England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LIVERPOOL DISTRICT REGISTRY
MERCANTILE COURT

		2nd May 2008

Introduction

1. The Claimant company, Laker Vent Engineering Limited ("LVE") is a mechanical engineering contractor specialising in the fabrication and installation of vessels, pipework, pumps and so forth for the petrochemical, pharmaceutical, aviation and power industries.
2. The Defendant, Templeton Insurance Company Limited ("Templeton") is an insurance company incorporated in the Isle of Man. At all material times, Templeton acted through its underwriting agents, Legal Risk Management Limited ("LRM").
3. Under and by virtue of a Constructors Protection Service Policy ("the Policy"), Templeton provided LVE with legal expenses insurance with effect from 19^th December 2002. The initial period of cover expired on 18^th December 2003 and the Policy was renewed for a further year expiring on 18^th December 2004. The Policy was then renewed once more for a further year ending on 18^th December 2005. Shortly after this final renewal, LVE, through its brokers, Lymm Insurance Brokers ("LIB"), gave written notification to LRM of a potential new claim under the Policy. This arose out of a construction contract ("the Contract") made on or about 15^th June 2004 between LVE and a German company, Gas Wasser Umwelt Gommern GmbH ("GWUG"), by virtue of which LVE agreed to carry out certain specialist sub-contract works involving the manufacture, supply and installation of piping for a major engineering project at Cottam Power Station, near Retford, Nottinghamshire.
4. Subsequently, on 17^th February 2005, a claim form under the Policy was submitted to LRM by LIB on behalf of LVE by which it sought an indemnity in respect of legal expenses in connection with a dispute arising out of the Contract. But the claim was declined by LRM on behalf of Templeton on a variety of grounds.
5. In the end, however, Templeton relied only on two interconnected grounds in order to justify its stance. Firstly, it contended that, on the occasion of the final renewal of the Policy, LVE had failed to disclose to LRM a material circumstance known to LVE at the time of renewal, namely an escalating dispute between itself and GWUG in connection with the sub-contract works. Accordingly, it was said, Templeton was entitled to avoid the Policy ab initio. Secondly, it was asserted that LVE had failed to comply with the claims notification procedure required by the Policy Conditions and that it was, therefore, in breach of a condition precedent to any liability on the part of Templeton to provide an indemnity in relation to any legal expenses which might be incurred by LVE in connection with the dispute between itself and GWUG.
6. In the present proceedings, LVE seeks a declaration that Templeton is liable to indemnify it in accordance with the terms of the Policy in respect of its own legal expenses and any liability for the other party's costs in connection with an arbitration claim which it is presently pursuing against Bohlen & Doyen ("B&D"), another German company (now, apparently, in administration) which has succeeded to the rights and liabilities of GWUG under the Contract with LVE. Templeton defends the proceedings on the grounds previously mentioned.
7. The principal issues to be resolved, therefore, are whether there was a material non-disclosure on the part of LVE as a result of which Templeton was entitled to avoid the Policy ab initio and whether, in any event, LVE failed to comply with a contractual notification procedure which constituted a condition precedent to any liability on the part of the insurer. In each case, the burden of proof lies upon Templeton to establish its right to decline cover. Both of these issues raise questions of construction of the Policy. But, even if Templeton would otherwise have been entitled to avoid the Policy or to refuse an indemnity on either of these grounds, LVE contends that it is estopped from relying upon either of them. On that issue, of course, the burden of proof lies upon LVE.

The Policy

8. The structure of the Policy can be summarised comparatively briefly. The insuring provisions are to be found at Clause 4 of the Policy conditions which provides that, subject to the terms and conditions of the Policy, the insurers should indemnify the insured in respect of "Policy Claims". The term "Policy Claim" is defined at Clause 1.18 as "a claim for Legal Expenses made during the Period of Insurance by the Insured under and in accordance with the terms of the Policy". The term "Legal Expenses" is itself defined at Clause 1.11 as including both the insured's "Own Costs" and (if included in the Policy Schedule) the "Other Party's Costs". Both of these expressions are themselves defined in the Policy Conditions. The definition of the term "Own Costs" at Clause 1.15 deals separately with those incurred in connection with any adjudication under Section 108 of the Housing Grants Construction and Regeneration Act 1996 and those incurred in connection with other forms of litigation. It is probably necessary to refer only to Clause 1.15.3 which deals with the latter type of costs. It defines these as:

"The sum of any legal costs and disbursements (including Counsel's fees and the costs and expenses of expert witnesses) reasonably, properly and directly incurred by the Insured in connection with the pursuit or defence of a Construction Claim in Court or arbitration proceedings up to and including the conduct of an Appeal against a Court judgment or the award of an arbitrator."

9. It will be seen that the legal costs and disbursements in respect of which the insured is entitled to claim an indemnity are limited to those incurred in connection with the pursuit or defence of a "Construction Claim". Though somewhat less clear, the same appears to apply to any indemnity in respect of any liability on the part of the insured to pay the costs of another party to any such litigation or arbitration. Once again, however, the term "Construction Claim" is specifically defined at Clause 1.5 of the Policy Conditions as having the following meaning:

"A bona fide construction claim arising under a Contract provided always that the Insured shall have first made an application for payment or asserted a defence under and in accordance with the terms of the relevant Contract and the said application or assertion shall have been rejected in writing on at least two occasions either in whole or in part by the Other Party or its agent."

10. The word "Contract" is itself defined at Clause 1.6 in terms which, amongst other things, make it plain that it includes only contracts entered into after the retroactive date specified in the Policy Schedule. This is the date of the initial inception of the insurance, namely 19^th December 2002; and its effect is to ensure that, in this respect at least, coverage was continuous, notwithstanding subsequent renewals. The definition of the term "Contract" also includes various further limitations, some of which were initially the subject of dispute in the present litigation but which are no longer pursued.
11. At the very head of the Policy Conditions, there is a statement to the effect that the Policy provided insurance on a "claims-made" basis; and this was accompanied by specific cross-reference to the provisions of Clause 6.1 of the Policy Conditions. Clause 6 is headed "Notification of Policy Claims". I need refer only to Clause 6.1 which is in these terms:

"It is a condition precedent to the Insurers' liability hereunder that We are notified in writing, immediately the Insured is aware of any cause, event or circumstance which has given or is likely to give rise to a Construction Claim. It is important to note that on any renewal declaration to the Insurers, the Insured must advise the Insurer of any potential claims, not already advised by the Insured and received by the Insurers. If the Insured fails to notify Us of such cause, event or circumstance during the Period of Insurance, any claim arising from that cause, event or circumstance shall not be admitted unless the Insurers in their sole discretion decide otherwise."

12. Though the Clause is not drafted with the precision and clarity which might be expected, or at least hoped for, it obviously requires prompt notification to Templeton if it is to be held liable to provide an indemnity in respect of the costs of a Construction Claim. But, on the other hand, if the insured complies with the notification requirements of Clause 6.1 during the period of insurance, Templeton is bound to provide the requisite indemnity even if the costs in question are incurred in connection with a Construction Claim which materialises after the end of the relevant period of insurance. Hence the "claims made" basis of the Policy. This is achieved by Clause 6.2 of the Policy Conditions which is in these terms:

"Where such notification has been given, the Insurers agree to treat any subsequent Construction Claim in respect of the cause, event or circumstance notified as though the Construction Claim had been made, brought or commenced during the Period of Insurance. Upon receipt of notification by the Insured under Clause 6.1, We will forward the Insured a Claim Form which must be completed and returned if the Insured wishes to proceed with a Policy Claim."

13. In essence, therefore, the Policy provides an indemnity in respect of the costs of pursuing or defending any Construction Claim, whether by way of litigation or arbitration, provided that it arises out of a contract made after the initial inception of the cover on 19^th December 2002 and that the notification requirements of Clause 6.1 have been properly complied with.

Renewal

14. As previously indicated, the initial period of insurance was for one year from 19^th December 2002 to 18^th December 2003. But it was subsequently renewed for two further periods of a year with effect from 19^th December 2003 and 19^th December 2004 respectively. There was no contractual obligation on either side to renew the policy, though, for reasons which I have previously mentioned, LVE was entitled to an indemnity in respect of expenses incurred in connection with any Construction Claim arising after the end of any relevant period of insurance provided that the notification requirements of Clause 6.1 of the Policy Conditions had been complied with.
15. It must therefore inevitably follow, as it seems to me, that, upon renewal, a new contract of insurance would have come into existence between the parties, even though the cover afforded by the new contract would extend to claims arising under Construction Contracts entered into by the Insured after the initial inception date, provided that due notification was given in accordance with Clause 6.1 during the relevant period of insurance. It also follows, therefore, that, at renewal, the Insured would owe to the Insurer the usual duty of disclosure imposed by the general law and effectively codified in section 18 of the Marine Insurance Act 1906. That, of course, is directly relevant to one of the major issues in the case; and I will have more to say upon it in due course.
16. It is a curious feature of the present case that there was an interval of time between the expiry of cover on 18^th December 2004 and the date upon which the new contract came into being on 17^th January 2005. So much was common ground between the parties, though this view was not shared by LVE's broker, Mr Philip Smith of LIB, who vigorously contended in the course of his evidence that the insurance had, in fact, been renewed on 17^th December 2004. But it is unnecessary to consider his evidence on this point any further in view of the agreement between the parties as to the actual date of renewal. It also appears that LVE was not held covered during this interval of almost exactly a month prior to renewal. But, when the policy documents were issued on behalf of Templeton the cover was stated to have commenced on 19^th December 2004. So, at least with retrospective effect, there was a seamless transition between the two periods of cover.
17. At the beginning of November 2004, there was a meeting between representatives of LVE and representative of its brokers, LIB. There seems little doubt that, during the course of this meeting, there was some discussion of the Cottam contract and it seems that it was decided that there was no need to notify LRM of any circumstances relating to this contract. The renewal form was then signed by LVE's finance director, Mr John Ashe; and on the following day the form was forwarded by LIB to LRM together with a covering memorandum. There was no reference either in the form itself or the memorandum of any problems arising out of the Contract for the sub-contract works at the Cottam Power Station.
18. The renewal terms were set out in a letter from LRM to LIB dated 29^th November 2004. The required premium was £5,880 plus insurance premium tax, amounting in total to £6,174. There is some very limited evidence as to how the premium was calculated. But that is a matter which I will address when considering the defence of non-disclosure.
19. The insurance was then renewed on the terms set out in LRM's letter of 29^th November 2004. As I have already indicated, the Policy Schedule makes it plain that the period of insurance was from 19^th December 2004 to 18^th December 2005 inclusive, even though the new contract was entered into only on 17^th January 2005.

