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Construction Law : Recent Developments of interest

Martin Collingwood, head of construction at Andrew Jackson Solicitors LLP, has provided a timely summary of legal developments of relevance to businesses involved in the construction industry

  1. Collateral Warranties

A recent Court decision has confirmed that the two-tier system applies for collateral warranties – with far reaching implications for construction projects and real estate transactions.

In Toppan Holdings Limited & Anr v. Simply Construct (UK) LLP, the Technology and Construction Court has provided rare guidance on whether collateral warranties given on construction projects are construction contracts, and whether an adjudication can be brought under those warranties as a consequence.

Ever since 2013 in Parkwood Leisure, the question of whether collateral warranties may be construction contracts has been dependent upon the interpretation of their terms.  In Toppan, following a summary judgment application to enforce two adjudicator’s decision, the Court identified the timing of the execution of a collateral warranty as being paramount in construing whether it is a construction contract capable of being adjudicated upon.

In Toppan the Court noted that while a collateral warranty was for past and future construction operations it had not been executed prior to Practical Completion, but following the discovery of latent defects, which had been remedied. In Parkwood, Mr Justice Akenhead had noted that:_

  • a construction may be retrospective in effect and still fall within the Act – it does not need to be wholly or partly prospective;
  • the act was intended by Parliament to confer a wide definition on construction contracts; and
  • where the contract is for carrying out and completion of construction operations it will invariably fall under the Act.

Those comments were tempered, however, by the Judge’s statement that a pointer against a collateral warranty being a construction contract is that “all the works are completed, and that the contractor is simply warranting a past state of affairs as reaching of certain level, quality or standards”.

This latter consideration was key to the finding in Toppan that the collateral warranty was not a construction contract subject to the Act. While express language had been included in respect of future construction operations the collateral warranty could not relate to future construction operations as it was executed after Practical Completion.

As a result, the Court declined to enforce the adjudicator’s decision.

The Courts will adopt as crucial the timing of the execution of warranties and it therefore beholds parties to ensure that warranties are requested and executed expeditiously.

2. Civil Justice Council & ADR

Alternative Dispute Resolution (ADR) refers to other methods  of resolving disputes without the matter going to Court.

For several years, it has been debated as to whether compulsory ADR breaches parties’ rights under the European Convention on Human Right. To date, judges have not been able to order parties to engage in ADR. However, this may well change, since the Civil Justice Council report has reviewed both English and European case law on the point and concluded that compulsory ADR is lawful provided that the ADR procedure is not unduly onerous, and that any associated cost and delay are proportionate and leaves the parties free to decide whether to settle or to continue to trial.

It remains to be seen how this aspect will be progressed, and we shall be keeping a close eye on further developments.

3. The applicability of the Consumer Credit Act to Tomlin Orders

In the recent case of CFL Finance Limited v. Laser Trust [2021] the Court of Appeal held that the Consumer Credit Act is capable of applying to a Settlement Agreement attached to a Tomlin Order i.e. the Order which the Court issues following the settlement of the dispute by parties.

The Court held that the Act impacts on the agreement reached and any schedule to the Tomlin Order, including the Settlement Agreement, involved an agreement. If it involves the provision of credit concerning the payment of any sums under the agreement there is no reason why the Act cannot apply.

In considering the facts of CFL Finance the Court found that there was a financial accommodation finding that the essence of credit is deferment – and debt deferment must take place pursuant to an agreement which requires consideration.

On the facts there was a general triable issue on whether the Settlement Agreement attached to the Tomlin Order in the case provided the creditor with credit and hence was unenforceable for non-compliance with various provisions of the Consumer Credit Act.

It may be that in order to fully determine the issues the decision of the Supreme Court is necessary.

This case has highlighted the need for parties to check whether there is any realistic prospect of the Act applying to a particular settlement, and whether that risk can be avoided by simply entering into a Consent Order.  It also raises the question of feasibility in obtaining authorisation from the financial authorities to comply with the relevant requirements of the Act as to form and content.

4. Liquidated Damages and recoverability in the event of termination

In the case of Triple Point Technology Inc v. PTT Public Company Limited the Supreme Court considered several issues in relation to the recoverability of liquidated damages, the most prominent of those being liquidated damages payable for a period between the contractual completion date and termination.

The Court unanimously held that Triple Point was liable to pay liquidated damages to PTT for the period of delay up to termination.

The Court was persuaded by the orthodox position, finding that liquidated damages are a valuable right both to protect the employer and contractor, and it was highly unlikely that a party would, without clear words, agree to forego the right to recover liquidated damages up to the date of termination.

This reinforces the position which was thought to exist previously.

For help and guidance on these developments, and all other construction related matters, please contact Martin Collingwood on (01482) 325242 or email him at martin.collingwood@andrewjackson.co.uk

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