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CONSTRUCTION LAW REVIEW

20th Anniversary Issue

2016

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Chartered Institution of Civil Engineering Surveyors Dominion House, Sibson Road, Sale, Cheshire M33 7PP, United Kingdom +44 (0)161 972 3100 www.cices.org President: David Loosemore FCInstCES Honorary Secretary: AH Palmer MBE FCInstCES Chief Executive Officer: Bill Pryke HonFCInstCES

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Construction Law Review 2017 copy date: 31 May 2017.

2016

Contents

Features

04. Forewords

David Loosemore, Chartered Institution of Civil Engineering Surveyors, and Julian Bailey, Society of Construction Law

07. Civil litigation: 20 years on

Alexander Nissen QC, Keating Chambers

11. Artificial intelligence and law

Simon Tolson, Fenwick Elliott LLP

16. Expert errors

John Mullen, Diales

18. Foreseeing the unforeseeable

David Carrick, Hill International

25. Employer’s claims under FIDIC

Jonathan Hosie, Mayer Brown International

28. Adverse weather

Emily Monastiriotis, Susanne Hose and Simos Schizas, Bond Dickinson

30. Payment provisions under LDEDCA 2009

Peter Barnes, Blue Sky ADR

33. Proving extension of time claims

Manoj Bahl, FTI Consulting

36. Fixed payment schedules:

Grove v Balfour Beatty

Alan Williamson, Schofield Lothian

39. Knocked out on penalties

Kate Corby and William Jones, Baker & McKenzie

42. Collateral warranties

Fenella Mason, Burness Paull

warranties Fenella Mason, Burness Paull Chartered ICES CharteredICES C I n s t C E S
Fenella Mason, Burness Paull Chartered ICES CharteredICES C I n s t C E S 44.

CInstCES

Paull Chartered ICES CharteredICES C I n s t C E S 44. Performance bond calls

44. Performance bond calls

Stephanie Barwise QC and Omar Eljadi, Atkin Chambers

47. FIDIC Red Book, sub-clause 2.4

Simon F Fegen, Leach Consultancy

50. Could the payment provisions of the

construction act displace capped payment sums set out in letters of intent?

Edwina Acland, Sharpe Pritchard

52. An (e)stopped clock is right twice a

day: Is your engineer’s conduct a ticking time bomb?

Sarah McCann, Hardwicke

55. Harding v Paice: Rhyming slang for

hard cases do not make good law?

David Sears QC, Crown Office Chambers

58. The making of IChemE’s new

professional services agreement

John Challenger, Institution of Chemical Engineers

63. Concurrent delay: Time does not

always equal money

Andrew Bayne, Centra Consult

66. With great risk comes

?

Gordon Lees, JGL Consulting

69. Contract administration for claims and

claims avoidance

Andy Hewitt, Institute of Construction Claims Practitioners

71. Index of Construction Law

Professionals

Practitioners 71. Index of Construction Law Professionals CharteredICES Published by the Chartered Institution of

Published by the Chartered Institution of Civil Engineering Surveyors. Statements made and opinions expressed in this publication do not necessarily reflect the views of the institution, its Council of Management or other committees. No material may be reproduced in whole or in part without the written permission of the publisher. All rights reserved. Printed using PEFC-certified paper as part of the institution’s commitment to er. All rights reserved. Printed using PEFC-certified paper as part of the institution’s commitment to promote sustainable forest management. Printed by Buxton Press Limited, Palace Road, Buxton, Derbyshire SK17 6AE. ©2016 Chartered Institution of Civil Engineering Surveyors. ISSN 0266-139X

4

Foreword

Construction Law Review

A celebratory issue

20 years of the Construction Law Review

David Loosemore, President, Chartered Institution of Civil Engineering Surveyors

Chartered Institution of Civil Engineering Surveyors Then and now The articles of David Carrick, Jonathan Hosie
Chartered Institution of Civil Engineering Surveyors Then and now The articles of David Carrick, Jonathan Hosie
Chartered Institution of Civil Engineering Surveyors Then and now The articles of David Carrick, Jonathan Hosie

Then and now

The articles of David Carrick, Jonathan Hosie and Alexander Nissen.

of David Carrick, Jonathan Hosie and Alexander Nissen. I T’S been 20 years since the Chartered
of David Carrick, Jonathan Hosie and Alexander Nissen. I T’S been 20 years since the Chartered
of David Carrick, Jonathan Hosie and Alexander Nissen. I T’S been 20 years since the Chartered
of David Carrick, Jonathan Hosie and Alexander Nissen. I T’S been 20 years since the Chartered
of David Carrick, Jonathan Hosie and Alexander Nissen. I T’S been 20 years since the Chartered
of David Carrick, Jonathan Hosie and Alexander Nissen. I T’S been 20 years since the Chartered

I T’S been 20 years since the Chartered

Institution of Civil Engineering

Surveyors first published the

Construction Law Review. That was in 1996 — a year forever associated with another construction law development, the Housing Grants, Construction and Regeneration Act. And what an act it was, one that continues to create debate amongst the brightest legal and construction professional minds. 20 years on, I am delighted to see three of those minds still writing for us. David Carrick, Alexander Nissen and Jonathan Hosie wrote for us back in the very first Construction Law Review and join us again here today. They, and all the authors who have written for us over the last two decades, understand the need to bring legal developments to the attention of commercial managers, quantity surveyors, cost consultants, estimators, project managers — the people on the ground that these very cases affect. I am also pleased to see our colleagues at the Society of Construction Law once again opening this publication. We learn much operating in our own specialist fields, but it is so important to look up and share that knowledge, and friendship, with those around us. For those of us involved in civils projects, 20 years is not such a long time. You only have to look at the newly opened Gotthard Base Tunnel to see what takes 20 years to create. Yet throughout these major projects — the HS2s, the Crossrails, the Millau Viaducts, the Hong Kong– Zhuhai–Macau Bridges — are professionals enthused and impassioned by how they are crafted and intrigued by the mechanisms of interaction that go on between the myriad bodies that are involved. Construction, and the law that governs it, is a marvellous arena to work in. Here’s to the next 20

David Loosemore FCInstCES President, Chartered Institution of Civil Engineering Surveyors President@cices.org www.cices.org @CharteredICES

2016

Foreword

5

Does construction law matter?

Julian Bailey, Partner, White & Case, and Chair, Society of Construction Law

White & Case, and Chair, Society of Construction Law D OES construction law matter? Anyone who

D OES construction law matter? Anyone who reads the articles in this Construction Law

Review would unhesitatingly answer yes. Construction and engineering projects, whether they be small or large in scale, are important enterprises in all countries. They are important because they are fundamental to a country’s needs and ultimately to its prosperity. Concomitantly, the law provides an essential framework for the delivery of projects. Construction and engineering contracts define what work is to be done, how much is to be paid for it, and what is to happen if the project does not proceed according to plan. Completing the picture is a vast body of statute and case law which determines, in varying degrees of detail, the rights and obligations of parties to construction and engineering contracts. Construction law is therefore important. It is also vast and highly nuanced. There is much to learn about it, and therefore much to discuss.

SCL

The Society of Construction Law was founded in 1983 in the kitchen of John Tackaberry QC. The germ of John’s idea, to create a forum for promoting the education and discussion of construction law issues, quickly took hold. More than three decades later the UK SCL now has more than 2,500 members, and worldwide there are SCLs on every continent.

There are two matters at the core of SCL’s activities. First, SCL holds lectures around the UK (and even abroad) on current construction law issues. Since its foundation, SCL has provided a continuous programme of seminars and conferences where leaders in the field lecture on and debate the latest issues. Secondly, to complement these lectures and conferences SCL publishes papers that are distributed to all members. The society’s papers offer the latest thinking on the most important construction law issues of the day. Additionally, SCL’s website provides a vast repository of published papers that can be accessed and searched by the society’s members. Perhaps the unique and most important feature of SCL is that it is open to all comers who have an interest in construction law. So, our members are not just lawyers, but include architects, engineers, surveyors, property developers, claims consultants, adjudicators, expert witnesses and many others. The environment of SCL is therefore an interdisciplinary one. Happily, the environment of SCL is also a very sociable one, and the society holds a great number of regular and ad hoc events which allow our members to network and to meet up with friends and contacts. SCL has much to offer and, if you are not already a member, I warmly encourage you to join the society.

Our world

Construction law matters, and if you are interested in construction law then the Society of Construction Law is for you. With that introduction, may I encourage you to start turning the pages of this Construction Law Review, and to explore the richness of issues that exist in our construction law world.

Julian Bailey, Partner, White & Case, and Chair, Society of Construction Law (UK) julian.bailey@whitecase.com www.whitecase.com www.scl.org.uk @SCL_UK

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2016

20 Years

7

Civil litigation: 20 years on

Alexander Nissen QC, Barrister, Keating Chambers

20 years on Alexander Nissen QC, Barrister, Keating Chambers W RITING in the very first volume

W RITING in the very first volume of this journal,

published in autumn 1996, I addressed the final

report on the civil justice system produced by Lord

Woolf and its likely impact on litigation generally and official referees business specifically. The intervening 20 years have seen significant changes to the landscape of construction litigation, much of which related to the introduction of the Civil Procedure Rules 1998 as a result of Lord Woolf’s report. Delivering a paper to the Society of Construction Law in March 2007, Mr Justice Jackson (now Lord Justice Jackson) commented on the impact of the 1998 Woolf reforms:

“Although it is fashionable to carp about detailed glitches and infelicities in the Civil Procedure Rules 1998, it is worth pausing for a moment to note the huge benefits which they have brought to court users. The scandal of civil litigation dragging on inefficiently for many years and then being struck out for want of prosecution has come to an end. An increasing number of disputes are now resolved without any formal legal process at all. Pre-action protocols (one of Lord Woolf’s innovations) lead to many cases settling before they start. Mediation is now encouraged by the courts and often leads to earlier settlements.” 1

While the impact of the reforms was undeniably dramatic, whether they have all benefited the process of litigation is a matter of perennial debate amongst practitioners and court users. This article will review some of the key changes to construction litigation that have occurred in the last 20 years and looks to its future prospects.

A look at two decades of construction law

TCC guide and pre-action protocol

Since the introduction of the Civil Procedure Rules in 1998, litigation in England and Wales has been radically transformed. While many of the measures implemented by the CPR had been pioneered in the Technology and Construction Court, construction litigation has not been immune to change. The court now has a much greater role in the management of litigation, with the aim of “enabling the court to deal with cases justly and at proportionate cost.” 2 The CPR is supplemented by the TCC guide, which is currently in its second edition with a new edition expected shortly. One of the most significant new measures introduced by the Woolf Reforms was the use of pre-action protocols. These require the parties to a dispute to engage in reasonably extensive correspondence, setting out the basis for the claim and the rejection of it, before they are allowed to issue court proceedings. The aim of this has been to crystallise the matters in dispute at the earliest stage, so that parties can attempt to settle, or at least understand, the case which they have to meet. A unique feature of the TCC pre-action protocol was the provision for at least one pre-action meeting between the parties.

1 Mr Justice Jackson, ‘The Tower of Babel: What Happens when a Building Contract Goes Wrong’ SCL Paper 136, March 2007 2 CPR, r1.1(1)

8

20 Years

Construction Law Review

One consequence of the protocol has been the front-loading of costs. This has been particularly acute in construction litigation,

where a great deal of time and costs can be spent in attempting to set out the nature of the dispute. Parties have often got bogged down in protocol requirements and it has sometimes felt as though the process wastes time and cost rather than saves it. As a result, the two organisations which represent construction lawyers

– Technology and Construction Bar Association (TECBAR) and

Technology and Construction Solicitors Association (TeCSA) – are

working with the TCC to develop a new, streamlined and more cost effective version. This is likely to be published before the end of the year. Whilst it is expected to retain the meeting, the process will be shorter and more focused. Parties will be able to opt out of

it by agreement.

The effect of the pre-action protocol can be seen in the number of claims issued in the TCC. In 1996, 1,778 writs were issued. 3 In 2014-2015 there were a total of 948 claim forms issued in London and the various regional TCCs. 4 In all likelihood, a substantial proportion of the claims issued back in 1996 would have never made it to trial, and it may be that the same amount of cases are making it to trial now. The difference could be accounted for by the fact that, prior to the requirements of the pre-action protocol, parties would often issue a writ simply as part of the negotiation process. Now, because of the increased costs which must be incurred before issue, parties are incentivised to negotiate before resorting to issuing proceedings.

Expert evidence

Another area where substantial change has been felt is the use of expert evidence; a regular feature of construction litigation. Both the CPR and the TCC guide give the court far more control over the use and presentation of expert evidence. For instance, the court has the power to order the instruction of a single joint expert on any given issue. Where there are separate experts, the court will usually require them to meet prior to the trial to discuss their respective evidence and produce a joint statement setting out the areas in which they agree, the issues upon which they disagree and the reasons for this disagreement. This is intended to clarify the matters actually in dispute and narrow the issues before the court. The court also has control over the manner in which expert evidence is presented. It is possible for experts to give concurrent evidence (colloquially known as ‘hot-tubbing’) so that in disputes involving multiple technical issues, the court can more easily identify what the opposing expert evidence is on a given issue. The use of hot-tubbing varies widely across the various TCC courts, with some judges expressing enthusiasm, 5 and others rarely using it. The judiciary is now undertaking an enquiry into the varied uptake of hot-tubbing to see if it could be more frequently used to further the efficient conduct of litigation.

