Construction Brief: latest decisions December 2016
A round up of recent court decisions raising issues relating to the importance of pre-contractual due diligence, the Party Wall etc. Act 1996, final sum payments, liquidated damages and an expert’s jurisdiction.
Importance of pre-contractual due diligence
LXB RP (Crown Road) Ltd v Squibb Group Ltd [21.09.16]
The defendant requested a stay to the enforcement of an adjudicator’s decision, on the basis that the claimant (an SPV company) would be unlikely to repay the judgment sum in circumstances where that decision was subsequently overturned.
The court refused a stay. It enforced the decision on the basis that the financial risk to the defendant was no greater than when it contracted with the claimant (based on the financial information provided).
Implications: The case highlights the importance of undertaking due diligence on the financial status of other contracting parties, prior to entering into a contract.
Contact: Jacqueline Curran
Section 7(1) Party Wall etc. Act 1996
Gray v Elite Town Management [03.11.16]
Section 7(1) of the Party Wall etc. Act 1996 states that “A building owner shall not exercise any right conferred on him by this Act in such a manner or at such time as to cause unnecessary inconvenience to any adjoining owner or to any adjoining occupier.” The Court of Appeal determined that the duty imposed under this section was concerned with the manner in which construction works were carried out and did not extend to the scheme chosen. Accordingly, it was not necessary to choose a scheme based on the potential inconvenience to adjoining owners or occupiers.
Implications: A building owner is under no duty to an adjoining occupier to choose the least inconvenient scheme of works. However, they must ensure that the works chosen are carried out in the least inconvenient manner.
Contact: Sanam Hussain
Final sum payments
Kilker Projects Ltd v Purton [22.09.16]
During the first adjudication, the adjudicator determined that the claimant was liable to make payment of the final sum applied for, where they failed to serve the requisite payment notice and/or pay less notice. Following full payment of the requested sums, the claimant sought to adjudicate in order to determine the true valuation of the final account with a view to recovering all or part of the final payment previously made. The court determined that the statutory scheme does not affect the ultimate value of the contract sum, it is concerned only with cash flow. As such, where the “notified sum” determined in an adjudication is in respect of a final payment, either party is (subject to the express terms of the contract) entitled to have the ultimate value of the contract sum determined in a subsequent adjudication, litigation or other form of dispute resolution.
Implications: An adjudication determining that a notified final sum is due does not prevent the paying party, on full payment of the requested sums, from seeking a further adjudication or judgment to determine the true valuation of the final account.
Contact: Helen Johnson
Delay and liquidated damages
Carillion Construction Ltd v Woods Bagot Europe Ltd and others [28.04.16]
The claimant claimed damages from its subcontractors, including sums levied under the building contract for liquidated damages (LDs) caused by delay in completion of subcontract works. The court decided two preliminary issues relating to the claim against two subcontractors:
- If a defendant subcontractor was entitled to an extension of time, this extension should run contiguously from the end of the existing period for completion, even if the extension is granted during a period when the subcontractor is in culpable delay.
- The claimant's liability for LDs under the building contract was not extinguished by a supplemental agreement between it and the employer under which it acknowledged that it was in delay, agreed not to claim an extension of time and accepted an adjustment to the contract sum to account for LDs that were payable.
Contact: Sarah Maylor
Contractual variations and an expert’s jurisdiction
ZVI Construction Co LLC v The University of Notre Dame (USA) in England [02.18.16]
The court determined two points of interest:
- So-called “waiver can only be in writing” clauses are not automatically effective. The clause itself is just one factor in deciding whether a modification to a contractual term has occurred. Reliance on a non-waiver clause will be ineffective where it appears that the parties have both acted differently relative to what the express words of a specific clause say.
- A party to a contract containing a clause providing for disputes to be decided by an expert can (expressly or impliedly, by works or conduct) confer jurisdiction on an expert where otherwise there would be none. One way to show that there has not been an implied agreement is to make a clear reservation, in words, at any material stage either before or during the expert determination. In this instance there had been a course of conduct from which it might be inferred that the claimant had impliedly agreed that the expert would have jurisdiction.
Implications: Parties will not necessarily be able to rely on the fact that contractual terms have not been varied in writing, if it can be inferred from conduct that both parties have agreed to an alternative course of action. In addition, a party wishing to assert that an expert does not have jurisdiction to determine a dispute arising under the contract should ensure that a clear reservation is entered and maintained.
Contact: Tom Green