Cape Distribution Ltd v Cape Intermediate Holdings Plc

The background to this substantial litigation is that the Claimant (‘CDL’) was in business producing asbestos-related products at Cowley Bridge Works, Uxbridge, Middlesex. Former employees of CDL subsequently developed and continue to develop asbestos-related illnesses and blame CDL. In many cases CDL has not been able to dispute the validity of such claims and has settled such claims with the assistance of indemnities under an employers’ liability policy no. W864304 with Railway Passengers Ltd. (‘RPA’) first issued in 1957 (the ‘Policy’) covering the period starting on 31 December 1956 and renewed annually until expiration on 31 December 1966. RPA became part of the Commercial Union Assurance Group to which the Part 20 Defendant (‘Aviva’) is the successor.

At all material times CDL was a wholly-owned subsidiary of the Defendant/Part 20 Claimant (‘CIH’). In 2012, the Court of Appeal confirmed in Chandler v Cape Plc [2012] EWCA Civ 525, [2012] 1 WLR 3111 that CIH had owed its own common law duty of care to a former employee of CDL who had worked at the Cowley Bridge Works in 1959 and 1961-1962 (CIH’s duty being additional to those duties owed by CDL as employer) and that CIH was directly liable to the former employee of CDL in tort for his asbestos-related illnesses. As a consequence, by this action Aviva, exercising rights of subrogation in the name of CDL, seeks an indemnity (alternatively contribution) from CIH under the Civil Liability (Contribution) Act 1978 (‘the 1978 Act’) and CDL’s entitlement to the same is currently due to be tried in early 2017.

Under an agreement described as an “Agreement for Sale” dated 1 January 1964 (the ‘Sale Agreement’), CDL agreed to transfer to CIH its whole undertaking, property and assets in return for various things, including an indemnity and other obligations in CDL’s favour. CDL’s primary case is that, by virtue of the Sale Agreement, it is entitled to be held harmless by CIH in respect of CDL’s outlay on claims paid or claims to be paid to or in respect of former employees of CDL suffering from asbestos-related disease whenever during the material period that employee was exposed to asbestos in breach of CDL’s duty. CIH opposes the relief, partly in reliance on its interpretation of words in the Sale Agreement and partly in reliance on a November 1964 endorsement to the Policy (the ‘Endorsement’). As to the latter, in the Part 20 proceedings, CIH claims that, by virtue of the Endorsement, it is entitled to indemnity from Aviva as successor to RPA in respect of the very claims that are being advanced against CIH in the main action.

This judgment follows the trial of certain preliminary issues (the ‘Preliminary Issues’) which, at a hearing on 16 and 17 December 2015, I directed should be determined. Essentially the Preliminary Issues concern: whether CDL is entitled to an indemnity or other payment from CIH under the terms of the Sale Agreement; the effect of the Endorsement; and whether Aviva is precluded from recovering the same by way of subrogation. A little more specifically, Preliminary Issues 1 to 8 focus on the differences between the parties as to the extent to which, if at all, CDL is entitled to an indemnity in respect of claims by or in respect of former employees for asbestos-related illnesses and their consequences arising out of acts or omissions occurring between 31 December 1956 and the end of 1966. There are issues as to whether any contractual obligation on CIH to satisfy such claims, whether (i) by way of indemnity or (ii) performance of express obligations under the Sale Agreement or (iii) indirectly by way of damages for breach of the Sale Agreement, relate to claims for damages in respect of disease contracted after the date of the Sale Agreement (1 January 1964). There are subsidiary issues as to whether, if there is such a contractual obligation, it extends to acts or omissions which caused that disease but which occurred wholly after that date. Preliminary Issues 9 to 16 focus on the effect of the Policy and the Endorsement.

The parties were agreed as to the applicable legal principles concerning construction of contracts. These principles of interpretation have been discussed in many cases, notably by Lord Hoffmann in Mannai Investment Co Ltd. v Eagle Star Life Assurance Co Ltd.[1997] AC 749, in Investors Compensation Scheme Ltd. v West Bromwich Building Society[1998] 1 WLR 896 at pages 912F-913G, and in Chartbrook Ltd. v Persimmon Homes Ltd. [2009] AC 1101 at [21] to [26], by Lord Clarke in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 at [14], and by Lord Neuberger in Arnold v Britton [2015] UKSC 50, [2015] AC 1619. With a degree of reluctance in circumstances where the principles are now well-known, the Chancellor recently describing them as being set out in “the usual cohort of authorities” (see Credit Suisse Asset Management LLC v Titan Europe 2006-1 PLC & Others [2016] EWHC 969 (Ch) at [23]), but in deference to the work done by counsel, in what follows I summarise the principles.

When construing a commercial document a tribunal should seek to give it the meaning it would convey to a reasonable person having 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: Investors Compensation Scheme at page 912. In a commercial contract it is certainly right that a tribunal should know the commercial purpose of the contract. This presupposes knowledge of the genesis of the contract, the background, the context and the market to which the parties are operating: Reardon Smith Line Ltd. v Ynvar Hansen-Tangsen [1976] 1 WLR 989 at pages 995 to 999 cited with approval by Lord Scott in HIH Casualty v Chase Manhattan Bank [2003] Lloyd’s Rep IR 230 at [103]. When one is speaking of the aim or object, or commercial purpose, one is speaking objectively of what reasonable persons would have had in mind in the situation of the parties: Reardon Smith Line at 995.

The commercial background (or factual matrix) also includes the statutory context (Doleman v Shaw [2009] EWCA Civ 279, [2009] Bus LR 1175 at [35] per Mummery LJ and at [56] per Elias LJ), the relevant law (Prenn v Simmonds [1971] 1 WLR at page 1388C per Lord Wilberforce; BCCI v Ali[2002] 1 AC 251 at [39] per Lord Hoffmann and at [78] per Lord Clyde) and market practice falling short of trade usage (Crema v Cenkos Securities [2010] EWCA Civ 1444, [2011] 1 WLR 2066 at [42] per Aikens LJ). Also, a concluded antecedent agreement may be relied upon when interpreting a later instrument made pursuant to it: Lewison, The Interpretation of Contracts (6^th Ed., 2015), paragraph 3.05.

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: Arnold at [21] per Lord Neuberger.

The meaning of the contract has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the contact, (iii) the overall purpose of the clause and the contract, (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: Arnoldat [15] per Lord Neuberger; MDIS v Swinbank [1999] LRIR 516 at [13] per Clarke LJ (as he then was), and ABTA v BA [2000] 2 Lloyd’s Rep 209 at [34] per (again) Clarke LJ. The resolution of an issue of interpretation is an iterative process involving checking each of the rival meanings against other provisions of the document and investigating its commercial consequences: Rainy Sky at [28] per Lord Clarke. The implications or consequences of a particular construction should be taken into account: Gan Insurance Co Ltd. v Tai Ping Insurance Co Ltd. (No 2)[2001] 1 All ER (Comm) 299 at [16] per Mance LJ (as he then was). However, in the end the exercise to be conducted “is essentially one unitary exercise”: Rainy Sky at [21] per Lord Clarke.

Where the parties have expressed their agreement in a written document, the primary source of information about the agreement and the parties’ intention is the document itself. What the parties meant is most obviously to be gleaned from the language of the provision because, unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. Again save perhaps in a very unusual case, the parties must have been specifically focusing on the issue covered by the provision when agreeing the wording of that provision:Arnoldat [17] per Lord Neuberger. Thus, where the parties have used unambiguous language, the court has to apply it (Rainy Sky at [23] per Lord Clarke) and if the words used yield a fairly clear solution, then a court should pause long before concluding that the draftsman has used words with a meaning that do not fit the objective he was seeking to attain (Jani-King (GB) Ltd. v Pula Enterprises [2007] EWHC 2433 (QB), in which HHJ Coulson QC, as he then was, applied Wayne Martin v David Wilson Homes Ltd. [2004] EWCA Civ 1027 [2004] 3 EGLR 77).

Where the language used by the parties is ambiguous so that it has more than one reasonable possible (non-fanciful) meaning, 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: Rainy Sky at [18] per Lord Clarke. There is no requirement for ambiguity in order for the Court to have regard to surrounding circumstances: Oceanbulk Shipping & Trading SA v TMT Asia Ltd. [2011] 1 AC 662 at [36] per Lord Clarke.

The Court need not necessarily favour the most natural meaning of the words; it is entitled to have regard to the surrounding circumstances of the parties and prefer the construction first which is lawful (see generally Lewison, paragraph 7.11) and then which is consistent with business common sense and to reject the other (Rainy Skyat [30] per Lord Clarke, as adopted by the Privy Council in Anzen Ltd. v Hermes One Ltd.[2016] UKPC 1 at [32]). If language is capable of more than one construction, one chooses that which seems more likely to give effect to the commercial purpose of the agreement (Rainy Sky at [23] per Lord Clarke, and Co-operative Wholesale Society v National Westminster Bank plc [1995] 1 EGLR 97) or the interpretation which is most consistent with business sense (Rainy Sky at [30] per Lord Clarke). Generally speaking, commercially minded judges would regard the commercial purpose of the contract as more important than the niceties of language: Rainy Sky at [25] per Lord Clarke. However, the reliance placed in some cases on commercial common sense and surrounding circumstances should not be invoked to undervalue the importance of the language of the provision which is to be construed. 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 focusing on the issue covered by the provision when agreeing the wording of that provision:Arnoldat[17] per Lord Neuberger.

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: Arnoldat[19] per Lord Neuberger.

Whilst 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. 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: Arnoldat[20] per Lord Neuberger.

Where the parties have not addressed what is to happen on a given event the proper inference to draw is often that the parties intended nothing to happen (Attorney General of Belize v Belize Telecom Ltd. [2009] UKPC 10 [2009] 1 WLR 1988 [17] per Lord Hoffmann), unless it is clear what the parties would have intended in which case the court will give effect to that intention (Arnoldat[22] per Lord Neuberger). It is not the role of a Court to improve a contract, for example by introducing terms to make it more reasonable: Arnoldat[16] per Lord Neuberger.

At the hearing in December 2015, in ordering the trial of the preliminary issues, I required the parties to agree the relevant facts. This they did. What follows is based on the parties’ agreement, with certain fairly limited (and uncontroversial) expansion as very helpfully expressed in Mr Kent QC’s and Mr Evans-Tovey’s written submissions, Mr Fenwick QC having confirmed that he took no issue with the re-packaging which had been undertaken. As will appear, there is one aspect in relation to which, as the arguments unfolded, the parties’ agreement came under strain.

CIH (company No. 40203) was previously known as The Cape Asbestos Company Ltd.. CIH carried out the production of asbestos boards at Cowley Bridge Works, Uxbridge, Middlesex as tenant of CDL from 1951 until 30 June 1956. From in or around 1945 CDL (company No. 295321) was a wholly-owned subsidiary of CIH and was then known as the Uxbridge Flint Brick Company Ltd. From 1 July 1956 CIH caused its manufacturing operations at Cowley Bridge Works, Uxbridge, Middlesex to be transferred and taken over by CDL which changed its name to Cape Building Products Ltd. to suit. At all material times from 1 July 1956 (until 30 June 1968) CDL remained the sole contractual and statutory employer of the workforce at the Cowley Bridge Works.

There is no surviving proposal form for the Policy. The Policy document has survived, as has the original Schedule from 1957. It is an employers’ liability policy, the recital to which provides:

“Whereas the Insured carrying on Business described in the Schedule and no other for the purpose of this insurance by a proposal and declaration which shall be the basis of this contract……...”

The Insured is identified in the Schedule as “Cape Building Products Ltd” (CDL for present purposes), whose address is given as “Cowley Bridge Works, Cowley, Uxbridge, Middlesex” The Business described in the Schedule is: “Manufacturers of Bricks and Asbestos Board and Expanded Vermiculite”

The insuring clause is in a standard form and provides:

“Now this Policy witnesseth that if any person under a contract of service or apprenticeship with the Insured shall sustain bodily injury or disease caused during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business.

The Company will subject to the terms exceptions and conditions contained herein or endorsed hereon indemnify the Insured against liability at law for damages and claimant’s costs and expenses in respect of such injury or disease.”

Under “Exceptions” appears the following:

“The Company shall not be liable in respect of:

Liability which attaches by virtue of an agreement but which would not have attached in the absence of such agreement …”.

The “Conditions” then include Condition 3 as follows:

“No admission offer promise payment or indemnity shall be made or given by or on behalf of the Insured without the written consent of the Company which shall be entitled if it so desires to take over and conduct in the name of the Insured the defence or settlement of any claim or to prosecute in the name of the Insured for its own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings and in the settlement of any claim and the Insured shall give all such information and assistance as the Company may require.”

This is followed by Condition 5 which provides:

“The first premiums and all renewal premiums that may be accepted are to be regulated by the amount of wages and salaries and other earnings paid to employees by the Insured during each Period of Insurance. The name of every employee and the amount of wages salary and other earnings paid to him shall be duly recorded in a proper wages book. The Insured shall at all times allow the Company to inspect such books and shall supply the Company with a correct account of all such wages salaries and other earnings paid during and Period of Insurance within one month from the expiry of such Period of Insurance and if the total amount paid shall differ from the amount on which premium has been paid the difference in premium shall be met by a further proportionate payment to the Company or by a refund by the Company as the case may be”.

It is common ground that the Policy was renewed such that there was insurance coverage by RPA under the terms of the Policy between 31 December 1956 and 31 December 1966 (inclusive). It is common ground also that the first and all subsequent premiums for the Policy were set by reference to wages, salaries and other earnings of CDL’s employees. There are in existence a number of receipts for renewal premiums from renewal dates starting on 31 December 1957, together with receipts for additional premiums for each earlier “Period(s) of Insurance” which were due and payable by CDL after the end of each period of insurance under Policy condition 5. It appears that for renewal on 31 December 1963 CDL entered into a 3-year arrangement with RPA: there is an endorsement dated 14 February 1964 in favour of CDL to that effect; a “long term discount” of 5% was applied to the renewal premium; the receipt for the final renewal premium for the year 31 December 1965 to 31 December 1966 names Cape Building Products Ltd. (i.e. CDL) as the Insured. Throughout the period of the Policy until 1 January 1964 CDL owned and operated the Cowley Bridge Works including employing all staff as a subsidiary limited company of and wholly owned by CIH. The Policy came to an end on 31 December 1966.

For all renewals of the Policy after November 1964 (i.e. on 31 December 1964 and 31 December 1965): (i) Cape Building Products Ltd. (viz. CDL) continued to be used as “the Insured” in all renewal documents; (ii) the address for “the Insured” continued to be Cowley Bridge Works, Uxbridge, Middlesex; (iii) the “Business” continued to be that of manufacturing of bricks asbestos board and expanded vermiculite; (iv) premiums continued to be set by reference to wages, salaries and other earnings of CDL’s employees and not those of CIH; (v) documents issued by RPA and CU or brokers after November 1964 continued to refer to CDL as the insured. It is common ground that CIH and CDL entered into the Sale Agreement. There is no, or no surviving, contemporaneous evidence from January 1964 explaining why and how the Agreement came into being. Although minutes of the Board of CIH for December 1963 and January 1964 exist, as do minutes of the Boards of CDL for the same months, none of them mention the Sale Agreement. Also, CIH’s accounts for 1963 includes a statement by the Chairman dated 16 April 1964 which makes no mention of the Sale Agreement with CDL or any other subsidiaries of CIH.

At the same time as taking out the Policy with RPA in 1957, CDL took out a public liability policy with RPA (policy no. 39725) (the ‘Public Liability Policy’). Again there is no surviving proposal form. The Public Liability Policy document has survived, as have receipts for renewal premiums from renewal dates starting on 31 December 1958 together with various memoranda. The last renewal receipt is for the period 1 January 1965 to 31 December 1965. Thereafter, a different policy was taken out.

CIH has disclosed a schedule of insurance policies held by the various Cape companies. They include various property insurances and two additional policies issued by RPA, namely a third party liability “Petrol Pump” policy and an “All Risks” policy. The schedule also shows that CIH had its own employers’ liability cover from 1942 to the end of 1965 with Eagle Star and with Iron Trades thereafter (until 1971). Consistent with that, CIH has disclosed an Eagle Star employers’ liability policy (policy no. 51313156) issued to The Cape Asbestos Company Ltd. (i.e. CIH) for the period of insurance 31 December 1960 to 31 December 1961 which remained in force until December 1965, and an Iron Trades employers’ liability policy (policy no. 11256) issued to Cape Asbestos Company Ltd. (i.e. CIH) and others together with a schedule for a period of insurance commencing on 1 January 1966. Cape Building Products (i.e. CDL) was not one of the original “others”, but CIH’s employers’ liability policy was extended to CDL as from 1 January 1967.

The schedule also shows CIH to have had public liability cover with Eagle Star from 1942 to the end of 1973. Consistent with that, CIH has disclosed an Eagle Star public liability policy (policy no. 51313521) issued to The Cape Asbestos Company Ltd. (i.e. CIH), Cape Insulation and Asbestos Products Ltd. (‘CIAP’), Capasco Ltd. and Cape Asbestos Fibres Ltd. on 15 May 1961 for the period of insurance 31 December 1960 to 31 December 1961. This was still in force on 30 December 1968. In relation to CIH’s public liability cover, CIH has disclosed a renewal notice for policy no. 51313521 with a renewal period of insurance from of 31 December 1966 to 30 December 1967. The insured continued to be CIH and certain other companies in the group, but not CDL. CIH has also disclosed a deed of discharge dated 26 November 1984 between CIH “representing themselves and their associated and subsidiary companies” and Eagle Star. The recital refers to “various policies at various times” of employers’ liability and public liability cover issued “to various companies within the Cape Group of Companies” from 1915 to the end of 1965 (in the case of employers’ liability cover) and from 1939 to 1970 (in the case of public liability cover).

As at 1 January 1964 CDL and CIH had the following directors in common: Mr R.H. Dent (Chairman and Managing Director of CIH and Chairman of CDL), Mr L.C. Dawson, Mr R. Gaze and Mr M.A.F. Newton (Managing Director of CDL). The first mention of the Sale Agreement is to be found in the minutes of the Board of CDL from Tuesday 21 July 1964, which state under sub-heading

“9 RATIONALIZATION OF U.K. TRADING ACTIVITIES – [CIH]”:“The Chairman reported that in accordance with previous discussions on this matter the Managing Director. Mr M.A.F. Newton, had on 1^st January, 1964, signed on behalf of [CDL] contracts with [CIH] for the sale to that Company of the whole of the assets and undertaking of [CDL] as at midnight on 31^st December, 1963.

The Chairman produced copies of such Agreements executed on behalf of [CDL] and reported that arrangements for carrying through this operation were now well in hand.

The Board confirmed its approval to the action taken by the Chairman and Managing Director”.

There are also minutes of CIH’s board from Tuesday 28 July 1964, which record the execution of the Sale Agreement and performance thus:

“RATIONALIZATION OF U.K. TRADING ACTIVITIES”:

The Chairman reported that, in accordance with previous discussions on this matter he had, on 1^st January 1964, signed on behalf of [CIH] contracts with the undermentioned wholly owned subsidiaries for the acquisition by [CIH] of the whole of the assets and undertaking of such subsidiaries as at midnight on 31^st December, 1963, namely

Cape Asbestos Fibres Limited

Cape Insulation & Asbestos Products Limited

Andersons Insulation Company Limited

Cape Building Products Limited

Harefield Lime Company Limited

Kismet Limited

Small & Parkes Limited

Capasco Limited.

The Chairman produced copies of such Agreements executed on behalf of the above-mentioned subsidiaries and reported that arrangements for carrying through this operation were now well in hand.”

It is common ground that CIH entered into several agreements with its subsidiary companies dated 1 January 1964 containing similar words to the Sale Agreement. These Board minutes were written following meetings in July 1964 such that (on their own or in conjunction with insurance documents from early 1964) an inference can be readily drawn that the Sale Agreement was back-dated by about 6 months, presumably in order to coincide with the start of the companies’ accounting year. Insofar as these minutes post-date the actual conclusion of the Sale Agreement, Mr Kent QC submitted, and Mr Fenwick QC did not disagree, that their content is admissible insofar as it provides evidence of what was known or knowable at the time the Sale Agreement was signed.

Clause 1 of the Sale Agreement is in the following terms:

“The Vendor [CDL] shall sell and transfer and the Purchaser [CIH] shall acquire and take over as from midnight on the Thirty first day of December One thousand nine hundred and sixty three (hereinafter called “the Time of Sale”) the whole of the undertaking property assets and rights of the Vendor [CDL] whatsoever including the benefit of all contracts and engagements whether written or oral to which the Vendor [CDL] shall be a party at the Time of Sale.”

Clause 2 then provides:

“As part of the consideration for the said sale the Purchaser [CIH] shall undertake pay satisfy and discharge all the debts liabilities and obligations (including all income tax and profits tax assessable by reference to profits up to the Time of Sale) of the Vendor [CDL] whatsoever subsisting at the Time of Sale and shall adopt perform and fulfil all contracts and engagements binding on the Vendor [CDL] at the Time of Sale and shall at all times keep the Vendor [CDL] indemnified against the same and against all proceedings costs and demands in respect thereof.”

Clause 3 provides a further indemnity to CDL in relation to the costs and expenses of carrying the sale into effect and Clause 4 provides for the balance of the consideration payable by CIH as the Purchaser, stating as follows:

“The balance of the consideration for the sale shall be a sum equal to the excess of the Vendor’s [CDL’s] assets over its liabilities at the Time of the Sale ascertained by reference to the values shown in a Balance Sheet to be drawn up to that date on a basis consistent with that adopted hitherto by the Vendor [CDL] for the purpose of its annual accounts but subject to the following modification namely that for the purpose of arriving at the liabilities at the Time of Sale any provision or amount set aside in the Balance Sheet in respect of taxation arising on the profits or capital gains of the Vendor [CDL] up to the Time of Sale shall be treated as a liability.”

Clause 5 then states:

“Until the completion of the sale the Vendor [CDL] shall carry on the business of the Vendor [CDL] as heretofore and shall in so doing be deemed to be the agent of the Purchaser [CIH] and shall account and be entitled to be indemnified accordingly”.

The Sale Agreement ends with Clauses 6 and 7 as follows:

“6.

The Vendor [CDL] shall execute and do all such documents acts and things as the Purchaser [CIH] shall reasonably require for the purpose of or with a view to procuring that any subsisting contracts of any nature to which the Vendor [CDL] is a party and in which the Purchaser [CIH] becomes interested pursuant to this Agreement shall where necessary be novated between the Purchaser [CIH] and the other parties respectively to such contracts.

7.

The Vendor [CDL] shall with all due diligence if and when called upon by the Purchaser [CIH] so to do but at the expense of the Purchaser [CIH] execute all necessary assignments and do all such acts and things as the Purchaser [CIH] may reasonably consider necessary to carry out the terms of this Agreement and to vest in the Purchaser [CIH] the undertaking property and assets hereby agreed to be sold PROVIDED THAT that until the book debts of the Vendor [CDL] shall be actually assigned to the Purchaser [CIH] the Vendor [CDL] shall collect on behalf of the Purchaser [CIH] all such debts and in doing so the Vendor [CDL] shall act under the direction of the Purchaser [CIH] and shall account to the Purchaser [CIH] for all monies so collected less all expenses of collection and the Vendor [CDL] shall not be responsible for any losses in the course of collection.”

