construction contract law case study examples

Catagory:Case Summaries

Breakshore ltd v. red key concepts.

Case Summaries

By: Camilla de Moraes , James Jago, and Samuel Gordon

In Breakshore Ltd v Red Key Concepts [2022] 5 WLUK 677 (Breakshore) , K&L Gates successfully acted for the Claimant in resisting a Part 8 claim challenging the decision of an adjudicator and thereby enforcing the decision by way of summary judgment. The decision of the TCC reaffirms that the use of Part 8 to resist enforcement of an Adjudicator’s decision will only be appropriate in a very limited set of circumstances and that it must not be used to obtain a tactical advantage.

Clarity is Key – How Do You Serve a Valid Pay Less Notice?

By: Kevin Greene and Ruth Chang

Advance JV (A Joint Venture between (1) Balfour Beatty Group Limited; and (2) MWH Treatment Limited); and Enisca Limited [2022] EWHC 1152 (TCC)

The parties in this case carried out works pursuant to an amended form of NEC3 Engineering and Construction Contract (Option A). The works consisted of the supply and installation of LV electrical equipment for design and construction of a new water treatment works and hydro-electric power generation facility in Cumbria.

When is a Collateral Warranty a “Construction Contract”?

By Kevin Greene and Ruth Chang

Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP  [2022] EWCA Civ 823

The Court of Appeal in this case considered when a collateral warranty will be regarded as a “construction contract” under the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act). 

Wrongful Termination and Failed Wasted Costs Claim

Case Summaries , Europe

By: Nita Mistry

CIS General Insurance Ltd v. IBM United Kingdom Ltd

The Technology and Construction Court has recently handed down authoritative guidance on wasted costs and the characterization of damages arising out of termination of a contract. The court was asked to determine whether the claimant was entitled to recover £128 million in damages for wasted costs arising from the alleged wrongful termination of a contract.

What’s in a Name? Recent Case Determines Using a Trading Name Does Not Invalidate a Notice of Adjudication

By Nita Mistry and Victoire Courtenay

Recently, in the case of MG Scaffolding (Oxford) Ltd v Palmloch Ltd [2019] EWHC 1787 (TCC) , the Technology and Construction Court (TCC) held that the adjudicator did not lack jurisdiction and the notice of adjudication was valid, in circumstances where the adjudication was commenced and pursued against the responding party’s trading name.

The adjudication was commenced by MG Scaffolding (Oxford) Limited (MGS) against “MCR Property Group” (MCRPG). This was in fact a trading name for the correct contractual counterparty called Palmloch Ltd (Palmloch).

Practice Completion: Clarifying a “Trifling” Topic

Case Summaries , Europe , International Arbitration

By: Kevin Greene and Kiran Giblin

In the recent case of Mears v Costplan [2019] EWCA Civ 502, the Court of Appeal provided significant clarity as to how courts should interpret the widely used but seldom defined term, “ practical completion ” in the context of construction contracts. In essence, it was held that practical completion should only be prevented by patent defects (i.e. those that can be discovered by reasonable inspection) where such defects are considered “more than trifling .”

Collateral Warranties: A Reminder of Their Importance

By Kevin Greene and Daniel Cartmell

The judgment of O’Farrell J in Swansea Stadium Management Co. Ltd v Swansea City and County Council ([2018] EWHC 2192 (TCC)) provides guidance on collateral warranties and acts as a warning for any potential claimants to be mindful of any limitations of time in which to commence proceedings under them.

Court Places Assets in the Freezer

Asia Pacific , Case Summaries

By: Sandra Steele  and Michael O’Callaghan

The Supreme Court of Western Australia has recently made a freezing order in the matter of Trans Global Projects Pty Ltd (In Liquidation) (TGP) v Duro Felguera Australia Pty Ltd (Duro) [2018] WASC 136.

Western Sydney Aerotropolis: The Call for Private Investment

By: Clive Cachia                      

As the fastest growing region in Australia, the development of Western Sydney has been a national focus. Publicly, the Australian Government has committed up to AUD5.3 billion in public equity funding towards the construction of Sydney’s second international airport, the Western Sydney Airport. Touted as the Western Sydney Aerotropolis, the surrounding region of Western Sydney Airport will need significant private investment of at least AUD20 billion to develop an integrated transport, logistics, defence, advanced health, food agtech and education precinct surrounding the runway and terminal facilities.

California Supreme Court Provides Clarity to California’s Prompt Payment Exception

By: Timothy L. Pierce and Heather L. Frisch

The California Supreme Court issued an opinion on 14 May 2018 in United Riggers & Erectors, Inc. v. Coast Iron & Steel Co. that resolves a split in authority regarding whether Civil Code Section 8814 excuses prompt payment of retention by an owner or prime contractor if a good faith dispute of any kind exists between the parties or only when there is a dispute over the work for which the retention is due. The Court held that a contractor is only entitled to withhold retention when there is a dispute arising out of the work on which the retention is based.

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Simon Tolson’s Top 15 cases of 2021

By way of comparison between 1996 and 2021, we asked Fenwick Elliott’s Senior Partner, Simon Tolson, to highlight the 15 cases he considers to be seminal: 

1.  Balfour Beatty Regional Construction Ltd v Van Elle Ltd   [2021] EWHC 794 (TCC) At issue in this case was which terms governed liability for works carried out prior to the execution of a contract. Waksman J in the TCC held that work carried out before a formal sub-contract was executed was, nevertheless, subject to the terms of that sub-contract. 

2.  Multiplex Construction Europe Ltd v (1) Bathgate Realisations Civil Engineering Ltd (in administration)(2) BRM Construction LLC (3) Argo Global Syndicate 1200   where the TCC considered the scope of a professional design checker’s duty of care. 

3.  JSM Construction Ltd v Western Power Distribution (West Midlands) Plc ,  [2020] EWHC 3583 (TCC) the TCC (Pepperall J) considered in a summary judgment application whether the absence of a final account provision rendered a contractual payment mechanism inadequate. This case strongly indicates that the absence of a final account provision is not synonymous with a contractual payment mechanism being deemed “inadequate”. 

4.  Optimus Build Ltd v Southall & McManus   [2020] EWHC 3389 (TCC) – a cautionary tale on sub-optimal termination. Terminating a contract for repudiatory breach – the TCC highlights again the risks and dangers of wrongful termination. 

5. N aylor and others v Roamquest Ltd and another   [2021] EWHC 567 (TCC) considered an application to strike out parts of a cladding claim on the grounds that they were insufficiently particularised. The case, which emphasises the importance of proper pleading, will be of particular interest to parties which are, or may become, involved in such claims. 

6.  Downs Road Development LLP v Laxmanbhai Construction (UK) Ltd   [2021] EWHC 2441 (TCC), where the TCC considered issues concerning the validity of payment notices, as well as questions of natural justice and the severability of adjudication decisions. HHJ Eyre QC declared that an adjudicator’s decision was not enforceable due to a breach of the rules of natural justice and refused to sever the decision. He also declared that the employer’s payment notice valuing the interim application at £1 was not valid. 

7.  Secretariat Consulting PTW Ltd & Ors v A Company   [2021] EWCA Civ 6 where the Court of Appeal unanimously upheld the decision of TCC in  A v B  [2020] EWHC 809, granting an injunction to restrain the UK branch of the claimant group from acting as an expert witness for a third party against an existing client of its Singapore branch in related arbitrations. 

8.  Toppan Holdings Ltd and Abbey Health Care (Mill Hill) Ltd v Simply Construct (UK) LLP   [2021] EWHC 2110 (TCC) 27 July 2021. All about the right to adjudicate – when is a collateral warranty a construction contract? Martin Bowdery QC (sitting as a deputy High Court Judge) determined that the collateral warranty was not a construction contract within the meaning of the HGCRA and, therefore, that the adjudicator did not have jurisdiction. 

9.  Marbank Construction Ltd v G&D Brickwork Contractors Ltd   [2021] EWHC 1985 (TCC) 28 June 2021 O’Farrell J. Injunction to restrain adjudication. The Court again re-iterated its reluctance to interfere with, or prevent, the adjudication of construction disputes maintaining the long-standing principle that it was not appropriate for the court to interfere in the adjudication process where the adjudication had not been shown to be unreasonable and oppressive. 

10.  Eco World – Ballymore Embassy Gardens Company Ltd v Dobler UK Ltd   [2021] EWHC 2207 (TCC), where the TCC considered the construction and enforceability of a liquidated damages clause where the employer had taken partial possession. It was found that an employer was entitled to claim the full amount of liquidated damages payable upon contractor delay, notwithstanding the fact that they had taken partial possession of the contractor’s works. The decision, which may come as something of a surprise to contractors and employers alike, demonstrates that, ultimately, all depends on the wording of an individual contract.

