Omega Proteins Ltd v Aspen Insurance UK Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE,Mr Justice Christopher Clarke |
| Judgment Date | 10 September 2010 |
| Neutral Citation | [2010] EWHC 2280 (Comm) |
| Docket Number | Case No: 2010 FOLIO 157 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 10 September 2010 |
[2010] EWHC 2280 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr Justice Christopher Clarke
Case No: 2010 FOLIO 157
George Leggatt QC (instructed by Clyde & Co) for the Claimant
Andrew Prynne QC and Angus Withington (instructed by Kennedys) for the Defendant
Hearing dates: 29 th July 2010
Approved Judgment
Mr Justice Christopher Clarke:
The claimant, Omega Proteins Limited (“Omega”), carries on business processing by-products from animal carcasses used in the meat industry which it then supplies to pet food manufacturers and others. Northern Counties Meat Limited (“Northern Counties”) was a meat processing company which operated a cutting plant in Sunderland. Northern Counties supplied Omega with animal carcasses which were contaminated in the manner that I shall describe. Omega intermingled the contaminated material supplied by Northern Counties with sound material supplied by others. The effect was that the entire bulk was unfit for any commercial use. Unaware of the contamination Omega supplied the bulk to one of its customers – JG Pears (Newark) Ltd (“Pears”). Pears used the material and suffered losses in consequence. Pears had on-sold the material as meat and bone meal to pet food manufacturers and as tallow to Webster Thompson Limited.
The animal material which Northern Counties processed and sold was subject to EC Regulations (in particular, EC Regulation 1774/2002) introduced following the BSE crisis. This regulatory regime was introduced in an attempt to control and eradicate transmissible spongiform encephalopathies in animals.
EC Regulation 1774/2002 divides animal material into three categories, of which two are relevant:
(a) “Category 1” material – this must be labelled “for disposal only”, must be indelibly colour-stained bright blue or green, is not permitted to enter any food chain and must either be incinerated and burnt as fuel or buried as land fill; and
(b) “Category 3” material – this must be labelled “not for human consumption” but can be used to manufacture other products and is not colour-stained.
EC Regulation 1774/2002 also:
(a) classifies any “specified risk material” (or any mixture including such material) as Category 1; and
(b) classifies the vertebral column of cattle aged over 24 months as “specified risk material”.
Originally, the United Kingdom had the benefit of a derogation from the latter provision which allowed the use of the vertebral column of cattle and did not require it to be classified as “specified risk material” until the age of 30 months.
In 2006 the European Union agreed to lift the export ban on British beef which had been imposed following the BSE crisis. As part of the price of this agreement, the UK agreed to bring its classification of “specified risk material” into line with that which applied elsewhere in the EU. By Commission Regulation (EC) No 657/2006 of 10 April 2006, published in the Official Journal on 29 April 2006 and in force on 3 May 2006, and the Transmissible Spongiform Encephalopathies (No. 2) Regulations 2006 (2006/1228) made on 2 May 2006 and taking effect on 3 May 2006, the age of animals for the purposes of Category 1 was reduced in the United Kingdom to 24 months. The new Regulations classified the vertebral column of cattle aged over 24 months as “specified risk material”.
Northern Counties failed to act promptly to comply with the new law. Between 3 May and 8 July 2006 Northern Counties supplied to Omega 28 deliveries totalling just over 220 metric tonnes of animal material which was certified as Category 3 but which in fact, unknown to Omega, contained the vertebral column of cattle aged over 24 months and was therefore specified risk material falling into Category 1 and accordingly fit only for disposal. It was this material which was mixed with other material thereby contaminating the whole bulk that was then supplied by Omega to Pears. Pears processed it and sold it as bone meal to pet food manufacturers and as tallow to Webster Thompson Limited. This contravention of the law was discovered by the State Veterinary Service, an agency of the Department for the Environment, Food and Rural Affairs (“DEFRA”), which required the contaminated material to be disposed of as Category 1 material.
