In the recent case of Larkfleet Ltd v Allison Homes Eastern Ltd  EWHC 195 (TCC) (05 February 2016), the court tackled the question once again of whether a building contract had clearly imposed an express limitation period in which claims may be brought between the employer and the contractor.
Facts of the case
In this case Larkfleet Ltd (the claimant) employed Swallow Homes Ltd to build houses under a building contract signed under hand. Swallow Homes Ltd was later acquired by Allison Homes Eastern Ltd (the contractor).
Clause 2.5.5 of the building contract provided that: "The Employer will register the site with NHBC under the Employer's registration and the contractor warrants to accept responsibility for any defect and any expense incurred due to defective work for the period of 10 Years for the NHBC warranty."
The claimant sold the houses in 2002 with the benefit of NHBC cover that expired in 2012. As a result of defects in the foundations of three houses, successful claims under the NHBC cover were made.
The NHBC notified the claimant that it was seeking reimbursement for those claims in spring 2011. The claimant notified the contractor of the defects on 24 May 2011 and followed this up with another letter on 22 November 2011. The contractor replied on 3 September 2013, stating that any claim against it was time barred. The claimant commenced court proceedings on 14 April 2014.
The preliminary question came before the court as to whether the claim was time barred founded on the wording of clause 2.5.5.
The court’s decision
The court decided the claim was not time-barred on the basis that:
- Clause 2.5.5 rendered the contractor responsible for defects under the NHBC cover.
- The reference in clause 2.5.5 to a ten year period was to identify the period for which NHBC cover applied and during which a home owner could make a claim under it for defects. It was not a limitation period. In fact, the clause expressly referred to defects and expenses incurred during the 10 year period of NHBC cover and did not limit responsibility to claims notified during that period.
- For a contract signed under hand, as the one in this case was, the limitation period for claims in contract is six years from the date of breach and in tort (for negligence) the limitation period is six years from when the alleged negligent act or omission caused loss. On the facts of this case, the claimant's cause of action under clause 2.5.5 arose when the contractor refused or failed to accept responsibility for the defects and, consequently, court proceedings had been commenced within the relevant limitation periods.
The case highlights that courts will not be minded to accept the application of express limitation periods except where they have been clearly drafted into a contract and are obviously meant to be interpreted as limitation periods. In this case, clause 2.5.5 was not intended to be a limitation period but imposed an additional liability on the contractor for defects and expenses incurred during the period of NHBC cover.
Building contracts often expose contractors to:
- observe the terms of third party agreements the employer has entered into and not act or fail to act in a way that would put the employer in breach of those agreements and thereby liable to claims from third parties; and
- meet design life requirements for materials to be used in the construction process, set out in the contract, which frequently exceed 12 years.
Such responsibilities expose contractors to liabilities beyond timescales they might ordinarily expect to apply. Consequently, contractors should not assume that their liability will necessarily come to end six years, if a contract is signed under hand, or 12 years, if a contract executed as a deed, after the works are completed.
If contractors want to ensure the limitation period within which claims may be brought against them under building contracts are restricted to either six or 12 years after completion of the works, this needs to be included by way of an express clear clause in the contracts to that effect, in the same way as consultants' appointments generally do.
If this article rouses any points you would like to discuss with us further or more generally on the impact of the Construction Act on your business, our Construction & Engineering Group advises on all aspects of construction contracts and construction procurement.