England and Wales High Court (Technology and Construction Court) Decisions

In The High Court of Justice
Queen's Bench Division
Technology and Construction Court

		St Dunstans House 1 Fetter Lane London
		27 February 2004

1. Introduction

1. This judgment is concerned with an application by Zurich Insurance Company ("Zurich") for an order to enforce performance terms of a Tomlin Order addressed to both Mr Goodway and Carabos Ltd ("Carabos") and a cross-claim by both Mr Goodway and Carabos seeking to set aside the Tomlin Order and, alternatively, claiming damages for misrepresentation. In order to understand the nature of these competing applications and claims, it is necessary to summarise the tangled procedural background to them in some detail. Having done so, I will summarise the issues as they stood at the outset of the hearing of the application and cross-claim and the subsequent procedural developments, summarise the remaining issues that I must determine in the light of those developments and then determine these outstanding issues. I will then deal in principle with how the costs of these proceedings should be dealt with.

2. Factual and procedural background

2.1 The Newbuild scheme

2. If a domestic property has been newly built or converted or is to be occupied for the first time, all mortgage lenders require, as a precondition of an advance secured on the property that it should to be covered by a recognised standard indemnity scheme. One such scheme is run by the Zurich under its branded Newbuild scheme. This scheme provides indemnity cover for the early years of a domestic property's life. This will reimburse the householder for the costs of reinstating or repairing, in the initial two year period, damage caused by a latent defect and, in the next eight-year period, the cost of reinstating major damage caused by a latent defect. The Newbuild scheme requires the builder to rectify the damage on being notified of it. Thus, it is only when the builder does not comply with its repairing or reinstatement obligations that the Zurich's indemnity will bite by reimbursing the householder the costs of employing others to carry out the necessary work. If that happens, the scheme also requires the builder, if solvent and traceable, then to reimburse Zurich for the sums it has had to pay out under its indemnity.
3. The scheme operates in relation to all domestic properties that are built or converted by any member of the scheme if the member applies to register the property. Membership of the scheme is open to any builder or developer who is and who is likely to continue to be solvent, who has a proved ability to build new houses to the requirements of the scheme and who will comply with his responsibilities under the scheme. The Zurich can remove a member from the register of members in certain defined circumstances and, moreover, a member may resign voluntarily. In either event, any indemnity cover already in place on completed houses remains in place as does the former member's obligation to undertake remedial work for defects covered by the scheme and to reimburse the Zurich in the event of a default requiring the Zurich to pay out.
4. There are only a limited number of indemnity schemes for new dwellings so that a termination of a member's membership under the Newbuild scheme for default will, potentially, have significant adverse consequences for that builder's future business.

2.2 Mr Goodway and Carabos

5. Mr Goodway lives and works on the Isle of Wight. He has been a housebuilder since 1991. Initially, he built houses as an individual but he set up and became the managing director of Carabos once it started to trade as a housebuilding development company in May 1998. On 2 May 1995, when still trading in his own name, Mr Goodway registered as a builder with Zurich's Newbuild scheme. Mr Goodway's name was removed from the register of members at his request. Carabos was registered with the Newbuild scheme on 17 September 1998 and, as a condition of registration, Zurich required it to place £5,000 as security into an escrow account in respect of any future liability it might incur to the Zurich. The relevant rules applicable to both registrations were the rules which took effect on 1 June 1993. These rules remained the rules which governed Mr Goodway and Carabos's membership of the scheme until each was removed from the register and also governed the continuing obligations and liabilities of both after they had ceased to be members of the scheme.
6. On 2 February 2001, the Zurich exercised its scheme power to remove Carabos from the register of members stating, as its reason for removing Carabos, that Carabos was controlled by Mr Goodway who was both a previous member of the scheme and in current default of his scheme obligations to reimburse the Zurich for the new drainage works undertaken on the two Wootton properties registered by Mr Goodway.
7. Carabos's removal from the register gave rise to the original proceedings involving Carabos, Mr Goodway and the Zurich, to the subsequent Tomlin Order giving effect to a compromise of those proceedings and to the Zurich's current enforcement application and Carabos and Mr Goodway's current cross-claim seeking to set aside the Tomlin Order with damages for misrepresentations that allegedly had induced that compromise as an alternative.
8. The history relevant to the original proceedings started when Mr Goodway constructed two houses on adjacent plots in New Road, Wootton, Isle of Wight. He registered these under the Newbuild scheme and final certificates were issued for them in April 1996 and February 1997 respectively. In March and April 1998, the owners of each notified the Zurich of defects involving land drainage works on and adjacent to the properties which were causing flooding to occur. The Zurich, having had the properties inspected by and reported on by two qualified engineers, served notice on Mr Goodway to carry out remedial works on both properties. Mr Goodway disputed his liability to carry out these works on a number of grounds and the Zurich then arranged for them to be carried out by independent contractors at a cost of approximately £60,000 and served notice on Mr Goodway on 16 October 2000 to pay this sum. Mr Goodway disputed both his obligation to pay in principle and the amount claimed as involving unnecessary works carried out at an unreasonably enhanced cost. It was this refusal to pay which led to the Zurich terminating Carabos's membership of the scheme.
9. Meanwhile, Carabos had embarked on its first two housebuilding by constructing two adjacent houses in Southfield Gardens, Ryde, Isle of Wight. Carabos registered both plots on 23 June 2000 and paid a premium of £435 per plot. When Carabos was removed from the register, these houses were in the early stages of construction. As a result of rule 18 of the Newbuild scheme, the houses continue to remain within the scheme and the builder agrees to continue to be bound by the rules of the scheme with respect of those houses notwithstanding his removal from the register.

