A year in review Legal developments in the global construction and infrastructure sector
Contents Introduction 2015… the headlines 2016… the year ahead
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2015… a detailed year in review
In the spotlight
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– – The rush to build…the challenges from chasing opportunities in the development sector – – The Global Infrastructure Hub: building the framework – – Singapore’s arbitration law and enforcing FIDIC dispute adjudication board decisions – – South African construction law update: important – – HKIAC Procedures for the Administration of Arbitration – – Liquidated damages and the law on penalties – – Monitoring progress on construction projects – – The Modern Slavery Act: what does it mean? 58 – – Key trends in global infrastructure dispute resolution 60 Firm Foundations programme 64 Global projects and construction at Clyde & Co 65 48 54 26 30 34 38 procedural developments – – PPP developments in Dubai 42 46
Introduction We are pleased to present “A year in review”, a Clyde & Co update which sets out legal developments in the construction and infrastructure sector globally over the past 12 months as well as insights into what you need to be aware of in 2016. Issues discussed in this update include the challenges of working in the development sector, Dubai’s new PPP law, the Modern Slavery Act, liquidated damages and the law on penalties, and significant case law updates. We hope that this will be a valuable reference tool in helping you respond to and understand legal and industry developments and how they will affect your business in 2016. Please don’t hesitate to contact the article authors or infrastructure@clydeco.com if you have any questions or require further information.
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For a more detailed overview on these key developments look no further than the next chapter. 2015 …the headlines
January Australia: the WA Supreme Court refuses to enforce an adjudicator’s award, for the first time in the history of the Construction Contracts Act 2004 (WA) Hong Kong: the Hong introduces procedures for the Administration of Arbitration under the UNCITRAL Arbitration Rules Kong International Arbitration Centre July UAE: the UAE Commercial Companies Law introduces changes affecting the structures used by foreign investors to establish their businesses in the UAE France: a Government decree (Ordonnance) lays the legal foundations of a single public procurement regime
February UK: the Public Contracts Regulations 2015 (SI 2015/102) are published, governing procurement by public bodies and replacing the Public Contracts Regulations 2006
March UK: the Government publishes “Digital Built
Britain” - a Strategic Plan for Level 3 Building Information Modelling (BIM) UK: in a rare move, the Technology and Construction Court (TCC) refuses to enforce an adjudicator’s decision due to the possibility of bias
Australia: Standards Australia releases a new standard form of
contract (AS 1100 ‘General Conditions of Contract’) for public comment
August Canada: the Court of Appeal provides the first interpretation of thewording of a key insurance exclusion for defectiveworkmanship (LEG 2/96, developed by the London Engineering Group) Singapore: the Court of Appeal provides guidance in two decisions on adjudication
September UK: the TCC decides to enforce an adjudicator’s decision, despite the absence of a written contract Australia: the Supreme Court of NSWdecides that the submission of a payment claimdoes not amount to misleading or deceptive conduct, despite being many times in excess of what’s due
under the Building and Construction Industry Security of Payment Act
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April UK: the Construction
May Singapore: the Court of Appeal confirms that interim awards under Singapore’s International Arbitration Act (IAA) are final and enforceable UK: the TCC holds that an employer should not benefit from its own breach, by enforcing a condition precedent under the FIDIC Red Book and preventing a referral to arbitration
June UK: the Supreme Court finds a fresh cause of action allowing recovery of an overpayment made pursuant to an adjudicator’s award, despite the original dispute being time-barred Global: the Royal Institution of Chartered Surveyors (RICS) publishes the first edition of the newRICS PropertyMeasurement
(Design andManagement) Regulations 2015 (CDM2015) come into force, imposing revisedhealth and safety duties for the construction industry Singapore: the Court of Appeal rules that parties can agree to exclude the unconscionability exception to calls on on-demand bonds October HongKong: thefirstarbitration underthePilotSchemefor ArbitrationonLandPremium takesplace Australia: the Queensland Building and Construction Commission releases its Annual Report, providing detailed statistics on the use of adjudication under the Building and Construction Industry Payments Act 2004 (Qld)
November Kingdom of Saudi Arabia: amended labour laws set out new health and safety
December Hong Kong: the Competition Ordinance finally commences operation on 14 December 2015, banning anti-competitive practices
duties for employers UK: the Government
publishes guidance on the new reporting obligations for companies under the Modern Slavery Act 2015
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2016 …the year ahead These are just some of the developments proposed for 2016 that may impact your business: – – Global: FIDIC yellow book changes under review – – UK: new late payment rules promised by the Government for April 2016 – – UK: Level 2 BIMmandatory for all centrally procured public sector projects by April 2016 – – France: single public procurement regime in France to become effective on 1 April 2016 – – Hong Kong: Security of Payment Legislation to be introduced by 2017 – – Kingdom of Saudi Arabia (KSA): new classification process for bidders for government contracts from 10 March 2016
