Question 1 – Learning Outcome 2 (10 marks)

James has recently purchased a house. He works from his home and has an office in
one of the bedrooms of the house. Since moving into his house, James has found that
some of the neighbours are inconsiderate and he complains that: • His next door
neighbour has several dogs which bark throughout the day, preventing James from
working. • Several neighbours leave bags of rubbish on the street, which attracts rats.

(a) Explain, with justification, the two most relevant torts which may apply to the
circumstances above. (6)

(b) Identify, with justification, two remedies most likely to apply should either or both of
these torts be established. (4)

Answer to Question 1

(a) Relevant Torts Applicable to the Scenario (6 Marks)

The two most relevant torts in this case are private nuisance and public nuisance.

Private Nuisance:

Private nuisance occurs when a person’s use or enjoyment of their property is

unreasonably interfered with by another party.

According to Parsons et al, M05 (2023-2024) Ch 2E. A private nuisance is an unlawful

interference with a person’s use or enjoyment of their land (which includes houses and
buildings attached to it).

Private nuisance protects individuals’ rights to enjoy their property without substantial or
unreasonable interference Hunter v. Canary Wharf Ltd [1997], the court clarified that
only individuals with a legal interest in the affected land could sue for private nuisance,
The ruling affirmed that landowners have the right to develop their property without
being liable for nuisance claims based solely on the impact on neighbors’ enjoyment of
non-essential amenities. Since James is the owner of his home where his office is, he
has a right to sue for private nuisance.
According to Parsons et al, M05 (2023-2024) Ch E2A there are different forms of
private nuisance, the interference on the part of the defendant by wrongfully allowing
noxious things to escape from their own property so as to interfere with the claimant’s
land such as noise, smoke, smells, vibration, damp or vermin.

The persistent barking of the neighbor’s dogs constitutes a significant disruption,

particularly because James works from home. The interference is unreasonable given
its duration and impact on James’s ability to use his property for work.

Public Nuisance:

Public nuisance occurs when an act materially affects the comfort or convenience of a
community or section of the public.

According to Parsons et al, M05 (2023-2024) Ch 2E1, Public nuisance has been
defined as the ‘carrying on of an activity which is likely to cause inconvenience or
annoyance to the public, or a section of the public, or interference with a right common
to all’.

(Example 2.23 Parsons et al, M05 (2023-2024) Ch 2E1), Public nuisance could arise if
toxic fumes from a factory engulf a whole neighbourhood or if noise from a nightclub
keeps the whole local community awake.

Public nuisance applies to actions impacting multiple people (Attorney General v. PYA
Quarries Ltd [1957]), the Court of Appeal held that the activities of the quarry, which
caused significant dust, noise, and vibrations affecting a substantial number of local
residents, constituted a public nuisance. The court determined that a public nuisance
occurs when an action materially affects the reasonable comfort and convenience of a
class of Her Majesty’s subjects, and it is not necessary for every individual within that
class to be affected; a representative cross-section suffices. The ruling emphasized that
the nuisance was so widespread and indiscriminate that it was unreasonable to expect
an individual to take action on their own, thus justifying the granting of an injunction
against the quarry’s operations.
According to Parsons et al, M05 (2023-2024) Ch 2E1 Public nuisance is treated as a
crime because it affects the public at large. However, an individual who suffers ‘special
damage’ i.e. loss or inconvenience which is greater than that suffered by the general
public, may bring a civil action. James in the circumstance suffers special damage in the
form of leaving rubbish bags on the streets which attracts rats and the noise from the
barking dogs so he ha can take a civil action as an individual.

Neighbors leaving rubbish bags on the street attract rats, which pose health and
environmental risks. This affects not only James but also the broader public in the
neighborhood.

b. Remedies.

Injunction:

According to Parsons et al, M05 (2023-2024) Ch 2 N2. An injunction is a type of

equitable remedy. In some cases, an award of damages will be inappropriate or
inadequate.

In many cases, the claimant’s main wish will be to prevent in advance the commission
of a tort or stop the defendant from continuing to commit one.

(Example 2.32 Parsons et al, M05 (2023-2024) Ch 2 N2), The claimant may wish to
prevent the defendant from publishing a libellous book or stop them trespassing on
private land or cease an activity which is creating a nuisance.

A court may issue an injunction to compel the neighbor to take specific actions to
reduce or eliminate the nuisance caused by the barking dogs. This remedy ensures that
James can work undisturbed in his home office. The court’s authority to grant
injunctions is well-established in private nuisance cases, as seen in Shelfer v. City of
London Electric Lighting Co [1895], where the court emphasized that an injunction is
appropriate when damages are inadequate to address the harm.

Damages:
According to Parsons et al, M05 (2023-2024) Ch 2N1. The object of an award of
damages is to compensate the claimant by paying for the loss which the defendant has
caused by their wrongful act.

James may seek monetary compensation for any financial losses or diminished
enjoyment of his property due to the barking dogs. This could include loss of income if
his work is affected or compensation for emotional distress caused by the persistent
noise. The principle of damages in private nuisance is supported by cases such
as Sturges v. Bridgman [1879], the ratio decidendi established that a defendant
cannot claim a prescriptive right to cause a nuisance if the nuisance only became
apparent after a change in the surrounding circumstances, such as the construction of a
new building. In this case, the confectioner’s noisy activities were deemed a nuisance
only after the doctor built his consulting room adjacent to the confectionery, which had
previously operated without complaint for over twenty years. The court ruled that since
the doctor could not have legally prevented the noise before his construction, no
prescriptive easement could be established by the confectioner. This ruling is relevant
to similar scenarios where a new use of land leads to disputes over previously tolerated
activities; it underscores that changes in land use can shift the balance of what
constitutes a nuisance. Thus, in applying this principle, if James’s neighbor’s barking
dogs only became problematic after he began working from home, he could argue that
the nuisance claim is valid based on the changed circumstances of his property use.

In conclusion, the torts of private nuisance and public nuisance provide viable legal
frameworks for addressing James’s concerns, with remedies including injunctions,
damages, and regulatory enforcement.
Question 2 – Learning Outcome 3 (10 marks)

David, a motor mechanic, was asked to service a vehicle for Paulo. Paulo is a regular
customer of David, who has serviced Paulo's vehicles over many years. David
completed the service of Paulo's vehicle. Before he returned the vehicle to Paulo, David
fitted a new navigation device. After completion of the service, David told Paulo that he
had also fitted the navigation device and Paulo agreed to pay an additional £200 for this
work. Paulo subsequently paid for the servicing of the vehicle but refused to pay for the
fitting of the navigation device because he had not agreed to that work in advance.
Discuss whether Paulo is legally obliged to pay David for fitting the navigation device.
(10)

Answer to Question 2 – Learning Outcome 3 (10 Marks)

Scenario: Paulo, a regular customer of David, refuses to pay £200 for a navigation
device installed in his vehicle without prior agreement.

Legal Analysis of Paulo’s Obligation to Pay

To determine whether Paulo is legally obligated to pay, we must analyze the relevant
principles of contract law, focusing on offer, acceptance, consideration, implied terms,
and equitable remedies.

1. Formation of a Valid Contract

A contract requires four essential elements: offer, acceptance, consideration, and an

intention to create legal relations. In this case:

Agreement (Offer and Acceptance)

According to Parsons et al, M05 (2023-2024) Ch3 B. Formation of a valid contract
takes different five essentials for under English law: there must be an agreement, which
in English law is generally shown by offer and acceptance; there must be the intention
to create legal relations; there must be consideration (in the case of simple contracts)
e.g. a promise to pay the agreed premium; the agreement must be in the form required
by law (if any); the parties must have capacity to contract.

Therefore a contract is formed when there is an offer, acceptance, consideration, and

an intention to create legal relations.

In English law, agreement is usually established by a process of offer and acceptance

(Parsons et al, M05 (2023-2024) Ch3 B1), David’s unilateral decision to install the
device does not constitute an agreement. In Carlill v. Carbolic Smoke Ball Co.
(1893), the court emphasized that mutual consent is necessary for binding terms.

In regards to Offer, David did not make an initial offer to install the navigation
device.

According to Parsons et al, M05 (2023-2024) Ch3 B1A. An offer is a clear expression
by the offeror of their willingness to enter into a legally binding agreement, which
becomes enforceable as soon as the offeree accepts it. Offers can be made in writing,
orally, by conduct, and can be directed to individuals, groups, or the public. The defining
feature of a true offer is the intention to be immediately bound by its acceptance, without
further negotiation.

This distinguishes it from an invitation to treat, which is merely an invitation to negotiate

or make an offer. For example, in Pharmaceutical Society of Great Britain v. Boots
Cash Chemists (1953), the court held that picking up goods in a self-service store
constituted an offer to buy, which was accepted by the cashier upon payment, showing
that price-marked goods in a shop are generally invitations to treat.

For an offer to be legally effective, it must be communicated to the offeree. Acceptance

without prior knowledge of the offer does not create an entitlement to the reward.
(Parsons et al, M05 (2023-2024) Ch3 B1A).
Therefore, there was no offer made in the event, David fitting in a new navigation device
required that he makes an offer to Paulo that he intends to fit in a navigation device at a
cost of £200.

Regarding Acceptance: Paulo agreed to pay the additional £200 after the work was
completed. This +post-performance agreement raises issues of enforceability since
acceptance must typically precede performance.

According to Parsons et al, M05 (2023-2024) Ch3 B2. If an offer has been made, a
contract will come into existence when the offer is accepted, provided all the essential
terms of the contract are agreed. The first key point to make is that acceptance must be
unqualified; in other words it must exactly match the terms of the offer.

In the case of Carlill v. Carbolic Smoke Ball Co [1892], the court held that the
advertisement constituted an offer to the world at large and that acceptance occurred
when someone performed the conditions stated in the advertisement (i.e., using the
product as directed).

Acceptance cannot precede an offer. For instance, in Fisher v. Bell [1961], the court
held that displaying goods with price tags in a shop is an invitation to treat, not an offer.
A customer makes an offer when they present the item for purchase, which can then be
accepted or rejected by the seller.

Therefore, the installation of the navigation device can be interpreted as a new offer for
a valid acceptance to occur, Paulo had to first agree to this new term. However, Paulo
subsequently refused to pay for this additional work on the grounds that he had not
agreed to it in advance. This refusal indicates that there was no acceptance of David’s
new offer concerning the navigation device, meaning no contract was formed for that
specific work.

Consideration:
According to Parsons et al, M05 (2023-2024) Ch3 B4. Consideration in contract law
refers to something of value exchanged between parties when entering into a contract.
It can be defined as the price paid for a promise, where one party provides something of
value to the other in return for a promise or performance. This can take various forms,
including money, services, or goods, and may also involve a detriment to the promisee
or a benefit to the promisor.

The essence of consideration lies in its role as a “bargained-for exchange,” which

transforms a mere promise into an enforceable contract.

As established in Currie v. Misa (1874), consideration may consist of rights, interests,

profits, or benefits accruing to one party, or forbearance, detriment, loss, or
responsibility undertaken by the other party. Thus, consideration is essential for a
contract to be legally binding; without it, promises remain unenforceable under the law.

According to Parsons et al, M05 (2023-2024) Ch3 B4A. There are five main rules of
consideration to wit, consideration must be real or genuine, consideration need not be
adequate, consideration must not be past, consideration must move from the promisee
but most importantly we shall place emphasis on one rule of consideration must not be
past.

