Construction case law update - Top 5 construction cases of 2018

This two-part series explores the top construction court cases of 2018, providing an understanding of the key developments in construction law and adjudication practice and how these might affect your construction projects and disputes in 2019.

Read or watch the first in the series below: the top five construction cases of 2018.

Cyden Homes employed North Midland Building (NMB) to design and build a large house in the Midlands, under a JCT Design and Build construction contract. The parties agreed to an amendment clause which stated that, in considering an Extension of Time (EOT), “any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account”. A concurrent delay is a delay period that occurs because of more than one separate but concurrent event: one that is the fault of the contractor, and one that is the fault of the employer.

Cyden maintained that, reading the clause exactly as written, the concurrent delay meant the contractor was not entitled to an EOT. NMB sought to strike down the clause by reference to the English common law principle known as the prevention principle: one party cannot enforce a contractual obligation against the other where it has prevented the other party from complying with that obligation.

They argued that Cyden prevented NMB from completing the works by the completion date, through the concurrent delay event, and could therefore not rely on the clause that denied an extension due to concurrent delay.

The Court of Appeal upheld the previous decision of the TCC and decided that the express contractual term allowing Cyden to levy liquidated damages for periods of concurrent delay took precedence over the prevention principle. This decision reiterates that exclusions on concurrent delay will be upheld in England, meaning that provisions allocating concurrency risk are enforceable and parties are free to agree whatever terms they wish.

Williams Tarr Construction (WTC) was the main contractor on a housing development project and engaged either Anthony Roylance in his capacity as an individual chartered civil engineer or Anthony Roylance Ltd, a company that he formed and controlled, to provide civil engineering works. These works included designing a retaining wall. The wall was defective due to unexpected ground conditions and required urgent remedial works.

A dispute then arose as to who WTC had contracted with: Anthony Roylance in his capacity as an individual or Anthony Roylance Ltd, his company. WTC believed it had engaged Anthony Roylance the individual to design a solution to the wall issues to ensure it was fit for purpose, whilst Anthony Roylance argued that WTC had contracted with his company to simply design a drain for the wall and denied any obligation to ensure the wall was fit for purpose. If Anthony Roylance had been engaged in his capacity as an individual, he would be personally exposed in terms of liability – something that his limited company was set up to specifically avoid.

No formal written contract was prepared, and the appointment was made simply through a number of emails. WTC argued that it was not clear that Anthony Roylance Ltd was appointed because the emails were sent to Anthony Roylance’s personal email address. Furthermore, the professional indemnity insurance was in Anthony Roylance’s name, not the company’s, and he had requested the cheques for the invoices be made out to ‘Anthony Roylance’.

Following a review of every piece of (often unclear) correspondence between the parties, the Court ultimately held that WTC had engaged Anthony Roylance in his capacity as an individual. However, the Court held that Anthony Roylance had not been required to warrant that the wall was fit for purpose, only to design a solution. WTC were therefore unsuccessful in claiming breach of contract and breach of warranty. This case highlights the importance of recording exactly what has been agreed between the parties during contractual negotiations, and who the parties are.

Haberdashers operated and owned a school. Lakehouse was appointed as the main contractor for an extension to the school, and subcontracted Cambridge Polymer Roofing for roofing works. There was project-wide insurance in place that purported to cover Lakehouse and their sub-contractors.

Clause 6.1.2 of the sub-contract between Lakehouse and Cambridge stated that Cambridge were liable for and must indemnify Lakehouse for any loss, expense, claim or proceedings in respect of damage to any property due to the fault of Cambridge. Clause 6.2 stated that Cambridge were to obtain their own insurance cover, in this case for £5 million, which they did.

A fire broke out at the school, caused by Cambridge, for which Haberdashers sought damages from Lakehouse. The claim settled for £8.75 million, paid by the project insurers. Lakehouse then sought a contribution or indemnity from Cambridge to recover up to £5 million under Cambridge’s own insurance. Cambridge sought a declaration that they could rely on the project-wide insurance (notwithstanding their insurance obligation under clause 6.2) as the sub-contractors of Lakehouse. The TCC had to determine whether Cambridge was entitled to cover under the project-wide insurance policy, or whether Lakehouse could recover from Cambridge under their own insurance policy.

