Construction Brief: latest decisions November 2018
This update includes a round-up of recent court decisions raising issues relating to co-insurance provisions, net contribution clauses, concurrent delay, adjudication and insolvency and letters of intent.
Letters of intent and liability caps
Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd [10.10.2018]
The Court of Appeal has overturned a first instance decision of the TCC relating to letters of intent.
AMEC appointed Arcadis to carry out design work on two large projects. The intention was to enter into a single contract covering both projects (the Protocol Agreement). Whilst negotiating the Protocol Agreement, Arcadis commenced work on one of the projects under a letter of intent. Those works were defective, and AMEC commenced proceedings against Arcadis for losses of £40 million. Arcadis claimed that, under the letter of intent, its liability was limited to £610,515.
The two key issues were whether a contract existed, and if so whether the liability cap had been incorporated. At first instance, the TCC held that a contract did exist, but no liability cap had been incorporated. The separate T&Cs document containing the liability cap was still being negotiated and no final agreement had been reached.
The Court of Appeal reversed this decision, holding that the liability cap had been incorporated. The court distinguished between the “interim contract” under which the parties had been working and the “final contract” which was being negotiated, and which would supersede the former once agreed. The relevant contract in dispute was the interim contract. By commencing works under the letter of intent, Arcadis had accepted the T&Cs and therefore the liability cap therein. Subsequent negotiations of the T&Cs did not affect those already incorporated into the interim contract.
While this decision is heavily fact-specific, parties should exercise care when agreeing letters of intent to ensure that they give clear and sufficient protection for the temporary period in which they apply.
Adjudication and insolvency
Michael J Lonsdale (Electrical) Limited v Bresco Electrical Services Limited (In Liquidation) [31.07.2018]
The TCC held that a company in liquidation cannot commence adjudication proceedings for determination of a claim for sums due to the insolvent company from the responding party.
In such a claim, the adjudicator does not have jurisdiction to determine the dispute because the dispute is not “a dispute arising under the contract”; it is a dispute arising in the liquidation under the Insolvency Rules.
Insolvent companies will no longer therefore be able to use the relatively quick and cost-effective process of adjudication to pursue money claims. The case is however subject to appeal, and it therefore remains to be seen whether this decision will be reversed.
North Midland Building Ltd v Cyden Homes Ltd [30.07.2018]
In a hotly anticipated judgment, the Court of Appeal has upheld the first instance TCC decision that parties can allocate responsibility for concurrent delay in their contracts.
The Court of Appeal held that the wording of the clause in question was clear and unambiguous, and that there was no reason why effect should not be given to it. This is a useful decision for contract drafters, who may want to include similar wording in their contracts to avoid costly disputes regarding responsibility for concurrent delay.
Contacts: Helen Birchall
Scope of net contribution clauses
Radius Housing Association v JNP Architects and others [04.07.2018]
The Northern Irish High Court has decided that a net contribution clause will, unless it explicitly states otherwise, apply to all liability under an appointment, and not just negligent performance of services.
JNP was appointed by Radius as architect to design and oversee the construction of two apartment blocks. The apartments were to be constructed on a concrete platform that required waterproofing with a product called Hydroguard. Early in construction, it was discovered that the design contained an error in that it specified insufficient quantities of Hydroguard.
To avoid increasing costs, JNP developed an alternative design using a cheaper product that required more careful workmanship. JNP did not, contrary to an express requirement in the appointment, seek Radius’ consent for this change. The cheaper solution failed, and water ingress became apparent. The main cause for the failure was defective workmanship by the contractor, although inadequate supervision and inspection by JNP was a contributing factor.
With the contractor in administration, Radius sued JNP. JNP argued that the net contribution clause in its appointment (under the RIBA Standard Conditions of Engagement) meant it was only liable for its proportion of the blame. Radius argued that such a clause only applied to negligent design by JNP, and not JNP’s obligation to obtain consent for a design change. The court disagreed, holding that the parties clearly intended the net contribution clause to apply to any breach of contract.
This case serves as a good reminder to ensure that limitation of liability clauses are carefully drafted to ensure the scope is clear.
Appeal news - co-insurance provisions
Haberdashers’ Aske’s Federation Trust Ltd and others v Lakehouse Contracts and others [19.03.2018]
An appeal of a preliminary issue decision in this case, in which Kennedys represented the defendant subcontractor, is due to be heard in the Court of Appeal on 22/23 January 2019.
At first instance, the court held that a term in the sub-contract requiring the subcontractor to take out its own insurance prevented that subcontractor from claiming cover under the main contractor’s project insurance (even though that insurance expressly provided cover for subcontractors). This prevented the subcontractor from defending a subrogated claim on the basis that it was co-insured.
Kennedys is appealing that decision on behalf of the sub-contractor, and we will provide a further update following the Court of Appeal hearing.
Related item: Contract is king in co-insurance disputes