The document provides a summary of a caselaw update from Stephen McLellan, a solicitor. It discusses several recent court cases related to construction law: - Walter Lilly v DMW Developments: Contractor awarded extension of time and damages for concurrent delays not of its making. Global claims must evidence specific losses. - Alstom Power v Somi Impianti: Interpretation of contract terms determines ownership of materials on-site. 'Deemed to be' property has different meaning than 'becoming' property. - Cleveland Bridge v Severfield-Rowen: Subcontractor awarded payment but also damages for its delays. Records of delays, disruption and defects important. -

1. Caselaw Update
CECA
clear pr acti cal advi ce
Stephen McLellan
February 2013

2. Stephen McLellan
Solicitor
Construction and Engineering
Watson Burton LLP
Telephone: 0845 901 0936
Email: stephen.mclellan@watsonburton.com

3. Topics
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Extensions of time, concurrent delay and global claims
Ownership of Assets
Payment and Delays
Professional Advice
Enforcement of Adjudicator’s Decision
Terminology in Contracts

4. Extension of Time,
Concurrent Delay and Global Claims
Walter Lilly and Co Ltd v Giles Patrick Cyril Mackay, DMW
Developments Ltd [2012] EWHC 1773

5. The Facts
• Walter Lilly was employed by DMW to build 3 adjoining
houses in London
• DMW was a purpose designed company set up for the
acquisition of the land on which the houses were to be
built
• Mr Mackay was to occupy one of the houses

6. The Facts (…cont)
• There were a number of problems from the outset
– Little of the design had been completed
– All the building works were subject to provisional
sums
– The drawings and specification contained very little
detail
– Overall, there were significant delays in making
design decisions

7. The Facts (…cont)
• The original completion date was January 2006
• Extensions of time were granted up to February 2007
• Practical completion was achieved in July 2008
• Walter Lilly issued proceedings against DMW seeking
various payments and an extension of time until PC

8. The Decision
•
Walter Lilly was awarded £2.3m, which included:
– prolongation costs
– a sum for delay-related loss of overheads and profit
– a sum for delay and disruption submitted by Walter
Lilly’s subcontractors
• Mr Justice Akenhead:
– “The court or arbitrator must decide on a balance of
probabilities what delay has actually been caused by
such Relevant Events as have been found to exist”

9. The Decision (…cont)
• “Where there is an extension of time and where the
delay is caused by two or more effective causes, one
which entitles the contractor to an extension of time as
being a Relevant Event, the contractor is entitled to a full
extension of time”

10. The Decision (…cont)
• Walter Lilly was entitled to a full extension of time up to
PC, as it had no responsibility for the delays
• The correct approach when analysing delay is as
follows:
– what critically delayed the works?
– identify the longest sequence of outstanding works
– it is not necessarily the last item of work that causes
the delay

11. The Decision (…cont)
Prolongation Costs
• The architect/QS has to be satisfied that all or some
of the loss and expense claimed was likely to have
occurred or had in fact occurred - they did not have
to be certain
• Walter Lilly’s claim was not ‘global’: it had sought to
identify specific additional resource, linked to the
events relied upon

12. The Decision (…cont)
Seven propositions concerning global claims:
1. The contractor must prove that loss or delay has arisen
and demonstrate on the balance of probabilities:
•
events occurred entitling it to loss and expense;
•
those events caused delay and disruption; and
•
the delay and disruption caused it to incur loss
and/or expense
Contractual restrictions?

