Milton Furniture Ltd v Brit Insurance Ltd

The bundles contain various plans of the premises, some drawn to scale, and others merely indicative. In opening his case to me, Mr Eklund referred to the indicative plan [CB/206] which shows that the premises comprised: a warehouse area; a workshop (access to which from the warehouse is via ‘Door 1’); an area described as ‘the Link’ (access to which from the warehouse is via ‘Door 3’); the House (connected to ‘the Link’ at the other side); and other areas at an easterly orientation described as ‘Reception’, ‘Offices’ and ‘Ashby Van Hire’. There are roller shutters on the outer wall of the workshop (described as ‘RS1’ and ‘RS2’) and on the southerly outer wall of the warehouse (‘RS3’). The seat of the fire was close to ‘RS3’, but as I shall be explaining in due course that roller shutter was locked shut at all material times.

As Mr Hyams explains at paragraph 44 of his first witness statement [B/1/15], there were two alarm systems at the premises, and these had been installed well before his arrival. The fire alarm was automatically set 24/7, and was monitored by SECOM. The burglar alarm (or, perhaps more accurately, the intruder alarm) was split into three zones - “warehouse”, “offices” and “house” – which could be set by separate codes or by a single master code. It was not possible to set the offices and house zones when either ‘the Link’ or the house was occupied. Mr Hyams asserts that it was impracticable to set the warehouse zone if the rest of the building was occupied “as regular use of and security checks in the warehouse were made”. But, as we shall see in due course, that assertion is incorrect.

The location of the burglar alarm sensors appears on the plan appended to Mr Dow’s report [C2/7/22]. I note that this plan is dated December 1994 and was prepared for the purposes of the Fire Precautions Act 1971. Mr Dow informs me that the Intruder Alarm System (“IAS”) consisted of door and shutter contacts as well as 34 individual detectors fitted throughout the premises, including passive infra-red (“PIR”) and dual detectors (the latter being a combination of PIR and microwave technologies). The discussions at trial focused on the ‘Dualtec No 8’ detector which was located in the vicinity of ‘RS3’ pointing into the warehouse. This detector operates on an arc and has a range of approximately 27 metres. It is clear from the scale drawn onto Mr Dow’s plan that the seat of the fire was well within that range.

Mr Dow was unaware of the location of the fire alarm sensors (“FAS)”, but he was taken in re-examination to another version of the same plan [D1/1] showing what are described as heat detectors marked in red. There are no such detectors in the warehouse at all, which is surprising. Ms Ansell pointed out that the warehouse had previously been used for industrial purposes, and the explanation for their absence is that fire alarm sensors would have been constantly triggered. On the other hand, we know that a fire alarm sensor was triggered on the night of this fire. Is the clear inference that the 1994 plan is deficient in failing to indicate the location of heat detectors or fire alarm sensors which were added later, or is the explanation that a heat detector elsewhere in the premises (and, therefore, some considerable distance from the fire) eventually triggered? I will need to address this question in the context of the Defendant’s case on causation.

The IAS was, or had been, monitored at SECOM’s alarm receiving centre. There is an issue between the parties as to whether SECOM was still monitoring the IAS in April 2005; and, if not, whether the Claimant knew that to be the case. At this stage, though, I need only address Mr Hyams’ assertion that the alarm system was a single integrated system comprising the FAS and the IAS. For the reasons given by Mr Dow at paragraph 6.2 of his report, as to which he was not cross examined, I reject Mr Hyams’ contention. I would add that the IAS and FAS maintenance contracts with SECOM were separate: see paragraphs 12 and 14 of the Defendant’s Opening Note.

Mr Hyams has explained the corporate structures and I may take this issue briefly, since it is uncontroversial. The first company, GPE Exhibitions Ltd (“GPE”), was incorporated on 2^nd June 2003 [D14/3895] having acquired the business and assets of Graham Parrish Exhibition Ltd (in Administration). Shortly afterwards, the Hyams decided to rebrand and use the name, ‘thefurniturehirepeople.com’ (“TFHP”), being a company which was incorporated on 28^th October 2003 [D14/3904]. GPE was permitted to trade under the TFHP brand. The third company, the Claimant, was incorporated on 1^st December 2004 [D14/3901] for the purpose of acquiring the business and assets of Milton Furniture Hire Ltd (“MFHL”). I will need to examine the circumstances surrounding the acquisition by the Claimant of MFHL’s stock because it is clearly relevant to the stock valuation dispute. The Claimant, likewise, was permitted to trade under the name of TFHP.

Following the acquisition of MFHL the plan, which had not been fully implemented by the time of the fire, was for the Claimant to take over all client-facing roles for TFHP and effectively to act as the main sales vehicle, and for GPE to operate as a fulfilment company or subcontractor for the Claimant, providing its stock to meet orders (the Claimant’s stock comprised only 25% of the aggregate stock of the two companies) and also providing general back office staff. GPE would still hire out furniture in its own right but only on a limited basis, namely sub-hires to two of the group’s main competitors in the event of need. This was done on a commission basis.

In order to fulfil this plan, GPE would pay all the costs associated with the fulfilment of the Claimant’s orders, and the latter would pay a monthly recharge to GPE for the work done, referable to the total revenue invoiced by the Claimant derived from the hire of GPE’s stock and the Claimant’s stock. Put in these terms, one would have thought that the monthly recharge, which would be appearing as an ‘output’ in GPE’s sales ledger and an ‘input’ in the Claimant’s purchase ledger, would be relatively easy to compute.

However, this has not proven to be so, for a number of reasons. First, there is a lack of clarity as to exactly how this recharge was to be calculated. Mr Hyams describes it as a “percentage of the total revenue invoiced per month” (see paragraph 38 of his witness statement [B/1/13]), whereas paragraphs 15 and 16 of Mrs Hyams’ witness statement [B/2/4-5] suggest that all the costs pertaining to the fulfilment of the Claimant’s orders were recharged. Secondly, the issue is complicated by the fact that the Claimant’s business was not limited to furniture hire but included a not insignificant element of carpet laying and stall building, as well as the fact that GPE had its own sales. These may not have been particularly large, but an additional factor is that the plan I have been referring to had not been fully implemented by the time of the fire: in March 2005 25% of sales were still going through GPE’s books as ‘run-off’ business. A final complication is that the precise allocation of costs and recharges no doubt entailed an element of discretion and flexibility in the hands of Mrs Hyams. Her intention was to ensure, if she could, that none of the three companies would make a loss over the course of an accounting year, but that may well have been aspirational. She was metaphorically juggling a number of balls, and – as at 23^rd February 2005 when the plan was first implemented - she had little idea whether, or how, each could remain airborne.

It should be noted, and the Claimant’s witnesses did not dispute, that GPE in particular had been experiencing financial difficulties. GPE’s accounts for the year ended 30^th June 2004 [D2/424] showed turnover of £656,477, gross profit of £265,321 (i.e. a ROGP of 40.42%), administrative expenses of £446,197 and a loss of £180,876.

In Opening his case to me, Mr Eklund took me through the relevant documentation in the Core Bundle. For present purposes it is possible to focus on those documents which potentially throw light on the issues in dispute.

The Defendant’s quotation sheet dated 2^nd July 2003 [CB/4] , addressed solely to GPE (the Claimant did not exist at that stage), provided as follows:

“BRIT Commercial Combined

As per Wording unless indicated below

…

Conditions of quote

…

PW1, PW3”

Mr Eklund places particular emphasis on the terminology, “unless indicated below”. The “Wording” is the Commercial Combined Insurance policy document [E/2], the key provisions of which I have already set out. The Claimant was required to complete a proposal form in the usual way [CB/21]. The answer to the question - “are the premises occupied at night?” - was given in the negative. The Claimant also gave details of the SECOM monitored burglar alarm.

On 2^nd March 2004 Mr P.J. Bees carried out a survey of the premises on behalf of the insurers [CB/32]. He recommended that a number of improvements be carried out to reduce the risk. On a ‘Confidential Sheet’ [CB/35] he recorded:

“The direct communication with the dwelling house presents no additional risk. Mr Hyams at present lives there during the week.”

Mr Eklund placed reliance on this survey document in support of the proposition that the Defendant knew or could have deduced that the premises would not be alarmed when Mr Hyams was living there. Ms Ansell submitted that the document does not bear the weight of that interpretation, and its sole purpose was to highlight that Mr Hyams’ use of the dwelling house during the week did not augment the risk. I prefer Ms Ansell’s submissions on this issue. In any event, it is unsatisfactory to seek to draw inferences from documents of this nature. The proposal form, and other contractual documentation, is considerably more valuable in this regard.

The renewal quotation addressed solely to GPE in July 2004 [CB/57] did not differ materially from the first quotation.

On 2^nd December 2004 insurance cover was extended to include the stock purchased or about to be purchased from MFHL [CB/65]. The sum insured was £250,000 although the Defendant was made aware that the purchase consideration for the stock was £52,500. On 31^st January 2005 [CB/84] insurers were informed that (i) MFHL’s book valuation of the stock was £211,500, and (ii) an independent valuer had valued the stock at £251,900. In point of fact, my interpretation of [CB/80] is that the book value was £220,044.

