Plexus Law - Property Risks Coverage Newsletter 001

Legal Watch: Property Risks & Coverage January 2014 - Issue 001

Welcome...

Welcome to the first joint Greenwoods and Plexus Law Property Risks and Coverage Newsletter.

Thanks go to Richard Houseago, Head of Property Risks and Coverage, for his article on fires in the recycling industry. Some eagle-eyed readers may spot that this was first published in Modern Claims Magazine in November

In This Issue: • A brief post Mitchell update • A hotbed of risk • Effect of claimant’s conduct on causation

2013.

Thanks also go to Alison Heard for her article on Flanagan & Coles v Greenbanks Limited (t/as Lazenby Insulation) v

• Silence amounts to unreasonable conduct • Extension of time for serving claim form

Cross, to Clare Higgs for her article on PGF II SA v OMFS Company 1 Limited and to Christopher MacQueen for his article on Green v And So To Bed Limited.

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Events

If you would like any further information on the cases or

Plexus and Greenwoods hold a series of events which are open to interested clients. See below for those being held in the next months:

articles featured in any other editions, please contact: Marise Gellert T: 0207 469 6249 E: msg@greenwoods-solicitors.com Richard Houseago T: 0207 469 6239 E: rth@greenwoods-solicitors.com Alison Heard T: 0207 469 6236 E: arh@greenwoods-solicitors.com Clare Higgs T: 0207 469 6260 E: clare.higgs@plexuslaw.co.uk Christopher MacQueen T: 0207 469 6267 E: cmq@greenwoods-solicitors.com

MBIG Seminar | 22.05.14 | London

A brief post Mitchell update It is clear from the reported decisions that are now coming through from the Court of Appeal following the decision in Mitchell v News Group International [2013] (featured in Issue 89 of Greenwoods’ Property, Insurance & Construction Review) that the courts continue to take a very tough line on non-compliance. Even where there is trivial non-compliance, relief will be denied if an application is not made promptly.

The lower courts are generally also adhering to the Mitchell guidance and there is little caselaw to give comfort to those seeking a more lenient approach. In one decision, it was made abundantly clear that pressure of work alone is unlikely to be considered sufficient ground for relief to be granted.

The guidance from the caselaw post Mitchell to date suggests that parties need to: • be clear on when they can agree an extension and when an extension can only be granted by the court; • ensure that very careful consideration is given to the agreement of appropriate and realistic timetables for directions; • ensure that any application for relief is made promptly.

Mitchell v News Group International [2013]

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“...the courts continue to take a very tough line on non-compliance. Even where there is trivial noncompliance, relief will be denied if an application is not made promptly.”

A hotbed of risk Two recent events, almost certainly not related, have

The spike in the number of such fires over recent years

focussed increased attention on the incidence of fires

echoes my own experience in assisting various insurers with

involving waste and recycling operations. The first was

an appreciable increase in claims arising in the waste and

the major fire in July at the Smethwick Recycling Centre in

recycling sector. Despite being an industry sector of obvious

which 100,000 tonnes of plastic recycling material was set

risk, recycling has in the past attracted significant interest

on fire, seemingly by a Chinese lantern.

from insurers, albeit this may have waned in a sensitised

The second is Parliamentary interest in this subject over the summer during which Environment Agency statistics given in response to a question in the House of Commons confirmed

and precautionary way given the spate of high profile major losses; there are definite lessons of experience which feed through into the insurance sector.

that between 2001 and 2012 there was, on average, one fire

Fire is the most obvious risk in this sector, either from the

per day at a recycling or waste management site in the UK;

combination of heavy equipment featuring many moving

with a particular spike in 2011 when there were 425 such

parts with the presence of huge volumes of combustibles;

fires.

the potential for certain waste to spontaneously combust or from arson.

“the spike in the number of such fires over recent years echoes my own experience in assisting various insurers with an appreciable increase in claims arising in the waste and recycling sector”

Perfect Storm If combined with a period of slowdown in the business then a perfect storm of circumstances is created that comes to a head in major loss. The stand-out scenario is one of the decreased demand for the bulk produce generated by the recycling process itself, whether plastics for remanufacture, shredded tyre products or dry processed combustibles intended as commercial fuel, often in Europe. The flow of waste into the site for processing is constant, but slackening demand means that not only is the recycled product stockpiled, the processing itself may slow down so that the received waste simply accumulates. That is almost a facet in itself of the industry drive to reduce the materials simply going to landfill.

