On 28 September 2023, the Tennessee Supreme Court held that the economic loss doctrine (ELD) “only applies in products liability cases and should not be extended to other claims.” After years of confusion and guessing by the lower courts and federal district courts in the state, the Court in Commercial Painting Company, Inc. v. The Weitz Company, LLC, et al. (Weitz) declined to extend the ELD and clarified that it does not apply to contracts for services, including construction contracts.Read More
In Breakshore Ltd v Red Key Concepts  5 WLUK 677 (“Breakshore”), K&L Gates successfully acted for the Claimant in resisting a Part 8 claim challenging the decision of an adjudicator and thereby enforcing the decision by way of summary judgment. The decision of the TCC reaffirms that the use of Part 8 to resist enforcement of an Adjudicator’s decision will only be appropriate in a very limited set of circumstances and that it must not be used to obtain a tactical advantage.
The dispute in question arose out of an amended JCT D&B contract (“Contract”) entered into by the Claimant as the Employer, and the Defendant as the Contractor, for works in connection with a mix-used development in Kent.
Under the Contract, the Claimant was entitled to liquidated damages if the works were not completed by the completion date, originally 15 March 2021. As a result of Covid-19, the completion date was extended to 24 May 2021. The Defendant made further applications to the Claimant for extensions of time, but these were rejected. On 24 May 2021, the Claimant issued a non-completion notice to the Defendant.
In August 2021, the Defendant unilaterally suspended work and demobilised from site and completed no further work, despite instructions from the Claimant to proceed with the works. The Defendant’s position was that it was obliged to suspend works due to the Claimant’s breaches of planning conditions, including in relation to the height of the building included in the Contract works.
In December 2021, the Claimant commenced an adjudication to recover the liquidated damages. The issues for the Adjudicator to determine included:
i. Whether the Defendant had unlawfully suspended works and demobilised;
ii. Whether the Defendant was entitled to further extensions of time; and
iii. Whether the Claimant was entitled to liquidated damages, and/or had failed to obtain revised planning permission for an increase in height.
The Adjudicator found in favour of the Claimant and awarded liquidated damages plus interest totalling £285,523.41. The Adjudicator decided that the Defendant “was not obliged to cease work on the building it had already built higher than approved planning permission, without an instruction by Breakshore to cease works whilst a resolution to the planning permission was sought [….]”.
The Defendant failed to comply with the Adjudicator’s decision and the Claimant initiated enforcement proceedings in the TCC (the case was subsequently transferred to the Central London County Court’s TCC list). In reply, the Defendant made a Part 8 application to the Court challenging the enforcement of the adjudication decision and seeking 14 declarations.
The Claimant’s summary judgment application and the Defendant’s Part 8 claim were heard together (despite the Claimant not agreeing to this). The Court noted that where there is no consent to the determination on a Part 8 claim of substantive issues, it is only in very limited circumstances that it will be right to determine substantive issues at an adjudication enforcement hearing.
The case was heard by HHJ Johns QC (as he was then). He referred to the principles that were set out in Hutton Construction Ltd v Wilson Properties (London) Ltd  EWHC 517 (TCC) (“Hutton”), relatingto Part 8 challenges to adjudication enforcement.
In Hutton, Coulson J stated “many defendants consider that the adjudicator got it wrong. As I said in Caledonian Modular, in 99 cases out of 100, that will be irrelevant to any enforcement application. If the decision was with the adjudicator’s jurisdiction, and the adjudicator broadly acted in accordance with the rules of natural justice, such defendants must pay now and argue later.”
The Court confirmed that, in most cases, a Part 8 challenge is most appropriate for situations where the adjudicator either:
i. Did not possess the appropriate jurisdiction; or
ii. Breached the rules of natural justice.
The Court also confirmed the following legal principles for determination of Part 8 claims on substantive issues:
i. The issue must be short and self-contained, and have arisen in the adjudication which the Defendant continues to contest;
ii. That issue must require no oral evidence or any other elaboration beyond that which is capable of being provided during an interlocutory hearing to set aside enforcement; and
iii. The issue must be one which, on a summary judgment application, would be unconscionable for the court to ignore.
