Author: Tola Odedoyin and Justin Mendelle

We continue our look back at some of the more interesting or lesser reported cases from last year – in the spotlight this week, GB Building Solutions Limited (GB) v SFS Fire Services Limited (SFS).

Background

In 2009, GB Building Solutions Ltd (the main contractor) was engaged as a design and build contractor for an office development in Manchester. It engaged SFS Fire Services Ltd (the sub-contractor) to design and install the development’s fire prevention sprinkler system.  Both parties entered into an amended JCT 2005 design and build sub-contract.  Due to an apparent fault with the water sprinkler system, flooding at the site caused damage, with GB claiming in excess of £600,000 for losses incurred as a result of the flood.

Clause 6.6.1 of the sub-contract conditions contained within it, a provision which stated that the joint names insurance policy that applied to GB would also name SFS as an insured.  The joint names insurance policy would cover SFS up until the Terminal Date.  In bringing its claim, GB claimed that the flooding occurred after the Terminal Date and therefore SFS was liable for the losses suffered.  In contrast, SFS raised a defence stating that because the meaning of practical completion under the sub-contract is to be given the meaning of practical completion as defined within the schedule of modifications, the flooding therefore occurred before the Terminal Date.  A dispute arose concerning the correct interpretation of when practical completion was considered to have occurred, for the purpose of ascertaining whether the flood occurred before or after the Terminal Date.

The key clauses from the sub-contract in relation to this dispute centred on the definition of practical completion, as this confirmed when the transfer of risk moved from the main contractor to the sub-contractor.  Within the standard sub-contract conditions, clause 6.1 defined the Terminal Date as:

the date of practical completion of the Sub-Contract Works or, in respect of a Section, of such works in the Section as determined in accordance with clause 2.20” (emphasis added).

Clause 6.1 reads as the Terminal Date being when the sub-contract works are practically complete in accordance with clause 2.20 that the main contractor and sub-contractor have to go through in order to confirm practical completion of the sub-contract works has been achieved.  However, the design and build sub-contract conditions as modified by the schedule of modifications defines “Practical Completion” as:

the issue of the Certificate of Practical Completion pursuant to the Main Contract.” (emphasis added)

The issue for the court, was whether the undefined definition of practical completion in clause 6.1 could be interpreted to mean the same as the defined term in the schedule of modifications and what effect that would have.

Decision

The court agreed with the arguments raised by GB, pointing out that the uncapitalised definition of practical completion in clause 6.1 could not be taken to mean the same as the capitalised definition of “Practical Completion” under the schedule of modifications.  Despite SFS raising the argument that the schedule of modifications takes precedence over the sub-contract conditions and therefore the definition of practical completion in clause 6.1 should be given the same meaning as in the schedule of modifications, the court opposed this interpretation of the clause and concluded that practical completion was achieved when the sub-contract works were practically complete under clause 6.1.

HHJ Davies acknowledged that whilst there was some ambiguity presented by the bespoke amendments to the JCT standard form document in providing two contrasting definitions of practical completion, the usual tools of contract interpretation apply.  Specifically, relying on the recent case of Wood v Capita Insurance Services Limited, he stated that “the court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement.”  In saying this, HHJ Davies considers interpreting “such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type” and the “iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated.”

In reaching his judgment, HHJ Davies was content that there was no ambiguity between the two phrases as “they are not the same”, accepting the claimant’s submission that “it would have been perfectly easy to have amended clause 6.1 so that it defined the Terminal Date as “the date of Practical Completion”, if that had been intended,” but because that was not what had been intended, it was understood that each clause “simply applies in different circumstances.”  As such, he concluded that the flooding occurred after the Terminal Date and therefore the risk transferred to SFS.

Implications

It’s easy to say but difficult to achieve – say what you mean! Far too often, both clients and lawyers are guilty of over-complicating matters, drafting convoluted clauses or provisions which are inconsistent with each other. The advice is straightforward – aim for simplicity and always seek to phrase things in the most clear and logical way possible.


As 2018 kicks off, we thought we’d take a look back over a few of the key decisions from last year – this is the first in our series. In MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another [2017] UKSC 59, the Supreme Court, in a significant judgment for the construction industry, allowed E.ON’s appeal and restored the first instance decision of Edwards-Stuart J in the Technology and Construction Court.

Background

E.ON appointed MT Højgaard A/S (“MTH”) under a contract dated 20 December 2006 to design, build and install two offshore wind farms. Unfortunately, some of the turbines developed significant faults shortly after construction was completed and costly repairs were necessary.

This litigation concerned who should be liable for the costs of those repairs and involved a detailed examination of the documents and obligations that formed the contract between E.ON and MTH. The basis of the dispute was whether or not MTH was under a fitness of purpose type obligation which was contained in a technical schedule in the contract. This had the effect of a warranty that the turbine component would not fail within a certain timeframe (20 years). This was despite obligations on MTH elsewhere in the contract to exercise reasonable skill and care and to comply with an international standard (J101) – which as it turned out, was erroneous and even if met, was insufficient to ensure the standard in the technical document was achieved.

