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Construction & Engineering London Legal Update CONSTRUCTION & ENGINEERING GROUP October 2013
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Page 1: Construction & Engineering London Legal Update · Construction & Engineering London Legal Update CONSTRUCTION & ENGINEERING GROUP. mayer brown 1 In this issue Welcome to issue 65.

Construction & Engineering London Legal Update

CONSTRUCTION & ENGINEERING GROUPOctober 2013

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Contents

Page

1. In this issue 1

2. Focus on the Middle East:

Bahrain; 2

Iraq; 4

Qatar; 6

Saudi Arabia. 8

3. Extras. 10

4. Myanmar (or Burma) – the opportunity and the uncertainty 17

5. Repudiation – what, how - and dangerous. 19

6. Mozambique – Africa’s new challenger. 21

7. What’s been happening @ Mayer Brown? 23

8. The contract, the whole contract and nothing but.....? 24

9. Case notes. 26

Issue 65October 2013

Construction & Engineering London Legal UpdateCONSTRUCTION & ENGINEERING GROUP

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mayer brown 1

In this issue

Welcome to issue 65.

Brics are not as popular as they were, The rising stars of the global economy, Brazil,

Russia, India and China, are not shining as brightly on the economic front as they

were and in this issue we take a look at the implications of doing business elsewhere.

Raid Abu-Manneh is our guide to Bahrain, Iraq and Qatar and, with Wisam Sirham,

to Saudi Arabia, Kwadwo Sarkodie and Doye Balogun take us to Mozambique and

Kevin Owen and Ben Thompson explore the waking economy of Myanmar, or

Burma.

On the home front, Amber Chew and Richard Craven fish beneath the contract

surface for implied terms, Wisam Sirhan and Richard Craven examine the mechanics

of repudiation and there are the usual contract, regulation and case law updates.

We hope you enjoy the contents.

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2 Construction & Engineering London Legal Update

Focus on the Middle East

BAHRAIN

‘Land of the two seas’ – and construction opportunitiesBahrain, ancient site of the immortal land of Dilmun, a pure and sacred place, the

‘Pearl of the Arabian Gulf ‘. On a more mundane level, it’s also a place with

opportunities for UK construction.

The opportunities?Bahrain may occupy just 277 square miles, with a population around 1.2 million but

it is the UK’s fastest growing market in the Gulf, with exports up by about 25% in

2012. Linked by the King Fahd Causeway to the key Eastern Province and GDP

powerhouse of Saudi Arabia, it remains, despite keen competition from Dubai, a

major financial and logistical centre and is the Gulf leader in Islamic finance. A

skilled workforce, zero taxation for private companies, few indirect taxes for private

enterprises and individuals, free movement of capital and the first GCC nation to

permit 100% foreign ownership of business assets and real estate in most sectors of

the economy combine to make a strong business case.

Infrastructure projects feature in its plans, road schemes, a rail link to Saudi Arabia

and an upgrade for Bahrain International Airport plus a government housing

strategy to build over 50,000 houses by 2017, not to mention 1.5 billion Bahraini

dinar (say £2.5 billion) to be spent on sanitary projects between now and 2030. And

Bahrain likes British companies, with nearly 100 already doing business there.

It ranks 42nd out of 185 countries in the 2013 World Bank ease of doing business tables

and jumps to a dizzy 7th place in the tables for construction permits. Its Civil Code is

based on the Egyptian Code, in line with other Gulf states, so the legal framework for

construction contracts will look familiar to contractors who work in the region, but not

identical. For instance, the expected decennial (literally ten year) liability is just five

years in Bahrain (Article 615) so local legal advice is, as usual, a must.

Enforcing contracts through the Bahraini courts is inevitably a great deal slower than

obtaining a construction permit (with a World Bank ranking of 113 out of 185) but

Bahrain has a positive and modern approach to arbitration. International

commercial high value (more then 500,000 Bahraini dinar, say £850,000) claims

and those involving a party licensed by the Central Bank of Bahrain that would

otherwise go to the Bahrain courts are, by law, referred to ‘statutory arbitration’ in

the Bahrain Centre for Dispute Resolution. The BCDR was established in 2009 in

partnership with the American Arbitration Association, whose Rules have been

adopted, with little change, by the BCDR, and the BCDR is said to be the world’s first

‘Free Arbitration Zone’, which means that a Bahraini arbitration award cannot be

challenged in Bahrain, so long as it is not being enforced in Bahrain and the parties

have agreed in writing that Bahraini law does not apply and that any challenge will

be before a competent tribunal in another state.

International arbitrations can also choose to use the BCDR, in the knowledge that

Bahrain has signed up to the New York Convention and that its arbitration law is

based on the UNCITRAL Model Law. Since 1995 the kingdom has also hosted the

Gulf Co-operation Council Commercial Arbitration Centre.

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And the risks?You don’t need to be a Formula One motor racing fan to have seen the press reports

headlining the anti-government protests and unrest that spring from the ongoing

political debate as to the need for reform and the tensions with the Shia community

and opposition.

But Bahrain has a plan, the 2030 plan, a ‘comprehensive economic vision’, to shift its

economy away from oil (13% of GDP) to a more diverse economy, to look to the

private rather than the public sector to stimulate growth and to provide better

services, jobs, training and skills development and quality of life for all Bahrainis.

And, significantly, Bahrain’s continued stability is important to its powerful

neighbour, Saudi Arabia.

In the Transparency International corruption tables Bahrain ranks 53rd out of 176

but the 2030 plan talks of rooting out corruption.

Ultimately the construction business is, of course, all about risk and, as the British

Ambassador has recently said: “...if you don’t go for the business, your competitors will.”

Raid Abu-Manneh

[email protected]

Construction & Engineering Group

This article first appeared in a slightly different form in Building.

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4 Construction & Engineering London Legal Update

IRAQ

Doing business in Iraq – tread carefullyA decade after the invasion of Iraq there are opportunities for UK firms in the

country’s infrastructure sector. But they must be aware of the legal framework they

will be working in.

Oil, security, infrastructure, corruption, getting paid - all of these are factors to be

weighed in the scales when deciding whether to do business in Iraq. Ten years after

the 2003 invasion, where is the country now, in terms of opportunity, risk and law for

the UK construction industry?

UK investment?In 2010, according to a report of the National Investment Commission, in association

with UK Trade and Investment, published by Allurentis, the value of the UK’s

commercial activity in Iraq was $1,215m (£794m), 2.8% of foreign commercial

activity by value.

Way out ahead of the UK was Turkey – with its obvious geographical advantage –

at 34.9%. Another seven countries also sit in front of the UK, including, in

descending order, Italy, France, South Korea and the US.

What are the opportunities?Iraq has massive oil reserves. It has budgeted for exporting 2.9 million barrels a day

this year and its aim of producing 12 million barrels a day by 2017 would make it a

very major player among producers. But getting to this target requires infrastructure.

The oil will have to pay for this infrastructure - dams, railways, bridges, airports,

hotels, and millions of homes (200,000 units each year for a decade), plus roads,

sewers and services to support them. It amounts to a lot of work that should last for

years.

The risks?Security is an obvious risk, as we are constantly reminded by the press headlines.

Corruption is another. Iraq was ranked 169 out of 176 countries in the Transparency

International 2012 Corruption Perceptions Index. And Iraq was ranked 165 out of

185 in the World Bank 2013 ease of doing business tables. Time, energy and patience

are required to make progress through the bureaucracy.

And the legal framework?Investment is governed by Investment Law 13 of 2006 as amended by law No. 2 of

2010 and foreigners can take a 100% stake in an Iraq company. For those used to

doing business in the Middle East, the law in Iraq will look familiar. The Iraq Civil

Code, influenced, like other Arab codes, by the Egyptian Civil Code, takes precedence

over, for instance, Shari’a. Iraq cannot compete, however, with the more advanced

approach of Dubai and its International Financial Centre, to dispute resolution.

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Foreign arbitration is the usual contract dispute resolution route that sidesteps any

concerns about the speed, expertise or impartiality of local courts and the Iraqi

courts have recently adopted a welcome hands-off approach to foreign arbitrations.