Costs management

The other significant procedural reform which has been introduced since 1998 is costs management. After completing

a review of costs in civil litigation in 2013, Lord Justice Jackson

introduced reforms to the manner in which costs are dealt with in civil litigation. There has been a complete change in emphasis, away from retrospective review of costs, towards prospective costs budgeting. The mainstay of these reforms is the obligation to file costs budgets in almost all cases which are worth less than £10m. The parties are bound to attempt to agree their budgets between themselves and if this is not possible the court will approve the

budgets. The court is given a hands-on role in the management

3 Dr R Gaitskell QC, ‘Trends in Construction Dispute Resolution,’ SCL Paper 129, December 2005, p3 4 TCC Annual Report 2014-2015, p8 5 Her Honour Judge Frances Kirkham CBE, ‘Reflections on Life as A Judge of the Technology and Construction Court,’ SCL Paper D134, April 2012

Failure to file a costs budget on time results in the rather draconian position whereby the party is deemed to have filed a budget which claims court fees only.

of costs budgets and, when assessing costs at the conclusion of the litigation, it will not depart from the budgeted figures unless there is good reason to do so. Failure to file a costs budget on time results in the rather draconian position whereby the party is deemed to have filed a budget which claims court fees only. 6 This regime does not automatically apply to claims which are valued at more than £10m. However, the court has the power to make costs management orders which can require the filing and exchange of costs budgets. In at least one recent decision, the TCC has emphasised that the courts’ power to make such orders

is unfettered, that there is no presumption that costs management

will not be ordered and that it should be considered in all cases. 7

The obligation to prepare accurate costs budgets has undoubtedly added to the administrative burden of litigation and has received a mixed response from the legal professions. Lord Justice Jackson’s conclusion at the time of the introduction of his reforms was that there was little appetite amongst lawyers for engaging with costs in a detailed way; many regarding such matters as the exclusive preserve of specialist costs lawyers and accountants. That said, the pilot schemes for costs management which were run in the Birmingham and London TCCs, were considered a success. Despite initial scepticism about the value of budgets and the provision of unrealistic estimates, many solicitors acknowledged that budgets made them focus on the future conduct of the litigation, the tactics which they adopted and whether settlement should be considered. 8 The next development in this area may be fixed recoverable costs. In a recent speech dramatically entitled ‘Fixed costs – the

time has come,’ 9 Lord Justice Jackson called for the introduction of

a fixed costs regime which would apply to all civil claims worth

less than £250,000. Prescribed total fees – rather than hourly rates

– would be set for each stage of litigation, increasing in a series of bands linked to the value of the case. The supposed benefit of this approach, apart from aiming to ensure that only costs proportionate to the sums at stake are incurred, is that it will alleviate the burden of costs management for lower value claims. This recognises that for cases worth less than £250,000, attempting to control costs by means of costs management orders and costs budgets can be counterproductive. Under the fixed costs regime there would be no need to engage in budgeting, as a relatively simple assessment could be conducted at the conclusion of the litigation. It seems that the principle of fixed recoverable costs for low value claims has the backing of the senior judiciary. 10 On the other hand, given the welter of objections from the legal profession, it remains to be seen whether its time has truly come.

6 CPR PD 3E

7 CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd (2014) EWHC 2546 (TCC)

8 F Sinclair QC et al, ‘The Pioneering TCC: Pushing the Boundaries on Litigation Costs’ SCL Paper D185, December 2015

9 Jackson LJ, ‘Fixed Costs – The Time Has Come’ IPA Annual Lecture, 26th January

2016

10 ‘Senior judges oppose singling out clinical negligence for fixed costs as consultation

nears,’ Litigation Futures, 23rd May 2016

2016

20 Years

9

Despite the passage of time, the TCC seems to be in no immediate danger of losing its reputation as a pre-eminent venue for the resolution of construction disputes.

hemes

The TCC, along with other courts in the Rolls Building, is piloting two new schemes; the shorter trials scheme and the flexible trials scheme.

Shorter trials scheme The shorter trials scheme is intended to allow speedy resolution of cases that do not involve allegations of fraud or dishonesty, multiple issues or parties, intellectual property claims or public procurement claims. Its goal is to have the trial within eight months of the case management conference. The trial itself is restricted to four days, all applications are dealt with on the papers and the pre-action protocol does not apply (though parties do have to send the equivalent of a letter of claim). All of this is overseen by a docketed judge who is assigned at the case management conference and remains with the case throughout the process. There are shortened timescales for the service of pleadings (which can be no longer than 20 pages). Parties only have to disclose documents upon which they are relying and/or those ordered after a request for specific disclosure. Evidence is by witness statements which can be no longer than 25 pages and expert evidence is by written report. After trial the judge will endeavour to give judgment within six weeks. The other significant feature, apart from the lack of a pre-action protocol, is that the costs management provisions of the CPR do not apply. Costs will usually be summarily assessed on the basis of exchanged costs schedules. It is too early to determine how this scheme will function, but it has the potential to provide great reductions in both costs and time for those with straightforward cases.

Flexible trials scheme The flexible trials scheme is more focused on the manner in which evidence is gathered and presented. The scheme itself is largely facilitative; it prescribes few rules, but allows parties to agree on a variety of issues relating to the evidence. Parties must disclose evidence upon which they rely and which they know to meet the normal disclosure test; though there is no obligation to conduct searches for evidence which may meet the test. Witness and expert evidence is given in written form and oral evidence is limited to issues identified at the case management conference. Oral submissions and cross-examination are subject to time limits, which are either agreed or directed. Where oral evidence is necessary, it is limited to the principal parts of a party’s case.

The Briggs Review

At the present time there is an additional review of the civil courts structure being undertaken by Lord Justice Briggs. Matters within his review include the creation of an online court, which is unlikely to affect users of the TCC; a possible weakening of the division lines between the Queen’s Bench and Chancery Division; and the question of whether there ought to be a unified structure

for the users of the Rolls Building (which the TCC shares with the Commercial Court and Chancery Division) so as to create a new Business Court with ticketed judges for particular types of case.

Adjudication

The field of construction litigation has also been affected by the creation of the adjudication regime recommended by Sir Michael Latham’s report Constructing the Team. The resulting adjudication system implemented by the Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy,

Economic Development and Construction Act 2009) gives parties to a construction contract the option of referring disputes

to adjudication, rather than waiting for

arbitration or litigation. This is a speedy process, where the adjudicator is usually required to deliver a decision within 28 days of being appointed. In most cases the dispute is resolved entirely on the papers, without any oral hearings. The scheme has been an enormous success. While it has generated a field of litigation all of its own, it has reduced the number of construction claims filed in the TCC. Domestic construction arbitrations are virtually extinct. While the decision of an adjudicator is only temporarily binding – with parties retaining the option of re-fighting the dispute in arbitration or litigation – anecdotal evidence suggests that in 80% of adjudications, the parties content themselves with the decision of the adjudicator. 11

Conclusion

A great deal has changed in the world of

construction litigation since 1996. Many

of

the reforms which have been applied

to

civil litigation generally have been

pioneered in the TCC. This is part of a long tradition of construction litigation being at the forefront of procedural reform. It was in the old Official Referees’ Courts that the use of written witness statements as evidence, the early exchange of expert reports, and the use of Scott schedules were pioneered — all of which still form key parts of construction litigation today. Despite the passage of time, the TCC seems to be in no immediate danger of losing its reputation as a pre-eminent venue for the resolution of construction disputes. I look forward to writing about developments in 2036!

Alexander Nissen QC, Barrister, Keating Chambers anissen@keatingchambers.com www.keatingchambers.com @keatingchambers

11 Dr R Gaitskell QC, ‘Trends in Construction Dispute Resolution,’ SCL Paper 129, December 2005

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2016

AI

11

Simon Tolson, Senior Partner, Fenwick Elliott LLP

AI 11 Simon Tolson, Senior Partner, Fenwick Elliott LLP C OMPUTER use and digital databases of

C OMPUTER use and digital databases of any real practical use started in the legal profession coincidentally from about the time when I was an undergraduate law student

in 1979. Back in those days one had an ‘operator’ and paid line time by the minute. It was hit and miss even in a university

faculty. It was slow progress. It was all code input-based and one marvelled if anything useful came out, more often it didn’t.

I recall that Lexis started providing its services to the Law

Society and university libraries in about 1983. Then Windows 3.1 came on the scene in about 1993. Windows 95 arrived on the world stage the year before its name suggests. By 1995,

some lawyers like me became ‘mobile’ with their legal data. I was using a Psion Organiser with a QWERTY keyboard, with

a comprehensive self-typed construction law database; no cut

and paste then! Corporate systems started to become available

in the late 1990s as the World Wide Web developed and steadily accelerated exponentially over the past 18 years or so.

I would say that in or about 1996 (the year I sent my first

email), Fenwick Elliott was one of the first law firms to use it in London and boy was it slow (no fast broadband then). But we had the big bang when the legal profession, and how it accessed material, began to change forever. It changed law in a way nothing else had for c.300 years. Simple memory typewriters were with us in 1983 and word processors in 1990, but processing power, the commercial emergence of email and personal computers and the internet have been the facilitators for what we see today. Everything is digital and many of us work virtually paperless. Our desk is a dynamic creature that moves up and down, our ultra-flat twin screens and tablets are where we scribe our real craft or to some sophistry!

Finding the legal profession of this millennium

AI today

Believe it or not law firms are really investing in artificial intelligence (AI); the capability of a machine(s) to imitate intelligent human behaviour. There has even been speculation that law is ripe for ‘uberisation’, 1 becoming the next target of technological transformation. The millennials generation is pushing the changes hardest and law firms are making a dash to harness the power of cognitive computing and the natural language processing capabilities of computers; investing heavily in AI to automate the mundane tasks that are part and parcel of

the law and legal services. Professional services generally rely on

a lot of data and information, and a relatively small amount of

judgment, which means tasks can be speeded up considerably. However, robots are unlikely to replace lawyers in court, but they can prepare papers for hearings and do other ‘clever’ things with massive data.

The recent media fever about AI has been inevitable. This vision has conceivably come a step closer with the arrival of IBM

1 A recent study by Jomati, Civilisation 2030: The Near Future for Law Firms, points out that after long incubation and experimentation, “technology can suddenly race ahead at astonishing speed.”

12

AI

Construction Law Review

We had the big bang when the legal profession, and how it accessed material, began to change forever. It changed law in a way nothing else had for c.300 years.

Watson 2 and Richard and Daniel Susskind’s latest book, The Future of the Professions, which predict an internet society with greater virtual interaction with professional services such as doctors, teachers, accountants, architects and lawyers. Linklaters and Pinsent Masons are the latest law firms to announce publicly their investment in AI, as the legal profession tries to automate the most mundane tasks that traditionally have been the preserve of more junior lawyers. Pinsent Masons has developed a program that reads and analyses clauses in loan agreements. Its TermFrame system also helps guide lawyers through transactions and point them towards the correct precedents at each stage of a process. Another law firm, Dentons, has set up NextLaw Labs, 3 a virtual company which looks at the application of technology within the law. It has invested in ROSS, 4 an IBM Watson powered legal adviser app, that streamlines legal research, saving lawyers time and clients’ money. BLP and Linklaters have signed on with developer RAVN 5 and developed a computer program to sift through various UK and European regulatory registers to check client names for banks. In transactional work, LONald can, for example, send an enquiry to Companies House to check if the address in a document matches the company number. If the address is out of date, the computer will flag it for review. The team will then consider all flagged documents in one go at the review stage. It thus converts unstructured data (for example, contracts) into structured output (for example, a spreadsheet) in a fraction of the time (a few seconds) it takes a human and with a higher degree of accuracy! The lawyers then do the higher-level strategic review to make sure nothing is missed. Professor Richard Susskind, who is also IT adviser to the Lord Chief Justice, has predicted radical change in the legal sector, pointing out that intelligent search systems could now outperform junior lawyers and paralegals in reviewing large sets of documents and selecting the most relevant. Prof Susskind said at a conference recently 6 that he believes the legal profession had five years to reinvent itself from being legal advisers to legal technologists and criticised law schools for “churning out 20th-century lawyers.” Prof Susskind stated that over the course of the next decade, AI would move forward so quickly that systems themselves would be able to assess, diagnose and respond to the legal problems posed by clients. But instead of suggesting that this was a threat to the profession, he instead claimed that it was an opportunity to become engineers of knowledge, and to shape the future of the profession in a positive way. He stated:

“For the next five years, the legal profession will work on using better human-resource models, delegate to paralegals, move to better locations and give lawyers far better

systems

It is not that there are no jobs in the future, but the 2020s will be a decade

of redeployment not unemployment. It is not an emergency but over the next five years we have to prepare. More and more legal services will be enabled by the support of new technology. You can say ‘that is for the technology industry to sort out’, or you can be part of the technology industry.”

Where next?

