Legal Developments in Construction Law: February 2024

In this issue

1.  "Smash & grab" claim + true value claim = one adjudication dispute, or two?
2.  Fraud: can an exclusion clause exclude or limit liability?
3.  Duty of good faith: when might one be implied?What might such a duty mean? Could other cases provide the answer?
4.  2025 start for new retention reporting requirements?
5.  'Golden thread' (in occupation), and safety risks management, regulations now in force
6.  More Building Safety Act provisions brought into force
7.  Government guidance on HRB non-determination applications
8.  Building Safety Levy: response to last consultation and launch of technical consultation
9.  MF/1 2024 (Revision 7)
10.  More HSE mandatory occurrence reporting guidance

1. "Smash & grab" claim + true value claim = one adjudication dispute, or two?

A subcontractor resisting enforcement of an adjudication award claimed that the adjudicator had exceeded their jurisdiction. The adjudicator had decided a technical "smash & grab" claim for payment, ruling that it was invalid, and had then gone on to determine a true value payment. The subcontractor claimed, however, that there were two disputes and that the adjudicator had exceeded their jurisdiction in dealing with the true value claim. But was that correct?

In ruling that there was just one dispute, the court applied a broad interpretation to the concept of a "dispute", set alongside the robust common-sense approach in the textbook Coulson on Construction Adjudication, which framed this question:

"Taking into account the nature of the dispute and the manner in which it was presented to the Adjudicator, can it fairly be described as a single, disputed claim for a sum due or a referral of a number of disputes which, on analysis, are independent of one another?"

The court said the answer was clearly the former, for a number of reasons. The notice of adjudication clearly characterised the dispute as a failure to pay any sum due to the claimant by the final date for payment, whether as a notified sum or a substantive amount. To characterise these as separate disputes would be too legalistic an approach to the exclusion of a task readily performed by the adjudicator on the facts and in time. Two routes were advanced to the same goal of determining a sum owed.

In the court's experience, it was not unique for disputes on such issues to be combined within one adjudication referral, as alternative outcomes. Overall, the dispute could fairly be described as a single, disputed claim for a sum due.

Bellway Homes Ltd v Surgo Construction Ltd [2024] EWHC 10

2. Fraud: can an exclusion clause exclude or limit liability?

There is an old legal rule that "fraud unravels all". Once fraud is proved, "it vitiates judgments, contracts and all transactions whatsoever". But what about an exclusion clause? Could that exclude, or limit, liability for fraud? In Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corporation the court had to consider this question.

In doing so, the court set out these 'well established' principles:

• Exclusion clauses mean what they say;
• it is a matter of construction rather than law as to whether liability for deliberate acts will be excluded;
• limitation clauses are not regarded by the courts with the same hostility as exclusion and indemnity clauses;
• a contracting party cannot exclude liability for its own fraud in inducing a contract;
• as to whether a clause excludes liability for fraud in performance of a valid contract is a matter of construction of the commercial provisions and risk allocation;
• an exclusion or limitation clause is more likely to be construed as effective if it is excluding the liability for fraud of an agent or employee rather than the fraud of the contracting party itself;
• the words “howsoever arising” are capable of effecting an exclusion of liability for wilful default.

Fraudulent misrepresentation was carved out from the exclusion and limitation clauses in issue in the case but the court said it was important to note that, in the exclusion clause, as a matter of construction, the word “fraudulent” applied only to representation not to the words which followed referring to "any warranty (express or implied), condition or other term, or any duty at common law, or under the express terms of this agreement."

The court ruled that the exclusion of liability in respect of loss of profits applied to all claims except a claim based on a fraudulent representation, namely a claim in the tort of deceit. A claim for loss of profits caused by a breach of contract not involving a representation was therefore excluded, even if that breach was committed fraudulently.Even if that was not the case, the limitation of liability clause would apply to any claim (whether for loss of profits or otherwise) unless the relevant cause of action was in respect of death or personal injury or for fraudulent misrepresentation.

