Significant construction sector case law developments through 2024

The Supreme Court considered the question of whether disputes on collateral warranties can be resolved at adjudication. In Abbey Healthcare v Simply Construct, the Supreme Court overturned a 2022 Court of Appeal case and instead found that collateral warranties are not likely to be “construction contracts” within the confines of the Construction Act, and thus not subject to the Act’s mandatory adjudication scheme. This conclusion was reached on the basis that the party providing the warranty is usually warranting the performance of its obligations owed to another party under a different contract – for example, an employer under a building contract. That warranty, of itself, does not amount to an “agreement for the carrying out of construction operations”.

The narrow exception might arise where the warranty’s drafting contains “separate” or “distinct” obligations.

In practice, this means express adjudication provisions need to be included in warranties if the parties wish to adjudicate.

In addition, the impact of the Building Safety Act 2022 (BSA) continues to be felt across the construction industry with the past 12 months seeing a number of the Act’s provisions considered by the courts for the first time.

The use of building liability orders (BLOs) was considered in the High Court case of Willmott Dixon Construction Ltd v Prater and Others. BLOs can be made under section 130 of the BSA, allowing the court to make an order under which the relevant liability of one company becomes the liability of another associated entity provided it is “just and equitable to do so”. The liability must arise from the Defective Premises Act, s38 of the Building Act 1984 (not yet in force), or another established route to liability for a building safety risk.

The court showed that this vehicle has real teeth – and illustrated how a BLO could, in principle, be made even before the substantive building safety risks had been ruled upon. 

The case concerned an application by one defendant for BLOs against two other defendants on the basis that there was said to have been a disposal of assets after the claim became known. Importantly, the orders were sought before liability for the primary claim had been established against the defendants, and one of the defendants sought a stay of the BLO claims pending the primary claim being decided upon.   

The court rejected the application and decided that the BLO claim could have been heard at the same time as the main action – but it did not have to be pursued in that way in every case.

In Secretary of State for Levelling Up, Housing and Communities v Grey GR Ltd Partnership, the UK government secured the first remediation order under s123 of the BSA. This was granted in relation to a 16-storey block of flats where safety issues were identified. These issues were said to be the responsibility of the landlord who had obligations to repair and maintain the structure of the property. The order required the landlord to remedy the defects within a specified time.

The case highlights the wide discretion a tribunal will have in considering whether to grant this kind of order on the application of an interested party – for example, a person having a legal interest in a property.

Remediation orders and, more specifically, the considerations the court will use to satisfy itself that an order would be “just and equitable” were considered in Triathlon Homes LLP v Stratford Village Development Partnership and Others. The wide range of factors that the First Tier Tribunal identified as relevant included: the fact that one of the parties was the project developer, their association with the co-defendants and the uncertainty of further funding from the Building Safety Fund. 

This case also showed that remediation orders are not only available to the compensation claimant. Rather, a claimant can apply for an order against several defendants, that they each contribute to an overall payment to a third party – for example, a local authority or leaseholder could apply for an order against co-defendants, through which they each contribute to the cost of remediation of the freeholder’s property.

Adjudication highlights

The courts considered whether there has to be adjudication before litigation if that is what the contract says. Tiered dispute resolution provisions are commonplace in some of the more complex contracts used in the industry, notability the content of private finance initiative (PFI) arrangements. The High Court case Lancashire Schools v Lendlease Construction (Europe) Ltd and Others highlighted that the courts may not strike out a claim form where it has been issued without the parties having first engaged in an adjudication process. This was notwithstanding that the adjudication provision was apparently a condition precedent to litigation. Rather, exercising its discretion, the court was satisfied that there were good reasons not to set aside the claim form, including that the dispute was a multi-tiered one that was not likely to be resolved in a bilateral adjudication.

In Morganstone Ltd v Birkemp Ltd the High Court emphasised that there is no “one size fits all” approach to interim payments. The parties had agreed a payment schedule for the early years of the project but did not conclude one for 2023 when the prior schedules came to an end. The contractor argued that there was therefore no entitlement to interim payments. The court disagreed and held that the interim payment mechanism, which provided for monthly payments, applied in the absence of an agreed schedule.

Letters of intent

In CLS Civil Engineering Ltd v WJG Evans and Sons (18 pages / 352 KB) we saw a reminder of the difficulties created by letters of intent (LOIs). The parties signed a LOI whilst negotiating a main contract. The LOI contained a financial cap to cover the costs of the works undertaken. During the negotiations the cap was raised in increments from £150,000 to £1.1 million. Disputes arose and the contractor sought payment in excess of the cap.

However, the court held the parties’ relationship was governed by the LOI and the contractor could only recover up to the capped amount. This case, once again, highlights the difficulties created by LOIs.

Outlook for 2025

All signs suggest that the new year will continue to see a steady flow of BSA cases being considered in the courts. How that important legislation will affect the industry in practice remains an emerging picture. Needless to say, those cases will no doubt sit alongside the usual flow of cases concerning ‘smash and grab’ adjudications and the conduct of adjudications more generally.