The Construction Index Law News The Construction Index - Latest Law News http://www.theconstructionindex.co.uk/public/v2/img/logo.gif The Construction Index Law News http://www.theconstructionindex.co.uk/public/v2/img/logo.gif Thu, 17 Apr 2014 16:40:07 +0100 Zend_Feed_Writer 1.12.3 (http://framework.zend.com) http://www.theconstructionindex.co.uk/news 2014 The Construction Index Contractors fear implications of holiday pay ruling Civil engineering contractors are warning that they may have to shed hundreds of jobs or even close down altogether after a European Court ruling on holiday pay.]]> Thu, 27 Mar 2014 10:50:25 +0000 http://www.theconstructionindex.co.uk/news/view/contractors-fear-holiday-pay-law-implications http://www.theconstructionindex.co.uk/news/view/contractors-fear-holiday-pay-law-implications

Civil engineering contractors are warning that they may have to shed hundreds of jobs or even close down altogether after a European Court ruling on holiday pay.

The Civil Engineering Contractors’ Association (North East) has warned of a “holiday pay Armageddon”. It has called in employment lawyers to interpret messages from judges’ findings in wake of the EU’s Working Time Directive and the UK’s Working Time Regulations.

Accepted practice over many years is that holiday pay is calculated on the basis of basic hours multiplied by the basic rate of pay. But a recent hearing in the European Court of Justice held that, under EU law, workers taking statutory holiday are entitled to receive, besides basic salary, pay "intrinsically linked to  performance of the tasks" they must do under their contracts. For a worker on fixed hours and one basic rate this is not difficult.

Confusion arises, however, where an individual works different hours each day or week depending on workload, thereby earning variable payments of overtime.

At another hearing the judge has held that, in light of the EU law, overtime should be included when calculating holiday pay under the Working Time Regulations (the UK legislation) – even where the worker's overtime was voluntary.

Douglas Kell, director of (CECA North East) says: “In our industries, where workloads are so variable and where weather conditions, for example, have such a direct effect, overtime is an essential part of our business.

“The new interpretation of the law will mean each employee has a unique rate of holiday pay for each and every week of holiday, based upon their own average earnings for the previous 12 weeks.  This has obvious implications for the cost of administering a payroll, and by the way the law works it opens employers up to claims for additional holiday pay backdated for six years.

“A number of our member firms in the North East fear the consequences.  One has estimated it could face having to pay out almost £1.5m in cash.  At the very least, this would seriously damage the company’s credit rating and would, more than likely, head to insolvency and the loss of all jobs.  I’ve never known legislation with such catastrophic impacts in all my 35 years in the industry.”

Lawyers from law firm Robert Muckle in Newcastle agreed that employers were in an “unsatisfactory state of limbo presently”, with different businesses already taking different interim action in response.

Partner Paul Johnstone said after a briefing to CECA (NE) members at Birtley: “This particular industry’s concerns are understandable. If the decision reached in one case is ratified, hourly paid workers will have a valid claim where holiday pay they receive doesn’t accurately reflect the full amount they’d normally receive at work. In many cases backdated claims could follow which many companies will simply not be able to afford.”

The situation may become clearer when an employment appeal tribunal on 10th April is scheduled to reconsider one of the cases.

Mr Johnstone says a scenario could be created whereby every time an employee wants a holiday it will be necessary to calculate their average weekly pay in the 12 weeks immediately before they go off.

He added: “This could put a difficult burden on a payroll team who may then have to calculate each individual’s holiday pay entitlement based on a new set of figures every time a calculation has to be made.”

One possibility, he suggests, might be to strike a deal with workers affected. Employers could perhaps agree an amended method of calculating holiday pay in exchange for the workers waiving their right to bring claims for any ‘historical’ unlawful deductions of wages/breach of contract.

But he warns: “Employees can bring such claims to an employment tribunal, or may elect to bring them in the county court. This would allow a longer time limit – six years - for bringing the claims.

“If claims are brought at the tribunal, and judgments and orders are made for payment of substantial sums that firms simply cannot pay, that will mean those firms are effectively insolvent.  It may result in some companies going bust, and many jobs being lost.”

Mr Johnstone is advising all employers with hourly paid employees to lobby their MPs about the cost threat. “The employers face significant risk that (unbeknown to them) some cases will be going through the tribunal system that could bring a very significant and substantial financial liability ‘out of the blue’. This in turn would give employees an incentive to claim potentially significant sums of backdated holiday pay,” he said.

Efforts by the industries to get further advice from government and Acas sources have proved unsatisfactory, Mr Kell says. The CBI is being approached now and the Construction Industry Joint Council’s employment secretary is reportedly raising the matter with unions in the hope employers and employees can agree a solution that meets the legal stipulations.

Mr Kell added: "We are also advising the regional office of the Department of Business Innovation & Skills about the potential cost to employers in the North East, and the subsequent reductions in their workforce".                                                                            

 

 

 

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Court rules on anti-assignment clauses Ben Preece of Gregg Latchams LLP reports on Stopjoin Projects Ltd v Balfour Beatty Engineering Services.]]> Fri, 21 Mar 2014 14:03:42 +0000 http://www.theconstructionindex.co.uk/news/view/court-rules-on-anti-assignment-clauses http://www.theconstructionindex.co.uk/news/view/court-rules-on-anti-assignment-clauses

Ben Preece of Gregg Latchams LLP reports on Stopjoin Projects Ltd v Balfour Beatty Engineering Services.

It is stating the obvious that construction companies often require outside finance. Similarly, it is unfortunately no secret that they frequently encounter cash-flow issues. Lenders therefore, as in other commercial situations, will require security for their finance.

If there is real property then a mortgage can be taken, but frequently that will not be available and a lender may instead have to rely on a fixed and/or floating charge. Construction companies often carry significant debts and so an assignment of the book debts can also seem attractive to a lender. Factoring companies largely base their businesses on it.

The problem for the lender is that many construction contracts contain so called “anti-assignment” clauses which, as confirmed in the case of Linden Gardens, prevent such an assignments taking place in law.  

This was the case in Stopjoin Projects Ltd v Balfour Beatty Engineering Services. Stopjoin, the lender, provided Brunel, the construction company, with significant funds so that it could carry out construction projects in return for security which included an assignment of the book debts. Some of those projects were for Balfour Beatty. Stopjoin argued that Balfour Beatty owed Brunel money and so, by virtue of the assignment, they owed Stopjoin.

Unfortunately for Stopjoin, Balfour Beatty’s terms included an “anti-assignment” clause.

Stopjoin tried to get around it in two ways: the first was to argue that on one of the contract the clause had not been included in the contract (Brunel at the time had protested about its inclusion). The second was to argue that because the parties had tried to assign the contract, a trust arose in equity which would allow for the same thing: the money to flow to Stopjoin.

Balfour Beatty believed both arguments to be meritless and argued they should be struck out. His Honour Judge Havelock-Allan QC agreed on the first point but disagreed that the trust argument was meritless and found in favour of Stopjoin.

The case continues in Bristol’s High Court.        

The wider implications of this judgement remain to be seen. In February the High Court in London decided in Co-Operative Group Ltd v Birse Developments Ltd & Ors, on different facts, that a failed assignment did not give rise to a trust. This area of law is therefore somewhat up in the air and it is possible that the Court of Appeal will have to decide the issue in the near future.