13. The Decision (…cont)
2. Contractors can prove their entitlement with whatever
evidence will satisfy the requisite burden of proof
3. Are there conditions precedent which must be complied
with? If satisfied, then loss and/or expense can be
ascertained by appropriate assessments

14. The Decision (…cont)
4. Evidential difficulties: the contractor has to show on a
balance of probabilities that the loss would not have
been incurred in any event
5. If a series of factors caused or contributed to the total
or global loss, this does not mean the contractor can
recover nothing - it depends on the impact of those
events or factors
6. Global claims will be viewed more sceptically where
actual loss attributed to individual events can be
readily determined

15. The Decision (…cont)
7. It is not correct that a global claim should be disallowed
where the contractor has itself created the impossibility
of disentanglement

16. Lessons to be Learnt
• You need to review the contract to see what rights and
obligations you have regarding extensions of time and
concurrent delays
• You will need to prove what caused the delay on a
balance of probabilities
• If there is at least one ‘Relevant Event’ in a chain of
concurrent delays then an extension of time may be
granted

17. Lessons to be Learnt
• Record keeping is very important (site diaries,
timesheets, invoices etc.) when claiming losses
• There is no prescribed method for submitting global
claims, although the contractor must evidence loss and
entitlement
• If the global claim includes a contractor risk event, then
the loss attributable to that event will be omitted from the
claim

18. Ownership of Materials
• Alstom Power Ltd v Somi Impianti Srl [2012] EWHC
2644 (TCC)

19. The Facts
•
Alstom sought a declaration against Somi as to
ownership of certain assets
•
Alstom was the main contractor employed to construct a
power plant and sub-contracted the mechanical and
plant piping installation to Somi
•
Clause 54.2 provided that all of Somi’s equipment when
on site was ‘deemed to be’ Alstom’s property

20. The Facts (…cont)
•
Clause 54.9 stated goods supplied to site pursuant to
the sub-contract ‘would become’ Alstom’s property
•
Clause 63.2 stated that in the event of termination,
Alstom could take possession of such equipment on the
site reasonably required to complete the work
•
Clause 63.3 enabled Alstom to sell such equipment and
use the proceeds to satisfy any debt if the sub-contract
was terminated

21. The Facts (…cont)
•
The main works had been handed over to Alstom’s
employer but the warranty period had not ended
•
Alstom terminated Somi’s sub-contract for failure to
perform its duties and issued proceedings. It was
awarded summary judgement against Somi for £5.3M
•
Alstom subsequently sought a declaration that Somi’s
equipment on site was deemed to be Alstom’s property
and so Somi could not remove it

22. The Decision
• Whether property is transferred depends on the
construction and interpretation of the contract
• ‘Deemed to be’ the property of one party – need to look
at other terms of the contract
• There was a marked difference between ‘deemed to be’
the property of the contractor in clause 54.2 and
‘becoming’ the property of the contractor in 54.9
• The property was deemed to be the contractor’s whilst
on site but not before or after

23. The Decision (…cont)
• There was no commercial reason why it was necessary
to deem permanent ownership to be transferred to the
contractor
• Clause 63.2 only applied to the extent the equipment
was necessary to facilitate completion of the works
• Clause 63.3 only applied if there was a debt to satisfy
• There was no argument at the summary judgment
application about the permanent or temporary ownership
of goods in clause 54.2

24. The Decision
• Alstom had contractual rights over Somi’s equipment
and Somi had no right to remove them
• As Alstom’s termination was valid, it had possessory
rights over Somi’s equipment until the works were
completed at the end of the warranty period (not just until
PC)
• Alstom had a right to sell Somi’s equipment, subject to
the requirements of clause 63.3 being met
• Ultimately, propriety ownership would not permanently
transfer to Alstom

25. Lessons to be Learnt
• Make sure you understand these terms when entering
into a contract – not always straight forward
• You have to look at all the terms of the contract as a
whole
• A right to sell equipment could be valuable to contractors
where its value can be considerable, particularly in cases
where a sub-contractor goes insolvent

