Construction Brief: latest decisions June 2023

This article was co-authored by Bethan Price, Trainee Solicitor, London.

This update includes a brief overview of the construction product testing regime and a round-up of recent court decisions dealing with enforcement of adjudication decisions, limitation and the calculation of “days” within construction contracts.

Set off in Adjudication

FK Construction Ltd v ISG Retail Ltd [05.05.23]

In September 2021, the defendant, ISG Retail Ltd (ISG), engaged the claimant, FK Construction Ltd (FK), on a bespoke sub-contract in relation to roofing and cladding works for a project in Bristol with a contract sum of £3.4 million. FK issued an Application for Payment (number 16), for which ISG issued a Pay Less Notice. No payment was made by ISG, so FK brought an adjudication against ISG.

On 27 February 2023, Mr Wood, the Adjudicator, decided that ISG’s Pay Less Notice was out of time and that ISG should pay FK c.£1.7 million plus interest. As ISG did not comply with Mr Wood’s Decision, FK initiated enforcement proceedings in the Technology and Construction Court (TCC).

ISG resisted enforcement on the basis the TCC had discretion to order a set off or withholding against Mr Wood’s Decision by reason of other adjudication decisions affecting the same parties.

The TCC rejected ISG’s arguments on set off/withholding and enforced Mr Wood’s Decision.

By application of HS Works Ltd v Enterprise Managed Services Ltd [2009], the TCC decided that ISG was not able to resist enforcement for the following reasons:

The Court could not determine the validity of the other adjudication decision(s). The decisions needed to be valid before one could move on to the next step.
In circumstances where the decision(s) were valid, they needed to be capable of being enforced. The Court was not able to give effect to a decision which was not yet enforceable.
Separate proceedings needed to have been brought for the Court to be able to give effect to the decision(s). ISG did not issue separate proceedings in relation to the other decision(s) so there was no scope for the Court to determine whether the other decision(s) were valid and enforceable.
In circumstances where the first three criteria are met, the Court has discretion to permit set off/withholding. Here, the court did not consider itself to have discretion on the basis that the facts did not bring the case within the scope of the exception envisaged in HS Works Ltd.

The decision of the TCC provides yet further clarification of the law surrounding the enforcement of adjudication decisions, and sends a clear message to any party who wishes to attempt to resist complying with an adjudicator’s decision - it is only in very limited circumstances that the Court will step in.

Contacts: Morgan Rose

Related items:

Fire safety: limitation issues and duty of care

Sheffield Teaching Hospital Foundation Trust v Hadfield Healthcare Partnerships Ltd & Ors [22.03.2023]

In 2004, Hadfield Healthcare Partnerships Ltd (Hadfield) were appointed as the Project Company by the Sheffield Teaching Hospital Foundation Trust (the Trust) to design, build and operate a new wing for the Northern General Hospital. Hadfield engaged Kajima Construction (UK) Ltd (Kajima) as the design and build contractor and Veolia Energy and Utilities Services UK PLC (Veolia) for facilities management services.

The new wing was completed in 2007. In 2017, the Trust identified various fire safety defects in the new ward and in 2018 the Trust, Hadfield, Kajima and Veolia entered into a standstill agreement (the standstill agreement) relating to the limitation period for the potential claims.

In 2020, proceedings were brought by the Trust against Hadfield for £13 million. Hadfield subsequently commenced a Part 20 claim against Kajima in 2021, claiming damages and/or an indemnity for any liability to the Trust relating to Kajima’s alleged design failures. Hadfield also commenced a Part 20 claim against Veolia seeking damages and/or an indemnity in the event Kajima could shift responsibility for the defects to Veolia.

In January 2023, Kajima issued an application for summary judgment which sought to strike out elements of Hadfield’s claims on the basis that they were (a) time barred and (b) had no real prospect of success as the standstill agreement did not include claims under the design and build contract. Hadfield argued that this was a mistake and it was always the parties’ intention to include claim(s) against Kajima pursuant to the design and build contract.

The Court rejected Kajima’s application for summary judgment considering it “arguable”, with a “more than fanciful prospect of success”, that, as a matter of interpretation, the standstill agreement encompassed Hadfield’s rights to bring claims for breach of the design and build contract.

Kajima also argued that it did not owe a duty of care at common law to Hadfield on the basis the parties had entered into “sophisticated” contractual documents allocating risk and responsibility in line with what Kajima considered to be the “settled” law in Robinson v PE Jones (Contractors) Ltd [2012]. Kajima also argued that there was no assumption of responsibility here and therefore, no common law duty of care, that extended to purely economic loss. On this issue, the Court disagreed the position was as “settled” as Kajima suggested and stated conversely that “whether a concurrent duty of care at common law not to cause pure economic loss by virtue of defective workmanship or the use of defective materials can arise in circumstances such as the Construction Contract, remains unsettled and is controversial”.

The Court also considered that it was “arguable” that Robinson v PE Jones could be distinguished on its facts.

For those reasons, the Court held that the issues raised were not suitable for determination on a summary basis and dismissed Kajima's application for summary judgment. Trial is expected to be heard later this year.

The issues surrounding concurrent duties of care at common law remains an area with some uncertainty - the Court went as far as to say that it was an area “unsettled” and “controversial”. Given Hadfield have been given the green light to proceed with their claim, it is hoped that the Court will be able to provide some useful clarification in due course. Watch this space.

Contacts: Ryan Webb

Calculating days in construction contracts

Elements (Europe) Ltd v FK Building Ltd [30.03.23]

The main contractor to a building project, FK Building Ltd (FK), engaged the services of a sub-contractor, Elements (Europe) Ltd (Elements), to deal with the remediation of apartment modules in Salford. The sub-contract incorporated the JCT Standard Building Sub-Contract Conditions (SBCSub/C 2016).

There was a dispute between the parties regarding payment, causing Elements to bring an adjudication against FK in respect of its Payment Application number 16. Elements were successful and the Adjudicator determined that Elements was entitled to be paid £3.95 million by FK. Following failure to pay, Elements sought to enforce the Adjudicator’s decision at the Technology and Construction Court (TCC). In conjunction, FK brought a Part 8 claim against Elements on the basis that Elements’ Payment Application was late and therefore invalid.

An out-of-court settlement was reached by the parties in relation to the underlying dispute, but the TCC decided to hand down judgment as it addressed the important point of the proper construction of JCT Standard Form contract terms which had not yet been dealt with by the Court.

Clause 4.6 of the JCT Contract provided that a Payment Application for interim payment may be made “so as to be received not later than 4 days prior to the Interim Valuation Date for the relevant period…” The application was served at 10pm on 21 October 2022 with the Interim Valuation Date being 25 October 2022.

FK argued that “4 days” meant clear days. The TCC disagreed and ruled there was an important distinction between “days” and “clear days”. The JCT standard form contract made no reference to “clear days” and therefore it was to be construed in the ordinary meaning of “days”.

The TCC also disagreed with FK’s alternative argument that the application needed to be served within “site working hours”. Case law establishes that courts do not deal “in fractions of a day”. Generally, where a contract specifies a day for performance of an obligation, the party in question has until the end of that day to perform it (i.e. up to 23:59:59hrs on that day). The JCT standard form contract had no stipulation in terms of timing and therefore it was to be construed as meaning the party had the entire day.

The main takeaway is that if parties to a contract wish for an obligation to be performed by a specific time on a specific date, this should be expressly stipulated in the contract.

Contacts: Ryan Webb

Read other items in Construction Brief - June 2023