Consideration must not be past. Consideration must be given in exchange for the
promise which it supports; in other words, the two must be linked from the beginning. It
follows that when services have already been given for nothing, a promise to pay for
them made afterwards is not good consideration. If an act is done for which no payment
was fixed, a promise to pay which is made afterwards will be binding if the act was done
at the request of the promisor and the understanding between the parties was that
payment was to be made. Here, there is an implied promise to pay a reasonable sum
for the work. This rule covers the common situation when a job is done on a non-
consumer (business) basis but the price is agreed afterwards. (Parsons et al, M05
(2023-2024) Ch3 B4A)

In this case, David completed servicing Paulo’s vehicle and subsequently fitted a
navigation device without prior agreement on this additional work. When David informed
Paulo about the installation and sought an additional £200, Paulo refused to pay,
claiming he had not agreed to that work in advance. This illustrates the principle of past
consideration; since the navigation device was installed before any agreement on
payment was reached, David’s promise to charge Paulo for this work cannot be
enforced under contract law.

Intent to Create Legal Relations: Both parties are engaged in a commercial

transaction, which typically implies intent to create binding legal obligations.

The principle of intention to create legal relations requires that both parties involved in
an agreement have a mutual intention to enter into a legally binding contract. In
commercial contexts, there is a strong presumption that such intent exists, as seen
in Esso Petroleum v. Commissioners of Customs and Excise [1976], where
promotional offers were deemed intended to create legal relations due to their
commercial nature. Conversely, in domestic arrangements, such as in Balfour v.
Balfour (1919), the courts typically presume that there is no intention to create legal
relations.

The courts apply an objective test to assess this intention, focusing on how a
reasonable person would interpret the parties' actions and communications, as
demonstrated in Carlill v. Carbolic Smoke Ball Co [1893].In the case of David and
Paulo, their longstanding business relationship implies an intention to create legal
relations concerning vehicle servicing; however, this does not automatically extend to
the fitting of the navigation device without prior agreement. While David’s request for an
additional £200 after installing the device occurred within a commercial context, Paulo’s
refusal to pay indicates he did not intend for this specific arrangement to be binding.
Although there may be an implied understanding based on their history that additional
work could be performed with notice, without explicit agreement on payment
beforehand, Paulo can assert that he did not intend for this particular service to
constitute a legally enforceable contract. Thus, the principle of intention to create legal
relations suggests that David may face challenges in enforcing payment for the
navigation device installation.
In conclusion, Paulo is not legally obliged to pay David for fitting the navigation device
due to the absence of an agreement that consist offer and acceptance and past
consideration. Consideration must be provided in exchange for a promise, and it cannot
be based on actions or services rendered before the promise is made. In this case,
David completed the installation of the navigation device before obtaining Paulo’s
agreement to pay for it. Since Paulo did not consent to this additional work beforehand,
David’s subsequent request for payment constitutes an attempt to enforce a promise
based on past consideration, which is generally not recognized as valid under English
law.

Question 3 – Learning Outcome 4 (10 marks)

Yves is a self-employed contracts manager who is used by AB Ltd, a property

development company, to source suppliers on its behalf. Yves is asked by the Board of
AB Ltd to liaise with NMO Ltd, a firm of architects, to obtain a quotation from NMO Ltd,
in relation to a large property that AB Ltd intends to develop. Yves receives the
quotation and instructs NMO Ltd to draw up a plan for the development and assist in the
planning process. NMO Ltd agrees to take on the work and incurs considerable costs in
producing a development plan and seeking planning permission on behalf of AB Ltd. AB
Ltd refuses to pay the costs incurred by NMO Ltd. AB Ltd states that Yves had no
authority to instruct NMO Ltd to proceed with any work, without the consent of its Board.
Discuss whether AB Ltd is legally obliged to pay the costs incurred by NMO Ltd, in
drawing up a development plan and assisting in the planning process. (10)

Draft Answer to Question 3 – Learning Outcome 4 (10 Marks)

Scenario: Yves, acting as an agent for AB Ltd, instructs NMO Ltd to undertake work on
a property development project without Board approval. AB Ltd disputes liability for the
costs incurred.

Discussion on Legal Obligation

To determine whether AB Ltd is liable to pay NMO Ltd, the principles of agency law
must be examined.
1. Nature of Agency and Authority

Agency is a fiduciary relationship where one party (the agent) acts on behalf of another
(the principal). The authority granted to the agent determines the principal’s liability.

Actual Authority:

Definition: Authority expressly or impliedly granted to the agent by the principal (Hely-
Hutchinson v. Brayhead Ltd [1968]).

Application: Yves lacked actual authority to instruct NMO Ltd as the Board did not
explicitly approve the work.

Apparent Authority:

Definition: Authority a third party reasonably believes the agent possesses based on the
principal’s representations (Freeman & Lockyer v. Buckhurst Park Properties [1964]).

Application: If AB Ltd, through its actions, created an impression that Yves had
authority, NMO Ltd could argue they relied on this representation in good faith.

Usual Authority:

Definition: Authority customary in the agent’s position or role (Watteau v. Fenwick

[1893]).

Application: As a contracts manager, Yves’s instruction to NMO Ltd might fall within the
usual scope of his authority.

2. Principal’s Liability for Agent’s Actions

Even if actual authority is absent, AB Ltd may still be liable under the following
circumstances:

Ratification:
Legal Principle: A principal can ratify unauthorized actions by expressly or implicitly
approving them after the fact (Keighley Maxsted & Co v. Durant [1901]).

Application: If AB Ltd benefits from NMO Ltd’s work, ratification could be inferred,
making AB Ltd liable for the incurred costs.

Estoppel:

Legal Principle: A principal who allows third parties to believe the agent has authority
cannot later deny liability (Central London Property Trust v. High Trees House Ltd
[1947]).

Application: If NMO Ltd relied on AB Ltd’s apparent representations, AB Ltd may be

estopped from denying liability.

3. Application of Principles to the Scenario

Yves’s authority to instruct NMO Ltd without prior approval is questionable due to the
Board’s restriction.

However, NMO Ltd can argue apparent authority based on Yves’s position and previous
dealings on behalf of AB Ltd.

If AB Ltd derived any benefit from the work undertaken, they might be deemed to have
ratified Yves’s actions.

Conclusion

AB Ltd is likely liable to pay NMO Ltd for the costs incurred:

Yves’s usual authority as a contracts manager, combined with potential apparent

authority, supports NMO Ltd’s claim.

