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Construction Law Update

April 20, 2012 | Construction, Construction Contracts, Litigation, NEC3 Contracts, Professional Consultants

Can an Employer’s Agent be responsible for ensuring that a performance bond is provided by a Contractor?

Could you be required to disclose the advice you receive from a Claims Consultant to your opponent in legal proceedings?

How do the Courts interpret the NEC3 payment provisions?

In this Construction Update, we look at 3 recent cases which address important aspects of construction law.

Does an Employer’s Agent have a duty of care to ensure that a performance bond is obtained from the Contractor?

Sweett (UK) v Michael Wight Homes

Sweett was engaged as Employer’s Agent by Michael Wight Homes (“MWH”) in relation to a residential development project. The Contractor for the project was Diamond Property Construction (“DPC”), and it was a term of the building contract that DPC had to provide a performance bond of 10% of the value of the contract. It was a term of Sweett’s appointment that Sweett was required to “prepare contract documentation and arrange for such documentation to be executed”.

Work started on the project in March 2008 and continued until June 2009, when DPC went into liquidation without having provided a performance bond. Sweett had terminated its involvement in the project in September 2008 following non-payment of its fees.

Sweett began legal proceedings to recover the unpaid sums. MWH brought a counterclaim arguing that Sweett had owed a duty to ensure that a performance bond was provided by DPC and had failed to comply with that duty.

The Court rejected MWH’s claim. The wording of Sweett’s appointment (“arrange for such documentation to be executed”) did not impose an absolute obligation on Sweett to ensure that the performance bond was executed by DPC. Much clearer wording would have been needed to impose such an absolute duty. Sweett simply owed a duty to exercise reasonable skill and care to make arrangements for the provision of the bond by DPC. It was clear that Sweett had exercised reasonable skill and care; it had drafted the bond, ensured that the requirement to provide a bond was included as a term of the building contract, advised MWH of the importance of the bond and repeatedly chased the matter of the bond up with DPC.

The Court also commented that Sweett had not been in breach of duty by not advising MWH to withhold money from DPC in order to pressurise them into executing the bond. The Court stated that it would have been unreasonable for Sweett to recommend the withholding of monies, because the works were progressing well, DPC had given assurances that they intended to execute the bond and DPC were already being underpaid because MWH’s financiers were not releasing sufficient funds.

Analysis

This case confirms that Consultants are ordinarily only required to act with reasonable care and skill. An Employer who wishes to impose more stringent obligations on a Consultant (such as requiring the Consultant to guarantee that a particular document will be provided) will have to ensure that the appointment is very clearly worded to that effect.

Is advice from claims consultants protected by legal professional privilege?

Walter Lilly & Company v Giles Mackay

Walter Lilly & Company (“WLC”) was engaged by DMW Developments (“DMW”) to construct a house for Mr Mackay. The project was substantially delayed and the architects, Barrett Lloyd Davis Associates (“BLD”) took the view that WLC was entitled to significant extensions of time. Mr Mackay was unhappy with BLD’s approach and engaged the claims consultants Knowles to provide advice on the situation.

WLC alleged that Mr Mackay and Knowles had adopted a strategy which involved constantly monitoring BLD’s performance and seeking to hold WLC liable for all delays.

Under English law, the parties to legal proceedings can (subject to certain exceptions) be required to disclose all documents relevant to the dispute, even if those documents are damaging to their case. WLC applied to the Court on this basis, seeking an order that all correspondence between Mr Mackay and Knowles should be disclosed. Mr Mackay argued that the correspondence should not be disclosed because it was protected by legal professional privilege.

Documents are protected by legal professional privilege if they are confidential communications between a lawyer acting in a professional capacity and his/her client for the purposes of giving or seeking legal advice. Documents which are protected by legal professional privilege do not have to be disclosed during legal proceedings. Legal professional privilege is therefore extremely important, because it means that your opponent in legal proceedings cannot use the legal advice you have been given to their own advantage. It also prevents the tactics and strategies you have been advised to adopt from being given away.

Mr Mackay argued that although Knowles were claims consultants, his principal contacts at Knowles were both qualified barristers and he had been receiving advice of a legal nature from them.

The Court held even though Mr Mackay had understood his contacts at Knowles to be qualified barristers, the documents were not protected by legal professional privilege because:

  • Knowles was retained to provide “contractual and adjudication” advice, rather than legal advice.
  • Knowles had not specifically offered Mr Mackay the services of a solicitor or barrister, even though the individuals Mr Mackay had dealt with may have been qualified barristers.
  • It was clear from Knowles’ terms of business that separate solicitors would be instructed if it was necessary to do so.
  • A significant part of Knowles’ role involved monitoring BLD, which did not involve any legal advice.

It was clear that Knowles had not been retained to act as barristers or solicitors. The correspondence between Mr Mackay and Knowles was therefore not protected by legal professional privilege and could be disclosed to WLC.

Analysis

This case is important for anyone who uses claims consultants. It confirms that any advice of a legal nature provided by a claims consultant is not privileged and may have to be disclosed to the opposing party in legal or arbitration proceedings. Anyone seeking to ensure that the advice they receive is protected by legal professional privilege should therefore ensure that the advice is provided by a practising solicitor or barrister who is retained with the express purpose of providing legal advice.

How is the NEC3 payment process interpreted by the Courts?

SGL Carbon Fibres v RBG

SGL and RBG entered into an NEC3 Engineering & Construction Contract (Option C) for the construction by RBG of a production line and associated installations at SGL’s premises.

The parties got into a dispute about whether RBG had been over or under paid and arbitration proceedings were commenced. The arbitrator found that the burden of proof was on SGL to show that it had overpaid RBG during the course of the project, and the burden of proof was on RBG to show that it had been underpaid.

SGL appealed against the arbitrator’s finding that it was responsible for proving that an overpayment had been made. SGL argued that the burden was on RBG to show, through its accounts and records, that the sums it had claimed fell within the meaning of “Defined Cost” and were justified. This was because “Disallowed Cost” includes cost which the Project Manager decides is not justified by the Contractor’s accounts and records.

The Scottish Court confirmed the arbitrator’s finding that SGL, as the party claiming that an overpayment had been made, was required to prove that this was the case. The Court stated that it was clear from the contract that the Project Manager’s payment assessments were binding unless they were corrected during a later assessment or by an arbitrator or adjudicator. Whilst the Project Manager’s assessment of Defined Cost may well be based on what is justified by the Contractor’s accounts and records, the assessment is binding once it is made. The Contractor cannot be required to prove its entitlement to payment again once the Project Manager has made an assessment. It is for the party seeking to claim that an overpayment has been made to persuade the arbitrator to depart from the Project Manager’s assessment of Defined Cost.

Analysis

Whilst this case does not shed a great deal of light on the NEC3 payment provisions, it does clearly confirm that the Project Manager’s payment assessments are effectively binding once made. Anyone wishing to argue that the Project Manager’s assessments are incorrect will need to be able to provide proof in support of their claim.

 

This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please contact one of our specialist construction lawyers.

Wakefield Office

17 Navigation Court
Calder Park
Wakefield
West Yorkshire
WF2 7BJ
Tel: 01924 258719
Fax: 01924 257666
enquiries@hklegal.co.uk

London Office

28 Queen Street
London
EC4R 1BB
enquiries@hklegal.co.uk