UK: Projects And Construction Law Update - March 2016

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:

  • the dangers of relying on stage payments not linked to progress
  • the requirement for consent for hearing multiple adjudication disputes
  • implying a term into a contract where the Scheme provided an unworkable solution
  • varying a contract by email
  • the application of UCTA to standard subcontract terms
  • accepting liability for NHBC warranty cover

Industry news

JCT announces new features of 2016 editions

The JCT has revealed some of the changes that will feature in its 2016 edition contracts. As expected, the 2016 edition will incorporate previous updates to the 2011 edition, such as those included in the JCT's Public Sector Supplement, its CDM amendment sheets and its named specialist update. Other changes include:

  • Altering the payment provisions to reflect fair payment principles and to simplify the payment regime
  • Catering for the Public Contracts Regulations 2015 (SI 2015/102)
  • Extending Insurance Option C so that it allows alternative solutions to the problem of obtaining existing structure insurance for a contractor

In terms of ancillary documents, the 2016 editions will provide for a performance bond, a parent company guarantee and for sub-contractors granting third party rights under the Contracts (Rights of Third Parties) Act 1999.  The new suite will be released in contract 'families' starting with the Minor Works in May, and then releasing the Design and Build, Intermediate and Standard forms, before moving on to the less popular forms, which may not be released until early in 2017.  The 2011 contracts will be phased out over a 9 month period, starting from May.

Sentencing guidelines effective from 1 February 2016

A reminder that the Sentencing Council has published its definitive sentencing guidelines covering corporate manslaughter, health and safety, and food safety and hygiene offences, following last year's public consultation on the draft guidelines.

The guidelines came into force in England and Wales on 1 February 2016 and apply to any case sentenced on or after that date.

The guidelines span a range of offences and, unlike the previous guidelines published by the predecessor body (the Sentencing Guidelines Council), they do not just cover offences causing death but include causing harm and the risk of harm.

Companies convicted of the most serious offences, where they have flagrantly breached the law and created a very high risk of serious harm, or where serious harm has actually been caused, can expect to receive a fine proportionate to the seriousness of the offence and to their financial means. In the most serious of circumstances, large organisations (turnover of > GBP 50 million) could now be faced with fines of up to GBP 10 million (or potentially more than this in the case of very large organisations), whilst individual offenders could be handed custodial sentences of up to 2 years.

Draft apprenticeship levy legislation published

HMRC has published draft legislation introducing the proposed new apprenticeship levy. Comments were invited by 2 March 2016. The levy is to have effect from 6 April 2017.

Industry reaction to the proposed levy has not been positive, as it is considered to be a new payroll tax. HMRC comments that employers that are committed to training will get more back than they put in via the levy by training a sufficient number of apprentices. However, at this stage, it is unclear how the Construction Industry Training Board's (CITB) existing arrangements in the construction industry will be affected by the new levy.

Jackson recommends fixed costs for claims up to GBP 250,000

In a speech at the IPA annual lecture, Jackson LJ suggested that costs for claims up to GBP 250,000 should be fixed in a series of bands, as follows:

  • Band 1: GBP 25,000 to GBP 50,000
  • Band 2: GBP 50,001 to GBP 100,000
  • Band 3: GBP 100,001 to GBP 175,000
  • Band 4: GBP 175,001 to GBP 250,000

The costs would be fixed for each of the 10 stages contained in costs precedent H. Uplifts would be applied for work being carried out in London, and for particular categories of claim, including for construction claims.  It is anticipated that the government will consult on the proposed regime during the year.

CIOB publishes user notes for Time and Cost Management Contract 2015

The Chartered Institute of Building (CIOB) has published a substantial "user notes" document to be used with its Time and Cost Management Contract 2015. This document explains the contract documents, the parties' roles and responsibilities and some of the contract's key features. It also includes a model project timeline and a series of flow charts illustrating some of the contract processes.

To read more, please click here.

Case law update

Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC)

Here the TCC has found that a contractor had no right to make interim payment applications once a payment schedule had expired, although the works were ongoing. The contract, worth GBP 121 million, started in July 2013 and was due to complete in July 2015, but the works were still incomplete in January 2016 when the employer sought a declaration from the court concerning the contractor's right to submit further payment applications.

