Loss Prevention Alerts

Loss Prevention Alert No 14 - THE CONSEQUENCES OF DAMAGE TO UNDERGROUND SERVICES

This loss prevention alert has been produced by the Loss Prevention Working Group (LPWG) of the AGS. It highlights issues that the LPWG considers may be of relevance to members. It is not intended to provide a definitive response to any issues and before taking action members should consider carefully whether they need to seek independent legal advice.

Members have recently voiced concerns regarding damage to underground services while carrying out site investigation work. The problem seems to be on the increase. Each year, more pipes and cables are laid underneath the ground and there is a belief that the quality of service plans has deteriorated and privately owned services are not shown on the plans provided by the utility companies.

This Alert deals with the extent to which a contractor or consultant might be liable in negligence to a business which suffers financially (say, due to loss of power or water or an inability to communicate by telephone, fax or email) as a result of the contractor or consultant causing damage to a pipe or cable.

Negligence

No form of strict liability exists in these circumstances. It would, first of all, be necessary for the injured party to establish negligence on the part of the consultant or contractor. Here, all would depend on the facts. It would clearly be difficult to establish negligence where the contractor or consultant has relied on advice provided by a third party except where (as may increasingly be the case) the specialist is aware that that information might be inaccurate. Where this is the case, exploratory hand excavation might be appropriate and/or the use of a cable locator (eg CAT scanner). However, exploratory hand excavation is seldom practical over the full plan area of a machine dug trial pit or trench, and hand dug pits are unlikely to locate deep services, especially those laid below made ground or fill material. Also, cable locators cannot be relied upon to detect all electric cables. The contractor or consultant must therefore determine an appropriate strategy for every site on which intrusive investigations are to be carried out, and must allow for re-assessing the strategy/procedures as work progresses if the findings of the investigation reveal unexpected ground conditions.

(Note: It is the intention of the Loss Prevention WG to consider the preparation of an industry statement of good practice on strategies for the location of services)

The extent of liability

Although the law in this area is far from simple, generally speaking a specialist will only be liable for certain types of financial harm suffered by the business deprived of the utility's service. Where the loss of power has caused direct damage to the property of the victim then that loss is recoverable. So, for example, where loss of power has damaged, and rendered unsaleable, products manufactured by a chemical company it can recover its loss of profits. It can also recover for damage to its plant and machinery caused by the loss of power. However, any financial damage which was consequent upon the loss of power, and which is not referable directly to damage to the victim's plant or equipment, will constitute irrecoverable economic loss. In some cases, these very fine distinctions can have a huge bearing on the size of the liability.

A good illustration of the principle is the leading case of Spartan Steel v. Martin [1973] 1 Q.B.

The defendants negligently damaged an electric cable while digging up a road. As a result the plaintiffs' factory was without electricity. They had to pour molten metal out of their furnace to prevent the metal solidifying and damaging the furnace. As the plaintiffs could not keep the metal at the correct temperature and complete the "melt" the metal depreciated in value by £368 and they lost a profit on sale of the "melt" of £400. They could also have completed four further "melts" during the power cut and their loss of profits from those "melts" was £1,767.

It was held that the depreciation of £368 was recoverable as was the £400 loss of profit as that was an economic loss consequent on damage to the plaintiffs' property; i.e. the "melt". However the loss of profit from failing to complete the four further melts was not recoverable. While there is no doubt that the defendant caused this loss, it was consequent upon damage to the cable, which was not properly owned by the plaintiffs, rather than consequent upon damage to any property of the plaintiffs.

The Spartan Steel case continues to represent the law and specialists might take comfort from the decision. It demonstrates how the courts will take measures to prevent a defendant from having to meet costs wholly disproportionate to the nature of his failing. It is difficult to see, rationally, how the loss of profit on the future melts is any less the responsibility of the contractor than the other losses, both in terms of fault and forseeability. But the majority of the Court of Appeal for policy reasons, lead by Lord Denning, were keen to control the level of the contractor's exposure. It is interesting to note that, in his dissenting judgment, Edmund Davies L.J. would have allowed the plaintiff all of his losses.


Prepared for the Members of the AGS by Steven Francis, DLA

Date of Issue: 16 May 2001