2010 EWHC 425 (Comm)

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
THE LONDON MERCANTILE COURT

HIS HONOUR JUDGE MACKIE QC	     	
	Draft Circulated 
12TH February 2010  	
B E T W E E N		

			
	(1)LOYALTREND LIMITED

(2)SYE RAZVI
		
		Claimants	
			
	And		

	(1)	CREECHURCH DEDICATED LIMITED (sued on behalf of itself and as representative for all other underwriting names on Syndicate 962 2002 Underwriting Year)
(2)	BRIT UW LIMITED
(3)	CATLIN (FIVE) LIMITED (sued on behalf of itself and as representative for all other underwriting members of Syndicate 2020)		
		Defendants

	

	

 JUDGMENT DATED 5TH MARCH 2010

Mr Edmund Cullen (instructed by Clintons) appeared for the Claimants.
Mr Neil Calver QC (instructed by Barlow Lyde & Gilbert) appeared for the Second Defendant

1.	This is a claim for damage and business interruption under an insurance policy arising from subsidence affecting a shop. The Claimants say that they have suffered business interruption losses of over £220,000 which they are entitled to recover under the policy. The Second Defendant denies liability and claims that there was no material damage of the kind which is a pre-condition to business interruption cover, at least within its own policy period, and, amongst other defences, that there was a failure to give timely notice to the insurer.
2.	Background
The First Claimant, Loyaltrend Limited, is a company now in liquidation which, until earlier this year, traded as a higher range fashion clothing retailer under the name “Question Air”. Loyaltrend had a branch in Notting Hill on the ground floor and basement of 229 Westbourne Grove (with which this case is concerned and which I will call “the shop”). It had other branches in Wimbledon Village, Barnes, Dulwich, Clapham and Hampstead.
The recently added Second Claimant Mr Sye Razvi is a Director of Loyaltrend and the mainspring of the “Question Air” business. On 7th September 2009 Mr Razvi took an assignment from the liquidator of the rights to bring this claim. Question Air continues to trade through a different company owned mainly by members of Mr Razvi’s family.
The First Defendant insured Loyaltrend in the year 11th December 2002 to 10th December 2003, the Second Defendant (“Brit”) for the period 11th December 2003 to 10th December 2004 and the Third Defendant (“Catlin”) from 11th December 2004 to 10th December 2006.
These arrangements were made by Loyaltrend’s brokers Riverbourne Limited through AUA Insurance, the underwriting agents for the three Defendants. For some time neither Loyaltrend, nor it seems Riverbourne, appreciated that there were three different insurers, each with its own policy terms.
 Loyaltrend discontinued the proceedings against the First and Third Defendants on terms which yielded no payment towards their claim and decided to pursue only Brit.
Mr Razvi took a lease of the shop on 19th November 2001 from Banbury Estates. He allowed Loyaltrend to use the shop on terms irrelevant to this case. It comprises the ground floor (with raised mezzanine) and the basement of a 4 storey building. The upper storeys are set back from the road. Above the front part of the shop is a flat roof used by the owner of a flat on the 1st floor as a roof garden containing pots and decking. At the outset of Loyaltrend’s occupation there was a problem with water leaking through the roof from the flat. This was put right by some repairs by the landlord which delayed the opening for a week. Problems arose from the middle of 2003 and continued until at least 2006.I will refer to these in what needs to be some detail shortly but before doing so I set out the relevant provisions of the policy.
3.	The Policy
The policy is a “shop and restaurant insurance policy” underwritten by AUA “on behalf of the Insurers”. Under “policy definitions” “business” is that “stated in the schedule”. The schedule refers to, in effect, Question Air, clothing retailers, at all its different branches.” Damage” is defined at “loss, destruction or damage”.
4.	The General Conditions provide at (1) that compliance with the policy is a condition precedent to  liability and also include:-
	(5)	CLAIMS
The insured shall give immediate notice to the Insurers
(a)	on the happening of any Injury or damage in consequence of which a claim is or may be made under this Policy and shall at their own expense within 30 days after the happening of such Injury or Damage deliver to the Insurers in writing such details or particulars and proofs as the Insurers may reasonably require
In the case of Damage caused by malicious persons or theft or any attempt thereat the Insured shall give immediate notice to the police
In the event of a claim under any personal accident cover the Insurers shall be allowed at their own expense to have a medical examination of the injured person
(b)	of a claim for indemnity under this Policy received from or on behalf of any Employee landlord or member of the public and shall forward to the Insurers every letter claim writ summons and process issued or commenced against the Insured and shall give the necessary information and assistance to enable the Insurers to settle or resist any claim or to institute proceedings
(6)	INSURED’S DUTY
No admission offer promise or indemnity shall be made or given by or on behalf of the Insured without the written consent of the Insurers
5.	Section A relating to “standard cover” provides as regards Material Damage: - “the Insurers shall indemnify the Insured as a result of Damage by any peril defined herein and stated against this Sub Section in the Schedule as being operative to Trade Contents, Stock, Tenants Improvements and other property specifically stated herein whilst within or attached to any building at the Premises used in connection with the Business”.
6.	Trade contents are “machinery, plant, shop front (excluding glass), fixtures and fittings, signs, blinds and all other contents (other than Stock and Tenants Improvements) all belonging to the Insured or held by the Insured in trust for which the Insured is responsible”.  (It seems clear that the word “or” should be inserted after “trust”).  Stock is “stock and materials in trade being the property of the Insured while held by the Insured in trust or on commission “for which the Insured is responsible”. Tenants Improvements are “tenants’ improvements and interior decorations being the property of the Insured or for which the Insured is responsible”.
The Defined Perils include subsidence as follows:-
(12) Subsidence 
Subsidence ground heave or landslip excluding Damage
(a)	caused by or consisting of
(i)	settlement or movement of made-up ground
(ii)	coastal or river erosion
(iii)	defective design or workmanship or the use of defective materials
(iv)	fire explosion earthquake or the escape of water from any tank apparatus or pipe 
(b)	which originated prior to the inception of this cover 
(c)	resulting from 
(i)	demolition construction structural alterations or repair of any property at the Premises
(ii)	groundworks or excavation at the Premises
7.	The policy contains, under sub section 2, the following relevant provisions dealing with business interruption:-
In the event of Damage for which the Insurers are liable under Sub Section 1 of this Section the Insurers will indemnify the Insured against any loss of Gross Profit due to (1) reduction in Takings and (2) additional expenditure calculated as follows
(1)	In respect of reduction in Takings – the sum produced by applying the Rate of Gross Profit to the amount by which the Takings during the Indemnity Period shall in consequence of Damage fall short of the Standard Takings
(2)	in respect of additional expenditure – the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Takings which but for that expenditure would have taken place during the Indemnity Period in consequence of Damage but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided
less any sum saved during the Indemnity Period in respect of charges and expenses payable out of Gross Profit as may reduce in consequence of Damage
LIMIT OF LIABILITY
The Insurers’ liability under this Sub Section shall not exceed the sum insured stated in respect of this Sub Section in the Schedule but if such sum insured is less than the sum produced by applying the Rate of Gross Profit to the Annual Takings (or such multiple thereof that the Maximum Indemnity Period compares to 12 months if the Maximum Indemnity Period is longer) the amount payable in respect of loss of Gross Profit shall be proportionately reduced 
DEFINITIONS
Note (1) 	To the extent that the Insured is accountable to the tax authorities for value added tax all terms in this Sub Section shall be exclusive of such tax
