ceca caselaw

clear practical advice

Caselaw Update

CECA

Stephen McLellanFebruary 2013

Stephen McLellan

Solicitor

Construction and Engineering

Watson Burton LLP

Telephone: 0845 901 0936

Email: [email protected]

Topics

• Extensions of time, concurrent delay and global claims • Ownership of Assets• Payment and Delays• Professional Advice• Enforcement of Adjudicator’s Decision• Terminology in Contracts

Extension of Time, Concurrent Delay and Global Claims

Walter Lilly and Co Ltd v Giles Patrick Cyril Mackay, DMW Developments Ltd [2012] EWHC 1773

The Facts

• Walter Lilly was employed by DMW to build 3 adjoining houses in London

• DMW was a purpose designed company set up for the acquisition of the land on which the houses were to be built

• Mr Mackay was to occupy one of the houses

The Facts (…cont)

• There were a number of problems from the outset– Little of the design had been completed

– All the building works were subject to provisional sums

– The drawings and specification contained very little detail

– Overall, there were significant delays in making design decisions

The Facts (…cont)

• The original completion date was January 2006

• Extensions of time were granted up to February 2007

• Practical completion was achieved in July 2008

• Walter Lilly issued proceedings against DMW seeking various payments and an extension of time until PC

The Decision

• Walter Lilly was awarded £2.3m, which included:– prolongation costs– a sum for delay-related loss of overheads and profit– a sum for delay and disruption submitted by Walter

Lilly’s subcontractors• Mr Justice Akenhead:

– “The court or arbitrator must decide on a balance of probabilities what delay has actually been caused by such Relevant Events as have been found to exist”

The Decision (…cont)

• “Where there is an extension of time and where the delay is caused by two or more effective causes, one which entitles the contractor to an extension of time as being a Relevant Event, the contractor is entitled to a full extension of time”


• Walter Lilly was entitled to a full extension of time up to PC, as it had no responsibility for the delays

• The correct approach when analysing delay is as follows: – what critically delayed the works?– identify the longest sequence of outstanding works– it is not necessarily the last item of work that causes

the delay


Prolongation Costs

• The architect/QS has to be satisfied that all or some of the loss and expense claimed was likely to have occurred or had in fact occurred - they did not have to be certain

• Walter Lilly’s claim was not ‘global’: it had sought to identify specific additional resource, linked to the events relied upon

The Decision (…cont) Seven propositions concerning global claims:

1. The contractor must prove that loss or delay has arisen and demonstrate on the balance of probabilities:

• events occurred entitling it to loss and expense;

• those events caused delay and disruption; and

• the delay and disruption caused it to incur loss and/or expense

Contractual restrictions?


2. Contractors can prove their entitlement with whatever evidence will satisfy the requisite burden of proof

3. Are there conditions precedent which must be complied with? If satisfied, then loss and/or expense can be ascertained by appropriate assessments


4. Evidential difficulties: the contractor has to show on a balance of probabilities that the loss would not have been incurred in any event

5. If a series of factors caused or contributed to the total or global loss, this does not mean the contractor can recover nothing - it depends on the impact of those events or factors

6. Global claims will be viewed more sceptically where actual loss attributed to individual events can be readily determined


7. It is not correct that a global claim should be disallowed where the contractor has itself created the impossibility of disentanglement

Lessons to be Learnt

• You need to review the contract to see what rights and obligations you have regarding extensions of time and concurrent delays

• You will need to prove what caused the delay on a balance of probabilities

• If there is at least one ‘Relevant Event’ in a chain of concurrent delays then an extension of time may be granted


• Record keeping is very important (site diaries, timesheets, invoices etc.) when claiming losses

• There is no prescribed method for submitting global claims, although the contractor must evidence loss and entitlement

• If the global claim includes a contractor risk event, then the loss attributable to that event will be omitted from the claim

Ownership of Materials

• Alstom Power Ltd v Somi Impianti Srl [2012] EWHC 2644 (TCC)

The Facts

• Alstom sought a declaration against Somi as to ownership of certain assets

• Alstom was the main contractor employed to construct a power plant and sub-contracted the mechanical and plant piping installation to Somi

• Clause 54.2 provided that all of Somi’s equipment when on site was ‘deemed to be’ Alstom’s property

The Facts (…cont)

• Clause 54.9 stated goods supplied to site pursuant to the sub-contract ‘would become’ Alstom’s property

• Clause 63.2 stated that in the event of termination, Alstom could take possession of such equipment on the site reasonably required to complete the work

• Clause 63.3 enabled Alstom to sell such equipment and use the proceeds to satisfy any debt if the sub-contract was terminated