11.  Triple Point Technology, Inc v PTT Public Company Ltd   [2021] UKSC 29, where the Supreme Court unanimously overturning the Court of Appeal’s earlier decision relating to liquidated damages (“LADs”) where a contract has been terminated. It provided welcome clarity in relation to the drafting and interpretation of LAD clauses in construction, commercial and technology contracts. The judgment also dealt with the relationship between liquidated damages clauses and caps on liability. 

12.  Dana UK AXLE Ltd v Freudenberg FST GMBH   [2021] EWHC 1413 (TCC), where the TCC considered an application to exclude technical expert evidence midway through a trial! 

13.  Mott Macdonald Ltd v Trant Engineering Ltd   [2021] EWHC 754, where the TCC considered whether an exclusion clause required exceptional wording in order to exclude liability for fundamental, deliberate and wilful breaches. 

14.  Aqua Leisure International Ltd v Benchmark Leisure Ltd   [2020] EWHC 3511 where the TCC considered an application for summary judgment to enforce an adjudicator’s decision in circumstances where there was an alleged determination “by agreement”. 

15.  Global Switch Estates 1 Ltd v Sudlows Ltd, the Technology and Construction Court   [2020] EWHC 3314 where the TCC dismissed an application for summary judgment to enforce an adjudicator’s decision due to material breaches of the rules of natural justice.

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Construction Contract Case Study: Legal Insights & Analysis

Top 10 legal questions about construction contract case studies, exploring the intricacies of construction contract case studies.

Construction contracts are complex legal agreements that govern the relationships and responsibilities of parties involved in construction projects. Disputes these contracts the point of battles that have implications. In this blog post, we will delve into a construction contract case study to understand the intricacies involved and the lessons that can be learned.

The Case Study: Jones v. Smith Construction Ltd.

Let`s consider a hypothetical case study where Jones, a property owner, hired Smith Construction Ltd. To build a complex. The construction contract clearly outlined the scope of work, timeline, and payment terms. However, as the project progressed, disputes arose over delays, cost overruns, and the quality of work.

As a result, Jones withheld a portion of the payment, leading Smith Construction Ltd. To file a for breach of contract. Case went to and after of battles, a was in of Jones, citing breach of contract and workmanship.

Key Learnings from the Case Study

Implications for construction contracts.

Based on the case study, it is evident that construction contracts play a pivotal role in shaping the outcomes of construction projects. Serve as for rights and managing and recourse in case of disputes. Therefore, it is imperative for all parties involved in construction projects to pay meticulous attention to the drafting and execution of contracts.

Construction contract case studies offer valuable insights into the nuances of construction law and the implications of contractual agreements. By analyzing real-world scenarios, we can glean important lessons that can guide future contract negotiations and project management strategies. It is essential for legal practitioners, construction professionals, and property owners to stay abreast of such case studies to navigate the complex landscape of construction contracts effectively.

Construction Contract Case Study

Introduction: This construction contract case study involves the legal relationship between a construction contractor and a property owner. The contract outlines the terms and conditions of the construction project, including the scope of work, payment schedule, and dispute resolution process.

Construction Case Law: Key Cases of 2021

Key adjudication cases of 2021.

In this publication, we review the top 10 key cases of the year and provide commentary on why the outcomes are important

Missed the other case updates we have published throughout the year? Here are quick links to each of them: Part 1 of 2021 / Part 2 of 2021 / Part 3 of 2021 / Part 4 of 2021  / Part 5 of 2021

This document is available to be read on full screen or alternatively can be downloaded or printed using the icons at the bottom of the publication. To go directly to each of the cases click the case names linked below.

Case 1 : Contractual requirement to adjudicate not a fetter on the statutory right The Fraserburgh Harbour Commissioners v McLaughlin & Harvey Ltd [2021] CSIH 58 (6 October 2021)

Case 2: Jurisdiction overlapping with substantive issues Ex Novo Ltd v MPS Housing Ltd [2020] EWHC 3804 (TCC) (17 December 2020) HHJ Eyre QC

Case 3: Jurisdiction – Excess of and failure to exhaust – reservation of position Hochtief Solutions AG and others v Maspero Elevatori S.p.A. [2021] CSIH 19 (15 February 2021) (Lord President, Lord Menzies, Lord Woolman)

Case 4: Jurisdiction – Adjudicator’s powers under NEC3 Option W1.3(5) – Waiver following decision Croda Europe Ltd v Optimus Services Ltd [2021] EWHC 332 (TCC) (19 February 2021) HHJ Roger ter Haar QC

Case 5: Jurisdiction – dispute arising under separate contracts Delta Fabrication & Glazing Ltd v Watkins Jones & Son Ltd [2021] EWHC 1034 (TCC) HHJ Sarah Watson

Case 6: Jurisdiction – timing of service of adjudication notice C Spencer Ltd v MW Tech Projects UK Ltd [2021] EWHC 1284 (TCC) Waksman J

Case 7: Injunction to restrain adjudication Marbank Construction Ltd v G&D Brickwork Contractors Ltd [2021] EWHC 1985  (TCC) 28 June 2021 O’Farrell J

Case 8: Right to Adjudicate – whether collateral warranty is construction contract Toppan Holdings Ltd and Abbey Health Care (Mill Hill) Ltd v Simply Construct (UK) LLP [2021] EWHC 2110 (TCC) 27 July 2021 Martin Bowdery QC

Case 9: Set off – failure to consider defence – validity of payment notice – severance Downs Road Developments LLP v Laxmanbhai Construction (UK) Ltd [2021] EWHC 2441 (TCC) 7 September 2021 (HHJ Eyre QC)

Case 10 : Dispute – meaning – sum due on three payment application was a single dispute Quadro Service Ltd v Creagh Concrete Products Ltd [2021] EWHC 2589 (Ch) 19 Aug 2021 (HHJ Sarah Watson QC)

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News & Events

The top construction cases of 2019.

Lists are as much a part of December as tinsel and turkey and so BPE Solicitors LLP Construction & Engineering Team is pleased to present our own Top 9 Construction Cases of 2019.  These are the cases that we think make interesting, if not vital reading.  Some are from the TCC at first instance, some are from the Court of Appeal.  Like all of these lists, the contents is at the editor’s discretion – we may have included some that our readers had not seen before and we may have omitted some considered by others to be of greater significance.  We welcome discussion on the list: both its contents and its omissions.

What follows is a brief summary of each key case, together with our take on what it means in practical terms for our readers.  We have written in greater detail about each case and so the summaries include both a link to the full Bailli judgment and also to our longer article. 

(For ease, references to the months in which the Court considered matters refer to the dates on which Judgments were handed down and published on Bailii, rather than the actual hearing dates).

(For further ease and on the assumption that our readers are all familiar with the legislation, we have referred to the Housing Grants Construction and Regeneration Act 1996 Part II as amended by the Local Democracy Economic Development and Construction Act 2009 simply as “the Construction Act”.)

• Classic Maritime Inc -v- Limbungan Makmur SDN BHD (1) and Lion Diversified Holdings BHD (2) [2019] – Another look at Force Majeure

In June the Court of Appeal considered whether or not it is necessary to show that the party seeking to rely on a force majeure clause would have performed in accordance with the contract “but for” the force majeure event, and whether or not the innocent party is entitled to damages if the liable party failed to perform, even if performance was impossible in any event. 

Ship owner, Classic Maritime Inc (“Classic”) and charterer/shipper, Limbungan Makmur SDN BHD (“Limbungan”) contracted under a Contract of Affreightment to ship iron ore pellets from Brazil to Malaysia between July 2015 and June 2016.

Limbungan intended to make shipments using iron ore pellets obtained from an iron ore mine in Brazil. However, in November 2015, the Fandao dam (forming part of the mine) burst with tragic consequences.

Classic sued Limbungan for failing to make five shipments under the contract, but Limbungan defended the claim on the basis a force majeure clause in the contract

The Court concluded that the party relying on the force majeure clause to excuse performance would need to prove that the failure to perform resulted from the force majeure event and that that had directly affected the performance of its obligations. 

It is important to remember that most of the commonly used standard form construction contracts do not define “Force Majeure” and that lawyers’ attempts to do so are generally intended to narrow the scope from the wide common law approach.

You can find the judgment here.  

You can find a previous article here.  

• C Spencer Limited v MW High Tech Projects UK Limited [2019] – The application of the Construction Act to “hybrid” contracts

In October the TCC considered whether or not the payment mechanism requirements in the Construction Act apply to all payments under a hybrid contract, i.e., where the contractor or consultant is engaged for a range of services, some of which are “construction operations” and some of which aren’t.

