Construction litigation is complex. Not only are lawyers heavily reliant on expert reports, but there are legal defences that will be raised, which must be overcome before those reports even become relevant. Firstly, it might be argued that the claim is statute barred. Proceedings are often issued after 6 years of the building works having been completed, or the certificate of compliance from the architect having been signed. Therefore, the issue of latent defects arises. Secondly, the defence might be raised that there is no liability for economic loss in the law of negligence. If that defence is successful, and the plaintiff has no contract with that defendant, the case will not succeed. Thirdly, some defendants might be insured and other defendants might not. The insured defendants might argue that they are not concurrent wrongdoers with the other defendants, and seek to prove they are only liable for a portion of the damage that ensued. Lastly, even where a plaintiff succeeds in getting a judgement against the defendant, in the current environment defendant may not be a mark for damages. The question arises whether the plaintiff can pursue that defendant’s insurance policy.
The Statute of Limitations
In a claim under tort or contract law, outside of personal injury or product liability, the time limit is generally 6 years from the date the cause of action accrued and there is no extension for date of knowledge. In the (English) Latent Damage Act 1986 the limitation period was amended by providing for a 3 year limit running from the date of knowledge in the case of latent damage, but no such amendment has been made here.
In Irish Equine Foundation Ltd. v. Robinson  2 IR 442 the plaintiff’s claim for negligence and breach of contract, against an architect and engineer for a defective roof, was struck out as being outside the limitation period. The court held that time ran from when the roof was constructed, on the basis that, if the plaintiff had used an expert to inspect it on completion, the defects would have been discovered, even though water only leaked through 4 years after completion.
In Pirelli General Cable Works v. Faber  2 AC 1 the plaintiff sued for negligent design of a factory chimney, which was built in 1969. Cracks developed in 1970, which cracks could not have been discovered with reasonable diligence until 1972 and were not in fact discovered until 1977. The court held that time ran from 1970, when the damage came into existence, and not the date when damage could with reasonable diligence have been discovered or when the damage was discovered.
In Hegarty v. Flanagan Brothers Ballymore Ltd. (Unreported High Court (Birmingham J) 31/5/13) the court applied Murphy v. McInerney Construction Ltd. (Unreported High Court (Dunne J) 22/10/08) to find that the time limit in negligence ran from the date when the damage manifested itself and not on the date when the damage was discovered. In that case, the claim against the engineer was held to be statute barred when the engineer had given a certificate of compliance of planning permission in respect of the foundations in 2000 and was not joined to proceedings until 2012. The plaintiff argued that she was unaware that the engineer had issued a certificate until it was furnished through discovery by another defendant in 2012. It is not clear from the judgement how the court concluded that the damage had manifested itself more than six years before 2012, other than that the plaintiff had said that in January 2002 she noticed cracks on the walls of the property and assumed they were settlement cracks.
If the claim has become statute barred, the plaintiff may be entitled to rely on Section 71 of the Statute of Limitations Act arguing fraudulent concealment – that the right of action was concealed by the fraud of any person. There have been few cases where this has succeeded. In Gough v. Neary  IR 92 Hardiman J in the Supreme Court decided obiter that the plaintiff could rely on fraudulent concealment. The defendant doctor had performed an unnecessary hysterectomy on the plaintiff, following delivery of a child by Caesarean section. It was not until media reports in 1998 that the plaintiff became aware that the hysterectomy may have been unnecessary. The fraudulent concealment consisted of, inter alia, the defendant advising the plaintiff, the day after the operation, that he had saved her life, that she had been bleeding excessively during the delivery and that he had used all the top drugs, all of which statements were false. In Komady Ltd. v. Ulster Bank Ltd. (Unreported High Court 26/6/14) the plaintiff entered a swap arrangement in 2006 and incurred significant losses arising therefrom. The plaintiff argued that the defendant missold the product and did not advise it properly of the risks attaching to the product. The plaintiff also argued that these actions of the defendant amounted to fraudulent concealment and the time could be extended beyond 6 years. The court court held it did not amount to fraudulent concealment – the plaintiff had all the information it needed in 2006 to ground a claim, regardless of how they might have reacted to any new information the defendant might or should have given them.
In Brandley v. Deane  IECA 54 the plaintiff argued that a house was built with inadequate foundations resulting in cracking. The first defendant was the engineer. The second defendant was the builder. The foundations were completed in March 2004. Certificates of compliance with planning permission and building regulations were done in September 2004. In December 2005 the cracks began to appear. Proceedings were commenced in November 2010. The High Court refused to deal with the Statute of Limitations argument on affidavit only. There was then an oral hearing on the Statute of Limitation issue. The High Court found the claim was statute barred. The Court of Appeal allowed the appeal and held time began to run from when the cracks appeared and not earlier as before then, while there might have been negligence or breach of contract, there was no damage and the cause of action had not accrued.