LVE's Dealings with GWUG

20. The Contract under which LVE was required to carry out certain sub-contract works at the Cottam Power Station site was, as I have said, concluded on or about 15^th June 2004 in accordance with a Purchase Order of that date from GWUG. Under the Contract, LVE was to be responsible for the manufacture, supply and installation of piping which formed an integral part of the flue gas desulphurisation systems for the power plant. The "Scope" of the works was set out in a Technical Purchase Specification and other documents. Though the word "Scope" is used fairly consistently in the contract documentation, I propose simply to refer to the "works". The contract price for these works was stated to be £740,973.90.
21. The start and finishing dates for the works were stated, in the purchase order, to be 1^st July 2004 and 8^th October 2004 in respect of Unit 2, and 15^th August 2005 (in obvious error for 2004) and 15^th February 2005 in respect of Unit 3. But it was expressly stated that these start dates would be "adapted" in the event of any delay caused by the client. The terms of payment included a 10% down payment, stated in the purchase order to be payable against a "vesting certificate", followed by 80% "depending on monthly progress of deliveries and installation work confirmed by GWUG". Two final payments of 5% were to be made after handing over final documentation and after the preliminary take-over per unit. All these payments were, however, subject to retentions amounting, it would seem, to 15%; but, subject to any retention, payments were to be made within 30 days after receipt of invoice.
22. What is no doubt somewhat unusual for a construction contract in the United Kingdom is that the Contract was stated to be subject to German Law and the place of any arbitration in accordance with the contract terms and conditions was stated to be Stendal in the Federal Republic of Germany. The Contract also incorporated and was subject to purchasing conditions laid down by the main contractor RWE Industrie-Loesungen GmbH ("RWE"). Though I was not taken through these in detail, I note that they include a power on the part of RWE to suspend the progress of the works (Clause 5), an obligation on the part of the Supplier to carry out the works diligently and in a timely manner (Clause 7) and provision for liquidated damages (Clause 8). In the event of prolonged delay resulting in an entitlement to maximum liquidated damages, it was provided by Clause 8.5 that the Purchaser might terminate the Purchase Order forthwith.
23. By Clause 10, the Purchaser was also entitled, by way of a Variation Order, to instruct the Supplier to alter, amend, omit, add to or otherwise vary any part of the works. Clause 18 dealt with any default on the part of the Supplier. If the Supplier was not executing the works in accordance with the Purchase Order or was neglecting to perform its obligations thereunder, the Purchaser might give notice to it requiring it to make good such failure or neglect within five days or such period as should be reasonable in the circumstances. If the Supplier failed to comply within reasonable time with such a notice, the Purchaser was entitled to terminate the Purchase Order after having given five days' notice to the Supplier. In addition, by Clause 22, the Purchaser had the right to terminate the purchase order at any time by giving to the Supplier two weeks' notice in writing. Any such termination would be without prejudice to the rights of the parties accrued at the date of termination; and upon termination the Supplier would be entitled to be paid in accordance with the Purchase Order.
24. These conditions are couched in terms which assume that RWE would be the Purchaser of the goods and services to which the Purchase Order relates. But the contract was entered into with GWUG. Questions of construction may, therefore, arise as a result of the incorporation of these terms and conditions into the contract. But I was not addressed on any matters of this kind. Indeed, I received little in the way of evidence or argument as to the detailed terms of the contract between LVE and GWUG. So I simply note that it is at least arguable that, by virtue of these terms and conditions, either RWE or GWUG had the right to order variations of the sub-contract works or to terminate it, whether by reason of LVE's default or otherwise.
25. The Director with overall responsibility for the works was Mr Richard Ventre, the Chief Executive of LVE. Its Finance Director, Mr John Ashe, was also involved in relation to the financial aspects of the project. But the principal link between LVE and GWUG was LVE's Project Manager, Mr Glen Slaymaker. All of these three men made witness statements, though only Mr Ventre was required to attend for cross-examination. But, for the most part, the history of the dealings between the parties is to be found in the contemporary documents, the most important of which were put to Mr Ventre in the course of his evidence.
26. There appears to have been some initial delay in commencing the works. Whatever the reasons for this delay may have been, there does not seem to be any suggestion that it was the result of any default on the part of LVE. Be that as it may, on 26^th July 2004, LVE submitted an invoice to GWUG for 10% of the contract price. The invoice refers on its face to a vesting certificate which is said to have been attached, though I have not seen it. Payment was sought in the sum of £74,097.39 together with VAT of £12,967.04. Mr Ventre considered that LVE was entitled to this sum as a down payment in accordance with the terms of the Purchase Order. But, after some delay, in a somewhat curiously dated fax of 2^nd September 2004, Dr Bernd Kulbe of GWUG contended that LVE was entitled to payment only in respect of materials delivered to site and that, in any event, the value of the work or materials referred to in the invoice was only £41,265.75 plus VAT. In the event, according to Mr Ventre, only about £44,000 was paid in respect of this invoice, at least at this stage. But, on the face of it, assuming that an appropriate form of vesting certificate was submitted with the invoice, LVE would have been entitled to an initial payment of 10% in accordance with the terms and conditions of the Contract.
27. In August 2004, LVE submitted its first application for payment, though no copy was included in the bundles, or, at least, none was drawn to my attention. But by a separate fax of 2^nd September 2004 from Mr Horst Asperger of GWUG, various queries were raised about the quantum of the claim. This elicited a response from Mr Slaymaker dated 6^th September 2004 in which he also dealt with various other matters raised by GWUG.
28. A meeting seems to have taken place between Mr Ventre and Dr Kulbe on 16^th September 2004 in the course of which an agreement appears to have been reached on a monthly billing system; and it was also agreed that the outstanding balance of the initial 10% down payment would be paid by 10^th October 2004 at the latest. This was confirmed by a fax from Mr Asperger apparently dated 28^th September 2004, though, in the course of his oral evidence, Mr Ventre emphasised that these arrangements had to be understood in the light of the various rates by reference to which measured work was to be valued.
29. According to Mr Ventre, not much progress could be made with the work during the course of September 2004 since LVE was not given satisfactory access to those parts of the site at which it was required to carry out installation work. In some cases, it seems that its workforce had to carry out additional work in order to gain the necessary access, giving rise to requests for variation orders. It also seems that GWUG did not give its approval to the entirety of LVE's application or applications for payment. On 4^th October 2004, Mr Ventre raised some of these matters by way of an e-mail to Dr Kulbe, asking for a detailed response to LVE's applications for payment and for the resolution of the requests for variation orders and other matters. He emphasised that he would expect a satisfactory resolution during the course of that week in order to maintain LVE's "positive commitment to the outstanding problems".
30. In his witness statement, Mr Ventre explained that LVE had great difficulty in reconciling the payments made against its interim applications. He considered that GWUG did not seem to have grasped the certification procedures normally adopted in engineering contracts within the United Kingdom and that this was not helped by language difficulties. But he had no concerns about non-payment or short payment since such problems occurred frequently within the industry. In cross-examination, he emphasised that problems of this kind were entirely usual and that, in fact, by December 2004, GWUG had caught up with its payments. He entirely rejected any suggestion that these matters could not or would not be resolved by agreement.
31. On 29^th October 2004, Dr Kulbe sent an e-mail to Mr Ventre on the subject of progress payments. It is not easy to extract from this e-mail the precise nature of the problems which he was seeking to address. I gain the clear impression, however, that Dr Kulbe was passing on points raised by RWE rather than his own independent thoughts on these matters. Be that as it may, he made it fairly plain that he was not willing to agree to any change in the valuation of measured work and that RWE was complaining about the late submission of requests for variation orders. He also stated that he disagreed with the reasons given by LVE for the delay in completing lines of pipework and emphasised that, in his view, if LVE wished to receive a significant payment certificate for November it would have to increase its manpower substantially.
32. Mr Ventre replied by e-mail dated 1^st November 2004. He emphasised that LVE was unable to complete lines as envisaged because of factors outside its control. Work sites were not available and it was not possible for LVE to deploy its workforce in an economical and rational fashion. In addition, the necessary drawings had been made available only very recently. He made various further points in relation to the valuation of measured work and pointed out that the variations procedure was that proposed by GWUG itself. He also pointed out that LVE had kept GWUG informed about the reasons for the delays affecting the progress of the works in its weekly reports; and if he disagreed with these, he invited him to give his reasons for any such disagreement.
33. On 5^th November 2004, Dr Kulbe sent a further e-mail to Mr Ventre apparently in reply to an intervening e-mail from Mr Ventre dated 2^nd November 2004. Mr Ventre was not asked about this e-mail so I content myself by noting that it seems to me to have been a moderate and reasonably constructive response to some of the matters raised by Mr Ventre.
34. On 15^th November 2004, Dr Kulbe proposed a meeting which he considered to be urgently necessary to deal with what he referred to as "still existing discrepancies". The brief agenda which he submitted proposed six items for discussion, namely: (1) "time schedule and increase of manpower"; (2) "scope of supply - scaffolding"; (3) "actual quantities"; (4) "status of support supply"; (5) "variations"; (6) "payment appl No. 3 October/Invoicing November and following". In his response of 17^th November 2004, Mr Ventre agreed that there were "ongoing problems" which required urgent resolution, though he did not understand the reference to scaffolding. He therefore agreed to attend the meeting, which eventually took place on 26^th November 2004.
35. The meeting appears to have been both amicable and constructive. A substantial measure of agreement was reached between the parties. GWUG prepared a memorandum of agreement dated 30^th November 2004 which, it was suggested, once signed, would become an Addendum to the Contract. This was signed by Mr Ventre on behalf of LVE on 6^th December 2004; but he did so subject to certain matters set out in Appendixes A and B which were attached.
36. The Addendum prepared by GWUG dealt with six separate matters. Firstly, the timetable for the execution of the works as set out in a document dated 26^th November 2004 was to be altered by reference to an attached schedule. Secondly, in recognition of LVE's agreement to this revised timetable, GWUG agreed to make payments totalling £220,000 in early December. This sum related to the supply of goods and services, variations and what was described as an "advance payment". It was also recorded that with effect from November 2004 "contractual agreed payments" would recommence. Thirdly, £50,000 was to be passed on to LVE upon fulfilment of the scheduled timetable. Fourthly, it was recorded that both GWUG and LVE would accept that all construction delays caused by RWE up to this time would be "relinquished". Fifthly, provision was made for variations to be dealt with immediately between RWE, GWUG and LVE and that hourly rates would be agreed between the parties in order to facilitate this; and it was recorded that estimated times would be presented to the authorised signatories on behalf of RWE as soon as practicable. Sixthly and finally, it was stated that there was an understanding that no work stoppage would take place during the completion of the works in accordance with the timetable.
37. In fact, the schedule incorporating the timetable was re-designated as Appendix A when Mr Ventre signed the Addendum on behalf of LVE. There was one slight amendment to the timetable denoted by a question mark against the proposed completion date of 7^th December 2004 relating to one stage of what was termed the "Process Water System". The reason for this was to be found in the first paragraph of Appendix B which was, in fact, an e-mail message from Mr Slaymaker to Dr Kulbe dated 3^rd December 2004.
38. In this e-mail, Mr Slaymaker recorded an earlier conversation of the same date and sought to confirm several amendments to the Addendum as prepared and signed by GWUG. First of all, he pointed out that the proposed date for the queried item in the timetable could not be achieved as the necessary instructions to proceed with modifications to the supports had been received only that day. He suggested 20^th December 2004 as a realistic completion date. Secondly, he pointed out that, in order to achieve the degree of acceleration required by the revised programme, additional supervision and premium time working would be required. He stated that this was something which had previously been requested on 23^rd November 2004 and he wished to have it recorded that these costs would be outside the £50,000 "incentive payment" referred to at paragraph 3 of the Addendum. In the same paragraph, he pointed out that LVE had received an instruction to carry out certain additional work and that this required a variation instruction for additional supervision. Thirdly, he confirmed that the agreed completion dates would take into account all delays caused by RWE or GWUG to date. But he wished to have it recorded that this did not eliminate LVE's right to claim reimbursement in respect of the costs incurred as a result of the extension of time caused by the postponement of the original completion date.
39. Both in the course of his submissions and in cross-examination of Mr Ventre, Mr Smith, on behalf of Templeton, suggested that the agreement which had been reached on 26^th November 2004 had almost immediately "fallen apart". It is certainly true that on 7^th December 2004, Mr Asperger sent an e-mail to Mr Ventre complaining about the fact that up until the beginning of December, LVE had completed only 20 lines, though a minimum of 200 had been required. Complaint was also made as to the inadequate supply of manpower in November, the delayed supply of supports and the lack of any authorised representative for quality control purposes. He emphasised that GWUG required a "significant acceleration" in the completion of the lines.
40. Mr Ventre explained that the reason that LVE could not complete was because of circumstances outside its control. There were problems of access to the site and about the supports provided by GWUG. There was a problem about quality control, but he ascribed this to the lack of a proper hand-over procedure.
41. Rather more pertinent is an e-mail from Dr Kulbe to Mr Ventre dated 8^th December 2004 in which he responded to Mr Slaymaker's letter of 3^rd December 2004 which, of course, had been appended to the Addendum prepared by GWUG as Appendix B. Firstly, he suggested that the completion date in relation to the process water system had been agreed and pointed out that, though a formal instruction had only been received by LVE on 3^rd December 2004, the technical content of the work had been well known to it for some weeks. Secondly, he stated that he did not understand any claim for additional supervision, since there was no compression of the overall timescale for the execution of the works, though it had been put back by some months compared with the original contractual period. Thirdly, he queried any entitlement to an extension of time or any additional costs which might be involved. He concluded with these words:

"We were all hoping that the spirit of our meeting in Berlin would prevail to get a co-operative front to finish this project and obtain a consensus for possible claims from RWE by creating a performance that would enable RWE to be generous.

