Defects Liability Period And Limitation Period
By Kenny Chan Yew Hoong, Partner, Messrs. Yatiswara, Ng & Chan
The limitation period to bring an action in contract or tort is 6 years from the date a cause of action accrues. This is provided in Section 6 of the Limitation Act 1953. In respect of an action for damages for negligence, Section 6A of the Limitation Act 1953 extends this period by a further 3 years starting from the date on which the person had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such action, up to a maximum of 15 years from the date the cause of action accrues. In the field of building and construction, Section 6A of the Limitation Act 1953 is relevant to deal with negligence claims involving latent defects.
The term “cause of action”, while prominently used in Sections 6 and 6A of the Limitation Act 1953, is not defined in the said Act. This term, however, had been defined by various legal authorities. In the Federal Court case of Tenaga Nasional Bhd v Kamarstone Sdn Bhd [2014] 2 MLJ 749, various cases were referred to by the Federal Court in defining the term “cause of action”. The following cases and their definitions were referred to and accepted by the Federal Court:
“a factual situation the existence of which entitled one person to obtain from the court a remedy against another” (Letang v Cooper [1965] 1 QB 232)
“A ‘cause of action’ is the entire set of facts that gives rise to an enforceable claim; the phrase comprises every fact which, if traversed, the plaintiff must prove in order to obtain judgment” (Read v Brown (1988) 22 QBD 128)
In the context of building and construction contracts, the cause of action in respect of defects may hence accrue when the building contractor breached his contractual obligation, for example, in failing to construct the works to some specifications or to achieve certain standards (where the cause of action is founded in contract), or when the employer suffers damages arising from defects caused by the contractor (where the cause of action is founded in the tort of negligence). In short, the limitation period of the liability of a building contractor to its employer in respect of defects is prescribed under the limitation periods set out in Section 6 and/or 6A of the Limitation Act 1953.
However, it is common for building and construction contracts to provide a post-completion of works period known as a ‘Defects Liability Period’. Can a contractual provision for a ‘Defects Liability Period’ limit or circumscribe the limitation period prescribed under Section 6 and 6A of the Limitation Act 1953?
There are at least two reasons why a ‘Defects Liability Period’ provision in a contract cannot limit or circumscribe the limitation period prescribed under Section 6 and 6A of the Limitation Act 1953.
Firstly, whether a ‘Defects Liability Period’ provision in a contract limits or circumscribes the time within which an employer may bring an action against the building contractor depends on the express wording of the said provision. In many standard forms of building contracts, such as the PAM Contract 2018 and the PWD Form 203, the ‘Defects Liability Period’ provisions therein do not expressly limit or circumscribe the time within which an employer may bring an action against the building contractor. Instead, the ‘Defects Liability Period’ provisions in the said forms of building contract are relevant for, at least, two purposes, i.e.:
- To allow an opportunity or a “first right of refusal” for the building contractor to carry out rectification works within the ‘Defects Liability Period’ before the employer is entitled to engage a third party to carry out the rectification works; and
- For the calculation of time for the release of the 2nd moiety of the Retention Fund.
Secondly, even if a ‘Defects Liability Period’ provision expressly seeks to limit the time within which an employer may enforce his rights, such provision may be prohibited by Section 29 of the Contracts Act 1950. It reads as follows:
“Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.”
In the Supreme Court case of New Zealand Insurance Co Ltd v Ong Choon Lin (T/A Syarikat Federal Motor Trading) [1992] 1 MLJ 185, it was held that a term in the fire insurance policy in that case, which limited the time within which the insured may bring an action against the insurer, contravened Section 29 of the Contracts Act 1950 and it was thus declared to be void.
In the UK Court of Appeal case of Pearce & High Ltd v Baxter and another [1999] 66 ConLR 110, it was held that the defects liability clause in that case did not bar a claim for the recovery of damages in respect of defects which became apparent during the defect liability period. This case was cited with approval by our Malaysian Court of Appeal in the case of Chrishanthini Angela Regina a/p Sebastiampillai v View Esteem Sdn Bhd [2023] 1 MLJ 309.
In short, established legal authorities hold the proposition that contractual provisions cannot limit the time within which an employer may pursue a claim against a building contractor for defects. Hence, a building contractor will continue to be liable for any defects caused by it until the expiry of the limitation period prescribed under Sections 6 and/or 6A of the Limitation Act 1950 despite any contractual provisions to the contrary including a provision for a ‘Defects Liability Period’.