Worldwide: 2017 – A Detailed Year In Review

Last Updated: 9 February 2018
Article by Clyde & Co LLP

JANUARY

UK

In Carillion Construction Limited v Emcor Engineering Limited and Others [2017] EWCA Civ 65 Carillion contended that the wording of a particular clause and commercial common sense warranted a move away from the traditional approach of awarding contiguous EOTs, allowing it instead to grant non-contiguous EOTs to its subcontractor.

The case involved a 182 day delay for which Carillion blamed Emcor (in part). However, events had also occurred post-completion that would otherwise entitle Emcor to an EOT. Carillion argued that any EOT should be added non-contiguously. That is, not run continuously from the end of the current period for completion but be fixed at a later date to accurately reflect the period for which Emcor had been delayed but also take into account the period for which it was in culpable delay. Per this approach Emcor would bear the responsibility for the delay that it caused and be liable to Carillion for damages for the period between the original date for completion and the beginning of the new delaying event for which Emcor was entitled to an EOT. In contrast, under the established approach, Emcor would be exempted from liability during a period when it was in culpable delay and then be made liable during a period when it was not in culpable delay. The loss and damage suffered by Carillion during those two periods would not be the same – one of the parties would gain a windfall benefit.

The Court of Appeal rejected Carillion's arguments but acknowledged that the finding created an anomalous and potentially unfair situation. The natural meaning of the clause in question meant that the EOT should be granted contiguously, as the effect of an EOT was to revise the current period for completion and not grant separate periods with their own start and end dates.

Whilst the court recognised the logic in Carillion's argument, it was noted that only in exceptional circumstances could it depart from the natural meaning of wording for reasons of commercial common sense. Essentially, it was an example of a party negotiating a bad bargain.

Canada

In Construction Excedra Inc. v. Kingdom of Saudi Arabia, 2017 ONSC 105, the Ontario Superior Court of Justice held that construction liens do not attach to land with diplomatic immunity. Any notes or certificates issued by Canada's Department of Foreign Affairs are conclusive proof of the diplomatic status of land and apply retroactively.

Canada

The Manitoba Court of Queen's Bench in Manitoba Housing and Renewal Corp. v. Able Eavestroughing Ltd., 2017 MBQB 27, found that the Canadian Revenue Agency has priority over subcontractors and bonding companies with respect to holdback funds held by the owner in trust for the contractor. The Court held that the rights of the Crown, as stipulated by the Income Tax Act, cannot be displaced by private arrangements. Even though the unpaid sub-contractors and bonding company were potentially entitled to the holdback funds, employers' withholding tax or source deductions are at the heart of Canadian income tax collection procedures, and private arrangements cannot interfere with that right.

Australia

In Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52 the High Court of Australia:

  • held that the existence of a reference date under a construction contract is a precondition to the making of a valid payment claim under s. 13(1) of the New South Wales security of payment legislation;
  • affirmed the position that only one payment claim may be made in relation to a reference date;
  • held that references dates do not accrue after termination of the contract, unless the parties clearly agree otherwise; and
  • held that it is possible for the accrual of reference dates to be suspended by the operation of the contract (for example, by taking work out of the contractor's hands).

Principals and contractors operating in Australia should take careful note of this decision. Contractors should seek to include provisions in contracts that ensure the continued creation of reference dates after the termination of the contract (especially in circumstances where the termination flows from the principal's breach) and limit the circumstances in which the accrual of reference dates can be suspended.

Australia

The Supreme Court of Western Australia demonstrated its commitment to supporting arbitration as a method of dispute resolution, by providing clear procedures for parties to make applications in relation to arbitration agreements or proceedings, in the form of the Supreme Court (Arbitration) Rules 2016 (WA) and relevant forms (Arbitration Rules). The Arbitration Rules came into force on 3 January 2017 and apply to both international and domestic arbitrations.

The Arbitration Rules cover the following procedures:

  • Staying proceedings or referring them to arbitration
  • Setting aside or enforcing an arbitral award or procedural order
  • Issuing subpoenas for documents or witnesses
  • Disclosure of confidential information
  • Seeking interim measures

Arbitration is increasing in popularity as a dispute resolution mechanism, particularly in the projects and construction industry where large, multinational players often seek to take advantage of the benefits of the arbitral process (e.g. confidentiality, flexibility of process, and choice of governing law). It is therefore important for domestic courts to have clear procedures for the commencement of actions that relate to both domestic and international arbitrations.

Tanzania-Malawi

The Tanzanian government announced that a 180 MW electricity project will be developed with Malawi. With an estimated development cost of USD 500 million, the project is said to be one of the biggest venture entered into by the two countries.

