Limitation of claims against construction consultants

It can take a long time for construction defects to appear. If, for instance, a designer blunders when specifying foundations for a new building, his mistake will probably remain buried for years. It is only when that exceptionally wet winter or bone-dry summer occurs that the foundations begin to fail. After a while cracking starts to appear in the superstructure. The building owner monitors the cracking and realises it is getting worse. He then instructs a surveyor who, after further monitoring, reports that there is a problem with the foundations.

All this can take many years. It is only when the building owner wants to sue the consultant who designed the foundations that the time elapsed becomes relevant and potentially fatal to the claim, however negligent the consultant might have been and however diligent the owner might have been in pursuing matters.

Breach of contract claims

Limitation periods are time limits within which legal proceedings must be brought. In our example if the owner had contracted by way of a deed with the designer of the foundations, he would have twelve years after the designer's breach of that deed to commence proceedings.

For contracts not executed by deed the period is six years. Of course the breach – be it a failure to design the foundations properly in the first place or a failure to review that design subsequently - might have occurred some years before the cracking first appeared (and even longer before the owner first noticed it).

Negligence claims

In such situations, particularly where there is no deed, the well-advised owner might also claim in negligence. On the face of it there is no advantage because the limitation period for negligence claims is six years. However, the period does not start to run until there is not only a breach of duty (such as the failure to design the foundations properly), which is sufficient to start time running for breach of contract claims, but also damage (in a broad sense) suffered by the claimant. If the damage is taken as the first cracking, or better still the discovery of the cracking, the six years time limit does not start to run until some time after the designer's breach of duty. A lot of time can pass between a breach of duty (such as a negligent design) and damage occurring.

If the breach of duty was more than six years ago (and a breach of contract claim is therefore time-barred), the damage might have occurred just long enough after the breach for the owner's negligence claim to be in time. A debate has centred on when the damage is suffered and therefore when the time limit for negligence claims starts to run. The competing definitions of damage include the following (those favouring the consultant first):

1. When the design work (or whatever the service might be) was done.
2. When the claimant relied on the consultant's advice, design work or whatever.
3. When the construction work was completed (particularly if the consultant had an obligation to review his design until practical completion, as is usually the case).
4. When the first cracking occurred (whether or not it was discovered or discoverable).
5. When the cracking was first discovered (or was first reasonably discoverable).
6. When the cracks became so bad and the defects so obvious, that any reasonable owner would have called in an expert.

Unhelpfully there are three conflicting House of Lords opinions on the definition of damage (including the case of Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983]).

Abbott v Will Gannon & Smith

In February 2005 the Court of Appeal (in Abbott v Will Gannon & Smith) gave welcome clarification to this confusion.

The facts of the case were simple. Hotel owners retained engineers to design remedial works to a large bay window. A builder duly completed the remedial work in March 1997. In late 1999 the owners first noticed that the lintel over the window had moved and cracked the surrounding structure. Further remedial works costing about £20,000 were required.

In September 2003 the owners started proceedings. By then their breach of contract claim was time-barred. This was because the contract was oral and the proceedings were started more than six years after the works were completed and therefore more than six years after any breach of contract by the engineers. This left the owners' negligence claim.

In respect of the negligence claim the Court said that Pirelli applied such that time started to run when the cracking first occurred. It rejected the engineers' argument that "damage" occurred by the time the works were carried out in March 1997. The Court said that even if it was wrong and Pirelli did not apply, and instead the damage was suffered when the claimant incurred financial loss, the defective design had not caused any loss by the time the works were completed. It would only do so when the defect manifested itself in some way which would affect the value of the building, measured either by the cost of repairs or depreciation in market value. Here the occurrence of the physical damage to the property coincided with the manifestation of the defects.

While this may disappoint consultants and their insurers it does not leave potential claimants entirely happy either. Time will start to run even if the cracking existed but was not discovered for some years. Time will even run if the cracking was not discoverable if a survey had been carried out. Therefore an owner's time to bring a negligence claim can expire even if he is not aware of any cracking. This definition of damage has been criticised given its potential for injustice to claimants.

In recognition of this, the Court indicated that a new approach might apply in the future. That is to say that time only starts to run when the cracks become so bad and the defects so obvious, that any reasonable owner would call in an expert. It is only at that stage that there is a negligence claim worthy of the name, so that time begins to run.

Latent Damage Act 1986

Pending such an approach, claimants can still rely upon the Latent Damage Act 1986, which was introduced to alleviate the potential injustice mentioned above. Essentially it provides that a negligence claim is not time-barred if it is brought within three years of the claimant realising that it has a claim. There are a number of criteria to apply to determine when the claimant has the required level of knowledge.

This statute will not always assist, however, as the claimants discovered in Abbott. Having noticed the cracking in late 1999 they had the requisite knowledge more than three years before they commenced proceedings in September 2003.

The 1986 Act provides a 15 year longstop for negligence claims. This means that a claimant must bring a negligence claim within 15 years of the breach of duty (as opposed to damage) occurring (save where there is deliberate concealment by the consultant). This applies even if the claimant does not yet know it has a claim. In fact, in theory at least, the 15 years can elapse following a breach before any damage has occurred and the negligence claim will still be barred. This can provide welcome closure for consultants who want to dispose of their records.

Conclusions
The above reinforces why:

• Executing contracts by deed can be so important.
• Developers, contractors and other potential claimants should act promptly if they suspect they have a claim against their consultants.