May 2012
Employee theft – limited to fidelity cover?
Ted Baker Plc & another v Axa Insurance UK Plc & ots [2012] EWHC 1406 (Comm)
In this claim, the court was asked to determine whether theft by an employee without forcible
entry was covered by Axa’s Commercial Combined Insurance policy, or whether such cover
was only available under separate fidelity insurance.
The material damage section of the Axa policy excluded ‘acts of fraud or dishonesty by the
Insureds employees’ and the business interruption section excluded cover ‘arising directly
from theft or attempted theft’. The theft section stipulated that:
in the event of (1) of any of the Property Insured while within the Premises being lost
or damaged as a result of (a) theft (or attempted theft) involving entry to or exit from
the premises by forcible and violent means … [Axa] will … indemnify the Insured in
respect of such loss and damage.
An endorsement A05 provided:
The insurance by this section extends to cover loss or damage resulting from theft or
any attempted threat but the Insured shall be responsible for the first £1,000 of each
and every loss which does not involve entry to or exit from the Premises by forcible
and violent means.
Ted Baker argued that the claim was within the scope of endorsement A05. Axa argued that
in construing the scope of cover, the literal meaning of the words used in the context ought to
yield to business commonsense; it was plain that Axa did not intend to provide cover by
endorsement A05 for non-forcible theft by employees which would ordinarily be provided by
separate fidelity insurance. Ted Baker argued that the words must be given their ordinary
meaning and reflect the intention of the parties and the commercial sense of the agreement;
only where a literal construction leads to an absurd result or is otherwise manifestly contrary
to the real intentions of the parties should an alternative meaning be applied.
Eder J applied the common rule of law that the subjective intentions of the parties are
inadmissible as an aid to construction. A policy covering ‘theft’ would include theft by an
employee unless such cover was expressly excluded. The words used were not, in Eder J’s
opinion, open to more than one interpretation and thus it was not necessary to consider which
interpretation was most consistent with business commonsense – although even if it were, the
judge was not persuaded that business commonsense pointed more towards one
interpretation than the other.
Eder J also rejected Axa’s submission that the non selection of specific ‘theft by employees’
cover assisted in the interpretation because not only was there no ambiguity in the scope of
the cover actually provided but further the non-selected cover also provided cover for theft of
money which may not have been required. Eder J further rejected Axa’s submission that the
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‘factual matrix’ and ‘market practice’ should aid the construction as indicating that such
employee theft was not covered by non-fidelity cover. However, the experts agreed that cover
for theft by employees without forcible entry was available as an extension upon request so
the argument was unsustainable. Eder J further rejected Axa’s submissions that the policy
should be rectified or the claimant estopped, and held that not only was the stolen stock
covered by the policy but also the business interruption losses.
Comment
Although the court will consider the commercial factual context in which a policy is
underwritten it is important to note the limits that such facts will have as an aid to construction
of unambiguous words used within a policy. In particular the judge was at pains to emphasise
that the subjective intentions of the parties were inadmissible as an aid to construction.
Underwriters must ensure that policies are written in clear terms and that if cover is to be
excluded it must be expressly excluded – reliance on what may be perceived as market
practice, or that such cover is more typically available under a more specific policy is a risky
strategy.
Warren King
Partner
Licence to commit nuisance revoked
Barr & Ors v Biffa Waste Services Limited [2012] EWCA Civ 312
In June 2011 BLM reported on the TCC’s decision in favour of a landfill site operator. The
residents of a housing estate had claimed in nuisance in respect of unpleasant odours
emanating from the defendant’s landfill site. At first instance Mr Justice Coulson accepted the
defendant’s argument that if it had complied with the extensive and detailed obligations
imposed by legislation and its operating permit, it would be unfair for it to be liable in nuisance
without having acted negligently. He reasoned that acting in accordance with the permit would
provide a complete defence to any criminal prosecution or to a claim for statutory nuisance,
and that the common law should be developed for the 21st century and ‘march in step’ with
the statutory regime. The residents appealed.
