[2025] EWHC 2035 (Comm)

There are two aspects to the Specific Performance Claim: first, whether Mode’s claim for specific performance - not of the primary liability under the “hold harmless” promise under the Policy - but of AXA’s secondary liability to put Mode in its pre-loss position has a real prospect of success; secondly, whether the claim is in any event barred by laches. But it is important not to lose sight of the reason why Mode needs to fashion the claim in that way.

First, Mode accepts that the “hold harmless principle” applies here. As to this Mr Christie KC referred me to the very recent decision of Popplewell LJ in Sky UK Limited and Another v Riverstone Managing Agency Ltd [2025] EWCA Civ 1567 (emphasis added) (“Sky”) at [43]:

“A contract of insurance against damage to property is a contract of indemnity, which is often described as a contract to hold someone harmless. A layman might think that it involves a promise by the insurer to pay money representing the diminution in value or cost of repair of the insured damage. That is not, however, the nature of the insurer’s promise. The promise is to hold the assured harmless in the sense that the insurer promises that the assured will not suffer the insured damage. It is in the nature of a warranty that the insured damage will not occur, such that the insurer is in breach of the promise the moment the damage occurs. That promise represents the insurer’s primary obligation under the contract of insurance. If and when the insurer fails to perform the primary obligation, it comes under a secondary obligation to pay damages for breach of the primary obligation. This is the same secondary obligation to pay damages which applies to all contract breakers. That is why a property insurance claim is not at common law a claim to enforce a promise to pay money, as the layman might think, but has by long and well-established authority been held to be a claim for unliquidated damages: see the authorities considered by Megaw J in Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep 635 at pp. 73-74 and The Fanti per Lord Goff at p. 35. That is why at common law the assured could not recover for losses caused by the insurer’s wrongful refusal to pay a valid claim: the contract contains no primary obligation consisting of a promise to pay, and the law does not recognise a claim for damages for nonpayment of damages: … The particular injustice of assureds suffering irrecoverable loss as a result of insurers’ unreasonable delay in payment of valid claims … has been remedied by s. 13A Insurance Act 2015, which provides that it is an implied term that an insurer will pay a claim within a reasonable time, but otherwise the nature of a contract of insurance against property damage and a claim under it remains unaffected (s. 13A does not apply to the Policy in this case which was written before it came into force).”

Secondly, Mode did not challenge the general principle that the insurer is held to be in breach of the policy as at the date of the loss irrespective of the fact that some loss was suffered (or continues to be suffered) after the date when the initial event insured against occurs - see the judgment of Lord Sumption giving the judgment of the Court in The Renos [2019] UKSC 29, [2019] 2 Lloyd’s Rep 78 at [10].

Thirdly, Mode accepts that its claim for common law damages (the secondary obligation within the meaning set out in that passage of Popplewell LJ’s judgment in Sky) is statute barred because the relevant cause of action accrued on the date of the Fire (7 February 2018) and proceedings were commenced only in September 2024.

Fourthly, Mode also accepts that the fact that the Policy provided an option as to how to satisfy its indemnity (the option for AXA to indemnify by payment or to reinstate the property) cannot be deployed to construe the contract of insurance as delaying the date when the right to an indemnity arises. I was referred by both Counsel (but for slightly different purposes) to the decision of Sir Peter Webster (sitting as a Judge of the High Court) in Callaghan v Dominion Insurance Co Ltd [1997] 2 Lloyd’s Rep 541 at 544-545 (“Callaghan”) which makes this point clear:

“I note in parenthesis that when a policy expressly provides that the insured will be compensated by payment of an amount specified in the policy, usually expressed as a limited indemnity, so that the insured is to be regarded as under a liability to pay a sum certain – or may be so regarded in certain circumstances – that liability also arises prima face on the happening of the event. But I return to this policy which, although it obliges the insurer to pay “such sums as may be agreed in accordance with the schedule”, is clearly a policy of indemnity with limits, not a policy to pay a sum certain – see the words “limit of indemnity” which occur more than once in the schedule. Unless, therefore, there are clear words in the policy which have a contrary effect, liability under this policy, being a policy of indemnity insurance, arises immediately loss is suffered as a result of the happening of the relevant event.

Before considering whether there are sufficiently clear words in this case to take this policy out of the general principle, it is necessary to bear in mind the passage in the judgment of Mr. Justice Megaw in the Chandris case at p. 74 to the effect that the quantification of the amount of the plaintiff’s claim is not a pre-requisite to a cause of action. Thus there is a primary liability, that is to say to indemnify, and a secondary liability, that is to say to put the insured in his pre-loss position, either by paying him a specific amount or it may be in some other manner.The fact that the insurer has an option as to the way in which he will put the insured into his pre-loss position does not mean that he is not liable to indemnify him, in one way or another, immediately the loss occurs.” (emphasis added).

However, Mr Chapman KC submits as follows.

Callaghan does not preclude a claim for specific performance. Rather Callaghan supports the proposition that there is a primary liability to indemnify and a secondary liability to put the insured in his pre-loss position (which he accepts is different from the secondary obligation/liability articulated in Sky) and it is this secondary liability which Mode is seeking to enforce by its claim for specific performance.

A claim for specific performance does not require delaying the date when the right to an indemnity accrues.

The primary and secondary liabilities referred to in Callaghan are still capable of being performed here, as AXA can still provide an indemnity (the primary liability) and can still put Mode into its pre-loss position (the secondary liability) because AXA has not yet elected between them (and instead avoided the Policy) – if as Mode contends the Policy has not been properly avoided it can still be performed and Mode has not accepted the repudiatory breach as terminating the contract.

The potential for separation of the primary liability and secondary liability has been recognised in academic literature and he cites Colinvaux and Merkin’s Insurance Contract Law at C-0247.

The existence here of a time-barred common law damages claim does not in itself bar a claim in equity for specific performance.

There is no authority for the proposition that specific performance can never be available in respect of an indemnity policy.

All that is required for equitable intervention is a contractual obligation regarded as valid and enforceable in equity and it is not necessary for there to have been a breach of contract – see Contractual Duties: Performance, Breach, Termination and Remedies,4^th edition, 2023 by Andrews, Tettenborn, and Virgo (“Andrews”) at [27-011].

The existence of the jurisdiction to award specific performance is distinct from the practice of the Courts – Andrews at [27-019].

In principle, specific performance is available even for money obligations – Andrews at [27-035] and [27-036].

As a matter of discretion here, Mode has a legitimate interest beyond pecuniary compensation for the breach – see the observations of Lord Neuberger in Cavendish Square Holding BV v Makdessi [2016] AC at [30].

Specifically, that (i) AXA’s obligation to restore Mode to its pre-loss position means it either has to reinstate (which is more advantageous to Mode because it will be done at AXA’s expense more cheaply) or pay an indemnity to Mode; (ii) Mode has a legitimate interest in AXA being required to make a reasoned decision either way; (iii) if AXA chooses instead to satisfy the indemnity by payment, that is not damages but a reflection of AXA’s election; (iv) Mode might otherwise have to disclose to future insurers that AXA had avoided the Policy and in any event, (v) there will be better evidence of all this if there is a trial.

As to the issue of laches, Mr Chapman submitted as follows.

The expiry of the limitation period for a common law damages claim does not of itself give rise to a defence of laches and should not be applied by analogy – see the observations of Moore-Bick LJ in P&O Nedlloyd BV v Arab Metals Co (No 2) [2007] 1 WLR 2288 at [47] (“P&O”).

It is generally necessary to establish something more than mere delay (for example an adverse effect of some kind on the defendant) at least until the adjacent statutory limitation period has expired – P&O at [61] – “The question for the court in each case is simply whether, having regard to the delay, its extent, the reasons for it and its consequences, it would be inequitable to grant the claimant the relief he seeks”.

Contrary to the approach in Chitty on Contracts (35^th edition, 2024) (“Chitty”) at [32-145] the modern approach is to show greater flexibility including consideration of the extent, impact and reasons for the delay (which I note is also mirrored in the passage in P&O above).

Acquiescence in itself is not sufficient as it is necessary to show that it has caused prejudice – see the observations of Sir Kim Lewison in Cenac v Schafer [2016] UKPC 25 at [31].

On the facts here, Mode has a real prospect of defeating a defence of laches because: (i) AXA has not claimed to have suffered any prejudice from the delay; (ii) the parties have not even set out their respective cases on laches because of the timing of the Application; (iii) Mode did take issue with the avoidance of the Policy and (iv) there may be better evidence on the issues of delay and prejudice at trial.

It is fair to characterise AXA’s response to all of this as being “robust” although there was plainly an element of shadow-boxing in its initial Skeleton Argument in circumstances where, despite requests on its behalf for the Claimants to explain their position in response to the Application, they had declined to do so. By way of example, Counsel for AXA had set out in detail why specific performance of a claim for an indemnity under the hold harmless principle did not work only to be faced with a responsive Skeleton Argument from Mr Chapman KC which made clear that was not the way that Mode was putting its case on specific performance.

So far as AXA is concerned, Mr Christie KC submits as follows.

The starting point is the “hold harmless” principle which is central to the construction of the Policy (as recently endorsed in the Sky decision) and the explanation of the primary obligation (the insurer’s promise that the insured damage will not occur) and, the secondary obligation (if and when the insurer fails to perform the primary obligation), to pay common law damages which is no different from the secondary obligation that applies to all contract breakers.

The insurer is held to be in breach of the policy as at the date the loss is suffered and this is not affected by the fact that the Policy here provided an option for the insurer to carry out reinstatement or that the loss might be suffered after the date of the Fire.

The claim for an indemnity (primary liability) or common law damages for breach of contract (secondary liability) is accepted to be statute barred pursuant to section 5 of the 1980 Act.

The only pleaded case is for an indemnity (or a declaration that AXA is liable to indemnify Mode) and that is also statute barred for the same reason – the court cannot entertain a claim for a declaration if such a claim is made when the claim for the underlying debt or damages is statute barred – see per Longmore LJ in Woodeson v Credit Suisse (UK) Ltd [2018] EWCA Civ 1103 at [21]-[24].

