Monthly Archives: August 2013

Construction Act does apply to Collateral Warranties !

There had been doubts as to whether claims under collateral warranties were claims under “construction contracts” such as to fall within Part II of the Housing Grants Construction and Regeneration Act 1996 (“HGCRA”). The point being that such claims are susceptible to being determined by adjudication as provided for under the HGCRA.

In Parkwood Leisure Limited – v- Laing O’Rourke West and Wales Limited (2013) the claimant was the tenant of a new property and had been provided with a collateral warranty by its Landlord’s contractor Laing.

The High Court found that the introduction to the warranty referred to the underlying construction contract (between the Landlord and Laing) as being “for the design, carrying out and completion of the construction of a pool development”. As such there [could] be little or no dispute that the Contract was a construction contract for the purposes of the HGCRA”. Furthermore that wording was replicated in Clause 1 of the Collateral Warranty which related expressly to carrying out and completing the Works.

The Court was impressed that Laing had undertaken to Parkwood “that, in the execution and completion of the Works, it [would] comply with that underlying contract.” Most obviously the warranty obligated Laing to Parkwood in relation to:
– the quality and completeness of the Works,
– compliance with the Contract specifications and drawings,
– compliance with any relevant legislation and
– compliance with the Employer’s Requirements and Contractor’s
Proposals.

It did not follow from the above that all collateral warranties given in connection with all construction developments will be construction contracts under HGCRA.

You need to decide on the wording and the circumstances of each such warranty to see whether:

– it is a construction contract for the carrying out of construction operations. A major indicator will be whether or not the Contractor is undertaking to the beneficiary of the warranty to carry out such operations.

– Conversely if all the works are completed and the Contractor is simply warranting that previous works have attained a certain level, quality or standard that will be factor strongly militating against the Warranty being a Construction Contract under the Act. However the fact that all the works had been completed would not necessarily be the deciding factor against it being a “construction contract”.

Accordingly the Court ruled that the warranty was a “construction contract” so as to entitle Parkwood to seek adjudication under HGCRA

Cash is King!

It’s the policy of the English Construction Act 1996 (as amended) to maintain the life blood of cash flow throughout the construction chain especially in straightened times. Here’s a reminder of that.

True Fix Construction Ltd v Apollo Property Services Group Ltd (2013) involved a claim by True Fix Construction Ltd (“TFC”) who were, in part, a sub-sub-contractor of Powerwall. Powerwall were a roofing sub-contractor employed on the project by Apollo, the Main Contractor. When Powerwall went bust, Apollo had directly appointed TFC to undertake work that Apollo had previously engaged Powerwall to carry out. Powerwall’s insolvency had left TFC out of pocket for money Powerwall owed TFC for other work Powerwall had hitherto sub-sub-contracted to TFC.

The Court ruled that Apollo were aware that TFC were struggling when they gave them Powerwall’s work. If anything, TFC’s finances had improved as a result of getting that work. So when Apollo failed to pay TFC under an Adjudication Award requiring them to pay TFC for an interim account, it was insufficient grounds to defer payment that Apollo were concerned that TFC would be unable to refund them any monies that might, at a further Adjudication, be found to be due back to Apollo at the Final Account stage.

The High Court Judge said “the essence of adjudication is to provide cashflow” and the Court could not delay enforcing an earlier adjudication decision, admitted by Apollo to be unchallengeable and enforceable by Summary Judgement, just because Apollo speculated there might be a later adjudication ordering TFC to pay money back to them.

So the Court awarded TFC immediate summary judgement for the amount claimed.

Elderly Lady in horse centre defeat

In Davies v Welsh Minister (2013) the High Court in Mold, Wales quashed the planning inspector’s decision to uphold a planning appeal to create an equine centre. The court found that the planning appeal had given insufficient weight to the personal circumstance of the agricultural tenant’s mother who had been living in a house affected by the scheme for about 60 years.

The court reminds us that the personal circumstances of a third party affected or aggrieved by a planning decision may be “material considerations” which in the process must be seen to be taken into account as potentially overriding policy considerations that might have been supportive of the planning permission being granted.

Lease arrangement rectified

If two parties agree what the legal consequences of a contract should be, English courts might be able to rectify any defective provisions of the contract that are at variance with those shared aims.

However this did not seem to apply where one or more of the parties had deliberately added or omitted the relevant wording.

