recent case law developments - 2014 olswang construction law conference

2014 Construction Law Conference: Case Law Developments over 2013 Thursday, 6 February 2014

Kathryn Noble, Associate [email protected] | +44 20 7067 3343

Today’s cases

DAMAGES/REMOTENESS OF LOSS

John Grimes Partnership Limited v Gubbins

[2013] EWCA Civ 37

IS A COLLATERAL WARRANTY A CONSTRUCTION CONTRACT?

Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited

[2013] EWHC 2665

DELAYED COMPLETION / BREACH OF SALE AGREEMENT

Urban I (Blonk Street) Limited v Simon Martin Ayres and Nicola Jane Ayres

[2013] EWCA Civ 816

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The case is about:

Developer’s recoverability of a loss in rental value following late completion of a construction project due to delays caused by a consultant

Principle:

Court of Appeal decision: Engineer was held to be liable for damages having caused a delay in the completion of a development. By the time of completion, there had been a drop in the market value of the property and the developer loss suffered because the property was less valuable than if the development had been completed on schedule.

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John Grimes Partnership v Gubbins

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What was agreed:

Mr Gubbins: Land Developer

John Grimes Partnership Limited (JGP): engineering and geological services

Proposed development: development of field for residential purposes (“affordable dwellings”) - included a road to access the dwellings. The design of the road required the county council’s approval as it was intended to be adopted by the highway authority

JGP instructed by Mr Gubbins to design road and drainage for the site and obtain the council’s approval

Express oral agreement that the works should be completed by March 2007

Parties originally agreed fees of £15,000 to be paid to JGP for the above works



What actually happened:

The work remained incomplete at March 2007. An initial part-approval was obtained in February 2008

April 2008: Mr Gubbins engaged Joint Technical Partnership Limited (JTPL) to carry out the work that JGP should have completed

June 2008: JTPL redesigned the road and drainage layout and submitted it for council approval, which was provided on 18 June 2008

JGP had received c.£20,000 in fees but issued an invoice for £2,893 and commenced proceedings following Mr Gubbins’ refusal to pay



Mr Gubbins’ counterclaim:

= for sums previously paid to JGP + damages for JGP’s failure to complete on time

Damages for:

(i) reduction in market value of the residential dwellings;

(ii) reduction in offer from Housing Association; and

(iii) increase in building costs.

First Instance decision:

Delay was caused by JGP’s breach of contract and this resulted in loss to Mr Gubbins. This loss was reasonably foreseeable to JGP and JGP was “responsible for loss flowing from the property market decline”



Court of Appeal’s decision:

Upheld the first instance decision: JGP liable for damages for losses caused by its breach of contract and which arose in the context of the decline in property values

Mr Grimes’ losses were not too remote and CA considered there was an implied responsibility on the parties for reasonably foreseeable losses

CA agreed with Trial Judge that losses arising from movement in the property market were reasonably foreseeable at the time of contract as a consequence of delay by JGP

JGP’s delay of 15 months gave rise to a quantifiable loss over a prolonged period of time

Mr Gubbin’s scale of loss was not disproportionate to the £15,000 fee payable to JGP



Practical considerations in light of this case:

•  Considered exclusion/limitation clauses to expressly exclude liability for particular circumstances or specified events?

•  Demonstrate not responsible for particular types of losses?

•  Losses within the consultant’s control?

•  Losses suffered over a prolonged period of time

•  Increase in claims for damages where property values fall?



The case is about:

Mr Justice Akenhead: “In what circumstances a collateral warranty can amount to a construction contract for the carrying out of construction operations” for the purposes of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act)

“Construction Contract” under the Construction Act = subject to statutory adjudication rules!

Principle:

Surprise result: The collateral warranty in this case was deemed a contract for the carrying out of construction operations and therefore fell within the Construction Act


Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited The facts:

April 2006: Laing O’Rourke Wales and West Limited entered into a contract as contractor to design and build a swimming and leisure facility in Cardiff

Around April 2006: Parkwood entered into an Agreement for Lease for the facility

December 2007: Laing O’Rourke entered into a deed of warranty in favour of Parkwood

January 2008: Parkwood Leisure Limited took a ten year lease of the property

Practical Completion was achieved in 2008

Parkwood took occupation and various Construction and commissioning defects were complained of once the facility had been opened to the public

Parkwood issued a Pre-Action Protocol Letter of Claim in February 2011


Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited What the Court considered:

Parkwood sought a declaration that the collateral warranty fell within the remit of the Construction Act for the purpose of bringing adjudication proceedings against Laing

The wording of the collateral warranty:

Laing “warrants, acknowledges and undertakes that it has carried out and shall carry out and complete the Works in accordance with the Contract..”

Did the warranty amount to the carrying out of “construction operations”?



