Archive: 2015

1
Suspension and Termination Under the Civil Law, Part 1
2
Reform of Construction Contract Law Planned in Germany
3
New Jersey Appellate Court Holds That Coverage Exists for Consequential Damages Caused By Subcontractors’ Defective Work
4
Materials Available: EPC Contracting Issues in the Oil & Gas Industry
5
Materials Available: 2015 Legal Update – Construction and Engineering Seminar
6
Update on Legal Advice Privilege
7
Illinois Now Allows Bonding Off of Mechanics Liens on Private Projects
8
A New Australian Standard (AS 11000) to Replace the General Conditions of Contract (AS 4000 and AS 2124)
9
Harris v. West Bay Builders: Award of Attorney’s Fees Not Mandatory Under California Prompt Payment Statutes
10
FTR v. Rio: Penalties Assessed Against School District for Withholding Contractor Funds

Suspension and Termination Under the Civil Law, Part 1

By Alexander Brightman, K&L Gates, Doha

Introduction
Although “freedom of contract” is a concept that is recognised in both the common law and civil law jurisdictions, the codified and prescriptive nature of a civil law system means that the relevant provisions of the Civil Code may even be implied into robustly drafted contracts, including standard forms. As set out below, such implied provisions could have the undesirable effect of delaying termination whilst a court order is obtained or exposing the terminating party to a claim for breach of contract (and compensation) for unlawful termination. In this article, I will be discussing suspension and termination rights under the FIDIC Contract (Red and Yellow Books), before examining the position under the Qatar Civil Code.  In a follow-up blog post, I will look at suspension and termination under the UAE Civil Code.

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Reform of Construction Contract Law Planned in Germany

By Christoph Mank, K&L Gates, Berlin

Introduction
Despite the huge economic significance of the construction industry to Germany, there is, as yet, no codified construction contract law. Usually, general services contract law according to the German Civil Code (Bürgerliches Gesetzbuch – BGB) is applied to contract types as varied as manual repair work and project developments involving millions of Euros. Traditionally, general contractual terms known as “VOB/B” (Verdingungsordnung für Bauleistungen), which have existed for almost 100 years, are of considerable practical importance to the German construction industry. They are flanked by increasingly extensive case law regarding individual issues of construction law, requiring expert knowledge to comprehend the legal framework for construction contracts. A codification of construction contract law has been called for in Germany for a long time. The most recent comprehensive reworking of the law of obligations, which came into effect in 2002, also saw a revision of services contract law, but without consideration of the specific characteristics of construction contracts. The pressure exerted by practitioners on the legislature has increased due to recommendations issued by the building commission, “Deutscher Baugerichtstag”, that has been convening biannually since 2006. In September of this year, a draft bill was presented by the Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz) for the reform of the construction contract law. There will be considerable need for further discussion regarding the details in the consultations currently taking place among interested groups. However, we would like to take this opportunity to give an overview of the planned changes to the law.

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New Jersey Appellate Court Holds That Coverage Exists for Consequential Damages Caused By Subcontractors’ Defective Work

By Denise N. Yasinow, Loly G. Tor, and Christopher A. Barbarisi, K&L Gates, Newark

This past summer, the Superior Court of New Jersey, Appellate Division issued a favorable decision for owners, real estate developers, and general contractors regarding insurance coverage for damages caused by the faulty work of their subcontractors.  In Cypress Point Condominium Association, Inc. v. Adria Towers, LLC,[1] the Court held that unexpected and unintended consequential damages caused by a subcontractor’s defective work constitutes “property damage” caused by an “occurrence” under a commercial general liability (“CGL”) insurance policy.  Thus, these types of consequential damages are recoverable.

The Cypress Point decision roundly rejected the Third Circuit’s opinion in Pennsylvania National Mutual Casualty Insurance Co. v. Parkshore Development Corp.,[2] which concluded that faulty workmanship performed by a contractor or a subcontractor that causes damage to the general contractor’s work is not an “occurrence.”

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Materials Available: EPC Contracting Issues in the Oil & Gas Industry

K&L Gates and Marsh recently co-sponsored a one-day, complimentary seminar titled “EPC Contracting Issues in the Oil & Gas Industry.”

The seminar featured six hour-long sessions, including a luncheon presentation by Robert Peterson, senior partner at Oliver Wyman, and an industry roundtable review panel consisting of industry experts from Exxon Mobil, Phillips 66, Chicago Bridge & Iron Company, Fluor, and Aker Solutions.

More than 100 representatives from leading energy companies attended the seminar at the JW Marriott Houston Downtown.

