Construction Matters

Recent case highlights need for care in drafting sub-contracts in the construction industry
20 June, 2017

The recent case of GB Building Solutions Limited v SFS Fire Services Limited (t/a Central Fire Protection) (2017) EWHC 1289 is of great interest for those concerned with construction matters in that it demonstrates the importance of understanding how the JCT’s insurance provisions operate and identifies the key authorities on what constitutes practical completion as a matter of fact.

 

In this case, the Manchester District Registry of the Technology and Construction Court (TCC) decided as a preliminary issue that flooding on a construction site occurred after practical completion of the sprinkler system sub-contractor’s works.

 

Whilst this judgment focuses on a construction sub-contract, its comment on contract interpretation will be of wider interest.  This is because it clarified that contract interpretation involves looking at contractual wording and the commercial consequences of each suggested interpretation.

 

In this case, where the court found competing interpretations were plausible, it conducted an iterative process by which each suggested interpretation was checked against the provisions of the contract and its commercial consequences investigated.  In particular, the judgment:

 

  • Illustrates the risk of confusion where a sub-contract refers to practical completion of the sub-contract works and also to practical completion, which referred to the main contract.  However, the sub-contract still used the term “practical completion” in lower case in several provisions.  This was at the core of the argument about when the sub-contractor’s protection as a co-insured party ended; was it on practical completion of sub-contract or practical completion of the main contract?
  • It demonstrates the importance of understanding how the JCT insurance provisions operate.  The JCT insurance regime is not easy to follow, meaning that the scope and period of cover for each type of insurance is not always clear.
  • It shows the court’s approach to notices under the JCT contract, the court finding that references to specific contract clauses were unnecessary, so long as a practical completion notice conveys a clear statement that the sub-contractor believes that he has done all that is required of it to achieve practical completion on the date so notified and the only additional proviso was that the notice must clearly state the date on which the sub-contractor believes that the sub-contract works are practically complete.

 

Parties often amend standard form contracts by adding references to key events under the main contract and this judgment illustrates the importance of clarifying which aspects of the sub-contract are affected by those changes through the use of precise terminology.

 

The judgment is worth detailed consideration by all those involved with sub-contracts.


Can you claim Adjudication Costs via the CPR Part 36 procedure?
6 June, 2017

The legal costs incurred in Adjudication can be significant, especially if expert evidence is required and/or the dispute revolves around the contractor’s final account.  The basic rule is that the adjudicator has no power to make orders as to the payment of the parties’ costs (in contrast to his own fees and expenses) unless the parties agree that he may do so.  CPR Rule 36.13(1) refers to the claimant recovering “the costs of the proceedings”.  The question often posed is whether the cost of the court proceedings includes costs incurred by earlier or later adjudications.

A recent case1 looked at this point.  A sub-contractor claimed payment of unpaid invoices from a main contractor .  It had referred this matter to an adjudication that had been commenced in 2015 but as the adjudicator resigned on jurisdictional grounds the adjudicator had not been completed.  The sub-contractor made an offer to accept a lower sum in February 2016 and as that offer was not accepted it commenced a second adjudication, that it won.

The main contractor did not pay the money that the adjudicator awarded it must pay the sub-contractor.  The sub-contractor therefore commenced adjudication enforcement proceedings.  Prior to the court hearing for those adjudication enforcement proceedings the main contractor accepted the sub-contractors earlier offer.

Based on the sub-contractor’s offer stating it was a Part 36 offer the sub-contractor it claimed the costs it incurred in the two adjudications.  Whether the main contractor had to pay those costs due to the Part 36 procedure was decided by the Court.  The “costs of the proceedings” meant the cost of the court proceedings, threatened in February 2016 when the offer was made but not actually commenced until later. The costs of the adjudications were not costs of the proceedings.  “Costs of proceedings” includes “recoverable pre-action costs” but those will not normally include the costs of separate, stand-alone ADR proceedings such as adjudication.

