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Last edited 05 Jan 2020
Limitation of action
Limitation of action is a statutory remedy, which prevents a claimant from bringing proceedings after the expiration of specified time limits. The philosophy of the remedy is that defendants should not suffer the prejudice of stale proceedings and that the claimant should be encouraged to avoid delay. This philosophy is of particular relevance to the construction industry, which is well known for the longevity of its disputes.
Limitation of action in respect of breaches of contract is governed by the Limitation Act 1980 which came into force on 1 May 1981. Limitation of action in respect of tortious liability is governed by the Limitation Act 1980 as amended by the Latent Damage Act 1986. Some commentators have considered that the Latent Damage Act also applies to breaches of contract where the contractual duty comprises skill and care, i.e. is analogous to the tort of negligence. In some commentators' view, this is not the effect of the Latent Damage Act by reason of the wording of sections 2 and 5 of that Act.
Section 5 of the Latent Damage Act 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. Section 8 provides that the limitation period in respect of a contract under seal shall be 12 years. Care needs to be taken therefore in executing collateral warranties for if the original contractual obligation is a simple contract and a party enters into a collateral warranty under seal, then the latter document will have extended the original obligations by a period of six years.
Sections 14A and 14B of the Limitation Act (inserted by the Latent Damage Act) provide that the periods should be six years from when the cause of action accrued or (if this expires later) three years from when the claimant had knowledge of certain material facts. There is a long-stop of 15 years from the date of the negligent act or omission, after which date no action can be brought.
The Act does not interfere with the limitation period established by other statutes; for example, under the Civil Liability (Contribution) Act 1978 the period of limitation is two years from the date on which the right to contribution accrues, usually the date of quantification, and under the Defective Premises Act 1972 the period of limitation is six years after the completion of the building works or completion of rectification works, whichever is the later.
Section 13(1) of the Arbitration Act 1996 applies the Limitation Act to arbitral proceedings. Section 13(2) gives the court power to extend time by excluding from the calculation the period between commencement of the arbitration and the setting aside, in whole or in part, of any award. Section 13(3) provides that Scott v. Avery clauses (i.e. arbitration award as condition precedent to legal proceedings) shall be disregarded for the purposes of determining when a cause of action accrued for calculating the relevant limitation period.
 Calculation of the limitation periods
The starting point of the calculation is the date of accrual of the cause of action. In contract, the general rule is that the cause of action accrues at the date of the breach of contract (unlike tort when the cause of action accrues from the date that the innocent party suffers damage). Usually there will be little difficulty in identifying the date of the breach of contract.
However, it is important to note that in a construction contract, if it is an entire contract, the date of accrual of the cause of action in respect of defective building works is not the date when those works were carried out by the contractor but the date of practical completion or substantial completion and possibly the expiration of the snagging period.
Further, designers and design and build contractors may have a continuing contractual duty to check their design and correct errors during the period of construction. In the case of Brickfield Properties v. Newton (see also Chelmsford District Council v. T.J. Evers and Others) where the writ was issued against a designer more than six years after the breach of contract but less than six years after the date of practical completion. The court refused to strike out the proceedings.
A cause of action cannot arise until there is a party who can sue and a party who can be sued (see Reeves v. Butcher). It follows that even though a collateral warranty does not seek to create any greater liability than the original contractual arrangement, the execution of the warranty may operate to extend the limitation period.
For example, A an architect designs a structure in June 1982 pursuant to a contract with his employer B which was entered into in 1981. As the development approaches substantial completion in December 1984, B sells the development to a tenant C and in January 1985 to facilitate this sale A enters into a collateral warranty in favour of C. A's design is defective. Under A's original contract with B which is a simple contract, the limitation period will have expired by June 1988. Under the collateral warranty with C, which is again a simple contract, the limitation period will not have expired until January 1991. If the collateral warranty were under seal, the limitation period would not expire until January 1997. Those giving collateral warranties therefore should be careful to abridge the limitation period.
In Lowstey v. Forbes, the House of Lords held that the word 'action’ in section 24(1) of the Act, meant a fresh action and did not include proceedings by way of execution on an existing judgment. However, section 24(e) barred the recovery of more than six years' arrears of interest.
Section 35(2)(b) of the Act (which operating together with section 35(3) appeared to preclude the substitution or addition of a new party to existing proceedings after the expiry of the limitation period) does not apply to claims which involve the addition or satisfaction of a new party but which do not involve a new cause of action, i.e. the Act did not interfere with the law relating to substitution of parties where the party being substituted was succeeding to a claim or liability already represented in the action (see Yorkshire Regional Health Authority v. Fairclough Building Ltd and The Percy Thomas Partnership).
 Deliberate concealment
Section 32 of the Act provides for a postponement of the commencement of the running of the limitation period if there has been fraud or deliberate concealment by the wrongdoer, or mistake. Both fraud and mistake are construed strictly, and accordingly are of limited relevance. In contrast, deliberate concealment is concerned with the situation where any fact relevant to the plaintiffs rights of action has been deliberately concealed from them by the party committing the wrongful act.
In Johnson v. Chief Constable of Surrey, the court held that the words 'any fact relevant to the plaintiff's right of action' in section 32(1)(b) of the Act must be construed narrowly and any new fact must be relevant to the claimant's 'right of action', to be contrasted with a fact that is relevant to the claimant's 'case' or 'right to damages'.
Section 32(2) provides that a deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty; for example, mortar bridges permitting the transmission of damp from the outer leaf to the inner leaf of a brick cavity wall. It would appear, however, that the breach must be deliberate and not merely negligent (See William Hill Organisation Limited v. Bernard Sunley & Sons Limited).
The fact that the employer has engaged a clerk of works for supervising the construction works will not necessarily prevent the employer from relying on section 32 (See London Borough of Lewisham v. Leslie & Co Limited)
Each case must be decided on its own particular facts. In Gray and Others (the Special Trustees of the London Hospital) v. T.B. Bennett & Son, Oscar Faber and Others and McLaughlin & Harvey Limited, a hospital development had been completed in 1963. In 1979, there was evidence of a bulge in a panel of brickwork as a consequence of which structural investigations were commissioned. These investigations revealed setting out errors in the concrete panels, resulting in an unsatisfactory fit of the brick cladding and wholesale mutilation of the concrete nibs in order to fit the brickwork. The employer brought proceedings against the contractors some 25 years after the construction of the development.
The court distinguished the situation in Gray from that in William Hill Organisation and found that the breaches of contract in relation to the concrete panels and nibs had been deliberately concealed from the employer's supervisors, and therefore time for the purposes of limitation did not begin to run until the employer had discovered or could with reasonable diligence have discovered (section 32(1) of the Act) the concealment of the defective work; the earliest date for discovery was November 1979, when the employer noticed the bulge in the brickwork.
In Sheldon and Others v. RHM Outhwaite (Underwriting Agent) Ltd and Others, the House of Lords had to decide a point of fundamental importance in relation to postponement of the running of the limitation period under section 32(1) (H) of the Act; did statutory postponement operate, if, after accrual of the cause of action, the defendants had deliberately concealed from the plaintiff facts relevant to their right of action?
The House of Lords held, reversing the Court of Appeal, that where the plaintiff's cause of action was deliberately concealed from the plaintiff by the defendant, within the meaning of section 32(1) (b) of the Act, the effect was that the limitation period did not begin until the plaintiff discovered the concealment or could with reasonable diligence have done so. For this purpose it made no difference whether the concealment was contemporaneous with the commencement of the cause of action or was subsequent to it.
In Brocklesby v. Armitage and Guest, the Court of Appeal held that it was not necessary for the purpose of entering limitation under section 32 of the Act, to demonstrate that the fact relevant to the claimant's right of action had been deliberately concealed in any sense greater than the commission of the act was deliberate, in the sense of being intentional, and that the act or omission did involve a breach of duty, whether or not the actor appreciated the legal consequence.
 Abridgement of limitation periods
For reasons set out above, it is important for a party before entering into a collateral warranty to consider whether or not the document will extend the limitation period beyond the period created by the principal contract. If there is such an extension, then this can be provided for in the collateral warranty by an express condition abridging the new limitation period to correspond with the original period. Such conditions are valid.
The case of Atlantic Shipping and Trading Company v. Louis Dreyfus & Co concerned a charter party which provided for the reference of all disputes under the contract to arbitration and also had a clause which stated, 'Any claim must be made in writing and claimant's arbitrator appointed within three months of final discharge and where this provision is not complied with, the claim shall be deemed to be waived and absolutely barred'. The court held that this clause was not open to objection on the ground that it ousted the jurisdiction of the court.
Section 29(5) of the Act provides that where there is a claim for a debt or other liquidated pecuniary demand and the person liable acknowledges the claim or makes any payment in respect of it, the claim is to be treated as having accrued on or before the date of the acknowledgment or payment. There can be successive acknowledgements or part payments, each one of which will give rise to a fresh calculation of the limitation period. However, once the limitation period has expired, an acknowledgement or part payment will not revive the claim.
An acknowledgement has to be in writing and signed by the person making it, and has to be an admission of liability in respect of a debt or other liquidated amount or of a sum that is capable of being ascertained from extrinsic evidence. If these requirements are satisfied, there will be an acknowledgement even though the debtor in the same document makes a statement that he will never pay the debt (see Good v. Parry). On the other hand, a statement that monies had been paid on account and that money might be due was considered not to be an acknowledgement for the purposes of the Limitation Act (see Kamouth v. Associated Electrical Industries Limited).
It is not considered that the act of entering into a collateral warranty will constitute an acknowledgement. However, it could if the appropriate words evincing an admission of liability were contained within the body of the document or in the recitals.
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