Zagora Management Ltd & Ors v Zurich Insurance Plc & Ors

This case is about a development of two blocks of flats in Hulme, Manchester, collectively known as New Lawrence House (Footnote: ¹). In short, the claimants are: (1) the freeholder, Zagora Management Ltd (“Zagora”); and (2) some (but not all) of the long leasehold owners of individual flats within the development. They all complain of serious defects in the development as built which they say make the flats un-occupiable due, amongst other things, to major fire safety related defects in respect of which a prohibition notice has been issued by the Greater Manchester Fire & Rescue Service (“the Fire Service”).

As against the first defendant, Zurich Insurance plc (“ZIP”) trading as Zurich Building Guarantee

Although ZIP and ZBC are separate limited companies that separation was solely for regulatory compliance reasons and did not reflect any substantive separation between the two businesses. The building warranty and building control teams worked closely together in one department under the

In July 2018 ZIP amended its defence so as to plead that pursuant to a transfer scheme sanctioned by order of the High Court of the Republic of Ireland dated 16 March 2018 it has transferred its business to the third defendant, East West Insurance Company Limited (“EWIC”). It contends that as a result of the transfer any of the claims made in this action, whether brought under the building warranties or otherwise, fall to be dealt with by EWIC. The claimants accept that EWIC is the appropriate defendant for the claim under the building warranties, although there remains a question as to whether or not the claim brought by Zagora under what is referred to as “the agreement to rectify” is also subject to the transfer. Sensibly, the parties have agreed that any outstanding issue in that respect can be determined once I have given judgment on the substantive claims.

There are 27 claimants making claims against ZIP. Of these 26 (Footnote: ²) are the owners of long leasehold interests in a total of 30 individual flats. These are referred to as the individual leaseholder claimants. Of these individual leaseholder claimants only two purchased the flats for their own or a family member’s occupation; the remainder purchased as buy-to-let investments. Some live overseas, although the majority are UK residents.

The other claimant, Zagora, is the freehold owner of New Lawrence House. It pursues a claim against ZIP under what has been referred to as the agreement to rectify. In short, Zagora contends that an agreement was reached between itself and ZIP on a commercial basis under which ZIP agreed to fund works to resolve certain agreed defects regardless of the strict position under the building warranties. Further or in the alternative it pursues a claim against ZIP on the basis that it is – or is to be treated as – an insured under a building warranty. ZIP vigorously disputes both of these claims.

Whilst ZIP accepts that the individual leaseholders are insured under individual Standard 10 building warranty policies they dispute their claims on a number of grounds. In short, ZIP’s position is that this is a complex insurance claim in respect of which the individual defects require separate and careful consideration in the light of the conflicting factual and expert evidence and the applicable policy coverage and exclusions.

One complicating feature in relation to all of these claims is that a significant number of the total flats in the development, 66 out of a total of 104, were acquired by a limited liability partnership known as CJS Investments LLP (“CJS”), the individual partners in which were connected with the company, JCS Homes Ltd (“JCS”), which built the development. Of the remaining 8, 7 were acquired by individuals connected with JCS. Neither CJS nor the connected individual leaseholders nor the remaining one unconnected individual leaseholder has played any active part in this case.

The Bank has funded and continued to fund the claim until very recently, when a third party funder known as 123 Pay Limited (“123 Pay”) took over the funding, under arrangements which have been the subject of some controversy and which may require careful consideration, given the arguments raised by ZIP as to the impact of those funding agreements upon the claimants’ right to recover. These arrangements and arguments extend to the position of Walker Morris as the claimants’ solicitors.

From any sensible perspective it is regrettable that in 2013, at a time when – to put it neutrally – Zagora and ZIP were engaged in a productive dialogue as to a way forward in terms of agreeing and undertaking remedial works to resolve the undoubted problems with the development, a dispute arose between Zagora and CJS as to whether Zagora or LHM – which CJS claimed to control – was entitled to manage the development. This dispute led to LHM obtaining an interim injunction in the County Court restraining Zagora from seeking to manage the development. This injunction had the unfortunate effect of preventing the dialogue between Zagora and ZIP from proceeding to what both parties hoped would be a satisfactory conclusion. The litigation between Zagora and LHM was transferred to the Manchester TCC (“the TCC action”) where it proceeded to a trial before HHJ Raynor QC. Separately, a further action was brought in the Manchester Chancery Division (“the Chancery action”) to establish who controlled LHM. The Chancery action also proceeded to a trial before HHJ Raynor QC.

Although HHJ Raynor QC found in favour of LHM in the TCC action and CJS in the Chancery action his decision in the Chancery action was overturned on appeal, the Court of Appeal concluding that on their true construction the – undoubtedly poorly drafted - voting provisions of LHM had the perhaps surprising effect that the individual leaseholders, as the owners of the minority of the flats, rather than CJS as the owners of the majority of the flats, were entitled to control LHM. It followed that CJS had instigated and prosecuted the TCC action by LHM without authority from those who were entitled to control LHM and that the judgment obtained by LHM against Zagora in the TCC action was a nullity. The ultimate outcome was that Zagora and the individual leaseholder claimants in this action, who had all sided with Zagora, succeeded in the litigation and CJS failed, the adverse financial consequences of which led to its administration.

Turning to the claim against ZBC, thirteen of the claimants including Zagora (“the ZBC claimants”) make claims against ZBC which undertook the role of building inspector at the development and which issued final certificates under the Building Regulations (“the Bldg Regs final certificates”). The claim is pleaded in deceit on the basis that the relevant inspector – Mr David Mather – knew that the statements made in the Bldg Regs final certificates were not true or knew that there were no reasonable grounds for believing the truth of the statements or was reckless as to their truth. The ZBC claimants contend that they would not have acquired the individual flats (or freehold interest in Zagora’s case) had they known the true position and that the flats and the freehold interest are at best worth much less than what was paid and at worst worthless. The ZBC claimants seek a refund of all amounts paid out on the purchase and subsequently less (where applicable) their true value and any income received, together with an indemnity against any liability they may have under the leases for repair costs.

It will be appreciated that the claim against ZBC has to be pursued on the basis of deceit since under the existing law negligence alone will not suffice. ZBC vigorously denies that Mr Mather was deceitful and also contends that in any event none of the ZBC claimants relied on the Bldg Regs final certificates, in circumstances where they were not issued to the ZBC claimants directly by ZBC. The issues of deceit and of the ZBC claimants’ knowledge of and reliance upon the Bldg Regs final certificates, whether prior to exchange or completion, have thus been the subject of considerable investigation and debate at trial. Furthermore, because the original claim issued in 2015 pleaded the claim against ZBC in negligence rather than deceit and because I refused the ZBC claimants permission to amend that claim (save in relation to Zagora, where no arguable limitation issue arose), the individual leaseholder ZBC claimants were forced to issue a separate action in 2017 and to plead reliance on s.32 of the Limitation Act 1980 in order to enable them to defeat ZBC’s accrued limitation defence.

Finally, the quantification of the claims against ZBC is disputed. In particular, issues arise as to whether or not the value of the insurance policies issued by ZIP and/or the value of any recovery against ZIP must be brought into account and, if so, how and in what way.

These factors, individually and collectively, explain why the case has been so vigorously contested, both throughout the interlocutory stages and at trial. As well as numerous witnesses of fact there were expert witnesses in 8 separate disciplines. After pre-reading the written opening submissions and a day of oral openings the evidence was heard over 16 days. There was then a pause for written closing submissions to be produced and a further 2 days allowed for oral closing submissions after which I received some short supplemental written submissions. I have taken all of this material into account when producing this judgment. Having produced my judgment in draft and after some time had elapsed both ZIP and ZBC invited me to clarify and supplement my judgment in certain respects. I allowed the claimants to respond and, where indicated in this judgment, have either accepted those invitations to the limited extent it appeared to me to be appropriate or explained why I have declined to do so.

I would like to express my appreciation for the immaculately prepared trial bundles produced by Walker Morris, both in hard copy with a copy also being made available for me in electronic format, and my gratitude to the legal representatives for all of the parties who co-operated to enable the trial to be concluded within the time allocated notwithstanding the volume of material in the

In summary, my judgment is as follows:

The structure of this judgment is that I will begin by referring to the witnesses and recording and briefly explaining my conclusions as to the weight which I can place on their evidence where necessary to do so, including making some reference to the paucity of the documents produced by ZBC. I shall then refer in summary to the history of the development and to subsequent relevant events. That includes separate, but necessarily rather more detailed, sections relating to: (a) the way in which ZBG performed its building warranty and building control roles in inspecting and in issuing certificates in relation to the development; and (b) the circumstances in which each individual claimant acquired their flat (or in Zagora’s case, its freehold interest), the question of their reliance on the Bldg Regs final certificates and their knowledge of defects in the development. I shall then turn to address issues as to the terms and the construction of the leases and the insurance policies. I can then proceed to consider in order: (a) the claim by Zagora against ZIP under the alleged agreement to rectify; (b) the claim by Zagora against ZIP under the alleged building warranty; (c) the claims by the leaseholder claimants against ZIP under the building warranties; (d) the claims by the ZBC claimants against ZBC.

The witnesses

I do not propose to refer separately to each and every one of the witnesses of fact who gave evidence in this trial; that would take far too long and be unnecessary.

Mr Andrew Broadhurst and Mr Russell Robinson are both directors of and were the two primary witnesses for Zagora. Mr Broadhurst is also an important witness for the claimants as a whole, given his particular involvement in relation to the alleged agreement to rectify. The defendants contend that they were unreliable and, in particular, they invite me to reject their evidence as to the extent of their knowledge of the existence of defects in the development prior to their purchase of the freehold. In his previous judgment in the TCC action HHJ Raynor QC found both of them to be truthful and generally reliable witnesses. That evaluation was subject to one caveat, which was that he noted a discrepancy between their first and their second witness statements as to their motives when acquiring the freehold of the development. Having heard both men cross-examined I share Judge Raynor’s assessment, shrewd as always, as to their truthfulness and general reliability. In general, I consider them truthful and reliable historians. Whilst there were undoubtedly times in the cross examination of both men when they sought to argue the case or to avoid answering difficult questions, when compelled to give a direct answer or a direct question they generally answered honestly and reliably in my view. However, the discrepancy identified by Judge Raynor also illustrates that both men were susceptible to giving evidence, both in their witness statements and in cross-examination, which was partisan and which made me doubt the reliability of their recollection on certain key issues where unsupported by contemporaneous documentation or other reliable evidence. That is perhaps not surprising in circumstances where they have been involved in dispute and costly litigation ever since they acquired the freehold in 2013.

As regards the individual leaseholder claimants, all were honest people in my view. However, many of them were partisan witnesses who, whilst not setting out to lie, sought both in their witness statements and under cross-examination to argue their case and to make assertions which were clearly contrary to the contemporaneous documentation. Their witness statements in my view suffered from the vice of having been drafted so as to advance their case by reference to what they now believed to be their understanding of events, making selective reference to the contemporaneous documentation which supported their case, rather than by setting out their genuine and unadorned recollection in 2018 of what they had done, said and thought many years earlier. To take an important example, many claimed to have read and formed a certain understanding of the terms of the sale contracts under which they agreed to acquire their flats from JCS which supported their claim against ZBC when, in my view, most of them had no such genuine recollection and had not done so. Many of them sought to maintain this evidence to support their case under cross-examination even when demonstrated to be inconsistent with the contemporaneous documentation or when it became apparent that in truth they had no real independent recollection of events after the lapse of time. They all struggled at times to provide a clear and detailed recollection of events, not surprisingly given the lapse of time. I give their evidence due weight but make my decision largely by reference to the contemporaneous documentation which, fortunately, is voluminous as well as my assessment of the inherent probabilities.

As regards the witnesses called by ZIP Mr Parvin was the most senior witness called. At the time he was the team leader for major loss claims in the UK, with a background in structural engineering and loss adjusting. He came across as honest and generally reliable. However, his view of what he

Without advancing any explanation ZIP chose not to offer a witness statement from or to call Mr David Robinson, a loss adjuster with Cunningham Lindsey, who had worked closely with Mr Parvin in relation to the events relevant to the alleged agreement to rectify and who had written a key letter to record ZIP’s position following the meeting at which Zagora say the agreement to rectify was reached. I am satisfied that when making findings as to what happened I should bear in mind that ZIP failed to call David Robinson as a witness who it must have known had material evidence to give. The significance of this however is much reduced in the particular facts of this case because there is little disagreement between those witnesses who were called as to what happened at the meeting and by the fact that his subsequent letter essentially speaks for itself.

ZIP also successfully asserted litigation privilege in relation to its internal documents – as well as those of Cunningham Lindsey and its engineering consultant adviser Mr Brown of Thomasons - relating to the alleged agreement to rectify. It was perfectly entitled to do so and I have reminded myself that I must not speculate about what those documents might have said. However, I bear in mind that whilst Zagora’s case and evidence has been tested against its contemporaneous internal documents as well as the external documents, ZIP’s case and evidence has not been tested in the same way.

As regards the witnesses called by ZBC, I should begin by noting that they all had the disadvantage of being unable to refer to the full complement of contemporaneous documents for two reasons. The first is because at some stage after 2013 the box which contained ZBG’s files relating to New Lawrence House (known as box 54) had been lost and cannot now be found. The reason, it appears, is that after Mr Parvin retrieved it from storage in 2013 it was left in a filing cabinet from where it has disappeared. It cannot be found in the archive maintained by ZIP and there is no evidence or explanation as to whether it was ever sent to archive and has become lost there or whether it remained in the filing cabinet and at some unknown point disappeared from there. In any event it appears from Mr Parvin’s evidence that when he inspected box 54 there was only a limited amount of paperwork within it, principally the approved drawings, and no documents of the kind which he would have expected to see, such as a plan check or copies of electrical and other test certificates, let alone copies of any internal or external correspondence. It appears that there would also have been a site folder kept on site at the development which would have contained relevant documents or copy documents, either those produced by JCS to satisfy the ZBG surveyors that the construction accorded with the Bldg Regs and/or the Zurich technical manual, or those produced by ZBG such as requests for information or cover notes. ZBC’s witnesses accepted that there was no proper system for ensuring that the site folder was retrieved from site at the end of a job and that it often went missing when the contractor or developer demobilised from site at that stage.

To compound the absence of hard copy documents, when a search was undertaken of the backup of the electronic mailboxes of the relevant ZBC personnel and of the ZBC folder on an electronic

Given that a claim was first intimated against ZBC in April 2013 and that ZIP involved both a dedicated financial claims team and in-house lawyers to consider the specific claim against ZBC at that stage it is extremely unimpressive, to say the least, that relevant documents, both hard copy and electronic, were not obtained, copied and secured for later use, especially since on any view matters were not finally resolved at that point in time.

However, in the absence of grounds for concluding either that the box and its contents or the site folder were disposed of deliberately, recklessly or carelessly in the full knowledge that it ought to have been preserved for anticipated litigation, or that any relevant electronic material was lost or rendered unreadable in similar circumstances, I do not consider that it would be proper for me to draw any adverse inferences against ZBC as a defendant to a claim in deceit arising from the absence of such documents. Still less would it be appropriate to draw any adverse inferences against Mr Mather who, on any view, bears no responsibility for the loss of these files. The only caveat is that in the absence of positive evidence from ZBC as a defendant or from Mr Mather or Mr Nicholls or Mr Eadsforth personally that there was a much larger quantity of email traffic generated between the three of them in relation to their inspections or general communications as regards the development and its state of completion which cannot now be produced I consider that I am bound to conclude that the email traffic which actually passed between them relating to such matters was in fact extremely limited. That does not of course, I should add, mean that there were no oral conversations between them concerning the same subject matter.

Furthermore, and fortunately, there is some remaining contemporaneous evidence, both from correspondence obtained from other sources and in the form of entries on ZBG’s “Live 27” database (onto which surveyors were able to enter information relating to their inspections of properties such as New Lawrence House for building warranty and building control purposes and which generated cover notes and insurance certificates).

As to the ZBC witnesses themselves, none of them are still employed by ZIP in any capacity. Mr Cairns was the most senior former employee called to give evidence. He had no direct involvement with New Lawrence House. He was a reliable and convincing witness. Mr Nicholls was a senior surveyor employed in the building warranty side of the ZBG business and had been involved in inspections at New Lawrence House. He was clearly somewhat reluctant to be involved in giving evidence in this case and, not surprisingly, willing to be led to agree with the thrust of Mr Selby’s cross-examination which, happily for him, had the effect of allowing him to minimise any personal responsibility which might otherwise attach for the inadequate way in which ZBG performed its functions in relation to this development and to throw it onto Mr Mather. Mr Eadsforth joined ZBG as a trainee site surveyor in December 2008 and worked under the supervision of Mr Nicholls on building warranty inspections until he was made redundant in December 2009. He was also willing to accept Mr Selby’s invitation to minimise any personal responsibility on his part for the failures.

Mr Mather was the most important witness called by ZBC. It is he against whom the claimants allege dishonesty in relation to the issue of the Bldg Regs final certificates. He is now retired but has spent most of his professional life undertaking building control work. Before joining ZBG in

ZBC has to and does accept the view of its own building control expert that it acted negligently in relation to the issue of the three Bldg Regs final certificates for this development, given the nature and extent of the serious defects which were present and which ought to have been discovered by a reasonably competent building control inspector and which ought to have led to Mr Mather’s refusing to issue a Bldg Regs final certificate unless and until remedied. It also has to accept that by issuing the Bldg Regs final certificates Mr Mather represented that reasonable steps had been taken by ZBC to satisfy itself that the Bldg Regs had been complied with and that this representation was untrue. The key issue which I have to decide is whether or not that was an innocent misrepresentation or whether Mr Mather either knew that reasonable steps had not been taken or was reckless as to whether or not they had been taken. The answer to that question requires me to reconstruct the state of Mr Mather’s mind in December 2009 and again in November 2010. That involves an assessment of his witness evidence when considered in the context of the evidence overall, including the contemporaneous documentary evidence and the likely realities.

This is not a case where Mr Mather was cross-examined on the basis, or there was otherwise evidence, that he was acting in a deliberately dishonest way, with a view to financial or other personal gain. There is no evidence or basis for any suggestion that he was being bribed by JCS to issue Bldg Regs final certificates which he knew full well he ought not to have issued. Moreover, the Bldg Regs final certificates in themselves were of no use to JCS without ZBG also issuing building warranty certificates. It followed, as Mr Asquith submitted, that if bribery was the motive it would have to have involved Mr Nicholls at the very least, and probably Mr Eadsforth as well, as the building warranty surveyors who signed off the individual flats as complete so that the building warranty certificates could be issued. Yet the claimants have not pleaded or set out to prove that these witnesses were also dishonest.

It follows, in my view, that the crucial question is whether or not Mr Mather was genuinely unaware that ZBG as a whole had not taken reasonable steps to satisfy itself that the Bldg Regs had been complied with at the time he issued the Bldg Regs final certificates. I have to be satisfied that he positively knew that reasonable steps had not been taken or, alternatively, suspected that reasonable steps had not been taken but consciously chose not to investigate further.

Mr Mather disclaimed any knowledge of any inadequacy on the part of the ZBG warranty surveyors in the performance of their role. His evidence was that he relied upon their having properly discharged their role when issuing the Bldg Regs final certificates. His evidence was also that he relied upon the accuracy of what he was told by the representatives of JCS with whom he had dealings. In so far as it was put to him that he was also personally at fault his overall approach tended to be to deny any personal blame.

As Mr Selby QC submitted, there were many occasions during his evidence when he was unable to give any sensible explanation for specific matters which were put to him. There was a dogged

Moreover, it was clear that he was not always completely candid, whether in his contemporaneous actions or in his evidence in this case. His explanations to Mr Cairns in relation to his involvement with flat 126 in January 2010 and his letter to Manchester Building Control in the same month seemed to me to be less than candid. His evidence as to his never issuing cover notes manually was in my view untrue. His evidence as to whether or not he had physically inspected the development in September 2010 varied. Whilst I am not suggesting for a moment that he was a thoroughly dishonest witness I do not consider that I can rely upon him as a convincing or reliable witness in relation to key issues in the case.

I heard from all of the experts who had produced joint and separate reports with the exception of ZIP’s fire expert, Mr Pagan, who ZIP elected not to call, and both the ZBC claimants’ and ZBC’s building control experts, Mr Conlon for the claimants and Mr Easton for ZBC. The ZBC claimants decided that they did not need to call Mr Conlon or to cross-examine Mr Easton on matters of remaining disagreement because they did not consider it necessary for me to make findings in their favour on those disputed issues, relying instead upon the large measure of agreement reached between the experts in their joint statement and upon what Mr Easton said in his report. That was a sensible approach which Mr Asquith rightly did not criticise in any way.

I accept the claimants’ submission that it is not necessary or appropriate for me to make findings in relation to the remaining expert witnesses as to whose evidence I prefer in general, as opposed to in relation to whose evidence I prefer on the specific items in dispute. That is because, as Mr Selby submitted, it was apparent that all experts who gave evidence had genuine expertise, were genuinely independent and generally were doing their best to assist the court. As is always the case, some of the experts were more familiar than others with the whole process of acting as an independent witness including giving oral evidence and, as a result, were more polished both in their written expositions and in oral evidence. However, it would be wrong to conclude that as a result their expert evidence on the substantive issues was to be preferred, rather than engaging with the merits of the evidence which they gave. Some of the experts were also more argumentative than others and, at times, needed to be reminded to answer the question and to refrain from unnecessary comment or advocacy. That is always more concerning, but I did not think that any of the experts crossed the line in a serious or persistent way into arguing their client’s case or forgetting their overriding duty to the court. Whilst I have taken that where appropriate into account when considering their evidence on the individual issues it is not in my view a reason for preferring the evidence of one over the other wholesale.

Finally, I thank all of the experts for participating so fully in the joint discussions and the production of joint statements which made my task and, I am sure, that of the parties much easier. In particular both the parties and I owe a debt of gratitude to the quantity surveying experts, who put in a huge amount of time and effort in the run-up to trial and at trial itself in order to reach a large measure of agreement on figures as figures, without which it would have been very difficult to see clearly the financial wood from the trees.

History of the development and subsequent relevant events

JCS was a company which undertook a number of residential developments in the Greater Manchester area. Its active shareholder was a Mr Jason Alexander and its two funding shareholders were Mr Chandravadan Mehta and Mr Sunil Mehta. In December 2003 it obtained outline planning permission for the development to be known as New Lawrence House. In summary, the plan was to build around 150 separate flats in 5 four-storey blocks on a site fronting City Road, in a location approximately a mile from the Manchester city centre on the borders of Hulme in Manchester and Stretford in Trafford. Although the area was less immediately attractive than other development areas closer in to the city centre, particularly given its relative distance from the city centre and its immediate location, which estate agents might somewhat optimistically have described as “up and coming”, nonetheless it was sufficiently close to further education facilities to attract students looking for flats to rent and the cheaper land values in the area permitted two bedroomed flats to be constructed and marketed for sale, with the benefit of car parking facilities in an undercroft type semi-basement area and some associated green space, at similar prices to one bedroomed flats with fewer facilities in more desirable areas.

After securing planning permission nothing of any significance happened until 2006, when JCS secured funding from the Bank to construct the development and was able to start making detailed preparations.

JCS assembled a team of professionals to design and manage the development. The project team assembled by JCS included a firm known as Halliday Meecham as the project architects, a firm known as ROC Consulting as the project structural engineers and a firm known as Williams Engineering as the project M&E consultants.

JCS also needed to secure an insurance company which would provide building warranty type insurance policies without which no mortgage company would lend on the security of the flats. At this stage ZBG was still offering its Standard 10 product to developers and builders such as JCS and was also still offering an approved building inspector service. JCS decided to use ZBG both to provide building warranty insurance policies and also building inspection services for Bldg Regs approval purposes. ZBG was only prepared to issue policies in respect of developments constructed by approved builders and so JCS applied for and successfully achieved membership status with ZBC as an approved builder in June 2007. ZBC was also duly appointed the approved inspector for the development, giving an initial notice to Manchester Building Control in September 2007. I refer further to the activities of ZBG below and in more detail in section 4. JCS marketed the flats on the basis that on completion it would provide a new home warranty from ZBG and this was written into the sale contracts, which provided by clause 14 that: “the property is covered by Zurich Municipal New Build Building Guarantee Scheme. The seller undertakes to deliver to the buyer’s solicitor relevant Zurich documentation on or as soon as practicable after the date hereof”.

The Bank instructed a firm of quantity surveyors known as Watts to provide monthly progress reports. Their first report dated September 2007 referred to the commencement date as June 2007 and the planned completion date being October 2008. The reports provide a valuable monthly snapshot and some useful photographs of the construction process from month to month.

Before all this happened JCS also made arrangements with a number of agencies which specialised in securing buy-to-let investors for developments such as New Lawrence House. One such was an agency known as Assetz which introduced a number of the individual leaseholders to the development. As was common, JCS planned to sell individual flats off-plan well before the development was completed. The agencies explained that the flats would come with a letting agent in place, being an associated company of JCS, and also with a tenant already found and, as a result, would achieve a guaranteed rental from the outset. Assetz was also in the habit of recommending a Manchester firm of solicitors known as Birchall Blackburn to undertake the conveyancing for their clients and many, although not all, did so.

In preparation for achieving off-plan sales JCS used the services of a firm of solicitors known as Ramsdens, based in Huddersfield, to undertake the conveyancing process. As early as October 2006 they produced a general information sheet which was intended to answer the standard enquiries before contract without the need for a specific request. It included a copy of the draft sale contract and a copy of the draft 125 year lease to be entered into on completion. It stated that JCS had applied for registration with ZBG and explained that the draft sale contract made provision for the production of the cover note and certification. It did not however make express reference to Bldg Regs approval or to the appointment of ZBC in that respect.

It appears that a revised version was produced in November 2009 which stated as follows:

“4.

Guarantees:

The seller has registered the development with Zurich Municipal, and the production of the necessary cover note and certification is covered in the draft contract supplied.

…

6.

Planning and Bldg Regs Approval:

…

Zurich Municipal has been appointed as an approved inspector for the purpose of the building regulations. The issue of the cover note will accordingly provide confirmation of compliance with these regulations.”

In my judgment, it is clear that the “certification” referred to in section 4 is the building warranty documentation, not a Bldg Regs final certificate. Furthermore, section 6 referred to the cover note as providing confirmation of compliance with the Bldg Regs. Whether or not that was strictly correct, since the cover note simply provided confirmation that cover would be provided under the building warranty, what is clear is that it made no reference to any Bldg Regs final certificate.

Whilst I shall refer to the leases in more detail at section 6 below it is convenient to refer to the sale contracts at this stage.

Taking the example of Dr Ikpeme and flat 66, where contracts were exchanged in January 2007, the sale contract provided, as relevant, as follows:

ZBG’s involvement in the supervision and certification of the development

That is because he also manually issued cover notes on 7 December 2009 in relation to flat 134 and on 11 December 2009 in relation to flat 139 in similar circumstances. A manual cover note must also have been used in relation to flat 126, a ground floor flat in Block E, where a cover note was issued by Mr Mather on 29 January 2010 despite the absence of render and where in January 2010 there was an unremedied defect dating from June 2009, so that this cover note could not have been issued through the system.

