1. Privy Council rules out contractor's cancellation charges in FIDIC Yellow Book termination claim
The employer, under two contracts based on the 1999 FIDIC Plant and Design-Build Yellow Book, terminated the contracts for convenience. Upon termination under the 1999 edition, the contractor is not entitled to compensation for loss of profit but is entitled to payment for work done, the cost of plant and materials ordered and delivered (or for delivery costs for which the Contractor is liable), and, under condition 19.6(c), to costs "… reasonably incurred … in the expectation of completing the works".
Over a year before the termination, relying on preliminary designs, the contractor had contracted with a third party for the purchase of equipment for the works. Those contracts were terminated before being performed, when the main contracts were terminated, but on cancellation the contractor was liable to pay cancellation charges calculated as 30% of the total price quoted for the equipment. Was that liability "reasonably incurred by the Contractor in the expectation of completing the Works"?
In ruling that it was not, the Privy Council said that, as a general rule under a contract of this kind, the contractor is entitled to proceed, and to incur costs and liabilities, on the assumption that the contract will be performed. Arguments that, because the contractor knew or ought to have known that the employer was likely to exercise its right to terminate the contract early for its "convenience", the contractor acted unreasonably in ordering materials or equipment required if the works were to be performed, will not generally carry weight.
This followed from the allocation of risk under the contract. Condition 8.1 (as modified) obliged the contractor to "proceed with the works with due expedition and without delay, until completion". To hold back from expeditious performance because of an expectation that the contract was likely to be terminated before completion would be inconsistent with that obligation and would also expose the contractor to a risk of liability to pay liquidated damages, and incurring other additional costs, if the contract was not terminated early, for which it would not be entitled to any compensation from the employer. It was unreasonable to expect the Contractor to take such a risk.
The problems that arose in this case, which gave rise to risks that the employer would decide to terminate the contracts early for convenience, were not relevant to whether the contractor acted reasonably in entering into the equipment contracts and incurring the cancellation charges. It did not follow, however, that all questions of timing are irrelevant in applying the test of reasonableness. A prudent contractor would not generally commit itself to purchasing equipment before it is needed (taking into account delivery times) and before the designs to which the equipment must conform have been finalised.
The contractor had the burden of proving that it incurred a cost or liability falling within clause 19.6(c). In some cases, reasonableness may be inferred from the contract requirements, the nature of the cost or liability incurred and the stage which the project had reached, but in this case no such inference could be drawn from those bare facts. When only preliminary designs had been completed and much of the design work remained to be done, it was, on the face of things, unreasonably premature for the contractor to enter into unconditional contracts to purchase most of the equipment for the works. The fact that nothing was done to perform those contracts reinforced that impression and it was prima facie unreasonable for the contractor to undertake obligations to pay cancellation charges if the purchase orders were cancelled, when the supplier was not, so far as the evidence showed, itself incurring any costs or liabilities for which those charges could be regarded as compensation. The contractor, however, provided no evidence to explain its decision to enter into the equipment contracts and why this was thought to be in the contractor's interests.
2. Three key ingredients for a Building Liability Order
Three key ingredients are needed for the court to make a Building Liability Order under s130 of the Building Safety Act:
- a "relevant liability";
- an "associated" company; and that
- it is "just and equitable" to make the order.
In 381 Southwark Park Road RTM Company Ltd v Click St Andrews Ltd ( see January 2025 update at: https://www.mayerbrown.com/en/insights/publications/2025/01/legal-developments-in-construction-law-january-2025) the court had ruled that there was a "relevant liability" (a liability incurred as a result of a building safety risk) but did not make a Building Liability Order, which, it said, would be a matter for a further hearing.
In the subsequent hearing the court ruled that the parent company of the defendant company that had the "relevant liability" was an "associated" company of that defendant, because it controlled it indirectly, in the sense that it was able, through the corporate structure, to secure that the affairs of the defendant were conducted in accordance with its wishes. The controlling or directing mind of both of the companies was the same person.
Was it then "just and equitable" to make the order? The only case to date in which that phrase had been considered was the decision of the First Tier Tribunal in Triathlon Homes LLP and Stratford Village Development Partnership on an application for a remediation contribution order under section 124 of the Building Safety Act 2022. In Triathlon, in the absence of any guidance from s124, the Tribunal said that:
"The obvious purpose behind the association provisions is to ensure that where a development has been carried out by a thinly capitalized or insolvent development company, a wealthy parent company or other wealthy entity which is caught by the association provisions cannot evade responsibility for meeting the cost of remedy in the relevant defects by hiding behind the separate personality of the development company."