A payment dispute arose after C Spencer Limited (“CSL”) issued a payment application which split the amounts applied for into construction operations and non-construction operations. However, when issuing their subsequent payment notice, MW High Tech Projects UK Limited (“MW”) did not distinguish between the two amounts. CSL challenged the validity of the payment notice on the basis that MW failed to distinguish between the two operations. MW argued that its payment notice was valid and contended that the express payment mechanism agreed between the parties did not require the separate identification of the sums considered to be due as it complied with the requirements of the Construction Act.

Judgment was made in favour of MW. It was held that a contractual payment mechanism that is compliant with the Construction Act will apply to all payments under a "hybrid" contract. This will include payments due in respect of both construction works and works excluded from the definition of construction operations under the Construction Act.

Following this case, we recommend that parties should make sure that all hybrid contracts expressly include Construction Act compliant payment mechanisms. This should reduce the risk of confusion and disputes which could stem from operating separate systems for construction operations and non-construction operations.

Find a previous article here.  

• Bennett (Construction) Ltd v CIMC MBS Ltd (formerly Verbus Systems Ltd) [2019] - making sure milestone payments are compliant with the Construction Act

In August, the Court of Appeal considered the relationship between milestone payments agreed between the parties and the requirements for a payment mechanism to be compliant with s109 and s110 of the Construction Act.

Bennett was the main contractor for the construction of a new hotel in Woolwich, London. Bennett entered into a sub-contract with CIMC to design, supply and install 78 prefabricated bedroom units for the hotel. The sub-contract between the parties incorporated the JCT Design and Build Sub-Contract 2011 edition, but provision for interim payment was replaced by various milestones some of which were said to be “on sign-off”.  During the works, the parties disagreed what “sign-off” meant. 

In the Court of Appeal Lord Justice Coulson disagreed with the decision of the TCC and held that the contract did in fact contain adequate payment mechanisms. He concluded that an objective interpretation of “sign-off” meant when the units were complete and in a condition where they  could  be signed off (that is, they complied with the contract specification). He rejected a subjective interpretation that payment was not due until the date sign-off  actually  occurred.

The ruling of the Court of Appeal highlights its commitment to honour the payment regime actually agreed between the parties. Lord Justice Coulson describes the commercial effect of the TCC decision as “ stark and effecting a significant reapportioning of the commercial risk which the parties had agreed ”. He continued that “ it would take very clear wording in the Act in order to bring that about ”. The ruling in this appeal make it clear that the Construction Act does not contain such words.

This is an important decision of the Court of Appeal clarifying the correct approach to applying the Schemes provisions where the payment provisions of a construction contract may not satisfy the requirements of the Act. It is a warning that at the point the contract is being drafted and negotiated, the parties need to ensure the payment provisions are clear and reflect the deal both parties have agreed. 

• Freeborn & Goldie -v- Mr Daniel Marcal t/a Dan Marcal Architects [2019] – the importance of defining the architect’s brief

In the case of Freeborn & Goldie -v- Mr Daniel Marcal t/a Dan Marcal Architects [2019] the TCC considered scope of retainer, duty of care and measure of damages when the clients felt that the architect’s design did not meet their requirements. 

As is so frequently the case, the TCC had to start by establishing the terms of the appointment between the clients and the architect as the parties had failed to reduce their agreement to a single written (and signed) document. 

Having dealt with that issue, the Court then had to consider “ whether or not Mr Marcal redesigned the cinema box without telling the Claimants and arranged for the construction of a cinema box which they had not approved. "

Following initial meetings in the spring, by October 2014 the concept for the cinema had developed to the point of a glass box supported by four legs, as was recorded in some mock-ups sent to the clients on 30 October 2014.

Although the parties communicated mainly by email, the architect was unable to produce any email (or other written) evidence of having updated them on design changes or sought their approval of such changes.   The desired appearance was what the claimants’ Counsel described as a “sleek modern look”.  Ultimately the Claimants felt that, as built, the cinema had a “wonky industrial look”. The Court found that “ no drawing was sent to the Claimants which showed the final appearance of the cinema”. 

The Court concluded that the architect had indeed been negligent in that he had:

• Failed to establish and record in writing a brief
• Failed to keep a written record of any changes or variations to the brief (described by the Court as an “essential” part of the architect’s services); and
• Redesigned the works and arranged for construction without client approval

The Judge ultimately awarded the Claimants damages for the wasted costs in having the cinema designed and built (together with interest), the cost of demolition and £5,000 for “distress and inconvenience”: a total of around £500,000 (plus the interest). 

• Triple Point Technology Inc -v- PTT Public Company Ltd [2019] - the status of liquidated damages after termination

The facts of  Triple Point Technology Inc (“Triple Point”) -v- PTT Public Company Ltd  (“PTT”) are actually of little relevance here, save to note that Triple Point was engaged by PTT to provide certain software solutions under a contract that had key milestone dates and a provision for liquidated damages.  The work was divided into key phases, and Triple Point achieved completion of Stages 1 and 2 of Phase 1 late and then continued to work on the remainder of the work.  The parties then fell into dispute over the payment of invoices, Triple Point suspended the works and PTT terminated claiming Triple Point had wrongfully terminated. 

A question arose as to how long LADs would run for given the termination. 

The Court of Appeal concluded that the wording of the relevant clause of the contract was inconsistent with an intention for it to apply in circumstances where the works were not completed by the original contractor.

It should be noted that the Court of Appeal was keen to emphasise that this was a matter of the interpretation of the precise clause in the contract before the court: “ In some cases, the wording of the liquidated damages clause may be so close to the wording in Glanzstoff that the House of Lords’ decision is binding. That is a decision of our highest court, which has never been disapproved. ”  Sir Rupert Jackson did, however, go on to conclude that the present case was one such case and that he considered Glanzstoff to be binding to the extent that the liquidated damages provision fell away in respect of works not completed at the point of termination.  This meant that PTT could recover LADs for the late delivery of stages 1 and 2 of phase 1 but had to prove actual losses for the remainder of the works.

• Mears Limited -v- Costplan Services (South East) Limited [2019] – the definition of practical completion

Mears Limited -v- Costplan Services Limited [2019] dealt with the interaction between an agreement for lease (AFL) and the certifying of practical completion under a building contract. 

The most notable cases usually either change the law or helpfully recap it.  Mears -v- Costplan is very much in the latter category.  The rules on practical completion are set out clearly and should be at the forefront of every certifier’s mind (and indeed the mind of every contractor and every employer) as a project nears completion. 

It is worth remembering that most standard building contracts don’t define the term “practical completion”.  Some lawyers and draftsmen do seek to define it but often merely with a reflection of the latest common law position and so perhaps done mainly to make an implied term express for the benefit of their lay client. 

Lord Justice summarised the law on practical completion in six key points:

• It is easier to recognise than to define
• Latent defects do not prevent practical completion
• Omissions and defects can both be patent defects
• The closes we have to a definition is: “the works have been completed free from patent defects, other than ones to be ignored as trifling.”
• “Trifling” is a matter of fact and degree which must be considered in light of the intended use of the building and that the mere ability to take possession is not enough
• There is still only one authority on irremediable defects (Ruxley v Forsyth) and that case did not support the proposition that the existence of irremediable defects are an automatic bar to practical completion.

So whilst it is all still open to interpretation, it is important to remember how the Courts will interpret if required to intervene. 

You can find a link to our article here.

• Lessees and Management Company of Herons Court v Heronslea Ltd [2019] – the duties of Approved Inspectors under the Defective Premises Act

Lessees and Management Company of Herons Court -v- Heronslea Ltd deals with an appeal which considered the liability of Approved Inspectors (AI) under the Defective Premises Act 1972 (the “DPA”) in the performance of their statutory function under Part II of the Building Act 1984 (“Building Act”) which involves inspection and certification in order to ensure compliance with building regulations.

The case concerns a block of 12 flats built in Hertfordshire in 2012. These flats were owned on a leasehold basis and the lessees of the flats alleged that the works were seriously defective. 

They brought a claim via the management company, Lessees and Management Company of Herons Court (“Lessees”) against the developer, the main contractor, the NHBC (which provided a “buildmark” insurance policy in respect of the flats) and finally Heronslea Limited (“Heronslea”) which had AI status and had inspected the plans and building works, as well as certifying that relevant building regulations had been complied with.

The Court of Appeal held that:

“….the context includes the whole of section 1(1), not just the words: "A person taking on work for or in connection with the provision of a dwelling". …. The focus is therefore very much on the doing of work.

The emphasis is therefore on those who do work which positively contributes to the creation of the dwelling…. It does not, however, include those whose role is the essentially negative one of seeing that no work is done which contravenes building regulations …”

The Court of Appeal held that an AI does not have any statutory power to influence the design or construction of a building, they merely have a negative regulatory role for checking for compliance against prescribed criteria so cannot be held liable under Section 1(1) of the DPA.

• Amey Highways Limited -v- West Sussex County Council [2019] – does the abandonment of a public procurement process extinguish a claim brought by an unsuccessful bidder?

In May 2019 the TCC was asked to consider whether or not the abandonment of a procurement process could frustrate a Contractor’s claim following an allegedly unjust contract award. 

The dispute was between Amey Highways Limited (“ Amey ”) and West Sussex County Council (“the Council ”) and related to a highways contract that Amey claimed would have earned them some £28 million in profits over its lifetime and had cost them £1 million to prepare the tender. 

In short, following the procurement process, Ringway scored more highly than Amey and so the Council duly awarded the contract to Ringway.  Amey then alleged that there had been errors in scoring such that they (Amey) should actually have scored more highly than Ringway: they issued proceedings.  The Council took legal advice and appreciated that litigation with Amey would be expensive both in terms of management time and legal costs. 

The Council then gave notice that they were terminating the procurement.  The Council made no secret of the fact that it was their hope and intention that withdrawing the procurement would defeat Amey’s claim.  Amey disputed that fact and the matter came before the TCC. 

The Court distinguished between:

• Abandoning procurement to prevent potential future claims from arising; and
• Abandoning procurement to deprive an economic operator of a cause of action which already exists.

Further, the TCC found that the second category would require a positive mandate under the PCR or cogent policy justification and that no such legal mandate exists. 

The Court concluded that the Council’s abandonment of the procurement process failed to automatically extinguish Amey’s existing claim.  This does not mean that Amey has won, merely that their claim can now proceed through the Courts (or be settled, or course). 

You can find the judgment here. You can find a link to our article here.

• Swansea Stadium Management -v- City and County of Swansea & Interserve Construction Limited [2019] – the status of te Certificate of Completion of Making Good Defects

By an amended JCT Standard Form of Building Contract with Contractor’s Design (the “Contract”) dated 17 June 2004. City & County of Swansea (the “Council”) employed Interserve Construction Limited (“ICL”) to design and build a new stadium. PC was reached on 31 March 2005 with the rectification period running for 12 months.  Swansea Stadium Management Company Limited (“SSMCL”) had the benefit of a lease and of a collateral warranty. 

Notwithstanding various issues with the works and subsequent remedial works (some of which were not effective) and in accordance with clause 16.4 of the Contract, a Certificate of Completion of Making Good Defects (the “Certificate”) was issued on 26 May 2011 stating that defects had been made good as of 14 April 2011.

SSMCL fell back on 2 secondary claims:

• SSMCL alleged that Interserve was in breach of its obligations under clause 16 of the Contract to identify and make good the flooring and paintwork defects during the Defects Liability Period. It therefore claims that it was likewise in breach of the collateral warranty.
• SSMCL alleged that the Council was in breach of its obligations under the 2006 agreement to take all reasonable steps to enforce its own rights under the building contract in respect of the flooring and paintwork defects.

The immediate issue to be challenged by SSMCL was the Certificate. ICL argued that Certificate meant that they had complied with the obligations under clause 16 of the Contract, but SSMCL maintained that although the Certificate was of some evidential value, it was not conclusive.

The Court concluded that:

“upon the proper construction of clause 16.4, the effect of the issue of the Notice of Completion of Making Good Defects was to deem "for all the purposes" of the building contract that the parties had reached completion of the discrete and more limited obligation to make good defects in accordance with the contractual machinery in clauses 16.2 and 16.3.”

This case provided confirmation that a notice or certificate of making good defects is conclusive evidence that identified defects have been made good, it was held rightly held that while this did not deprive an employer a remedy for defective work, in the normal course, a claim needs to be “ brought pursuant to the core obligations in the building contract.” This left SSMCL without a remedy because the original claim was statute barred.

You can find the judgment here.

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.

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Recent uk construction law cases: a round up, latest news and updates.

Nicola Webster is a commercial dispute resolution specialist with particular experience in resolving disputes in the construction sector. In this article she identifies the key takeaways from three recent construction dispute cases that have been before the UK Courts and the implications of these cases for those operating in the construction industry.

1. Balfour Beatty Regional Construction Limited v Van Elle Ltd [2021] EWHC 794 (TCC)

In a case heard in the Technology and Construction Court in March this year, Balfour Beatty Regional Construction Limited (“ Balfour Beatty ”) v Van Elle Ltd (“ Van Elle ”), a sub-contract was found to cover works carried out by a sub-contractor, even though it was unsigned at the time the works were carried out.

The Claimant in this case, Balfour Beatty, was engaged as a main contractor for a construction project at a site in Newcastle upon Tyne (“ the Site ”). Balfour Beatty was to design and construct a sub-sea cable manufacturing facility at the Site. The work to be completed by Balfour Beatty required a considerable amount of foundational piling. Balfour Beatty engaged a sub-contractor in respect of the foundational piling, Van Elle, the Defendant in this case.

A distinct element of the works known as “the Northern Carousel” was carried out by Van Elle prior to the parties signing a formal sub-contract (based on one of the JCT standard form contracts).

Shortly after installation excessive settlement was discovered and extensive remedial works were required. Balfour Beatty raised a claim against Van Elle to recover the remedial costs and for an indemnity from Van Elle for any liability that maybe due from Balfour Beatty to the Employer.

Van Elle argued that the works to the Northern Carousel were carried out before the parties signed the formal sub-contract and the contract between the parties was therefore set out in a written quotation that Van Elle had sent to Balfour Beatty sometime earlier. Van Elle argued Balfour Beatty accepted the earlier quotation by permitting Van Elle to commence work at the Site. The quote provided by Van Elle incorporated Van Elle’s standard terms of business. This was important because those standard terms of business contained several possible limitations of liability for Van Elle.

What did the Court decide?

The Judge found that the formal sub-contract governed all the works, even those to the North Carousel that were carried out before the parties signed the formal sub-contract. Although his comments were not binding, the Judge also considered and commented upon the various limitations Van Elle sought to make in their standard terms of business

Construction companies should take particular care at the outset of a construction project to determine the terms upon which work is carried out and should consider looking at their standard terms in relation to limitation in light of the Judge’s comments.

2. Multiplex Construction Europe Ltd v Bathgate Realisations Civil Engineering Ltd and others [2021] EWHC 590 (TCC)

In February this year, the Technology and Construction Court considered whether a consultant could have liability to a contractor where there was no contractual relationship between them.

The case of Multiplex Construction Europe Ltd (“ Multiplex ”) v Bathgate Realisation Civil Engineering Ltd and others [2021]EWHC 590 (TCC) concerned a sizable construction project in the City of London. Multiplex was the main contractor and had design and build responsibilities to the Employer.

One of the three defendants in this case, Bathgate Realisations Civil Engineering Limited (formerly known as Dunne Building and Civil Engineering Limited) (In administration) (“ Dunne ”) was a sub-contractor of Multiplex and had full design responsibility for the concrete works and the temporary works.

The concrete core was constructed with use of a slipform rig which was part of the temporary works. The slipform rig was designed by another Defendant, BRM Construction LLC (“ BRM ”). The contract required that the temporary works were checked by a qualified third party. RNP Associates Limited (“ RNP ”) were engaged by Dunne to carry out those third part independent checks of the temporary works. RNP entered liquidation in 2018 and was insured by another (and final) Defendant in this case, Argo Global Syndicate 1200 (“ Argo ”).

During the course of the works, Multiplex’s subcontractor, Dunne, went into administration. Multiplex therefore terminated its agreement with Dunne and engaged a new sub-contractor. The new subcontractor investigated the work undertaken to date and said that both the work and the slipform rig were defective and, it said, aspects were unsafe. Multiplex therefore had the rig replaced.

Multiplex wished to recover its costs of replacing the slipform rig and other remedial works, which were substantial (it claimed over £12 million). Multiplex obtained judgments against Dunne and BRM but also wished to make a claim direct against RNP’s insurer, Argo, who was the third defendant in this case. The reason Multiplex wished to proceed in this way was because the initial subcontractor, Dunne, had entered administration and the designer, BRM, was based in Dubai and uninsured.

There was no contractual relationship between Multiplex and RNP but Multiplex argued that it would have a claim against RNP on the basis that RNP owed Multiplex a duty of care, negligent misstatement and/or provided warranties to Multiplex.

In a preliminary issues hearing (meaning a hearing on a particular legal issue before a full trial), the Judge held that RNP, the consultant that had undertaken the third party independent check of the temporary works, did not owe any duties as argued by Multiplex nor did it provide any warranties.

Contractors should consider carefully the terms, in particular those dealing with the allocation of risk, upon which sub-contractors and consultants are engaged in construction projects and, if a dispute should arise, parties should always carefully consider a potential defendant’s ability to pay should a claim be successful.