As main processing buildings on-site become full, an

In September, the Environment Agency updated its own guidance on “Preventing Fires at Waste Sites”, with the Health & Safety Executive also publishing fresh guidance as to the design and operation of “Material Recovery Facilities” in July 2013.

untoward extent of externally stored recycled product and waste accumulates around those buildings, in many instances filling all the available surrounding yard space right up to the site boundary. A very heavy fire load, often stacked to considerable height and threatening every access to the site, is created impeding fire-fighting in the

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event of a blaze and driving up the risk of arson from the outside. An interruption of throughput can be a significant feature in many large losses.

A Hotbed of Risk Another factor is the effect of the interruption of throughput on the handling of biodegradable or mixed waste of the type usually associated with spontaneous ignition. The heat generated by decomposing rotting waste, if left unchecked, has the potential to lead to self-ignition. Normally this is not on-site long enough for critical temperatures to be reached.

Where circumstances lead to stockpiling, however, only thorough and regular turning will be effective in dissipating the build-up of heat; but it is precisely this kind of careful management of accumulated waste that tends to be lost or confounded as a static accumulation builds.

These are fertile conditions in which usual operational risks become magnified. The machinery associated with recycling centres inevitably carries its own degree of risk in combination with its being required to handle combustibles of unreliable make-up likely to feature “tramp” metal. Frictional heating against moving conveyors, spark generation and the usual risks associated with electricallyoperated and hydraulic machinery will all feature.

Insurer Concerns

“It is worth reminding underwriters offering combined insurance in this sector of the lurking and potentially very extensive public liability risk in the event of a major loss and a fire spreading outside the site boundaries” will not pre-empt every possibility and it can never be discounted that the underwriter might need to refer back to important aspects of the risk as conveyed to him and which lead to a judgement of the insurance being acceptable.

Beyond that the policy terms and conditions are themselves never more critical than in this sector. Maybe only in the context of hot works conditions on building contractors’

So what are the considerations for an insurer keen to be

policies is the careful delimitation of the risk actually to

involved in the underwriting of recycling businesses but

be accepted by the insurer as vital. Some lynchpins are

wanting to ensure so far as possible that the risk does not

worth emphasising in principle, as is the need to ensure the

become unquantifiable?

policy drafting in each case meets the required objective

The most careful assessment of the operation is needed both by formal risk presentation and by regular on-site risk survey. This is still a relatively immature sector attracting new

of precisely and effectively delimiting the risk accepted; usually by way of strict condition precedent to indemnity in the event of a claim.

entrants who may not fully understand all of the operational

Machinery and plant will need to be made subject to a

hazards. It is paramount to capture in some detail the precise

requirement of regular maintenance with written records

nature and history of the operation, compliance with waste

to be maintained to evidence compliance. The electrical

licence and Environment Agency oversight, the make-up of

installation requires the same careful control by documented

the waste to be handled and the key aspects of the on-site

inspection.

operational standards. Even the most careful policy drafting

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Hot works will require particular control in respect of the use of hot work equipment in the maintenance of the processing machinery and plant and in the use of cutting equipment in particular in the specialist recycling of waste electrical and electronic equipment especially fridges and freezers.

Minimal required standards will include a proper permit to work system ideally by reference to RISC published guidance standards RC7 (“Hot Works”) and RC54 (“Waste Centres”).

Especially important will be the regulation of external storage.

Experience suggests that a majority of large recycling losses involve some adverse degree of external storage of waste far beyond what the plant’s insurer had ever bargained for.

Minimum clearance of externally stored combustibles from buildings at the site helps protect against the spread of fire back to those buildings. Minimum clearance from site boundaries protects against the escape of fire from the site and helps to limit the deliberate or inadvertent risk of fire being started from outside the plant. In the case of really large sites it is also wise to provide fire-break access ways in large accumulations of externally stored stock. Such external storage conditions can be written into the policy.

Public Liability Risk Finally, it is worth reminding underwriters offering combined

“Especially important will be the regulation of external storage.

Experience suggests that a majority of large recycling losses involve some adverse degree of external storage of waste far beyond what the plant’s insurer had ever bargained for...”

insurance in this sector of the lurking and potentially very extensive public liability risk in the event of a major loss and a fire spreading outside the site boundaries.

