Legal Lowdown Construction Cases February 2023
Welcome to the Legal Lowdown article, where we continue our newsletter’s tradition of providing in-depth and comprehensive legal case summaries in the construction sector. This article serves as a platform to deliver even more valuable insights and analysis of cases that impact the construction industry. As legal experts in the field, we recognize the importance of staying up-to-date on the latest legal trends and developments that affect our clients. We aim to create informative and educational content that will help you navigate the complex landscape of construction law. Whether you are a contractor, engineer, architect, or legal professional, our newsletter is your go-to source for the latest legal insights in the construction sector. Our construction newsletter has been written and reviewed by one of our construction legal experts, Dr Julian Critchlow who has over 38 years' of expertise in the industry.
Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd and Others [2022] EWHC 3275 (TCC)
Breach of contract
Where one party is in breach of contract, the innocent party does not usually have an implied entitlement to suspend its own performance. It might be entitled to terminate the contract or, for certain serious breaches, to treat the contract as repudiated; and it might be entitled to damages. Suspending performance may itself constitute a repudiatory breach. However, construction contracts within the meaning of the Housing Grant Construction and Regeneration Act 1996 will entitle a contractor, in certain circumstances, to suspend performance provided it has given the necessary notice.
Endcape Ltd v Musgrave Generators Ltd 2022] EWHC 2972 (ch)
Essentials for a binding contract
The Defendant’s Counsel outlined the following principles for the formation of an effective contract. Although not relied upon by the Judge in the judgment, they appear to be uncontroversial:
1. if the parties reach an agreement on essential matters of principle but leave important points unsettled so that their agreement is incomplete, it is not binding;
2. where parties have agreed simply to negotiate, that is not a binding contract because it is too uncertain;
3. where an agreement fails to satisfy the requirements of certainty, that defect cannot be cured by implying a term that the parties must continue to negotiate in good faith; and
4. where parties leave unresolved an essential matter of an agreement, such as the length of an extended option period, on the basis that the parties would remain free to agree or disagree about that matter later [as in Morris v Swinton Care and Community Ltd [2018] EWCA Civ 2763], there was no bargain which the court could enforce.
Manor Co-Living Ltd v RY Construction Ltd [2022] EWHC 2715 (TCC)
Adjudication – jurisdiction - natural justice
This case confirmed the well-established principle that an adjudicator will breach natural justice, and the purported decision may be a nullity, if a fundamental issue advanced by the respondent is not considered.
It is possible to limit the scope of an adjudication but not to suppress a potential defence to it.
Thomas Barnes & Sons plc (in administration) v Blackburn with Darwen Borough Council [2022] EWHC 2598 (TCC)
A termination notice must be served strictly in the manner provided for by the contract. If service at the other party’s registered office is demanded, service at site is invalid – even if it can be shown that the notice reached the recipient. Seeking to terminate employment under a contract without substantive good cause is likely itself to be a repudiatory breach entitling the other party to bring future performance to an end. Whether service of a termination notice itself amounts to a repudiatory breach where that notice is only technically faulty (e.g. as here, served to the wrong address) depends on the circumstances.
The principle was accepted that where there is concurrent delay, a contractor is probably entitled to an extension of time but may well not recover loss and expense, even if the employer’s delay was the dominant cause.
Breakshore Ltd v Red key Concepts Ltd (Unreported)
Adjudication – enforcement – defence by Part 8 Application
The general legal principle is that there is no defence to a valid adjudicator’s decision even if it is wrong as to the substance of the dispute. In certain circumstances, a respondent can nevertheless challenge enforcement by issuing “Part 8” proceedings in Court where there is a clear cut issue indicating that the adjudicator was obviously wrong.
Pickett v Balkind [2022] EWHC 2226 (TCC)
Expert evidence – lawyer’s contribution to joint experts’ reports Waiver of privilege
Where experts are involved, the Court will usually order them to produce a joint report setting out what is agreed and what is disputed. Here, Picket’s solicitors made an application to the Court which inadvertently included a privileged letter written to them by their expert. That letter indicated that the solicitors might have seriously breached the Court Rules by making suggestions/requests to the expert as to what the joint report should contain. It was held that that potential for serious breach divested the letter of its privileged nature and it could be referred to by Balkind in the proceedings.
