Case Law Updates – January 2023

Sartex Quilts & Textiles Limited v Endurance Corporate Capital Limited [2019] EWHC 1103 (Comm)

Facts

• Claimant, Sartex Quilts & Textiles Limited (“Sartex“), sought damages and other relief arising out of a Property Loss or Damage Policy of insurance issued on 22 December 2010 (“the Policy”) by the Defendant, Endurance Corporate Capital Limited (“Endurance”);
• On 25 May 2011 there was a serious fire at Crossfield Works, involving a fatality. The buildings were severely damaged, and the plant and machinery destroyed. This led to claims being made by Sartex under the Policy.

Main issue

• Sartex (represented by Mr Elkington QC) contended it was entitled to be indemnified on the reinstatement basis, alternatively that the court should declare that if it in fact reinstates, then it is entitled to be paid on such basis;
• Endurance (represented by Mr Evans-Tovey) contended that the indemnity should be by reference to the market value of the property, which was reduced after the fire.

Judgement

The judge found that in relation to reinstatement, it is important to consider what the insured’s intentions were in relation to the property immediately before and at the time of the fire – “It is apparent from the decided cases that the insured’s intentions in relation to the property immediately before and at the time of the fire are important factors in determining the value of it to him at that date. If for example the insured had intended to sell, or demolish, the property, then it would likely have a different value to him than if he had intended to use it for manufacturing purposes.”

David Railton QC sitting as a deputy High Court judge at paragraph 75 stated that “I do not accept Endurance’s submission that in order to recover on the reinstatement basis it is necessary in each case for an insured to show that it had, and continues to have at the date of trial (or the expiry of the limitation period, if earlier), a genuine, fixed and settled intention to reinstate. The relevant question to ask is what is the loss which has been suffered by the insured as a result of the fire, and what measure of indemnity fairly and fully indemnifies it for that loss.”

In paragraph 76 Railton QC clarified that the “primary focus is on the position as at the time of (and then immediately before) the fire. If the insured intended then to use the property as opposed (for example) to selling, or demolishing it, the appropriate measure of indemnity, and the best reflection of the value of the property to him at that time, is likely to be the reinstatement basis.”

However, in paragraph 77 he went on to say that he rejected the submission that the intentions of the insured after the event are only relevant in exceptional circumstances.

Endurance tried to rely on the decision in Great Lakes Reinsurance (UK) SE v Western Trading [2016] EWCA Civ 1003, a case where the building was also destroyed by a fire. In unusual circumstances the property value increased after the fire due its listed status being revoked. Clarke LJ stated that “the insured’s intention needs to be not only genuine, but also fixed and settled. And that what he intends must be at least something which there is a reasonable prospect of him bringing about”. This argument was rejected on the reasoning that only in rare cases where the property value has gone up do you need to demonstrate a fixed and settled intention to reinstate, and no such issue arose in this case. The court found that the comments in the case were obiter and specific to the facts.

The insured was awarded full reinstatement costs (less any allowance for betterment) on the basis that the insured had not:

• Marketed the property for sale at the time of the peril;
• Given any indication of stopping or selling the business at the time of the peril or after – the insured wanted to carry on business;
• Failed to mitigate its loss;
• Gained an increased monetary value in the land as a result of the fire.

St James’s Oncology SPC Ltd v Lendlease Construction (Europe) Ltd and another [2022] EWHC 2504 (TCC)

Facts

The claimant was entitled to damages for necessary remedial works, practical and proportionate to rectify fire safety and electrical defects in the hospital’s oncology centre because of the works carried out by the first defendant.

The claimant sought damages for remedial works arising from defects in the power plant of the oncology centre constructed by the first defendant.

A project contract was entered into by the Claimant and an NHS Trust for the design, construction and maintenance of the oncology centre, which would form part of an extension at a Leeds hospital.

The project agreement stated that the design and construction should comply with the guidance under Health Technical Memorandum (HTM) and, in the event of non-compliance, the particular aspects of the design must adopt a justified fire-engineering approach equivalent to, or better than, HTM 81. An agreement was entered into in October 2004, the claimant appointed the first defendant to design and build the oncology centre for an initial sum of £173 million.