2.3 The proceedings

10. Mr Goodway took the first step in the ensuing litigation by issuing proceedings in Carabos's name in the Newport, Isle of Wight County Court on 31 January 2001 claiming about £10,000 from the Zurich. This was made up partly by way of special damages caused by the alleged wrongful termination of Carabos's membership of the Newbuild scheme and partly by a claim for the return of the security of £5,000 that Carabos had initially lodged in an escrow account on registration. The damages claim included claims for the return of Carabos's registration fees for the years 13 September 1999 to 12 September 2000 and 13 September 2000 to 12 September 2001 and the registration fees for registering plot 1 and 2 in Ryde, being the only two plots registered by Carabos under the Newbuild scheme. At the same time, Mr Goodway issued proceedings claiming about £5,000 f or the consequences of the Zurich' s alleged breaches of contract in wrongly making erroneous claims against him in relation to the two Wootton properties.
11. The Zurich served defences and, against Mr Goodway, counterclaimed the full costs it had incurred in the land drainage works on the two Wootton properties. Mr Goodway and Carabos mounted a detailed defence to the Zurich's claim. They alleged that the water ingress was not caused by any defect in the buildings or that any defect causing the ingress was not a defect covered by the Newbuild scheme, that the appropriate notices were not served on them requiring remedial work to be undertaken and that the extent of the remedial work and the cost of what was necessary were both exorbitant.
12. These two actions were consolidated and transferred to the Technology and Construction Court in London. The trial was fixed to start in early July 2002. Discovery, albeit, Mr Goodway and Carabos allege, inadequate discovery, was given by the Zurich and factual and expert evidence was prepared and exchanged. Both Mr Goodway and Carabos were represented by the same solicitor and firm of solicitors, Mr Tony Norgate, a partner in Walter Gray & Co who are located in Ryde, Isle of Wight. The Zurich was represented, and is still represented, by Berrymans Lace Mawer ("BLM") . The partner in overall control of the litigation was Mr Michael Salau. On 25 June 2002, a settlement meeting took place at BLM's Southampton offices attended by Mr Goodway, the two solicitors, Mrs Suzanne Cooper who was the Zurich's claims manager concerned with this dispute and an assistant solicitor accompanying Mr Salau. A lengthy meeting ensued which led to a settlement of the proceedings. The two solicitors then drafted a detailed Tomlin Order which was signed on and dated 25 June 2002 and was entered by the court on 27 June 2002.

2.4 The Tomlin Order

13. The Tomlin Order is a complex document. It provided for a payment by both Mr Goodway and Carabos to the Zurich of £80,000 in three tranches and for detailed and carefully structured arrangements to be operated by Mr Goodway, Carabos and the Zurich parties that would enable the Newbuild indemnity to be provided to the two unfinished Carabos houses covered by the Newbuild scheme. The wording of the Order must be read along with the detailed regulations imposed by the applicable 1993 Newbuild scheme.
14. The effect of clause 13 of the Newbuild scheme was that the Zurich could require Carabos to give such security as it might require and of clause 18(a) that Carabos would continue to be bound by the Rules in respect of plots 1 and 2, being the plots that it was developing in Southfield Gardens. The Rules required the houses to be built in accordance with the Zurich's detailed technical requirements and for a system of inspection during the work to enable the Zurich to be satisfied about the quality of the houses it was to provide indemnity cover for. Following the final inspection after completion, the Zurich had to issue a final certificate if the quality of the houses matched its technical requirements. However, before the final certificate was issued, the builder had to remedy or rectify any defects the surveyor's inspections threw up.
15. Indemnity cover was provided from the moment the final certificate was issued. The builder was obliged to supply the Zurich with plans and other details of construction and "all facilities and information which may be required from time to time during and on completion" (regulation 25 (d)) . If the Zurich considered that additional or remedial work is necessary once the house had been completed prior to the issue of a final certificate, that work was to be notified to the builder, If the builder disagreed or declined to undertake the work, the Zurich "may where appropriate serve notice in Form 8 [a standard form scheduled to the rules] on the builder concerned" (rule 29(b)) who was obliged forthwith to undertake such work so that the new home complied with the Zurich's Requirements in full. Form 8 was a prerequisite to the provision of a final certificate by the Zurich (rule 29(c)). A builder, on receipt of a Form 8 notice, was entitled to exercise his rights to challenge the contents of the notice by referring any dispute as to technical issues relating to on-site inspections to the Zurich's Technical and Standards Committee (rules 29(c) and 43).
16. Carabos's two plots located at Southfield Gardens, Ryde remained covered by the scheme notwithstanding Carabos's removal from the register of members since they were new homes that had previously been registered, were intended to be accepted for guarantee under the scheme and were still in the course of construction by Carabos when its name had been removed from the register.
17. These houses were by then almost ready for final certification. The Tomlin Order provided that the houses were to be subjected to a structural survey that was to be carried out by an independent surveyor. The purpose of this survey was to ensure that the houses had been completed in accordance with the Newbuild handbook so as to be ready to be provided with a final certificate. The structural surveys were, therefore, to be the surveys contemplated by the scheme, and which invariably took place, once the house had been completed and as the prelude to the issue of a final certificate. The only difference in this case was that these surveys were to be carried out by an independent surveyor and not by an in-house surveyor.
18. The surveyor, would therefore be appointed by the Zurich but his fees would be paid for by Mr Goodway and Carabos. He, the Zurich and Carabos would operate within the framework of the scheme rules and the surveyor would provide a certificate of completion of the houses. The obvious purpose of this survey was to ensure that the houses had been completed so as to justify the issue of the necessary final certificates which were only to be issued once the Zurich had been satisfied that they had been completed in fulfilment of the scheme rules which required completion in accordance with the requirements of the Zurich's Technical Manual. If the survey revealed that there were defects or incomplete works, these would have to be rectified and finished off by Carabos to the satisfaction of the Zurich's own in-house surveyor before the next stages provided for by the Tomlin Order were to be undertaken.
19. Once the houses were complete, including any work required of Carabos following their survey, Carabos would then provide £20,000, being £10,000 per house, into the Zurich's escrow account as security against possible future liability by the Zurich in relation to these two properties. These payments were to be a precondition to the issue of final certificates by the Zurich. On payment into the escrow account, these final certificates, which had to be issued before the Newbuild indemnities could take effect, would then be issued by the Zurich. The security would be repayable two years after the issue of the final certificate net of any liability that the Zurich might have incurred in the meantime. An excess of £10,000 per property was also provided for. This was an important amendment to the scheme since the indemnity ordinarily provided by the scheme carried no excess.
20. £60,000 of the sum of £80,000 to be paid by Mr Goodway and Carabos to the Zurich was not to be paid immediately but would be paid forthwith on the happening of the first of the following: Carabos's receipt of the proceeds of sale of the first of the two Ryde houses to be sold or four months from the date of the issue of the final certificates. This arrangement was intended to allow Carabos an opportunity to make this payment out of the proceeds of sale. £5,000 of the overall sum of £80,000 would be paid by the Zurich being allowed to appropriate immediately Carabos's initial security of £5,000 which it had paid when it first registered under the scheme. Mr Goodway and Carabos would pay the final tranche of £15,000 within 14 days of the agreement. This final sum was paid over to the Zurich as intended.
21. The Tomlin Order did not provide expressly for a timetable for the various steps that were to be taken. However, it was known by those engaged in the settlement meeting that the two houses were ready for the pre-final certificate inspection, that Carabos wished to market the two houses as soon as possible and that the marketing of houses on the Isle of Wight was a seasonal activity largely carried out in the late spring, summer and early autumn between April and October each year. It was also clearly intended by those negotiating the terms of the Tomlin Order that the purpose of the survey of each property was to enable the Zurich and Carabos to give effect to clause 29(a)(i) of the scheme which provided that:

