Sartex Quilts & Textiles Ltd v Endurance Corporate Capital Ltd
| Jurisdiction | England & Wales |
| Judge | David Railton |
| Judgment Date | 03 May 2019 |
| Neutral Citation | [2019] EWHC 1103 (Comm) |
| Docket Number | Case No: CL-2017-000301 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 03 May 2019 |
[2019] EWHC 1103 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
7 Rolls Buildings, Fetter Lane
London EC4A 1NL
Mr David Railton QC
(sitting as a Deputy High Court Judge)
Case No: CL-2017-000301
Ben Elkington QC (instructed by Edwin Coe LLP) for the Claimant
Jason Evans-Tovey (instructed by DAC Beachcroft LLP) for the Defendant
Hearing dates: 25–29 March 2019
Approved Judgment
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.
David Railton QC (sitting as a Deputy High Court Judge):
Introduction
In this action the Claimant, Sartex Quilts & Textiles Limited (“Sartex”), seeks damages and other relief arising out of a Property Loss or Damage Policy of insurance issued to it on 22 December 2010 (“the Policy”) by the Defendant, Endurance Corporate Capital Limited (“Endurance”). The insurance incepted on 11 November 2010, and provided material damage cover to Sartex in respect of the buildings, plant and machinery at its manufacturing premises at Crossfield Works, Norwich Street, Rochdale (“Crossfield Works”), together with business interruption cover.
On 25 May 2011 there was a serious fire at Crossfield Works, involving a fatality. The buildings were severely damaged, and the plant and machinery destroyed. This led to claims being made by Sartex under the Policy. Liability under the Policy was admitted by insurers in October 2011, but (save in respect of the business interruption element of the claims), the parties since then have been unable to agree on the sums payable under the Policy.
There are two main issues which have arisen. The first concerns the basis of the indemnity under the Policy, in circumstances where Sartex has not to date reinstated the buildings, plant and machinery. While it is common ground that the relevant date for assessing any amount payable is the date of the fire, the parties disagree on the appropriate basis of assessment. Sartex (represented by Mr Elkington QC) contends that it is entitled to be indemnified on the reinstatement basis, alternatively that the court should declare that if it in fact reinstates, then it is entitled to be paid on such basis. Endurance (represented by Mr Evans-Tovey) contends that the indemnity should be by reference to the market value of the buildings, plant and machinery.
If the reinstatement basis applies, there are further issues between the parties as to whether the sum agreed between the experts as the reinstatement cost of the buildings is to be reduced for betterment, and if so, by how much. If the market value basis applies, there is also an issue as to whether Endurance can now dispute the value of the buildings at the time of the fire, and if it can, what that value was.
The second main issue which arises is whether the Policy was at the time of the fire subject to a 20% co-insurance provision. This had been purportedly imposed by insurers shortly before the fire, on the grounds that they were concerned about the build up of combustible stock at Crossfield Works. It is common ground that there was no contractual power in the Policy permitting insurers to impose such a term unilaterally; the issue here is whether it was in fact agreed between the parties in a call on 19 May 2011, or at a meeting on 23 May 2011. If there were no 20% co-insurance provision, a further issue arises as to whether Sartex is obliged to give credit for some or all of a sum of £1,000,000 received by it in settlement of claims it made against its broker Henderson Insurance Brokers Limited (“Henderson”) in connection with the Policy.
The total amount which Endurance says is payable under the Policy in respect of the buildings, plant and machinery is no more than £2,141,527, being the amount it offered to Sartex in October 2012, and paid in November 2013. This is the sum which it calculated to be payable on the market value basis of indemnity, net of average, and after deduction for the 20% co-insurance.
On the basis that it succeeds on each of the issues outlined above, Sartex claims that it is entitled to payment of a further sum of £2,289,697 (together with interest from the date of the fire). This further sum represents an additional £789,697 in respect of the buildings (net of average), and a further £1,500,000 in respect of plant and machinery.
A number of subsidiary issues were at various times raised, but it is not necessary to address them in any detail, either because they have not been pursued, they are not in the event material, or they have been agreed. These include whether Sartex's interest in the buildings, plant and machinery was sufficient to entitle it to a full indemnity; the average to be applied by reason of the under-insurance of the buildings, and the treatment of salvage. I refer to these briefly at the end of this judgment, after considering the relevant factual background, and the main issues between the parties.
