DAVID FREDERICK CUCKOW v AXA INSURANCE UK PLC

Insurance policies are to be construed according to the general principles of construction of contracts. My task is to give effect to the common intention of the parties objectively discerned when the policy was effected. As Lord Hoffman stated in Investors Compensation Scheme v West Bromwich [1998] 1 W.L.R. 896, at para 912:

“the methodology is not to probe the real intentions of the parties, but to ascertain the contextual meaning of the relevant contractual language. Intention is determined by reference to expressed rather than actual intention. The question resolves itself in a search for the true meaning of language in its contractual setting.”

When construing the Conditions in the policy the standard approach is that this Court should take into account the following principles: (1) the Court determines the ordinary meaning of the words in their ordinary and popular sense as understood by reasonable people; (2) the Court takes into account the legal effect of the words and the case law on the previous interpretation of the words; (3) the Court’s construction should accord with sound commercial principles and good business sense; (4) the Court’s construction should seek to avoid unreasonable results because the parties are unlikely to have intended such; and (5) a term will not be implied just because it may make the contract more sensible but only if the relevant factors are in place which include, when reading the policy as a whole, that the common intention of the parties would have been so expressed or because it is necessary for business efficacy.

In Arnold v Britton [2015] UKSC 36, Lord Neuberger gave guidance on the contractual construction of leases as follows:

“15.

When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord

Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, … That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions. …

16.

For present purposes, I think it is important to emphasise seven factors.

17.

First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very

unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on

the issue covered by the provision when agreeing the wording of that provision.

18.

Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.

19.

The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. … Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.

21.

The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.

22.

Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention. An example of such a case is Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56, 2012 SCLR 114, where the court concluded that “any … approach” other than that which was adopted “would defeat the parties’ clear objectives”, but the conclusion was based on what the parties “had in mind when they entered into” the contract (see paras 17 and 22).” (Factor seven is not relevant).

In 2018 in Lukoil Asia Pacific v Ocean Tankers [2018] EWHC 163 (Comm), Popplewell J summarised the approach thus, at para [8]:

“The court’s task is to ascertain the objective meaning of the language which the parties have chosen in which to express their agreement. The court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant.”

The issue of whether or not the Conditions were conditions precedent is crucial. If they are then AXA was entitled to refuse indemnity if the Conditions had been breached. If they were not then only damages may be claimed by AXA for the losses resulting from the breach. As Colman J put it in Alfred McAlpine v BAI [1998] 2 Lloyd’s Rep. 697, at p.700 in relation to the effect of non−compliance with a clause which is not a condition precedent:

The editors of MacGillivray 15^th Ed. say this about the creation of conditions precedent:

“Creation of conditions precedent.

10-034 In modern policies those terms the due observance of which is intended to be a condition precedent to the insurer’s liability or a pre-condition of recovery are usually described expressly as conditions precedent. Where the policy wording demonstrates a clear intention to give a clause the status of a condition precedent, the clause will be recognised as such. Either the policy describes an individual clause in such a way as to show that it is a condition precedent, such as “[n]o claim … shall be payable unless the terms of this condition shall have been complied with”,  or a general condition precedent clause states that compliance by the insured with obligations cast on him by the policy is a condition precedent to the insurer’s liability to pay claims. A variety of different formulations have been used to that end, but any ambiguity in the wording will be construed against the insurers. In one case, a clause stating that observance of all policy conditions was a condition precedent to liability was not conclusive as to a particular condition; the nature of which made it inappropriate to possess that status. This decision is open to question in as much as the majority of the Court of Appeal treated the clause in question as if it said that observance of all conditions precedent in the policy was a condition precedent to liability, and the dissenting judgment of Fletcher Moulton LJ is persuasive.”

The MacGillivray footnotes to that paragraph included the following cases in support of the proposition that if “the policy wording demonstrates a clear intention to give a clause the status of a condition precedent, the clause will be recognised as such”. Welch v Royal Exchange Assurance [1939] 1 K.B. 294; … Denso Manufacturing UK Ltd v Great Lakes Reinsurance (UK) Plc [2017] EWHC 391 (Comm) at paras. 22–31.

In George Hunt Cranes v Scottish Boiler [2002] EWCA Civ 1964, Potter LJ considered the law in relation to conditions precedent. The insurer was providing fast track insurance with fast pay-outs for a commercial organisation and had a condition of fast notification by the insured of claims against it, which the insured broke. The insurer relied on the condition as a condition precedent. The policy stated that: “No claim under this policy shall be payable unless the terms of this condition have been complied with.” Firstly, on labelling Potter LJ stated:

“11.

In this connection it is frequently pointed out that in relation to clauses of this kind, if the contract states that the condition is a 'condition precedent' or a 'condition of liability', that is influential but not decisive as to its status, especially when the label condition precedent is attached on an indiscriminate basis for a number of terms of different nature and varying importance in the policy. One may at once observe that that is not the case here. It is also the position that where, in a policy, individual terms are described as conditions precedent, while others are not, the label is more likely to be respected in relation to a clause expressly so identified; for instance, Stoneham v The Ocean Railway and General Accident Insurance Co (1887) 19 QB 237 per Kay J at 241. However, where one clause is labelled 'condition precedent', and a question arises as to the status of a clause not so labelled, the latter is not, ipso facto, precluded from being regarded as such. If, as in this case, the wording of the clause is apt to make its intention unambiguously clear, then in my view the absence of the rubric need not be fatal. As with any other contract, the task of construction requires one to

construe the policy as a whole. However, in this respect, as it seems to me, if there is a clear expression of intention on the wording of the clause that it shall be treated as a condition precedent, that label or apparent intention cannot simply be ignored. It should at least be

regarded as a starting point. I would adopt the further formulation in MacGillivray, 9th Ed, 19−35:

"Such clauses should not be treated as a mere formality which is to be evaded at the cost of a false and unnatural construction of the words used in the policy, but should be construed fairly to give effect to the object for which they were inserted, but at the same time so as to protect the assured from being trapped by obscure or ambiguous phraseology."