But even if an arbitration award is obtained, there remains the important question of

enforcement. Iraq is not yet a signatory to the New York Convention (although this

may change before too long). A possible alternative is enforcement of an award in

Iraq under the Riyadh Convention, perhaps through the courts in Jordan.

All of which makes it important to take local legal advice in getting over legal and

administrative obstacles.

What about contracts?Provisions relating to construction contracts appear in Articles 864-890 of the Iraqi

Civil Code. These provide a framework for the main requirements for contracts of

works. There are three key obligations:

• work should be in accordance with the provisions of the construction contract

between the parties;

• the contractor should deliver the works on completion;

• the contractor is liable for complete or partial collapse of the building.

This is a joint liability imposed on the contractor and designer for certain building

defects, known as decennial liability. This is similar to strict liability but is applied to

construction projects. This joint liability lasts for 10 years from completion and

means contractor and designer are jointly and severally liable for structural defects in

the works.

The next decade in Iraq for UK construction companies?Pass the crystal ball. As risks lessen, or are successfully managed, the opportunities

presented by Iraq become more attractive, but not, of course, just to the UK industry.

Less risk is likely to mean more competition. So - swings and roundabouts. But

perhaps it is also worth remembering the phrase “ fortune favours the brave”.

Raid Abu-Manneh

[email protected]

Construction & Engineering Group

This article first appeared in a slightly different form in Building.

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QATAR

To boldly go...where Boris has gone before?Once upon a time Qatar was a poor Gulf state, known for its pearl fishing. But

nothing stays the same and the discovery of vast oil and gas reserves has made it very

wealthy, with one of the highest rates of GDP per capita in the world. Owner of

Harrods, investor in the Shard, the Stock Exchange and Sainsburys and home of the

Al-Jazeera news network, it punches above its weight in world politics and in nine

years time the global focus will be on picking footballs, rather than pearls, out of the

net. So what are the commercial and legal prospects for doing construction business

there?

Opportunities?It has, despite the Arab Spring, a stable government and economy and, since June, a

new Emir, the youthful, 33 year-old Sheikh Tamim bin Hamad Al-Thani. His father,

Sheikh Hamad bin Khalifa Al-Thani, has stepped down, as has Prime Minister

Sheikh Hamad bin Jassim bin Jaber Al-Thani, who was also the Foreign Minister

and influential chief executive of the sovereign wealth fund, the Qatari Investment

Authority.

Plans for Qatar’s future are already in place. The Qatar National Vision 2030 points

the way and the National Development Strategy 2011–2016 provides a route map to a

sustainable economy less dependent on its oil and gas riches. And, as an incentive,

Qatar is, of course, expecting a lot of visitors in 2022, for the football World Cup.

There are 12 climate-controlled, carbon-neutral football stadiums on the to-do list,

not to mention 24 team hotels, 48 training sites and 80,000 hotel rooms.

The National Vision talks of Qatar investing in world class infrastructure and it is.

There is $36 billion to be spent on a high quality, integrated public transport system,

$20 billion for roads, a new Doha International Airport to handle 50 million

passengers a year, the new Port project and the Msheireb urban regeneration in

Doha. It is said that the total shopping bill for infrastructure over the decade could

hit the $100 billion mark. And all this with a population of less than two million, of

which expatriate workers may make up as much as 80%.

Difficulties?The World Bank Group 2013 ease of doing business table ranks Qatar at 40 overall,

out of 185, and at 18 for obtaining construction permits, and Qatar is at 27, out of 176,

equal with the UAE, in the 2012 Transparency International Corruptions Perception

Index.

Qatar likes joint ventures. Qatar’s Investment Law No. (13) of 2000 generally makes

foreign investment conditional on having a Qatari partner with no less than 51% of

the capital.

Qatari law will be familiar to contractors who work elsewhere in the Gulf because it

is based on the Egyptian Civil Code and well developed so, for instance, the concepts

of decennial liability and good faith make their customary appearance.

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Enforcement of contract entitlements through the local courts is likely to be slow and

lacking the necessary expertise in particularly large, complex infrastructure disputes,

so arbitration is the way forward. Currently dealt with in the Civil and Commercial

Procedure Law No. (13) of 1990, Qatar’s arbitration law could do with modernisation,

but the Qatar International Center for Conciliation and Arbitration, set up in 2006,

has its own arbitration and conciliation rules, issued last year and modelled on the

UNCITRAL 2010 rules. A choice of Qatari law, and arbitration under modern rules,

with the seat of the arbitration in Qatar, could be a practical solution in selecting

contract dispute resolution machinery.

Further support for arbitration is to be found in Qatar’s signature of the New York

Convention on the Recognition and Enforcement of Foreign Arbitral Awards and also

the ICSID Convention.

To go boldly?Competition for construction work in Qatar is inevitably fierce but the UK is one of

Qatar’s key trading partners. Qatar has significant investments in the UK and the

planned heavyweight infrastructure spending could offer significant construction

opportunities for those prepared to invest the necessary time, research and patience,

where London 2012 Olympic experience might just be key for World Cup projects.

Prince Charles and Boris Johnson have both made trips to Qatar this year to fly the

flag; Qatar could also be an important destination for the UK construction industry.

Raid Abu-Manneh

[email protected]

Construction & Engineering Group

This article first appeared in a slightly different form in Building.

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8 Construction & Engineering London Legal Update

SAUDI ARABIA

Doing business and the big legal question The Kingdom of Saudi Arabia has big plans for the future. Billions are being spent on

infrastructure and that can mean significant opportunities for UK construction and

engineering companies. But there’s a legal question to think about. Modernisation is

being carried out against the background of a legal system that is, commercially,

fundamentally different not only from those of its neighbours but also from any

Western concept of what commercial law should be. So what might this mean for

those doing business there?

Opportunity?Saudi Arabia is the world’s largest oil producer and exporter and has the largest

known oil reserves. With GDP increasing by some 6% a year, it is in the middle of a

massive development programme, building new industrial cities and developing its

infrastructure to meet the needs of the 21st century. A key driver of this activity is its

growing young population, currently some 28 million, with 80% of its citizens under

40 and 35% under 15, and predicted to grow to 33 million over the next 12 years; add

to that its plan to diversify its economy away from dependence on oil and gas and it

becomes clear why the Kingdom intends to spend more than US$367 billion over the

next 10 years on infrastructure; new roads, railways and urban transport systems,

airport expansion, investments in water, sewerage, electricity plants, telecoms and

the IT sector and four million new homes.

The good news is that the Kingdom is the UK’s largest trading partner in the Middle

East and North Africa region and ranks 22nd out of 185 in the World Bank ease of

doing business tables. Inevitably, however, foreign businesses embarking on

construction in Saudi Arabia need to clear regulatory hurdles, including obtaining a

foreign investment licence from the Saudi Arabian General Investment Authority,

meeting relevant investment conditions, registration with the Ministry of Commerce

and Industry and setting up as a limited liability company or a joint stock company,

not to mention complying with Nitaqat, ‘Saudisation’, prioritisation of the

employment of Saudi workers.

But what about contract law?The law is based on Islamic or Shari’a law, a comprehensive code of behaviour that

embraces both ethical standards and legal laws. Commercial contract principles in

Saudi Arabia, unlike its neighbours, are mainly to be found in Shari’a, which aims for

justice and equity in contracts, for example through a requirement of good faith in

commercial transactions. And even government regulations must comply with the

overriding principles of Shari’a.

But, despite its importance, Shar’ia in the Kingdom is not codified as with the laws in

other Arab countries and the legal system and the Shari’a courts have no system of

binding precedent. Justice and equity therefore come at a price, that of predictability

and certainty.

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The obvious dispute resolution solution for those considering legal remedies in their

international commercial arrangements is arbitration, avoiding any issues as to lack

of expertise or speed in the local courts. Arbitration in Saudi Arabia has in fact taken

a significant step forward with the launch, last year, of its new Arbitration Law.

Broadly in line with the UNCITRAL Model Law, it brings Saudi Arabia into line with

other countries in the region. Saudi Arabia is also a signatory to the New York,

ICSID, Riyadh and GCC Conventions.

