UK: Projects And Construction Law Update - July 14, 2015

Last Updated: 16 July 2015
Article by Robert Meakin

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:

  • an appeal against an alleged overpayment pursuant to adjudication proceedings
  • whether a security document created a legal or equitable assignment of rights, which in turn affected who could sue under the assigned agreement
  • clarity when determining which documents are to be of contractual effect
  • whether a contribution claim could be brought out of time against a company where it had been part of a concealed cartel
  • certain limitation of liability provisions contained in standard terms which were unreasonable under UCTA

Industry news

Budget July 2015

Although there is little that's genuinely new from an infrastructure perspective in the budget and its accompanying "productivity plan", it's worth noting the infrastructure commitments that have been made or confirmed:

  • GBP 28 million in enhancement and maintenance of roads by 2021
  • A second Road Investment Strategy to be published before the end of this parliament
  • A new Roads Fund from 2020-21, under which all revenue raised from vehicle excise duty in England will be invested directly back into the strategic road network
  • Rebalancing of the economy through creation of the Northern Powerhouse, with further devolution to cities such as Manchester, Sheffield, Liverpool and Leeds
  • GBP 30 million investment to connect northern England, with Oyster-type ticketing
  • New enterprise zones for smaller towns
  • GBP 5 million additional investment for Midlands Connect, to develop transport connections across the region, in its capacity as "Britain's engine for growth"

A new announcement is the government's intention to place the Green Investment Bank in private hands,  thus ensuring its future sustainability whilst also removing state aid constraints.

RICS publishes new Property Measurement standard

The Royal Institution of Chartered Surveyors (RICS) has published the RICS Property Measurement, 1st edition. RICS Property Measurement comprises three elements:

  • Professional Statement: Office Measurement. This applies only to office measurements
  • International Property Measurement Standards (IPMS): Office Buildings
  • Code of Measuring Practice, 6th edition. This applies to all building classes except offices

This publication reflects the launch of the first international measurement standard, which aims to increase transparency and consistency in the way office buildings are measured globally. RICS Property Measurement will be updated to comply with other IPMS when they are published. The intention is that there will be IPMS for residential, industrial and retail buildings.

Late payment of commercial debts legislation: new regulation but no substantive change

BIS has published the Late Payment of Commercial Debts (Amendment) Regulations 2015 (SI 2015/1336).

The amendments are required to 'clarify' the complex provisions of section 4 of the Late Payment of Commercial Debts (Interest) Act 1998, which dictates the start date for statutory interest arising under the Act. Since 16 March 2013, this start date has been capped at 30 days for public authorities and 60 days (or more if not grossly unfair) for commercial debtors, implementing European Directive 2011/7/EU on combating late payment in commercial transactions.

The latest amendment replaces the most obscure subsections (4(3) to 4(5)), with a simpler, though still complex, set of subsections (4(2A) to 4(2I)). The effect of section 4 is unchanged. As amended, section 4 still only dictates the start date for interest under the Act. It does not affect the start date for contractual interest, or the date for payment of the principal debt.

ECJ decides against UK on reduced VAT for energy saving materials

The European Court of Justice has ruled in favour of the European Commission confirming that the 5% reduced rate which applies to energy efficient building materials in the UK infringes the EU VAT directive, meaning that all energy saving materials must now attract the full rate of 20%.   Member states may only apply a reduced rate of VAT for energy saving materials if it constitutes part of social policy.  The UK will now have to standard rate supplies which are not 'social policy' related, which will involve determining what constitutes 'social policy'.  The ECJ noted that the previous reduction had been applied regardless of the type of housing or its occupants.

HM Treasury publishes policy note on early termination of PPP contracts

HM Treasury has published a policy note on early termination of public private partnership (PPP) contracts, which typically are intended to continue for periods of 25 to 30 years.

