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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 155
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CA85/06
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OPINION OF LORD GLENNIE
in the cause
MACDUFF SHELLFISH (SCOTLAND)
LIMITED
Pursuers;
against
MESSRS MASSON &
GLENNIE
Defenders:
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Pursuers: Haddow Q.C., O'Carroll; Brodies, W.S.
Defenders: Cullen Q.C., Duncan; Dundas & Wilson
30 August 2007
Introduction
[1] The pursuers are shellfish processors. Their managing director is Mr Euan Beaton,
who took over from his father John (sometimes known as Iain) Beaton in about
May 2002. His brothers, Paul and Fergus
Beaton, are also directors of the company, Paul being in charge of the day to
day operation of the factory and responsible for the production and despatch of
product, whilst Fergus is principally engaged in the processing side of the
business. The family has been in the
fish processing business since the 1880s, but the pursuers were formed in about
1985 to carry on the business of processing and freezing shellfish landed from
boats on the north east coast of Scotland. At the time of the events with which this
action is concerned, the pursuers still owned premises at MacDuff, Banffshire
(referred to on Record and in some correspondence as "Premises A"). However, their principal place of business
was at Mintlaw, Aberdeenshire, where they made use of two factories: the old
factory ("Premises B") which they had owned since about 1996; and a new factory
("Premises C") leased by them in 2001.
Premises B and C, both on the Mintlaw site, are sometimes called,
respectively, the "old" and "new" sites/ premises/ buildings/ factories and I
shall use those expressions in this Opinion.
[2] For
a number of years prior to the events with which this action is concerned, the
pursuers' commercial insurance was arranged through the defenders, a firm of
solicitors with an insurance intermediary division. From January 2002 their file was handled by
John McCombie, an employee of the defenders.
Commercial combined insurance cover on the pursuer's premises, covering
fire and other material damage risks to all three premises, was renewed through
the defenders on 1 March 2004
for a period of twelve months.
[3] Two
terms of the insurance are relevant to the present dispute. Warranty P17 was in the following terms:
"P17 Alarm Warranty (Central Station)
The Assured hereby Warrants that precedent to the
liability of Underwriters hereon a National Approved Council for Security
Systems and/or Security Systems & Alarms Inspection Board alarm system with
a minimum of Central Station Signalling is installed and operational and
maintained in good order throughout the currency of this Certificate, with an
Annual Maintenance contract in force for the duration of this Certificate, and
that a full specification of the system is kept and maintained by the Assured
for inspection to Underwriters as required. ..."
The Warranty is concerned with the
intruder alarm system rather than the fire alarm. The National Approved Council for Security
Systems is known as "NACOSS". Central
Station Signalling means that if the alarm is triggered a signal is sent
automatically to a central alarm monitoring station. This contrasts with a "bells only" system
whereby the triggering of the alarm simply causes alarm bells to ring at the
premises. At times in the correspondence
and discussions leading up to the renewal of the cover, reference is made to a
"Red Care" system, in particular to a BT RedCARE system. In this type of system there is a continuous
connection to a central station, and the central station is alerted whenever
that connection is broken. This is to
address the risk of a would-be intruder attempting to disconnect the alarm before
entering the premises. Warranty P17 did
not require there to be a Red Care system.
It required a NACOSS approved alarm system with central station
signalling.
[4] The
other material term of the insurance was General Condition 1, which provided as
follows:
"1 Alarm
and Protections Clause
The
Assured hereby warrants that precedent to the liability of underwriters hereon
all protections provided for the safety of the insured property shall be
maintained in good order throughout the currency of this insurance and shall
not be withdrawn, altered or varied without the prior consent of underwriters
and shall be in full and effective operation when the premises are closed for
business or left unattended, and at all other appropriate times. ..."
It is the
last two lines quoted above which are of importance in these proceedings.
[5] On 13 March 2004
the old premises, Premises B, was destroyed by fire. The fire was started deliberately by a person
or persons unknown. The pursuers claimed
on their insurance. By letter of 14 April 2004 from Jacksons,
loss adjusters instructed by them, underwriters repudiated liability. The letter identified two separate
grounds. The first was that in breach of
Warranty P17 there was no central alarm system installed in Premises B. The alarm system there was bells only. The second was that, in breach of General
Condition 1, the bells only alarm at Premises B "was not put into regular use
and was not in operation at the time of the loss due to a defective roller
shutter, which prevented the alarm being switched on".
[6] The pursuers sought to challenge underwriters' repudiation of
liability. They maintained that they had
no idea that they were required to have a NACOSS approved central station alarm
system in place at Premises B. Mr
McCombie put their case forcibly to the loss adjusters, but to no avail. Assisted by Mr McCombie, the pursuers took
advice from senior counsel on their prospects of successfully making a claim
against underwriters. They were advised
that they could not succeed. It is not
disputed that this advice was correct.
The pursuers were in breach of Warranty P17; and, if only because of the
defective roller shutter door, were also in breach of the requirement in
General Condition 1 to have the alarm system in operation at the time of the
fire.
[7] The pursuers have brought this case
against the defenders alleging professional negligence. Their pleadings make a number of averments of
breach of duty in respect of advice which, they say, Mr McCombie gave or failed
to give. I heard a preliminary proof on
liability. As the proof progressed, many
of the specific individual averments of breach of duty fell away. No issues of law arose for decision. The dispute turned entirely on questions of
fact. The nub of the pursuers' complaint
at the end of the proof was that Mr McCombie did not make it clear to them that
the requirement for a NACOSS approved central station intruder alarm system
applied to the old premises (Premises B) as well as to the new premises
(Premises C).
[8] The dispute is focused around a meeting
between Euan Beaton and Mr McCombie on 20
May 2003 at which the insurers' Risk Requirements were discussed;
and the correspondence just before and after that meeting. The pursuers say that if they had appreciated
that Warranty P17 applied to Premises B, they would certainly have complied
with it. Compliance would not have been
expensive. They contend that, in the
circumstances which obtained, underwriters would not have repudiated liability
for breach of General Condition 1 had breach of that condition been the only
matter about which they were concerned.
The roller shutter door had only been damaged the previous weekend; and
the pursuers had immediately taken all possible steps to replace it and to block
the entrance in the meantime.
[9] Ultimately only a limited number of
issues remained for decision, both of them issues of fact. The first issue went to proof of
negligence. In their final submissions,
counsel agreed that the question of negligence turned on what had happened at
the meeting of 20 May 2003. In their discussions at the meeting, was Euan
Beaton confused as to whether underwriters' requirement for a NACOSS approved
central station intruder alarm system applied to Premises B, or did Mr McCombie
clarify matters? If Euan Beaton was
confused, was Mr McCombie aware of that or, at any rate, should he have
been? If the pursuers succeeded on these
issues, negligence was made out. If not,
absolvitor should follow. The second
issue was whether that negligence, if proved, had caused any loss. Would the pursuers have done anything
different if they had realised that the requirement applied to the old
premises? Would underwriters have
avoided liability anyway because of the pursuers' breach of General Condition
1? Related to this last question was a
side issue as to when the roller shutter door had been damaged.
[10] Much of the evidence led at the proof went
to the defenders' handling of the pursuers' insurance from early 2002 until
after the fire. It is necessary to deal
with this fairly fully, both to set out the context in which the meeting of 20 May 2003 took place and for the
light it casts upon the reliability of the principal witnesses.
The
evidence adduced at the preliminary proof
[11] The principle documents before the court
were the defenders' office files relating to the pursuers' insurance
business. These were arranged
chronologically (starting from the back of each file) and were, as I understood
it, the entire files for the relevant period in the order in which the files
had been compiled. Mr McCombie spoke to
these in his evidence and, indeed, these documents formed the basis of most of
his recollection of events.
[12] In addition to Mr McCombie, I heard
evidence on the main matters in dispute from Euan and Paul Beaton. I heard also from a Mr Ken Lawson, an
insurance surveyor who inspected the premises in March 2003 and issued Risk
Improvement requirements which were discussed by Euan Beaton and Mr McCombie at
the meeting of 20 May 2003. I shall refer to the other witnesses of fact
as the need arises. The expert
witnesses, both in their Reports and in their oral evidence, spoke in the main
to the duties incumbent on insurance intermediaries such as the defenders. As the dispute has narrowed, it is
unnecessary to dwell on this aspect of their evidence. However, they also expressed views on the
question of whether underwriters would have repudiated liability for breach of
General Condition 1 if the pursuers had not been in breach of Warranty
P17. I shall deal with this part of
their evidence towards the end of this opinion.
[13] I propose to set out and make findings
upon the conflicting evidence in sequence as I go through the events of 2002 to
2004. First, however, I should say
something about the credibility and reliability of the principal witnesses.
[14] The principal witnesses for the pursuers
were Euan and Paul Beaton. They were not
professional men and I accept that they were not especially knowledgeable about
insurance matters. As Euan Beaton put
it: "my skills are in shellfish, not insurance wording." Mr Cullen QC, for the defenders, submitted
that Euan Beaton was not a credible witness; and that Paul Beaton also had, at
times, difficulty with the truth. I do
not accept that assessment of them.
During the course of their evidence, I formed a favourable impression of
them both. It struck me forcibly at the
time that they were giving their evidence honestly and doing their best to tell
the truth. They came over as individuals
who genuinely believed that they had a grievance and were out to tell their
story as they saw it. Sometimes they
were disarming in their answers to potentially difficult questions, displaying
a candour which, to my mind, reflected favourably on the rest of their
evidence. I accept, of course, that they
were not always correct in the answers they gave. Mr Cullen gave a number of examples from
which he asked me to conclude that both of them, and Euan Beaton in particular,
were not credible. I have considered
these examples carefully, and shall set out my views about some of them as I
come to them. Suffice it to say that I
did not consider that these matters bore the inference of dishonesty which he
sought to place on them. On the other
hand, I was conscious that the sense of being victim to an injustice may lead a
witness to give evidence which is unconsciously selective or distorted or is
otherwise unreliable. There were, in my
opinion, some examples of this, a particular example being in relation to
whether Mr McCombie had "confessed" to negligence following upon a consultation
with senior counsel on 14 May 2004. I therefore approached their evidence with
some care. The assessment of reliability
is always a separate exercise from the assessment of credibility, and I was
particularly careful in the case of Euan and Paul Beaton to assess their
evidence against the documents, the other witnesses and other indications of
what was likely to have occurred.
[15] Mr McCombie was altogether a different
kind of witness. He was a professional
man with many years in the insurance business.
He had no paper qualifications but over the years had gained
considerable experience. The pursuers
were by no means his largest clients.
Although he was the person alleged to have been negligent, it was the
pursuers who called him as a witness.
Much of his evidence favourable to the defenders was led out in
cross-examination. He gave his evidence
carefully and deliberately, as one would expect of a professional man. However, in the course of his evidence he
laboured under two distinct but overlapping difficulties. First and unsurprisingly, he had little first
hand recollection of many of the events and discussions about which he gave
evidence. As a result, much of his
evidence was prompted by reference to documents and reconstructed from what he
would have expected to do in the circumstances.
This is not meant by way of criticism.
Evidence of that kind can be persuasive where the individual is shown to
have acted habitually in a thorough and diligent manner. I was not, however, persuaded that that could
always be said of Mr McCombie in his handling of the pursuers' affairs. On more than one occasion the contemporaneous
documentation suggested, at first blush, that he had done a thorough and professional
job, so much so that Mr Russell, the expert witness called by the defenders,
remarked about the quality of the service that Mr McCombie had provided to his
clients. But on closer examination the
documentation sometimes suggested that insufficient care had been taken. An example of this is referred to in
para.[31] below. At certain points in
his evidence he sought to distance himself from what he had said in letters
written after the fire: see paras.[96] and [98] below. I did not find those parts of his evidence
convincing. The second problem was
equally or, perhaps, more significant.
Mr McCombie suffered from a difficulty with his voice. I need not go into the details. He grew tired very quickly. For this reason his evidence was punctuated
by frequent breaks. On two days his
evidence had to be stopped at lunchtime.
Partly because of this, his evidence spread over six days. He grew noticeably more tired towards the end
of each session and generally as the days went by. I had considerable sympathy for him in this
predicament and, in my assessment of his evidence, I have attempted to make
full allowance for the fact that some of his answers which I have found to be
unsatisfactory may have been influenced by his tiredness and voice difficulties. Mr Haddow QC, for the pursuers, did not go so
far as to ask me to find that he was dishonest in his evidence. He submitted instead that he was unreliable,
whether deliberately or through carelessness it was hard to say. Having considered the matter carefully, I
would not have concluded that he was dishonest even if I had been invited to do
so. But , on the other hand, I did not
form the view that his evidence could generally be relied upon when it was not
supported by documentation or other evidence. In a direct conflict between his evidence and
that of Euan Beaton, and in the absence of other material to inform my
judgement, I preferred the evidence of Euan Beaton.
[16] I shall comment upon the credibility and
reliability of other witnesses as I deal with the matters to which their
evidence is relevant
Events
leading up to the meeting of 20
May 2003
(i) The
pursuers' premises
[17] Mr McCombie visited the pursuers at the
Mintlaw site in January 2002. According
to a company profile which he prepared after that visit, as part of a package
of information put together by him for the purpose of obtaining insurance cover
for them, the pursuers purchased Premises B in 1996 to develop growth in their
frozen and value-added seafood business.
They took a lease of the new building at Mintlaw, Premises C, in August
2001. Premises B and C were right next
door to each other and were connected by a bridge, which the pursuers upgraded
so that it could take vehicle traffic as well as pedestrians. From then on they ceased production at the
MacDuff premises (Premises A), though they kept the building there. In time, the main processing activities were
moved from Premises B to Premises C, and Premises B came to be used only for flash
freezing of prawn tails and for storage of frozen produce. It is not clear precisely when this change
occurred, but it seems likely that it happened soon after the pursuers took the
lease of Premises C; and this use was certainly established long before the
events giving rise to the claim. There
had been discussions within the family about putting Premises B up for sale,
but according to John Beaton they were not "wholeheartedly" selling it. In any event, it had not in fact been sold at
the time with which I am concerned and the pursuers still had a use for it.
(ii) The
alarm systems in Premises B and C
[18] Before the pursuers moved into Premises C,
the intruder alarm system in Premises B was a central station alarm, albeit not
NACOSS approved and not a Red Care system.
The intruder alarm at Premises C was bells only. Sometime after they started using the new
building, the pursuers had the telephone line moved into it from the old. Thereafter there was no telephone connection
to Premises B, which became bells only; while the system at Premises C became
central station. It is not possible on
the evidence led at the proof to pin down exactly when the telephone line was
transferred. Euan Beaton thought that it
happened in about December 2002. Paul
Beaton, who was responsible for such matters, thought that they had certainly
moved to a monitoring station alarm at the new premises by early 2002. At one point in his cross-examination he
suggested that it might have been in late 2001.
