Construction Brief: Market insights and latest decisions

We briefly review some notable and significant developments currently impacting the industry. This includes two case summaries on issues emanating from the Building Safety Act 2022 (limitation and remediation contribution orders) and a case summary on the impacts of a settlement agreement that fails to address all disputes under the contract.

Optimism in the Construction Sector

In March 2024, it was reported that the UK Construction Sector had returned to growth for the first time since August 2023 after six consecutive months of decline. Civil engineering was the best-performing sector in March with increased work on infrastructure projects and resilient demand in the energy sector. According to the latest S&P global purchasing managers index (PMI) data, the UK construction sector recorded its biggest rise in activity in two years last month. This includes the first rise in house-building since former Prime Minister Liz Truss' mini-budget. Activity in civil engineering, commercial construction and housing all rose. House-building increased for the first time since October 2022, just after Truss' budget plans led to a surge in borrowing costs and a sharp fall in house purchases. There is good reason for optimism in 2024.

Contact: Louis Foscolo

 

Tomlin Orders and adjudication enforcement proceedings

Dawnvale Café Components Ltd (Dawnvale) v Hylgar Properties Ltd (Hylgar) [24.05.24].

Dawnvale (the Contractor) was a kitchen and bar fit-out company and Hylgar (the Employer) was a property developer. The parties had entered into a contract for the design, supply and installation of mechanical works. Hylgar commenced adjudication proceedings against Dawnvale claiming repudiatory breach and damages against Dawnvale after the contract was terminated. The adjudicator determined that Dawnvale had repudiated the contract and owed Hylgar £180,000 plus VAT. Dawnvale failed to pay, and Hylgar issued enforcement proceedings. By a Tomlin Order, Dawnvale agreed to pay Hylgar a sum of money in settlement of the claim.

Paragraph 4 of the Schedule to the Tomlin Order stated that “the payment of the settlement sum is in full and final settlement of any and all claims the [respondent/Hylgar] may have against the [applicant/Dawnvale] arising from or in connection with these proceedings”. Two years later, Hylgar alleged further losses totalling £641,594.76 arising from the same repudiatory breach and intimated an intention to refer a second claim to adjudication. Dawnvale issued Part 8 proceedings seeking a declaration that the Tomlin Order precluded Hylgar from referring to a second adjudication claim and for an order prohibiting Hylgar from referring the dispute.

The Court declined to make the declarations sought by Dawnvale and the proceedings were dismissed. The Judge held that "these proceedings" in the Tomlin Order referred to the action in which the order was made, i.e. the enforcement proceedings. While the new claim arose from the same contract or works, it did not arise from those proceedings, and was not the same or substantially the same as the dispute heard by the first adjudicator. The first adjudication had decided that Dawnvale was in repudiatory breach of contract and had determined the true value of the work undertaken prior to that time. The second adjudication was intended to determine the recoverability and value of certain heads of loss consequential upon the repudiation. There was no overlap. The Judge noted that if the position were otherwise, a referring party would be required to bring its entire claim encompassing all heads of loss, some of which may not be apparent for some time. This would delay matters and would obstruct cash flow, which was inconsistent with the overriding objective of the pay now, argue later principle.

This case is a reminder to all parties to carefully consider the terms of a settlement agreement if it is the intention of the parties to cover all disputes under the contract.

Contacts: Amrinder Aulakh,Scott McKinnell

Related item: Tomlin Orders and Adjudication Enforcement Proceedings

 

Reinterpreting the Defective Premises Act 1972

Vainker & Anor v Marbank Construction Ltd & Ors [25.03.24] 

On 25 March 2024, Mrs Justice Jefford handed down judgment in this case in which she found for Mr and Mrs Vainker against Marbank Construction Ltd (the builder) and SCD Architects Ltd (the architect).

In this case, Mr and Mrs Vainker engaged the defendants to design and build a new-build house in Strawberry Hill, Twickenham(the “Property”). Several defects arose with the Property including in relation to external brickwork and internal glass balustrades. Mr and Mrs Vainker brought a claim against the Defendants for breach of contract, negligence and for breach of Section 1 of the Defective Premises Act 1972 (“DPA”).

