April 11, 2018

Projects & Construction Law Update

Cases

Employers' implied obligation to obtain planning permissions

Jean-Francois Clin v Walter Lilly & Co Ltd [2018] EWCA Civ 490

In this case, an employer learnt the hard way the importance of ensuring that construction contracts are not silent on fundamental issues such as who bears the responsibility of obtaining planning permissions. The Court of Appeal implied a term to the employer's detriment which required it to use all "due diligence" to procure the relevant planning permissions.  The Court also provided guidance as to the scope of this obligation.

Mr Clin engaged Walter Lilly under a JCT 2005 Standard Building Contract with Quantities, incorporating Revision 2 of 2009, with bespoke amendments (Contract), to carry out demolition, refurbishment and reconstruction works to buildings in a conservation area. Subsequently, the local planning authority (LPA) specified that conservation area consent was required. Importantly, the Contract was silent on who was responsible for obtaining planning permissions. Work stopped for over a year until planning permission was finally obtained and a dispute arose between the parties as to Walter Lilly's entitlement to an extension of time. The Court ordered the determination of a number of preliminary issues, including whether a term should be implied into the Contract to make the Mr Clin responsible for obtaining planning permissions.

The law regarding implied terms is well established.  Fundamentally, a term may only be implied into a contract if it is necessary.  The question is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.  Relevant factors include the surrounding circumstances known to the parties at the time of the contract, commercial common sense and what a reasonable person would interpret the position to be.  In this case, both parties accepted, in principle, that an appropriate term should be implied into the contract to allocate responsibility for making applications for planning permissions or conservation consents.  The issue was to whom it should fall?

The Court of Appeal held that it was necessary to allocate the responsibility for obtaining planning permission to Mr Clin.  In coming to this decision, the following observations were made:

  1. A reasonable man in the position of the parties would have in mind that, in general, a person who wishes to develop his land will know either that he is likely to need planning permission or that he must satisfy himself that the development is otherwise exempt.

  2. Even when applied for well in advance, everyone knows that planning permission cannot be taken for granted.

  3. It was obvious that the parties must have intended that someone should have the responsibility for applying for planning permission and it would be obvious to an informed bystander that the employer was the best placed to obtain it, not least because he is the party who knows well in advance what he wants do.

As to the scope of the implied obligation, given the inherent uncertainty with respect to planning permissions, the Court held that it was not an absolute obligation. However, it did extend beyond a "reasonable endeavours" requirement, obliging an employer to use "all due diligence" to obtain the necessary permissions. In this context "due diligence" was deemed to include making applications within prescribed time limits, providing sufficient information to the LPA and co-operating with the LPA in a more general sense.

It is not uncommon for parties, when drafting a contract, to focus on the express clauses contained therein and forget about the position that may apply where the contract is silent on certain issues.  This judgment confirms that where a construction contract fails to allocate responsibility for obtaining planning permission, a term is likely to be implied to place such obligation on the employer; the scope of which is potentially quite onerous in nature. The decision highlights the importance, particularly for employers, of ensuring that their construction contracts specifically address who bears responsibility for planning permissions, particularly where they intend for contractors to take on this responsibility or where they seek to limit the scope of their responsibility in this regard. It should be noted that this judgment only dealt with preliminary issues, with a decision as to the substantive dispute yet to be handed down.

Read the full judgment here.

Implying terms for practical and commercial coherence

JN Hipwell and Son v Szurek [2018] EWCA Civ 674

In what appears to be a month of 'implied terms' cases, the Court of Appeal held that a term could be implied into a commercial lease to ensure that the lease had practical and commercial coherence, and to give effect to the obvious intent of the parties despite the presence of an ‘entire agreement’ provision.

While not a construction case, this decision provides further insight into the Court of Appeal's approach to implied terms.  Briefly, the defendant leased commercial premises to the claimant.  Less than halfway through the lease term, problems with electric wiring resulted in the closure of the claimant's business, for which it sought to recover its losses.