Houston partners Randel Young and John Sullivan III, Pittsburgh partners Richard Paciaroni and Jason Richey, London partner Matthew Smith, Washington, D.C. partner Steven Sparling, and Dallas partner Beth Petronio, along with Pittsburgh associate Jackie Celender, presented during the seminar.

Seminar materials can be found here.

Materials Available: 2015 Legal Update – Construction and Engineering Seminar

On 7 October 2015, the K&L Gates London office held a 2015 Legal Update – Construction and Engineering breakfast seminar.  The seminar featured the following topics:

  • CDM 2015: The End of the Transition – Nicola Ellis, Special Counsel
    The Construction (Design and Management) Regulations 2015 came into force on 6 April. This session highlights the key changes that were introduced, the practical effects of those changes and the consequences of the transitional provisions coming to an end on 6 October.
  • Construction Law UpdateInga Hall, Special Counsel
    A summary of some of the recent key construction and engineering cases that have come before the courts, and the implications of those decisions.
  • The NEC3 Suite: Beyond the ECC – Matthew Smith, Partner
    This session looks at the true range of options the NEC3 suite of contracts offers and gives an insight into which issues are addressed consistently across the suite, and highlights the key differences between specific forms.

To view a copy of the materials from this seminar,  please click here.

Update on Legal Advice Privilege

By Mike R. Stewart and Nita Mistry, K&L Gates London

In common law jurisdictions, legal professional privilege prevents communications between a professional legal adviser and their clients from being disclosed.  There are two main types of privilege:

  • Legal advice privilege, which protects confidential communications between lawyers and their clients; and
  • Litigation privilege, which protects confidential communications, provided that such communications have been created for the dominant purpose of obtaining legal advice for litigation.

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Illinois Now Allows Bonding Off of Mechanics Liens on Private Projects

By Jesse G. Shallcross, K&L Gates, Chicago

On July 29, 2015, Illinois Governor Bruce Rauner signed into law an amendment to the Illinois Mechanics Lien Act which allows a property owner, contractor or other party with an interest in real property which is subject to a mechanics lien claim filed against the property by an aggrieved contractor, subcontractor or material supplier on a private project to substitute a surety bond for such mechanics lien claim.[1]  The new law is scheduled to take effect on January 1, 2016.

Illinois now joins the ranks of no less than 35 other states that provide for the right of an interested party to substitute a surety bond for real property against which a mechanics lien claim is filed, also known as “bonding off” a mechanics lien claim, on private projects.

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A New Australian Standard (AS 11000) to Replace the General Conditions of Contract (AS 4000 and AS 2124)

By Sandra Steele, K&L Gates, Sydney

The AS 4000 and AS 2124 General Conditions of Contract are widely used forms of procurement in the Australian construction industry. A technical committee has recently drafted a new standard form contract (AS 11000) to supersede these previous forms.

The drafters have sought to provide a balanced approach to risk allocation and have updated the standards for certain legislative changes and case law including for GST and security of payment legislation. Despite the extensive amendments, as the AS 11000 is drafted as a national standard form contract, some State and Territory specific legislation and case law has not been included.

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Harris v. West Bay Builders: Award of Attorney’s Fees Not Mandatory Under California Prompt Payment Statutes

By Timothy L. Pierce and Hector H. Espinosa, K&L Gates, Los Angeles

California’s prompt payment statutes, found at Business and Professions Code section 7108.5 and Public Contract Code sections 7107 and 10262.5, each contain a fee-shifting provision, stating that the prevailing party “shall” be entitled to his or her attorney’s fees and costs. In James L. Harris Painting & Decorating, Inc. v. West Bay Builders, Inc. (No. C072169), the California Court of Appeals confirmed that a trial court can, in its discretion, choose not to award either party attorney’s fees under the prompt payment statutes if the trial court determines that neither party “prevailed.”

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FTR v. Rio: Penalties Assessed Against School District for Withholding Contractor Funds

By Timothy L. Pierce and Benjamin Kussman,  K&L Gates, Los Angeles

In East West Bank v. Rio School District, 235 Cal. App. 4th 742 (2015), the California Court of Appeals upheld a trial court’s assessment of $1,537,404.96 in statutory penalties against the Rio School District (the “District”) for the District’s failure to timely release contractor funds pursuant to Public Contract Code Section 7107.  The Court concluded, in what constitutes a departure from another recent Court of Appeals ruling interpreting the same statutory provision[1], that Section 7101 does not allow a public entity to withhold contractor retainage on the basis of a dispute over the cost of contract work.

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