3. JSM Construction Limited v Western Power Distribution (West Midlands) plc [2020] EWHC 3583 (TCC)

In the case of JSM Construction Ltd v Western Power Distribution (West Midlands) plc [2020] EWHC 3583 (TCC) the Technology and Construction Court (the “TCC”) considered the adequacy of payment provisions in a construction contract that failed to include a final account mechanism.

What is a final account?

Final accounts in construction projects are prepared at the completion of the construction phase. The purpose is to set out the final sum to be paid by the Employer to the Contractor taking into account all necessary adjustments. Generally, the final account should finalise any disputes that had arisen between the parties during the construction phase (aside from defects), for example, any disputes relating to losses incurred due to extensions of time, variations etc.

The precedent forms of construction contracts have slightly different ways of dealing with final accounts but in this case, there was no procedure set out for dealing with one. The Court therefore considered whether a procedure could be implied under statute, more specifically, under section 110 of the Construction & Regeneration Act 1996 (“ the Act ”).

JSM Construction Ltd (“ JSM ”) is a utilities service provider. Western Power Distribution (West Midlands) plc (“ Western Power ”) is an electricity distribution network. In this case, Western Power was the Employer and JSM was the Contractor.

Under the contract between JSM and Western Power, JSM agreed to install two cables and associated ductwork in Birmingham. The contract provided that interim payments would apply but no provision was made for a final account.

Throughout the course of the works JSM submitted interims applications for payment. Some months after its last interim application for payment, JSM made a further application that it called a “final application”. The sum in the final application had been based on a remeasurement of the works undertaken by JSM.

Western Power refused to pay JSM’s final application arguing that, under the terms of the contract between the parties, JSM was only entitled to a series of interim payments but was not entitled to raise a final account or to a final payment.

JSM commenced court action against Western Power to try and seek payment of the sums it claimed were owing. One of the arguments raised by JSM was that the payment mechanisms in the contract between Western Power and itself were inadequate and therefore, the final account provisions in paragraph 5 of the Scheme for Construction Contracts 1998 (“ the Scheme ”) should be implied instead.

Western Power argued that the failure of the contract to provide for a final account did not render the payment terms inadequate and the Scheme should not therefore be implied.

Western Power made an application to have JSM’s claim “struck out” (meaning it was asking the Court to dismiss JSM’s claim without a full hearing of all the evidence on the grounds it was bound to fail) or failing that, have a summary judgment entered against JSM (which, similarly, means it was asking the court to make a judgment against JSM at an early stage without a full trial).

The Judge hearing Western Power’s application therefore had to decide whether or not there was an implied term pursuant to section 110 of the Act.

The Judge held that there was nothing in the wording of section 110 of the Act that required parties to a construction contract to agree a separate procedure for dealing with final accounts in order for the payment mechanism to be “adequate” as required by the Act. The Judge noted that simple contracts for fixed fees and staged payments could well be “adequate” for the purposes of section 110 of the Act without there being a final account.

Western Power’s application to have JSM’s case struck out or alternatively, for summary judgment to be entered against JSM, failed on the basis that the Judge could not decide the matter without addressing the full facts of the matter which was not possible at an application hearing (as opposed to a full trial).

If a construction contract does not provide a mechanism for a final account, it does not necessarily follow that one will be implied. Parties should therefore not rely on the Act or the Scheme to remedy when they have entered into a bad bargain.

One to look out for…

4. Naylor and others v Roamquest Ltd and another [2021] EWHC 567 (TCC)

The Technology and Construction Court heard an application in March in relation to an ongoing cladding claim regarding a development of residential and commercial units comprising of eleven tower blocks in London. The Defendants in the case were the freehold owner and main contractor who carried out the design and build. The claimants are some of the leasehold owners.

At the stage of this application the leaseholders’ claim was inadequately pleaded but the Judge allowed them the opportunity to amend the pleadings. Therefore, should this case proceed to trial it is likely to be of significant interest given the widespread fears following the Grenfell Tower fire.

If you are involved in a construction contract dispute it is important to act quickly. Nicola has a reputation for her strong commercial approach which achieves swift and favourable outcomes for her clients. Contact her now for further advice.

Girlings has offices in Ashford, Canterbury and Herne Bay .

Before relying on this commentary please read the Reliance on information posted section in our Terms of Website Use in our Legal section. Please note that specialist advice should be taken in relation to any specific queries and the information above is provided for general information purposes only.

Nicola Webster

Senior associate solicitor, dispute resolution.

Nicola is an experienced commercial dispute resolution specialist, providing advice, support, and guidance to a wide range of businesses, charities, public bodies, and organisations, often dealing with high value claims.

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Practical Law

Construction blog, tort claims for economic loss on construction projects – avantage v wsp.

• by Philip Apfel

Construction claims usually arise out of a breach of contract , because it is easier to establish liability than under a tortious claim . However, where there is no contract or the contractual limitation period has expired, or a contracting party is insolvent or is uninsured, parties may have no choice but to bring a claim in tort.

To succeed in an action for negligence at common law, it is well established that a claimant must prove that the defendant owes it a duty of care, that the defendant has breached that duty, and that such breach caused the claimant to suffer loss.

But how do the courts apply these rules where there is a claim in tort for pure economic loss in the context of complex construction projects involving carefully negotiated construction contracts?

The starting position is the much-quoted statement of Lord Goff in Henderson v Merrett Syndicates :

“Let me take the analogy of the common case of an ordinary building contract… there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility.”

The idea is that a construction project involves such carefully negotiated, complex contractual arrangements, that, in the words of Lord Mustill in White v Jones , there is:

“no room for any obligations other than those which [the parties] have expressly chosen to create .”

In addition, we know from Fraser J’s decision in Multiplex v Bathgate that:

• If a party brings a tort claim, but there are alternative claims in contract against other parties in respect of the same issue, that can prevent a tortious duty of care arising.
• A court will not be persuaded to find that there was a duty of care simply because an alternative contractual defendant is penniless, in administration or without insurance.
• Exchanges and conduct which “cross the line” directly from a defendant to a claimant are an important factor in establishing an assumption of responsibility, but subjective intentions of either party are not. If communications are passed through other parties on a construction project, that makes a finding that there is a duty of care less likely.

All of this makes jumping over the contractual chain to bring a construction claim in tort rather difficult.

However, those parties that have no choice but to bring such a claim were recently handed a useful case, which appears to go against the general trend – Avantage v GB Solutions Ltd .

The claimant, Avantage, was engaged through a PFI agreement, and appointed GB Building Solutions Ltd (formerly known as Gleeson Building Ltd) as the design and build contractor in relation to a supported living facility in Crewe. Gleeson in turn engaged WSP as a consultant in relation to fire engineering design. This involved producing a fire safety strategy (FSS), which expressly disclaimed liability to third parties. WSP subsequently produced an Operational Fire Safety Management report and a Fire Risk Assessment in relation to the facility in question.

In 2019, in the course of some hot works to the roof, a fire was ignited destroying much of the building.

Gleeson went into administration, so Avantage focused its £32m claim on the supply chain. It had no collateral warranty from WSP, so it brought a claim in tort. It claimed that WSP owed Avantage a duty of care to exercise reasonable care and skill in the performance of its obligations to advise on the FSS, which duty extended to protecting it from physical damage to property and from pure economic loss.

No doubt emboldened by cases such as Henderson and Multiplex , WSP applied to the court for disposal of the claim by way of summary judgment before the disclosure stage in the case.

The application came before Joanna Smith J, who cited extensively from the established case law, including Multiplex , but, interestingly, concluded that:

• The subjective state of mind of the defendant does matter, and if a defendant consents to, intends or knows that information or advice provided will be passed on to and relied on by a third party, that can be sufficient to establish a duty of care whether or not there is evidence of communications between the parties “crossing the line”.
• The existence of a contractual structure or chain will not, on its own, provide the answer to the question of whether a duty of care in tort is owed in any given situation.
• While a disclaimer may be an important factor in determining whether a duty of care arises, its significance must be determined having regard to its true construction in the context of the relevant factual matrix.
• The court must consider not only the facts surrounding entry into the contractual structure, but it must also examine the extent to which any conclusions it may reach by reference to that contractual structure need to be moderated to have regard to conduct of the parties that takes place at some later time. The contractual matrix is the starting point, but it will not fix the tortious relationship between the parties for all time.

Applying these principles, the judge rejected WSP’s application, and held that the existence of a duty of care was at least arguable (the low threshold required to dismiss an application for summary judgment).

The state of mind of the defendant, WSP, and in particular its alleged knowledge of the existence of the PFI arrangement and its knowledge that Avantage, together with the other claimants, would be made aware of its advice and recommendations, and would rely on them, was an important factor in the judge’s finding.