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January Kingdomof Saudi Arabia (KSA): Doing business in KSA? Sending employees to KSA? Not without a licence! Often businesses will seek to explore themarket through a partner or a third partywithwhich employees are placed and through which they seek to operate in the Kingdom. Such operations will more often than not fall foul of KSA legislation designed to prevent a non KSA entity using a KSA entity’s trade licence to do business in the Kingdom. Over the past three years, we have seen the KSA authorities clamp down on activities they regard as harmful to the economy and in breach of legislation. In 2013 a sixmonth immigration amnesty resulted inmillions of individuals correcting their status, and thousands being deported for illegal working. This regulatory clampdown has continued into 2015. In the past fewmonths theMinistry of Commerce and Industry (MOCI) has intensified its campaign against illegal business ventures being conducted by expatriates in the name of Saudis (‘Concealment’) (referred to in Arabic as Tasattur) as part of efforts to put an end towhat it called “the most dangerous practice” affecting the business community in the Kingdom. Tasattur business transactions in the Kingdomare estimated at more than SAR230 billion annually. 2015 …a detailed year in review Belowwe take a look around the world and detail some of the key changes from 2015. 01
UK: In Imtech Inviron Ltd v Loppingdale Plant Ltd [2014] EWHC 4006 (TCC) Loppingdale Plant Ltd (LPL) had entered into a Framework Agreement (FA) with Stansted airport, and works were instructed via a series of Task Orders. A series of Purchase Orders were then used to subcontract works to Imtech Inviron Ltd (Inviron). Under the FA, disputes were to be referred to adjudication using the NEC Adjudicator’s contract, and the adjudicator was to be one of three named persons. The Purchase Orders with Inviron contained a classic ‘awareness’ provision relating to the terms of the FA. After LPL failed to pay Inviron, Inviron initiated adjudication proceedings, but LPL contended that the adjudicator lacked jurisdiction. Inviron sought to enforce the adjudicator’s
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Australia: For the first time in the history of the Construction Contracts Act 2004 (WA) an application for leave to enforce a determination under the Act was refused by theWestern Australian Supreme Court in Harmsely Iron Pty Ltd v James [2015] WASC 10 . Forge (Claimant) was successful at adjudication in respect of a payment claim it submitted prior to entering voluntary administration. Between entering voluntary administration and the adjudicator’s determination, Hamersley Iron had terminated the contract and had recourse to Forge’s security. In arguing that the leave should not be granted to enforce the determinationHamersley argued it was entitled to set off the determination amount against amounts owed by Forge to it pursuant to s553C of the Corporations Act 2001 (Cth). Beech J was forced to consider the purpose of the Construction Contracts Act 2004 (WA) inmaintaining cash flow in the construction industry against the role of the Corporations Act in protecting creditors. The Court found that it would not be a just result if Hamersleywere forced to pay the amount of the determination and then prove the debts owed to it in the liquidation of Forge. Accordingly the court favoured the operation of the Corporations Act over the Construction Contracts Act in this instance. Hong Kong: On 1 January 2015, The Hong Kong International Arbitration Centre (HKIAC) introduced the HKIAC Procedures for the Administration of Arbitration under the UNCITRAL Arbitration Rules. To read more on this, please see page 46. decision, contending that there was no room for incorporating into the subcontract the adjudication provisions of the FA. In particular, under the FA, adjudication was a condition precedent to litigation. This was an onerous provision which required clear words for it to be imposed. The judge agreed that it was not clear that this was the intention, and proceeded to enforce the adjudicator’s decision.
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February UK: In Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm) the court considered competing jurisdiction clauses . The parties had entered into a consultancy agreement which contained an ICC arbitration clause. After a dispute arose, the parties subsequently entered into a settlement agreement which provided for the English court to have exclusive jurisdiction. When a dispute arose under that, the claimant issued both court proceedings and arbitration proceedings. The defendant counterclaimed in the arbitration proceedings, but this was dismissed after the tribunal decided it did not have jurisdiction. Relying on dicta in Fiona Trust & Holding Corporation v Privalov [2007] Bus LR 1917 [2008] 1 Lloyd’s Rep 254 , Popplewell J concluded that the jurisdiction clause in the settlement agreement should supersede the arbitration clause, as otherwise the parties could end up spending considerable amounts of time and money dealing with different issues arising out of the same case in different sets of proceedings. The judgment provides a logical solution to the issue, as well as a reminder of the importance of considering the consistency of jurisdiction clauses when drafting related documents. UK: On 5 February 2015, the Public Contracts Regulations 2015 (SI 2015/102) were published. These Regulations replaced the Public Contracts Regulations 2006. They implement Directive 2014/24 on public procurement and also certain measures aimed at ensuring that small businesses have better access to public sector contracts. For more information on Public Sector Directive 2014 and UK Public Contracts Regulations 2015 please click here . Australia: In February, Standards Australia (the supplier of the most commonly used standard form suite of contracts) released for public comment a draft Australian Standard form of contract AS 1100 ‘General Conditions of Contract’ . The proposed Standard is intended to supersede the AS 2124:1992 and AS 4000:1997 existing Standards. Many contractors, developers, lawyers and consultants in the private and public sector are understood to have provided comment on the draft, the outcomes of which have not yet been released. The key changes from previous Australian standards include enhanced ‘early warning’ requirements imposed on both parties if anything may cause an increase in time or cost, as well as a ‘hand up’ obligation imposed on the contractor to notify if it considers that it has been directed to carry out a variation which has not been instructed as such by the superintendent.
