June 2011
Introduction
In this edition we report on the Court of Appeal's decision in D Sousa, perhaps a further death
knell on the road to Lord Justice Jackson's proposed abandonment of recoverable success fees,
and an interesting first instance decision on a defence to a nuisance claim based upon
compliance with a licence permitting the activity causing the nuisance complained of. We also
consider another repudiation for fraud, further developments under the DPA, limitation and
‘inherent vice’. We hope the short summaries are helpful.
Cathy Hawkins
Partner
Mark Benson
Partner
Contents
Recoverability of success fees
A licence to commit nuisance
A strict approach to fraud
Are improvements works caught by the DPA?
Inherent vice – the perils of losing your sea legs
Act on your suspicions – Limitation & date of knowledge
Editor
Warren King
Partner
warren.king@blm-law.com
Recoverability of success fees
D Sousa v Waltham Forest London Borough Council [2011] EWCA Civ 194
Due to the prevalence of ‘no win, no fee’ agreements the recoverability of legal costs in
subsidence cases is currently a hot topic. Generally speaking, costs follow the event and so if a
claim for damages is successful, claimants are able to recover their legal costs.
The recoverability of success fees in subrogated CFA claims has just been considered by the
Court of Appeal (CA). In this case the policyholder suffered loss as a result of the acts of the local
authority. The insurer indemnified its insured and exercised its rights of subrogation against the
local authority. The insurer therefore agreed to indemnify the claimant policyholder in respect of
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any liability to costs and instructed solicitors under a CFA. The solicitors successfully negotiated
settlement of the claim on terms that included an agreement for the defendant to pay the
claimant’s costs on the standard basis. The local authority contended that it should not pay a
success fee on the basis that the claimant had the benefit of a full indemnity for his costs from his
insurer. It was therefore unreasonable for the claimant to enter into a CFA at all.
At first instance, the court held that as the claimant himself was never at risk for the legal costs it
was unreasonable for him to rely on a CFA. Accordingly, the court disallowed the success fee but
granted the claimant permission to appeal. The appeal was granted and the success fee allowed
by the High Court which considered that the subrogation arrangement was irrelevant. The council
appealed to the CA and the appeal was dismissed so the claimant was entitled to recover his
costs including the success fee. In making its decision the CA looked at the purpose and intention
of a CFA and the guidance given by the CPR. The claimant’s insurer had the same right to enter
into a CFA and recover a success fee as the claimant, notwithstanding the subrogation
arrangement.
The decision surrounding the recoverability of the success fee centred on whether the costs had
been unreasonably incurred or were unreasonable in amount. If the indemnity (from the insurer)
was ignored then there was no reason why the claimant should not be able to enter into a CFA
with a success fee. After considering all the circumstances the CA held that the indemnity was
irrelevant. The case arose from a subrogated arrangement and the claimant had no option but to
do what his insurer requested in pursuing the claim. The claimant had no power to remove the
CFA arrangement and he had no control over the proceedings. It was reasonable for the insurer
to enter into a CCFA, and, as the council conceded, if the court were to be permitted to look
behind the subrogation arrangements it was in any event reasonable for an insurer to enter into
such funding arrangements – this followed the House of Lords earlier decision on Campbell v
MGN (No 20) (2005) UKHL 61: ‘the mere fact that a person is able to fund litigation without
resorting to a CFA does not make it unreasonable for him to do so.’
Comment
This decision has obvious benefits for property insurers pursuing claims under a CFA. However,
Jackson LJ’s criticisms of the current regime of CFAs will mean that success fees and ATE
premiums will generally not be recoverable if his proposed reforms are fully implemented. For the
time being liability insurers should therefore continue to reserve taking into account base costs
and success fees on subrogated claims.
Helen Westran
Solicitor
A licence to commit nuisance
Derrick Barr & Others v Biffa Waste Service Limited [No 3] [2011] EWHC
1003 (TCC)
A landfill site operator which complied with the detailed requirements of its operating permit was
held not to be liable in private nuisance for the inevitable consequences of the permitted activities
as it had not acted negligently in carrying out the activities.
Residents of a housing estate brought claims in nuisance in respect of odours emanating from
the defendant’s landfill site. The principal defence of statutory authority was rejected by Mr
Justice Coulson. In the alternative, the defendant argued that if it had complied with the extensive
and detailed obligations imposed by virtue of environmental legislation and its operating permit, it
would be unfair for it to be found liable in nuisance without having acted negligently. The
claimants argued that their common law right to sue in nuisance (without the need to show
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negligence) had not been affected, let alone excluded by the environmental legislation. Mr Justice
Coulson held that, such was the weight and extent of legislation in this area, it would be
unsatisfactory if an activity was permitted under these detailed rules (that had been carefully
considered by Parliament) but at the same time could give rise to liability in common law. Acting
in accordance with the terms of the permit would provide a complete defence to any criminal
prosecution or to a claim for statutory nuisance. Mr Justice Coulson held that the same should
also be true for a claim in private nuisance. Therefore the defendant’s use of the land in
accordance with the terms of the permit was reasonable and all the claims failed as a matter of
principle.
Comment
Although nuisance cases tend to be very fact-specific, this first instance decision raises a legal
issue of wider application that will be welcomed by operators such as the defendant. In areas
where Parliament has enacted a considerable body of legislation (such as in environmental
matters) the courts appear unwilling to impose a liability under common law in respect of the
inevitable consequences of the permitted activities in circumstances where operators comply with
this legislation.
Edwin Millburn
Solicitor
Fraudsters beware – A strict approach to fraud
Aviva Insurance Limited v Roger George Brown [2011] EWHC 362 (QB)
The defendant made a subsidence claim under his home insurance policy in respect of 13 Frien
Barnet Lane which entitled him to alternative accommodation whilst repair works were
undertaken. He informed the claimant insurance company that access for the works would not be
a problem because he also owned the neighbouring property, number 15. After a delay in the
insurance claim, the insured wrote to the loss adjusters to propose a suitable alternative property,
38 Lyonsdown Avenue. He stated that he had ‘spoken to the agents who have been in touch with
the owner’ and that he was not sure it would remain available, unless approval from the insurer
was obtained without delay.
The move to the alternative property, 38 Lyonsdown Avenue, never materialised as the
defendant’s wife refused to live there. Instead, the couple decided to move to 15 Frien Barnet
Lane, next door to their main property. This property was let to a company of which the defendant
and his wife were directors and majority shareholders. On advice from his tax accountant, the
defendant carried out this transaction at arms-length, subletting the property from the company.
However, in one instance, he telephoned the loss adjusters with regards to a late payment,
saying that he was ‘being chased by the landlord’.
The defendant claimed £58,500 for alternative accommodation. On later discovery of the
ownership issues, the insurer claimant repudiated the entire claim and sued on the basis that the
defendant’s claim for alternative accommodation was fraudulent because the defendant also
owned 38 Lyonsdown Avenue and could have lived there without incurring rental costs. Further,
the tenancy agreement between the defendant and the company for 15 Frien Barnet Lane was
also false because the defendant controlled the company and had failed to disclose his majority
shareholding.
The court held that the defendant’s representations in respect of 38 Lyonsdown Avenue were
false and made dishonestly by the standards of ordinary and honest people. The defendant knew
that his actions were dishonest and it was irrelevant that the couple eventually decided not to
move there. Although the arms-length transaction involved in letting 15 Frien Barnet Lane was
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considered reasonable, the defendant’s claim to have been ‘chased by the landlord’ was
fraudulent.
The consequence of the defendant’s fraudulent actions concerning number 38 and number 15
was that the claimant insurer was entitled to recover not only the £58,500 in respect of the
alternative accommodation claim, but also the costs of repairs, as both sums were part of the
same claim arising out of the subsidence of the defendant’s matrimonial home.
