kgates | Construction Law

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

Nov 23 2015

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.”

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

Nov 11 2015

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

Oct 29 2015

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 Update – Inga 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

Oct 22 2015

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.

Illinois Now Allows Bonding Off of Mechanics Liens on Private Projects

Oct 15 2015

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.

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

Oct 08 2015

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.

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

Oct 01 2015

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.”

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

Sep 24 2015

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.

Unreasonable disadvantage to contractor: Securing warranty claims by standard terms and condi-tions restricted by German Federal Supreme Court

Sep 03 2015

By Christoph Mank, K&L Gates, Berlin

Background
Standard terms and conditions in German construction contracts often contain requirements to provide a warranty bond to secure performance by the contractor of its warranty obligations under the contract. These requirements often stipulate the contractor to provide both a performance guarantee and a warranty bond.

The warranty bond secures the contractor’s warranty obligations during the warranty period (typically arising after the acceptance and take-over of the construction works) and is often in an amount of not more than 5% of the contract sum. This practice has been established due to prior case law by the German Federal Supreme Court. According to the Federal Supreme Court, the client´s security interest after acceptance of the construction is significantly lower than its security interest during performance.

Good Faith in the Middle East

Aug 27 2015

By Darran J. Jenkins, K&L Gates, Doha

The concept of good faith as applicable in the Civil law jurisdictions of Qatar and the United Arab Emirates (“UAE”) is one that may be unfamiliar to lawyers from a common law background where good faith is applies in a very limited fashion, if at all. [1]

The Position in the Middle East

The position in Qatar is set out in Article 172 of the Qatar Civil Code[2]:

“1. The contract must be performed in accordance with its contents and in a manner which consistent with the requirements of good faith.

2. The contract is not confined to obliging a contracting party to its contents, but also includes its requirements in accordance with the law, custom and equity as per the nature of the obligation.”

The corresponding article in the UAE Civil Code[3] is Article 246 which states:

“(1) The contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith.

(2) The contract shall not be restricted to an obligation upon the contracting party to do that which is (expressly) contained in it, but shall also embrace that which is appurtenant to it by virtue of the law, custom, and the nature of the transaction.”

In Bahrain, Article 127 of the Civil Code[4] requires:

“A contract is not only limited to its expressed conditions, but also as regards everything which according to law, usage and equity is deemed in view of the nature of the obligation, to be a necessary sequel to the contract, taking into consideration custom and usage, requirements of equity, nature of business, good faith and honesty.”

And Article 129 provides:

“A contract must be performed in accordance with its contents and in compliance with the requirements of good faith and honesty.”

Each of these Civil Codes takes an almost identical approach to the treatment of good faith. As a result, a contract will not be interpreted using solely its terms but will be interpreted against the requirements of customs, equity and good faith.

The requirement to act in good faith is a strong, positive obligation on the parties to a contract. It is not merely a requirement not to act in bad faith and not to deceive one another. Each party is instead under a legal obligation to exercise good faith in the performance of its contractual obligations and it is dealings with the other party. In a construction context, the duty of good faith would require an employer to cooperate with the contractor and deal with change requests in a timely and fair manner, whilst a contractor would be obliged to avoid delaying the performance of their works.

It is interesting to note that the obligation within the Qatar Civil Code is to perform the contract in good faith but it does not extend to negotiating the contract in good faith. The parties are free to adopt an adversarial approach to negotiation of the contract to try to obtain the best possible deal for themselves. Only once the contract has been signed does the duty to act in good faith arise.

In relation to insurance contracts, the duty to perform in good faith under the Civil Code does not in any way limit the duty of the insured to act with utmost good faith when placing the policy. This is because the Civil Code also recognizes and enforces a higher standard of care where the parties have agreed it should apply.

[1] Please note, all English extracts in this Article are taken from an unofficial English translation of the Qatar and UAE Civil Code, reference should always be made to the original Arabic text.

[2] Law Number 22 of 2004

[3] Law Number 5 of 1985

[4] Law Number 19 of 2001

Author: kgates