UK: High Court Rules in Relation to Basis of the Contract Clause
In Genesis Housing Association Ltd v Liberty Syndicate Management  EWHC 3105 (TCC) Mr Justice Akenhead held that Genesis was in breach of warranty for failing correctly to identify the builder of a construction project in a proposal form which contained a basis of the contract clause.
Paddington Churches Housing Association, part of the Genesis Housing Association Ltd Group (Genesis) (the claimants) entered into an agreement with a company called Time and Tide Bedford Ltd (T&T) to lease and refurbish certain property in Bedford for the purpose of providing affordable housing once the renovations were complete. As part of the arrangement, T&T were to approach MD Insurance Services (MD), who administered policies underwritten by Liberty Syndicate (the Defendant) to obtain insurance for the building and against T&T's insolvency.
This insurance was obtained and a proposal form was filled out by MD during a meeting with T&T (acting as agent for Genesis). That form contained a basis of the contract clause. The cover which was provided included cover protecting against insolvency of the builder of the project but the insurance proposal form wrongly identified the builder as Time & Tide Construction Ltd (a T&T group company)(T&T Construction) instead of T&T. In the event, much, if not all of the work was sub-contracted to another building firm by T&T. Subsequently, the subcontractor became insolvent, which led to administrators being appointed in respect of T&T and T&T Construction, with the aim of rescuing the companies as going concerns. In the event, that aim was not achieved, and T&T and T&T Construction were dissolved in 2010.
The principal issue to be decided was whether there had been a breach of warranty by Genesis in relation to the identity of the building contractor; part of that issue involved a consideration of whether the warranties in the proposal form were absolute warranties to the truth of the statements, or whether the statements were only warranted as true to the best of the proposer's knowledge and belief.
Akenhead J held that it was well established that basis of the contract clauses were enforceable and not contrary to public policy. He went on to state that there had been a clear error when the proposal form had been filled out, in that the builder was wrongly (but innocently) identified as T&T Construction, rather than T&T. However, although the error was innocent, Akenhead J held that at the time of signing the form, the statement that T&T Construction was to be the builder was clearly not true to the best of Genesis' knowledge and belief. Therefore, there had been a breach of warranty by Genesis such that it had no right to claim under the insurance.
This case illustrates the power of basis of the contract clauses and emphasises the care which should be taken when completing proposal forms which contain such a clause.
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