Design Life Guarantees And Limitation: What Have You Actually Been Offered?

• Published date: 10 August 2023
• Law Firm: Fenwick Elliott LLP
• Author: Ms Claire King

Design life guarantees are a common feature of construction and infrastructure contracts providing comfort that a critical aspect (or aspects) of a structure that will last for a certain period of time. Much of the historical commentary and case law on design life guarantees is focussed on the precise nature and scope of the guarantee in question. For example, is the guarantee that something is "fit for purpose" for a certain period of time? Alternatively, when properly construed, is the design life obligation merely a promise that reasonable skill and care has been exercised to try and ensure, so far as possible, that the subject matter of the guarantee will last for a certain length of time?

Given the extensive case law analysing the precise nature of numerous design life guarantees, it is perhaps surprising that little commentary exists on the interaction between the law of limitation and design life guarantees. This is particularly relevant where a party has been offered a design life guarantee for a period of time such as twenty or twenty-five years. Such timeframes would exceed the standard limitation periods for breaches of contract and/or tortious claims (more on these below).

In this Insight, we analyse the interaction between the law of limitation and design life guarantees so that those offering (and being offered) design life guarantees for lengthy periods of time can properly consider how long they will actually benefit from the design life 'guarantee' in question.

The law on limitation - the basics

As an overarching point of principle, it is important to remember that limitation periods do not mean that there is no longer a claim after the passage of the prescribed period. What limitation periods do offer is a complete defence to the allegations. Whilst, in practical terms, this may seem rather artificial (given that there is no potential for the innocent party to recover), the application of limitation does not necessarily mean that there hasn't been a breach and/or negligent act.

Where a designer (or indeed a contractor with design responsibilities) is being sued for breach of contract, the primary rule is that the limitation period is six years for a breach of a simple contract² (sometimes referred to as a contract under hand) and twelve years for breach of a contract³ under seal (i.e., a deed). Keating on Construction notes the following in relation to designers (specifically architects):

"Actions against the architect in contract must be commenced within six years of the date on which the cause of action accrued, or within 12 years if the engagement is by deed. These periods specified under the Limitation Act 1980 may, however, be modified or excluded by the terms of the contract between the architect and the employer provided that clear words are used."⁴

If a right of action arises in tort (and the circumstances as to when this may occur are not covered in this article), then actions must be commenced within six years of the cause of action (the tortious act).⁵ In circumstances where there are latent defects in a design, the position in relation to limitation periods for a tortious claim is different again. This can (potentially) be very useful if the contractual limitation period has expired prior to any issues with the design life guarantee becoming apparent.

Hudson on Building Contracts summarises the position in relation to latent defects as follows:

"Construction Professionals cannot always rely on the six-year limitation period (or 12 years should they contract under seal) under ss.2 and 5 of the Limitation Act 1980 to bar a claim, because where the client discovers the defect many years after breach, then by virtue of the latent damage provisions in s.14A a new additional period of limitation can arise for latent defects, which runs for three years from the client's knowledge (subject to 15 years' long stop from breach by the professional)."⁶

The relevant parts of section 14A of the Limitation Act provide:

"(1) This section applies to any action for damages for negligence, other than one to which section 11 of this Act applies, where the starting date for reckoning the period of limitation under subsection (4)(b) below falls after the date on which the cause of action accrued.

(2) Section 2 of this Act shall not apply to an action to which this section applies.

(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.

(4) That period is either-

(a) six years from the date on which the cause of action accrued; or

(b) three years from the starting date as defined by subsection (5) below, if that period expires later than the period mentioned in paragraph (a) above.

(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b)...