This is the trial of preliminary issues arising in two claims that have been brought under the Third Parties (Rights Against Insurers) Act 1930. The insured was a building and roofing contractor called A Lenihan Limited ("Lenihan"). The insurer was Quinn Insurance Limited ("Quinn"). The issues arise out of an arbitration clause in the policy that provided that any dispute between the insured and the insurer in respect of the insurer's liability in respect of a claim was to be referred to arbitration within 9 months of the dispute arising and, that if it was not referred to arbitration within that period, then the claim was deemed to have been abandoned.

By judgments of this Court dated 12 August and 17 December 2009, Lenihan was held liable to the Claimants in the first action for causing a fire in a building in Lewes, Sussex, on 5 September 2006. By a judgment dated 21 April 2009 Lenihan was held liable to the Claimant in the second action. The amount of damages payable was assessed in each action on 11 December 2009 and 13 January 2010, respectively. The judgments were not satisfied and shortly afterwards Lenihan went into voluntary liquidation.

Quinn had denied liability on the grounds that Lenihan was in breach of certain policy conditions and so it took no part in the actions brought against Lenihan. There was a dispute as to when Lenihan was notified of Quinn's repudiation of the claim, but even if this occurred on the date contended for by Lenihan it is common ground that there was no reference of any dispute to arbitration within 9 months of Lenihan becoming aware of the repudiation. Although the preliminary issues include points relating to the incorporation of the arbitration clause and its true construction (it was submitted that the arbitration clause is not an exclusive remedy), the issue that has occupied most of the argument is whether or not a dispute under the policy can have arisen before Lenihan’s liability to the Claimants had been established. This raises an important question of principle.

The Claimants submit that a person insured under a liability policy such as this one has no right of action against his insurer unless and until his liability to a third party has been established by litigation, arbitration or agreement. Accordingly, they submit, no dispute can arise within the meaning of the arbitration clause until this has happened. If this submission is correct, then the 9 month time bar has no application and the Claimants are entitled to pursue their claims against Quinn.

If the Claimants are wrong on this primary point, and their arguments about incorporation of the arbitration clause and its true construction fail also, then the Claimants seek an extension of time within which to refer the dispute to arbitration under section 12 of the Arbitration Act 1996.

At the outset of the hearing of the preliminary issues I raised a point in relation to my jurisdiction in relation to the application for an extension of time. Quinn is an insurance company that carries on business in Dublin, but it has operated in the UK insurance market since 2003. General Condition 26 of the Policy is a choice of law clause which provides as follows:

“Under the relevant European and Irish legal provisions the Company and the Insured Person are free to choose the law applicable to the Contract. We propose that Irish Law will apply. ”

There is no evidence before the court that either Lenihan or its brokers ever proposed that any other system of law should apply to the Policy, and so on the face of it Irish Law applies. General Condition 16 of the Policy, the arbitration clause, provided that the arbitrator was either to be appointed jointly by the insured and the insurer in agreement or, failing agreement, by the "chairman for the time being of the Bar Council”. The Bar Council of Ireland is, like the Bar Council of England and Wales, generally known as the Bar Council. It is likely therefore that, if the default position is applicable, namely that Irish Law applies to the Policy, the reference to the “Bar Council” is a reference to the Bar Council of Ireland.

In these circumstances it seemed to me that I probably had no jurisdiction to entertain an application under section 12 of the Arbitration Act 1996 because the only courts which would have jurisdiction to consider an extension of time for starting arbitration proceedings would be the courts of Ireland. I was told by Mr Nicholas Davidson QC, who appeared for Quinn, that it was Quinn's policy to agree to the resolution of disputes by arbitration in England in cases where the insured was a company which carried on business in England and that this was why Quinn had not taken any point based on the application of Irish Law and had conceded in its skeleton argument that the seat of any proposed arbitration would be in England and Wales. However, in my judgment that concession cannot confer jurisdiction on the court where it would otherwise lack jurisdiction. If, as appears to be the case, the law governing the Policy is the law of Ireland, then I consider that an English court has no jurisdiction to extend the time within which an arbitration may be started. This may only be done by an application to the appropriate court in Ireland. Accordingly, in these circumstances the parties agreed that, if the question arose, I should indicate how I would exercise my discretion under section 12 without actually making any decision.

In addition to the trial of the preliminary issues, I have before me an application by Quinn for summary judgment in the first action brought by McIlroy/Mackays and CWO.

With this brief introduction, I now turn to the facts.

Lenihan was first insured by Quinn against public liability and other risks for 12 months with effect from 21 July 2004. The policy was renewed annually for the following two years. Lenihan had brokers, Primo plc (“Primo”), who arranged the insurance. So far as these applications are concerned, the material terms and conditions of the policy were the same for each of the three years.

The underlying claim arises from a fire which broke out at 198 Lewes High Street, Sussex, on 5 September 2006. The building contained shop premises on the ground floor and flats on the first and second floor. The freehold was and is owned by Rannoch Investments Limited (“Rannoch”), the Claimant in the second action. It is represented by Mr Ben Elkington. The lessee was William McIlroy (Swindon) Limited (“McIlroy”). Mackays Stores Limited (“Mackays”) occupied the ground floor shop premises pursuant to a licence from McIlroy. Mackays and McIlroy are related companies.

At the time of the fire, refurbishment works were being undertaken. Mackays had entered into a building contract with Cathedral Works Organisation (Chichester) Limited (“CWO”). CWO had in turn sub-contracted certain works to Lenihan. McIlroy, Mackays and CWO are the claimants in the first action, and they are represented by Mr Neil Moody QC.

It has been alleged that, contrary to statements made by Lenihan's employees who were on site when the fire started, the fire was caused by the careless use of a blowtorch by one of those employees. Quinn asserts that it is and was entitled to refuse to indemnify Lenihan for this reason. By contrast, in a letter dated 3 March 2008 to Quinn, Lenihan wrote "we would again state categorically that we strongly refute any inference that the fire was a direct consequence of our works and as such, we do not accept liability".

According to Quinn's records, on 2 July 2008 it sent a letter to Lenihan in which it stated that its investigations into the claim were now complete and that it would “not be offering indemnity due to a breach of the general terms and conditions of the policy”. The two conditions relied on were General Conditions 6 and 17 of the General Policy Conditions.

General Condition 6 was what is often known as a "reasonable precautions" clause, which required the insured to take all reasonable precautions to prevent accidents and “to comply with all applicable statutory requirements and to maintain their ways, works, machinery, plant and premises in good order and repair". It is now settled that clauses in this form are not apt to exclude liability for the insured’s negligence. Something further is required: see Fraser v P N Furman (Productions) Ltd [1967] 1 WLR 898; for example, that the insured should not deliberately court a danger, the existence of which he recognises, by refraining from taking any measures to avert it.

General Condition 17 was headed “Material Information” and provided that the Policy would be voidable in the event of non-disclosure by the insured and/or his agents/servants of any material information or knowingly providing inaccurate or false information.

The letter went on to say that during the course of its negotiations Quinn had been prejudiced by non-disclosure of material facts and that it was not satisfied that the accounts of events given by Lenihan's employees who were on site were credible. It is not clear from the terms of the letter whether the reference to non-disclosure is to alleged non-disclosure prior to the inception of the policy or to alleged non-disclosure during the course of the investigation into the claim - the latter seems more likely. However, this does not matter because Quinn no longer pursues any argument based on non-disclosure in breach of General Condition 17.