It follows, I am afraid to say, that I am satisfied that Mr Mather’s initial evidence in crossexamination, that he could not remember having done that, that he could not think why anyone would want to do it, that he never did it whilst a warranty surveyor and that he would not issue one, was simply not true and that at least in relation to flat 126 I am satisfied that he consciously manually issued a cover note knowing that he could not have issued it through Live 27. I reach this conclusion because it is apparent that Mr Mather must have attended site on this date, even though he had not recorded this attendance in the Live 27 system. Since he was undertaking a building warranty function and not a building control function, he must have needed to access Live 27 to see what defects were marked as unremedied. Moreover, he could not simply have missed the absent render unless he was aware that he had not done anything like a proper inspection.

In his closing submissions Mr Asquith submitted that it was unfair to make adverse findings against Mr Mather in relation to the cover notes, because they did not form part of the pleaded case as against ZBC. I accept that there is no pleaded allegation against Mr Mather in relation to the cover notes. However in my view the circumstances in which he came to issue the Bldg Regs final certificates in December 2009 cannot be divorced from his overall knowledge of and dealings with the development in this period and it does not seem to me to be unfair to him to consider how his evidence overall is consistent with the clear documentary evidence in relation to the production of these cover notes, particularly in circumstances where he began his evidence by denying that he had ever produced manual cover notes.

Moreover, although I am reluctant to make adverse findings against Mr Nicholls when they were not expressly put to him, it is clear from the documentary evidence that he was also prepared to manually issue cover notes at a time when the stage 08 inspection had not been undertaken.

The inevitable inference it seems to me is that both Mr Mather and Mr Nicholls were prepared to do so in the face of – I have no doubt – pressure from JCS in order to achieve completions on the basis of assurances from JCS that any outstanding items would be attended to. I am satisfied that by December 2009 Mr Mather was so desperate to be finished with this development and so pressured by JCS to issue cover notes so that they could get on and complete their sales that he was prepared to issue cover notes manually even where there were unremedied defects on the system in the hope that JCS would remedy all items within a short timeframe so that they could be signed off and final building warranty certificates issued.

More concerningly, in the light of the references to the lack of protection to exposed steelwork within Live 27 in relation to the common parts, he was asked whether he would have checked this before issuing a cover note. He replied that he would have if it had been brought to his attention. It plainly had been brought to his attention by the letter from Manchester Building Control. As I have said the Live 27 records an entry for the common parts for 23 June 2009 which states: “Repaint all steelwork exposed as discussed”. There is no evidence that this had been attended to prior to 11 December 2009 and, as I have said, the defect was not marked as rectified until September 2010.

The evidence relating to the individual claimants

Mr Tarasov

In December 2009 JCS began to press for completion to take place. In February 2010 Mr Syed asked for inspection facilities. On 17 February 2010 Ramsdens as JCS’ solicitors sent the claimant a notice to complete. By March 2010 Mr Syed was aware that there were unfinished works within the flat from his visits between exchange and completion. One particularly serious problem was that there was no balcony and it was apparently possible to open the french doors and step out and fall to the external ground below, which was an obvious source of danger. Mr Syed complained both to Manchester Building Control in what must have been February 2010. They responded on 1 March 2010, explaining that ZBC had certified the flat and suggested he obtain a copy of the Bldg Regs certificate to confirm that it related to the same flat. They also suggested that he should consider obtaining a survey and seeking legal advice in relation to the obligation to complete. Mr Syed said in cross-examination that he was not in a financial position to obtain a survey and JCS re-assured him that alternative fixed frame windows with opening frames would be provided to assuage his concerns.

Ms Horley

Mr Sugarman

Ms Whale

Mr Roberts

Mr Kraftman

Mr Spadaro

Mr Manchikalapati

Mr Montgomery

Mr Mills

Mr Creber

Please confirm that on exchange of contracts/services of notice to complete you will supply a new home warranty provider’s cover note. Please supply a draft of the cover note for our approval.”

Mr Husain

Ms Tanti-Apichart

Mr Bartlett

Mr Emin

Ms Goldman

Ms Bedi

Mr Dickie

Other individual leaseholder claimants not called

Zagora

It follows, I accept, that when Mr Broadhurst visited New Lawrence House on 11 April 2013 and spent around two hours at the site, this was clearly on the basis that he was already looking for unfinished and/or defective work which might form the subject of a claim against ZBG. His email to the Bank of Ireland of 12 April 2013 shows that he had already identified a number of building works issues, including fire protection issues and issues with the existing roof and elevations which required further investigation which, he expected, would exceed the figure of £200,000 previously

I also accept Mr Broadhurst’s evidence that having heard of the absence of lifts and render preexchange and completion and being aware of the possibility of further potential breaches of Bldg Regs he was not particularly troubled, because he believed that Zagora would be able to ensure that any non-compliant elements of the development could be remedied without undue difficulty and the cost recovered, whether by way of service charge against the individual leaseholders or against ZBG under the warranty or in a claim for negligent certification. Indeed, the view of Zagora preexchange and completion was that this was, if anything, a positive discovery, given the opportunity to generate more revenue from such matters.

ZBC’s case is that Zagora could not have relied upon the Bldg Regs final certificates in circumstances where it already knew, pre-purchase, that the lifts had not been installed and the render was incomplete. However, I do not accept that Zagora positively knew that the absence of lifts and/or render meant that in the circumstances no reliance could sensibly be placed on the adequacy more generally of the inspections undertaken by ZBC which had led to its signing off the

All of the leases granted by JCS to all of the leaseholders, including the leaseholder claimants, were in the same form. Each lease was made between JCS as the landlord, the individual leaseholder as the tenant and LHM as the management company. The lease comprised an introductory part, containing the details to be filed at the Land Registry, the substantive lease, three plans and four schedules. They contained the following material provisions:

7 The terms and proper construction of the policies

The policy terms

I have already summarised in section 3 at [3.27] the general nature and effect of the building warranty policies issued by ZIP.

As I also said in section 3 at [3.4] above, once JCS successfully achieved membership status with ZBG as an approved builder in June 2007 ZBG was willing to issue building warranty policies to individual purchasers of homes within JCS’ developments. The detail of the contractual arrangements as between JCS and ZBG have not been referred to during the course of trial. For present purposes it suffices to say that ZBG agreed to issue policy documentation to individual purchasers as notified to it by JCS once its building warranty surveyor had inspected and confirmed that the home was completed in accordance with the requirements to be found in the ZBG technical manual.

There was no pre-existing contractual relationship between ZBG and the individual purchasers thus the first document which the latter would be likely to receive was the cover note, in those cases where one was necessary, transmitted by ZBG to JCS and then sent on by Ramsdens as JCS’

Below these details the cover note stated: “This is confirmation that our surveyor has carried out a final inspection on the above plot and that Zurich agrees to issue the insurance certificate, provided the developer is on the Zurich directory as at the date of exchange of contracts with the first owner and full payment has been received. This will be sent direct to the developer and to the purchaser’s solicitor / conveyancer where notified. The cover commences from the date shown on the insurance certificate.”

The cover note did not, therefore, purport to be the insurance policy, nor did it identify the insured by name. This of course is not surprising since completion of the individual flat would not have occurred until after the cover note had been issued. Payment was made by JCS rather than the individual leaseholder. Presumably it was paid by JCS from the proceeds of sale on completion, which is why the sale contracts provided and the case was that the formal insurance certificates were only sent on by Ramsdens to the individual leaseholder’s conveyancing solicitors after completion.

On this development two insurance certificates were issued in respect of each flat. The first in time for the majority of flats was headed “for new home excluding common parts” and the second was headed “for common parts only”. The initial certificate had a note at the foot stating: “If your new home is a flat and this certificate excludes common parts, a separate certificate will be issued for the common parts. The certificate will not necessarily be issued at the same time”. Other than these differences the two certificates were in identical terms.

All of the certificates identified JCS as the developer and identified what was referred to as the “new home” by flat number and stated the name of the “buyer” of that new home. They each had a separate unique certificate number and specified their effective date. They also each stated: “see schedule and endorsements overleaf”. The sample versions produced are headed “buyer copy” so that, presumably, further copies were issued to JCS as the developer.

The evidence is that a certificate was issued to each of the individual leaseholders and also in relation to each of the flats where JCS subsequently granted a lease to CJS (although the latter have not been placed in evidence). There is no suggestion or evidence that separate certificates were issued addressed to JCS in its capacity as original freeholder or to Freehold Managers when they took over the freehold or subsequently to Zagora.

The note at the foot of each certificate stated:

“This is to verify that the new home described above has been found acceptable for insurance. We therefore agree that the protection offered in the policy, as shown in the schedule overleaf, comes into force from the effective date shown above. Note: the policy is automatically transferable and therefore new certificates are not required for the successors in title.”

The schedules identified that cover was provided under what was identified as Parts 1, 2 and 4 of what was described as “your Standard 10 policy”. Part 1 was entitled “building period insurance” and is not relied upon or relevant to this case. Part 2 was entitled “developer’s warranty” and referred to section 2 of the policy, stating the applicable excess as being “£100 indexed for each and every item of claim or £500 indexed in total”. Part 4 was entitled “insurance cover and our responsibilities” and referred to section 3 of the policy, stating the applicable excess as being “£1,000 indexed for each and every item of claim”. It also included a specified endorsement which stated: “New home excludes basements /semi basements unless shown for residing / sleeping purposes in plans deposited with the local planning authority before the building period certificate date”.

The schedule also stated that no cover applied in respect of Parts 4 (“manufacturer’s warranty”), 5 (“environmental impairment insurance”) or 6 (“additional insurance cover”) and I need make no further reference to those sections. Part 7 was entitled “conditions” and referred to the conditions section of the standard 10 policy. Finally, Part 8 was entitled “exclusions” and referred to the sections of the standard 10 policy identifying “what we will not pay” and to the endorsements below, of which only one is relevant which was a specific exclusion for “balcony decking”.

It is common ground that the “Standard 10 policy” was a reference to the document produced by ZBG and entitled “ZBG standard 10 new home structural defects insurance policy”. This would have been sent to the individual leaseholders along with the insurance certificate in the pack sent to their conveyancing solicitors after completion. It extended over 15 pages, beginning with an introductory page (also headed “ZBG standard 10 new home structural defects insurance policy”) and continuing with a definitions section before proceeding to set out the cover provided under sections 1 to 4, of which as I have already noted above only sections 2 and 3 are relied on and relevant to this case, before finally concluding with the conditions section.

The introductory page stated that the full details of cover were to be found in the policy wording, the definitions and conditions, the certificates and any endorsements printed upon them. It stated that the policy was an insurance contract between the buyer and ZBG, entered into by the developer on behalf of the buyer, and that the policy was not valid unless accompanied by an insurance certificate. The introductory page also stated that the insured could only claim under the policy whilst it was the current buyer and could not make or continue a claim once it had sold or otherwise disposed of its interest in the new home. The buyer was defined as “the person having a freehold, commonhold, leasehold or tenancy interest in the new home for the time being or any mortgagee in possession excluding the developer, builder, directors, partners, and their relatives and associated companies, and all those involved with or having an interest in the construction or sale of the new home”. The developer was defined as “the person or company named in the certificates from whom the first buyer acquires the new home or who undertakes the work of building the new home for the buyer”. The insurance certificate was defined as “the certificate issued by ZBG to signify acceptance of the new home for insurance under the policy [which] may be endorsed to include or exclude specified items from cover”.

It is clear in my view from the terms of this introductory section when read with the certificates that: (a) ZIP was issuing cover to individual buyers of individual flats pursuant to a prior agreement with and at the direction of JCS as the developer; (b) the insured was the original buyer; (c) the

It is also clear, as I have already said, that the original developer and those associated with the original developer were excluded from cover. This would apply, as is common ground, to CJS. There is no evidence that JCS was entitled to call for an insurance certificate to be issued to it in its capacity as freeholder. Nor is there any evidence that ZIP would have been required to have issued an insurance certificate to a third party unconnected purchaser of the freehold interest from JCS in respect of that freehold interest.

The cover applied only to a “new home”, defined in the definition sections as “the new property … described in the insurance certificate”. It was expressly provided that it included 7 identified elements, of which the first and by far the most important so far as this case is concerned is the

“common parts”, which was itself a defined term to which I shall refer shortly. There was a long list of identified elements which were not included in the definition of a new home, including as relevant to this case: (i) lifts; (ii) basements or semi basements unless shown for residing or sleeping purposes in the plans deposited with the local authority.

Common parts were defined as “those parts of a multi-ownership building (of which the new home is part), for a common or general use, for which the buyer has joint responsibility together with other buyers or lessors”.

Under section 2 of the policy ZBG agreed to pay during the first two years after the effective date:

“2.1

The reasonable cost of rectifying or repairing physical damage caused by the developers failure to comply with the requirements in the construction of the new home.”

“Physical damage” was defined as “a material difference in the physical condition of the new home from its intended physical condition. For the avoidance of doubt, physical damage includes major physical damage” (I shall refer further to major physical damage under section 3 below).

The “requirements” were defined as “the requirements contained within the technical manual issued by [ZBG] and in force at the time when the appropriate notice to build in respect of the new home was deposited with the local authority for the purposes of the Bldg Regs”.

ZBG also agreed to pay (Footnote: ⁶):

“2.3

The reasonable cost of rectifying a present or imminent danger to the physical health and safety of the occupants caused by the failure of the developer to comply with the Bldg

Bldg Regs were defined as those governing the construction of the new home in force at the time the notice to build was deposited with the local authority. The 7 items beginning with “structure” were, as is well known, the 7 parts of the applicable requirements contained in Schedule 1 to the Bldg Regs with which, by regulation 4, building work was required to be carried out so that it complied.

ZBG also agreed to pay:

“2.5

The reasonable cost of alternative accommodation where the new home is not fit for habitation as a result of the carrying out of remedial works by us covered under the terms of this policy provided that you have first obtained our written consent to such costs being incurred” (clause 2.4).

“2.6

Professional fees incurred in connection with your claim, provided that you have first obtained our written consent to such costs being incurred.”

On the other side of the same page there then appeared a number of bullet point items under the heading “What we will not pay under section 2”. These included the following which are of potential relevance to this case:

Under section 3 ZIP agreed to pay during the subsequent eight years:

“3.1

The reasonable cost of rectifying or repairing major physical damage which is caused by a failure by the developer to comply with the requirements in the construction of the new home.”

“Major physical damage” was defined as “a material difference in the physical condition of a load bearing element of the new home from its intended physical condition which adversely affects its structural stability or resistance to damp and water penetration” and “requirements” had the same definition as under section 2.

ZIP also agreed to pay:

“3.2

The reasonable cost of rectifying a present or imminent danger to the physical health and safety of the occupants caused by the failure of the developer to comply with the Bldg Regs in respect of the following: structure, fire safety, site preparation and resistance to moisture, hygiene, drainage and waste disposal, heat-producing appliances, glazing – safety in relation to impact, opening and cleaning.”

This, therefore, was identical to the cover provided by clause 2.3 of the policy. ZIP also agreed to pay the reasonable cost of alternative accommodation and professional fees, in precisely the same terms as under sections 2.4 and 2.5 above.

Again, on the other side of the page appeared a list of items which ZIP would not pay, in substantially the same terms as those applying to section 2. The only relevant difference was that instead of “any claim reported for the first time to the developer or to us more than two years after the effective date” the relevant item was “any claim that could reasonably have been reported in writing to the developer or to us within two years of the effective date but was not reported to the developer or to us”.

Finally, there were a number of conditions applying to all claims under the policy, including the following:

“1.

Claims notification. On discovery of any item of claim you shall as soon as reasonably possible: (a) take all reasonable steps to prevent further loss; (b) where section 2 applies, ensure written notice has been given to the developer; (c) give written notice to us; (d) if requested by us and at your expense, submit in writing full details of the claimant supply all reports, plans, certificates, specifications, quantities, statutory notices or other information and assistance as we may reasonably require to verify the claim. Where we subsequently accept the claim, we will reimburse the reasonable expenses incurred in obtaining such reports.”

“2.

Our rights. Where we accept a claim under this policy, we and the developer and our agents shall be entitled to have reasonable access to the new home and shall also be entitled to remain in occupation for as long as is necessary in order to carry out proper repairs to our satisfaction.”

“3.

Recoveries from Third Parties. We are entitled to take proceedings at our own expense, but in your name, to secure compensation from any third party in respect of any claim accepted by us under this policy.”

There are a number of significant issues as to the proper construction of certain elements of the policy, which I shall now address.

In the same way as with the leases the construction of the policy is governed by the principles applicable to the interpretation of contracts generally as summarised by the Supreme Court in Wood v Capita Insurance Services Limited [2017] UKSC 24 at paragraphs 8 – 15. The established rules are considered in a number of the established textbooks and I have reminded myself by reference to the summary in chapter 3 of Colinvaux’s Law of Insurance 11^th edition.

In submissions the claimants contended that the proper construction of the policies ought to proceed from the premise that the policies were, putting it in broad terms, intended to provide effective building warranty insurance to individual flat owners both for their individual flats and for their common parts and that any particular terms of the policy which might have the effect of abrogating or limiting or restricting that cover in a material degree ought to be given a restrictive interpretation. In contrast, ZIP contended that this was a straightforward insurance policy entered into between an insurance company and individual property owners which contained a number of detailed terms and conditions which ought to be construed in accordance with their natural and ordinary meaning and without any presumption about what the policy “ought” to cover.

This point is addressed in Colinvaux at 3-011, where it says:

“English law does not recognise the concept that the policy must be construed in accordance with the reasonable expectations of the assured, although it has been said that a policy should be construed other than in a way which would “unwarrantably diminish the indemnity which it was the purpose of the policy to afford. In some cases, however, the wording may be so clear that the court is constrained to construe them as they stand even though the result might not be commercially sensible ...”

It appears to me that the approach in this passage strikes the right balance. The starting point is the natural and ordinary meaning of the words used, which cannot be overridden by an argument that they should be construed in accordance with what the assured may reasonably have believed was being provided. However, where the words used leave reasonable room for doubt as to what was intended, a construction which would unreasonably limit the scope of the cover which it was the clear purpose of the policy to provide is to be avoided. That applies particularly where the insurer has put forward a policy which contains exclusions from cover which is otherwise afforded which are genuinely ambiguous, since the “contra proferentum” rule “consists of two quite distinct limbs:

It is however important to note that this is not a case in which the majority of the claimants, being buy-to-let investors, can seek to place reliance on the Unfair Terms in Consumer Contracts Regulations 1999 (now replaced by the Consumer Rights Act 2015). Moreover, although in their written closing submissions the claimants suggested that reliance could be placed on those Regulations by the two claimants who bought flats for occupation, in oral closing submissions they acknowledged that the Regulations could not be used to seek to construe core provisions of the policies so as to secure cover greater than that which was afforded on a proper construction of the policy.

There is a further general point as to the proper construction of the policies which is or may be relevant to a number of the debates in this case which I should address, which is the difference between cases where loss is caused concurrently by an insured and an uninsured peril and cases where a loss is caused concurrently by an insured and an excluded peril. The difference, as is made clear in the discussion in Colinvaux at paragraphs 5-057 to 5-061, is that in the former case the claimant can recover whereas in the latter case the claimant cannot: see Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corp [1974] QB 57. (This point, it should be observed, is a separate and logically subsequent question to the question as to whether or not there was only one or more than one proximate cause, since if there is only one proximate cause the simple question is whether that is an insured cause or an uninsured or excluded cause: see the discussion in Colinvaux’s Law of Insurance 11^th edition at 5-039 to 5-056.)

In this case it is not as easy as it might be to identify whether the items listed under the side of the

Claims relating to CJS and other non-claimant new homes

It is common ground that the claimants cannot recover under the policy for claims which relate solely to new homes owned by CJS or others and which do not relate to the common parts. In its written closing at [20] ZIP identifies one example, being service installations solely serving the flat in question.

However, it also identifies the doors to the flats as another example. That seems to me to be wrong because although the external doors to the flats are not expressly identified as being within or without the demise, in contrast to the internal doors which are expressly identified as being within the demise, the walls which enclose the flat are specifically excluded and the repairing covenant in clause 7.5.1 prohibits the tenant from decorating any part of the exterior of the flat “including the exterior of the external doors of the flat”.

Furthermore, ZIP contends that the claim for work to the compartment walls dividing the common parts from the individual flats cannot include any work to the internal sections of those walls. Again, however, that seems to me to be wrong. As I have said the walls which enclose the flat are specifically excluded from the demise and the only items expressly included within the demise are the “linings and surface finishes including lath plaster and board of the interior of all walls”. It appears from the information available in the Edwards reports, helpfully summarised for me by the parties after closing submissions, that between the flats and the common corridors the mode of construction (running from inside the flat outside) is a single stud wall comprising: (a) 2 layers of plasterboard; (b) wall cavity with mineral fibre quilt; (c) single timber stud with OSB, whereas between adjacent flats the mode of construction is a double stud wall comprising: (a) 2 layers of plasterboard; (b) timber studs with mineral quilt fibre between studs; (c) OSB; (d) wall cavity; (e) wall cavity. Whilst I agree that it would appear to follow that the inner layer of plasterboard would fall within the demise, there is nothing to prevent the necessary remedial work being undertaken to the external layer of plasterboard and/or to the OSB on the common corridor. If, as ZIP contend, the remedial works have been built up and costed on the basis that the works will be undertaken to the inner linings, there is no basis for thinking: (a) that the works cannot be done leaving the inner layer unaffected and, if so: (b) that the cost will be any less. Given that these works are undoubtedly necessary in order to ensure that the present or imminent danger to occupants of all flats (not just CJS flats) is maintained so that occupants can safely exit via the common corridors forming the means of escape, there is no reason to proceed on the assumption that CJS could effectively frustrate these remedial works or that ZIP could avoid liability to pay for them.

ZIP also appears to contend that in any event it would not be required to make good the internal sections of those walls, insofar as they relate to CJS flats. I am satisfied that this argument is unsustainable. It seems to me to be necessarily implicit in the cover provided by the policy that making good is included unless specifically excluded. That is particularly so where the lease requires making good where access is required to other flats to undertake remedial works. The only specific exclusion which ZIP might otherwise rely upon is that excluding “reinstatement of any areas not directly affected by physical damage or major physical damage”. However, I am satisfied that this cannot apply to making good works to areas which are directly affected in that they have to be removed to allow remedial works to be undertaken.

It follows, I am satisfied, that the premise to the contention at [22] of ZIP’s written closing that the claimants can recover nothing in respect of work to the compartment walls, because the work claimed for includes work which they are not entitled to recover, is not made out.

In its opening submissions ZIP also appeared to argue that the works relating to the ceilings and floors, such as the provision of missing insulation above the fourth floor flats and the provision of effective fire stopping of the services installations passing through from CJS flats down to the basements was not covered. However it is plain that the floors and ceilings other than the surface finishes do not form part of the demise and, for the same reasons as given above in relation to the compartment walls, I reject these arguments.

Common parts

It is clear that there are two separate elements to the definition, so that to fall within the definition

Thus the debate has turned more upon the application of this provision to the particular terms of the lease, to which I have already referred above. Given my conclusions above as to the width of the management company’s obligations and given also (and separately) my conclusions as to the width of the management company’s discretion in relation to undertaking works to address the defects complained of in this case, even if they do not fall within the scope of its obligations, in my view it is plain that all of the relevant parts of the development which are not within the individual flats in respect of which claims are made in this action fall within the definition of common parts under the insurance policy. For the avoidance of doubt, this applies not only to the common parts as defined under the leases but also to the structural parts and the retained parts insofar as on a proper construction of the leases some or all of them are outside the lease definition of common parts – that being because there is no reason to treat the definition of common parts under the policy as necessarily equating to what may be a more restrictive definition of common parts under a particular lease of a particular block of flats.

Major physical damage – what is a load bearing element?

There is a debate between the parties as to the meaning of the phrase “load bearing element”. A number of possibilities have been advanced. The most restrictive definition is that it only applies where the element bears the load of another element of the new home. The intermediate position is that it is sufficient if it bears any load, including loads imposed by the elements or by the occupants. The most expansive definition is that it is sufficient if it merely bears its own load. I am satisfied that the intermediate position is the correct one, so that in principle a load bearing element is an element which bears the load of another element of the new home or a load imposed by the elements or by the occupants but not one which bears solely its own load. As a matter of language, an element bears a load if it bears a load imposed from another element but also if it bears a load which may be transient, caused by the elements such as wind, water or snow, or by occupants of the building, so long as it is designed to bear such loads. In contrast, the most expansive definition would deprive the words in question of any real significance, in circumstances where it is plain from a comparison of the definition of major physical damage and the definition of physical damage that they were intended to have effect. It is a matter of fact and degree whether or not the

In its written closing submissions ZIP also contends at [65] that an element which simply transfers load from one element to another element is not a load bearing element. I disagree. It is important to construe the words in their context. As I have said, the definition of major physical damage: is “a material difference in the physical condition of a load bearing element of the new home from its intended physical condition which adversely affects its structural stability or resistance to damp and water penetration” (emphasis added). In contrast, the definition of physical damage is “a material difference in the physical condition of the new home from its intended physical condition”. It follows in my view that if the effect of structural instability or lack of resistance to damp and water penetration of the element in question has no impact on anything other than the element itself it is unlikely that the element could be regarded as load-bearing. By contrast, if the effect of structural instability or lack of resistance to damp and water penetration of the element in question does impact on the structure of the new home, then the element is likely to be regarded as loadbearing. Analysed in this way, structural instability of or damp or water penetration to an element which transfers load is just as serious as structural instability of or damp or water penetration to an element which bears load, since if it cannot safely transfer the load then the element imposing the load which it is intended to transfer is at risk.

I derive some support for this construction from the Zurich technical requirements, which is clearly a relevant constructional tool because it is referred to in clause 3.1 which provides the cover for major physical damage, and which states, in the context of steel frames at p.204, that: “load bearing walls should be designed to support and transfer loads to foundations safely and without undue movement” and that “suspended floors should be designed to support and transmit loads safely to the supporting structure without undue deflection”. The transfer and transmission of loads are clearly regarded as important functions for load bearing walls and suspended floors.

Moreover, as the claimants submit, it is also important not to seek to subdivide individual parts of one composite element in an artificial and strained manner in order to seek to deny cover on the basis that the particular part is not, viewed in isolation, a load bearing element. This issue arises in particular in relation to the roof and I shall discuss the application of the definition to the particular parts of the structure at the appropriate part of the judgment, since it is a fact specific question which can only be determined on the particular facts of the particular question where it arises.

Physical damage or major physical damage – what is the intended physical condition?

There is a debate between the parties as to whether the definition applies to what may colloquially be described as design defects. This debate is of particular significance to the cold roof construction of the blocks, where ZIP contends that the roof was designed to have a cold roof construction even though its own experts agree that it was wholly inappropriate to do so in the way in which it has been designed and/or constructed in this case, namely as an unventilated cold deck. The question is whether there is cover where the element is in its intended physical condition, even though that intended condition arises from defective design or a defective construction process which is contrary to the ZBG requirements and which adversely affects its structural ability or resistance to damp or water penetration. ZIP argues that there is no cover in such circumstances whereas the claimants argue that there is cover.