1 Wes Futures Limited v Allen Wilson Construction Limited [2016] EWHC 2863 (TCC)

 


Professional duties in the garden
25 May, 2017

The Society of Garden Designer’s members often seek our advice on various topics relevant to design and project management roles. Commonly, there is no written contract or evidence in writing.  A recent Court of Appeal alerts us that, regardless of there being no agreed terms, or any payment being made, anyone offering these services may still owe a duty of care in their delivery and could be liable for negligence as a consequence of failing to meet such duty.

Mr & Mrs B (the Bs) sought to landscape their garden, obtaining a quote from a landscape gardener which they considered too expensive. Mrs L (a friend and architect registered overseas) offered and did provide design/project management services, including sourcing a contractor, with a future intention to charge for the “softer” design elements.  A contract was never concluded.  The work never reached the softer design works: the Bs became unhappy with the quality, progress and rising costs of the works and Mrs L’s involvement in the project ceased (as did the friendship, one suspects).

The Bs claimed for the increased costs and remedial works to complete the works.

One key question on appeal was what is the proper test for establishing whether a party owes a duty of care that could rise to liability for pure economic loss, which covered the above claim? The Court of Appeal concluded the test for the existence of a duty of care was whether there had been an assumption of responsibility by Mrs L.  She argued that the 3- stage test in tort which includes whether it is fair, just and reasonable to impose a duty was wrongly applied. 

The Appeal court rejected this and held that the relationship was akin to a contract. The concept of assumption of responsibility may effectively conflate the 3-stage test and the TCC could consider whether it was appropriate to award a remedy in law and, on the facts before, had found it was appropriate.  The absence of offer/acceptance and other contract principles did not determine the assumption of responsibility: other circumstances could be relevant such as Mrs L’s agreement to provide “professional services”, providing those services and knowing the Bs relied on her to perform them properly.

In this week of the Chelsea flower show, is this isolated to horticultural design duties? No, as the Appeal court had also to consider generally whether the TCC had imposed a positive obligation to carry out the services despite the absence of any contract.  It held Mrs L did not have a positive duty to perform the services but, to the extent any evidence shows that services had been provided, she had a commensurate duty to exercise reasonable care and skill. 

As often applies, each case will turn on its facts and the evidence. However, this is a timely warning that any professional who offers either to help friends or provide gratuitous services could assume responsibility and be held to a professional standard of conduct.


Fixed Costs Pilot Scheme for Construction Disputes
12 May, 2017

In March 2017, as part of a wider drive to control the costs of litigation, proposals for a fixed costs pilot scheme were unveiled.   The pilot scheme will run in the Mercantile Court in London (which typically handles commercial and business disputes but is distinct from the TCC) and, importantly for readers of this blog, the TCC in Manchester.  Key features of the proposed pilot scheme are:

 

  • The scheme will not be imposed but will require consent of all parties.
  • Once a case is opted into the scheme it cannot be removed from the scheme.
  • In order to work within a fixed costs regime, cases in the scheme will impose limits on the length of statements of case and of witness statements and the cases will be the subject of more rigorous and controlled case management.  This includes controlling the number of witnesses, the length of trial and the conduct of trial.
  • The trade off for agreeing to work within the scheme is twofold.  First there is certainty of exposure to costs (this of course means a successful party may have to bear more of their own costs than they otherwise would).  Second, the pilot scheme envisages cases on the scheme being fast tracked, so determinations will be swifter than for those cases outside of the scheme.

 

The details of the scheme are of course awaited but it seems to be most appropriate for cases where the roadmap to trial is well defined (meaning the costs are predictable).  It may not lend itself to all but the most straightforward of construction disputes.  The intention in March was for the Rules Committee regulating civil litigation to have approved the pilot scheme by Summer this year, and for it to have been implemented shortly thereafter.  Whether the since-announced General election will place these plans on hold remains to be seen, but if that is the case it is assumed it will only delay the implementation of the pilot scheme rather than discard it.  Costs certainty is the clear direction of travel for civil litigation generally and has been for some time, so the implementation of a pilot scheme such as this one is part of a much wider long term effort on the part of the Rules Committee to introduce fixed and capped costs into the majority of civil litigation disputes, an so is something for all of those involved in any dispute resolution process to be alive to.


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


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