Under common law, it is very likely that the recycling site operator would face an almost strict liability to adjacent owner for such spread of fire, unless there was no negligence either in the initiation or the propagation of the fire. It is then straightforward for a third party to suggest the existence of such negligence, where poorly-managed externally stored combustibles have been allowed to accumulate. For that reason, whatever protection might be written into the Property and Business Interruption sections of the policy ought to be made to sit across the entire policy -including Public Liability risk.

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Effect of claimant’s conduct on causation When can a claimant’s conduct be held to have broken

In reaching his judgment, the judge analysed the desirable

the chain of causation? That was the issue considered by

approach which was set out in the judgment of Gross LJ in

the Court of Appeal in (1) Flanagan (2) Coles v Greenbanks

Borealis AB v GeoGas Trading SA [2010] WCH 2789 (Comm)

Limited (t/a Lazenby Insulation v Cross [2013] EWCA Civ

which identified 5 factors, which are summarised below:

17002.

Facts

1. Although an evidential burden rests on the defendant insofar as it contends that there was a break in the chain of causation, the legal burden of proof rests throughout

Mr Cross (“C”) traded as JK Surveys. He advertised

on the claimant to prove that the defendant’s breach of

the installation of cavity wall insulation. C, or one of his

contract caused its loss.

employees, would attend at properties as the ‘surveyor’

2. In order to comprise a novus actus interveniens, so

to assess the property’s suitability for cavity wall insulation

breaking the chain of causation, the conduct of the

and to take measurements. C contracted with Greenbanks

claimant “must constitute an event of such impact that

Limited trading as Lazenby Insulation (“L”) who would later

it ‘obliterates’ the wrongdoing ...” of the defendant. The

install the cavity wall insulation.

same test applies in contract. For there to be a break in

In November 2005, one of C’s employees failed to check that two homes, belonging to Mr Flanagan and Mrs Coles, (“the claimants”) were suitable for cavity wall insulation. In September 2006, L installed the cavity wall insulation also without first checking that the two homes were suitable.

The claimants and L settled the original claim and L subsequently served an additional claim against C for breach of contract and sought an indemnity or contribution.

The appeal relates to that additional claim.

the chain of causation, the true cause of the loss must be the conduct of the claimant rather than the breach of contract on the part of the defendant.

3. It is difficult to conceive that anything less than unreasonable conduct on the part of the claimant would be capable of breaking the chain of causation.

However, mere unreasonable conduct on a claimant’s part will not necessarily do so. By its nature, reckless conduct by the claimant would or would ordinarily break the chain of causation.

4. The claimant’s state of knowledge at the time and

First Instance Judgment At first instance, the trial judge held that although L should have checked before installing the cavity wall insulation, its failure did not break the chain of causation and that C was liable for his breach of contract, the major cause of loss. In the alternative that C was liable to L under the Civil Liability (Contribution) Act 1978, the appropriate contribution being 75%.

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following the defendant’s breach of contract is likely to be a factor of very great significance. The more the claimant has actual knowledge of the breach, of the dangerousness of the situation which has arisen and of the need to take appropriate remedial measures, the greater the likelihood that the chain of causation will be broken. Conversely, the less the claimant knows, the more likely it is that only recklessness will suffice to break the chain of causation.

5. Ultimately, the question of whether there has been a break in the chain of causation is fact sensitive, involving as it does a practical inquiry into the circumstances of the defendant’s breach of contract and the claimant’s subsequent conduct.

The Appeal The issue for the Court of Appeal was whether the judge at first instance was correct to decide that there was no break in the chain of causation following C’s breach of his contract with L. On appeal it was held, by a majority of two to one, that it was C’s breach which remained an effective cause of the loss and the Court of Appeal accepted that Borealis AB v Geogas Trading SA was an authoritative up to date analysis.

Comment This judgment provides a helpful reminder as to the five factors which should be applied to the facts of each individual case in order to determine whether a claimant’s conduct can be held to have broken the chain of causation.

(1) Flanagan (2) Coles v Greenbanks Limited (t/a Lazenby Insulation v Cross [2013] EWCA Civ 17002.

