Foundations of construction law & recent cases. Julian Cohen, Barrister

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1 Foundations of construction law & recent cases Julian Cohen, Barrister

2 Road map Recent cases: Order of contractual precedence Duties of good faith Insurance policy forms and the wrong contractor Are you still mediating? Foundations of construction law in HK: solid or crumbling?

3 Order of precedence: a reminder RWE NpowerRenewables Ltd v JN Bentley Ltd [2013] WL Claim for LDs for delayed completion of penstock pipe line. Issue between parties as to whether whole pipeline had to be completed in section 2 of works or not

4 Order of precedence: a reminder 2 Two contract documents said to be relevant: Contract Data Part 1 Works information and Contract Data Part 2 Contract provided for order of precedence of contract documents Order of precedence preceded by all the documents were deemed to form and be read and construed as part of the agreement

5 Order of precedence: a reminder 3 When determining whether pipeline is in section 2, do you give precedence to contents of Contract Data Part 1 over the contents of Works information and Contract Data Part 2?

6 Duty of good faith: an exploration Existence and scope of obligations of good faith are an area of focus at least under English law See for example: LeggatJ at first instance in Yam SengPteLtd v International Trade Corporation Litd[2013] WL Court of Appeal in Mid Essex Hospital Services NHS Trust v-compass Group UK and Ireland Ltd [2012] WECA Civ200

7 Duty of good faith: an exploration 2 Yam Seng Pte Ltd v International Trade Corporation Litd [2013] WL A possible example of creep towards implied terms of good faith? Concerned claims of misrepresentation and breach of contract in a long term distribution contract hostility to good faith may be misplaced especially in long term contractual relationships where high degree of loyalty and co-operation required and implied What is the test for good faith?

8 Duty of good faith: an exploration 3 Mid Essex Hospital Services NHS Trust v-compass Group UK and Ireland Ltd [2012] WECA Civ200 Important CA case with three strong judgments and strong analysis on different set of facts to Yam SengPte Subsequent to Yam SengPteand not clear the extent to which Yam SengPteapproved

9 Duty of good faith: an exploration 4 Contract for catering and cleaning services for NHS trust hospital for 7 years. Trust can levy LDs for service performance failures. Also provided for Service Failure Points to be awarded against contractor for poor performance. After 1400 points in 6 month period, Trust can terminate. Contract also provides for contractor to terminate if Trust fails to remedy material breach

10 Duty of good faith: an exploration 5 Dispute concerned which party had validly terminated the contract and whether damages were payable Common ground that the Trust had wrongly levied LDs, which they had repaid. They had also wrongly awarded a large number of Service Failure Points. These had subsquently been withdrawn. The valid points awarded exceeded the 1400 required for termination

11 Duty of good faith: an exploration 6 The contractor sought to argue inter alia that the wrongful LDs and service failure points were a breach of the obligation of good faith that constituted repudiatorybreach of contract.

12 Duty of good faith: an exploration 7 Clause 3.5: The Trust and the contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust. to derive the full benefit of the contract. At all times in the performance of the Services, the contractor will cooperate fully with any other contractors appointed by the Trust in connection with other services at the Location.

13 Duty of good faith: an exploration 8 At 1 st instance held: Trust had power to make financial deductions and award service failure points. There was an implied term that in exercising this power, the Trust would not act in an arbitrary, capricious or irrational manner. The Trust had breached this term and it was a repudiatorybreach. However, the contractor had not terminated for repudiatory breach

14 Duty of good faith: an exploration 9 Court of Appeal decision considered inter alia: Scope and application of express good faith obligation Whether there was an implied good faith obligation

15 Duty of good faith: an exploration 10 Was the scope of the obligation of good faith in clause 3.5 of general application or more limited: The Trust and the contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust. to derive the full benefit of the contract

16 Duty of good faith: an exploration 11 As its more limited, what does it mean? What about an implied term? Possible implications for construction industry?

17 Contractor s insolvency Insurance Genesis Housing Assoc. Ltd v-liberty Syndicate Management Ltd [2013] EWCA Civ 1173 Re-development for residential housing TT Bedford as SPV own freehold and grant leases to Genesis. TT group included TT Construction Ltd and TT Bedford

18 Contractor s insolvency Insurance 2 Genesis engaged TT Bedford as contractor, who subcontracted most work to third party. Genesis took out decennial insurance with optional cover for insolvency of contractor TT Bedford agreed to arrange insurance as Genesis s agent.

19 Contractor s insolvency Insurance 3 Proposal form named TT construction as builder in basis of contract clause TTB and subcontractor become and insolvent. Genesis claims on policy. Insurer tries to avoid Policy condition: policy will be voidable in event of misrep, misdescription, error, omission etcby policy holder with intention to defraud. Was policy avoided?

20 Mediating or not? AB & Another v-cd Ltd [2013] EWHC 1376 Professional negligence dispute against architect Day before trial, decide to mediate. Mediator appointed and signed mediation agreement

21 Mediating or not? 2 Mediation agreement included: The parties will unless and until one of the parties withdraws from the mediation or it is otherwise determined, use their best endeavoursto resolve their dispute by mediation and will take all such steps as may be necessary to participate fully in the mediation process including the taking of all preparatory steps for the mediation hearing The hearing shall take place at time and place set out in particulars. If the dispute not resolved at end of time allotted for hearing then with agreement, the hearing may be continued or resumed

22 Mediating or not? 3 Hearing shall continue during time allotted and shall determine upon any of following: A determination of the mediator Withdrawal of party An agreement reached If agreement reached then not legally enforceable unless in writing and signed by parties or theyr representatives Hearing date: 27 February 2013

23 Mediating or not? 4 Hearing takes place on 27/2/13. At end of day Claimant made an offer. Respondent said could not respond then and would need time. Mediator persuaded Cs to keep offer open for few more days. Was then exchange of s between parties, which led to an alleged agreement. Was there an enforceable agreement?

24 Foundations of construction law in HK: solid or crumbling? Why the decline of construction arbitrations in HK? Why so few court decisions? Why even fewer court decisions of importance? International perceptions? Adjudications? The shape of the future?

Experiences of FPSO Construction/Conversion Disputes: Learning the Lessons to Protect Budgets

Experiences of FPSO Construction/Conversion Disputes: Learning the Lessons to Protect Budgets 19 February 2019 K&L Gates, Jeremy Farr, Partner Copyright 2018 by K&L Gates LLP. All rights reserved. Petrojarl