Giving the leading judgment in the Court of Appeal (CA), LJ Carnwath criticised the judge’s
elaborate reinterpretation of the law of private nuisance. He held that the case was governed
by conventional and relatively straight-forward principles (helpfully summarised at paragraph
36 of the judgment). Without implied or express statutory authority to commit nuisance, there
was no legal authority or principle for using a statutory scheme to cut down private law rights.
In this instance no such statutory authority was conferred by the permit. The smells emitted
from the site were a serious interference affecting the ordinarily use of the claimants’ homes
and it was not necessary for them to show that the defendant had been negligent.
Accordingly, the appeal succeeded and the cases were remitted back to the appropriate
forum to be considered on the proper basis.
Comment
Although nuisance cases tend to be very fact-specific, the defendant had viewed this litigation
as something of a test case. The CA’s reversal of the first instance decision will not be
welcomed by operators such as the defendant. Even where there is compliance with the
(often rigorous) requirements of permits and relevant legislation, operators may still be liable
in common law nuisance. With pressure for new homes and new infrastructure, the tension
between private law rights and the requirements placed on operators such as in this case, are
likely to remain an issue.
Edwin Millburn
Solicitor
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Noting an interest does not make a policyholder
Eurocrest Ventures Limited v Zurich Insurance PLC (25/04/12) TCC
In this case BLM successfully defended Zurich’s position in declaratory proceedings.
Eurocrest Ventures leased two flats in north London. The freehold was owned by a Mr A
Halpern who owned a portfolio of properties throughout the London area. Directly below
Eurocrest’s flats were commercial premises leased to another tenant. In June 2007 those
premises were partially flooded. The commercial tenant commenced proceedings against its
landlord for breach of covenant. The landlord in turn commenced Part 20 proceedings against
Eurocrest claiming an indemnity. Eurocrest then asserted through declaratory proceedings
that it was entitled to the benefit of the liability cover in the landlord’s policy, which had been
issued by Zurich.
The schedule to the policy noted tenant’s interests in a general way:
It is understood and agreed that the interest of various lessees in the Property
Insured may be noted at the request of the insured but only in respect of parts of the
premises demised by the lease to the individual tenant.
Judge Donaldson QC, sitting as Deputy High Court Judge, did not agree that this gave
Eurocrest rights as a policyholder. Noting of an interest means no more than recording its
existence. Further, it was clear from the schedule that the interest being noted was, in any
event, only in respect of material damage and not liability. Finally, the fact that the Contracts
(Rights of Third Parties) Act 1999 might apply did not help Eurocrest because this statute only
provides rights in respect of a contract term that confers a benefit on the relevant party. The
judge held Eurocrest had no such benefit.
Eurocrest’s declaratory proceedings failed.
Comment
The judge’s decision is of wider relevance to the insurance market. It shows that a tenant or
mortgage lender merely noted on a policy does not become a policyholder. Unless a clear
benefit is conferred on the noted party (and providing the 1999 Act has not been excluded),
such parties will have no direct claim under the policy. Mere noting is not enough.
It also confirms that the subject matter of the insurance cover being underwritten by a
property owner’s liability policy is to provide an indemnity to the property owner and not, as
the claimant sought, the claimant tenant's liability.
This judgment should be useful to property owners’ insurers faced by tenants’ claims that go
beyond the interest the underwriter intended to give.
Helen Westran
Associate
Slavish adherence to a protocol is not necessarily the right
answer
Higginson Securities (Developments) Ltd v K Hodson [2012] EWHC (1052) TCC
This case was a small value claim of less than £70,000. Higginson sent its letter of claim in
accordance with the Pre-action Protocol in March 2011. Delays then ensued but in December
2011 Hodson provided his response denying the claim and asking that it be withdrawn.
Higginson issued court proceedings in February 2012. Hodson argued that the protocol had
not been exhausted and that if proceedings were served then he would apply for a stay to
allow a without prejudice meeting to take place. Higginson served proceedings and the
application was made.
