Tokenspire Properties North Western bought the building in 1991. but by 1996 it wanted to sell it, and so entered into a sale agreement with a company called Legendary. Under that agreement, Legendary was entitled, before the transaction was completed, to do some work to the building, including the roof.
It therefore hired a roofing specialist to undertake the works. These later proved to be defective: rainwater leaked into two of the retail units below.
Proceedings were instigated to recover the loss incurred, which ultimately involved five parties in two separate actions. One of the interesting issues raised by the case was the question of recovery of loss. The cost of putting right defects had been incurred by the parent of Tokenspire North Western, Tokenspire Properties. However, the evidence was that North Western was a wholly owned subsidiary with no employees of its own.
Its parent was not a party to the proceedings and so the issue arose as to whether Tokenspire North Western could recover its parent's expenditure.
I use the term "expenditure" as distinct from "loss" advisedly. The judge believed that the argument that the parent's expenditure was not recoverable "confuses on the one hand the suffering of loss and, on the other, the incurring of expenditure in order to remedy that loss".
The court concluded that the freeholder, North Western, which was a party to the action, was "entitled to compensation in respect of that damage". The fact that the parent had borne the cost of putting right the damage was irrelevant (indeed, the parent's own expenditure had been met by its insurers).
Accordingly, the court followed the 1986 decision of Jones vs Stroud District Council. What this means is that the position between a parent and its subsidiary is analogous to the situation where an insurer meets a claim brought by someone with a policy that it has written – the amount paid can still be recovered from the wrongdoer.
In other words, it is no defence to say that the other party is insured, or that someone else has footed the bill.
This must be distinguished from cases where complex contractual chains and corporate structures mean that it is arguable that the party in the court proceedings never sustained the loss in question. Matalan reinforces the importance of identifying who has suffered the initial damage – and that is not necessarily the party that has paid to put it right.
A second issue raised by the case is joint insurance in relation to recovery of loss. In this case, insurers had "avoided" the joint insurance arranged.
Normally, a party jointly insured cannot then be sued by the insurers to recover the money paid out to the other insured. Did the fact that it was intended that there would be joint insurance prevent a claim?
The court held that a party could not rely on the intention to have joint insurance when insurers had avoided that policy legitimately. This finding is significant for all those in the industry who seek joint insurance policies as a way of limiting risk – that only works if they remain validly insured under the policy.
The court said that the protection would only apply "so long as cover in relation to the particular co-insured has not been avoided".
Although this case confirms that the courts will not readily find a legal black hole that leaves a party suffering a loss with no remedy, it does suggest that a party can end up with just such a black hole if it is not careful to make sure that a joint insurance policy remains valid.
Postscript
I would like to thank David Thomas of 2 Temple Gardens for the copy of the judgment. James Bessey is a partner specialising in construction dispute resolution at Hammond Suddards Edge, Birmingham.
