Not all Collateral Warranties are Construction Contracts

By Matthew Friedlander and Tanya Chadha

The contractual matrix of commercial construction projects commonly includes collateral warranties.  Collateral warranties typically grant a contractual cause of action to third parties (such as tenants or end-users) with an interest in the project who may not otherwise have a contract in place with parties that are designing, constructing or providing professional advice on the project.   For the beneficiary, a collateral warranty can therefore be invaluable.

Recently, for example, collateral warranties have proven to be extremely useful for long leaseholders and tenants in private residential developments where cladding and fire safety issues have been discovered.  Where such a warranty exists, leaseholders (as the beneficiaries) have been able in some cases to rely upon collateral warranties as a means of recovering losses, or compelling the original contractors or designers to rectify those fire safety defects in circumstances where the leaseholder was not involved in the original construction of the development.

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A step too far?

A step too far?

    • Third party consultants, and duty of care in tort.
    • No duty of care owed in tort by a third party design consultant to a contractor with no direct contractual nexus.

Large infrastructure projects are often subject to intricate contractual relationships between the relevant stakeholders, and this will also include collateral warranties to cover any potential gaps in liability to mitigate potential effects of one of the participants in the contractual matrix becoming insolvent. Parties lower down the contractual chain may engage their own designers or consultants to discharge their obligations up the contractual chain. An interesting scenario arose in the recent case Multiplex Construction Europe Ltd v Bathgate Realisations Civil Engineering Ltd (Formerly Dunne building & Civil Engineering Ltd (In administration) (2) BRM Construction LLC (3) Argo Global Syndicate 1200 (2021) , and the two issues that were heard by way of preliminary issue.

The facts:

    • The main contractor sub-contracted certain design works to the sub-contractor.
    • In turn the sub-contractor sub-contracted certain design work to the designer (Second Defendant).
    • There was a requirement pursuant to BS 5975 for certain independent design checks and approvals to be done by an independent third party. For that reason, and to discharge its contractual obligations to the main contractor, the sub-contractor engaged a firm of consulting engineers to do this, and issue the relevant certificates.
    • The contractor alleged that defects issues arose because of design issues.
    • The contractor issued proceedings against the sub-contractor and the designer.
    • Judgment in default was obtained against both.
    • The sub-contractor was in administration. The designer was uninsured. The consultant had gone into liquidation.
    • The contractor pursued the consultants insurers.
    • There were two preliminary issues that were dealt with by His Honour Judge Fraser, sitting in the TCC:

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GSEL v Sudlows: Adjudication enforcement, natural justice and challenging a decision

Introduction

Adjudication can be a frustrating experience, particularly for those who have been faced with a decision of the adjudicator that is quite obviously (to you) wrong, but nonetheless enforceable.

This situation arises because it has long been accepted that, in adjudication, “the need to have the “right” answer has been subordinated to the need to have an answer quickly…” per Chadwick LJ in Carillion v Devonport Royal Dockyard [2005] EWCA 1358.

The Court’s stance on this issue is born from the original intent of the statutory scheme, which was to provide a means for contractors and subcontractors to address cash-flow problems caused by illegitimate delays or refusals to pay. In order to achieve that, adjudication decisions have to bear the weight of authority, otherwise every adjudication decision would immediately be challenged by the losing party.

The Courts also take into account the fact that the adjudicator is tasked with deciding often very complex and detailed disputes in a very short period of time. Errors in decision-making from time to time are therefore inevitable, but the Courts have determined that that shouldn’t be allowed to undermine the process.

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UK Construction & Engineering: Safer Construction Materials- A New National Regulator

By Vijay Bange

Following our recent blog concerning the challenges and issues in the construction industry arising post Grenfell and the Dame Hackitt Review, the Government continues with its mission to tackle some root safety concerns. One of the many recommendations made was that more needs to be done to ensure that construction products are robustly tested, certified and labelled, and that there needs to be  a more robust regulatory framework to police this. Furthermore, to ensure that there is greater accountability for those manufacturing and /or selling dangerous building products.

The Housing Secretary, Robert Jenrick, announced on 19th January 2021[1] the establishment and funding of a national regulator[2] working closely with the Building Safety Regulator and trading standards, and indeed other regulators, whose remit would be to ensure that safer materials are used to build homes. The issue is no longer limited just to dangerous cladding and is more wholesale. This was a scathing, and candid, account of the perceived deficiencies in the industry. Separately, the government has also commissioned a panel of experts to look into the fitness of testing regimes for construction products, and tackling abuse of testing products used for construction, and it is anticipated that this review will report its findings this year. Potentially, this too may result in further changes to the relevant regulations. What is evident is that there is a multi-pronged effort to make changes to implement safety concerns post Grenfell, and implement the measures arising from the Dame Hackitt Review.

