Mutual Energy Ltd v Starr Underwriting Agents Ltd and Another

JurisdictionEngland & Wales
JudgeThe Hon Mr Justice Coulson,The Hon. Mr Justice Coulson
Judgment Date23 March 2016
Neutral Citation[2016] EWHC 590 (TCC)
Docket NumberCase No: HT-2015-000178
CourtQueen's Bench Division (Technology and Construction Court)
Date23 March 2016

[2016] EWHC 590 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice

Rolls Building

Fetter Lane, London, EC4A 1NL

Before:

The Hon Mr Justice Coulson

Case No: HT-2015-000178

Between:
Mutual Energy Ltd
Claimant
and
(1) Starr Underwriting Agents Ltd
(2) Travellers Syndicate Management Ltd
Defendants

Marcus Taverner QC and Calum Lamont (instructed by A&L Goodbody) for the Claimant

Tom Adam QC and Nicholas Saunders (instructed by Clyde & Co) for the Defendants

Hearing Date: 16 February 2016

Further Written Submissions: 1 March 2016

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

The Hon Mr Justice Coulson The Hon. Mr Justice Coulson
1

INTRODUCTION

1

The claimants, whom I shall call "MEL", own and operate the undersea Moyle Interconnector, which provides a link between the electricity systems of Northern Ireland and Scotland. The Moyle Interconnector was designed, built and installed by Nexans Norway AS, pursuant to a contract that was executed in September 1999 and completed in December 200Full commercial operation began in April 2002.

2

By a contract of insurance put in place around 1 December 2009, three other insurers, together with the two defendants (whom I shall call "the Insurers"), agreed to provide insurance in respect of the Moyle Interconnector. The contract provided for the period of insurance to be from 1 December 2009 to 1 December 2011. The premium was agreed at £304,908 for year 1 (1 December 2009 to 1 December 2010) and £304,908 for year 2 (1 December 2010 to 1 December 2011).

3

In September 2010 there was a cable failure in respect of the Moyle Interconnector which led to the renegotiation of the policy for year 2. Further sums were paid by MEL by way of a premium.

4

On 26 June and 24 August 2011, there were two separate failures which led to a loss of power flow. The June failure involved the failure of the South cable approximately 40km from the Scottish coast. This was caused by an electrical short-circuit following a failure of the polyethylene insulation around the integrated return conductor ("IRC"). The August failure involved the North cable where the failure occurred approximately 3km from the Scottish coast. Again this was a short-circuit, again due to the failure of the polyethylene insulation around the IRC. In consequence of these failures, MEL submitted total claims to the five insurers in the sum of £45,871,541. Those claims were audited by loss adjusters appointed by the five insurers to a total figure of £41,022,504.

5

Three insurers under the policy agreed to compromise the claims made by MEL. However, the two defendant Insurers did not do so. In consequence, these proceedings were started on 30 March 201MEL's claim is in the sum of £17,630,067, which is said to be the Insurers' share of the audited figure for the total loss. In February 2015, shortly before the commencement of the proceedings, the Insurers raised, for the first time, an allegation of deliberate non-disclosure on the part of MEL which, they said, entitled them to avoid the contract of insurance altogether.

6

At a hearing on 30 October 2015, I ordered the trial of a preliminary issue concerned with the construction of the relevant clauses of the insurance policy. The preliminary issue was in the following terms:

"On the true construction of the insurance policies pleaded in the Particulars of Claim in action HT-2015–000178, and on the assumptions (which are disputed by the claimant):

(a) That the facts and matters pleaded in the defendant's defence and counterclaim are true; and

(b) That by their defence and counterclaim the defendants have alleged that at least one individual employed by the claimant or its agent to ensure how the state of mind alleged in paragraph 26 of the defence; then

are the defendants entitled to avoid the insurance policies ab initio?"

7

Paragraph 26 of the defence encapsulates the Insurers' case that "'deliberate' (as opposed to 'fraudulent') non-disclosure arose where the relevant insured (here the claimant) or its agent (here NMB) was aware of information and was aware that it was not being disclosed to insurers, but held the honest but mistaken belief that it need not be disclosed." It is no part of the Insurers case that MEL did or failed to do anything in bad faith, or that they were guilty of any misrepresentation or mis-statement.