In my judgment the claimants are right on this point. If the scope of the cover under section 3 is read as a whole it applies where there is a material difference in the physical condition of a load bearing element of the new home from its intended physical condition, which adversely affects its structural stability or resistance to damp and water penetration and which is caused by the developer’s failure to comply with ZBG’s requirements in the construction of the new home. A failure to comply with ZBG’s requirements due to design errors is not excluded. It can be seen from a cursory reading of the ZBG technical manual that it includes design obligations as much as it does construction obligations. One sees, for example, page 268 dealing with flat roofs which makes it clear that flat roofs should be designed as either warm deck roofs or ventilated cold deck roofs. ZIP cannot sensibly argue in my judgment that on an objective interpretation of the policy there would be no cover if that specific design obligation was not complied with. It seems to me that the intended physical condition is the condition which, considered objectively, complies with the ZBG requirements. It is the material difference between that intended physical condition and the actual condition which has been caused by the failure to comply with the requirements which triggers the cover. I do not accept that there is no cover where there is the intentional adoption of a defective design mode or a defective construction mode which, judged objectively, would produce a physical condition which was contrary to the ZBG requirements. In my view the intended physical condition must be the physical condition which was intended to result from compliance with the ZBG requirements.

ZIP contends that the intended physical condition is to be determined by reference to the original

I have to confess that I am happy to be able to reach this conclusion. It seems to me to be inconceivable that any other sensible construction could have been intended. On ZIP’s construction there would be no cover if a developer built, deliberately, to a design which he knew would breach the ZBG technical requirements and would make the building structurally unsafe. I am surprised, frankly, that ZIP felt it appropriate to argue for such a construction. I very much doubt that it would have done so had it still been offering these policies to the market.

Present or imminent danger to the physical health and safety to the occupants

There is a debate between the parties as to what is meant by a present danger to the physical health and safety of the occupants of the new home and what is meant by an imminent danger to the physical health and safety of those occupants.

In my view this is a classic case where the ordinary and natural meaning of the language used directs the result. A present danger is one which is actually occurring at the time in question, even if it is not known about. An example would be if the supports of a tread in a fire escape staircase had so decayed that the tread was liable to collapse if used by occupants evacuating the building. An imminent danger is one which is not present but which requires something else to happen which can properly be said to be imminently about to happen. An example would be if the supports of the tread in the above example had almost but not quite decayed so that at some stage in the near future the tread was liable to collapse. In contrast, if the supports of the tread were liable to decay due to, for example, damp conditions within the staircase, but had not actually decayed to the point where it could be said that there was any imminent danger of collapse, that would not fall within the scope of the cover.

It follows, in my view, that the claimants cannot succeed simply by pointing to the fact that due to a failure to comply with Bldg Regs a part of the structure will inevitably fail at some stage during the lifetime of the building. The claimants can only succeed if they can show that during the lifetime of the cover provided by section 3, i.e. within years 3 to 10 inclusive of the effective date, there is a present or imminent danger which entitles them to make a claim.

However ZIP takes a number of further points.

The first is that it is only the reasonable cost of rectifying the present or imminent danger which is covered, so that temporary measures which rectify the present or imminent danger, even if they do not remove the danger completely, are sufficient.

I do not accept this argument, which seems to me to seek to ascribe too much weight to the words

“present or imminent”. In my judgment those words are present in the clause to make it clear, as I have said, that dangers which may be present or imminent at some time in the future but which are neither present nor imminent as at the current time are not covered. Once, however, a danger is present or imminent then it is the reasonable cost of rectifying that danger which is covered, rather than the reasonable cost of temporary measures so that the danger is, whilst those temporary measures continue, neither present nor imminent. Whilst of course it will be a question of fact in any individual case whether or not the measures proposed satisfy the requirements of the section, in my view the starting point is that the measures proposed ought to be measures which ensure that the relevant part or parts of the building comply with the applicable Bldg Regs.

The second is that it is only the reasonable cost of rectifying present or imminent danger to “occupants”. It follows, it is said, that any attempt by the claimants to rely on dangers to the occupants of flats other than their own flats is not permissible nor, for example, is any attempt to rely on a danger, for example, to workmen walking on the roof.

It seems to me that this is a bad point because it sets up a false distinction. Since the new home includes the common parts it seems to me that any occupant of a flat is of course entitled to use the common parts. There is no reason why that should not extend to the common parts in respect of which there is a right or an obligation to repair. Thus, dangers to those on the roof for lawful purposes, which would include occupants and would also include contractors engaged by occupants, whether directly or indirectly through the management company, are covered.

Again I am pleased to be able to dispose of what I regard as an unattractive point to take.

Indemnity only if rectification or repair works will be undertaken?

This is a fundamental issue as between the parties. The claimants’ case is that they are entitled to recover the reasonable cost of rectification or repair, as the case may be, under the applicable sections of the policy without either first having to undertake the works or second having to prove that they intend and/or are actually in a position, financially or otherwise, to undertake the works. In contrast, ZIP contends that the policies do not respond to claims for the cost of works that will never be carried out, for whatever reason.

This is also an important point, because it forms a major plank of ZIP’s case that the claimants cannot recover in this case because they will never, due to their financial position and the financial arrangements they have entered into for the funding of this case, be in a position to undertake any repairs covered by the policies.

It is clear that the decision to this issue depends upon the proper construction of the policy. In that respect I have found very useful the discussion in Colinvaux’s Law of Insurance 11^th edition chapter 11 - Loss and the Measure of Indemnity. In section 2 - the measure of indemnity, a distinction is drawn between valued and unvalued policies. This is of course an unvalued policy. In relation to such policies, the overriding principle of indemnity is stated at [11-025] to be that the insured is entitled to be indemnified for his loss and no more. However, at [11-026] it is said that “unless an option to reinstate has been exercised, the insurers are required to make a money payment to the assured and the assured is entitled to use the monies as he thinks fit even though he has been indemnified on a reinstatement basis”. It is noted at [11-027] that there are frequently clear words in an insurance policy which identify the measure of indemnity, such as by reference to reinstatement or repair costs. In an Australian case there cited, an argument by the insurers that there was an overarching rule that the assured was to be held to the difference between the market value of the property before the casualty and its market value after the casualty was rejected. It is said at [11-028] that in the absence of any policy terms which fix the measure of indemnity, the guiding indemnity principle is to be satisfied by reference to the nature of the loss in the value of the damaged property to the assured immediately before the loss.

At [11-031], to which my attention was drawn by the claimants in their closing submissions at [391], it is said, importantly, that:

“… the assured may be entitled to recover an indemnity based on the cost of reinstatement even though reinstatement is never actually effected. That will be the case where the policy provides that the assured or the insurer, as the case may be, opts for indemnity on a reinstatement measure or where reinstatement is not possible. If the policy merely provides for reinstatement without any alternative, it is difficult to see why impossibility should affect the insurers’ obligation to indemnify the assured on a reinstatement basis: the loss is assessed by reference to the position immediately before the occurrence of the insured peril, the obligation to pay is divorced from what actually happens to the insurance monies and the obligation on the insurers to pay the insurance proceeds cannot be regarded as frustrated in any way. The point arose in Anderson v Commercial Union Assurance Co (1885) 55 LJQB 146, the problem in that case being planning restrictions on reinstatement. The Court of Appeal held that, given the impossibility of reinstatement, the proper approach was to construe the contract between the parties to determine whether the insurer was discharged from all liability or whether its liability reverted to payment. The court had little hesitation in holding that the latter was the proper construction. Thus, subject to the terms of the policy, the insurer will be liable on a cost of reinstatement basis even where actual reinstatement is no longer possible, as for instance where the damaged premises have been sold, or where town planning restrictions prevent rebuilding, in which case the cost is assessed on a notional reinstatement basis.”

In their closing submissions at [391.2] the claimants referred me to the decision of Jefford J in Hodgson v NHBC [2018] EWHC 2226 (TCC). In that case, which concerned a claim made by an insured against the NHBC under a previous settlement agreement (under which, according to the claimant, the NHBC had agreed to deal with a claim brought against it under the NHBC insurance policy on its merits), she had to address a submission by the NHBC that the claim should be struck out on its Part 24 summary judgment application because, after the settlement agreement had been entered into, the claimant had sold the property and, hence, could not now undertake any remedial works. It was submitted to her that the analysis in Colinvaux at [11-031] was inconsistent with the observations of Christopher Clarke LJ in Great Lakes Reinsurance v Western Trading Limited [2016] EWCA Civ 1003 and should be rejected.

She summarised the facts of the Great Lakes case and cited Christopher Clarke LJ’s observations (as relevant to the issue before her) in the following terms:

“25.

… In that case, a property was unused and awaiting redevelopment: it was insured for over £2 million which was its estimated rebuilding cost but its market value was only £75,000. The policy included a memorandum including a reinstatement clause that defined reinstatement as rebuilding to the same condition as when new and a special condition that no payment beyond the amount payable under the policy would be payable for reinstatement until the cost had actually been incurred. The property burnt down. Since no reinstatement had been carried out, the court had to consider what would have been payable under the policy if the memorandum had not been incorporated. Obiter, Christopher Clarke LJ expressed this view:

“72.

I doubt whether a claimant who has no intention of using the insurance money to reinstate, and whose property has increased in value on account of the fire, is entitled to claim the cost of reinstatement as the measure of indemnity unless the policy so provides. …. The true measure of indemnity is “a matter of fact and degree to be decided on the circumstances of each case” per Forbes J in Reynolds v Phoenix; and is materially affected by the insured’s intentions in relation to the property.

The significance of intention begs the question as to (a) what exactly is the requisite degree of intention; and (b) what safeguard, if any, is available to an

… The problem arises in a case such as the present where there is a real

As to (a) it seems to me that the insured’s intention needs to be not only genuine, but also fixed and settled, and that what he intends must be at least something which there is a reasonable prospect of bringing about (at any rate if the insurance money is paid).

As to (b) an insurer who pays out has, in general, no redress if none of the money is used in reinstatement. Once he has got it, it is for the insured to decide what to do with it… But I incline to the view that, in a case where, at the time of the hearing, there is a real possibility that reinstatement may not in fact occur it is open to the court to decline to make an immediate award of damages and either to make some form of declaratory relief, alternatively to postpone assessment of the extent of indemnity (and the payment of it) until such time as it is apparent that reinstatement (i) can and (ii) will go ahead or, at least that there is a reasonable prospect that it will.”

At [36] of her judgment, having already rejected the NHBC’s application on the basis that it was at least arguable that the claim under the settlement agreement was unaffected by the subsequent sale of the property, she proceeded to state her view if she was wrong on the conclusion she had just reached as follows:

“36.

If that is wrong, then the issue between the parties is what the NHBC is now liable to pay under the Policy. There seem to me to be numerous issues that potentially arise, the end result of which is that the “no loss” defence is not one suitable for determination on a summary basis:

(i)

firstly, an insurance policy may indemnify the insured against loss. Under such a policy it is a question of law and fact what loss has been suffered. The policy may by express inclusion or exclusion identify how loss is to be assessed.

(ii)

There is no decided authority that where the claim is in respect of defects in or damage to property, such loss cannot include the cost of remedial works if the remedial works will not be carried out. The views expressed in the Great Lakes case are obiter and at odds with the views expressed in a leading textbook.

(iii)

That conflict of view is perhaps understandable if one sees the cost of remedial works as one measure of loss. In such cases, if the remedial works are never to be carried out or are wholly disproportionate, the court may regard the cost of

remedial works as an inappropriate measure. That is likely to be a question of fact and degree not suitable for determination on a summary basis.

(iv)

In any case, the distinguishing feature here is that the Policy does not provide for the NHBC to indemnify against loss – rather it requires the NHBC to pay the Cost as defined. In that sense, it may be distinguished from the policy in the Great Lakes case in which the operative insuring provision insured against loss and the reinstatement clause provided the basis on which the amount payable was to be calculated. For the reasons I have already given, it is certainly arguable that the issue in this case is not the appropriate measure of loss but what the NHBC has undertaken to pay in accordance with the definition of Cost.”

Since this observation is strictly obiter, and since Jefford J was saying no more than that it was at least arguable, for the purposes of a summary judgment application, that the obiter observations of Christopher Clarke LJ on the facts of that particular case might not dictate the outcome on the facts of the case before her at trial, what she said is plainly not in any way determinative of the issue before me. However her analysis is, if I may respectfully say so, illuminating in drawing attention to the need to focus on the particular terms of the policy in question, in a case where the relevant terms of the NHBC policy bear close similarities to those of the instant policies.

In this case, the policy clearly provides that ZIP “will pay … the reasonable cost of rectifying or repairing the physical damage [or] the reasonable cost of rectifying a present or imminent danger”. Accordingly, this is not, unlike the Great Lakes case, an unvalued policy which contains no express provision as to how the indemnity is to be ascertained. On the contrary, it is a policy which contains an express reinstatement clause under which ZIP binds itself to pay the reasonable cost of rectification or repair.

There is no express provision in the policy stating that this obligation only applies either if and when rectification or repair has already taken place or if the insured can prove that he has a genuine, settled and achievable intention to reinstate, either before payment or once payment is received. The obligation is to pay the “reasonable cost” which, in my view, is neutral as to whether it is a cost already incurred or a cost to be incurred or indeed a cost which may never in fact be incurred. Unlike the professional fees cover the word “incurred” is not used. Unlike the alternative accommodation and professional fees cover there is no express proviso that the insured has first obtained ZIP’s written consent to the costs being incurred.

Furthermore, there is no obvious reason why the provision should be construed so that any such limitation should be implied. Indeed it is far from obvious, even on ZIP’s case, what should be implied. Is it that: (a) the cost has already been incurred or; (b) that the cost will on the balance of probabilities be incurred and, if the latter, whether it will be incurred regardless of whether or not the insurance monies are paid out or; (c) both.

Moreover, in my view condition 2 is wholly inconsistent with ZIP’s construction. It entitles the insurer, on accepting a claim, to undertake proper repairs itself and to refuse to accept a claim if reasonable access cannot be gained within a reasonable time period. This condition, which is effectively a reinstatement option given to the insurer, would make no sense if the insurer was only liable where the works had already been undertaken.

Whilst the wording used in some of the exceptions or limitations could be argued as only applying

In the circumstances, I reject ZIPs submission that the reference to “costs” means that the policy only responds to a claim where those costs have already been incurred or will be incurred, where the question as to whether or not those costs will be incurred must be determined by the court on the balance of probabilities. In short, I consider that the approach discussed by Christopher Clarke LJ in Great Lakes has no application to the facts of this case.

On the same basis I also reject ZIP’s submission that because, it is said, the sums claimed are unreasonable and wholly disproportionate to the diminution in value of their interests in the development the claimants should be limited to the diminution in value. However, as it transpires in my view ZIP can achieve the same result by the application of what I agree, for the reasons stated below, is the correct construction of the maximum liability provision.

The meaning of “reinstatement of any areas not directly affected by physical damage / major physical damage”

ZIP contends in its closing submissions at [41-43] that where, as in the case of the unprotected structural steelwork, cover is provided for the cost of protecting the structural steelwork, whilst that cover will include the cost of accessing the structural steelwork by removing the external sections of the walls and roof necessary to access the structural steelwork, it will not include the cost of replacing those external sections since they have not been directly affected by physical damage or major physical damage.

The first issue which arises is whether or not this exclusion applies in the case of present or imminent danger claims. I am quite satisfied that it does not. The cover provided is for the reasonable cost of rectifying a present or imminent danger. It cannot credibly be contended that the cost of rectifying the danger does not include the cost of making good to areas disturbed in order to gain access to the areas which need to be worked upon. If that was so, it would apply to any insurance policy and I am unable to accept that any equivalent clause in any insurance policy could be construed in such a manner. ZIP has referred me to no authority in support of such a contention. This conclusion alone disposes of the argument in relation to the unprotected structural steelwork.

The second issue which arises is how this exclusion applies in the case of physical damage or major physical damage claims. The definitions of physical damage and of major physical damage necessarily involve that either some element of the new home in the former case or some loadbearing element of the new home in the latter case are materially different from their intended physical condition and that the insured is entitled to the reasonable cost of rectifying or repairing that element. In the absence of this exclusion it is clear, for the same reason as given above, that the reasonable cost would include the cost of making good to areas disturbed in order to gain access to the element which needs to be worked upon. The question is whether this exclusion is properly to be construed as meaning that the insurer is not liable for such making good. In my view it cannot credibly be contended that it should be construed as having such effect. In my view an area is directly affected if it has to be removed to allow access to the element in order to rectify or repair that element and, therefore, the exclusion does not operate to permit the insurer to require the insured to pay for the cost of making good.

Is compliance with the claim notification conditions a condition precedent to cover?

Insofar as this point is argued and maintained I address it as follows.

Colinvaux at 8-026 says as follows:

“A condition precedent may be created in a number of ways: the consequences of a breach of condition may be spelt out; the condition may be described as a “condition precedent”; the policy may contain a general clause which describes all conditions as conditions precedent; or the wording or the significance of the condition is such as to lead to the conclusion that it was intended to be a condition precedent.”

Here it is said by ZIP that the consequences of the provisions in sections 2 and 3 are spelt out (“we will not pay”). It is clear that ZIP cannot make the same argument in relation to condition 1 and further that condition 1 is neither described as a condition precedent nor is there a general clause to that effect. In relation to condition 1 ZIP would have to show that the significance of the condition is such as to lead to the conclusion that it was intended to be a condition precedent. The obvious difficulty for ZIP is that clause 1 contains at least 5 separate obligations, of varying significance. In the circumstances I am satisfied that it is not a condition precedent to liability.

No issue arises in relation to section 2.

In relation to section 3 the claimants do not contend that it should not be regarded as a condition precedent. They do however submit that it can only apply strictly in accordance with its terms, read with condition 1, so that the question is whether any claim falling within section 3 “could reasonably have been reported in writing to JCS or to us within two years of the effective date”. They submit that this can only apply “on discovery of any item of claim” (as per condition 1) and, hence, that actual as opposed to constructive notice is required. I agree.

I add only that there is a good reason for giving this exclusion a narrow construction, which is that

Does the proportionate share limitation apply to present or imminent danger claims as well as major physical damage claims?

In my judgment it plainly does not. The policy is quite clear that this limitation only applies to major physical damage claims. It cannot be suggested by ZIP that this is a mistake. It makes obvious sense that an individual flat-owner should be entitled to have a present or imminent danger to the physical health and safety of the occupants of the flat rectified where it relates to the common parts without running the risk that s/he will be unable to fund those works because not all of the affected flat-owners are also insured or ready, able or willing to make a claim.

Moreover, if the claimants are entitled to bring their claim within this section of the policy then it is irrelevant that the claim could also be made or even has been made under the major physical damage section of the policy as well. The claimants are entitled in my judgment to elect under which section of the policy they wish to make such claim and seek judgment upon and, if doing so under the present or imminent danger section is more beneficial, to choose to do so. ZIP cannot insist on treating such a claim as having been made under that section of the policy which is financially more beneficial to itself.

Colinvaux addresses this point at 5-039 as follows:

“… If there is only one cause of loss the assured is free to classify that cause as he thinks fit so as to bring it within the terms of the policy: Capel Cure Myers Capital Management Co Ltd v McCarthy [1995] L.R.L.R. 498.”

The maximum liability provision

The maximum liability provision was stated to apply specifically to sections 2 and 3 of the policy. Whilst the claimants contend that on its true construction it provided an overall limit of £25 million and, hence, is of no importance on the facts of this case, on ZIP’s case it limits each of the claimants to the value of the purchase price of their flat and, therefore, excluding the value of the CJS and other non-claimant flats. On that basis, taking the figure provided in ZIP’s closing submissions, the total limit on the claim would be £3,634,074.65, which is very significantly less than the full value of the claim.

“Maximum liability” was a defined term which, in view of the importance of the argument raised, I must set out in full.

“Our maximum liability in respect of all claims under Sections 2 and 3 of this policy is as follows:

(a)

for a New Home which is entirely detached, the purchase price declared to Us, subject to a maximum of £25 million;

(b)

for a New Home which is part of a Continuous Structure, the maximum amount payable in respect of the New Home shall be the purchase price declared to Us subject to a maximum of £25million.

Where the combined value of all New Homes within a Continuous Structure exceeds £25million, the total amount payable by Us in respect of all claims in relation to the New Homes and the

Continuous Structure shall not exceed £25million.”

A Continuous Structure was defined as:

The claimants’ case is that this imposes a maximum liability of the lower of the total purchase price of all flats within the development or £25 million in relation to any claim concerning any one continuous structure i.e. any one single building and thus including, in this case, the connected blocks of flats forming part of this development. I was provided with a schedule showing that the total purchase price paid for all of the flats was only £10,846,076.65 so that, if the claimants are right, this would be the maximum liability on any one of their claims. On that basis, the effective cap is £25 million.

ZIP’s case, in contrast, is that the definition at (b) means that there is a maximum liability in relation to any claim made by an individual leaseholder of the declared purchase price of the flat in question, with the result that the total maximum liability in this case is the total of the declared value of the 30 flats in respect of which claims are made by the individual leaseholders. On that basis, the effective cap is £3.634 million.

The claimants contend that ZIP’s argument ignores the proviso to (b), which they say is intended to make clear that in the case of a continuous structure where there are common parts, the purchase price limit applies only to the new home itself and does not apply to claims in relation to the common parts.

The difficulty with the claimants’ reliance on the proviso, in my view, is that the opening words to the proviso make it clear that it only applies where the combined value of all new homes within the continuous structure exceeds £25 million. The purpose of the proviso, therefore, must be to limit the total value of all claims made in relation to any one continuous structure to £25 million, even if the combined value of all of the new homes within that continuous structure exceeded £25 million and therefore, on a straightforward application of (b), the total claim could exceed £25 million.

Although the claimants contend that if the proviso was to be interpreted in this way it would be meaningless, in that it is difficult to imagine a continuous structure with a combined value of £25 million, that is by no means obvious. For example a similar size development with an average price per flat of £250,000 would qualify, and it would make perfect sense that this was, as its wording indicates, the intended purpose of the proviso.

However, the claimants also argue that on a proper interpretation of (b) the maximum amount payable only applies to the new home itself, and not to any claim in relation to the common parts. Their argument is that where a new home is part of a continuous structure there is a clear separation in the policy as between the new home itself and the common parts. Their argument is that the proviso, by referring separately to claims in relation to the new homes and claims in relation to the continuous structure, expressly acknowledges that claims in relation to the continuous structure, which they say can only be claims in relation to the common parts, are separate and distinct from claims in relation to the new homes themselves. Their argument is that since (b) only refers to the maximum amount payable in respect of the new home, it cannot have been intended - in direct

This is an ingenious argument, but in response, ZIP reminds me that the definition of the new home specifically includes the common parts. In other words, the common parts are not treated separately in the policy from the new home. They say that in the face of this clear definition it cannot credibly be argued that a separate approach should be adopted in relation to the construction of sub-clause (b) simply through a side-wind in the proviso. This is a powerful argument which, in my judgment, must prevail unless it can be said to be plain and obvious that clause (b) when construed with the proviso can only have the effect for which the claimant contends.

It cannot be said, in my view, that clause (b) when construed with the proviso does have that clear and unambiguous meaning. Indeed if one considers the definition of a continuous structure it is obviously not the same as the common parts. It is either a single building containing more than one new home (where the definition of each new home includes the common parts) or a single building containing a new home and other parts of the building used for other purposes. On either analysis the reference to continuous structures in the provision cannot be read as if it meant common parts. It seems to me that the more likely reason why the proviso makes express reference to continuous structure is to make it clear that it covers any other parts of a building not falling within the definition of new home.

I am aware that it may be said that – depending on my findings in relation to the insurance claim below –this limitation will operate harshly upon the claimants. If the actual cost of remedial works is say £10 million but they can only recover say one third of that then that is a real problem for them. That of course is a matter of concern. However, it must be borne in mind that the principal reason for the problem in this case, namely the fact that some two thirds of the flats were sold to and have been retained by an entity and by individuals connected with the developer who are, therefore, unable to make their own claim under a policy, is not one which would have been foreseen as particularly likely nor of course is it the fault of ZIP in any way. To the contrary, it does not seem to me to be obviously unreasonable for ZIP to wish to limit its cover for what was a 10 year policy for a one-off premium to the original purchase price, even if it did include cover for the common parts. That is so even though, as Mr Selby reminded me in closing submissions, condition 10(c) provides that the policy terminates automatically once the maximum liability has been paid.

However, in my view it follows from the definition of maximum liability and condition 10(c) that the maximum liability limitation is the last limitation to operate. It is not open to ZIP to contend for example that the excess provision should apply to reduce the amount payable below the declared purchase price.

Claims or contributions to claims where some other form of compensation or damages is available

The context is that ZIP contends that this exclusion applies in a number of ways. In relation to the leases it contends that the claimants (both the individual leaseholders and Zagora) have the right under the leases to require LHM to undertake the necessary works, that the individual leaseholders have the right under the leases to require Zagora to do so, and that all have the right to seek a contribution from CJS and the other non-claimant leaseholders. ZIP also contends that some of the claimants have claims, and of course have pursued those claims, against ZBC.

The claimants contend that even though the words “some other form of compensation or damages” are wide words, they cannot possibly extend to a right under a lease to require a tenant or a management company or a landlord to perform its obligations under that lease in relation to repair and the like or in relation to the payment of service charge. I agree. In my view the words must be construed by reference to the whole of the clause, which provides that ZIP does not have to pay “any claim or contribution to a claim where cover is available under another insurance policy or where some other form of compensation or damages is available to you”. This must mean a claim to compensation or damages which is substantially the same as the cover available under the policy. It cannot extend to a claim to enforce a right to contribution under the provisions of the lease, which is neither “compensation” nor “damages” nor is it some other form of compensation or damage of the same character as cover under another insurance policy.

Moreover, if it did have this effect, it would deprive what I am satisfied must have been an intended difference between major physical damage claims and present or imminent danger claims, in terms of the proportionate share limitation, of any practical effect. In my view it is proper to interpret this provision narrowly, since it operates not simply to reduce the claim against ZIP by reference to what the insured has in fact already recovered from the other source or, for example, to require the insured to take reasonable steps to obtain monies from that other source and to give credit for any recoveries secured, but to prevent the insured from bringing any claim at all where that other source is available.

Of course in relation to a major physical damage claim the proportionate share limitation would

In relation to a present or imminent danger claim, whilst on my analysis a tenant can recover the full cost from ZIP, that does not mean that a tenant has some other form of compensation or damages available to him as against CJS or the other tenants in relation to the amount which CJS or the other tenants ought to pay in order to meet their share of the service charge obligation. Leaving aside the prior point that in my view the proper interpretation of the clause would not cover such a claim, in my view it could in any event only apply in circumstances where it can be said that it would be reasonable for someone in the position of the claimants to make such a claim instead of claiming under the insurance policy. That is because if I am wrong in my prior analysis the word “available” must connote that a reasonable assured ought, on an objective analysis, to make such a claim on the basis that it would succeed and that he or she would recover compensation or damages. That is particularly so since of course not only is there no provision for ZIP to fund any such claim but nor would the costs be covered under the policy if the claim was made but proved unsuccessful for any reason. In contrast, condition 3 of the policy entitles ZIP to “take proceedings at our own expense but in your name to secure compensation from any third party in respect of any claim accepted by us under this policy”.