Mr Moody submitted that Quinn had no real basis for this repudiation and that it was, to use his words, "thoroughly shaky". He may be right, but whether these grounds of repudiation were valid is not a matter that I have to decide. In my judgment it is irrelevant whether the grounds put forward by Quinn were well or ill founded. The point is that they were advanced with apparent belief in their validity and that, as a result, Quinn was rejecting any liability under the policy for the claim by Lenihan in respect of the fire on 5 September 2006.

In fact, it appears that the letter of 2 July 2008 was either never sent or never reached Lenihan. However, under cover of a fax dated 18 February 2009, a copy of the letter was sent to Lenihan's brokers, Primo. Meanwhile, on 11 February 2009 solicitors acting for Rannoch wrote to Quinn and this prompted Quinn to write to Lenihan on 23 February 2009. In that letter Quinn enclosed a copy of its letter dated 2 July 2008 and stated that its decision not to offer indemnity remained unchanged and that it had asked Rannoch's solicitors to direct all correspondence to Lenihan. Quinn suggested that Lenihan should instruct its own solicitors to deal with the claim.

During the course of the hearing Mr Davidson very properly conceded that there was no evidence that either Lenihan or its brokers were aware until 18 February 2009 of Quinn's decision not to grant indemnity in respect of any liability of Lenihan for causing the fire. Accordingly, it was common ground before me and I so find, that it was not until 18 February 2009, or at any rate very shortly thereafter, that Lenihan knew that Quinn was not prepared to indemnify Lenihan against the claims arising out of the fire on 5 September 2006.

For the purpose of the hearing of the preliminary issues a number of witness statements were served on behalf of the parties the contents of which, for the purposes of the hearing, were generally taken to be true. One of the statements was made by Mr Lenihan who said that he notified his brokers immediately after the occurrence of the fire and that, shortly afterwards, Quinn sent a professional fire investigator to the site of the fire. Mr Lenihan said that in early 2008 he became concerned that Quinn was not dealing with the matter "properly or diligently" and so he discussed the matter with his broker, Mr Bland. He said that Mr Bland told him that there may be "a problem" with the claim and that Quinn’s policy may not respond. Mr Lenihan was naturally concerned by this but says that he was told that if Quinn was not going to indemnify Lenihan against the claims it would set out its position in writing. Mr Lenihan said that after this, in April 2008, Quinn sent a representative to take witness statements from Lenihan's employees. Mr Lenihan said that he took comfort from this and assumed that Quinn had decided to deal with the claim.

In February 2009 Mr Lenihan became aware that court proceedings had been started by the various claimants and he said that he assumed that Quinn would be dealing with the matter. It was not until Mr Lenihan had a meeting with Mr Bland at the end of February 2009 that he saw a copy of the letter dated to July 2008 that had been sent to Mr Bland a few days earlier. He said that he was quite certain that neither he nor anyone else at Lenihan had ever seen that letter before.

For reasons that are not explained in the evidence there appears to have been no further contact between Primo and Quinn following the exchange of correspondence in February 2009 in spite of offers by Quinn to meet with Mr Bland of Primo to discuss the position.

On 12 August 2009 McIlroy and Mackays obtained judgments in default against Lenihan. CWO obtained judgment in default on 17 December 2009. Meanwhile, on 21 April 2009, Rannoch had already obtained judgment in default against Lenihan.

On 19 November 2009 all the claims between Rannoch, the neighbouring occupiers, McIlroy/Mackays and CWO were settled at a mediation, and on 11 December 2009 Ramsey J in this court held that the settlements reached at the mediation were reasonable settlements and assessed CWO's damages against Lenihan at £600,000 and McIlroy/Mackays’ damages at £150,000. In addition, Lenihan was ordered to pay the costs of the action.

On 13 January 2010 Ramsey J assessed Rannoch's damages against Lenihan as £630,483 plus interest of £56,332, and Lenihan was further ordered to pay costs of £107,726.

At a general meeting of the members of Lenihan on 17 February 2010 a resolution was passed for the voluntary winding up of the company. At that point, therefore, Lenihan's rights under its policy with Quinn became vested in the Claimants.

On 13 April 2010 Weightmans, who had by then been instructed on behalf of Quinn, wrote to Kennedys, who were acting for the McIlroy Claimants, notifying them that Quinn was maintaining its position in relation to General Condition 6 and that it would not be pursuing any argument under General Condition 17. However, for the first time, Weightmans referred to General Condition 16 and said that, since there had been no reference to arbitration within the time required by the condition any claim under the policy was deemed to be abandoned and was not recoverable.

The issues, as they were actually argued before me were not quite in the terms ordered by Ramsey J, but I understood the parties to be content to adopt them. I take them broadly from Mr Moody's skeleton argument, and they are as follows:

Mr Moody's submissions, which were adopted by Mr Elkington, were as follows. General Condition 16 is an onerous clause. It must be construed contra proferentem. It does not expressly exclude the right of pursuing the claim through the courts. Properly construed, this clause provides an additional method of dispute resolution, not an exclusive method. This construction is supported by the time limit. The time limit can only apply to arbitration proceedings. The purpose of the time limit is to ensure that arbitration is dealt with swiftly. If the time limit is not complied with, then the claim is abandoned and not recoverable by way of arbitration. It cannot have been the common intention of the parties (in the absence of clear words) that, if this strict time limit was not complied with, the insured could not pursue his claim by way of litigation.

Mr Davidson submitted that General Condition 16 must be considered in two parts. The first sentence is an arbitration clause and the second sentence is a time bar. As to the first sentence Mr Davidson pointed, correctly in my view, to the use of the word "shall", which indicated that arbitration was a mandatory mode of dispute resolution, and not an optional mode. If it had been intended to be a remedy available at the option of either party, as an alternative to litigation, the clause would have said so. Further, the presence of the time bar and the reference to the claim being deemed to have been abandoned if an arbitration is not brought in time is a clear contra-indication of either party having the right to start court proceedings as opposed to arbitration under the terms of the clause.

I consider that Mr Davidson's submissions are clearly to be preferred. In my judgment, the wording of the clause is quite clear and prescribes a mandatory mode of dispute resolution, with a time limit within which that mode of dispute resolution can be exercised, failing which a claim in respect of that dispute is no longer recoverable. To my mind, the second sentence of the clause makes it abundantly clear that it is intended to provide an exclusive remedy.

On this issue Mr Moody and Mr Elkington again made submissions to similar effect. Mr Moody reminded me that the Unfair Contract Terms Act 1977 did not apply to insurance policies and that, since this was not a consumer insurance within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999, those regulations did not apply either. He submitted that insurance contracts were excluded from the 1977 Act on the understanding that the industry would bring in codes of practice that reflected the spirit of the Act. From January 2005, when insurers became subject to FSA regulation, insurers had to comply with the Insurance Conduct of Business Sourcebook ("ICOB").

Mr Moody further submitted that Lenihan was a small business, a contractor with about 6 employees and a turnover of less than £2 million, and that Quinn's policy was an "off-the-shelf" policy, not one that had been specifically negotiated between the parties.

He submitted also that the presence of an arbitration clause in this of policy was itself unusual, and that General Condition 16 taken as a whole was an onerous clause. He relied on the fact that the 9 month time limit was very considerably less than the statutory 6 year limitation period and that there was no certainty as to when the 9 month period would start to run. Further, he submitted that it was in breach of ICOB paragraph 2.5.3, which was in the following terms:

“A firm must not in any written or oral communication to a customer seek to exclude or restrict, or rely on any exclusion or restriction of, any duty or liability . . . unless it is reasonable for it to do so.”

Mr Moody also pointed out that the clause was buried in 11 pages of small print, that there was no reference to it in the proposal form (in contrast to the reference to the right to avoid for material non-disclosure), that there was no reference to it in the covering letter enclosing the policy documents or in the introduction to the policy and the section entitled "Important points to note". By contrast, the latter expressly emphasised the need to report immediately any matter which might give rise to a claim. He submitted that the onus was on Quinn to show that the term was brought fairly and reasonably to Lenihan's attention.