In addition, she emphasised the fact that Avantage had taken part in various meetings and direct discussions involving WSP long after the project contracts had been entered into, all of which could be seen as “crossing the line”, thereby arguably establishing the existence of a duty of care.

In one sense the judge’s decision to reject WSP’s summary judgment application is not surprising. The issues in the case were meaty, involving detailed factual and legal argument, and summary resolution was therefore inappropriate, particularly since the case had not reached disclosure stage. It would therefore have been possible to reject the application just on that basis.

However, in addressing the relevant legal principles on whether a duty of care had arisen, Joanna Smith J made some interesting comments on when such a duty might arise in the context of construction projects. She stepped away from focusing solely on objective communications “crossing the line” and, for cases where there are subsequent events and conduct that could establish that a duty of care has arisen, expressly limited the effect of the existing contractual structure to the point in time when those contracts were executed.

It remains to be seen whether this case will proceed to full trial, and if it does, it will be interesting to see the court’s approach to these issues when the factual matrix has been established. Overall, the basic position remains that it is usually easier to recover economic loss by bringing a claim for breach of contract.

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The key English contract law cases of 2020

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It has been a most unusual year. In response to the global pandemic, the Cabinet Office issued Guidance in the summer, encouraging contractual parties to act “responsibly and fairly” in the performance and enforcement of their contracts.

In a similar vein, the British Institute of International and Comparative Law (“ BIICL ”) has published three Concept Notes, the first of which noted that a plethora of disputes from the pandemic would be destructive to good contractual outcomes and the effective operation of markets. However, the BIICL also recognised that there are some cases which do require the involvement of the courts.

Inevitably then, there have been disputes which have made it to the courts this year: some which started before the pandemic hit; some borne of the pandemic itself (notably, the recent insurance business interruption case, which you can read about here   1 , and a case concerning material adverse effect clauses, which you can read about here ); and others that presumably just could not be resolved consensually. What can we learn from the decisions in these disputes? In this briefing we review this year’s important contract cases and consider what commercial parties can learn from them.

1. At the time of writing, we note that the Supreme Court heard a leapfrog appeal from the decision of the High Court from 16-19 November 2020. The judgment is pending.

Implied duties of good faith: plead at your peril.

Last year we noted that the law was still in a state of flux. One year on, is it any clearer when a contract will be subject to an implied duty of good faith? It’s fair to say the law still “has not yet reached a stage of settled clarity” ( Cathay Pacific Airways Ltd v Lufthansa [2020] EWHC 1789 ) with a continuing split between the two visions of this duty, namely:

• that there is a class of “relational contracts” that are subject to a duty of good faith as a matter of law ( Essex County Council v UBB Waste (Essex) Ltd [2020] EWHC 1581 ), or
• that such a duty will only arise where the strict tests for the implication of terms in fact are satisfied ( Taqa Bratani Ltd & Ors v Rockrose UKCS8 LLC [2020] EWHC 58 ).

Around these central themes, there have been various clarifications to the law. For example, in Morley v Royal Bank of Scotland Plc [2020] EWHC 88 (Ch) the High Court rejected a borrower’s argument that the bank had an implied duty to act in good faith towards it under a loan agreement. The Court held that this was not a relational contract of any kind but an ordinary loan facility agreement. The bank’s decision to call in the loan was the exercise of a contractual right, not a discretion (subject to the Braganza duty). The bank’s power to obtain a revaluation of the charged assets and its power to charge a default interest rate were discretions which had to be exercised for purposes connected to the bank’s commercial interests and not so as to vex the borrower maliciously (following Property Alliance Group Ltd v Royal Bank of Scotland plc [2018] EWCA Civ 355 ). On the facts, they had been exercised properly.

Similarly, the courts continue to treat references to good faith in some clauses as evidence that a wider overarching duty of good faith should not be implied into the agreement (see Russell v Cartwright [2020] EWHC 41 (Ch) ).

Perhaps most important is the nature of any duty of good faith. While this is sometimes described in broad terms, for example to “adhere to the spirit of the contract, to observe reasonable commercial standards of fair dealing, to be faithful to the agreed common purpose, and to act consistently with the justified expectations of [the other party]” ( CPC Group Ltd v Qatari Diar Real Estate Investment Company [2010] EWHC 1535 ), the courts have recently made it very clear that the assertion that a party has not acted in good faith is a serious allegation.

In Essex County Council v UBB Waste (No. 3) [2020] EWHC 2387 (TCC) the courts suggested this was, put colloquially, an allegation of “sharp practice” . To make such an allegation without proper foundation was out of the norm and justified an order for costs on an indemnity basis.

What does this mean for you?

Good faith is still an evolving area in English law. Until we have greater clarity, it is worth considering whether your contract might be classified as “relational” or whether a duty of good faith might arise under the rules for the implication of terms in fact. In either case, you might want to address the matter expressly. Finally, allegations of a breach of good faith are serious and should not be made without foundation, so plead at your peril.

Excusing liability

In times of crisis, contractual parties may have even greater reason to examine those parts of their contracts which may exclude or limit liability or offer defences to breach (such as force majeure provisions).

Force majeure and a variety of limitations

A recent dispute concerning the 2011 riots in London put all of these provisions under the spotlight. The High Court found that a warehouse operator had failed to use reasonable skill and care to protect the contents of the warehouse (CDs and DVDs), which were destroyed by fire during the riots. Could the operator rely on any contractual terms to excuse or limit its liability?

It was not able to rely on the force majeure clause since the fire was not a circumstance “beyond [its] reasonable control” . The Court found that, if it had acted reasonably, it could and should have prevented the fire.

Since the claims (for loss of profits, business interruption costs and increased cost of working, suffered as a result of the fire) were all direct (in that they were exactly the type of loss that one would expect to result from the breach), the clause excluding liability for “indirect and consequential loss” did not apply. A cap on liability for damage to goods was no protection either as the claims were not for damage to the goods themselves. However, an overall – aggregate – cap on all liability (of £5 million) was effective.

What does this mean for you? These types of clauses are very topical in the current uncertain times and always need to be drafted carefully. This case reminds us that the position of commercial parties will depend upon the exact terms of the contracts, applied to the facts of the situation.

Where can you read more? See 2 Entertain Video Ltd & Ors v Sony DADC Europe Ltd [2020] EWHC 972 (TCC) .

Indirect and consequential loss

Another recent case highlights just how useful an exclusion of “indirect and consequential loss” could have been, if only it had been included.

A contractor terminated a construction contract for breach by its employer (on the basis that the latter had failed to provide a prepared site for the water treatment plant that was to be built). The Board of the Privy Council held that the contractor was entitled to recover, as damages for breach, the loss of profits that it would have made under an operation and maintenance contract for the same plant had it been built. These losses were not too remote (and fell within the second limb of Hadley v Baxendale [1854] EWHC Exch J70) as they were within the reasonable contemplation of the parties to the construction contract when that contract was entered into (on the same day as the operation and maintenance agreement).

What does this mean for you?  When entering into related contracts, it is vital to consider the exact relationship between them, including the consequences of a termination, breach or force majeure scenario arising under one of them and the knock-on effects this might have. Exclusion of liability under a related contract might be achieved by an exclusion of indirect and consequential loss (depending upon the specific drafting) or expressly.

Where can you read more? See AG of the Virgin Islands v GWA [2020] UKPC 18 . 

Loss of goodwill

It is also relatively common to see clauses exclude liability for “loss of goodwill”. The Court of Appeal decided that, in a commercial context, the ordinary legal meaning of “goodwill” was the good name and public reputation of the business concerned. If a contract intends the term to have an unusual or technical meaning (such as the accounting concept of goodwill) then that should be spelt out expressly.

This decision highlights how important it is to agree the meaning of (and clearly define) terms in agreements, particularly where something different from the ordinary legal meaning is intended.

Where can you read more? See Primus International v Triumph Controls [2020] EWCA Civ 1228 .

What is a reasonable condition of consent (and what is not)?

In a recent decision, the High Court considered the case law on contractual consent provisions, which often state that one party “shall not unreasonably withhold consent” to whatever is being requested.

If we call the party asking for consent, Party A; and the party being asked to give consent, Party B, the Court found that the authorities drew the following distinction:

• while it may be legitimate for Party B to impose a condition to protect or compensate it for the impairment of a benefit it enjoys under the contract which would result from giving consent,
• that is completely different to imposing a condition which would impair a right which Party A currently enjoys under the contract.

The contract was for the onshore pipeline transportation of hydrocarbons produced in the North Sea. The producer (Party A in our analogy) requested consent to amend its estimated production profile for transportation for the period from January 2021 to December 2040. The pipeline owner (Party B) stated that it was only willing to consent to the amendment if Party A agreed to an increase in the tariff payable under the agreement. Contractually, Party B was not entitled to “unreasonably withhold” its consent to the amendment. Was Party B therefore acting contractually or non-contractually by seeking to impose a tariff rise as a condition to giving consent?

