Supreme Court Revisits Limitation Periods in Property Damage Claims
The Supreme Court recently unanimously upheld a Court of Appeal decision on the six year limitation period for claims in negligence for property damage. The case1 represents an important development of the applicable principles in this frequently contested area of construction disputes.
The plaintiff developers sued the defendants (a ground works contractor and civil engineer) for their alleged negligence in constructing and certifying the construction of foundations of two properties which were completed in March 2004 and certified as compliant and structurally sound in September 2004. Cracks in the walls of the properties were observed in December 2005 and proceedings were issued in November 2010.
The defendants pleaded that the plaintiffs' claim was statute barred pursuant to the Statute of Limitations 1957 as the proceedings had not been issued within six years from the date that the plaintiff suffered damage due to the defendants' negligence.
The critical issue was the date on which the plaintiffs suffered damage, such that a cause of action in negligence accrued.
High Court and Court of Appeal
The claim was dismissed in the High Court as the proceedings had not been instituted within the statutory time limit. The judge referred to the relevant Irish decisions which firmly excluded a discoverability test in assessing the accrual of a cause of action in negligence for property damage.
The Court of Appeal reversed this decision and held that damage was suffered by the plaintiffs in December 2005, the date on which the cracks were observed, rather than at the date of the installation and certification of the defective foundations. The cause of action therefore accrued as of December 2005 and the plaintiffs' claim was issued in time. This decision was then appealed to the Supreme Court by the defendants.
The Supreme Court Decision
Mr Justice McKechie in the Supreme Court considered the spectrum of points from which the clock might start to run in actions in negligence for property damage and having quickly excluded the date of the wrongful act, and the date on which the damage was actually discovered, idenitified that the most pertinent points were the date on which damage occured, and the date on which the damage was manifest.
By reference to a number of Irish cases which clearly reject the applicability of a discoverability test to property damage claims, the Court did recognise the potential harshness of a rule which may operate to render a plaintiff's claim statute barred at a point in time when, through no fault of his own, he was unaware of the damage which had occurred. However, the Court considered itself constrained by the existing statutory language from reading a discoverability test into the relevant provision. While the introduction of a discoverability test was a possible remedy for the potential harshness of the law relating to limitation periods in property damage claims, that was viewed as a matter for the legislature.
The Court was thus left to consider the applicability of:
(a) the date that the damage was manifest; and
(b) the date when damage occurred.
It held that the time begins to run from the date of manifestation of damage, expressed as being the time that the damage was capable of being discovered by a plantiff.
In doing so, the Court highlighted the important distinction between the concepts of "damage" and "defect":
"Time runs from the manifestation of damage, rather than the underlying defect. Thus it is not the latent defect which needs to be capable of discovery; it is the subsequent physical damage caused by that latent defect."
Applying this analysis to the facts, the Court held that the damage was manifest when the cracks appeared in the walls in December 2005. Time began to run from that date and therefore the proceedings initiated in November 2010 were within the limitation period. Although a defect in the foundations may have occurred as of the date of their completion (i.e. in March 2004), without any damage stemming from those defects as of that date, time did not begin to run.
The cut-off point for claims in contract is typically quite straightforward to determine, as the six year time limit begins to run from the date of the breach of contract, which is generally the date of completion of the defective work or the date of certification, depending on the role in question. It is clear from this case, however, that there is no easily discernable cut-off point after which construction professionals can be certain that liability in negligence no longer arises for damage relating to historic defective work.
As the six year limitation period in negligence does not begin to run from the date of the defective work but rather from the date the damage becomes "manifest", liability may arise for work at an unknown point after six years have passed since such work was completed. While often, as in this case, the date the damage occurs may coincide with the date the damage becomes manifest, the distinction made by the court between the two dates indicates that there may be a divergence between them in certain circumstances.
The concept of damage being manifest, or capable of being discovered, was held to mean that it must be provable or capable of being established by evidence. Unfortunately, the Court did not elaborate further on the types of scenarios where the distinction between damage occurring and becoming manifest arises and the practical circumstances in which the distinction may arise are not readily apparent.
The Court expressly recognised that the discoverability test (the date when damage could or ought with reasonable diligence to have been discovered) does not apply to cases of property damage. The date of damage being manifest was stated to arise irrespective of whether it was reasonable or realistic that the damage be discovered on that date, whereas the discoverability test imports a requirement that the damage could have been discoverable with reasonable diligence, which points to the possibility of damage being manifest before the discoverability test will apply.
The fine distinctions drawn by the Court in the matter point to the probability that disputes will continue to arise in relation to the question of whether the date of the damage was the same, or later, than the date on which the defect occured, and when the damage actually became manifest.
Certifiers and construction professionals should be mindful of the possibility of historic claims when deciding on their document retention policies, as defending a claim without access to proper records will present significant obstacles. The case is also a reminder of the need to carefully consider the adequacy of run-off periods under insurance cover.
The Supreme Court's judgment is not the first time that the Courts have referred to the need for legislative intervention if an allowance is to be made in the law for a discoverability exception to limitation periods for property damage claims. It remains to be seen whether there is legisltaive appetite to enact such legislation, whether along the lines of the Latent Damage Act 1986 in England and Wales, or otherwise.
Should you have any questions or would like to discuss the above, please contact your usual Maples and Calder contact.
1 Brandley and WJB Investments Limited v Hubert Deane T/A Hubert Deane & Associates and John Lohan T/A John Logan Groundworks Contractor (24 November 2017, unapproved judgment only).