There was little assistance from the relevant documents. In the company profile drawn up by Mr
McCombie in early 2002, based upon his visit in January of that year, there is
a page headed "Risk Management and Security" which Mr McCombie confirmed
related to the new factory. By the
marginal note "Security", it is recorded that the pursuers had an alarm system
which was NACOSS approved "but it is a bells only system and again they have
quotations to upgrade the system and a decision will be taken in the next few
weeks with which system they will proceed with (sic) but it will be NACCOS (sic)
approved". This suggests that the
changeover had not yet taken place by the beginning of February 2002. A letter from the defenders to the pursuers
dated 22 February 2002
confirms that, so far as they were aware, the changeover had not yet been made
by then. An invoice from Bell Security (Scotland)
Ltd, to which Paul Beaton spoke in his evidence, showed that in the new
premises the fire alarm was linked to an existing Red Care communicator for the
intruder alarm system on 18 December
2002. The work took no more
than an hour and involved installing a link up cable between the fire alarm
system and the intruder alarm Red Care system then in place. It is possible to say, therefore, that a Red
Care system was installed in the new premises at some time between February and
December 2002. It is probable that the
alarm at the new premises became central station, whether Red Care or not,
immediately the telephone line was physically shifted there from the old. This probably happened at about the end of
the first quarter of 2002. From then on,
Premises B had a bells only system. It
does not appear that Mr McCombie was made aware of this change at the time that
it occurred.
[19] Euan Beaton said in evidence that the fire
alarm at Premises B was on all the time.
This was not disputed. He also
said that the intruder alarm was set whenever the premises were unmanned. He amplified this by saying that it was not
set during the evenings, when work would be going on around the clock in the
new premises and employees would go across from the new premises to the old on
occasions during the night. He said,
however, that the intruder alarm was set from the time that work stopped at
both premises on Saturday afternoon until the commencement of work at 6 a.m.
the following Monday. He would set it
himself, or it would be set by Paul or Fergus Beaton. It would depend on who locked up on the
Saturday afternoon. It would certainly
always be one or other of them. Both
Paul and Fergus Beaton confirmed this in their evidence. According to Paul Beaton, one of them was
always present when the factory closed on a Saturday afternoon and re-opened on
a Monday morning. This evidence was
challenged. But I accept it as true.
(iii) The
defenders' handling of the pursuers' insurance before January 2002
[20] Before Mr McCombie took over in January
2002, the pursuers' insurance business was handled by a Mike Stephen of the
Defenders. I did not hear from Mr
Stephen. Such evidence as there was
about this period came from Euan Beaton, by reference to documents in the
defenders' files which were lodged in process.
The documents showed annual renewals of the pursuers' insurance cover
over the previous years. The renewal
date was then 19 February of each year, though later it was changed to 1
March. The premium stayed fairly
constant over the years until 2001, being г7,000 in 1997, г7503 in 1998, г9300
in 1999 and г8,000 in 2000. Until 2000
the pursuers had been insured under an Iron Trades policy. However, on 9 February 2001, ten days before renewal, the defenders
faxed Woodbrook Underwriting Agencies Ltd ("Woodbrooks") to the effect that
Iron Trades had pulled out of underwriting fish processors and that, in
consequence, the insurance had to move at renewal. Woodbrooks obtained a quotation on 12 February 2001 and a cover note was
issued on 20 February 2001. The gross premium was just over г23,000. One of the terms applicable to the insurance,
as identified in the quotation and cover note, was "Alarm Warranty (Central
Station)". There was no evidence as to
whether or not this warranty was in the same terms as the warranty - P17 Alarm
Warranty (Central Station) - which formed part of the insurance in 2004. There were four factories covered by that
insurance at inception in February 2001: three in MacDuff (including Premises
A) and one in Mintlaw (referred to in this action as Premises B, but identified
as (D) in the quotation and cover note).
Since the insurance was arranged close to the renewal date, a number of
details and values to be included within the policy were the subject of
subsequent correspondence, and the pursuers completed a proposal form only in
April 2001. It was completed and signed
by John Beaton, presumably with the defenders' assistance. That proposal form covered the four factories
then used by the pursuers. The question
concerning security was answered without any differentiation between the four
factories. The insurers were given to
understand that the intruder alarm was central station but that the installer
was not a NACOSS member. That was
true of Premises B and, for all I know, of the other factories. It may be, though again there was no evidence
as to this, that NACOSS approval was not a requirement of the insurance at the
time. In August 2001 the insurers were
informed that part of the business was moving from MacDuff to the new premises
at Mintlaw (Premises C), and those new premises were added to the policy. So far as the documents show, nothing was
said to insurers about the intruder alarm at the new premises at this time.
(iv) Mr
McCombie's first involvement with the pursuers' insurance
[21] When Mr McCombie took over the pursuers'
account, he decided to attempt to get for himself a good understanding of their
business. He met Trevor Adam, the
pursuers' internal accountant, on 23
January 2002. He visited the
premises at Mintlaw on 30 January 2002
and met John Beaton. He produced the
company profile, to which I have already referred, with a view to being able to
show it to insurers. I have already
noted the comment in that document (which related to Premises C, though it did
not say so) that the security system was bells only but that the pursuers had
quotations to upgrade it. His notes,
which he took from his visit, record, in relation to Premises B: "Security:
Alarm, CCTV, still in operation". He
said in cross-examination that at that time he believed that the system at
Premises B was central station but not RedCARE.
(v) Renewal
in 2002
[22] Mr McCombie set about obtaining quotations
for the insurance for 2002-3. He sent a
copy of the document which he had prepared to Lloyd's brokers, Houlder
Insurance Services (International) Ltd. ("Houlders"), asking them to obtain a
quotation. He also asked Woodbrooks to
obtain renewal terms. Mr McCombie was
criticised by Mr Haddow for having encouraged Houlders to believe (wrongly)
that he was dealing exclusively with them.
I do not consider that that criticism was justified. Mr McCombie explained that he was simply
assuring Houlders that he was dealing with no other Lloyd's broker. Taking the correspondence as a whole, I
accept that; and certainly Houlders made no complaint when told afterwards that
the insurance had been placed elsewhere.
Woodbrooks replied that the existing insurers had pulled out of the
market, but the quotation which they obtained from other insurers, at just over
г23,000, compared favourably with what was available on the Lloyd's market.
[23] At a meeting between Mr McCombie and the
Beaton family on 13 February 2002 it was decided to accept the quotation from
Woodbrooks but to delete business interruption cover on the basis that if the
factory was destroyed there was other factory space available from which to
carry on operations. Clearly this decision
was heavily influenced by a desire to keep the level of insurance premiums down
as much as possible. One of the
pursuers' principal concerns at this time, as explained by Euan Beaton, was the
huge increase in the level of premium in 2001 compared with previous
years. He explained that insurers were
particularly concerned about the fire hazard created by the presence within
factories of composite panels, consisting of polystyrene sandwiched between two
sheets of metal. There had been two or
three big fires in food units in the recent past. This concern was spoken to also by the
experts in their evidence. The premium
had gone up by about 100% in the previous year.
It was put to him in cross-examination that he had wanted to remove the
old building from the insurance and that there had been a dispute with his
father about this at the meeting. He
rejected this. He said that he did not
think that taking the old building off cover would have been an option at the
time, since there were borrowings secured on it. John Beaton said in evidence that he would
not have countenanced taking the old building off cover, but he thought it very
unlikely that there was a dispute about it.
Paul Beaton agreed, though he did not recall any discussion about
removing the old building from cover.
When Mr McCombie gave evidence, he recalled a suggestion that the old
building should be taken off the insurance, but did not recall that there had
been any major disagreement about this issue.
On the evidence I formed the view that probably some consideration was
given to the possibility of reducing costs by taking the old building off
cover; but it is unlikely that the matter was taken very far or that it led to
a dispute amongst the Beatons. The
relevance of the point, from the defenders' point of view, is that if Euan
Beaton had been that anxious to reduce costs, he might have been prepared to
cut corners and avoid incurring expenditure to comply with insurers'
requirements. I do not accept this
assessment of him.
[24] In a letter to the pursuers dated 22 February 2002 notifying them of
certain details of the new insurance, Mr McCombie pointed out that the policy
included a number of warranties. These
were identified in the renewal documentation - though Mr McCombie never received
the complete policy documentation for the policy renewed in 2002. He listed the warranties (which included the
central station alarm warranty) in his letter.
He added:
"The
majority of these warranties you comply with and some do not apply to your
premises in any event but the one you do not comply with at present is the
alarm warranty via Central Station as it is bells only at the moment and
therefore the system would have to be upgraded."
It was the
pursuers' case on Record that the comment about their non-compliance with the
central station alarm warranty was intended to refer to the intruder alarm in
the new factory at Mintlaw, Premises C.
In his evidence, Euan Beaton at first insisted that it referred to the
old premises (or to both the old and the new); and he relied upon this comment
as showing that Mr McCombie knew that the old site had by then been downgraded
to bells only. This was plainly wrong
and he accepted as much in cross-examination, though he was still insistent
that Mr McCombie knew that the old building had been downgraded. I do not accept this. The evidence does not show, on balance of
probabilities, that Mr McCombie was ever told, before the fire in 2004, that
the system at the old premises had been downgraded. Mr McCombie said in evidence that in February
2002 he had thought that the old building was central station. If he had been told that the intruder alarm
at the old building had been downgraded to bells only, he would have picked
this up, as he had with the new building.
I do not think that the alarm at the old building had been downgraded by
this time. It is probable, as I have
found, that the telephone line had not by then yet been shifted from the old
premises to the new. Mr McCombie's
comment, both in his letter and in his evidence, fits in with the assessment of
the new premises which he had made in the company profile prepared by him less
than a month earlier. However, I do not
accept Mr Cullen's submission that Euan Beaton's error on this matter reflected
adversely on his credibility. To my
mind, he was simply getting muddled.
[25] One might have expected Mr McCombie in
these circumstances to have told the insurers that Premises C did not comply
with the central station alarm warranty and to have sought a temporary
dispensation from them. He did not do
this. Nor is it clear what steps, if
any, he took to keep himself informed of whether the pursuers had upgraded the
intruder alarm at the new premises. A
note on the defenders' file copy of the letter of 22 February 2002, probably made in July 2002 because of
its position in the defenders' correspondence file, asks: "What was the outcome
of this?" There was nothing in the
evidence to indicate that this question was followed up; and the probabilities
are that it was not, judging by a note prepared by Mr McCombie for a meeting
which took place on 18 February 2003 - as to which see para.[30] below.
(vi) Renewal
in 2003
[26] On 11
February 2003 Woodbrooks wrote to the defenders pointing out that
the policy fell due for renewal on 1
March 2003. The change in
renewal date arose because of a ten day extension granted in February 2002, at
a time when it was necessary to change insurers. The letter directed attention to the terms of
the insurance. The material part of the
letter reads as follows:
"We
are attaching our Renewal Invitation herewith, together with a copy of our
supplementary endorsements for your perusal.
IMPORTANT - Please note:
The following renewal terms are issued on
the basis of the new Woodbrook Commercial Combined Certificate and
Supplementary Warranties/Endorsements/Exclusions which are effective from 1st
January 2003. A copy of these is attached for your
information and assistance. A copy of
the new Certificate wording will be sent to you under separate cover."
A Renewal
Invitation was enclosed with the letter.
Again, in the box headed "Terms", there was included a reference to the
"Alarm Warranty (Central Station)" as being applicable to the policy.
[27] The letter referred to the "new" Woodbrook
terms. A copy of the "Supplementary
Warranties/Endorsements/Exclusions" (hereafter "the Supplementary Warranties")
sent with the letter was included in the documents lodged in process and
referred to in evidence. The "new"
Supplementary Warranties include at P17 the "Alarm Warranty (Central Station)"
which is at the heart of this dispute.
The terms of this warranty are set out in para.[3] above.
[28] File notes in the defenders' files lodged
in process were referred to in evidence.
On 16 February 2003
there is a note which refers to the need to do a letter (to the pursuers) about
the renewal quotation. It goes on to
state: "Need to point out all warranties applying and enclose copies". Mr McCombie explained that this was very
important: Woodbrooks had changed their conditions and it was very important to
go through these new terms with clients.
The fact that Woodbrooks' letter described the terms as "new" was a good
reason to examine with care what the documents provided. In answer to further questions, Mr McCombie
said that he did not know in what respects the Woodbrooks terms had
changed. He had, in fact, no way of
telling because he had never received the earlier terms. Until he saw the Supplementary Warranties
sent with Woodbrooks' letter of 11
February 2003, he had not seen the terms of Warranty P17 and
therefore did not know that there was any requirement, for example, for the
intruder alarm system to be NACOSS approved.
I should add here that no copy of the previous version of these terms
was in evidence before me. Accordingly
it was not possible for me to see which terms had changed and which, if any,
had remained the same.
(vii) The
meeting of 18 February 2003
[29] The letter written following this note is
dated 18 February 2003 and
was taken to a meeting with the pursuers on that day. The first paragraph of the letter reads:
"I
refer to the above insurance which falls due for renewal on 1 March 2003 and now have pleasure in enclosing
the Renewal Invitation from Woodbrook Underwriting Agencies together with the
supplementary Warranties/ Endorsements/Exclusions applicable. The
endorsements relevant to yourselves have been highlighted accordingly."
[emphasis added]
Attached to
the letter was a copy of the Renewal Invitation (referring, as before, to the
"Alarm Warranty (Central Station)") and a copy of the Supplementary
Warranties. The latter had been
highlighted in a number of places, including at P17 Alarm Warranty (Central
Station), which had also had an asterisk put against it. However, the General Conditions applicable to
the policy were not included with the material given to the pursuers at the
meeting. They could not have been
included, since Mr McCombie had himself not received them. He did not receive them until after the fire.
[30] In preparation for the meeting with the
pursuers, Mr McCombie had also had typed out a note headed "Outstanding
Matters". A hand-written date on the
note suggests that the meeting was on 19
February 2003, but it was agreed in evidence that it probably took
place on 18 February. Nothing turns on
this. Point 4 on that note again raises
the question whether the intruder alarm at the new premises had been upgraded. It reads as follows:
"4. Re. Alarm Warranty on Woodbrook Policy -
bells only at moment - we sent a letter in Feb last year to Mr Beaton - was it
ever upgraded - copy letter attached."
The
reference to the "letter in Feb" is to the letter of 22 February 2002 to which I have referred in
para.[24] above. There are manuscript
notes against a number of the points on the note, possibly indicating that
these points were discussed at the meeting of 18 February 2003, but nothing against point 4. It is not apparent from the annotations on
the note what discussions, if any, there were about the upgrading of the
alarm. Mr McCombie in his evidence in
chief said that he could not remember discussing it, though it would have been
surprising if he had not. He suggested
that maybe the answer was that it had been upgraded. In cross-examination he said he thought it
was likely that he would have asked the Beatons whether the alarm had been
upgraded. That was why the point was
noted in advance of the meeting. Asked
whether it was likely that any of the Beatons had told him at the meeting that
the alarm at the old premises had been downgraded, he said that that would
obviously have registered with him. He
would have said, "that's a problem" or something to that effect. I accept that he was not told that the system
at the old premises had been downgraded.
[31] Before turning to discuss further the
evidence about this meeting, I should refer in more detail to the highlighting
of the "endorsements relevant to yourselves", since this is illustrative of the
difficulty I had with certain parts of Mr McCombie's evidence and the
reliability of his attempts to re-construct what had happened. Mr Russell, the expert witness called by the
defenders, praised Mr McCombie for bringing his clients' attention the
particular Supplementary Warranties relevant to them and described this as "an
example of a good insurance adviser making his client fully aware of all
matters relevant to the renewal process".
The steps he had taken were "all indicative of Mr McCombie having done
an extremely good job for his clients".
This was the picture which both the defenders and Mr McCombie sought to
paint. Mr McCombie had thought it very
important to go through the applicable warranties with the clients. He had asked someone within the office to
highlight the relevant warranties so as to bring them to the clients'
attention, with a view to going through them at the meeting. When asked in cross-examination whether he
would have discussed the warranties at the meeting of 18 February 2003, he said that bearing in mind
the effort expended in preparing the notes and highlighting the warranties, he
could not think that he would not have mentioned them, though he had no
specific recollection of doing so. It
would be normal practice to mention the warranties. He repeated this in re-examination. He would have gone over the relevant
warranties and explained to the clients the consequences of their being in
breach of warranty. When the
highlighting was examined, however, it turned out to be in many respects
entirely misleading. Some warranties
were correctly highlighted. But in other
cases, instead of highlighting the warranties, the person responsible for
carrying out the job had highlighted a waiver of those warranties. A few examples will illustrate the
point. The terms mentioned on the Renewal
Invitation from Woodbrooks included a "Five Lever Mortice Deadlock Warranty", a
"Portable Heating Warranty" and a "Fire Appliance Maintenance Clause". On the copy of the Supplementary Warranties
the defenders had highlighted P15, P14 and P26 as corresponding to these
warranties. P15 was not in fact the
"Five Lever Mortice Deadlock Warranty" but a "Five Lever Closed Shackle Padlock
Warranty Waiver". Similarly, P14
was not the "Portable Heating Warranty" but a "Portable Heaters Clause Waiver"
and P26 was not the "Fire Appliance Maintenance Clause" but a "Fire Appliance
Maintenance Clause Waiver". The
warranties themselves were not contained in the document copied for the clients
but were to be found in the General Conditions contained in the Certificate of
Insurance, which the defenders had never received. The person in the office responsible for
highlighting had no doubt done her best.
She had highlighted the terms which most nearly corresponded to the
description of the warranties in the Renewal Invitation, without appreciating
that those warranties were contained in another document. Mr McCombie said in re-examination that at
the meeting of 18 February 2003
he did not notice any problem between the warranties listed in the Renewal
Invitation and those highlighted by the person in his office and handed to the
pursuers at the meeting. Later he
accepted that it was "possibly right" that the discrepancies had not been
noticed because the warranties had not been discussed. It was also "possibly right" that none of the
highlighted warranties had been discussed.
In my opinion this conclusion is unavoidable. The importance of this is not that the
clients were misled. It is that it
demonstrates quite clearly to my mind that, contrary to what Mr McCombie said
must have happened, there cannot have been any significant discussion at the
meeting about the terms applicable to the insurance. It is inconceivable that some of the wrong
highlighting would not have been noticed if there had been a discussion about
the terms. It does not reflect well on
Mr McCombie's thoroughness and diligence as an insurance intermediary. Most important of all, it undermines any
confidence one might otherwise have in relying upon evidence given by Mr
McCombie on the basis of what he would expect, and be expected, to have done as
a thorough and conscientious professional man.
[32] I heard evidence about the meeting of 18 February 2003 from both Euan
Beaton and Mr McCombie. I have already
referred to Mr McCombie's evidence. Euan
Beaton said that he would have expected Mr McCombie to have told him about the
significance of the relevant warranties.
It was put to him in cross-examination that at the meeting Mr McCombie
would have gone through the requirements of the P17 warranty. Mr Beaton did not accept this and neither do
I. Mr Beaton said that if there was
discussion about alarms at the meeting, the focus would have been on the alarms
at the new site. I do not think that
there was any serious discussion about the alarm at either site. Had there been, I would have expected the
outcome to have been annotated against point 4 of the note prepared by the
defenders in advance of the meeting as an aide-memoire. I do not think that it was drawn to the
pursuers' attention at that meeting that the central station alarm warranty
applied to the old premises. The issue
was probably never raised. Nor do I
think that Mr McCombie left that meeting any better informed as to whether the
alarm at the new premises had been upgraded.
[33] At or after the meeting the pursuers took
the decision to renew the insurance on the terms offered. Although the premium had risen markedly - to
about г56,000 - the alternative quotation from the Lloyd's market was even
higher.
(viii) The
survey of the pursuers' premises and the surveyor's risk improvement
requirements
[34] One of terms of the renewal was that a
survey should be carried out on the insured premises by a surveyor appointed by
insurers. The surveyor appointed to
carry out the survey was Mr Ken Lawson of Risk Management Surveys Limited
("RMS"). The survey took place towards
the end of March 2003. Mr Lawson
reported back to Woodbrooks. In addition
to his formal survey Reports, he submitted reports (each extending to two or
three sheets of paper) of the Risk Improvements to be implemented at each
site. To distinguish these sheets from
the formal survey Reports, I shall refer to them as the "Risk Improvement
sheets".
[35] On 16
April 2003 Woodbrooks wrote to the defenders attaching the Risk Improvement
sheets for the Mintlaw premises (Premises B and C). Those for the MacDuff premises (Premises A)
had been sent earlier. That letter was
in the following terms:
"We are now in receipt of the
surveyors reports following his recent visit to the undermentioned premises and
would advise as follows:
Premises (B) - Old Site, Station Road, Mintlaw
Report
No 2003/288:
We attach a list of risk
requirements which are to be implemented by the assured.
Premises (C) - New Site, Station Road, Mintlaw
Report
No 2003/289:
We attach a list of risk
requirements which are to be implemented by the assured.
We
await your confirmation within the next thirty days that these Risk
Improvements have been complied with."
It should
be noted here that the Risk Improvement sheets attached to the letter bore the
RMS Report numbers - 2003/288 and 2003/289 - but were not headed up with the
identification of the premises to which each referred. It seems that Woodbrooks did not pass on the
survey Reports to the defenders at this time.
Mr McCombie said, and I accept this, that they only received them at
some time after the fire, probably in late 2004.
(ix) The
Risk Improvement sheets
[36] The Risk Improvement sheets relating to
RMS Report No 2003/288 ran to seven numbered points over two pages. Those relating to RMS Report No 2003/289 ran
to thirteen points extending over three pages.
It is necessary to set them out in full.
[37] The Risk Improvement sheets for Report No
2003/288 read as follows:
"RMS Report No. 2003/288
RISK IMPROVEMENTS
REQUIREMENTS
Fire:
1 The abuse
of electrical systems etc. and their lack of maintenance are major causes of
fire and can also result in death and injury.
Your attention is drawn to the Electricity at Work Regulations 1989
which make requirements to ensure that electrical installations are safe in use
and thus it is required that this is given your early attention. In the circumstances please arrange for
appropriate inspections with electrical engineers or electricians who are
members of NIVEIC or ECAS.
Any
electrical defects found require to be remedied immediately in accordance with
the current edition of the Institution of Electrical Engineers Regulation for
Electrical Installations (the 'IEE Wiring Regulations') where they apply.
2 It is required
that the appropriate portable fire extinguishers be provided adjacent to
electrical switch boards etc.
3 The use of
the Hydrasun oil-fired fan assisted warm air unit for defrosting purposes is no
considered a suitable means of providing heat.
It is required that an industrial electric heater be used when
defrosting is required.
Similarly,
it was noted that an LPG torch is used for removing build-ups of ice from pipes
etc. This is not considered to be good
practice and a safer means of ice removal requires to be used. Accordingly, a task specific risk assessment
requires to be carried out which must consider the areas where this is taking
place, the combustibility of surrounding panels and insulation, the type of
refrigerant being used etc. Safer methods
of ice removal would seem to include the use of electric hot air guns [with all
necessary safety precautions taken] or the use of a methylated spirit spray
with all appropriate fire and health and safety precautions taken.
It is
suggested that discussion and agreement with the H&S Executive might be
prudent.
4 It is
required that all combustible pallets, crates and lumber be kept to a minimum
and if possible removed from site. Any
external storage of combustible items requires to be kept to a minimum and must
be stored no closer than 9 metres from the building.
Special perils:
5 The cause
of the water ingress through a small section of roof requires to be ascertained
and repairs undertaken.
Theft:
6 It is
required that the intruder alarm system have its signalling upgrade with it
being sent to the Police Authority via a NACOSS Approved Alarm Receiving Centre
(ARC), included in the 'Official List of Nacoss Recognised Firms', using the BT
RedCARE system.
7 This site tends to be unoccupied for
periods during the day but the building is not secure. It is required that the doors be locked when
there is no working presence. The use of
a mechanically coded door lock[s] may assist."
[38] The Risk Improvement sheets corresponding
to Report 2003/289 were in the following terms:
"RMS Report No. 2003/289
RISK IMPROVEMENTS
REQUIREMENTS
Fire:
1 It is
understood that all composite insulation panels are inspected on a daily basis;
this is considered to be good practice.
It is required that this be done to ensure that they remain in a good
state of repair and any damage repaired together with a record kept of such
incidents. Damaged panels require to be
replaced with a panel approved to LPS 1208 or be totally non-combustible. Minor damage can be repaired using sheet metal
of minimum thickness equivalent to the original, this being securely bonded and
fastened in place.
In
addition, it is required that gaps around service openings through panels (e.g.
for hoses, pipes, ducting, cables, etc.) where the combustible core is exposed
must pass through a non combustible sleeve and be fire stopped as recommended
by the panel manufacturer or alternatively an intumescent sealant used. Exposed ends must be capped in accordance
with the manufacturer's instructions.
Also, heater flues or hot ducting positioned in the proximity of
combustible composite panels require to be located no closer to the panel than
three times the diameter of the flue or duct and should not pass through such
panelling. If panel penetration is
unavoidable, hot flues, pipes or ducts require to be enclosed within either a
non-combustible insulating sleeve at least 40mm thick or a proprietary sleeve
system achieving 60 minutes fire resistance in terms of integrity and
insulation. Any gap between the sleeve
and panel is to be filled with mineral fibre or other suitable non-combustible
material.
2 Various
holes in masonry walls for the passage of cables, pipes and the like were noted
within the building. These holes require
to be fire stopped to the full the (sic) thickness of the wall using brick,
concrete or similar in order to help prevent the passage of smoke, flames and
hot gases if a fire should occur.
3 It was
noted that the portable fire extinguishers and fire hosereels were overdue
their annual maintenance check. It is
required that all fire extinguishing media [is] maintained under an annual
service contract with the manufacturer, supplier or by a specialist maintenance
company.
4 It was
noted that an LPG torch is used for removing build-ups of ice from pipes
etc. This is not considered to be good
practice and a safer means of ice removal requires to be used. Accordingly, a task specific risk assessment
requires to be carried out which must consider the areas where this is taking
place, the combustibility of surrounding panels and insulation, the type of
refrigerant being used etc. Safer
methods of ice removal would seem to include the use of electric hot air guns
[with all necessary safety precautions taken] or the use of a methylated spirit
spray with all appropriate fire and health and safety precautions taken.
It is
suggested that discussion and agreement with the H&S Executive might be
prudent.
5 It is
required that all combustible pallets, crates and lumber be kept to a minimum
and if possible removed from site. In
addition it is required that all external combustible storage must be kept at
least 9 metres from the building.
6. It is
required that the kitchen extraction system ducting must be inspected and
cleaned as necessary, ideally by specialist contractors, at regular internals
not exceeding 12 months.
7 It is
required that the gas cylinders within the development kitchen are chained to
the wall to prevent them from being knocked over,
8 The door to
the main electrical switchroom requires to be fitted with a lock and this area
kept secure at all times, with access permitted only to authorised users.
9 The storage
area for polystyrene packing materials over the chills was untidy. This area requires to be cleared out, kept
tidy and any small waste "off-cuts" etc. removed on a regular basis.
Theft:
10 It was noted
that the cold store ... which contains the major proportion of the finished stock
... is not protected by the intruder alarm system. It is required that all doors to this store
be protected by suitable and appropriate magnetic contacts and if possible
movement detection provided internally.
11 Presently,
it is understood that the intruder alarm system comprises a single zone and
therefore no protection is provided to portions of the premises which are
unoccupied at night e.g. the offices. It
is required that the usage of the building be examined and appropriate zoned
areas created which protect unoccupied areas when other portions of the
building remain occupied.
12 It is
required that each authorised operator of the intruder alarm system is
allocated an individual access code to enable any recorded event to be
identified to that operator.
13 The movement
detector adjacent to the battery charging units appeared to be faulty. It is required that this be checked and
replaced if necessary.
RECOMMENDATIONS
Fire:
1 It is
recommended strongly that an automatic fire detection and alarm system is
installed throughout the premises in accordance with a Type P1 System complying
with BS: 5839: Part 1: 2000.
Liability:
2 The small "bridge" across the burn is
insecure from a liability aspect.
Prudence would dictate that this deficiency be improved.
(x) Evidence
about what was discussed during the survey
[39] There was some dispute about what happened
during Mr Lawson's survey of the two premises at Mintlaw and the extent to
which the matters which subsequently found their way into the Risk Improvement
sheets were discussed and agreed, or at least understood, by Euan Beaton.
[40] Euan Beaton recollected meeting Mr
Lawson. In his evidence in chief he said
that he did not accompany Mr Lawson around the premises but arranged for Bob
Middleton, who was employed by the pursuers as an engineer, to do so. He did not recall his brother, Paul, being
present. He did not specifically
remember meeting Mr Lawson afterwards.
He remembered that the composite panels were a "hot potato" and he
thought he would have discussed these with Mr Lawson at the beginning of the
visit. He did not recall discussion of
the alarm system in either building. In
cross-examination he was shown the survey Reports prepared by Mr Lawson. He had not received these. He accepted that they appeared to reflect a
detailed systematic survey carried out by Mr Lawson. It seemed from the Reports that Mr Lawson had
inspected the intruder alarms at both Mintlaw sites. He could not recall Mr Lawson discussing the
alarms with him, but accepted that, given the nature of his interest, it was
likely that he would have done so.
[41] Mr Lawson began his evidence by explaining
his normal practice. He regularly
carried out surveys for Lloyds' underwriters and insurance companies. Typically when instructed to carry out a
survey, he would go to the premises, meet the insured, carry out the survey,
and discuss with the insured any matters that arose during the survey,
including risk improvement requirements or recommendations. I interject to point out that Mr McCombie
confirmed from his experience that this was the norm - he had never known a
surveyor not to discuss his thoughts with his clients. Mr Lawson said that during the course of his
survey he would make hand-written notes and mention anything he noticed to the
person accompanying him. He would use
his notes as the basis for a Report to be issued to underwriters and Risk
Improvement sheets to be passed to the insured via the broker. He would not expect the Report to be passed
on to the insured. He would not include
any items in the Risk Improvement sheets without first having discussed them
with the insured. He had no further
involvement after the Report and Risk Improvement sheets were issued. The hand-written notes would be shredded
after about a year. The notes for this
inspection were long gone.
