Court of Appeal success for Manchester flat owners at New Lawrence House

5th December 2019

Manchikalapati & Others v Zurich Insurance PLC

A specialist legal team comprising barristers from Keating Chambers and lawyers from Walker Morris LLP has achieved success for owners of flats in Manchester in a case involving the Zurich Standard 10 New Home building warranty.

The Court of Appeal has handed down its judgment in a case brought by Claimants who are all owners of apartments in a large scale residential development in Manchester, known as New Lawrence House.

Martin Scott and Paul Hargreaves from Walker Morris and Jonathan Selby QC and Charlie Thompson from Keating Chambers represented the Claimants which comprised the freeholder, and the owners of 30 of the 104 flats.

New Lawrence House was marketed as an “outstanding investment opportunity” but over time it became apparent that the building suffered from significant fire safety defects. Residents were forced to move out in 2017 after the fire brigade identified serious safety failings and prohibited the residents from living there.

The Court of Appeal handed down its judgment following appeals against the decision of HHJ Stephen Davies in Zagora Management Ltd v Zurich Insurance Plc [2019] EWHC 140 (TCC).  Save in one important respect, the Court of Appeal’s judgment essentially upheld the decision of HHJ Davies at first instance concerning the proper interpretation of the policy (Policy).  Where the Court of Appeal differed from HHJ Davies was in relation to the interpretation of the Policy’s maximum liability clause (MLC).

On HHJ Davies’ findings, the Claimants were only entitled to recover circa £3.6 million due to the operation of the MLC, in circumstances where the remedial work costs were valued by the judge at £9.7 million plus VAT. Sir Rupert Jackson (with whom Coulson and McCombe LJJ agreed) found that the MLC limits the Claimants’ claims to the total purchase price of all flats in the development, which is £10.8 million, so that most of the remedial works costs can now be recovered.

The decisions of HHJ Davies and the Court of Appeal provide a tour de force regarding the proper interpretation of the Policy.

Martin Scott, Head of the Walker Morris Construction & Engineering Group said:

“This is a landmark in a long hard fought battle, which has caused considerable stress and worry to our clients. I am now hopeful that the Court’s decision will finally see Zurich face up to its responsibilities.”

On the other grounds of appeal, Coulson LJ essentially agreed with HHJ Davies and found:

1. It is not necessary for a claimant to have incurred the costs of rectification work before they can claim under the Policy.
2. The fact that some of the Claimants’ recoveries under the Policy would be first used to pay the Claimants’ lawyers and funders did not prevent the Claimants from pursuing their claim. To find otherwise would be contrary to the ordinary principles of insurance law that an insured can do what they want with their insurance proceeds and would unreasonably restrict access to justice.
3. The Policy does not require the insured to sue any third parties against whom the insured might have a possible claim before pursuing Zurich under the Policy.
4. The Policy provision that a “basement or semi-basement” was not insured did not exclude any claims for defects in the development’s underground car park.
5. The development’s balconies fall within the Policy definition of “Common Parts”.
6. The condensation exclusion in the Policy does not exclude liability where the condensation which causes damage is caused by a defect. The defect is the proximate cause of the damage, not the condensation.
7. HHJ Davies’ application of the Policy’s excess provisions could not be challenged on appeal.

Jonathan Selby QC & Charlie Thompson from Keating Chambers were instructed by Martin Scott & Paul Hargreaves from Walker Morris LLP