Dalamd Ltd v Butterworth Spengler Commercial Ltd, Court of Appeal - Commercial Court, October 05, 2018, [2018] EWHC 2558 (Comm)

Resolution Date:October 05, 2018
Issuing Organization:Commercial Court
Actores:Dalamd Ltd v Butterworth Spengler Commercial Ltd
 
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Neutral Citation Number: [2018] EWHC 2558 (Comm)

Case No: CL-2015-000276

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

COMMERCIAL COURT (QBD)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 05/10/2018

Before :

MR JUSTICE BUTCHER

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Between :

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Neil Hext QC and Peter Morcos (instructed by Edwin Coe LLP) for the Claimant

Daniel Shapiro and Mek Mesfin (instructed by Berrymans Lace Mawer LLP) for the Defendant

Hearing dates: 12 to 19 June and 13 July 2018.

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Mr Justice Butcher:

  1. The Claimant's claim is for insurance brokers' negligence. It arises out of a fire which occurred on 21 October 2012 at a waste recycling facility at 3 Johnsons Lane, Widnes, Cheshire (``the Premises'').

    The parties and the business

  2. The Claimant (``Dalamd'') was incorporated in 2014. It claims as the assignee of the causes of action against the Defendant of Widnes Land Partnership LLP (``Widnes'') and of JL Sorting Limited (``JLS''). The business of the Defendant (``Butterworth Spengler'') is insurance broking.

  3. The matters at issue arise from the operations of 3 entities owned by members of the same families. One of these was Doumac Ltd, which traded as Ecocycle (``Doumac''). Until August 2012, Doumac carried on a recycling business from the Premises. JLS was a company which, in effect, took over Doumac's business at the Premises from 2 August 2012. Widnes was the freehold owner of the Premises.

  4. Doumac was originally set up in 2008 by three individuals, Colin and Leslie Douthwaite, who were brothers, and a friend of theirs, Andrew McQueen. It was incorporated in January 2008, and the brothers and Andrew McQueen all became equal shareholders, and directors of the company. It obtained planning permission for use of the Premises as a materials recycling facility in March 2008, and in about August 2008 acquired a waste management licence from the Environment Agency (``EA''). It commenced trading thereafter.

  5. The Douthwaite brothers and Andrew McQueen had invited their respective parents to invest in the purchase of the Premises after they had been identified as a suitable site for the business which it was intended Doumac should carry on. This led to the formation of Widnes, of which the members were the Douthwaite brothers' parents, Leslie Douthwaite senior and Angela Douthwaite, and Andrew McQueen's parents, Douglas and Anne McQueen. Widnes purchased the Premises for just over £950,000 in 2008.

  6. Doumac rented the Premises from Widnes, initially pursuant to an informal arrangement. On 12 May 2010, however, Doumac and Widnes entered into a formal lease, which was for a period of 15 years, backdated to 1 October 2008. It provided for Doumac to pay a rent at £75,000 per annum for the first 18 months, £150,000 for the next 30 months, and £250,000 thereafter. By clause 8.3 of the lease Widnes was entitled to be paid an insurance rent by Doumac, defined as the annual premium for insuring the building and the ``loss of Annual Rent of the Property for three years''.

  7. The Premises consisted of three large sheds on one side, with a road passing north-south down the site. On the other side of the road, at the entrance to the property, there was a two-storey office building. The sheds have been referred to as sheds 1-3, with shed 1 the most northerly and shed 3 the most southerly.

  8. Of the directors of Doumac, only Colin Douthwaite had any experience in the waste recycling field, as he was, before Doumac started operations, site manager for a local waste recycling company called Gaskell's Waste. When Doumac was set up he became in charge of its day-to-day operations, with the title of Operations Director. Leslie Douthwaite junior's and Andrew McQueen's roles were less clearly defined. Leslie Douthwaite junior had the title of Managing Director and was in charge of raising finance and was the first ``port of call'' for customers. Andrew McQueen was the Financial Director. He was also, initially, responsible for arranging insurance. From about November 2011, however, that role passed to Colin Douthwaite, and it was with Colin Douthwaite that Butterworth Spengler had most interactions and communications during 2012.

  9. Doumac employed Philip Roche, from 2008, as its health and safety manager. Philip Roche, who had previously been in the fire service before being a driving instructor and accident investigator, knew Colin and Leslie Douthwaite junior, through Leslie Douthwaite senior, who was a family friend.