Ratification and estoppel further strengthen NMO Ltd’s case, especially if AB Ltd
benefits from the development plan.
Thus, AB Ltd’s refusal to pay would likely fail under agency law principles.

Answer to Question 3 – Learning Outcome 4 (10 Marks)

Scenario: Yves, a contracts manager for AB Ltd, instructed NMO Ltd to perform work on
a property development project without obtaining prior approval from the Board. AB Ltd
disputes liability for the incurred costs, claiming Yves had no authority to act on its
behalf.

Legal Analysis of Principal-Agent Relationship and Authority

The relationship between Yves (the agent) and AB Ltd (the principal) is governed by the
principles of agency law. Key to resolving this dispute is examining the scope of Yves’s
authority and its implications for AB Ltd’s liability.

According to Parsons et al, M05 (2023-2024) Ch 4A Agents serve as intermediaries or

“middlemen” in various transactions. Their responsibilities extend beyond merely
facilitating contracts; they may also engage in tasks related to the execution of
contractual obligations after the contract has been established.
The principal-agent relationship can be established in three primary ways: through an
agreement (or mutual consent), by ratification, and by necessity. (Parsons et al, M05
(2023-2024) Ch4 A1)

The primary method through which this agency relationship was created is through an
agreement between the principal and the agent. (Parsons et al, M05 (2023-2024) Ch4
A2). In this case, Yves, as a contracts manager for AB Ltd, was tasked by the Board to
liaise with NMO Ltd to obtain a quotation for a development project. This indicates that
there was an express agreement between AB Ltd and Yves, granting him the
authority to act on behalf of the company in relation to sourcing suppliers.
Therefore, the agency relationship between Yves and AB Ltd was primarily created
through agency by agreement, as evidenced by his role as contracts manager tasked
with engaging suppliers.

To determine whether AB Ltd is liable to pay NMO Ltd, the principles of agency
basically regarding the authority must be examined.

There are different types of Authority under agency law and these are Actual authority
and apparent authority.

According to Parsons et al, M05 (2023-2024) Ch4 F. The main distinction between
actual authority and apparent (or ostensible) authority lies in the nature of the
agent’s power to act on behalf of the principal.

Actual Authority:

Actual authority refers to the genuine power granted to an agent, allowing them to act
on the principal’s behalf, either explicitly through direct instructions or implicitly through
their role. (Parsons et al, M05 (2023-2024) Ch4 F)

Actual authority can itself take two forms: • express actual authority and implied actual
authority (Parsons et al, M05 (2023-2024) Ch4 F1)

According to Parsons et al, M05 (2023-2024) Ch4 F1A. Express actual authority arises
from the specific instructions given to an agent, detailing what actions are required and
permitted. These instructions are part of the agency agreement and can be
communicated either orally or in writing. If the instructions are unclear, the agent should
seek clarification from the principal. However, if the principal is unreachable, the agent
will not be held liable as long as they acted in good faith and reasonably interpreted the
instructions, even if their interpretation differed from the principal’s original intent.

According to Parsons et al, M05 (2023-2024) Ch4 F1B. Implied actual authority First,
agents have implied authority to do anything which is incidental to, or necessary for the
carrying out of their express instructions.

In Hely-Hutchinson v. Brayhead Ltd [1968], actual authority was recognized where

the agent acted within the scope of instructions provided by the principal.

In the instant facts, Yves did not have express authority to instruct NMO Ltd to
undertake the work because AB Ltd explicitly stated that such actions required
Board consent. This implies that any direct instructions from AB Ltd to Yves did not
authorize him to act beyond obtaining a quotation.

Apparent Authority:

Authority a third party reasonably believes the agent possesses due to the principal’s
conduct or representations.

According to Parsons et al, M05 (2023-2024) Ch4 F. Apparent authority exists when an
agent does not have real authority but appears to have it in the eyes of a third party.
This perception enables the agent to bind the principal in transactions, even though they
lack the actual authority to do so.This perception enables the agent to bind the principal
in transactions, even though they lack the actual authority to do so.

In Freeman & Lockyer v. Buckhurst Park Properties [1964], the court held that
apparent authority arises when the principal’s conduct leads a third party to believe the
agent has authority.

If NMO Ltd reasonably believed Yves was authorized to instruct them—based on his
position or prior dealings—apparent authority may apply. AB Ltd’s failure to clarify
Yves’s lack of authority could lead to liability under this doctrine.
According to Parsons et al, M05 (2023-2024) Ch4 F2A Validly appointed agent with
restricted authority

(Example 4.16 Parsons et al, M05 (2023-2024) Ch4 F2) In Watteau v. Fenwick
(1893), the defendant appointed a manager of his public house. The licence was taken
out in the name of the manager (a Mr Humble) whose name appeared over the door.
The manager bought cigars on credit from Watteau. This transaction was within the
usual authority of a public house manager, although Fenwick had, in fact, forbidden him
to buy cigars. Watteau was successful in his claim against the defendant for the cost of
the cigars because he had no knowledge that the usual authority of the agent had been
restricted.

In the instant facts, Yves and AB Ltd, if Yves instructed NMO Ltd to proceed with work
on a development plan without explicit authority from AB Ltd’s Board, but NMO Ltd
reasonably believed that Yves had the authority to do so based on his role as a
contracts manager, then AB Ltd may be held liable for the costs incurred. Just as
Watteau was unaware of any limitations placed on Mr. Humble’s authority to purchase
cigars, NMO Ltd may not have known that Yves’s authority was restricted. Therefore, if
it can be shown that Yves acted within what would typically be expected of someone in
his position, AB Ltd could be bound by his actions, similar to how Fenwick was held
liable for the purchases made by his manager despite having forbidden such actions.

Legal Precedent: In Watteau v. Fenwick [1893], the court ruled that an agent could
bind the principal for acts typically associated with their role, even if specific instructions
were lacking. As a contracts manager, Yves’s instruction to engage NMO Ltd may be
considered within the usual scope of his authority, given his responsibility for sourcing
suppliers and liaising with third parties.

