May 8, 2018

Projects & Construction Law Update

Cases

Keeping your contribution claims in time

R.G. Carter Building Limited v Kier Business Services Limited [2018] EWHC 729 (TCC)

In this case, a designer was unable to avoid a contribution claim from its contractor by raising a defence that the claim was outside the applicable limitation period.  The court did not accept its argument that the limitation period started running when an in principle settlement agreement was reached.  In this case, the fact that the settlement negotiations were "subject to contract" meant that a formal agreement had to be entered into before time could start running. 

The Civil Liability (Contribution) Act 1978 (Act) provides that any person liable in respect of any damage can recover contribution from any other person liable in respect of the same damage (s. 1(4)).  It imposes a limitation period of 2 years from the date on which the right to claim contribution accrues (s. 10(1)).  The right to contribution accrues from (i) the date of any judgment or award against the party seeking contribution (s. 10(3)); or (ii) upon agreement to pay compensation in the case of a settlement (s. 10(4)).  In this case, the court was required to determine whether the time for seeking contribution ran from the date the parties agreed to a settlement in principle or when the parties actually entered into a subsequent binding agreement.

R.G. Carter Building Limited (R.G. Carter) engaged Kier Building Services Limited (Kier) to design a new science block for a school. Unfortunately, allegations of defective design resulted in the council (as employer) commencing arbitration proceedings against R.G. Carter. During the course of the arbitration, the council and R.G. Carter engaged in settlement discussions.  On 16 April 2015, they agreed in principle and “subject to contract” that R.G. Carter would carry out the remedial works at its own cost. However, a formal settlement agreement was not signed until 29 June 2015.  Later, on 28 April 2017, Kier and R.G. Carter entered into a standstill agreement.

R.G. Carter sought contribution from Kier for the cost of the remedial works and issued proceedings on 20 September 2017. Kier argued that, in light of the 2-year limitation period specified in the Act, the action for contribution was already time-barred by the time the stand-still agreement was entered into.  Its position was that the limitation period started running on 16 April 2015, when the council and R.G. Carter agreed their settlement in principle, and therefore any contribution claim was time-barred by 16 April 2017 and before the standstill agreement was executed.  

The basis for Kier's argument was that:

  1. the language of s. 10(4) does not suggest a binding agreement is required;

  2. policy considerations point to time running from the earliest date possible (to prevent the litigation of stale claims); and

  3. it is only the amount of compensation that must be agreed to satisfy s. 10(4), the fact that other ancillary terms are yet to be agreed will not prevent time from running.

The court disagreed with Kier's position.  Under Kier's construction, if time began running from an agreement made in principle and 'subject to contract', but talks subsequently broke down, then the case would fall to be determined under s. 10(3) if the matter proceeded to trial – effectively giving rise to two consecutive trigger dates for the running of time in relation to the same contribution proceedings. The court refused to accept this interpretation of the Act as it deemed ss. 10(3) and 10(4) of the Act to be mutually exclusive, holding that there could only be one trigger date for the running of time under s.10 of the Act.

Accordingly, since there could only be one trigger event, the proper construction of s. 10(4) is that time only starts to run from the date of a binding agreement as to the amount of the compensation payment.

It was acknowledged that it is open to parties to reach an immediately binding agreement as to the settlement payment but leave other details for later agreement, however, it is also open to the parties to agree their proposed arrangement to be "subject to contract": 'to use an expression much used in connection with the current Brexit negotiations, nothing is agreed until everything is agreed'. In which case, time will only start running from the date of the subsequent binding agreement.

On the evidence, it was clear that the parties' agreement was "subject to contract" with agreement as to the scope of works not finalised until a few days before the 29 June 2015 settlement agreement.  Accordingly, it was held that the contribution claim was in time.

The court went on to say that, if it was wrong that time could not start running from an in principle agreement, it would still come to the same finding, as the key issue is agreement as to the full amount of compensation.  While s. 10(4) talks about payment, such term includes both monetary payment and payments in kind (Baker & Davies plc v Leslie Wilks Associates [2005] EWHC 1179 (TCC)).  As the final scope of works was not agreed until just before the settlement agreement was signed, the contribution claim was still in time.

It is important that parties are alive to the points at which the limitation period for contribution claims may start to run.  This will depend on the separate facts of each case.  However, particularly where a settlement agreement is expressed to be "subject to contract", the limitation period will only start running once the formal settlement agreement is executed.  Parties wishing to seek contribution should be careful to ensure that all settlement negotiations are clearly understood to be "subject to contract" in order to ensure the applicable limitation period commences at the latest point possible.

Read the full judgment here.

Another avenue to avoid adjudication enforcement

Gosvenor London Limited v Aygun Aluminium UK Limited [2018] EWHC 227 (TCC)

It is rare that the courts will allow a party to avoid enforcement of an adjudication decision.  The criteria for a stay of execution of an adjudication enforcement were set out long ago and courts have been loath to depart from this.  However, the recent case of Gosvenor v Aygun has introduced a further criterion to the list…

Aygun Aluminium UK Limited (Aygun) was undertaking works at a new hotel in Southampton, and subcontracted cladding works to Gosvenor London Limited (Gosvenor).  A dispute arose between the parties and was subsequently adjudicated, with the adjudicator awarding Gosvenor £553,958.47. Gosvenor applied for summary judgment to enforce the adjudicator's decision, however, Aygun resisted on the grounds that Gosvenor had fraudulently claimed far more than it was entitled to and, in the alternative, sought a stay of execution.  Relevant allegations against Gosvenor included that it had been involved in witness intimidation and had colluded with one of Aygun's employees who then stole a site laptop containing vital evidence and disappeared.  Without the laptop, Aygun did not have the evidence to prove its allegation that Gosvenor had inflated its claim by at least £300,000 and fraudulently invoiced Aygun.

