Seele Austria GmbH & Co v Tokio Marine Europe Insurance Ltd

This is the trial of a set of issues designed to determine whether the claimant (“Seele”) is entitled to be indemnified under a Combined Contract Works and Third Party Liability insurance policy (“the policy”) in respect of loss and expense claimed to arise out of the rectification of defective “punched” windows installed by Seele as part of a building project at St Martin’s Court, 3 Paternoster Square, London (“the Paternoster project”).

Seele’s principal business is the design and execution of glass facades and glass roofs. On 16 January 2002 it entered into a trade contract with BLS St Martins Ltd (“BLS”) under which it was to design, procure, install, execute and complete the Atrium roof glazing, Atrium wall glazing, shop fronts and external curtain walling for the Paternoster project. Under the trade contract Seele were obliged to remedy any defective work of which they were given notice and if they failed to take such steps, the client was entitled to employ and pay others to carry out the remedial work.

Included in work to be executed under the trade contract was the installation of “punched” windows in all the elevations on the second and fourth floors of the building. A “punched window” is a window installed in the spaces between vertical load bearing concrete columns and horizontal concrete floors. The window is assembled off site. It consists of an aluminum frame with pre-installed integrated glass and stone fixed to the frame. Once the window has been inserted into the intended concrete space, it is sealed to the concrete with a waterproof EDPM membrane. On the Paternoster project, the external spaces between the punched windows were to be clad in handset stone and brick. This cladding work was the responsibility of a subcontractor, Irvine & Whitlock who were contracted to BLS and under the supervision of the project manager, Bovis Lend Lease Ltd (“Bovis”). The internal finishing work – ceilings, floors and plasterboard – was also carried out by subcontractors who were contracted to BLS and who were under the supervision of Bovis.

The punched windows were tested off site in a laboratory. They passed the test. The trade contract also stipulated that 10% of the windows had to be tested once they had been installed on site. It was for the project manager, Bovis, to determine when the on site tests should be carried out. Ideally, these tests would have been executed before the handset stone and brick cladding had been erected, in case access had to be gained to the windows to remedy any defects revealed by the tests. In the event, however, the cladding work on level 2 and half of level 3 had been completed before Bovis instructed Seele to have the installed windows tested. Bovis left the testing until this stage in an attempt to speed up the project and secure an early completion bonus. Bovis were no doubt confident that, having passed the laboratory tests, the windows would pass the on site tests. In this they were mistaken, however, for when a number of installed windows were tested against water penetration with a hose they all failed the test, with the consequence that the cladding had to be removed and internal walls and ceilings opened up to allow the necessary remedial work to be executed.

The windows leaked for a number of reasons, including: (i) the incorrect installation at the factory of a termination bar; (ii) the use of too few screws to fix the EPDM membrane through an aluminium strip to the frame; (iii) faulty gluing and clamping of the membrane to the frame under the aluminium strip; (iv) faulty fixing of the membrane to the concrete pillars; (v) the penetration of the EPDM membrane by the fixing bracket for the stone adjacent to the termination bars; (vi) pin holes in the EPDM membrane caused by in situ welding by Seele; and (vii) the failure to seal the Halfen channel.

Seele incurred costs in remedying the defects in the windows. The remedial work is set out in a Method Statement dated 14 October 2002 which was agreed by Seele and Bovis. At first, time was spent trying to cut into and then patch the faulty membrane but this approach was abandoned in favour of replacing the membrane in its entirety and fixing it with more screws and gluing it in a proper fashion to the frame and concrete pillars. Seele also rectified the termination bars. Another cost was the need to have the Seele project manager on site throughout the remedial works. Seele was also charged by the employer by way of set off to the final account for the cost incurred in having the internal finishes broken open and the cladding removed by Irvine & Whitlock to allow access to the defective windows and for the cost of reinstating the internal finishes and cladding. The employer also charged Seele by way of set off for the delay to the completion of the project caused by the remedial works. It is in respect of all of these costs and charges, which are said to total £1,237,709.48, that Seele seeks an indemnity.

The first question is whether any of the loss and expense incurred by Seele in respect of the defective windows is covered under the policy. If the answer to that question is yes, the second question is for what type of loss and expense is Seele entitled to be indemnified.