The Court held that Cambridge were not protected under the project-wide insurance. Since the contract expressly stated that Cambridge were to have their own insurance, they could not be a beneficiary of the project-wide insurance. Lakehouse were therefore allowed to recover £5 million of the losses they incurred from their settlement with Haberdashers from Cambridge’s insurer. The Court stressed that the key point was the intention of the parties, especially the intention of the sub-contract. Cambridge agreed to a sub-contract that expressly required them to obtain their own insurance, meaning the intention must have been for Cambridge to have and use their own insurance and not rely on the project-wide policy.

This case should serve as a warning to sub-contractors. Project insurance policies are usually promoted in terms of their cover extending to sub-contractors; however this judgement has confirmed that the specific terms of a sub-contract can supersede this cover. Sub-contractors should therefore be aware of the primacy of express terms in their sub-contracts.

SSE engaged Hochtief under an NEC2 contract to design, construct and commission a hydroelectric scheme in Glendoe. The contract contained both a fitness for purpose obligation on Hochtief that the tunnel would not collapse for 75 years, and a limit on design liability to “reasonable skill and care”. SSE took over the works from Hochtief in December 2008. In April 2009, the headrace tunnel which formed part of the scheme collapsed. Hochtief refused to carry out any remedial work, claiming that the works were carried out with reasonable skill and care. As a result, SSE had to engage a third party to do the work, which cost around £107 million, then raised proceedings against Hochtief to recover that loss.

At first instance in 2016, it was held that Hochtief was not liable because they had exercised reasonable skill and care in preparing the design, which, in the words of the judge, “placed an important brake on liability”. On appeal, the Inner House of the Court of Session reversed this decision. The appeal court held that: (1) there was a defect; (2) the defect was not a result of the contractor’s design works (so Hochtief had complied with its duty to use reasonable skill and care); but (3) the defect resulted from how the design had been implemented. That meant that the reasonable skill and care “brake on liability” did not engage, because this was not a pure design issue. Accordingly, the Court held that Hochtief were liable, even though they had complied with their duty to use reasonable skill and care in design, because the defect was in the implementation of design, which had to meet the fitness for purpose obligation.

Rock Advertising entered into a license with MWB to occupy office space for a fixed term of 12 months. The license contained a clause, expressly agreed by the parties, known as a ‘No Oral Modification’ clause. This is a standard clause which states that any variation to the contract must be set out in formal writing and signed on behalf of both parties in order to be valid.

Rock then fell into payment arrears of over £12,000 and Rock’s director proposed a revised payment schedule to a credit controller employed by MWB, where part of the upcoming payments would be deferred and the arrears would be spread over the remainder of the license term. Rock claimed that MWB had orally agreed to vary the license as per the revised payment schedule, whereas MWB considered the schedule only a proposal which it had rejected. MWB locked Rock out of the premises, terminated the license and sued Rock for the arrears. Rock counterclaimed for wrongful exclusion from the premises. The question for the Supreme Court was whether or not the oral agreement between Rock’s director and MWB’s credit controller to vary the payment schedule was effective, despite the fact it breached the requirements of the ‘No Oral Modification’ clause that both parties had expressly agreed to.

The five Supreme Court judges who heard the appeal unanimously held that the ‘No Oral Modification’ clause must be observed, thereby invalidating any oral agreement to vary the payment schedule. The Court said that when parties agree an oral variation in spite of a ‘No Oral Modification’ clause, that does not necessarily mean they intended to dispense with the clause, and the circumstances surrounding the oral variation would have to be considered. The court did not say that in all circumstances oral variations would be forbidden. However, after examining the circumstances, the Court decided that the natural inference from the parties’ failure to observe the clause was that they overlooked it. In these circumstances, the Court agreed with MWB that the parties were bound by the ‘No Oral Modification’ clause.

Other webinars in the series

19 February 2019, 1pm - Top 5 adjudication cases of 2018