Construction Matters

Adjudication – Has there been a breach of rules of natural justice?
11 April, 2017

It is a feature of adjudications that the limitations on the time available for the adjudicator to make a decision can mean that parties are often left with very short periods of time to respond to requests for information from the adjudicator or to review and respond to documents or submissions made by the other side.

In a recent Scottish case1 such a situation arose.  As is often the case a considerable volume of material was submitted to the adjudicator.  The referring party, a contractor who claimed that its contract with the employer (who was the responding party) was wrongfully terminated, claimed damages from the employer including staff costs for delays caused by the employer during construction.  The responding party counter-claimed for the cost of works to complete the building in order to rectify defective work by the contractor.

With less than one week to go before the adjudicator’s decision was due he was still trying to obtain further information from the parties to assess their claims.  He offered a meeting to discuss the rectification works issue and said he would visit the contractor’s office to assess its ledger on staff costs, subject to the employer agreeing and being present at that visit.  The employer resisted and cited concerns about the rules on natural justice.  The contractor was forced to produce four lever arch files of documents that arrived with the adjudicator three days before his decision was due.  Again, the employer complained of a breach of the rules of natural justice. The employer provided some limited further information on the queries the adjudicator had raised on its counter-claim but with 24 hours to go there remained outstanding issues that the employer did not respond to.  Instead it said any decision would not be fair due to a breach of the rules of natural justice.

The adjudicator decided that the employer had wrongfully terminated the building contract and awarded the contractor some of its staff costs.  The adjudicator rejected the employer’s counter-claim.  The employer refused to pay and defended the contractor’s court claim to enforce the adjudicator’s decision by claiming that the adjudicator had breached the rules of natural justice.

The Court rejected the employer’s claim of a breach of the rules of natural justice.  Part of the reasoning was that some matters will inevitably have to be left to be dealt with close to the deadline for the decision.  An accompanied visit to the contractor’s office was not of itself unfair or a demonstration of bias.  The employer was found to instead have been the unreasonable party in refusing a visit.  In relation to the queries on the counter-claim the Court’s view was that it would not have been a breach of natural justice for the adjudicator to refuse to allow the counter-claim on the ground that it was inadequately pleaded without affording an opportunity to provide further proof.  In short, the employer was lucky to have even been asked to provide further information.

The outcome shows how difficult it is to make out a claim of a breach of the rules of natural justice.  In any event anyone who claims a breach of the rules of natural justice should try to make sure they act reasonably themselves. 

1Bell Building Projects Ltd v Arnold Clark Automobiles Ltd [2017] CSOH 55


Set Off and Defences after Assignment
30 March, 2017

Welcome to the next in the occasional series of topics in construction law. Last time we looked at general issues arising from the assignment of construction documents.  Today we review the particular issue of sets off and defences. 

Following the assignment of a construction document such as a building contract, the party acquiring the rights is subject to the same rights of set off and other defences which were available against the original party.

That is, if a developer assigns a building contract to a buyer, any claim by the buyer against the contractor will be subject to any right of set off that the contractor may have had against the developer. This may include an unpaid or overdue interim valuation under the building contract and/or any defence the contractor may have had against the developer, i.e. a cap on certain liabilities under the building contract will apply to that buyer.

However after notice of this assignment, the person owing the money to the contractor cannot by payment or otherwise reduce the rights of the person taking the benefit of the building contractor which existed when the notice was given.

To illustrate, a developer completes an engineering project and assigns the benefit of the engineering contract, including the right to sue, to the buyer of the completed project. This assignment is permitted under the building contract and is notified to the contractor.

The engineering contract requires the contractor to pay liquidated damages (LDs) to the owner if the completed project did not meet the performance specification. Unfortunately, the completed project does not do so, however the contractor has worked with the buyer before and they have a difficult business relationship.  The contractor does not want to have to deal with the buyer so it pays the damages to the owner. 

BUT the contractor’s payment to the owner after the buyer’s notice does not diminish the buyer’s rights to payment of damages. So, if the buyer claims the damages from the contractor, the contractor cannot use its payment to the owner as a defence to that claim.

In practice, this type of situation is often resolved in three party proceedings before the Court. This also demonstrates why construction enquiries before contract should ask whether there is a dispute, an incomplete final account, an unpaid retention or other sum due from a developer to a building contractor or professional consultant to protect the buyer. 


Walking a fine line: Copyright Infringement
30 March, 2017

A recent case, Signature Realty Ltd v Fortis Developments Ltd and another [2016] EWHC 3583 (Ch), 17 February 2017 reminds us that planning permission drawings, published on the local authority’s website are still the property of the architect in terms of copyright.  We should not confuse the council’s stipulation that a building must be developed as per the drawings submitted as an implied permission for anyone to utilise the drawings freely. A copyright licence must still be obtained from the copyright owner.

 

 

The facts

Signature noticed an opportunity to develop a building into student accommodation for foreign investors to develop and sell on. The foreign investors formed a company (Wordsworth Realty Limited) and whilst in the process of obtaining planning permission exchanged contracts with Branchester, the original owner.  The planning permission was granted on the condition that the development was carried out in accordance with the drawings of Signature’s architect C&W.  The drawings were published together with details of the planning permission on Sheffield Council’s Planning Portal.

Wordsworth failed to complete on two occasions and the property was consequently sold to another developer Fortis Developments Ltd.

Fortis subsequently began to download the architectural drawings available on the Sheffield Planning Portal for estimation and marketing purposes. Signature had the copyright ownership assigned to it by C&W so that it could bring a claim for damages. Signature argued that the copyright infringement occurred at the point of use for marketing and estimation purposes and continued by use of the drawings for development and construction of the site.