FEBRUARY

Hong Kong

In U v A (Unrep., HCCT 34/2016), Hong Kong's Court of First Instance (CFI) dismissed an application to resist enforcement of an arbitral award. The Claimant ("U") had obtained an Order from the Hong Kong court to enforce its ICC arbitral award. The Respondent ("A") applied to set aside the Order on the ground that it had been unable to present its case, because the arbitrator refused to admit the relevant PRC judgment as evidence in the arbitration. In dismissing A's application, the court held that A fell short of the standard that "the conduct complained of must be sufficiently serious, even egregious, before a court could find that a party was unable to present its case".

So long as the parties were able to make representations in respect of any decisions that might affect the arbitration, they will have been afforded due process and given a fair hearing. Accordingly, the CFI concluded that A was able to present its case by being given the opportunity to submit expert evidence and by being able to address the issues relating to the decisions by the arbitrator. This decision reinforces the Hong Kong court's reluctance to set aside arbitral awards without compelling grounds. Parties should also be aware that indemnity costs will follow in the event of their unmeritorious attempts to resist enforcement in Hong Kong.

Australia

As foreshadowed in our 2016 edition, The Building and Construction Industry (Improving Productivity) Amendment Act 2017 came into effect in Australia on 17 February 2017.

The new Act amended the Building and Construction Industry (Improving Productivity) Act 2016 in relation to the Building Code and other areas. The key change relates to building industry participants and their eligibility to submit expressions of interest, tender for, or be awarded national Commonwealth funded building work. The new Act amended the timeframe applicable to the provision that transitionally exempted building industry participants from the requirement to comply with any enterprise agreement content rules as a condition of eligibility.

The amendments to section 34(2E) reduced the transition period from two years (originally expiring November 2018) to nine months (now expiring 31 August 2017) in which companies could submit expressions of interest and tender for national Commonwealth-funded building work, even though these companies have enterprise agreements which do not comply with the 2016 Code. This amendment, which has now come into force, allows only companies with compliant 2016 Code agreements to be awarded national Commonwealth funded work.

Tanzania

A memorandum of understanding was signed between the Tanzanian, Portuguese and Turkish governments in relation to a TZS 2.2 trillion (USD 1 billion) standard gauge railway project between Dar es Salaam and Mwanza (the second biggest commercial city in Tanzania). Reports suggest that the railway line will carry 17 million tonnes of cargo each year and will be developed within 3 years.

MARCH

UK

In Costain Ltd v Tarmac Holdings Ltd [2017] EWHC 319 (TCC) the TCC provided users with further insight into its interpretation of the mutual trust and co-operation clause contained in the NEC suite of contracts. Costain sought to argue that Tarmac had breached this clause by not informing Costain of the nature and scope of an applicable time bar. The TCC rejected Costain's argument, noting that the obligation did not require a party to act against its own self-interest. Rather, the provision prevents "improper exploitation" of the other party. In concluding that Tarmac had not breached clause 10.1, the TCC held that Tarmac had no reason to believe that Costain was acting under a false understanding of the relevant clause and therefore had no positive obligation to correct it. While this case provides users with important insight into the Court's interpretation of clause 10.1, the waters are still not completely clear, as what will constitute an 'improper exploitation' will depend on the circumstances of each individual case.

Canada

The Canadian Government published its budget for 2017. It revealed that the Government of Canada and the Infrastructure Bank, which was created in 2016, will work in partnership with provinces, municipalities and Statistics Canada to undertake the development of a big data bank that will provide a national picture of the state and performance of public infrastructure, the impact of infrastructure investment, and actual infrastructure demand and usage across the country.

US

U.S. infrastructure was given a near-failing grade of D+ by a leading engineering association. The D+ grade from the American Society of Civil Engineers' (ASCE) is unchanged from its last report card in 2013, suggesting that minimal progress has been made in improving public works. The ASCE estimated in a statement that the United States needed to invest USD 4.59 trillion by 2025 to bring its infrastructure to an adequate B- grade, a figure about USD 2 trillion higher than current funding levels.

In its report card, the ASCE said substandard infrastructure was costing each American family as much as USD 3,400 in disposable income a year. It also noted that "after years of decline, traffic fatalities increased by 7% from 2014 to 2015, with 35,092 people dying on America's roads."

In addition, America's water systems are leaking trillions of gallons of drinking water, and more than 2,000 dams are at high risk of failure.

In the ASCE's A-to-F grading of 16 infrastructure categories, seven areas showed progress and three declined. The highest grade (B) went to rail, up from C+ in 2013. The report said that significant spending, including USD 27.1 billion in 2015, was a major factor in the improvement. The lowest grade was D- for transit, down from D four years ago. Chronically underfunded rail and bus systems face a USD 90 billion rebuilding backlog, the ASCE said.

APRIL

UK

In Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC) Goodlife Foods (GF) employed Hall Fire Protection (HFP) to supply and install a fire suppression system at its factory. A fire occurred and GF brought a negligence claim against HFP. In defending this, HFP pointed to its standard conditions which excluded it from liability for any direct or indirect losses resulting from "negligence or delay or failure or malfunction of the systems or components provided by HFP for whatever reason" (including personal injury).

GF argued this clause was too broad and breached the Unfair Contract Terms Act 1977. The court disagreed, holding that, despite the breadth of the clause, it was not onerous, unusual or unreasonable as a whole. The court put weight on the fact that HFP's terms and conditions were not uncommon (albeit at the extreme end of the spectrum) and that the exclusion was something that the other party would be expected to insure against anyway. As such the exclusion was not unreasonable for the purposes of the Unfair Contract Terms Act 1977 and the case was dismissed.

Middle East

Earlier in 2017, a new Fire Life and Safety Code was introduced by the Dubai Civil Defence to instill higher standards of fire safety at all stages of construction. This development in Dubai was being mirrored in the Kingdom of Saudi Arabia, who has given notice to all building owners in the Kingdom to replace combustible cladding within one year. A formal announcement is yet to be released but the Civil Defence and Minister of Municipal Affairs have shed some light on what this will entail for the construction industry including signing an the owners of existing and licensed buildings with combustible cladding will need to sign an undertaking to replace it upon renewal of their trade licence; owners of buildings under construction (but close to completion), will need to sign the same undertaking when applying for their trade licence; and owners of buildings under construction will have to stop using such cladding and their trade licence cannot be obtained until they have submitted a certificate which confirms that the materials used are fire retardant according to the regulations relating to construction material issued by the Saudi Standards, Metrology and Quality Organisation. In addition, the Minister of Municipal Affairs has issued another recent circular which prohibits the use of non-fire retardant materials.

MAY

UK

In Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited [2017] NIQB 43, further insight was provided into the interpretation of the NEC mutual trust and cooperation provision.

Northern Ireland Housing Executive (NI) engaged Healthy Buildings (HB) under an NEC3 Professional Services Contract (PSC). NI failed to notify a compensation event to amend the scope of the work and HB subsequently did so, but it took a further four months to do this. HB provided two quotations, both of which were rejected, but the work was still completed.

While the wording of the compensation provisions required a forecast assessment, the Court had to consider whether the assessment should be based on actual costs incurred, since the work had been completed. NI argued that, where evidence of the actual time and cost was available, the Court should take this into account. HB argued that its actual time and costs were irrelevant, pointing to the clause in question and its clear wording.

However, the Court recognised that the best evidence lay in the costs that HB had actually incurred. It made the point that the PSC should be read as a whole, meaning the mutual trust and cooperation clause had to be considered. It was held that HB's objection to the use of its actual evidence would offend the mutual trust and cooperation provision, as the best evidence should be used when calculating a compensation event.

Canada

Following the publication of the Charbonneau Commission report, the government enacted new legislation in May to facilitate disclosure of wrongful conduct within the public sector and establish measures to protect whistleblowers from reprisals.

Unfortunately, the law does not apply to municipalities and to private companies, and so may not provide an efficient way to prevent collusion and corruption in the construction sector.

Canada

The Ontario Legislature gave Bill 142 its first reading on May 31, 2017. Bill 142 will bring about the enacting of the new Ontario Construction Act. Changes to the previous regime include: a) adding "broader public sector organization" to the definition of "owner" under the Act; b) extending the timeline to preserve a lien claim from 45 to 60 days; c) adding a prompt payment regime in which general contractors and contractors will have 28 days and 7 days respectively to pay an issued "proper invoice", as defined by the Act; and d) the implementation of an interim adjudication system where a party may dispute and resolve an invoice or non-payment within a payment cycle of around 28 days.

Australia

The High Court of Australia granted special leave to appeal two decisions considering security of payment legislation. The High Court will determine whether adjudication determinations made pursuant to security of payment legislation can be set aside for a non-jurisdictional error of law (i.e. a misapplication of the terms of the construction contract). The outcome of the appeals will be significant for the industry, and for the efficacy and application of security of payment legislation nationally.

JUNE

UK

On 22 June 2017, the NEC launched its NEC4 suite, which includes a new Design, Build and Operate Contract and a consultative version of an Alliance Contract. The changes in the latest suite were 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, assignment and BIM, to name a few. Other key changes included 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
  • the Contractor to propose changes in Scope, to achieve cost savings, which could be shared between the Employer and Contractor.

A more detailed analysis of the changes can be found at page 38.

Hong Kong

On 14 June 2017, Hong Kong's Legislative Council passed the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 ("the Bill"). The Bill effectively amends the Arbitration Ordinance (Cap 609) ("AO") to allow third party funding of arbitration proceedings seated in Hong Kong. The reform will come into full force in the near future, once the regulatory framework is in place. The types of proceedings affected include arbitration proceedings under the AO, related proceedings such as Court proceedings, and mediation and emergency arbitrations.

