Legal Watch:Property Risks & CoverageApril 2015Issue 004

In This Issue:

• A Matter of Construction – CAR policy wording (Part 2)

• Coope & others v Ward & another – costs update

• Reasonableness (or otherwise) of Costs Budget

Contact UsIf you would like any further information on the cases or articles featured in this issue, please contact:

Peter BlanchardT: 0844 245 5270E: peter.blanchard@plexuslaw.co.uk

Robert DellT: 0844 245 4473E: robert.dell@plexuslaw.co.uk

Marise GellertT: 0207 469 6249E: msg@greenwoods-solicitors.com

This month we return to three cases featured previously.

Peter Blanchard looks at the case of Aspen Insurance UK Limited v Adana Construction Limited previously featured in April 2013.

Robert Dell takes another look at the case of Coope & others v Ward & another, which he covered last month and we also look at the case of CIP Properties (AIPT) Limited v Galliford Try Infrastructure Limited, EIC Limited & others featured in November 2014.

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Introduction

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A Matter of Construction – CAR policy wording (Part 2)Aspen Insurance UK Limited v Adana Construction Limited [2015] EWCA Civ 176 and 177

In July 2013, we reported the outcome of this interesting case in which insurers sought a declaration of non-liability under a Contractors All Risks (CAR) policy and which provided a useful illustration of a CAR policy and the liabilities which the court would normally expect to be covered under such a policy. In particular, it appeared to illustrate that the court will not normally be prepared to allow an insurer to avoid liability on the basis that the incident falls ‘between the cracks’ of the various components of coverage provided under a combined policy but where liability could not fall under both product and public liability sections of a policy.

BackgroundIn 2008 Adana Construction Limited, (ACL) contracted to construct a crane base at the King’s Dock Mill construction site in Liverpool. Following completion of the crane base in October 2008, a tower crane was installed and used without incident until April 2009, when it was replaced by a heavier crane. In June 2009 the new crane collapsed, causing significant injury to the crane operator and damage to the construction works and neighbouring properties.

The expert evidence indicated that dowels installed and bonded into pilings to provide tensile strength had not been installed to sufficient depth, so that the strength of the connection between the crane base and the piles was reduced to only 55% of its designed specification. However, the majority of experts agreed that despite the apparent defective workmanship of ACL, the collapse would still have occurred given the increased weight of the new crane.

Notwithstanding that the issue of liability had yet to be determined (and this remains the case) Aspen sought a declaration that ACL were not covered on the basis that:

1. The crane base represented a ‘product’ under the terms of the policy (where exclusions applied)

2. That its liability arose solely due to the failure of the product to perform its intended function, and/or

3. That the public liability policy excluded coverage for any liability caused by a ‘product’ under the policy

In dismissing Aspen’s case at first instance the judge found that neither the crane base nor the dowels were a ‘product’, that the crane base had fulfilled its intended purpose and that public liability cover does not end when the project ends, so that a claim is either product liability or nothing, as this would create a gap in cover which reasonable business people would expect to have procured. In addition the judge rejected Aspen’s argument that pursuant to a foundations clause included within the policy, liability was partly excluded for “loss or damage to any superstructure arising from the assured’s foundation works failing to perform their intended function”, on the basis that the term ‘superstructure’ did not apply to a temporary crane.

Aspen appealed.

The appeal In giving the leading judgment Lord Justice Christopher Clarke held that whilst the meaning of ‘product’ eluded precise definition, a hallmark of a ‘product’ was that it was something tangible and moveable which could be transferred from one person to another. It was not something which only came into existence to form part of the land on which it was created.

However, the judge at first instance was correct to hold that the crane base was not a ‘product’ even though ACL had carried out concreting works for the purpose of securing a foundation for the crane on the site, which had created something. The dowels were ‘products’ but they had not failed. If ACL were liable it was due to their defective

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workmanship in not installing the dowels properly and as such cover would fall under the public liability section of the policy. However, his Lordship found that the foundation clause within the policy was applicable. The foundation clause was expressed in very general terms so as to apply to loss or damage to any superstructure and not only to buildings. His Lordship considered that the construction of the crane base and the installation of dowels were foundation works within the meaning of the policy. The intended function of those works was to transfer the tensile load into the piles in such a way that the crane did not topple over. If ACL were liable in respect of damage to the crane itself, liability for such damage is excluded under the foundation clause because ACL’s foundation works failed to perform their intended function.

“...a hallmark of a ‘product’ was that it was something tangible and moveable which could be transferred from one person to another...”A declaration was therefore granted in part in favour of Aspen but it would appear to be limited to damage to the crane only.

CommentIt remains the case that the court will not normally sanction a very narrow interpretation of policy terms under a combined policy so as to enable an insurer to escape all liability. However, the question of the nature of the works being carried out and the extent to which cover is available at all in relation to loss or damage to such works, can only be decided upon the full and proper consideration of all the terms of the policy and on a case by case basis.

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Coope & others v Ward & another – costs updateIn March we looked at the case of Coope & others v Ward & another in which the Court of Appeal looked at the measured duty of care that landowners have to each other, and the consequences of that duty of care when a wall adjoining two properties (and offering support to one) collapses.

Following the judgment of the Court of Appeal it was necessary for the court to consider who should meet the costs of the claim and appeal, presumably in the absence of any agreement by the parties. That decision can be found at [2015] EWCA Civ 283.

After taking all relevant matters into account the Court of Appeal ruled that the Wards should pay the Coopes 85% of their costs of the appeal (the small deduction made on the basis that the Coopes did not succeed on two of their grounds for appeal, but those failed grounds took up relatively little court time).

There was further discussion on the costs of the first instance claim. The Court of Appeal awarded the Coopes 85% of the costs of the original claim. The Court of Appeal based this decision on the following points:

1. At first instance the Wards had failed to prove their claim by establishing an easement of support, and most of the evidence in the five day trial had focused on that aspect of the claim. Consequently the court ordered that the Wards should pay the Coopes’ costs of the claim

2. The Court of Appeal reduced the costs to be paid by the Wards by 15% to take into account the fact that the Coopes made, and lost, a counterclaim (although the counterclaim did not take up much court time)

3. The Coopes also failed to respond to an offer made by the Wards whereby the Wards would meet the full cost of rebuilding the wall on their land if the Coopes would remove rubble and an outbuilding and allow the Wards

all necessary access to the land. That proposal was that each party bear their own costs

4. The Court of Appeal accepted that it would not have been reasonable to expect the Coopes to accept an offer (which bore a similarity to the result eventually reached) without payment of their costs. That said, the court noted that the Coopes had not responded to the offer or proposed payment of a proportion of their costs, which might have avoided a large proportion of the costs eventually incurred

“...it would not have been reasonable to expect the Coopes to accept an offer (which bore a similarity to the result eventually reached) without payment of their costs.”CommentThe cost order seems a fair and just one given the findings in the Court of Appeal. However, it is worth noting that a party who makes no response to offers of settlement when an offer is all but there in terms of resolving a matter can expect to be penalised in terms of the legal costs they might ultimately recover, even if successful.

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Reasonableness (or otherwise) of Costs BudgetIn November 2014 we featured the case of CIP Properties (AIPT) Limited (claimant) v Galliford Try Infrastructure Limited (defendant) & EIC Limited (third party) Kone Plc (fourth party) DLG Architects LLP (fifth party) Damond Lock Grabowski & Partners (a firm) (sixth party) (2014).

BackgroundThis claim arose out of alleged defects at a large development on the site of a former children’s hospital in Birmingham and the claim against the defendant main contractors (G) was based on the actual/estimated cost of remedial work, in the sum of £18 million. G then issued third party proceedings against the architects and various of their sub-contractors.

The court was required to determine the appropriate costs budgets to be included in a costs management order in proceedings for damages brought by the claimant against the defendant main contractor.

The case came back before the court, as the parties were unable to agree costs budgets.

Prior to the first case management conference, the claimant had filed a case management information sheet which included an estimate of its costs at almost £3.5 million. Its proposed costs budget produced for this hearing was almost £9.5 million. The defendant’s incurred and estimated future costs figure was £4.48 million. Four additional parties, joined to proceedings by the defendants, estimated their costs at £5.45 million.

The hearingThe primary issue before the court was whether the costs budget submitted by the claimant was reasonable. All of the other parties made extensive and sustained criticism of the claimant’s costs budget.

The claimant sought to justify the fact that its costs were more than twice that of the defendant, putting forward five reasons:

1. The outcome of the proceedings was likely to be that the defendant would be ordered to pay the claimant’s costs in full or in part and that the defendant in such a situation “has an incentive to advance low figures in its costs budget”. In other words, the defendant had deliberately submitted a low costs budget to seek to persuade the court to reduce the claimant’s costs budget

2. By virtue of its role as claimant, this claimant had been obliged “to bear the lion’s share of the proceedings”. The claimant’s counsel submitted that a claimant had to advance a case whereas the defendant “was free to criticise the claimant’s analysis without going to the expense of undertaking an equivalent analysis”

3. The defendant had largely failed to engage with the issues of remedial works

4. The claimant was having to respond and deal with the issues raised by all four of the additional parties and was therefore facing multiple teams of lawyers and experts

5. Difficulties with disclosure had led to problems with the formulation of the claim. It was said that the defendant should have been more forthcoming at the pre-action protocol stage

The decision The court held that the claimant’s costs budget was “an entirely unreliable document” and that both the costs already incurred and estimated costs for the future were disproportionate and unreasonable by reference to CPR r.44.3(5). There was no reason (and no reason had been put forward) why the claimant’s overall costs figure should not be similar to that of the defendant. If anything, it should be less, as the defendant would be doing most of the work in preparing for and running the trial.

The court rejected all five of the reasons put forward by the claimant (listed at 1-5 above) to justify the disparity and level

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of their costs. There was nothing to justify the assertion that the defendant had manipulated its costs to keep them low and, in fact, given the deliberate absence of any explanation for the huge increase in its own costs incurred and estimated, and the schedule of assumptions, which the court took the view could only have been designed to give the claimant’s legal team the maximum “room for manoeuvre” later in the proceedings, the conclusion of the court was that the claimant’s costs budget had been deliberately manipulated. The court took the view that claimant did not want the court to make costs management orders and the production of the costs budget in its present format was a continuation of that stance by other means.

The court held that it was wrong to say that it was likely that the defendant would be ordered to pay the claimant’s costs. In this type of case, Part 36 offers were almost always made, and usually early in proceedings. The usual question was, therefore, whether the court’s ultimate judgment was above or below the level of the offer.

It was also wrong to say that because the claimant was the claiming party it had the lion’s share of costs. Such cases tended to be run by the experts, who had identified the defects and the appropriate remedial work. In cases such as this the defendant needed to be on top of all the relevant material just as much as the claimant, particularly where the defendant had incurred the costs risk of joining additional parties. It was also wrong for the claimant to suggest that its own costs were greater because of the addition of those parties, particularly in light of the fact that it had said throughout that its costs budget had been prepared by reference to the defendant only.

In light of its view that the claimant’s costs budget set out figures which were wholly unreasonable and unjustified, the court determined the upper limit of the reasonable amount under each head of costs to be a total figure of £4.28 million.

After summarising the available options, the court identified and set out the various budget figures in a costs management order, including the claimant’s approved budget of £4.28 million. The court also approved the defendant’s costs budget, at £4.22 million, with minor reductions made to

the proposed budget. The costs budgets of the additional parties were proportionate and reasonable, and were approved in full.

In cases such as this the defendant needed to be on top of all the relevant material just as much as the claimant, particularly where the defendant had incurred the costs risk of joining additional parties.CommentNotwithstanding that this was a substantial claim in monetary terms, the judge took the view that it was a “standard TCC defects case” and would be a “relatively straightforward matter for the claimant to pursue”. This case shows that the court will undertake a detailed analysis of costs budgets, particularly where there is a substantial disparity between those of the claimant and defendant and the party with the more substantial budget will need to be armed with very good (and justifiable) arguments to explain that disparity.

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The information and opinions contained in this document are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. This document speaks as of its date and does not reflect any changes in law or practice after that date. Plexus Law and Greenwoods Solicitors are trading names of Parabis Law LLP, a Limited Liability Partnership incorporated in England & Wales. Reg No: OC315763. Registered office: 12 Dingwall Road, Croydon, Surrey CR0 2NA. Parabis Law LLP is authorised and regulated by the SRA.

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