Document retention (or record keeping) is a key part of any business, particularly for those operating in the construction industry where claims can be common. Having those relevant documents to hand is vital if a claim needs to be made or defended.
In our experience, businesses operating in the construction industry tend to retain documents in line with the contractual limitation period for each project, which is understandable given that the vast majority of construction projects are procured based on written contracts which expressly provide for a set limitation period.
However, it is worth being aware that the contractual limitation period can be only half the story. The limitation period in respect of tort (i.e. negligence) claims is different – and potentially quite a bit longer and as such, it is important that documentation retention policies take this into account.
Claims in tort
We have recently seen an increase in the number of claims being pursued in tort, rather than contract. This is often more common in the context of historic construction projects where latent defects have come to light after the contractual limitation period has expired.
The problem we often find is that relevant documents have been destroyed or deleted shortly after the contractual limitation period has expired, despite the fact that it is still possible for a claim to be pursued for a longer period in tort. Businesses are therefore jeopardising their ability to effectively defend (or pursue) claims due a lack of supporting documentation or evidence being available.
Put simply, if you have no paperwork to prove your position in a claim brought against you, you are putting your ability to mount an effective defence in jeopardy.
Limitation periods – what do we mean?
When we talk about ‘limitation periods’, we mean the time in which a claiming party must bring a claim before it is out of time. Limitation periods vary depending on the basis of the claim i.e. whether it is a claim in contract or tort.
We provide a summary of the position below.
The general position is that limitation runs from the date on which the cause of action accrues, typically the date of practical completion of the works.
A simple contract allows a claim to be brought up to six years after practical completion of the works. A contract executed as a deed (common in construction contracts) allows a claim to be brought up to 12 years after practical completion of the works.
It is worth noting that the parties to a contract can agree to alter the limitation period i.e. so that it is different to the general six or 12 year position.
The time limit for a claim in the tort of negligence is six years from the date on which the cause of action accrues. Whereas in contract the cause of action accrues at the date of breach, in tort the cause of action does not accrue until the claiming party suffers damage, which might be at a much later date.
The “damage” necessary for an action in negligence is normally actual physical injury to a person or damage to property, so there is normally no difficulty in determining when “damage” was suffered.
There is a potential extension to the six year limitation period, if at the time the cause of action accrued, the claiming party didn’t know certain key facts about their claim. When the claiming party has (or should reasonably have acquired) knowledge of the relevant facts, then the 'starting date' occurs and it is from this date that the alternative three year period runs.
However, a claim in negligence is subject to an overall long-stop date of 15 years. This long-stop runs from the date on which the negligent acts or omissions which caused or contributed to the damage took place.
So, the 15 year long-stop date runs from the date of the negligent acts, rather than from the date on which the claiming party suffered damage. It is important to note that in the context of a construction project, this does not mean 15 years from the date of practical completion, it means 15 years from the date of the negligent act. This is a key difference between the contractual limitation period and the tort limitation period.
Retaining documents – defending claims
We have dealt with a number of claims recently pursued in tort – some approaching a decade and a half after our client was involved which brings a number of challenges.
The main challenges relate to fact-finding and evidence collating. So long after the fact, memories have often faded and key members of staff may have moved on. What’s key therefore is the ability to retrieve the documentation relating to the matter. That will tend to be the ‘make or break’ as to whether the claim can be effectively defended.
The problem we’ve come across on a number of occasions is that many businesses are operating on the basis that any potential liability ends when the contractual liability ends (i.e. a backstop of 12 years from practical completion).
This is where the challenge can arise. Just because the contractual limitation has expired doesn’t mean there is no further liability - there is still the potential for a claim to be brought in tort.
This is why it is important that relevant documentation is retained well beyond the 12 year contractual limitation period for a minimum of 15 years. That way, if a claim is pursued in tort, it’s possible to fully consider the merits and in turn, decide on how best to defend the claim. It goes without saying that, if there are no documents available, it can be a tricky predicament as to how best to deal with the claim.
Latent defect claims
These claims can arise in the context of any construction works, however, an ongoing focus area is cladding / fire protection. Opening up works are being carried out across hundreds of sites across the UK and while the primary focus / objective is (and rightly so) to ensure that the cladding / fire protection measures are safe, the secondary focus is often to explore whether there are any latent defects that could be the subject of a claim. Getting document retention right is important for all construction companies but those involved in cladding / fire protection projects will want to be doubly sure that they are doing all they sensibly can on this front.
How should your document retention policy work?
It is sensible to retain relevant documents relating to projects for a period of at least 15 years following practical completion.
Gone are the days when documents needed to be stored in endless boxes and sent to costly storage facilities. These days, the vast majority of (if not all) documents can be stored electronically, at minimal cost on a:
- domestic computer system;
- cloud based platform; or
- combination of both.
Ideally, if documents are stored on your own domestic computer systems, there should be a separate back up elsewhere so that if there is a systems failure and documents are destroyed, there is a copy.
It is best practice to ensure that all staff working on projects adhere to a document retention policy and consistently save documents (of whatever type: emails, letters, memos, drawings etc). However, as a minimum, the documents retained in relation to each project should include:
- The building contract;
- Any key correspondence (i.e. around the materials used, specifications etc.);
- Meeting minutes;
- Cost reports;
- Survey, inspection and testing documentation;
- Material delivery and use;
- Insurance certificates and policy documents;
- All finalised drawings, plans and specifications;
- Invoices/ Time sheets; and
- All building contract, planning and practical completion sign-off documents.
Not every project is the same and the extent of document retention that is required will very much depend on the type of project. A balance must be maintained between keeping adequate records in preparation for a dispute arising, and attempting to record everything. Developing a document retention policy and ensuring staff are fully on-boarded and adhere to the same is at least half the battle.
GDPR and document retention policies
The UK General Data Protection Regulation (UK GDPR) governs the processing of the personal data of people in the UK. Among the UK GDPR data processing principles is the principle of “data minimisation”, which means (among other things) that personal data should be kept only for so long as is necessary for the purpose for which it was collected. Keeping personal data for longer than this needs to be justified.
Given that construction companies can be exposed to claims for up to 15 years, the retention of documents for potential litigation is a justifiable reason to hold onto the relevant documents for the entire 15 year period.
However, there are important steps that companies must take to minimise the risk of UK GDPR breaches. Because the UK GDPR’s “accountability” principle means companies must not just comply with the UK GDPR, but must also be able to demonstrate how they comply, all construction companies should maintain and enforce a date retention schedule. This means a written record must be kept that lists each relevant category of document retained (i.e. building contract), the time period that it will be retained for (for example 15 years) and an explanation on the reasons why (for example for any potential litigation proceedings).
How can you limit the risk of a GDPR breach?
In addition to keeping a written record, there are a number of other crucial ways to limit the risk of UK GDPR breaches, such as:
- Where possible, remove any personal data (i.e. phone numbers, email addresses etc.) from the relevant documents;
- Store all documents in a secure and safe place;
- Ensure controlled access is implemented with access only given to those authorised for the justified reason (such as if required for litigation); and
- Ensure there is an effective process for destroying or deleting the documents once the applicable retention period has expired.
Complying with the UK GDPR is vital; we advise our clients to hold the above listed documents in secure storage for the entire 15 year limitation period which will protect their position for a potential future defects claim. Once the limitation or other stated retention period has expired the documents should be destroyed if they include personal data.
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