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Interplay between Civil Liability (Contribution) Act 1978 and limitation of liability clause

In Bloomberg v LP v Malling Pre-Cast Ltd, a judgment that well illustrates the decline of “business common sense” as an aid to contractual interpretation, Fraser J considered the interplay between section 1(3) of the Civil Liability (Contribution) Act 1978 and a clause limiting liability in a contractor’s collateral warranty.

Bloomberg LP v Malling Pre-Cast Ltd

Bloomberg entered into a lease of commercial premises in 2000. The landlord undertook a refurbishment project, contracting with Malling to do stone cladding and precast concrete works. Malling entered into a warranty with Bloomberg, which included the following clause (clause 6), under the heading “Limitation”:

“Notwithstanding the date hereof [20.12.2000] no proceedings shall be commenced against the Contractor after the expiry of twelve years from the date of issue of the last written statement by the Client [29.08.2000] that practical completion of the Project has been achieved under the Contract.”

In 2001, two cladding tiles fell to the ground and Malling undertook remedial works. Sandberg provided consultancy services in connection with the works. Buro Happold had been employed by the landlord since 1999 as façade consultants. Sandberg and Buro Happold both gave warranties to Bloomberg.

In July 2013, a further cladding tile fell to the ground. Deciding that clause 6 precluded a claim against Malling, Bloomberg claimed against Sandberg and Buro Happold.

Sandberg issued part 20 proceedings against Malling seeking a claim for contribution under the Civil Liability (Contribution) Act 1978.

Civil Liability (Contribution) Act 1978

Section 1 of the Contribution Act provides as follows:

“(1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).

(3) A person shall be liable to make contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, unless he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based.”

Malling applied to strike out the claim and/or for summary judgment on the basis that clause 6 precluded it from being liable under the Contribution Act.

Malling’s application

Malling’s application focused upon three main lines of argument:

  • That the correct contractual construction of clause 6 provided Malling with a complete defence to proceedings generated after the cut off date.
  • That there was a clear policy in the Contribution Act not to disturb or override contractually agreed rights or defences.
  • That, in any event, section 1(3) of the Contribution Act was not applicable in relation to Malling because it applied only in respect of procedural defences and not substantive defences (as in this case). Alternatively, if section 1(3) did apply to Malling, then clause 6 operated to “extinguish” Malling’s liability for the purposes of section 1(3).

The primary thrust of Malling’s position was that the reasonable person in the parties’ position would interpret clause 6 as simply excluding Malling’s liability in respect of the works after the cut off period. The objective reader would not have a lawyer’s knowledge of the subtle distinction in the Limitation Act 1980 between extinguishing a right and barring a remedy. The objective reader would look at the clause generally excluding liability and assume that it meant what it said.

In support of its position, Malling highlighted the unqualified stipulation in clause 6 that “no proceedings” should be commenced against Malling beyond the cut off date, rather than specifying that only Bloomberg could not claim against it. It prayed in aid the obvious need for finality in construction projects and for a period to exist beyond which contractors can regard a project as fully closed and the risk of claims at an end. This was evident from clause 3.1.2 of the Agreement, which limited Malling’s obligation to maintain professional indemnity insurance to the period of 12 years from the date of the last certificate of practical completion (29 August 2000).

Building upon that argument, Malling contended that section 1(3) of the Contribution Act did not apply because section 1(3) of the Contribution Act was intended to protect parties against the operation of procedural bars, rather than substantive defences as provided by clause 6. Alternatively, it argued that, upon a proper interpretation of clause 6, Bloomberg’s right had been “extinguished” for the purposes of section 1(3).

Fraser J’s judgment

Malling’s arguments were designed to appeal to the judge’s sense of commercial practicality. Regrettably for Malling, “business common sense” has taken a recent battering as an aid to contractual construction. The court found against Malling on every point.

Relying upon the Supreme Court’s dictum in Arnold v Britton, the judge considered that clause 6 ought properly to be interpreted upon its plain wording, rather than by reference to commercial common sense and the surrounding circumstances. The sails were thereby slashed on each of Malling’s arguments.

The words, “no proceedings” in clause 6 were found to mean “no proceedings by Bloomberg”. The judge concluded that clause 6 operated merely as a procedural bar to Bloomberg’s recovery against Malling, rather than as an extinguishment of its underlying right. Section 1(3) of the Contribution Act was applicable in this case, but could not assist Malling. The judgment did not directly address Malling’s argument that the reasonable reader would not even guess the meaning of the clause the Defendants put forward.

Conclusion

Litigating parties have always faced the risk that their agreements will be construed by courts in ways which bear no resemblance to their intentions at the time of contracting. Clauses limiting liability present a way of managing that risk. However, in light of this judgment, both the wording and effect of such clauses will require careful re-consideration.

There is obvious force in Malling’s argument that the reasonable lay person (rather than the reasonable lawyer) would construe clause 6 as extinguishing Malling’s liability to Bloomberg, whether directly or otherwise.

The judge’s construction of clause 6 as a procedural bar to recovery is a lawyer’s reading of that clause. The same is obviously true of the conclusion that clause 6 was therefore insufficient to extinguish Bloomberg’s underlying rights and to preclude a claim for contribution. Indeed, the judge went so far as express reservations about whether it was ever possible for a contractual clause to exclude the effects of the Contribution Act in this way, concluding that, if such a thing were possible, it would take very clear words to accomplish this. Lawyers involved in the drafting of such provisions would do well to take note.

Malling’s application expressly left open the question of whether it was liable in respect of the “same damage” as the Defendants. In the circumstances, this question required a fuller investigation of the facts than had been undertaken so far. However, it provides (at least in principle), a potential escape route for those in Malling’s position. In the event that Malling is found not liable in respect of the same damage as the Defendants, a contribution cannot be recovered from it under the Contribution Act.

Crown Office Chambers Athena Markides

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