UK: Projects And Construction Law Update - June 8, 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:

  • a dispute under  the 1987 FIDIC Red Book
  • challenging the public procurement process
  • the need for clear drafting if absolute obligations are intended
  • the ability of an adjudicator to award restitution
  • a dispute under an NEC term service contract
  • the danger of failing to comply with contractual requirements for submitting payment applications

Industry news

CDM 2015: ICC amendments imminent, PPC2000 and TPC2005 amendment sheet published

The Association for Consultancy and Engineering (ACE) has published amendments to the Infrastructure Conditions of Contract (ICC) which are available to download on the ACE website here. The amendments address the Construction (Design and Management) Regulations 2015 (SI 2015/51) (CDM 2015), which came into force on 6 April 2015.

An amendment sheet addressing CDM 2015 has also been published for the PPC2000 and TPC2005 standard form contracts. The amendment sheet is freely available to download as a PDF here.

House of Commons publishes briefing paper on PFI costs and benefits

The House of Commons library briefing paper, PFI: costs and benefits, explains the background to the Private Finance Initiative (PFI) and its reform in 2012 by the creation of Private Finance 2 (PF2). It also sets out the advantages and limitations of PFI, while considering whether PFI provides value for money, and the future of private finance and PF2. Please click here to review this.

Queen's Speech 2015: construction implications

The Prime Minister's introduction to the Queen's Speech 2015 began by describing Britain as a "two-speed country", split between those that can afford to own their own home, and those that cannot. The government wants to address this through a Housing Bill, which will extend the Right to Buy to the tenants of Housing Associations and will require councils to sell vacant, high-value council houses and to put that money into building affordable homes. Other measures include building 200,000 discounted Starter Homes for young first-time buyers and ensuring suitable brownfield land is ready for development through the introduction of a statutory register for brownfield land.

Other Bills announced by the first majority Conservative government since 1992 include:

  • High Speed Rail (London-West Midlands) Bill (HS2), which grants planning permission and compulsory purchase powers for the first phase of the HS2 route from London to the West Midlands.
  • Cities and Local Government Devolution Bill, which will provide for powers over housing, transport, planning and policing to be devolved to England's cities as part of government plans for "a balanced economic recovery" and to help build the Northern Powerhouse.
  • Enterprise Bill, which will reduce regulation on small businesses through red-tape cutting and introduce the Small Business Conciliation Service to handle business-to-business disputes (such as late payment issues) without the need for court action.

There will also be another budget in July.

Case law update

Al Waddan Hotel Ltd v MAN Enterprise Sal (Offshore) [2014] EWHC 4796 (TCC)

This TCC case arose out of an arbitration involving a FIDIC dispute. The court held that the employer, Al Waddan, was not entitled to benefit from its own breach when enforcing a condition precedent under the 1987 FIDIC Red Book which would prevent the contractor, MAN, from referring a dispute to arbitration. As was commented on by the judge, it is well known in the industry that obtaining an engineer's decision is a condition precedent to referring a dispute to arbitration under a FIDIC contract. He further commented on the well-established principle that co-operation and non-prevention will be implied terms in such a contract. The engineer made it clear that it had ceased to be engineer and would not be determining the dispute, at which point MAN referred the dispute to arbitration. Al Waddan argued that this approach ignored the condition precedent and it must wait for the appropriate period to elapse, i.e. MAN should wait for the engineer to make his decision even though he had made it clear he was never going to do so. MAN argued that Al Waddan could not enforce obligations in a situation which took advantage of its own wrong, namely its failure to appoint an engineer who would make a decision (whether the original engineer or a new appointment). The court agreed with the contractor, and confirmed the arbitrator's jurisdiction and the arbitral award.  Although the contract was not the current edition of the Red Book (which uses a DAB rather than the engineer), the previous version is still used and to that extent the decision is of interest.

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

Geodesign Barriers Ltd v The Environment Agency [2015] EWHC 1121 (TCC)

This case involved a public procurement dispute arising out of the procurement of temporary flood barrier systems. Immediately Geodesign Barriers Ltd (GBL) found out its bid had been unsuccessful, it complained to the Environment Agency (EA), alleging that successful bidder Inero's system was not compliant with the performance specification set out in the tender docs. EA provided information showing that Inero and GBL had received the same technical score but GBL had scored much lower on price. GBL brought proceedings claiming Inero should not have passed the first stage due to technical non-compliance and that the price and quality scores did not take into account whole life costs. EA's response was that that GBL had no chance of winning the contract because four other bidders scored more highly than it. GBL made an application for disclosure of certain documents and the identities of the other bidders. The EA told the court that no contemporaneous tender evaluation reports were produced, which the judge found "extraordinary". The absence of such reports called into question the transparency and clarity of the process and accordingly the court ordered disclosure of evaluation documents, guidance, score sheets and the bid documents of the other bidders confidentially to GBL's solicitors and counsel (but not GBL), with an expert to advise on technical compliance issues. Disclosure of the identity of the other bidders was not found by the court to be necessary, only the content of their bids. The case serves to underline the importance for public sector bodies of following a clear and transparent contract award process which is properly documented.