The Facts (…cont)

• The main works had been handed over to Alstom’s employer but the warranty period had not ended

• Alstom terminated Somi’s sub-contract for failure to perform its duties and issued proceedings. It was awarded summary judgement against Somi for £5.3M

• Alstom subsequently sought a declaration that Somi’s equipment on site was deemed to be Alstom’s property and so Somi could not remove it

The Decision

• Whether property is transferred depends on the construction and interpretation of the contract

• ‘Deemed to be’ the property of one party – need to look at other terms of the contract

• There was a marked difference between ‘deemed to be’ the property of the contractor in clause 54.2 and ‘becoming’ the property of the contractor in 54.9

• The property was deemed to be the contractor’s whilst on site but not before or after


• There was no commercial reason why it was necessary to deem permanent ownership to be transferred to the contractor

• Clause 63.2 only applied to the extent the equipment was necessary to facilitate completion of the works

• Clause 63.3 only applied if there was a debt to satisfy

• There was no argument at the summary judgment application about the permanent or temporary ownership of goods in clause 54.2

The Decision• Alstom had contractual rights over Somi’s equipment

and Somi had no right to remove them• As Alstom’s termination was valid, it had possessory

rights over Somi’s equipment until the works were completed at the end of the warranty period (not just until PC)

• Alstom had a right to sell Somi’s equipment, subject to the requirements of clause 63.3 being met

• Ultimately, propriety ownership would not permanently transfer to Alstom


• Make sure you understand these terms when entering into a contract – not always straight forward

• You have to look at all the terms of the contract as a whole

• A right to sell equipment could be valuable to contractors where its value can be considerable, particularly in cases where a sub-contractor goes insolvent

Payment and Delays

• Cleveland Bridge UK v Severfield-Rowen Structures Ltd [2012] 3652

The Facts• This case involves works to the Shard in London

• Severfield was employed for the steel contract and it sub-contracted the fabrication and supply of steelwork to Cleveland on the first 9 levels

• The main issues concerned delays caused by Cleveland and the impact of these delays on Severfield’s progress over the next 31 levels of steelwork

• Cleveland blamed a number of factors for the delay, including an overload of work. Severfield attempted to make up the delay and employed 2 additional subcontractors to accelerate the works

• The acceleration works failed to make up the delay and the main contractor, Mace, argued the main contract was being delayed by the late installation of the steelwork

The Facts (…cont)

• Severfield declined to make any further payments to Cleveland

• Cleveland issued a claim for £1.2M plus VAT and loss and damages of £908k

• Severfield admitted £825k of the outstanding monies but said these were subject to set-off

• Severfield claimed there were defects in Cleveland’s steel works, and claimed £2.5M in damages

The Decision

• Cleveland was entitled to £928K plus VAT from Severfield by way of sums due under the sub-contract

• £824k in damages for delays and defects was awarded to Severfield

• Cleveland’s claim for extensions of time and variations was rejected


• Cleveland had taken on ‘more work than it had the capacity to deal with’, and had sub-contracted out the work too late so that delay was caused in the critical phase of the works

• The Court criticised the lack of evidence which Cleveland put forward to support its claim for an extension of time and variations


• Make sure you have sufficient capacity and plan projects thoroughly

• If sums are due and owing to a sub-contractor then these should be paid (unless you have a valid set off clause)

• Keep records of any delay, disruption or defects

Professional Advice

• Middle Level Commissioners v Atkins Ltd [EWHC] 2884 (TCC)

The Facts

• MLC was a drainage authority that claimed for professional negligence against Atkins

• Atkins was appointed to explore options for upgrading a water pumping station, or building a new one, and engaged in consultation with local residents and planning authorities

• The local planning authority indicated that the development did not need planning permission as it was a ‘permitted development’

• Atkins advised that planning permission was not necessary, and advised against obtaining a certificate of lawful use

The Facts (…cont)

• Local residents subsequently objected to a temporary access road required by MLC and issued proceedings for judicial review of MLC’s decision to proceed, on grounds including lack of planning permission for the development

• MLC alleged that Atkins had been negligent in advising that the pumping station works were a permitted development and that it was unnecessary to obtain a certificate of lawful use

The Decision

• There was no negligence by Atkins• The test in a negligence claim involves asking what advice would

a ‘reasonably well informed and competent member of the profession have given’

• The legislation supported the view that planning permission was not required and the pumping station was a permitted development

• Atkins was entitled to take account of the planning authority’s view that planning permission was not required, and also the fact that there had been no objections during the consultation period


