The English Courts have heard a number of interesting product liability related cases during the course of this year. In this article we report on judgments concerning the definition of "product" in an insurance policy, whether an entity supplied with a product not fit for purpose has a duty to mitigate it losses by allowing the supplier to modify the product, requirements for parties to provide insurance details in court proceedings, proximity requirements in claims for psychiatric harm and two contrasting cases concerning employer's liability for personal injury.
Defining 'Product' in an Insurance Contract: Aspen Insurance UK Limited v Adana Construction Limited  EWHC 1568 (Comm)
Adana Construction Limited ("Adana") was subcontracted by Browmer & Kirkland ("B&K") to build a concrete crane base to support a crane being temporarily erected on site by B&K. Some three months after erection, the crane collapsed. In all expert opinion, this was because of a failure of the crane base, though in any event all the experts also agreed that the crane would have collapsed even if the base had not failed (because it was being overloaded by B&K).
While the Health and Safety Executive pursued B&K and their structural engineers, the crane driver brought a damages action in which Adana was joined as a co-defendant.
The insurers, Aspen Insurance UK Limited ("Aspen"), were also joined into the claim made by the driver. Aspen then attempted to obtain a declaration of non-liability against the claim made by Adana. Aspen argued that: (i) the insurance policy contained exemptions with regard to liability arising from a product of the policy holder [Adana] that did not perform as intended; (ii) that the concrete crane base was such a product; (iii) that it had not performed as intended; and (iv) that therefore there was no claim to be had by Adana under the policy.
Judge Mackie QC concluded that the concrete crane base was not a product. It had not been brought on site in either a complete or semi-complete state, and had in fact been entirely constructed on site. While the individual components and materials used by Adana to build the concrete crane base might have been products, they were not products of Adana. Nor could the concrete crane base be moved and used anywhere other than where it was constructed; it could not have been: (a) distributed or (b) sold, which were key characteristics of a product.
The Judge held that properly considered, the crane base was part of the works that Adana had been asked to construct, and that if everything and anything Adana manufactured, constructed or installed on site were to constitute a product within the insurance policy, the policy itself would (in light of the exception regarding products) be pointless and serve no practical purpose. Furthermore, on reading the terms of the contract between Adana and B&K, Judge Mackie QC stated that it referred only to the construction services to be provided by Adana, not to the supply of any goods or products.
'Performed as intended'
Regarding Aspen's claim that the concrete crane base had not performed as intended, Judge Mackie QC held that the base had in fact performed precisely as intended. The purpose of the crane base had been to transfer the weight of the crane into piles dug into the ground. The base had always performed that purpose up and until the point at which it was uprooted. The uprooting itself was not any failure of the base (which was uprooted entirely intact), but in the design and construction of the piles, which were too shallow.
Expert interpretation of contracts
An attempt by Aspen's expert witness to argue that the terms of the insurance policy between the parties should be considered in terms of industry practice was dismissed by the Judge. In Judge Mackie QC's view, interpretation of an insurance policy, like any contract, is entirely concerned with the contents of the document itself.
Attempts to use dictionary definitions of "product" were of little interest to the Judge, who instead concentrated on the purpose of the insurance policy and on the wider purpose of what it was that Adana had been contracted by B&K to provide. Context and purpose is central to establishing the definition of any contractual term, and indeed the Judge maintained the position long set in case law that the meaning of a contract is what a reasonable person with all the relevant background knowledge of the parties at the time when the contract was made would have understood them to mean by the language of the contract.
Supplying goods that are not fit for purpose and the duty to mitigate: Manton Hire and Sales Limited v Ash Manor Cheese Company Limited  EWCA Civ 548
This case involves the supply of a product which is not fit for purpose and to what extent, if at all, the innocent party needs to mitigate its loss by considering proposals from the supplier to modify the product.
Ash Manor Cheese Company Limited ("Ash") was supplied in 2010 with a forklift truck for use in its three warehouses. The supplier was Manton Hire and Sales Limited ("Manton"). A Manton representative, Mr Bodman, had attended the Ash site to take measurements of the racking arrangements within which the forklift would be used and to advise upon a suitable model. Mr Bodman later admitted at trial that his original site survey had been inadequate.
