Legal developments in construction law: September 2024
1. Supreme Court puts collateral warranties in their place
Can a collateral warranty be a "construction contract" under the Construction Act, an agreement for the carrying out of construction operations? No is the answer from the Supreme Court, unless, that is, there is a separate or distinct obligation to carry out construction operations for the beneficiary, not one which is merely derivative and reflective of obligations owed under the building contract.
The Court said that, as a generality, it is difficult to see how the object or purpose of a collateral warranty is the carrying out of construction operations. Its main object or purpose is to afford a right of action in respect of defectively carried out construction work, not the carrying out of such work.
A collateral warranty that merely promises to the beneficiary that the construction operations undertaken under the building contract will be performed does not give rise to the carrying out of construction operations. It is the building contract that does this. There is no promise to carry out any construction operation for the beneficiary but merely a promise to the beneficiary that the construction operations to be carried out for someone else under the building contract will be performed. This disconnect is highlighted by the fact that the beneficiary has no control over how those operations are performed. The beneficiary cannot, for example, instruct how the works are carried out, order variations or suspend or terminate the works.
Dividing collateral warranties into those which merely replicate undertakings given in the building contract and those which give rise to separate or distinct undertakings for the carrying out of construction operations is a distinction easily understood and applied. This approach is likely to mean that most collateral warranties will not be construction contracts and there are good reasons for concluding that the Construction Act was not intended to apply to such warranties, for example the inapplicability of its payment related provisions, since the consideration provided by the beneficiary is typically nominal. The dividing line adopted by the Court also provides certainty because it means that collateral warranties are generally outside the Construction Act, rather than everything being dependent on the wording of the particular collateral warranty. If a right to adjudication is required it can be added on a voluntary basis.
The Court also said that the first instance decision on this issue in Parkwood Leisure Ltd v Laing O'Rourke Wales and West Ltd was consequently wrong, and overruled.
2. Late payment + default notice under a JCT contract = skating on thin ice?
Late or non-payment is an ever-present concern for those with bills to pay, that the Construction Act remedies of adjudication and payment machinery aimed to address. In Providence v Hexagon, the Court of Appeal had to consider another possibility, namely termination for late or non-payment, and to decide just how the notice and termination provisions of the 2016 JCT D & B form should operate.
Under that form, a failure by the employer to pay the contractor an amount due by the final date for payment entitles the contractor to give the employer a default notice. If the employer fails to pay within 28 days after that notice, the contractor can then terminate its employment under the contract. But what if the employer does pay in the 28 days, after receiving the default notice, but is then late with another payment? Does the contract then entitle the contractor (under clause 8.9.4) to terminate its employment?
That, according to the Court of Appeal, is what the clause means. The intention of the wording is to encourage and cause the party concerned to comply with their contractual obligation to pay by the final date, and a repetition of a previous specified default is the trigger entitling the wronged party to terminate. The commercial consequences of this interpretation represent a contractual allocation of risk that is commercially acceptable. An employer who has defaulted once on their payment obligations is consequently skating on thin ice.
Other remedies may help, but none provides a satisfactory and immediate solution to the typical case of late payment: each involves a measure of delay and, in the case of suspension or resorting to adjudication, additional cost and uncertainty for the contractor in pursuing them.
And how should you interpret a standard form?
In reaching this conclusion, the Court noted that, when dealing with a standard form of wording, the interpretation is unlikely to be affected by the context in which the parties concluded their particular contract: rather the process of interpretation will ultimately depend upon an intense focus on the words used. As always, the court must consider the quality of drafting of the clause and the agreement in which it appears.
It also endorsed previous case law which considered the extent to which, as a matter of principle, prior versions of the Standard Form could be admissible as an aid to construction. That case law said that, where it is possible to identify with a degree of confidence the reason for a particular amendment to a standard form, for example, where a change has been made to respond to the effect of a particular decision of the courts, a change in legislation or a widely publicised event, it may be appropriate to consider and contrast the previous standard form versions. Such cases are usually well known within the industry and are often documented in the trade press. Both parties are therefore likely to be aware of them. It is doubtful, however, whether it is legitimate simply to compare the earlier and later versions of the contract form on the assumption that the parties consciously intended to achieve a particular result by adopting the later version.
The case law also said that, that while there may be occasions when looking at previous versions of standard terms and the drafting committee's commentary as aids to construction has to be done in order to assist in solving a problem of an ambiguous wording, such exercises in "the archaeology of the forms" would generally be discouraged. In most cases it makes the task of interpretation of contractual wording unnecessarily over-elaborate and it can add to the expense and time taken in litigating what should be short points of construction.
Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962
3. Disclosure of documents in a party's 'control' – could that include those belonging to subcontractors?
The documents to be disclosed in litigation are those in a party's control but what, exactly, does 'control' mean? Might it, for instance, include those of a sub-contractor or a sub-sub-contractor? In Mornington 2000 LLP v The Secretary of State for Health And Social Care the court set out the relevant principles. In summary, the principles applicable in determining whether documents held by one person are under the practical control of another, where there is no express right to access the documents, are that:
(i) the nature of the relationship (if any) between the parties (i.e. the party to the litigation, and the third party whose documents are alleged to be under the former's control) is not determinative but may well be relevant. It does not depend on there being control over the holder of the documents in some looser sense, such as a parent and subsidiary relationship;
(ii) there must be an arrangement or understanding that the holder of the documents will search for relevant documents or make documents available to be searched;
(iii) the arrangement may be general in that it applies to all documents held by the third party or it could be limited to a particular class or category of documents. A limitation such as an ability to withhold confidential or commercially sensitive documents will not prevent the existence of such an arrangement;
(iv) the existence of the arrangement or understanding may be inferred from the surrounding circumstances. Evidence of past access to documents in the same proceedings is a highly relevant factor;
(v) It is not necessary that there should be an understanding as to how the documents will be accessed. It is enough that there is an understanding that access will be permitted and that the third party will co-operate in providing the relevant documents or copies of them or access to them;
(vi) The arrangement or understanding must not be limited to a specific request but should be more general in its nature.
The court noted that that there is no reason, in principle, why a contractor could not enjoy practical control over certain documents held by a sub-contractor or a sub-sub-contractor but noted that, in the case in question, the relationship between the relevant parties was a close one, in that they participated in what was in substance a joint venture, which had gone beyond a standard, arm's length, contractor/sub-contractor/sub-sub-contractor relationship. The evidence demonstrated that the relevant claimant enjoyed practical control over documents held by its subcontractor and, in turn, their subcontractor.
4. Arbitration Bill back on track
The Arbitration Bill, which adopts the changes to the Arbitration Act 1996 recommended by the Law Commission, was re-introduced in Parliament following the change of government.
The Bill contains the following substantial initiatives:
- clarification of the law applicable to arbitration agreements;
- codification of an arbitrator’s duty of disclosure;
- strengthening of arbitrator immunity around resignation and applications for removal;
- introduction of a power for arbitrators to dispose summarily of issues with no real prospect of success;
- clarification of court powers in support of arbitral proceedings and emergency arbitrators; and
- a revised framework for challenges under section 67 of the Arbitration Act 1996 (where the challenge alleges that the arbitral tribunal lacked jurisdiction).
5. JCT 2024: Standard Building Contract family published
The JCT has released the 2024 edition of the Standard Building Contract. The documents in the release are:
Standard Building Contract
- Standard Building Contract With Quantities 2024 (SBC/Q 2024)
- Standard Building Contract Without Quantities 2024 (SBC/XQ 2024)
- Standard Building Contract With Approximate Quantities 2024 (SBC/AQ 2024)
- Standard Building Contract Guide 2024 (SBC/G 2024)
- Standard Building Contract With Quantities 2024 Tracked Change Document (SBC/Q 2024 Tracked) (hard copy only)
- Standard Building Contract Without Quantities 2024 Tracked Change Document (SBC/XQ 2024 Tracked) (hard copy only)
- Standard Building Contract With Approximate Quantities 2024 Tracked Change Document (SBC/AQ 2024 Tracked) (hard copy only)
Sub-Contract
- Standard Building Sub-Contract Agreement 2024 (SBCSub/A 2024)
- Standard Building Sub-Contract Conditions 2024 (SBCSub/C 2024)
- Standard Building Sub-Contract with sub-contractor’s design Agreement (SBCSub/D/A)
- Standard Building Sub-Contract with sub-contractor’s design Conditions (SBCSub/D/C)
- Standard Building Sub-Contract Guide 2024 (SBCSub/G 2024)
Model Forms
SBC 2024 Admin – Contract Administration Model Forms (digital only)
6. JCT 2024: Collateral Warranty forms and Pre-Construction Services Agreements published
The JCT has also published:
Collateral warranty forms:
- Contractor Collateral Warranty for a Funder 2024 (CWa/F 2024)
- Contractor Collateral Warranty for a Purchaser or Tenant 2024 (CWa/P&T 2024)
- Sub-Contractor Collateral Warranty for a Funder 2024 (SCWa/F 2024)
- Sub-Contractor Collateral Warranty for a Purchaser or Tenant 2024 (SCWa/P&T 2024)
- Sub-Contractor Collateral Warranty for the Employer 2024 (SCWa/E 2024)
and
Consultancy and Pre-Construction Services Agreements
- Consultancy Agreement (Public Sector) 2024 (CA 2024)
- Pre-Construction Services Agreement (General Contractor) 2024 (PCSA 2024)
- Pre-Construction Services Agreement (Specialist) 2024 (PCSA/SP 2024)
7. New BSR Building Control Authority microsite
The Building Safety Regulator has launched a new Building Control Authority microsite.