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Silence amounts to unreasonable conduct Since 2004 an unreasonable refusal to participate in

On 10 January 2012 (the day before trial) following skeleton

alternative dispute resolution (“ADR”) has been considered

arguments in which OMFS raised a new point, PGF accepted

a form of unreasonable conduct for which the court may

OMFS’ Part 36 offer dated 2 May 2011. In accepting the

impose cost sanctions. The guidelines for what constitutes

offer PGF gave notice of its intention to seek an order to

an unreasonable refusal are set out within Halsey v Milton

depart from the usual cost consequences of Part 36, which

Keynes General NHS Trust [2004] EWCA Civ 576. The issue

in this case would have required PGF to pay OMFS’ costs

before the Court of Appeal in PGF II SA v OMFS Company 1

from the end of the relevant 21 day period for acceptance of

Limited [2013] EWCA 1288 was whether failing to respond to

the Part 36 offer, some 7 months earlier. PGF did not refer

an invitation to mediate was in itself unreasonable conduct.

to OMFS’ failure to engage in mediation but subsequently raised it at trial.

Facts

OMFS raised the following arguments:

PGF II SA (“PGF”) issued proceedings claiming approximately

• it denied that its silence amounted to a refusal;

£1.9 million in refurbishment costs to a building let to OMFS Company 1 Limited (“OMFS”) as office space, for which the OMFS had a full repairing liability. OMFS denied liability, relying on S.18 of the Landlord and Tenant Act 1927.

Shortly after proceedings were issued PGF made a Part 36

• it denied that its refusal was unreasonable; • acceptance of its offer one day prior to trial meant each party had spent some £250,000 which in OMFS’ submission was unreasonable and an insufficient reason to depart from the usual costs order.

offer to accept £1.125 million. PGF then made a second Part 36 offer to accept £1.25 million plus interest from June 2009. On 2 May 2011, in a separate letter, PGF invited OMFS to take part in mediation. The letter made allowances for OMFS to view the PGF’s disclosure and for the experts to meet beforehand. A number of dates and mediators were proposed and PGF requested confirmation of the information and documents OMFS would require. Overall the invitation was sensible and carefully considered.

The First Instance Decision At first instance the court found that OMFS’ silence did amount to a refusal to mediate and further, that the refusal was unreasonable. The court found that by May 2011 the case was suitable for mediation and the issue which emerged from the skeleton arguments would have been brought to light by a skilled mediator. Unreasonable refusal to engage in mediation produced no automatic costs result; however

On the same day OMFS made a Part 36 offer in the sum of

Part 36 gave the court discretion to disallow the whole or

£700,000 including interest. No explanation as to the reason

part of the successful party’s costs. On this basis the court

for the offer was given nor was one ever requested by PGF.

concluded that it would be “unjust” under the provisions of

On 19 July 2011 PGF sent a further invitation to mediate,

Part 36 for PGF to pay any of OMFS’ costs following the

which specifically requested that OMFS give reasons for

expiration of the relevant period. In short, the usual Part 36

its refusal to mediate. OMFS, when prompted by PGF,

consequences in favour of the defendant would not apply.

promised a substantive response to the correspondence, which never materialised, although it did write in some detail with regard to other issues in the case.

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The Appeal The Court of Appeal held that silence in response to an invitation to participate in ADR is, as a general rule, unreasonable. Silence will be unreasonable even if a refusal might have been reasonable, had the recipient engaged with the request meaningfully.

It would be perverse not to regard silence in the face of

The Court of Appeal described the decision as a modest extension of the Halsey principles, but the case serves as a stark reminder of the heightened emphasis post Jackson of co-operation between parties and the growing importance of ADR. Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576

repeated requests for mediation as anything other than a refusal. That was all the more so because PGF’s first request was couched in such detailed and sensible terms that it could not reasonably have been regarded as a mere tactic.

Failure to provide reasons for a refusal was destructive of the objective of encouraging parties to consider and discuss ADR. Any difficulties or reasonable objection to a particular ADR proposal should be discussed, so that the parties could narrow their differences. As that occurred routinely in relation to expert issues there was no reason why the same should not apply to ADR. Accordingly, OMFS’ silence in the face of two requests to mediate was itself unreasonable conduct sufficient to warrant a costs sanction.

Comment This decision does not make ADR mandatory, however it does require parties to give proper consideration to invitations to participate in ADR and to respond to them, even if that response is to decline. If there is insufficient information to engage in meaningful ADR it is important that parties to set out what they require before they consider the invitation and to give proper reasons for any refusal as per Halsey. Likewise, in making invitations to participate in ADR one should demonstrate that consideration has been given to what is required to give the proposed ADR reasonable prospects of success.

