Will go down as a vintage year for the Supremes

Rupert Choat

We are usually lucky if our most senior judges produce one judgment in a year that affects construction law.

This year we got five.

Wherever possible “the Supremes” (who shouldn’t be confused with Diana Ross’ group) underlined the importance of the parties’ chosen words in their contracts. If the words are clear, they will be applied even if they are uncommercial (Arnold vs Britton). Similarly, words will not be implied into contracts simply to make them more commercial (M&S vs BNP Paribas).

In Cavendish vs Makdessi we were told how hard it should be to strike down liquidated damages clauses as penalties. The Supreme Court described the penalty rule as “an ancient, haphazardly constructed edifice which has not weathered well”. While this predator was preserved from extinction, it is now so weakened that the clauses it feeds upon should flourish.

To complete the pro-contract judgments, there was NH International vs National Insurance Property. The Privy Council showed the courts’ willingness to support notice provisions (which seem increasingly problematic in construction contracts). That is, clauses which kill otherwise good claims if the right bit of paper isn’t given in the right way in the right time. Unusually, it was the employer’s claims that required prompt notification. The implications are significant for users of the FIDIC 1999 suite of contracts, which should be updated next year.

We are usually lucky if our most senior judges produce one judgment in a year that affects construction law. This year we got five

In apparent contrast, over the last year, the courts have proved reluctant to enforce clauses that on the face of it preclude all of the claims a party is likely to bring (Transocean vs Providence and Scottish Power vs BP). They suggest that clear words are needed to achieve such an uncommercial result. This reflects the extremities of our contract law, where its underlying fictions reach breaking point. Those fictions include that parties carefully consider the words of their contracts and price accordingly.

The fifth Supremes judgment from 2015 concerned a discrete adjudication issue (Aspect vs Higgins). Sadly the court did not address the point of wider interest, as to the effect of an adjudicator’s decision in later litigation or arbitration on the dispute they decided.

As for the Construction Act’s payment regime, the last 13 months have seen more relevant judgments than the first 13 years of the act, before it was amended. The amended act made it more common that if a payer fails to give the right bit of paper in the right way in the right time, it must pay the sum notified by its payee, without deduction. However, some cases have said that the payer also cannot adjudicate for a valuation of the sum that should have been notified and must await the next interim payment (if any).

It appears there are limits to this rule, if, say, the contract is terminated – if indeed it is a rule at all (Harding vs Paice). It has been suggested that any rule derives from the amended act but, in fact, it might only come from the parties’ contract and, so, can be contracted out of. Expect more litigation in this area to Run, Run, Run in 2016.

Expect also more claims which seek to give meaning to duties of good faith in contracts, with the refrain Where Did Our Love Go? In Mears vs Shoreline, Mr Justice Akenhead (who retired from the TCC this year) considered the NEC3’s requirement for parties to act “in a spirit of mutual trust and co-operation”. He held the clause had no bearing upon the express terms of the contract.

Next year also promises the coming into force of new insurance laws which will reduce the scope for insureds losing their cover

NEC conditions were also litigated in Scotland (SSE vs Hochtief). The court held that (unlike the JCT) the NEC2’s joint insurance provisions did not preclude the contractor’s liability for matters for which it was co-insured. The same result should apply under the NEC3.

The year saw new Construction (Design and Management) and Public Contracts Regulations. Time will tell if the latter help reduce the time and money that is wasted on challenges by aggrieved bidders.

With regard to bid abuses, 2015 saw Sweett and Hitachi succumb to bribery related allegations. While multilateral development bank blacklists of bidders continue to grow, blacklisting of a different kind concerned the High Court. In October, eight of the many UK contractors accused of blacklisting workers admitted liability. A trial is set for mid-2016.

Next year also promises the coming into force of new insurance laws which will reduce the scope for insureds losing their cover. They will also help third party claimants bypass insolvent insureds and pursue insurers directly. Supremely good news then for those tired of complaining to insurers: You Keep Me Hangin’ On.

Rupert Choat is a barrister, arbitrator and mediator at Atkin Chambers