I urge you to sign off on the proposed original addendum. Otherwise you jeopardise the advanced payment regulation with RWE."

42. LVE responded by fax on 10^th December 2004. In fact, this document was prepared by Mr Slaymaker, though it was approved and signed by Mr Ventre himself. Firstly, he maintained LVE's position with regard to the proposed completion date of the process water system item; and he denied that the date originally set out in the schedule had been agreed. Secondly, he pointed out that the timetable set out in the schedule involved a substantial acceleration of the work, excluding variations. He continued, therefore, to assert that additional supervision would be required and he requested an appropriate instruction to that effect. That would, of course, involve additional costs which LVE could then recover. Thirdly, he pointed out that the extension of the completion dates, as set out in the original contract documentation, would involve LVE in additional site establishment costs. He referred to the fact that an extension notice had been submitted by LVE on 29^th September 2004 but had not yet been dealt with by GWUG. He concluded by saying that he would approve the Addendum of 30^th November 2004 as prepared by GWUG, on the assumption that the date for completion in respect of the process water system was amended. But he also emphasised once again that this agreement did not affect LVE's rights to claim costs in respect of the extension of time and the acceleration of the works.
43. Dr Kulbe responded to these points by way of a further e-mail to Mr Ventre dated 13^th December 2004. In relation to the completion date, he simply expressed his "great regret" that Mr Slaymaker was unwilling to confirm the results of a site meeting of 1^st December 2004. Secondly, in relation to the additional supervision and, it may be, other acceleration costs, he continued to insist that, properly analysed, there had been no compression of the timetable and that it would be a matter for LVE to determine what supervision would be required in order to fulfil its contractual obligations. Thirdly, in relation to the extension of time, he referred to a document which I have not seen. But, in cross-examination, Mr Ventre accepted that this seemed to amount to a rejection of any claim for additional cost and expense arising out of an extension of time. Dr Kulbe concluded with some observations about payment schedules.
44. Though there was obviously a difference of opinion on these points, the debate thus far seems to me to have been fairly amicable and constructive. The difference between the parties as to the date of completion of one of the items of work seems to have been a fairly minor matter which did not give rise to any further problems. Rather more important were the differences of view as to acceleration and extension costs. According to Mr Ventre, RWE was aware of these matters and wished to see a commercial settlement. For this purpose, a further meeting was held between Mr Ventre, Mr Slaymaker, Mr Kulbe and Mr Asperger on 15^th December 2004. In their witness statements, both Mr Ventre and Mr Slaymaker state that LVE was asked to prepare estimates of its costs for an acceleration of the programme.
45. On the following day, 16^th December 2004, Mr Ventre wrote to Mr Asperger by e-mail in order to deal with this request and to clarify the discussions which had taken place. No other record of the meeting appears to have been kept by LVE. After referring to what he called an "instruction" from RWE for the parties to agree a commercial settlement, he first dealt with the problems which he considered that LVE had been experiencing in receiving payments "on account". He emphasised that, as had previously been requested, a simple method of certification should be adopted. Secondly, he raised the question of payment procedures, since he did not consider that the system then in place reflected progress on site. RWE was requiring flexibility of working in order to make up for early delays and he argued that payment procedures should be altered to reflect this and to provide suitable incentives.
46. In the third paragraph of his e-mail, he dealt with the costs of an extension of time. He recorded the fact that it was apparently now RWE's opinion that this was "an inevitable consequence of what was happening at the site". He sought to support this by reference to the proposed completion dates as compared with the original contract dates. His estimate for the costs of this extension of time "with regard to site preliminary and additional preliminaries to accommodate the increase in manpower" was approximately £9,400 per week. Likewise, at paragraph 4, he dealt with acceleration costs and additional supervision. He again noted that RWE had indicated that this was indeed what was being requested. He pointed out that the required flexibility and movement of labour would inevitably lead to loss in productivity. LVE was now being asked to achieve the completion dates by an entirely different method and would need to provide additional management support. LVE had already provided two additional supervisors and was continuing to work overtime during the week and at weekends. His estimate of the additional costs of acceleration (including reduced productivity) and additional supervision was approximately £44,000 per week. He noted that this did not include provision for any further delays outside LVE's control.
47. In cross-examination, he confirmed that all parties were aware of the need for acceleration and that these figures were put forward so that RWE and GWUG would have some idea of the scale of the costs involved. Towards the end of his e-mail, after referring to an entirely separate and immaterial matter, he apologised for the fact that his estimates were approximate but he expressed his belief that the figures given were of the right order.
48. Rather surprisingly, there was no immediate response to this e-mail. Work apparently carried on much as before. The next written exchange to which I was referred was in the form of an e-mail from Mr Asperger to Mr Slaymaker dated 4^th January 2005. He commented that LVE had completed only a limited number of lines and that, according to RWE, 20% of the fitting pieces for the process water system had not been delivered and installed, approximately 80% of flange joints were incomplete or incorrectly screwed and that "a large number of supports" were missing or incomplete. He went on to say this:

"LVE has to improve significantly its performances till the 9^th January 2005, otherwise RWE's site management is threatening to substitute Laker.

We often spoke about these problems with you and Richard Ventre. I also asked Dave to deploy one or two teams just for completion. LVE didn't pay attention to this note.

I ask you to initiate measures immediately."

49. It was suggested to Mr Ventre in cross-examination that this represented a significantly more threatening tone in the exchanges. Mr Ventre was somewhat more blasé about it, commenting that it would have been almost impracticable for RWE to have carried out such a threat. I think that is probably correct. Certainly nothing more seems to have come of it over the days which followed. But it does seem to reflect an increasing level of dissatisfaction on the part of RWE.
50. Certainly, it does not seem to have been treated as a serious threat by Mr Slaymaker, when he replied later on the same day. He did, however, mention in passing that "continual threats of replacement labour" did not encourage or motivate LVE to provide the "significant acceleration" which the project now required. He challenged the proposition that fittings had not been delivered and installed or that there was a problem with the flange joints. He asked for further details. After asserting that installation was 40% complete, he continued as follows:

"The comments contained in your e-mail are not helpful. We are still in the middle of Construction. Due to delays largely outside of our control the project is significantly delayed. We are now installing, snagging, testing and handing over in parallel due to the compression of the time schedule. We are endeavouring to complete works as quickly as possible but it does not help when we feel that we are being continually criticized for a situation which is not our fault."

He then went on to refer to a number of different actions which LVE had taken in order to assist in the progress of the project and concluded with the following comments:

"It is now vitally important that we receive a response to our e-mail dated 16^th December 2004. We have organised additional resources at your request based on good will. We are not prepared to incur this additional cost unless we receive confirmation that it will be fully reimbursed. It is also worth noting that without this supervision structure in place we will not be able to maintain current or additional site manpower as it will significantly affect productivity, safety and quality aspects of our work."

51. Somewhat belatedly, on 7^th January 2005, Mr Asperger sent an e-mail to Mr Ventre, commenting on his letter of 16^th December 2004. He stated that, as had apparently been agreed, he had passed it on to RWE without comment. He stated that this did not mean that GWUG acknowledged the demand, but he went on to say that GWUG was making every effort to convince RWE to accept the claims. In particular, confirmation had been sought in respect of the estimated costs in relation to the extension of time and acceleration but it seems that no reply had yet been received from RWE. He then went on to deal with the method of payment and the failure to complete more than a small proportion of the pipe runs which could and should have been completed during November and December.
52. During the same period there were some exchanges between Mr Ventre and Dr Kulbe about payment. One of the problems was the difficulty apparently experienced by GWUG in ensuring that the amounts payable were actually transferred to LVE's bank account.
53. By 14^th January 2007, there had still been no detailed response by either RWE or GWUG to Mr Ventre's letter of 16^th December 2004. On that date, Mr Slaymaker sent an e-mail to Mr Asperger complaining that the approved valuation of the work carried out thus far was much less than the amount requested by LVE. He then summarised the work which he contended had been completed and commented on the fact that there had been delays outside LVE's control. He concluded as follows:

"I believe LVE have shown a high level of good will. Our Chief Executive has become directly involved in the project. We have increased manpower in line with your own requirements. We have also employed a far greater level of site management in order to control the increase in manpower. This has been implemented without conclusion of the respective commercial negotiations and very much at our risk. This is a situation which simply cannot continue.

We originally requested additional costs for acceleration of contract extension via our e-mail dated 16^th December 2004 as requested. A month has now passed without formal response. If LVE were to react so slowly to requests from RPS/GWU/RWE the project would suffer even further delay.

We respectfully request that until commercial negotiations reach their conclusion our latest application for payment (No 5) is approved in full and payment is processed by the end of the month."

54. Even then, no response was forthcoming. On 18^th January 2005 Mr Ventre wrote to Dr Kulbe stating that he required an answer to the letter which he had sent five weeks earlier and stated that it was unacceptable not to have received a response by now. He also asked him once again to substantiate the facts upon which any adverse comments about LVE were based.
55. This appears to have done the trick. On 19^th January 2005 GWUG eventually replied by fax to Mr Ventre's letters of 10^th and 16^th December 2004. The letter stated that an official statement from RWE was still outstanding. But it went on to challenge LVE's assertion that it was entitled to any additional reimbursement regarding acceleration, site establishment, time extension costs and additional supervision. It did not accept the reasons put forward by LVE and rejected them once more, pointing out that, in its view, LVE was in delay in carrying out the works. However, it went on to say that GWUG was interested in solving this problem "in a fair manner." It was suggested, without prejudice, that both parties should "put on record all issues which they think they are entitled to". Unless they were able to reach a mutual agreement over these matters they would have to be referred to arbitration in accordance with the contract. But the letter emphasised that none of this should jeopardise the performance of the project.
56. It is unnecessary to refer to any of the subsequent correspondence passing between the parties. As it happens, the letter from GWUG dated 19^th January 2005 was sent and received only two days after the date of actual renewal of the insurance, as agreed by the parties. Any subsequent exchanges cannot be directly relevant to the issues which I must resolve in this litigation. At best they may cast some light upon the state of affairs immediately prior to renewal. The only document to which I was specifically referred for this purpose was the claim form subsequently submitted to the insurers on behalf of LVE which indicated that a sum of £300,000 was in dispute. In cross-examination, Mr Ventre described this as being something of a "guesstimate". It was actually somewhat less than the shortfall between the two parties' valuations of work carried out to date as set out in Mr Slaymaker's e-mail to Mr Asperger on 14^th January 2005.
57. That represents a convenient point at which to deal with one other matter pursued by Mr Smith on behalf of Templeton. On the basis of a summary of LVE's applications for payment and a schedule of payments received, he suggested that, during the months of December 2004 and January 2005, there was a very considerable shortfall in the amounts actually received by LVE compared with the amounts claimed. The point sought to be made was that there was a serious subsisting dispute between LVE and GWUG prior to 19^th January 2005.
58. It is undoubtedly true that there were some problems about interim valuations and payments during this period. In considerable measure, however, these appear to have been procedural in nature. There seem to have been no certification arrangements in place and there may well have been a difference of view as to the precise basis upon which the work was to be valued. Furthermore, payments were not accompanied by any payment certificates so that LVE had considerable difficulty in reconciling them with its own applications for payment. On at least one occasion, a substantial payment appears to have been delayed or mis-allocated during the course of its progress through the banking system. But Mr Ventre stated that it was not at all unusual in his experience for a contractor to be underpaid on its monthly applications and that, at least in the early stages of this particular contract, he had no concerns about non-payment and assumed that LVE was simply experiencing what he described as "administrative and language problems".
59. Furthermore, in a supplemental witness statement, he sought to analyse applications and payments in a little more detail. He pointed out that payment would typically be received about 30 days after the application had been made. In fact, it rather looks as if payment was normally expected at the end of the month following that within which the application itself was prepared and submitted. On this basis, though there were substantial arrears in the initial stages of the project, by the end of December 2004 there was only a 10% shortfall as compared with the cumulative amount payable by that date in accordance with LVE's applications for payment. I do not know whether this 10% shortfall represents retention monies; but if it does, then payments would have been entirely up to date. It is true that the payments received at the end of January 2005 and February 2005 showed a rather more substantial and increasing shortfall against the December and January applications. But, on the face of it, by the time of the renewal of the contract of insurance, there is nothing to suggest that the cumulative shortfall in payments compared with the applications was anything out of the ordinary in the context of engineering contracts of this kind. That is entirely consistent with the way in which Mr Ventre himself described the situation.
60. There were undoubtedly some difficulties in the administration of the Contract. I think that these were, in considerable measure, attributable to the fact that the Contract was not in one of the usual standard forms employed within the United Kingdom and that there would inevitably have been cultural and linguistic differences between the contracting parties. This would not have been alleviated by the fact that there seems to have been little direct contact between LVE and the main contractor RWE. As I have already indicated, it seems to me that matters of this kind are likely to have underlain the initial difficulties experienced by LVE in relation to interim payments.
61. There also appear to have been delays in the progress of the works. It appears to have been contended by RWE and GWUG that some of these delays were to be attributed to LVE. But that can hardly apply to the entirety of the substantial delays which seem to have afflicted the project. Furthermore, both in the written exchanges which I have sought to analyse and in the course of Mr Ventre's oral evidence, LVE has made out a reasonable case that any delays in completing those parts of the work for which it was responsible were caused by matters outside its control, such as access to the workplace.
62. The evidence also seems to suggest that, whatever the cause of these delays, there was an acceptance by RWE and GWUG of the need for an acceleration of the works and that LVE was asked to quantify any additional costs likely to be incurred as a result of such an acceleration, together with any costs incurred as a result of cumulative extensions of time. After Mr Ventre had set out his estimate of the costs in his letter of 16^th December 2004, it took over a month before GWUG was able to respond on 19^th January 2005.
63. At least up until 19^th January 2005, when this letter was received, Mr Ventre did not consider that there was anything out of the ordinary in relation to the Contract or that LVE was in any sense in dispute with GWUG. Mr Ashe, whose evidence was unchallenged, likewise thought that a shortfall in payments was "absolutely par for the course" in contracts of this kind. Similarly, Mr Slaymaker regarded the problems encountered as typical of what occurred in large contracts of this kind.
64. Having considered the written exchanges in considerable detail, it seems to me to be quite clear that, whatever differences there may have been between the parties, they were engaged in fairly amicable discussions about these problems, work was continuing on site and, after some initial difficulties, LVE was receiving stage payments in sums not much below the amounts claimed. I do not accept Mr Smith's contention that the agreement reached on 26^th November 2004 "fell apart" within a matter of days. There was a minor difference of opinion as to whether one particular section of the works could be completed by the date proposed at the meeting. The only differences of substance seem to have arisen out of LVE's assertion that it would be entitled to additional costs arising from any acceleration of the works and from any extension or extensions of time.
65. But the evidence seems to show that it was accepted by RWE (and hence, presumably, by GWUG) that there would have to be an acceleration of the works; and it seems that, as a matter of fact, the overall timescale of the project had been considerably extended. In effect, LVE intimated a claim in respect of such costs and, when asked, sought to quantify them. Of course, no agreement had been reached on these matters prior to 19^th January 2005; and GWUG (and presumably RWE) seem to have been contending that some part of the delays (and possibly, therefore some part of the need for acceleration) was the fault of LVE. But, as it seems to me, these matters remained in discussion on a fairly amicable basis at least until LVE received GWUG's letter of 19^th January 2005.
66. I have, of course, noted the "threat" to "substitute" LVE passed on by Mr Asperger in his e-mail to Mr Slaymaker dated 4^th January 2005. Though, as I have already said, this may have indicated an increased level of irritation on the part of RWE and, it may be, GWUG, I do not consider that it was a serious threat or that it was taken seriously.
67. In my judgment, despite the delays to the works and the differences of opinions between the parties, the relationship between LVE and GWUG remained fairly amicable at least up until 19^th January 2005; and there was no obvious indication, prior to that date, that the differences between them would or might lead to any form of process of adjudication, arbitration or litigation.

The Construction Question

68. Before I turn to the two substantive issues themselves, there is a question of construction, the determination of which may affect my approach to both of those issues. I refer to the notification provisions set out in Clause 6.1 of the Policy Conditions. It will be recalled that this reads as follows:

"It is a condition precedent to the Insurers' liability hereunder that We are notified in writing, immediately the Insured is aware of any cause, event or circumstance which has given or is likely to give rise to a Construction Claim. It is important to note that on any renewal declaration to the Insurers, the Insured must advise the Insurer of any potential claims, not already advised by the Insured and received by the Insurers. If the Insured fails to notify Us of such cause, event or circumstance during the Period of Insurance, any claim arising from that cause, event or circumstance shall not be admitted unless the Insurers in their sole discretion decide otherwise."

69. It was common ground between the parties that the word "likely" in the first sentence of Clause 6.1 was to be read as equivalent to "probable" in the usual sense in which that term in used in the civil law, namely more likely than not. That, therefore, is the footing upon which I approach the substantive issues between the parties. It was not seriously contended that, in this first sentence, the words "condition precedent to the Insurers' liability" should be read in any sense other than the obvious one, so as to relieve Templeton from any liability in the event of any failure to give the requisite written notice. This interpretation is reinforced by the wording of the last sentence, subject, of course, to the exercise by Templeton of its discretion to admit a claim notwithstanding any want of notification.
70. Any notification in accordance with Clause 6.1 must be given "immediately the Insured is aware of any cause, event or circumstance which has given or is likely to give rise to a Construction Claim." I was not specifically addressed on the meaning of the word "immediately"; but I take it to mean as soon as reasonably practicable in the circumstances. Nor was I specifically addressed as to the implications of the somewhat odd definition of the term "Construction Claim" at Clause 1.5 of the Policy Conditions. It will be recalled that this defines such a claim as "a bona fide construction claim arising under a Contract…". But this general definition is subject to an express proviso that the Insured should first have made an application for payment or asserted a defence under and in accordance with the terms of the relevant Contract and that the said application or assertion should have been rejected in writing on at least two occasions either in whole or in part.
71. In fact, this proviso seems designed to limit the generality of the definition: it is not the definition itself. So a "Construction Claim" will not have arisen and will not, therefore, be notifiable under the first limb of the first sentence of Clause 6.1 unless and until the dispute has reached the stage of a formal claim (or formal assertion of a defence) followed by a repeated formal written rejection. So it rather looks as if the proviso is intended to exclude any disputes which have not reached this stage from the notification requirements, at least insofar as those requirements apply to any cause, event or circumstance which has already given rise to a "Construction Claim". That is not too surprising, since it would only be at this stage that legal expenses would be likely to be incurred in connexion with the dispute.
72. But, of course, Clause 6.1 also requires notification at a somewhat earlier stage, when a formal rejection of a claim or defence is merely "likely". For my part, I think this is a somewhat refined concept and one which the insured would find difficult to apply in practice. In reality, it seems to me that the practical effect of this limb of Clause 6.1 is that notification must be given when a dispute has reached the stage where adjudication, arbitration or litigation is likely to be required in order to resolve the differences between the parties. That was, in essence, the way in which it was approached by each side in this case.
73. The notification procedure is triggered when the Insured becomes "aware" of any relevant cause, event or circumstance. This clearly requires actual knowledge on the part of the Insured of the factual matters which have given or are likely to give rise to a claim. In principle, there should be no difficulty in determining whether the Insured actually knows of facts which have given rise to a "Construction Claim" as defined in the Policy. Practical problems may, of course, arise in identifying the person or persons whose knowledge is to be attributed to a corporate insured; and there may very well be evidential issues as to what the relevant person or persons actually knew. In this particular case, however, Mr Ventre seems to have been fully aware of all material developments; and, given his position within the company, all that he knew can safely be attributed to LVE itself.
74. What is somewhat less obvious is what is required to trigger the notification requirements where a Construction Claim has not yet arisen but may be regarded as "likely". Is actual knowledge of any cause, event or circumstance sufficient if, as a matter of objective assessment, it is "likely" to give rise to a Construction Claim, even if the Insured had not actually realised that such a claim was probable?
75. It must be borne in mind that this part of Clause 6.1 seeks to impose an important restriction on the Insurers' liability, regardless of how serious or trivial the consequences of late notification may be. In any event, of course, since this is a "claims made" Policy, any notification must be given to the Insurers during the subsistence of the Policy; so there is an obvious and substantial incentive for the Insured to ensure that the Insurers are promptly notified of any likely claim. But, whatever the nature of the Policy, if the Insurers seek to make due notification a condition precedent to liability, it behoves them to make quite clear the circumstances in which such notification is required.
76. It is no doubt arguable that a provision which requires the Insured to notify the Insurers when he becomes "aware" of facts which are likely to give rise to a claim does not draw a sufficiently clear distinction between the facts themselves and the likelihood that those facts will give rise to a claim. That would tend to support an interpretation which would require notification to be given only if the Insured was aware of both the underlying facts and of the likelihood they would result in a claim. That would mean that there would, in effect, be a subjective test of likelihood. But as a matter of syntax, it seems to me that what the Insured must be aware of is the relevant "cause, event or circumstance". The following clause, "which has given or is likely to give rise to a Construction Claim", qualifies the "cause, event or circumstance"; and it does so in objective terms. So, if it were material to the resolution of the issues in this case, I would if necessary hold that the question of likelihood in this context was to be determined objectively. In fact, however, in view of my conclusions on other issues, I do not consider that it is necessary to determine the point. But, in any event, if it were relevant to the outcome of the proceedings I would not be prepared to hold that LVE actually knew that a Construction Claim was likely at any time prior to GWUG's letter of 19^th January 2004 at the earliest.
77. The real battleground between the parties was as to the meaning of the second sentence of Clause 6.1. Each of the parties sought to draw an entirely different conclusion from its wording. On behalf of LVE, Mr Bellamy submitted that it was clearly directed to the duty of disclosure owed by the Insured at the time of renewal. On its proper construction, he argued, this sentence was intended to control the extent of the duty of disclosure. All that the Insured would be obliged to disclose at the time of renewal was any "potential claim" which had not already been notified to the Insurers. In this context, Mr Bellamy contended, the expression "potential claim" must be interpreted in a manner consistent with the pattern established by the first sentence of Clause 6.1. It would, therefore, refer to any cause, event or circumstance which was likely to give rise to a Construction Claim but which had not already done so.
78. Mr Smith, on behalf of Templeton, on the other hand, submitted that the second sentence imposed a contractual duty upon the Insured which was quite separate from the duty of disclosure imposed by the general law. He contended that the expression "potential claim" must be read in a wider sense so as to cover circumstances which might give rise to a Construction Claim and should not be controlled by the wording adopted in the first sentence of Clause 6.1. However, he submitted, this disclosure requirement must be construed in precisely the same way as the notification requirements enshrined in the first sentence in that it should properly be regarded as constituting a condition precedent to any liability on the part of the Insurers.
79. In my judgment Mr Bellamy's arguments are nearer the mark than those advanced by Mr Smith. I consider that this section of Clause 6.1 is directed to the duty of disclosure. Indeed, even on Mr Smith's argument, the essential duty which he detects in this passage seems to differ little, if at all, from the general duty of disclosure to which an assured is subject at the time of renewal, save, of course, for his contention that, as a matter of contract, it is to be regarded as a condition precedent. In this way, of course, he avoids the need to establish materiality or inducement. All the Insurers would need to show, in order to escape liability, is that there was, in fact, a failure on the part of the Insured to advise them of a potential claim at the time of renewal.
80. For my part, I am quite unable to accept that, whatever its precise import, this second sentence can be construed as creating a condition precedent to the liability. Both linguistically and conceptually, it seems to me to be quite separate and distinct from the notification requirement set out in the first sentence of the clause. Unlike the wording of the first sentence, it entirely eschews the use of the expression "condition precedent" and it uses the words "advise" and "potential claims" rather than referring to the need to "notify" the Insurers of any "cause, event or circumstance".
81. Mr Smith's best point, I think, is that the last sentence also makes it plain, without using the expression "condition precedent", that no claim will be admitted if the Insured has failed to comply with provisions of the Clause. If this was intended to apply only to the notification requirement set out in the first sentence, why, asks Mr Smith rhetorically, would it be necessary to include this last sentence at all. So, he submitted, if the Insured failed to advise the Insurers of any "potential claim" at the time of renewal, any subsequent claim arising out of the same facts or matters would not be admitted by reason of the last sentence of Clause 6.1.
82. But, in my judgment, it is really very clear that the wording of the last sentence mirrors that adopted in the first sentence but does not match the wording of the intervening sentence. The first sentence requires the Insured to notify the Insurers of any relevant "cause, event or circumstance"; and the final sentence provides that if the Insured fails to notify them of any "such cause, event or circumstance" during the period of insurance, any claim arising from that "cause, event or circumstance" shall not be admitted. It seems to me to be quite plain that, by the use of these words and in particular the word "such", these latter provisions are intended to refer back to the very first sentence of the clause which adopts the identical terminology. By contrast, one would have to adapt the language of the final sentence to a significant degree if it were to be read as meaning that any Policy Claim arising out of any "potential claim" should not be admitted unless it had been "advised" to the Insurers at or prior to renewal.
83. But, whilst I reject Mr Smith's submission that the wording of Clause 6.1 is apt to render a failure to advise the Insurers, at renewal, of any "potential claim" a breach of a condition precedent to liability, I am not entirely persuaded by Mr Bellamy's competing thesis. As I have already indicated, I think it is clearly correct to regard the relevant provisions as being directed towards the duty of disclosure owed by the Insured on renewal; and it is well established that an Insurer may limit the extent of any requisite disclosure, as, for example, by the questions which he chooses to put in the renewal form. In principle, therefore, provisions of the kind found in this part of Clause 6.1 could similarly limit the duty of disclosure on renewal. It was Mr Bellamy's submission that this was precisely the effect of the relevant words since, he argued, it required disclosure of only "potential claims" and this expression should be equated with the words in the first sentence requiring notification of "any cause, event or circumstance which…is likely to give rise to a Construction Claim". But, he submitted, since it was common ground that "likely" in this context meant more probable than not, LVE was required to disclose only probable claims.
84. Assuming, as I do, that this is the correct meaning of the word "likely" in the first sentence of Clause 6.1, I can see no obvious reason why the expression "potential claims" in the second sentence should be construed in a similar way. As a matter of ordinary usage, it seems to me that the word "potential" in this context is less strong than the word "probable". A "potential claim" is one which may arise in the future rather than one which probably will do so. One might adopt various alternative forms of wording which would come closer to the concept enshrined in the expression "potential claim". Thus, one might use the expression "possible claim"; or one might refer to a claim which "might" arise.
85. What I think the draftsman was, in fact, attempting to do in this part of Clause 6.1 was simply to remind the Insured of his general duty of disclosure at the time of renewal and to make it clear that he remained subject to this duty notwithstanding the notification requirements set out elsewhere in the Clause. Thus, he would be required to disclosed any circumstance which might give rise to a Construction Claim, provided, of course, that it was material in the sense that it would influence the judgment of a prudent insurer in fixing the premium or determining whether he would take the risk. I adopt the words of section 18 of the Marine Insurance Act 1906.
86. To construe the middle sentence in this way gives due weight to the very obvious contrast in wording between this sentence and the rest of Clause 6.1. I refer, in particular, to the introductory words: "It is important to note…" That language is consistent with a reminder to the insured as to his duty rather than with an intention to impose or modify an obligation as a matter of contract. Indeed, the language adopted in the second sentence would hardly be out of place on the renewal declaration itself; and in that context its meaning would not be controlled in any way by the wording used in the rest of Clause 6.1.
87. As it seems to me, this construction of Clause 6.1 reflects the legitimate substantive interests of the parties. During the period of insurance, Templeton is bound to provide cover in respect of any claims notified to it but is entitled to insist on prompt notification of likely claims if it is to be held liable. But it is not bound to renew the insurance; and at the time of any proposed renewal, it is entitled to be informed of any circumstance material to the risk, most obviously any situation which may well give rise to a claim under the policy, if renewed, even though it may not have developed to the point where it would have to have been notified as a likely claim during the preceding period of cover.
88. I conclude, therefore, that the middle sentence of Clause 6.1 does not constitute a condition precedent to Templeton's liability under the policy; nor does it limit the duty of disclosure at the time of renewal to any circumstance which makes it more probable than not that a Construction Claim will arise in respect of which the Insured would be entitled to an indemnity.

