CASE UPDATE: NEWS FROM THE TECHNOLOGY & CONSTRUCTION COURT
In March 2017 I presented to Constructing Excellence Gloucestershire Club on various topics, including recent cases from the TCC (and the Court of Appeal). Here I have summarised those cases (together with one from April) and what they could mean for you and your business.
Kersfield Developments (Bridge Road) Limited –v- Bray and Slaughter Limited [2017]
Facts
The parties entered into a JCT Design & Build 2011 (with amendments) for c. £5m works relating to refurbishment and new build residential properties. In August 2016, the employer (Kersfield) failed to pay Bray & Bray’s interim application number 19 for c. £1.2m. Bray commenced adjudication proceedings, successfully arguing that Kersfield had failed to serve a valid “payment notice” or “pay less notice”. The key issues were that Kersfield alleged that Bray hadn’t served a valid payment application and further that Kersfield did at least purport to serve a pay less notice. Kersfield wanted to pay some c.£1m less than Bray’s application.
Legal issues and findings
The TCC upheld the adjudicator’s award, concluding that the employer’s payment notice and pay less notice were both out of time. In respect of the pay less notice, Kersfield’s defeat came because of late service by way of an email.
What this means for you and your business
As I explained to the members and guests of Constructing Excellence, most of us now work a day that is considerably longer than “9 to 5”. However, when it comes to serving notices by email, it is important to check the terms of the relevant contract. The service of notice provisions in contracts vary hugely in length and can often be vague/wide. It is crucial that you get a handle on notice provisions straight away and it can be a good idea to note key deadlines in your calendar (including times as well as dates). I wrote more about service by email in my February blog.
Carillion Construction Limited –v- EMCOR Engineering Services Limited [2017]
Facts
This case must have been excruciatingly embarrassing for all concerned, as it related to delays in the construction of the Rolls Building, which is the home of the TCC and the very building where the case was originally heard! The decision I am reporting on here, however, was that of the Court of Appeal. Curiously the main contract for this project was a JCT Standard (with contractor’s design) 1998, even though it was signed in 2007, after the JCT 2005 suite had been well-established. In any event, EMCOR was a sub-contractor, whose contract with Carillion was a DOM/2.
As is so often the way with public procurement, the job ran late (by 182 days!) and this case concerns EMCOR’s extension of time application. Rather than a disagreement primarily about how much time EMCOR should be entitled to, the appeal centred on when the extension of time should be applied – in other words, whether the EoT relates to the precise weeks where the delay event occurred, or whether it acted simply to push back the completion date under the DOM/2.
Outcome
The Court of Appeal followed settled law and confirmed that extensions of time really do have a literal effect – they extend the time for completion by pushing back the completion date.
What this means for you and your business
On projects where you have agreed LADs at a single rate for all sections/for the whole of the project then, frankly, it really shouldn’t matter which weeks the EoT applies to. However, where there are either no LADs (so the delaying party is responsible for actual losses) or there are variable LADs, this could have a significant financial impact.
Contract Administrators in particular will be relieved by this decision as it confirms that extension of time awards remain (relatively!) straight forward – extensions of time must be awarded contiguously.
McGee Group Limited –v- Galliford Try Building Limited [2017]
Facts
In this case, the sub-contractor (McGee) sought a declaration from the Court as to the validity of a clause in their sub-contract which capped their financial liability for delay and disruption at 10% of the sub-contract sum. They had already accepted liability of some c.£1.4m of delays but Galliford Try (GT) argued that a further c.£2.3m was not protected by the liability cap. The relevant sub-contract was a JCT Design & Build Sub-Contract 2011 (with amendments).
Legal issues and findings
GT argued that the cap only applied to delay losses under one particular clause of the sub-contract and that the further c£2.3m of delay losses stemmed from a different clause. The Court was asked to interpret the application of the liability cap; whether it covered all delay losses or only those under a particular sub-clause of the sub-contract.
The TCC applied a natural interpretation to the liability cap, finding that it applied to all losses stemming from delay. In effect, the sub-contractor won.
What this means for you and your business
Well drafted financial caps on liability do work, but it is important to note that all the TCC did here was apply a natural interpretation: so the drafting remains critical. For those looking to recover losses downstream, it is important to understand when financial caps will and won’t catch and it pays never to assume.
Signature Reality Limited –v- Fortis Developments Limited and Beaumont Morgan Developments Limited [2017] (judgment not yet on Bailii)
Facts
The facts here are somewhat involved and merit a longer explanation than those cases above.
- S engaged C&W architects to prepare drawings for planning – S obtained planning permission
- S was part of a JV company
- The JV owned the land and sold it to Fortis
- Fortis engaged BM as D&B contractors
- Fortis tendered the works and produced marketing materials using the C&W drawings, BM made and altered AutoCad versions of the C&W drawings and built a building substantially similar to the internal design in the C&W drawings
Legal issues and findings
This case concerns copyright in architect’s drawings used for a planning application, and more particularly, who was entitled to use those drawings for the purposes of building out the project. The case was, as you will note from the party names, not actually brought by the architect but by Signature who was the seller of the land. However, the Court’s findings are of particular relevance to architects.