Mr Moody referred me to the decision of Thomas J (as he then was) in Nsbuga v Commercial Union Assurance [1998] 2 Lloyd's Rep 682, at 685, in which it was argued that a condition which provided that if any claim was fraudulent all benefit under the policy would be forfeited was never brought to the insured's attention before the contract was entered into and was therefore never incorporated into it. Thomas J held that the clause was incorporated on the basis that it was a very common type of clause to be found in a fire policy and that the proposal form made it clear that the insurance would be subject to the insurers’ general terms and conditions. He held that in the context of commercial insurance such incorporation by reference was sufficient. He did not specifically address the question of whether the common law rules restricting reliance on onerous or unusual terms apply to insurance policies, but he appears to have proceeded on the assumption that they did so. I am prepared to make the same assumption.

At the time when this policy was renewed, in July 2006, Lenihan had been insured under the same terms for the previous two years. This was not a case of incorporation of policy terms by reference because Lenihan had actually had the terms in its possession, which included General Condition 16, since July 2004. The policy documents were sent to Lenihan by Quinn at the time of inception of the cover and were preceded by an “Introduction” and, in 2004 and 2005, at least, by a separate letter as well, which said that "it is important that you carefully examine this policy document in its entirety to ensure it meets with your particular needs". It is true, as Mr Moody pointed out, that in the Introduction to the Policy, under the heading "Important Points To Note", Quinn specifically pointed out that all incidents that might give rise to a liability or claim under the Policy must be reported to Quinn by phone immediately or as soon as practically possible, regardless of whether the insured was of the opinion that it would lead to a claim or not.

Mr Moody relied on certain well known passages in Interfoto Library v Stiletto Limited [1989] 1 QB 433. In the judgment of Dillon LJ at 439A-B:

“…if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.”

And, per Bingham LJ, at 445G-H:

“The defendants are not to be relieved of that liability because they did not read the condition, although doubtless they did not; but in my judgment they are to be relieved because the plaintiffs did not do what was necessary to draw this unreasonable and extortionate clause fairly to their attention.”

In that case Bingham LJ referred to the case of Parker v South Eastern Railway Co (1877) 2 CPD 146, observing that the judgments in that case deserved to be re-read. In what Bingham LJ described as a strongly worded judgment, Bramwell LJ said this, at page 428:

“Has not the giver of the paper any right to suppose that the receiver is content to deal on the terms in the paper? What more can be done? Must he say, "Read that?" As I have said, he does so in effect when he put it into the other's hands. The truth is, people are content to take these things on trust. They know that there is a form which is always used - they are satisfied it is not unreasonable, because people do not usually put unreasonable terms into their contracts. If they did, then dealing would soon be stopped. Besides, unreasonable practices would be known. The very fact of not looking at the paper shews that this confidence exists. It is asked: What if there was some unreasonable condition, as for instance to forfeit £1,000 if the goods were not removed in 48 hours? Would the depositor be bound? I might content myself by asking: Would he be, if he were told "our conditions are on this ticket," and he did not read them. In my judgment, he would not be bound in either case. I think there is an implied understanding that there is no condition unreasonable to the knowledge of the party tendering the document and not insisting on its being read - no condition not relevant to the matter in hand. I am of opinion, therefore, that the plaintiffs, having notice of the printing, where in the same situation as though the porter had said, "Read that, it concerns the matter in hand;" that if the plaintiffs did not read it, they were as much bound as if they had read it and had not objected.”

(My emphasis)

Bingham LJ summarised the effect of the English decisions at page 445:

“The tendency of the English authorities has, I think, been to look at the nature of the transaction in question and the character of the parties to it; to consider what notice the party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the circumstances it is fair to hold him bound by the condition in question.”

It seems to me that many of the cases on the incorporation of terms, particularly the so-called ticket cases, must be approached with some care in the context of an insurance policy. The purpose of a policy of insurance is to define and limit the risk that the insurer is prepared to insure. It is well known that insurance policies contain many detailed requirements that must be complied with as well as being subject to numerous limitations and exceptions. That is the nature of contracts of insurance. For example, insurance policies frequently contain a term which provides that the due observance and fulfilment of the terms and conditions of the policy is a condition precedent to any liability of the insurer under the policy (although sometimes the courts do not give such clauses literal effect). In Quinn's policy the Public/Products liability section contains no less than 21 exceptions and there is an endorsement setting out detailed conditions that must be complied with on every occasion when welding and cutting equipment, blowtorches, paint strippers and the like are used away from the insured premises. But detailed provisions of this type are typical of commercial insurance policies. Whether or not he has read them, any reasonable businessman can be expected to know that his policy will contain many such detailed provisions.

As Mr Moody pointed out, this was an "off-the-shelf" policy. It was not a policy written specifically for Lenihan or for Lenihan's particular type of business. Quinn, or any other insurer in its position, could not be expected to know which conditions in the policy might have a particular impact on any given insured. In these circumstances Quinn's practice was to send a copy of the policy wording to the insured prior to or very shortly after the commencement of the insurance stressing the importance of the insured examining the policy carefully in order to ensure that it met the needs of that particular insured. In this context, I consider that the observations of Bramwell LJ in Parker v South Eastern Railway that I have emphasised above about the relevance of the party tendering the document not insisting that it be read by the other party are directly in point. I question whether the decision in the Interfoto case would have been the same if Interfoto’s secretary had typed onto the delivery note words to the following effect: “The printed terms set out below affect your rights. Before accepting delivery of the transparencies you are strongly advised to read them to ensure that they are acceptable”.

In my judgment the submission that General Condition 16 was not incorporated into the contract should be rejected for four reasons. First, Lenihan had had the policy wording in its possession for almost two years prior to the inception of the policy in question in July 2006. It had had plenty of opportunity to study the terms of the policy had it wished to do so. This is not a case where Quinn's standard terms were simply incorporated by reference.

Second, Lenihan had been specifically told by Quinn, not only in July 2006 but also in July 2004 and July 2005, to read the policy carefully to ensure that it met Lenihan's particular needs. In his witness statement Mr Lenihan confirms this, but he says that since Quinn's letter did not alert him to any unusual conditions in the policy he did not spend much time looking at the policy wording.

Third, the insurance was arranged through insurance brokers, Primo, who could be expected to be familiar with Quinn's standard form of policy and to have given any relevant advice to Lenihan before advising Lenihan to insure with Quinn. Primo should have been aware, in general terms at least, of any unusual terms in Quinn's policy and to have advised Lenihan accordingly. Since no evidence from Primo was produced at the hearing the court has not been told what advice was given to Lenihan before it first became insured with Quinn in July 2004.

