AC Ward & Son v Catlin (Five) Ltd & Ors

This is an appeal from an order of HHJ David Mackie QC on 19 December 2008 by which he dismissed the Defendants’ application for summary judgment against the Claimant on the entirety of the claim, or alternatively certain issues arising on it.

The Claimant is a member of the Booker Group of companies. It operates, amongst other things, a warehouse at Victor House, West Thurrock, Essex (“the Warehouse”). During the weekend of 17^th and 18^th March 2007 professional burglars broke into the Warehouse and stole about £450,000 worth of cigarettes and alcohol. None was recovered. The burglars cut through at the first floor level of the Warehouse, which then led them to the mezzanine level where the stock was stored. The Claimant was insured by the Defendants under a “Multiline Commercial Combined Policy” of insurance (“the Policy”). The Policy included in Section C cover against theft of stock up to a limit of £1.5 million. The Claimant made a claim under the Policy. After investigation the Defendants refused to pay on a variety of grounds relating to security arrangements.

The Defendants issued an application on 15 August 2008 for reverse summary judgment in respect of the Claimant’s claim under CPR 24.2(a)(i) and (b) (“the Application”) on the grounds that the Claimant has no real prospect of succeeding in its claim for an indemnity and there is no other compelling reason why the case should be disposed of at trial. The Application Notice referred to a list of issues, upon which the Defendants sought summary determination. The basis of the Application was that the claim was bound to fail because of the breach of two warranties in the Policy (“the Warranties”) namely a Protection Maintenance Warranty (“the PMW”) and a Burglar Alarm Maintenance Warranty (“the BAMW”). The issues which the Defendants wished to have summarily determined concerned the proper meaning and effect of the Warranties. The Claimant opposed the Application on the grounds that there were many issues of fact that required a full trial to resolve fairly and because the issues were too numerous and complicated. The rival contentions were set out in witness statements made on behalf of the Defendants by Catherine Percy, the Defendants’ solicitor, and witness statements of Georgina Squire, the Claimant’s solicitor.

The Judge dismissed the Application, as I have said. Subject to the outcome of this appeal, the trial of the action is due to take place on 9 November 2009 with an estimate of five to six days.

Following a submission on behalf of Blueheath Holdings Plc (“Blueheath”) by their agent, Henderson Insurance Brokers (“Hendersons”), ADT Underwriting Agency Limited (“ADT”) sent a quotation on behalf of the Defendants. On 17 November 2005 Blueheath submitted a proposal (“the Original Proposal”). The Policy was subsequently issued. The schedule to the Policy (“the Schedule”) made express reference to the inclusion of the PMW and the BAMW. In relation to the BAMW the Schedule stated:

“Make & type of Burglar Alarm System: Not provided.”

The Claimants had asked for details of the burglar alarm system, but the Defendants had not provided them.

Cover was not initially provided for the Warehouse because Blueheath did not acquire the Claimant until about November 2005 after the inception of the Policy. In about March 2006, Hendersons approached ADT in order to add two further businesses to the Policy, those being that of the Claimant and CTM Wholesale Limited. The matter was handled on behalf of ADT by Mr Paul McAndrew.

The PMW was in the following terms:

“It is warranted that:

(a)

the whole of the protections provided for the safety of the insured property shall be maintained in good order throughout the currency of this insurance and that they shall be in full and effective operation at all times when the Insured’s premises are closed for business and at all other appropriate times, including when the said premises are left unattended, and that such protections shall not be withdrawn or varied to the detriment of the interest of the Insurers without their consent;

(b)

all keys and duplicate keys relative to the above protections are removed from the premises when the premises are closed for business, and at all other appropriate times, including when the said premises are left unattended.

All defects occurring in any protections must be promptly remedied.”

