Lists are as much a part of December as tinsel and turkey and so BPE Solicitors LLP Construction & Engineering Team is pleased to present our own Top 9 Construction Cases of 2019. These are the cases that we think make interesting, if not vital reading. Some are from the TCC at first instance, some are from the Court of Appeal. Like all of these lists, the contents is at the editor’s discretion – we may have included some that our readers had not seen before and we may have omitted some considered by others to be of greater significance. We welcome discussion on the list: both its contents and its omissions.
What follows is a brief summary of each key case, together with our take on what it means in practical terms for our readers. We have written in greater detail about each case and so the summaries include both a link to the full Bailli judgment and also to our longer article.
(For ease, references to the months in which the Court considered matters refer to the dates on which Judgments were handed down and published on Bailii, rather than the actual hearing dates).
(For further ease and on the assumption that our readers are all familiar with the legislation, we have referred to the Housing Grants Construction and Regeneration Act 1996 Part II as amended by the Local Democracy Economic Development and Construction Act 2009 simply as “the Construction Act”.)
1. Classic Maritime Inc -v- Limbungan Makmur SDN BHD (1) and Lion Diversified Holdings BHD (2)  – Another look at Force Majeure
In June the Court of Appeal considered whether or not it is necessary to show that the party seeking to rely on a force majeure clause would have performed in accordance with the contract “but for” the force majeure event, and whether or not the innocent party is entitled to damages if the liable party failed to perform, even if performance was impossible in any event.
Ship owner, Classic Maritime Inc (“Classic”) and charterer/shipper, Limbungan Makmur SDN BHD (“Limbungan”) contracted under a Contract of Affreightment to ship iron ore pellets from Brazil to Malaysia between July 2015 and June 2016.
Limbungan intended to make shipments using iron ore pellets obtained from an iron ore mine in Brazil. However, in November 2015, the Fandao dam (forming part of the mine) burst with tragic consequences.
Classic sued Limbungan for failing to make five shipments under the contract, but Limbungan defended the claim on the basis a force majeure clause in the contract
The Court concluded that the party relying on the force majeure clause to excuse performance would need to prove that the failure to perform resulted from the force majeure event and that that had directly affected the performance of its obligations.
It is important to remember that most of the commonly used standard form construction contracts do not define “Force Majeure” and that lawyers’ attempts to do so are generally intended to narrow the scope from the wide common law approach.
2. C Spencer Limited v MW High Tech Projects UK Limited  – The application of the Construction Act to “hybrid” contracts
In October the TCC considered whether or not the payment mechanism requirements in the Construction Act apply to all payments under a hybrid contract, i.e., where the contractor or consultant is engaged for a range of services, some of which are “construction operations” and some of which aren’t.
A payment dispute arose after C Spencer Limited (“CSL”) issued a payment application which split the amounts applied for into construction operations and non-construction operations. However, when issuing their subsequent payment notice, MW High Tech Projects UK Limited (“MW”) did not distinguish between the two amounts. CSL challenged the validity of the payment notice on the basis that MW failed to distinguish between the two operations. MW argued that its payment notice was valid and contended that the express payment mechanism agreed between the parties did not require the separate identification of the sums considered to be due as it complied with the requirements of the Construction Act.
Judgment was made in favour of MW. It was held that a contractual payment mechanism that is compliant with the Construction Act will apply to all payments under a "hybrid" contract. This will include payments due in respect of both construction works and works excluded from the definition of construction operations under the Construction Act.
Following this case, we recommend that parties should make sure that all hybrid contracts expressly include Construction Act compliant payment mechanisms. This should reduce the risk of confusion and disputes which could stem from operating separate systems for construction operations and non-construction operations.
3. Bennett (Construction) Ltd v CIMC MBS Ltd (formerly Verbus Systems Ltd)  - making sure milestone payments are compliant with the Construction Act
In August, the Court of Appeal considered the relationship between milestone payments agreed between the parties and the requirements for a payment mechanism to be compliant with s109 and s110 of the Construction Act.
Bennett was the main contractor for the construction of a new hotel in Woolwich, London. Bennett entered into a sub-contract with CIMC to design, supply and install 78 prefabricated bedroom units for the hotel. The sub-contract between the parties incorporated the JCT Design and Build Sub-Contract 2011 edition, but provision for interim payment was replaced by various milestones some of which were said to be “on sign-off”. During the works, the parties disagreed what “sign-off” meant.
