QUEEN'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL
B e f o r e :
(sitting as a Deputy High Court Judge)
| WHEELDON BROTHERS WASTE LIMITED
|- and -
|MILLENIUM INSURANCE COMPANY LIMITED
Mr Graham Eklund QC (instructed by Mills & Reeve LLP) for the Defendant
Hearing dates: 26th - 28th February, 1st, 8th March and 19th April 2018)
Crown Copyright ©
The Deputy Judge:
(i) The waste, which originates from commercial and industrial dustbins and builders' skips comes into the Tana shredder;
(ii) The waste proceeds along the first conveyor;
(iii) From that conveyor the waste enters the trommel, which is a large rotating sieve;
(iv) From the trommel, the materials board a second conveyor which is the M&K conveyor. The M&K conveyor is where the Fire originated;
(v) The M&K conveyor takes the materials to the density separator;
(vi) From the density separator, the materials enter the Untha granulator where they are subject to further processing;
(vii) The Untha granulator discharges the end product into a segregated storage area.
(i) Breach of Clause WA2A (storage of gas cylinders);
(ii) Breach of Memorandum 6 (storage of combustible materials less than 6m of fixed plant)
(iii) Breach of Memorandum 9 (storage of baled materials)
(iv) Breach of Memorandum 11 (removal of combustible stock and/or waste).
(i) A failure to comply with Risk Requirement 4 of the Secon Report, relating to the storage of combustible waste within 6m of fixed plant/machinery outside operating hours;
(ii) Breach of Memorandum 6, relating to the storage of combustible materials within less than 6m of fixed plant outside operating hours;
(iii) Breach of Memorandum 11, relating to the removal of combustible stock and/or waste outside operating hours;
(iv) Breach of WA6, relating to the maintenance of the machinery;
(v) Breach of WA7, relating to the standard of the housekeeping;
(vi) Breach of the requirements under the Secon Report generally.
(i) Machinery to be maintained in an efficient working order in accordance with the manufacturer's specifications and guidelines and formal records of such maintenance to be kept and made available for inspection by Millennium (see WA6 on page 41 of 54 of the Policy) [D/391];
(ii) Procedures to be in place to ensure a good level of housekeeping at all times. All areas of the site, both inside and outside, were to be cleaned-up to minimise fire risk and ensure clear access to fire-fighting appliances. Records of cleaning and housekeeping were to be kept in a log book and made available to Insurers and their representatives (see WA7 on page 41 of 54 of the Policy) [D/391];
(iii) Each and every survey requirement was to be completed by the Insured within such time period as specified by Insurers and advised to the Insured (see WA16 on page 49 of 54 of the Policy) [D/399]. The time period was specified by Insurers in the Contract Endorsement No. 1 issued on 30th April 2014 [D/417], by reference to the time period/time scale referred to in the Secon "Risk Requirements and Recommendations Report";
(iv) Additionally, as a consequence of CE1, each and every risk requirement was to be completed within the time scale provided by Secon "Risk Requirements & Recommendations Report" which required compliance with Risk Requirement 4 that combustible material be stored at least 6m from fixed plant/machinery at times outside of normal operating hours. (See Contract Endorsement No. 1 dated 30th April 2014 and the Secon Report) [D/417];
(v) Each and every Risk Requirement to be subject to continued compliance with the Secon Risk Requirements at all times for the duration of the Policy (see Contract Endorsement 1) [D/417];
(vi) Memorandum 6 was replaced by Risk Requirement 4 in the Secon Report, thus confirming the requirement for combustible materials to be stored at least 6m from fixed plant/machinery at times outside of normal operating hours.
"This Policy consists of the INTRODUCTION which explains the basis on which the cover is provided and which incorporates the proposal made by the Insured.
The Sections of the Policy…
The Schedule which shows who is the Insured, the business being covered …
Any Endorsement(s) which might apply to the Policy or Individual Sections and which incorporate cover, amendments, extensions, limitations and such like.
Each Section of this Policy the Schedule the Appendix to each Section and any Endorsement(s) shall be read as one document.
Any word or expression given a specific meaning in
(1) The Schedule any Policy Endorsement(s) or this Introduction and the General Policy Definitions Exceptions and Conditions shall have the same meaning throughout the Policy.
(2) An individual Section its Appendix or any Section Endorsement(s) shall have only the same meaning throughout such Section Appendix or Endorsement(s).