Note (2)	For the purposes of these definitions any adjustment implemented in current cost accounting shall be disregarded 
Gross Profit
Takings less the net cost of purchases relative thereto
Takings 
money paid or payable to the Insured for goods sold and delivered and for services rendered in course of the Business at the Premises
Indemnity Period 
period beginning with the occurrence of Damage and ending not later than twelve months thereafter during which the results of the Business shall be affected in consequence of Damage
Rate of Gross Profit
rate of Gross Profit earned on the 			to which such adjustments shall be
Takings during the financial 				made as may be necessary to provide
year immediately before the date of 		for the trend of the Business and for
damage						the variations in or special 
Annual Takings					circumstances affecting the Business
Takings during the twelve months 			either before or after Damage or 
immediately before the date of the Damage	which would have affected the 
Standard Takings					Business had Damage not 
Takings during the period in the twelve 		occurred so that the figures 
months immediately before the date of 		thus adjusted shall 
Damage which corresponds with the 		represent as nearly as may 
Indemnity Period appropriately adjusted		reasonably be practicable 
where the Indemnity period exceeds twelve 	the results which but for Damage
months						would have been obtained during the
							relevant period after Damage
EXTENSIONS
(1)	DENIAL OF ACCESS
Loss resulting from interruption of or interference with the Business as a consequence of Damage as insured by this Sub Section to property in the vicinity of the Premises which shall prevent or hinder the use thereof or access thereto whether the Premises or the property of the Insured therein shall be damaged or not.
9.	The Indemnity Period under Section A, sub-section 2 of the Policy was extended to 
18 months. There was an excess under the policy of £1,000.
10.	In broad terms therefore Loyaltrend could only recover a loss of gross profit sustained during the 18 months Indemnity Period after the damage was caused to its trade contents, stock and tenant’s improvements and provided that damage occurred (or as Brit emphasises, first occurred) between 11th December 2003 and 10th December 2004.The business interruption loss is that which follows from the relevant material damage (which may result from subsidence).There was no cover for business losses following directly from subsidence at the shop. This risk was apparently covered by the buildings insurance obtained by the landlord from its insurers AXA.  Riverbourne pursued a claim against AXA on behalf of Loyaltrend and may have been distracted by this from considering their clients’ rights against the Defendants in this action.
11.	The Trial
Although the parties had anticipated that the trial would last eight days it was completed in four mainly because the lawyers for the parties led by Mr Cullen for the claimant and Mr Calver QC for the defendant, kept to the relevant points and co-operated with each other. I was taken to thirteen bundles of documents and I heard evidence from seven witnesses of fact and four experts. The witnesses of fact were, for the Claimant, Mr Razvi, Mr Graham Lawton Loyaltrend’s building surveyor, Mr Jamie Coyne the former Managing Director of Riverbourne, Mr Dylan Ross, creative director, and Mr Roger Topping of Topmark Adjusters Ltd, the insurance adjuster retained to pursue the claim.  The Defendant’s witnesses were Mr Barry Green, a claims handler with AUA and Mr Graham Kerr AUA’s underwriter. Mr James Taylor and Mr K T R De Silva gave expert engineering evidence on the subsidence for the claimant and the defendant respectively. Mr Jeffrey Nedas and Mr Paul Isaac gave expert accountancy evidence for the claimant and the defendant.
12.	Facts Agreed or not greatly in dispute.
An AUA insurance survey on 29th January 2003 identified no signs of cracking or movement at the shop. This however was an insurance survey of all aspects of the risk and not a surveyor’s appraisal of the state of the premises. By the late summer of 2003 Mr Razvi had informed the landlord’s agents Farley about cracks to the front of the building. Mr Ashton, a surveyor at Farley inspected the shop and found cracking on both floors. When Mr Ashton inspected again in November he found significantly more cracking and signs of movement to the public pavement in front of the shop. Farley then notified AXA the landlord’s insurers.
This is consistent with a letter dated 28 November 2003 from Mr Lawton, Loyaltrend’s building surveyor who had been brought in to look at the problem. This letter stated that the situation had deteriorated significantly since Mr Razvi had been in contact and “apart from the physical unsightly appearance of the new extensive cracking, my client has, and continues to suffer, from continually having to adjust the front door to ensure that it closes securely….This in itself indicates continued movement in the building”. He referred to historic incidents of water ingress but expressed concern that problems might be the result “of deflection in the building causing damage to the water proof protection of the envelope” Mr Lawton concluded “my client is concerned not only with the current condition of the building, but also the consequences that any repairs may have on his ability to trade from the shop unit..”
Farley replied on 3rd December 2003 referring specifically to hairline cracking in the ground floor around the tops of the windows (C on the plan used at trial) and also to cracking in the lower  ground floor. Mr Razvi’s diary for 26th November 2003 refers to a crack in the ceiling above the till area “water is dripping through again” and to him calling Farley and Co, stating that “ceiling water pouring in”.  They promised that someone would go round that day.
On 11th December 2003 Brit’s the policy commenced.
As a result of these complaints the landlords commissioned a “technical report on a subsidence claim” from the national subsidence unit of Crawford. That report notes “significant cracking to the interior” of the shop and concluded that the timing of the damage suggested clay shrinkage subsidence. There was up to 12mm of cracking at one point.  The report was sent to Mr Lawton on 3rd March 2004 (but not forwarded to Brit). The cracking apparent in early 2004 would have been present the previous late autumn given what the experts both accept to be the seasonal pattern of tree related clay shrinkage. On 11th February Mr Lawton had written to Farley referring to the cracking and water penetration and to “considerable settlement of the building causing serious distortion to the structure, fabric and finishes which is subject to a current insurance claim”. Mr Lawton sought an indemnity from the landlord against his client having to pay for damage to the works caused by further settlement of the building. At this stage the responsibility was seen to lie with the landlord’s insurers.
13.	In the spring of 2004 temporary repairs were carried out to the roof by Farley & Co and these appear to have prevented any significant water ingress from that point on. Around the same time Banbury retained engineers in respect of the paving outside the shop and they fixed “tell tales” to monitor movements of cracks within the shop. At the beginning of June 2004 there was an unconnected flood of the basement of the shop caused by an escape of water from mains pipe. That claim was met by the Defendant.
14.        In August 2004 Mr Razvi was in touch with Riverbourne about the ‘ongoing’ subsidence problem and the risk of temporary closure of the shop during remedial work. The late Mr Murphy of Riverbourne emailed My Coyne about the issue. There is a dispute about whether Brit were notified at that point.
15.        In October 2004 Michael Chester Associates produced a structural engineering report for Banbury. This referred to the pattern of monitoring since April and concluded that this was tree related subsidence affecting the shop front and the front few metres of the basement. Monitoring continued until 2008. Cracks continued to develop until December 2006 before starting to reduce.
16.        The issue still seemed to be seen as one affecting only the landlord’s insurance as a letter from Mr Lawton in November 2004 suggests. In an exchange between Mr Coyne and AUA in November and December around the time of renewal the subsidence issue was raised but, according to Mr Coyne, ‘obviously it will affect mainly the landlord’s insurance’. This led Mr Kerr to ask Mr Coyne a question which was never answered ‘Subsidence issue at Notting Hill-what is this all about?’