However a recent case has confirmed that the omission of a document left out could be rectified by the court where such omission was deliberate but based on the mistaken belief that the document was not actually necessary to meet the parties’ shared objectives for their lease contract.

Corporate Veil applied in Construction Case

Oakapple Homes (“OH”) used sister company Oakapple Construction (“OC”) to convert an old Derbyshire Mill to a large flat and retail complex. As part of the build contract arrangement OH novated the appointment of their Architect, DTR, over to OH. As the novation substituted OC for OH as Employer under the appointment DTR gave OH the usual duty of care warranty.

The Mill burnt down and also DTR went into liquidation and the liquidator disclaimed their appointment. So the issue arose to what extent DTR’s indemnity insurers were liable for DTR’s duty of care warranties that had been given to OH and some occupiers.

DTR tried to say that OC had contributed to the building being destroyed by negligently departing from their designs.

They said the beneficiaries of the warranties had to have their damages reduced because the warranties DTR gave them said that DTR owed them no greater liability than it did to the Employer under the Employer’s appointment of them, and that Employer was contributorily negligent for departing from their designs.

The court ruled that, even if OC had been contributorily negligent, and, even if OC were OH’s sister company, they were separate bodies and OH could not have had its damages affected by what another company had done. That principle applied whether OH’s damages had been under the appointment, had it never been novated, or under the collateral warranty it had got from DTR at novation.

Secondly the court said that when the warranties talked about the Employer under the appointment, they meant the original appointment, before the novation changed the Employer under that appointment from OH to OC, and, since OH wasn’t guilty of any contributory negligence that would have reduced its damages (on whichever basis), neither would the beneficiaries suffer any such reduction under their warranty claims. Also it was that original unreduced liability DTR’s insurers had agreed to insure, under the indemnity policy, not the measure of DTR’s liablity to OC, which the insurer’s were claiming to have been reduced by OC’s alleged contributory negligence.

As if that wasn’t enough the court thought the relationship between the beneficiaries of the warranties and DTR was totally contractual so statutory damages reduction for contributory negligence did not apply any way. DTR and their insurers would have had to show that the beneficiaries claims against DTR and their insurers were based common law of negligence (which it could not) and that to the extent there was also the contractual duty under the warranties that it was coextensive with, and triggered by, what was in all other respects common law negligence.

Professional indemnity insures will have taken note of a case which has potentially wide implications for them and perhaps greater protection for occupiers and other beneficiaries where property developers offer a one stop shop of development, construction and sometimes design, quantity surveying and project managment from subsidiaries within their Group.

At the same time insurers can be expected to vigorously contest claims where a professional has accepted no supervisory or inspection obligation to pick up a third party’s failure to adhere to its competent designs.

Danger of failing to buy on “practical completion”

If your new property is being built your obligation to complete your purchase usually turns on whether the archtect or other contract administrator has certified the building work is “practically complete”  – basically whether it can be used for its intended purpose which may include an initial fit out by the proposed occupant.

Linda Burgess was sued by a property renovation firm, Elmbid Ltd.,  after failing to complete the purchase of a £1.3m retirement home Bottom End Barns, in Norfolk, as the  work had not been “satisfactorily” finished.

But a judge ruled in the  High Court that Elmbid was entitled to damages and to  keep a £110,000 deposit she had paid.

The court expressed the view that her duty to complete the purchase was triggered by the issue of the certificate of practical completion even if that was wrong.  But she had failed to prove even that.  As useful future guidance the court said the kind of defects and the cost of putting them right relative to the total purchase cost were relevant factors in deciding whether practical completion had occurred.

The Big Bang under the Legal Market

 

The Legal Market is undergoing a “Big Bang”.  There will be more demand than ever but most services will be commoditised with the emphasis shifting more to cost effective technical access, research and delivery than traditional legal firms and (except for 20 or so yellow book firms) not from prestigious Ivory Towers in the City.  Other delivery will be online retail by  law companies working from cheap out of town premises with perhaps a token city centre presence,  virtual law firms of people working from home and sole practitioners with a laptop to visit clients with, a home office and indemnity insurance.  More on my Twitter Page @PhilipJTaylor1.

Those traditional law firms tied into long leases of largely redundant city centre office space will be lugging their millstones behind virtual firms unincumbered by that now greatly unnecessary infrastructure.