E.ON’s tender documents included a set of Employer’s Requirements, which in turn had a set of Technical Requirements within them. It was clear from the Technical Requirements that E.ON wanted a design which would ensure the wind turbines would last for 20 years without the need for repair or refurbishment. The Technical Requirements also stated that the successful contractor would have responsibility for identifying any changes which needed to be made to the designs to ensure that they met a higher fitness for purpose threshold. These references indicated that these requirements were a minimum for the contractor to comply with. J101 was also a required standard to be met in the design and build project.

MTH submitted a tender based on these requirements, which E.ON accepted. The parties subsequently entered into a binding contract for MTH to ‘design, fabricate and install the foundations for the proposed turbines’. The Employer’s Requirements (including the Technical Requirements) and J101 formed part of the contract.

Once MTH had completed the works, it was discovered that there was an inaccuracy in J101, which meant that significant remedial works were required to MTH’s works. MTH did not consider that they should be liable for the cost of these works, as they had complied with the international standards and did not accept that the Technical Requirements placed them under a fitness for purpose obligation.

Decision

The Supreme Court concluded that MTH was liable for breaching the fitness for purpose obligations, which obliged them to deliver foundations that would have a minimum life of 20 years. This was in spite of the fact that (i) the mistaken variable (J101) was an industry standard that E.ON themselves had requested (ii) E.ON accepted the tender on the basis of the design that MTH had submitted and (iii) the design obligation on MTH was stated to be one of reasonable skill and care.

Implications

This is potentially an enormously significant decision for the construction industry. From an employer’s perspective, the case gives clear support for the position that if the technical requirements (properly incorporated into the contract) contain fitness for purpose obligations, then notwithstanding reasonable skill and care obligations elsewhere in the contract, the contractor will be required to meet the higher standard.


Authors: Justin Mendelle and Tola Odedoyin

Update

After the 2016 judgment in Lulu Construction Ltd (“Lulu”) v Mulalley & Co Ltd, the door on recovering costs in adjudication was ajar. The recent unreported case of Enviroflow Management Limited v Redhill Works (Nottingham) Limited may have closed it.

The issue is how the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act”) and the Late Payment of Commercial Debts (Interest) Act 1998 (as amended by the 2013 Regulations) (together the “Late Payment Act”) interact in the context of parties trying to recover costs in an adjudication.

The Lulu case concerned enforcement proceedings of an adjudicator’s decision. Before this case, it had generally been accepted that adjudication costs could not be recovered under the Construction Act. However, Lulu sought recovery under the Late Payment Act.

Issue

The issue the court was concerned with was whether the adjudicator had jurisdiction to make such an award for costs under the Late Payment Act.  The court found in favour of Lulu and stated that the adjudicator did have jurisdiction. The question however remained: are adjudication costs recoverable under the Late Payment Act? Section 108A of the Construction Act makes it clear that an adjudicator cannot determine that one party is responsible for the other party’s costs, unless both parties have agreed to this in writing. Conversely, Section 5A of the Late Payment Act implies a term into contracts that states that where the contract does not provided an adequate remedy for late payment of a debt, a party recovering a debt under the Act can recover any sums reasonably incurred in recovering the debt. The phrase ‘any sums reasonably incurred’ has been argued as being applicable to the costs of adjudication.

In Enviroflow Management Limited v Redhill Works (Nottingham) Limited, the claimant sought to recover adjudication costs under the Late Payment Act.  Mrs Justice O’Farrell concluded that the adjudicator did not have jurisdiction to make an award for such costs. The reason this case brought about a different result to Lulu was because the building contract in question was an oral contract.  She held that whilst the Late Payment Act implied certain terms into the contract, “such an implied term was caught by s.108A of the 1996 Act and was ineffective unless an agreement had been made in writing” (emphasis added).

The key point here is that it looks as if the implied terms of the Late Payment Act cannot be relied upon without more i.e. without expressly incorporating them into the relevant construction contract. To date, this is not a practice that we have seen.

Implications

Whether the costs of an adjudication can be recovered are potentially unclear.  Nevertheless, we appear to be going back to what has long been understood to be the standard position – both sides bear their own costs.


Authors: Juli Lau and Amy Brown

Background

Cyden Homes Limited (the “Defendant”) engaged North Midland Building Limited (the “Claimant”) to design and construct a large house (known as ‘South Farm’) plus outbuildings. The contract used was the JCT Design & Build Contract 2005 with bespoke amendments.

The amendment at issue in this case concerned the extension of time provision where the employer has received notification of a delay to the works from the contractor, which read that where:

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