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Insurance hike fears over legal time limits

The Government is planning an overhaul of the time allowed for clients to sue contractors, which could leave companies facing greatly extended and “overly onerous” liability periods.

The move, which is currently being discreetly consulted on with industry and legal bodies, has prompted strong opposition with suggestions it could result in significantly higher insurance and legal costs, among other problems.

While the reforms would also see liability periods cut to just three years, meaning it might reduce the liability for some firms, the availability of a negotiated liability period that is worrying many.

Under planned changes to the Limitation Act, liability periods would be cut from the current six years for a simple contract and 12 years for a deed, to a standard three-year limitation period for all contracts to run from the claimant’s “date of knowledge”.

There would also be a long-stop period of 10 years to run from the date the cause of action occurred.

However the legislation would also state that both periods could be modified under the agreement of both parties – a provision which does not exist under current laws.

There are concerns that the changes would give clients the opportunity to “play companies off against each other”.

 “In the current market, when we are going through an economic downturn and contractors are competing for the limited work out there, developers and employers are in a very demanding position,” said UKCG legal directorand head of the construction team at law firm Reynolds Colman Bradley John Bradley.

“They can play companies off against another and part of that could be incorporating extended limitation periods. Ultimately the main concern is that, in current economic climate, employers could impose overly onerous periods that may not be insurable.”

Nabarro knowledge lawyer Joanne Cook said there were also concerns that the three-year period was so short “it may become the norm to extend the periods and so possibly extend contractors’ liability”.

The UKCG is set to meet with the Federation of Master Builders, Civil Engineering Contractors Association and the Scottish Building Federation today to thrash out plans for a response. The Construction Industry Council has also raised concerns over the proposal.

Robert Crossingham, partner at law firm Weightmans, said the reforms would “make the courts busier and disputes more costly”.

Under the proposals, the limitation period would start from the “date of knowledge” – defined as the date when the claimant had actual or constructive knowledge of: the facts giving rise to the action; the identity of the defendant; and, where injury, loss or damage has occurred.

Mr Crossingham said: “At the moment the period starts from the date the defect is discovered – and you never have an argument about the date a building collapses.

“But now, under the ‘date of knowledge’ plans, we are going to have to argue over when the claimant knew about something. That is unlikely to simply be settled over a table, so more of these issues are likely to end up in a court.”

He said limitation periods would also be based on bargaining positions, so while major companies would be able to secure the shortest, three-year limitation period, “weaker” firms would end up with lengthy terms.

“You can have 20 parties on a project, and if you have different limitation periods for each reflecting the different bargaining powers then litigation is going to get out of control,” he said.

Concerns have also been raised it could send insurance costs skyrocketing for firms hit with long liability periods.

Halliwells construction partner Andrew MacCuish said a three-year limitation period was “not reasonable and would generally not be accepted in the marketplace”.

Responses are being requested to the pre-consultation by later this month. Once the draft Civil Law Reform Bill is published there will be a full public consultation.

A Ministry of Justice spokeswoman said: “It is the Government’s intention to publish the Civil Law Reform Bill in draft later this year. Limitation reform is one of the proposed provisions of the Bill. It will then be subject to pre-legislative scrutiny which will allow for a full public consultation. 

“In order to make sure we fully understand the possible impact of the proposals on certain businesses we are asking some industries for information about how the current limitation law applies to them, in order to prepare an impact assessment, which will be published with the draft Bill.”

In addition to the consultation with the construction industry, the MoJ is also conducting informal consultations with the credit and debt industry and bodies involved with personal injury claims.