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High Court dismisses application to strike out homeowners’ claims for abuse of process


Mrs Beverley Goldman & Others v (1) Zurich Insurance PLC and (2) East West Insurance Company Limited (HT-2019-MAN-000031)

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Following the recent decisions in Zagora Management Limited & Others v Zurich Insurance Plc & Others [2019] EWHC 140 (TCC) and Manchikalapati & Others v Zurich Insurance PLC [2019] EWCA Civ 2163 (the previous proceedings), HHJ Stephen Davies (the Judge) has handed down a further judgment in connection with a 104 flat residential development at New Lawrence House, Manchester. This relates to claims of deceit and conspiracy against Zurich Insurance PLC (ZIP) and East West Insurance Company Limited (EWIC) arising out of the issue of alleged fraudulent insurance cover notes by ZIP’s surveyors under the Zurich Standard 10 New Home Structural Defects Insurance Policy (the Policy).

Read about our previous Court of Appeal case legal briefing here and our press release here.

ZIP and EWIC made an application to strike out the claims, arguing that bringing the claims was an abuse of process.

The Judge decided that the proceedings were not in fact an abuse of process and the application of ZIP and EWIC was dismissed, meaning that the central claim of fraud in the issue of the cover notes now falls to be tried by the Court.

Long Read

The claim is for damages and declaratory relief arising out of the alleged deceit on the part of ZIP and/or conspiracy involving ZIP and others, in connection with the issue of insurance cover notes. The cover notes were issued by ZIP under the Policy to the Claimants and others in connection with the purchase of their flats.

ZIP and EWIC applied to strike out the proceedings as an abuse of process, on the grounds (inter alia) that the Claimants could and should have litigated the points now raised in the claims in the previous proceedings. ZIP’s primary case was that there was “no fundamental difference between the deceit claim which was advanced against ZBC (this being Zurich Building Control Ltd (ZBC), a legally distinct company who acted as the Approved Inspector) in the original action and the deceit and conspiracy claims which are now sought to be advanced in the current action, so that there is no good reason why the current claims could not and should not have been advanced in the earlier action” (paragraph 6).

The Judge applied the approach set out by the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1, namely that the crucial question is not whether a claimant could have raised the claim in earlier proceedings but whether he should have done so. Further, having considered the decisions in Stuart v Goldberg & Linde [2008] EWCA Civ 2 and Playboy Club London Limited v Banca Nazionale Del Lavora SpA [2018] EWCA Civ 2025, the Judge agreed with Mr Thomas Grant Q.C. (Claimants’ Counsel) that “it is apparent from the approach taken in the Stuart and the Playboy Club cases that the court needs to consider whether or not the claim advanced in the second action could and should have been advanced in the earlier action, not in the abstract, but by reference to what the claimant knew (or, if relevant, should have known) at such time as would have enabled him to advance that claim in the earlier action to enable it to have been determined in that action” (paragraph 21).

The main points of note in the Judgment are:

  • The application of ZIP and EWIC failed on the primary “could” basis. The Judge found that it cannot be concluded that the Claimants could, even with the exercise of reasonable diligence, have pleaded the cover note deceit claim in previous proceedings in the particular circumstances of this case.
  • None of the material provided by ZIP and EWIC prior to the trial in the previous proceedings made explicit the information that emerged at trial.
  • The application also failed on the “should” basis. The previous proceedings did not involve any allegations of deceit or issues overlapping with the cover note fraud claim.
  • Further, despite the Defendants’ submissions that the “claim must have been “blindingly obvious” to anyone in the position of the claimants’ legal advisers…“, the Judge found that this was not a case where the Claimants “were aware of the alternative claim but consciously decided to hold it back” (which the Judge said was “a very significant consideration, especially in a fraud claim“) nor was it a “case where it can be said that the cover note fraud was so obvious that the claimants and their legal advisors can properly be said to have closed their eyes to an obvious alternative claim” (paragraph 75).
  • The submissions made by ZIP that the claims now pursued are the same as the deceit claim against ZBC, were substantially undermined “by the fact that this was a separate claim against a separate legal personality where ZIP decided, for its own reasons, to elect to defend the claims on the basis that they were unconnected and to instruct a completely separate legal team to defend the separate claim“.
  • The claim would not involve unjust harassment of ZIP. As was pointed out by the Judge “from a financial perspective there is no reason to think that ZIP as a substantial insurance company would be seriously prejudiced by this claim. There is no suggestion that it would be at risk of incurring substantial irrecoverable costs if the claim went to trial and it succeeded in its defence.  Whilst Mr Cairns, Mr Nicholls, Mr Eadsforth and Mr Mather would probably have to give evidence again, it was only the latter who was subject to serious or sustained cross-examination and so far as that is concerned it must be borne in mind that I have already concluded that he had been guilty of deceit in relation to the issue of the Building Regulations final certificates.”

Any individual with a new home warranty issued by ZIP (or another insurer) should read this decision carefully and obtain legal advice promptly in connection with the insurance cover note issued by ZIP and/or in relation to claims made against ZIP, where indemnity has been refused, and/or where defects remain present at their property.

If you have had a building warranty claim rejected and would like some advice on whether you are able to make a claim, please call 0800 0353276 or email Alternatively, contact Paul Hargreaves, or Martin Scott (details below).