Lonham Group Ltd v Scotbeef Ltd & Anor

Factual and Procedural Background

This case concerns a dispute arising from an insurance policy governed by the Insurance Act 2015. The first respondent, Company A, operated a meat production and distribution business and used refrigeration facilities provided by Company B, which specialised in chilled and frozen storage. Company B went into liquidation after proceedings were initiated against it by Company A, following a preliminary judgment on contractual terms between them. Company A’s claim against Company B related to damage caused by deterioration of meat stored by Company B.

Company C was the insurer of Company B under a warehousekeepers' legal liability insurance policy. If valid, this insurance would indemnify Company B for losses claimed by Company A, with Company A entitled to enforce this indemnity under the Third Party (Rights against Insurers) Act 2010.

The litigation proceeded through two preliminary issues: the first determined the contractual terms between Company A and Company B, rejecting Company B's contention that certain trade standard terms applied; the second concerned whether Company B had a right of indemnity against Company C under the insurance policy. Company C denied liability, alleging breaches of warranty by Company B concerning the terms under which it contracted with customers. The judge below found in favour of Company A and Company C was joined to the proceedings after Company B's liquidation.

The appeal focuses on the proper characterisation of certain policy provisions—whether they constitute representations or warranties—and the consequent application of the Insurance Act 2015.

Legal Issues Presented

1. Whether sub-clauses (ii) and (iii) of the "Duty of Assured Clause" in the insurance policy are representations subject to the duty of fair presentation under section 3 of the Insurance Act 2015, or warranties subject to sections 9 and 10 of the Act.
2. Whether the judge erred in construing sub-clauses (i), (ii), and (iii) together, thereby applying the wrong statutory framework to sub-clauses (ii) and (iii).
3. Whether sub-clauses (ii) and (iii), if warranties, comply with the transparency requirements set out in sections 16 and 17 of the Insurance Act 2015.
4. The implications of any breach of the conditions precedent contained in sub-clauses (ii) and (iii) on the insurer’s liability to indemnify under the policy.

Arguments of the Parties

Appellant's Arguments (Company C)

• Sub-clauses (ii) and (iii) are future warranties and conditions precedent to insurer liability, distinct from the pre-contractual representation in sub-clause (i).
• The judge erred by reading sub-clauses (i), (ii), and (iii) together, applying the duty of fair presentation (section 3) to all three, rather than treating (ii) and (iii) as warranties governed by sections 9 and 10.
• Because Company B breached these warranties by contracting with Company A on terms other than those declared to the insurer, Company C is entitled to avoid liability under section 10(2) of the Insurance Act 2015.
• The transparency requirements in sections 16 and 17 do not apply because there is no attempt to contract out of the Act’s provisions; the policy expressly incorporates the Insurance Act 2015.

Respondent's Arguments (Company A)

• Sub-clauses (ii) and (iii) should be construed as representations subordinate to sub-clause (i) and governed by the duty of fair presentation under section 3.
• The judge correctly found that the sub-clauses do not satisfy the transparency requirements, placing the assured in a worse position.
• Sub-clauses (ii) and (iii) do not constitute warranties or conditions precedent and thus the insurer’s remedies for breach are limited to those under the duty of fair presentation.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the relevant provisions of the insurance policy, focusing on the "Duty of Assured Clause" which contains five sub-clauses. It found that sub-clause (i) relates to declarations of existing trading conditions at policy inception and constitutes a representation governed by the duty of fair presentation under section 3 of the Insurance Act 2015.

Sub-clauses (ii) and (iii), by contrast, are forward-looking promises concerning the assured’s conduct during the policy period. Sub-clause (ii) requires the assured to continuously trade under declared and approved conditions, and sub-clause (iii) requires taking reasonable steps to incorporate trading conditions into contracts entered into during the policy period.

The court held that these latter two sub-clauses are future warranties and conditions precedent to insurer liability. Their wording and context within the policy, including the express statement that they are "conditions precedent to the liability of Underwriters," support this characterisation. The judge below erred by reading the three sub-clauses together and applying the duty of fair presentation to all, thereby failing to apply the correct legal framework to sub-clauses (ii) and (iii).

Under section 10(2) of the Insurance Act 2015, breach of a warranty suspends insurer liability for losses occurring after the breach and before remedy. Given the binding factual finding that the relevant trade terms were not incorporated into Company B's contracts with Company A, the warranties were breached and insurer liability is suspended for the losses claimed.

The court further considered the transparency requirements in sections 16 and 17 of the Act, which restrict contracting out of certain provisions. It found no evidence that the policy sought to contract out of the warranties’ legal effect, and the policy expressly incorporates the 2015 Act. Therefore, the transparency provisions do not apply to the sub-clauses in question.

The court rejected the respondent's notice grounds seeking to subordinate or restrict sub-clauses (ii) and (iii), finding these arguments strained and inconsistent with the natural meaning of the policy wording.

Holding and Implications

The court ALLOWED THE APPEAL on Grounds 3 and 6.

It held that sub-clauses (ii) and (iii) of the Duty of Assured Clause are future warranties and conditions precedent to insurer liability, governed by sections 9 and 10 of the Insurance Act 2015, not representations subject to the duty of fair presentation under section 3.

As a result, the insurer (Company C) is entitled to avoid liability for losses arising after the breach of these warranties and before any remedy, given the factual finding that Company B did not contract with Company A on the declared trade terms.

The court also found that the transparency requirements in sections 16 and 17 of the Act do not apply, as there was no attempt to contract out of the statutory provisions.

No new precedent was established beyond the application of the Insurance Act 2015 to the categorisation of policy terms and the consequences of breach of warranty in this context. The decision clarifies the distinction between representations and warranties in insurance policies and affirms the statutory framework for remedies on breach under the 2015 Act.