Yves’s instruction to NMO Ltd exceeded his actual authority, as the Board’s approval
was required. However, this does not absolve AB Ltd of liability under the apparent
authority principle.
NMO Ltd could argue that Yves’s role as contracts manager reasonably suggested he
had authority to engage their services.

In conclusion, Yves’s apparent l authority as contracts manager likely bind AB Ltd to

pay NMO Ltd. Therefore, AB Ltd is liable for the costs incurred by NMO Ltd, despite
Yves’s lack of actual authority.

Question 4 – Learning Outcome 5 (30 marks)

You are a claims handler for ZZ Ltd, an insurer that provides building and contents
insurance for domestic properties. Safi owns a domestic property that is insured with ZZ
Ltd for buildings and contents cover. Safi moves out of the property and rents it to a
close friend, Danny, on a part-furnished basis. Subsequently, a flood occurs in the
property causing a large amount of damage. Safi submits a claim to ZZ Ltd for the
damage to the building and for the damaged contents. You have established that the
following facts were not disclosed to ZZ Ltd:

• The change of occupancy from Safi to Danny.

• Safi was recently convicted of dangerous driving which occurred during the policy
period but before the flood. You are asked to consider the validity of Safi's claim.

(a) Explain, with justification, the impact of insurable interest on the claim made by Safi
for the damage to the building and contents. Refer to one relevant case in support of
your explanation. (12)

(b) Discuss the potential impact of the non-disclosed facts on the claim made by Safi.
Refer to one relevant statute in support of your discussion. (18)
Question 4 – Learning Outcome 5 (30 Marks)

Safi submitted a claim to ZZ Ltd. for flood damage but failed to disclose a change in
occupancy and a driving conviction.

Introduction

This question revolves around the principles governing the formation and enforcement
of insurance contracts, particularly the concepts of insurable interest, fair presentation,
and non-disclosure. The Insurance Act 2015 (IA 2015) plays a critical role in
determining the validity of Safi’s claim and the insurer’s rights.

(a) Insurable Interest (12 Marks)

Concept of Insurable Interest

Insurable interest requires that the insured has a legal or financial interest in the subject
matter of the insurance, ensuring that the insured suffers a loss if the insured event
occurs (Study Text, Section 5B).

Safi, as the property owner, maintains insurable interest despite renting it to Danny.

Relevant Case Law

In Lucena v. Craufurd (1806), the court held that insurable interest exists if the insured
stands to benefit from the preservation of the insured property or suffers a loss from its
destruction.

Application to Safi

Safi’s ownership confirms her insurable interest in the building and its contents. The
change in occupancy does not negate this interest unless explicitly excluded in the
policy terms.
(b) Non-Disclosure (18 Marks)

Duty of Fair Presentation

Under IA 2015, non-consumer policyholders must disclose material facts that would
influence the insurer’s underwriting decision. Safi’s failure to disclose the change in
occupancy and conviction may breach this duty (Study Text, Section 6A).

Impact of Non-Disclosure

Materiality: A material fact is one that would influence the insurer’s assessment of risk.
Both undisclosed facts could be deemed material.

Remedies for Breach:

If the non-disclosure was deliberate or reckless, ZZ Ltd. can void the policy.

If it was innocent, the remedy depends on how the insurer would have acted if aware of
the facts.

Case Law and Statutory Reference

Pan Atlantic Insurance v. Pine Top Insurance (1995) clarified materiality as facts
influencing a prudent underwriter.

IA 2015 governs the remedies available to insurers, ensuring proportionality between

the breach and the consequences.

Conclusion

Safi’s claim may be affected by her failure to disclose material facts. While her insurable
interest remains valid, the non-disclosure could lead to partial or complete denial of the
claim, depending on the insurer’s stance and the breach's nature.

(References: Study Text, Sections 5B and 6A, IA 2015.)

Question 4 – Learning Outcome 5 (30 Marks)

(a) Impact of Insurable Interest on Safi’s Claim (12 Marks)

Definition of Insurable Interest.

According to Parsons et al, M05 (2023-2024) Ch4 B1. Insurable interest refers to the
legal entitlement to obtain insurance, which stems from a recognized financial
relationship between the insured party and the subject of the insurance. This
relationship may involve ownership rights or other types of rights. What is essential
is that the insured must face a potential financial loss if the subject matter of the
insurance is lost or damaged.

Parsons et al, M05 (2023-2024) Ch4 B2 the key elements of insurable interest include
a subject matter of insurance, the policyholder must have an economic or
financial interest in the subject matter of insurance, the interest must be a current
interest, not merely an “expectancy” and the interest must be a legal interest. .

The interest must be a current interest, not merely an “expectancy”. Insurable

interest must exist at the time of loss, and in life insurance, also at the time of policy
inception. For property insurance, the key is whether the interest exists at the time of
the claim. At the time of the flood, Safi remains the property owner and retains
responsibility for maintaining the building and its structural integrity. Therefore, her
insurable interest in the building and her own contents is valid at the time of loss.

The case of Lucena v. Craufurd (1806) (Parsons et al, M05 (2023-2024) Ch4 B2C),
the dispute arose from a policy of insurance taken out by Crown commissioners on
enemy ships that had been seized by British vessels. The ships were still at sea, and
the statute under which the seizure was made only permitted such actions when the
vessels were in British ports or waters. When some of these ships were lost at sea, the
commissioners sought to claim under their insurance policy. The central question was
whether the commissioners had an insurable interest in the ships at the time of loss.
The House of Lords ultimately ruled that they did not have an insurable interest
because, at the time of the loss, they had no legal right or current interest in the
ships; their authority was limited to ships that had been detained or brought into
British ports.

In his judgment, Lord Eldon articulated a crucial definition of insurable interest; “An
insurable interest is a right in the property or a right derived out of some contract in the
property which in either case may be lost upon some contingency affecting the
possession or enjoyment of the property.” For an individual or entity to have an
insurable interest, they must possess a legal right in the property being insured. Mere
expectancy, such as hope for future gain without a legal basis, does not constitute
insurable interest.