 

The full text can be found at: http://www.bailii.org/ew/cases/EWHC/TCC/2014/589.html

 

 

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Lessons to be learned from Hillcrest’s novation defeat The case of Hillcrest Homes Ltd (Hillcrest) v Beresford and Curbishley Ltd reveals weak links in contractual chains. Sarah Phillips, solicitor at Thomas Eggar LLP, reports.]]> Mon, 03 Mar 2014 14:23:04 +0000 http://www.theconstructionindex.co.uk/news/view/lessons-to-be-learned-from-hillcrests-novation-defeat http://www.theconstructionindex.co.uk/news/view/lessons-to-be-learned-from-hillcrests-novation-defeat

The case of Hillcrest Homes Ltd (Hillcrest) v Beresford and Curbishley Ltd reveals weak links in contractual chains. Sarah Phillips, solicitor at Thomas Eggar LLP, reports.

This case, decided last month, has excited lawyerly interest. The findings have thrown up issues relating to, among many other things, what types of dispute can be adjudicated and whether an adjudicator can consider more than one dispute. These are important things that your lawyer really needs to know about.

What everyone else needs to know about is the base cause of the dispute so that they can avoid finding themselves in the same situation as Hillcrest.

Hillcrest (the employer) intended to let a design and build contract for a residential property. It appointed a technical design team to do the upfront design with the intention of having those appointments novated to the contractor once one was appointed, thereby transferring all the design risk to the contractor. Nothing unusual, it happens every day.

One of the appointments was for the structural engineer and it appears (although this point was not argued) that the appointment did not contain a clear requirement for the structural engineer to accept novation to the contractor.

The build contract was a standard JCT form and the associated Employer’s Requirements included a specific requirement that the contractor novate the structural engineer’s appointment. They also contained the wording “Novation shall occur on execution of the Building Contract” (added emphasis). You can doubtless see how the seeds of disaster were sown.

The house was built, practical completion was achieved and throughout all of this the contractor tried to persuade the structural engineer to sign the novation agreement. The engineer resisted and only conceded and signed it more than a month after practical completion. The contractor then refused to sign it himself and asserted that as there was no contract between him and the structural engineer all liability for the structural design would remain with Hillcrest.

Hillcrest argued in court that the novation agreement should have retrospective effect; the contractor argued that, per the Employer’s Requirements, novation was supposed to occur on execution of the build contract not after practical completion. The judge agreed with the contractor and held that there was no effective novation. Hillcrest was therefore left holding a direct liability for structural works that it did not want.

The decision relating to retrospective effect is important and you should always get contract documents finalised sooner rather than later but this was not the point I wanted to emphasise in this note because it was not the real root of the problem. The issue that should have been addressed was of course the terms of the structural engineer’s appointment. If his appointment did not clearly state that he had agreed to be novated to the contractor then he was quite within his rights to refuse to be.

If you are creating a contractual chain and you do not make sure that the terms that apply to each link in that chain are wholly consistent with each other you cannot be surprised if it falls apart.

Always consider all of the contractual documents relating to a project as a whole and make sure your chain doesn’t have any weak links.

 

 

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Developers welcome planning court move Property developers have welcomed government plans to make it quicker and easier to crush opposition to their construction projects.]]> Fri, 07 Feb 2014 06:44:35 +0000 http://www.theconstructionindex.co.uk/news/view/developers-welcome-planning-court-plan http://www.theconstructionindex.co.uk/news/view/developers-welcome-planning-court-plan

Property developers have welcomed government plans to make it quicker and easier to crush opposition to their construction projects.

The government’s Justice department has published plans for a new planning court that will employ specialist judges to deal with disputed schemes, who will work to fixed time limits.

The idea is that the special chamber will fast-track the resolution of disputes to get construction projects started more quickly.

Provision for a planning court is contained in the Criminal Justice and Courts Bill. It is expected to be up and running by the summer and take on 400 planning cases a year.

The government said: “It will support the growing economy by reducing unnecessary and costly legal delays which developers have previously blamed for the collapse of potential major building schemes.”

A key reform is that anyone lodging a judicial review challenge to a scheme will have to take on ‘a fair level’ of financial risk.

Mike Pocock, infrastructure & planning partner at law firm Pinsent Masons, said: “This will have widespread implications to those looking to make a planning claim on major infrastructure projects.”

Justice secretary Chris Grayling said: “Judicial review must continue its role as a crucial check on the powers that be – but we cannot allow meritless cases to be a brake on economic growth. That would be bad for the economy, the taxpayer and the job-seeker, and bad for confidence in justice.

“These changes will bring balance to the judicial review system, so justice is done but unmerited, costly and time-wasting applications no longer stifle progress.”

The government is seeking to ease the burden on a clogged judicial review system. Judicial review applications rose from 4,300 in 2000 to 12,600 in 2012. More than 10,000 of these were for immigration and asylum cases; fewer than 200 were on planning issues.

The British Property Federation (BPF) said the planning court was good news for the property industry. Chief Executive Liz Peace said: “The judicial review system over the last few years has been inefficient and counterproductive, with far too many cases being referred. The result has been stalled development and long periods of uncertainty at a time when we need it the least.

 “We were pleased when the government introduced reforms to the judicial review system in May last year, and are further encouraged to see that it has listened to the concerns of the property industry and heeded our calls for a specialist planning chamber. The introduction of a specialist court like this is likely to have a significant impact on delivery as it relieves the pressure on developers and planning authorities and will expedite the whole planning process.”

British Land head of planning and corporate responsibility Adrian Penfold added: “The arrival of a specialist planning chamber is welcome news as it will allow cases that genuinely merit judicial review to be considered by experts in a timely and efficient manner. The judicial review system is important, and the creation of this new chamber is a significant step in ensuring that it is not abused and that it serves its correct purpose.”

Craig Tabb, a partner at planning consultant DP9, said: "A specialist court focused on the processing of major development cases is a very positive step. For too long the judicial review system has worked counter to government aims of delivering new homes, realising important regeneration and encouraging economic growth. The government's proposals ought to mean a more predictable and less risky process, therefore, creating a better basis for speeding up development and investment."

 

 

 

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Injunction granted after adjudicator was invalidly appointed A dispute over the validity of an adjudicator appointment has resulted in an injunction. Kasia Dickson, legal assistant at Thomas Eggar, reports.]]> Tue, 04 Feb 2014 15:09:32 +0000 http://www.theconstructionindex.co.uk/news/view/injunction-granted-when-the-adjudicator-was-invalidly-appointed http://www.theconstructionindex.co.uk/news/view/injunction-granted-when-the-adjudicator-was-invalidly-appointed

A dispute over the validity of an adjudicator appointment has resulted in an injunction. Kasia Dickson, legal assistant at Thomas Eggar, reports.

In Twintec Ltd v Volkerfitzpatrick Limited [2014] last month, the court granted an injunction to prevent a party from pursuing an adjudication because the adjudicator was invalidly appointed.

The works were carried out pursuant to a letter of intent but the contract was never actually signed. When a dispute arose, Volkerfitzpatrick launched adjudication proceedings; Twintec applied for an injunction to stop it – and won.

The case emphasises once again the importance of making sure that a proper contract is signed.  But it also makes clear that a party seeking an injunction to restrain adjudication proceedings has to jump a high hurdle.

Facts:

Twintec was a subcontractor engaged by Volkerfitzpatrick to construct the floor slabs for a warehouse. The letter of intent specified that Twintec was to carry out the works “in accordance with”, amongst other documents, the DOM/2 form of sub-contract.

Accolade Wines, for whom the warehouse was built, started proceedings against Volkerfitzpatrick, claiming £170m because of alleged defects and damage to the warehouse. They are complex multi-party proceedings to which Twintec was only joined as a party in August 2013.