[42] Turning to the inspection of the pursuers'
premises, Mr Lawson recalled carrying out the survey. In his evidence in chief, he described how he
drove from home in central Scotland and went first to the pursuers' premises at
MacDuff, spent the night in Peterhead and visited the two buildings at Mintlaw
the next day. He thought he arrived at
Mintlaw "fairly sharp" in the morning, at about 9 a.m., and did not leave until
well into the afternoon. He recalled
meeting "the Mr Beatons" - whom he identified as Euan and Paul Beaton - and had
a discussion with them when he arrived, at which, after the usual pleasantries,
he would have gone through his pro-forma and ask a number of standard
questions. He then walked around the
premises. Typically this might take
about an hour, but he could not remember in this case how long it took. He started at the new premises. He thought he had been accompanied around the
new premises by one of the Beatons, possibly Euan Beaton, and possibly also by
an engineer, though he could not be certain of that either. He could not identify Euan Beaton, who was
sitting at the back of the court, as the one who had come round with him - he
had had the impression that the person who accompanied him had looked different
in a number of respects. Nor, in
cross-examination, could he identify Paul Beaton. The persons who accompanied him had been
wearing white coats and hats.
[43] Mr Lawson was asked about his inspection
of the new premises and was referred to his Report No 2003/289 covering those
premises. He explained the fire risk
arising from the presence of foam and composite panels. This had caused insurance premiums to
rocket. He had discussed this with the
Beatons, probably Euan Beaton. As
regards fire protection and security, he would first go through the pro-forma
by asking questions about the alarm system and then verify the details as he
went round the building. He explained
that NACOSS was an approval body on which insurance companies based their
standards. He explained that BT RedCARE
worked by sending an alarm to the receiving centre if the signal was
interrupted. He was taken to the Risk
Improvement sheets for Report 2003/289 covering the new premises. Amongst other items, his attention was drawn
to item 11 concerning the inadequacies of the intruder alarm system and the
need for the area to be sub-divided by zoning of some kind. He said that this would have been discussed
along with all the other items.
[44] He then turned to his inspection of the
old premises, which he described as "unoccupied". He thought that the engineer had accompanied
him around this site. He was referred to
his Report 2003/288 and the relative Risk Improvement sheets. In the Report, the fire detection and alarm
system was described as "audibles only".
The intruder alarm system was described as "non NACOSS with local
audible only". His Report noted that
"this requires to be improved notwithstanding that there is no loss history and
it is away from high crime incidence areas."
He explained that the premises themselves were of value and had some
stock in them. Insurers do not like
unoccupied buildings. In the Risk
Improvement sheets for the old premises he had noted that the "bells only"
system was not acceptable and needed to be upgraded.
[45] Mr Lawson said that after inspecting both
buildings he went back to the office and had a discussion about the risk
improvements which he had identified as requiring to be made. This discussion would have lasted for about
half an hour or more. He thought this
discussion was with Euan Beaton. He recalled
that Euan Beaton's reaction to the requirement for the intruder alarm at the
old premises to be upgraded had been that it was not worth doing since there
was nothing much kept there. Mr Lawson
commented in his evidence that clients usually think that insurers require a
good intruder alarm because of concerns about theft, but in fact they are
interested in it more because of the risk of malicious damage.
[46] In cross-examination Mr Lawson accepted
that he could not remember everything about the visit to Mintlaw. The Reports helped him to refresh his
memory. He did distinctly remember
seeing the composite panels and he remembered the discussion about the increase
in premium. His recollection was that
Euan Beaton accompanied him around the new building but not around the
old. There were a number of points in
his Report which did not make obvious sense and which he could not
explain. For example, Report 2003/288
described an employee presence in the old building of 23 hours a day, six days
per week, whereas it was 24 hours a day Monday to Friday and a half-day on
Saturday. He described the old building
as "mainly unoccupied" and "primarily silent and disused", which could have
been an impression gained if he had walked around it in mid-afternoon but would
have been corrected if he had raised it with anyone. In Report 2003/289, his summary of the shifts
worked did not appear to add up. It
wrongly suggested that there was an external door to the cold store. He accepted that he had no clear recollection
of what he had been told or how these entries came to be made. As to whether everything would have been
discussed at the meeting after his tour of the buildings, his evidence shifted
somewhat. At one point, he said that the
points which later featured in the Risk Improvement sheets would have been
discussed either during the walk around the factory or at the
meeting in the office afterwards. Later
he said that, generally, all points would be discussed at the meeting
afterwards even if they had been raised before.
Later still, he said that he could not be certain that he discussed
every point at the meeting afterwards, though his normal practice would have
been to do so. He particularly
remembered emphasising the foam panels and electrics. He "tended" to remember the discussion about
the lack of an alarm system within the old premises.
[47] I accept that Mr Lawson, like Euan Beaton,
was a credible witness doing his best to assist the court. But it is clear that Mr Lawson nor Euan
Beaton had much detailed recollection of the visit. In Mr Lawson's case this is entirely
understandable. He carries out many
surveys. He makes notes and uses them
for preparing his Report and note of Risk Improvement requirements. In due course, his notes are destroyed. I would not expect him to have a detailed
unprompted recollection of what he had seen and said on any particular visit
occurring some four years earlier.
Making the best I can of the evidence, I do not think it likely that
Euan Beaton accompanied him around either building. I see no particular reason for him to have
done so if he had deputed Mr Middleton to take him round. I thought that Mr Lawson's inability to
recognise Euan Beaton as the man who had accompanied him was telling. It was not simply a case of not being
sure. He identified differences between
Euan Beaton and his recollection of the person who had accompanied him. Whether Euan Beaton accompanied Mr Lawson
around the new building may not matter.
Of more importance is the question whether he accompanied him around the
old building. I have formed the view
that he probably did not. This was, I
think, Mr Lawson's final position in his oral evidence. And it seems to me to fit with the existence
of inaccuracies in Mr Lawson's Report.
Had Euan Beaton accompanied him, I would have expected the two of them
to have had a fairly full discussion as they went round. During such a discussion, these points would
to have been clarified; and the errors would probably not have crept into the
Report. It is also not clear precisely
what was discussed at the meeting afterwards.
I am persuaded that there was a meeting afterwards between Mr Lawson and
Euan Beaton but, if that meeting lasted for only half an hour or so, there
would not have been much time to go through in any detail all the points which
were subsequently put into the Risk Improvements sheets. If there was a serious discussion about
composite panels, as Mr Lawson remembers and Euan Beaton accepts (though he
thinks it happened at the beginning of the day rather than later), this would
have left less time for other matters.
Further, had all the Risk Improvement requirements been discussed and
agreed before Mr Lawson left, there would have been little scope for Euan
Beaton to have challenged any particular requirement when he received the Risk
Improvement sheets a few weeks later.
Yet, as will be seen, he did respond robustly to some of the
requirements in the Risk Improvement sheets, and insurers accepted his
comments.
[48] I think it very likely that the question
of alarms was mentioned when Mr Lawson visited Mintlaw. Since the systems in the two buildings
differed from each other, it is likely that Mr Lawson spoke about the alarm
system in each building to the person accompanying him in that building. In the case of the new building, that may
have been Euan Beaton but, on balance, I think not. In the case of the old premises it was
probably Mr Middleton. It is possible,
indeed I think it likely, that the question of alarms was mentioned again at
the meeting at the end of the inspection.
But having considered the evidence carefully, I do not think it likely
that specifics were mentioned. I suspect
that at that post-inspection meeting there was no more than a quick run through
of the various headings that Mr Lawson had made in his notes without much
elaboration on any particular point.
Taking the evidence as a whole, it does not seem to me that the evidence
establishes that the risk improvement requirements relating to upgrading the
intruder alarm at Premises B were discussed with Euan Beaton at any time during
Mr Lawson's visit to Mintlaw.
[49] I have said that Mr Lawson's lack of
detailed recollection of what was said and done at the time of his visit is
entirely understandable. It seems to me
that, if my assessment of what happened on that day is anywhere near the mark,
Euan Beaton's lack of detailed recollection about the visit is also
understandable. From his point of view,
nothing of great significance was done or said.
This seems to me to accord also with his initial reaction of puzzlement
on receiving the Risk Improvement sheets when they were sent to him.
(xi) Risk
Improvement sheets sent to the pursuers
[50] On 25 April 2003, the defenders sent the
Risk Improvement sheets for Premises B and C to the pursuers. Already, by that time, some nine of the
thirty days allowed by underwriters for compliance had passed. There is some uncertainty as to whether the
third page of that relating to Premises C - which contained two "Recommendations"
in addition to the earlier "Requirements" - was sent to the pursuers. Euan Beaton said that he did not recall
receiving three sheets for the risk improvements relating to Report 2003/289. There is some support for that in the fact
that the last sheet does not appear anywhere in the defenders' main files, nor
is there a copy containing the type of annotation which Euan Beaton made on the
other sheets against each point. The
point is ultimately not of great significance, since it relates to Premises C
rather than to Premises B.
[51] The pursuers did not receive copies of the
survey Reports; nor did they receive a copy of the letter from Woodbrooks to
the defenders which identified which Risk Improvement sheets related to which
building. In the pursuers' case on
Record, there is criticism of Mr McCombie for not sending the Woodbrooks
covering letter, for had this letter accompanied the Risk Improvement sheets
there would have been no room for doubt as to which sheets related to which
building. This criticism was not pressed
and rightly so, since Mr McCombie gave evidence that it would have been unusual
for an insurance intermediary to forward to his clients letters received from
underwriters. However, the fact remains
that when the Risk Improvement sheets were sent to the pursuers, there was
nothing sent to them to spell out in simple terms which building each sheet
related to.
[52] Mr McCombie's letter to the pursuers of 25
April 2003 reads as follows:
"I refer to the recent survey
carried out by Mr Lawson at your premises and have now received a note of the
Risk Improvements that have to be carried out at both premises, situate Station
Road.
I confirm that they have given 30
days for the Risk Improvements to be complied with and perhaps you could telephone
me once you have had a chance to study the details of the report. I would welcome your comments on whether all
aspects of the report were discussed with you at the time of the survey, and/or
whether all requirements can be complied with given the time scale."
The
"report" referred to in the second paragraph of the letter is the note of risk
improvements (i.e. the Risk Improvement sheets) rather than the Report prepared
by Mr Lawson for underwriters. The
30-day time limit is referred to without any indication that only 21 days
remained for compliance. However, the
possible need for an extension was taken up by Mr McCombie with Woodbrooks, to
whom he wrote on the same day, informing them that he had passed on the Risk
Improvement sheets to the pursuers and stating that, because of the number of
improvements required, it might be necessary to try to negotiate a short
extension to the 30-day limit.
[53] It is not clear whether Mr McCombie got
any response from the pursuers to his letter enclosing the Risk Improvement
sheets. A note from an assistant on a
copy of the letter reads: "Have we heard from Euan Beaton?" Euan Beaton said in evidence that he thought
he had telephoned Mr McCombie to say that he was not comfortable with the Risk
Improvement Sheets and was not sure which was which. Whether in response to this or by some other
means, a meeting was arranged.
The
meeting of 20 May 2003
(i) The
meeting
[54] The meeting took place on 20 May 2003 at
the Mintlaw premises. Only Euan Beaton
and Mr McCombie were present. They went
through the Risk Improvement sheets together.
In the course of the meeting Euan Beaton annotated the Risk Improvement
sheets with comments about what had been done or would be done, or, in some
cases, would not be done. He gave Mr
McCombie a copy - or the original, it does not matter which - to take away with
him.
(ii) Subsequent
discussion with underwriters about risk improvements
[55] On 22 May 2003 Mr McCombie wrote to
Woodbrooks. He enclosed with his letter
copies of the risk requirement sheets as annotated by Euan Beaton. In the letter he set out his own summary of
the pursuers' position. He had not
spoken to Euan Beaton since the meeting.
Nor, as appears from para.[65] below, does it appear that he took any
notes of his own at the meeting. His
summary must therefore have been derived from his discussions with Euan Beaton
at the meeting, no doubt prompted by the copies of the Risk Improvement sheets,
as annotated by Euan Beaton, which he had taken from the meeting. He did not in terms identify in his letter
which sheet related to which site, but he set out the sheets and the individual
requirements sequentially. Under
reference to point 6, he simply wrote the word "Completed".
[56] On 28 May 2003 Woodbrooks replied saying
that underwriters had found the pursuers' comments acceptable, and looked
forward to hearing further in respect of the outstanding requirements. That letter appears to have been mislaid by
the defenders with the result that they did not reply. Woodbrooks wrote to the defenders again on 24 June 2003 saying that they were
awaiting confirmation "that the remaining Survey Risk Improvements have been
carried out" and looking forward to "receiving you advices within the next 7
days, otherwise terms will be imposed".
Mr McCombie wrote back on 26 June 2003 stating that "the two outstanding
recommendations ie, Numbers 2 and 12 have still not been completed". These recommendations were in respect of
Premises C, though the letter does not say so.
He went on to mention alterations being made to the new plant room,
which were taking longer than expected, and the fitting of a new fire alarm
system, a level 1 with Red Care. Again,
these matters related to Premises C, though the letter is silent on that. He asked the insurers to bear with the
pursuers while these matters were being finalised.
[57] On 23 July 2003 Woodbrooks sent the policy
documentation to the defenders. Certain
errors were pointed out and amended policy documents were sent out on 6 August 2003. There were further small corrections to the
documentation made at a later date
(iii) The
principal dispute about the meeting
[58] What happened at the meeting was the
subject of conflicting evidence from Euan Beaton and Mr McCombie. It is not disputed that, when the meeting
began, Euan Beaton was confused as to which sheets referred to which premises
at Mintlaw. Mr McCombie maintained, in
his evidence, that he quickly cleared up that confusion. Euan Beaton, on the other hand, insisted that
Mr McCombie had been unable to clarify the position. He said that at the end of the meeting he was
still unclear, and Mr McCombie knew this.
This chapter of evidence is at the centre of this litigation. It is, therefore, necessary to consider it in
some detail and make findings of fact.
(iv) Euan
Beaton's evidence
[59] Euan Beaton's evidence in chief was that
he read Mr McCombie's letter of 25 April 2003 and the attached Risk Improvement
sheets but the "code" at the top, i.e. the RMS Report numbers, did not mean
anything. He was not sure which sheets
related to which site. A meeting was
arranged for him and Mr McCombie to go through the sheets. This was the meeting of 20 May 2003. The meeting took place in the boardroom at
Mintlaw. Mr McCombie had not brought his
own copy of the Risk Improvement sheets with him. They went through the sheets together. There was some discussion about which sheets
related to which building, but the uncertainty remained and Mr McCombie was
unable to clarify the position at the meeting.
In relation to the various items on the sheets, Euan Beaton said what
action he had taken to date and annotated the sheets with comments. At the end of the meeting he photocopied the
sheets with his annotations on them and gave them (or a copy) to Mr
McCombie.
[60] He was taken in his evidence through each
of the items on the Risk Improvement sheets.