In the Court of Appeal Lord Justice Coulson disagreed with the decision of the TCC and held that the contract did in fact contain adequate payment mechanisms. He concluded that an objective interpretation of “sign-off” meant when the units were complete and in a condition where they could be signed off (that is, they complied with the contract specification). He rejected a subjective interpretation that payment was not due until the date sign-off actually occurred.
The ruling of the Court of Appeal highlights its commitment to honour the payment regime actually agreed between the parties. Lord Justice Coulson describes the commercial effect of the TCC decision as “stark and effecting a significant reapportioning of the commercial risk which the parties had agreed”. He continued that “it would take very clear wording in the Act in order to bring that about”. The ruling in this appeal make it clear that the Construction Act does not contain such words.
This is an important decision of the Court of Appeal clarifying the correct approach to applying the Schemes provisions where the payment provisions of a construction contract may not satisfy the requirements of the Act. It is a warning that at the point the contract is being drafted and negotiated, the parties need to ensure the payment provisions are clear and reflect the deal both parties have agreed.
4. Freeborn & Goldie -v- Mr Daniel Marcal t/a Dan Marcal Architects  – the importance of defining the architect’s brief
In the case of Freeborn & Goldie -v- Mr Daniel Marcal t/a Dan Marcal Architects  the TCC considered scope of retainer, duty of care and measure of damages when the clients felt that the architect’s design did not meet their requirements.
As is so frequently the case, the TCC had to start by establishing the terms of the appointment between the clients and the architect as the parties had failed to reduce their agreement to a single written (and signed) document.
Having dealt with that issue, the Court then had to consider “whether or not Mr Marcal redesigned the cinema box without telling the Claimants and arranged for the construction of a cinema box which they had not approved."
Following initial meetings in the spring, by October 2014 the concept for the cinema had developed to the point of a glass box supported by four legs, as was recorded in some mock-ups sent to the clients on 30 October 2014.
Although the parties communicated mainly by email, the architect was unable to produce any email (or other written) evidence of having updated them on design changes or sought their approval of such changes. The desired appearance was what the claimants’ Counsel described as a “sleek modern look”. Ultimately the Claimants felt that, as built, the cinema had a “wonky industrial look”. The Court found that “no drawing was sent to the Claimants which showed the final appearance of the cinema”.
The Court concluded that the architect had indeed been negligent in that he had:
- Failed to establish and record in writing a brief
- Failed to keep a written record of any changes or variations to the brief (described by the Court as an “essential” part of the architect’s services); and
- Redesigned the works and arranged for construction without client approval
The Judge ultimately awarded the Claimants damages for the wasted costs in having the cinema designed and built (together with interest), the cost of demolition and £5,000 for “distress and inconvenience”: a total of around £500,000 (plus the interest).
5. Triple Point Technology Inc -v- PTT Public Company Ltd  - the status of liquidated damages after termination
The facts of Triple Point Technology Inc (“Triple Point”) -v- PTT Public Company Ltd (“PTT”) are actually of little relevance here, save to note that Triple Point was engaged by PTT to provide certain software solutions under a contract that had key milestone dates and a provision for liquidated damages. The work was divided into key phases, and Triple Point achieved completion of Stages 1 and 2 of Phase 1 late and then continued to work on the remainder of the work. The parties then fell into dispute over the payment of invoices, Triple Point suspended the works and PTT terminated claiming Triple Point had wrongfully terminated.
A question arose as to how long LADs would run for given the termination.
The Court of Appeal concluded that the wording of the relevant clause of the contract was inconsistent with an intention for it to apply in circumstances where the works were not completed by the original contractor.
It should be noted that the Court of Appeal was keen to emphasise that this was a matter of the interpretation of the precise clause in the contract before the court: “In some cases, the wording of the liquidated damages clause may be so close to the wording in Glanzstoff that the House of Lords’ decision is binding. That is a decision of our highest court, which has never been disapproved.” Sir Rupert Jackson did, however, go on to conclude that the present case was one such case and that he considered Glanzstoff to be binding to the extent that the liquidated damages provision fell away in respect of works not completed at the point of termination. This meant that PTT could recover LADs for the late delivery of stages 1 and 2 of phase 1 but had to prove actual losses for the remainder of the works.
6. Mears Limited -v- Costplan Services (South East) Limited  – the definition of practical completion
Mears Limited -v- Costplan Services Limited  dealt with the interaction between an agreement for lease (AFL) and the certifying of practical completion under a building contract.
The most notable cases usually either change the law or helpfully recap it. Mears -v- Costplan is very much in the latter category. The rules on practical completion are set out clearly and should be at the forefront of every certifier’s mind (and indeed the mind of every contractor and every employer) as a project nears completion.
