Claim No: B19YM822
IN THE COUNTY COURT AT BRISTOL
His Honour Judge Russen QC
19 December 2017
B E T W E N:
ZURICH INSURANCE PLC
Nicholas Maciolek (instructed by DAC Beachcroft Claims Limited) appeared for the Claimant
Andrew McGuinness (instructed by Consilium Legal Limited) appeared for the Defendant
Hearing Dates: 21-22 November 2017
1. This Claim was issued on 13 June 2015 by the Claimant (“Zurich”) seeking judgment against the Defendant (“Nightscene”) for the sum of £44,070.69 which is said by Zurich to be the net sum due from Nightscene, excluding interest, under a document purporting to be a Deed of Guarantee dated 6 December 2004 (“the Guarantee”). The Guarantee (under clause 1.2 of which Nightscene is expressed to assume the liability of principal obligor and not merely surety) was in respect of the obligations owed by a company named Birmingham Property Developments Limited (“BPDL”). The principal amount claimed credits Nightscene with the amount of £9,000 which BPDL had paid in escrow, as additional security for Zurich to that provided by the Guarantee, upon its entry into the insurance scheme mentioned next.
2. BPDL was a developer of new-build houses in respect of which Zurich, as part of a scheme involving insurance of newly-built properties (and renovations), issued insurance policies to the homeowner in respect of any defects in new-build homes which might be notified to the developer within 2 years of purchase, and the making good of which was primarily the responsibility of the developer and secondarily that of Zurich. The escrow payment of £9,000 mentioned above was part of the consideration for Zurich entering into an Agreement dated 19 July 2004 which, as between Zurich and BPDL, governed the terms and conditions applicable to BPDL if Zurich issued such a policy in respect of a house built by BPDL (“the Agreement”). Another stipulation made by Zurich if it was to issue insurance policies in respect of BPDL’s developments was that the Nightscene should provide a guarantee to Zurich in respect of BPDL’s obligations under the Agreement.
3. In the present case, involving the parties and BPDL, there were within this insurance scheme, designed for the benefit of purchasers of new homes, therefore three different contracts:
a. the Zurich insurance Policy (“the Policy”) issued by Zurich to Mr David McGrath (the purchaser of a new home built by BPDL at 213 Station Road, Kings Heath, Birmingham: “the Property”) on or about 28 February 2006 on the “Candles Blue (Congratulations 10)” terms;
b. the Agreement between Zurich and BPDL mentioned above and entered into in or around November 2004; and
c. the Guarantee between Zurich and Nightscene (dated, as I say, 6 December 2004).
4. Needless to say, there is a considerable degree of detail in the contractual provisions of these documents. The key provisions of each were helpfully identified in Appendix A to Mr Maciolek’s written Opening Submissions for Zurich.
5. This Claim is concerned first and foremost with the terms of the Guarantee. Nightscene’s pleaded defence of the claim made under it – now reflected in a Re-Amended Defence served in June 2017 - does not rest upon any particular positive case that no liability on the part of BPDL within the scope of the Guarantee (if valid) has arisen. Although BPDL and Nightscene shared a common director in Mr Wayne Tracey, Nightscene’s position on that aspect is and is entitled to be that the burden is upon Zurich to establish that such a liability did arise. The Re-Amended Defence takes the line that such matters are outside the knowledge of Nightscene. However, Nightscene’s defence of the Claim takes on a more positive note in addressing the legal issues surrounding the document of Guarantee. These legal arguments go the substantive validity (or, rather, suggested invalidity) of the Guarantee and to the effect of it, for the purposes of Nightscene’s contention that the Claim is statute barred, even if it is held to be valid.
6. Aside from its position that Zurich’s claim has not been established on the facts, Nightscene’s defence to the guarantee claims rests upon two basic contentions about the Guarantee:
a. first, that it is null and void because, although it purports to be a deed, it was not executed as a deed because Nightscene’s common seal was not affixed to it, next the signature of the director (which is understood to be that of Mr Tracey) and neither was it counter-signed by another director or by the Company Secretary. This line of defence was first taken in a Re-Amended dated 26 June 2017. It was not pressed too hard at trial by Mr McGuinness on behalf of Nightscene who appeared to recognise (and indeed emphasise for the purpose of the limitation argument mentioned next) that the document could still take effect as a simple contract, if not as a deed. That said, Mr McGuinness did raise the possibility that there was no sufficient consideration given for the Guarantee, to support its efficacy as a simple contract, because it was provided by Nightscene after the date of the Agreement; and
b. secondly, that to the extent that Zurich seeks to fall back on the argument that, even if not a valid deed, the Guarantee takes effect as a simple contract, then the claim is statute barred. Whereas a deed (as a specialty) would support a claim being made within a 12 year period, Nightscene’s position is that this claim issued in 2015 was made outside the 6 year period applicable to simple contracts. In relation to the limitation issue, Nightscene seeks to categorise Zurich’s argument that it (Nightscene) is precluded by an estoppel by representation from disputing the Guarantee’s execution as a deed as one for “equitable relief” which is barred by laches (as well as suggested “unclean hands” on the part of Zurich). It also contends that a claim based upon the Guarantee being a simple contract is not one that has been pleaded in the Claim Form and Particulars of Claim, that it would be a new claim and that it is now too late to make it because it is statute barred.
7. Indeed, these lines of defence form such a prominent part of Nightscene’s defence that it has not adduced any factual or expert evidence on the claim beyond that contemplated by the terms of the Consent Order dated 27 September 2017. Having made that observation, I should record that on 24 October 2017 I refused an application by Nightscene for relief from sanction which, if granted, would have permitted the filing of further evidence of fact and expert evidence than that contemplated by the September Order. The position at trial, therefore, is that Nightscene’s positon on the merits of the underlying claim (involving the passing of the suggested liability of BPDL, for the financial consequences of its failure to rectify defects at Mr McGrath’s property) was really restricted to legal argument. In the event, as I shall return to below, Nightscene’s defence did not even rest upon any cross-examination of Zurich’s expert in the field of structural engineering who attended the second day of trial to give evidence. Further, in circumstances where Nightscene did not join in the giving of instructions to the contemplated single joint expert, there is not even a report of Mr Klein who, by an earlier Order dated 20 January 2017, was to be appointed as the single joint expert on quantity surveying issues.
8. Nightscene’s heavy reliance on the legal arguments summarised above was such that very shortly before trial, on 14 November 2017, it applied for summary judgment against Zurich seeking a dismissal of the claim on the basis that “there is no Deed of Guarantee” and “any contractual liability must be statute barred”. On any view, this application can only be described as being very late, issued less than a week before the start of the trial and almost 5 months since the Re-Amended Defence took the points relied upon in support of the application.
9. The summary judgment application, issued as I say very late in the day, was said by Nightscene to avoid the need for a full trial (and potentially complex and contested issues of quantum) and I was therefore urged by Nightscene to hear the application as a discrete matter at the beginning of the trial. However, I was not persuaded to do that in circumstances where the trial itself was listed for two days only and the time estimate for the summary judgment application was said to be 3 hours. Had I then realised that there would not even be any expert testimony of any length, I would have been even firmer in this view. In making this late application, Nightscene does not appear to have fully contemplated, if contemplated at all, the consequences for the trial, and the inevitable disruption and risk of it then not being completed within the 2 days, should I decide to hear the application but not to grant it. This is not a situation where a party, albeit very late in the day, a party identifies a potential shortcut to a decision on the claim – the exploration of which will not involve too much court time – which could obviate the need for many more days spent in court with the significant attendant cost. Rather, Nightscene was seeking to use up about one-quarter of the trial estimate on an application which, if it was to be made at all, should have been made a lot earlier. As I indicated to the parties at the outset of the trial, my chosen course was to deal with the limitation argument as part and parcel of all other submissions on the claim. As it happens, much more than 3 hours of argument was devoted to the substantive validity and limitation issues raised by the Guarantee, and relatively little time spent on the evidence.
