Limitation for contribution claims – take care

6 June 2018

In commercial disputes, it is not unusual for the claimant’s losses to be caused (or contributed to) by a number of different parties. For instance, the claimant may have elected to pursue the party with the deepest pockets, or the loss may have been caused by one of the defendant’s subcontractors. In such circumstances, the defendant may be entitled to seek a contribution from these other parties under the Civil Liability (Contribution) Act 1978, either by joining them to existing proceedings or by starting a new claim.

The limitation period for bringing a claim under the Act is two years from: (i) the date of judgment or award on the claim, or (ii) where the claim is settled, the earliest date on which the defendant agreed to pay compensation. The computation of the limitation period is relatively simple where a court or tribunal has given judgment. However, where the underlying claim has been settled, it can sometimes be difficult to pinpoint the “earliest date” on which an agreement to pay compensation was reached.

A recent case in the Technology and Construction Court has provided some helpful guidance on this point. In R.G. Carter Ltd v Kier Business Services Ltd [2018] EWHC 729 (TCC), the court held that the limitation period did not start to run until the parties had entered into a binding agreement to settle the dispute and not from an earlier date where settlement had been agreed in principle.

The facts of the case were relatively straightforward. R.G. Carter Ltd (RGC) built a new school for Lincolnshire County Council in 2002. The works were subsequently discovered to be defective and the Council brought arbitration proceedings against RGC. In settlement of the claim, RGC agreed to carry out the necessary remedial works at its own cost. That agreement was first recorded in a document dated 16 April 2015 marked “subject to contract”. However, RGC and the Council carried out site inspections and engaged in further correspondence regarding the scope of the works. A formal settlement agreement was not signed until 29 June 2015.

Having completed the remedial works, RGC sought a contribution from Kier, who had designed the original works. RGC and Kier entered into a standstill agreement on 28 April 2017 (which suspended the limitation period) and RGC issued proceedings in September 2017. Kier argued that the claim had already expired by the date of the standstill as RGC had agreed to settle the underlying claim on 16 April 2015 (i.e. more than two years earlier).

The court held that the claim was in time, as the limitation period did not start to run until the parties had entered into a binding settlement agreement on 29 June 2015. Whilst the parties had reached an agreement in principle on 16 April 2015, it was clear from use of the term “subject to contract” that they did not intend that agreement to be enforceable. Moreover, it was clear that the full scope of the settlement had not been agreed as the parties were still discussing the nature and extent of the remedial works in May and June 2015.

The decision does not create new law, but it does underline the importance of taking extra care when negotiating the settlement of claims at or around the end of a limitation period. If there is any doubt about when a limitation period started to run, a party seeking contribution should take steps to protect its position well in advance of the earliest possible expiry date, for example by entering into a standstill agreement on terms that the claim was still “in time” at the date of the standstill, or by commencing protective proceedings.

Christian Charles Author
Christian Charles
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