Present or Imminent Danger under New-Home Warranties: Reinstatement Without Proof of Works; Purchase-Price Cap; Deceit Against Approved Inspectors Fails for Want of Reliance

Introduction

This Technology & Construction Court judgment (His Honour Judge Stephen Davies) arises from serious construction and fire-safety defects at the “New Lawrence House” development in Hulme, Manchester—two blocks comprising 104 flats. The claimants were:

• Zagora Management Ltd (the freeholder), and
• 26 individual long-leasehold owners of 30 flats (predominantly buy-to-let investors).

The defendants were:

• Zurich Insurance plc (ZIP), which traded as Zurich Building Guarantee (ZBG) and issued “Standard 10 Year New Home Structural Defects Insurance” policies (and whose business had been transferred by court-sanctioned scheme on 16 March 2018 to East West Insurance Company Ltd (EWIC)), and
• Zurich Building Control Services Ltd (ZBC), the private approved inspector which issued the Building Regulations final certificates.

The litigation raised three core clusters of issues:

• Interpretation and operation of the ZBG “Standard 10” policy, especially the scope of cover for common parts, “present or imminent danger”, “major physical damage”, maximum liability limits, and whether indemnity is contingent on actual reinstatement.
• Construction of the leases allocating repair/improvement obligations and service charge liabilities between tenants, the management company (LHM), and the landlord.
• Deceit (fraudulent misrepresentation) claims against the approved inspector (ZBC) over the issue of Building Regulations final certificates, engaging knowledge/recklessness, intention, reliance and limitation.

Summary of the Judgment

• Zagora (freeholder) failed against ZIP on both pleaded routes:
  • No legally binding “agreement to rectify”: only an in-principle, forward-looking roadmap (Cunningham Lindsey letter, 2 July 2013) lacking contractual certainty and intent to be immediately binding.
  • Zagora was not (and was never treated as) a policy “Buyer” under the ZBG Standard 10; the policy insured named flat purchasers (and successors) not the freeholder.
• Individual leaseholders succeeded against ZIP/EWIC on liability across major heads (notably fireproofing structural steel, replacing the defective roof, and fire-compartmentation), under Sections 3.1 (major physical damage) and 3.2 (present or imminent danger). However, recovery was capped by the policy’s maximum liability clause to the sum of their declared purchase prices: £3,634,074.
• The deceit claims against ZBC: the court found that Mr Mather’s final certificates misrepresented that reasonable steps had been taken and held that he was dishonest (knew or was reckless) in issuing them. However:
  • Zagora’s deceit claim failed on intention: Mr Mather did not intend a later freeholder-purchaser to rely on the certificates.
  • The leaseholder deceit claims failed on reliance: they did not prove that they (or their conveyancers) relied on the final certificates in deciding to exchange or complete.

There were significant determinations on contractual and insurance-law construction (particularly the scope of reinstatement cover without a requirement to carry out works, and the operation of proportionate share and maximum-liability mechanics), and on the evidential thresholds for deceit claims against approved inspectors.

Analysis

Precedents and Authorities Cited and Applied

• Wood v Capita Insurance Services Ltd [2017] UKSC 24: General approach to contractual interpretation—textual and contextual synthesis—underpinned the construction of both leases and the ZBG policy.
• Colinvaux’s Law of Insurance: Employed on construction of indemnity and measure issues (including concurrent insured/uninsured causes, exclusions, and reinstatement as a measure even when works not performed).
• Wayne Tank and Pump v Employers Liability Assurance [1974] QB 57: Differentiated concurrent insured and excluded causes; used to structure causation analysis.
• Great Lakes v Western Trading [2016] EWCA Civ 1003 and Hodgson v NHBC [2018] EWHC 2226 (TCC): Discussed in relation to whether indemnity under a policy is conditional on reinstatement; the court aligned with Hodgson’s analysis of the specific policy terms, holding that the ZBG policy pays reasonable reinstatement costs without a proof-of-intention-to-reinstate requirement.
• Derry v Peek (1889) 14 App. Cas. 337: Classic formulation of deceit (knowledge, lack of belief, or recklessness).
• Shinhan Bank v Sea Containers [2000] 2 Lloyd’s Rep 406: Intention for deceit encompasses appreciation that, absent unforeseen intervention, the representee will rely.
• Dadourian Group v Simms [2009] EWCA Civ 169 and Barton v County NatWest [1999]: Presumption of inducement in deceit, addressed (though not permitted to be pleaded late here).
• Paragon Finance v D.B. Thakerar [1999] 1 All ER 400; Allison v Horner [2014] EWCA Civ 117: Limitation and s.32 LA 1980 (fraud) discovery with “reasonable diligence” tests.
• Doyle v Olby (Ironmongers) [1969] 2 QB 158 and Lowick Rose v Swynson [2017] UKSC 32: Damages and collateral benefits (res inter alios acta) principles applied in the loss analysis (hypothetical, as deceit claims failed on reliance/intent).
• Sugarman v CJS [2014] EWCA Civ 1239: Corporate governance of the management company (LHM) and minority control—contextual background to site management and funding disputes.

Legal Reasoning and Holdings

A. The Leases: Who must repair and who pays?

• LHM (the management company) was obliged to “repair/maintain/reinstate/renew and (if appropriate) improve” the retained parts (including structural parts, common parts, and services), funded through the service charge.
• Each tenant covenanted to pay service charge; the landlord’s role was secondary (to compel performance or step in upon request, with costs recovered via the service charge).
• Because LHM’s obligations and the interlocking cost-recovery machinery work, the proper construction is that common parts and structural defects are the management company’s responsibility—then recoverable from tenants (including CJS, subject to insolvency pragmatics) through service charge. This informed both (i) the policy’s definition of “common parts” and (ii) quantum and causation debates.

B. The Policy: Key constructions of ZBG “Standard 10”

Four constructions are especially important precedents for future claims under such warranties:

1. Reinstatement is payable even if works are not undertaken.
   • Sections 2 and 3 require ZBG/EWIC to pay the reasonable cost of rectifying or repairing. There is no express condition that the insured has already incurred or will incur that cost. The policy even reserves the insurer’s option to do the works itself (Condition 2), which would be redundant if payment only followed actual works.
   • Great Lakes (obiter) does not govern; the wording here is akin to Hodgson v NHBC: this is a reinstatement policy, not a pure “unvalued loss” cover.
2. “Present or imminent danger” (Section 3.2) is a potent route and is not subject to the “proportionate share” cap.
   • Present danger exists if the risk is actually current; imminent means about to materialise. Temporary palliatives (e.g., sprinklers) do not negate entitlement to the reasonable cost of rectification to regulatory standard.
   • The proportionate share limitation applies only to major physical damage under s.3.1, not to s.3.2 present/imminent danger. This was decisive where many flats (CJS) could not claim.
3. “Intended physical condition” and “load-bearing element”
   • “Intended physical condition” is the condition compliant with ZBG’s technical requirements and the Building Regulations, not the developer’s flawed “original specification”. Thus design defects contrary to the technical manual are within cover.
   • “Load-bearing element” includes elements transmitting externally imposed loads (wind, snow, occupants) or transferring loads to structure (e.g., plywood roof deck). It is not confined to elements carrying another element’s permanent load.
4. Exclusions and limits
   • Condensation: where condensation and resulting damage are consequences of the developer’s breach of requirements/Regs, the causal breach remains the insured (proximate or concurrent) cause. The condensation “what we will not pay” paragraph does not defeat such claims.
   • Basements and “common parts”: basements are excluded for a new home as such; but in a common parts claim the inclusion of common parts prevails—cover applies to structural basement works serving the flats/means of escape.
   • “Other compensation available”: construed narrowly. It does not force the insured first to litigate lease enforcement or to pursue complex third-party claims (e.g., against an insolvent CJS or ZBC) before claiming under the policy; and in any event the insurer has its own subrogation rights.
   • Alternative accommodation: recoverable only where the insurer exercises the contractual right to carry out the works and consents in writing; not a mechanism for loss of rent for buy-to-let investors.
   • Maximum liability:
     • For flats in a continuous structure, the maximum payable per new home is the declared purchase price, subject to an overall cap of £25m only where the combined values exceed £25m.
     • Applied here, recovery across all successful leaseholder claims was capped at their aggregate declared purchase prices: £3,634,074—drastically less than full remedial cost.
   • Excess: applies per “item of claim”. The court adopted a practical grouping: e.g., one excess for the building-wide fire-compartmentation danger; separate for roof deck and parapets; common parts s.3.2 items attract single excesses (not multiplied by the number of flats).

