Following the publication of the Fourth Edition of Construction Law Volume 1 by Julian Bailey1, in this article we take a brief look at a few developments in construction law.
Four Areas of Development:
- Termination for Insolvency
Termination for Employer Insolvency
At common law there is no general right to terminate a contract following Employer insolvency. For the most part, the Employer's obligations are to pay the Contractor and if they find a way to do so despite being insolvent, then this does not bring an end to the contract.
On the other hand, if, following the Employer's insolvency, they become unable to pay the Contractor in line with the contract, this will likely be considered a repudiation entitling the Contractor to terminate.
The common law position is given greater certainty within construction contracts. For example, Clause 8.10 of the JCT Standard Building Contract 2016, expressly allows the Contractor to give the Employer notice to terminate its employment in the event of the Employer's insolvency.
The Corporate Insolvency and Governance Act 2020 amended the Insolvency Act 1986 (in the UK), to allow a company which is facing potential financial difficulties, wanting to restructure to resolve these difficulties, to do so, without having its contracts terminated in the process.
This means that where there is a provision in a contract allowing a supplier, such as a Contractor, to terminate because their counterparty is insolvent, that provision is now unenforceable under UK law.
The JCT D&B 2024 retains the same wording as in the 2016 version, allowing the Contractor to terminate, and has not been updated in line with the new legislation which may be problematic. As such, if you are using a JCT contract in the UK it is important to amend it to deal with this particular issue.
Termination for Employer and Contractor Insolvency
Singapore enforced a similar position via the Insolvency, Restructuring and Dissolution Act 2018 which became effective in July 2020. However, it applies to both Employer and Contractor insolvency.
Section 440 (1) says that a party to a contract cannot terminate because its counterparty has become insolvent. This means that any contractual right allowing either the Employer or Contractor to terminate in the event of the other's insolvency, becomes ineffective.
- Fire Safety
Since the fire at Grenfell Tower in London in June 2017, there have been various inquiries ongoing as to the cause of this disaster. It has been determined that a key culprit, which was an accelerating cause of the fire, was the cladding on the exterior of the building was flammable rather than fire resistant.
This finding has led to something akin to panic in the UK as people have started to realise that many buildings use the same unsafe cladding or have similar features making their apartments unsafe.
This created many problems as the cladding now needs to be removed but people do not necessarily have the money to do this, making buildings unsellable.
The UK Government responded by introducing the Building Safety Act 2022, which was brought in to prevent similar disasters occurring again.
The statute applies in relation to the pre-existing Defective Premises Act 1972 Section 1, which imposes duties on persons building a dwelling to ensure it is fit for habitation. This duty has been relied upon enormously after Grenfell on the basis buildings are not fit for habitation due to having unsafe cladding. There is surprisingly no case law as yet as to whether a lack of fire safety means a dwelling is unfit for habitation.
The statute further empowers courts and tribunals to make lots of different orders to rectify fire safety issues and under Section 124, they can require persons to contribute to the costs of rectifying a fire safety issue – make a 'remediation contribution'. This can apply to not just the builder but also the developer or a person associated with the developer. This is far-reaching legislation which can allow people who are affected by fire safety issues to go after people who may have limited or no involvement in the original problem.
Section 130 sets out 'Building Liability Orders' which can be made against a person who is responsible for a particular defect e.g. a builder or supplier who supplied the cladding to the building which had the issue. This right extends to a body corporate associated with the supplier, allowing the Court to go against a supplier's parent company despite there being no direct contractual obligations or obligations in tort.
3.Liquidated Damages ("LDs")
The recent case of Triple Point Technology Inc v PTT Public Co Ltd has had a huge impact on the law surrounding LDs.
In the 2019 Triple Point case ([2019] EWCA Civ 230), the Court of Appeal found that if an Employer terminated a Contractor, then it could not recover LDs.
The Supreme Court overturned this decision in 2021 [2021 UKSC 29], finding that LDs are recoverable to the point of termination, unless the contract provides otherwise. This restored a more orthodox position which has been translated into the 2024 version of the JCT.
Clause 2.29.5 of the JCT D&B 2024 effectively says that if the Employer terminates the Contractor for default and LDs have been accruing, damages are recoverable up to the point of termination and not after.
4.Concurrent Delay (Clauses)
Concurrent delays are where there are two or more delay events which occur at the same time, one being an Employer risk and one a Contractor risk, with the effects felt simultaneously.
The Society of Construction Law Delay and Disruption Protocol ("SCL D&D Protocol") at Clause 10 says that where Contractor delay to completion occurs or has an effect concurrently with Employer delay to completion, the Contractor's concurrent delay should not reduce any extension of time due.
This means that if you have 2 delays – Contractor and Employer simultaneously, when the Contractor is awarded an extension of time ("EOT"), the EOT is not reduced because it was in delay during the same period.
The case of Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 33 (known as the "Malmaison Case") supports this idea. However, the SCL D&D Protocol is not legally binding which means that the position on concurrent delay is subject to whatever the parties agree in their contract.
As a result, we have seen many bespoke forms and amendments to standard form contracts with concurrency provisions emerging. However, the unamended JCT and NEC contracts do not expressly refer to concurrent delay.
The FIDIC 2017 suite of contracts seeks to cover this at Clause 8 but does not provide the Contractor with a direct entitlement to an extension of time in the event of concurrent delay and instead says that the entitlement should be assessed 'taking due regard to all relevant circumstances.'
This topic was discussed in our webinar 'Construction Law by Julian Bailey – hear direct from the Author on key developments in construction law across the world, with Julian Bailey of Jones' in June 2024. Click hereto view the webinar and presentation.
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.