Comment
This case demonstrates the strict approach taken by the courts in instances where the insured is
demonstrated to have acted fraudulently. Provided such fraudulent conduct is neither
insubstantial or immaterial, an entire claim can become at risk of forfeiture.
Daniel Steel
Solicitor
Are improvements works caught by the DPA?
Desmond Jenson v S Jenson & S Faux [2011] EWCA Civ 423
Section 1(1) of the Defective Premises Act 1972 provides a remedy to house purchasers for
defects within the dwelling against a party who took on work in connection with the provision of
that dwelling. In this case the Court of Appeal (CA) was asked to consider whether remodelling
works to an existing dwelling were caught by the Act.
In 2003 the first defendant arranged (with the second defendant’s project management services)
for extensive works to be carried out including the remodelling and extension of a loft space,
remodelling of the first floor to provide for a bathroom in place of a bedroom, the complete gutting
of the ground floor including the installation of a new and extended kitchen and replacing a coal
cellar with a new extended basement providing shower and laundry rooms, a cinema and gym. In
November 2007 the claimant purchased the house from the first defendant. Shortly thereafter the
basement was damaged by water ingresses caused by defects within the basement
waterproofing.
The claimant argued that the remodelling works were so extensive that the character of the
property had changed to such an extent it ought to be considered a new dwelling for the purposes
of the Act.
The CA (firmly) disagreed. No new or separate dwelling was created – indeed even if an
additional floor had been added the CA would not have found that a ‘new dwelling’ had been
created. Although it was accepted that there is a grey area where it may be genuinely arguable
that remodelling works were so extensive that they changed the identity of the dwelling, in this
claim the works were not of that character.
Comment
Parties without a contractual right to damages for defects within a house will now find it even
harder to obtain redress for any damage caused to the house itself. This restrictive approach to
the application of the DPA will be welcome news to builders and construction professionals who
will otherwise be able to rely upon a pure economic loss defence. It will still be open to a claimant
to pursue a DPA claim if a new dwelling is created (by extension to an existing dwelling) or if the
works are so extensive as to completely change the character of the house – that, it is submitted,
will require extremely extensive works. Failing that, a claimant with defects within a house will be
best to consider whether the survey obtained on purchase may provide a route of redress.
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Warren King
Partner
Inherent vice – the perils of losing your sea legs
Global Process Systems Inc and Another (Respondents) v Syarikat Takaful
Malaysia Behrad [2011] UKSC 5
In February 2011, the Supreme Court delivered its judgment on the case of the The Cendor
MOPU, a decision which will limit the use of the inherent vice defence. The term inherent vice
refers to a hidden defect or the very nature of the property which is itself the cause of its
deterioration, damage or wastage. Although a marine case, the issue of inherent vice has wider
application to insurance claims in general.
The Cendor MOPU was an oil rig being transported from Texas to Malaysia. Each of its three
legs had a length of 312 feet and during transit the legs were left in place jutting into the air. The
insured’s policy covered ‘all risks of loss or damage to the subject matter insured except as
provided in clause 4’. Clause 4 excluded ‘loss, damage or expense caused by inherent vice or
nature of the subject matter insured’.
In the course of its journey, progressive stress fatigue led to the legs breaking and all three fell
into the sea and were lost. The insured claimed under their policy, and the insurer repudiated the
claim in reliance upon the clause 4 exception.
The Commercial Court ruled that the defence of inherent vice would succeed and that the insurer
was not liable. It found that the legs were unable to withstand normal incidents of the voyage
including the weather reasonably to be expected.
This ruling was overturned in the Court of Appeal which held that a ‘leg-breaking wave’ caused
one leg to break first, and therefore placing stress on the other two legs, which was held to be the
proximate cause of the loss and not an inherent vice.