17.	In March 2005 Mr Razvi instructed solicitors to write to Farley & Co demanding a suspension of rent, referring to a loss of profits at the shop as a result of cracking, jamming of doors and dampness.  Correspondence continued and in August 2005 Mr Coyne and Mr Murphy returned to the problem. Mr Coyne e-mailed Mr Murphy “the claim for subsidence in Notting Hill is getting much worse.  Sye now has solicitors involved against the landlord due to the state of the building can you keep AUA informed and note our file. Presumably (but can you check with AUA for me) if he has to shut the shop, he can claim under his BI (then they subrogate back) as I added subsidence to the policy a while ago for this very reason.Mr Murphy sent a fax to Mr Green of AUA referring to the claim against the landlord stating “the question I have at this stage is if the situation deteriorates to such an extent that he is unable to trade, please confirm any loss of gross profit would be covered under the policy, subject to production of relevant accounts etc…”
	Mr Green replied that “the policy would not extend to cover any loss of profit in these circumstances. Although the Business Interruption section of the policy does provide cover for the loss of gross profit, this is only following damage that is covered under the Material Damage section of the Insured’s policy”.

18.	In March 2006, frustrated by the lack of progress, Mr Razvi instructed Mr Topping’s loss adjusting firm to calculate the losses. Mr Topping produced a report dated 28th March 2006. This refers to the date of loss “discovered August 2004” and states “Riverbourne Group notified the tenant’s insurers, AUA insurance of the claim in August 2005”. In April 2006 Riverbourne sent the Topping report to Mr Green at AUA who in turn appointed loss adjustors Ellis May. That firm recommended a preliminary reserve of £30,000 which was set as the reserve by AUA (as opposed to Brit) on their computer system on 25th April 2006. Loyaltrend instructed solicitors who wrote on 28 July 2006, no doubt on the basis of the Topping report, that their client “advised AUA insurance of the damage and that a claim would be made via the brokers in August 2005”.
19.	Eventually the landlord granted Loyaltrend an abatement of rent for a total of £41,665.98.Loyaltrend compromised their subsequent claim against the landlord for £10,265 on 14th August 2006.
20.	Witnesses of fact – Claimant
	Mr Razvi’s witness statement dealt with the background and the history of problems with the shop which he used to visit 3 or 4 times a month. He said in evidence that by December 2003 there were indeed cracks but these had not interfered with his business. He knew that Mr Lawton was dealing with the problem and did not think that it would become a serious one. He emphasised that the business had done everything it could to mitigate the loss. He produced a series of photographs taken between April and October 2005 and explained the items of loss that were claimed.
He accepted in cross examination that the vast majority of the damage occurred after the end of Brit’s policy year in December 2004.Mr Razvi had been under the understandable impression that Loyaltrend was dealing with one insurer for the entire four year period but that in any event the damage would be met. Similarly he was unaware that Business Interruption insurance under the Brit policy was only available following material damage. Mr Razvi produced a supplemental statement dealing with various matters including the shop diary. He explained why the diary for the period before July 2005 is not available. Mr Razvi seemed to me a straightforward witness. He occasionally confused evidence with advocacy of his case and he was understandably and inevitably weak on the detail of what was happening at one of several shops.
21.	Mr Graham Lawton, the Claimants’ buildings surveyor, gave evidence about his role after being contacted by Mr Razvi in November 2003. He remained involved until matters moved to a conclusion in 2006. In cross examination he accepted that the damage which had occurred by December 2003 needed to be repaired at that point and that that was why the claim had been made to the landlord’s insurer. He accepted that by November 2003 the problems of cracking were serious, extensive and marked a serious deterioration and could be a “serious subsidence problem”. Mr Razvi had also told him that the cracking had deteriorated significantly between August and November of 2003 and that he was concerned about the effect that the necessary repairs would have on revenue at the shop. Mr Lawton was not involved between March and November 2004.  Mr Lawton said that before writing on 25th November 2004 he had gone back to the shop and “the situation had changed and the water damage had got much worse and was starting to affect the front of the shop and to become quite a major issue”.  As Mr Lawton saw it things had moved on because although the damage had been serious as at December 2003 “in building terms” in terms of the business it was still “manageable” but by late 2004 water was coming in on a regular basis and the fittings were starting to get damaged.
	Mr Lawton considered “other areas of damage which were the significant ones which were now causing real damage which were, I am talking about in terms of my – the operation of the shop” and these were additional to the concerns identified in December 2003.
              Mr Lawton seemed to me a straight forward, honest and professional witness who, unlike Mr Coyne and Mr Topping, gave an account of events unclouded by partiality towards his client. 

22.	Mr Dylan Ross, Loyaltrend’s creative director, is based at the Notting Hill shop and recalled water leaks during 2003 and some cracks. He considered however that matters became “much worse” towards the end of 2004. He recalled that the diary that had been kept at the shop which showed the deterioration and water ingress into the shop during Brit’s policy period had unfortunately been destroyed by a new manager Mr Talmadge when he took over.
It seemed to me that Mr Ross was trying to assist the court with his best recollection but that he had limited recall of the detail given the breadth of his responsibilities and the fact that he was not involved with the problem day to day. Further his recollection of what would have been in the missing diaries was too vague to give this point any weight.
23.	Mr Jamie Coyne is the former managing director of Riverbourne a company which he had formed in 2002 and, in effect, sold in 2008. His statement set out the role of his company in representing Loyaltrend during the period of the policy. In it he claimed that on 6th August 2004 Mr Razvi telephoned the late Mr Murphy as a result of which “Ulick at that time informed AUA of the problem” which he said was “potential subsidence”. He sought to support that recollection by exchanges of e-mails about the £30,000 reserve, a point which he in oral evidence accepted to be misconceived. He claimed that his e-mail of 26th November 2004 to Mr Kerr of AUA referred to discussion about subsidence which Mr Murphy had earlier had with AUA. He also said than when he met Mr Kerr on 15th November he was told that the business interruption would be covered by the policy despite what Mr Green had said in his fax of 30th August. 
	Mr Coyne was asked in cross examination what would have happened at the time of renewal in November 2003 if he had known of the factors referred to by Mr Lawton in his letter of that month. Mr Coyne said that he would have informed AUA of this, first because it was a “material fact” “in addition there would have been a chance it may have triggered a claim on the policy but, yes, we would have done, yes”.
	In oral evidence Mr Coyne asserted that Mr Murphy had told him that he had notified a claim to AUA. Mr Coyne did not say this in his witness statement and such a claim is not consistent with the surrounding correspondence or with the documents including those which came to light as a result of a witness summons issued by Brit’s solicitors against Mr Topping.
Mr Coyne did not react to Mr Toppings draft report stating that insurers were “first approached about a claim in 2005” or to  his advice that a claimant should start the clock running from early/mid 2005 so as to emphasise the recent development of the problem. It appears that until the stage at which Brit became the sole defendant Mr Coyne was not of the view either that the damage occurred during Brit’s policy period or that notification took place “informally” or otherwise in August 2004. 
Mr Coyne’s cross examination began with him denying that he was a “good personal friend of Mr Razvi” and then being taken to an e-mail to Mr Kerr where he described Mr Razvi as just that. Mr Coyne was an unusually uneasy witness but he had much to be defensive about. Sadly Mr Murphy has now died but it seems improbable that he mentioned the matter in terms that could conceivably be seen as a notification when speaking to Mr Green or anyone else at AUA. Mr Coyne’s attempt to go further by claiming that Mr Murphy had told him that he had notified of a claim under the policy under the claim was unattractive and I regret to say obviously untrue.

