Background
The recent case of Vinci Construction UK Limited v (1) Eastwood & Partners (Consulting Engineers) Limited, (2) Snowden Seamless Floors Limited and GHW Consulting Engineers Limited [2023] EWHC 1899 (TCC) ('Vinci') concerned cracking in a floor slab at a warehouse in Bradford.
The Claimant Design & Build contractor brought an action against both its sub-consultant engineer and one of its Design and Build subcontractors alleging the cracking was due to defective design. The Claimant's claim being that the defective design of the slab had placed the Claimant in breach of its contract with the employer, and as such liable to the employer for damages.
The Second Defendant Design and Build subcontractor ("Snowden") in turn commenced a Part 20 claim against its own sub-consultant ("GHW") seeking damages and/or a contribution to any liability that Snowden may have to the Claimant.
GHW sought reverse summary judgment against Snowden on the basis that Snowden had no real prospect of succeeding because the Part 20 claim was statute barred. GHW also sought to strike out Snowden's claim for contribution, again on the basis that no valid cause of action was disclosed. This article focuses on the limitation issues that were dealt with in the judgment.
It was common ground that any contractual claims which Snowden may have against GHW were statute barred (proceedings having been commenced more than six years after the date of the breach of contract – when the cause of action in contract arose). The issue before the Court therefore was when the cause of action in tort against GHW (acting as designer) arose – that is to say, when had Snowden suffered actionable damage.
GHW asserted the relevant damage was Snowden's exposure to a claim by the Claimant in respect of defects in the slab. Snowden's case on the other hand was that the relevant damage was its liability to the Claimant caused by cracking to the slab (i.e. financial loss arising from physical damage to the slab).
Actionable damage in tort
The Court noted that key to the question of when time started to run in tort was a characterisation of the relevant damage necessary for the accrual of a cause of action. In reviewing the relevant prior case law, including the recent Court of Appeal decision in URS v BDW, the Court noted that there are two kinds of loss that are recognised as actionable damage for the tort of negligence – physical damage and economic loss.
- In a case where there is physical damage suffered, the law currently remains that the cause of action accrues when the physical damage occurs, regardless either of knowledge of the physical damage, or its discoverability. In that regard the Court confirmed that the House of Lords' decision in Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 A.C. 1 remains good law.
- In cases where there is economic loss, the cause of action accrues when the Claimant relies on the negligent advice or services to its detriment, including when it incurs its own liability (unless the liability that is incurred is purely contingent – in which case there is no actionable damage until there is measurable loss).
- Where a Claimant relies on negligent advice or services and, as a result, a structure contains an inherent design defect which does not immediately cause physical damage, the tortious cause of action accrues at the latest on the completion of the structure. At completion of the construction the Claimant has a defective asset and suffers economic loss, regardless of its knowledge of the latent damage.
- The Court expressly noted that whilst Pirelli remains good law in cases concerning physical damage, in light of authorities to the effect that an inherent design defect in a structure can give rise to actionable pure economic loss, the Court noted that Pirelli may require careful consideration.
The Court continued to note that, therefore, on the current state of the law the date of accrual of a cause of action in tort turns on the proper characterisation of the loss:
- if the loss is characterised as physical damage, the cause of action accrues on the date of that damage;
- if the loss is characterised as economic loss, the cause of action would have accrued by the date of completion.
In the Vinci case, the Court concluded (subject to the possible operation of Section 14A of the Limitation Act 1980) that, on either view of the damage that may have been suffered by Snowden, the claim against GHW was indeed time barred. As such, consideration of the character of the loss did not need to go any further.
Section 14A Limitation Act 1980
Section 14A of the Limitation Act 1980 (which was inserted into the Limitation Act by the Latent Damage Act 1986) operates to provide for a longer limitation period than would normally apply. The limitation period therefore being six years from the date on which the cause of action accrued or, if later, three years from (1) the date of the knowledge required for bringing an action for damages in respect of the relevant damage, together with (2) a right to bring such action.
In this case the Court was not convinced that Snowden had no real prospect of succeeding on the claim in negligence given the operation of the extended limitation period, and so GHW's application for summary judgment failed. The issue was left for consideration at trial, when the Court would have all the necessary evidence in front of it to be able to assess when Snowden acquired the relevant knowledge for the extended limitation period to have commenced.
Equally, the Court did not consider the contribution claim that was being advanced by Snowden against GHW could be ruled out of time, and so it likewise left the contribution claim to be dealt with at trial.
Comment
It can be seen from the Court's decision in Vinci, and the consideration of the Court of Appeal in URS v BDW, that, notwithstanding the importance of the date when a cause of action accrues, there remains considerable uncertainty in the construction field, at least, as to which of the two dates (date of physical damage or date of completion of the structure) applies and so governs when the cause of action in tort accrues.
Notwithstanding the uncertainty, there is also potentially a problem in cases where a design defect does not immediately cause physical damage, but where that design defect does later cause physical damage. Presumably a cause of action in tort would accrue, at the latest, on completion of the structure as economic loss would have been suffered. Does a second cause of action and/or limitation period then commence on the date that physical damage occurs? Or is the position that, time having started to run at completion (if not earlier) on the basis of an inherent design defect, the potential Claimant only has the benefit of one cause of action and one limitation period.
Section 14A was introduced into the Limitation Act 1980 to provide an extension to the limitation period, at least in part, to ameliorate the potential injustice that may be caused by application of the Pirelli decision. Whilst there would certainly be clarity in the law if the date of economic loss being suffered were to prevail as being the relevant date upon which the tortious limitation period commenced, the perceived injustice in Pirelli that was caused by the cause of action accruing on the date of physical damage notwithstanding such physical damage being unknown to the Claimant, would potentially be amplified by the cause of action accruing even earlier (and not being tied in to the occurrence of physical damage).
Needless to say these are significant issues in the construction field, but also in the law of tort more generally. As a result, leave to appeal has been given to the parties to appeal the Court of Appeal's decision in URS v BDW, including the issues as to limitation that were considered in Vinci. The appeal is currently due to be heard by the Supreme Court in December 2024. As the Court is to be asked to review the House of Lords' decision in Pirelli (for the reasons set out above), a seven justice Supreme Court is being convened.
Pirelli and attendant limitation issues being reviewed by the Supreme Court, along with the recent introduction of the Building Safety Act 2022, make for ongoing interesting times for construction practitioners.