I should explain that the words “shall collect on behalf of the Purchaser [CIH] all such debts” do not appear in the copy of the Sale Agreement which was before me at trial. However, it is apparent from the other agreements similar to the Sale Agreement entered into by CIH with other companies in the group that these words would have appeared in the original. I refer here to the agreement with CIAP, and to the agreement with Cape Universal Building Products Ltd.. As with the Sale Agreement, the agreements for sale between CIH and CIAP and Cape Universal contain the same indemnities and obligations on CIH in clauses 2 as well as providing in clauses 5 that the subsidiary was to act as CIH’s agent.

An annual report of the Directors of CIH for the year ended 31 December 1964 states (under Accounts and Finance):

“For administrative reasons assets of the wholly-owned subsidiaries at home have been grouped together in the ownership of the parent Company, and the separate Balance Sheet of the parent Company shows substantial changes in consequence.”

These changes can be seen in the parent company balance sheet. In addition, there is a memorandum dated 12 October 1973 from R D C Hubbard to G A Higham, to which is attached a paper by Michael House which explains that the net assets of the subsidiaries were purchased by CIH and that the subsidiaries were simultaneously appointed to act as CIH’s agents in administering their respective businesses. The House paper records the “objective” of the agency system as having been, “to avoid for commercial reasons the publication of meaningful information in the subsidiaries accounts required under the Companies Act 1948 to be filed with Annual Returns at the Companies Registry”. There was no requirement under the Companies Act 1948 to disclose information regarding turnover or gross profit. For group accounts there was a requirement to combine the information contained in the profit and loss accounts and balance sheets of the holding company and subsidiaries with such adjustments that the directors thought necessary. However, though the profit and loss account was not required to show the details of the company’s operating revenues or gross profit, the Jenkins Report on Company Law reform of June 1962 (Cmnd 1749) recommended that the Act be amended so as to require the disclosure of turnover. By 1964 the London Stock Exchange was also moving towards requiring greater disclosure by quoted companies. The chairman of the Stock Exchange, Lord Ritchie, wrote to the chairmen of quoted companies for this purpose in August 1964 (see chapter 2 of the Fabian Society’s pamphlet on Company Law reform). The secretary of CIH wrote to the Stock Exchange on 6 October 1964 apparently referring to this letter and indicating that the businesses of eight wholly-owned subsidiary companies (including CDL) “were transferred to [CIH] a short time ago and are now carried by the subsidiary companies as agents for and on behalf of [CIH]”.

It is apparent that a draft of the letter from the Chairman of the Stock Exchange was in circulation at an earlier date and it is a proper inference that it came to the attention of CIH’s board not later than about mid July 1964 given the existence of a letter (the identity of the sender is unclear) dated 24 July 1964 which comments on the draft and suggests that it should include reference to the importance, inter alia, of disclosure of turnover and of an analysis “of trading results, where a company or group carries on widely divergent [sic] (for example, in the case of ‘industrial holding companies’)”. Furthermore, in a Precognition in Scottish litigation in 1992, John Sparkes, who had recently retired as company secretary of CIH, said that the arrangements were made “in view of the provisions of the Companies Act 1967 in respect of the disclosure of financial information.” He also said: “Although that position has altered following changes to the Companies Act, the practice has been retained in the Group.”

Also of some note is a separate agency agreement between CIH and CIAP dated 1 January 1964, which makes express provision for that subsidiary to carry on its business as agent for CIH. This agency agreement provides that the latter will act for a period of one year from the date of the agreement “as the agent of Cape in connection with the business or businesses for the time being carried on by Cape during the continuance of this agreement…”. It is apparent that there would have been a similar agency agreement between CIH and CDL of the same date. This follows, in part, from the contents of the paper by Michael House referred to above which states:

“The agency arrangements were originally established on 1 January 1964 when by virtue of sale and agency agreements the net assets of the following UK subsidiaries were purchased by CAC and the subsidiaries were simultaneously appointed to act as CAC’s agents in administering their respective businesses:

Andersons Insulation Company Limited (now Cape Contracts Limited)

Capasco Limited

Cape Asbestos Fibres Limited

Cape Building Products Limited (now Cape Distribution Limited)

Cape Insulation & Asbestos Products Limited (now Cape Insulation Limited)

Harefield Lime Company Limited

Kismet Limited

Small and Parkes Limited.”

It is apparent that a policy decision was taken centrally by CIH’s board in 1964, the effect of which was to be that the subsidiaries would cease to have any businesses of their own but would act as agents of the parent company being treated as in effect simply divisions of a single business. This is reflected in the grouping of the various subsidiaries into Mines, Insulations, Board Products and Engineering “Divisions” in the Annual Report and Accounts of CIH for the year ended 31^st December 1964.

It is common ground that with effect from 1 January 1964 until 30 June 1968, CDL continued to operate the business of the Cowley Bridge Works as agent for CIH and that at all material times until 30 June 1968 CDL remained the sole contractual and statutory employer of the workforce at the Uxbridge factory and that CIH was not their de facto or de jure employer.

The documents point towards Robertson Urquhart & Co Ltd. (whose stamp described them as incorporated insurance brokers) (‘Robertson Urquhart’) having been the insured’s (CDL’s) insurance brokers. For example, Robertson Urquhart were identified as agents on a number of the premium receipts. Importantly, a letter dated 10 November 1964 from Cape Building Products Ltd. (i.e. CDL) to Robertson Urquhart has survived. That letter states as follows:

“We have to inform you that the undertaking, assets and liabilities of the Company [CDL] have been transferred as from 1^st January 1964 to our Parent Company, The Cape Asbestos Company Limited of 114, Park Street, London, W.1 for whom and on whose behalf we are now carrying on business as agents.

As agents for The Cape Asbestos Company Limited, we will continue to be directly responsible for all matters connected with existing and future policies of insurance.

We shall be obliged if you will acknowledge the interest of The Cape Asbestos Company Limited by endorsing the policies described below:

Railway Passenger - Employers Liability Policy No. W.864304

- Liability (Third Party) T.P.39725 Lloyds - Burglary & Theft …”.

The contents of CDL’s letter dated 10 November 1964 were communicated to RPA on or before 25 November 1964 but there are no other surviving relevant documents to inform the court about what additional matters and facts were communicated to the brokers or to RPA which led to the placing of the Endorsement on the Policy. RPA issued the Endorsement to the Policy dated 25 November 1964. It begins by identifying the Policy by its number and by describing it as having been issued in favour of CDL. It then states as follows:

“It is hereby declared and agreed that all interest in this Policy is now vested in the Cape Asbestos Company Limited [CIH] as Proprietors of Cape Building Products Limited [CDL], Manufacturers of bricks, asbestos board and expanded vermiculite of Cowley Bridge Works, Uxbridge, Middlesex, who shall be deemed henceforth to be ‘the Insured’ referred to herein.”

There is no evidence of CIH having provided any disclosure and no additional premium or consideration was demanded or paid or provided for the Endorsement. CDL’s letter to Robertson Urquhart also identifies a separate third party liability policy, namely the Public Liability Policy. The Public Liability Policy was endorsed on 26 November 1964 but in different terms from the Employers’ Liability Policy. There are no other surviving relevant documents as to what additional matters and facts were communicated to the brokers or to RPA which led to the placing of the endorsement on the Public Liability Policy. The recently disclosed further insurance policy documents also contain endorsements made in November 1964. They are also in different terms.

It is common ground that CIH and CDL entered into a trust deed dated 27 November 1964 (the ‘Trust Deed’). The terms of the Trust Deed were probably agreed before that date and before the Endorsement. The recitals to the Trust Deed refer to the Sale Agreement, stating at (B) as follows:

“No formal transfer of the said property assets and rights has as yet been made by the Trustee [CDL] to the Purchaser [CIH] as provided for by the said Agreement.”

The Trust Deed goes on to provide as follows:

“NOW THIS DEED WITNESSETH that the Trustee [CDL] hereby declares that it holds the whole of its undertaking property assets and rights existing as at midnight on the said 31^st December 1963 in trust for the Purchaser [CIH] and hereby agrees that it will at the request and cost of the Purchaser [CIH] convey and transfer the said property or any part thereof to such person or company at such time or times and in such manner or otherwise deal with the same as the Purchaser [CIH] shall from time to time direct or appoint.”

It is common ground that on 1 July 1968 and at the request of CIH, CDL conveyed, transferred or otherwise dealt with its undertaking, property, assets and rights so as to vest them in another subsidiary of CIH, namely Cape Universal Building Products Ltd. (‘CUBP’), subsequently known as Plumefern Ltd. It is in relation to this aspect that during the latter stages of the argument, specifically during Mr Kent QC’s reply submissions, some controversy emerged. Mr Kent QC made the point that it was, as he put it, “only because … these claims relate to bodily injury or disease which it is common ground could not have first become actionable injury giving rise to any liability on the part of CDL until long after 1968”, when CIH decided to restructure and have CDL vest its assets in CUBP, that any difficulty arises from CIH’s perspective. Mr Kent QC suggested that, but for the restructuring, CIH would have been able, in effect, to recover under the Policy. Mr Fenwick QC’s response was to point out that also on 1 July 1968 CUBP and CIH entered into a trust deed which “essentially transferred all its assets to CIH”. This was an agreement which was entered into alongside an agreement of sale entered into between CUBP and CIH in respect of what had been the undertaking, property and assets of CDL but which had by that stage become the undertaking, property and assets of CUBP. So, Mr Fenwick QC submitted, the restructuring did not mean that the assets were lost to CIH forever. Mr Kent QC responded by highlighting that the relevant trust deed referred only to the assets of CUBP as at 30 June 1968, the day before 1 July 1968 when, according to the agreed facts, CDL transferred its assets to CUBP. Mr Fenwick QC suggested that this was an overly subtle point which had no merit, reliant as it was on the parties’ agreement as to the date of the transfer when it is plain and obvious that the trust deed was part and parcel of the transfer from CDL to CUBP and so that the transferred assets were to be subject to the sale agreement and trust deed entered into between CUBP and CIH. I agree with Mr Fenwick QC about this. Indeed, the relevant agreement between CDL and CUBP no longer being available, albeit that there is no issue about the transfer having taken place, and it being open to some question whether everything could have happened on just one day, 1 July 2008, it may well be that the transfer between CDL and CUBP took place shortly before. In the circumstances, I reject Mr Kent QC’s timing point and his reliance on the fact of the restructuring which depends on that timing point.

Returning to less controversial ground and dealing with the last agreed fact, it was agreed between the parties that on 1 January 1974, the business was further transferred to Cape Boards & Panels Ltd. which itself changed its name to Cape Building Products Ltd. on 14 October 1985.

It was suggested by Mr Fenwick QC that it is appropriate to consider the Preliminary Issues out of numerical order, and so by first addressing Preliminary Issues 9 to 16 (together with Preliminary Issue 7 which is interlinked with the insurance-related Preliminary Issues) which are concerned with the insurance-related disputes, rather than Preliminary Issues 1 to 6 and 8 which are concerned with the Sale Agreement. The rationale behind Mr Fenwick QC’s suggestion, he explained, was that if I were to agree with CIH that it is a co-insured under the Policy or that the Policy was somehow otherwise for CDL’s and CIH’s joint benefit, then, the position would be that Aviva has no legal right to bring a subrogated claim in the name of CDL against CIH, and there is, as Mr Fenwick QC put it, “no need to go further”.

In circumstances, however, where I must inevitably “go further” and determine all of the Preliminary Issues, including Preliminary Issues 1 to 9, I prefer to deal with the Preliminary Issues in the order in which they were agreed and ordered at December’s hearing, save in respect of Preliminary Issue 7 which it is more sensible to address alongside the insurance-related Preliminary Issues, specifically Preliminary Issue 16. Accordingly, I start by addressing the Preliminary Issues which relate to the Sale Agreement, before coming on to consider the insurance-related Preliminary Issues.

I make it clear that, in addressing the Preliminary Issues, I shall endeavour to deal with the vast majority of the points raised by the parties. However, there were very many points indeed, including a lot of reference to authority (and I say this without criticism), and it is probably not feasible that I address every single point. I confirm nevertheless that I have taken into account everything which was submitted to me, by both sides, and all of the evidence before me. If I do not specifically address any particular point, therefore, it should not be assumed that I have failed to take it into account as that is not the case.

Before turning to the Preliminary Issues, I should first deal with a point which was made by Mr Kent QC during the course of his oral submissions. This was a point based on section 7(3) of the 1978 Act, which provides:

“The right to recover contribution in accordance with section 1 above supersedes any right, other than an express contractual right, to recover contribution (as distinct from indemnity) otherwise than under this Act in corresponding circumstances,; but nothing in this Act shall affect -

(a)

any express or implied contractual or other right to indemnity; or

(b)

any express contractual provision regulating or excluding contribution;

which would be enforceable apart from this Act (or render enforceable any agreement for indemnity or contribution which would not be enforceable apart from this Act).”

Although there is no issue that the applicable Act in the present context is the Civil Liability (Contribution) Act 1978, Mr Kent QC referred also to its predecessor, the Law Reform (Married Women and Tortfeasors) Act 1935, suggesting that sub-section (a) repeats, in effect, section 6(1)(c) of that Act which provides:

“Where damage is suffered by any person as a result of a tort … -

…

(c)

any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought.”

Mr Kent QC submitted that if CDL were to establish that it is entitled to an indemnity under the Sale Agreement, then, CIH’s counterclaim under the 1978 Act “would then drop away”. This was not a matter, however, which was raised in Mr Kent QC’s and Mr Evans-Tovey’s written submissions. Nor is it a point which was made in CDL’s Defence to CIH’s Counterclaim. On the contrary, in that statement of case it was expressly admitted that CIH is “entitled to seek contribution pursuant to s.1 of the Civil Liability (Contribution) Act 1978”. Unsurprisingly, nor is it a matter which was identified as one of the Preliminary Issues. Mr Fenwick QC took the position that, in the circumstances, I should not address this new argument, making no substantive submissions in relation to it. I agree with Mr Fenwick QC about this and propose instead to focus on the matters which are the subject of the Preliminary Issues.

do “liabilities … subsisting” extend to causes of action in contract which had arisen prior to 1964 but where, as at 1 January 1964, such claims would be for nominal damages only and/or causes of action in tort which are completed by the sustaining of damage only after 1963 but where all other ingredients of the tort existed before 1964?

is the indemnity “against the same” related to the agreement on CIH’s part to adopt, perform and fulfil all contracts and engagements binding on CDL as at midnight on 31 December 1963 and not to the discharge of liabilities and obligations existing as at that date?

does “all contracts and engagements binding on the Vendor at the Time of Sale” include binding arrangements between CDL and its employees and is CDL entitled to indemnity in respect of such claims by calling on CIH to “perform and fulfil all contracts and engagements binding on” CIH as at 31 December 1963?

Mr Kent QC’s essential submission in relation to Preliminary Issue 1 was that “the essential aim” of the Sale Agreement was to achieve the position where, in exchange for CDL giving up all its assets, CIH would (i) take on all CDL’s liabilities, whether those liabilities were already established at the “Time of Sale” or whether they later came into existence as a result of events preceding the “Time of Sale”), and (ii) adopt CDL’s obligations going forwards. His submission was that, in the absence of evidence of any intention on the part of CDL and CIH to leave CDL with a rump of liabilities, combined with the parties’ decision (as set out in the Sale Agreement) to leave CDL with no assets or business, together with the absence of any obligation on CDL to maintain insurance for itself and what Mr Kent QC described as “the very wide language” used in Clauses 2 and 5 of the Sale Agreement, the objective intention was clear: to provide complete protection for CDL against all and any future claims.

Mr Fenwick QC’s position, in contrast, was that, absent performance of the Sale Agreement by way of completion, it was not intended by the parties that Clause 2, which relates to the monetary consideration for the sale, would be legally binding (the ‘completion argument’). Alternatively, Mr Fenwick QC submitted, if and insofar as Clause 2 did take effect, any liability on the part of CIH under Clause 2 would be matched by an equal and corresponding liability on the part of CDL to CIH on the adjustment account to which reference is made in Clause 4, so that as between CDL and CIH the position “would be economically neutral” (the ‘Clause 4 argument’). Mr Fenwick QC went on to submit that, if he was wrong about this and Clause 2 did take effect, then, any indemnity under Clause 2 is available only insofar as CDL’s liability is not made good by insurance recoveries (the ‘net insurance recoveries argument’), and CDL is anyway not entitled to an indemnity in respect of its own breaches of duty as agent but is liable to CIH under a cross-claim in relation to the same (the ‘own breach of duty argument’). In any event, Mr Fenwick QC went on to submit, in terms of the indemnity stipulated in Clause 2, there are “cogent reasons”, as he put it, for concluding that the words “liabilities … subsisting” do not extend to causes of action in tort which are completed by the sustaining of damage only after 1963.

I leave aside, for present purposes, the first of the submissions made by Mr Fenwick QC since this (the ‘completion argument’) is concerned with Preliminary Issues 4 and 5. I leave aside also, again for present purposes, the second of Mr Fenwick QC’s submissions (the ‘Clause 4 argument’) since this is concerned with Preliminary Issue 2. Likewise, the third of Mr Fenwick QC’s submissions (the ‘net insurance recoveries argument’) is concerned with Preliminary Issues 3 and 6. The same applies to Mr Fenwick QC’s fourth submission (the ‘own breach of duty argument’) inasmuch as this is covered by Preliminary Issue 3. I concentrate, instead, at this juncture, on the fifth submission which was made by Mr Fenwick QC, namely the suggestion that the language used in Clause 2 does not extend to cover what CDL contends it covers.

Mr Fenwick QC submitted that there was no actionable injury or damage and, therefore, no completed cause of action at the “Time of Sale”. He relied in this context on the following passage in the judgment of Longmore LJ in Bolton v Municipal Mutual Insurance[2006] EWCA Civ 50, [2006] 1 WLR 1492 at [18], following a review of a number of authorities:

“Although it can be said that all these cases depended on the medical evidence given to the court, the evidence (often given by Dr Rudd) was to much the same effect as that summarised in this judgment. These cases have established a pattern at first instance to the effect that actionable injury does not occur on exposure or on initial bodily changes happening at that time but only at a much later date; whether that is when a malignant tumour is first created or when identifiable symptoms first occur does not matter for the purposes of this case. I would hold that these earlier cases were correctly decided and that injury cannot be equated to the ‘insult’ received by the body when exposure first occurs.”

Mr Fenwick QC’s submission was that in the present case there was at most a breach of duty, and so there cannot be said to have been any liability subsisting as at the “Time of Sale”. He submitted, in particular, that it is inappropriate to speak of a liability being “contingent” when, in the absence of injury (which, viewed prospectively, was not bound or even likely to occur), there was and would be no liability at all. He added that, whilst “liabilities” may have extended to causes of action in contract which had arisen prior to 1964, any liability “subsisting” as at 1 January 1964 would have been for nominal damages only since the claimant would have suffered no personal injury.

I do not agree with these submissions. I agree with Mr Kent QC that CIH’s case makes no commercial sense since clearly Clause 2 needs to be read not in isolation but in conjunction with Clause 1. Whereas Clause 1 transfers all the benefits of the subsidiary (CDL) to the parent company (CIH), Clause 2 is concerned with the burdens or what might be described as the ‘flip side’, hence the fact that it starts with the words “As part of the consideration for the said sale” (language which is echoed in Clauses 3 and 4 also). As Mr Kent QC pointed out, correctly as I see it, if there had been completion straightaway, then, the effect of Clause 1 would have been that CDL would not only have had no further business to conduct at Uxbridge or anywhere else, but that CDL would no longer have been the owner of any assets, including any rights arising under contracts of employment with its employees. In those circumstances, the purpose of Clause 2 would obviously have been to transfer all liabilities, including potential liabilities that could only have been described as contingent, as at the “Time of Sale”. To have left contingent liabilities as the responsibility of CDL after completion would have run quite counter to what was clearly intended to be achieved.

That this was the obvious intention of the parties is borne out by the width of the language used in Clause 2, as well as the structure of the provision which is consistent with the object being to embrace as much as possible. In this regard, I agree with Mr Kent QC when he submitted that Clause 2 consists of three obligations, as follows: first, an obligation on the part of CIH to “undertake pay satisfy and discharge all the debts, liabilities and obligations of the Vendor [CDL] whatsoever subsisting at the Time of Sale”; secondly, an obligation on the part of CIH to “adopt perform and fulfil all contracts and engagements binding on the Vendor [CDL] at the Time of Sale”; and thirdly, an obligation on the part of CIH that it “shall at all times keep the Vendor [CDL] indemnified against the same and against all proceedings costs and demands in respect thereof”. The fact that there are three sets of obligation on CIH’s part serves to underline the intended broad scope of Clause 2. As I shall explain below, this is further borne out, however, by the words which are used when describing each of the three sets of obligations.

Beginning with the first of the three obligations, which is the focus of paragraph (a) of Preliminary Issue 1, it is quite clear to me that Mr Kent QC was right when he submitted that “liabilities and obligations … subsisting” are words which are apt to cover all liabilities and obligations, whether actual or contingent. Indeed, it should be noted that, although in their written submissions, Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier submitted that “liabilities … subsisting” did not embrace contingent liabilities, in his oral submissions Mr Fenwick QC’s focus was not really on this submission. In fact, Mr Fenwick QC indicated that, as he put it, “I am going to proceed on the basis that your Lordship is satisfied that this is intended to cover all liabilities, including any liability”, taking a hypothetical example, to “Mr Jones and Mr Smith arising out of their mesothelioma”. This followed short submissions in which Mr Fenwick sought to distinguish between a contingent liability and a merely “potential” liability which Mr Kent QC had previously characterised as a liability “which is entirely focused on events which happened after the date of the agreement” such as “negligence by employees of CDL which injure another employee in March of 1965”. Mr Fenwick QC’s position was, in fact, consistent with the position adopted by CIH in its Defence where it appeared to be acknowledged that contingent liabilities may be within the phrase “liabilities… subsisting” since reference is made to “liability” subsisting “(actual or contingent)”. Furthermore, although in a schedule provided to me during the course of Mr Fenwick QC’s submissions issue was taken with a suggestion made by Mr Kent QC and Mr Evans-Tovey in their written submissions that CIH had made a particular concession in relation to “obligations”, no submissions were made by Mr Fenwick QC orally or in Mr Fenwick QC’s, Miss Mulcahy QC’s and Mr Kinnier’s written submissions which contradicted Mr Kent QC’s submission that this additional language also entitles CDL to assert a relevant entitlement under Clause 2. In short, by the end of the hearing, I was somewhat uncertain concerning the extent, if at all, that CIH takes issue with CDL’s case in relation to these aspects of Preliminary Issue 1. In the circumstances, however, it is appropriate that I set out the reasons why I agree with Mr Kent QC’s submissions in this regard. In doing so, I shall track, to some extent, Mr Kent QC’s and Mr Evans-Tovey’s submissions as contained in their written submissions in partricular.

