Archive:September 2022

REGULATING HEAT NETWORKS:  Energy security bill to the rescue? 
When is a Collateral Warranty a “Construction Contract”?


By: Justin Leonelli and Rich Paciaroni

Effective 1 September 2022, the American Arbitration Association (AAA) has updated its Commercial Arbitration Rules and Mediation Procedures, representing their first revisions since 1 July 2013. These amendments provide key updates and improvements to the commercial arbitration process, including with respect to the following:


In likely the most significant revision of the amendments, under revised Rule R-8, parties can now request to consolidate arbitrations or join additional parties. The decision to permit consolidation or joinder rests with the case arbitrator (if one has been appointed) or a special arbitrator appointed by the AAA for the sole purpose of deciding consolidation or joinder. In assessing a request to consolidate, the arbitrator will consider (a) the terms and compatibility of the agreements to arbitrate, (b) applicable law, (c) whether the arbitrations raise “common issues of law or fact,” and (d) whether consolidation of the arbitrations would serve the interests of “justice and efficiency.” While consolidation and joinder have been available under the AAA’s Construction Industry Arbitration Rules for years, this is the first time such a procedure will be available under the Commercial Rules.


The amendments to Rules R-34 and R-49 now give arbitrators the ability to limit dispositive motion practice and award fees and expenses in accordance with any dispositive motion decision. Therefore, parties should be weary of excessive motions practice and confer on issues outside of formal submissions when possible.


Under new Rule R-45, the AAA and arbitrators are obligated to keep all matters relating to the arbitration confidential, which includes any ultimate award.  In addition, arbitrators may now issue confidentiality orders relating to any matters in connection with the proceeding. 


Under revised Rule R-1, the amount-in-controversy to qualify for the “Procedures for Large, Complex Commercial Disputes” has increased from US$500,000 to US$1,000,000. The key features of these procedures include, among other items, a mandatory preliminary hearing with the arbitrator(s), broad authority of arbitrator(s) to control and limit the discovery process, and a mandatory requirement that hearings take place on consecutive days to maximize efficiency and minimize costs. Moreover, absent an agreement of the parties, in order for a large complex case to qualify for a panel of three arbitrators, the amount-in-controversy must now be at least US$3,000,000 (up from the previous US$1,000,000 threshold). Otherwise, one arbitrator will hear the case.


In order to qualify for the Expedited Procedures, revised Rule E-2 provides that the amount-in-controversy must not exceed US$100,000 (up from the previous US$75,000). Furthermore, the new amendments further restrict discovery in cases governed by the Expedited Procedures. Except for exchanging exhibits that each parties intends to rely on at the hearing, no further discovery is permitted unless expressly allowed by the arbitrator upon a finding of good cause.


The AAA’s expectations for professionalism of all participants in the arbitration have been codified at revised Rule R-2. In fact, the AAA may now decline further administration of the case if the parties’ and their representatives fail to uphold the AAA’s Standards of Conduct.


Likely as a result of the manner in which hearings took place during the COVID-19 pandemic, amended Rule R-25 now expressly allows arbitrators to conduct hearings remotely by electronic means.


Unless otherwise stipulated to by the parties, the recent amendments to the AAA’s Commercial Arbitration Rules and Mediation Procedures will not apply to any arbitrations initiated prior to the amendments’ effective date of 1 September 2022.


By: Kevin Greene and Ruth Chang

Advance JV (A Joint Venture between (1) Balfour Beatty Group Limited; and (2) MWH Treatment Limited); and Enisca Limited [2022] EWHC 1152 (TCC)

The parties in this case carried out works pursuant to an amended form of NEC3 Engineering and Construction Contract (Option A). The works consisted of the supply and installation of LV electrical equipment for design and construction of a new water treatment works and hydro-electric power generation facility in Cumbria.

The relevant timeline is as below.


  • Enisca Limited (“Enisca”) submitted an application for payment (AP24) on 22 October 2021 for approximately £2.7million;
  • Advance JV (“Advance”) failed to issue a pay less notice against that application;
  • On 19 November 2021, Enisca made a further application for payment (AP25);
  • On 25 November 2021, Advance issued a pay less notice, making reference to AP 25 only.

The pay less notice issued in November made reference to AP25 only and Enisca’s argument was that no notices were issued by Advance against AP24, and as such Enisca was entitled to the notified sum (i.e. £2.7million) listed in AP24.

Advance argued that the pay less notice was a valid response to both AP24 and AP25, and that the pay less notice issued in November time indicated that Advance did not intend to make any further payment in respect of either applications.

Enisca issued an adjudication for payment of the sum in AP24 and won the adjudication.

Before the adjudicator’s decision was issued, Advance however commenced part 8 proceedings in the Technology and Construction Court (“TCC”) seeking declaratory relief in respect of the validity of the pay less notice.


The TCC held that:

1. The crux of the matter is that – or the issue is that – “how a reasonable recipient would have understood the notices”, and in this case no reasonable recipient in Enisca’s shoes would have understood, or construed the pay less notice as a response to AP24;

2. The Court will always take a common sense approach, and adopt a practical viewpoint in respect of the contents of any notice issued (as required under the Construction Act) and an unduly restrictive interpretation is not to be welcomed;

3. The TCC also rejected Advance’s argument that there was nothing in the Construction Act precluding a pay less notice from responding to two different payment applications.  The TCC responded saying this is a “novel proposition for which no support can be found” either from the wording of the Construction Act, or from the drafting of the relevant contract as between the parties;

4. The TCC reiterated that any pay less notice must make specific reference to that individual payment cycle and rejected firmly the contention put forward by Advance that the Construction Act is only aiming to regulate the time limits in serving pay less notices – that the Act did not command pay less notice to make specific reference of the relevant payment cycle in question. The TCC made this point clear in the judgment: “….. it is plain from a review of the payment regime under the Act that payment notices are required to be referable to individual payment cycles”;

5. The Court also found that, perhaps, even if the pay less notice was, as Advance argued, intended to respond to AP24, such intention was neither clear nor unambiguous, as evidenced by the parties’ overall conduct.


This case makes it clear that a valid pay less notice must make clear reference to a particular payment notice and/ or payment application and must relate to a particular payment cycle. 

REGULATING HEAT NETWORKS:  Energy security bill to the rescue? 

By: Ben Holland and Ruth Chang

Issues with the current heat networks regime?

Heat network customers have reported price increases of up to 700% since late 2021.

Heat networks are not currently regulated, and most customers are not covered by the energy price cap (i.e. the Ofgem price-cap does not apply).

What are heat networks?

A heat network – sometimes called district heating – is a distribution system of insulated pipes that takes heat from a central source and delivers it to a number of domestic or non-domestic buildings. There are currently around 14,000 UK heat networks and half a million customers. Heat networks can cover a large area, or even an entire city, or can be fairly local supplying a small cluster of buildings. Most of the heat networks in the UK are concentrated in England (around 86%)

There are, generally, two types of heat networks: district heating and communal heating.

How does communal heating operate?

Communal heating is the supply of heat and hot water, from a source usually known as the energy centre, to a number of customers within one building only. The energy centre often consists of a single large boiler in the basement of a building with the heat and hot water distributed through the building via a series of pipes.  

About 85% of all heat networks are communal heat networks.

How does a district heating system operate?

District heating involves a local energy centre that supplies heat and hot water to customers in more than one building. District heating networks can range in size from a few hundred metres supplying just a few homes to several kilometres of pipe supplying heat and hot water to multiple buildings in a development.

What are the advantages of heat networks?

Generally the usage of heat networks will bring about these benefits:-

  • In urban areas it is cheaper to install than individual systems in each building
  • It is more resilient to fuel price shocks or individual generation assets failures
  • Easier to decarbonise
  • Delivery of cheaper heat to the end users

Who can be a heat network supplier?

The heat network supplier is the organisation that is contracted to provide heating and/or hot water to each property. They will provide the heat supply agreement (or customer charter) to each occupant on the heat network.

Various organisations can fulfil this role.  For instance:

  • A specific heat network company (ESCO);
  • Property developer;
  • Housing Association;
  • Local authority;
  • Management company; or
  • A company set up by the freeholder to operate the heat network

There are voluntary standards intended to provide consumers with some form of protection (most notably the Heat Trust scheme, which is a non-profit consumer champion for heat networks) and some standardisation around the minimum level of service customers can expect to receive from a heat network. 