Applying the case of SG South Ltd v King's Head Cirencester [2009] EWHC 2645 (TCC), the court granted Gosvenor summary judgment on the grounds that the majority of the fraudulent allegations should have been raised in the adjudication (those that could not were independent of the subject matter of the decision and therefore not relevant).

However, Aygun was successful in its application for a stay of execution.  Aygun argued that even if it pursued Gosvenor in court or arbitration, and won, it would not be able to get the money back because it would be dissipated or Gosvenor would be wound up to avoid paying.  In support of this, Aygun pointed to the fraud allegations and discrepancies in Gosvenor's accounts which Fraser J described as "…so obviously wrong, that had the matter not been so serious, it would have been verging on the comical".

As a result, the court added a further criterion to that set out in the long established case of Wimbledon Construction 2000 Ltd v Vago [2005] EWHC 1086 (TCC):

"If the evidence demonstrates that there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then this would also justify the grant of a stay."

While the ability of a party to raise such arguments will depend largely on the facts of each case, it affords a resisting party another opportunity to avoid enforcement by way of a stay of execution where it otherwise may not be able to avoid summary judgment.

Read the full judgment here.

Regulatory update

National Planning Policy Reform

On 5 March 2018, the Prime Minister announced a major overhaul to the National Planning Policy Framework which will support the Government’s aim to build 300,000 additional homes per annum by the mid-2020s.

The revised Framework builds on the version initially introduced in 2012 and maintains the presumption in favour of sustainable development whilst incorporating the following key changes:

  • Greater responsibility: developers will be held to account for delivering housing commitments

  • Maximising use of land: more freedom will be granted to local authorities to maximise use of existing brownfield land

  • Ensuring the right homes are built: there will be a focus on delivering homes that meet all housing needs (covering first time buyers, family friendly homes, affordable housing and adapted homes for the elderly)

  • Quality and Design: new quality standards will be introduced

  • Planning process transparency: a new standardised process for assessing housing will be introduced.

The consultation is open to all and responses are due by Thursday, 10 May 2018. Full details of the consultation can be accessed here.

Royal Institute of British Architects criticises review of Building Regulations

The Royal Institute of British Architects (RIBA) has stated that it has ‘serious concerns’ with the post Grenfell review of Building Regulations and has warned that its recommendations will not bring about the necessary changes.

The institute said that the review, led by Judith Hackett, had overlooked RIBA’s call to:

  • Ban flammable cladding

  • Fit sprinklers in existing housing blocks

  • Ensure all high-rise residential buildings have a second means of escape

RIBA fears that the current set of proposals under consideration overlook simple but critical changes which would provide clarity for professionals and deliver assurance to the public.

RIBA has written to Hackitt and the Housing Secretary urging an immediate consideration of the recommendations proposed by RIBA prior to the final report due in May 2018.

The Construction (Retention Deposit Schemes) Bill

The Construction (Retention Deposit Schemes) Bill was published on 23 April but the second reading has been delayed until 15 June 2018.

The Construction (Retention Deposit Schemes) Bill (Bill) was initially proposed by Peter Aldous MP in January 2018 as a Private Members’ Bill under the 10 Minute Rule Motion. The Bill seeks to protect retention deposits under construction contracts much in the same way that residential tenancy deposit schemes operate.

Cash retention practices in the UK construction industry have been a point of contention for many years. A recent review has confirmed that retentions are a critical issue affecting the viability and productivity of SMEs in the construction supply chain, and industry recommendations suggest that a statutory ring fence is the most effective method for ensuring safety of retentions. According to Government figures, over the last three years almost £8 billion of cash retentions has remained unpaid whilst 44% of contractors have suffered non-payment due to upstream insolvency.

The Bill proposes to solve this issue by requiring retentions to be placed in a Government approved retention deposit scheme which would ensure that monies were secure and available to be released on time. This will increase the liquidity of cash in the construction industry and would allow firms to borrow against retention deposits. The consequence of not depositing retention monies into the deposit scheme will render any clause in a construction contract allowing the deduction of cash retentions invalid.  How the deposit scheme will be established and operated will be dealt with in secondary legislation.

The Bill has received strong support with over 120 MPs and 76 specialist trade bodies (representing over 355,000 companies and self-employed professionals) providing their backing.  A second reading was due on 27 April 2018, however, this has now been pushed back to the summer over fears that the busy parliamentary schedule would result in the Bill not being read on the 27th and abandoned by parliament.   

Construction Industry Council releases second edition of BIM Protocol

The Construction Industry Council (CIC) releases the second edition of its Building Information Modelling (BIM) Protocol.

On 10 April 2018, the CIC issued the second edition of its BIM Protocol.  The first edition was published in 2013 in response to the Government's BIM Strategy and following the 2011 mandate from the Government that BIM Level 2 was to be used on all publicly procured projects by 2016.

Following consultation with the industry, the CIC promotes the second edition as introducing "updates to reflect current practices and standards regarding the use of BIM".  Some key criticisms of the first edition have been addressed – for example, the Protocol no longer takes complete precedence over the main contract terms but just those that deal specifically with BIM.  The new edition is also now closely aligned with PAS 1192-2, which is the standard for information management used in BIM environments and sets out the framework, roles and responsibilities for collaborative BIM working and the scope of the Common Data Environment.

Overall, the new Protocol is more flexible and user friendly than the first, though it will be interesting to see what users' feedback is as the second edition is put into practice.

Clyde & Co 'In the News'

Anthony Albertini, partner, was quoted in Building commenting on the government's crackdown on poor payment practices. Readers with a subscription can view the full article here.