The policy was in the form of a Contractors All Risks Policy with three Sections of Cover – (1) Contract Works; (2) Increased Cost of Construction of Outstanding Work (following loss or damage covered by Section 1); and (3) Third Party Liability. The period of insurance was from the commencement of the Paternoster project on 17 May 1999 to the issue of the final Certificate of Practical Completion.

The policy stated that it was effected for and on behalf Paternoster Associates, and, as is customary in Contractors All Risks policies, although the developer, Paternoster Associates, paid the premium, there were three groups of Insured: (1) the developers, their advisers and the institutions financing the project; (2) the Construction Manager /Management Contractor to be advised and/or their Sub Contractors and Main Contractors to be advised; and (3) “in respect of Section 1 only All other Contractors and/or Sub-Contractors and/or Works/Trade Contractors of whatsoever tier and/or Suppliers engaged for the purpose of The Project (as to the extent stated in Memorandum 15).”

As a Trade Contractor, Seele came within group (3), and as such was covered by Section 1 only and then to the extent stated in Memorandum 15.

The operative clause to the entire policy states:

The Insured having applied to the Insurer for this insurance and having paid or agreed to pay the Premium …. the Insurer hereby agrees to indemnify the Insured in accordance with the terms exceptions and conditions contained herein or endorsed or otherwise expressed herein in respect of any occurrence of loss damage or liability during the period of insurance.

The insuring clause in the Specification to Section 1 reads:

The Insurer(s) will indemnify the Insured against loss of or damage to the Insured Property from any cause other than as hereinafter excepted

The definition of the Insured Property is in three parts. We are concerned only with Part (a) (Footnote: ¹) which reads:

The whole of the works whether permanent or temporary including materials incorporated or to be incorporated therein and other things the property of the Insured or for which they are responsible.

In addition to the Specification, Section 1 contains 18 Memoranda. Mermoranda 15 and 18 provide (to the extent material):

15.

Indemnity to the Insured (3)

Notwithstanding anything contained herein to the contrary the indemnity provided by this Section of the Policy to Insured (3) in respect of any works carried out by them for which they are responsible which are lost or damaged due to a defect in design plan or specifications materials or workmanship shall be restricted to the extent provided by memorandum 18(2) and (3) herein

It is agreed that the excesses stated in memorandum 18 (2) and (3) hereon shall be deducted from the amount of the Insurer(s) liability in respect of loss or damage falling under memorandum 18 (2) and (3)

18.

Design Workmanship and Materials

This Section includes loss or damage arising out of a defect in design plan specification workmanship or materials other than in respect of:

(1)

100% of the cost

(i)

(a) necessary to replace repair or rectify any Insured Property (a) which is defective in design plan specification materials or workmanship

(b)

of loss or damage to the Insured Property (a) caused to enable replacement repair or rectification of such defective Insured Property

(ii)

But should damage to the Insured Property (a) (other than damage as defined in (i) (b) above) result from such a defect then (i)(a) and (i)(b) above shall be limited to the costs of additional work resulting from and the additional costs of improvements to the original design plan specification materials or workmanship subject to the Insureds Retained Liability any one event

Insureds Retained Liablity

The first 100,000 of each and every occurrence or series of occurrences of loss or damage arising out of any one event

OR

(2)

100% of the cost necessary to replace repair or rectify

(a)

Insured Property (a) which is in a defective condition due to a defect in design plan specification materials or workmanship of such Insured Property or any part thereof

(b)

Insured Property lost or damaged to enable the replacement or repair or rectification of Insured Property referred to in 2(a) above

2(a) shall not apply to other Insured Property which is free of the defective condition but which is unintentionally damaged in consequance thereof subject to the Insureds Retained Liability any one event

Insureds Retained Liability

The first £2,500 of each and every occurrence or series of occurrences arising out of any one event

(3)

The Insurers will additionally indemnify the Insured in respect of intentional damage necessarily caused to the Insured Property (a) to enable the replacement repair or rectification of Insured Property (a) which is in a defective condition subject to the Insureds Retained Liability being the first £10,000 of the cost of each and every occurrence or series of occurrences arising out of any one event but the Insurers Liability shall be limited to £2,500,000 of the cost of each and every occurrence or series of occurrences arising out of any one event

