REUTERS | Toby Melville

Valuable guidance on limitation for contribution claims

In RG Carter Building Ltd v Kier Business Services Ltd, the TCC has given valuable (if unsurprising) guidance on the operation of the limitation period for contribution claims where a contribution to, or indemnity in respect of, a settlement is sought – but certain questions remain unanswered.

RG Carter Building Ltd v Kier Business Services Ltd (formerly Mouchel Business Services Ltd)

RG Carter (RGC) built a new science block for Boston Grammar School (run by Lincolnshire County Council), to a design by Kier Building Services Ltd.

The science block suffered water ingress and the Council commenced arbitral proceedings against RGC.

A without prejudice meeting took place on 27 March 2015, following which correspondence ensued about a settlement on terms that RGC would undertake remedial works, which were to be designed by a third party, in settlement of the claim. However, as at 28 April 2015, there was no binding settlement agreement and the scope of the works to be carried out in settlement of the claim had not been finalised. Letters outlining settlement terms had been sent, but they were marked “subject to contract”. A binding agreement was not reached until 29 June 2015. Some preparatory works started a little in advance of that date, but the full scope of the works to be carried out under the settlement was only agreed on 25 June 2015.

Having done the work, RGC blamed Kier’s design, and sought to recover from Kier a contribution to, and/or an indemnity in respect of, the cost of the works carried out in settlement.

A standstill agreement was entered into between Kier and RGC on 28 April 2017 – so a couple of months short of two years after the binding settlement agreement was reached. When proceedings were brought by RGC, Kier alleged that the two-year limitation period for the contribution claim under the Civil Liability (Contribution) Act 1978 (1978 Act) started running from a date in advance of 28 April 2015, notwithstanding the fact that no binding agreement settlement agreement had been concluded by that date.

Argument and decision

It was common ground – and a fact reiterated by the judge – that a contribution claim could be brought under the 1978 Act where the settlement was on terms that work was to be done instead of money being paid in consideration for the forbearance to sue.

Likewise, it was common ground that the settlement engaged the limitation period under section 10(4) of the Limitation Act 1980, which provides:

“If, in any case not within subsection (3) above [which deals with an award by a Court or in arbitration], the person in question makes or agrees to make any payment to one or more persons in compensation for that damage (whether he admits any liability in respect of the damage or not), the relevant date shall be the earliest date on which the amount to be paid by him is agreed between him (or his representative) and the person (or each of the persons, as the case may be) to whom the payment is to be made.”

Kier sought to argue that for the purposes of section 10(4), something less than a binding settlement agreement was enough, so the claim was already time-barred by the date of the standstill agreement. Reliance was placed on the fact that the court had to look for the “earliest date” on which there is agreement as to the amount to be paid, as well as the fact that authority had already established that time could start running even if ancillary matters (such as costs) remained to be agreed.

The argument was roundly rejected by Mr Edward Pepperall QC, sitting as a Deputy High Court judge. And rightly so. He held that a binding settlement agreement was required before the two-year period started to run under section 10(4).

It is worth observing that Kier’s proposed construction was completely unworkable. It would create significant uncertainty as to when the limitation period began to run and, as the judge rightly observed, it would also bring sections 10(3) and 10(4) into potential conflict: if there was a non-binding settlement, which never became binding and a court had to adjudicate the case, would the two-year period run from the date of the judgement under section 10(3), or the date of the earlier non-binding agreement under section 10(4)?

As I have indicated above, the judge’s conclusion on the main point was not surprising, although it is welcome clarification.

More interesting are his obiter remarks at paragraph 36, in relation to what would need to be agreed. He opined that if he was wrong on the first point, and something short of a binding agreement was sufficient to start the clock ticking, then the instant proceedings had still been brought in time because section 10(4) required agreement as to the “amount to be paid”. In a case involving a payment in kind of the sort involved in this case, that would mean agreement as to the scope of the remedial works to be undertaken. He suggested that:

“… agreement simply to carry out such remedial works as might subsequently be assessed or agreed is no more an agreement as to the ‘amount’ of the settlement payment than an agreement to pay damages to be assessed or agreed.”

He therefore held as an alternative that there was not agreement as to the “amount” to be paid until “at least 25 June 2015”, which was when the scope of works to be carried out was finalised, so proceedings would still be issued in time on that basis.

What next?

Although only obiter, it is suggested that the judge’s reasoning and conclusion in requiring agreement as to the scope of works to be carried out in a case such as this was sound, and is likely to be persuasive. Once there is an agreed scope of works, the work can at least be costed, and a value placed on the promise to undertake work.

However, I wonder whether you can go further? Although the work can be costed at that stage, the figure arrived at is unlikely to represent the true value of the works undertaken except in a very simple case. And one can envisage a complicated case where the works themselves take a very long time to complete (maybe even more than two years) – should the two-year limitation period start running notwithstanding the fact that the remedial works have not been completed? And what about a binding promise to do whatever is necessary where no schedule is drawn up and/or the works required are necessarily uncertain so that no schedule could be drawn up until they are finished? The judge’s logic might well suggest that the limitation period should not actually start running until final quantification of the value of the work in fact undertaken is possible, so perhaps a long time after the final agreement to settle is actually concluded.

Crown Office Chambers Carlo Taczalski

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