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

MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another [2015] EWCA Civ 407

The Court of Appeal has allowed an appeal from the first instance decision of Edwards-Stuart J in MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another [2015] EWCA Civ 407 concerning the construction of foundations for offshore wind turbines. Defects in the original construction had required remedial works costing 26 million Euros, but it transpired that the defects arose from an error in the international standard J101. The question then arose as to whether the requirement that the structure have a design life of 20 years was an absolute obligation. If that were the case, the contractor would be liable even though he had complied with J101 and not been negligent. At first instance the judge found that the contractor had a 'double obligation' of that type i.e. to both comply with the relevant specifications and standards, and to achieve a particular result. The Court of Appeal reversed the decision, distinguishing between 'design life' and 'service life' and finding that the contractor had not warranted the foundations for a life of 20 years. It also allowed a cross-appeal from the employer, that the contractor was in breach for failing to obtain test data for certain aspects of its design, however it found that it was open to the first instance judge to conclude that, on the balance of probabilities, it was unlikely that such tests would have revealed the error in the standard J101 or prompted a change of design. Accordingly it awarded nominal damages of £10.  The case illustrates the importance of clear contract drafting if the contractor is required to achieve certain performance results.

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

ISG Retail Ltd v Castletech Construction Ltd [2015] EWHC 1443 (TCC)

Here the court found an adjudicator had jurisdiction to award restitution as an available remedy following a breach of contract. The case arose after ISG paid £35,000 to Castletech but received nothing of value in return.  ISG initiated adjudication proceedings, claiming in its Notice of Adjudication that there had been a 'complete failure of consideration' and requesting that the £35,000 be repaid together with interest. In its subsequent Referral Notice, it made reference to restitution of the sum in question. Castletech by way of response suggested that ISG could not rely on the equitable remedy of restitution as this was not within the adjudicator's jurisdiction or power. The adjudicator ordered repayment of the £35,000 but no payment of interest. Castletech resisted enforcement on the grounds that the adjudicator did not have jurisdiction to award restitution, because the claim for restitution was not made in the Notice of Adjudication from which the adjudicator derived his jurisdiction, alternatively it did not arise under the contract. Mr Justice Edwards-Stuart found that although a claim for restitution usually arises where there is no contract  and thus the cause of action is unjust enrichment, it may also be a contractual remedy and was an available remedy for the breach of contract in question (total failure of consideration).

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

Mears Ltd v Shoreline Housing Partnership Ltd [2015] EWHC 1396 (TCC)

The NEC3 contract came under scrutiny in this case, where Akenhead J decided that the employer (Shoreline) was estopped from recovering alleged overpayments to its contractor (Mears). The form of contract was the Term Service Contract incorporating Option C, which was used to carry out ongoing maintenance and repair works to a portfolio of properties. The contract uses a price list, but the parties departed from this during the course of the works, partly because it was incomplete.  Shoreline subsequently decided it had overpaid for works carried out, and sought to recoup over £300,000 of alleged overpayments by making a deduction from Mears. Mears objected to the deduction and issued proceedings, alleging that Shoreline was not entitled to make the deduction because it was estopped from doing so, it had made a misrepresentation, and it was in breach of clause 10.1 (requiring the parties to act in a spirit of mutual trust and cooperation). The judge found that there was an estoppel, "most obviously by convention, but also by representation" meaning that Shoreline could not deduct the monies. Estoppel by convention arises where parties act on the basis of an assumed state of facts (in the particular case, a shared assumption as to the basis on which Mears were to charge for the works). The judge rejected arguments that a cause of action arose under clause 10.1, and noted that the obligation to act in a spirit of mutual trust and cooperation could not operate to prevent either party from relying on an express term of the contract which the parties had entered into freely. The case demonstrates the importance of ensuring that the contract price list or schedule of rates is workable in practice, and that the practical effect of clause 10.1 remains elusive.

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

Leeds City Council v Waco UK Ltd [2015] EWHC 1400 (TCC)

Here the court had previously refused to enforce an adjudicator's decision which ordered the defendant (LCC) to pay £500,000 to Waco, after it failed to serve the requisite payment notices. It instead gave them leave to defend, conditional upon paying to Waco the sum awarded by the adjudicator. LCC then brought Part 8 proceedings seeking a declaration that the adjudicator's decision was wrong because the payment application in question was invalid. The contract was a JCT 2005 rev 2 which contained the usual detailed provisions for applications for payment and the dates for submitting these. In practice, the applications were generally submitted several days after the agreed contract date. The disputed application was however submitted early, prior to the contractually agreed date and was found not to be valid. Accordingly the adjudicator's decision concerning it could not stand. The court therefore ordered Waco to repay the money received together with interest. The decision illustrates the importance for both parties of observing contractual dates when dealing with payment applications and notices.

 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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