In addition to a substantial volume of documentary evidence, I heard oral evidence from Mr Ahmed and Mr Khan (called by Sartex), and from Mr Fielder, Mr Adamson, Mr Chadwick, Mr Wilkinson and Mr Ledgerton (called by Endurance). I explain the roles of each of them in the relevant events later. Experts were instructed by both parties in the fields of quantity surveying and machinery and plant valuation, and Joint Statements were prepared by the experts in both disciplines. In view of the extent of the agreement between the experts, none of the experts was called to give oral evidence.
The factual background
In 1979 Mr Maqbool Ahmed, his brother Saleem Khalid, and his cousins Iftikhar Ahmed and Zulifiqar Ali (“the Partners”), started a business manufacturing home textiles, bed linen and quilts. In 1984 the Partners purchased freehold premises at Crossfield Works, and the business moved there. In 1992 the business was incorporated, and Sartex was formed.
By an agreement dated 28 April 1995, the Partners agreed that Sartex could use Crossfield Works for no rent so long as (amongst other things) Sartex arranged (at its cost) appropriate insurance cover for the buildings and contents, and ensured that the premises were maintained in a good state of repair. It was on that basis that Sartex occupied the premises from that date.
The business was successful, such that in 1999 Sartex purchased larger premises at Castle Mill, Queensway, Castleton, Rochdale (“Castle Mill”), to which it then moved the majority of its production. From around this time, Crossfield Works was used primarily for storage, and for the re-packing of linens imported from Pakistan.
From about 2005, Mr Maqbool Ahmed (who was the driving force behind the business), became interested in the possibility of expanding Sartex's business by manufacturing “shoddy hard pads” for use predominantly in mattresses (as covers for springs), but also for more general insulation purposes. Sartex had been producing polyester wadding for the mattress industry at Castle Mill, and Mr Ahmed's discussions with his customers had convinced him that the production of shoddy hard pads was a potentially profitable line of business for Sartex to develop at Crossfield Works.
Mr Ahmed then carried out detailed research into the market, and the process for producing shoddy hard pads, which are made from a mixture of shredded rags (which Sartex could obtain cheaply from charities), and low melt fibre. He designed a production process, and then over several years sourced the necessary plant and machinery from the USA, Italy, Germany as well as the UK. Much of the machinery was second hand. It was delivered to Crossfield Works, and then repaired and refurbished by Sartex.
By late 2010 Mr Ahmed's endeavours had resulted in most of the plant and machinery for three production lines being installed at Crossfield Works. These were (1) a Pulling Line, into which waste materials were fed and shredded into shoddy fibre, which was then baled; (2) a Needle Punch Line, in which the shoddy fibre was “carded” or “needled” to form sheets of felt shoddy, and (3) a Bonding Line, in which the shoddy fibre was mixed with low melt fibre, passed through a thermo-bonding oven, and then cut and stacked into shoddy hard pads.
By this time (late 2010) Sartex was purchasing substantial supplies of rag materials from Oxfam and other charities. These were being stored at Crossfield Works, next to the machinery. The Pulling Line was partly operational, and as a result Sartex had also built up a significant level of baled shoddy fibre within Crossfield Works. There was a delay in the Needle Punch and Bonding Lines becoming fully operational due to a delay in the installation of an appropriate power supply. Until the upgraded electricity supply was installed, Sartex was using a generator to power the plant and machinery.
It was in this context that Sartex sought insurance for Crossfield Works in November 2010. For these purposes, it used insurance brokers, Henderson, who arranged cover with Paladin Underwriting Agency Ltd (“Paladin”). Paladin was coverholder for Montpelier Syndicate 5151 at Lloyd's, and Endurance is the sole member of that syndicate.
The resulting insurance incepted on 11 November 2010, and was contained in the Policy issued on 22 December 2010. It will be necessary to return to the detailed terms of the insurance later, but in essence it provided material damage cover to Sartex in respect of the buildings (sum insured £2,020,000), and the plant and machinery (sum insured £2,500,000), at Crossfield Works. It also provided business interruption cover (with a loss of gross profits sum...
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