But one thing that the new Arbitration Law, and the enforcement regulations enacted

earlier this year, do not change is the fact that an award, or part of it, which conflicts

with Shari’a law, will not be enforced in the Kingdom.

Interpreting Shari’a principles to suit today’s commercial world and its desire for

predictability and certainty is a challenge for Saudi Arabia. It is also a reason for

potential investors to be mindful of a different legal landscape in a country which, at

the same time, offers huge opportunities.

Raid Abu-Manneh Wisam Sirhan

[email protected] [email protected]

Construction & Engineering Group

This article first appeared in a slightly different form in Building.

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Extras

CONTRACTS AND PROCUREMENT

IChemE revise the contract formulaIn February the IChemE launched new editions of its forms of contract, the Red

Book, Green Book, Brown Book, Burgundy Book and Yellow Book. The IChemE says

that the forms have been extensively revised and updated to reflect best practice in

project delivery and the latest developments in law and project implementation.

See: http://www.icheme.org/media_centre/news/2013/revised%20forms%20of%20

contract%20published%20by%20icheme.aspx

A new NEC3 edition...In April the NEC3 unveiled an updated edition of the NEC3 contracts which includes the

new Professional Services Short Contract, developed with the Association for Project

Management, and seven guides, including a guide to using BIM with NEC3 Contracts.

See: http://www.neccontract.com/news/article.asp?NEWS_ID=840

And a new CIOB complex projects contractAnd there is also a new Chartered Institute of Building contract - for complex

projects. The contract is said to be suitable for works of high value or complexity,

engineering, infrastructure and major real estate projects but less suitable for simpler

or short duration works, construction management/EPCM without amendment and

inexperienced clients/contractors.

Accompanying the 8 page contract agreement, 83 page conditions and appendices are 81

pages of user notes (plus time-line and flow charts) and a cross-referencing general index.

See: http://www.ciob.org.uk/CPC

Government code to crack PPP savings plus PF2 management unitThe Government now has a ‘best practice’ guide, a voluntary code that sets out how

the public and private sector can work together to make savings from Public Private

Partnership contracts.

Not intended to be legally binding, the code has eight commitments for each of the

private and public sector parties and also contains new guidelines on transparency,

including updating on consumables and energy costs and ownership changes.

See: https://www.gov.uk/government/news/

public-and-private-sector-support-cutting-costs-of-public-infrastructure-with-new-

code-of-conduct

There is also a new Treasury unit to represent the public sector on the boards of new

PF2 projects and to manage its future minority stake in public infrastructure

including schools and hospitals.

See: https://www.gov.uk/government/news/

new-unit-of-experts-to-manage-government-investment-in-infrastructure

and

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https://www.gov.uk/government/

consultations/a-new-approach-to-public-private-partnerships-consultation-on-the-

terms-of-public-sector-equity-participation-in-pf2-projects

The Treasury has an antidote for optimismThe Treasury has issued Green Book supplementary guidance on how to counter the

risk of over-optimism in estimating project costs, benefits and duration. The

guidance recommends that estimates should be based on data from past or similar

projects, and adjusted for the unique characteristics of the project in hand.

The guidance provides cost and time uplift percentages for generic project categories

which should be used in the absence of more robust primary data. There is separate

supplementary guidance for transport infrastructure projects.

See: https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/191507/Optimism_bias.pdf

Government dos and don’ts for procurementThe government has produced a leaflet that sets out a checklist of tips for those

involved in public sector procurement.

Top tips are to be clear about what is wanted, signal demand early, talk to the market

early, be open to new ideas and use the Lean sourcing process. Highlighted key

mistakes to avoid include the use of extensive selection criteria through a PQQ,

assuming that larger firms are better to do business with, large scale requirements

and long contract durations, sole reliance on financial assessment criteria at the

selection stage and insistence on onerous insurance requirements.

See: https://www.gov.uk/government/publications/procurement-for-growth

Government contract tax checksThe government plan for tax compliance self-certification on UK central government

above-threshold contracts started on 1 April. The government’s Action Note 06/13 of

25 July 2013 sets out the scope and background of the new policy, advises on how to

take account of it in procurement documentation and provides further detailed

guidance on how Departments should assess suppliers’ responses and the inclusion of

new clauses in contract terms.

See: https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/225407/PPN_2_TAX.pdf

Late payment law given EU updateContracts entered into on or after 16 March 2013 are subject to the updated late

payment regulations, following the EU Late Payment Directive, which say that:

• the payment period set in business to business contracts should be no more than

60 days, unless otherwise agreed, and provided the terms are not “grossly unfair”;

• public authorities must pay suppliers under commercial contracts within 30

calendar days of receipt of an undisputed invoice (matching UK government

standard public sector practice);

• the acceptance and verification period for public authorities is set at no more than 30

days, unless otherwise agreed, and again provided the terms are not “grossly unfair”;

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12 Construction & Engineering London Legal Update

The EU Directive fixes minimum compensation at €40 but the amended UK

legislation retains the current three tier charge scale and additional reasonable debt

recovery costs may also be claimed.

See: https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/138129/bis-13-705-a-users-guide-to-the-recast-late-payment-directive.pdf

But parliamentary inquiry recommendations target late paymentA cross-party inquiry into late payment to small and medium sized enterprises has

come up with eleven recommendations for action, which include:

• establishing a Construction Code of Conduct, with contractually agreed payments

held in an independent trust and an independent adjudicator for mediation;

legislation would be required for this; (in the Government’s Construction 2025

plans, the Institute of Credit Management is to develop a construction supply

chain payment charter.)

• a Retentions Monies Bill with retained money held in a trust;

• all new Government contracts to include Pre Qualification Questions on past

payment performance, with consideration of payment history as part of the

bidding process;

• making fair payment a contractual requirement in new Government contracts,

with Tier 1 contractors paid within 14 days, Tier 2 within 19 days and Tier 3

within 23 days.

See: http://www.debbieabrahams.org.uk/wp-content/uploads/2013/07/FINAL-

REPORT-ALL-PARTY-INQUIRY-REPORT-INTO-LATE-PAYMENTS-IN-SMEs1.pdf

New government construction project portalA new government online portal, the Government Construction Pipeline, now

provides information on proposed Government construction projects, updated to

2020 and beyond.

An updated National Infrastructure Plan is scheduled to be published at the time of

the Autumn Statement and will include a more comprehensive update of the

infrastructure investment pipeline.

See: https://www.gov.uk/government/

news/109-billion-of-future-government-construction-opportunities-up-for-grabs

Supply chain payment on the agenda in SME public procurement consultationThe government has consulted on proposed reforms to create an SME-friendly ‘single

market’ for public procurement. The government proposals include:

• eliminating pre-qualification questionnaires for low value contracts;

• a mandatory core PQQ with standard questions for high value contracts;

• allowing suppliers to provide PQQ data only once;

• all new contract opportunities and awards over £10,000 to be advertised online;

• public sector reporting of its performance on spend with SMEs and on centrally

negotiated deals;

• the standard payment terms that public bodies offer prime contractors to be

passed all the way down the supply chain;

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• consideration of whether performance bonds can be an unnecessary barrier for

SMEs; and

• encouraging the use of e-invoicing in the public sector.

See: https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/243685/SME_consultation_-_publication_version_-_18september.pdf

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PLANNING, BIM, REGULATIONS AND COURT RULE CHANGES

High speed planning route for more developmentsThe government is to extend the fast track, one year, one stop, infrastructure

planning procedure to nationally significant business and commercial projects.

Projects eligible to opt into the procedure will include car factories, food processing

plants, sports stadiums, theme parks, hotel complexes, offices and research and

development centres, warehousing, storage and distribution sites, conference and

exhibition centres and sand and gravel. The new categories do not include retail-led

schemes and residential proposals and existing requirements to consult local

communities are retained.

The Government expects only a ‘very small’ number of applications to choose this

route.

See: https://www.gov.uk/government/news/

fast-track-planning-opens-to-more-business

CIC BIM ProtocolIn February the Construction Industry Council published its Building Information

Modelling Protocol. Drafted for use on all common construction contracts the CIC

say that it should be suitable for use on all Level 2 BIM projects. It is a contractual

document which takes precedence over existing agreements and requires the

Employer to appoint a party to undertake the Information Management Role.

