England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		02/02/2011

Mr Justice Blair:

1. This is a claim by the owners of Camden Market in north London brought against the defendants, their former insurance brokers. The claim arises out of a major fire which occurred on 9 February 2008 in the part of the market called the Canal Market. This part of the market is owned by the two claimant companies. The cause of the fire was a liquefied petroleum gas (LPG) portable heating appliance which was left on in one of the stalls and which ignited clothing set out for sale in the stall. The fire was detected shortly after the market had closed for the day. In short, the claimants allege that through the negligence of their brokers, they incurred a loss in settling the claim arising from the fire with their insurers, which they did in July 2008. Apart from liability, the issues at trial have centred on causation, as well as on quantum and contributory negligence.

The facts

The evidence at trial

2. Each side had criticisms of the adequacy of the other's disclosure (which criticisms I refer to below where necessary), though there was nevertheless a considerable body of documentary evidence adduced at trial, including from the insurers' file relating to the policy and subsequent claim. Oral evidence was given by eight witnesses of fact for the claimants, and six witnesses of fact for the defendants. In addition there was expert evidence from the claimants in the form of broking evidence, and evidence as to quantum from the defendants. I shall evaluate the evidence in the context of the contested issues of fact, of which there are a number. It will be most convenient to set out my findings of fact on a chronological basis.

The making of the policy

3. Camden Market is a longstanding London market which incorporates hundreds of units and stalls which are operated by different traders selling (among other things) clothing. A considerable number of the stalls are in the open air. Part of the market lies to the west of Camden High Street/Chalk Farm Road and is known as "Stables Market", and is or was made up of some 400 stalls. Part of the market lies to the east of that road, and is known as "Canal Market", and is or was made up of some 80 stalls, occupying approximately two acres alongside the Regents Canal.
4. The defendant broker, Jardine Lloyd Thompson UK Ltd ("JLT") was first instructed in March 2005 at which time the market's insurance cover was with AXA. JLT acted as brokers pursuant to instructions received from the company responsible for the overall management of Camden Market, The Stables Market (Camden) Ltd ("TSMCL"). TSMCL acted as agents for the individual companies interested in the various properties insured. The ultimate parent company of the companies which own the various interests in Camden Market is Camden Market Holdings Corp, which is a BVI registered company. Nothing turns on the corporate structure of the ownership of the market. In this litigation, the defendants emphasise the separate nature of the two markets, while the claimants emphasise that they operated as a whole at least for some purposes including the placing of insurance. Where appropriate, I refer to them together as "the market" for convenience.
5. The person with primary responsibility for the account on the brokers' side for most of the period relevant to this case was Mr Ted Pearce, a Broking Director at JLT. His principal contact at TSMCL was Mr Charlie Joory, who had experience in the insurance industry in Israel, and who was financial manager for the market. Mr James Lawrence who advised Camden Market on various financial matters was involved on matters relating to financial aspects of the insurance cover, but as he said (and I accept) not on the issue relating to portable gas heaters which was left to Mr Joory and the market managers. The brokers looked at alternative insurers, and arranged for the market to be surveyed by Fusion Insurance. Fusion acted as an underwriting agency for the insurer, Aviva Insurance Ltd trading as Norwich Union. That survey took place on 17 March 2005, and on 23 March 2005 Fusion issued a quotation. On the defendants' recommendation, Fusion's quotation was accepted, and the policy was issued at the end of the month. One of the reasons given for the defendants recommending transfer to Fusion was, "Their approach towards a long term relationship with Camden Market and willingness to work with you".
6. Fusion's quotation stipulated that one of the matters that needed to be addressed was the removal of portable heating appliances (PHAs) from the market. This is consistent with the evidence at trial to the effect that insurers regard the use of portable heaters of the LPG, paraffin or open bar radiant heating type, that is, those powered by gas cylinders and having a naked flame, as a fire hazard, particularly in an environment such as a market. The position in this respect was helpfully spelled out in the joint memorandum produced for the trial by the broking experts, who concluded that the insurance market would broadly have required removal of unacceptable PHAs on an agreed and qualified basis and subject to a timescale.
7. It may be noted however that the defendants' report which recommended that the claimants should accept Fusion's quotation identified each of Fusion's requirements except for the requirement to remove PHAs from the market. No plausible explanation was given at trial for the omission of that requirement, and whilst it is of limited significance in itself, it was not a good start to addressing what was to prove to be a difficult issue. I am satisfied from the evidence as a whole that in general terms the problem stemmed from the fact that stall holders and others working in the market needed some means of keeping warm in winter. The operators of the market would not allow electrical heaters primarily because, used on an un-metered basis, it would potentially be costly for the owners. That left limited options, and the evidence showed that prohibitions on portable gas heaters were not fully observed. It seems that the issue arose mainly (the defendants would say only) in the context of the Stables Market. In drawing a distinction for these purposes with the Canal Market, among other things they rely on the fact that the claimants' position on the pleadings (amended at the beginning of the trial) was that all practical steps were taken to ensure that PHAs were removed from the Canal Market. At trial, I heard evidence from the manager of the former, but not the latter. As I shall explain, the problem was compounded by the fact that the identification of safer heaters was raised but not pursued. Leaving aside differences in the position in the individual markets, I am satisfied on the evidence that the problem with PHAs was recognised by those concerned, but was never properly addressed until after the fire.
8. The Policy was a "Property Owners' Policy" which included material damage cover (Section A) and loss of rent cover (Section B) for a number of separate premises (separately owned), including Canal Market and Stables Market, and some adjacent buildings (particularly relevant for present purposes being numbers 1-9 Chalk Farm Road which were also damaged in the fire). The Policy also provided Employers' Liability and Property Owners' Liability (Section C) and Terrorism cover (Section D). By the time of renewal in 2007, the material damage sum insured exceeded £60 million. As regards Stables Market, the buildings declared value was £7 million and in respect of the Canal Market the declared value was £250,000. When the fire occurred in the Canal Market, it was the fact that it spread to adjacent properties insured under the policy in Chalk Farm Road and Castlehaven Road that caused the scale of the loss in financial terms.
9. The defendants say (though the claimants do not accept this) that the Policy was a "composite" policy, insuring the various insured entities separately in respect of their interests in the insured premises. The provisions of the Policy which have featured in the arguments of the parties are as follows. Section A (the material damage section) was written on a reinstatement basis, and contained a "non-invalidation clause" (clause 10) in the following terms:

"This insurance shall not be invalidated by any act or omission or by any alteration whereby the risk of Damage is increased unknown to or beyond the control of the Insured provided that the Insured immediately they become aware thereof shall give notice to the Underwriters and pay an additional premium if required."

10. Clause 2 of the General Policy Conditions included a "reasonable care" clause in conventional terms which provided so far as relevant as follows:

"It is a condition precedent to any liability of the Underwriters to make any payment under this Policy that the Insured shall take all reasonable care

(a) To prevent any occurrence which may give rise to a claim under this Policy

(b) In the selection and supervision of employees."

11. Clause 15 of the General Policy Conditions included a "subjectivity clause" which gave the Insurer the right in certain circumstances to amend or withdraw cover:

"(a). The Underwriters will clearly state in a Subjectivity Endorsement attaching to the Schedule or a Section Appendix if the indemnity provided by this Policy is subject to the Insured:

(i) providing the Underwriters with any additional information requested by the required date(s)

(ii) completing any actions agreed between the Insured and the Underwriters by the required date(s)

(iii) allowing the Underwriters to complete any actions agreed between the Insured and the Underwriters.

(b). If required by the Underwriters the Insured must allow the Underwriters access to any of the Insured's premises contract sites or the Business to carry out survey(s) within 60 days of the inception or renewal date unless the Underwriters specify an alternative timescale in writing.

Upon completion of these requirements (or if they are not completed by the required dates) the Underwriters may at their option:

A) Modify the premium

B) Issue a mid-term amendment to the policy or Section terms Exceptions and Conditions

C) Require the Insured to make alterations to the premises or contract sites insured by the required date(s)

D) Exercise their right to cancel the policy

E) Leave the policy or Section terms Exceptions and Conditions and the premium unaltered.

The Underwriters will contact the Insured or their representatives with their decision and where applicable specify the dates(s) by which any actions(s) agreed need to be completed..."

12. Clause 3 of the General Policy Conditions was a "cancellation clause" which permitted the Insurers to cancel the Policy, or any part thereof, on 7 days' notice to the Insured.

Events in 2006 and 2007

13. Camden Market was by nature not a straightforward risk, but the following account of the facts necessarily will focus on matters relevant to the fire risk posed by the PHAs. On 13 March 2006, that is, shortly before the first renewal was due, Fusion carried out a pre-renewal survey. Following that survey the defendants prepared a pre-renewal report for their clients. The report set out Fusion's requirements, of which there were a number. It identified among the issues to be addressed the removal of "hazardous heaters and associated gas cylinders" in Stables Market. On 31 March 2006, the Policy was renewed for another year.
14. On 2 May 2006, a further survey of the market was carried out by Fusion's risk control surveyor, Mr Paul Keen. Following his survey, Mr Keen prepared a number of so called "Risk Improvements". The survey says that "implementation of Risk Improvements is considered essential". One of them (RI 2006-03) related to PHAs, which were said to be a severe fire risk, and had to be removed. Mr Keen told me in evidence, and I accept, that this applied to the whole market, i.e., the Stables and Canal Markets. On 19 May 2006, Fusion sent a copy of the Risk Improvements to Mr Pearce of the defendants. In relation to RI 2006-03, it was noted that portable LPG heaters were being used by some tenants (i.e. traders) in breach of their tenancy agreement (that is their agreement with the market). Fusion stated that it was not possible to apply the RI as a warranty as Mr Keen had suggested, "since your client will not have day to day control over the individual units and stalls", but that Fusion would require "confirmation that all unacceptable heating appliances have been removed". This Risk Improvement "needs to be implemented immediately".
15. Mr Pearce sent the Risk Improvements to Mr Joory of the claimants under cover of a letter dated 22 May 2006. Although the survey report had not expressed a time for compliance, Mr Pearce's explanation stated that the risk improvement "needs to be implemented immediately". The defendants rely on this document, since, as they point out, once the reference to immediate time for compliance is added in, this risk improvement is the same as that issued in October 2007. As will be seen in due course, unlike RI 2006-03, this later risk improvement was not passed on, and the claimants rely on this omission as giving rise to liability on the part of the brokers.
16. Some time later (23 August 2006), Mr Pearce received an e-mail from the then manager of Stables Market (at that time Mr Sim Hemo) stating that no PHAs were allowed. Mr Hemo enclosed a copy of the standard tenancy agreement, and a memo dated 18 August 2006 sent to "all Stables Security" reminding them that part of their duties was to ensure that none of the traders were using any portable heaters like patio heaters and did not store any LPG cylinders on site. Mr Hemo did not give evidence at trial, but the defendants say that this shows that there was an absolute prohibition on the use by tenants of PHAs in the Stables Market and that that prohibition was rigorously enforced by daily checks with offending heaters being confiscated by security guards. However in September 2006, Mr Hemo was replaced as the manager of Stables Market by Mr Roi Mengelgrein. He did give evidence, and he gave a different picture of what was actually happening.
17. Mr Mengelgrein is a young man who appeared to me to have been attempting as best he could in less than ideal circumstances to deal with the problems of running Stables Market. Despite attacks on his evidence by the defendants, I regarded him generally as a reliable witness. As regards gas heaters in that market, he said that while technically they were banned, this ban was not enforceable on practical grounds. In his oral evidence, he suggested that it was the ban on electric heaters that was enforced. In fact, he went further, and said that the agent of Calor Gas would rent traders heaters through the winter for free, as long as the agent could supply the gas.
18. The Policy was due for renewal again at the end of March 2007, and on 25 January 2007 a further survey of the market was carried out by Mr Keen accompanied by Mr Pearce of JLT. It is unclear whether Mr Mengelgrein was there. Mr Keen says "New person not seen but appears pro active", which suggests that he was not, but someone from the market must have gone round with them. This, as Mr Keen's report makes clear, was a survey of all the insured premises, including both Stables Market and Canal Market. The survey report recorded a number of "negative features" including the following:

"Use of Portable LPG heaters which breaches tenancy agreements. Warranty to be applied as Insured although enforcing is not keeping on top of this aspect. Tenants reminded but clearly flaunting rules. Broker on site suggested applying warranty. This will not suffice as we knew they are in use. Heaters must go and situation must be managed."

This is contemporaneous evidence as to the factual state of affairs in the market at the time, that is to say, January 2007, and I am satisfied that it is accurate.

19. The reference to "Broker on site suggested applying warranty" is a reference to what Mr Keen says was Mr Pearce's suggestion that Fusion apply a warranty to the policy regarding the PHAs. Mr Pearce himself said in evidence that he thought he had spoken to Mr Mengelgrein and believed that it would have been highlighted that heaters were not allowed in the market. (It is quite possible in my view that they spoke after the survey was finished, but in the light of subsequent emails the precise mode of communication between them does not seem to be a major issue.) Mr Pearce suggested in evidence that the problem was a "couple of heaters" that "were continuing to turn up in the specific catacombs area of the Stables Market" (the catacombs area of the market was subsequently demolished). On 7 February 2007, Fusion sent Mr Pearce a copy of Mr Keen's survey report, but he did not forward it to the claimants. Fusion's covering email stated, "We need to have a discussion around each point raised and agree a way forward post renewal" (renewal as I have said was due at the end of the following month).
20. The claimants submit that it is remarkable that an insurance broker should suggest that terms be imposed which restrict the cover for his insured client. It is even more remarkable, it is submitted, that having done so the broker should not pass that information on to the client. Mr Pearce in oral evidence said that he never intended that Fusion would actually apply a warranty, but that he wanted the client to be making sure that the heaters were removed from the catacombs area. He regarded the report as having been supplied in confidence to him, and did not pass it on for that reason.
21. I am satisfied that whatever his reasoning, Mr Pearce did in fact make this suggestion as Mr Keen's memo says he did. The significant point however, in my judgment, is the light which this sheds on the state of Mr Pearce's knowledge. The defendants say in their closing submissions that Mr Pearce's "evidence that he was led to believe that the prohibition was in force, and was rigorously enforced to the best of the assureds' ability including the confiscation of heaters if located, should be accepted". It is submitted that where a broker deals face to face with a client (as here), the broker is entitled to assume that what the client is telling him about compliance with the insurer's requirements is truthful, unless the broker is on notice of directly contradictory evidence. The "mere fact that from time to time heaters were brought onto the Stables Market by tenants in one or more of the 400+ stalls, with the result that heaters were seen on the surveys, does not", it is submitted, "evidence the fact that the prohibition has been relaxed or is no longer properly enforced. JLT would have had no reason to assume, from the presence of a handful of heaters, that the prohibition was not being enforced, and this was Mr Pearce's consistent evidence". In submissions (and supplementary submissions filed after the hearing), it is said that Mr Mengelgrein misled the defendants and Fusion to believe he was enforcing the ban. In addition to that of Mr Pearce, reliance is placed on the evidence of Mr James Lawrence and Mr Anthony Harris, though these do not appear to me to be conclusive on this point.
22. This was an important plank of the defendants' case. Its resolution mainly depends on whether I prefer the evidence of Mr Pearce or Mr Mengelgrein on the point. But whilst I regarded Mr Pearce as an honest witness, I cannot accept the defendants' submission, nor do I think that it properly reflects the somewhat qualified nature of his evidence, particularly as to whether there was in reality "rigorous enforcement" of the prohibition. In his evidence, Mr Mengelgrein was asked whether he was telling the defendants and Fusion that they were enforcing the ban, and said, "We said that we were trying to enforce it. In reality, we didn't enforce it properly". That and other passages in his evidence are relied on by the defendants to show that Mr Mengelgrein misled JLT and Fusion to believe he was enforcing the ban. However, later he said that "technically" PHAs were banned, which was what the insurers wanted, and what the brokers wanted, but that, "In reality they were there, and I believe everybody knew they were there". I accept this part of Mr Mengelgrein's evidence so far as the brokers are concerned, which appears to me to coincide with the overall factual picture. The fact is that PHAs were found on each of Mr Pearce's visits to the market. Specifically as regards the January 2007 visit, I am satisfied that Mr Pearce would not have suggested warranting the policy unless he regarded the presence of PHAs in the market as a serious issue which the clients had to face up to. I do not accept that he considered that this problem was limited in application to the catacombs area, or that he believed that the client was rigorously enforcing the ban, but that a number of heaters managed to slip by. Had that been the case, the problem would have been relatively containable, but he did not regard it in that way, and the warranty suggestion was clearly intended to spur further action by the client. I can see that he may (perhaps not unreasonably) have felt that the survey report was not intended to be passed on, but the report did underline the importance of the issue so far as the insurers were concerned, any confidentiality was lost when it was sent to the brokers, and in my view he should have passed it on.
23. As the defendants point out however, the evidence shows that Mr Pearce did take steps to follow up on the issue, even though he did not forward the survey. On 14 February 2007, he sent an email to Mr Mengelgrein (copied to Mr Joory) relating to Fusion's survey and detailing "the issues that require attention". The fire risk was the first of these. He said:

"Stables Market

It is apparent that a small number of tenants are still using Portable LPG heaters which you have advised breaches tenancy agreements. I know that Sim had instructed your security that these should not be used. The Fusion have advised that the only acceptable portable heating would be electric quartz linear or oil filled radiators and they need to see this being enforced."

24. He was saying clearly therefore that Fusion would not accept portable LPG heaters and that "they need to see this being enforced" (the claimants say that this was in the context of renewal, not as regards PHAs as affecting cover, but I do not see that this makes much difference). In any case, it is important in the light of subsequent events to see what happened next. On 17 February 2007, Mr Mengelgrein replied to Mr Pearce copying in Mr Joory and Mr Shai Yaari (who was in charge of security at the market). Mr Mengelgrein ("Roi") added his comments to Mr Pearce's email in capital letters as follows:

"It is apparent that a small number of tenants are still using Portable LPG heaters which you have advised breaches tenancy agreements. Roi: THAT IT TRUE, BUT ONLY HAPPENS IN THE WINTER.

I know that Sim had instructed your security that these should not be used. Roi: YES, WE MONITOR THESE TO OUR BEST ABILITY.

The Fusion have advised that the only acceptable portable heating would be electric quartz linear or oil filled radiators and they need to see this being enforced. I WILL LOOK INTO THESE TO SEE WHAT THEY ARE."

25. By this email, Mr Mengelgrein was saying that it was true that a small number of tenants were still using portable LPG heaters. As Mr Pearce would have appreciated, the fact that it "only happens in the winter" was immaterial, since that was when heaters were required. The question for the parties was what to do about it, and Mr Mengelgrein was saying that he would look into alternative heaters.
26. On 21 February 2007, Mr Pearce emailed stating that the "use of portable LPG heaters needs to be addressed. It is likely that Fusion will now warrant the Policy to this effect. This would mean that any fire caused by such heaters would not be insured. This would not be a unique approach by Fusion as all insurers have major concerns over the use of portable LPG heaters". On 23 February, he emailed saying that "No portable heating to be permitted especially LPG units. The only acceptable portable heating would be electric quartz linear or oil filled radiators". Mr Mengelgrein said that in conversation as opposed to writing, Mr Pearce did not emphasise the seriousness of the matter. Nevertheless, this email shows him stating the position clearly.
27. On 20 March 2007 Mr Mengelgrein sent an email to Mr Pearce with draft suggestions as to the issues he had raised. In relation to PHAs, Mr Mengelgrein's proposed response was, "No heaters shall be allowed in the units. Any tenants apposed to this must obtain IEE [Institution of Electrical Engineers] certification and Gas Safety Certification. Ask Shai details about these certificates…".
28. According to the record, Mr Mengelgrein issued a memo dated 25 March 2007 as follows:

"DEAR TRADERS,

GAS HEATERS IN YOUR UNITS

FOR THOSE TRADERS WHO ARE NEW TO THE STABLES AND CANAL MARKET, THIS LETTER IS TO NOTIFY YOU THAT NO GAS HEATERS ARE PERMITTED IN YOUR UNITS.

PLEASE BE AWARE THAT IN THE EVENT OUR SECURITY FIND THAT YOU ARE USING GAS HEATERS, THEY WILL BE REMOVED IMMEDIATELY!!!

THEREFORE, WE REQUEST THAT NO GAS HEATERS ARE BROUGHT TO THE MARKET.

THE ABOVE MUST BE STRICTLY OBIDED BY."

The memo came "From Stables and Canal Management", and applied to both parts of the market. On the face of it, the document was clear, but Mr Mengelgrein undermined it in his oral evidence by a suggestion that it was created to show the defendants that the claimants "had been doing their bit to get rid of the heaters". This was not something that was pursued in cross-examination or submission.

Renewal for the 2007/08 year

29. On 19 March 2007, Fusion sent an email to Mr Pearce with its renewal offer. The email stated, "Renewal, and our continuance of the LTA, will be subject to full implementation and completion of all Risk Requirements previously submitted within the deadlines stipulated". (The reference to the LTA is a reference to a long term agreement by which Fusion agreed at the outset that it would act as insurer for a three year period.) On 26 March 2007, Fusion sent a further email to Mr Pearce regarding renewal terms stating:

"With regard to additional subjectivity, please see below:-

…

2. End of day checks to be in place by security to check if heaters have been used and if so the necessary confiscation of said heaters and checks to make sure these have not been left switched on."

30. Also on 26 March 2007, Mr Pearce sent Mr Joory an email tracking this language and stating:

"Portable Gas Heaters in the Market

Renewal is subject to end of day checks to be in place by security to check if heaters have been used and if so the necessary confiscation of said heaters and checks to make sure these have not been left switched on."

This was repeated in another email sent on 30 March. The claimants have said that this language was "somewhat ambiguous". The language is not perhaps of the clearest, but in my view it was saying plainly enough that there had to be end of day checks by security, and if heaters had been used, they had to be confiscated.

31. On 30 March 2007, the Policy was renewed. On 5 April, Fusion sent Mr Pearce a copy of the renewal schedule. However, and the claimants say significantly, the schedule now contained a new endorsement, namely "PZ003 Survey Condition". The potential importance of this Condition was that it required completion of all risk requirements:

"The cover under this Policy is conditional upon

a) receipt by the Underwriters of a survey report / survey reports as agreed as part of the survey programme which in the opinion of the Underwriters is / are deemed to be acceptable

and

b) completion to the Underwriters satisfaction of all requested risk improvements within timescales stipulated by the Underwriters.

Underwriters reserve the right to amend the terms of the cover (which for the avoidance of doubt includes the withdrawal of cover) if either a) or b) above are not satisfied."

An important part of the claimants' case (and this is not in dispute) is that Mr Pearce and the defendants did not give them advice as to the existence, meaning or effect of this Survey Condition. The defendants say the Survey Condition is not an onerous clause, and there is no basis for criticising their failure to draw specific attention to it. I will have to come back to this issue, but note here that unlike in previous years, following renewal Mr Pearce did not prepare a renewal report for his clients.

Events following the 2007 renewal

32. On 17 April 2007, Mr Mengelgrein sent Mr Pearce an email relating to the use of PHAs which can be seen as part of the continuing dialogue between them. It was copied to Mr Joory and Mr Shai Yaari, and in it Mr Mengelgrein stated:

"I spoke with Charlie [Joory] regarding the use of LPG heaters. As this is a temporary problem – meaning only several traders and several months of the year. We would like to propose a safe design heater which can be approved by Corgi engineers and by our Health & Safety advisor Richard Forrest (LWF). If they both ensure that the newly designed heaters are safe, then can they be used in the market by traders. Fusion must be very considerate in this instance as it is in the nature of a market to use gas heaters. All markets across London do the same. Including Camden Lock next door which have been operating since the 70's – if not earlier (and they do not have the strong infrastructure which we provide our traders) This point is very important and a solution must be found. Additionally, our development means the end of all gas heaters and as this is already in place in Building C, this must be taken into consideration. Please advise."

33. Thus Mr Mengelgrein was proposing a way forward in the form of finding a safe gas heater. He said, and on the basis of the evidence I have heard, I consider he said with reason, that "Fusion must be very considerate in this instance as it is in the nature of a market to use gas heaters … This point is very important and a solution must be found". Mr Pearce knew therefore that Mr Mengelgrein regarded the use of PHAs as necessary at least pending development (a reference to the proposed redevelopment of the site). He replied, stating that he had noted Mr Mengelgrein's comments and would discuss with Fusion. On 31 May 2007, Mr Pearce had a meeting with Fusion about Camden Market. Fusion's note of the meeting records, "New portable heater specs will follow (not being used now that the summer is here)". On the following day, Mr Pearce sent Mr Joory an email stating, "The Fusion have advised that they are more than happy to consider the Corgi Heater option suggested by Roi [Mengelgrein]. We just need a copy of the proposed specification and I will ask Roi for this". It seems therefore that a consensus had been reached as to how to proceed, although being summer, the problem with PHAs was not immediately pressing.
34. On 5 July 2007, Mr Pearce had a meeting with the clients. On the following day he sent an email to Ms Michelle Cole who was a Senior Underwriter to Fusion. In it he stated, "The issue of portable heaters is being addressed and I will let you have the proposed Calor gas heater specification for review". He did not do so however, and by email sent on 30 July 2007 Michelle Cole chased him for more information regarding the heaters. She proposed a resurvey on 24 September. There appear to have been internal discussions within Fusion on 13 August 2007 discussing the risk, including the issue of PHAs. It was noted that, "Tenant use of portable heating equipment has now moved on a little too. Broker confirmed that the Insured has found alternative heating methods which should hopefully be a halfway house. Paul Keen [who as I have said was Fusion's surveyor] to assess these and report back". So hopefully there was a halfway house, but as events transpired, that was not come to until after the fire, as now explained.