Here, CJS is a limited liability partnership which is in administration. It follows that it would be necessary for an individual tenant or for LHM or for Zagora to seek and obtain the agreement of the administrators to make a claim, failing which the permission of the court to bring proceedings against CJS would have to be obtained. ZIP contends that there is no good reason why an administrator should not agree or why any court should not give permission, in circumstances where the administrators have the benefit of these flats and ought to pay their fair share of the liabilities to which all flat-owners are subject. ZIP also contends that there is every reason to believe that the administrators would meet CJS’ liability, in circumstances where if they did not do so it would be open to the claimants to enforce the liability by obtaining charging orders on the flats and selling them. As against this the claimants contend that given the hurdles which they would have to surmount and the risks they would have to take, all at their expense, any claim to compensation against CJS is not, in all of the circumstances, something which is reasonably available to them.

These points made by the claimants are compelling and I accept and prefer them. What ZIP would effectively be requiring the claimants to do is either to fund two thirds of the cost of undertaking works to remedy a present or imminent danger and then to seek by litigation to compel the administrators to pay their share or to defer undertaking such works until it has obtained the funds from the administrators up front. Unless the Bank was prepared to put the administrators in funds, which can by no means be guaranteed, the only way in which the funds could be provided would be by voluntary sale of the flats or the claimants also being permitted to enforce by forfeiture or possession and sale. There can be no guarantee that the court would sanction this.

In my view where, as I accept, there is reasonable doubt as to the availability of a realistic remedy against CJS, the tenants ought to be entitled to recover under the insurance policy in full on the basis that ZIP has its own express subrogation rights against CJS in any event. Mr Baatz invited me to clarify whether or not these findings also apply to the rights which the individual leaseholders have under the lease as against LHM (as management company) and/or Zagora (as landlord). I can confirm that they do on the basis that on my analysis of the leases the fundamental problem from a commercial perspective is that there is no basis for enforcing these liabilities unless or until either it could be said that LHM or Zagora could or should have obtained a recovery from CJS of its proportionate share or that the individual leaseholders should have advance funded that proportionate share in the hope or expectation that LHM or Zagora could then have recovered from CJS and refunded them. For the same reasons I reject any argument that the individual leaseholders have failed to act reasonably to mitigate their loss. I am not satisfied that ZIP has identified or put a case to each of the individual leaseholders and to Zagora which I am able to accept that, on a true analysis of the terms of the leases and by reference to the financial and other positions of those parties as well as LHM and CJS at the relevant times, either that it would realistically have been possible for CJS’ share of the costs of the works to have been recovered from CJS or from LHM or Zagora in default or that the individual leaseholders acted unreasonably in not following these routes to recovery instead of pursuing their claims against ZIP.

ZIP also contends that the claims which the claimants have against ZBC also fall within the scope of this provision. I reject this argument for the following reasons. Firstly, I do not accept that this provision, on a proper analysis, can extend so far as to require a tenant to take on expensive and risky litigation against a third party in the position of ZBC. I have no doubt that it would not be

Basement and other specific exclusions

The definition of the new home makes it clear that it does not include basements and semibasements. Whilst the car park is not a fully enclosed basement, and is open sided on one side at least, described by one of the valuers as an undercroft, it is plainly a semi-basement. Although the claimants say that it also falls within the definition of an attached or integral garage, it does not seem to me that the car parking spaces in the basement could possibly fall within that definition.

It follows that the real question is what happens where, as here, the basement, which is expressly included, forms part of the common parts, which are expressly included: does the inclusion or the exclusion apply? The general rule is that where an event is within the general cover but also within the exclusion from cover it is not covered. However, that general rule is inapplicable here where, as a matter of construction, the common parts fall within a list of positive inclusions rather than a statement of general cover.

In my view the inclusion prevails over the exclusion. That is because if it had been intended that, in a common parts case, basements should nonetheless be excluded it should have been expressly so provided. The two are not mutually exclusive and it cannot be said from the wording that it is plain and obvious that the basement exclusion prevails over the common parts exclusion. Apart from anything else it would be wholly unsatisfactory if there was no cover for major physical damage or present or imminent danger where a defect in a basement was a real danger not just to those using the basement for common purposes but also to the safety of occupants of the flats above.

There is also an exclusion for retaining walls. There can be no dispute that retaining walls are indeed excluded save where they form part of or provide support to the structure. It does follow that any claim relating to any element of the development which can properly be characterised as a nonstructural retaining wall cannot succeed. The same is true in relation to the exclusion for wear and tear, neglect, lack of maintenance scratching, chipping, staining, fading, efflorescence, changes in colour, opacity or texture.

The balconies

It is common ground that the balconies themselves are not excluded from cover whereas, as provided in the endorsements to the insurance certificates, the balcony decking is specifically excluded. However, there is a dispute as to whether, as ZIP contends, the balconies form part of the demise of the flats and do not fall within the common parts or whether, as the claimants contend, they do not form part of the demise and fall within the common parts. The dispute is material in that if ZIP is right then it is clear that the individual leaseholders can only recover in relation to the cost of rectifying the balconies which form part of their flats and, accordingly, cannot recover in relation to the cost of rectifying the balconies which form part of the CJS or other non-claimant flats.

The starting point is the terms of the leases. The flats are defined “as described in part 1 of the first schedule and shown edged red on plan 2”. As the claimants submit, plan 2 clearly does not include the balconies as being within the property edged red. Nor does the balcony feature in the list of items specifically included in part 1 of schedule 1. Moreover, as the claimants submit, the definition of the structural parts includes the exterior of the building and the exterior glazing and exterior doors, door frames and window frames, so that it would be anomalous if the balconies fell outside of that definition. This is also consistent with the repairing obligations imposed upon the tenant under clause 7.5.1, which specifically prevents the tenant from decorating “any part of the exterior of the flat including the exterior of the external doors of the flat”.

However the question arises that if the balcony is not included in the demise of the lease then how does the tenant have the right to use the balcony. The answer it seems to me appears from part two of the first schedule to the lease, in which the tenant is granted the right, subject to and conditional upon paying the service charge, of “(5) all other rights easements quasi rights and quasi easements as are now enjoyed by the flat in respect of any other part of the development”. Given that the individual balconies can only be accessed through the individual flats to which they relate it appears to me that they fall within this wide clause.

It also follows, in my view, that the balconies are included within the repairing obligation imposed upon the management company in respect of the retained parts under clause 8.6 of the lease, as well as the repairing obligation in respect of the services under clause 8.1 of and the second schedule to the lease.

However ZIP submits that even though on this analysis the balconies fall within the definition of the common parts under the leases they do not fall within the definition of the common parts under the insurance policy. Mr Baatz submits that to fall within the definition they must fall within the first part of the definition, namely “those parts of a multi-ownership building for a common or general use”, as well as the second part, namely “for which the buyer has joint responsibility together with other buyers or lessors”. Mr Selby submits that it is sufficient if they are for a common use or for a general use. He submits that where, as here, the balconies are not within the demise of the flats and where: (a) the other tenants have rights under part 2 of schedule 1 of way and entry in relation to the balconies of the other flats for the specific purposes stated therein; (b) the landlord also has a right of way for all reasonable purposes in relation to the balconies of the other flats; (c) the management company has an obligation to undertake repairs etc in relation to the balconies and the right under clause 7.8 to access the balconies through the flat to do so, those rights are sufficient to bring the balconies within the common or general use requirement.

I agree with Mr Selby. It is clear from the express exclusion in relation to balcony decking that it was envisaged that balconies were intended to be covered. It is also clear that the policy does not expressly provide the answer to the question – what if there are parts of a multi-ownership building which are intended to be used for the enjoyment of the individual flat-owner but which are outside the demise and within the common parts under the lease and in respect of which the other tenants and through them the management company have repairing obligations and rights? In my view it cannot, objectively, have been intended that these parts would fall outside the policy as being neither part of the new flat as a demise or part of the common parts. The words “common or general use” are wide words which do not require that the use must be for the purposes of sole occupation or enjoyment and in my view use as being part of the structure and common parts in respect of which there are common or general repairing and ancillary access obligations is sufficient.

On that basis, it seems to me that insofar as the claimants are able to make a claim in relation to the balconies under the present or imminent danger cover provided by the policy, they are able to recover the full cost of rectifying that danger without the proportional share limitation applying. It also follows, however, that insofar as the claimants are only able to make a claim in relation to the balconies under the physical damage or major physical damage cover provided by the policy, the proportional share limitation will apply to that claim, which effectively produces the same result in relation to such claims as ZIP contended for, albeit for different reasons.

The condensation exception

In relation to some items of claim, in particular the roof and walls, the claimants’ complaint is that the primary consequence of the unventilated cold roof design and construction is that condensation has formed within the structure which has led to deterioration of and damage to the structure. ZIP contends that such claims are excluded by the condensation exception. In their opening submissions at paragraphs [158] – [165] the claimants advanced a number of reasons why this exclusion would not apply in a case where otherwise the claim would fall within the major physical damage or the present or imminent danger cover afforded by the policy. In summary, the argument is that if the presence of condensation is itself the cause of physical damage, major physical damage or present or imminent danger, and is itself the consequence of the developer’s failure to comply with the ZBG requirements or the Bldg Regs, then the presence of condensation in itself is not the proximate cause of the damage and, hence, the condensation exclusion does not apply. It is said that the condensation exception only applies to condensation which occurs other than due to the developer’s failure to comply with the ZBG requirements or the Bldg Regs and, thus, either to naturally occurring condensation or to condensation due to the occupant’s lifestyle.

Reliance is placed on the decision of Robert Goff J in Prudent Tankers Ltd S.A. v Dominion Insurance Co Ltd (The Caribbean Sea) [1980] 1 Lloyd's Rep. 338, where a ship had been insured under a policy which provided cover in respect of: “Any latent defect in the machinery or hull”, where the ship sank apparently due to a defect in a nozzle that had deteriorated over time and caused damage to adjacent parts thereby permitting water ingress, and where the insurers’ case was that the loss was caused by ordinary wear and tear, which was excluded. Goff J held that the enquiry that he had to undertake was to look for the proximate cause of the loss:

“In the present case, however, the casualty is not simply to be attributed to ordinary wear and tear. The defect upon which the owners rely consisted of the fatigue cracks in the wedge-shaped nozzle; and the presence of these cracks is to be attributed to two factors - the manner in which the ship was designed (viz., the welding of the gussets to the nozzle with fillet welds in proximity to the circumferential weld between the nozzle and the spool piece) and the effect upon the nozzle, in these circumstances, of the ordinary working of the ship. The result of this combination of circumstances was that the fracture opened up a significant period of time before the end of the natural life of this ship. I do not consider that recovery in respect of loss of the ship, consequent upon such a fracture, is excluded by

s.

55(2)(c) of the Act. Let me take the example of a ship incorporating such a design, which results in a far swifter development of fatigue cracking, and the sinking of the ship within, say, two years of her entering service. The loss could not, in such a case, have been proximately caused by ordinary wear and tear. It is not like a case where a ship's plating simply wastes away through rust, or a ship sinks through general debility.”

In this case, therefore, the claimants say that by parity of reasoning the proximate cause of the loss is not the mere presence of condensation, rather the effect that the condensation has upon the physical condition of the roof, itself caused by a breach of the requirements or regulations.

In contrast, ZIP contends that even if the claim would otherwise fall within the scope of the cover, any such claim is clearly excluded where it falls within the scope of the condensation exception. In support of its argument ZIP referred at [70] of its written closing submissions to its internal claims handling document, but it seems to me that this is plainly irrelevant to the proper construction of the insurance policy. In contrast, the ZBG technical requirements, being referred to specifically in the policy, clearly fall within the factual matrix and thus at least of potential relevance to the proper construction of the policy. They make a number of references to the need to design and construct the building in order to address the risks of condensation. It would, therefore, be surprising if a failure to comply with the ZBG requirements in such a way as to lead to condensation and to the major physical damage or present or imminent danger cover being triggered should then be excepted, but of course if the policy on its proper construction leads inexorably to that result then that result must follow, however surprising.

I prefer and accept the claimants’ case in this respect and am satisfied that in such cases the condensation exclusion does not apply. In my view this is because whether one considers this case as being one of proximate cause or concurrent causes the position is that the failure by the developer to construct the building in accordance with the ZBG requirements or the Bldg Regs is either the proximate cause or at the very least a concurrent cause of the loss. It is the proximate cause because without the failure by the developer it would not have happened. It is the concurrent cause because even if one takes the view that the condensation itself is also a proximate cause, again without the failure by the developer the loss would not have happened. Furthermore, upon a proper construction of the policy the condensation exception is not an exclusion, but simply an uninsured cause, whereas the major physical damage and present or imminent danger items are insured causes. Therefore, the loss is covered.

Excess

Excess is defined as “the first amount (indexed) of each claim which is payable by you for which no insurance is provided under this policy and which is specified in the insurance certificate”. The

It follows, contends ZIP, that in relation to every separate “item of claim” under section 3 the £1,000 indexed excess applies. There is no separate definition in the policy either of “claim” or “item of claim”. ZIP’s primary position is that each separate item of each of the Scott schedules is a separate item of claim to which a separate excess applies. ZIP also contends that the excess must be applied to each of the separate claimants in respect of each separate item of the Scott schedules. It follows, as can readily be seen, that if these arguments succeed the effect is very substantially to reduce the amount which it is liable to pay.

In contrast, the claimants submit in their written closing submissions at [384] that since each claimant is entitled to claim the entire cost of rectifying each defect, each claimant is jointly and severally entitled to judgment for the full remedial works cost claimed, with the result that each defect should be the subject of a single excess and not to multiple excesses by reference to the number of claimants. They make clear that this applies only to the common parts claims and accept - see [384.7] - that individual claims relating to individual flats are subject to a single excess per flat. They also submit that a more global view should be taken as to what are individual items of claim, so that the claim in Scott Schedule A, relating to the defective roof, is one item of claim, rather than a series of separate items of claim. On this analysis, they contend that there are only 13 separate items of claim relating to the common parts. They go on to submit that even in relation to these 13 items, if one claim is subsumed by another claim, or falls away as a result of the findings made in relation to another claim, then no excess applies in relation to those claims. Their case, if successful in relation to the key defects for which they contend, is that only 9 excesses would be applicable.

In my view there is a difficulty with the claimants’ analysis in relation to the application of excess to the common parts claims insofar as they are major physical damage claims, where there is a proportionate share reduction. Since each claimant is entitled to recover no more than his or her proportionate share of such claims it must follow that each claimant has a separate claim from the others. Since each policy is a separate contract between ZIP and the individual claimant it does not seem to me to be possible to say that there is a joint and several liability in relation to the proportionate share claims. It follows that the excess must apply to each claimant separately.

So far as the present or imminent danger claims are concerned I have already decided that the proportionate share reduction does not apply. On the face of it, therefore, each individual claimant is entitled to recover the reasonable cost of rectifying those dangers in full against ZIP. Strictly speaking, it seems to me that ZIP has a several, as opposed to a joint and several, liability to each claimant for the full cost of each claim item but, of course, ZIP cannot be liable for more than the full cost. It follows, it seems to me, that if ZIP is able to limit its overall liability to the amount of any one individual claimant’s claim, it cannot be entitled to claim to have the benefit of more than one excess. In relation to present or imminent danger claims, therefore, I accept the claimants’ argument.

However that leaves open the question of what is meant by each item of claim. In its written closing ZIP referred me to the decision of the Court of Appeal in Trollope & Colls Ltd v Haydon [1977] 1 Lloyd’s Rep 244, where the policy contained an excess clause requiring the insured to bear ‘the first £25 of each and every claim’. The insured building contractor agreed with the employer to build 481 houses with garages, and the buildings were defective in a wide range of respects, including resistance to water ingress. It was decided that an excess applied to each building.

Cairns LJ stated at p.249 column 1:

“… the matter does not depend on how the claims are formulated either by the [employer] or by the [insured]. It depends on whether the facts give rise to one claim or to more.”

He observed at p.249 column 2:

“If there were several defects at the same time in the same dwelling at the same time each contributing to rendering that dwelling unweathertight, I think it would be absurd to treat them as giving rise to several claims rather than one. At the other extreme, I think it would be absurd to treat all the failures and defects in all the buildings as giving rise to only one claim. Nor can I see that there is any justification for grouping together all the defects of a particular kind (such as leaking sills) in all the buildings and regarding them as giving rise to one claim.”

Shaw LJ said:

It is clear, therefore, that the question is fact sensitive. In my view it must be answered, as was the question in the Trollope & Colls case, by adopting a sensible rather than an absurd interpretation, having regard to all of the relevant circumstances and, in particular, the cover afforded by the policy, bearing in mind the distinction between cover for an individual flat and cover for common parts.

In my view, the sensible approach is one which focusses on the cover given. Thus, in relation to major physical damage to common parts, there is a separate item of claim for the cost of rectification or repair for each “element” of the building caused by a failure to comply with the ZBG requirements. Where for example the element is the continuous roof or the continuous external walls then that is one item of claim even where it could be said that separate areas of the roof or the walls are affected by the same failure. The same is true where there are a number of physically separate elements which are all affected by the same failure; it is one item of claim. In

Once I have addressed the individual claims, I will apply this conclusion to the claims which have succeeded.

Cover for the reasonable cost of alternative accommodation

The issue is whether or not a buy-to-let landlord who lets out the flat should be entitled to recover what is, effectively, a loss of rental income whilst the development has to be vacated. ZIP submits that they should not, because such claims are not, on proper analysis, the reasonable cost of alternative accommodation and additionally because of the exclusion of claims for loss of income, business opportunity or any other consequential or financial loss of any description.

In my view ZIP is right in this respect. It is difficult to see how any claim for loss of rental income does not fall within the exclusion.

Furthermore, there is a more fundamental objection to all of the claims, even those made by Mr Dickie and Mr Bartlett, who are not buy-to-let investors, which is that in my view section 3.3 only applies where ZIP has exercised its right to reinstate itself under condition two of the policy and ZIP’s written consent has first been obtained. Since ZIP has not made any election to reinstate itself, nor has it purported to reserve the right to do so, there are no circumstances under which this claim could arise. This is the case which was pleaded by ZIP in its response to Appendix 1 to the Particulars of Claim at paragraphs 7(a) and (c) and, in my view, is an insuperable objection to the section 3.3 claims.

Betterment

In a number of places within its written submissions ZIP has contended that where, for example, the claimants are held entitled to recover the cost of new cladding a discount for betterment ought to apply. There is no express clause in the policies providing for a discount for betterment and ZIP has referred to no authority in support of the proposition that an insurer under a policy such as this is entitled to a discount for betterment even where there is no express provision. Given that this is a contractual claim under an insurance policy where, as I have held, the insured is contractually entitled to the cost of reasonable reinstatement there is no basis for bringing in by analogy the principles developed in claims in tort or insurance claims where the insured was not contractually entitled to indemnity based on rectification.

Zagora’s claim under the alleged agreement to rectify

The chronology of events between Zagora’s acquisition of the development and the alleged agreement to rectify has been the subject of considerable detailed investigation and analysis, both in the pre-trial stages and at trial itself. Fortunately, there is a wealth of contemporaneous correspondence between those involved on both sides and little in the way of serious factual

As I have already recorded at [3.49] above, the correspondence begins with the letter from Mr Broadhurst written on behalf of Cobe to Zurich dated 18 April 2013.

In that letter Cobe introduced itself as writing on behalf of the “freeholder and individual tenants” of the building. In cross-examination Mr Broadhurst explained that he believed that Zagora had authority to make claims on behalf of all of the individual leaseholders given his belief that it was acting as the management company. He rightly accepted that he did not have express authorisation from all of the individual leaseholders to advance claims on their behalf under their policies with ZIP. The most that he could say was that he subsequently updated all of the individual leaseholders as to what he was doing and none expressly objected. He also said that as the claim developed it altered from one being made on behalf of the freeholder and the individual leaseholders to one being made solely by Zagora. This point is well made. It is clear that by the time David Robinson came to write the letter dated 2 July 2013 neither he nor Mr Parvin believed that any agreement which might have been reached involved a settlement of any claims which the individual leaseholders might have against ZIP or ZBC and that they were dealing and seeking to reach agreement with Zagora alone. In the circumstances it is unnecessary for me to consider whether any agreement which was reached was invalidated by any lack of authority from all of the individual leaseholders.

Although the letter began by referring to Zurich as having provided both a building warranty and as having provided building control services, the claim which was asserted related exclusively to alleged failings in relation to the provision of its building control function and there was no express mention at this stage of a claim against ZIP under the insurance policies.

ZIP responded on 1 May 2013. It was written by Mr Scott on behalf of ZIP’s property claims unit

Mr Broadhurst responded on 8 May 2013. He was unable to provide an insurance certificate number since Zagora did not, of course, have an insurance certificate. He did, however, provide a “sample Zurich guarantee for the common parts” as well as the Bldg Regs final certificates. He also attached a review of a building regulation compliance report obtained by Cobe from a practice known as Dunwoody dated 5 May 2013, from which ZIP would have been able to see that there were a significant number of areas of concern. He also referred to the structural steelwork having been tested and the white paint having been found not to be intumescent and therefore offering no

Mr Scott’s response dated 9 May 2013 said that ZIP had instructed Cunningham Lindsey to investigate. He also stated that since he understood that a claim was being made under the structural insurance section of the policy by all of the individual flat owners, each would be responsible for their individual excess of £1,211 under that section of the policy. Cunningham Lindsey wrote to introduce itself on 10 May 2013 and to arrange a visit and wrote a further introductory letter in standard terms on 15 May 2013.

By this stage Mr Parvin as the team leader for major loss claims had been made aware of the claim, given its potential value and complexity, but was not directly involved. David Robinson visited site on 17 May 2013 and conducted an inspection. Mr Broadhurst states that David Robinson was shocked at the state of the development. He followed up the meeting with an email to David Robinson of 20 May 2013, in which he made it clear that the claim was being advanced on the basis that the development was incomplete and a risk to health and safety. A further site meeting took place involving Mr Broadhurst, David Robinson and Mr David Reid, a member of ZIP’s major loss team working under Mr Parvin’s control, on the following day, 21 May 2013. Mr Parvin would undoubtedly have been briefed on developments and would, as he said, have been aware that the state of the development as regards the safety of its occupants was a matter of concern.

On 22 May 2013 Mr Broadhurst met with representatives from Manchester City Council housing department and the Fire Service at the site and was made aware, and duly informed David Robinson, that although the Fire Service was not intending to serve a prohibition notice the Housing Department was intending to serve an improvement notice under the powers conferred by s.7 Housing Act 2004. That notice was duly prepared and issued on 30 May 2013. It required Zagora, as the freeholder, to undertake remedial works as specified in the notice to remedy the hazards also specified. Zagora was required to begin remedial works on 1 July 2013, which included undertaking works to ensure that the structure to the common areas obtained a minimum of one hour’s fire separation, and to complete them within a further 90 days. The principal hazard specified was that of fire, the deficiency being an “indication of the common area structure not compliant to one hour fire separation (exposed steelwork not protected …)”, although further hazards were specified in relation to defects in the staircases and roof leaks. The principal action specified was to “undertake works to ensure that the structure to the common areas attains a minimum of one [hour] fire separation”. Failure to comply was a criminal offence and there was also the power for Manchester City Council to undertake the work and recover the cost from Zagora.

Mr Broadhurst copied the notice to David Robinson on the same day. Mr Parvin accepted that this notice provided independent verification of Mr Broadhurst’s complaints.

By this stage Mr Parvin had also become aware from obtaining the ZBG records from archive that, although ZBC had retained the plans which had been submitted to it by JCS, there were little if any other documents and, in particular, there was no written fire strategy plan, which was clearly a matter of concern to him.

Internally, Zurich had divided the claim into the warranty claim - which was being dealt with by Mr Parvin and his team with the assistance of Cunningham Lindsey but without reference to lawyers - and the Bldg Regs claim - which had been passed to its “financial lines claims” team based in London, where it was being dealt with by a Mr Alcock, the team leader for “global corporate and non legal professions”, apparently with the benefit of in-house legal advice. On 29 May 2013 Mr Alcock wrote to Mr Broadhurst, making the point that legal proceedings would be precipitate without Zagora first submitting a pre-action protocol letter of claim. Mr Broadhurst responded on 31 May 2013, making it explicit that Zagora was advancing the claim on a twin basis, namely: (1) a claim under the building warranty; (2) a claim in negligence against ZBC.

On 5 June 2013 David Robinson sent a letter of response to Zagora’s claim. It is significant in that:

It is common ground that the first part of the meeting was attended by Mr Broadhurst, Mr Parvin and David Robinson. No notes are available of this part of the meeting, because Mr Broadhurst did not take any and because if and insofar as Mr Parvin or David Robinson did take notes ZIP has asserted privilege in that respect. Fortunately, however, David Robinson produced a letter to confirm what had been discussed and agreed within a week of the meeting, which Mr Parvin accepted he had seen and approved before it was sent, which provides a good contemporaneous record and which also indicates ZIP’s intentions going forwards. The content of that letter insofar as it recorded what had been discussed and agreed at the meeting was not contradicted by Mr Broadhurst at the time and, indeed, it is positively relied upon by Zagora in support of its case in relation to the agreement to rectify.

Whilst I will refer to the detail of what was agreed by reference to the subsequent letter, it is important to emphasise that Zagora does not suggest that full agreement on all matters was agreed at that meeting. Zagora’s pleaded case is that:

“34.

At the 27 June Meeting, Mr Parvin agreed with Mr Broadhurst (for Zagora) that ZIP would pay Zagora the cost of rectifying various defects in the Development on the terms set out below in order to resolve those of Zagora’s claims against ZIP and ZBC that had been set out in Mr Broadhurst’s email dated 20 June 2013 (“the Agreement to Rectify”). The Agreement to Rectify is evidenced by Cunningham Lindsey’s letter to Mr Broadhurst dated 2 July 2013 ...

35.

The express terms of the Agreement to Rectify were as follows:

35.1

ZIP would pay the cost of the following remedial works, subject to a single excess of £1,211:

35.1.1

All necessary remedial works to the common corridors, including: fire stopping to all party walls to deal with all compartmentation issues to

walls and floors to common parts and the party walls to apartments; proper separation to the apartment lobbies; replacement of the stairs in all Blocks; replacement of all doors and frames; and the protection of all exposed steelwork with intumescent paint.

35.1.2

The replacement of the roof and the completion of the entrance lobby roofs to Blocks C and D;

35.1.3

Repairs to the pressure relief pipes for the hot water cylinders;

35.1.3

Repairs to the balustrades so as to reduce the maximum distance to 100mm;

35.1.4

Replacement of laminated glazing in areas where it had been installed the wrong way round.

35.2

Further investigations were required in order to determine:

35.2.1

Whether remedial works were required to the compartmentation between the individual apartments; and

35.2.2

Whether the external walls required replacing to deal with the various fire stopping issues, the failure to install proper cavity barriers, the failure of the render and the water penetration.

35.3

Experts would be appointed to carry out the said further investigations and to determine the full extent of all necessary remedial works, it being an express, alternatively an implied, term of the Agreement to Rectify that ZIP would pay the cost of carrying out such remedial works as were identified as necessary following the said further investigations.

35.4

Further opening up was required before a detailed specification of remedial works could be agreed between the experts.

35.5

In relation to the common corridors, Arup would draw up a brief scope of temporary works so as to avoid the risk of the occupiers being required to decant: i.e. a temporary alarm system and the employment of fire wardens. ZIP would pay the cost of such temporary works.