12.

It seems to me that the wording of the final sentence of clause 2(c) is sufficient to avoid any suggestion that the clause is a trap for the unwary assured.”

Secondly, on comparison with other previous decisions in which insurers had clauses purporting to create a condition precedent, Potter LJ ruled:

“16.

The fourth ground of appeal is that the judge below placed undue reliance upon the decision in Welch v Royal Exchange Assurance [1939] 1 KB 294, in which the Court of Appeal was concerned with a clause in a fire policy which, by one of its conditions, provided that, on making a claim, the insured should, inter alia, "give to the corporation all such proofs and information in respect of the claim as may reasonably be required", and in condition IV included a term identical to the last sentence in clause 2(c) in this case, namely that "no claim under this policy shall be payable unless the terms of this condition shall have been complied with." By an earlier term of the policy, it was provided that the conditions of the

policy were "so far as the nature of them respectively will permit" to be deemed to be conditions precedent to the right of the insured to recover. It was held that condition IV was a condition precedent to the liability of the insurers and that the failure of the assured to

provide information reasonably required in respect of the claim until the hearing of arbitration proceedings relating to it constituted a bar to his claim.”

In relation to the commercial reasons for the characterisation of a condition by reference to its commercial importance Potter LJ said this:

“15.

… it is argued that there is no commercial reason to consider that the parties intended that a breach of clause 2(c) should have any more significant consequence for the insurers than a breach of 2(a), (d) or (e), all of which lack any indication that they are other than ordinary terms rather than conditions precedent. I do not find that argument persuasive. Compliance with general condition 2(c) is plainly of greater importance than compliance with (a), (d) or (e). As for (a), the requirement for immediate notice of a happening which may give rise to a claim is frequently encountered in insurance policies and most unlikely to be regarded as a condition precedent. Its function is to put the insurer on notice that a claim may be coming rather than a necessary indication to him that it is time to investigate, which he will be able to do once he knows that a claim will be made. So far as (d) is concerned, unlike (c) it has nothing to do with notification, assessment or investigation of a claim, delay in which may well prejudice the insurer. It goes to the interests of the insurer in overseeing and/or taking over proceedings at a much later stage. The same is true of (e).”

The Court of Appeal ruled that the clause was a condition precedent and upheld the trial Judge’s decision.

A comparable case is Denso Manufacturing v Great Lakes [2017] EWHC 391, a decision of Sara Cockerill QC, sitting as a Deputy High Court Judge. One of the issues considered was a provision of information clause which was breached by delay. An ATE insurer required in its policy that the insured company must forward to the ATE insurer all bills or other communications which might be payable under the policy without delay. The insured had a costs order made against it then went into liquidation and the liquidators failed to pass on costs settlement offer documents to the ATE insurer for 2 months. The costs were then assessed. The third party sought to enforce the order against the ATE insurer under the 1930 Act. The ATE insured refused to indemnify the company in liquidation and hence the third party due to breach of the condition. The deputy analysed the condition as follows:

“37 The first question is whether these conditions are capable by nature of being conditions precedent. Great Lakes submits that the position is straightforward. It turns upon the effect of condition 7 of the Policy. It says that there is ample authority that such general clauses can create conditions precedent. It says that the clauses relied on here are plainly commercially vital, and apt to be conditions precedent; not least because on the facts of this case, given that Great Lakes’s potential liability to pay any “Adverse Costs” did not arise “until the Legal Proceedings are finally concluded” and “Adverse Costs” were defined as “The fully mitigated costs of the Opponent in the Legal Proceedings to the extent that the Insured is legally liable to discharge them”, the period and events which came after the conclusion of proceedings was central to the risk run.

38 It submits that there cannot really be any serious argument that the “objective commercial purpose underlying” the claims co-operation conditions and the conditions requiring the provision of information in relation to the assessment of those costs were fundamental to the Policy and amply justified (indeed compelled) their being construed as conditions precedent to Great Lakes’s liability to make payment. It submits that it is difficult to see how insurers could have sufficient protection if these clauses were not conditions precedent—otherwise the insured would have little incentive once a case was lost.

39 Denso does not take serious issue with the submission that the conditions are intrinsically capable of being conditions precedent. However, it argues that none of the conditions identified are conditions precedent at all. They are simply statements of expectation regarding cooperation. There is nothing akin to the limited category of cases (e g notification within 30 days) where the courts have been prepared to construe the conditions as conditions precedent. It also (as I have indicated) relies on the Maccaferri Ltd case as denoting a stricter approach emerging and as encouraging a consideration both of subjective knowledge and the materiality of the information.

40 On this issue it seems to me that Great Lakes is correct and that in the light of the wording and context of this ATE policy the terms relied on are capable of being conditions precedent. Conditions 7, 9 and 11 are apt to be conditions precedent in circumstances where insurers are exposed to the risk of adverse costs as the central plank of their liability. In this context, particularly in relation to mitigating the costs risk at the centre of the insurance it is also very important that the insured assist by providing all relevant documents. The Policy cannot work without the input of the insured because the insurer is not a party to the litigation, and is entirely reliant on the insured co-operating with it and giving it information. Once the litigation is over there are still important steps to be taken in minimising the quantum of recovery, which the assured may feel little incentive to do once the case is lost without such firm requirements. This is not a case like In re Bradley and Essex and Suffolk Accident Indemnity Society [1912] 1 KB [2018] 4 WLR 93

where the commercial purpose of making the clauses conditions precedent is non-existent (in that case the wages book was simply used for premium calculation); here the commercial purpose of the conditions is obvious.