24.	Mr Roger Topping gave evidence that he became involved because Mr Razvi was having difficulty resolving a potential dispute with insurers. In addition to his witness statement Mr Topping had produced under witness summons the documents I have referred to. Mr Topping prepared a report on 28th March 2006 for submission to insurers at a time when he was under the impression that there was one insurer for the entire period between 2002 and 2006. In an e-mail exchange Mr Topping informs Mr Razvi, with a copy to Mr Coyne, of the reasons for placing an emphasis “on the recent development of the problem in early/mid 2005”. He also refers to insurers first being approached in August 2005. Mr Topping’s answers in cross examination did not lead me to change the first impression that his understanding of the facts and issues at the time was precisely that which he recorded in the documents.
25.	Witnesses of fact – Defendant
	Mr Barry Green has been a claims handler since 1989 and was working for AUA during the period of this dispute.  While he accepted that his recollection could conceivably be at fault he had no memory of a call from Mr Murphy in 2004 about a claim or indeed a “possible claim”. He pointed out that if a claim had been made it would have been given a reference and recorded on AUA’s computer system.  He also pointed to an annotated e-mail of 26th November 2004 and other documents, not consistent with a claim being made.
	Mr Graham Kerr has been involved in insurance for many years and first became an underwriter in 1979.He was a senior commercial underwriter at AUA during the period of this dispute. His witness statement contains helpful background information about the origins and terms of Business Interruptions insurance in the retail sector. He had no recollection of being told by Mr Murphy in August 2004 of a possible subsidence claim and the annotations to an e-mail dated 26th November 2004 “no previous mention with claims or me.  Action?”Is there a claim or not?” are consistent with that recollection.
	Both Mr Kerr and Mr Green were plainly highly experienced insurance professionals. What they said was entirely consistent with the correspondence. They had no reason to make anything up and it was, rightly, not suggested by Mr Cullen that they had done so.

