Haberdashers' Aske's Federation Trust Ltd v Lakehouse Contracts Ltd & Ors, Court of Appeal - Technology and Construction Court, March 19, 2018,  EWHC 558 (TCC)
|Resolution Date:||March 19, 2018|
|Issuing Organization:||Technology and Construction Court|
|Actores:||Haberdashers' Aske's Federation Trust Ltd v Lakehouse Contracts Ltd & Ors|
Case No: HT-2016-000319
Neutral Citation Number:  EWHC 558 (TCC)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Rolls Building, Fetter Lane
London, EC4A 2NL
19 March 2018
THE HONOURABLE MR JUSTICE FRASER
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The Claimants were not represented and did not appear
Andrew Bartlett QC and Robert Stokell (instructed by Kennedys LLP)
for the Second Defendant
Colin Edelman QC and Talia Barsam (instructed by DAC Beachcroft LLP) for the First Defendant and all of the Third Parties
Hearing dates: 26 and 27 February 2018
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JudgmentDraft distributed to parties on 12 March 2018
Mr Justice Fraser:
This judgment concerns the proper construction of insurance provisions arising out of project-wide cover for a development that consisted of extension and other works to a school in Lewisham. The school is situated in the London Borough of Lewisham (``Lewisham''). Haberdashers' Aske's Federation Trust Ltd (``Haberdashers'') owns and operates a number of schools, including the particular school in these proceedings which is Hatcham College, Temple Grove Site, Hunsdon Rd, London SE14. Lewisham owns the actual building itself, which is occupied by the school, and the school is operated by Haberdashers. Lewisham and Haberdashers are the Claimants in the proceedings. The First Defendant, Lakehouse Contracts Ltd (``Lakehouse'') was the main contractor for works to the school, and the Second Defendant, Cambridge Polymer Roofing Ltd (``CPR'') was a sub-contractor to Lakehouse for the works, which were performed in 2009 and 2010. The terms upon which CPR contracted with Lakehouse are material, and I deal with these below in some detail. Each of the three Third Parties - Zurich Insurance plc, QBE Casualty Syndicate 386 and CNA Insurance Co Ltd - are insurers who between them provided both the primary and excess layers of cover under the project-wide insurance. I shall come to the detail of that cover below. There is no difference in the interests of the three Third Parties and I shall refer to them as the Project Insurers. I shall refer to the project-wide insurance as the Project Insurance.
Certain major works were being performed at the school in 2009 and 2010, with Lakehouse as the main contractor under a Design and Build contract form dated 29 June 2009 (``the main contract''). The other party to the main contract was what is called a Local Education Partnership or ``LEP''. The LEP in this case was an entity called Lewisham Schools for the Future LEP Ltd. LEPs generally were public-private special purpose vehicles, set up to develop schools under a Government initiative called Building Schools for the Future or ``BSF''. LEPs were 10-year strategic partnerships between a local authority, private sector companies and Building Schools for the Future Investments (BSFI), the funding arm of the BSF programme. BSF was therefore a way of bringing the private sector into what had been traditionally a publicly funded activity, namely the education of children. Education also involved charities, and the historical developments that led to Haberdashers being involved in education in Lewisham are not relevant for these proceedings.
Although Lakehouse contracted with the LEP, it also entered into what is known as a Duty of Care Deed with Haberdashers. By this deed, Lakehouse owed certain duties directly to Haberdashers. Lakehouse also entered into a number of sub-contracts, one of which was with CPR for the roofing works, but also other sub-contractors entered similar agreements. As is the case with a great many main contractors on a great many construction projects, many different sub-contractors would be engaged. The contractual framework overall can be demonstrated by the following diagram.
The contract between the LEP and Lakehouse was essentially for works to extend the buildings at the School. There were existing Victorian buildings there, which were already being used. The purpose of the arrangements to which I have referred above was to extend, refurbish and supplement these, to improve and increase the buildings available for schooling at the site. This involved some limited demolition of the existing buildings too. Lewisham and Haberdashers entered into a development agreement on 29 June 2009 under which the latter agreed to enter into a 125-year lease upon completion of those works. The LEP entered into an agreement called the Design and Build Contract with Lewisham, and it was for this reason that the contract between Lakehouse and the LEP described Lakehouse as the Design and Build Subcontractor, and described what was in reality the main contract (in construction project procurement terms) as the Design and Build Subcontract. Although by its terminology this might suggest LEP was the main contractor, in practice the position of main contractor in the traditional sense of construction projects was occupied by Lakehouse. This does not affect the issues the subject of this judgment, and I simply make that clear to avoid confusion arising from the terminology.