The BAMW was in the following terms:

“It is warranted that:

(a)

the premises containing the Insured property are fitted with the burglar alarm system stated in the Schedule, which has been approved by the Insurers and that no withdrawal, alteration or variation of the system, or any structural alteration which might affect the system shall be made without the consent of the Insurers,

(b)

the burglar alarm system shall have been put into full and effective operation at all times when the insured’s premises are closed for business, and at all other appropriate times, including when the said premises are left unattended,

(c)

the burglar alarm system shall have been maintained in good order throughout the currency of this Insurance under a maintenance contract with a competent specialist alarm company who are approved by the Insurers,

(d)

the burglar alarm signalling system, where applicable, shall be maintained under British Telecom Total Care,

(e)

all keys and duplicate keys relative to the above alarm are removed from the premises, when the premises are closed for business, and at all other appropriate times including when the said premises are left unattended, and

(f)

immediate advice be given to the Insurers of any warning or notice of withdrawal of police or any other security force or protection.

All defects occurring in any protections must be promptly remedied.”

At the time of the theft the security arrangements for the Warehouse included a CCTV system, and a vibration detector wire. As regards the former, an ADSL line was provided by which the CCTV images were relayed to a central monitoring station while the Warehouse was closed for business. The vibration detection wire is a device which is installed to detect attempts to breach the perimeter of a building. It is triggered by vibration or hammering. Such a device was installed at the Warehouse on the inside base of the building cladding within the mezzanine floor.

The theft began in the early hours of 18 March 2007, when the perimeter of the site was breached. The thieves cut three holes in the Warehouse, with a petrol driven angle grinder, before gaining access to the mezzanine floor through the external cladded walls. Stock was removed into a transit type van and a larger panel van until shortly before 7.20 am. The thieves returned at 7.30 pm the same day. The intruder alarm system activated at 7.42 pm, at which point the thieves left.

The factual basis of the Application was that, at the time of the burglary, the vibration detector wire was not in working order, and the CCTV relay was suffering from an intermittent fault which interrupted the transmission of pictures.

In addition to seeking the dismissal of the entire claim, the Defendants, on the hearing of the Application, sought judgment on the following issues which were set out in the skeleton argument of Mr Turner, counsel for the Defendants:

“13.

the issues which remain and need to be resolved in order to determine the present application can conveniently be summarised as follows:

(a)

the proper characterisation of the relevant parts of the ‘warranties’ and whether such characterisation affects their meaning;

(b)

whether the PMW applies only to protections notified to the insurer in writing prior to inception;

(c)

whether sub-para (b) of the BAMW applies only to any burglar alarm system identified in the Schedule;

(d)

the meaning of relevant parts of the ‘warranties’: in particular, whether the obligation imposed by the warranties is no more than an obligation promptly to remedy defects;

(e)

whether the vibration guard wire was non-operation/ineffective at the time of the burglary;

(f)

whether the ADSL line for the CCTV relay was:

(i)

part of the protection provided for the safety of the insured property;

(ii)

subject to an intermittent fault at the time of the burglary.”

The Judge rejected the Defendant’s case that the PMW and the BAMW were merely conditions, breach of which would suspend cover. He held that they were true warranties, particularly in the light of the express definition of “warranties” in the Policy. That definition was as follows:

“A warranty is a fundamental term or condition of the Insurance the breach of which voids the Contract from the time of the breach.”

The Judge rejected the Defendants’ submission that the court could and should conclusively decide at this stage that the PMW applies to all security protections in place, whether or not notified to the Defendants, and that the BAMW applies to any burglar alarm system at the Warehouse, whether or not notified to the Defendants, and that the Policy terminates automatically, or at any event the cover ceases, when the particular protected device or the burglar alarm is defective at any time when the Warehouse is closed for business or left unattended, whatever might be the cause for that defective condition.

The Claimant submitted that the PMW only applies to such security protections as were notified to the Defendants in writing prior to entering into the Policy, or prior to the variation in relation to the Warehouse. The Claimant submitted that the BAMW only applies to a burglar alarm system stated in the Schedule; and, since there is no alarm stated in the Schedule, the BAMW has no application in relation to the theft from the Warehouse. The Claimant further submitted that a breach of the PMW and the BAMW only occurs if the Claimant fails to remedy a defect about which it knows or reasonably ought to know and fails to repair. The Claimant further contended that its interpretation of the PMW and the BAMW is the only interpretation that makes commercial sense, and is consistent with the principle that any ambiguity should be resolved by interpreting the Policy against the Defendants. The Claimant said that both the vibration detector wire and the ADSL wire were, so far as the Claimant was aware, connected, commissioned and working immediately prior to the theft.

