Keoghs Insight

Author

Jody Proudman

Share and share alike: contribution claims

AWARE29/02/2016
Property Insurance Aware 4

Background

In claims, which arise as a result of damage to property, liability can potentially attach to several parties to varying degrees. For example, works carried out to a property may involve different elements of work carried out by both main contractors and subcontractors. It may also be the case that other parties have some degree of responsibility in relation to the maintenance of a property, for example a landlord and a tenant.

A defendant may find itself on the receiving end of a claim directed solely at it by a claimant, when in fact responsibility may lie wholly or partially with another party. We often find that a claimant may pursue one party (as this is more straightforward for them) and they may be aware, for example, that the party targeted has insurance cover in relation to the claim.

The risk here is that insurers may take steps to deal with a claim against an insured on a 100% liability basis, not realising they are able to seek a contribution from another party, or to pass the claim on entirely.

In these circumstances, the Civil Liability (Contribution) Act 1978 (‘the Act’) is a useful tool which may enable a defendant to pass on liability for a claim to another party entirely (obtain an indemnity) or seek a contribution to a claim and/or an outlay.

The Act appears to contain straightforward provisions, which detail the ingredients required for a claim for an indemnity/contribution against another party. However, these often require a closer analysis in light of the facts of each case.

Elements required in a contribution claim

(a) Who can be liable to contribute?

Section 1(1) of the Act provides “any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage”. It is key to note that the person from whom a liable party is seeking an indemnity/contribution must be liable for the same damage suffered by the claimant. The term ‘damage’ should be given its ordinary and natural meaning in this context and for the avoidance of doubt it does not mean ‘damages’, i.e. compensation. However, the concept of the ‘same damage’ is not straightforward and was considered in the case of Royal Brompton Hospital NHS Trust v Hammond (No3) [2002] UKHL 15.

This case concerned delays in the construction of a hospital. The main contractor working on the construction of the hospital claimed loss and expenses from the hospital, as a result of the delay in construction. The hospital settled the contractors’ claim and then sought to bring a claim for a contribution against the architect. The architect was responsible for agreeing an extension of time for completion of the hospital. It was alleged that the architects had been negligent and deprived the hospital of its contractual entitlement to damages from the contractor for late delivery. The architect then sought a contribution from the contractor on the grounds that the contractor was liable for the ‘same damage’.

The contribution claim failed as the architect’s liability for damage was not the same damage that the contractor would be liable for, as the hospital’s claim against the contractor was for late delivery of the building, whilst the claim against the architects was for breach of duty - which affected the hospital’s contractual position against the contractor.

It was concluded that the contractor and the architect were not liable to the hospital in respect of the same damage. Therefore, the architect was not entitled to claim a contribution from the contractor.

How are damages apportioned between liable parties?

The Act provides that the amount recoverable from a liable party “shall be such as may be found by the court to be just and equitable having regard to the extent of the person’s responsibility for the damage in question”.

Ultimately, the Act allows the court to apportion liability onto several parties as it considers fair in the circumstances of the case.

What if the claimant is threatening to issue proceedings?

In this situation, a liable party is able to put another liable party on notice of the threatened proceedings and its intention to seek a contribution/indemnity. In an ideal world, this notification would result in an amicable apportionment of liability for the claim being agreed between the liable parties.

If a claimant does issue proceedings and it has not been possible to agree an appropriate apportionment of liability, a liable party is able to take steps to join another liable party into those proceedings. Depending upon the value of the claim presented, there may be costs risks associated with taking this step and so we would always recommend that legal advice be sought before taking this step.

What if a liable party has already settled the claim?

Settlement of a claim does not prevent a party pursuing a claim for a contribution, as confirmed by section 1(4) of the Act which provides:

“A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established”.

A liable party who is notified that a claim has been settled and a contribution is being sought from it may raise arguments over its own liability, the liability of the settling party and potentially that the claim ought to have been settled on more favourable terms.

It is therefore good practice to involve all potentially liable parties in a claim prior to taking steps to agree settlement of the claim to avoid any such arguments being raised at a later date.

Is there a time limit for a contribution claim?

Contribution claims under the Act are subject to a two-year limitation period (section 10 of the Limitation Act 1980).

If a claimant’s claim has been settled and a liable party is seeking to recover some or all of their outlay from another party, the limitation period runs from the date on which the party seeking a contribution agreed a settlement of the claim.

Key issues to consider:

  • Several parties can be liable for the damage a claimant has sustained and as such, it is important to identify all potentially liable parties as early as possible, along with obtaining and preserving evidence to protect a potential contribution action against another party.
  • Care must be taken when dealing with claims with multiple potentially liable parties so as not to prejudice any contribution claim. Therefore, the facts must be carefully considered before any liability is admitted and any payments are made to a claimant.
  • The legal concept of being liable for the ‘same damage’ can be complex and as such, we recommend obtaining legal advice as to the prospects of a contribution claim and the likely evidence required to support such a claim as early as possible.