The CIC also published two other BIM documents at the same time, a Best Practice

Guide for Professional Indemnity Insurance when using BIM and an Outline Scope of

Services for the role of Information Management. All three documents can be

downloaded free at: www.cic.org.uk

And a new BSI standard for BIMThe British Standards Institution subsequently launched a new standard for BIM:

PAS 1192-2 “Specification for information management for the capital/delivery phase

of construction projects using building information modelling”. Sponsored by the

Construction Industry Council, the new standard is intended to support the

Government’s Construction Strategy objectives, in particular that of achieving Level

2 BIM on all public sector asset procurement (by 2016).

Still to be developed is PAS 1192-3, which will offer guidance on the use and maintenance

of the asset information model (AIM) to support the planned preventative maintenance

programme and the portfolio management activity for the life of the asset.

See: http://shop.bsigroup.com/en/forms/PASs/PAS-1192-2/

Government sets April 2014 date for revamped Part L Building RegsChanges to the energy efficiency requirements in Part L of the Building Regulations

(Fuel and Power) will come into force on 6 April next year. In addition to the

amending regulations and associated Impact Assessment, updated statutory

guidance and calculation methodologies will be published, to give the industry time

to prepare.

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And 1 October 2013 for revised guidance in Approved Documents A and CChanges to the guidance in Approved Documents A and C came into force on

1 October. The revised Approved Document A (Structure) now reflects the

introduction of the Eurocodes, with additional guidance being given to minimise the

impact on business. The major change to Approved Document C (Site preparation

and resistance to contaminants and moisture) deals with radon gas.

See: http://www.publications.parliament.uk/pa/ld201314/ldhansrd/text/130730-

wms0001.htm#13073027000025

Site waste management regulations to be dumped Following public consultation by Defra, the 2008 Site Waste Management Plans

Regulations are to be repealed, as part of the Red Tape Challenge that is intended to

remove regulations that are ineffective or hold back growth. The impact assessment

is said to demonstrate that repealing the Regulations should reduce the regulatory

burden on business without any significant environmental impact.

The date set for the repeal to come into effect is 1 December 2013, postponed from 1

October.

See: https://www.gov.uk/government/consultations/site-waste-management-plans

New roads policy to boost large developmentsA new transport policy ‘The Strategic Road Network and the Delivery of Sustainable

Development’ is intended to make it easier to take forward large development

projects adjacent to motorways and major ‘A’ roads.

Key changes in the policy include:

• easing restrictions on new access roads and junctions on motorways;

• removing the need for developers to pay for mitigation measures, unless the

impacts of their proposals are severe, and reducing the scale of any work that may

be required as a consequence;

• a commitment to support the delivery of developments that have been approved in

a Local Plan;

• simplifying the mandatory requirements that must be provided at every service

area and roadside facility; and

• devolving decisions on the minimum spacing for service areas to the planning

system.

See: https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/237412/dft-circular-strategic-road.pdf

Court offer rules to give 10% extraPart 36 of the court rules provides costs and interest incentives for parties to

litigation to make offers to settle court proceedings. For claimants who now make

offers under Part 36 there is an extra incentive.

If the defendant does not accept a claimant’s offer and the claimant obtains a court

judgment at least as good as the offer, the claimant will be entitled to:

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• 10% extra damages, for money claims; or

• 10% extra of the costs awarded in non-money claims; or

• 10% extra of the money element of mixed (money and non-money) claims,

tapering, for claims between £500,000 and £1m, to a cap of £75,000. This is in

addition to the existing entitlement (unless the court thinks it unjust) of indemnity

costs and interest at up to 10% above base rate on money and costs awarded.

New rules to move the judicial review goal postsCourt rule changes to the judicial review process, intended by the Government to

attack use of the process as a “cheap delaying tactic”, took effect in July.

The changes include halving the time limit for applying for judicial review of a

planning decision, from three months to six weeks, and cutting the time limit for

applying for judicial review of a procurement decision from three months to 30 days.

See: http://www.legislation.gov.uk/uksi/2013/1412/pdfs/uksi_20131412_en.pdf

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Myanmar (or Burma) – the opportunity and the uncertainty

The uncertainty begins with the name, Myanmar or Burma, as President Obama

recognised on his visit to Yangon or, if you prefer, Rangoon. A country of 60 million

has emerged blinking into the light after years of political and economic hibernation.

It has great needs and, consequently, great possibilities for foreign investors.

McKinsey have suggested the economy could grow to more than $300 billion by

2030, there is a huge shortage of infrastructure in power, water and transport and

supply chain opportunities at all levels. But just how hard is it for UK construction to

do business there?

BUSINESS

Very little international business has been done in Myanmar for over 20 years and

the World Bank ease of doing business tables do not give a ranking. Sanctions have

been in place but, since former Prime Minister U Thein Sein became President in

March 2011, Myanmar’s political and economic reforms and the release of Aung San

Suu Kyi have encouraged the U.S. and other countries to ease sanctions.

The country’s current reform agenda includes breaking up large monopolies, a major

privatisation programme and working with the IMF on the unification and flotation of

the exchange rate. Major challenges remain, not least updating the banking system,

improving infrastructure and communications, and establishing a stock exchange.

LAW

The Foreign Investment Law was substantially revised in 2012, with the ultimate

objective of attracting more foreign investors. It provides a roadmap for investment;

for example, legislation issued under the Law requires a joint venture for construction

and infrastructure projects, including bridges, highways, and golf courses, and

development and sale of residential and office buildings.

But behind every construction contract there needs to be a legal safety net and on

that front Myanmar has some catching up to do. Its legal framework is based on a

combination of laws from different periods of its history, from colonial past to present

day. Much of the law is recognisable to English and other common law lawyers but

much has fallen into disuse since 1962. Its implementation is consequently subject to

local practice and that means unwelcome uncertainty.

Enforcement under the common law-style judicial system is also a problem. Many

foreign companies have shown reluctance to invest in Myanmar because it still lacks

appropriate dispute resolution machinery. The judiciary’s independence, impartiality

in international commercial disputes and effectiveness of the rule of law are all

concerns, not to mention the usual issues as to expertise and speed and potentially

obstructive regulations left over from the socialist period.

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There is, of course, arbitration, governed by the 1944 Arbitration Act, that gives local

courts broad authority to intervene in arbitration, including power to remove an

arbitrator and modify the award. Domestic arbitration processes are not efficient and the

Foreign Investment Law allows foreign investors to opt for foreign arbitration in their

contracts but the Foreign Investment Rules require the investor to notify the Myanmar

Investment Commission of a dispute and the resolution procedure to be used.

Contracts between foreign companies and state-owned enterprises generally specify

Myanmar law as the governing law and provide for disputes to be arbitrated in

Myanmar under the 1944 Act.

Myanmar’s decision this year to accede to the New York Convention on the

Recognition and Enforcement of Foreign Arbitral Awards is a positive move but

Myanmar is currently not a party to the ICSID Convention.

CORRUPTION

And then there is corruption, said to be endemic throughout Myanmar and the target

of government efforts to reduce it. Myanmar is ranked at 172 in the 2012

Transparency International Corruption Perceptions Index, with only Sudan,

Afghanistan, North Korea and Somalia with worse ratings.

Myanmar also appears in the global standards-setting Financial Action Task Force

June Public Statement due to deficiencies in their anti-money laundering and

counter-terrorist financing regime.

DOING BUSINESS?

So opportunity in Myanmar, or Burma, comes with the uncertainty of a country

whose legal infrastructure is yet to catch up with the 21st century and where

corruption is a key concern. But Hilary Clinton has said that investors should be

agents of positive change and Coca-Cola is now being bottled in Myanmar for the

first time in 60 years. The tide is turning – but proceed cautiously.

Kevin Owen Ben Thompson

[email protected] [email protected]

Construction & Engineering Group Mayer Brown Global Projects Group

Mayer Brown JSM, Singapore

This article first appeared in a slightly different form in Building.

