UK: Projects And Construction Law Update - April 9, 2015

Please see below Clyde & Co's latest 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:

  • partial stay of an adjudication enforcement
  • public and product liability cover under an 'all risks' policy
  • enforcement of an adjudicator's decision is stayed due to a real possibility of bias
  • an ad hoc agreement to adjudicate leads to a finally binding decision
  • liability of engineer when builder was negligent

Industry news

New CDM Regulations are now in force

New health and safety legislation in the form of the CDM Regulations 2015 came into force on Monday 6 April 2015.   To read more on these regulations, please click here.

Reforms introduce unlimited fines in Magistrates' courts

There have been revisions to the fines which may be imposed in the magistrate's court which will affect health and safety prosecutions. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No.11) Order 2015 (SI 2015/504) brought section 85(1), (2) and (4) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) into force on 12 March 2015. Section 85 provides for fines in magistrates' courts currently capped at £5,000 or more (where legislation permits) to become unlimited, meaning that magistrates will be able to impose higher fines than previously. This could affect:

  • Health and safety prosecutions brought under the Health and Safety at Work Act 1974, which were capped at £20,000
  • Environmental offences that, depending on the type and nature of the offence, were capped between £5,000 and £50,000

The new sentencing power does not apply to fines for offences committed before 12 March 2015.

Government publishes final health and safety progress report

The government has announced that it has completed its review and reform of health and safety legislation in the UK. The review began with Lord Young of Graffham's report, "Common Sense, Common Safety", which was published in October 2010, and was followed by Professor Löfstedt's review of health and safety regulation, "Reclaiming health and safety for all: An independent review of health and safety legislation", which was published in November 2011, and included the "Red Tape Challenge".

The foreword to the final report, written by Lord Freud, Minister for Welfare Reform, states that the government has reinstated "common sense and trust in the health and safety system in Britain".

NAO briefing confirms PPP 'has a role'

In a paper issued in March entitled "The choice of finance for capital investment" the NAO looked at public and private finance in capital investment. It noted that the current value of PFI contracts stands at £58 billion.

It reports that:

  • Private finance can represent value for money if the additional cost of finance is offset by benefits of risk transfer to the private sector
  • For most departments, servicing private finance deals is not a major budgetary commitment, but for a small number of organisations it is significant e.g. the Highways Agency – 50%
  • Private finance provides budgetary and cash flow flexibility, but the short-term cash flow benefit has to be assessed against the long term commitment to repay capital and interest

Acknowledging that the government has introduced measures to support the private funding of public assets it advises that the implications for national accounts and departmental financial statements merit detailed review.

Government's Operational PPP Efficiency Programme

The government has announced that its programme focused on re-assessing the contracts for operational Public Private Partnership (PPPs) projects has surpassed its target, having secured £2.1 billion in savings - and is now seeking £2 billion extra in savings. The programme was established in early 2012 with the aim of achieving efficiency savings worth £1.5 billion.  The Treasury has confirmed that the reported returns in December 2014 amounted to £2.1 billion.

The programme reports that there is still further potential of £2 billion in savings currently being explored through changes to the scope of contracts, more efficient utilisation of facilities, and other testing of options within project delivery.

Government launches vision for Digital Built Britain

The government has published a Strategic Plan for Level 3 Building Information Modelling (BIM), otherwise known as "Digital Built Britain". The plan follows up on the 2011 Government Construction Strategy, which mandated the use of Level 2 BIM on all public sector projects by 2016, thus significantly contributing to savings of £804m in construction costs in 2013/14.

Key measures to be introduced by Digital Built Britain include:

  • the creation of a set of new, international 'Open Data' standards which would pave the way for easy sharing of data across the entire market
  • the establishment of a new contractual framework for projects which have been procured with BIM
  • the creation of a co-operative cultural environment
  • training the public sector client in the use of BIM techniques such as data requirements, operational methods and contractual processes

Data developed through the delivery, operational and performance phases of a portfolio, programme or project will be selectively published through data.gov and other secure gateways as Open Data for further market use.

Changes to Construction Industry Scheme

The government has enacted the Income Tax (Construction Industry Scheme) (Amendment) Regulations 2015 (SI 2015/429), which make minor amendments to the Construction Industry Scheme (CIS) as part of a series of changes following a consultation on improving the CIS.  The changes were announced in the 2014 Autumn Statement, and came into force on 6 April 2015.