I start with the words “liabilities … subsisting”, and whether these words should be regarded as covering not only actual liabilities but also contingent liabilities (albeit not potential liabilities in the sense described by Mr Kent QC). Mr Kent QC relied on certain dictionary definitions of the words “liable” and “liability”, suggesting that the definitions demonstrated that, as a matter of ordinary language, the words embraced both an accrued liability and a contingent liability. I am not entirely sure that reference to dictionaries is helpful in the present context, although it is right to acknowledge, as will appear, that in at least two of the authorities to which I was referred reliance was placed on dictionary definitions. In any event, there are a number of authorities which support Mr Kent QC’s submissions. Thus, in Walters v Babergh District Council (1983) 82 LGR 235 at pages 242-243, Woolf J (as he then was) cited with approval certain observations made by Megarry J (as he then was) in Bromilow & Edwards Ltd. v Inland Revenue Commissioners[1969] 3 All ER 536, [1969] 1 WLR 1180 at page 1189:

“There is a further consideration, namely, the ambit of the word ‘liability’. I refrain from any detailed attempt to explore the various possible meanings of this word. All that I need say is that I have looked at the entry under that word and under "liable" in Words and Phrases (1944) and in Stroud's Judicial Dictionary (1952) and that it seems plain that ‘liability’ is a word capable of some amplitude of meaning. I say this without discussing the meaning that that word bears in the celebrated classification in Hohfeld’s Fundamental Legal Conceptions (1932), where it is the correlative of ‘power’ and the opposite of ‘immunity’. I do not think that the meaning of the word can be limited, as Mr Heyworth Talbot would have me limit it, to a present, enforceable liability, excluding any contingent or potential liability. Used simpliciter, the word seems to me to be fully capable of embracing the latter form of liability, as in a surety's liability for his principal before there has been any default.”

Woolf J went on to say this:

“I would respectfully agree with the general statements made by Mr Justice Megarry in that judgment and apply them word for word to the context here under consideration. I regard the word ‘liabilities’ as capable of having amplitude of meaning. In the context of this case I consider that it is wide enough to apply to contingent or potential liabilities.”

Although, as I have observed, ultimately there appeared to be nothing between Mr Kent QC and Mr Fenwick QC as to what is meant by a liability which is contingent, it is as well to have in mind the description given by Lord Reid in In re Sutherland (deceased) [1963] AC 235 at page 249, as follows:

“It is a liability which, by reason of something done by the person bound, will necessarily arise or come into being if one or more of certain events occur or do not occur.”

Also of note is Glenister v Rowe [2000] Ch 76, in which at page 83F-G Mummery LJ referred to what Lord Reid had stated and pointed out that Lord Reid:

“relied on the distinction in Scots law (but thought that there was no difference in substance from English law) between (1) a case where the liability is for a sum immediately payable; (2) a case where the liability is to pay a sum at a future date or event which must occur; and (3) the case of “contingent liabilities” “which must mean sums, payment of which … will only become payable if certain things happen, and which otherwise will never become payable”.

In addition, in County Bookshops Limited v Alistair Grove [2002] EWHC 1160 (Ch) Neuberger J (as he then was), when considering a company voluntary arrangement which he considered to be analogous to a commercial contract, stated as follows at [49] and [50] after referring to Lord Reid’s and Mummery LJ’s respective observations:

“49.

This guidance is obviously valuable and must be borne in mind. However, it seems to me that the question in the present case cannot be answered by reference solely to authorities, or, indeed, as a matter of abstract principle. As the absence of any statutory definition and the disagreement in the House of Lords in Sutherland [1963] AC 235, suggest, the term ‘contingent liabilities’ is ultimately not a term of art. Its precise meaning will depend on its context. There are certain types of debt which one could say with a fair degree of confidence would, or, as the case may be, would not, be ‘contingent liabilities’. Nonetheless, even in such cases, the context (which will normally be a contractual context) in which the expression is used may be so extraordinary as to justify a thoroughly exceptional meaning

50.

Thus, an unqualified obligation to pay a sum of money after a specified date in the future could not normally be said to be a contingent liability. Even though there would be no present liability to pay, one could be confident that, once the stipulated date arrived, there would be an immediate liability to pay: contrast Lord Reid's categories (2) and (3). On the other hand, a liability which could not arise unless and until the happening of an event (e.g. the exercise of an option or a default on a primary liability) would normally be a contingent liability. Not only would an immediate liability to pay not yet have arisen, but one could not say for certain whether it would ever arise.”

Approaching matters in line with these authorities, and so on the basis that a contingent liability is not a future or potential liability but a liability which will only become payable if one or more things happen, I consider that the proposition that the reference to “liabilities” should be read in a narrow way, confined to actual liabilities and no other types of liability, becomes untenable. As Mr Kent QC pointed out, had it been intended by the draftsman of the Sale Agreement that only actual liabilities should be covered, it would have been very easy for this to have been stated in Clause 2. Instead of this, the provision is cast in unqualified terms, the words “debts liabilities and obligations” being preceded by the word “all” and followed by the word “whatsoever”.

Although not central to my reasoning in this regard, it is interesting that in a case before the Extra Division, Inner House, Court of Session, Bavaird v Sir Robert McAlpine Ltd. [2013] CSIH 98, it was decided, after reference to certain dictionary definitions and the Walters case, that a reference to “liabilities” in certain secondary legislation transferring “liabilities” included “contingent liabilities and potential liabilities” and so included liabilities for mesothelioma caused by alleged negligence between 1971 and 1974 which developed or became symptomatic after the legislation had been passed many years later.

I do not consider that the analysis is changed by reason of the fact that the word “subsisting” appears after the word “liabilities”. I do not consider, in particular, that this means, in effect, that the “liabilities” must have accrued by the “Time of Sale” in order for those “liabilities” to fall within the compass of Clause 2. If that had been what was intended should be covered, the provision could have made it clear by using the word “accrued” or some other limiting word. That is not, however, what was done; on the contrary, the word “liabilities” appears in Clause 2 without qualification and furthermore, as I have pointed out, accompanied by the wide words “all” and “whatsoever”. Indeed, as Mr Kent QC submitted, to confine “liabilities” only to those which had accrued at the “Time of Sale” would also be inconsistent with the specific inclusion of “all income tax and profits tax assessable by reference to profits up to the Time of Sale”. The reference to “income tax and profits tax assessable by reference to profits up to the Time of Sale”clearly contemplates a situation where the legal debt, liability or obligation in respect of such taxes arises only after the “Time of Sale”. This is because at the “Time of Sale” the relevant profits would not necessarily have been known; they would inevitably have to be assessed after the “Time of Sale”. As such, the relevant tax “liabilities” would obviously only be contingent in nature. In this regard, therefore, in relation to the specific example of “liabilities” given in Clause 2, there cannot be read in the type of limitation which Mr Fenwick QC would suggest is appropriate when seeking to understand what is meant by the reference to “liabilities”. This seems to me to make it inherently unlikely that there is the qualification which Mr Fenwick QC suggested. I am not prepared to conclude that the word “liabilities” should have different meanings in relation to tax, on the one hand, and in relation to matters more generally, on the other hand. To arrive at such a conclusion would not only read in a qualification which is not, expressly at least, there but would entail attributing two different meanings to a single word (“liabilities”) when there is no hint in the language used that this was the intention of the parties in agreeing Clause 2.

It also seems to me that it is inherently improbable that it would have been intended that “liabilities” should be treated as not including what Mr Kent QC and Mr Evans-Tovey described in their written submissions as “things done or left undone before midnight” on 31 December 1963. They gave the example of goods which had been supplied before that date and which were subsequently found to be defective and to have caused injury (whether before or after the “Time of Sale”). I agree with Mr Kent QC and Mr Evans-Tovey that it would be odd if any liability in respect of this did not fall within the scope of “liabilities” as referred to in Clause 2. That liability would be contingent rather than accrued. It would, in my judgment, plainly be regarded as “subsisting” even though it had not accrued. I agree, in short, with Mr Kent QC’s and Mr Evans-Tovey’s submission that by “subsisting” is meant liabilities which are either actual or contingent but not including liabilities which are merely potential in the sense that they do not stem out of events which preceded the “Time of Sale”. I agree, specifically, with Mr Kent QC’s and Mr Evans-Tovey’s submission that included in the “liabilities … subsisting” categories would, therefore, importantly, be cases where, although a cause of action in tort has not yet accrued because damage had not yet occurred at the “Time of Sale”, some of the ingredients of the cause of action nonetheless did exist as at that point. This would include employees’ claims in tort where the breach of duty occurred before 1 January 1964 even though damage came about later. Also included would be cases where the cause of action is complete because damage has been sustained before the “Time of Sale”, but this was not known to CDL at that point. The same applies to cases where the cause of action has accrued but the claim has not been crystallised by judgment or settlement, and where a cause of action exists and has been notified but the quantification of the claim is not possible or not known.

Support for this conclusion is provided by an authority to which I was taken by Mr Kent QC, namelyBAE System Electronics Limited v Selex Communications Limited [2011] EWHC 2006 (Ch). In that case Lewison J (as he then was) considered a provision in a sale and purchase agreement entered into between two companies in the same group of companies, BSEL and Selex, clause 8.1, which was in the following terms:

“[Selex] shall assume all debts and liabilities of [BSEL], including the overdraft assumed to the extent provided in clause 3.1 hereof and contingent liabilities, but excluding excluded liabilities subsisting at the transfer date incurred by [BSEL] in the carrying on of business and shall discharge such debts as they fall due and indemnify [BSEL] against all claims arising or claims to arise out of the conduct of the business whether before or after the transfer date.”

Addressing the question of whether BSEL’s liability to pay certain deficit repair contributions constituted a “contingent liability subsisting at the transfer date” (the issue identified at [12]), Lewison J explained his thinking as follows at [21]:

“In my judgment, the overall commercial purpose of a clause like clause 8.1 is to draw a line under the seller's liabilities for the business it is in the course of selling. The risk of the unknown is transferred to the buyers. Thus it seems it me that if Mr Martin is right in saying that the rule change was neither foreseen nor foreseeable that is a point in the seller’s favour rather than the buyers …”.

Lewison J went on in the next paragraph, [22], to say this:

“It is also worth noting that the reference to contingent liabilities in clause 8.1 is in a parenthesis beginning with the word including. The primary obligation relates to all debts and liabilities of BSEL subsisting at the transfer date. This form of clause reinforces, I think, one’s impression that it was meant to catch everything that was not expressly excluded. Lastly, the clause must be read as a whole so that the obligation to indemnify in the final part of the clause may shed light on the scope of the obligation to assume debts and liabilities referred to in the opening part of the clause. The indemnity extends to all claims arising out of the conduct of the business, whether before or after the transfer date. This form of words is very widely drawn and further reinforces the impression that the risk of the unknown is passed to the buyer.”

This approach underlines the commercial good sense which Mr Kent QC submitted lay behind Clause 2, namely that of drawing a line under CDL’s liabilities in circumstances where CIH was taking over the whole of CDL’s assets. The fact that, as in the BAE Systems case, the reference to “debts and liabilities” is accompanied by the word “all” makes the position clear. In fact, as I have previously emphasised, in the present case (but not in the BAE Systems case) the word “whatsoever” also appears, so spelling out still further that the intention is that Clause 2 should be read in a wide way. By referring to “liabilities”, the intention was obviously “to catch everything that was not expressly excluded”, indeed, as Mr Kent QC and Mr Evans-Tovey pointed out, even contingent liabilities which were “neither foreseen nor foreseeable”. Mr Fenwick QC, whilst not really taking issue with this latter aspect, nonetheless wished to reserve the position as to whether, as he put it, “in addition to taking on, so to speak, a known obligation for known liabilities or identifiable, describable liabilities of CDL”, CIH was also agreeing in Clause 2 to assume a responsibility “for some unknown, unexpected liability which is not even contingent … but merely potential”, giving the example of it later being learned that CDL was “making not asbestos boards but something with cadmium or something else which was found out 20 years later to have a liability”. On the facts of the present cases, however, as Mr Fenwick QC recognised, this is not the scenario: the liability is not in the unforeseen or unforeseeable category.

It follows that my answer to paragraph (a) under Preliminary Issue 1 is ‘yes’ at least inasmuch as the relevant liabilities were asbestos-related, the focus of paragraph (a) being on “liabilities … subsisting”. There is, however, an overlap between “liabilities … subsisting” and “obligations … subsisting”, the word “obligations” coming immediately after the word “liabilities”. Although Preliminary Issue 1, and paragraph (a) in particular, does not specifically deal with “obligations … subsisting”, it nonetheless makes sense for me to consider paragraph (a) as though it also made reference to “obligations … subsisting”. Mr Kent QC and Mr Evans-Tovey advanced detailed submissions in their written submissions addressed to this topic. As I have mentioned, in contrast, no submissions were made in relation to it by Mr Fenwick QC orally or in Mr Fenwick QC’s, Miss Mulcahy QC’s and Mr Kinnier’s written submissions. I am satisfied that this is not, however, because paragraph (a) is framed in the way in which it is, but because, in truth, although the point is not conceded, no issue is (or can be) taken with the proposition which is advanced on CDL’s behalf.

I regard the position as being tolerably clear: an obligation is the anterior source of a liability. This was what was held by the Supreme Court in In re Nortel GmbH [2013] UKSC 52, [2014] AC 209 when considering the Insolvency Rules 1986, specifically rule 13.12(1)(b) which states in context as follows:

“(1)

‘Debt’ in relation to the winding up of a company, means … any of the following— (a) any debt or liability to which the company is subject … at the date on which the company went into liquidation; (b) any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; …”.

Although the word used is “debt” rather than “obligation” as in the case of Clause 2, it is apparent from Lord Neuberger’s analysis that the two terms are to be regarded as essentially synonymous, and anyway what matters for present purposes is that the words “debt” and “obligation” are used, in rule 13.12(1)(b) and Clause 2 respectively, alongside, and so in contra-distinction to, “liability” or “liabilities”. Lord Neuberger explained the context at [73]:

“In these cases, a target company's liability under the FSD scheme arises because it was a member of a group of companies, which, to put it very loosely, fell within the scope of the regime (as the group included a company which had a pension scheme, and that company was a service company, or insufficiently resourced). In order for the liability in issue to fall within rule 13.12(1)(b), therefore, the fact that the target company was a member of such a group must amount to a sufficient ‘obligation incurred’ within the meaning of that rule, before the target went into administration. Timing is no problem in the present cases, because each of the Target companies in the Lehman and Nortel groups were members of a group which fell within the scope of the regime, as I have used that expression, well before they went into administration.”

He then stated as follows at [74]:

“That issue thus centres on the meaning of the word ‘obligation’ in rule 13.12(1)(b). The meaning of the word ‘obligation’ will, of course, depend on its context. However, perhaps more than many words, ‘obligation’ can have a number of different meanings or nuances. In many contexts, it has the same meaning as ‘liability’, but it clearly cannot have such a meaning here. Indeed, in the context of rule 13.12, it must imply a more inchoate, or imprecise, meaning than ‘liability’, as the liability is what can be proved for, whereas the obligation is the anterior source of that liability.”

He continued at [75] by addressing the position where a contract has been entered into:

“Where a liability arises after the insolvency event as a result of a contract entered into by a company, there is no real problem. The contract, in so far as it imposes any actual or contingent liabilities on the company, can fairly be said to impose the incurred obligation. Accordingly, in such a case the question whether the liability falls within paragraph (b) will depend on whether the contract was entered into before or after the insolvency event.”

He then addressed the position where no contract is in place, describing the position as being “not necessarily so straightforward” at [76], before stating as follows at [77]:

“… It would be dangerous to try and suggest a universally applicable formula, given the many different statutory and other liabilities and obligations which could exist. However, I would suggest that, at least normally, in order for a company to have incurred a relevant ‘obligation’ under rule 13.12(1)(b), it must have taken, or been subjected to, some step or combination of steps which (a) had some legal effect (such as putting it under some legal duty or into some legal relationship), and which (b) resulted in it being vulnerable to the specific liability in question, such that there would be a real prospect of that liability being incurred. If these two requirements are satisfied, it is also, I think, relevant to consider (c) whether it would be consistent with the regime under which the liability is imposed to conclude that the step or combination of steps gave rise to an obligation under rule 13.12(1)(b).”

Also of note is what Lord Sumption stated later on, when agreeing with Lord Neuberger but adding some observations of his own. He said this at [130]:

“The critical question is what constitutes an ‘obligation incurred’ for the purpose of rule 13.12(1)(b) of the Insolvency Rules 1986 . The context shows it means a legal rule applying before the date when the company goes into liquidation which may, contingently on some future event, give rise to a ‘debt or liability’ arising after that date. But it cannot extend to every legal rule which may on any contingency have that effect. Otherwise every debt or liability would be provable irrespective of the date when it accrued, unless the law changed after the company went into liquidation. Since the scheme depends on there being a common date as at which the fund falls to be valued and distributed pari passu, that cannot be right. Some limitation must be read into sub-paragraph (b). But what limitation?”

He went on at [131] to address the position in contract:

“The paradigm case of an ‘obligation’ within the sub-paragraph is a contract which was already in existence before the company went into liquidation. It is implicit in the argument of those who contend on this appeal that there is no provable debt in this case that contract is not just the paradigm case but the only one. Yet when one asks what it is about a contract that qualifies it as a relevant source of obligation, the answer must be that where a subsisting contract gives rise to a contingent debt or liability, a legal relationship between the company and the creditor exists from the moment that the contract is made and before the contingency occurs. The judgment of Lord Reid in In re Sutherland, decd [1963] AC 235 was concerned with a very different statutory scheme, but his analysis is nevertheless illuminating because it makes precisely this point at pp 247–248:

‘It is said that where there is a contract there is an existing obligation even if you must await events to see if anything ever becomes payable, but that there is no comparable obligation in a case like the present. But there appears to me to be a close similarity. To take the first stage, if I see a watch in a shop window and think of buying it, I am not under a contingent liability to pay the price: similarly, if an Act says I must pay tax if I trade and make a profit I am not before I begin trading under a contingent liability to pay tax in the event of my starting trading. In neither case have I committed myself to anything. But if I agree by contract to accept allowances on the footing that I will pay a sum if I later sell something above a certain price I have committed myself and I come under a contingent liability to pay in that event.’”

Lord Sumption then considered other examples concerned with obligations owed under statute, albeit not a case where tortious liability is involved.

Mr Kent QC and Mr Evans-Tovey submitted that the Nortel case is instructive in the present context because it makes it clear that an obligation will ordinarily exist before there is a breach of that obligation (whether it is a contractual obligation, a tortious obligation or a statutory obligation) and necessarily, therefore, before the accrual of a cause of action (again of whatever type) and the incurring of a liability. I agree with Mr Kent QC and Mr Evans-Tovey about this. I agree, in particular, that, adopting the approach described by Lord Neuberger, at all times up to the “Time of Sale”, there were obligations which were subsisting between CDL and its employees from time to time which gave rise, or in the case of the obligations owed in tort in certain circumstances gave rise, to contingent liabilities for the reasons which I have previously explained.

These obligations would have been contractual and tortious in nature, it being well-established that an employee may sue his or her employer in tort or contract (see Matthews v Kuwait Bechtel Corp. [1959] 2 QB 57 per Sellers LJ at page 63). It is clear also that, as far as any contract of employment is concerned, the primary obligations under that contract included, or gave rise to, secondary obligations to pay damages in respect of any breach of those primary obligations. As Lord Diplock pithily put it in Moschi v Lep Air Services Ltd. [1973] AC 331 at page 350D-E:

“Generally speaking, the rescission of the contract puts an end to the primary obligations of the party not in default to perform any of his contractual promises which he has not already performed by the time of the rescission. It deprives him of any right as against the other party to continue to perform them. It does not give rise to any secondary obligation in substitution for a primary obligation which has come to an end. The primary obligations of the party in default to perform any of the promises made by him and remaining unperformed likewise come to an end as does his right to continue to perform them. But for his primary obligations there is substituted by operation of law a secondary obligation to pay to the other party a sum of money to compensate him for the loss he has sustained as a result of the failure to perform the primary obligations. This secondary obligation is just as much an obligation arising from the contract as are the primary obligations that it replaces: see R. V. Ward Ltd. v Bignall [1967] 1 Q.B. 534, 548.”

It follows that, as Mr Kent QC and Mr Evans-Tovey submitted, the reference to “obligations … subsisting” in Clause 2 embraces not only primary contractual and tortious obligations owed by CDL to its employees, but also secondary contractual obligations subsisting at the “Time of Sale” to pay damages to employees in respect of any prior breach of their contract of employment. Although I am not entirely sure that it matters, given the primary obligations which were owed by CDL to its employees before the “Time of Sale”, I consider that Mr Kent QC and Mr Evans-Tovey were right to go on to submit that, as far as the secondary contractual obligation to pay damages is concerned, this extends not merely to injuries and losses which had been sustained as at the “Time of Sale” but to further and future injuries and losses arising from the same earlier breaches. Accordingly, if at that point only nominal damages are payable by virtue of the secondary obligation, this does not mean that, if subsequently an employee or former employee develops a particular illness which has been caused by a primary obligation owed by CDL in contract, Clause 2 only applies to the (prior) secondary obligation to pay nominal damages. It would make no sense to adopt the contrary approach. I agree with Mr Kent QC and Mr Evans-Tovey that to do so would mean that the same should be done in relation to a case where an employee was suffering minor physical injuries at the “Time of Sale” and so was able to call upon CDL to pay damages at a modest level, but subsequently suffered a serious deterioration meaning that his or her damages would be increased substantially. In that situation, the higher level of compensation would be recoverable from CIH by CDL under Clause 2, and Mr Fenwick QC did not suggest otherwise. I see no reason why, in principle, the two cases should be different.

It follows that my answer to paragraph (a) under Preliminary Issue 1 is ‘yes’. That is my conclusion based on the words “liabilities … subsisting” taken alone. It is also my conclusion based on the words “obligations … subsisting” taken alone. Approaching the two phrases together, the conclusion is necessarily reinforced.

I turn, then, to paragraph (b) which is concerned with the words “indemnified against the same” as they appear in Clause 2. It was Mr Fenwick QC’s submission that these words relate only to the agreement on CIH’s part to “adopt perform and fulfil all contracts and engagements binding on” CDL as at the “Time of Sale”, and that they do not, or do not also, relate to CIH’s undertaking to “discharge all the debts liabilities and obligations” of CDL as at that date. Mr Fenwick QC submitted, in particular, that, unless his submission is right, CIH would have been taking on an unknown liability in an indeterminate amount. I cannot agree with Mr Fenwick QC about this. I consider it quite obvious that the words “against the same” should be taken as applying to CIH’s undertaking to “discharge all the debts liabilities and obligations”.

