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England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Kajima UK Engineering Ltd v The Underwriter Insurance Company Ltd  EWHC 83 (TCC) (25 January 2008)
Cite as:  Lloyd's Rep IR 391,  EWHC 83 (TCC),  CILL 2567,  1 All ER (Comm) 855, 122 Con LR 123
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL
B e f o r e :
| KAJIMA UK ENGINEERING LIMITED
|- and -
|THE UNDERWRITER INSURANCE COMPANY LIMITED
Stuart Catchpole QC and Rachel Ansell (instructed by Davies Arnold Cooper) for the Defendant
Hearing dates: 26, 27, 28 November, 4 December 2007
Crown Copyright ©
"The Underwriters will indemnify the Insured:
In respect of claims made against the Insured and notified to the Underwriters during the Period of Insurance against civil liability:
(a) arising out of the Professional Activities undertaken by or on behalf of Insured…"
"Project Management and/or performance by the Insured of any professional:-
design or specification.
supervision of construction/ installation.
technical information calculation.
Undertaken only by or under the direction and direct control of properly qualified architect or engineer or surveyor or quantity surveyor.
Professional Activities DOES NOT include the supervision by the Insured of its own or its sub-contractor's work where such supervision is undertaken in its capacity as Building or Engineering Contractor".
"The Insured shall give written notice to the Underwriters as soon as possible after becoming aware of circumstances which might reasonably be expected to produce a claim or on receiving information of a claim for which there may be liability under this insurance. Any claim arising from such circumstances shall be deemed to have been made in the Period of Insurance in which such notice has been given".
"I must record my concern over the ponding of water on the walkways. When I visited the site last week, after heavy rain, there were extensive and deep pools standing on a number of walkways making them hazardous for residents and leading to water and dirt being taken into flats.
I am particular concerned that the water is standing against the splayed batten which runs along the fronts of the pods and seals the gap between the sheet vinyl covering of the deck and the cladding on the pod. There was evidence of water emerging from the cladding about three boards up from the decking on one walkway exactly underneath a point where there was evidence of water leaking through from the walkway above into the down stand beam running along the inner edge of the walkway and the face of the pond.
It seems to me that if water is standing against this batten there is the possibility that, any slight break in the seal between the batten and the vinyl may allow water to penetrate into the void behind the cladding, which may lead to damage inside flats or early rotting of the cladding. In any event it is not acceptable that water should stand on the walkways which should be self draining".
Kajima offered to look into the matter when the relevant person returned to site from his holiday.
"Accommodation Pods Settling and Moving Excessively; causing adjoining Roofing and Balconies and Walkways to distort under differential settlement. Service connections also under risk from movement; Potential Internal damage; Tennant [sic] Risk/Danger, and/or Inconvenience.
Foundations believed not to have unduly settled – but to be level checked by KCEUL.
Investigation presently underway to identify/confirm cause and potential affect/risks".
In the Estimated loss the highest figure box (£50,000 plus) was ticked with the words 'Potential' typed in beside. In the Action tick box the following was said:
"Advising KCEUL Designers – Structural; and Architects Advising Sub-Contractor – Volumetric".
Three letters which were sent to the Architect, Conisbee, and Volumetric were attached. Nothing now turns on the fact that part of this notification was in bold and part not.
(a) "We would like to record that during a recent visit to the above project, it was noted that there appears to be excessive settlement of the Pods which is affecting adjacent structural members ie Makaloy bars supporting the metal walkways are distorted.
We look forward to your comments on this matter." (to Volumetric).
(b) "We enclose a copy of a letter sent to Volumetric regarding settlement of the Pods which is causing distortion of the Makaloy bars holding the walkways.
We request your comments on what allowance was made for settlement of the Pods in your design." (to Levitt Bernstein)
(c) "We enclose a copy of a letter sent to Volumetric regarding settlement of the Pods which is causing distortion of the Makaloy bars holding the walkways.
We request your comments what allowance was made for settlement of the Pods in your design." (to Conisbee)
'(a) Volumetric wrote on 26 February, 2001:
"...please could you advise how much settlement seems to be occurring.
We would point out that it was always known that settlement/ shrinkage would occur and connections to non-shrinkable elements should have been designed to accommodate this movement.
We look forward to your response of the first item, upon receipt of which the undersigned will arrange to visit site to carry out an inspection."
(b) On the 23 February, 2001, Levitt Bernstein replied:
"Volumetric informed us that there would be about 3mm shrinkage in each floor zone of the timber Pods.
Originally we designed the access galleries to hang from the roof in the same way as the private balconies. If they had been carried out, the galleries would settle with the timber frame and the machaloy rods would remain in tension.
However, during the summer of 1999 the design of the access galleries was changed at Kajima's request to include a column supporting the galleries from the ground, so that the galleries could be erected at the same time as the Pods and be used as permanent scaffolding. The machaloy bars were retained as 'ties' to prevent wind uplift of the roof.
