Palliser Ltd v Fate Ltd ((in Liquidation))

JurisdictionEngland & Wales
CourtQueen's Bench Division
JudgeAndrew Burrows
Judgment Date16 January 2019
Neutral Citation[2019] EWHC 43 (QB)
Date16 January 2019
Docket NumberCase No: HQ16XO3277

[2019] EWHC 43 (QB)



Royal Courts of Justice

Strand, London, WC2A 2LL


Andrew Burrows QC


Case No: HQ16XO3277

Palliser Limited
(1) Fate Limited (In Liquidation)
(2) The National Insurance and Guarantee Corporation Limited
(3) UK Insurance Limited

George Spalton (instructed by Kennedys Law LLP) for the Claimant

Graham Eklund QC and Carl Troman (instructed by Plexus Law) for the Defendants

Hearing dates: 3, 4, 5, 6 December 2018

Andrew Burrows QC:




On January 1, 2010, there was a fire at a ground floor restaurant at 228 York Road, London, owned and run by Fate Ltd (‘Fate’). It is not in dispute that the fire was caused by the negligence of Fate. The fire destroyed the restaurant and also destroyed, or extensively damaged, the three upper floors of the building, which contained seven flats. Fate was the freehold owner of the building and the claimant, Palliser Ltd (‘Palliser’), was the leaseholder of the three upper floors of the building (above the restaurant) under a 999-year lease, running from 25 March 2006, which it had been granted by Fate on 31 January 2007. At the time of the fire, Palliser was in turn letting out the seven flats.


Palliser brought an action in the tort of negligence against Fate in 2016 which was settled on 23 October 2017 after Fate went into liquidation. Under that settlement, judgment was entered against Fate with damages to be assessed. Following a case management conference in March 2018, the claim was allowed to be continued but as a claim under the Third Parties (Rights Against Insurers) Act 2010. Amended Particulars of Claim were served on 20 March 2018, the Second and Third Defendants' Defence was served on 14 May 2018, and an Amended Defence was served on 27 November 2018.


In outline, the scheme of the 2010 Act is as follows: (i) where an insured has a liability to a third party; and (ii) the insured is covered by insurance with an insurer against that liability (ie there is liability insurance); and (iii) the insured is insolvent; then (iv) the third party can claim directly against the insurer under the liability insurance policy. In this case, the third party is Palliser, the insolvent insured is Fate, and the liability insurer is The National Insurance and Guarantee Corp Ltd/UK Insurance Ltd. The relevant liability insurance, covering Fate, was a Licensed Trade (Master Chef) Insurance Policy with The National Insurance and Guarantee Corp Ltd. Nearly two years after the fire, on 6 December 2011, the latter's insurance business, including its liabilities, was transferred to UK Insurance Ltd. UK Insurance Ltd has taken on the liabilities under the policy and I shall therefore refer throughout to UK Insurance Ltd as the defendants/insurers.


The liability insurance section of the Licensed Trade (Master Chef) Insurance Policy was section 6 headed ‘Public and Products Liability’. It is that section which is relevant for the purposes of the 2010 Act. Payments of £225,250 have been made under it by the insurers to tenants of the seven flats (ie to those to whom the flats were let by Palliser) for losses they suffered as a result of the fire. But in this action under the 2010 Act, Palliser seeks to be indemnified by the defendants under section 6 of the insurance policy for two heads of loss it has suffered as a consequence of the negligently caused fire. The first head of loss is refurbishment costs, the quantum of which has been agreed at £225,000 (inclusive of interest). The second head of loss may be described as ‘lost gains’ which are put on two alternative bases. The first basis, which in the Re-Amended Particulars of Claim (I allowed a minor re-amendment on this matter at the start of the trial) was referred to as the ‘loss of profit’ claim, is that Palliser suffered a loss of rental income on the flats from 1 January to 30 June 2010 and, more significantly thereafter, suffered loss of development profits (because it alleges it lost the opportunity to sell the seven flats and to reinvest the sale proceeds in subsequent property developments). Palliser alleges that, on this first basis, it has suffered, and is entitled to be indemnified for, a loss of £3,803,721 (plus interest). The second alternative basis is that Palliser suffered a loss of rental income on the flats from 1 January 2010 until early 2014 (when they were let out again), the quantum of which has been agreed at £275,000 (inclusive of interest).