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Follow The Money

By Vijay Bange and Tanya Chadha

  • Injunction
  • Constructive trust and / or Quistclose trust.

Deluxe property Holdings Ltd (a company registered under the laws of the British Virgin Islands) v (1) SCL Construction Limited & (2) HMRC [2020] EWHC 2865 (TCC)

Cash flow is the lifeblood of the construction industry.  This phrase, coined by Lord Denning MR, and cited relentlessly in the construction industry still holds true. In times of recession, following the cash and preserving the funds that are in dispute is crucial. There is no point in spending time and money pursuing a dispute to fight over a pot of cash that is at real risk of being dissipated. Continue reading “Follow The Money”

Build, Build, Build…The New Deal: Boris Johnson Announces Plans to Rebuild Britain

By Vijay Bange

As the government eases the lockdown provisions around the country, the Prime Minister today made a speech in Dudley, the historical heart of the industrial revolution, setting out his £5 billion economic recovery plan for the country. This is the government’s plan to build our way out of the recession caused by the pandemic, and has been compared to the New Deal proposed during the Great Depression by US President Franklin D Roosevelt. Continue reading “Build, Build, Build…The New Deal: Boris Johnson Announces Plans to Rebuild Britain”

Adjudication during the COVID-19 lockdown – breach of natural justice?

By Vijay Bange and Tanya Chadha

In the UK, adjudication remains one of the quickest and most cost effective methods of resolving construction disputes.  As most people adjust to the “new normal” of working from home, an away from the usual office environment, adjudication may not be at the top of everyone’s agenda.  That is somewhat ironic given that the current COVID-19 situation is fast becoming a potential breeding ground for construction disputes.  Projects are in delay, labour and materials supply may be an issue and cashflow may become and inevitable effect of the lockdown.

The courts have shown a resolve to carry on with court business where there are live proceedings. There was however some uncertainty as to what approach the TCC would take in relation to adjudications during the period of lockdown, particularly given the fast and furious nature of the process. Would breach of natural justice arguments hold strong in adjudications pursued during this restrictive period of lockdown?  What would be the position where some relevant participants are self-isolating?  Can the adjudication process be conducted fairly, and with proper regard to the rules of natural justice? Continue reading “Adjudication during the COVID-19 lockdown – breach of natural justice?”

Post-lockdown and the new world order: Construction & Engineering UK

By Vijay Bange and Tanya Chadha

Social distancing measures and lockdowns have been replicated across the globe and have brought world economies to all time lows. Understandably, there is now a degree of anxiety to getting back to work. The longer the lockdown goes on for, the harder the bounce back may be. Unsurprisingly murmurings of getting the country back to work are beginning to surface.  Some manufacturers and building firms that shut down are now slowly preparing to return to work from a state of hibernation.

Aston Martin and Jaguar Land Rover have set out plans to re-open their factories early next month with strict safety measures in place. Taylor Wimpey, like some other national house builders, is planning to resume work on multiple sites. HS2 is also now resuming works on Phase one, opening 75% of its sites, with a notice to commence being approved by the government. These companies have spent time planning how they can re-start, whilst ensuring adherence with the government’s social distancing guidelines. Continue reading “Post-lockdown and the new world order: Construction & Engineering UK”

Expert witnesses owe a fiduciary duty of loyalty to clients

By Vijay Bange

A Company v XYZ [2020] EWHC 809 (TCC)

Overview

  • The expert witness owed a fiduciary duty of loyalty, arising out of an engagement to provide expert witness services, advice and support in connection with an arbitration.
  • The court allowed the continuation of an existing interim injunction refraining the defendant consultancy expert practice from providing expert services to another party in the arbitration.

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Exit Strategies: Construction & Engineering UK

By Vijay Bange and Tanya Chadha

It was announced on Sunday 5 April that Keir Starmer was selected as leader of the Labour Party. Whilst the current Covid-19 outbreak has no basis for political jostling, he raised a very important question, namely, what is the government’s “Exit Strategy” to eventually get us back to a sense of normality.

The point raised by Keir Starmer is of wider economic relevance. Save for key workers, most other business sector activities have come to a halt. This is largely (but not exclusively) the case for construction and engineering projects. Continue reading “Exit Strategies: Construction & Engineering UK”