The survey on 24 September 2007

35. The survey that had been scheduled for 24 September 2007 duly took place. It was attended by Mr Keen and Mr Fairest of Fusion, Mr Pearce and Mr Mengelgrein. Mr Keen explained that though it was difficult to recall (given the number of surveys he carries out), there would have been a heavy focus on the Stables Market in the light of building works being carried out there, though he did not rule out the possibility that they might have visited the Canal Market. During the survey several PHAs were seen in Stables Market, but they were not the patio heaters previously seen in the now demolished catacombs part of the market. Mr Pearce himself saw smaller sized PHAs in locked cabins on the outskirts of the market, which he said was a surprise.
36. After the survey, Mr Keen prepared a memorandum for Fusion dated 8 October 2007 stating as follows:

"Portable Heating - By virtue that a large area of the market is now closed [i.e. the catacombs], this problem has sorted itself in the main. However, insured still intends to allow some units to operate portable LPG Super Ser heaters with safety features. The first I was aware of this was at the meeting and established that these heaters would be used in the cabin block by the wall highlighted in red on the attached plan. Although this is not a large EML [estimated maximum loss] block and spread to larger area of site is unlikely, I do not feel comfortable in allowing this type of heater in these units, as they are the size of a domestic garden shed, and generally are packed with combustible stock. It is unlikely that a safe position could be found for this type of heater. A more suitable heating mode would be electric blow heaters fitted above the doors as seen in many retail risks.

…

Site Visit

Market is much improved, is cleaner, neater and tidier than before, the new management regime can be seen working.

…

As part of Camden Market new management of site, daily and weekly inspections conducted to inspect site and issues actioned. Insured have staff on site at all times and the minute a fault is detected, radio message sent to appropriate division to resolve. Area is monitored to fault rectified.

…

Major issue is LPG portable heating, and I believe this is not viable in units proposed in view of size. Suggest we insist no LPG in side cabins. Please could U/W advise brokers. I believe we have a warranty here and this needs to be enforced."

37. The parties are in disagreement about what is meant by the words, "insured still intends to allow some units to operate portable LPG Super Ser heaters with safety features". The defendants say that it is probably a reference to the form of the heater (a particular Super Ser heater with no naked flame, of the type subsequently approved by the insurer that provided cover after the fire) which Mr Mengelgrein was suggesting be approved for use in the Stables Market, and was not a reference to a more general statement on the part of Mr Mengelgrein that he was proposing not to enforce any prohibition on portable heaters. I accept the evidence of Mr Mengelgrein who said that his understanding was that the surveyor would pass the proposal he had made to Fusion, and he assumed unless he heard to the contrary that these types of heater were acceptable but that, in the meantime, the position remained as before namely that other heater types were known to be used in the market but they were being monitored daily by security. There was clearly, on the evidence, no agreement to that effect, nor do the claimants suggest to the contrary. Mr Mengelgrein accepted in his oral evidence that Fusion was never happy with the presence of gas heaters in the market. But there is other evidence coming from JLT which is consistent with his assertion that in the meantime the position remained as before. After the fire, Mr Tom Cowdrill, the defendants' Regional Managing Director, stated in an email sent on 9 June 2008 to Harris (the claimants' loss assessor) that, "Both ourselves and Camden were aware that Fusion wanted the PHA's that were in use in the Stables Market area replaced with an 'approved' model and this matter remained outstanding at the time of the fire in the Canal Market". The defendants say that to the extent that this suggests that JLT was aware that heaters continued to be allowed, Mr Cowdrill "got the wrong end of the stick". But the email does not stand alone because Mr Cowdrill stated at a meeting on 22 April 2008 that "JLT had been successful in getting Fusion to accept the use of heaters, subject to end of day checks". Mr Cowdrill said that this meant only that Fusion accepted that there was a risk that tenants may use PHAs.
38. My findings in this respect are as follows. I am satisfied that (as he said in evidence) Mr Cowdrill discussed the matter first with Mr Pearce (though Mr Pearce appeared to deny it). Mr Cowdrill is a senior and experienced figure, and I have no doubt that in the circumstances following the fire he would have ascertained the facts as best he could and would have chosen his words carefully as well. This material is in my view consistent with Mr Mengelgrein's evidence that as at 24 September 2007, the use of gas heaters was monitored, and only if they were being used inappropriately (for example by being put too close to clothing) would they be confiscated and removed. It provides support for the claimants' case that (despite the instructions prohibiting their use) Mr Pearce and therefore the defendants were aware that pending replacement with an approved model, PHAs were continuing to be used in the Stables Market area as before. I am satisfied that Mr Pearce was so aware, and on this point I prefer the evidence of Mr Mengelgrein which appears to me to be more consistent with the totality of the documentation, and the overall probabilities.
39. Mr Mengelgrein says that on the occasion of the 24 September 2007 survey he presented a Calor Gas brochure and pointed out a particular catalytic heater which had been recommended to him for its safety features. (This may have been the Super Ser model or similar.) Mr Pearce agreed in evidence that a brochure was shown to the surveyor, and I am satisfied that this is what happened. Mr Keen could not recollect the brochure, saying that he would neither have accepted nor rejected any proposed PHA, because "the decision on whether the heating would be acceptable would lie firmly with the underwriter". That is clearly correct, though it does not explain why he did not pursue the matter, given the terms of an email Michelle Cole sent to him on 17 September 2007, or why Mr Pearce did not pursue the matter, given the various exchanges earlier in the year. There was no discussion on 24 September 2007 about a risk improvement being imposed which required the removal of all PHAs, for the simple reason that Mr Keen was not proposing such a risk improvement. But the defendants are not correct to submit that the alternative PHA proposed by the claimants (which, as appears below, was accepted by Brit Assurance who took the cover over after the fire) was rejected by Fusion. As the claimants say, Fusion never got the brochure about the alternative PHA.
40. The risk improvement was something that came from the underwriters as follows. Having seen Mr Keen's report, on 9 October 2007 Ms Cole of Fusion emailed him saying:

"Agree with you with regards to the portable heaters, this is not acceptable. Ted [Pearce] had previously advised that the Insured had found an alternative method of heating which would hopefully be acceptable, this obviously is not the case and they are allowing the same heaters in smaller premises. I have therefore added the risk improvement from your previous survey regarding the use of portable heaters to this ones risk improvements, hope that is ok."

The reference to the risk improvement from the previous survey was a reference to RI 2006-03.

41. On the same day, that is 9 October 2007, Ms Cole sent Mr Pearce an email attaching risk improvements, with a request that he ensure they were completed within the timescale stipulated. RI 2007-01 was in the following terms:

"2007/01 - Portable Heating Appliances

The use of LPG, paraffin or open bar radiant heating appliances represent a severe fire risk, and all such appliances are to be removed from the premises together with any cylinders or other fuel. Fixed electric infrared heating appliances or oil/gas fired heat exchange units are recommended or if portability remains necessary then electric quartz linear or oil filled radiators are suitable alternatives."

Completion: Immediate"

42. In her explanatory email to Mr Pearce, Ms Cole stated:

"Both surveyors [that is Mr Keen and Mr Fairest] advised that the risk had improved since their previous visits, however we were advised that the insured are continuing to allow the use of LPG Super Ser heaters and that their use has migrated from the larger units which are now closed into the smaller units. When we had discussed this previously you advised that the Insured had found alternative heating methods which would hopefully be acceptable, it seems that the same heaters are still in use.

The Insured advised that these heaters would be used in the cabin block, our surveyor has advised that these are the size of a "domestic garden shed", as such the use of LPG portable heaters would not be suitable. A more suitable heating method would be electric blow heaters fitted above the doors which are used in many retail risks."

43. Mr John Lockey QC, counsel for the defendants, may well be correct in submitting that there was some confusion here as to what kind of heaters were in use. However, the basic point made by Ms Cole was in line with Mr Keen's observation that he did not feel comfortable in allowing portable gas heaters in units the size of a domestic garden shed packed with combustible stock. Her position, as expressed in the Risk Improvement Measure, was that the use of LPG, paraffin or open bar radiant heating appliances represented a severe fire risk, and that all such appliances had to be removed from the premises together with any cylinders or other fuel immediately. Critically, neither the 9 October 2007 email nor the Risk Improvement Measure was passed on to the claimants as they should have been, and the defendants now accept that this was a breach of duty on their part. The claimants did not become aware of them until after the fire, in circumstances which I shall explain.
44. The defendants submitted that the Survey Report followed a survey of the Stables Market only, and that there was no September 2007 survey, or survey report, in respect of the Canal Market. I have dealt with the extent of the survey above, and said that it was centred on the Stables Market. However, even if the Canal Market was not surveyed on that occasion, I reject the defendants' submission that RI 2007-01 on its face concerned the Stables Market only, and that there is no reason to read it more widely as applying to the Canal Market. On the contrary, it seems to me that there is no reason to restrict it in that way, and I agree with Mr Ben Elkington, counsel for the claimants, that when the intention was that an RI should apply only to a particular part of the property, it is expressed accordingly. When construed in context, RI 2007-01 is not restricted to exclude the Canal Market any more than RI 2006-03 was so restricted.

Events from October 2007 to the fire

45. An important factor, it seems to me, in an overall appraisal of the facts is that matters did not rest with the imposition of the risk improvement. On 9 November 2007, Ms Cole sent Mr Pearce an email asking for an update regarding the risk improvement noting that it should have been completed by now. There is no evidence that Mr Pearce did anything in response to this email. On 16 November, Ms Cole sent him another email regarding the outstanding RI 2007-01, and seeking his urgent advice as to compliance. Mr Pearce explained that this may have been misfiled because the subject referred to a restaurant as well as to the market itself. It appears that a meeting was arranged for 22 November, at which Mr Pearce said he believed that he wanted to discuss Fusion's position regarding the agreement to a preferred heater. The meeting was cancelled as Mr Pearce was off sick.
46. The meeting was rescheduled and took place on 4 December 2007 between Mr Pearce and Ms Cole. Ms Cole's note (Mr Pearce did not take a note) says that the meeting was called by Mr Pearce to discuss rebate, but that the risk improvements were also queried. According to the note (which Mr Pearce did not accept was accurate in all respects), RI 2007-01 was a surprise to him. There was discussion as to portable heaters, Ms Cole's note recording that Fusion "would not be able to consider accepting portable heaters without full information, which provided full specification & safety." The note says, "Ted going to get full specification of the heaters & come back to us". That was entirely consistent with the exchanges earlier in the year on the same subject, but it did not happen, and Mr Pearce did not make contact with the claimants, who remained ignorant about RI 2007-01.
47. On 20 December 2007 Ms Cole sent Mr Pearce another email stating that Fusion was still awaiting his further advice regarding PHAs so that a final decision could be made in that regard, but again this was not passed on to the claimants.
48. On 29 January 2008 Mr Pearce had a meeting with representatives of Fusion (not including Ms Cole this time). His note of the meeting records that the brokers would undertake their own survey, and would also be "looking at the on-going issue of portable heaters as installation of electric across site is not possible. Client was implementing use of standard calor heater across site with guarding and anti-tip. This was the one main issue that needed to be resolved prior to renewal". He did not however pass that on to the claimants.
49. On 1 February 2007, Ms Cole sent Mr Pearce another email attaching a further copy of RI 2007-01, and saying that she could not trace any further information from him regarding the portable heaters as discussed on many occasions. This was an issue that would need to be sorted out prior to renewal, which was due at the end of the following month. Mr Pearce did not however respond or inform the claimants that the RI had been imposed. In support of their case on estoppel and waiver, the defendants submit that these emails show that Fusion did not consider RI 2007-01 read with the Survey Condition to be a warranty or a condition precedent. They say that it is plain that Ms Cole was proceeding on the assumption that the RI had not been completed, and the issue of the identity of a heater which might be approved was still to be resolved; she was pressing for a response not just on the identity of a possible heater but also on the effectiveness of the prohibition on heaters in the Stables Market. I think that this is reading too much into these emails, which in my view speak for themselves. There is no indication that she or anyone else in Fusion turned their minds at that stage to the legal status of RI 2007-01 read with the Survey Condition. Ms Cole was certainly pressing for resolution of the PHAs issue, and though she did not give evidence at trial, it is a reasonable inference that she thought that resolution might come by way of identification of a heater that was acceptably safe. The problem it seems to me was that no specification was ever provided to her.

