A quirk in the law of limitation means a claim for economic loss under a contract has a different time limit from the same claim brought in tort

The judgment of the Court of Appeal in Robinson vs P.E. Jones (Contractors) Ltd on 18 January has attracted some attention. The case is good news for contractors, but maybe not for consultants.

In December 1991, the contractors in the case agreed to construct and sell a house to the claimant and his wife. The transaction was completed in April 1992.

In September 2004, the claimant was advised that the construction of flues for the gas fires was defective and that they needed to be reconstructed. The claimant complained to the contractors and, in December 2006, commenced proceedings against them.

The problem for the claimant was that a claim against the contractors for breach of contract was obviously too late: the period of liability for the contractors under the National House-Building Council’s standard form agreement had long since expired; and, under the general law of limitation, the time for bringing a claim for breach of contract is, at most, 12 years from the date of the breach.

However, the claimant may have been able to avoid this problem if he could bring a claim against the contractors based on the tort of negligence. For such claims, there is a three-year limitation period that runs from the date the claimant knew of the existence of a potential claim. This period is subject to an overall period of15 years from the date of the alleged negligence. The claimant’s claim was brought within both the three-year and the 15-year period.

The contract provided that the contractors could only be liable to the claimant under the provisions of the NHBC agreement. The contractors argued that this excluded the right of the claimant to bring a claim in tort. The claimant argued that this was not the case and that this provision was anyway unenforceable due to the Unfair Contract Terms Act. The court found in favour of the contractors on both these points, which meant that the claimant’s case failed. A more fundamental issue was whether the claimant could bring a claim in tort at all.

The court said the contractors had not assumed responsibility to the claimant in the Hedley Byrne sense (see box below). It was a “normal contract”, whereby the contractors would construct a house to an agreed specification and the warranties of quality and the claimant’s remedies were set out.

The reasoning is not altogether clear. The court placed emphasis on cases in the House of Lords in which it was held that contractors do not owe a duty in tort in respect of economic loss. However, those cases were concerned with loss suffered by third parties and not by the other party to a contract. One would have thought that contracting parties would assume responsibility to discharge contractual obligations to each other and thus potentially become liable for economic loss.

Perhaps the key point from this case arises from the different obligations of a contractor and a consultant. The duty in tort is a duty of care, and the contractual duty owed by contractors to prevent economic loss (which in effect means the duty to construct the building without defects) is not a duty of care as such: it is a strict duty and so it is actually more onerous than a duty of care. But if it is not a duty of care in contract, it follows that it cannot also be a duty owed in tort. By contrast, the contractual duty owed by consultants is a duty of care and the court seemed to indicate that consultants do normally owe their client a duty in tort concurrently with their contractual duty.

The issue was and is only ever likely to be of practical relevance because of the anomalous quirk in the law of limitation that provides different limitation periods for a claim for economic loss brought under a contract and for the same claim if it can be brought in tort. This anomaly would have been swept away by reforms recommended by the Law Commission more than 10 years ago. Proposals to implement these reforms were finally brought forward last year, but were then dropped.

For consultants, the case underlines the importance not merely of having a time limit in their professional engagements but of making it clear that the time limit applies to claims in tort as well as contract.

What is a claim in tort?

Consultants will generally have an obligation in their appointments to use reasonable skill and care, and if they fail to do so they will have been negligent and the client can bring a claim in contract for breach of that contractual term. The question of whether and to whom a consultant owes a similar duty of care outside any contract (and can therefore be sued in tort for negligence if there has been a breach of that duty) has exercised the courts over many years. It used to be thought that a party to a contract could only bring a claim for breach of contract and not also a claim in negligence. This was rejected by the House of Lords in 1995. However, it does not follow that because there is a contractual duty to use reasonable skill and care there will also be a similar duty in negligence so that a claim can be brought on both bases. This will depend on the facts. The damages recoverable if there is a claim in tort will only extend to economic loss if one party has assumed a responsibility to the other, which that other has relied on. This was decided in the Hedley Byrne vs Heller case. Otherwise damages are recoverable on a more limited basis.

Rachel Barnes is a partner in solicitor Beale & Company, www.beale-law.com

This article was published under the headline: “And you time starts … now”