35.6

No discount would be made to reflect the fact that the leasehold interests in 66 flats were owned by CJS.

35.7

Individual leaseholders’ claims for loss of rental or associated repairs to their individual flats would be dealt with separately.”

8.25

In contrast, Mr Parvin suggests that no agreement was reached other than an agreement that ZIP would fund further investigative works which would include further temporary works to ensure that the building could continue to be occupied by tenants and on the basis that if the fire specialists could agree what remedial works were required it might then be possible to reach agreement as to what liability if any ZIP might accept for the cost of those works, with all rights being reserved in the meantime.

8.26

In his witness statement at [102] Mr Broadhurst had said that Mr Parvin made it clear that ZIP wanted to reach an agreement with Zagora in relation to the works to the common parts, on the understanding that no claim was made against ZBC. Mr Parvin’s evidence was that he held no brief for ZBC, whether at the meeting or otherwise, and there was never any discussion or agreement in relation to any claim there might be in relation to Bldg Regs certification. Under cross-examination Mr Broadhurst accepted that no agreement had been reached in relation to that claim and the discussion had been along the lines that any claims there might be outside the policy might well be resolved simply because the scope of remedial works agreed pursuant to the agreement reached at the meeting would include any works the subject of those claims anyway. An example of this, by reference to what David Robinson stated in the subsequent letter, was that the overall scheme to deal with fire compartmentation might well address any issues in relation to sound transmission due to penetration of the party walls.

8.27

I accept that there was no express agreement in relation to any claim against ZBC and that Mr

The day after the meeting Mr Parvin sent a brief email to Mr Broadhurst and David Robinson as well as Mr Troth, Mr Brown and Mr Reed and Mr Johnson at ZIP, confirming their contact details and stating: “I think it was a very constructive meeting yesterday”. Mr Broadhurst responded, agreeing that it was a very constructive meeting, and attaching a schedule of owner details for each unit and stating that he was in the process of obtaining a budget cost for the fire alarm works. It seems clear to me, therefore, that neither man was suggesting that everything had been agreed and, as I have said, that is not Zagora’s case.

It is also clear from the opening words of David Robinson’s letter of 2 July 2013 that it had been agreed at the meeting that a letter would be sent by him which would set out ZIP’s position following the meeting. The email sent to Mr Broadhurst on 4 July 2013 which attached the letter read: “As promised a letter is attached setting out Zurich’s position on matters at this point in time”. The letter was copied to Mr Parvin who, as I have said, had read and approved it before it was sent. He does not suggest that in any way it inaccurately recorded what was said at the meeting. Indeed, it plainly reflected the position taken by ZIP after the discussions at the meeting had been the subject of further reflection and discussion both internally and with David Robinson. Mr Parvin

Mr Broadhurst does not suggest that he expressed any disagreement at the time with the content of the letter, either as an accurate record of what had been discussed at the meeting or as to the way forward. In its reply to ZIP’s request for further information Zagora stated that Mr Broadhurst believed that the letter was a true and accurate record of his discussion with Mr Parvin and David Robinson and accurately recorded the agreement that was reached.

Nonetheless it would be wrong to read it as if it was a carefully drafted legal document. That is not how it was intended or how it reads. There are clearly some linguistic infelicities. For example, in the opening sentence David Robinson began by stating the purpose of the letter, which was said to be to “confirm in principle what was agreed during the meeting”. ZIP argues that the words “in principle” should be read as appearing after “agreed” because they make no sense in the position where they actually appear and, therefore, it follows that David Robinson was clearly intending to convey that what was agreed was agreed only in principle and that it was not intended to be a final or legally binding agreement. The claimants on the other hand emphasise the word “agreed” and also submit that it is extremely significant that in this letter David Robinson did not, as he had in previous correspondence, refer to ZIP’s position as being “without prejudice” to liability or subject to a reservation of rights.

A similar point may be made in relation to the following sentence, which read: “In broad terms I would confirm that Zurich will accept the following items under the terms of the warranty subject to a single excess of £1,211”. ZIP emphasises the words “in broad terms” which, it submits, reinforces its case that this was not intended to be a final or legally binding agreement. The claimants on the other hand observe that this is an unqualified acceptance by ZIP of a claim made by Zagora under the terms of the insurance policy, subject only to the application of a single excess, in circumstances where in previous correspondence Mr Robinson had always qualified ZIP’s position as above and also by reference to the policy terms, importantly including the arguments that any liability would be subject to a proportionate reduction for the CJS flats and also to the application of an excess for each individual leaseholder claimant.

I shall pick up those competing arguments when I come to deal with the proper meaning of the letter once I have referred further to its contents.

The letter continued by setting out ZIP’s position in relation to each Part of the Approved Document, beginning with Part B, Fire Safety. That section read as follows:

“This is subject to further investigation and agreement as to scope of works, however at this point in time I can confirm that the works to the common corridors and stairs are accepted. I note that following our meeting Arup were to draw up a brief scope for the stage one works (to manage the risk and satisfy the council / Fire Brigade) and I look forward to receiving this information in due course.

With regards to works to the compartmentation between the individual apartments, fire stopping in the external walls and with regards to Approved Document B 4 (external fire spread) the cedar wood panelling to the rear of block D, until the opening up has been carried out we cannot confirm what costs will be accepted. We look forward to receiving your proposals for the further opening up works.”

Again, both parties emphasise different aspects of this section. Thus, the claimants draw attention to the fact that works to the common corridors and stairs were accepted by ZIP, subject only to further investigation and agreement as to the scope of works, whereas ZIP emphasise that any agreement was expressly made subject to further investigation and agreement and, moreover, that no commitment was given in relation to compartmentation between flats or fire stopping in the external walls.

Similar arguments are made in relation to the next section, headed Part C, Resistance to Moisture, where the letter stated:

“We agree that there are issues with the roof and that in all probability this will need replacement. The entrance lobby roofs to blocks C and D need to be completed and this cost is accepted. With regards the external render to the front elevation of block E, we do not accept that this is an item which will form a stand-alone claim under the warranty, however it may well be that remedial works are needed as a result of gaining access to deal with other issues.

With regards to the elevations, as per my comments regarding the fire stopping, further investigation is needed here to actually confirm what the issues are so that we may agree then what costs may be covered and what action would need to be taken. In terms of our priority order, clearly the issues with approved document B are the ones which need to be addressed first.

With regards to water penetration to the basement walls, at this point in time we do not accept that there has been a breach of the approved documents and regardless this is an item that would be considered under the warranty.”

Again, it can be seen that within this section David Robinson was stating that whilst the lobby roof claims were accepted and that the roof will “probably” need replacement, other items were not accepted, either at all or pending further investigation. The final sentence does not immediately make sense unless it is read on the basis that the word “not” has been omitted, which would be consistent with ZIP relying on the exclusion of the basement from the policy.

The next section addresses Part E, Resistance to Passage of Sound, where David Robinson stated that no claim would be accepted under the warranty, whilst suggesting - as noted above - that it might be addressed as part of the overall scheme in relation to fire compartmentation issues.

The remaining sections, addressing parts H, K, L, M and N contain a similar mix of statements to those relating to Part B.

The letter then continued as follows:

“Turning to the strategy going forward, firstly a couple of comments regarding policy cover.

With regards to the various heads of claim under the warranty as was discussed at the meeting it is our opinion that only one excess will apply to the overall claim of £1,211.

Whilst a claim for those apartments belonging to the developers would not be covered if it was submitted as a standalone claim, again as discussed we will deal with the claim for the making good works to the structure, as your interest as freeholder allows you to claim instead of the developer. However any loss of rent and/or alternative accommodation claims made by them will not be covered.”

It is plain in my view that David Robinson was making it clear that ZIP was no longer advancing its arguments based on multiple excesses and a proportionate reduction for the CJS flats. I reject Mr

The letter then turned to the next steps to be undertaken, which he identified as: (a) Zagora obtaining a price for a temporary fire alarm system and investigations; (b) opening up and agreeing a detailed specification for the fire stopping works to the common areas; (c) investigating the integrity of the individual apartments and Zagora’s proposals for the costs, methods and dates for this work. Mr Robinson confirmed that ZIP would be using Thomasons as its expert advisers and that agreement needed to be reached as to who should prepare the final specification.

David Robinson concluded by setting out in tabular format a “summary of immediate activities” which provided more details as to the next steps identified above. It is apparent in my view from this section that two separate activities were being proposed, the first being to undertake the steps necessary to install a fire alarm system in the development which would enable it to continue to be occupied in the short-term, and the second being to undertake further investigations before agreeing further remedial works and producing a schedule of those works. Against each activity David Robinson had identified who was responsible for taking action to implement the activity. After the temporary works had been undertaken and further investigations had been undertaken and assessed the next activity was to “agree extent of remedial works”, to be actioned by “Arup, Zurich Risks and Thomasons”.

Mr Selby made the point that, as Mr Parvin agreed, he was not part of the Zurich Risks team. It was put to Mr Parvin that he was not included because there was no question of ZIP being entitled

In cross-examination Mr Parvin accepted that ZIP had agreed to fund the cost of the temporary works to allow the immediate fire safety concerns to be assuaged and thus to ensure that the development could continue to be occupied and insured. It is right to say, as Mr Selby submitted, that this does not expressly appear in David Robinson’s letter of 2 July 2013. Mr Selby submits that this shows that not everything which was agreed at the meeting was included within David Robinson’s letter. He also submits that since ZIP was willing to agree to fund these works there was no reason why it should not also have been willing to fund the works which were accepted in relation to the common corridors and stairs and the other works which Zagora says were agreed at the meeting. I accept the force of this point. Indeed, one can see from the wording used in David Robinson’s letter that the opening section (“we will accept the following items under the terms of the warranty”) when read with the closing summary of activities amounts to an implicit acknowledgement that ZIP would fund the costs of those activities. However, that does not in my judgment answer the crucial question, which is whether or not there was a contractually binding commitment and, if so, what were its terms.

Finally, and before I leave the correspondence, Zagora also relies upon a subsequent email of 5 July 2013 from David Robinson to an estate agent acting for some of the individual leaseholders, in which he says that Zurich would be “financially assisting” Zagora to act on the improvement notice issued by the City Council. Whilst this is a clear indication that Mr Robinson believed that Zurich had agreed to fund the fire alarm system and other steps to allow the development to continue to be occupied it does not in my view take matters any further than that. On 9 July 2013 David Robinson wrote to Mr Tarasov, stating that “Zurich are engaged, with the freeholder, in rectifying the issues”. On 11 July 2013 he wrote a memorable email to Mr Broadhurst in which he stated: “it’s bad enough they [JCS] build it badly, rob the residents and then leave you to fix it and for us [ZIP] to pay for it!”. Whilst it reflects an understanding that at the time ZIP would end up paying for some or all of the necessary remedial works, it does not seem to me to go further and reflect an understanding that ZIP had entered into a binding contractual commitment to do so.

The same is true of the subsequent email sent by Mr Broadhurst to the individual leaseholders of 9 July 2013, where he said that “Zurich have confirmed that they will pay for the majority of the rectification works and where they won’t directly some of the works will indirectly resolve other matters”. That email simply reflected his belief as to what had already happened and what would happen going forwards. It was not copied to Zurich or to Cunningham Lindsey and has no particular relevance to the issue which I have to decide.

ZIP in turn rely on a letter written by Mr Broadhurst on 25 March 2014 to the individual leaseholders, in the context of the ongoing dispute regarding the control of LHM, in which he said:

“we … were near to agreement for [Zurich]”. I agree that insofar as relevant that does tend to indicate that not only had no final agreement been reached (which Mr Broadhurst does not contend for anyway) but also that Mr Broadhurst did not believe that he had reached a binding agreement in relation to a part only of the matters being discussed with ZIP. However I would not decide the point on this rather slender evidential thread.

Submissions and decision

It is important to emphasise that this is not a case where Zagora is contending that a full, final and complete agreement was reached at the meeting of 27 June 2013. Zagora does not suggest that this was a final concluded agreement in relation to each and every claim it and/or the individual leaseholders had against ZIP under the policy and against ZBC under the Bldg Regs claim. It does however submit that it represented a final concluded agreement in relation to some of the matters referred to at the meeting of 27 June 2013 and in the letter dated 2 July 2013. In contrast, ZIP submits that it simply represented a step along the road to a potential agreement which was not, objectively, intended to amount to a legally enforceable agreement in the event that no final agreement was concluded.

It is also important to emphasise that this is not a case where Zagora is contending that an agreement was reached at the meeting of 27 June 2013 which went beyond or was not qualified by what was contained in David Robinson’s letter of 2 July 2013. In other words, Zagora is not contending that even if, on a proper construction of the letter of 2 July 2013, no legally binding agreement was reached nonetheless a legally binding agreement had already been reached at the meeting of 27 June 2013 from which David Robinson wrongfully and ineffectively sought to row back in his letter of 2 July 2013. Zagora’s case is that what was agreed at the meeting of 27 June 2013 is accurately stated and recorded in the letter of 2 July 2013.

In my judgment this is a proper and a realistic approach to take. If Mr Broadhurst had suggested in his oral evidence that a full and binding agreement was reached at the meeting which did not require any written confirmation of its precise terms from ZIP following the meeting to become legally binding, and from which ZIP attempted to resile in some key respects in the letter of 2 July 2013, then I would have had no hesitation in rejecting that evidence. That is because that has not been his position or Zagora’s case or his evidence in the proceedings at any time. Furthermore, in my view it is inherently implausible that any reasonable person in his position could have believed that a full and binding agreement in relation to matters of such obvious significance had been reached in the course of this two stage meeting, without the detailed terms of the agreement as proposed by ZIP subsequently being set out in a subsequent formal written communication for his consideration. It was not Zagora’s case or his evidence that after the meeting involving the experts there had been a further separate meeting involving only Mr Broadhurst, Mr Parvin and David Robinson at which a written record of the agreement had been drawn up and agreed to by all three men. If that had happened then I can see that there would have been no need for a further written communication. However, that was not what happened in this case.

In determining this question it is, rightly, common ground that what matters is how the parties expressed themselves to each other, whether in words, writing or conduct. What they may have intended is irrelevant if that intention was not communicated to the other party.

In a case where the parties have no pre-existing relationship the court applies well-established principles in deciding whether or not they have concluded a legally binding contract. It is necessary to show that they have agreed on all matters essential to the formation of a contract or, insofar as they have not, that it can be demonstrated that the law will imply an agreement in relation to a particular matter. So, for example, in some cases where no price is agreed the circumstances may be such as to justify the court implying a term that a reasonable price will be paid, whereas in other cases the circumstances are such that the court will conclude that in the absence of agreement on a price no legally binding contract can come into effect. In such cases it is necessary to show agreement on all matters because save in the limited circumstances where the court can imply a term the court cannot retrospectively fix the essential terms of a contract which the parties have not agreed at the time and without agreement on such essential terms the contract is too uncertain in its terms to be enforced.

However, in cases where there is a pre-existing relationship between the parties the need for agreement on all matters is not so acute. That is because if there is a pre-existing contractual relationship it is possible for the parties to agree on some, but not all, issues which have arisen as to the respective entitlements under that contract, and to leave the remaining issues to be resolved either by subsequent agreement or, failing agreement, by the court. It is possible for the court to determine the remaining issues because there is an existing contractual relationship which provides the legal structure by which those issues can be resolved. The question in such cases will be whether the circumstances are such that it can be concluded that the parties intended to and did reach a partial settlement and to leave other matters unresolved or whether they only intended to reach agreement if everything which was in issue could be agreed.

The present case does not fall neatly into either category. That is because the pre-existing relationship between the parties was not entirely clear or free from dispute. Thus Zagora was asserting a warranty claim against ZIP which could be advanced on any one or more of three separate grounds, none of which were entirely clear nor free from doubt, namely: (a) a claim as a policyholder as subsequent purchaser of the freehold, in circumstances where the original freeholder was the developer who would not have been entitled to make a warranty claim; (b) a claim on the basis that it was, effectively, the management company, in circumstances where there was some uncertainty as to its right to do so and where it was not immediately obvious in any event that the original management company would have been entitled to make a warranty claim save, perhaps, as agent for the individual leaseholders; (c) a claim on behalf of the individual leaseholders, in circumstances where there was also some uncertainty as to its authority to do so and where on any view it had no express authority to claim on behalf of CJS, the owner of the majority of the flats. Moreover, the terms of the warranty were neither entirely clear nor free from doubt as to who could make claims or make full recoveries and on what basis. Finally, Zagora was asserting a separate claim against ZBC where, to succeed, it would have to establish that there was a legal duty (the claim then being advanced as a duty of care in tort, as the parties had not applied their minds as to whether or not it would be necessary to go further and establish deceit) either between itself and ZBC or between someone else on whose behalf it was entitled to act and ZBC.

Nonetheless, these complications should not be over-stated. In relation to the warranty claim, it is perfectly possible for it to be agreed between a claimant and an insurer that the insurer will recognise the claimant as an insured and will accept liability to that claimant for one or more specified claims, either on the basis of a full agreement as to what remedial works were required or the amount to which the claimant was entitled or on the basis that if full and final agreement on remedial works or cost cannot be reached any outstanding disputes can be determined by the court in accordance with the terms of the contract of insurance. However, it must be recognised that in many, probably the vast majority, of cases it will be in the interests of both parties – and certainly the insurer – to reach a full and final settlement on all matters, so that it is unlikely that a partial agreement of the nature postulated would be attractive compared with a full and final agreement on all matters. What is crucial to the validity of such an agreement is clarity as to what issues have been agreed and on what basis and what issues are left outstanding because, in the absence of such clarity, any agreement is too uncertain to be legally enforceable.

In this case, the evidence shows that some of these potential complications were indeed resolved. I am satisfied that it was accepted that Zagora would be treated as an insured freeholder which was entitled to make claims under the policy in relation to the common parts on its own behalf and on the twin basis that: (a) no CJS discount would be applied to these common parts claims; (b) only one excess would be applied to these common parts claims. This was a perfectly sensible pragmatic solution to a serious and pressing problem.

I am also satisfied that it was agreed that the claim against ZBC would be left on the back burner, as were all claims which the individual leaseholders might have, including claims in relation to the individual flats and for alternative accommodation costs. Whilst it might be objected that this would not achieve an insurer’s usual objective of securing full and final settlement, again it was a sensible pragmatic solution to a serious and pressing problem, in circumstances where it was clearly appreciated that agreement on the common parts would address the most substantial, most complex and most pressing of the issues with the development.

However, in my judgment the real difficulties arise when one considers the detail of what was agreed. Thus, in relation to what was perhaps the most important and pressing issue of fire safety the position seems to me to be at best complex and at worst hopelessly uncertain. Everything was said to be subject to further investigation and agreement, even the works to the common corridors and stairs which were accepted although, importantly, not further specified at that stage. Nothing was specifically agreed in relation to compartmentation between the flats and the common parts or between flats or in relation to fire stopping to the external walls pending further investigation. Nor was the position in relation to any untreated structural steelwork specifically addressed. Assuming that it was agreed that any such steelwork in the corridors and stairs would be treated it is not clear whether or not that would also apply to steelwork in individual flats. Nothing was said about structural steelwork or other fire safety issues in relation to the roof.

Furthermore, even in relation to the corridors and stair fire safety works nothing specific was agreed. Zagora’s case is that the agreement was sufficiently certain, because there was no reason to believe that the works could not be agreed between the experts. However, that could not of course be guaranteed. The parties had clearly not considered what would happen if the experts were unable to agree or, indeed, even if the experts agreed but either Zagora or ZIP or both were not happy to abide by their agreement. It would follow that in such a case there could be no final agreement so that this part of the agreement could only work if a term was to be implied that the

In seeking to answer this objection Mr Selby referred me to the decision of the Court of Appeal in

The difficulty here, in my view, is that there was insufficient certainty as to the basis on which the experts were to proceed. It follows in my view that if the experts were unable to agree the court could not proceed to determine what works were reasonably required under the agreement to rectify. It follows in my judgment that there is no mechanism by which the implication of the term contended for by the claimants could render the contract sufficiently certain. Mr Selby protested that there was no reason to think that the experts would not have been able to agree on the scope of works. I accept that the court should not be too negative about the prospect of agreement. However, it must not be forgotten that further investigation was undoubtedly required. The experts might reasonably disagree both as to the seriousness of any non-compliance and as to what remedial works were required. They might ask for input from their respective principals, who might – given the uncertainty – reasonably disagree about the correct approach. At the time, I fully accept, the principals and the experts might have confidently expected that as reasonable men they would be able to agree. However, in the end the fact remained that the interests of Zagora and the interests of ZIP did not necessarily coincide. In short it remained in an important respect an agreement to agree which, as is common ground, is not enforceable as a legally binding contract.

Similar objections in my view apply in relation to resistance to moisture (and indeed all of the remaining sections). With the modest exception of completing two entrance lobby roofs nothing at all was agreed. In relation to the roof, which of course was a particularly significant item, all that was said was that “we agree that there are issues with the roof and that in all probability this will need replacement”. That is very far from a clear and unqualified acceptance of responsibility for the complete replacement of the roof. The same is true in relation to the external walls. The proposal in relation to external render was completely unenforceable. Here, the parties were even further away from any consensus on how any subsequent disagreement about what was required could be determined.

These practical difficulties entirely justify in my view the opening words of the letter. Referring to an agreement in principle and in broad terms clearly move the claim further forwards than under previous letters, where ZIP’s rights were expressly reserved. However, the question is whether they go sufficiently far to demonstrate an immediate and unqualified acceptance of a liability to undertake whatever repairs the experts might agree or, alternatively, whatever repairs might be reasonable to undertake on the basis that no points of defence under the policy would be taken subject to the specific points expressly raised in the letter.

The reality, in my view, is that what was agreed at the meeting and set out in the letter represented a step along the road to what the parties at the time would have hoped and expected would have been a pragmatic resolution of a serious and urgent problem, even if not resolving all of the claims which all of the parties might have had either as against ZIP or as against ZBC. Had it not been for the unfortunate intervention of CJS and the subsequent litigation it may well have been that matters could have been resolved. However, that did not happen and the question which the court must resolve is whether the consequence is that the parties are brought back to their strict legal positions prior to 27 June 2013 or whether that step along the way can now be given effect as a binding legal contract. In my judgment it was not, on any objective analysis, ever intended that what was agreed at the meeting and set out in the letter could represent a binding immediately enforceable contract between Zagora and ZIP and, it follows, the parties are thrown back to their strict legal positions.

I have considered whether or not it could be said that leaving aside anything else the effect of what was said and written was that ZIP had agreed to accept Zagora as if it was an insured under a Standard 10 policy of the common parts on the same terms as issued to the individual leaseholders and on the basis that ZIP would accept a claim made by Zagora under that policy without any deduction for the CJS and associated owner flats and subject only to one excess. I am unable to accept that this was the case. I am satisfied that there was no contractual intention to do so. To do so would again in my view have the effect of seeking to carve out some immediately binding partial agreement from what was, on an objective analysis, always intended only to be a step along the road to a complete agreement. What was said by Mr Parvin and written by David Robinson amounted to no more, in my view, than that as and when (and, importantly, if) full agreement could be reached in relation to the remedial works which ZIP was prepared to fund then ZIP would accept a claim by Zagora on the basis stated above. In the absence of subsequent agreement in relation to the remedial works that cannot retrospectively be hived off as amounting to a separate independently enforceable agreement. This is not a case such as those sometimes encountered where there is a claim under an insurance policy where there are disputes about liability but where following a meeting the insurer agrees to accept liability on an agreed basis but leaves all matters in

I cannot pretend that I reach this conclusion with any particular enthusiasm. However, it is a conclusion which I must reach on the evidence and by reference to the law. It is a great shame that the discussions, which might otherwise have proceeded to a successful outcome, were brought to an abrupt halt by the intervention of CJS and the subsequent litigation and were not resurrected thereafter. Whether the parties would have reached a final agreement I simply do not know; Mr Broadhurst was after all seeking to drive a hard bargain and achieve an advantageous result for Zagora and its associated business interests rather than just securing a satisfactory result for the individual leaseholders and there can be no guarantee that Mr Parvin would have been prepared to accept his demands.

In the circumstances it is unnecessary for me to consider other than briefly and for completeness the other defences advanced by ZIP.

In closing submissions ZIP contended that there was no consideration for any such agreement, arguing that there could be no consideration provided by a forbearance to sue in circumstances where it was accepted that neither the claim under the policy nor the Bldg Regs claim was being compromised. However if I had found that there was an agreement I would have been satisfied that there was consideration, in that the agreement as contended for by Zagora would have afforded ZIP the legal and practical benefit of avoiding facing imminent litigation by Zagora and in avoiding any potential additional liability resulting from the development having to be decanted if the works required by the improvement notice and enforcement notice could not be undertaken and/or if the buildings insurers went off cover as a result.

I do not accept ZIP’s case based on a mistake as to the identity of the contracting parties. ZIP had contended that the agreement to rectify, if made, had involved Mr Broadhurst or the companies who he represented purporting to act on behalf of all of the individual leaseholders, in circumstances where he did not have their authority to bind them. However, on a proper analysis of the evidence it is clear that by 27 June 2013 neither Mr Broadhurst nor Mr Parvin believed that any agreement involved the individual leaseholders. Instead they proceeded on the basis that any agreement would simply have involved ZIP accepting that Zagora was entitled to make a claim under an insurance policy in relation to the common parts in its capacity as freeholder, with any claims by the individual leaseholders being left on the backburner. It follows, in my view, that no question of authority or mistake arose. Nor did Mr Parvin suggest in his evidence that it did.

However, I must also consider ZIP’s further contention that Mr Broadhurst had represented on 19 June 2013 that due to the dissolution of the management company its duties had been assumed by the freeholder. ZIP’s case is that before the meeting on 27 June 2013 Mr Broadhurst had become aware that LHM had been restored to the register of companies and that it was contending through solicitors that it was entitled to manage the development and that Zagora was not and should not be doing so. ZIP contends that Mr Broadhurst was therefore obliged to inform ZIP of these facts but

It is clear that as a matter of law a statement which was true when made may become a misrepresentation if the maker of the statement comes to know before the contract is concluded that it is no longer true: see Chitty on Contracts 33^rd edition at 7-022 and 7-033.

However, I am not satisfied that as at 27 June 2013 or at any time prior to 4 July 2013 it can be said that Zagora knew that it was no longer true. The position is that LHM had indeed been dissolved and Freehold Managers as the then freeholder had indeed taken over the management role. Although there had been non-cooperation and indeed objection from those associated with CJS there had been no active challenge. Mr Broadhurst and Mr Robinson had decided to proceed with the acquisition by Zagora of the freehold on the basis of a statement in the sales particulars that this was the position and the absence of any suggestion that it was not the case. It is true that after the acquisition there had again been non-cooperation and indeed objection from those associated with CJS, which had led to Mr Broadhurst becoming aware that CJS had taken steps to restore LHM to the Register of Companies, but there is no evidence that as a result of this Mr Broadhurst no longer believed that Zagora was not still entitled to manage New Lawrence House as at the end of June or early July 2013. He was obviously aware that there was a dispute about the matter but that is different from his knowing that Zagora did not have the entitlement. I do not accept that in such circumstances he had a duty to disclose the existence of that dispute. In the circumstances, I would not have accepted this defence either.