So where is all this headed? Well, for sure, away from where we are now. Much the same applies with how building information modelling can expedite design improvement and

2 It is amazing that Watson analyses unstructured data, understands complex questions, and presents answers and solutions. www.ibm.com/smarterplanet/us/en/ibmwatson/

3 A global collaborative innovation platform set up in May 2015 focused on developing, deploying and investing in new technologies and processes to transform the practice of law around the world. www.nextlawlabs.com/

4 ROSS is an artificially intelligent attorney to help power through legal research. www.rossintelligence.com/lawyers/

5 RAVN helps you make sense of the explosion of big data in your organisation through state-of-the-art software solutions. www.ravn.co.uk/

6 Law Society’s Law Management Annual Conference: http://communities.lawsociety.org.uk/law-management/events/

law-management-section-events/law-management-section-annual-conference-27-april-2016-london/5052637.fullarticle

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Robots are unlikely to replace lawyers in court, but they can prepare papers for hearings and do other ‘clever’ things with massive data.

aid the best selection of materials and/or provide the opportunity of testing and assessing different design alternatives that may impact say on the energy performance of buildings. I know for a fact computer modelling techniques and stochastic analysis 7 in hydrogeology are now helping developers address run-off and drainage issues in the UK 8 and provide real-time flood forecasting from catchment to national scales. In the law, text analytics and machine learning can be incredibly helpful in enabling the data to tell its story, and what we are finding is that computers are learning — in large data cases they can be better than human lawyers, particularly tired human lawyers. Predictive coding enables users to sample data such as on a large project and identify what is relevant. Through sampling, the program is able to learn which documents are relevant. This process greatly reduces the time needed for e-discovery and document review because the program is searching for concepts as opposed to simple keywords. Indeed our own Law Society president, Jonathan Smithers, is bang on the money on this issue. He acknowledges we live in complicated times. Complicated times require the knowledge and advice of the global legal community, practical experts who can develop long-lasting solutions to help us mitigate the crisis micro-economically, macro- economically and geopolitically. The legal community, however, is often called too late. We are involved when our clients have reached crisis. We are called to fire fight, we are the A&E department. At this point, the role of the legal professional may be rather limited. Bright lawyers and astute law firms need to ask themselves, what are the common developing legal issues coming over the skyline? The impact of technology on the law is one such issue. We live in a globalised world. The exponential growth of technology has created a new world order. It affects how we talk, how we learn, how we trade. The world is, quite simply, more interconnected than ever and using big data is key. The future is not desolate. The globalised world has also brought hope and opportunity. Technology has already restructured the way we do business and significantly impacted the practice of law. We are already using technology to communicate with our clients more quickly, to manage their data and to make our businesses more efficient. Skype, instant messaging, WebEx online meetings and email are part of our everyday working lives. AI will become more embedded in our lives. In many ways, it is already part of the way we interact with each other and with the world. When ebay suggests products you may like, that is AI. Siri on your iPhone, that’s also AI. Anti-lock braking systems on cars and systems that wake you up as you nod off; AI. It is already everywhere. But, what does this mean for lawyers? Many of our business clients Google their legal problems before they come to see us. Pro bono portals are available, helping people to access legal advice early. Of course, self-diagnosis can never be a replacement for legal professionals any more than it can for physicians. The functions we carry out as lawyers extend far beyond dispensing black- letter legal advice. Lawyers will, however, need to consider the ethical and legal dilemmas brought by AI in much the same way that architects and engineers are doing with building information modelling and intellectual property.

Ethical duties

Lord Neuberger, president of the Supreme Court, only last week called for a debate on the ethical implications of AI and for “greater prominence” for ethics in legal training. 9 Law schools will therefore need to pull up a sock or two. Lord Neuberger made his plea for greater prominence for ethics training both on university law courses and professional legal training courses.

7 Having a random probability distribution or pattern that may be analysed statistically but may not be predicted precisely 8 The Groundwater Foundation, a non-profit organisation that educates people and inspires action to ensure sustainable, clean groundwater for future generations 9 Lord Slynn memorial lecture, 15 June 2016: www.supremecourt.uk/docs/speech-160615.pdf

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AI

Construction Law Review

Lord Neuberger said that the “earlier and more effectively” potential professional lawyers and advocates could be trained to “appreciate and understand the importance and nature of their ethical duties, the stronger a legal profession we will have, and the stronger the rule of law will be.” Back in 2013, the judge urged the legal profession not to lose sight of its fundamental principles in the rush for modernisation, warning about the risks of pressure from “hard-nosed businessmen” who may invest in law firms. The legal profession should be preparing for the problems and opportunities that may arise from such an enormous potential area of development, and one of the most difficult challenges will be to consider the potential ethical implications and challenges. Whilst Lord Neuberger does not fully embrace the Susskind view of future legal life, he does say that the Susskinds point out that this potential development has ethical, as well as employment, implications and they rightly call for a public debate on the issue. Lord Neuberger likewise warned of increased potential for ethical conflicts where alternative business structures (ABS) were owned by non-lawyer investors who are “ultimately only concerned with the bottom line.” The investors will often have no experience of, or interest in, the lawyers’ ethical duties.

When it goes wrong

As computers take on more and more responsibility, one also has to ask the question of where the liability lies when things go wrong. Volkswagen expects the first self-driving cars on the market by 2019. 10 These self-driving systems may need to make split-second decisions that raise real legal questions. Driverless vehicles can legally be tested on public roads in the UK today. The UK is uniquely positioned to become a premium global location for the development of these technologies. 11

10 In April 2016 six convoys of semi-automated ‘smart’ trucks arrived in Rotterdam’s harbour after an experiment its organisers (DAF, Daimler, Iveco, MAN, Scania and Volvo) say will revolutionise future road transport on Europe’s busy highways. Watch out for ‘truck platooning’ 11 The Department for Transport review of existing legislation found that our legal and regulatory framework is not a barrier to the testing of automated vehicles on public roads. Real-world testing of automated technologies is possible in the UK provided a test driver is present and takes responsibility for the safe operation of the vehicle; and that the vehicle can be used compatibly with road traffic law. North America has been the first country to introduce legislation to permit testing of automated vehicles, but only four states have done this. 15 states have rejected bills related to automated driving. In Europe, only Germany and Sweden are known to have completed a review of their legislation in this area

Pace. Agility. Focus. Our specialist construction and energy lawyers have the experience and insight to
Pace. Agility. Focus.
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have the experience and insight to act quickly,
think creatively and advise commercially,
whatever the scope of your project, both in the
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Acute legal analysis with
practical commercial advice
www.fenwickelliott.com

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Responding to the technological realities of the 21st century is an imperative. A child suddenly runs into the road and the car has to choose; hit the child or swerve into an oncoming truck. How does the vehicle decide? Who decides what the car decides? Ditto the JCB on a construction site; does it avoid the trench with a man in it or does it strike the building if it cannot avoid both? And who is liable if it chooses the wrong one, the plant owner or the programmer? These are questions for lawyers. It is for us, the legal experts, to answer these questions now. Lawyers should not be fire-fighting.

What about now?

We must identify and solve the legal issues of tomorrow, now. And if we want to achieve this we must be:

• Explorers, not mere voyagers.

• Architects, not plain builders.

• On the front line, not in the pursers office.

We live in exciting times. The legal community must clinch this:

• We don’t have to repeat the past.

• We don’t have to relive the present.

• We can shape the future.

• If we don’t others will.

• Shepherd or sheep, it’s your choice.

The world will always be complicated. But if lawyers take the time to put their minds together, to learn from one another, they can fix pervasive problems like new technological solutions. If we are successful, we will make the legal profession worthy of this millennium, all the more so with regard to the construction industry.

Simon Tolson, Senior Partner, Fenwick Elliott stolson@fenwickelliott.com www.fenwickelliott.com @fenwickelliott

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16

Expert Witness

Construction Law Review

Expert errors

John Mullen FRICS FCInstCES FCIArb, Quantum Expert and Principal, Diales

FCInstCES FCIArb , Quantum Expert and Principal, Diales I T can be of some frustration, to

I T can be of some frustration, to those of us whose main

market is international arbitration, that arbitral awards are

private and that some experts do not receive the censure

that they deserve. It appears that, in any event, many international arbitrators are reluctant to comment on the expert evidence provided to them, with awards just focusing on which evidence they prefer and adopt. Perhaps it is considered that, in the privacy of an arbitration, there is no wider purpose to recording such criticisms. Alternatively, perhaps the tribunals are concerned that criticisms of a party’s expert may be construed, in some jurisdictions, as evidencing bias against that party.

Pitfalls in picking the wrong expert witness

The frustration this causes is exacerbated by the poor quality and hired gun nature of much of the expert evidence presented in international arbitrations. Contrary to the impression one might gain from reading certain Technology and Construction Court judgments, the UK can be proud of the quality of much of the expert evidence that its practitioners provide around the world. When reading some of the TCC judges’ more damning comments on the experts appearing before them, it is often tempting to recall examples of similar, or worse, testimony in international arbitrations that passed without published critical comment. Under English law, the role and duties of experts were set out 20 years ago by Justice Cresswell in the Court of Appeal in National Justice Compania Naviera SA v Prudential Assurance Company [Ikarian Reefer] (1995) 1 Lloyds Rep.455. In the courts of England and Wales, and in Scotland, their Civil Procedure Rules (CPR) set out the procedural requirements of expert evidence. Those CPRs followed Lord Woolf’s reports of the mid-1990s, 1 which criticised the unnecessary costs and lack of neutrality of much expert evidence. Thus, in the domestic markets the requirements of experts are well developed and the courts’ criticisms are made against that background. Internationally, few jurisdictions have developed, through their legislature or precedents, such a detailed framework for experts to work in. However, this is not to say that experts will not be suitably chastised where appropriate. As with the England and Wales judgments, some overseas judgments can be similarly informative as to the potential pitfalls for experts and those instructing them. They also might offer some light relief for those suffering published criticism in the UK, or frustrated at the lack of it in international arbitration. The world took an understandable interest in last year’s South African proceedings in the Oscar Pistorius trial. Whilst there is disappointment in some quarters at his sentence, he appears to have achieved that outcome notwithstanding the quality of the expert evidence adduced by his team. Oscar Pistorius’ chief witness was a former police officer, Roger Dixon, 2 who gave expert evidence on ballistics, gunshot wounds, pathology and blood splatter. He was also involved in both audio and visual tests. However, he admitted to not being an expert in

1 Access to Justice, Interim Report, June 1995; Access to Justice, Final Report, July 1996 2 Who unfortunately did not gain his early training in London’s Dock Green area

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any of these fields, but was actually a forensic geologist. On the detail of his investigations, he admitted to the following failings:

• He had not done his testing with any light meters or equipment other than his own vision.

• He testified on a recording of gun shots and a cricket bat striking a door, although he was not there when the tests were conducted and knew nothing about the sound equipment used.

• He ‘overlooked and omitted’ Oscar Pistorius’ height when conducting the test, which meant that his assistant, while kneeling, was a good 20cm shorter than Pistorius on his stumps.

• Regarding fibres he claimed to have found in a door that matched Pistorius’ socks, he admitted that he had only seen photographs of the socks but had never examined them or looked at the fibres concerned under a microscope.

Furthermore, he never drafted a formal report on his evidence, but made notes on his computer, which he had given to the defence. A second expert relied upon by Oscar Pistorius, Tom Wolmarans, gave evidence on the noises made by gunshots and cricket bats, but admitted that:

He was not an expert in any of these fields.

In particular, he was not a ‘sound expert’.

He had a hearing defect.

His gun jammed on first test.

He was unable to record rapid gun fire.

The quality of his recordings was affected by frog sounds in the background.

He could not repeat the recordings, as the door he had used had been broken.

A

third expert appeared for Oscar Pistorius

in

relation to sentencing. Miss Annette

Vergeer was a social worker and registered probation officer at the Department of Correctional Services. She gave testimony on the suitability of South African jails, warning that Pistorius would be at risk from slippery floors; toilets and showers with no hand rails; and having his prosthetic leg taken away. However, she admitted that her evidence was based on statistics published nine years previously. Her evidence was contrasted with the evidence provided in the Shrien

Dewani case. 3 There the UK courts were so convinced that South African prisons

3 The British businessman acquitted last year of murdering his wife on their honeymoon in South Africa

adhered to international standards that they extradited Shrien Dewani to South Africa for trial. The Oscar Pistorius judge described Miss Vergeer’s evidence as: “Slapdash, disappointing and had a negative effect on her credibility as a witness.” Whilst the high profile nature of the Oscar Pistorius case drew international media attention to the poor nature of some of its

expert testimony, a judgment of rather more significance locally

is that of the Supreme Court of Appeal of South Africa in the

recent case PriceWaterhouseCoopers Inc & others v National Potato Co-operative Ltd & another (451/12) (2015) ZASCA 2 (4 March 2015). This involved a claim against PriceWaterhouseCoopers (PwC) for alleged negligent audit services, in which the first respondent relied for its entire case on the expert testimony of David Collett. Before assessing the expert’s evidence, the court set out the standards to be expected of expert testimony. The judge started by quoting from Justice Cresswell in the Ikarian Reefer case and noting how the principles therein echoed those set out in a South African case Stock v Stock (1981) (3) SA 1280 (A). The Canadian judgment of Justice Marie St-Pierre in Wightman v Widdrington (Succession de) (2013) QCCA 1187 (CanLII), was then quoted from as being “helpful” to the judge. The South African court found that Mr Collett’s evidence did not measure up to those standards. Mr Collett’s only practical audit experience was when he was training, 22 years earlier. The detailed criticisms of his performance are lengthy, but include describing some of his opinions as “risible” and his approach as “pedantic, rigid and dogmatic.” The criticisms cover most of the potential errors that an expert witness might make, but included:

• Contradicting himself.

• Seeking to avoid answering hypothetical questions.

• Only reluctantly making concessions.

• Mostly basing opinions on hearsay evidence.

• Acting as an advocate advancing his client’s case.

• Not giving evidence objectively, but to justify the conclusions he had formed.

• Disregarding or discounting facts inconsistent with his own theories or conclusions.

• Lacking independence from his client in that he:

-Undertook the original investigation leading to the claim. -Was involved in the gathering of evidence and pleaded formulation of the claim. -Giving evidence in areas where he lacked expertise.

The judge concluded that, when tested against the standards

enunciated by Justice Cresswell and Justice St-Pierre, Mr Collett’s evidence “did not satisfy the tests for admissibility as expert evidence” and was “of little or no value in this case.” In conclusion, while experts practising in the UK courts may feel aggrieved at their vulnerability to public reproach for their efforts, particularly where they also observe what happens in other jurisdictions, they might take some comfort from those criticisms that are published in other jurisdictions. Those judgments provide

a useful resource for those acting as experts to understand the

pitfalls of the role. Similarly, those instructing experts might consider how it came to be that Messrs Dixon and Collett were instructed in the first place to roles for which they were wholly unsuited. In the end, the real victim of expert evidence that is held to be ‘of little or no value’ is the party whose case suffers as a result.

