Warning of the duty of disclosure

In Jones v Environcom Ltd (No 2) [2010] EWHC 759 (Comm) David Steel J analysed the duty of a broker in ensuring that the assured is aware of the scope of his duty of disclosure. The case also shows that the fact that a broker is in breach of duty does not mean that there is liability: if the risk would, with disclosure, not have been insurable, then it cannot be said that the broker’s breach has caused any loss.

Environcom: the facts

Environcom Ltd (EL) was engaged in the business of electrical goods waste recycling, operating from premises in Lincolnshire. In 2004 EL installed a state of the art refrigerator line which was designed to extract and destroy CFCs from scrap refrigerators. The work process involved the removal of compressors bolted to the bottom of the refrigerators. In most cases the bolts could be removed by spanner, screwdriver or hammer, but some had to be removed by the use of plasma guns. As explained by David Steel J, those devices work ‘by forcing a gas through a constricting tip charged with a high frequency electrical discharge between the electrodes and the tip. This ionises the gas to produce plasma which can achieve very high temperatures (over 15,000°C) at high velocities. When applied to the target material for cutting, the high temperature melts the part to cut, while the exit velocity of the gas removes the molten metal by blowing it away from the base of the cut’. The evidence showed that the use of plasma guns gave rise to a risk that hot metal splatter and sparks could ignite fridges being processed. It indeed proved to be the case that the plasma guns caused ignitions in fridges. There was also a series of fires. A small fire occurred on 21 December 2006, followed by a more serious one on 27 December 2006 which required the attendance of the fire brigade. Another small fire occurred on 15 March 2007. Finally, on 16 September 2007 there was a serious fire at the premises. It was the last of these fires which gave rise to the present proceedings.