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Henderson Principle Revisited

By Vijay Bange and Tanya Chadha
May 2020
Construction Law

Henderson Principle Revisited

By Vijay Bange and Tanya Chadha
May 2020
Construction Law

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The present decision in Goldman v (1) Zurich Insurance plc and (2) East West Insurance Company Limited was handed down following the Defendant’s application for strike out of the Claimants’ claim. The Defendant argued that the claim issued against them (the Current Proceedings) was an abuse of process because the Claimants could have, and should have, brought the claim in an earlier set of proceedings. The decision is of interest for two reasons. First, to what extent is a party required to bring all of its claims or defences at once? Second, where a homeowner’s claim against Building Control fails, can a claim be brought against the organisation that issued a new home warranty instead?

Original Proceedings

In January 2019, judgment was handed down in Zagora Management Limited & Others v Zurich Insurance Plc (1) Zurich Building Control Services Limited (2) and East West Insurance Company Limited (3) [2019] EWHC 140 (TCC) (the Original Proceedings). That casegenerated significant attention amongst legal and insurance practitioners alike.

Zagora concerned a residential development in Manchester for which the Fire Service issued a prohibition notice. The Claimants (the freeholder and 26 long leaseholders) alleged that the development suffered from serious fire safety defects such that it did not conform with relevant Building Regulations, and sought to recover their losses. A claim was brought against three Defendants.

First, against Zurich Insurance plc (ZIP) for reinstatement of the development together with costs of alternative accommodation pursuant to new home warranties issued by ZIP. The ZIP warranty provided cover where, inter alia, there was a present or imminent danger to health and safety where the danger arose from a failure to comply with Building Regulations. Second, a claim in the tort of deceit (or fraudulent misrepresentation) against Zurich Building Control Services Ltd (ZBC). The Claimants alleged that the Building Control inspector knowingly made untrue statements in the Building Regulations final certificates, alternatively that he knew there were no reasonable grounds for believing that the statements were true, alternatively, was reckless as to the truth of the statements that he made. Third, East West Insurance Company (EWIC), a company to which ZIP transferred its business.

At first instance, the Judge decided that the development was seriously defective and that extensive remedial works were required. Accordingly, the leaseholders’ claims against ZIP under the new homes warranties succeeded but the amount recoverable under the policy was capped at an amount that fell far short of the anticipated cost of remedial works. The claims against ZBC failed because, despite deciding that the Building Regulations final certificates had been issued deceitfully, the Judge was unconvinced that the Claimants had actually relied on those certificates when purchasing their properties (reliance on the misrepresentations being a necessary component of proving a claim in deceit). The claim against ZBC therefore failed. Various points, (not relevant for present purposes) were appealed.

Current proceedings

In April 2019, the leaseholders issued the Current Proceedings; a claim against ZIP and EWIC in deceit and conspiracy that concerns ZIP’s decision to issue the warranty cover notes (as opposed to ZBC’s decision to issue Building Regulation final certificates as in the Original Proceedings). The Claimants say that the representations made in the warranty cover notes (that a Building Control final inspection had been carried out) were false on account of no inspection having actually been carried out.

Application for strike out

In October 2019, the Defendants made an application to strike out the Current Proceedings. The Defendants alleged that they were an abuse of process because the claim in deceit and conspiracy now alleged against ZIP, is fundamentally the same as the claim in deceit previously alleged against ZBC in the Original Proceedings. Accordingly, the Defendants said that the Claimants could have, and indeed should have, included the claim that is now being pursued, in the Original Proceedings. To bring that claim later, in a fresh set of proceedings is, according to the Defendants, an abuse of process.

The Claimants’ position was that the claim in deceit and conspiracy against ZIP and EWIC was, and could only have been, considered as a result of evidence that came to light during cross-examination on the ninth day of trial in the Original Proceedings. Until that evidence was heard, there were no reasonable grounds for advancing the current claim.

Could or should the claims have been brought together?

It is a long established principle of English law (Henderson v Henderson (1843) 3 Hare 100) that parties to a litigation are required to bring their whole case at once rather than re-litigating the same subject matter, concerning the same parties, in serial litigation. Offend against this principle is often referred to as Henderson abuse. The present decision, cites Johnson v Gore Wood & Co {2002] 2 AC 1 as setting down "the modern approach" to Henderson. Johnson confirmed, inter alia:

"The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter… The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied… that the claim or defence should have been raised in the earlier proceedings if it were to be raised at all…  It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive…".

