Zurich Insurance plc v Nightscene Ltd

Zurich Insurance plc v Nightscene Ltd

Guarantee – Enforcement. The claimant was entitled to judgment against the defendant, under a guarantee, in respect of a developer’s failure to meet its obligations to remedy its defective work on a new-build house. The County Court rejected the defendant’s application for summary judgment, seeking a dismissal of the claim on the basis that there was no deed of guarantee, as it had not been executed as a deed, and any contractual liability had to be statute-barred.

The judgment is available at: [2017] Lexis Citation 445


A company (BPDL) was a developer of new-build houses in respect of which the claimant (Zurich), as part of a scheme involving insurance of newly built properties and renovations, issued insurance policies in respect of any defects which might be notified to the developer within two years of purchase, and the making good of which was primarily the responsibility of the developer and secondarily that of Zurich.

In 2004, Zurich and BPDL entered an agreement governing the terms and conditions applicable to BPDL if Zurich issued a policy in respect of a house built by BPDL (the agreement). Zurich stipulated that, if it was to issue insurance policies in respect of BPDL’s developments, the defendant (Nightscene) should provide a guarantee to Zurich in respect of BPDL’s obligations under the agreement. In December 2004, Nightscene, under a document purporting to be a deed of guarantee, assumed the liability of a principal obligor and not merely surety in respect of BPDL’s obligations. In 2006, Zurich issued an insurance policy to the purchaser of a new home built by BPDL.
In April 2007, the purchaser notified Zurich of his claim in relation to alleged defects at the property. In September 2009, Zurich wrote to BPDL, notifying it that its outlay had been £54,654.51 and attaching documentation substantiating the amount. Zurich’s letter did not contain the language of a demand for payment, but had to have been written for, or in the context of, a claim for reimbursement by BPDL.
On 13 June 2015, Zurich issued proceedings seeking judgment against Nightscene for the sum of £44,070.69. Nightscene applied for summary judgment against Zurich, seeking a dismissal of the claim on the basis that there was no deed of guarantee, as it had not been executed as a deed, and any contractual liability had to be statute barred.
Issues and decisions

(1) Whether the purported guarantee was null and void because it had not been executed as a deed. If so, whether any shortcomings could be made good in Zurich’s favour by a finding that Nightscene was estopped by representation from denying that it had validly executed the guarantee as a deed, the relevant representation being that the document stated that Nightscene’s seal ‘was hereunto affixed in the presence of’ the sole signatory.

The copy of the guarantee in the trial bundle indicated that the purported execution of the guarantee had fallen short of the statutory requirements. The document did not bear a company seal and had been signed only by a single director.

With respect to estoppel, the authorities relied upon by Zurich did not assist in its case that Nightscene was estopped from denying the document was a deed. The first point to make against that conclusion was that there was a high degree of artificiality in the suggestion that Zurich could be said to have reasonably relied upon an assumed state of affairs, namely that Nightscene’s seal had been affixed in the presence of a signatory, when the document showed otherwise.

Quite apart from the absence of any evidence of actual reliance on the part of a Zurich representative, there had clearly been circumstances which would have rendered any belief that the guarantee had been validly executed as a deed to be an unreasonable one. It manifestly had not been executed in the way that Zurich’s form of guarantee and the statute had expected. Any suggested representation that the seal had been affixed to the guarantee had been one immediately confounded by the obvious absence of a seal on the version in Zurich’s possession and it was difficult to see how any representative of Zurich could have believed that which had plainly not been so. Therefore, the guarantee could not be relied upon as a contract under seal.

However, the guarantee began by reciting that it had been made in consideration of admitting BPDL to its insurance scheme. It was clear from the facts of the case alone that BPDL had continued to remain a member of the scheme, and that Zurich had issued policies to homeowners to which liability under the guarantee might attach, well after the date of the guarantee. Therefore, consideration of the kind expressly anticipated by the terms of the guarantee had been given.

It followed that Nightscene’s application for summary judgment so far as it rested upon the absence of any binding contract of guarantee would be dismissed (see [25], [28], [32], [34], [38], [40] of the judgment).

Shah v Shah [2001] 4 All ER 138 distinguished; Briggs v Gleeds (Head Office) [2015] 1 All ER 533 considered.

(2) Whether the claim based upon the guarantee as a simple contract was time-barred by the time it had been received by the court for issuing, taken to be 5 June 2015, in particular, because the primary obligor obligation in the guarantee was such that Nightscene’s liability under it had arisen much earlier.

For the claim to be statute-barred, applying the six-year limitation period prescribed for simple contracts, the court would have to conclude that Nightscene had been obliged to pay under the guarantee some time before 6 June 2009, namely, before BPDL had itself been called upon to pay by the September 2009 letter. To the extent that there might be some doubt as to whether that letter had constituted the first demand made upon BPDL by Nightscene, any preceding demand could not have been made that much earlier than that date and certainly not before 6 June 2009. That was because relevant sums had been invoiced and paid after 6 June 2009.

Whether or not Zurich might have called upon Nightscene, whose obligations were deemed also to be those of primary obligor, to perform BPDL’s remedial obligations before 6 June 2009 was not to the point. The point was that Zurich’s money claim against Nightscene had not arisen until a date which had been approximately five years and eight months before the issue of the claim, namely, September 2009 and perhaps a little later. That conclusion was not subverted by Nightscene’s reliance upon the principal obligor provision in the guarantee.
Accordingly, Nightscene’s defence that the claim was barred by the statutory time limit would be rejected. It followed that its application for summary judgment on its additional alternative ground that the claim was statute-barred would also be dismissed (see [47],
[54]-[56] of the judgment).

Telfair Shipping Corpn v Inersea Carriers SA, The Caroline P [1985] 1 All ER 243 applied; Morgan Grenfell Development Capital Syndications Ltd v Arrows Autosports Ltd [2004] All ER (D) 76 (May) applied; Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd [2011] 2 All ER (Comm) 307 applied.

(3) Whether BPDL had come under an obligation to reimburse Zurich under the agreement.

For the purposes of establishing that BPDL had come under an obligation to reimburse Zurich under the agreement, it was necessary for Zurich to establish that BPDL had failed in its obligation to honour the terms of the policy and to correct any defect within the time notified to BPDL in writing by Zurich.

Zurich had established that BPDL had been responsible for a defect in the laying of upstairs floorboards. Accordingly, Zurich was entitled to judgment against Nightscene, under the guarantee, in respect of BPDL’s failure to meet its obligations to remedy its defective work.
Whether floor joists had also been installed in such a way as to constitute a defect was less straightforward. References in contemporaneous documents indicated that the installation of joists by BPDL had been defective, in a non-technical sense, even though there was no satisfactory evidence to support the conclusion that the joists themselves had had to be removed and replaced. Zurich had failed to establish the basis of its claim against BPDL or Nightscene in relation to any costs incurred in repairing the joists.

With respect to quantum, subject to specified deductions, the claim set out in the schedule of loss had been maintainable against BPDL under the agreement and was recoverable from Nightscene under the guarantee. As to interest, the appropriate start date for the payment of interest was 26 October 2009 and it was payable from that date until judgment at 6% per annum (see [62], [67]-[69], [71], [72], [78], [79] of the judgment).

Published Date 15/01/2018

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