The Court found that Party A was both entitled and obliged to tender its hydrocarbons for transportation at the contractual tariff for the duration of the agreement, which would continue until terminated on one of the contractual bases set out in the agreement. The terms did not limit that entitlement and obligation to the period up to 2020. In those circumstances, it would be inconsistent with the terms and scheme of the agreement if Party B was entitled to make its consent to the amendment conditional on a fundamental revision of the parties’ bargain in the form of a new tariff. Party B was acting non-contractually.

This decision clarifies that a condition might be reasonable as a prerequisite to giving consent (e.g. to make up for something lost by the consenting party as a result of the change). However, a party cannot use a consent request as an opportunity to renegotiate terms or impose an unrelated change on the other party. It may be preferable to make this clear in the drafting of any relevant provision, by stating that consent cannot be unreasonably withheld or delayed, or made subject to additional conditions.

Where can you read more? See Apache North Sea v INEOS FPS Limited [2020] EWHC 2081 (Comm) .

How will the Courts determine the law applicable to an arbitration clause?

The Supreme Court recently provided the answer to this question in a landmark decision.

An arbitration clause is generally regarded as legally distinct from the main agreement in which it is contained (and the Rome I Regulation excludes arbitration and choice of court clauses from its scope). In England, therefore, common law conflict of laws rules apply to determine the law applicable to the arbitration agreement. Under those rules that will be: (i) the law expressly or impliedly chosen by the parties; or (ii) in the absence of such choice, the law “most closely connected” to the arbitration agreement.

Where the parties have not specified the law applicable to the arbitration agreement, but they have chosen the law to govern the contract as a whole, this choice will generally also apply to the arbitration agreement, rather than the law of the seat of the arbitration (as the Court of Appeal had held). But where the parties have made no choice of law to govern the arbitration agreement, either specifically or by choosing the governing law of the contract, the closest connection test will, in general, lead to the arbitration agreement being governed by the law of the seat of arbitration.

The potential for issues regarding what the applicable law of an arbitration clause is arise most frequently where the law governing the main contract and the place of the seat do not “match”. To remove the room for debate, parties, where the seat of arbitration is in England and the law of the contract is not English, therefore frequently consider using an express choice of law to govern the arbitration clause. Often, this is in favour of the law governing the main contract (the benefits of consistency with that law being something touched upon by the Supreme Court in its judgment). That approach should not change. The Supreme Court’s clarification of this area is welcome but is a general interpretative approach. Therefore, in such cases, an express designation still carries the value of some increased certainty (it will, of course, always be necessary to ensure the clause is properly drafted and works under the chosen law).

Where can you read more? See Enka Insaat Ve Sanayi AS (Respondent) v OOO Insurance Company Chubb (Appellant) [2020] UKSC 38 , and, for our ArbitrationLinks coverage see here .

What stays and what goes in assignment and novation?

The High Court held that an assignment by a contractor to an employer of “ the subcontract ” was an assignment of both (a) accrued rights, and (b) future rights under the subcontract. This meant that when the employer claimed damages in the sum of £133 million from the contractor, the contractor was left without a contractual right to seek a direct remedy from the subcontractor (in principle, it would be able to claim contribution from the subcontractor under the Civil Liability (Contribution) Act 1978, but this would have to be considered, alongside the effect of any relevant limitation or exclusion provisions, at full trial). The Court also held that the assignment did not amount to a novation, so that the contractor’s obligations under the subcontract had not been transferred to the employer.

It’s imperative to think – in advance and before agreeing to do so – what the possible effects of a transfer of rights might be, so that you are not left without a clear remedy, should that be needed. The decision also contains a handy summary of some of the key aspects of assignment and novation:

Assignment:

• Subject to any express restrictions, a party to a contract can assign the benefit of a contract without the consent of the other party to the contract.
• The burden of a contract (the obligations under it) cannot be assigned but the principle of conditional benefit can apply so as to impose on the contractual assignee a positive obligation where such obligation is inextricably linked to the benefit assigned.
• In the absence of any clear contrary intention, reference to assignment of the contract by the parties is understood to mean assignment of the benefit of both accrued and future rights.
• It is possible to assign future rights only, but clear words are needed for that.
• Novation occurs when the original contract between A and B is extinguished and replaced by the creation of a new contract between A and C.
• Novation requires the consent of all parties to the original and new contract. Consent can be given in the original contract, but clear words are needed.
• The terms of the new contract must be sufficiently certain to be enforceable.
• In every case the court must construe the contractual arrangements to give effect to the expressed intentions of the parties, using the established rules of construction.

Where can you read more? See Energy Works (Hull) Limited v MW High Tech Projects UK Limited and another [2020] EWHC 2537 (TCC) .

Notices: the devil in the detail

A share purchase agreement provided that the sellers would pay the buyer an amount equal to any tax liability which arose in certain circumstances, provided that, when making a claim, the buyer provided written notice stating “ in reasonable detail ” the matter which gave rise to the claim, the nature of such claim and (so far as reasonably practical) the amount claimed. The buyer gave notice of a claim to the sellers, referring to an investigation begun by the relevant tax authorities and gave a chronology of key milestones. Was this enough?

The High Court noted that the “reasonable detail” requirement amounted to an obligation to provide sufficient information so that the sellers, acting reasonably, knew what matter gave rise to the claim as well as the nature of the claim and, if reasonably practical, the amount. On the facts, the notice was insufficient. It contained no indication of the relevant facts, events or circumstances giving rise to the claim. Reference to the tax investigation was insufficient, and did not import all the tax authority’s comments and allegations, even if they were known to the sellers’ representatives. There had to be some indication of how the claim arose out of the facts identified.

Requirements to provide details usually mean that more, rather than less, should be included. It might help to consider what the purpose of the notification is and what it is that the recipient will need to know in order to respond or take a matter forward.

Where can you read more? See Dodika Ltd & Ors v United Luck Group Holdings [2020] EWHC 2101 (Comm) .

Waiver by election: understanding the boundaries

Rights can sometimes be lost by waiver by election: where a party has alternative, inconsistent rights, has knowledge of the facts which give rise to them and acts in a way which is only consistent with its having chosen to rely on one of them, it will be taken to have waived the other right ( Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 ). This explains why a party who communicates unequivocally an intention to continue with performance thereby loses the right to terminate a contract (instead, it is taken to have affirmed the contract).

A recent decision of the Privy Council is an important, and topical, illustration of the boundaries of the concept of waiver by election and highlights that it isn’t always applicable.

The parties entered into a fuel supply agreement against the backdrop of a potential closure of a refinery which supplied petroleum to the seller. The seller had a specific contractual right in a “Performance Relief” clause (effectively, a force majeure clause) to withhold, reduce or suspend deliveries to the extent it thought fit where necessitated by, amongst other things, the closure of the refinery.

When the refinery gave notice to the seller that it was closing, the seller notified the buyer but carried on supplying fuel, purchased and shipped from elsewhere while negotiations took place between the parties (as the seller sought a price increase to offset its higher costs). When these negotiations broke down, the seller sought to rely on the clause. The buyer argued that the seller’s rights had been “exhausted” after the seller had continued making deliveries. The Board of the Privy Council disagreed: waiver by election did not apply here. The seller’s right to claim performance relief did not present the seller with a binary, all-or-nothing choice between, on the one hand, putting an end to all the parties’ obligations or, on the other hand, treating all those obligations as still binding. Instead, it had a range of options: at one end of the scale, the seller might merely delay a delivery of fuel; at the other extreme, the seller might decide to cease all further deliveries under the contract, as eventually happened.

In situations where a party is faced with deciding whether to exercise a contractual right or not, whether taking one course of action will constitute a “waiver” of its other right(s) will ultimately turn on whether the rights are truly inconsistent with each other. Parties who want to make it clear that any action they are taking is to be without prejudice to their other rights should say so expressly, in writing. It should also be kept in mind that in these types of situations, estoppel can be relevant  – for example, if the seller had unequivocally represented it would not withhold deliveries under the supply agreement despite the closure of the refinery, it might have lost its right to performance relief by waiver by estoppel. There was no argument, however, that this was so in this case.

Where can you read more? See Delta Petroleum v BVI Electricity Corporation [2020] UKPC 23 .

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The Malaysian Lawyer

Latest updates on malaysian law, top 5 construction cases in malaysia for 2020.

Our guest author, Kevin Wong , writes on the top 5 construction cases in Malaysia for 2020. The areas covered include when does time run for the calculation of liquidated damages, the Controller of Housing, and cases on the Construction Industry Payment and Adjudication Act 2012 (CIPAA).

#1: Sri Damansara – Court of Appeal Answers When Does LAD Start to Run?