Fourth, whilst I accept that General Condition 16 is unusual, in that it provides for arbitration in respect of disputes about liability as well as disputes in relation to the amount of the indemnity and because it provides a 9 month time limit for referring any dispute to arbitration, I do not accept the submission that it is unduly onerous. Whilst I can see that a requirement to resolve any dispute about policy coverage to arbitration might be inconvenient (because it would prevent any dispute between the insured and the insurer being resolved in the same proceedings as any claim brought by a third party against the insured), it confers other benefits such as confidentiality and, possibly, speed of resolution. But I do not consider that a requirement to resolve disputes by arbitration can be regarded as onerous just because it is unusual and, possibly, inconvenient. As to the 9 month time limit, that is clearly very much shorter than the 6 year limitation period provided for by statute but in my view that in itself does not make it onerous. 9 months is a reasonably generous time within which to explore the merits of any dispute that has arisen and, in the event of a failure to resolve it, to make a request for the appointment of an arbitrator. I would expect any reasonable insured, once a dispute had arisen, to find his policy and look at the relevant conditions, which would include any provisions relating to dispute resolution. One of the unusual features about this case is that there is no evidence that either Lenihan or Primo looked at the relevant provisions of the Policy once they became aware in February 2009 that Quinn was refusing indemnity. I find this extraordinary. At the very least I would have expected both Mr Lenihan and Primo, when told that Quinn was refusing to indemnify on the grounds that Lenihan had failed to comply with General Conditions 6 and 17 of the Policy, to look at the Policy in order to see what those conditions said - but there is no evidence that they did so. In addition, I would have expected Primo at least, if not Lenihan also, to look at the Policy in order to see what provisions there were in relation to the resolution of disputes. There was no shortage of time within which to do any of this.

In relation to Mr Moody’s reliance on paragraph 2.5.3 of ICOB, I do not consider that this is well founded insofar as it relates to the issue of the Policy. Quinn was not seeking to restrict or exclude liability when it issued the Policy: in my judgment it did that only when it notified Lenihan that it was relying on certain terms in the Policy to exclude liability for the claim. But, even if I am wrong about this, in the light of my previous conclusions, I consider that it was not unreasonable for Quinn to proffer a policy that contained the time bar in General Condition 16 and that by doing so it did not act in breach of paragraph 2.5.3 of ICOB. However, although paragraph 2.5.3 of ICOB was not relied on in relation to Quinn’s refusal to indemnify, I consider that it may be relevant in that context - but it will be more convenient to return to this point at a later stage in this judgment.

By way of observation, and independently of the reasons that I have just given, I am not persuaded that to require an insurer to draw to the attention of the insured every term in an insurance policy that might prove onerous would be either practical or helpful. I think that there are at least two reasons for this. First, of the many terms and exceptions in any given policy wording some may well be more relevant to one insured than another, so insurers might find themselves drawing the insured's attention to a significant number of terms in the policy: however, in practice this may not prove to be any better than sending the insured a copy of the policy wording and advising him to read it, which is what Quinn did in this case. Second, the danger inherent in drawing attention to certain clauses and not others is that the insured may then be content simply to read the clauses to which his attention has been drawn and nothing else (which is effectively what Mr Lenihan says he did in this case). I do not consider that the advice given in paragraph 2.2.3 of ICOB, on which Mr Moody relied, undermines or conflicts with these considerations provided that at the commencement of the insurance an insurer sends a copy of the policy wording to the insured and advises him in strong terms to read it.

However, there is one possible exception to this and that is in relation to any term concerning the notification of claims. If the policy contains a term, as many do, requiring immediate notice of a circumstance likely to give rise to a claim or requiring notice of such a circumstance within a particular period, say 24 hours, then I accept that there is a need to bring this to the attention of the insured at the outset because, once an incident occurs, the insured may well not have the time or opportunity to find and read the policy in detail before the time for giving such notice has elapsed. To impose a duty on insurers in respect of commercial insurance to identify all the terms in their policies that might be unusual or onerous could lead to endless disputes about whether such notification had been adequate. It would simply provide kindling for claims.

Accordingly, for the reasons that I have given above I find that General Condition 16 was incorporated into the policy.

General Condition 16 is in the following terms:

“16.

Arbitration

Any dispute between the Insured and the Company on our liability in respect of a claim or the amount to be paid shall, in default of agreement, be referred within nine calendar months of the dispute arising, to an Arbitrator, appointed jointly by the Insured and the Company in agreement, or failing agreement, appointed by the chairman for the time being of the Bar Council and the decision of such Arbitrator shall be final and binding on both parties. If the dispute has not been referred to arbitration within the aforesaid nine-month period, then the claim shall be deemed to have been abandoned and not recoverable thereafter. ”

The insuring clause in the Policy provides as follows:

“We will indemnify you …against legal liability to pay compensation…in respect of any Event specified below:

Accidental

a.

…

b.

Loss of or damage to material property occurring within the Territorial Limits during the Period of Insurance in connection with the Business.”

By clause 1 of the Public/Products Liability Definitions, the insurer also agreed to pay "in respect of any occurrence to which this Policy applies" costs and expenses incurred with the written consent of the insurer.

By General Condition 7, which dealt with notice and claims procedure, the insured was not to negotiate, admit liability or make any promise, payment or settlement without the insurer's written consent. The condition also provided that the insurer was entitled “if and so long as it desires, to have sole conduct and absolute control of any claim and legal proceedings relating thereto and shall have full and absolute discretion in the settlement of any claim".

Mr Moody submitted that the relevant dispute is a dispute between Lenihan and Quinn in respect of Quinn's liability in respect of a claim. He submitted that, since a liability insurer has no liability to indemnify the insured until the insured's liability to the third party and the amount of that liability have been established, there can be no dispute about the insurer’s liability until its liability to indemnify the insured has actually arisen.

In his skeleton argument Mr Moody put it this way:

Mr Moody's submissions were adopted and developed, most effectively if I may say so, by Mr Elkington in his oral submissions. He submitted that the dispute was whether Quinn was liable to indemnify Lenihan against the sums that Lenihan has now been held liable to pay, and that Lenihan was not legally liable to pay any sums until the making of the orders of the court to which I have already referred.

Mr Elkington accepted that the reference to "any dispute . . . in respect of a claim" in General Condition 16 referred to a claim by the insured against the insurer and therefore could include a dispute in relation to matters such as non-disclosure, double insurance, the amount of the excess and so on. He said that an insured such as Lenihan could be faced by several different claims, as was the case here, but he submitted that the dispute in this case must be tied in to the wording of the primary insuring clause. Accordingly, the dispute was about Quinn's liability for the sums that Lenihan had become liable to pay. That dispute, he submitted, could not arise until Lenihan's liability had been established. Putting it another way, he submitted that in order to have a dispute the insurer must be acting in breach of contract, but since the insurer was under no obligation to indemnify, there could be no breach. He emphasised the importance of identifying the dispute: he submitted that there could be a dispute about an insurer's liability to meet defence costs, but that would be a different dispute. Here the dispute could only be about the failure to indemnify Lenihan against the claims by the Claimants and that dispute could not arise until the judgments had been given. In July 2008 Lenihan had not been held liable to anyone and so it could have no cause of action for an indemnity under the policy.

Mr Davidson, for Quinn, submitted quite simply that the dispute as to whether or not Quinn was obliged to indemnify Lenihan arose from the moment that Quinn made it clear that it was refusing to indemnify. He submitted that there was no doubt that an insured could sue for a declaration in the face of a refusal by the insurer to indemnify even though it had not been found liable.

In my judgment, and I think that this was common ground, the reference to "any dispute. . . in respect of a claim" in General Condition 16 of the policy is to a dispute in respect of a claim by the insured under the policy. That must be so because the insured and insurer could not refer to arbitration a claim by a third party against the insured.

The facts of the Post Office case, which formed the bedrock of the case for the Claimants, were straightforward. In May 1963, Potters, who were contractors, damaged a cable belonging to the Post Office. The Post Office claimed the sum of £839 10s 3d for the cost of repair to the cable. Potters denied liability on the ground that the cause of the damage was the fact that an engineer from the Post Office had negligently or wrongly indicated the position of the cable. In June 1964 Potters went into liquidation. In June 1965 the Post Office sued Potters’ insurers, the Norwich Union, direct, claiming entitlement to do so under section 1 of the Third Parties (Rights against Insurers) Act, 1930.