In the Southwark case, the defendant company with the "relevant liability" was a special purpose vehicle whose sole existence was to acquire the freehold of the property in question, to develop the top floor, and then to divest itself of the freehold. It was inevitably thinly capitalised and dependent on inter-company or inter-group loans for its financial wellbeing but, unlike the situation in Triathlon, there was considerable doubt as to the financial standing of the associated parent company in Southwark. The court, however, agreed with the claimants' argument that the emphasis should be on the financial position of the defendant rather than on the parent company. In Triathlon the tribunal also said that:
"… we think it would be an unusual case in which the source or extent of a respondent's assets or liabilities will carry much weight when deciding whether it is just and equitable to order it to bear the cost of remediation."
The indicators, at least prima facie, were very much in favour of the making of an order in respect of the parent company because it was the holding company of the defendant, although by one step removed, and because the directing mind of the companies was common.
The claimant leaseholders also said that the Building Liability Order would, or should, extend to liability in respect of all of their losses, whatever the breach from which they arose. The court rejected the argument, noting that it made no sense to treat the “relevant liability” as a gateway to recovery of all losses arising from any liability that might have been found on the part of the defendant company. That was not what the Act provides for. The Building Liability Order therefore provided that the relevant liability of the defendant company to the claimants was also the liability of the parent company to the same claimants.
381 Southwark Park Road RTM Company Ltd & Ors v Click St Andrews Ltd & Anor [2024] EWHC 3569 (no link to judgment available)
3. On the importance of writing and a reminder about invisible contract terms
Contract disputes keep courts and lawyers busy. For instance, if a contract is in writing there may be a dispute about what it means. If not in writing there may be a dispute about what was said and whether there was a contract at all. And when there is a contract, there can be debate about invisible, implied terms. In Assensus Ltd v Wirsol Energy Ltd the court provided some helpful comments.
Mr Justice Constable noted the doubt cast on oral evidence, notably in Gestmin SGPS SA v Credit Suisse (UK) Ltd, and the fallibility of memory, but also cautioned that, while contemporaneous documents are an extremely valuable source of evidence, they do not demand uncritical primacy. The contents of documents must be tested against the facts in their full context.
One of the claimant' arguments in Assensus was that a term was implied in the parties' agreement that the defendant would pay the claimant a reasonable bonus. Both parties relied on the usual case law, when setting out the legal basis upon which the court should approach the analysis of whether an implied term existed.
The court noted that, traditionally, two tests for an implied term have been used:
- the business efficacy test (the proposed term will be implied if it is necessary to give business efficacy to the contract; and
- the 'officious bystander' test (the proposed term will be implied if it is so obvious that, if an officious bystander suggested to the parties that they include it in the contract, 'they would testily suppress him with a common 'oh of course''. The proposed term must be so obvious that it goes without saying.
In Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd the Supreme Court judgment added, among other things, that business necessity and obviousness can be alternatives in the sense that only one of them needs to be satisfied, although it suspected that, in practice, it would be a rare case where only one of those two requirements would be satisfied. It was also noted that a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary, but not sufficient, grounds for including a term.
More recently the Court of Appeal has said that "…The question is to be assessed at the time that the contract was made: it is wrong to approach the question with the benefit of hindsight in the light of the particular issue that has in fact arisen. Nor is it enough to show that, had the parties foreseen the eventuality which in fact occurred, they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred…"
Assensus Ltd v Wirsol Energy Ltd [2025] EWHC 410 (KB)
4. What do you need for a BSA s132 information order?
Section 130 of the Building Safety Act empowers the High Court to make a Building Liability Order, if just and equitable to do so, imposing liability on an ‘associated’ company in respect of a “relevant liability” (liability under the Defective Premises Act 1972, S38 of the Building Act 1984 or as a result of a ‘building safety risk’ from fire spread or structural failure). This order provides that such a liability, of a body corporate, is also the liability of a specified ‘associated’ body corporate (whether active, insolvent or dissolved) or, jointly and severally, two or more specified bodies corporate. Two companies are “associated” if one controls the other or a third party controls both of them.
S132 of the Act provides a means by which a prospective applicant for a building liability order can obtain information or documents to enable it to make, or consider whether to make, such an application. But just what does an applicant need to show to obtain such an order?
In BDW Trading Ltd v Ardmore Construction Ltd the court, in rejecting two s132 applications, noted that an information order can only be made against a corporate body that "is subject to a relevant liability" and not, therefore, against any 'associated' company. This conclusion was contrary to the example given in the Explanatory Notes to the Building Safety Act but, although those Notes are an admissible guide to the interpretation of a statute, what matters is the interpretation of the statute, not that of the Notes.
The first condition to be satisfied in s132(3) before the court can make an information order is that "it appears to the court … that the body corporate is subject to a relevant liability". On this question there appeared to be no existing case law but the court considered that this wording deliberately reflected two important things, that it is not necessary that the existence of a relevant liability should already have been established and that the court, on a s132 application, is not determining the question of liability but is simply forming a view on the question for the purpose of considering the application.
On the practical question of what is to be expected on the hearing of a s132 application where liability has not been established, the court considered that s132 applications ought to be short and uncomplicated, and did not require the court to become embroiled in assessments of the merits of disputed matters.
The second condition in s132(3) is that it is appropriate to make an information order. Although the court did not strictly need to consider this condition, it noted, in brief comments, that s132 does not stipulate the kinds or categories of information or documents that may be specified in an information order. These will clearly include information and documents to enable the applicant to identify associates of the respondent and, in an appropriate case, will, in the court's view, also include matters concerning the financial position of the associate, which might, in a given case, be highly material to the decision whether or not to apply for a building liability order. If, however, the information and documents are publicly available, or if they are not needed for such an order, it is hard to see why an information order would be appropriate but, rather than deciding this issue in the abstract, it is better to look at the terms of the particular application and consider then what is appropriate, as required by s132(3)(b).
BDW Trading Ltd v Ardmore Construction Ltd & Ors [2025] EWHC 434
5. Government response to Grenfell Phase 2 report
The government has published its response to the Grenfell Tower Inquiry Phase 2 Report. It accepts all the Inquiry's findings and sets out extensive plans to follow up on the report's recommendations. The many initiatives include plans for:
- a single construction industry regulator;
- licensing for HRB principal contractors;
- ·new requirements for principal designers;
- a review of the definition of an HRB;
- moving fire related functions from the Home Office to the Ministry of Housing, Communities and Local Government;
- reforms to the construction products regime;
- progress reports, providing an update against each Inquiry recommendation, to be published on GOV.UK from June 2025 on a quarterly basis.
Construction products green paper
The government's green paper supports its response to the Grenfell Inquiry and sets out proposals for construction products reform, including proposals that address the Inquiry‘s recommendations. It also serves as the government’s response to the Independent Review of Product Testing and Certification (the Morrell-Day Review).
The proposals set out how testing and certification will be strengthened and how the regulators will be equipped with enhanced powers and resources to effectively enforce regulations.
The consultation on the proposals closes on 21 May 2025.
See: Construction Products Reform Green Paper - GOV.UK
6. HSE starts Approved Documents review
The Building Safety Regulator’s Technical Policy team is planning an official review of the Approved Documents and has launched a call for evidence on statutory guidance supporting Part A of the Building Regulations on structural safety (Approved Document A).
The call seeks views on areas of guidance requiring increased clarity, research or further development.
This forms the first step of the detailed review, which includes a programme of work looking into potential changes to Approved Document A. Any changes will be the subject of detailed consultation.
The closing date is 21 April 2025.
See: https://www.constructionleadershipcouncil.co.uk/news/approved-documents-research/
7. BSR adds new BSA FAQs
New FAQs have recently been added to the Building Safety Regulator's BSA FAQs, covering Category A and B work, connected buildings and changing a dutyholder.
