Please find below Clyde & Co's latest projects and construction law update from September 2017
But what does it mean? The court's approach to competing interpretations
Vinci Construction UK Ltd v Beumer Group UK Ltd  EWHC 2196 (TCC)
The courts have once again shown their reluctance to hold a contract void for uncertainty, finding that the sectional completion and delay damages provisions of the relevant subcontract were operable and enforceable – potentially leaving the subcontractor in the lurch in respect of its liability to pay liquidated damages and the quantum thereof.
Vinci Construction UK Ltd (Vinci) subcontracted Beumer Group UK Ltd (Beumer) to design, supply and install a baggage handling system at Gatwick Airport. The subcontract works were divided into various sections, each with different completion dates and different liquidated damages that applied. Delays occurred and a dispute arose about the operation of the sectional completion dates and the applicable liquidated damages. The dispute was referred to adjudication where the adjudicator found the provisions to be uncertain, inoperable and unenforceable. Vinci commenced proceedings seeking a declaration the provisions were valid.
The crux of the issue was whether or not it was unclear in what sections the various works fell and therefore what liquidated damages regime applied to what works. The contract in question was a heavily amended NEC3 Option A, containing numerous schedules, secondary option clauses and bespoke amendments. In deciding that the sectional works were sufficiently identifiable, the court considered the principles set out in Arnold v Britton  UKSC 36 to ascertain the intention of the parties by reference to what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to mean, using the language in the contract.
It was held that the parties must have had some understanding of the works falling within each section as they had expressly made provision for sectional completion and for different rates of liquidated damages to apply to different sections. While there was no definition of "baggage" or "remaining works" (being the descriptions given to the sections in dispute), based on an objective reading of the descriptions set out in the relevant schedule and the contract as a whole, the court was satisfied that the works could be separately identified.
The case serves as a reminder that the court will do its best to find an interpretation that gives effect to the parties' intentions. Only if it cannot do so, or if it is not safe to prefer one of a number of equally possible meanings, will the court consider holding a contractual provision void for uncertainty.
Read the full judgment here.
Guaranteeing your guarantees: Do they do what you thought they would?
AUTORIDAD DEL CANAL DE PANAMA v (1) SACYR SA (2) SALINI-IMPREGILO SPA (3) JAN DE NUL NV (4) CONSTRUCTORA URBANA SA (5) SOFIDRA SA  EWHC 2228 (Comm)
This case dealt with the interpretation of a number of advance payment guarantees, the question being whether or not they were on-demand guarantees that would entitle the claimant to recourse without proof of breach. It is a helpful reminder of the importance of clear and express words in guarantees, and what the court will consider if called to interpret them.
The claimant was the employer on a project to widen the Panama Canal. The contract documents were governed by Panamanian law and the dispute resolution procedures lead to arbitration in Miami. The defendants were a consortium of mainly European construction contractors. The contractor was a local company set up by the defendants for the purposes of the project. The defendants gave a number of advance payment guarantees (APGs) to the claimant to secure advance payments made by it to the contractor. The APGs were to be construed in accordance with English law and the English courts had exclusive jurisdiction to settle any dispute arising out of or in connection with them.
The factual matrix of the case is quite complicated. To put it simply, the contractor could not repay the advance payments by the required deadline and alternative arrangements could not be put in place. The claimant sought summary judgment of the amount due and argued that the APGs were first-demand bonds. That is, the claimant could have recourse to the guarantees without any evidence required as to breach.
The defendants sought a stay on the basis that an arbitration was in process to determine if the relevant amounts were due and payable under the main contract and pursuant to Panamanian law. Their argument was that their liability was coextensive with the liability of the contractor as principal debtor under the main contract and therefore the contractor's underlying liability was determinative.
The relevant clause of the APGs stated:
"Each of the Guarantors...