In consideration of the payment of the premium, the Insurer will make good the Insured's loss within the Terms Exceptions and Conditions of this Policy against the events set out in the Sections Operative and occurring in connection with the Business during the period of Insurance…
The Proposal made by the Insured is the basis and forms part of this Policy
IMPORTANT INFORMATION [D/355]
Conditions precedent to liability
The due observance and fulfilment of the Terms Exceptions and Conditions of this Policy insofar as they relate to anything to be done or complied with by the Insured and by the truth of the statements and answers in the Proposal and declaration shall be conditions precedent to any liability of the Insurer to make any payment under this Policy. This statement is also included under General Conditions, point 6 to serve as a reminder to the Insured.
GENERAL POLICY CONDITIONS [D/358]
Applicable to the whole Policy…
(6) Conditions Precedent to Liability
The due observance and fulfilment of the Terms Exceptions and Conditions of this Policy insofar as they relate to anything to be done or complied with by the Insured and the truth of the statements and answers in the Proposal and declaration shall be conditions precedent to any liability of the Insurer to make any payment under this Policy. [D/359]"
(1) PREMISES: … 3. The Waterside Mill, Kenyan Street, Ramsbottom, BL0 OAB;
(2) PERIOD OF INSURANCE: From 8th April 2014
(3) OPERATIVE SECTIONS: Material damage – Specified Perils – Operative
(4) ENDORSEMENTS APPLICATION: As attached hereon [D/405]
(5) APPENDIX A: Material damage specified perils
(6) ENDORSEMENTS APPLICABLE: As attached [D/406]
(i) Memorandum 6 provided:
"It is a condition precedent to the liability of the Insurer that combustible wastes must be stored at least 6m from any fixed plant";
(ii) Memorandum 11 provided:
"It is hereby warranted that all combustible stock and/or wastes are removed from picking station base and/or trommels including hopper feeds etc. when the business is closed";
(iii) Memorandum 15 provided:
"The following clause is added to the Policy from inception pending completion of the subjectivities as per email to local agent dated 04.04.2014 and is held on file by Direct Insurance London Market.
Co-insurance material damage/business interruption clause
In respect of All Perils and Sections Insurers' liability in respect of any damage assessed in accordance with the terms of this policy is limited to 65% of the amount assessed, it is a condition of this Policy that the balance of 35% shall remain at the Insured's risk and uninsured…
Notwithstanding the aforementioned a Minimum Contribution of £250,000 for each and every claim shall apply."
(iv) Memorandum 16 provided: [D/415]
"As per Endorsement Underwriters hereby note and agree that proposal form dated: 19/3/2014" [D/83-96]
"It is hereby noted and agreed that the following amendments are applied to the above Policy:
Underwriters hereby note and agree the Secon Risk Requirements & Recommendations Report dated 28th March 2014 [D/286] as enclosed and kept on file by Direct Insurance London Market.
Please note that it is a condition precedent to the liability of the Insurer that the Insured shall complete each risk requirement within the time scale provided by Secon "Risk Requirements & Recommendations Report" unless otherwise agreed by Insurers and confirmed by Direct Insurance London Market.
It is further noted that once the risk requirements have been confirmed as completed, it is a condition precedent to the liability of the Insurer that the Insured ensures continued compliance with the Secon Risk Requirements at all times for the duration of the Policy. The following warranties are hereby deleted and superseded by the Secon Risk Requirements contained within the "Risk Requirements & Recommendations Report".
Memorandum 5 – It is a condition precedent to the liability of the Insurer that all shredders and/or grinders are fitted with Fireward automatic fire suppression systems or similar - replaced by Risk Requirement No. 3.
Memorandum 6 – It is a condition precedent to the liability of the Insurer that combustible wastes must be stored at least 6m from any fixed point – replaced by Risk Requirement No. 9."