For the purpose of this memorandum the Insured Property shall not be regarded as lost or damaged solely by virtue of the existence of any defect in design plan specificaiton materials or workmanship in the Insured Property or any part thereof

Amongst the Exceptions to Section 1 is Exception 4 which provides:

CONSEQUENTIAL LOSS

penalties under contract for delay or non-completion or consequential loss not specifically provided for herein

On the first coverage question, Mr Sears QC for Seele submitted that Seele was entitled to be indemnified under Memorandum 18 (3). In his submission, Memorandum 18 (2) and Memorandum 18 (3) were two entirely different and separate regimes with different excesses and limits of liability. He contended that the meaning of Memorandum 18 (3) was plain on its face. There was no requirement that there must be unintentional damage to Insured Property (a) before there could be cover under Memorandum 18 (3) in respect of intentional damage to enable repair of that part of the Insured Property (a) that was in a defective condition. The purpose of Memoranda 18 (1), (2) and (3) was to ensure that if any part of the Works is found to be defective in the course of construction there will be available a fund to pay for the necessary repairs. Mr Sears accepted that for there to be cover there had to have been loss or damage under: (i) the insuring clause; (ii) Memorandum 15; and (iii) the opening words of Memorandum 18, and contended that the intentional damage to the cladding and internal finishes to enable the defects in the windows to be rectified was such damage. In his submission, the words “loss or damage to the Insured Property from any cause”; “lost or damaged due to a defect in design [etc]”; and “loss or damage arising out of a defect in design [etc]’’ [emphasis supplied] in (i), (ii) and (iii) respectively, were more than wide enough to include such intentional damage. He argued that the trigger for the indemnity was a defect in design plan specification workmanship or materials and maintained that such an occurrence would have the necessary element of fortuity for there to be cover under a Contractors All Risks policy.

I am unpersuaded by Mr Sears’ submissions. The drafting technique adopted in Memoranda 18 (1) and (2) is to begin by providing in unlimited terms for coverage for loss or damage arising out of defective work, then to exclude from that cover the whole of the cost of repair or replacement of any defective Insured Property and the cost of intentional damage to enable repair, and then to carve out an exception to the exclusion if unintentional damage to Insured Property (i.e. works) or, in the case of 18 (2), to those works which are free of the defect, has resulted from the defect. The actual cover provided by Memoranda 18 (1) and (2) is accordingly to be found in the respective carve-outs, and, as I have said, each carve-out is respectively conditional on the works, or those works free of the defect, having been unintentionally damaged as a result of the defect. In the case of 18 (1), the carved out cover is both the cost of repair (excluding any betterment) and the cost of intentional damage to the works to effect repair; and in the case of 18 (2), it is just the cost of repair of or rectification to works in a defective condition due to the defect.

In my opinion Memorandum 18 (3) is to be read as being part of the carve-out contained in 18 (2) and is therefore subject to the condition stipulated in 18 (2) (“the 18 (2) condition”) that non-defective works have been unintentionally damaged in consequence of the defect. I say this for a number of reasons. First, if Memorandum 18 (3) is not to be so read, trade contractors would have cover for intentional damage to enable replacement or repair without having to satisfy the 18 (2) condition, whereas the group (1) insureds, who will have paid the premium and will have need for far greater cover because of the far greater extent of their insurable interest compared with that of trade contractors, will only have such cover if the works have suffered unintentional damage resulting from the defect.

Second, unless Memorandum 18 (3) is subject to the 18 (2) condition, there is a glaring inconsistency between 18 (2) and 18 (3), since the cost of damage to the works to enable repair or replacement of works in a defective condition is excluded by the former, even where the 18 (2) condition is satisfied, whereas on Mr Sears’ construction of 18 (3), such cost is covered regardless of whether there has been unintentional damage to the works resulting from the defect.

Third, there is no logic in making the cover in Memorandum 18 (2) for the cost of repairing the defective works subject to the 18 (2) condition, but not making the cover in Memorandum 18 (3) subject to the same condition.

Mr Sears sought to answer the reasoning set out in paragraphs 17-20 by contending that the different excesses and limits applicable to Memoranda 18 (1), (2) and (3), indicated that each should be regarded as separate from the other. In my view there is nothing in this point. The different excesses and limits merely reflect the outcome of commercial negotiation having regard to the size of potential claims that can be expected to be made by Insureds (1) and (2) under Memorandum 18 (1) and by Insureds (3) under Memoranda 18 (2) and (3).