The Supreme Court unanimously ruled against the insurer’s appeal. The Supreme Court held that
the loss was proximately caused by a peril of the sea which was an insured event, and not
caused by inherent vice in the legs themselves. For the loss to have been excluded as an
inherent vice it would need to have suffered the loss irrespective of any fortuitous event. The ‘legbreaking wave’ was an external force which caused the leg to break and therefore it was a peril of
the sea. The loss may have been likely but was not inevitable and therefore not an inherent vice.
Comment
The Supreme Court’s judgment demonstrates the court’s reluctance to find damage has been
caused as a result of inherent vice in circumstances where the loss occurs in conjunction with an
insured peril. Insurers may get better protection by ensuring that policy wording excludes likely
(but not certain) damage caused from inherent vice.
Emma Gething
Trainee solicitor
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Act on your suspicions – Limitation & date of knowledge
Clinton Eagle v Redlime Ltd [2011] EWHC 838 (QB) & Renwick v Brooke (1),
Attwell (2) & Aquarend (3) [2011] EWHC 874 (TCC)
The Latent Damage Act 1986 was passed in order to correct the perceived unfairness in the
House of Lord’s decision in Pirelli v Oscar Faber in 1983. It inserted s14A into the Limitation Act
1980 creating an additional three years from date of knowledge in which to bring a claim in tort if
the cause of the claim was unknown at the time the normal cause of action arose. The Act
however created its own uncertainty in relation to what degree of knowledge is needed in order to
trigger s14A of the Limitation Act 1980. These two cases give some guidance on this issue.
The first point to note is that reliance on s14A is only needed if the initial six year limitation period
from the date of damage has expired. If so s14A provides an extension of three years starting
from the date of knowledge of the damage. This is why the date of knowledge is so important.
In Clinton Eagle (E) v Redlime (R) R built a concrete base upon which E subsequently had a dog
kennel built. In early 2006 E noticed cracking in the concrete base and carried out repairs. Six
months later E noticed further cracking and called R back in to investigate and sought legal
advice. He also wrote to R seeking a reply on the ‘subsidence issue’. R denied liability. E
obtained an expert's report dated 15 November 2006 and issued proceedings on 29 October
2009.
On the hearing of the preliminary issue of whether E's proceedings had been issued within the
three years laid down by s14A the court held that they had not. It is not necessary for the
purposes of s14A for the claimant to be certain of the cause of its loss, only that it needs to
undertake further enquiries. That that was E's position at least before 29 October 2006 was
evidenced by the fact that he had instructed lawyers and a structural engineer.
In Renwick (R) v Attwell (A) & Others. A was a firm of structural engineers employed by R in
connection with the construction of an underground extension. Unfortunately the room proved not
to be watertight. R brought proceedings against the architect, A and the contractors. A applied for
the proceedings to be struck out on the basis that they were time barred.
The extension was completed in November 2001 but suffered ingress of water almost
immediately. In February 2002 Mrs Renwick wrote to the architects intimating the need to bring
proceedings against A. In March 2002 the Renwicks terminated their contract with the contractor.
The Renwicks issued their proceedings on 26 July 2010. They pleaded that they had been
investigating the cause of the ingress since 2008. A applied for summary judgment arguing that
the claimants had the requisite knowledge to satisfy s14A by March 2002 at the latest.
Mr Justice Akenhead held that the Renwicks had sufficient knowledge in 2002. He accepted that
at that stage they did not know exactly what the claim against A was but that they did ‘have
sufficient knowledge to justify embarking on the preliminaries to the issue of a claim’.
Comment
It might be thought that three years is long enough to investigate a potential claim although on
occasion we are only instructed after such period has already expired. If a claimant is able to
avail himself of s14A he (and of course his lawyers) need to be alive to the fact that time is
running. The important point to bear in mind is that a claimant's time starts to run when he has
sufficient knowledge to suspect that he has a claim, not when he has sufficient information with
which to plead a claim.
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Peter Fitzpatrick
Partner
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