This decision clarifies when time will start running under s. 10 Limitation Act 1980 in respect of contribution claims.
A contribution claim under the Civil Liability (Contribution) Act 1978 must be brought within two years of settlement or judgment. In the case of a settlement, it is now clear from RG Carter Building Ltd v Kier Business Services Ltd, interpreting s.10(4) of the Limitation Act 1980, that time starts to run only from the date of a binding payment agreement, and not from the date of any earlier agreement in principle.
The Limitation Act 1980 - contribution claims
Section 10 of the Limitation Act 1980 (LA80) states that an action to recover a contribution (pursuant to the Civil Liability (Contribution) Act 1978) must be brought within two years from the date on which that right accrued. Section 10(4) clarifies that where compensation payments have been made, with or without admission of liability, 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.”
In RG Carter Building Ltd v Kier Business Services Ltd, Carter was retained in or around 2001 to build a new block at a school, with the design being undertaken by Kier. The block then suffered problems due to the ingress of water, and the council brought arbitration proceedings against Carter. Following negotiations, agreement in principle was reached in April 2015. A formal settlement agreement was not then signed until 29 June 2015. In April 2017 Carter and Kier entered into a standstill agreement, and in September 2017 Carter issued a contribution claim against Kier.
The court considered, as a preliminary issue, whether time starts to run under section 10(4) LA80 only once parties have entered into a binding agreement for the payment of compensation, or whether an agreement in principle is sufficient to start time running. It found that the proper construction of section 10(4) is that time only starts to run from the date of a binding payment agreement, based on the rationale below:
- It was not sensible to construe the Act in such a way that time started to run from the date of an agreement in principle because, until the agreement was formalised, there was the risk that it could break down.
- There could only be one trigger to time starting to run under section 10; either the date of judgment or award requiring payment (section 10(3)), or the date of agreement to make the payment in a case where the issue is compromised (section 10(4)). It therefore followed that time could not start to run where parties had reached an unenforceable agreement, because litigation and/or arbitration proceedings remained a possibility.
- This conclusion was "obviously right" because the cause of action for contribution only arises upon settlement of the underlying dispute.
The court acknowledged that there might be occasions where time starts to run despite all the details of settlement not yet being agreed, for example where an agreement to pay compensation has been embodied in a consent order, but the consent order has not yet been made.
The court also recognised parties’ freedom to decide when a settlement payment will be considered "binding", for example this may be at the point of agreement on the settlement figure alone, or when all ancillary matters such as terms and costs are also agreed.
This case provides welcome certainty that time will only start to run for the purpose of limitation in contribution claims when a "binding agreement" is reached between the parties to the original claim. A non-binding agreement or agreement in principle will not be sufficient.