Volkerfitzpatrick incurred costs in testing the slabs and sought to recover these from Twintec.  An adjudication was started for £850,000 and an adjudicator appointed by the president of the Royal Institution of Chartered Surveyors (RICS).

Volkerfitzpatrick argued that the letter of intent incorporated the DOM/2 terms.  Twintec agreed that the letter of intent was a binding contract but argued that the Dom/2 terms were not incorporated. It followed, they said, that the appointment of an adjudicator under the Dom/2 was a nullity.

 

Letter of Intent:

The court held that the letter was a free-standing contract as it contained sufficient information about the time, works and remuneration.  On the facts, the DOM/2 has not been incorporated as a whole into the letter.

 

Adjudication:

The Technology & Construction Court (TCC) determined that it was not necessary to incorporate DOM/2 in terms of adjudication because the letter of intent was a separate contract to which the provisions of the Scheme for Construction Contracts would apply.

However, the court held that the validity of the procedure by which the adjudicator was nominated went to the heart of his jurisdiction and an adjudicator cannot be validly appointed under a contractual provision that does not exist.  It is irrelevant that if the adjudicator was appointed pursuant to the Scheme the same nominating body could have been asked to make the appointment.

 

Injunction:

Injunctions will only be granted in exceptional circumstances. The fact that a referral to adjudication is brought in parallel with existing litigation is not in itself a ground for restraining the adjudication.  Further, any additional pressure on legal advisers resulting from the adjudication, additional costs, duplication and use of resources are not, on their own, a sufficient basis to grant an injunction. This is “a burden that parties to a construction contract sometimes have to accept”.

The court will not allow an adjudication to continue in circumstances (such as those in this case) where the decision the adjudicator would be incapable of enforcement.

 

Conclusion:

The decision delivers a pragmatic result. It serves as a reminder that letters of intent pose many risks and uncertainties. Further, a letter of intent with an obligation to perform the works “in accordance with” contractual documents may well be insufficient to incorporate the terms of the contract into the letter of intent.

 

 

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Court ruling puts viability of CVAs under question A court has refused to enforce an award won by a contractor that was subject to a company voluntary arrangement (CVA). Laura Phoenix, associate at Thomas Eggar LLP, reports.]]> Mon, 06 Jan 2014 08:24:03 +0000 http://www.theconstructionindex.co.uk/news/view/court-ruling-puts-viability-of-cvas-under-question http://www.theconstructionindex.co.uk/news/view/court-ruling-puts-viability-of-cvas-under-question

A court has refused to enforce an award won by a contractor that was subject to a company voluntary arrangement (CVA). Laura Phoenix, associate at Thomas Eggar LLP, reports.

The case of Westshield Ltd v Whitehouse and another [2013] 3576 EWHC (TCC), in which a judge refused to enforce an award in favour of a contractor subject to a CVA, puts a question mark over the viability of a CVA for a cash-strapped contractor planning to collect debts through adjudication.

Adjudication is a ‘pay first, argue later’ statutory mechanism for resolving disputes in the construction industry. The court’s approach is generally to uphold adjudicators' decisions robustly unless there has been a serious breach of the rules of natural justice.

The company voluntary arrangement (CVA) is intended to allow companies to avoid liquidation by coming to an informal, but binding, agreement/compromise with their unsecured creditors.  It is a compromise, or other arrangement, between a company and its creditors under Part I of the Insolvency Act 1986 (IA 1986) and it is implemented under the supervision of an insolvency practitioner.

In the Westshield case, the court refused to grant summary judgement in respect of an otherwise enforceable adjudicator’s award. The court’s reason was that the claimant contractor was subject to a CVA and the defendant client was entitled to exercise a right of set-off in respect of a negligence claim under the terms of the CVA.

Background

Mr and Mrs Whitehouse had employed Westshield to carry out substructure work for a house. After finishing the work, Westshield submitted a claim in respect of variations and delay and incorporated it in an application for payment.

Mr and Mrs Whitehouse ignored that application for payment. Westshield got into financial difficulties and sought a CVA before they referred their claim to contractual adjudication.

The adjudicator decided that a six-figure sum was due to Westshield. As the Whitehouses did not pay, Westshield applied to the court for summary judgment.

At that point Westshield’s lawyers may have thought they could rely on a previous case (Mead General Building Ltd v Dartmoor Properties Ltd [2009] EWHC 200 (TCC)) in which the court enforced an adjudicator’s decision and refused a stay of execution, despite the claimant’s CVA.

Mead appeared to have established that a claimant contractor’s CVA could not prevent judgment being entered against a non-paying client.

In the Westshield judgment, the court’s emphasis lay elsewhere; it lay on the fact that Mr and Mrs Whitehouse had advanced a counterclaim in the claimant's CVA, albeit late in the day. The judge’s reasons for declining to enforce the award turned on a term of the CVA providing for mutual set-off of debts.

The ‘mutual set-off’ term is standard and therefore likely to appear in most CVAs. It allows a creditor to set-off their own debts to the company which has sought a CVA against sums due to the creditor from that company. Pursuant to the CVA clause, only the balance of the account is claimable by the creditor.

The court held that, under the terms of the CVA, Mr and Mrs Whitehouse’s claim would need to be set-off against the amount due to the Weshshield pursuant to the adjudicator’s decision. Consequently, Westshield’s application to enforce the adjudication decision was dismissed.

Any contractor considering a CVA as an option for trading through financial difficulties now has one more question to consider: ‘Can we afford to drop adjudication from our debt collection artillery?’

 

 

 

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Redhall claims victory in Vivergo dispute Engineering contractor Redhall has claimed victory in its long-running legal dispute with Vivergo Fuels.]]> Wed, 18 Dec 2013 08:55:22 +0000 http://www.theconstructionindex.co.uk/news/view/redhall-claims-victory-in-vivergo-dispute http://www.theconstructionindex.co.uk/news/view/redhall-claims-victory-in-vivergo-dispute

Engineering contractor Redhall has claimed victory in its long-running legal dispute with Vivergo Fuels.

The case, which was heard by the Technology & Construction Court, related to the termination of Redhall's employment in March 2011 as mechanical and pipework contractor at Vivergo's Saltend Chemicals Park Site in Hull following significant project delays.

The judgement in the court case brought by Vivergo ruled that Vivergo was in repudiatory breach of the contract with Redhall’s subsidiary Redhall Engineering Solutions Ltd (RESL) and that the contract was unlawfully terminated.  It was also determined that RESL was entitled to an overall extension of time on the contract of 24 days.

In a statement Redhall said: “Whilst the overall extension of time is below our expectations it provides a framework to quantify our claim and the award precludes Vivergo from making any claim against RESL for the additional costs associated with the termination of RESL’s contract.

“It is our intention to enter into discussions with Vivergo with the objective of reaching a financial settlement arising from the judgement as soon as possible.”

Vivergo also issued a statement: “Vivergo Fuels Ltd is pleased that the court has decided that Redhall Engineering Solutions Ltd  was in material breach of contract and that Redhall was responsible for the vast majority of the delays to its works, to the extent that the court significantly reduced Redhall's extension of time claim from an initial position of 158 days to just 15.23 working days.

“Vivergo is however disappointed with the court's decision that notwithstanding material breach and delay, Redhall fulfilled its obligations to commence rectifying the delay with the result that Vivergo did not have grounds to terminate the contract.”