The court added that, in its view:

• a claim in respect of fraudulent misrepresentation is not limited to a case where the innocent party was induced into entering into an agreement;
• however, the cause of action is for the losses suffered by the innocent party acting to its detriment in reliance upon the false representation;
• in this case (where there was no claim for fraudulent misrepresentation or even deceit) fraud on the part of an agent or employee of the defendant would suffice: it was not necessary for the claimant to establish fraud on the part of the defendant itself.

Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corporation [2024] EWHC 35

3. Duty of good faith: when might one be implied? What might such a duty mean? Could other cases provide the answer?

A duty of good faith. When might it be implied in a contract? And whether express or implied, what, exactly, does it mean? It sounds good but what does it look like in practice? Are the answers to be found in case law? In a dispute arising from termination of an agency agreement the Commercial Court had to consider, among many issues, the case law and provide answers. In doing so, a number of principles relating to contractual duties of good faith were set out.

Implying a term?

The court referred to the Supreme Court’s 2015 judgment on implied terms, in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd, and the textbook Chitty on Contracts, which said that:

"In short, in order to imply a term into an ordinary business contract, the term must be necessary to give business efficacy to the contract; it must be so obvious that it goes without saying; it must be capable of clear expression; and it must not contradict any express term of the contract… it is now no easy task to persuade a court to imply a term into a contract, particularly a written contract of some length which has been negotiated with the benefit of legal advice…"

Reasonableness may be a necessary requirement but it is not enough. Necessity is always the touchstone.

Good faith = ?

If there is a good faith obligation in a contract, express or implied, what then does it require? That depends on the intention of the parties construed objectively and the court noted, from Court of Appeal decisions, that the most important point to emphasise is that, like any question of interpretation of a contract, an express clause in a contract requiring a party to act in “good faith” must take its meaning from the context in which it is used. The content of a duty of good faith is heavily conditioned by its context. There is no single legal test for that content and, even if a duty is implied, the content still has to be determined with regard to the context.

A duty of good faith could, however, be breached by conduct which would be regarded as commercially unacceptable to reasonable and honest people, even if they would not necessarily regard it as dishonest.

There was also a warning that, when considering the interpretation and meaning of an express good faith clause in context, cases from other areas of law or commerce, which turn upon their own particular facts, may be of limited value and must be treated with considerable caution.

Aston Martin MENA Ltd v Aston Martin Lagonda Ltd [2023] EWHC 3285

4. 2025 start for new retention reporting requirements?

The Construction Leadership Council reports that legislation on new retention reporting requirements is expected to be laid before parliament this year. The CLC also says that it is anticipated that qualifying business will commence data collation and include in their payment practices and performance reports during 2025.

See: https://www.constructionleadershipcouncil.co.uk/news/reporting-on-payment-practices-and-
performance-amendment-regulations-2024/

5. 'Golden thread' (in occupation), and safety risks management, regulations now in force

The Higher-Risk Buildings (Keeping and Provision of Information etc.) (England) Regulations 2024 are now in force. The new regulations specify the information and documents that the principal accountable person and accountable persons must keep and share as ‘golden thread information’ with those who have an interest in relation to a higher-risk building.

These Regulations also amend the HRB (Key Building Information etc. and Descriptions and Supplementary Provisions) Regulations in relation to provisions about what part of the building an accountable person is responsible for when there are multiple accountable persons for the same higher-risk building, and in relation to the exclusion of certain types of military premises.

Also now in force are Higher-Risk Buildings (Management of Safety Risks etc) (England) Regulations 2023. These Regulations support the Keeping and Provision of Information Regulations by specifying the requirements for: building assessment certificates, identifying and managing building safety risks, mandatory occurrence reporting, engagement with residents and resident duties, appeals, compliance notices, the managing and storage of golden thread information and ancillary provisions around when and how information and documents are shared.

See: The Higher-Risk Buildings (Keeping and Provision of Information etc.) (England) Regulations 2024
and
The Higher-Risk Buildings (Management of Safety Risks etc) (England) Regulations 2023

6. More Building Safety Act provisions brought into force

Sections 79-88, 90-101, 102 and 111 of the Building Safety Act have now been brought intoforce.

See: The Building Safety Act 2022 (Commencement No. 6) Regulations 2024

Coming into force in England on 6th April 2024 are, so far as not already in force, sections 42, 43 & Schedule 4, 44, 45, 49-52, 53(2), (3)(a)(ii) and (iii) and (3)(b), 55 and Schedule 5 (so far as relating to paragraph 1, so far as it relates to paragraphs 44 and 52, and paragraphs 44 and 52) and section 58 of the Building Safety Act.

A number of these provisions amend the 1984 Building Act and provide for the transfer of approved inspectors to become registered building control approvers.The amendments also provide for plans certificates, cancellation of initial notices and new initial notices.The Regulations also set out transitional provisions, in particular to ensure that existing approved inspectors can continue to operate.

See: The Building Safety Act 2022 (Commencement No. 7 and Transitional Provisions) Regulations 2024

7. Government guidance on HRB non-determination applications

The government has issued guidance on 'non-determination applications' to the Secretary of State. These can be made under section 30A of the Building Act 1984 where a decision on an HRB application has not been issued by the Building Safety Regulator within the required timeframe and where an extension has not been agreed, for example in determining a Gateway 2 application for building control approval.

No time period is specified for this procedure.

See: https://www.legislation.gov.uk/ukpga/1984/55/section/30A
and
https://www.gov.uk/guidance/non-determination-applications-for-higher-risk-buildings-procedures-applying-to-the-secretary-of-state

8. Building Safety Levy: response to last consultation and launch of technical consultation

The government has published its response to the last consultation on the Building Safety Levy, which will be paid by developers and charged on new residential buildings requiring building control approval in England, to meet building safety expenditure. That response outlined the government’s intentions that, subject to parliamentary agreement:

• local authorities will collect the levy, and will retain a proportion of receipts to cover administration costs;
• the levy will be charged on a square metre basis and a differential geographic levy rate will be applied based on local authority boundaries;
• a 50% levy rate will be applied to developments built on previously developed land;
• local authorities will need to return revenue and management information to central government on a quarterly basis;
• the levy will be reviewed every 3 years;
• affordable housing, non-social homes built by a not-for profit registered provider, NHS hospitals and other NHS facilities, care homes, supported housing (save for private tenure supported housing), children’s homes, domestic abuse shelters, accommodation for armed services personnel, criminal justice accommodation, and developments of fewer than 10 units, will be excluded from the levy;
• there will be a single levy charge;
• ·non-payment of the levy will mean that the building control completion certificate cannot be issued by either the local authority or the BSR, or that the final certificate cannot be accepted by the local authority.

Feedback from the last consultation was used to develop the proposals outlined in this consultation, which provides more detail on the levy's operation and covers:

• methodology for calculation of levy rates;
• collection process;
• disputes;
• further exclusions;
• public sector equality duty;

The consultation closing date was 20 February 2024 and, following analysis and publication of the government’s response to it, the government intends to lay secondary legislation in parliament.

See: Building Safety Levy: response to consultation - GOV.UK (www.gov.uk)
and
https://www.gov.uk/government/consultations/building-safety-levy-technical-consultation/building-safety-levy-second-consultation

9. MF/1 2024 (Revision 7)

Model Form of Contract MF/1 2024 (Revision 7), for the design, supply and installation of electrical, electronic and mechanical plant, has been issued.
Revisions have been made to several clauses, including those dealing with certificates and payments, execution, insurance and adjudication, and a new international contract schedule has been added (to include areas such as modern slavery, bribery and data protection).

See: https://shop.theiet.org/model-form-of-contract-mf-1-revision-7

10. More HSE mandatory occurrence reporting guidance

The HSE has issued further guidance on mandatory occurrence reporting, in addition to the guidance previously issued.

See: https://www.gov.uk/guidance/operating-a-mandatory-occurrence-reporting-system
Submitting mandatory occurrence notices and reports - GOV.UK (www.gov.uk); and
https://www.gov.uk/guidance/submit-a-mandatory-occurrence-notice-and-report

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