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Repudiation – what, how - and dangerous

Repudiation – a funny legal word – with consequences. It happens, for example,

when people stop doing things that they should under contracts and entitles the

innocent party to bring a contract to an end and sue for damages. Perhaps because of

the current economic climate, it features in recent case reports. So what do these

cases tell us about repudiation and how it works? And why should it come with a

financial health warning?

There are different varieties of repudiation. One is breach of a condition (in the

technical, legal sense – a key term); another is breach of an unclassified

(‘innominate’) term that deprives the injured party of substantially the whole benefit

of the contract. The last, sometimes called renunciation, is where the contract-

breaker demonstrates an intention not to perform the contract.

For example, under an agreement to construct and lease commercial units in a

development for 999 years, developers had to carry out the works with “due diligence”

and to use reasonable endeavours to meet target dates. Because of funding difficulties

they suspended work on two blocks for more than a year and, shortly after work had

resumed, the prospective tenant claimed the suspension was a repudiation and

accepted it. But was it?

The Court of Appeal disagreed. The actual and reasonably foreseeable effects of the

breaches at the date of purported termination, a six month gap in handover, in the

context of an agreement to grant 999 year leases, would not deprive the tenant of a

substantial part, let alone the whole, of the benefit of the contract.

But repudiation on its own is not enough. A repudiatory breach of contract gives the

innocent party a choice, to accept it or affirm the contract, and acceptance must be

clear and unambiguous. A specialist aerodynamics company working for a Formula 1

racing team disabled the team’s connection to their servers because of the team’s

delays and failures in paying sums due under the contract. At the same time, however,

it issued a fee invoice for the subsequent period, having just said it would resume

work after the Formula 1 shutdown.

The Court of Appeal said that acceptance requires no particular form; it is enough

that the communication or conduct clearly and unequivocally conveys to the

repudiating party that the aggrieved party is treating the contract as at an end. The

aggrieved party does not even have to notify the repudiating party personally, or by

an agent, so long as it comes to the repudiating party’s attention.

Disabling of the server connection on the same day as sending the invoice was not a

clear and unequivocal communication that the contract was at an end, although a

later conversation was.

And why does repudiation need a health warning? Because if you accept a

repudiation but it isn’t, you might find that you have yourself repudiated the contract,

which entitles the other party to accept, stop the contract and sue you for damages.

From victim to contract-breaker in one go.

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But because renunciation repudiation is a drastic conclusion, the courts need to be

satisfied that, objectively, there clearly is a refusal “..in a matter going to the root of the

contract..” to perform contractual obligations. And the issue is highly fact sensitive.

So in another Court of Appeal case, miscalculating a notice period for a notice to

complete and serving formal notice of rescission too early was therefore not a

repudiation.

All of which underlines the health warning. Repudiation is a powerful weapon but its

lack of precision can turn it into a loose cannon. So be careful what you do with it.

Wisam Sirhan Richard Craven

[email protected] [email protected]

Construction & Engineering Group

This article first appeared in a slightly different form in Construction News.

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Mozambique – Africa’s new challenger

What happens when one of the world’s poorest nations discovers some of the world’s

richest energy reserves?

The answers may be found in Mozambique, where recent years have seen the

discovery of some of the world’s largest unexploited reserves of coal and a huge

natural gas field off the northern coast, which could rank Mozambique fourth in the

world in terms of gas reserves. One answer has certainly been dramatic GDP growth.

Since 2001 Mozambique’s annual growth rate has been reported in the world’s top

ten but this is from such a low base that Mozambique remains among the world’s

poorest nations. Another answer is the need for improved infrastructure that will be

vital, both for effective exploitation of natural resources and for development of a

country still to recover fully from the effects of 15 years of civil war that ended in

1992. These factors combine to highlight the importance of, and opportunities

offered by, construction and infrastructure development in Mozambique.

What are the issues for those entering the Mozambican market?

DOING BUSINESS

Mozambique ranks 149th out of 185 countries for ease of doing business in the IFC

“Doing Business” Report 2013.

Its construction sector is still relatively small and characterised by low productivity

and high costs. Most construction activity is in public works, and primarily donor-

funded. This may change, however, as Mozambique has had mixed success in using

the donor funds made available to it, and, in any case, donor-funded programmes are

expected to decrease as a share of GDP as development continues. The bureaucratic

challenges faced by the construction industry are significant, even by the standards of

the region – it typically takes 377 days to obtain a construction permit.

Nevertheless, Mozambique has become an extremely attractive destination for

investment. It is estimated that energy firms will invest over $50 billion over the next

decade, developing a full-scale liquefied natural gas industry in a country ideally

placed to serve the Asian export markets. Investment on this scale could increase

efficiencies across the whole economy, including the construction sector.

PROCUREMENT

The procurement process in Mozambique is noted for long delays, often requiring

public tenders to be re-issued because of changing external conditions. Procurement

is governed by the Unit for the Supervision of Acquisitions, under the recently-

updated procurement statute – Decree 15/2010 of 24 May 2010 which requires:

• bidders for public works projects to comply with minimum requirements as to

legal and financial standing, technical qualifications and payment of tax; and

• that all documents relating to the procurement process be in Portuguese,

although tenders may simultaneously be issued in other languages.

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Measures in the statute to favour domestic bidders restrict the participation of

foreign bidders in lower-value projects and apply margins (of up to 15%) of domestic-

bidder preference on other projects. To qualify as a domestic bidder, a bidding

company must be incorporated in Mozambique and be 50%-owned (directly or

indirectly) by natural persons of Mozambican nationality.

CORRUPTION

New anti-corruption laws have recently been endorsed by the country’s highest

decision-making body, the Council of Ministers. Such measures are of real

importance, given the widely-reported cases of high-profile corruption and

Mozambique’s decline over recent years in Transparency International’s index of

global corruption perceptions from 116th place (out of 174 countries) in 2010, to 120nd

in 2011 and 123rd in 2012.

RESOLVING DISPUTES

Litigation in the Mozambique courts tends to be slow and expensive. Consequently,

contract documentation governing major projects commonly provides for arbitration.

Mozambique has acceded to the New York Convention and accordingly, under

Mozambican law, the enforcement of a private arbitral award can usually only be

denied on the limited grounds in the Convention. Arbitral awards made in other

contracting states thus benefit from the Convention’s recognition and enforcement

regime.

CONCLUSIONS

It is no exaggeration to say that Mozambique’s natural gas discoveries could be truly

transformational. If, as expected, a large share of the revenues derived will be

invested in construction and infrastructure, as well as meeting key needs for

Mozambique, this will also provide rewards for those prepared to take the time to

learn to navigate this challenging business environment, and to play a part in this

crucial stage of Mozambique’s development.

Kwadwo Sarkodie Doye Balogun

[email protected] [email protected]

Construction & Engineering Group Finance Group

This article first appeared in a slightly different form in Building.

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What’s been happening @ Mayer Brown?

• In April Jonathan Hosie gave a presentation at the SGCL Construction Law

Conference on “EPC and EPCM contracts for international projects – uses and

abuses”

• In May Raid Abu-Manneh was a speaker at the Construction Law: Contracts and

Dispute Management conference on “Middle East and Africa: Construction Law

and Dispute Resolution.”

• In June Kwadwo Sarkodie spoke at the Water Management Society on the topic

“Pitfalls and consequences” (of acting as expert witness).

• And at the beginning of July Jonathan Hosie was a speaker in the Lexis Nexis:

Construction Law webinar - on “Project security – what options are available?”

where he spoke on the subject of Project Bank Accounts.

• Congratulations to Mark King and James Morris on their promotion to Senior

Associate.

• Welcome to Hannah Cartwright, Marcus Walsh and Alex Reuben, on joining the

Construction & Engineering Group as Associates.

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The contract, the whole contract and nothing but.....?

A written construction contract is, you might say, rather like a millpond. All may

look fine on the surface, but what lies beneath it can upset the contractual calm. The

words written down may not tell the whole story. One party may have exerted

illegitimate pressure, or said something incorrect, or made a promise that cut across

what the written contract said, in order to get the other party to sign up. Duress,

misrepresentation or a collateral contract, for example, can all make waves but, of all

the unseen contractual ingredients, possibly the most challenging are implied terms.