The Background to the Claim under the Guarantee
10. In brief terms, the claim under the Guarantee arises in circumstances where Mr McGrath notified Zurich of his claim in relation to alleged defects at the Property by a claim form received by Zurich on 12 April 2007. As revealed by the terms of that claim form (and by the Official Copies from the Land Registry in respect of the Property passed to me at the trial) Mr McGrath had exchanged contracts for the purchase of the Property in May 2006. This claim was therefore made well within the two year warranty period provided for by Part 2 of the Policy.
11. Mr McGrath had specified 6 items in his claim form, including a warped front door and “unacceptably noisy creaking floorboards”. In relation to the latter he said that “attempts to rectify not worked”. This appears to be a reference to an earlier attempt by BPDL to resolve the problem by screwing the squeaking floorboards to the joists which, by his letter to Mr Tracey of BPDL of 7 March 2007, Mr McGrath had said had not worked, and that they remained so noisy that they could wake his children at night.
12. When Zurich received the claim under the Policy in April 2007 it wrote to BPDL by a letter dated 14 April 2007 inviting their response and proposals for rectifying the problems within 4 weeks. The letter stated that the if there was no such written response then Zurich would proceed to investigate the claim on Mr McGrath’s behalf and, in the event of the investigations establishing the claim to be valid, that BPDL would have a further four week period for written proposals in relation to rectifying its subject matter. The letter stated: “In the event that we do not receive your written agreement to resolve the claim within a reasonable timescale, we will then take over the handling of the matter and seek reimbursement of our total outlay as per the terms of our Rules of Registration.” This was a reference to the Agreement and the provisions of clause 4.16. Clause 4.16 states:
“Where Zurich pays any sum relating to the Developer’s obligation or responsibilities under the Agreement or a [Policy] the Developer agrees that it shall reimburse Zurich with all of the reasonable associated costs Zurich incurs in doing so.”
13. On the same day Zurich wrote to Mr McGrath explaining the procedure which involved calling first upon BPDL to respond and stating that they, Zurich, would only take over BPDL’s responsibilities where BPDL had unjustifiably refused to do so. Zurich pointed out that they would not be responsible for cosmetic defects. In the event, the correspondence shows that BPDL did not respond and on 4 June 2007 Zurich appointed Cunningham Lindsey, lost adjusters, to visit the Property and report. Zurich told Mr McGrath they were doing this and repeated that there was no cover for four of the six reported items.
14. On 9 July 2007 Zurich wrote to Mr McGrath in the light of the inspection carried out by Cunningham Lindsey and advised him that the other two matters – the binding front door and the creaking floorboards – were not “defects” within the meaning of the Policy. However, the letter went on to remind Mr McGrath of his right under the Policy to fund the cost of a professional report to “verify the claim where it relates to the performance of central heating, sounds insulation, creaking floors.” Under the terms of Part 7 of the Policy, the cost of this report would be at Mr McGrath’s expense subject to reimbursement by Zurich in the event the claim was accepted by them. As things turned out, Mr McGrath’s claim was accepted and in January 2008 he was reimbursed the cost of the Report prepared by Mr Moore of the David Gould Partnership of chartered surveyors, net of the excess under the Policy.
15. In his Report dated 22 August 2007 Mr Moore had concluded that the floorboards had “not been properly laid brick pattern and neither have they been properly secured let alone glued.” This related to the floorboards on the landing and in the rear bedroom in “the main part of the Property” and the “wing bedroom”.
16. By 8 April 2008 the loss adjusters, Cunningham Lindsey, had prepared the specification for “renewal of the first floor decking to the rear of the house” which was being sent to tender, which they anticipated would result in tender returns in the region of £11,000 plus VAT. In fact, all four resulting tenderers came in with high figures than anticipated, but the lowest was one from Ashdown Building Services (“ABS”) which was accepted in the sum of £16,785 (excluding VAT). However, ABS had not long been on site too long (a letter from Mr McGrath dated 22 October 2008 suggests they started in around September 2008) before Cunningham Lindsey reported to Zurich, by their Interim Report No. 1 dated 9 October 2008 and which appears to have followed discussions and agreement between them, that:
“Works now on site but on hold; pending discovery of problems with floor joists to second floor. Once floor deck removed, joists discovered to be a little overspanned and creaking badly. As agreed, there is no point in laying new deck onto existing joists as it will still creak, thus of no benefit to H/O (i.e. homeowner). Recommend replacing joists with new trussed joists to improve load bearing and noise, also renew ceiling below.”
17. That Interim Report went on to refer to the need for scaffolding, the increase in the contractor’s costs budget which was to be firmed up shortly and that the works would require temporary relocation of the homeowner to alternative accommodation. It suggested an increase in the reserve to £89,507 to cater for these developments.
18. On 22 August 2008 a revised tender from ABS in the sum of £38,676 (excl VAT) was accepted by Cunningham Lindsey. By Cunningham Lindsey’s Interim Report No. 3 dated 2 February 2009 they were able to report that Mr McGrath and his family had secured alternative accommodation (they asked Zurich to make a payment for his removal costs) and that “works to recommence on 9 February 2009”.
19. By their Final Report dated 19 August 2009, Cunningham Lindsey were able to report that the works had been completed to the satisfaction of Mr McGrath. ABS having been paid £17,500 by way of an interim payment on 11 June 2009, the Final Report recommended payment of ABS’s invoice dated 17 August 2008 for the balance of the agreed amount (£22,889.91). That sum was paid on 28 August 2008. The Final Report confirmed an adjusted final loss of £54,065 (of which £40,139 represented the cost of the contract works). The sum also included Cunningham Lindsey’s own further fees of £5,333, the cost of alternative accommodation (£4,850) and the cost or removing and storing Mr McGrath’s contents (£3,542). When, in February 2009, Mr McGrath later sought to claim for the cost of new carpets that suggestion was rejected by Cunningham Lindsey on “betterment” reasoning.
20. On 28 September 2009 Zurich wrote to BPDL notifying the developer that its outlay had been £54,654.51 and attaching documentation (no longer available as an attachment) substantiating the amount. Zurich’s letter of that date does not contain the language of a demand for payment, but it must have been written for, or in the context of a claim for reimbursement by BPDL. Otherwise there would have been no purpose in Zurich writing it.
21. I turn now to the effect, if any, of the Guarantee.
22. It is common ground between the parties that the version of the Guarantee in the trial bundle, which is a copy of the document disclosed by Zurich does not bear Nightscene’s seal. That said, Zurich submits that, in the absence of any witness evidence or disclosure on the part of Nightscene, it cannot be known whether a perfected document might have been retained by Nightscene. It may also be observed that, between 11 April 2016 (the date of its Defence) and 26 June 2017 (the date of its Re-Amended Defence) Nightscene was prepared to admit paragraph 10 of the Particulars of Claim which alleged that it had “entered into a Deed of Guarantee”. The positive averments that the document does not bear Nightscene’s seal and was not counter-signed by the Company Secretary were first made in the Re-Amended Defence dated 26 June 2017 (the Amended Defence dated 3 October 2016 having continued the admission of paragraph 10).
