Harrison & Ors v Shepherd Homes Ltd & Ors

An indemnity provision in a building warranty generally gives rise to a contractual cause of action when the insured loss is suffered. A notification requirement, or the insurer’s investigation of the claim, does not postpone accrual unless the contract so provides.

Claims should not be struck out or summarily dismissed where the pleadings disclose an arguable claim requiring factual or legal determination. An exclusion clause may be arguable as unfair under the Unfair Terms in Consumer Contracts Regulations 1999, particularly where its operation could leave damage without effective cover. Unpleaded new claims require amendment.

The claimants, owners of properties on the Eden Park Estate, alleged defects in foundations, drainage and other parts of the development. They pursued claims against the developer, Shepherd Homes Ltd, and claims under section 3 of the Buildmark cover against NHBC.

NHBC applied under CPR Rule 3.4 and CPR Part 24 to strike out, or obtain summary judgment on, the section 3 claims. It argued that liability had not arisen, that some properties had been remedied or settled, and that the claims were excluded because the matters could have been reported under section 2. The central issues were whether the claims were legally arguable, whether the exclusion clause was potentially unfair, and whether drainage claims were pleaded.

1. Application dismissed. NHBC’s application to strike out the section 3 claims or obtain summary judgment under CPR Rule 3.4 and CPR Part 24 was dismissed.
2. Section 3 of the Buildmark cover was essentially insurance against damage caused by a defect. The cause of action arose when the insured loss was suffered. The contractual requirement to notify NHBC as soon as possible did not postpone accrual. NHBC’s investigation of a claim likewise did not affect either its liability or the date of accrual. The court applied the analysis in Callaghan v Dominion Insurance Company Limited [1997] 2 Lloyd’s Reports 541, as summarised by Firma C-Trades SA v Newcastle Protection and Indemnity Association [1990] 2 Lloyd’s Reports 191.
3. The foundation claims were arguable. Claims could potentially arise for damage occurring during years three to ten, for damage falling outside the matters notified under section 2, or under a different head of claim. The agreement dividing responsibility between SHL and NHBC did not bind the claimants.
4. The exclusion of matters which were or could have been reported under section 2 was also arguable as unfair under the Unfair Terms in Consumer Contracts Regulations 1999. The issue required consideration of Regulation 6.1, paragraph N of Schedule 2, and the possible application of Regulation 6(2)(a). It was unsuitable for summary determination, although no finding of unfairness was made.
5. Remedial works by NHBC could be evidence of acceptance of liability. Whether further damages were recoverable depended in part on whether the works were satisfactory, and the claimants could maintain proceedings at least to argue about costs. Further particulars were required before the claims could proceed to trial.
6. The existing pleadings did not raise claims for damage caused by drainage defects. Any such claims would require an application to amend.