Construction law quarterly digest, November 2010

City Inn Ltd v Shepherd Construction Ltd [2010] ScotCS CSIH_68 (22 July 2010)

The case with, potentially, the most far reaching implications is City Inn. Decided by the Inner House of the Court of Session (Scotland’s Court of Appeal) it affirms an earlier decision in which the court apportioned loss and expense where there were apparently competing concurrent causes of delay. There are a number of analytical tools available to parties, such as critical path analysis and the ‘dominant cause’ approach. All of these tools have their strengths and weaknesses.

The underlying approach taken in this case is that the court must first look to see what the contract says about the way that entitlement arises and how claims should be made.

Once those hurdles have been passed, it is for the claiming party to prove its case using whatever analytical tools are appropriate to the factual circumstances. The focus, however, will be on the satisfaction of the burden of proof rather than on the analytical route taken.

This being a Scottish case there is a question as to the extent that it would be followed in the English courts. No doubt guidance will come but our view is that there is a fair chance the approach taken will be followed.

Kaye v Lawrence [2010] EWHC 2678 (TCC)

The Party Wall Act has not given the court reporters a great deal of business despite the fact that its provisions crop up quite regularly for property and construction lawyers. This appeal raised an important practical question on the extent to which security may be required under section 12(1) of the Party Wall etc. Act 1996 ("the 1996 Act"). Although a similar provision has been in existence in Inner London since the Metropolitan Building Act 1855 and more recently has been generally applicable in England and Wales under the 1996 Act, there appeared to be no reported decisions on the meaning of that subsection.

The central question in this appeal was whether you can request security when your neighbour’s works are being carried out entirely on your neighbour’s land. Or can you only request security when works are being carried out to your land (or to the party wall)? Mr Justice Ramsey held that security can be sought in either circumstance.

The case is important reading for surveyors or lawyers working in this area.

Dhamija & Anor v Sunningdale Joineries Ltd & Ors [2010] EWHC 2396 (TCC)

Where a building has defects questions will often arise as to whether the employer’s professional team should have noticed the defects and either not certified defective work or advised the employer to withhold or set off money. This is particularly important where the contractor is not in a position to return the money.

In this case the employer made a claim against his quantity surveyor. Mr Justice Coulson held that the quantity surveyor’s appointment had an implied term that he would use the “reasonable skill and care of quantity surveyors of ordinary competence and experience when valuing the works properly executed for the purposes of the interim certificates”. This was not least because the QS agreed that he inspected the works. This was a preliminary issue and the case may well be reported again if it proceeds to trial.

Proving breach of such a term may well be a difficult issue. Normally the QS focus is on quantity rather than quality with quality being for the architect. The case does however raise a point for those drafting the scope of services in a professional appointment of a quantity surveyor.

Cooperative Group Ltd v John Allen Associates Ltd [2010] EWHC 2300 (TCC)

Engineers were in the frame here. The question was what responsibility, if any, they bore for adopting a decision of the piling contractor.

The claimant advanced the usual arguments (equally applicable to an architect), that the duty ought not to be delegable. Where, however, the area of design is obviously outside the expertise of any engineer or of the consultants available in the construction industry (for example high-speed lifts) then the duty may be limited to the exercise of reasonable skill and care in the selection of the product or specialist services. A remedy for the client against the specialist (for example a direct warranty) can indicate that reliance may well be reasonable.

Mr Justice Ramsey concluded that it was possible for a construction professional to act reasonably in seeking the assistance of specialists to discharge their duty to the client and factors the court would consider included:

(a) whether the assistance is taken from an appropriate specialist;

(b) whether it was reasonable to seek assistance from other professionals, research or other associations or other sources;

(c) whether there was information which should have led the professional to give a warning;

(d) whether and to what extent the client might have a remedy in respect of the advice from the other specialist;

(e) whether the construction professional should have advised the client to seek advice elsewhere or should themselves have taken professional advice under a separate retainer.

The practical advice to a professional however remains that the client’s authority should be sought to delegate a part of the work or to rely on a separate specialist. It would also be sensible to encourage the client to take a direct appointment or, at least, a warranty.

William McIlroy Swindon Ltd & Anor v Quinn Insurance Ltd [2010] EWHC 2448 (TCC)

Insolvency is an ever present risk but a more acute one in the current marketplace. In this case Mr Justice Edwards-Stuart looked at issues arising in a claim against insurers under the Third Party (Rights against Insurers) Act. Although a replacement for the 1939 Act is due to come into operation, this case was under the current legislation.

The allegation was that the insolvent sub-contractor had caused a fire by careless use of a blowtorch. The insurer, Quinn, had taken a number of points but the case turned on an unusual provision requiring a dispute over policy liability or the amount to be paid to be referred to Arbitration within 9 months of the dispute arising.

The judge upheld the clause and concluded that the dispute had arisen more than nine months before any step was taken. Subject to a possible application to the Irish courts (which it seems the parties had agreed not to make) that disposed of the claim.

The lesson here is that any issues against third party policies should be pursued quickly – and indeed consideration might be given to referring any issue to arbitration.

Happily such policies are not common.

Travelers Insurance Company Ltd v Countrywide Surveyors Ltd [2010] EWHC 2455 (TCC)

Insurance was at the heart of this case. It involved an issue between Travelers and Countrywide as to the possibility that an employee of Countrywide might have been fraudulent and that Countrywide might have appreciated that prior to the taking out of a policy.

The issue for Mr Justice Coulson was whether he had power to order pre-action disclosure. He decided that a binding Arbitration clause precluded the court using its powers under CPR 31.16. Travelers also sought to use Section 44(2) of the Arbitration Act 1996 (which gives the court powers ancillary to arbitration). Mr Justice Coulson concluded that the powers under the section did not extend to pre-action disclosure.

So on this occasion the arbitration clause was unhelpful to the insurer. Such clauses represent an area where brokers might consider seeking specialist advice – with the agreement of their clients, of course!

Bewley Homes Plc v CNM Estates (Surbiton) Ltd [2010] EWHC 2619 (TCC)

Here, Mr Justice Akenhead had to consider the enforceability of a settlement agreement. Having given the Claimant Summary Judgement he had to consider whether there should be a stay of execution. He referred to and applied the criteria set out in Wimbledon Construction Company 2000 Ltd v Vago [2005] EWHC 1086 (TCC), in relation to adjudication, notably:

“f) Even if the evidence of the claimant's present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:

(i) the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made (see Herschell); or

(ii) The claimant's financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded by the adjudicator (see Absolute Rentals)."

and so refused a stay on enforcement. The test of looking at the parties’ financial position at the time they contracted is now well established.

If you would like further advice or guidance about the issues raised by the cases mentioned above, please contact: