In a landmark judgment handed down today in Co-op Group Limited v Birse Developments Limited and others [2014] EWHC 530 (TCC), Stuart-Smith J clarifies the law on limitation in claims where a main contractor seeks to pass on liabilities to its professional team and its sub-contractors.
In an earlier decision in Linklaters Business Services v Sir Robert McAlpine Ltd [2010] EWHC 2931 (TCC), Aikenhead J had held (obiter) that in a tortious claim by a main contractor against its sub-contractor (in respect of the main contractor’s contractual liabilities to third parties) time did not begin to run until a claim was first ‘intimated’ against the main contractor by those third parties. As a result of the decision in Linklaters v McAlpine, sub-contractors and professionals were exposed to long tail liabilities (subject only to the 15 year longstop under s.14B of the Limitation Act 1980).
In Co-op Group v Birse, Stuart-Smith J took a different approach. The Judge held that, at the latest, time begins to run against the main contractor in respect of its tortious claims against its professional team and sub-contractors on practical completion.
Sushma MacGeoch of Kennedys LLP and Doré Green of 2 Temple Gardens acted for one of the successful Defendants.
Background
The claim arises out of a large warehouse development in Rugby undertaken in 1998 for which Birse Developments Ltd (Birse) acted as main contractor under a design and build contract. Birse provided a collateral warranty under seal which was ultimately assigned to Co-operative Group Ltd (Co-op).
In 2010 Co-op issued proceedings against Birse for various defects in the development, relying on the collateral warranty. Birse is seeking to pass on any liability to its professional team Jubb & Partners (Jubb) and its flooring contractor Stuarts Industrial Flooring Ltd (Stuarts). Birse issued a separate action commenced in 2013 seeking to pass on any liability for alleged defects in the external hardstanding (covering an area of some 45,000m2) to Geofirma Soils Engineering Ltd (Geofirma), which undertook specialist soil stabilisation works for the development. Both actions are being run concurrently.
Limitation was tried as a preliminary issue. Geofirma and Jubb contended that Birse’s cause of action in tort accrued at latest on handover of the relevant element of the works or on practical completion. Alternatively, when the defects materialised as cracking in the building fabric. Birse argued that time only began to run when the claim by Co-op was first intimated in 2010, relying on Linklaters v McAlpine.
When does time start to run on the main contractor’s claim?
The Judge held that, at the latest, time begins to run against the main contractor in respect of its tortious claims against its professional team/sub-contractors on practical completion. As at that date, the main contractor incurred a present liability to those parties with whom the main contractor was under contract to build, whether to its immediate employer or to parties with whom it had entered into collateral warranties. Whether viewed as an asset or as a package of rights, the main contractor’s interest in the development and its rights under the building contract were thereby devalued (due to the alleged failings of the sub-contractors and its professional team).
This constituted measurable financial loss for the purposes of the accrual of the main contractor’s cause of action in tort against its sub-contractors and professional team so as to set time running for the purposes of limitation in tort.
Different forms of contingent liability
The Judge properly regarded Birse’s claim as being for pure financial loss, and in no way akin to that of the building owner who suffers economic loss where the cause of action accrues only when the relevant defect manifests itself as cracking in the structure of the building. The Judge also rejected Birse’s argument that until notified of a claim by Co-op, its liability was a purely contingent liability as envisaged by the House of Lords in The Law Society v Sephton (2006).
Significant Development
Co-op Group v Birse is a significant milestone for construction professionals and their Insurers - their exposure to long tail liabilities has been substantially reduced. A word of warning though – permission to appeal has been granted. This victory may therefore be short-lived.