Manton sold the forklift to Albury Asset Rentals Limited ("Albury") in order that Albury might let it to Ash which was done under a Hire Agreement between Albury and Ash. Ash found straight away that the forklift did not fit the racking in two of the three warehouses. Ash took the view that it was not fit for purpose and indicated to both Albury and Manton that it wished to cancel the agreement forthwith. There were discussions between Ash and Manton as to possible modifications of the forklift as Ash also had concerns, accepted by the judge at trial as genuine, about how the modifications would affect the safety of the driver. The discussions came to nothing and the forklift was collected by Manton on 12 November 2010.
Ash stopped all payments under the Hire Agreement. Albury brought a claim against Ash for rental due under the agreement over the five year term which amounted to £17,975.47. Ash joined Manton to the proceedings and claimed from it an indemnity in respect of its liability to Albury. In February 2012 Ash settled Albury's claim and agreed to pay Albury's costs.
The Indemnity Claim
Ash's claim for an indemnity from Manton was heard at trial in September 2012. It was accepted at trial that Manton had impliedly represented or warranted that the forklift was fit for Ash's expressly stated purpose of use within the racking at Ash's premises. It was accepted that Ash had been entitled to rely on this representation or warranty. The issue to be decided was whether Ash had failed reasonably to mitigate its loss.
The trial judge found that Ash had not acted unreasonably by refusing Manton's offer to have the forklift modified.
Manton appealed this decision on the basis that Ash ought reasonably to have invited, or at least permitted, Manton to make a more detailed offer of modification.
In May 2013, the Court of Appeal looked again at the evidence surrounding the modification proposals that had been considered by the trial judge. There was correspondence between Ash and Manton which was progressively hostile in turn. Manton offered to cut off a part of the overhead guard on the forklift truck. The representative from Ash responded with concerns that this was unsafe and contrary to EU safety law. It was not clear where the modifications would take place or when.
Counsel for Manton argued that Ash's final email on the subject represented an unequivocal refusal to countenance modification and so Manton reasonably thought that there was little point in putting forward a more detailed proposal. Expert evidence was relied upon to show that it was common industry practice to modify the forklift in the way that was being suggested by Manton and resisted by Ash.
Lord Justice Tomlinson found that it there was no offer on the table from Manton that Ash could reasonably have been expected to accept as various details of the offer were judged to have been unclear. There was nothing stopping Manton from putting forward a more detailed proposal.
The Court confirmed the approach of the trial judge and his treatment of previous authority on mitigation of loss. The Judge had not held that Manton had only one opportunity to make an offer in mitigation of loss, which would have been an incorrect reading of previous case law.
The Court considered whether Ash was under an obligation to invite a further offer or to permit Manton to make one. The Court found that in light of Manton's unreliability in the first place, it was not unreasonable for Ash to view their subsequent vague modifications with scepticism particularly because the consent of the owner of the forklift was needed to make any modifications and Manton made no mention of whether this had been obtained.
Manton's appeal was dismissed.
This case is of note because it clarifies to what extent, if any, an innocent party needs to mitigate his losses when he is supplied with a product that is not fit for purpose. The innocent party only needs to act reasonably when considering offers from the party in breach. If the supplier wants to avoid a claim by offering to modify the product, his offer must be detailed enough for it to be unreasonable for the innocent party to reject the offer and the innocent party has no obligation to invite a further proposal for modification. The Court of Appeal also confirmed that a party in breach can have more than one opportunity to make an offer to the innocent party to try and settle the dispute.
Requirements for parties to provide insurance details in court proceedings: XYZ v Various  EWHC 3643
Parties can now be required to provide details of their liability insurance under the Civil Procedure Rules ("CPR"), on the basis that whether or not a party can afford the litigation could affect case management. It was held that CPR Part 3.1(2)(m) grants the courts the power to compel a party to provide a witness statement outlining the details of their liability insurance when their ability to afford litigation is integral to the continuation of the matter.
Transform Medical Group (CS) Ltd ("Transform") provides cosmetic surgery services. It is the lead Defendant in a group litigation action against various hospital and surgeries that used the defected breast implants produced by the French company PIP. As it was lead Defendant, the Claimants wanted certainty that Transform would be able to afford to continue to participate in the litigation, up to and including a full trial. The Claimants therefore made an application to the Court, requesting that Transform provide information to the Claimants as to the nature and extent of its liability insurance cover in respect of its potential liability in these proceedings.
