Legal developments in construction law: February 2025
1. Court untangles Construction Act payment notice puzzles
A subcontract dispute required the court to rule on the validity of a payment notice, and a payless notice, under a JCT 2016 design and build subcontract, with amendments. The court first set out the summary (from the case law) in Advance JV & Ors v Enisca Ltd on the approach to be taken to the interpretation of contractual notices (and see our update of June 2022 at https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2022/06/legaldevelopmentsinconstructionlaw_jun22.pdf).
The issue with the payless notice was whether it was invalid because it had been served in advance of the date when it could properly have been served. In deciding that it was valid, the court said that, on the hypothesis that the contractor had not served a valid payment notice, the subcontractor's interim payment application met the requirements of a payment notice under s110A(3) of the Construction Act. When did that notice take effect? The court ruled that it took effect as a payment notice when it was sent, which meant that the payless notice was not given "before the notice by reference to which the notified sum is determined" (see s111(5)(b) of the Act).
The court considered that, where it applies, the unamended clause 4.6.2 of the JCT standard subcontract form, under which the subcontractor is required to submit an application "stating the sum the sub-contractor considers will become due to him at the due date…", does not comply with s.110A(3)(a) of the Act because it refers to a sum the subcontractor considers will become due at a future date. S.110A(3)(a) could not properly be read as if it said "the sum that the payee considers to be or to have been due or that will become due at the payment due date" (underlining added).
In ruling that the contractor's payment notice was also valid, the court said that under the Construction Act there is no need to serve both a payment notice and a payless notice. It appeared that one notice cannot operate as a payment notice and as a payless notice but there is no reason, in principle, why both notices cannot be served at the same time.
Sending a payless notice and a separate document which:
- was described as a valuation and a subcontract payment certificate; and
- was plainly intended to have a formal effect under the contract separate from the payless notice; and
- did amount in substance to a payment notice; and which
- was not obviously purely subsidiary to the payless notice,
when read in the context of the Act and the subcontract and the context of how interim payments are commonly dealt with, made sufficiently clear, on an objective analysis, that it was intended to be a payment notice, separate and distinct from the payless notice with which it was sent.
Placefirst Construction Ltd v Car Construction (North East) Ltd [2025] EWHC 100
2. When might time be up on a CAR policy damage claim?
A construction all risks policy typically pays out for damage occurring during the period of insurance. But what about damage that occurs after that period has expired, but which is a consequence of the original damage? The Court of Appeal had to grapple with just such a claim in respect of water damage to Sky's global HQ building.
The Court first explained that a contract of insurance against damage to property is a contract of indemnity, "to hold someone harmless", which means that the insurer's primary obligation is a promise that the assured will not suffer the insured damage. If and when the insurer fails to perform that primary obligation, it comes under a secondary obligation to pay damages for breach of the primary obligation (like any other contract breaker). A property insurance claim is not, at common law, a claim to enforce a promise to pay money, but is a claim for unliquidated damages.
The measure of recovery in a property insurance claim is consequently governed by the common law principles governing damages for breach of contract, whose general objective is to put the innocent party in the same position, so far as money can do it, as if the breach had not occurred, but subject to express (and clearly worded) terms in the policy. The amount of recovery will be assessed in accordance with those principles, including causation, mitigation, remoteness, date of assessment and criteria for assessment such as market value or cost of repair or replacement.
The Insuring Clause defines the damage to which the insurer's primary obligation attaches, which it promises will not occur. It does not define the loss for which the insurer is liable in damages when in breach of the promise, which is for the sum necessary to hold the assured harmless from having suffered the insured damage in the first place. If the insured damage has caused further damage, then subject to the usual principles of mitigation and remoteness etc, the insurer is liable for the loss resultant upon suffering that further damage.
This meant that, in the case before the Court, the costs of remedying the foreseeable deterioration and development damage occurring after the period of insurance, which resulted from insured damage occurring during that period, was within the measure of recovery under the policy. This was simply an application of the contractual principles governing assessment of damages.
The Court said this conclusion was supported by the case law and accorded with business common sense. In a major construction project, if damage has occurred during the period of the policy, it will often be necessary to take time to investigate and remedy it, which may very likely last well beyond the expiry of the period of insurance. The damage may not even be discovered until after expiry even if it occurred before. It would be readily foreseeable that, in some circumstances, the scope of the damage might increase with time without any fault on the part of the assured. A business person in the shoes of the assured would reasonably expect to be compensated by their insurance for the consequences of the insured damage deteriorating or developing (unless excluded by the contract) but that reasonable expectation would be confounded if the insured, and not the insurer, has to bear the additional financial consequences of the insured damage having occurred during the policy period.
There would also be serious and unacceptable adverse consequences, because deterioration and development damage occurring after the expiry of the period of insurance would then be uninsurable under any separate and subsequent property insurance cover.
Sky UK Ltd & Anor v Riverstone Managing Agency Lt & Ors [2024] EWCA Civ 1567
3. Lack of food and laundry provides a little revision on repudiation
A subcontractor carrying out repairs to a hurricane damaged hotel signed a short term lease for sleeping accommodation for its workers. The landlord, however, did not permit the workers to eat, or do their laundry, on the premises. Was that a repudiation, that entitled the subcontractor to terminate the lease? In ruling that it was, the Privy Council provided a helpful reminder of the law on repudiation.
The Privy Council focused on a breach of the implied terms (which satisfied the standard business efficacy and/or obviousness tests) that the workers should be permitted to eat meals and to do their laundry at the premises. Since these terms were neither conditions nor warranties, they were innominate terms of the lease, so that, in deciding whether there was a breach that was sufficiently serious to entitle the subcontractor to terminate the lease (i.e. a repudiatory breach), it was necessary to examine the seriousness of the consequences of the breach for the subcontractor.
The test for the required degree of seriousness has been expressed in slightly different ways by different judges. One formulation was that the breach must deprive the innocent party of "substantially the whole benefit which it was intended that they should obtain from the contract". A probably more commonly applied test is whether the breach went "to the root of the contract" and in another case the test was whether the (threatened) breach deprived the innocent party of "a substantial part of the benefit to which (they are) entitled under the contract." Elsewhere it was noted that the different formulations did not reflect a divergence of principle; they represented applications, to different contracts, of the common principle that, to amount to repudiation, a breach must go to the root of the contract.
The Privy Council also noted that the subcontractor had the burden of proving that the breach was a repudiation, and that the time for assessing whether the breach was repudiatory, or not, was at the time of its termination, taking into account what had then happened and what was likely to happen.
Ramsbury Properties Ltd v Ocean View Construction Ltd (St Christopher and Nevis) [2024] UKPC 40
4. Build UK issues statement on BS 9991:2024 and BSR position
Following publication of BS 9991:2024 ‐ Fire safety in the design, management and use of residential buildings, Build UK have provided clarification on the latest position for building control applications.
The Build UK statement advises that the Building Safety Regulator has confirmed to Build UK that, until further notice, applications for Building Control Approval for HRBs can refer to BS 9991:2015 and/or 2024 as the guidance or standard used to support designs.
5. Treasury 10 Year Infrastructure Strategy published
The government has published a working paper setting out the plan for its 10 Year Infrastructure Strategy.
The Strategy seeks to reduce uncertainty by bringing together a long-term plan for the country’s social, economic and housing infrastructure. It will also set out an institutional framework to support its implementation, including the role of public financing institutions such as the National Wealth Fund and how the Strategy will support other strategies such as the industrial strategy.
See: 10 Year Infrastructure Strategy Working Paper - GOV.UK
6. MHCLG invites views on NSIP planning changes
The Ministry of Housing, Communities and Local Government has issued a working paper inviting views on reform the planning process for Nationally Significant Infrastructure Projects.
Thes paper forms part of a series of working papers on different aspects of planning reform, designed to inform further policy development in collaboration with the wider sector. It proposes a number of measures to streamline the planning process for national infrastructure and to enable faster decision-making, whilst ensuring the process is fair and certain.
See: Planning Reform Working Paper: Streamlining Infrastructure Planning - GOV.UK
7. March start for amended payment (and retention) performance reporting regulations
The Reporting on Payment Practices and Performance (Amendment) Regulations 2025 come into force on 1st March 2025. These regulations introduce a requirement for qualifying (large) businesses to report on standard terms for holding retention monies in qualifying construction contracts. Where a company's payment practices and policies include retention clauses, further information is required.
See: The Reporting on Payment Practices and Performance (Amendment) Regulations 2025 (SI 2025/75)
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