Limitation for claims against surveyors
10 July 2019
Limitation is a significant issue when it comes to claims against professionals. Time limits exist as a matter of public policy and provide a degree of certainty to professionals and their insurers regarding the time frame for which they will be exposed to financial claims. If the limitation period has expired, then that will be a complete defence to a claim. It is always a point that your insurer and their advisors will consider carefully if a claim has been made against you.
Limitation can also be useful in assisting you to determine how long you need to store your client files and maintain professional indemnity insurance (PII). It is, therefore, useful to have a basic working knowledge of limitation periods.
The Limitation Act 1980 (“the Act) is the legislation that sets out the basic rules on limitation. Of course, there is then a significant body of case-law that determines how those rules should be interpreted and applied. The more you read, the more confusing it can become. In this article, we aim to provide an overview to provide some clarity on the basic position.
Contract vs Tort
The first question is whether the claim against you has been brought in contract or tort and we, therefore, consider each in turn.
A claim in contract
The position in relation to claims that are brought in contract is quite simple. Section 5 of the Act provides that claims in contact “shall not be brought after the expiration of six years from the date on which the cause of action accrued”. For contracts that are executed as a deed, the limitation period is 12 years.
The obvious question is when a cause of action accrues in relation to a claim in contract. The best answer is when the breach of contract occurs. So if a surveyor contracts with a client to provide a building survey and the content of the survey is incorrect and results in a loss to the client, then limitation will be calculated from the date the surveyor provided the survey.
A claim in tort
Limitation for claims in tort is somewhat more complex. The starting point is section 2 of the Act, which again provides that claims in tort “shall not be brought after the expiration of six years from the date on which the cause of action accrued”.
In an action for professional negligence, the cause of action will accrue at the point that damage is suffered. In the example given above the position is straight forward and the clock would start ticking at the point that the survey containing incorrect information was received by the client.
Situations can arise where the damage can accrue on a date that is different to the breach of duty and the issue can lead to considerable debate. Lender claims are a particular example. Where a lender has received a negligent valuation of an intended loan security, limitation will run from the date at which the debt owed to the lender exceeds the value of the property combined with the value of the covenant of the borrower. Nykredit v Erdman  1 WLR 1627. This issue is of fundamental importance if the claim is made more than 6 years from the date of the initial advance. The burden of proof with reference limitation lies with the lender and they must provide evidence that the damage (the debt exceeding the value of the property combined with the borrowers' covenant) did not occur until a later date.
There are often situations where a considerable amount of time has passed before a claimant realises that there is a problem and they have suffered loss. To ensure fairness, there is potential for the six-year time frame to be extended where the negligence only becomes apparent at a later stage. This situation is governed by section 14A of the Act, which essentially provides that where a claimant did not know that he or she had a cause of action, then the time limit will be three years from the earliest date on which the claimant first had the knowledge required for bringing an action in respect of the relevant damage. This includes knowledge :
- of the material facts about the loss suffered (that they have suffered damage)
- of the identity of the defendant
- that the damage was attributable in whole or in part to the negligent act or omission
Predictably there can be a great deal of argument as to when the “date of knowledge” is triggered. The issue is always very dependent upon the facts and there is a great deal of case-law on the issue. It is useful to be aware of the following:
- Knowledge does not just mean “actual” knowledge, but includes “constructive” knowledge. This means knowledge that it is reasonable to expect a claimant to have.
- Knowledge does not mean that you have absolute certainty about an issue. It will be enough if a claimant has cause for suspicion that, for example, leads to further enquiry with another professional.
- Overlooking some earlier documentation or information that would have put the claimant on notice will not postpone the date of knowledge, no matter how genuine the oversight was.
While section 14A will assist a claimant by extending the limitation period, it does not continue indefinitely. Section 14B provides that if a claimant is relying on a “date of knowledge” argument to extend the standard time frame beyond 6 years, then there must be an absolute end date (known as “the long-stop”) of 15 years.
There are circumstances where the starting date for actions in both contract and tort can be postponed beyond 6 years – and the 15-year long-stop. This is covered by section 32(1) of the Act. It provides that the start date for limitation purposes will be deferred where a claim is based on the fraud of the defendant or any fact relevant to the claimant’s right of action has been “deliberately concealed” by the defendant. The section goes on to note that “deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment…”
In this situation, the claimant has 6 years from the date of discovery of the relevant facts – or the date upon which the claimant could, with reasonable diligence, have discovered the facts. These situations are rare and will require clear evidence that a defendant has committed a deliberate breach of duty or act of dishonesty.
There are some other provisions that postpone limitation. The most common is where the claimant is under a disability. A disability includes a claimant who is under 18 years of age. These exceptions will rarely be applicable to a claim against a surveyor.
To demonstrate how the above rules work in practice it might be useful to consider the following example:
In September 2008 client A buys a house that is just 12 months old. There is some very minor cracking that is visible in a corner of one of the rooms. To be on the safe side, client A decides to have a full building survey completed. The survey comes back reporting no concerns and advises that the cracking is just settlement that can occur during the early months following construction. The sale proceeds. In August 2016 client A notices some new cracking that is quite extreme. Examination of the earlier cracks at this point also shows that they have worsened. Client A involves another surveyor who provides a report in December 2016 advising that there are in fact inadequate foundations that are the cause of the cracking and are a concern. He advises that the concerns should have been apparent at the time of the original survey if it had been properly completed. The cost of rectifying matters will run to several thousand pounds. Is client A still in time to bring a claim against the original surveyor? The position is as follows:
a) More than 6 years have elapsed from the date of the first report so a claim in contract is out of time.
b) The damage occurred at the point the negligent survey was given, so the standard 6 year limitation period for a claim in tort (negligence) has also expired.
c) Client A will need to rely on a “date of knowledge” argument to bring a claim and argue that he did not have the knowledge required for bringing an action at the point he received the original survey. The surveyor had told him all was well and there was nothing to worry about. There was nothing to put him on notice that this was wrong until August 2016 when the further cracks appeared and he noticed deterioration of the original cracks. In this case, it is likely that time would run from August 2016 and client A will have three years from that date to bring the claim. If the discovery had not been made until August 2021 then client A would only have two years and one month (until September 2023) to bring the claim to ensure that it was brought within the 15-year longstop.
d) It is also useful to consider the position if the original surveyor had simply assumed it was settlement without checking the foundations, but specifically stated he had done so in his report.
This scenario would open the way for an argument under section 32(1) of the Act to defer the start date for claim in contract and tort to August 2016. The client would then have 6 years from that date to bring a claim in contract, tort or both.
In conclusion, it is important to stress that while the above discussion sets out the basic rules, each case turns on its own facts. Decisions regarding limitation, and particularly the relevant “date of knowledge”, can be very complex. It is always important to take advice and your insurer and their legal advisors will assist with this issue.