    The prior insurance brokers

  10. Insurance was originally broked through David Roberts and Partners (Insurance Brokers) Ltd (``DRP''). Buildings insurance in the name of Widnes was placed with Novae at Lloyd's with a sum insured of £800,000 for the period 25 August 2009 to 24 August 2010. Widnes also had property owner's liability cover with Lloyd's Syndicates through Amlin Insurance Services Ltd (``Amlin'') for the same period.

  11. Doumac had employer's, public and product liability cover from Amlin for the period 25 August 2009 to 25 August 2010. Doumac also had a contractor's all risks policy with Lloyd's Syndicate 1209 managed by XL London Market Limited (``XL'') which insured it in respect of its plant and machinery. Doumac also appears to have had some property damage cover with Novae.

    The appointment of Butterworth Spengler

  12. In about August 2010, Doumac became dissatisfied with DRP, in particular because of a significant increase in the premium for its liability cover. Andrew McQueen contacted Butterworth Spengler in August 2010, the initial enquiry being made to Gary Spengler, who referred the matter to his colleague, Andrew Thomson.

  13. Butterworth Spengler were able to place Doumac's liability insurance for a lower premium and Doumac subsequently requested that Butterworth Spengler obtain property and plant and machinery cover for it. Doumac and Widnes, by an appointment letter dated 22 September 2010, retained Butterworth Spengler to arrange insurance in relation to the Premises for Doumac and also for Widnes.

    The Course of Events during Butterworth Spengler's retainer up to the Fire

  14. There are a number of factual disputes between the parties as to what occurred during the period of Butterworth Spengler's retainer. It will be necessary to return to some of them in more detail at a later point. At present, I will set out a summary of what are largely undisputed facts showing how the issues between the parties arise.

  15. At the 2010 renewal, Doumac's liability insurance was switched to RSA. The rest of the cover remained with the existing insurers. This meant that (1) Doumac had commercial combined insurance, covering, inter alia, the buildings with Novae, and contractor's all risks cover with XL; and (2) Widnes had commercial combined cover with Novae.

  16. A mid-term review meeting took place between Andrew McQueen and Andrew Thomson on 9 February 2011. There was a discussion of whether business interruption (``BI'') cover should be obtained. Andrew Thomson subsequently sent Andrew Thomson the notes of this meeting.

  17. A Pre-Renewal Review meeting took place on 29 June 2011. One of the matters discussed was ``Uninsured Risks'', and Butterworth Spengler were asked to source quotations for D&O, Terrorism and BI insurance. Andrew Thomson had provided Andrew McQueen with some ``Guidance Notes'' on BI cover and on this occasion he asked Andrew McQueen to fill in an ``Insurable Gross Profit Calculation''. This Andrew McQueen had provided by 1 August 2011, and a quotation was obtained through brokers Thompson Heath & Bond Ltd (``THB'') for gross profit BI cover of £16,000 (excluding IPT). Because of the scale of that proposed premium, and because of doubts as to whether the client would be prepared to pay that amount, THB and Andrew Thomson considered that it would be sensible to supply indications of the cost of standalone Increased Cost Of Working (``ICOW'') cover in order that these could be discussed at the renewal meeting on 17 August 2011.

  18. A further meeting took place between Andrew McQueen and Andrew Thomson on 17 August 2011. Andrew Thomson handed over a ``Risk and Insurance Report''. One section of this report dealt with what was described as ``Uninsured Risk: Business Interruption''. It stated:

    ``We have chatted on a number of occasions about looking at insuring your business interruption risk. Following the completion of the calculation sheet which you kindly provided we are pleased to confirm a quotation listed below.

  19. After the meeting, Andrew Thomson produced minutes, which record:

    ``The following uninsured risks were discussed at length:-

    Business Interruption: is tied to the property insurance and the rate applicable is £1. AT [Andrew Thomson] explained that there is a cost implication to insure the Gross Profit figure and that this figures [sic] needs to be set accurately as otherwise it would be subject to average. The relative merits of other forms of business interruption was discussed including Stock debris removal, Increased cost of Working and Additional Cost of Working. These limits can be set by Ecocycle. AM [Andrew McQueen] to discuss with fellow directors and advise if cover is required. If affordable this cover is recommended.''

  20. Andrew Thomson sent those minutes to Andrew McQueen later on 17 August 2011. The email under cover of which he sent them stated ``If you need anything else on the Business Interruption or D&O let me know''. On 19 August 2011 Andrew Thomson then sent the Renewal Report to Andrew McQueen, ``so you can forward to the other Directors to discuss the D&O and Business Interruption''. On 6 September 2011 Andrew Thomson chased Andrew McQueen about BI cover, stating that ``At the moment it is quite a big exposure for you, but understand that...

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