Fourth, in any event, by reason of having to satisfy the requirements of the insuring clause, Memorandum15 and the opening words of Memorandum 18, Seele must show that the Insured Property (a), and in the case of Memorandum 15, “any works carried out by them for which they are responsible,” have been damaged due to one of the specified defects. In short, no damage, no indemnity. And damage here means not a defect in the works but an adverse physical affect on the physical state of the works as a result of the defect. This is clear from the explanatory words in the penultimate paragraph of Memorandum 18: “For the purpose of this memorandum the Insured Property shall not be regarded as lost or damaged solely by virtue of the existence of any defect in design [etc]”. It also follows from the fact that the policy is a non-bespoke Contractors All Risk policy which, as such, has as its fundamental purpose the provision of cover against fortuitous damage to the contract works. It follows that the fact that the punched windows were defective does not mean that the Insured Property (a) was damaged within the insuring clause or Memorandum 15 or the opening words to Memorandum 18. The position is analogous to that in Pilkington United Kingdom Limited v CGU Insurance plc [2004] EWCA where the Court of Appeal held that various defective glass panels installed at the Eurostar terminal at Waterloo which had not broken but which might break, causing personal injury, did not constitute “loss of or physical damage to physical property” for the purposes of an All Liability policy. Indeed, as Mr Reed for the defendant insurers submitted, in the absence of a sue and labour extension, there is no damage within the insuring clause and therefore no cover under an unbespoke Contractors All Risks policy for the cost of rectification where a defect is discovered which has not yet physically affected the insured property but will do so unless it is rectified.

Mr Sears accepted, as he was bound to, that Seele had to show damage over and above the defects in the windows and their installation for the purpose of the insuring clause, Memorandum 15 and the opening words to Memorandum 18 and, as recorded above, submitted that the removal of the cladding and the breaking open of the internal finishes constituted such damage, even though the damage was intentional. In my judgement, having regard to the policy as a whole and its type and nature, it is plain that the loss and damage referred to in the insuring clause and the other two provisions is loss and damage extraneous to the insured and certainly does not include intentional damage done to gain access for the repair or replacement of a defect in the works.

Mr Sears also submitted that it would be absurd if Memorandum 18 (3) were subject to a condition that physical damage to the non-defective works had unintentionally resulted from the defect because such damage might be trifling. The answer to this point is that trifling or not, such damage is a condition to the carved out cover in Memoranda 18 (1) and (2), from which it is to be inferred, for the reasons I have given, that Memorandum (3) is to be read as being within the 18 (2) carve-out.

Even if Memorandum 18 (3) is not to be read as being part of the 18 (2) carve-out and subject to the 18 (2) condition, it will still not respond unless Seele can prove damage within the insuring clause, a condition which is virtually the same, although not completely identical, to the 18 (2) condition.

By way of a fall-back submission, Mr Sears argued that the 18 (2) condition was satisfied because Insured Property (a) which was free of the defective condition had in fact been physically damaged because during the tests on the installed windows water had penetrated onto the plasterboard ceilings of the windows. This was an adventurous submission and I reject it. It was not pleaded and no permission was sought for the necessary amendment. Further, there is no evidence whatsoever that the water adversely affected the physical state of the ceilings and for that reason they had to be replaced. Instead, the evidence of Seele’s project manager for the project, Mr Herbert Holzeitner, is that the internal plaster boards and ceilings were removed to allow the stone cladding to be removed so that access to the defective windows could be obtained to carry out remedial work (see para 30 of his first witness statement).