Cabo Concepts Ltd v (1) MGA Entertainment (UK) Ltd (2) MGA Entertainment Inc [2022] EWHC 2024 (Pat)
Litigation - Disclosure of documents
At the disclosure stage of proceedings, MGA failed to disclose about 84,000 documents. This was a consequence of error by their Solicitors which did not have the experience or knowledge of information technology necessary for the e-disclosure exercise and whose IT team was not properly supervised. The consequence was that the trial of the action had to be adjourned (at considerable cost). The Court held that not only did MGA have to pay Cabo’s costs, but had to do so on the Indemnity Basis (rather than the usual Standard Basis). That was because the solicitors’ failure was unreasonable and out of the norm. This meant that Cabo would receive a sum much closer to its actual costs than would normally be allowed.
Abbey Healthcare (Mill hill) Ltd v Simply Construct (UK) LLP [2022] EWCA Civ 823
Collateral warranties – adjudication
A collateral warranty is capable of constituting a construction contract for the purposes of the Housing Grants Construction and Regeneration Act 1996, and therefore being the subject of an adjudication; but only if it refers to “future-facing obligations” and does not constitute a mere warranty relating to a “past and static state of affairs”.
Angela Denise Curtiss and Others v (1) Zurich Insurance plc and (2) East West Insurance Company Ltd [2022] EWHC 1514 (TCC)
The Court’s Practice Directions (PD57AC) nowadays contain highly prescriptive rules as to what may be included in witness statements intended to stand as evidence in chief at trial. Amongst other things, they must, so far as possible, be in the witness’s own words, contain only fact within the witness’s own knowledge, should not contain matters of opinion or argument, the witness should not be led by the person taking the statement (usually the relevant party’s solicitor), the statement should not refer to more documents than is necessary, and it should be strictly relevant to the dispute.
In this case, the Claimants served Witness Statements which failed to comply with the Practice Direction. On application by the Defendants, some of them were struck out entirely by the Court and others partially. Nevertheless, the Defendants were ordered to pay 70% of the Claimant’s costs and on the Indemnity Basis (more generous than the usual Standard Basis). That was because the application to strike out was inappropriate and unjustified. The Claimant’s errors were not so bad as to take the case “outside the norm” and could have been dealt with at trial. In assessing how to respond to failure to comply with the Practice Direction, a party must employ common sense and have regard to proportionality. Applications for sanction for breach “should not be used as a weapon for the purpose of battering the opposition”.
AM Construction Ltd v The Darul Amaan Trust [EWHC1478] (TCC)
Adjudication Service of Adjudication Notice. Payment required before commencing a true value adjudication
DAT sought to commence an adjudication. A process server pushed an envelope purporting to contain the Adjudication Notice through the letterbox of AMC. AMC asserted that the Notice was not, in fact, enclosed. After considering the evidence, that defence was accepted by the Court and the purported adjudication held to be invalid.
The case also reconfirmed that where a valid application for payment is served (referable to a construction contract), and no pay less notice is served in response, the amount applied for must be paid by the paying party before it is entitled to commence its own adjudication to determine the true value of work carried out.
Richards and Another v Speechly Bircham and Another [2022] EWHC 1512
Mediation – failure to mediate
In this case the Judge decided that the First Defendant had wrongfully refused to mediate as it had sought to place the condition on mediation that it occurred after the disclosure of documents stage. That refusal had a attracted a potential costs sanction but was only one aspect of the parties’ conduct to be considered.
This case highlights the importance of ensuring quality advice is given to prevent disputes and losses.
Coldunell Ltd v Hotel Management International Ltd [2022] EWHC 1290 (TCC)
Expert evidence
In a claim for dilapidations relating to a lease, the Court decided that it was unobjectionable, in the context of this case, for an individual to give both factual and expert evidence. The opposing expert was criticised for partiality, advocating the Defendant’s position and even referring to it as “our case”, and the Judge placed no reliance on his evidence.
Bexheat Ltd v Essex Services group Ltd [EWHC 936 (TCC)
Adjudication – jurisdiction; set-off; true value claim
Bexheat Ltd v Essex Services group Ltd [EWHC 936 (TCC)] is a case about a dispute between a contractor and a subcontractor over the payment for works done on a construction project. The key issue in the case was whether the subcontractor had validly submitted an application for payment and whether the contractor had validly issued a payment notice in response.
The court held that the subcontractor's application for payment was valid, and that the contractor's payment notice was invalid. As a result, the contractor was ordered to pay the subcontractor the amount claimed in the application for payment.
The case has had a significant impact on the construction industry, as it highlights the importance of complying with the procedural requirements of the Construction Act 1996. It also demonstrates the consequences of failing to issue valid payment notices, which can result in a significant financial liability for the contractor. The case serves as a reminder for parties to construction contracts to ensure that they comply with the relevant statutory requirements when it comes to payment and dispute resolution.
For bespoke contentious construction advice, email Julian Critchlow at jcritchlow@costignaking.com