UK: Legal Developments In Construction Law: October 2019

Last Updated: 11 November 2019
Article by Mayer Brown

1. Concrete supplier sets court Construction Act "installation" puzzle

A subcontractor replacing bridge expansion joints engaged a cement supplier to supply concrete for the works. In a dispute about the concrete supplied, the subcontractor obtained an adjudication decision in its favour for damages for breach of contract. The concrete supplier resisted enforcement by the court, claiming that their work involved only delivery of the concrete and was therefore not subject to the Construction Act.

If installation is involved, as well as delivery, the Act applies but was the pouring of the concrete "installation"? The court did not think that it was necessary for the contract to make specific reference to, or use, the word "installation" but its absence was indicative of the nature of the parties' contract. It noted that, for example, one does not install bricks, but the delivery of bricks to a site would obviously fall within the exclusion in the Act unless the supplier also did something else, for example, laying the bricks. The word "'installation" (or its equivalent verb) in s.105(2)(d) connoted some work done to the materials after delivery, an interpretation supported by the express wording which frames the exception to the exclusion as one under a contract: "which also provides for their installation", i.e. the installation of the materials. The very use of the word "also" suggested that something other than delivery was contemplated.

In this case, in the court's view, the act of delivery and pouring amounted to the same thing. The pouring was, in these circumstances, part of the delivery and not an additional act of installation involving some work on, or related to, the materials. Nothing in the contract also provided for installation. It was simply the case that, in order for the materials to be delivered to site in the normal way, the concrete would be poured where required, rather than, as would be unusual, placed into some storage facility until it could be poured by someone else. The court therefore refused to grant summary judgment.

Universal Sealants (UK) Ltd (t/a USL Bridgecare) v Sanders Plant And Waste Management Ltd [2019] EWHC 2360

2. Court of Appeal says no to Scheme valuations for milestone payments swap

Payment under a subcontract to design, supply and install hotel modular bedroom units to be made in China was triggered by milestones but, because the Construction Act applied to the subcontract, it had to have an adequate payment mechanism. The amounts of the milestone payments, which were percentages of the contract price, were not in issue but three of the milestones, which were all dependent on "sign-off", were challenged. At first instance the court ruled that two of the milestones did not comply with the Act and that particular paragraphs of the Scheme for Construction Contracts should be incorporated, which meant that the subcontractor was entitled to be paid by reference to the value of the work carried out, even if the units were not ready for "sign-off".

The Court of Appeal noted that this was a significant reapportioning of the commercial risk which the parties had agreed and that it would take very clear words in the Act to achieve that. It decided that "sign-off" was to be assessed objectively, i.e. by reference to the satisfactory completion of a particular stage, rather than subjectively, by reference to the date on which the sign-off actually occurred. And even if actual "sign-off" was required, if the prototype or units were ready for "sign off" there would be an entitlement to payment and a failure to sign-off the relevant documentation would not be a defence to a claim based on that entitlement. The subcontract therefore did have an adequate payment mechanism.

The court also considered how the Scheme might apply if the contract did not have such a mechanism. It noted that the payment provisions in the Scheme are incorporated on a piecemeal basis, only "if or to the extent that" the contract does not contain the relevant provisions. Paragraph 7 of the Scheme, a 'catch all', was the only paragraph that could relate to the milestones, it made commercial sense, did the least violence to the parties' agreement and resolved any concern about signoff because it provides for payment 7 days after completion of the relevant work (i.e. an objective test). The Act was not designed to delete an agreed workable payment regime and replace it with an entirely different payment regime based on a radically changed set of parameters. That could only happen where the agreed regime was so deficient that wholesale replacement was the only viable option.

Bennett (Construction) Ltd v CMC MBS Ltd [2019] EWCA Civ 1515

3. Construction adjudication dispute - has it crystallised?

Adjudications hatch from disputes. You can't have one without the other. The parties will usually have argued unsuccessfully about their claims before taking them to adjudication. But what if the dispute referred is different from the previous disagreement?

A Scottish court had to deal with this (and other) issues. It said that a party is not entitled to instigate the adjudication provisions of the contract unless and until the dispute or difference has crystallised, and that is the position even if (as in the case) the dispute relates to a Final Certificate. If the dispute described in the Notice first arises at the moment the Notice is served, then the Notice is premature.

In the court's opinion, when a party resists enforcement of an adjudicator's award on the ground that the relevant dispute had not crystallised the court should adopt a robust, practical approach, analysing the circumstances prior to the notice of adjudication "with a commercial eye" (as stated in Lord Justice Coulson's book on construction adjudication). An over legalistic analysis should be avoided. The court should seek to determine in broad terms whether a claim or assertion was made and whether or not it was rejected. It should discourage nitpicking comparison between the dispute described in the notice and the controversy which pre-dated the notice.

Even looking at the matter broadly, however, the claims in the Notice for extensions of time and loss and expense appeared to be of a different nature and order of magnitude to the previous disagreements about extensions of time, prolongation and loss and expense. No dispute in anything like those terms had crystallised before the Notice and, consequently, a very material part of the dispute described in the Notice had not crystallised before the Notice was served. One of the four objections to enforcement consequently succeeded but the effect on the adjudicator's decision, and the possibility of severance, could not be decided by the court at the hearing.

Dickie & Moore Ltd v Ronald James McLeish and others at:

https://www.scotcourts.gov.uk/docs/default-source/ cos-general-docs/ pdf-docs-for-opinions/2019csoh71.pdf?sfvrsn=0

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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