In the meantime, on 10^th January 2005 the Claimant completed a further proposal form at the Defendant’s request [CB/81]. In answer to the question - “are the premises occupied at night?” – the ‘yes’ box was ticked and details were given - “5 of 7 nights, Mr Hyams”.

To my mind, these are the only documents which are relevant for present purposes. Plainly, they need to be read in conjunction with the commercial schedule and the Commercial Combined Insurance Policy to which I have already referred. Mr Eklund also took me to post-fire documentation, and to the stance taken by the Defendant at various times, including its response to the FOS ruling. I have also noted that the liquidators of GPE accepted the Defendant’s repudiation of the insurance contract and the latter’s return of the premium. None of this has helped me in addressing the issues which I have identified.

According to Mr Hyams’ witness statement, he enjoyed a good relationship with the owners of MFHL, Mr and Mrs Turner. In late 2004 the Turners approached the Hyams as they wished to retire to Spain and their children were not making a success out of running the company. In Mr Hyams’ view, MFHL’s “design-led” stock perfectly complemented GPE’s offering, and after a “hard” negotiation the stock was bought at a significant under-value. The Turners were looking to achieve a quick-sale and to embark on their retirement as quickly as possible.

There is little documentary evidence surrounding the purchase of MFHL’s stock. The Core Bundle contains a copy of the Asset Sale agreement but it is unsigned and undated [CB/66]. Schedule 3 to this agreement, a stock list, has not been provided [CB/75]. The Defendant hotly disputes Mr Hyams’ assertions. These will need to be examined with care later.

Mr Hyams’ evidence was that, after late December 2004, he stayed at the premises, in the dwelling-house, five times a week “more often than not”. He agreed with paragraphs 21 and 24 of Mr Furley’s witness statement given to Cunningham Lindsey [B/9/8] which was to the effect that the latter stayed overnight at ‘the Link’ frequently, “sometimes 3-4 nights a week, sometimes more 7 days depending on work/family commitments”, and that when he was not there Mr Gavin Anderson was.

The alarm log [CB/299ff] shows when the burglar alarm was set/closed and unset/opened. Ms Ansell has carried out an analysis of this material (see Appendix B to her Opening Note), as has Mr Dow (see his revised Appendix C10). This shows that, particularly after December 2004, the alarm was usually set at night. The alarm log cannot discriminate between the various zones, but the evidence of Messrs Hyams and Furley, which I accept, establishes that the alarm could not have been set in the house or office zones. Had it been set in those zones, it would obviously have gone off. It follows that the alarm must have been set in the warehouse zone alone; thereby controverting Mr Hyams’ assertion that it was not reasonably practicable to do this. I also draw the inference that the warehouse zone was ‘armed’, almost certainly by Mr Hyams and if not by him, by another code holder, after Mr Furley or Mr Anderson had carried out their final patrol.

The alarm log also contains no record of any monitoring by SECOM after 12^th February 2005. It is therefore unclear whether the alarm was usually set at night after that date.

Ms Ansell took Mr Hyams in her cross examination to a number of documents relevant to the burglar alarm. Mr Hyams’ answers to her questions were vague and unconvincing. Ultimately, I attribute this to the factors I have already mentioned rather than to evasiveness. I believe that he probably did see a number of documents at the relevant time, and that he has now forgotten them.

The Core Bundle contains the SECOM maintenance quotation dated 22^nd July 2003 [CB/289] but the July 2004 invoice is not available. The latter is likely to have been in the same or similar terms. The monitoring charge is payable annually in advance. Pursuant to clauses 7(f) and (g) of SECOM’s standard terms [CB/290], in the event that any charge was overdue for more than 30 days SECOM had the option either to cease to provide services or to terminate the agreement and remove its equipment. In either event notice had to be given to the customer.

It is clear from SECOM’s documentary evidence supplied to Dr Tompsett, admittedly hearsay, that the July 2004 invoice was not paid, and the Claimant does not contend otherwise. According to SECOM’s document entitled “Accounts History” [CB/349], a reminder letter was sent on 25^th August 2004, a final demand on 14^th September 2004, and a final demand with suspend notice on 13^th October 2004. This process was repeated in December 2004, “but account [sic] was not put on final suspend until 11^th February 2005 which resulted in the site not being able to request an engineer to attend due to non-payment”. However, the formal request to Redcare to cancel the monitoring service was not sent out until 24^th April 2005 [CB/350]. Mr Dow explains the significance of the formal request and in my view nothing turns on this: it is clear that, for all practical purposes, monitoring of the burglar alarm by SECOM ceased in February 2005.

On 12^th May 2005 SECOM provided the following information to Dr Tompsett [CB/348]:

“we suspended service on 11^th February 2005, so we gave the customer adequate time to contact us, I am sure we acted in a fair and reasonable manner.”

I regard this statement as somewhat terse. I remarked during the course of the trial that SECOM did not provide Dr Tompsett with copies of the formal notices it sent to the Claimant – it appears, on more than one occasion. It is also somewhat surprising that these documents did not feature in the Claimant’s disclosure. I cannot accept, and it was not contended, that all of these could have been mislaid in the post. If, as is probable, SECOM’s statement was intended to refer to the sequence of events which started in December 2004 (i.e. the repetition of the sending out of the final demand, and then the final demand and suspend notices), it is unclear why SECOM waited until mid-February 2005 to activate the cessation.

On 17^th February 2005 SECOM’s accounts department wrote to the Claimant [CB/85] informing it that SECOM’s engineer was unable to carry out the scheduled maintenance check on that day when he called at the premises. This letter, unlike its successor (see below), gives no reason for the engineer’s inability to gain access. Mr Hyams’ evidence on this issue was, I regret to say, entirely unsatisfactory. According to paragraph 46 of his witness statement, he was unable to recall any dispute and did not know why the invoice was outstanding. His oral evidence [Day 1/99-100] was that he knew that there was a dispute and its subject matter was that there had been a number of false alarms which “had really irritated us”. I then put to Mr Hyams that this was not a proper reason for failing to pay SECOM’s invoice, which was payable in advance, and I adhere to that view. Furthermore, there is no evidence that the Claimant took active steps to take up this dispute with SECOM and/or sort out the false alarms issue.

I fully appreciate that the February 2005 letter was scarcely consistent with the fact that the monitoring service (and, presumably, the maintenance of the alarm system) had already been withdrawn, and that it is arguable that the Claimant might have been lulled into a false sense of security. Another complication, although I doubt that it misled anyone, is that SECOM’s letter warned that the police connection could be terminated, whereas it had already been withdrawn in 2001. I believe that the simple explanation for this letter is that the left hand did not know what the right hand was doing. Furthermore, there is no evidence that the Claimant was in fact misled by this letter. The Hyams did not tell me that they drew comfort from it and/or assumed that the monitoring service had not been discontinued.

On 22^nd March 2005 SECOM’s accounts department wrote again to the Claimant [CB/87] seeking to resolve the dispute over non-payment of the July 2004 invoice. Again, this letter is not easily reconcilable with the fact that the monitoring system had already been withdrawn, but this is another case of crossed wires within SECOM. Although both of these letters appear to have been tailor-made to some extent, I suspect that their authors were working from time-honoured templates. Not without a degree of bathos, the Core bundle also contains another letter from SECOM dated 7^th July 2005 [CB/372] threatening to suspend its services.

Mr Hyams suggested that his wife knew more about the SECOM correspondence than he did, but when Mrs Hyams was cross examined on this issue I felt that she was not being as forthcoming as she might have been. She claimed that she had no recollection of any final demand being sent, and that she was unaware of there having been any danger, as she put it, that the alarm monitoring would cease. On balance, I do not accept her evidence in those specific respects. An additional factor which I bear in mind is that GPE was fighting off a number of small creditors at this time, and Mrs Hyams was no doubt hoping that she could string matters out for as long as possible.

These are the evidential planks for my consideration of Issue (iv), to which I will be returning.

I agree with Ms Ansell that the facts are undisputed: it follows that they may be set out briefly. Mr Hyams finished working at 18:30 on 8^th April 2005 but he left the premises and returned at about 20:30. Mr Furley finished working at about 20:30. He carried out a security check of the warehouse in particular. This entailed checking that all the doors and roller shutters were locked. RS1 had not been – an employee of shortish stature who could not reach the bolt had secured it from the inside using a piece of wood – and so Mr Furley closed the bolt. Mr Furley then did an external perimeter check, had a bath, and retired to his bed in ‘the Link’ at around 22:00.

The burglar alarm was not set that evening. Mr Furley’s evidence was that he was woken by the activation of an alarm, which must have been the fire alarm, at 00:46 on 9^th April. He then woke up Mr Hyams, who was also alerted to the activation of the fire alarm by SECOM, who was still monitoring that alarm, apparently as a “goodwill gesture”.

It was soon discovered that RS1 and ‘Door 1’ were open. There was no sign of any damage to RS1.

Dr Tompsett’s conclusion is that the fire was deliberately started and [B/5/4/para 11]:

“… the fact that Door 1 and RS1 were open, despite the fact that witnesses state that they were secured, showed that someone either left the building via that route or someone opened these doors in an attempt to show a point of entry.

…

The fire was started either by someone hiding within the building prior to the building being secured or it was started by someone with legitimate access to the premises.”

