Know your limits – Calculating the limitation period
For those who are considering starting a legal action, the importance of establishing when a limitation period begins and when it expires cannot be overstated. Failure to issue proceedings before the expiry of the limitation period will leave the claimant's claim statute-barred and is an absolute defence to a claim – whatever its merits.
In a similar vein, for those involved in drafting contracts, it is important to understand what the limitation period is and then to consider whether, in the context of the particular project, the limitation period is acceptable.
The right to bring a legal action should not be confused with the concepts of a rectification period or retention, both of which are commonly found in building contracts. The rectification period is a contractual right to require works to be made good within a certain time, after which, provided the works are rectified, the balance of the retention is released. The expiry of the rectification period does not prevent a party bringing a claim within the limitation period for a breach of contract.
To establish when the limitation period will expire, it is necessary to carry out an analysis of the relevant statutes (e.g. the Limitation Act 1980), the actual terms of the contract, and the judgments of relevant cases. This year's case of Matthew & Ors v Sedman & Ors  UKSC 19 demonstrates the problem of not commencing a legal action until the last minute (literally) of the limitation period.
The limitation period is the period of time during which a legal action can be brought and if brought within that period, the defendant cannot argue it is statute-barred. The Limitation Act 1980 states that the limitation period is 6 years in respect of contracts which have been entered into as 'simple contracts'. These are contracts which are signed or maybe formed orally or by an exchange of emails etc. All contracts which have not been executed as a deed will be simple contracts. For those contracts which are executed as deeds, the limitation period is 12 years.
The 6 and 12 year limitation periods are calculated from the date the cause of action accrued. Therefore, it is also necessary to establish this date. In the context of the construction sector, the following are relevant:
- For a claim of non-payment, the cause of action starts when the works or services have been completed Coburn v College .
- Latent damage: 6 years from the date when the damage occurred or, 3 years from the date the claimant first had knowledge, with a longstop date of 15 years.
- In respect of negligent design, the cause of action accrues from the date the relevant design was carried out.
- It is generally considered that in respect of a building contract, the cause of action starts on the date of completion of all the works under the building contract.
- A claim for personal injury or death due to negligence has a limitation period of 3 years from the date of the claimant's knowledge of the damage (section 11, Limitation Act 1980).
- For a claim under an indemnity, the cause of action starts from when the loss has been established.
The interesting point with the Limitation Act is that it allows the parties to a contract to change the limitation period in respect of that contract. In particular, the parties are able to state when the limitation period starts, the actual limitation period and when the limitation period finishes. The usual example is wording within a contract along the lines of: "The limitation period shall expire 6 years from the date of practical completion".If a clause of this type is used in a contract which has been executed as a deed, then the clause has the effect of reducing the statutory limitation period to 6 years (as it would have been 12 years under the Limitation Act). It also has the effect of reducing the limitation period in respect of defects subsequently found within the rectification period as the 'clock' started running from the date of practical completion, rather from the date the defect was rectified. In fact, subject to the test of reasonableness and the subject matter of the contract, there is nothing stopping the parties from agreeing a limitation period of say, 12 months.
Clauses which have the effect of reducing the limitation period for a claim for breach of contract are relatively common and the courts have been happy to give effect to them in a 'business to business' context. However, notwithstanding the Limitation Act, is it possible for the parties to a contract agree to extend the limitation period irrespective of how the contract has been signed/executed?
The case of Oxford Architects Partnership v Cheltenham Ladies College 2007 was noteworthy when the judgment was published. The judgment indicated that the limitation periods stated in the Limitation Act could be extended as long as clear wording is used in the contract. Therefore, in respect of claims for breach of contract (as opposed to a claim in tort) the limitation period can be extended. In the context of a construction project, this is particularly useful in order to align all the limitation periods for all the appointments, sub-contracts and the main contract. There are also certain industry sectors which also require a longer limitation period.
What about a situation where the cause of action accrues part-way through a day? Where the contract is silent on the point, that day is to be ignored in the computation of time for limitation purposes. However, with this in mind, in the recent case of Matthew & Ors v Sedman & Ors  UKSC 19, the Court was asked to consider the question of: When does the limitation period commence if the cause of action is stated to have occurred at the stroke of midnight (let's say midnight on Monday)? Should the day which starts immediately after midnight (the Tuesday) be ignored when calculating the limitation period? This was particularly relevant in Matthew v Sedman as if the Tuesday was not to be included in the calculation of the limitation period, the claim was not time-barred. On the other hand, if the calculation did include the Tuesday, the claim was time-barred. The Supreme Court unanimously decided that the day which commences at or follows immediately after the midnight hour should be included in the calculation of the limitation period. The reason for this being that there is no 'part' of a day in circumstances where the timeframe starts immediately after midnight; the day is effectively a whole day and so should not be ignored.
The Supreme Court also explained that excluding a full day from the computation of time following a midnight deadline would effectively extend the statutory limitation period by one extra day and thereby, prejudice the defendant.
In summary, it is important to consider what the limitation periods will be in respect of contracts and appointments in the context of the Limitation Act, the terms of the contract and case law.
If a claim is likely to be commenced, it is important to establish when the relevant limitation period will expire, and of course, best not to leave it to the last minute!
If you require advice in relation to issues in connection with limitation, or indeed any construction-related query, please contact Alan Tate, Sam Phillips, or any other member of the Construction and Engineering Team.