Structural Polymer Systems Ltd v Brown [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Moore-Bick J. |
| Judgment Date | 27 October 1998 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 27 October 1998 |
Queen's Bench Division (Commercial Court).
Moore-Bick J.
Christopher Butcher (instructed by Payne Hicks Beach) for the plaintiff.
Julian Field (instructed by Davies Arnold Cooper) for the defendant.
The following cases were referred to in the judgment:
Peninsular & Oriental Steam Navigation Co v YouellUNK[1997] 2 Ll Rep 136
Rigby v Sun Alliance & London Insurance LtdUNK[1980] 1 Ll Rep 359
Skandia International Corp v NRG Victory Reinsurance Ltd[1998] CLC 920
Weddell v Road Transport & General Insurance Co LtdELR[1932] 2 KB 563
Insurance Settlement Summary judgment Whether Plaintiffs settlement of action against them binding on professional indemnity insurers Whether plaintiffs entitled to summary judgment Rules of the Supreme Court, O. 14.
This was an application for summary judgment under O. 14 brought by the plaintiffs against their professional indemnity underwriters arising out of the Plaintiffs involvement in the design and construction of a super yacht.
The second plaintiff, Technologies, entered into a contract to provide Search Asia with consultancy services in connection with the construction of a yacht. Under the consultancy contract Technologies designed and specified the complex structure of the hull which was to be constructed with materials supplied by the first plaintiff, Systems, under a supply contract. A New Zealand company, Sensation, was chosen to build the vessel and was contracted to do so by Sea Eagle, an associated company of Search Asia. Sensation subcontracted construction of the hull to another New Zealand company, Marten, which entered into a contract to obtain materials from Systems. While the hull was being built Systems and Technologies continued to offer advice. Defects in the hull appeared when the foam core failed to bond with the inner skin of laminates. Search Asia sued Technologies under the consultancy contract and Marten sued Systems under the materials supply contract, and Sea Eagle and Marten sued Technologies and Systems in tort. The total claimed against the plaintiffs was NZ$5m but they settled the claim for NZ$1.15m. The plaintiffs sought to recover that sum, together with the costs of defending the action in New Zealand, from the defendant insurers. The defendants had taken the view at an early stage that the claim fell outside the policy and they therefore took no part in the settlement and did not approve it. The plaintiffs applied for summary judgment. The defendants argued that they should have leave to defend to investigate whether the plaintiffs were actually liable in an amount not less than that paid under the settlement agreement. The defendants further argued that the plaintiffs were separately insured and could not recover because the settlement agreement did not distinguish between their respective liabilities; that the settlement was not reasonable; that the policy only covered the giving of advice and that the plaintiffs gave gratuitous advice which was excluded by the policy; and that the loss was covered by the Plaintiffs product liability insurance.
Heldgiving judgment for the plaintiffs for the amount paid under the settlement agreement and the costs of defending the New Zealand proceedings referable to claims based on the giving of erroneous advice:
1. There was no triable issue in the case nor should leave to defend be granted for some other reason under O. 14, r. 3(1). The plaintiffs had shown under O. 14, r. 2 that serious defects were caused to the hull of the yacht as a result of their erroneous advice as to which materials should be used in its construction and the manner in which they should be used. They were at fault in failing to carry out more thorough testing. That amounted to negligence and breach of contract.
2. The defendants were entitled to take a view about the scope of the cover but having decided that the potential claim was not within it could not complain that they were ignorant of the basis of the claim against the insureds. Any failure to take steps to investigate the merits of the claims against the plaintiffs was a matter of the defendants choice and did not provide sufficient grounds for giving leave to defend in order to enable the defendants to investigate the matter to see what, if anything, might emerge.
3. The plaintiffs did not have to show which of them was liable for which part of the whole settlement amount.
4. There was no triable issue as to the reasonableness of the settlement. Since the plaintiffs had to show that they were liable in order to bring themselves within the policy, the question was not whether the settlement was reasonable in the sense of fairly reflecting the overall merits of the action but whether it was reasonable in terms of the amount paid compared with the true extent of the claimants recoverable loss. There was no reason to think that the size of the payment under the settlement agreement represented more than the full amount of the plaintiffs liability.