See: The Building Control Authority - Making Buildings Safer
8. More JCT 2024 contracts issued
The latest instalment of JCT 2024 contracts has been released:
The contracts released are:
JCT Construction Management Contract 2024
- Construction Management Appointment 2024 (CM/A 2024)
- Construction Management Trade Contract 2024 (CM/TC 2024)
- Construction Management Guide 2024 (CM/G 2024)
- Construction Manager Collateral Warranty for a Funder 2024 (CMWa/F 2024)
- Construction Manager Collateral Warranty for a Purchaser or Tenant 2024 (CMWa/P&T 2024)
- Trade Contractor Collateral Warranty for a Funder 2024 (TCWa/F 2024)
- Trade Contractor Collateral Warranty for a Purchaser or Tenant 2024 (TCWa/P&T 2024)
JCT Management Building Contract 2024
- Management Building Contract 2024 (MC 2024)
- Management Works Contract Agreement 2024 (MCWC/A 2024)
- Management Works Contract Conditions 2024 (MCWC/C 2024)
- Management Works Contractor/Employer Agreement 2024 (MCWC/E 2024)
- Management Building Contract Guide 2024 (MC/G 2024)
- Management Contractor Collateral Warranty for a Funder 2024 (MCWa/F 2024)
- Management Contractor Collateral Warranty for a Purchaser or Tenant 2024 (MCWa/P&T 2024)
- Works Contractor Collateral Warranty for a Funder 2024 (WCWa/F 2024)
- Works Contractor Collateral Warranty for a Purchaser or Tenant 2024 (WCWa/P&T 2024)
JCT Framework Agreement 2024
- Framework Agreement 2024 (FA 2024)
- Framework Agreement Guide 2024 (FA/G 2024)
JCT Adjudication Agreement 2024
- Adjudication Agreement 2024 (Adj 2024)
- Adjudication Agreement (Named Adjudicator) 2024 (Adj/N 2024)
JCT Dispute Adjudication Board Documentation 2024 (DAB 2024)
JCT Project Bank Account Documentation 2024 (PBA 2024)
Information about the key changes to the JCT 2024 Edition can be found at: JCT 2024 Edition – The Joint Contracts Tribunal
9. HSE sets up new Remediation Enforcement Unit
The HSE is setting up a new Remediation Enforcement Unit within the Building Safety Regulator, to assess, quickly, the cladding risk for those buildings that are registered with the Regulator.
The Remediation Enforcement Unit is to hold to account owners of registered HRBs clad with combustible aluminium composite material and high-pressure laminate, enforcing, where necessary, to ensure the remediation of unsafe cladding on HRBs.
The government expects the unit to be up and running by Summer 2025.
See: Building Safety Regulator: February 2025
10. Arbitration Act 2025 becomes law but awaits a start date
The Arbitration Act 2025, which amends the 1996 Arbitration Act, became law on 24 February and the majority of its provisions will be brought into force, by regulations. "as soon as practicable".
When in force the Act will:
- clarify the law applicable to individual arbitration agreements;
- empower arbitrators to speed-up decisions on issues that have no real prospect of success;
- require arbitrators to disclose any circumstances which could cast reasonable doubt on their impartiality;
- empower the court to make orders supporting the actions of emergency arbitrators, and orders against third parties not involved in the proceedings, for example to preserve evidence or take witness evidence.
- extend arbitrator immunity against liability for resignations and the costs of applications to court for their removal;
- simplify court procedures related to arbitration.
See: https://www.gov.uk/government/news/boost-for-uk-economy-as-arbitration-act-receives-royal-assent;
and
https://www.legislation.gov.uk/ukpga/2025/4/contents/enacted
11. Procurement Act in force
The Procurement Act 2023, the Procurement Regulations 2024 and the new National Procurement Policy Statement are now in force.
Existing legislation will continue to apply to procurements started under the old rules.
The Act, Regulations and Statement, factsheets, guidance and other materials can be found at: https://www.gov.uk/government/collections/transforming-public-procurement
12. Updated guidance on reporting payment practices and performance
The government has issued updated guidance on reporting on payment practices and performance.
Under the Reporting on Payment Practices and Performance (Amendment) Regulations 2025 (see February 2025 update) new reporting requirements have been introduced for companies in scope of the reporting requirement which use qualifying construction contracts. These new requirements will apply in relation to each financial year of a company beginning on or after 1 April 2025.
The requirements relate to retention practices, policies and performance where retention clauses are included in a qualifying construction contract.
These include:
- a statement on whether the payment practices and policies of the business include or do not include retention clauses
- where a business makes a statement that retention clauses are included in their construction contracts, further information must be submitted
and
Duty to report: guidance to reporting on payment practices and performance - GOV.UK
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