Zurich Insurance Company v Gearcross Ltd

Under contractual building guarantee rules, sums are recoverable on demand only if they are sums for which the developer is liable under the scheme. Liability requires proof that the work was defective, proper notice specified the remedial work, the developer failed to carry it out as soon as practicable, another contractor was instructed because of that failure, and the sum claimed relates to the notified work. A general notice does not create liability for later or more extensive work that was never notified. The burden remains on the guarantee provider to establish entitlement to the sum claimed. Summary judgment may therefore be limited to the properly notified and evidenced element of the expenditure.

Zurich operated a building guarantee scheme under which Gearcross, a registered developer, was responsible for remedying defects in a house. After remedial works were not completed, Zurich instructed other contractors and sought reimbursement under rule 40 of the scheme rules.

Zurich issued proceedings for £149,093.48 and applied under Civil Procedure Rules 1998 Part 24 for summary judgment. Gearcross disputed liability, the scope of the notified defects, and the relationship between the work identified in the notices and the total expenditure. The central issue was whether Zurich had established an unarguable entitlement to the whole sum demanded.

1. Application granted in part. The contractual rules required Zurich to establish liability before a sum could be recovered on demand. The characterisation of the claim as a debt rather than damages did not remove that requirement. The reasoning in Jervis v Harris [1996] Ch 195 did not alter the analysis.
2. The court identified five necessary matters: defective work amounting to breach of the rules; a notice specifying the remedial work; failure to carry out that work as soon as practicable; instruction of another contractor because of that failure; and a claimed sum relating to that work.
3. The September 2002 report and accompanying correspondence constituted a notice under rule 32(b). The relevant defects were confined to those identified in that report, incorporating the earlier report where appropriate. Gearcross had failed to carry out the notified work as soon as practicable, and Zurich had instructed other contractors to undertake it.
4. Later and more extensive works were not covered by the notices. Gearcross had not been told that those works were required and, in important respects, had been unable to inspect the property or monitor the remedial works. It would therefore be unjust to impose liability for those costs. Zurich retained the burden of proving its entitlement; the notice did not shift that burden to Gearcross.
5. The July 2004 demand for £36,538.64 was valid and related to properly notified work. The later demand of 25 November 2005 was not valid under the rules. Subject to confirmation that £22,500 had been recovered under a bank guarantee, judgment was proposed for the net balance of £14,038.64, with unconditional leave to defend for the remainder. Interest and costs were reserved.