Zagora Management Limited & Others – v – Zurich Insurance PLC and others
In this recent decision, the Technology and Construction Court allowed claims brought by the leaseholders under “Standard 10 Year New Home Structural Defects Insurance Policies” (“the Policies”), but rejected all the claims against the Approved Inspector.
The case concerned a development of two blocks of flats in Hulme, Manchester (“the Property”). The claimants were the freeholder, Zagora Management Ltd (“Zagora”), and 26 long leaseholders, who between them owned 30 flats. The defendants were (1) Zurich Insurance plc (“ZIP”), which had issued the Policies to the leaseholders; and (2) Zurich Building Control Services Ltd (“ZBC”), which had undertaken the role of building inspector and issued final certificates under the Building Regulations (“the Certificates”).
As against ZIP, the Claimants sought to recover under the Policies the cost of remedying a number of serious defects at the Property, pleaded at £10.9m. Zagora also sued ZIP based under what was referred to as an “agreement to rectify”.
As against ZBC, thirteen of the Claimants, including Zagora, claimed damages representing the diminution in their respective interests as the Property, on the basis that ZBC knew that the statements made in the Certificates were untrue, or was reckless as to their truth.
The claims against ZIP
(i) Zagora’s claim under the Policies
Zagora claimed that it was entitled to sue ZIP under the Policies because it had a freehold interest in the Property as a whole. By contrast, ZIP argued that Zagora was not, and never had been, insured under the Policy.
It was common ground that Zagora had never been issued with a certificate identifying it as the buyer; however, Zagora claimed that did not matter, as it became a co-insured in relation to each flat when it acquired the freehold of the Property in 2013.
Although acknowledging the ingenuity of Zagora’s argument, the Judge (HHJ Stephen Davies) had no difficulty in concluding that it was wrong. Each insurance certificate identified the buyer by name; the only situation provided for in the Policy where the buyer’s identity could change was in the event of an onward sale of the flat in question. That did not apply in this case, as Zagora’s predecessor was never issued with an insurance certificate. Further, the Policies did not allow for there to be more than one insured with separate interests in the same flat. In the circumstances, the Judge held that Zagora was not an insured under the Policy.
(ii) The leaseholders’ claims under the Policies
The Judge found that the Property was seriously defective and that the leaseholders were entitled to recover the reasonable cost of repairs. Before coming to that conclusion, however, the Judge addressed a number of issues of policy construction; in particular, ZIP’s contentions that (a) the claims were subject to a maximum liability provision (“the Cap”), and (b) the Policies did not indemnify the cost of repairs that the claimants never intended to carry out.
Zagora asserted that the Cap imposed a maximum liability of £25m. ZIP’s case, by contrast, was that the Cap limited each leaseholder’s claim to the declared purchase price of its flat, with the result that the total maximum liability was the declared value of 30 flats i.e. £3.634m. The Judge agreed with ZIP, and found that it was not unreasonable for it to have wanted to limit its cover for a 10-year policy. Accordingly, the leaseholders’ claims were capped at the total purchase price of their flats.
As to the correct indemnity, the Claimants contended they were entitled to recover the reasonable cost of repair without first having to undertake those repairs. Whereas ZIP argued that the Policies did not cover repairs which would never be carried out.
The Policy provided that ZIP would pay “the reasonable cost of rectifying or repairing the physical damage [or] the reasonable cost of rectifying a present or imminent danger”. The term “reasonable cost” was, in the Judge’s view, neutral as to whether it was a cost already occurred or a cost to be incurred. Accordingly, there was no obvious reason why it should have the limited meaning for which ZIP contended.
(iii) The “agreement to rectify” claim
Zagora claimed that at a meeting in June 2013, ZIP agreed to resolve certain defects, regardless of the strict position under the Policies.
The Judge commented that, where parties have no pre-existing contractual relationship, it would be necessary to show that they agreed on all matters essential to the formation of a contract. However, the need to do so would be less acute where there was a pre-existing contractual relationship. The difficulty here, however, was that the relationship between Zagora and ZIP did not fit neatly into either category, given that by the time of the crucial meeting, there was a dispute as to the claimants’ contractual rights under the Policy.
In any event, the Judge found that what was actually agreed between the parties was merely a “step along the road” to what the parties would have expected to be a pragmatic resolution of a serious problem, and did not represent a binding and enforceable contract. Accordingly, Zagora’s claim failed on the basis that the agreement lacked contractual certainty.
The claims against ZBC
The Claimants contended that they would not have acquired the individual flats, or (in the case of Zagora) the freehold, had they known the true position regarding the value of their interests. As their claim was brought in deceit, the Claimants were required to show not only that ZBC knew that the representations in the Certificates were untrue or were reckless as to their truth, but that they also relied on those representations.
It was common ground that ZBC knew at the time that it had not taken reasonable steps to satisfy itself that the Building Regulations had been complied with, and had thus been reckless. The issue therefore turned on reliance.
ZBC’s evidence was that it never anticipated that Zagora, as a subsequent purchaser of the freehold, would have relied on the Certificates. The Judge accepted Zagora’s evidence, and found that it was “impossible” to conclude that it intended Zagora to rely on the certificates 2 to 3 years after they were issued. Accordingly, Zagora’s claim failed.
Contrary to the position vis-à-vis Zagora, ZBC accepted that it did anticipate that the leaseholders would rely on the Certificates. However, there was a complete absence of evidence that the leaseholders or their solicitors were provided with the Certificates either before exchange or completion. Therefore, even though the Claimants were able to prove deceit on ZBC’s part, their claims also failed at the reliance hurdle.
