A review of the recent Law Commission Report on limitation of actions

Kate Tye looks at the recent Law Commission Report on limitation of actions

The Law Commission has described the existing law on limitation of actions as "uneven, uncertain and unnecessarily complex", as well as unfair, outdated and expensive. The existing law on limitation has been developed in an ad hoc fashion over centuries with the result that certainty and consistency are hard to find. The Law Commission's recent consideration of the subject - in its report titled "Making the Law on Civil Limitation Periods Simpler and Fairer" - is therefore to be welcomed. This article considers the current state of the law, the construction industry's own views as to what limitation period should apply and from when and, finally, whether the proposals are a step in the right direction.

The current limitation periods can be set out, in short, as follows:

• Contract - 6 years from the date of breach of contract;
• Contract by deed - 12 years from the date of breach of contract;
• Tort - 6 years from the date of the tortious act, save where proof of damage is required when the period runs from the date on which the damage occurred;
• Latent damage - the later of 6 years from the date on which damage occurred or 3 years from the date of knowledge of the damage having occurred, subject to a 15 year long-stop;
• Contribution action - 2 years from the date of the settlement or judgment.

From the above it is clear that there is considerable variation between the limitation periods applicable to particular causes of action and no readily apparent reason for that. The Law Commission has therefore proposed what it calls a "Core Regime". The Commission believes the regime should apply to the majority of tort actions, claims arising out of breach of contract, restitutionary claims, contribution claims and contractual indemnity actions and actions on court judgments and arbitrators' awards.

The Core Regime proposed is as follows:

• An initial limitation period of 3 years, running from the date when the would-be plaintiff knows, or ought to have known, that he has a cause of action against the defendant;
• A "long-stop" limitation period of 10 years (30 years in cases of personal injury) running from the date of the act or omission giving rise to the claim;
• The initial limitation period would be extended where the plaintiff was under some disability and there would be an extension to the long-stop limitation period in cases of deliberate concealment by the defendant;
• The courts would have no discretion to disapply the limitation periods;
• Parties could agree either to lengthen or reduce the initial limitation period and, possibly, the long-stop limitation.

On the face of it the proposals are a great deal simpler than the existing rules outlined above. However, in its extensive report, which runs to some 400 pages, the Law Commission has itself acknowledged that the proposals will require lengthy and detailed legislation in order to deal with all of the issues covered by the current law. For example, the initial limitation period is to run from the date on which the plaintiff discovers, or should have discovered, that he had a cause of action. In cases involving individuals that may involve a (relatively) simple investigation. However, where corporate bodies are involved the Commission has stated that any legislation brought forward will need to define exactly when a company can discover its legal rights. For example, does it know it has a cause of action when one of its junior staff finds out, or when the "management" becomes aware of the existence of a claim?

Impact on the construction industry

As regards the potential impact of the proposals on the construction industry most will be familiar with the recommendations of the CIB Report from Working Group 10 on Liability Law (published in 1995). The CIB Report suggested that the date of completion of the works was the best starting point for any limitation period and that it should be the starting point for a 10 year limitation period for both contract and negligence claims. Whilst acknowledging the logical force of that argument in their consultation paper the Law Commission rules out any industry specific rules. The Commission believes any such scheme would detract from the uniformity of the core regime. Moreover - perhaps casting one eye to the difficulties with defining construction operations for the Housing Grants Construction and Regeneration Act 1996 - the Commission foresees difficulties in ring-fencing a particular industry with sufficient clarity and precision.

The 10 year period suggested by the CIB was a period arrived at after much debate involving all sides of the industry. The Commission's proposals are based on a much shorter (initial) limitation period of only three years. The Commission argues that the modern trend is towards shorter periods. If that is indeed the trend then it raises a number of concerns. Firstly, given the size of many large construction projects it is entirely possible that a three year limitation period could have elapsed by the time the project is completed. If, on completion, a plaintiff then raises a claim there may be "satellite" litigation concerning whether that plaintiff knew, or ought to have known, that he had a claim some years before. If this does happen then the plaintiff may be penalised for having taken a course of action - i.e. not issuing proceedings - which was in the best interest of completion of the project, but which failed to offer that plaintiff adequate protection against the defendant's failings.

Secondly, at a time when there is justifiable pressure in the industry for zero tolerance of defects to apply a three year period to an industry whose products should be designed to last for far longer appears unwise and may send out the wrong message. Why design a building with a life of sixty years when you can only be liable for it for three years initially and ten years at most ?

As set out above the Commission has also suggested that parties be given the opportunity to contract out of the initial limitation period and agree their own. Given the concerns raised above this might be common if the proposals become law. However the ability to "contract out" of the legislation will not foster the uniformity which the Commission wishes to see and will ensure that there is no common law on limitation applicable to all contracts. Moreover, the ability to contract out cannot apply to negligence claims where there may be no contractual link between the parties.

Of course it is easy to complain and to offer no alternative suggestions. The Law Commission is to be praised for having tackled such a complex and fundamental issue as limitation periods and for having put forward a Core Regime. Nevertheless since ring-fencing has already received official sanction and since the construction industry has already addressed these problems and provided a sensible solution, it may be that a limitation law for construction offers the best way forward.