2018 saw a number of key changes and developments within the UK construction industry. The recent and anxiously awaited S & T v Grove appeal decision on payment disputes was undoubtedly the most debated story of last year but there were many more key takeaways which we have outlined below.
1. S&T (UK) Ltd v Grove Developments Ltd - Coulson's legacy on payment processes lives on
The most anxiously awaited decision of 2018 saw the Court of Appeal confirm that (i) payless notices will not be rendered invalid by reference to previously issued documents setting out the basis of calculation and (ii) it is competent to raise a second adjudication on the true value of sums awarded in a smash and grab adjudication. Whether, in practice, this will result in a proliferation of adjudications or contractors seeking to adjudicate on true value prior to raising smash and grab proceedings remains to be seen. Watch this space 2019!
2. When is a defect not a defect?
The case of SSE Generation Limited v Hochtief Solutions AG & Another considered the complex issues arising in respect of a contractor's fitness for purpose contractual obligation and the duty a professional owes in common law to exercise reasonable care when providing design services. According to the NY construction accidents lawyer, within the construction industry the line between design obligations and workmanship obligations can often become blurred. It is therefore unfortunate that the characterisation in this case of the cause of the collapse as a failure in implementing the design, adds further complexity and debate to an already uncertain area.
3. Freedom of contract prevails over prevention principle
In the eagerly anticipated judgment of North Midland Building Ltd v Cyden Homes Ltd the Court of Appeal upheld the first instance TCC decision that parties may allocate concurrent delay risk as they see fit and that in such circumstances this will oust the prevention principle.
4. Scottish Government Review on Fire Safety
Following the Grenfell tragedy the UK government initiated a building safety consultation the result of which has seen a recent ban placed on Aluminium Composite Material (AMC) Cladding used in the external walls of residential buildings in England. Whilst this has been the position in Scotland since 2005, the Scottish Government has nonetheless undertaken its own review into fire safety and is currently exploring the possibility of a national "hub" to take responsibility for the verification of fire safety designs.
5. A right to refer a dispute to adjudication at any time - unless you're in liquidation
The Construction Act 1996 gives a party to a construction contract the right to refer a dispute to adjudication "at any time"; however the recent TCC decision Michael J Lonsdale (Electrical) Limited v Bresco Electrical Services Limited saw this right curtailed where the party referring the dispute to adjudication is a company in liquidation. This judgment is significant for insolvency practitioners in both Scotland and England, as it not only seems to prevent a liquidated party to refer (or threaten to refer) a dispute to adjudication, it also curtails the prospect of being able to assign claims to third parties, with a view to the third party then referring a dispute to adjudication.
6. Compensation events - the final word?
The recent decision in ICI v Merit Merrell Technology (MMT) is the latest in a series of decisions in the 'long-running, and bitterly fought' disputes relating to steelworks to be carried out by MMT at a new paint manufacturing facility for ICI in Northumberland. This case offers some useful guidance for challenging compensation events and provides assurances that a project manager's assessment can be revisited by dispute resolution. It is also worth noting that where a compensation event has been resolved by agreement between the parties and the agreement is intended to be the final position on the matter; the court is likely to uphold that agreement.
7. Guidance in relation to a subcontractor's right to benefit from project insurance
The recent case of Haberdashers' Aske's Federation v Lakehouse Contracts & Ors, saw the TCC hold that since a subcontract expressly included a requirement on the part of the sub-contractor to obtain its own insurance, this signified that the parties had never intended that the sub-contractor should benefit from the project insurance policy.
This decision serves as a warning to subcontractors. They should be alert to any contractual terms requiring them to take out their own insurance under their subcontracts. Each case will naturally depend on its own facts; however it is always important to review any such terms in light of the overall project insurance policy. The decision has been appealed and we intend to release a blog in 2019 on its outcome. Stay tuned!
8. Fairness trumps in a 'smash and grab' adjudication
The recent TCC decision of Equitix v Bester Generacion confirmed the 2015 decision of Galiford Try v Estura which saw the TCC grant partial payment of an adjudicator's award resulting from a smash and grab adjudication.
The court awarded Equitix a payment of just under half the sum awarded by the adjudicator. This case is interesting because it underlines the TCC's approach to smash and grab adjudications and perhaps also signifies the TCC's recognition of the balance to be struck between enforcing the construction industry's prompt payment regime through smash and grab adjudications whilst also acknowledging the risks presented by paying out large sums of money with no clear route for recovery by the paying party.
9. Has the Payment Pendulum Swung too far? Clarity and compliance are just as important in final accounts as in interim payment applications
Coulson J's decision inSystems Pipework Ltd v Rotary Building Services Ltdprovides helpful guidance by drawing together the authorities on interim payments and how the principles apply to final account claims. This case provides helpful guidance that the same principles of clarity and compliance with requirements for clear notice, which apply to interim payments, are just as relevant to applications in respect of the final account.
10. Construction (Retention Deposit Schemes) Bill published
Following Carillion's collapse a draft Bill proposing amendments to the current rules on protecting retention deposits in construction contracts was published on 23 April 2018.
Under the proposed rules, any clause in a construction contract which allows the deduction of cash retentions would be ineffective if, upon withholding the retention, the money is not placed into a retention deposit scheme. This is not the first time change has been proposed to the retention regime and it remains to be seen whether the current climate, following the collapse of Carillion, will have created sufficient appetite for this change. The bill is expected to have its second reading in Parliament on Friday 25th January 2019. Watch this space!!