We understand that the machaloy bars would feature a tan-buckle to allow them to be tightened following shrinkage of the timber structure."
(c) Conisbee's response on 2 March, 2001 was:
"…could you please advise how much lateral deflection has occurred to the vertical ties. From our conversation earlier you believed it to be approximately 150mm.
Volumetric Ltd stated that the units will shrink by 2-4mm/floor. This will give up to 20mm downward movement on the five storey. The access walkways were originally design (sic) to be hung from the roof to allow for this movement, but due to the cost of fire proofing the structure was supported from the ground. It was also intended to use the walkways as scaffold, but this never happened. Fixing the walkways to the ground will result in differential movement between the steel and timber structures.
It had been intended to allow for tensioners in the rods or ties, but these were omitted due to costs.
The high level ties are 1840mm long, a 20mm differential movement will produce a lateral deflection of 150mm. The lateral deflection should reduce with the storey heights, the deflections should be reduce [sic] as the building curves away from North St.
The deflection of the ties is not an immediate structural concern. The ties are required to take load if there is a fire on the lower floors and the column fails. The compression of the rods should exert 4.5kN load on the roof which can be resisted.
The building had been designed with the shrinkage in mind. The walkways are bolted to the timber frame with a pin joint. Our GA's show the level difference between the front and back edges of the walkway required to provide a fall away from the building once the shrinkage had taken place. The fall was not put into the walkways during fabrication. So there will be a fall across the walkways back to the building which may cause weather proofing problems & staining.
To sum up structurally the bowing rods are do [sic] not to cause a structural problem, only an aesthetic one…"
"I…have now received a response from the insured confirming that they have reconsidered the present status of the PODS movement and although the settlement has stabilised, the design and construction is at an (up to) 5 storey timber structure, which has not previously been tested.
They have asked for the file to remain open and they will check the situation in 12 months time and report on the outcome. You will notice that they have made no comment as to any causation and I am attempting to find out whether any further information on this can be provided by Kajima."
"The information requested is as follows:-
1.1 The walkways are supported, down to ground level on foundations, which are independent from the accommodation units (PODS). The roof covering support structure is fixed to the top level of PODS and that the Walkway supports, by hanging rods (tie bars). The tie bars have the facility for limited adjustment.
1.2 The tie bars were visibly inspected and found to be deflecting.
2.1 Adjusted tie bars (shortened) to bring back to vertical.
2.2 Adjustments not made to walkway surfaces to regularise levels, as movement taken upon existing gradients.
2.3 Presently no further additional settlement has occurred (visibly); and original settlement is being assumed to be 'initial settlement'."
(a) A problem had occurred with what was perceived to be settlement of the Pods. The problem was believed to be settlement and differential settlement which was causing the adjacent walkways to distort in terms of reversing the fall and with the Machaloy bars becoming distorted. It was seen within Kajima that some settlement was always expected and it was thought that by May 2002 the settlement had substantially ceased. The problem was understood in part as one which might potentially cause adjoining roofing and balconies to distort. It was seen that there might be a risk of internal damage and damage to service connections. Some work had been done to adjust the Machaloy bars.
(b) There was no active investigation going on as at May 2002, the view being taken that it was likely that the problem had happened and would not deteriorate. However, Kajima intended to consider the matter again at some stage in early 2003.
"The problems with the access balconies are the result of differential movement between the timber frame and the external steel posts. Drains have been installed to deal with the immediate problem, but in the long term, the falls across the balconies should be corrected by alterations to the supporting posts.
The doors and windows on the front walls of the apartments are severely distorted. This appears to be the result of bedding in of the timber frame exacerbated by shrinkage of the timbers. There is no simple solution, and it is necessary to wait until the shrinkage has ceased and then to ease/re-hang the doors and windows inserting new seals as required.
The coping stones on the low level brick work are being tipped up by the timber cladding caused by the reduction in height of the timber frame. They can simply be re-bedded making sure that there is a sufficient gap between them and the timber cladding to allow for any future movement.
An investigation into the interior of the apartments should be made and any doors/windows found to have similar problems to those on the front should be treated accordingly."
In the body of the report, the author considers that the downward movement of the building is unlikely to be attributable to foundation movement (which was "unlikely as the ground conditions are good and there is no other evidence such as cracked brickwork to support this theory"). He attributed it to shrinkage of the timber frame. This report was passed on to Kajima in late August 2002. Kajima passed it on to its brokers, who in turn passed it on to TUIC's brokers.
"We believe that we need to assess the position working between two basic suppositions:-
1. Timber frame elements of the construction have settled and shrunk beyond that which would be reasonable (sic) expected and the structure still is 'live'.
2. The construction sequence is such that the timber frame elements had already started to settle and shrink prior to installation of the steel supported elements, which could have resulted in the walkways being installed with at less than the intended cross falls. Following which the timber frame has settled and shrunk within normal parameters but has resulted in a reverse cross fall.
It is probable that the likely cause of the problem lies somewhere between the two.
With respect to the bowing of the steel ties between the top of the walkways and the eaves level, we would point out that the extent of movement required to change the load in these ties from tension to compression could be relatively small. For example, a 5mm shortening in a 2000 long straight bar will cause it to bow with a deviation at mid length of approximately 60mm from the previous straight bar.
The buckled shape of the bars observed on site may therefore be the result of relatively small amounts of movement."
Mr Lupton recommended a 12 month monitoring period.
"There are severe falls in the floors of the majority of the flats. These are results of:
Large variations in the levels of the floors,
Excessive deflection of the floors, and
Misalignment of the supporting trimmers.
The floating floor in all the flats appears to be very flexible and this flexibility is due to:
The severe falls in the floors,
The fact that the chipboard deck is laid parallel with the joist,
The OSB3 structural deck is thinner than recommended and the free edges are not supported,
There being no herringbone strutting between the joists.
Water has entered the construction of the floor causing [dampness] to the acoustic boarding and OSB3 structural deck, neither of which is suitable for use in wet conditions.
Door openings are distorted due to poor control of the levels during construction...
Major remedial works are necessary to make good these defects, to bring the building back to a state considered to be good practice and to ensure that it survives for its design life without needing excessive maintenance."
So far as the water ingress problem was concerned, Mr Wood's views proceeded on the presumption that water ingress had occurred whilst the flats were being built.
"The second report was commissioned as a result of continuing issues with regard to shrinkage associated with water penetration at the flats. The recommendations on page 24 identify the principal sources of concern and their causes during the construction period. These problems have previously been brought to your attention, both in site meetings during the contract, and subsequently in correspondence from our Mr Jardine.
In addition to the issues both internally and externally, I should also advise that in view of the ongoing problems with the security gate to the car park, I have arranged a detailed inspection which indicates that the original installation was put together with incompatible equipment.
My Trustees are most concerned that the construction defects at CASPAR House should be remedied as soon as possible so that the residents do not experience further inconvenience, and that the reputation of the Foundation is not damaged. We also wish to bring under control the considerable losses in respect of repairs and voids incurred to date. In this context, the proposals in the brief report from James Lupton Construction dated 24 January 2003 suggesting that the movements in the building should be monitored over a twelve month period are not acceptable to us.
I have instructed DAC Wood and EC Harris (Quantity Surveyors) to prepare documentation and subsequently invite tenders for all the remedial work. Copies will be sent to you in due course. You may inspect the building by agreement at any time, both before and during the remedial works. The Foundation will be looking to Kajima to full recompense for its costs and loss of income."
Kajima passed this claim letter on to their brokers who passed it on to TUIC's new loss adjusters, Crawford and Co.
"Would you now, within the next 14 days, consider the enclosures and give me your response to either:
(a) Agree to carry out the works within an agreed timescale;
(b) Reject our requirements.
If you decide for option (b), JRF will undertake without further delay to put the works in hand…
JRF have not come to their decision lightly but after taking advice and seeking to obtain the essential remedies for what we had envisaged to be a 'Flagship Development'."
"The situation remains complex and potential costs/recharges/liability remain not insubstantial.
The actual scope, and responsibilities are still under severe debate, though remedial inspection, and some remedial works have commenced. Meanwhile:-
1. The remedial works to the "PODS Settlement" includes attention to the steel external wall post. These are not the responsibility of Volumetric.
2. Considering the consequence of costs being incurred or likely to be incurred, by ourselves and the Employer (which includes decant and compensation costs to tenants), there will be substantial additional costs arising.
Taking account of the foregoing, it is very likely that the (direct) claim from [Kajima] to Volumetric will (alone) substantially exceed £50,000.00."
"…I am reviewing files for end of year purposes and I really need to have a better idea of Kajima's potential PI exposure on this as the claim for alleged defects is, I understand, £961,000. As recommended by Crawford, TUIC have no reserve on the file, except for fees, as they did not believe Kajima would have an exposure, or not one that would exceed the £50K Excess. This may still be so but we really need to address the issues ASAP and determine whether a reserve should be carried into next year's figures. Could you please help me to carry out a thorough review of the issues by eliciting a response from Barry [Cockayne of Kajima] before the end of the year?..."
"…it can be seen that maximum reading change across the building is less than 2mm and that the differences over the 12 month period are smaller than those [over] the six month period.
It would appear that any movement occurring to the structure is small and the overall reading summaries would suggest is primarily composed of a seasonal component with a reduction in height during the winter months due to thermal shrinkage and a recovery in the summer.
It is likely therefore that the building movement due to drying shrinkage of the timber frame is now substantially complete."
"On the basis of the various reports that have been made available, it would seem that there could be a valid claim under the policy to some extent, but the reports are unclear at this stage in regard to the following:-
1. What exactly are, or were, the errors and/or omissions in the design for which you believe you could have liability as design and build contractors?
2. What remedial works need to be affected so as to correct the result of each error/omission?
3. What is the projected cost of this work in respect of each breach of duty?
4. What direct financial losses will be incurred by the Principals as a result of these works?"
He asked for a number of documents.
"Insofar as Insurers' position is concerned, Kennedys are preparing a letter to set out the position but without wishing to pre-empt their views in any way, I believe it will by necessity endorse our…views that we must be able to investigate all the policy issues in conjunction with the contractual documentation and structural reports etc, as previously requested, and I would urge you once again to ask Barry [Cockayne] to make this available as a matter of urgency, so that a more meaningful progress can be made. Following a study of the various information, we should be able to determine whether there is a PI claim at all and, if so, to what extent the policy might address the loss.'
Kajima sent the requested documents (some of which had been provided before in any event) under cover of the letter dated 11 May 2005 to Axis.
"As the basis of the construction was a timber frame, it was anticipated by all parties that a certain amount of settlement would occur to the structure. However from a relatively early stage it became apparent that the level of settlement occurring was greater than expected. The situation continued in this way (with insurers generally unaware of the potential severity of the problem) until early this year. We now understand that the extent of the settlement is significant. The main problem this has caused is with the walkways surrounding the pods on each level. The walkway structure (which may be independent of the pod structure) has stayed in place but the settlement of the pod structure has pulled down the inner edge of the walkways. This has led to the walkways being higher on the outer edge than the inner edge and this has had the effect of any water hitting the walkways running down into the structure. Significant water damage has occurred to some of the pods.
Substantial repairs are now needed (which will involve moving the affected inhabitants out of their flats) and it is estimated that costs associated with these repairs could be anywhere between £900k and £2.2m. The Insured's view is that most of the problems are design issues and liability needs to be shared between those involved in the project. Volumetric for their part are believed to be [in] voluntary administration and have issued a take it or leave it £300k offer to the Insured.
With the improved level of information we are now moving to fully investigate this claim and this investigation is being performed under a reservation of rights. We have serious concerns regarding the level of investigation undertaken by the Insured to date and the manner in which Insurers have not been kept up to date.
…Kennedys are currently undertaking a review of all available documentation…"
"..The findings of such inspections could have major implications for the safety of those who currently occupy the building…"
"As we have indicated the Insurers' decision on parameters for the negotiations with Volumetric and Rowntree is required as a matter of extreme urgency. You will appreciate that with the potential consequences of delay we have to set a deadline for that decision. Accordingly if we have not heard from you within 7 days of this letter, we will have no alternative but to conclude we are in dispute and instigate the dispute resolution provisions that are provided for under the Policy. However, clearly we would prefer to resolve this matter by other means. We are therefore very happy to meet the insurers and yourselves as loss adjusters in order to reach agreement without recourse to more formal routes; but any such meeting would have to be held in the very short timescale and would require all parties to attend with authority to conclude in agreement."
"The initial computer modelling and the past performance of the building provided confidence that the building in its current condition has sufficient redundancy and load sharing mechanisms to be able to withstand high wind loading and remain stable."
"…The letter seeks to reassure the Insured that there is no hidden agenda in their detailed enquiries, such as compliance with Policy Conditions such as Notification, for example, and that Insurers are satisfied that the claim will be considered under the policy insofar as the Insured can demonstrate that it arises from the Insured's Professional Activities.'
The attached letter dated 10 August 2005 was drafted by solicitors but signed by Mr Cameron:
"I can confirm [TUIC] accept that, insofar as it is proved that the losses complained of arise out of 'Professional Activities' (as defined under the policy) filed on behalf of Kajima, then the policy will respond, subject to other terms and conditions, such as the policy deductible, or deductibles as previously discussed."
"In our preliminary examination of the building in early August we mistakenly assumed that the roof and the steelwork contributed to the lateral stability of the building overall.
Subsequent investigations and discussions…have indicated that this is not the case. The result is that current indications do now show that this building cannot safely resist designed wind loads in accordance with current British Standards code of practice and contemporary good practice guidance.
We therefore recommend that you erect a temporary support structure to provide lateral stability as soon as possible."
The substance of this was communicated by Kajima to TUIC. Kajima obviously also passed this on to JRF.
"Inadequate factor of safety against overturning.
Inadequate strength of wall panels for racking and vertical load.
Inadequate provision against disproportionate collapse.
Inadequate strength and stiffness of floor structure.
Inadequate strength of roof structure and its supports."
This quote is from Arup's letter dated 18 November 2005 to Dr Falcon.
"1.1 Inadequate factor of safety against overturning.
1.2 Inadequate strength of wall panels for racking and vertical load.
1.3 Inadequate provision against disproportionate collapse.
1.4 Inadequate strength and stiffness of floor structure/finishes and its connections.
1.5 No allowance for shortening of timber frame relative to vertical steel work elements.
1.6 Strength of balcony, walkway and roof fixings inadequate.'
"As stated above, the policy only responds to a claim where the claim arises from circumstances that were notified during the period of insurance. The bulk of the defects now identified by Arup are not matters that were notified by the Advice Form dated 22 February 2001. On the limited information currently available it appears that the only defects which fall within the notification are (using the Arup numbering on page 18 of their draft report) the following:
- 1.5 (excluding Defects Action Plan item 37, which we understand to be a separate problem with the balcony bracket fixings). [Item 1.5 related to there being no allowance for shortening of the timber frame relative to vertical elements].
- 2.3 (if confirmed to exist) [This related to allowance in vertical pipe work for shrinkage.]
- 3.4 [Gaps around fire doors].
- 6.1 (excluding item 8 of the Defects Action Plan, which we understand to be a workmanship snagging item, now rectified) [Item 6.1 related to the allowance for differential movement between timber frame and cladding] and
- 6.5 [Ill-fitting doors].
The items we have listed appear to be matters of design, rather than workmanship, so that a claim in respect of them would potentially fall within the policy cover, if such a claim were made by JRF against Kajima…"
"(B) The Building suffers from catastrophic defects ('the Defects') which Defects and/or some of them render the Building unfit for human habitation and which the Foundation attributes to Kajima's breaches of the Contract for which it holds Kajima liable.
(C) Kajima has expended to the 31st August 2006 the sum of not less than £1,943,531.83 in investigative and remedial works and other matters connected with the Foundation's claims.
(D) Further, it is agreed that pursuant to the Contract (and without prejudice to Kajima's rights to recover for the same against third parties…) Kajima is liable for the Defects and that the Defects were caused by Kajima's breaches of contract. The Defects and the costs (excluding costs referred to in Recital C) of rectifying them are set out below:
a. Floors £721,157
b. Racking resistance £1,006,129
c. Provisions for robustness £89,359
d. Resistance to overturning £1,417,532
e. Balconies and walkways £427,081
f. Roof structure £793,285
g. Non-structural defects £221,089
h. Loss of Rent during the works and mobilisation £511,339
i. Financing costs during the works and mobilisation £347,127
(E) Thus, the total cost of remediating the Building (excluding costs referred to in Recitals (C) and (F)) is no less than £5,534,098. Kajima is liable to pay damages to the Foundation in at least that amount.
(F) In addition, the Foundation incurred costs and expenses of £814,968.95 as particularized in Schedule 2 hereto in respect of which it was agreed that Kajima's liability would be £755,000. The Foundation has deducted from that figure a sum of £300,000 which it owed to Kajima and the Foundation has received the sum of £250,000 on account from Kajima. The Foundation is owed the balance of £205,000. This sum will be paid by Kajima upon completion of the Purchase Contract referred to in Recital (J) below...
(I) The parties have further agreed that:
a. The sale price of the land and premises on which the Building is situated (the "Property") in the state which it should have been in but for the Defects, and which is more particularly described in Schedule 1) and to include the Building is £4,750,000; and
b. The residual value of the Property with the Building in its current state is £1,250,000; and
c. Therefore the sale price less the residual value of the Property is £3,500,000; and
d. The costs of remediation to the Building, excluding costs referred to in Recital C, is £5,534,098;
e. Therefore the Building is beyond economic repair.
(J) In the premises, the parties have agreed that Kajima will purchase the Property from the Foundation for the sum of £4,750,000 on the terms set out in the Purchase Contract annexed at Schedule 3 hereto…"
The rest of the Settlement Agreement put these terms into effect and the property was duly conveyed to Kajima.
"16. The correct general approach to the construction of the Policy was, not surprisingly, to a large extent common ground between the parties. The Policy is a commercial contract and, like any commercial contract, must be construed in its appropriate factual matrix; see e.g. Investor's Compensation Scheme v West Bromwich Building Society  1WLR 896 at 912-3, per Lord Hoffman. This includes, in this case, the practice in the London Market of writing professional indemnity insurance on a 'claims made' basis as opposed to on an occurrence occurring basis.'
17. This practice is well known: See e.g. Friends Provident Life and Pensions v Sirius  1 Lloyds Rep IR135 at 142, per Moore-Bick J. …
18. By contrast, from the insurer's perspectives, claims made policies
(i) enable the insurer to know by the end of the claims made period, or very soon thereafter, what claims have been made against the assured during the policy period and what circumstances have become first known to the assured during the period of the policy that might mature into claims against him;
(ii) enable the insurer upon or very shortly after the expiry of the policy period to evaluate reported claims and circumstances for the purposes of making appropriate provision or reserves for ultimate liabilities;
(iii) enable the insurer thus to avoid the undesirable uncertainty of long-tailed future claims arising out of occurrences which are in many instances unreported.
22. The authorities concerning such clauses recognise the purpose of a notification clause…is twofold. First, it is intended to enable insurers to investigate potential claims at the earliest possibly opportunity, before the trail of evidence goes cold, and to take, or require the insured to take, such steps as insurers think appropriate to minimise liability under the policy…
23. Secondly, the clause enables the assured to obtain an extension of cover in respect of the claim made after expiry of the Policy (and which would otherwise fall outside the scope of the Insuring Clause), provided the claim arises out of a circumstance of which the assured became aware during the period of the Policy and in respect of which he gave notice in accordance with the clause…
31. I find nothing surprising in the concept that there should be a contractual requirement that notice of circumstances is given in a timely fashion… The commercial imperative is that notice to insurers should be given promptly: see per Moore-Bick J in Friends Provident paragraphs 20, 25, 27 & 38. The reasons are obvious: the insurers needs to know about any claim or relevant circumstances as soon as possible in order to be given the opportunity in the case of the claim, to minimise the risk of a finding of ultimate liability against the assured and to take over the defence; and, in the case of any circumstance, to minimise the risk of a claim ultimately materialising or, in the event that any claim should ultimately materialise, the risk of liability falling on the assured. Moreover, the insured needs the commercial certainty of finality of exposure; it enables him to calculate his reserves with more certainty and avoids, or least ameliorates, the difficulties of estimating his contingent liabilities for long-tailed claims.
47. …It seems to me that the huge additional protection afforded to an assured in respect of claims potentially made long after the policy has expired, provided that the assured has given notice of 'circumstances', amply justifies the reciprocal, correlative obligation of the assured to notify 'circumstances' strictly within the time period described in the policy.
48. Other reasons why the dependency of extended coverage upon proper notice being given as soon as practicable is commercially sensible include the following:
(i) If notice is not required to be given as soon as practicable, there is always the danger that insurers would be engulfed immediately before the end of the policy period with 'laundry lists' of circumstances containing the barest detail in list form sometimes hundreds and thousands of cases in respect of which the assured fears that he might some time in the future be confronted by a claim. However, if notice is required to be given of each and every circumstance as soon as practicable, the assured is bound to give consideration to each circumstance and notified if he genuinely thinks that it might give rise to a claim, neither exaggerating the circumstance nor diminishing it – so that underwriters and insurers can in a sensible and structured environment be given the opportunity to examine and investigate each one – validating whether it really is a circumstance and, if it is, taking all necessary steps to protect their position.
(ii) If it were right that an assured could with effective impunity give notice of circumstances long after the expiration of the policy period in respect of circumstances of which he became aware during the subsistence of the policy period, that would, in reality, have the commercial effect of converting the policy from a claims made policy into an occurrence occurring policy…
72. …I agree that, whilst Kidsons' intention as to what it was intending to notify, is not relevant to the objective interpretation of the purported notice and the perspective of the reasonable recipient, Kidsons' state of mind is nevertheless relevant to determine the extent to which it was aware, and hence capable of notifying, circumstances which might give rise to a loss or claim under [the circumstance notification clause].
73. Secondly, when [the circumstance notification clause] refers to a "circumstance…which may give rise to a loss or claim against" the assured, it requires that the circumstance should be one which, objectively evaluated, creates a reasonable and appreciable possibility that it will give rise to a loss or claim against the assured. It is necessary to emphasise, however, that the circumstance may give rise to a loss or claim when there is a possibility or perceived possibility that, at some stage in the future, it will do so. There need not be a certainty that it will do so; there need not be a probability or likelihood that it will do so. All that need exist is a state of affairs from which the prospects of the claim (whether good or bad) or loss emerging in the future are 'real' as oppose to false, fanciful or imaginary, and that is what has to be notified.
76. At the end of the day, it is in my view largely a question of interpretation and analysis of the document setting out the notification, in the context of the facts known to the assured, as to what precise circumstance or set of circumstances has in fact been notified to insurers. I am not therefore convinced that semantic cavilling over the precise formulation of the test assists the ultimate resolution of the problem. There way well be uncertainty at the time of notification as to what the precise problems or potential problems are; there well may be, whether known, or unknown, to the assured a 'hornets' nest which may give rise to numerous types of claims of presently unknown quantum and character at the date of the notification. Whilst in principle, there is no reason why such a state of affairs should not be notified as a circumstance if the assured is aware of it, in each case the extent and ambit of the notification and the claims that are covered by such notification will depend on the particular facts and terms of the notification.