Webster Thompson began an action for damages against Pears. Pears joined Omega as a third party claiming damages for breach of contract and Omega joined Northern Counties as a fourth party on the same basis. The principal breach alleged against Northern Counties was of a term that the material supplied should be Category 3. There were also claims for breach of implied warranties of fitness for purpose and satisfactory quality.
On 13 th May 2008 Webster Thompson obtained summary judgment against Pears.
On 18 th May 2009, following a two day trial, HH Judge Mackie, QC, sitting as a judge of this court, held that Omega was liable to pay damages to Pears for breach of contract and that Northern Counties was liable to indemnify Omega against its liability to Pears.
The judge held that as a result of Northern Counties omitting to comply with the new law in time, vertebral column from animals over 24 months of age became mixed into low risk Category 3 material thus making it (the Category 3 material) a Category 1 animal by-product. Category 1 material was thereby supplied by Omega, through no fault of its own, when Category 3 should have been delivered. This was a breach of an express term that the material to be supplied would be Category 3 (paragraph 32 of the judgment). In addition the judge held that there was a breach of the implied terms of satisfactory quality and fitness for purpose (paragraphs 34 to 41). These breaches of contract caused loss to Pears who were entitled to damages as a result. Pears was, therefore, entitled to recover damages for breach of contract which, the judge understood, had for all practical purposes been agreed (paragraph 42).
No claim or allegation was made in the proceedings that Northern Counties had been negligent or that it was liable to Omega by virtue of any non contractual duty or obligation.
In relation to the claim by Omega against NCML, the judge found that the factual findings he had made in the dispute between Pears and Omega applied equally to the claim against Northern Counties. He held that:
“The reasons I have given for awarding Pears judgment against Omega apply even more strongly to Omega's claim against NCML and I will therefore make the order sought.” (paragraph 43).
In the event, the Judge was not required to make any determination on quantum. An order was drawn up by which it was ordered that Omega should pay Pears the sums of € 252,103.94 and £ 97,360.34 plus interest of € 8,802.92 and £ 9,926.60. The order further declared that Omega was liable to indemnify Pears in respect of its liability to a further company, Harris Tobias Limited, and any other parties who purchased material from Pears during the period from 3 May 2006 to 17 July 2006 inclusive.
It was further declared that Northern Counties was liable to indemnify Omega in respect of Omega's liability to Pears (whether resolved by judgment or reasonable settlement) and all of its costs (including those costs incurred by Omega in defending Pears' claim).
The defendant
The defendant, Aspen Insurance UK Ltd (“Aspen”), provided Northern Counties with insurance under a combined liability insurance policy which provided cover against Employers' Liability, Public Liability, Product Liability, and Pollution Liability.
Northern Counties is in liquidation and unable to satisfy any judgment against it. In the present action Omega claims against Aspen under the Third Parties (Rights Against Insurers) Act 1930 pursuant to which Northern Counties' rights under the policy have vested in Omega.
The relevant insuring provision is as follows:
“Section C: Product Liability
The Company will indemnify the Insured against all sums which the Insured becomes legally liable to pay for damages and claimants' costs and expenses arising out of or in connection with
(i) accidental Bodily Injury to any person
(ii) accidental loss of or damage to tangible property
happening during the Period of Insurance in connection with the Business and caused by any Product 1.
The Company will also pay Defence Costs in addition to the Limit of Indemnity 2.”
Section C has a number of exclusions including the following
“Additional Exclusions to Section C
The Company will not indemnify the Insured against any liability arising:—…
3. under any contract or agreement unless such liability would have attached in the absence of such contract or agreement. …” (“Exclusion 3”).
The present claim
In this claim, brought under CPR Part 8, Omega seeks a declaration that Aspen is liable to indemnify it under the terms of the policy with Northern Counties for the liability that it has incurred as a result of the judgment of Judge Mackie (“the Mackie judgment”). As between Omega and Aspen there is no dispute as to the facts found in the Mackie judgment.
Omega accepts that the liability for which it seeks indemnity arises under a contract whereby Omega agreed to supply Northern Counties with Category 3 material. The fact that liability arises under a contract does not, however, mean that cover is automatically excluded. The insurance is against “all sums which the Insured becomes legally liable to pay for damages” in connection...
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