 

 

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Two more directors banned for Wrekin ruby scam Two more former directors of Wrekin Construction have been banned from servicing as directors for their part in the notorious ruby scam.]]> Mon, 09 Dec 2013 07:22:44 +0000 http://www.theconstructionindex.co.uk/news/view/two-more-directors-banned-for-wrekin-ruby-scam http://www.theconstructionindex.co.uk/news/view/two-more-directors-banned-for-wrekin-ruby-scam

Two more former directors of Wrekin Construction have been banned from servicing as directors for their part in the notorious ruby scam.

A 2kg uncut ruby gemstone, the Gem of Tanzania, was given an inflated book value in the company accounts of £11m. It eventually realised a sale price of just £8,000.

David Unwin and Nicholas Ibbotson have become the latest directors of the Shropshire construction company to be banned as directors for the scam that inflated the company’s accounts. Their disqualification comes after the 2011 disqualification of a third director Peter Greenwood over the same scam, following an investigation by the Insolvency Service.

Mr Unwin, 65, of Widnes, Cheshire, signed a 10-year disqualification undertaking, which started on 12 November 2013, whilst Mr Ibbotson, 56, of Sutton Coldfield, West Midlands, signed a seven-year disqualification undertaking which started on 14 November 2013. Mr Greenwood, 62, of Telford, Shropshire, had earlier signed a nine year disqualification undertaking, which started on 9 June 2011.

Wrekin Construction Company Ltd reported an annual turnover of more than £100m for the year to 31 March 2007 its, but it had incurred trading losses and had a deficit on its accounts of £7.6m.

The investigations found that in June 2007 Mr Unwin bought Wrekin from its then owners and in December 2007 he caused another of his companies, Tamar Group Ltd, to transfer the ruby gemstone to Wrekin in return for shares.

The ruby had been bought by Mr Unwin in 2006 and included as an asset in Tamar’s accounts at that time, at a value of £300,000. However, when the gem was transferred to Wrekin’s accounts in December 2007 its value was shown as £11million, based on a valuation supposedly carried out in Italy four months previously.

Wrekin collapsed into administration on 10 March 2009 with losses of more than £45m to creditors. When the administrators tried to sell the gem they found that the document showing the £11m valuation was a forgery. Eventually the stone was sold for £8,000.

Investigations by the Insolvency Service also found that in the weeks before the gem was transferred to Wrekin, Mr Unwin acknowledged in a meeting with the company’s former auditors that there were uncertainties about the gem’s value.

Mr Ibbotson, Wrekin’s finance director, was aware of those uncertainties, but nevertheless told Wrekin’s new auditors that £11m was a genuine market value. Mr Ibbotson and Wrekin managing director Mr Greenwood approved Wrekin’s accounts to 31 December 2007, which included the gem as an asset worth £11m, without checking the reliability or authenticity of the Italian valuation report. In the course of the investigations, Mr Unwin gave differing explanations as to how he came by that valuation report.

By including the gem as an £11m asset in the accounts to 31 December 2007, Wrekin gave the impression that it had a financial surplus of £6.3m, whereas its true position was an insolvent one.

The Insolvency Service’s investigations further showed that in the months leading up to Wrekin’s collapse, at a time when Wrekin was under severe financial pressure and unable to pay its debts, Mr Unwin caused it to make substantial payments to two other companies controlled by him: Britannia Management Services Ltd and Equatrek (UK) Ltd.

Pabitar Powar, head of the authorisations team at the Insolvency Service, said: “The purchase of an uncut ruby gemstone by Wrekin was extraordinary and questionable. It is clear that the gemstone was included in the accounts to portray Wrekin’s financial position as a sound one, whereas its true position was the exact opposite.

“Transferring funds to connected companies for no financial gain at a time when Wrekin was insolvent and under severe financial pressure clearly put the creditors at increased risk. Furthermore, a business deal which involved the creation of a sham invoice ought to have set alarm bells ringing for the directors and made them question the appropriateness of the whole deal in the first place.”

 

 

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Scottish construction workers win legal challenge over employment status A group of construction workers in Scotland have won an employment tribunal they brought to challenge the employment status imposed upon them.]]> Thu, 05 Dec 2013 06:42:05 +0000 http://www.theconstructionindex.co.uk/news/view/scottish-construction-workers-win-legal-challenge-over-employment-status http://www.theconstructionindex.co.uk/news/view/scottish-construction-workers-win-legal-challenge-over-employment-status

A group of construction workers in Scotland have won an employment tribunal they brought to challenge the employment status imposed upon them.

Treated as self-employed, they were denied holiday pay and notice pay and had illegal deductions taken from their wages.

The workers, who were all joiners, were recruited by contractor Dunne, a company for which they had all previously worked, on the Southern General Hospital Project in Glasgow in October 2011.

On starting the project they were required to sign a contract. It was not until they had been working for several weeks that they realised that although they were working under the direction of Dunne they had signed contracts with a company called Marnoch Formwork Ltd and they had been engaged on self-employed contracts. The workers never had any form of working relationship with Marnoch Formwork Ltd.

Throughout their time on the project they did not receive pay slips and assumed that income tax and national insurance contributions were being deducted directly from their wages. Subsequently the workers were contacted by HMRC and told they owed income tax.

The contract included clauses that the workers could refuse work, had to supply all their own tools and could send a suitably qualified substitute, with the permission of the contractor, to undertake their work.

The workers did not receive holiday pay or sick pay. When their employment ended in August 2012 they made an employment tribunal claim with the support of their union Ucatt against Marnoch Formwork Ltd for holiday pay, unfair deduction from wages and not receiving notice pay, on the grounds that the self-employed contract did not represent their actual working practices. The workers were represented at the employment tribunal by Ucatt’s Scottish solicitors Dallas McMillan.

The hearing took place last month. The employment tribunal judge agreed that the contract did not reflect the actual employment relationship of the workers. He said: “I find that the substitution clause did not reflect the reality of the relationship. The claimants were not businessmen in business on their own account. They had no control over the way in which they carried out their work. They were required to clock in and out. They were subject to the direction and control of Dunne employees on site. Importantly, the fact that they signed the contract accepting they were self-employed subcontractors did not mean they actually were self-employed contractors.”

He added: “On the evidence I was satisfied that, despite the assertion in the contract that the claimants were self-employed, this assertion bore no practical relation to the reality of the relationship even allowing for the fact that the claimants were registered with CIS.”

The employment judge found that the workers fully demonstrated worker status and that their claims for holiday pay and unlawful deductions can proceed. He also found that the workers met the definition of an employee and therefore their claim for notice pay can also proceed.

Ucatt Scotland regional secretary Harry Frew said: “This is an important victory. It demonstrates that companies cannot pretend that workers are self-employed and try to deny them basic rights such as holiday pay, sick pay and pension rights. Ucatt will ensure that other workers faced with the same problems will receive what they are entitled to.”

Dallas McMillan head of litigation Gordon Bell agreed: “This is an important tribunal victory for Ucatt members. It sends a strong message to employers that they can no longer evade their legal responsibilities to their employees and workers by making them sign one-sided contracts stating wrongly that they are self-employed contractors. Employment tribunals will simply ignore these ‘sham’ contracts and declare employees and workers entitled to their full employment rights.”

The judge was also critical of the lack of payslips. He said: “This failure to provide the claimants with payslips was itself unlawful and only served to further confuse what was already a completely unsatisfactory situation.”

 

 

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Can’t pay, won’t pay The interface between the Construction Act and insolvency law has produced several interesting cases. Now we have another one, as Mark Clinton explains.]]> Thu, 05 Dec 2013 06:42:21 +0000 http://www.theconstructionindex.co.uk/news/view/cant-pay-wont-pay http://www.theconstructionindex.co.uk/news/view/cant-pay-wont-pay

The interface between the Construction Act and insolvency law has produced several interesting cases. Now we have another one, as Mark Clinton explains.

Difficult economic times provide the perfect environment for payment disputes.Payers struggle to keep up while payees have a need to make sure that payments are made promptly. This has meant that creditors have resorted to more aggressive means of forcing payment. Some resort to the threat or taking of insolvency proceedings to push to the front of the queue. In many cases, such steps are effective.

Under the Construction Act, a contractor is entitled to serve a default notice if his client does not issue a payment notice when required under the contract. The contractor’s application for payment can stand as his default notice if the contract permits such applications.

If the client does not follow up with a pay less notice in good time, he is obliged to pay the amount claimed by the contractor in his default notice. If he does not pay up, the contractor can take the matter to adjudication. Although adjudication is relatively quick and inexpensive, in these difficult times it is not quick or inexpensive enough for some.

A quicker and less expensive result can sometimes be achieved by using insolvency procedures. That was the option taken by R&S Fire and Security Services Ltd in their case against Fire Defence plc.

R&S served a statutory demand but payment was not forthcoming. They therefore issued a petition to wind-up Fire Defence. Fire Defence applied for an injunction to stop the petition being advertised and applied to strike it out. The court will strike out a petition if there is a genuine dispute about the debt on which it is based or a genuine and serious cross claim for at least the same value as the debt.

The court decided that there was no genuine dispute about the debt. The Construction Act requires payment of a sum due on a default notice and there is no room for arguing about it.  The same would apply to a sum due under a payment or pay less notice. Round one to R&S.

Having considered the evidence, the court decided that Fire Defence had done enough to show that there was a genuine and serious cross-claim which would have to be decided by an adjudicator or another court in the usual way. Accordingly, the petition was struck out.

In the event, the use of insolvency procedures did not save time or money. However, the case sounds a warning bell for clients who do not pay sums due to their contractors under contracts covered by the Construction Act. The relevant payment, pay less or default notice will be sufficient to put the debt beyond dispute leaving the client facing winding-up or similar proceedings unless he can come up with a sufficiently convincing and substantial counterclaim.

That should sort out the ‘can’t pays’ from the ‘won’t pays’.

 

About the author: Mark Clinton is a partner at Thomas Eggar LLP

 

 

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Construction workers could get more holiday pay Recent court rulings could result in significant increases in the amount of holiday pay received by construction workers.]]> Wed, 06 Nov 2013 09:02:05 +0000 http://www.theconstructionindex.co.uk/news/view/construction-workers-could-get-more-holiday-pay http://www.theconstructionindex.co.uk/news/view/construction-workers-could-get-more-holiday-pay

Recent court rulings could result in significant increases in the amount of holiday pay received by construction workers.

Previously variable payments such as non contractual overtime, out of hours payments and bonus payments were not included in holiday pay for those with normal contractual hours. However following decisions made at the European Court of Justice and the Supreme Court in the case of BA v Williams the courts have ruled that holiday pay should be paid at a workers normal remuneration.

A recent employment tribunal has ruled that non contractual overtime should be included in the calculation for holiday pay. This will only apply to the minimum four weeks (20 days for five-day working) set out in the European legislation and the 1998 Working Time Regulations. The rule could be extended to the full 5.6 weeks ( 28 days for five-day working) in the near future.

Steve Murphy, general secretary of the construction union Ucatt, welcomed the development. He said: “Holiday pay should represent a worker’s normal pay. Employers must do the right thing and make sure that workers get the holiday pay they are entitled too.”

He added that a shortfall of holiday pay can be claimed as an unlawful deduction from earnings. Any shortfall of holiday pay over a continuous period can be regarded as a continuous period of unlawful deduction and could date back years rather than just three months under the Working Time Regulations.

However if an employer starts correctly paying holiday pay or if an employee leaves that employment, they then only have three months minus a day in which to lodge a claim for unfair deduction of earnings.

 

 

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Pay now argue later Laura Phoenix, associate at Thomas Eggar LLP, explains the implications of a recent judgment on adjudication payments.]]> Mon, 04 Nov 2013 14:31:47 +0000 http://www.theconstructionindex.co.uk/news/view/pay-now-argue-later http://www.theconstructionindex.co.uk/news/view/pay-now-argue-later

Laura Phoenix, associate at Thomas Eggar LLP, explains the implications of a recent judgment on adjudication payments.

The Technology & Construction Court (TCC) has considered the circumstances in which the losing party to adjudication is entitled to set-off against the sum awarded to the winner. This article explains what the judgment – Thameside Construction Company Ltd v Stevens & Anor [2013] EWHC 2071) – means for those embroiled in adjudication or enforcement of an adjudicator's award.

Typically, in construction litigation, a contractor’s claim for payment will be met by a counterclaim for damages in relation to delay or defects (or vice versa). For a set-off to work as a defence, the circumstances giving rise to the counterclaim must be closely related to those giving rise to the claim, or there must be a contractual right of set-off.

As a general rule, set-offs and counterclaims cannot be raised to defeat enforcement of an adjudicator’s decision. The courts have said that this would frustrate the purpose of the Construction Act, which is to ensure that adjudicators’ decisions are obeyed and that cash flow is maintained.

Here, Mr and Mrs Stevens had appointed Thameside on JCT terms to extensively extend and convert their home.

There were significant variations and delays. Disputes arose in relation to the date of practical completion and the value of the final account. Thameside referred a claim to adjudication. There was a comment in the adjudicator’s reasoning that said he was treating the dispute like an interim valuation but, ultimately, the adjudicator directed Mr and Mrs Stevens to pay around £88,000 to Thameside.

Mr and Mrs Stevens had a payment certificate issued in respect of the sum awarded, issued a withholding notice in respect of £40,000 of liquidated damages that they considered deductible, and paid the balance.

Thameside issued proceedings to enforce the adjudicator’s award in respect of £40,000. The judge ordered Mr and Mrs Stevens to pay the £40,000 withheld plus £11,000 in respect of Thameside’s legal costs. In reaching his decision, the judge summarised the factors you must consider before setting-off against or withholding money from sums awarded by an adjudicator and these are:

  1. What has adjudicator decided that the payer must do?

The general position is that a decision that directs one party to pay money to the other must be honoured without set-off, otherwise the court may order the non-payer to reimburse the other party’s costs of enforcing the award.

  1. Do any of the exceptions apply? These are:
  1. Does the adjudicator’s decision permit further set-off? For example, if the adjudicator simply decided how the terms of a contract operate then is it fair to say the adjudicator has not actually directed a payment and it may still be possible to serve an effective withholding or pay less notice?
  2. Contractual set-off: does the underlying contract contain a set-off provision capable of ‘trumping’ part or all of the adjudicator’s decision?

In most cases, the losing party will need to pay first and argue later. ‘Arguing later’ can be done via court proceedings, arbitration or counter adjudication.

To do anything other than pay exposes the non-payer to the cost of defending enforcement proceedings, bad publicity and also liability to reimburse the legal costs of their opponent.

 

 

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Professionals admit construction is rife with corruption Nearly half of construction professionals acknowledge that corruption is commonplace across the UK construction industry.]]> Fri, 04 Oct 2013 07:28:08 +0100 http://www.theconstructionindex.co.uk/news/view/professionals-admit-construction-is-rife-with-corruption http://www.theconstructionindex.co.uk/news/view/professionals-admit-construction-is-rife-with-corruption

Nearly half of construction professionals acknowledge that corruption is commonplace across the UK construction industry.

And more than a third admit to having been offered kickbacks.