The judgment

The decision of the judge was an unsurprising one; the use of the drawings was deemed a copyright infringement.

However, it is interesting to note that, in other situations an architect may fail to claim copyright infringement if they complete the drawings in accordance with their client’s instructions and are then paid their professional fee in full. If the client then goes on to gain successful planning permission and subsequently sells the site the implied licence between an architect and their client can be transferred to an incoming purchaser of the site (Blair v Osborne & Tomkins [1971] 2 QB 78).

In any event, no assumptions can be made. The case in question highlights that there is a fine line between utilising the planning permission attached to the land for the benefit of constructing a future development and copyright infringement through use of the plans on which that planning permission was granted. Therefore, any developer acquiring a site must ensure they obtain a collateral warranty which includes a copyright licence or that they appoint the architect (if they are still the copyright owner) to complete the design of its development.

 


The big question……employee, worker or self-employed?
2 March, 2017

It is common place in the construction industry for a company to engage an individual to provide services on its behalf to an end client, and to want that individual to appear to the client to be part of the company. However, at the same time the relationship between the individual and the company is often said to be a business one, with the company arguing the individuals are self-employed contractors rather than employees or workers of the company.

The recent Court of Appeal (CoA) decision of Pimlico Plumbers Ltd and another v Smith [2017] EWCA Civ 51, following on from the high-profile cases of Uber and Citysprint, considered the important question of whether individuals are classed as employees, workers or self-employed. By doing so, the CoA highlighted the difficulties facing the above popular business model.

Why does it matter?

An individual’s status determines their rights and obligations.

Some core legal protections only apply to employees, such as the right not to be unfairly dismissed and the right to receive statutory redundancy payments; while workers are not entitled to these rights, they are entitled to minimum wage, holiday and sick pay; and, a self-employed/independent contractor’s rights are very limited since they are viewed to be operating as a business in their own right.

It could be that classifying an individual as self-employed is not an issue whilst both parties are happy with the relationship (unless, HMRC were to look into it!), but if a disgruntled individual challenges their status and is found to be a worker or employee, the company is in a difficult position.

The Pimlico Plumber

Mr Smith was registered as a self-employed plumber (and benefitted from the associated tax breaks) and worked exclusively for Pimlico Plumbers from 2005 until 2011, when after a period of illness his contract was terminated. He brought a number of claims including unfair dismissal, wrongful dismissal, holiday pay and discrimination claims.

This was an interesting case with elements supporting employment or worker status, whilst others indicated that Mr Smith was self-employed.

Factors supporting employment/worker status

The relationship was subject to the terms of a written agreement along with the company’s contractual manual. The manual provided for a minimum of 40 hours per week over 5 days and included stipulations about wearing company uniform and using a company van with Pimlico Plumbers’ logo.

The drafting of the agreement also suggested Mr Smith was to provide ‘personal service’ and it contained onerous restrictive covenants. All such provisions would suggest employment or worker status.

Factors supporting self-employed status

In addition to the agreement stating Mr Smith was self-employed, that he was registered accordingly and invoicing Pimlico Plumbers, under the agreement the company was not obliged to provide Mr Smith work and he was not required to accept it; Mr Smith could arrange for an external plumber to perform the work in his place (subject to the prior approval of Pimlico Plumbers); and there was an informal practice of effectively swapping jobs/shifts with other Pimlico Plumbers.

The Decision

In the first instance, considering the written agreement between the parties and the reality of the working relationship, the Employment Tribunal found that Mr Smith was a worker of Pimlico Plumbers – rather than an employee, meaning a number of his claims were dismissed.

Pimlico Plumbers appealed to the Employment Appeal Tribunal and then to the CoA on the grounds Mr Smith was not a worker. In coming to its decision that it agreed with the Employment Tribunal, the CoA considered two main issues: (i) was there a requirement to perform work personally?; and (ii) was Pimlico Plumbers a client of Mr Smith?

The CoA concluded that the drafting of the contract and the fact that there was not a truly ‘unfettered right of substitution’, meant that Mr Smith had been required to perform the work personally.

If Pimlico Plumbers was in fact a client of Mr Smith it would support the argument that he was acting as a business in his own right, rather than as an employee or worker of Pimlico Plumbers. The CoA deemed that in light of all the facts (including the contractual requirement of a minimum number of hours, irrespective that Mr Smith had frequently worked fewer hours) Pimlico Plumbers was not a client of Mr Smith. Rather, Mr Smith was subordinate to, and an integral part of, Pimlico Plumbers.

Advice

Although fact specific, this case highlights that irrespective of what you label the relationship, the courts will look behind this and examine the reality of the situation.

In short, businesses need to think carefully about how they engage people if they want to avoid creating an employer/ employee or employer/worker relationship – particularly if the individuals are providing services to a company’s client.

For more information on similar employment topics please visit our employment blog  or for advice on this topic please contact Erica Dennett or Chris Hovenden


Brexit – Shaping Britain’s future
28 February, 2017
by: Cripps

Please take our two-minute Brexit survey to let us know how you think Brexit might impact your business.

To what extent do you believe you will be better or worse off once the UK has left the EU? What do you think the Government’s key priorities should be when negotiating new deals?

Now that the Prime Minister Theresa May has outlined Britain’s broad objectives for the forthcoming negotiations with the European Union and announced that Article 50 will be triggered before the end of March, we are keen to understand the current business sentiment and potential future plans, following these recent developments.

We would be grateful if you could take a few minutes to complete this survey, which we are conducting in association with Insider Media. The closing date is 24 March 2017.


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