John Mullen FRICS FCInstCES FCIArb, Quantum Expert and Principal, Diales john.mullen@diales.com www.diales.com

18

Ground Conditions

Construction Law Review

Foreseeing the unforeseeable

David Carrick FCInstCES FICE FCIArb MRICS MCIPS MBAE, Senior Vice President, Hill International

MRICS MCIPS MBAE , Senior Vice President, Hill International T HERE I was, sitting in my

T HERE I was, sitting in my office, trying to get my head around a particularly difficult point in an adjudication when Alan Lees from the Chartered Institution of Civil Engineering Surveyors phoned me. I was grateful for the call, not only because it is always good to talk to Alan, but also it meant a break from

the mind warping adjudication. Alan reminded me that the first publication of the Construction Law Review was 20 years ago and that I had featured in it. Kindly, if somewhat embarrassingly, Alan sent me a copy of the article. It included a photograph. I have searched the attic in vain but sadly the original appears to have been lost. On the topic of photographs, one of my colleagues mentioned the photograph I had shown her of my endeavours to do some setting out at the beginning of my career and that in turn led to a discussion about my first overseas trip and a war story. It seems that as one’s career matures, so war stories become more or less mandatory. However, this one is relevant to the subject matter of this article so please bear with me.

The case of Obrascon Huarte Lain SA v Gibraltar

Some personal history

I was involved in a project that involved additional runway lighting and drainage on an existing runway, and also the removal of some particularly leaky disused fuel and de-icing fluid tanks that had once been used by the RAF. These were on the south side of the runway at the eastern end and had been leaking for years. One day when I was on site we attended the usual morning briefing with the RAF air traffic control. On that particular morning we were joined by a small band of army reservists. They would be making use of a rifle range quite close to the runway. My foreman was well versed in the protocol for clearing the runway for incoming aircraft and was in constant radio contact with the control tower. However, the tower envisaged some problems with the rifle practice. The arrangement was that when aircraft were coming into land we would get the usual warning by radio from the tower and clear out of the way of the approaching aircraft. The army reservists were unlikely to hear the radio on account of their gunfire, so accordingly the arrangement was that the tower would fire a flare over the rifle range and the firing would cease. The range officer was handed a large red flag. He looked bemused. The rather harassed ATC officer explained to him: “Plane comes in. I fire red flare over your position. You wave red flag. Everyone stops shooting. Ok?” Off we went and on schedule the lunchtime aircraft arrived from London. As ever the ATC told us when it was about 20 minutes away and we started clearing up. The red flare duly went up over the rifle range but nothing else happened.

After a few minutes we were on the radio

to ATC to tell them that gunfire was still

continuing. They said they would send

the RAF out to tell them to stop. We cleared off to the dispersal area somewhat concerned at the ongoing sound of gunfire. We saw the landing lights of the plane in the distance as the RAF Land Rover went belting down the road on the other side

of the runway. As the aircraft got closer

eventually the gunfire stopped. However,

then the fun began. The range officer clutching a large red flag ran into the

middle of the runway and started waving

it at the aircraft. The very unhappy pilot

had to spool up his engines and abort the landing much to the angst of the crew and passengers alike. The next morning we were summoned

to see a very senior RAF officer. He

thanked us for our collaboration and for our safety record but said the time had come when the rifle range really had to be disposed of. This was at the north

side of the runway at the eastern end. He would organise a variation order for us

to flatten the rifle range with a dozer. We

duly did and were somewhat surprised at

the amount of lead and copper that this produced (but the range had been in use for many years). End of war story.

FIDIC

A lot of my work nowadays is international

work and I find myself quite often working with the International Federation of Consulting Engineers (FIDIC) forms of contract. For those of you of a similar vintage to myself who have not used the FIDIC form, you would immediately

6

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Construction Law Review

20 Ground Conditions Construction Law Review Figure 1: Gibraltar International Airport taken from the Rock of

Figure 1: Gibraltar International Airport taken from the Rock of Gibraltar, looking north with the east end of the runway on the right.

recognise it as having some very close resemblance to the old Institution of Civil Engineers (ICE) or the current Infrastructure Conditions of Contract (ICC) forms. Most of the FIDIC forms have got provisions for unforeseeable physical conditions, just like the old ICE clause 12. They also have fairly draconian notice provisions where failure to comply with these provisions seems to result in a loss of entitlement. Because the standard dispute resolution procedure is the dispute adjudication board followed by arbitration, the FIDIC forms are rarely considered by courts. Suddenly one appeared and it covers these rather difficult issues and also the matter of termination.

Obrascon Huarte Lain SA v HM Attorney General for Gibraltar

I was particularly interested in the unforeseen physical conditions

aspect of Obrascon Huarte Lain SA v HM Attorney General for Gibraltar. It is a frequent problem in other civil engineering forms of contract, where there is relief available to the contractor should such circumstances arise. Obviously the facts and circumstances and the particular wording of the contract have paramount importance when considering if a particular judgment is relevant to another dispute. We will get back to the matter of applicability

of this judgment in a more general sense later. However, some background to the dispute is pretty important to understand what

happened — not only in the first instance case but also in the appeal court case. The defendant party was the government of Gibraltar represented by Her Majesty’s Attorney General for Gibraltar. The works giving rise to the dispute unsurprisingly took place in Gibraltar. The appeal case succinctly sets out some background. Spain ceded Gibraltar to the United Kingdom by the Treaty of Utrecht in 1713 and the local population has occupied Gibraltar under UK rule since that date. The territory has played an important role in many wars, with the last of these being the first and second world wars. The long military history of the territory has an impact on the issues in dispute. Gibraltar is connected to the south of Spain by a relatively narrow isthmus that runs north/south. The airport is located on the isthmus close to the border with Spain and its runway crosses the isthmus running east/west and protruding into the sea. That means that all the vehicle traffic going to and from Spain has to cross the runway. Figure 1 is taken from the Rock of Gibraltar and is looking north with the east end of the runway on the right. The road has to be closed when the runway is in use by aircraft (always a good idea) so the government of Gibraltar decided to build a tunnel under the runway. To avoid prolonged closure of the runway this was to be built at the eastern end of the runway. Doubtless

a certain amount of ducking was anticipated by the labour force when aircraft were landing.

Gibraltar contended the conditions were entirely foreseeable, OHL had brought a lot of the difficulties on its own head by the way it dealt with the ground conditions.

The main areas of dispute

Gibraltar entered into contract with Obrascon Huarte Lain SA (OHL) under a FIDIC Yellow Book design and construct contract. It all went horribly wrong. Eventually Gibraltar terminated the contract on the basis of poor progress, amongst other things. OHL contended that progress had been impeded by unforeseen physical conditions (contaminated ground) and the termination was wrongful. Conversely Gibraltar contended the conditions were entirely foreseeable, OHL had brought a lot of the difficulties on its own head by the way it dealt with the ground conditions, and in any event had not given notice in accordance with the contract and so had forfeited its rights to make a claim. The contention that OHL had to redesign the tunnel because of the contamination and that the engineer had issued what OHL contended were variations were also contested by Gibraltar. The dispute came before Mr Justice Akenhead in the Technology and Construction Court in the first instance 1 and then went on to the Court of Appeal. 2 The main issue was termination but that is not the issue that I address in this article but rather the underlying matters. The ground condition issue was subject to appeal and it is convenient to consider that matter before looking at the issue of notice.

Unforeseen adverse physical conditions The OHL proposition was that the amount of contaminated matter excavated exceeded the quantity that could have been expected. That meant not only greater expense but redesign and lengthy delays that explained the poor progress and made the termination unlawful. The means of construction was to construct the walls of the tunnel as diaphragm walls below original ground level using bentonite, then cast the roof slab. The ground under the slab would be excavated once the roof was strong enough to support itself and restrain the outer diaphragm walls. OHL considered that the amount of contaminated ground meant it was unsafe to excavate in the confined space, work had to be suspended and the works redesigned. The contract had the following provisions:

“1.1.6.8 ‘Unforeseeable’ means not reasonably foreseeable by an experienced contractor by the date for submission of the tender

4.10 Site data: The employer shall have made available to the contractor for his information, prior to the base date, all relevant data in the employer’s possession on sub-surface and hydrological conditions at the site, including environmental aspects. The employer shall similarly make available to the

1 (2014) EWHC 1028 (TCC) 2 (2015) EWCA Civ 712

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There was a recognition that there was contaminated land, including elevated copper levels, fuel contamination and potentially unexploded ordnance.

This notice shall describe the physical conditions, so that they can be inspected by the engineer, and shall set out the reasons why the contractor considers them to be unforeseeable. The contractor shall continue executing the works, using such proper and reasonable measures as are appropriate for the physical conditions, and shall comply with any instructions which the engineer may give. If an instruction constitutes a variation, clause 13 (variations and adjustment) shall apply.

If any to the extent that the contractor encounters physical conditions which are unforeseeable, gives such a notice, and suffers delay and/or incurs cost due to these conditions, the contractor shall be entitled subject to sub-clause 20.1 (contractor’s claims) to:

(a) an extension of the time for such delay, if completion is

or will be delayed, under sub-clause 8.4 (extension of time for completion), and

(b) payment of any such cost, which shall be included in the

contractor all such data which come into the employer’s possession after the base date. The contractor shall be responsible for interpreting all such data.

contract price. After receiving such notice and inspecting and/or investigating these physical conditions, the engineer shall proceed in accordance with sub-clause 3.5 (determinations) to agree or

However, before additional cost is finally agreed or determined

To the extent which was practicable (taking account of cost and time), the contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may

the site, its surroundings, the above data and other available

determine (i) whether and (if so) to what extent these physical conditions were unforeseeable, and (ii) the matters described in sub-paragraphs (a) and (b) above related to this extent.

influence or affect the tender or works. To the same extent, the contractor shall be deemed to have inspected and examined

information, and to have been satisfied before submitting the tender as to all relevant matters, including (without limitation):

under sub-paragraph (ii), the engineer may also review whether other physical conditions in similar parts of the works (if any) were more favourable than could reasonably have been foreseen when the contractor submitted the tender. If and to the extent that these more favourable conditions were encountered, the

(a)

the form and nature of the site, including sub-surface

engineer may proceed in accordance with sub-clause 3.5

conditions,

(determinations) to agree or determine the reductions in cost

(b)

the hydrological and climatic conditions,

which were due to these conditions, which may be included

(c)

the extent and nature of the work and goods necessary for

(as deductions) in the contract price and payment certificates.

the execution and completion of the works and the remedying of

However, the net effect of all adjustments under sub-paragraph

any defects,

(d) the laws, procedures and labour practices of the country,

and

(e) the contractor’s requirements for access, accommodation,

facilities, personnel, power, transport, water and other services.

4.11 Sufficiency of the accepted contract amount: The contractor

shall be deemed to:

(a) have satisfied himself as to the correctness and sufficiency of

the accepted contract amount, and

(b) have based the accepted contract amount on the

data, interpretations, necessary information, inspections, examinations and satisfaction as to all relevant matters referred to in sub-clause 4.10 (site data) and any further data relevant to the contractor’s design.

Unless otherwise stated in the contract, the accepted contract amount covers all the contractor’s obligations under the contract (including those under provisional sums, if any) and all things necessary for the proper design, execution and completion of the works and the remedying of any defects.

4.12 Unforeseeable physical conditions: In this sub-clause,

physical conditions’ means natural physical conditions and manmade other physical obstructions and pollutants, which the contractor encounters at the site when executing the works, including sub-surface and hydrological conditions but excluding climatic conditions.

If the contractor encounters adverse physical conditions which he considers to have been unforeseeable, the contractor shall give notice to the engineer as soon as practicable.

(b) and all these reductions, for all the physical conditions

encountered in similar parts of the works, shall not result in a

net reduction in the contract price.

The engineer may take account of any evidence of the physical conditions foreseen by the contractor when submitting the tender, which may be made available by the contractor, but shall not be bound by any such evidence.”

My emphasis added.

The facts The initial pre-contract consideration required a desktop study and that led to an environmental statement being produced and subsequently included in the contract. That statement suggested that approximately 200,000m 3 of excavation would be required, of which 10,000m 3 would be contaminated. There was a site investigation that was also incorporated into the contract. There were extensive references to past military use including a rifle range and aircraft fuel leakage. The contract contained an obligation to conduct post contract site investigation to determine the actual ground conditions and to ensure that the waste materials were disposed of in an appropriate manner. There was a recognition that there was contaminated land, including elevated copper levels, fuel contamination and potentially unexploded ordnance. A pre-tender bulletin informed tenderers that no on-site storage for excavated material was available and that consequently all or most excavated material would have to go into landfill sites in Spain. The contract was entered into with a commencement date of 1 December 2008 and completion two years later. In November

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Ground Conditions

Construction Law Review

2009 OHL drilled further boreholes and these showed elevated lead levels. The initial design was not approved until 21 December 2009. When excavation started in the tunnel area, similar elevated lead levels were found together with other nasty contaminates. By May 2010, as well as the main excavations for the diaphragm walls, the oversite strip of about 2m depth had been carried out but OHL had not segregated contaminated and non- contaminated soil. By autumn 2010 the levels of contamination were becoming a real concern and OHL finally served notice under clause 4.12 of a claim for extension of time and for extra payment in respect of unforeseeable physical conditions Much discussion and little construction work took place and, on 28 July 2011, Gibraltar terminated the contract.

The appeal court decision In the context of unforeseen physical conditions the first instance decision was upheld in that the amount of contamination was foreseeable. Why? The initial consideration was that the history of the site was clearly set out in the desktop study. The previous presence of a rifle range that had been in use since the 19th century and aviation fuel storage tanks was shown. There was evidence of contamination from lead waste from bullets, aviation fuel and de-icing fluids. OHL had not segregated the contaminated materials, so the entire excavation had to be disposed of in suitable landfill sites in Spain. As an aside it also meant that it was impossible to quantify the actual amount of contaminated soil that had been excavated. The key finding was that the tendering contractor cannot rely on someone else’s interpretation of the data (in this case a figure of 10,000m 3 of contaminated ground was shown in the tender enquiry) but the contractor must make its own appraisal of the quantity using all the available data. It is fine to take the given data into account but that is insufficient and the tendering contractor must consider the data in its entirety and use its own investigation and experience to determine what is foreseeable. However the Court of Appeal judgment went even further: 3

“Furthermore the historical material provided to the contractor made it clear that very extensive contamination was foreseeable across the site. The contractor needed to make provision for a possible worst case scenario; the contractor should have made allowance for a proper investigation and removal of all contaminated material: see paragraph 223 of the judgment.”

