HT-2023-000254 - [2024] EWHC 2063 (TCC)

Despite the Application being restricted to the Insolvency Point as Mr London pointed out, Peabody did to some extent elaborate, through Mr London’s witness statement, on the “factual basis for the cause of action accruing post-insolvency”, i.e. its case as to when Peabody incurred the extra costs of completing the homes; or, to frame this using the language of Option 1, when it “had to pay more” over and above the sum due to Vantage. Mr London put forward three alternative ways, in principle, of ascertaining the point in time when Peabody “had to pay” extra costs. The first would be to conduct a deductive exercise from the dates of final accounts (the earliest of which is July 2017); Peabody alleges that this has always been NHBC’s position, that it could not finalise what it had to pay until final accounts were prepared. The second would be to analyse cumulative costs over time as the work progressed. The third would be to instruct an independent expert quantity surveyor to retrospectively analyse the letting of the individual works contracts packages, and individual interim applications for payment, and compare the outputs of those analyses with a hypothetical analysis where Vantage did not enter insolvency.

Mr London’s essential point is that, at the time of insolvency, only some £1.5m had been paid to Vantage, and that there was approximately £8.8m left in the tank, as it were, before the Contract Price for the units (c. £10.3m) would be exceeded. And that it is at the least realistically arguable that, depending on what approach is taken, the moment of “having to pay more” did not arise before March 2020, alternatively June 2020, alternatively certainly not prior to July 2017 (being six years prior to the Claim Form).

It was in response to Mr London’s statement that, by Ms Alabi’s second witness statement dated 31 May 2024 (as clarified in her third statement dated 4 June 2024), NHBC sought to develop an alternative case for summary judgment, if it were wrong on the Insolvency Point. First, NHBC contended that the reasonable extra costs of completing the homes were capable of assessment “by putting the work out to competitive tender” or “by arranging for an assessment by an independent quantity surveyor”. Second, that time would run from the date on which “the risk” that more was needed to be paid arose.

Various dates and events were suggested as a matter of evidence, in a period from around December 2016 to early 2017, with the focus placed on the date of the contract with Stack in January 2017 which it was submitted contained an estimate or target cost for the development (the project cost plan) which, if that cost materialised, would exceed the sum payable to Vantage in respect of the relevant insured units. The forecast final cost was stated as £25.644m as compared to the £23.878m due under the Vantage contract (for the whole development), and in an email dated 10 February 2017 Catalyst had referred to the estimated build cost for the relevant units as being some £14.3m, as opposed to £12.85m under the Vantage contract. The Stack contract also provided for a new substantial construction management fee (of around £1.04m) which would not have been paid to Vantage.

NHBC had referred the month before (22 December 2016) to there being only a “potential claim”. However, it submitted that (even though the costs were only forecasts or estimates under the Stack contract) this meant that, by this stage at the latest, the costs for the relevant units would exceed the relevant original contract sum, and that (although the cause of action did not depend on knowledge) Catalyst knew that the costs would exceed it.

In response, Peabody does not accept either of these propositions as a matter of fact. These were estimates only, and other parts of the Stack contract provided for savings to be achieved, such that the target costs were adjustable and, as Mr Casey KC (appearing for Peabody) put it, tentative. On the separate management fee, which was adjustable, Mr Casey submitted that NHBC assumes that a management charge was no part of the overall contract price with Vantage; but Vantage would have included an element of uplift to cover its management time and the risk of subcontractor default. Mr Casey also submitted that the project cost estimates in the Stack contract were for all units, and the Court could not determine how much of that related to the 88 affordable units. I cannot resolve such factual issues on this application.

In support of its contention that time had started running before July 2017, NHBC contend a claim was formally notified in August 2017 (and this is in fact what Peabody itself alleges in the Particulars of Claim), which NHBC acknowledged in correspondence on 8 August 2017. This is said to be inconsistent with any suggestion that a claim did not accrue until 2020. Peabody submitted that notification of a circumstance was made in August 2017, by which I understand it to say that it gave notice of factual circumstances which might give rise to a claim. Despite the position currently on the pleadings, there may be a dispute in due course as to what was precisely notified. The notification is not in evidence, save in the form of a short electronic note dated 3 August 2017 (which I understand is a note of a telephone conversation) which is inconclusive as to what was notified, and appears to record that the insured would need to confirm the information and actions required by email.

In a short response to Ms Alabi’s second statement, by his second witness statement dated 3 June 2024, served shortly before the hearing, Mr London relied upon statements made by NHBC or its agents to the effect that without the final costs for the works, NHBC was unable even in 2021 accurately to establish and ascertain the true value of “any” claim. I also remind myself that NHBC’s letter dated 13 January 2023 (to which I referred at paragraph 14 above) rejected the claim on the basis that there were no extra costs over and above the original contract sum payable to Vantage.

Standing back, a real issue arises in my view as to whether or not this alternative case is capable of being determined summarily and fairly as part of (or more accurately, by way of extension to) the Application, including at a half day hearing.

