This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.
Summary and implications
Bloomberg LP v Sandberg, Sandberg LLP, Buro Happold Limited and Malling Precast Limited
In a recent interim hearing in the Technology and Construction Court, Mr Justice Fraser ruled that the wording "no proceedings shall be commenced against the Contractor" served as a procedural bar to Bloomberg LP's (Bloomberg) ability to bring a claim. Bloomberg's underlying right to a claim was not extinguished. The result of this was that third parties were able to bring claims under the Civil Liability (Contribution) Act 1978 (the Contribution Act) because the specific words in the warranty were judged only to deal with the ability to bring proceedings, not the underlying liability.
The facts
Standard Life Assurance Company Limited (Standard Life) entered into a lease with Bloomberg in September 2000, for Bloomberg's London offices on Finsbury Square. Standard Life was obliged to carry out building works and duly appointed Malling Precast Limited (Malling) to complete the cladding works. Malling entered into a collateral warranty with Bloomberg. Clause 6 provided that:
"no proceedings shall be commenced against the Contractor after the expiry of twelve years from the date of [practical completion]".
It was agreed that the "cut-off" date was 28 August 2012.
In 2001 two cladding tiles fell from the building. Standard Life engaged Sandberg and Sandberg LLP (together Sandberg) and Buro Happold Limited (Buro Happold) to provide engineering advice, following which Malling carried out remedial works. In 2013 a further tile fell from the building, which resulted in Bloomberg having to carry out remedial works that cost about £2.5m.
The claim
Bloomberg brought claims against Sandberg and Buro Happold. Bloomberg could not bring a claim against Malling because it became time barred after 28 August 2012.
However, Sandberg and Buro Happold sought a contribution from Malling under the Contribution Act. Section 1(3) of the Contribution Act provides that:
"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 [emphasis added]".
In other words, a party to litigation can seek a contribution from a third party that is also culpable, unless it can be shown that that third party is not liable because the underlying cause of action has been extinguished or become time barred.
The arguments
Malling sought summary judgment and strike out of the claim on the basis that the wording of clause 6 of the Warranty prevented any party from bringing a claim.
Sandberg and Buro Happold argued that clause 6 did not apply to third parties and that it was only a procedural bar to Bloomberg's right to bring a claim that did not extinguish the underlying right for a claim to be made. Malling could not therefore benefit from the proviso in section 1(3) of the Contribution Act, which provides that no claim can be brought if the underlying right is extinguished.
The decision
Mr Justice Fraser, in the Technology and Construction Court, decided that the warranty served as a procedural bar to Bloomberg bringing a claim and did not apply to third parties. The underlying cause of action was not therefore extinguished and Malling could not benefit from the proviso in section 1(3) of the Contribution Act.
Mr Justice Fraser also noted that if he had found in Malling's favour, Bloomberg and Malling would effectively have been able to contract out of the operation of the Contribution Act, which was put in place by Parliament to benefit third parties. He suggested that it might not be possible to do this but did not explore the issue further because it was not necessary at the hearing.
Lessons
If contractors wish to restrict their liability under the Contribution Act, specific wording that extinguishes the underlying right of any party to bring a claim would be required. It is, however, unclear whether this would be upheld. Parliament implemented the Contribution Act to benefit non-contracting third parties. It seems unlikely that the courts would enable such rights to be circumvented to the detriment of non-contracting parties as it would be contrary to the purpose of the Contribution Act.
A practical way to limit liability under the Contribution Act might be to insist on net contribution clauses in all contractual documents. These provide that a party is only liable for damages to the extent that it is culpable for the damage caused and remove the need to seek compensation from a third party. In the current contractor friendly market, this mechanism might be a more practical way for parties to manage their liability.