The first defendant’s parent company was the second defendant in the claim, who, provided a guarantee in relation to the first defendant’s work. The parent company appointed a third party to maintain the oncology centre. The third party entered into a tri-partite agreement with the first defendant setting out the relevant obligations. The agreement stated that if the third party were to carry out remedial works related to the first defendant’s work, then they could claim an indemnity for the costs of said works.

Practical completion was set to take place in December 2007 but risk assessments revealed defects in the works carried out in the oncology centre. An engineer’s report in 2018 stated that remedial works were needed regarding the fire safety and electrical defects. A proposal for the remedial works was produced in November 2021.

In total, nine main defects were identified, totalling to £6,242,274. The claim said that the centre’s construction was defective as it was built in breach of fire safety standards and contractual requirements. The first defendant denied that the works were defective and argued that the design was not compliant with the technical specifications, they were derogations which were approved by all relevant parties.

It further alleged that the claimant was not going to carry out remedial works until the quantum had been awarded.

Judgement 

Fire strategy design

The judge decided that the first defendant was in breach of the project agreement and the design and build contract. The changes made to the fire safety design deviated from the HTM81 but were not adequate. The changes were made on instructions by the first defendant.

Defects/Breach of Contract

The defects alleged by the claimant, amounted to breaches of the design and build contract. Examples of the defects are a lack of separation between cabling feeding a fire-fighting lift, the failure to provide a fire suppression system within the applicable standards and the absence of fire protection to the base of two service risers between the plant room and the centre’s external wall,

In deciding if a schedule for the remedial works was needed, the court considered whether the claimant relied on expert advice, and to what extent the advice was relied on. The court decided that it was not up to a claimed schedule of remedies to show that the defects could have been rectified through a different method at a lower cost. It was decided that due to the defects presenting and increasing the risk of a fire that the remedial works proposed by the claimant were necessary, practical and proportionate.

Intention to Carry Out Remedial Works

Where defective works are present, the general rule was that the measure of damages to be awarded would be the cost of fixing the defects, unless the cost is disproportionate to the works being carried out.

Damages would be awarded as long as the claimant was seeking to be compensated for a genuine loss and not using the breach to secure an uncovenanted profit.

Usually, the court is not normally concerned with how the damages would be used by the claimant where a loss can be established. In cases of defective works, the intention of the claimant is only relevant if it went to the reasonableness of reinstatement and the extent of the loss sustained. There was clear evidence that the claimant intended to go ahead with the remedial works that they had proposed.

Quantum

The appropriate measure of the claimant’s loss was for the cost of reinstatement. The parties agreed the quantum of damages payable for the reinstatement of the works, came to the sum of £5,048,534.39.

Entitlement to declaration for indemnity

The court decided that the declaration for indemnity was not in the interests of justice and would not be a useful purpose, therefore the court decided that they would not make it.

LJR Interiors Ltd (“LJR”) v Cooper Construction Ltd (“Cooper”) [2023] EWHC 3339 (TCC)

This was a Part 7 Claim issued by LJR, seeking enforcement of an adjudicator’s decision, together with and a Part 8 Claim brought by Cooper seeking a declaration that the decision was unenforceable as the sum awarded in LJR’s favour was statute-barred.

The Adjudicator’s decision was not enforced due to expiration of the limitation period.

Background:

• Around 26 August 2014, the parties entered into a written contract under which LJR agreed to carry out works for Cooper;
• The contract made no recognition of, or provision for, the reference of disputes to adjudication but relied on the implied right under Section 108(5) of the Housing Grants, Construction and Regeneration Act 1996;
• On 31/07/22, LJR sought outstanding payment for work completed on 19/10/2014;
• Cooper failed to make payment and/or serve a Pay Less Notice;
• The evidence of Cooper was that works were completed on 19^th October 2014, which was not challenged by LJR;
• On 9 September 2022 LJR gave notice of its intention to refer a dispute to adjudication in relation to Payment Application No. 4;
• LJR also sought interest accrued since 28 July 2022.

Arguments:

LJR argued that the limitation period had not expired as it only commenced proceedings from the date of “facts” as indicated in the email from Cooper dated 20 December 2016

Cooper argued that the limitation period of 6 years (s.5 limitation act 1980) commenced 28 days from invoice which was 28/11/2014. It argued that LJR’s argument are inaccurate as the email dated 20/12/16 had referred to an earlier email of 12 March 2015.