The fire and its aftermath

50. As stated at the beginning of this judgment, the cause of the fire on 9 February 2008 was an LPG portable heater which was left on in one of the stalls and which ignited clothing in the stall. The fire started in the Canal Market and spread to adjacent insured properties Nos. 1-9 Chalk Farm Road and No. 2 Castle Haven Road. It was detected shortly after the market had closed for the day, and as Mr Lockey QC said at the trial, it is fortunate that the damage was only to property. It was precisely the kind of event that had been foreseen as a hazard throughout the period under discussion.
51. In introducing my findings in this section of the factual account, it is useful to summarise the parties' positions as to how events developed in this period. In a sentence, the defendants say that although the claimants purported to settle the claim having regard to the effect of the Survey Condition and the October 2007 risk improvement (those not having been brought to their attention at the time), these in truth provided the insurers with no defence to the claim, and the claimants' real intent was to achieve a quick settlement with the insurers, and top up the shortfall by way of a claim against the brokers. The claimants on the other hand say that the position as regards the 2007 risk improvement was not promptly disclosed even after the fire happened, and when the RI was taken with the Survey Condition, their position as regards the insurers was vulnerable, and they had little alternative but to reach a settlement. The account that follows in this judgment necessarily focuses on these aspects of what must have been (in reality) a complicated and sometimes confused story, as the various parties sought to resolve the insurance issues caused by the fire.
52. Mr Cowdrill of JLT became involved for the brokers immediately, and the day after the fire he met at the market with Mr Pearce, Mr Rob Lowe (an Account Executive with the defendants who also gave evidence at trial), Mr Joory, Mr Mengelgrien and someone from Certo (Certo being loss adjusters who were instructed to act on behalf of the insurer). The following week on 13 February, the claimants instructed Harris Claims Group Ltd (now Harris Balcombe LLP) to act on their behalf, and a meeting with Certo took place the following day.
53. On 15 February 2008, Certo produced its Preliminary Report for Fusion. It was addressed to Mr Ed Gooda, UK Claims Manager for Fusion, who handled the matter thereafter to settlement. In the course of a relatively substantial report, Certo noted that the Policy contained various endorsements and drew attention to the Survey Condition PZ003. Certo said (not quite accurately) that the situation seemed to have culminated in October 2007 when following the latest survey, it was suggested that the brokers be advised that the insured's proposal to allow certain types of LPG portable heating to be utilised may not be acceptable. In any case, urgent observations were sought from underwriters. At a meeting on 19 February between Certo, Fusion and Norwich Union, the need to check the situation regarding the risk improvements was noted.
54. On 11 February, and again on 21 February 2008, there were further meetings at the market. The latter involved Mr Cowdrill, Mr Pearce, Mr Lowe, Mr Joory, Mr Mengelgrien and Mr Shai Yaari (who as mentioned was head of security at the market). The defendants place reliance on this and subsequent meetings in connection with their case on causation, which is in summary that the non-disclosure of the October 2007 risk improvement made no difference to how the claimants handled the PHA issue. What is submitted is as follows. One might have thought that following the fire, the insured would have made urgent and strenuous efforts to locate and remove PHAs in Stables Market for public safety reasons if nothing else. But they did not. On 21 February, that is some 12 days after the fire, the defendants noticed patio style heaters still being used in some of the units in Stables Market. Mr Pearce said he was gobsmacked to see the heaters. Mr Cowdrill said that one heater actually had clothes draped from it. Mr Mengelgrein was advised by the defendants in clear terms that these, and any other portable heaters, should be removed without delay.
55. As regards this evidence, I can accept that there was surprise on Mr Cowdrill's part at the sight of PHAs, since of course he was coming to this situation new. I am sure that Mr Pearce was disappointed, but I find it harder to accept that he was "gobsmacked" to see the heaters. It was winter, and as was put to him in cross-examination, heaters had been present on all the other occasions on which he had visited. A fire had by now occurred, and precautions were or should have been uppermost in everybody's minds. It is unlikely (in my judgment) that the position in this regard had got worse, and what was seen afterwards is an indication of the position before the fire. The problem remained that no safe form of heater had been agreed.
56. On 29 February 2008, Fusion wrote to Mr Pearce as follows:

"In response to your request for confirmation of our position on the recent claim, I am afraid that all I can say at this stage is that our enquiries continue and it is our intention to discuss the position with you and your client shortly.

However, as discussed with you on the telephone on Tuesday 26th February 2008 and regardless of our position on liability in respect of the recent fire, the terms of cover going forward will be varied with effect from the 7th March 2008 in accordance with the terms of endorsement PZ003 (Survey Condition) to incorporate a condition precedent in the following terms:-

It is a condition precedent to any liability of the Underwriters to make payment under this Policy that all portable heating appliances are removed from the Premises.

This letter and the change in the Policy terms going forward are without prejudice to the ongoing investigation regarding the claims that are currently being made and are in the light of the insured's failure to comply with Risk Improvement 2007-01."

57. I am told that this letter was only obtained by the claimants shortly before trial after Fusion allowed an inspection of some of its claim file, which if correct is not satisfactory, though it may well be explained by the fact that Mr Pearce had moved offices. That aside, it shows that the insured's failure to comply with Risk Improvement 2007-01 was an issue from shortly after the fire. On 4 March, Fusion wrote two further letters to Mr Pearce, the first referring to the survey condition and stating that there had been non compliance with RI 2007-01 (and its predecessor 2006-03) and that the terms of cover were being amended to add an exclusion, with effect from 7 March 2008, of all losses caused by the use and/or storage of PHAs, but again without prejudice to any decision regarding the claim arising out of the fire. This was forwarded to Mr Joory (and copied to Mr Mengelgrein) by Mr Cowdrill on 5 March 2008. His accompanying email shows that Mr Pearce was ill at this time, and the evidence was that he remained off work for some weeks, and thereafter played little part in subsequent events. The second letter confirmed that the Policy would respond to the loss subject to its terms and conditions. Fusion suggested that it was a condition of cover that the insured would undertake end of day checks regarding heaters, which in their opening at least, the claimants accepted was not correct, but which reflected some of the difficulty that was being experienced in establishing the true facts. (This letter was forwarded to the claimants after a short delay.)
58. On 5 March 2008, Certo sent Mr Paul Lawrence of Harris an email referring "to our meeting and discussions on 27th February and confirm that I have submitted a further report to Insurers and I await their further instruction. The Insurers continue to express concern about the existence of heaters (both on the Canal Market and the Stable Market sites) and the actions taken by the Insured to control them". I agree with the claimants that this shows the insurers raising concern about the presence of heaters in both Canal Market and Stables Market, and that this and other evidence is inconsistent with the defendants' argument (which I reject on the facts) that Fusion was not interested in the presence of PHAs in Stables Market as giving rise to a possible breach of the Survey Condition.
59. On 6 March 2008, Mr Stuart Pettet (who was a senior Fusion underwriter) and the Fusion surveyor Mr Keen came to Stables Market. Mr Joory and Mr Mengelgrein of the claimants were present, along with Mr Lowe and Mr Mytchell of the defendants. The JLT note records that "… numerous LPG portable appliances were still on site". Mr Pettet apparently stated "with some conviction" that the risk "may become uninsurable if management do not manage adequately". The defendants point out that he did not assert that the Policy had been discharged already, or was discharged now, as a result of the numerous PHAs he saw, an indication that the Policy remained in force. Mr Lowe's evidence was that Mr Pettet was "very disappointed that he saw heaters on that site visit". Following that survey, Fusion indicated that they were not prepared to invite renewal of the policy, and it became necessary for the broker to find an alternative insurer.
60. On 17 March 2008, the defendants' in-house surveyor Mr Vic Hodson surveyed the Stables Market to assist JLT in broking the renewal to other insurers. PHAs were still on site at that time, it being recorded that "heating is a major concern as a fire hazard, but this could be improved with suitable conditions imposed on tenants and these properly monitored". The defendants secured a quotation from Brit Insurance towards the end of March. It was a term of Brit's quote that all LPG heaters should be removed within 30 days, and that an on-site meeting should be held with Calor Gas to find a solution to the on-going use of PHAs. The claimants accepted that offer and cover was duly placed with Brit when the policy with Fusion expired at the end of the month. The terms included an exclusion, with effect from 30 days after inception, of any losses arising from the use of naked flame heaters. It was subsequently agreed with Brit that a catalytic heater with no naked flame other than the pilot light was acceptable for use "as per attached product details". It is to be noted that these heaters (there were two of them) were the same as the models identified by Mr Mengelgrein in the Calor Gas brochure he produced on 24 September 2007. Limited use of patio heaters was also allowed, but for outdoor use only.

The settlement negotiations

61. The claimants entrusted negotiations with Fusion to Harris not to the defendants, although the defendants remained involved. A meeting occurred on 13 May 2008 at a senior level between Mr Richard Edgar (then Divisional Managing Director of the defendants) and Fusion's Mr Stuart Pettet, without a successful outcome in terms of getting Fusion to accept the claim. The negotiations carried out by Harris were not documented, the three witnesses from Harris who gave evidence at trial (that is Mr Stewart Dymant, Mr Paul Lawrence and Mr Anthony Harris) saying that they had reported to their clients on the various meetings by phone rather than in writing or by email. The documents that there are reveal some confusion as to the factual position regarding PHAs in the market, though there is a dispute as to which between the claimants and the defendants was responsible for the confusion: it appears to me that both parties probably were. On 22 April 2008, a meeting was held between representatives of the defendants, Harris and the claimants to discuss the claim. I have already pointed out that the defendants' note of that meeting records Mr Cowdrill as saying that at the time of renewal in 2007, "JLT had been successful in getting Fusion to accept the use of heaters, subject to end of day checks", which was not the case.
62. A meeting was arranged between representatives of Fusion, Certo, Harris, the claimants and the defendants. The agenda and a list of "unanswered questions" prepared by Fusion were sent by Mr Gooda on 22 May 2008. The meeting took place on 27 May 2008 at Fusion's offices, lasted some two hours, and was described by Mr Edgar as (and one can well believe this) a tense one. Mr Fred Shepherd, described at trial as an elderly man who had been manager of the Canal Market, was present, and witnesses speak of him making an impassioned defence of procedures at the market. There are notes of what was discussed at the meeting prepared by Fusion and by the defendants (which do not precisely coincide), but by the end no agreement was reached as to settlement of the claim.
63. However, it is clear that from this point in time Mr Gooda of Fusion and Mr Anthony Harris (then managing director of Harris) were in the driving seat so far as negotiations were concerned. Both gave evidence, and they are both experienced and formidable negotiators. Fusion wrote to Harris on 30 May 2008 to "confirm our position", stating their concern as to incorrect information they were getting, and saying:

"We are now being told by the insured that PHAs were prohibited from Canal Market, that they had been so prohibited for over 20 years and this was the basis on which the risk was written. We are not for a moment suggesting that the insured should be prejudiced by the unauthorised use of a PHA by a tenant without the insured's knowledge but the evidence we have obtained from our own enquiries points to the regular and repeated use of PHAs by tenants and the informed acquiescence by the insured. How else can you sensibly account for the regular deliveries of heavy Butane cylinders to the canal market?"

The letter went on to request answers to various questions relating to the Canal Market.

64. On 4 June 2008, Mr Anthony Harris wrote back expressing his clients' "real dissatisfaction" with Fusion's "prevarication", and saying that, "It is indeed the case that PHAs have been prohibited in Canal Market for the last twenty years or so. It is categorically denied that PHAs were used regularly or repeatedly by Canal Market tenants with the informed acquiescence of my clients". Mr Gooda responded on 6 June 2008 saying that "my difficulty is that the information which I continue to receive from enquiries made independently of your clients contradicts what I am being told by you". The defendants rely on this correspondence, pointing out that none of these letters from Fusion referred to the Survey Condition, or suggested that the Survey Condition (read with the October 2007 Risk Improvement) constituted a warranty, or that compliance with the Survey Condition was a condition precedent to liability, so as to provide Fusion with a further defence to the insured's claim for loss caused by the fire.
65. In his letter of 30 May 2008, Mr Gooda had referred to Ms Cole's emails to Mr Pearce of 20 December 2007 and 1 February 2008. The claimants did not have these, and Harris asked the defendants for copies. In his letter of 6 June 2008, Mr Gooda referred to Ms Cole's email of 9 October 2007, which was the email with the October 2007 risk improvements attached. Mr Harris asked the defendants for these, and on 9 June 2008, Mr Cowdrill forwarded these too. I have quoted above from Mr Cowdrill's email and need not repeat it. The claimants already had a copy of the Policy including the Survey Condition which Mr Joory had had since October 2007.
66. I think that there is some force in the claimants' complaint that these documents emerged late, but equally, having seen the defendants' witnesses, I am quite satisfied that there was no deliberate withholding of documents after the fire. Nevertheless, after the fire it must have been very unwelcome for the defendants to appreciate that in particular the email of 9 October 2007 with the risk improvements attached had not been passed on, and in his evidence Mr Cowdrill did not dispute this. The claimants say that the "belated revelation" of the emails substantially weakened their position, and called into question the adequacy of the defendants' performance, and I accept this.
67. In any case, the claimants sought the advice of solicitors who specialise in insurance claims, namely Edwin Coe LLP, who are their present solicitors. On 13 June 2008, Edwin Coe sent a letter to the defendants, raising a number of questions, including about the survey of 24 September 2007, referring to the emails and asking why they had not been passed on. The letter said, "Given the passage of time since the fire, our client would like to see an immediate resolution to the longstanding issue of policy liability". It is plain from the terms of that letter that by then the claimants had the brokers in their sights.
68. Mr Edgar of JLT would have realised that perfectly well when he replied to this letter on 17 June 2008. As to the survey meeting on 24 September 2007 he said: "During the meeting, Roi [Mengelgrein] produced a Calor Gas brochure, pointing out PHA models that they were considering for future use in the Stables Market. The proposed heaters were neither approved nor rejected at the meeting. As such, the debate continued: Fusion were keen to see PHAs removed from Stables Market; Camden considered their presence essential and were debating how they could be maintained within the Stables Market, perhaps by way of approval of specific models (hence the super ser debate) …". The claimants say that this clearly shows knowledge of PHAs on the part of the defendants, and in my view it does. Mr Edgar did however make it clear that he was talking here of Stables Market, not Canal Market, in respect of which he said, "We are aware that Camden has never permitted the use of PHAs …". Referring to the fact that "Fusion have already confirmed that the insured 'should not be prejudiced by the unauthorised use of a PHA", he said, "coverage should thus follow". In other words, the insurers were liable, and would have to pay. Essentially, that has been the defendants' position ever since.
69. By then however, matters were moving on. On 9 June 2008, the first of two meetings had taken place between Mr Gooda and Mr Harris. Mr Gooda offered £1m in full and final settlement, which Mr Harris said was not enough. I have no doubt that both of them (reflecting the views of those they represented) wanted a settlement. There was a second meeting between them on a date of which there is no record but which was probably later in the same week. At that meeting, Mr Gooda made a further offer of £3.825m. The two of them reached agreement on that sum, subject to the approval of Mr Harris' clients, subject to Fusion getting Norwich Union's approval, and subject to contract. I can see that Mr Harris would have been reluctant to go back on the deal, but it was plainly subject to his principals' agreement, and I do not accept the defendants' submission that having done a deal at £3.825m, there was realistically no going back.
70. A draft deed of settlement was sent by Fusion's solicitors on 27 June 2008. At some point in time, the claimants decided to take advice from a senior Queen's Counsel who is experienced in insurance matters. Edwin Coe's instructions to him are undated, but were probably sent shortly before he advised in consultation on 11 July 2008. The title of the instructions expressly relate to a claim against the defendants, JLT. Counsel was told that the full extent of the claimants' losses had not been quantified, but that they were estimated at between £5.5m and £6.5m: the solicitors' notes of the consultation mention a figure of £5.6m, which is also referred to in counsel's subsequent written opinion. These notes should have been produced by the claimants on disclosure but were not produced until trial. (They were disclosed as to the advice as regards Fusion, with the passages as regards the defendants' liability redacted.)
71. Counsel advised that the insurer had a strong arguable case that the claimants' failure to remove PHAs (as required by RI 2007-01) discharged it from liability owing to the existence of the Survey Condition, but that there were also contrary arguments that could be made. It probably did not matter whether the requirements in the survey report related to Stables Market alone or the whole market because "there was only one policy, and a failure to comply with a requirement of the Survey Report in respect of Stables Market could be said to constitute a failure to comply with a condition precedent to liability under the whole policy". The contrary argument was that the last sentence of the Survey Condition gave underwriters a choice whether to amend or withdraw cover displacing the normal automatic effect of a condition precedent. However there was at the very least a significant risk that the breach of the Survey Condition provided the insurer with a complete defence to the claim. The conclusion was that a settlement with Fusion at £3.825m was reasonable, on the basis that it equated to a recovery of just below 70% of the amount which Harris would have expected to have agreed in the absence of any coverage issues. The deed of settlement between the claimants and Fusion was executed on 24 July 2008. Counsel's advice was confirmed in a written opinion dated 29 July 2008. The defendants' case is that counsel's instructions were inadequate, and that his conclusion that the insurers had or might have a defence on liability was incorrect.

Liability

Breach of duty

72. There is no substantial dispute between the parties as to the nature of the duty owed by an insurance broker to its client, it being further common ground that the application of the principles depends on the particular type of relationship in point. In that regard, I accept the claimants' submission that this was a large, and I would add complex, account which required careful handling. As regards the fire hazard caused by the use of personal heating appliances, the broking experts agreed that short of refusing to offer cover, or imposing a prohibition by way of warranty, insurers would provide cover subject to a risk improvement survey and satisfactory completion of requirements, which was how Fusion proceeded here. The experts agreed that the brokers would be the usual channel for negotiation and discussion between insured and insurers as to options to replace unacceptable PHAs with acceptable models. As practising brokers, they concluded (as set out above) that the insurance market would broadly have required removal of unacceptable PHAs on an agreed and qualified basis and subject to a timescale. In the event, the defendants did not call its broking expert, and the evidence of the claimants' expert (Mr Timothy Dowlen) was described by the defendants as helpful, albeit they did not accept all his conclusions.
73. In short, a broker owes his client a duty to take reasonable steps to obtain a policy which clearly meets his client's needs and is suitable for the client. An aspect of that is that the client should not be exposed to an unnecessary risk of legal disputes with the insurer (FNCB Ltd v Barnet Devanney (Harrow) Ltd [1999] Lloyds Rep IR 459 at 468, Morritt LJ, Talbot Underwriting Ltd v Nausch Hogan & Murray Inc [2006] 2 Lloyds Rep 195 at 218, Cooke J, Standard Life Assurance Ltd v Oak Dedicated Ltd [2008] EWHC 222 (Comm) [102], Tomlinson J). The broker owes his client a duty to draw to the client's attention any onerous or unusual terms or conditions, and should explain to the client their nature and effect. After the risk has been placed, the continuing duty is exemplified by HIH Casualty & General Insurance Ltd v JLT Risk Solutions Ltd in which Longmore LJ stated that, "an insurance broker who, after placing the risk, becomes aware of information which has a material and potentially deleterious effect on the insurance cover which he has placed is under an obligation to act in his client's best interest by drawing it to the attention of his client and obtain his instructions in relation to it" ([2007] EWCA Civ 710 at [116]).
74. The claimants assert that the defendants were in breach of duty in a number of respects. First, it is said that the defendants failed to take reasonable steps to ensure that the claimants had and continued to have the benefit of a policy which was suitable and which clearly and indisputably met their requirements. This is premised factually on the proposition that Mr Pearce was well aware that the claimants needed and wanted to allow the use of PHAs in Stables Market. The defendants do not accept the factual premise. They submit that JLT understood the position to be that PHAs were banned from Stables Market. They submit that this was a case of Mr Mengelgrein telling the broker one thing, but doing something else. The brokers were not, the defendants submit, on notice that the ban was not being enforced. On the basis of the position as reasonably understood by the brokers, the insurers were liable under the policy, which was therefore a suitable one.
75. I have explained above why I do not accept the defendants' case on the facts in this respect. I have found that despite the bans that were in place, Mr Pearce/JLT knew that Mr Mengelgrein regarded the use of PHAs as necessary (as his email of 17 April 2007 put it, "it is in the nature of a market to use gas heaters"). For that reason, Mr Pearce embarked on the task of procuring the insurer's agreement to a safe model. He was aware (I have found) following the 24 September 2007 survey meeting that PHAs were continuing to be used in the Stables Market area. I should add at this point that I agree with Mr Elkington for the claimants that there is a difference between banning PHAs and actually removing them, which was not to the defendants' knowledge what was happening. For that reason, whilst I accept the evidence of Mr Dowlen (the claimants' broking expert) that the reasonable broker is entitled to assume, in the absence of evidence to the contrary, that his commercial client is doing what he is telling the broker he is doing—evidence which the defendants rely on—I do not consider that it assists the defendants on the facts of the case. I accept the claimants' submission that once he knew that RI 2007-01 had been imposed, given his knowledge of the presence of PHAs and Mr Mengelgrein's stated intention to allow their use, Mr Pearce should have appreciated that the Policy no longer clearly and indisputably met the claimants' requirements. It did not do so because the existence of RI 2007-01 at least arguably (as I shall explain) entitled Fusion to decline an indemnity in the event of a loss.
76. Second, it is said that the defendants failed to give any advice regarding the Survey Condition which was introduced at renewal in 2007 as an endorsement to the Policy. It is said that the Survey Condition plainly was a matter that needed to be drawn to the claimants' attention, because it greatly increased the importance of complying with any risk improvements that were issued. The defendants on the other hand say that such a condition is not onerous or unusual, and is not something that required specific advice. Generally speaking, I consider that the defendants' submission is right. There is no inherent reason to regard such a condition as unusual or onerous, and it is important not to view its status though the eyes of hindsight. But in this case, the Survey Condition seems to me to fall within a pattern of concern that the insurers had as regards the use of PHAs. In that regard, it was a potentially important development, and in agreement with their submissions, I think it should have been drawn to the claimants' attention and explained.
77. The most significant breach of duty, in my judgment, is the third advanced by the claimants, namely the defendants' failure to advise the claimants regarding the October 2007 risk improvement emailed to the defendants on 9 October 2007. The defendants accepted close to trial that they were in breach of duty in failing to pass this and the subsequent chasing emails from Fusion on to the claimants. Their defence is that such breach was of no consequence. They rely on the fact (among others) that there already had been an RIM issued in May 2006 in the same terms, and that though the earlier RIM (unlike the later one) had not specified immediate compliance, Mr Pearce explained the need for immediate compliance at that time (see above). Similar advice was given following the January 2007 survey (see above). The evidence shows, it is said, that there would have been no reporting by either Mr Mengelgrein or Mr Joory to some more senior person such as Mr James Lawrence. In short, it is submitted that the claimants knew what the position was already, and would have done nothing even if the October 2007 RIM had been passed on.
78. I deal with causation issues below. However, as regards breach of duty, I accept the claimants' submission that the defendants' breach of duty went well beyond what they have admitted. I agree that the defendants should have done more than merely forward a copy of the risk improvement (and the chasing emails) to the claimants, which is the extent of the admission. By October 2007, the evidence as set out above shows that Fusion was concerned about the continuing use of PHAs, and was pressing Mr Pearce for a solution. Against that background, in my view the imposition of the RIM had "a material and potentially deleterious effect on the insurance cover" (see HIH Casualty cited above), and the brokers were under a duty to act in their clients' best interest by drawing it to their attention and obtaining their instructions in relation to it. I accept the claimants' contention that advice needed to be given explaining that the cover might be prejudiced if nothing was done by removing the PHAs, or identifying a safe PHA substitute, or otherwise. It is to be noted that, apart from email contact between Fusion and JLT, a meeting took place on 4 December 2007 between Mr Pearce and Ms Cole, whose note records, "Ted going to get full specification of the heaters & come back to us". He did not accept the accuracy of the note in all respects, but it is accepted that the claimants were not told about this meeting, and Mr Pearce did not revert to Ms Cole with a specification. Given my generally positive view of Mr Pearce as a witness and a professional, I should refer to evidence of personal difficulties which he was facing at this time connected with the illness and death of his father. That is sufficient to explain why at this time, as Mr Elkington put it, he dropped the ball.
79. The fourth alleged breach of duty is exposing the claimants to unnecessary risk in the form of a dispute with Fusion, which refused to accept the claim and asserted (it is said by the claimants) that the breach of the Survey Condition meant that they were not entitled to any payment. The defendants say that the claimants never got into a dispute with Fusion, and certainly not on that ground. It seems to me that this aspect of the case is best dealt with under other heads, since whether or not this was a separate breach of duty in this respect will not materially affect the outcome.

Causation

80. The claimants' case is that any one of those breaches of duty caused the loss which they in fact suffered. As a result of the defendants' breach of duty, the claimants were left with uncertain rights against the insurer, which refused to accept liability. Thus they suffered a loss. The defendants deny that the breach of duty they have admitted or any other breach of duty caused the claimants the alleged loss, or indeed any loss, or gave rise to any "Survey Condition Defence" based on the October 2007 Risk Improvement. As regards the latter, they point to the case pleaded in the claimants' Reply which identified an arguable breach of the Survey Condition as regards Stables Market as the reason for the settlement with the insurers at a discount. On this basis, the defendants defined the question as being whether the presence of PHAs in the Stables Market provided Fusion with any, or any reasonably arguable, defence to the claim by the claimants for loss in relation to the damaged premises, which did not include the Stables Market. Amendments made by the claimants at the beginning of the trial however introduced a reference to the Canal Market in this regard. As presented, the parties' causation arguments were bound up with other arguments, in respect of which my findings are as follows.

Was there a breach of the October 2007 Risk Improvement?

81. The defendants say that there is no evidence that the October 2007 Risk Improvement was not in fact complied with. They submit that at most, the October 2007 Risk Improvement required the removal of the heaters seen at the time of the survey, or alternatively any heaters still there when the RIM is issued and served. One cannot read the RIM as imposing a continuing warranty that as and when heaters appear, they must be removed immediately. Fusion had no evidence, it is said, at the time the claim was settled, that the heaters seen on 24 September 2007 had not been removed immediately. Accordingly, it is said there was no basis in fact for the claimants or Harris to be concerned that there was non-compliance with the October 2007 RIM, even assuming in their favour that they were concerned. I do not regard this as a strong point, particularly in view of what was seen in the market following the fire. The claimants' response is that there is no evidence that they were removed. Mr Mengelgrein did not say he removed them; his evidence was that he was not asked to remove them; he did not get the risk improvement requiring them to be removed; he said that the claimants planned to continue to allow their use. I accept the claimants' case in this regard. The likelihood is that the heaters were not removed from either market, and I am satisfied as a matter of fact that the terms of the RIM were not complied with.

Did the defendants' breach of duty make any difference?

82. The claimants' case is that what Mr Pearce should have done was to take those steps which were subsequently taken by JLT in relation to the Brit Insurance policy which did in fact result in the approval of a safe substitute. There is no reason why, had the defendants got a grip of the issue in 2007, it could not have arranged insurance cover for the claimants which clearly permitted the use of PHAs and patio heaters, as did the cover with Brit for the year 2008/09. It is further submitted that the evidence shows that if the defendants had advised in October 2007 that, unless all PHAs were removed immediately, there might be no insurance in the event of a loss, then appropriate steps would have been taken to ensure that all PHAs were removed from both Stables Market and Canal Market. They did so, it is said, when they were properly advised after the Brit cover was put in place in 2008. Reliance is placed on evidence of significant improvement noted by Mr Keen in his survey of 24 September 2007.
83. The defendants' case is that if, before the fire, they had advised the claimants that their cover would be in jeopardy if they did not comply with a RIM that PHAs must be removed immediately, the claimants would not have complied. The best evidence of this, it is said, is their management practices before the fire in the Canal Market and their conduct after the fire, the proof of the pudding being, as Mr Lockey QC put it, that PHAs were still on site even at that stage. It is further contended that had the defendants passed the October 2007 RIM to the claimants, the steps which the claimants would have taken upon receipt would not have ensured that the RIM was complied with and would not have meant that (i) the fire was avoided and/or (ii) ensured that coverage would follow under the Policy for loss caused by the fire. The reasons relied on are the failure to comply with the earlier May 2006 RIM or the insurers' requirements of January 2007 as conveyed by Mr Pearce in his various communications in February 2007. PHAs were seen in the Stables Market following the fire, and according to the claimants' pleading (albeit subsequently amended), the fire was caused by a prohibited PHA in use in the Canal Market despite all practical steps having been taken to locate such PHAs. Likewise, it would have made no difference had JLT passed the Fusion "chaser" emails to the claimants. Receipt of the Fusion chaser emails, it is submitted, would have changed nothing. The claimants would have continued to neglect to enforce the prohibition in the Stables Market and would have carried on with whatever regime that was in place in the Canal Market.
84. My conclusions in this respect are as follows. I accept the defendants' submissions to the extent that the October 2007 RIM was not a new provision, though it is to be noted that the May 2006 RIM pre-dated the imposition of the Survey Condition, and the later one required immediate compliance. I further accept that PHAs were seen in the Stables Market following the fire on not just one, but on a number of occasions, and I consider that this indicates the difficulty of dispensing with heaters in the absence of an approved alternative, notwithstanding the improvements noted in September 2007. However, I do not accept that had the defendants passed the October RIM to the claimants, and given appropriate advice, as they should have done, it would have made no difference. At this point in time, things had moved on from May 2006. It is clear from the documents that Fusion was now actively pursuing the PHA issue, which it correctly regarded as posing an unacceptable fire risk. Fusion's expectation was that JLT would be coming up with an alternative specification, with a view to reaching what an internal email which I have quoted from earlier in the year referred to as a "half way house". I refer to the evidence of Mr James Lawrence, who at the time was a director of Stables Market (Camden) Ltd, that had he seen the 9 October 2007 email and known that it was fundamental to the insurance, he would have insisted on knowing that the bans were being complied with. He said, and I accept, that he would not have left the issue to be dealt with by the market managers. Instead the matter would have been escalated up the company, and action taken.
85. As the claimants submit, the proper approach is to ask what would have happened if the defendants had acted with reasonable skill and care? In the light of the evidence, even if the October 2007 Risk Improvement had been passed on together with appropriate advice from JLT, I doubt whether PHAs would have been immediately removed from either or both of the Stables Market and Canal Market. In Mr Elkington's closing, the claimants' case was put on the basis that if proper advice had been given indicating the urgency and importance of the matter, steps would have been taken to comply with the risk improvement measure, which would have meant that when the loss occurred, Fusion would been satisfied, and liability would not have been in doubt. On balance, I am satisfied that this submission is correct. Taking the evidence as a whole, the most likely outcome in my view is that a dialogue would have ensued with Fusion. In this respect, I accept the evidence of the claimants' broking expert that the effect of the failure to advise as to the October 2007 RIM was to deny the claimants the opportunity to enter into a constructive and detailed dialogue with the insurer regarding PHAs, by failing clearly to impart the insurers' views and the importance of the subject. The evidence shows that Fusion was open to such a dialogue, which would doubtless have included (and probably focussed on) an alternative form of heater such as was in due course accepted by Brit Insurance. It is of course perfectly possible that the dialogue Mr Dowlen refers to would not have reached a conclusion by the time of the fire (9 February 2008), which would have happened anyway. But had there been such a dialogue, the negotiations with Fusion following the fire would not have take place against the background of the RIM having been ignored (as it had been), and the dynamics of the negotiations would have been different. I accept the claimants' case on causation in this regard, therefore—but that is not the end of the defendants' case.

Did the insurers in fact rely on the Survey Condition defence?

86. The defendants say that the claim against them is premised solely on the basis that Fusion had a defence, or a reasonably arguable defence, to the claim under the Policy because of a breach of the Survey Condition which discharged Fusion from liability. I shall come back to the legal analysis. They also say that the Survey Condition defence was not in fact advanced by Fusion, and/or not advanced as regards Stables Market, and as the claimants put it, that is a key plank in their defence. These are matters of fact, and my findings are as follows.
87. By way of the background, and as set out above in more detail, it was established at an early stage that the cause of the fire was an LPG portable heater which was left on in one of the stalls in the Canal Market and which ignited clothing in the stall. As the letter of 30 May 2008 which I have set out above shows, the insurers were concerned that there had been regular and repeated use of PHAs by tenants with the "informed acquiescence" of the insured, but they acknowledged that the insured should not be prejudiced by the unauthorised use of a PHA by a tenant without the insured's knowledge. When the claimants took Leading Counsel's advice in July 2008 as to the reasonableness of the settlement on offer, he advised that that the "reasonable care" condition in the Policy did not present a difficulty, because it required recklessness on the part of the insured (and not just the insured's employees). On the assumption that PHAs were prohibited in the Canal Market, and there was no knowing acquiescence in their use there, the defendants accept that the "reasonable care" condition did not provide the insurers with a defence. (No claim is or could be advanced by the claimants against JLT on the basis of such a breach.) In short, the defendants contend that following the fire the Survey Condition (taken with the October 2007 Risk Improvement) was never raised by Fusion as a defence. Their case in that respect was based partly on the contemporary documents, and partly on the witness statement of Mr Gooda, served shortly before trial. In it he said that, "This was not an argument that I ever recall putting to the Insured or Harris Balcombe", whilst adding, "but it was apparent from my discussions that this was a point that troubled them".
88. There is ample evidence in my view that concerns as regards compliance with the October 2007 risk improvements were raised at an early stage after the fire, and were taken up by Certo in their discussions with Harris and the insurers. I am satisfied from the evidence of Mr Paul Lawrence that as early as 19 February 2008, Certo suggested that a breach of the Survey Condition provided a defence, including the fact that there were PHAs in Stables Market. Fusion wrote on 29 February 2008 to Mr Pearce referring to the ongoing investigation in the light of the insured's failure to comply with Risk Improvement 2007 – 01 (i.e. that of October 2007). A long email from Certo to Harris of 5 March 2008 refers to the insurers' continued concern about the existence of heaters both on the Canal Market and Stable Market sites.
89. In his evidence, Mr Anthony Harris said that Mr Gooda had referred to the Survey Condition at the first settlement meeting between them which took place on 9 June 2008. According to Mr Harris, Mr Gooda said that his underwriters were very unhappy about the situation because they believed that no heaters were being used, but that was the cause of the fire. He mentioned the Survey Condition, according to Mr Harris, and said that he believed that his principals (i.e. Norwich Union) had grounds not to pay the claim at all. That, as Mr Harris put it, was his starting pitch. Mr Lawrence's evidence was similar in effect to that of Mr Harris, and I am satisfied that this was indeed Mr Gooda's starting pitch. As I have said earlier, at this meeting he offered £1m in full and final settlement, which Mr Harris said was not enough.
90. There is, I should mention, a point raised as regards the credibility of the Harris witnesses (that is to say Mr Harris, Mr Dymant and Mr Paul Lawrence) in that it was not disclosed that their firm had agreed terms with the claimants entitling the firm (on its version of the agreed terms) to 20% of any recovery made by the claimants from the defendants. I understand that this percentage is disputed by the claimants. I need not say any more as to this however because, whilst as I made clear during the hearing, and Mr Elkington accepted, the firm's financial interest (whatever it may be) in the outcome of the litigation should have been disclosed in their witness statements, I am satisfied that the omission was inadvertent, and does not reflect on the witnesses' probity.
91. At all events, the most reliable evidence as to what defences were or were not raised by the insurers, in my judgment, is that of Mr Gooda himself, whose firm has no financial or other direct interest in the outcome of this litigation, and who said that:

"A: By 6 June I was very sure that there were portable heating appliances being used in Camden Market and I was concerned that that was in breach of the survey condition and/or the reasonable care condition.

Q: And your position was, wasn't it, that a breach of the survey condition meant that Fusion didn't have any obligation to pay?

A: That, that was our – that was our position, yes."

92. Later in his oral evidence he was asked about his negotiations with Harris, and said:

A: I'm not sure whether the conversation drilled down as far as specific policy issues although I am sure that we all knew what we were talking about.

Q: And by "We all knew what we were talking about" that included the Survey Condition?

A: Yes.

93. In their closing submissions, in the light of the evidence, the defendants put their case slightly differently, submitting that there is no documentary evidence to suggest that Fusion, or indeed Certo on its behalf, ever raised the Survey Condition (and non-compliance with the October 2007 RIM) as a warranty or a condition precedent. However, I am satisfied that whatever the precise legal analysis that those concerned had in their minds at the time, as a factual matter, breach of the survey condition and the October 2007 Risk Improvement was relied on by Fusion or raised on its behalf in respect of both the Stables Market and the Canal Market as a ground for avoiding liability under the Policy. But the defendants, as I shall now explain, go on to say that this was entirely misplaced.

Did the survey condition provide Fusion with any, or any reasonably arguable, defence to the claim under the Policy?

94. The defendants submit that what they describe as the first step in the claimants' case against them, namely that the Survey Condition defence was, or was reasonably arguably, available to Fusion, is not made out. They submit that the meaning and effect of the Survey Condition is at the heart of the case. Unless the Survey Condition is a warranty or a condition precedent to the continuation of cover, there is no basis for asserting that the 2007-08 Policy did not meet the claimants' needs, or provided the claimants with "vulnerable" or "uncertain" coverage. Nor, it is submitted, can one sensibly work out what advice should have been provided by JLT until one works out what the Survey Condition did and did not do. Thus, it is said, there was no breach of duty, because the policy responded to the loss, and so far as the admitted failure to forward the October 2007 RIM is concerned, no loss flowed from the negligence of the defendants, because notwithstanding non-compliance with the RIM, the insurers were liable under the policy. The defendants' case is that settlement was for reasons unconnected with liability, saying that the claimants were in a hurry to obtain a cash settlement, that Harris did not do a particularly good job in settling the claim, and Fusion did a good job, that there were issues which merited a discount but these were issues for which JLT bears no responsibility (such as possible breach of the "reasonable care" clause), and that the claimants thought that they would recover additional damages from JLT.
95. I begin by recapitulating the position as regards the Survey Condition. This as explained above was introduced at the 2007 renewal of the Policy (and was not the subject of advice from the defendants to the claimants). The full terms are set out above and, paraphrased, it provides that "cover under this Policy is conditional upon" receipt of a) acceptable survey reports and b) "completion to the Underwriters' satisfaction of all requested risk improvements within timescales stipulated by the Underwriters". It will be recalled that the October 2007 RIM required immediate compliance. The clause ends by providing that, "Underwriters reserve the right to amend the terms of the cover (which for the avoidance of doubt includes the withdrawal of cover) if either a) or b) above are not satisfied".
96. The defendants submit that, whether or not the claimants were enforcing the ban on PHAs, it is plain that on the proper construction of the Policy, (a) the Survey Condition was not a warranty, and (b) compliance with the Survey Condition was not a Condition Precedent to the continuation of all cover under the Policy. Consequently Fusion had no defence to the claim, subject to quantum. What is submitted is that in the event of non-compliance, the insurers could as the last sentence of the provision anticipates, amend or withdraw the cover, but that there is no basis for the implication of more draconian consequences, such as the immediate termination of cover in the event of non-compliance with the timescale. It submitted that the fact that a QC may have taken a different view at the time is irrelevant on the construction question, since this is a matter for the court to decide objectively now.
97. On their part, the claimants contend that there was a risk that the Survey Condition did mean that the claimants were not entitled to an indemnity following the fire, because, (a) that is the natural meaning of the opening words of the clause (which state cover to be "conditional upon" compliance), (b) if the effect of a breach of the condition was not automatically to discharge cover, then there would be no sanction for a breach which only became known to the insurer after a loss had occurred, and (c) the Survey Condition was a specific endorsement to the Policy, and the Policy already contained the Subjectivity General Condition 15 (which is set out above and had the effect of giving the insurer the right to amend or cancel cover). The Survey Condition therefore falls to be construed in such a way that it adds to the standard wording of the Policy, and gives the insurer additional protection—if it did not, then the endorsement would be otiose. Additionally, Mr Elkington adverted in his oral closing to the possibility that the Survey Condition may have been a suspensory condition in that the policy continued but the insurers were off risk while there was an outstanding failure to comply with risk improvements.
98. As to (c), the defendants respond that even if there is an overlap between the Subjectivity Clause and the Survey Condition that does not mean that one reads the Survey Condition as being significantly more onerous than the Subjectivity Clause. Indeed, it is said that the opposite applies. The consequences of non-compliance with the Survey Condition should be consistent with the consequences set out in (b) in the Subjectivity Clause. If Fusion had wished, in effect, to broaden the remedies available under (b) in the Subjectivity Clause by introducing the Survey Condition, one would expect them to have done so in terms in the Survey Condition. But they did not. It is therefore only proper, the defendants say, to infer that the consequences of non-compliance are the same—imposing amended terms, or cancellation, in each case at the option of the insurer and only operating prospectively once exercised.
99. Further, it is submitted by the defendants that even if the Survey Condition was (or was arguably) a warranty or a condition precedent, Fusion was estopped from taking the point by its conduct both before the fire (for example as shown by the "chaser" emails) and even more importantly following the fire, when they had full knowledge that the fire had been caused by the presence of a PHA in the Canal Market and that heaters were still to be seen in the Stables Market. Their conduct was consistent only with the Policy continuing in full force until its natural expiry date.
100. As regards this point, Leading Counsel was asked to consider whether Fusion's letters after the loss gave rise to a waiver of the right to rely on the Survey Condition (it is common ground that waiver and estoppel in substance raise the same point). The correspondence following the loss did not, he advised, amount to any waiver. The letters were without prejudice to the insurer's continuing enquiries, and the endorsement imposed on 4 March 2008 operated going forward only. However, again the defendants say that his views are not relevant. The claimants' counter argument is that his opinion was correct, and that for an estoppel, there is required an unequivocal representation by the insurer that it does not propose to stand by its rights under the policy, and there was no such representation in this case, either before or after the fire. This, it is submitted, is a complete answer to the estoppel argument.

