UK: Projects & Construction Law Update - July 2017

Last Updated: 11 September 2017
Article by Robert Meakin

Most Read Contributor in UK, December 2017


"Me first... No me first!" – Applications to challenge public procurement decisions

Alstom Transport UK Ltd v (1) London Underground Limited (2) Transport for London [2017] EWHC 1406 (TCC)

Debates around the proper interplay of applications to lift suspension of a contract and applications for specific disclosure regularly recur in public procurement work.  Which one should come first? Is there a standing principle that applies in all cases? The recent case of Alstom Transport UK Ltd v (1) London Underground Limited (2) Transport for London [2017] EWHC 1406 (TCC) answers these questions, clearly setting out the relevant principles and considerations involved. 

Challenges to public procurement processes are not uncommon in the UK.  When such proceedings are commenced, the award of the contract in question is automatically suspended.  This can often lead to a 'battle of the applications' where the authority seeks an urgent application to lift the suspension and the unsuccessful tenderer seeks specific disclosure of documents to show a serious question to be tried and resist the application.  The question is who comes first?

Briefly, Alstom sought to challenge the outcome of a tender process in which it was unsuccessful.  As a result, London Underground Limited ('LUL') could not award the contract to the successful tenderer.  LUL sought an urgent application to lift the suspension under Regulation 47H of the Public Contracts Regulations 2006.  Alstom subsequently applied for specific disclosure of documents relating to the tender, which LUL had continually refused to provide.  The principal issue before the court was whether it should hear the application for specific disclosure before the application to lift the suspension.

LUL argued that the "usual case" was for specific disclosure applications to be heard after those to lift the suspension of the contract.  However, Coulson J rejected this argument, stating that he did not agree there was any established principle to this effect: "These cases always turn on their own facts and it would be dangerous to set out any overarching principle or general rule".

Coulson J confirmed that the standard American Cyanamid test for interim injunctions applies when a court is considering any application to lift an automatic suspension and, accordingly, a critical element for an unsuccessful tenderer to successfully resist such an application is to show there is a serious question to be tried.  If its ability to show this turns on the disclosure of the specific documents sought, such that justice cannot be done without sight of the relevant documents, then the suspension hearing would have to be adjourned.

He acknowledged the need to balance this against policy considerations which emphasise that hearings to lift should be heard as soon as possible.  However, he also observed that the courts must be astute to prevent a defendant from obtaining an unfair advantage by refusing to disclose the documents sought, and then pointing to the absence of such documents to show there is not a serious issue to be tried: "the safest course will sometimes be to fix the specific disclosure application first in any event".

The court found in favour of Alstom and re-ordered the hearing dates so its application for specific disclosure came first.  The specific circumstances of each case are paramount and there is no overarching rule that can be applied across the board, as to which application should come first.  However, if a party can show that disclosure of certain documents will go to the substance of a serious question to be tried, it is likely to be successful in having its application heard first.

"It does what it says on the tin" – A more lenient approach to exemption clauses

(1) Persimmon Homes Ltd (2) Taylor Wimpey UK Ltd (3) BDW Trading Ltd v (1) OVE Arup & Partners Ltd (2) OVE Arup & Partners International Ltd [2017] EWCA Civ 373

This case dealt with an exemption clause in a professional appointment (and related warranties) which limited the consultant's aggregate liability and which also contained a specific exclusion for liability relating to asbestos.  After commencement of the works, a large amount of asbestos was found on the site and the claimants sought to hold the defendants negligent for having failed to identify it – arguing that the exemption clause did not apply in the circumstances. However, the court followed the increasing trend in recent years to afford greater leniency in regard to exemption clauses, acknowledging the growing recognition that commercial parties should be free to allocate risks as they see fit.

In this case, the defendant engineers failed to report the presence of a large quantity of asbestos on the site and, when discovered, the claimant development consortium sought to hold them negligent.  However, the professional appointment included an exemption clause which read as follows:

"The Consultant's aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory duty or otherwise (other than for death or personal injury caused by the Consultant's negligence) shall be limited to £12,000,000 (twelve million pounds) with the liability for pollution and contamination limited to £5,000,000 (five million pounds) in the aggregate. Liability for any claim in relation to asbestos is excluded." (Emphasis added).

The related warranties contained a similar exemption clause, the only difference being that the aggregate liability was limited to £5 million pounds (instead of £12 million pounds). 

The consortium argued that the exemption clause did not apply in the circumstances for the following reasons:

  1. The clause only excluded the defendants' liability if they had 'spread' the asbestos as opposed to simply failing to alert the consortium to its existence. In this regard, the consortium put forward an alternative construction that the words should read 'liability for causing any claim in relation to asbestos'.
  2. If the first ground failed, they argued that the second sentence did not exclude liability for negligence and the contra proferentum rule applied such that the clause should be construed strictly against the defendants.