The Claimant submitted that, in the light of the draconian consequences of the interpretation of the Defendants, and at any event as a matter of principle, the full scope of the factual matrix should be before the court before it makes a final determination of the proper meaning and effect of the PMW and the BAMW. The Claimant contended that the full scope of the factual evidence was not available on the hearing of the Application. It was submitted, on behalf of the Claimant, that the court would be better informed at trial about the course of dealings leading to the placing of the Policy because there were conversations as well as written exchanges; some documents were missing from Hendersons’ file; and Mr McAndrew had refused to talk. Furthermore, the Claimant said, the circumstances in which the Claimant and the Warehouse were added to the existing cover were unusual in that, whereas in relation to the original cover the Defendants had made the offer subject to the completion of a proposal form, a survey, and compliance with risk improvement requirements within a timescale, when the Warehouse was added the Defendants’ agreement was unconditional. The Defendants did not require a proposal form or survey prior to agreeing cover, and so Defendants had no information about security protections at the Warehouse. The Defendants did carry out a survey in June 2006, but what occurred as a result of that survey is contentious.

The Judge expressed his reasons for dismissing the Application briefly. He said in paragraph 39:

“In short, this application fails because the Claimant has a well arguable case on summary issues and is entitled to a final determination on more material than is now to hand. One is used to taking a cautious view of claims about the need for the factual matrix from those on the receiving end of applications for summary judgment. The quest for absolutely everything is of course limited to that which would affect interpretation of the contract. Further, what is admissible of course is not always relevant. But in view of this very unsatisfactory handling of the administration of this contract and the way in which the defendant’s agent appears to have clammed up, I consider that the Claimant is entitled to get to the bottom of this in order to make its best case on questions of construction.”

He further said at paragraph 46:

“The least unsatisfactory construction seems to me to read the wording not to apply to defects which were not within the knowledge or reasonably capable of being within the knowledge of the insured and/or its agents. That same formula is used in the Burglar Alarm Maintenance Warranty and the same words adopted for defects. That should lead to a similar approach to construction.”

Mr Jeremy Stuart-Smith QC, who has appeared before us for the Defendants, has accepted that the Judge’s reasons for dismissing the Application are to be found in a combination of paragraph 39 and paragraph 46 of his judgment.

The Judge concluded, as I have said, that the PMW and the BAMW were warranties and not, as contended by the Defendants, merely suspensive conditions. He made a final determination of that issue. He then expressed the view, but not, so as to tie the hands of any future Judge, that, in accordance with the submissions of the Defendants, the PMW does not apply only to protections notified to the Defendants, and the BAMW applies to such systems as the Claimant installs from time to time, whether or not approved by the Defendants. The Judge expressed the view that the PMW would extend to services or devices monitored by third parties or for which third parties have some responsibility, whether or not physically on the premises. The Judge said that the vibration detector wire was not functioning at the time of the burglary, and the ADSL line was part of the protection provided and was subject to intermittent faults at the time of the burglary, but, given his other conclusions, there remained factual lines of enquiry to be pursued.

The Grounds of Appeal are clearly and precisely stated as follows:

“2.

The Learned Judge erred in declining to enter summary judgment in favour of the Defendants on the issues:

(a)Whether the Protections Maintenance Warranty applies only to those protections notified to the Defendants prior to inception of the Policy.

(b)

Whether the ADSL line by which CCTV signals were transmitted to the central station for monitoring was part of the protections provided for the safety of the insured property.

(c)

Whether sub-paragraph (b) of the Burglar Alarm Maintenance Warranty applied to the burglar alarm system in place at the insured premises.

(d)

Whether, at the time of the burglary, the following were in full and effective operation

(i)

the vibration detector/guard wire;

(ii)

the ADSL line by which CCTV signals were transmitted to the central station for monitoring.

(e)

Whether, at the time of the burglary, the Claimant was in breach of the Burglar Alarm Maintenance Warranty and/or Protections Warranty.

3.

Having correctly held:

(a)

that the Burglar Alarm Maintenance Warranty and/or Protections Maintenance Warranty were warranties and not suspensive conditions (paragraph 42 of the Judgment); and

(b)

that it was clear that neither the vibration guardwire nor the CCTV relay was functioning adequately at the time of the burglary in what could be described as full and effective operation in the lay sense (paragraph 23 of the Judgment);

the Learned Judge should have held that:

(i)

the inclusion of the words ‘All defects in any protections must be promptly remedied’ after the warranted provisions of the Burglar Alarm Maintenance Warranty and/or Protections Maintenance Warranty did not render either Warranty ambiguous;

(ii)

it was clear that there had been a breach of the warranties in force under the contract;

(iii)

the Claimant has no real prospect of succeeding in the action and there is no other compelling reason why the case should be disposed of at a trial.”

The Claimant has issued a Respondent’s Notice in which it repeats that the breach of warranty defence gives rise to issues of fact and opinion, and ought properly to be resolved at trial rather than summarily. It further says that, if that is wrong, and it is appropriate summarily to determine the true interpretation of the Policy, then the Court should hold that the BAMW has no application to the burglar alarm at the Warehouse; the PMW only applies to security precautions notified to the Defendants; and the Claimant’s obligation under the BAMW and the PMW (if and to the extent applicable) was to remedy promptly defects of which it was, or ought reasonably to have been, aware.

In my judgment, the Judge acted within the proper exercise of his discretion and this appeal should be dismissed.

There is no dispute as to the proper approach to be taken by the court on an application for summary judgment, and that the relevant principles were correctly identified by the Judge. They are conveniently summarised by Lewison J in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at para. [15].

The Claimant has a real prospect of succeeding in its Claim on the footing that the Defendants’ interpretation of the Policy, in particular the PMW and the BAMW, is not correct. I shall explain my reasons for that conclusion briefly and without addressing in detail the numerous submissions skilfully and eloquently advanced by Mr Stuart-Smith. I approach the matter in that way because I bear in mind that it is not appropriate, in rejecting the appeal, to express final determinations in favour of the Claimant. The application is one for summary judgment in favour of the Defendants, and not one for the determination of preliminary issues, and the Claimant’s own position is that the court should not summarily determine the issues of interpretation at this stage without further investigation of the facts.

The starting point is that the Defendants accept the Judge’s ruling that the PMW and the BAMW are warranties and have the consequence specified in the Policy, namely that a breach “voids the contract from the time of the breach”. Under the heading “Memoranda” the Policy says:

“3.

Warranties. Whenever and wherever it is stated hereafter that a particular Section of the Policy of Insurance is subject to a Warranty it is hereby declared and agreed that the said Warranty shall be deemed to apply to the whole Policy of Insurance and not just the particular Section of the Policy, unless otherwise stated.”

The consequence of Defendants’ interpretation is that the Warranties are draconian. The effect of that interpretation is that, if a burglar alarm or any other security protection has been installed at the Warehouse at any time during the Policy, whether or not known to the Defendants, and it is not in full and effective operation at all times when the Warehouse is closed for business or left unattended or “at all other appropriate times”, the entire Policy and the cover for all risks is automatically discharged. They are automatically discharged even though the defective operation of the alarm or the protection was not known to the Claimant and could not reasonably have been known to the Claimant, and even though the defective operation was not due to any inaction or action of the Claimant or its agents. The automatic discharge is contractually final even if the defect is subsequently remedied, with or without the knowledge or conduct of the Claimant or anyone acting on its behalf.

It is trite law that if underwriters wish to have a warranty with draconian consequences they must stipulate for it in clear terms: Pratt and Agaion Co SA (“The Resolute”) [2008] EWCA Civ 1314, esp. at paragraphs [13] and [14] (Sir Anthony Clarke MR).

It is also a well-established proposition of contractual interpretation that the more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they should make their meaning clear: Wickman Machine Tools Sales Limited v Shuler AG [1974] AC 235, 251 (Lord Reid).

Mr Stuart-Smith submits that it is the interpretation of the Claimant which produces an absurd commercial result since, on that interpretation, neither of the Warranties has any application, notwithstanding, in relation to the BAMW, that the Schedule itself identifies that particular Warranty as applying.

Mr Stuart-Smith submits that the Warranties are indeed clear and reflect the extent of the risk that the Defendants were willing to accept. The Claimant can, however, fairly point to several aspects in which the Warranties are very far from clear if the Warranties were intended to bear the meaning for which the Defendants contend. The “protections provided for the safety of the insured property” in the PMW are not defined in the Policy. That expression is capable of being given specificity by reference to the Original Proposal, which requires the proposer to identify security and protections at the premises. The Original Proposal contained an express agreement by Blueheath that “the security on the Premises and/or safeguards mentioned herein shall not be withdrawn or varied to the detriment of the Underwriters without their consent”. The Claimant has a fair argument that such agreement embraced only the security and other protections mentioned in the Proposal and that this cast light on the meaning of the PMW.

Lack of clarity arises, on the Defendants’ interpretation of the BAMW, by virtue of the reference in paragraph (a) of that Warranty to “the burglar alarm system stated in the Schedule, which has been approved by the Insurers” when the Schedule contains, as I said, no reference to any particular burglar alarm relating to the Warehouse. The reference in (e) of that Warranty to “the above alarm” would appear to be a reference to the alarm mentioned in (a), and could be said to support an interpretation that the whole of the BAMW applies only to the burglar alarm specified in (a).

The vagueness of the reference in both Warranties to “all other appropriate times” may be said to sit uncomfortably with the draconian nature of the Warranties on the Defendants’ interpretation.

The Claimant has a real prospect of successfully contending that its interpretation gives the Policy a more reasonable commercial meaning and one more likely to be that intended by the parties, by limiting the “protections provided for the safety of the insured property” to those in the Original Proposal, and any burglar alarm system within the BAMW to a burglar alarm stated in the Schedule and which was approved by the Defendants, and by limiting the Warranties, as the Judge was inclined to do, to defects within the knowledge or reasonably capable of being within the knowledge of the Claimant and its agents. So far as concerns the former contentions, the Claimant may derive some support from the “General Condition” that “the Proposal and/or the particulars in writing by which the Insured has applied to the Insurers for an Insurance in the terms stated in this Policy and which the Insured has agreed shall be the basis of this Contract shall be held to be incorporated herein.”

I agree with the Defendants that neither the Claimant nor the Judge has articulated clearly any evidence relevant to interpretation which is likely to exist and, although not available on the hearing of the Application, can be expected to be available at trial. Had this been the only ground for dismissing the Application, it would not, in my judgment, have been sufficient: ICI Chemicals & Polymers v TTE Training: [2007] EWCA Civ 725 at paragraph [14] (Moore-Bick LJ). Mr Stuart-Smith accepted, however, as I have said that it is apparent from paragraph [46] of the Judgment that the Judge’s decision included the arguability of the Claimant’s submissions on interpretation. Furthermore, I bear in mind that the Warranties are standard terms of the Defendants’ Multiline Commercial Combined Policy, which may affect many other policyholders, and that provisions in the Warranties such as “be in full and effective operation at all times” and “put into full and effective operation at all times” are said to have even wider currency in the insurance market. In those particular circumstances, combined with the arguability of the Claimant’s points on interpretation, I can understand why the Judge considered it would also be appropriate to give the Claimant the opportunity to seek and adduce any relevant and admissible factual material available by the date of the trial.

For all those reasons I would dismiss this appeal. I would make no order on the Respondent’s Notice.

I agree.

I also agree.