- Contractors' all risks
Partner - London. United Kingdom
A roundup of recent court decisions raising issues relating to the certificate of making good defects, the meaning of 'practical completion', liquidated damages, adjudication and payment, and adjudication and insolvency.
The TCC dismissed a claim against a contractor for breach of the defects liability provisions under the 1998 JCT Standard Form of Building Contract with Contractor’s Design, with bespoke amendments. The claimant claimed that the contractor had failed to make good defects during the defects liability period, which was 12 months under the contract.
The TCC held that any defects notified during the defects liability period will be deemed to have been made good on the issuing of a Notice of Completion of Making Good Defects. There can be no claim under the mechanism provided in the contract for failure to make good the defects once the notice is issued.
However, the claimant would have been entitled to bring a claim for the contractor’s failure to comply with the core contractual obligations, subject to the usual limitation rules.
The Court of Appeal has upheld the TCC’s decision in relation to the meaning of ‘practical completion’ (we reported on the first instance decision in February’s edition of Construction Brief).
This was the first time ‘practical completion’ had been considered in the Court of Appeal for 50 years, and Coulson LJ provided a useful summary of the position taking into account previous case-law:
This judgment serves as a warning to ensure that the drafting of liquidated damages provisions is clear, and their potential implications are carefully considered.
The defendant contracted the claimant to provide it with a software system. Subsequently, the claimant suspended the works for non-payment and the contract was terminated. The claimant issued proceedings in respect of unpaid invoices and the defendant counterclaimed for damages for delay (the contract provided that the claimant would pay damages at 0.1% of undelivered work per day of delay from the date for delivery up to the date the defendant accepted such work).
Where the original contract provides for liquidated damages for delay, the court considered there were three conceivable options where a contractor fails to complete and a second contractor is required to complete the works:
The Court of Appeal considered that the applicable option would depend upon the wording of the clause itself. In the present case, on the specific wording, the clause only applied in respect of work that was delayed but later completed and accepted. It could not practically apply to work that was never completed or accepted, and so the defendant was not entitled to its counterclaim for liquidated damages for the uncompleted work. It was, however, entitled to liquidated damages for the delay to sections of work it had accepted. Damages for breach relating to the uncompleted work were to be assessed on ordinary principles.
However, the case serves as a useful reminder that each of the three options could be a realistic outcome, depending on the facts and wording of the specific clause.
Following on from the previous decision of S&T (UK) Limited v Grove Developments Limited , the TCC has confirmed that a party cannot rely on a true value decision until it has made payment under the smash and grab decision.
The claimant was successful in a smash and grab adjudication. The defendant failed to make payment, and commenced a true value adjudication after the smash and grab decision was received. In the true value adjudication, the adjudicator found that no sum was due from the defendant to the claimant. The claimant sought to enforce the smash and grab decision, and the defendants sought to rely on the true value decision by way of set-off or counterclaim.
Following the Court of Appeal’s reasoning in Grove, the TCC found that the defendants must pay the smash and grab decision, regardless of the subsequent finding in the true value decision. The defendants were under an immediate payment obligation to pay the smash and grab award, and could not rely on the true value decision until they had done so.
Unfortunately, the court did not clarify the position regarding the jurisdiction of the true value adjudication. The position in Grove is clearly that a smash and grab decision must be paid before commencement of a true value adjudication. However, the court in Davenport held that that is was unnecessary to determine the jurisdiction question. In addition, critics have remarked that the Davenport decision is commercially impractical, as it forces the defendant to commence another set of proceedings to recover its money. It remains to be seen whether the courts will provide further clarification on these issues in future.
This judgment concerned the conjoined appeal of two cases, which at first instance had appeared to give contradictory decisions. Both cases concerned the ability of insolvent parties to bring adjudications against their solvent employers, for payments arising out of alleged breaches.
At first instance, the court in Bresco held that such an adjudication was not permissible in light of the contractor’s insolvency, and granted an injunction restraining the contractor from continuing with the adjudication. In Cannon, it was decided that not only was such an adjudication permissible, but that summary judgment could be granted to enforce the decision and the employer was not entitled to a stay of execution.
Given the apparent conflict between the two decisions, the appeals of both cases were heard together. In summary, the Court of Appeal held that: