Sugar Hut Group Ltd & Ors v Great Lakes Reinsurance (UK) Plc & Ors [2010] EWHC 2636 (Comm)

[2010] EWHC 2636 (Comm)Case No 2010 Folio 68
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 26 October 2010
Before
MR JUSTICE BURTON
Between
(1) SUGAR HUT GROUP LTDClaimants(2) BRENTWOOD SUGAR HUT LTDClaimant(3) FULHAM SUGAR HUT LTDClaimant(4) BASILDON SKY BAR LTDClaimant(5) HERTFORD SUGAR HUT BAR LTDClaimant(1) GREAT LAKES REINSURANCE (UK) PLCDefendants(2) CANOPIUS CAPITAL TWO LTDDefendantAND OTHER MEMBERS OF SYNDICATE 4444 AS CONSTITUTED AT LLOYDSDefendant
MR RICHARD SLADE QC (instructed by Thomas Cooper) for ClaimantsMR JEREMY STUART-SMITH QC and MR JAMIE SMITH (instructed by Clyde & Co LLP) for DefendantsHearing Hearing dates: 11, 12, 13 & 14 October 2010
Judgment
[1]There are five Claimants in these proceedings, the first Claimant, whom I shall call “Sugar Hut Group”, and the second, third and fourth Claimants (“the New Companies”), and fifth Claimant (“Hertford Sugar Hut”), all subsidiaries or sub-subsidiaries of Sugar Hut Group. The five Claimants claim against the Defendants, who are insurers who, at all material times, acted through Underwriters, Contessa Ltd (“Contessa”), and, in particular, through Mr David Savage, in respect of their insurance of four nightclubs at Fulham, Basildon and Hertford and, in particular, at Brentwood, where a fire occurred on 13 September 2009, causing substantial loss in respect of which the Claimants seek indemnity.[2]This has been the hearing of the trial on liability only, and the issues to be resolved have fallen into four categories: i) Whether the “New Companies” are entitled to cover under the insurance. This is no longer relevant as a separate dispute, the Defendants having conceded the issue, although, as will be seen, the question as to how and in what circumstances the insurance was amended by Contract Endorsement 1, dated 31 March 2009, so as to include the New Companies, is an important part of the factual matrix and of the resolution of the first unresolved issue, to which I now turn. ii) This first issue, the “Non-Disclosure Issue”, is whether the Defendants are entitled to avoid the insurance policy for material non-disclosure. The material non-disclosure relied upon is set out in paragraph 14 of the Amended Defence and Counterclaim, and described in the course of the hearing as the “three facts”, namely as follows that: a) On or about 3 February 2009, Sugar Hut Brentwood Ltd, Sugar Hut Fulham Ltd and Newplex Trading Ltd (Basildon), trading as Sky Bar Sports Arena (“the Old Companies”), went into administration. b) The Old Companies went into administration because of financial difficulties. c) The purpose of the amendments made by Contract Endorsement 1 was not merely to record a change in the name of the operating companies at Brentwood, Fulham and Basildon, but to substitute the New Companies as Insureds in place of the Old Companies, which had gone into and were in administration. It is admitted that these matters were not disclosed to the Defendants, either prior to grant of cover by the slip, scratched by Contessa on 24 March 2009, or prior to Contract Endorsement 1, the amendment of the Insured, or prior to or in the Proposal Form, signed on the Claimants behalf dated 9 April 2009. It was effectively conceded by the end of the hearing by Mr Slade QC, on behalf of the Claimants, that such undisclosed facts were material. The outstanding issues before me have been(i) whether the Defendants were induced by the non-disclosures, in the sense that the Defendants “would not have made the same contract if they had known the matters in question” (MacGillivray on Insurance Law 11th Ed 17-028) and(ii) whether there was waiver by the Defendants of the obligation to disclose by virtue of the terms of the Proposal Form, by reference to whether “a reasonableman reading the proposal form [would] be justified in thinking that the insurer had restricted his right to receive all material information, and consented to the omission of the particular information in issue”(MacGillivray 17-019, as approved by Doheny v New India Assurance Co [2005] Lloyd’s Rep IR 251). iii) Whether (“the Kitchen Warranty Issue”) the Defendants established, and are entitled to rely on, breaches of warranty by the Claimants so as to avoid liability by reference to the “Frying and Cooking Equipment Warranty”. iv) Whether (“the Burglar Alarm Issue”) the Defendants established and are entitled to rely on, so as to avoid liability under the cover, (i) breach of a warranty that a NACOSS Central Monitoring Station Alarm was installed and operational, and (ii) failure by the Claimants to comply with Contract Endorsement 8 and/or the requirements of a Risk Improvement Notice issued by the Defendants, pursuant to a survey required by the Defendants in the slip, whereby the burglar alarm should be upgraded as therein provided. v) Whether (“the Wheelie Bin Issue”) the Defendants established, and are entitled to avoid liability under cover in reliance upon, the “Waste Condition Precedent”.[3]I heard factual evidence on behalf of the Claimants only from a Mr Want Sibley, who was never a director of any of the Claimant companies, and was Chief Executive Officer of Sugar Hut Group and the New Companies only from May 2009 until July 2010. He was a friend of Mr Norcross, who has been for most of the time since incorporation director and shareholder of Sugar Hut Group and of the Old and New Companies, and had little knowledge of events prior to May 2009, save that he had assisted Mr Norcross in his dispute, to which I shall refer, with Mr Norcross’s former fellow shareholder, Mr Georgallides, but he had no knowledge either of the circumstances in which, as will be described, the Old Companies went into administration and the New Companies took over their business, or of the circumstances in which this insurance was obtained. Mr Norcross himself could have given that evidence, but, although he attended most of the time in court during the hearing, he did not provide a witness statement and was not called. Consequently the reasons why the material facts were not disclosed to the insurers were not vouchsafed to the court, and no evidence was thus given as to what would or could have been said to the insurers by way of explanation and/or reassurance, had the material facts been disclosed and more information and explanation been offered or sought and given.[4]Just prior to the hearing, the Claimants served a witness statement by Mr John Kemp, who was a partner in AJ Insurance Service (“AJI”), the Claimants’ insurance brokers, and unopposed permission was granted for him to give evidence, which he did. Mr Paul Montgomery of Cobra London Markets Ltd (“Cobra”), which acted as the placing broker on the Claimants’ behalf in negotiating the insurance with Contessa, attended pursuant to a last minute witness summons by the Claimants. In the event, neither Mr Kemp nor Mr Montgomery was able to throw any further light on the issues for me to decide. Mr Kemp did not find out about the fact that the Old Companies had gone into administration in February 2009 until 31 March 2009. He did not inform Mr Montgomery of that fact. He did in passing mention to Mr Montgomery that Mr Norcross’s former partner (clearly Mr Georgallides) had been allegedly “siphoning” money from the business, but Mr Montgomery did not pass this on to Contessa.[5]The Defendants called Mr Savage and a deputy underwriter Miss Heywood from Contessa, and in addition called Mr Alan Morfitt, who carried out the survey in respect of the insured premises (including Brentwood) on the instruction of the Defendants in June 2009, and Mr Patrick Kerr, an employee at the Brentwood premises, who gave evidence in respect of an issue which was, in the light of his evidence, subsequently conceded by the Claimants, in respect of the Kitchen Warranty Issue. The Defendants called an insurance expert, Mr Paul Johnson, on the issue of materiality: the Claimants called no such expert. Each side instructed and called an expert with regard to the Kitchen Warranty, Burglar Alarm and Wheelie Bin Issues, Dr Bland for the Claimants and Dr Weller for the Defendants, and, although both were called, in fact they had largely resolved any disagreements between them in their joint statement dated 25 September 2010, and there was little of contest left between them.

The History

[6]I shall seek to summarise the history as briefly as I can, in order to set the insurance issues into context. It seems that Sugar Hut Group, then run by Mr Norcross and Mr Georgallides, held from 2007 interests through subsidiaries in three nightclubs, in Brentwood, Fulham and Basildon, and, whether or not the Old Companies were originally direct subsidiaries of Sugar Hut, it appears that, as from November 2008, three further companies may have been interposed, perhaps in order to employ the staff (Ramos Leisure Ltd, Willow Leasing Ltd and Newlea Properties Ltd (“the Additional Companies”). Sugar Hut Group, the Additional Companies and the Old Companies were insured in respect of the three premises with AXA Insurance (UK) plc (“AXA”) by a policy which was to expire on 21 March 2009.[7]The dispute between Mr Georgallides and Mr Norcross, to which some reference has been made in paragraph 3 above, led to a Compromise Agreement dated October 2008 between them, Sugar Hut Group, the Old Companies and a number of other parties, which has been disclosed in this action. As I have set out above, Mr Norcross has not been called, and Mr Sibley has been unable, to give any further explanation than appears from the document itself, but it records competing claims that Mr Georgallides on the one hand, and Mr Norcross on the other, had misconducted the affairs of the Sugar Hut Group, and states that Mr Georgallides was owed £200,000 as a director’s loan, and that Mr Georgallides was to pay the sum of £300,000 to the other parties and release such loan, without admission of liability.[8]Hertford Sugar Hut was incorporated in November 2008 to run a nightclub at new premises in Hertford.[9]On 3 February 2009 the Old Companies went into administration. It seems that the business of the Old Companies in respect of the nightclubs at Brentwood, Fulham and Basildon was taken over by the New Companies.[10]On 17 March 2009, Mr Kemp of AJI, having apparently been informed by AXA that they might not want to renew, began on behalf of Mr Norcross to find alternative insurance in respect of the three nightclub premises and acted very speedily. He approached Mr Montgomery of Cobra on 17 March, and on that date filled out a Cobra Broking Template, which showed the proposer’s name as Sugar Hut Group, stated under the words “Year established” “2007, previously other owners 2008”, and recorded under “Other Companies” the Old Companies and the Additional Companies – six in all. Cobra compiled an Indication of Terms which it took to Contessa, which scratched it, and provided a quotation to Mr Kemp, from which Mr Kemp managed to negotiate a £1000 discount off the premium. Cover was confirmed by Cobra with effect from 21 March 2009, which was of course the date when the AXA insurance expired. The slip was scratched by Mr Savage of Contessa, on behalf of the Defendants, on 24 March 2009. The Insureds were Sugar Hut Group, the Old Companies and the Additional Companies. It was expressly subject to a satisfactorily completed Proposal Form, with cover to lapse after 60 days if the proposal were not received or extension agreed by Underwriters.[11]There were the following material terms: i) “Subject to satisfactory survey at all locations (to be arranged by Cobra) and any necessary risk, improvements carried out at a timescale to be advised, Underwriters reserve the right to amend or cancel cover immediately following survey”. ii) “Frying and Cooking Equipment Warranty as attached.” This read in material part:
“It is warranted that … (b) all frying and other cooking ranges, equipment, flues and exhaust ducting will be kept securely fixed and free from contact with combustible materials; (c) all extraction hoods, canopies, filters and grease traps will be cleaned at least every 2 weeks; (d) all extraction ducts will be cleaned regularly and maintained and checked at least once every six months by a specialist contractor.” iii) “It is warranted that a N.A.C.O.S.S. Central Monitoring Station Alarm is installed and operational.” [“the Burglar Alarm Warranty”.] iv) “Waste Condition Precedent (as per wording and as attached).”
This provided (in material part)“It is a condition precedent to liability that … all waste or refuse outside the Buildings is stored in (a) non-combustible lidded and lockable containers or (b) metal skips kept within designated areas at least 10 metres from any building or other property and removed from the Premises when the containers or skips are full.”

… all waste or refuse outside the Buildings is stored in

[12]On 26 March 2009 Cobra sent the slip together with a blank Proposal Form to AJI. On 31 March 2009, Sugar Hut told AJI about the Old Companies being in administration. Ms Lee sent an email to Mr Kemp:
“The company names aren’t right. Sugar Hut Brentwood Ltd, Sugar Hut Fulham Ltd and Newplex Trading Ltd have all gone into administration. The new company names are Brentwood Sugar Hut Ltd, Fulham Sugar Hut Ltd and Basildon Sky Bar Ltd. Does this cause a problem?”
Mr Kemp then sent an email of the same date to Mr Janes of Cobra, which read simply as follows:
“Sorry on this one the companies have changed, I didn’t realise. Please amend as follows.”
He then sets out below the (unchanged) names of the Sugar Hut Group and the Additional Companies and then the names “Brentwood Sugar Hut Ltd, Fulham Sugar Hut Ltd, Basildon Sky Bar Ltd” i.e. the names of the New Companies.[13]On the same day Contract Endorsement 1 was issued by Cobra and scratched by Contessa, reading as follows:
“CONTRACT CHANGES This contract is amended as follows: [with effect from] Inception, Underwriters note and agree INSURED is amended to the following … [7 names set out in the 31 March email].”
This contract is amended as follows:[14]Hertford Sugar Hut was added in respect of the new Hertford premises with effect from 6 May 2009 by a separate endorsement dated 7 May 2009.[15]Meanwhile the Proposal Form was completed and signed on 9 April 2009 and sent by AJI to Mr Montgomery on 14 April 2009. The “Name of Proposer” is recorded as “Sugar Hut Group Ltd + Associated Companies”. Underneath “Business Description” there are two questions which have been the subject of scrutiny before me, which I shall call “Question One” and “Question Two”:
“How long have you traded in this name? [Answered: “2007”] Have you ever traded in any other names? [Answered: “YES”]”
Have you ever traded in any other names? [Answered: “YES”]”[16]A number of the other questions are answered “Refer to survey”, which of course had not yet been carried out. The other material contents of the Proposal Form are as follows:
“Are there any other facts not covered by the questions in this form that could be considered material to this insurance proposal? (If Yes, please give full details)”. [Answered: “No”] “DECLARATION: I hereby declare that the answers contained within this Proposal are true and complete and that I have withheld no information whatsoever material to this Proposal. I agree that this Proposal and declaration are true and completion of the answers herein shall be the basis of the contract between me and the Underwriters … Important: Please note that non-disclosure or misrepresentation of a material fact may entitle Underwriters to void this insurance. (N.B. A material fact is one likely to influence acceptance or assessment of this proposal by Underwriters: if you are in any doubt as to whether a fact is material or not you must disclose it in the space provided.) ”
[17]Miss Heywood, on behalf of Contessa, considered the Proposal Form on 15 May 2009. She interpreted the answers to Questions One and Two as meaning that the proposers had been trading since 2007 in their company name and that, previous to 2007, they had traded in other names. She required no further information in that regard, but, because of the express reference to, and known absence of, the survey, she could in any event take no further action nor refer it further to Mr Savage, until the surveys were completed. These surveys were carried out by Mr Morfitt between 16 and 19 June 2009 in respect of Brentwood, Basildon and Fulham. So far as Brentwood is concerned, there are three relevant passages in the Report:(i) “Waste Removal: … sweepings are deposited into wheelie bins (parked in rear yard).”(ii) “The main kitchens serving the restaurant are located at the rear of the ground floor. Equipment incorporates electric and gas cooking appliances … They are situated below stainless steel extraction canopies, but details regarding the cleaning of the filters and ductwork are unknown (warranty refers).”[Although this is not recorded in the Report, Mr Morfitt was apparently not able to inspect the kitchen as there had been recent storm damage to it.](iii) “SECURITY Intruder alarm: Make Hewes Security NACOSS/NSI approved: NACOSS Gold Standard. Method of signalling: Unknown.” Method of signalling: Unknown.”[18]In the light of the surveys, a set of Risk Improvements was compiled for each of the premises, and that for Brentwood included the following:
“Theft: 1. The burglar alarm should be upgraded using verification technology with dual-path signalling. At the same time, the extent of the protection should be reassessed.”
[19]As scratched by Mr Savage on behalf of Contessa, this was approved, with the following handwritten addition:
“Insured to be reminded of warranty and upgraded within 30 days [altered by Mr Savage from 60 days] … details to be submitted to Underwriters for approval.”
Mr Henderson of Cobra on 30 June sent Mr Kemp “attached Risk Improvements and deadlines for all 3 locations”. Contract Endorsement 8 was then issued which (so far as relevant) recorded “Theft … Insured to be remind (sic) of the warranty and upgrade by 29/07/09”. The document ended “All other terms and conditions remain unchanged”.[20]On 4 August 2009, in unexplained circumstances, Cobra issued a full policy schedule, although it was not supplied to Contessa or to the Claimants until well after the fire.[21]On 6 August 2009, Cobra asked AJI if all the risk improvements had been completed and it seems that an extension was sought, which Mr Savage agrees that he granted at Cobra’s request, until 21 August 2009. Mr Henderson of Cobra notified Mr Kemp, in an email dated 14 August 2009, of such agreed final extensions. Mr Henderson’s email to Mr Kemp, in words which Mr Savage did not see or approve, while correctly stating that this was a final extension, continued “and if not received, underwriters will apply penal terms to the policy”. Mr Kemp’s response to Mr Henderson was that he had just spoken to Simon Grant, described as the Area Manager for Sugar Hut, and, in fact, as we now know, the Manager in charge of the Brentwood premises. Mr Grant too, although his evidence would have been relevant both in respect of this matter and other issues, particularly those relating to the kitchen, has not been called by the Claimants. Mr Kemp informed Mr Henderson that he had been told by Mr Grant that “As for the risk improvements, the alarm upgrades are being done next Friday, at which point all the requirements will be complete.” Mr Want Sibley, the Chief Executive Officer of the Claimants who did give evidence, and was Mr Grant’s line manager, said that he knew nothing of this, or indeed of any work to be done by the alarm company; and, by the time of the fire, no such upgrades were carried out.[22]The fire occurred at Brentwood, as I have stated, on 13 September 2009. The cause has never been established, although it is clear that the origin of the fire was not in the kitchen ducting, nor had any connection with the wheelie bins. By letter dated 27 November 2009 the Defendants’ solicitors avoided the insurance on the grounds of the material non-disclosure now relied upon, while recording that, had the Defendants not been entitled to avoid the policy, they would not have been obliged to meet the claim because of the breach of warranties/conditions precedent now the subject matter of the other three issues before me, which I must now resolve.

The Non-Disclosure Issue

[23]The starting point is s18 of the Marine Insurance Act 1906 (“the 1906 Act”), whereby, subject to certain exceptions there specified:
“(1) … the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. If the assured fails to make such disclosure, the insurer may avoid the contract. (2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk. (3) In the absence of enquiry, the following circumstances need not be disclosed, namely – (c) Any circumstance as to which information is waived by the insurer.”
[24]This expectation that any matter which affects the risk or makes it non-standard will be disclosed to the Underwriters is what made it possible for Underwriters to act as speedily as they did on this occasion, and without doing their own research. It is common ground that the two-stage test described in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 of proving first materiality and then inducement (in the sense described in paragraph 2(ii) above) applies. As to the first stage, it did not need the powerful and persuasive evidence of Mr Johnson to convince me (and indeed Mr Slade) that the three (admittedly undisclosed) facts were material at the stage of the original slip, at the stage of the amendment of the Insured by Contract Endorsement 1 and at the stage of the Proposal Form. The three Old Companies had gone into administration because of financial difficulties only a few weeks before, and, in unexplained circumstances, the New Companies had taken over their businesses. Mr Johnson concluded that a reasonable and prudent underwriter would have asked the questions as to why the New Companies were formed, what had happened to the Old Companies and why they were no longer to be the subject of insurance. He would want to know whether there was a connection between the Old Companies and the New Companies, and, if so, whether whatever had gone wrong with the Old Companies would be likely also to go wrong with the New, or whether there was no connection between the Old Companies and the New Companies, in which case he would wish to know whether there was sufficient experience and know-how in the New Companies. Mr Slade, in cross-examination, put to Mr Johnson the existence of the Compromise Agreement, and of the complaint by Mr Norcross against Mr Georgallides as to his having been siphoning money from the business, and suggested that a reasonable underwriter would say that, if he were not to be insuring the Old Companies, and with Mr Georgallides gone, then the previous events would not be important. But Mr Johnson’s reply, which I entirely accept, is that knowledge of the dispute would cause grave concerns to a reasonable and prudent underwriter, wishing to know whether there is a risk that the financial viability of the business going forward was endangered. The Claimants called, as I have said above, no expert evidence of their own, and I have no hesitation in accepting Mr Johnson’s evidence. The three facts were plainly material.[25]The existence of such further undisclosed facts, such as were put by Mr Slade to Mr Johnson, by way of the alleged siphoning by Mr Georgallides and the Compromise Agreement, seems to me to go to the issue of inducement rather than to materiality, because they really arise in the context of what would have happened if either there had been disclosure of the full position, or there had at least been disclosure of the three facts, and further questions had been raised as a result. Within the context of the helpful definition of inducement by MacGillivray,set out in paragraph 2(ii) above, the question is what would have happened if the facts had been disclosed, and I turn to that issue.[26]Mr Savage was clear that, had the three facts been disclosed, the Defendants would not have insured at all, or at any rate, even if some explanation had been forthcoming, not on the same terms (and certainly not with the £1000 discount). He is an experienced specialist underwriter with 35 years experience, and I conclude that he gave his evidence carefully and conscientiously. I am satisfied that he was as conscientious in dealing with this insurance as he was in giving his evidence before me. Although he did not have any Underwriting Guidelines, this was not in terms suggested by Mr Slade to be a matter of criticism in relation to his work as an underwriter for Contessa (nor do I consider it so), and he explained that, when he was underwriting a risk, he would be looking for certain types of information which he summarised as “COPE: Construction, Occupation, Processes, Experience”, and he would expect the broker to be giving him any details of financial issues.[27]But however careful and experienced an underwriter is, it may still be suggested (and was by Mr Slade) that an underwriter who has avoided for non-disclosure will be bound to say that information now shown not to have been disclosed would have made all the difference such that he would not have insured. So I cast around for consideration whether guidance can be drawn from the surrounding circumstances, so as to see whether such evidence can in this case be accepted. The real question (as per MacGillivray) is what would have happened, and this can be considered at two stages: i) Do I conclude that Mr Savage was so keen to accept the risk, so uninquisitive and so complacent, that he would not have batted an eyelid had the undisclosed facts been disclosed to him? Alternatively ii) if he would have batted an eyelid and called for explanations (or indeed if the undisclosed facts had been accompanied by such explanations as could be given) would he still have proceeded with the insurance contract as arranged?[28]I turn then to look for any such indication. Mr Slade has found very little with which to cast doubt upon what Mr Savage now says he would have done. i) Mr Savage said in his witness statement that that part of the proposed Burglar Alarm Warranty, as recorded in Cobra’s quotation sheet, which included provision that the alarm must be “via BT Redcare” was deleted by Mr Montgomery in advance of their meeting, whereas it now appears that it was crossed out afterwards by Mr Montgomery (but with Mr Savage’s agreement), when Mr Kemp notified Mr Montgomery that he was not sure that the alarm systems worked via Redcare, and Mr Savage then concluded that whether the alarms were via Redcare was not significant to him. Mr Slade was thus able to suggest that Mr Savage’s recollection of detail was not accurate. I do not conclude that one inaccurate recollection casts any doubt on the totality of his evidence. ii) Mr Savage said that he could not remember whether he saw the email to which I referred in paragraph 12 above, by which Mr Kemp asked Mr Janes of Cobra for the amendments of the names of the companies; certainly it is not scratched by him. Mr Slade submits that this lack of recollection is surprising and, therefore, suggestive. I am not impressed by this: Mr Montgomery was asked by Mr Slade whether he recollected seeing the email or showing it to Mr Savage, and he recollected neither. Mr Savage went on to say that if he had seen the email it would not have caused any concern, nor alerted him to anything other than there being name changes to existing companies within the Sugar Hut Group. Of course it would have been a different matter if Mr Kemp had passed on to Cobra the fact that the Old Companies had gone into administration, and that that was the reason for the change: but he did not, perhaps for the very reason that he had been asked in Ms Lee’s email to him (whose terms he did not pass on) whether this “cause(d) a problem”. The terms of Mr Kemp’s email, coupled with the agreement to amendment to the (defined term) INSURED, is entirely consistent with Contessa’s belief that it was a simple correction. But in any event the further information (and explanation) was plainly required. I am satisfied (and am fortified in my conclusion by the evidence of Mr Johnson) that the simple terms of request for the name change did not put Mr Savage on notice, and in no way casts doubt on Mr Savage’s evidence as to what he would have done if the position had been revealed to him: and that his evidence that he does not recollect seeing the email is genuine, and not a way of sidestepping what would not in any event have constituted a problem for the Defendants’ case. iii) Mr Slade criticises the fact that the rather unclear information in the Cobra broking template, set out in paragraph 10 above, under the heading “Year Established”, did not cause any concern, such as to suggest that Mr Savage was not really interested in the trading history of the proposed insured. Again, I am unpersuaded. This was early days, and what was set out was in a draft Cobra document, and further information would be forthcoming in the Proposal Form, as in the event occurred.[29]There is no sign whatever of any over-enthusiasm by Mr Savage to accept the risk. Indeed, in my judgment, every step he took was cautious, right down to the requirement for the Risk Improvements. He was continuously pressed by Mr Slade by way of challenge to the evidence he had given in his witness statement:
“52. I now understand that the reason for the change of the companies’ names was that the Insured had set up new operating companies to take over the running of the three venues … 53. There was no obvious reason why the new companies should have been able to trade profitably from the venues when the original companies had not … 54. If the broker had tried to persuade me that major changes had been made to the business model which meant that the new companies would be able to trade profitably unlike their predecessors, I would still have been unlikely to accept the risk, since I would have had to be persuaded to take this on trust given how recent the change was. Even if I had agreed to accept the risk, I would certainly not have given the £1000 discount on the premium that I offered and I would in fact have increased the premium to reflect the added uncertainty regarding the future financial stability of the business. I would also have considered increasing the excesses on both the liability and property cover.”
[30]Despite a series of searching questions by Mr Slade, Mr Savage gave (Day 2 pp97-138) an ever more persuasive and more comprehensive exposition of his position. As to any suggestion that he was in a mood to accept whatever business Mr Montgomery of Cobra might bring to him, that received a round rejection:
“In our business we don’t take chances like that; we do not take a punt, if you like. I was basing this on the information I had available to me and also taking it on the basis that if there were any contra-indications or problems, say, of a financial nature, they would have been pointed out to me. ”
[31]But given that, as I have stated above, the question for me is whether the Defendants can satisfy me as to what would have happened, i.e. that they would not have given the cover, then I must obviously go on to consider, as indeed not only Mr Johnson, but also Mr Savage, was asked to do, what the reaction would have been had further information been provided and/or some kind of explanation been given; and, as I have set out above, in the absence of any exposition by Mr Norcross as to what would or could have been said, I am left with what was put to Mr Savage, namely the siphoning and the Compromise Agreement. Not surprisingly Mr Savage, in a supplementary witness statement responding to the disclosure about Mr Georgallides, had said (paragraph 4):
“If a dispute between the Directors, and Mr Georgallides’ alleged dishonest conduct, were given as the reason for the companies’ financial difficulties, then this would have increased my concerns rather than allayed them.”
[32]Once again, nothing in cross-examination could shake Mr Savage, nor deter me from accepting his evidence. One significant matter which emerged is that one aspect of the financial information which was supplied to Mr Savage through Mr Kemp and Mr Montgomery is the information as to there being a turnover of £4.5m, which Mr Savage said in evidence, by reference to his knowledge of that at the time, was “a substantial amount of money for a nightclub company”. What would presumably have come out, if the financial position of the Old Companies had, indeed, been revealed, and/or explanation been given by reference to the siphoning of money by Mr Georgallides, would have been the information (as recorded at the time by Mr Kemp) as to there having been £4.4m “unofficial till takings [including] the cash and [credit card] takings stolen by Chris”, with a consequent shortfall in those takings of some £1m. I have no difficulty in reaching the conclusion that I accept Mr Savage’s evidence as to what would have happened if there had been disclosure to the Underwriters.[33]The case that the Claimants put forward to limit or stanch the inevitable enquiry that would have followed had there been any such disclosure was the case of waiver, described by MacGillivray, as set out in paragraph 2(ii) above, and amounting to an exception to the obligation of disclosure, provided for by s18(4) of the 1906 Act, set out in paragraph 23 above.[34]What is said is that the reasonable person would have concluded that the format of the Proposal Form, adopted by Cobra but approved by Contessa, constituted a restriction of the Defendants’ right to receive all material information, and evidenced the Defendants’ consent to the omission of the particular information in issue, such as to amount to a waiver.[35]This seems a difficult exercise in the light of the constant reiteration within the Proposal Form itself, set out in paragraph 16 above, of the need to disclose material facts. Mr Slade relies upon the fact that what the proposer is invited to do is to disclose “any other facts not covered by the questions in this form”. He thus submits that, given that the only information sought about trading history is contained/covered in Questions One and Two as to trading name, no other information is required, and hence no more needs to be disclosed than the answers given to the two questions.[36]Even if that be arguable, as Mr Stuart-Smith QC points out, all then depends upon those two questions and their answers. It is quite clear that they are, as both Miss Heywood and Mr Savage stated, interlinked. Mr Savage said (Day 2 p89) that he took the answers to mean that the companies that he was insuring had traded since 2007 in those names: that they may have traded in other names before 2007, but “because they had traded for … a couple of years, there was no reason to ask any other questions about that.” Miss Heywood said that, if she had received an answer to Question One which disclosed trading for only days or weeks or possibly a month, her reaction would have been to request full details. One problem is that the Proposal Form was not entirely apt to be used for more than one company. Once the proposer becomes “Sugar Hut Group Ltd + Associated Companies”, which is how the Claimants approached the document, then the questions become more complicated to answer. It may have been true that Sugar Hut Group had traded (insofar as it did trade, being a holding company) in that name since 2007, but the Additional Companies had not, and certainly the New Companies had only traded for a matter of weeks.[37]But there is no doubt that the format of the Proposal Form is such that, if the answer to Question One is such as to reassure (e.g. trading for at least 2 years), then the answer to Question Two may be less important or indeed immaterial. What Question One does is enable the Underwriters to decide whether they need any more information in the light of the answer (which is assumed to be true).[38]Having the questions in that format does not in my judgment in any way imply any restriction on the right of the Underwriter to follow up any answers. At most there may be the implication that if the question is answered truthfully, and if that truthful answer discloses nothing material, then it may be there may be no further enquiry. If there are unsatisfactory answers which are not followed up, that might (but for the other terms set out in paragraph 26 above) be a starting point for a waiver. But in terms of Mr Slade’s submission set out in paragraph 35 above, the Claimants cannot rely on factors not being “covered by the questions” if the reality is that they were not covered by the answers.[39]The case of waiver based upon the form of the Proposal Form is, in my judgment, without substance.

The Kitchen Warranty Issue

[40]As set out in paragraph 11(ii) above, two warranties arise. The first relates to the contact of the kitchen ducting with “combustible materials” - and, as will be seen, both experts accept and agree that there was such contact, i.e. between the duct and, in various places, timber, plywood and plastic membrane (all now conceded to be combustible materials). The second concerns the inspection of the extraction ducts every six months by a specialist contractor: the last inspection was on 26 February 2009, i.e. more than 6 months before the fire, and, depending upon the construction of the policy, the Defendants assert that to constitute a breach. It will be necessary to consider whether the Frying and Cooking Equipment Warranty is a “true warranty”, i.e. one the breach of which allows the insurer to deny any liability under the policy. In the insurance context, reference is made to s33 of the 1906 Act, whereby:
“(1) A warranty … means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular things shall or shall not be done, or that some conditions shall be fulfilled, or whereby he affirms or negatives the existence of the particular state of facts. … (3) A warranty, as above defined, is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.”
[41]The fact that the word “warranty” is used in the policy is a good starting point in favour of so construing it (see Colinvaux & Merkin’s Insurance Contract Law Vol II at B-0137) but it is fair to say that, since a true warranty has the same impact as a condition precedent, in relation to whose effect there can be no doubt, and since in this policy there were expressed to be conditions precedent (e.g. the Waste Condition Precedent), there may be more room for argument. An alternative construction of such a warranty is that it is ‘merely’ a suspensory condition, i.e. whereby the obligation of the insurer is suspended during the period of breach. It may be easier to construe a warranty as a suspensory condition where the obligation by the insurer is to comply with some deadline (e.g. as in Kler Knitwear Ltd v Lombard General Insurance Co Ltd [2000] Lloyd’s Rep IR 47) than where there is a warranty as to a state of affairs. Considerable help can be gained from the short passage in the judgment of Rix LJ in HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] Lloyd’s Rep IR 596 CA at 101, where he says:
“It is a question of construction, and the presence or absence of the word “warranty” or “warranted” is not conclusive. One test is whether it is a term that goes to the root of the transaction; the second, whether it is descriptive of or bears materially on the risk of loss; a third, whether damages would be an unsatisfactory or inadequate remedy. As Bowen LJ in Barnard v Faber [1893] 1 QB 340 at 344: “A term as regards the risk must be a condition”
. Otherwise the insurer is merely left to a cross-claim in a matter that goes to the risk itself, which is unbusinesslike …”[42]I deal first with the inspection obligation. Until the evidence of Mr Kerr, the Claimant sought to pursue a case that compliance with the warranty was ousted “by reason of a change of circumstances” within s34(1) of the 1906 Act, by reference to an assertion that the kitchen was closed and was no longer being used by the time of the fire: but this, in the light of Mr Kerr’s evidence, was plainly not the case. Hence the defence left to the Claimants was by way of construction, namely that an obligation to check “at least once every 6 months” meant “at least every 6 months starting with the date of inception of the policy”. It was suggested that this would be analogous with the obligation under subclause (c) of the warranty whereby the hoods etc would be cleaned “at least every 2 weeks”, which it was submitted should also mean every two weeks starting with the inception of the policy, because in both cases the future tense was used. In my judgment the use of the future tense is not determinative; of course the cleanings and the checkings will take place in the future, but the question is whether their regularity is by reference to the last such checking or cleaning. Mr Stuart-Smith argues that, in relation to the six-month checking, it must mean six months since the last such check, because otherwise, on the assumption of an annual policy, there will only be one such check, the one after six months, before the policy expires. It seems to me clear that, as a matter of business efficacy, what is required is that there should be a check every six months, i.e. once six months has expired since the last check. It is not suggested, as it happens, that the reason of the failure by the Claimants to carry out this check had anything to do with a faulty construction of the policy. The obligation was simply overlooked, as Mr Want Sibley effectively conceded, perhaps because of the refurbishment of the kitchen, which was planned. I conclude that there was a breach which was continuing at the date of the fire.[43]The two engineers agreed that there was contact between the ducting and combustible materials in four positions, totalling a length of something over 114cm. Dr Weller deduced that there was or must be a further at least 100cm of such contact round the back of one of the ducts, not visible to the eye, or indeed approachable by hand or arm, which he inferred by virtue of the fact that there was no movement to the ducting when he manoeuvred it, from which he assumed that this could only be because the duct was in effect jammed up against the plywood framework. Dr Bland disagreed. I am not prepared to find that the Defendants have satisfied the onus of proof as to this additional contact.[44]The area of contact which was however found and agreed by both experts is an area which was thus not kept “free from contact with combustible materials”. Both engineers agreed that this constituted a hazard, and that the risks in restaurants and nightclubs of fires in ducting in the kitchen areas is a significant one, albeit of course that in fact in this case that was not how this fire occurred. Because the area of contact was ‘only’ 114cm or so out of an area of some 15 square metres of ducting, Mr Slade suggested that I should treat this as de minimis. Mr Stuart-Smith accepts that there are obiter references to the possibility of de minimis in the insurance field (see per McNair J in Overseas Commodities Ltd v Style [1958] 1 Lloyd’s List Law Rep 546 at 557 and per Tomlinson J in Bennett v AXA Insurance plc [2004] Lloyd’s Rep IR 615 at 620, but there is no decision which has in fact found the concept to apply so as to excuse a breach in this field. I am entirely satisfied that, even if the concept could be applicable, it does not apply where(a) there was more than miniscule contact, as even the 4cm of contact was accepted by the experts as capable of being the source of a serious fire and(b) all of the areas upon which the experts agreed were visible and accessible. It is noteworthy that the provision that there must be no contact with combustible materials is in fact more lenient than the requirement of the Loss Prevention Council, which requires a clearance of at least 150mm.[45]Addressing the guidance by Rix LJ and the facts of this case, and in particular taking into account the agreed evidence of the two experts as to the risk of ignition of combustible materials, I am satisfied that the warranty as to the ducting bears materially on the risk of loss and that the insurers were entitled to regard it as an important protection. It was also, despite its precise wording, a warranty as to the state of affairs in respect of the ducting. Mr Slade inevitably points out that where, as here, there are four premises the subject matter of one insurance, then it is a material factor that the consequence of breach of a true warranty in respect of one of the premises impacts on all of them. That is however indeed the consequence of having cover for four premises included in one policy, and it could presumably have been an option for there to be four separate policies. In any event I am satisfied that, given that all four premises were premises in which there were kitchens at risk of fire, the warranty as to the ducting was a true warranty in respect of all of them, notwithstanding the drastic effect of the breach of such warranty. In the event, of course, as it turns out, the breach of the warranty was in respect of the premises where the fire occurred (and in any case, as concluded above, the Defendants have been entitled to avoid the policy on other grounds in any event).[46]With regard to the obligation of six-monthly inspection, I would in that case be persuaded that the warranty could be separately addressed by reference to subparagraph (d) and could be interpreted as being a suspensive condition. However, of course, as it happens the inspection did not simply occur late (as in Kler) but had not occurred by the time of the fire, so the suspensive nature of such condition would not assist, as cover would still have remained suspended at the time of the fire.

The Burglar Alarm Issue

[47]The burglar alarm fitted at Brentwood was simply a ‘remote’ alarm in the sense that, in the event of the alarm being activated, it would ring a telephone number, either home or mobile, of certain Sugar Hut staff, who might or might not be available to take the call. There was no connection to the police station or to an alarm centre which would monitor calls, and notify key holders and/or report to the police, as appropriate. I am satisfied that it certainly did not amount to a Central Monitoring Station Alarm, as was required. If I were in any doubt as to whether the words are ambiguous, I would note that it is clear from contemporaneous emails between Mr Kemp, Mr Montgomery and Miss Craven of Sugar Hut relating to the position at Hertford, where it was accepted by Cobra (and scratched by Contessa) that there was no Central Station Alarm, that the requirement (applicable to the other premises, including Brentwood) was understood.[48]I have set out the warranty in paragraph 11(iii) above, and, in paragraphs 17(iii), 18 and 19 above, the content of Mr Morfitt’s survey report and of the consequent Risk Improvement Notice. Mr Morfitt did not know whether there was a Central Monitoring Station Alarm, and there is no express reference to it in the Risk Improvement Notice. It seems to me inevitable that this would have been dealt with and picked up in complying with the requirement that “the burglar alarm should be upgraded”, but, in any event, it was a further requirement that “the extent of the protection should be reassessed”.[49]I am satisfied that the Burglar Alarm Warranty was a truewarranty. By reference to Rix LJ’s considerations, a burglar alarm compliant with the warranty was of fundamental importance to the theft insurance, and for similar reasons as with the kitchen ducting, was significantly material to the risk of loss; and it does not influence such conclusion either that in the event the absence of such burglar alarm was not in any way causative of the loss suffered by the fire, or that the breach now addressed was only in relation to one of four premises (although I anticipate there was probably a similar breach in relation to Fulham and Basildon, though Hertford was expressly absolved as set out above).[50]Mr Slade raises the question of what the status was of the Risk Improvement Notice and of Contract Endorsement 8. In paragraph 11(i) above, I have set out the term in the slip as to cover being subject to satisfactory survey and the carrying out of necessary risk improvements in a timescale to be advised. Mr Slade points out that that term was not repeated in the policy issued by Cobra on 4 August 2009, and he submits that such policy supersedes the slip, referring to the judgment of Rix LJ in HIH at paragraphs 85 – 93, culminating in his words “in the insurance markets ... it may well by now be possible to talk of a general presumption that a policy is intended to supersede a slip.”[51]There is some doubt about the status of the policy document of 4 August, which Mr Savage said that he had never seen, and which was not supplied to the Claimants until well after the fire. Mr Stuart-Smith suggests that Cobra may have been led to believe that the conditions in the survey had been complied with. (There is a somewhat strange and unexplained addendum apparently to that effect sent by Cobra to Mr Kemp in September.) However, I note that in the covering letter to the Commercial Combined Wording, being Contessa’s standard wording, which is the wording incorporated into the policy, there is included the following passage:
“Survey and Risk Improvement Requirements: If the Company carries out a survey of Your premises then you must comply with all the Risk Improvements required within the timescales specified. If You do not do so Your cover could be invalidated.”
I consider that the obligations in the slip survived into the policy, if it was a relevant document, and/or that contrary to any general presumption in this regard, the policy did not supersede the obligations in the slip.[52]I am satisfied however in any event for a number of reasons that compliance with the Risk Improvement Notice and Contract Endorsement 8 by the extended deadline of 21 August 2009 constituted a suspensory condition, and not a true warranty. This is so whether by reference to the terms of the slip, or to the terms by which, insofar as the 4 August policy was of relevance, the obligation was incorporated into, or not superseded, by such policy (by reference to the above wording of the covering letter), or indeed by reference to the very terms of the Risk Improvement Notice and of Contract Endorsement 8.[53]Mr Slade however relies upon the obligations as ousting or waiving the Burglar Alarm Warranty. But for the following reasons I am satisfied that the Risk Improvement Notice and Contract Endorsement did not constitute a waiver of the Burglar Alarm Warranty: i) There could not be a waiver, as the Defendants did not know there was a breach (see paragraph 48 above). ii) Contract Endorsement 8 (and the Risk Improvement Notice as scratched) included the requirement “Insured to be remind[ed] of warranty”: it plainly thus remained operative. iii) There was the express requirement that, while the burglar alarm was upgraded, “at the same time the extent of the protection should be reassessed”. Whether or not the upgrading would include institution of Central Station Monitoring, it is clear that whatever was to be done (and reassessment must clearly include assessment of the present position, including whether it complies with the existing warranty) would be done simultaneously. iv) Significantly Contract Endorsement 8 contains the rubric “All other terms and conditions remain unchanged”.[54]However, although the original true warranty was not therefore, in my judgment, waived by the requirements of the Risk Improvement Notice, there was plainly a time extension until 21 August for work to the burglar alarm. It is inconceivable that there can be construed to have been running in parallel a true warranty, breach of which automatically discharged insurers from liability, and a suspensive condition/extension of time. Indeed Mr Savage himself confirmed as much (Day 2/163). However, unlike the position in Kler, where the sprinkler installation was in fact complied with, but after the expiry of the deadline, so that, in fact, by the time of the storm damage, insurance was found to be back in place, in this case the upgrade work never was carried out, and the Central Station Monitoring never was instituted, so that the suspensive condition continued in effect, and there was no insurance in place at the date of the fire.