Lord Denning MR said this, at [1967] 2 QB 373-4:

“The policy says that "the company will indemnify the insured against all sums which the insured shall become legally liable to pay as compensation in respect of loss of or damage to property". It seems to me that the insured only acquires a right to sue for the money when his liability to the insured person has been established so as to give rise to a right of indemnity. His liability to the injured person must be ascertained and determined to exist, either by judgment of the court or by an award in arbitration or by agreement. Until that is done, the right to an indemnity does not arise. I agree with the statement by Devlin J in West Wake Price & Co v Ching [1957] 1 WLR 45, at 49. “The assured cannot recover anything under the main indemnity clause or make any claim against the underwriters until they have been found liable and so sustained a loss”.

Under the section it is clear to me that the insured person cannot sue the insurance company except in such circumstances as the insured himself could have sued the insurance company. The insured could only have sued for an indemnity when his liability to the third person was established and the amount of the loss ascertained. In some circumstances the insured might sue earlier for a declaration, for example, if the insured company were repudiating the policy for some reason. But where the policy is admittedly good, the insured cannot sue for an indemnity until his own liability to the third person is ascertained."

(My emphasis)

Lord Denning continued, at page 375:

“In these circumstances I think the right to sue for these moneys does not arise until the liability of the wrongdoer is established and the amount ascertained. How is this to be done? If there is an unascertained claim for damages in tort, it cannot be proved in the bankruptcy; nor in the liquidation of the company. But nevertheless the injured person can bring an action against the wrongdoer. In the case of a company, he must get the leave of the court. No doubt leave would automatically be given. The insurance company can fight that action in the name of the wrongdoer. In that way liability can be established and that the loss ascertained. Then the injured person can go against the insurance company."

Salmon LJ said this, at 377E:

“The case really resolves itself into this simple question: Could Potters on June 17, 1965, have successfully sued their insurers for the sum of £839 10s 3d which they were denying they were under any obligation to pay to the Post Office? Stated in that way, I should have thought the question admits of only one answer. Obviously Potters could not have claimed that money from their insurers. It is quite true that if Potters in the end are shown to have been legally liable for the damage resulting from the accident to the cable, their liability in law dates from the moment when the accident occurred and the damage was suffered. But whether or not there is any legal liability and, if so, the amount due from Potters to the Post Office can, in my view, only be finally ascertained either by agreement between Potters and the Post Office or by an action or arbitration between Potters and the Post Office. It is quite unheard of in practice for any assured to sue his insurers in a money claim when the actual loss against which he wishes to be indemnified has not been ascertained. I have never heard of such an action and there is nothing in law that makes such an action possible. I agree with the statement of Devlin J, in West Wake Price & Co v Ching, to which the Master of the Rolls has already referred.”

(My emphasis)

These passages were expressly approved by Lord Brandon in his speech in Bradley v Eagle Star Insurance Co Limited [1989] 1 AC 957, at 965-6.

There is no suggestion in the report of the Post Office case that the Norwich Union had sought to avoid the policy or was relying on any breach of the terms of the policy as a ground for resisting the claim. The Norwich Union's point, put simply, was that the claim by the Post Office for the cost of the repairs was premature.

Mr Elkington submitted that Lord Denning's reference to the circumstances in which the insured might sue earlier for a declaration was confined to the situation where the insurer had avoided the policy. He based this submission on Lord Denning's reference to situations "where the policy is admittedly good". Mr Davidson's short answer to this submission was that Lord Denning was simply giving this as an example. I agree with him. Further, I consider that the reference to a policy being "admittedly good" could refer also to the policy being good for the claim (if valid), and I doubt whether Lord Denning was confining himself to an avoidance of the policy. In this context, I note in particular that in his submissions in reply Mr Hugh Griffiths QC (as he then was), who appeared for the Norwich Union, referred to the fact that the criticisms by the Post Office of the procedure proposed by the insurers were tempered by the fact that this would only occur in the rare case where either (a) the liability of the insured was not in issue or (b) the insurer was claiming to be entitled to repudiate liability because of a breach by the insured of the policy conditions. I suspect it was this submission that Lord Denning had in mind when he was making his observation about the possible entitlement of the insured to sue for a declaration.

Mr Davidson further relied on the references in the judgments of both Lord Denning and Salmon LJ to the "right to sue for the money" (Lord Denning) and to the insured’s right "to sue his insurers in a money claim" (Salmon LJ). I consider that his submission was justified. In my view, the crucial point in the Post Office case was that the third party was claiming, by way of indemnity and standing in the shoes of the insured, a sum of money in circumstances where liability had been denied by the insured, had not been established and the amount of damages (if any) had never been quantified.

In this case Quinn made it clear that it would not be indemnifying Lenihan, come what may. If the submissions by Mr Moody and Mr Elkington are well founded, Lenihan had no remedy against Quinn unless and until it had been found liable to the Claimants and the amount of its liability had been established. Mr Elkington's justification for this was to ask rhetorically: why should Lenihan have to bring an arbitration against its insurers at a time when it had not even been sued? One answer to this is that in a policy which did not contain any time limit within which to refer any dispute between insured and insurer to litigation or arbitration this problem would be unlikely to arise. It is only the presence of the 9 month time limit in General Condition 16 that creates this problem in this particular case, but this cannot affect the point of principle.

Where an insurer notifies an insured that he will not be granting indemnity in respect of a potential claim, the circumstances of which have been notified by the insured in accordance with the terms of the policy, and that refusal to indemnify is unjustified, then the insurer is in my judgment in breach of contract because he is effectively saying that he will not perform his primary obligations under the policy in respect of that claim. Although it is correct that the obligation to indemnify the insured by payment in respect of his liability to the third party claimant does not arise until that liability and its amount have been established, the insurer will usually have other obligations under the policy in relation to the claim or potential claim. For example, under this Policy the insurer must give consideration to whether or not it will take over the conduct of the defence to the claim (General Condition 7) and whether or not it will pay any costs incurred by the insured in respect of the claim (clause 1 of the Public/Products Liability Definitions). A blanket refusal to give such consideration, because the insurer is refusing indemnity on the grounds which are not justified, is in my view a breach of contract.

It must be remembered that in this Policy, like almost every other liability policy, there is a condition which provides that the insured shall not negotiate, admit liability or make any promise, payment or settlement without the insurer's written consent (General Condition 7b). Under general principles of English contract law I consider that where an insurer has notified the insured that it will not be granting indemnity in respect of a claim notified by the insured, the insurer cannot insist on compliance by the insured with his obligations under the policy in relation to that claim such as, for example, the obligation not to negotiate a settlement or admit liability. The insurer, having refused to perform his primary obligations under the contract in respect of that claim cannot at the same time insist on the insured complying with his primary obligations in respect of that claim. The conduct of the insurer means that the insured is effectively uninsured and must therefore take such steps as he reasonably can to protect his own interests. Such steps may well include attempting to negotiate a reasonable settlement of the claim against him.

It is a matter of general experience that sometimes cases are brought in which an insured claims a declaration that a policy has not been validly avoided by the insurer or that there has been no breach of the policy conditions by the insured such as to justify a refusal to indemnify against a potential claim by a third party. Whilst this is often done by way of third party proceedings in the action brought by the third party against the insured, the insured does not have to do this - that course is usually adopted as a matter of expediency in cases where the insured has the resources to defend the claim. But it seems to me that those cases where the insured seeks a prior declaration that the insurer is liable to indemnify it against the claim by the third party are examples of the exception recognised by Lord Denning in the Post Office case.