3 Paragraph 94

Much discussion and little construction work took place and, on 28 July 2011, Gibraltar terminated the contract.

And the relevant part of the first instance judgment: 4

“The problem here for tendering contractors is and was the foreseeable uncertainty of precisely what and where (and at what depths within the made ground) in terms of quantity and location the contaminated soil would be. That there was a very real prospect of encountering contaminated material in substantial quantities anywhere within the made ground was eminently foreseeable by an experienced contractor at tender stage. How (may it be asked) could an experienced contractor in OHL’s position have addressed this foreseeable risk? There is no help within the evidence as to how OHL did address it pre-contract, if it did at all. However, what on the evidence could reasonably have been done is all or some of the following: (a) Make a substantial financial allowance within the tendered price for actually encountering and dealing with a large quantity of such material

My emphasis added.

The impact of Gibraltar on Yellow Book contracts

Making financial provision for the worst possible scenario in a competitive tendering situation is not an easy call. Does that mean that OHL should have allowed for the entire excavation being contaminated? I don’t think that is what was meant at all. What was meant was that if there was any doubt about contamination the tenderer had to err on the pessimistic side. Nevertheless a high threshold for foreseeability has been set by this judgment.

The impact on other contracts

If ever a judgment had to be considered against its facts this is it. To apply the ratio of this case disregarding the facts is in my opinion asking for trouble. However, assuming that the same facts pertained in the other commonly used FIDIC forms (Red and Silver) would the outcome have been the same?

Red Book The Red Book uses a bill of quantities but no method of measurement is specified; the choice is down to the drafter of the contract. Most methods would require contaminated material to be measured separately so the direct cost would be covered in re-measurement. With this form of contract the employer is responsible for design so the hotly disputed redesign issue in this case would not arise.

Silver Book This FIDIC form has no relief for adverse conditions, so the issue doesn’t arise.

4 Paragraph 223

2016

Ground Conditions

23

time for completion and/or any additional payment under any clause of these conditions or otherwise in connection with the contract, the contractor shall give notice to the engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstance.

What emerges from the case is a need for the tendering contractor to make its own investigations.

NEC The application of this case to NEC is, in my humble opinion, difficult. The recovery of direct cost via a re-measured bill of quantities depends on the main option choice within the contract. In terms of relief from adverse physical conditions the main option choice is irrelevant; the same procedure applies to all options. What emerges from the Gibraltar case is a need for the tendering contractor to make its own investigations as well as taking into account the information supplied with the tender. In the NEC contracts there is relief for unforeseen physical conditions and there is also a need for the employer to provide known information in the site information. However the compensation event for the adverse physical conditions relief 5 has to be read with the provisions of clauses 60.2 and 60.3. In particular clause 60.3 in the following terms seemingly causes a problem to applying the Gibraltar case:

“If there is an ambiguity or inconsistency within the site information (including the information referred to in it), the contractor is assumed to have taken into account the physical conditions more favourable to doing the work.”

Had the Gibraltar case contract included the desktop study concluding that 10,000m 3 of excavation was likely to be contaminated, and the wealth of information indicating a greater quantity, could OHL have relied on the more optimistic 10,000m 3 ? It certainly seems to be a reasonable potential argument.

Notices for extensions of time under FIDIC

Having possibly depressed contractors, an aspect of the first instance judgment that was not appealed showed a bit of leniency. Clause 20.1 is a standard feature of FIDIC contracts and the relevant part is the following terms:

“20.1 If the contractor considers himself to be entitled to any extension of the

5 Clause 60.1 (12)

If the contractor fails to give notice of a claim within such period of 28 days, the time for completion shall not be extended, the contractor shall not be entitled to additional payment, and the employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this sub- ”

clause shall apply

Clause 8.4 deals with extensions of time in FIDIC contracts and the relevant part is the following terms:

“The contractor shall be entitled subject to sub-clause 20.1

to an extension of the time for completion if and to the extent

that the completion for the purposes of sub-clause 10.1 ”

will be delayed by any of the following causes

is or

My emphasis added.

In the first instance judgment 6 deals with the matter of notices. Two issues emerged; the form of the notice and its timing. In general terms, the judge took a fairly pragmatic view of these provisions saying that they should be construed reasonably broadly given the serious effect that they would have if strictly construed. There is no need for the notice to be any particular form, but it must be identifiable as notifying a claim and given in writing. The timing of notices was also dealt with on a non-prescriptive basis. The provisions of clause 8.4 are said to allow two dates that affect the notice. These are when completion (i) is being delayed or (ii) will be delayed. The first is termed a retrospective delay because the delay has started, and the second a prospective future delay. Either date can trigger the claim and apparently can be the start of the 28-day period within which the notice must be issued as required by clause 20.1. I am reluctant to comment too much on this issue but I will say that it is not an approach that I have seen in practice. Stretched to its limit, could it mean that a whole raft of extension of time claims could be notified on the scheduled completion date, i.e. when completion is absolutely known to be delayed? Does the same ethos apply to any additional payment because clause 20.1 deals with both? This may not be so clean cut because clause 8.4 only refers to extensions of time and not additional payment. OHL was only awarded a one day extension on account of encountering rock — the extension of time claim for weather delays was rejected for lack of notice. Would I advise a contractor not to notify the very instant it became aware of a potential delay? The answer to that is a resounding no! Would I advise a contractor that had not notified until it became aware of an actual delay to completion to use this case? Yes.

Just to close

was Gibraltar. But you probably guessed that anyway.

Yes, the runway I recollected in my personal history

David Carrick FCInstCES FICE FCIArb MRICS MCIPS MBAE,

Senior Vice President, Hill International davidcarrick@hillintl.com www.hillintl.com @hillintl

6 Paragraphs 312 and 313 in particular

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2016

FIDIC

25

Employer’s claims under FIDIC

Jonathan Hosie, Partner, Construction & Engineering Group, Mayer Brown International

& Engineering Group, Mayer Brown International Two recent decisions on the administration of employer’s

Two recent decisions on the administration of employer’s claims

T HE International Federation of Consulting Engineers (FIDIC) forms of construction contract are amongst the most widely used internationally. 1 FIDIC contracts started

out life with a focus on the European market, initially with a focus on civil engineering projects. Nowadays, they are promoted globally and encountered in many jurisdictions beyond Europe, including South America, China, the Far East and Africa, and in sectors from civil engineering infrastructure to process engineering and power generation. Much has been written about claims made by contractors under the FIDIC forms, but until recently, not much attention has been focused on the administration of employer’s claims. This brief article seeks to redress that balance and to do so in light of two recent and important court decisions. The first is a decision of the judicial committee of the Privy Council, NI International (Caribbean) Limited v National Insurance Property Development Company Limited (No. 2) (2015) UK PC 37. The second is a decision of Mrs Justice Carr in the Technology and Construction Court, J Murphy & Sons Ltd v Beckton Energy Ltd (2016) EWHC 607 (TCC).

The judicial committee of the Privy Council originated as the highest court of appeal for the British Empire. It now fulfils the same purpose for many current and former Commonwealth countries. It is binding in the jurisdiction to which it relates and has persuasive authority in all other common law jurisdictions, including England, Wales and Northern Ireland. The contract in NIPDEC was based upon the FIDIC general conditions of contract for construction, first edition 1999, also known as the Red Book. The terms of the Red Book, as considered by the court in the NIPDEC case, are identical to those found in the FIDIC Yellow and Silver Books. 2 This decision is therefore of widespread application for international projects which use FIDIC Red, Yellow or Silver Book terms as the basis of the construction contract and which are subject to common law. Furthermore, given that one third of the world’s population live in jurisdictions subject to common law and the geographically widespread use of FIDIC forms, the NIPDEC decision has a potentially far reaching significance for projects globally.

The NIPDEC case

The NIPDEC decision is a judgment of the Privy Council, on appeal from a decision of the Court of Appeal of the Republic of Trinidad and Tobago. The case concerns disputes between the employer (NIPDEC) and the contractor (NHIC) arising out of a contract for the construction of the new Scarborough Hospital in Tobago. Following disagreements between the parties, NHIC

1 There are other standard form contracts used internationally including those prepared by the Engineering Advancement Association of Japan (ENNA); the Institution of Chemical Engineers (IChemE); the Institutions of Mechanical Engineers and Engineering & Technology (IMechE); and the New Engineering Contract (NEC) 2 Yellow Book, Conditions of Contract for Plant and Design-Build and Silver Book, Conditions of Contract for EPC/Turnkey Projects, both first editions, 1999

26

FIDIC

Construction Law Review

There is no long-stop date for notification of employer’s claims. This might appear to suggest a less strict regime for the employer, but there is a sting in the tail of sub-clause 2.5.

suspended works and purported to exercise its right to determine the contract. The parties then referred a number of differences to arbitration under the terms of the contract. The arbitrator issued a number of awards, two of which were then challenged. These two issues were connected. The first was the arbitrator’s decision that the contractor, NHIC, was entitled to terminate the contract. This arose from a question as to whether the employer, NIPDEC, had met the threshold for giving financial security for performance of its payment obligations under the contract (issue no. 1). The second aspect related to certain financial claims. This concerned the requirements for NIPDEC to commence and maintain its claims against the contractor (issue no. 2). This article considers issue no. 2 only.

Employer’s claims under FIDIC

In particular, issue no.2 concerns sub- clause 2.5 of the FIDIC form and notices of claim by the employer. In common with the drafting style of FIDIC, a number of separate points are located within a single sub-clause. It may be helpful to break the clause down into its constituent parts. Sub- clause 2.5 commences with the following:

“If the employer considers himself to

be entitled to any payment under any clause of these conditions or otherwise

in connection with the contract

shall give notice and particulars to the

contractor.”

he

This opening provision requires the employer to take the initiative and give a notice to the contractor. It is a mandatory requirement, and if the employer fails to give notice, it will be in breach of contract. However, any such breach has other serious consequences, as we shall see. Another important provision within sub- clause 2.5 deals with the time for giving notice, and provides:

“The notice shall be given as soon as practicable after the employer became aware of the event or circumstances giving rise to the claim.”

The interesting point to note here is the contrast with the requirements for the giving of notice required from the contractor when giving notice of its claims against the employer, under sub- clause 20.1. In the case of the contractor:

notice “

shall be given as soon as practicable, and not later

than 28 days after the contractor became aware, or should have become aware, of the event or circumstance.”

In contrast, there is no long-stop date for notification of employer’s claims. This might appear to suggest a less strict regime for the employer in the provision of such notices, but there is a sting in the tail of sub-clause 2.5, as we shall see below. As to details of the claim to be given, sub-clause 2.5 provides:

“The particulars shall specify the clause or other basis of the claim, and shall include substantiation of the amount and/or extension to which the employer considers himself to be entitled in connection with the contract.”

Clearly, the intention here is that the contractor is given sufficient details to be able to assess and respond to the employer’s claim. Immediately after the provision of such particulars, the linkage with the determination process is found:

“The engineer shall then proceed in accordance with sub-clause 3.5 (determinations) to agree or determine (i) the amount (if ”

any) which the employer is entitled to be paid

The determination machinery is a unique feature of the FIDIC forms. This involves the engineer (under the Red and Yellow Books) making a determination of whether and if so how much is due to the employer. 3 It is necessary for the employer to provide details of its claims, not just to the contractor but also to the engineer, so that the engineer can perform the function required of it under sub-clause 3.5. The Privy Council looked at the purpose of the provision and identified that under FIDIC, the claims machinery applicable to employer’s claims leads directly into the determination process under sub-clause 3.5. Thus, in NIPDEC, the court observed:

“If an employer’s claim is allowed to be made late, there would not appear to be any method by which it could be determined as the engineer’s function is linked to the particulars, which in turn has to be served as soon as practicable.” 4

NIPDEC is therefore persuasive authority in common law jurisdictions for the proposition that if there is no valid employer’s claim under sub-clause 2.5, there can be no determination under sub-clause 3.5.

Notice requirements for employer’s claims as a condition precedent to entitlement

The sting in the tail of sub-clause 2.5, as identified by the Privy Council in NIPDEC, states:

“The employer shall only be entitled to set off against or make any deduction from an amount certified in a payment certificate, or to otherwise claim against the contractor, in accordance with this sub-clause.”

This also provides a point of contrast with the regime for contractor’s claims under sub-clause 20.1, which includes express

3 Under the Silver Book, where there is no independent engineer engaged to administer the contract, the employer determines the validity and quantum of its own claims, albeit the contractor may give notice of dissatisfaction within 14 days and thereby avoid having to give effect to the determination 4 Paragraph 38 of Privy Council judgment

2016

FIDIC

27

language which spells out the consequences of non-compliance with the notice provisions:

“If the contractor fails to give notice of a claim within such period of 28 days, the time for completion shall not be extended, the contractor shall not be entitled to additional payment, and the employer shall be discharged from all liability in connection with the claim.”