23. In my judgment, it is unrealistic to speculate (let alone make a finding on the balance of probabilities) that the Guarantee in the form it was returned to Zurich was not the document that had been purportedly executed, with the degree of formality that (however mistaken the view) was considered at the time to be appropriate. It is in my view unlikely that there was a “better version”, fully complying with the requisite formalities of a deed made by a company, which Nightscene executed but which has not been disclosed. In fairness to Mr Maciolek for Zurich, he did not press this point which had been made in his Skeleton Argument. His point in oral submissions was that the representation by Nightscene that its seal “was hereunto affixed” in the director’s presence was one which went to the reasonableness of Zurich’s reliance on the representation that the Guarantee had been properly executed, rather than one leading to a suggested finding of fact that there actually existed or exists a properly executed version.
24. As to what the formalities were when the Guarantee was signed on 6 December 2004, these were then set out in section 36A of the Companies Act 1985 (inserted by section 130(2) of the Companies Act 1989). That section provided that a document could be “executed” by a company in one of two ways: (1) by the affixing of its common seal; or (2) (whether or not it had a common seal) by it being expressed to be executed by the company and signed by a director and the secretary of the company or by two directors. The latter method was expressed to have the same effect as if executed under the company’s common seal. Only if the document was “executed” in either way and it was made clear on its face that it was intended to be a deed would the presumption that it also had been “delivered” as a deed arise. As I ventured to suggest to Mr Maciolek during the course of his opening submissions, the alternative ways of executing a corporate deed are presumably directed to ensuring that any individuals behind the making of it do indeed have the requisite authority to act on the company’s behalf, which is established either by possession of the company seal or by each acting in the presence of another officer of the company.
25. The copy of the Guarantee in the trial bundle indicates that the purported execution of the Guarantee fell short of those statutory requirements. The document does not bear a company seal and it was signed only by a single director.
26. Mr Maciolek submits that these shortcomings can be made good in Zurich’s favour by a finding that Nightscene is estopped from denying that it validly executed the Guarantee as a deed. He relies upon an estoppel by representation, the relevant false representation within the Guarantee (upon which Nightscene knew it was likely Zurich would rely as he submits it in fact did) being that the document states that Nightscene’s seal “was hereunto affixed in the presence of” the sole signatory.
27. Mr Maciolek relies upon Shah v Shah  EWCA Civ 527 (where an estoppel by representation was held to cure, in effect, want of proper execution in a deed made by individuals and also having the elementary characteristic of a guarantee) and Briggs v Gleeds  EWHC 1178 (Ch) (where the estoppel argument was rejected in the context of defective deeds purportedly made on by or on behalf of partnerships). He submits that these authorities show that an estoppel by representation can operate in the context of a formally defective deed. I accept that submission, at least where holding the maker to the representation would not subvert some public policy by “outflanking” (as it was put in Shah) any particular statutory provision which might make it obvious that only a properly executed deed will serve to implement or effect the transaction or act for which it legislates. And, in my judgment and consistent with the Court of Appeal’s decision in Shah with regard to the provisions of section 1 of the Law of Property Act (Miscellaneous Provisions) Act 1989 applicable to the execution of deeds by individuals, I am prepared to accept that in principle an estoppel might operate to overcome any shortcomings in a company’s compliance with the requirements of section 36A of the Companies Act 1985 (or, now, section 44 of the Companies Act 2006). If anything, the language of section 36A - stipulating how a company document is executed by sealing or duly compliant signing having the same effect, and providing a presumption of its delivery as a deed where it claims to be such – is less prohibitive (of such an estoppel) than section 1 of the 1989 Act which announces that “an instrument shall not be a deed” unless it is compliant with the formalities thereafter prescribed. Unsurprisingly given their potential coverage across a whole range of commercial or property transactions, neither statutory provision purports to legislate further as to the means, and only means, by which any particular underlying transaction, to which the intended deed relates, can be effected. In this case, the underlying transaction is a promise of guarantee. Provided the guarantee is evidenced in writing (duly signed) so as to comply with the Statute of Frauds 1677, in principle I see no difficulty in an estoppel operating to prevent the party giving it from “downgrading” it from its intended status as a deed.
28. In my judgment, however, these authorities relied upon by Zurich do not assist it in its case that Nightscene is estopped from denying the document is a deed. The first point to make against that conclusion is that it seems to me that there is a high degree of artificiality, rubbing up against the point of absurdity, in the suggestion that Zurich can be said to have reasonably relied upon an assumed state of affairs (namely that Nightscene’s seal had been “hereunto affixed in the presence of a signatory”) when the document before the court shows otherwise. It is to be assumed, in my judgment resting applying the balance of probabilities, that no more complete (and fully executed) document actually exists. This point leads to consideration of when a party raising an estoppel by representation can be said to have acted to its detriment in relying on the relevant representation in the belief that it was true.
29. In the present case the relevant representation relied upon is that the document had been validly executed by Nightscene through the fixing of its seal upon the Guarantee when the absence of a seal, on what must be assumed to be the only signed version of the document, is as plain to see as the absence of a second signature. The passing of time is such that there is no available evidence from the Zurich representative who received the signed Guarantee back from Nightscene (even assuming the size of Zurich’s operation would have permitted that person to be identified) so that there is no available evidence as to what if any thought was given at the time – late 2004 or early 2005 – about the regularity or otherwise of the document’s execution. But had that person attended trial to say he or she believed it had been validly executed by reference to a company seal fixed upon it then the obvious question would be how that could have been so when the seal was missing.
30. In Shah, by contrast, the deed under consideration was one executed by two individuals in the presence of a person who signed as and appeared to have acted as a witness. On the face of the document, there was nothing obviously and fundamentally defective in the manner of its execution when it stated that it had been signed by the promisor defendants in the presence of that named witness (even though the witness’ name, address and occupation did not accompany a signature which was not itself sufficiently legible to identify the signatory). Indeed, it appears that it was only at trial that the judge found that “the signature of the attesting witness was added to the document shortly after it had been signed by the parties to the document but not in their presence”. The claimant’s answer to that particular finding of fact was that the defendants were estopped from denying its validity. But it is important to note that the estoppel operated only to prevent the makers from denying that they had signed in the witness’ presence, an actual state of affairs that might not have been apparent to the claimant until right up to the point that the judge made his finding and certainly not obvious to it when the document was provided to the claimant’s solicitor (who had prepared it but who was not present at its signing). I note in passing that the claimant’s counsel in Shah conceded that an estoppel could not have defeated the absence of a maker’s signature, as opposed to a defect in or absence of attestation, which raises for consideration the question of whether a company seal is to be treated as a “corporate signature”. Mr Maciolek made no similar concession but the provisions of section 36A(2) indicate to me that it is the equivalent: “a document is executed by a company by affixing its corporate seal” (which wording is to be contrasted with the two signatures under section 36A(4) that have the same effect as if the company had so executed it).
31. What is also important to my decision is the reasoning of Pill LJ (with whom the other members of the court agreed) as to why the makers of the deed were estopped from denying its validity. He said (with my emphasis):
“The delivery of the document constituted an unambiguous representation that it was a deed. [The claimant’s solicitor] acted reasonably in relying upon that representation, as in fact he did. The absence of the name and address of the witness, its presence not being a statutory requirement, and the character of the signature did not, in the circumstances render the reliance unreasonable and there was nothing else in the circumstances which did so.”
32. In the present case, by contrast, and quite apart from the absence of any evidence of actual reliance on the part of a Zurich representative, there were clearly circumstances which would have rendered any belief that the Guarantee had been validly executed as a deed to be an unreasonable one. It manifestly had not been executed in the way that Zurich’s form of guarantee and the statute expected. In the different context of a company deed, this was the “imperative” identified by Pill LJ (in that case the signature of the maker of the deed) from which the attestation by the witness was said to be at one stage removed and not “fundamental to the public interest, which is in the requirement for a signature”. Any suggested “representation” that the seal was affixed to the Guarantee on 6 December 2004 was one immediately confounded by the obvious absence of a seal on the version in Zurich’s possession (unless one indulges in the evidential fiction that it fell off or, as the case may be, became undetectable to the eye some time afterwards) and, as I have already observed, it is difficult to see how any representative of Zurich could have believed that which was plainly not so. In my judgment, which has to be based on inference as opposed to any evidence of reliance, it is far more likely that the Zurich representative receiving it back either did not notice the document’s want of formality or, possibly having some familiarity with the Statute of Frauds, thought it would do as a simple contract in any event.
33. I am reinforced in my decision that the requisite representation, belief and detrimental reliance which are necessary to support an estoppel by representation are each lacking in this case by the decision of Newey J (as he then was) in Briggs v Gleeds. In that case the estoppel argument came to rest upon matters outwith the purported deeds themselves: in particular, the implied representation, made at the time the drafts were supplied to the partnerships, that executing them in a certain way would suffice. In his judgment, Newey J noted at () the relatively narrow basis upon the estoppel had been upheld in Shah – drawing the inference that Pill LJ would not have considered estoppel applicable if the makes had not even signed the “deed” – and, in rejecting the estoppel argument, concluded (at [43(iii)-(iv)]) that, by contrast, the “deeds” before him were not apparently valid as it could be seen that they were not executed in accordance with the 1989 Act. That reasoning applies to the want of compliance with section 36A, and I add to it (to the extent necessary and where no wider representation than that supported by the terms of the Guarantee is relied upon by Zurich) the conclusion that it would not have been reasonable for Zurich, in its corporate mind, to believe that something which plainly was not done had been done.
34. In my judgment, therefore, the Guarantee cannot be relied upon as a contract under seal.
35. For the sake of completeness, and as written and oral submissions were devoted to the points, I should add that – had I been receptive to the estoppel argument – I would have rejected Nightscene’s argument that Zurich is precluded from relying upon it because the estoppel argument constitutes a claim for “equitable relief” which is barred by laches and/or Zurich’s “unclean hands” (the latter said to be based upon Zurich’s inability to disclose its Site Inspection Notes relating to the construction of the Property – which appear no longer to exist – and therefore, as I suggested to Mr McGuinness, “a soiling intra-proceedings”). I would have found it difficult to grasp the concept of laches in circumstances where Nightscene did not put in issue the Guarantee’s validity as a deed until late June 2017. Likewise, the concept of unclean hands seems a difficult one in these circumstances where it is not suggested that Zurich has failed to comply with any procedural rules in relation to disclosure and, as Mr Maciolek points out, no application for specific disclosure was made against Zurich. I can see that some forms of conduct after issue and before judgment (delay being the subject matter a distinct equitable maxim) might operate to undo an initially worthy claim for equitable relief, particularly if the relief is proprietary in nature and the conduct in question has affected the value of the property in question. But one might have thought that the consequences of a claimant’s inability to produce otherwise relevant documents should be confined to the evidential aspects of the claim, and whether it can be made good on the evidence, rather than such as to disentitle the claimant from pursuing it at all. Indeed, in this case Mr McGuinness has relied upon the absence of the “ZSIN’s” in submitting that Zurich’s case that the Property was defectively built by BPDL is not proven, because it may be inferred that the contemporaneous ZSIN’s would have given it a clean bill of health.
36. However, the short answer to this conjecture about the impact of equitable maxims is that they have no place in this litigation. Zurich’s claim would not have become something other than a contractual claim for a debt due under the Guarantee simply because of a finding (and one actually to be made in the context of Nightscene’s Defence) that Nightscene was precluded from relying upon the provisions of section 36A. As with the other forms of reliance-based estoppels of estoppel by convention and proprietary estoppel, the second of which does give rise to a cause of action where the grant of relief is in the discretion of the court, an estoppel by representation of fact or (per Newey J in Briggs v Gleeds) of law really rests upon the looking at the conduct of the party whose allegedly unfair change of position prompts the estoppel to be pleaded. In this case, and hypothetically for the purposes of illustration, Nightscene’s line of defence under section 36A having been met by the estoppel, the claim would have been as it has always been. This is a very clear illustration of the point that an estoppel by representation operates as a rule of evidence rather than a cause of action (let alone one that would be a creature of equity only) and that the proper place for its expression in this case was in the Amended Reply.
37. As I have already explained, the Guarantee’s failure as a deed is not the end of the parties’ rival submissions upon its effectiveness for the purposes of sustaining this Claim. Zurich contends that this absence of formality can be overcome through reliance upon it constituting a simple contract (carrying with it a 6 year limitation period as opposed to 12 years). This alternative contention was introduced by Zurich in its Amended Reply dated 3 July 2017 when Nightscene’s point about the document lacking any legal effect was taken the previous month.
38. I have mentioned above that Nightscene’s primary position in relation to its formal invalidity as a deed is that the Guarantee cannot have any effect, not even as a simple contract. However, Mr McGuinness did not press this point too hard in his oral submission and in my view he was right not to do so. The Guarantee itself begins by reciting that it was made in consideration of admitting BPDL to its insurance scheme. It is true that the same recital refers to the Agreement, which had already been entered into by the date of the Guarantee and might therefore be said to be inadequate past consideration, but it is clear from the facts of this case alone that BPDL continued to remain a member of the scheme (and that Zurich issued policies to homeowners to which liability under the Guarantee might attach) well after the date of the Guarantee. Consideration of the kind expressly anticipated by the terms of the Guarantee was therefore given.
39. In the context of the argument over estoppel by representation, and whether or not Zurich can be said to have relied upon a representation by Nightscene as to the Guarantee’s status as a deed, Mr McGuinness’ submitted that, quite apart from the absence of any evidence as to reliance upon the suggested representation, it was also clear that Zurich had relied upon upon the £9,000 which had been posted by BPDL (by a payment in escrow) upon joining the Zurich insurance scheme. I mention that point here because Mr McGuinness’ submission also appeared at one point to translate also into a submission that the Guarantee was not supported by any consideration of the kind necessary to support a simple contract (he did rely upon the £9,000 in submitting that Zurich had not proved – for the purposes of its case on quantum – that any defective works carried out by BPDL had caused Zurich to face financial exposure in excess of that sum). To the extent that it did so translate, there is nothing in the point. It is clear from the contemporaneous documentation in late November 2004 that Zurich stipulated both for the escrow deposit and the Guarantee in its terms for BPDL registering for the scheme. Those were the terms stipulated as the price for it agreeing to issue future policies (plural) and not just a single policy of the kind that came to be issued in respect of the Property (and, in relation to that Policy, it is a matter for my determination of the issues of liability and quantum as to whether or not the Guarantee served its intended purpose of providing security additional to the deposit).
40. It follows that I dismiss Nightscene’s application for summary judgment so far as it rests upon the absence of any binding contract of guarantee.
41. There otherwise being no real challenge to analysis of the Guarantee as a simple contract, the greater focus of Mr McGuinness’ oral submissions, allied to those he had made on the assumption that the estoppel argument constituted a claim for equitable relief, was instead based upon the contention that any alternative claim based upon the Guarantee as a simple contract was one that had not been pleaded in time and was now time barred. These submissions were predicated upon that claim being one for “breach of contract”. In my judgment the submissions are flawed. Allowing for the fact that the Guarantee is identified by both the Claim Form and (now Amended) Particulars of Claim as a “Deed of Guarantee” (that is to say, correctly by reference to the description the document bears) – the latter thereafter referring to it as “the Guarantee” – the alternative claim, and prayer for relief, is identical for the claim upon the document as if it is a simple contract as it is on the footing that it is a valid deed. As I suggested to Mr McGuiness in the course of argument, if the Particulars of Claim were to be amended to cover the simple contract analysis then it seemed to me that it would only be to add some parenthetical explanation that – despite the document’s own description – Zurich will, in the alternative, rely upon it as a simple contract. But the nature of the claim or the claim to a debt due under the Guarantee – which on either analysis is a guarantee in writing so as to satisfy the Statute of Frauds - would not have altered and there would be no “new” cause of action. The difference between the document as a deed and the document as a simple contract is not one that goes to the nature of the cause of action which it sustains but instead the length of time within which Zurich is able to pursue it.
42. Whether or not the existing claim based upon the Guarantee as a simple contract is one that was time-barred by the time it was received by the court for issuing (see below) is the question I address next. I consider the particular obligations assumed by Nightscene (under the simple contract as I have found it to be) in the context of that issue.
43. A good place to start when analysing the date from which the applicable limitation period runs in a claim for damages for breach of contract (whether it is oral, written and, if written, one made as a deed) is to look at the nature of the promise which is said to be unfulfilled and to have resulted in a claim.
44. In the present case the relevant contract between the parties to the Claim is the Guarantee. It is a claim made in circumstances where Zurich has not called upon Nightscene to perform BPDL’s obligation to remedy defects at the property but instead (because Zurich stepped in to remedy them in accordance with clause 4.2.1 of the Policy) is a claim for money representing the cost of the remedial works. Allowing for recognition of the principal obligor provision in the Guarantee mentioned above, the primary obligation to reimburse Zurich the cost of remedial works as that of BPDL as a result of the combined effect of clause 2.2 of the Policy and clause 4.16 of the Warranty. It is the provisions of clause 1 of the Guarantee which contain the contractual obligation of Nightscene to pay Zurich if BPDL has not done so.
45. A significant part of counsel’s respective submissions was devoted to an analysis of the operative provisions of the Guarantee, in the context of the limitation issue, and I therefore set out the provisions of clause 1 in full. They are as follows (with Zurich as “the Company” and Nightscene as “the Guarantor”):
“1.1 In consideration of the Company admitting [BPDL] and such other firms and/or companies as may from time to time be agreed between the Guarantor and the Company in writing (hereinafter collectively called “the Developer”) to THE COMPANY’S NEW HOMES GUARANTEE SCHEME(S) (“the Scheme”) and in accordance with the Agreement between the Company and the Developer (as from time to time amended, extended or reissued) (“the Agreement”) the Guarantor hereby:–
(a) irrevocably and unconditionally guarantees to the Company:-
(i) the full and due performance and observance by the Developer of all its obligations under or arising pursuant to the Scheme and/or the Agreement; and
(ii) the due payment and discharge of all sums of money and liabilities which now are or at any time shall be due, owing or incurred, or payable an unpaid by the Developer to the Company pursuant to the Scheme and/or the Agreement; and
(iii) the due payment and discharge of all losses, damages, expenses and costs arising from the Company exercising its rights against the Developer pursuant to the Scheme or/and the Agreement
(b) irrevocably and unconditionally undertakes to the Company that if [BPDL] fails to fully and completely:-
(i) perform and observe its said obligations; or
(ii) pay and satisfy the said sums of money and/or liabilities; or
(iii) pay and discharge the said losses, damages, expenses and costs
the Guarantor will indemnify and keep indemnified the Company from and against and forthwith on demand pay to the Company all losses, damages, expenses and costs which the Company may suffer, incur or pay as a direct or indirect result of such failure on the part of the Developer.’
1.2 It is hereby agreed and declared that the liability of the Guarantor hereunder shall be as principal obligor and not merely as surety.
1.3 The Guarantor agrees that all sums which may not be recoverable from the Developer by reason of any legal limitation, disability or incapacity on or of the Developer or of any other circumstances whether known to the Company or not shall nevertheless be recoverable from the Guarantor as sole or principal debtor on demand.”
46. The first part of clause 1.1 not expressed in terms of obligations to be complied with by Nightscene “on demand”, though that expression does appear in relation to sub-clause 1.1(b) and 1.3 (I should note here that the formatting in the document itself is not quite the same as above but it seems from the language used that the first “on demand” belongs only to the “will indemnify” obligation in sub-clause 1.1(b) rather than also applying to the unconditional guarantee of payment/performance obligation in sub-clause 1.1(a).).
47. The present Claim against Nightscene was issued on 13 June 2015. However, for limitation purposes, CPR PD7A para. 5.1 provides that (in a case such as the present) the earlier date of its receipt by the court for issue is the relevant one. Allowing for some uncertainty on the point, this date has been taken to be Friday 5 June 2015. For the claim to be statute barred, applying the 6 year limitation period prescribed for simple contracts by section 5 of the Limitation Act 1980, the court would therefore have to conclude that Nightscene was obliged to pay under clause 1.1 of the Guarantee some time before 6 June 2009: that is before BPDL had itself been called upon to pay by the letter dated 28 September 2009. To the extent there might be some doubt as to whether that letter constituted the first demand made upon BPDL by Nightscene - it is possible to read it as if Zurich have previously notified BPDL of the amount of it and the letter and its enclosures (no longer available) were sent to “substantiate” that amount – any preceding demand cannot have been made that much earlier than 28 September 2009 and certainly not before 6 June 2009. That is because the largest item within the amount of £54,654 was the sum paid to the contractor who carried out the remedial work to Mr McGrath’s home, Ashdown Building Services (“ABS”). Having submitted an invoice for an interim payment of £17,250 (inc VAT) on 8 June 2009 and been paid that on or about 11 June – both dates after 6 June 2009 – Ashdown did not submit their invoice for the balance of the agreed final account sum until 17 August 2009. ABS were paid that sum (£22,889.91 inc VAT) on 28 August 2009. Likewise, the major element of the fees of Cunningham Lindsey, the loss adjusters, was not invoiced until 24 August 2009.
48. Mr Maciolek has also drawn my attention to documents produced by Cunningham Lindsey which show that, as at 5 June 2009, the remedial works had not been completed and that it was only in a later report dated 13 August 2009 that they were able to report that the works had been completed and that ABS were awaiting settlement of their final account.
49. Against Zurich’s reliance upon the documents showing that the remedial works were ongoing in June 2009 and the cost of and related to them not quantified until a couple of months later, Mr McGuinness has submitted that the “primary obligor” obligation in clause 1.2 of the Guarantee is (or, rather, was) such that Nightscene’s liability under it arose much earlier, so that this claim of June 2015 was outside the 6 year limitation period prescribed for a simple contract claim by section 5 of the Limitation Act 1980. His submission was that the primary obligor language meant that this contract was “miles away” from having the true characteristics of a guarantee. Mr McGuinness pointed out that a prior demand upon Nightscene was not required under the first limb of clause 1.1 which, he submitted, was a clear indication that Nightscene’s liability arose at the same as any liability of BPDL (under the Policy and Agreement) and was co-extensive with BPDL’s liability (if any). As to when the liability of Nightscene arose, Mr McGuinness submits that this arose in 2007. The first date he identifies in that year is 12 April 2007 when Mr McGrath made his claim under the Policy but he submits the better date, he suggests, is 24 December 2007 when Zurich accepted it as a valid claim. On that basis, the Claim against his client should have been commenced by 23 December 2013. He points out that Zurich’s own Schedule of Loss claims interest from 12 April 2007.
