Academics and judges have spent many hours discussing and identifying the difference between a latent defect and a patent defect in a construction project. But does the distinction matter?
This post considers a defect that appears just after the contractual defects liability period has expired and argues that the distinction does matter, but perhaps not as much as you might think.
What is a patent defect?
Broadly, a defect is anything that renders the works (or a thing) unfit for the use it was intended for, when used in a reasonable way and with reasonable care. In the context of a construction contract, work may be defective if it is not carried out in accordance with the contract.
According to Sanderson v National Coal Board:
“A patent defect is not latent when there is no-one to observe it. The natural meaning of the word ‘patent’ is objective, not subjective. It means ‘observable’ and not ‘observed’.”
Baxall Securities Ltd v Sheard Walshaw Partnership takes this test to the next stage for a construction project. A defect is patent if it is reasonably discoverable with the benefit of skilled third party advice, such as from an architect or engineer.
What is a latent defect?
In Baxall v Sheard, a latent defect was defined as meaning:
“… a concealed flaw… a defect that would not be discovered following the nature of inspection that the defendant might reasonably anticipate the article would be subjected to.”
This follows the objective approach taken in Sanderson v NCB.
The defects liability or rectification period
A defects liability period or rectification period (also known as a defects notification period) is a period following practical completion or taking-over during which the contractor retains liability under the building contract for dealing with any defects which manifest themselves. The period often lasts 12 months. For example, in the:
- JCT Standard Building Contract, 2011 edition (SBC11), clause 2.38 addresses the parties’ obligations during the rectification period.
- FIDIC Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer, 1999 edition (FIDIC Red Book 1999), clause 11 deals with defects liability.
The terms of these contracts are very different, which reflects the different drafting approaches and their use on different projects. However, both require the employer, often through its architect or engineer, to notify the contractor of defects in the works.
Onus on the employer?
If the onus is on the employer to notify the contractor of defects, is the contractor “off the hook” if the employer fails to do so?
In short, no. Commentators on both the FIDIC contract (paragraph 11-038, Glover and Hughes, Understanding the FIDIC Red Book, (Sweet & Maxwell, second edition, 2011)) and JCT (paragraph 20-150, Ramsey and Furst, Keating on Construction Contracts, (Sweet & Maxwell, ninth edition, 2012)) agree that the contracts do not set up a contractual scheme where the employer’s only remedy is to use the defects liability clauses.
The defects liability regime is not an exclusive remedy for defects because defects are also breaches of contract. The employer can still recover damages for patent and latent defects after the contractual defects liability regime ends. As we suggested at the start, the distinction between a patent and latent defect may not always matter as much as you might think.
Damages recoverable may be affected
However, it is not all good news for the employer.
If the employer fails to notify the contractor of a defect, or refuses to allow the contractor back on site to remedy a notified defect, the employer may only be able to recover some of its losses stemming from that defect. As decided in Pearce and High Ltd v Baxter and Baxter, the employer may not be able to claim more than it would have cost the original contractor to remedy the defects in question.
Latent defects again
If an employer has actual knowledge of a defect or if a defect is patent during the defects liability period, the defects liability regime should apply.
However, if the employer identifies a defect just after the defects liability period ends, arguably the damages it may recover should not be affected by the decision in Pearce v Baxter. This means that, in practice, it may be in the contractor’s interests to argue that an architect or engineer should have spotted that defect during the defects liability period, so that it can try to gain a tactical advantage by offering to remedy the defect itself or pay the cost of curing the defect alone (without paying any further consequential or other losses).
All in all, this seems a broadly balanced position. It is usually in both parties interests for the contractor to remedy a patent defect quickly.
However, the distinction between patent and latent defects remains important when advising on the damages that may be recoverable after the contractual defects liability regime has come to an end.