In common law jurisdictions, most commentators would regard the drafting of sub-clause 20.1 of the FIDIC form as making due notice from the contractor a condition precedent to its entitlement to pursue recovery of its claims. The ingredients for an effective condition precedent are often said to be that a precise period of time is stated within which notice must be given and the consequences of any non- compliance with that time period are spelled out expressly. The language of sub-clause 20.1 satisfies these requirements, with the effect that if the contractor fails to give notice within the prescribed period, it forfeits its claim. This gives rise to the question as to whether the requirements of sub-clause 2.5 for employer’s claims contain the necessary ingredients for an effective condition precedent, even though the notice provision lacks the precision in terms of its permitted timing. Thanks to the Privy Council in NIPDEC, we now have an answer and it is not good news for employers. Lord Neuberger of the Privy Council said this of sub-clause 2.5:

“Its purpose is to ensure that claims which an employer wishes to raise, whether or not they are intended to be relied on as set-offs or cross-claims, should not be allowed unless they have been subject of a notice, which must have been given ‘as soon as practicable.” 5

the “

natural effect of the closing part of clause 2.5 is that in

order to be valid, any claim by an employer must comply with the first two parts of the clause, and that this extends to, but, in the light of the word ‘otherwise’ is not limited to, set-offs and cross claims.” 6

This leads to the surprising conclusion that the absence of a 28-day longstop (and any other) in sub-clause 2.4, means that the requirement for an employer’s claim notice has the potential to be more demanding than that for a contractor’s; ‘as soon as practicable’ may well expire sooner than 28 days after the employer considers itself to be entitled to any payment. So, even with what may otherwise be a valid claim by an employer, if it is notified later than as soon as practicable, it cannot proceed under sub-clause 2.5. This could affect employer’s claims to deduct liquidated damages or to recover costs incurred itself in rectifying defective works.

Not all employer claims and complaints are time barred

The decision in NIPDEC is also persuasive authority in common law jurisdictions for the proposition that where the employer fails to notify a claim in accordance with sub-clause 2.5:

the “

back door of set off or cross- claims is as firmly shut to it

as the front door of an originating claim.” 7

However and importantly, it will be noted that sub-clause 2.5 is concerned with ‘entitlement to payment’ and the giving of notices to this effect. Sub-clause 2.5 does not preclude the employer from raising an abatement argument, namely that the work for which the contractor is seeking payment was poorly carried out, such

5 Paragraph 38 of Privy Council judgment 6 Paragraph 39 of Privy Council judgment 7 Paragraph 40 of Privy Council judgment

The decision in Beckton Energy illustrates the importance of bespoke amendments to the FIDIC forms of contract. The court commented that the amendments had not been fully thought through.

that it does not justify any payment or is worth materially less than the unit rate or lump sum price in the contract. The case was remitted to the arbitrator to disallow sums which (i) were not subject of notification in accordance with sub-clause 2.5 and (ii) could not be characterised as abatement claims. Not good news for the employer.

The Beckton Energy case

The decision in the Beckton Energy case is also important here. The contract which gave rise to the dispute in that case was based on the FIDIC Yellow Book. Murphy was seeking a declaration that the employer first had to obtain a determination of the engineer in its favour under sub-clause 3.5 before it could lawfully deduct liquidated damages for delay. The liquidated damages claim of the employer was substantial, amounting to

£8.274m.

Sub-clauses 2.5 and 3.5 of the contract in the Beckton Energy case were unamended from the FIDIC standard form. Following NIPDEC, one might therefore have expected the declaration to be granted in favour of Murphy. However, the court found that the obligation to pay liquidated damages under sub-clause 8.7 arose independently of sub-clauses 2.5 and 3.5, and was not contingent upon an engineer’s determination. Importantly, the contract in Beckton Energy had been amended. In sub-clause 8.7, the words ‘subject to sub-clause 2.5’ qualifying Murphy’s obligation to pay liquidated damages had been deleted. Rather, the bespoke drafting of sub-clause 8.7 meant that the obligation to pay liquidated damages for delay was contingent only in the contractor failing to achieve the required milestone date for completion. Similarly, in the Beckton Energy case the standard form of FIDIC bond wording had been rejected. That FIDIC wording expressly limited the employer’s right to calling the bond only when the engineer had made a determination. Interestingly, the court found that the deletion of words from a standard

28

FIDIC/Adverse Weather

Construction Law Review

form was “only context and by no means determinative” but it was nevertheless “relevant background” which the court was entitled to take into account in determining the objective intention of the parties and interpreting the true meaning of the particular provisions in issue.

Where the governing law of the FIDIC contract is based on other legal systems, such as civil law or Sharia law, the same result may not prevail.

Concluding remarks

The decision in Beckton Energy illustrates the importance of bespoke amendments to the FIDIC forms of contract. The court commented that the amendments had not been fully thought through (noting the NIPDEC decision and the tension between sub-clause 2.5 and the liquidated damages deduction provision in sub-clause 8.7, even with the deleted words). However and on balance, the court in Beckton Energy found that the right to deduct damages in sub-clause 8.7 (as amended) created a self-contained and separate right of the employer to make deductions against, or require payment from, the contractor, independent of the employer’s claim machinery in sub-clause 2.5 or the determination machinery in sub-clause 3.5.

One final comment. The Privy Council decision in NIPDEC applies common law principles to two important provisions found in some of the main forms of FIDIC contract used on projects internationally. Where the governing law of the FIDIC contract is based on other legal systems, such as civil law or Sharia law, the same result may not prevail. With the world’s population in 2016 approaching 7.5 billion, common law still applies to about 2.5 billion people. Not all of them will be involved in the construction sector, but many will be affected by assets built under FIDIC forms.

Jonathan Hosie, Partner, Construction and Engineering Group, Mayer Brown International jhosie@mayerbrown.com www.mayerbrown.com @Mayer_Brown_UK

Jonathan Hosie is the ICES advisory solicitor.

Adverse weather — What are the differences?

Emily Monastiriotis, Partner, with Susanne Hose, Solicitor, and Simos Schizas, Paralegal, Bond Dickinson

Solicitor, and Simos Schizas, Paralegal, Bond Dickinson G IVEN that often in the UK we don’t

G IVEN that often in the UK we don’t quite know whether to carry umbrellas, snow boots

or sunglasses (or indeed all three), it’s worthwhile to set out how standard form building contracts deal with adverse weather. The table across shows the key clauses to consider in relation to claims relating to adverse weather under forms of contract from the Joint Contracts Tribunal (JCT), Institution of Civil Engineers (ICE), New Engineering Contract (NEC3) and the International Federation of Consulting Engineers (FIDIC). Checking the provisions of the contract should be the number one priority – all parties to the contract should be aware of how the risks are apportioned before signing it. Some key tips to remember:

• If the contract is JCT, ICE or FIDIC, then amendments are often made to the agreement to refer to ‘normal’

adverse weather, rather than ‘exceptional’. Alternatively, a more detailed guide is incorporated into the agreement so as to achieve the objectivity of NEC3 contracts.

• If the contract form is either JCT, ICE or FIDIC, then records of weather changes must be regularly kept (if possible on a daily basis).

• Parties bringing a claim under JCT, ICE or FIDIC contracts should prove not only that the weather was exceptionally adverse, but also that the delay caused was of an adverse nature.

Emily Monastiriotis, Partner, Susanne Hose, Solicitor, and Simos Schizas, Paralegal, Bond Dickinson emily.monastiriotis@bonddickinson.com www.bonddickinson.com @Bond_Dickinson @EMonastiriotis

2016

Adverse Weather

29

Contract

Extension of Time Clause

Wording / Definition

Notice

Comments

JCT

Yes (relevant event) Standard: 2.29.9 Design & Build: 2.26.8 Intermediate: 2.20.8 Major Project Construction: N/A

“Exceptionally adverse weather conditions.”

1.

The contractor has to notify the

This is quite a broad (vague) definition. Exceptionally adverse conditions are considered to be greater than usual adverse conditions. ‘Exceptional’ means

“having much more than average

contract manager as soon as it realises that completion will be delayed – the notice should incorporate all material events (clause 2.27.1).

   

2.

The contractor has to notify the

(Collins English Dictionary, 1999).

contract manager of the result of the delay (clause 2.27.2).

There is no accepted prescriptive definition for ‘adverse weather

3.

The contractor should continue to give

conditions’.

notices with updates as matters progress (clause 2.27.3).

JCT also contains a force majeure

clause but given the existence of a clause regarding weather conditions, the force majeure clause is unlikely to apply.

 

Whether or not the weather is as

adverse as it needs to be will be up to the contract administrator to decide.

NEC3

Yes (compensation event) 60.1 (13)

“A weather measurement is recorded:

1.

Notice must be given to the project

The contract data includes very clear

• Within a calendar month

manager “within eight weeks of the

and objective measurement details, which are often negotiated between the

 

• Before the completion date for the

contractor becoming aware of the event” (clause 61.3).

whole of the works and

parties to the contract. It provides a more

At the place stated in the contract data. The value of which, by comparison with the weather data, is shown to occur on average less frequently than once in ten years. Only the difference between the physical conditions encountered and those for which it would have been reasonable to have allowed is taken into account in assessing a compensation event.”

If notice is not given, the contractor

loses its right to any additional money or time.

2.

prescriptive definition, one that parties often rely on for its clarity.

Only deals with cold, snow, and rain

 

– nothing relating to extreme heat, wind (think of cranes) or worse.

If the weather in question occurs “less

frequently than once in ten years” then it can qualify as a compensation event.

There are four ways of measuring the

weather — cumulative rainfall (mm); number of days with rainfall more than 5mm; number of days with minimum air temperature less than 0ºC (32ºF); number

 

of days with snow lying at a stated time GMT.

The intention of weather measurements

is to report the weather over one month – not hourly/daily.

Weather measurements and data

should be taken on site or as close as possible to the site in question.

ICE

Yes (relevant event) 44 (1)

“Exceptionally adverse weather.”

1.

Notice must be given by the contractor

A similar explanation to that of JCT –

to the engineer “within 28 days after the cause of the delay.”

very broad and vague. The engineer will usually assess whether the weather is

 

2.

The engineer must then make

sufficiently adverse.

an assessment upon receipt of the

Having historical records would be

particulars of the delay and notify the contractor (clause 44 (2)).

very helpful in determining whether the weather conditions were exceptionally

3.

The engineer must then make an

adverse – not clear how far back these records should go (some say 10 years, others more).

interim extension of time award if found that the contractor needs more time towards completion (clause 44 (3)).

4.

The engineer must, “within 14 days of

 

the completion date” decide whether an

extension of time is appropriate or not (clause 44 (4)).

5.

The engineer must review and make

a final determination as to the extension of time “within 28 days of the issue of the certificate of substantial completion” (clause 44 (5)).

 

Yes (relevant event) Red Book: 8.4 (c) Silver Book: N/A

“Exceptionally adverse climatic conditions.”

1.

Notice must be given to the contract

Again, similar wording to that of JCT

FIDIC

administrator with a full description of the events “as soon as practicable, and

and ICE – vague and no guidance – and more subjective than NEC3.

   

not later than 28 days after the contractor became aware or should have been aware” of the delay (clause 20.1).

Claimants must not confuse

‘exceptional’ with ‘unforeseeable’ (employer’s risks – clause 17.3/17.4).

2.

Provide all particulars of the claim

“within 42 days of becoming aware of

the claim or within 42 days of when the contractor should have become aware, of the event or circumstance.”

3.

On receipt of the notice, the

administrator “must respond within 42 days of receipt of the claim” approving or disapproving the claim.

30

Payment

Construction Law Review

The effect of the payment provisions under LDEDCA 2009

Peter Barnes FCIArb FCIOB MCInstCES MICE MRICS, Director, Blue Sky ADR

FCIArb FCIOB MCInstCES MICE MRICS , Director, Blue Sky ADR 12 months on, another look at

12 months on, another look at default payment notice claims

F OR the 2015 Construction Law Review, I wrote an article entitled ‘Be careful what you wish for – lest it becomes true’. It focused on the ISG Construction Ltd v Seevic College

(2014) EWHC 4007 (TCC) and Galliford Try Building Ltd v Estura Ltd (2015) EWHC 412 (TCC) cases, and how the judicial interpretation of the payment provisions of the Local Democracy, Economic Development and Construction Act (2009) from those cases, in effect, opened the floodgates for default payment notice claims. My feeling at that time was that when the courts realised just how wide the floodgates had been opened, they may try to close the floodgates somewhat; and this is something that they have clearly been trying to do doing over the past year. First, it seems clear to me that the courts did not intend for the floodgates to be opened quite so wide in the first place. This became apparent from the comments of Mr Justice Edwards-Stuart in the Galliford Try case. He emphasised again the binding effect of a notified sum in respect of a default payment notice that had not been challenged by a valid pay less notice. He made it clear that the amount due arising from a default payment notice only related to that particular interim payment cycle, and there was nothing to stop a party from rectifying the position (if it was indeed incorrect) in a subsequent interim payment cycle. However, both the ISG and Galliford Try cases were decided upon Joint Contracts Tribunal (JCT) contracts. Unless amended, JCT contracts do not allow for negative valuations and do not allow for payments being repaid by a contractor on an interim valuation basis. The only reconciliation of this kind is carried out at the final certificate stage. Therefore, even though a contractor could have a revaluation of the works confirmed at a later valuation date under a JCT contract, in practice this would have no contractual effect as, firstly, the initial adjudicator’s decision would still be enforced and, secondly, there is not an option for a negative valuation in respect of interim valuations. In reality the above factors (amongst several other exceptional circumstances particular to the case) were part of the reason why Mr Justice Edwards-Stuart came to the judgment he did in the Galliford Try case to defer part of the enforcement of the adjudicator’s decision. (Although it must be noted that the principles flowing from the ISG case were still followed.)

Matthew Harding v Paice and Springhall

About this same time, another significant case was going through the courts (eventually being heard by the Court of Appeal in November 2015). Matthew Harding v Paice and Springhall (2015) EWCA Civ 1231 related specifically to a termination account. In that case, the Court of Appeal reached the conclusion that final account type applications (which they considered a termination account to be) are bound by different rules from interim payment account type applications. Therefore, this case had no impact in respect of interim payments under unamended JCT contracts. The general perception after the ISG and Galliford Try cases was that all you needed to do was put a document in at about the

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Payment

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right time, with an amount due being shown (without being overly concerned with its content), and one that could be construed as being a default payment notice. If no pay less notice was issued, the amount requested in the default payment notice would be the amount that would need to be paid. However, the courts had other ideas.

