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Published by the Institution of Civil Engineers (ICE). One Great George Street, Westminster,
London SW1P 3AA
Date of publication: 21 January 2015
© Institution of Civil Engineers (2015)
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Legal Notes
Acknowledgments
Authors: Ben Mellors
Commissioned by: ICE Advisory Panel on Legal Affairs
Institution of Civil Engineers
・ Liability for Latent Defects (formally Liability for Latent Damage) now Liability of
Professionals for Defects
・ Collateral Warranties
1.1 Whilst construction should not contain defects, defects are not uncommon. Where it
does and the defects are attributable to poor design or supervision, the professional
responsible may be liable for them. This liability may arise in contract, in tort, or by
statute. (There may also be criminal liability but that is outside the scope of this
note.)
Legal Notes
Latent – a latent defect is a defect that is hidden such that it would not be
discovered following an inspection of the nature that one might reasonably
anticipate be carried out and so may not come to light for many years.
1.3 When considering the extent of a professional’s liability for defects, it is frequently
important to distinguish between contractual and tortious liability as the differences
may affect:
The standard of care against which the professional’s work will be tested when
determining whether he or she is liable for the defect;
The type of defect (i.e. patent or latent) for which the professional is liable;
The type of damage for which the professional is liable as a consequence of the
defects; and
The period during which a claim against the professional can be made.
2. Summary
2.1 The primary source of a professional’s liability to his or her client is the contract
between them. A professional will be liable for a defect if it was caused by a breach
of his or her standard contractual duty to exercise reasonable care and skill (unless
provided otherwise in the contract). The professional will often be concurrently liable
in tort for negligence causing both property damage and economic loss to the client.
The principal reason for distinguishing the two bases of liability is that different time
periods for bringing the claim (at least in England and Wales) apply.
2.2 A professional may also be liable in tort to any third party suffering personal injury or
loss or damage to property due to the professional’s negligence. This liability will
normally only extend to damage to property other than the structure where the defect
is present. In addition, it will usually be the case that a professional will only be liable
to third parties in tort for damage caused by ‘latent’ defects, i.e. those defects that
were not discoverable by an intermediate inspection.
2.3 In the absence of any contractual relationship, a professional may nevertheless still
be liable to third parties for economic loss caused by defects. Such economic loss
will include the cost of remedying the defects. A duty of care with regard to economic
loss however requires much more than is otherwise required for a duty of care in
relation to personal injury and damage to other property. There must have been an
assumption of responsibility by the professional or a special relationship with the third
party.
3. Liability in Contract
3.1 Most formal relationships between organisations in the construction industry are
governed by contracts, for example:
Legal Notes
Consultancy agreements;
Insurance policies.
3.2 The rights and obligations of the parties to a contract are, in principle, those set out in
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the terms of the contract. These are found in the written or ‘express’ terms used in
the contract, as well as any others that may be implied by law. Any liability in
contract for defects arises as a result of a breach of these express or implied
obligations.
3.3 For a professional to be liable for a defect, it must be attributable to the actions or
inactions of the professional and those actions or inactions must fall within the scope
of services that the professional agreed in the contract to provide.
3.4 In addition, professionals are not usually liable (unless the contract provides
otherwise) simply because a defect exists that was within his or her scope of
services. For a professional to be liable, the standard of the professional’s conduct in
acting or failing to act in the way that caused the defect [or allowed the defect to
occur (?)] must fall below that which is required by the contract.
3.5 The contractual standard of care for a professional to his client when providing
services, such as design, supervision or inspection services, is to use reasonable
skill and care (unless provided otherwise in the contract).
3.6 The contractual duty of a professional who designs works for others should be
contrasted with a design-build contractor who both designs and constructs the work.
Unless otherwise provided in the contract, a design-build contractor will be required
to ensure that the works are fit for their intended purpose, i.e. the obligation with
regard to the design is absolute.
3.7 A professional may have a contractual duty to persons other than his or her direct
client through the provision of collateral warranties. The precise scope of the
professional’s contractual duty for defects to these other persons will obviously
depend on the wording of the specific warranty but the principles set out above will
usually apply. In the absence of such collateral warranties, a third party will have to
look elsewhere.
3.8 In England and Wales, the right to enforce a contract is not necessarily limited only to
the parties to that contract. As a result of the Contracts (Rights of Third Parties) Act
1999, a third party is allowed to obtain the benefit of any provisions of the contract
which expressly or impliedly are intended for that party’s benefit. For example, a
buyer of a recently completed construction project may be able to enforce certain
terms in the professional’s appointment with the employer. The operation of the Act
can and usually is excluded by express wording in a contract stating that it is not to
Legal Notes
apply.
