UK: Design Life Guarantees And Limitation: What Have You Actually Been Offered?

"Actions against the architect in contract must be commenced within six years of the date on which the cause of action accrued, or within 12 years if the engagement is by deed. These periods specified under the Limitation Act 1980 may, however, be modified or excluded by the terms of the contract between the architect and the employer provided that clear words are used."⁴

"Construction Professionals cannot always rely on the six-year limitation period (or 12 years should they contract under seal) under ss.2 and 5 of the Limitation Act 1980 to bar a claim, because where the client discovers the defect many years after breach, then by virtue of the latent damage provisions in s.14A a new additional period of limitation can arise for latent defects, which runs for three years from the client's knowledge (subject to 15 years' long stop from breach by the professional)."⁶

"(1) This section applies to any action for damages for negligence, other than one to which section 11 of this Act applies, where the starting date for reckoning the period of limitation under subsection (4)(b) below falls after the date on which the cause of action accrued.

(2) Section 2 of this Act shall not apply to an action to which this section applies.

(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.

(4) That period is either-

(a) six years from the date on which the cause of action accrued; or

(b) three years from the starting date as defined by subsection (5) below, if that period expires later than the period mentioned in paragraph (a) above.

(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.." [Emphasis added]

"55. Where section 14A of the Limitation Act 1980 applies, it displaces section 2 and provides for a potentially longer limitation period, namely, six years from the date on which the cause of action accrued, or if later, three years from (i) the date of the knowledge required for bringing an action for damages in respect of the relevant damage, together with (ii) a right to bring such action.

56. For the purposes of this case, the relevant knowledge required is: i) such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify instituting proceedings; and ii) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence.

57. Under section 14A the onus is on a claimant to plead and prove that it first had the knowledge required for bringing its action within a period of three years prior to the issue of its claim: Nash v Eli Lilly [1993] 4 All ER 383 per Purchas LJ at p.396." [Emphasis added]

"14B.- Overriding time limit for negligence actions not involving personal injuries.

(1) An action for damages for negligence, other than one to which section 11 of this Act applies,⁸ shall not be brought after the expiration of fifteen years from the date (or, if more than one, from the last of the dates) on which there occurred any act or omission-

(a) which is alleged to constitute negligence; and

(b) to which the damage in respect of which damages are claimed is alleged to be attributable (in whole or in part).

(2) This section bars the right of action in a case to which subsection (1) above applies notwithstanding that-

(a) the cause of action has not yet accrued; or

(b) where section 14A of this Act applies to the action, the date which is for the purposes of that section the starting date for reckoning the period mentioned in subsection (4)(b) of that section has not yet occurred;

before the end of the period of limitation prescribed by this section." [Emphasis added]

"In those cases where the longstop does apply, its effect is drastic. It bars the right of action notwithstanding that the case of action has not accrued and/or that the starting date for the purposes of s.14A has not arrived. As with s.14A it is important to observe that this provision is not limited to cases of what is commonly described as latent damage. It applies to all actions for damages for negligence except personal injury cases. Therefore, in cases where the damage occurs some considerable time after the relevant breach of duty, the limitation period available to the claimant may be less than the six years allowed by ss.2 and 14A of the 1980 Act. Section 14B therefore, in some cases, reduces the limitation period that would be available under the present law." [Emphasis added]

"Policy issues arise in two major contexts. The first concerns the justification for having statutes of limitation at all and the particular limits that presently exist. The second concerns the procedural rules that apply after an action has been commenced. Arguments with regard to the policy underlying statutes of limitation fall into three main types. The first relates to the position of the defendant. It is said to be unfair that a defendant should have a claim hanging over him for an indefinite period and it is in this context that such enactments are sometimes described as "statutes of peace". The second looks at the matter from a more objective point of view. It suggests that a time-limit is necessary because with the lapse of time, proof of a claim becomes more difficult-documentary evidence is likely to have been destroyed and the memories of witnesses will fade. The third relates to the conduct of the claimant, it being thought right that a person who does not promptly act to enforce his rights should lose them. All these justifications have been considered by the courts."¹¹

"29. Accordingly, if, as E.ON argue, para 3.2.2.2(ii) of the TR amounts to a warranty that the foundations will last for 20 years, there would be a tension between that provision and clauses 30, 33 and 42 of the Contract. However, I do not consider that the tension would be so problematic as to undermine the conclusion that para 3.2.2.2(ii) amounted to warranties as described by Jackson LJ. In the light of the normal give and take of negotiations, and the complex, diffuse and multi-authored nature of this contract, it is by no means improbable that MTH could have agreed to a 20-year warranty provided that it could have the benefit of a two-year limitation period, save where misconduct was involved. It would simply mean that the rights given to E.ON by paras 3.2.2.2(ii) were significantly less valuable than at first sight Page 11 they may appear, because any claim based on an alleged failure in the foundations which only became apparent more than two years after the handover of the Works would normally be barred by clause 42.3. In this case, of course, there is no problem, because the foundations failed well within the 24-month period.

