The Cultural Foundation & Anor v Beazley Furlonge Ltd & Anor, Court of Appeal - Commercial Court, May 08, 2018, [2018] EWHC 1083 (Comm)

Resolution Date:May 08, 2018
Issuing Organization:Commercial Court
Actores:The Cultural Foundation & Anor v Beazley Furlonge Ltd & Anor
 
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Neutral Citation Number: [2018] EWHC 1083 (Comm)

Case No: CL-2016-000727

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 08/05/2018

Before :

MR ANDREW HENSHAW QC

(sitting as a Judge of the High Court)

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Between :

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James Brocklebank QC and Henry Moore (instructed by Covington & Burling LLP) for the First Claimant

Andrew Neish QC (instructed by Allen & Overy LLP) for the Second Claimant

Tom Weitzman QC and Kate Holderness (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the First Defendant

Peter Macdonald Eggers QC and Marcus Mander (instructed by Clyde & Co LLP) for the Third to Sixth Defendants

Hearing dates: 12, 13, 14, 15 and 19 February 2018

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Page 2

CONTENTS

(A) INTRODUCTION 4

(B) BACKGROUND TO THE DISPUTE 6

(1) RMJM 6

(2) The Arbitration Awards 7

(3) The ASD and ADNEC Notifications 7

(C) THE PRELIMINARY ISSUES 8

(D) WITNESS EVIDENCE 9

(E) ISSUE 1: NOTIFICATION 923 10

(1) Facts 10

(a) The early phases of the ASD Project 10

(b) February to July 2008: Sector A Field House beams and columns 10

(c) 2008/09 co-ordination problems 11

(d) Events in relation to Sector A from November 2008 to March 2009 12

(e) Notification 923: 31 March 2009 16

(f) Events from April to July 2009 18

(g) Dubai Municipality intervention: August and September 2009 19

(h) Notification 953: 10 September 2009 22

(i) Notification 963: 6 December 2009 26

(j) Subsequent developments: Variation Order No. 1 26

(k) Subsequent developments relating to the Sector A columns problem 27

(l) The delay to Sector B 28

(m) The ASD/RMJM dispute and arbitration 29

(n) The ASD award 34

(2) Applicable provisions and principles 38

(

  1. Terms of the primary policies 38

    (b) Terms of the Excess Policies 41

    (c) Case law on notification under liability policies 42

    (d) Causation 50

    (3) Discussion 52

    (

  2. What documents formed part of Notification 923? 52

    (b) The Sector A Field House columns problem 55

    (c) Causes of the delays: Sector A vs Sector B 59

    (d) Notification of the Sector B problems 64

    (e) Lack of detail and cross-referencing in drawings/designs 67

    (f) Beazley's application for permission to amend 68

    (4) Conclusion on Issue 1 74

    (F) ISSUE 2: NOTIFICATION 953 75

    Conclusion on Issue 2 77

    (G) ISSUE 3: AGREEMENT/ESTOPPEL IN FAVOUR OF 2008/09 YEAR 77

    (1) Facts 77

    (2) Analysis 83

    (3) Conclusion on Issue 3 87

    (H) ISSUE 4: LATE NOTIFICATION 87

    (1) RMJM's alleged breach of condition 87

    (2) ASD's estoppel argument 90

    (3) Conclusion on Issue 4 94

    (I) ISSUE 5: SET-OFF BY BEAZLEY OF OVERPAID DEFENCE COSTS 94

    (1) Issue 5(a): Beazley's entitlement to set off the Pro Rata Share 95

    (

  3. Beazley's liability for defence costs 96

    (b) Right to recover overpaid defence costs from insured 100

    (c) Beazley right of set-off vis a vis RMJM 108

    (d) Set-off against claimants under the 1930 Act 110

    (2) Issue 5(b): estoppel 121

    (3) Conclusion on Issue 5 122

    (J) ISSUE 6: RECOVERY BY ASD/ADNEC FROM EXCESS INSURERS OF OVERPAID DEFENCE COSTS 122

    Conclusion on Issue 6 130

    (K) ISSUE 7: RECOVERY BY BEAZLEY FROM EXCESS INSURERS OF OVERPAID DEFENCE COSTS 130

    Conclusion on Issue 7 133

    (L) ISSUES 8 and 9: INDEMNITY FOR POST AWARD INTEREST 133

    Conclusion on Issues 8 and 9 136

    (M) ISSUE 10: STATUTORY POST-AWARD INTEREST 136

    Conclusion on Issue 10 137

    (N) OVERALL CONCLUSIONS 137

    Mr Andrew Henshaw QC:

    (A) INTRODUCTION

    1. This judgment follows a trial of ten preliminary issues as ordered by Blair J on 13 July 2017, the formulation of which was amended by consent on 6 February 2018. The case concerns a dispute between insureds, primary and excess insurers concerning certain professional indemnity insurance policies providing cover to a now insolvent architects' firm known as Robert Matthew, Johnson-Marshall & Partners (``RMJM'').

    2. The primary issue is whether and to what extent certain claims against RMJM by the First and Second Claimants (``ASD'' and ``ADNEC'' respectively) arise out of circumstances notified to primary insurance policies underwritten by the First Defendant (``Beazley'') and excess of loss policies underwritten by the Third to Sixth Defendants (``Excess Insurers'').