In theory, although not written down, their detection should not be a problem. There

is, according to Lord Hoffmann, just one question: what the contract, read as a whole

against the relevant background, would reasonably be understood to mean. It is a

forensic exercise, looking at the contract through the eyes, not of the parties, but of an

objective third party armed with the parties’ background knowledge (perhaps these

days a commuter on a Boris bike, rather than the pensioned-off (or privatised)

Clapham omnibus).

Implied terms might be seen as the ‘of course’ clauses, found beneath the surface of

contracts governed by English contract law. Take the law on damages and

remoteness, for instance. If the parties have not written a term in their contract to

deal with the types of losses for which a contract breaker accepts potential liability,

then, according to the Court of Appeal in Grimes v Gubbins, the law in effect

implies a term to determine the answer. Normally, applying the well-worn case law

starting with Hadley v Baxendale, this implied term is an acceptance of

responsibility for the types of losses reasonably foreseeable at the contract date as not

unlikely to result from a breach. Unless, however, there is evidence that the implied

assumption of responsibility is inappropriate for a particular type of loss.

Or take the tricky issue of a duty of good faith. Lord Justice Jackson has recently

confirmed, in the Court of Appeal in Compass Group UK v Mid Essex Hospital Services NHS Trust (which involved the hospital’s contractual right to levy

performance-related deductions under a facilities management contract), that

English contract law has no general doctrine of “good faith” (unlike, for instance,

Sharia law, the U.S., France or Australia). Such a duty needs to be expressly agreed,

although a duty of good faith is implied by law in certain categories of contract, for

instance, employment and partnership.

But in Yam Seng v International Trade Corporation, Mr Justice Leggatt could see

no difficulty, following the established English law approach to implying terms in

fact, in implying a good faith duty in any ordinary commercial contract, based on the

parties’ presumed intention.

Applying Lord Hoffmann’s simple test for implied terms may not, however, be as

straightforward as it sounds. The law reports remind us that different judges and

different courts may come to different views as to what our contract law avatar might

reasonably understand a contract to mean. In the Compass case, Mr Justice

Cranston had originally concluded that there was an implied term. The Court of

Appeal, overruling him, said there was not.

So what does this mean for construction contracts? If implied terms are detected

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they should, in theory, come as no surprise because the court is only drawing out

what the contract, objectively, would reasonably be understood to mean, taking into

account the parties’ background knowledge. This underlines the need for the good

old-fashioned virtue of recording agreements clearly and comprehensively so that a

court does not have to look beneath the surface. Still waters, they say, run deep and,

as a venerable great-aunt used to add, there’s often mud at the bottom.

Amber Chew Richard Craven

[email protected] [email protected]

Construction & Engineering Group

This article first appeared in a slightly different form in Construction News.

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Case notes

TRUST ME; I’M AN ADJUDICATOR

On a remediation project using NEC3, the Project Manager instructed the contractor

to carry out additional work in two separate locations but later purported to

withdraw his instructions. The contractor successfully obtained an adjudication

award on the issue in respect of the first location and then a second award, from a

different adjudicator, in respect of the second location. The employer resisted

enforcement of the second award, in particular because of the way that the second

adjudicator had taken account of the first adjudicator’s decision. But just how far can

an adjudicator take into account or adopt a previous adjudicator’s reasoning?

Mr Justice Akenhead said that it was neither wrong nor unjustified, let alone

improper, for the second adjudicator to have regard to the first adjudicator’s decision

or for the contractor to submit a copy of it to the second adjudicator. Adjudicators

must generally be trusted to reach honest and intelligible views as to the extent to

which earlier decisions are relevant or helpful and generally it would be wrong of an

adjudicator to ignore any material put before them.

Arcadis UK Ltd v May and Baker Ltd (t/a Sanofi) [2013] EWHC 87

UNITED FRAGRANCE RAISES A QUESTION OF FAITH

English contract law, unlike many other legal systems, has no general duty of good

faith. Or does it? An agreement to distribute Manchester United brand ‘fragrances’

in specified territories in Africa, Asia, the Middle East and Australasia ended up in

the English courts and one of the questions for the judge was whether there was an

implied duty of good faith.

It seemed to Mr Justice Leggatt that, despite English contract law’s traditional

hostility to a doctrine of good faith, there is no difficulty, following the established

English law on implying terms, in implying a duty of good faith in any ordinary

commercial contract as a matter of fact, based on the presumed intention of the

parties, as distinct from any general default principle of law. Since the test of good

faith is objective, there was, in his view, nothing novel or foreign to English law in

recognising an implied duty of good faith in the performance of contracts. It was

already reflected in other, well established, case law and there is nothing unduly

vague or unworkable about the concept. Its application involves no more uncertainty

than is inherent in contractual interpretation.

Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111

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THE TRUTH, THE WHOLE TRUTH ... OR?

Statements of truth are required for certain key court documents – for instance

witness statements and pleadings, but what if the contents are incorrect?

A subcontractor successfully fought off the contractor’s application for a stay of

execution of the judgment on an adjudication award with witness statements, signed

with a statement of truth, from two directors, in which they described the

subcontractor as a solvent profitable going concern with good prospects. Three and a

half months later, the subcontractor went into administration and the contractor

applied to the court for permission to apply for committal for contempt of the two

directors.

Dismissing the application, Mr Justice Akenhead said that it could be contempt of

court for a witness to make a statement, supported by a statement of truth, recklessly,

i.e. the witness could be proved, beyond reasonable doubt, to have said something

with no idea whether it was right or wrong. People who sign or authorise the signing

of statements of truth must appreciate that there is a real possibility that the court

might act on the basis that they are true and that the opposing party might well have

regard to them also. People who sign them knowing that the contents of the attested

document are untrue must also appreciate that they may face contempt proceedings

and, possibly, independent criminal proceedings.

Berry Piling Systems Ltd v Sheer Projects Ltd [2013] EWHC 347

HOME IS WHERE ... SECTION 106 APPLIES

A construction contract for refurbishment of the house at 3 Cavendish Avenue was in

writing but had no adjudication clause. Did the Construction Act apply, so that the

adjudication was valid and the contractor could enforce the adjudication award, or

did section 106 of the Act stand in the way?

Section 106 says that the Act does not apply to a construction contract with a

“residential occupier”, who occupies, or intends to occupy, a dwelling as their

residence. In Westfields Construction Ltd v Lewis it was accepted that an employer

under a construction contract could only occupy one residence at a time but did the

exception apply? No, decided Mr Justice Coulson, because the employer’s intention, at

all times, was to let the property and there was no residential occupation, either

ongoing or at the date of the contract. The judge did, however, question whether it is

time to do away with section 106.

Westfields Construction Ltd v Lewis [2013] EWHC 376

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USING YOUR DISCRETION? DON’T BE IRRATIONAL.

If a party to a contract has a discretion, for instance to make an assessment or to

choose from a range of options, taking into account the interests of both parties, is

there any check on the way that they exercise that discretion?

The Court of Appeal has confirmed that there is. The cases say that, in any contract

under which one party has such a discretion (which is more than a simple decision

whether or not to exercise an absolute contractual right), there is an implied term,

“extremely difficult to exclude”, that, in essence, it will not exercise its discretion in an

arbitrary, capricious or irrational manner.

Lord Justice Jackson also said that there is no general doctrine of “good faith” in

English contract law, although a duty of good faith is implied by law in certain

categories of contract. If the parties wish to impose such a duty they must do so

expressly.

Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a

Medirest) [2013] EWCA Civ 200

NO DPA LIABILITY FOR DREAM HOME OWNERS

A claim over structural defects in a house that was subsequently demolished,

judgment against a builder with no apparent assets and an architect who might not

have any professional indemnity cover. Did the claimants, the Zennstroms, have any

other options?

They chose a claim under the Defective Premises Act against the sellers of the house.