In Breakshore, the Defendant did not make a Part 8 application on the above grounds. Instead, it it argued that the decision was obviously wrong and should be set aside.
HHJ Johns QC highlighted this fact, and determined that the Court were not able to make the declarations sought by the Defendant. The declarations sought by the Defendant were all interwoven and contained issues of fact and evaluation, and could not be dealt with at the enforcement proceedings. There was no clear-cut issue from which it could be seen that the adjudicator was obviously wrong to decide that liquidated damages were due for the relevant period. The exceptions in Hutton therefore did not apply, Part 8 was not appropriate at all and could not be used to defeat the summary judgment application.The Defendant had taken the wrong course of action in bringing the Part 8 claim for tactical advantage. If the claim had been brought under Part 7 as it should have been, it would have needed to wait for a defence, and then applied, giving 14 days’ notice of any points on which summary judgment was sought. Instead, it brought a Part 8 claim and announced the day before the hearing the points it wanted disposed of summarily. HHJ Johns QC highlighted that this was a particularly bad example of a Defendant using a Part 8 claim for tactical advantage. Accordingly the Court rejected the Defendant’s Part 8 claim and awarded the Claimant its costs on an indemnity basis.
This case is a useful reminder that adjudication decisions are robustly enforced. It also raises an important point of conduct. When using Part 8 to resist enforcement, parties must make sure their claim falls within Hutton’s narrow exceptions and must not be used with the aim of obtaining a tactical advantage.
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A series of provisions under the Executive Bylaws of the Law on the Organization of Tenders and Auctions No.16 (2019) have been amended by the Council of Ministers Resolution No.11 of 2022 (the 2022 Resolution). According to the Ministry of Finance officials, the changes made aim to strengthen and support the economic activities that fall outside the scope of the oil industry as there is a growing trend towards enhancing the role of the private sector in implementing a variety of development projects. The key points under these amendments pertain to the enhancement of procurement processes; the incorporation of in-country value (ICV); and support dedicated to micro and small-medium enterprises (SMEs). This short article shall address these main changes in turn, with specific reference to the relevant articles under the 2022 Resolution.
ENHANCEMENT OF PROCUREMENT PROCESSES
The amendments enhance the procurement process through the development and acceleration of procurement in government organizations, namely by providing specific time periods to organize transactions. For example, Article 29 of the 2022 Resolution stipulates that a bidder has 15 working days to submit a bid from the date of announcement, however, after the bid has been received, the Committee of Tenders and Auctions (the Committee) shall have 60 working days to decide on the tender and inform both the bidder and the competent department. Additionally, Article 22 specifies a period of 20 days from the date of submitting the final performance guarantee where the contract shall be signed, and under Article 70, the contract needs to be put into motion 90 working days from the date of signing. The aim of adopting these time restrictions is to aid in speeding up the process as well as increase the efficiency of tenders. The benefit from this is the minimized risk of a company incurring losses due to unspecified timings of the procedure.
Another key inclusion under the 2022 Resolution is the added definition of ICV under Article 2 which is defined as:
The “total amount spent by the contractor, supplier or service provider within the State for the development of works, services or national human resources to stimulate productivity in the local economy. This shall be determined through a certificate of the previously executed contracts, or the plan provided by the bidder within its tender indicating the target amount of the local value of the contracting value.”
The rationale behind this amendment is to implement ICV procedures in the procurement process to aid in the country’s sustainable economic growth. Additionally, contained under Article 3 are provisions which encourage corporations to support the local economy by getting government clients to consider the ICV ratios of the bidders and then awarding the government contracts to successful bidders.
Under Article 4 of the 2022 Resolution provisions regarding the support of SMEs have been included which state that SMEs shall be exempted from paying for tender documents valued at less than QR1 million and from providing temporary and final performance guarantee. Additionally, the government authority may limit the participation of micro and small enterprises with regards to tenders valued at less than QR5 million and the SMEs shall only be required to pay half the value of the required classification fee. The goal behind these provisions is to provide opportunities that allow national micro and SME firms to grow, as well as increase the amount of tenders available to them and facilitate their cooperation within the public sector.
Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP  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).
A Q&A guide to construction and projects in Qatar.
The Q&A is part of the global guide to construction and projects. Areas covered include trends and significant deals, the main parties, procurement arrangements, transaction structures and corporate vehicles, financing projects, security and contractual protections required by funders, standard forms of contract, risk allocation, exclusion of liability, caps and force majeure. Also covered are material delays and variations, appointing and paying contractors, subcontractors, licences and consents, project insurance, labour laws, health and safety, environmental issues, corrupt business practices and bribery, bankruptcy and insolvency, public private partnerships (PPPs), dispute resolution, tax, the main construction organisations, and proposals for reform.
By: Jim Alexander
Compelling evidence of the “hardening” of the professional indemnity insurance (PII) market post-Grenfell has been provided by a recent survey conducted by the Construction Leadership Council (CLC).
Significant cost increases and the introduction of new restrictions on PII are preventing companies from taking on projects and could delay essential work on building safety.
The CLC survey was carried out from mid-February to mid-March and covered 1066 responses from a mixture of consultants, contractors, and specialists. Respondents ranged in size, with half of the respondents being companies with an annual turnover of less than £2m and 10% of respondents having an annual turnover of over £50m.
Key findings of the survey include:
- Over 60% of total survey respondents have some form of restriction on cover relating to cladding or fire safety.
- One in three of the survey respondents have a total exclusion in place for cladding claims.
- One in five respondents have a total exclusion in place for fire claims.
- Over a quarter of the total survey respondents have lost jobs as a result of inadequate PII.
- One in three respondents couldn’t do remedial work if they wanted to because of exclusions to their cover.
- Almost a quarter of the total survey respondents have changed the nature of their work due to inadequate PII.
- A majority of respondents buy £10m or less cover with very few buying over £20m.
- Almost half of the respondents had been declined insurance by three insurers or more.
- Two-thirds of respondents are carrying a claim excess imposed upon them by their insurers.
- Premiums have increased nearly 4-fold at the last renewal, having doubled the year before; the average rate is 4% of turnover, but one in five who gave figures is paying more than 5% of their PI insurance turnover.
The results pointed to widespread incidence of companies having to change the type of work they do because of restrictions on cover, with a quarter losing jobs because of tough conditions and limitations placed on them by insurance firms. Even though two-thirds of respondents said that less than 5% of what they do is high-rise residential, almost one in three were unable to buy the cover they wanted or needed.
Although not covered directly by the survey, it is also apparent that many insured parties are facing difficulties in securing renewal of “any one claim” cover with “aggregate” cover being offered instead.
An “any one claim” policy provides cover up to the full limit for each individual claim made in the period of insurance, whereas an “aggregate” policy provides cover up to the full limit for all claims made in the period of insurance.
“The survey results confirm that there is a widespread problem for many firms in being unable to obtain essential PI cover, which is having an impact on the ability of the industry to work, and undermining efforts to deliver remedial work to ensure building safety.”Andy Mitchell CBE, co-chair of the CLC
Samantha Peat, managing director, Wren Managers, and chair of the CLC PI Insurance Group, said that she was extremely worried by the extent of the PII problems and would be actively working with the Government and industry to identify solutions.
“The cost increases, exclusions, and claim excesses that companies are having to bear – even those that do not even work in high-rise residential – could make it unsustainable for them to stay in business.
“The survey results suggest firms will not be able to afford premiums and claim excesses, and they face the choice of refusing some work, or undertaking projects for clients with inadequate insurance cover.”Samantha Peat
Increased PII premium costs will need to be met by contractors and consultants, but these are likely to be passed on to employers.
Typically, building contracts and consultant appointments contain a clause obliging the contractor and consultant to maintain PII cover at a defined level for a set period (usually 12 years for documents executed as a deed) provided that such cover is available on “commercially reasonable rates and terms.” If the contractually required level of cover is no longer available to the contractor or consultant, then breach of this obligation would (depending on the precise terms of the provision) potentially result. As PII is a “claims made” insurance, the key factor is the scope of insurance available when the claim is made, rather than when the contract is entered into, or the default occurs. This scenario could mean that any claim might not be backed by adequate insurance at the time that the claim is made, leaving a shortfall for the employer to be claimed against the assets of the contractor or consultant.
