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Author: Laura Alliss
Date: 02 July 2018
Laura Alliss and Philip Graham of DJM solicitors have won a toughly fought and highly contentious claim in the Technology & Construction Court relating to the construction of a large property in Wimbledon, London.
The case, Calonne Construction Limited v Dawnus Southern Limited  EWHC 1634 (TCC) concerned the Claimant (“Calonne”) an SPV set up for the specific purpose of managing the construction of a property at 12 Calonne Road, Wimbledon (“the Property”) which was owned by Mr Farahati, the director and shareholder of Calonne. The Defendant (“Dawnus”) was engaged by Calonne to carry out shell and core works at the Property.
Following practical completion of Dawnus’ works, responsibility for the site was handed over to Calonne and its project manager Visu Verum Limited who obtained a construction project all risks insurance policy (“the Insurance Policy”). The sum payable with regard to Dawnus Final Account was in dispute when some six months later, on the eve of the Brexit referendum, a severe storm hit London with torrential rain and widespread flood being reported, which resulted in water ingress into the basement of the Property (“the Flood”).
Dawnus were not immediately notified about the flood but returned over the course of the flowing months to fix minor defects which had been highlighted as a result of the storm. Unbeknown to Dawnus, Calonne instructed the services of an insurance agent, Mr Freeman, who advised in September 2016 that a claim could only be made under the Insurance Policy if the damage was caused as a result of the storm as opposed to defective workmanship, which was specifically excluded. It was clear from correspondence between Mr Freeman and Calonne that Mr Freeman was informed that the proximate cause of the damage suffered was the storm, namely a blocked gulley, and it was agreed between Mr Freeman and Calonne that Dawnus would not be pursued unless the insurance claim failed.
A claim was lodged with the insurer on 3rd October 2016 to cover the cost of drying out the basement and rectifying the damage caused by the Flood. The insurer accepted liability on 9th December 2016, an interim payment was made in February 2017 with the final payment being made in July 2017 upon Mr Farahati signing the flowing declaration on behalf of Calonne;
“We declare that there is no other insurance covering our interest in this property against the same loss or damage and we have not and will not be recovering any compensation from any other source.”
Unbeknown to Mr Freeman and the insurer, Calonne had issued proceedings against Dawnus on 2nd December 2016 for damages relating (inter alia) to the Flood on the basis that Dawnus’ alleged negligent workmanship had caused the Flood.
Calonne failed to disclose the existence of the insurance claim to Dawnus or the Court and disclosure relating to the insurance claim was not provided during standard disclosure. During cross examination, Mr Farahati admitted that he wished to keep the insurance claim a secret from Dawnus. It was only when Dawnus queried in November 2017 whether an insurance claim had been made and an application for specific disclosure was threatened, that Calonne admitted that an insurance claim had been made and had been successful. Disclosure was eventually provided but Calonne remained of the view that the insurance claim was not relevant to the proceedings between Calonne and Dawnus.
At trial, Calonne relied upon the so called res inter alios acta principal (also known as collateral payments) which provides that if party A makes a successful claim on its insurance in respect of damage caused by party B, and then makes a subrogated claim against party B in respect of the same damage, party B cannot seek to argue that party A has not suffered a loss as the insurance policy has covered it. In such circumstances, party A’s insurance claim does not absolve party B’s liability and therefore the fact that an insurance claim has been made is none of party B’s business. Calonne’s position therefore, was that the court should not take into account the fact that the insurance claim resulted in Calonne being entirely compensated for its losses sustained as a result of the Flood, and that it should be entitled to recover the same losses from Dawnus.
Dawnus’ position was that res inter alios acta did not apply in this case as this was not a case of a claim by a subrogated insurer, and that the basis of the claim against Dawnus (negligence) was wholly different to, and inconsistent with, that which was brought against the insurer (storm damage). Dawnus’ position was that the true cause of the Flood was the storm, as claimed against the insurer, and that Calonne could not now seek to bring a claim against Dawnus on an entirely inconsistent basis with a view to reducing the sums outstanding to Dawnus in respect of the Final Account.
Within his Judgement, HHJ McKenna found that in the circumstances, res inter alios acta did not apply as this was not a subrogated claim and Calonne were not bringing the same claim against Dawnus as it had brought against the insurance company, the former being a negligence claim and the latter a claim relating to a blocked gulley and storm damage. HHJ McKenna determined that the claim against Dawnus in respect of the basement damage should be dismissed in its entirety on the basis that there was clear evidence that Calonne had informed the insurer that the Flood damage was caused as a result of the storm and that Calonne had already been compensated for such damage.
Judgement has therefore been entered regarding the sums due under the Final Account leaving a significant balance payable to Dawnus.
Laura Alliss - Published 2nd July 2018
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