We look at industry news as well as recent court decisions concerning:

  • a disputed call on a bond
  • a refusal to imply a duty of good faith where there was no exercise of a contractual discretion
  • the effect of an arbitration provision in a standard form in an insolvency set-off situation
  • the 'modern approach' to penalty clauses

Industry news

HSE publishes final CDM 2015 guidance

The HSE has published the final version of its guidance on the Construction (Design and Management) Regulations 2015, which supersedes the draft guidance published in January. The Approved Code of Practice (ACOP) for the previous regulations has now been withdrawn and as yet no new ACOP has been published for CDM 2015.

Parties are therefore advised to refer to the guidance when interpreting CDM 2015. The HSE has stated that following the guidance is not mandatory, but parties who do so will normally be doing enough to comply with the law. A free copy may be downloaded here.

New practice note on the electronic working TCC pilot practice direction

A pilot of a new electronic working system is to start on 11 May 2015 (postponed from 27 April 2015) in the Technology and Construction Courts (TCC) within the Rolls Building in London. A new practice direction, PD 51J, which came into force on 6 April 2015, prescribes the procedure to be followed when using the pilot for "Electronic Working" and was part of the 79th CPR update practice direction amendments. Proceedings may be started, and all subsequent steps taken, using Electronic Working.

The potential benefits of Electronic Working include the ability to file documents at court 24 hours a day, seven days a week, and to receive an automatic acknowledgment of the document's submission, although there is a 10MB limit on documents which may be filed. The TCC is anxious for practitioners to take part in the pilot, which it appears will run until the system is introduced in other Rolls Building courts from September 2015. There is an online survey to provide feedback.

Commission launches consultation on remedies in public procurement

On 24 April 2015, the European Commission launched a consultation to evaluate the effectiveness of Directive 2007/66 on public procurement remedies. Directive 2007/66 substantially amended Directive 89/665 (the public sector Remedies Directive) and Directive 92/13 (the utilities Remedies Directive).

There is an online questionnaire which asks whether the Remedies Directives (as amended by Directive 2007/66) have improved the public procurement process, and which are the most relevant provisions. It also asks for certain information about review procedures (duration and the standard of review).

The Commission also seeks views on whether the modified Remedies Directive is sufficiently clear and precise, and whether the balance of interests protected is appropriate. Other topics covered by the consultation include effectiveness of interim measures, the standstill period, and penalties and damages. As well as seeking information on how the directive operates at national level (for example court costs, admin charges etc) the Commission requests views on whether there are still problems in addressing breaches in EU public procurement law.

The Commission is keen for participants to respond, and the deadline for responding to this consultation is 20 July 2015.

Case law update

MW High Tech Projects UK Ltd and another v Biffa Waste Services Ltd [2015] EWHC 949 (TCC)

This case involved a temporary injunction granted by Mr Justice Stuart-Smith preventing a call on a retention bond.  The defendant, Biffa, entered into an EPC contract with the claimant, MW High Tech Projects UK Ltd (MW), for the design and construction of a waste treatment plant. Under the contract MW were obliged to procure a retention bond. It was a condition precedent to calling on the bond that the employer must first make a call on the Parent Company Guarantee (PCG), also provided by MW. After the contract was terminated, Biffa made a call on the PCG, claiming for the costs of completing the works, and LDs which were owed. After no payment under the PCG was forthcoming, Biffa then called on the retention bond. M&W rejected the call, and applied to the court for Biffa to be restrained from calling the bond on the basis the call on the PCG was not valid. The court considered various authorities, noting that the court will not intervene in a call on a bond except in two cases: (1) where there is obvious fraud known to the bank and (2) where the call is precluded by the underlying terms of the contract. In the absence of fraud the court found there was no justification for implying a term that the call on the PCG should be "valid", and that such an approach would encourage satellite litigation and subvert the normal approach of on-demand bonds: "pay now, argue later." Accordingly there were no grounds upon which the call on the bond could be restrained.

