Written by AGS Loss Prevention Group Working Member, Zita Mansi, BLM

An AGS Member called the AGS Contracts helpline to enquire whether she could legitimately include, in her standard terms and conditions, a clause which limited her contractual liability to a period of 6 years from the date of the contract.  The AGS Loss Prevention Working Group considered this an opportune moment to remind AGS Members of some key principles:

Statutory Limitation Periods

The Limitation Act 1980 sets out “limitation periods” for various types of claims.  The precise calculation of a limitation period can be complex but, in essence, the Act provides for a limitation period of:

• Six years from the date of the breach of contract for actions in respect of breach of simple contracts;
• Twelve years from the date of the breach of contract for actions in respect of breach of an obligation contained in a contract signed as a deed.

Once the relevant limitation period has expired, the defendant has a complete defence to the claim.

In the caller’s case, the six year period provided for in the standard terms ran from the date of the contract (rather than the date of the breach) and was therefore likely to expire sooner than the statutory limitation period.

Agreeing a Different Limitation Period

Contracting parties may contract out of the statutory limitation periods, either by agreeing a longer or shorter limitation period than that prescribed under the Act.

A contractual term that imposes a shorter limitation period than provided under the Act may be subject to the reasonableness test under the Unfair Contract Terms Act 1977 (UCTA) particularly where parties are doing business on one of the parties’ written standard terms of business.  The court’s decision on the enforceability of a clause will depend on the specific facts in each case, please see Amec v Elvanite article here.  Broadly speaking, the clarity of the wording of the clause, the relevant bargaining position of the parties, and whether the client knew or ought reasonably to have known of the existence of the limitation clause will be important considerations.

Note: Limitation Periods are not the same as Defects Liability Periods!

As stated above, once the relevant limitation period has expired, the defendant has a complete defence to the claim.

The defects liability period (“DLP”), however, is the period of time within which the contractor is contractually obliged to return to the construction site to repair defects which have appeared in the contractor’s works.  It is important to note, however, that the expiry of the DLP does not provide a defence to any claims for breach of contract. On the contrary, it would be unusual for the client to sue the contractor within the DLP unless the contractor had made clear his refusal to carry out the remedial works requested.

The DLP usually commences on practical or substantial completion and extends for a specified period, commonly 12 months.  The DLP provides a mechanism for the making good of defects which either do not need to be completed prior to practical completion or which become apparent after practical completion without the need for the parties to resort to dispute resolution.  A DLP will not be implied by statute: it will only feature in the contract if the parties expressly agree to include it.