The Court found for the claimants and provided some useful and important guidance when considering whether the Property was “fit for habitation” pursuant to the DLP. Jefford J held that:

• It should be taken into account that the Property was intended to be both a new-build and a modern house in design when considering whether it was fit for habitation at completion. The relevance of the claimants’ requirements for the Property was a fact-sensitive question in respect of any particular defect.
• A defect that is only aesthetic or inconvenient is unlikely to make a property unfit for habitation.
• A breach of duty may exist where a defect leads to the likely deterioration of the condition of the property over time, making it unfit for habitation. Here, a property would be unfit for habitation at completion.
• In deciding whether a property is unfit for habitation at completion resulting from a failure to carry out works in a professional manner, the aggregate effect of defects should be considered. Minor or aesthetic defects do not count and damages cannot be recovered for them.

The Court also provided some further useful clarifications when it comes to a DPA claim:

• Claims under the DPA can often proceed, even if a claim in tort or contract is statute-barred. The Building Safety Act 2022 amendments further extend limitation under the DPA.
• Any term of an agreement that attempts to exclude or restrict any provision of the DPA, or any liability arising from such attempts shall be void (s. 6(3) DPA).
• In a standard-form contract, S. 6(3) DPA can defeat a “net contribution clause”.
• If a breach of the DPA is found, damages are not limited to the “minimum necessary” to put the property in a habitable condition. Instead, damages should be “the cost of making the dwelling fit for habitation in the way it would have been had the services been supplied in a professional manner”.

Whilst largely a question of fact, as DPA claims continue to surge, particularly following the introduction of the Building Safety Act 2022 (“BSA”), the guidance of the Court to the key question of when a property is unfit for habitation is welcomed. We can expect further guidance in the coming months as the more the Court is asked to consider further issues of interpretation and application that arise under the BSA and DPA.

Contacts: Francesca Khan, Louis Foscolo

Related item: Reinterpreting the Defective Premises Act 1972

Remediation Contribution Orders and the Just and Equitable test

Triathlon Homes LLP v Stratford Village Development Partnership & others [19.01.24]

Pursuant to section 124 of the Building Safety Act 2022 (the Act), any “interested person” may apply to the First Tier Tribunal (FTT) for a Remediation Contribution Order (RCO). An interested person includes anyone with a legal interest in a “relevant building”, e.g. a leaseholder of a flat, and broader bodies such as the Secretary of State or the local fire authority.

An RCO may require the current or former landlord, developers, or any other persons “associated” with those parties, to pay towards the costs or remedying “relevant defects” (i.e. a defect which causes fire safety risk or structural collapse).

RCOs were introduced to prevent occupiers being liable for multi-million remediation works for which they had no control or liability over. They operate to pierce the corporate veil in situations where freehold owners use special purpose vehicles to hold their interests.

In this case, the First Tier Tribunal (FTT) made its first major decision on the use of RCOs under section 124 of the Act.

The case concerned blocks of flats located within the East Village development (former Olympic Village) in Stratford. Triathlon Homes (Triathlon) is the owner of the social and affordable housing within the blocks, whilst Get Living Plc (Get living) owns the remaining privately rented units.

Stratford Village Development Partnership (SVD) was the original developer of the blocks, and was later acquired by Get Living. East Village Management Limited (EVML), is the management company responsible for repair and maintenance of the blocks, and is jointly owned by Triathlon and Get Living.

Following investigations by EVML, Triathlon sought RCOs against SVDP and Get Living to contribute towards remedial works exceeding £24.5 million.

The decision rejected the counter arguments put forward by SVD and Get Living and laid down important precedent for the application of RCOs under the Act, namely:

1. RCOs can cover costs incurred before section 124 of the Act came into force.
2. The person seeking an RCO (i.e. the “interested person”) does not need to be the person to whom the costs are paid to under the order. Here, any contribution from Get Living to EVML was irrelevant despite Triathlon seeking the RCO.
3. RCOs can cover “preventative” costs such as fire safety monitoring and the installation of fire alarms, in addition to, costs specifically related to remedial works.

On the application of the “just and equitable” test (the test), when seeking a contribution from parent companies of the developer, the FTT found:

• It was irrelevant that Get Living was not involved in the design or construction of the blocks, nor that they acquired the company long after the development.
• Get Living had acquired EVML’s latent and consequential liabilities.
• It was irrelevant that Triathlon had the ability to pursue other parties when applying the test, as the purpose of the Act is to avoid expensive and lengthy litigation.

Whilst each case will be dependent on the specific facts, the decision highlights the FTT’s willingness to exercise its discretion in favour of those seeking a RCO. This decision is also likely to influence how the High Court will apply the “just and equitable” test in the application of Building Liability Orders under the Act.

Contacts: Imogen Severs, Louis Foscolo

Read other items in Construction Brief - June 2024