The Disclosure Issue

89. I must now turn to consider the first substantive issue, namely whether Templeton is entitled to avoid the policy on the grounds of non-disclosure.
90. The nature of the duty of disclosure is best and most conveniently to be found in section 18 of the Marine Insurance Act 1906 which codified the common law principles which apply to all types of insurance. The relevant provisions are as follows:

18 Disclosure by assured

(1) Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. If the assured fails to make such disclosure, the insurer may avoid the contract.

(2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.

(3) In the absence of inquiry the following circumstances need not be disclosed, namely: -

(a) any circumstance which diminishes the risk;

(b) any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know;

(c) any circumstance as to which information is waived by the insurer;

(d) any circumstance which it is superfluous to disclose by reason of any express or implied warranty.

(4) Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question of fact.

(5) The term "circumstance" includes any communication made to, or information received by, the assured.

91. As I have already indicated, given Mr Ventre's involvement in the matter which, it is said, should have been disclosed, it is unnecessary to consider the provisions of section 18(1) by which the assured is deemed to have the requisite knowledge of the relevant facts. I proceed on the footing that Mr Ventre did know all the primary facts which, it is contended, were material to the risk which Templeton was being asked to accept on the occasion of the renewal of the Policy. Furthermore, given his position with LVE, Mr Ventre's knowledge must be regarded, for these purposes, as the knowledge of LVE itself.
92. So the fundamental question is whether the various facts and matters of which Mr Ventre was aware prior to renewal constituted, individually or collectively, a circumstance which was material in the sense that it would influence the judgment of a prudent insurer in fixing the premium or determining whether he would take the risk. I refer to the provisions of section 18(1) and (2) of the Marine Insurance Act 1906.
93. As appears from section 18(4) of the Act, whether a particular circumstance is material in this sense is a question of fact in every case. It is, therefore, ultimately a matter for the Court to determine, though it is the common practice for assistance to be provided in the form of expert evidence on the point.
94. Furthermore, it is well established that the question whether a circumstance is material is to be determined objectively, in the sense that it does not depend upon the assured's own appreciation or assessment of its potential importance. I mention this point particularly in view of a suggestion made in the course of argument that, if LVE held the opinion in good faith that the differences between itself and GWUG were unlikely to lead to litigation or arbitration and hence to a claim under the Policy, there would be no breach of the duty of disclosure even if, viewed objectively, the Court might reach a contrary conclusion. This, it was suggested, would reflect the fact that it would often be a difficult matter of judgment, rather than of unvarnished primary fact, as to whether differences of this kind in a construction contract had increased the risk of litigation or arbitration and of a consequential claim under the Policy.
95. But, as it seems to me, that argument runs contrary to the principle that these matters are to be determined objectively. A proposer for insurance may well take the view that a fact or matter of which he is aware need not be disclosed because he considers it to be immaterial. But if his opinion, judged objectively, turns out to be wrong, the fact that it is honestly held cannot avail him if the insurer subsequently seeks to avoid the Policy on grounds of non-disclosure. Of course, if an engineering contractor such as LVE with great experience of construction and engineering contracts is shown to have held an honest opinion that the relationship between itself and the other contracting party was not such as to give rise to an enhanced risk of litigation or arbitration, that is a factor which can no doubt be taken into account by the Court in deciding whether the state of the relationship between the parties is, in truth, a material circumstance.
96. But, even if it be established that the matters relied upon by the insurer were material, the mere fact that they were not disclosed will not necessarily entitle the insurer to avoid the contract of insurance. In the leading case of Pan Atlantic Insurance Co Limited -v- Pine Top Insurance Co Limited [1995] 1 AC 501, the House of Lords held that, before an underwriter could avoid a contract for non-disclosure of a material circumstance, he had to show that he had actually been induced by the non-disclosure to enter into the Policy on the relevant terms. The case also clarified the concept of materiality in this context. It was held that a "material circumstance" was one that would have an effect on the mind of the prudent insurer in estimating the risk and it was not necessary that it should have a decisive effect on his acceptance of the risk or on the amount of premium demanded. So, in order to make good its contention that it was entitled to avoid the Policy, Templeton must show that the state of the relationship between LVE and GWUG was such as would have had an effect on the mind of the prudent insurer in deciding whether to accept the risk or as to the terms on which he should do so and that, as a matter of fact, it was actually induced by the non-disclosure to renew the Policy on the terms which it did.

Materiality

97. The material facts relied upon by Templeton to this purpose are to be found at paragraph 8 of its Amended Defence. They are as follows:

"(1) The Claimant had been in increasing dispute with Gass Wasser Umwelt Gommern GmbH from about October 2004;

(2) The Claimant was making claims against Gass Wasser Umwelt Gommern GmbH in relation to acceleration, site establishment, time extension cost and additional supervision;

(3) Gass Wasser Umwelt Gommern GmbH was complaining that the Claimant had failed to manage its works properly and/or to proceed with its works under the contract in a timely manner and/or to provide sufficient manpower to carry out its works;

(4) Gass Wasser Umwelt Gommern GmbH had informed the Claimant by an e-mail dated 4 January 2005 that it would be fired, unless it significantly improved its performance by 9 January 2005; and

(5) Gass Wasser Umwelt Gommern GmbH had been increasingly failing to meet the Claimant's applications for payment from about October 2004.

98. It is important to note that Templeton does not advance a case on the footing that a Construction Claim (as defined in the Policy Conditions), had actually arisen prior to the agreed date of renewal. I mention that because, in cross-examination and in the course of his submissions Mr Smith laid some emphasis on what he suggested were written or oral rejections of claims for payment made by LVE during the course of its discussions or negotiations with GWUG. This seems to reflect the rather unusual definition of the expression "Construction Claim" at Clause 1.5 of the Policy, to which I have referred earlier in this judgment. It will be recalled that this definition is subject to an express proviso that the insured should first have made an application for payment or asserted a defence and that the application or assertion should have been rejected in writing on at least two occasions either in whole or in part.
99. Nonetheless, though Mr Smith could not and did not contend that a "Construction Claim" had actually arisen prior to renewal, he submitted that the relationship between LVE and GWUG had reached the stage when such a claim was likely. But though that is obviously highly relevant to the issue as to whether LVE were in breach of the notification requirements embodied in Clause 6.1, given the consensus between the parties as to the meaning to be attributed to the word "likely", it is not essential to Mr Smith's argument in relation to non-disclosure, since the test of materiality represents a lower threshold for Templeton to surmount.
100. In support of his submissions, Mr Smith emphasised the fact that the construction project upon which LVE was engaged was, on any view, in delay. Even on LVE's own case, he submitted, this would inevitably have given rise to claims for additional payments on its behalf; and it may well have led to cross-claims by GWUG for damages, whether liquidated or unliquidated. At paragraph 26 of his final written submissions, he summarised his case on the issue in these terms:

"The Claimant's dispute with GWUG was a material circumstance and a potential claim from at least the middle of December 2004. The Claimant's claim against GWUG had been rejected several times in writing and orally at a meeting; the Claimant and GWUG were blaming each other or persons for whom they were responsible for the delay to the project; the managements of the two companies had become involved; an attempt to settle the dispute had fallen apart; the main contractor had become involved, and its order that a commercial settlement be reached within a week had come to nothing. There was plainly an actual dispute between the Claimant and GWUG about its right to compensation for the delay to the works. Several more weeks passed; the dispute continued; and the Claimant was being threatened with the sack before the contract of insurance was renewed on 17 January 2005."

101. He continued, at paragraph 27 in these terms:

"The Claimant should have notified the Defendant before the renewal of the insurance that the progress of its works at Cottam Power Station had been severely delayed; that the delay was not its fault; that it was claiming that it would be entitled to compensation from GWUG for the inevitable extension of time for completion of the works in sums totalling several hundred thousand pounds; and that GWUG had rejected this claim that it would be entitled to compensation on several occasions."