I consider that, as a matter of ordinary language, once Lenihan had notified Quinn of a claim under the policy in respect of a potential liability to any third party and Quinn had notified Lenihan that it was refusing indemnity, there was a dispute between Lenihan and Quinn in relation to Quinn's liability to indemnify Lenihan within the meaning of General Condition 16. Further, for the reasons that I have given I consider that, if Quinn's refusal to indemnify was unjustified, Lenihan had an accrued cause of action against Quinn for breach of contract which would entitle a Lenihan to seek redress - in this case by arbitration. Once notified of Quinn's refusal to indemnify on grounds of breach of policy conditions Lenihan would be entitled to refer that dispute to arbitration claiming a declaration that Quinn had no grounds under those conditions for refusing to indemnify Lenihan against the claims arising out of the fire.

From a purely practical point of view, I consider that it would be most unsatisfactory if an insured had no remedy against its liability insurer in a situation where the insurer was refusing to indemnify the insured against an actual or potential claim by a third party. Where liability under the policy is admitted, the insurer will usually, in its own interests, take over the conduct of the insured's defence to the claim - as liability policies almost invariably permit. If this does not happen, because the insurer is, for whatever reason, refusing to accept that the policy responds to the claim, then the insured may find itself unable to afford the costs of defending a claim, let alone able to pay any damages awarded against it, and it may be forced out of business as a result. In these circumstances it would be most unfair if, before those events occurred, the insured could not obtain any remedy against its insurer in a situation where the insurer was said to be wrongfully refusing indemnity.

But, as I have already indicated, this is not what happens in practice. Where there is an allegedly wrongful refusal to indemnify by an insurer, the insured can sue for a declaration that it is entitled to indemnity against an actual or threatened claim. I have given my reasons as to why I consider that this course of action is justified in law as well as being a pragmatic solution to the problem. Of course an insured would not need to and could not sue for such a declaration in the absence of the existence of a dispute about the insured's entitlement to indemnity. If the insurer had not refused to indemnify, there would be no basis for bringing a claim for a declaration.

In this case Lenihan had reported the fire to Quinn in accordance with the terms of the Policy and was expecting to be indemnified in the event that it was found liable to the Claimants. Further, it anticipated that Quinn would handle the defence to any claims. When Lenihan discovered that Quinn was refusing to indemnify, and consequently that it would not be taking over the conduct of the defence to the claims brought by the Claimants, there was clearly a dispute between a Lenihan and Quinn. In my judgment, that was a dispute in respect of Quinn's liability in respect of the claim by Lenihan under the policy. That was the claim that originated with Lenihan's report of the fire in September 2006, and the possibility that claims might be made against it. That was the claim which was subsequently investigated by Quinn and the claim in respect of which Quinn decided that it would not be granting indemnity.

General Condition 16 of the policy required the parties, if they wished to do so, to refer that dispute to arbitration within nine months of the date when it arose. As I have already indicated, the dispute could not be said to have arisen until Lenihan became aware that Quinn was refusing to respond to the claim under the policy for an indemnity in respect of any liability for the fire of September 2006. The dispute would not have been about Lenihan's entitlement to a particular sum of money by way of indemnity, but about whether Quinn's reasons for refusing to indemnify were justified.

To summarise, whilst the Post Office case establishes that until the liability of the insured has been established, and the amount of that liability ascertained, the insured cannot sue the insurer for a particular sum of money by way of indemnity, it does not in my judgment prevent the insured from seeking declaratory relief where it alleges that the insurer is in breach of contract. In this case, Lenihan considered that it was entitled to be indemnified in respect of any liability that it might incur in respect of the fire and, when it discovered that Quinn had no intention of granting any such indemnity on the grounds that Lenihan had been in breach of various policy conditions, it had the right to refer that dispute to arbitration under General Condition 16. By the terms of that clause that dispute had to be referred to arbitration within 9 months of the date when it arose.

I regard these conclusions as consistent with and supported by the following comments of Mance LJ (as he then was) in Horbury Building Systems Limited v Hampden Insurance NV [2007] Lloyd's Rep IR 237, at paragraph 30:

“The right to indemnity under a liability insurance only arises in law as and when the insured's third party liability has been ascertained and quantified by judgment, award or agreement: Post Office v. Norwich Union [1967] 2 QB 363; Bradley v. Eagle Star [1989] AC 957. However, the court has jurisdiction to grant declarations as to the extent to which valid and applicable cover exists under such a policy in proceedings brought by the insured against the insurer before the insured's third party liability has been finally determined: Brice v. Wackerbarth [1974] 2 Ll.R. 274; Du Pont v. Agnew [1987] 2 Ll.R. 585, 595; and cf Thorman v. New Hampshire [1988] 1 Ll.R. 7. Whether it will do so is ultimately a matter of practicality and convenience: see the judgments in Brice v. Wackerbarth. But it is notable that in all these cases the third party had at least defined its claim by the issue of proceedings. Here, that was not so, and none of these cases comes close to the present.”

Although I have not been told that any of the claims by the present Claimants had been formulated or presented to Lenihan by the time that Quinn decided to repudiate liability for Lenihan's claim in July 2008, by February 2009 the nature of the claims that were being made against Lenihan were clear because Particulars of Claim in an action brought by Rannoch and others were served on Lenihan on 11 February 2009. The dispute that Lenihan could have referred to arbitration would have involved the issues of (a) whether or not Lenihan was in breach of General Condition 6 prior to the outbreak of the fire on 5 September 2006 and (b) whether or not Lenihan was in breach of General Condition 17. In practice, the second issue would probably have been abandoned by Quinn at an early stage leaving only the issue relating to reasonable precautions. The resolution of this issue did not involve the Claimants, who would have needed only to establish negligence, not conduct amounting to recklessness or something similar, and was solely a matter to be resolved between Lenihan and Quinn. Indeed, the Claimants would have no interest in asserting facts that might give Quinn any opportunity for declining cover and, as one would have expected, the claims in the first action brought by Rannoch were based on allegations that Lenihan, its servants or agents, failed to act with reasonable skill and care.

I am quite satisfied that the dispute between Quinn and Lenihan as to Quinn's liability in respect of Lenihan's claim under the policy arose, at the latest, by the end of February 2009 and so General Condition 16 required any arbitration by Lenihan to be commenced before the end of November 2009 (since Lenihan has never referred the dispute to arbitration, it is not necessary to decide the precise date on which the dispute arose). No such dispute having been referred to arbitration, it is, subject to one point, no longer open to Lenihan, and therefore to the Claimants under the 1930 Act, to pursue any claim against Quinn for an indemnity in respect of Lenihan's liability for the fire of September 2006.

The one point concerns the possible application of paragraph 2.5.3 of ICOB, with which I will deal in the next section.

Accordingly, subject to paragraph 2.5.3 of ICOB or the grant of any extension of time under the relevant statutory regime, the Claimants’ claims in these two actions must fail.

As I indicated at the outset of this judgment, I doubt whether I have any jurisdiction to extend time under section 12 of the Arbitration Act 1996 because it appears that Quinn's policy is governed by Irish law and that the seat of any potential arbitration under General Condition 16 is Ireland. So far as I am aware, the provision to extend time for making a reference to arbitration in Ireland is contained in section 45 of the Arbitration Act 1954.

That section enables the court to extend the time for making a reference to arbitration where the court “is of opinion that in the circumstances of the case undue hardship would otherwise be caused”. It appears, although I have heard no submissions on the matter, that this section probably applies the same test of undue hardship as was applied in England and Wales under the Arbitration Act 1950 prior to the passing of the Arbitration Act 1996. It is clear that the provisions of section 12 of the 1996 Act were intended to mark a clear change in the law and practice relating to the extension of time for commencement of an arbitration beyond that specified in a contractual time-bar provision and that section 12 imposes a much more restrictive regime (see Harbour and General Works Limited v Environment Agency [2000] 1 WLR 950). I mention this because I regard it as important that the parties should understand that the views that I am about to express in relation to the merits of a claim for an extension of time under section 12 of the Arbitration Act 1996 may well be of only limited relevance to the outcome of any application to extend time made in the Irish courts.

