Construction Brief: latest decisions October 2022

This article was co-authored by Tegan Johnson, Solicitor Apprentice, Sheffield and Grebin Cherian, Trainee Solicitor, London.

This update includes a round-up of recent court decisions dealing with delay damages, contractual caps on liquidated damages, remoteness of loss, and loss of chance.

Delay damages

Barkby Real Estate Developments Ltd v Cornerstone Telecommunications Infrastructure Ltd [21.07.22]

In a case considering delay damages, the court reiterates that a lack of written agreement does not preclude potentially large claims arising from delay.

Barkby Real Estate Developments Ltd (Barkby) engaged Cornerstone Telecommunications Infrastructure Ltd (Cornerstone), communications technology specialist, to move a telephone mast on a site being developed. The engagement followed two key phases: survey and design; and the physical replacement of the existing mast. There was no specific written agreement, with a contract made up from informal email exchanges.

The design and survey stage included a trial excavation of 1.2m, to establish the ground conditions that would inform the design. However, while this depth is noted as industry standard practice, it was insufficient to discover the actual conditions – the design was inappropriate for the conditions at the depth of 3m required.

There were a number of delays through Cornerstone’s works, including for this design issue, but also because Cornerstone used the mast they had ordered for this site on another project and was required to place another order for a replacement. While there were no written terms in relation to time for performance, the court found that section 14 of the Supply of Goods and Services Act 1982 implied a term that services were to be carried out within a reasonable time. Barkby (and, ultimately, the court) were left with no real explanation of why it took five months to complete the works after the ground conditions were discovered – which in turn delayed handover of the otherwise completed site.

The judge found easily based on contemporaneous evidence that Cornerstone had failed to complete its works within a reasonable time and was the cause of Barkby’s delay to handover the site. The judge went on to find that the additional project finance costs and project management costs (caused by the delay) were not too remote as alleged by Cornerstone and should be reimbursed to Barkby.

Contacts: Tegan Johnson, Helen Birchall

Contractual interpretation of LAD provisions

Buckingham Group Contracting Ltd v Peel L&P Investments and Property Ltd [15.07.22]

Buckingham Contracting Group (Buckingham) acted as contractor under an amended JCT Design & Build 2016 contract with Peel L&P Investments and Property Ltd (Peel). Buckingham brought a Part 8 claim against Peel in relation to liquidated damages (LADs) withheld by Peel for delays on the project.

The contract included the usual JCT provisions in relation to liquidated damages, alongside a number of bespoke provisions which centred on milestone dates, together with a cap on the amount of LADs that could be applied. There was also a table of LAD rates, which included two sets of rates: one set from a tender, and another negotiated (and finally agreed).

Buckingham sought declarations from the judge that either the terms in relation to LADs were void for uncertainty and/or unenforceable, or that the cap on LADs set out applied as a cap on general damages.

Uncertainty is a high bar, as the court will always try to find an interpretation that gives effect to the parties’ intentions wherever possible. While the various provisions relating to liquidated damages may not have been completely clear, the court was able to find an interpretation that worked: the bespoke provisions relating to milestones determined the LADs, and the most recent rates in the table applied (although the old rates had not been removed, they were clearly not intended to apply).

As for the cap, the court found that the language used was perfectly clear - it was only intended to apply to LADs. There was nothing within the clause suggesting that the cap applied to general damages.

This case serves as a good reminder of the importance of accurately recording the parties’ agreements using clear drafting. In the event of ambiguity, the parties lose control to the court to determine what they intended to agree – a potentially costly risk for both sides.

Contacts: Tegan Johnson, Helen Birchall

Remoteness of loss in assignment contexts

Orchard Plaza Management Company Ltd v Balfour Beatty Regional Construction Ltd [16.06.22]

Balfour Beatty Regional Construction Limited (Balfour) was pursued in relation to defective cladding on an apartment block that it had designed and constructed. The claim was brought by Orchard Plaza Management Construction Limited (Orchard), the management company who had been assigned the benefit of a collateral warranty originally issued by Balfour to the project funder.

Balfour defended the claim along multiple lines including:

1. The losses claimed were too remote.
2. The warranty was originally issued in favour of a funder and the type of loss is not one a funder would ordinarily suffer.

The court rejected these elements of Balfour’s defence, on the following bases:

• The losses were not too remote – it would have been within the contractor’s reasonable contemplation that defective cladding might cause the beneficiary of a warranty (or its assignee) to incur repair costs. Balfour knew that assignment was a possibility as the warranty specifically provided for it.
• The warranty included specific ‘no loss’ wording stating that assignees would not be precluded from recovering any loss “by reason of the fact that such person is an assignee only or … because the loss or damage suffered has been suffered by such person only and not by the original beneficiary, or because such loss is different to that which would have been suffered by the original beneficiary”. The court confirmed that this expressly closed off any remoteness arguments, stating that “different” in relation to the loss could mean losses different in kind as well as quantum, and that the third part of the clause specifically dealt with assignments to people with different roles in relation to the project.

This case should provide reassurance to beneficiaries of warranties and their assignees as to the effectiveness of the ‘no loss’ wording, which is common in collateral warranties across the industry.

Contacts: Grebin Cherian, Tegan Johnson, Helen Birchall

Loss of chance claim

Mallino Development Ltd v Essex Demolition Contractors Ltd [10.06.22]

Mallino Development Limited (Mallino) employed Essex Development Contractors Ltd (EDC) to construct a visitor attraction at Bodmin Jail under an amended JCT Standard Building Contract 2016. The contract was limited to the first two sections of the works and required Mallino to include EDC in a re-tender for the Section 3 works. In the end, Mallino appointed a different contractor for the Section 3 works, without re-tendering.

EDC adjudicated, and were awarded damages for breach of contract, including loss of profits and overheads. Mallino brought proceedings, admitting that it had breached the contract in failing to re-tender the works, but alleging EDC was not entitled to the losses claimed because even if they had re-tendered, they were entitled to terminate EDC’s original contract without compensating for such losses.

While the judge accepted that Mallino had a right to terminate, Mallino also had an obligation to re-tender the works according to the contract and to include EDC in doing so. The principle of assuming that a party will act in the way most favourable to them applies only where they have multiple options for performance, here there was a singular option: to re-tender. The judge did not agree that to terminate was an alternative option to be considered as part of that principle, as it would be Mallino “cutting off their nose to spite their face”.

On the second limb, EDC contended that the court should assume EDC would have been appointed as the contractor for the rest of the works (Mallino, of course, said the opposite). The judge noted for various reasons that, assuming EDC chose to re-tender at the same price, there was a real chance of their pitch being accepted – including a lack of viable alternative contractors, and their competitive pricing.

Finally, considering quantum, the judge broke this down into two parts: the value of the contract to EDC and the chance of it being awarded. Calculating sums for the loss of profit and overhead items, the judge reduced the final amount to reflect a two-thirds chance of EDC being reappointed had the tender taken place.

An interesting case considering a somewhat unusual point, it highlights the obvious benefit of simply complying with your contract. Had Mallino gone through the motions of retendering – even if it did not select EDC – it would have satisfied its contractual obligation and avoided costly litigation.

Contacts: Tegan Johnson, Helen Birchall

Read other items in Construction Brief - October 2022