Reform of the Law of Latent Damage
| DOI | http://doi.org/10.1111/j.1468-2230.1991.tb00891.x |
| Date | 01 May 1991 |
| Published date | 01 May 1991 |
Reform of the Law
of
Latent Damage
Nicholas
J.
Mullany
*
The harsh and potentially far-reaching ramifications of the landmark limitation
decision
in
Pirelli General Cable Works Ltd
v
Oscar Faber and Partners‘
for
persons who sustain latent damage have been reviewed by the present writer
in
an
earlier article
in
this journal.2 The concerns raised by that case have provided the
catalyst for the formulation, both in the United Kingdom and
in
other jurisdictions,
of
legislative and proposed reforms designed to remedy these difficulties. Regrettably,
however, the solutions advanced do not adequately resolve the problems raised by
the issue of latent damage and,
it
is suggested, do not always promote the objectives
of limitation statutes. This article analyses the attempts
in
the various Commonwealth
jurisdictions to deal
with
this area of the law and suggests ways to alleviate the
perceived inadequacies.
England and Wales
The House of Lords’ calls
in
Pirelli
for parliamentary intervention were answered
in
the form of the Latent Damage Act 1986
(UK)
which adopts the main recom-
mendations contained
in
the 1984 report
of
the English Law Reform C~mmittee.~
Its provisions are designed to apply
to
all forms of latent damage and are not, as
had been suggested from some quarters during the reform debates, confined to
building and construction actions, which have given rise to the more difficult cases
on the issue.4 Whilst the legislature’s attempt to balance the interests of plaintiffs
and defendants is certainly
to
be welcomed, the Act is not a cure-all for every problem
raised by the issue of limitation of actions and latent damage. It operates for the
most part by inserting new provisions into the Limitation Act 1980
(UK).
Section
14A(4)(a)
in
effect confirms the
Pirelli
decision
in
that the basic rule remains that
the limitation period runs for six years from
the
date on which an action accrued;
that is when damage occurs.5
It
was seen
as
advantageous by the English Law
*Consultant to the Law Reform Commission of Western Australia.
The views expressed are personal and do not reflect those of the Law Reform Commission of Western
Australia. Discussions with Dr Peter Handford and his comments on earlier drafts of this article have been
most helpful and are gratefully acknowledged.
I
[I9831 2 AC
1
(HL) (hereafter referred to as
Pirelli).
2
See
Mullany
N
J,
‘Limitation
of
Actions and Latent Damage
-
An
Australian Perspective’ (1991)
54 MLR 216.
3
English Law Reform Committee
-
Twenry-Fourrh Report:
hrenr
Damage,
Cmnd 9390 (1984). For
a detailed examination of the Act see Merkin
R.
Richards Butler
on
Lurenr
Damage
(London: Lloyds
of London Press, 1987) and Capper
P,
7he hretir Damage
Acr
1986:
The Impacr
on
rhe Professions
crnd
rhe
Consrrt~criotr 1trdustt-y
(London: Legal Studies
&
Services, 1987).
4 The English Law Reform Committee were of the view that there was ‘no reason
in
principle why
a plaintiff who has, for instance, suffered damage as a result of a negligently drawn lease should
be
in
any worse a position than a plaintiff whose house has defective foundations’; see Cmnd 9390
(1984), para 4.22. Note, however, the discussion of the inadvertent exclusion of contractual and statutory
claims from the scope of the legislation below at pp 359-360.
5
s
2(2) provides that
s
14A does not apply
in
cases of deliberate concealment by the defendant
in
which
case reliance can still be made
on
s
32(l)(b) of the Limitation Act 1980
(UK)
which postpones the
running of time
until
the plaintiff discovers the concealment or could with reasonable diligence have
nie
Modern
hv
Review
54:3 May 1991 0026-7961
349
The
Modern
Law
Review
LVol.