Leeds v Waco

The first matter that the courts dealt with was in the Leeds City Council v Waco UK Ltd (2015) EWHC 1400 (TCC) case. It was in respect of what default payment notices needed to be submitted at the right time to be valid. After practical completion, Waco submitted its September 2014 payment application six days before the contractual date specified. The employer’s agent refused to recognise the payment application as it had been served prematurely. The contractor referred the matter to adjudication and obtained a decision in its favour. However, in subsequent part 8 proceedings, the court found that the contractor’s September 2014 post-practical completion payment application was not valid. It had been served too early, even though a previous post-practical completion payment application was issued early and was accepted by the employer’s agent. Therefore, the contractor could not rely on the September 2014 payment application as being a default payment notice as it had not been served at the correct time.

Caledonian v Mar City

Soon after this, another case, Caledonian Modular Ltd v Mar City Developments Ltd (2015)

EWHC 1855 (TCC), considered a further related matter. Caledonian sought payment in respect of a payment application that it said had been made on 13 February 2015. Mar City said the claim for payment had not been made until 19 March 2015, and that Mar City had issued a pay less notice to nullify any effect that the payment application may have had. Caledonian sent an email on 13 February 2015 (with attachments) and this was sent to Mar by registered post and was received by Mar on 16 February 2015. On

19 March 2015, Caledonian submitted its invoice, and attached the breakdown attached

to the email dated 13 February 2015. Upon receipt of that invoice, Mar issued a pay less

notice which nullified the effect of the invoice.

However, Caledonian said that its invoice was a default payment notice, and its original payment claim had been by way of the email dated 13 February 2015, which had not been countered by a pay less notice from Mar. The adjudicator agreed with Caledonian, but in the ensuing enforcement proceedings, the court did not agree. The court had no hesitation in concluding that the documents sent by email on

13 February 2015 did not constitute an application for payment or a default payment

notice, because none of the documents said that they were a new application for interim payment, and the invoice dated 19 March 2015 did not say it was a default payment notice. Therefore, there had been a lack of transparency in respect of the purpose of Caledonian’s email dated 13 February 2015, and the court did not accept that it could be accepted as being a payment application or a default payment notice.

Henia v Beck

Following on from this, the case of Henia Investments Inc v Beck Interiors Ltd (2015) EWHC 2433 (TCC) came along. In this case, Beck submitted an application for payment on 28 April 2015, six days later than it should have been submitted. The contract administrator issued its own payment certificate in respect of the April 2015 valuation period, on 6 May 2015, but the payment certificate was one day late. Beck did not submit a payment application for the end of May 2015 valuation period, but the contract administrator issued a payment certificate in any event, although that certificate was again issued one day late. The employer issued a pay less notice against this latter payment certificate, reducing the amount due to the contractor to £nil. At this point, Beck said that if its application for payment dated 28 April 2015 had been served too late for the end of the April 2015 valuation date, it should be carried over as the payment application for the end of May 2015 valuation. Also because the contract administrator’s payment certificate at the beginning of June 2015 had been issued one

day late and was therefore in-valid (and as the pay less notice related to that said in-valid payment certificate was also by default in-valid), Beck’s application for payment dated

28 April 2015 became the default payment notice which set out the notified sum that

needed to be paid. The adjudicator agreed with this position, but the court did not. The court found that there was nothing in the 28 April 2015 payment application that indicated that it was a payment application for 29 May 2015 (in fact the document said that the works had been valued up to 30 April 2015). Also, the said document was not in the substance or form of all previous payment applications. Therefore, Beck’s payment application dated 28 April 2015 could not be relied upon as being a default payment notice.

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And others

Following on from the above, the Severfield (UK) Ltd v Duro Felguera UK Ltd (2015) EWHC 3352 (TCC) case made it clear that a default payment notice needed to clearly set out the basis on which the sum claimed had been calculated. The Grove Developments Ltd v Balfour Beatty Regional Construction Ltd (2016) EWHC 168 (TCC) case found that the payment provisions of the scheme were not imported to provide for further interim payments after the last date on an agreed schedule of dates had expired. Other similar cases followed in respect of the need to comply precisely with the required timing of applications and/or the need for there to be complete transparency of submissions. These include Manor Asset Ltd v Demolition Services Ltd (2016) EWHC 222 (TCC); RMC Building & Civil Engineering Ltd v UK Construction Ltd (2016) EWHC 241 (TCC); and Jawaby Property Investment Limited v The Interiors Group Limited (2016) EWHC

557(TCC).

What’s the position?

In summary of the above, the courts’ position is that there is little scope for latitude. If a contractor wishes to have the benefit of the interim payment regime pursuant to LDEDCA 2009, then its application for interim payment must be submitted at the right time, it must be in substance, form and intent an interim application/default payment notice stating the sum considered by the contractor as due at the relevant due date, and it must be transparent and free from ambiguity. Despite all of the above, one aspect that the courts have not yet decided upon is in respect of the substance of a default payment notice. It is therefore not clear what the courts will say about a default payment notice that does not comply with the requirements of the contract in terms of its content, but this may be something that is clarified through judicial guidance during the coming year. Therefore, at the moment the floodgates referred to at the beginning of this article have been drawn much closer together than they were a year ago. It is possible that they will be drawn together even closer during the course of the coming year, thereby reducing the full flow of default payment notice claims to a mere trickle.

Peter Barnes FCIArb FCIOB MCInstCES MICE MRICS, Director, Blue Sky ADR www.blueskyadr.com pbarnes@blueskyadr.com

Peter Barnes FCIArb FCIOB MCInstCES MICE MRICS , Director, Blue Sky ADR www.blueskyadr.com pbarnes@blueskyadr.com

2016

Extensions of Time

33

Proving extension of time claims

Manoj Bahl CEng MICE, Senior Director, FTI Consulting

Manoj Bahl CEng MICE , Senior Director, FTI Consulting E XTENSIONS of time are again hitting

E XTENSIONS of time are again hitting the headlines following the recent

Technology and Construction Court decision in Carillion Construction Ltd v Woods

Bagot Europe Ltd and others (2016) EWHC 905 (TCC). It was a dispute in relation

to the proper interpretation of a standard form of construction subcontract provision. Carillion contended that the nature of the particular subcontract clause warranted a departure from the method by which extensions of time are usually applied. However, the court rejected this argument, and found in Emcor’s favour that an extension of time was to be treated in the usual manner. With this in mind, what are the key parameters for determining extensions of time and what is the level of proof required?

Background

Uncertainty is endemic within the construction industry and, through a combination of many factors, construction projects do not proceed as planned with the risk that the contractual completion date will not be met. For contractors, this results in a delay to the completion of the works, with a corresponding liability to the employer for liquidated damages and the potential of cost overruns due to the increased costs of performance arising from prolongation. For employers, delays result in a loss of profit, loss of revenue and potential liability to the design team and other members of the professional team. The construction team at FTI Consulting is regularly engaged

to provide expert delay services in relation to formal dispute procedures but also, as a precursor, to prepare or rebut extension of time claims. In these instances a contractor will seek assistance in identifying and setting out its entitlement to an extension of time or an employer may seek assistance in assessing the criticality of alleged delays and the appropriate award of an extension of time. In doing so, the key principles relating to the preparation and award of extensions of time are often misinterpreted or over simplified.

What are the key parameters for determining extensions of time and what is the level of proof required?

The need for extension of time provisions

The prevention principle is derived from Holme v Guppy (1838) 150 ER1195 where an employer withheld payment following delay, even though it had failed to give possession of the site for four weeks following the execution of the contract. It states that where a contractor is prevented by the act of the employer, it is not in default. This position was confirmed in Peak Construction (Liverpool) v McKinney Foundations (1971) 1 BLR 111 CA where it was added that if, for reasons within the employer’s control, the contractor is prevented from completing the works by the completion date, and there is no mechanism to extend time for performance (or it has not been properly extended), the employer can no longer hold the contractor to the original completion date. Instead there is no firm date from which liquidated damages may be calculated from and, as a result, time is then said to be at large. 1 In such instances the contractor is granted a reasonable time to complete the works. Therefore the provision to award an extension of time acts as a mechanism to extend the contract completion date, thus preventing the contract period becoming at large and relieving the

1 Per Wells v Army & Navy Cooperative Society (1902) 86 LT 764 where it was held that if time has become at large because of some act or default of the employer, there will be no date from which the liquidated damages can run and therefore the right to claim them will have gone

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Construction Law Review

Addressing the issue of concurrent delay is one of the most important factors to consider when demonstrating an extension of time claim.

contractor from a liability to pay liquidated damages up to the extended contract completion date.

What needs to be proved?

In order to determine whether an

entitlement to an extension of time exists,

it is necessary to establish that: (i) the

cause of the delay was excusable, under the terms of the contract; and also (ii) as a consequence, there was a delay to the date for completion.

Identifying an excusable event In light of the judicial decision in Peak Construction v McKinney Foundations, express provision is now included within standard forms of construction contracts to grant time relief for delays caused by the employer (or its representatives). Moreover, today’s standard forms go further and allow for the granting of an extension of time for

a range of specified events. Each standard form of construction contract deals with this risk allocation/ sharing differently, but these excusable events (referred to as relevant events under the Joint Contracts Tribunal (JCT) and compensation events under the New Engineering Contract (NEC)) provide the contractor with an entitlement to extension of time to complete its works. A list of excusable events is set out at clause 2.29 of the JCT standard building contract; clause 60 of NEC3; clause 8.4 of the International Federation of Consulting Engineers (FIDIC) Red Book; and clause 18.3 of the Project Partnering Contracts (PPC2000).

Demonstrating a delay to the date for completion In the absence of express terms to the contrary, the occurrence of an excusable event alone is insufficient to give rise to an entitlement to an extension of time. Instead, in order to successfully demonstrate such entitlement, the standard forms of construction contract (for example clause 2.28.2 of the JCT standard form 2011 edition; 63.3 of NEC3; clause 8.4 of FIDIC Red Book 1999 edition; and clause 18.3 of PPC2000) require the contractor to demonstrate that the excusable event is

likely to cause, or indeed has caused, a delay to progress of the works, and consequently has impacted upon the completion date. The burden of proof in relation to demonstrating the effect of delay requires consideration of two key principles:

Critical delay-differentiating between a delay to progress and a delay to completion For an entitlement to an extension of time to arise a delay must be critical to completion. One accepted and approved definition 2 as to what constitutes the critical path is that it is the longest logic-linked path through a programme to the completion date. Accordingly, a delay to any of the activities on the critical path would lead to a delay to the completion date. Where (total) float 3 exists within the overall programme against the completion date this would need to be eliminated before any critical delay is experienced. Further, where an excusable event affects non-critical activities the delay will have to be sufficient to eliminate all float before a critical delay is experienced.

Concurrent delay-often claimed, seldom properly identified Addressing the issue of concurrent delay is one of the most important factors to consider when demonstrating an extension of time claim. As a result of this it is becoming increasingly common for concurrent delay clauses to be included within construction contracts. The absence of such provision frequently gives rise to disputes.

The commonly accepted and approved definition 4 of concurrent delay is when there are two or more delay events occurring at the same time which are approximately equal in terms of causing delay to the completion date. This narrow definition results in the occurrence of true concurrency being rare. Frequently, this principle is falsely alleged in instances where one of the events can properly be said to be only a minor cause of the delay, and so can be disregarded altogether — resulting in there being no concurrency. There are broadly three different situations in which concurrent delay could occur. Firstly, and most simply, when both an employer and a contractor delay each simultaneously affect an activity on the critical path and thus delay the overall project. The second is where there is an employer and contractor delay each affecting different critical paths of activities within the programme at the same time, but where the delays to each of these paths equally affect the overall completion of the project. The third scenario is where during a period of either (contractor or employer) delay there is a further delay attributable to the other party which equally causes a delay to the completion date during the period of time over which it occurs. Following the decision in Walter Lilly & Company Ltd v Mackay and another (2012) EWHC 1773 (TCC), the preferred position 5 states that in each of these scenarios, where a contractor’s delay runs truly concurrent with an employer’s delay, the contractor’s delay should not reduce any extension of time due.

2 Burr A. (2016), Delay and Disruption in Construction Contracts, Fifth Edition:

London, Sweet & Maxwell at 1-029

3 Float, with regards to critical path analysis, is a term used to define the period of time in which no defined work is shown to take place. Furthermore total float is used to describe the maximum amount of time an activity within a programme can be delayed before the date for completion is impacted by virtue of the logic links present

4 John Marrin QC, Concurrent Delay, SCL paper 100 (February 2002) - as approved in Adyard Abu Dhabi v SD Marine Services (2011) EWHC 848

5 Which follows the principles set out within Henry Boot Construction (UK) Limited v Malmaison Hotel (Manhattan) Limited (1999) All ER 118

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Critical path analysis

Whilst case law suggests that there is no requirement for an extension of time application to contain a critical path analysis 6 , and that instead it is possible to leave it to the employer to form an opinion as to the effect of an alleged delay with or without employing its own analysis, it would naturally be preferable for the contractor to demonstrate its claim for delay. Often

a contractor’s allegation that an excusable event delayed the

completion date is unfounded and upon the implementation of a proper critical path delay analysis, it becomes apparent that the critical progress of the works remained unaffected by the event being claimed by the contractor. There are various methods of critical path analysis which exist for analysing and demonstrating the effects of delay events. The methodology selected to objectively illustrate cause and effect within an extension of time claim is normally dictated by the timing of the analysis together with the availability of contemporaneous records and time/resource. The timing is of relevance as the use of a prospective analysis (based upon the likely effects of a delay) or a retrospective analysis (based upon actual fact) will provide different results. The Society of Construction Law’s Delay and Disruption Protocol provides guidance as to appropriate methods of delay analysis. In doing so it is noted that different methods of critical path analysis have the ability to produce very different results. The selection of a suitable technique requires careful consideration with regards to achieving the goal of demonstrating and illustrating the critical effects of the delay events complained about.