The note only deals with voluntary terminations, and sets out:

  • the budgeting, accounting and fiscal implications of a voluntary termination of a PPP contract by an authority
  • the review and approval process that should be followed

The government anticipates that the number of voluntary terminations will remain low, due to affordability issues and the requirement to demonstrate value for money for the public sector as a whole. The termination of existing PPP contracts may only be approved where changes in circumstances make it likely that a significant improvement in the delivery of public value will be achieved.

Case law update

Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38

In this case, an adjudication dispute came before the Supreme Court for the first time. The case in question involved an appeal against an alleged overpayment pursuant to adjudication proceedings which had been issued a long time after contractual and tortious liability had arisen, meaning that shortly after the adjudicator's decision was received any further proceedings were time-barred.  The question the court had to consider was whether there was an implied term allowing the paying party (Aspect) to recover any payment made if it was subsequently established by litigation or arbitration proceedings that the payment was not due.  The Supreme Court held that, without such an implied term, adjudication made no sense as a provisional measure. As such, it found that it was "a necessary legal consequence of the Scheme implied by the 1996 Act into the parties' contractual relationship that Aspect must have a directly enforceable right to recover any overpayment to which the adjudicator's decision can be shown to have led, once there has been a final determination of the dispute". A fresh cause of action therefore arises with any payment made pursuant to an adjudicator's decision, and the limitation period for any such action runs from the date of such payment.  No corresponding cause of action, however, arises for the payee (Higgins) to recover any outstanding balance owing from its original claim.  In this regard the court noted that Higgins had decided not to commence proceedings to recover the balance of its claim following receipt of the adjudicator's decision.

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

Ardila Investments NV v ENRC NV and another [2015] EWHC 1667 (Comm)

Here the court considered whether a security document created a legal or equitable assignment of rights, which in turn affected who could sue under the assigned agreement (the Agreement).  The security document stated that the assignor assigned its rights in the assigned documents, including the Agreement "absolutely, subject to a proviso for re-assignment on redemption of the Secured Liabilities".  However, further provisions stated that the assignor was "and will at all times, save as provided in the security document, be the absolute, legal and beneficial owner of the Agreement".  Further, the assignor was obliged to "diligently pursue its rights, under the Agreement including bringing proceedings to protect the assignor's and assignee's (the lender's) interest in the Agreement". A separate provision confirmed that the assignee would have the right either in its own name or that of the assignor to bring or defend proceedings arising out of the Agreement.  To be absolute, the assignment had to comply with the requirements of s.136 (1) of the Law of Property Act 1925.  The court found that a number of the terms indicated it was not intended to take effect as an absolute assignment, for example the general reservation of the assignor's legal and beneficial ownership, and the obligation to pursue its rights under the Agreement.  The case highlights the difficulty of attempting to reserve rights for an assignor when an absolute assignment is intended.

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

Martifer UK Ltd v Lend Lease Construction (EMEA) Ltd [2015] ScotCS CSOH_81

A Scottish case provides a useful reminder of the need for clarity when determining which documents are to be of contractual effect.  In this case, the court had to consider whether a programme and information release schedule had been incorporated into the sub-contract documents, and if so, whether they amounted to a contractually binding programme.  The court found that, although the documents did form part of the sub-contract, they did not oblige the parties to complete the works in accordance with them.  In so doing, the judge considered the 'starting point' to be the relevant passage in Chitty on Contracts (31st ed) at 37-071,   "Thus, a programme setting out the contractor's intended sequence of work, even though the contract may require its provision, will generally not constitute a contract document.  Were it to bind the parties literally, the inevitable failure of one or both parties to comply in every respect would render one or both parties in breach." Noting inconsistencies in start and finish dates and by reference to other contractual obligations, it was found that the information release schedule was included merely to confirm the level by level, sector by sector, approach to be taken by the sub-contractor:

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

W.H. Newson Holding Ltd & Ors v IMI Plc & Anor [2015] EWHC 1676 (Ch)