5. A variety of different claims including some which did not fall within the defendants policy were compromised in the settlement agreement but that did not justify giving leave to defend in the absence of a triable issue as to whether the plaintiffs, or one or other of them, were liable in an amount not less than the sum paid under the agreement in respect of the claims arising out of the giving of negligent advice. The plaintiffs did give advice when they formally revised the construction process. In the course of supervising the construction project the plaintiffs did give advice even if it was not in response to a formal request for advice. Even if unsolicited that advice was not gratuitous, and hence excluded by the policy, but covered by the original contract price.
6. There was no evidence that there was a triable issue as to whether the plaintiffs incurred any liability covered by their product liability insurance. There was no evidence to suggest that any of the materials supplied by Systems were in any way defective.
Moore-Bick J: This matter comes before me by way of an application for summary judgment under O. 14 or alternatively for an order for an interim payment under O. 29, r. 11(1)(c). The action is brought by the plaintiffs against their professional indemnity underwriters and arises out of their involvement in the design and construction of a super yacht called Mari-Cha III. The defendant, who represents Lloyd's syndicate No. 702, subscribed to a professional indemnity policy covering the plaintiffs for the 1995 year. It was a common type of claims made policy under which the underwriters agreed to indemnify the plaintiffs against sums which they might become legally liable to pay as damages in respect of claims made against them between 1 January 1995 and 31 December 1995.
On 10 February 1994 the second plaintiffs, Structural Polymer Technologies Ltd (Technologies), entered into a contract with Search Asia Investment (Holdings) Ltd (Search Asia) for consultancy services in connection with the construction of the yacht Mari-Cha III (the consultancy contract). The services to be provided included (cl. 2):
structural engineering consultancy services, design consultancy services [and] project management advice relating to the design and/or construction of yachts and any other composite structures.
The contract was governed by French law. The scope of work included the choice of materials and the provision of on-site support during critical phases of construction to ensure the correct use of materials. Pursuant to that contract Technologies produced a bidding package which was a design and specification on the basis of which boatbuilders were invited to tender for the construction of the yacht. The hull was to be of sandwich structure, that is, it was to comprise inner and outer skins of laminates made from epoxy resins stiffened with fibres of glass, carbon and kevlar enclosing a core of PVC foam. The precise materials from which the hull was to be built were set out in the bidding package. In due course a New Zealand company, Sensation Yachts Ltd (Sensation), was chosen to build the vessel.
On 22 February 1995 a company called Sea Eagle Ltd, an associated company of Search Asia, entered into a contract with Sensation for the building of the yacht. Sensation subcontracted the construction of the hull to another New Zealand company, Marten Marine Industries Ltd. On 24 February 1995 the first plaintiffs, Structural Polymer Systems Ltd (Systems), entered into a contract with Marten Marine to supply the materials required for the hull (the supply contract). That contract included an obligation on Systems to provide Marten Marine with additional information regarding the specification of, or the instructions on how to use, the materials and to send experienced personnel to the yard at critical periods of construction to provide expert advice and assistance in relation to the use of those materials. The materials specified in the supply contract included SA80/400 adhesive film, A500RT Ampreg corebonding adhesive and various sizes and densities of PVC foam sheeting. All those materials had been specified in the bidding package.
While construction of the hull was in progress Systems regularly discussed the work with Marten Marine. At an early stage they recommended certain changes to the materials, but these are not directly relevant for present purposes. Representatives of both Systems and Technologies visited the site from time to time. Defects in the hull appeared for the first time in August 1995. These took the form of failures in the bond between the core and the inner skin. The plaintiffs thought that they were the result of poor workmanship on the part of Marten Marine and made a number of suggestions in order to overcome the problem. At about the same time, however, they notified their insurers of the possibility of a claim being made against them. In October...
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