The year of moving on: 2022 in construction law

One of the year’s most striking decisions was the Supreme Court’s “momentous” decision, as Lady Arden called it, in BTI vs Sequana. The court held that where a company is insolvent, or bordering on insolvency, its directors owe a duty to the company to balance creditors’ interests with shareholders’ interests. Where insolvent liquidation or administration is inevitable, creditors’ interests are paramount.

While BTI recast existing law, the Building Safety Act 2022 brought momentous change to residential developments. Among many regulatory changes, the act bolsters the regime for buildings at least 18m or seven storeys high. It also creates a liability for manufacturers and suppliers of defective construction products which make a dwelling unfit for habitation. For defective cladding, a retrospective 30-year limitation period applies.

Controversially, a retrospective 30-year limitation period was also created for claims against contractors, designers and others who worked on dwellings found unfit for habitation. This is not confined to defective cladding. Many who thought they had closure no longer have it.

Limitation periods were also the subject of Hirst vs Dunbar. The Technology and Construction Court (TCC) indicated that, for a payment claim, time generally runs from when the works are completed and not when Construction Act payment notices are issued.

The act’s application to collateral warranties was upheld in Abbey vs Simply. A majority in the Court of Appeal held that, critically, the relevant warranty’s wording covered future work and was not just a promise to compensate. As the warranty had retrospective effect, it did not matter if it was concluded after the relevant works were completed. Accordingly, the right to adjudicate under a collateral warranty should be found more readily in the future.

Apart from termination cases, in 2022 there were also difficulties in achieving closure through final accounts

On the subject of adjudicators’ decisions, two TCC judgments confirmed the judiciary’s support for court enforcement even if there is an arbitration agreement: Northumbrian Water vs Doosan and Sefton vs Allenbuild. The current consultation on amending the Arbitration Act 1996 does not raise this issue.

In both cases the notice of dissatisfaction did not permit a challenge to the validity of the decision as distinct from its substantive merits. In Allenbuild that was despite the notice referring to the “entirety of the adjudicator’s decision”.

Similarly, notices for terminating contracts under their terms were held to be invalid in two other TCC cases in 2022 (although in both the employers still successfully terminated at common law). In Struthers vs Davies, the employer’s warning notice was invalid because the contract required it to be from the contract administrator. In Barnes vs Blackburn, a termination notice delivered to the contractor’s site, rather than contractual, address was invalid, as was the emailed version (under the contract’s terms). However, a posted version took effect despite being deemed to be served two business days after the contractor was removed from site.

>>Also read: Practical impacts of the Building Safety Act

>>Also read: Power is shifting to subcontractors

Barnes was also notable in upholding an extension of time claim where there were competing causes of (employer and contractor culpable) delay. The contractor, though, failed to recover prolongation costs which would have been incurred anyway but for the employer-culpable delay.

Further contractual termination issues were addressed in Optimares vs Qatar Airways. The court upheld a contractual right to terminate at will and the plain meaning of the words “without incurring any liability”. The right was unfettered by a good faith clause because it only applied to the “performance” of “responsibilities and obligations”. In addition, there was no room to imply any good faith duty.

In August in Candey vs Bosheh, Lord Justice Coulson noted that “there has been something of an avalanche of claimants in recent years trying to show that the contract into which they seek to imply the term is a relational contract, thereby bringing with it the implied obligation of good faith. Only a relatively few have succeeded”.

Apart from termination cases, in 2022 there were also difficulties in achieving closure through final accounts. In McLaughlin vs East Ayrshire, three Scots appellate judges did not just disagree with the first instance judge but also with each other when grappling with conclusivity and time bar clauses in the SBCC standard form. Similar clauses are found in JCT contracts. The lack of agreement between four judges highlights the complexities raised by such clauses.

A final account was also at issue in the case of A&A vs PCTT. Members of our highest court opined that the first instance judge had validly relied upon an employer’s letter agreeing the value of certain variations. The letter was not protected by without-prejudice privilege. On that topic, it was relevant that the contract required the parties to set out their positions to try to reach an agreement.

With regard to the closure facing us all through momentous climate change, the NEC added an optional X29 clause to its NEC4 contract suite. It aims to make construction more sustainable through positive and negative incentives. Let’s hope this optional clause is put to good use.

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