In Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd and another, the Court considered preliminary issues relating to a sub-contract. Mitchell Design was engaged as the main contractor to design and build a warehouse, and in turn it sub-contracted certain ground treatment works to Regorco. The sub-contract documents were concluded after Regorco had completed its works. More than nine years after those works were carried out, the sub-tenant in occupation of the warehouse complained of settlement of the slab beneath the production area. A claim was brought against Mitchell Design and Regorco, and Regorco sought to exclude its liability based on Clause 12(d) of its "Standard Terms and Conditions of Contract", which provided that:
"All claims under or in connection with this Contract must in order to be considered as valid be notified to us in writing within 28 days of the appearance of any alleged defect or of the occurrence (or non occurrence as the case may be) of the event complained of, and shall in any event be deemed to be waived and absolutely barred unless so notified within one calendar year of the date of completion of the works."
Although the Court decided that Clause 12(d) had not been effectively incorporated into the Sub-Contract, it did examine whether Clause 12(d) was "reasonable" under Section 3(2) of the Unfair Contract Terms Act 1977 ("UCTA").
The Court found that Clause 12(d) did not satisfy UCTA's reasonableness test, because:
- The two triggers which start the running of the 28 day time period are "the appearance of any alleged defect" and "the occurrence (or non-occurrence as the case may be) of the event complained of". In the case of the second trigger (negligent design or construction in relation to the ground treatment work), the 28 day period would have expired (or very nearly have expired) by the time the Sub-Contract was concluded;
- Therefore, the only operative trigger of the clause was the appearance of the alleged defect. The Court noted there will often be a substantial lapse of time between the carrying out of the work and the occurrence of any visible cracking of the fabric of the building and an even longer lapse of time until the likely cause of the cracking is established. Furthermore, a main contractor in the position of Mitchell Design will not be the end user of the building. It was therefore in no position to observe the cracking when it appeared. The Court considered that, at the time the Sub-Contract was entered into, compliance by Mitchell Design with the 28 day time limit imposed by Clause 12(d) would not be practicable.
The Court concluded that the parties would not reasonably have expected that compliance with both the 28 day time limit and the requirement to make a claim within a year would be achievable, let alone practicable, save in rare cases.
COMMENT: There are no hard-and-fast rules about how short a contractual provision setting forth a time limit for bringing claims can be. This decision suggests that the reasonableness of such a provision will depend on the nature of works giving raise to liability, and will be very fact-specific. The key message is that contractually agreed limitation periods will not always be effective, and careful advice is needed when drafting them.