41 So far as the Maccaferri Ltd case is concerned I agree with Great Lakes that that was a very different case to the present. What was important there was how one dealt with a clause which required a subjective assessment by the insured as to whether a claim was likely; there the state of the insured’s knowledge was indeed critical and intrinsic to operation of the clause. Unlike in that case, the present conditions all seek to exclude liability for an anterior obligation which had already arisen (that is, the Costs Order). They are not obligations that relate to whether cover is available in the first case. The clause here partakes much more of the nature of the clauses in the Aspen Insurance UK Ltd case [2009] 2 All ER (Comm) 873 and the Pilkington United Kingdom Ltd case [2005] 1 All ER (Comm) 283.”

I take into account the words of the editors of MacGillivray on construction of proof of loss clauses at para. 19-052:

“Construction of conditions. It is the practice of insurers to incorporate into their policies provisions to the effect that particulars or proof of loss are to be delivered in a certain way or within a certain time. These clauses are often expressed to be conditions precedent to recovery and what has been said in relation to clauses requiring notice of loss applies with equal force to clauses requiring particulars or proof of loss. In Welch v Royal Exchange Assurance [1939] 1 K.B. 294, for example, the policy provided that no claim was to be payable unless the required particulars were given within a reasonable time. It was held by the Court of Appeal that production of the particulars within a reasonable time was a condition precedent to recovery and that, even if the insured ultimately did provide them, he could not succeed in his claim. Where the insured was obliged as a condition precedent to payment to deliver proofs and information reasonably required by the insurer, and no time limit for delivery was stipulated, it was held that delivery must be effected in a reasonable time and that the absence of prejudice suffered by the insurer did not extend the time within which it was to be performed.

If the stipulation as to time is a condition precedent, a failure to furnish particulars puts an end to the insurer’s liability and the insured cannot revive his rights by delivering particulars at a later time. The benefit of any such clause can be waived by the insurer and the same principle will apply as in the case of waiver of notice clauses. A mere failure to mention the clause as a defence to a claim at an early stage will not amount to a waiver. The insurer may grant an extension of time but any conditions attached to such extension must be strictly followed. It has been held that a clause requiring, as a condition precedent to recovery, that the insured provide all the written details and documents that the insurer asked for is not “unfair” (and therefore deprived of effect) under Part II of the Consumer Rights Act 2015, replacing (with effect from October 2015) the Unfair Terms in Consumer Contracts Regulations 1999: Parker v National Farmers Union Mutual Insurance Society Ltd [2013] Lloyd’s Rep. I.R. 253 at [185]–[192].”

The Conditions were written under the heading “Policy Conditions”. MGL was warned that if it did not comply MGL “may lose all right to recover under your policy”. The Claims Notification Condition stated that MGL “must” do various things under the warning “if you do not comply with this condition we have the right to refuse to pay your claim.” (My italics). The same applied to the Claims Procedure Condition. On an objective construction of those words it is quite clear that AXA were intending to frame and write the Conditions as conditions precedent.

In the context of this case and the requests for the C&S documents, the Conditions were not merely “labelled” as conditions precedent. The information in the documents requested was important and its loss would disadvantage AXA commercially so the labelling of the tin matched the contents of the tin.

Turning to look at the commercial importance of the Conditions in relation to this specific request for the C&S documentation, I consider that the information in the contract and survey documents were fundamental or central and important to AXA’s ability to defend any claim brought and to make a claim for contribution or indemnity against any subcontractor, surveyor or installer or any materials suppliers. This was the Judge’s finding.

So, whilst in the absence of such information in the documentation, AXA could employ an expert surveyor to inspect the property, consider the damp, if necessary get a builder to take samples of the cavity wall insulation and to open up the walls to see where it was put and what it was made of and the construction of the house and it’s damp proof coursing and it’s foundations and brickwork, and whilst those matters might be of assistance in defending the claim, they would not assist AXA in determining whether the contract had any clauses limiting liability, any caveats or exemptions, or in determining whether the surveyor, if he was a subcontractor, failed to carry out a proper pre-contract survey. Nor will any post event survey assist AXA in bringing claims against the installers or suppliers of any CWI used or other third parties without the terms of their contracts. Therefore, in my judgment the information in the C&S documentation had the potential to make a considerable commercial difference to AXA’s liability and the level thereof.

Whilst such wording may not have made all breaches of all requests made under those conditions sufficient to be breaches of conditions precedent, as the case law shows, in this case I consider that in relation to a request for the information in the C&S documents, that was important to AXA’s ability both to defend the claim and to seek a contribution or indemnity from any subcontractors.

Therefore, in my judgment the Conditions in issue in this case were properly to be construed as conditions precedent in relation to the requests made in November 2018 and the Judge was right so to find and the concession made by the Claimant at trial was justified.

Having determined that the Conditions were conditions precedent the next matter to review is what they meant and whether they were breached. Stripping out the otiose words the Conditions were as follows:

“Claims notification condition: You must … give us all information we request.

Claims procedures condition: At your expense you must provide us with … any further information we may reasonably require; any assistance to enable us to settle or defend a claim.” (My emboldening)

This type of clause is commonly described as an obligation to furnish evidence clause. It is quite simple to construe in relation to information in documents which the insured does have in its possession when reasonably requested and the usual argument would then arise only over any delay in providing them. However, in relation to documents which the insured does not have in its possession or power when asked, it is more tricky. There was no case law put before me on this issue.

The time when the duty to provide or give information in documents arises is, in my judgment, only when the request is made and received by the insured (MGL/Deloittes). There is no express general duty owed to AXA to protect or retain documents set out in the policy and AXA did not seek to imply such in their pleadings or in submissions. So there was no pre-existing express duty which MGL/Deloittes breached before November 2018.

