11.5 Pursuit of rights by litigation is nearly always protracted and costly. Should negotiation fail, litigants decide whether the facts and their resources justify the risk implicit in court action.
11.6 Legal costs can mount rapidly Counsel's opinions, experts' reports and discovery all contribute to diversion of management effort, as defences are probed to unravel uncertainties. These include:
1. Whether any or all of the claims are out-of-time;
2. challenging the facts, the existence of the alleged defect or damage and the cost of restitution;
3. throwing doubt on causes, of which there may be several;
4 challenging the degree of fault attributable to any participant.
11.7 Matters are also complicated by the number of parties joined in many actions. If one or more of the parties ceases to trade, the cost falls onto the others.
11.8 The upshot is unsatisfactory. Participants may be joined in actions with more regard to their assets and insurance cover than to their alleged culpability. Recovery of damage is risky and often long delayed.
11.9 In order to seek rationalisation of the law, a working party was set up last year chaired by a senior official of the DOE, comprising representatives of clients, contractors, consultants and specialist/trade contractors. At the date of finalising my Report, the working party had not reached complete agreement, although discussions were continuing. At that stage, the Constructors' Liaison Group were unable to accept some of the recommendations in the form which they were put forward.
1. Joint Liability
i. The group recommended that in construction cases (other than personal injury), defendants should have their liability limited to a fair proportion of the plaintiff's loss, having regard to the relative degree of blame. Defendants who are only liable for some of the latent damage should not have to suffer 100% liability because other defendants are unable or unwilling to bear their share of the loss.
ii. The CLG agreed with this recommendation.
2. Limitation (Prescription) Periods
i. The majority of the group recommended that a single period of 10 years of limitation (prescription in Scotland) should be fixed from the date of practical completion or effective occupation. This should apply for breaches of contract, whether or not under seal (or their equivalents in Scotland) or for negligent actions in tort (delict in Scotland),
ii. The CLG rejected this recommendation, because it referred to the practical completion of the main contract, whereas the specialists' work might have been finished years earlier, and the new ten year period would in practice extend their liabilities. CLG believed that a project based system would be unfair to specialists. The limitation period should begin when they have completed their subcontract work. Alternatively, the limitation period for engineering services should be shortened to 5 years, as happens in some European countries.
3. Transfer of Clients' Rights
i. The majority of the group recommended that if all or any part of a project is legally transferred by a client to an owner (or from an owner to a successive owner or from the client or an owner to a tenant with a full repairing and insuring lease or paying these costs by way of a full service charge), the client's contractual rights should automatically be made available to all or any such successive owner or owners and/or tenant or tenants of all or any part of the project. There were 3 exceptions:
a. Damage to moveable "other" property.
b. Damage to the personal property of the occupants.
c. Any losses other than the cost of repair and reinstatement of the project. This would acknowledge that consequential and economic loss by subsequent owners or tenants cannot be the responsibility of the construction team except where it relates directly to the repair and reinstatement of the building to its originally intended condition, with the damage eliminated.
ii. The CLG felt that these recommendations went too far and were unlikely to be insurable. They believed that:
a. Tenants' rights of action should be via the current owner.
b. The right should be for the repair of the building only, and not involve any economic or consequential loss.
c. Payments should properly have been discharged when due under the contract and rights of action should be reciprocal so that other specialists have equivalent rights of action against clients and their advisers.
4. Consumer Protection
The majority report wanted substantial implementation of the 1988 "Beat the Cowboys" report96. The CLG argued that events had moved on since then and in any case aspects of that report (such as low cost arbitration and Codes of Practice supported by the Office of Fair Trading) were inadequate or had proved unachievable in practice.
11.10 I do not comment further on paragraph 11.9(4) because, as the Interim Report made clear, small domestic jobs dealt with under the "Beat the Cowboys" report are largely outside my terms of reference. They rarely involve formal Standard Contract documents. Procurement issues are not a major problem either. The proposals for quality registration may assist indirectly in raising standards in the domestic field.97
11.11 So far as the other 3 sets of recommendations of the working group are concerned, I believe they should be accepted and implemented, because:-
1. The working group's package is intended to be a total one. The exclusion of joint liability means that no party would pay for more than their adjudged contribution to the cause of the damage. That is a totally different approach to the current arrangements of collateral warranties (some of them very onerous) with litigants seeking to pursue defendants with the "deepest pockets", leading to expensive and very lengthy multiparty actions. Other members of the working group are unhappy about some aspects of the proposals, but have accepted the overall package as a fair one. The BPF have made it clear that they would regard a reduction of the specialist/trade contractors' liability period to 5 years as unacceptable, and they also reject the proposal that the periods of liability should begin when subcontractors complete their particular sections of the work (source: Letter from the BPF, May 1994).
2. Some of the concerns of the specialist/trade contractors arise from other conditions of trading or unhappy experiences between themselves and main contractors. I have made detailed recommendations about such matters in other parts of this report, to obtain more acceptable arrangements.
3. A still wider package may well be necessary in any case, involving compulsory "BUILD insurance.
11.12 The working group's recommendations would require new legislation. As with the 1972 Defective Premises Act, it would ignore the contractual arrangements which can lead to injustice and lack of remedy for the client if the contractor has failed or gone away, and the defective work was in any case carried out by a subcontractor. It would allow the client to identify the responsible party and take action, whether or not they were originally in contract with each other. That can only be achieved at present if there is a collateral warranty and if such a warranty is in practice enforceable.
11.13 Lawyers who are expert in this field have advised me that if the working group's proposed change in the law was enacted, it would remove the requirement for many collateral warranties. That would be welcome. But it would still not be certain that clients could obtain the financial outcome they seek, especially if those found responsible for defects were under-insured or no longer trading.
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96 Report of the "Beat the Cowboys" working party, HMSO, 1988.
97 As part of their comments on dispute resolution, the Building Structures Group, in their final recommendations, suggested that a new system should be set up for very small contracts between a householder and a builder. They recommended that a construction regulator, appointed by the DOE, should name regional referees to settle such disputes, but only if the householder had entered into a Standard Contract with a registered builder. I would respond that if a Standard Contract such as the Minor Works Form is used, there ought to be an adjudication, conciliation or mediation procedure within it, However, if the householder is proceeding on the basis of a personal meeting with the builder, a written estimate or an exchange of letters, I believe that such work falls outside the scope of this Review.