ZIP advanced a connected defence based on illegality. The argument is that by reason of the interim injunction granted by the court on 10 July 2013 and continued thereafter it was illegal for the agreement to rectify to be performed. I reject this argument. Performance of the agreement to rectify was never rendered illegal. It was simply the case that the investigations and remedial works could not be implemented whilst the interim injunction remained in force unless varied. However, it is a statement of the obvious that an interim injunction is very different from the final permanent injunction. It was always known to ZIP that Zagora was contesting the claim advanced by CJS through LHM and that at some stage the court would rule on the dispute. Eventually on appeal the court ruled that CJS had no right to bring litigation against Zagora through LHM and that LHM was controlled by the individual leaseholders who supported Zagora. From that time there was no legal impediment to the agreement to rectify being performed. ZIP contend that in fact the injunction was never formally lifted. This was not investigated at trial but, even if that is so, that is a pure technicality because it is clear that the individual leaseholders who have controlled LHM since 2014 would agree to the injunction being lifted if that would enable the agreement to rectify to be performed.

It might have been argued by ZIP that if the agreement to rectify was made there was some implied term that it should be performed within a reasonable time and, that being impossible due to the injunction, it was entitled to treat itself as discharged from further performance. However even if there was such a term the difficulty is that ZIP never sought at any time before the litigation was finally won by Zagora and the individual leaseholders to bring the agreement to rectify to an end on that basis.

I am unimpressed by ZIP’s argument based on waiver and/or estoppel by convention. ZIP pleaded an argument that it was not open to Zagora to assert the agreement to rectify since they had failed to advance the existence of any such agreement at any time from 2013 down to 2017, when it was first pleaded in the particulars of claim. It was said that the effect was that Zagora was estopped from relying upon the agreement to rectify or had waived any reliance upon it. The factual basis for the argument is that after the successful outcome of the appeal to the Court of Appeal on 19 September

It appears that for reasons which were not explored in evidence and which are unexplained neither side suggested that they should revert to the position the discussions had reached in July 2013. However, at no stage did ZIP or David Robinson on its behalf protest that this was contrary to the agreement or approach which had been reached in June / July 2013 and nor did Mr Broadhurst or anyone else from Zagora assert in terms that they considered themselves no longer bound by any agreement reached in 2013. Indeed since it is not Zagora’s case that the agreement to rectify compromised all claims under the insurance policies or against ZBG I do not accept that there is an obvious and irreconcilable inconsistency between the correspondence relied upon and the agreement to rectify as advanced by Zagora.

Moreover, Mr Broadhurst contended in his witness statement that the existence of the agreement to rectify had been asserted in the course of a without prejudice meeting on 1 July 2015. ZIP objected to Mr Broadhurst giving that evidence but, after hearing legal argument, I ruled that Zagora was entitled to adduce such evidence on the basis that it fell within an established exception to the procedural rule excluding evidence relating to without prejudice discussions. Mr Broadhurst was not cross-examined on that evidence nor did ZIP call or adduce any evidence to contradict him.

In the circumstances I am satisfied that this defence would not have succeeded.

Had I accepted Zagora’s case in relation to the agreement to rectify I would have needed to grapple with the question of quantification. In particular there is a substantial difference between Zagora’s primary case as predicated on the basis that the scope of the agreement extends to all matters which it says that the experts, acting reasonably, would have been able to agree and ZIP’s case that any agreement to rectify could not have extended any further than in relation to those items where David Robinson had said in terms that ZIP would accept responsibility. The differences can be seen from comparing paragraphs 125 and 126 of the claimants’ opening submissions where the

If I had accepted Zagora’s case I would have needed to make clear findings as to how the agreement to rectify would have worked and, specifically, whether: (a) it was limited to specifically agreed works as ZIP contends (and, if so, which); (b) it was limited to such works together with those expressly referred to as to be agreed between the experts following further inspection and, if so, which; (c) it extended to everything the subject of discussion in the letter other than those items expressly rejected. I would also have needed to make clear findings as to whether my decision should be made solely on the basis of what is required under the Approved Documents or also by reference to policy terms and, if so, which. I should also have needed to make clear findings as to the outcome in relation to individual items where there might reasonably have been disagreement between experts – as indeed there has been – about the nature and extent of the necessary remedial works, including the necessary access and reinstatement works. Unless my conclusion in relation to the agreement to rectify is overturned on appeal and clear directions given as to the correct approach it seems to me to be pointless to speculate further, let alone make findings on every possible permutation.

However I can say with confidence that I would have rejected the argument advanced by ZIP that since only Zagora can make a claim under the agreement to rectify it can only recover its loss which is the diminution in value of its interest. The clear commercial purpose of the agreement to rectify, had it been made, was that Zagora should be entitled to be put in funds to undertake the necessary remedial works for the benefit of the individual leaseholders as well as its own benefit. In the circumstances it would not be open to ZIP to contend that Zagora’s claim should be valued on the basis only of the diminution in value of its own interest.

I can see that other difficult issues might arise as to whether or not it could be argued that the loss should be measured by reference to the diminution in value of the whole development or indeed whether or not the argument in relation to Zagora’s ability to undertake the works given the impact of the costs and the funding agreements would have traction had Zagora succeeded under the agreement to rectify. However and again other than in the eventuality of a successful appeal with clear direction being given as to the correct approach it would be pointless to speculate further let alone make findings based on the possible permutations.

Finally, however, I can say with confidence that I would not have accepted the argument that Zagora has failed to mitigate its loss by pursuing CJS under the covenants in the leases. That is on the basis that the clear commercial purpose of the agreement to rectify, if concluded, was to allow Zagora to undertake the necessary works without deduction for the CJS flats. It could not therefore be argued by ZIP that Zagora was obliged to mitigate its loss by seeking to proceed against CJS rather than pursuing ZIP to enforce the obligation which on this hypothesis it accepted but then failed to honour.

Zagora’s claim under the Policy

Zagora’s pleaded case at [52] is that it is entitled to sue under the policy because it has a freehold interest in the development as a whole and does not fall within the exclusion to the definition of

“Buyer/You/Your” contained within the definitions section of the policy.

ZIP’s position is that Zagora is not and never has been an insured person under a building warranty insurance policy.

The starting point is that it is common ground that there is no insurance certificate identifying Zagora as a buyer, whether for an individual flat excluding parts or for the common parts only, in the same way as there is for the individual leaseholder claimants.

However, Zagora submits that this does not matter. It submits that although each certificate expressly refers to a particular flat and to a particular buyer, the certificate does not limit the cover to the buyer shown on the certificate. It submits that since the definition of the buyer in the policy is “the person having a freehold, commonhold, leasehold or tenancy interest in the new home for the time being” the cover extended not only to the named buyer of, in this case, the long leasehold interest in each flat but also to the freeholder for the time being of each flat. Thus, it submits, Zagora became a co-insured in relation to each flat when it acquired the freehold of New Lawrence House.

This is an ingenious argument, but I have no doubt that it is wrong. It is true that the insurance policy does not specifically provide that only the Buyer named as such in the insurance certificate falls within the definition of the buyer within the policy. It is also true that the definition of the buyer extends to someone with a freehold interest. However:

It would be unjust and/or unconscionable for ZIP to resile from these concessions in circumstances where, after the 27 June Meeting and in reliance upon the concessions made at the 27 June Meeting,

In opening submissions the claimant referred me to Wilken and Ghaly, The Law of Waiver, Variation, and Estoppel (3rd ed.) for a summary of the elements of estoppel by representation at 9.01 (cited with approval in Mears Limited v Shoreline Housing Partnership Limited [2015] EWHC 1396 (TCC)):

The first difficulty with this argument is the content of the letter of 2 July 2013. As I have already held, on an objective interpretation it stated ZIP’s position in principle and its proposals at that

Whilst I have not heard from David Robinson, there is no evidence whether in relation to the meeting or objectively ascertained from the letter from which it could properly be inferred that ZIP intended or knew that Zagora would act on the basis that it was an insured even if there was no final agreement in relation to the proposed remedial works.

The point can be tested in this way. Assume that everything was agreed save for the external render to the front of block E. If Zagora then sued ZIP under the policy for the cost of completing the external render it is difficult to see how Zagora could say that it was not open to ZIP to contend that Zagora was not entitled to make such a claim because it had made a clear and unqualified statement to the contrary even in relation to matters which had not been agreed.

The second difficulty with that submission is that even if there was a clear and unqualified representation to the effect contended for there is little if any evidence that Zagora conducted itself after the meeting and letter in reliance upon any such representation and in such a way as would make it unjust or unconscionable now to contend that Zagora was not an insured. That is because:

All of the conduct relied upon is equally consistent with Zagora proceeding in accordance with the way forward which had been agreed at the meeting and confirmed in the letter and in the expectation that agreement would be reached in relation to a remedial works package which would address the matters under discussion particularly in relation to fire safety.

There is no hard evidence of Zagora in fact doing anything very much to its detriment in the period between 27 June 2013 and the injunction on 10 July 2013 which prevented it from taking any further steps. The only evidence is that it had taken steps to obtain costings from an alarm company and had instructed Arup to attend at New Lawrence House with a view to conducting a joint investigation. There is no evidence of any fire marshal fees being incurred or of payments for fire plans or fire alarm proposals. Communicating with the leaseholders is not detriment.

In the circumstances I am unable to accept this fall-back argument by Zagora.

The leaseholder claims under the Policies

Introduction and overview

The claim is pleaded and advanced under 7 separate Scott Schedules A to G inclusive, as described above and as addressed in detail below.

The claimants’ approach in their closing submissions was to address those defects which between them ought to account for the entirety of their claim, not in strict Scott Schedule order but by generally prioritising their financial value and by seeking to group together those defects which have an inter-relationship with each other.

In contrast ZIP has adopted the more traditional approach of working through the Scott Schedules from A through to G and addressing the individual items or groups of items one by one.

Both approaches have their advantages. Save as appears below I have decided to adopt ZIP’s approach to ensure that I do not, through inadvertence, omit any relevant items. I have, however, adopted the claimants’ approach to this extent: I have concentrated more time and attention on the big ticket items than the smaller value items and, for that reason, I begin by taking out of turn the claim for fire protection to the structural steelwork which appears at Scott Schedule E items 1 – 3 because that is the biggest of the big ticket items and, if answered in the claimants’ favour, dispenses with the need for applying quite the same amount of attention to a number of the other items which would be addressed anyway by the works relating to this item.

Scott Schedule E items 1 – 3: fire protection to the structural steelwork

ZIP admitted in its Counter-Schedule that these defects exist, are breaches of Bldg Regs and the Zurich requirements and fall within clauses 3.1 and 3.2 of the policies. The only issue is whether the lack of fire protection to the structural steelwork is universal, as to which the claimants contend that it is, whereas ZIP contends that there has been no systematic investigation of the extent of the

The claimants invited me in their closing submissions at [59] to find that the lack of fire protection is universal for the following reasons:

“(1)

The parties’ fire safety experts agree that it is universal: see item 2, column 3 of their joint statement and column C of their agreed remedial statement. Paragraph 6 of their joint statement records that ZIP’s expert, Mr Pagan, was asked to consider whether any further or different investigations should be carried out and that none were identified or proposed.”

The claimants correctly record the position. Paragraph 6 records Mr Pagan as seeking to reserve ZIP’s legal position about the “burden of proof with respect to those flats and areas which were not inspected”. He does not, however, suggest that any further investigations should be carried out to confirm or otherwise the universality of the lack of fire protection.

The claimants contend that: “Mr Pagan, checked the steelwork in 10 external locations and 33 internal locations and never found any adequate fire protection: see paragraphs 10.7 to 10.17 of Mr

The claimants contend that: “The Claimants’ expert, Mr Lavender, concludes that the defect is universal: see section 6.3 of his first report, section 1.4 of his supplemental report and his annotated plans which collate all the evidence of unprotected steelwork. This evidence was not undermined in cross-examination. Although Mr Lavender was shown photographs of steelwork painted in other colours (in addition to the red oxide), none of that steelwork was fire protected.” In their closing submissions ZIP vigorously criticised Mr Lavender’s approach to the selection of flats and other areas for testing and his evidence. I disagree with that criticism. Mr Lavender made clear that the initial investigations were undertaken in flats where access was available. There can be no possible criticism of that. Further investigations were subsequently undertaken with a view to providing as varied a sample as possible and in my view both the approach to sampling and the overall percentage of flats inspected was entirely sufficient.

It is true that Mr Lavender did not test to obtain a definitive answer to whether or not the paint was intumescent. Neither, however, did Mr Pagan nor anyone else for that matter. ZIP has adduced no evidence to show that testing is required or positively recommended before a conclusion can properly be drawn. ZIP has adduced no evidence showing that any one of the many independent consultants who have inspected this development over the years has ever stated that they positively believed that the paint was intumescent. In contrast, as the claimants submitted:

“ZIP’s structural expert, Mr Hambly, never in any of his inspections [of the roof] saw any steelwork with fire protection on it. ZIP’s cladding expert, Mr Huband, saw no evidence of fire protection to the steelwork: see paragraph 3.23 of Mr Huband’s first report.”

ZIP suggested to Mr Lavender in cross examination that photographs of steel delivered to site showed it to be unpainted, the inference being that the paint applied subsequently could, putting it at its lowest, just as likely be intumescent than not. However, I note that in his first report Mr

As the claimants submitted, the photographic evidence of the walls during construction does not suggest that the steel had protection applied to it. Under cross-examination Mr Huband was referred to photographs which he agreed showed that it was unlikely that fire retardant board could have been applied at that stage. He said that he “did not know” whether the red painted steelwork which could be seen on the photographs was intumescent, however based on his evidence in his report as above it is unlikely that he believed that it was.

As the claimants submit, there is no positive evidence of any location in the development where the steelwork is properly protected. I agree that the photographs in the report produced by Byrom Clarke Roberts provide no positive evidence one way or another.

In the circumstances I am satisfied on the evidence that the absence of fire protection is universal. At this stage I should record that during the course of the trial ZIP had submitted that the evidence failed to take into account the possibility that there was a difference between the flats which had been completed early and sold to the individual leaseholders and the CJS flats which had been completed late and not sold. The suggestion was that it was possible that the standard of workmanship deteriorated as the development staggered on and JCS’ financial and other difficulties worsened. However: (a) there was no good positive evidence to this effect, it was solely surmise; (b) there was no obvious correlation established on the evidence either between the stages of construction and the allocation of flats or the nature and extent of the defects found in the claimants’ flats and the other flats (Footnote: ⁷); (c) it was not immediately obvious what it was being said that the claimants’ experts should have done to take this possibility into account, other than to investigate the possibility to see if there was a correlation, an exercise which ZIP’s experts were as well placed to undertake but who did not appear to consider it necessary to do so. Although I was referred to my own decision in Amey v Cumbria County Council [2016] EWHC 2856 (TCC) where I made certain observations about the proper approach to cases based on sampling, that was a case very far removed from the instant case and cannot be thought to lay down principles of application to cases such as the present.

A further issue is whether or not the structural steelwork in the roof requires fire protection. Approved Document B includes provisions at section B3 in relation to internal fire spread

In cross examination it was suggested to Mr Allen, the claimants’ structural engineer, that the steel columns which comprise the structure of the external walls were cantilevered and, hence, provided the necessary lateral restraint for the wall. He agreed that if the columns were cantilevered they would have that effect, but denied that they were cantilevered. He agreed that he had not specifically examined the construction of the steel columns but said that “any structural engineer looking at the building would tell you that they would not be able to do so, because they do not have enough bending strength”.

This question was, however, raised in examination in chief of Mr Hambly. Mr Baatz asked Mr Hambly to comment on one of the contemporaneous photographs taken by Watts during the course of the construction works. Mr Hambly suggested that it showed that the steel column was spliced just above the 3^rd floor. He said that this splicing would mean that no support from the roof bracing was required. He accepted that this was not the design intent but “it would, as a matter of fact, I think, do it - provide it”. In cross-examination he accepted that this was something he had not considered in his report. He agreed that he should not be taken to be expressing an opinion about whether or not any particular item of roof steelwork needs fire protection. It was clear from his evidence that this was something he had only recently been asked to consider and was unable to do any more than offer a comment on the basis of the photograph he had been shown.

The circumstances in which Mr Hambly had come to be shown that photograph and asked to consider it are not known. However, what is clear is that it was not considered by the structural engineering experts either in their joint discussions or statement or in their individual reports. Without intending to be pejorative, Mr Allen was plainly ambushed in cross examination on this point and it was introduced in examination in chief of Mr Hambly on the basis that it was a matter upon which Mr Allen had been cross-examined. Mr Allen had been given no opportunity to consider the issue in advance or to formulate a measured response. In the absence of a measured and convincing analysis by Mr Hambly or a clear acceptance by Mr Allen I prefer the initial emphatic response of Mr Allen to the rather more cautiously expressed view, based on a single photograph, of Mr Hambly.

A major issue between the parties is as to whether or not the substantial remedial works contended for by the claimants are recoverable under the policy. A number of issues arise, the first being ZIPs contention that those works are unnecessary because other less disruptive and expensive measures would suffice. Specifically, ZIP contend that the provision of sprinklers throughout the development would suffice and would obviate the need for fireproofing the steelwork.

I have already addressed the policy interpretation issue at paragraphs 7.6.5 and 7.6.6 above and concluded that in principle the claimants are entitled to be indemnified against the cost of a permanent repair even if temporary measures would suffice to make the danger neither present or imminent. I observed however that the question as to whether the rectification of the present or imminent danger could be achieved by temporary measures was a question of fact in the individual case but that in my view the starting point should be that the claimants are entitled to be indemnified against the cost of measures which ensure that the relevant part or parts of the building comply with the applicable Bldg Regs.

The claimants submit that both fire experts stated their opinion in their reports that sprinklers could only ever be a temporary measure. In particular Mr Pagan considered that even if a fire alarm and sprinkler system was adopted it would still be necessary to have at least one member of staff on duty 24/7 to manage and assist any evacuation due to fire and that this would not be a long term solution; his opinion was that it would be a short term solution to allow the building to be occupied whilst the longer term remedial measures are carried out. Although in their closing submissions ZIP referred extensively to the cross-examination of Mr Lavender on this topic it did not seem to me that he altered his view as contained in his report or that he said anything different to Mr Pagan.

In the circumstances I am satisfied that the claimants are entitled to recover the reasonable cost of the remedial scheme to fire proof the structural steelwork under section 3.2 of the policy. Moreover, and contrary to ZIP’s submission in closing, I am satisfied that they are also entitled to recover this cost under section 3.1, since what is required is to rectify the situation where the structural stability of the structural steelwork is adversely affected in the event of fire due to it not being fire protected in accordance with the technical requirements, although I accept that if that was the only route to recovery it would be affected by the proportionate share limitation.

As to the remedial works required there is no dispute as to the essential nature of the scheme. The fire safety experts have agreed that, in short, the relevant walls and ceilings need to be stripped back to allow appropriate fire protection (fire-boarding preferably, and application of intumescent paint where not practicable) to be applied to the structural steelwork. Where the structural steelwork is located within the floor voids and the roof, the ceilings to the flats and common parts need to be removed to allow access to the structural steelwork. Given the amount of structural steelwork located in the external walls, the experts are agreed that the external walls need to be removed as well.

The principal dispute is as to whether or not the external walls need to be stripped all the way back to the internal plasterboard linings (as the claimants contend) or whether they can be stripped back just to the oriented strand board (OSB, for short) which is external to the plasterboard, following which a remedial solution propounded by Mr Huband involving the application of a proprietary remedial solution known as Stotherm can be applied (as ZIP contends). As the claimants explain in their closing submissions, the cost difference between the two solutions is around £98,000 if Stotherm is applied only to the rendered elevation and around £274,000 more if applied to the timber clad elevations, and there is also a further saving of around £215,000 because it would in such circumstances not be necessary to cut back the plasterboard by 1 metre to access the structural steelwork. However it is also the case, I am satisfied, that since the Stotherm solution will require some assessment of the condition of the OSB, with a possibility of localised repair or replacement,

The debate in relation to the Stotherm solution was one which raged throughout the latter part of the trial. As well as cross-examination of Mr Troughton and Mr Huband it involved both experts agreeing to commission Stotherm to produce further calculations and then producing a further joint statement in which they disagreed about the significance of those further calculations as well as the impact of calculations produced by another firm instructed by Mr Troughton alone.

In summary, however, it is common ground that the external wall as installed was defective in that it did not have a vapour control layer (VCL) affixed to the external face of the internal plasterboard which would prevent moisture in the warm air from inside the flat from passing through the loosely insulated void and then condensing on and, over time, damaging the OSB to which the existing render system was attached. Whether or not that caused a problem in practice was a matter of debate but, for present purposes, the question is which of the following two options to choose once the render and cladding is removed to allow access to fire proof the structural steelwork. The first, as propounded by Mr Troughton, is to start from scratch and install the textbook approach solution, involving replacing the internal plasterboard (and thus disturbing the internal finishes of the flat) and then applying a VCL to the external face of that inner plasterboard, before installing the necessary insulation and OSB and then the new render and cladding. The second, as propounded by Mr Huband, is to leave the existing plasterboard, insulation and OSB in place and then, having applied a VCL to the external face of the OSB, install the proprietary Stotherm system involving mineral fibre insulation backed by a render finish. This is not the textbook solution but has the advantage of avoiding having to interfere with the existing OSB and plasterboard and, thus, avoiding needing to disturb the internal finishes of the flat and saving considerable cost.

I did not find Mr Troughton’s evidence to be of any great assistance in resolving this dispute. It seemed to me that his approach was unduly dogmatic and inflexible and I found his opinions unconvincing. The real question, in my judgment, was whether or not Mr Huband’s optimism that the Stotherm solution would work and thus avoid the risk of condensation, was justified by reference to the enquiries he had made of Stotherm and the information they had provided and by reference to his confidence as an engineer that the solution would work in the real world.

Whilst I do not criticise Mr Huband for suggesting this as an alternative, since I accept that he was looking at the question from a genuine and practical point of view, rather than seeking to propound and support a remedial solution as a “hired gun” purely and simply with the intention of seeking to save ZIP money, nonetheless on balance I am not persuaded by his evidence that there is the necessary degree of confidence that his proposed system would work. In particular:

Moreover, in order to achieve a significant cost saving the render would have to replace the existing timber cladding which would likely require planning permission. There has been no investigation as to whether or not this would be accepted by the planning authority. Moreover, it is apparent from the photographs and was apparent on the site visit that the contrast between the render and the timber clad sections of the development is a significant aspect of the aesthetic appearance of the building. It does not seem to me to be right for the claimants who are entitled to be indemnified for the reasonable cost of rectification or repair, to be required to accept a less pleasing external appearance with, at least potentially, some knock on effect in terms of the value of the flat and its rental value.

I am, therefore, satisfied that the claimants are entitled to the cost of the remedial solution as proposed by their experts and as costed by the quantity surveyors. For the avoidance of doubt, I am satisfied that this includes the necessity to strip out and reinstate the flats affected by the removal of the plasterboard and the top floor flats. I do not consider that the cross-examination of Mr Lavender in relation to the plasterboard invalidates these items of claim in the absence of any positive evidence to the contrary – indeed Mr Huband in his first report at paragraph 8.7 identifies the need for this as one of the drivers behind his recommendation of the alternative solution, nor did

Finally, and for the reasons given in my consideration of the policy issues, I am satisfied that the claimants are entitled to recover the cost of reinstatement of the cladding and also the cost of reinstating the balconies, even those from which access is gained from the CJS and other nonclaimant flats.

I should also say that I am satisfied that no notification defence can apply here. As ZIP submit, the 2 year period begins on 10 September 2010, being the date of the issue of the common parts final certificates. Taking Mr Tarasov as the best contender, so far as ZIP is concerned, I have already held that it was not until August 2012 that he had any knowledge of problems with fire safety. Even though he had sight of the fire risk assessment, it made no specific reference to a lack of fire protection of the structural steelwork. Moreover, he was instructed not to, and did not, share the report with anyone else. Throughout the period up to and beyond 10 September 2010 he was, perfectly reasonably, communicating with Mainstay and Freehold Managers to see whether or not they were intending to deal with Zurich on behalf of all of the individual leaseholders before making direct contact. In the circumstances, I am satisfied that it cannot be said that he ought reasonably to have reported this claim in writing either to JCS or to Zurich by 10 September 2012. As I have already said, I am satisfied that he did not begin to know the full extent of the fire safety or structural issues, which did not fully emerge until after Zagora became involved in April 2013.

In relation to Ms Bedi, it is clear that the report which she obtained in May 2012 made no reference to problems with fire safety, other than some reference to some of the fire detection and escape fittings being out of full working order, and she notified a claim under section 2 of the policy to ZIP in any event. Contrary to ZIP’s suggestion, there is no evidence that throughout 2012 there was some well organised communications network involving a significant number of the claimant individual leaseholders in which their knowledge concerning defects in the development was shared.

Insofar as it is contended that any of the claimants were in breach of the claims notification requirements, I reject that contention and note in any event that ZIP has not identified any additional costs due to any unreasonable delay in reporting the claim.

In their closing submissions the claimants summarised at [69] the financial value of the claim for the base costs in relation to fire proofing the structural steelwork as amounting to £4.734 million. On top of this are to be added consequential works and add-on costs. What will be immediately apparent is that if I am right in my interpretation of the maximum liability limitation and if the total purchase price of all of the claimants’ flats is £3.634 million, then the claimants will not even recover the full amount of the cost of fire-proofing the structural steelwork. On that basis it follows that it will make no financial difference to the claimants if I award them the remainder of their claim in full, award some proportion of their total claim or award them nothing. Nonetheless it is clearly important that I should set out my views as to what their claims in relation to the remaining items are, so that if I should subsequently be provided to be wrong in my interpretation of the maximum liability provision the effect can be ascertained. However, I do not propose to do so in

Scott Schedule A: the roof

The generic allegation in respect of the roof is as stated above and the Scott Schedule then contains a number of particular issues identified, numbered 1a to 1j. The claimants’ case is that the key particulars are items 1f and 1h (the lack of a VCL to the warm side of the insulation) and items 1g and 1h (the lack of ventilation to the roof). Item 1c (moisture and corrosion to the steel) and items 1a, 1b and 1d (spongy/collapsing roof deck) are the consequences of items 1f and 1g.

The roofing experts agreed in their joint statement that there is no VCL in the flat roof and that the omission of the VCL combined with the poor ventilation in the roof void has resulted in deterioration of the ply deck (it being common ground that there are soft spots in the ply deck in a number of locations throughout the roof) and that this (or, more specifically, the effect of the condensation which results upon the ply deck) is the primary reason why the roof finishes and construction across the entire building needs to be replaced. The claimants’ structural and roofing experts also identify some consequential corrosion of the steelwork in the roof.

Although there is an issue between Mr Troughton for the claimant and Mr Hambly for ZIP as to whether or not the deterioration of the roof deck is also due to leaks from the parapet (there is agreement that there are some isolated breaches in the membrane above the ply deck, but I am satisfied that it cannot be said that these are responsible for anything other than modest localised problems or would, by themselves, require extensive remedial works to the roof), I shall begin by considering the claim on the basis that the primary mechanism is through condensation as stated above.

