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“2018 in legal – the year of the agreement” – Rupert Choat for Building Magazine

20th Dec 2018

Rupert Choat looks back at 2018.

Originally published in Building magazine – 20 December 2018.

While one particular agreement dominated this year’s headlines, there was plenty on offer from other agreements.

The negotiation of the withdrawal agreement between the UK and the EU monopolised the news in 2018. However, it was other agreements that provided most to the world of construction law. They gave us four notable court judgments on contract law.

First, Rock vs MWB dealt with “no oral modification” clauses, which require amendments to contracts to be made in writing. It was argued that orally agreed amendments supersede such clauses, making them ineffective. The Supreme Court rejected that argument, deciding that the clauses do render orally agreed amendments invalid. A party might nevertheless, in rare cases, be prevented from relying upon such a clause if it unequivocally represents that an amendment is valid despite being orally agreed. However, something more than just the mere agreement would be needed.

Second, North Midland Building vs Cyden concerned the prevention principle. This principle usually applies where a contract fails to grant an extension of time for acts of the employer that prevent the timely completion of the works. This can result in the replacement of (1) the contractual completion date with a duty to complete within a reasonable time and (2) any liquidated damages with a right to only the losses caused by the delay which the employer proves. In Cyden the contract denied the contractor an extension of time where it was also responsible for the delay. The Court of Appeal upheld the clause, confirming that parties may contract out of the prevention principle because it only operates by way of implied terms.

Third, GPP vs Solar EPC Solutions also touched upon liquidated damages. A contract to construct a solar power plant was terminated. The court held that liquidated damages for delay continued to accrue until commissioning was completed, as stated in the contract (albeit by replacement contractors). This differs from the more usual approach, which is to treat the duties to complete by a given date and pay liquidated damages for delay as ceasing upon termination – so that the employer must prove its losses caused by the delay in completing after the termination.

Fourth, there was SSE vs Hochtief. Hochtief designed and built a hydroelectric scheme for £126m on NEC2 terms. Shortly after completion, part of a new tunnel collapsed. SSE claimed the £137m it had to spend on a bypass tunnel. It lost at first instance but this year won on appeal. A majority of the Scots Inner House Court of Session denied Hochtief the benefit of NEC2’s exclusion of liability for design defects where reasonable skill and care was used. It held that the relevant defect arose not from design but from the implementation of the design. We are unlikely to have heard the last of this distinction.

In other NEC-related news, in June the NEC4 Alliance Contract was published. Like PPC2000, it is entered into by all of the parties in an alliance and aims to incentivise collaborative working.

Another new standard form this year was the City of London Law Society’s Escrow Agreement. Like other escrow agreements, it seeks to provide payment security for contractors whose employers are unable to prove their ability to pay.

Sadly, insolvencies loomed large this year following Carillion’s collapse in January. In July, the Technology and Construction Court held (in Michael J Lonsdale vs Bresco) that companies in liquidation cannot adjudicate financial claims because of the statutory insolvency regime.

The right to adjudicate was also considered in S&T vs Grove. The Court of Appeal considered the situation where an employer fails to give a valid payment notice or pay less notice and is liable to pay the sum notified by its contractor. The court said that the employer must pay that sum before it can adjudicate for the true value of the contractor’s entitlement. In that case the employer was held to have given a valid pay less notice, despite the notice relying upon an earlier document to specify the sum due.

There was the prospect this year of new legislation on the Construction Act and retentions, but the government consultation has still not reported its results and the private members bill on retentions has repeatedly had its second reading delayed. It seems parliament was too preoccupied with Brexit.

Construction law remains unlikely to be much affected by Brexit, but if one had to point to an area that might be affected it would be the (over-)regulation of publicly procured projects.

In November, the Court of Appeal overturned a judgment from 2016 and held (in Faraday vs West Berkshire Council) that a local authority’s development agreement with St Modwen should have been put through a public procurement process. The authority had published a (voluntary transparency) notice justifying not doing so, but it failed to meet the specified requirements. As a result, the court declared the agreement to be ineffective – the first English public procurement case to do so.

It remains to be seen if the simpler and more efficient public procurement process the Local Government Association has requested will arise.

Whatever happens next year regarding Brexit, we can continue to rely upon non-EU related events to feed the development of our construction law.

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