Construction and Engineering Legal Update March 2010

In this month's digest we highlight  recent developments of interest, including commercial issues (in particular an article on the relevance of the "BSKYB" judgment for the construction and engineering sector) and some recent case law.

 All links are correct at the time of publication.

The following topics are covered:

• Commercial
• Case Law

Commercial 

The BSkyB judgment – implications for the construction and engineering sector

The Technology and Construction Court recently handed down its decision in BSkyB Ltd and another  v HP Enterprise Services UK Ltd and Electronic Data Systems Ltd.

Although the case concerned IT, and the implementation of a customer relationship management system, the decision is particularly relevant to the construction and engineering sector in the following areas:

• representations made in pre-contract negotiations
• the effectiveness of contractual caps on liability
• the effectiveness of "entire agreement" clauses
• drafting of settlement terms

We have written an article in which we summarise the facts and issues in the case, and provide some learning points to consider when dealing with these areas in the future.

Click here to read the article.

Execution of documents by virtual means: Law Society guidance

The Law Society has published a practice note for those who deal with execution of documents at virtual signings or closings where some or all of the signatories involved are not physically present at the same meeting. The case of R (on the application of Mercury Tax Group and another) v HMRC [2008] EWHC 2721 (Mercury) had led to discussion about the effectiveness in English law of using:

• pre-signed signature pages, and
• virtual signings and closings where signature pages are exchanged by e-mail.

The Law Society practice note gives suggestions on good practice in the light of the Mercury case and suggests different options for virtual signings/closings. The options suggested are not exhaustive as it is not implied that virtual signings and closings cannot or should not be conducted in other ways. The practice note is intended to assist parties who nevertheless wish to take a cautious approach, in the light of Mercury, where it is more convenient to have a virtual signing or closing and wet ink documents are not required for registration. 

Building Better Partnership ("BBP"): Sustainability Benchmarking Toolkit

The BBP has launched a toolkit to help businesses benchmark their carbon footpint. The purpose of the toolkit is twofold: to present the Better Buildings Partnership’s experience of sustainability benchmarking, and to propose some principles for best practice which may be of interest and assistance to others in the property sector who have a desire to improve the environmental performance of their buildings. The BBP hopes to stimulate and encourage the market to define and agree a set of industry standards and common sustainability metrics for reporting and benchmarking.

HSE Guidance on asbestos surveys published

This new HSE publication replaces and expands on MDHS100, "Surveying, sampling and assessment of asbestos-containing materials". It is aimed at people carrying out asbestos surveys and people with specific responsibilities for managing asbestos in non-domestic premises under the Control of Asbestos Regulations 2006. The guidance covers competence and quality assurance and surveys, including: survey planning, carrying out surveys, the survey report and the dutyholder’s use of the survey information. It includes extensive appendices and references.

Sentencing Guidelines Council ("SGC") Guidelines: "Minimum" £500,000 fines for large organisations guilty of corporate manslaughter

NEC has launched new NEC3 Supply Contract documents

RICS/Davis Langdon "Contracts in Use" survey published.

This survey reports on data for use of contracts in 2007.  Trends noted include:

• the majority of building contracts in this country continued to use ‘traditional’ procurement. The vast majority of building projects used a standard form of contract
• JCT contracts continued to be the preferred family of use, but there was an increased use of the NEC contracts
• there had been a reduction in procurement by way of a Guaranteed Maximum Price
• there had been a marked increase in the use of two stage procurement across all project values
• there had in 2007 been a measurable decline in the use of Bills of Quantities
• over 50% of contracts in the £10k to £50m value bands were procured on a design and build basis.

The survey received little information about PFI/PPP projects. Survey respondents were asked to exclude specifically all overseas work, civil engineering work and heavy engineering projects. Term contracts, routine maintenance and repair work and sub-contracts forming part of larger contracts were also asked to be excluded.

The survey was based on historic data, at a time when the economy was buoyant. A survey contracts in use in 2009, after the credit crunch, would probably report different trends.  For example, two stage tendering often increases when contractors are reluctant to price single stage tenders. A 2009 survey is likely to show very little use of two stage tendering as contractors are considerably more keen to price single stage tenders.

