Kyle Bay Ltd (t/a Astons Nightclub) v Underwriters of Policy No 019057/08/01
| Jurisdiction | England & Wales |
| Judge | Lord Justice Neuberger,Lord Justice Wilson,Lord Justice Ward |
| Judgment Date | 07 February 2007 |
| Neutral Citation | [2007] EWCA Civ 57 |
| Docket Number | Case No: A3/20006/0851/A |
| Court | Court of Appeal (Civil Division) |
| Date | 07 February 2007 |
[2007] EWCA Civ 57
Lord Justice Ward
Lord Justice Neuberger and
Lord Justice Wilson
Case No: A3/20006/0851/A
Claim No 2005 Folio 54
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Mr Jonathan Hirst QC sitting as a Deputy High Court Judge
Andrew Butler (instructed by Edwin Coe) for the appellant
Paul Reed (instructed by Reynolds Porter Chamberlain) for the respondent
Introduction
This is an appeal from a decision of Mr Jonathan Hirst QC, sitting as a Deputy High Court Judge in the Commercial Court, who in a reserved judgment given on 29 March 2006 ( [2006] EWHC Comm 607), dismissed a claim by the insured claimant, who was seeking to set aside, or otherwise to re-open, on the grounds of mistake and misrepresentation, a compromise of an insurance claim it had made against its defendant underwriters.
In short, the claimant's contention was that the policy (“the Policy”) it had taken out with the defendant was “declaration-linked”, and was not therefore subject to average, whereas the settlement (“the Settlement”) of the business interruption component of its insurance claim following a fire was based on the common mistaken assumption and/or a misrepresentation by the defendant. That assumption or misrepresentation was to the effect that the Policy was not declaration-linked, but was on the “gross profits basis” and was accordingly subject to average. As a result, the claimant agreed with, and received from, the defendant the Settlement figure of some £205,500, whereas, on the basis that the Policy was declaration-linked, the claimant should have received some £100,000 more.
The most common form of business interruption cover is written on the gross profits basis. Such a policy states a figure for gross annual profit. If that figure is less than the actual level of profit which has been lost, average is applied and the sum paid out is appropriately reduced; further, the sum paid out will never be based on a level of profit which exceeds the stated figure. In this form of cover, the annual premium is not subject to subsequent adjustment. Where a policy is declaration-linked, the assured gives an estimate of gross annual profit (in this case the estimate was £350,000), and, in the event of a loss, the sum paid out is based on the actual profit subject to a maximum percentage uplift (or “escalator”), typically 133.3%, on the estimate, and average is not applied. The premium for declaration-linked cover is adjusted once the level of profit has been established.
In the present case, the difference between the two types of policy is important because the actual level of annual gross profit being (or which would have been) earned by the claimant during the period of the interruption was substantially more than the estimated £350,000. If the Policy was on the gross profits basis, the sum payable under the policy would have been based on the estimated profit figure. On the other hand, if the Policy was declaration-linked, the sum payable would have been based on the actual profit figure, subject to a maximum of the product of the estimated figure and the escalator recorded in the policy, 1.333` (albeit that the premium would have been retrospectively subject to increase).
While the Judge accepted much of the claimant's case in so far as it is summarised in paragraphs [2] to [4] above, he rejected its contention that it should not be bound by the Settlement, or that it should be allowed to reopen the Settlement. That contention was based on the argument that the Settlement agreement was liable to be set aside on the ground that both the claimant and the defendant were negotiating under a common mistake as to a fact fundamental to the Settlement, or on the ground that the defendant had negligently misrepresented to the claimant a fact fundamental to the Settlement, namely that the Policy was not declaration-linked, whereas, in fact, it was.
The basic facts
The relevant facts are as follows. The claimant operates a night club. On 10 September 2001, its broker, a Mr Thomas of IRCS, approached the defendant's agent, SK Underwriting Ltd (“SK”), with a request for cover on a non-average declaration-linked basis. According to the findings of the Judge (on fact, construction and rectification, which are, in my view quite rightly, not appealed), Mr Ing of SK did not intend the Policy to be written on such a basis, but it was in fact so written.
On 14 November 2001, a serious fire occurred at the club, and the claimant raised a claim for, inter alia, business interruption. Carr Greenwood Smith (“CGS”) acted for the defendant as their loss adjusters, and the claimant appointed Harris Claims Group plc (“Harris”) to act as its loss assessors.
It appears that Harris did not have a copy of the Policy, and asked both CGS and IRCS for a copy, which was not supplied by either entity. However, in early March, Harris were supplied with a poor, but legible, faxed copy of the schedule to the Policy (“the schedule”), which in terms recorded the sum insured as “declaration linked”. On 12 March 2002, Mr Lawrence of Harris wrote to the claimant, saying that, “if this was the case, it would be extremely advantageous to your Business Interruption Claim”. He also told the claimant that Mr Stafford of CGS was “surprised at this wording”, and that he had asked Mr Stafford to discuss it with the defendant underwriters.
On 20 March 2002, Mr Lawrence wrote to Mr Stafford pointing out what was recorded in the schedule, and inviting him again to “confirm and clarify this with your principals”. On 4 April 2002, Mr Stafford replied stating that, although the words relied on “would ordinarily” indicate that the policy was declaration-linked, in this Policy, this was not so in this case as “the item insured is Loss of Profit rather than Estimated Gross Profit”. This letter was passed on to Mr Dymant of Harris, who did not understand why, and pressed Mr Stafford for a further explanation.
Mr Stafford then telephoned Mr Ing on 24 April, who told him that the Policy was not declaration-linked. Mr Stafford's note of the conversation records Mr Ing also saying that “no escalator was asked for or agreed”. (In fact, the standard form policy referred to a maximum escalator of 133.33%. This could have been a reference to the maximum escalator which had been agreed as claimable on the particular declaration-linked policy, which is how the Judge construed it or it could have been a reference to the maximum level of escalator which the underwriters would be prepared to contemplate on any declaration-linked policy, on the basis that the level remained to be agreed for any such particular policy, and had not been agreed here because the policy was not declaration-linked, which is how Mr Ing construed it.)
Mr Ing repeated his view that the Policy was not declaration-linked, to Mr Stafford in a further telephone conversation on 3 May. This view was then relayed by Mr Stafford to Mr Dymant first by telephone and then in a letter of 9 May 2002. In that letter, Mr Stafford said that the defendant underwriters “confirm that this is not a declaration linked sum insured. The sum insured of £350,000 is subject to the average clause detailed in the policy and any payment made will be proportionately reduced”.
This was apparently accepted, at least for the purpose of the negotiations, by Mr Dymant, who wrote to Mr Williams of his client, the claimant, on 16 May 2002, saying that “it would appear that the insurers are saying that this is…subject to average which, of course, greatly reduces our claim”. However, the letter immediately went on to explain that “[t]here was some uncertainty about this” in view of what was stated in the schedule, and to raise questions as to the intentions when the policy was taken out. The letter invited Mr Williams to telephone Mr Dymant “to discuss this point”.
Negotiations then proceeded on the basis that the Policy was not declaration-linked, and the final Settlement of the claimant's business interruption claim was negotiated between Harris and CGS on 11 March 2003, in the sum of £205,511.76, which was duly paid to the claimant.
Thereafter, pursuant to the efforts of Mr Williams, the claimant obtained sight of IRCS's file, and appreciated that declaration-linked cover had been expressly sought and given. Accordingly, after some further discussion, the claimant began the instant proceedings on 24 January 2005, alleging that the Settlement agreement was vitiated by common mistake, or negligent misrepresentation on the part of the defendant (through CGS), as to the effect of the policy. It was agreed in the statements of case that, on the basis that the Policy was declaration-linked, the claimant should have received another £108,319.56 (less the additional premium payable on the basis that this was a declaration-linked policy and the actual profit exceeded the estimate).
The hearing below
The issues before the Judge were more extensive than those before us. He had to consider whether the Policy was indeed declaration-linked as a matter of construction, which he decided that it was, and, if so, whether it should be rectified, which he decided that it should not. On the issue of mistake, he accepted that the Settlement had been entered into on the basis of a common mistake,...
To continue reading
Request your trial
-
Dodds v Southern Response Earthquake Services Ltd
...Prattley v Vero Insurance New Zealand Ltd [2015] NZHC 1444. 21 Kyle Bay Ltd v Underwriters Subscribing Under Policy No. 0190 57/08/01 [2007] EWCA Civ.57 22 NOE at p 17 lines 5–8, 14–23, 27–28 and 32–33. 23 Finn, Todd and Barber, Law of Contract in New Zealand, above n 8 at [11.2.6] 24 On ......
-
Dana Gas PJSC (a company incorporated under the laws of the United Arab Emirates) v Dana Gas Sukuk Ltd and Others
...the parties believed to exist". The two approaches may essentially amount to the same thing: see Kyle Bay Ltd (t/a Astons Nightclub) v Underwriters subscribing under Policy No 019057/08/01 [2007] EWCA Civ 57, paras 24–25. 66 All three versions of the case of mistake advanced by Dana Gas in ......
- Brown and Others v Innovatorone Plc and Others
-
Versloot Dredging BV v HDI Gerling Industrie Versicherung AG; The DC Merwestone
...v Lloyd's Underwriters (The Mercandian Continent) [2001] CLC 1836. Kyle Bay Ltd v Underwriters Subscribing under Policy No. 019057/08/01 [2007] 1 CLC 164. Lehmbecker's Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3) SA 513. Lek v MathewsUNK (1927) 29 Ll L......
-
When will a lease agreement be void for common mistake?
...[2018] EWHC 1348 (Comm). [2] Great Peace Shipping Ltd v. Tsavliris Salvage Ltd [2002] EWCA Civ 1407. [3] Kyle Bay Ltd v. Underwriters [2007] EWCA Civ 57. [4] [1994] 1 W.L.R. 1016. [5] Kyle Bay Ltd v. Underwriters [2007] EWCA Civ...
-
Contract formation
...Ltd [2003] QB 679 at 703 [73]–[76], per Lord Phillips MR; Kyle Bay Ltd v Underwriters Subscribing under Policy No 019057/08/01 [2007] EWCA Civ 57 at [21], per Neuberger LJ. Common or mutual mistake cannot, however, be alleged where the parties have agreed upon the terms of a contract, and t......
-
‘That wicked rule, that evil doctrine … ’: Reforming the Law on Disclosure in Insurance Contracts
...InsuranceContract Law and General Contract Law’ (1998) MLR 886.34 Kyle Bay Ltd vUnderwriters Subscribing Under Policy No.019057/08/01 [2007] EWCA Civ 57 at[30] per Neuberger LJ.See, for example,Limit No.2 Ltd vAXA VersicherungAG [2008] EWCA Civ1231.35 HL Deb vol 339 cols 1112–1118 6 March 1......