Ace European Group Ltd and Others v Chartis Insurance UK Ltd (formerly known as AIG (UK) Ltd and AIG Europe (UK) Ltd)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Moses,Sir Alan Ward |
| Judgment Date | 22 March 2013 |
| Neutral Citation | [2013] EWCA Civ 224 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2012/1398 |
| Date | 22 March 2013 |
[2013] EWCA Civ 224
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE POPPLEWELL
Claim No. 2011 Folio 58
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Longmore
Lord Justice Moses
and
Sir Alan Ward
Case No: A3/2012/1398
Simon Rainey QC (who did not appear below) &Gemma Morgan (instructed by Waltons & Morse LLP) for the Appellants
Andrew Bartlett QC (who did not appear below), Rachel Ansell & Simon Goldstone (instructed by DAC Beachcroft LLP) for the Respondent
Hearing dates: 4th and 5th February 2013
This is a dispute between two sets of insurers. The Claimant insurers provided cover to the assured under the terms of an Erection "All Risks" Public Liability and Delay in Start Up Insurance Policy ("the EAR policy"). The Defendant was an insurer providing Marine Cargo Insurance to the same assured pursuant to the terms of a contract of marine insurance ("the marine policy"). In broad terms, the marine policy covered loss in transit; the EAR policy covered loss at the relevant site.
The Claimant insurers claimed an indemnity or a contribution from the Defendant, the Claimants having themselves indemnified the assured. The Claimants sought to recover sums from the Defendant on the basis that the damage suffered by the assured whom they had indemnified was in fact covered by the Marine Policy, rather than the EAR policy.
The insured, Lakeside Energy from Waste Limited ("Lakeside"), was engaged in 2007 in the construction of an energy from waste facility in Colnbrook, near Slough ("the Lakeside facility"). Certain contractors, Itochu Corporation and Takuma Corporation (together, "the EPC Contractor"), were engaged by Lakeside as the Engineering, Procurement and Construction Contractor for the development of the waste facility.
Both Lakeside and the EPC Contractor were named as co-assureds under the EAR Policy. The Marine Policy named Lakeside as the assured and Lakeside's engineering and procurement contractors, which included the EPC Contractor, as co-assureds. Both Policies contained a 50/50 clause providing that in the event that it was not possible to ascertain whether the cause of the damage to the insured's property occurred before or after the arrival of the property at the Lakeside facility, the EAR and Marine Insurers would each contribute 50% of any properly adjusted claim.
The waste facility incorporated two boilers, which each housed an economiser, a heat exchanger through which water flows. The water is heated by hot air which is blown through the economiser. Each of the 2 economisers comprises 8 economiser blocks which consist of banks of vertical tubes, 24 tubes long by 40 tubes wide. The outer 12 tubes on each row are "cranked" so to allow them to connect to tubes 2 rows away, thereby allowing the flow of water through the economiser's tubes.
The economisers' tubes are welded at the top and bottom of each row of 24 tubes to headers ("the upper headers" and "the lower headers" respectively) and the upper headers are welded together. Each block is about 3.6m wide, 2.8m deep and 6.3m high in dimension and, once installed, suspended from the upper headers so as to be free hanging with space beneath.
The economisers were manufactured by a company called Vulcan SA ("Vulcan") at its manufacturing facility in Romania in mid-200The 16 economisers were transported variously by a combination of road and sea from Vulcan's facility in Romania to the Lakeside facility site throughout July and August 2007 and installed between August and October 200The economisers were installed while the construction of the waste facility was ongoing. 14 of the economisers were transported by a combination of road and sea (via the port of Constanta in Romania to Southampton), whereas 2 of the economisers were transported by road alone.
During testing carried out during commissioning of the economisers on 9 February 2008 microscopic cracks were discovered in certain weld joints of the economisers where the cranked tubes met the upper header. Further testing revealed further crack and crack-like indications in a number of the cranked tubes. Ultimately, the weld joints where the cranked tubes met the upper headers were all replaced.
The assured notified claims under both the EAR policy and the Marine Policy in February 2009. The Claimants subsequently paid Lakeside and EPC's claims and entered into an agreement on 13 August 2009 with the Defendant which provided that the parties would either agree or litigate between themselves the issue of correct apportionment of the assured's claim as between the two policies.
The Claimants assert and the Defendant denies that the loss and damage suffered by Lakeside and/or the EPC Contractor was covered under the Marine Policy. The Defendants assert and the Claimants deny that the loss and damage occurred at the site and was covered by the EAR policy.
The main dispute for determination by the judge was, simply, when the damage to the economiser blocks occurred. Was it during road or sea transport, thereby falling within the scope of the Marine Policy, or whilst on-site at Lakeside thereby being covered by the EAR Policy?
Both parties' experts agreed that the cause of the damage in the relevant weld joints was fatigue failure due to cyclic stress loading which had been caused by resonant vibration.
The Defendant's case at trial was that the necessary vibration could not have occurred during road and sea transport and that it was likely to have resulted from turbulent wind causing the tubes of the economisers to vibrate whilst the economisers were on-site and exposed to the elements at Lakeside. The Claimants' case was that the vibration which caused the fatigue failure occurred during road and/or sea transport by reason of missing packing between the rows of tubes in the economisers and by reason of transport over rough roads in Romania; it did not occur when the economisers were on-site at Lakeside because the wind was not sufficiently strong to excite vibration in the tubes.
The Court heard expert evidence from experts from each side in four areas: metallurgy, welding, road transport and wind. Brief factual evidence was also given on both sides.
The Judge's Reasoning
The judge found in favour of the Claimants. His essential reasoning was as follows:
(1) A range of stress cycles suffered by the tubes of between 20,000 – 80,000 stress cycles must have occurred to cause the observed fatigue cracking in the economiser blocks;
(2) Wind excitation could effectively be ruled out as a cause of the fatigue cracking observed in the economiser blocks;
(3) Once one had eliminated wind as a theory for the cause of the damage, it was necessary to assess whether road transport vibration was more likely than not to have caused the damage since, if it was not, then one could not conclude which cause was the proximate cause, both would be equally unlikely and the 50/50 Clause would be applicable;
(4) The Claimants' expert's theory (based upon finite element analysis modelling) that the fatigue cracking could have occurred during road transport if the two factual pre-conditions set out in (5) below had occurred at the relevant time was, on the evidence before him, credible. The Defendant's argument that road transportation could not have resulted in the resonant vibration response of the economiser tubes, (which the parties agreed must have occurred in order to explain the observed damage) was rejected;
(5) The two necessary factual pre-conditions for the required resonant vibration had occurred viz:—
a. there was sufficient packing missing between the tubes in the relevant places of the economiser blocks to have allowed resonant vibration to occur during road transit;
b. each of the economiser blocks was transported over a sufficiently rough road for a sufficient amount of time to have allowed the necessary cycles of stress to have occurred to cause the fatigue cracking;
(6) The judge accordingly found that it was a "realistic and credible possibility" that the observed fatigue cracking occurred during road transport and accordingly found for the Claimants.
Permission to appeal against the judge's findings was granted by Stanley Burnton LJ before his recent and much-lamented retirement. The parties agree that the damage to the economisers must have occurred either during the road transportation or while awaiting installation at Colnbrook and that it must have been caused either by a combination of inadequate packing and rough road surfaces on the one hand or by wind excitation at Colnbrook on the other. There was no other potential cause of the damage. In these circumstances there were effectively 3 grounds of appeal:-
(1) there was no or insufficient evidence that the packing between the tubes of the economiser blocks was inadequate;
(2) there was no or insufficient evidence that the road surfaces over which the blocks were transported was rough enough to set up a vibration;
(3) the resonant vibration had to be caused by a narrowband...
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