Although the 2010 Act only applies to liability insurance, it is important in seeing the full picture in this case to recognise that the Licensed Trade (Master Chef) Insurance Policy also had a section – section 9 – headed ‘Buildings’ which provided Fate with insurance cover for damage to ‘buildings at the premises’. A payment of £610,000 was paid out by the insurers to Fate under this section of the policy (as a full and final settlement under this section with Fate). This largely covered the refurbishment costs incurred by Fate but there was some shortfall because Fate had not insured the full value of the buildings (ie the sum insured was £700,000 whereas the value of the buildings was £900,000) and the insurers had therefore been entitled to apply ‘average’ to the claim.


Before moving to the issues in this case, I should mention two points. First, counsel for the claimant, George Spalton, submitted that, although they had done so, the insurers had actually had no legal obligation to indemnify Fate for the refurbishment of the three upper floors. This was because, on his contention, while the buildings insurance section covered the ground floor, it did not cover the upper floors. So while he accepted that, as a commercial stance, the insurers had clearly adopted a different view in making the payments, they had not been legally bound to make payment for the refurbishment of the upper floors. I shall return to this later. The second point is that Palliser's claim for refurbishment costs arises because it took the view that, because of the delays by Fate in carrying out the refurbishment and the poor quality of some of the work, Palliser itself had to take over the refurbishment which it did in September 2013 ensuring completion of the refurbishment in late 2013/early 2014. Palliser claims indemnification of that loss under the 2010 Act and section 6 of the policy.


The issues that I have to decide in this case have been narrowed down to three. The first two go to liability while the third goes to quantum. They can be explained in outline as follows:

(i) The first issue, which for shorthand can be referred to as ‘the property not belonging to Fate’ issue, arises as follows. Applying the 2010 Act, there needs to be liability insurance covering the relevant liability to the third party (Palliser) of the insured (Fate). The relevant words in section 6 of the policy were, ‘Accidental Damage to Property not belonging to You or in your Charge or under Your Control or that of any Employee’ (my italics). Did Fate's ownership of the freehold of the building mean that the upper floors were property belonging to Fate so that damage to the upper floors was not covered under section 6? If Palliser fails to satisfy me on this issue, Palliser's claims fail in their entirety (subject to a very small portion of the refurbishment costs — agreed by the parties as being £8,500 out of the full agreed reimbursement costs of £225,000 — incurred by Palliser in refurbishing fixtures and fittings that indisputably did not belong to Fate).

(ii) The second issue relates only to the claim for refurbishment costs. Other than in relation to the £8,500, as just explained, it arises only if the first issue is decided in Palliser's favour. In essence, the question here is whether, under the 999-year lease, Palliser (as tenant) has impliedly excluded the negligence liability of Fate (as landlord) for the refurbishment of the building because Fate, as the landlord, agreed to take out buildings insurance that covered damage to the building and hence refurbishment costs. The leading case dealing with this issue in the context of landlord and tenant is Mark Rowlands Ltd v Berni Inns Ltd [1986] QB 211, CA and this issue has throughout this case been referred to, for shorthand, as the ‘ Berni Inns defence’. If successfully made out, the defence would mean that the claim for refurbishment costs under the 2010 Act would fail because the insured (Fate) would have no liability to the third party (Palliser).

(iii) The third issue goes to quantum. It arises only if the first issue (‘the property not belonging to Fate’ issue) is decided in Palliser's favour. This third issue can be referred to for shorthand as ‘the loss of profits issue’. The question is this: has Palliser established its loss on the first basis put forward (see paragraph 4 above) so that it is entitled to damages for loss of profits (including, in particular, loss of development profits) of £3,803,721 (plus interest)? The defendants concede that if the first issue is decided in Palliser's favour, Palliser is entitled to be indemnified for loss of rental income from 1 January 2010 to early 2014, agreed at £275,000 (inclusive of interest): but it denies that Palliser is entitled to £3,803,721 (plus interest).




Under section 6 of the Licensed Trade (Master Chef) Insurance Policy, headed ‘Public and Products Liability’ the following cover was provided to Fate by the insurers:


In event of the following contingencies:

a Accidental Injury to any person other than an Employee if such injury arises out of and in the course of their employment by you

b Accidental Damage to Property not belonging to you or in Your charge or under Your control or that of any...

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