Dealing first with that referenced to RMS Report No 2003/288, he said
that when he went through the items with Mr McCombie, he took item 1 to relate
to both buildings. At the end of the
first paragraph, which called for the pursuers to arrange inspections of the
electrical systems, he wrote: "No. 1 Buckie to send". This referred to the electrical contractor in
Buckie. Items 2 and 3 had seemed to him
to relate to both premises. He wrote
"Done" against item 2 and the first paragraph of item 3, and put a tick and the
words "Disposed of" by the second paragraph of item 3 relating to LPG torches. They had LPG torches in both factories. Euan Beaton said that he had thought that
item 4 referred to the new site (Premises C) where the perimeter fence did not
allow storage of pallets 9 metres away from the building. In manuscript by this item he changed the "9"
to "3" and added the comment: "But storage of pallets + box kept to a
minimum". He said that item 5 could have
related to both sites and he ticked it to indicate that the leaks would be
dealt with. He had thought that item 6,
which concerned the requirement for a NACOSS approved central station BT
RedCARE intruder alarm system, related to the new site. He wrote the word "Done" with a tick against
that item, since the alarm system in the new factory did comply, and underlined
the words "RedCARE system". By item 7,
which clearly related to the old site, he wrote "Noted".
[61] Turning to the Risk Improvement sheets
relating to RMS Report 2003/289, Euan Beaton said that he had thought that item
1 related to both sites. He ticked each
paragraph. Items 2, 3, 4 and 5 related
to the new site. Against item 2 he had
written the words "Not done yet, 2 weeks", indicating that it would take about
two weeks to stop up the holes in the masonry walls. By items 3 and 4 he had written the word
"Done"; and he had simply put a cross by item 5. He ticked items 6, 7, 8 and 9, thinking that
item 7 related to the new premises, and that items 6 and 9, and possibly 8,
related to both. Item 10 related to the
new premises, but he had not been willing to do this. He had written: "Not done - won't be
done". By item 11, which also related to
the new premises, he had written "J.Mc." to indicate that Mr McCombie was going
to check what the insurers' requirements really were in this regard. Item 11 related to the new site. He had not known whether the system had the facility
for individual access codes and wrote "t.b.c" against this item, meaning "to be
confirmed". He thought that item 13,
concerning a movement detector, applied to the old premises. He wrote the word "Done" against it.
[62] It was put to Euan Beaton in
cross-examination that it was obvious that Report No 2003/288 related to the
old premises and that Report No 2003/289 related to the new. His answer was that with hindsight it
was clear that that was so (though there were still items in each which appeared
to cross over to the other), but at the time it was not clear. Even Mr McCombie did not understand which was
which. At the time they did not did not
pick up the features which made it obvious.
They thought parts of each report related to the old or new premises, or
both. They were both blind to the
obvious. Hindsight was a great
thing. What is obvious now was not
obvious then.
[63] Euan Beaton was asked how he could have
thought that item 6 on the Risk Improvement sheets referenced to Report No 2003/288
could have related to the new premises since, by the time of the survey, a
NACOSS central station BT RedCARE intruder alarm had already been installed in
the new premises.. Again he accepted the
logic of the position. But he insisted
that he had thought that the requirement related to the new site - otherwise
why would he have written the word "Done"?
He said that when the meeting ended it was left that the uncertainty was
to be clarified by Mr McCombie. In the
event, Mr McCombie never came back to him about this, and Euan Beaton did not
chase him up. He said: "I believed I had
done everything."
[64] He was taken through other items on the
Risk Improvement sheets. It is not
necessary to set this out in detail.
Again, in relation to a number of items, Euan Beaton accepted that it
was now clear that each set of Risk Improvement sheets related to a different
site. An example is the reference to the
LPG torch in item 3 of the Risk Improvement sheets relating to Report 2003/388
and in item 4 of the sheets relating to Report 2003/289. Certain items, such as item 11 on Report
2003/289, clearly only related to one of the sites. He also agreed that it would be most unusual
for a surveyor to produce two reports, in each of which some items related to one
building and some to another. But that
was not how he or Mr McCombie thought of it at the time.
(v) Mr
McCombie's evidence
[65] Mr McCombie did not have a note of the
meeting. He said that it was his normal
practice to take a note and put it in his file.
If there was no note in his file, and there was not, it probably meant
that he had not taken one. He had not
taken his file with him to the meeting and therefore did not have Woodbrooks'
letter of 16 April 2003 to hand. They
had worked from Euan Beaton's copies of the Risk Improvement sheets. He accepted that, when the meeting began,
Euan Beaton had been confused as to which premises the various points on the
Risk Improvement sheets applied to. His
evidence was that he clarified this at the meeting. He had told Euan Beaton that the sheets with
"288" on them referred to the old building and those with "289" on them
referred to the new. He recalled that
there had been a requirement to do with zone protection in the premises. This was to do with staff using the offices
at night. This was a reference to item
11 on the Risk Improvement sheets for 2003/289.
The only offices in use were those in the new premises. It followed that that Risk Improvement sheet
related to the new premises. He had no specific
recollection of correcting Euan Beaton's belief that item 6 on the Risk
Improvement sheets for 2003/288 related to the new premises. In fact he had no recollection of any
discussion about item 6 or about RedCARE.
He denied that the meeting was adjourned so that he could go away to
sort out the confusion. He did not need
to check his file after the meeting to clarify which sheets related to which
premises. Any initial confusion had been
resolved at the meeting. In
cross-examination, he added that if he had needed, or been asked, to go away to
clarify the position, he could easily have done so and would have got back to
Euan Beaton on it. He would not simply
have ignored such a request. That would
have been grossly irresponsible.
[66] He was taken through the points in the
Risk Improvement sheets for Report 2003/288.
With reference to point 1, he accepted that both premises had electrical
systems. He did not know which building
had the portable fire extinguishers referred to in item 2. He did not know whether the points made in
item 3 referred to the old or the new premises.
He did not recall the discussion about item 4 which led to Euan Beaton
deleting the figure "9" and replacing it with a "3". Under reference to item 5, he did not know
that a section of the roof needed repair.
Item 6 contained the reference to NACOSS approval of the intruder alarm
system. He could not recall whether or
not, at the time, he had been aware that the new premises already had what was
required in item 6. As far as he was
aware, the alarm system at the old building was not NACOSS approved. He did not think he had been aware of either
building having BT RedCARE, though there were a lot of changes going on at the
new premises. He said that item 7 could
not apply to the new premises.
[67] He was then taken through some of the
items in the Risk Improvement sheets referenced to Report 2003/289. Item 1 dealt with composite insulation
panels. He said that he was told that
they had been removed from the old premises, but he had not re-visited the
premises since January 2002. Item 11 was
the one which fixed in his mind that these Risk Improvement sheets related to
the new premises. Against item 10 Euan
Beaton had written: "Not done - won't be done".
He could not recall this from the meeting. If asked about it now, he would say it
referred to the new premises.
[68] In cross-examination, he again confirmed
that there had initially been confusion in Euan Beaton's mind as to which Risk
Improvement sheets referred to which premises.
He had cleared up the confusion by reference to item 11 on the Risk
Improvement sheets referenced to Report 2003/289. He did not recall whether this clarification
had occurred at the beginning of the meeting, or only when they reached that
point on that Risk Improvement sheet. He
was asked to clarify what had been his understanding at the time of the meeting
of the alarm at the old building. He
said that at the time of the meeting, his understanding of the alarm system at
the old premises had been that it was central station. He would not have known that it was NACOSS
approved. He had not been told that it
was anything other than non-NACOSS. He
could not remember what Euan Beaton had told him at the meeting, but he had
come away with the understanding that the required upgrading had been
done. In re-examination he said that it
was in May 2003 (which I took to refer to this meeting of 20 May 2003) that he learned that the old
premises had been upgraded to NACOSS. Mr
McCombie was adamant that it would not have made sense for Euan Beaton to think
that item 6 related to the new premises, since the new premises already had a
BT RedCARE system.
(vi) Discussion
of the evidence and conclusions about the meeting
[69] Although there is further evidence
affecting the assessment of what happened at the meeting, to which I shall
refer below, it is appropriate that I should now set out my conclusions about
the main points in dispute.
[70] I have formed the clear view that, in the
main, Euan Beaton's evidence about the meeting is to be preferred to that of Mr
McCombie. My reasons for preferring his
evidence can be stated fairly briefly.
[71] In my opinion, it is useful to start by
recognising the fact that, when the meeting began, Euan Beaton was confused as
to which items on the Risk Improvement sheets related to which premises. Mr McCombie accepted in evidence that Euan
Beaton had been confused then. That
confusion is not entirely surprising, particularly since, as I have found
earlier, there was no thorough and systematic discussion of Mr Lawson's
recommendations and requirements at the end of the survey. It may have been this confusion which
prompted Euan Beaton to telephone and suggest a meeting, if this is indeed what
happened. Whether or not that was what
prompted the meeting, the fact is that there is no doubt not only that Euan
Beaton was confused but also that Mr McCombie was aware of that fact. Therefore such part of the cross-examination
as was designed to challenge Euan Beaton on this - by pointing out, for
example, that he had had the documentation for some time and had not raised any
questions about it before the meeting - was beside the point, even if factually
correct. So also was cross-examination
designed to show that he ought to have realised which sheets related to which
building - a proposition which, in the cold light of day, Euan Beaton
accepted. This point might well have
been relevant to inform a submission that it was highly improbable that Euan
Beaton was confused; and, further that, even if Euan Beaton was confused, Mr
McCombie could not be criticised for not realising it. However, these are not live issues so far as
concerns the beginning of the meeting at least, since Mr McCombie both accepted
that Euan Beaton was initially confused and also accepted that he was aware of
this initial confusion.
[72] It is also necessary, in considering
different accounts of the meeting, to bear in mind that Risk Improvement sheets
were sent by the defenders to the pursuers without any covering letter saying
which sheets related to which building.
The pursuers correctly did not press their case that the defenders were
negligent in not forwarding to the pursuers the letter from Woodbrooks dated 16 April 2003. That letter set out in black and white which
sheets related to which building. But I
find it surprising that, if the defenders, for whatever reason, preferred not
to pass on Woodbrooks' covering letter, they did not send some letter of their
own explaining in a straightforward manner which sheets applied to which
building. I cannot help thinking that if
they had done this none of the problems that are at the centre of this
litigation would have happened. The Risk
Improvement sheets were marked only with the RMS Report number. In the absence of some covering letter
saying which was which, the recipient had to try to work it out for
himself. However easy it may seem now to
work out which was which, I can well understand that it might not have seemed
so obvious then. A likely reaction on
part of Euan Beaton would be to take a quick look at the documents, form a view
that they were confusing, telephone Mr McCombie and suggest a meeting, and not
go back to the documents until the meeting.
This is probably what happened.
It is certainly consistent with him having been confused at the
beginning of the meeting.
[73] It is not at all clear how the meeting
went. I did not gain the impression from
the evidence that there was a discussion at the beginning of the meeting to try
to resolve the uncertainties. Mr
McCombie said at one stage in his evidence that he clarified everything at the
beginning. I do not accept this
evidence. Many of the items which, with
hindsight, might have made it clear which sheet related to which building came
later on in the sheets. I was
particularly struck by the fact that it was item 11 on the Risk Improvement
sheet for Report 2003/289 which Mr McCombie thought made the position clear
beyond all doubt. On further
questioning, Mr McCombie could not be sure when they had reached this
item. I think it most likely that Mr
McCombie and Euan Beaton simply sat down together and went through the Risk
Improvement sheets item by item. They
would have approached the items in the sheets without necessarily asking on each
occasion which building the item applied to. I doubt that sufficient attention
was paid to the question. Comments would
have been made about each item on the basis of assumptions that the item
applied to one building or to the other.
In most cases, it probably seemed clear.
[74] Item 6 on the Risk Improvement sheets for
Report 2003/288 is, of course, crucial to the present dispute. I am satisfied on the evidence that when
considering and commenting on this item, Euan Beaton did so on the basis that item
6 was referring to the intruder alarm system at the new building. His comment "Done" is explicable on one of
two bases. One is that he was lying to
insurers, hoping there would be no fire and he would get away with it. The other is that he believed that the
question related to new premises. I
prefer the latter explanation, for two reasons.
First, I found him to be an honest witness in this as in other respects. I believed his explanation. Secondly, I did not see what motive he would
have to lie in this form. It would not
have cost an enormous amount to restore a telephone line to the old premises
and to link the intruder alarm there to a central station. It might have cost more than the few hundred
pounds which Euan Beaton mentioned in evidence, but probably not more than two
or three thousand. Although he was not
an insurance specialist, it seems to me that Euan Beaton knew enough about
insurance to be fully aware that a lie about something like this would put his
whole insurance cover at risk, not just for the old building but for the new
building as well.
[75] I consider that at this stage of the
meeting, when item 6 on the sheets relating to Report 2003/288 was discussed,
Mr McCombie also assumed, without necessarily thinking very carefully about it,
that it referred to the new premises.
From his point of view, the comment "Done" made sense in this
context. Ever since his inspection in
January 2002 he had thought that the alarm at the new premises needed
upgrading. But he had never found out
that the upgrading had been done. The
matter was raised in his letter of 22
February 2002 (as to which, see para.[24] above). There was a question raised about it, at
least within his office, in July 2002 (see para.[25]). He was still uncertain in the lead up to the
meeting of 18 February 2003,
as is shown by point 4 of the note of "Outstanding matters" (see
para.[30]). And there is no note of it
having been discussed at that meeting of 18 February. So the query as to whether the system at the
new premises had been upgraded was still unanswered. On the other hand, there was no live question
about the old premises - he had never been told that the system there had been
downgraded. Against this background, Mr
McCombie would have been justified in thinking (absent other information) that
the requirement in item 6 for the intruder alarm system to be upgraded was a
requirement that applied to the new premises, not the old. It is true that he was probably aware that
the system at the old premises was not BT RedCARE, and he may still have had
doubts about whether it was NACOSS approved.
To that extent, part of the requirement in item 6 might have applied to
the old premises. But the language of
item 6 does not suggest that the surveyor is talking of an upgrade to an
already existing central station system.
If Mr McCombie had thought that item 6 applied to the old premises, he
would have been surprised by Euan Beaton writing "Done". It would not have made much sense. I would have expected this to have led to a
full discussion at which the downgrading of the alarm system at the old
premises would have been brought to light.
There is no evidence that this happened.
It would surely have been reflected in subsequent correspondence if it
had. Instead, when Mr McCombie passed on
Euan Beaton's comments to Woodbrooks, he simply wrote "Completed".
[76] In summary, I find that when Euan Beaton
put the word "Done" against item 6 of the Risk Improvement sheets relating to
Report 2003/288, he did so in the belief that that item was directed towards
the intruder security system in the new premises, and not that in the old
premises. Mr McCombie shared this
misunderstanding. Whether, when they
reached item 11 on the sheets relating to Report 2003/289, there was some realisation
of the confusion under which they had been labouring, I cannot say. But they clearly did not go back to the items
which had been discussed previously. In
particular, they did not re-visit item 6 of the sheets relating to Report
2003/288. Mr McCombie left the meeting
with a note of the comment made by Euan Beaton against that item which was made
under a misapprehension as to which building the item applied to. I do not think that Euan Beaton was right to
say that the meeting adjourned for Mr McCombie to go away and check the
position. That suggests rather too much
awareness of possibility that they had fallen into error. I cannot say whether, at any time before the fire
broke out, Mr McCombie realised that there had been this confusion. If he did, he certainly did not tell the
pursuers. He clearly had the means of
knowing that item 6 related to the old premises, since he had the letter from
Woodbrooks of 16 April 2003
which explained which sheets related to which site. It may be that he did not look at that.