If the contractually required cover is still available in the market, but at a vastly increased premium cost and with exclusions to cover, then disputes may arise on the interpretation of “commercially reasonable rates and terms.” Often, building contracts and consultant appointments will contain provisions that oblige the contractor or consultant to notify the employer of such circumstances and to enter into dialogue to achieve a mutually agreeable solution.
Employers may wish to review the PII obligations of contractors and consultants on their projects and check that they are complying with the required obligations. Most PII clauses in building contracts and appointments allow employers to request such evidence, usually in the form of a current broker’s certificate.
By: Nita Mistry
CIS General Insurance Ltd v. IBM United Kingdom Ltd
The Technology and Construction Court has recently handed down authoritative guidance on wasted costs and the characterization of damages arising out of termination of a contract. The court was asked to determine whether the claimant was entitled to recover £128 million in damages for wasted costs arising from the alleged wrongful termination of a contract.
Mrs. Justice O’Farrell ruled that IBM (the defendant in the case) was not entitled to exercise any right of termination because CISGIL (the claimant in the case) disputed a particular invoice within the time prescribed in the contract, and nonpayment of the invoice in those circumstances did not entitle IBM to terminate. Accordingly, IBM’s purported termination amounted to a repudiatory breach, which CISGIL was entitled to accept. Nonetheless, the court decided that IBM was ultimately entitled to payment of the invoice, set off against the damages awarded to CISGIL.
This case is another stark reminder of the inherent risks involved with terminating a contract and why termination should always be regarded as a measure of last resort. It is advisable to take legal advice when considering termination.
CISGIL (a wholly-owned subsidiary of the Co-operative Group Limited), a company involved in the underwriting and distribution of general insurance products, engaged IBM to supply a new information technology (IT) system and manage the system for a term of 10 years. The services agreement between the parties provided for payment against certain milestones.
In early 2017, an issue arose as to whether or not the requirements of a particular milestone had been met. IBM submitted an invoice in the sum of c. £2.8 million on the basis that it considered the applicable milestone events and requirements to have been met.
CISGIL’s position was that the milestone had not been met (nor payment authorized), and it refused to accept or pay IBM’s invoice for the milestone payment. Following setoff notices (by CISGIL) and final payment notices (by IBM), IBM purported to exercise a contractual right of termination based on CISGIL’s failure to pay the invoice. CISGIL disputed IBM’s right to terminate and treated the purported termination as a repudiatory breach, which it accepted.
CISGIL brought a claim before the High Court seeking damages of £128 million, which it characterized as expenditure incurred in relation to the alleged wrongful termination by IBM, along with a number of alternative claims regarding breach of contractual warranty and delay claims. The characterization of CISGIL’s claim was significant, as the limitation of liability provision in the services agreement excluded claims for loss of profit, revenue, or savings.
IBM counterclaimed in the sum of c. £2.8 million for the unpaid invoice.
A key issue considered by the court was whether IBM exercised a valid right of termination by reason of CISGIL’s failure to pay the invoice or whether its purported termination amounted to a repudiatory breach, which repudiation CISGIL was entitled to, and did, accept.
CISGIL’s position was not simply that the milestone had not been achieved. It also argued that it had not approved achievement of the milestone, which it said was a prerequisite to payment. CISGIL also argued that the invoice was not payable because (i) IBM failed to meet prior milestones, and (ii) the invoice was not correctly prepared or properly submitted. CISGIL also argued that (i) it was entitled to setoff against the invoice, (ii) IBM lost any right of termination by its delay, and (iii) IBM was in willful default as defined in the services agreement.
IBM’s position was that the milestone was not dependent on the achievement of any other milestones and that the invoice was correctly prepared and properly submitted. IBM argued that CISGIL did not dispute the invoice within the time frame prescribed by the services agreement and had failed to assert any rights of setoff against the invoice until the time for doing so had expired. IBM rejected CISGIL’s allegations of delay and willful default, arguing that notice of termination was served by IBM within a reasonable time of CISGIL’s purported default. Consequently, IBM maintained that it was entitled to payment of the invoice in the sum of £2,889,600.
