A recent decision in the Technology and Construction Court (TCC) has provided some helpful guidance on the interaction between the Limitation Act and the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended) (Scheme); specifically whether the payment provisions of the Scheme affect the commencement of the limitation period for payment claims under a construction contract.
The claimant, Mr Hirst carried out construction works at a residential development in Bradford between October 2011 and December 2012 (Works). Mr Hirst claimed to have performed the Works pursuant to an oral contract with the defendant, Mr Dunbar.
Completion of the Works occurred on 4 December 2012 and Mr Hirst demanded payment for the Works in the sum of £476,886.29 from Mr Dunbar in March 2014. Mr Dunbar did not respond to the demand and Mr Hirst issued proceedings some five years later, on 2 August 2019.
Mr Hirst argued that the Works were carried out pursuant to an oral contract and that, as a 'construction contract' the provisions of the Scheme were implied.
Mr Dunbar argued that no contract existed between the parties and that, in any event, even if there was a contract the claim was time-barred as the cause of action accrued upon completion of the Works (i.e. on 4 December 2012) and therefore the claim was issued after the 6-year limitation period.
As such, there were two key issues to be considered, namely:
- was there a contract between the parties (the Contract Issue)?
- if so, was the claim time-barred (the Limitation Issue)?
The Contract Issue
Mr Justice Eyre in the TCC held that there was no contract between the parties and therefore the claim failed.
The judge found that neither Mr Hirst nor Mr Dunbar were reliable witnesses, and that there was little contemporaneous documentary evidence to support either party's position. Ultimately, the court Mr Dunbar's position for the following main reasons:
- the claimants’ assertions about the contract, its terms, and which parties had entered it, were vague;
- in their previous dealings, the parties had entered formal contracts (unlike here); and
- the evidence of others involved in the project was consistent with the view that Mr Hirst had believed he would obtain funding to buy the site and was therefore carrying out the works as a contribution to its development rather than for Mr Dunbar.
Having decided there was no contract, the TCC did go on to consider the Limitation Issue, namely whether the claim would have been time-barred in the event that a contract had existed.
The Limitation Issue
Common law position
The Limitation Act 1980 provides that a claim made pursuant to a 'simple' contract is subject to a limitation period of six years from when a cause of action accrues.
In terms of the a right to payment claim, the common law position is that in the absence of clear contractual provisions to the contrary, the cause of action for payment for works/services accrues when the works or services in question have been provided. In this instance, that would have meant the cause of action accrued when the Works were completed, on 4 December 2012 (at the latest).
In circumstances where a construction contract does not provide adequate payment provisions, the payment provisions included in the Scheme will be implied into the contract.
Mr Hirst argued that pursuant to the payment provisions of the Scheme, the limitation period did not begin until five days after Mr Hirst had made a demand for payment (being the date Mr Dunbar should have issued a payment notice in response to the demand as per paragraph 9, Part II of the Scheme). Mr Hirst made a demand for payment in March 2014 and therefore argued that the proceedings were issued inside the six-year limitation period.
The TCC held that a provision stating that a sum became payable when it was demanded by a claimant would not, absent clear drafting, displace the common law position as this would allow the claimant to indefinitely delay the accrual of its right to payment and determine the beginning of the limitation period, depending on when it chose to make the demand.
The TCC found that the provisions of the Scheme are not provisions determining the accrual of a cause of action but rather these provisions are mechanisms for identifying when payment is due or for identifying any disagreement between the parties as to the amount that is due. As a result, the Court found that, had there been a contract, the claim would have time-barred as the cause of action accrued on 4 December 2012 at the latest.
Whilst the TCC's decision on the interaction between the Scheme and limitation is obiter, it is the first authority that we know of on these points.
The decision confirms that the provisions of the Scheme provide for the discharge of existing rights to payment but do not create an entitlement to payment.
However, the decision leaves room for debate as regards when the right to interim or stage (rather than final) payments accrues under contracts subject to the Scheme. Further, careful consideration should be given to contractual terms which include as a condition precedent a right to payment as a condition precedent for payment the requirement for an independent certifier.
Sign up to our email digest
Click to subscribe or manage your email preferences.