The editors of MacGillivray on Insurance Law 15^th Ed. summarise the case law on such obligations at para. 19-057 as follows:

“Obligation to furnish evidence. The policy may provide that the claimant shall furnish all such information and evidence as the insurers may from time to time require. Under this clause the insurers can ask for evidence and information which may not be absolutely necessary to prove the claimant’s case. Any such evidence or information must not, however, be asked for unreasonably. In a case where death was alleged to have resulted from an accident, the insurers requested a post- mortem examination and the judges of the Inner House of the Court of Session could not agree whether this was a reasonable requirement. The demand for

evidence must be made directly on the claimant or on those acting for him. If the claimant is obliged merely to “furnish” evidence or information, it is submitted that he can only be asked for evidence or information within his own possession and cannot be required to procure evidence or information from others in the absence of a clear indication to the contrary in the policy.”

So, the issue of whether a request made by the insurer for information in documents which the insured no longer has is: (1) reasonable, or (2) breached by the insured failing to give or provide the documents which they do not have in their possession or have been lost, is not covered by the text.

The Appellant submits that if an insured does not have the documents requested then asking for them creates the absurd result of requiring an impossibility.

A term may be construed to avoid absurd result. Lord Reid espoused this principle in Wickman Tools v L.G. Schuler [1974] A.C. 235, at p 251 thus:

“the fact that a particular construction leads to a very unreasonable result must be a relevant consideration. For 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 shall make their intention abundantly clear.”

In 1998 Lord Hoffman in ICS v West Bromwich at p 913 put the principle this way:

“The “rule” that words should be given there “natural and ordinary meaning” reflects the common-sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.”

An example from insurance law is provided in Re an Arbitration between Coleman’s Depositories and the Life and health Assurance Association [1907] 2 KB 798, the Court of Appeal construed a clause which required that the insured employer to forward to the insurer “immediately on receipt” every claim etc. as meaning “with all reasonable speed.” Per Fletcher-Moulton LJ at p 805:

“The Courts have not always considered that they are bound to interpret provisions of this kind with unreasonable strictness, and although the word “immediate” is no doubt a strong epithet, I think that it might be fairly construed as meaning with all reasonable speed considering the circumstances of the case.”

Various cases were relied upon in relation to the impossibility point. Impossibility arising after the contract was made was considered in Eurico SPA v Philipp Bros. [1987] Lloyd’s L.R. 215. The Court of Appeal considered a clause which allowed the buyers of rice cargo to require delivery at “one main North Italian port … to be declared … on passing Suez”. The buyer declared Ravenna as the port. The ship was unable to enter that port due to her draft, so discharge took place at Ancona. The sellers claimed demurrage. The majority considered that the parties could have found out about the draft limit at Ravenna. In requiring delivery there, the buyer was requiring the seller to perform the impossible. The seller sought to imply a term that choosing Ravenna was excluded under a proper construction of the term. By a majority consisting of the Master of the Rolls and Stephen Brown LJ (Croom-Johnson LJ dissenting) the Court ruled that the parties were free to agree whatever they wanted, even if that was impossible to perform, as it was in the case. The term was construed as allowing the buyer to choose delivery at Ravenna because the buyer was given the unfettered choice of main Northern Italian ports. The Master of the Rolls explained the decision as follows (at page 218):

“So far as I am aware, there is no authority which is directly decisive of this problem. It is therefore necessary to go back to first principles. My starting point is that parties to any contract are free to agree upon any terms which they consider appropriate, including a term requiring one of the parties to do the impossible, although it would be highly unusual for parties knowingly so to agree. If they do so agree and if, as is inevitable, he fails to perform, he will be liable in damages. That said, any court will hesitate for a long time before holding that, as a matter of construction, the parties have contracted for the impossible, particularly in a commercial contract. Parties to such contracts can be expected to contemplate performance, not breach.

The tools available to a court in this exercise of reluctance to accept that the parties have contracted to do the impossible are those of construction of the express terms used by the parties and of implying a term which qualifies, but does not contradict, the express terms. In many, and perhaps most, cases it may be debatable whether the court is giving the words a “commercial construction” or whether it is implying a qualifying term and I cannot think that it matters. What does matter is that in its struggle to make common sense prevail, the court cannot say that the parties agreed upon something, however sensible, when their chosen words show clearly that they agreed the exact opposite.

Let me give examples. Suppose a contract between the late Mr. Henry Ford for the sale of one of his famous Model T cars. Legend has it that he was in the habit of giving his customers a free choice as to the colour of the paintwork, provided always that they chose black. A contract to supply a car in the colour of the customer's choice, provided that he chose black, would create no problem. Black would be his only option. But a contract which in express terms gave the customer a free choice of colour simpliciter would have created serious problems for Mr. Ford. Even though the contractual matrix known to the parties was that Mr. Ford would not or could not produce cars in any colour other than black, it would have been quite impossible to construe the contract other than as giving the customer a range of options as to colour or to imply a term that he must choose black.

…

However, in the instant case the parties have expressly chosen to limit the buyers' choice in a particular way, namely to main Italian ports. This cannot mean some main ports and the plain implication is that the parties were satisfied, albeit wrongly and even negligently, that the vessel could enter any main Italian port. Given the small margin of error in relation to Ravenna, and there is no suggestion that there would have been a problem in relation to any other main Italian port, this is not so improbable as it would have been if the vessel has been a V.L.C.C. In these circumstances it seems to me to be quite impossible in principle to construe “main Italian port” as “all main Italian ports except Ravenna” or to imply a term that, notwithstanding the express terms of the option, the buyers could not choose Ravenna or any main port with a draft limitation of less than the vessel's draft on arrival or to hold, as did the Council of the Rice Brokers' Association, that “it was the Buyers' responsibility to ensure that the vessel's draft did not exceed that of the Port so nominated by them, and that therefore the consequences of their not complying with this duty were for their account.”