I agree with these conclusions. I am prepared to go very slightly further. As regards the first of these conclusions, I consider that it is more likely than not that the arsonist actually left the building through ‘Door 1’ and RS1. This would presuppose a degree of inside knowledge, but I should make it clear that there is no evidence linking this fire to any witness from whom I heard, and the Defendant is not seeking to avoid this insurance policy on the ground of arson by the Claimant. As regards the second of these conclusions, I am in a state of complete agnosticism as to which is correct on the balance of probabilities. I appreciate that one must be true, but both are extremely implausible, even making allowance for the fact that the arsonist must have had inside knowledge. What would have happened had the burglar alarm been set is a matter which I would like to address at a later stage.

All bar 1.6% of the Claimant’s stock was effectively destroyed in the fire.

It is convenient to address this evidence under the sub-headings previously identified – value of the stock, turnover and ROGP – notwithstanding that there is a degree of overlap.

Mr Hyams originally sought to value the Claimant’s destroyed stock by applying a multiplier of 2.4 to a multiplicand of hire-out cost. Plainly, this is not a valid approach and the experts have not sought to support it.

Ms Ansell devoted some time in cross examination in seeking to demonstrate that Mr Hyams had deliberately manipulated the figures to boost the value of the claim. The bundles contain a number of schedules, presumably derived from Excel spreadsheets, which purport to list MFHL’s stock both by category and number within each category. I do not propose to go into the detail of this. As already observed, MFHL’s original stock list is not available. However, we do have what are likely to be subsequent iterations of that schedule (I infer that an electronic copy must have been made available to Mr and Mrs Hyams at one stage, probably in November 2004), and the earliest version is the one likely to be the most reliable. This is the version Mr Black has used for the purposes of his valuation exercise. Unfortunately, Mr Hyams chose to use or create another version, and clear discrepancies as to the number of items in some of the categories of furniture have arisen. Unsurprisingly, Ms Ansell concentrated on the discrepancies which work to the Claimant’s advantage, although to be fair to her she said that there were also example of mistakes which worked to the Claimant’s disadvantage. Mr Eklund took Mr Hyams to those in re-examination, and it has been demonstrated that there are a number of significant errors which fall into the ‘to the Claimant’s disadvantage’ category. Ultimately, I ascribe these mistakes to innocent, human error rather than any deliberate attempt to mislead.

I asked Mr Hyams about the negotiations leading to the purchase of the stock from MFHL. He made clear that there were three or four meetings with Mr Turner. First of all, Mr Hyams stated that the Turners’ initial offer was “£50,000/60,000” and that Mrs Turner showed him the balance sheet and the stock list [Day 2/19/lines 2-3]. He said that his opening shot in the negotiation was not a lot lower than the £50,000/60,000. If that were right, one would have thought that the negotiation would and could have been wrapped up speedily. I was concerned that Mr Hyams may have lost the thread of my questioning, and so I returned to the point in this way [Day 2/19/line 21-24]:

“MR JUSTICE JAY: was her figure much higher than the £52,000?

A. I seem to recall that she was looking for somewhere nearer 50 per cent of the balance sheet – of the value of the stocklist, which was somewhere in the region of £250,000.”

I have thought carefully about this answer, its potentially self-serving nature, and its deviation from the previous answer he gave. In fact, the MFHL balance sheet shows £220,044 for the value of the stock, depending on the treatment of creditors [CB/80]. In the end, I have concluded that Mr Hyams’ second answer, after he had been pressed on the issue, is more likely to be correct. Mrs Turner’s price was probably slightly more than £100,000 (I take the 50% as being the more reliable part of Mr Hyams’ evidence, not his recollection of what MFHL’s balance sheet said).

Quite rightly, Mr Hyams was pressed by Ms Ansell as to the condition and quality of the stock. He sought to persuade me that much of it was “design-led” and therefore of enhanced value, but in my view that was wishful thinking on his part. Virtually all the MFHL-inherited stock was core stock, although some of it was still boxed-up and unused. Mr Hyams also sought to persuade me that the stock was “perfect”, “pristine” or in “very good” condition, but here again a reality check is required. Subject to being repaired, cleaned and ‘tarted-up’ for exhibition use, it was ordinary, adequate furniture, but nothing more (or less) than that.

There was convergent evidence from a range of sources, some of which are admittedly hearsay, which have drawn me to that conclusion.

First, and perhaps foremost, there was the evidence given under cross examination by Mr Furley. The whole of his evidence at pages 174 to 177 of the transcript for Day 2 needs to be considered, in particular Mr Furley’s answer to my questions:

“MR JUSTICE JAY: If I were to ask you whether the Milton Furniture was the same or different from GPE’s furniture, would you be able to answer that?

A. Yes.

MR JUSTICE JAY: what would your answer be?

A. The core furniture in that trade, in that period of time, would have been the same for multiple different companies. The Milton furniture fell into the core group of what lots of companies would have been using at the time …

A. I’m using – somebody – somebody said this yesterday about core group. I’m using them words because it covers it.

MR JUSTICE JAY: it fell into the core group, but I suspect because it hadn’t been used for a while it needed to be tightened and tarted up, etc?

A. Yes, needed work on it.

MR JUSTICE JAY: help me a little bit more. How did it differ from other companies’ furniture? This is the Milton furniture. …

A.

A small percentage did differ. Some of it was still in boxes. I presumed them to be new or nearly new, but the vast majority was core stock. It was uniformity.”

I should add that Mr Eklund challenged Mr Furley’s evidence that the MFHL stock was all ten years old. Doing the best I can from looking at the photographs in the bundle, and the additional photographs supplied by Ms Ansell, I feel that I may fairly conclude that some of the stock might have been quite elderly, but that most of it was not.

Secondly, Ms Ansell took Mr Hyams to the witness statement of Mr Ross Redican, who had been employed by GPE since the summer of 2004 and had considerable expertise in the industry. Mr Hyams agreed with paragraphs 34-37 of Mr Redican’s statement [CB/342]. There, Mr Redican stated that the Milton furniture was not good enough for front-line Premiership teams (in this respect he was equating Milton’s furniture with GPE’s – see paragraph 34), needed considerable expenditure, but represented a very good deal.

Thirdly, Ms Ansell took Mr Hyams to photographs of the Claimant’s post-fire stock, namely the 1.6% which had not been in the warehouse at the material time. Some of it appeared to be in a forlorn state, but much of that appearance was attributable to the manner in which it had to be stored, and the fact that it had returned from an exhibition. It had not recently benefited from the Tipp-ex and marker pen treatment which Mr Hyams freely admitted habitually took place.

Fourthly, I accept Mr Hyams’ evidence that he would not have purchased this stock if it had been truly as poor as some people had been suggesting. I also agree with him that the purchase from the Turners was a good deal from his perspective, and that his negotiating cards were stronger than hers. People selling up in these circumstances are likely to have to take a major hit, unless - that is - the market is booming. That said, I felt that Mr Hyams over-stated the case when he claimed that this was a quick-sale: payment was to be made over 40 months.

In contrast, I have not been swayed by two other considerations. First, Mr Eklund submitted in opening that the book value of the stock was a useful “check”. I believe that is putting it too high. Mr Hyams accepted in evidence that book value was not a proxy for actual value. I also deduce this from MFHL’s balance sheet as well as from GPE’s. Further, when he was taken to an application for finance made on 7^th February 2005 [D3/842], Mr Hyams agreed that both the Claimant and GPE needed as high a stock value as possible in the accounts because the stock was required as collateral for the loan. I suspect that this is fairly standard practice in the trade. The second consideration is that I do not consider that much may be deduced from the evidence relating to the valuation of GPE’s stock, on which Ms Ansell sought to place reliance, save for the point that book value is a poor proxy.

Ms Ansell made the slightly different point in paragraph 57 of her Closing Note that, given that (i) GPE’s stock was insured for £800,000 and had a book value of £242,171, and (ii) the Claimant’s stock may be assumed (for these purposes) to be in the same condition, it follows that the Claimant’s insurance cover of £250,000 equates to an actual value of no more than £75,000. I do not accept the logic of this at all. It wrongly assumes that the book value has relevance, and it asserts (without evidence) that there is some a priori ratio of book value to insurance value.

Save in one respect, Mrs Hyams did not assist me with the value of the stock. Perhaps surprisingly, no one thought to ask her any questions about the negotiations with the Turners in which she participated.

Mrs Hyams was taken to GPE’s document dated 10^th January 2005 [D3/795] addressed to someone who was giving the company financial advice. The material part reads:

“Current value of stock is roughly estimated to be about £200,000. Leaving the stock with a value of say £50,000 would give us a chance to re-value later, but on the other hand reduces the value of stock as security – please advise implications.”

Clearly, this cannot be regarded as a self-serving document. It must therefore be given some weight. Mrs Hyams explained further that this valuation was not based on the 2.4 multiplier, but reflected what her husband and Ross Redican thought the stock was worth. Although I could not regard Mrs Hyams as a reliable witness in many respects, I believed this part of her evidence. It lends support to the proposition that these men thought that the stock was worth roughly £200,000 and that this valuation was not coloured by the need to boost the value of the stock as collateral. Thinking and being are, of course, separate matters.

The Claimant accepts that GPE was in poor financial health, but its case is that it had turned the corner and was about to make considerable progress. Mr Hyams told me about the companies’ 7-point strategy for moving forward, and that six out of the seven points had been achieved by the time of the fire (see paragraph 19 of his first witness statement). Ms Ansell closely cross examined Mr Hyams about two of these points.