• Atkins had raised the option of seeking a certificate of lawful use and had stated that the issue of the permitted development was open to interpretation

• It had correctly advised that MLC could obtain retrospective planning permission if the local authority changed its mind as to the permitted development status of the works

• It was reasonable for Atkins not to have anticipated the potential for judicial review, having been through a proper consultation


• The burden of proof is high when considering claims against professionals

• An objective test must be applied when assessing the adequacy of advice given

• The decision gives some comfort to professionals in terms of what they are expected to foresee when giving advice

Enforcement of an Adjudicator’s Decision

• Beck Interiors Ltd v Classic Decorative Finishing Ltd EWHC 1956 (TCC)

The Facts• Beck sought to enforce an adjudicator's decision against CDF

• CDF sought to set off against that decision sums it claimed were due under a separate contract

• Beck had engaged CDF to carry out works at a property in London

• Following a dispute, the matter was referred to adjudication

• The adjudicator found that Beck was entitled to the sum of £43k

• This sum was not paid by CDF; instead it raised a defence alleging the sum was not due because Beck owed it around the same amount under another contract

The Decision

• Judgment was given in favour of Beck

• It is very rare for a court to permit an unsuccessful party in an adjudication to set off another claim against the sum awarded

• Any sums awarded by an adjudicator should be paid in accordance with the decision, which the courts will enforce

• There are 2 exceptions:

– where the set-off provisions in the contract were capable of being construed as giving the unsuccessful party the right to make such a set-off

– where the adjudicator does not order immediate payment


• There was no express set-off clause in the contract

• The adjudicator had ordered immediate payment

• The right of equitable set off needs to be considered:

– can only be permitted where the cross claim was so closely connected with the claim that it would be unjust to allow the claim without taking it into account

• There was no connection between the 2 contracts other than them being between the same parties


• Comply with an adjudication award

• Set-off will only be permitted in very limited circumstances

• If an equitable set-off is to be relied on, the relevant contracts must be very closely connected

Terminology in Contracts – ‘reasonable endeavours’ and ‘with due diligence’

• Ampurius NU Homes Holdings Ltd v Telford Homes (Creekside) Ltd [2012] EWHC 1280 (Ch)

The Facts

• Telford was engaged in constructing a mixed residential and commercial development

• Telford was to construct the development and grant Ampurius a series of long leases of the ground and first floor commercial units in each of the 4 blocks

• 2 of the blocks were to be completed before the other two with ‘Target Completion Dates’ 7 months apart

The Facts (…cont)

• Clause 2.3 of the contract stated Telford would ‘ensure that the works were carried out with due diligence’

• Clause 2.4 stated that Telford would ‘use its reasonable endeavours to procure completion of the…works by the Target Date or as soon as reasonably possible thereafter’

The Facts (…cont)

• Telford encountered difficulties in obtaining financing for the project

• It stopped work in June 2009

• In November 2009 Telford demanded monies due under the contract, but Ampurius asserted that Telford was in repudiatory breach of clauses 2.3 and 2.4

• Ampurius took part in negotiations with Telford with a view to the works being resumed, but terminated Telford’s contract in October 2010 just after they resumed work

The Facts (…cont)

• Ampurius alleged breach of contract for the cessation of works

• Telford argued the contractual requirement of due diligence meant due care not due expedition because there was already a separate time obligation

• Telford argued that it had used all reasonable endeavours to obtain funding and so had discharged its obligations in terms of time

The Decision

• The court rejected Telford’s arguments• Due diligence meant more than doing the work carefully,

and connotes both due care and due expedition• Halting construction was not exercising due diligence on

Telford’s part, placing it in breach of contract• The obligation to use reasonable endeavors covers matters

that relate directly to the physical conduct of the works and not reasons such as having insufficient financial resources


• The obligations were neither conditions nor warranties but innominate terms, so whether or not there was a repudiation turned on the nature of the breach

• As the works had been halted for a year, there was no possibility of meeting the target date so the delay was sufficient for it to be repudiatory


• As to whether Ampurius had left it too late to claim repudiation and thereby terminate the contract:– the court held Ampurius had not affirmed the contract by

undertaking negotiations as to whether Telford resumed the works

– it was entitled to take time to decide whether to accept the repudiation and could take part in without prejudice negotiations


• Reference to obligations of ‘due diligence’ includes care and time

• ‘Reasonable endeavours’ cannot be excluded by lack of funding

• Care has to be taken when treating a breach of contract as a repudiation

• A party is entitled to take time considering its options before accepting another’s repudiation

clear practical advice

Caselaw Update

CECA

Stephen McLellanFebruary 2013

ceca caselaw

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