Limitation Periods in Construction Disputes – Contract vs Deed
Problem: A recent judgment from the Technology and Construction Court (TCC) in Lendlease Construction Ltd v Aecom Ltd, provides a useful insight into the limitation periods in construction contract claims. The dispute between the parties concerned the issues with the construction of a new oncology centre in Leeds, where Lendlease sought to recover losses from Aecom due to an alleged breach of the construction contract for defective work.
Outcome: The central focus of the construction litigation was on the limitation period and the scope of Aecom’s contractual obligations. Aecom argued that the Consultancy Agreement, not executed as a deed, required any legal claim to be brought within 6 years from the date of any breach which would have made Lendlease’s claim time-barred. The court determined that the applicable limitation period for breach of contract was 12 years as it was intended to be a deed in any event by the parties. However, the claim was nevertheless time-barred as it was brought after 12 years from the date of the breach, and the parties had already executed a settlement agreement which was full and final.
What is the difference between a Contract and Deed?
In the UK, parties can create agreements in two main ways: through a contract or a deed:
- A contract is an agreement between two or more parties that is intended to be enforceable by law. It requires an offer, acceptance, consideration (something of value exchanged), an intention to create legal relations, and certainty of terms. A contract will require consideration i.e. anything of value (money, services, goods, etc.) to be exchanged to make it legally binding. The limitation period for bringing a claim under a contract is typically 6 years from the date of breach (under the Limitation Act 1980 in England and Wales). This means that legal action must be taken within 6 years from when the breach occurred.
- In contrast, a deed is a special type of binding promise or commitment to do something. Crucially with a deed it can be valid and legally binding without consideration. It is often used when transferring property or in situations where a contract is not valid due to the lack of consideration. The limitation period for a deed is longer, typically 12 years. This extended period recognises the formal nature of a deed and the types of obligations it often contains, like property transfers.
The Dispute regarding the Limitation Period of the Claim
Lendlease Construction (Europe) Limited v Aecom Limited [2023] EWHC 2620 (TCC) (construction contract dispute)
Background
The case concerned the construction of an Oncology Centre at St. James’ University Hospital in Leeds. Lendlease was appointed as the main contractor on October 15, 2004, and engaged Aecom to handle specialist mechanical, electrical, and fire safety services.
Practical completion was certified on 14 December 2007. Thereafter there was a dispute between Aecom and Lendlease with (a) Aecom asserting that fees were outstanding and (b) Leadlease alleging defects in Aecom’s performance under the Consultancy Agreement. This dispute culminated in a deed of settlement (“the Settlement Agreement”) executed on 28 September 2012 settling all claims between the parties fully and finally.
During the project, various defects were discovered, leading the hospital to initiate legal proceedings against Lendlease. In 2022, the TCC ruled in favour of the hospital, confirming the existence of mechanical, electrical, and fire safety defects and awarding significant damages of over £7m against the contractor.
Following the judgment, Lendlease pursued legal action for breach of contract against Aecom on 30 May 2019 (i.e. 11 years and 5 months after practical completion and 6 years and 8 months after the settlement agreement), seeking indemnity or contribution for the parts of the judgment debt attributed to Aecom. Lendlease argued that if they were responsible to the hospital for these defects, then Aecom should also bear liability, as these issues originated from Aecom’s work. Lendlease also alleged negligence against Aecom but it was common ground that a claim for negligence was time-barred, and that aspect of the claim was withdrawn.
The key focus on a limitation defence to the breach of contract claim raised three specific issues:
- Determining whether Aecom’s contract for services was a simple contract (with a 6-year claim period) or a deed (with a 12-year claim period).
- If the contract wasn’t executed as a deed, whether the stated 12-year limitation period outlined in the contract took precedence over the statutory 6-year period.
- Assessing whether Lendlease’s claim was barred.
Judgment
The parties’ respective arguments on limitation can be summarised as follows:
- Aecom – (i) the Consultancy Agreement operated as a contract not as a deed with the consequence that the relevant limitation period is 6 years from the date of the accrual of Lendlease’s cause of action meaning that every part of the claim is statute-barred (ii) if the relevant limitation period is 12 years significant parts of the claim are in any event statute-barred because the cause of action in relation to them accrued more than 12 years before the commencement of proceedings on 30th May 2019.
- Lendlease – (i) the Consultancy Agreement was a deed with the consequence that the limitation period is 12 years from the date of the accrual of the cause of action. (ii) in the alternative, if it took effect as a simple contract the Consultancy Agreement properly interpreted provided for a 12 year limitation period.
The court determined that the Constancy Agreement took effect as a deed regardless of the formalities as the parties had intended it to be executed as such. However, nevertheless, as 12 years had passed since the breach and the claim being brought, Lendlease’s claims were time-barred.
The court also concluded that Aecom did not have an ongoing duty to review and advise the contractor of any defects. Furthermore, the Court determined that as the parties had agreed to a full and final settlement agreement the claim which Lendlease has brought for breach of contract would have been covered as part of that settlement agreement.
Comments from our Expert Construction Lawyers
It is surprising given that fundamental issues with the claim advanced, the limitation period and the issue of the settlement agreement why this claim went so far to trial – it seems that the claim had significant issues and was bound to fail as a matter of law and interpretation.
In any event, the case is a reminder of the importance of limitation periods in claims for breach of contract and negligence. If Lendlease had brought a claim earlier for negligence and/or breach of contract, it may have been successful in seeking indemnity (and of course provided it had not agreed to settle the claims with Aecom, and/or set out a clear carve-out for breach of contract in respect of the defects with the project).
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