…

This distinction is not mentioned in any of these cases, but the reason is, I think, that in each case the “impossibility” in fact arose after the date of the contract. If this is right, they represent no departure from principle and are not material to the instant appeal. It would have been quite different if, subsequently to the making of this contract, a sudden storm had silted the harbour at Ravenna and reduced the maximum permissible draft, but this is not suggested.”

(My emboldening)

I take from this case that the Courts will try to avoid construing a contract as requiring one party to perform the impossible, but where the words are clear the construction will match the words.

At trial AXA relied on Firma C-Tade S.A v Newcastle P&I [1990] Lloyd’s LR 191, per Lord Goff at p 199 (“The Fanti”). F was a member of a Protection and Indemnity club. The club rules provided for indemnity against claims for loss or damage to the Fanti, their ship, and cargo owners, if they had “paid out”. This was called a “pay to be paid” clause. The ship started leaking on the way to Nigeria and then sunk. The claimant owned the cargo of cement and made a claim against F and obtained judgment but then F went into liquidation before paying the claim. The claimant sought to enforce the indemnity under the 1930 Act. The P&I club defended on the basis that F had not paid so they were not liable under the pay to be paid clause. The House of Lords considered the indemnity was not triggered until F paid out. Because F’s rights had been transferred to C, a self-payment would be required to trigger liability and that was impossible. The fact that payment became impossible when F went into administration and that the claimant could gain no better right that the insured had are sound principles governing the application of the 1930 Act. The commercial reasons for a pay to be paid clause may be substantial for solvent members. Futility and impossibility were dealt with at page 200 of the report and it was said that the fact that a contractual condition may become impossible to perform does not render the contract of no effect and depends on the construction of the contract. I take that into account.

Whilst the text of Chitty on Contracts 34^th Ed. at para 16-003 discusses Lord Hoffman’s suggestion that implication of terms and construction are two sides of the same coin in A-G of Belize v Belize Telecom [2009] UKPC 10, there is no need for any comment on that here. There are separate approaches. They are similar but different coins and the implication of terms is generally to occur only where the contract does not cover the matter.

Implied terms to give effect to the intention of the parties could cover a duty to retain and preserve documents, if the circumstances so required, but in this case no such term was pleaded or raised by AXA. Such implication of terms arises where the point is not dealt with in the contract and it is the obvious and necessary unexpressed intention of the parties or where business efficacy requires. In Marks & Spencer v BNP Paribas [2015] UKSC 72, Lord Neuberger ruled as follows:

“28.

In most, possibly all, disputes about whether a term should be implied into a contract, it is only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term. This appeal is just such a case. Further, given that it is a cardinal rule that no term can be implied into a contract if it contradicts an express term, it would seem logically to follow that, until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied. Having said that, I accept Lord Carnwath’s point in para 71 to the extent that in some cases it could conceivably be appropriate to reconsider the interpretation of the express terms of a contract once one has decided whether to imply a term, but, even if that is right, it does not alter the fact that the express terms of a contract must be interpreted before one can consider any question of implication.

29.

In any event, the process of implication involves a rather different exercise from that of construction. As Sir Thomas Bingham trenchantly explained in Philips at p 481:

“The courts’ usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power.””

I have also carefully considered the chapters of Lewison on Construction put before the Court. As to para. 7.88 I accept that in cases of real doubt or ambiguity the contra proferendem rule may be applied for contracts drafted by insurers when considering clauses which favour the insurer: per Briggs LJ in Nobahar-Cookson v Hut [2016] EWCA Civ 128, but as Gloster LJ ruled in Morris v Blackpool [2014] EWCA Civ 1384, that rule only comes into play when the Court is unable to reach a conclusion on construction on the material before it. I do not consider that is the case in this appeal so I rule that the contra proferentem rule does not apply.

In my judgment there was no scope in this case for the implication of terms by the Judge. None was pleaded or raised before the Judge and none is appropriate. In the current case the Conditions in the policy do cover the matter. The Conditions enabled AXA reasonably to request to be provided by the insured with the information in documents. The issue is how the Conditions are to construed.

I start by looking at the plain wording of the Conditions in the context of the policy and what MGL’s business was. MGL were to give or provide information to AXA after a reasonable request. One cannot give what one does not have and one cannot provide what one does not have. That is plain. I am surprised that Deloittes did not give AXA the standard form of contract used by MGL in September 2012. If it was never amended then it would have contained most of the information AXA needed on the terms of the contract even though the particulars contract was not provided. However a blank for of survey would not help give any information.

The relevant part of the MGL’s work was CWI installation but the policy covered the two other arms of their business (including new builds). Such work could give rise to claims for personal injury or death or breach of contract for damage to the client’s properties. The policy and the schedule expressly covered CWI work and MGL’s liability for third party claims for that work.

Both parties objectively had similar commercial interests in relation to such claims. MGL wished to be insured so that they could continue to make a net profit of £40 million per annum (as they did in 2014) and AXA wished to insure them – no doubt with a view to making a commercial profit. Both knew, or ought to be taken as knowing, that claims by CWI clients were possible (that is why insurance was taken out, amongst other reasons) and if they were made in contract the limitation period under the Limitation Act 1980 would be 6 years after the contract, or longer if the latent damage provisions applied.