In fairness to NHBC, the problem may well be said to have started with Mr London volunteering a position on accrual, if Peabody were successful on the Application. Nevertheless, it is plain from the context that Mr London was not purporting in his evidence to set out definitively what Peabody’s case at trial will be on the issue as to when the insured “had to pay more”, let alone the evidence which would be relied upon. As Mr London explains, none of this work or analysis has been done, and it seems to me that, to the extent that it proves necessary, any such exercise will in due course be both a factually intensive and very extensive exercise, and the Court may require expert assistance, as Mr London says.

It is also apparent from Mr London’s evidence (and Ms Alabi’s contentions) that issues arise, or may arise, as to the true meaning, construed in the factual context at the time the Policies were agreed, of ‘has to pay more’, as well as issues of fact as to when that moment arose. “Has to pay” suggests a test of necessity, and Peabody submits that there must be some form of positive obligation to pay more. But, by way of example, is this when the insured incurred a legal liability to pay more; and if so, when was this? How is that to be determined if it is not clear at the time of contracting with the alternative contractors (in the event, Stack and then individual sub-contractors) whether the costs will turn out to be more than under the Vantage contract; and specifically so in respect of the relevant units? Or does the time of “having to pay more” arise at an earlier stage when it was likely or foreseeable or estimated (or, as NHBC appeared to contend, there was a risk) that more would or might have to be paid? Or was it at some later point when the works are well underway? Or is it when the final accounts are agreed, before which the final costs might be said to be unknown and/or not due? All these possibilities, and there may be others, arise from the evidence.

Mr Casey invited the Court to determine the Application on the basis of the Insolvency Point only, submitting that all Mr London had done was to identify on a broad-brush basis, and subject to expert evidence, when the cause of action might have accrued; and only did so as part of an explanation showing why further investigation and evidence would be required in due course, if Peabody were correct on the Insolvency Point.

I have concluded that I am not prepared on a summary application, and in a factual vacuum or at least with only limited evidence, to determine the complex issues raised by the alternative argument, and the question when extra costs “had to be paid”, whether in principle or on the facts, and whether that was more than six years before the Claim Form was issued. It is unsatisfactory that these aspects of the case developed in evidence served late in the application process, in some respects not long before the hearing. NHBC has criticised the complexity of Mr London’s approach, with its “rather involved calculations”, and I agree with the description of complex. In turn, NHBC has raised factually intensive submissions as to when it says time would run on the facts. There was insufficient time for these points to be properly addressed before the Court, in a half day hearing fixed to determine the Insolvency Point, and it was unsatisfactory to receive rushed submissions along the lines that these were the headline points, and key references, but there was insufficient time for the Court to be taken to the materials.

If it were necessary to go further, the correct answer to the alternative case does not appear obvious. Albeit on the basis of limited material and submissions, I would be far from satisfied at this summary stage that Peabody does not have a claim which is at least reasonably arguable to be in time. However, since these are issues for trial or at least further evidence, I will leave matters there.

It was said by Mr Grant KC appearing for NHBC that I was required as a matter of law to resolve these issues on this summary application. He submits that once a defendant has raised limitation as a defence, the claimant must show that the action is not barred, citing paragraph 21.016 of McGee on Limitation Periods (9th edition). Mr Casey accepted that the general proposition for which McGee is cited, which concerns the burden of proof, is correct. That, ultimately, it is for a claimant to show its claim is in time.

However, it is still for a defendant properly to identify and give fair notice of the points which are taken, and this applies as much to a limitation defence as with any other. A defendant who brings a summary application on one basis, then attempts to run an alternative argument, may well find that the Court is not prepared to deal with the alternative on the application. Just as at trial, a defendant may find that the Court will not entertain an alternative argument if it has not been raised in a satisfactory manner. I do not therefore accept the submission that as a matter of law, on a summary application, a claimant (or indeed the Court) must necessarily grapple with all the points which might arise, as opposed to answer the points properly raised by a defendant. On the contrary, the law requires that I must deal with applications in accordance with the overriding objective; and that includes bearing in mind the time allocated for the application; the extent to which the arguments have been properly or adequately addressed in the time available and materials; the practical question as to whether they can be dealt with satisfactorily; and whether arguments, and the manner in which they have come before the Court, make them suitable for summary disposal on that occasion.

Similarly, whilst I accept that it is incumbent on a party responding to an application for summary judgment to put forward sufficient evidence to satisfy the court that it has a real prospect of succeeding at trial (rather than simply saying that further evidence will or may be available later, especially when that evidence can be expected to be in the possession of the respondent already: Korea National Insurance Corp. v Allianz Global Corporate & Specialty AG [2007] EWCA Civ 1066 at [41]), the respondent’s burden is to respond to the application on the basis which it is brought; and it is a matter for the Court to consider whether other bases are suitable for fair resolution at a summary stage.

For these reasons, although the evidence has to some extent travelled away from the Insolvency Point, that is the basis of the Application, and I would add the time estimate.