A survey by the Chartered Institute of Building (CIOB) found that 48% consider corruption to be either extremely common or fairly common within the UK construction industry.

Respondents suggest that cultural practices and economic conditions are the main reasons for the prevalence of corruption, noting squeezed tender margins and reduced workloads have pressurised some professions into corrupt practices as a means to survive.

The survey, of 700 construction professionals, aimed to investigate whether corruption is perceived to be a problem within the UK construction industry, what practices are deemed to be corrupt, and which parts of the construction process may be susceptible to corruption.

The CIOB previously undertook research on corruption in 2006. Despite the introduction of the Bribery Act, there has been little change in perceptions since then.

CIOB deputy chief executive Michael Brown said: “Our findings reveal that little progress has been made since our first piece of research into corruption in 2006. What we have found is that cultural practices and the consequences of the recession have placed a greater strain on companies to sometimes engage in adverse practices as a survival mechanism.”

More than one in three (35%) said they had been offered a bribe or incentive on at least one occasion. And 38% had come across cartel activity in the UK construction industry on at least one occasion. Of those, 29% have witnessed it over the last 12 months.

Nearly half of the respondents were unaware whether their firm had a whistle-blowing policy, and only 7% said that they had used it, reporting varying degrees of success.

More than half of the respondents (54%) were unable to estimate the annual cost of fraud or corruption to their organisation, this is despite 45% of the sample describing themselves of senior management or director level. Nearly 10% also indicate annual losses totalling £1m or more as a result of fraud and corruption.

Graham Hand, co-ordinator of the UK Anti-Corruption Forum, said: “This valuable report shows that despite the introduction of a tough new Bribery Act in 2010, corruption is still common in the construction business in this country. That is unacceptable. The law enforcement agencies need to work with the professional and business organisations to educate companies about their responsibilities, and they must act against companies that break the law.”

The research indicates, as it did in 2006, that the UK construction industry and UK government are not doing enough to tackle corruption. The CIOB suggests that measures aimed at tackling corruption, such as the Bribery Act, appear to have had a limited effect, with no prosecutions against businesses taking place.

“If the UK is going to live up to its rhetoric of being tough on corruption, both the government and industry must do more to show proof of progress” said Michael Brown.

 

 

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Court ruling changes nature of collateral warranties Under a new legal ruling, collateral warranties are now considered to be construction contracts, reports Kim Teichmann.]]> Tue, 01 Oct 2013 10:39:40 +0100 http://www.theconstructionindex.co.uk/news/view/court-ruling-changes-nature-of-collateral-warranties http://www.theconstructionindex.co.uk/news/view/court-ruling-changes-nature-of-collateral-warranties

Under a new legal ruling, collateral warranties are now considered to be construction contracts, reports Kim Teichmann.

It is almost certain that if you are employed on a construction project you will be asked to sign collateral warranties in favour of others; this has become common place.

However, you can imagine Laing O’Rourke’s surprise when they were told by the court that their innocuous warranty was in fact a construction contract governed by the Construction Act and therefore subject to adjudication.

The recent decision of Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd [2013] EWHC 2665 (TCC) has changed the way warranties are treated. In April 2006 Laing O’Rourke entered into a standard JCT Design and Build contract to design and build the £300m Cardiff International Sports Village. About the same time, Parkwood entered into a 10-year agreement for lease in January 2008 with the developer, Orion Land & Leisure (Cardiff) Ltd. Practical completion was one year late. A year before practical completion, in December 2007, a deed of warranty was executed with Parkwood named as the beneficiary.

A dispute arose as to defective air handling units and Parkwood relied on the terms of the warranty. Parkwood issued proceedings seeking a declaration that a warranty is a construction contract under the Housing Grants, Construction and Regeneration Act 1996. If it was a construction contract it would give the parties the statutory right to adjudicate any claim under the warranty. This would provide a quick and easy dispute resolution procedure for Parkwood.

Parkwood had suffered damages, which Laing O’Rourke may not have had in mind when signing the collateral warranty, including the increased costs of running the leisure centre as a result of the poor performing air handling unit. The court decided that Parkwood could recover these damages by adjudicating. Again, this must have come as a surprise to Laing O’Rourke.

Although this case is not good news for providers of warranties, the silver lining is that not every collateral warranty will be a construction contract and whether it is depends on whether it is a contract for the carrying out of construction operations. 

The words in the warranty matter. Here the contractor warranted, acknowledged and undertook that it had carried out and shall carry out and complete the works in accordance with the contract. The use of the word “undertakes” was interpreted as a prospective obligation to execute and complete the remaining works.

The warranty was also provided before the works were completed. The court said that a strong pointer that a warranty is a construction contract would be an undertaking to carry out the works. On the other hand the court noted that a pointer against a warranty being a construction contract would be a simple warranty warranting a past state of affairs.

So the lesson from this case is to be careful when providing a warranty, words really do matter and the difference between the words “warrant” and “undertake” may translate into thousands of pounds of liability.

Kim Teichmann is a senior associate at Thomas Eggar LLP

 

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Special planning court to help speed major projects Legal reforms to combat delays to construction projects in the planning process have been put forward by the government.]]> Mon, 09 Sep 2013 07:30:17 +0100 http://www.theconstructionindex.co.uk/news/view/special-planning-court-to-help-speed-major-projects http://www.theconstructionindex.co.uk/news/view/special-planning-court-to-help-speed-major-projects

Legal reforms to combat delays to construction projects in the planning process have been put forward by the government.

Justice secretary Chris Grayling is proposing to set up a specialist planning court that would speed up the resolution of planning disputes.

The proposals, now out for consultation, also suggest restricting the right to a legal challenge only to those with a direct interest. Applicants who bring cases will also have to pay some of the legal bills of the project developer if their challenge fails.

The reforms are an attempt to combat the recent growth judicial review applications – only a small proportion of which succeed.

Applications for judicial reviews more than doubled from 4,500 in 1998 to 12,400 in 2012, but in 2012 just one in six were granted permission to proceed beyond the first consideration of the application. Of the 422 which went on to a final hearing without being withdrawn or settled in 2011 just 163 went in favour of the applicant.

Cases often take more than a year to resolve. For planning cases, the average time to resolve an application which went all the way to a final hearing was 370 days in 2011.

The proposed “planning chamber” would see judicial review decisions relating to major developments taken only by “expert judges” using “streamlined processes”.

Mr Grayling said: “These proposals will ensure legal challenges are heard swiftly, so crucial new building projects no longer fall by the wayside because of needless delays.

“We want to make sure judicial review continues its crucial role in holding authorities and others to account, but also that it is used for the right reasons and is not abused by people to cause vexatious delays or to generate publicity for themselves at the expense of ordinary tax-payers.”

British Property Federation chief executive Liz Peace said: “Access to justice is a mainstay of the rule of law in this country, but if it can be sensibly sped up and streamlined, this should be welcomed.

 “A specialist planning court is something we’ve repeatedly made the case for over many years, and this simple measure should have a real impact on not only the speed of decisions, but the quality too. Having greater numbers of expert judges that understand planning is a huge step forward for the development community.”

The consultation on Judicial Review: proposals for further reform will run for eight weeks.

 

 

 

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Nuttall agrees to pay £33m to settle Cambridgeshire busway dispute BAM Nuttall has settled its dispute with Cambridgeshire County Council over the guided busway project by paying back £33m.]]> Tue, 03 Sep 2013 07:46:13 +0100 http://www.theconstructionindex.co.uk/news/view/nuttall-agrees-to-pay-33m-to-settled-cambridgeshrie-busway-dispute http://www.theconstructionindex.co.uk/news/view/nuttall-agrees-to-pay-33m-to-settled-cambridgeshrie-busway-dispute

BAM Nuttall has settled its dispute with Cambridgeshire County Council over the guided busway project by paying back £33m.

The contractor and local authority had been embroiled in legal row about the cost of building the guided busway system that opened in August 2011. The council said that the settlement worked out to be £76m in its favour.

The settlement means the county will have paid BAM Nuttall £84.7m to build the busway, compared to an originally agreed price of £83.9m.

Cambridgeshire County Council’s Cabinet agreed to the offer from BAM Nuttall to settle the dispute following discussions and agreement among all political groups.

BAM Nuttall was two years late in handing over the project and claimed the council owed it around £70m more than the price it had originally quoted, leading to a  protracted legal dispute, incurring huge costs for both sides.

The council said that it decided to accept the contractor’s offer to settle to avoid any further legal costs.

BAM Nuttall told the council that the busway had cost £152.5m to build and sought an extra £43m on top of the £117.7m that it had already been paid.

However, following the threat of legal action and a mediation process, the company has instead agreed to pay £33m back to the council in addition to the council retaining various monies that it had withheld under the terms of the contract.

Around £126m had been budgeted for the whole busway scheme – including land acquisitions as well as construction and other costs. Some £92.5m of this money was provided by central government with another £26m of section 106 deals with developers and the rest in transport grants and other income.

Mainly due to the level of legal fees, the cost of the scheme had risen to £152m, the council said.

Cambridgeshire County Council leader Martin Curtis said: “I am pleased that this settlement has been agreed and that we can move on from what has been a difficult and time consuming dispute for us.

“It is clear that the council was right to take the bold decision to provide better transport options for residents in one of the fastest growing parts of the country; and right that we signed a robust contract with BAM Nuttall.

“The busway is a huge success and way ahead of passenger and business case forecasts. What is deeply disappointing and frustrating is that it has taken this long and cost us so much money to win our arguments and stop BAM Nuttall from trying to take tens of millions of pounds away from local taxpayers. BAM’s unwillingness, until now, to recognise their financial liability means they have tied up and cost Cambridgeshire taxpayers money which could have been better spent on our communities.

“We have always been very sure of our case and would have been willing to go to court to fight that case. However, following discussions with all group leaders, we felt that we would rather have certainty and settle the matter than risk mounting legal costs. It is clear from the analysis of our professional and legal teams that, were it not for the strong contract we had in place, BAM would never have settled. We are, therefore, now going to review and learn from our experience to see how we can help to stop this happening locally and nationally in the future.”

BAM Nuttall’s Dutch parent company, Royal BAM Group, said that it had already incorporated the cost of the settlement into its half year figures, which were published on 22 August. “The repayment has therefore no impact on BAM's profit forecast for the year 2013,” it said.

 

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McAlpine case highlights need for due diligence Concrete escapes into the drainage system. Who’s to blame? Mark Clinton reports on a case that highlights the importance of due diligence.]]> Mon, 02 Sep 2013 12:03:44 +0100 http://www.theconstructionindex.co.uk/news/view/mcalpine-case-highlights-need-for-due-diligence http://www.theconstructionindex.co.uk/news/view/mcalpine-case-highlights-need-for-due-diligence

Concrete escapes into the drainage system. Who’s to blame? Mark Clinton reports on a case that highlights the importance of due diligence.

The case of Northumbrian Water Ltd v Sir Robert McAlpine Ltd [2013] EWHC 1940 (TCC) may not create any new law, but it illustrates the practical difficulties faced by contractor and statutory undertaker in similar situations.

It also shows how important it is for contractors to carry out due diligence and assess risks before starting any work. 

McAlpine was carrying out a construction project for the water company. While a subcontractor undertook piling works, some concrete escaped. Unknown to either NWL or McAlpine, there was a private drain in the vicinity of the pour. Its existence was not discovered until weeks after the concrete was poured, when a McAlpine employee of researched the Discovery Museum archives. 

Shortly after the concrete was poured, a neighbouring business, the Co-op, notified NWL that sewage was backing up into its premises. Only at this point was it revealed that the concrete had entered the public sewer.  NWL carried out rectification works and sued to recover the costs of rectification. It alleged nuisance and negligence.

Claim in negligence

For a successful claim in negligence the following must be established:

  • duty of care
  • breach
  • loss caused by the breach.

NWL struggled with the second limb as McAlpine adduced sufficient evidence to show that it took all reasonable care to identity the services on the site.

The obligation on McAlpine was to take reasonable care to investigate the utility services in the area and in the execution of works.  Although there was no expert evidence as to the level of investigation that may be required in the circumstances, it did not appear to the judge that McAlpine ought to have searched the Discovery Museum or to have carried out anything else beyond what was carried out.

The presence of the sewer was not discovered when NWL made its own site survey in 1988, nor was it discovered during the site development in 1970s. The claim in negligence therefore failed.

Claim in nuisance

A claim in nuisance can only succeed where the damage was reasonably foreseeable. The judge stated that here NWL needed to establish that the damage to the drain was reasonable foreseeable – in order to do this one must establish whether the existence of the drain was reasonably foreseeable. As it was already established that McAlpine was not negligent in failing to detect the drain, the claim in nuisance must also fail.

Damage does not have to be reasonably foreseeable in claims brought under the rule in Rylands v Fletcher where the following must be established:

  •  escape onto neighbouring land of “something” McAlpine brought onto the land that was not naturally there; and
  • That the “thing” was dangerous, or would naturally do mischief, if it were to escape.

However NWL did not rely on Rylands v Fletcher, presumably because it could not establish that what McAlpine brought onto the site was something that would naturally do mischief if it escaped or was dangerous.

 

About the author: Mark Clinton is a partner with Thomas Eggar LLP

 

 

 

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Limitation periods and adjudication You cannot afford to hang around if you are unhappy about your adjudication ruling. Kasia Dickson, paralegal at Thomas Eggar LLP explains.]]> Tue, 30 Jul 2013 11:32:07 +0100 http://www.theconstructionindex.co.uk/news/view/limitation-periods-and-adjudication http://www.theconstructionindex.co.uk/news/view/limitation-periods-and-adjudication

You cannot afford to hang around if you are unhappy about your adjudication ruling. Kasia Dickson, paralegal at Thomas Eggar LLP explains.

Adjudication decisions are binding but they are of temporary nature and they can be overturned in court.  So how long do you have for starting litigation if you are dissatisfied with the decision? Akenhead J decided in Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2013] EWHC 1322 (TCC) that time limits laid by the law (known as limitation periods) apply.

This decision raises an important question about the limitation of action in circumstances where a party is dissatisfied with an adjudicator’s decision and it needs to issue proceedings.

In preparing a survey, Aspect Contracts failed to report on the full extent of asbestos in a building. Four years following this discovery, Higgins took action to recover for the loss caused. It is unclear why this took so long. It took Aspect a further two and a half years to issue proceedings. This was a mistake.

Aspect sought a final and binding resolution of the dispute and a declaration that it was not liable to pay damages to Higgins. It argued that the monies paid should be returned to and that there was an implied term that pursuant to the Scheme for Construction Contracts, it was entitled to have the dispute finally determined by legal proceedings and that it had a right to seek repayment. Aspect said its right arose on the payment of the sum awarded in the adjudication, and therefore it had six years from that payment to bring an action.  Higgins on the other hand argued that, following adjudication, a party is entitled to go to court and have a dispute finally determined, and that does not alter the limitation period.

Did the cause of action arise when the survey was concluded or when Aspect paid Higgins after to the adjudication decision?