50. Mr McGuinness sought to bolster the point that his client’s liability must have arisen much earlier than Zurich contends by illustrating that a “maximal construction” of the Guarantee in favour of Zurich might see Nightscene exposed to a claim in respect of the Property until the year 2021 (if Zurich had 6 years in which to sue BPDL and then another 6 years to claim under the Guarantee). Indeed, on the assumption that the Guarantee might be treated as a deed, he said the maximum period for a claim under it might extend to 2027. However, in my judgment, these potential limitation consequences of the contracts being construed in a particular way do not assist me in the absence of any ambiguity in the language of the Guarantee. It is clear that Zurich was indeed aiming for a Guarantee under seal which would carry with it a 12 year limitation period, no matter how commercially unwise it might have been to extend to its respective contractual covenantors (BPDL and Nightscene) the full lengths of the applicable limitation periods under their respective contracts.
51. When looking at the accrual of the liability of Nightscene to pay under the Guarantee sums which ought to have been paid by BPDL, the nature of BPDL’s obligations under the Agreement cannot be ignored. BPDL is the “Developer” whose undischarged obligations are key to the operation of clause 1 of the Guarantee. The facts of this case (as summarised in paragraphs 10 to 20 above) show that, having accepted Mr McGrath’s claim as a valid one on certain aspects, Zurich did not for too long seek to hold BPDL to its continuing obligation to remedy the relevant defects: compare clause 2.2(c) of the Policy (the developer’s warranty) and clause 4.14 of the Agreement. Instead, with the professional involvement of Cunningham Lindsey, Zurich set about recognising its own obligations as insurer under the Policy and exercising its rights under Part 7, clauses 4 and 5. Those provisions entitled Zurich, by its agents, to enter the Property for the purposes of carrying out remedial work and, at its sole option, to “pay the reasonable costs of appropriate remedial works or to make a cash settlement by way of cheque payable to the Buyer, or to arrange appropriate remedial works ourselves.” Having taken the last of those steps, Zurich’s right as against BPDL was to seek reimbursement under clause 4.16 of the Agreement.
52. The relevant paragraphs of the Amended Particulars of Claim for determining which limb of the Guarantee is relied upon and when the cause of action against Nightscene accordingly accrued are paragraphs 21 and 22. Paragraph 21 pleads the failure of BPDL to pay in accordance with the obligation that is most accurately identified by reference to clause 4.16 of the Agreement. This is said to have been a failure to pay having been presented with Zurich’s outlay in a letter dated 28 September 2009. So far as the present cause of action under the Guarantee is concerned, paragraph 22 refers back to paragraph 21 and alleges Nightscene’s failure to pay. Paragraph 22 does not identify any separate trigger date, nor refer to any demand of the kind that might have been made in accordance with clause 1.1.(b) of the Guarantee but, whatever, the precise date may have been, it cannot have been long before 28 September 2009 for the reasons I have identified above. Indeed, as Mr Maciolek submitted in his skeleton argument by reference to the decision of Fraser J in Larkfleet Ltd v Allison Homes Limited  BLR 172, at least in a case where the contractual obligor does not immediately refute (or repudiate) its obligation to pay, a reasonable period of time must be allowed for him to accept and act upon his contractual responsibility. This means that BPDL was probably not itself in breach until a reasonable period of time after 28 September 2009. As I observed during the course of argument, clause 4.17 of the Agreement (which applied generally and not only to a request for payment that may have been made under the immediately preceding clause 4.16) provided for BPDL to fully reply to properly addressed correspondence from Zurich within 28 days.
53. The material provisions of clause 1.1 for the present case provide for Nightscene’s irrevocable and unconditional guarantee to (i) pay Zurich “all sums of money and liabilities which now are or at any time shall be due, owing or incurred, or payable and unpaid by [BPDL]” (cl. 1.1(a(ii)); and (ii) in the event of a “failure” by BPDL to fully and completely honour its obligations so that Nightscene was liable to “indemnify and keep indemnified [Zurich] from and against and forthwith on demand pay to [Zurich] all losses, damages, expenses and costs which [Zurich] may suffer, incur or pay as a direct or indirect result of such failure on the part of [BPDL]” (cl. 1.1(b)). This is the language of a secondary obligation which is characteristic of a guarantee.
54. In my judgment, a situation where Nightscene can be called to pay under the Guarantee before BPDL has failed to pay is not one envisaged by clause 1.1 of the Guarantee which assumes, in each limb, that there are sums “payable and unpaid” by BPDL or a loss to Zurich arising as a result of “failure” to discharge its own liabilities. The authority of Morgan Grenfell Development Capital and ors v Arrows Autosports and ors  EWHC 1015 (Ch), , relied upon by Mr McGuinness, makes it clear that the issue is always one of construction and there will be some cases where “in point of construction [an indemnity] cannot be relied upon in proceedings against an indemnifier until the claim has been made, the liability has accrued or the expense incurred ….”. Whether or not Zurich might have called upon Nightscene (whose obligations are deemed also to be those of primary obligor) to perform BPDL’s remedial obligations before 6 June 2009 is not to the point. The point is that Zurich’s money claim against Nightscene did not, in my judgment, arise until a date which was approximately 5 years and 8 months before the issue of the Claim (28 September 2009) and perhaps a little later.
55. In my judgment, this conclusion is not subverted by Nightscene’s reliance upon the “principal obligor” provision in clause 1.2 (and also clause 1.3 of the Guarantee). My reasons are as follows:
a. Nightscene’s heavy reliance upon the principal obligor provision in clause 1.2 involves a mis-reading of it. The sub-clause does not say “as principal obligor and not as surety” – thereby raising questions as to why it should have been described as a Guarantee and raising tension with the preceding sub-clause – but, instead, that Nightscene’s obligations would not “merely” be those of a surety. The provision does not create ambiguity within the document in circumstance where most of clause 1.1 encapsulates the obligation of a surety but it also contains one element (the full and due performance obligation under cl. 1.1(a)(i)) which does not rest upon the notion of a failure by BPDL to comply with its own obligations and upon which the primary obligor liability might sensibly bite;
b. even on a proper reading of clause 1.2, Nightscene attributes too much to it. As appears from clause 1.3, a “primary obligor” provision serves certain purposes of the creditor without the consequence being that the contract loses its status as a guarantee. The most obvious are avoiding (i) the need for a prior demand upon the party who, without the provision, would only be liable secondarily (I have already noted that clause 1.1(a) is free of the language of demand); (ii) a release of the surety by subsequent agreement with or indulgence extended to the principal debtor; and (iii) as appears from clause 1.3, any other impact of the rule that the liability of a surety (only) is co-extensive with that of the principal debtor. Again in my judgment, the purposes to be served by clause 1.2 most directly relate to sub-clause 1.1(a) which clearly uses the language of “guarantee”, as opposed to the “indemnity” provision of sub-clause 1.1(b) which, although it expressly introduces the concept of a demand for any claim for losses, damages etc. (as opposed to debts), is not susceptible to this reasoning. But the fact that clause 1.2 appears alongside clause 1.1(a) does not mean that the contract is not a guarantee at all. On the contrary, as Sir William Blackburne observed in Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd  EWHC 2443 (Ch), , the inclusion of such a provision will usually indicate that the contract is one of guarantee because it would be unnecessary if it was purely one of indemnity. I note that it is Nightscene’s argument which makes a nonsense of the true construction of the Guarantee because the logic of it suggests to me that the reference in clause 1.2 to “the liability of the Guarantor hereunder” requires the whole of sub-clause 1.1(a) to be ignored as if it has no effect at all in creating the liability of a surety; and
c. as Sir William Blackburne pointed out in Vossloh, whether or not the contract is one of suretyship or indemnity “or a combination of the two” turns on its true construction. In my judgment, the terms quoted in paragraph 45 above reveal that the Guarantee is a combination of the two, though the weighting is heavily in favour of the Nightscene as surety (subject to clause 1.2 and the purposes to be served by it, as outlined above). If a combination is permitted, and there is no reason why it should not be in the absence of any conflict between particular provisions, then it is important to look at the particular provision(s) which support the Claim. The Particulars of Claim are not specific as to which limb of the Guarantee is relied upon by Zurich but in my judgment the claim to recover the debt which was due from BPDL under clause 4.16 of the Agreement but remain unpaid is one that can be made under clause 1(a)(ii) of the Guarantee (and probably 1(b)(ii) also, even if there was no prior demand upon Nightscene). It is clear from the decision of Neill J in Telfair Shipping Corporation v Inersea Carriers SA  1 WLR 553, 556, - a decision upon which both parties relied - that there may be obligations of indemnity where time does not begin to run against the creditor until the liability of another has first been established and ascertained. That is the position here. Nightscene’s argument ignores the true nature of this money claim and (by reference to other “performance guarantee” aspects of clause 1.1) confuses the question of when another type of claim might have been brought with that of the date by which this claim had to be brought.
