All a matter of timing - English construction court considers when there’s a cause of action for defective design

The proceedings relate to the construction of a cancer centre at a teaching hospital in Leeds. Lendlease was the main contractor and AECOM was appointed to provide mechanical and electrical as well as fire safety strategy consultancy services. Following discovery of supposed defects, two separate claims were brought against Lendlease by the employer and the estates maintenance contractor, Engie Buildings Ltd (Engie).

In the event,  Lendlease was held to be liable to the employer for various defects and Lendlease then commenced proceedings against AECOM, seeking to pass down to AECOM liability it was found to owe to the employer and/or Engie in respect of matters which it contended were the consequence of alleged breaches by AECOM of its obligations under the consultancy agreement.

The court dismissed the claim.

Contract or deed?

One of the issues that was raised in the proceedings was whether Lendlease’s claim was statute-barred.

The question before the court was whether AECOM’s appointment operated as a contract (with the consequence that the relevant limitation period was six years from the date of the cause of action, meaning that all parts of the claim would be statute-barred), or operated as a deed. The court found that although AECOM’s common seal was not affixed, the two signatories from AECOM had purported to execute the document as a deed. It was not therefore open to AECOM to contend it was not a deed and that a 12-year limitation period should apply. 

Limitation having been put in issue, it was for Lendlease to establish that the claim in relation to the defects was not statute-barred.

Dates when actions arise

The court went on to specify in general terms the dates when claims arise in construction contracts.

Where the claim is for a failure to review or advise in breach of a contractual obligation to review or advise, each such failure will give rise to a separate cause of action and each such cause of action will accrue when the failure occurs.

The cause of action for a claim in negligence based on defects in a design for construction accrues when the negligence first causes damage, which will be the date the defective design is incorporated into the building.

A cause of action for breach of contract accrues on the date of breach. In the case of an allegedly defective design, a cause of action “will accrue when the design is handed over to the contractor for construction even if the construction is not completed until substantially later”.

In applying the principles, the court found all the alleged defects to be statute-barred.

Scope and duration of contractual obligations

Lendlease argued that its own obligations had been stepped down to AECOM with the consequence that AECOM was obliged to achieve the outcome which Lendlease had contracted to achieve. The court determined that it was necessary to view the context of the consultancy agreement as a whole and here, it should be seen as “setting the context in which the question of what is required in order to perform with reasonable care, skill, and diligence is to be addressed.”

Lendlease further argued that AECOM was under a continuing duty to review, advise, warn or review the state of the works. This was a question to be determined on the terms of the particular contract in question. Where the contractual obligation “is solely that of providing a design, the contract is unlikely to be interpreted as imposing an obligation on the designer to review the design after it has been supplied”. Where the court finds there are further duties, “the court can find that there is an obligation on the designer to review the design up to the time it is incorporated in the construction” or alternatively up to the time of practical completion. No such duty arose in this case.

Recovery of judgment sum

Lendlease tried to recover the full judgment sum awarded at first instance in proceedings with the employer. AECOM countered that it was not a party to the judgment and that it was up to Lendlease to prove all the elements of its claim in the current proceedings. In dismissing Lendlease’s claim, the court found that Lendlease would need to demonstrate that a particular part of the sum originally awarded was caused by the defects for which AECOM was responsible but that task was made more challenging given that the first instance judge expressly said she was not making an allocation between the various defects.

Authored by Emerson Holmes, Tom Smith, Joyce Leung, and Nigel Sharman.