Akenhead J rejected Aspect’s arguments. Aspect was free to bring a claim for a declaration at any time and did not have to wait until the adjudicator issued his decision. Further adjudication is of temporary nature and it does not add or take away any rights. The judge could see no overriding policy reason why the implied term ‘contended for’ should be implied; it would be undesirable for parties to pursue claims for declarations in order to avoid the possibility of limitation defence. Aspect lost.

Adjudication was introduced to aid cash-flow and a party that intends to bring adjudication does not very often wait until the end of the limitation period in order to start adjudication. Therefore the question of limitation in these circumstances hardly ever arises. Nevertheless there is a lesson to be learnt: you should not wait until near the end of the limitation period to take action as you may find yourself in a similar position to Aspect. If you are dissatisfied with the decision you must be alert to the limitation periods and act quickly. You must also be aware that time limit may be expressly reduced in some contracts.

 

 

 

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Beware 'spirit of partnership' clauses Good faith clause may not always be so good, warns Kim Teichmann.]]> Wed, 03 Jul 2013 12:25:13 +0100 http://www.theconstructionindex.co.uk/news/view/beware-spirit-of-partnership-clauses http://www.theconstructionindex.co.uk/news/view/beware-spirit-of-partnership-clauses

Good faith clause may not always be so good, warns Kim Teichmann.

Partnering clauses and good faith clauses are popular as they are generally viewed as a step towards a better partnering ethos. But beware!

These clauses are not as innocuous as you may think. In the recent case of TSG Building Services PLC v South Anglia Housing Limited [2013] EWHC 1151 (TCC), such a clause cost the client a lot of money.

South Anglia Housing is a housing association responsible for 5,500 individual properties. It entered into a contract for building and maintenance services of those properties with the contractor TSG Building Services. The contract included as part of a clause, the phrase “the Partnering Team members shall work together and individually in the spirit of trust, fairness and mutual co-operation…”

As the contract progressed, the contractor became disillusioned by the level of work it was getting and the way it was being paid. The parties began discussing a different method of payment and then unexpectedly the housing association terminated the contract by relying on a termination at will clause, which allowed termination without reason.  

The unhappy contractor claimed a significant sum of £900,682 from the housing association, which it said was its damages suffered as a result of the wrongful termination. The housing association said that there was no such thing as wrongful termination under the contract, it was allowed to terminate for no reason, which it did. The contractor answered that this termination was wrongful because the termination at will clause had to be read in the light of the clause, which required the parties to act in a spirit of trust, fairness and mutual co-operation and it meant that there was an implied term not to terminate unless in good faith. 

The housing association then found itself defending an adjudication claim for wrongfully terminating and it lost. It was ordered to pay the sum of £383,778.91 plus the adjudicator’s costs. However, that was not the end of the legal costs as the housing association then went to court to ask for a declaration about whether or not it had wrongfully terminated and the contractor tried to enforce the adjudication award in court. A very expensive affair!

The court found that the partnering clause did not affect the termination clause and that the termination was not wrongful. However, this decision was based on the way the partnering clause was drafted; it was limited to certain circumstances and did not apply to all dealings between the parties.

But what would have happened if the partnering clause had been general and was not limited to certain circumstances? The answer is that such a general clause could result in good faith provisions being implied in other clauses.

What this means for everyone is that if you have a clause that says that parties must be fair to each other, it may mean that the court interprets the “not such fair” clauses in a different way than it would otherwise have done. The lesson is that if you are not really being nice or fair, do not agree to a clause that says otherwise.    

 

 

 

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Lessons from Walter Lilly One year on, the lively case of Walter Lilly versus Mackay may not be quite the precedent that the construction industry had hoped.]]> Tue, 18 Jun 2013 10:45:05 +0100 http://www.theconstructionindex.co.uk/news/view/lessons-from-walter-lilly http://www.theconstructionindex.co.uk/news/view/lessons-from-walter-lilly

One year on, the lively case of Walter Lilly versus Mackay may not be quite the precedent that the construction industry had hoped.

The legal tussle between millionaire barrister/property developer Giles Mackay and contractor Walter Lilly & Co made headlines last year, fuelled in part by Mr Mackay’s colourfully abusive language. The judge described him as “combative, bullying and aggressive".

Mr Mackay hired Walter Lilly to help build his dream family home in London back in 2004. All was smooth sailing until major delays ensued. Blame was thrown around between the parties and the relationship turned sour. With no single party clearly to blame, the issue of culpability reared its head. The court case that followed was one of the lengthiest and most expensive of its kind.

Eventually the verdict in favour of Walter Lilly was a victory for those in construction, a win both for common sense and the letter of the law. The contractor was awarded £2.3m damages for sums wrongly deducted for alleged defects, loss and expense related to delay and outstanding unpaid value of works.

However, there are lessons that the industry should heed, lest they find themselves in a similar legal wrangle.

  1. Keep a record

In the case of Walter Lilly / Mackay, there was a lack of precise records detailing where (and with whom) concurrent delay lay. As a result, the contract became impossible to settle amicably. Unsurprisingly, this had a knock-on effect for the length of the case itself as Mr Justice Akenhead tried to unscramble the events that had taken place and where the blame lay. 

Given this, it is not difficult to see the worth of maintaining excellent site records from the beginning – for both the contractor and the client. It is essential that any disruptions and delays put forward to the court are completely justified as the judge can disagree with any aspect they feel is not sufficiently supported. Keeping a clear and detailed timeline of events can minimise time and costs later down the line, helping contractors to present a water-tight case, missing no opportunity for apportionment. 

On top of this, be clear on exactly what the contract states regarding extension of time from the beginning. It is imperative that you understand where you stand from day one.

A lack of records in the Walter Lilly / Mackay case meant that, to some degree, common sense and logical reasoning had to take over in order to decipher the cause of delays. For those facing a similar predicament today, following a few simple steps can help construction companies avoid any future misunderstandings.

  1. Get a good expert

Good expert advice will make or break you. Avoid diving head-first into automated project management tools that often don’t offer sufficient support and advice. Equally, knowing that you’ve selected an advisor you can rely on is critical and research is essential when it comes to finding the right expert. Be it a team or an individual, take time to look into their specialist areas of expertise – it will provide reassurance that they will be able to get under the skin of your business.

Pinpoint exactly what type of advice you need. There are a multitude of advisors out there but try to separate those who can genuinely help from those trying to shoehorn their solution to your problem. Don’t underestimate the value of face to face meetings. It is important to spend time with potential advisors to ensure that the chemistry is right from the outset – the chances are you may be working alongside each other for a considerable amount of time.

  1. Each case is unique

The Walter Lilly v Mackay case created such a buzz because almost every aspect of it was unusual – a loss of perspective, a string of blown up media headlines and a constant rotation of architects, advisors and project managers that kept adding to the complexity.

The circumstances around the case make it unlikely that construction companies today will face the same scenario. As such, it is important to be realistic and not to rely on the case’s verdict as a precedent for the future.

With close to 700 paragraphs of judgement, it is easy to turn to the Walter Lilly v Mackay verdict and draw on excerpts to support one’s own argument. Its sheer volume means that there is likely to be something in there for everybody. But, as tempting as this may be, it is imperative to apply context and look at each case afresh. Even if there are genuine similarities between your case and another, it is wiser to approach the argument from scratch rather than slicing and dicing out-of-context references from past rulings. Adhering to points 1 and 2 above may also mean you don’t have to rely on precedence to prove your case.

 

This article was supplied by law firm Watson Burton and edited by The Construction Index

 

 

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