When does time run out for making a claim for defective work under a contract and why?
This is not an easy question and the answer is not straightforward. To explore the issue is to consider some important points of law.
At the most basic level, the answer is that the limitation period for a claim in contract is 6 years from the date of breach of contract or 12 years if the contract is a deed. However, a little knowledge is a dangerous thing and it is necessary to look deeper.
When does an item of defective work become a breach? There is an argument that a defect, provided it is put right in a timely way, is merely a temporary disconformity not amounting to a breach. That argument is attacked by that bible of construction law Hudson’s Building and Engineering Contracts, which says “..on grounds of both principle and practicality a contractor will be in immediate breach of contract whenever his work fails to comply with the contract descriptions…”.
So, one might think, it is after all a matter of plain sailing. The defect constitutes an immediate breach. Time runs from the date of that breach. Sadly, it is not that simple. More pieces of the jigsaw are needed to complete the picture.
Standard forms of contract such as the JCT forms state that the contractor must carry out his work in a proper and workmanlike manner and in accordance with the contract drawings. However, they also require the contractor to complete the work. Even if the contract did not say this, there would generally be an implied term to that effect. Therefore, there is a dual obligation, to do the work in accordance with the contract and to complete it, including putting right defective works. This dual obligation is a continuing one. Since the obligation continues until completion, the start of the limitation period is not until practical completion, or perhaps even later.
There are at least two grounds on which the limitation period may extend beyond practical completion.
Firstly, to go back to Hudson, there is what that book describes as an additional repair obligation in the defects liability period (or rectification period) to put right defects which appear and of which the contractor is notified either during the period or in the defects list issued within 14 days of the end of the period. The obligation is to rectify within a reasonable time. Therefore, there is an additional breach if defects so instructed to be put right are not put right within a reasonable time, carrying its own limitation period.
Secondly, in William Tompkinson and Sons Limited -v - the P.C.C. of St. Michael (1996), Const. LJ 319, it was decided that a defect which was apparent before practical completion but not then rectified could fall within the definition of defects which appear within the defects liability period, since it was apparent within that period. It therefore had to be rectified within the defects liability period obligation to make good. If that is right, then that obligation might not be simply an additional repair obligation arising after practical completion but an extension of the obligation to complete the works, which continues on after practical completion into the defects liability period. There is some doubt over this since the courts have said that practical completion means completion for all the purposes of the contract and a continuing obligation to repair, after practical completion, as opposed to an additional obligation, is inconsistent with this.
Do not despair dear reader. A number of fairly clear conclusions can be drawn as follows:
A defect is an immediate breach of contract. However, there is a dual obligation to perform in accordance with the contract and to complete the works.
There is therefore a continuing breach in respect of defective work until it is properly completed. The limitation period, on this basis, commences at practical completion.
There is a further obligation to remedy defects notified in or at the end of the defects liability period, within a reasonable time. This carries its own limitation period, running from the breach.
There may be an obligation to rectify defects apparent before practical completion but not then rectified, if notified within or at the end of the defects liability period. Again, such defects, once notified, are to be put right in a reasonable time. The limitation period runs from the breach.
The defects liability period is not itself an exclusion clause so contractors remain liable for defects which appear after it expires, during the limitation period.
It should be remembered that a defective repair is a new breach of contract carrying its own limitation period.
Those who draft warranties and insurance provisions which limit liability for defects to 6 or 12 years from practical completion may wish to reflect on this, since the liability to rectify defects may extend into the defects liability period and beyond. An extension of the limitation period at least until 6 or 12 years after making good is certified or formally stated to have occurred, may be prudent, with a provision that the limitation period recommences in respect of defective repairs.
For more information or advice, please contact Philip Harris.
This article was first published in Construction News, Spring 2008.
