25/01/2024
TCC rules on Limitation and the execution of contracts: the importance of calculating limitation in latent defects cases
A recent judgment in the context of defects in a PFI hospital raises some interesting questions around the impact on limitation of incorrectly executed documents and a subsequent settlement agreement.
Background
We reported on the related Court decision from 2022 when the High Court handed down an adverse judgment against Lendlease Construction (Europe) Limited (“Lendlease”) for £5m for the cost of remedial works to the Oncology Centre at St James’s University Hospital in Leeds (“Oncology Centre”). Lendlease had been engaged by St James’s Oncology SPC Limited (the “Project Co”) as the design and build contractor on the new Oncology Centre as part of a PFI Project. For an analysis of that case, find out more here.
Lendlease had engaged Aecom Limited (“Aecom”) as its M & E consultant under a Consultancy Agreement and alleged that it sub-contracted its obligations to Project Co to Aecom. Aecom’s position was that the obligations were restricted.
Aecom also argued that limitation had expired, and relied on two arguments: the execution of the Consultancy Agreement, and a subsequent settlement agreement between Lendlease and Aecom.
The chronology was as follows:
- Practical completion had been certified on 14 December 2007;
- There followed a dispute between Lendlease and Aecom whereby Aecom claimed outstanding fees and Lendlease alleged Aecom’s performance was defective. This culminated in a deed of settlement dated 28 September 2012;
- Concerns about defects at the Oncology Centre were first raised with Lendlease on behalf of Project Co in November 2017. Lendlease took these matters up with Aecom in 2018 and issued proceedings in May 2019.
Legal arguments / Issues
Execution: deed of contract?
The first argument raised by Aecom was that the Consultancy Agreement operated not as a deed, but as a contract.
The reason this was relevant is that the limitation period for breach of a deed is 12 years, whereas for a contract it is six years. Lendlease did not dispute that, if executed as a contract, limitation had expired prior to a claim being brought.
The parties both accepted that the Consultancy Agreement was drafted as a deed and that the parties had intended it to be entered into as a deed. However, there was a question as to the validity of the execution, as the two individuals who purported to sign on Aecom’s behalf were not statutory directors and consequently they did not have the authority to bring a deed into effect. Further, the common seal had not been fixed.
The Court noted that the rules governing the execution of deeds are laid down by statute and that the specified formalities should not be readily circumvented. Notwithstanding this, the Court noted that Aecom had held out the individuals to be statutory directors of the company and that there had been a genuine intention to execute the Agreement as a deed. As Aecom accepted this, that it had intended to enter into the deed and that the terms were binding, the Court therefore concluded that the Consultancy Agreement was binding as a deed.
Can a contract override the limitation period?
The Court also considered whether, if the Consultancy Agreement had been found to be a simple contract, a clause in the contract expressly stating that there was a 12 year period in which to bring a claim would take precedence over the six year statutory limitation period.
The Court decided that, in line with Oxford Architects Partnership v Cheltenham Ladies College [2006] EWHC 3156 (TCC), the clause purporting to provide a 12 year limitation period was a long-stop date for contractual claims which did not prevent reliance on or override the statutory limitation period, if that expired earlier. As Eyre J clearly noted:
“A provision to the effect that the statutory limitation period is being disapplied and replaced with terms enabling an action for breach to be brought outside that limitation period would be a significant departure from the norm.”
Settlement agreement
The Court further noted that the settlement agreement contained provisions which confirmed that the parties had agreed to full and final settlement of “any claims, counterclaims, liabilities and debts (of whatever nature) which are known to the Parties or which ought reasonably to have been known to the Parties as at the date of this Agreement arising out of or in connection with AECOM’s provision of services pursuant to the Appointment”.
On examination, the Court concluded that the defects were time-barred, as more than 12 years had passed from the date of the breach and/or concerning any negligence, more than 12 years had passed from the date of damage. Even if they had not been statute barred, a number (but not all) of the defects were also precluded by the settlement agreement.
Discussion
This case serves as a stark reminder of the importance of careful execution of all contracts, including Consultancy Agreements and warranties. A failure to properly execute a deed could mean that the Deed that you are relying on is found to be a simple contract with only a six-year limitation period. Lack of certainty can create ancillary disputes, as in this case.
Whilst the Court was satisfied that it was binding as a deed in this case, this is likely to be due to the very specific circumstances of the case, including the fact that the deed had been signed by two directors who purported to be statutory directors, and there was therefore nothing to alert Lendlease to any failure in the execution process. The Court will be much less likely to intervene or rely on intention in other cases.
Parties specifying the period of time in which to bring a claim should be aware that, if the period is longer than the limitation period, a party can still rely on the statutory limitation period. It is however open to parties to agree shorter timescales to operate as long stop dates. This is not uncommon in, for example, breach of warranty claims arising out of corporate transactions.
Finally, parties entering into settlement agreements in full and final settlement of all claims should consider carefully the scope of what claims are being settled, particularly in cases where latent defects may be present.
When considering limitation time periods, it is always best to err on the side of caution and make any claim as soon as reasonably possible.