Most importantly, the Regulations amend the CIS so that a contractor who has not made any payments to sub-contractors in a tax month no longer has to submit a nil return.

Office of Rail Regulation re-named Office of Rail and Road

On 1 April 2015, The Office of Rail Regulation (ORR) was re-named as the Office of Rail and Road, reflecting its new responsibilities for monitoring the efficiency and performance of England's strategic road network but enabling it to keep the same acronym.  Also from that date:

  • The Highways Agency became a government-owned company, Highways England, with specific performance improvements and investment to deliver over the five-year funding period.
  • The ORR took over responsibility for independently monitoring and enforcing the performance and efficiency of Highways England.

The ORR states that it will work to secure improved performance and efficiency as well as safety and sustainability from the strategic road network to benefit road users and the public. It will focus on increasing transparency, making more information available on Highways England's performance, and provide robust advice to the Secretary of State on future performance requirements.

Case Law Update

Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC)

In this case, the court, unusually, ordered a partial stay of an adjudicator's decision, after it concluded that to enforce in full would result in "manifest injustice" to the paying party, Estura.

Galliford had been engaged by Estura to execute certain works at the Salcombe Harbour Hotel using a JCT D&B 2011 contract.  When it came to payment application no. 60, which served as an "Indicative final account and valuation summary" a difference of opinion as to the value of the works arose, with Galliford suggesting the final account would be over £12 million (£5 million more than the original contract sum) and applying for only £4,000 less than this.  Estura disagreed, maintaining Galliford was only entitled to a further £147,000, but crucially failed to serve a payment or pay less notice.

Unsurprisingly, the matter was referred to adjudication, where the adjudicator decided Estura should pay £3.928 million but failed to deal with two issues raised by Estura; firstly what sum should have been stated to be due in application no. 60, and whether the sum actually stated to be due was payable. Estura attempted to refer these issues to a second adjudication but the adjudicator resigned due to a lack of jurisdiction (because it was not possible to open up the question of the true value of the works, following the decision in ISG v Seevic).

On enforcement proceedings by Galliford, Estura raised the issue that, following ISG v Seevic, it was not open to it to request a valuation of the works, and the matter could not be rectified in a subsequent payment application because the application in question was the last interim application. Further, there was no incentive for Galliford to now submit a final account because it had been awarded more or less everything it had asked for; in the absence of a final account there could not be a further dispute capable of reference to adjudication.

The judge decided that the "unusual combination of factors"  in "exceptional" circumstances meant a risk of "irreparable prejudice" to Estura if the decision was enforced in full, and therefore ordered enforcement of £1.5 million, with the balance stayed and conditions imposed to incentivise the contractor to achieve PC and submit a final account.  The court also took the opportunity to clarify the impact of ISG v Seevic, and in particular noted that the decision meant the employer had agreed the value of the works at the date of the application, but not at some other date, and did not prevent the employer from challenging the value in subsequent applications.

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

Aspen Insurance UK Ltd v Adana Construction Ltd [2015] EWCA Civ 176

Here the Court of Appeal considered the distinction between public liability and product liability under an all risks policy.

The case arose after a crane collapsed, seriously injuring the crane driver and causing significant damage to nearby properties. Adana had constructed the crane base, which sat on top of four piles. Dowels created a connection between the piles and the crane base.

Adana notified its insurer, Aspen, after the crane collapse.  Aspen maintained that the base was a 'Product', and therefore a provision in the public liability section of the policy which excluded damage caused by a 'Product' applied. It also argued that liability arose from the failure of the product to fulfil its function, which was also excluded from cover under the policy. It sought a declaration from the court to that effect, but the court declined to make such a declaration so the matter was appealed.

The Court of Appeal agreed with the first instance decision that the crane base was not a 'Product' as defined by the policy. The dowels which Adana had supplied were products within the meaning of the policy, but they had not failed in their function as they had pulled out of the piles intact. Any liability was therefore a result of defective installation of the dowels which would be covered by the public liability part of the policy.

The case confirms therefore that where a Product fails due to defective workmanship rather than a defect in the product itself, the public liability, rather than product liability, section of a combined policy will cover it.