102. In addition to the lay evidence and documentation to which I have already referred, I had the assistance of two expert witnesses directed to the issue of non-disclosure and, to a somewhat more limited extent, the issue of notification under Clause 6.1. On behalf of Templeton, I heard from Mr Grahame Pipe who had prepared a report dated 15^th November 2007. Mr Pipe initially worked as a broker but from 1979 at least up until 2004, he has had extensive underwriting experience at Lloyds. But he has had no experience of legal expenses insurance and appears to have acquired only limited knowledge of construction disputes.
103. From his written report it is clear that he was asked for his opinion only on the non-disclosure issue. He sought to summarise what he considered to be the salient features of the correspondence and other documentation passing between LVE and GWUG in section 4 of the report; and in section 7 of his report he went on to consider whether, as he put it, a prudent insurer would have "wanted to know" about the disagreement between LVE and GWUG. In the light of the exchanges between LVE and GWUG, he expressed his opinion at paragraph 7.7, 7.8 and 7.9 in these words:

"7.7 The level of disagreement between Laker Vent and B&D was escalating during the period from November 2004 onwards to the extent that, in my opinion, a prudent underwriter would regard the situation as material information that he would want knowledge of.

7.8 7.8 Once aware of the disagreement, an underwriter would be able to decide whether he should make further enquiries as to the likely probability of a claim developing.

7.9 7.9 The response to these enquiries would have allowed a prudent underwriter to assess whether renewal would be offered and, if so, on what terms."

104. In paragraph 8.7, in a section of his report primarily directed to the question of inducement, he formulated his opinion in slightly different terms, namely that a prudent underwriter would have regarded "the development of the situation" between LVE and GWUG as "a possible claim". Finally, in his conclusions at section 9 of his report, he stated that, in his view, that the disagreements between LVE and GWUG, by the time of renewal, had "reached a level that was material to a prudent insurer" and that this was a "potential claim" which should have been declared to Templeton.
105. It is a little difficult to pick out from his report what Mr Pipe considers to have been the critical points which rendered the "development of the situation" a material circumstance requiring disclosure. But he clearly seems to have been particularly concerned with Mr Ventre's e-mail of 17^th November 2004, which he mentions both at paragraph 4.12 and 7.3. In cross-examination, he confirmed that, even at that date, he thought that the situation was one which could be considered to have constituted a material circumstance. At paragraph 4.24, he also placed considerable emphasis on Mr Ventre's e-mail of 16^th December 2004 which he interpreted as a claim that additional money was due to LVE in respect of extension of time and acceleration costs in the sums of £9,400 and £44,000 per week respectively. But he does not refer back to this particular matter in the analysis set out in section 7 of his report.
106. In fact, however, though Mr Ventre, in his e-mail of 17^th November 2004, referred to "on-going problems" which required urgent resolution, these problems were addressed in the meeting which took place on 26^th November 2004. As I have previously indicated, in the light of the evidence before me, I consider that the meeting seems to have been both amicable and constructive. But Mr Pipe does not refer to the outcome of this meeting, as set out in the Addendum document prepared by GWUG. It is true, of course, that there were further discussions as to certain aspects of what was recorded in the Addendum. But I do not accept that, as Mr Smith contended, the agreement between the contracting parties had "fallen apart" within a matter of days. On the contrary, at least at this stage, I considered the parties were still in fairly amicable and constructive dialogue.
107. Nor, as it seems to me, does Mr Pipe accurately summarise what Mr Ventre was addressing in his e-mail of 16^th December 2004. Once it is placed in its context and explained by oral evidence, it seems fairly clear that it did not represent, at least at that stage, a claim for additional cost and expense in the weekly sums referred to. Mr Ventre was giving an estimate of the costs which would be incurred if there were to be an acceleration of the works; and he was likewise giving an estimate of additional costs attributable to any subsisting or future extension of time. It is very far from being any sort of formal claim for payment of these sums. Furthermore, though the immediate response was not entirely encouraging, no formal reply had been received prior to the agreed date of renewal. It is also true that, eventually, LVE made a very substantial claim against GWUG (or more correctly, its successor, B&D). But, even when the claim form was submitted to Templeton's agents, LRM, on 17^th February 2005, the "guesstimate" of the amount which might be claimed was the considerably lesser figure of £300,000.
108. So, as it seems to me, Mr Pipe's opinion is based on a rather instinctive feeling on his part that, as he put it in cross-examination, there was "something brewing up" which it would have been useful for the insurers to have been able to consider and assess.
109. LVE's expert was Mr Nicholas Henry Stanbury, who prepared a substantive report dated 15^th November 2007 and a supplemental report dated 7^th December 2007. The particular reason for the preparation of the supplemental report was that, in his original report, he had considered the issue of non-disclosure as at the inception date of 19^th December 2004. But, as I have previously observed, it was agreed between the parties that renewal took place only on 17^th January 2005, so Mr Stanbury had to consider whether this would in any way affect the opinion which he had expressed in the earlier report. In the supplemental report, he stated that it did not.
110. Mr Stanbury is a Chartered Accountant and Insurance Consultant with particular specialist knowledge of legal expenses insurance. After practising as an accountant for a short time, he moved into industry for some years until 1986. From then until the end of 1996, he was involved at increasingly senior levels with an organisation specialising in the provision, amongst other things, of commercial and personal legal expenses insurance. He was also involved in placing risks in the London market at least from 1989. For a short time he acted on behalf of a non-marine syndicate at Lloyds. But since 1998, he has acted as a self-employed insurance consultant. He has written quite widely on insurance matters including, in particular, legal expenses insurance and has been active in various professional associations. His principal report, like that of Mr Pipe, is directed primarily to the non-disclosure issue, though he does, in passing, seek to grapple with the wording of Clause 6.1 of the Policy. I found his report to be eminently clear and readable.
111. Unlike Mr Pipe, Mr Stanbury did not seek to summarise the exchanges between the contracting parties. But he set out his views as to the factual position prior to renewal in these terms at paragraph 6.2(a) of his report:

"On my reading, the evidence shows clearly that there were a number of questions and challenges by MC in relation to some of the work carried out by Laker Vent under the Cottam contract and that, failing a response satisfactory to MC, it withheld certain payments due to Laker Vent. I have seen nothing in the evidence to suggest to me that these differences between the parties were unusual in their nature or origin, amounted to a dispute, were likely to give rise to a dispute or even had the potential to give rise to a dispute. They would appear to be an almost inevitable part of the overall process of carrying out works under a construction contract. Indeed, a construction contract will recognise the potential for such differences and provide mechanisms for dealing with them if, in the event, they are not resolved and become the subject of formal dispute. It is in order to address the uncertainties of such a dispute arising and requiring legal action potentially giving rise to otherwise irrecoverable legal expenses that a party is minded to effect and maintain an appropriate form and level of LEI, as was the case here with Laker Vent."

112. I should explain that the abbreviation "MC" is intended to refer to the main contractor under the construction project and that "LEI" is, of course, a reference to Legal Expenses Insurance.
113. He continued at paragraph 6.2(b) by stating that his assessment of the evidence seemed to show that the differences which arose between the parties to the construction contract were dealt with thoroughly and in a generally positive and amicable manner, the prevailing tone being one of negotiation leading to settlement. At paragraph 6.2(c) he went on to say that he had seen no evidence that at any time up until 19^th December 2004, the relationship between LVE and the other contracting parties had deteriorated to the extent that LVE either had concluded or could and should reasonably have concluded that there was either a dispute between them or that such a dispute was more likely than not to arise. He made the obvious point that, if LVE had reached such a conclusion at the time, there would have been no reason for them not to have notified a claim to Templeton during the period of insurance under its subsisting policy.
114. Matters involving the assessment of evidence are, of course, ultimately for the Court. Strictly, therefore, Mr Stanbury's observations at paragraph 6.2(b) are not truly within his expert remit. However, they coincide with the views that I myself have already expressed as a result of my fairly detailed examination of the exchanges between the parties and the evidence of the lay witnesses. On the other hand, it was never suggested that Mr Stanbury was not entitled to express the opinion expressed at paragraph 6.2(a) of his report. I note that, at paragraph 3.6 of the report, he states that he does not have expert knowledge of the construction industry or of construction contracts of the kind in question or the handling of disputes which might arise under such contracts. But he also states that he was not required to comment upon such matters in detail beyond that which would be relevant to the action and within the reasonable contemplation of the prudent underwriter of legal expenses insurance in appraising a construction business risk. He goes on, in the same section of his report to state his understanding that it was both normal and common for differences to arise between the parties to construction contracts, particularly where the contract works were of significant size, complexity, duration or value, and that such differences may take time to resolve.
115. At paragraph 6.3 of his report, he went on to consider whether the disclosure of the factual position in respect of applications for payment would have influenced the judgment of a reasonable and prudent underwriter in determining whether he would continue to insure the risk or in fixing the premium or other terms for doing so. At sub-paragraph 6.3(d) he gave his opinion in these terms:

"I have stated at 6.2(c) above that I could find no evidence of any identifiable dispute or probable or even potential dispute underlying the relationship between Laker Vent and MC at or before 19^th December 2004. It is therefore my opinion that there is nothing factual of this nature for Laker Vent to disclose to Templeton in relation to the proposed inception of CPS3".

116. The abbreviation "CPS3" was adopted by Mr Stanbury to refer to the third period of insurance as ultimately renewed on 17^th January 2005. His supplemental report makes it plain that his opinion on this point would not be affected if, as was agreed, the actual renewal date was 17^th January 2005 rather than 19^th December 2004.
117. Mr Stanbury then continued at paragraph 6.3(e) in these words:

"I have significant experience of underwriting insurance contracts providing indemnity in relation to the legal expenses and/or damages arising from the insured's pursuit or defence of 'dispute' situations of various types. I have also handled many legal expenses and liability claims which have been made in relation to such disputes. It is also my opinion consistent with my experience that, had Laker Vent disclosed to a reasonable and prudent underwriter of insurance of the type contemplated by CPS3 any of the facts relating to the Cottam Contract at or before 19^th December 2004, such a disclosure would not have influenced his judgment in determining whether he would continue to insure the risk or in fixing the premium or other terms for doing so. I say this because such facts as could then have been disclosed would, in my view, have indicated nothing more than the progress of a generally amicable and constructive dialogue between Laker Vent and MC."

