.  As a result, they were obliged under the terms of their contract to indemnify the sub-sub-contractor,  HS Environmental for the losses caused.  Robson had appealed Coulson J’s judgment on the grounds that neither the HS Environmental nor Essex Services (with whom HS Environmental was in contract) had spotted the defects in question.  The Court of Appeal rejected this on the basis that it would defeat the commercial purpose of the construction contractual chain if failure to notice prevented the indemnity clauses from operating.  Jackson LJ also pointed out that the participants in building projects arrange their affairs and take our insurance cover on the basis that they are likely to be held liable for shortcomings in their own work. 

This decision reflects the position that most of us operating in the construction industry would expect.  A judgment in the reverse would have had potentially severe consequences on the ability of parties to enforce obligations further down the contractual change.  It would also have had a sizable impact of the risk profile of projects.

Greenwich Millennium Village Limited v Essex Services Group Plc (1), Hoare Lea (2), HS Environmental Services Limited (3) and DG Robson Mechanical Services Limited (4) [2014] EWCA Civ 960