Countering the cost: 2020, a remarkable year in construction law

In late March, entering the first of two national lockdowns, the UK government decided against a shutdown of construction activity. It preferred work continuing where possible, with safeguards. Unfortunately, though, its less-than-clear guidelines fuelled disputes over when contracts provide relief to contractors and subcontractors.

Disputes over other contractual provisions continued as before. Four judgments had wide significance given the frequency with which terms similar to those under dispute are used in contracts. In 2 Entertain v Sony the Technology and Construction Court (TCC) reviewed the meaning of “indirect or consequential loss”, while in Blackpool vs Volkerfitzpatrick it commented on the meaning of “design life”.

Another phrase found in many construction contracts was at issue in Dr Jones Yeovil vs The Stepping Stone Group. In that case the employer of a contractor, like many developers, had no proprietary interest in the site. It did, though, wholly own the company that owned and leased out the site. The contractor installed defective heat pumps but later replaced them. The TCC held that the employer could not be entitled to the resulting extra electricity costs because it had not incurred those costs. This was because the standard JCT terms (like the NEC’s) stated that they did not confer any right to enforce the contract on non-parties.

A further common clause was considered in Energy Works vs MW. The clause (used in JCT and NEC contracts in similar form) required a contractor to assign its subcontracts to its employer if and when the latter terminates its contract. The TCC found that after this clause was operated it in effect limited the contractor’s right to sue its assigned subcontractor over the termination (notably the contractor’s liability for its employer’s extra costs of completing the works).

It is still hard to believe the loss, expense and change we were so used to under JCT would become so appealing when compared with the loss, expense and change wrought by covid

Concerns about the termination of contracts were also raised by covid. From 26 June suppliers and contractors were (with few exceptions) barred from relying upon clauses allowing them to terminate owing to their client’s liquidation or other insolvency process. The Corporate Insolvency and Governance Act 2020 also prevented insolvency proceedings against financially distressed debtors, for example to liquidate them.

Insolvency was the subject of Bresco vs Lonsdale. The Supreme Court held that the courts should not ordinarily restrain companies in liquidation from adjudicating. The TCC soon after set out the principles to be applied when such companies seek to enforce adjudicators’ decisions, in a dispute over works carried out for the London Olympics (John Doyle vs Erith).

Adjudication was at the centre of Yuanda vs Multiplex. The TCC decided that, for the popular ABI form of guarantee, an adjudicator’s decision “established and ascertained” liability under the underlying contract. This will quicken payments by guarantors under ABI guarantees. In TRS vs KDB the TCC ordered payment under a demand guarantee 21 days after the action had started, while deciding a novel point affecting many such instruments around the world.

Speedy payment was also a focus of the government as covid struck. It required public authorities to accelerate payments. For payments by business interruption insurers for covid losses, court guidance was given in a test case with great dispatch, FCA vs Arch. An appeal was fast-tracked to the Supreme Court, whose judgment is awaited.

Covid also prompted the government to ask parties to contracts affected by the pandemic to engage in “responsible and fair behaviour”. As this had no legal force, some parties were left to ask if similar conduct might be impliedly required by their contracts. In Essex vs UBB a 25-year PFI contract was “a paradigm example of a relational contract in which the law implies a duty of good faith”. Elsewhere, in Cathay vs Lufthansa, a duty of good faith was not implied into a 10-year maintenance contract for aircraft engines. While this area of law continues to develop, it appears the duty will not be implied in the general run of construction contracts. This is not, though, an issue for NEC contracts as they expressly require “mutual trust and co-operation”.

The NEC3 conditions were considered in Van Oord v Dragados. A Scottish court dealt with the valuation of work omitted in breach of contract, so that it might be given to another contractor. It held that the omission should be valued just as a lawful omission would be valued.

In October the latest NEC conditions were amended. Some NEC4 forms previously tied final dates for payment to invoices. They are now a fixed period of time from the due date. This reflects the TCC’s suggestion earlier this year, made with “some diffidence”, that a term making the final date for payment dependant upon an invoice was non-compliant with the Construction Act (Rochford vs Kilhan).

The NEC4 amendments also now provide for any liquidated delay damages to cease upon termination. After termination any further delay costs are recoverable as general damages. This amendment seeks to address the Court of Appeal’s 2019 judgment in Triple Point vs PTT.

However, the Supreme Court may yet reverse that judgment. Its decision is eagerly anticipated. Of course, some degree of pre-covid normality is more keenly awaited in 2021, even by construction lawyers. It is still hard to believe the loss, expense and change we were so used to under JCT would become so appealing when compared with the loss, expense and change wrought by covid. 

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