First, in September 2004 GPE hired a new sales director, Mr Ross Redican. According to Mr Hyams, he is a major figure in the industry: a rain-maker (my term, not his) who “is his own cv”. By the time of the fire Mr Redican had successfully ‘landed’ one major new show, ‘A Place in the Sun’, which took place in London between 1^st and 3^rd April 2005, and Mr Hyams asserted that there were others in the pipeline. The lead-in times were lengthy and it took time for the seeds to germinate.

There was some debate with Mr Hyams as to what he meant by ‘landed’, and his answers were inconclusive. It was unfortunate that he was not taken to the Schedule entitled ‘GPE Exhibitions and Events’ [D3/788.1] which provides a reasonably clear picture, subject to it being taken at its face value. From that Schedule one may clearly differentiate work which has been booked (‘OC’ is likely to mean, ‘order confirmed’), and ‘quoted jobs/events’, the latter being work in the pipeline which has not yet been ‘landed’. It is unclear how much of this work would have come to fruition. In addition, Mr Redican (designated by his initials, RR) does not feature very often. In my judgment, the highest the Claimant may properly put this point is that Mr Redican’s influence had yet to bear much fruit.

Ms Ansell also asked Mr Hyams to substantiate his assertion that GPE would have purchased the freehold of the premises. On 11^th November 2004 a mortgage house decided in principle to lend £1,000,000 against a freehold valuation of £1,450,000 [D9/2368]. An offer letter was sent in December requiring proof of the source of the deposit [D9/2377]. On 23^rd December the purchase price was reduced to £1,112,000 [D9/2387] but, notwithstanding chasing letters, proof of the deposit was never provided. Mr Hyams explained that the vendors had agreed to lend GPE the deposit money, but this surprising assertion is not supported by any document. If this were true, one would have thought that GPE would be driving the deal forward to as early a completion as possible, but it did not.

Accordingly, I must discount altogether this point in the 7-point strategy. Indeed, the only points which seem to me to have much validity are the fact that these companies had acquired additional stock and, taking into account too the advent of Mr Redican, there was a concomitant degree of optimism going forward.

Mr Hyams’ evidence was that a ROGP of 30% was entirely reasonable because that is the discount or commission which routinely applies when furniture is sub-hired to competitors within the trade. Ms Ansell sought to demonstrate that the true figure for commission was lower than that (see [CB/389] and [CB/409]), but I accept Mr Hyams’ evidence that the JMT commissions do not represent standard-practice. Europa offered 30% [CB/479] and in my view this does represent what most furniture hirers were doing in relation to arrangements inter se.

Yet my conclusion that 30% was the commission furniture hirers traditionally imposed in these circumstances should not be confused with any conclusion to the effect that this represents a good proxy for the ROGP. I should make clear at once that in the circumstances of this case I am convinced that it does not. There are two inter-related considerations which apply. First, there is no evidence that GPE was charging the Claimant any commission on this basis or at all. Secondly, the relevant ROGP would depend on the exact nature of the arrangements between GPE and the Claimant, not on industry understandings applicable to an arms-length commercial context.

Mrs Hyams sought to persuade me that the ROGP in the present case should be deemed to be in the region of 47%. She drew my attention to the document entitled “MF Re-Allocation of GPE Sub-Contracting to Correct the Ledger” [D13/3744] which she told me came into existence in 2011 or 2012. According to the original Milton purchase ledger, which was completed on a monthly basis, the recharge for February 2005 was £31,400 and the recharge for March was £73,000. I note that these are round numbers. If these allocations are correct, then they yield low ROGPs: 8.1% and 3.3% respectively (Mr Isaac’s weighted average approach over three months produces ROGPs of 4.8% and 6.6% respectively). However, Mrs Hyams told me that they were incorrect because (a) at the relevant time she was looking at annualised figures, and she was not concerned to allocate the costs systematically month by month, (b) it had not proven to be possible to calculate the recharges show by show, as they ought to have been, and (c) looking at the recharges in the existing purchase ledgers for subsequent months demonstrates that the February and March recharges must have been too high, because those for later months are evidently too low.

Mrs Hyams’ reallocations were achieved by taking the total in the existing purchase ledger, namely £131,781, and redistributing the surplus from February and March over the later months. Her contention appeared to be that the ROGP must be deemed to be 46.87%, because £131,781 is 46.87% of the Claimant’s sales, namely £258,776.

I cannot accept this approach, and (to be fair to him) neither did the Claimant’s expert, Mr Black. I have seen no evidence that Mrs Hyams looked at the Claimant’s purchase ledger and sought to reallocate what properly fell to be paid to GPE on a month by month basis. The Claimant’s trading conditions materially changed after the fire, and it is quite unclear why Mrs Hyams has notionally halted the reallocation exercise at the end of June 2005 rather than carry it forward to subsequent months.

A further fundamental difficulty with Mrs Hyams’ 47% is that it is quite impossible to reconcile that with her stated intention to keep all three companies not running at a loss [Day 2/58/15-19]. Even a most cursory glance of the accounts demonstrates that GPE would have been making a significant loss at 47%.

Ms Ansell sought to go further and to persuade Mrs Hyams that she made no mistake back in February and March 2005. She made some progress in that endeavour. Ms Ansell took Mrs Hyams to [D7/2041], a document dated 13^th May 2005, which shows exactly the same recharges as before. The same point may be made about [CB/409] which was posted in August 2005. GPE’s purchase ledger [D10/2947] shows the same figures but the accountancy evidence was that these do not reflect the actual costs.

I appreciate and understand the point that Ms Ansell was making, but Mrs Hyams accepted that it was not until years later, when she was preparing the claim after the FOS ruling, that the recharges were reallocated. The key issue for me to decide is whether the reallocations were correctly posted at the time.

Ms Ansell’s final attempt to uphold the integrity of the recharges allocated at the time was based on taking Mrs Hyams to the Claimant’s profit figures for January to March 2005. These are, respectively, £2,406, £2,761 and £2,505: see, for convenience, Mr Isaac’s table at [C1/3/39]. Mrs Hyams denied that she was attempting to achieve a particular level of gross profit in each month, and said that the proximity of the figures to one another was coincidental. On balance, I agree.

Ultimately, albeit not without some hesitation, I am persuaded – in particular, by point (c) in paragraph 85 above - that the figures of £31,400 and £73,000 have been wrongly allocated. What the correct figures are, and how they might be ascertained, is quite another matter.

The final piece of evidence which I need to address at this stage is [CB/86], which Mrs Hyams was asked about in cross examination. The date of this document is unclear but, given that it provides an explanation as to how invoices should be entered on the Sage system in relation to what is described as ‘Milton Furniture Hire Ltd’, it must have been created in late 2004 or early 2005. On my reading of this document, the relevant recharge, namely the recharge referable to the Claimant’s sales to contractors, was to be based on 80% of the sales, leaving a ROGP of 20%. Mr Eklund asked me to ignore the 90% recharge which was in respect of ‘other furniture sales’, but given that the Claimant was intending to pay these amounts to GPE it seems to me that they fall into consideration. On the other hand, this document is not particularly persuasive because (a) there is a question mark placed against the relevant figures, and (b) it predates the actual recharges and is merely an indication therefore of how they were intended to be carried out in practice.

The issues between Mr Black and Mr Isaac have narrowed during the course of this litigation, and I am grateful for the Joint report which has been prepared. For the purposes of this Judgment I intend to focus on the evidence which is essential to a proper resolution of the outstanding disputes. I will also cover the parties’ forensic points on the accountancy evidence.

The accountants have helpfully provided a summary of their respective positions in relation to each head of claim, which I reproduce below.

As regards the claim for the loss of the Claimant’s stock, Mr Isaac’s approach is somewhat utilitarian, if not Spartan, and is based on the proposition that the price paid for the stock in December 2004 is the best evidence of its value in the circumstances of this particular case. In Mr Black’s view, the purchase price is some evidence of true value, but it is only one piece of the evidential jigsaw. In the absence of another Mrs Turner arriving fortuitously on the scene shortly after the fire, Mr Black’s approach entailed internet research of second-hand values of generic items of furniture, discounting those to reflect the difference between hiring rates in 2012 and 2005 as being a good substitute for 2005 market values, and applying new prices where there is no second-hand market. The resultant aggregate figure of £217,632 was then discounted by 10% to reflect bulk purchase, yielding a figure of £195,868.

Mr Isaac contends that this is far from being a valid approach. The second-hand furniture has been assessed entirely generically and without regard to the Claimant’s actual furniture and to the condition it was in. Furthermore, Mr Black has looked only at Europa’s prices and, to use Mr Redican’s analogy, that company could well be flourishing in the Premier League. One may draw that inference from the brochure of Europa International Ltd copies of which Mr Black has annexed to his report [C1/2/38ff], and from the obvious point that Europa would not be seeking to sell anything other than good quality stock by this method.

The claim for loss of gross profit is ascertained by (a) calculating the Claimant’s turnover but for the fire over the indemnity period, (b) deducting the Claimant’s actual turnover to yield a figure for loss of revenue, and (c) applying the ROGP to the latter figure to generate the loss of gross profit. The experts are agreed about item (b) (the figure is £132,415). Accordingly, the issues to be resolved have been described in this Judgment as ‘turnover’ and ROGP. At this stage I am addressing the first of these.