As a matter of language, the words are a more natural fit with that undertaking than they are with the reference to the adoption and fulfilment of “all contracts and engagements”. The language of indemnification makes more sense when “debts liabilities and obligations” are being considered than it does in relation to an agreement to adopt, perform and fulfil a contract or engagement. Accordingly, I reject the submission that the “indemnified against the same” language has no application to the former and is, instead, restricted to the latter. I consider that, despite the less than natural fit with the adoption, performance and fulfilment language, the wording applies both to that and to the undertaking which comprises the first aspect of the three aspects of the agreement which is contained in Clause 2. Those three aspects are each introduced by the word “shall”, and this also demonstrates that Mr Fenwick QC’s submission cannot be right since, if it were, it would mean, in effect, that the third aspect (the express indemnity) were treated as being merely a part of the second aspect (the adoption, performance and fulfilment of contracts and engagements). Had that been what was intended, it would have been unnecessary to have included the additional “shall” wording before the reference to the indemnity. The provision could simply have omitted that word altogether. To have taken such a course would, however, then have led to the difficulty that the indemnity addressed by the final part of Clause 2 relates not only to “the same” but also to “all proceedings costs and demands in respect thereof”. The “thereof” must be a reference back to “the same”, and it simply makes no sense to limit this additional aspect of the indemnity to the adoption, performance and fulfilment of contracts and engagements.

In the circumstances, my answer to paragraph (b) is ‘no’: the indemnity“against the same” embraces both the agreement to pay, satisfy and discharge all debts liabilities and obligations of CDL, as well as the agreement to “adopt perform and fulfil all contracts and engagements binding on” CDL as at the “Time of Sale”.

I come on, lastly in the context of Preliminary Issue 1, to address paragraph (c). This, however, is another matter in relation to which, ultimately, there was more limited dispute than there was at one time. Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier in their written submissions accepted that the words “all contracts and engagements binding on the Vendor at the Time of Sale” could, in principle, as they put it, include a binding contract between CDL and its employees. They went on, however, to make the point that since, in practice, CDL (and not CIH) continued to perform the employment contracts, and since CDL did not call on CIH to “adopt perform and fulfil” those contracts, any indemnity in relation to the contracts does not arise. These further points do not strictly arise in relation to paragraph (c) because the issue with which paragraph (c) is concerned is whether, as a matter of construction, employment contracts entered into between CDL and its employees are included in the words “all contracts and engagements binding on the Vendor”. If so, then, under Clause 2, CDL would have been entitled to call upon CIH to “adopt perform and fulfil” such contracts. The fact that CDL did not call upon CIH to do so is a separate question which is not the subject of paragraph (c).

In the circumstances, although it is appropriate that I should address the issue, I do so without it apparently any longer being in issue that employment contracts entered into between CDL and its employees are included in the words “all contracts and engagements binding on the Vendor”. As I shall explain, however, there is an issue as to whether the reference to “engagements” extends to cover tortious obligations. Mr Kent QC and Mr Evans-Tovey submitted that it did. Although Mr Fenwick QC did not deal with this aspect specifically, his acceptance that “all contracts and engagements binding on the Vendor at the Time of Sale” includes, in principle at least, contracts of employment between CDL and its employees, did not, as I understand it, extend to an acceptance that tortious obligations were also covered.

Dealing with the first of these matters first, the word “contracts” is plainly wide enough to include a contract of employment. The word “engagements” is wider still. That is a term which the parties must have intended should add something to the use of the word “contracts”, linked as it is by the word “and” and introducing an inherently looser concept than that of “contracts”. It should also not be overlooked that both “contracts” and “engagements” are preceded by the word “all”, so again confirming the all-embracing nature of what the words “contracts and engagements” were intended to cover. It is also to be noted that in Clause 1 there is the same term used, “all contracts and engagements”, in that context followed by the additional words “whether written or oral”. Clearly, the intention in relation to Clause 1 was to catch everything, and specifically not limit the breadth of CIH’s entitlement so that CIH only received “the benefit” of contracts which were in writing. It is inconceivable that the use of the same words in Clause 2, albeit without the additional “whether written or oral” wording, was intended to relate to something more narrow.

I am not persuaded, however, by Mr Kent QC’s and Mr Evans-Tovey’s further submission that the words “contracts and engagements” are to be regarded as including tortious (including statutory) obligations owed to employees in circumstances where CDL’s employment relationships with its employees were well-established and would have been known to CIH, and so it would have been understood at the time that the Sale Agreement was entered into that an employment relationship can give rise to duties of care in tort (see, for example, Wilsons and Clyde Coal v English [1938] AC 57 per Lord Thankerton at pages 64 and 65). It was submitted also that, given that Clause 2 refers to an agreement on the part of CIH to “adopt perform and fulfil all contracts and engagements”, it is to be inferred that the parties were agreeing that CIH should also adopt, perform and fulfil what Mr Kent QC and Mr Evans-Tovey described as “all other attendant or concurrent obligations”. Reliance was placed for these purposes on Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, [2008] 1 Lloyd’s Rep 254. This case involved a somewhat different issue, however, namely the scope of an arbitration provision. I am doubtful, in the circumstances, that it greatly assists the submission which was made by Mr Kent QC and Mr Evans-Tovey. They pointed, in particular, to what Lord Hoffmann stated at [7] concerning the right approach to construction of an arbitration provision. He said this at [6]:

“In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt. The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction.”

He then went on at [7] to state as follows:

“If one accepts that this is the purpose of an arbitration clause, its construction must be influenced by whether the parties, as rational businessmen, were likely to have intended that only some of the questions arising out of their relationship were to be submitted to arbitration and others were to be decided by national courts. Could they have intended that the question of whether the contract was repudiated should be decided by arbitration but the question of whether it was induced by misrepresentation should be decided by a court? If, as appears to be generally accepted, there is no rational basis upon which businessmen would be likely to wish to have questions of the validity or enforceability of the contract decided by one tribunal and questions about its performance decided by another, one would need to find very clear language before deciding that they must have had such an intention.”

He concluded at [13] in this way:

“In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction. As Longmore LJ remarked, at para 17: ‘if any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so’.”

Mr Kent QC and Mr Evans-Tovey submitted that there is nothing in Clause 2 demonstrating that the parties intended to exclude tortious duties of care from the scope of “engagements”. In my view, however, that is not the same thing as saying that the parties positively intended to include tortious obligations. Whereas in the Fiona Trust case it was readily understandable that the parties should have been regarded as intending to include rather than to exclude, the same does not apply in a case such as the present because the presumption on inclusion identified by Lord Hoffmann does not seem to me to operate in a case like the present. It seems to me, on the contrary, that the parties should be treated as having carefully chosen the words which they have used, and on that basis I struggle to see that “engagements” should be regarded as extending to associated obligations as opposed to obligations which, whilst not contractual, are akin to contractual. I consider that “engagements” connotes something in that latter type of category rather than, as Mr Kent QC and Mr Evans-Tovey submitted, something which existed alongside a contract of employment. Had that been what was intended to be covered, it would have been a straightforward matter to have referred to tortious duties or to have used Mr Kent QC’s and Mr Evans-Tovey’s “all other attendant or concurrent obligations” language. Instead, the word used seems to me to point towards something short of a formal contract and not something which ran alongside such a contract in the manner suggested by Mr Kent QC and Mr Evans-Tovey.

It follows that my answer to paragraph (c) is ‘yes’ in respect of each of its aspects: “all contracts and engagements binding on the Vendor at the Time of Sale” includes binding arrangements between CDL and its employees, and CDL was entitled to be indemnified in respect of claims in respect of such arrangements (“contracts and engagements”) by calling on CIH to “adopt perform and fulfil” those arrangements (“contracts and engagements”) as at 31 December 1963. I make it clear that I do not consider that “all contracts and engagements binding on the Vendor at the Time of Sale” includes tortious obligations. I make it clear also that, when I refer here to employees, I do not mean to include people who became employees after the “Time of Sale”.

does the requirement under Clause 4 for a balance sheet to be drawn up to 31 December 1963 “on a basis consistent with that adopted hitherto by the Vendor for the purpose of its annual accounts” require a substantial rather than a nominal or heavily discounted figure to be placed upon contingent liabilities to victims and/or CIH?

does Clause 4 have the effect that any liability CIH may have under Clause 2 is matched by a countervailing liability by CDL in the same amount by way of reduction of the consideration for the sale to be paid by CDL to CIH?

As noted previously, it is CIH’s case that if, contrary to its primary position, there is any right to indemnity for contingent liabilities on the part of CDL prior to the “Time of Sale”, then, CIH has a right to reclaim such liabilities from CDL by way of adjustment to the consideration which was payable and to do this by virtue of Clause 4. Mr Fenwick QC’s submission was that, since Clause 4 provides that the balance of the consideration in respect of the sale was to be “a sum equal to the excess of the Vendor’s [CDL’s] assets over its liabilities at the Time of Sale”, this means that any liability which CIH may have to CDL under Clause 2 is matched by a countervailing liability by CDL to CIH in the same amount by way of an adjustment under Clause 4. Accordingly, he submitted, if the liabilities exceeded the assets such that CDL had a negative value, such liabilities are to be offset against CDL’s claim against CIH. Mr Fenwick QC added that the requirement under Clause 4 for a balance sheet to be drawn “on a basis consistent with that adopted hitherto by the Vendor [CDL] for the purpose of its annual accounts” demonstrates that a substantial, and not a merely nominal or heavily discounted, figure needed to be placed upon any contingent liabilities.

This submission arises in the context of the two limbs of Preliminary Issue 2. It is, however, the second limb contained in paragraph (b) which is the more significant since, if I were to conclude that the answer to the question there posed is ‘no’, and decide that CIH’s liability under Clause 2 is not matched by a countervailing liability on the part of CDL for the same amount by way of reduction to the consideration for the sale, then, the question posed in paragraph (a) is of no real significance. This is because, even if a balance sheet were to be drawn up to the “Time of Sale”, assuming that this had not already been done (as to which there is no evidence) and even assuming that this could be done notwithstanding the absence of evidence concerning the “basis … adopted hitherto”, there would anyway be no ability on CIH’s part to assert a countervailing liability on CDL’s part under Clause 4.

In the circumstances, my primary focus is on paragraph (b), as to which my conclusion is that the answer is, indeed, ‘no’. I am quite satisfied that Clause 4 does not give CIH the entitlement suggested. I say this for what seems to me to be a straightforward reason. This is that Clause 4 is exclusively concerned with the “balance of the consideration” which was payable by CIH to CDL. As such, as its terms make abundantly clear, the focus of Clause 4 was on payment of “a sum equal to the excess of the Vendor’s assets over its liabilities at the Time of Sale”. This is a reference, unequivocally, to payment by CIH to CDL, not the other way round. To read the words as applying to payment by CDL to CIH simply makes no sense. The provision is concerned with the balance of consideration which, unsurprisingly given that CIH was the purchaser, was payable by CIH. The fact that the provision refers to “the excess”, and only this, confirms that this is the position. There is no reference to any deficit.

Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier suggested in their written submissions that the reason why no mention of a deficit was made was because nobody contemplated at the time that the Sale Agreement was entered into that CDL’s liabilities would exceed its assets so as to mean that CDL had a negative value. That seems to me probably to be right. It does not follow, however, that the conclusion which I should reach, when endeavouring to construe Clause 4, is that the objective intention was that Clause 4 should operate in a manner which would permit CIH to match its liability under Clause 2 with a liability on the part of CDL under Clause 4, with the result which is now suggested by CIH. On the contrary, it seems to me that precisely because nobody contemplated that there would be a deficit (as opposed to an excess), it would be wrong to read Clause 4 as though it was covering the deficit situation as well as the case where there was an excess. The latter was contemplated, indeed it was provided for, whereas the former was not. This is a case, in my view, where the following guidance given by Lord Hoffmann at [17] in the Attorney General of Belize case is applicable:

“The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.”

It seems to me that the proper inference to draw in this case is that if the parties intended anything in the event of a deficit, which I doubt, then it was that nothing should happen. In short, Clause 4 represents, as Mr Kent QC put it during the course of his oral submissions, something of a “one-way street”.

This leaves paragraph (a), the position in relation to which is somewhat unsatisfactory because of the absence of evidence so long after the events in question. There is, as I have mentioned, no evidence as to whether a balance sheet was drawn up. Nor is there any evidence as to what basis had “hitherto” been adopted in drawing up CDL’s accounts. In the circumstances, I find it impossible to say with any degree of confidence whether a substantial (as opposed to a nominal or heavily discounted) figure would have needed to be placed on any “contingent liabilities to victims and/or CIH”. However, approaching the matter purely as a matter of construction of Clause 4 and so ignoring the express requirement that the basis to be used should be “consistent with that adopted hitherto”, I would be inclined to think that liabilities should be dealt with in a non-discounted way since otherwise it is difficult to see what point there would be in undertaking the exercise at all. In circumstances where I have determined paragraph (b) as I have, however, this is a conclusion which is immaterial.

is CDL entitled to such indemnity in respect of CDL’s own breaches of duty as agent?

alternatively, is CIH entitled in principle to claim damages from CDL in respect of CDL’s own breaches of duty?

was such indemnity, on a proper construction of Clause 5, available only insofar as CDL’s liability is not made good by insurance recoveries?

The focus of each of paragraphs (a), (b) and (c) is Clause 5. It was common ground between the parties that, as such and consistent with Clause 5 only applying in relation to the period after the “Time of Sale”, so Preliminary Issue 3 is only concerned with that period, and not the period leading up to the “Time of Sale”.

It was Mr Fenwick QC’s submission that CDL is not entitled to such an indemnity in respect of its own breaches of duty as agent since the indemnity contained in Clause 5 covered only liabilities properly incurred, not those incurred through the fault of the agent. He cited in support of this submission the proposition that, unless expressly stated otherwise, an agent is not entitled to be indemnified by its principal in respect of its liability for its own negligence or breach of statutory duty in the course of acting as agent, relying in particular on the following passage in Bowstead & Reynolds on Agency (20^th Ed., 2014) at paragraph 7-062 (Article 63) under the heading “Cases Where Reimbursement or Indemnity Not Available” (citing Thacker v Hardy[1878] 4 QBD 685 at 687, Frixione v Tagliaferro & Sons(1856) 10 Moo PC 175, and Gregory v Ford[1951] 1 All ER 121):

“An agent is not entitled to reimbursement of expenses incurred by him, nor to indemnity against losses or liabilities -

…

(b)

incurred solely in consequence of his own negligence, default, insolvency or breach of duty;”

Mr Fenwick QC went on to submit that, in any event, if CDL is entitled to claim an indemnity under Clause 5 notwithstanding that the indemnity is only required because of CDL’s own negligence, then, CIH is entitled to claim damages from CDL in respect of its breaches of duty as agent, so as to mean that that cross-claim is set off against the claim brought by CDL against CIH.

Mr Fenwick QC lastly submitted that, again in any event, on a proper construction of Clause 5, any indemnity which may be recoverable, assuming against CIH in relation to his first two submissions, is available only net of insurance recoveries and, therefore, insofar as CDL’s liability is not made good by insurance recoveries. Mr Fenwick QC emphasised in this respect that the Sale Agreement represented a commercial arrangement between two companies, a subsidiary (CDL) and its parent (CIH), which was only ever intended to transfer to CIH any net liability of CDL after taking account of insurance. Mr Fenwick QC highlighted, in particular, how, under Clause 1, CIH acquired “the benefit of all contracts”, and so including the benefit of CDL’s insurance contracts. This, in circumstances where CIH (not least because it was CDL’s parent) knew very well that CDL had the benefit of employers’ liability insurance. Mr Fenwick QC submitted that, in such circumstances and having regard to the scheme of the Sale Agreement more generally, it would have made no commercial sense for CDL to have the benefit of the insurance until the “Time of Sale” and thereafter for CDL’s insurers to be able to recover any outlay incurred by them under that insurance from CIH by invoking the Clause 5 indemnity. Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier asked rhetorically in their written submissions: “Why on earth would a parent company agree with its subsidiary that the subsidiary could thereafter pass back its insurers’ outlay to the parent?”

In addressing these various submissions, which it can be seen mirror the sub-issues which arise in relation to Preliminary Issue 3 as set out in paragraphs (a), (b) and (c), I deal with those paragraphs in turn.

As to the first issue, I cannot accept that Mr Fenwick QC can have been right when he submitted that the indemnity under Clause 5 is unavailable to CDL in circumstances where the need for it to be invoked, and an indemnity sought from CIH, is CDL’s own negligence as CIH’s agent. I consider that there is considerable force in two fundamental submissions advanced by Mr Kent QC in response to Mr Fenwick QC’s submission. The first is the observation made by Mr Kent QC that, if CDL were not to be indemnified in respect of its own liabilities to third parties arising during the course of the agency created under Clause 5, then, it is difficult to see what CDL was to be indemnified against under that provision, and so why the indemnity was really needed. Mr Fenwick QC suggested somewhat faintly that the indemnity would cover other non-negligence related matters, but in circumstances where CDL’s only role after the “Time of Sale” was to act as CIH’s agent, and in so doing to continue the business which it had previously been running at Uxbridge, I do not consider that Mr Fenwick QC’s answer is really sufficient.

The second matter raised by Mr Kent QC, again by way of introduction as much as anything, seems to me to have equal resonance. This is that CIH implicitly accepts (and Mr Fenwick QC did not dispute) that CDL is entitled to be indemnified under Clause 5 insofar as liability arose under, for example, contracts of employment contracts in circumstances where such liability might also have entailed negligence on CDL’s part. In view of this, it is difficult to see why it should be the case that CDL can recover under the Clause 5 indemnity in relation to the contractual liability but cannot make essentially the same recovery if and insofar as the liability arises from CDL’s own negligence. This would be an odd result.

Turning, then, to the wording of Clause 5, it is obviously right to acknowledge straightaway that nowhere is there any reference to the indemnity extending to cover CDL’s own negligence qua agent. This is not, however, fatal to CDL’s case. In this respect, it is worth having in mind the following passage from the judgment of Longmore LJ in Capita (Banstead 2011) Ltd. v RFIB Group Ltd. [2015] EWCA Civ 1310, [2016] PNLR 17 at [16], when dealing with Canada Steamship Lines Ltd. v R [1952] AC 192 (the principle that a clause is not to be construed as exempting a party to a contract from negligence if there is any other potential basis of liability which falls within its wording, a principle which has been applied to indemnity clauses in, for example, Smith v South Wales Switchgear Co Ltd. [1978] 1 WLR 165) and setting out with approval a summary contained in Lewison, Interpretation of Contracts:

“1.

A clear intention must appear from the words used before the Court will reach the conclusion that one party has agreed to exempt the other from the consequences of his own negligence or indemnify him against losses so caused. The underlying rationale is that clear words are needed because it is inherently improbable that one party should agree to assume responsibility for the consequences of the other’s negligence … .

2.

The Canada Steamship principles are not to be applied mechanistically and ought to be considered as no more than guidelines; the task is always to ascertain what the parties intended in their particular commercial context in accordance with the established principles of construction … . They nevertheless form a useful guide to the approach where the commercial context makes it improbable that in the absence of clear words one party would have agreed to assume responsibility for the relevant negligence of the other.”

The point about the Canada Steamship principles being a useful guide and not more than that was the point made by Lord Bingham in HIH Casualty and General Insurance Ltd. v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd’s Rep. 61 at [11]:

“In submitting that phrase [6] does not deny the insurers their usual legal remedies for negligent misrepresentation by Heaths, the insurers drew sustenance from the well-known principles propounded by Lord Morton of Henryton giving the judgment of the Board in Canada Steamship Lines Ltd v The King [1952] AC 192 at 208. There can be no doubting the general authority of these principles, which have been applied in many cases, and the approach indicated is sound. The courts should not ordinarily infer that a contracting party has given up rights which the law confers upon him to an extent greater than the contract terms indicate he has chosen to do; and if the contract terms can take legal and practical effect without denying him the rights he would ordinarily enjoy if the other party is negligent, they will be read as not denying him those rights unless they are so expressed as to make clear that they do. But, as the insurers in argument fully recognised, Lord Morton was giving helpful guidance on the proper approach to interpretation and not laying down a code. The passage does not provide a litmus test which, applied to the terms of the contract, yields a certain and predictable result. The courts' task of ascertaining what the particular parties intended, in their particular commercial context, remains.”

Approaching the matter on this basis, in other words in not too rigid a fashion, I consider that the words “entitled to be indemnified accordingly” are words which, widely expressed as they are, and notwithstanding the absence of any mention of negligence, should be understood as covering an indemnity in respect of CDL’s negligence. I am strengthened in this view by the point which I have already made, namely the fact that CIH appears to accept that CDL is entitled to an indemnity in respect of breaches of contract which also entail negligence. In these circumstances, it would be artificial to have to carve out of the broad wording used a qualification as regards negligence. In addition, there is the further point that the word “indemnified” is used also in Clause 2 and, as I have decided in the context of Preliminary Issue 1, in relation to “liabilities” and “obligations” which include not only breach of contract but also breach of tortious obligations. In oral submissions, Mr Fenwick QC suggested that the comparison between the indemnity in Clause 5 and the indemnity in Clause 2, specifically the common usage of the word “indemnified”, was unsound because, as he put it, the Clause 2 indemnity forms part of “the balancing of accounts”, a fact demonstrated by the introductory language of Clause 2 which states “As part of the consideration”, and underlined by the fact that Clauses 3 and 4 are also concerned with “consideration”. In contrast, Clause 5, Mr Fenwick QC pointed out, contains no such introductory language and is concerned not with the past but with the future, and so not with any balancing of accounts and calculation of the consideration which is due from CIH. I reject this ingenious attempt at distracting attention away from what was a simple point made by Mr Kent QC and Mr Evans-Tovey, which was to highlight the use of the same language in the two provisions and observe that it would be odd if, in the circumstances, the word “indemnified” in Clause 5 should have a more limited ambit than the use of the same word in Clause 2.

This last matter leads on to a related point, which is that the second aspect of Clause 2, concerned with the adoption, performance and fulfilment of “all contracts and engagements”, necessarily entailed the position after the “Time of Sale” inasmuch as employees continued to be employed by CDL after that juncture. It follows that if obligations and duties owed to CDL’s employees were breached thereafter, including by employees being negligently exposed to quantities of asbestos dust, then, CIH would be obliged to provide the indemnity covered in the third aspect of Clause 2 even though the liability to the employee, and so the entitlement to the indemnity, arose because of CDL’s negligence. In these circumstances, the position adopted by CIH in relation to Clause 5 makes even less sense.

