The Court has given guidance on when time starts to run for contribution claims. In short, pursuant to s.10(4) Limitation Act 1980, limitation on claims in contribution will run from the date on which the parties conclude a binding agreement for damages to be paid.

Agreements reached “in principle”, or said to be “subject to contract” or similar, could not be binding agreements, and therefore time could not cause time to begin to run. The facts of the case were as follows: In 2002, RG Carter built a new science block for Lincolnshire County Council at Boston Grammar School. Unfortunately, the block, which had been designed by Kier, suffered water ingress problems. The Council brought arbitration proceedings against Carter in 2015.

Alongside the arbitration, between March and April 2015, Carter and the Council entered into settlement negotiations. At that stage, it was agreed that Carter would carry out remedial works, some at its own cost and some with the costs shared with the Council. The Council distilled the proposal on 16 April 2015 in correspondence marked “WITHOUT PREJUDICE SAVE AS TO COSTS” and. “SUBJECT TO CONTRACT”. Further correspondence followed clarifying the precise scope of the remedial works. Carter conducted investigatory surveys in May, and carried out preparatory work in June.

Eventually, a final agreement was signed on 29 June 2015. Carter decided to seek a contribution from Kier in respect of the c£200k costs it had incurred as a result of the settlement. Carter and Kier entered into a standstill agreement on 28 April 2017, before Carter issued proceedings on 20 September 2017. Kier asserted that the proceedings were out of time, since under s.10 Limitation Act; proceedings had to be brought within two years of the date on which a right of action accrued. Kier’s position was that the remedial works had been agreed in principle by 16 April, meaning that time began to run from that date. On that basis, Kier considered that time had already expired by the date of the standstill agreement.

The issue for the court was whether time ran under s.10(4) only once parties have entered into a binding agreement for the payment of compensation, or whether something short of a binding agreement is sufficient to start time running.

The court considered that the most logical way to test Kier’s proposition was to consider what the outcome would be if the parties reached an agreement in principle, but the talks then broke down and did not result in a binding settlement agreement. Under Kier’s construction,once the talks failed, then the case would revert to be determined under s.10(3), i.e. from the date of judgment or award where the matter is litigated or arbitrated. That was not a sensible construction of the Act.

The court considered it important to approach the legislation on the basis that Sections 10(3) and 10(4) are intended to be mutually exclusive. As such, there could only be one trigger date to start time running under s.10: either (i) the date of the judgment or award requiring a payment; or (ii) the date of the agreement to make payment where the issue is compromised. On that analysis, and since there can only be one trigger event, it follows that time cannot start to run where the parties reach an unenforceable agreement as to payment. In such a case, the proceedings remain on foot and time will only start to run under s. 10(4) from the date of the formal binding agreement as to the amount of the compensation payment.

As a sense check, the court concluded that its findings were “obviously right” when the interplay between s.1(4) Civil Liability (Contribution) Act 1978 and s.10(4) Limitation Act 1980 was considered. Since the cause of action for a contribution only arose under the 1978 Act on settlement of the underlying dispute, time could not start to run under the 1980 Act from the date of some earlier, non-binding agreement.

The negotiations during April 2015 were expressly conducted on a “subject to contract” basis and it was common ground that no binding agreement was reached until 29 June 2015. The parties had not intended to be bound until that date. The contribution claim was therefore in time and the limitation defence failed.