(i) WA6 – Machinery Maintenance Condition Precedent [D/391]
It is a condition precedent to the liability of the Insurer that the Insured shall ensure that:
(a) All Machinery is maintained in an efficient working order in accordance with the manufacturer's classifications and guidelines and any applicable regulations; and
(b) Formal records of such maintenance are kept by the Insured and are made available for inspection by the Insurer;
(ii) WA7 – Cleaning and Housekeeping Condition Precedent [D/391]
It is a condition precedent to the liability of the Insurer that the Insured shall ensure that:
(a) Procedures are in place to ensure a good level of Housekeeping at all times;
(b) All areas of the site, both inside and outside, to be cleaned-up to minimise the fire risk and ensure clear access to fire-fighting appliances;
(c) A system is in place whereby designated time(s) are assigned for the work and necessary resources provided to keep the site in as clean a condition as is practicable. This work must be carried out daily or, at least, weekly;
(d) Formal contemporaneous records of Cleaning and Housekeeping are recorded in a Log Book that covers the areas cleaned, giving date, time and signed by the responsible person;
(e) These records are to be kept and made available to interested parties upon request, such as Insurers and their representatives;
(iii) WA16 – Survey Condition Precedent [D/399]
It is a condition precedent to Insurer's liability that:
(a) A survey report carried out by an authorised surveyor is received by Insurers within thirty (30 days) of the inception date; and
(b) Following receipt of such survey report, each and every survey requirement is completed by the Insured within such time period as specified by Insurers and advised to the Insured;
(c) The Insurer reserves the right at their sole option to request a re-survey without notice at any time during the Policy period; and
(d) Following receipt of such survey report, each and every survey requirement is completed by the Insured within such time period as specified by Insurers and advised to the Insured.
Without prejudice to the foregoing, upon receipt of the survey the Insurer reserves the right at their sole option to amend the Policy, giving immediate notice or cancel the Policy on giving 14 days' notice.
(i) "Combustible wastes must be stored at least 6m from any fixed plant" (Memorandum 6);
(ii) "Warranted all combustible stock and/or wastes are removed from picking station base (Memorandum 11) and/or trommels and/or hopper feeds and balers etc. when business is closed";
(iii) "Fire Knock Out Warranty in mobile plant" (Memorandum 13).
"The scene inside the building was chaotic. By that point, much of the roof of the building had collapsed in or been demolished by the Fire Brigade and the floor was flooded with a swill, formed as a result of the burnt debris mixing with the residue of the water used by the Fire Brigade in extinguishing the Fire."
"The fines were completely unburned, other than blackening on the outside of the pile due to smoke. Using the loading shovel, I then moved the fines outside into the yard."
"The trommel fines were piled up in front of the trommel and unburned. The Conveyor wasn't buried within the pile. There was clear space of at least a few feet between the Conveyor and the bottom edge of the pile of fines. I could see that it was safe to clear the pile away without hitting the machinery."
(i) The fire started as a result of the failure of the bearing.
(ii) That caused heat by way of friction and/or hot bits of metal.
(iii) Heat or fragments left the housing of the bearing.
(iv) Causing material around the foot of the conveyor to catch and burn.
(v) That material was a mound of trommel fines that effectively engulfed the left stanchion of the trommel and buried the foot of the conveyor.
(vi) Which led to the catching of the conveyor belt and then the spread of the fire.
(vii) The mound of trommel fines was cleared away after the fire before Mr Braund attended to take pictures, leaving behind the materials shown in the photographs [G/200-205].
(viii) Inside the pyramid of material at the foot of the conveyor is where the evidence of the seat of the fire was found by Mr Braund.
(i) On the 21st or 22nd of June 2014 a bearing failed in the conveyor.
(ii) As a result of the failure of the bearing, the conveyor became misaligned with the trommel. That created a gap which included a void in the housing of the conveyor.
(iii) As a result of the gap, some materials that would otherwise have passed through the trommel (i.e. not dropped through the trommel's sieve) in fact dropped through the gap at the bottom of the conveyor after the trommel. These materials either became lodged in the guarded enclosure housing the bearing or dropped below the conveyor.
(iv) Those materials were largely combustible, in contrast to the materials that made up the trommel finds. Trommel fines are the usual materials that drop through the grill in the trommel and are deposited below the trommel. They are not combustible. They were not involved in the Fire.
(v) As a result of the failure of the bearing, the friction caused by the failing bearing, and hot fragments being deposited on the accidental build up of materials that had fallen through the gap at the bottom of the conveyor that collected in that housing, smouldering began.
(vi) The smoulder led to the material catching fire before 2.30am on 22nd June 2014.
(vii) The seat of the fire was the collection of accidental material that had fallen through the gap at the bottom of the conveyor. That led to the ignition of the belt on the conveyor. The fire then spread from the belt to the fabric of the building, which led to the losses caused by the Fire.
(i) The bearing failed and that is likely to have caused a misalignment allowing the materials to collect. That is what happened when the bearing failed previously (see Mr James Wheeldon's evidence at paragraph 7.1 [C/24] and paragraph 47 above).
(ii) There was a significant void in and around the bearing housing capable of allowing material to collect (see photographs 3-5 of Dr Jowett's report at [B/110-113]. Mr Booker was certain that there had been a guard around the housing and he replaced it when he had greased the bearing in the week before the Fire [day 2/94 lines 12-24]. The photographs after the Fire show material within the housing, although there is a solid cover to the bearing (see [C/200-205]).
