Relationship between limitation act and scheme for construction contracts

David Owens and Natasha Barlow look at the implications of Hirst & Another v Dunbar & Others [2022] EWHC 41 (TCC)

A recent construction case highlights the importance of ensuring that a formal contract is entered into setting out the responsibilities of each party and any payment details, as well as ensuring that if a claim arises it is bought promptly and in any case within the limitation period.

The case of Hirst v Dunbar in the Technology and Construction Court considered the interplay between the Limitation Act 1980 and the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended) (the “Scheme”). The court considered whether:

• there was a contract between the parties; and
• the claim was time barred.

The Facts of the Case

The claimant, Mr Hirst, carried out construction works between October 2011 and December 2012 at a residential development in Bradford. Mr Hirst claimed that he carried out the works pursuant to an oral contract between himself and Mr Dunbar, the defendant. Mr Dunbar denied this, stating that Mr Hirst had carried out the works at his own risk in order to improve the value of the site for his own benefit as he later intended to purchase the development.

The works finished on 4 December 2012 and 16 months later in March 2014 the claimant made a demand for payment. Upon receiving no such payment, the claimant issued a claim form in August 2019.

Contract

In this case, the court concluded that there was no contract between the parties and that the claim therefore failed. The judge noted that neither Mr Hirst nor Mr Dunbar were reliable witnesses and that the events had taken place over 10 years before. The court based its decision on the following factors:

• the claimant could only provide vague details of the supposed contract – no related documents were provided and it was not apparent that any express terms were agreed;
• when the parties had worked together previously, they had entered into formal written contracts;
• the claimant did not chase for payment until 16 months after the works were completed, which would have been expected if there had been a contract in place; and
• the evidence of third parties supported the conclusion that Mr Hirst undertook the works for his own benefit.

Time limitation

The question of whether the claim was time barred was academic at this point as the judge has already ruled that there was no contract in place. The Limitation Act provides that the limitation period for a simple contract (rather than a deed) is 6 years from when the cause of action accrues.

Practical completion had been achieved by Mr Hirst on 4 December 2012 and the claim form was lodged on 2 August 2019. The claimant argued that the time limit should run from the time a payment notice was (or should have been) issued by the Defendant and that the claim was therefore within the limitation period. Where there are no clear payment provisions in a construction contract, the Scheme implies provisions into the contract. Mr Hirst claimed that the Scheme implied a provision that Mr Dunbar should have issued a payment notice within five days of Mr Hirst’s demand for payment and that the limitation period did not start until this date, which would be in March 2014.

The court disagreed with the claimant’s interpretation, citing the cases of Coburn v Colledge [1897] 1 QB 702 and Ice Architects Ltd v Empowering People Inspiring Communities [2018] EWHC 281 (QB), both of which held that the claimant’s cause of action accrued on the date the work was completed rather than the due date of payment.

The judge stated that “there is a difference between a provision which gives rise to an entitlement or right to payment and one which identifies when payment is due. The difference might be thought a narrow one but it is real”. It was held that the provisions of the Scheme relate to the processes of billing and payment rather than the entitlement to payment.

Therefore in this case the limitation period was 6 years in accordance with the Limitation Act, beginning on 4 December 2012, and therefore the claim was time-barred in any event.

This decision provides a helpful reminder that undertaking works does not automatically create an entitlement to payment and that terms should be carefully considered and agreed before starting any such work.

David Owens is a Partner and Natasha Barlow a Trainee Solicitor at Sharpe Pritchard LLP