Happy New Year to you all and welcome to the first construction and engineering newsletter of 2014.
Throughout 2013 we saw the construction industry continue to grow with modest but encouraging development in most areas. The Office of National Statistics estimated for the months of September, November and December, that output increased by 5.1% in comparison to the same months in 2012. Overall, there has been a 2% rise in output in the past 12 months, despite a sharp decrease towards the end of the year.
The Jackson Reforms
The major impact on commercial litigation in England and Wales this year came from the Jackson Reforms, which came into force on 1 April 2013. The main changes are as follows:
- The Court will be less willing to grant relief for breaches of Court or Orders;
- Succession Fees for Conditional Fee Agreement (CFAs) and After the Event (ATE) premiums are no longer recoverable;
- Damages Based Agreements (DBAs) have been introduced as an alternative means of funding litigation;
- Multi-Track Costs can only be recovered in line with Costs Budgets approved by the Courts at an early stage of the litigation;
- Costs must be proportionate to the value and complexity of the dispute;
- A 10% uplift on damages payable by Defendants who fail to beat a Claimant's Part 36 Offer;
- Concurrent expert evidence (or "hot-tubbing") may be adopted at the Court's direction; and
- Alternative Dispute Resolution (ADR) will be encouraged by the Court, and parties who fail to engage in the process may be hit by costs sanctions.
The Court's decision in several cases has indicated the level of impact the Reforms are likely to have on litigation, for example:
- It will normally be extremely difficult to persuade the Court to amend a Costs Budget save in exceptional circumstances: Murray and another v Neil Dowlman Architecture Ltd
- The Court has adopted a strict approach to compliance with Court rules and refused an extension of time for service of Particulars of Claim: Venulum Property Investments Ltd v Space Architecture Ltd and others
- Claimant's recoverable costs will be limited to Court fees if they fail to file their Costs Budget on time meaning that Claimant's will not be able to recover any solicitors' costs even if the claim is successful: Mitchell v News Group Newspapers Ltd
- The Court can refuse to award part of a successful claimant's costs if it fails to respond to a suggestion of Alternative Dispute Resolution (ADR). The Court agreed that "silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable": PGF II SA v OMFS Company 1 Ltd
Other decisions
Several decisions were made by the Court which ironed out some confusion in respect of duties of good faith, material breach of contract, delay, disruption and damages for negligence:
- Damages for negligence: where an engineer negligently delayed the provision of services for 15 months, losses arising out of a fall of property values were not too remote to recover. The standard approach remains to apply the "reasonable forseeability" test. There was no evidence of any general understanding that the engineer would not have assumed responsibility for losses arising from a 14% fall in the property market. Parties wishing to ensure that they are not held liable for particular types of loss should therefore ensure that they expressly exclude them when entering into contracts: John Grimes Partnership v Gubbins.
- Duty of good faith in commercial contracts: there was no implied term preventing a party exercising a contractual discretion in an arbitrary, capricious or irrational manner where the discretion constituted of a decision whether or not to exercise an absolute contractual right (in this case, an absolute contractual right to service credits and failure points). For such a term to be implied, a contractual discretion had to consist of an assessment or a choice as to a range of options in which the interests of both parties were relevant. A contractual duty to co-operate in good faith was limited to certain defined purposes set out in the contract and could not be expanded to relate to the conduct to the parties more generally: Mid Essex Hospital NHS Trust v Compass Group UK and Ireland Ltd
- Delay, disruption and global claims: it is not necessarily wrong to make a global claim for loss and expense through the Court clarified what a contractor must prove, on the balance of probabilities, to succeed. The Court also provided practical guidelines on how a tribunal and an architect, contract administrator or quantity surveyor should approach the information and evidence required to grant an extension of time and ascertain loss and expense due to a contractor under a JCT building contract: Walter Lily & Company v MacKay
- Collateral warranties and the Construction Act: Mr Justice Akenhead held that "unless a collateral warranty is entirely retrospective, then it is most likely caught in the Construction Act." In order to identify whether a warranty is a "construction contract" for the carrying out of construction operations, it is necessary to consider both the wording of the warranty and the relevant factual background. The judgment means that if the collateral warranty is caught by the Act, "the parties will be free to resolve their disputes either by adjudication or by the procedure specified by the warranty itself": Parkwood Leisure v Laing O'Rourke Wales and West Limited
Legislation
Also last year several legislative changes came about which will have some impact on the industry. In particular:
- The Late Payment of Commercial Debts Regulations (LPDCR) 2013 entitles suppliers to claim their "reasonable costs" of pursuing debts. It has been suggested that this could include the costs of adjudicating although this is yet to be tested by the Court. One interception is such costs would not be deemed to be "reasonable" as there is no statutory right to recover them under the Construction Act; and
- The Construction Products Regulations 2013 cover the marketing of construction products, as provided for by EU regulations 305/2011. Under the new regime, most construction products are now required to bear CE marking and to be provided with a Declaration of Performance ("DoP"). Suppliers of construction products are now responsible for applying CE marking and providing DoP.
A look forward into 2014
The three forecasts from the Construction Products Association, Experian and Leading Edge predict growth of over 2% in 2014 and suggest that the end of the recessionary period is with us.
Many of the bigger downside risks, such as a eurozone meltdown, have eased. However, the economy is being bolstered by quantitative easing and Help to Buy. Housing is driving the sector but there also appears to be growing commercial potential. The industry has reason to be cautiously optimistic about 2014.
In terms of changes to the law, simplified public procurement rules are expected to reduce the scope for challenges and help SMEs tender for contracts. Large contracts may be broken down into smaller lots as part of these rules. There will also be changes to Government sustainability proposals and initiatives for greater energy efficiency in buildings.