118. In cross-examination, Mr Smith made no direct attack on the conclusion expressed by Mr Stanbury at paragraph 6.3(e) of his Report. But various matters were put to him with a view to seeing whether he would accept that they were to be regarded as material circumstances. Some of the questions were couched in somewhat hypothetical terms. Thus it was suggested that if a contractor had made a claim for a substantial sum of money which had been rejected by the other contracting party, the insurer would be interested in knowing about this at the time of renewal. The same would apply, it was suggested, if the other party was refusing to pay for work carried out by the contractor on the grounds that it had not been carried out properly, or if the head contractor had told parties lower down the contractual chain to "sort things out", or if a settlement agreement had been made which had "fallen apart". But Mr Stanbury's position in relation to suggestions of this kind was that it would all depend upon what precisely was involved and whether it could fairly be said to be a dispute which might lead to adjudication, arbitration or litigation and hence to a claim under a policy of the kind with which I am concerned. But he was particularly unwilling to accept that a call by the main contractor to other parties to settle their differences would be evidence of such a dispute. On the other hand, if a formal claim had been rejected on several occasions, that might be powerful evidence of a dispute which would be regarded as a material circumstance.
119. I think it is fair to say that he found it somewhat difficult to identify a point at which the relationship between the parties to a construction contract could be regarded as a material circumstance, at least until it had reached the stage where adjudication, arbitration or litigation was more probable than not. That is a difficulty with which I have some sympathy. It is, I think, a difficulty which emerges when one attempts to apply the general test of materiality to questions of fact and degree. But, for my part, I do not think that one can equate the concept of a material circumstance, in relation to contracts of insurance of this kind, with a situation in which formal dispute resolution processes are more likely than not. However, I do not consider that the difficulty which Mr Stanbury had in reformulating the test of materiality in relation to such contracts is something which, in itself, vitiates or undermines his opinion which is, ultimately, a matter of judgment in respect of which he is entitled to express an opinion based upon his expertise. But, whatever reservations one might have about this particular aspect of his evidence, in all other respects, it seemed to me to withstand the test of cross-examination.
120. In his closing submissions, Mr Smith sought to develop some of the points which he had put to Mr Stanbury in fairly general terms. He contended that LVE had submitted claims to GWUG which had been rejected on no less than four occasions. The first of these was, it was said, on 8^th December 2004, when Dr Kulbe responded to Mr Slaymaker's e-mail of 3^rd December 2004 raising certain queries about the Addendum dated 30^th November 2004 which was prepared as a memorandum of the discussions which had taken place on 26^th November 2004. The second occasion was to be found, so Mr Smith submitted, in the subsequent exchanges between the parties represented by Mr Ventre's faxed letters to Dr Kulbe dated 10^th December 2004 and the latter's response dated 13^th December 2004. For my part, however, I cannot see either of these exchanges as constituting, in any formal or meaningful sense, written rejections by GWUG of LVE's claim for compensation arising out of the delay to the project, which is how it was sought to be portrayed by Mr Smith.
121. The third occasion which Mr Smith seeks to portray in this light is said to have been the meeting which took place on 15^th December 2004. He submits that the proper inference to be drawn is that LVE put forward a claim for compensation arising out of the delay to the project at this meeting and that it was "roundly rejected" by GWUG, albeit not in writing. But he seeks to draw this inference from the later letter from Dr Kulbe dated 19^th January 2005 which was, of course, after the date of renewal. The fourth and final rejection of LVE's claim is said to be found in Mr Asperger's e-mail of 7^th January 2005 in which he informed Mr Ventre that his letter of 16^th December 2004 had been passed on to RWE. That is hardly a rejection. Indeed, whilst reserving GWUG's position, Mr Asperger expressly stated that it was making all efforts to convince RWE to accept LVE's claims.
122. Mr Smith's analysis of these exchanges in December 2004 and January 2005 do not accord with Mr Ventre's evidence that GWUG's letter of 19^th January 2005 did not reflect the tenor of the meeting on 15^th December 2004 or with the fact that his own e-mail of 16^th December 2004 was intended to provide an estimate of costs involved in any extensions of time or any acceleration of the works. I have already expressed my own opinion about these matters earlier in this judgment; and I am unable to accept the sort of gloss which Mr Smith seeks to put upon them.
123. I have come to the conclusion on the totality of the evidence before me that, by the date of renewal, the state of the relationship between LVE and GWUG had not reached the stage where it was properly to be regarded as a material circumstance which required to be disclosed to Templeton. I agree with Mr Stanbury that construction contracts, particularly complex ones of the kind with which I am concerned in the present case, almost inevitably give rise to disputes and differences of various kinds as to the progress of the works, the sums due to the contractor, the quality of the work and so forth. That was probably exacerbated somewhat in the present case by the lack of any formal certification procedure. That is something which must be presumed to have been known to Templeton in the ordinary course of its business as a provider of legal expenses insurance under policies of this kind. I refer to section 18(3)(b) of the Marine Insurance Act 1906. Furthermore, it is obvious that any dispute or difference of this kind may possibly give rise to a formal process of dispute resolution, whether in the form of adjudication, arbitration or litigation.
124. So, if one were to treat as material any such difference or dispute on the footing that it might possibly lead to the institution of formal proceedings of one sort or another, I think that there is force in the comment that virtually every aspect of a major construction contract would have to be the subject of disclosure upon inception or renewal. Since an insurer is presumed to be aware of the general risk that construction contracts may give rise to disputes and differences between the contracting parties and that these may ultimately become litigious, it seems to me that something more is required before any particular problem is properly to be regarded as a material circumstance which must be disclosed at the time of the initial proposal or renewal. There must be features of the relationship which, viewed objectively, show a real risk of escalation to the point of formal dispute resolution procedures beyond the risk ordinarily inherent in any complex construction contract. But I do not accept that this requires a probability that the dispute will go to adjudication, arbitration or litigation as Mr Stanbury seemed to suggest in the course of cross-examination. What the insurer is entitled to know is if there are circumstances which increase the risk which legal expenses insurance is intended to cover above and beyond the level inherent in any substantial building or engineering contract.
125. Earlier in my judgment, I have referred to the evidence adduced on behalf of LVE from Mr Ventre and from Mr Ashe and Mr Slaymaker. As Mr Ashe put it, the dealings between LVE and GWUG were "absolutely par for the course". My own assessment of the documentation and the evidence given by Mr Ventre is that at least up until the receipt of Dr Kulbe's letter of 19^th January 2005, the differences of opinion between the parties were being addressed in a reasonably amicable and constructive manner, despite the arguments about the precise causes of the delays which had clearly affected the project. LVE remained on site, despite an apparent threat to replace it which does not seem to me to have been taken very seriously; and it continued to make progress with the works. Furthermore, despite some initial hiccups and the problems posed by the lack of proper certification procedures, LVE was receiving most of what it had claimed by way of interim payments.
126. This view accords with the opinion of Mr Stanbury. Overall, I found him to be the clearer and more confident of the two experts. But, more importantly, he has particular experience in the field of legal expenses insurance which is directly relevant to the issues in this case. Mr Pipe, on the other hand, whilst highly experienced in many areas of insurance, did not have the same specialist knowledge as Mr Stanbury. Furthermore, I found it difficult to extract from his report or his oral evidence the precise nature of the circumstance which he considered to be material or the exact stage in the relationship at which the risk of a claim under the Policy after renewal had increased to such an extent as to require disclosure.
127. In the end, as stated at section 18(4) of the Marine Insurance Act 1906, the question of materiality is a question of fact for the Court. It is not necessarily to be determined by expert evidence. But, in this particular case, Mr Stanbury's opinion is entirely consistent with my own assessment of the exchanges between the parties; and for that further reason I prefer his evidence to that of Mr Pipe.
128. I should perhaps add that I would have come to precisely the same conclusion even if I had decided that the middle sentence of clause 6.1 had placed a gloss on the duty of disclosure established by the general law. Whatever its precise meaning, I do not think that the expression "potential claim" could or should be construed in such a way as to impose upon the insured any more stringent duty than that required by the general law.

Inducement

129. My conclusion on the question of materiality is sufficient to dispose of the issue of non-disclosure in favour of LVE. Though it is strictly unnecessary, in those circumstances, to resolve the question of actual inducement, I will nonetheless attempt to do so.
130. I start by observing that, as Mr Bellamy pointed out, Templeton's pleaded case on this issue is not fully supported by its own expert evidence. At paragraph 9 of the Amended Defence, it is alleged that it was induced to enter into the contract of insurance by the non-disclosure of the material facts set out at paragraph 8. In substance, that appears to be a plea to the effect that, if full disclosure had been made, Templeton would have declined to accept the risk on any terms. But Mr Pipe did not go as far as this in his expert report. At paragraph 8.8, he expressed the opinion that a prudent underwriter would have sought either to increase the premium or to require an additional premium if the "situation" between LVE and GWUG developed into a claim. At paragraph 9.3, he put it slightly differently, expressing the view that a prudent insurer, if aware of the disagreement between LVE and GWUG, would have considered offering different terms and conditions at renewal of the Policy. He then went on to consider the position of Templeton in particular, rather than a notional prudent insurer, noting, at paragraph 9.4, that it appears to have been Templeton's practice to place some weight on the claims record in determining the level of premium required. He concluded, at paragraph 9.5, by stating that it was "quite likely" that Templeton would have offered renewal on different terms, less favourable to LVE.
131. His position was clarified further in the joint memorandum signed by both expert witnesses. Mr Pipe agreed that outright declinature was not likely in this particular case. But he considered that, in addition to a simple loading of the premium, Templeton might have imposed an increased deductible or required a specific additional premium in relation to this particular risk. It should perhaps be noted that Mr Stanbury agreed that all these were possible, as was the imposition of some other special term such as the exclusion of particular claims from the cover afforded by the Policy. But he had never known an additional premium of the kind suggested by Mr Pipe to have been applied to legal expenses insurance.
132. So Mr Pipe was not prepared to support Templeton's case in the manner in which that was set out in the pleadings. The furthest he would go in his report was that it was "quite likely" that Templeton would have offered renewal on less favourable terms if there had been full disclosure of the developing situation between LVE and GWUG. In cross-examination, he appeared to accept that it was possible that they would not have increased the premium. But he felt able to say that, on the basis of his general experience, Templeton was probably induced by LVE's non-disclosure of these matters to enter into this particular contract of insurance on the agreed terms. He resisted the suggestion that this was mere speculation on his part.
133. But this secondary evidence from Mr Pipe represents the evidential high water mark of Templeton's case on this issue. The only other witness called on its behalf was Mr Anthony David Murphy, General Legal Counsel to Templeton who was the person who verified the Amended Defence on behalf of Templeton. Mr Murphy is both a solicitor in England and Wales and an Attorney in Zimbabwe. But he has no underwriting qualifications. When questioned as to the basis upon which he verified the defence, he explained that he had done so on the basis of documents subsequently disclosed by LVE after renewal which he assumed were those which had been made available for the purposes of the present proceedings. He confirmed that, so far as he was aware, all relevant documents had been disclosed by Templeton in the course of the litigation. He had not verified the Amended Defence and Counterclaim on the basis of any other documents which had not been disclosed.
134. But the essential purpose for which Mr Murphy prepared and signed a witness statement and was called to give evidence at trial was to explain why the underwriter responsible for the renewal of the Policy was not himself being called as a witness. The underwriter in question was Mr Antony Corlett, who was employed by Templeton from September 2000 until July 2006. Latterly he acted as a Director of Templeton and left shortly after the then Managing Director resigned in or about June 2006. The circumstances in which he left meant that relations between Templeton and Mr Corlett were somewhat strained. Indeed, he now alleges that he was constructively dismissed and is pursuing proceedings for compensation.
135. But, according to Mr Murphy, Mr Corlett nonetheless initially agreed to co-operate by providing a witness statement for Templeton in relation to the issues raised in the present action. However, since the commencement of proceedings by Mr Corlett in the Isle of Man, he has withdrawn his offer of co-operation. Mr Murphy's witness statement, therefore, concludes by stating that there was no practical possibility of Templeton obtaining evidence from Mr Corlett who is, apparently, still resident in the Isle of Man.
136. What is immediately obvious from reading Mr Murphy's witness statement is that he makes no mention of any indication which Mr Corlett may have given as to what his evidence about these matters would have been. Nor does he give any detailed chronology from which it is possible to determine when he withdrew his offer of co-operation. Furthermore, I do not know how vigorously Templeton and its advisers sought to persuade Mr Corlett voluntarily to provide a witness statement or whether they considered whether he might be examined about these matters in the Isle of Man.
137. The reality of the situation is that I do not have the slightest idea what Mr Corlett might have said about these issues if he had made a witness statement or attended to give evidence. I certainly cannot infer that he would have given evidence favourable to Templeton. Furthermore, there was another potential witness whom Templeton did not choose to call. As will be seen, the renewal terms offered by Templeton were set out in manuscript by a Mr Greig Hills. He is still employed by Templeton and, at first blush, one might have thought that he would have had some knowledge of the way in which Templeton assessed the risk on renewal and decided what terms should be offered. But Mr Murphy did not even mention him in his witness statement. It was only in cross-examination that he described him as an "underwriting clerk" who was one of Mr Corlett's subordinates. He did not know whether he had been involved in underwriting this particular Policy. In re-examination he expressed the opinion that he did not think that Mr Hills would have had any role in deciding the terms of renewal. He acted in purely a clerical role under instructions from his superiors and Mr Murphy did not think that he would have had the knowledge or experience to have taken any decisions on premiums and the like.
138. Mr Smith valiantly sought to fill this yawning gap in Templeton's evidence. At the most general level, he contended that it was "obvious" that Templeton would have offered different, less favourable, terms if there had been full disclosure by LVE of the state of its relationship with GWUG.
139. More specifically, however, he directed my attention to the very limited documentation touching upon the renewal terms. The renewal form was signed on behalf of LVE on 2^nd November 2004 and forwarded by LIB to LRM with an accompanying memorandum on 3^rd November 2004. These were then forwarded by Amy Vickers of LRM to Mr Corlett and, interestingly, Mr Hills, of Templeton, on 8^th November 2004 together with a covering letter including a suggestion as to the premium. In view of the decrease in turnover from the previous year she suggested a lower premium of £4,900 together with a claims loading of 15%. This added up to £5,635 net of tax. On Templeton's own copy of this letter, Mr Hills wrote the following manuscript endorsement on 23^rd November 2004:

"Amy,

Please invite renewal at £4,900-00 a 20% claims loading i.e. £5880-00 plus ipt. Premium inclusive of ipt = £6174-00. Regards, Greig."