26. Payment and Delays
• Cleveland Bridge UK v Severfield-Rowen Structures Ltd
[2012] 3652

27. The Facts
•
This case involves works to the Shard in London
•
Severfield was employed for the steel contract and it subcontracted the fabrication and supply of steelwork to Cleveland on
the first 9 levels
•
The main issues concerned delays caused by Cleveland and the
impact of these delays on Severfield’s progress over the next 31
levels of steelwork
•
Cleveland blamed a number of factors for the delay, including an
overload of work. Severfield attempted to make up the delay and
employed 2 additional subcontractors to accelerate the works
•
The acceleration works failed to make up the delay and the main
contractor, Mace, argued the main contract was being delayed by
the late installation of the steelwork

28. The Facts (…cont)
•
Severfield declined to make any further payments to
Cleveland
•
Cleveland issued a claim for £1.2M plus VAT and loss
and damages of £908k
•
Severfield admitted £825k of the outstanding monies
but said these were subject to set-off
•
Severfield claimed there were defects in Cleveland’s
steel works, and claimed £2.5M in damages

29. The Decision
• Cleveland was entitled to £928K plus VAT from
Severfield by way of sums due under the sub-contract
• £824k in damages for delays and defects was awarded
to Severfield
• Cleveland’s claim for extensions of time and variations
was rejected

30. The Decision (…cont)
• Cleveland had taken on ‘more work than it had the
capacity to deal with’, and had sub-contracted out the
work too late so that delay was caused in the critical
phase of the works
• The Court criticised the lack of evidence which Cleveland
put forward to support its claim for an extension of time
and variations

31. Lessons to be Learnt
• Make sure you have sufficient capacity and plan projects
thoroughly
• If sums are due and owing to a sub-contractor then
these should be paid (unless you have a valid set off
clause)
• Keep records of any delay, disruption or defects

32. Professional Advice
• Middle Level Commissioners v Atkins Ltd [EWHC] 2884
(TCC)

33. The Facts
•
MLC was a drainage authority that claimed for professional
negligence against Atkins
•
Atkins was appointed to explore options for upgrading a
water pumping station, or building a new one, and engaged
in consultation with local residents and planning authorities
•
The local planning authority indicated that the development
did not need planning permission as it was a ‘permitted
development’
•
Atkins advised that planning permission was not necessary,
and advised against obtaining a certificate of lawful use

34. The Facts (…cont)
•
Local residents subsequently objected to a temporary
access road required by MLC and issued proceedings
for judicial review of MLC’s decision to proceed, on
grounds including lack of planning permission for the
development
•
MLC alleged that Atkins had been negligent in advising
that the pumping station works were a permitted
development and that it was unnecessary to obtain a
certificate of lawful use

35. The Decision
• There was no negligence by Atkins
• The test in a negligence claim involves asking what
advice would a ‘reasonably well informed and competent
member of the profession have given’
• The legislation supported the view that planning
permission was not required and the pumping station
was a permitted development
• Atkins was entitled to take account of the planning
authority’s view that planning permission was not
required, and also the fact that there had been no
objections during the consultation period

36. The Decision (…cont)
• Atkins had raised the option of seeking a certificate of
lawful use and had stated that the issue of the permitted
development was open to interpretation
• It had correctly advised that MLC could obtain
retrospective planning permission if the local authority
changed its mind as to the permitted development status
of the works
• It was reasonable for Atkins not to have anticipated the
potential for judicial review, having been through a
proper consultation

37. Lessons to be Learnt
• The burden of proof is high when considering claims
against professionals
• An objective test must be applied when assessing the
adequacy of advice given
• The decision gives some comfort to professionals in
terms of what they are expected to foresee when giving
advice

38. Enforcement of an Adjudicator’s Decision
• Beck Interiors Ltd v Classic Decorative Finishing Ltd
EWHC 1956 (TCC)

39. The Facts
•
Beck sought to enforce an adjudicator's decision against CDF
•
CDF sought to set off against that decision sums it claimed were
due under a separate contract
•
Beck had engaged CDF to carry out works at a property in London
•
Following a dispute, the matter was referred to adjudication
•
The adjudicator found that Beck was entitled to the sum of £43k
•
This sum was not paid by CDF; instead it raised a defence
alleging the sum was not due because Beck owed it around the
same amount under another contract

