The case of RG Carter Building Ltd v Kier Business Services Ltd concerned defects at Boston Grammar school and, in particular, the limitation period for commencing proceedings against a third party following a settlement agreement between the client and the main contractor.
Background
Lincolnshire County Council (LCC) appointed RG Carter (RGC) as main contractor for the construction of a new science block which suffered water ingress.
LCC claimed the cost of rectification from RGC.
In March 2015, LCC and RGC held without prejudice settlement discussions under which RGC agreed to carry out remedial works (to be designed by others). The scope of the remedial works was eventually agreed on 25 June 2015 and a binding settlement agreement was entered into on 29 June 2015.
RGC completed the remedial works but intended to pursue contribution proceedings against Kier who it blamed for the original defective design.
Under the Limitation Act, the limitation period for bringing a contribution claim following a settlement is two years from the “earliest date on which the [damages] to be paid by [the paying party] is agreed between him and the person to whom the payment is to be made” [section 10(4)].
On 28 April 2017, RGC and Keir entered into a Standstill Agreement (i.e. an agreement under which Keir agreed not to rely on a limitation defence). However, when RGC subsequently commenced proceedings, Keir argued that the limitation period had already expired by the time the Standstill Agreement had been entered into.
Judgment
The judge confirmed that a contribution claim could be brought following a settlement under which remedial works were to be carried out rather than a payment of damages. The question was: when did the two year period commence?
It was held that a binding agreement had to be in place before the two year period started to run. Limitation, therefore, would not have expired until 28 June 2017 which was after the Standstill Agreement had been entered into.
Comment
The judgment is not surprising. However, it has provided some helpful clarification.
The judge also provided some additional comments on the operation of s.10(4) of the Limitation Act where the settlement related to the carrying out of remedial works rather than the payment of money. He said that if something short of a binding agreement was sufficient to start the clock running, then at the very least the full scope of the remedial works had to be agreed as this was equivalent to agreeing the “amount to be paid”. In this case, that date was no earlier than 25 June 2015 which meant that the Standstill Agreement had been entered into before the limitation period had expired.
Only two questions remain unanswered: (a) what happens if the remedial works take longer than two years?; and (b) what is the position if a precise scope of works is not agreed and the contractor simply agrees to do whatever is necessary to remedy the defects? In order to avoid costly satellite litigation, the safest course of action may well be to proceed on the basis that the two year period begins to run no later that the date the settlement is agreed.
