Category: Case Summaries

1
Western Sydney Aerotropolis: the call for private investment
2
California Supreme Court Provides Clarity to California’s Prompt Payment Exception
3
Insurance Policy Did Not Prevent Association Recovery from Subcontractors for Defective Work
4
Time Waits for No-One When a Garnishee Order can be Obtained to Enforce an Adjudicator’s Determination
5
California Construction Risk Management Update: In Khosh v. Staples Construction Co., Court Further Defines Rule that Contractor Not Responsible for Sub’s Worksite Injury
6
Flintco Pacific, Inc. v. TEC Mgmt. Consultants, Inc.: “Reasonable Reliance” on Subcontractor’s Bid
7
Interim Payments – No Automatic Entitlement to Interim Payments Beyond the Last Date in the Agreed Payment Schedule
8
Picerne Constr. Corp. v. Castellino Villas
9
New Jersey Supreme Court Gives Supreme Win to Policyholders
10
FIDIC Update: The Employer’s Claim to Liquidated Damages and Performance Security under the Yellow Book

Western Sydney Aerotropolis: the call for private investment

By: Clive Cachia                     

As the fastest growing region in Australia, the development of Western Sydney has been a national focus. Publicly, the Australian Government has committed up to AUD5.3 billion in public equity funding towards the construction of Sydney’s second international airport, the Western Sydney Airport. Touted as the Western Sydney Aerotropolis, the surrounding region of Western Sydney Airport will need significant private investment of at least AUD20 billion to develop an integrated transport, logistics, defence, advanced health, food agtech and education precinct surrounding the runway and terminal facilities.

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California Supreme Court Provides Clarity to California’s Prompt Payment Exception

By Timothy L. Pierce and Heather L. Frisch

The California Supreme Court issued an opinion on May 14, 2018 in United Riggers & Erectors, Inc. v. Coast Iron & Steel Co. that resolves a split in authority regarding whether Civil Code Section 8814 excuses prompt payment of retention by an owner or prime contractor if a good faith dispute of any kind exists between the parties or only when there is a dispute over the work for which the retention is due. The Court held that a contractor is only entitled to withhold retention when there is a dispute arising out of the work on which the retention is based.

In United Riggers, the prime contractor, Coast Iron & Steel Co. (Coast Iron), entered into a contract with the owner, Universal Studios, and in turn subcontracted a portion of the work to United Riggers & Erectors (United Riggers). United Riggers submitted its final bill that included additional costs for increased expenses due to Coast Iron’s alleged mismanagement and outstanding change order requests. Coast Iron accepted the work completed by United Riggers, but disputed the additional costs. Coast Iron then used this dispute as justification to withhold the entire final payment, including the retention payment for the accepted work.

United Riggers filed suit against Coast Iron for, among other things, its failure to make prompt payment of the retention monies it had received from Universal according to California Civil Code Section 8814. Notably, by the time the bench trial took place, Coast Iron had paid the outstanding retention to United Riggers. This action did not moot the statutory claim because violation of the prompt payment statute can result in a monetary penalty and payment of attorney’s fees under Civil Code Section 8818.

Coast Iron argued that the Court should adopt the broad view of the statute held in Martin Brothers Construction, Inc. v. Thompson Pacific Construction (2009) that held any bona fide dispute between the parties can justify the withholding of retention. In particular, Coast Iron pointed out the lack of any express limit on the nature of the dispute contained in the Section 8814 exception. On the other hand, United Riggers argued for the narrow interpretation of Section 8814 held in East West Bank v. Rio School District (2015) which restricts justification for withholding retention payments to disputes related to the security purpose of retention. East West Bank highlighted the underlying purpose of the prompt payment statutes was “to ensure timely payment of the retention as soon as its narrow justifications have been served.”

The Court considered the legislative history of Section 8814 and held that its narrow interpretation of the prompt payment statute aligns with the statute’s underlying purpose to ensure timely payment of undisputed amounts to contractors while still allowing the retention to fulfill its security purpose. Retention may be withheld when: (1) the subcontractor’s construction-related performance is the subject of a good faith dispute, (2) the liens or other demands from third parties expose the direct contractor to double payment, or (3) when payment would result in the subcontractor receiving more than the minimum amount both sides agree is due. Under United Riggers, withholding retention is not justified because of a dispute whether additional amounts beyond the retention might be owed such as pending requests for change orders.

Insurance Policy Did Not Prevent Association Recovery from Subcontractors for Defective Work

By Justin L. Weisberg, K&L Gates, Chicago              

On February 17, the First District Appellate Court issued an opinion regarding the Implied Warranty of Habitability in the case of Sienna Court Condominium Association v. Champion Aluminum Court et al.  The opinion involved three separate appeals: the first relating to claims by Sienna Court Condominium Association (“Sienna”) against an insolvent developer and an insolvent general contractor; the second involving the dismissal of Sienna’s claims against the architect, the engineers, and suppliers; and the third involving the dismissal of the general contractor’s claims against its subcontractors.

To read the full alert on K&L Gates HUB, click here.

Time Waits for No-One When a Garnishee Order can be Obtained to Enforce an Adjudicator’s Determination

By Sandra Steele and Andrew Hales, K&L Gates, Sydney

The Supreme Court is often called upon by an aggrieved party to restrain enforcement of an adjudicator’s determination whilst that party seeks to have the determination set aside.

In an ex tempore decision in Atlas Construction Group Pty Limited v Fitz Jersey Pty Limited [2017] NSWSC 72, his Honour Justice McDougall held that Fitz Jersey Pty Limited was not entitled to an interim injunction requiring AUD11 million received by Atlas Construction Group Pty Ltd pursuant to a garnishee order to be paid into court whilst Fitz Jersey pursued its application to set aside an adjudicator’s determination.