The bill also expressly deals with potential conflicts of interest, by only permitting funding if a third party funder does not have an interest recognised by law in the arbitration (other than under the funding agreement). Once a funding agreement is made, the funded party is required to give written notice to the arbitration body, and the parties to the arbitration, of the existence of such agreement and the name of the third party funder.

To complement the Bill, the Law Reform Commission has recommended that a code of practice should be developed to regulate third party funders, which the Hong Kong Government is currently developing.

Hong Kong

In TNB Fuel Services SDN BHD v China National Coal Group Corp, the CFI dismissed the contention that a State-Owned Enterprise (SOE) is able to assert Crown immunity. The judgment signals that, unless there are exceptional circumstances, Chinese SOEs are unlikely to be entitled to Crown immunity before Hong Kong courts.

TNB Fuel Services SDN BHD (TNB) sought to enforce an arbitral award against China National Coal Group Corp. (China Coal), a Chinese SOE. China Coal resisted TNB's application based on Crown immunity, and invited the Secretary for Justice (SJ) to intervene in the proceedings.

The SJ provided a letter from the Hong Kong and Macao Affairs Office of the State Council of the Central People's Government (CPG) stating that SOEs are independent legal entities and shall not be deemed as part of the CPG save for in extremely exceptional circumstances.

The CFI concluded that the Crown did not have control over China Coal and that China Coal was able to exercise independent powers. Also, the CFI found that the letter submitted by the SJ clarified the position of the CPG, which defeated China Coal's assertion of Crown immunity.

US

Sens. Mark Warner (D-VA) and Roy Blunt (R-MO), along with seven other bipartisan co-sponsors, introduced S. 1168 – BRIDGE Act to establish a national infrastructure bank to give state and local governments another tool for financing infrastructure projects.

The bank will help state and local governments better leverage private funds to build, maintain, and repair the nation's infrastructure. Despite the legislation's name, transit, rail, airport, marine port, energy, water, and water resources projects of regional or national significance would all be eligible to apply for financing from the bank.

The creation of an infrastructure bank was first proposed in Washington over two decades ago and has been floated in a variety of forms since then, including by President Obama and by a then Trump transition team member. The bill would establish an independent, nonpartisan financing authority to provide loans and loan guarantees to help state and local governments fund the most economically viable infrastructure projects.

The bank would receive a one-time seed funding of USD 10 billion, which could incentivise private investment. The bill's authors predict that the legislation could make possible USD 300 billion or more in total project investment. The bank is designed to be self-sustaining and not require additional federal appropriations. The idea, which has been executed at the state level, is that as one project's funds are paid back, the released funding can then be used to finance another project.

US

The National Environmental Policy Act of 1969 (NEPA) requires federal agencies to consider the environmental effects of an action and to involve the public in their decision-making process. The law is a frequent target of criticism from some sectors because it can add years to a project.

In response, Congress tried to fix the pain points in several pieces of legislation. The FAST Act included new procedural requirements aimed at ensuring early collaboration and efficient environmental reviews for complex infrastructure projects.

MAP-21 and the Water Resources Development Act also included permitting reforms, but these have not been fully implemented yet, and a Department of Transportation report from March 2017 found that the streamlining provisions in the FAST Act have possibly delayed the improvements expected from the streamlining measures in MAP-21.

On June 9, 2017, President Trump announced the creation of a new council to help project managers navigate the permitting process, including the creation of a new online dashboard. The council will focus on simplifying the government review process and making it more flexible to meet the different natures of rural and urban states. He also announced the creation of a new office within the White House Council of Environmental Quality "to root out inefficiency, clarify lines of authority, and streamline federal, state and local procedures so that communities can modernize their aging infrastructure without fear of outdated federal rules getting in the way".

South Africa

South Africa's contentious Mining Charter was released in June but is yet to be implemented into law. It prescribes an increase in Black Economic Empowerment Shareholding for all mines, from a previous 26% to 30%. It also imposes other stringent measures on mines, including payment of 1% of turnover to empowerment partners. This, it is argued, would leave very little for other shareholders.

The Charter has been the subject of substantial criticism. It is claimed that its anticipated implementation has already caused substantial losses in the value of mining of stocks, as well as job losses, and that it has damaged investor confidence.

In September 2017, the South African Chamber of Mines withdrew an urgent application for a court order interdicting the Mineral Resources Minister from implementing the Mining Charter, after the Minister undertook not to implement the Charter, pending a judicial review of its legality and constitutionality. The review proceedings are to be heard in February 2019.

There have been calls from within the business sector urging the parties (the Minister and the Chamber of Mines) to come together in order to negotiate the terms of the Charter, in the broader interests of the industry.

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