30. However, in my view, although it would therefore be possible to give effect to para 3.2.2.2(ii) of the TR as a 20-year warranty as described by Jackson LJ, the points canvassed in paras 27 to 29 above justify reconsidering the effect of para 3.2.2.2(ii). It appears to me that there is a powerful case for saying that, rather than warranting that the foundations would have a lifetime of 20 years, para 3.2.2.2(ii) amounted to an agreement that the design of the foundations was such that they would have a lifetime of 20 years. In other words, read together with clauses 30 and 42.3 of the Contract, para 3.2.2.2(ii) did not guarantee that the foundations would last 20 years without replacement, but that they had been designed to last for 20 years without replacement. That interpretation explains the reference in para 3.2.2.2(ii) to design, and it obviates any tension between the terms of para 3.2.2.2(ii) and the terms of clauses 30 and 42.3. Rather than the 20-year warranty being cut off after 24 months, E.ON had 24 months to discover that the foundations were not, in fact, designed to last for 20 years. On the basis of that interpretation, E.ON's ability to invoke its rights under para 3.2.2.2(ii) would not depend on E.ON appreciating that the foundations were failing (within 24 months of handover), but on E.ON appreciating (within 24 months of handover) that the design of the foundations was such that they will not last for 20 years." [Emphasis added]

"[267] The general description of the contractor's main responsibilities provides that liability for defects due to his design, which are not identified prior to the defects date, will be limited so far as the contractor can prove that he used reasonable skill and care to ensure that the design complied with the works information. This is consistent with Option M which, when read with clause 80.1, provides that loss or damage to the works taken over by the employer and occurring before the issue of the defects certificate, which is caused by a defect which existed at take over, will be the contractor's risk unless the contractor can establish that he used reasonable skill and care. The defenders' liability for identified and 106 unidentified defects, which give rise to loss or damage to the works, are both limited to the exercise of reasonable skill and care.

[268] The structure of the contract is then that the contractor is obliged to correct all defects notified prior to, or specified in, the defects certificate. This is regardless of whether the defects were caused by fault and negligence in the design. This is clear from the provision (clause 45.1) which permits the employer to recover the cost of having a defect corrected by another from the contractor. Normally, the employer would only be at risk once the defects certificate has been issued and then only for defects not specified in that certificate. However, the bespoke provisions of this contract (clause 46.4) provided that the contractor must make good at his own cost and expense any defect in the civil works appearing during the period of 12 years after completion (take over).

[269] Section 8 allocates liability to pay for loss or damage as a result of a defect in the works following take over by the employer. That loss will be an employer's risk, unless it occurred before the issue of the defects certificate and was due to a defect which existed at takeover. In that event, the contractor will bear the liability for the loss and damage, unless he can show that he exercised reasonable skill and care in ensuring that the design complied with the works information. If the contractor is obliged to correct a defect which was an employer's risk event, he will be entitled to the benefit of the indemnity to recover his costs and outlays.

[270] After the twelve-year period, the defender is no longer obliged to correct defects. During the period between take over and the issue of the defects certificate, any loss or damage caused by the works is governed by clause 80.1. Following the issue of the defects certificate, any loss or damage to the works is an employer's risk event.

[271] On the hypothesis that the pursuers had demonstrated that the 75-year design requirement had not been complied with, that would have to have been because of a defect in the accepted design (presumably ultimately a failure to line the tunnel throughout the CFZ). If they had proved that there had been a failure to shotcrete erodible rock, the failure would have been one in implementing the accepted design (on the hypothesis that it required this precaution). This would still fit into the description of a defect due to the contractor's "design", which is unqualified by reference to the wording which defines a defect. It is not suggested that those carrying out the support work in the HRT failed to comply with Mr Taylor's requirements. What he designated by way of HRT support is properly classified as part of the contractor's design when considering Option M. Clause 11.2(15) refers to a defect occurring where a part of the works designed by the contractor does not accord with the accepted design. The defenders thus escape liability for a defect, even if it existed at take over, if they can prove (as in the event they did (infra)) that they used reasonable skill and care in the design of the HRT." [Emphasis added]