    3. ASD and ADNEC seek an indemnity against Beazley under, respectively, the primary layer policy written by Beazley for the year 1 May 2009 to 30 April 2010 (the ``2009/10 Policy'') and the primary layer policy written by Beazley for the year 30 March 2008 to 30 April 2009 (``the 2008/09 Policy'' or ``the 2008/09 Primary Policy''), each insuring up to a Limit of Indemnity of US$10 million (plus defence costs) with a self-insured excess of US$250,000 any one claim. ASD alternatively seeks indemnity under the 2008/09 Policy.

    4. ASD and ADNEC pursued independent claims against RMJM in separate arbitrations, resulting in an award in favour of ASD dated 31 May 2016 in the sum of AED 31,561,423 (approx. US$8.6 million) plus post-award interest (``the ASD Award''), and an award in favour of ADNEC dated 27 July 2016 in the sum of AED 30 million (approx. US$8.15 million) plus post-award interest (``the ADNEC Award'').

    5. Thus ASD's and ADNEC's claims individually fall within the US$ 10 million primary policy limit but together exceed it.

    6. RMJM became insolvent and its estates were sequestrated by decree of the Sherriff at Edinburgh on 24 September 2015. As the sums awarded to ASD and ADNEC were not paid, they claim an indemnity from Beazley, alternatively from Excess Insurers, pursuant to section 1 of the Third Parties (Rights against Insurers) Act 1930 (``the 1930 Act'').

    7. The Excess Insurers are parties to a number of excess policies (``the Excess Policies'') insuring limits in excess of US$10 million (plus defence costs) for the 2008/09 year, in layers which overall provide cover of US$35 million in excess of the primary policy limit.

    8. The Claimants and the Excess Insurers contend that ASD's claims attach to the 2009/2010 Policy and ADNEC's claims attach to the 2008/2009 Policy. Accordingly, on their case, neither claim impacts on the layers insured by the Excess Insurers. Beazley contends that both ASD's claim and ADNEC's claim attach to the 2008/09 policy.

    9. The issues concerning the policies to which the claims attach (``the Policy Period Issues'') form the subject of preliminary issues (1) to (4).

    10. The second main set of issues (preliminary issues (5) to (7)) involves the question of whether Beazley is entitled to reduce the amount paid to ASD and/or ADNEC by reference to a proportion of the costs that Beazley has paid in defending the ADNEC Claim in arbitration and which it says exceeds the amount it is contractually required to pay (``the ADNEC Defence Costs Issues'').

    11. The third category of preliminary issue concerns the recoverability of post-award interest by ASD and ADNEC (``the Interest Issues'') and is the subject of preliminary issues (8)-(10).

    12. Although some of the later preliminary issues may not arise depending on the answers to earlier issues, the parties have asked the court to determine all the issues in case this judgment should be the subject of an appeal.

    13. The procedural background is in outline as follows.

    14. ASD sought leave to enforce the ASD Award as a judgment pursuant to sections 66 and 101(2) of the Arbitration Act 1996 and to enter judgment in the terms of the award pursuant to sections 66(2) and 101(3), and an order to that effect was made on 16 November 2016. ASD then approached Beazley seeking a copy of the 2008/2009 Primary Policy with a view to making a claim under the 1930 Act, Beazley having previously indicated that it was RMJM's professional indemnity insurer and that the relevant policy year was the 2008/09 year.

    15. ADNEC applied for pre-action disclosure against Beazley's parent company (Beazley PLC) seeking disclosure of information and documents relating to RMJM's insurance arrangements under inter alia CPR 25.1(1)(i) and 31.16, and section 2 of the 1930 Act, also with a view to making a claim under the 1930 Act.

    16. Before those requests had been resolved, Beazley commenced stakeholder proceedings under CPR 86 on 25 November 2016, apparently concerned that ASD and ADNEC were advancing conflicting claims for indemnification under the 2008/09 Primary Policy in circumstances where it was unclear which claim had priority and where the cover provided was insufficient to pay both claims.

    17. A CMC was held on 31 January 2017 pursuant to which the proceedings were reconstituted as Part 7 proceedings with ASD and ADNEC assuming the role of claimants. Disclosure was ordered of documents relevant to RMJM's insurance arrangements and the notification of ASD's and ADNEC's claims to insurers.

    18. Statements of case were exchanged and a further CMC was held on 13 July 2017 at which Blair J gave directions for the present trial of preliminary issues. Thereafter, in light of a number of amendments made to the parties' pleadings and a proposed Part 20 claim by Beazley against the Excess Insurers, the parties agreed (subject to the court's endorsement) to include a number of additional issues. I approve the addition of those issues.

    19. Some of the issues have given rise to significant differences of understanding between the parties as to their scope. It was common ground between the parties that the court is not at this trial asked to decide whether or not RMJM actually had any liabilities to ASD and ADNEC: that is a matter for a later date. However, preliminary issues 1 and 2 ask the court to decide whether any such liabilities fell within particular notifications made by RMJM to insurers. As explained later, in certain respects that would require one to determine the basis on which RMJM was liable to (in particular) ASD, because different problems with RMJM's professional work...

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