November 2, 2018

Projects & Construction Law Update - (Part 1) November 2018

Please find below Clyde & Co's latest projects and construction law update

Cases

Contracting parties free to allocate concurrent delay risk…again

North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744

At the end of last year, in a decision that got everyone talking, the TCC confirmed that parties are free to allocate concurrent delay risk in their contracts.  Not too long ago, the Court of Appeal was asked to reconsider the position.  However, despite the appellant's best attempts, the appeal was dismissed, with the Court putting beyond doubt its views on the matter…

Readers will recall our update last year on the original decision.  As a brief refresher, North Midland Building Ltd (North Midland) tried to avoid a provision in its building contract that allocated to it the risk of concurrent events (i.e. disentitling it to an extension of time in the event of concurrency) on the basis that the clause was ambiguous and contrary to the prevention principle (see update here). 

The TCC was very clear in its decision that 'there [was] no point of construction at issue on the clause in question' and the meaning of the words 'is crystal clear'.  In relation to the prevention principle, the TCC did not agree that the doctrine of prevention prevented the clause from operating in the way it was clearly expressed to, with Fraser J stating that 'there is no rule of law of which I am aware that prevents the parties from agreeing that concurrent delay be dealt with in any particular way'.   Accordingly, the clause was enforceable.

In July of this year, North Midland appealed the decision. In dismissing the appeal, the Court confirmed that the clause in question was unambiguous and clearly drafted, with the parties agreeing that, where a delay is due to the contractor, even if there is an equally effective cause of that delay for which the employer is responsible, liability for the concurrent delay rests with the contractor so that it will not be taken into account in calculating any extension of time.

The Court also held that the prevention principle did not arise. It considered the case of Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC), which neatly summarises the ambit and scope of the prevention principle in the following three propositions:

  • an employer's legitimate actions under a construction contract might still be characterised as prevention if those actions caused delay beyond the contractual completion date;
  • an employer's acts of prevention did not set time at large if the contract provided for extension of time in respect of those events; and
  • insofar as the extension of time clause was ambiguous, it should be construed in the contractor's favour.

The Court took the view that none of the above propositions came into play. Working in the reverse, Lord Justice Coulson found that proposition simply did not arise on the facts of the case as the clause was unambiguous. 

When looking at propositions (i) and (ii), the prevention principle was not engaged because the contract gave rise to a prima facie entitlement on the part of North Midland for an extension of time where delay was caused by 'any impediment, prevention or default, whether by act or omission, by the Employer' – which was broad enough to cover acts or omissions permitted by the contract.

The Court dismissed the suggestion that the prevention principle was an overriding rule of public or legal policy which could operate to rescue the contractor from the relevant clause to which it had agreed.  Relying on the authority in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd 1 B.L.R. 111 and Walter Lilly & Co Ltd v Mackay [2012] EWHC 1773 (TCC) (to name a few) the Court held that the prevention principle has no obvious connection with the separate issues that may arise from concurrent delay and that parties are free to contract out of any or all of the effects of the prevention principle. 

Ultimately, it was held that the concurrent delay clause agreed between the parties was an allocation of risk which the parties were entitled to agree and was the sort of agreement expressly envisaged in previous authorities (i.e. Peak v McKinney and Walter Lilly).  It would seem that the position has now been put to bed and parties who negotiate such provisions, particularly from an employer's perspective, can rest easy in the knowledge that they will be upheld.  

Read the full judgment here.

 

Make sure your intentions are clear when entering into collateral warranties…

Swansea Stadium Management Co Ltd v (1) Swansea City & County Council (2) Interserve Construction Limited [2018] EWHC 2192 (TCC)

The TCC recently considered a case which turned on the issue of whether a claim arising under a collateral warranty was statutorily time barred.  The question was whether the limitation period under the warranty was co-terminus with that under the building contract – we expect providers of collateral warranties will be pleased with the outcome…

As readers will no doubt be aware, collateral warranties are used in the construction industry to create a contractual relationship between an entity with an interest in a project (e.g. buyer, funder, tenant or landlord) and an entity involved in the project's design, management and/or construction – allowing the beneficiary of the warranty to bring a claim directly against the relevant party where it suffers loss as a result of, e.g. defective design or workmanship.