40. The Decision
• Judgment was given in favour of Beck
• It is very rare for a court to permit an unsuccessful party in an
adjudication to set off another claim against the sum awarded
• Any sums awarded by an adjudicator should be paid in
accordance with the decision, which the courts will enforce
• There are 2 exceptions:
– where the set-off provisions in the contract were capable of
being construed as giving the unsuccessful party the right
to make such a set-off
– where the adjudicator does not order immediate payment

41. The Decision (…cont)
• There was no express set-off clause in the contract
• The adjudicator had ordered immediate payment
• The right of equitable set off needs to be considered:
– can only be permitted where the cross claim was so
closely connected with the claim that it would be
unjust to allow the claim without taking it into account
• There was no connection between the 2 contracts other
than them being between the same parties

42. Lessons to be Learnt
• Comply with an adjudication award
• Set-off will only be permitted in very limited
circumstances
• If an equitable set-off is to be relied on, the relevant
contracts must be very closely connected

43. Terminology in Contracts – ‘reasonable
endeavours’ and ‘with due diligence’
• Ampurius NU Homes Holdings Ltd v Telford Homes
(Creekside) Ltd [2012] EWHC 1280 (Ch)

44. The Facts
•
Telford was engaged in constructing a mixed residential
and commercial development
•
Telford was to construct the development and grant
Ampurius a series of long leases of the ground and first
floor commercial units in each of the 4 blocks
•
2 of the blocks were to be completed before the other
two with ‘Target Completion Dates’ 7 months apart

45. The Facts (…cont)
•
Clause 2.3 of the contract stated Telford would ‘ensure
that the works were carried out with due diligence’
•
Clause 2.4 stated that Telford would ‘use its reasonable
endeavours to procure completion of the…works by the
Target Date or as soon as reasonably possible
thereafter’

46. The Facts (…cont)
•
Telford encountered difficulties in obtaining financing for
the project
•
It stopped work in June 2009
•
In November 2009 Telford demanded monies due
under the contract, but Ampurius asserted that Telford
was in repudiatory breach of clauses 2.3 and 2.4
•
Ampurius took part in negotiations with Telford with a
view to the works being resumed, but terminated
Telford’s contract in October 2010 just after they
resumed work

47. The Facts (…cont)
•
Ampurius alleged breach of contract for the cessation of
works
•
Telford argued the contractual requirement of due
diligence meant due care not due expedition because
there was already a separate time obligation
•
Telford argued that it had used all reasonable
endeavours to obtain funding and so had discharged its
obligations in terms of time

48. The Decision
• The court rejected Telford’s arguments
• Due diligence meant more than doing the work carefully,
and connotes both due care and due expedition
• Halting construction was not exercising due diligence on
Telford’s part, placing it in breach of contract
• The obligation to use reasonable endeavors covers
matters that relate directly to the physical conduct of the
works and not reasons such as having insufficient
financial resources

49. The Decision (…cont)
• The obligations were neither conditions nor warranties
but innominate terms, so whether or not there was a
repudiation turned on the nature of the breach
• As the works had been halted for a year, there was no
possibility of meeting the target date so the delay was
sufficient for it to be repudiatory

50. The Decision (…cont)
• As to whether Ampurius had left it too late to claim
repudiation and thereby terminate the contract:
– the court held Ampurius had not affirmed the contract
by undertaking negotiations as to whether Telford
resumed the works
– it was entitled to take time to decide whether to
accept the repudiation and could take part in without
prejudice negotiations

51. Lessons to be Learnt
• Reference to obligations of ‘due diligence’ includes care
and time
• ‘Reasonable endeavours’ cannot be excluded by lack of
funding
• Care has to be taken when treating a breach of contract
as a repudiation
• A party is entitled to take time considering its options
before accepting another’s repudiation

52. Caselaw Update
CECA
clear pr acti cal advi ce
Stephen McLellan
February 2013