3.9 The Contracts (Rights of Third Parties) Act brought the law in England and Wales
more into line with that which already existed in Scotland. In Scotland, contractual
rights can be acquired by third parties under what is known as the principle of jus
quaesitum tertio (rights on account of third parties). If there is a provision in a
contract that benefits a third party, the third party may sue for that benefit even
though there is no direct contractual link.
4.1 The terms of a contract only apply to those who are parties to the contract and a
professional will only owe a contractual duty to his or her client under their contract
and not, for example, to subsequent purchasers of a building designed by the
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4.2 In England and Wales, tort is a branch of the law that imposes on us a duty of care
towards those who we can reasonably foresee might be affected by our acts or
omissions. Tortious liability can arise from negligence, trespass to land, goods or the
person, from nuisance, from dangerous premises or chattels, from the escape of fire
or other noxious things and in many other ways. However, a professional’s liability
for defects is most likely to involve the tort of negligence.
4.3 The general existence of a duty of care with regards to negligence is effectively
based on three factors:
(a) Foreseeability: one must take care to avoid acts or omissions which could
reasonably be foreseen to result in the injury or loss suffered.
(b) Proximity: there must be sufficient proximity in the relationship between the
parties.
(c) Policy: it must be fair, just and reasonable to impose a duty of care.
4.4 This duty of care is limited to physical damage to other property and personal injury.
There is no general duty of care not to inflict on others ‘pure’ economic loss that is a
financial loss that is unrelated to any physical damage. Example – loss of rent (?)
4.5 When considering the existence of a duty of care in the context of defects claims, it is
important to identify properly and take account of the nature of the damage or injury
that has been suffered. Liability in tort does not generally cover the physical damage
to the structure of the building caused by a defect in that building itself, but only the
damage caused by the defect to other structures or buildings. The damage to the
building itself caused by the defect, and the cost of remedying the defect, is
categorised as economic loss and would only be recoverable through any contractual
relationship.
4.6 For there to be a duty of care in relation to this economic loss, something more is
required: either an assumption of responsibility or a special relationship. A duty of
care for economic loss was first established in relation to negligent mis-statements
(which can include designs) but has now been found to extend, depending on the
circumstances, to most other services provided by a construction professional. For
Legal Notes
example, this principle could include technical reports and designs on which reliance
has been placed by persons who could reasonably be expected to have relied on the
reports or designs. Example?
4.7 Where there is a duty of care, to establish a claim in negligence, the claimant then
must show that there has been a breach of the duty of care. For claims against
professionals, the claimant will have to establish that the professional’s conduct was
below the standard of care that should have been exercised.
4.8 The standard of care is that of the ordinary, reasonable man and will depend on the
particular circumstances in each case. The degree of care required of professional
people has been defined on many occasions by the courts. The following direction to
the jury in Bolam v Friern Hospital Management Committee [1957] has been adopted
by the House of Lord and is frequently cited:
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4.9 It is now accepted that a professional can owe a concurrent duty in both contract and
tort. Where such a duty of care exists in tort (and it can be excluded by contract), the
duty is founded upon the scope of the professional’s services and duties in the
contract and the way in which he or she performed the contract. In these
circumstances, the professional generally (although not always) would be taken to
have assumed responsibility for economic loss to their clients. [Is it worth explaining
why this is relevant since, presumably, the professional would be liable for economic
loss under the contract in any event]
4.10 A professional is under a general duty of care with regards to personal injury and
damage to property of third parties. The precise scope of that duty will depend on
the persons involved and the cause of the damage, taking into account the factors
mentioned above.
4.11 In terms of negligent design, a professional’s duty probably only extends to damage
caused by defects that would not have been discovered by an intermediate
inspection (or, in other words, latent defects). The extent of the inspection required
will likely depend on the circumstances. For example, a professional would not
normally be liable for damage suffered by a purchaser of a building due to a defect of
the kind that is likely to be spotted by a surveyor acting for a would-be purchaser.
Whilst not settled, this limit on the duty of care to latent defects might also apply more
generally to personal injury and damage to property of third parties.
5.1 If the building concerned is a dwelling, a professional may be liable for defects under
the Defective Premises Act 1972. This Act requires a “person taking on work for or in
connection with the provision of a dwelling” to ensure that the work taken on is
Legal Notes
6. Limitation of Actions
6.1 For reasons of fairness, certainty and evidence, all jurisdictions place limits on the
time within which actions can be brought. The position is different between England
and Wales, on the one hand, and Scotland on the other, both in terms of terminology,
how the limit operates and the applicable time periods.
6.2 In England and Wales, the cause of action is not extinguished on the expiry of the
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applicable ‘limitation’ period. Instead, the expiry of the limitation period bars or
extinguishes the remedy and operates as a defence to a claim. In contrast, in
Scotland, the expiry of an applicable ‘prescription’ period operates to bar or
extinguish the cause of action.
