Contractor’s liability for escapes revisited
In the recent case of Northumbrian Water Ltd v Sir Robert McAlpine Ltd (2014), the Court of Appeal confirmed that according to the law of nuisance, there is no rule imposing strict liability where material escapes from land causing physical damage to neighbouring property.
McAlpine were carrying out redevelopment works at an urban site near a sewer owned by Northumbrian Water. In the course of foundation works concrete escaped into an old private sewer beneath the site, travelling into the Northumbrian’s sewer where it set, causing a partial blockage.Northumbrian claimed McAlpine were liable for the cost of removing the obstruction.
In respect of alleged negligence, McAlpine avoided liability. The Court decided that although there was a recognised risk that concrete might escape beyond the site, McAlpine had surveyed the ground conditions prior to commencement to the standard expected of a reasonably competent and careful contractor. The private sewer into which the concrete first escaped into did not show up on any plans of the sewer system and it was going too far to have expected McAlpine to have spent hours searching local museum archives, which it turned out held the only plan recording the existence of the sewer which was built over 100 years earlier.
So far as nuisance was concerned similar issues were accepted by the Court as absolving McAlpine from liability. The redevelopment constituted a natural and reasonable use of land in an urban setting, and the methods of construction were not unusual or particularly problematic. The escape of concrete into the appellant’s sewer was not reasonably foreseeable and so the respondent was not liable to the appellant in nuisance.
Costs – an important reminder
The case of Walker Construction (UK) Limited v Quayside Homes Limited & Another (2014) serves as an important reminder that costs do not always ‘follow the event’.
The case concerned a contract to construct 300 residential properties. At the conclusion of the development disputes arose in relation to the final payments to be made by Quayside (as employer) to Walker (as contractor). Walker contended it was entitled to sums under the contract. Quayside claimed damages arising out of defective workmanship.
The majority of Walker’s claims were determined in its favour by adjudication. There was a residual claim of around £1,700 which remained to be determined in the court proceedings. Walker proposed, in order to dispose of those proceedings, that Quayside pay this sum and each party meet their own costs. Quayside rejected this proposal and launched a counterclaim for damages of over £150,000, based on defective works. It also sought to challenge the decision of the adjudicator.
Almost 4 years later the case came to court and the trial judge awarded a net payment to Quayside of just over £10,000. As well as being responsible for its own costs, Walker was ordered to pay the majority of Quayside’s costs, estimated to be in region of £350,000. The trial judge based this decision on the principle that costs follow the event: Quayside had succeeded and it should therefore be entitled to its costs.
Not unsurprisingly Walker appealed this decision as the award of costs was disproportionate when considered against Quayside’s success. The Court of Appeal agreed and in doing so confirmed that success was not the sole determining factor in deciding who bears the costs of litigation. Instead the court looks at all the facts of the case. In this case the Court decided that the conduct of Quayside in the litigation and the relative lack of success of its claim could not be overlooked. The outcome of the case is that Quayside was liable to pay the majority of the costs incurred by both sides. It would be fair to assume that figure to be significantly north of £600,000 – a large price to pay for securing a judgment of around £10,000.
Construction litigation can often be expensive, particularly when experts in several disciplines are engaged. Walker is an important reminder that parties to construction disputes should always consider whether litigation is proportionate and it should not be assumed that success of any type will be a key that unlocks the door to costs recovery.
Caught in the net
Net contribution clauses have been in the news lately. Missed that? One of them was upheld by the court. Well, let’s remind ourselves what they are and what they seek to do.
Let’s start with a construction professional involved on a project, say the architect. Now our poor architect has got something wrong and the employer has suffered loss. Whilst the architect acknowledges his mistake, it was partly the fault of the contractor as well. The employer decides to go after the architect alone. Under the law, the architect is liable to the employer for 100% of the loss despite the fact that the contractor was also to blame.
Unfair? Not entirely because the architect may have rights under the Civil Liability (Contribution) Act 1978. Under this Act, the architect may be able to claim a contribution towards the damages from the contractor.
But many construction professionals do think it is unfair and try to include ‘net contribution clauses’ in their contracts, appointments and collateral warranties. These clauses say that if more than one party is at fault, the professional is only liable for its share on the basis of what is fair and reasonable. It is also assumed that the other wrongdoers have paid up their fair share.
Sounds reasonable? Maybe, but this is in effect a limitation of liability clause. If the clause is effective, the real impact is to transfer the risk of insolvency of the joint wrongdoer away from the professional and on to the employer. In other words, if our architect has to rely on the Civil Liability (Contribution) Act 1978, it would have to pursue the contractor for a contribution – which will be of no use if the contractor is bust. But if the net contribution clause is effective, it is the employer that would be left with a worthless remedy against the contractor. What may appear fair and reasonable at first sight may not always prove to be so.
Pay Less Notices and Statutory Demands
If an employer does not pay the full amount under an interim certificate when required, there are several options available to the contractor, including suspending the works.
On some occasions though, for example if the works have been completed already, downing tools is not an option. In those circumstances the contractor can serve a statutory demand. This gives the employer a period of 21 days to pay the debt, otherwise a petition may be presented to either wind-up (if it is a company) or make bankrupt (in other cases) the employer. A statutory demand should only be sent if the debt is not disputed and if there are concerns over the ability of the employer to pay its debts. If the employer, for example, disputes the debt or has a valid counterclaim which would cancel out the unpaid sums, then service of a statutory demand is liable to be counter-productive.
What happens if the employer disputes the debt but failed to submit a Pay Less Notice?
A construction contract, where stage payments are applicable, must provide for the employer to give a Payment Notice identifying the amount it considers due following receipt of a payment application. If no Payment Notice is given, the contractor may send a Default Notice stating the amount it considers due. If a Default Notice is sent then the employer can serve a Pay Less Notice setting out how much of the sum set out in the Default Notice it intends to pay. In the absence of a Pay Less Notice, the amount in the Default Notice crystallises. In the event of a Pay Less Notice being served, the liability to pay any sums referred to in the Default Notice that are not covered by the Pay Less Notice crystallises.
The effect of the liability crystallising is that the employer is obliged to pay the sum. If the contractor then presents a statutory demand the employer cannot challenge that demand on the basis that liability is disputed.
Welcome to Construction Matters
On behalf of the construction team at Cripps and as editor of our brand new blog, I welcome you to Construction Matters.
I hope our weekly postings on legal issues and developments affecting the construction industry and the world of public procurement will be of interest to you and your colleagues.
The construction team at Cripps is substantial comprising two partners and six other solicitors. We act on a wide range of construction and engineering projects and our clients comprise employers, contractors and professionals who might be engaged in them.
Please click here to visit the dedicated construction page on our website for further details of the team and to learn a little bit more about us and what we do.