Practice and procedure – Issue of proceedings – Limitation – Defendant company designing building constructed by claimant – Ingress of water – Claimant bringing action against defendant for contribution to cost of settlement in respect of arbitration proceedings – Preliminary issue whether action statute-barred – Whether cause of action accruing at date of execution of settlement agreement or earlier – Preliminary issue determined in favour of claimant
In 2002, the claimant built a new science block at Boston Grammar School for Lincolnshire County Council. It was designed by the defendant company but suffered problems with the ingress of water into the building. Consequently, the council brought arbitration proceedings against the claimant. Following “subject to contract” negotiations, the arbitration was settled in 2015 upon terms that the claimant would carry out remedial works at its own cost.
On 20 September 2017, the claimant issued proceedings against the defendant seeking an indemnity or a contribution of £205,908.60 in respect of the cost of the settlement. The defendant had not filed a defence but plainly intended to plead that the claim was statute barred. In those circumstances, the court approved a consent order on 31 October 2017 setting down the trial of the preliminary issue of limitation. While it was unusual to conduct the preliminary issue of an unpleaded defence, the parties jointly invited the court to do so.
The parties entered into a standstill agreement on 28 April 2017. That agreement did not prevent the defendant from arguing that the claim was already statute barred, but it did not seek to argue that the claim was out of time if the court found that the limitation period had not expired at the date of the standstill agreement. Thus, the issue before the court was whether the contribution claim was statute barred on 28 April 2017. The question was whether time ran under section 10(4) of the Limitation Act 1980 only once the parties had entered into a binding agreement for compensation, or whether something short of a binding agreement was sufficient to start time running.
Held: The preliminary issue was determined in favour of the claimant.
(1) Under section 10(3) of the 1980 Act, the two-year limitation period for bringing a contribution claim, pursuant to section 1 of the Liability (Contribution) Act 1978, ran from the date of the judgment or award where the matter was litigated or arbitrated. Cases in which the underlying dispute was settled fell under section 10(4) and not section 10(3), notwithstanding that the parties’ settlement was subsequently recorded in a court order. The court had to identify the “earliest date” of the underlying agreement and not the date when the consent order was sealed by the court or made by the arbitrator. In cases falling under section 10(3), time ran from the judgment or award which ascertained quantum and not merely an earlier judgment or award establishing liability for damages to be assessed. Under section 10(4) there had to be agreement as to the amount of the payment and not merely liability. Equally, time did not run from earlier agreement to pay an interim payment towards a potential liability, but from the date of agreement of the final sum to be paid. The agreement to be identified was an agreement for payment for the actual damage caused. The running of time was not further delayed pending agreement of any ancillary liability for costs. The reference to payment in section 10(4) included both monetary payment and payments in kind. Therefore, the agreement of remedial works was, for the purposes of section 10(4), an agreement for the payment of compensation: Knight v Rochdale Healthcare NHS Trust [2003] EWHC 1831, [2004] 1 WLR 371, Baker & Davies plc v Leslie Wilks Associates [2005] EWHC 1179 (TCC), Aer Lingus plc v Gildacroft Ltd [2006] EWCA Civ 4, [2006] 1 WLR 1173, Chief Constable of Hampshire Constabulary v Southampton City Council [2014] EWCA Civ 1541, Spire Healthcare Ltd v Brooke [2016] EWHC 2828 (QB) applied.
(2) Sections 10(3) and (4) were intended to be mutually exclusive. There could only be one trigger date to start time running: either the date of the judgment or award requiring a payment in cases where such issue was the subject of a judicial or arbitral determination or the date of the agreement to make the payment in a case where the issue was compromised. It followed that time could not start to run where the parties reached an unenforceable agreement as to payment. Time would only start to run under section 10(4) from the date of the subsequent formal agreement or, if the matter could not be agreed, under section 10(3) from the date of the judgment or award. The proper construction of section 10(4) was that time only started to run from the date of a binding agreement as to the amount of the compensation payment. Ordinarily, one might expect the parties not to reach a binding agreement as to payment until they had also agreed the other terms of their settlement. It was open to the parties to reach an immediately binding agreement as to the settlement payment but leave for later agreement details as to payment terms or any liability for costs. In such cases, time would start to run from the date of the agreement as to the amount of the payment. Equally, it was open to parties to agree that nothing was agreed until everything was agreed. If so, time would not start to run until the date of the subsequent binding agreement as to the payment or, should agreement prove impossible, the judgment or award.
(3) In the present case, the negotiations during April 2015 were expressly conducted on a subject to contract basis. Parties negotiating on such a basis would generally be presumed to intend that they should not be bound unless and until they subsequently entered into a formal written contract. Accordingly, there was no binding agreement between the claimant and the council by 28 April 2015. Binding terms as to the payment in kind were only agreed upon the execution of the settlement agreement. It followed that the claimant’s contribution claim was in time.
Steven Walker QC (instructed by Mills & Reeve LLP, of Cambridge) appeared for the claimant; Lynne McCafferty (instructed by Beale & Co Solicitors LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: RG Carter Building Ltd v Kier Business Services Ltd
