Court rules on limitation period in case involving defective design  

View PDF

Authored by: KK Cheung

In Vinci Construction UK Ltd v Eastwood and Partners Ltd [2023] EWHC 1899 (TCC), England’s Technology and Construction Court had to consider whether a claim in the tort of negligence for the defective design of a floor slab was time-barred. That depended on when the cause of action accrued. The court held that on the current state of the law, the date of accrual of the cause of action depended on how the loss was characterised. If characterised as a physical damage case, the cause of action would accrue at the date of damage.  If characterised as an economic loss case, the cause of action would accrue by the date of completion. Here, the court found that physical damage occurred by March/April 2015, which was more than 6 years before the material date of 7 May 2021, when the claim in question was served.  Therefore, regardless of whether the court adopted the date of completion or date of physical damage as the date of accrual of any cause of action in negligence, any such cause of action accrued prior to May 2015 and was statute barred, subject to whether s.14A of the Limitation Act (equivalent to s.31 of Hong Kong’s Limitation Ordinance) applied and extended the limitation period, which was a matter to be determined at trial after scrutiny and testing of the evidence.             

The Parties

Vinci was engaged by Princes Ltd as design and build contractor to carry out work at its Low Bay Warehouse. Vinci engaged the 1^st Defendant (Eastwood) to provide civil and structural engineering services in respect of the works and the 2^nd Defendant, Snowden, to carry out the design, supply and installation of the structural reinforced concrete slabs. Snowden, in turn, engaged GHW to carry out the design for the in situ reinforced concrete internal floor slabs. In around May 2013 Vinci issued a ‘Compensation Event’ notice to Snowden in respect of the design, supply and installation of the Low Bay Warehouse concrete slab works.

Installation of the overlay slab was completed by July 2013 and works at the Low Bay Warehouse completed in August 2013. Vinci’s case was that by September 2013 the floor had developed damage and/or defects, including cracks. Various remedial schemes were carried out but ultimately, Princes removed and replaced in its entirety the Low Bay Warehouse floor.

Adjudications

In an adjudication commenced by Princes Ltd in 2019, the adjudicator found that Vinci was liable for breach of contract in respect of defects caused by inadequate design of the Low Bay Warehouse floor. Vinci served a pre-action protocol letter of claim on Snowden, indicating its intention to make a claim against Snowden by way of compensation for the losses sustained by Princes and/or Vinci. Snowden in turn issued a preliminary notice of claim against GHW, indicating a potential claim arising out of GHW’s appointment as specialist floor designer in connection with the design of the overlay slab.

By a further adjudication decision, the adjudicator awarded Princes Ltd damages, including a decision that Vinci was liable to pay Princes Ltd for the costs of removing the overlay slab, and for the construction of the new flooring to the Low Bay Warehouse.

Snowden and GHW entered into standstill agreements, suspending time running for the purpose of any limitation defence, until 21 April 2022.

Vinci’s claim against Eastwood and Snowdon

Vinci commenced proceedings against Eastwood and Snowden, seeking damages of £2.5 million in respect of the sums paid pursuant to the adjudication decisions. The basis of Vinci’s claim was that the defective design of the overlay slab placed Vinci in breach of its contract with Princes Ltd and it became liable for the adjudication awards, fees and costs.

Snowden’s claim against GHW

Snowden denied liability to Vinci and served an Additional Claim on GHW, seeking an indemnity and/or contribution from GHW in respect of the claim by Vinci and/or Eastwood. Snowden’s claim against GHW was that GHW was in breach of contract and/or duty in that it adopted the unsuitable design concept of an unbonded non-structural overlay slab.

GHW’s limitation defence

GHW served its defence to Snowden’s claim, denying liability and raising a limitation defence, namely that the claims against GHW were time barred under the Limitation Act 1980 (LA) in that GHW was engaged to develop the design of the overlay slab in May 2013. GHW carried out its design development in May to July 2013. The overlay slab was constructed by Snowden in July 2013 and pursuant to s.2 and/or s.5 of the LA, the claims against GHW were time-barred because Snowdon’s Claim Form against GHW was issued on 8 April 2022, which was more than six years from the date on which the cause of action accrued.

GHW’s current application to the court

GHW applied to court for summary judgment against Snowden in respect of the Additional Claim on the ground that Snowden had no real prospect of succeeding on the claim because it was time-barred.

It was agreed that the effect of the standstill agreements between Snowdon and GHW (referred to above) was that the Additional Claim Form, issued on 8 April 2022 before expiry of the cumulative standstill period, was to be treated for limitation purposes as if it were issued on 7 May 2021.

It was by this stage common ground that any contractual claims by Snowden against GHW were statute-barred by 7 May 2021. S.5 of the Limitation Act 1980 provides that an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued. A cause of action for breach of contract accrues on the date of breach. Here, the contract of engagement was entered into on 12 April 2013, the design work carried out in May and June 2013, the installation of the overlay slab carried out in July 2013, and the works to the slab completed by about August 2013. Accordingly, any breach must have been more than six years prior to 7 May 2021. The dispute before the court therefore centred on whether any claims in tort by Snowden against GHW were statute-barred by 7 May 202,1 pursuant to sections 2 and/or 14A of the Limitation Act 1980.

