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No time to lose in settling claims

LAW - When workloads drop, many firms look to old jobs to find unsettled accounts but, if it has been too long, the claim may be worthless. Guy Cottam reports

THE FIRST thing that main contractors and subcontractors do when there is a shortage of work is to take a look at all their old contracts under which the final account has never been agreed. When work is f looding in, there never seems to be the staff available to do this.

Many of their contracts may well have claims that have not been agreed, applications for extensions of time that the client has not responded to and all the other familiar failings to which we have become accustomed.

When these claims are resuscitated, clients look to their own rights and out come the counter-claims for bad workmanship and possibly for liquidated damages that have never been claimed.

But there is a danger that the claims have been left too long.

As Lindy Patterson explained last month, the Limitations Act 1980 prevents the courts or arbitrators considering claims after a specified time ? normally six years. The question is, when does that per iod star t?

The answer ? understandable to lawyers, but not necessarily to practitioners ? is 'when the cause of action accrues'.

But this simply raises another question: what does that mean and when does it happen?

On second thoughts, perhaps, it is not always clear to lawyers. A recent case in the Court of Appeal ? Birse Construction v McCormick (UK) ? shows why.

Birse entered into a contract with McCormick under which a third firm, Fluor Daniel, was to be management contractor and agent for McCormick.

The works were completed in November 1996 and, on November 15, 1996, agreement was reached on all claims except one for additional site establishment costs, which was expressly excluded from the agreement. That claim covered 29 separate events occurring between November 1995 and November 1996.

Birse resubmitted this claim in a further document dated April 29, 1997, and issued the claim form referring the matter to the Technology and Construction Court on May 23, 2003. It follows from that if the 'cause of action' occurred more than six years before that date ? that is before May 23, 1997 ? it would be statute barred.

Under the claims procedure Birse was to give Fluor Daniel written notice within five working days of the event giving rise to the claim and, within 10 working days, was to provide a fully priced claim together with 'all substantiating documentation'.

The clause added a rider that 'the Company (McCormick) will not be liable for, and the Contractor (Birse) hereby waives, any claim or potential claims of which the Contractor knew or should have known, and which was not reported by the Contractor in accordance with the provisions of this Article'.

The judge in the Technology and Construction Court, Judge Peter Coulson, thought that, although highly convoluted, the contract was 'relatively simple and easy to operate'.

The Judge might have decided that the time provided for the valuation was perhaps inadequate in respect of delaying events not resulting from Fluor Daniel's instructions because their outcome would often have been difficult to foresee. But that is not the point. The question is when did the cause of action for these claims arise?

It was, we now know, when a dispute first arose. Judge Coulson said: 'In summary on this issue I find that the November 14 , 1996 , cla im was in effect Birse's formal claim for additional monies for site establishment and was the only claim that survived the settlement of November 15, 1997. I find that the claim document of April 1997 was simply a revision of that original claim.' He went on: 'I find that there was no separate or different cause of action accruing to Birse simply because it chose to recast and resubmit its claim in April 1997 or because there was no formal response by Fluor to that recast claim until August 1997. In my judgment, it is simply contrary to common sense to suggest that there was a new duty and a new breach every time Birse put in a recast claim.' Judge Coulson said that the contractual obligation 'fairly and properly to assess and/or estimate and/or agree' was an inherent part of the contract and any breach occurred when Fluor failed to respond to the claim, whether fairly or at all.

He added: 'To the extent that this breach gave rise to a separate cause of action, I consider that that cause of action arose at the same time as the cause of action under the contract itself.

In this case I consider that the date of accrual of each cause of action was in late November/December 1996, and was probably on or about December 9, 1996.' It was therefore statute barred.

The Appeal Court agreed with Judge Coulson and upheld his decision against Birse.

So the cause of action accrued when the dispute first arose. With tight time scales, a dispute may arise within a very short time of the submission of the claim if the certifier does not respond promptly.

The conclusion is very clear: do not leave claims unanswered. If you cannot get a response, start proceedings.

This is particularly important if you wish to challenge an adjudicator's decision.

Lastly, if you have outstanding claims always check the contract for its time periods.

There may be a clause in the contract that gives rise to loss of right if its procedures are not followed or makes a decision of the project manager, architect, engineer, or adjudicator final and conclusive if not referred to arbitration or the courts within a specified time.

To lose your rights to payment through failure to act in time can be very expensive and is entirely unnecessary.

KEY POINTS The limitation period for claims starts to run when the cause of that claim first arises.

Re-submitting a claim does not set the clock ticking again.

The original time limit remains.

Never leave claims unanswered. If you cannot get a response, start proceedings Always check the contract for its time periods. There might be a clause under which you forfeit your rights if you fail to follow its procedures.

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