Limitation and other issues - an early Christmas present from the TCC - Part 1

Part 1 - Limitation

In the recent case of Lendlease Construction (Europe) Limited v Aecom Limited [2023] EWHC 2620 (TCC) the Technology and Construction Court (TCC) has provided a useful judgment giving guidance on a wide range of issues of general interest and application to the construction industry. While the judgment outcome is inevitably fact and contract specific, the careful reasoning by the judge provides a useful guide for the future on a number of issues that are of wider importance.

Background

• Lendlease was engaged by St James Oncology SPC Ltd (the employer) as the main contractor for the design and construction of a new Oncology Centre at St James’ University Hospital, Leeds (the project). Lendlease subsequently engaged Aecom as the M&E consultant for the project under a consultancy agreement (the agreement).
• Project Completion was certified on 14 December 2007.
• Lendlease and Aecom subsequently entered into dispute over allegations of outstanding fees and defects. This dispute culminated in a deed of settlement (the settlement agreement) executed on 28 September 2012.
• In 2016 the employer (and another) commenced proceedings against Lendlease in respect of alleged defects in the design and construction of the project. This claim culminated in 1) a settlement in relation to various M&E defects by which Lendlease agreed payment of approximately £2.9m, and 2) a court judgment in October 2022 for the remainder of the claim by which Lendlease was found liable for various defects and ordered to pay approximately £5m.
• On 30 May 2019, Lendlease issued a claim against Aecom seeking to pass down liability to Aecom for matters included in the claim by the employer against Lendlease, which Lendlease contended were the consequence of Aecom’s breach of the agreement.
• Lendlease’s claim against Aecom was for breach of contract, as it was acknowledged that any claim in negligence would, by this point, be statute barred.

The issues

As part of Lendlease’s claim against Aecom, the court was required to consider a wide range of issues, including the following:

1. Did Aecom have a limitation defence to all or part of the claim?

• Did the agreement take effect as a deed even though it had been incorrectly executed?
• Even if the agreement did not take effect as a deed, did it nevertheless provide for a limitation period of 12 years?
• Even if the limitation period was 12 years, was the claim (or any part of it) statute barred/when did the cause of action arise?

2. What were Aecom’s obligations under the agreement?

• Were Lendlease’ obligations under its main building contract directly replicated down to Aecom in the agreement?
• Was Aecom required to provide a design to achieve a specific result, or to use reasonable skill and care (and was there a difference between the two)?
• Did Aecom have a continuing duty to warn (which could impact when the case of action accrued)?

3. What was the effect of the earlier settlement agreements and judgment?

• Did the 2012 settlement agreement between Lendlease and Aecom preclude this claim?
• What was the effect of the settlement between Lendlease and its employer and the 2022 judgment on quantum?

The court also laid out helpful guidance on its approach to the assessment of evidence, where there were gaps in the documentary evidence and where the available witnesses were either not present at the time of the potential breach and/or were recollecting events approximately 12 years in the past with limited documents available to assist their memory.

In this article, part 1, I will consider the key points from the judgment in relation to limitation. In part 2, I will take a look at some of the other interesting and important points considered in this judgment.

A summary of the court’s findings on limitation

In this case, Aecom’s raised a limitation defence, which in turn raised several different questions, as noted above. Taking each of these in turn, the court held as follows:

1. Did the agreement take effect as a deed?

The Companies Act 1985 set out specific requirements in order for a contract to be executed as a deed. This is important, particularly due to the extended liability (12 years) that attaches to a deed in the event of a breach of contract.

In this case Aecom had purported to execute the agreement as a deed, but it had not been executed correctly and/or signed by statutory directors of the company in accordance with the requirements of the Companies Act. However, the court found that Aecom had intended to execute the contract as a deed and that the individuals who signed the contract had Aecom’s authority to enter into this type of contract. The judge noted that there was “No suggestion that Aecom was not content for them to sign the consultancy agreement or that either was in some way on a ‘frolic of his own’ when he did so”.

Therefore, the court held that in these circumstances, it was not open to Aecom to contend that the agreement was not a deed, and it followed that the applicable limitation period in respect of claims asserting a breach of that agreement was one of 12 years from the date of the accrual of cause of action.