There are effectively three issues (with issue 2 having two sub-issues) in relation to liability, namely:

As to issue (1), Mr Troughton’s evidence is that the roof gives rise to a present or imminent danger because the damp in the roof void will cause water ingress, mould, fungus and damp within the flats and the ceilings of the flats to collapse. I do not accept that this is anything other than an isolated and historic leak related problem and I have no doubt that this is not due to condensation. Mr Troughton’s opinion is that there is a present or imminent danger due to the risk of a workman falling through a deteriorated section of the ply deck when working on the roof, potentially onto the occupants of the flats or common parts beneath. Mr Hambly’s opinion is that the ply decking has not collapsed and there is no evidence that its collapse is evident and that in any event the roof membrane above the ply deck will act as a catenary and will prevent the person on the roof from falling through.

Mr Hambly points out that there have been a number of site visits to the development and that various people (including me, as it happens) have walked on top of the flat roof without mishap or suggestion that it was too dangerous to do so. However in cross-examination he accepted that: “It [the deck] is giving way. I do not know if it is in danger of collapse yet. It will do so at some point. It is on its way, but that does not lead to it being a present or imminent danger, in my view”. In my view the evidence of the presence and extent and degree of deterioration is sufficient for me to conclude that there is an imminent danger, subject to Mr Hambly’s point about the catenary effect of the membrane. However as to that I am satisfied that this was simply speculation on Mr Hambly’s part. The membrane was not designed to act as a catenary and Mr Hambly has not either conducted an assessment of its ability to withstand load from people walking on the roof, possibly in conditions of other load (snow, for example) or carrying equipment, nor has he inspected the membrane to assess the strength and condition of its seams. I am therefore satisfied that the present or imminent danger condition is met.

As to (2), I am satisfied that the ply deck is a load bearing element. It is common ground that loads will be applied to the ply deck, for example from ponding water, snow and workmen on the roof, and it is also common ground that those loads will be transferred by the ply deck to the firrings and joists upon which it is laid. If it was not structurally stable, which I am satisfied it is not, then it would be unable to transfer those loads. In the circumstances, and adopting the interpretation of this clause as stated above, it falls within the definition of a load bearing element in my view. Moreover, and regardless of the fact that it appears at least at the point of construction to have been designed not to have a VCL or adequate ventilation, I am satisfied that such was not its intended physical condition, in circumstances where -a s I have said - it is clear that a proper design and construction in accordance with the Bldg Regs and the Zurich technical requirements would have required a VCL and adequate ventilation.

Finally, for the reasons stated above when considering the proper interpretation of the condensation exclusion, I am satisfied that it cannot apply here in circumstances where I am satisfied that the admitted failure by JCS to design and construct the building in accordance with the Zurich technical requirements or the Bldg Regs is either the proximate cause or at the very least a concurrent cause of the loss.

In the circumstances I am satisfied that the claimants have proved their case on liability and that they are entitled to recover the reasonable costs of rectification under clause 3.2 without any proportionate share limitation.

I am also satisfied that no notification defence can apply here, in circumstances where there is simply no evidence that this claim could reasonably have been reported within 2 years of the effective date. Knowledge by some of the individual leaseholder claimants of isolated leaks into their flats is completely different from knowledge of this serious problem of design and construction giving rise to widespread deterioration of the ply deck due to condensation. ZIP has not identified any additional costs due to any unreasonable delay in reporting the claim.

In opening submissions ZIP also suggested that since the original specification did not include for a VCL the cost of its provision is caught by the policy limitation that ZIP is not liable to pay under the policy for any repair that exceeds the original specification for the new home. However I have no doubt that this limitation cannot apply where it is established – as it is here – that if that was the original specification (as opposed to a late unauthorised deviation from the original approved specification) it was not in accordance with the Bldg Regs or the technical specification.

The claimants addressed the remedial works and costs in their closing submissions. In particular, they addressed the need for a temporary roof, which Mr Hambly now agreed, but also - and more significantly - whether or not it would be necessary to take down and reinstate the ceilings of the top floor flats in order to provide a crash deck and, if so, whether it would be necessary to strip out and reinstate the top floor flats for that purpose. It is common ground that if, as I have found, it is necessary to fire protect the roof steelwork it would be necessary to take down and reinstate the top floor flat ceilings anyway, so that this point is moot unless I am found wrong in relation to the roof steelwork. In that scenario, I am not convinced that it would be necessary to remove the top floor flat ceilings and prefer Mr Hambly’s opinion that it would be unnecessary to do so. The crash deck is only a failsafe safety precaution and I do not accept that the ceilings or installation immediately above need to be removed for any reasons for which ZIP could be held responsible. However I do accept that if it is necessary to strip out and reinstate the top floor flats it makes economic sense to remove the kitchen units on the basis that it would be quicker and cheaper to do so rather than to protect in situ. For similar reasons of economy and practicality I agree with the claimants that the remedial scheme ought to involve replacing the roof structure with steel purlins; the alternative of having to programme to inspect and remedy as necessary the existing joists, with the risk that all might have to be replaced anyway if they are discovered not to be sufficiently strong to take the new roof load, does not make as much sense as replacing with steel purlins. Finally, I agree that it will be necessary to budget for a Mansafe and that this is a cost for which ZIP would be liable under the policies.

The claimants address the additional works cost of rectifying the roof, over and above the cost of fire protection to the structural steelwork, in their written closing submissions. If it is necessary, which it will not be unless I am wrong about the maximum liability provision, the quantity surveyors ought to be able to provide a revised calculation adjusted as necessary in the light of my findings above.

Moreover, on the basis of the conclusions I have reached in relation to fire protecting the roof steelwork and the remedial works to the roof, I agree that it follows that the claimants have established the necessity of providing the scaffolding cost claimed.

For completeness, I note that item 2 is not pursued as a standalone item.

The remedial works relative to this complaint are subsumed by my conclusions in relation to items 1(a)-(h) and 2 above. It is not pursued as a standalone item. If it had been it would fail for the reasons stated by ZIP in their closing submissions at [126-127].

Again the remedial works relative to this complaint are subsumed by my conclusions in relation to items 1(a)-(h) and 2 above.

It is common ground between the roofing experts that the roof parapets and capping have been inadequately installed and do not comply with the Zurich Requirements. ZIP contend however that these defects are neither major physical damage nor present or imminent dangers and there are also issues as to the scope of remedial works. Based on previous reports ZIP also suggested that any debonding was due to poor or no maintenance but I am satisfied that there is no good evidence that this is the sole or substantial cause of the problem when compared with the admitted problem of inadequate installation.

As to major physical damage, the question is whether a “holistic” view (as Mr Hambly characterised it) is taken of the parapets or whether one considers the capping and the membrane as separate elements. Mr Hambly realistically agreed that if a holistic view was taken, i.e. that the parapet is one composite element, then it should properly be characterised as a load bearing element. I agree, and am satisfied that it should be viewed as a composite element and, hence, loadbearing with the result that clause 3.1 does apply.

As to present or imminent danger, Mr Troughton’s opinion is that the defects in the parapets allow water to ingress causing damage to the ceilings and mould, fungus and damp within the flats and even, he says and refers to a photograph he took to prove it, a risk due to water running down the walls and into electrical sockets. He also refers to a risk through cappings becoming detached and flying off the roof with a consequential risk to passers-by.

There was extensive cross examination about the mode of construction of the parapets and whether or not water, which both experts agree is getting into the parapet construction due to deficiencies in the installation of the membrane and capping, is able to run down the internal face of the parapet and saturating the ply decking and then the ceilings below, or is running down the external cavity of the parapet and, thus, not impacting on the flats themselves. Whilst Mr Hambly’s analysis appeared impressive in examination in chief, based on his diagram attached to his supplementary report, on closer analysis it seemed to me to suffer from the following weaknesses: (1) it assumed that water was entering the ply deck through membrane tears or other unintentional openings where water was

In relation to the remedial works, I accept for the reasons I have already given that this would involve the replacement of the ply deck in the areas around the parapets. I do not accept, however, that a complete scaffold around the entire building and a crash deck would be necessary and prefer Mr Hambly’s analysis that the only requirement would be for scaffolding where the parapets are 1m high or less, with the figures being £90,000 for the remedial works and £133,613.74 for the scaffolding, as explained in paragraph 273 of the claimants’ closing submissions. As regards the scaffolding, although ZIP submitted that this cost was irrecoverable because, as Mr Troughton accepted, in the real world no one would remedy the parapets without also remedying the flat roof, that is not a point open to them to take in my view, since in this counterfactual hypothesis where ZIP are not obliged to indemnify against the cost of remedying the flat roof, the claimants are in my view entitled to the reasonable costs of rectifying the parapets in isolation and ZIP cannot, having successfully refused indemnity in relation to the flat roofs, then be heard to say that the reasonable cost of rectifying the parapets must be ascertained on the assumption that the claimants will repair the flat roof anyway.

Again these are subsumed within my existing finding. Item 6 is not pursued as a standalone item. Insofar as either item is separately pursued, I am not persuaded that these are recoverable, essentially agreeing with the submissions made in paragraphs 133 and 134 of ZIP’s closing submissions.

There are, essentially, 3 separate defects which are under consideration. The first is agreed, but

The lion’s share of the remedial works are subsumed within my existing finding. If not, then in

Scott Schedule B: the cladding

I have already considered and decided that the external walls need to be removed and reinstated in order to fire protect the structural steelwork. This section considers whether or not, assuming that to be wrong, the external walls need to be removed and reinstated for the reasons relied upon in Scott Schedule B.

Although the claimants suggest that this is a single complaint that the external walls are simply unfit for purpose which should be addressed on that basis I agree with ZIP that it is necessary to break down the complaint into its significant separate components.

However I agree with the claimants that the external walls have to be considered as a whole when addressing the question as to whether or not clause 3.1 of the policies is engaged by reference to the load bearing element definition. In my view one has to consider the whole structure, from the external render all the way through to the internal plasterboard, as one composite structure which performs a load-bearing function. It would not be appropriate in my view to consider the render separately from the insulation and both separately from the OSB and so on. I agree with the claimants that support for this conclusion can be derived from the technical requirements referring to curtain walling, which requires that: “dead and live loads should be transferred safely to the building structure without undue permanent deformation or deflection of any component”.

It is appropriate to begin with the admitted lack of an effective VCL around the building. It is accepted by ZIP and in any event I am satisfied that the absence of an effective VCL creates a risk of condensation within the external walls which will have the effect of corroding the steelwork and deterioration and rotting of the timber elements within the external walls. However, as Mr Huband said and Mr Troughton, somewhat reluctantly, agreed the fact that the cavity is ventilated – albeit admittedly accidentally and inappropriately as contrary to Part L - means that the adverse effects of condensation is prevented or minimised. Therefore, ZIP argues, the definition of major physical damage is not satisfied since there is no adverse effect on the structural stability or resistance to damp and water penetration of the external walls. Insofar as Mr Troughton protested that the heat loss through the ventilated cavity leads to a cold environment within the flats, he also had to accept in cross examination that he was unable to quantify this and Part L is not the subject of a separate Scott Schedule pleaded case albeit that this non-compliance with Part L is referred to in Scott

With some reluctance, because it is not an attractive argument that ZIP can rely upon a failure to comply with another technical requirement to excuse a breach of this technical requirement, I must accept that ZIP is correct on this point. In the absence of an adverse effect on structural stability or resistance to damp and water penetration the cover under clause 3.1 is not triggered. In the absence

There are then a series of other generalised defects, summarised in paragraph 295 of the Claimants’ closing submissions, together with a number of various localised defects summarised in paragraph 297 of that document. The claimants submit that these in themselves represent a risk due to a number of open water paths from the outside into the external walls and, moreover, lead to a risk of render becoming detached and injuring occupants or passers by.

Whilst I accept the claimant’s case as to the presence of these defects, I am unable to accept that individually or cumulatively they would justify the complete replacement of the external wall. I agree with ZIP that in order to make good this case it would have been necessary for the claimants to: (a) produce a detailed survey report, showing on an individual external wall section by section basis where all of the relevant defects are situated, identifying how they lead to water ingress and consequential damage to the wall structure which is not prevented or mitigated by the accidental cavity; (b) identify the necessary remedial works on the basis of an itemised repair basis and, separately, a globalised repair basis, so as to satisfy the court that it would be more economic to undertake a globalised repair solution compared to an individual repair solution. That is not something which Mr Troughton or Mr Bramall have done. That is not a criticism; I can understand why in the real world the experts would conclude that the totality of the problems in the external walls justify a complete replacement. However, in the context of this policy claim, if one is forced to strip out the VCL and the unintended ventilation as causative items, one is left with a series of individual defects, albeit some more or less widespread, with an absence of detailed analysis of how they represent either major physical damage or a present or imminent danger, either individually or globally, and a lack of analysis as to why a globalised repair scheme is justified and makes more economical sense than undertaking patch repairs. There was clearly a conflict of opinion between Mr Troughton and Mr Huband as to the patch repairs option. Whilst Mr Troughton obviously believed that patch repairs would be inappropriate and unsightly, it seemed to me that he was giving this evidence on the hop, in circumstances where he had not previously considered this point in any detail previously and, ultimately, I was not persuaded by his evidence on this topic. This conclusion applies as much to the risk from falling render as to the risk from water penetration more generally.

The only respect in which I was satisfied that a separate claim was made out was in relation to the need to replace the unfinished render in block E, this being the subject of a section 2 as well as a section 3 claim. Whilst ZIP advanced a notification defence to this, since I accept that at least Mr Tarasov notified this claim to JCS within 2 years of the effective date I am satisfied that this defence must fail. I also note the concession in relation to the cedar cladding on the parapet on the south side of the development referred to at paragraph 177 of ZIP’s opening submissions but assume that it will be covered by the necessary remedial work to the parapets more generally.

Scott Schedule C: structure, basement and car park

Generally, in the light of the conclusion I have reached in relation to policy cover, it is not open to ZIP to reject a claim on the basis that the item in question is located within the basement car park.

It is conceded by ZIP that this defect is present and that it amounts to major physical damage. ZIP

This is not pursued as a standalone claim.

Liability for this item is admitted. In relation to quantum, as ZIP observe in their closing submissions Mr Allen agreed Mr Hambly’s remedial scheme in cross examination, which should therefore be the scheme which should be costed and allowed for. Insofar as it has not been costed for by the quantity surveyors, then in my view it ought to have been and, if it mattered, I would have wanted it to be done upon receipt of this draft judgment or, if not, I would have wanted submissions as to why it should not be done. Again, the proportionate share limitation will apply to this claim.

This is not pursued as a standalone claim.

The defect is admitted and the only issue is as to whether or not the glazing needs to be replaced or whether it would be sufficient to provide a guardrail. Both Mr Allen and Mr Hambly were crossexamined about this and, to summarise their evidence, the position in my view is as follows: (1) Mr Allen agreed that a guardrail would suffice, subject to the risk that it might subsequently be removed, which I regard as an inadequate objection, and to the need to provide an infill panel below to prevent children from getting under the guardrail; (2) Mr Hambly accepted that the guardrail option had not been raised in ZIP’s original counter schedule and had been raised by him following a further analysis of the reason for the problem; (3) Mr Hambly was disposed to accept that an infill panel would be a good idea - although he believed that the kite marking on the glass indicated that it should be sufficient anyway, he had not investigated this and could not be definite;

Although in closing submissions the claimants contended that the glazing should be replaced as a safer option and that a guardrail and infill would be a rather ugly feature, on balance it seems to me that it is a reasonable solution and that a full replacement is not justified. It was not entirely clear to me what the agreed costing of this solution was (compare paragraph 333 of the claimants’ closing submissions and paragraph 176 of the defendants’ closing submissions). Moreover, I am not sure whether or not the infill panel has been priced and there is no indication that the further securing work suggested by Mr Hambly has been priced. Accordingly, in the same way as above, if it had mattered I would have wanted the quantum experts to address all this upon receipt of the draft judgment. Finally, since this is a present or imminent danger case, there would be no proportionate reduction applicable.

It is clear that the drawings specified that there should be a damp proof membrane affixed to the basement retaining wall in order to prevent or limit moisture ingress and that the damp proof membrane was not properly fixed during the course of construction. I am also satisfied that as a result the wall is affected by moisture ingress, as is evident from a site inspection and from the photographic evidence.

Since this is a retaining wall, I agree with the claimants that the technical requirements require that: “Retaining walls should be provided with a damp-proof course at low level and tanking system so as to prevent ingress of moisture from the retained ground.”

I also agree with the claimants that the basement blockwork walls are load bearing elements and that there is a material difference in the intended physical condition of these walls because they do not comply with the technical requirements and that this adversely affects the wall’s resistance to damp and water penetration. In the circumstances I agree that the claim is made out under clause 3.1 of the Policies.

It does not seem to me that it is open to ZIP to contend either that the nature and extent of the moisture ingress is minimal or that it is not outside of the minimum technical requirement tolerance of “some seepage and damp patches” for garages. Furthermore, even though I accept that Mr Hambly is right to observe that the greatest area of moisture ingress and water staining, coinciding as it does with the approximate position of a downpipe discharging above ground at that location, I do not accept the proposition that it is sufficient simply to re-site that downpipe to remedy the defect. Nor do I accept that it is not necessary to remedy the breach by providing a damp proof membrane along the whole length of the retaining wall.

In the circumstances I am satisfied that the claimants have made out their claim and that the remedial works cost is £46,023.14 as referred to in paragraph 229 of the claimants’ closing submissions and paragraph 184 of the defendants’ closing submissions, although the proportionate share reduction will apply.

Scott Schedule D: the balconies

I have already concluded that the claimants can recover in respect of the CJS balconies on the basis that they form part of the common parts but that nonetheless the proportionate share reduction applies to any clause 3.1 claim (but not to a clause 3.2 claim). I have also noted the exclusion in relation to the “balcony decking”.

If, as I have concluded, the balconies have to be taken down and replaced in order to fit fire protection to the structural steelwork, the relevance of this item as a standalone item is that it increases the recoverable cost by £294,150, being the difference between the total for removal and replacement with compliant balconies of £556,400 and the allowance already made for the cost of removal and simple reinstatement of £262,250.

Mr Hambly accepted that the balcony decking had been laid directly on top of the balcony steel beams, without joists being interposed to provide greater support. He also accepted that the balcony was not compliant with the technical requirements or the Bldg Regs Approved Document. He also accepted that there was a present or imminent danger and also major physical damage, assuming that the balconies should be considered as a whole when determining whether or not a load bearing element. Although he also said that he was “perfectly happy” walking on the balconies, he accepts that he could not “back analyse it to prove” that they are in fact safe to use. Fortunately, the balconies have not to date failed whilst in use but, as the claimants submit, if there is a material non-compliance and a not fanciful risk that - for example - a number of occupants or their guests standing or, perhaps for example, dancing on the balconies might result in their failure, it is obviously necessary to undertake remedial works.

I address the question of remedial works below.

The expert structural engineers agreed that as regards the timber balustrades they have inadequate strength and stiffness, do not comply with the Bldg Regs and represent a present or imminent danger within clause 3.2. In relation to the steel balustrades they agree that: these balustrades have inadequate stiffness, the horizontal frames that support the balustrades do not have sufficient torsional rigidity and that the balustrades do not comply with the technical requirements or the Bldg Regs.

However there is a dispute as to whether or not the steel balustrades give rise to a present or imminent danger, in circumstances where Mr Allen’s opinion is that they will be liable to deflection, whereas Mr Hambly considered that the only real risk was if the balustrade fell off, which he considered was unlikely due to the presence of a welded lug between the post and the frame.

In my view Mr Allen’s more cautious approach is to be preferred. I agree that there is a risk in

Given my conclusions the full cost of replacing the balconies with compliant balconies is recoverable. Since the replacement is justified under clause 3.2 no proportionate share reduction applies. No deduction for the cost of replacing the balcony decking applies since so far as I am aware (and unless it has been agreed by the quantum experts and included in their valuation) there is no suggestion that it would be economically practicable to re-use the decking as a standalone item.

It is agreed between the experts that the lack of cold bridge details to the balconies is likely to imply a failure to comply with the Bldg Regs and the only issue is whether or not this item gives rise to a major physical damage claim under clause 3.1 of the policies, in circumstances where no clause 3.2 present or imminent danger claim is made.

This claim only requires separate consideration if I am wrong in relation to the previous claim and, hence, I shall deal with it shortly. In short, I agree with the claimants that the balcony as a whole is a load bearing element and that the effect on the condensation of the non-galvanised steel is such as adversely affects its structural stability, even if there is no positive evidence that it has led to damage due to corrosion as yet. However I also prefer Mr Huband’s evidence that this could be the subject of patch repairs and would not in itself justify the removal and refitting of the balconies.

This is recoverable in the amount claimed even if no other balcony claim was allowed.

No other balcony claims are pursued as standalone items so far as I am aware.

Scott Schedule E: fire protection

I have of course already addressed items 1 – 3, fire protection to the structural steelwork, and now address the remainder insofar as necessary.

I have no doubt that these defects exist and are present throughout the development, for the reasons summarised in the claimants’ closing submissions. ZIP’s case is focussed on the absence of a comprehensive survey but I do not consider that given the expert evidence as to the investigations already undertaken and the evidence they gave as to the likelihood of the same defects not being

A separate issue arises in relation to the fire doors. Mr Lavender had been very clear in his evidence that he had been unable to satisfy himself or been provided with evidence that the doors to the flats were fire doors. In his supplemental report he identified the documentary evidence which he expected to see to satisfy himself that the doors were fire doors. In cross-examination it was put to him that he could have conducted further physical inspections to satisfy himself whether or not the doors were fire doors. As a result, it was agreed that he and Mr Pagan should undertake a joint survey which, having removed the doors from their frames, revealed that there was evidence on the doors of two of five to indicate they were fire doors, whereas none had correct letterplates and three did not have suitable firestopping or the correct intumescent strips.

In the circumstances and on the basis of this evidence I am clearly not in a position to conclude that all of the fire doors are not compliant. I am entitled to and do make an informed assessment from the available evidence as to what proportion of the fire doors are not compliant. I reject, if pursued, any argument by ZIP that the lack of a full inspection of a greater proportion of doors means that I cannot be satisfied in relation to any specified number and therefore have no material before me to make any informed assessment. Given that neither ZIP nor Mr Pagan suggested that this joint inspection be undertaken before trial or that the claimants or Mr Lavender unreasonably refused to agree until trial I am satisfied that insofar as there is a lack of detailed evidence in relation to a greater number of fire doors that should not prevent the claimants from recovering anything. Taking an approximate approach and erring on the side of caution I am satisfied that 50% of the total require replacement and that the appropriate course is to reduce the total claim relating to the fire doors by one third.

I am also satisfied that all doors and walls, including those relating to the CJS flats, are covered for the reasons given above in relation to the proper interpretation of the lease

I therefore accept the claimant’s quantification of this claim, so that the claimants will recover 50% of the cost at paragraph 167 and the balance at paragraph 166 in full. The costs referred to in paragraph 168 are recovered elsewhere already.

This is addressed in the claimants’ closing submissions at paragraphs 71 - 76. In short, ZIP concedes that the absence of any or any effective cavity barriers is a present or imminent danger (whilst there is an issue as to whether or not it also constitutes major physical damage that is not necessary to determine) but the issue is whether or not the cavity barriers are universally absent.

The claimants set out in paragraph 73 their case as to why the cavity barriers are universally absent or ineffective. Most significant in my view is that:

In the circumstances I am satisfied that the cavity barriers are if not universal as near as makes no material difference universally missing or ineffective.

It is common ground that the direct cost of the provision of cavity barriers totals £136,751.16. It is also common ground as between the experts that the installation of cavity barriers in the external walls would also require the removal and reinstatement of the external cladding. Of course, this work is the same work as is required to provide fire protection to the structural steelwork but, as the claimants submit, is another and separate reason why that work is necessary.

I am satisfied that this claim is made out as claimed and costed. An issue was raised in crossexamination of Mr Lavender as to whether or not the doors needed to be glazed. Mr Lavender perfectly reasonably said that it was necessary to be able to see through to the other side of the door and I am satisfied that this is a reasonable allowance even if gazing is not strictly required under the Bldg Regs.

I am satisfied that this claim is made out as claimed and costed.

The claimants only pursue items 12(b) and (c). It was suggested in cross-examination that item 12(c) is unnecessary because there is evidence that the lift shaft is bricked up. However that is based on an email from Mainstay to Ms Bedi which, although it refers to bricking up, could just as well be a lazy or mistaken reference to the incombustible boards which are recorded as having been installed. I am satisfied on the basis of that evidence that the claim is made out as claimed and costed and the lift exception is plainly not engaged.

Only items 13 (b) and (d) are claimed. Although ZIP suggest that this is just a matter of rerouting the marked escape route I am satisfied that it is a perfectly justified fire safety related claim and succeeds in the modest amounts claimed.

Item 14(b) is not pursued but the claim for the remainder succeeds as claimed and costed.

This relates to the need for dry fire mains to enable the hose laying criteria to be satisfied. As the claimants submit in closing submissions it was agreed between experts that there was a breach of the Bldg Regs and of the technical requirements, that it falls within clause 3.2 since its absence increases the risk to the health and safety of occupants and as to the necessary remedial works.

Despite this Mr Baatz sought to cross-examine Mr Lavender on the basis that it was not a breach of the Approved Document which was not mandatory anyway. Mr Lavender did not agree. Mr Pagan was not called and thus his opinion contradicts the submission which is now made and which I have no doubt about rejecting.

In the circumstances this claim succeeds as claimed and costed.

As the claimants say in their closing submissions these items were all admitted by ZIP as falling within clause 3.2 and the remedial works have been agreed.

Again, however, in closing submissions ZIP seeks to resile from this by reference to crossexamination of Mr Lavender on the basis of unsubstantiated speculation that the timber stairs have in fact been treated with a fire-resistant material, which not surprisingly – given the history of JCS’ performance on this development – he was not willing to accept. I am satisfied that this claim is made out and succeeds as claimed and costed, not including costs relating to the ceilings in the common areas which are recovered elsewhere.

Items 22 and 23 are admitted subject to extent whereas the claimants are put to strict proof as regards items 24.

The real issue is whether the desktop assessments of Mr Lyons for the claimants in relation to items 22 and 24 can be relied upon, in circumstances where Mr Lewis for ZIP said that he was unable to provide an assessment since it was a job for an architect upon which he did not feel competent to opine. In contrast Mr Lyons had provided his best estimates on the basis that he believed that he had sufficient experience to give a realistic assessment as to what an architect would stipulate. ZIP submitted that Mr Lyons was in truth in no better a position than Mr Lewis and that his estimate could not be relied upon. I accept that his estimate must be approached with some caution but do

I accept the claimants’ case in relation to item 23. Moreover, as regards item 24 I reject ZIP’s argument that the policy does not respond to fire safety related defects in the basement.

In the circumstances I accept the claimants’ submission that it is reasonable to award the middle ground figure adopted by the quantum experts of £50,784.50.

Scott Schedule F: mechanical and electrical issues

The claimants do not pursue this claim since they concede in their closing submissions that due to the impact of the excess no recovery can be made. This is clearly correct given that these are flat specific claims.

They suggest that it is still relevant to the agreement to rectify. If so, and assuming that my conclusions in relation to whether or not the agreement to rectify was concluded and if so whether or not it applied to this defect are both wrong, then in short in my judgment the claim would fail save for flat 28 for the following reasons: (a) these are flat specific claims, so that there is no basis for not inspecting at least a reasonable sample of the claimants’ flats so as to be able to contend that all flats are affected; (b) given that the sample actually inspected showed 3 out of 28 flats to be compliant, in the absence of checking all of the claimant flats it cannot be said which specific ones are effected and since this is not a common parts claim it cannot be said that it does not matter.