In applying this principle to Safi’s situation with ZZ Ltd, it is important to recognize that
Safi retains an insurable interest despite having rented out his property to Danny.
Although he no longer occupies the premises, his ownership gives him a current
financial stake in both the building and its contents. If damage occurs to either, Safi
would face financial loss due to his ownership responsibilities and potential liability.
Safi’s situation aligns with Lord Eldon’s definition because he has a legal right derived
from his ownership of the property.
In conclusion, Safi’s claim satisfies the requirements of insurable interest for both the
building and the contents she owns. Her ownership provides the legal and financial
basis for her claim, aligning with the principles outlined in Lucena v. Craufurd. While she
retains an insurable interest in the building, her claim for contents is limited to those she
owns.

(b) Discuss the potential impact of the non-disclosed facts on the claim made by Safi.
Refer to one relevant statute in support of your discussion. (18)

The two non-disclosed facts are; the change of occupancy from Safi to Danny and
Safi’s conviction for dangerous driving during the policy period.

In the United Kingdom, non-disclosure of material facts can significantly impact the
validity of an insurance claim. The principle of utmost good faith (uberrima fides)
obliges policyholders to disclose all material facts that may influence the insurer’s
decision to accept the risk or set the premium.

Parsons et al, M05 (2023-2024) Ch4 B2C, the Insurance Act 2015 3(4)(a) provides
that the insured is required to disclose every material circumstance which the insured
knows or ought to know.

Duty of Fair Presentation Insurance Act 2015 s.3

Policyholders must make a fair presentation of the risk. This involves disclosing every
material circumstance that they know or ought to know, or providing sufficient
information to prompt further inquiries by the insurer.

A material fact is one that would influence the judgment of a prudent insurer in deciding
whether to accept the risk and on what terms.

According to the Insurance Act 2015 s.7(3) (I.A) circumstance or representation is

material if it would influence the judgment of a prudent insurer in determining whether to
take the risk and, if so, on what terms.
The Insurance Act 2015 s.7, material facts are described as; a circumstance is
considered material if it could affect a prudent insurer’s decision-making regarding
whether to accept the risk and under what terms. This means that any information that
might influence an insurer's assessment of risk is crucial and must be disclosed by the
policyholder. Parsons et al, M05 (2023-2024) Ch4 B2.

Was the Non-Disclosure Deliberate or Reckless?

To determine if Safi’s non-disclosure is a deliberate or reckless breach under the

Insurance Act 2015:

The change in occupancy is material as it increases risks like reduced maintenance or

tenant-related damages. If Safi knowingly withheld this information, it is a deliberate
breach; if Safi disregarded its importance, it is reckless. If Safi misunderstood or was
unaware of the obligation, the breach is likely careless.

The driving conviction is material as it impacts Safi’s risk profile and could affect the
insurer’s decision. If Safi knowingly withheld it, this is a deliberate breach. If the failure
was due to misunderstanding its significance, it is likely careless non-disclosure.

Impact of Non-Disclosure on the Claim

Under the Insurance Act 2015, the remedies available to ZZ Ltd depend on whether the
non-disclosure was deliberate/reckless or careless:

Under s.8 of the Insurance Act 2015, an insurer can seek a remedy for a breach of the
duty of fair presentation only if it can demonstrate that the breach had a significant
impact on its decision-making process regarding the insurance contract.

Specifically, the insurer must show that, had the breach not occurred, it either would not
have entered into the contract at all or would have done so only on different terms. The
focus is on whether the breach materially affected the insurer’s judgment, reflecting
principles established in previous case law, such as Pan Atlantic Insurance Co Ltd v
Pine Top Insurance Co Ltd.

Under Schedule 1 of the Insurance Act 2015, if a breach is deliberate or reckless,

the insurer may avoid the contract, refuse all claims, and retain the premiums paid. If
the breach is careless (not deliberate or reckless), the insurer's remedies depend on
what they would have done had the correct information been disclosed. If the insurer
would not have provided cover, they may avoid the contract but must return the
premiums. If they would have offered cover on different terms, the policy is treated as if
those terms applied. If a higher premium would have been charged, the claim payout
can be reduced proportionately. Applying this to Safi’s case, the change of occupancy
and driving conviction are material facts. If these breaches are deemed deliberate or
reckless, ZZ Ltd can avoid the policy and refuse Safi’s claim while retaining the
premiums. If the breaches are careless, ZZ Ltd may apply proportionate remedies, such
as reducing the claim or treating the policy as if different terms applied.

Under Schedule 1 of the Insurance Act 2015, if a breach is deliberate or reckless,

the insurer can terminate the policy from the time of the variation and retain all
premiums. If the breach is careless and the insurer would not have agreed to the
variation, they can treat it as if it was never made and return any extra premium. If the
insurer would have agreed on different terms or a higher premium, the policy is adjusted
as such, and the payout may be reduced proportionately.

In Safi’s case, the change of occupancy and dangerous driving conviction are qualifying
breaches. If deliberate or reckless, ZZ Ltd can terminate the policy and refuse the claim.
If careless, ZZ Ltd may either adjust the policy as if stricter terms applied or reduce the
claim payout in line with what they would have charged.

In conclusion, under the Insurance Act 2015, Safi’s failure to disclose the change of
occupancy and dangerous driving conviction are material breaches. If deemed
deliberate or reckless, ZZ Ltd can terminate the policy, reject the claim, and retain the
premiums. If careless, ZZ Ltd may reduce the claim payout proportionately or apply
terms they would have imposed had the facts been disclosed. Thus, ZZ Ltd has strong
grounds to reject or limit Safi’s claim based on the nature of the breaches.
Answer to Question 5 – Learning Outcome 6 (20 Marks)

(a) Legal Classification of the Terms

According to Parsons et al, M05 (2023-2024) Ch3 C2, contracts can be classified into
express terms and implied terms. Express terms are those explicitly stated by the
parties, either verbally or in writing, during their agreement. In contrast, implied terms
are not directly stated but still form part of the contract.