2. Even if it was not a deed, did the agreement wording nevertheless provide for a 12 year limitation period?

Due to the court’s finding that the contract took effect as a deed, this issue did not strictly arise. However, the court helpfully addressed it anyway and gave useful guidance as to the meaning of a limitation term in the agreement, which is of a type which is commonly found in many construction contracts.

The agreement included a clause which stated that: “No action or proceedings under or in respect of this agreement in contract or for breach of statutory duty shall be commenced against the consultant after the expiry of 12 years after the completion date for the works.”

Lendlease had argued that this meant that even if the agreement took effect as a simple contract, the clause nevertheless overrode the statutory limitation period of six years and meant that Aecom would have a 12 year liability for breach of contract.

It is generally accepted that it is open to parties to agree an extended limitation period within a contract, beyond statutory limits (although is not clear whether the parties can similarly agree to reduce it). However, on reading the wording of the clause, the court found that it did not extend the statutory limitation period, but rather provided a long stop date for the issue of claims.

The court held that the clause noted above provided a protection against claims brought after a certain date but did not extend the period in which claims which would otherwise be statute-barred could be brought. Therefore if the agreement had taken effect as a simple contract, this wording would not have extended the statutory limitation period and Aecom’s liability would have been limited to six years from the accrual of the cause of action.

3. Having found that the correct limitation period to be applied was 12 years, was any or all of the claim statute barred?

This overlaps to an extent with the questions connected to Aecom’s obligations (particularly whether it had an ongoing obligation to review its design and/or warn Lendlease of required changes) and when the cause of action accrued.

Given that a 12 year limitation period had been held to apply, and the proceedings were commenced on 30 May 2019. This meant that the claim was statute-barred save to the extent that it was founded on a cause of action accruing on or after 30 May 2007.

As noted above, this was a claim for breach of contract, as it had been accepted by Lendlease that any claim in negligence would be out of time. The court held that a cause of action in negligence would only accrue when the negligent act or omission has caused damage – which will be when the defective design is incorporated into the building. But a cause of action for breach of contract accrues on the date of breach being “when the design is handed over to the contractor for construction even if construction is not completed until substantially later”. This is unless there is some other obligation in connection with that design which occurs beyond the point when the design is handed over and which may then create a new cause of action at a later date.

In this case, the alleged defective design had been handed over by Aecom well before May 2007 and therefore all of the alleged defects included in the claim were held to be statute barred.

Key takeaways

In relation to the court’s findings on limitation, some key practical points to take away from this judgment are:

• In certain circumstances, even where a contract purporting to be a deed has not been executed in accordance with the specific requirements of the Companies Act, it may still be treated as a deed and attract the extended 12 year limitation period for breach of contract. However, this will turn on the facts of each case and it is always worth checking that a contract has been correctly executed in the first place, so as not to need to rely on persuading a court that this is the case, in the event that a claim arises.
   
• The wording of the relevant clause noted in this case stipulating no action or proceedings to be commenced after 12 years is commonly used across many different types of construction contracts. Usually, the clause is drafted to align with the statutory limitation period and provide comfort to the parties to the contract that claims will not be made beyond that time period. But those involved in such contracts need to be aware that this type of wording will not extend the statutory limitation period and express wording would be needed to do so.
   
• A crucial element of any limitation defence will be when the relevant cause of action accrues and this may be different depending on whether the claim is being brought in tort or for breach of contract. Particularly in the case of alleged negligent design, the date at which the design is handed over is crucial for a claim for breach of contract. However, there may be other or new causes of action which may arise at a later date if the designer has an ongoing role in the project which relates to the design. This argument was also raised by Lendlease and considered by the court and I will take a look at this aspect in part 2 of this article.

In summary, limitation can be a useful defence to a claim, or parts of a claim and in this case was an absolute defence for Aecom.

In part 2 of this article, I will consider some of the other key important issues considered by the court in this case, including whether the obligations under a building contract were directly replicated in the consultant agreement, what were Aecom’s obligations as a designer, whether and/or in what circumstances a designer has a continuing duty to warn and the effect of settlement agreements on subsequent claims.