C. What defects were covered?

Applying the above, the court held that the following were within cover (liability), exemplifying how the constructions operate:

• Fire protection to structural steel (universal absence): covered under s.3.2 (danger) and s.3.1 (major physical damage) with full façade and ceiling removals to access/protect. Proposed “Stotherm” overlay alternative rejected as insufficiently robust/design-compliant on the evidence.
• Roof replacement: absence of a vapour control layer and inadequate ventilation led to condensation and plywood deck deterioration—present/imminent danger to workers and adverse effect on load-bearing performance. Temporary fixes did not answer the s.3.2 entitlement.
• Cavity barriers: extensively missing/ineffective behind cladding; covered as part of fire-risk rectification, requiring reinstatement of external walls to install barriers properly.
• Compartmentation and means of escape: widespread defects in risers, fire-stopping, doorsets, corridor subdivisions, dry risers for Fire Service access, staircase issues—covered under s.3.2.
• Selected structural/common parts items: ungrouted base plates (major physical damage), parapet/cappings defects, unsafe communal glazing (with guardrail solution), basement damp-proofing to retaining walls, etc.
• Balconies: classed as common parts under policy (though not demised)—danger from structural inadequacy and balustrades; full replacement allowed (decking itself excluded by endorsement).

D. The “Agreement to Rectify” – No binding contract

• On 27 June 2013, ZIP’s adjuster (Cunningham Lindsey) and the major loss lead discussed a pragmatic remediation roadmap with Zagora; recorded in a 2 July 2013 letter (e.g., single excess; willingness to treat Zagora as claimant for common parts; staged investigations; prioritising fire risks).
• However, this was an agreement in principle, not a concluded settlement: material terms (scope, standards, liability admissions) were expressly left to future investigation and agreement between experts. There was no objective intention to be immediately bound.
• Estoppel/waiver and “illegality” defences (and alleged misrepresentation about management control) were addressed and would have failed; but the primary finding was decisive—no binding contract arose.

E. Deceit against Approved Inspector (ZBC) – Dishonesty proved; claims fail on intention/reliance

• Misrepresentation: By issuing final certificates, ZBC represented it had taken reasonable steps to be satisfied (within professional skill) that the works complied with the Building Regulations. ZBC admitted (expert consensus) it had not done so.
• Dishonesty: The judge found Mr Mather knew (or was reckless) that serious fire-safety non-compliances remained when he certified in December 2009 and November 2010. Evidence included:
  • Manchester Building Control warnings; contemporaneous site inspections; missing fire protection; compartmentation defects; mis-numbering certificates to include non-existent flats; manual cover notes; pressure and resourcing context within ZBG.
• Intention (to induce):
  • As to leaseholders, intention to induce purchasers to rely on the certificates was accepted.
  • As to Zagora, not proved: Mr Mather did not have in contemplation reliance by a future freeholder-purchaser two to three years later.
• Reliance (and causation): The leaseholders failed to prove reliance by themselves or by their conveyancers.
  • Most conveyancers did not seek or rely on the final certificates (the sale contracts used the cover note as the trigger to completion; the building warranty was the key assurance for lending/ownership).
  • Attempts to plead a presumption of inducement and/or reliance via conveyancers were refused late; even if allowed, the factual matrix would have rebutted any presumption.
• Limitation (s.32, fraud discovery): The court indicated that most leaseholders would likely satisfy s.32 (fraud not discoverable with reasonable diligence before Aug 2011); one (Mr Hussain) may have been out of time. The point was not outcome-determinative due to failure on reliance.

F. Funding, “maintenance/champerty,” and mitigation

• Bank of Ireland (for CJS) initially funded; later 123 Pay Ltd took over. The Court rejected ZIP’s maintenance/champerty attack: the Bank/123 Pay had legitimate interests; and in any case, such issues affect enforceability of the funding agreement, not the validity of the insureds’ claims.
• The “other compensation available” policy wording did not force claimants to litigate against CJS/LHM/Zagora first. ZIP retained subrogation rights.

