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Construction Law Update

3CPD

17 October 2012

Keith Blizzard BSc(Hons) DipArb FRICS FCIOB FCIArb FFB MEWI

Partner, Shakespeares Legal LLP

Construction Law UpdateThe Trustees of Ampleforth Abbey Trust –v- Turner & Townsend Project

Management Limited

Beck Interiors Limited v UK Flooring Contractors Limited

Merit Process Engineering Limited –v- Balfour Beatty Engineering Services

Point West London Limited –v- Mivan Limited

Walter Lilly & Company Limited v Giles Mackay & DMW Developments Limited

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The Trustees of Ampleforth Abbey Trust –v-Turner & Townsend Project Management Limited

Ampleforth v TTPM

• Concerns

– the liability of construction professionals when they do not obtain an executed contract

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Ampleforth v TTPM

• TTPM provided a “one stop shop” service

• 2000-2005 TTPM were Project Managers on 3 projects to provide newboarding accommodation

• Case relates to 3rd project known as “the H5 works”

Ampleforth v TTPM

• Kier Construction

– Start on site December 2003

– Practical Completion November 2004

• Quality satisfactory but very late

• Kier claimed EoT plus Loss & Expense

• Trust sought LADs of £750,000 for delay

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Ampleforth v TTPM

• Formal mediation

– Kier had no further payments

– Trust did not receive LADs

• All H5 works done under Letters of Intent

• Contract was executed long after works had been completed and on the terms agreed at the mediation which excluded any entitlement on the part of the Trust to liquidated damages for delay

Ampleforth v TTPM

• In proceedings the Trust claimed professional negligence of TTPM

– If TTPM had acted with care and skill reasonably expected of a project manager, it would have procured Kier’s execution of the building contract and that in those circumstances Kier would have been liable to pay liquidated damages for delay and the Trust would have achieved a more advantageous outcome of the dispute with Kier

– TTPM denies that it was negligent in its management of the H5 works. It also denies that anything it might have done would have led Kier to execute the building contract and contends that, even if the building contract had been executed, the Trust would have been in no better position in its dispute with Kier. By a counterclaim it seeks payment from the Trust of unpaid fees relating to the H5 works.

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Ampleforth v TTPM

• Summary of Court’s decision

• TTPM owed to the Trust a duty to exercise reasonable care and skill for the purpose of procuring from Kier an executed building contract

• TTPM was in breach of that duty, in that it failed to exercise sufficient focus on the matters holding up execution of the contract or to exert sufficient pressure on Kier to finalise the contract

Ampleforth v TTPM

• That breach of duty caused the Trust loss, because if TTPM had not been in breach of duty

– The Trust would have taken sufficient steps to ensure that, so far as lay within its power, it procured a contract

– There would have been a real and substantial chance of Kier executing a contract that contained a provision for liquidated damages

– The existence of such a contract would have been a material benefit to the Trust in it dispute with Kier when completion of the H5 works was delayed

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Ampleforth v TTPM

• Regarding the quantum of the Trust’s loss

– if there had been a contract in existence, the Trust and Kier probably would have negotiated a reasonable settlement of their dispute. The value of such a settlement to the Trust would have been £340,000, taking into account the probable price that the Trust would have had to pay to achieve the execution of the contract

– The Trust is entitled to recover two-thirds of that amount

Ampleforth v TTPM

– Although the terms of TTPM’s contract with the Trust included a limitation clause, TTPM is not entitled to rely on that clause to limit its liability for damages to the Trust

– Therefore the quantum of damages is £226,667

• TTPM is entitled to recover £37,167 for additional fees on its counterclaim

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Beck Interiors Limited v UK Flooring Contractors Limited

Beck Interiors v UK Flooring

• Concerns

– Whether all or part of a dispute had crystallised before an adjudication had started

– Whether part of an Adjudicator’s Decision can be severed leaving the rest to be enforced

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• UK Flooring subcontracted to install specified floor coverings for renovation works at Selfridges, Oxford Street, London

• Completion Date: 5 February 2012

• Sub-contract subject to LADs

• By 13 February 2012 no carpet had been supplied, let alone laid by UK Flooring

• On 13 February 2012 UK Flooring told Beck that it withdrew from the contract


• Various arguments over UK Flooring stopping work, repudiatory breach of contract, completion of the Works and amounts owed to each party by the other

• On 5 April 2012 Beck wrote to UK Flooring with a delay claim for £160,000

• By 10 April 2012 Beck had heard nothing so it issued a Notice of Adjudication

• Beck said silence infers a dispute

• Adjudicator agreed

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• Problem was, between 5 and 10 April – 4 day Easter holiday

• Beck also claimed for a replacement carpet layer

• This dispute had gone on for some time

• Adjudicator awarded Beck some of its delay claim and some of its replacement contractor claim

• UK Flooring did not pay

• Off to Court for enforcement


• Judge said the 5 April letter was

• “sent knowingly by Beck after close of business immediately before the holiday weekend. Beck must by inference be taken to have known that UK Flooring would have no opportunity in working hours before the following Tuesday 10 April to consider it or have any realistic chance of providing any response.”

• Disputes can crystallise in a day in other circumstances, but not here

• The way the Decision was written allowed the Judge to sever the crystallised part and enforce the rest of the Decision

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Merit Process Engineering Limited –v-Balfour Beatty Engineering Services

Merit Process –v- Balfour Beatty

• Concerns

– The importance of agreeing a price to have a binding contract

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• Balfour Beatty Engineering was a subcontractor to Costain on the Diamond Synchrotron Project

• It invited Merit to quote for the installation of pipework and plant following a series of negotiations during 2003 and 2004

• Merit was invited to start work under a Letter of Intent sent by Balfour Beatty dated 2 March 2004

– the letter was expressed to be “subject to contract”

• A series of letters and emails were then exchanged regarding the terms of the parties’ intended agreement


• In December 2004 Balfour Beatty concluded the terms of its sub-contract with Costain

• Accepted that Balfour Beatty had no intention to create legal relations with Merit until that agreement with Costain had been concluded

• Balfour Beatty sent its form of sub-contract to Merit in March 2005, which included an arbitration clause

• A dispute then arose as to whether the contract price was £1.6 million (Balfour Beatty) or £1.637 million (Merit)

• The sub-contract was never signed but Merit continued working

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• Merit brought a claim against Balfour Beatty in 2012

• Merit argued that no contract had been concluded as there was a dispute over the contract price

• Balfour Beatty argued that there was agreement on key terms and remaining dispute related only to the application of the main contractor’s discount, thus a contract had been formed


• The Judge held that price was a key term of the contract and it had not been agreed

• The difference in price (£37,500) broadly reflected the 2.5% main contractor’s discount

• Whilst not a substantial amount in the context of the contract price, it could not be considered “de minimis or otherwise non-essential”.

• Court recognised that margins on such contracts might be small, and thus £37,500 was not an insignificant sum

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• The reality was that there was a dispute as to price

• Price was such an important contract term that it would either need to be fixed, or some mechanism agreed for fixing it

• It is well established that a contract may be concluded even though further terms are still to be agreed

• Accordingly Merit was entitled to reimbursement of its costs under the Letter of Intent which set out how Merit would be paid if a contract was not concluded

Point West London Limited –v- Mivan Limited

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Point West –v- Mivan

• Concerns

– “Full and Final” Settlement agreements


• Point West was the developer for the construction 399 apartments

• Phase 4 consisted of the design and construction of a marketing suite, sky lobby and 48 apartments

• Mivan was the contractor for the Phase 4 Works

• Practical Completion was certified in June 2001

• The Final Account was agreed on 16 July 2002 in the sum of £12,549,490.02

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• Works included renewal of the curtain walling to 16th and 17th floors as a “Change”

• At this time both parties knew of problems with the curtain walling system and water ingress in relation to one flat

• These defects were not resolved over the following years

• The financial position between Point West and Mivan was the subject of correspondence from early 2005 until September 2007


• In October 2007 there were defects in both the curtain walling, which leaked, and the heating and cooling system

• Point West, now landlord of the property, decided to commence proceedings against the flat owner for unpaid service charges and needed Mivan’s assistance

• The Settlement Agreement reached included the following:

– “in full and final settlement in respect of the above works, together with any and all outstanding matters”

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• Point West argued that this did not include a settlement of any liability to pay damages in respect of defects which Mivan had, or would have in the future, under the Building Contract

• Mivan argued that it was released from liability for any defects patent as a 18 October 2007

• The Judge agreed with Mivan


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• Concerns

– A question of legal privilege

– Concurrent delay

– Global claims

The facts

• Mr & Mrs Mackay’s dream home

• DMW – an SPV

• Land purchase price was £13.2 million

• Tender price for three houses was £15,476,970.99

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Contract

• JCT Standard Form of Building Contract 1998 Edition Private Without Quantities as modified by the Contractor’s Design Portion Supplement Without Quantities 1998 Edition as amended by a Schedule of Amendments

• Walter Lilly appointed when the design was far from complete

Legal Privilege

• In March 2012 Mr Justice Akenhead allowed the claimant’s application of disclosure on the basis that legal advice privilege does not apply to documents prepared by claims consultants, commenting:

• “I should point out that this decision relates only to legal profession or legal advice privilege. It does not deal with litigation privilege and there remains an outstanding possible issue as to whether or not advice and other communications given by claims consultants in connection with adjudication proceedings are privileged. There is little authority on this latter issue and consideration might have to be given to issues of policy if and when this argument arises on another case.”

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Assessment of Delay

• Mr Justice Akenhead carried out a comprehensive review of the authorities on the court’s approach where a delay to a project is caused by both the contractor and an employer.

• First consider the relevant contractual provisions.

• While an Architect grants a prospective Extension of Time

• A Court or an Arbitrator, when looking at the same issue, has the benefit of knowing what actually happened and makes its decision based on actual and expert evidence

Assessment of Delay cont’d

• Two schools of thought when dealing with concurrent causes of delay

• English approach, whereby a contractor is entitled to a full extension of time for the delay caused by concurrent delays, provided that one of them is a ‘Relevant Event’

• Scottish approach, whereby the contractor gets a reasonably apportioned part of the delays

Based upon the City Inn case

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Assessment of Delay cont’d

• The Judge adopted the English approach

• Quotation in the notes

• I expect to see this quotation used on a regular basis by contractors in their submissions

Global Claims

• “a contractor’s claim which identifies numerous potential or actual causes of delay and/or disruption, a total cost on the job, a net payment from the employer and a claim for the balance between costs and payment which is attributed without more and by inference to the causes of delay and disruption relied on”

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Global Claims cont’d

• Again, the Judge carried out a comprehensive review of the authorities and set out the following principles:

1. A contractor has to prove its claim as a matter of fact. A contractor has to demonstrate, on the balance of probabilities that events happened which entitle it to loss and expense; that those delays caused delay and/or disruption; and such delay or disruption caused it to incur loss and/or expense/damage.


2. It does not have to be shown by a contractor claimant that it is impossible to plead and prove cause and effect in the normal way or that such impossibility is not its fault. However, one needs to see if the contractual clause relied upon places any restrictions on global cost or loss claims.

3. If a contract contains condition precedent clauses, then if they are not complied with, they will act as a bar to a relevant claim.

4. A contractor can prove its case with whatever evidence will satisfy the tribunal. This may include witness statements.

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5. There is nothing wrong in principle with global claims, but there are evidential hurdles that a contractor has to overcome. The contractor has to establish that the loss which it has incurred i.e. the difference between what it has cost the contractor and what it has been paid, would not have been incurred in any event.

This inevitably will require a review of its tender to see whether the contractor would have made some net return.


6. The fact that one or a series of events or factor (unpleaded or which are the risk or fault of the claimant contractor) caused or contributed (or cannot be proved not to have caused or contributed) to the total or global loss does not mean that a contractor can recover nothing.

The example given by the Judge is that if a contractor is claiming £1 million and it can prove that, but for one overlooked or unpriced item in the tender of £50,000, it would probably have made a return, the global loss claim does not fail, the consequence is that the global claim is reduced by only £50,000. It is not all or nothing.

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7. If an actual cost claim can be determined, the Court need not go down the global/total cost claim.

However, a contractor is not debarred from pursuing a “rolled up award” if it could otherwise seek to prove its loss in another way. The Tribunal may be more sceptical about the global cost claim if the direct linkage approach is readily available but is not used, but this does not mean that the global cost claim should be rejected out of hand.


8. The argument, advanced by the employer, that a global claim should not be allowed in circumstances where the contractor has itself created the impossibility of disentanglement is wrong.

9. In principle, unless the contract dictates that a global cost claim is not permissible if certain hurdles are not overcome, such a claim may be permissible on the facts and subject to proof.

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• The project was “disaster waiting to happen”

• We should be grateful to the Parties for spending the “disproportionate” sum of between £9m and £10m on legal costs to find answers to a number of important questions in relation to delay and associated costs claims

Keith BlizzardBSc(Hons) DipArb FRICS FCIOB FCIArb FFM MEWIPartner

Shakespeares Legal LLPSomerset HouseTemple StreetBirminghamdirect t 0121 631 5221direct f 0121 237 3030main t 0121 237 3000 ext 2275

[email protected]

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