(iii) In the photographs taken after the fire it can be seen that the housing of the bearing has been removed, there is a significant void within, the grille at the bottom has dropped and consequently a quantity of material has been deposited and mixed with the detritus from the clean-up operation (see photograph 3 of Dr Jowett's report at [B/100-113]).
(iv) That interpretation of the photographs is supported by what Mr James Wheeldon found after the fire (see paragraphs 9-14-20 [C/28] and paragraph 49 above).
(v) The rubber conveyor belt was combustible and represented a significant fire load and is likely to have caused the Fire to spread (see Dr Jowett at paragraph 3.12 and 4.110 [B/60 and B/64]).
(vi) The rubber conveyor slanted upwards providing an ideal route for the Fire to travel and it reached only 1.5 metres from the roof panels. The panels were likely to be combustible. They allowed the Fire to spread as it did (see Dr Jowett at paragraph 3.13 and 4.11 [B/60 and B/64]). This is consistent with the burn patterns in the roof (see the photograph in Dr Jowett's report at [B/65]).
"Yes, all the photographs were taken after a lot of material has been removed. We also know that the material has been removed from within the trommel fines collection bay and there were no clear witness marks in there that showed precisely where that material was and yet the CCTV clearly shows that there was material in that bay at the time of the fire."
"Where there is a claim brought in respect of a loss under the policy and the insurer wishes to plead breach of warranty as a defence to it, it is no answer that the loss was not caused by or contributed to by the breach of warranty."
That statement is equally applicable to conditions precedent and liability: there is no requirement for there to be a causative link between the breach and the loss. Millennium does not have to prove that any particular breach caused the loss.
(i) As a matter of construction, what is required by the condition precedent; and
(ii) As a matter of fact, has there been compliance.
"as stated in MacGillivray on Insurance Law (10th ed) at paragraph 19-35, provisions in a policy which are stated to be conditions precedent should not be treated as a mere formality which is to be evaded at the cost of a forced and unnatural construction of the words used in the policy. They should be construed fairly to give effect to the project for which they were inserted, but at the same time so as to protect the assured from being trapped by obscure or ambiguous phraseology."
(i) The parties should be taken to understand the nature and limits of the recycling business. "Every underwriter is presumed to be acquainted with the practice of the trade he insures and that whether it is established [the practice] or not": see Noble v. Kennaway  2 Doug 511 at 513 (relied upon by HHJ Coulson QC (as he then was) in Margate Theatre v White  LLRep 93 at paragraph 34). Mr Quiney emphasises the importance of the practical effect of those words. For example, the parties must have understood that keeping the machines and buildings tidy and clean in a recycling business is different from keeping machines and buildings clean and tidy in a shop, fruit processing and/or laboratories.
(ii) If there is ambiguity in the clauses in issue, such ambiguities should be resolved against the insurer (MacGillivray 13th edition paragraphs 11-33-35).
(iii) In the case of terms such as conditions precedent, the courts generally treat them as onerous or draconian terms. Thus, it is incumbent on the insurer to clearly spell out any such terms or the insured will not be bound by them (see Pratt v Aigaion Insurance  1 LL Rep at paragraph 13 per Sir Anthony Clark). I was also referred to Royal & Sun Alliance v Dornoch  EWCA Civ 238 at paragraph 19:
"It is a well-established and salutary principle that a party who relies on a clause exempting him from liability can only do so if the words of the clause are clear on a fair construction of the clause…"
"15 When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffman in Chartbrook Ltd v Persimmon Homes Ltd  AC 1101, paragraph 14. And it does so by focusing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of:
(1) the natural and ordinary meaning of the clause,
(2) any other relevant provisions of the lease,
(3) the overall purpose of the clause and the ease,
(4) the facts and circumstances known or assumed by the parties at the time that the document was executed, and
(5) commercial common sense, but
(6) subjective evidence of any party's intention."
(i) Conditions precedent which cannot be remedied and therefore cannot suspend cover (e.g. a condition precedent which required notice to be given by a particular time); and
(ii) Those which can be remedied and therefore suspend cover until they are remedied.
(i) Maintenance to keep machinery in efficient working order (WA6) is a suspensive condition precedent. Even if there has been a failure to maintain machines in efficient working order, maintenance can be performed to get them into efficient working order and remedy the breach. Subsequent maintenance can keep the parts in efficient working order, such that there is no longer any breach.
(ii) A requirement to keep formal records (WA6) is a condition precedent. Once breach exists because formal records are not produced or kept there is a breach of the condition precedent which could not be remedied.
(iii) Cleaning (WA7) is a suspensive condition. If there had been breach in the past, the cleaning requirement is a requirement which could be remedied (because the required cleaning could be satisfied subsequently, thereby leaving the premises in the condition they should be left in.
(iv) Risk Requirement 4 of the Secon Report is a suspensive condition. The analysis is similar to that in relation to cleaning.
(v) Memorandum 11 is a warranty which, subject to its interpretation, requires strict compliance.
"On Risk Requirement 4 and Memorandum 6:
(a) whether the policy properly incorporates a condition precedent to liability requiring (inter alia) the Claimant not to store combustible material within 6 metres of fixed plant or machinery whether under Risk Requirement 4 of the Secon Report or Memorandum 6?(b) alternatively to separate such material from plant or machinery with a non-combustible barrier?
Those issues give rise to two questions. First, are Risk Requirement 4 or Memorandum 6 in play at all and if so how do those clauses operate and have they been breached."
(i) Was there combustible waste?
(ii) Was it in a storage area?
(iii) Was it within 6 metres?
(i) Area A. Mr Eklund does not argue in his Written Closing Submissions for breach of the condition precedent in area A. In any event the experts agree that there was no combustible material at the time of the fire and the area was not a storage area.
(ii) Area B. It is common ground that there were trommel fines in the location. Both experts agree that trommel fines contain combustible materials, but as I have already set out, I accept Dr Jowett's conclusion that a layperson would conclude that the material was not combustible. Mr Eklund makes much of the witness marks at page 6 of his written closings but as I explain at paragraphs 56-58 of this Judgment I am not satisfied that the witness marks have the decisive feature which Mr Braund would have me accept.
"On Memorandum 11:
(a) Was the Claimant in breach of Memorandum 11 by failing to have removed combustible stock from picking stations and/or trommels whilst the business was closed?
(b) If yes, does this represent a defence for Millennium?
(a) Was the Claimant in breach of WA6 by failing to maintain all machinery in efficient working order in accordance with the manufacturer's specifications and guidelines and/or by failing to keep formal records of all such maintenance?"
(a) Was the Claimant in breach of WA7 by failing to have procedures in place to ensure a good level of housekeeping at all times, to keep clean all areas of the site to minimise the fire risk, to record in a log formal contemporaneous records of Cleaning and Housekeeping in a log book covering areas cleaned etc."
"On the SECON Report generally:
(a) Whether the SECON Report contains "conditions precedent" or is to be construed as containing conditions precedent either:
(i) when read on its own; and/or
(ii) when read in conjunction with the provisions of WA16; and/or
(iii) when read in conjunction with the provisions of Contract Endorsement 1;
(b) Whether there was a breach of the requirements under the Secon Report generally;
(c) If so, does this represent a defence for Millennium."
"What was the legal effect of Endorsement No. 2 and in particular in the circumstances did it represent in the circumstance [sic] an estoppel or waiver preventing Millennium from relying on all or some of the defences it has raised?"
In the light of my earlier findings, this issue is of no practical relevance. However, for the sake of completeness, and in case I be wrong on any of my earlier findings, I summarise my views.
"The interpretation of a co-insurance clause in the Policy (Memorandum 15) and whether that clause applies?"
"The following clause is added to the Policy from inception pending completion of the subjectivities as per email to local agent dated 04/04/2014 and as held on file by Direct Insurers London Market.
Co-insurance material damage/business interruption clause.
In respect of all perils and sections Insurers liability in respect of any damage assessed in accordance with the terms of this Policy is limited to 65% of the amount assessed, it is a condition of this Policy that the balance of 35% shall remain at the Insured's risk and uninsured.
Any salvage or recovery obtained whether by subrogation or otherwise after the settlement of a claim by Insurers shall be apportioned, after the deduction of expenses, 65% to Insurers and 35% to the Insured. Notwithstanding the aforementioned a Minimum Contribution of £250,000 for each and every claim shall apply.
All other terms and conditions remain unaltered."
"All other terms and conditions remain unaltered."
"The co-insurance works on the basis that you do have a period of time in which to undertake various requirements, which are set out in the Report and the subjectivities and if you are doing those then you are not in breach then you have the benefit of the insurance subject to the co-insurance clause. But if there is a condition precedent which is in effect at the time that the event occurs, that condition precedent reduces your cover to nil in exactly the same way that it would if the cover was for 100%".
I accept that argument.