The court concluded that:
- CISGIL was obliged to approve the achievement of the milestone and was in breach of this obligation. CISGIL was not entitled to benefit from its own default in seeking to avoid payment by asserting the invalidity of the invoice based on the absence of approval.
- CISGIL’s complaints that the invoice was defective and/or not properly submitted had no merit.
- CISGIL did, however, validly dispute the invoice in accordance with the contractual mechanisms, entitling it to withhold payment against the invoice.
- The provisions of the services agreement, read together, were clear and unambiguous: they introduced a “pay now, argue later” principle, but they did not exclude any right of setoff; CISGIL would retain its right of setoff against future payments due and would retain its right to counterclaim for damages. However, there was a provision that restricted the exercise of such setoff rights against invoices to those in respect of which a valid notice of dispute had been given within seven days.
- IBM was not entitled to exercise any right of termination under the services agreement because CISGIL disputed the invoice within seven days of its receipt. In those circumstances, the purported termination amounted to a repudiatory breach, which CISGIL was entitled to accept. There was, however, no willful default.
- The court considered “A high-risk strategy was adopted on both sides; the AG5 milestone payment, a modest sum in relation to the high value of the overall project, was the vehicle used to bring the project to an end.”
Regarding the quantum of the claim, CISGIL’s position was that its claim for wasted expenditure was not a claim for loss of profit (which would be excluded by the limitation of liability provision in the services agreement). CISGIL argued that compensation for wasted expenditure puts it into “a break-even position” and that its benefits from IBM’s performance would have been worth at least as much to CISGIL as the amounts expended in reliance on the contract.
Applying principles from relevant authorities, Mrs. Justice O’Farrell said, “The starting point is to identify the contractual benefit lost as a result of IBM’s repudiatory breach of contract.” The contractual benefit CISGIL anticipated was “substantial savings, increased revenues and increased profits” from the new IT solution, which IBM promised to supply. The loss of bargain suffered by CISGIL comprised the savings, revenues, and profits that would have been achieved had the IT solution been successfully implemented. Mrs. Justice O’Farrell said, “CISGIL is entitled to frame its claim as one for wasted expenditure, but that simply represents a different method of quantifying the loss of the bargain; it does not change the characteristics of the losses for which compensation is sought” and concluded that CISGIL’s claim was excluded “whether it is quantified as the value of the lost profit, revenue and savings, or as wasted expenditure.”
As a result of the court’s findings, CISGIL was awarded damages of £15.9m in respect of additional costs incurred arising out of IBM’s wrongful termination instead of the £128 million in damages that CISGIL’s had claimed for wasted costs. The court also concluded that IBM was entitled to payment of the unpaid invoice in the sum of £2,889,600 and that IBM was entitled to setoff this sum against CISGIL’s claims.
In a recently published case dealing with issues of first impression, the California Court of Appeal Second Appellate District in Los Angeles held that the disgorgement penalty under Business and Profession Code § 7031(b) must be made within one year of completion or cessation of the performance of the project, and that time is not extended by the discovery rule. Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, Inc., 2020 WL 5035826 (Cal. Ct. App., Aug. 26, 2020). BPC § 7031(b) permits a party who uses the services of an unlicensed contractor to recover any and all money paid to the contractor for its work—regardless of the quality of the work (indeed, even if the construction was flawless). The purpose of this harsh forfeiture provision is to deter unlicensed contractors from performing construction.Read More
On 13 May 2020, New Jersey and New York announced that construction in both states would resume, but projects that are reopening must adhere to detailed and specific guidance. This alert addresses the new requirements for construction operations in New Jersey and New York.
CLICK HERE to read more.
Author: Kiran Giblin
Further to our recent blog alerts “COVID-19: UK Public Sector Construction – Cash Flow Relief for Suppliers” and “COVID-19: UK Public Sector Construction – Cabinet Office publishes FAQs regarding PPN02/20”, the Cabinet Office has published construction sector-specific Guidance Notes to assist contracting authorities implementing PPN02/20 into existing works contracts.Read More