UK: Projects And Construction Law Update - October 13, 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:

  • enforcement of an adjudicator's decision arising out of an oral contract
  • challenging an automatic suspension put in place following an alleged breach of procurement regulations

Industry news

Low emission zone for construction machinery in London

On 1 September 2015, the Mayor of London introduced the world's first Low Emission Zone (LEZ) for non-road mobile machinery (NRMM) used in construction projects as part of efforts to reduce transport emissions. The Construction NRMM LEZ applies to construction projects in:

  • The Central Activity Zone or Canary Wharf
  • Greater London that are building more than ten homes or larger than 1,000 square feet

Construction managers will have to replace or retrofit construction NRMM with a net power of between 37 kilowatts (kW) and 560kW that are more than 10 years old and emitting nitrogen oxide or particulate matter (PM) over certain limits (subject to limited exemptions).

Amendments to energy performance regulations coming into force on 9 October 2015

On 15 September 2015, the Energy Performance of Buildings (England and Wales) (Amendment) (No. 2) Regulations 2015 (SI 2015/1681) (Supplemental Regulations) were laid before Parliament. They come into force on 9 October 2015 and amend the Energy Performance of Buildings (England and Wales) Regulations 2012 (SI 2012/3118) (Principal Regulations).

The Supplemental Regulations insert new regulations 34A, 34B and 34C into the Principal Regulations:

  • Regulation 34A requires local authorities to arrange for the enforcement of energy performance obligations against them in relation to their own buildings by agreement with the local weights and measures authority of another area. These agreements must be in place three months after the Supplemental Regulations come into force, or as soon as is reasonably practicable after that.
  • Regulation 34B requires that the enforcement authorities collect sufficient information concerning the buildings within their remit to enable them to plan effective enforcement action in accordance with guidance from the Secretary of State.
  • Regulation 34C requires enforcement authorities to report to the Secretary of State annually on action taken to enforce the Principal Regulations. The reports must also provide information on the agreements made between enforcement authorities under regulation 34A. The reports must be made in accordance with guidance from the Secretary of State, and may be published by the authority or by the Secretary of State.

Damages for late payment of insurance claims included in Enterprise Bill 2015-16

On 17 September 2015, the government published the Enterprise Bill 2015-16. The Bill introduces new sections 13A and 16A to the Insurance Act 2015.

Section 13A creates an implied term as to payment within a reasonable time and gives a remedy of contractual damages to the insured, in the event of a failure to comply. Under the current law, insurers are under no legal obligation to pay valid claims within a reasonable time. Section 16A allows parties to a non-consumer insurance contract to contract out of section 13A, provided that the insurer satisfies the transparency requirements set out in the Insurance Act 2015 and that the breach of the implied terms is not deliberate or reckless.

Key aspects of section 13A include:

  • What is reasonable in a given case will depend on all the relevant circumstances, including the type of insurance, size and complexity of the claim, compliance with relevant statutory and regulatory rules or guidance, and factors outside the insurer's control.
  • An insurer will not be in breach of the implied term where it fails to pay a claim and has reasonable grounds for doing so. However, the manner in which the claim is handled may be a relevant factor in deciding whether the term was breached.
  • An insured that has suffered loss as a result of the insurer's breach of the implied term will be able to claim damages from the insurer (over and above the primary sums due under the contract and interest).

The Bill had its first reading in the House of Lords and is scheduled to have its second reading on 12 October 2015.

National Infrastructure Plan for Skills: September 2015

HM Treasury has published National Infrastructure Plan for Skills: September 2015. The plan highlights the government's view that:

  • Over 250,000 construction and over 150,000 engineering construction workers will be needed by 2020, driving a need to recruit and train nearly 100,000 additional workers.
  • The industry will need to retrain and up-skill around 250,000 of its existing workforce.
  • It is currently difficult for skilled workers to move easily between sectors and projects.

It sets five challenges for the future: providing leadership and co-ordination; improving supply and demand data; incentivising skills investment through procurement; improving mobility and existing workforce skills; and encouraging young people to join the industry, alongside greater diversity within it.

It remains to be seen how government and industry will respond to those challenges.

To read more, please click here.

National Infrastructure Commission

Earlier this month the government announced a new, independent 'National Infrastructure Commission' (NIC), headed by former Labour peer, Lord Adonis, which will be charged with offering unbiased analysis of the UK's long-term infrastructure needs across housing, transport and energy, amongst other things.

Although started on an interim basis, the NIC will be put on a statutory footing at a later date. It will deliver a long-term assessment of national infrastructure needs and predict what will be required to meet those demands.

The NIC will focus on:

  • Connecting the Northern cities, including via high speed rail (HS3)
  • Investment in London's public transport infrastructure
  • Future demands for energy, and how the government can meet those demands efficiently

To read more, please click here.

Case law update

Purton (t/a Richwood Interiors) v Kilker Projects Ltd [2015] EWHC 2624 (TCC)

Here the TCC had to decide whether to enforce an adjudicator's decision arising out of an oral contract. The case involved a subcontractor (Purton) who had agreed to carry out joinery works for main contractor (Kilker) at the Dorchester Grill. Although there was agreement as to the original scope and price of the works, a formal contract was not entered into. Purton subsequently initiated adjudication proceedings after its application for a GBP 150,000 payment remained unpaid and no notices were served in respect of it. The adjudicator decided that, in the absence of any notice, Kilker should pay the full amount of the application.

When Purton did not receive payment, it issued proceedings for enforcement of the decision. Kilker argued that there was no contract, or alternatively the contract was made on a different basis from that contended for by Purton. The court however found that there was 'substantial' performance on both sides, with Purton doing works and Kilker making payments to the value of GBP 654,000. The judge therefore found it 'unrealistic' to suggest that there had been no legally binding agreement between the parties.

In determining that the decision should be enforced, the judge considered that Kilker did not have reasonable prospects of successfully defending the claim, particularly as whether the contract was in the precise terms alleged by Purton, or different terms, would not affect the applicability of the Scheme for Construction Contracts, or the substantive outcome. Any contract would have brought the Scheme into play, and at that point the adjudicator's substantive reasoning would apply. This was clearly a case where the parties' conduct was sufficient for both the adjudicator and the judge to conclude a contract existed between them. One of the concerns of extending adjudication to oral contracts was whether an adjudicator would be able to decide whether an oral contract had been concluded, and if so on what basis, given the fact that adjudications are largely conducted on paper.  This case involved dealings between the parties which clearly showed initial agreement as to the nature and pricing of the works was in place.

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

Wycombe Demolition Ltd v Topevent Ltd [2015] EWHC 2692 (TCC)

In this case, Coulson J enforced an adjudicator's decision also arising out of an oral contract. The parties were in agreement that a contract was in place, but not as to when it was made or its terms. Wycombe had been employed to carry out demolition works. Topevent claimed the works were incomplete and therefore failed to pay a number of Wycombe's invoices.  Wycombe subsequently issued adjudication proceedings, claiming GBP 137,000. Topevent in response sought a revaluation of the works carried out by Wycombe, and counterclaimed for the cost of completing outstanding works. The adjudicator decided that Topevent should pay Wycombe GBP 114,000. When that amount was not paid, Wycombe issued enforcement proceedings. Topevent resisted enforcement on the grounds:

  • that multiple disputes had been referred to the adjudicator;
  • that the adjudicator's refusal to have a site visit was a breach of natural justice; and
  • that the adjudicator's valuation was not on a basis advanced by either party and was therefore a breach of natural justice.

The court rejected the "multiple disputes" argument, noting that Wycombe was seeking one final payment so that it could close its books on the contract. The allegation concerning the site visit was described as "hopeless" and also rejected. In relation to the third argument, the judge noted that the adjudicator was "faced with a myriad of different approaches to valuation", and having considered both parties' submissions, came up with his own valuation, which he was entitled to do.

This case, whilst fairly standard in terms of the arguments between the parties, was unusual because it arose from an oral contract. As noted in the commentary on Purton v Kilker, there has been a certain amount of curiosity about how adjudicators and the courts will deal with disputes arising from oral contracts. In both of these cases, there was fairly clear agreement either directly or by conduct, that a contract was in place.  It remains to be seen how effective adjudication is when for example deciding whether a contract in fact came into existence.

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

OpenView Security Solutions Limited v The London Borough of Merton Council [2015] EWHC 2694 (TCC)

In this case the local authority applied to set aside an automatic suspension put in place following issue of proceedings for breach of procurement regulations. The starting point, following the principles set out in American Cyanamid Co v Ethicon Ltd, is that no interlocutory injunction should normally be granted where damages would be an adequate remedy. The court noted that the public interest element of the case did not change the American Cyanamid principles, but that it was relevant when applying them.

OpenView submitted that damages would be inadequate because they would be assessed on the basis of a loss of a chance and would be unacceptably difficult to assess. The judge rejected these arguments. OpenView also argued that it would face a loss of reputation if it failed to be awarded the contract, but the judge was not persuaded on the available evidence that OpenView would lose future contracts if it were not awarded the Merton contract. The judge noted that OpenView had not committed resources to the project and was therefore not being deprived of existing market presence, only of increasing it in the future. Such disadvantage he found to be relative, transient and minor. The judge therefore concluded that damages would be an adequate remedy and the automatic suspension should be set aside:

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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