[77] I should add that my conclusions as to
what happened at the meeting are fortified (a) by what Euan Beaton told the
loss adjuster immediately after the fire; and (b) by what Mr McCombie said in
certain items of correspondence written after the fire. I refer to these matters in paras.[96] and
[98] below. Meanwhile I should note that
these findings conclude the issue of negligence in favour of the pursuer.
Renewal
in 2004
[78] A renewal invitation was sent to the
defenders on 22 January 2004. By this time the pursuers had installed a
Chubb PS1 System Automatic Fire Alarm in Premises C, linked to central station,
and this was notified to insurers. This
resulted in a reduction of the premium for fire cover for the 2004
renewal. Renewal terms were notified to
the pursuers on 12 February 2004. The terms and conditions were the same as the
previous year.
The
break-in at Premises B
(i) Outline
narrative
[79] Early in the morning of Sunday 7 March 2004, intruders entered the old
factory at Mintlaw (Premises B) and caused damage to the cold store. A blast freezer within the premises was
switched off and the doors left open.
The intruders were picked up on CCTV.
One of them was an ex-employee.
He was prosecuted and convicted.
The pursuers made no claim on their insurance in respect of this
incident.
[80] According to the pursuers, the intruders
gained entry to the factory by ramming one of the roller shutter doors with a
forklift. One of the pursuers' forklifts was found abandoned in a field. The pursuers took steps immediately after
that weekend to have the roller shutter door replaced. Euan Beaton gave evidence that he contacted
the Garage Door and Gate Company on the morning of Monday 8 March 2004, the morning the break-in was discovered,
and obtained a quotation from them for the supply and fitting of a replacement
door. The quotation was referred to in
evidence. He accepted that quotation on
the same day by writing on it and faxing it back. At the foot of his acceptance he wrote:
"Please fit new door a.s.a.p." He was
given an estimate of seven days for the new door to be fitted. In the meantime, the pursuers secured the
premises by placing large plastic containers or bins in the opening. These were 600 litre containers, each about a
metre wide and a metre in height. Two of
them side by side blocked the opening and two more were placed on top. Each container was filled with water to make
in more difficult to move. The damaged
roller shutter door was rolled down to meet the top of the stack of
containers. It was a tight fit. A person could not walk in past the
containers. In the week following,
whenever they needed to obtain access through that opening, the pursuers would
go into the factory by another door - the only door which could be unlocked
from the outside - and release the roller shutter from the inside. They could then move the containers with a
forklift.
[81] The defenders disputed the part of this
account relating to the means of entry into the premises. They maintained that the roller shutter door
had been damaged much earlier than that.
It was suggested that the vandals had gained entry on 7 March 2004 without having to force entry into
the premises. They were not charged with
or convicted of forcible entry. They
were charged only with maliciously entering an insecure building and taking a
forklift.
(ii) The
evidence
[82] The pursuers' evidence on this issue came
initially from Euan, Paul and Fergus Beaton.
Paul Beaton said that he went to the site after being called by
Fergus. A forklift had been used to
damage the door. The CCTV footage of the
new factory showed the forklift being taken from that building. He said that the roller shutter door had been
damaged then. There had been no damage
to the door on any previous occasion.
Euan Beaton said that the intruders had set off the alarm but it was
then silenced. Fergus Beaton confirmed
that he was not aware of any prior damage to the door.
[83] The defenders led evidence from two police
officers. PC Anderson arrived at the
Mintlaw premises at about a quarter past two on the morning of 8 March 2004. He said that he met Paul Beaton there. Paul Beaton told him that that someone had
tampered with a forklift at the new premises and had switched off a freezer
unit in the old. He and Paul Beaton went
to the old factory and saw the blast freezer.
He was not looking for any damage to the factory doors. Paul Beaton did not complain that the door
had been forced. If Paul Beaton had made
such a complaint, he would have investigated for evidence of
housebreaking. He had not asked which
door they had entered through, or even whether that door was a door for
vehicles or pedestrians. He took a
statement in his notebook from Paul Beaton which Paul Beaton signed. I was given a photocopy of the statement and
a transcript. At one point the statement
says: "entry into the old premises was not restricted. I doubt the door to the old premises was
closed or secure." He had understood the
door to the old premises to have been open.
He had spoken to Paul Beaton about this.
Paul Beaton had said that there were technical difficulties with the
door which prevented them securing it.
[84] DS Crowther did not attend at the time of
the break-in but did so after the fire a week later. He then took over responsibility not only for
the fire but for the incident of 7 March as well. His understanding was that there had been
three youths in the curtilage of the Mintlaw premises. They had driven the forklift. They had also turned off the blast freezer in
the old building. He had not learned of
any damage being caused to the door of the old building and the incident was
not viewed as one of forced entry - rather it was viewed as one of the youths
walking in through an insecure door. He
made the report to the Procurator Fiscal on the basis of which the complaint
was laid against the three accused. They
pled guilty to the first charge, that of maliciously entering an insecure
building, and the second charge was not insisted on. There was no allegation of forced entry
because there was no evidence to that effect.
He learned that, after the incident, the pursuers had taken steps to
block the door with large bins full of water.
The bins had not been there on 7
March 2003. Asked about his
understanding of what had been the condition of the roller shutter door on 7 March 2003, he said that he had been
informed that it would not close properly.
He said that he had spoken to three directors of the pursuers. They had all told him that the roller shutter
door had been damaged previously. The
bins had been placed there after the incident on 7 March and the gap had been
stopped up as best they could. On the
night of the fire, the fire was deliberately started by an intruder or
intruders who appeared to have entered the old building through the opening
left by the damaged roller shutter door.
Two bins were found lying on their sides with the water emptied from
them. The bins had plugs in them. In cross-examination he said that he had spoken
to Mr Scott. Mr Scott had not told him
how long the door had been damaged for.
What he had was information that a uniformed constable had taken from Mr
Warner, as well as PC Anderson's report on the computer system. He took the fact that the door had been
damaged before 7 March 2003
from PC Anderson's report. It was not
part of his enquiry. He was
concentrating on the fire and what had caused it.
[85] Paul Beaton was recalled to answer
questions about the statement he had made to PC Anderson. This statement had not been put to him in his
earlier evidence. Under reference to the
remark in the notebook that "entry into the old premises was not restricted",
he said that he could not understand why PC Anderson had written this - at the
time of the break-in, entry would have been restricted. Nor did he tell PC Anderson: "I doubt the
door to the old premises was closed or secure"; though it was possible he had
said something like: "I doubt the door will be able to close." The notebook recorded him saying: "The door
to the plant room is not secure." This
did not make sense, since this was an internal door. It was irrelevant to the question of an
intruder obtaining access to the building.
Paul Beaton expressed the view that the uniformed officer (PC Anderson)
did not appear to be interested in whether entry had been forced. Indeed, he did not appear to be interested in
the incident as a whole. He did not
recall reading over the statement before signing it. His main concern was with whether the product
in the old building was damaged beyond economic loss.
[86] In response to the defenders' reliance on
the statement made to PC Anderson, the pursuers adduced evidence from David
Anderson, a farmer who had diversified into the business of re-cycling shellfish
shells. He was not an entirely
independent witness, since he was the father in law of Euan Beaton. Nonetheless, it was not suggested that his
evidence was not given honestly. He had
collected shells from Mintlaw for some time.
He would collect more or less every weekday. When there were enough shells to be
collected, he would get a call from the factory telling him which building to
go to. He would take a tractor and trailer. If he was going to the old building, there
were sometimes people there when he arrived and sometimes not. If there no one was there, he would go in by
the side (pedestrian) door and pull up the roller shutter door from the
inside. He confirmed in cross-examination
that the side door would be unlocked. He
did not have a key. He did not have to
de-activate any alarm when pulling up the roller shutter door. The opening was large enough for the forklift
to go through. The forklift would be
used to load the shells onto the trailer parked outside. Loading would take about 35 minutes. Invoices and uplift notes for the period from
February through to April 2004 showed uplifts in March both before and after
the weekend of the break-in. Mr Anderson
recollected that, early in the week before the fire, he received a telephone
call from the pursuers to lift shells from the new factory. In the course of this telephone call he was
told that they had stopped storing shells in the old factory because the doors
had been damaged. In cross-examination,
by reference to the details on the relevant uplift notes, he identified the
telephone call as having taken place on Tuesday
9 March 2004. That was the
first uplift that week. Until then he
had never had any difficulty opening the roller shutter door. The uplift notes did not say which premises
the shells were taken from on each trip, but in the course of each week he
would, until then, routinely have been at both premises.
[87] The pursuers also called John Warner, an
employee who had worked at pursuers' factory for over ten years. He had previously worked at the MacDuff
premises. He worked a twelve hour shift
from 6 a.m. to about 6 p.m. Monday to Friday and a shorter shift
from 6 a.m. until noon on Saturday.
With reference to the break-in, he said that, when he turned up for work
on the Monday morning, he had gone to the freezer facilities in the old
building and found that the main door had been pushed inwards. A forklift had been abandoned on the ground
near the new building. He had not spoken
to the police until after the fire a week later. He had not told the police that the damage to
the door had occurred earlier. It was
damaged in the week before the fire. He
accepted in cross-examination that, on the occasion he had spoken to the police
after the fire, he might have told them that the door had been broken for some
time and that the opening had been blocked by bins. If so, he would have been referring to the
fact that it had been broken for a week.
It had not been broken for longer than that. It was a cast iron roller door. The damage was obvious. Someone had tried to force entry by means of
the door.
(iii) Discussion
of the evidence and conclusions
[88] I am persuaded on the evidence that the
damage to the roller shutter door happened on the weekend of the break-in. There was no reason, in my opinion, to think
that any of the witnesses was doing other than trying to assist the court as
best he could. The defenders naturally
relied upon the evidence of the two police officers. I do not think much of value can be taken from
the evidence of DS Crowther. He attended
a week after the break-in and his attention was on the fire. Any understanding by him that the door had
been damaged earlier could have referred simply to the previous weekend. His understanding about when the door was
damaged was, on his own admission, taken from PC Anderson's report. However, although PC Anderson attended the
site immediately after the break-in was reported, he carried out no
investigation into the means of entry into the building. It appears that he was not asked to do
so. The pursuer's main concern at the
time was about whether the stock was damaged rather than how someone entered
the premises. The remarks that PC
Anderson took from Paul Beaton do not, in my opinion, point clearly to an acceptance
by him that the premises were not secured before the break-in. Nor do I take Mr Warner's remark, made after
the fire, that the door had not been secure for some time as necessarily
meaning that they were not secure at the time of the break-in. Mr Anderson's evidence of collecting shells
from the site is inconsistent with the damage having occurred earlier than the
weekend of the break-in. The pursuers'
account is supported by inferences to be drawn from the fact that the intruders
had moved a forklift from outside the new premises (even though there was no
footage of it having been used to damage the door); and from the evidence,
which I do not think was challenged, that the intruder alarm had been set off
by the break-in. The most persuasive evidence,
however, in support of the pursuers' case is the fact that it was on the Monday
after the break-in that they took urgent steps to obtain a new door and have it
fitted. Had the door been damaged
previously I cannot see why the steps to replace it would not have been taken
earlier.
The
fire on 13 March 2004
[89] Early on the morning of Saturday 13 March 2004 a fire was started at
the old factory (Premises B) at Mintlaw by a person or persons unknown. There is no suggestion that the pursuers
deliberately started the fire. Evidence
about what happened is relevant only to the question of how the intruders
entered the premises and how frequently employees of the pursuers visited the
old premises during the night.
[90] Euan Beaton heard about the fire by way of
a call from his brother Fergus just before six
o'clock that morning.
According to his evidence, there were about five employees working at
Mintlaw that night. The nightshift
supervisor was Frank Scott. He was
overseeing the prawn peeling in Premises C but was also responsible for the
blast freezer in Premises B. Mr Beaton
said that Mr Scott would be going backwards and forwards between the two
buildings the whole time. In this
respect the routine was no different from that which obtained during the day.
[91] Frank Scott gave evidence that he was the
supervisor in charge of the prawn peeling machines in the new building. At the time of the fire, he and about ten
others had been working on the nightshift.
He was mainly in the new building but would go to the old building from
time to time to check temperatures in the cold store and the blast
freezer. He visited the old building two
or three times that night. This was
fairly normal. The premises were in use
six days a week, twenty-four hours a day (I took the twenty-four hours a day to
refer to Monday to Friday, but not Saturday when a shorter day was
worked). He would walk from one building
to the other by way of the bridge linking the two sites. Sometimes he would spend five minutes in the
old building, sometimes two or three hours.
On the night of the fire his visits were short. He discovered the fire when a lady who had
been walking her dogs came in and said there was a fire in the old
building. He went and saw. He met Fergus Beaton and the engineer, Bob
Middleton. He looked all round the
building but saw nothing odd. The only
door that was damaged was a vehicle door which was blocked off with big skips
filled with water. He did not notice if
the skips had been moved.
Insurers'
repudiation of liability
(i) Discussions
with loss adjusters
[92] A loss adjuster, Mr Jackson, came to the
premises at Mintlaw on the Sunday after the fire was discovered and carried out
an inspection of the premises. One or
more meetings took place in the boardroom of the new premises between Mr
Jackson, Euan, Fergus and Paul Beaton and Mr McCombie. It seems likely that the alarm at the old
premises was discussed. It was put to Euan
Beaton in cross-examination that at one of these meetings he said that the
alarm had not been used for twelve months.
Euan Beaton denied saying this.
He said that what he would have told Mr Jackson was that the alarm was
not set every night since production was going on round the clock. It was only set when there was no one on
site. He also told Mr Jackson that the
telephone line had been moved to the new factory.
[93] Mr McCombie had heard of the fire on the
Saturday morning and dashed to the premises.
The Beatons were all there. He
then contacted the claims handlers. Mr
Jackson, the loss adjuster, arrived on the Sunday. Mr McCombie said that they all sat down in
the boardroom at the site and went through the basic details. There was a discussion about the alarm. He could not recall exactly how the question
was phrased, but Mr Jackson had asked what alarm there was and Euan Beaton had
replied: bells only. There was a
discussion about the line having been taken out when they moved premises. Mr McCombie said that he was stunned when he
heard this. His understanding had been
that it was a central station alarm at the premises, albeit that it was not
NACOSS approved. It had to be upgraded
after the survey. He said that he could
not recall Mr Jackson's reaction. He
thought that he had gone on to ask one or two questions about when the alarm
was downgraded. Mr Jackson was not
necessarily familiar with the warranties in the policy. Mr McCombie said that Euan Beaton had
commented that the alarm at the old factory had not been used for about 12
months. Mr Jackson had said something
about appreciating his honesty. This is
seems to me to be supportive of my conclusion that when, at the meeting of 20
May 2003, he wrote "Done" against item 6 of the Risk Improvement requirements
for Report 2003/288, Euan Beaton must have believed that that item referred to
the new premises. If he had written
"Done" against that item, knowing it to relate to the old premises and with the
purpose of deceiving underwriters into thinking that the old premises had a
fully upgraded RedCARE system when it had no such thing, why did he volunteer
to the loss adjuster at the first opportunity after the fire that the system at
the old premises was bells only? I
should add that Euan Beaton denied that Mr McCombie was "stunned" on hearing
that it was a bells only system: he said that he already knew it was bells
only. As to this point, I have found
that Mr McCombie did not know that the alarm at the old premises was bells
only. He may well have been stunned on
hearing that it was.