In a case arising out of unusual factual circumstances, the court had to consider whether a contribution claim could be brought out of time against a company where it had been part of a concealed cartel.  In September 2006 the European Commission found that 30 companies had operated a cartel within the copper and copper alloy fittings market.  In May 2012 a claim for damages was brought by 23 companies within the Travis Perkins group against IMI and another cartel participant.  The claim was for EUR 390 million of alleged overcharges resulting from the inflated pricing operated by the cartel.  IMI in its defence alleged the claim was time-barred because the causes of action must have accrued prior to April 2004, which the European Commission found to be the end of the cartel period. However Travis Perkins argued that, due to the deliberate concealment of the cartel, the earliest it could have known about it in sufficient detail to plead a case was October 2007, and as such the limitation period was postponed.  In July 2012, IMI brought Part 20 proceedings claiming a contribution from a further 23 cartel participants.  One of the Part 20 defendants, Delta, alleged the claim was time-barred and that Travis Perkins had been aware of the price co-ordination.  After IMI settled with Travis Perkins in December 2014, it sought a contribution from Delta towards the amount paid in settlement.  Under section 1(4) of the Civil Liability (Contribution) Act 1978 (the Act), a defendant who has made payment in bona fide settlement of a claim may recover contribution provided that the defendant "would have been liable assuming that the factual basis of the claim against him could be established". The court then had to decide whether Delta could resist the claim using the time bar issues as a 'collateral defence' i.e. could Delta say that IMI had a complete defence to Travis Perkins' claim because Travis Perkins knew or could reasonably have known about the cartel at an early date. The High Court concluded that the kind of defence that could properly be described as a "collateral defence" is one where the burden of establishing the facts that would determine the issue would be on the defendant in the main action.  The burden of proving that limitation had been postponed fell on Travis Perkins, not on IMI, thus the court considered it did not form a collateral defence on which Delta could rely for the purposes of section 1(4) of the Act.

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

Saint Gobain Building Distribution Ltd (t/a International Decorative Surfaces) v Hillmead Joinery (Swindon) Ltd [2015] EWHC B7 (TCC)

The court found that certain limitation of liability provisions contained in standard terms were unreasonable under UCTA (the Unfair Contract Terms Act 1977) which applies to clauses in a company's standard terms which seek to restrict or exclude business liability.  Here, the claim (from IDS) was to recover the price of goods sold and delivered, which was met with a counterclaim (from Hillmead) alleging that certain of the goods supplied were defective. IDS argued that its standard terms operated to protect it from Hillmead's counterclaim.  For example, Hillmead was placed under a duty to inspect the delivered goods and notify IDS of any visible defects, failing which IDS would be under no liability for any "visual defects" (as defined) that would be apparent on careful inspection and, in any event, would be under no liability unless a written complaint were delivered to IDS within 3 working days of delivery or collection. Further, IDS would not be liable for any loss of profit, loss of business, loss of goodwill, loss of savings, increased costs, claims by third parties, punitive damages, indirect loss or consequential loss suffered by the customer in relation to the contract. It also attempted to exclude implied terms of satisfactory quality and fitness for purpose.  In applying the 'reasonableness test' when considering whether IDS could impose such terms on Hillmead, the judge decided as a starting point that the parties were of unequal bargaining power. The judge then held that the attempt to exclude the statutory implied term of satisfactory quality was unreasonable, particularly as it was not replaced by any other warranty as to quality.  The attempt to exclude all liability if the buyer failed to inspect and report was also found to fail the reasonableness test, as was an attempt to limit liability to replacement goods, or their invoice value.  The judge further found that the attempt to exclude consequential loss was unreasonable, particularly as the term was not negotiated and a term with less serious consequences (limiting liability to replacement goods) was found to be unreasonable. These cases will always turn on their own facts, but some of the judge's comments in relation to limiting liability may prompt those with standard terms to undertake a review.

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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