Legal developments in construction law: November 2024
1. Payment application sent to wrong email address - get out of jail card for the payer?
A subcontract subject to the Construction Act specified how notices should be served and it was also agreed that payment applications should be sent to two specified email addresses. A payment application was sent to a different email address but did that make it invalid, as the contractor claimed, when it had previously accepted, as valid, applications from the subcontractor that had not been served in accordance with the contract conditions? An adjudicator decided that the application was valid and awarded the subcontractor over £1million. In proceedings to enforce the award the contractor claimed that the adjudicator had materially breached the rules of natural justice.
Dismissing the contractor's defence to the subcontractor's action to enforce the award as "entirely without merit", the Scottish court noted the subcontractor's argument that the applicable legal principle, as discussed in Jawaby Property Investment Ltd v The Interiors Group Ltd, was that if interim applications for payment have been treated as valid, then the recipient cannot deny applications received in the same manner. It was open to the contractor to submit whatever it chose in response to the subcontractor's argument but, whatever submissions the contractor made, the adjudicator was perfectly entitled to prefer the subcontractor's submission that the principle in Jawaby applied to the case he was deciding.
Even if the adjudicator was wrong in his view of the law, that would be no more than an intra vires error of law that he was entitled to make, about which the contractor could have no relevant complaint. The court noted that it is no part of the court's function to act as a general appeal tribunal in respect of the adjudicator's decision.
In this case, the criticism of the adjudicator was that he breached the requirements of natural justice by going off on a frolic of his own. Since, however, the issue of the significance of the contractor's previous conduct, in accepting irregularly-served applications, was well known by both parties to be a live one in the adjudication, each party was given ample opportunity to say whatever it wanted on the subject, and the adjudicator decided the issue by applying the legal principle put forward by the subcontractor, and by reference to the case cited as relevant, the suggestion that he went off on a frolic of his own was an inversion of reality. No opportunity for injustice was afforded.
The legislative policy behind the relevant sections of the 1998 Act is well-known, and summarised in the saying "pay now, argue later". Judicial policy ought to be to discourage, so far as properly possible, the statement of frivolous defences, such as those advanced in this case, to actions seeking to enforce adjudicators' decisions.
ATG Services (Scotland) LTD against Ogilvie Construction LTD (Court of Session) [2024] CSOH 94
2. An HRB storey? First-tier Tribunal looks for a definition
It is rather important to know if a building is a "higher-risk building" for the purposes of the Building Safety Act and its attendant secondary legislation. All sorts of additional requirements apply if it is, including the challenging Gateways procedures, the golden thread and change control for construction, and the in-occupation regime. All for very good reason. The Act provides a definition of an HRB, one test being that it must have at least 7 storeys, but although it says that the regulations could define ‘storey’, they do not and the First-Tier Tribunal had recently to come up with an answer.
Government guidance issued in June 2023, on whether a building is an HRB, said that a storey must be fully enclosed to be considered a storey, that the roof of a building should not be counted as a storey and that open rooftops such as rooftop gardens are not considered storeys. Although they fail to provide a definition, the regulations, however, say that any storey containing exclusively machinery/plant is not to be counted when calculating the number of storeys or measuring. The Tribunal noted that this, by implication, would therefore mean that a useable roof top containing a roof garden together with plant/machinery would count as a storey.
Noting also that it is difficult to see where the commentary in the 2023 guidance (which has no references or indication of relevant sources) came from, the Tribunal said that there is a question over the status of government guidance and that these advisory web-pages do not constitute a reliable method of interpretation of law.
It added that one of the concerns behind the definition of ‘storey’ for fire safety considerations must be where people might be located in the event of a fire. Clearly persons might be located within flats or enclosed storeys but, where there is a roof garden, persons may well be located there and, therefore, the level of the roof garden will be significant in determining height.
Measuring and assessing the building according to the requirements of the Building Safety Act and the secondary legislation, the Tribunal considered the building to have 7 storeys, and its height as being over 18m, so that it was an HRB.
Government reviewing Tribunal decision
The Ministry of Housing, Communities and Local Government and the Building Safety Regulator are currently considering the views expressed by the Tribunal in this case, that roof gardens should be classified as a storey when determining whether a building meets the height and storey criteria under the Higher-Risk Buildings (Descriptions and Supplementary Provisions) Regulations 2023.
The MHCLG says: "it is important to note the Tribunal itself acknowledged it was not within its jurisdiction to formally determine whether the building being considered was a higher-risk building. Until stated otherwise, the sector and regulatory bodies should continue to refer to existing government guidance."
3. Scottish appeal court confirms JCT clause is a condition precedent
Clause 4.20.1 of the 2016 Scottish Standard Building Contract with Quantities, which has exactly the same wording as clause 4.20.1 of the JCT 2016 standard form, gives a contractor an entitlement to loss and expense, "subject to compliance with clause 4.21", which requires notice to be given in respect of a loss and expense claim. An adjudicator and a Scottish commercial judge ruled that giving of that notice was a condition precedent to the contractor's entitlement (see March 2024 update) but did the Scottish appeal court agree?
Confirming the commercial judge's decision, the appeal court said that Clause 4.20.1 must be construed according to the well-established rules on interpretation of contracts. The search is for the intention of the parties, gleaned from the language which the parties have chosen to use and where, as in this case, the contract has been prepared by skilled professionals, it may be appropriately interpreted principally by textual analysis.
The question for the court was whether compliance with the notification requirement was a prerequisite to recovery. The court reasoned that, since there was no ambiguity in the wording, there was no need to analyse what might be regarded as commercial common sense and, even if there were, it would be of little assistance to the contractor because the need to be duly notified and advised of the potential liability within a limited (but not certain) time span was a reasonable condition before a claim could be considered and ultimately determined. There was no nonsensical or absurd result arising from giving the words in the clause their ordinary or plain meaning in the context of the contract, or clauses 4.20 and 4.21, as a whole. The absence of ambiguity meant that, although it might be useful to look at extraneous material to provide context, that material could not override the plain meaning of the words used.
FES LTD against HFD Construction Group Ltd (Court of Session) [2024] CSIH 37
4. Government issues response to CMA housebuilding market study
The UK government has responded to the 11 recommendations in the market study, published in February, by the Competition and Markets Authority into housebuilding in England, Wales, and Scotland.
5. Private Member's Bill targets new home standards but will it become law?
A Private Member's Bill, which has had its first reading in the House of Commons, aims to set minimum standards for the building of new homes in relation to quality and energy efficiency and to place requirements on developers of new homes.
It is scheduled to have its second reading on 24th January 2025 but is thought to be extremely unlikely to become law.
See: Building Regulations (Minimum Standards) Bill - Parliamentary Bills - UK Parliament
6. JCT 2024 Measured Term Contract released
The 2024 Edition of the JCT Measured Term Contract (MTC 2024) has been released.
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