Limitation periods and designer’s duties: Lendlease Construction (Europe) Limited v Aecom Limited [2023]

Executive Summary

The Technology and Construction Court has handed down a judgment in Lendlease Construction (Europe) Limited v Aecom Limited [2023] EWHC 2620 which makes a number of important findings and helpful guidance on limitation periods for bringing claims against designers. In particular, the Court found that:

• A contract will be executed as a deed in circumstances where it is not signed by statutory directors, but the signatories held themselves out as having authority to sign on behalf of the company. A 12-year limitation period will apply.
• A common clause that states no actions or proceedings will be brought after the expiry of 12 years from completion of the works operates as a longstop date and does not extend the statutory limitation period.
• On the facts of this case, it was considered that the overriding skill and care clause was to be interpreted as qualifying all other obligations owed under the appointment. Therefore, if strict compliance was required it should have been expressly carved out.
• A consultant will only be under a continuing duty to review where the contractual obligations expressly provide for the provision of design and the subsequent oversight of the construction

Background

The case concerned the design and construction of the new Oncology Centre at St James University Hospital, Leeds through a PFI contract. The PFI project company engaged Lendlease under a design and build contract to build the Oncology Centre. Lendlease in turn appointed Aecom to provide (1) mechanical and electrical services and (2) fire safety design under a consultancy agreement.

The PFI project company and the estate maintenance contractor (Engie) brought separate claims against Lendlease in respect of MEP design defects and workmanship errors. These claims were settled (a) under a settlement and (b) a judgment handed down in the TCC by Joanna Smith J. In turn, Lendlease brought a further claim against Aecom for an indemnity or contributions in respect of the fire safety and MEP defects.

The claim against Aecom was heard in the TCC by Mr Justice Eyre and clarified the following points on limitation and design claims.

Limitation

Limitation was a critical issue to Lendlease’s claim, with the construction of the relevant part of the hospital (plant room 2) completed in August 2006 (Aecom having provided its design sometime earlier) and the claim being commenced against Aecom over 12 years later in May 2019.  

Did the appointment take effect as a simple contract or as a deed?

The first hurdle was for Lendlease to establish that the appointment had been executed as a deed; otherwise a 6 year limitation period applicable to simple contracts would have been fatal to Lendlease’s claim.  

Aecom’s appointment provided for two alternative execution blocks, either execution by affixing the common seal or by two directors / a director and a company secretary.

Two individuals signed the appointment but they signed in the execution block for affixing the common seal (albeit no seal was affixed). Neither individual was a statutory director at the time of signing.

In respect of the first method of execution (by seal), Eyre J found that there was never any intention that the appointment was to be signed under common seal and that the reality was that the signatories had simply signed in the wrong place.

In respect of the second method of execution (by two directors), Eyre J found that Aecom was prevented from denying that the appointment took effect as a deed having represented that the signatories had authority to enter into the contract and Lendlease having relied upon this (estoppel by representation). The terms of the appointment made it clear that it was being entered into as a deed. As such, Eyre J concluded that a 12 year limitation period (rather than 6 years) applied.

Had the statutory limitation period been contracted out of?

Lendlease argued that, even if the appointment was executed as a simple contract, the clause saying “no action or proceedings under or on respect of this Agreement in contract or for breach of statutory duty shall be commenced against the Consultant after the expiry of 12 years after the Completion Date for the Works” extended the period in which claims which would otherwise be statute-barred could be brought.

In line with previous cases, Eyre J rejected this argument noting that “clear or express words are not needed as a matter of law and that the effect of the provisions is to be derived from construing the language used in the context of the document as a whole”. In this case, the terms of the appointment could not be read as extending the statutory time for bringing claims; the clause, which is commonly included in appointments, imposed a long-stop date after which no proceedings could be commenced and not an extension of limitation.

When did causes of action accrue?

The TCC upheld that the cause of action for breach of contract claims accrues from the date of breach, in this case, “when the design is handed over to the contractor for construction even if construction is not completed until substantially later”.

The cause of action for a negligence claim instead accrues when the negligence first causes damage and will be when the relevant defective design is incorporated into the building. In practice this will be “when a drawing containing defective design is issued to the contractor for construction purposes and the contractor then builds in accordance with that drawing”.  

Nature and Extent of Aecom’s Obligations under the Appointment

Were Aecom required to achieve the obligations that Lendlease had contracted to achieve up the line?

