Limitation periods and standstill agreements: How can they impact your claims?


Author: Digby Hebbard


This article was published in Construction News on 2 November 2017.

What do contractors need to be aware of when considering limitation periods, and how can it affect the claims they make?

Claims arising from construction projects often require consideration of the law of limitation.

Limitation periods are statutorily prescribed windows within which claimants must commence claims. These periods do not, however, sit naturally against the nature and timeline of projects, where numerous parties are involved, the period from commencement through to completion can span many years, and the parties’ liabilities extend beyond completion.

As per the Limitation Act 1980, claims for breach of a contract must be commenced within six years from when the breach occurred.

Different claims

Claims for breach of an agreement executed as deeds must be commenced within 12 years, while claims in tort must be commenced within six years of the cause of action; in negligence, this is usually when the physical damage occurs.

Claims commenced after these periods will be considered ‘time-barred’ and any right to damages will be extinguished.

Commencing a claim means lodging proceedings at court (litigation) or serving a notice of arbitration. Other forms of dispute resolution, such as statutory adjudication or pre-action protocols, do not stop limitation periods running.

Limitation commonly arises in connection with latent defect claims on construction projects (ie defects in physical works discovered outside of any contractual liability period). These situations are largely outside the parties’ control and therefore unexpected.

When they do occur, it is understandable that the parties’ immediate focus may be on investigating and rectifying the problems, leaving consideration about who may be responsible for such matters and whether a claim against them would be ‘in time’ for a later date.

A latent defect claim could involve an employer pursuing a contractor, and the contractor in turn passing the claim to its subcontractors and subconsultants.

Complications

Complications will arise for limitation purposes where, for example, the chain of project agreements involves a mixture of deeds and contracts, and therefore the limitation periods will differ.

“Of particular note was the suggestion from the judge that standstill agreements are a ‘self-inflicted complication’ in construction disputes”

This scenario highlights that swift action may be required if parties are to preserve their claims. In these situations, limitation can be addressed by the parties entering a standstill agreement or a claimant commencing ‘protective proceedings’.

Under a standstill agreement, the potential claimant and defendant agree to suspend time running for limitation and/or extend the limitation period, usually to allow further investigation and explore whether resolution is possible.

If a standstill cannot be agreed (for example, there is too little time), a claimant will issue proceedings to stop limitation running and thereby protect the limitation position. Such proceedings are then often stayed (ie suspended) to enable further investigations and for the parties to progress matters through alternative dispute resolution.

Interpreting standstill

Although standstill agreements are commonplace in dispute resolution, they are not without complexity.

For example, in a recent case, Russell & Anor v Stone [2017] EWHC 1555 (TCC), the Technology and Construction Court had to interpret a ‘standard’ agreement to work out whether the agreement suspended or extended the limitation period.

In view of how the agreement was worded, a suspension of limitation would mean the proceedings were issued before the expiry of the relevant limitation period, whereas extending the limitation period would mean the claim was time-barred.

The court found that the effect of the agreements was suspensive and proceedings were therefore issued in time. Of particular note was the suggestion from the judge that standstill agreements are a ‘self-inflicted complication’ in construction disputes. He thought the far more appropriate step to take, where limitation was a concern, was simply to issue and then stay proceedings.

In view of the court’s comments, if protective proceedings are not suitable for a particular scenario and the parties are prepared to enter a standstill, it would be important for the parties to consider: is the agreement to suspend or extend the limitation period?

Suspension ‘freezes’ time – so if there were 30 days remaining to issue proceedings at the date of the standstill agreement, the claimant would have that period to commence proceedings at the end of the limitation period. Extension means the claimant can commence proceedings up until the end of, but not after, the period provided for in the standstill agreement.

If parties propose to extend time, they should clearly state the final date by which the claimant must commence proceedings.

Digby Hebbard, Partner, Fladgate LLP (dhebbard@fladgate.com)

 

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