"Where [the Zurich] is of the opinion that in relation to a completed New Home ... [Carabos] has fulfilled all his obligations pursuant to these rules then ... it will provide a final certificate in respect of the New Home."

Thus, the survey was intended to satisfy the Zurich that each property had been completed in accordance with the Zurich's technical requirements which are listed in great detail in its technical literature issued as part of the Newbuild scheme.

22. It was known to the Zurich that the only way in which Mr Goodway and Carabos could afford to pay the principal tranche of the settlement, being the sum of £60,000, was by appropriating part of the proceeds of sale of Carabos's newly completed properties in Ryde that were still in contention. The parties to the negotiations clearly intended that their final certificates would be issued, that the successful marketing of the properties would be completed and that the main tranche of £60,000 to the Zurich would be then be paid in successive but related steps as soon as was reasonably possible and, at the latest, within what was left of the Isle of Wight marketing period for 2002. That is why the Tomlin Order provided that the payment of £60,000 was to be paid no later than 4 months after the issue of the final certificates. If these were issued soon after the agreement was made, that tranche would be payable no later than the end of October 2002, just over 4 months after the compromise agreement had been reached and at the end of the 2002 marketing season.
23. It was therefore obviously necessary, and clearly intended by the parties, that both sides would co-operate with each other so as to bring these arrangements into effect with all reasonable speed. The parties were, after all, in the relationship of insurer and insured and the settlement agreement was intended to provide the Zurich with the money it was entitled to under the settlement as soon as possible which would be funded out of the proceeds of sale of the two properties. It follows that the Tomlin Order provided for a form of partnering arrangement which is an arrangement that is well known in both construction and insurance circles and is one which requires the mutual co-operation, trust and exchange of necessary information by all parties to it.
24. This factual matrix to the Tomlin Order gives rise to implied terms that the parties to the Tomlin Order would co-operate with each other, would each act and would each exchange all necessary information with each other so as to achieve the implementation of the Tomlin Order as speedily and as economically as reasonably possible.