26.	Factual evidence – some initial conclusions
	It is quite clear that the Claimants and their advisers recognised that the damage which had become apparent by November 2003 was relatively serious, needed to be repaired and should be notified to insurers.  That is the evidence of Mr Razvi and Mr Lawton. At that point it did not occur to the claimants or their advisors to notify AUA under what they were assuming was one continuous policy from 2002 onwards.
	Mr Coyne or his colleagues, as insurance brokers, should obviously have known first of the insurance implications of the subsidence for their client’s own insurance, secondly that there were indeed three distinct policies for different years and thirdly that business interruption would only be available following material damage. Mr Coyne and Riverbourne seemed to have been unaware of these three fundamental points until some time in 2006.
              There is no reason to doubt the picture presented by the documents and to Mr Topping which is that until it became apparent that there were different insurers behind the AUA cover, Loyaltrend and its advisers saw this problem as having developed in early to mid 2005 leading to the approach to insurers in August of that year. However Mr Razvi, Mr Ross and in particular Mr Lawton considered that it was in October 2004 that a “step change” occurred so that the problem began to effect the day to day operation of the shop.
27.         Expert Witnesses - Surveyors
	The Claimants’ expert was Mr James Taylor, a chartered engineer who concluded that the problems were the results of subsidence. A tree in the road caused clay shrinkage. The mechanism of subsidence would have been long term. There must have been some manifestation in autumn 2003 but this would only have become significant in January 2004 and not confirmed until October 2004 as a result of the landlord’s advisers’ investigation and monitoring. In Mr Taylor’s view the claimant did not fail to take precautions to mitigate damage but was “pro active” in this regard. The subsidence caused damage, not just to the premises but to the claimant’s improvements, fixtures, fittings and stock. This led Mr Taylor to conclude that the claimant “has suffered loss due to damage which was the result of subsidence”.
	The Defendant’s expert was Mr K T R De Silva also a chartered engineer and a partner in William J Marshall and partners.  In his evidence Mr De Silva was assisted by a colleague and by an assistant who prepared diagrams of outstanding clarity. Mr De Silva considered the crack damage to the shop was caused by roots of trees outside the front extracting moisture from the sub soil.  Movement had been occurring for some time before August 2003. The cracking caused water leaks into the shop prior to 11 December 2003 which continued until permanent repairs were made in early 2006.  Mr De Silva was satisfied that the leaks during Brit’s period of insurance were very few probably because of temporary repairs carried out in March/April 2004.  He felt that the worst leaks probably occurred after July 2005.  He considered that had they implemented reasonable measures to correct and dispose of the leakage soon after the problems came to light Loyaltrend would not have suffered to any significant extent from the water ingress.
	The two experts produced a joint statement. They agreed that 2003 had very low rain fall and temperatures were higher than average. The tree root induced subsidence had been long term and progressive and in Mr Taylor’s view slow and ongoing, in Mr De Silva’s less than 1mm per month under the party wall foundations over the summer months.  It was agreed that the opening and closing of cracks was cyclical and seasonal as shown by the monitoring in this case.  A typical growing season of trees is March to September and it is usually only at the end of the season and into the winter that the initial results are manifest.  Mr De Silva’s experience is that buildings can accommodate some ground movement without undue cracking but once cracks occur these tend to reflect the ground movements with a modest lag with cracks developing as late as November but usually in August or September.
	Mr Taylor discounts the significance of cracking prior to April 2004, relying on the witness evidence of those around at the time.  Mr De Silva considers that crack widths in December 2003 would, because of the climate cycle, have been similar to those recorded by Chester in April 2004.  Mr De Silva considers that the cracks in December 2003 were more significant than does Mr Taylor.  The experts also disagree on possible mitigation measures for dealing with ingress of water.
	Mr Taylor accepted in cross examination, subject to the point that it was not or may not have been known at the time, that subsidence caused by cracking had begun at the shop as early as the end of 2001 causing interior damage by 2003 and that this was progressive. He also accepted that the circumstances of the appointment of a consultant engineer towards the end of 2003 indicated a possibility of subsidence and of serious concerns.  He accepted that cracking of as much as 12mm had occurred by the time Brit’s policy was about to incept and that such a measurement was a serious problem requiring serious investigation.  He also accepted that cracking (at location A on the plan used at trial) probably only increased by a maximum of 2mm during the period of Brit’s insurance and by much more thereafter.
	Mr De Silva accepted that if there was regular water ingress in April 2005 it would have been attributable to cracking from Autumn 2004. He accepted that there had been cracking during Brit’s policy year and that his calculation that there may have been movement of only 2mm over the period was surprising, perhaps indicative of measuring errors.  He also accepted that if regular ingress started from around October 2004 physical damage must have occurred at that time.
	Both Mr Taylor and Mr De Silva were helpful and reliable expert witnesses.  Mr De Silva, in particular, had an impressive command of the issues.  The conclusions of both experts were necessarily tentative drawing as they did on facts and measurements recorded by others which it was difficult for them to check.
28.	Claimants’ Case on Liability
	The Claimants contend that physical damage to items insured under the policy was suffered during Brit’s cover.  The evidence of monitoring by Mr Chester confirmed by Mr De Silva establishes this.  The position is confirmed by the evidence of Mr Razvi, Mr Ross and Mr Lawton who identified a “step change” after October 2004.  There was little evidence of water ingress in the Autumn of 2003 but it is clear this was regular from October 2004.  A reduction in takings starting in the Autumn of 2004 supports this.  Further, whatever damage occurred and took place in other years that which was critical occurred in the late Summer/Autumn of 2004.  From that point damage could not effectively be “patched up”.
	Mr Cullen submits that the suggestion that regular flooding only started in July 2005 is misconceived.  The suggestion to the contrary depends on a partial reading of the diary entries, rejection of the claimant’s evidence of fact and a misunderstanding about the significance of the fact that alarm call outs from the police from October 2004 occurred only in May and October 2005.Loyaltrend suffered material damage to the shop front, interior plasterwork, decorations, flooring, light fittings, door, doorlock and intruder alarm contact points.  These items fall within the definition of Tenants Improvements for Trade Contents. It cost Loyaltrend £19,459.62 to put right, less a contribution of £10,265 from the landlord’s insurance.  There was also damage to stock to the value of £2,118 as well as claims for surveyors and loss adjusters fees.  
	Mr Cullen submits that if the Claimants do not demonstrate that the loss is referable to Brit’s year of cover and part of the damage is attributable to later years some apportionment needs to be made in accordance with legal principle. If that exercise is done the indicator of when significant physical damage occurred should be when the regular water ingress started.  This was essentially in 2004.  What happened in 2005 was a continuation of the same problem.
	There was a reduction in takings of the Notting Hill shop from October 2004 when compared with Loyaltrend’s other outlets.  That was business interruption consequent upon the physical damage caused by the subsidence. Mr Cullen contends that since the indemnity period is 18 months Brit is liable for damage through to Spring 2006.
             If that contention does not succeed Mr Cullen relies upon the denial of Access Extension.
29.	Liability – Defendant’s Case
	Brit contends that the Claimants could only succeed if they establish that:-
(a)	they suffered material damage by reason of subsidence to their trade contents, stock or tenant’ improvements;
(b)	the material damage occurred (and first occurred) during Brit’s policy period;
(c)	they gave immediate notice to Brit on the happening of that material damage and, as regards business interruption;
(d)	the material damage is of a kind for which the insurers is liable, that the takings fell short in consequence of the proven material damage.
	Mr Calver QC submits that the claim is bound to fail because:-
(a)	The subsidence at the shop began long before Brit’s policy of insurance incepted;
(b)	Damage caused by subsidence occurred to the shop before Brit’s policy of insurance incepted;
(c)	Significant cracking of the interior had occurred by November 2003 and there was a marked deterioration from August;
(d)	Brit ought to have been told of this by Riverbourne at renewal in November/December 2003 before its policy inception. Further once the policy incepted there was an obligation upon the claimant at that stage to give immediate notice of the damage to the interior of the shop in consequence of which a claim might be made.  He failed to do so;
(e)	Notification of the happening of the material damage did not take place until August 2005 at the earliest.
(f)	Whilst the damage to the shop commenced in 2003 the great majority of the serious damage in terms of cracking and water ingress took place in 2005.
	As to the claimant’s approach Mr Calver QC says this in this skeleton argument:-
	“12.	The way in which the Claimants have gone about seeking to prove their case bears a striking similarity to the way that the Supreme Court of Washington analysed the liability of a series of insurers under a series of pollution damage policies of insurance in Lexington v AGF [2009] UKHL 40 [tab 25], which was disapproved of by the House of Lords. As Lord Phillips stated at paragraph 13 of his speech
			The insurance contract was subject to Pennsylvania law (albeit, as Lord Collins explains, not predictably so at the date these contracts were entered into); the reinsurance contracts were subject to English law.  Under Pennsylvania law, as already stated, the fact that cover was expressly provided only for the three years 1 July 1977 to 1 July 1980 was of no relevance in limiting the extent of the recoverable loss provided only that some physical damage became manifest during the three-year period.  Plainly, however, that is not the position under English law.  Under English law nothing could be clearer than that a contract providing cover for loss and damage occurring only during a specified three-year period could not be construed as covering in addition damage occurring before (or for that matter after) that three-year period. [16] Physical loss or damage” under a policy providing cover for three years simply cannot be construed under English law to include pre-existing damage.”
13.	It follows that, as Lord Mance stated at paragraph 40, an English court will not construe a time policy such as that in AGF (and in this case) “as a contract to indemnify in respect of all contamination of the assureds’ sites, wherever caused or occurring, provided that part of such contamination manifested itself or was in being during the [re] insurance period”.
14.	There are two practical reasons for this in particular. First, it “would involve insurers in an unpredictable exposure, to which their own protections might not necessarily respond”. And second, “under the approach taken by the Washington Supreme Court [and here the Claimants], reinsurers must have incurred liability as soon as they wrote the [re]insurance”, which would plainly be absurd.”
	Mr Calver recites the evidence to which I have referred in a variety of documentary references to suggest that the damage was serious certainly by December 2003.  He points out that Mr Coyne accepted that the condition by that point was a material fact of which a shop insurer should have been notified.  It should have been notified to Creechurch who insured the year before Brit’s policy incepted.  Water damage was obviously occurring from time to time progressively as a result of cracking which had started before Brit’s policy period.  The diaries from July 2005 onwards, the fact that photographs were taken from March onwards, but not before, the police record of false alarms, and the claimants wish to notify a claim in August all point to water ingress becoming significantly worse in 2005.
		Compliance with general condition 5 is a condition precedent.  Strict compliance is required.  Notification must be “immediate” and “in consequence of which a claim may be made”.  The test is an objective one and what Mr Razvi knew or did not know is irrelevant.  What Mr Lawton and Mr Taylor accepted to be “serious problems” at the end of 2003 required notice to be given at that point.
		Brit submits that there was no notification until August 2005, a position which the claimants themselves adopted until recently.  As examination of the documents shows the exchanges at the time of renewal at the end of 2004 ending “subsidence issue at Notting Hill what is this all about?” do not amount to a notification.
		The response of the Claimants on notification is as follows.  First they contend that there was notification by Mr Murphy of Riverbourne in August 2004 and by the email of 26 November 2004 and again in faxes in August 2005.  Mr Cullen submits that there must be circumstances which make the insured aware that a claim under the policy may result and that it was not until subsidence damage first became serious and started to have the potential to cause loss in August 2004 that it was necessary to give notice. Moreover, it was not until serious water ingress had started in October or November 2004 that the need for notification arose.
30.	Liability – Conclusions of the Court
	Claims for loss, including business interruption, arising from damage caused by subsidence over a relatively long period are common as are difficulties in determining, where there is more than one insurer, with whom and to what extent liability should lie.  An unusual feature of this case is the decision of the Claimants to pursue the Second Defendant, Brit, only and to discontinue against the other Defendants on what appear to be disadvantageous terms.  Another unusual feature is that while it is understandable that a busy retailer like Mr Razvi would not understand that he was dealing with more than one insurer over the three year period it is remarkable that Riverbourne, his brokers, were not aware of that.
	It is clear and not disputed by Mr Lawton the Claimants’ building surveyor or by their expert witness Mr Taylor that significant cracking to the interior of the shop had occurred by November 2003. The Claimants’ own broker Mr Coyne accepted that if he had been aware of those matters he would have wanted to disclose them to underwriters. They were the basis for the landlord’s disclosure to its own brokers.
    31.	General Condition 5 requires the insured to give “immediate notice to the Insurers on the happening of any injury or damage in consequence of which a claim is or may be made under this policy …” The test is objective not subjective – see Laker Vent Engineering Limited v Templeton Insurance Limited [2009] EWCA Civ 62 per Aikens LJ (albeit considering different wording) at paragraph 82.  I accept, relying mainly on Mr Lawton’s evidence, that there was a “step change” in October 2004 (in the sense of the witnesses’ sudden perception of a change in what was a gradual process) but that does not detract from the seriousness of what was already apparent in December 2003 which the Claimants or their brokers should have been notified to insurers.  Brit’s claim that notice should have been given at the end of 2003, although rejected by the Claimant’s submissions, is essentially supported by the Claimant’s own evidence.
	I do not believe that notice was given by the Claimant in August 2004.  Mr Coyne’s evidence on this and on other points was unreliable for the reasons I have already stated.  If Mr Murphy had indeed told Mr Coyne that notice had been given to insurers this fact would have emerged before Mr Coyne gave oral evidence.  The documents when read fairly contradict and do not support the claim.  Similarly no fair reading of those documents supports the argument that notice was given in November 2004 either.
  32.    If there had been any doubt about the position I would have weighed heavily against the Claimants that what they are claiming now about the date of notice and about when the damage was sustained is not what they claimed when their advisers thought that the path to payment was different. When the Claimants and their advisers believed that they would be looking at only one insurer and gave consideration to their claim they saw the Spring of 2005 as the point at which damage really occurred and August 2005 as the moment when notice was given. The court only knows this because the Defendants served a documents summons on Mr Topping. The Claimants’ failure to give disclosure of their copies of the relevant documents when asked seems deplorable. The Court would have been entitled to be very cautious about accepting a new revised version of events from the Claimants.
 