The lease was silent in relation to responsibility for the exterior of the premises and its plumbing and electrical installation and supply. The claimant alleged that there was an implied term within the lease to the effect that the defendant was to be responsible for maintenance and/or repair of electrical installations and/or there was an implied warranty within the lease that the electrical installation was safe. The claimant alleged that the defendant was in repudiatory breach of the lease and the claimant was entitled to accept that repudiation.  In its defence, the defendant relied on the existence of the ‘entire agreement’ provision to support its argument that the lease represented the parties' entire agreement and understanding in relation to the transaction and the claimant could not rely on any prior statements or representations.

The Court of Appeal held that there was a legitimate basis for implying a term into the lease and making the landlord responsible for the installation and maintenance of the electrical wiring. This was due to there being a plain and obvious gap in the lease in relation to responsibility for the exterior of the premises, its plumbing and electrical installation and supply. The lack of such a provision demonstrated that the lease was incomplete. This was plainly inconsistent with the entire agreement provisions and had the effect of ousting it.

To ensure that the lease did not lack commercial or practical coherence, the gap had to be plugged by implying a covenant into the lease on the landlord’s part to the effect that the electrical instillation was safely installed. As the defendant was in breach of the implied term regarding electrical safety, the claimant was entitled to repudiate the lease and to the sum claimed for business losses.

This case confirms that ‘entire agreement’ provisions do not prevent terms being implied into commercial contracts where it is necessary to give business efficacy to the contract in question and where it is the obvious intent of the parties.  It serves as a reminder to parties that reliance on such provisions will not always assist them and care should be taken to ensure that clear and unambiguous drafting is included to cover off on all material issues.

Read the full judgment here.

Regulatory Update

Chancellor's Spring Statement

The Chancellor's Spring Statement pledges further investment for the housing industry and for the development of construction skills to fill the industry skills gap.

The Chancellor's Spring Statement, delivered on 13 March 2018, pledged further investment in order to meet housing needs UK wide, with £44bn to raise housing supply to 300,000 per year by the mid-2020s. The $4.1 billion Housing Infrastructure Fund promises to provide funding to authorities to meet area-specific housing demand, while the Housing Growth Partnership with Lloyds Banking Group will be doubled to £220m with the aim of providing additional finance for small builders. In the capital alone, an additional £1.67bn will be used to deliver 27,000 additional affordable homes. In addition, in conjunction with the CITB, bids will be taken for the funding of 20 construction skills villages from the construction skills fund in order to fill the industry skills gap.

Bridging the Gap

Interim findings published on the 'significant gap' between housing completions and planning permissions in areas of high demand.

On 9 March 2018, the Treasury published interim findings of the Independent Review of Build-out, which seeks to address the 'significant gap' between housing completions and planning permissions granted in areas of high housing demand (the 'build-out rate'). For Sir Oliver Letwin MP, the fundamental driver of build out rates is the rate at which newly constructed homes can be sold into the local market without materially disturbing the market price which, in turn, is affected by the type of homes being built and the pricing of these homes. Sir Letwin questioned whether the build-out rate could be improved by encouraging variety in the types and prices of homes offered, or by increasing the number of house builders present on large sites. Further analysis will be published in June 2018.

Addressing Skills Shortages

The CITB introduces new grants scheme in an attempt to plug the skills gap.

The Construction Industry Training Board (CITB) is seeking to deal with construction skill shortages through the introduction of its new grants scheme aimed at providing a more flexible mechanism to support construction related training. At the same time, the Construction Training Directory will enable employers to find required training supported by grants, while the Construction Training Register will enable employers to view the qualifications held by each construction worker. The ultimate aim of the new system is to automate grant claims and payments to significantly reduce the paperwork currently involved.

Clyde & Co 'In the News'

Partners Liz Jenkins and David Hansom were quoted in Partnership's Bulletin commenting on the future of PPPs following the Carillion collapse.  Read their insights here.

A growing team: We have recently grown our presence in Europe through the hire of construction specialist, Luis García, based in Madrid. Luis will work with Spanish contractors operating in or looking to enter foreign markets. We have also enhanced our regional presence in the UK through the hire of Julie Morrissey in Manchester. Julie focuses on non-contentious construction work with significant experience advising both the public and private sector.

Please note, readers may need a subscription to access the above articles.