6.3 In England and Wales, limitation periods are governed by the Limitation Act 1980, as
amended by various subsequent pieces of legislation including the Latent Damage
Act 1986. The limitation periods run from the date when the cause of action accrued.
For an action in contract, this will be the date of the relevant breach; in tort (including
negligence), this will be the date when the damage occurred. The basic periods are:
(a) Simple contracts: six years. (‘Simple’ contracts include oral contracts, those
formed by exchange of correspondence and those contained in a document
signed by the parties.)
(b) Speciality contracts (e.g. those executed under seal or as a deed): 12 years.
(d) Tort (personal injury): three years from the later of (i) the date of accrual of the
cause of action, or (ii) the date of knowledge of the person injured.
6.4 The Latent Damage Act 1986 introduced special provisions to deal with the inherent
problem of identifying when latent damage has been suffered. Such damage would
ordinarily start the limitation clock running. However, the Act introduced an extension
to the standard 6-year limitation period applicable to claims for negligence where the
damage was not discoverable by the claimant at the time that it was suffered. In
such cases, the limitation period is the late of either:
(a) six years from the date on which the cause of action accrued (i.e. the date when
the damage was suffered), or
(b) three years from the date that the claimant had the knowledge required (the
material facts of the loss suffered, the identity of the defendant and the cause of
action), or might reasonably have acquired such knowledge.
There is however an overall long-stop limit of fifteen years from the original negligent
act or omission. The Act also does not apply to personal injury claims.
6.5 In Scotland, time periods within which actions must be brought are governed by the
Prescription and Limitation (Scotland) Act 1973. This Act applies to both contract
and delict and introduces the concepts of short and long negative prescriptions:
Legal Notes
(a) The short negative prescription provides that, if there has been a period of five
years from the date of the obligation without a claim being made, the obligation is
extinguished.
(b) The date of the obligation is defined in the Act as being the date when the loss,
damage or injury occurred or the date of reasonable discoverability of the
damage, whichever is later. It is therefore not the actual wrongful act or breach
that is the starting date but the date of the loss, injury or damage. For example,
the starting date would be when an owner found (or should reasonably have
found) cracks in a house, not when the cracks first occurred.
(c) The long negative prescription provides for the obligation to be extinguished after
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a period of 20 years from the date when the damage occurs, whether or not the
damage was reasonably discoverable. Hence, in the case of the cracks, the
obligation will be extinguished 20 years after they occurred irrespective of
whether or not the owner could reasonably have discovered them by then.
6.6 Claims under indemnity clauses can be brought long after these limitation or
prescription periods. Whilst the limitation period for a claim for breach of contract
starts to run from the date of the breach, the clock only starts running in relation to a
claim under an indemnity when the indemnified loss is crystallised.
6.7 The limitation period that applies to claims under the Defective Premises Act 1974 is
six years from completion of the dwelling. However, the extension based on the date
of knowledge as provided by the Latent Damage Act 1986 does not apply to actions
for breach of duty under the Defective Premises Act.
7.1 There are four principal types of insurance policy that may cover the cost of
remedying and rectifying damage arising out of defects:
(a) Professional indemnity policies covering legal liability for negligence in the
performance of professional duties.
(c) Public liability policies covering legal liability for personal injury or loss or damage
to property suffered by members of public.
(d) Latent defects insurance covering the cost of remedying defective works
irrespective of who is at fault.
7.2 Most consultants and contractors with design responsibility carry professional
indemnity insurance to protect them against actions for negligence [and breach of
contract (?)] in the performance of their professional activities. Such insurance
operates on a ‘claims made’ basis which means that the relevant policy is the one in
force at the time the claim is made, and not that for the year in which the negligent
act, error or omission was committed. Therefore, it is important that professional
indemnity insurance cover is maintained even after the work has been completed for
the duration of potential liability for latent defects.
7.3 During construction, it is usual for the client or contractor to take out an ‘all risks’
Legal Notes
policy which should cover all parties to the project, although policies vary. Policies
typically cover the cost of repairing damage caused by defects in “design, plan,
specification, workmanship or materials”. Often, though, the cost of repairing the
defective part itself is excluded, and invariably policies will not cover the cost of
rectifying a defect where no physical damage has occurred. [A professional should
not rely upon such insurance in lieu of professional indemnity insurance (?)]
7.4 Personal injury or loss or damage to property suffered by members of the public as a
result of a defect may be covered by a public liability policy. This would not cover the
cost of rectifying a latent defect. Public liability coverage is generally required both
during construction and after completion.
7.5 Latent defects insurance policies are policies to insure buildings against damage
arising out of latent defects, irrespective of who was at fault for the defects. They are
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7.6 Those responsible for setting up projects should ensure that all potential liabilities
and risks are covered.
Legal Notes
Institution of Civil Engineers
Registered charity number 210252
Charity registered in Scotland number SC038629
www.ice.org.uk