Quarterly Case Law Update (Article 74)

 

 

Introduction

In this Article we consider some recent Case Law which centres around:

1. Notices Issued by the Correct Party;
2. Termination and Insolvency - Time Bar and The Construction Act; and
3. Deadline for Bringing a Contractor Claim.

Notices issued by the Correct Party

The first case, Struthers & Anor v Davies (t/a Alastair Davies Building) & Anor [2022] EWHC 333, was in relation to works which were carried out under a RIBA Building Contract. The building work at the Struthers’ home had a Completion Date under the Contract of 10 August 2015 and, as with many construction projects, suffered delays. The Contractor (Davies) did not carry out any further meaningful works after 10 December 2015. The Struthers then sought to terminate the Contractor’s employment.

One of the points in the case centred around whether the Contractor’s employment was validly terminated. The RIBA Contract sets out a procedure for termination. Once a ground for terminating the Contract had occurred (for example failing to proceed regularly or diligently or abandoning the work) a Notice of Intention to Terminate could be issued. The Contract stated this was to be served by the Contract Administrator. If the breach continued then, after 14 days of the Contractor receiving the Notice of Intention to Terminate, a Notice of Termination could be served.

The Struthers issued a Notice of Intention to Terminate and then, less than 14 clears days later, a Notice of Termination.

The validity of the Termination was disputed by Davies.

The Judge found that the attempted Contractual Termination was invalid as the Notice of Intention to Terminate was issued by the Struthers and not by the Contract Administrator. The Judge also found the Termination was invalid as there was no proof of receipt of the Notice of Intention to Terminate, and the Notice of Termination was issued less than 14 clear days after receipt of the Notice.

In this particular case, the Judge was in no doubt that “the First Defendant's egregious self‑caused failures to progress regularly and diligently are in fact and law repudiatory in nature”. The Judge found that the Struthers’ Notice was an acceptance of the Contractor’s repudiatory breach.

Conclusion

This case demonstrates that great care must be taken when terminating a Contract to ensure the Contractual Procedures are followed and termination takes place The failure to proceed regularly and diligently might not always be severe enough to be a repudiatory breach.

Prior to terminating a Contract, it is important to ensure that there has been a breach of the Contract (for example, a failure to proceed regularly and diligently). This could require an analysis of the Programme and Progress Records. It is then necessary to ensure the correct procedures are followed when the Contract is terminated.

If a Party is found to have wrongfully terminated a Contract, it could be pursued for damages.

Termination and Insolvency – Time Bar and the Construction Act

In the case of Levi Solicitors LLP v Wilson & Anor [2022] EWHC 24, the Court was required to examine the Construction Act and its Application to the Final Account Mechanism within the JCT Minor Works 2011 Contract.

JKR Property Development Limited (“JKR”) employed Farrar Construction Limited (“Farrar”) to carry out building works, but Farrar subsequently became insolvent via entering a Company Voluntary Agreement (“CVA”). Clause 6.7.3 of the JCT Minor Works requires a Certificate or Statement of Account to be issued within 3 months of Insolvency, setting out the costs incurred by JKR along with the sums already paid to Farrar. If the amount was greater than what would have been due to Farrar, if they completed the works, the additional sum would be due as a debt from Farrar to JKR.

JKR did not issue the Certificate or Statement of Account within 3 months. It later issued a Proof of Debt (showing it had overpaid for the Works and also claiming Liquidated Damages) which was accepted by the CVA Supervisor (Mr Wilson).

Levi Solicitors raised an action that the proof should not have been accepted, which focussed on 2 points:

1. Was JKR “time-barred” from issuing the Proof of Debt as it did not issue a Certificate within 3 months?
2. If JKR had been time-barred from submitting its Certificate, could it still submit a Payee Notice under Section 110B(2) of the Construction Act?

Was JKR “time-barred” from issuing the Proof of Debt as they did not issue a Certificate within 3 months?

In relation to the first point, the Court found that the 3-month timescale referred to within Clause 6.7.3 was a “strict” time limit and there was no wording located within the Contract to suggest any different.

If JKR had been time-barred from submitting its Certificate, could it still submit a Payee Notice under Section 110B(2) of the Construction Act?

JKR’s assertion that it could submit a Payee Notice if it had been time-barred failed as the Court judged the Construction Act did not apply to situations such as those within Clause 6.7.3. The Court also held that the payment mechanism within the JCT Minor Works, under Clauses 4.3 to 4.8, fell away post-Insolvency and the Contract mechanism for Insolvency replaced this.

Conclusion

Whilst this case was focussed on the JCT Minor Works Contract, the findings within the case will be applicable to other JCT Suites of Contract such as the Standard Building Contract and Design and Build Contract. Administration of the Contract and compliance with the timescales and procedures in the Contract is crucial to avoid uncertainty and to protect the financial position.

Deadline for Bringing a Contractor Claim

The case of Hirst v Dunbar [2022] EWHC 41 (TCC) was in relation to the construction of houses and flats.

Mr Hirst stated that there was an oral Contract in place, where it was agreed Mr Dunbar would pay Mr Hirst a reasonable sum for the work carried out. The Works were carried out between 2011 and 2012. Mr Hirst issued a Payment Demand in 2014.

Mr Dunbar denied employing Mr Hirst, and stated that Mr Hirst had undertaken the work as he intended to purchase the site at a later date. Mr Dunbar argued that, even if a Contract had existed, Mr Hirst was too late to bring a claim as the Works were completed in 2012. Mr Hirst did not bring a claim until 2019 which was outside of the 6-year limitation period.

The Judge found that there was no agreement between the Parties and Mr Hirst was therefore not entitled to any payment. The case raises some interesting points on the Limitation Period (The Limitation Act 1980).

Was the Claim Outside of the Limitation Period?

Mr Hirst argued that the Contract was subject to the Scheme for Construction Contracts, and the Limitation Period did not begin to run until a Payment Notice under Paragraph 9 of the Scheme had been or should have been issued by the Defendant. The Claimant stated that the effect of Paragraph 9 of the Scheme was to make the issue of a Payment Notice a precondition of the right to payment. Mr Hirst claimed that the Payment Notice would then become due 5 days after the making of a Claim.

The Court referred to the Common Law position that a cause of action (for payment) starts upon completion of the Works unless the Contract Terms say otherwise (for example, in Birse Construction Ltd v McCormick (UK) Ltd [2004] EWHC 3053 (TCC)). The Court found it highly unlikely that Parties would leave the payer in complete control over when the Limitation Period would begin.

The Court rejected Mr Hirst’s argument regarding Paragraph 9 of the Scheme. This was not a precondition to the right to payment and Paragraphs 6 and 9 of the Scheme did not change the rule that payment would become due on completion of the Works.

The Court made a distinction between “a provision which gives rise to an entitlement or right to payment and one which identifies when payment is due”. It was the Court’s opinion that the content of Paragraphs 6 and 9 of the Scheme simply determines when payment is due.

Conclusion

The Judgement confirms that the Scheme does not create an entitlement to payment but provides for the discharge of existing rights. Parties should ensure that any Claim which they wish to make is submitted at the earliest opportunity, as this case has highlighted there may not be as much time available to them as they believe.

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