Zurich Insurance Company v Gearcross Ltd

Factual and Procedural Background

The Plaintiff, Company A, operates a building guarantee scheme allowing registered developers to offer guarantees to purchasers of new properties. The Defendant, Company B, was registered as a developer under this scheme. Company B constructed a property at The Address, which was sold to a third party in January 2002. The purchaser alleged defects in the property, leading to delays and difficulties in inspection and remedial works. Eventually, Company A paid third-party contractors to complete remedial work, which was not fully completed until May 2005.

On 5th February 2007, Company A commenced proceedings against Company B seeking reimbursement of £149,093.48 for the cost of remedial works, alleging breach of a contractual clause allowing recovery of such sums on demand. Company A applied for summary judgment under the Civil Procedure Rules Part 24. The court heard this application and provided a detailed analysis of the contractual rules and facts before reaching its conclusions.

Legal Issues Presented

1. Whether the Defendant was liable under the terms of the building guarantee scheme to reimburse the Plaintiff for the cost of remedial works carried out by third-party contractors.
2. Whether the procedural and contractual requirements for recovery of sums on demand under the scheme rules were satisfied, including the adequacy of notice of defects and remedial works.
3. Whether the Defendant carried out the required remedial works "as soon as practicable" or unjustifiably refused to do so, thereby justifying the Plaintiff's engagement of other contractors.
4. The extent to which the Plaintiff's claim relates only to properly notified remedial works versus additional works not subject to prior notice.
5. Whether summary judgment was appropriate for the full sum claimed or only a portion thereof.

Arguments of the Parties

Plaintiff's Arguments

• The Defendant was contractually bound by the scheme rules to carry out remedial works and reimburse the Plaintiff for costs incurred if the Defendant failed to do so.
• The Defendant failed to carry out the required remedial works after proper notice, justifying the Plaintiff's engagement of other contractors.
• The sum claimed was due as a debt on demand under the scheme's contractual provisions.
• The Plaintiff sought summary judgment for the full amount claimed based on these facts and contractual obligations.

Defendant's Arguments

• The Defendant contended that the Plaintiff had to prove that the Defendant had "unjustifiably refused" to carry out the remedial works, relying on an indemnity clause in the policy with the purchaser.
• The Defendant disputed liability for the full sum claimed, arguing that some works were not properly notified or were outside the scope of the Defendant's obligations.
• The Defendant's surveyor highlighted difficulties in accessing the property and alleged that some works carried out by the Plaintiff's contractors were not previously inspected or approved.
• The Defendant challenged the adequacy and timing of notices and the scope of works for which reimbursement was sought.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by identifying the contractual framework governing the relationship between the parties, which was established by the scheme's rules forming the terms of contract. It outlined five conditions that must be satisfied for the Defendant to be liable: existence of defective work, proper notice of remedial work, failure to carry out remedial work promptly, Plaintiff's instruction of other contractors, and that the sum claimed relates to the remedial work not performed by the Defendant.

The court found that the Defendant accepted responsibility for defects identified in the September 2002 report, which was the only valid notice of defects and remedial works served. The Defendant did not carry out the required works as soon as practicable following this notice, justifying the Plaintiff's engagement of other contractors.

However, the court distinguished between works notified in September 2002 and additional remedial works carried out after July 2004, for which no proper notice was given to the Defendant. The court determined that the Defendant could not be held liable for costs of these later works as the procedural requirements under the scheme rules were not followed.

The court rejected the Defendant's argument that 'unjustifiable refusal' was a necessary element, finding that failure to carry out works promptly sufficed under the scheme rules. It also rejected the Plaintiff's claim for the full amount of £149,093.48, concluding that only the sum corresponding to the properly notified works was recoverable.

Ultimately, the court held that the maximum sum due was £36,538.64, from which £22,500 had already been recovered, leaving a balance of £14,038.64 payable by the Defendant. The court granted summary judgment for this balance but allowed the Defendant unconditional leave to defend the remainder of the claim.

Holding and Implications

The court's final decision was to grant summary judgment in part in favor of the Plaintiff for the sum of £14,038.64, representing the balance due for properly notified remedial works under the scheme rules.

The court denied summary judgment for the larger amount claimed, allowing the Defendant to defend the remainder of the claim relating to works not properly notified. This decision underscores the importance of strict compliance with procedural requirements in contractual recovery claims under building guarantee schemes.

No new legal precedent was established; the ruling applied existing principles to the facts, emphasizing the necessity for clear and timely notices and limiting liability to properly notified works.