MGL had a commercial interest in ensuring the insurance policy remained valid, for if it was avoided, they themselves would have to satisfy the third party liabilities. AXA had an interest in ensuring that the documents necessary to defend any third party claims were passed to them by MGL with all relevant information which they would need to defend the claim and to make claims for contribution against or indemnity from suppliers or sub-contractors. Whilst MGL were solvent (and also after administration) they had a parallel mutual interest with AXA in preserving and protecting contractual documents and surveys for CWI work so the insurance would remain valid. So, it might be said that objectively there was no need for an express clause requiring MGL to preserve and retain relevant documents because it was in their own interests to do so. It might also be said that interpretation of the Conditions should follow their mutual interests.

The Judge considered the construction of the requirement to give/provide by focussing solely on the reasonableness of the request by AXA. I consider that approach too narrow. The Judge should also have looked at breach at the same time.

So, when considering whether a reasonable request has been made and broken, the correct approach is to determine, using the normal principles of construction, the scope of the clause and whether it has been breached. This is to be done by looking at the whole policy and the circumstances and then by determining the common intention of the parties as to what the words “reasonable request” and “must give” and “must provide” would have meant when the policy was entered.

As to “reasonable request”, the Judge found that the C&S documents being requested by AXA were obviously important and MGL/Deloittes knew or ought to have known that. I shall now look at a cascade of examples of requests and breaches and see what the parties would reasonably have intended by the use of the words in the Conditions.

Dealing firstly with the information in C&S documents which did exist, if AXA had requested important documents which were, at the time of the request, in the possession or power of MGL and MGL had refused to hand them over, that would have been a plain breach of the “must provide” or “must give” wording. If, on the other hand, the documents were in another person’s possession, different considerations as to disposal would arise.

I do not consider that the parties intended that only documents in the possession or power of the insured at the time of the request would be relevant. That is too narrow a construction of the words “reasonable request” and “information”. In my judgment the Judge was right to rule that the words of the Conditions did cover the information in documents which had been in MGL’s possession in the past. But which ones?

If AXA requested the information in documents which were not in MGL’s possession or power in November 2018 because they had never existed, then in my judgment the words “reasonable request”, “must provide”, “must give” and “information” are to be interpreted as a matter of business common sense and objective common intention to mean that no breach has occurred. For to interpret this contract term as permitting AXA ab initio to require the impossible and then to refuse indemnity would be absurd and would not make good business sense to both parties and would not be their common intention and would make the request unreasonable. How could non-existence of C&S documents ever occur? It could for instance occur if MGL’s surveyor had broken the MGL procedures and made an oral contract with the customer and if the surveyor had been too busy to make a written report, so the written contract and survey had never been generated, but the work had been done on an oral contract. In my judgment these words were intended to mean that if the insured does not give or provide the documents he will be in breach unless he has a reasonable reason which explains why he cannot provide or give them. I shall explain that in more detail below. So, if the documents never existed, the proper construction of the Conditions is that they do not bite on documents which never existed either because the request is unreasonable or because “must provide” does not bite on non-existent documents. The express words do not state that the insured should perform the impossible or the absurd. They are general, not specific. They do not equate to the specific and expressly unfettered option granted to the buyer to choose a main Northern Italian port in the Eurico case, for instance. If the parties had been asked on 1.4.2014 what does this clause mean in the factual scenario just described (MGL never had what AXA reasonably thought existed and so asked for) they would in my judgment have said, “well that is obviously not a breach, the words “must provide” and “reasonable request” do not apply to documents which never existed, they relate expressly to information”.

Turning now to information in documents which did exist (in the past) but have been disposed of. The Judge held that MGL/Deloittes probably did not have possession of or power over the Claimant’s C&S documents when these were requested in 2018 so probably could not give or provide the information in them. But do the words “reasonable request” and “must give/provide” and “information” apply to all documents previously possessed or does the method of disposal have a part to play?

I consider that on the proper objective construction, if the insured had innocently lost the important documents, for instance in an office fire, the words “reasonable request” and “must give/provide” and “information” would not bite on such documents and the interpretation against absurdity and impossibility applies. This would also be supported by a common sense commercial interpretation of the Conditions.

Taking the other extreme for the set of facts leading to the destruction of important documents, I consider that on a plain and objective interpretation of the words in the Conditions different factors apply where the information in important documents has been disposed of or lost through the insured’s intentional fault. So, if the insured shredded the documents (because of fear of discovery of a VAT fraud) that would not be a good reason for explaining why he failed to give or provide and, in my judgment, the requirement to give/provide would bite on the information in those past possessed documents. This is because the request was reasonable and the excuse for failing was not reasonable and objectively, the parties at the time the policy was entered, would have intended the words to mean and be construed in that way. But the extremes of innocence and guilt are not this case. It lies in the middle.

Turing to the specifics of the case. The Judge found that MGL/Deloittes never identified the whereabouts of the C&S documents at two times: (1) in November 2018 when Deloittes did nothing to try to find them other than (perhaps) had a chat with one ex-director of MGL (which was unrecorded). They did not contact all of the ex-directors of MGL and Billsave by phone or email to ask directly where the documents were. They did not contact Stor-a-File to follow up on the contract for storage which they had paid for until July 2021. It seems to me that this omission in itself was a telling breach of the “must provide” or “must give” requirement. It matches what may have been a breach of the duty imposed on Deloittes by Statute in S.2 of the 1930 Act, namely to provide the information in the C&S documents to the Claimant in response to the 2018 letter of claim. In addition, (2) Deloittes did not take any proper care to identify, preserve and protect the information in the C&S documents in the period 2015-2016.

What then is the scope of Guilty Disposal when interpreting whether an insured “must provide” or “must give” to AXA the information in important documents which the insured has carelessly lost or disposed of and whether the request is “reasonable”?

In my judgment, the correct construction of the Conditions, determined objectively at the time of contracting, is that the parties intended that Knowledge of Importance and fault-based loss were an inherent part of the determination of whether the Conditions were breached and whether any request was reasonable.