Application of the CPR
The application was made under two parts of the CPR:
- Part 18: under which the Court may order a party to clarify a matter in dispute or provide additional information in relation to the matter; and
- Part 3.1(2)(m): under which the Court may make an order for the purpose of managing the case or furthering the overriding objective.
Mrs Justice Thirlwall agreed that, on the facts, Transform would not be able to fund the litigation or meet any costs and damages awards without adequate insurance. Part 18 was held not to be relevant, however, because Transform's insurance was not the 'matter' in dispute between the parties. CPR Part 18 can only be used to obtain information necessary and proportionate to prepare the case itself. The rule could not be given a sufficiently broad interpretation in order to meet the application of the Claimants.
CPR Part 3.1(2)(m) concerns the management of the case and here the Judge held that Transform's funding arrangements, including insurance, were relevant to case management, and the affordability or otherwise of the litigation on the part of Transform would affect the decisions on case management taken by the Court. The Judge therefore ordered that Transform provide a witness statement outlining the details of its liability insurance for the purpose of case management.
In her decision regarding the applicability of CPR Part 18, the Judge followed previous case law (West London Pipeline and Storage v Total (UK) Ltd and others  EWHC 1296 (Comm)). The application of CPR Part 3.1(2)(m), however, is an entirely new development. The Judge appears to have been particularly influenced by the fact that the viability of the litigation was largely dependent on the ability of a particular Defendant to be able to finance it. This factor was central to Mrs Justice Thirlwall decision.
Recovery for psychiatric harm - Taylor v A Novo (UK) Limited  EWCA Civ 194
In recent years, there has been a perceived relaxation of the conditions for claiming damages for psychiatric harm caused by negligence in this area. Taylor v A Novo reaffirms the view that the courts should be wary of over-extending the rules.
Mrs Taylor was injured in an accident at work when a fellow employee caused a stack of racking boards to fall on her, resulting in injuries to her head and left foot. Although she appeared to be recovering well, she unexpectedly collapsed and died from deep vein thrombosis and consequent pulmonary emboli three weeks later. Mrs Taylor's injuries, and her subsequent death were both caused by the negligence of her employer, A Novo (UK) Limited ("Novo"). Mrs Taylor's daughter, Ms Taylor, witnessed her mother's death, and as a result suffered significant post-traumatic stress disorder ("PTSD").
The parties accepted all of the above facts, i.e., that Novo's negligence had caused the fall and Mrs Taylor's death, and that Ms Taylor's PTSD was caused by her witnessing her mother's death. It was agreed that Ms Taylor had established all the necessary conditions to show that Novo owed her a duty of care, other than the requisite physical proximity in time and space to the "relevant event".
Novo argued that there was not sufficient proximity for it to be liable to Ms Taylor for causing her PTSD as Ms Taylor had not been present at the accident or its immediate aftermath. Ms Taylor argued that the relevant event to be used for considering proximity was not the original accident but the collapse and death which resulted from it. The trial judge accepted that Ms Taylor had sufficient proximity, in reliance on this argument.
Decision of the Court of Appeal
The Court allowed Novo's appeal on the basis that the relevant event for determining whether a secondary victim has sufficient proximity to the tortfeasor, is the accident itself (and its immediate aftermath). This was based on two reasons:
- If damages for psychiatric injury occurring as a result of a death three weeks after an accident were recoverable, then there is no justifiable reason why they should not be allowed where the death occurred two (or more) years after the incident. Lord Dyson MR felt that the ordinary reasonable person would not think there this was a situation in which damages were justified, and as such was unwilling to extend the boundaries of the meaning of "proximity" to cover such a situation; and.
- The policy reasons articulated by Lord Steyn in Frost v Chief Constable of South Yorkshire Police militated against any further substantial exception to the restriction on claiming damages for psychiatric harm. These policy reasons are: i) diagnostic uncertainty and its implications on the administration of justice; ii) the unconscious disincentive the prospect of compensation may have on a victim's rehabilitation; iii) the wide class of persons who may be able to recover damages for psychiatric injury; and iv) the potential disproportionate burden of liability factors on defendants for relatively minor wrongful acts. Lord Dyson MR accepted that these reasons meant that the law in this area is somewhat arbitrary and unsatisfactory, but concluded that any further extension should be made only by Parliament.
This decision will be welcomed by companies who could face claims of this nature as drawing a sensible, if perhaps arbitrary, line in the sand for recovery for psychiatric harm.
