The Cultural Foundation (doing business as American School of Dubai) v Beazley Furlonge Ltd (as managing agent for Syndicate AFB 2623/623 at Lloyd's)
| Jurisdiction | England & Wales |
| Judge | Mr Andrew Henshaw |
| Judgment Date | 08 May 2018 |
| Neutral Citation | [2018] EWHC 1083 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000727 |
| Date | 08 May 2018 |
Neutral Citation Number: [2018] EWHC 1083 (Comm)
Mr Andrew Henshaw QC
(sitting as a Judge of the High Court)
Case No: CL-2016-000727
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
James Brocklebank QC and Henry Moore (instructed by Covington & Burling LLP) for the First Claimant
Andrew Neish QC (instructed by Allen & Overy LLP) for the Second Claimant
Tom Weitzman QC and Kate Holderness (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the First Defendant
Peter Macdonald Eggers QC and Marcus Mander (instructed by Clyde & Co LLP) for the Third to Sixth Defendants
Hearing dates: 12, 13, 14, 15 and 19 February 2018
Judgment Approved
CONTENTS
| (A) INTRODUCTION | 3 |
| (B) BACKGROUND TO THE DISPUTE | 6 |
| (1) RMJM | 6 |
| (2) The Arbitration Awards | 6 |
| (3) The ASD and ADNEC Notifications | 6 |
| (C) THE PRELIMINARY ISSUES | 7 |
| (D) WITNESS EVIDENCE | 8 |
| (E) ISSUE 1: NOTIFICATION 923 | 9 |
| (1) Facts | 9 |
| (a) The early phases of the ASD Project | 9 |
| (b) February to July 2008: Sector A Field House beams and columns | 9 |
| (c) 2008/09 co-ordination problems | 10 |
| (d) Events in relation to Sector A from November 2008 to March 2009 | 11 |
| (e) Notification 923: 31 March 2009 | 16 |
| (f) Events from April to July 2009 | 17 |
| (g) Dubai Municipality intervention: August and September 2009 | 18 |
| (h) Notification 953: 10 September 2009 | 21 |
| (i) Notification 963: 6 December 2009 | 25 |
| (j) Subsequent developments: Variation Order No. 1 | 25 |
| (k) Subsequent developments relating to the Sector A columns problem | 26 |
| (l) The delay to Sector B | 27 |
| (m) The ASD/RMJM dispute and arbitration | 28 |
| (n) The ASD award | 34 |
| (2) Applicable provisions and principles | 37 |
| (a) Terms of the primary policies | 37 |
| (b) Terms of the Excess Policies | 40 |
| (c) Case law on notification under liability policies | 41 |
| (d) Causation | 49 |
| (3) Discussion | 51 |
| (a) What documents formed part of Notification 923? | 51 |
| (b) The Sector A Field House columns problem | 54 |
| (c) Causes of the delays: Sector A vs Sector B | 58 |
| (d) Notification of the Sector B problems | 64 |
| (e) Lack of detail and cross-referencing in drawings/designs | 66 |
| (f) Beazley's application for permission to amend | 67 |
| (4) Conclusion on Issue 1 | 74 |
| (F) ISSUE 2: NOTIFICATION 953 | 74 |
| Conclusion on Issue 2 | 76 |
| (G) ISSUE 3: AGREEMENT/ESTOPPEL IN FAVOUR OF 2008/09 YEAR | 76 |
| (1) Facts | 77 |
| (2) Analysis | 82 |
| (3) Conclusion on Issue 3 | 86 |
| (H) ISSUE 4: LATE NOTIFICATION | 86 |
| (1) RMJM's alleged breach of condition | 87 |
| (2) ASD's estoppel argument | 89 |
| (3) Conclusion on Issue 4 | 93 |
| (I) ISSUE 5: SET-OFF BY BEAZLEY OF OVERPAID DEFENCE COSTS | 94 |
| (1) Issue 5(a): Beazley's entitlement to set off the Pro Rata Share | 95 |
| (a) Beazley's liability for defence costs | 95 |
| (b) Right to recover overpaid defence costs from insured | 99 |
| (c) Beazley right of set-off vis a vis RMJM | 107 |
| (d) Set-off against claimants under the 1930 Act | 109 |
| (2) Issue 5(b): estoppel | 121 |
| (3) Conclusion on Issue 5 | 121 |
| (J) ISSUE 6: RECOVERY BY ASD/ADNEC FROM EXCESS INSURERS OF OVERPAID DEFENCE COSTS | 122 |
| Conclusion on Issue 6 | 129 |
| (K) ISSUE 7: RECOVERY BY BEAZLEY FROM EXCESS INSURERS OF OVERPAID DEFENCE COSTS | 130 |
| Conclusion on Issue 7 | 132 |
| (L) ISSUES 8 and 9: INDEMNITY FOR POST AWARD INTEREST | 132 |
| Conclusion on Issues 8 and 9 | 135 |
| (M) ISSUE 10: STATUTORY POST-AWARD INTEREST | 135 |
| Conclusion on Issue 10 | 137 |
| (N) OVERALL CONCLUSIONS | 137 |
Mr Andrew Henshaw QC:
(A) INTRODUCTION
This judgment follows a trial of ten preliminary issues as ordered by Blair J on 13 July 2017, the formulation of which was amended by consent on 6 February 2018. The case concerns a dispute between insureds, primary and excess insurers concerning certain professional indemnity insurance policies providing cover to a now insolvent architects' firm known as Robert Matthew, Johnson-Marshall & Partners (“ RMJM”).
The primary issue is whether and to what extent certain claims against RMJM by the First and Second Claimants (“ ASD” and “ ADNEC” respectively) arise out of circumstances notified to primary insurance policies underwritten by the First Defendant (“ Beazley”) and excess of loss policies underwritten by the Third to Sixth Defendants (“ Excess Insurers”).
ASD and ADNEC seek an indemnity against Beazley under, respectively, the primary layer policy written by Beazley for the year 1 May 2009 to 30 April 2010 ( the “2009/10 Policy”) and the primary layer policy written by Beazley for the year 30 March 2008 to 30 April 2009 (“ the 2008/09 Policy” or “ the 2008/09 Primary Policy”), each insuring up to a Limit of Indemnity of US$10 million (plus defence costs) with a self-insured excess of US$250,000 any one claim. ASD alternatively seeks indemnity under the 2008/09 Policy.
ASD and ADNEC pursued independent claims against RMJM in separate arbitrations, resulting in an award in favour of ASD dated 31 May 2016 in the sum of AED 31,561,423 (approx. US$8.6 million) plus post-award interest (“ the ASD Award”), and an award in favour of ADNEC dated 27 July 2016 in the sum of AED 30 million (approx. US$8.15 million) plus post-award interest (“ the ADNEC Award”).
Thus ASD's and ADNEC's claims individually fall within the US$ 10 million primary policy limit but together exceed it.
RMJM became insolvent and its estates were sequestrated by decree of the Sherriff at Edinburgh on 24 September 2015. As the sums awarded to ASD and ADNEC were not paid, they claim an indemnity from Beazley, alternatively from Excess Insurers, pursuant to section 1 of the Third Parties (Rights against Insurers) Act 1930 (“ the 1930 Act”).
The Excess Insurers are parties to a number of excess policies (“ the Excess Policies”) insuring limits in excess of US$10 million (plus defence costs) for the 2008/09 year, in layers which overall provide cover of US$35 million in excess of the primary policy limit.
The Claimants and the Excess Insurers contend that ASD's claims attach to the 2009/2010 Policy and ADNEC's claims attach to the 2008/2009 Policy. Accordingly, on their case, neither claim impacts on the layers insured by the Excess Insurers. Beazley contends that both ASD's claim and ADNEC's claim attach to the 2008/09 policy.
The issues concerning the policies to which the claims attach (“ the Policy Period Issues”) form the subject of preliminary issues (1) to (4).
The second main set of issues (preliminary issues (5) to (7)) involves the question of whether Beazley is entitled to reduce the amount paid to ASD and/or ADNEC by reference to a proportion of the costs that Beazley has paid in defending the ADNEC Claim in arbitration and which it says exceeds the amount it is contractually required to pay (“ the ADNEC Defence Costs Issues”).
The third category of preliminary issue concerns the recoverability of post-award interest by ASD and ADNEC (“ the Interest Issues”) and is the subject of preliminary issues (8)–(10).
Although some of the later preliminary issues may not arise depending on the answers to earlier issues, the parties have asked the court to determine all the issues in case this judgment should be the subject of an appeal.
The procedural background is in outline as follows.
ASD sought leave to enforce the ASD Award as a judgment pursuant to sections 66 and 101(2) of the Arbitration Act 1996 and to enter judgment in the terms of the award pursuant to sections 66(2) and 101(3), and an order to that effect was made on 16 November 2016. ASD then approached Beazley seeking a copy of the 2008/2009 Primary Policy with a view to making a claim under the 1930 Act, Beazley having previously indicated that it was RMJM's professional indemnity insurer and that the relevant policy year was the 2008/09 year.
ADNEC applied for pre-action disclosure against Beazley's parent company (Beazley PLC) seeking disclosure of information and documents relating to RMJM's insurance arrangements under inter alia CPR 25.1(1)(i) and 31.16, and section 2 of the 1930 Act, also with a view to making a claim under the 1930 Act.
Before those requests had been resolved, Beazley commenced stakeholder proceedings under CPR 86 on 25 November 2016, apparently concerned that ASD and ADNEC were advancing conflicting claims for indemnification under the 2008/09 Primary Policy in circumstances where it was unclear which claim had priority and where the cover provided was insufficient to pay both claims.
A CMC was held on 31 January 2017 pursuant to which the proceedings were reconstituted as Part 7 proceedings with ASD and ADNEC assuming the role of claimants. Disclosure was ordered of documents relevant to RMJM's insurance arrangements and the notification of ASD's and ADNEC's claims to insurers.
Statements of case were exchanged and a further CMC was held on 13 July 2017 at which Blair J gave directions for the present trial of preliminary issues. Thereafter, in light of a number of amendments made to the parties' pleadings and a proposed Part 20 claim by Beazley against the Excess Insurers, the...
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