The court rejected the consortium's first argument, not least for grammatical reasons (as the reading of the clause would be unworkable) but also because it did not reflect business common sense.  Jackson LJ made clear that if the clause was to be interpreted as alleged it would mean that the consultant would be liable for failing to report the asbestos, but not for moving it to a different location within the site.  This would create a wholly bizarre situation.

In relation to the second argument, Jackson LJ held that the contra proferentum rule did not apply because the clause was clear and unambiguous.  The language was wide enough to exclude negligence.  The court acknowledged that the Canada Steamship approach, which states that if there is doubt as to whether an exclusion clause covers negligence then the clause must be interpreted against the party seeking to rely on it, is now more relevant to indemnity clauses and, in this regard, the courts have softened their approach.  Ultimately, "In major construction contracts the parties commonly agree how they will allocate the risks between themselves and who will insure against what. Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down." 

As a result, the court rejected the claimants appeal on every ground, allowing any liability for the defendant's failure to report asbestos to be excluded.

This case emphasises the more lenient approach the courts are now taking in regard to such clauses – particularly where sophisticated commercial parties of equal bargaining power are involved.  In situations like this, where the clause is clear in what it excludes, the natural meaning should be preserved.  The contra proferentum rule will only apply where there is genuine ambiguity and the clause is capable of two competing meanings. The court will not allow parties to create their own ambiguities by relying on convoluted interpretations.  

"Dot your 'I's and cross your 'T's" – Always consider the consequences of your amendments

GB Building Solutions Ltd v SFS Fire Services Ltd (t/a Central Fire Protection) [2017] EWHC 1289 (TCC)

It's easy, when negotiating a contract, to find yourself in a situation where you are required to agree a compromise position, accept wording that could be phrased in more precise terms or 'rush through' those final amendments to get the deal done.  However, if the consequences of amendments aren't properly thought through, you could find yourself fighting a losing battle down the line.  This case is a reminder of the importance of giving due consideration to the consequences of deviations from standard terms and the current position taken by the courts with respect to principles of contractual interpretation.

Matters of contractual interpretation regularly feature as preliminary issues in construction disputes.  The law in relation to contractual interpretation has been considered by a great many cases and continues to develop.

The position as it currently stands requires the court to ascertain the objective meaning of the language in which the parties have chosen to express their agreement, taking into account the contract as a whole and giving more or less weight to factual circumstance depending on the sophistication of the document in question.  

As per Lord Clarke in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, interpretation is a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival construction by reaching a view as to which construction is more consistent with business common sense.  However, it must balance against this, considerations such as the quality of the drafting, the possibility that one side may have agreed to something that, in hindsight, did not serve its interest and the possibility that a provision may be a negotiated compromise or one that could not be agreed in more precise terms.

This case is a prime example of how the current principles of contractual interpretation will be applied in practice.  It related to a form of JCT design and build subcontract which attached a schedule of amendments.  The defendant ('SFS') was a sub-contractor, who designed and built a sprinkler system for an office building.  A flood later occurred and the claimant main contractor ('GB') contended that the sub-contractor was at fault.

A preliminary issue was whether the flood occurred before or after the "Terminal Date", which was defined in the standard subcontract conditions as the 'date of practical completion of the Sub-Contract Works or, in respect of a Section, of such works in the Section, as determined in accordance with clause 2.20'.  If the flood occurred before the Terminal Date, the claimant had no claim (as they were co-insured up to that point), whereas, if it occurred afterwards, the claimant did have a claim.

The court had to decide whether or not the 'date of practical completion of the subcontract works', as referred to in the definition of Terminal Date was:

  1. to be read as the defined term "Practical Completion", which was set out in the schedule of amendments and defined as the 'issue of the certificate of practical completion pursuant to the main contract'; or
  2. to have the meaning given in clause 2.20, in which case it would be deemed to occur on a certain date following notice from the sub-contractor and no subsequent dissent by the contractor.

It emerged that in a number of places in the sub-contract – including the definition of Terminal Date and clause 2.20 - references to "practical completion" had not been capitalised as per the defined term in the schedule of amendments.  Despite this, SFS argued for the capitalised term to apply in such instances (based largely on the fact that the schedule of amendments took precedence).

In considering the issue, Davies J noted that where two rival interpretations are plausible the court has to undertake the "iterative process" of checking each interpretation against the provisions of the contract and investigating the commercial consequences of each – i.e. the "unitary exercise" referred to above in the context of the Rainy Sky case.  He noted that neither side gained any advantage from the argument that the other party's interpretation offended the principle of commercial common sense, despite both seeking to rely on it. 

