Case Law Update Construction and Property 2012

18 / 02 / 2013

2012 saw a number of important decisions made in the Courts which may affect those involved in the construction and property sectors. This article sets out a brief summary of some of those cases.

Claims consultants and legal professional privilege

Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 649

This case is a reminder of the scope of legal professional privilege. The claimant in this case was a building contractor who had been engaged to construct a house for one of the defendants.  The defendant had engaged a claims consultant (Knowles) for “contractual and adjudication advice”. The defendant claimed that the majority of the Knowles documentation was privileged and did not disclose it. The contractor applied for an order requiring disclosure of these documents and the Court agreed, holding that legal professional privilege did not apply. The Judge gave weight to the fact that Knowles was not retained to provide legal advice and had not held itself out as a firm of solicitors or barristers. It was immaterial that the people providing the advice had trained at the Bar and that the defendant honestly believed that it was engaging Knowles to provide legal advice. It is therefore very important that all parties are clear as to the services they to be provided to avoid any surprises as to what documentation could subsequently be subject to disclosure.

Quantity surveyor’s duty to obtain a bond

Sweett (UK) Ltd v Michael Wight Homes Ltd [2012] EW Misc 3 (CC)

The quantity surveyor (QS) was obliged by its appointment to “prepare contract documentation and arrange for such documents to be executed by the parties thereto”. The contractor became insolvent before providing the performance bond in favour of the employer. The court rejected the employer’s argument that the QS was under an absolute obligation to procure the bond from the contractor. The QS was subject to the implied test of reasonable skill and care and had satisfied its duty in these circumstances (as he had chased the contractor for this and advised the employer of the importance of the bond). If you wish to imply an absolute obligation on another party to procure something, very clear wording should be used.

Professionals’ duty to review previous work

Shepherd Construction Ltd v Pinsent Masons LLP [2012] EWHC 43

Shepherd argued in this case that their solicitors were under an ongoing duty to review the suitability of clauses in standard sub-contracts that had been drafted by the solicitors some time ago, but which were now ineffective due to a change in the law and left Shepherd facing claims from third parties. The Court did not agree, finding that on the facts there was no general retainer to review and revise previous work stating “there is something commercially and professionally worrying if professional people are to be held responsible for reviewing all previous advice or indeed services provided”. Without a specific retainer such a duty to review previous work will not exist which will be good news to insurers and professionals alike.

Fire damage and insurance

United Marine Aggregates Ltd v G.M.Welding & Engineering Ltd & Anor [2012] EWHC 779

The claimant (UMA) had engaged the defendant (GM) to carry out works at its plant which included welding. A fire occurred as a result of these hot works. The Court found that GM was not liable to UMA for this fire, as on the facts GM had acted with reasonable skill and care when carrying out the works. However, it was held that had GM been liable, their claim for an indemnity from their insurers would have failed as they had breached one of the conditions of their insurance in respect of hot works, reminding of the importance of complying with insurers’ requirements.

Settlement agreements

Point West London Ltd v Mivan Ltd [2012] EWHC 1223

This case concerned a settlement agreement which the contractor and developer had made in respect of sums to be paid to the contractor. The Court had to decide whether the agreement had also released the contractor from liability for defects to a penthouse which were still not resolved after the agreement had been entered into.  On the facts the Court held the contractor was released from liability.  It is important to be certain of, and clear in the terms of any agreement, what the effect of any settlement will be.

Good faith in commercial contracts

Compass Group UK and Ireland Ltd (trading as Medirest) v Mid Essex Hospital Services NHS Trust [2012] EWHC 781

The contract obliged the parties to a long term facilities agreement to “co-operate with each other in good faith”.  The Trust in this case had the right to terminate Medirest’s engagement because Medirest had exceeded the number of permitted “service failure points”, but the key question was whether Medirest also had the right to terminate owing to a breach of the obligation to act in good faith. The Court held that it was; the Trust had breached a material obligation to act in good faith (having prepared “patently absurd”, “cavalier”, “indefensible” calculations of service credits under the contract).

E-disclosure practices

West Africa Gas Pipeline Co Ltd v Willbros Global Holdings Inc [2012] EWHC 396

Willbros had provided a guarantee in relation to a contract between West Africa and its contractors. West Africa terminated the contract and completed the project using different contractors, seeking payment from Willbros for additional costs incurred. During e-disclosure a number of problems occurred including duplication of documents, inconsistent redaction, inadequate collection and preservation of documents, and errors by outsourced reviewers. Willbros was awarded damages to compensate them for increased work of its solicitors and litigation support providers. The Court ordered that the damages awarded to Willbros applied in any event, regardless of the outcome of the case. It is therefore important to ensure that during litigation e-disclosure systems and any outsourcing used are used appropriately as the courts will not be sympathetic to errors caused by inadequate practices.

