What’s In A Name? The Effect Of A Basis Of The Contract Clause

The Technology and Construction Court decision of Mr Justice Akenhead in Genesis Housing Association Ltd v Liberty Syndicate Management Ltd for and on behalf of Syndicate 4472 at Lloyd's1provides a useful reminder of the consequences of providing inaccurate information in a proposal form where that information forms the basis of the contract. It confirms that the basis clause in a proposal form converts statements on a proposal form to warranties. It also considers the impact of a declaration in a proposal form as to the belief of the signatory as to the correctness of the information supplied.

Background

Time and Tide (Bedford) (TTB) owned the freehold to an office block in Bedford that had planning permission for redevelopment for residential use. TTB was part of a group of companies owned or at least run by two brothers, Graham and Perry Gamby. TTB granted leases to Genesis Housing Association (Genesis) to be rented on a social rent basis. TTB was engaged as the builder to carry out the development. Liberty Syndicate underwrote Premier Guarantee insurance for the development, via its underwriting agent MD Insurance Services Ltd (MD), which included insurance against the builder's insolvency.

The proposal form wrongly identified the builder as Time and Tide Construction Ltd (TT Construction). It contained a declaration that "I/we declare that to the best of my/our knowledge and belief, the information I/we have given is correct and complete in every detail and I/we have not withheld any material fact." It also contained a basis clause - "...this proposal form and the statements made therein shall form the basis of the contract between me/us and the Insurer". The whole of the proposal form was filled out by Mr Johnson of MD, and signed by Mr Graham Gamby for and on behalf of TTB and Genesis. It was common ground that TTB acted as an express or implied agent for Genesis in securing the cover. TTB became insolvent, generating a claim under the policy.

Amongst the issues considered by the court were:

1. Were the facts in the proposal form absolutely warranted as to their truth or did they merely have to be true to the best of the proposer's knowledge and belief?

2. Was the misstatement in the proposal as to the identity of the builder a breach of warranty such that Liberty Syndicates was discharged from liability?

   The law

   Five principles were drawn from the authorities considered by Akenhead J:

   1. It is well established that in principle 'basis...