The use of tortious claims to overcome limitation periods in construction disputes

A recent decision of the High Court has provided clarity as to the limitation period applicable to tortious claims against sub-contractors for defective work or materials. Two previous TCC decisions had provided inconsistent guidance on the topic and the added clarity will be welcomed by parties looking to preserve rights of recourse against their supply chain. The decision favours an earlier expiry of the limitation period meaning that parties receiving claims would be well advised to ensure that all potential rights of recourse against third parties are identified as soon as possible.

Background

Claims must be brought within their applicable limitation period. If not, they will become time barred. For claims in tort (i.e. negligence), the relevant period is six years from the “accrual of the cause of action” which means the date the relevant damage is suffered. Where defective work or materials are concerned, arguments arise as to what constitutes “damage”. In a sub-contract context, two points in time are most relevant. The defective work or materials will have placed the main contractor or superior sub-contractor in breach of their own obligations “up the contractual chain”. Damage might therefore arise at this point. Alternatively, damage might be said to arise only when a claim is made against the main contractor or superior sub-contractor in respect of the defective work or materials in question. This is usually a much later date, with claims under main contracts often being able to be brought up to 12 years after practical completion.

Two recent TCC decisions have taken contrasting views as to these two positions. In Linklaters v Sir Robert McAlpine, Mr Justice Akenhead held that the tortious liability of a second tier sub-contractor for the defective installation of chilled water pipework would have accrued with the making of a claim by the ultimate employer against the first tier sub-contractor. Earlier this year, Mr Justice Edwards-Stuart decided to the contrary in Co-operative v Birse, finding that a main contractor’s cause of action in tort against sub-contractors would arise at practical completion when it handed over the defective works and had thereby been made a “contract breaker” by its sub-contractors' negligence.

Interface Europe v Premier Hank Dyers

The present case concerned the construction of new headquarters for a bank in Switzerland. Carpet tiles supplied for the building were charcoal grey when first installed, but over the course of time turned a greenish colour.

Interface had supplied the defective carpet tiles. It had sub-contracted the dying of the yarn in the tiles to Premier, who in turn sub-sub-contracted the manufacture of the dye to Airedale. It was common ground that the dye was not appropriately colour fast to light and this caused the colour change. However, the parties disputed where the fault for this lay.

Interface replaced the tiles and Premier recompensed them to the sum of £575,000. Premier then attempted to pass this down to Airedale. Premier had already begun proceedings against Airedale for breach of contract, but then applied to the Court to add another claim, for negligence in tort. The question was whether this claim in tort was time barred.

The Judge reviewed the decisions in Linklaters and Birse and concluded the decisions were not reconcilable. He opted to follow the decision in Birse and held the cause of action arose, at the latest, when Premier supplied the faulty yarn to Interface. At that point, the provision of the unsatisfactory dye by Airedale had caused Premier to be a contract breaker and Premier’s rights under its contract with Interface were devalued. Premier had therefore suffered damage and time for limitation purposes began to run. On the facts, this meant the claim in tort was time barred. However, the Judge then went on to allow them claim using his discretion under the Rule 17.4 of the Civil Procedure Rules.

Implications

By siding with Birse, the court’s decision in Interface Europe will make it more difficult for parties to rely on claims in tort to overcome difficulties with contractual limitation periods. Parties would be well advised to bear the following points in mind:

• The reasoning in Linklaters would have allowed parties to bring tortious claims well after a 6 or even 12 year contractual limitation period. For example, claims made under a main contract near the end of a 12 year limitation period, would on this view have given rise to fresh tortious claims against sub-contractors with a further 6 year limitation period (i.e. nearly 18 years after practical completion). The reasoning in Birse and Interface Europe eliminates this possibility. Tortious rights against sub-contractors are now likely to expire 6 years after practical completion at the latest. This in turn makes it important for parties to ensure that limitation periods agreed with sub-contractors mirror those of their superior contracts. If longer limitation periods apply upstream, there is now likely to be a period of time where claims under the superior contract cannot be passed down to the supply chain.
• This narrower approach to tortious limitation periods is likely to diminish the usefulness of tortious claims, but they are still likely to remain relevant. For example, where sub-contract works are completed ahead of practical completion under a main contract, the contractual limitation period may begin to run ahead of the tortious limitation period. If both are for 6 years, the tortious limitation period will provide some additional time for claims to be made.
• Parties should act quickly to preserve rights of action against their supply chain in the event of receiving claims close to six years after practical completion of their own works. Unless sub-contracts have been entered into as deeds and are thereby subject to a 12 year limitation period, this is likely to be the point at which such claims, both in tort and contract, cease to be able to be passed down to the supply chain.
• Neither the Birse or Interface Europe decisions make reference to the Court of Appeal’s recent decision in Robinson v PE Jones. This decision doubted whether tortious rights of action would apply at all for simple construction contracts not containing any professional design obligations. The decision may well mean that tortious rights would not have been available to the claimant in Birse even if it had succeeded in overcoming limitation issues. For the claimant in Interface Europe, getting past the limitation issue was just the first hurdle. The court will now go on to review the substance of the claim, including any arguments such as those in Robinson.

References: Linklaters Business Services v Sir Robert McAlpine Limited [2010] EWHC 2931 (TCC); Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9; Co-operative Group Limited v Birse Developments Limited and Stuarts Industrial Flooring Limited [2014] EWHC 530 (TCC); Interface Europe Ltd v Premier Hank Dyers [2014] EWHC 2610 (QB)