Hong Kong: Legal Developments In Construction Law: January 2016

Last Updated: 1 February 2016
Article by Geoffrey Chan, Venna Y.W. Cheng, Tom Fu, Menachem M. Hasofer, Mei Ling Lew and Kevin R. Owen
Most Read Contributor in Hong Kong, September 2016

1. Looking for the contract terms you can't see

The first problem with an implied contract term is, of course, that you can't see it in the contract. One type is implied by statute or by the common law in certain categories of contract (unless expressly excluded). The other type, whose detection has challenged many distinguished judges over the years, is implied into a contract in the light of the express terms, commercial common sense and the facts known to both parties at the time of the contract. The UK Supreme Court's judgment in Marks and Spencer plc v BNP Paribas is the latest, and authoritative, contribution to identification of this second type.

Some thought that Lord Hoffmann's Privy Council discussion of the identification of implied terms in Attorney General of Belize v Belize Telecom Ltd had changed the law. In Marks and Spencer, however, the Supreme Court made clear that it has not. The requirements to be satisfied before a term (of the second type) will be implied have not been diluted. Reasonableness is not a sufficient ground for implying a term; an implied term must, among other requirements, pass the test of business necessity or, alternatively, obviousness (the classic "officious bystander" test). The question whether a term is implied is also to be judged at the date the contract is made.

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anor (Rev 1) [2015] UKSC 72

2. Court gives green light to asbestos exclusion and limitation clauses

The appointment of a firm of engineers said that: "Liability for any claim in relation to asbestos is excluded." It also contained a limitation of aggregate liability for pollution and contamination to Ł5,000,000. English courts have, traditionally, taken a restrictive approach to interpreting exemption and limitation clauses but has that approach changed?

In Persimmon v Ove Arup Mr Justice Stuart-Smith said that there is an increasing recognition that parties to commercial contracts should be left free to apportion and allocate risks and obligations as they see fit, particularly where insurance may be available. Exclusion and limitation clauses are subject to the same rules of construction as any other provision and the court's task is to identify what a reasonable person with all the background knowledge reasonably available to the parties would have understood the parties to have meant.

The relevant agreement and associated warranties were examples of contracts where businessmen capable of looking after their own interests and deciding how contract performance risks could most economically be borne had reached an agreement that the court should be very slow to disturb or to characterise as unbusinesslike. The price paid could be said to reflect the commercial risk allocation and the parties were entitled to apportion the risk of loss as they saw fit. The limitations and exclusions in question were clear in their meaning and covered the liabilities advanced by the claimants.

Persimmon Homes Ltd & Ors v Ove Arup & Partners Ltd & Anor [2015] EWHC 3573

3. Adjudication award enforced even if adjudicator relied on the wrong contract

Chalcroft, a main contractor, challenged enforcement of an adjudicator's award, claiming that the adjudicator had applied the wrong contractual provisions in producing the award. His interpretation of the contract arrangements meant that a payless notice had not been served in time but, if one of Chalcroft's interpretations of the arrangements was correct, it was reasonably arguable that the payless notice was valid and in time, and that the adjudicator's conclusion was wrong. If the adjudicator had wrongly interpreted the contractual position, did that then make the award unenforceable?

No, said the court. The adjudication system is meant to provide quick and effective remedies and now covers oral contracts, which increases the likelihood that they may be mis-described. The case was to be treated as one where the adjudicator had jurisdiction to resolve the dispute referred to him (as to how much was owing under an interim application) and addressed the correct question without bias, breach of natural justice or any other vice that would justify overturning his decision.

If (which could not be resolved in this case), he had made an error of law in referring to the wrong contractual provisions when deciding the substantive question referred to him, that fell within the category of errors of procedure, fact or law which the Court of Appeal had repeatedly emphasised should not prevent enforcement.

RMP Construction Services Ltd v Chalcroft Ltd [2015] EWHC 3737

4. New NEC3 clauses for early contractor involvement in design and planning

The NEC has issued additional clauses to enable NEC3 to be used for early contractor involvement in the design development and construction planning stage of a project. The new wording allows the contractor to be appointed before details of what is to be constructed have been fully developed and priced and gives two options, one under Option C, and the other under either Options C or E.

See: https://www.neccontract.com/getmedia/ba399179-7e32-42af-8288-a76de9fe0759/NEC_ECC_WEB.pdf.aspx

5. NEC3 and the weather: How often does it snow in Hong Kong?

NEC3 contracts are increasingly being used on overseas contracts. But given that weather is a compensation event in such agreements, has the NEC panel considered how the different climates found abroad could affect contracts?

This article first appeared in Construction News.

See: https://www.mayerbrown.com/files/uploads/Asia/Article_NEC3_and_the_Weather_0116.pdf

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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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