Background
In 2023, the construction industry continued to provide many interesting and relevant cases. We’ve highlighted some of the key commercial lessons arising from them below.
Topics include payment terms, dispute resolution, termination, and prescription and limitation periods, particularly following the introduction of the Building Safety Act. Links to case judgements, where available, are provided in the headlines below should you wish to read the full case details and we also discussed these cases in detail in our recent webinar.
Lidl v Closed Circuit Cooling
The Technology and Construction Court (TCC) considered whether the final date for payment in a construction contract could be subject to the issue of a VAT invoice. The payment mechanism in the contract required the provision of a VAT invoice, with the final date for payment to follow. Where no VAT invoice was provided, the final date for payment would not occur.
The court decided that this provision did not comply with s110(1)(b) of the Housing, Grants, Construction and Regeneration Act 1996, which requires the final date for payment to be a specified period after the due date, and not conditional on any other act, even an act by the Contractor.
A provision linking the occurrence of a due date to the provision of something, e.g. VAT invoices or applications, is allowed. However, once a due date occurs, the final date for payment must follow a specified period of time later. Invoices linked to a final date for payment should be avoided. You can also read more on this case in our previous article.
Kajima Construction v Children’s Ark Partnership (CAP)
The Court of Appeal considered the enforceability and effect of contractual dispute resolution provisions. In this case, the action was commenced one week prior to the expiry of the limitation period. The dispute resolution provisions of the contract required all disputes to be referred to a Liaison Committee (convened under CAP’s upstream contract) for resolution before any dispute proceedings.
The court upheld the TCC’s decision, deciding that the alternative dispute resolution (ADR) clause was unenforceable and, therefore, invalid as a condition precedent to dispute proceedings. The clause failed to comply with the minimum requirements of a condition precedent because:
there was no unequivocal commitment to engage in an ADR process; and
it was unclear how the Liaison Committee process would work.
The court also noted that would be improper for Kajima to be bound by the decision of a Liaison Committee convened under a separate agreement. This is a timely reminder that condition precedent clauses, particularly around dispute proceedings, need to be clear and detailed.
URS Corporation v BDW Trading
The Court of Appeal provided useful guidance on the application of the Defective Premises Act 1972 (DPA), the Building Safety Act 2022 (BSA), and the Civil Liability (Contribution) Act 1978 (CLCA).
The court held that developers can both owe and be owed a duty of care under s1(a) of the DPA. Claims can be brought under the DPA by developers, even where the DPA have disposed of their interest, as well as by residential purchasers of dwellings.
The court held that the extended limitation periods apply equally to proceedings that were ongoing at the date the BSA came into force. Where there is no physical damage, but a building has been completed to a defective design, the limitation period will run from practical completion at the latest.
Finally, a claim can potentially commence under the CLCA for a contribution from another party, even when no claim has been made against the party seeking the contribution.
Providence Building Services v Hexagon Housing Association
The TCC provided important clarification on a contractor’s right to terminate under a JCT 2016 Design and Build Contract. The TCC held that the contractor was not entitled to terminate under clause 8.9.4 of the contract unless a prior right to terminate had arisen under clause 8.9.3.
Since the employer had remedied the specific default of payment, prior to the right to terminate arising under clause 8.9.3, the contractor’s subsequent notice to terminate was invalid. The court stressed that contractors have adequate protections and remedies, such as the ability to adjudicate for late payments, seek interest, and suspend. In order to terminate under clause 8.9.4, there needs to be an unremedied default, not just a repeat of a specified default that was previously corrected within the allowed time period.
Tilbury Douglas Construction v Ove Arup
The Scottish Court of Session considered a prescription defence in this case. Parties agreed that Tilbury’s loss occurred on 27 November 2013, being the date Tilbury entered into a contract in reliance of Arup’s design.
Ordinarily, to comply with the Prescription and Limitation (Scotland) Act 1973 (PLSA), any claim would have to be brought within five years of the date of the loss. A Summons was not served until 30 July 2019, with Tilbury arguing that sections 11(3) or 6(4) of PLSA extended the prescriptive period.
The court accepted that Tilbury had been aware of the delayed works and that Arup had made them aware of potential issues. However, the court found that Arup had assured Tilbury that the design remained valid despite the risks. Reasonable diligence for the purposes of s11(3) relates to the awareness of loss but reasonable diligence for the purposes of s6(4) relates to the discovery of error. The court did not consider that Tilbury, exercising reasonable diligence, could have discovered the errors in Arup’s designs, particularly given Arup’s reassurances.
Accordingly, the court held that Tilbury could rely on s6(4) of PLSA. This case highlights that the question of whether or not a claim has prescribed is often fact specific and closely linked with the issues of liability and quantum.