The TCC found that it was Signature rather than the JV who had the benefit of the copyright licence from C&W. When C&W sold the land, they therefore did not have the benefit of any licence to assign (or grant a sub-licence) to Fortis. Fortis, therefore, had not acquired a licence to assign (or sub-licence) to Beaumont Morgan and both were in breach of copyright laws.
What this means for you and your business
For architects: no doubt when one of your projects is granted planning permission but the applicant party transfers its interest, you always contact the buyer to seek to win the development work from them. Now when you do this, you may (subject to noting what is said below) feel that you can mention your copyright in the planning application drawings as something of a warning.
For developers: when buying land that has the benefit of planning, make sure that the contract for sale includes a copyright licence in the planning drawings (and make sure that the seller has that gift to give). Copyright licences can be drafted in many different ways so ensure that the licence does what you need it to do, before you use those drawings. A failure to do this can significantly devalue the your interest in the land as you will have to either (a) buy a copyright licence from the planning architect or (b) engage a new architect and potentially apply to vary the planning permission.
RSC Contractors –v- Anthony Conway [2017]
Facts
Mr Conway was engaged by Shaw Interiors to carry out certain works at three different sites. He engaged RSC as sub-contractors. A payment dispute arose. This case concerns Mr Conway’s defence of RSC’s adjudication enforcement action. RSC had obtained an adjudicator’s award against Mr Conway in the sum of c.£60,000. Mr Conway sought to defend the claim on the sole ground that the adjudicator had no jurisdiction because the dispute related to three separate (oral) contracts, rather than one single (oral contract) as concluded by the adjudicator.
Legal issues and findings
Readers will, of course, be familiar with the amendments brought in by the LDEDCA 2010 which effectively brought in adjudication for construction contracts formed orally, as well as in writing. Those readers who like the detail of the law may even be familiar with s.108(1) of Housing Grants Construction and Regeneration Act 1996 Part II as amended by the Local Democracy Economic Development and Construction Act 2009 ("the Construction Act") which states that:
"A party to a construction contract has the right to refer a dispute arising out of the contract for adjudication."
In this case, Mr Conway maintained that there were three separate oral contracts relating to the works (one per site) meaning that there were three separate issues and three separate disputes. He argued that this meant that the adjudicator did not have jurisdiction to deal with more than a single dispute.
The matter of a “single dispute” has been considered by the TCC in the past, and in 2013, some obiter comments suggested that a new line of thinking may be developing. However, the TCC in this case chose to follow the orthodox view: only one dispute per adjudication. This in itself requires some clarity: a “single dispute” does not mean one item, the Courts defined a “single dispute” in Fastrack Contractors Limited –v- Morrison Construction Limited [2000] as:
“Thus, the 'dispute' which may be referred to adjudication is all or part of whatever is in dispute at the moment that the referring party first intimates an adjudication reference. In other words, the 'dispute' is whatever claims, heads of claim, issues, contentions or causes of action that are in then in dispute which the referring party has chosen to crystallise into an adjudication reference”
In Conway, the Court decided that the key issue was simply one of the number of contracts: one contract = one dispute; three contracts = three disputes = adjudicator lacking necessary jurisdiction.
The Court found in favour of RSC, concluding that there was a single contract covering all three sites. One of the key pieces of evidence which persuaded the Court was that payments were all dealt with together. In particular, in respect of the final account Mr Conway served a single payment notice and single pay less notices – rather than three of each. It should also be noted that the Court was more persuaded by RSC’s key witness than by Mr Conway’s evidence in court.
Mr Justice Coulson’s judgment was particularly scathing of the Local Democracy Economic Development and Construction Act 2009 which brought in changes to the Housing Grants Construction and Regeneration Act 1996 , coming into force on 1 October 2011. In the final paragraph of his judgment, Coulson J said:
“I regret very much the time and cost that has been wasted on this process, which I consider to be due to the amendments to the 1996 Act. As originally enacted, the 1996 Act would not have permitted this dispute to have been progressed in this way, because Section 107 ensured that it was only when the contract was in writing that adjudication provisions were incorporated. That provision was designed to promote certainty. Section 107 was, in my view, unthinkingly repealed, meaning that (as here) adjudicators have now to grapple with entirely oral contracts, with all the uncertainty and contention that such a situation can engender.”
What this means for you and your business
At first glance, this probably all appears rather like a matter for the lawyers rather than our clients. However, one key lesson (and one we have mentioned several times in the past) is that much of this would have been easier for both parties if their agreement had been recorded in writing. In reality, had we been advising the parties, we would probably have recommended three near identical written contracts, each on near identical terms but each applying only to one site and with project specific differences between the three. A final thought for the day is that this may be yet another example of where adjudication, intended by Parliament to create a “quick and easy” dispute resolution forum where the parties could conduct their own case, has yet again unearthed complex issues of law requiring the input of solicitors and barristers to help clients get a result. One wonders what the parties’ legal fees for the case were (relative to the cost of having a solicitor draft three contracts in the first place). Another case of a missed stich…
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.