A very appealing year: Court of Appeal’s impact on construction law in 2019

It is fair to say that the Court of Appeal led the way in shaping our construction law during 2019. In Herons Court vs Heronslea, it held that approved inspectors (AIs) who certify construction works as complying with Building Regulations owe no duty to homebuyers (under the Defective Premises Act 1972) for defects they overlook. In this respect, AIs are just the same as local authority inspectors.

Non-compliant work was also central to Mears vs Costplan, a case about new-build student accommodation that was constructed with rooms smaller than specified. The future tenant said this was a breach of contract that necessarily precluded practical completion of the works (and its lease taking effect). The Court of Appeal disagreed, confirming that practical completion is achieved when works have been completed free from patent defects, other than trifling ones. It was for the certifier, in the first instance at least (and not the court), to decide whether there were breaches that were trifling. 

Another pre-completion case in 2019 was Triple Point vs PTT. Here, a (software) contract was terminated before completion was achieved, with the work much delayed. Liquidated damages for delay were claimed for the delays up to the termination date. The Court of Appeal rejected the claim, deciding that after the contract was terminated the delay liquidated damages provision did not apply, even to the pre-termination period. The same would follow for many construction contracts, given the wording of their liquidated damages clauses. The Supreme Court is due to hear the appeal in Triple Point next year. 

The Court of Appeal confirmed that companies in liquidation which adjudicate will usually be injuncted, with any adjudicator’s decision obtained likely to be unenforceable

Another area that would benefit from the Supreme Court’s input is when duties of good faith are implied into commercial contracts. This year the head of the Technology and Construction Court (TCC), Mr Justice Fraser, in a non-construction case, held that in “relational contracts” there is an implied duty of good faith (Bates vs Post Office). This duty requires parties to refrain from conduct that in the relevant context would be regarded as commercially unacceptable by reasonable and honest people. 

>> Read: Number of High Court disputes jumps again

In the Court of Appeal, Lord Justice Coulson, a former head of the TCC, refused permission to appeal against Mr Justice Fraser’s judgment. However, this remains a controversial area. In 2018 another former head of the TCC and Lord Justice of Appeal, Sir Rupert Jackson, writing extra-judicially, queried the need for an implied duty of good faith in relational contracts given the well-established implied duty to co-operate. 

Relational contracts involve fiduciary or long-term relationships where the parties make a substantial commitment, such as many joint venture agreements. They do not, as the law stands, include the general run of construction contracts. This is not, though, an issue for NEC contracts given that they expressly provide for “mutual trust and co-operation”.

Other NEC terms reached the TCC in 2019. In Doosan vs Interserve the TCC held that the standard NEC3 target cost provisions did not allow pain/gain share adjustments to interim payments, even when the target cost has already been exceeded. Adjustment is only allowed after completion of the works. 

>> Read: Can you share the pain? Doosan, Interserve and the TCC

Another TCC judgment published in 2019 concerned the NEC term that “a party may refer a dispute to the adjudicator if the party notified the other party of the dispute within four weeks of becoming aware of it” (Sitol vs Finegold). This term operates only where the Construction Act does not apply to the contract. 

The TCC “with no great enthusiasm” declined to enforce an adjudicator’s decision because the adjudication was started too late. The dispute arose by February but was not referred to adjudication until April. The failure to adjudicate by March was fatal. 

Adjudication was also the focus of Bresco vs Lonsdale. The Court of Appeal confirmed that companies in liquidation which adjudicate will usually be injuncted, with any adjudicator’s decision obtained likely to be unenforceable. It also held that parties raising specific jurisdictional objections before adjudicators cannot raise before the court other jurisdictional objections that were open to them. Moreover, general reservations of position on jurisdiction will not always be effective.

AI is, of course, just one technology expected to transform the construction industry during our lifetimes

The Construction Act’s payment provisions again reached the Court of Appeal in 2019 (Bennett vs CMC). The court emphasised the importance of holding parties to their contract, as much as possible, where they have not complied with the act. 

Another statute that reached the Court of Appeal in 2019 was the Contracts (Rights of Third Parties Act) 1999. The court’s judgment in Chudley vs Clydesdale Bank provides strong support for the act. Hopefully this will promote the adoption of the act over collateral warranties.

With an eye on the future, the Lord Chief Justice in March announced the creation of an advisory board to help keep senior judges informed about developments in artificial intelligence. AI is, of course, just one technology expected to transform the construction industry during our lifetimes. However, in 2020 (and beyond) we can expect our judges to continue to develop our construction law without AI – but with plenty of natural intelligence. 

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