There are other reasons why I consider that the indemnity should be treated as embracing CDL’s negligence. First, it seems to me that it is inherently unlikely to have been the parties’ intention to leave CDL, the subsidiary, with any liabilities which it could not pass on to its parent, CIH, bearing in mind that CIH was agreeing in the Sale Agreement to take over all of CDL’s “property assets and rights”. It needs, importantly, to be borne in mind that, although clearly the Sale Agreement represented a commercial arrangement, nonetheless this is not a case where CIH and CDL were unassociated; on the contrary, as the various board minutes illustrate, the Sale Agreement represented an arrangement between closely related entities. Secondly, as Mr Kent QC and Mr Evans-Tovey pointed out, nowhere in the Sale Agreement was there any requirement imposed on CDL to take out, or more accurately continue, any public liability or employers’ liability insurance cover after the “Time of Sale”. This is a matter which is relevant to the point which arises in relation to paragraph (c) also. In the present context, however, its significance is that the absence of any obligation on the part of CDL to have such insurance protection makes it implausible that the parties intended, as Mr Kent QC and Mr Evans-Tovey put it, “to let liabilities of CDL (including to former employees) languish in CDL unsatisfied with at least attendant reputational issues”. It was, of course, clear by the time that the Sale Agreement came to be entered into that an employee could sue his employer in contract or in tort, the Matthews case having been decided several years previously. The parties would, therefore, have appreciated that it was possible that CDL could have a liability in negligence, and so it can hardly be suggested that they would not have had this possibility in mind when they agreed the indemnity which is to be found in Clause 5.

Thirdly, as previously observed, at about the same time as CIH entered into the Sale Agreement with CDL, CIH entered into several agreements with other subsidiaries. One of these agreements was entered into with CIAP. Like the Sale Agreement, this was dated 1 January 1964. Like the Sale Agreement, it was signed by Mr Dent on behalf of CIH, albeit that Mr Gaze signed it on behalf of CIAP whereas the Sale Agreement was signed by Mr Newton on behalf of CDL. Mr Gaze and Mr Newton were also at the time, by which I mean 1 January 1964, both directors of CIH; Mr Dent was also the Chairman of CDL, and Mr Gaze had become a director of CDL on 1 January 1964. Importantly, and again as previously mentioned, the terms of the agreement entered into between CIH and CIAP were the same as the terms of the Sale Agreement. These included Clause 5, a point which is particularly significant given that, at the same time as the agreement between CIH and CIAP was concluded, CIH and CIAP entered into the separate agency agreement to which I have previously referred and which (like the agreement of sale) was signed by Mr Dent on behalf of CIH and by Mr Gaze on behalf of CIAP.

That agency agreement provides as follows:

“1.

The Agent will for a period of one year from the date hereof and thereafter from year to year until this Agreement shall be determined by Cape by notice in writing act solely as the Agent of Cape in connection with the business or businesses for the time being carried on by Cape during the continuance of this Agreement and all such other matters as Cape shall reasonably specify to the Agent Cape bearing all the expenses of the Agent incurred thereby.”

This, therefore, essentially echoes, and expands upon, the first part of Clause 5. Likewise what followed also does this, although spelling out the wide extent to which CIAP was to act as CIH’s agent:

“2.

During the continuance of this Agreement all contracts and engagements made or entered into and all acts done by the Agent in the course of business including the employment of staff will be made entered into and done by the Agent as Agent for Cape and on its behalf and all assets held by the Agent other than those held by it at the date hereof shall be the property of Cape and shall be held by the Agent as Agent for Cape and on its behalf.”

It is the third of the agency agreement’s provisions which is especially important for present purposes:

“3.

Cape hereby confirms the appointment of the Agent as its Agent as aforesaid and hereby agrees to ratify and confirm all such contracts engagements and acts as aforesaid and to indemnify the Agent from all proceedings claims damages and demands which may be made against the Agent or which may arise through under or out of such contracts engagements or acts or any of them.”

I note, in passing, that the reference here is not merely to “all contracts and engagements” as it is in Clause 2 of the Sale Agreement, but to “all such contracts engagements and acts”. In the context of the point which arises in relation to Preliminary Issue 1(c), it is instructive that there is the additional word “acts” since its absence from Clause 2 of the Sale Agreement seems to me to confirm the correctness of my earlier conclusion that “engagements” does not bring in tortious obligations. Had the word “acts” been used in Clause 2, there would have been more substance in the submission which was made by Mr Kent QC and Mr Evans-Tovey in that context, just as in the present context I consider that they were right to suggest that, in combination, Clauses 2 and 3 of the agency agreement demonstrate an intention on the part of CIH and CIAP that CIH would indemnify CIAP in relation to any liability which CIAP might attract, including a liability in negligence. Although there is no express mention of negligence being covered by the indemnity, it is difficult to see why it would not be caused in view of the wide scope of the language used, including the use of the word “acts” together with “contracts” and “engagements”.

The significance of this is that, although no agency agreement has been unearthed which was entered into between CIH and CDL in conjunction with the Sale Agreement, the overwhelming likelihood is that such an agreement was concluded between CIH and CDL in the same way that one was executed by CIH and CIAP. Mr Fenwick QC sensibly did not quibble with this. It follows that, if an agency agreement was entered into between CIH and CDL, the indemnity provided under Clause 5 of the Sale Agreement would have been accompanied by an agency agreement which was in wide terms. Although, in the circumstances, CDL has not brought a claim under the agency agreement which at one time probably existed but which is no longer available, it seems to me that I must take account of the likelihood that an agency agreement would have come into being at the time when the Sale Agreement was entered into in reaching a decision as to what the Clause 5 indemnity covers, specifically whether it embraces CDL’s own breaches of duty and negligence in addition to other types of liability. In doing so, it seems to me that the case that the Clause 5 indemnity should be treated as applying as broadly as possible, so as to include CDL’s own breaches of duty and negligence, becomes irresistible.

My answer to paragraph (a) is, accordingly, ‘yes’.

I turn, then, to paragraph (b). I can deal with this briefly since, in my view, the answer is plainly ‘no’. I consider that the combined effect of Clauses 2 and 5, specifically the indemnities stipulated in those provisions, together with the absence of any requirement on CDL to take out, or maintain, public liability and employers’ liability insurance, is that CIH should be taken as having agreed that it would not be entitled to claim damages in respect of CDL’s own breaches of duty and negligence. I agree with Mr Kent QC and Mr Evans-Tovey that the indemnities, in particular, are inconsistent with CIH being able to recoup monies from CDL in respect of its defaults as agent. This is all the more the case if, as is likely, there came into being an agency agreement between CIH and CDL which, again as is likely, contained the type of wording used in the agency agreement between CIH and CIAP.

This brings me to paragraph (c). In my view, the answer is clearly that the Clause 5 indemnity is not available only insofar as CDL’s liability is not made good by insurance recoveries, and so the answer to the question posed is ‘no’. As a matter of construction, it is significant that no mention of insurance is made in Clause 5. It certainly is not stated, as it could have been had this been the parties’ intention, that the indemnity was only to apply insofar as CDL was unable to make an insurance recovery. It would not have been difficult for this to have been stated. The fact that it was not is telling. The fact that the agency agreement entered into between CDL and CIAP did not do so either is also instructive. It would have been a somewhat stark omission had the parties to that agreement intended that the indemnity should only operate in such a fashion. On the basis that probably CIH and CDL had a similar agency agreement, with the same terms, the omission is as notable in their case as it is in the case of the agency agreement between CIH and CIAP. Mr Fenwick QC submitted that, the Sale Agreement being a commercial arrangement between CIH under which, by virtue of Clause 1, CIH acquired the benefit of all contracts (including insurance contracts) entered into by CDL, it was only ever intended that the transfer of liabilities to CIH would be net of insurance. Again, however, if this had been the intention, then, it is striking that the position was not made explicit in the Sale Agreement, whether in Clause 5 or elsewhere.

In this context, the fact that CDL was under no obligation to maintain its insurance coverage, whether public liability or employers’ liability, seems to me to underline the conclusion that, contrary to Mr Fenwick QC’s submission, the reason why no mention was made of the point now made by CIH was that it was not a matter which the parties agreed. It seems to that this is a powerful consideration, combined with the fact also that there was no obligation on the part of CIH to pay for such insurance. These factors were, I note, regarded as having significance in Caledonia North Sea Ltd. v British Telecommunications PLC & Others [2002] UKHL 4, [2002] 1 Lloyd’s Rep. 553. In that case Lord Mackay found helpful the principles laid down by Lord Mansfield inMason v Sainsbury (1782) 3 Dougl 6, a case which involved a claim under the Riot Act to recover damages sustained by the demolition of a house in the riots of 1780. Lord Mansfield said this at page 64:

“The facts of this case lie in a narrow compass. The argument turns much on want of precision in stating the case, as most arguments do. The office paid without suit, not in ease of the hundred, and not as co-obligors, but without prejudice. It is, to all intents, as if it had not been paid. The question, then, comes to this, can the owner, having insured, sue the hundred? Who is first liable? If the hundred, it makes no difference; if the insurer, then it is a satisfaction, and the hundred is not liable. But the contrary is evident from the nature of the contract of insurance. It is an indemnity. Every day the insurer is put in the place of the insured. In every abandonment it is so. The insurer uses the name of the insured. The case is clear: the Act puts the hundred, for civil purposes, in the place of the trespassers; and, upon principles of policy, as in the case of other remedies against the hundred, I am satisfied that it is to be considered as if the insurers had not paid a farthing.”

At [53], Lord Mackay described Lord Mansfield’s question “Who is first liable?” as entailing the question “Is the hundred liable only if the insurance office failed to pay the plaintiff or was the insurance office liable to indemnify the plaintiff only if the hundred failed to pay?”. He then went on, at [54], to frame the question in the case before him as being: “is the contractor liable to indemnify the operator only if and to the extent that the operator's insurer fails to do so, or is the operator's insurer liable to indemnify the operator only if and to the extent that the contractor fails to do so?”. His answer in the next paragraph, [55], was as follows:

“Since there is no provision in the contract requiring the operator to have insurance I cannot see any ground on which it can be said that the contractor's indemnity is limited to indemnifying the operator if and to the extent that the operator's insurer fails to do so.”

Similarly, Lord Hoffmann, at [97], put matters as follows:

“… I am of opinion that the indemnity under clause 15.1.c. was not secondary to or co-ordinate with any insurance that the operators might choose to obtain in respect of the same losses. I suppose that it would have been theoretically possible to frame the clause to confer an indemnity only insofar as the operator was unable to recover from its insurers, although one cannot imagine the parties in practice entering into such a contract. But this contract did not require the operator to take out any insurance at all. It therefore follows that the contractual indemnity was a primary liability and the underwriters were entitled to be subrogated.”

Nowhere in the Sale Agreement was there any obligation on the part of CDL to maintain insurance cover going forwards and so during the period when the Clause 5 indemnity operated. The fact that, in practice, insurance cover was maintained and that this was paid for by CIH does not demand a conclusion that CDL was under an obligation to maintain insurance cover, and nor is there to be found anywhere in the Sale Agreement any requirement that CIH should pay for such insurance. I recognise that the effect of Clause 2 was that any subsisting contract of insurance would be adopted by CIH, and so that CIH would pay any premium which fell due. However, it seems to me that this is no substitute for an express provision in the Sale Agreement requiring that CDL should maintain insurance cover and that the indemnity provided in Clause 5 would, accordingly, be applicable only after insurance recoveries had been taken into account.

I come on, then, to consider the rhetorical question which was posed by Mr Fenwick QC and to which I have previously referred, as well as the associated submission that it would make no sense for CIH to bear the financial responsibility as principal for paying for insurance premiums against specified liabilities at the same time as agreeing to provide CDL with an indemnity in respect of those self-same liabilities without taking account of any amounts which were payable by CDL’s insurers under the policies of insurance for which CIH has itself paid. Mr Fenwick QC suggested that, if this were the position, it would make a nonsense of all agency arrangements where the agent took out insurance paid for by the principal for liabilities incurred in the course of carrying out its principal’s business. Mr Kent QC and Mr Evans-Tovey sought to meet this submission by pointing out that the agreement in Clause 1 that CIH would receive “the benefit” of CDL’s insurance contracts does not equate to a transfer of the Policy or any other insurance cover held by CDL. They made the point in this regard that a transfer of a contract of insurance can only be effected through a novation, and so with the relevant insurer’s consent, as made clear, for example, in the following passage in MacGillivray on Insurance Law (13^th Ed., 2015) at paragraph 22-005:

“It is vital to distinguish between an assignment of the contract of insurance and an assignment of any claim that arises under that contract. The insured may wish to transfer the subject-matter of the insurance and at the same time transfer the benefit of the insurance policy so that the transferee can sue under the policy for the damage sustained by what is now his interest. This can only be done in accordance with settled rules of law and, since there is to be a substitution of the original insured by a new insured, there is, in effect, a novation and the consent of the insurers will be required.”

Mr Kent QC and Evans-Tovey made the point also that, had the Policy been assigned to CIH under Clause 1, then, because CDL remained the employer and there was never any assignment of the underlying employment contracts entered into between CDL and its workforce, CIH (as assignee) would have had no relevant insurable interest and the Policy would have been ineffective. They relied in this respect on a further passage in MacGillivray, at paragraph 22-008:

“An assignment of the contract of insurance must be accompanied by a contemporaneous transfer of interest in the subject-matter insured, if the assignment is to be valid. Thus, if a contract of insurance is assigned before the subject-matter is transferred, the assignee will have no insurable interest and the policy will become void, whereas if it is assigned after transfer the policy will have already ceased to be in force as the insured will have lost all interest in the subject-matter.”

It was nonetheless accepted by Mr Kent QC on CDL’s behalf that CIH did enjoy a right to receive the proceeds of such insurance in the manner described and explained by Mance LJ (as he then was) in Raiffeisen Zentralbank v Five Star General Trading [2001] EWCA Civ 68, [2001] QB 825 at [80] and [81]:

“80.

On that basis, I consider that there was an assignment of the benefit of any claims under the policy, including collision liability claims. Further, although such assignment cannot in my judgment have taken effect under either s. 50 or s. 136, there is no reason why it did not take effect in equity. Equity recognises and gives effect to any assignment, for value, of a thing in action depending on a future contingency (an ‘expectancy’): see Chitty para. 20-032; and also Snell’s Equity (13th ed.) para. 5-28, summarising the position on the authorities as follows:

‘The principle that equity regards as done that which ought to be done is applied, so that, once the assignor has received the valuable consideration and became possessed of the property, the beneficial interest in the property passes to the assignee immediately.’

81.

An assignor and assignee are thus bound from the moment of their agreement, while the debtor is (subject to notice) bound as soon as the expectancy develops into an actuality. Here, Five Star's assignment to RZB was for value - being supported (as recited in the Deed of Assignment) by ample consideration in the form of the loan advance. It had at least contractual effect between Five Star and RZB from 17th September 1997 onwards. Once the collision occurred on 26th September 1997, Five Star acquired present rights to look to the insurers pursuant to (technically, under English law, for breach of) the insurers’ duty to hold them harmless or indemnify them in respect of any loss or liability falling within the policy terms and arising out of the collision.”

As I have mentioned, Mr Kent QC, in his reply submissions, explained that, but for CIH’s decision in 1968 to engage in a restructuring which entailed the Trust Deed falling away, this would have remained the position. This is the aspect in relation to which objection was taken by Mr Fenwick QC and which I am not persuaded by. In any event, it does not seem to me that the point really meets the argument which is advanced by Mr Fenwick QC. This is a contention which is simple: it is that CIH was to receive the benefit of CDL’s insurance cover, and therefore it makes no sense to require CIH to pay under the Clause 5 or Clause 2 indemnities on a gross basis. The answer to that submission is not, in my view, to be found in technicality. The answer, in my view, is that nonetheless nowhere in the Sale Agreement, or for that matter in the Trust Deed, is this stated or even suggested since I do not consider that the reference to “the benefit of all contracts” in Clause 1 is, by itself, adequate, hence the answer to Preliminary Issue 3(c) is ‘no’. It is not for me to re-write the Sale Agreement, yet that, in effect, is what CIH’s case would require me to do.

I come on to consider, later on, a further argument advanced on CIH’s behalf to the effect that CDL’s entitlement to be indemnified under the Sale Agreement, specifically under Clause 2, entails an entitlement to be paid net of insurance recoveries. This argument is the subject of Preliminary Issue 6.

This Preliminary Issue raises both a factual point and two issues of construction. The factual point is whether there was completion. The first construction issue is what is meant by “completion” in Clause 5 (the only place in the Sale Agreement where reference is made to the Sale Agreement being completed), a question which obviously impacts on the factual issue. The second construction issue is, what, if there was not “completion”, is the effect on Clause 2. It is convenient, in the circumstances, to begin with consideration of the first construction issue, before then going on to deal with the factual point and, lastly, the second construction issue.

Preliminary Issue 4’s reference to the Sale Agreement being “completed” arises because the case advanced by CIH in its Defence is that “The Sale was never completed” with the consequence that Clause 2 “did not take effect”. It is apparent from the way in which Preliminary Issue 4 was addressed in Mr Fenwick QC, Miss Mulcahy QC’s and Mr Kinnier’s written submissions that the point being made is not that the Sale Agreement was never agreed in the sense that it does not represent the parties’ contractual bargain, but that what was agreed in the Sale Agreement would be done was not all done and, in that sense, the Sale Agreement was not “completed”.

As I have pointed out, the only reference to the concept of completion is in Clause 5. In that provision the parties agreed that CDL would act as CIH’s agent and CIH would indemnify CDL accordingly “Until the completion of the sale”. There is no other reference to completion elsewhere in the Sale Agreement. In particular, and importantly in the context of the second construction issue, there is no mention of Clause 2 only operating on or after completion. Concentrating on the first construction issue for the present, however, it seems to me that the reference to “completion” in Clause 5 is a reference to the fact that, in line with Clauses 6 and 7, certain steps needed to be performed in order achieve what was agreed in Clause 1, namely novation of certain contracts (Clause 6) and the vesting of “the undertaking property and assets” in CIH including through assignment (Clause 7). I do not consider that the position is any more complicated than that. I certainly do not see how it could be the case that the Sale Agreement was not an effective agreement from the moment that it was entered into (albeit that because it was backdated its reach is actually more extended than that). Indeed, as I have observed, that is not how Mr Fenwick QC puts CIH’s case.

As to the factual issue, in their written submissions, Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier submitted that the available evidence indicates that the Sale Agreement was not completed. They pointed, in particular, consistent with the approach which I have just explained seems to me to be the right one, to the fact that Clause 7 refers to CDL being obliged “with all due diligence if and when called upon by the Purchaser [CIH] so to do but at the expense of the Purchaser [CIH] execute all necessary assignments and do all such acts and things as the Purchaser [CIH] may reasonably consider necessary to carry out the terms of this Agreement …”. This, they suggested, demonstrates that as at the time when the Sale Agreement was entered into, which was later in 1964 than the Sale Agreement suggests, there had not been completion. I agree with this. Clearly, Clause 7, and for that matter Clauses 5 and 6, contemplated that certain steps would need to be undertaken pursuant to the Sale Agreement and that, until those steps had been taken, there would not be completion of the sale. Consistent with this, as again pointed out on CIH’s behalf, not only did the Trust Deed expressly state in recital (B) that “No formal transfer of the said property assets and rights has as yet been made by the Trustee [CDL] to the Purchaser [CIH] as provided for by the said Agreement”, but in the memorandum from Mr R.D.C. Hubbard to Mr G.A. Higham on 12 October 1973 the same point was made:

“In order to avoid additional work and expense at the time the agency companies were formed, no transfers of the assets passing under the sale agreements were made into the name of [CIH], the agreements being regarded as sufficient evidence of [CIH’s] title.”

It is clear that by the time that the Trust Deed was entered into, which was actually not long after the Sale Agreement was entered into, not the eleven months or so which the dates of the two documents would suggest, the steps envisaged by Clauses 6 and 7 had yet to be carried out. The same does not apply, however, to the time when Mr Hubbard was writing his memorandum some nine years later. This is because, as Mr Kent QC and Mr Evans-Tovey pointed out, one of the facts which was agreed for the purposes of the Preliminary Issue trial is that:

“On 1 July 1968 and at the request of CIH, CDL conveyed, transferred or otherwise dealt with its undertaking, property, assets and rights so as to vest them in another subsidiary of CIH, namely Cape Universal Building Products Limited, subsequently known as Plumefern Limited.”

As I have mentioned, this is an agreed fact which gave rise to some controversy. It is, however, factually the case that what is agreed happened did actually happen. The relevant conveyances and transfers between CDL and CUBP are no longer available, but there is no issue about the transfer having taken place. What is important is that the transfer must have been effected by that date because that was the date when an agreement of sale was entered into between CUBP and CIH in respect of what had been the undertaking, property and assets of CDL but which had by that stage become the undertaking, property and assets of CUBP. That agreement of sale, which has survived, is on essentially identical terms to the Sale Agreement, the only difference being (aside from various dates obviously) that Clause 5 has additional wording which provides that “the Vendor shall account to the Purchaser for all profits of its undertaking and business for the period commencing on 1^st January 1968 and ending at the Time of Sale” (defined as being 30 June 1968).

I agree with Mr Kent QC when he submitted, in answer to a question from me during the course of his oral submissions, that this amounts to completion because inevitably, once it was agreed between CDL and CUBP that the subject-matter of the Sale Agreement (between CDL and CIH) should be transferred by CDL to a new purchaser (CUBP), something agreed at CIH’s own request, the Sale Agreement (in particular, any obligations under Clauses 6 and 7) is to be regarded as having been completed. It makes no difference that, as Mr Fenwick QC pointed out at the very end of what became reply submissions, when taking issue with the restructuring point which Mr Kent QC had made in his reply submissions, the same day as the agreement of sale entered into between CIH and CUBP the parties entered into a trust deed under which CUBP (as trustee) declared that it held “the whole of its undertaking property assets and rights existing as at midnight on the said 30^th June 1968 in trust for the Purchaser [CIH]”. The fact that, as Mr Fenwick QC put it, “the beneficial interest … remained available to CIH” seems to me, if anything, to strengthen Mr Kent QC’s submission that by this stage the Sale Agreement ought properly to be regarded as having been completed.

Turning to the second construction issue, this is not a matter in relation to which Mr Fenwick QC directed his oral submissions. I note in this context that Mr Fenwick QC made it clear during the course of his oral submissions that he had not spent much time addressing the “completion” argument (and so Preliminary Issue 4), which I took to be a recognition on Mr Fenwick QC’s part that the point was not especially compelling.

In their written submissions, Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier simply submitted that, “absent performance by way of completion”, Clause 2 “was not intended by the parties to be legally binding”. In support of this submission, reliance was placed on two authorities,Okura &Co Ltd. v Navara Shipping Corp SA [1982] 2 Lloyd’s Rep. 537, and Whittle Movers Ltd. v Hollywood Express Ltd. [2009] EWCA Civ 1189. Neither decision, however, assists the submission which was made. The issue in those cases was whether a binding agreement had been concluded in circumstances where the parties had agreed that there needed to be a signed document before there could be a binding agreement. In the present case, there is no issue that the Sale Agreement was enforceable as a contract, and the only question is as to the effect of Clause 2. I agree with Mr Kent QC and Mr Evans-Tovey when they submitted that the parties cannot be taken to have intended that Clause 2 “remained in abeyance until every last contract and document of title, however trivial, was novated, delivered or assigned” in accordance with Clauses 6 and 7. This would be an odd agreement to have entered into.