Conclusion
The case illustrates the various complexities and challenges facing policyholders, and particularly leaseholders, when bringing claims under new home warranties. The case is also a reminder of the practical difficulties of bringing claims against Approved Inspectors. Indeed, in the recent decision in The Lessees and Management Company of Herons Court v Heronslea and others [2018] EWHC 3309 (TCC), a claim against an Approved Inspector failed, this time because Approved Inspectors were not subject to the Defective Premises Act 1972.
Alex Rosenfield is an associate at Fenchurch Law
How to Annoy Judges
There wasn’t much law in the Court of Appeal’s recent decision in Friends Life v Miley [2019] EWCA Civ 261, other than a reiteration of the principle derived from Economides v Commercial Union [1998] QB 587 that a declaration in a proposal, that information is true to the best of the proponent’s knowledge and belief, connotes only a test of honesty, and not accuracy.
However, the decision (which is reported at https://www.bailii.org/ew/cases/EWCA/Civ/2019/261.html) struck me as a textbook example of how to alienate the tribunal.
Background
Mr Miley has a high-powered, high-pressure job at an investment bank. He became (he said) to unwell too work, and for four years he received payments under a Permanent Health Insurance policy written by Friends Life (“FL”). FL then ceased making payments, contending that Mr Miley was exaggerating his condition.
Mr Miley sued Friends Life. The Trial Judge (Turner J) had been unimpressed by an application by FL that he should recuse himself because (or so FL submitted) some questions he had emailed to their QC apparently demonstrated bias. He dismissed the recusal application, and in a subsequent judgment held in favour of Mr Miley
FL appealed to the Court of Appeal, and again pursued a forensic course which seems not to have endeared them to the Lord Justices.
FL’s appeal rested on essentially two grounds.
First, they contended, as I have said, that Mr Miley had exaggerated his condition. Secondly, they contended that he had under-declared his income in the years he was receiving payments under the policy. Both grounds failed.
Exaggeration
As to the first ground, FL did not have permission to challenge the Trial Judge’s finding that Mr Miley jad not been dishonest. Despite that, FL saw fit to describe in the appeal papers a schedule of alleged misrepresentations (which of course might have been made by My Miley, if at all, merely carelessly) as “Lies”. The Court of Appeal didn’t like that.
FL also produced a separate 25-page of "Schedule of Factual Inconsistencies", picking out further alleged inaccuracies in Mr Miley's presentation of his condition, on which the Court of Appeal commented drily that “we were not invited to consider any of these items individually, either in the written or oral arguments presented on behalf of FL, and have not done so.”
Having managed seemingly to alienate the Court in this way, it transpired that much of FL’s case turned on the fact that Mr Miley, while contending that he was too ill to do his job, had nevertheless gone to the pub on various occasions and had been on a number of holidays.
The Court of Appeal was quick to conclude that being too ill to carry out a high-level, high-pressure job didn’t mean that one was likewise incapable of going on holiday.
It was also unimpressed by FL’s complaint that, while claiming under the policy, Mr Miley had attended a “beer festival”, instead preferring to quote this from the first instance judgment:
" … In so far as the notion of a beer festival might, to the uninitiated, conjure up images of the participants cavorting in lederhosen whilst brandishing overflowing beer steins in scenes of infectious Bavarian gaiety, they must be dispelled. In reality, this was a rather understated affair in which patrons of the local public house were given the leisurely opportunity to sample a range of craft beers."
It was hardly a surprise that this ground of the appeal failed. Instead, the Court of Appeal held that Mr Miley’s account of the severity of his illness, in his periodic communications with FL, had been entirely accurate.
Under-declaration of Income
FL’s second ground seemed, from a “black letter” perspective, more promising. In two years in which he claimed on the policy, Mr Miley hadn’t disclosed very substantial sums represented by the vesting of shares, which he had received as part of his annual bonus while still working at his investment bank.
Mr Miley relied on the fact that the relevant forms which he supplied to FL each year while claiming on the policy didn’t require him to disclose “income from investments”.
One might have questioned - as FL certainly did - whether that was an apt description for Mr Miley’s receipt of these shares. However, the Court of Appeal was in no mood to accept that argument. Indeed, in the form of McCombe LJ, who gave the only judgement, it was highly critical of how the point had emerged at the trial in the first place:
“I have mentioned what I see as the unsatisfactory manner in which this issue arose at trial. There was no specific indication made anywhere in the pleadings or written arguments before trial that FL were relying upon a misstatement of income by Mr Miley…. The matter only arose when the subject was sprung upon Mr Miley in cross-examination. ..
I note that no objection was taken to the unexpected line of questioning. However, I question whether the failure to make any mention of this subject in the pre-trial materials was consistent with the "cards on the table" approach encouraged by the Civil Procedure Rules. More particularly, the material deployed was being used to found a case based on alleged fraud. Such allegations are customarily required to be "distinctly alleged and as distinctly proved”. That principle was not applied in relation to this matter in FL's pleading in the present case.”
With that as the backdrop, not only did the Court of Appeal hold that Mr Miley genuinely didn’t think his receipt of the shares needed to be disclosed, it went further and held that he was correct in that regard. It was prepared to accept that in common parlance the shares might have been described as “investments”. And it also said their vesting could be categorised as “income” since, under the relevant tax legislation, they were deemed to constitute income and were taxed accordingly.
Coda
One doesn’t know, given how unimpressed was the Court of Appeal with FL’s appeal, Mr Miley has sought his costs on the indemnity basis. But the moral – don’t try bolstering a difficult case with tactics which just annoy the Judges.
Jonathan Corman is partner at Fenchurch Law