As regards the turnover figure, it is convenient to identify the three competing approaches, viz:

Having heard the relevant evidence, I indicated to Ms Ansell that I was not remotely attracted by approach (iii), and she did not press it in her closing submissions. One single VAT return may not correspond with the sales ledger, for reasons which are opaque, but that is not a reason for applying a 54% axe across the board. The experts agree that the Claimant will have lost records in the fire, and Mr Black refers to the fact that GPE’s subsequent difficulties have precluded access to its documentation.

Ms Ansell launched two main challenges to Mr Black’s preferred approach, and I may summarise these with reference to her Closing Note. First, Mr Black’s calculation wrongly failed to take account of the fact that GPE was intending to carry out both the furniture hire and the carpet stand construction work on behalf of the Claimant. Mr Black based his trend on the fact that GPE had earned £530,893 in the year ending 30^th June 2004. If it is appropriate to apply a trend at all, he should have deployed a figure of £594,893 (derived from the GPE June 2004 accounts at [CB/53],showing a figure of £63,850 for ‘carpet fitting and stand construction’), which would give only 8.2% growth against the projected revenue of £645,439. Secondly, attention is drawn to GPE’s monthly management accounts [D2/435] and the fact that sales for the month of August are recorded as a negative amount, thereby distorting the figures.

Mr Black accepted the arithmetic in both these instances. However, as for Ms Ansell’s first point, it is not clear what impact the fact that GPE was intending to undertake certain types of furniture hire on its own account (sub-hires to competitors) would have on the figures. As for the second point, Mr Black continued to assert that Mr Redican was the metaphorical knight on the white charger, and he drew attention to the fact that approximately £20,000 of lost credit card vouchers had not been accounted for.

As regards the ROGP, Mr Black favoured the 30% commission level in the trade as being a good marker. Mr Isaac saw no reason to reallocate any of the figures originally posted by Mrs Hyams.

At this stage, I believe that I need make only two points. First, Mr Eklund cross examined Mr Isaac on the basis that gross profit was arrived at by deducting variable costs and not fixed costs, and that to take into account the whole of the recharge would impermissibly entail the Claimant having to bear a proportion of the fixed costs which, in terms of the policy wording, must be excluded from account. I think that there is a ready answer to Mr Eklund’s objection. Although I agree that the recharge includes an element of fixed costs, the fact remains that these companies elected to organise their affairs so that the whole of the sales would be made by the Claimant, all the costs would be borne by GPE, and the costs referable to the Claimant’s sales would be recharged to it. In substance, the recharge was a variable cost to the Claimant, and it falls to be taken into account in arriving at the gross profit.

The second point concerns the knock-on effect for GPE of setting the recharge at any particular level. Ms Ansell submits that there is no difficulty if the Claimant is left with a monthly gross profit of approximately £2,500 because this would be sufficient to cover the Claimant’s extremely modest expenditure. However, Ms Ansell’s table contained within paragraph 43 of her Closing Note shows that, deploying a revenue figure of £513,000, even a 5% gross profit leaves GPE with a loss. On the other hand, Mr Eklund reminds me that – without prejudice to his case that the figure is higher than £513,000 – it is not clear what assumptions are being made as to GPE’s trade. Although it is reasonable to assume that all mainstream furniture hires would have been achieved by the Claimant using GPE as sub-contractor, GPE would have carried out some, admittedly un-quantified, hires on its own account. Furthermore, I note that the monthly recharge figure in Ms Ansell’s table does not vary hugely between her illustrative figures at 5% (£40,613) and at 20% (£34,200).

Having addressed the evidence and the parties’ respective cases upon it, I turn now to the determination of the issues I identified under paragraph 11 above, as well as sundry subsidiary issues which have also arisen and which I will pick up at the appropriate stage.

Counsel reminded me of the principles applicable to the construction of commercial contacts, both generally (see Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896) and in an insurance context (see, for example, Re Sigma Finance Corporation [2010] BCC 40 and Rainy Sky v Kookmin Bank [2011] 1 WLR 2900). I agree with Mr Eklund that these principles, insofar as is relevant to this appeal, have been succinctly and helpfully summarised in MacGillivray on Insurance Law, 12^th Edition, paragraph 10-052:

“The first relevant rule of construction is that the apparently literal meaning of the words in a warranty must be restricted if they produce a result inconsistent with a reasonable and business like interpretation of such a warranty. A warranty in a contract must, like a clause in any other commercial contract, receive a reasonable interpretation and must, if necessary, be read with such limitations and qualifications as will render it reasonable. The words used ought to be given the interpretation which, having regard to the context and circumstances, would be placed upon them by ordinary men of normal intelligence conversant with the subject matter of the insurance …” [emphasis supplied]

In the event of ambiguity it is trite law that insurance contracts must be construed against the insurer.

It is also clear law that a breach of a condition precedent by the insured is a defence to a claim for an indemnity under the policy regardless of causation of loss in the given circumstances (see MacGillivray, paragraph 10-11; Clarke, paragraph 20-3B). In his Opening Note, Mr Eklund accepted that, subject to his submissions on PW1 and PW3, the effect of GC17 is to make GC7 a condition precedent to liability (see, for example, Pilkington UK Ltd v CGU [2005] 1 AER (Comm) 283). This is without prejudice to his recent submission that, as regards the second limb of GC7, any breach of that provision may only be treated as a condition precedent to the Defendant’s liability if it is able to show prejudice on the particular occasion giving rise to the loss.

Subject to this very last point, all of this is common ground. I turn now to what is not.

It is convenient to take these together.

Mr Eklund’s primary case is that GC7 is not a condition precedent to the Defendant’s liability in a case which does not involve theft or attempted theft. This is because GC7 is subordinate to PW1: the latter is a special, as opposed to a general, condition and it is well-established that, in the event of conflict, the latter must take precedence; or, alternatively, the general must be construed in such a manner that it conforms to the particular (see, Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 (Lord Bingham at 737F-G); Lewison’s Interpretation of Contracts, 5^th Edn., paragraphs 7.05, 7.06 and 9.10; and Clarke on Insurance Contracts, 4^th Edn., paragraphs 15.6 and 6B).

Mr Eklund relies on the terms of the quotation (“as per Wording unless indicated below”) and the rubric above PW1 (“only acceptable if indicated on the Schedule”). Furthermore, he urges that the Court must strive to avoid an interpretation (the Defendant’s) which renders GC7 unnecessary and pointless.

Mr Eklund focuses on the commercial purpose underpinning PW1. He submits that it is declaratory and definitive of the insured’s obligations in relation to the burglar alarm whose raison d’être, after all, is to reduce the risk of loss through theft or attempted theft, not through fire.

Accordingly, Mr Eklund seeks to persuade me that the predominant status of PW1 is such that GC7 is not a condition precedent to the Defendant’s liability, at least as regards the use of the burglar alarm. His alternative submission is that, even if GC7 is a condition precedent, it should be interpreted in a manner which achieves harmony with PW1.

Ms Ansell’s Opening note did not address these issues. It was her interpretation of the Claimant’s Reply [A/4] that they did not arise. Having re-examined paragraph 10 of the Reply, I can see that these issues do arise, albeit not quite with the clarity and expansiveness as appears in the Claimant’s Opening Note. Fortunately, nothing turns on this because the parties have been content to proceed on the basis that the Defendant is entitled to address these matters.

Ms Ansell submits that PW1 should not be construed as a special condition because it is as much pre-printed as GC7: to adopt the language of Lord Bingham, PW1 is not a term which the particular contracting parties have formulated and chosen to include in the contract. Further, no weight should be placed on the wording in the quotation because it was not part of the contract of insurance.

Ms Ansell drew my attention to passages in Clarke, Law of Insurance in support of the proposition that inconsistency must be distinguished from multiplicity. She referred to a line of US authority which vouched that proposition, and its corollary, namely that PW1 and GC7 should be read and interpreted separately, not in the light of each other. More parochially, but frankly more compelling, she then referred to Court of Appeal authority in this jurisdiction: in particular, Tektrol v International Insurance Co of Hanover [2005] EWCA Civ 845 (per Buxton LJ at paragraphs 15 and 16), and Arbuthnott v Fagan [1996] LRLR 135. In the latter case, Hoffmann LJ said this (page 142):

“I accept that it may also mean, if one analyses the various phrases in detail, that parts of the clause overlap with the effect of other parts and are redundant. In a document like this, however, little weight should be given to an argument based on redundancy. It is a common consequence of a determination to make sure that one has obliterated the conceptual target. The draftsman wanted to leave no loophole for counter-attack by the recipient or intended recipient of a call. It is no justification for construing the language so as to apply to a situation which, on a fair reading of the general purpose of the clause, was not within the target area.”

Ms Ansell submits in the alternative that even if there is no general rule that exclusions are to be construed in isolation, then the principles expounded in these authorities still apply. PW1 was not intended and cannot be read as somehow carving out or reducing the otherwise clear scope of CG7 – that wording should be given its natural and ordinary meaning.