In my judgment the reasonable and objective construction of the words in the Conditions which makes sound business sense, is that the request reasonably covered not only important information in documents which the insured actually had in its possession or power in November 2018 but also the information in documents which the insured should have had but which they had disposed of with guilty intent, recklessness as opposed to merely lost innocently. I shall deal with fault-based carelessness below. It would be hollowing out the force of the Conditions were this Court to interpret them as covering only what the insured had on the day of receipt of the request. That would permit wholesale guilty shredding the day before and would disadvantage AXA.

After the request was made by AXA and MGL/Deloittes failed to provide the C&S documents I consider that MGL/Deloittes were in breach if, at the time when the documents were lost or disposed of, MGL/Deloittes had:

In relation to Knowledge of Importance, at trial the Claimant’s counsel wrote this in his skeleton argument:

“20.

It is further submitted that on its proper construction the obligation under paragraph 2 a of the claims procedures condition is limited to an obligation to provide information within the insured’s possession or control at the time the Defendant requested it, and is not breached if the insured no longer has that information unless it ought to have realised at the time it disposed of it that the Defendant would want or need it.”

In addition, in his trial skeleton, the Claimant relied on what Peter Leaver QC stated at para.100 in Widefree:

“If an insured knows, or should know, that evidence or information is or might reasonably be required by his insurers and does not retain it, that insured runs the risk of being unable to satisfy the condition precedent.”

As a result of the Judge’s undisputed findings of fact, in my judgment it is not open to the Appellant now to assert that MGL/Deloittes were unaware of the importance of and hence the need to preserve and retain the information in the C&S documents because they would reasonably be required by AXA, should a claim be started by the Claimant. This Knowledge of Importance existed because, as the Judge found, the limitation period was still running for the Claimant and because CWI claims had already been made before MGL went into administration. I consider it reasonable to infer from the evidence and the judgment that the Judge considered that AXA would already have asked for C&S documents from MGL relating to those previous claims so their importance would be obvious from those requests. Likewise for the 60-70 claims received by Deloittes before the Autumn of 2016. But, even without such requests, the documents were obviously important for any future claim as a matter of pure logic because of their contents. The fact that the Claimant had not yet claimed, but might or might not do so, is nothing to the point. As for the ground of appeal based on the difference between whether AXA “might” or “were likely” to want the C&S documents, the distinction is without merit in my judgment. The “might” in the Judge’s judgment was about whether the Claimant “might” suffer damp in his property and so start a claim, not whether the documents might be important.

As to Guilty Disposal, if MGL/Deloittes’ intention or recklessness was the cause of the disposal then the fault element is high and I consider that objectively the parties would have intended that Knowledge of Importance combined with such fault would constitute a breach of the Conditions. The Judge did not find expressly as a fact that there was intention or recklessness on MGL/Deloittes’ part in relation to the disposal of the documents in 2015-2016 but I interpret her findings in relation to 2018 as intentional failure to seek out the documents.

However, if mere carelessness was the cause of the loss of the documents, I consider that the common intention of the parties relating to the scope of the “must give/provide” and “reasonable request” conditions and whether they will have been breached is harder to discern. It all depends on the factual matrix.

S2 of the 1930 Act imposed a duty on MGL/Deloittes which was owed to the Claimant in relation to the following documents:

“S.2 it shall be the duty of the bankrupt … company … to give at the request of any person claiming that the bankrupt, debtor, deceased debtor, or company is under a liability to him such information as may reasonably be required by him for the purpose of ascertaining whether any rights have been transferred to and vested in him by this Act and for the purpose of enforcing such rights, if any, and any contract of insurance, in so far as it purports, whether directly or indirectly, to avoid the contract or to alter the rights of the parties thereunder …” (My emboldening).

When the Claimant expressly requested the C&S documents in the letter of claim sent to MGL/Deloittes in 2018, although the Act had been superseded by the 2010 Act, it still applied. I consider that the words “information for the purpose of enforcing the claim” in S.2 entitled the Claimant to receive the C&S documents. The question arises: did the 1930 Act create a duty to retain and preserve the documents? The words set out clearly did not say retain or preserve. They were “it shall be the duty … to give at the request” so they are similar to the Conditions in the policy. That duty was owed to the Claimant not to AXA. I consider that the Act takes the argument no further forwards in relation to the interpretation of the Conditions I have ruled upon above, because the Act does not resolve the interpretation point in relation to the distinction between careless disposal and intentional disposal or the issue in relation to lost documents.

In other cases, with a different factual matrix, the loss may be due to innocent carelessness. So, for instance, due to a house move or a staff member’s silly error. Let us imagine that a director of MGL carelessly crashed his car into a lake when carrying the key box containing the C&S documents and they were destroyed. There would be no “fault” vis-a-vis AXA involved in such a loss. If that was the case, why should an insured lose cover for such a careless error absent any express duty to retain and preserve in the policy? Would this not just be another part of the insured risk? Another example would be if the September 2012 box had been lost by falling out of the back of a removal company’s lorry when MGL moved from the head office in 2015. I do not consider that the Court would or should construe the Conditions, by applying the common intention of the parties when the policy was signed, so as to debar the insured in such no-fault circumstances. It all depends on the facts.

The Judge’s findings on the circumstances of the disposal or loss of the information in the C&S documents are set out above. The Judge found various key facts, on the evidence, including that MGL/Deloittes knew or ought to have known of the importance of the Claimant’s C&S documents during the time range of their loss or disposal and yet did not identify or retain them.