[94] There appears to have been some contact
between Mr Jackson and Mr McCombie over the next ten days or so. On 19
March 2004 Mr Jackson sent an e-mail to Mr McCombie saying that he
had now received underwriting papers and, although he had not had time to go
through them all, he had found two important matters which he wished
clarified. He asked Mr McCombie "to
discuss the queries with your clients".
The relevant parts of the e-mail read as follows:
"I have now received confirmation
that there is an alarm clause, number P17, which relates to a 'central station
system'. Your clients appear to be in
breach of this warranty for two reasons, it seems to be a bells only system,
and it had not been set. In fact we
understand that it had not been used for at least 12 months.
Under the general conditions,
number 1, warrants that all protections shall be in full and effective
operation when the business is closed for business. This was not the case as the roller shutter
door was not closed.
With regard to the first point as
you know the property was surveyed last year and they recommended an upgrade of
the intruder alarm that the insured confirmed had been done. I am puzzled as to why they confirmed that
the old site had a BTRedCare system, which they did on the Risk Improvements
Requirements sheet that was completed by Euan Beaton I believe.
The apparent breach of the general
condition is something that Underwriters will have to consider separately but I
would be grateful to learn as to whether they had been notified of the incident
and therefore the condition of the roller shutter door.
The photographs taken by the
surveyor seem to show an empty building and he refers to it being
unoccupied. Has this situation changed
since his survey and when. ...
It would be helpful to know what
the regular daily use of the building was i.e. the number of employees and
times of working, and what overnight visits were made in particular since the
malicious damage incident, were they increased.
I am sure there will be other
questions but these are the important queries at the present time."
Mr McCombie
gave evidence that he took instructions over the telephone from the pursuers on
these points and made notes in manuscript on the e-mail. By the first of the paragraphs quoted above,
he had written "possibly right". Euan
Beaton said that, if the comment was referable to the alarm not having been
used for 12 months, this must have been based on a misunderstanding. The alarm was set when the building was
unoccupied.
[95] Mr McCombie wrote to Loss Adjusters on the
same day answering their e-mail in the following terms:
"1. P17 alarm condition - central station system. It is agreed that this was a bells only
system and it is possibly right that it hadn't been used for at least 12 months
as Euan couldn't give a precise date.
2. We
note the general condition number 1, but it was impossible to close the door
due to the distortion of the roller shutter door and I enclose a fax which Euan
sent to the Garage Door Company accepting their quotation and as you will note
Euan even put at the bottom of the fax 'Please fit new door asap'.
3. With
regard to the survey last year, I confirm having discussed the point you have
made with Euan. When the letter was sent
to Euan with the survey requirements I
did not notice that the survey requirements did not contain the addresses
of each property and therefore from
Euan's point of view there would have been an element of confusion as to
which risk requirement referred to which property and as previously stated I
was not present at the survey and not party to what was discussed and agreed at
the time of the survey. Therefore Euan genuinely believed there
had been a misunderstanding in regard to the BT Red Care System and [his
response "Done"] was confirmation that the alarm at the new system was BT Red
Care because it was not evident from looking at the dial-up facilities. The situation is that the dial-up facility
alarm is contained near the entrance door for the workers and the BT Red Care
box is contained within the main offices.
I have noticed how under the survey requirements he has underlined BT
Red Care and says it has been done, of course this was done in 2001 as far as
the new site was concerned. ..." [emphasis added]
Two points
call for comment. First, under reference
to para.1 of the letter, Mr McCombie was pressed in re-examination as to his
recollection of how the "12 month" point arose.
He was asked whether 12 months might have been a reference to the period
since the system at the old premises had become bells only. He said that his recollection was that he was
referring to 12 months within which the alarm had not been used at all. As indicated above, Euan Beaton's evidence
was that if this was the case Mr McCombie had misunderstood what he had been
told.
[96] The second point is of more direct
importance. Under reference to what he
had written in para.3 of the letter, Mr McCombie said that when he had written
it he did not believe that Euan Beaton had been under a misunderstanding. He, Mr McCombie, was simply passing on what
information he had been given by Euan Beaton.
I do not accept this. It seems to
me to be clear that in this paragraph, and in particular in the passages which
I have italicised, Mr McCombie was accepting that his failure to identify which
report related to which site was a potential source of confusion. The statement that "from Euan's point of view
there would have been an element of confusion" and "therefore Euan genuinely
believed" would be misleading if, in fact, any confusion had been clarified by
Mr McCombie during the meeting. Mr
McCombie sought to explain this by saying that he was trying to do his best for
his client, but he would not have lied to help his client. If McCombie had removed any uncertainty at
the meeting, these statements, suggesting that there was a continuing
uncertainty, would have been lies.
(ii) Instructions
to counsel and consultation on 14 May 2004
[97] A decision was taken to
consult senior counsel in light of the insurers' repudiation of the claim. The purpose at this stage was to obtain
advice on the prospects of a successful claim against the insurers. Prior to a consultation being arranged, Mr
McCombie wrote to Peter Paterson of Tods Murray on 23 April 2004 explaining the
problem. The relevant part of that
letter is contained on p.2, where Mr McCombie sets out the pursuers' position
about the alarms and their understanding of what requirements in the Risk
Improvement sheets related to which site.
He said this:
"The situation was that in 2001
when our clients moved their offices from the old site to the new site they
took the telephone lines i.e. the telephone number, the fax number and also the
number for the alarm system to the new site and the alarm system which was
previously central station and was now used as bells only. The reason for this is that they felt that
the stock list was only г50,000 comprising chilled or frozen fish of no great
attraction and didn't have any machinery of any consequence.
The premises were surveyed in 2003
and I attach a copy of the requirements both for the old site and the new site
and although it does not specify an upgrade in the alarm you will note there is
no addresses on the reports and also the requirements are under the Theft
Section not the Fire and Perils Section.
Regretfully, I did not accompany the Surveyor because I was in London on
business and this is the first survey I have not attended in over 5 years. When the reports were sent from our office,
we did not point out that there were report numbers on the requirements and we
did receive a letter advising which report number related to which premises and
when I discussed the requirements with Euan Beaton the Managing Director of the
Company he was positive that the upgrade referred to the new site and not the
old site and because of the type of stock, etc. that was in the old site it was
not a requirement. I therefore advised
the Underwriters by sending back the survey requirement forms duly marked by Mr
Beaton. Indeed even the Surveyor was
confused because you will note in the correspondence from the Loss Adjuster, in
his e-mail there is some reference to the old site being unoccupied which was
never the case. ...
Our clients feel that there was
genuine confusion surrounding the requirements but in any event, irrespective
of the type of alarm that was within the premises that night, the alarm could
not have been operational as far as that contact was concerned on the door and
also in regard to General Condition 1 it was not physically possible to close
the door and they could not fix the door by any other means because it is one
of the main entrances and exists to the factory and as the premises were still
operational they had to have facility to open that door during that week."
[98] This letter, to my mind, is of the utmost
importance. It provides clear
confirmation of my impression of what happened at the meeting of 20 May
2003. It was a letter setting out the
facts as McCombie knew them, for the purpose of obtaining legal advice for his
clients. There was no purpose in not
setting out the true position. If when
writing to loss adjusters he might have felt justified in putting a gloss on
his clients' position, he could have felt no such need when writing this letter. In the letter, he refers to the fact that he
had had a letter (the Woodbrooks' letter of 16 April 2003) identifying which
report related to which premises, but that Euan Beaton did not have that
information. He then sets out how the
meeting started and progressed:
"when
I discussed the requirements with Euan Beaton the Managing Director of the
Company he was positive that the upgrade
referred to the new site and not the old site and because of the type of
stock, etc. that was in the old site it was not a requirement. I
therefore advised the Underwriters by sending back the survey requirement
forms duly marked by Mr Beaton. Indeed
even the Surveyor was confused ..."
[emphasis added]
I have
italicised certain parts of the letter which are clear statements of fact. The first is a statement that Euan Beaton was
under a misapprehension as to which sheets related to which premises: he "was
positive" that the upgrade related to the new site. He does not go on to say that he put him
right. On the contrary he confirms, both
by omission and by what he does say, that he did not put him right. The letter makes it clear that Euan Beaton's
misunderstanding continued through to the end of the meeting. Mr McCombie possibly shared that
misunderstanding. Whether this is so or
not, according to his letter he acted upon that misunderstanding in that he
"therefore" advised underwriters (viz. of Euan Beaton's response to the
requirement, which he knew was based on a belief that the requirement related
to the new premises) by sending back the survey requirement forms as
(mistakenly) marked by Mr Beaton. This
account is quite inconsistent with him having put Euan Beaton right; and
inconsistent with him having thought that when Euan Beaton wrote the word
"Done" by item 6 he knew that the requirement related to the old building. Mr McCombie gave an explanation that this was
a long complex letter and that errors would be made which he had not picked
up. If that explanation were correct, it
would reflect poorly on Mr McCombie's professional competence, since it would
mean that through carelessness he had put misleading information before lawyers
advising his clients. But I do not
accept it. In offering this explanation
it seemed to me that Mr McCombie was simply trying to avoid the obvious
difficulties into which this letter placed him.
It was neither very complex nor very long. He might not have proof read it - indeed that
seems quite likely having regard to the number of syntactical and other errors
- but that does not explain the content, which quite clearly states his own
recollection of what happened and does not just pass on the clients' position.
[99] The consultation took place on 14 May 2004
and was attended by Euan and Paul Beaton, Mr McCombie and Peter Paterson. It appears that there had been some breakdown
of communications as a result of which counsel had received only limited
documentation. Documents were produced
and considered during the consultation.
According to Euan Beaton, the critical point of the consultation was
when the letter of 16 April 2003 from Woodbrooks to the defenders was
produced. This was the letter under
cover of which the Risk Improvement sheets for Premises B and C had been sent
to the defenders.
[100] According to Euan Beaton, when this was
produced at the consultation Mr McCombie said that he had only seen it the
previous day. There was "deadly
silence", because the letter showed which risk improvement requirements related
to which premises. Paul Beaton said
something to the effect of: "it's not our fault that we didn't receive this -
why didn't we?" The consultation stopped
shortly thereafter. Euan and Paul Beaton
and Mr McCombie travelled back north together by car. On the journey the atmosphere was becoming
frosty. They stopped for a quick bite in
Dundee. John McCombie said that they had
insurance cover against this type of negligence. He said it again at Mintlaw later as they
parted. Euan Beaton took this as an
admission of liability on the part of Mr McCombie. In cross-examination he explained that the
letter of 16 April 2003 was critical.
Had they had the covering letter, everything would have been crystal
clear. It would have cost г100 to put in
a telephone line - why wouldn't they have done it? At the consultation, when the letter was
produced and there had been some further discussion, Paul had said: "so what
you're saying is, it's all Masson & Glennie's fault". Then the meeting had adjourned. It was put to him that there had been no
admission of negligence. It was more
likely that Mr McCombie had said: if you feel we are at fault, we have
insurance cover. There was no reference
in the pleadings to an admission. It was
put to him that he had never mentioned it before and that he had just made it
up. Euan Beaton denied this. He was adamant that he had told people about
it.
[101] Paul Beaton said that he attended the
consultation. He had not been aware of
the Risk Improvement sheets beforehand.
He first saw them at the consultation.
The letter of 16 April 2003 was made available to counsel during the
consultation. When he saw it, counsel
advised that with this letter they had basically no leg to stand on. It was apparent from this letter that item 6
applied to the old premises. Mr McCombie
had said that he had only recently seen the letter. Paul Beaton had then said that they might
have a claim against Masson & Glennie, because that letter had not been
supplied to them. The consultation did
not last for much longer. After the
consultation he had walked back to Tods Murray's offices with Peter
Paterson. Euan Beaton had walked mainly
with McCombie. Paul Beaton said that he
had had no discussion at this time with McCombie about his liability. They had stopped for a bite in Dundee on the
way back to the north-east. While there
Mr McCombie said that they had insurance that would cover the defenders'
failures. Asked in cross-examination if
he had become angry during the consultation, he replied: "Angry? No. Disappointed? Yes." He had not stood up. He had remained seated and said something about
Masson & Glennie's fault. He
accepted that it would have been "very surprising" for McCombie to have said
that he had not seen the letter of 16 April 2003 before. Nonetheless, he was clear "beyond a shadow of
a doubt" that it was this letter, not that of 22 May 2003 (in which McCombie
had passed on Euan Beaton's comments on the Risk Improvement sheets) that had
caused the consternation. The letter of
22 May 2003 may have been mentioned, but his overriding recollection of the
meeting was that it was the letter of 16 April 2003. He too rejected the suggestion that all that
McCombie had said when they stopped at Dundee on the way back was: "if you feel
we are responsible, we have insurance."
[102] In his evidence in chief, Mr McCombie
volunteered that at the consultation he might have said that he did not
remember seeing the letter before; but he obviously had seen it, it was in his
file. He could not remember every letter
in his file. He accepted that it was
this letter which put beyond doubt which of the Risk Improvement sheets related
to which premises. He rejected the
suggestion put to him that he ought to have sent this letter to clients with
the Risk Improvement sheets. It was not
normal insurance practice to send the covering letter to clients. He did not remember it being this letter
which had caused consternation at the consultation. He described how Paul Beaton got out of his
chair and said: "so it's all Masson & Glennie's fault". However, this was not a reaction to that
letter. It was a reaction to his letter
of 22 May 2003 to Woodbrooks, further on in the file, confirming the pursuers'
position about the risk improvements. So
far as senior counsel was concerned, that letter had been decisive and meant
that the pursuers had no prospects of successfully claiming against the
insurers. He did not remember discussing
the question of their having liability insurance when they were walking back to
Tods Murray after the consultation. He
did mention it at the eating establishment in Dundee. He did so in response to Paul Beaton's
outburst at the consultation. When
sitting down at the table, he had said something like: "Look, if you feel
Masson & Glennie are liable, we'll obviously pass it to our insurers and
they'll deal with the complaint".
[103] Neither counsel nor Mr Paterson gave
evidence as to what had happened at the consultation or (to the extent of their
involvement) thereafter.
[104] This passage of evidence is relevant only to
the question of whether Mr McCombie made some admission of negligence at or
after the consultation. As the evidence
came out, it became clear to me that he had not done any such thing. I accept that at the consultation there was
some consternation when a letter was produced which showed clearly which Risk
Improvement sheets related to which premises.
Logically it would seem that Woodbrook's letter of 16 April 2003 would
have caused this consternation, since it identified precisely which applied to
which. But I can see how it could have
been Mr McCombie's letter of 22 May 2003, since this specifically told
underwriters that the upgrading had been done to the system at what they knew
to be Premises B. If, in relation to
either of those letters being produced, Mr McCombie had said that he had not
seen them before, he would clearly have been wrong. But it is easy to see how Paul Beaton could
have seized on this as focusing where the blame lay; and it is easy to see how,
after the consultation, Mr McCombie's reference to having insurance might have
been interpreted by his lay clients as amounting to an admission that he had
been negligent. It seems to me that Mr
McCombie did not make any such admission.
