The plight of leaseholders caught up in the cladding scandal has been well publicised. Many of those affected have found themselves trapped in unsellable homes or facing five-figure bills for remedial works. Building owners are under pressure from the government, media and leaseholder groups to “do the right thing” (as the government suggests). Perhaps less well known are the obstacles that building owners face when seeking redress from contractors and other third parties, particularly when time is running out to bring a claim.
Limitation periods (the period within which a claim must be brought) are intended to give parties a degree of finality to their exposure to litigation. Claims brought under construction contracts and warranties executed as deeds typically have a limitation period of 12 years from practical completion of the works, so claims in respect of older buildings may be time-barred. Where time is running out, building owners are under pressure to bring a claim, even if they are still investigating the defects. In a cladding claim, the pre-action process will often involve careful scrutiny of as-built information (if available), site inspections and opening-up works, desktop assessments, legal advice and the expertise of fire consultants and other specialists.
Once the claim is issued, the claimant usually has up to four months to serve it on the defendant and must at that point fully particularise its claim. Not so in the Technology and Construction Court, the natural home for cladding claims. Here, claimants facing an imminent limitation deadline are excused from carrying out steps pursuant to the court’s Pre-Action Protocol prior to issuing, but must instead apply to the court for directions. Unsurprisingly, defendants have rigorously opposed these 11th-hour claims, which could subject them to adverse media attention and a multi-million-pound bill for remedial works.
What does the case law say?
The claimant building owner in USAF Nominee No 18 Ltd v Watkin Jones and Son Ltd [2021] alleged breach of contract in relation to fire safety issues at a block of student flats. Facing an imminent limitation deadline, it issued a claim form and immediately applied for a 12-month stay of proceedings. The defendant contractor applied to strike out the claim as an abuse of process. It said the claim had not been fully particularised. The court observed that it would be an abuse of process for a party to commence proceedings that it did not intend to pursue, or where the existence of a genuine claim depended on “something turning up”. Here, however, the court accepted that the claimant believed it had a substantial claim, which it intended to pursue, and the claimant ought not to be criticised for being unable fully to particularise the claim at the point it was issued.
Once a stay of proceedings is in place, the claimant has time to explore the full extent of the defendant’s liability. But what if it doesn’t find what it is looking for? The claimant’s hastily issued claim may allocate responsibility to the wrong party or otherwise be defective.
In GREP London Portfolio II Trustee 3 Ltd and another v BLFB Ltd and another [2021] EWHC 1850 (TCC) the claimant issued a claim before the limitation deadline. A stay of proceedings was put in place for the parties to carry out what would usually be the pre-action process. This process is intended to facilitate engagement between the parties to narrow the issues or, if possible, avoid litigation altogether. It proved rather effective since the claimant, having engaged with the defendant, decided to abandon its claim altogether.
The claimant applied to court for an order that neither party be required to pay the other’s costs, contrary to the usual rule requiring claimants to pay the defendant’s costs on discontinuing the claim. A claimant is not typically penalised in costs for abandoning a claim following the pre-action process, being the principal outcome the process is designed to achieve. The claimant argued that it should not be treated any differently, since the pre-action process had only taken place post-issue owing to the limitation deadline. While a claim had technically been issued, it had been promptly stayed and proceedings had not, at least in practical terms, properly commenced.
The court disagreed. A claimant has a choice whether or not to issue proceedings and, if it does, there are consequences. The limitation deadline was immaterial for these purposes. The court found no unreasonable conduct on the part of the defendant which had caused the claimant to issue the claim ahead of the pre-action process. The failure by the defendant to agree a standstill agreement (to prevent the limitation period from expiring) did not constitute unreasonable conduct. Accordingly, the court applied the usual rule that the claimant pay the defendant’s costs of the proceedings being, the judge concluded, a key risk of commencing litigation.
Key takeaways
These cases demonstrate that claimants in cladding claims can find themselves in an invidious position. The early risk of an adverse cost order, in particular, could prove to be a significant disincentive to issuing 11th-hour claims. On the other hand, if building owners decide against bringing the claim, then that potential avenue of redress is lost for good.
Building owners must therefore be wary of limitation deadlines and ensure they get their house in order in plenty of time, particularly where not doing so may result in the costs of remedial works being left at the leaseholders’ door.
An earlier version of this article appeared in EG on 11 January 2022.
Authored by Katie Dunn.