In the further alternative Ms Ansell submits that even if PW1 qualifies GC7, that qualification is limited to claims for theft and attempted theft. PW1 is not to be envisaged as ‘the burglar alarm warranty’; it is, at most, an additional warranty that will only apply in the instances of loss it expressly mentions.

My approach to the correct construction of GC7 seeks to examine its commercial purpose in the light of the terminology deployed and other relevant contractual provisions. To the extent that the American authorities might be understood as suggesting that each clause must be seen as an island unto itself, I would reject such an approach.

PW1 applies to this contract of insurance because the commercial schedule rendered it applicable. I do not consider that the preposition “unless” truly assists me in deciding the normative status of PW1, and I agree with Ms Ansell that the quotation is no part of the contract of insurance. However, I am not prepared to go so far as to hold that this is simply a case of overkill or double obliteration of the conceptual target, or to adhere to some strict canon of construction, which I do not believe to exist, that each stipulation in this insurance contract must be given an interpretation which ignores all other provisions. Some deeper inquiry is necessary to address the commercial purpose behind PW1 and to ascertain possible harmony across the provisions of this contract.

The Claimant’s broker’s request for a quotation [CB/1] made clear that the security system included an annually maintained Redcare alarm (as well as locks on windows, doors and roller shutters, the latter two of which were alarm contacted). In advance of the Claimant’s proposal form, the Defendant’s quotation made equally clear that it would only consider insuring a risk of this nature if PW1 applied, and a maintained and monitored burglar alarm was in situ. The request for a quotation was not of course a contractual document, and GC7 only applied to the protections which happened to be at the premises (“any burglar alarm”), not the protections which the Defendant would insist on being there as a condition precedent for liability for theft or attempted theft. So, at least one of the commercial purposes of PW1, possibly its primary purpose, was to enable insurers to insist on their being a burglar alarm with certain attributes.

I cannot accept the high watermark of the Claimant’s case that PW1 predominates over GC7 to such an extent that the only condition precedent relating to the burglar alarm is that set out in the protection warranty. Although I can see the partial force of the argument that PW1 is a protection warranty, and therefore might be envisaged as applying to particular protections, not to the circumstances giving rise to the loss at issue, I cannot agree that the sole purpose of a burglar alarm is to reduce the risk in relation to theft or attempted theft. That is the core purpose of a burglar alarm, but it is not its sole purpose (c.f. a fire alarm). A burglar alarm protects premises against the risk of intrusion, and it is noteworthy that section 9(2) of the Theft Act 1968, defining the criminal offence of burglary, refers to the doing of any damage to the building or to property within it.

Another difficulty with Mr Eklund’s primary submission is that it places insignificant weight on the terms “theft or attempted theft” in PW1, which are clearly intended to delimit its sphere of application, and leads to the commercially unacceptable result that there is no condition precedent to the insurer’s liability as regards the non-use of the burglar alarm, or associated monitoring, unless the claim happens to be one for theft or attempted theft. That cannot have been the insurer’s intention because it leads to the conclusion that the Defendant would in fact have been in a better position (having ascertained the presence of the burglar alarm at the premises) had it not insisted on the inclusion of PW1.

Finally, I need explicitly to address Mr Eklund’s submission that PW1 would be pointless if the Defendant’s submissions were correct. First, I repeat paragraph 123 above. Secondly, PW1 would only be surplusage if the burglar alarm had no domain of activity outside theft or attempted theft claims. But, as I have said, it has a wider protective function. It is in that respect that GC7 has a separate commercial purpose, and by parity of reasoning it is that commercial purpose which Mr Eklund’s submissions have the effect of nullifying.

Accordingly, I would answer Issue (i) in the negative.

The second issue is more difficult. The premise must be that there are two conditions precedent: the first (PW1) which applies only in the event of theft or attempted theft; the second (GC7) which is in general terms. The Claimant’s submission was that in a non-theft case GC7 applies but it should be “read down” so that its obligations are no more onerous than they would have been under PW1; the Defendant’s submission was either that PW1 should be seen as having no impact on GC7 at all, or that it should qualify GC7 solely in theft or attempted theft cases.

I would only favour the Defendant’s primary submission on this issue if I considered that there was some principle of the common law which should drive me to the conclusion that PW1 must be hermetically sealed and ring-fenced off GC7. In my judgment, there is no such hard-and-fast principle. In certain situations there may be a presumption, whose strength waxes and wanes according to the context, but it is no higher than that.

The correctness of the Defendant’s primary submission (viz. PW1 has no application to GC7, regardless of the circumstances) may be tested by considering the hypothetical case of loss or damage caused by theft and/or attempted theft; or, better still, a hypothetical case of fire damage and theft damage. Assuming that the whole of the protections include a Redcare monitored burglar alarm, because the proposal form said so, it may be seen that the insured’s obligations are in fact more onerous – on the Defendant’s case - under GC7 than they would be under PW1. In my judgment, that cannot be regarded as a commercially sensible result: the inclusion of PW1 could not have been intended to work to the Defendant’s potential disadvantage. It is this principle which has the greatest weight in this case, and it must override the defeasible and rebuttable interpretative guides on which the Defendant seeks to rely.

The Defendant’s alternative submission involves accepting some of the foregoing logic but cleaves to the proposition that the only true case of overlap is where the claim is for theft or attempted theft. By this stage in the argument, and without prejudice to its earlier submissions (which I have rejected), the Defendant is of course accepting that PW1 qualifies GC7 at least to some extent. But why, I would ask rhetorically, should this qualification be confined to theft or attempted theft claims? Ms Ansell points to the express wording of PW1 and to its limited ambit of operation. However, I remain entirely unconvinced by this approach. Again, I would prefer to stand back from these provisions – without ignoring the language deployed – and consider their commercial purpose. I have observed that the core business of a burglar alarm is the prevention of theft and attempted theft. If, as I accept it does, GC7 applies to loss and damage which is of a type which does not relate to the core business of a burglar alarm, but is accommodated within its subsidiary business, I cannot accept that it makes good commercial sense to interpret GC7 in such a way that the insured’s obligations are potentially greater under that provision than they would have been had this been a theft or attempted theft claim under PW1.

The better approach is to construe GC7 in such a way that the Claimant’s obligations as regards the use and monitoring of the burglar alarm (but not in other respects) are no more onerous than they would have been had this been a theft claim and PW1 been applicable. In other words, GC7 must be read down so that the insured is only required to set the alarm if the premises are left unattended. The monitoring obligation is the same under both provisions.

It follows that the answer to Issue (ii) is in the affirmative.

It should also be recorded that Mr Eklund submitted in the alternative that I should reach the same conclusion as to the true construction of GC7 even if PW1 were ignored. Given that this submission turns more closely on the precise terms of GC7, it is more convenient to address that submission below. In the event that this case goes further, it is right that I should do so.

On my understanding of his argument, Mr Eklund accepted that this loss occurred outside business hours. Even if he had not accepted it, I would have come to that obvious conclusion. The evidence conclusively demonstrates that the Claimant’s business ended that evening at 20:30 hours at the latest.

Mr Eklund needs to persuade me first of all that the premises were not “left unattended” at the material time. Given my determination on Issue (i), if he were to fail in that endeavour the Claimant would lose this case.

I was taken to a number of well-known authorities dealing with the interpretation of “left unattended”. The locus classicus is of course Starfire Diamond Rings Ltd v Angel [1962] 2 Ll Rep 217 where a strong Court of Appeal held that the meaning of the term depended on the facts and circumstances of the individual case (per Upjohn LJ), although in relation to a car:

“… it means that there must be someone able to keep it under observation, that is, in a position to observe any attempt by anyone to interfere with it, and who is so placed as to have a reasonable prospect of preventing any unauthorised interference with it (per Lord Denning MR)”

This dictum would suggest that someone attending a motor vehicle cannot be asleep whilst doing so. That was the issue in Plaistow Transport Ltd v Graham [1966] 1 Ll Rep 639, where Nield J held that a sleeping lorry driver could be in effective attendance. However, I agree with Ms Ansell that the point appears to have been determined without contrary argument.

Ms Ansell drew my attention to the decision of Macpherson J in CTN Cash and Carry Ltd v General Accident [1989] 1 Ll Rep 299 where the insured’s obligation was to attend and keep locked a secure cash kiosk at all material times. The learned Judge held that, save for momentary turnovers when security guards were switching over, attendance had to be permanent. I do not accept Ms Ansell’s submission that it is implicit from Macpherson J’s reasoning that the security guard had to be awake; the point did not arise, and was not discussed.

Ms Ansell also took me to Simmonds v Cockell [1920] 1 KB 843 but in my view that case was addressing different policy wording in a different context.

Aside from authority, Ms Ansell reminded me of the dictionary definition of “unattended”. Essentially, and the point did not require great elaboration, these premises were “left unattended” at the material time because Messrs Hyams and Furley could not have been attending them whilst asleep.

Mr Eklund submitted that the motor vehicle cases have little or no application to the present context. Vehicles, unlike premises, are rarely places where people sleep. He urged on me a sensible commercial approach to GC7 (and the same approach would of course apply to PW1 if this had been a theft claim), namely one which did not require that someone is always attentive in order for the premises to be attended. I did not find all of his examples (see paragraph 8 of his Closing Note) persuasive, but (as will be made clear) some of them are.

In my judgment, the true construction of the term “left unattended” is one of fact, degree and circumstance, and the entire factual and legal matrix falls to be considered. I consider that little assistance is to be drawn from the motor vehicle cases where the commercial purpose of the policy wording is to require a level and degree of actual attention. Ms Ansell did not submit that the term “premises” in this insurance policy could be interpreted, by dint of synecdoche or otherwise, to mean, “part of the premises”, and I would endorse that approach. So, even on the Defendant’s best case, here we have a large and complex building which could not possibly be subject to effective, active surveillance by one individual (no submission was or could be made that there would have to be a sufficient number of individuals to ensure proper surveillance). I also agree with Mr Eklund that in ordinary parlance houses or premises become unattended when their occupants leave.

I accept that the resultant construction of “left unattended” treats this term as broadly akin to “left unoccupied”. The authors of MacGillivary point out that the former is stricter (see FN 20, page 952), but that is in the context of CTN Cash and Carry. To my mind, context – as ever – is all.

Finally, in reaching this conclusion I have not placed much weight on the wording of the proposal form. As previously noted, the Defendant asked whether the premises would be occupied at night, and (at least on renewal) received an affirmative answer. I would have reached the same conclusion without reference to the proposal form, but its existence is an additional factor in support of the Claimant’s construction.

The term “out of business hours” does not give rise to any difficulties of understanding or construction, and it is clear that this loss was sustained at such a time.

The next issue which arises is how the composite term “out of business hours or left unattended” should be construed.

In my view, this issue falls to be addressed in two stages. The first stage entails consideration of whether GC7 should be “read down” so that, in a fire damage case, it defers to and means the same as PW1. I have already determined that issue in the Claimant’s favour: in my judgment, it should. This is sufficient to determine the third issue in the Claimant’s favour.

The second stage needs to be addressed out of an abundance of caution – in case I am wrong about the first stage. At this point of the analysis, GC7 falls to be construed on a standalone basis, without reference to PW1.

Both Counsel agree that reasonable practicability is an aid to construction of an insurance policy and the insured’s obligations flowing from or under it. Mr Eklund submits that GC7 should not be construed in such a way that there was an obligation on the Claimant to activate the alarm in circumstances where the alarm would almost certainly have gone off by detecting the movement of persons who were legitimately on the premises. GC7 refers to “the whole of the protections” and cannot be salami-sliced, either as between zones within the premises or on account of specific types of activity. It follows that GC7 should be construed so that the burglar alarm would only have to be set out of business hours when the premises are closed for business and therefore unattended, and during business hours when left unattended.

Ms Ansell’s starting point is that the policy draftsperson has been astute to deploy the conjunction “or”, and that the two separate parts of this obligation should be accorded weight. On the Claimant’s approach, a blue pencil is effectively placed through the words “out of business hours”. Ms Ansell reminded me that there is a presumption against absurdity or unworkability (see Wickman Tools v Schuler AG [1974] AC 235 and Glengate-KG Properties v Norwich Union [1996] 1 Ll Rep 614). Accordingly (see paragraph 24.1 of her Closing Note):

“To the extent that GC7 can be construed as requiring the alarm to be activated in the entire premises taken as a whole, or alternatively in the entire premises to the extent that this is not impracticable due to inhabitation, the latter should be preferred as according with business common sense.”

On balance, I cannot accept Ms Ansell’s submissions on this issue. No doubt her clients strongly favour the latter construction, but in my view they could so easily have achieved the outcome they now contend for by stipulating that part of the premises should be alarmed in the event of being left unattended. An interpretation of GC7 which holds that the burglar alarm would only have to be set outside business hours when the premises are unattended is a reasonable interpretation which qualifies and limits GC7 to achieve a commercially sensible result, in line with paragraph 10-052 of MacGillivray. The Defendant’s interpretation involves re-writing GC7 so as to insert “where reasonably practicable” at a convenient point. This entails something more than the Claimant’s parsimonious approach, arrives at a position where the insured is in practice and in substance obliged to activate the alarm in that part or those parts of the premises which were unattended, and creates an unacceptable degree of doubt and uncertainty in the insured’s mind as to precisely what its obligations were under this contract of insurance.

Ms Ansell further submitted that, unless her suggested interpolation were made, commercially unacceptable results would be achieved in relation to the closing of the locks on the doors and windows, and she provided examples to illustrate her point. I accept some of the force of these points, in particular that on this standalone approach the insured’s obligations under GC7 must be consistent across all the protections in situ, but in my view these modest anomalies arise because the Defendant has failed to define “premises” in such a way as to differentiate between the three zones.

Furthermore, the notional insertion of Ms Ansell’s suggested formulation - “to the extent that it is not impracticable due to inhabitation” – hinges in the present context on whether the relevant inhabited part of premises is left unattended. In substance and in reality, therefore, even on the Defendant’s case the “out of business hours” segment of the clause in issue is subordinate to the “left unattended” segment, which is very much Mr Eklund’s submission.

Ms Ansell is entitled to point out that, as a matter of fact, it was reasonably practicable to activate the warehouse zone whilst the house and/or ‘the Link’ were occupied. She relies on what the Claimant actually did on most nights over the period she has analysed, in particular the period December 2004 to February 2005. However, this cannot be determinative of the Claimant’s contractual obligations under these General Conditions. Those obligations must be ascertained by the application of ordinary principles of construction of insurance documentation, not by any attempt to derive an “ought” from an “is”.

In my judgment, the Defendant’s proposed approach to GC7 on this standalone basis goes too far and I reject it. I prefer the Claimant’s suggested construction: see the final sentence of paragraph 150 above. It follows that the Claimant was not in breach of the first limb of GC7, and Issue (iii) must be answered in the negative.

The focus here is on the wording, “and such protections shall not be withdrawn or varied to the detriment of the interests of the Underwriters without their prior consent”.

Mr Eklund submitted first of all that if the Claimants succeed on the first limb, then the second limb of GC7 does not arise. He relied on the words “such protections” as meaning “the protections as were required to be put in use, having regard to the provisions of the first limb”, and contended in any event that there could be no detriment in these circumstances because the burglar alarm ex hypothesi did not need to be set.

In her oral closing argument Ms Ansell was initially disposed to agree that there could be no detriment in these circumstances. I then reminded her of her pleading and of her Opening Argument, and Ms Ansell reverted to her submission that reliance on a condition precedent did not require proof of causation. Plainly, as a general proposition she is right about that. In further written submissions delivered after the conclusion of the oral argument, which I have accepted and which Mr Eklund has had the opportunity to answer, Ms Ansell also made clear that her case was that “and such protections” does not mean, “the protections which are required to be put into use at any particular time”, but rather, “the whole of the protections including any burglar alarm”.

In my judgment, Ms Ansell is right about that too. The first limb of GC7 is concerned with the circumstances of use, the second limb is separately concerned with the maintenance and/or retention of the protections regardless of actual use on a particular occasion. This result flows from the clear language and syntax of GC7, and a similar result would flow under PW1. There could be no possible reason for construing these clauses differently. In short, GC7 should be seen as imposing separate and cumulative requirements.

I should add that in reaching this conclusion I must reject Mr Eklund’s submission that the phrase “to the detriment of the interests of the Underwriters” must be concerned with the actual causative effect of the withdrawal of the relevant protection or protections on the loss which ensued. But that is not how conditions precedent are usually to be construed, and I fail to see how and why the phrase under scrutiny, which is fairly standard policy wording (see, for example, AC Ward v Catlin [2010] Ll Rep 695, discussed below), should be read in such a way as to place this case in a special category, and in effect to turn a condition precedent into a mere condition. Furthermore, in my view the italicised phrase is intended to exclude from consideration variations, presumably of a minor nature, which are not capable of causing the Defendant any detriment; its presence therefore ensures that the insurer may not latch onto any variation so as to avoid cover. Moreover, the assessment of detriment is conducted not in the narrow context of the specific events which led to the loss at issue, but in the broader context of the purpose of the protections regardless of when they were required to be used. Overall, I have to reject Mr Eklund’s submissions as constituting an impermissible attempt to elide the two separate limbs of GC7.

Was the Claimant in breach of the second limb of GC7? The starting point is to identify the correct legal test. Mr Eklund submitted that the test was akin to recklessness; Ms Ansell’s case was that the question for resolution is whether the Claimant was aware of the lack of monitoring, or if it was not aware of that fact would have been aware if it had been exercising common care.

In Fraser v Furman [1967] 1 WLR 898 the Court of Appeal was construing policy wording which required the insured to take reasonable precautions to prevent accident or disease. Given that the whole purpose of the insurance contract in that case was to indemnify the insured against the consequences of its own lack of care, the Court of Appeal had little difficulty in construing the policy language as requiring proof of some higher degree of culpability, namely deliberate courting of the danger, the existence of which was recognised, by failing to take measures to avert it, or by taking measures to avert it which the insurer knew to be inadequate. In Sofi v Prudential [1993] 2 Ll Rep 559, this test was interpreted as akin to recklessness in the context of property damage.