But I do not think that the Beaton's evidence that he did make an
admission reflects adversely on their credibility.
Discussion
and conclusions
(i) Negligence
[105] As I have already indicated, in their
closing submissions both parties accepted that the issue of whether the
defenders, through Mr McCombie, were negligent turned on the questions whether,
during the meeting on 20 March 2003 Euan Beaton was confused as to whether item
6 on the Risk Improvement Sheets relating to RMS Report No 2003/288 related to
the old premises or the new; and whether Mr McCombie was aware or ought
reasonably to have been aware of such confusion and failed to correct it. I use the word "confused" because that was
the word used in the course of evidence and submissions, but I bear in mind the
point made by Mr Cullen, with which I agree, that one may be concerned only
with a mere (and he would say, short-lived) failure to grasp what, with more
thought, should have been obvious. I
consider that counsel were correct to identify the critical question in this
way. An insurance broker (or agent or
intermediary) owes his client a duty to take reasonable care to ensure that he
understands what is required of him in terms of his insurance and compliance
with the terms thereof. In the case of
some terms this may require the broker to take the initiative in identifying
the terms, explaining what they mean in practice and spelling out the potential
consequences of a failure to comply. In
other cases, less may be required. Much
will depend on the familiarity with insurance matters possessed by the client
and the broker's knowledge of that. Much
might also depend on the reasonableness of the client's misunderstanding, and
whether it could reasonably have been anticipated. This is because in the normal case the broker
will not necessarily be privy to what the client does or does not know, and the
broker's conduct, including what he ought to have appreciated about the
difficulties being experienced by the client, requires to be judged by the
standards of a reasonably competent broker in the particular
circumstances. These considerations fly
off if the broker is in fact aware that the client is ignorant of
something important or has misunderstood something of relevance. If the client is in fact uncertain of some
material aspect of the insurance, and this is apparent to the broker, or
becomes apparent to him later when he could still put it right, then the broker
must attempt to clarify the matter for the client. Accordingly if, for whatever reason, Euan
Beaton was uncertain about whether the NACOSS central station RedCARE intruder
alarm requirement applied to the old premises, and if Mr McCombie knew this,
then he would have been failing in his duty if he did not take steps to clarify
the position. Similarly, if Euan Beaton
was proceeding upon an understanding that that requirement only applied to the
new premises, and if Mr McCombie not only knew this but also knew that his
understanding was wrong, then he should have taken steps to put him right. And in both cases, if Mr McCombie did not
actually know that Euan Beaton's understanding was wrong, but had readily to
hand the means of finding out, he would be failing in his duty if he failed to
take steps to do so. None of this was in
dispute.
[106] I have found that Euan Beaton responded to
item 6 on the assumption that it applied to the new premises. I have found that Mr McCombie knew this. Even if, contrary to my finding, he did not
realise this, it would have been obvious to him if he had applied his mind to
it, having regard to all the circumstances to which I have referred. It is not disputed that Mr McCombie had the
means of checking which premises this requirement applied to. I find that he ought reasonably to have
realised that the requirement applied to the old premises. He ought to have realised that the assumption
upon which Euan Beaton was proceeding was wrong. He ought to have put him right, whether
during the meeting or afterwards. He did
not. Rather he compounded the error by
simply passing on Euan Beaton's response to Woodbrooks, so that they were led
to believe that the alarm at the old premises had been upgraded. These findings conclude the question of
negligence in favour of the pursuers.
(ii) Would
the pursuers have acted differently?
[107] The immediate question that follows this
finding is whether the pursuers would have acted differently if they had
appreciated that they were required to upgrade the intruder alarm at the old
premises in accordance with the requirements set out in item 6 of the relevant
Risk Improvement sheets.
[108] I have no doubt that they would have queried
the requirement, pointing out that the value of the stock in the old premises
was relatively small. Ultimately,
however, I consider that they would not have persuaded underwriters to relax
that requirement. They might have been
given some indulgence to allow them time to do the work, but they would have
been required to do it eventually, and certainly before renewal in 2004. They would have faced a choice of carrying
out the upgrade or removing the old premises from cover under the policy. If the evidence that the old premises was
being used as security for loans is correct, and it was not seriously
challenged, taking the old premises off cover was not an option. I accept that the cost of upgrading would have
been considerably in excess of the "г100 or so" spoken to by Euan Beaton. No precise figures were proved for the likely
cost. Installation of a telephone line
and an upgraded system might have cost a few thousand pounds, and there would
have been annual and maintenance charges on top of that. But it seems to me that the pursuers would
have had little option but to incur this expense and upgrade the system. I find that they would have done so.
(iii) Would
underwriters nonetheless have repudiated liability for breach of General
Condition 1?
[109] In addition to relying upon the pursuers'
breach of Warranty P14, underwriters repudiated liability in reliance on
General Condition 1 of the policy. They
said that even the bells only alarm system "was not put into regular use and
was not in operation at the time of the loss due to a defective roller shutter,
which prevented the alarm being switched on".
The defenders rely on this to say that their negligence, if proved, did
not cause any loss. The pursuers say
that underwriters would probably not have relied on these matters to repudiate
liability had they stood alone. There
might conceivably have been a question as to where the onus of proof lay on
this issue. However, I did not have to
decide this since Mr Haddow, for the pursuers, accepted that the onus was on
him to establish, to the usual standard of proof, that underwriters would not
have repudiated liability on these grounds alone. I proceed on that basis.
[110] It is important to put this issue in
context. There is no doubt that the damage
to the roller shutter door prevented the intruder alarm in the old premises
being switched on. To that extent those
premises were unprotected on the night that intruders entered and started the
fire. No criticism is made of the fire
alarm which, I assume, was working. The
fire was started early on the Saturday morning.
On the night shift from 6 p.m.
on Friday to 6 a.m. on Saturday, work
was going on in the new premises and Mr Scott was walking across to the old
premises from time to time. Even had the
roller shutter door not been damaged, the intruder alarm would not have been
switched on at either the old or new premises.
The damage to the roller shutter door was, therefore, not causative of
any lack of protection. The old premises
were no worse protected, in terms of the alarm, than they would have been had
the roller shutter door not been damaged.
The intruder alarm would have been switched off anyway.
[111] It is in those circumstances that the court
is asked to form a view as to how underwriters would have reacted had there
been no breach of Warranty P17. The task
is somewhat artificial. I have found
that, if they had realised that Warranty P17 applied to the old premises, the
pursuers would have complied by having the necessary telephone lines and other
equipment installed. One could speculate
as to whether the detailed discussion that would probably have ensued about the
need to protect the old premises would have heightened the pursuers' awareness of
other aspects of security. They might,
for example, have been made aware of the need to set the intruder alarm in the
old premises all the time, even when constant work was being carried out in the
new premises next door. They might have
reported the damage to the roller shutter door, rather than just get on with
arranging to have it put right as soon as possible. Such speculation seems to me to be fruitless
and I heard no evidence on the probabilities of what might have happened if
things had been different. I have to put
such matters to one side. On the other
hand I do, so it seems to me, have to assume that had it not been for the clear
breach of Warranty P17, underwriters would have ensured that they had full and
accurate information relating to the circumstances in which the pursuers were
in breach of General Condition 1.
Neither party invited me to decide the issue on the basis that
underwriters would have made their decision on an incorrect assessment of the
facts.
[112] No evidence was led from underwriters or
Woodbrooks or loss adjusters as to how their position might have been affected
had their been no breach of Warranty P17.
But I did hear evidence from expert witnesses. Each of them dealt with this issue in a brief
passage at the end of their reports and they amplified it in oral
evidence. Both were well qualified to
give evidence on insurance matters.
[113] In his report lodged on behalf of the
pursuers, Mr Brian Murton offered this analysis of the likelihood that
underwriters would have invoked General Condition 1 had there been no breach of
Warranty P17:
"2.3.2 I have seen no evidence that the security alarm in the factory on
the old site had not been maintained in good order. Technically, insurers might be able to avoid
liability because the alarm was not in full and effective operation at the time
of the fire but, since the reason for this was that it was impossible for the alarm to be in full and effective operation
because the damaged roller door could not be closed, it is my opinion that
insurers generally would regard such a decision as harsh and would not attempt
to invoke this condition. This is
particularly so where, as in this case, it can be shown that the insured acted
reasonably and responsibly by immediately ordering a replacement door and
taking precautions to block the damaged entrance in the meantime. If the insurers in this case relied on
infringement of this condition alone to avoid liability, then it is my opinion
that such action could be successfully challenged in the Courts.
2.3.3 It has been alleged that the security system
in the old premises had been out of action for some 12 months prior to the fire
but this is denied by the Pursuers who state that, prior to the damage caused
by vandals, the alarm system was always put into operation outside of normal
business hours in those particular premises and therefore insurers would have
had no grounds to invoke General Condition 1 prior to the date of the
vandalism."
The last
sentence of para.2.3.2 appears to contradict the earlier statement that
"technically" insurers might be able to avoid liability, but Mr Murton
explained in his evidence what he meant: although insurers would have a legal
right to avoid liability, on the facts assumed by him they were unlikely to do
so.
[114] The expert called by the defenders was Mr
Alan Russell. He dealt with this
question in his report in this way:
"The question is also asked as to
whether insurers would have been prepared to ignore (breach of) General
Condition 1 had there been satisfaction of Warranty P17. This is also a matter of conjecture but,
based on my experience, I am certain that, given the circumstances of the loss,
the insurers would have relied on General Condition 1 to repudiate
liability. Those circumstances are that
a) there had been an attempted break-in one week previously b) the premises
were unlocked and only water filled fish boxes were being uses to prevent entry
and c) no alarm system of any kind was in operation. The failure to pass this information on is a
breach of the insureds duty of good faith and is a failure to advise insurers
of a material fact. This failure would
have allowed insurers to repudiate liability.
This
position is confirmed in a letter dated 14
April 2004 from Jackson's
Loss Adjusters to the Insured where they say "It is the Underwriters view that
you are in breach of General Condition 1 and would be unable to recover under
the Policy."
The
reference to the letter of 14 April
2004 is to the letter to which I have referred in para.[5]
above. Since it is written in the context
of there being also a breach of Warranty P17, it seems to me to provide little
insight into how underwriters would have acted had there been no breach of
Warranty P17. I say that because it is,
I think, a matter of common knowledge, and it was in any event implicit in the
discussion of the matter by the experts, that a decision by underwriters to
reject or accept a claim, even where the insured is in breach of a material
term of the policy, will depend on their perception of all the circumstances. It is likely that in this case underwriters
took the view that the breach of Warranty P17 was so fundamental - particularly
in light of their having been told, in answer to the Risk Improvement sheets,
that the old premises had been upgraded - that they were determined to
repudiate liability. Having made that
decision, they would no doubt, for good measure, rely on such other breaches as
had been brought to their attention. But
it does not follow from that that they would have repudiated liability for the
claim had those other breaches stood alone.
Mr Russell agreed with Mr Murton that insurers generally try to be fair
and reasonable in their approach to such matters.
[115] Both Mr Murton and Mr Russell amplified
their views on these and other points in their oral evidence. Mr Russell emphasised that that the pursuers
were in breach of General Condition 1 not only because of the damage to the
roller shutter door but also because they only turned the alarm on between the
time work ceased on Saturday afternoon and when it re-commenced at about 6 a.m.
on the Monday. As regards the duty on
the pursuers to notify the insurers of the damage to the roller shutter door,
he said that it made no difference that at the time of the fire they were still
within the time allowed for making a claim under the policy. They were required promptly to report
anything that affected the security of the premises. I was concerned at one point to clarify whether
the defenders were relying on this as a separate breach of duty by the pursuers
under the policy upon which underwriters might have relied to repudiate
liability, but Mr Cullen confirmed that that was not the case: he relied on it
simply as a matter which might have affected the way in which underwriters
approached the claim.
[116] I accept, of course, that the pursuers were
in breach of General Condition 1 and that underwriters had a right to repudiate
liability. The question is whether they
would have done so. This would have
involved them in the exercise of a judgement.
They would have tried to be fair and reasonable in their approach to the
exercise of that judgement.
[117] I propose first to consider separately each
of the matters raised which might have affected the underwriters in reaching a decision. First, it is clear that the intruder alarm at
the old premises was only set when work stopped at both premises. It was not set during the week. This may have been a breach of General
Condition 1 in that that condition required the alarm to be in full and
effective operation when the premises were left unattended. I shall assume that it was a breach, though
Mr Russell recognised that such a condition can sometimes be viewed as
harsh. At times during the night, the
old premises were unattended, but Mr Scott would go across from the new
premises from time to time. The site at
Mintlaw was, in effect, treated almost as one.
I would not have expected underwriters to refuse the claim on this
ground alone unless this requirement had specifically been drawn to the
attention of the insured. The evidence
led as to the survey carried out by Mr Lawson in March 2003 did not persuade me
that this matter had been drawn specifically to the attention of the pursuers. Absent some such specific direction, it was,
I think, natural that the premises should be kept unalarmed during the week
when work was going on. In a similar
vein, I do not consider that insurers would have been too concerned, absent
some specific direction from them, at the fact that during the day the
pedestrian door to the old premises was left unlocked. This emerged in the evidence of Mr Anderson,
and was relied upon by Mr Cullen, but I consider that it too would have been
regarded as natural when work was going on at the Mintlaw site as a whole. I should emphasise that I reject the
suggestion that the alarm had not been set in the old premises for over 12
months, though I accept that this might, had it been correct, have influenced
underwriters' decision. Secondly, whilst
I see the force of Mr Russell's point that the pursuers were under an
obligation to report to underwriters any change of circumstances affecting the
security of the premises, I do not consider that underwriters would have held
their failure to report the damage to the roller shutter door against them in
this case. There are a number of reasons
for this. The damage was not causative
of the alarm not being switched on. The
pursuers had acted very promptly in ordering a replacement door. And the steps taken to block the opening
were, I think, accepted as being the best that could be done in the
circumstances. I consider that
underwriters would have taken the view that the pursuers had acted reasonably.
[118] It is not sufficient, however, to deal with
the points separately. Underwriters may,
I assume, sometimes take the view that, while one breach may be excused, they
will be less sympathetic to two or more breaches of similar character or
gravity. However in the present case I
would not have expected them to take this view.
This does not seem to me to be a case where, absent the breach of
Warranty P17, the pursuers' approach to the security of their premises would
attract serious criticism from underwriters or loss adjusters advising
them. Looking at the matter in the
round, I would not have expected underwriters to refuse the claim on the basis
of a breach of General Condition 1.
Disposal
[119] In the proof so far I have been concerned
only with issues of liability. In light
of my conclusion there will require to be a hearing on quantum. I shall
accordingly uphold the third plea-in-law for the pursuers and continue the
matter for proof on quantum. I shall
also put the case out By Order to allow questions of further procedure to be
considered. In the meantime I shall
reserve all questions of expenses.
