UK Construction Contracts round-up - November 2018

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Welcome to our round-up of new contracts and contract issues in the UK construction industry.

New and updated standard form contracts

A number of the contracts bodies have issued new / new editions of contracts.

  • The NEC has published a free practice note explaining "how the NEC4 suite of contracts can be used to support the use of offsite modular construction". Noting how this method of construction can increase efficiency and cut costs, the guidance highlights the importance of the client starting with a procurement and contract strategy and engaging its supply chain. It explains how the NEC4 suite has a variety of contracts to suit a range of project needs and covers single point responsibility for onsite and offsite construction, design, quality, multiparty contracts, payment, title and information modelling. Click here to access the guidance.
  • The Crown Commercial Service has also been working with the Infrastructure and Procurement Authority and BuildUK to produce a set of standard "boilerplate" amendments for use on UK public-sector NEC contracts. The aim is to improve public sector client contract management and risk transfer behaviours with BuildUK's promotion of fair contract terms. (Source: NEC news)
  • The Royal Institute of British Architects (RIBA) has published 2018 editions of its Professional Services Contracts and Building Contracts. Click here to view the full suite of 2018 RIBA Professional Services Contracts.
  • The Association for Consultancy and Engineering (ACE) and the Civil Engineering Contractors' Association (CECA) have issued new versions of the Infrastructure Conditions of Contract (ICC) as follows: the ICC Design and Construct Version, June 2018 (which revises the 2011 Design and Construct Version); the ICC Target Cost Version, June 2018; and the ICC Target Cost Version Guidance Notes, June 2018. New Guidance Notes have also been published to help with contract preparation and administration.
  • The Construction Industry Council (CIC) has published a new suite of standard form collateral warranties, along with a new "ab initio" novation agreement. (Source: CIC news)

Payment issues

Progress of the Construction (Retention Deposit Schemes) Bill has been further delayed. Introduced into Parliament by MP Peter Aldous in January 2018, it was scheduled to receive its second reading in the House of Commons on 23 November 2018, but has been postponed again – to 25 January 2018.

For the background to the bill, click here: "Aldous Bill" sets out proposed new legislation to protect retentions".

Contract law: case reviews

The courts have dealt with a number of interesting issues in the last few months. Click on the links below to read our case reviews on the following:

Court of Appeal ruling: the prevention principle cannot override expressly agreed terms

The Court of Appeal (CA) has confirmed that parties to a construction contract may allocate the risk of concurrent delay contractually without being in contravention of the common law doctrine of prevention.

The CA's decision (in North Midland Building Limited v. Cyden Homes Limited [2018] EWCA Civ 1744) upheld Mr Justice Fraser's Technology and Construction Court (TCC) decision (which we reviewed in 2017: "Contracting parties can agree up front who will take the risk of concurrent delay").

In summary:

  • The parties agreed a contractual term in their building contract which stated that in the event of a concurrent delay then the delay event for which the contractor was not responsible did not cancel out the effects of the delay event for which it was responsible. This reversed a usual and common law position.
  • The term "concurrent delay" is used to describe the situation where delay to the contract completion date is caused by two or more different events of equal causative potency, one of the two events being the responsibility of the employer and the other the contractor's (the John Marrin QC definition).
  • There is no rule of law or statutory restriction which stops the parties agreeing on how to deal with concurrent delay. (The decision in Multiplex v. Honeywell (which set out propositions for the prevention doctrine) and the doctrine of prevention were simply not relevant.)
  • Contracting parties are free to agree whatever terms they wish to agree. There is no rule of law that prevents the parties from agreeing that concurrent delay be dealt with in any particular way.
  • Parties might now consider more carefully the degree to which each party undertakes responsibility for concurrent delay. Contract drafting might become more complex and parties will need to take care that their drafting is clear and unambiguous. Employers should note that contractors will be more reluctant to accept clauses under which they accept the risk of concurrent delays.

Guidance on economic torts

In Palmer Birch (A Partnership) v. Lloyd [2018] EWHC 2316 (TCC), the TCC found two individuals directing the affairs of a building contractor to be liable for the economic tort of unlawful means conspiracy. They had colluded in causing the liquidation of the building contractor to avoid it having to meet its duties under the building contract, including payment obligations. Economic torts are hard to establish and this decision provides useful guidance on three torts: inducing a breach of contract, unlawful interference and unlawful means conspiracy.

Cavendish v. Makdessi applied

GPP Big Field LLP and another v. Solar EPC Solutions SL (formerly known as Prosolia Siglio XXI) [2018] EWHC 2866 (Comm), involved claims for damages (both liquidated and unliquidated) for late and/or non-completion of the works required under four engineering, procurement and construction (EPC) contracts. The court dismissed arguments that the liquidated damages provision amounted to a penalty and was therefore unenforceable. In reaching that conclusion, the court applied the test in Cavendish Square Holding BV v. El Makdessi and ParkingEye Ltd v. Beavis was referenced (and the summary of that case in ZCCM Investments Holdings plc v. Konkola Copper Mines plc).

We explained the issues in Cavendish in our article: The Supreme Court has reformulated the rule against penalties.

How good is your guarantor? A reminder of the distinction between a guarantee and an indemnity

Our dispute resolution colleagues recently reviewed the decision in Catalyst Business Finance v. Very Tangy Television Limited, Richard Tuckwell, Very Tangy Media Limited [2018] EWHC 1669 (QB) which provides a useful reminder of the differences between a true indemnity and a true guarantee. Click here to read their report: How good is your guarantor? A reminder of the distinction between a guarantee and an indemnity.

Electronic execution of documents: Law Commission consultation

"Electronic signatures can be used to sign formal legal contracts under English Law," announced the Law Commission when publishing its conclusions into this topic back in August 2018. The consultation into its conclusions, which finishes at the end of November 2018, focused on two aspects of the electronic execution of documents: the use of electronic signatures to execute documents where there is a statutory requirement that a document must be "signed"; and the electronic execution of deeds, including the requirements of witnessing and attestation and delivery.

The Law Commission's aims were to make it easier to execute documents electronically and to allow businesses to "speed up transactions by going fully digital". Its suggestions for reform include provision for e-signatures to be witnessed via webcam or video link and for a working group to delve deeper into the ongoing practical issues that e-signatures create.

A separate project to investigate whether the concept of "deeds" and the long-standing formalities deeds demand remain suitable for our age.

Obligations to discuss contract-related changes in good faith

Lord Justice Leggatt discusses the flexibility of English contracts law and poses a challenge for lawyers.

In October 2018, Lord Justice Leggatt spoke about the adaptability of English contract law at the Jill Poole Memorial Lecture at Aston University. With the significant increase in businesses contracting with diverse, international parties, his speech focused on the theme of "keeping commercial law up to date in times of rapid change". Those who enter into longer-term contracts, where relationships have to adapt in order to benefit over the contract period, will find Leggatt LJ's views interesting. He focused on clauses that require the parties to negotiate "in good faith" if circumstances change – and concluded that these clauses will become more common in future.

Leggatt LJ discussed the effect of a requirement to meet to discuss, in good faith, the effect of changed circumstances and what such a clause required the parties to do. Such a provision is historically, and, arguably, still, unenforceable in English law. Either the parties did not intend it to have the force of law or it is too uncertain to be enforceable. The judge reviewed the line of case law starting with Courtney & Fairbairn (that the court will not recognise an agreement to negotiate) as confirmed by the House of Lords in Walford v. Miles (that an agreement to negotiate or to negotiate in good faith, has "no legal content"). Noting that Walford had not been overruled, the judge pointed out that the law has, nevertheless not stood still in the 20 years since that decision. Indeed, developments suggest "there is no reason why the concept of good faith should cause difficulty for English lawyers".

Commenting that the common law doctrine of precedent can act as an obstruction, he nevertheless was of the view that "through the ability to reinterpret and occasionally to depart from past decisions, the common law has the flexibility to overcome or work its way around an obstacle to its development, even where … the obstacle is a decision [Walford] at the highest level [the House of Lords]. Leggatt LJ called on practitioners "to present the arguments clearly and effectively and sometimes to raise innovative points" and for legal scholars to show judges how the law can be made more coherent".

(Click here for the speech: "Negotiation in Good Faith: Adapting to Changing Circumstances in Contracts and English Contract Law, 19 October 2018.)

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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