Impact and Practical Significance

For flat-owners and managers

• Section 3.2 (present/imminent danger) is powerful: it avoids proportionate-share reductions that otherwise cripple recovery in developments with many “excluded” flats (e.g., owned by developer-related entities).
• Reinstatement without proof of works: insureds can obtain money to remediate without first undertaking works—critical where buildings are decanted or funding is constrained.
• But the purchase-price cap bites hard: even with liability established, the aggregate maximum liability set at the insureds’ declared purchase prices can leave huge shortfalls, especially where construction defects are systemic.

For insurers and brokers

• Policy wording matters. The Court:
  • Read “intended physical condition” by reference to technical requirements/Regs, not original defective spec.
  • Held that “present/imminent danger” cover is not proportionately shared and is not limited to temporary measures.
  • Consolidated a principled approach to exclusions (condensation, basements, other compensation) consistent with policy purposes.
• Adjusters’ “agreements in principle” will not easily crystallise as binding compromises absent clear intention and certainty.

For approved inspectors and building control professionals

• The Court is willing to find dishonesty where evidence shows knowing or reckless certification in the face of unresolved safety-critical defects. Documentary discipline (and resisting commercial pressure) is paramount.
• But claimants still face a high reliance hurdle in deceit—especially where sale contracts and lending practices place emphasis on warranty cover rather than final certificates.

For conveyancers

• While not determinative here, the judgment highlights expectations: if transaction terms pivot on a warranty cover note rather than a Building Regulations certificate, failure to obtain the latter may not be causative. Where defects are systemic, however, prudence dictates obtaining, scrutinising, and recording reliance on certification and attendant documentation.

Complex Concepts Simplified

• Present or imminent danger (s.3.2): Cover where a safety risk exists now or is about to materialise (e.g., unprotected steel could fail in a fire; deteriorated roof deck could collapse under a person). It pays for a permanent fix to bring the building up to the Regs—not just temporary measures.
• Major physical damage (s.3.1): A material difference from the intended, compliant condition in a load-bearing element that undermines structural stability or resistance to damp/water (e.g., roof deck weakened by condensation because required VCL/ventilation were omitted).
• Load-bearing element: Not just beams and columns; includes elements that transfer or sustain loads due to occupants, wind, snow—here, the plywood roof deck.
• Common parts: Policy definition tied to “parts for common/general use for which the buyer has joint responsibility”—read with leases, this encompassed structural/retained parts and services subject to the service charge.
• Proportionate share: Applies to major physical damage in common parts (s.3.1) only—each flat’s claim limited to its share. It does not reduce s.3.2 (present/imminent danger) recoveries.
• Maximum liability: For each flat, the stated maximum is the declared purchase price. A global £25m cap only applies if the combined value exceeds £25m.
• Reinstatement without works: The policy pays the reasonable cost of reinstatement; the insured need not prove that it will carry out the works. The insurer may choose to do the works itself.
• Deceit (fraudulent misrepresentation): Requires a false statement made knowingly/without belief/recklessly, intended to be relied upon, actually relied upon, causing loss. Here, dishonesty was found, yet claims failed because reliance was not proved (and, for Zagora, intention to induce was not proved).

Conclusion

This judgment delivers a suite of clear and practical determinations on the ZBG “Standard 10” warranty that will shape remediation strategy in defective residential developments:

• Reinstatement costs are recoverable even if works have not been done, and “present or imminent danger” claims are a robust pathway unencumbered by proportionate-share limits.
• Key policy concepts are anchored to compliance with ZBG technical requirements and Building Regulations; exclusions are construed narrowly so as not to defeat coverage intended to deal with serious defects.
• Nevertheless, the purchase-price maximum liability can dramatically curtail practical recovery—especially where a developer’s related-party holdings are excluded. That clause was decisive in limiting recovery to £3.634m, despite much higher remedial need.
• Attempts to convert “agreements in principle” with insurers into legally binding commitments will fail absent demonstrable intention and certainty.
• Approved inspectors face serious exposure where they knowingly or recklessly certify in the face of non-compliance, but deceit claims will fail without cogent proof of reliance by purchasers or their agents.

In short, the decision both strengthens policyholder routes to meaningful indemnity for dangerous defects and clarifies the real-world boundaries of liability for private building control sign-off. Future disputes will likely turn on the same critical levers: the use of s.3.2 danger-based cover to avoid proportionate-share attrition; rigorous application of purchase-price caps; and fact-sensitive proof of reliance in inspector-deceit claims.