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Swansea Stadium Management Company Limited -v- City and County of Swansea & Interserve Construction Limited

Swansea Stadium Management Company Limited -v- City and County of Swansea is a defective works case. Swansea Stadium Management Company Limited (“SSMCL”) brought a claim against the defendants for defects to a football stadium. SSMCL were incorporated to operate the stadium.

Background

By an amended JCT Standard Form of Building Contract with Contractor’s Design (the “Contract”) dated 17 June 2004. City & County of Swansea (the “Council”) employed Interserve Construction Limited (“ICL”) to design and build a new stadium. PC was reached on 31 March 2005 with the rectification period running for 12 months.

In 2005, SSMCL took on a 50 year SSMCL lease from the Council and had the benefit of a collateral warranty from ICL in respect of the building works. By a further deed between the Council and SSMCL made in 2006, the Council agreed to take all reasonable septs to enforce its rights under the building contract.

Notwithstanding various issues with the works and subsequent remedial works (some of which were not effective) and in accordance with clause 16.4 of the Contract, a Certificate of Completion of Making Good Defects (the “Certificate”) was issued on 26 May 2011 stating that defects had been made good as of 14 April 2011. In June 2012 the Council and ICL entered into a settlement agreement in respect of ICL’s final account.

The relevant parts of Clause 16 of the Contract said:

16.2           Any defects, shrinkages or other faults which shall appear within the Defects Liability Period and which are due to failure of the Contractor to comply with his obligations under this Contract or to frost occurring before Practical Completion of the Works, shall be specified by the Contractor in a Draft Schedule of Defects which he shall deliver to the Employer not later than 14 days after the expiration of the said Defects Liability Period, and the Employer may within 21 days of receipt of such Draft Schedule notify the Contractor of his comments and any further such defects, shrinkages or other faults which are to be included in the Schedule. 28 days after delivery of the Draft Schedule to the Employer the Contractor shall deliver to the Employer a Schedule of Defects which shall be based upon the Draft Schedule and shall take account of the comments and further items notified by the Employer (if any) and within a reasonable time after delivery of such Schedule the defects, shrinkages and other faults therein specified shall be made good by the Contractor at no cost to the Employer unless the Employer shall otherwise instruct; and if the Employer does so otherwise instruct then an appropriate deduction in respect of any such defects, shrinkages or other faults not made good shall be made from the Contract Sum.

16.3          Notwithstanding clause 16.2 the Employer may whenever he considers it necessary so to do, issue instructions requiring any defect, shrinkage or other fault which shall appear within the Defects Liability Period and which is due to failure of the Contractor to comply with his obligations under this Contract or to frost occurring before Practical Completion of the Works, to be made good and the Contractor shall within a reasonable time after receipt of such instructions comply with the same at no cost to the Employer unless the Employer shall otherwise instruct; and if the Employer does so otherwise instruct then an appropriate deduction in respect of any such defects, shrinkages or other faults not made good shall be made from the Contract Sum. Provided that no such instructions shall be issued after delivery of a Schedule of Defects or after 14 days from the expiration of the Defects Liability Period.

16.4.         When any defects, shrinkages or other faults which the Employer may have required to be made good under clauses 16.2 and 16.3 shall have been made good he shall issue a notice to that effect, which notice shall not be unreasonably delayed or withheld, and completion of making good defects shall be deemed for all the purposes of this Contract to have taken place on the day named in such notice (the 'Notice of Completion of Making Good Defects'.)

On 4 April 2017 SSMC commenced proceedings against both the Council and ICL, but this was statute barred because they were brought 4 days after the expiry of the limitation period: (Swansea Stadium Management Co. Ltd v City & Council of Swansea [2018] EWHC 2192 (TCC)). (PC was reached on 31 March, the collateral warranty between ICL and SSMC included a no greater liability clause and the limitation period was 12 years after PC).

Proceedings

SSMCL fell back on two secondary claims:

  1. SSMCL alleged that Interserve was in breach of its obligations under clause 16 of the Contract to identify and make good the flooring and paintwork defects during the Defects Liability Period. It therefore claims that it was likewise in breach of the collateral warranty.

  2. SSMCL alleged that the Council was in breach of its obligations under the 2006 agreement to take all reasonable steps to enforce its own rights under the building contract in respect of the flooring and paintwork defects.

The immediate issue to be challenged by SSMCL was the Certificate. ICL argued that Certificate meant that they had complied with the obligations under clause 16 of the Contract, but SSMCL maintained that although the Certificate was of some evidential value, it was not conclusive.

Held

The Court concluded that:

“upon the proper construction of clause 16.4, the effect of the issue of the Notice of Completion of Making Good Defects was to deem "for all the purposes" of the building contract that the parties had reached completion of the discrete and more limited obligation to make good defects in accordance with the contractual machinery in clauses 16.2 and 16.3.”

This case provides confirmation that a notice or certificate of making good defects is conclusive evidence that identified defects have been made good, it was rightly held that while this did not deprive an employer a remedy for defective work, in the normal course, a claim needs to be “brought pursuant to the core obligations in the building contract.” This left SSMCL without a remedy because the original claim was statute barred.

In respect of the Council, the Court found that SSMCL failed to prove that the Council did not take all reasonable steps to enforce its rights under the Contract or that the settlement agreement was unreasonable.

It also held equally that:

“the Council could not seek to enforce the Defects Liability provisions in clause 16 of the building contract after the Notice of Completion of Making Good Defects was issued on 26 May 2011. Accordingly, the Council cannot be in breach of its obligations under clauses 7.1 and 7.2 of the 2006 agreement in so far as it failed to seek to enforce such rights after that date.”

This judgment applies established principles and highlights the danger in regard to limitation when certifying PC when there are a number of outstanding defects. It is also a stark reminder that Tenants should take caution when entering into leases with repairing obligations when there are various outstanding defects at PC.

 

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.

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