It is accepted by ZIP that the defect exists and that it is a breach of the Bldg Regs and the technical requirements. The real issue is as to the potential for it to represent a present or imminent danger. The evidence shows that for it to be a present or imminent danger it would be necessary for a flat occupant or invitee (such as an electrician) to be inside the cylinder cupboard at a time when a discharge of high temperature water or steam might occur and for the overflow to be incapable of being accommodated by the discharge system, notwithstanding its non-compliance.

It is true, as ZIP contends, that the likelihood of all 3 events occurring at a time and in such a way as to cause injury is, given the relative probabilities of each both in itself and operating at the same time, extremely remote. However it is a truism that events such as this can and will occur even though they are statistically unlikely to happen at any given moment in time. It cannot be said that the discharge of high temperature water or steam cannot occur (indeed ZIP’s expert accepted that it could) and it also cannot be said that the discharge system will undoubtedly safely carry any such discharge away (in circumstances where the Bldg Regs and technical requirements have been contravened in a material way). In such circumstances, it seems to me that the risk must be present or imminent even if it is a remote risk. In the circumstances I am satisfied that the claim succeeds.

Whilst ZIP contends that the claim should only be allowed in relation to the claimants’ flats, since the discharge pipework affected is common pipework, albeit that it subsequently branches off to serve individual flats, it is a common part defect which falls within clause 3.2 and, hence, in my judgment does not fall for any reduction. In the circumstances the claim succeeds in the sum agreed between the quantum experts.

The claimants do not pursue these by reference to the impact of the excess.

The claimants contend that this item has been conceded by ZIP or its expert as a present or imminent danger and there is no issue as to the remedial works or cost. I agree. ZIP rightly observe that under cross-examination Mr Purcell accepted that on further inspection the support was found to be present and adequate so that he withdrew that aspect. Whether or not that makes a difference to the quantification of the agreed works or cost I do not know. If it mattered it ought to be possible to ask the experts to liaise and clarify.

These claims are not pursued for the reasons explained by the claimants in their closing submissions at [344].

Scott Schedule G: lifts and other items

The claimants accept that the claim in relation to the lifts cannot be pursued due to the specific exclusion of the lifts from the policy.

An issue is raised as to whether or not this falls within clause 3.1 on the basis that the canopy roofs are not loadbearing elements. I am satisfied that the canopy roofs are loadbearing when a holistic view is taken – apart from anything else they must surely have to bear or transfer imposed loads from rain or snow. I am also satisfied that the lack of watertightness will adversely affect its resistance to damp and water penetration. Thus this succeeds in the agreed amount of £3,600.

The add-on items

There are a number of items which must be considered under this heading, although some have been the subject of agreement between the quantity surveying experts.

I have already dealt with the scaffolding costs whilst addressing the relevant substantive Scott Schedule claims and, hence, need say no more about them here.

This is now agreed between the quantity surveyors at 5.241%. Insofar as it is still suggested by ZIP that an allowance for inflation ought not to be made because it is said that the claimants have delayed in undertaking the necessary remedial works, I have no doubt in rejecting any such argument. Given the financial circumstances of the claimants and given ZIP’s refusal to indemnify, there is no way in my view that the claimants could, realistically, have undertaken remedial works prior to trial.

These are now agreed at 13%. Although there remained an open issue as to whether or not the preliminaries should be higher if the total works cost awarded after scaffolding and inflation was less than £7 million, that is not an issue which arises having regard to my valuation of the total works cost prior to the application of the maximum liability limitation.

Ms Nash for ZIP suggested that there should be a 1% downwards price adjustment to reflect the discount which she suggested a contractor would allow for the saving to be achieved in terms of time and efficiencies on undertaking what she suggested was relatively straightforward work involving a lot of repeat work in different locations.

However, as Mr Bramall for the claimants said, this is dependent both on an analysis of the relative attraction of the works relative to other comparative jobs which a contractor might be interested in tendering for and, in his experience, this work is not particularly attractive nor obviously straightforward or of a repeat nature. Furthermore, as he also said, the current market in the Manchester area is buoyant such that contractors would not be inclined to offer or accept discounts from their usual rates on this basis. I accept and prefer Mr Bramall’s opinion on this issue, in circumstances where it does not seem to me that this work is obviously attractive compared to other jobs and where Mr Bramall seems to me to have rather better knowledge of the local market than Ms Nash. Accordingly, I do not discount on this basis as suggested by Ms Nash.

These are now agreed at 7.75%.

This was the most vigorously contested issue at trial, not surprisingly since Mr Bramall believed that a 15% addition for contingencies should be applied (5% design and price risk and 10% for unknowns), whereas Ms Nash believed that only a 5% contingency should be applied (2.5% design and price risk and 2.5% unknowns). Given the total base cost, a swing of 10% is clearly significant.

There was some cross examination and discussion as to the appropriate principles on which contingency should be added in a case such as the present. It is important to bear in mind that my task is to ascertain the reasonable cost of the remedial works for which the claimants are entitled to be indemnified. That is different from the task which a quantity surveyor is asked to perform in a usual construction project, which is simply to assess the likely total out-turn cost of a project by reference both to the vicissitudes inherent in any project and also to the risks referable to the particular project given such matters as the extent to which the works have already been designed, the extent to which – for example – ground conditions have already been investigated and the extent to which fit-out choices are liable to fluctuate.

Whilst I do not accept all of Ms Nash’s arguments nor do I accept her 5% valuation, I am satisfied that in this case a relatively modest contingency of only 7.5% is appropriate, broken down as to 2.5% design and price risk and 5% unknowns, for the following reasons:

It was agreed in closing submissions that the question of VAT might well depend on the findings I make and, therefore, should be parked until my draft judgment was produced.

Since it is clear in my view that the maximum liability provision must include any liability for VAT, so that there is no basis for adding VAT on top of the maximum liability recovery, there is nothing more to say about VAT.

These are referred to in the claimants’ opening and closing submissions but have not, so far as I can see, been addressed by ZIP. I am not sure what the position is and if needs be this can be clarified on receipt of this judgment in draft.

Quantification

As I have already said on a number of occasions, it is apparent that on the basis of my findings the

The only circumstances in which it might make sense to translate my findings into figures would be if the claimants intended to seek to appeal my finding of the maximum liability provisions, since I can see that it may be better to finish the exercise now, whilst everything is fresh in minds and the same personnel are still available, than - potentially – having to start the process over a year down the line. In my draft judgment I said that I would leave it to the claimants and ZIP’s legal advisers to consider and discuss with a view, if possible, to reaching agreement as to whether it is a worthwhile exercise. That process did not produce any agreement. In the circumstances I will limit myself to recording that: (a) the claimants contend that but for the impact of the maximum liability provisions they would have been entitled to judgment for a sum in excess of £9.7 million exclusive of any claim for VAT; (b) ZIP does not accept this; and (c) I will determine whether or not any and if so which further determinations should be made at the hearing of all consequential matters.

I ought however to address the competing arguments in relation to the application of the excess. In

That results in a total excess of £120,889.

Intention / ability to reinstate

Maintenance and champerty / abuse of process

In my judgment there are a number of insuperable difficulties faced by ZIP in succeeding in this argument, which are as follows:

Drawing together the threads

The claim against ZBC

As I have said the claim is brought in deceit (otherwise known as fraudulent misrepresentation). To succeed the ZBC claimants must prove the following elements of the tort:

Each of the Bldg Regs final certificates stated that it related to the work of the construction of the new build flats specified in the certificates and further stated that: “the work described above has been completed and Zurich Building Control Services Ltd have performed the functions assigned by regulation 11 of the 2000 Regulations (as amended)”.

Regulation 11 of the Building (Approved Inspectors etc.) Regulations 2000 (as amended) is headed “Functions of approved inspectors” and provides so far as relevant that: “an approved inspector by whom an initial notice has been given shall, so long as the notice continues in force, take such steps as are reasonable to enable him to be satisfied within the limits of professional skill that…(a) regulations 4 and 6 of the Principal Regulations are complied with…”. Regulation 4(1) of the principal regulations referred to, being the Bldg Regs 2000, provided so far as relevant that: “Building work shall be carried out so that it complies with the applicable requirements contained in Schedule 1". It is Schedule 1 which contains the detail of the requirements in Parts A through to N.

It is common ground and I am satisfied that by issuing the Bldg Regs final certificates in the terms which he did and in the context of the regulatory regime referred to Mr Mather represented that ZBC had taken such steps as were reasonable to enable it to be satisfied within the limits of professional skill and care that the works referred to had been completed in accordance with the Bldg Regs.

ZBC accepts that on an objective reading of the Bldg Regs final certificates they related to the relevant access and egress routes for the relevant flats, as well as the flats themselves. This was common ground between the experts.

ZBC also accepts that, as was common ground between the experts, it had not taken reasonable steps to satisfy itself that Bldg Regs had been complied with. Thus it admits that Mr Mather made misrepresentations in issuing the Bldg Regs final certificates.

In closing submissions ZBC accepted that Mr Mather did intend the individual leaseholder claimants to rely on the representation made in the Bldg Regs final certificates, which was entirely sensible and realistic given his evidence as referred to below. ZBC did not, however, accept that Mr Mather intended Zagora to rely on the representation made in the Bldg Regs final certificates.

Mr Mather’s evidence in his witness statement at [44] was as follows:

“We provided copies of the building control final certificate to the local authority and the developer, and also kept a copy for our records. The local authority building control documents cannot be viewed by the public. What the developer did with their copy was up to them, for example, if they used it as part of their marketing or sales documents. A developer does not have to use the final certificate as part of marketing a property, but I would be surprised if he did not do so. I expect that a subsequent purchaser of a flat (years down the line) might rely on the final certificate as proof that the flat had building regulations approval when it was completed.”

In cross-examination Mr Mather accepted that generally “a purchaser of the property, which is the subject of [the final] certificate” would ask for a copy of the Bldg Regs final certificate in order to assist them in deciding whether or not to purchase the property. As regards subsequent prospective purchasers he made the obvious point that such a purchaser could not reasonably assume that the building was in the same state as it was when the certificate was actually issued. He accepted that it would be a question of the time between the date of the Bldg Regs final certificate and the date of purchase.

In written closing submissions Mr Asquith made a discrete submission about flat 126, contending that since the evidence showed that flat 126 had been accidentally included in the 15 December 2009 Bldg Regs final certificate Mr Mather could not have intended its purchaser to rely upon it. In my judgment that is a non sequitur. It is irrelevant that flat 126 was included by mistake. It was included in the certificate and Mr Mather, who was unaware of the mistake at the time, knew that its prospective purchaser was likely to rely upon it in precisely the same way as would the prospective purchasers of the other flats. It follows that there was the necessary intention in relation to flat 126 as well.

Returning to Zagora, in his second witness statement Mr Mather had said that: “I am sceptical about a freeholder's reliance on the Final Certificate given the passage of time. In particular, certain alleged defects, for example a leaking roof, would have become obvious over the years, especially given the weather conditions in Manchester. At the time of signing off the Final Certificates I did not consider the possibility of a future freehold purchaser to relying on them”. He was not asked in terms about this or more generally as to his belief as to whether or not a business such as Zagora, i.e. a subsequent purchaser of the freehold, would want to see or would rely upon a Bldg Regs final certificate.

So far as the law is concerned, it is well summarised in Clerk & Lindsell on Torts 22^nd edition at 18-30 to 18-33. Thus at 18-30 it is said that:

“In order to give a cause of action in deceit, not only must the statement complained of be untrue to the defendant’s knowledge, but it must in addition be made with intent to deceive the claimant: with intent, that is to say, that it shall be acted upon by him. It seems that intent, for these purposes, includes not only the case where the defendant actually desires the claimant to rely on what he says, but also where he appreciates that in the absence of some unforeseen intervention he will actually do so.”

The footnote refers to the decision of Longmore J in Shinhan Bank Ltd v Sea Containers Ltd [2000]

The editors consider the position of a representation not made to the claimant directly at 18-31 and, referring to authority, say that: “All that is required for these purposes is that the representation be intended, in one way or another, to reach the claimant in order to induce him to act on it. Nor is it even necessary that the defendant know precisely who the statement is intended for, provided he intends it to be relied on by someone in the claimant’s position: thus in another banker’s reference case a bank was held liable when it sent a fraudulent reference to another bank for the benefit of a customer of whose identity it was entirely unaware. Indeed, in one case it was even held that an action for deceit could be based on a newspaper advertisement, provided the claimant showed that he was one of the class of persons at whom it was directed.”

Applying those principles, it seems impossible to me to conclude that Mr Mather intended, in the legal sense, a subsequent purchaser of the freehold such as Zagora to rely upon the Bldg Regs final certificates over 2 to 3 years later. There is no evidence that Mr Mather ever expressly contemplated the position of a purchaser of the freehold, as opposed to the purchaser of the individual flats, at the time he issued the Bldg Regs final certificates. This is not surprising, since there is no suggestion that JCS intended to dispose of the freehold at the time Mr Mather was having dealings with its representatives. There is no evidence that Mr Mather was aware from

In the circumstances, whilst I would not necessarily simply have accepted Mr Mather’s assertion in his second witness statement as determinative, it seems to me to accord with the reality. It follows, in my judgment, that Zagora’s claim must fail on this basis alone.

I have already considered ZBC’s involvement with the development and Mr Mather’s actions in some detail in section 4 above and do not intend to repeat the findings made in that section here.

In short, the claimants’ case, insofar as it survives my factual findings in section 4 above, is as follows.

Without doing Mr Asquith’s detailed and excellent submissions a discourtesy, the essential case advanced by ZBC in response is that:

The pleaded case, as it stood at the start of the trial, was that the ZBC claimants completed the

In their written opening the ZBC claimants referred to and relied upon the principles relevant to reliance and inducement as set out by Arden LJ in Dadourian Group International Inc v Simms [2009] EWCA Civ 169, at [99]:

“(1)

it is a question of fact whether a representee has been induced to enter into a transaction by a material misrepresentation intended by the representor to be relied upon by the representee; (2) if the misrepresentation is of such a nature that it would be likely to play a part in the decision of a reasonable person to enter into a transaction it will be presumed that it did so unless the representor satisfies the court to the contrary (see Morritt LJ in Barton v County NatWest Limited [1999] Lloyd's Rep Banking 408 at 421, paragraph 58); (3) the misrepresentation does not have to be the sole inducement for the representee to be able to rely on it: it is enough if the misrepresentation plays a real and substantial part, albeit not a decisive part, in inducing the representee to act; (4) the presumption of inducement is rebutted by the representor showing that the misrepresentation did not play a real and substantial part in the representee's decision to enter into the transaction; the representor does not have to go so far as to show that the misrepresentation played no part at all; and (5) the issue is to be decided by the court on a balance of probabilities on the whole of the evidence before it.”

Relying upon that statement, the ZBC claimants submitted that: “representations in a certificate certifying that works were complete and had been properly inspected by an Approved Inspector, are the sort of representations that a party would be presumed to rely on in the purchase of a flat or the freehold of a block of flats. Accordingly, ZBC will have to overcome the presumption that the ZBC Claimants did in fact so rely”.

Mr Asquith objected that this was not a pleaded case. I agreed, with the result that the ZBC claimants applied to amend their statement of case to plead the presumption. I refused permission to amend on the basis that it was a very late application and that I was satisfied that ZBC had been deprived of the opportunity to consider obtaining evidence, possibly from the relevant conveyancing solicitors, to overcome the presumption.

The ZBC claimants also submitted in their written opening that: “A common theme in the ZBC Leaseholders’ evidence is that many of them were relying on their conveyancers to make sure that the appropriate documentation was in place before they were willing to purchase their flats. Such documentation likely included the Final Certificates because (a) that is what a prudent conveyancer would seek to obtain (see section I1.4 of The Law Society’s Conveyancing Handbook (24th ed 2017)) … and (b) clause 11 of the sale agreements in which JCS specifically provided that the Development (not just the individual flat) was deemed to comply with Bldg Regs provided it had been inspected and approved by the Building Inspector. There is no suggestion that ZBC contends that reliance can not be through an agent (such as a conveyancer) …. In any event, reliance by an agent will suffice: see Gross v Hillman [1970] Ch 445, 461 and the final sentence of Chitty on Contracts (32nd ed 2015) paragraph 7-031.”

Again, Mr Asquith objected that reliance by the ZBC claimants upon their conveyancing solicitors was not a pleaded case. Again I agreed and again the ZBC claimants applied for permission to amend. I granted permission to amend to plead the allegation, on the basis that it would be addressed and determined solely on the basis of the documentary and witness statement evidence already adduced by the ZBC claimants, which I was satisfied that ZBC had come to trial prepared to meet. I also permitted the ZBC claimants to amend to include an allegation that their conveyancing solicitors had relied upon the Bldg Regs final certificates but refused them permission to include an allegation that it should be presumed that they had done so, either in accordance with the Dadourian case or on the basis of an argument that it would have been negligent for them not to have ensured that Bldg Regs final certificates were in place before exchange or completion. Thus the pleaded case in its amended form said that: “In reliance upon: (a) the existence of the [relevant Bldg Regs final certificate] and consequently (b) the misrepresentations contained therein and/or (c) their conveyancing solicitors, the [relevant ZBC claimant] and/or their conveyancing solicitors as their agents completed the purchases on their respective ZBC Flats”.

In closing submissions it was made clear on behalf of the ZBC claimants that, having reflected on the evidence which had been adduced, whilst all of them pursued the claim on the basis of reliance on their conveyancing solicitors who themselves relied upon the Bldg Regs final certificates, only four, namely Zagora, Mr Manchikalapati, Mr Gledhill and Mr Hussain were also pursuing claims based on their own reliance. Given my conclusions in section 5 I have no doubt that neither Mr Manchikalapati nor Mr Gledhill can succeed in establishing personal reliance. I shall return to Mr Hussain below.

I shall also consider the case of Zagora separately from and subsequent to the cases of the individual leaseholder ZBC claimants. There are two reasons for that. The first is that my consideration of its claim as regards reliance is strictly not necessary for the determination of its claim, which has already failed on the first hurdle of intention. The second is that it raises different factual issues from those raised by the individual leaseholders.

One overarching point made by the ZBC claimants is that it was not necessary for them or their conveyancing solicitors actually to have read the Bldg Regs final certificates to have relied upon them. This was not contested in terms by ZBC, in my view rightly so. That is because if it is possible to conclude on the evidence that either the individual claimant or his conveyancing solicitor had become aware of the existence of the relevant Bldg Regs final certificate prior to purchase or completion and was aware that it confirmed that the property had been inspected and signed off by the approved building inspector and, even if unconsciously, viewed this as confirmation that the job had been done properly by the approved building inspector, then that in my view would amount to sufficient reliance.

A further overarching point made by the ZBC claimants is that it was sufficient for them or their conveyancing solicitors to have become aware of the existence of the relevant Bldg Regs final certificate prior to completion, even if they were not aware of its existence prior to exchange. ZBC disputed this on the basis that once the ZBC claimants had exchanged contracts they were committed to the purchase of the flat and, therefore, becoming aware of and relying on the existence of the Bldg Regs final certificate between exchange and completion would be irrelevant. In my view that is true as a statement of the general position. However, given the terms and effect of the relevant sale contracts, as discussed in section 3 above at paragraphs [insert], it seems to me that in principle it might be possible for an individual ZBC claimant to prove that he or his conveyancing solicitors had relied upon the existence of the relevant Bldg Regs final certificate in the context of a decision whether or not to agree to proceed to completion or to contest being compelled to complete on the basis that the individual flat or the whole development had not been properly completed.

Another overarching point made by ZBC is that the only difference between the 11 leaseholder claimants who bring a claim against it and the remaining 15 who do not is that each of the ZBC claimants completed the purchase of their flats after the relevant Bldg Regs final certificate was issued, whereas each of the non-ZBC claimants did not. Indeed, in some cases the same claimants bring a claim against ZBC in respect of flats completed after the relevant Bldg Regs final certificate was issued but do not bring a claim in respect of flats purchased before that date. This is notwithstanding that in several cases the same firms of solicitors acted for the ZBC claimants and the non-ZBC claimants.

The ZBC claimants submit that this is a non-point, because it is obvious that those claimants who completed on their flats before the relevant Bldg Regs final certificate was issued cannot, as a matter of chronological logic, have relied on non-existent certificates and, hence, cannot have a claim against ZBC. ZBC, however, submits that this misunderstands the point which it is making, which is that if it was so important for a prospective purchaser and/or their conveyancing solicitors to know that there was a Bldg Regs final certificate in place, because of the additional security which that gave, then why did the non-ZBC claimants complete and, more pertinently, why did their – often the same - conveyancing solicitors not advise them that they should not complete unless and until a Bldg Regs final certificate had been issued?

The ZBC claimants are, it seems to me, unable to answer this point. They are unable to adduce any evidence from their conveyancing solicitors which might explain the apparent difference in view between those who completed before and those who completed after Bldg Regs final certificates were issued. The only obvious explanation, which would be fatal to the ZBC claimants’ case, is that the conveyancing solicitors who acted for the ZBC claimants did not in fact consider the Bldg Regs final certificates to be important. In my view this is the only sensible conclusion to be drawn from the evidence which has been placed before me.

There is a complete absence of evidence that any of the ZBC claimants or their conveyancing solicitors were provided with the relevant Bldg Regs final certificate either before exchange or before completion. There is no suggestion that they asked for it or sought to obtain some comfort, legal or otherwise, that it would be provided. Nor is that particularly surprising, given that any sensible purchaser and his conveyancing solicitor would be far more interested in the fact that JCS was able to offer a ZBG building warranty as part of the sale package, since that was a policy which was directly enforceable by the purchaser against a blue-chip insurer in accordance with its terms in the event of any breach of Bldg Regs whereas – as any lawyer would know, either through existing familiarity with Anns v Merton LBC or a modicum of research – no claim could be made against the building control inspector even on proof of negligence, since only proof of fraud would suffice.

If the contracts had provided for completion to take place once JCS had provided the purchasers with a copy of the Bldg Regs final certificate then I accept that the position would be very different. However they did not, making the trigger the provision of the cover note. There is no basis for inferring that the conveyancing solicitors would have believed there to have been a necessary correlation between the issue of the cover note and the issue of the Bldg Regs final certificate such that the issue of the cover note must have meant that the Bldg Regs final certificate had already been issued. Contractually, there is no relationship between the two. In practice, as this case has revealed, the cover note should be followed by the building warranty final certificate and then by the Bldg Regs final certificate, but the process of issuing a cover note is a separate process from the issue of the Bldg Regs final certificate.

Thus, in the absence of specific evidence in a particular case that the conveyancing solicitors did in fact come to know of the existence of the Bldg Regs final certificate and considered it relevant to whether or not their client was obliged to complete if their client was not willing to complete, then in my view the ZBC claimants’ case based on their relying upon the reliance placed by the conveyancing solicitors upon the Bldg Regs final certificate must fail.

I have already, in that context, considered Dr Ikpeme’s case and concluded that he cannot succeed on that basis given my assessment of the facts.

Mr Hussain’s case raises more difficult issues. I am satisfied that the real question is the reliance of Mr Syed who, I am satisfied, was undoubtedly acting as agent of Mr Hussain for all relevant purposes. The evidence shows clearly that before completion he had been made aware of and received a copy of the Bldg Regs final certificate. It is also clear that he was not prepared to accept that certificate as conclusive, because he was challenging both JCS and Mr Mather as regards what he regarded as the remaining unresolved defective state of the opening windows. Moreover, there is no clear documentary evidence which shows that he believed or he was being advised by the conveyancing solicitors that the issue of the certificate would prevent Mr Hussain from contesting his obligation to complete on the basis of the ongoing problem with the french windows and balcony.

In my view and on balance Mr Hussain has not succeeded in proving reliance. It must be borne in mind that at no time prior to exchange was the Bldg Regs final certificate even in existence, let alone referred to. It follows, in my view, that it could only have been relied upon prior to completion on the basis that it influenced the decision whether or not to complete. There is simply no documentary evidence which shows that it did influence that decision. It was only produced because Manchester Building Control suggested that Mr Syed should check that it related to the right flat. It was not deployed by JCS to force Mr Hussain to complete. There is no credible evidence that Mr Hussain’s solicitor or Mr Hussain or Mr Syed believed that it did. The email written to Mr Mather the day after completion is in my judgment not credible as an accurate record of fact; if Mr Syed had genuinely believed that Mr Hussain was compelled to purchase because of the certificate then I have no doubt that he would have continued to correspond with Mr Mather from March 2010 onwards to seek to persuade him to accept that the certificate should be withdrawn or suspended until the ongoing problem with the opening windows as he perceived it had been resolved. It seems to me that he is just writing to preserve Mr Hussain’s position in relation to any potential future claim. There is no credible evidence that Mr Syed had any positive belief in the accuracy of the certificate other than in relation to the opening doors. Indeed, there is no credible evidence that he had any positive belief in its accuracy at all.

In summary, I am satisfied that all of the individual leaseholder claimant cases fail in relation to reliance on and by their conveyancing solicitors and I am also satisfied that those who also allege personal reliance fail on the facts as well.

I should also add, for completeness, that even had I allowed the individual leaseholders to amend to plead the presumption of reliance and/or to plead that it should be presumed that the conveyancing solicitors relied because it would have been negligent not to obtain a copy of the Bldg Regs final certificate before exchange or completion I would not have found in favour of the claimants on the issue of reliance. In short, that is because:

That leaves just Zagora, whose claim I have already held fails at the hurdle of intention. In short, and by reference to the evidence I summarise and findings I make at section 5 above, I would have found that Zagora itself did rely on the Bldg Regs final certificates when proceeding to exchange and complete. Reliance on and by its conveyancing solicitors does not arise because it is so plain that Mr Broadhurst and Mr Robinson were personally relying on the Bldg Regs final certificates being in place.

Given the conclusions I have already reached, there is no need to consider limitation in relation to any of the ZBC claimants, however for completeness I shall do so shortly.

First, it is common ground that there is no limitation issue in respect of Zagora’s claim against ZBC, whereas limitation issues are raised against the individual leaseholder ZBC claimants.

The individual leaseholder ZBC claimants rely on section 32(1) of the Limitation Act 1980, which provides that time for claims in fraud does not begin to run until “the plaintiff has discovered the

As the claimants said in their written opening section 32(1) was considered in Allison v Horner [2014] EWCA Civ 117, where the following points were made at paragraphs 14 to 16:

Finally, but for my previous conclusions I would have had to consider the question of loss, where a number of different and potentially complex issues have arisen.

The starting point is that the parties agree that the primary basis of claim is diminution in value, to which should be added any justified claims for associated losses and from which should be deducted any justified credits for associated gains.

I should record that there was a large measure of agreement as between the valuers instructed by the claimants and by ZBC, which has made my task easier. I should also express my gratitude to the legal representatives for the ZBC claimants and for ZBC who, during the course of the proceedings and continuing after the close of the trial proper, endeavoured to agree figures as figures, resulting in the production of an updated schedule of loss which was sent to me on 30 November 2018 and which contained agreement on everything save for 5 individual issues. Taking those shortly: