HT-2022-000311 & HT-2022-000254 - [2024] EWHC 3179 (TCC)

The leaseholders also advance a case on the basis of failure to comply with the landlord’s covenants in respect of insurance. Schedule 6, clause 2.1 provided the landlord’s covenant:

“To effect and maintain insurance of the Building against loss and damage caused by any of the Insured Risks with reputable insurers, on fair and reasonable terms that represent value for money, for an amount no less than the Reinstatement Value subject to:

(a)

Any exclusion, limitations, conditions or excesses that may be imposed by the Landlord’s Insurer; and

(b)

Insurance being available on reasonable terms in the London Insurance market …”

Insured Risks are defined as:

“fire, explosion, lightning, earthquake, storm, flood, bursting and overflowing of water tanks, apparatus or pipes, escape of water or oil, ….and any other risks which the Landlord decides to insure against from time to time and Insured Risk means any one of the Insured Risks.”

Under clause 3, in summary, if any part of the Building was damaged by an Insured Risk, the landlord was obliged to claim under the policy and use the funds received to repair the damage.

I note also that under clause 6.1 of the FPA, Click St Andrews was required to insure the Works “on customary contractor’s all risks terms” for not less than their reinstatement value and under clause 6.3 of the FPA, Click St Andrews was required to maintain insurance in respect of damage to property for an indemnity of not less than £10 million. There is a generalised allegation by RTM of breach of these terms the particulars being that Click St Andrews failed to obtain or maintain sufficient insurance cover in respect of the Works, failed to procure a policy which responded to the claimants losses at an appropriate level of indemnity, and failed to compensate the claimants from Click St Andrews’ own funds so far as any losses were uninsured or underinsured.

The leaseholders’ case in relation to breaches of Click St Andrews’ insurance obligations under the leases, and what it seeks to achieve, other to establish a breach in principle, is frankly unclear. The nature of the leaseholders’ case is that if Click St Andrews failed to take out adequate insurance that is a breach of the terms of the lease or if Click St Andrews did take out adequate insurance and has received monies under the policies, it has failed to use those monies to repair the property which is also a breach of the terms of the lease.

In the Particulars of Claim, the claimants refer first to a Contractors’ All Risks policy. Although not referred to at all during the trial, the trial documents include a Contractor’s Combined Insurance Policy from Tokio Marine (HCC) for the period from 1 October 2020 to 30 September 2021 which names Click St Andrews and Click Above Ltd. as the Assured. The policy includes Public Liability cover in the amount of £5m and Contractors’ All Risks Cover for “the Contract Works” in the sum of £2 million for any one occurrence. The leaseholders refer to a letter dated 1 October 2021 from brokersconfirming that Click St Andrews’ Contractors’ Combined Insurance policy would cover in full various heads of losses arising from the water ingress. The claimants say that, despite that, Click St Andrews has failed to make any payments to the leaseholders. The leaseholders also refer to a letter dated 9 August 2021 from Laith Mubarak of the defendants to RTM confirming cover of £2 million in respect of the rooftop works (which is consistent with the CAR cover) and of £2.3 million in respect of reinstatement of the Property.

The inference that it appears the leaseholders seek to draw from the brokers’ statement is that Click St Andrews has received payments. If Click St Andrews has received any monies under this policy, that may have given the company the means to pay damages to the claimants. If the monies were received under the policy taken out in accordance with the terms of the lease, there might be a further breach in failing to use the funds to carry out repairs. There is no obligation under the lease to pay these insurance monies over to the leaseholders.

In a witness statement in September 2022, in the context of the freezing injunction, the claimants’ solicitor drew together evidence that £102,000 had been paid under the Tokio Marine policy which it was understood was for repairs to flats 15, 16 and 17 (although there were no details of those repairs). That would be seem to be consistent with a payment under the CAR policy since the flats formed part of the Works. He also identified insurance payments to Click Above Limited, Click Hershel Limited, a company called “United Projects”, directly to Mr Emmet, and to a management company called J M W Barnard. In the Particulars of Claim a little later, however, the leaseholders said that they understood that Tokio Marine had declined cover both under the CAR policy and under the public liability cover. Then in a later statement made in September 2023, Mr Bacon stated that he believed sums totalling £108,500 had been paid out under the CAR policy. What is apparent from this somewhat conflicting evidence is that, if any monies have been paid to Click St Andrews, they are most likely payments under the CAR policy. Although, as I have said, that might have enabled Click St Andrews to finance remedial works and/or pay compensation to the leaseholders, it was not money paid under the insurances which the leases, on their natural reading, required Click St Andrews to maintain.

It may be that the leaseholders’ contention is that the obligations under the lease extended to the taking out of insurance against loss and damage caused by the carrying out of the Works but, save as set out below, no such argument was articulated or developed.

The leaseholders also contend that, in so far as there were policies in respect of the Works (which may or may not be intended to refer to a contractor’s all risks policy or to the insurance required under clause 6.3 the FPA) or the new build flats have the benefit of insurance backed warranties, the defendants have failed to indemnify the claimants in respect of any payments under these policies. The case advanced is a conditional one predicated on the possibility that there are such policies and have been payments under such policies to the defendants. That is the closest that the leaseholders came to advancing the argument I referred to above and I cannot accept it. The lease on its natural reading requires Click St Andrews to take out buildings insurance not insurance against loss during the carrying out of works which is not within the definition of Insured Risks. That was the purpose of the FPA requiring insurance to be taken out against damage to property but that did not create an obligation to pay monies received under that policy to the leaseholders. I make the same observation that the receipt of monies from that policy may have given Click St Andrews the means to pay damages to the leaseholders but that was not a breach of the terms of the lease.

The leaseholders also say that they understand that the buildings insurer is Giant Risk Solutions which has declined cover on the basis of an exclusion concerning the defendants’ failure to maintain wind and water tightness of the building during the carrying out of the Works. This insurance would appear to be the policy that the landlord is obliged to take out in accordance with the terms of the lease and that was Mr Bacon’s understanding. If that exclusion has the effect that the landlord has failed to effect and maintain insurance against Insured Risks in breach of the landlord’s covenant, then there is a breach of that covenant but, without further particulars of the policy, it is not, in my judgment, proper simply to infer that breach. The policy itself may be an entirely appropriate one to comply with the terms of the lease which allows for exclusions and limitations that may be imposed by the insurer. It appears that the insurer’s position is that the landlord has acted in a manner which engages an exclusion and causes the insurer to decline cover but that is a different matter from a breach of the covenant.

It is worth me observing, from the perspective of the leaseholders, that, in any event, a finding by this court that Click St Andrews was in breach of its insurance obligations could at best give rise to an entitlement to damages against Click St Andrews in sums that could have been recovered under the proper policy but without the benefit of that policy.

As I have said, under clause 6.1 of the FPA, Click St Andrews was required to take out a CAR policy and, under clause 6.3 of the FPA, to maintain insurance in respect of damage to property for an indemnity of not less than £10 million. The Tokio Marine policy does not offer that level of cover in respect of public liability and there is no evidence of any other relevant cover. There is, therefore, on the face of it, a breach of the obligation owed to RTM in clause 6.3. Clause 6.4 provides that Click St Andrews will not do anything that may render the policy void or voidable. It is not at all clear why cover has been declined and whether there may have been a breach of clause 6.4. Even if there is an available claim for damages for breach, the breach can only be damages in the amounts that would have been recoverable by Click St Andrews under the insurance policy but, if cover has been declined for good reason and not because of any act or omission of Click St Andrews which amounts to a breach of clause 6.4, there is no loss. In any case, those damages would now be sought by RTM against Click St Andrews without the benefit of insurance. Although there is, therefore, a breach in principle of clause 6.3, any award of damages would not help to satisfy the financial claims of the claimants.

Mr Levenstein also sought to place some reliance on clause 8.2 of the leases. It is unnecessary to set out that clause in full. In summary, it provided that if the repair, rebuilding or reinstatement of the Building was impossible (my emphasis) following damage or destruction by any of the Insured Risks, the Landlord’s obligation to reinstate would be deemed to be discharged and the proceeds of any insurance policy on the Building would be held on trust for the Landlord and the Tenant/ the Flat Tenants in proportion to their respective interests in the Building to be agreed or determined in arbitration. This clause has no relevance to the present case. It is not impossible to repair the Property. Indeed, that is the complete opposite of the claimants’ case and the claims made for the cost of remedial works.