It is worth remembering that most standard building contracts don’t define the term “practical completion”. Some lawyers and draftsmen do seek to define it but often merely with a reflection of the latest common law position and so perhaps done mainly to make an implied term express for the benefit of their lay client.
Lord Justice summarised the law on practical completion in six key points:
- It is easier to recognise than to define
- Latent defects do not prevent practical completion
- Omissions and defects can both be patent defects
- The closes we have to a definition is: “the works have been completed free from patent defects, other than ones to be ignored as trifling.”
- “Trifling” is a matter of fact and degree which must be considered in light of the intended use of the building and that the mere ability to take possession is not enough
- There is still only one authority on irremediable defects (Ruxley v Forsyth) and that case did not support the proposition that the existence of irremediable defects are an automatic bar to practical completion.
So whilst it is all still open to interpretation, it is important to remember how the Courts will interpret if required to intervene.
7. Lessees and Management Company of Herons Court v Heronslea Ltd  – the duties of Approved Inspectors under the Defective Premises Act
Lessees and Management Company of Herons Court -v- Heronslea Ltd deals with an appeal which considered the liability of Approved Inspectors (AI) under the Defective Premises Act 1972 (the “DPA”) in the performance of their statutory function under Part II of the Building Act 1984 (“Building Act”) which involves inspection and certification in order to ensure compliance with building regulations.
The case concerns a block of 12 flats built in Hertfordshire in 2012. These flats were owned on a leasehold basis and the lessees of the flats alleged that the works were seriously defective.
They brought a claim via the management company, Lessees and Management Company of Herons Court (“Lessees”) against the developer, the main contractor, the NHBC (which provided a “buildmark” insurance policy in respect of the flats) and finally Heronslea Limited (“Heronslea”) which had AI status and had inspected the plans and building works, as well as certifying that relevant building regulations had been complied with.
The Court of Appeal held that:
“….the context includes the whole of section 1(1), not just the words: "A person taking on work for or in connection with the provision of a dwelling". …. The focus is therefore very much on the doing of work.
The emphasis is therefore on those who do work which positively contributes to the creation of the dwelling…. It does not, however, include those whose role is the essentially negative one of seeing that no work is done which contravenes building regulations…”
The Court of Appeal held that an AI does not have any statutory power to influence the design or construction of a building, they merely have a negative regulatory role for checking for compliance against prescribed criteria so cannot be held liable under Section 1(1) of the DPA.
8. Amey Highways Limited -v- West Sussex County Council  – does the abandonment of a public procurement process extinguish a claim brought by an unsuccessful bidder?
In May 2019 the TCC was asked to consider whether or not the abandonment of a procurement process could frustrate a Contractor’s claim following an allegedly unjust contract award.
The dispute was between Amey Highways Limited (“Amey”) and West Sussex County Council (“the Council”) and related to a highways contract that Amey claimed would have earned them some £28 million in profits over its lifetime and had cost them £1 million to prepare the tender.
In short, following the procurement process, Ringway scored more highly than Amey and so the Council duly awarded the contract to Ringway. Amey then alleged that there had been errors in scoring such that they (Amey) should actually have scored more highly than Ringway: they issued proceedings. The Council took legal advice and appreciated that litigation with Amey would be expensive both in terms of management time and legal costs.
The Council then gave notice that they were terminating the procurement. The Council made no secret of the fact that it was their hope and intention that withdrawing the procurement would defeat Amey’s claim. Amey disputed that fact and the matter came before the TCC.
The Court distinguished between:
- Abandoning procurement to prevent potential future claims from arising; and
- Abandoning procurement to deprive an economic operator of a cause of action which already exists.
Further, the TCC found that the second category would require a positive mandate under the PCR or cogent policy justification and that no such legal mandate exists.
The Court concluded that the Council’s abandonment of the procurement process failed to automatically extinguish Amey’s existing claim. This does not mean that Amey has won, merely that their claim can now proceed through the Courts (or be settled, or course).
9. Swansea Stadium Management -v- City and County of Swansea & Interserve Construction Limited  – the status of te Certificate of Completion of Making Good Defects
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. Swansea Stadium Management Company Limited (“SSMCL”) had the benefit of a lease and of a collateral warranty.
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.
SSMCL fell back on 2 secondary claims:
- 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.
- 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.
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 provided confirmation that a notice or certificate of making good defects is conclusive evidence that identified defects have been made good, it was held 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.