In coming to its findings, the court was of the view that the lack of capitalisation in certain places was important.  The clause which gave precedence to the schedule of amendments only applied if there was an inconsistency between terms (in such cases the schedule would take priority).  However, in Davies J's view, there was no inconsistency, as the "Practical Completion" definition and "Terminal Date" definition simply applied to different parts of the contract.  Accordingly, there was no reason for the definition of "Practical Completion" to replace the lower case wording and thereby alter the meaning of those provisions where it was not expressly used.

The court found, therefore, that the second interpretation referred to above applied and that the contract was perfectly workable in that instance.  By consequence the flood occurred after the "Terminal Date" and the claimant could maintain its claim.

The message that emerges from this case is clear.  It is vital to ensure that, when amending a contract, amendments are fully and comprehensively considered and flowed through the contract where required.  The courts have settled principles of contractual interpretation to follow and a party cannot easily rely on the argument that a specific interpretation was intended, where it is not expressly set out.  The courts will favour an objective interpretation that affords the most commercial common sense, bearing in mind textual and contextual considerations.  Provided the contract is workable, the courts are not inclined to stray far from the express language of the contract.

Industry and regulatory update

Launch of NEC4

On 22 June 2017, the NEC launched their NEC4 suite, which included a new Design, Build and Operate Contract and a consultative version of an Alliance Contract. 

The latest suite has been promoted as one of evolution rather than revolution.  One of the key aims of NEC was to reduce over reliance on Z-Clauses.  As a result, a number of provisions that are usually incorporated by way of Z-Clauses have been built into the NEC contracts as core or secondary options, for example, provisions for collateral warranties, bribery and corruption and assignment, to name a few.

Other key changes include making provision for:

  • consensual dispute resolution (prior to other formal processes) and dispute avoidance boards (which will be mandatory where the HGCRA 1996 does not apply);
  • a final assessment process, allowing for periodic reviews of the contractor's Defined Costs throughout the project to avoid major disputes at the end; and
  • allowing the Contractor to propose changes in Scope, to achieve cost savings, which could be shared between the Employer and Contractor.

We are undertaking a thorough review of the new NEC4 ECC and will be publishing a detailed article regarding the changes shortly.

The House of Commons Library publishes briefing paper on planning for Nationally Significant Infrastructure Projects

On 13 June 2017, the House of Commons Library published a briefing paper on Planning for Nationally Significant Infrastructure Projects ('NSIPs'). NSIPs are large scale developments (relating to energy, transport, water, or waste) which require "development consent" under the Planning Act 2008 (as amended).

The briefing paper looks at the following topics:

  • the legal framework for obtaining development consent for NSIPs;
  • National Policy Statements, which set out the national policy in relation to different categories of NSIPs;
  • the process of obtaining development consent for NSIPs; and
  • the National Infrastructure Commission (an independent body which aims to provide expert, impartial analysis of long-term infrastructure needs).

The Local Government Association publishes guide on the use of Dynamic Purchasing Systems

On 13 June 2017, the Local Government Association ('LGA') published its guide for local authorities on the use of Dynamic Purchasing Systems ('DPS') in the public sector.

A DPS is a form of electronic framework agreement, used exclusively by the public sector, to which new suppliers can be added at any time during the DPS' validity.

DPSs aim to streamline procurement, reducing the amount of administrative work required and consequently saving time and money in the tender process.

The LGA's guide follows a review, in conjunction with the National Advisory Group for Local Government Procurement, on the reasons for limited uptake of DPS. The guide provides case study examples and suggestions on when a DPS might be best used.

Clyde & Co in the news

Dennis Wong, a partner in our Hong Kong and Beijing offices, was quoted in China Daily and XFA Finance about Chinese construction firms planning major global infrastructure projects and how such projects will be funded, commenting that: "...there is still a significant gap between the money required and the money available to fund these infrastructure projects".

View the full China Daily article here.

Robert Meakin, a partner in our London office, was quoted in a number of publications in relation to the recent UK election results. In The Telegraph he commented on the Brexit deal and the potential for a 'softer' Brexit, saying: "A hung parliament could be the worst possible result for business, with the economy already struggling with the uncertainty of Brexit, the last think we need is further confusion and delay in the government's investment strategy.

The Article 50 clock is also ticking and business will be eager to ensure that there is a clear and consistent voice at the negotiating table, so as to minimise further damage to the economy. The sooner a viable government is in place, however it's composed, the better."

Read the article here.

Liz Jenkins, a partner in our London office, was also quoted in the CIOB's Construction Manager following the Queen's Speech about Brexit, saying: "There was a brief mention of an Immigration Bill, which doesn't give much away about Theresa May's current thinking on the issue and her stance towards it with Brexit negotiations in mind.

We all know that the skills shortage for the construction industry is a critical issue that needs addressing. We must continue to make noise about this, so that the government is aware of just how severe a situation this could become post-Brexit."

Read the article here.

Projects & Construction Law Update - "Me First... No Me First!" – Applications To Challenge Public Procurement Decisions

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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