56. For all these reasons, I reject Nightscene’s defence that the Claim is barred by the provisions of section 5 of the Limitation Act 1980. It follows that I also dismiss Nightscene’s application for summary judgment on its additional, alternative ground that the claim is statute barred.
57. When compared with the extent of the argument over the meaning and legal effect of the Guarantee, the parties’ submissions on liability (and quantum too) were relatively confined.
58. Indeed, there was little testimony on the point and such testimony as there was at the trial was only in response to a few questions from me. No witness statement (and no witness of fact) was relied upon by either party. Although the court’s Order of 27 September 2017 had envisaged that there would be expert evidence from a quantity surveyor acting as a single joint expert, in the event no joint instructions were given.
59. Zurich did, however, take advantage of the permission given by that Order, and an earlier one dated 22 September 2016, to adduce expert structural engineering evidence. It relied upon the Report of Mr Michael Scott MRICS who attended court with a view to giving evidence on the second day of the trial. At the end of the first day, Mr McGuinness had indicated that his cross-examination of Mr Scott would be quite extensive but by the start of the second Nightscene had decided not to cross-examine him at all. This was because, as Mr McGuinness informed me, Nightscene’s position was that Mr Scott’s report was to be read as a case of “not proven” in relation to BPDL’s construction of the Property with defective floor joists. Mr Scott’s Report dated 13 February 2017 already being in evidence, the only scope for questions was, therefore, for any I might have. In the event I decided to ask Mr Scott a few questions. These related to those parts of his Report which were to the effect that there was insufficient evidence of defective joists (paragraphs 7.11 and 8.2 of it being the clearest statements) and involved me directing his attention to, and asking him a few questions about, two documents emanating from ABS and which appeared to be linked to (but I was told were not part of) Cunningham Lindsey’s Interim Report No. 1 which I have mentioned in paragraph 16 above. The two documents do not speak for themselves but they look like estimates, in the sums of £1308 and £8753 respectively, for additional works to be undertaken by ABS – including in respect of joists – and (as it happens) are just about in line with what that Interim Report referred to (in concluding the passage partly quoted in paragraph 16 above) as “Contractor’s budget cost increase of £10K + VAT to be firmed up and agreed shortly.”
60. I asked Mr Scott about those two documents. He clarified that they did appear to contemplate work to joists with their reference to timber noggins, galvanised struts and joist hangers – one further item of “Remove joists/dispose” in the relevant sum of £540 made this obvious – but, when I asked him whether having sight of these documents caused him to revise his view that there was insufficient evidence for anything other than an inconclusive opinion in relation to defective floor joists, he said they did not.
61. That, and Mr Scott’s Report, was therefore the extent of the non-documentary evidence in relation to liability.
62. For the purposes of establishing that BPDL had come under an obligation to reimburse Zurich under clause 4.16 of the Agreement (the failure to comply with which would lead to relevant default for the purposes of a claim against Nightscene under clause 1(a)(ii) and/or 1(b)(ii) of the Guarantee) it is necessary for Zurich to establish that BPDL had failed in its obligation under clauses 4.14 and 4.15 to honour the terms of the Policy and to “correct any Defect within the time notified to [BPDL] in writing by Zurich”.
63. The Agreement contains a truncated definition of “Defect” when compared with that in the Policy, the latter containing the following material definitions:
‘Damage: Physical damage in the New Home caused by a Defect’
‘Defect: A failure to comply with the Requirements in respect of the New Home where Damage has occurred, or relates specifically to the transmission of airborne and/or impact sound due to a failure to comply with the appropriate Building Regulations’
‘Requirements. The Requirements contained within the current technical manual issued by us and in force at the time when the appropriate ‘notice to build’ in respect of the New Home was deposited with the Local Authority for the purposes of the Building Regulations. For the avoidance of doubt, Requirements is not to be taken to include Planning Authority conditions’
64. Mr Maciolek also drew my attention to Part 7 of the Policy which (in the section addressing the insured’s obligations in relation to notifying any claim) included the obligation to provide Zurich, at the insured’s expense, any professional report “to verify the claim where it relates to the performance of central heating, sound insulation, squeaking floors.”
65. I have to be satisfied on the balance of probabilities that Zurich’s financial outlay, incurred in the circumstances summarised in paragraphs 12 to 20 above and which it now seeks to recover under the Guarantee emanates from a failure by BPDL to comply with the “Requirements” as defined. There is a degree of uncertainty caused by the ungrammatical definition of “Defect” and, arguably, also a degree of circularity between that definition and the definition of “Damage”. However, in circumstances where “impact sound” attributable to a failure to comply with Zurich’s Technical Manual is identified as an alternative to any physical damage (and I also note that kind of “Damage” is to be distinguished from four identifies types of “Major Damage”), in my judgment the question comes to down to whether or not BPDL installed floorboards (or “decking” as Mr Scott describes this aspect) and/or joists using a method of construction which (a) did not comply with the Technical Manual and (b) produced excessive noise when walked upon.
66. Mr Maciolek submitted that this established on the balance of probabilities both in relation to the floorboards and the joists. In relation to the latter, he contended, correctly as a matter of principle, that the court is not necessarily constrained by the inconclusive opinion of Mr Scott and that there is sufficient contemporaneous documentary evidence to establish that the floorboards were defective. Mr McGuinness, on the other hand, submitted that there is no satisfactory evidence to show that it was necessary to remove or remedy the original joists and that Zurich should live with the consequences of what Mr Scott described as the missed opportunities to record the “as-built” floor construction while the remedial works were being undertaken. In response to Zurich’s point that, as an insurer, it was not in their interests to expend more than was necessary on remedial works (and that there are illustrations in this case of them resisting Mr McGrath’s claim on certain aspects) Mr McGuinness submits that an “absence of motive” argument is simply not good enough to establish liability on the part of his client as guarantor.
67. In my judgment Zurich has established that BPDL was responsible for a “Defect” in the laying of the upstairs floorboards. This is clear from the terms of Mr Moore’s Report (which persuaded Zurich to accept the Mr McGrath’s claim) and from the analysis by Mr Scott (who was not cross-examined on this or any other matter) of Mr Moore’s findings when viewed against the then relevant Zurich Technical Manual. As begins to appear from the definition of “Requirements”, the Technical Manual imposed a requirement that the Property should comply with the relevant Building Regulations. The installation of the floorboards/decking was defective in that the two reports show that that the gaps between the fixing of the chipboard decking into the joists below ranged from anything between 300mm to 400mm and 600mm to 750mm apart. For the relevant type of boarding, the Technical Requirements required the chipboard to be screwed or nailed “at 200mm to 300mm (or closer) centres along the edges and elsewhere along the joists”. As the floorboards were tongue and grooved, where glueing was recommended “to reduce squeaking” and (as it appears from a reference to “floor insulation to FF” in a Contract Cost Report dated 19 August 2009) was “essential” if the boarding was “over insulation as a floating floor”, the absence of glue noted by Mr Moore was a further failure on the part of BPDL. That said, the fact that they were not laid “brick pattern” (i.e. staggered), a further criticism made by Mr Moore, did not in and of itself infringe any requirement of the Technical Manual, as Mr Scott noted to his own surprise.