- a) as primary obligor and not as surety, unconditionally and irrevocably, jointly and severally guarantees to the Employer the payment by the Contractor of the Guaranteed Amount as and when due pursuant to the Contract; and
- b) if the Contractor is in breach of any of its obligations as set out in sub-paragraph (a), shall upon demand by the Employer from time to time, forthwith perform the obligations of which the Contractor is in breach in the same manner that the Contractor is required to perform such obligations according to the terms of the Contract." (emphasis added)
Construing the language of the APGs, the court held that it was not that of a first-demand liability. Use of the phrases 'upon demand' and 'forthwith' are not determinative of a first-demand liability. Rather, the fact the defendants had agreed to perform the contractor's obligations of which it 'is in breach', and that they had to do so 'according to the terms' of the main contract, 'expressly referred the guarantors' obligations to performance of the underlying contract by the principal debtor according to its terms'.
The court also disagreed with the claimant's argument that its express entitlement to determine 'conclusively' the 'interest rate and amounts' under the APGs, supported its contention that the defendants' liability was autonomous of the main contract. It held that, on a fair and full reading of the clause, it dealt with the rates and amount of interest only, not the determination of the Guaranteed Amount. Even if there was ambiguity in the clause, the authorities would require that ambiguity to be resolved in favour of the defendants. If the clause did extend to the Guaranteed Amount, it would extend to quantum only, not the defendant's liability to pay it.
This case serves as a reminder of the importance of ensuring clear and precise wording in guarantees and other forms of security as without this, the nature of the instrument may be construed differently to what you thought you were agreeing to. The courts will look to the substance of the instrument in question, and not necessarily regard the use of well-known phrases, such as "on demand", as being determinative of its status. Particularly, where a guarantee is given by a party that is not a bank or other financial institution, there is a presumption against construing the instrument as an on-demand bond.
Read the full judgment here.
Department for Communities & Local Government publishes an update and consolidated advice to building owners and follow-up guidance to local authorities
A Building Safety Programme has been established, with the aim of ensuring high rise residential buildings are safe, and residents feel safe in them.
For building owners, it will be extremely important to ensure that:
- any ACM cladding on their buildings meets the limited combustibility requirements of current Building Regulations guidance;
- should this cladding fail to meet the above combustibility requirements, a plan of remedial action is devised to ensure these requirements are met; and
- in the meantime, they are implementing any interim fire safety measures recommended by the Fire and Rescue Service (FRS).
For local authorities, the Secretary of State has reminded them to ensure that they:
- have records of the buildings in their area that may have ACM cladding by encouraging building owners to submit samples;
- make contact with the FRS in their area, who will share information with them;
- confirm that building owners have satisfactory plans for remedial action and have implemented interim fire safety measures if they own a building with improper ACM cladding; and
- if applicable, provide reasons why it has not been possible to confirm whether or not any building does or does not have ACM cladding.
Mayor of London launches draft housing strategy
On 6 September 2017, Sadiq Khan published a draft housing strategy intended to tackle the current housing crisis in London.
One of the key areas of focus is on building more high quality and affordable homes for Londoners. It proposes investing over £3.15 billion in affordance housing between now and 2021, as well as identifying land in London for new housing.
Importantly, given the construction industry's recognition of the importance of modernisation, fixing the skills' crisis and improving the industry's image, another key aspect of the strategy involves diversifying the home building industry by supporting smaller and medium-sized developers and upskilling London's construction industry.
Consultation closes on 30 November 2017. The housing strategy is expected to be published in 2018.
The NBS launches its Construction Contracts in Use and Legal Issues survey 2017
On 22 August 2017, the National Building Specification (NBS) launched its fourth major survey into construction contracts and related legal issues to investigate how well the industry is doing.
The NBS hopes the survey will shed new light on the impact of digitisation of the industry on the number and nature of disputes. They hope that it will reveal how the increased use of collaborative techniques and building information modelling (BIM) is affecting the industry.
Previous surveys have covered subjects such as the main causes of disputes, their duration and value, pricing and the impact of the adoption of BIM on contracts.
The survey closed on 24 September 2017 and the results of the survey are expected to be published in November 2017.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.