To establish when time starts to run for limitation purposes it is necessary to identify the breach of contract by analysing the contractual terms.
The High Court has considered this issue dismissing an application for summary judgment in Peabody Trust v National House Building Council [2024] EWHC 2063 (TCC).
The claim was made under insurance policies by which NHBC agreed to insure the claimant’s predecessor against risks associated with the construction of 88 affordable/social housing flats at the former RAF Stanbridge site in Bedfordshire. NHBC agreed to pay the reasonable extra costs above the contract price if the insured had to pay more to complete the flats because of the contractor’s insolvency.
Work commenced in December 2015 but ceased in June 2016 when the contractor, Vantage Design & Build Ltd, went into administration, an event of insolvency under the policies. New contractors were appointed and practical completion occurred in January 2021.
In July 2023, Peabody issued its claim for £815,500 for extra costs incurred over what would have been paid to Vantage. NHBC sought to strike out the claim in January 2024 on the ground that it was statute-barred, six years having passed since Vantage went into administration in June 2016 and since the claim was notified in August 2017.
The legal test to be applied on the application was whether time ran from the insolvency of Vantage. The claim on the policies was a contractual claim which had to be brought within six years of breach under section 5 of the Limitation Act 1980. As soon as the insured peril occurred the insurer was in breach because it had agreed to hold the insured harmless against it (The Fanti [1991] 2 AC 1).
In property damage cases where the insurance is against physical damage to the property, the insurer is in breach as soon as the damage occurs. However, in this case the loss was financial. The judge did not accept either as a matter of fact or construction that insolvency necessarily meant that an insured would have to pay more to complete the buildings than under the original contract.
The event insured against was not the contractor’s insolvency per se but the requirement to pay more because of it. It was not a commercially sensible construction of the policies to say that an insurer would be liable to indemnify at the moment of the insolvency regardless of whether there was any loss caused by it and the judge rejected NHBC’s submission to this effect.
Louise Clark is a property law consultant and mediator
