The Seele Austria case underlines the importance of claimants raising key points early on.
The Seele Austria Gmbh & KG v Tokio Marine Europe Insurance Ltd case (which is still continuing) is a long-running and complex saga. But it has important implications for insurers keen to stop claimants mounting or resurrecting claims long after they should have first been made in court proceedings.
Case background
The case concerns coverage under a combined contract works (construction all risks) and third-party liability policy. In dispute is an indemnity claimed by a subcontractor regarding the cost of rectifying defective windows in an office development in Paternoster Square in the City of London.
The proceedings started in the Commercial Court in 2006. Following the hearing of liability issues, Mr Justice Field decided (see [2007] EWHC 1411 (Com)) for the insurer, ruling that there was no indemnity under the policy in the absence of any accidental damage to the works. His decision on this point was overturned by the Court of Appeal (see [2008] EWCA Civ 441) and the case was transferred to the Technology and Construction Court (TCC) to decide the level of damages (known to lawyers as “quantum”).
“We are where we are”
The phrase “we are where we are” – often accompanied by a sigh or a look of bemusement – has been used repeatedly by advocates and judges in both the Court of Appeal and the TCC.
So where exactly are we now? Following the Court of Appeal decision that a separate deductible applied to each window affected by workmanship defects – and almost three years after the proceedings were first issued – the subcontractor applied to amend its particulars of claim. The amendments related to a cause of damage to the windows – the subcontractor now argued the cause a generic design defect – and quantum.
Issue estoppel
The insurer opposed the design amendments, relying on issue estoppel (broadly speaking, the legal rule that the same issue should not be litigated more than once) and the Henderson v Henderson abuse of process principle. The design v workmanship issue had, the insurer argued, already been decided – or at least could and should have been raised – in previous stages of the litigation.
The insurer’s view (which was not shared by the subcontractor) was that the effect of refusing the subcontractor permission to make the design amendments would be to apply one deductible per each defective window, thereby reducing the value of the claim by half.
The subcontractor said that the nature of defects had never been decided and that it would be wrong and unfair to prevent it from raising this new issue now.
After reviewing the general rules relating to amendments, Mr Justice Coulson in the TCC referred to the key principle of issue estoppel established by Lord Justice Diplock in Thoday v Thoday [1964]: you have to demonstrate that a particular issue has already been litigated, decided and was a necessary ingredient in the previously advanced cause of action. Mr Justice Coulson concluded that issue estoppel would apply to the determination of preliminary issues, or even interlocutory matters, decided earlier in the same action between the parties.
Following an extensive examination of the proceedings before the courts of both instances, Mr Justice Coulson decided that the issue of design v workmanship defects had already been decided in the insurer’s favour by both courts. He further ruled that the parties could not subsequently, in the same proceedings, advance arguments or adduce further evidence aimed at showing that this particular issue had been wrongly decided.
He disregarded the subcontractor’s argument of “special circumstances”, saying that, if there was any confusion about whether the issue of design v workmanship had been fully considered, then resolving that confusion had been within the subcontractor’s knowledge and control.
Henderson v Henderson abuse
However, in case the design amendments were not in fact barred by issue estoppel, Mr Justice Coulson then went on to consider whether such amendments would be an abuse of process. He referred to the decisions in Henderson v Henderson [1843] and Johnson v Gore Wood & Co [2002] as authorities for the proposition that a court will not permit the same parties to revisit the same subject matter which, due to negligence, inadvertence or accident, were not but should have been decided in previous litigation. He decided that the issue of generic design defect could and should have been raised in the earlier liability proceedings.
On this basis, he concluded that it would be an abuse of process for the court to allow the design amendments to be made at this late stage. Notably, he reached this conclusion despite the fact that the previous litigation was actually an earlier stage of the same proceedings – a development characterised as unusual but, on the facts of this case, appropriate.
TCC judgment
Mr Justice Coulson therefore dismissed the application for the design amendments on the basis that the underlying issue:
- had already been determined against the subcontractor and could not be reopened; and
- could and should have been raised years ago.
To allow the amendments now, he said, would be unfair, contrary to the Civil Procedure Rules and an abuse of process.
Quantum
The subcontractor’s second category of proposed amendments related to quantum. This was also opposed by the insurer. The subcontractor was, the insurer said, trying to introduce claims for consequential losses or composite claims which were not covered by the policy, or which were expressly excluded.
Mr Justice Coulson examined the insurer’s argument that the new claim appeared to include many items that were originally described as straightforward remedial costs but which were also excluded from the policy and consequently not recoverable. The judge conceded that some of the costs included in the amended pleadings might be classified as consequential losses or otherwise be excluded. However, he decided that it would be inappropriate to turn an application to amend into a form of preliminary issue hearing and to decide points of law on an interlocutory basis.
He also said that the subcontractor had not provided adequate particulars of claim. So he ordered it:
- to particularise its case regarding the dominant cause of the costs and/or the basis of costs apportionment claimed; and
- prior to the quantum trial to produce the evidence upon which it relied.
The judge also encouraged the subcontractor to review its claim regarding supervision costs. There were, he warned, potential costs consequences for the subcontractor if the claim, which apparently related to a period after remedial works on the windows had been completed, ultimately failed at trial.
The outcome
After the two-day hearing, Mr Justice Coulson allowed the subcontractor’s application regarding quantum amendments but rejected its application in respect of the cause of damage.
Although it stems from a procedural application, the decision (see [2009] EWHC 255 (TCC)) reinforces the point that defendants can successfully rely on issue estoppel/Henderson abuse of process arguments when responding to applications to amend particulars of claim. They do not have to wait to plead such arguments in an amended defence.
It is also a good example of a proactive casemanagement decision, highlighting the importance of claimants setting out genuine heads of claim supported by evidence. Although complex issues, including those relating to the coverage of consequential loss, are likely to be decided at trial, Mr Justice Coulson unequivocally directed what information the subcontractor must provide in the pleadings.
