Larkfleet Ltd v Allison Homes Eastern Ltd

Building contract – Construction – Limitation – NHBC warranty – Claimant entering building contract with third party for construction of new houses – Claimant registering site with NHBC – Third party warranting to accept responsibility for defects – Defendant acquiring third party business and assuming contractual responsibilities under building contract – Claimant suing defendant for expense incurred under NHBC warranty – Preliminary issues arising – Whether claims being time-barred – Preliminary issues determined The claimant, a property development company, entered into a contract with S on 1 September 2001 for S to design and build certain residential properties at Market Deeping in Peterborough. The contract was on the JCT Standard Form With Contractor’s Design 1998 Edition, subject to certain bespoke amendments. The defendant acquired the business of S by a contract dated 12 September 2001 and took on S’s contractual responsibilities under the building contract. The claimant sold the new residential properties with the benefit of protection under the National Homes Building Council (NHBC) Scheme. The plots and houses were registered with the NHBC under the registration of the claimant. Clause 2.5.5 was inserted into the building contract by amendment and provided: “[The claimant] will register the site with NHBC under the employers registration and [S] warrants to accept responsibility for any defect and any expense incurred due to defective work for the period of 10 years for the NHBC warranty.” When defects emerged in the foundations of three of the properties, the home owners claimed against the NHBC, within the 10-year cover period. NHBC organised remedial works and incurred expense in doing so. It notified the claimant and held it responsible. The claimant brought proceedings against the defendant in respect of those claims, both in contract and tort for negligence in respect of design. The defendant’s primary position was that the claims were time-barred pursuant to the Limitation Act 1980 because practical completion of the properties occurred more than six years prior to the issue of the claim form and the properties were registered with the NHBC on 21 January 2002, more than 10 years prior to the issue of the claim form. As regards the negligence claim, the defendant maintained that the claimant had the necessary knowledge to bring an action by 4 February 2011, at the latest, which was more than three years before the issue of the claim form. Therefore, the claimant could not rely upon section 14A of the 1980 Act. The court was asked to determine preliminary issues regarding limitation which involved the construction of clause 2.5.5. Held: The preliminary issues were determined in favour of the claimant. (1) The reliance placed in some case on commercial common sense and surrounding circumstances was not to be invoked to undervalue the importance of the language of the provision to be construed. When it came to considering the centrally relevant words to be interpreted, the less clear they were, the more ready the court could properly be to depart from their natural meaning. Commercial common sense was not to be invoked retrospectively. Whilst it was a very important factor to take into account when interpreting a contract, a court had to be very slow to reject the natural meaning of a provision as correct simply because it appeared to be an imprudent term for one of the parties to have agreed, even with the benefit of hindsight. When interpreting a contractual provision, one could only take into account facts or circumstances which existed at the time the contract was made, and which were known or reasonably available to both parties. In some cases, an event subsequently occurred which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such  a case, if it was clear what the parties would have intended, the court would give effect to that intention: Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, Antaios Cia Naviera SA v Salebn Rederierna AB (The Antaios) [1985] AC 191, Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 3 EGLR 119, Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56; [2011] PLSCS 291 and Arnold v Britton [2015] UKSC 36; [2015] EGLR 53 applied. (2) It was clear from the wording of clause 2.5.5 that it went far wider than, and was different to, merely providing a 10-year period for claims arising under the building contract. When one considered the operation of the NHBC scheme, and the fact that the 10 years referred to in the clause was identical to the 10 years on the NHBC certificate, it could be seen that the period “10 years for the NHBC warranty” referred to the period for which the NHBC cover applied to the property, and within which a home owner could make a claim under the NHBC scheme. The words used were clear, and expressly stated that S would ultimately have that responsibility under the NHBC warranty, notwithstanding that the claimant was registering the site. It was a contractual assumption of that responsibility. If the period of 10 years was construed as a limitation period, or as extending the limitation period up to the date on the NHBC certificate, the acceptance of responsibility would only apply if proceedings were issued in respect of “any defect and any expense incurred due to defective work” within that 10-year period. That was different from accepting responsibility for “any defect and any expense incurred due to defective work for the period of 10 years for the NHBC warranty”: Oxford Architects Partnership v Cheltenham Ladies College [2007] PNLR 18 distinguished. (3) The correct construction of clause 2.5.5 was that there was one cause of action. The reference to “any defect and any expense incurred due to defective work” simply attempted to make clear that the obligation being assumed by S might require remediation works to be performed by S, and reimbursement of expense to the NHBC, including matters such as removal costs and the costs of alternative accommodation as well if that was necessary. One cause of action for breach of that obligation occurred at the point when the defendant was asked to comply with its obligation and refused to do so; alternatively, if the defendant did not respond at all, the breach occurred a reasonable time after the defendant was asked to take responsibility. (4) By a letter dated 24 May 2011 the claimant notified the defendant that the three properties were being monitored for subsidence. That crystallised the obligation upon the defendant to take responsibility for defects and expense arising within the 10-year period covered by the NHBC and within the terms of the NHBC scheme. By a letter dated 3 September 2013, the defendant stated that all three claims were time-barred. The breach of the cause of action contained within clause 2.5.5 therefore arose between 24 May 2011 and 3 September 2013. The relevant breach was either the express refusal by the defendant to accept responsibility for defects arising within the 10 year period under the NHBC scheme pursuant to clause 2.5.5, or alternatively a failure to accept responsibility which could not have arisen before the first request to do so on 24 May 2011. That was therefore less than three years, and therefore less than six, prior to the issue of the claim form on 14 April 2014. Simon Hargreaves QC (instructed by Birketts LLP) appeared for the claimant; James Thompson (instructed by Dentons UKMEA LLP) appeared for the defendant Eileen O’Grady, barrister  Read a transcript of Larkfleet Ltd v Allison Homes Eastern Ltd here