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Ahead of the application hearing Higginson told Hodson that his outright denial of any liability
was an abandonment of the protocol and he could not retrospectively attempt to impose it.
Furthermore, Higginson argued that such a meeting only had a chance of success if the
parties had full knowledge of each other’s cases and so should wait until after witness
statements and expert reports had been exchanged. Notwithstanding this, Higginson offered
to stay the proceedings and have the without prejudice meeting within six weeks. Hodson
seized upon this offer but demanded his costs of the proceedings and of the application. This
demand was rejected.
Mr Justice Akenhead at the TCC, highlighted the low value of the claim and the need for the
parties to have regard to the overriding objective. He referred to his own judgment in Orange
Personal Communications Services Ltd v Hoare Lea [2008] EWHC 223 (TCC), that:
the Court should avoid the slavish application of individual rules, practice directions,
or Protocols if such application undermines the overriding objective.
Mr Akenhead stated that the ‘default option’ is that a meeting should take place, unless there
is a reasonably good reason for it not to. In this case he believed that, given Hodson’s blanket
denial, it was not surprising that Higginson felt a meeting would not be helpful. Mr Akenhead
was keen to ensure ‘practitioners in this field, particularly in low value claims, consider
pragmatic and cost saving responses in the circumstances in which they find themselves’.
Hodson’s attempt to demand his costs in the light of the offer for a without prejudice meeting
was not pragmatic but confrontational. Hodson’s application was dismissed and he was
ordered to serve his defence within 14 days following which a stay of four weeks was ordered
for a without prejudice meeting.
Comment
This case confirms that the protocol’s requirement for a without prejudice meeting is not
mandatory but that both sides should seek to arrange one unless there is a good reason for it
not to take place. A blanket denial by the defendant may well be considered to be a good
reason. Where the protocol has not been complied with and proceedings have been issued,
parties should be pragmatic; reserve the costs of any non-compliance and engage with the
claim, rather than seeking to track back to the protocol. A sensible and pragmatic judgment.
Martin Fox
Solicitor
Hot works, fires and warranties
United Marine Aggregates Limited (Claimant) v GM Welding & Engineering Limited
(Defendant) and Novae Syndicates Limited (Part 20 Defendant) [2012] EWHC 779
On 3 February 2008, a serious fire broke out at the claimant’s premises, where ballast from
the Thames was processed. Part of the processing involved feeding the materials through two
screens into an underpan below, which was lined with a red rubber material known as
Semperit. The claimant (C) had assured the defendant (D) that Semperit was not
combustible. C alleged that the fire was caused by the hot work being carried out by D. D was
contracted by C in connection with the repair of the processing system near to the Semperit.
Novae Syndicates Limited (Novae) was the insurer of D. D sought an indemnity from Novae,
which Novae denied on the ground that D was in breach of a Burning and Welding Warranty
(the Warranty) under the insurance policy. According to Novae, the Warranty was expressed
to be a condition precedent to any liability.
The court considered the relevant documentation relating to the fire precautions to be
adopted during the hot works activities; C’s procedure for hot work, the method statement
formulated by D in connection with the work and the permit to work issued by C in response
to the method statement. Additionally, the court considered the discussions between C and D
relating to D’s own precautions.
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While noting that D owed C a duty of care to carry out the works with reasonable care and
skill, the court held that strict compliance with C’s hot work procedure was waived by C. C
had issued a permit to work to D in response to D’s method statement and a senior
representative of C had given his informed consent to the precautions against fire that D was
taking. Furthermore, these limited precautions taken by D were a response to C’s assurance
that the Semperit lining was not combustible. The court concluded that the manner in which
the fire was caused was unforeseeable, as a hot article from the works passed through a very
narrow band just below the top side of the underpan and that the fire precautions taken by D
were reasonable. Therefore, the court held that D could not be liable for the cause of the fire.