Contrasting Court of Appeal decisions on Employers' liability for personal injury
Hide v The Steeplechase Company  EWCA Civ 545
The Claimant jockey's horse stumbled and fell at the first hurdle at Cheltenham racecourse, causing him to fall, hit the ground and roll sideways into one of the upright posts of the guardrails surrounding the track. The trial judge found that the burden of proof was on the Claimant to show that the injury he sustained was foreseeable.
Having produced evidence that the track had been audited and inspected by relevant regulatory bodies and found to be of the highest standard in terms of safety, the Defendant was not found liable for the injuries suffered by the Claimant. The trial judge held that a risk of injury and falling was inherent in horseracing and it was not reasonably foreseeable that the Claimant would suffer injury in the way he did. The Claimant appealed.
The issue on appeal was whether the trial judge was correct to import the common law concept of "reasonable foreseeability" into Regulation 4 of the Provision and Use of Work Equipment Regulations 1998.
Applying Robb v Salamis (2007) ICR 175, the Claimant successfully argued that the fence and hurdle were work equipment which might foreseeably cause injury. Accordingly, the work equipment was not suitable and the Defendant was found liable under Regulation 4. The Court of Appeal emphasised that it is not a requirement that the precise mechanism of the accident is foreseeable; only foreseeability of some injury is necessary to find the defendant liable.
A new test to avoid liability
This decision introduces a new test for defendants to avoid liability. The defendant can now only escape liability by proving either, that the accident was due to:
- unforeseeable circumstances beyond the defendant's control; or
- exceptional events the consequences of which could not be avoided in spite of the exercise of all due care on the part of the defendant.
Nicholls v Ladbrokes Betting & Gaming Ltd  EWCA Civ 1963
The Claimant was working as a cashier at a betting shop when an armed robbery occurred. As a result, the Claimant suffered psychiatric injury and brought a claim against the Defendant employer alleging negligence and breach of statutory duty under the Management of Health and Safety at Work Regulations 1999. She argued that the robbery had occurred because the Defendant had failed to take proper precautions, in particular, operating the magnetic lock fitted to the front door at all times after dark.
The Defendant's training manual required it to use the lock at opening and closing times but gave no guidance on using the lock at any other time of day. The decision to use the lock at other times of day was left to the discretion of the manager on duty.
The trial judge found in favour of the Claimant, despite the Defendant presenting expert evidence of the low risk location of the shop. The Defendant appealed.
A proper risk assessment
The issues on appeal were whether the Defendant had carried out a proper risk assessment of the risk of attack at the premises and whether it had taken appropriate measures to ensure security of its employees in light of its assessment.
The Court of Appeal concluded that the installation of a magnetic lock at the premises to provide additional security at times of perceived additional risk did not impose a duty on the Defendant to ensure that the lock was operated at all times. The risk of robbery coupled with the ability to operate a magnetic lock was not a sufficient basis for finding that the lock should be operated in hours of darkness. Consequently, the Defendant was not held liable for psychiatric injury to the Claimant.
Defeating a claim
To defeat a claim for failure to protect employees against criminal attacks, defendant employers will have to show that, they have:
- carried out a proper risk assessment of the risk of attack at the premises; and
- taken appropriate measures, in light of the level of security risk established, to minimise the risk of such attacks.
Comment: A greater burden on employers?
These cases demonstrate that the differing legal burdens which defendants must discharge to avoid liability for personal injury, are largely fact-dependent and are determined very much by the circumstances surrounding the claim being brought.
The Court of Appeal's decision in Hide sets a high threshold and makes it extremely difficult for the defendant employer to discharge the burden in personal injury claims. A claim will succeed where the claimant is able to show that the personal injury sustained was reasonably foreseeable, and where the defendant is unable to attribute that injury to unforeseeable circumstances outside its control or exceptional events which gave rise to unavoidable consequences despite the defendant exercising due care.
This is in contrast to the Court of Appeal's decision in Nicholls, where the burden appears less onerous to discharge, albeit that the claim concerned breach of different regulations. On these facts, a defendant employer need only show that it has carried out a proper risk assessment and has accordingly taken measures appropriate to minimise the risk of injury. However, the difficulty, in this test, is that the defendant must have sufficient evidence available, on the level of security risk at the premises, upon which to base its defence.