The form of contract was a JCT D&B 2011, with bespoke amendments.  The parties had elected Alternative A (stage payments) and agreed a schedule of 23 interim payment applications covering the payment period.  The contractor had issued a 24th payment application in August 2015, and received an adjudicator's decision enforcing payment of it.  The employer issued part 8 proceedings, seeking a decision from the court that the contractor had no right to issue the additional payment application.  Alternatively, that it had served a pay less notice in time. 

The judge considered whether the Scheme for Construction Contracts would operate to imply any payment terms into the contract, but concluded that it was unnecessary because the parties had agreed the amounts and intervals of payments.  The fact that these did not cover all of the works did not mean the Scheme had to be imported to supplement the agreement.  Accordingly, the contractor was not entitled to issue application no. 24.  The decision highlights the importance for contractors when agreeing to a schedule of stage payments to agree a mechanism for additional payments should the works continue beyond the dates envisaged by the schedule. It is also worth noting that the bespoke payment provisions did not link the payments to progress of the works, as contemplated by the JCT drafting.  Contractors agreeing to stage payments need to be aware of the risk of agreeing to stage payments which are not linked to the works.

To read more, please click here.

Deluxe Art & Theme Ltd v Beck Interiors Ltd [2016] EWHC 238 (TCC)

Coulson J enforced one adjudication decision, but refused to enforce a second on the grounds that the same adjudicator could not adjudicate on more than one set of proceedings without the parties' consent.  The respondent Beck had engaged Deluxe as joinery subcontractor, but after issues arose relating to (i) variations and acceleration, (ii) EOTs and prolongation, and (iii) retention, Deluxe referred three separate disputes to adjudication, with the same adjudicator being appointed on each occasion. 

Adjudication 3 was commenced prior to the adjudicator reaching a decision in adjudication 2, and Beck wrote to the adjudicator objecting to his dealing with two disputes at the same time.  After Beck failed to comply with the decisions in adjudications 2 and 3, Deluxe sought enforcement in the TCC.

Beck argued that the adjudicator had breached the rules of natural justice in adjudication 2, but the judge disagreed and enforced the decision.  However he declined to enforce the decision in adjudication 3 because it constituted a separate dispute, and Beck had not consented to the adjudicator dealing with more than one dispute at a time as required under paragraph 8(1) of the Scheme.  He also clarified that paragraph 8(1) is not limited in its application to circumstances where more than one dispute is set out in a notice of adjudication. 

It is clear from this decision that if the parties wish an adjudicator appointed under the Scheme to deal with more than one dispute at a time in separate adjudication proceedings then they need to consent to it.  In the absence of such consent, the referring party will have to wait until one adjudication has concluded before referring another to the same adjudicator.

To read more, please click here.

Manor Asset Ltd v Demolition Services Ltd [2016] EWHC 222 (TCC)

Here the court found an implied term in a building contract to allow it to comply with the Housing Grants, Construction and Regeneration Act 1996 (Construction Act).  The amended JCT minor works contract provided for final payment to be made 72 hours after receipt of an invoice.  However the pay less notice provisions had not been amended, meaning that service of a pay less notice had to occur prior to the issue of the invoice (being 5 days before final date for payment).   When the employer served a pay less notice on 28 October, 5 days after an invoice issued on 23 October, the contractor started an adjudication, claiming the notice was invalid. 

The adjudicator found for the contractor, deciding that the notice should have been served on 21 October, before the invoice was issued.  The employer issued court proceedings for a declaration (i) that the decision was unenforceable as the adjudicator had breached the rules of natural justice, and (ii) as to the correct date for service of a pay less notice.  The judge enforced the adjudicator's decision, noting there had been no breach of the rules of natural justice.  He then went on to consider the correct date for service of a pay less notice.  Although the contractual provision was unworkable, substituting the provisions of the Scheme would be of no assistance, as these would also provide for the pay less notice to be provided prior to receipt of the invoice. 