In the instant facts, the terms—electrical system inspection and emergency vehicle
access—are express terms, as they are explicitly included in the policy.

The terms of a contract can be further classified into conditions and warranties. This
classification is largely based on the importance of the terms in question and the
consequences if they are broken per Parsons et al, M05 (2023-2024) Ch3 C4

Warranties are defined in the Insurance Act 1906 s.33(1) with regard to marine
warranties, and the common law has developed in parallel in regard to other types of
insurance. A warranty “must be exactly complied with, whether material to the risk or
not”.

Electrical System Inspection; the requirement to inspect electrical systems every five
years is a warranty, as it ensures the insured’s proactive maintenance of safety
measures. Case law such as The Good Luck [1992] 1 AC 233 highlights that
breaching a warranty suspends the insurer's liability until the breach is remedied.

Emergency Vehicle Access; the term requiring emergency vehicle access is also likely a
warranty, given its importance in reducing risk and facilitating emergency response. In
Fargnoli v GA Bonus Plc [1997] C.L.C. 653, it was confirmed that the breach of a
warranty prevents recovery if the breach is material to the risk.

In conclusion, both terms are express warranties under the policy. The breach of these
warranties may suspend BB plc’s liability, but under the Insurance Act 2015, the insurer
must prove that the breach increased the risk of the specific loss. This classification is
essential to determining whether the insurer can validly reject the claim or treat the
policy as void.

(b) Validity of BB plc’s Statement

(i) Electrical Systems Inspection

Under the Insurance Act 2015, a breach of warranty does not automatically void the
policy but suspends the insurer’s liability during the period of non-compliance. The
insurer must also demonstrate that the breach increased the risk of the specific loss that
occurred.

In this case, the term requiring an electrical system inspection every five years is a
warranty. DGM Ltd breached this warranty by failing to inspect the electrical system for
six years, and the defective system caused the fire.
Under the Insurance Act 2015 s.10(2), BB plc has no liability for losses occurring while
a warranty is breached, but liability can resume if the breach is remedied. In the case of
the electrical system inspection warranty, DGM Ltd’s failure to inspect the system for six
years constitutes a breach, and liability for the fire loss (caused by the defective system)
is suspended. Since the breach was not remedied before the loss, BB plc is not liable
for this claim.

The effect of s.10(2) is that breach of warranty by an insured suspends the insurer’s
liability under the insurance contract from the time of the breach, until such time as the
breach is remedied. The insurer will have no liability for anything which occurs, or which
is attributable to something occurring, during the period of suspension.

Secondly, according to the Insurance Act 2015 s.11, if the breach is not causally
connected to the loss, the insurer may still be liable. However, here, the lack of
inspection is directly linked to the fire, making BB plc’s rejection of the claim valid.

The Insurance Act s.10(4) ensures that an insurer is liable for; losses before the
breach and subsection (4a) provides for any losses that occurred before the breach
remain covered.

Whereas subsection (4b) provides for remedied breaches; if the breach is fixed before
the loss occurs, liability resumes. Here, the electrical system was never inspected
(breach unremedied), and the fire occurred during the breach, so BB plc can validly
deny liability.

The breach directly caused the fire, and it was not remedied before the loss. Under
Section 10(2), BB plc’s liability is validly suspended, and they can reject this part of the
claim.

In the case of The Good Luck [1992] 1 AC 233 supports that breach of a warranty
critical to the risk can suspend liability until compliance is restored. Since the breach
increased the risk of fire, BB plc’s stance is reasonable.
(ii) Emergency Vehicles Access

The warranty requiring emergency vehicle access addresses risk mitigation but is not
causally connected to the fire’s occurrence.

Under Insurance Act 2015 s.10(2), BB plc has no liability for losses occurring while a
warranty is breached, but liability can resume if the breach is remedied. The emergency
vehicle access warranty, although the breach occurred, it did not directly cause the fire.
The delayed emergency response might have exacerbated the damage, but it does not
suspend liability for the primary loss.

The Insurance Act s.10(4) also ensures that an insurer is liable for:

Losses before the breach (4a): Any losses that occurred before the breach remain
covered and subsection (4b) provides for remedied breaches, if the breach is fixed
before the loss occurs, liability resumes. Here, the emergency vehicle access warranty,
the issue arose during the fire, not before, and is less directly tied to the loss.

Although emergency response was delayed due to guest cars blocking access, the fire
was already caused by the defective electrical system. the Insurance Act 2015 s.11
limits the insurer’s ability to avoid liability unless the breach significantly increased the
risk of the specific loss.

In Fargnoli v GA Bonus Plc [1997] C.L.C. 653, it was held that a breach of warranty
not linked to the cause of loss does not necessarily void a claim. Here, the breach may
have aggravated the damage but did not cause the fire, making BB plc’s rejection of the
claim on this ground less valid.

Although the breach may have delayed firefighting efforts, it was not causally
connected to the fire’s occurrence. s.10(4) suggests BB plc cannot deny liability
unless they prove the breach increased the risk of the fire itself.

In conclusion under the Insurance Act 2015, BB plc can validly deny liability for the
fire caused by the breach of the electrical system warranty, as it directly contributed
to the loss. However, rejecting the claim based on the emergency vehicle access
warranty is less defensible, as the breach did not increase the risk of the fire. BB plc’s
stance is partially valid but needs careful differentiation between the two breaches.

Question 6 – Learning Outcome 7 (20 Marks)

(a) Doctrine Applicable to Evie’s Collision (5 Marks)

Proximate Cause

The doctrine of proximate cause applies. It identifies the most direct and dominant
cause of loss. In this case, the horse’s escape was the proximate cause of Evie
swerving and hitting the gate.

Leyland Shipping v. Norwich Union (1918) established that the proximate cause is not
necessarily the last event but the effective one.