Lakehouse engaged CPR to perform roofing works. On 6 April 2010 CPR were to undertake what is called ``hot work'' for this purpose, and Lakehouse issued what is called a ``hot work permit'' to permit this work to be done. Such work involves the use of a blowtorch to stick down roofing membrane. At 1514 hours on that day a fire occurred in the area of the hot work, which spread and caused extensive damage to the buildings. It took some time for the works of reinstatement to be undertaken.
Haberdashers and Lewisham issued proceedings on 28 November 2016 in the Technology and Construction Court seeking damages in excess of £11 million from Lakehouse and CPR, alleging breaches of the Duty of Care deed, the Design and Build Subcontract and common law duties of care. On 21 December 2016 Lakehouse issued an additional claim against its co-defendant CPR, seeking a contribution, alternatively an indemnity, in respect of Lakehouse's liability to the two claimants Haberdashers and Lewisham. On 23 December 2016 CPR issued additional claims under Part 20 against the three Project Insurers, seeking a variety of declarations. Essentially, and this is in summary only, the case brought by CPR against the Project Insurers was that Project Insurance was in place for the period 25 June 2009 to 25 August 2010, that CPR was entitled to the benefit of that insurance, and that this provided CPR with a defence to the additional claim brought by Lakehouse. The insurance arrangements are dealt with below.
Thereafter, the parties entered into a settlement agreement dated 21 December 2017 whereby Lakehouse paid to Lewisham and Haberdashers the total sum of £8.75 million inclusive of costs, interest and damages in respect of the fire. In reality, these funds came from the Project Insurers. This left as live issues in the proceedings only those between Lakehouse, CPR and the Project Insurers. Essentially, these issues were to what extent, if any, CPR was entitled to the benefit of the Project Insurance. It was an express term of the roofing sub-contract entered into between Lakehouse and CPR that CPR obtain its own third-party liability insurance cover, and this cover in the sum of £5 million was in force at the time of the fire. This dispute is essentially the extent to which the Project Insurers have a valid claim upon that insurance fund of £5 million of CPR's insurers. The Project Insurers have paid out the settlement sum of £8.75 million to Haberdashers and Lewisham. CPR (by its insurers) argues that the existence and terms of the Project Insurance, and the terms of the roofing sub-contract, means CPR is entitled to the cover provided by the Project Insurance, notwithstanding the existence of CPR's own insurance cover, and that cover provides a defence to the additional claim. Which of these positions is the correct one in law requires analysis of the Project Insurance, and the terms of the roofing sub-contract, together with analysis of the means by which a sub-contractor becomes entitled to be covered by Project Insurance of this type.
On 20 June 2017 Mr Acton-Davis QC, sitting as a Deputy High Court Judge, ordered that the issues of the liability of the Project Insurers to CPR (on the assumption that the fire was caused by the negligence of CPR), and CPR's entitlement to the declarations at  below, be determined as preliminary issues. Evidence of fact was served by both Lakehouse and CPR. Lakehouse and the Project Insurers served statements from Mr Dean Ball, the Construction Managing Director of Lakehouse, and Ms Janine Wood, who at the time in 2009 was an underwriter for QBE European Operations PLC, which manages Lloyds Syndicate 386. CPR served witness statements from Mr Wale, the Managing Director of CPR, and Mr Shortland, who is a loss adjuster and gave evidence relating to CPR's liability insurers, then known as Faraday Reinsurance Company, but now known as Faraday Underwriting Ltd (``Faraday''). There was some limited cross-examination of Mr Ball but none of it, in my judgment, was directly relevant to these preliminary issues or the declaration(s) sought.
The dispute was summarised in the following emotive way in CPR's skeleton argument. ``Should clause 6 be interpreted (as CPR contends) in a way that takes account of the context and upholds both the insurance scheme and the subcontract terms or (as project insurers contend) in a way that conflicts with the context, damages the insurance scheme and potentially destroys the subcontractor?'' A footnote added ``the fact that project insurers state, through the mouth of Lakehouse, that they intend to seek a judgment limited to the sum of £5 million [the amount of CPR's own insurance cover] is a tacit...
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