For the sake of completeness, the court considered the merits of the indemnity claim made by
D against Novae. The court concluded that D would not have succeeded. The court noted
that the wording of the Warranty required that any combustible materials which could not be
moved must be covered and protected with over-lapping sheets or non-combustible material.
The court noted that the manner in which the fire occurred meant that D was in breach of the
Warranty. According to the court, the cause of the fire highlighted that D did not cover and
protect the combustible materials with non-combustible materials. Therefore, the court held
that there was a breach of the Warranty and that the claim for an indemnity would have failed.
Comment
It is clear from this decision that a defendant will not be held to account for a cause of a fire
which was not foreseeable and appreciated by any of the parties when setting out the
perimeters of the work and the associated safety precautions.
Furthermore, should D have been found liable for the fire then the construction of the
Warranty under the insurance policy would have prevented them from succeeding in a claim
for an indemnity. The case highlights the importance of carefully constructed and worded
policies to ensure that a defendant cannot be indemnified for poor working practices. Should
D hope to be successful in an indemnity claim then the policy must be strictly adhered to.
Craig Bennett
Solicitor
Failure to comply with Part 36 is to claimant’s advantage
Thewlis v Groupama Insurance Co Ltd [2012] EWHC 3 (TCC)
This is yet another case involving Part 36 of the CPR but, unusually, the claimant was
seeking to show that its own Part 36 offer had not been compliant with Part 36.
The claimant was a property owner and his property was covered by a policy issued by the
defendant. The claimant made a claim on the policy for damage and loss suffered by his
property as a result of subsidence and the defendant rejected the claim on the basis that the
policy did not cover the loss or, in the alternative, disputed the quantum of the claim.
On 24 September 2008, before the proceedings were issued the claimant made an offer,
purportedly pursuant to Part 36, to accept £20,000 plus costs from the defendant. That offer
was swiftly rejected. On 25 May 2011 proceedings were issued. On 17 October 2011 the
defendant purported to accept the Part 36 offer. By then the claimant was not prepared to
settle for that sum.
Part 36 had been amended on 6 April 2007 so that, even if rejected, a Part 36 offer remains
open for acceptance unless specifically withdrawn. The normal common law rule of course is
that an offer which has been rejected is extinguished upon rejection and cannot subsequently
be accepted unless repeated. This aspect of Part 36 offers is therefore a significant departure
from the ordinary contractual rules. Furthermore Part 36 itself, before the April 2007
amendments, provided that a Part 36 offer could only be accepted after its period of validity
(usually 21 days) providing agreement was reached on the offeror’s costs or permission was
given by the court. It was conceded (and indeed relied upon) by the claimant that the offer
made in this case complied with the pre-April 2007 rules but not the post-April 2007 rules.
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In C v D [2011] EWCA Civ 646), Rix LJ held that an offer can be a Part 36 offer or it can be a
time limited offer but it cannot be both. Thus if the offer made by the claimant in this case was
time limited it could not have been a Part 36 offer and was therefore not available to the
defendant to accept over two and a half years later.
The judge held that as the offer had been worded to comply with the pre-April 2007 version of
Part 36 and had contained the phrase: ‘this offer ... remains open for acceptance for a period
of 21 days ... thereafter it can only be accepted if we agree the liability for costs or the Court
gives permission ...’ It was not open for acceptance beyond 21 days and therefore was not a
Part 36 offer so could not have been accepted by the defendant.
Conclusion
CPR Part 36 is extremely prescriptive and it is vital that its requirements are adhered to. The
irony in this case is that if the claimant had been awarded more than £20,000 at trial he would
undoubtedly have argued that his offer was compliant with Part 36 and the defendant would
have argued the opposite.
Peter Fitzpatrick
Partner
Claim values for the TCC
Westcountry Renovations Limited v McDowell [2012] EWHC 307 (TCC)
New guidance has been issued for what class and value of claims are suitable for issue in the
High Court and which should be issued in the County Court.