In this case, Swansea City & County Council engaged Interserve Construction Limited (Interserve) under a JCT Design and Build Contract (with amendments) to design and build the Liberty Stadium, the home of Swansea City AFC.  As part of the contractual arrangement, Interserve was required to provide a collateral warranty in favour of Swansea Stadium Management Co Ltd (SSMC) as leaseholder.  Practical completion was deemed to have occurred on 31 March 2005, and the collateral warranty provided shortly thereafter (though there was a dispute about when it was fully executed).

Defects issues arose and, on 4 April 2017, relying on the collateral warranty, SSMC issued proceedings against Swansea City & County Council and Interserve in respect of alleged defects.

Interserve applied to dismiss parts of SSMC’s claim on the basis that the 12 year limitation period under the collateral warranty had expired.  It argued that the limitation period started running on the date of practical completion (being 31 March 2005) irrespective of the fact that the collateral warranty was signed after this date. 

SSMC argued that the limitation period had not expired when it commenced proceedings, submitting that the earliest point a claim for defects could have arisen under the warranty was when it was fully executed and, on a true construction of the warranty, it could not be said to have retrospective effect.

The TCC agreed with Interserve, with Justice O'Farrell of the view that whether or not an instrument had retrospective effect would depend on the express or implied intention of the parties. Whilst there was no express limitation period in respect of claims made by SSMC against Interserve in the warranty, its language indicated that it was intended to cover the full scope of the contractual works regardless of when it was executed. Key factors included that the warranty specifically referred to past and future performance by Interserve of its obligations under the building contract and the presence of a 'no greater liability' provision, confirming that Interserve's liability to SSMC under the collateral warranty was co-terminus to that owed by it under the building contract to Swansea City & County Council.

Providers of collateral warranties will no doubt be pleased with this decision as it is not uncommon in practice for warranties to take some time to get fully executed, often with warranties executed post practical completion. Most warranties will have language similar to that contained in the warranty the subject of this case.  Prior to execution, warrantying parties should review the provisions carefully to ensure this is the case and, if necessary, include a provision to make it expressly clear when the warranty is intended to take effect.

Read the full judgment here.

Regulatory Update

Disclosure Pilot Scheme in Business & Property Courts

Radical reforms proposed to disclosure procedure…

A radical reform of the procedural step of disclosure of documents has been proposed, to commence in the Business & Property Courts, including the Technology and Construction Courts, from 1 January 2019 onwards. The reforms are scheduled to run for a mandatory two year pilot scheme.

The reforms arise from the recognition that, in recent years, the volume of data and documents disclosed in property and construction claims has increased exponentially, often at a level disproportionate to the claim. A working group was set up in May 2016 to consider the issue. It was concluded that the current regime of standard disclosure, primarily intended for hard copy disclosure, is not fit for purpose when dealing with extensive electronic disclosure.

The Civil Procedure Rule Committee therefore approved a new Rule and Practice Direction on 13 July 2018, providing for initial disclosure at an early stage and removing standard disclosure as the usual default option. Parties will be required to discuss and complete a joint Disclose Review Document prior to the initial CMC, listing key issues in dispute and exchanging information regarding storage of documents and how they may be searched or reviewed.

Whilst the reforms acknowledge the onerous nature of disclosure required in construction claims, they only go a small way to lessening the burden. Parties and legal representatives now have duties relating to disclosure expressly set out, including a duty to avoid providing documents to another party that have no relevance to the issues. If the reforms proposed are embraced, the changes have the potential to have a dramatic effect on the future of construction litigation.