In this insight our experts review the recent judgement in the Peabody Trust v National House-Building Council [2024] EWHC 2063 (TCC) case.

Facts of the case

Peabody Housing Association (formerly Catalyst Housing Limited) entered into a Joint Contracts Tribunal (JCT) Design and Build Contracts 2011 (D&B 2011) with Vantage Design & Build Limited on 20 November 2015, for the construction of 175 new dwellings; 88 of which being social housing units which were covered by an NHBC Buildmark policy.

Vantage ceased work on site on 17 June 2016, and administrators were appointed on 29 June 2016.

Peabody entered into a JCT Construction Management Agreement 2011 (CMA 2011) on 18 January 2017 with Stack London Limited, who were then tasked with procuring further contracts to complete the works. Practical completion of the works eventually occurred on 19 January 2021.

Peabody issued a claim against National House-Building Council (NHBC) on 24 July 2023, to the sum of £913,555.36, in respect of option 1 of their Buildmark policy (insolvency). Option 1 provided coverage for “if you [the insured] lose the amount paid to the contractor in accordance with the building contract or have to pay more to complete the building of the home(s), because the contractor is insolvent or commits fraud.”

On 18 January 2024, NHBC brought an application for summary judgment (essentially, trying to get Peabody’s claim thrown out of court) on the basis that it was time barred under the Limitations Act 1980.

The issue

It’s worth emphasising that this was a summary judgment- it wasn’t a full trial to assess the validity of Peabody’s claim under the Buildmark policy. As can be seen in Andrew Mitchell KC’s summary judgment, complex issues of fact were advanced by both parties as to the validity of Peabody’s claim itself ), which were decided as not being appropriate for judgment here.

The issue was when the ‘clock’ started ticking for the purposes of Peabody being able to bring a claim against NHBC for failing to pay out under Option 1 (insolvency cover) of their policy. The insurance policy was a contract, and therefore under the Limitations Act 1980 Peabody had six years to bring a claim. 

Peabody argued that the clock started ticking when they suffered a loss under the policy, i.e. when they had to pay more than the original contract sum under the JCT D&B 2011 entered into with Vantage, in order to complete the agreed works. Andrew Mitchell KC made clear that the evidence in respect of when this ‘loss’ occurred was in itself unclear and potentially required expert assessment. Therefore it follows that if Peabody were correct in their argument, NHBC’s application for a summary judgment would need to be dismissed and a trial would be necessary. Peabody did in any event advance that they did not suffer a loss before March 2020 because there was a significant sum of money ‘in the pot’ when Vantage ceased working on site in June 2016.

NHBC argued that the clock started ticking when Vantage appointed administrators in June 2016, as this was ultimately the point at which the insolvency ‘event’ occurred which would eventually cause the losses incurred by Peabody in accordance with coverage under the policy. If NHBC were correct, seven years would have passed since Peabody had a claim against NHBC and therefore they would have been time barred from making a claim, meaning that summary judgment must be granted to throw out Peabody’s claim.

The judgment

Andrew Mitchell KC ultimately agreed with Peabody- that the point at which the ‘clock’ started ticking was the point at which they “had to pay more to complete the units, as a result of that insolvency”.

Key to this judgment was the terms of the policy itself. Whilst the ‘cause’ of loss covered under the policy was an insolvency event by the contractor, the trigger point was not insolvency itself but rather the loss (having to ‘pay more’ to complete the works). It does not follow that insolvency in and of itself will amount to the policy holder having to pay more than the original contract sum. Therefore, until it became apparent that Peabody did have to pay more than the original contract sum, they could not be said to have had a claim under the policy at all.

Therefore NHBC’s application for summary judgment was dismissed, and a trial to determine the point at which Peabody could be said to have paid more than the contract sum is necessary.

Takeaway points

The key point to note here is that the point from which the ‘clock’ starts ticking for a claim does not, in the context of new homes warranties, necessarily start as soon as the root ‘cause’ occurs (i.e. insolvency), but rather when the peril for which cover is provided materialises. In the context of insolvency cover, it is not the insolvency itself as a peril which was covered here, but insolvency causing increased expenditure on the project. The key question for RP’s when trying to figure out when they have an actionable claim therefore is “what is the specific peril I’m being insured against here, rather than the cause of that peril?”

This judgment will be welcomed news for RP’s, who regularly take out new homes warranty policies as a matter of course in their new homes projects. In the current climate of contractors going bust due to cash flow issues, lack of economic growth, and housing development arguably hampering their situation further, contractor insolvency leading to increased expenditure by RP’s is a real risk.

It will be important for RP’s to keep a close eye on the point at which they can be said to have incurred more costs than the original contract sum where their original contractor falls into insolvency. Early re-procurement and documenting evidence of quotes obtained to complete the works will be important to ensuring clarity on how much time they have to take action against their policy provider if needed.

How Capsticks can help

Capsticks’ aim is to be the firm of choice for those that make a difference. We advise over 200 RPs of varying size and location across the country on all areas of housing, offering a full service across banking and governance, corporate and securitisation, development and planning law, housing leasehold and asset management. Our experts can provide advice and assistance on the matters discussed above and any updates that come in the future on this topic.

To discuss how the outlined above could affect your projects, please get in touch with Spencer Vella Sultana.