Court’s decision:

The collateral warranty was a contract for the carrying out of construction operations and therefore was a Construction Contract for the purposes of the Construction Act

•  Warranty recognised works were yet to be completed under the contract

•  Warranty expressly related to the design, carrying out and completion of the construction of a pool development

•  Warranty was not “merely warranting or guaranteeing a past state of affairs”

BUT…


Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited Not all collateral warranties are construction contracts:

Court’s relevant factors include:

•  Wording of the document and factual background

•  Is the contractor “undertaking to the beneficiary of the warranty to carry out operations”?

•  Have “all the works completed and the contractor simply warranting a past state of affairs as reaching a certain level, quality or standard”?


Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited Practical considerations in light of this case:

•  Third Party Rights v collateral warranties

•  Not all collateral warranties are construction contracts

•  Timing of warranties

•  Increase in claims under collateral warranties being referred to adjudication

•  What about payment/suspension rights that are implied into a Construction Contract?

•  Limitation of warranties entered into?

•  NB the position on settlement agreements


Urban I (Blonk Street) Limited v Simon Martin Ayres & Nicola Jane Ayres

The case is about:

The consequences of time being (or not being) of the essence in contracts for sale of land (particularly where a purchase is mortgage funded)

Notices to complete in circumstances where there has been delay in complying with the terms of the contract for sale

Principle:

The delay in completing a new build apartment caused by the developer did not entitle the buyer to terminate the agreement between the parties as the buyer was not substantially deprived of the whole benefit of the contract for the lease of the apartment.



The contract:

25 January 2007: Contract between Urban I (Developer) and Mr & Mrs Ayres for the purchase of the leasehold of a flat in a mixed commercial and residential development in Blonk Street, Sheffield

The contract did not specify a fixed completion date but did provide that the Developer would issue to the buyers a written notice once the development had completed

Contract provided that a Notice to Complete may be issued by either party at any time after the completion date and the contract would be completed within ten working days of the notice. The contract added: “For this purpose, time is of the essence”

Developer was obliged to take all reasonable steps to prevent any delay arising



What happened:

The Developer aimed to start the development on 26 February 2007 and complete in December 2008

The development started late (March 2007) and quickly fell further behind schedule after a series of delays

June 2008: Mr & Mrs Ayres were advised that completion would be in December 2008

September 2008: Mr & Mrs Ayres received a mortgage offer of 90% of the purchase price of the flat (subject to conditions - the mortgage had to be commenced by 31 December 2008)

October 2008: Buyers were advised that the flat would be completed in February 2009

November/December 2008: Mr & Mrs Ayres lost their 90% mortgage offer



What happened next:

January/February 2009: on-going delays with the development but the Developer thought it may be finished by May 2009

March 2009: Mr & Mrs Ayres terminated the contract on grounds of unreasonable delay and stated:

•  there had been breach of an implied term that the completion would take place within a reasonable time

•  the anticipated completion date had been December 2008

•  they had lost their 90% mortgage offer and the decline in property values resulted in them not being able to obtain another like product

•  the Developer was in repudiatory breach of the contract and they requested repayment of their deposit plus interest

July 2009: the development completed and the Developer served a notice to complete in September 2009


Urban I (Blonk Street) Limited v Simon Martin Ayres & Nicola Jane Ayres The Claim:

August 2011: The Developer issued a claim for specific performance of the contract and/or damages for late completion, interest and costs.

August 2011: Mr & Mrs Ayres served a Defence that the Developer had repudiated the contract and that they had successfully terminated. They served a counterclaim for their reservation fee/deposit, plus other costs (including legal fees).

First Instance decision:

It was implied that the development would be completed within a reasonable time

The delays to the development overall amounted to a repudiation of the contract and Mr & Mrs Ayres were entitled to refuse to complete having been served with the notice to complete by the Developer in September 2009


Urban I (Blonk Street) Limited v Simon Martin Ayres & Nicola Jane Ayres Court of Appeal:

Agreed with the First Instance trial that it was an implied term that completion of the development and the contract was to be within a reasonable time. What is reasonable? “A mixed question of fact and law”…

Allowed the Developer’s appeal = a “severe disappointment” to Mr & Mrs Ayres

•  The Developer’s breach of contract did not cause Mr & Mrs Ayres’ unfortunate financial position

•  The contract did not have a fixed long-stop date for construction of their apartment

•  Contract did not expressly provide for the buyers to cancel the contract if the building was not handed over by a specified date

•  The delay did not cause Mr & Mrs Ayres to lose substantially the whole benefit of the contract.



Practical considerations in light of this case:

•  Buyers’ risks where financing a purchase by way of mortgage

•  Consideration of what is a reasonable time for completion of construction where the contract does not specify a date for completion

•  Meaning of substantially depriving a party of the whole of the benefit of a contract

•  Provisions relating to timing in contracts

•  When a repudiatory breach will be considered to have occurred


recent case law developments - 2014 olswang construction law conference

Real Estate

mr gubbins refusal

west limited

construction operations

time of contract

construction project

jgp liable

jgp jgps delay

developer loss