Moreover, in my opinion, the plasterboard ceilings in question were not “other Insured Propery which is free of the defective condition” for the purpose of Memorandum 18 (2). The ceilings were in close proximity to the defective weather seal between the installed windows and the stone and brickwork and were therefore vulnerable to the ingress of water by reason of the defective design and installation of the windows. In these circumstances they were not free of the defective condition but on the contrary were in a defective condition as was the whole facade. The situation is analogous to that Walker Civil Engineering Pty Ltd v Sun Allliance & London Insurance plc & ors (1999) 10 ANZ Insurance Cases 61-418. There a contractor who had agreed to construct three sewage pumping stations and who had had to re-build the stations using concrete when the originally installed fibreglass tanks proved defective sued on a Contractors’ All Risk policy for the cost of the remedial works other than the cost of the fibreglass tanks. An exclusion in the policy provided that the insurance did not cover “loss or damage directly caused by defective workmanship, construction or design …..but this exclusion shall be limited to the part which is defective and shall not apply to any other part or parts lost or damaged in consequence thereof”. The system as originally installed failed only because of defects in the fibreglass tanks; the equipment installed in the stations was not defective in any way. The Court of Appeal of New South Wales held that the claim was for the cost of reinstating the defective part and was not a claim for any other part or parts lost or damaged in consequence of defective workmanship, construction or design. Sheppard JA put it this way: whilst the complex of equipment installed within the tanks was not defective, the entirety of that part of the work was of no use once it was found that the tanks were admitting water and that made the whole of that part of the work defective.

Since there was no unintentional damage to Insured Property at all and no such damage to Insured Property which was free of the defective condition in consequence of the defect in the windows, for the reasons I have given, Seele is not entitled to an indemnity under Memorandum 18 (3) for any of the loss and expense it claims it suffered by reason of those defects.

There is a further reason why Seele is not entitled to be indemnified under Memorandum 18 (3). It is this. If contrary to my findings above, the ceilings and/or plasterboard were damaged by the ingress of water during the testing, those works were carried out by sub-contractors under the supervision of Bovis, yet under Memorandum 15, the indemnity provided under Section 1 to Seele as an Insured (3) is “in respect of works carried out by them for which they are responsible which are lost or damaged due to defect in design plan [etc]” [emphasis supplied].

Further, if Mr Sears is right in his contention that the relevant damage for the purposes of the insuring clause, Memorandum 15 and the opening words of Memorandum 18, is the intentional damage done to gain access to the defective windows, that damage was very largely done to works not carried out by Seele for which it was responsible as required by Memorandum 15 but by sub-contractors who were contracted to BLS and who worked under the supervision of Bovis. Accordingly, even if intentional damage is the relevant damage for the insuring clause, Memorandum 15 and the opening words of Memorandum 18, Seele would only be entitled to claim for the cost of opening up and reinstating work that it had carried out, as distinct from work carried out by sub-contractors.

Mr Sears submitted that Memorandum 18 (3) is independent not only of Memoranda 18 (1) and (2) but also of Memorandum 15 and also tentatively argued that Seele were responsible for the remedial works because they were obliged under the trade contract to put right the defects in the installed windows. I reject these submissions. In my opinion it is plain that Memorandum 18 (3) is subject to, not independent of, Memorandum 15, so that the words “the Insured Property (a)” in the second line of Memorandum 18 (3) mean “works carried out by Insured (3) for which they are responsible”. As to Mr Sears’ tentative submission, the question is who did the work that was damaged by the defect, not who did the work that caused the intentional damage and there is no doubt that the original work intentionally damaged in order to get access was very largely carried out by sub-contractors contracted to BLS, not Seele. And if it is relevant to have regard to whether the intentional damage done to gain access was done by the insured (which I do not think it is), it is plain that most of such damage was done not by Seele but by the sub-contractors who had done the original work on the cladding and internal finishes.

The second question arising out of the coverage of the policy – the types of losses and expense for which Seele can recover under the Memorandum 18 (3) – does not fall to be answered because I have held that Memorandum 18 (3) provides no cover at all in this case, and Seele have not argued that any of their claimed losses or expense is indemnified under Memorandum 18 (2). However, I think I should deal shortly with some of the matters of principle that arise if cover is afforded by Memorandum 18 (3), both out of deference to the detailed arguments both sides have advanced and because some limited consideration of these matters is necessary for the questions ordered to be tried to be answered in their entirety.

At the trial evidence was adduced as to the defects in the windows, the steps taken to remedy those defects, the make-up of charges sought to be levied on Seele by Bovis arising out of remedial works and the negotiations that led to the settlement of the final account as between Seele and Stanhope plc (“Stanhope”), the developers. All of the witnesses gave honest evidence and did their best to state the facts to the best of their recollection. Several of them were understandably reliant on the contemporary documents for the recollections they related. Mr Rice, Bovis’s Commercial Manager on the project, was mistaken when he said in his witness statement that none of the entries in a particular column related to the defective windows. And Mr Holton, Bovis’s Façade Manager, said that he had made a mistake when he relied in his witness statement on the terms of a letter which he admitted in cross-examination did not represent his views at the time.

