Infinity Reliance Ltd (trading as MY 1st Years) v Heath Crawford Ltd
| Jurisdiction | England & Wales |
| Judge | Paul Stanley |
| Judgment Date | 28 November 2023 |
| Neutral Citation | [2023] EWHC 3022 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | Case No: LM-2023-000036 |
[2023] EWHC 3022 (Comm)
Paul Stanley KC
(sitting as a Deputy High Court Judge)
Case No: LM-2023-000036
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
LONDON CIRCUIT COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Ben Smiley (instructed by Edwin Coe LLP) for the Claimant
Mr Paul Parker (instructed by Caytons) for the Defendant
Hearing dates: 6–9 November 2023
Approved Judgment
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Tuesday 28 November 2023 at 10:30am.
Paul Stanley KC:
Introduction
The claimant (“Infinity”) is an online retailer. As “My 1st Years”, it sells personalised gifts for babies and children—clothes, toys, blankets and the like. When an order is placed, the goods need to be brought from storage, and then personalised for the buyer, such as by embroidering the child's name. Because of this, Infinity cannot simply use a third-party logistics company to pick, pack, and post its orders. It needs to arrange space in the warehouse where its staff can personalise the goods before they are despatched.
In 2021, it was using space in a warehouse in Northampton. The warehouse was owned and operated by a logistics company called Cygnia. Infinity paid Cygnia for much of the logistics work. It had space in the warehouse where its staff could add the personal touches to the goods before they were sent out.
Infinity had thrived during Covid and its lockdowns. As the country came out of lockdown in April 2021, it remained to be seen how far it would be able to maintain that growth.
In May 2021, there was a fire at Cygnia's warehouse. Infinity could not use the warehouse any more. Its business was interrupted and it lost sales until it was able to find suitable alternative premises, and fit them out. That took time, and it cost money. Infinity lost many millions of pounds of sales, and spent more than £2 million to fit out new premises.
Infinity had insurance cover, including cover for business interruption (“BI”). Its insurance broker, since late 2018, had been the defendant, Heath Crawford Ltd (“Heath Crawford”). Heath Crawford advised Infinity to buy a commercial combined policy from Aviva plc. The policy included BI cover. When the fire damaged the warehouse, the most recent policy had been renewed at the start of November 2020.
Unfortunately for Infinity, the cover was not enough. Infinity's BI insurance was based on a forecast gross profit of £24.9 million over two years. But the right figure, given the policy's terms, would have been higher—more like £33 million. So Infinity was underinsured. When it settled the claim, Aviva applied the doctrine of average. Since Infinity's insured exposure was 26 percent less than its full exposure, it only recovered 74 percent of its adjusted loss, £9.25 million instead of £12.17 million. That was agreed between the loss adjuster appointed by Aviva and the claims assessor appointed by Infinity.
There was another disappointment. There was equipment at Cygnia's warehouse to enable it to pick and despatch orders. That was owned by Cygnia. When Infinity had to find a new warehouse, it could not easily find similar premises, and had to spend heavily to equip new premises with equivalent equipment, and to do some other things such as begin work on installing sprinklers which insurers of the new premises required. These costs were only partly insured.
Nobody suggests that Aviva did not pay what was properly due under the policy it had underwritten. Infinity says that Heath Crawford, as its broker, was at fault. If it had given proper advice, Infinity would have been fully insured for the loss. It therefore claims the shortfall. Its specific complaints are:
i) Heath Crawford provided Infinity with a document describing how to calculate the sum insured. But the document was misleading, and led to Infinity buying insufficient cover.
ii) Heath Crawford should have recommended a different type of BI cover (declaration linked cover) which would have produced a full recovery.
iii) Heath Crawford should have realised that Infinity needed additional cover for costs it would incur to fit out alternative warehouse space following a fire, or similar event, which put Cygnia's warehouse out of action.
For the reasons given below, I have decided that Heath Crawford was at fault in the way it advised Infinity, but that Infinity was also careless. I assess damages, after a deduction of 20 percent for contributory negligence, in the sum of £2,336,842.
