St Paul Travelers Insurance Company Ltd v Dargan

JurisdictionEngland & Wales
JudgeMr Justice Lawrence Collins
Judgment Date15 December 2006
Neutral Citation[2006] EWHC 3189 (Ch)
Docket NumberCase No: 2297/2006
CourtChancery Division
Date15 December 2006

[2006] EWHC 3189 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Before:

Mr Justice Lawrence Collins

In the Matter of Ballast Plc

And in the Matter of the Insolvency Act 1986

Case No: 2297/2006

Between:
St Paul Travelers Insurance Company Limited
Applicant
and
(1) Nicholas James Dargan and Nicholas Guy Edwards (as Joint Liquidators of Ballast Plc)
First Respondents
and
(2) Mott Macdonald Limited
Second Respondent

Mr Lloyd Tamlyn (instructed by Pinsent Masons) for the Applicant

Mr Richard Hill (instructed by Fishburns) for the Second Respondent

APPROVED JUDGMENT

Hearing: October 23, 2006

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

Mr Justice Lawrence Collins Mr Justice Lawrence Collins

()

I Introduction

1

This is an application by St Paul Travelers Insurance Co Ltd ("St Paul") for: (1) an order pursuant to section 181(3)(a) of the Insolvency Act 1986 ("the 1986 Act") vesting in its favour an alleged claim by Ballast plc ("Ballast") against Mott Macdonald Ltd ("MMD") for breach of contract, following a disclaimer of any interest in that claim by the liquidators of Ballast; and (2) a declaration to the effect that the claim and St Paul's interest in it are extant and valid and St Paul is entitled to commence and continue proceedings against MMD in respect of the claim as if the claim had vested in St Paul ab initio, notwithstanding the admission of MMD's claim in the liquidation of Ballast or any other action of Ballast or its liquidators.

2

St Paul also seeks further relief by an amended application for which they seek the permission of the court. MMD opposes St Paul's application. The first respondents to this application as originally issued were the liquidators of Ballast, but it was agreed between them and St Paul that they could be removed from the application.

II Background

3

Ballast carried on business as a civil engineering contractor. By a contract dated April 6, 2001, Ballast agreed with Machrie Ltd (a special purpose vehicle) that it would carry out design, construction and related works on two schools in Caerphilly, Gwent, one of which was Ysgol Gyfun Cwm Rhymni. MMD was appointed as Ballast's civil, structural and environmental engineering consultant under an Appointment Agreement executed on October 26, 2001.

4

One of MMD's obligations was to design plateaux for use as sports pitches. MMD's design involved the introduction of slopes of increased gradient between certain of the plateaux and the highway boundary of a road, called Plas Road. In mid-2001, cracking occurred in the road caused by shearing within the slope. Ballast was forced to undertake works to remedy the defects in the slopes, at a cost to Ballast of more than £1 million.

5

Ballast was insured for the project under a contractors' all risk policy by St Paul with an inception date of April 6, 2001. There was a £100,000 deductible under the policy, and St Paul indemnified Ballast in the amount of £935,967.16.

6

St Paul alleges that MMD is liable to Ballast for breach of its contractual duty of care in respect of the design work ("the Claim"). The allegations are pleaded in the draft Particulars of Claim.

7

MMD contends that a significant factor in the cracking was that Ballast had blocked an important culvert, a short distance uphill from the area of slope which failed, and which led to an exceptional increase of water around the slope.

8

In August 2001, Ballast instructed MMD to carry out the design work required to deal with the slope failure. This instruction was given without prejudice to the question of who bore responsibility for the slope failure. MMD carried out the design and rendered four invoices in connection with the work, which were rendered to Ballast between November 8, 2001 and July 30, 2002, and which have not been paid ("the Remedial Works invoices").

9

MMD also had a substantial number of separate unpaid invoices outstanding from Ballast in respect of work done on the Caerphilly schools project, the Plas Road widening project, and a further project in Tower Hamlets. These other invoices were not in respect of any remedial works on the failed slope.

10

Ballast went into Administration on October 15, 2003, and into creditors' voluntary liquidation on October 29, 2004. The Administrators, and then liquidators, were two partners in Deloitte and Touche, Nicholas Dargan and Nicholas Edwards ("the liquidators").