In European Property Fund Plc v. Ulster Bank Ireland Ltd  IEHC 425 the plaintiff entered into a swap and claimed breach of contract and tort on the basis inter alia it was not a suitable product. The court struck out this aspect of the claim because inter alia the claim was statute barred. The cause of action accrued when the transaction was entered. There was not act of fraudulent concealment in the 6 years prior to issuing the claim.
In Cantrell v. AIB  IEHC 254 the plaintiffs invested in property investment schemes. The claims were mainly that the defendants did not follow through with what was promised in the prospectus. The High Court determined by way of preliminary issue that the claims in breach of contract were statute barred because the cause of action accrued when the investments were entered whereas most of the claims in tort survived because the cause of action accrued when the actual loss was suffered.
It may be that if a builder lead a client to believe that the job was competent knowing it was not, this could amount to fraudulent concealment.
in 2011 the Law Reform Commission report of the limitations of action recommended a 2 year limitation period for common law actions, with the date of knowledge principle applicable in all cases, which would include constructive knowledge.
In summary, it is arguable that time runs from when the damage occurred or when an expert could have concluded that the building was defective, whichever is earlier.
Liability in tort for economic loss
The principal obstacle here is the difficulty in recovering economic loss as part of a negligence claim (other than a negligent misstatement claim). This legal issue is very relevant where it is sought to sue the architect when there is no contract between the architect and the plaintiff, as would normally be the case. The issue is also relevant where the principal contractor has gone into liquidation and there is no insurance policy worth pursuing under section 62 of the Civil Liability Act 1961. In those circumstances, an attempt might be made to sue the subcontractor in tort where the subcontractor is insured. The following points seem relevant:-
a. There is authority that a builder can be liable in tort for dangerous defects which might cause personal injury or damage to property. Colgan v. Connelly (Unreported High Court (McMahon J) 29/2/80).
b. There is authority that a builder can be sued in tort for non-dangerous defects insofar as they cause damage to other parts of the property. Murphy v. Brentwood 1991 1 AC 398.
c. As the vexed question of whether you can claim for non-dangerous defects in tort, i.e. defects in quality, the law is uncertain. Junior Books v. Veitchi Company Limited 1983 1 AC 520 found that you could claim for this, but it was overruled in a number of subsequent English cases. The Irish High Court applied Junior Books v. Veitchi Company Limited in Ward v. McMaster  IR 29 and the latter case has been much commented on but has not been overruled in later cases in this jurisdiction. In McGee v. Alcorn  IEHC 59 the second defendant was an architect technician and admitted the foundations and the ground conditions for a house were not suitable causing cracking, having certified otherwise. The court held the second defendant was liable for the non dangerous defects because the claim was effectively one of negligent misstatment even though those words were not used.
Whether an architect can be negligent to a house purchaser
In McGee v. Alcorn  IEHC 59 the second defendant was an architect technician and admitted the foundations and the ground conditions for a house were not suitable, causing cracking, having certified otherwise. The court held the second defendant owed a duty of care to the purchaser even though there was no contract between them. The court applied Ward v. McMaster and Glencar Explorations p.l.c. v. Mayo County Council to find there was sufficient proximity between the second defendant and the purchased. The court pointed that it was the first purchased of a new house, not a purchaser down the line and it was a certificate as to the foundations, a matter hard to check on visual inspection by a purchaser.
Whether the builder and the architect or engineer can be held to be concurrent wrongdoers
Under section 11 of the Civil Liability Act 1961, where two or more persons responsible to a third person for the same damage, they can help be held to be concurrent wrongdoers. The effect of this is that if a court splits liability for negligence say 80% against the builder and say 20% against the architect, the architect could be liable for 100% of the damages, although he could recover 80% from the builder. The problem is that if the builder is not a mark and has no insurance, the architect may never recover this money. This is often a real problem for the insurer, since the architect’s insurance often has run off cover (ie. the insurance policy will pay out in respect of the claim made in 2013 for negligence that occurred in say 2007, even if, at the date of the initiation of the claim or the date of adjudication, there was no valid and subsisting insurance policy in existence) and builders insurance often doesn’t.
The courts have adopted a wide interpretation of section 11 at times. In Lynch v. Beale (Unreported High Court J 23/11/74) the court found that the builder and the architect were concurrent wrongdoers, even though the allegation against the builder related to inadequate foundations, and the allegation against the architect related to inadequate design of the first floor, given that the damage caused to the third party was the same, namely the collapse of the building.
In determining apportionment, the Irish Courts often take into account blameworthiness. Even if two parties are equally negligent, a greater portion might be ordered against one party because of that parties behavior. In Furmedge v. Chester Lr Street DC 2011 EWHC 1226 the court held both a local authority and BIL (the creator and manager of an entertainment area) were negligent in causing the death of two person. However, 55% was ordered against BIL because it was aware of the dangers of the design.
