Carillion Construction Limited v Emcor Engineering Services Limited and Anor [2017] EWCA Civ 65

Summary

The Court of Appeal has upheld the TCC’s decision in Carillion Construction Limited v Woods Bagot Europe Limited and others [2016] EWHC 905 (TCC), holding that a sub-contractor’s extension of time for a ‘Relevant Event’, which occurred after the pre-agreed completion date (i.e. during a period of culpable delay), should run contiguously from the pre-agreed contractual date for completion, rather than from the later date on which the impact of the delay event was felt.

Facts

The dispute related to the construction of the High Court Rolls Building in Fetter Lane London for an initial contract sum of £70,130,000. Carillion Construction Limited (“Carillion”) were engaged as the main contractor and engaged Emcor Engineering Services Limited (“Emcor”) as a mechanical and electrical sub-contractor. The sub-contract between Carillion and Emcor was the standard form of Domestic Sub-Contract known as DOM/2 (“the Sub-Contract”).

Emcor were required to complete the fit-out works by 28 January 2011 (the same date for practical completion under the main contract). However, Carillion did not complete the main works until 29 July 2011 and blamed Emcor for the delay. As a result, it sought to recover the loss or damage caused by Emcor’s delay under clause 12 of the Sub-Contract.

Emcor claimed that it was entitled to relief from liability by way of an extension of time under the Sub-Contract. The question for the courts (assuming that Emcor were entitled to an extension of time) was whether the extension of time ran from the agreed completion date (a “contiguous extension of time”), or the later date when the impact of the ‘Relevant Event’ was felt (a “non-contiguous extension of time”).

Carillion argued that clause 11.3 of the Sub-Contract, which provided that Carillion could ‘give an extension of time to the Sub-Contractor by fixing such revised or further revised period or periods for the completion of the Sub-Contract Works’, allowed for non-contiguous extension of times to be granted. Otherwise, Emcor could potentially avoid liability for period in which it was in culpable delay and could conversely be liable for a period when it was not. This did not accord with commercial common sense. Emcor argued that they were entitled to a contiguous extension of time.

Decision

The Court of Appeal considered the natural meaning of clause 11.3 and held that the extensions of time should be contiguous. In particular, the wording of clause 11.3 referred to granting extensions of time by reference to a ‘revised period or periods’, rather than allowing a standalone period with its own separate start date and finish date. This was reinforced by the notice provision in clause 11.2.2.2, which referred to the extent of the delay ‘beyond the expiry of any extended period or periods previously fixed under clause 11’, indicating that if the employer has granted an extension of time, he will have increased the length of the existing period(s) for doing the relevant work and not created new periods for doing that work.

The Court of Appeal did acknowledge that the contiguous interpretation may allow for Emcor to be exempt from liability for a period in which it was in culpable delay and that the compensation payable by Emcor may therefore not reflect the actual loss and damage caused by its delay. However, the court held that this was not enough to override the natural interpretation of the Sub-Contract and confirmed that clause 11.3 allowed only for contiguous extensions of time. The fact that this interpretation was detrimental to one party was no reason to depart from the natural meaning of the words used. If the parties intended for non-contiguous extensions of time to be granted, then this should have been expressly provided for in the Sub-Contract.

For contracts including a liquidated damages provision (which will typically be the case for main contracts), contiguous extensions of time are not normally an issue as the pre-agreed rate of liquidated damages will be the same, irrespective of whether the extension of time is contiguous or non-contiguous. However, where a contract does not include a liquidated damages provision (as was the case in relation to the Sub-Contract), general damages will apply, the level of which may change depending on when the relevant breach is deemed to have occurred. In these circumstances, this case indicates that it may be possible for an employer to provide expressly for the concept of non-contiguous extensions of time, subject to the wording being sufficiently clear, in order to avoid the anomalies to which provisions such as clause 11.3 of the DOM/2 may give rise.

Signature Realty Ltd v Fortis Developments Ltd [2016] EWHC 3583

Summary

The High Court in Signature Realty Ltd v Fortis Developments Ltd has held that the defendant’s use of architect drawings, submitted by a property developer in order to obtain planning permission, had infringed the property developer’s copyright in the drawings.

Facts

Signature Realty Ltd (Signature”) was a property development company which became interested in an opportunity to convert a site in Sheffield city centre into student accommodation. Signature exchanged contracts for the purchase of the site from the landowner and then engaged architects to progress obtaining planning permission for the development of the site.

The architects retained copyright in the drawings but granted Signature a license to use the drawings. Planning permission was granted on the condition that the development was carried out in accordance with the architect’s drawings. Once approved, the planning application documents and drawing were posted on the local authority’s planning portal for public review.