Yet, looking at it on an overall terms, heat networks remain largely unregulated and dissatisfaction towards the transparency of information, or pricing aspects, or the collection of personal data, or billing and metering issues, remain some common complaints for all heat customers.

Is the government intervening (if at all)?

The recent Energy Security Bill (“the Bill”) is one of the government’s attempts in regulating heat networks.  The Bill was introduced to Parliament on 6 July 2022, aiming to deliver on the whole a cleaner more affordable and more secure energy system.

The Bill initiates important steps towards extending Ofgem’s regulatory oversight to cover heat networks. The Bill appoints Ofgem as heat networks regulator with a view to regulating heat networks, in similar ways to other utilities, with a general aim of delivering transparent information for consumers, fair and reasonable prices, minimum technical standards and  good quality services, alongside specific measures to comply with the government’s general objectives on decarbonisation. 

The Bill also provides the BEIS Secretary of State with powers to introduce various forms of price regulation, including a price cap. It also now seeks to enable heat network zoning to identify areas where there is provision for the lowest cost solution to heating buildings.

Whilst the contents of the Bill are yet to be finalised, it is expected that the relevant regulations may come into force, as soon as the earlier part of 2024 (or towards the end of 2023). However, this timeframe may prove far too late in helping the current crisis.

When is a Collateral Warranty a “Construction Contract”?

By Kevin Greene and Ruth Chang

Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP [2022] EWCA Civ 823

The Court of Appeal in this case considered when a collateral warranty will be regarded as a “construction contract” under the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”). 

The key take away points are as follows:

1.  In deciding whether a collateral warranty is deemed to be a “construction contract”, one has to look at the obligations being warranted.  If a collateral warranty seeks to guarantee obligations in relation to “past and static state of affairs” only, it is more akin to a product guarantee and will not be construed as a “construction contract”.

To provide guidance on this, the Court provided an example of such “product guarantee” wording:

“We completed these works two years ago and we warrant that they were completed in all respects in accordance with the Building Regulations…”  

2.  To qualify as a “construction contract”, the collateral warranty will have to warrant both past and future performances.

In this instance, the collateral warranty in the Abbey Healthcare case relates to both future-looking and retrospective obligations (i.e. wording of “has performed and will continue to perform” is included); hence the collateral warranty could be construed as a “construction contract”. 

In deciding this, the Court also commented that the lack of certain words (for example, “acknowledge” or “undertake”) in the relevant warranty, had little relevance in swaying the Court in finding whether the collateral warranty was a “construction contract”, or not.

3.  In regards to the “payment requirement” under the Construction Act, the Court made it clear that a collateral warranty is likely to satisfy the payment requirements under the Construction Act where the collateral warranty includes a nominal payment arrangement.

 A typical example of a nominal payment arrangement in a collateral warranty will be the inclusion of the wording ““in consideration of the payment of one pound, receipt of which is hereby acknowledged by [the party]…the deed is agreed as follows:”

4.  Assuming that the collateral warranty fulfils the above requirements, it is immaterial as to when it has been executed.   The collateral warranty can even post-date the completion of the works.

5.  The Court of Appeal also emphasised that the definition of “construction contract” under the Construction Act should be given the widest interpretation whenever possible and it is the intention of the legislature to extend access to the adjudication regime to all, whenever possible.  The adjudication regime is very effective in resolving construction disputes (in particular payment disputes) and the 28 days timeframe has proven to be beneficial to the parties on many occasions. 


The Court of Appeal has refused permission to appeal the judgment in Abbey Healthcare to the Supreme Court.

It seems, therefore, that a collateral warranty can be a “construction contract” for the purposes of the Construction Act. This will, however, always depend on the wording of the collateral warranty in question.

This case arguably opens up the possibility of adjudication claims in respect of collateral warranties. For beneficiaries of collateral warranties (such as tenants, funders, purchasers and developers) this represents positive news but the effect of the judgment in terms of those providing collateral warranties to such beneficiaries may be that third party rights are offered instead of collateral warranties (on the basis that adjudication may not be available under such third party rights).  

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