010

Extension of time for serving claim form Usually, a claim form must be served on the defendant within

One of the ways of achieving this is to insist that time limits

four months of the date on which it is issued. Extensions are

be adhered to unless there is good reason for a departure. In

rarely granted. In Jonathon Malcolm-Green v And So to Bed

the Biguzzi case [1999] Lord Woolf MR said, at p 1933: ‘If the

Limited [2013] EWHC 4016 IPEC the defendant appealed

court were to ignore delays which occur, then undoubtedly

against an order granting the claimant a four week extension

there will be a return to the previous culture of regarding

for service of the claim form.

time limits as unimportant.’

Facts

The strict approach to time limits was also emphasised by Rix L.J. in Akas v Adepta [2010]:

The claimant (“C”) was a professional photographer who

‘The reason why failure to serve in time has always been

was bringing a claim against a former client, the defendant

dealt with strictly… is in my judgement bound up with the

(“D”), who had infringed the copyright on certain of C’s

fact that in England, unlike (all or most) civil law jurisdictions,

photographs.

proceedings are commenced when issued and not when

C issued a claim form on 29 April 2013. Pursuant to CPR

served... Therefore, the additional time between issue and

Part 7.5(1) the four month time limit for serving would expire

service is, in a way, an extension of the limitation period…

on 29 August 2013. On 06 August 2013 C applied for an

In such a system, it is important therefore that that the

extension for service of the claim form to 30 September

courts strictly regulate the period granted for service. If it

2013, citing the following reasons:

were otherwise, the statutory limitation period could be

• D knew that a claim form had been issued; • D failed to provide a letter of response until 17 July 2013; • C’s counsel was on holiday until 12 September 2013; • C wanted a further conference with counsel prior to serving the claim form.

At a hearing on 15 August 2013 an extension was granted.

C served the claim form and particulars of claim on 30 September 2013. D subsequently served an acknowledgement of service and on 24 October 2013 D applied to have the court order granting the extension set aside.

made elastic at a whim or sloppiness of the claimant or his solicitors…’

Notwithstanding the general need for strict compliance with time limits, the court does have a discretion to allow an extension of time pursuant to CPR Part 7.6. In doing so the court must consider: 1. Whether there is a good reason for the claimant’s failure; 2. Whether there are exceptional circumstances; 3. Whether an extension will prejudice a limitation defence.

Judgment The court made it clear that the reasons for a claimant’s failure to serve the claim form in good time were highly

The Law

material to the exercise of that discretion, but were not

In Hashtroodi v Hancock [2004] the Court of Appeal stated:

on time, the less likely it would be that an extension would

‘One of the important aims of the Woolf reforms was to

be granted. The sort of reasons that were relevant would

introduce more discipline into the conduct of civil litigation.

seldom, if ever, extend beyond reasons why the claimant

011

determinative. The poorer the reasons for the failure to serve

had real difficulty in serving the claim form. However, the court might grant an extension of time, even in the complete absence of any good reason for failure to serve in time, where there were exceptional circumstances.

In this case the court found that: • The argument that D’s lack of substantive response made it difficult or wasteful in costs to draft particulars of claim and C’s counsel’s holidays did not qualify as ‘good reasons’ for non-service; • Informing D that a claim form had been issued was not an exceptional circumstance; • The fact that a limitation defence open to the defendant was lost was, on its own, enough to exclude an extension. Even C’s proposal to forfeit those elements of the claim which would have been time barred was insufficient to reverse the position.

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Therefore, the appeal was allowed and the claim was struck out.

Comment This is another example of the court taking a strict approach

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to the failure of parties to comply with court time limits. In

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this case the application was: a) made in good time; and b) caused no real prejudice to the defendant (as the claimant accepted it could not claim time barred losses). In addition,

Geoff Owen Learning & Development Consultant

the extension sought was only for a month, Even so, no

T: 01908 298 216

relief was provided by the court. The message is clear,

E: gro@greenwoods-solicitors.com

comply with procedural time limits or be prepared to face the consequences.

Jonathon Malcolm-Green v And So to Bed Limited [2013] EWHC 4016 IPEC

www.greenwoods-solicitors.co.uk

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The information and opinions contained in this document are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. This document speaks as of its date and does not reflect any changes in law or practice after that date. Plexus Law and Greenwoods Solicitors are trading names of Parabis Law LLP, a Limited Liability Partnership incorporated in England & Wales. Reg No: OC315763. Registered office: 8 Bedford Park, Croydon, Surrey CR0 2AP. Parabis Law LLP is authorised and regulated by the SRA.