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

Paice and another v MJ Harding (t/a MJ Harding Contractors) [2015] EWHC 661 (TCC)

In this case, there was a rare refusal by the TCC to enforce an adjudicator's decision due to the possibility of bias.

The claimant, Paice, had already embarked upon, and lost, two adjudications involving the same adjudicator (the first adjudicator), when they phoned his office to discuss their disappointment in their advisors, the outcome of the adjudications, and the behaviour of defendant MJH.  One of the telephone conversations with the adjudicator's office manager lasted over an hour.

After their final account was rejected, defendants MJH then initiated a third adjudication; this was decided by a different adjudicator. This Paice also lost after they failed to serve a valid pay less notice in time.

Paice therefore started a fourth adjudication seeking a decision on the value of MJH's account and a repayment. The first adjudicator was appointed again, and MJH's representative queried whether there had been contact with Paice in the intervening period since the earlier adjudications. The adjudicator denied this, and MJH then requested telephone records from the first adjudicator and Paice, which request was ignored. MJH sought an injunction to prevent the adjudication proceeding but it was not granted. The adjudication concluded with a decision that MJH should repay to Paice the vast majority of its final account payment.

Evidence of telephone contact between Paice and the first adjudicator emerged (by anonymous letter) following the decision and its enforcement was challenged on the grounds of bias. The judge found that the failure by the adjudicator to disclose the conversations, together with' ill-judged' criticisms of MJH's case and a statement made expressly in support of Paice's application for summary judgment, gave rise to a real possibility of bias and accordingly the application was refused. Coulson J, however, expressed sympathy for Paice, who he deemed had been ill-served by the adjudication process and the adjudicator's 'misjudgements'.

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

Khurana and another v Weber Construction Ltd [2015] EWHC 758 (TCC)

Under the Construction Act adjudication decisions are intended to be binding on an interim basis (meaning they can be finally determined in court or other proceedings).  However in this case, the court decided the parties had agreed that any adjudication decision would be finally binding.

In somewhat unusual circumstances, the parties (residential occupier and contractor) entered into an adjudication agreement after a dispute had arisen, agreeing that the dispute would be referred to adjudication using the Scheme. The contract was a printed form of unknown origin which provided only that any dispute concerning amounts owed should be referred to an independent QS, but had no other dispute resolution provisions. As the contract was for a residential development, the mandatory requirements of the Construction Act, providing for adjudication to be binding on an interim basis only, did not apply.

When the dispute arose, the parties agreed that it should be referred to a QS, using the provisions of the Scheme "save that the decision of the independent structural quantity surveyor shall be binding on the parties".

Following an attempt to summarily enforce the decision, the matter came before the court again for a decision as to whether the dispute had been finally determined or could be the subject of court proceedings. The judge decided that, given the context in which the decision was expressed to be 'binding' i.e. as an effective derogation from the default position under the Scheme whereby decisions are only temporarily binding, it was the intention of the parties that the decision would have a permanently binding effect. The judge considered the application of the UCCTR but decided that the provision was individually negotiated and in any event not unfair.

The case highlights the importance of understanding all the ramifications of agreeing to an ad hoc dispute resolution procedure.

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

Goldswain & Anor v Beltec Ltd (t/a BCS Consulting) & Anor [2015] EWHC 556 (TCC)

In the case of Goldswain & Anor, the owners of a modest flat in Finchley decided to convert the cellar of their semi-detached property to create additional living accommodation and hired engineers to produce a safe design. They then hired builders to construct the design, however the builders failed to add any propping to the basement works thus leaving the entire building (including the upstairs flat) to collapse.

Although proceedings were issued against both engineer and builder, unfortunately for the claimants the builders were insolvent and took no part in the proceedings.  The engineers had been appointed to provide a design, but the claimants alleged they had a continuing obligation to visit the site and provide advice and were negligent in failing to warn of the contractor's inadequate performance. The judge concluded that the engineers had not been negligent, and was wholly satisfied that the limited retainer did not extend to an ongoing obligation to supervise the contractor's activities. He found that the fault lay with the builders, who had lacked both the experience and expertise to undertake the works.

This leaves the homeowners in the unfortunate position of paying the mortgage on a property they cannot use whilst they live in alternative rented accommodation.

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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