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March UK: In Paice and another vMJ Harding (t/aMJ Harding Contractors) [2015] EWHC 661 (TCC) , therewas a rare refusal by the TCC to enforce an adjudicator’s decision due to the possibility of bias . The claimant, Paice, had already lost two adjudications involving the same adjudicator (the first adjudicator), when they phonedhis office to discuss the adjudication. After their final account was rejected, MJH initiated a third adjudication, decided by a different adjudicatorwhich Paice also lost. Paice started a fourth adjudication; the first adjudicatorwas appointed again, and MJH’s representative queriedwhether there had been contact with Paice in the intervening period. The adjudicator denied this, andMJH requested telephone records fromthe first adjudicator and Paice. The request was ignored. MJHsought an injunction to prevent the adjudicationproceeding but it was not granted. The adjudication concludedwith a decision thatMJHshould repay to Paice the vast majority of its final account payment. Evidence of telephone contact between Paice and the first adjudicator emerged following the decision, and its enforcement was challenged on the grounds of bias. The judge found that the failure by the adjudicator to disclose the conversations, togetherwith’ ill-judged’ criticisms ofMJH’s case and a statementmade expressly in support of Paice’s application for summary judgment, gave rise to a real possibility of bias and accordingly the applicationwas refused. Coulson J, however, expressed sympathy for Paice, who he deemedhad been ill-served by the adjudicationprocess and the adjudicator’s ‘misjudgements’. UK: Thegovernment publisheda Strategic Plan for Level 3 Building Information Modelling (BIM) , otherwiseknownas “Digital Built Britain”. Theplan follows upon the2011Government ConstructionStrategy,whichmandated theuseof Level 2BIMonall public sector projects by2016, thus significantly contributing to savings of GBP804million inconstructioncosts in2013/14. Australia: In LamioMasonry Services Pty Ltd v TP Projects Pty Ltd [2015] NSWSC 127 theNSWSupreme Court provided further guidance in the often-grey area of the level of information required for a valid payment claim made under the Building andConstruction Industry Security of Payment Act 1999 (NSW). In this case the respondent sought to have an adjudicationdeterminationquashed on the basis that it had beendeniednatural justice because the contractor had only provided evidence of its labour hours through the provision of site diaries in its adjudication application andnot in its payment claim. The respondent argued that because the site diarieswere only provided in its adjudication application, the respondent was not able to raise, in its payment schedule, the argument that the labour hours were not the applicable rates for the relevant personnel. The court dismissed the argument and said that the claimsmet the requirements of a payment claim. They identified the job. They gave a brief description of thework done, howmany mendid thework, how long it took to do thework and the amount charged.
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April UK: In MWHigh Tech Projects UK Ltd and another v Biffa Waste Services Ltd [2015] EWHC 949 (TCC) Biffa entered into an EPC contract with MWHigh Tech Projects UK Ltd (MW), for the design and construction of a waste treatment plant. Under the contract MWwere obliged to procure a retention bond under which it was a condition precedent that the employer must first make a call on the Parent Company Guarantee (PCG). After the contract was terminated, Biffa made a call on the PCG; after no payment under it was forthcoming, Biffa called on the retention bond. MW rejected the call, and applied to the court for Biffa to be restrained from calling the bond on the basis the call on the PCG was not valid. The court considered various authorities, finding in the absence of fraud that there was no justification for implying a term that the call on the PCG should be “valid”, and that such an approach would encourage satellite litigation and subvert the normal approach of on-demand bonds: “pay now, argue later.” Accordingly there were no grounds upon which the call on the bond could be restrained. UK: The Construction (Design and Management) Regulations 2015 (CDM 2015) came into force on 6 April 2015. CDM 2015 included transitional provisions, allowing parties working on construction projects until 6 October 2015 to fully transition to the 2015 regime. CDM 2015 removes the exception for domestic clients and simplifies some aspects of CDM 2007, such as assessing competence and the trigger for appointing a principal designer and principal contractor. One of the key changes introduced by CDM 2015 is that the role of principal designer replaces the role of CDM co-ordinator. Australia: In Probuild v NSWNetball [2015] NSWSC 408 (7 April 2015) the NSW Supreme Court refused to interfere with the adjudication process timeframes imposed by the Building and Construction Industry Security of Payment Act 1999 (NSW). Probuild had submitted a payment claim and subsequently made an adjudication application after which (and during the period afforded to prepare an adjudication response), Netball NSW applied for an interlocutory application restraining Probuild from taking any further steps in the adjudication on the basis that the payment claim relied upon was
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Singapore: In April, a decision of the Singapore Court of Appeal ruled that parties can contractually exclude the unconscionability exception to calls on on-demand bonds (CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd [2015] 3 SLR 1041 (SGCA)) . The clause in question expressly stated that, except in the case of fraud, the contractor was not entitled to restrain a call on the unconditional performance bond that it provided to the employer on any ground, including unconscionability. The Court of Appeal’s decision signifies a progressive step in the law and affirmed, among other things, the position that where parties to a construction contract agree to limit the circumstances in which a contractor is entitled to seek an injunction restraining a call or demand made on an unconditional performance bond, ie to fraud only, Singapore courts will respect the parties’ autonomy to contract to such terms and enforce the restriction where it is reasonable. Fraud connotes dishonesty in making of the call and is harder to prove than unconscionability, which generally refers to unfair or reprehensible conduct. invalid. Netball NSW said that the injunction, pending resolution of the issue, would prevent it from incurring further costs in preparing its adjudication response. The court granted an injunction to prevent Probuild from enforcing any determination that arose from the adjudication process but not from taking any further steps in the adjudication. Netball NSWwas therefore required to proceed to prepare an adjudication response. Ball J found that on the balance of convenience Probuild would suffer more prejudice if it lost its rights to recover payments in accordance with the process under the Building and Construction Industry Security of Payment Act 1999 (NSW). His Honour concluded that the court does not have power to interfere with the statutory timetable and processes set out in the Act for the recovery of progress payments.