11

Under the terms of the Policy, and under the general law, St Paul, having indemnified Ballast in respect of its loss, had a right of subrogation in respect of the Claim. Condition 7 of the General Conditions of the policy provided: "[St. Paul] shall be subrogated to all the Insured's rights of recovery against any person or organisation before or after any payment under this insurance. The Insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing to prejudice such rights."

12

On March 8, 2004, St. Paul's solicitors, Masons, wrote a pre-action protocol letter to MMD, particularising the Claim. The letter noted that Ballast was in administration, and that St Paul had paid Ballast £935,967.16, and claimed against MMD on behalf of St Paul £1,042,380.16 (inclusive of interest to March 8, 2004 of £106,413). The letter also stated that the sum claimed on behalf of St Paul did not include any uninsured losses, which were currently subject to consideration by the administrators.

13

On June 3, 2004, MMD provided through its solicitors, Fishburns, a response to Ballast's claim. It was accepted that part of the slope had failed, but denied that the failure was caused by any inadequacy in design. The cause was the blocking of the culvert by Ballast. The drainage and the slope at the time of the failure were part of the temporary works, for which Ballast had responsibility. There was no deficiency in MMD's design. Ballast had failed to mitigate its loss by failing to act promptly on advice which it received from MMD following the slope failure. If, which was denied, MMD was negligent, it would seek a substantial reduction in the claim to reflect Ballast's contributory negligence in, for example, blocking the culvert. The letter also set out the claims which MMD had against St Paul in respect of outstanding invoices, which included not only the Remedial Works invoices, but also sums which were due from Ballast to MMD in respect of the Caerphilly Schools, Plas Road and Tower Hamlets projects.

14

There then followed further pre-action correspondence between the parties. Ballast went into creditors' voluntary liquidation on October 29, 2004. The administrators stayed on as liquidators. On January 14, 2005, St Paul's solicitors wrote to the liquidators inviting them to give notice before concluding the liquidation, given that proceedings under any subrogated claim could only be brought for so long as Ballast remained in existence and on the register.

15

A Pre-Action Protocol meeting was held on March 30, 2005 attended by clients, solicitors and experts, but no agreement was reached.

16

Following the Pre-Action Protocol meeting, MMD's solicitors wrote on June 21, 2005, dealing with issues of liability, and including further reports and other supporting material designed to show that the view of MMD's expert (that there was no basis for any claim) was to be preferred to the view of Ballast's/St Paul's expert; and on June 27, 2005 dealing with quantification issues in respect of Ballast's claim, and with MMD's own claims in respect of the outstanding invoices.

17

On August 18, 2005 St Paul's solicitors stated that in view of the time which had elapsed between the Pre-Action Protocol Meeting and the receipt of the letters of June 21 and June 27, papers were with counsel for particulars of claim to be settled.

18

On October 4, 2005, St Paul's solicitors wrote to the liquidators of Ballast, stating that the issue of proceedings against MMD was imminent, and asking whether the liquidators would have any objection to St Paul issuing proceedings in the name of Ballast (against a suitable indemnity from St Paul to Ballast and the liquidators). The letter stated that if the liquidators chose not to accede to this request, St Paul would have no alternative but to commence proceedings against MMD directly, joining Ballast as second defendant, and seek an order that Ballast lend its name to the proceedings. The letter also offered the liquidators the opportunity of adding to any proceedings any claim that Ballast had in respect of uninsured losses (including the excess).

19

According to the liquidators, Ballast's parent (Ballast Needham NV) had agreed with the liquidators that, provided that the dissolution of Ballast commenced by March 31, 2006, it would pay £900,000 to the liquidators for distribution to Ballast's creditors, thus enabling a more substantial dividend to be paid than would otherwise be the case.

20

On November 17, 2005, St Paul's solicitors wrote to the liquidators' solicitors in connection with the liquidators' proposals with regard to Ballast Needham NV, and the dissolution of Ballast. The letter stated that a dissolution would severely prejudice St Paul's ability to pursue the subrogated claim. The beneficial interest in the proceeds of the Claim belonged to St Paul, which was a proprietary right. The liquidators were not free to ignore St Paul's interest and agree to action such as dissolution to St Paul's detriment. The letter required a written undertaking from the liquidators that they would not take any step to prejudice, compromise or otherwise settle Ballast's claim against MMD without giving 14 days prior written...

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