Deciding whether the dispute is covered by an arbitration agreement
If an arbitration clause is contained in the contract, the party might refer a dispute to arbitration. Alternatively, if court proceedings have been initiated, the defendant might apply for a stay on the court proceedings for referral to arbitration.
The Arbitration Act 2010 gives full force to the UNCITRAL Model Law on International and Commercial Arbitration. Article 7 of the model law provides that the arbitral tribunal can decide whether there was a valid arbitration clause incorporated. The decision on jurisdiction by the arbitrator can be appealed to court. In Barnmore Demolition and Civil Engineering Ltd v. Allondale Logistics Ltd (Unreported High Court 11/10/10) the court found that the court still had jurisdiction to rule on whether the arbitration agreement was effective. The court determined that the defendant had failed to show, on a prima facie review standard, that the dispute was covered by arbitration because the arbitration clause appeared in a draft unexecuted contract and there was no course of dealings between the parties indicating acceptance of same.
It may be that there was an arbitration agreement between the purchaser and the builder but not between the purchaser and a subcontractor. An arbitrator can invite the party not bound to be a party, but there is no obligation on that party to join. It is felt that there is no scope under the Arbitration Act 2010 for a court to refuse to refer that part that is bound by arbitration, though the issue has yet to be decided fully. In Feanmer Development Ltd. v. L&M Keating Ltd. (Unreported High Court 6/4/14) the plaintiff sued a builder (the first defendant), an architect, a quantity surveyor, a windows and doors subcontractor and consulting engineer (the other defendant), in relation to defective works, in High Court proceedings. The first defendant succeeded in staying the proceedings as between plaintiff and first defendant, on the basis there was an arbitration clause in the RIAI contract between the plaintiff and first defendant. The court granted the stay, even though the plaintiff argued that this would mean that all matters would not be disposed of in one set of proceedings. The court was required to stay the matter unless the arbitration agreement was null and void, inoperative, or incapable of being performed.
Section 62 of the Civil Liability Act 1961
The effect of this is that monies payable under a policy of insurance are ring-fenced and do not form part of the assets of the bankrupt or of the company in liquidation. There are two important pre-requisites for the section to apply – monies must be payable to be the insured under the policy and there must be a valid claim against the insured.
In McCarron v. Modern Timber Homes Ltd. (Unreported High Court (Kearns P) 3rd December 2012) the court held that liability needs to be established and quantum needs to be assessed, as against the insured, before the insurer can be sued under this section. The court did say the claim against the insurer could be stayed, pending determination of liability against the insured. It might be a tactic worth adopting to sue the insurer at an earlier stage, making it less likely that the insurer would successfully dispute liability on the basis of late notification.
In Murphy v Allianz Plc  IEHC 692 the court refused an order under s.62. The insured had not been wound up but was rather struck off the register for failure to file returns. Further the insurer had validly repudiated because of failure to furnish key documentation.
In Kennedy v. Casey  IEHC 690 the court refused to allow the plaintiff in a professional negligence case to join the insurer before liability was determined. The insurer had repudiated the policy, the insured had accepted this. Liability had not yet been established against the insured.
Where the insured is in liquidation, it might be worthwhile funding the liquidator to pursue the insurance policy. Otherwise, the liquidator may have no incentive to notify the insurer or dispute any claim by the insurer that policy does not apply by arbitration.
Whether general damages can be awarded for defective buildings
The Irish courts have shown a willingness to award general damages for defective buildings. In Leahy v. Rawson 2004 IR 1 the plaintifff was awarded £30,000 for having to live for a number of years in a unfinished and non-landscaped house. In Mitchell v. Mulvey 2014 IEHC 37 the court awarded £10,000 per year to some plaintiffs and £20.000 to others, for the anxiety, distress, upset and inconvenience incurred in living in a defective house. In McGee v. Alcorn  IEHC 59 the court awarded €25,000 for a family who had to put up with repairs to a home for defects caused by negligence.
Third party not joined as soon as reasonably practicable
Very often a defendant applies to join a third party to proceedings eg. an architect seeks to join an engineer. S.27 of the Civil Liability Act 1961 requires this to be done “as soon as is reasonably possible”. The application is made by an existing defendant and the third party joined might seek to set aside the third party notice on the basis there was delay in applying for it. The courts have shown a great reluctance to strike out a notice on this ground on the basis that the service on proceedings an a professional involves careful consideration more than in the case of a non professional and generally requires an expert report- see Robins v Coleman  IEHC 486, O’Halloran v Fetherston  IEHC 349 and Buchanan v BHK Credit Union Limited  IEHC 439.
The content of this article is intended to provide a general guide to the subject matter and is not intended to be a substitute for legal advice. Specialist advice should be sought about your specific circumstances.
Stephen O’Sullivan BL