The Cultural Foundation & Anor v Beazley Furlonge Ltd & Ors, Court of Appeal - Commercial Court, August 15, 2018, [2018] EWHC 2185 (Comm)

Resolution Date:August 15, 2018
Issuing Organization:Commercial Court
Actores:The Cultural Foundation & Anor v Beazley Furlonge Ltd & Ors
 
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Case No: CL-2016-000727

Neutral Citation Number: [2018] EWHC 2185 (Comm)

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: 15/08/2018

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 Richard Coplin (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 date: 12 July 2018

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Mr Andrew Henshaw QC:

(A) INTRODUCTION

  1. This judgment deals with matters of costs arising from the judgment I handed down on 8 May 2018 following a trial of ten preliminary issues. The hearing of matters consequential upon that judgment took place on 12 July 2018, being the earliest date on which it was possible to convene a hearing that all four parties could attend. I dealt at that hearing with two applications for permission to appeal, and gave directions for the next stages of the action. The parties also made detailed submissions on the somewhat complex costs issues which arise, and this judgment deals with those issues.

  2. 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'').

  3. The main issue in the case 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'').

  4. 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 ``2009/2010 Policy'') and the primary layer policy written by Beazley for the year 30 March 2008 to 30 April 2009 (``the 2008/2009 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.

  5. 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'').

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

  7. 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 claimed an indemnity from Beazley, alternatively from Excess Insurers, pursuant to section 1 of the Third Parties (Rights against Insurers) Act 1930 (``the 1930 Act'').

  8. 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.

  9. The Claimants and the Excess Insurers contended 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 impacted on the layers insured by the Excess Insurers. Beazley contended that both ASD's claim and ADNEC's claim attach to the 2008/09 policy.

  10. The issues concerning the policies to which the claims attach (``the Policy Period Issues'') formed the subject of preliminary issues (1) to (4). These issues concerned whether ASD's claims against RMJM attach to the 2008/2009 Policy or the 2009/2010 Policy. That essentially turned on whether ASD's claims arose out of a ``Circumstance'' notified to the insurers by Notification 923 given on 31 March 2009 or Notification 953 given on 10 September 2009.

  11. The second main set of issues (preliminary issues (5) to (7)) involved the question of whether, if ASD's claims attach to the 2008/2009 Policy, Beazley is entitled to set off against ADNEC's and/or ASD's claims a sum representing defence costs that Beazley allegedly overpaid to RMJM in respect of RMJM's defence of ADNEC's claim, and

    i) if so, whether ASD is entitled to claim an indemnity from Excess Insurers under the 1930 Act in respect of the set-off amount;

    ii) if not, whether Beazley is entitled to claim the overpaid defence costs from the Excess Insurers under the 1930 Act;

    (together, ``the ADNEC Defence Costs Issues'').

  12. The third category of preliminary issue concerned the question of whether and on what basis ASD and ADNEC are entitled to recover post-award interest in relation to their respective awards (``the Interest Issues'') and was the subject of preliminary issues (8)-(10).

  13. The outcome of the Policy Period Issues would determine whether or not the Excess Insurers bear any liability for ASD's and ADNEC's claims. If the ASD claim attaches to the 2009/2010 Policy, the claims will not impact on the layers insured by the Excess Policies. The second group of issues would arise only if the ASD Claim (or a sufficiently substantial part of it) attaches to the 2008/2009 Primary Policy.

  14. Although some of the later preliminary issues might not have arisen depending on the answers to earlier issues, the parties asked the court to determine all the issues in case there should be an appeal.

  15. The answers which I gave to the preliminary issues were as follows.

  16. Issue 1: To the extent that the ASD Claim arises out of RMJM's defective design of the Sector A columns (being, for identification, the matter which led to the stoppage of work in 2009 and subsequent remedial works to the Sector A columns), it does not arise out of circumstances notified during the 2008/2009 policy year or fall within the period of cover provided by the 2008/2009 Primary Policy.

  17. To the extent (if at all) that the ASD Claim arises out of RMJM's breach of duty in relation to acoustic works and/or RMJM's lack of detail and cross-referencing in drawings/designs, referred to in §§ 14.15.2 and 14.15.3 respectively of the ASD arbitral tribunal's award, it arises out of circumstances notified during the 2008/2009 policy year and falls within the period of cover provided by the 2008/2009 Primary Policy.

  18. Issue 2: To the extent that the ASD Claim arises out of RMJM's defective design of the Sector A columns (being, for identification, the matter which led to the stoppage of work in 2009 and subsequent remedial works to the Sector A columns), it arises out of circumstances notified during the 2009/2010 policy year and falls within the period of cover provided by the 2009/2010 Primary Policy.

  19. Issue 3: If and to the extent that the ASD Claim (or any part of it) arises out of circumstances notified during the 2009/2010 policy year, RMJM did not prior to its sequestration agree with Beazley that the ASD Claim fell within the 2008/2009 Primary Policy; and RMJM was (and ASD is) not estopped by RMJM's conduct from denying the same.

  20. Issue 4: If and to the extent that the ASD Claim falls within the 2009/2010 Primary Policy:

    i) RMJM did not breach Claims Condition 3.2 of that policy by failing to notify Beazley of relevant matters as soon as practicable.

    ii) Had I found such a breach to have occurred, I would have concluded that Beazley did not waive it and is not estopped from contending that there had been any such breach.

  21. Issue 5: (a) Yes: Beazley is entitled to set-off a pro rata share of the costs incurred in defending the ADNEC Claim against its liability under the 2008/2009 Primary Policy to ADNEC in relation to its Claim and (insofar as the pro rata share exceeds the amount available to be set off against ADNEC's Claim) against its liability under the 2008/2009 Primary Policy to ASD in relation to its Claim. (b) No: Beazley is not estopped from contending that it is entitled to do so.

  22. Issue 6: To the extent that the amount recoverable by ASD and/or ADNEC under the 2008/2009 Primary Policy falls to be reduced by reason of the matters addressed by Issue 5.a., and on the assumption that the Excess Insurers consented to the incurring of the ADNEC defence costs, any shortfall in ASD's and/or ADNEC's recovery under the 2008/2009 Primary Policy or any amount set off by Beazley cannot (based on the arguments before me, i.e. excluding the possible future argument referred to in § 447 of the judgment dated 8 May 2018) be recovered by ASD and/or ADNEC under the Excess Policies. A claim by ASD and/or ADNEC under the Excess Policies in respect of any shortfall in recovery under the 2008/2009 Primary Policy would be a claim in respect of ADNEC defence costs, and such a claim does not pass to ASD or ADNEC under the 1930 Act.

  23. Issue 7: To the extent that the answer to issue 5.a. is ``No'' and/or the answer to issue 5.b. is ``Yes'', Beazley is not entitled to recover a pro rata share of the ADNEC defence costs from the Excess Insurers under the 2008/2009 Excess Policies pursuant to the Third Parties (Rights Against Insurers) Act 1930 (it being assumed for this purpose that the Excess Insurers consented to the incurring of such defence costs in accordance with clause 4...

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