New court ruling acts as a warning to contractors

Our own Arianne Elise King explains all to UK Construction Media 

construction

When a client (or employer) appoints a contractor to undertake building work on their behalf it is generally acknowledged that the employer will be responsible for obtaining the necessary planning permission, as well as any other consents that are relevant to the project.

On occasion, the contracts between the two parties – which are often based on standard JCT templates – will expressly state which party is to seek any such permission, so it is easy to identify where the responsibility lies. However, often there is no express term and the implication is that the employer will seek the required permissions.

A subtle but important change to the law

Earlier this year the Court of Appeal ruled on a case that made a small, yet important, change to this situation.

In the case of Clin v Walter Lilly (2018), the Court ruled that, in the absence of an express term, an implied term will be inferred to be in a building contract, whereby the employer will hold responsibility.

However, with regard to the extent of the implied term, the Court did go on to explain that this was not an absolute obligation. Rather, the employer should use ‘all due diligence’ to obtain the required consents and, in the absence of an express term to the contrary, the employer did not have an absolute obligation to secure the consent, because they could not guarantee that consent would be granted.

Clin vs Walter Lilly

To understand the significance of this ruling, it’s worth looking at the details of the case.

Clin (the employer) appointed Walter Lilly (the contractor) back in 2013. The work involved knocking together two private residences to form one single dwelling. Work commenced but stopped after the contractor received a letter from Royal Borough of Kensington and Chelsea Council – where the properties were located – stating that the works being carried out amounted to ‘significant demolition’ and, accordingly, conservation consent was required. Any attempt to continue the work could have been considered unlawful so Walter Lilly had no choice but to down tools.

The design of the scheme was subsequently changed and an application for planning permission for the revised proposal was finally granted around a year later. The contractor sought a declaration that ‘Relevant Events’ and ‘Relevant Matters’ (as defined in the contract with Clin) had occurred and therefore, it was entitled to an extension of time for 53.2 weeks and damages for the loss suffered.

Clin – a private individual – saw things differently.

He averred that he was not under an ‘absolute obligation to obtain all (or indeed any) of the contents necessary for the works to be carried out’. The contractor’s response was that, even if the employer’s obligation was limited, Clin had still failed to comply.

Fast forward to 2018, when the case was heard by the Court of Appeal. It found no justification for imposing on Clin sole responsibility for the consequences of the capricious conduct of the Council, despite the fact that Clin had failed to obtain the conservation consent in good time to avoid any delays.

What this means for contractors

Crucially, the contract between Clin and Walter Lilly was silent in reference to ‘planning permission.’ As such, the Court considered that both parties were responsible and that neither should benefit by way of a claim for loss of time or damages. This was quite a blow to Walter Lilly, who appear to have presumed it would be granted an extension to complete the works, as well as damages for the losses incurred during the postponement.

The key takeaway for other contractors is that – in order to avoid unnecessary exposure to risk – make sure that the responsibility of securing planning permission is expressly stated within the construction contract.

Indeed, terms should expressly state that the employer is responsible for obtaining all relevant consent and permissions within the project. Beyond that, contracts should also include an express entitlement to recover damages in the event that planning permission is delayed (by way of an absolute obligation).

It pays to be especially clear when it comes to seeking consents from third parties. Contractors are advised to include express terms which allocate risk should consent from a council or other third party fail to be obtained or simply be rejected. Terms should even go as far as stating who is responsible to appeal decisions and in what circumstances.

Finally, this decision also acts as a reminder to assess and explore the realms of responsibility which may be implied within contracts. Walter Lilly found out the hard way that failing to properly understand your responsibilities and liabilities can end in lengthy and costly court proceedings.

 

Email aking@costiganking.com