Despite receiving planning permission, Signature was unable to obtain funding to purchase the site. As a result, the landowner sold the site to Fortis Developments Ltd (“Fortis”), who then completed the development of student accommodation and sold it to a third party. Signature alleged that Fortis had wrongfully used the architect drawings during the marketing, promotion and construction of the development. Signature sought damages from Fortis for copyright infringement under the Copyright, Designs and Patents Act 1988.

Whilst Fortis did not dispute that it had used the architect drawings located on the planning portal, it argued that it did not copy the drawings as it employed its own architects who visited the site and produced original drawings.

Decision

The judge held that, whilst Fortis’ architects had produced their own drawings, the new drawings were sufficiently similar to the original drawings as the build had to satisfy the conditions of the original planning consent. This similarity was caused by copying and therefore constituted copyright infringement.

Fortis’ architects had also produced a number of drawings which had been altered from Signature’s original drawings. With those drawings, the court had to determine whether a significant part of the original drawings had been reproduced in the new drawings. The court therefore carried out a review considering the limitations on Fortis’ architect, characteristics of the building itself and the constraints of the planning permission. The court held that a number of the drawings did reproduce a large part of Signature’s original drawings, whilst in some drawings there was insufficient similarity, or where there was a similarity, it was too minor to find an infringement.

In light of the above, the judge has ordered a separate hearing for an enquiry as to damages caused by the infringement. So it’s a case of watch this space to ascertain the extent of Fortis’ liability.

The case highlights the problematic issues of developing a property where planning permission has already been granted and construction must be in accordance with existing drawings. In order to minimise the potential for copyright infringement in such a scenario, it will be important to obtain a copyright licence from any consultants who originally produced the drawings. The case also acts as a reminder that a party who has purchased a property with planning permission will not be entitled to exploit all designs in that planning permission without a copyright licence. Developers who ignore the risks of exploiting such designs will do so at their own risk.

Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd [2017] EWHC 15 (TCC)

Summary

The case of Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd reinforces the consequences of failing to serve a pay less notice and further highlights the difficulties that an employer will face in attempting to challenge a contractor’s interim application for payment.

Facts

In 2015 Kersfield Developments (Bridge Road) Ltd (“Kersfield”) engaged Bray and Slaughter Ltd (“Bray”) as the contractor to covert a listed building into luxury apartments and construct several detached houses. The contract sum was in the region of £4.9million.

Bray had made a total number of eighteen interim applications, which the employer’s agent had authorised without issue. In those applications Kersfield and Bray had devised a process for payment where Bray would email a breakdown of the payment due, the parties would then meet to discuss the amount payable and Kersfield would pay Bray the sum as agreed between the parties.

Bray made a subsequent payment application for circa £1.2million, which Kersfield sought to challenge. However, the employer’s agent failed to issue the pay less notice on time and Bray brought an adjudication claim for payment for the full interim amount.

At adjudication Bray were awarded the full interim payment amount. However, Kersfield challenged the decision in the TCC, claiming that Bray’s application for payment was invalid as Bray had failed to provide ‘all necessary supporting information’ relating to the interim application.

Decision

O’ Farrell J adopted a strict line of reasoning in favour of the contractor confirming that the nineteenth interim application was a valid application. It complied with the minimum statutory requirements, in that it stated the amount payable and how it was calculated. Any deficiency in substantiation of an interim application may lead to the rejection of an application in part or in full (i.e. after a pay less notice has been submitted), but the lack of substantiation would not of itself result in the initial application for payment being invalid.

Estoppel by Convention

Interestingly, in the event that the nineteenth interim was judged to be invalid by the TCC, Bray raised the argument that an estoppel of convention arose in light of the agreed format for payment in the previous applications. Bray argued that it had acted as it had done in the previous applications (which had been paid without issue), therefore the parties’ previous course of dealing in respect of the payment procedure estopped Kersfield from challenging the validity of the application for payment.

Of course, the interim application was judged to be valid so the estoppel issue was not material. O’ Farrell J did though offer useful guidance on the issue by stating that for estoppel by convention to arise there must be a shared assumption communicated between the parties which demonstrates an intention to vary contractual terms. In this case, O’ Farrell J confirmed that the agreed payment process and conduct of the parties did not demonstrate an intention to vary the contract or give rise to an estoppel of convention in so far as unsubstantiated interim applications would be paid.

The case serves as an affirmation of the existing authorities on interim applications and the courts’ reluctance to disturb a contractor’s entitlement to payment where a pay less notice is served late or not at all. The case also reminds us of the operation of the doctrine of estoppel by convention and, whilst in this case the doctrine wasn’t found to operate, it highlights that the conduct of parties can operate in certain circumstances to vary the terms of an underlying contract.