S.2 of the Limitation Act 1980 provides that an action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued. There was a sharp division between the parties as to the characterisation of the relevant damage necessary for the accrual of a cause of action in tort in this case. GHW’s case was that the relevant damage for the purposes of the Additional Claim was the economic loss consisting of Snowden’s exposure to a claim by Vinci in respect of defects in the overlay slab; it was not the physical damage caused to the overlay slab itself and there was no suggestion that the slab caused damage to other property. Snowden’s case was that the relevant damage for the purpose of s. 2 of the Limitation Act was its liability to Vinci caused by cracking to the slab. The damage was financial loss but it was financial loss arising out of physical damage to the slab. It was different to the damage suffered in other non-construction, professional negligence cases.

When does a cause of action in tort accrue? 

The Court referred to the Court of Appeal judgment in URS Corporation Ltd v BDW [2023] EWCA Civ 772 (please see our article above) and the Court of Appeal’s thorough review of all material authorities, providing a clear and authoritative analysis of the law as to the date of accrual of a cause of action in tort. The court said that from that analysis, the legal principles applicable in this case could be summarised as follows:

• A claim in tort based on negligence is incomplete without proof of damage. There are two kinds of loss recognised as actionable damage for the tort of negligence – physical damage and economic loss.

• In a case where there is physical damage, the current state of the law is that the claimant’s cause of action accrues when that physical damage occurs, regardless of the claimant’s knowledge of the physical damage or its discoverability.

• In a case where there is economic loss, the claimant’s cause of action accrues when the claimant relies on negligent advice or services to its detriment, including incurring a liability (unless such liability is purely contingent, in which case it is not actionable damage until there is measurable loss).

• In a case where the claimant relies on negligent advice or services and, as a result, the structure contains an inherent design defect which does not immediately cause physical damage, the claimant’s cause of action accrues at the latest, on completion of the structure, at which point the claimant has a defective asset and suffers economic loss, regardless of its knowledge of the latent damage.

Accordingly, the court said that on the current state of the law, the date of accrual of a cause of action in this case turned on the proper characterisation of the loss; if characterised as a physical damage case, the cause of action would accrue on the date of damage; if characterised as an economic loss case, the cause of action would accrue by the date of completion.  The court said that it was clear from the documents before it that physical damage occurred to the Low Bay Warehouse floor more than six years prior to the material date of 7 May 2021 i.e. the date on which the Additional Claim against GHW had been served.  Accordingly, subject to s.14A of the Limitation Act, Snowdon’s claim in tort against GHW was time-barred.

Possible extension of limitation period

Where s.14A of the Limitation Act applies, it provides for a potentially longer limitation period, namely, six years from the date on which the cause of action accrued, or if later, three years from (i) the date of the knowledge required for bringing an action for damages in respect of the relevant damage, together with (ii) a right to bring such action. The court said that for the purposes of this case, the relevant knowledge required was: (i) such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify instituting proceedings; and (ii) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence.

Under s.14A the onus is on a claimant to plead and prove that it first had the knowledge required for bringing its action within a period of three years prior to the issue of its claim. When considering limitation for the purpose of s.2, the court found that the parties, including Snowden, were aware that sufficiently serious damage had occurred by March/April 2015. Therefore, the issue was whether Snowden had a real prospect of success on the question of attribution.

The court referred to the degree of knowledge of attribution required under s.14A, namely that (i) knowledge does not mean knowing for certain and beyond possibility of contradiction. It means knowing with sufficient confidence to justify embarking on the preliminaries to issue a writ, such as submitting a claim to the proposed defendant, taking advice, and collecting evidence. Suspicion, particularly if it is vague and unsupported, will not be enough, but reasonable belief will normally suffice i.e. the claimant must know enough for it to be reasonable to begin to investigate further; (ii) It is not necessary for the claimant to have knowledge sufficient to enable his legal advisers to draft a fully and comprehensively particularised statement of claim. What is required is knowledge of the essence of the act or omission to which the injury was attributable; (iii) The statutory provisions do not require merely knowledge of the acts or omissions alleged to constitute negligence. They require knowledge that the damage was “attributable” in whole or in part to those acts or omissions. Consistent with the underlying statutory purpose, “attributable” has been interpreted by the courts to mean a real possibility, and not a fanciful one, a possible cause of the damage as opposed to a probable one. Thus, time does not begin to run against a claimant until he knows there is a real possibility his damage was caused by the act or omission in question.

Court’s decision

The court, it said it should adopt a broad common sense approach when considering the date on which relevant knowledge was, or could have been, acquired. It was not sufficient, the court said, for GHW to show that material damage occurred more than three years prior to 7 May 2021; it had to show that Snowden was aware, or should have been aware, that the damage was attributable, in whole or in part, to defective design, the essence of the complaint now pleaded against it by Vinci and which Snowden sought to pass on to GHW. The court concluded that it was not in a position to reach a concluded view on this matter without conducting a mini trial on the documents and that the proper time for scrutiny and testing of such evidence was at trial. Accordingly, without determining the matter, the court held that Snowden had a real (as opposed to fanciful) prospect of succeeding on the claim in negligence and rejected GHW’s application for summary judgment.

Key Contacts

Kwok Kit (KK) Cheung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9427