Accordingly, the views that I am about to express in relation to the grant of an extension of time are no more than views because I am not satisfied that I have any jurisdiction to exercise the power to extend time under section 12 of the 1996 Act.

In relation to the power of the court to extend the time for referring a dispute to arbitration beyond the time limit provided by a contractual time bar, section 12(3) provides as follows:

“The court shall make an order only if satisfied-

(a)

That the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time, or

(b)

That the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question."

In Harbour and General Works Limited v Environment Agency a contract made under an amended version of the ICE conditions provided that if a party was dissatisfied with a decision of the engineer and wished to refer the matter to arbitration it had to do so within three calendar months of the date of the decision. The contractor was dissatisfied with a decision of the engineer in relation to one of its claims that was given on 29 June 1998. By the amendments, if the contractor wished to invoke the conciliation procedure under the contract, it had to do so within one month of the decision or, if it wished instead to refer the matter to arbitration, it had to do so within three months, namely by 28 September 1998. On 23 September 1998 the contractor purported to give notice to have the dispute considered under the conciliation procedure, but this notice was almost two months out of time. The employer's solicitors replied acknowledging receipt of the purported notice of conciliation and reserving their client’s rights to dispute whether it was a proper notice. The contractor replied on 25 September saying that it believed that the letter was a correct and proper notice of conciliation and requesting details of the employer’s concerns as to its validity. On 5 October 1998 the employer's solicitors wrote to the contractor informing it that the time for issuing a notice of conciliation had expired on 28 July and that accordingly the notice or notices of conciliation served on 23 and 25 September 1998 were out of time and therefore invalid. The following day, 6 October 1998, the contractor's solicitors sent a notice to refer the dispute to arbitration. This notice was just over one week out of time. The contractor applied to the court under section 12 of the 1996 Act for an extension of time for serving notice of arbitration to 6 October 1998. Colman J dismissed the application for an extension of time and his decision was upheld by the Court of Appeal.

It was submitted on behalf of the contract that the "circumstances" were outside the reasonable contemplation of the parties when they entered into the contract because, first, there had been a procedural mishap in that the contractor had used the wrong type of notice but had still notified the employer that the engineer's decision was challenged and, second, that the employer's solicitors only informed the contractor of this after the time for service of the correct notice had expired. There was also a further ground relied on which related to the nature of the engineer's decision and which is not relevant for present purposes.

In his judgment in the Court of Appeal Waller LJ cited with approval a passage from the judgment of Colman J in which he summarised the approach under section 27 of the Arbitration Act 1950 in the following terms:

“The courts approached the concept of undue hardship by reference to such factors as the size and strength of the claim, the extent of the claimant’s fault, the pendency of negotiations between the parties, whether the respondent had been obstructed, the extent to which the respondent would suffer prejudice in addition to the loss of its time-bar defence if time were extended and generally whether the hardship was not only excessive but undeserved and unmerited."

Colman J went on to note that, following the recommendations of the Departmental Advisory Committee, the idea that the court had some general supervisory jurisdiction over arbitrations has been abandoned. Thus the court's jurisdiction under section 12 of the 1996 Act was confined to the two cases covered by section 12(3)(a) and (b) of the Act which, as Colman J stated, are conceptually quite different from the "undue hardship" approach under the 1950 Act. Colman J went on to say this, at [1999] 1 All ER (Comm) 961-962:

“Accordingly, the approach to the construction of section 12 has, in my judgment, to start from the assumption that when the parties agreed the time bar, they must be taken to have contemplated that if there were any omission to comply with its provisions in not unusual circumstances arising in the ordinary course of business, the claimant would be time-barred unless the conduct of the other party made it unjust that it should. In this connection, it would appear quite impossible to characterise a negligent omission to comply with the time bar, however little delay were involved, as, without more, outside their mutual contemplation. Narrowly overlooking a time bar due to an administrative oversight is far from being so uncommon as to be treated as beyond the parties’ reasonable contemplation. The process of identifying and evaluating in the balance the disparity between the prejudice to the claimant on the one hand and the degree of fault on his part on the other will not normally be a relevant exercise in determining whether there were circumstances beyond the reasonable contemplation of the parties. The circumstances in question must in each case include those which caused or at least significantly contributed to the claimant’s failure to comply with the time bar.”

Waller LJ agreed with that approach. He said, at [2000] 1 WLR 960, that the section was concerned

“not to allow the court to interfere with a contractual bargain unless the circumstances are such that if they had been drawn to the attention of the parties when they agreed the provision, the parties would at the very least have contemplated that the time bar might not apply - it then being for the court finally to rule as to whether justice required an extension of time to be given. . . . In this very case it enables circumstances such as a failure to read the provisions which might not be reasonably contemplated, to be circumstances which do not trigger consideration of an entitlement to an extension of time.”

In relation to the respondents’ conduct in that case, Waller LJ said that there was no obligation on the respondents to advise the applicants that time was about to expire or that it appeared that the applicants had failed to read the relevant provisions. In those circumstances, he said, it did not seem to be unjust to hold the applicants to the strict terms of the time bar. Tuckey LJ agreed with the judgment of Waller LJ.

On this aspect I was also referred to the judgment of Hamblen J in SOS Corporacion Alimentaria SA v Inerco Trade SA [2010] EWHC 162 (Comm). In that case he applied and followed the approach of the Court of Appeal in the Harbour and General case and he noted that the concept of undue hardship had been given a broad meaning and relatively benevolent application that was no longer appropriate under section 12 of the 1996 Act. Since the facts of that case are of little relevance to those of the present case, I do not find it necessary to discuss Hamblen J's decision in any more detail.

Mr Moody submitted in his skeleton argument, and his submissions were effectively adopted by Mr Elkington, that the circumstances in which the Claimants now seek an extension of time cannot have been within the contemplation of either Lenihan or Quinn at the time of the renewal of the insurance in July 2006 for the following reasons:

For the reasons that I have already given in relation to the previous issues, the points in (a) to (c) above are not well founded and I reject them. It follows that points (d) and (e) fail also. This disposes of the ground under section 12(3)(a) of the 1996 Act.

Mr Moody, supported again by Mr Elkington, submitted that the conduct of Quinn makes it unjust to hold, under section 12(3)(b) of the 1996 Act, the Claimants to the strict terms of the time bar under General Condition 16. First, Mr Moody submits that no criticism can be made of the conduct of the Claimants. This is correct, so far as it goes, but in my judgment it is largely irrelevant. The Claimants are standing in the shoes of Lenihan and, prior to the winding up, it is the conduct of Lenihan that has to be considered. If Lenihan's conduct has prejudiced the Claimants, so be it. That is a consequence of the fact that a person claiming under the Third Parties (Rights against Insurers) Act 1930 cannot be put in a better position than the original insured. A claimant has to take the risk that the insured will have failed to comply with a provision in the policy and thereby fatally undermined the position of the claimant.

Second, Mr Moody submits that Quinn were at all times fully aware of the 9 month time bar, yet they made no reference to it in their original letter in which they refused to indemnify or indeed at any time until 13 April 2010, by which time the time for referring the dispute to arbitration had expired. Mr Moody submitted that this was a breach of ICOB paragraph 7.3.5, which is in the following terms:

“When an insurer is informed that a customer wishes to claim under his policy it must give the customer reasonable guidance to help him make a claim under his policy.”