The two relevant clauses of the appointment that were relied on are as follows:

Clause 1.01:

“The Consultant shall be deemed to have notice of and shall observe the Employer's Requirements and/or the Project Agreement and/or the Principal Agreement to the extent the same shall have been issued to the Consultant by the Contractor and to that extent shall be deemed to have full knowledge of the terms and conditions of the Employer's Requirements and/or the Project Agreement and/or the Principal Agreement. To the extent of the obligations of the Consultant as set out in this Agreement, the Consultant shall ensure that no act, default or omission of the Consultant shall cause or contribute to any breach by the Contractor of any of its obligations contained in the Employer's Requirements and/or the Project Agreement and/or the Principal Agreement."

Clause 4.01:

“The Consultant warrants that he has exercised and will exercise all reasonable skill care and diligence in conformity with the normal professional standards of a consultant holding himself out as a competent consultant experienced in the provision of such services for projects similar in scope and complexity to the Works and having regard for the dates and periods stated in the Contract Programme and Design Service Programme and duties herein described and will comply in all respects with the requirements of the local authority, statutes, regulations, and codes of practice in force and relevant to the design of the Works, including but not limited to fire, health and safety. Notwithstanding any other clause in this Agreement or the Principal Agreement or term implied by statute or common law, the Consultant shall not be construed to owing any greater duty in relation to this Agreement than the use of necessary reasonable skill, care and diligence pursuant to this Clause 4.01."

Lendlease argued (relying on MT Hojgaard A/S V E.ON Climate & others [2017] UKSC 59) that these represented the minimum obligations and therefore required Aecom to achieve a particular standard (i.e. to achieve compliance with the Employer’s Requirements and/or the Project Agreement and/or Principal Agreement). The Project Agreement required the design to comply with the technical standards and guidance set out in the Health Technical Memorandum 81 Fire Code (“HTM 81”) or to follow a fire-engineering approach of a standard equal to or better than that laid down in HTM 81. Lendlease’s obligations were therefore stepped down to Aecom, who were required to achieve the same outcome.

Eyre J did not accept this argument, noting that the clauses should be interpreted in the context of the appointment read as a whole. He concluded that the two clauses “could not be seen as laying down competing requirements for a specified design and for specified performance criteria of the kind to which Lord Neuberger referred in Hojgaard nor can they readily be seen as setting out inconsistent design obligations.”

In particular, Eyre J referred to the final sentence of clause 4.01 and said that the argument put forward by Lendlease would require reading that sentence as saying “notwithstanding any other clause in this Agreement save for clause 1.01 of this Agreement or the Principal Agreement …". Eyre J did not consider there was any basis for such a reading and that the correct interpretation was that the final sentence qualified all of the other obligations owed by Aecom under the appointment. Therefore, the obligation imposed on Aecom under clause 1.01 was subject to the qualification set out in clause 4.01.  

As such, the appointment did not operate to step down Lendlease’s obligations.

However, Aecom was not home free on the point.  Eyre J found that: “A failure by Aecom to comply with standards laid down by the applicable regulations and in particular to produce a design satisfying the requirements of HTM 81 is seen to be a failure to exercise reasonable skill, care and diligence in the absence of a compelling explanation to the contrary.”  

Was there a continuing duty to review, advise or warn?

Eyre J considered whether Aecom had a continuing duty to advise or warn Lendlease or to review the state of the works after providing their design. Lendlease argued that Aecom should have warned Lendlease that the fire strategy and the configuration of plant room 2 were not compliant with good practice nor with the applicable health technical memoranda (technical standards and guidance for healthcare buildings) sometime after plant room 2 had been constructed, at the time when the last revision of the fire safety strategy was issued at Lendlease’s direction.

Eyre J summarised that:

“Where the contractual obligation is solely that of providing a design the contract is unlikely to be interpreted as imposing an obligation on the designer to review the design after it has been supplied. Where there are duties going beyond the provision of a design there can be a contractual obligation to review the design […].Where there are such further duties the court can find that there is an obligation on the designer to review the design up to the time it is incorporated in the construction. In such cases the duty will be, as Ramsey J explained, the New Islington duty to review when there is a good reason such as would prompt a reasonably competent professional of the relevant discipline to engage in a review.”

As such, a consultant will only be under a continuing duty to review where the contractual obligations expressly provide for the provision of design and the subsequent oversight of the construction.

Comments

Limitation periods are a key aspect of design claims and this case highlights how easily errors can be made when executing deeds.

The case provides clarity over when causes of actions in respect of defective design will be accrued.  Claimants should take a cautious approach to limitation periods and seek legal advice as soon as possible.

And finally, when putting a consultant’s appointment in place:

• include express and clear wording if strict compliance with a performance obligation is required and watch out for any skill and care clauses which purport to broadly apply,
• do not rely upon a continuing duty to review design being inferred; expressly include this, and
• at the time of execution, check that the contract has been properly executed.