The court therefore held that the only solution was to find that the parties had impliedly agreed the prescribed period for service of the pay less notice was 'nil', meaning it could be served right up to the final date for payment.  This solution was not one that had been proposed by the parties, but represented perhaps the best outcome, where relying on the Scheme would not solve the problem.  It is likely there will be only rare occasions where it will be appropriate to imply a term in lieu of importing the Scheme.

To read more, please click here.

C&S Associates v Enterprise Insurance [2015] EWHC 3757 (Comm)

In this case, the High Court found that a relatively informal exchange of emails was sufficient to constitute a variation to the contract.  The contract included a fairly standard clause which provided that any variation to the contract had to be in writing and signed by or on behalf of both parties.  The judge held that email correspondence including standard signature blocks would be sufficient to satisfy the requirements of the clause, providing that the other legal requirements for contract formation and variation (such as intention to create legal relations) were also present.  

The judge found they were so satisfied and accordingly the email exchange did constitute a variation to the contract.  The clause in question was worded "Any variation of this Agreement shall not be effective unless made in writing and signed by or on behalf of each of the Parties to this Agreement."

The judge found that it did not require manuscript signatures, paper documents or both parties to have signed the same document.  An exchange of emails, where one email contained an auto-signature, were sufficient. Although it was clear from the evidence that the parties had intended to subsequently enter into a formal contract recording the variation, the decision creates the possibility that contracts may be varied unintentionally as a result of email exchanges, and thought should be given to clarifying the requirements for a formal variation when drafting such clauses.

To read more, please click here.

Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd and another [2016] EWHC 76 (TCC)

Here the court considered the application of the Unfair Contract Terms Act 1977 (UCTA) to a set of standard subcontract terms. The contractor, Mitchell was engaged to design and build a warehouse.  It subcontracted ground treatment works to a sub-contractor, Regorco (formerly Roger Bullivant).  The works were completed, and the warehouse was subsequently acquired by Commercial Management.  They brought a claim against Mitchell and Regorco (under a collateral warranty) following settlement of the warehouse slab.

The court considered a number of preliminary issues governing the subcontract between the parties, in particular whether Regorco's standard terms had been incorporated into the sub-contract, and if so whether UCTA applied and if so whether clause 12(d) limiting the time in which claims might be brought was reasonable. 

The court held that the sub-contract terms did not need to be incorporated in their entirety for UCTA to apply, but that clause 12(d) had not been incorporated. If it had been, UCTA would have applied as it formed part of the written standard terms of business, and the clause would not have satisfied the reasonableness test due to the difficulties of complying with it (it set a 28 day time limit for notifying a claim).

To read more, please click here.

Larkfleet Ltd v Allison Homes Eastern Ltd [2016] EWHC 195 (TCC)

The TCC considered whether a contractor had extended limitation for claims where it accepted liability for NHBC warranty cover.  The employer Larkfleet engaged contractor Allison (in fact Swallow Homes subsequently acquired by Allison) to build homes in Peterborough.  The form of contract was a JCT 1998 WCD with amendments, which was signed under hand in September 2001, giving a 6 year limitation period. 

Somewhat unusually Larkfleet registered itself as 'builder' for the purposes of the NHBC warranty cover, but inserted a provision at clause 2.5.5. of the building contract "the contractor warrants to accept responsibility for any defect and any expense incurred due to defective work for the period of 10 Years for the NHBC warranty." After completion, the houses were sold in 2002 with the benefit of NHBC cover until 2012.  Prior to expiry of the NHBC cover, defects emerged in 3 houses, and the owners made successful claims to the NHBC, which then sought reimbursement from Larkfleet in 2011. Larkfleet notified Allison of the defects, but Allison responded that any claim was time-barred.

Proceedings were issued, and at a hearing of preliminary issues, the court considered whether Larkfleet's claim against Allison was time-barred or whether clause 2.5.5 made Allison responsible for NHBC claims. Fraser J held that the clause meant Allison had accepted responsibility for defects arising during the 10 year NHBC liability period, thus extending liability beyond that which would otherwise have existed under the contract. 

It is a useful reminder to contractors that specific provisions in a contract may serve to limit or extend liability beyond that which would otherwise exist at common law.

To read more, please click here.

Projects And Construction Law Update - March 2016

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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