L is for limitation rules

Construction contracts usually have a mechanism for dealing with how defects visible before practical completion (“patent defects”) and those that could not be seen at practical completion (“latent defects”) are rectified during the construction period and the defects liability period that follows it.

In addition to that mechanism, and distinct from it, most contracts also contain words along the lines of “no action or proceedings may be commenced after …” which then set out the latest time by which legal proceedings can be started further to the contract.

Limitation rules are governed by the Limitation Act, which provides a party with a defence to say that it is no longer valid to bring a claim for any breach of the contract. It may be that a party receives a fully-fledged and seemingly daunting claim that it can defeat by simply saying that it has been served “out of time” (that is, outside the limitation period).

The basic position under the act is that in simple contracts the limitation period is six years from the date on which breach is committed (for example, the date on which inadequate design is prepared or defective workmanship is carried out). Where contracts are executed as deeds (which is often the case with construction contracts) the period is 12 years.

Parties should remember that different rules apply for claims in tort (which are claims outside the contract) and that some contracts expressly say that tort claims cannot be brought. Even if the contract does not say that, it may be difficult to establish that a separate duty in tort exists outside the contract as so much of the relationship between the parties has been set out in the contract.

If piling is carried out defectively at the start of a three-year construction period, the limitation period will end roughly nine years after completion

 

Limitation period clauses create a longstop date, that is, a latest date by which claims can be started but this is sometimes misunderstood as a limitation period ending “on the expiry of 12 years following practical completion of the works”. For example, if piling design is carried out defectively at the start of a three-year construction period, the limitation period will actually end roughly nine years after practical completion and not the 12 years that some people think.

The position usually differs with defective works, where the breach may be considered as a continuing failure to complete the works.

Consideration needs to be given to how the limitation period operates in relation to collateral warranties. Where the warranties are executed prior to practical completion, the limitation period will usually run from practical completion but if they are executed after completion the period runs from the date of the warranty. This is why almost all warranties have wording that brings the limitation period in line with the period set out in the underlying contract.

Limitation period clauses can be used to shorten the period that would otherwise apply under the Limitation Act to reflect a commercial agreement between the parties and a party can undertake not to use limitation as a defence for a period that is longer than set out in the Limitation Act.

Original print headline - Know your limits