To read the full alert on K&L Gates HUB, click here.

California Construction Risk Management Update: In Khosh v. Staples Construction Co., Court Further Defines Rule that Contractor Not Responsible for Sub’s Worksite Injury

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

The Court’s decision in Khosh v. Staples Const. Co., Inc., Case No. 56-2014-00447304-CU-PO-VTA (Oct. 26, 2016) helps to further define the boundaries for whether a general contractor may be found responsible for worksite injuries suffered by an independent subcontractor’s employee.

In Khosh, the California Court of Appeal upheld the trial court’s decision that general contractor Staples Construction Company, Inc. (“Staples”) was not responsible for injuries sustained by an electrical subcontractor’s employee, who was severely electrocuted on the jobsite.

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Flintco Pacific, Inc. v. TEC Mgmt. Consultants, Inc.: “Reasonable Reliance” on Subcontractor’s Bid

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

In California, general contractors can “reasonably rely” on subcontractors’ bids when submitting their own bids to the owner.  In Flintco Pacific, Inc. v. TEC Mgmt. Consultants, Inc., Case No. B258353 (July 19, 2016), the California Court of Appeal addressed what constitutes “reasonable” reliance, holding that it was unreasonable for a general contractor to rely on a subcontractor bid based on price alone, while ignoring other, material conditions of the offer.

In Flintco, Flintco Pacific, Inc. (“Flintco”), a general contractor, received a bid from TEC Management Consultants (“TEC”) to perform subcontract work on a community college building project.  In addition to the bid price of $1,272,960, TEC’s bid included the following conditions: (1) a 35% up-front deposit; (2) the right to withdraw its bid if not accepted within 15 days; and (3) a minimum 3% price escalation, per quarter, after the 15-day acceptance period.  Flintco used TEC’s bid price in compiling its own bid and was awarded the contract in July 2011. Read More

Interim Payments – No Automatic Entitlement to Interim Payments Beyond the Last Date in the Agreed Payment Schedule

By Nita Mistry, K&L Gates, London

In Grove Developments Limited v Balfour Beatty Regional Construction Limited [2016] EWHC 168 (TCC), the contract (JCT Design and Build Contract, 2011 edition with bespoke amendments) contained an agreed schedule of 23 interim valuation and payment dates. The last date in the schedule coincided with the date of practical completion. The works completed after the contractual date for completion of the works. The contractor issued an interim application number 24. This interim application was outside of the agreed payment schedule. The contract did not contain a provision regarding payment beyond the 23 scheduled payments. The employer argued that the contractor was not entitled to issue further applications beyond interim application 23, and the judge, Mr Justice Stuart-Smith, agreed. The contractor was not entitled to further interim payments.

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Picerne Constr. Corp. v. Castellino Villas

By Hector H. Espinosa and Benjamin Kussman, K&L Gates, Los Angeles

Under California’s mechanic’s lien laws, a general contractor has 90 days from “completion” of its work to record a claim of mechanic’s lien. Ca. Civ. Code §8412.  Previously, it remained unsettled as to when this 90-day period began to run because some California courts held that the 90-day clock was triggered upon substantial completion of contractor’s work.  In Picerne Constr. Corp., the California Court of Appeal rejected this interpretation of Ca. Civ. Code §3115[1], ruling that completion (for purposes of the 90-day window) only occurs upon “actual completion” of the work of improvement as defined by statute.

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New Jersey Supreme Court Gives Supreme Win to Policyholders

By Frederic J. Giordano, Robert F. Pawlowski, Denise N. Yasinow, K&L Gates, Newark

On August 4, 2016, the Supreme Court of New Jersey unanimously affirmed the Appellate Division’s holding that consequential damages caused by a subcontractor’s faulty workmanship constitute “property damage” and an “occurrence” under the 1986 Insurance Services Office, Inc. (“ISO”) form commercial general liability (“CGL”) insurance policy.  This holding is welcome news to real estate developers, general contractors, and commercial policyholders who may seek coverage for damage caused by the faulty work of their subcontractors.

To read the full alert, click here.

FIDIC Update: The Employer’s Claim to Liquidated Damages and Performance Security under the Yellow Book

By Camilla de Moraes, K&L Gates, London

The English courts have recently considered a number of cases involving the FIDIC suite of contracts (see here, here, and here for our previous blog posts).  The most recent case of J Murphy & Sons Ltd v Beckton Energy Ltd [2016] EWHC 607 (TCC)arises out of a contract based on FIDIC Conditions of Contract for Plant and Design Build for Electrical and Mechanical Plant and for Building and Engineering Works designed by the Contractor First Edition 1999 (FIDIC Yellow Book) with amendments.

The court was required to consider the relationship between two clauses in the Contract, namely Sub-Clause 2.5 (Employer’s Claims) and Sub-Clause 8.7 (Delay Damages and Bonus) with reference also to Sub-Clause 3.5 (Determinations) and 4.2 (Performance Security).  The issue in dispute was whether determination by the Engineer of the contractor’s liability for liquidated damages was a pre-requisite to recovery of liquidated damages by the Employer.  The court held that the clause entitling the Employer to liquidated damages operated outside of the regime in Sub-Clause 2.5 and therefore the Engineer’s determination was not a pre-requisite to the Employer’s entitlement.  This case also confirms the traditionally held view that obtaining injunctive relief preventing a beneficiary from calling on a performance bond will rarely be possible.

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