In Victor Melik v Norwich Union [1980] 1 Ll Rep 523, Woolf J was concerned with the construction of a stipulation which required the insured to keep the burglar alarm in efficient working order. An issue arose (although it was later conceded by the insurer during the course of the trial) as to whether, or how, the insured could be in breach of that clause if it was unaware of the defect. Woolf J therefore construed the relevant policy wording thus (page 530):

“The insertion of the word ‘kept’, in my view, implies within it a requirement that that before there can be in breach of that condition by an insured, he must be aware of the facts which give rise to the alarm not being in efficient working order, or if he is not aware of those facts he should at least be in a position where, exercising reasonable care, he should have known of those facts.”

This authority was considered by Flaux J in AC Ward v Catlin [2010] Ll Rep 695. There, the policy wording was different in that it included the sentence, “All defects occurring in any protections must be promptly remedied”. In the learned Judge’s view, that terminology presupposed that the insured would have to have knowledge of the relevant defect before any breach of the maintenance obligation could arise. Flaux J also held that the insured would have constructive knowledge of defects that it did not in fact know about if it adopted a reckless or ‘don’t care’ attitude towards them (see paragraph 181).

The policy wording in the present case is somewhat different, and arguably less favourable to the Claimant. The requirement under GC7 is not to withdraw or vary the protections. In my view, knowledge must be a requirement of this provision even though GC7 lacks the additional wording considered by Flaux J. As Woolf J pointed out in a slightly later passage on page 530, if the result were otherwise the insurer would be able to avoid liability under the policy even if the insured, through no fault of its own, was entirely unaware of the change in circumstances.

Plainly, if the insured were responsible for the withdrawal or the variation, the accompanying mental element would rarely give rise to any difficulty, but the present case is concerned with a third party, the alarm company, effectuating the act of withdrawal. The insured may have caused that to occur, but further analysis of the concomitant mental state of the Claimant is required.

In my judgment, an insured is in breach of the second limb of GC7 if it acts or fails to act in such a way that there is a real risk that the adverse consequence might flow, namely (on the facts of the instant case) the cessation of the monitoring service. In framing the test in that way, I am following the approach adopted by Woolf J in Victor Melik, adapting it to this slightly differently worded insurance policy. In my view, Flaux J’s observations were made in a different context where the reasonable practicability obligation, or something akin to it, could only have been violated if a higher degree of culpability were established.

But the reality is that on either test the Claimant must be held to be in breach of the second limb of GC7. The Claimant knew that the monitoring charge was payable in advance. It knew that it had not been paid for over six months. It knew that SECOM was not going to permit this situation to occur indefinitely. The Claimant appears to have considered that SECOM was in breach of contract in causing or permitting too many false alarms to have arisen, but that was no basis for withholding payment of the charge. Furthermore, there is no evidence that the Claimant actively pursued its dispute with SECOM, either before or after the monitoring service ceased.

I do not find that the Claimant, in particular Mrs Hyams, knew that the monitoring service was going to be terminated on any particular date. The absence in the trial bundles of the final demand and final demand and suspension notices renders it impossible to construct an exact chronology of events. However, I do find that the Claimant was reckless as to the risk that the monitoring service would be cut off, and rather buried its head in the metaphorical sand as regards this issue. That risk was escalating all the time as the months wore on. The Claimant was clearly under pressure from its creditors; maybe it was hoping, or praying, that SECOM would hold its hand; but, the fact remains that by early 2005 the Claimant had taken this issue far too close to the wire, and should have resolved it.

I take the point that SECOM’s post-termination correspondence was misleading, but there is no evidence that the Claimant was in fact misled by it, and that it would have done anything different had this correspondence not been raised. Specifically, the Claimant made no attempt to resolve the dispute or to pay the outstanding charges. Instead, it recklessly preferred to attempt to string matters out, and to send the maintenance engineer packing.

So, and with a degree of reluctance, I am compelled to answer Issue (iv) in the affirmative and in the Defendant’s favour.

I am not addressing GC8 as a separate issue. In my view it does not arise as such. For the avoidance of doubt, the Claimant was in breach of GC8 only to the extent that it failed to ensure that the alarm monitoring would remain in place.

In view of my findings (a) that GC7 is a condition precedent to the Defendant’s liability, and (b) the Claimant was not in breach of the first limb, it is unnecessary for me to dwell long on this issue. The Claimant’s breach of the second limb of GC7 was not, without more, causative of any loss.

In my view I should be approaching this issue on the hypothetical basis that I am wrong about my finding as to the first limb of GC7, and the Claimant was in fact in breach of its obligation to activate the burglar alarm. In my view, whether or not the activated alarm was monitored makes no difference to this issue viewed on this hypothetical basis: had the unmonitored burglar alarm been activated, Mr Furley would have woken up quickly and called the emergency services. Had it been monitored, SECOM would have telephoned Mr Hyams.

On this hypothesis one must naturally assume that an activated alarm would have gone off had an intruder entered through RS3. That would have prevented the fire. On the alternative scenario, that the intruder secreted himself and hunkered down, it is less easy to say what would happened had the alarm been activated. Such an intruder would have had ‘inside knowledge’ of a number of matters, but I simply cannot conclude that he would have known that the alarm was likely to have been set or that it was not in fact set on this occasion. Even so, using a degree of common sense, I consider that it would have been more likely than not that such an arsonist would have set off the burglar alarm much sooner than the fire alarm eventually went off. At the latest, this would have happened during the course of inevitable movement associated with the setting of the fire, and I also agree with Mr Dow that the burglar alarm would probably have sensed the hot, rising smoke before the fire alarm did. Additionally and with reluctance, because there is a paucity of evidence on the issue and I have to the best I can with what is available, I also find that there probably was not a fire alarm in the warehouse area. The 1994 plan is the best evidence of the location of the alarms or direct heat sensors. The consequence of this finding is that the period of time between the setting of the fire and the triggering of the fire alarm was significant.

It follows that I must resolve Issue (v) in the Defendant’s favour.

I consider that it must be clear from my earlier findings that little weight may be given to book values, the purchase consideration, and the belief of the Messrs Hyams and Redican as to the value of this stock at the instant of time before this fire was set. I do not wholly ignore these factors; I merely attach little weight to them.

Further, I agree with Mr Nock that I should banish from account considerations relevant to a business interruption claim, such as the need to reacquire stock quickly in order to continue trading.

In my judgment, Mr Black was an honest expert witness who did his best to value the Claimant’s stock with reference to the available market. However, the stock Europa believed it could sell via internet catalogues was, in my judgment, of considerably higher quality than the Claimant’s stock, which I believe was no more than adequate. The work that needed to be done to rehabilitate it could largely be absorbed within the Claimant’s fixed employment costs, but an allowance must be made for materials and the like.

Doing the best I can on all the available evidence, I value the Claimant’s stock at £150,000. To reflect the value of the undamaged stock, this figure must be reduced by 1.6% to £147,600.

As for the figure for loss of revenue, the contest is between Mr Black’s preferred figure of £652,427 and his alternative figure of £513,024 (assented to, in the alternative, by Mr Isaac). I said during the course of the trial that any increase in that figure would be speculative, and I need to bear in mind the obvious difficulties both GPE and the Claimant were experiencing in the early months of 2005. However, upon reflection, I believe that it would be reasonable to factor in an enhancement to reflect the advent of the Claimant, its stock and Mr Redican, as well as the impact of the lost credit card vouchers.

My figure for lost revenue is one of £560,000.

Finally, I need to arrive at a figure for ROGP. I agree with the Defendant that the Claimant’s expert’s suggested figure of 30% is unrealistic, if for no other reason than this would leave GPE running at a significant loss. On the other hand, for the reasons I have already given, I am persuaded that the recharges originally allocated by Mrs Hyams for the months of February and March 2005 are incorrect.

But what the correct allocations would or should have been is extremely difficult to say. The Defendant did not suggest any figures other than those advanced by Mr Isaac, and the Claimant merely drew my attention to various fragments of evidence, and I have already mentioned these.

I appreciate that the burden of proof is on the Claimant, but I am not disposed to decide this issue on the basis that the burden has not been discharged and that there is a default position, namely Mr Isaac’s. Doing the best I can on all the evidence, the ROGP I will apply is one of 10%.

My conclusions on quantum are set out in the schedule appearing below. As for the minor disputed items, I have applied the ROGP of 10% to the claim for rental income, I have disallowed the accountancy claim on the basis that it is recoverable, if at all, as part of the costs of these proceedings rather than under the policy, and I have disallowed the claim for personal effects on the basis that it has not been substantiated. The parties are agreed that the figure for outsourcing set out in the table in paragraph 95 above falls to be adjusted to reflect the ROGP of 10%.

The total claim is calculated as follows:

It follows that there must be Judgment for the Defendant.

I have reached this outcome with much reluctance and no pleasure. Towards the end of the trial I remarked that Mr Hyams has been shattered by this fire and its aftermath, and is not the man he was. He believes that he has been poorly treated by the Defendant, and when he reads this Judgment with care he will see that he has won on all bar one liability issue. Had this been the sole issue in this case, I doubt whether the Defendant would have taken it. But it was not, and to my mind the Defendant has not acted improperly in relation to the issues it has fought hard and lost on.

I could not properly find for the Claimant on the alarm monitoring issue. Mr and Mrs Hyams must understand that, regardless of their financial difficulties in early 2005, they were running too great a risk by failing to pay the SECOM monitoring charges. Harsh though it might seem, the Defendant was entitled to take this point and, having taken it, I must find for the Defendant on it.