The Wheelie Bin Issue

[55]The existence of trade waste is agreed by the experts, and Mr Morfitt, to be an acknowledged fire hazard. Again, it was not material to the actual fire which took place, but the obligation (set out in paragraph 11(iv) above) is expressed to be a condition precedent to liability under the policy. The wheelie bins at Brentwood were not made of metal, but were made of a particularly strong form of plastic known as HdPE, described in a product profile obtained by the Claimants as “a colourless, translucent solid … non-combustible but dense smoke is formed when burning.” The experts agreed that “HdPE is a combustible material … HdPE bins themselves are not easily ignitable with a lighter or match. The bins will burn readily if a fire is started in combustible material in them … or in such materials adjacent to them.”[56]Neither the experts nor Mr Morfitt know of any readily available non-combustible bins manufactured from materials other than metal. In his surveys, Mr Morfitt made mention of the position so far as waste bins are concerned at Basildon and Fulham without any critical comment, and, so far as Brentwood is concerned, made the short statement set out in paragraph 17(i) above. There is a plea by the Claimants of waiver in paragraph 35.2 of their Amended Reply by reference to the fact that Mr Morfitt specified certain risk improvements, and did not include any improvements regarding the containers, and “the Defendants thereby represented that the areas of risk improvement they required in order to provide cover did not include improvements to the containers.” There is no substance in this argument: i) The surveyor, Mr Morfitt, did not act as the Defendants’ agent for the purposes of identifying or enforcing any alleged breach of warranty or condition precedent. ii) Mr Morfitt made no assertion that there was any breach of warranty or condition precedent in this regard. iii) If he had done, and the Defendants had not then included any such risk improvement together with the others which they required, there might have been grounds for argument of a waiver. In the event such was not the case and there is no arguable waiver.[57]The issue then is whether the Claimants were, by virtue of the wheelie bins which they used, in breach of the condition precedent, such that the Defendants are under no liability. The question on which both parties focused was, in the event, the question of construction of the obligation. The argument is that the Defendants expressly specified metal, in subparagraph (b) of the Waste Condition Precedent, for the skips, but did not specify metal in (a) for the lidded and lockable containers. Given that the containers are not prescribed to be metal, and yet the only choice in relation to such containers is between metal, high density plastic - which can be said to be non-combustible, but is still susceptible (though, as Mr Slade submits, not readily susceptible) to burning - and some plastic material which is readily susceptible to burning, there appears to me to have been some room for ambiguity. This is particularly so where the surveyor, Mr Morfitt, who, as he described, was not responsible for identifying breaches of insurance conditions, but nevertheless was plainly looking for fire hazards, was unconcerned by the wheelie bins he saw. It seems to me that if the Defendants wished to make a condition precedent which would avoid the risk of fire from waste kept outside the premises, they could, and, for the avoidance of ambiguity should, have specified the use of metal containers, in the same way as they specified metal skips. I do not conclude that the Claimants were in breach of the condition precedent so as to excuse the Defendants from liability.

Conclusion

[58]Accordingly the Defendants were entitled to avoid for material non-disclosure liability under their policy A093103 which would otherwise have covered the fire at the Brentwood premises. If they had not been so entitled, in any event, they were excused liability by virtue of the Claimants’ breaches of warranty in respect of the Kitchen Warranty and the Burglar Alarm Warranty at Brentwood. Accordingly I give judgment for the Defendants.