In a recent judgement delivered in November 2023, the Technology and Construction Court shed light on some critical aspects of construction disputes in the recent case of Lendlease v AECOM.
This case, which revolves around the design and construction of an Oncology Centre at St. James’ University Hospital in Leeds, offers helpful guidance on several key issues, including limitation periods, contract executions and contractual obligations. This article looks at some crucial areas decided and highlights the important points that businesses can learn from this case.
The PFI project company engaged Lendlease to build the Oncology Centre under a design and build contract. Lendlease in turn engaged AECOM under a consultancy agreement to provide mechanical and electrical consultancy. AECOM worked on the project since 2002 and the relevant designs in question were provided by AECOM in July 2005. Construction of the relevant part of the hospital (plant room 2) was completed in August 2006 with practical completion of the project occurring in December 2007. Issues with plant room 2 were first reported in 2017 but it was not known until 2018 that remedial works were required. Lendlease commenced its claim against AECOM in May 2019, over 12 years since issue of the relevant design.
The first matter that the court considered was whether AECOM’s appointment had been executed as a deed or simple contract. AECOM’s appointment provided for two alternative execution blocks, execution by one of the following:
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.
Regarding the first method of execution, by seal, the court determined that there was never an intention for the appointment to be executed under the common seal, suggesting that the signatories had mistakenly signed in the incorrect place.
Regarding the second method of execution by two directors, the court determined that AECOM was unable to deny that the appointment was effected as a deed. This was due to the fact that AECOM had represented that the signatories possessed the authority to enter into the contract, and Lendlease had relied upon this representation, estoppel by representation. Additionally, the terms of the appointment clearly stated that it was being entered into as a deed.
The court therefore held that a 12-year limitation period, rather than the six-year period, applied in this case.
Lendlease also argued that, even if the appointment was executed as a simple contract, the following clause included within the contract extended the normal limitation period under the Limitation Act 1980, which ran from the date of breach, to 12 years from the completion date:
“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.”
However, the court rejected this argument. The reference to 12 years in the contract acted as a longstop date after which no proceedings could be commenced, not an agreement to contract out of statutory limitation.
The court held in absence of clear and express words to extend the statutory limitation period, claims for breach of contract against AECOM ran from the date of breach and claims for negligence ran from the date of damage.
In this case, the initial breach of contract accrued ‘when the design is handed over to the contractor for construction even if construction is not completed until substantially later’ and the date of damage accrued on when any negligent or defective design was physically integrated into the fabric of the building.
The court considered whether AECOM had an ongoing duty to advise, warn, or review the work they had designed for Lendlease and thus whether there was a continuing breach arising from a failure to review and correct the design. Lendlease contended that AECOM should have warned it about issues with the fire strategy and the configuration of plant room 2, even after the design was provided, based on applicable standards and guidance.
The court clarified that when a contractual obligation is solely to provide a design, there is typically no obligation for the designer to review the design afterward. However, if the contract includes additional responsibilities beyond the provision of design, such as oversight during construction, then there may be a contractual duty to review the design. In such cases, the duty to review applies when there is a good reason that would prompt a reasonably competent professional of the relevant discipline to engage in a review of the design.
In essence, a consultant will only have an ongoing duty to review when the contract explicitly outlines both design provision and subsequent oversight of construction or similar such terms. The court considered no such obligation existed in AECOM’s appointment. The breach of contract claim therefore accrue when the design was handed over and there was no continuing breach.
As more than 12 years had passed from the dates of both breach of contract and damage prior to the commencement of proceedings, Lendlease’s claims were deemed to be time-barred.
The Lendlease v AECOM case underscores the critical importance of obtaining an early understanding of limitation periods, particularly in design claims. Limitation for design defects arises much earlier than that of poor workmanship and depending on the construction period for the works, if the appointment is a simple contract, limitation may not be long after completion of the works. When a design defect is identified, early review of the design pack to identify when the breach occurred will be crucial in calculating limitation periods.
When appointing a consultant, this case also offers valuable lessons with regard to:
For more information, please contact the construction and infrastructure team.