A further obstacle

As a precursor to being granted relief for an excusable delay, most standard forms of construction contracts require the contractor to provide notification when the progress of the works is affected by

a delay, excusable or otherwise, as close as possible to when the

delay arises. For example, clause 2.27 of the JCT standard form, 61.3 of NEC3, clause 20.1 of FIDIC Red Book and clause 18.4 of PPC2000 all expressly state a requirement for such notice. The common law position raises doubts as to whether a condition precedent, as set out within the JCT suite, is effective in dismissing the prevention principle in relation to an excusable

critical delay, 7 although the NEC3 and FIDIC forms expressly state that a failure to provide a timely notification dismisses any subsequent claim for an extension of time. 8

The basis for an award

If a contractor demonstrates that an excusable delay event was

critical, then there is an obligation upon the employer (or its representatives) to make a fair and reasonable assessment of what the excusable delay to the completion date is/was and the entitlement to an extension of time which is due. The judgment in John Barker Construction Limited v London

Portman Hotel Limited (1996) 83 BLR 31 sought to clarify the

6 John Barker Construction Limited v London Portman Hotel Limited (1996) 83 BLR 31 7 In line with the Scottish case of City Inn Ltd v Shepherd Construction Ltd (2007) Scot CSOH 190 and Multiplex Construction (UK) Ltd v Honeywell Control Systems Ltd (2007) EWHC 236 (TCC) which have cast doubts on whether Gaymark Investments Pty Ltd v Walter Construction Group (1999), which stated that failure by a contractor to comply with a condition precedent notifying the employer of a delay rendered the extension of time provision ineffective and set time at large, is the position in English law 8 These clauses are drafted in line with Bremer Handelsgesellschaft MBH v Vanden Avenne Izegem (1978) 2 Lloyd’s Rep. 109 which stated that precise/clear timetables must be identifiable and the result of missing this timetable must be clearly spelt out

It is becoming increasingly common for concurrent delay clauses to be included within construction contracts.

subjectivity of this process and set out the following criteria to be adopted in calculating a ‘fair and reasonable’ award:

• Application of the rules of the contract.

• Recognition of the effects of change.

• A logical analysis, in a methodical way, of the effect of relevant events on the contractor’s programme.

• An objective calculation, rather than an impressionist assessment, of the delay caused by the excusable event(s).

Therefore, it would follow that any extension of time application prepared by a contractor should assist the employer in carrying out the above steps. In doing so the importance of a proper critical path analysis, to illustrate the delay to the completion date experienced, cannot be overlooked.

Conclusion

The majority of standard forms of construction contract enable the contract administrator to grant an extension of time where a delay occurs due to its own act of prevention or for certain other specified causes. However, before the employer can grant an extension of time, it needs to be satisfied that not only has an excusable event, as defined under the contract, occurred, but also that it is likely to cause, or has caused, the completion of the works to be delayed. Herein lies the opportunity for the contractor to assist in this evaluation process by way of including a robust delay analysis demonstrating the causative effect of the excusable delay. The proper application of a critical path analysis, although not compulsory, can accordingly be used to effectively demonstrate the criticality of delays, either as a driving delay or concurrent delay, and the entitlement to an extension of time which is due as a result.

Manoj Bahl CEng MICE, Senior Director FTI Consulting www.fticonsulting.com @FTIConsulting

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Construction Law Review

Fixed payment schedules:

Grove v Balfour Beatty

Alan Williamson FCInstCES, Principal Consultant, Schofield Lothian

FCInstCES , Principal Consultant, Schofield Lothian payment mechanisms A T first blush, the judgment in this

payment mechanisms

A T first blush, the judgment in

this case seems somewhat odd.

It appears to fly in the face of

the contractor’s statutory right to receive regular interim payments during the course of a construction contract of over 45 days’ duration. However, when the court’s judgment is considered in full, it can be understood how the contract specific facts led to this conclusion.

The dispute

The brief details of this dispute leading up to the decision in the Technology and

Construction Court earlier this year can be summarised as such. Grove Developments Limited and Balfour Beatty Construction Limited entered into a Joint Contracts Tribunal (JCT) design and build contract, with a contract sum of £121,059,632,

a commencement date of July 2013

and a completion date of 22 July 2015. Subsequently, the parties agreed to a

payment schedule running from September 2013 to July 2015, consisting of 23 interim applications. The works were not completed on time and Balfour Beatty issued application number 24 on 21 August 2015 for £23.17m. In response to this, Grove’s agent issued

a payment certificate on 28 August 2015

in the sum of £2,349,504, with the caveat that the employer may withhold or deduct liquidated damages. Grove did indeed subsequently issue a pay less notice on 15 September 2015, showing a much lesser sum to now be paid to Balfour Beatty of

£439,503.

Probably in the realisation that the project was not now going to be completed on time, the parties engaged in considerable correspondence between May and September 2015 endeavouring to agree further valuation dates after application 23. However, no agreement was concluded due to disagreement as to whether the due date should be considered as the date of Balfour Beatty’s application or the date of Grove’s payment certificate. Clearly, this would impact upon what the final date for payment should be, which fell to be 28 days after the due date and, consequently,

when any pay less notice should be served prior to this. Balfour Beatty served a notice of adjudication on 19 November, followed by its referral notice on 26 November 2015, seeking an award of circa £23.20m, as applied for in its application number 24 of 21 August 2015. The adjudicator awarded Balfour Beatty an amount of circa £2m, but Grove paid no further monies and during the adjudication proceedings issued part 8 proceedings seeking clarification of its rights under the contract.

The TCC decision

In court, Balfour Beatty raised two principal arguments in its defence, both relying upon certain aspects of the statutory payment mechanism of the Housing Grants, Construction and Regeneration Act (1996), as enacted by the Scheme for Construction Contracts (England and Wales) Regulations of 1998, as amended by the Local Democracy, Economic Development and Construction Act (2009):

• Balfour Beatty’s right to instalment payments under a construction contract exceeding 45 days duration, which it contended that commercial common sense dictated should be made in relation to all work carried out under the said contract.

• As the parties had been unable to agree a payment mechanism for further payments after application 23, the entire payment mechanism of the scheme should be imported instead. This would have the result of Grove’s pay less notice served in relation to application 24 being late, with the consequence that the full amount claimed should be paid to Balfour Beatty.

It is worth briefly summarising here what precise statutory payment mechanisms the legislation requires to be incorporated into all construction contracts. The act and scheme give the entitlement to stage payments if the contract is longer than 45

Contract Services Schofield Lothian is a professional services consultancy delivering added value with a

Contract Services

Schofield Lothian is a professional services consultancy delivering added value with a collaborative approach on construction and infrastructure projects. Established in 1979, we have delivered legal and contract services on many large infrastructure programmes and property projects throughout the UK with major contractors, public organisations and property companies. We provide the following contract services:

Claims Avoidance • Contract Drafting Contract Review & Advice • Dispute Resolution Expert Witness • Legal Commercial Advice Litigation Support • Risk Management

For information on Contract Services, contact Alan Williamson, alanwilliamson@schofieldlothian.com For other services, contact Mike Upton, 07810 850030, mikeupton@schofieldlothian.com

Mike Upton, 07810 850030, mikeupton@schofieldlothian.com Consents & Engagement | Environment &

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Probably in the realisation that the project was not now going to be completed on time, the parties engaged in considerable correspondence.

days’ duration, but the parties are free to agree the amounts and intervals of the said stage payments. If no such provisions are included, then those of the scheme are to apply. Furthermore, the contract should provide an adequate mechanism to determine when payments become due and a final date for payment — again, the parties are free to agree the period between the due date and the final date for payment, with the provisions of the scheme to apply if no such provisions are included within the construction contract. However, Mr Justice Edwards-Stuart was not swayed by either of these propositions, stating that the court should not strain to find ambiguity where none exists. He considered that the requirements of the act and scheme had been met and that it was not automatic for instalment payments to continue to be made for all work under a construction contract. Indeed, he went so far as to say that the employer’s ability to refuse further interim payments could be used to exert commercial pressure upon the contractor to complete on time. If further periodic payments flowed, in addition to those already agreed, this would restrict the parties’ commercial freedom to agree to any amounts being paid at any intervals, for example the front loading or end loading of payments. The court further recorded that just because interim payments did not cover all of the works’ duration, this did not mean that the whole of the scheme’s payment mechanism should be imported into the contract. The contract already provided due dates and final dates for payment which, when read together with the applications schedule, demonstrated that the parties had agreed the intervals and circumstances in which payments became due. The parties had entered into an agreement for stage payments for 23 interim payments upon the agreed dates within the schedule and no more. Mr Justice Edwards-Stuart went on to assert that it was not possible to construe implied terms into the contract in such circumstances, as the contractor would have been aware of the consequences of not finishing on time and running out of interim payments. It had the opportunity to negotiate protective measures at the outset but did not, so terms could not be implied due to ‘commercial common sense’. Although it was admitted that further interim payments after application 23 were discussed between the parties, the terms under which they were to be made were not agreed. This would be a pre-condition to a legally binding agreement. Drawing all of these threads together, clearly the court’s decision was that Balfour Beatty was not entitled to any further interim payments after application 23. Although it was not necessary for the judge to decide upon the issue of whether Grove had served a valid pay less notice in respect of application 24, due to the above conclusions, Mr Justice Edwards-Stuart did pass comment upon this second point. He concluded that whatever way the contract payment mechanism was looked at, Grove’s pay less notice given on

15 September 2015 was on time. Thus

the payment mechanism of the scheme did not need to be imported, as the contract already had compliant payment provisions. Furthermore, the contractor was estopped from changing its argument to the scheme’s payment mechanism in any event, due to earlier representations made in correspondence as to its view upon the applicable final dates for payment based upon the original contract payment schedule.

Summing up

As already commented in the introduction, the findings in this case initially appear to be somewhat surprising. It is a very common occurrence for projects to overrun and the employer to continue to make interim payments to the contractor, even if the dates upon an incorporated payment

schedule have in fact expired. Although the findings here will not be of general application, due to certain case specific circumstances, contractors will nonetheless need to be wary when fixed payment schedules are incorporated into their conditions of contract. Whilst most conditions provide for a further final account payment at the end of the project, this could be many months away in the event of significant programme overruns — often at the end of the defects correction period that would be of at least

12 months’ duration, with consequential

adverse effects upon the contractor’s cashflow with subcontractors, suppliers and the like still requiring payment in this period of overrun. Contractors would therefore be well advised, if in doubt, to seek the incorporation of an express provision, at the contract negotiation stage, setting out what would happen should the applications provided for within any incorporated payment schedule expire prior to the works being complete.

Alan Williamson FCInstCES, Principal Consultant, Schofield Lothian alanwilliamson@schofieldlothian.com www.schofieldlothian.com

2016

Penalties

39

Knocked out on penalties

Kate Corby, Partner, and William Jones, Associate, Baker & McKenzie

Partner, and William Jones, Associate, Baker & McKenzie Liquidated damages clauses and the rule against penalties
Partner, and William Jones, Associate, Baker & McKenzie Liquidated damages clauses and the rule against penalties

Liquidated damages clauses and the rule against penalties

W ITH Euro 2016 in full swing

at the time of writing, the rule

against penalties may sound

like a dream come true for any die hard England fan. Indeed, the Supreme Court’s handing down of its decision in the case of Cavendish Square Holding BV v Talal El Makdessi (2015) UKSC 67 on 4 November 2015 was awaited with almost as much

anticipation as this year’s main event in the footballing calendar. El Makdessi was the first time in a century that the UK’s most senior court had considered the rule against penalties, and some commentators had speculated that the Supreme Court might use the opportunity to abolish this principle. The rule against penalties operates to prevent enforcement of a contractual clause that imposes a penalty on a party who has breached the contract. The logic is that a party should be free to breach a contract, provided it pays damages to its contractual counterparty, which should compensate the innocent party for the loss it suffers arising from the breach, rather than act so as to punish the defaulting party. The penalty rule most commonly comes into play in construction contracts in relation to the enforceability of liquidated damages provisions. Liquidated damages provisions are used to agree in advance the level of damages one party will pay to the other if it breaches the contract. Such clauses are attractive as they provide

a contractor with certainty about the

maximum liability it could face in relation to the relevant breaches, thereby offering

a means of controlling the level of risk

taken on in relation to a particular contract. In addition they, in theory at least, allow for disputes to be resolved quickly and without recourse to the courts (or an arbitral tribunal). In practice, however, the question of whether liquidated damages are unenforceable due to the penalty rule may itself lead to a time-consuming and bitterly contested satellite dispute. Ultimately, the Supreme Court did not use El Makdessi to kick the penalty rule out of English contract law. It did, however, reformulate the legal test as to

Some commentators had speculated that the Supreme Court might use the opportunity to abolish this principle.

whether a clause should be classed as an unenforceable penalty. In this article, we examine how El Makdessi has re-shaped the penalty rule in the context of liquidated damages clauses, and look forward to what impact this may have on businesses in the construction industry in the future.

Previous law

Prior to the judgment in El Makdessi, the leading case was Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (1915) AC 79. The speech of Lord Dunedin in this case contains the guidance that was most commonly referred to by practitioners on the distinction between a penalty and a liquidated damages clause. This can be summarised as follows:

1. Although the words the parties use

to describe a particular provision are not irrelevant, the court must decide

in substance whether a provision is a penalty or a liquidated damages clause.

2. The essence of a penalty is that it

seeks to deter a party from committing a breach by requiring them to pay money on occurrence of that breach. The essence of a liquidated damages clause is that it is a genuine pre-estimate of loss agreed by the parties.

3. Whether a provision is a penalty or

liquidated damages clause depends on the terms and circumstances of each particular contract, assessed from the perspective of when the contract was created, rather than when the breach

occurred.

4. A number of tests may be used,

which if applicable to a particular case, may assist with assessing the nature of a