77. Fourthly, it is also obvious (in the light of my conclusion of the construction issue) that, when [the circumstance notification clause] refers to the giving of 'notice in writing as soon as practicable', it requires the written notice to have been given by or on behalf of the assured as soon as reasonably possible after he has become aware (i.e. for the first time during the period of the Policy) of the relevant circumstance…
78. Fifthly, I also accept [Counsel's] submissions that, when [the circumstance notification clause] refers, in the context of notice having been given, to "any loss or claim to which the [notified] circumstance has given rise", it requires that the loss or claim should be sufficiently causally related to the fact, event, happening or condition which comprises the notifying circumstance, that it can be fairly said to have arisen out of it."
Condition 1 of the Policy
98. I repeat the wording of Condition 1 i:
'The Insured shall give written notice to the Underwriters as soon as possible after becoming aware of circumstances which might reasonably be expected to produce a claim or on receiving information of a claim for which there may be liability under this insurance. Any claim arising from such circumstances shall be deemed to have been made in the Period of Insurance in which such notice has been given'.
(a) There is no restriction in condition 1 as to what circumstances might be notified. They may be specific or general. They may relate to damage, symptoms of damage, or actual, potential or perceived defects, liabilities or losses. It is not necessary that the notified circumstances will probably give rise to a claim; it is enough that they might reasonably be expected to do so. The circumstances might impinge upon a particular project although they arise on another. An example put to Counsel was the design and build contractor to whose notice it comes that a design engineer working for it on other projects has been extensively negligent on other projects. It might then be legimate to notify the insurers in respect of the particular project to the effect that it has come to the insured's attention that a named individual's possible incompetence on other projects might well have been repeated on the particular project in question.
(b) It is impossible and unhelpful to produce a finite definition of circumstances which might reasonably be expected to produce a claim because, given the factual permutations and possibilities, the type of such circumstances may be almost infinite.
(c) It is possible for the insured to give notice of a 'hornets' nest' or 'can of worms' type of circumstance.
(d) The insured must be aware of the circumstances which it is notifying to the Underwriters. It would not be enough to say: "I think it is possible that there may be some unknown and unidentified design deficiencies in a particular building". That would not be a good notification because the insured would not be aware of the circumstances; the insured would simply be guessing that there might be circumstances. That is not good enough. It is only circumstances of which the Insured is actually aware which can be the subject matter of a notification.
(e) The fact that notification must be given "as soon as possible after" the Insured has become aware of the relevant circumstances suggests strongly that the notification only covers those matters of which the Insured is actually aware. Further notifications have to be given as soon as the Insured become aware of new circumstances.
(f) If there has been a proper notification of circumstances, any claim arising from those notified circumstances, of which the Insured was aware, will be considered to have been made within the requisite Period of Insurance. Any claim which arose consequently from the notified circumstances would arise from those circumstances. There must be some causal, as opposed to some coincidental, link between the notified circumstances and the later claim.
(g) One must construe any notification objectively but one is entitled to review subjectively what the Insured was aware of with regard to the notified circumstances. It matters not in this case because the Insured did notify expressly in words the circumstances of which it was aware.
(h) I do not consider it helpful to talk in terms of a narrow or broad interpretation of the notification. It will be interpreted objectively on the basis of the words used, having regard to the factual context in which it was served. The factual context is important, not only as a matter of interpretation of the notification but also, because it is only matters of which the insured is aware that can form the basis of a valid notification.
(i) The claim which is later pursued must arise not only from the notified circumstances but also only from the circumstances of which the Insured was aware. It can not arise from any other circumstances which may have happened or been discovered either after the notification or in any event after the expiry of the insurance cover. Put another way, a subsequent claim which relates to matters of which the Insured was not aware at the time of the notification would not and could not arise from the notified circumstances and, to that extent, would not be covered by the policy.
(j) The claim subsequently brought can relate to new damage flowing from or consequences of the properly notified circumstances which had not occurred by the time of the expiry of the insurance cover because the claim would arise from the notified circumstances.
The parties' arguments
(a) In principle and as a matter of logic, if one is construing, as here, the notification objectively, what Kajima, its loss adjusters, TUIC and its brokers did or said two to five years later is in practice not going to assist, significantly or at all; it does not assist here.
(b) The behaviour and statements of those parties might have been relevant if there was some estoppel plea or similar. In this case, at one stage, Kajima sought to argue that TUIC was estopped by its statements and representations from denying that they were liable under the Policy. However, that plea was abandoned by way of amendment.
(c) In any event, as a matter of fact, there is some confusion as to the basis on which some of the key players were proceeding during the 2003 to 2006 period. For instance, Mr Cockayne was not aware that the insurance cover with TUIC had expired in May 2002. Similarly, I have formed the view that neither its brokers nor TUIC itself turned their mind to the notification issue until it became clear that the claim was likely to run into millions. There was some technical confusion within TUIC's brokers' minds as to the connection between the ponding and walkway problems and the other defects which emerged after 2002. It seems to have been the fortuitous introduction of Counsel which brought to the surface that there was or might be a serious argument relating to the extent of the notification.
