Great Lakes Reinsurance (UK) SE v Western Trading Ltd, Court of Appeal - Civil Division, October 11, 2016, [2016] EWCA Civ 1003

Resolution Date:October 11, 2016
Issuing Organization:Civil Division
Actores:Great Lakes Reinsurance (UK) SE v Western Trading Ltd

Case No: A3/2015/0761 & A3/2014/0762

Neutral Citation Number: [2016] EWCA Civ 1003





His Honour Judge Mackie QC


Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 11/10/2016

Before :





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Between :

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Mr Robert Moxon Browne QC an Mr Lucas Fear-Segal (instructed by Kennedys Law LLP) for the Appellant

Mr Ben Elkington QC (instructed by Edwin Coe LLP) for the Respondent

Hearing dates: 21 & 22 June 2016

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JudgmentLord Justice Christopher Clarke:

1. The question in this appeal is whether a company, insured under a policy providing cover against fire, is, or may be, entitled to an indemnity consisting of the cost of reinstatement after the building insured was destroyed by fire. On 26 January 2015 HH Judge Mackie QC sitting in the Mercantile Court decided that the company was entitled to a declaration as to entitlement and it is from that decision that the insurers appeal.

2. The properties concerned (hereafter ``the Property'') are 1-8 Station Street, in Central Walsall. The principal building, at 1-7 Station Street, is known as the Boak Building. It was built as a leather factory in about 1906 and is an historic listed local landmark. The Property is owned by Mr Chinderpal Singh (``Mr Singh''). No 8 is part of a terrace and has a large shed behind it. The claimant insured, now the respondent, is Western Trading Limited (``Western Trading''). Mr Singh is its only director and its principal shareholder. The other shareholder and company secretary is his wife. Western Trading exists to hold and manage Mr Singh's property portfolio. Some properties, such as the Property, are owned by Mr Singh personally. Others are owned by Western Trading.

3. The defendant insurers, now the appellants, are Great Lakes Reinsurance (UK) Plc, an insurance company which is a subsidiary of Munich Re (hereafter ``the insurers'').

4. The Boak was suitable for conversion. In January 2009 planning permission was given for its conversion into 31 residential flats.

5. By 24 July 2012 the Property, which was let to a company owned by Mr Singh's son, was essentially a shell, unused save for occasional rough storage on the ground floor and, in the case of No 8, was derelict and awaiting demolition. On that date it was destroyed by fire and its listed building status was in consequence revoked. At trial the insurers contended (i) that Western Trading had no insurable interest in the Property; (ii) that the policy was avoidable for misrepresentation and non-disclosure; and (iii) that Western Trading was in breach of warranty. The judge did not accept that any of that was so [61] [100] and [105] and there is no appeal from his decision on these points.

The insurance

6. Western Trading had had a series of polices with the insurers. For the 2012/3 policy year it purchased insurance on the Property, which included material damage, loss of rent and liability cover. The sum insured for the buildings was £ 2,121,800, which represented what was understood to be the rebuilding cost of the Property. For the 2010/11 and 2011/2 policy years the figure for ``Present Building Value (rebuilding cost)'' had been £ 2,000,000 and then £ 2,060,000. The premium charged for the 2012/3 year was a percentage (0.19%) of the rebuilding cost of £ 2,121,800.

7. The market value of the Property was much less than the sum insured. The experts agreed that the value of the Property before the fire was only £ 75,000, based on its existing condition and user.

8. The Insuring Clause of the Material Damage section of the Policy - Section A - provided as follows:

``Subject to the General Conditions and Exclusions of this Certificate, and the conditions and exclusions contained in this Section, we the Underwriters agree to the extent and in the manner provided herein to indemnify the Assured against loss of or damage to the property specified in the Schedule (hereinafter referred to as `the Property') caused by or arising from the Perils shown as operative in the Schedule, occurring during the period of this insurance.

``Underwriters shall not be liable for more than the Sum Insured stated in the Specification or in the Certificate in respect of each loss or series of losses arising out of one event at each location as stated in the Schedule.''