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May Hong Kong: Commercial third party funding in arbitration is common practice across many common law countries, but not in Hong Kong. Discussions in May provoked concerns that, given the prevalence of private litigation funding in other jurisdictions, Hong Kong may become less competitive as a potential venue for international dispute resolution and arbitration as compared to those jurisdictions where litigation funding is permissible. Maintenance and champerty remain prohibited in Hong Kong, and the prohibition extends to “no win no fee” conditional fee arrangements. The Law Reform Commission currently has a sub-committee reviewing the legal position relating to third party funding for arbitration, considering the shrinking scope of maintenance and champerty, and the benefits of conditional fee arrangements, such as access to justice and arrangements based on legitimate common interest. There may be a change in the air in 2016, so watch this space. Singapore: In May, a decision of the Singapore Court of Appeal confirmed that interim awards made under Singapore’s International Arbitration Act (IAA) are final and enforceable (PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2015] 4 SLR 364 (SGCA)) . To read more on this, please see page 34. UK: In Al Waddan Hotel Ltd v MAN Enterprise Sal (Offshore) [2014] EWHC 4796 (TCC) the court held that the employer, Al Waddan, was not entitled to benefit from its own breach when enforcing a condition precedent under the 1987 FIDIC Red Book , which would prevent the contractor, MAN, from referring a dispute to arbitration. As was commented on by the judge, it is well known in the industry that obtaining an engineer’s decision is a condition precedent to referring a dispute to arbitration under a FIDIC contract. He further commented on the well-established principle that co-operation and non-prevention will be implied terms in such a contract. The engineer made it clear that it had ceased to be engineer and would not be determining the dispute, at which point MAN referred the dispute to arbitration. Al Waddan argued that this approach ignored the condition precedent and it must wait for the appropriate period to elapse. MAN argued that Al Waddan could not enforce obligations in a situation which took advantage of its own wrong, namely its failure to appoint an engineer who would make a decision. The court agreed with the contractor, and confirmed the arbitrator’s jurisdiction and the arbitral award. Although the contract was not the current edition of the Red Book (which uses a DAB rather than the engineer), the previous version is still used and to that extent the decision is of interest.
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Australia: As of 1 May 2015, the Building and Construction Industry Security of Payment Amended (Retention Money Trust Account) Regulation 2014 (NSW) commenced. Under the Regulation, ‘head contractors’ must deposit subcontractors’ retention money into separate trust accounts with authorised deposit-taking institutions, preventing it from appropriating that money during the course of a project. However, the Regulation only applies to contracts, entered into after the commencement date, between contractors and subcontractors in respect of non-residential projects valued at over AUD 20 million. The Regulation follows recommendations put forward by the Collins Inquiry which sought to identify measures to reduce instances of insolvency in the construction industry. June UK: Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38 involved an appeal against an alleged overpayment pursuant to adjudication proceedings which had been issued a long time after contractual and tortious liability had arisen, meaning that shortly after the adjudicator’s decision was received any further proceedings were time-barred. The question the court had to consider was whether there was an implied term allowing the paying party (Aspect) to recover any payment made if it was subsequently established by litigation or arbitration proceedings that the payment was not due. The Supreme Court held that, without such an implied term, adjudication made no sense as a provisional measure. As such, it found that it was “a necessary legal consequence of the Scheme that Aspect must have a directly enforceable right to recover any overpayment to which the adjudicator’s decision can be shown to have led, once there has been a final determination of the dispute”. A fresh cause of action therefore arises with any payment made pursuant to an adjudicator’s decision, and the limitation period for any such action runs from the date of such payment. No corresponding cause of action, however, arises for the payee (Higgins) to recover any outstanding balance owing from its original claim. In this regard the court noted that Higgins had decided not to commence proceedings to recover the balance of its claim following receipt of the adjudicator’s decision.
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Global: The Royal Institution of Chartered Surveyors (RICS) has published the RICS Property Measurement, 1st edition. RICS Property Measurement comprises three elements: – – Professional Statement: Office Measurement. This applies only to office measurements – – International Property Measurement Standards (IPMS): Office Buildings – – Code of Measuring Practice, 6th edition. This applies to all building classes except offices This publication reflects the launch of the first international measurement standard, which aims to increase transparency and consistency in the way office buildings are measured globally. RICS Property Measurement will be updated to comply with other IPMS when they are published. The intention is that there will be IPMS for residential, industrial and retail buildings. Australia: The Western Australian Supreme Court took the ‘principal friendly’ approach in the see-sawing issue, which remains somewhat unsettled by Australian courts, as to whether the prevention principle can overcome time-bars in a contract. Despite principal-caused delays the Court found that the principal was entitled to levy liquidated damages, in circumstances where the contractor had failed to comply with the notice regime under the contract to claim an extension of time for those principal- caused delays and the contract was clear that this failure disentitled the contractor from an extension of time. Qatar: The New Commercial Companies Law (Qatar) impacts entities currently registered with the Ministry of Economy and Commerce (MEC) and those to be registered in the future. There has been a general ‘tightening’ of the timelines to complete the various registration processes. Existing time periods have been reduced, materially in some instances, and some new time periods have been introduced. In addition, entities are directed under the New Companies Law to make publications available on their websites if they have them, such as the publication of the memorandum and articles of association of public shareholding companies.
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July UAE: The new UAE Commercial Companies Law (the New Law) introduced changes which will affect some of the structures used by foreign investors to establish businesses in the UAE. The nature and extent of UAE foreign ownership restrictions has been the subject of political debate for a number of years. The UAE Minister of Economy has made clear that foreign ownership will be covered in a new Foreign Investment Law, which may allow wholly foreign owned companies in certain sectors of the economy. Under the new law, the requirement to appoint an agent who must be a UAE national, or a company which is wholly owned by UAE nationals, remains unchanged. Therefore, foreign companies wishing to do business in the UAE, without incorporating a new corporate entity, will still be required to appoint an agent and produce a notarised agency agreement as part of the branch establishment process. The lawmakes some important changes to the way in which a UAE LLC operates from a management and shareholder perspective. In certain cases, LLCs will want to ensure that their current memorandum of association allows them to take advantage of any new flexibility provided for in the law and takes into consideration any more restrictive amendments. Canada: Her Majesty the Queen in Right of the Province of New Brunswick v. Brad Gould Trucking & Excavating Ltd. and Bird Construction Company , 2015 NBCA 47 (leave to appeal to SCC requested) involved a contractors claim against the Province of New Brunswick for additional compensation because they discovered the rock conditions at an excavation site were harder than expected, thus requiring heavier equipment to excavate. The Court of Appeal held that the condition precedent to engage the relevant clause was not met ie “substantial difference between the information relating to soil conditions provided by the Province and the actual conditions encountered, or a substantial difference between the respondents’ reasonable assumptions of fact based on the soil conditions and the conditions encountered”. Indeed, based on the geological report provided by the Province, it was not reasonable for the contractors to assume they would only require a mechanical excavator. The report clearly stated that hydraulic rock breakers and blasting methods might be needed to complete the work. The Court of Appeal therefore found that a simple review of the Province’s report by a geological engineer would have sufficed to inform the contractors. As a result, the Province did not have to pay for the extra work performed.
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Australia: In BroadviewWindows Pty Ltd vArchitectural Project Specialists Pty Ltd [2015] NSWSC 955 (9 July 2015) theNSWSupreme Court confirmed that, where a construction contract does notmake express provision for the timing ofmaking progress payments, a claimant will be entitled to rely on the times formaking progress payment under s8(2)(b) the Building and Construction Industry Security of Payment Act 1999 (NSW), which allows for progress claims every month during the course of the project and for 12 months from the date when construction work was last carried out. Thismeans that a claimant can continue tomake payment claims everymonth for 12months, evenwhere nonewworkhas been carried out, and extends to situationswhere the contract has been terminated. Accordingly, a principal is essentially on risk to be liable for further payment claims for 12months. In relation to ground (1) the Court of Appeal confirmed the approach required by clause 4.12, “The contractor must draw upon its own expertise and its experience of previous civil engineering projects. The contractor must make a reasonable assessment of the physical conditions which it may encounter. The contractor cannot simply accept someone else’s interpretation of the data and say that is all that was foreseeable.” In relation to ground (2) the Court noted that the first instance decision relied on a finding of fact following “heated discussion” during the trial and as such could not be re-opened. Ground (3) arose out of AGG’s termination of OHL’s engagement on grounds that it failed to comply with a notice to correct, and abandoned or failed to proceed with the works. In considering OHL’s failure to proceed the Court relied on the decision in Sabic v Punj Lloyd [2013] , noting that there had been a serious breach of clause 8 (the obligation to proceed with the works with due expedition) which “is not directed to every task on the contractor’s to-do list. It is principally directed to activities which are or may become critical”. OHL had no excuse for its failure to proceed with the tunnelling works. UK: In Obrascon Huarte Lain SA v HM Attorney General for Gibraltar [2015] EWCA Civ 712 , the Court of Appeal unanimously dismissed an appeal against Akenhead J’s decision that the employer (AGG) was entitled to terminate the contractor’s (OHL’s) engagement under a contract based on the FIDIC yellow book. The appeal was based on three grounds: 1. That the court had wrongly rejected OHL’s claim for relief arising from unforeseeable physical conditions under clause 4.12 2. The court had erred in failing to find that certain engineer’s documents constituted variations under clause 13.1 3. The court had erred in finding AGG had validly terminated the contract under clauses 15.2 (a), (b) and (c)(i)
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France: Transposing Dir. 2014/24 / EU and 2014/25 / EU, ordonnance (Government decree) n° 2015-899 of July 23, 2015 (the “Ordonnance”) lays the legal foundations of a single public procurement regime in France, in place of the previous position where the rules governing public procurement are scattered between various codes and statutes. Two key points of interest of the Ordonnance, which will become effective on 1 April 2016 at the latest, are: – – The freedom of contractors to subcontract will effectively be limited – – Owners will only be able to use PPPs where they can demonstrate that they are more favourable than another type of public procurement
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August Hong Kong: Since its inception in the UK in 1998, security of payment legislation has spread across common law countries, including Singapore, Malaysia, and Australia. It seems as though such legislation is shortly to be enacted in Hong Kong too, and this August Hong Kong’s construction industry players made their responses to the Development Bureau’s consultation document submitted in August 2015. If, as expected, this legislation is introduced to Hong Kong by 2017, the legal dynamic of the construction industry will be altered by the introduction of statutory adjudication, and we may expect to see the number of arbitrations fall as payment disputes are dealt with by adjudication. Kingdom of Saudi Arabia (KSA): Ministerial Decision No 15098 (issued by the Ministry of Municipal and Rural Affairs (the Ministry)) establishes a new classification system for engineering companies and consultancies (ECCs) operating in KSA. As from 10 March 2016, it will be compulsory for any ECCs wishing to bid for and/or carry out government contracts in KSA to have completed this classification process. An ECC wishing to participate in the tender process for a public project will need to satisfy the specific classification criteria set out in the tender documents. Canada: In a recent British Columbia Court of Appeal decision a contractor was hired to design and build a hospital wing. During construction, it was discovered that the concrete slab floors were over-deflecting and cracking. In this action, the contractor was seeking indemnity from its insurers with respect to a Course of Construction (Builder’s risk) policy. It was the first time that the wording of exclusion LEG 2/96 (defective workmanship) developed by London Engineering Group, a UK think tank, has been interpreted. The Court noted that LEG 1/96 and 3/96 also exist: being a broader and narrower exclusion respectively. Simply put, 2/96 falls in the middle and excludes
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“only those costs of repair that would have remedied the defect immediately prior to the occurrence of the damage”. Therefore, the Court upheld the trial judge’s finding that “the exclusion does not extend to exclude the cost of rectifying or replacing the damaged property itself”. In this case, the Court found that the design of the slabs was not defective. Rather, the damage was the result of the faulty shoring procedures. Here, the preventive costs represent the costs of implementing proper shoring procedures (or proper workmanship). The Court explained that, in this case, it was coincidental that no additional costs would have been required for doing the job correctly. However, under other circumstances, the excluded preventive costs might be substantial. In any event, if the insurers intended to exclude broader damage, they could have use LEG 1/96 in the policy. UK: Lord Neuberger, in NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (Trinidad and Tobago) [2015] UKPC 37 , held that a contractor had been entitled to terminate its engagement under a contract based on the FIDIC Red Book (1999). Disagreements arose between the parties, and the contractor (NHIC) suspended work. It subsequently purported to terminate the agreement. A number of issues were then referred to arbitration. NHIC requested evidence from the employer (NIPD) under clause 2.4 of FIDIC Red Book that it had made arrangements to pay the contract price. Unsatisfied with the letters sent in response, it initially suspended works and subsequently issued a notice of termination. NIPD disputed that the contract had been validly terminated. The Arbitrator held that it had, and in doing so concluded that the evidence required under clause 2.4 must go beyond merely showing that the employer is able to pay. After this decision was reversed at the Court of Appeal, the Privy Council upheld the Arbitrator’s finding that NHIC was entitled to terminate. The second appeal related to clause 2.5, which gives the employer a right of set off. The Court of Appeal, agreeing with the Arbitrator, found that the clause prohibits the employer from setting off a sum against any amount certified, but does not prevent the employer from exercising its right of set off in another way. The Privy Council disagreed, noting that clause 2.5 makes it clear that any claim by the employer must be notified promptly and particularised, and that failure to comply with the notice requirement would invalidate the claim. The case provides useful guidance for employers on what is required to comply with these clauses.
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Singapore: The security of payment adjudication regime that the Singapore Mediation Centre (SMC) administers is governed by, among other things, the Building and Construction Industry Security of Payment Act (SOPA) and the SMCAdjudication Procedure Rules. In August, two separate decisions of the Singapore Court of Appeal confirmed, among other things. – – That the SMC had powers under the SOPA to enact adjudication procedure rules that restrict the lodgement of documents on a particular day to certain hours ( Citiwall Safety Glass Pte Ltd v Mansource Interior Pte Ltd [2015] 5 SLR 482 (SGCA) ). The Court of Appeal’s decision is significant as it clarified that the de minimis rule is excluded from applying, and that even a document lodged 2 minutes late will be considered to be lodged out of time – – That a respondent in an adjudication application is entitled to apply to the Singapore Courts to challenge the adjudication application prior to the issuance of the adjudication determination ( Lau Fook Hoong Adam v GTH Engineering & Construction Pte Ltd [2015] 5 SLR 516 (SGHC) ). The High Court held that the adjudication process will not be stayed by the court application. In this regard, under section 27(5) of the SOPA, the respondent is required to provide the requisite security to Court before he is able to apply to the Singapore Court to challenge the adjudication determination. If an adjudication determination is issued before the court application is heard, the respondent must still provide the requisite security to Court, as required under section 27(5) of the SOPA. The High Court clarified that, if the security is not provided, the court application will be dismissed Australia: In Camporeale Holdings Pty Ltd v Mortimer Construction Pty Ltd & Anor [2015] QSC 211 the Supreme Court of Queensland provided further guidance as to the interaction between the payment mechanism under a contract and the payment mechanism under the Building and Construction Industry Payments Act 2004 (Qld). The Claimant sent an email to the Respondent (which itself did not state it was a payment claim under the Act) which attached four invoices which were all stated to be made under the Act. The Court rejected any argument that the Claimant had either not submitted a valid payment claim or had submitted more than one payment claim in respect of a single reference date. Henry J found that the email and all its attachments were ‘readily discernible’ as a single payment claim under the Act.