140. That was the basis upon which the Policy was subsequently renewed. I have to say that this exchange between Amy Vickers and Greig Hills gives the impression that Mr Hills played a somewhat more important role in relation to the renewal terms than simply acting as Mr Corlett's amanuensis. But whatever their respective responsibilities, the exchange clearly shows that Templeton paid some attention to claims history as well as turnover in fixing the premium under such policies.
141. So, it was suggested by Mr Smith, the proper inference is that if the differences between LVE and GWUG had been disclosed to Templeton as a material circumstance and a potential claim, Templeton would probably have increased the claims loading or would have offered other, less favourable terms to LVE.
142. I entirely accept that, in an appropriate case, the Court may be willing to infer that an insurer had been induced into entering into a contract of insurance on particular terms by reason of a failure to disclose some material circumstance even without any direct evidence from those responsible for writing the Policy. But the Court should, in my judgment, be particularly cautious before drawing such an inference. It seems to me to be important not to elide the distinction between materiality and inducement so clearly drawn by the House of Lords in Pan Atlantic Insurance Co Limited -v- Pinetop Insurance Co Limited [1995] 1 A.C. 501. If an insurer is to avoid a policy on grounds of non-disclosure, both ingredients must be clearly established. Merely because a fact or matter is found to be material by reference to the effect it would have on the notional prudent underwriter does not mean that, in any particular case, disclosure would, in fact, have affected the underwriter's decision as to whether to accept the risk and, if so, on what terms. That is why it is the usual practice to call those responsible for underwriting the risk to give evidence on this particular point.
143. In the present case, no such evidence has been adduced either from Mr Corlett or from Mr Hills and I have had only a fairly cursory explanation as to why neither of them was called to give evidence. Furthermore, there is nothing to indicate whether their evidence would have been favourable to Templeton's case or not. All I am left with is the somewhat half-hearted expert opinion of Mr Pipe and any inference which it might be possible to draw from Mr Hills' endorsement on LRM's letter of 8^th November 2004.
144. As to the former, I bear in mind that Mr Pipe has no direct experience of legal expenses insurance and that he has not had access to any material relevant to these issues which is not before the Court. As to the latter, I am not in the least surprised that Templeton's underwriters should have been prepared to increase the premium to reflect LVE's claims record. But, on any view, no claim under the Policy had been made by LVE prior to renewal in respect of the difficulties and differences which it was experiencing in respect of the Cottam project.
145. Assuming, as I must, for the purposes of this part of my judgment, that the state of the relationship between LVE and GWUG was a material circumstance involving a heightened risk of a claim under the Policy, whether that would have been reflected in an increased premium or other special terms would still have depended upon the assessment which would have been carried out by the underwriters if there had been full disclosure. That assessment might well have led them to offer terms different from those which were in fact offered. But it might not. In truth, I simply do not know how they would have evaluated this particular piece of information, having regard to the spread of risk across their entire portfolio and, it may well be, the desirability of retaining an established client.
146. For my part, I am not prepared to speculate as to how Templeton's underwriters would have responded in the absence of any direct evidence from the underwriters concerned or even any evidence of Templeton's general practice. I am certainly not prepared to hold that it is "obvious" that Templeton would have loaded the premium further or imposed other terms if these matters had been disclosed to it. So, in my judgment, Templeton has failed to establish the necessary ingredient of inducement. Its claim to be entitled to avoid the Policy on grounds of non-disclosure fails, therefore, on this ground also.

Notification

147. The other substantive issue between the parties derives from Templeton's contention that LVE was in breach of the notification requirements set out in Clause 6.1 of the Policy Conditions and that, since due notification was a condition precedent to liability, it was under no obligation to provide an indemnity in relation to this particular claim.
148. I have already held that, whatever its precise meaning may be, the second sentence of Clause 6.1 does not render compliance with its provisions a condition precedent to Templeton's liability. But even if it did, in view of my assessment of the state of the relationship between LVE and GWUG, the differences which had emerged between them prior to 19^th January 2005 would not, in my judgment, have amounted to a "potential claim" for these purposes. Since any obligation arising out of this part of Clause 6.1 applies only on renewal, and since renewal, on any view, was effected prior to 19^th January 2005, there could, therefore, be no breach of this particular provision, even if (contrary to my view) it was to be treated as imposing any contractual duty upon LVE different from the general duty of disclosure.
149. Furthermore, as I have already noted, it is not pleaded or contended on behalf of Templeton that LVE was aware of any cause, event or circumstance which had actually given rise to a "Construction Claim" for the purposes of Clause 6.1 prior to the submission of the claim form on its behalf on or about 17^th February 2005. The relevant allegation is to be found in paragraph 12 of the Amended Defence which asserts that the various facts and matters set out at paragraph 8 were such as were "likely" to give rise to such a claim.
150. But, as I have also already noted, it was common ground that the word "likely" in this context is to be regarded as bearing the meaning more probable than not. Though some of the facts and matters referred to at paragraph 8 of the Amended Defence are identified by date, the overall time-frame within which they are said to have arisen is not clearly stated. Nonetheless, since Templeton's case on want of notification, as set out at paragraph 12 of the Amended Defence, is pleaded by reference to the date of the claim form, I think it is right to proceed on the footing that the essential contention is that the likelihood of a Construction Claim had arisen prior to 17^th February 2005 by reason of the causes, events or circumstances set out at paragraph 8.
151. But any case which Templeton seeks to advance by reference to the date of the claim form faces a formidable obstacle in the form of the earlier letter from LIB to LRM dated 20^th January 2005. At paragraph 22 of the Reply it is alleged that this letter was sent "forthwith" on receipt of the letter from GWUG dated 19^th January 2005 and that it constituted good notification for the purposes of Clause 6.1. LIB's letter to LRM reads as follows:

"Can you send a Claim Form through to the Client please for a potential new claim please.

Lakers have a contract for pipework at Cottam power station in Nottingham. The main contractors are a German company and the contract period is for 10 weeks. Unfortunately there have been delays on the site, none of which are the fault of Lakers but the effect is they will be unable to meet the completion date of 15^th February 2005. Lakers have asked the main contractor for an extension in time and prolongation/acceleration costs. The main contractor has said no and under the terms of the contract Lakers cannot stop working.

David Baldwin of Glovers Project Services Limited has been involved on this contract from its initial stages and we understand Lakers have fully documented paperwork."

152. LRM responded by writing directly to Mr Ventre on 24^th January 2005 enclosing a claim form for him to complete. This letter quite clearly treated LIB's letter of 20^th January 2005 as constituting notification under Clause 6.1, since it specifically reminded Mr Ventre that, by virtue of Clause 6.2, a Claim Form would be forwarded to the Insured upon receipt of notification and the form must be completed fully and accurately and returned within 30 days if the Insured wish to proceed with the Policy Claim.
153. It seems to me that LIB's letter of 20^th January 2005 was plainly intended to be a notification for the purposes of Clause 6.1 and that it was treated as such by LRM on behalf of Templeton. I can see no obvious basis on which it could be asserted that it did not constitute such a notification. The only possible contention to the contrary might be based on the proposition that it was premature. Indeed, that possibility seems to have been canvassed in LRM's letter of 24^th January 2005 which included the following passage:

"I would like to draw your attention to the fact that there cannot be a valid claim under the Policy until an application or assertion under the terms of a contract has been rejected in writing by the other party on at least two occasions; if this has occurred please let us have copies of the correspondence."

154. But no such contention was advanced in the present proceedings; and it would manifestly be contrary to the main thrust of Templeton's case which was, of course, that a disclosable or notifiable circumstance had already arisen well before renewal on 17^th January 2005.
155. In fairness to Mr Smith, he did not seek to argue that the letter from LIB dated 20^th January 2005 should simply be disregarded. What he contended was that the pleaded causes, events and circumstances were such as to make a Construction Claim likely well before 20^th January 2005 so that the letter of that date could not have fulfilled the requirement imposed by Clause 6.1 that written notification should be given "immediately" the insured was aware of any such cause, event or circumstance.
156. But, in view of my earlier findings, it must inexorably follow from my examination and assessment of the exchanges between the contracting parties that the relationship between LVE and GWUG had not reached the stage where a Construction Claim was "likely", in the agreed sense, at least prior to the date of renewal. Even Mr. Pipe was not prepared to go so far when asked about these matters in cross-examination. That left Mr Smith with the argument that the situation changed upon receipt by LVE of the letter from GWUG dated 19^th January 2005 and that, at least at that stage, a Construction Claim was properly to be regarded as likely.
157. I do not accept that proposition. The letter of 19^th January 2005 was, it will be recalled, a belated response to Mr Ventre's own detailed letter of 16^th December 2004. I think that it did represent a significant escalation in the nature of the disagreements between the parties. In particular, for the first time, so far as I am aware, it raised the prospect of a reference to arbitration if the parties were unable to reach an agreement about these various matters. On the other hand, it expressly stated that GWUG (and presumably RWE) were interested in solving the problem in a fair manner and made a proposal that both parties should put their respective positions formally "on record". For my part, I consider that this letter marks a distinct increase in the risk that formal dispute resolution procedures might have to be initiated and that LVE might, therefore, incur a liability for legal expenses which could give rise to a claim under the Policy. If, therefore, this letter had been received before renewal, I would have taken the view that it ought to have been disclosed as a material circumstance.
158. But that is not the point. The question is whether this letter is sufficient to make a Construction Claim "likely" for the purposes of the notification requirements of Clause 6.1. For my part, I do not think that matters had quite got to that stage. But, assuming that they had, I cannot accept that LVE failed to give notice to Templeton "immediately" on becoming aware of the relevant circumstances. Whilst I agree that the word "immediate" and its variants is apt to impose a fairly strict obligation upon the party which is required to take immediate action, there must be some sensible degree of leeway where the party in question has to assess the consequences of a particular incident in a developing situation and form a judgment as to whether notification to insurers is required. In circumstances such as the present, notification on the next working day after the receipt of the letter from GWUG seems to me to represent the speediest response which could reasonably have been expected at the time. I am quite satisfied that it represented immediate notification for the purposes of Clause 6.1.
159. I can understand why the close proximity between the agreed date of renewal, namely 17^th January 2005, and the date of the notification letter, namely 20^th January 2005, may have led to concerns on the part of Templeton as to whether notification should have been given at an earlier stage and whether full disclosure had been made at the time of renewal, though both of these points were fairly late runners in the course of the exchanges between the parties. Nonetheless, in all the circumstances, I reject Templeton's case that it was under no liability to meet LVE's claim under the Policy on the grounds of late notification.

Other Matters

160. At paragraphs 16-21 of its Reply, a plea of estoppel is raised on behalf of LVE based upon the fact that solicitors were instructed on behalf of Templeton to provide an opinion at LVE's expense on various issues which had been ventilated in the course of correspondence. At that stage, no point appears to have been taken as to non-disclosure or late notification.
161. In the light of my findings in favour of LVE on the principal issues, the estoppel point does not arise and, in any event, it was not pursued with any real conviction by Mr Bellamy on behalf of LVE. In the circumstances, I can see no benefit to either party in dealing with this matter in detail. I content myself by observing that, as Mr Bellamy himself accepted, it would be difficult to spell any clear representation out of the relevant correspondence upon which LVE could be said to have relied.

Conclusions

162. In view of my rejection of Templeton's case on non-disclosure and late notification, it must follow, in my judgment, that LVE is entitled to a declaration that it is entitled to an indemnity from Templeton under the Policy in respect of the costs of the arbitration arising under its contract with GWUG. I will hear submissions as to the precise form of any such declaration and as to costs and other consequential matters.

His Honour Judge Hegarty QC

30^th April 2008