Warranty – Limitation – Civil Liability (Contribution) Act 1978 – Claimant issuing proceedings against defendant engineers and third party contractor for damages – Defendants issuing Part 20 proceedings against third party for contribution – Third party applying to strike out Part 20 proceedings or for summary judgment – Whether third party being entitled to rely on limitation clause in warranty granted in favour of claimant – Application dismissed
The claimant was the tenant of a building at 50 Finsbury Square, London, EC2. The first and second defendants were an engineering consultancy partnership and the limited liability partnership which the claimant claimed later became liable for its acts after a reorganisation of the partnership’s affairs. The third defendant was an engineering company employed by the freehold owner of the building to advise on certain works at the building. The third party applicant was a contractor who designed, fabricated and installed stone cladding to the building.
As a result of a cladding tile falling from the building to the street below, remedial works became necessary. The claimant, which had certain obligations of repair and reinstatement under its lease, performed temporary works to make the building safe, costing approximately £470,000. Further works were required, the estimated budget cost of which was £2 million.
The claimant issued separate proceedings against each of the defendants and the third party. The action against the third party did not proceed due to its reliance on the limitation provision in clause 6 of a warranty executed by the third party in the claimant’s favour. However, the first and second defendants issued Part 20 proceedings against the third party making a claim for contribution.
The third party applied to strike out the Part 20 proceedings under CPR part 3.4(2)(a) or, alternatively, summary judgment in its favour in those proceedings under CPR Part 24.2. At the hearing, the third party accepted that it was more appropriate to obtain summary judgment as it would be difficult for the court at this stage, on sparse material, to conclude with certainty that the Part 20 claim was bound to fail.
The primary question for the court was whether the defendants could rely on section 1(3) of the Civil Liability (Contribution) Act 1978 to override the third party’s contractual limitation defence under clause 6 of the warranty.
Held: The application was dismissed.
(1) Commercial common sense and surrounding circumstances, which were relied upon as aids to construction, should not be invoked to undervalue the importance of the language of the provision which was to be construed. The less clear the centrally relevant words to be interpreted were, the more ready the court would be to depart from their natural meaning. Commercial common sense was not to be invoked retrospectively: Arnold v Britton [2015] UKSC 36; [2015] PLSCS 177 applied.
In the present case, it was the legal effect of the agreement upon the nature of the claimant’s underling legal rights that was important for the purpose of considering contribution and the 1978 Act. It did not matter whether the contracting parties at the time had addressed their minds to the potential contribution position many years in the future or not. The contract term first had to be analysed and then its legal effect considered upon the claimant’s underlying legal right.
(2) The court accepted the distinction between “no liability” cases where a party from whom contribution was sought was never liable to the ultimate claimant for damage suffered by that party and “cessation of liability” cases where the party from whom contribution was sought had been liable to the ultimate claimant at an earlier time but that liability had since ceased. In the latter cases, the effect of section 1(3) was that contribution became no longer available in only one sub-category of such cases.
When the matter was approached in that way, this was plainly a cessation of liability case. The cessation occurred due to the passage of time, namely 12 years from the date of practical completion of the contract. The nature of the cessation was such that it barred the enforcement by the claimant of its right. It was therefore a procedural bar. The underlying right was not extinguished. The 1978 Act plainly applied to “any person liable in respect of any damage suffered by another person” and prima facie, on the assumed facts, that would apply to the third party. In the circumstances, clause 6 could not take the third party outside the Act to prevent a contribution claim proceeding: Oxford University Fixed Assets Ltd v Architects Partnership Ltd (1994) 64 Con LR 12, Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419 and Heaton v AXA Equity & Law Assurance Society plc [2002] UKHL 15; [2002] 2 AC 329 considered.
(3) The third party was not entitled to the benefit of the proviso in section 1(3) since it could not be said to have ceased be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against the third party in respect of the damage was based: Oxford University Fixed Assets Ltd v Architects Design Partnership Ltd (1994) 64 Con LR 12 distinguished.
(4) The correct legal analysis of clause 6 was that it presented a procedural bar to nay right the claimant might have against the third party being enforced on proceedings brought by the claimant that were issued after the cut-off date. That did not extinguish the underlying substantive right, which remained. Therefore, the third party was not able to demonstrate that the defendants had no real prospect of succeeding in its Part 20 claim. Consequently, the third party was not entitled to have summary judgment in its favour on the Part 20 proceedings, nor to have those proceedings struck out.
Andrew Bartlett QC (instructed by CMS Cameron McKenna LLP) appeared for the applicant third party; Ben Patten QC (instructed by BLM LLP) appeared for the first and second defendants; Fiona Sinclair QC (instructed by Clyde & Co LLP) appeared for the third defendant.
Eileen O’Grady, barrister
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