Sub-contractor held liable for loss of rent due to faulty work

A sub-contractor has been held liable for all the compensation a contractor had to pay for damage caused by faulty work, including loss of rent.

The High Court was told that the contractor, Ground Construction Ltd, had been employed by a landlord to build a property next to Regent's Canal in London.

The main contract was a JCT standard form incorporating the terms and conditions of DOM2. Ground Construction sub-contracted works to install a waterproof tanking system to a company run by Savi Rabilizirov.

The sub-contract order required "works to be carried out in accordance with the terms and conditions of DOM2,” which included an indemnity clause for faulty work.

After completion of the works, the building began to suffer from water ingress. The cause of the ingress was assumed to be due to the lack of windows. The landlord let the ground floor of the premises to the tenant, who installed windows. The water ingress continued, and various attempts to prevent it over several years failed.

The tenant sued for damage to his stock, for the cost of remedial works and for the loss of rent from his inability to sub-let the premises. At trial, Rabilizirov was found to have installed the tanking incorrectly. It settled the tenant's claim for damage to his stock, but not for anything else.

The landlord settled the tenant's claims in respect of the remedial work and loss of rent, and claimed an indemnity from the contractor, Ground Construction, which in turn claimed an indemnity from Rabilizirov.

The judge found that the indemnity clause of DOM2 had been incorporated into the contract between the two parties and was wide enough to indemnify Ground Construction.

He held that it was very difficult to conclude that the parties intended only the terms relating directly to carrying out the works to apply, and not to remedial work and loss of rent.

The Court of Appeal has upheld that decision. It held that the judge’s reasoning was unimpeachable. He was correct to find that DOM2 governed the whole of the contractual relations for the job, rather than only those terms relating to the physical actions of carrying out the work.

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