The issues
Heath Crawford accepts that it owed a contractual duty to Infinity. It concedes breach by providing a misleading explanation of how to calculate the sum insured. It almost (though not quite) concedes breach in failing to recommend that Infinity purchase declaration linked cover. It denies the third alleged breach, which concerns assessing Infinity's need for specific cover for fit-out costs at alternative premises.
When it comes to causation, Heath Crawford accepts (as I understand the submissions made on its behalf by Mr Parker) that the misleading guidance it provided on BI cover was at least a cause of loss, but subject to the contributory negligence argument discussed below. It does not accept that the absence of a recommendation of declaration linked cover caused loss, because it does not accept that Infinity would have accepted the recommendation. It does not accept that Infinity has proved that any failure to consider fit out costs has led to any loss. That is because it does not accept that anything more than cover for the additional increased cost of working would have been obtained, and it does not accept that such cover would have made any difference to Infinity.
As to contributory negligence, Heath Crawford focuses on how the sum insured was calculated by Infinity. It says that Infinity did not follow the advice it had been given properly, and that if it had followed that advice the error that Heath Crawford had made would not have mattered. It says that this amounts to contributory negligence which should greatly reduce, or even eliminate, the amount that Infinity recovers.
There were two minor issues about the quantum of Infinity's claim in relation to fit out costs, though those were largely agreed.
The witnesses
I heard evidence from four witnesses of fact: Mr Cress, Mr Sitton, and Mr Andrews for Infinity; and Mr Leyens for Heath Crawford. Mrs Ward was originally going to give evidence for Heath Crawford too. But she was unable to attend the trial for family reasons. Her statement was not relied on, and I have not taken its contents into account.
Mr Cress had a background in corporate finance, as an internal consultant for AOL UK, as CFO of a company that operated an e-commerce marketing platform, and as finance director for a company that sold luxury designer goods and jewellery on social media. He joined Infinity in April 2019 as Finance Director, replacing Ms Kenner who moved to another role. He is evidently intelligent. I did not get the impression that he was deliberately seeking to mislead me.
Nevertheless, I have two reservations about aspects of his evidence. First, one theme of his evidence to me was that he had not, at the time, expected Infinity to continue to experience strong growth in revenues or gross profits. He was asked to comment on various financial projections which painted a different picture of his expectations at the time. I discuss these in more detail later in this judgment. But the general point was that these projections consistently showed a much more bullish view of Infinity's growth prospects than Mr Cress now espouses. For example, one such projection given to the Board at the end of 2019 was (Mr Cress agreed) based on an assumption of 20 percent growth. Another was a set of “internal forecasts” which used higher numbers. In those and similar cases, Mr Cress's evidence was that he regarded those projections as punchy to the point of being unrealistic: Board forecasts, he suggested, had been inflated in the hope of encouraging third party financiers, and the internal forecasts had served as “stretch” targets. He had never truly set much store by them, he said.
However, when the time came to claim on the BI cover, the loss adjusters had been told that Board estimates were “conservative”, and that internal estimates were “key”. Those sentiments, as Mr Cress largely accepted (though he cavilled about the origin of certain phrases) must have come from him. But, if his evidence at the trial was true, they were varnished. Mr Cress resisted describing them as “lies”. He preferred to call them “advocacy positions” put forward because of the high importance Infinity attached to maximising its recovery on the BI cover, and in the expectation that the loss adjusters would take them with a grain of salt and make further inquiries. He explained away other projections that were at odds with the view he was expressing to me as motivated by ad hoc strategic purposes.
There is not much purpose debating the appropriate epithet. In any case, however, Mr Cress's evidence is that he is prepared to advocate for forecasts for strategic aims: to encourage investment, to spur employees, to maximise recovery on an insurance claim. He will do that, he says, even if he personally believes they are not realistic and accurate.
In these proceedings, Mr Cress espouses different forecasts, including forecasts which left no trace in the contemporaneous record. I cannot place much implicit confidence in those when they,...
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