A final account dispute arose between the claimant builder and the defendant property owner
resulting in a claim for some £104,000 being issued in the Technology and Construction Court
(TCC) in the High Court in London. At the first Case Management Conference, Mr Justice
Akenhead transferred the case to the TCC in the Central London County Court despite the
parties’ protestations. He explained that the TCC has become a victim of its own success due
to its case management practices and ability to secure early trial dates. As a consequence,
there is a real risk that this efficiency could be impacted if the High Court is required to handle
an excessive number of low value claims.
Generally, claims for less than £250,000 should now be commenced in the county courts or
other High Court centres outside London which have TCC designated judges. However, a
non-exclusive list of exceptions is as follows:









Cases involving adjudications, including enforcements and arbitrations.
International cases of any value.
Cases involving new or difficult points of law in TCC business or which have issues of
technical complexity suitable for a High Court judge.
Any test case, or a case which will be joined with others and treated as a test case.
Public procurement cases.
Part 8 and other claims for declarations.
Claims which cannot readily be dealt with effectively in a County Court or Civil Justice
centre by a designated TCC judge.
Complex nuisance claims brought by a number of parties, even where the sums
claimed are small.
Claims for injunctions.
Comment
Litigants now run the risk that, if they select an inappropriate court to issue a claim, the court
may transfer the case on its own motion often resulting in a delay and possible adverse cost
consequences. The implication for parties whose cases will now run in the County Court is
that their cases will have to take their place in the (slower) County Court’s listing system. In
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some instances, the route of appeal will be to the TCC, not the Court of Appeal and it is
uncommon for County Court decisions to be reported. In light of this, the option of
commencing proceedings in TCC centres outside London may well be more attractive to
litigants.
John Lambert
Solicitor
Are claims consultants’ communications protected by legal
advice privilege?
Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 649 (TCC)
Whether or not communications with a claims consultant can be precluded from disclosure on
the basis of legal advice privilege has been considered by Mr Justice Akenhead. In this case,
the claimant builder had been engaged to construct a substantial house by DMW
Developments Limited (DMW). As a result of numerous delays in the project and grants of
extensions of time by the contract administrators, DMW engaged a firm of claim consultants
to provide contractual and adjudication advice. The claims consultancy employed legally
qualified members of staff (although there was no evidence before the court as to the exact
status of their qualifications at the material time). The claimant argued that the
communications between DMW and the claims consultant ought to be disclosable but DMW
argued that the documentation attracted legal advice privilege and therefore was not
disclosable.
Mr Justice Akenhead held that the claims consultancy had not been retained to provide legal
advice services and therefore the status of the individuals providing the advice was irrelevant
in such context. The consultancy had not been retained as solicitors or barristers but rather to
provide claims and project handling advice. As a result, the judge ordered that the
documentation was (and ought to have been) disclosable by the claimant.
Comment
Parties to a possible dispute must be careful to ensure that the advice being sought is being
provided by solicitors or barristers in the context of providing legal advice if such
communications are to benefit from legal advice privilege (and protected from subsequent
disclosure). This particular decision turned solely on the issue of whether or not the
documentation came within the ambit of legal advice privilege. The judge made clear that his
judgment did not deal with issues of litigation privilege and that there remains an outstanding
issue as to whether or not advice and other communications given by a claims consultancy in
connection with possible court proceedings are privileged. He noted that there is little
authority on the latter and that issues of public policy will need to be addressed if and when
such arguments come back before the court.
Warren King
Partner
Editors
Catherine Hawkins
catherine.hawkins@blm-law.com
Mark Benson
mark.benson@blm-law.com
Warren King
warren.king@blm-law.com
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 Berrymans Lace Mawer LLP 2012
Disclaimer
This document does not present a complete or comprehensive statement of the law, nor does it constitute legal
advice. It is intended only to highlight issues that may be of interest to clients of Berrymans Lace Mawer. Specialist
legal advice should always be sought in any particular case.
Information is correct at the time of release.
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