The DPA places obligations of strict liability not only on those who ‘take on work’ for

or in connection with a dwelling, e.g. designers and builders, but also on those who,

in the course of a business of providing or arranging to provide dwellings, arrange for

others to take on this work. In the judge’s view it was not necessary that the arranger

has already developed a dwelling in the course of the business before they could be

under the DPA duty in respect of the dwelling in question. So were the homeowners

who arranged for No. 22 Crowsport to be completely rebuilt and sold to the

Zennstroms, less than a year after practical completion, liable under the DPA?

No, because the judge was satisfied that, when the owners embarked on the

rebuilding of No. 22, they had no intention of selling it. It was to be their dream

home.

Zennstrom & Anor v Fagot & Ors [2013] EWHC 288

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SCOTTISH COURT REFUSES ADJUDICATION ENFORCEMENT ON HUMAN RIGHTS GROUNDS

Several years after completion of its bottling plant, Whyte and Mackay obtained an

adjudication award, on a professional negligence claim, for almost £3 million. The

claim was against consulting engineers Blyth & Blyth over settlement of the plant

and the omission of piling, but the plant could be used for its intended purpose, the

piling omission saved Whyte and Mackay £894,674 and the bulk of the claimed

losses would not occur until 2035/6.

The court found that the adjudicator’s decision was in breach of the rules of natural

justice, because he did not deal with an important submission from the engineers. It

also decided that enforcement of the decision would be in breach of Article 1 of the

first protocol to the European Convention on Human Rights, as an unjustified

interference with the engineers’ peaceful enjoyment of their possessions. It would be

“disproportionate and wrong” to enforce the award, especially in the absence of any

security for repayment in the event that the engineers were ultimately successful in

defending the claim. The court did not consider, however, that its decision would

upset the proper working of the compulsory adjudication regime.

http://www.scotcourts.gov.uk/opinions/2012CSOH89.html

FIXING A CONTRACT BREAKDOWN - WHAT ABOUT THE COSTS?

Azzurri Communications supplied the AA with telephone handsets for its UK call

centres but there were problems with the handsets. Azzurri investigated the faults

and it emerged that the handsets might be counterfeit. Azzurri surrendered the

handsets to the manufacturer and bought 1077 replacements for the AA. Included in

Azzurri’s claim against the handset supplier was a claim for the management and

staff time spent in fault investigation and supplying the replacement handsets.

The case law says that, to recover this type of loss, the claimant must establish the

fact and extent of the diversion of staff time and that the diversion caused significant

disruption to its business. Ordinarily, unless the defendant can establish the contrary,

it is reasonable for the court to infer from the disruption that staff would otherwise

have applied the time to activities which would, directly or indirectly, have generated

revenue for the claimant at least equal to the costs of employing them during that

time.

Azzurri failed in its claim for the management costs of investigating the faults,

because fault-finding and correction were, in the judge’s view, part of its support

function, but it succeeded in its management costs claim in respect of replacing the

handsets.

Azzurri Communications Ltd v International Telecommunications Equipment Ltd

(t/a SOS Communications) [2013] EWPCC 17

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30 Construction & Engineering London Legal Update

WOT - NO REFERRAL? JUST ASK!

A dispute under an ACA project partnering contract raised the question of whether

an adjudication referral had been properly served. It turned out that it had been sent

to the adjudicator in the key 7 day period after service of the notice of adjudication

and that, said the judge, is what gives the adjudicator jurisdiction. Failure to provide

the other party with the referral in the 7 days does not prevent the adjudicator having

jurisdiction but it might, depending on the circumstances, raise a natural justice

issue.

In any event, the project partnering contract required the parties to work together to

achieve transparent and cooperative exchange of information “in all matters relating

to the project” which, in the judge’s view, included dispute resolution. The judge would

therefore have expected the defendant to contact the claimant to clarify the position

concerning the referral and the defendant could not complain if it was itself in breach

of the cooperation obligation.

The defendant also complained that the adjudicator could not decide two disputes

between the same parties at the same time, although the disputes were the subject of

separate adjudications. The judge said that the one dispute per adjudication

restriction did not apply where a party has started more than one adjudication, each

dealing with a single dispute, and they are dealt with by the same adjudicator.

Willmott Dixon Housing Ltd v Newlon Housing Trust [2013] EWHC 798

COULD REASONABLENESS OR GOOD FAITH GET IN THE WAY OF TERMINATION?

A housing association terminated a gas servicing contract just 17 months into a four

year term. The termination clause entitled either party to terminate, on notice,

without any reason being required but the contract was based on an ACA term

partnering form requiring partnering team members to work together in a spirit of

“trust, fairness and cooperation” and “to act reasonably ...in all matters governed by

the Partnering Contract”. No breach was alleged and the contractor claimed that the

association must therefore act reasonably in deciding whether to terminate. It also

claimed there was an implied term that each party should act in good faith, in

particular in operating the termination clause.

Both arguments failed. If the duty to act reasonably in “all matters” meant that the

association must act reasonably in exercising all its powers and rights, that would

undermine a significant number of other contract clauses that the parties had agreed

the association could exercise unconditionally or subject to conditions. And the judge

considered there was no implied term of good faith. The parties had gone as far as

they wanted in the clause requiring them to work together in a spirit of “trust,

fairness and mutual cooperation” and to act reasonably. Even if there was such a

term, it could not restrict what the parties had expressly agreed in the termination

clause.

TSG Building Services Plc v South Anglia Housing Ltd [2013] EWHC 1151

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COURT REJECTS NATURAL JUSTICE CHALLENGE TO ADJUDICATOR WITH EXPERTISE

A contractor challenged an adjudicator’s award, claiming that, in deciding on a rate

for valuing compensation events under an NEC3 subcontract, the adjudicator had

taken a point against it that neither party had advanced. Rejecting the argument, the

judge noted that the adjudicator had asked for the parties’ submissions on the point

and had determined the appropriate rate based on what had been submitted. It is not

practicable, he said, for the adjudicator to go back to the parties with each

provisional conclusion which represented some intermediate position for which

neither party was contending. The parties had chosen an adjudicator who was the

author of a commentary on the NEC3 Conditions and evidently he was chosen

because of that expertise.

The contractor also applied, unsuccessfully, to stay enforcement on the basis of the

subcontractor’s financial position. It was not shown that the subcontractor was

insolvent or that its financial position was any different from when it entered into the

subcontract. The judge also confirmed that there is no general obligation on a party

seeking enforcement to disclose confidential information of its financial and business

position, so that the other party can consider if there are grounds for seeking a stay. If

there was, parties could gain the benefit of that confidential information. In the

competitive construction industry, that could have serious consequences in relation

to tendering or dealing with disputes.

Farrelly (M & E) Building Services Ltd v Byrne Brothers (Formwork) Ltd [2013]

EWHC 1186

SIX MONTH DELAY ON 999 YEAR LEASES NOT A REPUDIATION, SAYS COURT OF APPEAL

Under an agreement to construct and lease commercial units in a development for

999 years, developers had to carry out the works with “due diligence” and to use

reasonable endeavours to procure completion by target dates or as soon as reasonably

possible thereafter. The developers put work on two of the blocks on hold for more

than a year, because of funding difficulties. Shortly after work had resumed, the

prospective tenant claimed the suspension was a repudiation, which they accepted.

But was it?

The Court of Appeal, overturning the original judgment, said it was not. The position

had to be considered as at the date of the purported termination, when work had

actually restarted and been in progress for two and a half weeks. It was not possible

to say, at that date, that the actual and reasonably foreseeable effects of the breaches

of contract would deprive the proposed tenant of a substantial part (let alone

substantially the whole) benefit of the contract and, as time had not been made of the

essence, delay, even with its attendant uncertainties, would only become a

repudiatory breach if the delay was so prolonged as to frustrate the contract. In the

context of an agreement to grant 999 year leases, the case was far from that. The

increased gap in handover of the blocks caused by the suspension was in fact six

months.

Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings Ltd [2013] EWCA Civ 577

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32 Construction & Engineering London Legal Update

SUPREME COURT REINFORCES THE ‘CORPORATE VEIL’

The law gives companies that go through the process of incorporation a legal

‘personality’ of their own so that they can, for instance, make contracts or own

property quite separately from their shareholders or directors. Sometimes, however,

the courts talk of ‘piercing the corporate veil’, i.e. disregarding the separate legal

personality of the company. But when?