(b) Impact of Inflated Quotation (9 Marks)

Fraudulent Claims
Deliberate exaggeration of claims constitutes fraud under IA 2015. Fraudulent claims
allow insurers to reject the claim entirely, retain premiums, and terminate the policy.

Galloway v. Guardian Royal Exchange (1999): An exaggerated claim was deemed

fraudulent, invalidating the entire claim.

(c) Impact on Evie’s Policy (6 Marks)

Termination Due to Fraud

IA 2015 permits termination of policies from the date of fraud. Evie’s policy could be
voided, leaving her without coverage for future claims.

Conclusion

The inflated quotation jeopardizes both Evie’s claim and her policy, reinforcing the
critical importance of good faith in insurance contracts.
Question 7 – Learning Outcome 8 (20 Marks)

Basis of Indemnity

Garage Roof (4 Marks)

Replacement cost basis to restore the roof to its pre-loss condition, without betterment.

Antiques (4 Marks)

Agreed value basis or market value based on prior appraisal or policy terms.

Golf Clubs and Bag (4 Marks)

Market value, factoring in depreciation unless covered on a replacement basis.

Household Electrical Equipment (4 Marks)

Replacement basis (new-for-old cover), as this is standard for such items in household
policies.

Sculpture (4 Marks)

Agreed value or market value if appraised prior to the loss.

Would you like me to proceed with Questions 8–10 in the same detailed format?

Here’s a detailed response addressing each part of the question comprehensively.

(a) Legal Doctrine Applicable to the Circumstances Resulting in the Damage to Evie’s
Vehicle (5 Marks)

The legal doctrine applicable here is negligence, as it governs liability for the escape of
the horse onto the road, which caused Evie to swerve and hit the gate. Negligence
requires proof of three key elements:

Duty of Care: The horse’s owner owed a duty of care to road users to ensure the horse
was securely confined.

Breach of Duty: The owner breached this duty by failing to prevent the horse from
escaping.

Causation: The breach directly caused the accident, leading to damage to Evie’s
vehicle.

Under common law, liability for animals is also influenced by the Animals Act 1971,
particularly Section 2, which imposes liability on the keeper of an animal if:

The animal belongs to a dangerous species, or

The animal displays dangerous characteristics that the keeper knew or ought to have
known.

Although the horse may not be classified as a dangerous species, the owner may still
be liable if the escape was due to negligence, such as failing to maintain fences. Smith
v Ainger (1990) highlights that liability can arise if the animal exhibits behavior that is not
typical of its species but causes harm.

Thus, if the horse’s escape resulted from the owner's failure to secure the field, they
could be held liable for the damage caused to Evie’s vehicle. However, if the escape
was unforeseeable, the owner might avoid liability.

(b) Impact on Evie’s Claim of the Inflated Written Quotation (9 Marks)

Legal Principles

Evie’s submission of an inflated quotation constitutes a misrepresentation or fraud. The relevant

principle is that a claimant must submit an honest and accurate claim. Fraudulent exaggeration
invalidates the entire claim under the doctrine of fraudulent claims, even if part of the claim is
legitimate.

The leading authority is Galloway v Guardian Royal Exchange (1999). In this case, the
claimant inflated a genuine loss by including a fictitious item in their claim. The court ruled that
even a minor exaggeration nullifies the entire claim, as it breaches the duty of utmost good faith
(uberrimae fidei).

Application to the Facts

Evie knowingly asked her brother to inflate the repair quotation. This act demonstrates
intentional dishonesty, constituting fraud. The insurer, upon discovering the exaggeration, would
be entitled to:

 Reject the Entire Claim: Following Galloway, the fraudulent quotation taints the whole
claim, even if the minor damage caused by the collision is legitimate.
 Seek Recourse for Investigation Costs: The insurer may seek recovery of costs incurred
during the investigation under their policy terms.

Conclusion

The inflated quotation invalidates Evie’s entire claim. Her deliberate misrepresentation breaches
her duty to act in utmost good faith, and the insurer is justified in rejecting her claim entirely.
(c) Impact on Evie’s Policy of the Inflated Written Quotation (6 Marks)

Legal Framework

The impact of Evie’s fraudulent act on her policy is governed by Section 12 of the Insurance
Act 2015. The Act significantly reforms the consequences of fraudulent claims, stating:

1. Suspension of Liability: The insurer is not liable to pay any part of the fraudulent claim.
2. Termination of the Policy: The insurer may terminate the policy from the date of the
fraudulent act.
3. Retention of Premiums: The insurer is not required to return premiums for the period
after the policy's termination.

Application to the Facts

Evie’s act of submitting an inflated quotation amounts to a fraudulent claim under Section 12.
Her deliberate dishonesty breaches the terms of her policy and has the following implications:

1. Rejection of the Claim: The insurer is relieved of liability for the claim related to the
accident.
2. Policy Termination: The insurer can terminate Evie’s policy from the date of the
fraudulent act, leaving her uninsured for future incidents.
3. Premium Retention: The insurer is entitled to retain premiums paid, as Evie’s actions
breached the terms of her contract.

Authority

The case of Versloot Dredging v HDI Gerling (2016) further emphasizes that fraudulent claims
undermine the insurer's trust and allow for termination of the policy. In this case, the insured's
use of a "fraudulent device" invalidated the claim but did not void the entire policy. However,
under the Insurance Act 2015, Evie’s entire policy can be terminated due to the deliberate nature
of her fraud.

Conclusion

The inflated quotation amounts to a fraudulent act under Section 12 of the Insurance Act 2015.
The insurer is justified in rejecting the claim, terminating the policy, and retaining premiums,
ensuring fairness and integrity in the insurance industry.

Overall Conclusion
Evie’s claim raises multiple legal issues. The accident itself invokes principles of negligence and
the Animals Act 1971 regarding the horse owner’s liability. However, Evie’s fraudulent act of
inflating the repair quotation invalidates her claim and has severe consequences for her policy
under the Insurance Act 2015. BB plc is justified in rejecting the claim and terminating the
policy, as Evie’s deliberate dishonesty undermines the principle of utmost good faith that
underpins insurance contracts.