2.5 Events following the Tomlin Order

25. Although it had been anticipated that the parties would move speedily through the various steps provided for by the Tomlin Order, the parties in fact became embroiled in a series of acrimonious disputes about this detailed implementation which has meant that the only step so far implemented is the appointment of a surveyor and the production by him of a survey report.
26. The order was made on 25 June 2002. The Zurich did not nominate a surveyor until 17 July 2002 when Wardell Armstrong, a firm of surveyors on the Zurich's panel based in Newcastle-under-Lyme, Staffordshire, were instructed by Mrs Cooper to carry out structural surveys of both properties. Wardell Armstrong then nominated Mr Colin Needham, an experienced surveyor, to undertake the instructed structural surveys.
27. This appointment gave rise to three perceived difficulties so far as Mr Goodway was concerned. First, he objected to a surveyor being appointed whose working base was so far from the Isle of Wight. He perceived this as unnecessarily increasing the fee since the appointment would involve both extensive travelling time and an overnight stay. Secondly, he objected to the size of the projected fee on a more general level and sought, for a time unsuccessfully, to obtain information as to the method and scales of charging. Thirdly, he contended that the scope of the survey had been unnecessarily enlarged. The effect of his objection was that what was required was a structural survey limited in scope to that necessary to ensure that the houses had been completed in accordance with the Zurich's technical requirements and so as to enable final certificates to be issued whereas what was to be undertaken was a more wide-ranging structural survey which would include design checks and the extensive opening up of parts of the structure.
28. These objections were relayed to both the Zurich and their solicitors BLM and to Mr Needham in a long series of letters expressed in immoderate tones. The clear intention of the correspondence from Mr Goodway was to seek to reopen the compromised disputes and to prevent any survey from taking place until he had agreed on the identity of the surveyor, the level of fees to be charged and the scope of the survey to be undertaken. None of these matters need have held up the survey from taking place and, subject to the overall need for the appointment and the fee level to be reasonable, were not matters which Mr Goodway had any entitlement too be involved in. The content and tone of the letters written in the period leading up to the surveys in January 2003 were not in keeping with the implied obligations of mutuality, reasonableness and co-operation required of both him and Carabos by the Tomlin Order.
29. However, the Zurich facilitated this prolonged period of inactivity by itself, albeit in a less marked way, failing in its obligations of both mutuality and of achieving a speedy conclusion to the certification procedure. The Zurich did not provide Mr Needham with a copy of its technical documents or a copy of the scheme Rules when appointing him. Neither Wardell Armstrong nor Mr Needham was familiar with the details of the Zurich's technical requirements nor with the Newbuild certification procedures provided for in the scheme rules. It was an essential part of their structural survey work that they should check that the technical requirements had been complied with such as to allow for the issue of final certificates. Furthermore, the survey needed clearly to distinguish between opening up or exploratory work needed to enable the necessary structural survey to be completed and any remedial or other additional work needed to achieve compliance with the Zurich's standards. This latter type of work had to be specified in sufficient detail as to enable the Zurich to serve, if necessary, a Form 8 notification, being the form provided for by the scheme as an integral part of the procedure associated with the issuing of final certificates under the scheme.
30. Moreover, the Zurich chose a surveyor from its panel who was located over 200 miles away from the site and did not initially clearly define his terms of reference by reference to the final inspection survey to be carried out at completion and immediately prior to the issue of the final certificate that was envisaged by both the Tomlin Order and the Newbuild scheme. The Zurich did not, in conformity with its obligations of mutuality, give Mr Goodway prompt and full details of Mr Needham's hourly charging rate nor of the estimated number of hours to be used as the basis for his charging for his surveys.
31. The Zurich did, however, finally indicate to Mr Goodway that the scope of the survey was similar to the type of survey he was contending for, that the Zurich would itself pay for Mr Needham's overnight accommodation, that no travelling time would be charged for and that the fee would not exceed £1,450 less £84 accommodation expenses. It also excluded any cost of conducting a CCTV inspection which, if needed, would be paid for by the Zurich. It never did, however, provide Mr Needham with copies of its technical documentation or the Newbuild scheme rules.
32. The necessary indications were set out in a letter dated 13 September 2002. Had a prompt and transparent appointment of a locally-based surveyor been achieved with appropriately drafted terms of reference, a letter in this form could have been sent by the Zurich to Carabos by the end of June 2002.
33. Meanwhile, Carabos had taken no steps to initiate the marketing of the houses by appointing estate agents or advertising their availability so that, by mid-September 2002 when the inspections and survey work could have proceeded, Carabos had lost the marketing season for 2002 and the incentive to achieve the completion of the Tomlin Order procedure prior to March 2003. BLM, once the disputes about Mr Needham's appointment had been resolved, put Mr Goodway on notice in clear and unequivocal terms that the survey inspections were to proceed and that he was to provide access and co-operation for those surveys. This notice was provided in BLM's letter dated 13 September 2002 that was addressed to both Mr Goodway and Carabos and which asked:

"We therefore ask you by return of post that you will provide our client's surveyor access to the properties for the purpose of carrying out the survey."

No answer was provided to this question and, unless and until Mr Goodway provided a clear statement to both BLM or the Zurich and to Mr Needham that access for the surveys would be provided and any that the necessary facilities to enable the inspections to proceed would be made available and then made contact with Mr Needham to arrange details for that access and those facilities, the necessary inspections and surveys could not take place.

34. In the continuing absence of any confirmation of access from Mr Goodway, the Zurich finally had no alternative but to issue on 8 November 2002 an application returnable before Judge Bowsher QC in the Technology and Construction Court in London seeking confirmation from both Mr Goodway and Carabos that they would allow the Zurich's surveyor access to the properties for the purposes of carrying out the surveys provided for by the Tomlin Order. This application was to be heard on 22 November 2002 but both Mr Goodway and Carabos consented to an order being made that provided the necessary consent for access that was being sought. Mr Goodway informed the Zurich in a letter dated 19 November 2002 that there were no reasonable grounds for the application because the claimants (himself and Carabos) had never indicated that they would refuse site entry to the Zurich's surveyor. That statement was not justified, at least in the period from 13 September 2002 until 19 November 2002 since both had been asked in unequivocal terms to provide inspection facilities on a number of occasions and had not responded to those requests. It was however agreed that the Zurich would pay the costs of the application which in the event would have been limited.
35. The inspection did not take place until 6 January 2003 and Mr Needham's reports were not issued to Mr Goodway and Carabos until 26 February 2003. The delay between 22 November 2002 and 26 February 2003 is not fully accounted for. There was a short delay in the court issuing the consent order but that need not have held up arrangements being made for the inspection and there was no apparent reason why the report could not have been made available to Mr Goodway within a week of 6 January 2003. However, neither the Zurich nor Mr Goodway appeared to object to or have concerns about this further three-month delay.
36. The report states that it was intended to provide the Zurich with an overview of the general structural condition and stability of the surveyed buildings for the exclusive use of the Zurich. It also stated that it was to identify the general condition of the dwellings and any deficiencies, defects or signs of distress that could be attributed to the specification and/or construction of the buildings. That was not a full or sufficient statement of the intention of the surveys as provided for in the Tomlin Order. The statement of instructions was sufficient so far as it went but it omitted reference to the following:

1. Mr Needham was additionally being appointed jointly by the Zurich and Carabos to conduct the final inspection and survey of the properties envisaged by the Newbuild scheme that was needed to advise whether the properties were in a condition whereby Carabos "had fulfilled its obligations pursuant to the Newbuild scheme Rules" to allow for the issue of final certificates.

2. Mr Needham was required to liaise with Mr Goodway and to arrange directly with him the carrying out of such tests and opening up and for the provision of such drawings, calculations, any prior test and inspection documentation and information from subcontractors as were needed to enable the required survey and its accompanying details of required work to be provided to both the Zurich and Carabos.

3. Mr Needham was being jointly appointed to issue a list of works considered necessary before a final certificate could be issued in sufficient detail to enable a Form 8 notice specifying them to be issued by the Zurich to Carabos under rule 29(b) of the scheme rules.

37. Thus, the survey was not to recommend what opening up work was needed, it was to be undertaken after that opening up work had been done and the report given in the light of that work. This is because the scheme clearly distinguishes between the builder's obligation to provide all necessary plans, calculations and site investigation reports and with all facilities, test samples and information required during and on completion for inspecting new homes in rule 25 with the subsequent obligation to undertake such work as the Zurich specifies as being necessary to enable the builder to have fulfilled his obligations under the scheme Rules as a prelude to the issue of the final certificate as provided for in rule 29(b). Carabos, by the consent it had provided in the consent order of 22 November 2002 had consented to provide any opening up, information or testing reasonably required and the survey report to be supplied by Mr Needham should have been based on any such testing and opening up, it should not have merely recommended what opening up was to be carried out in the future.
38. The report identified that the properties were satisfactory but for two separate features:

1. The report stated that the gulley connections between the roof drainage system and the combined sewer should have been but were not accessible to roding and that it was not clear that they had in fact been constructed as trapped connections. Moreover, it was not clear that the drain runs adjacent to these connections were defect free. In consequence, the report recommended that the drains should be exposed by opening up so that it could be demonstrated by photographic evidence from that opening up that there were no undetected defects in the drains in close proximity to the walls that could lead to subsidence of the foundations caused by water penetration through the defects and also that the connection had in fact been constructed in conformity with the building regulations.

2. The report recommended that a tree be removed that was located close to a retaining boundary wall of one of the properties and the damaged section of the wall rebuilt. The damage was not likely to cause early collapse of the wall but had been caused by tree root incursion which had not been adequately provided £ or and protected against in the design and construction of the wall.

39. It is to be noted that the first of these recommendations suggested opening up work to be carried out to allow for a CCTV survey or other photographic evidence given that the constructed details, involving a trapped connection located below ground level, were different from those shown on the drawings that involved an accessible rodable connection. These were alternative ways of avoiding blockage of the combined drain from matter entering from the rainwater drainage system. The opening up was suggested to enable the drains to be checked for defects and to confirm that they were formed with a trapped connection. The report acknowledged that if the drains were shown to be defect free and formed with a trapped connection, no additional work would be needed.
40. It is also to be noted that the second recommendation only involved one of the two properties and would not have affected the issue of a final certificate in the second unaffected property. Moreover, the defect was outside the house, since it related to a retaining boundary wall located away from the house, and was one which would not in any case affect the structural integrity of the wall in the immediate future. Thus, given the wording of rule 29 of the scheme, the Zurich would have needed to consider whether it had first to require remedial work or whether instead it should issue a qualified final certificate under rule 29(a)(ii), being one bearing an endorsement excluding the retaining wall from the guarantee cover. This would have been an alternative course of action to that that required Carabos to remove the tree and repair the cracking in the wall to be reinstated prior to the issue an unqualified final certificate.
41. Carabos did not reply to the Zurich's letter of 26 February 2003 which had enclosed a copy of Wardell Armstrong's report and had invited it to confirm when the recommendations in the report had been carried out. Indeed, Mr Goodway conceded in evidence that he had no intention of undertaking any of the recommendations. This was because he was looking for alternative indemnity cover for the two properties. This he found in the form of the Project Builder's Premier Guarantee 10-year structural guarantee who provided cover following his application. This cover was confirmed in a letter dated 14 February 2003. He also renewed with great vigour and intemperate language complaints relating to the previous dispute and the alleged manner this had been dealt with by the Zurich and the professionals engaged by them. He made complaints to the Zurich's managing director and its manager.
42. The Zurich waited until 2 June 2003 before issuing an application in the Technology and Construction Court seeking an order that Carabos and Mr Goodway should undertake the work recommended by the independent surveyor and then confirm that they have done so or provide confirmation that the work has carried out. This was met by a cross application by Carabos and Mr Goodway which has given rise to the cross-claim in the current proceedings. Judge Bowsher directed that the parties should exchange pleadings and set the application and cross-claims down for hearing with oral evidence which I heard over three days.
43. During the course of the hearing, the Zurich's application was transformed by two developments. Firstly, the Zurich withdrew from its application the application that further investigative work to the drainage system should be carried out after Mr Needham was shown documents which confirmed that the drainage system had been tested during an inspection carried out by the local authority's inspector by and certified as complying with the building regulations. Mr Needham also was satisfied, after discussing the method of installation with the plumber that Carabos and Mr Goodway had instructed to give expert evidence about the connections between the surface and combined drainage systems, that the connections complied with the building regulations.
44. The second development was that the parties reached an agreement as to the recommended work associated with the tree and the damaged retaining wall that its roots had impregnated. This agreement was to this effect:

"The height/size of the tree will be reduced by lopping and pruning. Cut out the damaged section of wall and provide a full depth joint with a flexible filler/sealant (minimum 25mm). Place vertical paving slab between the wall and the retained soil to project joint. This solution will be adopted but the front garden wall will be removed from the insurance policy to be provided by the Zurich. This endorsement to the policy is related to the preservation of the tree and visual amenity which should therefore not be an impediment to the sale of the properties."

2.6. The issues

45. In consequence of these developments, the Zurich no longer pursues its application for a mandatory order in relation to further work to be carried out by Carabos or Mr Goodway.
46. Thus, I must determine three separate claims:

1. Would the Zurich have been entitled to an order in the terms sought but for the developments that occurred during the hearing? This issue is primarily related to the inevitable costs application for its costs of this application by the Zurich and a responsive cross-application for their costs from Carabos and Mr Goodway of that application in the light of it no longer being pursued.

2. Were the Zurich in breach of the Tomlin Order by the delay in its being implemented in part and, if so, what damages may be recovered by Carabos and Mr Goodway?

3. Is the Tomlin Order to be set aside or are damages for misrepresentation inducing it to be recovered on account of misrepresentations by the Zurich addressed to Mr Goodway and Carabos prior to its being finalised which induced the settlement and, if damages are to be awarded, what damages are recoverable?

47. I need also address a fourth issue since this was raised and argued at the hearing. This is: if the Tomlin Order survives, when and following what further steps may the Zurich be entitled to, or seek to recover, the outstanding £60,000?

3. The application for mandatory relief

48. I have already set out the nature of the recommended works put forward by Mr Needham's report. The Zurich would have faced a number of insuperable difficulties in succeeding in its application.
49. First, the work that was to be undertaken should not have been have been recommended in the form that it was recommended. Mr Needham should have been instructed that his survey was to recommend such remedial work as was necessary to enable the structure to comply with the Zurich's technical requirements and to allow a final certificate to be issued. This work needed to be spelt out and specified with precision so that it was clear precisely what Carabos had to do and so that, if necessary, the work could be made the subject of a Form 8 notification from the Zurich to Carabos under rule 29(b) of the scheme, could be made the subject of a dispute reference to the Zurich's Technical and Standards Committee if there was a continuing dispute as to the need for, or the contents of, the proposed remedial work under rule 43 of the scheme, or could be inspected and approved by the Zurich's own surveyor once completed prior to the issue of final certificates under paragraph 4 of the Tomlin Order.
50. Secondly, the Tomlin order required Carabos to carry out and complete such works as the surveyor considered necessary following his inspection and survey. Those works were works of a remedial nature. The order did not directly cover opening up works needed to enable the surveyor to determine whether the structures of the houses complied with the Newbuild requirements. Such opening up works were required of Carabos during and as part of the inspection as part of its obligation to co-operate and to provide information and other assistance imposed by rule 25 (d). There was no suggestion that Carabos failed to co-operate during Mr Needham's inspection, the truth was that he never sought the required opening up or information about the details of construction whilst the inspections were being undertaken on 6 January 2003. What he should have done is to first obtain the required information and then, if this showed up structural defects, formulate a recommended specification of remedial work. If he attempted unsuccessfully to obtain the required assistance from Carabos, he could have reported that to the Zurich and asked for instructions as to what to do.
51. Thirdly, it was a clear step in the scheme that the Zurich first had to serve a Form 8 notice before it could contend that Carabos was in breach of its repairing obligations imposed by both the scheme and the Tomlin Order. Such a notice had not been served and the Zurich could not therefore contend that Carabos was already in breach of its obligations.
52. Fourthly, as was shown during the hearing, there was no need to remedy the drains and this lack of a need to undertake necessary work was highlighted by the ability of Carabos to produce a test certificate from the local authority and the evidence from its subcontractor which both readily persuaded Mr Needham both that no opening up was necessary and that no remedial work was necessary. The damage caused to the retaining wall was slight, was capable of remedy without significant cost and could readily be dealt with by a suitable endorsement to the policy. Thus, no order was needed from the court and, if applied for, would have been refused on discretionary grounds.
53. A final difficulty would have been that neither of the three parties had acted in a way that showed that any of them wished to give effect to the Tomlin Order. So far as the Zurich was concerned, it had not implemented the full requirements of the scheme and it had caused some of the lengthy delay, particularly the period from 25 June to mid-September 2002 and from 22 November 2002 until 23 February 2003 and by not operating the scheme procedure as it was intended to be operated. These delays have already been explained and dealt with earlier in this judgment.
54. As for the failure to implement the scheme in full, it is first necessary to deal with the history of the Newbuild scheme. A new Newbuild scheme was introduced in 2002 (scheme BG/AG/7/02) and this replaced the 1993 scheme. This new 2002 scheme did not affect or apply to Mr Goodway or Carabos who remained bound by the obligations imposed by the 1993 scheme under which any policy would be issued in favour of Carabos's properties that were unfinished when Carabos was deregistered from the scheme. However, with the introduction of the new scheme, the Zurich abolished the Technical and Standards Committee who were the body to whom the builder under the 1993 scheme could refer technical disputes as to whether a property covered by that scheme was complete and or a final certificate should be issued. An adjudication scheme was applicable for similar disputes arising under the 2002 scheme but the 1993 scheme was never amended to introduce this adjudication scheme into the 1993 scheme when the Technical and Standards Committee was disbanded. Thus, from 2002, there was no contractual informal disputes procedure applicable to the Newbuild scheme applicable to Carabos's unfinished properties following covered by the 1993 scheme.
55. This summary shows that when the Tomlin Order was agreed to, the Zurich was not in a position to give full effect to the procedure concerned with remedial work since that scheme involved possible recourse to the Technical and Standards Committee to resolve any disputes as to the scope of work. The Zurich's response to this complaint was two-fold: (1) the Committee had in fact never met and (2) it would have agreed to a speedy adjudication procedure of the type built into the 2002 scheme. However, neither of these responses deals with Carabos's complaint at this hearing that there was not in place the full Newbuild scheme which gave effect to its entitlement to cover under the scheme once all preconditions had been fulfilled. This was a case which, as turned out, there was a real likelihood of dispute needing possible recourse to a speedy and economical disputes procedure. Moreover, the existence of a possible ad hoc voluntary adjudication scheme was not sufficient since the Zurich were not bound to provide that to Carabos and might not have done so once a dispute arose. Indeed, the Zurich did not, as it might have done, volunteer to Carabos knowledge of this scheme and then offer this service to Carabos as soon as this post-Tomlin Order dispute arose.
56. It is equally the case that Carabos and Mr Goodway were not intending to be bound by or give effect to the Tomlin Order. Both failed to initiate the marketing of the properties in the summer or autumn of 2002 or the spring or early summer of 2003. Both were exclusively responsible for the delay from mid-September until 22 November 2002 and, from mid-February 2003 had no continuing intention to be covered by the Newbuild scheme having arranged alternative cover. finally, both, given the vituperative and mainly misconceived series of complaints airing settled grievances, were clearly showing that they no longer intended to be bound by an insurer/insured relationship.
57. It follows that a court would have concluded that there had been no established breach of the Tomlin Order entitling the Zurich to mandatory relief, no basis for showing that the Zurich intended to be and was ready and willing to be bound by the Tomlin Order and no basis for the court to exercise its discretion in favour of the Zurich given the mutual failure to implement the terms of the Tomlin Order, Therefore, the equitable relief being sought would not have been granted even if the application had been maintained until the end.

4. Was the Zurich in breach of the Tomlin Order

58. Carabos and Mr Goodway complain that the Zurich failed to correctly instruct Mr Needham with the correct terms of reference a local surveyor who was to charge a reasonable fee such that the surveyor was not properly or effectively appointed for three months from 22 June 2002, that it then took five months until 23 February 2003 for him to produce his report and that it then took a further four months until June 2003 to identify the dispute that it was contending that certain work was required and a year, from February 2003 until judgment in February 2004 to identify that no further work was in fact necessary. The consequence of these breaches was to delay the issue of the final certificates and the sale of the properties by a lengthy period from mid-2002 until early 2004.
59. This claim is misconceived for essentially two reasons. First, any conduct causing delay was mutual and, secondly, any delay caused by the Zurich caused them no loss since they were neither ready nor willing to market the properties even if the Newbuild cover had been offered in the period up to June 2003.. Throughout the period from late June 2002 until the hearing of the applications in December 2003, neither Carabos nor Mr Goodway were ready or willing to perform the Tomlin Order, The following factors show that both had evinced an intention not to be bound and not to co-operate and partner in the putting into effect the terms of the Tomlin order as speedily as possible:

1. At no time did either defendant seek to put the properties on the market, to advertise them or to instruct agents to market them.

2. Throughout the period from July to September 2002, both Carabos and Mr Goodway sought to prolong with petty objections the discussions as to the terms of appointment and the identity of the surveyor. Both could have notified the Zurich at the outset of their objections and then asked the Zurich to appoint the surveyor on appropriate terms and continue the discussion about fees whilst the surveys were being arranged and carried out.

3. Both decided soon after the Tomlin Order had been made that they would seek alternative insurance cover for the properties which they successfully achieved in February 2003. Notwithstanding that, the properties were not then marketed.

4. Both failed to respond to the Zurich's invitation to undertake the proposed remedial work, to seek to show that the drains were satisfactory or to propose the alternative scheme to deal with the boundary wall once the Needham report was served on them.

5. Neither defendant had the means or the intention to provide the £20,000 deposit required before the final certificates were issued.

60. For these reasons, both Carabos and Mr Goodway's claims that are based on both the Zurich's alleged breaches of the terms of the Tomlin Order and on the suggested loss those breaches caused them fail.

5. Misrepresentation

61. Both Carabos and Mr Goodway contend that the Zurich misrepresented the strength and nature of its claims in the first set of proceedings on two occasions, that those misrepresentations induced the settlement agreement and that that agreement has caused them loss in the form of an unduly unfavourable settlement. In consequence, they claim rescission of the Tomlin Order or damages in lieu of rescission.
62. These allegations are centred on the quantification of the Zurich's claim which was for a sum of about £60,000. It must be remembered that Carabos and Mr Goodway were contending with some vigour that they were not liable to pay the Zurich anything since the defects complained were not present and also that any defect in the drainage systems had not caused water penetration. This had, instead, been caused by outside forces, high tides and other natural phenomena, or by the householders' carelessness.
63. It must also be remembered that Carabos and Mr Goodway were represented throughout by solicitors and an expert who, on the basis of the allegedly deficient disclosure provided by the Zurich, had advised that only about £6,000 was due to the Zurich even if it established liability and that this report had been disclosed to the Zurich prior to the settlement negotiations. Moreover, Carabos and Mr Goodway were represented at those negotiations by their solicitor who was not called to give evidence at this trial.
64. Carabos and Mr Goodway complain that a particular document was not disclosed to them which was highly material in showing that the claim made was grossly inflated and, indeed, fraudulently compiled. The claim was for the cost of remedial work to the two properties the subject of the first proceedings which was undertaken at the instructions of an agent appointed by the Zurich by an independent contractor, albeit one who Carabos and Mr Goodway now contend who was closely commercially connected with the Zurich's agent. The document in question was the first page of a fax dated 20 July 2001 from the managing director of the contractor in question to a representative of BLM who had sought information about the costings making up the claim as part of the preparations for trial. The document enclosed a one-page list of costings. The relevant parts of these documents are:

"As requested please find attached brief description of the works with sketches and budget. ... Obviously this information has had to have been provided at very short notice but we can amplify if required given more notice. Hope sufficient at this stage.

Brief budget breakdown between properties:

Orotava

Excavation and pipework replacement £23,000

Merrythought

Excavation and pipework replacement £3,000

General

Externals, paving & landscaping £10,000

Prelims, pre contract client liaison etc £,7000.

65. Carabos and Mr Goodway first complaint is that these documents, or at least the first, were not disclosed in the list of documents when this was served in November 2001. Thus, Carabos and Mr Goodway lost the opportunity of making a realistic payment into court so that when the action came to be settled they were unprotected as to costs and by then the Zurich's estimated costs were about £60,000. In other words, had a realistic payment into court been made in November 2001, the overall settlement figure could have been very much less than it was.
66. This claim suffers from a series of fundamental defects:

1. There is no misrepresentation alleged The best that can be suggested is that the list of documents amounted to a misrepresentation that it contained all disclosable documents when the fax and the covering breakdown were not disclosed but were in BLM's possession. However, the nature and extent of the non-disclosure is so limited that the list, as served, cannot amount to any misrepresentation as to the disclosable documentation or as to the potential weakness of the Zurich's case.

2. The fax is a privileged document since it was a communication from a witness to the Zurich's solicitor for the purpose of preparing the Zurich's case for trial.

3. The documents do not clearly show that the damages claimed were inflated, dishonestly calculated or relating to work which was not done or which did not itself relate to defects caused by Carabos and Mr Goodway.

4. There is no evidence that a payment into court was contemplated, would have been made had the documents been disclosed or that any assessment of the defendant's prospects and risks would have relied to any extent on these documents even if they had been made available to Carabos and Mr Goodway.

5. The documents, and their absence from the discovery provided in November 2001, did not induce or even influence Carabos and Mr Goodway in their thinking in agreeing to enter into the settlement reached in June 2002.

67. Carabos and Mr Goodway's second complaint is that these documents were not disclosed at the time that witness statements were exchanged. This failure arose because specific discovery was ordered by the court but these documents were not disclosed. Subsequently, they were sought in correspondence and again not disclosed.
68. It became clear from documents produced by BLM during the hearing that copies of the relevant documents had in fact been provided to Carabos and Mr Goodway's solicitor well before the settlement meeting and that they had been supplied to and taken into account by Carabos and Mr Goodway's expert when preparing his report advising that a tiny proportion of the claim had been established on the available evidence, a report available to all parties to the settlement meeting. Carabos and Mr Goodway's response was that Mr Goodway was not personally aware of the existence or contents of these documents but his solicitor, who was at his elbow during the settlement meeting, was both in possession and aware of these documents and their contents.
69. It follows that no misrepresentation has been made out nor has any failure to disclose or any adverse reliance on these alleged failures been established.

6. The future

70. If the Zurich wish to recover the £60,000 still outstanding whose payment is dependent on the issue of final certificates and subsequent sale of the properties, they can now serve on Carabos and Mr Goodway a notice stating that it can and will issue final certificates. Carabos and Mr Goodway would then have an option to pay £20,000 into escrow or not. If they do make this payment, the final certificates can be issued and the four-month period start to run. If they do not, the Zurich can serve notice that it regards Carabos and Mr Goodway in breach of the Tomlin Order and, having evinced an intention not to be bound by it, claim payment of the outstanding sum without reliance on the conditions precedent to payment. Carabos and Mr Goodway would then be entitled to a reasonable four-month period to pay and, after that sum of £60,000.

7. Conclusion

71. The applications and the cross-claims are dismissed.
72. The court must first consider, when costs come to be discussed, whether the appropriate order should be:

no order as to costs on both the Zurich's application and the defendants' cross-claims.