Residential property – Contract of sale – National House-Building Council (NHBC) — Claimants contracting to purchase new-build property from defendant developer –Property having NHBC warranty – NHBC operating dispute resolution service (DRS) – Defendant agreeing to meet requirements of NHBC – Claimants alleging serious defects in property and serving notice of joint appointment of arbitrator under DRS – Whether using NHBC DRS condition precedent to appointment of arbitrator – Application granted
The claimants contracted to purchase a residential property from the defendant developer. The defendant undertook to complete the work in accordance, inter alia, with the technical requirements of the National House-Build Council (NHBC). Clause 24.1 of the sale contract stated: “If any dispute shall arise between the seller and the buyer…concerning the construction…of the dwelling house…either party shall…seek to resolve such dispute (and if to the extent that the subject matter…comes within the scope of the NHBC Dispute Resolution Service) through conciliation by the NHBC.” Under clause 24.6, a determination by an NHBC investigator was a condition precedent to any right to refer the matter to arbitration.
Under clause 23 of the contract, the defendant undertook to deliver the NHBC Buildmark documentation, which was duly provided by the builder. The documentation specified: “If the builder does not deal with your complaint to your satisfaction, contact NHBC…We will usually offer our resolution service which would investigate defects that the builder failed to correct within a reasonable time.” It then set out other options for resolving disputes with the NHBC or the builder, including arbitration and other forms of alternative dispute resolution.
The claimants alleged that the property suffered from significant defects and claimed damages. The defendant maintained that the defects were “snagging” issues, which it offered to remedy. Following acrimonious correspondence, the claimants sought to initiate arbitration proceedings. Although willing to accept appointment of an arbitrator, the defendant required the claimants to abide by the contract by referring to the NHBC dispute resolution service (DRS).
The claimants sought directions for the appointment of an arbitrator, pursuant to section 18 of the Arbitration Act 1996, on the basis that the dispute fell outside the scope of the NHBC scheme because the developer was not registered with the NHBC and had neither built the property nor provided the NHBC cover. The defendant refused to accept any purported appointment and the claimants applied for a declaration that, on a true construction of clause 24, they were entitled to refer the dispute to arbitration.
Held: The application was granted.
Clause 24.1 and/or clause 24.6 of the contract did not impose a requirement on the claimants to submit their disputes with the defendant to the NHBC DRS before they could commence arbitration. Thus, the notice to refer to arbitration served by the claimants on the defendant was effective and valid.
A distinction had to be made between the rights and obligations in the contract and those set out in the NHBC documentation. Under the contract, the claim by the buyer was for damages for breach of contract. According to the documentation the remedy, at least in the first two years, was for the builder to put right defects and damage, with the NHBC insurance underwriting the builder’s performance
Although the process in clause 24.1 might be suitable if the dispute were between the builder and the buyer, it could not create an enforceable obligation to resolve the dispute between the seller and the buyer. The DRS did not deal with financial claims, but only with failures on the part of the builder to comply with mandatory NHBC requirements, and clear words would be required to limit or exclude a right to claim damages: Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 applied.
Nigel Jones QC and Alexander Gould (instructed by Mundays) appeared for the claimants; Geraint Jones QC (instructed by Chancery Mead Ltd) appeared for the defendant.
Eileen O’Grady, barrister
