A recent judgment of the High Court will be of particular relevance to those who pursue, and defend, claims against electricity distributors for damages following fires in electrical equipment, given the Court’s conclusions as to the legal responsibilities of electricity distributors, and the causal links between these responsibilities and damage caused by fire.
In Smith & Others v South Eastern Power Networks plc & others1 (“Smith”), the Court considered the legal obligations of electricity distributors following fires that occurred in five different properties. Forensic evidence had concluded that the fires started because of “resistive heating” at the point where mains power enters the relevant property otherwise known as “cut-out assemblies”.
The conclusions in Smith are of general relevance, as they clarify the scope and extent of the tortious duties owed by the electricity distributors in respect of the repair, maintenance, replacement or monitoring of cut-out assemblies (“cut outs”).
The Court also considered whether electricity distributors could legitimately exclude any liability for economic loss in cases where they are being sued for damages following a fire and also whether a liability cap of £100,000, imposed by distributors in their contracts with non-domestic customers, would be considered unfair.
The claimants had all experienced severe fire damage to their properties following fires in or around cut-outs. They, and their insurers, subsequently sought to recover their losses from the electricity distributors who were responsible for the cut-outs.
To succeed with their claim, the claimants had to demonstrate a breach of duty by the distributors in relation to their inspection, maintenance and replacement of cut-outs and also that those breaches of duty had caused the fires at their properties.
The claimants relied upon a number of breaches on the part of the distributors, but the judge held that, “there are only a limited number of respects in which I am satisfied on the balance of probabilities that there were breaches of the tortious duties owed by the Defendants to the individual Claimants”.
The Court held that the distributors had breached their duties in respect of the following:
- Failure to implement a biennial inspection scheme where each cut-out was inspected by staff under the control of the respective defendant;
- Failure to have in place any regime for the replacement of cut-outs;
- Failure to have maintained records in relation to at least the type, and the date of installation of the cut-outs.
Moving to causation, Mr Justice Akenhead concluded that there was no evidence to suggest that the fires would have been avoided even if the distributors had met their legal responsibilities to the claimants, as identified above. As such, the claims were dismissed and judgment entered for the distributors.
In reaching the above conclusion, the Court stated that a causal link would only be found if the exercise of reasonable care by the distributors would, on the facts, probably have led to the “fire causing symptoms” to have been discovered. The Court decided that this was not the case in any of the circumstances of the fires in Smith.
The Court’s obiter comments on the recovery of economic losses
A clause in the contract in place between one of the claimants in Smith and the distributor stated that the distributor would not be liable for losses that are “consequential, or indirect, or arises from or amounts to Economic Loss”. The Court sought to determine whether the losses suffered were “Economic Loss”.
The Court held that any loss of profit claimed would fall within the exclusion “because such a claim falls fairly and squarely within the definition”. In addition, the judge held that the exclusion of a recovery for economic losses would not be considered unfair and if called upon to decide the point, he would not think that “it was anything other than reasonable”.
The Court’s obiter comments on the liability cap of £100,000
Further, a clause in the contract between the same claimant and the distributor stated that the distributor’s liability would be limited to a maximum of £100,000 for non-domestic customers and this was relied on by the defendants to limit their liability. The claimants challenged this by arguing that the claimant was a domestic customer.
The Court agreed with the claimants and held that he would not, therefore, have been subject to the £100,000 cap. However, the judge stated that if he had to decide the issue, he would have held that the burden of proof was on the distributor to show that the limitation was reasonable and in his view, the cap was not unreasonable at the dates of the fires, given that much of the damage caused by the fires cost less than £100,000 to repair in each case.
Causation was the stumbling block for the claimants here. On the basis of the facts in the test cases, the claimants were unable to establish to the requisite standard of proof that the breaches of duty identified by the judge had caused their loss.
It is worth noting that the Court in Smith did not consider the issue of negligent installation and the potential liability of distributors, as the claimants decided not to pursue their allegations of negligent installation before the trial. This area, therefore, remains unclear, although the Court’s comments in respect of causation may be universally applicable.
The finding that a limit of liability of £100,000 is justifiable is disappointing for non-domestic claimants, but could be capable of challenge. Given that the Court concludes that the cap is reasonable in Smith because the repair costs of the fire damage were less than £100,000, it could be argued that the cap is unreasonable in cases where the losses sustained were much higher than £100,000.