Limitation Periods in contract and tort: How much time is there to bring a claim?

An earlier post outlined the potential causes of action that leaseholders may have against developers in contract, in tort (negligence) and under the Defective Premises Act 1972 (DPA). This post explains the time within which claims in contract and tort have to be issued (‘limitation periods’). The next post looks more specifically at the DPA and new claims under the Building Safety Act 2022 (BSA), both of which may provide more practical options than contract and tort claims. Both posts provide an outline and are not a substitute for legal advice. Separate posts  here, and here, set out some of the key steps and challenges involved in pursuing claims.

To claim in contract it is necessary to show a breach, which will require the contract to contain warranties. The contract wording is central because there are no statutory warranties implied into a contract between a developer and leasehold purchaser that the flat will be fit for habitation or built in accordance with building regulations. Indeed, as the pleadings in Naylor v Roamquest illustrate, it will often only be off-plan purchasers who have strong contract claims. The doctrine of privity prevents subsequent purchasers suing on the original purchaser’s contract. But in Naylor there is a further sub-division between the original purchasers: those who had bought off-plan could point to express contractual terms that included a warranty; those who bought ‘as seen’ had to argue that there were implied terms under the Supply of Goods and Services Act 1982. Whether that argument would have provided them with a contractual remedy for defective construction is unclear as the case has settled on confidential terms.

In tort, as discussed below, it is practically impossible to bring a claim based in negligence.

What is a limitation period?

A claimant does not have an indefinite period within which to bring a claim against a defendant. The reasons for limitation periods are policy based as a defendant should not have the threat of being sued hanging over them forever, and claimants should have an incentive to bring claims as soon as possible, particularly as evidence will often become less reliable and more difficult to secure as time passes. The need for procedural rules preventing stale claims, the erosion of evidence, and promoting the goals of legal certainty and finality is recognised by the European Court of Human Rights. It also notes, however, that limitation periods must not ‘restrict or reduce the access left to the individual in such a way or to such an extent that the very essence of the right is impaired’ (Stubbings v UK, 1996).

If the limitation period has expired the claim can be defended on the basis that it is ‘time barred’, regardless of the substantive merits of the claim.

When does the clock start, and end, for contract and tort actions?

The date on which the cause of action accrues depends on the circumstances and the claim being brought.

The applicable limitation period depends on the precise cause of action.  Putting to one side claims under the DPA (discussed in the next post), as a general rule for contractual and most tort claims, the limitation period is six years from accrual of the cause of action (Limitation Act 1980, ss 2 and 5). For a contract made by deed (which would be unusual between a developer and a flat purchaser), the limitation period is 12 years (Limitation Act 1980, s 8).  

Generally:

• For contractual claims, the cause of action starts on the date of breach of contract;
• For negligence based tort claims, the cause of action generally starts on the date on which the damage is suffered, that is, the date on which a quantifiable or ascertainable loss is suffered. In practice, with unsuitable or defective construction the cause of action arises when the work is finished, usually the date of practical completion: ‘... a building is a manufactured thing, and if it is unsuitable or defective when it is handed over it seems to me that the cause of action arises when the person acquires it in its defective state’ (Tozer Kemsley Millbourn (Holdings) Ltd v J. Jarvis & Sons Ltd (1983, 4 ConLR 24)). The cause of action for a negligent design may, however, accrue earlier: The Oxford Architects Partnership v The Cheltenham Ladies College . Although attempts have been made to argue that it is ‘knowledge of the defect’ that should start the clock, ‘the knowledge test has not been applied in English law as marking the date on which damage is first suffered for the purpose of completing a cause of action in negligence.’ (New Islington and Hackney Housing Association Ltd v Pollard Thomas and Edwards Ltd, 2000).  Applied to the fire safety context, the limitation clock starts ticking when the building is completed even though it is only much later that leaseholders learn of the damage and potential claims.

There are a couple of exceptions.

First, ‘negligence claims not involving personal injury’ come within the Latent Damage Act 1986, which introduced sections 14A and 14B into the Limitation Act 1980. This was intended to address the concern that sometimes damage is ‘hidden’ or ‘non-discoverable’. The end date then can be 3 years from when there is knowledge of a cause of action, with an overriding long-stop of 15 years from the date the cause of action accrued. The period may, for example, run for a further 3 years from when, post-Grenfell, claimants realised that their buildings were negligently constructed, which appears much more appropriate than the usual 6 years from construction rule. In practice, however, pursuing tort claims for defective construction is not straightforward, particularly since the 1990 House of Lords judgment in Murphy v Brentwood DC. It was held in that case that if a defect ‘becomes apparent before any injury or damage has been caused, the loss sustained by the building owner is purely economic…. [And]  in the absence of the special relationship of proximity [purely economic losses] are not recoverable in tort.’  This means that loss for defective buildings is seldom recoverable in tort law. In Sportcity 4 Management v Countryside Properties (UK) Ltd (discussed here) the defendant relied on the Murphy decision to deny liability and the claimant’s barrister accepted that the authorities compelled the judge to conclude that the losses were irrecoverable as pure economic loss. It has been argued that this inability to recover for economic loss makes no sense in the context of defective buildings, but as Professor McKendrick points out although it might be possible to get the Supreme Court to reconsider this, litigating the point would be risky. In the meantime, lower courts are bound by the decision in Murphy. Until challenged, this decision significantly undermines the important reform in the Latent Damage Act. Further, section 14A of the Limitation Act 1980 has been held not to apply to claims framed in contract even if founded on an allegation of negligent conduct (Iron Trade Mutual Insurance Co Ltd v Buckenham Ltd, 1990).

Secondly, if the action is based on the fraud of the defendant, or facts have been ‘deliberately concealed’, time does not ‘begin to run until the plaintiff (claimant) has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it’ (Limitation Act 1980, s32). There have been cases in which the argument has been run that the building regulation certification by the building control inspector was fraudulent, that the issue of insurance warranty cover notes was fraudulent (both discussed here), or that the lack of building regulations approval had been concealed (discussed here).

Protecting a claim

Gibson and Hembling explain the key procedural steps involved in bringing claims, and the importance of observing time limits. In some cases time is so tight that it is difficult to secure the evidence required, and to observe the Pre-Action Protocol for Construction and Engineering Disputes. In those circumstances, claimants should still issue the claim but should then, as specifically contemplated in the Pre-Action Protocol, apply to the court for a stay (postponement) to complete the pre-action steps. A stay ‘halts’ the proceedings; and as Coulson LJ remarks in Grant v Dawn Meats (2018) once it is lifted the ‘parties (and the court) pick up where they left off’ when the stay was imposed.

An alternative to issuing a claim is for the claimant and defendant to enter a standstill agreement.  This “stops the clock” for limitation purposes with the result that the claimant will not need to incur the costs and expenses of issuing a claim to protect their legal rights and avoid any claim being “time barred”.  However, both claimant and defendant need to agree a standstill – and a defendant may not agree (although a refusal to enter into a standstill agreement which forces claimants to issue proceedings and incur costs, and which potentially wastes valuable court time, will likely be taken into account by a court in respect of cost awards). 

As can be seen, although there are policy reasons supporting limitation rules generally, there is a serious risk that in cases of defective construction they are liable to erode ‘the court’s ability to remedy wrongs …[and] to protect legitimate interests’(Zuckerman)  and, as required by the overriding objective, to ‘deal with cases justly’.  The next post looks at big changes made by the BSA.