54
Reform Committee to preserve the accrual rule
in
Pirelli
because
it
was established
law and operates effectively where damage is discoverable
within
a short period
of the act responsible for its occurrence.6 This reasoning is unconvincing. Bad law
can never be said to be
so
well entrenched
so
as to be incapable of change’ and
it
certainly cannot be assumed that damage
will
usually manifest itself shortly after
a breach of duty. As a result
of
the retention of the
Pirelli
principle the courts remain
faced
with
the question of determining exactly when actionable damage has occurred.
The inherent uncertainty of pinpointing the exact moment
in
time when a latent
defect crystallises into physical damage
will
often result in cases being decided simply
on the burden of proof.* This difficult task would have been made considerably
easier, at least
in
the context of construction disputes, by the inclusion of a list of
guidelines which the courts could refer to when asked to adjudicate on this question.
A statement as to the authoritativeness of the ‘relevant and significant’ test enunciated
by Judge Stabb
QC
in
London
Borough
of
Bromley
v
Rush
and
Tompkins
Ltdg
and
some clarification of the significance of the necessity to carry out repairs and the
effect of damage upon the intended use of property could and should have been
incorporated into the amending provisions. Although
it
would be practically
impossible to codify what
will
amount to actionable damage in every conceivable
type of building claim, any assistance, even
if
of
a limited nature, that can be given
to the courts is desirable.I0
The latent damage problem is met by the introduction of a secondary three year
period running from the date
of
discovery or reasonable discoverability of significant
damage (section 14A(4)(b)). Section 14A(5) provides that
time
will
not run
until
the plaintiff is aware of the constituent elements of knowledge contained
in
section
14A(6)-(8). Section 14A(6) provides that the requisite knowledge consists:
(a)
of
the material facts about the damage in respect
of
which damages are claimed; and
(b)
of
the
other facts relevant
to
the current action.
The facts about damage which
will
be regarded as material are set out
in
section
14A(7). These are stated to be:
such facts about the damage as would lead a reasonable person
who
had suffered such damage
to
consider it sufficiently serious
to
justify his instituting proceedings for damages against
a defendant who did not dispute liability and
was
able
to
satisfy a judgment.
The ‘other facts’ referred to
in
section 14A(6)(b) are set out in section 14A(8). These
are:
discovered it. Provision is
also
made
in
s
2(1)
for persons under a disability. This section inserts
s
28A
into
the Limitation Act
1980
(UK),
the effect of which
is
that a plaintiff
is
given three years from
the date at which his disability ends
to
commence proceedings, if that date
is
later than the date at
which he ought to have acquired the requisite knowledge under
s
14A(6)-(8).
However, any extension
is, by virtue of
s
28A(2),
subject to the
15
year long-stop laid down in
s
14B.
See below for a discussion
of
both the knowledge provisions and the long-stop provision.
6
Cmnd
9390 (1984),
paras
3.6, 3.7, 4.4.
7
See the comments
of
Toohey
J
in
Trident General Insurance
Co
Ltd
v
McNiece Eros
Pty
Ltd
(1988)
165
CLR
107, 168.
8 As
it
did eg in
London Cortgregarional
Union
Incorporated
v
Harriss
&
Harriss
[
19881
I
All
ER
IS
(CAI.
Sce Mullany,
op cir
(n
2), 224.
The uncertainty argument was discussed extensively in
the
House of Lords debates on the Latent Damage Bill
1986;
see HL Deb
vol471,
cols
74-89;
HL Deb
vol
472,
cols
797-816;
HL Dcb
vol
473,
cols
82-91, 97-128;
HL Deb vol
474,
cols
8-35.
10
The Scottish Law Commission does
not
sharc this view; see
No
122;
Report
on
Prescripliorr
and
9
(1985)
4
Con LR
44,
51
(hereafter referred
to
as
Brornley).
Limitation
of
Actions
(L.utent
Damage
and
Other Related
Issues)
(1989)
pp
10-1
I.
