Jan de Nul v. Axa

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Jan de Nul (UK) Ltd v Axa Royale Belge SA
English Court of Appeal: Scheimann, Hale and Rix: 20 February 2002

Alistair Schaff QC and Simon Kerr, instructed by Davis Arnold Cooper, for Jan de Nul
Nicholas Hamblen QC and Michael Ashcroft, instructed by Clyde & Co, for Axa

This case, arising out of substantial dredging operations in Southampton Water, established that the conservator of the port had sufficient interest in the waters affected by siltation arising from those operations to sue both in negligence and nuisance for the costs incurred in removing it. Furthermore, those costs were recoverable under the dredging operator’s third-party liability policy, as "immaterial damage" consequent upon material damage to property.

DMC Category Rating: Developed

This appeal arose out of dredging operations carried out in Southampton Water in 1996-7 in the course of which a main shipping channel was increased and the course of the channel straightened. The port of Southampton was operated by Associated British Ports ('ABP'), a statutory corporation. ABP employed the claimant ('JN'), a Belgian company specialising in dredging operations internationally. The defendant ('Axa') was a Belgian insurance company with which JN insured its liabilities to third parties arising out of the works.

As a result of the works nearby yacht moorings and wharves were affected by silt. The total cost of remedying the silt problem between ABP and JN came to just over £2.5 million. JN sought to recover under its policy with RB the whole of the cost of removing the silt. JN claimed that, by causing silt to be deposited in areas of the estuary that affected their operations or interests of a number of different parties, including ABP, it incurred liabilities which fell within the scope of the cover.

The key provisions of the policy were the following:
General Conditions:
1.1 Legal Grounds – covered activities – insured persons
1.1.1 The insurers cover the insured’s extra contractualliability for damage caused to third parties during the operation of the business…….
1.2 Damage Covered 
1.2.1. Bodily injury and property damage are covered 
1.2.2  The covers…. are extended to immaterial damage. Cover is afforded for consequential immaterial damage….

The general conditions contain the following definitions:
Immaterial damage shall mean any financial damage resulting from the loss of advantages connected with the exercise of a right or with the use of an object and especially: loss of business, customers, good trading reputation, profits, use of moveable or immoveable property, production standstill and similar losses.

Consequential immaterial damage shall mean any financial loss resulting from ….property damage covered by this policy.

2.1.3. The cover includes personal and property damage for which compensation can be claimed on the basis of S.544 of the Belgian Civil Code regarding nuisance to neighbours or on the basis of similar provisions of foreign law.

6. Exclusions
Insurance cover is not granted in the following cases:
6.6 Damage resulting from non-performance or partial performance of contractual undertakings, such as late execution of an order or work, costs made for recommencing or correcting the work that was wrongly executed.

Brokers’ Clauses 
7 Liability of the insured
The insurance covers the civil extra-contractual liability of the insured for physical and material damage, insofar as the liability is in connection with his professional or business activities and the loss is caused to a third party or parties.
It also covers immaterial loss such as stoppages of work and loss of profit or use resulting from physical or material damage; immaterial damage resulting from a non-covered damage is not insured…… 

Special Conditions
Insureds: within the insured business, the principal of the works, Associated British Ports – Port of Southampton – is insured as well. That party remains, however, a third party with respect to other parties.

The Issues
There were numerous issues to be decided, amongst which the most important were:
1 Whether JN had failed to exercise all reasonable skill and care in and about the works.
2. Whether the damage suffered by the third parties was of a kind for which JN was in law liable in negligence, private nuisance and public nuisance and whether those third parties that did not own the land damaged by siltation could claim under these heads of damages.
3. Whether JN could recover under the insurance the amount ABP had withheld from JN under the dredging contract, on the grounds that JN had incurred a liability in that amount to ABP. 
4. Whether the nature of the liabilities and the circumstances in which they were
incurred were such that they fell outside the scope of the cover afforded by the policy. 
5.Whether pure economic loss (in the policy described as non-consequential immaterial damage) was covered by the policy. 

The Judgment at First Instance
(1) Mr Justice Moore-Bick held that JN was negligent towards the owners and occupiers of property adjoining the estuary in failing to carry out appropriate investigations before work began to avoid damage by siltation.