Mr Moody also relied on the fact that having failed to make a prompt decision on declinature contrary to ICOB paragraph 7.3.1, when it did make that decision it failed to communicate it to Lenihan or its broker for a further seven months (to February 2009), contrary to ICOB 7.3.2. Finally, Mr Moody submitted that Quinn’s initial reliance on material non-disclosure was unsustainable since the matters relied upon related to post claim conduct and not material non-disclosure pre-inception. This, he submitted, showed a poor understanding of their own policy. Subsequently Quinn then abandoned the point without giving any reasons. He submitted that it was clearly an unreasonable rejection of a claim, contrary to ICOB 7.3.6.

When considering section 12(3)(b) of the Act it seems to me that, in the absence of unusual circumstances, the conduct of the party resisting the application must have been such as to have in some way caused or contributed to the failure of the applicant to comply with the relevant time bar. Whilst Mr Moody has made some justifiable criticisms of the conduct of Quinn, in particular its failure to give Lenihan prompt notice of its decision to refuse to grant indemnity and its unjustified reliance on General Condition 17, none of these failures can be said to have caused or contributed to the failure by Lenihan and its brokers to read the policy and discover the existence of the 9 month time bar for referring disputes to arbitration. In the light of Lenihan's subsequent conduct it is most unlikely that, if it had received Quinn's letter of 2 July 2008 shortly after it was sent, that it would have reacted any differently. Since I have found that Quinn's decision to refuse to indemnify was not communicated to Lenihan until late February 2009, the delay between July 2008 and February 2009 is irrelevant in the context of the application of the time bar under General Condition 16.

Similarly, the fact that Quinn initially relied on a failure to comply with General Condition 17 and subsequently withdrew that reliance had no bearing whatever on Lenihan's failure to refer the dispute to arbitration within the required time. It may reflect badly on Quinn, but it is not a relevant factor for the purposes of section 12(3)(b).

In relation to Quinn's failure to warn Lenihan about the existence of the time bar before the period for referring a dispute to arbitration expired, there are two aspects to Mr Moody's submissions. The first is whether Quinn was under any duty to alert Lenihan to the existence of the time bar. In the absence of any specific guidance in ICOB, I consider that there is not. I can see no distinction between the facts of this case and those in the Harbour and General case, in which it was held both by Colman J and the Court of Appeal that there was no obligation on the respondents to advise the applicants that time was about to expire.

Mr Moody's second point was the reliance on paragraph 7.3.5 of ICOB, which provides that an insurer must give the insured reasonable guidance to help him make a claim under his policy. This paragraph forms part of a section of ICOB that is headed “Claims handling: general”. I consider that this submission is misconceived. I cannot see how that paragraph can apply to a situation where the insurer has rejected the claim, whether rightly or wrongly. If the insurer was justified in rejecting the claim, then it would be nonsensical for him to be required to assist the insured in making it. If the insurer was not justified in rejecting the claim, the remedy of the insured is to seek a declaration that the insurers’ rejection of the claim is unlawful. Unless and until the insured has obtained such a declaration, or the insurer has changed his mind, no useful purpose would be served by the insurer assisting the insured to make or prepare the disputed claim.

Even if I am wrong about this, I do not consider that the reference, in paragraph 7.3.5 of ICOB, to guidance to help the insured make a claim under the policy can, as a matter of construction, be regarded as extending to alerting the insured to the existence of a time bar such as that in General Condition 16. That time bar applies to the time for referring any dispute to arbitration once a dispute has arisen in relation to the insurer's liability in respect of a claim: it is not a period within which the insured must make his claim. If, for example, a clause in the policy required the insured to make his claim as soon as reasonably practicable and, thereafter, to supply full particulars of that claim within, say, 28 days, then I can see that there might be an argument that paragraph 7.3.5 of ICOB could require the insurer to remind the insured that, having made the claim, he must provide the relevant particulars of it within 28 days. However, that is not this case.

For these reasons, I reject Mr Moody's submissions in relation to section 12(3)(b). Whatever one may think of Quinn's conduct in relation to this claim, I do not see any basis upon which it can be said that any conduct of Quinn's caused or contributed to Lenihan's failure to refer the dispute in relation to Quinn's liability under the policy to arbitration within 9 months of that dispute arising, as required by General Condition 16. The court no longer has any general discretion to extend time simply because it considers that it would be fair and reasonable to do so. It can do so only if one or other requirement of section 12(3) is satisfied and, for the reasons that I have given, I do not consider that either condition is satisfied in this case.

Accordingly, if I thought that I had the power to do so, I would not grant the Claimants an extension of time for referring this dispute to arbitration under section 12 of the Arbitration Act 1996.

I now revert to paragraph 2.5.3 of ICOB, the terms of which I set out again for convenience:

“A firm must not in any written or oral communication to a customer seek to exclude or restrict, or rely on any exclusion or restriction of, any duty or liability . . . unless it is reasonable for it to do so.”

I do not think that there can be any doubt that Quinn’s letter of 2 July 2008 fell within the ambit of this clause. But I am not concerned with the terms of this letter, because the question of whether or not Lenihan was in breach of General Condition 6 is not one that I have to decide. If there was a breach of that clause, then I cannot see how Quinn’s reliance on it could be said to have been unreasonable. The question for me is whether paragraph 2.5.3 operates to prevent Quinn from relying on the time bar defence as indicated in its letter of 13 April 2009.

I consider that Quinn’s letter of 13 April 2009 probably amounted to a written communication seeking to rely on an exclusion of liability and, assuming that to be the case, the question is whether Quinn acted unreasonably in failing to draw Lenihan’s attention to the time limit at some earlier stage prior to its expiry, perhaps in their letter of 2 July 2008.

However, as I have already said, I can see no basis for distinguishing the facts of this case with those of the Harbour and General case, in which the Court of Appeal held that there was no obligation on the employer to advise the contractor that time was about to expire. If anything, the need for such advice might have been greater in the Harbour and General case since the time limit in question was much shorter and the contractor had already served an invalid notice, which suggested that its advisers may have been mistaken about the relevant provisions of the contract. If the members of the court had felt that the employer had acted unreasonably in failing to warn the contractor about the time limit, I would have expected them to have said so since it could be very relevant to the exercise of the power to extend time under section 12(3)(b) of the 1996 Act.

There is no evidence that in either July 2008, or in February 2009 when it became apparent that Lenihan was unaware of the contents of the letter of 2 July 2008, Quinn had any reason to think that Lenihan was or might have been unaware of the terms of the Policy. I consider that Quinn was entitled to assume that Lenihan and/or Primo would look at the terms of the Policy in the light of the repudiation and take appropriate steps to start an arbitration within the 9 month time limit if it wished to challenge Quinn’s decision to decline to indemnify.

I can see that it is arguable that, in a case of consumer insurance as opposed to commercial insurance, Quinn’s reliance on General Condition 16 would have been unreasonable. Consumers are not of equal bargaining power and they cannot be assumed to have the resources or level of expertise or understanding of insurance that might be available to or expected of a commercial insured. However, for the reasons that I have given above I consider that Quinn was not under any obligation to advise Lenihan of the existence of the 9 month time limit in a policy which Lenihan had, by then, had in its possession for some four years. Consequently, I find that Quinn has acted both within its rights and reasonably in relying on it.

For these reasons any argument based on paragraph 2.5.3 of ICOB must fail also.

Since I consider that I am not in a position to grant or refuse an extension of time under section 12 of the 1996 Act, I cannot determine whether or not the Claimants are entitled to that relief. Until that point has been decided, which may have to be done by the courts of Ireland, it cannot be concluded that the claims are bound to fail.

Accordingly, Quinn's application for summary judgement in the McIlroy/Mackays’ action must be dismissed.