To view the full text of the decision, please click here

Myers v Kestrel Acquisitions [2015] EWHC 916 (Ch)

Here the High Court refused to imply a term that a party would act in good faith in the context of the right to amend a loan note. A duty of good faith will normally be implied where a party is exercising a contractual discretion. The defendant, Kestrel, had issued vendor loan notes (VLNs) to the claimant, Myers, as part consideration for the sale of its sub-prime lending business. It was a term of the VLNs that Kestrel could make modifications to them. When Kestrel subsequently purported to amend the VLNs, Myers objected on the basis that the amendments would render the VLNs worthless. Consequently they asked the court to imply a term that any modification to the VLNs had to be made in good faith. The court refused on the basis that exercise of the right to amend was a "binary choice" based on a simple decision as to whether or not to exercise the contractual right to amend, and did not involve a discretion arising from a range of options. The case confirms that the English court continues to be reluctant to imply good faith obligations unless a discretion is being exercised.

To view the full text of the decision, please click here

Philpott and another v Lycee Francais Charles De Gaulle School [2015] EWHC 1065 (Ch)

In this case the High Court considered whether the arbitration clause contained in a JCT contract bound liquidators who were seeking to sue the debtor for an insolvency set-off balance. The case involved an insolvent contractor, WGL, which had carried out works for the defendant school (the Lycee) under a JCT Intermediate form 2005 Revision 1: 2007 (the contract). The disputed final account either meant £615,000 was due to WGL, or £270,000 was due to the Lycee. The parties came before the court for determination of how the dispute should be resolved, as the only remaining debt following the liquidation was the net balance under the contract. The Lycee contended that the liquidators could not bring court proceedings under the Insolvency Rules due to the arbitration clause in the contract. The judge decided that, because there were claims on both sides, these could only be resolved by initiating formal proceedings, and that any legal proceedings would automatically be stayed by operation of section 9 of the Arbitration Act 1996, which provides for a mandatory stay of court proceedings if the parties have an agreement to arbitrate. The judge further found that it was open to the parties to adjudicate the dispute, although this would result in a temporary resolution only and therefore would not make much practical or commercial sense.

To view the full text of the decision, please click here

ParkingEye Ltd v Beavis [2015] EWCA Civ 402

In this case the Court of Appeal considered the law of penalties in connection with a parking fine. A motorist received an £85 fine for overstaying the free parking period in a car park. There was no dispute that he had overstayed, but the imposition of the charge (which was advertised on a number of signs in the car park) was rejected on the basis that it was unenforceable as a penalty. The case was assigned to the regional civil judge because it involved a point of principle that would affect other claims. The judge found that the motorist, in parking in the car park had done so on the terms of the parking signs, and thus entered into a contract which included an agreement to pay the notified charge for overstaying. The judge noted the charge had the quality of a penalty but held that it was commercially justifiable because it was neither "improper in purpose" nor "manifestly excessive" in its amount. The motorist appealed to the Court of Appeal. The Court of Appeal considered (1) whether the charge was unenforceable as a penalty and (2) was it unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). The Court of Appeal went through the recent developments in the law of penalties, culminating in the El Makdessi case. Although the authorities all considered commercial transactions Moore-Bick LJ considered that the underlying principle, as to whether the payment was extravagant and unconscionable, could still be applied as a basis on which to decide whether or not to enforce the contract. The first instance judge had held that the proper "modern approach" required consideration of the clause from a number of different perspectives including proportionality to the actual loss, deterrence and commercial justification, and Moore-Bick LJ concurred. He found that unless the charge was 'grossly unreasonable' it was hard to see a basis for treating it as unenforceable, and due consideration also had to be given to the fact that a mechanism was required to ensure the short stay free parking provision was not abused. Having found it was enforceable at common law, the UCCTR were applied. The court found that the arrangement was not unfair nor did it cause a significant imbalance. The judgment thus confirms that penalties which are deterrent in their nature may still be enforced if they are not "extravagant or unconscionable".

To view the full text of the decision, please click here