The Survey Condition defence: discussion and conclusions

101. Had the negotiations between the insured and the underwriters failed, and matters escalated into a legal dispute, these arguments and doubtless others would have been canvassed and if necessary ultimately resolved by the court. But they did not, because a settlement ensued. The defendants submit that the court must nevertheless form its own objective conclusion in this dispute between insured and brokers. The claimants, on the other hand, submit that the court does not need to decide whether the defendants' submissions as to the availability of the Survey Condition defence are correct, because it is sufficient for the claimants to show that there was a risk that the condition did mean that they were not entitled to an indemnity following the fire. They rely on cases that concern the reasonableness of a settlement in such circumstances, and say that this is the correct approach.
102. Where a client has compromised his claim with the insurers, it is open to the brokers to claim that the settlement was unreasonably low (Jackson & Powell on Professional Liability, 6^th edn at 16-139). The approach to be taken by the court to that question is set out in the decision of Rix J in Mander v Commercial Union Assurance Co plc [1998] Ll Rep IR 93 at pp 148–9, and Colman J in BP plc v AON Ltd (No 2) [2006] 1 C.L.C. 881. The law is (I respectfully consider correctly) stated in the latter case at [282] – [283], where Colman J said:

"282 In this connection, the fact that the terms of a settlement were entered into upon legal advice establishes, at least, that those terms were prima facie reasonable. It is then for the defendant to displace that inference by evidence to the contrary, by establishing, for example, that some vital matter was overlooked: see Biggin v Permanite [1951] 2 KB 314 per Somervell LJ at p 321. However, the evaluation of the reasonableness of a settlement should not involve the court in arriving at a conclusive judgment on the merits of substantial issues which were contentious in the settled litigation. The court does not need to resolve those issues unless the answer is beyond doubt. The reason for this is that it is testing the reasonableness of the settlement by reference to the perception as to success or failure which the parties would have been expected to hold at the time when the settlement was entered into and the issues remained unresolved: see generally Mander v Commercial Union Assurance Co plc [1998] Ll Rep IR 93 at pp 148–9.

283 Further, as Mr Popplewell QC submitted on behalf of BP, it is only necessary for a claimant to establish that the settlement arrived at was at a figure within the range of what would have been reasonable. This may be quite a wide range because the views of experienced commercial lawyers and businessmen as to the particular strength of their party's case relative to the strength of the opposing party's case can differ quite widely. The test is therefore whether the settlement arrived at was, in all the circumstances which the settling party knew or ought reasonably to have known at the time of the settlement, within the range of settlements which reasonable commercial men might have made. To the extent that such settlement was excessive, the settling party cannot recover. However the range would have to be defined by reference to the benefits and detriments of any settlement for all parties to it."

103. I consider that the same approach is applicable here. I agree with the claimants that the question for the court is not whether objectively speaking the insurer had a good defence to the claim, but whether in all the circumstances the settlement was a reasonable one. Of course, it would not have been reasonable if "the answer is beyond doubt". Tomlinson J made a similar point in Standard Life Assurance Ltd v Oak Dedicated Ltd [2008] EWHC 222 (Comm) [102]: "…it is the duty of a broker to obtain, so far as is possible, insurance coverage which clearly meets his client's requirements. Coverage is only clear in so far as it leaves no room for significant debate. The coverage will be unclear, and the broker in breach of duty, if the form thereof exposes the client insured to an unnecessary risk of litigation. Of course the risk of litigation can never be wholly avoided and the broker is not in breach of duty in consequence alone of insurers putting forward a spurious construction of the cover".
104. I consider that the legal arguments put forward by the defendants as to the non-applicability of the Survey Condition defence are strong ones. Equally, the brokers should not be prejudiced by the fact that the claimants (and indeed the insurers) were (as I explain below) keen to reach an early settlement. If as a result, the claimants proceeded on the basis of a "spurious construction of the cover", that cannot be held against the brokers. On the other hand, it is necessary to have regard to the perception which the parties held or would have been expected to hold at the time. I have found as a fact that the underwriters did raise the Survey Condition defence following the fire. Standing back from the very detailed arguments I have heard in this case, it is not surprising that they did so, or that the claimants were worried about it. The issue of PHAs had been coming to the fore through most of 2007. The Survey Condition was imposed in March, the underwriters making it clear that PHAs had to be removed, and there ensued a discussion as to an acceptable substitute, in which the claimants' interests were in the hands of the defendant brokers. But this was never pursued, and following concerns expressed in September 2007 about PHAs close to combustible stock, the RIM was imposed in October requiring removal of such appliances immediately. The chasing emails sent afterwards, and the notes of the meeting on 4 December 2007, show that this was a live concern on the part of the underwriters. Nothing was done however, and it is now known that the relevant material was not passed on by the brokers to their clients. A few months later, a catastrophic fire ensued in precisely the manner the underwriters had been concerned about. Against this background, it is not surprising that the claimants were unwilling to take the insurers on.
105. I accept the claimants' submissions, for the reasons that they give and which I have set out above, that it is at least arguable that the Survey Condition did mean that they were not entitled to an indemnity following the fire. In my judgment, the case falls within the following passage of Jackson & Powell at 16–138: "As a result of his broker's breach of duty, an insured may find himself with doubtful or uncertain rights against insurers when he should have had a clear, unequivocal right to indemnity for a loss". The claimants did find themselves with doubtful or uncertain rights. On the valuation of the claim that was given to him by the claimants, Leading Counsel endorsed a settlement at just under 70% of the value of the claim. Even allowing for the force of the defendants' contentions on the Survey Condition defence, that in my view was within the range of settlements which reasonable commercial people might have made.

Conclusion on liability

106. I am satisfied that (subject to the issue of contributory negligence) the claimants have made out their case on liability.

(2) Mitigation

107. The defendants assert that the claimants failed to mitigate their loss in a number of respects. First, it is said that there was no good reason for the defendants not being consulted on the Survey Condition defence. Had they been asked to advise, they would have advised that there was no such defence open to Fusion, and "Fusion's bluff would have been called". I accept that normally an opportunity should be given to the party against which a claim is contemplated to comment in these circumstances, if only because if not given, the prospective claimant will be at risk that the settlement will be held unreasonable for some reason. But I agree with the claimants that there was no obligation to do so in this case. It is to be noted that Mr Edgar's letter of 17 June 2008 explained why in the defendants' view the insurers were liable and would have to pay.
108. Criticism is made of the adequacy of instructions to Leading Counsel. Again, I do not accept this criticism. The distinction between the Canal Market and the Stables Market was clearly drawn to counsel's attention and his awareness of the distinction appears from his opinion ("…it is unclear whether the [RIM] apply exclusively to that part of Camden market [i.e. the Stables Market] or whether they are intended to apply to the whole of the market i.e. Stables and Canal Markets. Certainly it is arguable that the survey applies to the whole risk rather the Stables Market part of it, but ultimately this point may not make a great difference"). The other points raised by the defendants in this respect are largely dealt with in my findings of fact above, though I should add that in addition to his instructions, counsel was provided with a considerable volume of documentation (though not, as he said, the complete run of correspondence).
109. Finally, the defendants submit that the settlement agreement was unreasonable (Rix J treated this as an issue going to failure to mitigate in Mander, ibid, at p.148). I have dealt with this above. As I have said, counsel advised that there was, at the very least, a significant risk that the breach of the Survey Condition provided underwriters with a complete defence to the claim: "In the light of that risk, I can see the attractiveness of the Underwriter's offer which equates to a recovery of just below 70% of the amount Mr Dymant would have expected to have agreed in the absence of any coverage issues. It would be a financial disaster for Camden to engage in lengthy and expensive litigation with Underwriters and then lose. Even if Camden were ultimately successful, the delays inherent in litigation, and the substantial costs involved, would be crippling. Accordingly, I consider the settlement with Underwriters reasonable". Applying the test in BP plc v AON Ltd (No 2), I repeat that I am satisfied that the settlement counsel was considering, which allowed for a 30% discount by reference to the Survey Condition defence, was within the range of settlements which reasonable commercial people might have made. I accept however the defendants' submission that there is no reason to suppose that counsel would have endorsed as reasonable a settlement which encompassed a payment of less than 70% of the value of the claim. Given the available points on the Survey Condition defence, the settlement was in my view towards the edge of the range which reasonable commercial people might have entered into.

(3) Quantum

110. It is common ground that where (as I have found to be the case here) an insured finds himself with uncertain rights against his insurer and enters into a settlement with the insurer, then the measure of loss against the broker is "the difference between what he actually recovered from the insurers and what he would have recovered had the broker not been negligent" (Jackson & Powell at 16-138). There was a considerable body of evidence in this regard, including expert evidence from the defendants (the claimants' expert's figures on reinstatement costs were not challenged save as to relevance). In addition to the Harris witnesses, I had evidence on the subject of loss of rent from Mr Wallace of Certo (called by the claimants). There was also evidence from Mr Mark Alper (Managing Director of Stanley Sidings Ltd representing the shareholders of Camden Market Holdings Corp) as to both reinstatement and loss of rent.
111. I am grateful to counsel for supplementary submissions on quantum served after the hearing, which have helped narrow the issues. It is clear from Mr Lockey QC's submissions that most of the numbers put forward by the claimants in the course of their argument are not challenged as such. The point made is that they are largely irrelevant. The parties' supplementary submissions show that there are some relatively limited disputes as to the numbers, but that I need not decide the other figures that were advanced at various points during the trial. The main issue between the parties is how the measure of loss is to be applied in this case as a matter of principle.
112. In terms of the history, after the fire, both parties set about putting a value to the claim. Fusion did so through its loss adjusters, Certo. For their part, the claimants instructed Davis Langdon to consider the material damage element of the claim. (Ove Arup was also engaged on their behalf.) In March 2008, Davis Langdon produced a lengthy report which estimated the total cost of demolishing and reinstating all the buildings damaged in the fire at £8.122m. The material damage claim was dealt with by Mr Paul Lawrence of Harris, and the loss of rent aspect of the claim was considered by Mr Stewart Dymant of Harris, who said that he valued the rent claim at approximately £2m. Both parties went into the negotiations on a well informed basis. There have since been updated reinstatement costs produced by the claimants as at the time of trial. But I think it is common ground, and in any case I accept the defendants' submission that the claimants were not entitled to payment under the Policy by reference to notional reinstatement costs—the indemnity in respect of costs of reinstatement was only available as and when reinstatement works were carried out (see e.g. J W Bollom & Co Ltd v Byas Mosley & Co Ltd [2000] Lloyds Rep. I.R. 136 at 144, Moore-Bick J).

