CA-2024-002563 - [2025] EWCA Civ 932

Commerciality

It is trite law that, in a dispute about the meaning of a term in a contract, where there are two alternative constructions, the court must test both to see how commercially sensible they may be. That is clear from [12] of Wood v Capita Insurance Services Limited [2017] UKSC 24; [2017] A.C. 1173 and Lord Hodge’s reference to the iterative process “by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated”.

I consider that Mr Casey KC was right to say that NHBC’s construction – the insolvency point - is essentially uncommercial. The NHBC must argue that the cause of action accrued on the insolvency, at a time when Peabody simply did not know whether or not the eventual costs would be more or less than the amount they would have had to have paid Vantage. Depending on the facts, they may not know if they would “have to pay more” for months or years after the insolvency, given the projected time for the completion of the project as a whole. It would mean that the cause of action accrued to Peabody at a time when they may have had no way of knowing whether they would actually suffer a loss at all, much less the extent of that loss. That would be a very curious outcome in circumstances where Option 1 was designed to protect Peabody against the particular financial loss they suffered, entitling them to rather more than a back-of-an-envelope guess.

If it were right that a cause of action accrued immediately on insolvency, what would be the consequences? Peabody would be obliged to claim, and the NHBC would have to pay out, on a hypothetical basis when nobody knew whether there had been or would be a loss at all, let alone how much that loss might be. On this basis, the NHBC would probably not be entitled to defer paying out until the actual costs were known, because that would mean that the cause of action had accrued to Peabody but they could do nothing meaningful about it. If your cause of action has accrued, and is established in principle, you are entitled to be paid out promptly: you do not expect to be fobbed off for years whilst the figures are endlessly pored over.

Accordingly, it seems to me to be very unlikely from a commercial perspective that a cause of action accrued at a time when the consequences of the insolvency were entirely unknown. Again, that can be contrasted with the occurrence of a flood or a fire. The need to rebuild the factory after a fire, or to replace all the ground-floor fixtures and fittings in a house after a flood, will be readily apparent immediately after the event. But where the event concerns the payment of a sum over and above another sum, it is inevitably much more uncertain.

Moreover the certainty inherent in a typical property damage clause can be contrasted with what actually happened here. We know that five years after the insolvency, in 2021, the NHBC were saying to Peabody that “with respect to the position on the overall claim in general…without the final cost to the work we are unable to accurately establish and ascertain the true value of any claim” (see the NHBC email of 15 January 2021). Whilst I accept Mr Grant’s submission that that could be consistent with the ascertainment of loss as opposed to the accrual of the cause of action, it does I think highlight the uncommerciality of the suggestion that the cause of action had actually accrued to Peabody five years before this email was even sent, in circumstances where the NHBC were still refusing to pay out. The concept of the cause of action accruing in 2016, whilst the claim itself remained unpaid because of the uncertainty about the figures in 2021, strikes me as commercially unrealistic.

What about the commerciality of Peabody’s case, that it was necessary to fulfil the “if you…have to pay more” requirement before the cause of action accrued? In one sense, that may depend on what precisely that requirement entails, and for the reasons I have already explained, that is not a matter for this appeal. But if Mr Grant’s option ii) is right, and the second requirement is fulfilled when it was possible, likely, probable or foreseeable that extra costs would be incurred, then that ought to be capable of relatively swift determination on the evidence.

I accept that, if it is option iii) – the actual payment of more than the sum that would have been payable to Vantage - the position is more complex, for all the reasons explained by the judge. However, I am not persuaded that these potential difficulties mean that Peabody’s construction of the provisions is uncommercial. The mere fact that it may be difficult to work out the precise date in practice does not mean that a construction which is otherwise right as a matter of language should then be rejected, in favour of a construction which is not the natural meaning of the clause as a whole. The principal question for now is whether or not, on Peabody’s construction (option iii), an accrual date can be calculated. It is plain that it can. So that is not a reason to reject that construction.

Furthermore, complexity surrounding the date of accrual of a cause of action is not uncommon in the construction field. BDW v URS [2025] UKSC 21 is a recent case, decided by a seven-strong Supreme Court, concerned with when a cause of action accrued in respect of defective design. Another example arises out of the regular arguments in the TCC that limitation periods should be extended because of deliberate concealment by the contractor of defective materials or workmanship. It is a fact of life that the accrual of a cause of action may not always be straightforward to determine: that does not mean that the construction of a clause which has that effect should be rejected.

Finally, the proof of this pudding is in the eating. Here, if option (iii) is correct, it makes no different which of Mr London’s three alternatives finds favour with the court. That is because, as Mr Grant fairly accepts, whichever is right, the claim is not statute-barred.