Furthermore, there is not the slightest hint in Clause 2 itself that it should only operate after “completion”. Had that been the intention of the parties, they could easily have used language which mirrored the introductory wording of Clause 5, albeit making it clear that (unlike Clause 5) Clause 2 only operated after completion. The fact that this was not done is striking. It also needs to be borne in mind in this context that Clause 2 is a provision which defines the consideration which is due from CIH. This is a fundamental aspect, therefore, and, as such, it would be somewhat surprising if it was subject to some delayed and unspecified trigger.

In summary, my answer to Preliminary Issue 4 is: ‘yes’ and ‘yes’ in that the Sale Agreement was completed and, in any event, Clause 2 took effect regardless of whether the Sale Agreement was completed.

This issue does not arise in view of my determination in relation to Preliminary Issue 4. If and to the extent that there is a remaining point, it comes within the ambit of Preliminary Issue 6.

This issue raises a similar point to Preliminary Issue 3(c), although not in the context of Clause 5 but instead in relation to the indemnity contained in Clause 2 since Preliminary Issue 6 relates back to Preliminary Issue 4 which is concerned with Clause 2. I do not repeat everything which I have previously had to say in the context of Preliminary Issue 3(c).CIH’s position is that CDL is only entitled to an indemnity insofar as CDL’s liability is not made good by insurance recoveries in the light of CIH’s entitlement under Clause 1 of the Agreement to “the benefit of all contracts” and in the light also of the terms of the Trust Deed. CIH contends as to the latter that since CDL’s rights under the Policy were held in trust under the Trust Deed, any indemnity payable by CIH to CDL should be regarded as having been intended to arise only in respect of claims net of insurance proceeds.

As with Clause 5, the starting point is that there is nothing stated in the Sale Agreement about any recovery under the Clause 2 indemnity being net of insurance recoveries. There would have been no difficulty in this being specified. The fact that it was not should not readily be overlooked. I do not consider, as regards Clause 1, that reference to CIH receiving “the benefit of all contracts” is a sufficient substitute for Clause 2 itself stating that the indemnity is limited to a net recovery. Mr Kent QC and Mr Evans-Tovey acknowledge, rightly, that Clause 2’s reference to “all contracts” would include any contracts of insurance which CDL would have had at the “Time of Sale”. It does not follow, however, that, without more, this means that the indemnity under Clause 2 (or, for that matter, under Clause 5) should be regarded as restricted in the manner suggested by Mr Fenwick QC. I repeat that the position might be different had there been an obligation on CDL to maintain its own insurance cover, and had there been a corresponding obligation on the part of CIH to pay for such cover. However, the Sale Agreement contains no such requirements. This is the point to which the Caledonia case has some significance.

Nor, even assuming (contrary to Mr Kent QC’s and Mr Evans-Tovey’s position) that it is appropriate to have regard to the Trust Deed in circumstances where the Trust Deed was not entered into at the time that the Sale Agreement was entered into and in circumstances where there is no suggestion in the Trust Deed that it was intended that it should amend or vary the Sale Agreement, is there anything to which Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier can point which even hints at an agreement that any recovery under either the Clause 2 indemnity or the Clause 5 indemnity should be net of insurance recoveries.

These considerations are sufficient to mean that the answer to Preliminary Issue 6 is ‘no’. There is, however, the further, more technical reason which arises in the context of Mr Fenwick QC’s, Miss Mulcahy QC’s and Mr Kinnier’s submission that, under Clause 1, CIH acquired “the benefit of all contracts”, and so including the benefit of CDL’s insurance contracts. I have already addressed this in the context of Preliminary Issue 3(c), and so do not repeat it here.

In the circumstances, my answer to Preliminary Issue 6 is ‘no’.

The answer to Preliminary Issue 8 follows from the answers which I have given in relation to Preliminary Issues 1 to 6. My non-acceptance of the submission made by Mr Kent QC and Mr Evans-Tovey concerning the word “engagements” in Clause 2 embracing tortious obligations does not change my answer to Preliminary Issue 8, which is ‘yes’ and ‘yes’ because CDL’s case does not depend on that particular contention being correct.

CIH’s position is that the answer to Preliminary Issue 9 is that there was a single contract of insurance from 31 December 1956 until 31 December 1966. CDL’s position is that there were multiple contracts following each renewal. I am quite clear that CDL’s position is to be preferred.

The answer to the question hinges on what is stated in the Schedule to the Policy in relation to “Period of Insurance”. This is stated to be from 31 December 1956 until 30 December 1957. Importantly, however, the following is then stated:

“(b)

Any subsequent period for which the Insured [CDL] shall pay and the Company [RPA] shall agree to accept a renewal premium”.

Mr Fenwick QC’s, Miss Mulcahy QC’s and Mr Kinnier’s submission was that, since the “Period of Insurance” included not just the first year but any subsequent periods for which a renewal premium was paid and accepted, “there was a single policy and a single period of insurance from 31 December 1956 until the expiry of the Policy following the last renewal i.e. 31 December 1966 inclusive”. On this basis, their contention was that by being made the “Insured” under the Policy through the Endorsement, CIH was entitled to “the benefit of the entire policy and not just for some limited fraction of its duration”. It was pointed out that this was originally admitted by Aviva in its original Defence, and that Aviva was right to have made such an admission since the “purpose of such a continuing policy is to provide a single unbroken policy and period of cover which makes it unnecessary to examine whether a claim arose in one specific premium year and if so which or over a period of several years and if so which”.

I cannot accept that Mr Fenwick QC’s, Miss Mulcahy QC’s and Mr Kinnier’s position in relation to this matter can be right. I am satisfied that Mr Kent QC and Mr Evans-Tovey were right when they submitted that, properly understood, there was not a single contract of insurance but a series of contracts which came into existence on each renewal. It is quite clear that there would only be such renewal if RPA agreed “to accept a renewal premium” and, of course, if CDL was ready, willing and able to pay the premium. CDL had no right to extend the Policy on expiry, whether at the end of the first year of cover or at the end of any subsequent year in relation to which RPA and CDL had agreed a renewal.

The position is neatly dealt with in Colinvaux’s Law of Insurance (10^th Ed., 2014) at paragraph 1-078:

“Policies of insurance are not renewable beyond their original term unless they are expressed to be so, and where there is no provision for renewal they can only therefore be renewed by a new agreement between the parties. Where there is a provision for renewal it may give the assured an unconditional right to renew or, as is generally the case, renewal may be conditional on the assent of both parties. The latter class includes policies which may be renewed by tender of a further premium by the assured and by the acceptance of that premium by the insurers, and also those policies, known as ‘self-renewing’, which provide that they shall be automatically renewed unless either of the parties shall give notice of an intention not to renew. It is a matter of construction whether a policy is self-extending, although most policies are not of this type. …”.

Similarly, MacGillivray states as follows at paragraph 7-038:

“A policy may be issued to cover a certain risk for a definite period at a definite premium without any provision for renewal; but often the policy is expressed to cover first a definite period, say a year, for which the premium is acknowledged to have been received, and secondly, an indefinite period thereafter, so long as an annual or other periodical payment shall be paid in accordance with the conditions of the policy. In the case of risks other than life, the insured is not given an absolute right of renewal; the continuance of the policy being conditional not only upon the payment of the premium by the insured but also upon the acceptance of it by the insurers. In any such case the insurers may terminate the risk at each renewal period by refusing to accept the premium tendered.”

The present case clearly involves no absolute right to renew on the part of CDL. Renewal was, instead, dependant on RPA being willing to renew and at a level of premium which was acceptable to RPA. That this is clearly the position is further supported by the fact that Condition 5 of the Policy refers to “… renewal premiums that may be accepted…”, so confirming that such premiums may not be accepted.

It follows from this that each renewal of the Policy gave rise to a separate contract from the previous year’s contract, albeit on the same terms as the previous contract (except as regards premium if RPA required a different premium in order to renew). The fact that the Policy retained the same number throughout the period from inception, in 1957, until the time when it ceased to be renewed, at the end of 1966, is wholly beside the point. This does not mean that there was a single contract throughout the period from 1957 until 1966. It simply means that a contract which had initially lasted a year continued in the sense that it came to be renewed for subsequent years. Those renewals were contemplated by the Schedule wording to which I have referred. This was a Schedule to a policy which had a particular number. As such, it made obvious sense for the same number to be used for subsequent years. The fact that this was done says nothing about the legal question which arises under Preliminary Issue 9.

For these reasons, my answer to Preliminary Issue 9 is that ‘there were multiple contracts of insurance following each renewal’.

The issue here is whether CIH is correct to say that, as a result of the Endorsement, CIH became “the Insured” alongside CDL, or whether CDL is right that the Endorsement merely noted that CIH had an interest. Determination of this issue inevitably turns on the correct construction to give the Endorsement. In this respect, the letter from CDL to Robertson Urquhart dated 10 November 1964 is especially significant because that is the only evidence as to what CDL’s broker was told and so, as a matter of inference, what RPA would have known when issuing the Endorsement.

I have previously set out the terms of that letter, as well as the wording of the Endorsement. I do not do so again. I do, however, highlight as regards the letter three things: first, that CDL was telling Robertson Urquhart that CDL had transferred its “undertaking, assets and liabilities” to CIH; secondly, that CDL was reporting that CDL was “now carrying on business as agents” for CIH; and thirdly, that CDL was requesting that there be an acknowledgment of CIH’s interest “by endorsing the policies described”, including the Policy and the Public Liability Policy also provided by RPA. As for the Endorsement, it is worth setting out its terms again:

“It is hereby declared and agreed that all interest in this Policy is now vested in the Cape Asbestos Company Limited [CIH] as Proprietors of Cape Building Products Limited [CDL], Manufacturers of bricks, asbestos board and expanded vermiculite of Cowley Bridge Works, Uxbridge, Middlesex, who shall be deemed henceforth to be ‘the Insured’ referred to herein.”

Mr Fenwick QC submitted that the position is straightforward: that in the 10 November 1964 letter CDL was asking that CIH be added as the “Insured”, and that this is what was achieved by the reference, as Mr Fenwick QC suggests, to both CIH and CDL being “deemed henceforth to be ‘the Insured’ referred to herein”. Mr Fenwick QC submitted that this language is inconsistent with CIH’s interest merely being noted. Were that the limit and extent of the Endorsement, Mr Fenwick QC maintained, there would have been no need to have been any deeming of CIH as the “Insured”. In this regard, he contrasted the Endorsement with an endorsement issued by RPA just two days later in respect of a petrol pump all risks policy insuring two petrol pumps at the Uxbridge site under Policy No. B.18625201. This endorsement states as follows:

“It is hereby declared and agreed that the interest of the [CIH] of 114 Park Street, London W.1. is noted in the insurance by this Policy.”

Mr Fenwick QC highlighted how this endorsement did not purport to make CIH an insured but merely noted CIH’s interest. His submission, in the circumstances, was that, had RPA intended in the Endorsement merely to have noted CIH’s interest in respect of the Policy, then, the Endorsement could simply have mirrored this other endorsement.

This is a persuasive submission. It does, however, need to be tempered somewhat by the fact that the day before the endorsement in respect of the petrol pump all risks policy, and so the day after the Endorsement, RPA issued an endorsement in respect of the Public Liability Policy, a policy which was identified (along with the Policy) in CDL’s 10 November 1964 letter, which states:

“…It is hereby declared and agreed that all interest in the within Policy is vested in Cape Building Products Ltd. [CDL], & The Cape Asbestos Co. Ltd. [CIH], who shall be deemed henceforth to be the Insured referred to herein.

It is further declared and agreed that although more than one firm is entitled to the indemnity given by this Policy in respect of any one Accident or Occurrence the Limit of Indemnity of the Company [RPA] as set out in the Policy is not thereby increased and any payment made by the Company [RPA] in connection with the cover granted by the Company [RPA] in respect of such Accident or Occurrence shall be deemed to be in satisfaction or part satisfaction of the Limit of Indemnity.”

Clearly, this is wording which is very clear. There is no doubt that CIH became an insured alongside CDL in respect of the Public Liability Policy. Had the same words been used in the Endorsement, the position would have been in no doubt. Mr Kent QC submitted that the fact that different wording was used in the Endorsement demonstrates that the position in relation to the Endorsement is different, specifically that under the Endorsement (in contrast to the position under the Public Liability Policy endorsement) CIH did not become the “Insured” but merely had its interest noted. This, too, is a persuasive submission. However, it needs to be borne in mind that the two endorsements were issued within a day of each other by the same insurer (RPA), albeit by a different individual in each case, in response to a request made by Robertson Urquhart prompted by a common request made by CDL in the 10 November 1964 letter. This might be thought to make it somewhat unlikely that RPA intended to achieve something different in the two cases.

In addition, it is instructive to note that, when the Public Liability Policy was renewed on 1 January 1965, the receipt for the premium which was provided on 15 January 1965 continued to describe the “Insured” as “Cape Building Products Limited” (CDL). It was only after this policy was replaced by Public Liability Policy No. TGR56675716 issued by RPA on 2 August 1967 that the “Insured” came to be described as “Cape Building Products Ltd & The Cape Asbestos Co. Ltd” (CDL and CIH). This suggests that there is no significance in the fact that the Public Liability Policy continued, after the endorsement issued on 26 November 1964, to refer only to CDL and not also to CIH notwithstanding the fact that the endorsement clearly added CIH as an “Insured”. This, in turn, supports the submission that the fact that the description of the “Insured” in the Policy was not changed after the Endorsement does not mean that CIH had not become an “Insured” as a result of the Endorsement. Consistent with this, as Mr Fenwick QC pointed out, when the Policy came to an end on 31 December 1966, a separate employers’ liability policy which CIH had with The Iron Trades Employers Insurance Association Ltd. covering liability in relation to CIH’s own employees (policy no. 11256), a policy which replaced the Eagle Star employers’ liability policy (policy no. 51313156), was extended on 1 January 1967 to include CDL and the Cowley Bridge Works, Uxbridge.

Ultimately, however, so long after the events in question and in the absence of evidence from the people involved as well as given the dearth of documentary evidence, it is a matter of speculation what RPA intended when issuing the Endorsement, the endorsement in respect of the Public Liability Policy and the endorsement in respect of the petrol pump all risks policy, all within the space of three days in the last week of November 1964. It is, in any event, also doubtful the extent to which such evidence would, in any event, have been admissible in circumstances where the issue which I have to resolve is a construction issue where what matters is not subjective intention but what the words used in the Endorsement are to be regarded as meaning on an objective basis.

Focusing on that key question and looking simply at the words used in the Endorsement, it seems to me that the position is clear: CIH was made an additional “Insured” alongside CDL. The words “who shall” plainly relate not just to CDL but to CIH also. The word “who” is a plural rather than a singular, referring back both to CIH and to CDL. This is the natural sense of the language used. True it is that the word “who” is nearer to the reference to CDL than it is to CIH, but it clearly refers back to CIH. Arguably it does so in a way which makes CIH the only “Insured” in place of CDL. This is because it might be thought that the reference to CDL forms simply part of the description of CIH. However, on balance, it seems to me that it makes better sense to read the Endorsement as embracing both CIH and CDL by its reference to “who shall be deemed henceforth to be ‘the Insured’”. I observe, in passing, that this takes account of the fact, in particular, that the cover provided by the Policy related to liability in respect of CDL’s employees. That is a point relied upon by Mr Kent QC, to which I shall return, in support of his submission that, even if, as a matter of construction, the Endorsement should be taken as referring both to CDL and CIH, then, in any event, the insuring clause did not provide CIH with any cover because its sole focus is on CDL’s employees and not also employees of CIH.

To limit the ambit of the word “who” to CDL, as suggested by Mr Kent QC, makes no sense. Mr Kent QC and Mr Evans-Tovey suggested that the reason why the words “who shall be deemed henceforth to be ‘the Insured’ referred to herein” appear at the end of the Endorsement is that RPA “wished to make it abundantly clear that although interest in the Policy was being assigned to CIH, CDL (and not CIH) was to be ‘the Insured’”. I cannot accept this submission. Had that been RPA’s reason for issuing the Endorsement, there would have been no need to include the words “who shall be deemed henceforth to be ‘the insured’” at all. Moreover, if that had been what RPA was seeking to do, then, to use the words “deemed henceforth” would have made no sense. Not only would there have been no need to say anything about which company was the “Insured” since, if Mr Kent QC and Mr Evans-Tovey are right, then, CDL (and CDL alone) remained the “Insured”, but additionally there would have been no need to deem anything and, still less, “henceforth”. Clearly, the Endorsement was doing more than merely maintaining the status quo.

Nor, I should also explain, do I see any merit in a further submission which was also made by Mr Kent QC and Mr Evans-Tovey, which was that the Endorsement stated at the top that it was issued “in favour of Cape Building Products Limited” (CDL) after identifying the Policy by its number, and that this confirms that there was not intended to be any change in the “Insured”. First, it is clear that these references were simply to identify the Policy, a policy which had been issued in favour of CDL and not CIH. Secondly, it is to be noted that the same rubric (albeit with a different policy number) appears in the endorsement which was issued by RPA the following day, 26 November 1964, in respect of the Pubic Liability Policy. This was an endorsement which, as I have explained, made it abundantly clear that CIH was to be an additional “Insured”.

I turn, then, to the issue raised by Mr Kent QC and Mr Evans-Tovey concerning the insuring clause in the Policy and the fact that it is in the following terms:

“Now this Policy witnesseth that if any person under a contract of service or apprenticeship with the Insured shall sustain bodily injury or disease caused during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business.

Mr Fenwick QC submitted that, as a result of the Endorsement, in circumstances where CDL remained the sole employer in law and in fact, the Policy must be read as extending the indemnity to CIH in the event that a person under a contract of service with CDL sustained injury or disease caused during the Policy period. On this basis, he submitted, all of the claims which are the subject of the alleged indemnity being by CDL employees exposed to asbestos by CDL but to whom, it is alleged, CIH was independently but concurrently liable for causing or permitting such exposure, so there was coverage for CIH as well as for the CDL under the Policy. Mr Fenwick QC submitted, in particular, that if CIH and CDL were proven to be concurrent tortfeasors, then, the liability concerned was for a single sum of damages for losses caused to the employee, with no double recovery. As Mr Fenwick QC put it during the course of his oral submissions: “The risk covered is the injury to the employee. You only cover it once”.

Mr Kent QC and Mr Evans-Tovey did not agree. Their submission was that such an approach entails undue violence to the insuring clause (Mr Kent QC referred in his oral submissions to CIH’s approach requiring “radical surgery amounting to … butchery to the insuring clause”), achieving the result that what was insured was something altogether different, namely CIH’s liability to CDL’s employees and not CDL’s liability to its employees. They submitted that CIH’s case represents an impermissible attempt to extend the range of the Policy from provision of employers’ liability cover which is concerned exclusively with liability to an insured’s (CDL’s) own employees to liability on the part of a non-employer parent company (CIH) to a subsidiary’s (CDL’s) employees. They suggested, furthermore, that the cover which, on CIH’s case, would have come into existence as a result of the Endorsement as far as CIH is concerned would, in effect, have involved the Policy operating as though it were a public liability policy rather than an employers’ liability policy: a liability on the part of CIH not as an employer or on a vicarious basis but directly and in accordance with the decision in the Chandler case some appreciable time later. Mr Kent QC and Mr Evans-Tovey queried in this context how the Policy was to operate, if Mr Fenwick QC was right and it involved CIH becoming an “Insured” as a result of the Endorsement, in circumstances where the subject-matter of the Policy remained liabilities to employees who were parties to “contracts of service or apprenticeship with the Insured” and CIH had no employees at Cowley Bridge Works in Uxbridge, the place of “Business” identified in the Policy. The submission was made that, in the circumstances, CIH had no insurable interest. The position, Mr Kent QC and Mr Evans-Tovey pointed out, would have been different if CIH had become the de facto and de jure employer of CDL’s employees, since then the insuring clause would have made sense and required no disruption.

In his oral submissions, Mr Kent QC additionally placed reliance on the fact that the Policy is what might be described as a ‘Tariff policy’, since RPA was at all relevant times a member of the Accident Offices Association and accordingly, a ‘Tariff’ insurer subject to the Employers’ Liability Tariff Regulations (the ‘Tariff Regulations’), whose function was to maintain a standard approach to the underwriting of employers’ liability policies of insurance. Mr Kent QC submitted that the fact that this was the case makes it unlikely that there is any scope for approaching the insuring clause in the sort of flexible manner suggested by Mr Fenwick QC.

Mr Kent QC took me to certain of the Tariff Regulations, including Regulation 3 which states next to the words “Total Earnings and all Employees”:

“3(a) Unless authorised by the Standing Committee premium must be based on the total earnings of all employees other than any rated per capita and an insurance must include all employees except that it shall be permissible at the request of the Insured to exclude:-

(a)

Clerical Staff,

(b)

Managerial employees who do not engage in manual labour,

(c)

Commercial Travellers.”

Mr Kent QC went on, then, to refer to Regulation 9, which states as follows:

“On request insurances may be extended as follows or as otherwise authorised by the Standing Committee.

(1)

Where an Indemnity including liability for the act, default or neglect of the Principal or his servants or agents is required in regard to:-

…

(c)(i) The trades to which the Classification and Group Code numbers on page 3a apply … Additional Premium 20% of the premium chargeable in connection with the work to which the Indemnity applies … .”

Regulation 9(1)(c)(i) then goes on:

“Endorsement A386A or A386(1)A to be used.

Alternatively a Policy may be issued with the Principal as Joint Insured subject to Endorsement A458A.”

Mr Kent QC highlighted that Regulation 9(1)(c)(i) was applicable in the present case because, amongst the trades referred to on page 3 a, was “Asbestos Products Makers”.

Mr Kent QC then referred also to Regulation 9(3), which states as follows:

“Where an Indemnity is required to Principal in respect only of the negligence of the Insured or his employees … No additional premium.”

It continues:

“Endorsement A386(2)A to be used.

Alternatively a Policy may be issued with the Principal as Joint Insured subject to Endorsement A460A.”

Mr Kent QC submitted that this is not the relevant scenario because the liability which it was decided in the Chandler case existed was not a vicarious liability on the part of CIH but a direct liability to employees of CDL. On this basis, Mr Kent QC suggested, since no additional premium was paid in respect of the Endorsement, as required by Regulation 9(1)(c)(i), and since the Endorsement was not in the form of either “Endorsement A386A or A386(1)A” or “Endorsement A458A”, so the Endorsement cannot have entailed the making of CIH as an additional “Insured”.

In that latter regard, although it is not known what the wording of Endorsement A386A or A386(1)A states because it has not apparently been possible to unearth the relevant wording, the wording of Endorsement A386(1)B, which it is assumed was replacement wording along similar lines, is as follows:

“This policy is extended to indemnify … (hereinafter called ‘the Principal’) in like manner to the Insured but only so far as concerns the liability of the Principal to employees of the insured arising in connection with an agreement/engaged in work the subject of a contract for … entered into by the Insured with the Principal …”.

