Construction Matters

Construction Matters is on holiday
10 August, 2017

Thank you for subscribing to our construction blog and we hope you are finding our blog interesting.

Construction Matters will be taking a short break over the Summer period and will return in September with the most recent updates on matters of interest to the construction industry.


Excluding a Consultant’s Liability for Negligence
2 August, 2017

Consultants’ appointments often contain limitations on the liability of the consultant. These limitations may relate to specific types of loss, for example claims relating to pollution, or provide for an overall cap on liability.  The well advised consultant will want, as far as possible, to cover its potential exposure by maintaining professional indemnity insurance cover to a level at least equal to the cap on its liability.

Historically, there have been two legal threads that have potentially undermined the effectiveness of such limitation clauses. The courts have tended to construe narrowly any attempt to contract out of a liability that would otherwise arise.  First, these clause have been construed ‘contra proferentem’, that is against the person who is putting them forward.  Second, it has been held that unless very clear words indeed are used, the terms are not effective to exclude a party’s liability for its own negligence.

Against this background, we have seen an increasing trend for the courts to recognise that, in commercial contracts, parties should be free to make their own bargains. In the contract appointing a consultant, the parties will seek to allocate risks between them.  The fees charged for the consultant’s services will in part reflect the risks that it is prepared to run.  If those terms include a limitation on the consultant’s liability, why should it not be upheld?

This was vividly illustrated in the recent case of Persimmon Homes and Ors v Ove Arup[1].  The claimants were a consortium of developers engaged in the regeneration of part of the former harbour in Barry.  Ove Arup were consultants providing various services.  In Ove Arup’s appointment document, and in collateral warranties that were given to consortium members, there were three exclusions of liability.  One was an overall cap on liability of £5,000,000. Second was a limit on liability for pollution and contamination.  Third, and the subject of the litigation, was a statement that ‘liability for any claim in relation to asbestos is excluded’.

The claimants argued that Ove Arup had negligently failed to identify the extent of the asbestos on site. Had they known, they would have paid less for the site.  They also incurred additional costs in removal because it was discovered after the event.  Ove Arup pointed to the contract clause – the claim related to asbestos and therefore was excluded.

The Court of Appeal, upholding the decision of the High Court, found in favour of Ove Arup. It gave short shrift to the ‘contra proferentem’ argument. This has little place in the context of a commercial contract freely negotiated between well advised parties. The Court cited with approval the observations of Lord Neuberger when he said[2]:

“The words used, commercial sense, and the documentary and factual context, are, and should be, normally enough to determine the meaning of a contractual provision.”

It also had little difficulty in deciding that the words of the exclusion clause were wide enough to extend to the negligence of Ove Arup. Indeed, if the clause was not intended to cover negligence, what would it cover?

The approach set out by Jackson LJ in the judgement is instructive:

“In major construction contracts the parties commonly agree how they will allocate the risks between themselves and who will insure against what. Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down. Contractors and consultants who accept large risks will charge for doing so and will no doubt take out appropriate insurance. Contractors and consultants who accept lesser degrees of risk will presumably reflect that in the fees which they agree.

Those seeking to limit their liability will take comfort from this decision – but they still need to make sure that clear language is used to achieve the desired outcome.

[1] [2017] EWCA Civ 373

[2] K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904; [2012] Ch 497 at [68]


Adjudication update
21 July, 2017

 Jon Johnstone Construction Limited v Eagle Building Services Limited (2017) is the latest case to come to the High Court on adjudication enforcement

The Claimant sub contractor applied for payment of just over £50,000 plus VAT under its sub contract. The application was disputed and no payment was made.  The sub contractor made a further application for payment in the same amount the following month.  This time the main contractor gave no response.  The sub contractor sought an adjudicator’s award in respect of the second application.  The adjudicator found against the sub contractor.  It was determined that the first application was valid and so re-applying for the same sum on the same basis was invalid.  The sub contractor then commenced a second adjudication in respect of the first application, on the basis that the main contractor’s response to the March payment application was not a valid payment or pay less notice.

The second adjudicator awarded the sub contractor the full amount of its March application. In doing so he started from the proposition that the first application was valid (as determined by the first adjudication).  Therefore the only question for determination in adjudication number 2 was whether the response was a valid payment notice or pay less notice under the contract.  The second adjudicator determined the response was not a valid response and therefore awarded the sub contractor the full amount of the March application.

In subsequent enforcement proceedings the main contractor sought to challenge the second award on the basis that the second reference concerned the same or substantially the same subject matter and that it was impermissible to re-litigate by serial adjudication. Quite rightly the High Court rejected the main contractor’s defence.  While there was an overlap and a finding of fact relied on in adjudication number 2 it was quite clear the second adjudication concerned a different application for payment and therefore a different point.  Had the sub contractor in adjudication number 1 run an argument that it was entitled to be paid under the first application, alternatively the second application, then the second adjudication would have been impermissible to the extent it sought to re-litigate a matter already determined.  But that is not what happened here.  The fact the second adjudicator felt he was bound by the first adjudicator’s decision on the validity of the first application did not matter as the first adjudicator made no finding on the entitlement to be paid under the first application. 

Challenges to adjudication awards can come in all shapes and sizes, some more creative than others. Consistent with other recent decisions of the High Court the outcome in this case appears to be another victory for common sense as it can’t be right on any sensible reading that an incidental finding of fact would leave a party with no prospect of a remedy in respect of an otherwise sound claim that has not itself been the subject of a referral or determination.

 


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)

 


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