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UK: HM Treasury published a National Infrastructure Plan for Skills: September 2015. The plan highlights the government’s view that: – – Over 250,000 construction and 150,000 engineering construction workers will be needed by 2020, driving a need to recruit and train nearly 100,000 additional workers – – The industry will need to retrain and up-skill around 250,000 of its existing workforce – – It is currently difficult for skilled workers to move easily between sectors and projects It sets five challenges for the future: providing leadership and co- ordination; improving supply and demand data; incentivising skills investment through procurement; improving mobility and existing workforce skills; and encouraging young people to join the industry, alongside greater diversity within it. the contract was made on a different basis from that contended for by Purton. The court however found that there was ‘substantial’ performance on both sides, with Purton doing works and Kilker making payments to the value of GBP 654,000. The judge therefore found it ‘unrealistic’ to suggest that there had been no legally binding agreement between the parties. One of the concerns of extending adjudication to oral contracts was whether an adjudicator would be able to decide whether an oral contract had been concluded, and if so on what basis, given the fact that adjudications are largely conducted on paper. September UK: In Purton (t/a Richwood Interiors) v Kilker Projects Ltd [2015] EWHC 2624 (TCC) the TCC had to decide whether to enforce an adjudicator’s decision arising out of an oral contract. The case involved a subcontractor (Purton) who had agreed to carry out joinery works for main contractor (Kilker). Although there was agreement as to the original scope and price of the works, a formal contract was not entered into. Purton subsequently initiated adjudication proceedings after its application for a GBP 150,000 payment remained unpaid and no notices were served in respect of it. The adjudicator decided that, in the absence of any notice, Kilker should pay the full amount. When Purton did not receive payment, it issued proceedings for enforcement of the decision. Kilker argued that there was no contract, or alternatively
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Australia: Probuild v NSWNetball [2015] NSWSC 1339 (11 September 2015) followed on from the previous April decision reported above. After Ball J refused to intervene with the timing of the adjudication process, the matter proceeded to adjudication in which Probuild was awarded just USD 125,000 of the approximately USD 10 million claimed. Although Netball NSW had sought the injunction in April on the basis that the payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) was invalid, on the basis of its relatively positive result it now sought to argue that the payment claimwas valid. Stevenson J found that the payment claim was not valid. Netball NSW sought to argue that Probuild had engaged in misleading or deceptive conduct in representing that the payment claim was valid by the conduct of submitting it. This was also rejected, his Honour declaring that a statement in a payment claim is not a representation of the truth of the matters in it, and that Probuild’s conduct was simply to claim an amount due, and not to mislead. in the capacity of landlord – charges a premium for lease modification and land development, which reflects the enhanced value. However, high premiums have proved a disincentive to developers , and the failure of parties to negotiate has seen land left idle. Last October a Pilot Scheme for Arbitration on Land Premium (the Scheme) was launched for a provisional two year period, with the aim of settling premium disputes. In a process where the arbitrator’s determination would be limited to the land premium payable, decisions should be made within ten weeks, accelerating the delivery of development projects. However, one year on, only one such arbitration has occurred, that of Henderson Land, a small-scale dispute on the premium payable to change agricultural land to residential. This means that many of the important questions are yet to be answered, and developers remain to be convinced that arbitration represents a viable solution to premium disputes. Hopefully the Henderson arbitration might trigger more applications, but with only one year left of the pilot, the clock is ticking. UK: In Lloyds Bank plc vMcBains Cooper Consulting Ltd [2015] EWHC 2372 (TCC) , Lloyds sued its project monitor (McBains) for breach of its retainer in relation to a redevelopment. Part of the propertywas run by a trust, which borrowed GBP 2.625million fromLloyds to fund the development. Unfortunately this sumdid not include any allowance for contingencies, and understated the October Hong Kong: Under Hong Kong’s traditional land premium assessment and negotiation system, the Government – acting through the Lands Department
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Global: The Royal Institution of Chartered Surveyors (RICS) launched a new arbitration service for construction and engineering disputes, offering a: – – Fast track arbitration service for disputes under GBP 100,000, which caps the parties’ recoverable costs and limits the amount that arbitrators can charge. The award must be published within six months – – Select arbitration service, aimed at providing a “viable alternative” to the Technology and Construction Court (TCC) for high value, complex disputes. The award should be published within 12 months In announcing the new service, Martin Burns, Head of ADR Research and Development (RICS) explained that there is “growing demand for more comprehensive deliberation of issues” than is currently provided by statutory adjudication, which can lead to rough justice, especially in high value and complex disputes that are unsuitable for such a rapid process. Australia: In October 2015 the Queensland Building and Construction Commission released its Annual Report which, as a consequence of previous amendments made to the Building and Construction Industry Payments Act 2004 (Qld) (which essentially replaced authorised nominating authorities with the QBCC), allowed it to provide detailed statistics on the use of the Act in Queensland. This established a total value of adjudication claims for the 2014/2015 financial year of AUD 2,085,015,904 and an average claim value of AUD 2,928,393. The 2014 amendments provided for increased times to respond to adjudication professional fees (as well as a further sumof approx. GBP 100,000 in interest). Very late in the project, McBains advised that therewere insufficient funds in the facility to complete the development, leading Lloyds to call in the loan. The borrower was unable to repay the money, and the propertywas sold, leading to losses of GBP 1.4million for Lloyds which it sought to claim fromMcBains. The court held that McBains was in breach of its duty by failing to advise that therewas not enoughmoney to complete theworks, and that some of themoneywas being used to carry out certainworks which did not formpart of the agreed development. Although it held that McBains bore ‘the lion’s share of responsibility’ for the losses suffered by the bank, the judge found that the insufficiency of the facility to cover the development was known by the relevant individual at Lloyds. Further, the bank had failed to share informationwith its project monitor or respond appropriately to reports. Accordingly, the bank’s own failingsmeant it should bear a third of the losses itself. The case provides a good example of the problems that can arise if a bank fails properly to manage its relationship with its project monitor, effectively removing all or part of the safety net the latter is supposed to provide.