9. The Memoranda [sic] in respect of Section A included a reinstatement clause in the following terms:

``4) Reinstatement

It is hereby agreed that in the event of the property insured under item 1 of this Section of the Certificate being lost, destroyed or damaged by any peril insured hereunder the basis upon which the amount payable under each of the said Items of the Certificate is to be calculated shall be the reinstatement of the property lost, destroyed or damaged subject to the following special provisions and subject also to the terms and conditions of the Certificate except in so far as the same may be varied. For the purpose of the insurance under this Memorandum `reinstatement' shall mean:

a) the carrying out of the following work, namely,

i) Where property is lost or destroyed, the rebuilding of the property, if a building ... in a condition equal to but not better or more extensive than its condition when new.

5) Special Provisions

a) The work of reinstatement (which may be carried out upon another site and in any manner suitable to the requirements of the Assured subject to the liability of the Underwriters not being thereby increased) must be carried out with reasonable despatch otherwise no payment beyond the amount which would have been payable under the Policy if this Memorandum had not been incorporated therein shall be made;


c) No payment beyond the amount which would have been payable under the Policy if this Memorandum has not been incorporated herein shall be made until the cost of reinstatement shall have been actually incurred.''

10. The judge accepted - at paragraphs [12] [28] [57] and [59] - the evidence of Mr Singh, whom he found to be straightforward and truthful, as to the terms upon which Western Trading let and managed the properties which were owned by him. That evidence was to the following effect:

i) Western Trading had the right to sub-let the properties and to receive and enjoy the rent received from the sub-tenants;

ii) In return Western Trading was responsible and paid for the upkeep and maintenance of the buildings, for arranging insurance for the properties, and for the outgoings on the properties. This arrangement applied to the Boak building for which Western Trading paid all the outgoings and which it had a responsibility to replace in the event of fire.

iii) Western Trading paid Mr Singh rent. The amount was not calculated by reference to the total rents collected by Western Trading but reflected what Mr Singh thought was a reasonable charge and what Western Trading could afford to pay.

iv) The rent paid was recorded in the accounts and financial statements of Western Trading and was declared in Mr Singh's personal accounts and in his tax returns.

11. The arrangements between Mr Singh and Western Trading were not recorded in writing. Mr Moxon Browne QC on behalf of the insurers has drawn our attention to the evidence given by Mr Singh in cross examination. It is in fairly general terms and leaves a number of matters unclear including (a) how exactly the arrangements came to be made; and (b) the exact nature of the tenancy, if that is what it was, whether for a term, periodic or at will. However, the insurers do not seek to challenge the judge's findings of fact.

12. The judge referred [113] to Mr Singh's evidence that he genuinely intended to reinstate the Boak both for emotional and economic reasons. As to the former, members of his family had owned the Boak for 33 years and his children had had links with it when growing up. The building had been a feature of their family life. In 2002 he had bought his brother's half interest for £ 100,000 when he, himself, owned half.

13. The primary relief that Western Trading sought was a declaration that it was entitled to be indemnified under the terms of the Policy in respect of the losses it had suffered and was continuing to suffer as result of the fire up to the limits of indemnity contained within the Policy. Further or alternatively it claimed to be entitled to the cost of reinstating the Property up to the limit of £ 2, 121,800 and to a loss of rent in the sum of £ 29,500. (As to the latter Western Trading was awarded £ 14,750).Western Trading later reversed this position by contending, in a response of 20 December 2013 to a request for further information of its Reply, that its primary case was that it was entitled to recover the cost of reinstating the Property even though it had not yet been reinstated because the insurers had wrongfully purported to avoid the policy and refused to accept any liability - a conclusion which would not appear to flow from the premise. Then in its opening [103] of 19 November 2014 it said that the primary relief sought was a declaration.

14. At the trial the insurers relied on the defences set out in [5] above all of which had been pleaded. There was no pleading which said that a declaration would be inappropriate, even if the substantive defences were rejected.

15. The judge decided that Western Trading had the right to be indemnified up to the limit of indemnity for the cost of reinstating the Property if it did so. He plainly regarded the making of a declaration as a sensible approach not least because it would protect the insurers. If Western Trading did not reinstate, the insurers would be ``spared the...

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