Case law 

Can a builder owe a duty of care in tort to his client in respect of economic loss?

This was the main (preliminary) issue decided in Robinson v P E Jones (Contractors) Ltd [2010] EWHC 102  (TCC).  HHJ Stephen Davies, after considering a lengthy string of leading cases, held  that in principle a builder can owe a duty of care in tort to his client in relation to economic loss.  The Judge's analysis centred on the distinction between cases where there was no contractual relationship between the builder and, say, a later purchaser(s) of a building (e.g. Murphy v Brentwood) and cases where a duty of care was held to arise by virtue of a "special relationship" between the parties (e.g. Henderson v Merrett).  The Judge found that in principle a building contract between a builder and an owner could itself give rise to a special relationship, and therefore result in the builder being liable in tort to the owner for pure economic loss.

This principle will be of relevance in situations where damage is discovered after a contractual limitation period (6 years for simple contracts and 12 years for deeds) has expired, but where the limitation period for a claim in tort has not expired.  Under s14A Limitation Act 1980 claims in tort may be made up to 15 years after the date of the breach of duty.

This was a first instance judgment, and it is likely that there will be uncertainty on this area until the issue is addressed by the Court of Appeal.  The important point is that one cannot simply say that a builder does not owe a duty of care in tort to his client in relation to economic loss.  For significant claims where a contractual claim is time barred it may be worth pursuing a claim based on a duty in tort

However, on the facts of the case the Judge found that no duty of care in tort was owed by the builder. This was because the Claimant got the benefit of an express warranty under the terms of the NHBC Agreement which was incorporated into the contract.  That warranty was wider than the contractual warranty in clause 1(a) of the Building Conditions in the contract, and it was also more extensive than any concurrent duty of care which would otherwise exist, because it required compliance with the NHBC requirements and also included a warranty in relation to materials and a warranty as to fitness for habitation.  The Judge therefore found that the Defendant had successfully excluded the concurrent duty of care which it would otherwise have owed the Claimant in tort.

Building contractors should therefore be alive to the need to exlude liability for a concurrent duty on tort by way of carefully drafted exclusion clauses. (See also the article on the BSKYB judgment referred to above, which deals with drafting of exclusion clauses).

Who must demonstrate that an innocent party has not mitigated his loss?

The Court of Appeal, in Lombard North Central PLC v Automobile World (UK) Ltd [EWCA] Civ 20, confirmed that it is for the party in breach of contract to demonstrate that there had been a failure to mitigate.  The court also confirmed that the duty to mitigate was not a demanding one.

In this case the party in breach, AW, claimed that Lombard had failed properly to mitigate its losses.  The court found that Lombard had been careful to obtain the best price for an expensive repossessed car, even though there were some doubts as to whether Lombard had taken reasonable steps to mitigate.  However, since AW had not proved a failure to mitigate, for example by obtaining expert evidence, its claim failed.  AW had placed Lombard in a difficult position, and Lombard only had to do what was reasonable in the circumstances.

Costs orders where the main dispute is settled before trial, and failure to negotiate. 

In civil proceedings, the "normal" rule on costs is that the loser pays the winner's costs, with those costs to be assessed if not agreed.  The court may make different orders.

In Vector Investments v J D Williams [2009] EWHC 3601 (TCC), the court held that where parties seek the court's determination on costs where the main dispute is settled before trial (under Civil Procedural Rule 44.3), but the court is unable to decide success based on the issues alone, the settlement sum is to be taken as the starting point for determining which party had been successful.  This meant that the Claimant in this case was entitled to an order for costs in its favour.  However, the court also exercised its discretion to deprive the Claimant of a substantial amount of its costs because of the Claimant's unreasonable conduct, including a failure to negotiate.

It is likely to be rare for parties to agree the extent to which each party has been successful following a dispute, particularly since settlements are usually made without an admission of liability.

If you require any further information about any of the items mentioned, or if you have been forwarded this update by a colleague and would like to receive it direct, please contact David Kirkpatrick, Associate Solicitor and Professional Support Lawyer for the Construction & Engineering Department.

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