Legal blog: 2017 in review

In 2017 our courts’ strict approach to enforcing commercial contracts was repeatedly highlighted. The most notable case was MT Højgaard vs E.on. The contractor was held to have met its express duty to design with due care, but the Supreme Court still held it was liable for failing to “ensure” a 20-year lifespan. The Court of Appeal had said the contract’s key words were “too slender a thread” upon which to say the contractor promised a 20-year lifespan. Our highest court disagreed.

The Supreme Court also decided against Capita in its claim versus the seller of a broker that Capita had bought (Wood vs Capita). After the sale, it was discovered the broker had misled customers to make sales. Capita sued the seller under an indemnity that covered “claims or complaints registered with the [Financial Services Authority]” (FSA) against the broker. The case failed because the broker had voluntarily compensated customers, before they had made claims or complained to the FSA.

The Supreme Court completed a trio of notable judgments with a decision on joint insurance clauses (Gard vs China National Chartering). These are common in construction contracts, where one party is required to insure both parties regarding, say, damage to the works. Following this case, a party is now likelier to avoid liability to the other for such risks, even if the joint insurance is not taken out.  

In Persimmon vs Ove Arup, the Court of Appeal dealt with a clause excluding “liability […] in relation to asbestos”. The clause was clear. So was the court: in contracts between businesses of similar bargaining power, the courts will not artificially interpret exclusion clauses against the party relying upon them. The court went on to say that the contra proferentem rule “now has a very limited role”.

The judgments on the Construction Act’s payment regime continue to grow at a rate far exceeding those under the original act

Another household name fared less well in 2017.  Foster + Partners was found to have been negligent regarding an abortive hotel project near Heathrow airport (Riva Properties Ltd vs Foster + Partners Ltd). Its design would have cost twice the budget.

In addition, it wrongly advised the client that the cost of the project could be value-engineered down to the budget.

A lack of “mutual trust and co-operation” also arose in Costain vs Tarmac. The court gave helpful guidance as to the meaning of this phrase, which is found in NEC forms. However, it remains unclear how much difference the phrase makes in practice. 

The NEC forms and how compensation events under them should be valued were considered in Northern Ireland Housing Executive vs Healthy Buildings (Ireland). It was claimed that the contract required forecast costs to be used, despite the (lower) actual costs being known when the compensation event came to be valued. The judge much preferred using actual costs, saying: “Why should I shut my eyes and grope in the dark when the material is available to show what work they actually did and how much it cost them?”

Construction lawyers who grope in the dark this Christmas may find that Santa has left them this year’s new standard forms: NEC 4 and the FIDIC 2017 suite. Equally they might find any one of the many other forms out there. Our standard forms continue to proliferate with rabbit-like prowess.

It is now harder to challenge adjudicators’ decisions on the basis that they wrongly decided a key point of law 

One prospect for a reduction in contracts, namely collateral warranties, remains the Contracts (Rights of Third Parties Act) 1999. In 2017 the courts continued to show their readiness to support the act (Chudley vs Clydesdale Bank). It will be a long time, though, before the majority of employers, funders and tenants accept the act over collateral warranties.

Another important statute was in the news this year. We were told the Late Payment of Commercial Debts (Interest) Act 1998 does not bypass the rule preventing recovery of legal costs in adjudications (Enviroflow vs Redhill).

The courts also clamped down on challenges to adjudicators’ decisions using Part 8 proceedings (Hutton vs Wilson). It is now harder to challenge adjudicators’ decisions on the basis that they wrongly decided a key point of law.

The judgments on the Construction Act’s payment regime continue to grow at a rate far exceeding those under the original act. The Technology & Constrution Court confirmed that the requirements for payless notices are lower than those for payment notices (Surrey and Sussex Healthcare NHS Trust vs Logan). However, the Scottish courts seemed less certain (Muir vs Kapital), producing an unfortunate contrast in approach. Meanwhile, doubt was cast on the rule (from ISG vs Seevic, 2014) that a payer cannot adjudicate for a valuation of a sum that should have been notified and instead must recover via the next payment, if any (Imperial Chemical vs Merit Merrell). 

The year ended with government consultations on the Construction Act and retentions. Responses are due by 19 January. Don’t expect too much, though: the government will have other things on its mind next year.