A mortgage lender left £16m out of pocket after an insurance company refused to pay out has won the money back following a High Court trial.
Lender UK Acorn Finance (UKAF) has already successfully sued surveying firm Colin Lilley Surveying (CLS) for over £13m for negligently overvaluing properties.
However, CLS’s professional indemnity insurer refused to pay out, citing “misrepresentations” and “non disclosures” on the part of CLS.
This led to a trial in December last year and a judgment, backing UKAF, this week.
At the trial, lawyers for UKAF urged to the judge to use the so called ‘Braganza test’, a reference to the Supreme Court ruling Braganza v BP Shipping of 2015.
“The Braganza test was set out by Lady Hale in the Supreme Court decision in that case,” said Georgina Squire in an emailed statement.
“Where a contract contains a right for one party to exercise its discretion in reaching a decision, or to form an opinion about relevant fact, there is an implied term that those contractual decision-making powers are not abused and so not used arbitrarily, irrationally or capriciously. This term may vary according to the terms of the contract and the context in which the decision-making power is given,” she said.
Squire, a lawyer at Rosaling King, represented UKAF.
At the hearing, the judge heard evidence that when a claims manager at insurer Markel went though the paperwork, he found non disclosures and misrepresentations, and therefore refused the claim.
But UKAF’s legal team used Braganza to argue that, as Markel was given discretion in its contract with CLS about whether or not to pay the claim, by law it had to act rationally and fairly. To do so, the team argued, Merkel had to prove that the misrepresentation and non disclosure was deliberate, and not accidental.
After cross-examining the witnesses, the judge hearing the case, Judge Pelling QC, found that the claims manager “failed to approach the dishonesty issue with and open mind”, and didn’t “bear in mind that it was more probable that a misrepresentation has been made innocently or negligently.”
As such, he found that they had failed the Braganza test, and ordered that they pay a total of £16m.
Squire said that the ruling is “a significant judgment”.
“It underlines the point that a party in a position of contractual power should always have the Braganza test in their mind when making a decision,” she said.
“It was expected that the Braganza test would be applied widely. Perhaps it has, though very few disputes over it appear to have gone to court and this is therefore all the more interesting.”
UK Acorn Finance Limited v Markel (Uk) Limited
QBD (Judge Pelling QC) 21 April 2020, handed down remotely under the Covid-19 Protocol
Mr Adam Kramer and Ms Sophia Dzwig (instructed by Rosaling King LLP) for the Claimant
Mr Michael Pooles QC and Mr Jack Steer (instructed by DWF Law LLP) for the Defendant