(d) At best for Kajima, even if TUIC and its brokers believed after May 2002 that the February 2001 notification was wide enough to cover all the problems which were uncovered, that would simply be a mistaken view to the extent that TUIC's current arguments are now correct.
(e) It follows that if one side did not know that its insurance cover had ended with a particular insurer and the other, the Insurer, did not even consider the notification issue until a late stage, little of utility emerges from this post notification period.
(a) Water had been ponding on the walkways. It was believed to have occurred because the Pods were settling and moving excessively.
(b) This settlement and excessive movement was thought to be causing, actually or potentially, adjoining roofing balconies and walkways to distort by way of differential settlement. It was also believed that the service connections were under risk from that movement. There was associated with that movement potential internal damage and possible tenant risk, danger or inconvenience.
On its face, in context and objectively, the circumstances notified were limited to these matters. It was not a "hornet's nest" or "can of worms" set of circumstances. Whilst neither the causes of the notified circumstances nor necessarily all the consequences were identified, the essential circumstances notified were the settlement or movement of the pods and distortion of the adjoining balconies, walkways and roofing; the actual and potential consequences of these circumstances were covered by the notification.
(a) With regard to the first Wood report, it does seem clear that Mr Wood agreed that there had been substantial shrinkage of the structure which, amongst other things had caused coping stones at the head of the low level brickwork to be tipped up. If the tipping up of the coping stones was a consequence of shrinkage of the Pods which in turn had caused or contributed to settlement and excessive movement which had been notified in February 2001, there would be cover. Similarly, Mr Wood referred to the fact that doors and window frames were severely affected by distortion. If that was caused by the shrinkage and movement of the timber frame or components, again that would be covered by the notification.
(b) In the second Wood report, he identifies a number of defects. Some may be attributable to the notified circumstances and others may not. For instance, if door openings had distorted, not because of the shrinkage and movement (actual or continuing) referred to in the notification but, as Mr Wood opines, the 'poor control of the levels during construction', that would not be covered by the notification; it does not arise from the notified circumstances. I leave aside whether Professional Activities within the meaning of the Policy brought about such poor control. The absence of "herring bone strutting between the joists" might or might not be covered by the notification. If the absence of such strutting had caused or materially contributed or related to the movement which was notified, there might be cover. However, if it had not in any material way contributed or was not materially related to the notified circumstances, it would simply be a deficiency (of design or workmanship as the case may be) which was coincidentally discovered during later inspections. There is no effective link between such a defect and that which was notified. He also refers to water being present in the acoustic and structural boarding. Although Mr Wood preferred the view that the dampness was likely to have been present during construction (in which case there would be no cover under the notification and policy), if the water penetration was caused or materially contributed to by ponding on the walkways which had been caused by the differential settlement which had been notified, the notification would be broad enough to cover any claim relating to such water penetration.
(a) The notification is only effective in relation to the specific circumstances which were notified;
(b) The notification is not effective in relation to any other matters, loss, defects or damage save and to the extent that the other matters, defects or damage caused or related or contributed to the circumstances which were notified or were caused by the notified circumstances;
(c) In general terms, the notification would cover (i) the defects which caused (ii) the symptoms of, or (iii) the consequences of, the circumstances which were notified in February 2001.
(d) It is insufficient that there was a historical 'continuum' of investigation by various parties which coincidentally revealed a number of defects or deficiencies which have not or may not have anything, to do with the notified circumstances.
(e) Even if the investigation referred to in the notification had revealed within the insurance period damage, defects and deficiencies which were not related to the notified circumstances, the original notification would not be wide enough to cover such laterally or coincidentally discovered matters. Further notifications would be required as Kajima became aware of further circumstances which might give rise to a claim.
(f) The Policy would cover the defects (if arising from "Professional Activities") which had been finally identified by JRF and Kajima and their advisers by the time of the Settlement Agreement only to the extent that they were the subject matter of the notified circumstances.
(g) As the investigation referred to in the notification was and could only be into the notified circumstances, it was not a separate notified circumstance in itself. Thus, to the extent that the defects and damage discovered during investigations after May 2002 were not related to the matters actually notified, any claim relating to them did not arise out of the notified circumstances. There must be some relationship between such defects and damage and the notified circumstances, namely "accommodation pods settling and moving excessively; causing adjoining roofing and balconies and walkways to distort under differential settlement". That relationship does not arise because later investigations, even if into the notified circumstances, happen to reveal other defects which have no relationship to the notified circumstances. To the extent that the notified settlement, movement or distortion was not attributable to, or did not give rise to, any of the later discovered defects or damage, there would be no claim.