In late 2016 Deloittes/MGL were not prepared to pay for the contracts and surveys to be searched for individually by Billsave staff or Deloittes staff. Deloittes did nothing to demand the delivery up of the 7,135 indexed boxes stored with Stor-a-File, which included September 2012 documents, when they blithely accepted the highlighted 383 boxes relating to “NB” instead of focussing on boxes marked “CWI”. They simply ignored the other boxes. Nor did they seek the head office files, or the non-occupied office files.

Then, in November 2018, after the letter of claim from the Claimant and the request from AXA, Deloittes again decided to do nothing (save perhaps hold one conversation with one ex-director) to find out anything about the existence or whereabouts of the C&S documents either from Stor-a-file or the ex-directors of MGL at Billsave. That was clear from Joe Barry’s evidence in cross examination and acknowledged, for instance, in Joe Barry’s telephone call made on 23 November 2018 with Ms Andrew. They had paid for storage up to July 2021 and yet decided not to contact Stor-a-File.

The consequences of Deloittes’ decisions have been catastrophic for the Claimant’s judgment. He has been deprived of the fruits of the judgment he would otherwise have been entitled to enforce against AXA.

The Judge found that Deloittes’ behaviour in relation to the loss or disposal of important documentation was “surprising” (judgment para 145), and stated that Deloittes “unwisely put performance of its obligations beyond its power” (Judgment para. 157), but did not actually say they were careless. In my judgment, the inference from all of the Judge’s findings is clearly one of careless failure to identify, retain and preserve the C&S documents between 2015 and 2016. The findings of fact in relation to Deloittes’ refusal to look for the documents in 2018 were more stark.

If it is necessary for me to do so, I find that, arising from the Judge’s findings of fact and the transcript of evidence, (1) between late 2015 and December 2016 MGL/Deloittes carelessly failed to identify, retain and preserve the C&S documents despite having Knowledge of Importance; and (2) in November 2018 MGL/Deloittes intentionally did not try to identify and gain possession of the C&S documents despite having Knowledge of Importance and knowledge of the potential whereabouts of the documents, at Stor-a-File.

The Appellant conceded in Ground 2 (the alternative submission) that if the past loss or destruction of documents, with sufficient Knowledge of Importance, was the correct interpretation of the Conditions, then “negligent” loss or destruction of the documents (if proven) would suffice to complete the breach. So the Appellant’s Ground 2 reads as follows:

“alternatively, even if a reasonable request was made for information that no longer existed or was unavailable, the failure to provide that information would, on a true construction of the conditions, only amount to a breach of the conditions if the insured deliberately or recklessly (alternatively negligently) discarded or lost that information at a time when the insured knew or should have known that that information would or was likely to be reasonably requested by the insurer.” (My emboldening).

I must consider what that concession or submission really meant. In tort law negligence involves a duty of care owed to the Claimant, breach of duty and causation of loss. In this case the contract did not expressly impose a duty of care to retain and preserve the documents. S.2 of the 1930 Act did not do so either until a request was made by the Claimant. The relevant statutory duty is one owed to the Claimant not to AXA. The term “negligently” can thus reasonably be understood to mean “carelessly” in the context of the facts in this case and the Knowledge of Importance of the documents to AXA. Therefore, in my judgment the concession on negligence was the same thing as a concession on carelessness. So, the general question whether carelessness is sufficient for Guilty Disposal is an argument for a different case because the Appellant’s Ground 2 and first two skeleton arguments on appeal conceded that point and it was not raised in the pleadings or at the trial.

Therefore, the Appellant asserts and concedes that careless loss or disposal of the documents was sufficient for Guilty Disposal and hence breach.

I consider that the Judge was right to rule as, a matter of construction of the policy, that MGL, by the actions of Deloittes, breached the Conditions of the policy by failing to provide AXA with the C&S documents which they reasonably requested. The Judge rightly found Deloittes knew or ought to have known that the C&S documents were important, relevant and would be needed for AXA’s defence of a claim the Claimant might bring against MGL and their ability to raise a claim for contribution or indemnity. The Judge found that Deloittes’ had (1) Knowledge of Importance in relation to the information in the documents requested; and (2) found, by implication from her express factual findings, that Deloittes had effected a Guilty Disposal due partly to intentional refusal to identify and seek the relevant documents in 2018 and partly due to a careless failure to identify, retain or preserve the C&S documents between October 2015 and December 2016. I respectfully agree.

Thus, the result which the Judge came to was unimpeachable on the issues before her.

I have granted permission for the Appellant to rely on the all the original Grounds and two new points from the third skeleton as requested. I have refused permission to amend Ground 2.

On Ground 1, the appeal is dismissed because, in my judgment, a request made under the Conditions is properly to be construed as reasonable if it related to information in documents previously in the possession of the insured but which have been lost due to Guilty Disposal combined with Knowledge of Importance.

On Ground 2, the appeal is dismissed because the Judge found that in November 2018 Deloittes intentionally did not seek out or try to find and give over the documents and between 2015 and 2016 Deloittes were careless when losing or disposing of the C&S documents.

On Ground 3, the appeal is dismissed because the Judge’s ruling on Knowledge of Importance was correct. Her use of the word “might” related to the possibility of a claim not the importance of the C&S documents.

On Ground 4, the appeal is dismissed because, on the facts, the Judge found Deloittes had Knowledge of Importance and that finding was justified on the evidence.

On the unpleaded Grounds in the third skeleton, the appeal is dismissed because the Conditions were rightly characterised as conditions precedent and although the 1930 Act S.2 is similar to the Conditions it does not undermine the Judge’s rulings on construction.

In my judgment none of the Grounds justify this Court interfering with the Judge’s conclusions made in her well laid out and clear judgment on the issues raised before her. For the reasons set out above I dismiss the appeal.

I will award the costs of the appeal against the Appellant on the standard basis to be summarily assessed if not agreed. I would welcome written submission on the costs within 7 days or a short hearing can be listed before me before the Easter break.