          33.   It follows that the Defendant’s defence of failure to give timely notice succeeds and it is not necessary for me to consider other issues. Nevertheless, in case I am wrong about the notice issue I express views about other matters. The difficulties in this next task illustrate one of the reasons why prompt notice, while reliable evidence can still be gathered, should be given to insurers. 
                  It would be surprising if Brit, who insured only the middle of three years over which the relevant events occurred, was liable for the entirety of the loss sustained and Mr Cullen’s alternative case realistically accepts this. The picture of when relevant material damage occurred is a confusing one. The burden of proof in this respect is on the Claimants. I accept that the position by autumn 2004 was materially worse than it had been at the end of 2003. While there are limitations on the value of the data available to Mr de Silva and the views of Mr Taylor depend on the accuracy of the factual witness statements about which I have some reservations, it does seem that the damage in 2004 was limited and there are, for whatever reason, no relevant photos or diary entries in this period. It is inaccurate to express the progressive deterioration caused by subsidence in terms of a series of sudden changes.  The appearance of “step change” is the result of inspection and testing necessarily occurring only at intervals.  The evidence of Mr Razvi and Mr Ross is necessarily and understandably somewhat vague and unreliable as to detail when drawn from recollection.  A better guide is the attention given to the problem, the taking of photographs and the maintenance of a diary which still exists as well as the inspection material as interpreted by the experts.  The evidence of the burglar alarms records is equivocal. These all point to the situation within the shop after the spring of 2005 being much more serious, at first mainly as a result of subsidence up to the end of the 2004 growing season. But of course the trigger for business interruption loss is not the subsidence but the material damage. This is of course consistent with a view that the claimants themselves took of the claim when first entrusting it to Mr Topping.  A fall off in takings from the autumn of 2004 may have been caused or at least influenced by the unsatisfactory conditions in the shop. Other contributing factors might have been the increase in competition in Notting Hill, the June 2004 flood which is outside this dispute or other matters.