68. It is because the laying of the floorboards had been defective that Cunningham Lindsey’s Schedule of Works, prepared for the purpose of inviting the initial tenders, described the job as including “renewal of the first floor decking and later reinstatement of all.” Zurich is entitled to judgment against Nightscene, under the Guarantee, in respect of BPDL’s failure to meet its obligations to remedy its defective work.
69. As to whether the joists were also installed in such a way as to constitute a “Defect”, this is less straightforward. So much is obvious from the fact that Mr Scott’s report (which he stood by in his brief testimony) expresses his opinion that there is “insufficient evidence” that they were.
70. To my mind, the evidence pointing towards the conclusion BPDL’s installation of the joists was found to be wanting is as follows:
a. the conclusion in Mr Moore’s Report that “there was no apparent fixing of noggins for the end joint supports”;
b. Mr McGrath’s letter to Zurich dated 22 October 2008 referring to his discussions with Mr Jones of Cunningham Lindsey and saying that “work began approximately 1 month ago in the second floor bedroom, but unfortunately has halted at the property as it has become apparent that the joists in the room need to be replaced” (and going on to say that alternative accommodation would be required as the Property would not be fit for habitation while the work was carried out);
c. the reference within Cunningham Lindsey’s Interim Report No. 1 to the joists being a “little overspanned” and, because it had been agreed that laying new deck over the existing joists would not eliminate the creaking, the recommendation of “replacement of joists with new trussed joists to improve load bearing and noise”;
d. the reference in the ABS estimates (mentioned in paragraph 59 above) to the removal of the joists, timber noggins and joist hangers and reinstatement through the fitting of new joists and joist hangers and the installation of galvanised herring bone struts (which Mr Scott explained was an alternative form of noggin, providing a lighter form of restraint); and
e. the terms of the Contract Costs Report dated 19 August 2009 containing “adds and omits” prepared by reference to the ABS revised tender sum of £38,676 plus VAT submitted one year earlier (and therefore before any work to, or in relation to the joists was contemplated). The combined effect of the additions and omissions from the earlier contract items was an adjusted contract sum in the lesser amount of £34,904 plus VAT, but the additions included labour which included “packing joist ends” (£200) and “extra works to first floor noggins and GF ceilings” (£1654). The second item made reference to earlier, dated quotes. I do not know whether those earlier quotes were one and the same as the documents to which I directed Mr Scott’s attention, and I cannot see any obvious correlation between the amount of £1654 and the figures in the earlier estimates (as I have described them) but it seems clear from the later document of August 2009 that some work to the joists was undertaken even if it was on a significantly lesser scale than that envisaged by those estimates. The VAT inclusive sum of £40,139.91, which appears in that document, was the sum for contract works approved for payment by Cunningham Lindsey’s Final Report.
71. These references in the contemporaneous documents indicate that the installation of the joists by BPDL was defective (in a non-technical sense), even though, in my judgment, there is no satisfactory evidence to support to the conclusion that the joists themselves had to be removed and replaced in the way that the earlier ABS estimates appear to have envisaged.
72. However, because his own opinion reflects the view that opportunities were missed to record the remedial work as it was undertaken, Mr Scott has not addressed the detail of what he describes as (and I have seen to be) the “extensive provisions of the [Technical] [M]annual” containing “Requirements” in relation to joists. I therefore do not have the benefit of any expert evidence as to how the remedial work indicated by the documents mentioned in paragraph 70(e) above (and perhaps emerging from a comparison of them) might signify a failure to comply with the Technical Manual. Equally important, in my judgment, is the fact that Zurich’s single allegation in relation to the joists (at paragraph 17 of the Amended Particulars of Claim and repeated at paragraph 14.5.1 of the Amended Reply) is that they were “overspanned”. This is not admitted by Nightscene (whose Re-Amended Defence makes the point that the allegation is not particularised and that Zurich has failed to identify the “Requirements” relied upon). There is no reliable evidence of such “overspanning” for the purposes of a claim under the Guarantee. In these circumstances, Zurich has in my judgment failed to establish the basis of its claim against BPDL (or, therefore, Nightscene) in relation to any costs incurred in repairing the floor joists.
73. In the light of my conclusions on liability, I can deal with the issue of quantum very shortly.
74. Zurich’s claim is quantified in a Schedule of Loss which (ignoring the last item of “Interest”) is broken down into the following items: “Buildings”, “Alternative Accommodation”, “Miscellaneous” and “Fees”.
75. The reference to “Buildings” covers the cost of remedial works undertaken by ABS in the sum of £40,131.91 (inclusive of VAT at 15%). In my judgment, reflecting my conclusions on liability that sum falls to be reduced by £200 plus VAT and £1654 plus VAT (at that former rate): see paragraph 70(e) above.
76. The item “Alternative Accommodation” speaks for itself and is in the sum of £4,850. In my judgment that amount is not recoverable under the Guarantee. Although Mr Maciolek submitted that Mr McGrath and his family would more likely than not have to have vacated the Property in order for the floorboard work (alone) to be undertaken, I am not persuaded that is so. In particular, Mr McGrath’s letter of 22 October 2008 clearly indicated that it was the proposed work to the joists that had become the decisive factor in relation to their need to move out and, although it is clear that the costs of alternative accommodation were incurred and reimbursed by Zurich, I cannot be satisfied the cost is attributable to default on the part of BPDL.
77. I am, however, satisfied on the balance of probabilities that it would have been necessary for charges to be incurred in relation to the removal and storage of the McGraths’ possessions while the remedial work to the floorboards were carried out. However, within the item “Miscellaneous” are (a) removal costs (totalling £400) for what appears to have been the separate removal of some possessions between the temporary accommodation and the removal company’s storage depot; and (b) 6 months of storage fees (at £220 per month) for the period February to July 2009 inclusive. In my judgment, looking at matters more than 8 years on and without the benefit of evidence on the point, the total amount claimed for removal and storage costs should be reduced by £1060 plus VAT at 15%.
78. Subject to these deductions and leaving the claim to interest to one side, I am satisfied that the claim set out in the Schedule of Loss was maintainable against BPDL under clause 4.16 of the Agreement and is recoverable from Nightscene under clause 1.1(a)(iii) of the Guarantee.
79. As to the claim to interest, the Schedule of Loss (as already noted in the context of the limitation argument) seeks to recover interest from 12 April 2007. That pre-dates the first recoverable payment made by Zurich (the cost of alternative accommodation was in fact the first reimbursement in January 2009) which was in respect of the initial removal and storage charges, in February 2009. I recognise that this and some other payments including, most significantly, the interim payment of £17,250 to ABS on 11 June 2009 were made prior to the date but in my judgment the appropriate start date for the payment of interest by Nightscene is 26 October 2009: compare paragraph 52 above. In the further exercise of my discretion in relation to interest, I direct that interest is payable from that date until the date of this judgment at 6% per annum.
80. I invite the parties to agree and submit a minute of order reflecting my decision that Zurich is entitled to judgment against Nightscene in an amount to be determined by reference to paragraphs 75 to 79 above.