New legislation is on the way (at last) to reform the law of limitation of actions. But should it be a single limitation period and if so for how long: three, six or 10 years?
In 1992, the European commission was giving serious consideration to the GAIPEC report, which contained proposals for the harmonisation of liability, guarantees and insurance in the European construction industry. The report recommended a five-year limitation of liability period across European construction. The proposals were dropped when the Maastricht Treaty ushered in the principle of subsidiarity in the same year.
The following year the then Department of the Environment published a report called Reform of Liability Law in the Construction Sector. This recommended that there should be a single limitation period of 10 years to run from the date of practical completion or effective occupation of the project. It would apply to breaches of contract and actions of negligence, and not personal injuries.
This proposal was not liked by the early trades such as piling and steel construction. For them, the limitation period would, in effect, have been more than 10 years. Indeed, the proposal was scrapped when the government of the day decided that it did not want to carve out a separate statutory regime for construction liability.
Now the law of limitation of actions is back on the agenda. Last year’s Queen’s Speech announced that a draft Civil Law Reform Bill would be published this year. This bill will include measures to reform the law of limitation of actions generally, and the Ministry of Justice (MoJ) has been consulting with the construction industry on the proposed reforms.
The present law is that the limitation period for simple contracts is six years as opposed to contracts under seal, where the period is 12 years. These periods run from the date that the cause of action occurred, that is, when the breach of contract takes places. This is, in most cases, the date of practical completion.
For negligence liability the period is six years from the date of the cause of action, that is, the date of damage. Where the damage is latent the cause of action may arise from the date that the claim could reasonably have been discovered. Under the Latent Damage Act 1986 this is subject to a long-stop limitation period of 15 years from the date on which the negligence occurred.
The MoJ makes the point that the law on limitation (found mainly in the Limitation Act 1980) needs to be rationalised so that there is “a single, core limitation regime” to all claims (other than personal injuries). It is proposed that there will be a primary limitation period of three years. This will start from the date on which the claimant knows (or ought reasonably to know):
- The facts giving rise to the cause
- The identity of the defendant
- That the loss or damage suffered was significant.
There will be a long-stop limitation period of 10 years starting from the date of the cause of action. In negligence cases this will be the date of the negligent act or omission (rather than the date that the damage materialised).
So, what should the construction industry make of all this? My immediate reaction is, why don’t we make life simpler? Why not just have a single limitation period? Having said that, my only reservation would be whether a single length of time is appropriate for all items. In many EU countries the limitation period for non-structural items such as M&E services is five years or less.
But there is another issue that is troubling me. The proposed legislation will enable the parties to contract out of the statutory periods and insert their own. Given the extent of commercial inequality in the industry, this will simply be an invitation for the powerful to impose ridiculous limitation periods on the weak. It’s alright demanding a hundred years limitation period but what is the point when there will be no insurance cover available for such a period?
My other concern relates to the uncertainty associated with the core regime of three years, starting from the date of the claimant’s knowledge. It seems to me that the overriding principle governing limitation periods is certainty for both sides. The core regime relies on the claimant having relevant knowledge in relation to the matters listed earlier. Unfortunately, clause four of the draft bill is rather odd. On one hand the test of whether the claimant has the requisite knowledge is judged objectively. This is then eroded by suggestion that the “circumstances and abilities” of the claimant can be taken into account. I have not noticed that there are cracks in the ceiling because I can’t afford a pair of spectacles. Eventually my friend buys me a pair and I discover the cracks. So, will the three years run from the date when I receive the specs? Surely not?
Yes, go for a single limitation period which should be mandatory, but take into account the varying nature of construction products. This will make insurers happier, too.
Rudi Klein is chief executive of the Specialist Engineering Contractors’ Group