The claimants' case

113. The claimants submit that the nature of the insured's claim is for damages to reflect the loss of the chance to recover more than the sum they received from the insurer (J W Bollom, ibid, at 143). The court should first decide, on the balance of probabilities, whether the claimants' claim would have been paid on the cash basis (or as they prefer to put it on the indemnity basis but for these purpose the terms are used in exactly the same way) or on the reinstatement basis. Their pleaded case, which they say they stand by, is that it is more probable that there would have been a recovery on the cash basis.
114. The court should then go on to assess what sums were recoverable under the Policy on the cash (indemnity) basis, with any uncertainty resolved in the claimants' favour (see Phillips & Co (A Firm) v Whatley [2007] PNLR 27 at [45], Ramco Limited v Weller Russell & Laws Insurance Brokers Ltd [2009] PNLR 14).
115. The sums recoverable under the Policy on the cash basis were (it is submitted by the claimants) as follows:

(a) £2.33m in respect of loss of rent (this figure is based on the calculation of the defendants' expert, as further explained in the course of cross-examination).

(b) Somewhere between £5.06m - £5.5m in respect of damages to buildings. This is calculated as follows: The view of the defendants' expert (Mr Townsend) is that the cost of reinstatement is £5.76m before average and £4.28m after average. However, as he accepted, that figure allows nothing for the damage to 2-3 Castlehaven Road or 4, 6, 8 Castlehaven Road, which Certo advised had been damaged in the fire. If the sum allowed by Certo for those figures is added, then the defendants' expert's figure increases to £5.06m (£4.28m + £677,516 + £100,000). Against that, an allowance should be made to reflect settlement on the cash rather than reinstatement basis. Mr Townsend suggested the normal discount would be 10-20%, but that a 20% discount would "be large". Taking the figure of 10% reduces the figure to £4.554m - £4.95m. Resolving uncertainties in the claimants' favour as is appropriate, the latter figure should be adopted.

(c) Consequently, the total sum that would have been recovered on the cash basis is £7.28m being the total of the figures in (a) and (b) above. This equates to a loss to the claimants of £3.455m (being the difference between these totals and the sum of £3.825m actually recovered). The court should award damages in that amount, plus interest.

The defendants' case

116. The defendants' case is that claimants' case on quantum is unnecessarily complicated. The position it is submitted is straightforward:

(a) The loss of chance analysis is not relevant where there are no alternative coverage issues which the insurer might have raised.

(b) Here, the question is: what would have happened, on the balance of probabilities, if the Survey Condition defence had not been available to Fusion as a result of JLT's alleged breach of duty?

(c) On the evidence (and taking into account the claimants' pleaded case) the overwhelming probabilities are that the parties would have concluded a cash settlement.

(d) As to timing, the overwhelming probabilities are also that they would have done this at or about the same time as the actual settlement using the information each had at the time. There is no reason to suppose that either party would have delayed beyond the date when the negotiations actually took place in early June 2008.

(e) There is clear, contemporaneous, evidence of the value which the claimants and their assessors placed on their claim at the time of the actual settlement, namely the £5.6m figure recorded in Leading Counsel's written Advice and in the conference notes.

(f) The overwhelming probabilities are therefore that on this hypothesis (ie assuming Fusion had no Policy defences) the claimants would have accepted a cash settlement of £5.6m or a figure approaching that sum (say £5.3m) if it had been forthcoming, and that Fusion would not have paid any more.

117. As to loss of rent, Certo recommended a reserve of £1.6m in its 25 April 2008 report, and in March 2008 Certo had advised Fusion that a "cash" figure for a quick settlement would be in the region of £1.4-£1.5m. The defendants submit that it is far-fetched to think that this part of the claim was worth more than Fusion's reserve or that Fusion would have allowed for more than its reserve figure in considering an overall settlement.
118. As to material damage, the defendants say that the claimants' figures do not represent anything like the parties' estimate of the value of the claim at the time. The claimants' valuation at the beginning of May 2008 was £3.5m. This ties in, it is submitted, assuming loss of rent at c£2m, with the £5.6m figure put to Leading Counsel—this it is said is no coincidence. Certo's assessment, at 25 April 2008 was £4,372,500, but this was on the basis of reinstatement, and a discount of in the region of some 10-20% would therefore fall to be applied to arrive at a cash or indemnity figure. A discount of 20% would lead to a figure very close to £3.5m. After the settlement, a document dated 6 March 2009 suggests that the claimants/Harris valued the material damage claim at £4.347m. Again, the figure of £4.347m would have to be discounted by 10-20% for a cash settlement (at 20% this produces a figure for material damage of c£3.5m).
119. Accordingly, it is submitted that the maximum amount of the claimants' loss, subject to contributory negligence, is £1.775m (on the basis of £5.6m less the £3.825m settlement figure). More realistically, the figure is £1.475m (on the basis of £5.3m less £3.825m).

Quantum: discussion and conclusions

120. In so far as the disputed numbers are concerned, I prefer the claimants' case. As to loss of rent, the figure of £2.33m reflects the considerable progress that was made in the cross examination of the defendants' expert. I do not find the defendants' reference to the lower figure in Fusion's reserve convincing, given their general stance that the reserve is irrelevant (and they themselves appear to ascribe a figure of c£2m to rent in the next paragraph of their submissions). As regards the damages to buildings claim, again this reflects the evidence of the defendants' expert adding in properties which were damaged by the fire but not included in his original calculation. I do accept the defendants' submissions that these figures do not represent anything like the parties' estimate of the material damage claim at the time. But in the light of the evidence that has been adduced at trial, so far as the figures are concerned I accept the claimants' submission that these sums would have been recoverable under the Policy on an indemnity basis. The question is whether that amount is recoverable in these proceedings.
121. As between the cash/indemnity or reinstatement basis, there is no real doubt. As indicated, the claimants say that they stand by their pleadings and that it is "more probable" that there would have been a recovery on the cash basis rather than the reinstatement basis. This is understating the pleading, which is unequivocal. By paragraph 13 of the Amended Reply, "It is admitted that, had the Claimants been fully insured, they would have negotiated a cash settlement with the insurer". It is also important to note that the pleading continues, "Such cash settlement would have been in the sum of at least £5.6m. It is denied that the Claimants accepted £3.825m (rather than £5.6m or more) due to any desire for speedy cash or due to any difficulties in proving the amount of their loss". The pleading carries the usual Statement of Truth on behalf of the claimants, and is dated 11 October 2010, in other words shortly before trial (paragraph 13 was in the original pleading dated 27 November 2009).
122. Pleadings aside, I accept the defendants' submission that the evidence was that the claimants would have wanted a cash settlement even had there been no breach of duty by the defendants. The insurers also wanted a cash settlement. Mr Gooda said, and I accept, that, "I think it's highly likely that we would also have wanted a cash deal" ('we' refers to Fusion and Norwich Union). I accept the defendants' submission that the probabilities are that the parties would have concluded a cash settlement in any event. I also accept that the probabilities are that they would have done this at or about the same time as the actual settlement (in other words July 2008) using the information each had at the time.
123. On that basis, the task is to ascertain on the balance of probabilities the difference between what the claimants actually recovered from the insurers (£3.825m) and what they would have recovered had the broker not been negligent (Jackson & Powell at 16-138). It is correct to say (indeed the defendants accept) that there still remained a good deal of uncertainty about some of the key elements in the claim, including in particular the reinstatement cost and the deductions to be made from the gross loss of rent. These would have to be accommodated in any cash settlement. On the other hand, as I have said, a considerable amount of work had been done by the claimants in terms of assessing their loss. Those who stand behind the claimant companies are sophisticated investors, and they went into the negotiations on an informed basis.
124. It was ultimately the claimants' choice to pursue an early settlement. In this regard, and on the basis of the facts as I have found them, I accept the submission that it is not relevant to consider a valuation of the claimants' actual losses as a result of the fire irrespective of whether those losses were covered by the Policy or were known to the claimants at the time when they settled with Fusion. I accept the defendants' submission that the court should proceed on the basis that because both parties wished for an early cash settlement, the parties would have had to conclude a deal by reference to the information available to them at the time, not the information that would only become available if (contrary to the claimants' case) the claimants had pursued, over time, a reinstatement claim, rather than a cash settlement, which would require further work to be undertaken to resolve the issues on the material damage estimate and the savings from the gross loss of rent figure. This approach focuses on what the claimants would actually have recovered from the insurers had the defendants not been negligent, rather than on the potential value of a claim on the Policy which was not pursued, and I consider that the approach is entirely consistent with that of Moore-Bick J in J W Bollom, ibid, at 143. (I agree with Mr Lockey QC that the loss of chance analysis is not relevant where there are no alternative coverage issues which the insurer might have raised as was the case in O&R Jewellers Ltd v Terry [1999] Lloyd's Rep IR 436.)
125. As the defendants submit, the most compelling (and the best) evidence as to what the claimants would have recovered from the insurers had the defendants not been negligent is what was put to Leading Counsel at the time. The value of the claim absent liability issues that he was given at the 11 July 2008 conference was £5.6m. This number appears in both sets of solicitors' notes of the conference, and there can be no doubts on this subject because counsel's written opinion subsequently records that, "I am informed that Camden's loss assessor, Mr Dymant, would have been confident of reaching a settlement of £5.6m if there had been no coverage problems". He refers later to "… the attractiveness of the Underwriter's offer which equates to a recovery of just below 70% of the amount Mr Dymant would have expected to have agreed in the absence of any coverage issues". I appreciate that paragraph 13 of the Amended Reply pleads that the "cash settlement would have been in the sum of at least £5.6m" (italics supplied), but it is the same figure, and in any case I am satisfied on the facts that if Fusion had no Policy defences, the claimants would have accepted a cash settlement of £5.6m. That in my judgment is the quantum of their loss by reason of the defendants' breach of duty.
126. There are a number of other points with which I should deal. First, the claimants placed some reliance on the fact that, on Certo's recommendation, Fusion's reserve (excluding its liability for any public liability claims which do not appear to have been a major issue) was £7.3m. Of course, the claimants were not aware of the reserve at the time. Despite sustained cross-examination, Mr Gooda refused to agree that absent liability issues he would have made an offer of £7m, and I accept his evidence.
127. Second, I think Mr Lockey QC is correct to say that the claimants have not engaged with the point that if, as they now contend, the value of their claim against Fusion was £7.28m, they did not have Leading Counsel's endorsement of a settlement at £3.825m which on that basis would represent only 52% of the claim. Leading Counsel's view that the settlement was reasonable was predicated on the basis that he was being told that the claim was valued at £5.6m so that the settlement at £3.825m was at just below 70%. I agree that the Survey Condition defence would not be considered worth a discount of around 50%.
128. I find therefore that the claimants' loss, subject to contributory negligence, is £1.775m on the basis of £5.6m less the £3.825m settlement figure (I see no reason to adopt the lower number put forward by the defendants).

(4) Contributory negligence

129. In summary, so far as contributory negligence following the fire is concerned, the defendants accept that this is subsumed in their submissions that the settlement was not a reasonable one. I have dealt with this above and need say no more about it.
130. As regards the situation before the fire, their case on contributory negligence is as follows. At the very least, it is said, Mr Mengelgrein's failure to enforce the prohibition against PHAs, and to advise JLT that it was not being enforced, after the assurances which had been given to JLT and to Fusion, constitutes a significant degree of contributory negligence and of itself justifies a significant discount of at least 75%. After all, it is said, it was not just the insurance, but also the safety of the stallholders and the numerous visitors to the Stables Market which were compromised on this hypothesis by the conduct of Mr Mengelgrein in failing to enforce the prohibition and to keep that fact secret both from his senior management and from JLT and Fusion. It would be wrong to allow the claimants—who had a responsibility to themselves, their tenants and the visiting public to maintain safety in the Stables Market—to make a significant recovery from JLT in those circumstances. The claimants' representatives it is submitted acknowledged the contributory negligence of the market management in their conference with Leading Counsel. Furthermore, if there is any merit in the case against JLT in relation to the approval of a heater, then the claimants or their agents TSMCL were contributorily negligent in not providing JLT with a heater specification and not pursuing the heater specification issue. The assureds had no right just to sit back and wait.
131. On their part, the claimants submit that when the claimants were properly advised of their policy obligations, they complied with those obligations. They suffered a loss because of Mr Pearce's repeated failures to give them proper advice as to their obligations. There was no reason for them to suspect that Mr Pearce was not giving them proper advice. Accordingly, there was no contributory negligence. Generally, it is said, the courts are slow to make findings of contributory negligence in claims against professionals (see Jackson & Powell 5-141). No deduction from the damages recoverable by the claimants is appropriate in this case.
132. The difficulty with the defendants' claim for a deduction for contributory negligence is that it is premised on findings of fact in respect of which I have largely reached a contrary conclusion. I have concluded that the defendants were aware that pending replacement with an approved model, PHAs were continuing to be used in the Stables Market area after September 2007. It is not therefore a case of "Mr Mengelgrein … failing to enforce the prohibition and … keep[ing] that fact secret both from his senior management and from JLT and Fusion". Nor it seems to me, was Mr Mengelgrein at fault in not pursuing the heater specification issue. He had produced a specification, and the issue was thereafter in JLT's hands. With some hesitation (particularly in the light of the comments attributed to one of the claimants' principals in the notes of the conference with counsel) I am not persuaded by the submissions that have been made to me that this is a case for a deduction for contributory negligence.

(5) Conclusion

133. The claimants are entitled to judgment in the sum of £1.775m. I will consider the question of interest and any other consequential matters arising after handing down this judgment. I am very grateful to the parties for their assistance.