Dangers of letters of intent

Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd [2012] EWHC 2137 (TCC)

Substantial construction works had been carried out entirely under letters of intent which made no provision for liquidated damages for delay. No formal building contract was ever signed. The works were delayed and the Trust claimed against its project managers, claiming that had a fully executed building contract been in place then the Trust would have reached a more favourable outcome in its dispute with the contractor over the delay.  The court found that the project manager had failed to take the reasonable steps required to procure the completed building contract and was therefore in breach of contract. The judge noted that the project manager had failed to exercise sufficient focus on the matters holding up execution of the contract or to exert sufficient pressure on the contractor to finalise the contract. This highlights the importance of ensuring that building contracts are signed, rather than simply relying on letters of intent.

Extensions of time and loss and expense

Walter Lilly & Company Limited v Mackay & Anor [2012] EWHC 1773 (TCC)

In this important decision (one of several to be decided between these parties) the court clarified the position in respect of several issues which arise regularly on construction projects. In relation to loss and expense claims, the judge confirmed that the obligation on the Architect/Contract Administrator to “ascertain” loss and expense does not mean that the contractor has to prove its claim “beyond reasonable doubt” instead, the balance of probabilities test applies. The judge also confirmed that it is legitimate for the contractor to bear in mind the knowledge that the Architect/Contract Administrator has of the project when supplying supporting documents for his claim.

The judge also took the opportunity to clarify the position with regards to extensions of time where there are concurrent delays to the works. It was confirmed that (unless there are express contractual terms stating otherwise) where there are two concurrent delays, one which entitles the contractor to an extension of time and one which does not, then there should not be any apportionment between the two delays. The contractor should receive an extension of time for the whole period of the relevant delay.

Public procurement – beware the limits

Turning Point Ltd v Norfolk County Council [2012] EWHC 2121 (TCC)

The relevant public procurement regulations provide that a bidder who wants to claim for a breach of the public procurement rules by the potential employer must do so within 30 days of the date when the bidder knew (or ought to have known) that grounds for starting the proceedings had arisen. This can result in a difficult choice for bidders to make who may otherwise want to wait to see the outcome of the bid before making a claim (and potentially damaging its relationship with the potential employer).  The bidder in this case was barred by the 30 day statutory limitation period.  The Court holding that there was no good reason in this case to extend the 30 day period and noting that a good reason “will usually be something which was beyond the control of the given Claimant; it could include significant illness or detention of relevant members of the tendering team.”

The judge also made it clear that if an invitation to tender states that no caveats to the terms will be accepted, then the employer can legally reject a bid which does include caveats without clarifying first with the tenderer.  Tenderers should therefore carefully check whether the ITT contains a provision preventing qualifications and caveats – and should also keep in mind the 30 day rule.

Tree root damage

Robbins v London Borough of Bexley [2012] EWHC 2257 (TCC)

This case confirmed that damage caused to your property by trees planted by a Local Authority may be recoverable. It highlights the need to notify the Authority as soon as damage is apparent so that the Authority is put on notice, which can prove to be very important in future litigation.

Ad hoc adjudication

Clark Electrical Ltd v JMD Developments (UK) Ltd [2012] EWHC 2627 (TCC)

This case looked at whether a party can accept the adjudicator’s jurisdiction by paying the adjudicator’s fee up front. Clark had been engaged by JMD to carry out electrical works on a new distillery. A dispute arose and Clark issued a notice of adjudication. The adjudicator’s terms required the parties to pay a proportion of his fees on account. JMD were not familiar with adjudication, but paid their share in any event. JMD’s advisors then wrote to the adjudicator asserting that the works were not covered by the Construction Act and could not therefore be referred to adjudication. The adjudicator agreed that the works were not covered by the Act, but decided that there was an ad hoc adjudication agreement because of the payment of the fee and continued, his ultimate decision went in Clark’s favour. Clark then applied to have the judgment enforced. The Court held however that the payment of the appointment fee by JMD did not amount to a submission to the jurisdiction in the full sense and Clark’s claim for summary judgment failed.

Paying the adjudicator if his decision is unenforceable

PC Harrington Contractors Ltd v Systech International Ltd [2012] EWCA Civ 1371

In what should be a comforting decision for those engaging in adjudication, the Court held that where the adjudicator’s decision was unenforceable (in this case because of a breach of the rules of natural justice) then he was not entitled to be paid. The parties bargain with the adjudicator was for an enforceable decision. The Court noted that if adjudicators are concerned by this decision then they should seek to incorporate into their terms a provision covering payment in the event of a decision not being delivered or proving to be unenforceable (if the parties to the adjudication will accept this).