Construction matters

Ashley Pappin joins Cripps LLP construction disputes team
13 July, 2018

We are delighted to announce the recruitment of Ashley Pappin as Senior Associate.

Ashley becomes the fourth member of the Cripps LLP construction disputes team.  Ashley joins us from Weightmans LLP in London, having previously worked at the London office of Herbert Smith LLP (now Herbert Smith Freehills), and the in house legal department of Volkswagen AG in Wolfsburg, Germany.

Ashley’s career to date has concerned contentious construction matters, international arbitration and a variety of UK and international commercial disputes. He has acted for a number of household name companies and high profile construction consortia. Ashley joining us is an important step in the ongoing growth of our construction disputes practice and enables us to service the ever increasing demand for our contentious construction services.

Concurrent Delay and “Smash and Grab” Adjudications
6 July, 2018

In October 2017, Claire Barwick in our construction team wrote about concurrent delay and the prevention principle in relation to the case of North Midland Building Limited v Cyden Homes Limited 1. Claire wrote about how this decision clarified whether parties can allocate the risk of concurrent delay. In the case, the contractor (North Midland Building Limited) sought declarations that a bespoke clause that restricted the contractor’s ability to claim an extension of time in cases of concurrent delay offended the prevention principle.

It is understood that North Midland Building Limited will now be appealing the decision in the Court of Appeal and so watch this space – we will update you with any interesting decisions made by the Court of Appeal.

In another recent interesting High Court decision, this time in 2018 (Grove Developments Ltd v S&T (UK) Ltd 2), the Court decided (against previous court decisions going the other way) that if an employer failed to issue its payment notices and is on the receiving end of a smash and grab adjudication, the true value of the interim application could potentially still be adjudicated. This would clearly assist an employer where the interim payment application was effectively the last one in the payment cycle and so it could not correct any overpayment in later payment cycles.

We understand that this decision is also going to appealed in the Court of Appeal and, again, we will keep our eyes peeled.

1 [2017] EWHC 2414 (TCC)
2 [2018] EWHC 123 (TCC)

Get your Planning Consents first
8 May, 2018

The case of Clin -v- Walter Lilly has reached the Court of Appeal, just on preliminary points. It now needs to go back to the High Court to work out liabilities.

Work stated in September 2012 to convert two Victorian terraced houses in Kensington into one, under a JCT Building Contract With Quantities, 2005 Edition, with Contractor’s Designed Portion and various bespoke amendments.

In July 2013 Kensington and Chelsea council wrote to Walter Lilly, the contractor, saying that the council believed the works required Conservation Area Consent and if they proceeded without it, there was a danger of prosecution as well as enforcement proceedings. Consent was finally obtained on 19 June 2014 and work began again in August that year.  Walter Lilly claimed an extension of time of 53.2 weeks and loss and expense.  

The building contract was silent as to responsibility for getting any necessary planning or Conservation Area consents. Could the court imply an obligation and if so on whom?

The court restated the generally accepted position that terms should only be implied into a contract where necessary, so as to give the contract the meaning the parties must have intended, not merely where the court thinks an alternative meaning would be better or more logical or more commercial.

The court also said that generally, but not always, it will be the employer under a building contract who is responsible for getting necessary consents – it is the employer who knows what they want to have built and the employer is the one in the best position to get the consents in place before works start. The contractor usually appears on the scene somewhat later, when work is soon to be commenced.  The court therefore held that, in this case, Mr Clin was responsible for applying for the Conversation Area Consent. It did not say that he must get that consent, only that he must use all due diligence to try and get it within a reasonable time.  If Mr Clin had then failed to get it, despite using all due diligence, that would not be his fault but nevertheless consequences would flow under the building contract, as drafted, without the need to imply any additional terms to deal with that problem.  Precisely what those consequences would be would have to be decided by a new trial in the High Court.

The court considered whether the council’s letter warning of the need for Conservation Area Consent entitled Walter Lilly to stop work. Because the building contract required compliance with “Statutory Requirements”, the court decided that Walter Lilly might in fact have been obliged, not merely entitled, to stop work at that point. However, this would only be the case if Conservation Area Consent was, in fact, needed. That would need to be decided back at the High Court, according to whatever the full facts were.