Adjudicator’s Decision:

• The Adjudicator found that Application No. 4 was a valid application for payment;
• The general rule in contract is that a cause of action occurs when a breach happens; here, the breach was found to be the failure to make payment on 28/10/22.

Legal Issues:

1. The validity of the adjudicator’s decision in concluding that Application No. 4 was not statute-barred;
2. If invalid, was the adjudicator’s error one which it would (adopting the Hutton v Wilson test) be unconscionable for the court to ignore on the Part 7 adjudication enforcement claim?

Held:

• The Court dismissed the Part 7 claim, finding that Application No.4 is statute-barred, and that the decision requiring paying is enforceable

Judgment:

• The Court found that the LJR Interiors Ltd (“LJR”) v Cooper Construction Ltd [2023] EWHC 3339 (TCC) principle – pay now argue later highlights that it is irrelevant that an Adjudicator’s decision may have been a wrong one. There are limits upon the ability of the defendant to resist enforcement of the decision.
• The Hutton v Wilson test identifies the need to find the point which it would offend the conscience of the court to ignore. In this instance, a review of the provisional nature of an adjudication decision which does not purport to determine finally the parties’ contractual rights and obligations sets the bar higher than a questionable judicial decision.
• The Court referred to the case of Aspect Controls (Asbestos) Ltd v Higgins Construction Plc [2015] UKSC 38 in which the Supreme Court held that the cause of action arose from the payment and the claim could be brought at any time within 6 years from the date of payment.
• It was found that LJR did not provide an “adequate mechanism” for final payment due under the contract.
• The judge read LJR’s terms as submitting invoices for stage payments based upon the value of work and the payment would be due 28 days after invoices – LJR did not specify the amount of any stage payment.
• HHJ Russen KC stated that the limitation point began on 28 November 2014 – which is 28 days from when application 3 was made on the 31 Oct 2014 – as this was the last of three applications for payment under the contract made by LJR in 2014.
• Simply re-issuing another invoice afterwards does not restart the limitation period
• Applications 1, 2 and 3 were made recurringly and the last recurring payment was application no 3.
• HHJ Russen KC decided the Adjudicator’s decision was clearly wrong by ignoring the limitation defence available to Cooper, which the Court should act in accordance with the guidance in Hutton v Wilson, dismissing the Part 7 Claim and LJR’s application for summary judgment.

LDC (Portfolio One) Ltd v George Downing Construction Ltd and European Sheeting Ltd [2022] EWHC 3356 (TTC)

This matter related to the re-cladding and remedial works of three high rise tower blocks in Manchester, following concerns relating to fire safety and water ingress.

• The matter involved two defendants, the first (Downing) being the main contractor and the second (ESL) being sub-contractors responsible for external wall construction works.
• The Defendants had been retained by the Claimant on a Design and Build basis and the blocks were built in 2007-2008.
• The Claimant acquired the freehold land in 2015 and discovered defects including water ingress and deterioration of structural insulated panels used on the inside of the cladding
• The Claimant brought claims against the Defendants and in 2021 LDC and Downing agreed a settlement of £17,650,000.
• LDC claimed £21,152,198.87 against ESL for remedial works and Downing made a further claim against ESL, for a contribution towards the settlement sum.
• In May 2022 ESL entered creditor’s voluntary liquidation and ceased participation in the action.

Legal Issues:

1. Scope of ESL’s obligations;
2. Whether ESL is in breach with its obligations considering the water ingress defects?  If so, whether those defects relate to the loss claimed by LDC.
3. Whether ESL is in breach with its obligations considering the fire safety defects? If so, whether those defects relate to the loss claimed by LDC

Issue 1:

ESL Argument:

• They were governed by an obligation to exercise reasonable skill and care of the design works only as a professional designer

LDC Argument:

• Clause 2.5.1.8, a strict obligation that the Works will comply with “all Statutory Requirements “
• ESL had to take reasonable skill and care in design of the property under clause 5.1.3 and workmanship (clause 4.1.2) and choice of materials (clause 4.7)

Judgment:

• ESL’s defence to Downing’s indemnity claim was dismissed due to the responsibility for the design of the fire breaks being places on ESL throughout.
• Downing was also entitled to recover costs of defending the indemnity claim.
• ESL argued that LDC had failed to mitigate the damage caused, however, the Court found that it had acted reasonably.