Limiting your liability
Did you know that the Government is considering making changes to the Civil Law Reform Bill, which could have a major impact on the construction industry?
These changes would be to the Limitation Act 1980 and if brought into law, would mean new time limits for parties to bring a legal claim. The Government say this is designed to simplify the law in this area – but anything that proposes to change the way we have all be working for some time is not going to be “easy” to get used to.
The proposed new periods for limitation are 3 years (instead of 6 years for a simple contract, and 12 for a contract signed as a deed), subject to a ten year long stop period. But in addition to this, it is proposed to give parties the ability to negotiate their own liability period.
SO, what would this mean for businesses involved in the building and construction sectors?
- It will be even more important that parties enter into a written contract before works are commenced – because if they have not addressed the issue of the limitation period, this will default to the 3 year standard .So someone is going to be happy they are off the hook in 3 years time, and someone else is going to be pretty upset, as we all know that it can often take several years for significant flaws in building design or workmanship to come to light.
- Insurer ’s may elect to not cover a contractor for any longer than the statutory time limit. This could see contractors facing a long period during which any potential claim would be uninsured – a potentially huge and worrying burden. This represents a substantial business risk for contractors, who will be left in a weaker negotiation position. The impact on the industry will not be pleasant and could leave many construction companies exposed to footing damage payments themselves – an extra potential burden coming at a very difficult time.
- If businesses can negotiate and agree the limitation periods that will apply to their contracts, we can assume that Developers will exert pressure to demand contractors offer longer liability periods. This will lead to increased cost and expense on contractors, and may force some to offer longer limitation periods, which in turn may not by fully covered by insurance. And can Contractors expect Developers to offer the same limitation period in respect of counterclaims?
- Part of the current discussions includes the proposal that the liability period will run from the claimants ‘date of knowledge’. But this could lead to all sorts of issues arising. Is the “knowledge” actual, constructive or implied? Proving this could be subject to all sorts of legal wrangling, identifying who the defendant is, where the damage or loss occurred, and whether the relevant and ‘key’ individual(s) knew all the circumstances which caused the damage. We suspect this could lead to simply another layer to add to the already complex scenarios that construction businesses in dispute must face – with the added burden of increased legal costs.
- Developers have to be careful too. On the larger commercial projects, where there are many consultants, a main contractor and many sub contractors, it is possible that the usual rule of all parties signing up to 6 or 12 years liability may no longer be the case, with different periods being agreed for different appointments. How on earth can the Developer keep track of all those differing liability periods? IT does seem to increase the risk that key limitation dates could be missed, meaning that the right to sue for breach could be lost inadvertently.
We think that if this proposal does become law, all those involved in the construction world will have to be even more “on the ball” with their negotiations and identification and recording of time limits.
Here at Flint Bishop we have been keeping a watchful eye on our commercial property and construction clients’ interests for over 120 years. Our aim is to put our clients first – which means we always go that little bit further to make sure your interests are protected. If you want to know more about how we can help you, either in relation to limitation periods, or your construction project generally, please do not hesitate to get in touch with Partner and head of our Construction team, Thomas Jacobs.
This outline is not intended to nor cannot take the place of formal legal advice and we cannot be responsible for anything that you may do, or not do in reliance upon it. If you are affected or concerned by any of the issues raised, please contact us so that we can ensure you have the benefit of advice given in the light of your personal circumstances.
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