So what should happen if the council were acting wrongly in demanding that an application for Conservation Area Consent be made or the council was unreasonably slow in granting it? The trial judge thought neither party would carry the can – the contractor could not claim loss and expense and the employer could not claim damages for delay.  The Court of Appeal disagreed.  It held that the High Court would need to consider, for example, the contractor’s obligation to proceed with the works diligently and complete them before the Completion Date and the obligations on the employer not to cause any impediment, prevention or default, as well as any unreasonable delays or demands by the council.  Barring agreement on these issues, a new trial would be necessary in the High Court to establish how the losses caused by the delays should be allocated between Mr Clin and Walter Lilly under the contract, once that court had decided who was responsible for the delays.

Every case like this depends on its facts but this case highlights a few traps. It emphasises the importance of getting consents in advance of work, where possible, and of making clear in the contract who is responsible for applying for any outstanding permissions. Finally, the contract should make clear what will happen if permissions are delayed because of default by one party or both or neither.

Project Insurance: A trap for the unwary subcontractor and their insurers
24 April, 2018

On 19 March, the High Court gave judgment in the case of Haberdashers’ Aske’s Federation Trust Limited and The London Borough of Lewisham v Lakehouse Contracts Limited, Cambridge Polymer Roofing Limited v Zurich Insurance and their joint project insurers. 

Lakehouse was the main contractor on a school extension project and took out project insurance intended to cover the school, the council, itself and its subcontractors. In the case of (at least) one subcontractor, Cambridge Polymer Roofing (CPR), however, the subcontract obliged them to take out their own works and third party/public liability insurance.  Then the worst happened.  CPR were carrying out hot work to the roof of the new extension and it caught fire. 

Lakehouse and the project insurers settled the claim with Lewisham Council and the school at £8.75m. The project insurers then claimed to have the right, under the doctrine of subrogation, to step into Lakehouse’s shoes and sue CPR for their losses. 

In fact, the insurers only sued CPR for £5m. That was the extent of the insurance cover which CPR was obliged to and did take out. 

CPR argued that it was co-insured under the project insurance and therefore the project insurers had waived their rights of subrogation and could not recover any of their loss from CPR. The insurers claimed that the fact that the subcontract required CPR to take out its own insurance meant that CPR were not covered by the project insurance at all.  The court agreed with the insurers and CPR must therefore pay the full £5m and look to recover it from their insurers. 

The most obvious point to come out of this is, of course, that subcontractors should think carefully before signing up to a standard form of subcontract which obliges them to take out their own insurance where the employer or, perhaps, someone even higher up the chain, has obtained project insurance intended to cover everyone including the subcontractor. In those circumstances, the subcontractor should always take professional advice from its insurance brokers and/or lawyers. 

Interestingly, the judge suggested that if the project insurers had sued CPR for more than £5m, they would only have got judgment for the £5m. In his opinion, the fact that CPR were only obliged to take out £5m worth of cover meant that this sum should cap any claim against them.  However, that opinion was not part of his formal judgment and is not therefore a statement that can be relied on.  It will be much safer to provide specifically in a subcontract, if it is agreed, that the liability of the subcontractor is to be capped at the level of the insurance it takes out. 

The court also spent considerable time discussing how project insurance works. Three theories were discussed.  The first was that the subcontractor gives authority to the main contractor to procure insurance on the subcontractor’s behalf and then the subcontractor ratifies that insurance.  The court was not impressed by this approach, on the basis that the “undisclosed principal” has to be capable of being ascertained at the time the insurance is effective, which would not be the case where the subcontractor is appointed sometime afterwards.

The second theory was that the insurer makes a standing unilateral offer to anyone who will in due course become a subcontractor and that this offer is accepted when the subcontractor signs its contract. The court felt this was the correct approach. Because CPR’s contract required them to obtain their own insurance, this meant, the court said, that CPR never joined the “defined group” of subcontractors to whom the unilateral offer was made by the project insurers. 

The third theory is that the insurer accepts by conduct that the subcontractor is included in the project insurance. The court did not say this was positively wrong but based its judgment on the standing offer theory.