(2) Only those claimants who could show legal ownership or a possessory title to property damaged by siltation could pursue a claim in negligence (Leigh v Aliakmon Shipping (1986)2 WLR 902).
Private Nuisance
To establish a claim in private nuisance, it was a critical factor that third party claimants should have an interest in the land affected. (Hunter v Canary Wharf Ltd (1997)AC 655). Although foreseeability of damage was a prerequisite of the recovery of damages in private nuisance, negligence in the creation of the nuisance was not an essential element of liability. The actions of JN in this case did not represent reasonable user of the dredged channels and all elements of the tort of nuisance could be made out by those who had sufficient interest in the areas affected, even if JN had taken all reasonable precautions to avoid such damage.

Public Nuisance
Any significant interference with the agreed public right of navigation caused by the deposit of silt would constitute a public nuisance (Tate & Lyle Food & Distribution Ltd v GLC (1983) 2 WLR 649 considered). This is what had happened in this case. An individual could pursue an action if he suffered some substantial injury over and above that suffered by the public at large. In the present case any significant interference with an individual's commercial operations or enjoyment of private rights resulting from the obstruction to navigation would be sufficient to support an action.
The Position of ABP
ABP's position as conservator of the port carried with it a responsibility for the maintenance of the port and a right to recover in negligence damages in respect of the cost of removing obstructions to navigation. Therefore, ABP was entitled at common law to recover from JN the reasonable cost of removing siltation from those areas in which it was an obstruction to navigation (The Ella (1915) P 111)./p>
Construction of the Policy
Either JN incurred liability to the third parties in negligence or nuisance or it incurred liability to ABP in its capacity of conservator of the port. This liability was to be characterised as a liability for damage to property. The policy should be construed as extending to a liability of this kind.

Judgment was, accordingly, given in favour of JN. The insurers appealed, on the following grounds:
1. The claims from ABP arose from the failure of JN to fulfil their obligations under the dredging contract; such claims were specifically excluded by the policy
('ground (a)');
2. The policy did not respond unless there was damage to someone's property; as conservators of Southampton Water, ABP had no ownership or possessory interest in the areas affected by siltation; there could therefore be no claim under the policy for the costs incurred by ABP in removing silt from those areas ('ground (b)');
3. There could be no liability on JN in tort to compensate ABP for the cost of removing silt unless ABP was under a duty to remove that silt; ABP were not under such a duty ('ground (c)').

One of the third parties, the Hampshire Wildlife Trust ('HWT'), who owned marshlands at the head of the estuary, had commissioned an expensive study into the effect of siltation upon its mudflats.The study eventually established that HWT did not have to clear the silt. The judge held that HWT was entitled to recover the costs of carrying out the study. A further point, not addressed by the judge in terms, was whether the expenditure was properly characterised as "financial loss resulting from ... property damage", given that HWT's property was not damaged.

Judgment of the Court of Appeal
The judgment of the court was delivered by Lord Justice Schiemann.

The court held:
1. In relation to ground (a), the right approach was to ask whether, if there had been no contract, ABP or any other third party could have recovered damages from JN for JN's tortious act. If the answer was in the affirmative then the policy responded. It was only damages resulting from contractual liability to ABP that were excluded. If there was liability in tort to third parties that was covered by the policy. If there was liability in tort, as opposed to liability in contract, to ABP, that was also covered, particularly if one bore in mind that ABP were expressly nominated as a third party in the special conditions. What was excluded were damages that could only be recovered in contract. 
2. In relation to ground (b), it was legitimate for the purposes of construing this policy to regard: (i) the waterway, comprising the river bed, the banks and the water as being the property; (ii) the deposit of quantities of silt which interfered with its previous use as a waterway as being damage to property; and (iii) the cost of moving the silt from the adjacent areas as financial loss resulting from property damage covered under the policy and thus constituting "consequential immaterial damage". The relationship of conservator with the bed of the estuary and the water above was a sufficient relationship to trigger the policy and was an eligible claim.
3. In relation to ground (c), it did not matter whether ABP were entitled or under a duty to clear the river bed, they suffered sufficient special damage as to enable them to sue in public nuisance for the cost of doing so. ABP could also sue in negligence in respect of costs reasonably incurred in fulfilling its statutory functions.Quite apart from the contract ABP was entitled to sue JN.
4. The court also held that the judge at first instance had been correct to hold that JN was responsible to HWT for the costs of the survey that they had commissioned. The court held further that the costs of the study were recoverable by JN under the policy, as a "immaterial damage….resulting from property damage covered under this policy". "Property damage" was used in the policy in a wider sense than its literal one. The trust were third parties, extra-contractual liability to whom was in principle covered. The deposit of unasked-for silt on trust land amounted to inflicting property damage because it had altered the trust’s land.
As a result, the appeal was dismissed and Axa were held liable to reimburse JN for the siltation damage and the costs incurred as a result.