Claims on Ice – Pausing The Action

Most consultants are already familiar with the idea that claims in negligence and/or contract are subject to the doctrine of limitation periods (or prescription periods in Scottish law).   The rules are detailed and nuanced depending on the circumstances, but the overarching principle is that unless a claimant issues legal proceedings prior to the expiry of the relevant period the claim becomes unenforceable even if it is a valid claim in principle.

This is of particular relevance to construction claims because defects in the built environment might not be apparent immediately upon handover and potentially not until many years after the claimant’s cause of action first arises.

If the relevant limitation period expires before the claimant issues proceedings then, as a rule, the claim is time barred and the claimant walks away empty handed.  It is thus an all or nothing argument, which explains why there is so much case law around limitation periods – where it is an issue, potentially everything turns on it, and both claimants and defendants alike have historically been prepared to run all the way to trial on limitation points alone.

The problem for claimants is that as the relevant expiry period draws nigh they may not be in a position to decide whether their claim is a strong one.   Typically, this might be because intrusive investigations need to be undertaken and expert witness evidence has to be gathered before they can decide which party (if any) they want to pursue for compensation.  There may be a simple practical reason why those investigations have been stalled through no fault of the claimant’s.

In those circumstances claimants have historically asked the potential defendant consultant to enter into a standstill agreement – a contract under which the parties agree to pause the ticking of the clock for limitation purposes, usually for a fixed period.   This avoids the perceived need for claimants to incur the cost of issuing proceedings when they themselves don’t yet know whether their claim as any future; and it avoids the need for the defendant consultant to incur costs in taking the relevant procedural steps necessary to protect their own position.  Consultants can refuse to sign these agreements but will often gain nothing by doing so and in fact can expose themselves (or their insurers) to avoidable legal costs in the immediate term.

So far so good – standstill agreements are not ideal from a consultant’s perspective but in reality, given the alternative, they are often the less unattractive of two options.

Recent claims trends suggest that that there are currently more potential construction claims on ice under standstill agreements than ever before.   We suggest that there are three reasons for this.   They are interrelated and they all flow from claimants and their solicitors trying to manage their risks.

1. Claimants’ solicitors recognise that in failing to make sure that their client’s cause of action isn’t snuffed out by being time barred, they themselves run the risk of being sued in negligence by their own client. The Professional Indemnity insurance market for solicitors continues to harden and lawyers are painfully aware of the need to manage their own professional risk exposure – so much so that they try to cover all bases, even if that means trying to extract standstill agreements for claims which are tenuous at best.  This comment would resonate with one of our architect clients who, inexplicably, has been identified as being potentially responsible for the failure of a floor slab where the structural design appears to have been inappropriate for the prevailing ground conditions.
2. Construction PI claims frequently involve more than one defendant party: typically a contractor and a designer who may be jointly and severally liable to the claimant in circumstances where a defect is attributable partly to a workmanship failing and a design error. Conscious that contractors can be prone to insolvency, claimants are now more inclined to want to leave their options open against consultants, even in cases where the claimants have a far stronger claim against the contractor and it is less expensive for them to pursue that party alone than to proceed against the consultant at the same time.   This is reflected in numerous cases where we have a strong causation defence.  For instance,  we concede (privately) that our engineer undersized an air handling unit, but the contractor then deviated from that design and, let’s say, installed an altogether different piece of kit – that is the immediate reason why the classrooms are overheating, irrespective of what might have happened if the contractor had faithfully followed the engineer’s drawings.
3. Slightly different from cases outlined above, where claimants may ostensibly be asking for time to open up the works and take advice from experts, are fire safety related cases germinated by the Grenfell Tower disaster. Claimants in many of those cases have already completed remedial and/or upgrade schemes and are well advanced with their technical reviews.   They are now only awaiting the outcome of the public inquiry in the hope that it draws conclusions in their favour, perhaps in relation to the scope of an architect’s obligations or the way in which Approved Document B of the Building Regulations should be interpreted.  The inquiry led by Sir Martin Moore-Bick is limited to Grenfell Tower itself, but its output will be persuasive.  Given its profile, it will carry a weight of authority which claimants and defendants alike will seek to exploit if it suits them to draw relevant parallels with their own disputes.

Where our clients are asked to pause the action by entering into standstill agreements we provide advice on a case by case basis taking into account all of the above.  It remains the case that on balance it is generally in the consultant’s interests to provide a degree of cooperation but only where there is the realistic threat of a claim which might have some merit and where the terms of the proposed agreement are reasonable.

We currently find ourselves pushing back on those agreements by attaching conditions in our favour, particularly with regard to the duration of the agreement and a requirement for the claimant to share information with us at pre-agreed intervals.  This is so that we can be satisfied that they are in fact using the interval to progress matters as they should be doing and that they will have something meaningful to show at the end of it.   If they fail to do so then we have to draw appropriate conclusions from that.