See: The Building Control Authority - Making Buildings Safer (buildingsafety.campaign.gov.uk)
8. Version 4 of Common Assessment Standard
Version 4 of the Common Assessment Standard, developed by Build UK, which comprises an industry-agreed question set and corresponding assessment standards for the pre-qualification of suppliers, now includes a new Building Safety section, so that it can be used to demonstrate companies have the organisational capability to fulfil their roles under the Building Safety Act.
Central Government departments and wider public sector bodies should use the Common Assessment Standard to pre-qualify suppliers in accordance with PPN 03/24.
See: Common Assessment Standard - Build UK
and
9. CLC publishes golden thread guidance for HRBs
The Building Safety workstream of the Construction Leadership Council has published guidance on the golden thread of information requirements for higher-risk buildings.
Developed by an industry working group with experience from across the sector in the design, construction and management of management of higher-risk buildings, the guidance sets out the golden thread information that dutyholders and accountable persons will need to generate, keep, maintain and handover during design, through construction, handover and completion of the building and into occupation.
10. Delays to building control application approvals: BSR and CLC discussions
The Building Safety Regulator and the Construction Leadership Council have met to discuss industry concerns in relation to building control applications. Proactive dialogue is to continue.
The BSR has stated that it will not:
- tell applicants how to comply with the requirements of the building regulations;
- provide pre-application advice on building control applications.
For some complex projects (e.g., multi-building projects) it may provide advice on the best way of staging an application but advice on the buildings regulations, if needed, should be sought from competent professionals. The BSR needs applicants to play their part to help facilitate the process by ensuring their applications provide quality, detailed information that clearly and comprehensively demonstrates compliance with building regulations.
See: https://www.constructionleadershipcouncil.co.uk/news/building-control-applications/
11. Updates to Approved Document B (fire safety)
The guidance in Approved Document B has been updated in three amendment booklets:
Coming into force on 2 March 2025:
- Extending the provision of sprinklers to all new care homes irrespective of height;
- replacing the national classification system (BS476) for reaction to fire and roofs with the European Standard (BS EN).
Coming into force on 30 September 2026:
Provisions relating to second staircases in residential buildings over 18m in height.
Coming into force on 2 September 2029:
Replacement of the national classification system (BS476) for fire resistance with the European Standard (BS EN).
The changes are subject to transitional provisions.
See, for further details: https://www.gov.uk/government/publications/amendments-to-approved-document-b-fire-safety-circular-and-letter/approved-document-b-fire-safety-new-updates-to-support-enhanced-fire-safety
12. CLC issues initial response to review of construction product testing regime
The Construction Leadership Council’s Standards and Regulatory Alignment Group has produced an initial response to the independent review of the Construction Product Testing Regime.
All interested parties are encouraged to read this response and the CLC looks forward to taking the work forward in due course.
13. CE construction product marking extended
The government is extending the period of recognition of CE marking for construction products (currently set to end in June 2025). The CE mark will continue to be available when placing construction products on the market across the UK.
The extension, and the longer-term future of CE/UKCA marking, is conditional on the government committing to system wide reform of the construction products regulatory regime. Any subsequent changes to the recognition of CE marking would be subject to a minimum 2-year transitional period.
See: https://questions-statements.parliament.uk/written-statements/detail/2024-09-02/hcws62
14. MHCLG consultation on proposed planning changes
The Ministry of Housing, Communities and Local Government has held a consultation on proposed changes to the National Planning Policy Framework and other planning system changes.
It also set out how and when every local planning authority will be expected to rapidly create a clear, ambitious local plan for high quality housebuilding and economic growth. All councils in England are to be given new, mandatory, housing targets.
and
https://www.gov.uk/government/news/housing-targets-increased-to-get-britain-building-again
15. New Homes Accelerator Programme
The New Homes Accelerator is a collaborative effort between the government, Homes England, the Greater London Authority, local authorities, developers and other key stakeholders. It aims to unblock and accelerate the delivery of housing developments that have for various reasons become delayed, or which are not progressing as quickly as they could be. It will focus on selected large-scale housing developments that are encountering significant delays or obstacles.
The MHCLG has launched a call for evidence and developers, local authorities and landowners are invited to identify large-scale housing developments that are delayed or stuck. The government is writing to local authorities to request their participation in this process.
16. Grenfell Inquiry final report published
The Grenfell Inquiry published its final report on 4 September 2024. The Government is to carefully consider its recommendations.
See: https://www.grenfelltowerinquiry.org.uk/
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