350
May
19911
Rejiwrii
of
the
LLIW
r$Lateiit
Darnage
(a) that
the
darnage was attributable
in
whole
or
in
part
to the act
or
omission
which is alleged
to constitute negligence; and
(b) the identity of the defendant; and
(c) if it is alleged that the act
of
oniission was that of
a
person other than the defcndant,
the identity of that person and the additional facts supporting the bringing
of
an action
against the defendant.
Certainly, the concept of knowledge could have been more succinctly phrased.
As
it
stands, the four constituent elements
in
section 14A mirror those found
in
section 14 of the Limitation Act
1980
(UK)
which deals
with
personal injury claims.
Their complexity has been the subject of strong criticismll and may lead to
considerable difficulties. Of particular concern is the importance placed upon a
notional defendant who admits liability and can satisfy a judgment
in
assessing the
seriousness of damage suffered. This reference was inserted
in
an attempt to ensure
that plaintiffs are not penalised for failing to take action as soon as the first trivial
evidence of damage is known to them.I2 However,
it
is arguable that against such
a defendant almost
any
damage of which the plaintiff was aware would be sufficient
to start time running.13 Indeed,
it
seems that only
if
the costs of proceeding which
cannot be recovered are likely to exceed the damages recoverable that an action
would be unjustified.I4 Moreover, liability, particularly
in
building claims,
will
often be disputed and the capacity of those
in
the construction industry to meet a
judgment debt uncertain. The degree of damage which would induce a reasonable
plaintiff to initiate proceedings in these circumstances is likely to be significantly
greater than the damage that would justify a plaintiff suing a solvent defendant who
admits liability.
l5
The insertion of this concept perpetuates unnecessary complexity
and the uncertainty of its effect casts doubt upon its usefulness at all.16
As ‘damage’ may be observable to an expert but invisible to a layman, a person’s
knowledge
is
to include that which he might reasonably have been expected to acquire
from facts observable or ascertainable personally or
with
the assistance
of
appropriate
expert advice, although he
will
not be fixed with constructive notice of facts which
an expert fails to detect (section 14A(
10)).
Three issues arise concerning the operation
I I
See Davies
P
J,
‘Limitations of the Law of Limitation’
(1982) 98
LQR
249.
12
See Cmnd
9390 (1984),
paras
4.7, 4.8.
13
See Davies,
op
cit
(n
1
I),
257-258
and Jones
M
A,
‘Latent Damage
-
Squaring the Circle’
(1985)
48
MLR
564, 569.
14
This will be rare bccause costs normally follow the event; see Davies,
op
cir
(n
1
I),
257-258.
McGee
A,
‘Limitation and Professional Negligence’
(1988) 104
LQR
376, 379
suggests that in the context
of
professional advice
s
14A(7)
may delay the startinB point for the purposes of the Act
until it
is clear
that
substantial
loss
will accrue because no reasonable person would view the institution of proceedings
as
justified
in
the contingent climate of the date of the accrual of the action. See
also
Mullany,
op
cit
(n
2), 241-242. It
is presently unclear whether this broad interpretation can be given to the subsection.
15
See Jones,
op
cit
(11
13), 569.
16
One amendment tabled
in
the House of Lords’ debates on the Latent Damage Bill would have removed
this antiquated phraseology and replaced
s
14A(6)-(8)
with a single provision.
It
was suggested
that
time should commence to run from the date
that
the plaintiff was aware
of
such facts about the damage that was attributable
in
whole or in part to the act or omission
in
respcct
of
which damages are claimed, as would lead
a
reasonable person who had suffered such
damage to consider
it
sufficiently serious to justify his instituting proceedings
in
which such
damages are claimed.
This proposal was rejected on the basis that
it
would have produced what was thought to be an
inappropriate dichotomy between the provisions
to
govern latent property damage and the provisions
in
existence for latent personal injury. Concern was
also
voiced that injustice may be caused
as
a
result
of
the removal
of
the requirement
that
the plaintiff be aware
of
the tortfeasor or the person
vicariously responsible for the tortfeasor; see Merkin,
op
cir
(n
3), 89.
35
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