UK: Projects And Construction Law Update

Please see below Clyde & Co's inaugural projects and construction law update - a regular review aimed at providing up-to-date information for those in the construction and infrastructure industry.

We look at industry news as well as recent court decisions concerning:

  • a declaration on the conclusiveness of a final certificate under JCT Clause 1.9
  • interpretation of the default payment notice provisions under the amended Construction Act
  • the meaning of structures forming part of the land for the purposes of the Construction Act
  • whether a sub-contract incorporated the adjudication provisions of the main contract
  • conflicting jurisdiction clauses in a deed of novation and the underlying agreement
  • an adjudicator's recovery of fees

Industry news

HSE publishes draft CDM 2015 and guidance

The Health and Safety Executive (HSE) has published its draft of the eagerly awaited Construction (Design and Management) Regulations 2015 (CDM 2015). This version of the CDM 2015 still requires parliamentary approval, but is expected to come into force on 6 April 2015. From that date, the existing Construction (Design and Management) Regulations 2007 (SI 2007/320) (CDM 2007) and the associated Approved Code of Practice (ACoP) will no longer be in force. The CDM 2015 include transitional provisions, allowing parties working on current construction projects until 6 October 2015 to fully transition to the 2015 regime.

The CDM 2015 remove the exception for domestic clients and simplify some aspects of the CDM 2007, such as assessing competence and the trigger for appointing a principal designer and principal contractor. N.B. The role of principal designer replaces the role of CDM co-ordinator.

Despite the HSE's report at the end of its 2014 consultation recommending a new ACoP, the published guidance is not an ACoP, but is more user friendly than the existing ACoP.

BIS statement of new regulations January to June 2015 (construction aspects)

The Department for Business, Innovation and Skills (BIS) has published a list of regulatory changes that the government intends to implement over the next six months. The list includes:

  • The Construction (Design and Management) Regulations 2015, which are expected to come into force on 6 April 2015 (see above)
  • The Review of Local and Technical Housing Standards, which has no implementation date, but aims to remove technical building standards applied at a local level and replace them with fewer standards, applied at a national level via the Building Regulations
  • Changes to the Transparency Directive, which came into force on 2 January 2015, aimed at reducing corruption by requiring extractive companies listed in the EU to report their payments to governments around the world

Construction Industry Scheme: easing the administrative burden

As announced in the 2014 Autumn Statement, the government will introduce amendments to the Construction Industry Scheme (CIS) aimed at improving its operation. The proposed changes result from the government's consultation launched on 27 June 2014. The proposed changes include:

  • Reducing the threshold for the turnover test to £100,000 in companies with multiple directors. From April 2016, this will increase the number of partnerships or companies that may qualify for gross payment status.
  • Relaxing the requirements for joint ventures to gain gross payment status; where one member of a partnership already has it, access will be easier.
  • Narrowing the compliance tests applied on a sub-contractor's application for gross payment status (and annual reviews) to include only timely submissions of monthly CIS returns, income tax or corporation tax self-assessment returns and the remission of all CIS and PAYE/employer deductions. Directors' individual filing obligations will no longer be taken into account.
  • Amending the nil return obligation (from April 2015), introducing an online CIS digital account and improving online processes and verification (in 2016 and 2017).

Small Business, Enterprise and Employment Bill: BIS consultation on reporting payment practices and policies

The Department for Business, Innovation & Skills (BIS) is consulting on a new reporting requirement on payment practices and policies, together with draft regulations. BIS proposes that companies to which the regulations apply should report on a number of payment practice related items including:

  • Standard payment terms
  • The length of time taken to pay invoices
  • Any dispute resolution processes

BIS notes that the new reporting requirements are intended to enable market participants to more readily identify which customers are good payers, and which offer suppliers the terms that fit best with their business model. The consultation closed on 2 February 2015.

Case law update

The Trustees of the Marc Gilbard 2009 Settlement Trust v OD Developments and Projects Ltd [2015] EWHC 70 (TCC)

In this case, Coulson J granted a declaration concerning the conclusiveness of a final certificate under clause 1.9.3 of the JCT Contract which, once granted, allows only a 28 day period in which it may be challenged. A final certificate relating to the works in question was issued on 3 December 2013. On 20 December the contractor issued proceedings disputing the validity and correctness of the certificate. The proceedings, at the parties' request, progressed very slowly, with no first Case Management Conference having yet taken place. The contractor in the meantime decided it would like to refer the matters in dispute to adjudication, but the employer disputed that it was entitled to do so, as these would be commenced outside the 28 day window allowed by the contract. The matter was referred to court for a declaration, where the contractor contended that, because the adjudication proceedings related to the same matters as the court proceedings, and because the final certificate was not conclusive evidence in relation to the matters in the court proceedings, it could issue an adjudication in respect of those matters.  The judge disagreed, concluding that no further proceedings are permitted after the expiry of the 28 day period, and that this was consistent with business common sense, which dictated that if the certificate is to be challenged, "it is challenged in one place, in one set of proceedings promptly commenced".  The exception to this would be where the original proceedings were commenced by adjudication, when a protective claim form or notice of arbitration would be permissible, provided it was issued within the 28 days.

To view the full text of the decision please click here.

ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC)

In this case the employer, Seevic, had failed to serve a payment or pay less notice, and thus the contractor, ISG, was entitled to treat its payment application as a default payment notice. After Seevic failed to pay, ISG initiated adjudication proceedings claiming payment of the notified sum in its application, but four days before the decision was due Seevic initiated its own adjudication proceedings to determine the sum due to ISG on the date ISG's application was received. The first adjudicator decided that ISG was entitled to the full amount of its application (a little over £1 million) whereas the second adjudicator valued the works at £315,000. ISG applied for enforcement of its decision. The court found that if the employer fails to serve the requisite notices, the sum applied for by the contractor is deemed to be the value of the works in the application. This is the first time the amended payment provisions have been scrutinised in detail, and although none of this is particularly surprising, Mr Justice Edwards-Stuart's comment that "if the employer fails to serve any notices on time it must be taken to be agreeing the value stated in the application" does give pause for thought.

To view the full text of the decision please click here.

Savoye and Savoye Ltd v Spicers Ltd [2014] EWHC 4195 (TCC)

Here Akenhead J had to consider whether the contract which was the subject of the dispute was a construction contract involving "construction operations" within the meaning of section 105 of the HGCRA 1996 (the Act). The works involved the design, supply and installation of a conveyor belt system at a factory, which covered a substantial area within the building. Following completion of the installation, disputes arose as to the quality of the installation and outstanding payments for it, and adjudication proceedings were issued in relation to the payment dispute.  These were challenged on the grounds that the works did not amount to "construction operations". Akenhead J noted that it was 'clear' that provision of industrial plant can be works for the purposes of section 105.  Installation of plant and machinery will constitute construction operations where they form part of the land, which will always be a matter of fact and degree. The judge considered the Latin derivation of the word "structure", and  the permanence of manmade structures such as the Great Pyramid at Giza, concluding that all structures may, to a greater or lesser degree, be removed; the extent to which elements of a building or structure may be physically removed is not determinative of whether something forms part of the land .  He found that the reference in the Act to structures "forming part of the land" was not intended to incorporate the law relating to fixtures in its entirety, but to set a factual test. Noting the size of the structure, its relevant permanence and the fact that it was fastened to the floor by many thousands of bolts, the judge concluded that section 105 of the HGCRA was engaged, and accordingly the adjudicator had jurisdiction.

To view the full text of the decision please click here.

Imtech Inviron Ltd v Loppingdale Plant Ltd [2014] EWHC 4006 (TCC)

In this case a dispute arose in relation to work carried out at Stansted Airport under a framework agreement (the Framework Agreement).  Loppingdale Plant Ltd (LPL) entered into the Framework Agreement with the airport, and works were instructed via a series of Task Orders.  A series of Purchase Orders were then used to subcontract works to Imtech Inviron Ltd (Inviron). Under the Framework Agreement, disputes were to be referred to adjudication using the NEC Adjudicator's contract, and the adjudicator was to be one of three named persons. The Purchase Orders with Inviron contained a classic 'awareness' provision relating to the terms of the Framework Agreement. After LPL failed to pay Inviron, Inviron initiated adjudication proceedings, but LPL contended that the adjudicator lacked jurisdiction because Inviron had not complied with the requirements of the Framework Agreement.  Inviron sought to enforce the adjudicator's decision, contending that there was no room for incorporating into the subcontract the adjudication provisions of the Framework Agreement. In particular, under the Framework Agreement adjudication was a condition precedent to litigation, which was a fairly onerous provision which required clear words for it to be imposed. The judge agreed that it was not clear that this was the intention, and proceeded to enforce the adjudicator's decision.

To view the full text of the decision please click here.

Rawlinson & Hunter Trustees SA v ITG Ltd [2014] EWHC 3764 (Ch)

Here the High Court considered a deed of novation that contained a different jurisdiction clause from that in the document it sought to novate.  The case involved a number of discretionary trust settlements. A loan agreement in favour of one of the trusts was governed by the law of England and Wales, with the courts of England and Wales having exclusive jurisdiction in relation to any disputes. A deed of novation was entered into to replace the lender under the loan agreement. The deed provided that the courts of Guernsey would have exclusive jurisdiction to deal with any disputes relating to the subject matter of the deed. The court held that the jurisdiction clause under the deed of novation did not oust the exclusive jurisdiction of the courts of England and Wales. Whilst in one sense the subject matter of the deed was the loan agreement, the deed's only purpose was to effect the substitution of transferee for transferor.  There was no suggestion that the underlying obligations, rights and relationships between the parties as set out in the loan agreement should be changed. The case serves as a useful reminder of ensuring consistency between ancillary documents such as warranties and deeds of novation and the underlying agreements.

Kitt and another v The Laundry Building Ltd and another [2014] EWHC 4250 (TCC)

In this case an adjudicator sued the responding party for his outstanding fees after the referring party, which had been ordered to pay, refused, arguing that he had exceeded his jurisdiction and the decision was therefore unenforceable. Akenhead J ordered the responding party to pay and ordered the referring party, as Part 20 defendant, to reimburse it. Akenhead J found that the adjudicator had acted within his jurisdiction, and in accordance with the rules of natural justice, and as such the principle in PC Harrington Contractors v Systech (where an adjudicator was not entitled to his fees because the decision was unenforceable due to a breach of natural justice) was not engaged. Accordingly neither party had a defence to the claim for fees. The judge also considered the referring party's attempts, within the notice of adjudication, to "circumscribe and delineate the dispute set out in or purportedly defined within it so as to exclude particular defences", commenting that to allow such an approach would be "illogical and untenable, if not ludicrous", and that if something similar were tried in court proceedings it would be regarded as "wrong and unjustified".  The referring party, as well as reimbursing the responding party for  the adjudicator's fees, was ordered to reimburse their costs.

To view the full text of the decision please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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