The Judge applied Johnson in the present application explaining "the crucial question is not whether the claimant could have raised the claim in the earlier proceedings but whether he should have done so" and that required "a consideration of all relevant factors and requires a decision to be made which is based on an assessment of the weight to be attached to each of those factors and a balancing exercise undertaken."

In the event, the Judge decided that there was no requirement for the Claimants to have brought the claim in deceit and conspiracy against ZIP within the Original Proceedings and there was no Henderson abuse as a result of the Current Proceedings. ZIP and ZBC were separate and distinct companies notwithstanding they were both part of the wider Zurich group and that their functions overlapped. In the Original Proceedings ZIP and ZBC chose different legal representation. There was no overlap in the claims in deceit against ZBC and ZIP they "were legally and factually distinct." The Judge was persuaded that the Claimants had not previously considered the claim in deceit against ZIP commenting "It is frankly inconceivable to me that if they had expressly considered the possibility of a cover note fraud it would not have been fully investigated and, if proper to do so, pleaded." There was no obvious suggestion that the Claimants had always been aware of the claim in deceit against ZIP or that they consciously decided to hold it back for another day, or indeed for another set of proceedings. The Defendants’ application for strike out failed on both the "could" and the "should" basis.

The Judge accepted that the Claimants did not have actual knowledge of the claim in deceit against ZIP but to what extent ought the Claimants have known about this claim? When considering whether there is Henderson abuse, it is necessary to investigate whether the additional claim or defence would have been identified earlier if "reasonable diligence" had been exercised. Parties are not permitted to adopt a laissez-faire attitude to litigation. Here, the judge determined that even with reasonable diligence, the Claimants would have been unable to plead the claim in deceit against ZIP from the outset.

Some might wonder why the Claimants did not simply make an application to amend the Original Proceedings to include the claim in deceit against ZIP upon discovery of the new evidence. Practitioners will appreciate that the rules on amendment are strict, particularly when amendment would be unfair to the other party. That notwithstanding, usually a late amendment might not only be preferable, but also the proper course of action. The Judge commented "it never occurred to me as the judge when reading into the case pre-trial or during the course of the trial that the obvious solution to this problem was for the claimants to make a late application to amend to plead an alternative case in deceit against ZIP…". That rather suggests that the solution for dealing with a new or different claim is, first and foremost an amendment, unless such amendment is not "obvious".

Hope for other claims?

The current position is that there is no cause of action against Building Control inspectors in either negligence or negligent misrepresentation as no duty of care is owed. Where homeowners with defective properties, for one reason or another, have no recourse against the contractor, designer or Building Control inspector, does this case give some hope for bringing claims against a warranty provider for deceitfully issuing a warranty cover note? In most cases the answer is probably "no". The specific circumstances would have to be exceptional in order to prove a claim in deceit against a warranty provider. The following further discussion points arise:

  • so as to avoid wasted costs and vexatious attempts to have a "second bite of the cherry", the case serves as a reminder that the courts will police Henderson type abuse scenarios to prevent re-litigation of the same matter;
  • the ongoing gnawing at the issue of liability of Building Control remains under scrutiny with the warranty providers / insurers now becoming the focus of attention;
  • Building Control inspection and certification is often undertaken by independent companies engaged by the contractor for a fee, rather than local authorities. In such scenarios, it is arguably an oddity that Building Control inspectors have no duty of care in circumstances where they are operating in the commercial arena and are able, like other construction professionals, to obtain professional indemnity cover;
  • it is now not unusual for structural warranty providers to use and rely upon the inspections and certification of compliance with Building Regulations undertaken by Building Control, with Building Control doubling up its role;
  • there is a body of case law as to the requirement of independent certifiers to act fairly and impartially, and those circumstances where certificates can be opened up, reviewed and revised.

In the aftermath of the Grenfell tragedy, and at a time where historic Building Control certificates are being opened up and scrutinised, legal practitioners, insurance providers and homeowners with properties blighted by extensive defects rendering them uninhabitable or impossible to sell, will no doubt note the decision in the Current Proceedings with interest.

Republished by permission.