( Sri Damansara Sdn Bhd v Voon Kuan Chien & Anor [2020] 4 MLJ 265; [2020] 5 CLJ 619, COA with the grounds of judgment dated 5 March 2020 )

Judges: Hasnah Mohammed Hashim JCA, Kamaludin Md Said JCA, and Lee Swee Seng JCA (delivering the judgment of the court)

Why is this case important?

This case concerns homebuyers as to whether the calculation of liquidated and ascertained damages (LAD) on late delivery of vacant possession should be calculated from the date of payment of booking fee or the date of the sale and purchase agreement (SPA).

In this case, the Tribunal for Homebuyer Claims (Tribunal) originally decided in favour of the homebuyer. LAD was calculated from the date of payment of the booking fee to the date of delivery of vacant possession. The developer had argued that the calculation should have been from the date of the SPA.

Dissatisfied, the developer applied for judicial review against the Tribunal’s decision. The High Court also agreed with the homebuyer’s basis of calculation from the date of booking fee. The developer then appealed to the Court of Appeal.

In this case, the Court of Appeal departed from two previous Court of Appeal decisions finding calculation was to run from the date of the SPA:

GJH Avenue Sdn Bhd v Tribunal Tuntutan Pembeli Rumah, Kementerian Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan & Ors [2019] MLJU 861 and PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Ors [2019] MLJU 2067.

Instead, the Court of Appeal affirmed the High Court’s decision that the calculation was to run from the booking fee. The Court of Appeal held that the Housing Development (Control and Licensing) Act 1966 (HDA) is a social piece of legislation designed to protect the homebuyers who are in a more vulnerable position because of the inequality of bargaining power.

Further, the Court of Appeal did not appear to apply a consistent approach. In this case, the Court stated that the collection of any booking fee is strictly prohibited under the HDA. On the other hand, the Court allowed the date of the booking fee to be used for the computation of LAD. A decision from the Federal Court would be welcomed to put to rest the conflicting Court of Appeal decisions and the issues concerning the booking fee and the HDA.

#2: Alvin Leong Wai Kuan – High Court Decides that There is Retrospective Effect of Ang Ming Lee  Decision

( Alvin Leong Wai Kuan & Ors v Menteri Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan & Ors And Other Applications [2020] 10 MLJ 689; [2020] 6 CLJ 55, HC with the grounds of judgment dated 20 March 2020 )

Judge : Wong Kian Kheong J

Why is the case important?

This case addressed to issue whether the Federal Court’s recent decision of Ang Ming Lee & Ors v. Menteri Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan & Anor And Other Appeals [2020] 1 MLJ 281; [2020] 1 CLJ 162 ( Ang Ming Lee ) has retrospective effect.

In Ang Ming Lee , the Federal Court essentially decided that the Controller of Housing has no powers to grant any extension to a developer to complete the development.

In this case, the Controller of Housing granted the developer an extension of delivery of vacant possession to 54 months. The developer appealed to the Minister of Housing and Local Government (Minister). The Minister extended the period to 59 months (Decision).

Aggrieved by the Decision of the Minister, the purchasers filed judicial review applications to quash the Decision. Riding on Ang Ming Lee, the High Court allowed the purchasers’ judicial review applications.

The High Court made four points:

First , Regulation 12 of Housing Development (Control and Licensing) Regulations 1989 provides that the Minister’s decision “ shall be final and shall not be questioned in any court ”. This part of the regulation is invalid as it ousted the Court’s judicial power.

Second , even though these applications were filed before Ang Ming Lee , the judgment in Ang Ming Lee has retrospective effect and applies to the current applications. It is also in the interest of homebuyers for the judgment in Ang Ming Lee to be given retrospective effect.

Third , the Controller and the Minister cannot extend the time beyond the 36 months prescribed in Schedule H of the Housing Development (Control and Licensing) Act 1966.

Fourth , the homebuyers are entitled to claim for liquidated and ascertained damages based on the 36 months.

This case cements the rights of homebuyers to claim liquidated and ascertained damages for delivery beyond the statutory limit 24 or 36 months and potentially open the floodgates for more homebuyers to challenge to the Controller and Minister’s decisions to extend the time beyond the statutory limit.

#3: Maju Holdings Sdn Bhd – High Court Decides Whether an Adjudication Decision Can be a Disputed Debt

( Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2020] MLJU 1196, HC with the grounds of judgment dated 21 August 2020 )

Judge : Ong Chee Kwan JC

Prior to this decision, the High Court in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2020] MLJU 282 ( ASM ) held that an enforced adjudication decision can still be treated as a disputed debt. This is because an adjudication decision is only of temporary finality. The present case departed from ASM.

In this case, the Defendant commenced adjudication proceedings against the Plaintiff and was successful. Thereafter, the Defendant successfully applied to enforce the adjudication decision. The Defendant then issued a statutory notice of demand. The Plaintiff applied to restrain the Defendant from presenting a winding up petition.

First, the High Court allowed the Plaintiff’s application on the basis that the court was satisfied that the cross-claims by the Defendant is more than the statutory demand amount. Second, the High Court also held that an enforced adjudication decision is an undisputed debt. This decision is directly in conflict with ASM .

ASM is currently on appeal. A decision from the appellate courts is warranted to solidify the nature of an enforced adjudication decision registered pursuant to section 28 of CIPAA.

#4: Multazam Development Sdn Bhd – High Court Decision on the Nature of an Adjudication Order

( Multazam Development Sdn Bhd v Felda Global Ventures Plantations (M) Sdn Bhd [2020] 11 MLJU 606, HC with the grounds of judgment dated 15 May 2020 )

Judge : Lim Chong Fong J

This is the first decision to determine the nature of an order (not decision) made by an adjudicator in relation to costs awarded from the withdrawal of adjudication proceedings under CIPAA.

In this case, Multazam (Plaintiff) withdrew its adjudication proceedings against Felda (Defendant) when the proceedings were in progress. The parties could not agree on the quantum of the cost of withdrawal. The adjudicator determined the amount to be borne by the Plaintiff. Dissatisfied, the Plaintiff made an application to the High Court to, among others, set aside the order made by the adjudicator.

After hearing the application, the High Court remitted the issue on legal cost back to the adjudicator for reconsideration. Upon reconsideration, the adjudicator reaffirmed his previous order. The Plaintiff made another application to the High Court to set aside the revised order leading to the present case.

First , the High Court held that there is no provision in the CIPAA which permits an appeal or even the setting aside of a cost order made by an adjudicator.

Second , the High Court highlighted that the Plaintiff’s complaint was in substance an appeal against the adjudication order.

Third , the High Court could not entertain the Plaintiff’s complaint as the High Court has not been statutorily clothed with the jurisdiction power to do so.

This decision seals the finality of an order made by an adjudicator. Also, it serves as a timely reminder for a party who intends to initiate adjudication proceedings to bear in mind that an adjudication order (akin to a direction from the court) is not appealable and cannot be set aside.

#5: Spring Energy Sdn Bhd – Sessions Court Decides on Alternative Speedy Resolution for Contractors

( Spring Energy Sdn Bhd v Maju Holdings Sdn Bhd [2020] MLJU 902 , SESSC with the grounds of judgment dated 1 July 2020 )

Judges : Zulqarnain Bin Hassan

Since coming into effect in April 2014, CIPAA has been a salvation for the construction industry to resolve payment-related disputes. However, the adjudication lifeline came to a halt from March 2020 to November 2020. During that period, there was no director of the Asian International Arbitration Centre (AIAC) to appoint adjudicators. This decision is useful in setting out an alternative to CIPAA as it has the effect of resolving payment disputes in the construction industry speedily.

In this case, Spring Energy (Plaintiff) commenced an action against Maju Holdings (Defendant) for sums due and owing pursuant to Payment Certificates No. 22 and No. 23. The Plaintiff successfully obtained a summary judgment. The Sessions Court held that, among others, the Plaintiff had proved a clear-cut case against the Defendant as the payment certificates issued contained the elements of clarity, finality and incontrovertibility. The issuance of payment certificates amounted to an admission by the Defendant and that the Plaintiff was entitled to the payments.

The adjudication process is back on track with the appointment the director of the AIAC on 1 December 2020. However, this decision opens up more options for contractors (where an arbitration clause does not govern their contracts) to resolve their payment disputes swiftly.

Kevin Wong is the partner in the Construction and Energy practice of Khong Partnership . He has experience in the entire range of dispute resolution processes including adjudication, litigation and arbitration.

Read the rest of the series:

• Top 5 Company Law Cases in Malaysia for 2020
• Top 5 Tax Cases in Malaysia for 2020
• Top 5 Restructuring and Insolvency Cases in Malaysia for 2020
• Top 5 Arbitration Cases in Malaysia for 2020

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