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applications which claimmore than AUD 750,000. The statistics released by the QBCC suggest that this has not deterred claimants making claims for sizeable amounts under the Act.
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UK: In Van Oord UK Ltd and another v Allseas UK Ltd [2015] EWHC 3074 (TCC) , Coulson J rejected the claimant’s (VanOord’s) quantumexpert’s evidence in its entirety. In particular, the expert (Mr Lester) took VanOord’s witness evidence at face value and did not undertake any factual investigations of his own, relying solely on thewitness statements to prepare his report. The judge foundMr Lester’s approach to his taskwas wholly uncritical and partial. He admitted during cross-examination that hewas not happywith any of his reports, leading the judge to comment “If an expert disowns his own reports in this way, the court cannot sensibly have any regard to them”. It transpired that some of the views expressed inMr Lester’s report came directly fromVanOord’s witnesses, such that his report was being used to “plug the gaps” in VanOord’s evidence. The judge concluded that the expert had allowed himself to be used, whether wittingly or unwittingly, as a ‘mouthpiece’, and thus had ‘made amockery’ of the oath that was given to the court, although therewere extenuating personal circumstances. The case is based on an extreme set of facts, but it serves as a useful reminder of the potentially serious consequences of relying on an inexperienced expert, and failing to monitor or supervise his output. November Kingdom of Saudi Arabia (KSA): With the construction boom in KSA, many international contractors have projects underway in the Kingdom. The collapse of a crane at the Holy Mosque in Makkah during the Hajj season in 2015 placed added focus on the health and safety (H&S) of workers for local and international employers. The Saudi labour law issued in 2005 and amended in November 2015 sets out certain H&S procedures that employers must adhere to. Most of these requirements apply to all employers, while some are sector specific. In general an employer is required to provide a healthy work environment for its workers that is devoid of any causes for occupational diseases, accidents or injuries. An employer must minimize the danger of tools and equipment used on site and prevent the occurrence of any accidents, in order to maintain the health and safety of humans and protect properties from being damaged or destroyed.
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Australia: The Building and Construction Industry (Security of Payment) Act 2002 (Vic) (unlike in all other Australian jurisdictions) contains provisions which seek to limit the application of the Act, on the basis that disputes of a certain nature and quantum are not appropriate for the swift and informal adjudication process provided under the Act. In particular, the Act imposes a limit on the quantum of variation claims that can be made under the Act, where the contract ‘provides a method of resolving disputes’ (the intention being that parties use the agreed contractual dispute resolution mechanism to resolve the dispute instead of the Act). In SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd [2015] VSC 631 the court confirmed that ‘method of resolving disputes’ within the meaning of the Act meant that the Contract must have a dispute resolution clause which produces a final and binding outcome determined by a third party. Where the dispute resolution clause is optional or allows for a final outcome to be appealed, it is not a method for resolving disputes and therefore the Act is available to a claimant in respect of disputed variations. UK: The Home Office published its guidance on section 54 of the Modern Slavery Act 2015, which requires businesses with a global turnover above GBP 36 million to publish a slavery and human trafficking statement each financial year. To read more on this, please see page 58.
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December Hong Kong: Many jurisdictions have enacted competition laws in the past years. Hong Kong seems to have fallen behind in protecting fair competition. Now, after years of highly polarised debate, the Competition Ordinance finally commenced operation on 14 December 2015. Under the new legislation, four types of serious anti-competitive conducts, namely market sharing, price fixing, output restriction and bid rigging are prohibited. Businesses engaging in other anti-competitive activities, depending on their size and market power, may also be penalized. Those who are found in breach of the Competition Ordinance, in addition to penalties under the law, may be liable to civil remedies. A Competition Commission has been formed to investigate anti-competitive activities and enforce the new legislation. Competition- related cases will be heard in a specialized Competition Tribunal.
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