34.      The Claimants conducted their case for some time on the mistaken assumption that the policy covered business interruption generally as opposed to that resulting from material damage.  There is force in Mr Cullen’s submission that in the context of this type of claim the business interruption necessarily arises not from the subsidence itself but from the material damage to the shop. But there is little or no evidence of when that damage, as opposed to the subsidence occurred. The distinction is not recognised in the Claimants’ evidence, neither is the fact that this action is now concerned only with the Brit year.  To the extent to which this damage is attributable to the consequences of the “step change” it appears to relate to only two or three months of the Brit year. Moreover, Mr De Silva’s evidence which I accept would be incorrect if the underlying measurements themselves have been in error shows that the amount of cracking in Brit’s year would have been less than in either of the other relevant insurance years.  On the evidence I cannot go beyond saying that there must have been some material damage during Brit’s year and no doubt some business interruption as a result but less than in the other two relevant years. Overall the evidence suggests that while subsidence was of course continuing throughout Brit’s year of cover, the material damage and business interruption resulting was for the most part in 2005. I reach this view conscious of the existence and the length of the Indemnity Period.  Had a more detailed exercise been carried out and the other two defendants had remained in the case this question would no doubt have been more fully developed.    Loyaltrends expert on damages, to whom I will refer shortly, takes as a starting date October 2004 as being the “incident” giving rise to the claim for damages.  This was not a helpful starting point.
33. Breach of General Condition (6) and Denial of Access provision
In September 2005 Loyaltrend was offering to settle its claim for the cost of repairs to the internal damage to the shop for £27,210.  After an exchange of offers the Claimants accepted £10,265 in settlement.  Mr Lawton thought this was a poor deal.
At the conclusion of the trial Mr Calver applied to amend the defence to claim that these events led to a breach of General Condition (6) which he contended makes it a condition precedent to liability that Loyaltrend would not make or give any admission offer or promise without the written consent of Brit.  I allowed the late amendment principally on the grounds that it arose from material disclosed unacceptably late and without good explanation by the Claimants.  As a result I permitted a brief exchange of submissions after the trial.  As one would expect from Mr Calver QC and Mr Cullen this led to lucid and interesting submissions about whether or not there was ever an “offer” within the meaning of the condition and about what the proper approach to construction of such an apparently draconian provision should be.  The approach to construction of this provision is not straightforward and I will defer reaching a decision upon it unless and until it becomes necessary to do so when there will be a need for brief oral argument.
It was apparently Mr Topping’s idea to rely on the Denial of Access clause. It is argued that since there was also damage to the flat above the shop this affects ‘property in the vicinity of the Premises’ and give the Claimants a right to recover all the damage which they claim. This argument, which Mr Cullen did not press hard, does not survive even a literal reading of the clause, let alone a proper construction of it. 
35.	Quantum
	Since the claim fails on lack of notice and there would, on the evidence available, be insuperable difficulties in deciding what business interruption losses flowed from material damage caused during Brit’s policy period is it unnecessary to consider this aspect.  Nevertheless since there have been submissions about the matter and I heard evidence from two experts it is right that I should set out some brief conclusions.
36.	Experts on damages
Mr Jeffrey Nedas, the Claimants’ expert, has been a Chartered Accountant since 1974 and has wide experience including the conduct of business interruption claims. The model which he adopted was a sound one and I was impressed by how he explained it. Unfortunately however the value of his evidence was greatly diminished by his instructions. I have mentioned the artificiality of his starting point, an ‘incident ‘in 2004. Further his assumptions about the profitability of the shop depended to a degree on speculation and were also derived apparently from private discussions with Mr Razvi.  Mr Paul Isaac, the Defendants’ expert, is a specialist in business interruption claims and has been an ACMA since 2004. His evidence was clear and helpful but, if it had been necessary to do so, I would have preferred the method of Mr Nedas whose approach seemed to me more consistent with the policy wording and with the likely realities of retail life. 
37. Conclusion
There will be judgment for the Defendants essentially because the Claimants failed to comply with a condition precedent as to notice. I shall be gratefully if Counsel will let me have corrections of the usual kind, a draft order and a note of any matters which they wish to raise at least 48 hours before this judgment is handed down. If all matters can be agreed in advance the parties need not attend the handing down of judgment.

GH014678A