In my opinion, it is plain that the cost of repairing and rectifying the defects in the windows are not covered by Memorandum 18 (3) since such cost is not in respect of intentional damage necessarily caused to enable the replacement or repair or rectification of Insured Property (a) which is in a defective condition. In his closing oral submissions Mr Sears accepted that this was the case but in his later closing written submissions he boldly asserted that such cost was recoverable because the wording was clearly intended to encompass works to replace repair or rectify a defect. Mr Sears was right to make the concession he made in his oral submissions and wrong to assert as he did in writing subsequently. The cost of slitting open the EDFM membrane with a view to patching it and the cost of the amended method of peeling back the membrane would not therefore be recoverable and nor would be the cost of fixing the termination bars, adding more fixing screws, re-gluing the membrane to the window frame and to the concrete pillars and additional testing to ensure the defects had been rectified. Moreover, the onus is on Seele to establish that a cost for which it seeks to be indemnified under Memorandum 18 (3) was solely in respect of access works to enable repair and rectification or that a specified part of a charge it had to bear is solely referable to such works.

One of the reasons I have given for finding that Seele is not entitled to any indemnity under Memorandum 18 (3) is that the works that were intentionally damaged to gain access to the defective windows were not works done by Seele as required by Memorandum 15. If I were wrong about this and Seele were otherwise entitled to be indemnified at least to some extent under Memorandum 18 (3), I would hold that there is cover for damage done to works to gain access to repair or rectify a defect even if those works were not themselves damaged by the defect.

Mr Reed submitted that the careful removal of the stone work so as to preserve the individual stones for re-installation was not “damage”, intentional or otherwise, to the Insured Property (a). I disagree. The cladding was up as an integral whole. Its dismantlement was damage to that whole and therefore damage to the Insured Property (a). In the course of the work a number of the stones were accidentally damaged. In my opinion, such damage was not intentional damage within Memorandum 18 (3) and cannot be recovered by Seele under the policy.

In my judgement, if Memorandum 18 (3) applied, Seele would only be entitled to the direct cost of the dismantlement and reinstatement of the cladding and internal finishes to give access to the defective windows so that the defects could be rectified. Mr Sears argued that costs levied on Seele in respect of: (a) delays to the project caused by the access work on the cladding and internal finishes; and (b) measures that were necessary to allow the access works to be carried on at the same time as other work on the project, were covered by the words “The insurers will … indemnify the Insured in respect of intentional damage…” [emphasis added]. I disagree as to (a). In my opinion, costs due to delay are not “in respect of” the intentional access work. Further, such costs in the context of this Contractors All Risk policy are a consequential loss, and as such are excluded by Exception 4. Additionally, the onus of proof being on Seele, the evidence did not establish that the delays that were charged for were caused solely by the access works or that there was a reliable basis of apportionment.

As to (b) -- measures that were necessary to allow the access works to be carried on at the same time as other work on the project -- if such measures only had to be taken because of the remedial access works and the timing of those works was determined by consideration of the overall impact of such work on completion of the project, the cost of such measures would in my opinion be recoverable under Memorandum 18 (3).

Where a charge was made for the provision of facilities which were needed partly because of the access remedial works and partly for some other reason, Seele submitted in its written closing submissions that the charge could be apportioned. This was the first time the issue of apportionment surfaced at the hearing. In his closing submissions in reply, Mr Reed submitted that as a matter of principle, there is no right to an indemnity for an apportioned sum. It seems to me that there is considerable force in Mr Reed’s argument but I decline to express a concluded view, particularly since I have not had the benefit of any submissions from Mr Sears in reply to Mr Reed.

In the course of negotiations leading to an agreed final account between Seele and the employer, the latter claimed a set-off in the total sum of £696,151.58 in respect of the consequences of the defects in the windows. All the items making up this total are set out in a document dated 12 May 2003 (“the 12 May Schedule”). Seele counter-claimed a large sum for variations. Eventually there was a top level meeting between Mr Erhard Leuthner of Seele and a senior representative of Stanhope when it was agreed that the final account sum due to Seele was £4,650,000. Following this meeting, Mr Leuthner produced or authorized the production of a document that set out the initial value of the trade contract and four items of adjustment producing a sub-total of £5,000,000, less a set-off of (£350,000), giving a total final account sum of £4,650,000. Mr Leuthner said in evidence that the £350,000 did not represent the agreed contra charges for the access work. Instead, this document simply reflected his own internal rationalization for the total final account sum. The agreement reached with Stanhope was in the nature of a commercial settlement; there was no agreement as to individual items making up the final account sum. I accept Mr Leuthner’s evidence.

In calculating its loss and expense arising out of the remedial access work, Seele has used the 12 May Schedule, making some small deductions for items they accept are not recoverable. On one view, it can be argued that Seele’s claim in respect of the access works cannot exceed £350,000, or that they are unable to establish any loss arising out of the access works since the 12 May Schedule went into the settlement pot and no one knows the extent to which that total is reflected in the final account sum. In my view, neither argument should prevail. The £350,000 was not an agreed figure and the fact that the 12 May Schedule went into the settlement pot does not mean that Seele did not suffer loss by way of deductions in respect of the access work. However, it is for Seele to prove its loss.

Issue 1: Was Insured Property (a) damaged?

Answer: “Damage” for the purpose of this issue means unintentional damaged due to the defect in the installed punched windows and on this basis the answer is “no”. Insured Property (a) consisting in small part of works done by Seele and in large part of works done by sub-contractors was intentionally damaged in order to gain access for repair and rectification of the defects in the installed punched windows, but this damage does not bring the cover provided by Memorandum 18 (3) into play.

Issue 2: If the answer to question 1 is yes, what part(s) of the Insured Property (a) were damaged?

Answer: Inapplicable given the answer to issue 1.

Issue 3: Was Insured Property (a) defective?

Answer: Yes.

Issue 4: If the answer to question 3 is yes, what part(s) of the Insured Property were defective?

Answer: The installed punched window assembly in the respects set out in paragraph 5 above.

Issue 5: In respect of Insured Property (a) which was free from any of the defects found in answer to question 4, was intentional damage caused to enable the replacement repair or rectification of Insured Property (a) which was defective?

Answer: Yes.

Remedial Works

Issue 6: What works were required to remedy the defects?

Answer: The works set out in the Method Statement dated 14 October 2002 contained in trial bundle B2/6/626.

Issue 7: What works were required to remedy the damage?

Answer: None. There was no relevant damage.

Indemnity

Issue 8: Is the occurrence of damage to Insured Property a condition precedent to the Defendant’s liability to indemnify the Claimant under Memorandum 18 (3)?

Answer: Yes.

Issue 9: If the answer to question 8 is no, is the indemnity in respect of works lost or damaged due to a defect in design plan specification materials or workmanship restricted to the extent provided by Memorandum 18 (2) and (3)?

Answer: Inapplicable given the answer to issue 8.

Issue 10: Does Memorandum 18 (3) provide for the Defendant to indemnify the Claimant in respect of Insured Property which was free from any of the defects but to which intentional damage was caused to enable the replacement repair or rectification of Insured Property which was defective?

Answer: Yes, if there has been damage within the meaning of the Insuring clause, Memorandum 15 and Memorandum 18 (2).

Issue 11: Do the works which were required to remedy defects to Insured Property (a) indemnified under Memorandum18 (3) of the Policy constitute intentional damage necessarily caused to the Insured Property (a) to enable the replacement repair or rectification of Insured Property (a) which was in defective condition?

Answer: Inapplicable because of the answers to issues 8 and 9. If there were a right to be indemnified under Memorandum 18 (3), the work done to gain access to repair and rectify the defects in the installed windows as distinct from the repair and rectification work, would constitute intentional damage covered by Memorandum 18 (3).

Issue 12: Do the remedial works undertaken to the punched hole windows (including repair and or reinstallation) constitute intentional damage necessarily caused to the Insured Property (a) to enable the replacement repair or rectification of Insured Property (a) which was in defective condition?

Answer: See answer to issue 11.

Issue 13: Whether or not workmanship deficiencies to each window are to be treated as one occurrence or one event for the purposes of memorandum 18 (3)?

Answer: Seele rightly concedes that the answer to this question is yes.