8

So the issue between the parties is whether the reference in the policy to 'deliberate…non-disclosure' meant that the contract could be avoided in circumstances where MEL had honestly but mistakenly decided not to disclose a particular document or fact (the Insurers' case); or whether it meant that avoidance was only available if there had been a deliberate decision not to disclose a particular document or fact which MEL knew was material, such that its non-disclosure involved an element of dishonesty (MEL's case).

9

Although at one point Mr Taverner QC, on behalf of MEL, suggested that this was a very straightforward issue, I am bound to disagree with him. The construction issue was not straightforward, in part because of the absence of any authority directly on point. But for the clear and helpful written and oral submissions provided by counsel, I suspect that I would have found the issue more difficult still. That said, when I worked through the construction exercise by reference to the guidance recently summarised by the Court of Appeal (see paragraph 14 below), I reached a clear conclusion.

10

The structure of this Judgment is as follows. In Section 2 below, I set out briefly the relevant facts. At Section 3 below, I set out the relevant principles of construction. At Section 4 below, I identify the relevant terms of the policy. Then, at Section 5 below, I deal in detail with the principal issue between the parties, namely what, in the context of this particular policy of insurance, was meant by "deliberate or fraudulent non-disclosure". At Section 6 below, I deal briefly with some of the other matters that arose during the course of argument. There is a short summary of my conclusions in Section 7 below.

2

THE RELEVANT FACTS

11

As noted in the preliminary issue itself, the facts are in dispute. It is therefore necessary for this preliminary issue to be decided against the background of assumed facts, taken from the Insurers' defence and counterclaim. Unhappily, no agreed set of assumed facts was provided to the court, either before or after the hearing. As I pointed out at the hearing, it is not appropriate for the court to go through a lengthy pleading to pick out the potentially relevant paragraphs.

12

Doubtless prompted by that comment, after the hearing, the Insurers suggested a set of assumed facts. That is attached as Appendix 1. Although they were expressly not agreed by MEL, there is no suggestion that the matters identified are outside the defence and counterclaim. I therefore construe the contract of insurance against the background of Appendix 1, the key elements of which are as follows:

(a) Certain problems were identified with the cables during the construction and commissioning phase (2000–2001). These included problems with the polyethylene insulation for the IRC.

(b) Whilst it appears to be MEL's case that these matters were resolved by the time that the Moyle Interconnector was in commercial use in 2002, it is the Insurers' case that these matters were significant and were indicative that the cables were poorly designed, manufactured and installed by Nexans.

(c) The Insurers contend that at least one individual employed by the claimant or it agent to ensure held the state of mind alleged in paragraph 26 of the defence in relation to the 2000–2001 failures. The relevant assumed knowledge is that the individual in question was aware of information and aware that it was not being disclosed to insurers but held the honest but mistaken belief that it need not be disclosed.

(d) The Moyle Interconnector had been working apparently satisfactorily for 8 years by the time the policy of insurance was effected.

13

Various events have occurred since the insurance policy came into force. These include an arbitration between MEL and Nexans, to which Mr Adam QC made reference during his submissions. It appears that at least some of MEL's complaints against Nexans were similar to the complaints by the Insurers against MEL. However, for present purposes, it does not appear to me that any events that occurred after the making of the contract of insurance have any relevance to the proper construction of that contract.

3

THE RELEVANT PRINCIPLES OF CONSTRUCTION

14

It is unnecessary for me to set out in any detail the principles of construction to which I should adhere in undertaking this exercise. That is partly because they are now so well-known. But it is also because they have recently been summarised by Christopher Clarke LJ in language that is so lucid and so concise that it is unnecessary to do anything other than set out verbatim what he said. In the case of Wood v Sureterm Direct Ltd & Capita Insurance Services Ltd [2015] EWCA Civ. 839 he dealt with the principles of interpretation in the follow passages:

"28. The principles upon which contracts are to be interpreted have been stated and restated at the highest level, including most recently in Arnold v Britton [2015] UKSC 36. It is not necessary to review them again. The principles which, in my judgement, are most relevant for present purposes are as follows:

(i) The...

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