In Robin & Barbara Bache and others v Zurich Insurance Plc [2014] EWHC 2430 (TCC), the court was asked to determine a preliminary issue concerning interpretation of a property development policy. The claimants agreed to lease flats yet to be built from a developer, paying a 10% deposit under the agreement. The defendant provided a policy to the developer, for the benefit of the claimants, which stated that “the policy protects you if your developer goes into liquidation…against the loss of contract exchange deposit”.
Construction work never commenced and the claimants terminated the contracts by accepting the failure to complete the flats as a repudiatory breach. The developer subsequently went into administration on April 2011 and was dissolved in January 2013. The defendant denied liability under the policy arguing that the policy did not attach as the policy words “fails to complete the construction” imported a subsisting obligation on the part of the developer to complete the construction and the accepted repudiation relieved the developer of any obligation to complete the work.
In determining the meaning of the policy language, Mr Justice Akenhead cited the dictum of Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 771, “…the law generally favours a commercially sensible construction”. Akenhead J considered the commercial reality of the transaction at the date of the policy and ruled that:
- the fact that the insured purchasers had accepted a repudiation on the part of the developer vendors was not in any way a bar to recovery under the policy;
- the fact that following such acceptance the developer vendors entered liquidation or dissolved was not in any way a bar to recovery under the policy; and
- the fact that at the date of the acceptance of the repudiation the developer was, as a matter of fact, insolvent and/or such insolvency was the reason why it had not started or completed the development, was not in itself a bar to recovery under the policy.