Nor, Mr Kent QC pointed out, is the Endorsement in the form of Endorsement A458A, the successor to which (Endorsement A458B) states:

“It is hereby declared and agreed that:-

(i)

the paragraph of this Policy commencing ‘Now this policy witnesseth’ is deleted and the following paragraph substituted therefor:-

‘Now this Policy witnesseth that if any person under a contract of service or apprenticeship with … (here insert the name of the immediate employer) … shall sustained bodily injury or disease caused during the Period of Insurance and arising out of and in the course of his employment by … (here insert the name of the immediate employer) … in the Business’.

…”.

Lastly, Mr Kent QC and Mr Evans-Tovey submitted that an “added complication”, as they put it, is that CIH already had the cover which Mr Fenwick QC contended the Policy gave CIH as a result of the Endorsement, in that CIH had its own public liability cover at the relevant time, namely a public liability policy with Eagle Star (policy no. 51313521), which named CIH as the insured along with Cape Insulation and Asbestos Products Ltd., Capasco Ltd. and Cape Asbestos Fibres Ltd. That policy, which commenced on 31 December 1960, related to premises which included Park Street (CIH’s head office) and “central laboratory Barking” as well as “elsewhere where required in connection with the insured’s business as defined herein”.

I am not persuaded by these various submissions. I see no difficulty in treating CIH as an additional “Insured” notwithstanding the language of the insuring clause. The position would have been different had CDL not also remained an “Insured” since, in those circumstances, the reference in the insuring clause to “employment by the Insured in the Business” (“Business” being defined in the Schedule as “Manufacturers of Bricks and Asbestos Board and Expanded Vermiculite”) would have made no sense given that CIH did not employ the employees concerned and nor did CIH carry on the “Business” as defined. In view of the fact that CDL remained as an “Insured”, however, there is no difficulty: the insuring clause makes sense without the need for the radical surgery (or worse) which Mr Kent QC suggested. I consider this to be the position as a matter of the language used. I consider it also to be the position in commercial common sense terms that what remained the case after the Endorsement was that there was cover in respect of liability arising out of an employee’s employment with CDL. The fact that CIH was not the employee’s employer is not important; what matters is that there was liability on the part of CDL, the employer, because that is the liability which the Policy covered. As Mr Fenwick QC put it, and I repeat: “The risk covered is the injury to the employee. You only cover it once”.

Nor am I satisfied that the ‘Tariff Regulations’ really assist in this context. As for Mr Kent QC’s reliance on Regulation 9(1)(c)(i), specifically his suggestion that an additional premium would have been required, it seems to me that this submission overlooks the fact that in the following scenario described in Regulation 9(1)(c)(ii), “No additional premium” is payable:

“Where in connection with these trades an undertaking is given that employees (other than Clerks of Works, Surveyors and other Inspecting Officials) of the Principal will not be on the Site and the Principal will not supply Machinery, Tackle or Plant”.

In CIH’s case its employees (as opposed to CDL’s employees) were not going to be covered. Furthermore, Regulation 10 deals specifically with the position of a parent company and its subsidiary in sub-paragraphs (2) and (3), after making it clear in Regulation 10(1) that it is Regulation 9 which applies to “the relationship … between Principal and Contractor”. Regulations 10(2) and (3) state as follows:

“(2)

Where an insurance is required in the name of a Parent Company and its Subsidiary and/or Associated Companies a joint policy may be issued without additional premium.

(3)

Where an insurance is required in respect of employees who are under a contract of service or apprenticeship with more than one employer a joint policy may be issued, without additional premium, provided that premium is paid on the total earnings from all employers.”

This seems to me to underline the point that, where the underlying risk is the same, namely the risk of injury to employees of the subsidiary, there is no need for an additional premium because the premium is, as Mr Fenwick QC put it, “standardised” in accordance with Regulation 3. The risk, in short, is the same risk. I consider also that, given that Regulations 10(2) and (3) deal specifically with the parent/subsidiary position, and in doing so impose no requirement that an endorsement is in any particular form (in contrast to Regulation 9), this means that Mr Kent QC’s points concerning the form of the Endorsement lose their force. I appreciate that a “joint policy” (as referred to in Regulation 10(2)) was not, as such, issued. However, it seems to me that this is, in effect, what the Endorsement achieved, and that it makes no difference that it is not in one of the forms stipulated in Regulation 9.

As to Mr Kent QC’s and Mr Evans-Tovey’s last point concerning CIH’s Public Liability Policy with Eagle Star (Policy No. 51313521), in my view, this is not a particularly compelling point. As Mr Fenwick QC pointed out, and as agreed by Mr Kent QC during the course of his oral submissions, a public liability policy responds in a different way to an employers’ liability policy, in that it is ‘damage-based’ rather than ‘cause-based’. As a result, I fail to see how it can really be right to suggest that CIH had the protection which it needed regardless of whether the Endorsement gave it the protection which it was argued by Mr Fenwick QC it did. In any event, as Mr Kent QC also acknowledged, there is nothing to indicate that, when the Endorsement was issued, RPA was aware of this other (public liability) policy. In the circumstances, I do not consider that its existence really assists me at all in undertaking the construction exercise which arises in relation to Preliminary Issue 10.

In the circumstances, my answer in relation to Preliminary Issue 10 is ‘yes’ by which I mean: ‘(i) that CIH became an insured under the policy by virtue of the Endorsement; and (ii) CIH thereby obtained insurance cover under the Policy in respect of liability to an employee of CDL arising out of that employee’s employment with CDL’.

On behalf of Aviva, Mr Kent QC and Mr Evans-Tovey submitted that, even if CIH became (with CDL) the “Insured” under the Policy by virtue of the Endorsement, regardless of whether the Endorsement was retrospective or prospective only, CIH is, in any event, estopped by convention from contending that this was the case. They submitted in their written submissions that:

“the parties to the Policy having establish by their common apprehension of the effect of the Endorsement that ‘the Insured’ remained CDL, having regulated their subsequent dealings on that basis and it being the case that RPA (through its successors) would suffer detriment if CIH were to resile from that convention, CIH are now estopped from asserting that they were ‘the Insured’.”

In support of this case, reliance was placed on a number of matters: the continued reference to CDL as the “Insured” in all Policy documents after the Endorsement came to be issued; the fact that additional and renewal premiums after the Endorsement were based on the total wages, salaries and other earnings of employees of CDL, rather than CIH’s employees; the fact that CIH essentially stood by and allowed CDL to make claims under the Policy, both in relation to acts and omissions before the Endorsement and after it; and the fact that CIH itself made no timely claim under the Policy.

I see no merit in the estoppel argument. First, I struggle to see how it can be the case that there was the necessary shared agreement, assumption or understanding which is communicated between the parties. That this is a requirement is clear, as the following passages in Spencer Bower, Estoppel by Representation (4^th Ed., 2004) at paragraphs VIII3.1 and 3.2 show:

“VIII.3.1 A critical element of an estoppel by convention, analysed as a variant of other estoppels, namely estoppel by representation of fact, promissory or proprietary estoppel - and differing from other examples of those doctrines in the manner by which the party to be estopped assumes responsibility to the other for the relevant proposition, i.e. by mutual assent rather than representation - is, therefore, the requirement that the assumption of the relevant fact or proposition as to the parties’ rights must be expressly or impliedly communicated between them. Without such communication one party could not be responsible to the other for his acting on the relevant assumption so as to render it unfair for the former to depart from it. It is only, therefore, detrimental reliance on the relevant assumption after such communication that will constitute the necessary unfairness to stop the parties from resiling from the assumption.

VIII.3.2 ‘It is not enough that each of the two parties acts on an assumption not communicated to the other’. It is not, however, necessary that the assumption by the estoppel raised be ‘created or encouraged’ by the party to be estopped: but if not, it must ‘be shared in the sense that each is aware of the assumption of the other’ – ‘the party to be estopped [must have] at the very least communicated to the other that he is indeed sharing his (ex hypothesi) mistaken assumption’. … .”

Here that common agreement, assumption or understanding would have to have been one to the effect that CIH was not, in fact, an “Insured”. There is no evidence that in the present case there was such an agreement, assumption or understanding; and, if there was, that it was communicated between CIH and Aviva or Commercial Union or RPA.

It is also necessary for Aviva to prove that it relied upon the common agreement, assumption or understanding if there was such an agreement, assumption or understanding, and that it would be unconscionable or unjust for CIH to be permitted to act contrary to the common agreement, assumption or understanding. As Lord Denning MR put it when summarising the concept of estoppel by convention in Amalgamated Property Co. v Texas Bank [1982] 1 QB 84 at page 122B-D:

“The doctrine of estoppel is one of the most flexible and useful in the armoury of the law. But it has become overloaded with cases. That is why I have not gone through them all in this judgment. It has evolved during the last 150 years in a sequence of separate developments: proprietary estoppel, estoppel by representation of fact, estoppel by acquiescence, and promissory estoppel. At the same time it has been sought to be limited by a series of maxims: estoppel is only a rule of evidence, estoppel cannot give rise to a cause of action, estoppel cannot do away with the need for consideration, and so forth. All these can now be seen to merge into one general principle shorn of limitations. When the parties to a transaction proceed on the basis of an underlying assumption - either of fact or of law - whether due to misrepresentation or mistake makes no difference - on which they have conducted the dealings between them - neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands.”

I agree with Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier when they submitted that there is no unconscionability present in this case.

As to the specific matters relied on by Mr Kent QC and Mr Evans-Tovey, there is nothing in the point that documents concerning the Policy which came into being after the Endorsement was entered into made reference only to CDL and not also to CIH, including receipts for premiums such as a receipt dated 25 May 1965 for additional premium in respect of 1964 which was issued after the Endorsement and which contains in the box for “Insured” the words “Cape Building Products Ltd” (CDL), as well as a later receipt dated 15 March 1966 for the renewal premium for 1966 which similarly refers only to “Cape Building Products Ltd”. The fact that such documentation referred only to CDL reflects the fact that CDL remained as the “Insured” albeit alongside CIH as an additional “Insured”. The position would be different if CDL had been replaced by CIH as the “Insured” but that is not what happened. The explanation is, in any event, readily available: this is that it made sense to continue to refer to CDL because, and this addresses also the second of the matters relied on by Mr Kent QC and Mr Evans-Tovey, unsurprisingly additional and renewal premiums after the Endorsement were based on the remuneration of CDL’s employees given that it was the liability to those employees (CDL’s employees) with which the insurance cover was concerned. This explains also why claims were made by CDL under the Policy in relation to its own acts or omissions both before and, crucially, after the Endorsement. There is nothing inconsistent about this: it is consistent with CDL and CIH being co-insureds under the Policy as a result of the Endorsement which RPA had issued. Lastly, as to the point that CIH did not make its own claim under the Policy until these proceedings, this overlooks the fact that CIH’s claim against Aviva is in respect of Aviva’s own subrogated claim (brought in the name of CDL) against CIH. Until that subrogated claim was brought, CIH had no reason to make a claim under the Policy.

In the circumstances, the answer to Preliminary Issue 11 must be ‘no’.

Preliminary Issue 12 turns on the exception in the Policy which states that “The Company shall not be liable in respect of … Liability which attaches by virtue of an agreement but which would not have attached in the absence of such agreement …”.

This was not a matter which was addressed in Mr Kent QC’s and Mr Evans-Tovey’s written submissions. Their position was, quite simply, that the answer to Preliminary Issue 12 ought to be “not applicable because CIH is not an insured”. The matter was, however, addressed by Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier in their written submissions. They made the point that “liability at law” (the words used in the insuring clause) extends to cover CIH’s liability to CDL to make a contribution arising under statute pursuant to the 1978 Act as well as to provide a contractual indemnity pursuant to the Sale Agreement, relying for these purposes upon Colinvaux at paragraph 20-017 and Matalan Discount Club (Cash & Carry) Ltd. v Tokenspire Properties (North Western) Ltd. [2001] 1 All ER (D) 260 in which HHJ Seymour QC (sitting in the Technology and Construction Court) stated as follows at [88]:

“A completely separate point arises in relation to the Richmond Policy and that concerns the scope of the cover. The question is whether the expression ‘liability at law for damages’ covers liability to indemnify a party or to make a contribution under the provisions of Civil Liability (Contribution) Act 1978. There is an express exclusion in respect of liabilities arising in connection with any contract or agreement, unless such liability would have attached in the absence of such contract or agreement, so a pure contractual indemnity which does not duplicate a common law liability is not covered. A claim for damages for negligence in an amount which would give the claimant an indemnity would be within the scope of the cover provided the liability to pay such was ‘liability at law for damages’.”

Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier went on to highlight how the indemnity sought by CDL from CIH is against liability resulting from an obligation to pay an unliquidated sum arising pursuant to a contract, the Sale Agreement, and as such consists of a claim for damages rather than a claim for a debt. On this basis, the submission was that the insuring clause includes liability to pay monetary compensation as a result of a breach of an obligation imposed by law, whether at common law, by statute or by contract: Hall Brothers Steamship Company Ltd. v Young[1939] 1 KB 748; M/S Aswan Engineering Establishment Co v Iron Trades Mutual Insurance Co Ltd.[1989] 1 Lloyd’s Rep 289. Furthermore, since the claim for indemnity or contribution is put forward (at least as explained in Mr Fenwick QC’s, Miss Mulcahy QC’s and Mr Kinnier’s written submissions, even if this differs from how the case has been pleaded, as suggested by Mr Kent QC and Mr Evans-Tovey) on two alternative bases, namely under the 1978 Act, (throughout the relevant period of exposure) and pursuant to contract, namely the Sale Agreement, (in respect of the post-1 January 1964 period only), CDL in each case seeking the same damages, this is not a case, such asTesco v Constable [2008] EWCA Civ 362, where the liability for which indemnity is sought is for pure economic loss.

Mr Kent QC explained in his oral submissions that he agreed with these submissions. His point was, however, that they do not focus on the real question which arises in the context of Preliminary Issue 12, which is whether, granted that “liability at law for damages” coversCIH’s liability to CDL to make a statutory contribution under the 1978 Act and to provide a contractual indemnity pursuant to the Sale Agreement, nevertheless as a result of the exception to which I have referred, there is no coverage in the event that liability only arises under the Sale Agreement, and not also under the 1978 Act. As Mr Kent QC put it, “the question that the draftsman of exception number 1 is asking is: let’s assume there was no contract, contractual right”, and the answer to that question is that there is no coverage as a result of the exception.

Mr Fenwick QC pointed out that this is not a matter which CDL has raised in its Part 20 Defence. His position was that Preliminary Issue 12 was not intended to embrace the submission which Mr Kent QC made. Although I have some sympathy with this since it does appear that Preliminary Issue 12 was not intended to be dealing with an unpleaded case seeking to rely upon the exception, there being no reference at all to the exception in the formulation of the issue, nevertheless, the point having been raised by Mr Kent QC during the course of the hearing, and Mr Fenwick QC having had the opportunity to address it, it seems to me that it is appropriate that I should deal with the argument. I do so only very shortly because it is a short point. In my view, the position is clear: the exception applies in circumstances where any liability on the part of the Insured under the Policy only comes about “by virtue of an agreement” and not otherwise. If, therefore, CIH is under no liability in respect of the 1978 Act and is only liable under the Sale Agreement, then, the exception applies. I consider that this is clearly what the exception is stipulating. If it has any other meaning, then, I struggle to see what that might be.

It follows that my answer to Preliminary Issue 12 is ‘yes in both cases but not if the only liability is under the Sale Agreement’. This is subject only to a matter raised by Mr Evans-Tovey when submitting CDL’s typing corrections document, which was to suggest that this answer should be subject to any issues concerning the scope of the 1978 Act which do not form part of the Preliminary Issues, including the matter to which I have referred in paragraphs 42 and 43 above. I have not heard from Mr Fenwick QC, Miss Mulcahy QC or Mr Kinnier as to CIH’s position in relation to this suggestion. It is an issue which can be addressed when consequential matters, including form of order, are dealt with. That will be on 27 May 2016 when there is, in any event, due to be a further hearing in this litigation ahead of an avoidance trial which is to take place at the end of June.

Preliminary Issue 13 raises another short but important point: whether the Endorsement had retrospective as well as prospective effect, and if it did so whether its effect went back to the time when the Policy was first issued in 1957 or merely back to the start of 1964, the year in which the Endorsement came into existence. This latter subsidiary issue is affected by my determination in the context of Preliminary Issue 9 that there were multiple contracts of insurance following each renewal.

Mr Fenwick QC’s submission was that, in circumstances where RPA had been told, in line with CDL’s letter to Robertson Urquhart dated 10 November 1964, that CIH had had transferred to it “the undertaking, assets and liabilities” of CDL, and in circumstances where the Endorsement “declared and agreed that all interest in this Policy is now vested in” CIH, the Endorsement should be regarded as applying to all liabilities, both past and future. Mr Fenwick QC highlighted in this context that the Endorsement refers to “all interest” and, as such, does not seek to limit the nature of that interest only to the future. Mr Fenwick QC encapsulated his argument during the course of his oral submissions when he said this:

“So what about the past? We may not be the insured but we are entitled to all interest in the policy. They vested it in us. Assume therefore this claim for an injury in 1963 or an event in 1963. They come to us. We have got an interest in the policy but we’re not the insured. We have all interest in the policy. The whole interest in the policy is the right to be indemnified against that claim. That is what the policy does. It indemnifies you against a claim brought by a workman arising out of his employment. So the all interest must give us a right to an indemnity from these insurers.”

Against this, Mr Kent QC and Mr Evans-Tovey placed heavy reliance upon the Endorsement’s “deemed henceforth” wording. In my view, they were right to do so. I consider that these words make it abundantly clear that the Endorsement was looking to the future and not also the past. It would have been open to the parties to have agreed wording which provided that CIH was to be regarded as having been the “Insured” from an earlier juncture. Mr Fenwick QC suggested that the “deemed henceforth” language simply “means from now onwards shall be deemed to be the insured” and not that CIH “shall be deemed to be the insured in respect of events which go forward”. It seems to me, however, that this is not the natural and ordinary meaning of the Endorsement. I bear in mind also in this context that, assuming that RPA was informed what was stated in the 10 November 1964 letter and nothing else, an assumption which is appropriate given that there is no evidence of RPA being told anything else, then, RPA would not have been aware that, under the Sale Agreement, CIH agreed to take on CDL’s past liabilities as well as its liabilities going forwards. It follows that, in my view, RPA should not be regarded, when issuing the Endorsement, as having been aware that CIH was assuming past liabilities. It follows that the reference to CIH having “all interest in this Policy” ought not to be treated as necessarily applying to past liabilities as well as liabilities going forwards. Allied with the absence of wording spelling out that CIH should be “deemed” to have been the “Insured” from the outset (as opposed to “henceforth”), in my view, it is not appropriate to attribute to the Endorsement the construction for which Mr Fenwick QC contended.

Mr Kent QC and Mr Evans-Tovey submitted also that, since the Policy was written on a ‘causation’ basis, this makes it unlikely that RPA would have been content to take on CIH as an additional “Insured” in respect not only for the future but also for the past, at least without agreeing an additional premium. I am not convinced by this submission, however, for reasons which I have previously explained when addressing Preliminary Issue 10: the underlying liability (owed to CDL’s employees) was the same. Although my answer to Preliminary Issue 11 is ‘no’, it is not, therefore, for this additional reason.

I would add that, even had I been persuaded that the Endorsement was retrospective in its effect, I would have gone on to conclude that such retrospective effect as the Endorsement might have had would have been limited to the start of 1964, the year in which the Endorsement came into existence. I consider that this must follow from the answer which I have given in respect of Preliminary Issue 9.

the period after the Endorsement dated 25 November 1964 deeming CIH to be “the Insured” and until 31 December 1966 when the insurance ceased;

the period between 31 December 1956 and the date of the Endorsement?

The answers to Preliminary Issue 14 follow on from my answers to Preliminary Issues 9 to 13. In relation to paragraph (a), the answer is ‘yes’; in relation to paragraph (b), the answer is ‘no’.

It seems to me that the answer to Preliminary Issue 15 must be ‘no’. This is because there is no evidence that RPA was supplied with the Sale Agreement prior to the Endorsement. Nor is there any evidence that any draft of the Trust Deed, which was executed two days after the Endorsement, was seen by RPA before the Endorsement was issued. The only evidence as to what was provided to RPA consists of the letter from CDL to Robertson Urquhart dated 10 November 1964. In my view, this means that the Sale Agreement and the Trust Deed do not form part of the applicable factual matrix when construing the Endorsement and the Policy.

if the Policy was entered into for the benefit of the group of companies of which CIH is a relevant parent and CDL was the relevant subsidiary; and/or

during the period when CDL was acting as agent for CIH; and/or

if CIH is a co-insured under the Policy as pleaded in the Part 20 Claim?

As I have previously indicated, it is sensible to address Preliminary Issues 16 and 7 together since they raise overlapping issues.

As for Preliminary Issue 16(a), the answer is ‘not applicable’ because CIH did not maintain the case that the Policy was entered into for the benefit of the Cape group of companies. In its defence, this was the first of several reasons given why Aviva is not entitled to bring a subrogated claim in the name of CDL against CIH. By the time of the hearing, however, the primary argument advanced by Mr Fenwick QC on CIH’s behalf was that Aviva is not entitled to bring a subrogated claim because CIH (together with CDL) was (and is) a co-insured under the Policy. This is the argument covered by Preliminary Issue 16(c). In the alternative, even if CIH was (and is) not a co-insured under the Policy, then, Mr Fenwick QC argued that the Policy was nevertheless for the joint benefit of both CDL and CIH, and so a subrogated claim cannot be brought. This is the argument covered, at least as far as I understand it, by Preliminary Issue 16(b), although really, as the argument developed, it became clear that the submission was based on Mark Rowlands Ltd. v Berni Inns Ltd. [1986] QB 211. With characteristic frankness, Mr Fenwick QC acknowledged that this submission involved a “difficult point because it is an extension”, by which he meant that the argument involves something of a development of the principle established in the Berni Inns case. In the circumstances, I shall consider the co-insurance argument first, since if Mr Fenwick QC is right in relation to this argument, then, his alternative case does not, strictly speaking, require to be resolved. I shall, however, go on to address that alternative argument.

I should mention that, in addition to these various points, it was when dealing with Preliminary Issue 7 in their written submissions that Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier repeated their submission that, under the Sale Agreement, CIH and CDL are to be regarded as having agreed that any recoveries under Clauses 2 and 5 should be on a net basis. This is the argument which I addressed in the context of Preliminary Issue 3(c). In the circumstances, I do not repeat what I have previously had to say in relation to it.