This case emphasises how vital it is to ensure that all the right insurances are in place, that there is no doubt about who can rely on which insurance policies, that there is no double insurance and that any caps on liability are specifically stated. 

Adjudication: Conduct of the parties and extensions of time
26 March, 2018

As most readers of this blog will aware, construction adjudications are intended to provide a swift resolution to disputes under construction contracts that the regime applies to. By statute the decision of an adjudicator must be issued no later than 28 days after receipt of the referral notice. This can be extended to 42 days with the consent of the referring party or to a longer period with agreement of both the referring and responding parties. In Baldwin & Another v JR Pickstock Limited (2018) the High Court had to consider two issues: First, what was the extent of extensions of time granted to the adjudicator? Second, if no decision had been issued by the expiry of the last extension granted, what was the status of the adjudicator (as a matter of contract)?

The Facts

Mr Baldwin was appointed as the adjudicator to a construction dispute around the beginning of March 2016. JR Pickstock Limited was the referring party. It was a term of Mr Baldwin’s appointment that if there was a challenge to his jurisdiction which was successful then he was contractually entitled to resign prior to issuing his decision and in those circumstances JR Pickstock Limited would be liable to meet his fees.

During the currency of the adjudication Mr Baldwin requested a number of extensions of time. Extensions of time to 20 May 2016 appear to have been expressly agreed by the parties but Mr Baldwin sought further extensions to 7 June 2016, in part as a result of submissions made by Pickstock. Pickstock’s representatives at no stage expressly declined to consent to extensions beyond 20 May 2016.

On 31 May 2016, following the passing of the last expressly agreed extension of time, Pickstock’s representatives asserted that Mr Baldwin was out of time for reaching his decision. After several protracted rounds of correspondence between the parties Mr Baldwin, on 3 June 2016, issued an ultimatum: Agree an extension as he sought, otherwise he would resign. No agreement was forthcoming and on 9 June 2016 Mr Baldwin advised the parties that the failure to agree represented a valid challenge to his jurisdiction so he was resigning. He then issued Pickstock with an invoice for his fees, in accordance with the terms and conditions referred to above. Pickstock refused to pay.

The Decision

As to the first question the Court confirmed that an extension to 20 May 2016 was expressly agreed. However that was not the limit of the extensions it was prepared to find. First, as a matter of construction, the Court held that an email written by Pickstock’s representative constituted agreement to an extension to 27 May 2016. Second and importantly the Court determined that it was implicit in the conduct of Pickstock that by its actions it in fact consented to an extension to 7 June 2016. As to this point the court considered noted that Mr Baldwin requested an extension to 7 June 2016 to reach his decision in light of Pickstock’s own last round of submissions. The Court determined that the absence of an express rejection to that request amounted to tacit agreement to it and that silence by a party could nevertheless amount to agreement where the extension sought is reasonably required as a result of the conduct of the silent party.

Therefore the court concluded that, on the first question, extensions to 7 June 2016 had been agreed to. However no decision was issued by that date, so what is the status of the adjudicator and his entitlement to be paid? The court concluded that the effect of not issuing a decision by 7 June 2016 had the effect of Mr Baldwin’s appointment lapsing. From this point there was no appointment from him to resign from. The effect of this is that the provisions in his terms and conditions regarding payment simply fell away. Had the resignation occurred before expiry of the extension then it would have been valid and the entitlement to be paid would have followed but crucially his failure to act before the expiry of the last extension was fatal to his claim.

It is an unfortunate decision and in a number of respects unusual. The key messages to take from the decision are:

• Do not assume that silence will amount to a rejection of an adjudicator’s request for an extension. The court bent over backwards to find ways to conclude that extensions had been agreed to by Pickstock. It was also highly critical of their conduct in responding to Mr Baldwin’s requests and the manner by which they challenged his status.
• As a party to an adjudication you will not be allowed to act unreasonably when it comes to extensions of time. The Court’s finding that time was extended to 7 June 2016 was on the basis that Pickstock’s own conduct warranted such an extension.
• As an adjudicator do not lose sight of the statutory deadlines. The risks in a failure to comply can be disastrous.

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