In Prest v Petrodel the Supreme Court said that the principle applies when someone

deliberately evades, or frustrates enforcement of, an existing legal obligation or

liability or legal restriction by interposing a company under their control. The court

can then ‘pierce the corporate veil’, but only for the purpose of depriving the company

or its controller of the advantage they would otherwise have obtained by the

company’s separate legal personality. The principle is limited, because in almost

every case where the test is satisfied, the facts will in practice disclose a legal

relationship between the company and its controller which will make it unnecessary

to pierce the corporate veil.

Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34

CONTRACT DAMAGES: WOT, NO LOSS?

Damages for breach of contract are intended to compensate the innocent party for

loss of the contract performance they were entitled to receive. But what if they did

not suffer any loss?

In Co-operative Group Ltd v Birse Developments Ltd the defendants objected to

an amendment to a defects claim because, they said, total replacement of a floor slab

was being carried out essentially for reasons that could not be claimed against them.

In deciding that the claimants had a reasonably arguable case for the amendment,

the judge had to consider key principles governing recovery of damages for breach of

contract. The leading case of Ruxley v Forsyth (http://www.bailii.org/uk/cases/

UKHL/1995/8.html) said that it is necessary to ascertain the loss the claimant has

actually suffered by reason of the breach. If the claimant has suffered no loss, as

sometimes happens, they can recover no more than nominal damages because the

object of damages is always to compensate the claimant and not to punish the

defendant.

Co-operative Group Ltd v Birse Developments Ltd & Ors [2013] EWHC 1790

WHO DO WE THINK YOU ARE?

The sole director and shareholder of a furniture company signed a letter containing

the written terms of a contract with a firm of engineers. Below the signature was his

name and, beneath that, the trading name of the company, with no reference to a

limited company or the company’s name. So who had contracted with the engineers?

The Court of Appeal, who decided that the director had contracted personally, said

that, in determining the identity of a contracting party, the court’s approach is

objective. What would a reasonable person, possessing the relevant information,

conclude? The person who signed is the contracting party unless the document

makes clear that they signed as agent for a ‘sufficiently identified’ principal or as the

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officer of a ‘sufficiently identified’ company, or extrinsic evidence establishes that

both parties knew the person was signing as agent or company officer. But if the

extrinsic evidence establishes that a party has been misdescribed in the document,

the court may correct that error as a matter of construction, without any need for

formal rectification.

Hamid (t/a Hamid Properties) v Francis Bradshaw Partnership [2013] EWCA Civ 470

ADJUDICATOR GETS CLAUSE INTO AWARD – WITH FATAL CONSEQUENCES

It’s not often that an adjudication award is struck down because an adjudicator has

failed to observe the rules of natural justice. Errors of fact or law on their own are not

enough; there also needs to be a serious failure of the process on the part of the

adjudicator. An adjudicator’s award relied on a clause that neither party had

mentioned and which he had not mentioned to them before issuing the award. Was

that a fatal mistake?

Yes, said Mr Justice Akenhead. The adjudicator had decided a key issue in the

adjudication by referring to, and relying on, the clause without giving the parties a

chance to comment. As the issue was at least of considerable potential importance to

the outcome of the resolution of the dispute and could well have been decisive, this

was a material breach of the rules of natural justice and the award was invalid.

ABB Ltd v Bam Nuttall Ltd [2013] EWHC 1983

HOW NOT TO BE A NUISANCE

If global warming, or just soggy British weather, is going to cause flooding, the

veteran tort of nuisance could have a role to play. In 2000 Cornwall Council installed

drains and gullies in a section of road prone to flooding, after heavy rain, but on two

subsequent occasions, when the gullies were blocked with leaves and debris, the road

flooded and caused damage to an adjacent holiday village. Was the council liable for

not clearing the gullies?

The Court of Appeal ruled that a landowner owes a ‘measured duty’ in negligence and

nuisance to take reasonable steps to prevent ‘natural occurrences’ on their land (e.g.

flood water or tree roots) from causing damage to neighbouring properties. In

determining the content of this duty, the court must consider what is fair, just and

reasonable as between the two neighbouring landowners and have regard to all the

circumstances, including the extent of the foreseeable risk, the available preventive

measures and their cost, and both parties’ resources. If the defendant is a public

authority with substantial resources, the court must take into account the competing

demands on those resources and the public purposes for which they are held. It may

not be fair, just or reasonable to require a public authority to expend those resources

on infrastructure works in order to protect a few individuals against a modest risk of

property damage. The Court was doubtful that the availability of insurance was a

relevant factor in this enquiry.

The Court confirmed that the council was liable because they should have taken (but

did not take) reasonable steps to keep the drainage installation functioning properly.

Vernon Knight Associates v Cornwall Council [2013] EWCA Civ 950

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3 4 Construction & Engineering London Legal Update

COURT OPENS DOOR TO WARRANTY ADJUDICATION CLAIMS

Is a collateral warranty a ‘construction contract’ under the Construction Act, so that a

claim under a warranty could go to adjudication?

The answer in Parkwood Leisure Ltd v Laing O’Rourke was that it could be. In

Parkwood the warranty was ‘clearly one “for the carrying out of construction

operations by others”’ and a ‘construction contract’ but the judge said that not all

collateral warranties will be Construction Act ‘construction contracts’. It is necessary

to determine, in the light of the wording and the relevant factual background,

whether a warranty is a construction contract for the carrying out of construction

operations. A ‘very strong pointer’ that it is will be whether the contractor is

undertaking to the beneficiary of the warranty to carry out construction operations.

A pointer against may be that all the works are completed and that the contractor is

simply warranting that they have reached a certain level, quality or standard.

Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd [2013] EWHC 2665

ANOTHER CONTRACT IDENTITY CRISIS

A tender, letter of intent and draft contract documents all identified the contractor as

‘Cuddy Group’, the trading name of Cuddy Demolition and Dismantling Limited, but,

after website searches, the employer’s solicitors mistakenly identified a different and

dormant Cuddy company, Cuddy Civil Engineering Limited, as carrying out the

works and requested that CCEL be substituted for ‘Cuddy Group’ in the contract,

which it was. After the contract was signed, could the mistake be corrected by the

court (replacing CCEL with CDDL)?

No, said the court. For the court to correct a mistake, as a matter of interpretation, in

identifying a party, there must be a clear mistake on the face of the document when it

is read by reference to its background or context and it must be clear what correction

should be made to cure the mistake.

On an objective analysis, the parties intended that the party acting as the contractor

should change from ‘Cuddy Group’ to CCEL, as requested by the employer, without

discussion, no matter who was then carrying out the works. They had not intended

to refer to CDDL, rather than CCEL, as the contracting party and the employer’s

claims that CCEL was a misnomer for CDDL, that there was a common or unilateral

mistake in respect of the contracting party, that the contract should be rectified and

that CDDL was estopped from denying that it was the contracting party, all failed.

Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWHC 2688

MAKING A CONTRACT – SO DID THEY OR DIDN’T THEY?

Sometimes construction contracts are never finalised; completing the project on time

and budget and to specification are the priority and agreeing and signing the contract

can take second place. Sometimes, however, the problem with commercial contract

negotiations is whether the parties achieved a binding contract. Proton v Orlen Lietuva was just such a case and provides a useful reminder of contract basics.

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An oil spot deal was negotiated very quickly, with some terms to be negotiated later,

but was there a legally binding contract? The court said that, objectively, there was. It

was a classic spot deal where the speed of the market required the parties to agree the

main terms and leave the details, some of which could be important, to be discussed

and agreed later. As the Supreme Court has said, whether there is a binding contract

(and, if so, its terms) depends on what the parties have agreed, what was

communicated between them by words or conduct, and whether, objectively, they

intended to create legal relations and had agreed all the terms which they, or the law,

considered essential to form legally binding relations. Even if significant terms have

not been finalised, an objective appraisal of their words and conduct may conclude

that they did not intend agreement of those terms to be a precondition to a legally

binding agreement.

Proton Energy Group SA v Lietuva [2013] EWHC 2872 (Comm)

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0269conOctober 2013