Mr Fenwick QC’s submission was straightforward: as CDL and CIH were co-insureds under the Policy, as a result of the Endorsement, Aviva (as the successor insurer to RPA under the Policy) is, without more, not entitled to bring a subrogated claim in the name of CDL. As he put it during the course of his oral submissions, “the risk which has eventuated … is a risk that that worker in the course of his employment at that factory, who is on the list of names held in the wages book and whose wages have formed the premium, will have a claim arising out of his employment”. He continued:

“That’s the risk. We are both covered for it and it is the same subject matter and when one looks at the authorities one sees that you are looking for insurable interest and you are looking for in essence the same subject matter and the same risk being covered.”

Mr Kent QC, on the other hand, submitted, that Mr Fenwick QC’s approach represented too relaxed an approach, in that what is required in order for co-insurance to prevent a subrogated claim being brought is more than simply the fact that two parties are named as co-insureds. His submission, as explained in oral submissions, was that:

“Here the insurable interest … is the risk of incurring financial liabilities to an employee who suffers bodily injury or disease. And there can be … only one entity having an insurable interest. Only the employer can have the insurable interest in that risk …”.

In support of his submissions, Mr Kent QC relied upon a number of authorities. The first was The ‘Yasin’ [1979] 2 Lloyd’s Rep. 45, a decision in which Lloyd J (as he then was) stated at pages 54-55 as follows:

“I should, however, mentioned the remaining stages of the argument in case I should be wrong so far; but I can do so very briefly. It is said to be a fundamental rule in the case of joint insurance that the insurer cannot exercise a right of subrogation against one of the co-assured in the name of the other. I am not satisfied that there is any such fundamental principle. In my judgment, the reason why an insurer cannot normally exercise a right of subrogation against a co-assured rests not on any fundamental principle relating to insurance, but on ordinary rules about circuity. In the present case, a claim in the name of the plaintiffs might well have been defeated by circuity if the insurance had purported to protect the defendants against third party liability. …

So far as there is any authority on this point, it does not support the view that there can never be a right of subrogation against a co-assured. In Samuel v Dumas, Viscount Cave said this at pages 214 and 445:

‘... My Lords, there is force in this argument, but I am not prepared to say that in the present case it should prevail. It may well be that, when two persons are jointly insured and their interests are inseparably connected so that a loss or gain necessarily affects them both, the misconduct of one is sufficient to contaminate the whole insurance … . But in this case there is no difficulty in separating the interest of the mortgagee from that of the owner; and if the mortgagee should recover on the policy, the owner will not be advantaged, as the insurers will be subrogated as against him to the rights of the mortgagee … .’”

Mr Kent QC relied also upon Petrofina (UK) Ltd. v Magnaload Ltd. [1984] 1 QB 127, another decision of Lloyd J, in which it was acknowledged that the earlier decision in The ‘Yasin’ had been wrongly decided. Lloyd J explained the position at pages 139C to 140C:

“That brings me to the last question: does the fact that the defendants are fully insured under the present policy defeat the insurer's right of subrogation? In the Commonwealth Construction Co. case and in the American cases there referred to, it was assumed that it followed automatically that the insurers could have no right of subrogation. In the Commonwealth Construction Co. case it was described as being a ‘basic principle.’ In one of the American cases it was said that the rule was too well established to require citation. In none of the cases is there any discussion as to the reason for the rule, except for a brief reference in the Commonwealth Construction Co. case to Simpson and Co. v. Thomson(1877) 3 App.Cas. 279 as follows, at p. 561:

‘The starting point of that submission is the basic principle that subrogation cannot be obtained against the insured himself. The classic example is, of course, to be found in Simpson and Co. v. Thomson, 3 App.Cas. 279. In the case of true joint insurance, there is, of course, no problem; the interests of the joint insured are so inseparably connected that the several insureds are to be considered as one with the obvious result that subrogation is impossible. In the case of several insurance, if the different interests are pervasive and if each relates to the entire property, albeit from different angles, again there is no question that the several insureds must be regarded as one and that no subrogation is possible.’

The question whether there is a fundamental principle of the law of insurance that insurers can never sue one co-insured in the name of another came up in The Yasin[1979] 2 Lloyd’s Rep. 45. In that case I said that I was not satisfied that there was any such fundamental principle as had been suggested: the reason for the rule seemed to me to rest on ordinary principles of circuity. This idea has since been adopted by the current editors of MacGillivray & Parkington on Insurance Law, 7th ed. (1981), para. 1214. In paragraph 1215 the editors say:

‘The crucial question, therefore, in any case involving joint assured is whether the liability of one co-assured to the other is one of the matters covered by the policy.’

Thus where a bailee is insured against liability to the bailor, and the bailor is insured under the same insurance, it is obvious that the insurer could not exercise a right of subrogation against the bailee: circuity would be a complete answer. But in The Yasin I went on to contrast the position where the bailee had insured, not his liability to the bailor, but the goods themselves. Now that the matter has been argued again, I have come to the conclusion that the contrast I was seeking to draw is fallacious. Whatever be the reason why an insurer cannot sue one co-insured in the name of another, and I am still inclined to think that the reason is circuity, it seems to me now that it must apply equally in every case of bailment, whether it is the goods which the bailee has insured, or his liability in respect of the goods. The same would also apply in the case of contractors and sub-contractors engaged on a common enterprise under a building or engineering contract. Even if I still had reservations of the kind which I tried to voice in The Yasin, I would feel obliged to bury them in the light of the decision of the Supreme Court of Canada in the Commonwealth Construction Co. case, a decision which was not cited in The Yasin and for the reference to which in the present case I am very grateful to counsel.”

Mr Kent QC submitted that what is, therefore, required, if co-insurance is to prevent subrogation rights being asserted, is interests which are “pervasive”.

Next, Mr Kent QC referred to Stone Vickers Ltd. v Appledore Ferguson Shipbuilders Ltd. [1991] 2 Lloyd’s Rep. 288, in which Mr Anthony Colman QC (as he then was) stated as follows at page 302:

“Where a policy is effected on a vessel to be constructed and it is expressed to be for the benefit of sub-contractors as co-assured, if a particular sub-contractor negligently causes loss of or damage to the whole or part of the vessel which has been insured under the policy and the sub-contractor has an insurable interest in the vessel, it is not open to underwriters who have settled the insured’s shipbuilders’ claim to exercise rights of subrogation in respect of the same loss and damage against the co-assured sub-contractor. To do so would be completely inconsistent with the insurer’s obligation to the co-assured under the policy. The insurer would in effect be causing the assured with whom he had settled to pursue proceedings which if successful would at once cause the co-assured to sustain a loss arising from loss or damage to the very subject matter of the insurance in which that co-assured has an insurable interest in and a right of indemnity under the policy. In my judgment so inconsistent with the insurer’s obligation to the co-assured would be the exercise of rights of subrogation in such a case that there must be implied into the contract of insurance a term to give it business efficacy that an insurer will not in such circumstances use rights of subrogation in order to recoup from a co-assured the indemnity which he has paid to the assured. To exercise such rights would be in breach of such a term. In such a case the law recognises the rights of the co-assured by enabling him to rely on his rights under the policy by way of defence in the proceedings which the insurers have caused to be commenced in breach of their implied obligation under the policy. This is an effective means of enforcing the co-assured’s rights and makes it unnecessary for him to join the insurers as third parties in this action.

… If the risk insured against is loss of or damage to the subject matter of the insurance and the co-assured is interested in the entire subject-matter, rights of subrogation cannot be exercised to sue him for causing tortiously or in breach of contract loss of or damage to that same subject-matter unless he does so wilfully or fraudulently. What matters is not that the policy insures him against his liability to the assured for such loss or damage but that it insures him against such loss or damage to the subject matter of the policy. Accordingly if it is accepted that SV is interested in the whole subject-matter insured, it is entitled to be protected against subrogation claims in accordance with the principle which I have identified, regardless of whether the policy is expressed as an insurance of the co-assured’s liabilities. If the policy did insure the co-assured’s liabilities the result would doubtless be that the insurers would similarly be precluded from exercising subrogated rights of suit against the co-assured, but, as I have held, that is not the only type of insurance which produces that result and it is therefore incorrect in principle to confine the test for disallowance of a subrogated claim against a co-assured to that type of insurance alone.”

Mr Kent QC submitted that, approaching matters in this way, what matters is that the subject-matter of the Policy is CDL’s liability, and not any liability on the part of CIH to CDL’s employees.

In National Oilwell (UK) Ltd. v Davy Offshore Ltd. [1993] 2 Lloyd’s Rep. 582, Colman J (as he had become) stated this at pages 614 to 615:

“For these reasons I am firmly of the view that the conclusion arrived at by Mr Justice Lloyd in Petrofina was right: an insurer cannot exercise rights of subrogation against a co-assured under an insurance on property in which the co-assured has the benefit of cover which protects him against the very loss or damage to the insured property which forms the basis of the claim which underwriters seek to pursue by way of subrogation. The reason why the insurer cannot pursue such a claim is that to do so would be in breach of an implied term in the policy and to that extent the principles of circuity of action operate to exclude the claim. Before leaving this point it is right to emphasise - as Mr Aikens was at pains to submit as one of his alternative submissions - that there can be no exclusion of the right to bring subrogated claims unless loss and damage of the kind that occurred caused in the way in which it was actually caused was insured for the benefit of the co-assured sub-contractor. Accordingly if the policy provides the co-assured (NOW) with cover of a narrower scope than the cover provided by it to the principal assured (DOL), it will only be in respect of loss and damage falling within that narrow scope of cover that subrogated claims are excluded … .”

Mr Kent QC submitted that any liability on the part of CIH in line with the Chandler case was caused in a different way to the liability incurred by CDL.

Reference was then made to Tyco Fire v Rolls-Royce Motor Cars [2008] Lloyd’s Rep IR 617, a case concerned with composite insurance. There, Rix LJ stated as follows at [77]:

“… if the underlying contract envisages that one co-assured may be liable to another for negligence even within the sphere of the cover provided by the policy, I am inclined to think that there is nothing in the doctrine of subrogation to prevent the insurer suing in the name of the employer to recover the insurance proceeds which the insurer has paid in the absence of any express ouster of the right of subrogation, either generally or at least in cases where the joint names insurance is really a bundle of composite insurance policies which insure each insured for his respective interest. Most co-insurances are of such a composite kind. … It is unusual for an insurer to sue his own insured to recover insurance proceeds due under its own policy, but it must be recalled that he does so in the name of and under the right of another party, viz the employer. … .”

Mr Kent QC then referred to Rathbone Brothers PLC v Novae Corporate Underwriting Ltd. [2015] Lloyd’s Rep. IR 95, specifically what Elias LJ had to say at [89]:

“… In my judgment, that principle [the co-insurance principle] is not applicable here since it depends upon the defendant in any subrogated action being insured for the same loss or damage as the claimant in whose name the action is brought. That is true of PEV’s employer, Rathbone Trustees, as the insurers accept. But that is not the position with respect to Rathbone plc who have no liability with respect to any loss suffered by the beneficiaries of the Walker Trust. ... .”

On this issue, I prefer the submissions advanced by Mr Fenwick QC. I agree with him that, in the present case, the interests of CDL and CIH under the policy were coterminous. Put another way, the same damage that was visited upon CDL as a result of employees’ claims is now sought to be visited upon CIH through the subrogated claims brought by Aviva in CDL’s name. The policy responds to bodily injury suffered during the course of employment. The fact that the relevant employees were employed by CDL rather than by CIH seems to me to be immaterial. What matters is that the employees who were claiming compensation were doing so. Nothing else matters. It is that claim which the Policy covers. The position of CIH is, for relevant purposes, coterminous with that of CDL. Their interests are “inseparably connected”. They are “pervasive”. Mr Kent QC submitted that the respective interests of CDL and CIH were not the same if and insofar as the liability of CIH was anything other than a vicarious liability. I do not agree. The relevant question is not how the liability arises but what the underlying claim is in the sense of what the individual employee alleges is the bodily injury which has been suffered. This is the thing which matters as far as the Policy is concerned: the insurer (RPA) needs to know what the underlying claim is, and what it is, colloquially speaking, ‘on the hook for’. In my view, this is a clear case where the fact that both CDL and CIH, as I have decided, were the “Insured” as a result of the Endorsement means that there was co-insurance and, as a result, the subrogated claim brought by Aviva in the name of CDL is not maintainable inasmuch as it is concerned with any period when that co-insurance existed.

In the circumstances, my answer to Preliminary Issue 16(c), the answer is ‘no inasmuch as the claim concerns a period when there was co-insurance’. It follows also that my answer to Preliminary Issue 7 is ‘yes inasmuch as the claim concerns a period when there was co-insurance’. As with Preliminary Issue 12, Mr Evans-Tovey has suggested that this should be subject to any issues concerning the scope of the 1978 Act which do not form part of the Preliminary Issues, and also subject to the outcome of the avoidance trial which is to take place in late June. Again, I shall address this suggestion at the hearing which is to take place on 27 May 2016.

This is the argument that, even if CIH was not a co-insured, nevertheless the Policy was for the joint benefit of both CDL and CIH and so a subrogated claim cannot be brought. Mr Fenwick QC, Miss Mulcahy QC and Mr Kinnier made it clear that, whilst it was no longer contended by CIH that the Policy was a group insurance policy, nevertheless they relied in the context of this alternative (Berni Inns) argument on the fact that, in the period before 1 January 1964, when the Sale Agreement (albeit through backdating) took effect, CDL was the wholly owned subsidiary and CIH was its parent company, and in relation to the period after 1 January 1964 CDL was not only CIH’s subsidiary but also CIH’s agent and, in that capacity, earning profits and incurring liabilities for the account of its principal, CIH. This, it was submitted, is the context in which the Berni Inns argument falls to be considered. More specifically and by reference to the Berni Inns case, Mr Fenwick QC submitted that, where there is a wholly-owned subsidiary (here, CDL) which is insuring a specific risk and the parent company (CIH) is held to have undertaken a direct liability for that very risk in the way it eventuated, the parent company (CIH) is to be treated as having a sufficient insurable interest under its relationship with the subsidiary (CDL) for it to fall within the Berni Inns principle. He highlighted, in particular, that where the parent company (CIH) is, in effect, a single shareholder in the subsidiary company (CDL), it is the parent company (CIH) which is paying the premium for the insurance policy concerned (the Policy) taken out by the subsidiary company (CDL). Furthermore, it is the parent company (CIH) which will be, as Mr Fenwick QC put it, “adversely affected” if there is a claim by an employee arising out of his employment at the factory of the subsidiary company (CDL). Mr Fenwick QC recognised that, in contrast to the position in the Berni Inns case, he was unable to point to a lease or other contract requiring that the Policy should be taken out by CDL. He submitted, nevertheless, that where, as he described it in his oral submissions, there are the “same employers, same factory, same business, and … the liability is said to be, in effect, an additional responsibility for what the employer should have done and the claim is one where the insured, the subsidiary, has breached its obligations in a way which it is said [the] parent should have been responsible”, it is appropriate to approach the matter on the basis of the Berni Inns principle.

The Berni Inns principle, Mr Fenwick QC pointed out, is conveniently described in the first holding in the report of the Berni Inns case as follows:

“… although the defendant was not co-insured with the plaintiff under the policy of insurance, the plaintiff was to be regarded as having insured the whole building for the joint benefit of itself and of the defendant; that the defendant had an insurable interest in the continuing existence of the building, and therefore was entitled to assert that although the insurance had been effected by the plaintiff it was intended to enure for the defendant’s benefit to the extent of the defendant’s interest in the subject matter of the insurance …”.

Mr Fenwick QC went on to place particular reliance on the following passage in the judgment of Kerr LJ at page 232G-H:

“… An essential feature of insurance against fire is that it covers fires caused by accident as well as by negligence. This was what the plaintiff agreed to provide in consideration of, inter-alia, the insurance rent paid by the defendant. The intention of the parties, sensibly construed, must therefore have been that in the event of damage by fire, whether due to accident or negligence, the landlord’s loss was to be recouped from the insurance moneys and that in that event they were to have no further claim against the tenant the damages in negligence …”.

Mr Kent QC disagreed. He submitted, correctly in my view, that the Berni Inns case involved very different facts and, as such, the principle derived from that authority is not readily transferable to a case such as the present. First, Mr Kent QC pointed out, the landlord in the Berni Inns case had covenanted to repair the basement, which would include putting it right after a fire. Secondly, the tenant had to pay an insurance rent equal to the money spent on insuring the basement, being a fair proportion of the premiums paid to insure the whole building. Thirdly, and critically, the landlord covenanted to keep the building so insured. Fourthly, the landlord also covenanted to lay out any monies received under the insurance to rebuild and reinstate. Fifthly, until that was done by the landlord, under the terms of the lease the tenant was relieved of its obligation to repair and pay rent. Mr Kent QC, submitted that, in such circumstances, it was “hardly surprising” that, even though the tenant was not formally insured under the relevant insurance policy, nevertheless the arrangement between the landlord and the tenant made it impossible for the landlord to treat the insurance as a wholly collateral matter. It was, Mr Kent QC suggested, central to the arrangements between the landlord and the tenant that they had agreed, under the lease, that insurance would be taken out, with the tenant, indeed, in part, paying for that insurance. In contrast, Mr Kent QC highlighted, in the Sale Agreement there is no mention made of insurance at all and there was no obligation on CDL to maintain any insurance, employers’ liability insurance not being compulsory in 1964.

Mr Kent QC drew attention, in this context, to the following passage in the judgment of Kerr LJ at page 228E-F:

“However, in my view this does not decide the real issue between the parties. This is whether the terms of the lease, and the full indemnification of the plaintiff by its receipt of the insurance moneys, preclude it from recovering damages in negligence from the defendant, or whether the plaintiff’s right to recover such damages remains unaffected.”

Mr Kent QC submitted that this makes it abundantly clear that Kerr LJ was focusing on the arrangement between the landlord and the tenant, namely the lease entered into between those parties. Again, I agree with Mr Kent QC about this.

Mr Kent QC then referred also to a later passage in the same paragraph of Kerr LJ’s judgment, starting at page 228G and ending at page 229A, as follows:

“The only English authority cited the judge in this connection was the decision of Lloyd J in Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127. That decision is of considerable importance to insurances in the field of the construction industry, but for present purposes it is at most only of indirect relevance and distinguishable on its facts. In that case Lloyd J followed with approval a decision of the Supreme Court of Canada in Commonwealth Construction Co Ltd v Imperial Oil Ltd (1976) 69 DLR (3d) 558 which he regarded as indistinguishable. The feature which distinguishes those cases from the present case and from the Canadian and American cases mentioned below is that the defendants were co-insured with the plaintiffs under the same policy. They were accordingly not restricted to the contention that the insurance had been effected in part for their benefit, as the defendant is in the present case. Being co-insured with the plaintiff under the same policy, it necessarily followed that the plaintiff’s insurers in these two cases were unable to assert any right of subrogation.”

I agree with Mr Kent QC when he submitted that in this passage Kerr LJ was quite clearly dealing with the position of a co-insured rather than the submission which is made in the alternative by Mr Fenwick QC to the co-insurance argument.This is confirmed by the succinct explanation for the decision given by Glidewell LJ at page 234E, in which no reference is made to co-insurance:

“In the present case it was the defendant who paid an appropriate part of the insurance premium on a policy which the plaintiff took out under a contractual obligation to the defendant, and the defendant was therefore entitled to the benefit of that policy.”

Mr Kent QC submitted that the position in the present case is very different. I agree.

Mr Kent QC referred additionally to the Rathbone case. He relied, in particular, on the following passages in the judgment of Elias LJ at [101] to [105]:

“101.

I do not think that this observation materially assist the insurers. No doubt where there is an express clause linking the exclusion of liability with an obligation to ensure, it can readily be seen that insurance is intended to be the primary source of indemnity. But as the passage from Longmore LJ’s judgment [in Scottish and Newcastle plc v GD Construction (St Albans) Ltd. [2003] EWCA Civ 16, [2003] Lloyds Rep. IR 809] also makes plain, this might still be the appropriate inference to draw from the facts even when there is no explicit link.

102 In my judgment, the relevant question is to ask whether PEV would naturally have understood that his claim under the indemnity had been exhausted once his liability been fully met under the insurance policy. Was the insurance the primary source of indemnification thereby discharging any obligation which Rathbone plc might otherwise have had under the Rathbone indemnity?

103 In my judgment, it was. It seems to me that in substance Rathbone plc has made available two ways in which any professional negligence liability of PEV may be met. It is a matter of indifference to PEV how he is protected, provided that one way or the other there is the necessary indemnity. They are not co-extensive and there may be circumstances where the insurance cover does not meet the full liability and recourse would then be had to the indemnity. But to the extent that the liability is discharged by the insurance moneys, in my view Rathbone plc can take advantage of that payment and treated as discharging pro tanto its own obligations.

104 In my view, one can readily imply a term into the Rathbone indemnity contract to the effect that it is intended to provide supplemental protection only once the claim against the insurance company has had been exhausted. It makes little sense to treat the insurance payments secured by a premium paid by Rathbone plc itself as being res inter alios acta as far as Rathbone plc is concerned. I should add that even if, as Mr MacDonald Eggers QC submits, it may be said that PEV is indirectly paying for the premium so far as the policy relates to him, I would reach the same conclusion. It is still not a policy which he voluntarily obtained for himself, in which case one could see that it ought to have no bearing on his relationship with Rathbone as was the position in the Caledonia case.

105 I do not think that the fact that there is no extrinsic link between the insurance and the indemnity should preclude implying the term. All the parties were fully aware that insurance protection had been provided and that this was the context in which the Rathbone indemnity has been agreed. A term in the indemnity to the effect that insurance was intended to be the primary liability would have been conclusive, but I do not consider that the lack of it demonstrates that there was no such intention.”

Mr Kent QC relied also on the short summary provided by Sharp LJ at [123] as follows:

“The proposition that it was part of the commercial bargain between the excess insurers and Rathbone, that the excess insurers could receive a premium from Rathbone for ensuring PEV’s excess, could pay the excess to PEV, but could then put themselves into PEV’s shoes to claim the excess from Rathbone under the Rathbone indemnity, struck me as a surprising one during the course of argument and it still does. The obvious purpose of the policy was to transfer risk outside the Rathbone ‘group’ and on to insurers, who received a premium for accepting that risk. I would add that this conclusion seems to me to sit more comfortably with the twin objectives of subrogation which are to ensure that the insured receives no more than a fair indemnity and that the cost of the loss should be borne by the responsible person (or more probably their insurers).”

I am clear that the present case is some considerable distance from the situation described in these passages. This point overlaps considerably with Mr Kent QC’s and Mr Evans-Tovey’s ‘net’ recovery point. In the present case, as I have previously explained, there was no mention of insurance at all. This is a critical point of distinction.

In the circumstances, my answer to Preliminary Issue 16(b), which I have taken to be concerned essentially with the Berni Inns argument, the answer is ‘yes’.

As to Preliminary Issue 7, it follows from what I have had to say that my answer is ‘yes inasmuch as the claim concerns a period when there was co-insurance’.

In conclusion, therefore, my answers to the Preliminary Issues are these:

I should, lastly, record my gratitude to counsel for their able submissions, both oral and written, as well to the solicitor teams who have assisted counsel and who ensured that preparation for the hearing was efficient.