Multi-million-pound defective design claim out of time

Background

In October 2004, St James’s Oncology SPC Ltd (St James) appointed the claimant (Lendlease) as the design and build contractor for the construction of an oncology centre in Leeds.

On the same day, Lendlease appointed the defendant fire engineer (Aecom) to provide specialist mechanical and electrical and fire safety services (the Consultancy Agreement).

Aecom provided a design of a plant room to Lendlease in July 2005. The plant room was to be the central mechanical and electrical hub for the oncology centre and was completed before the end of August 2006.

At Lendlease’s request to revise the fire strategy to reflect the as-built configuration of the plant room, Aecom issued Revision 19 (Rev 19) in November 2007. Practical completion of the oncology centre was certified on 14 December 2007.

On 30 May 2019, following a claim by St James against Lendlease over mechanical and electrical and fire safety defects, in which Lendlease was found liable to St James for more than £5m, Lendlease issued proceedings against Aecom. It sought to pass down its liability in respect of 18 defects and claimed damages of around £3m.

Limitation

The court confirmed that, where limitation is in issue, it is for the claimant to establish the claim is not statute-barred. It also re-affirmed the following principals on when a cause of action for a defective design accrues:

• The cause of action for a negligence claim accrues when the negligence first causes damage. This is when the defective design is incorporated into the building.
• The cause of action for a claim in contract accrues on the date of breach. This may be when the defective design is handed over to the contractor for construction.

Lendlease could not pursue claims in negligence as any limitation period in tort had expired. The court therefore focused on limitation in contract.

The Consultancy Agreement was intended to be a deed. However, Aecom argued that it was a simple contract (with a six-year limitation period) rather than a deed (with a 12-year limitation period). Aecom’s signatures were in an execution block requiring a company seal but no seal was affixed, and neither of the two signatories was a statutory director or a company secretary. However, as the signatories simply signed in the wrong place and appeared to have Aecom’s authority, Aecom was estopped from contending that the signatories had no authority to execute the document as a deed.  

Since the Court had determined the Consultancy Agreement operated as a deed, and was therefore subject to the statutory limitation period of 12 years, the court did not need to consider the specific limitation provisions. It did, however, comment. The key issue was whether a clause in the Consultancy Agreement which specified that no action or proceedings shall be commenced after the expiry of 12 years after the completion date of the works ousted the applicable statutory period. The court held that the reference in the clause to 12 years was not sufficiently express to disapply statutory limitation and instead operated as a longstop date. Therefore, had the Consultancy Agreement been a simple contract, this clause would not have acted to extend the limitation period to 12 years.

The next question was whether Lendlease’s claim was inside the statutory 12-year period for claims under a deed. Lendlease issued proceedings on 30 May 2019. This meant any breach by Aecom had to have taken place on or after 30 May 2007 for it to be liable. This could only be determined by looking at Aecom’s duties under the Consultancy Agreement.

Continuing duty to review, advise or warn

The court considered the scope of a professional’s continuing duty to advise or warn or to review the state of the works.

Where the contractual obligation is solely to provide a design, there is unlikely to be a duty on the designer to review matters or advise or warn after supplying the design.

Where duties go beyond the provision of a design, the designer may be obliged to review the design up to the time it is incorporated in the construction or possibly even practical completion. In such cases, as illustrated in the case of  New Islington & Hackney Housing Association Ltd v Pollard Thomas & Edwards Ltd [2001] BLR 74, the duty to review will arise when there is a good reason for the designer to review.

The Consultancy Agreement envisaged Aecom’s continuing involvement after handover of its design in July 2005. However, the architect was the lead designer with responsibility for overseeing construction as a whole. The court held that Aecom’s obligations after providing its design were obligations of review and coordination.

Aecom was not responsible for the faulty implementation of its design if that implementation was by others and the fault was not due to the design itself, provided that Aecom did not control the implementation and was not responsible for it under the Consultancy Agreement. However, the court held that it was not possible to “draw a bright line distinction” between Aecom’s production of its design to RIBA Stage E (technical design) and the implementation of that design with Aecom responsible for the former but not the latter. As such, the contractual duty to exercise reasonable care and skill extended to Aecom’s comments on drawings produced by an installation sub-contractor engaged by Lendlease. However, any breach accrued when the sub-contractor was instructed in August 2006, and so was out of time.

Any cause of action which accrued by the time the plant room was completed in August 2006 was also out of time. The court considered whether Aecom had any continuing duty of review after that point. The Consultancy Agreement did not contain any express requirement for Aecom to keep its design or the plant room as constructed under review after construction. Even if there was such a duty, it would only be triggered if there was a good reason, namely any circumstances leading to the production of Rev 19 in November 2007.

Aecom produced Rev 19 to reflect the as-built configuration of the plant room which lacked 60-minute fire compartmentation contrary to Aecom’s earlier fire strategy. It accepted that it should have advised that Rev 19 was non-compliant with applicable fire safety standards. However, Lendlease’s claim was advanced only on the basis of a breach of the Consultancy Agreement, not in negligence. The court found that as at November 2007, the Consultancy Agreement did not require Aecom to advise on the non-compliance of the plant room. Lendlease’s instruction was not for a general revision of the fire strategy in such terms as Aecom using its expertise found fit but rather for a revision in ways specified by Lendlease so that practical completion could be certified. Lendlease made it clear that it was relying on its own judgement and on approval by building control. The Consultancy Agreement did not oblige Aecom to decline those instructions or to warn of the consequences of complying.

Analysis

The court would have found Aecom liable for eight defects if Lendlease had brought the action in time. However, it dismissed the claims because the 12-year limitation period had elapsed in respect of the original design and, at the time of Rev 19, there was no contractual duty to advise or warn on the non-compliance of the plant room with the applicable standards. This shows how important it is to consider limitation at the outset and, if necessary, issue protective proceedings.

Parties must scrutinise the wording and execution of contracts to ensure the limitation period is as intended. Clear express wording is required if the parties intend to oust statutory limitation. A failure to properly execute a contract could be detrimental to the claim if the contract unintentionally takes effect as a simple contract rather than a deed. However, a party may not be able to rely on a technical breach of the requirements of the Companies Act 1985 and Law of Property (Miscellaneous Provisions) Act 1989 by a signatory being held out as having the authority of that party to sign the document.

Finally, the extent of liability can impact on the date of the accrual of a cause of action and, as a result, the period for issuing proceedings. A claimant may be able to overcome any limitation defence by establishing a continuing duty to advise, warn or review. Construction professionals should be mindful of any continuing duty within their contract or where their actions during a construction project may be interpreted as inferring such a duty.