Specific performance cannot be ordered where the primary liability of the insurer cannot be the subject of specific performance.

If and insofar as specific performance of the “hold harmless” obligation was still being pursued, it was impossible for specific performance of that obligation to be ordered because the Fire rendered performance impossible.

Whilst it reserves the right to argue otherwise in the event that this goes further, AXA accepts that the P&O decision is authority for the general proposition that a claim for specific performance may not be statute-barred, there is no real prospect of the Court making an order for specific performance in this case which, as least as presently pleaded, concerns the alleged breach by AXA of the “hold harmless” promise.

The new way in which Mode now puts it, whereby it seeks specific performance of AXA’s so-called secondary obligation to put the insured in its pre-loss position or to elect whether to reinstate the damaged Property is not pleaded at all and is not supported by any authority.

The passages in Callaghan relied on by Mode simply do not support Mode’s case – in particular, having considered the option there to reinstate the property the Judge said at page 119: “I cannot conclude that those words have the effect of postponing the insurer’s primary liability; they merely indicate the alternative ways in which that liability may be satisfied”.

The decision to reinstate was AXA’s alone and there is no real prospect, having avoided the Policy in 2018 and where the indemnity claim is itself statute barred, that AXA will elect to reinstate and even if it did, that does not give rise to a fresh contract – see Hemsworth: Law of Insurance Contracts at [29-2A] and [29-2B].

Even if the claim was capable of being reformulated in that way, there is simply no prospect of specific performance being granted because damages are plainly an adequate remedy because, in a claim under an insurance policy, that is precisely the type of remedy that is envisaged.

In any event, a claim for specific performance is barred by laches in circumstances where: (i) Mode delayed in issuing its claim (issued 26 September 2024) for more than six years after the Fire (on 7 February 2018); (ii) Mode delayed for about six years from AXA’s avoidance letter (on 28 September 2018); (iii) the last activity prior to service of the Claim Form and Particulars of Claim (in January 2025) was the receipt of the FOS complaint (in August 2022) and (iv) no (or no good) reason has been advanced for that delay.

As to this, in my judgment the correct position is as follows.

Mr Chapman KC may well be right that in principle the existence of a common law damages claim does not in itself bar a claim for specific performance – indeed the extract from Colinvaux and Merkin at [C-0247] would support that position. Moreover, Mr Christie KC for AXA accepts that on the current authorities at least a claim for specific performance may not be statute barred.

However, it seems to me that extract is dealing principally with the distinct situation where the insurer is guilty of a breach which is not related to the occurrence of the loss itself (for example, where the loss arises from a separate repudiation of the policy for non-disclosure or misrepresentation) - the extract goes on to refer to Callaghan and to draw a distinction between proceedings for the loss (which could not be reinstated) and relief against the avoidance of the policy (which would not have been statute barred).

The Judge in Callaghan, by referring to a secondary liability to put the insured in his pre-loss position was not intending to create a separate route to liability -indeed at the end of the extract I have already quoted, the Judge goes on to make clear that the fact that the insurer has a choice does not mean that he is not liable to indemnify “in one way or another, immediately the loss occurs”.

There is no support in the authorities for the availability of specific performance in order to circumvent the effect of the claim for an indemnity or the common law claim for damages being statute barred in the way suggested on behalf of Mode. For example, Callaghan was specifically cited before HHJ Pelling KC (sitting as a Judge of the High Court) in Griffiths v Liberty Syndicate 4472 [202] EWHC 948 (TCC) [2020] Lloyd’s Rep IR 485, a case directly concerned with whether an insurance claim was statute barred, but this important route of avoiding that consequence was apparently missed.

Here, the fact that the Policy specifically contemplates a choice for the insurer between payment and reinstatement does not give rise to a fresh contract which is capable of enforcement.

Perhaps more significantly, even if the remedy of specific performance is theoretically available in relation to an indemnity claim, I am satisfied for the reasons submitted by Mr Christie KC that there is no real prospect of the Court here exercising that power because damages are an adequate remedy. It is of the essence of the obligation of the insurer to pay damages. I also accept that to allow enforcement of the secondary obligation to pay damages for breach of contract, by specific performance, would have the effect that no claim in respect of a breach of contract would ever become time-barred. Although Mr Chapman KC attempted to answer this by saying that, in this case, AXA had not elected between payment and reinstatement and Mode had not accepted the breach as a repudiation of the contract, I cannot see that this truly meets Mr Christie KC’s point.

Further, I also accept Mr Christie KC’s submission that to permit the use of specific performance to circumvent that, for limitation purposes, would be an example of equity acting inconsistently with the common law.

So far as laches is concerned, in my judgment Mode also has no real prospect of defeating the defence of laches. Even taking into account the more modern flexible approach urged upon me, there is simply no explanation in the evidence here for the delay and this was the time for Mode to bring forward evidence on that. Whilst it is right that Mode took issue with the avoidance of the Policy, the last substantive steps in that regard was in August 2022 when the FOS complaint was dismissed. It seems to me self-evident that AXA would suffer prejudice if the claim was now permitted to proceed although I accept Mode’s point that there is no specific evidence on the point.