February was an extremely busy month for the team and we all know that March is busy professionally for our sector (what with Ecobuild, MIPIM and many Gloucestershire events for our local contacts – Gold Cup Week anyone?).  Nonetheless we hope you will find time to read and enjoy our newsletter as it is crammed with practical advice for people from all corners of the construction industry.

What have we been up to?

February 2014 made a very busy January actually look relatively quiet and we had numerous new instructions and several old matters came to a head.  Highlights of the month include:

• Meeting with Curtins Consulting to discuss a very exciting seminar we’ll be running later this year
• Presenting to the Trussed Rafter Association on Collateral Warranties
• Negotiating on three different anaerobic digestion renewable energy plants – all at the same time!
• Dealing with the scorpion of the construction world…. a letter of intent
• Advising on the merits of applying for an access order to enable a client to carry out vital work

Those paying close attention may notice that employers often like to delete the following words from standard (JCT) contracts: “the Employer’s interest in the Retention is fiduciary as trustee for the Contract (but without obligation to invest)”.  It’s apparently the norm to delete these words (which begs the question as to why the standard forms persist in including them) but what is “fiduciary interest” anyway?

A fiduciary relationship is one in which A acts on behalf of B in circumstances giving rise to a relationship of trust and confidence.  Allowing the Employer to hold back anywhere between 2-5% of money he acknowledges you are owed, certainly shows a degree of trust placed by the Contractor in the Employer.  Contractors are trusting Employers not to run off with the money, and to pay it back at the appropriate time.

That position remains, even with the word “fiduciary” omitted.  What is reduced is the obligation for the Employer to comply with the four key fiduciary duties:

1. No conflict
2. No profit
3. Undivided loyalty
4. Confidentiality

For most Employers, that is a step too far.

In summary, it is very common to delete the “fiduciary” wording within standard form contracts, and contractors and employers should be mindful that even with this amendment, retention is due to the contractor in the same way as any other sum due under the contract.

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In September 2012, 6 months after buying my first house, I got planning permission to add an upstairs on top of an existing single storey (flat roof) extension.  This would allow us to add a third bedroom and an upstairs bathroom, but necessitated a re-wire, re-plumb, new boiler and re-locating the stairs.  Simple!  What follows is a shortened version of a blog entry I wrote in May 2013….

I have not overlooked the fact that, as a construction solicitor, I will be in for quite some mocking if this project goes wrong and I have inadequate recourse against my builder/professional team.  However, now that I am in the client’s shoes, I am starkly reminded that clients often do not want a heavy handed, lengthy, complex document – and a local builder most certainly will not!

I suggested to my builder that we use the JCT Homeowner contract – an “industry standard” 11 page contract that is written in “plain English” and is very much intended to be used without legal advice.  I can’t say I’m a fan of the contract and to be honest it didn’t do what I wanted it to, but I initially made the mistake of thinking that as it is “industry standard” my builder would sign up to it and that something would be better than nothing.

Luckily as it turns out, my builder wasn’t a fan either.  So I decided to start with a blank piece of paper.  Around this time I started tweeting with Sarah Fox and I learnt a bit more about her 500 Word Contract™*.  This was really useful timing for me as it helped me to focus and make sure I included all the vitals in my contract.  I was actually rather proud to have drafted a contract that, on final revision, is only 374 words long.  I was delighted that Sarah agreed that it seemed to be a good contract!

Going back to basics has been an interesting exercise given that much of my day job revolves around a contract that (as I learnt [around that time]) is 85,000 words long in its standard form and, on average is amended by a 20,000 word Schedule of Amendments.  That makes my contract, with a word count just 0.36% of that combined total, look potentially inadequate.  Hopefully over the next few months I will prove that less is more.

*The 500 Word Contract™ is Sarah’s concept and is a training tool that she is working on.  You can read more about it here – www.500words.co.uk

Post script: The building project is complete.  I am delighted with the work but please don’t ask me if it was on time or on budget.

The terms “best endeavours”, “all reasonable endeavours” and “reasonable endeavours” frequently appear in contracts. While there may be uncertainty between the endeavours, contract drafting would be a great deal harder without them.

Distinguishing the types of endeavours:

“Best endeavours”

Satisfying a "best endeavours" obligation does not require a party to take steps that would result in bankruptcy or liquidation.  That said, it can still cause you to make a loss on the job.  A party should exhaust all reasonable courses which could be taken. A "best endeavours" obligation can require the party under the obligation to risk success or failure where there is a reasonable prospect of commercial success.

“All reasonable endeavours”

An "all reasonable endeavours" obligation does not always require sacrificing commercial interests; commercial context dependent.

“Reasonable endeavours”

A "reasonable endeavours" obligation does not require a party to disadvantage itself unless the contract specifies that certain steps have to be taken in performance of the obligation. "Reasonable endeavours" applies an objective standard of what a competent person might do in the same circumstances. In Rhodia International Holdings v Huntsman International [2007] the obligation to use “reasonable endeavours” only required the obligor to take one reasonable course of action and not all of them, in contrast to an obligation to use “all reasonable endeavours.”

Advice

It is advisable to make any pre-condition an absolute obligation by using the words “shall” or “must”.  If the parties to a contract containing endeavours clauses do not make the objective of the clause clear, they could be deemed unenforceable for lack of certainty because there is no reasonable way to measure a party’s attempt to fulfil their obligation.

The key to negotiating contract successfully is to understand what you are asking for, rather than blindly to refuse or require certain wording.  As with most commercial situations, the interpretation of the words depends on the circumstances so you should adapt your approach accordingly and not have an unmoveable policy on endeavours.

If you have any questions please do not hesitate to contact Katie Pickering, Paralegal, on 01242 248215 or katie.pickering@bpe.co.uk.

Many people assume that advertising regulations are only designed to protect consumers, and that traders are largely considered to have enough knowledge and business sense to look after themselves when it comes to marketing. This is not the case. Whilst not quite as comprehensive or onerous as consumer advertising regulations, those who advertise their goods and services to other businesses are obliged to comply with certain obligations. Two of the golden rules to follow are set out below:

1. Advertising must not be misleading

An advert will fall within this category if:

1. it deceives, or is likely to deceive, the businesses to whom it is directed; and
2. the deception impacts upon the businesses’ “economic behaviour” or injures a competitor. In layman’s terms, would the deception cause a business to buy a product it would not otherwise have purchased? Does it damage a competitor’s reputation?

Take for example an advert claiming the price of an item is an “introductory offer – limited time only”. If the advertiser had no intention of increasing the price of this product after its introduction then this statement would be considered to be misleading.

1. Comparative advertising is only allowed in certain circumstances

If you compare your products to those of another party, make sure that the products that you compare meet the same needs / purpose as one another. An electric socket will obviously not be able to meet the same lighting requirements as a lamp! You will also need to take care not to confuse traders, leading them to believe you are selling your competitor’s products or are otherwise linked to your competitors. There is no universal prohibition against comparing your prices to those of a competitor, just make sure that you are not seen to be passing yourself off as that competitor.

If in doubt, put yourself in the shoes of the person at whom you are directing your advertisement. How would they interpret it?

This is not an exhaustive list by any means, but should be a step in the right direction when writing your next advertisement. If you have any questions regarding business advertising regulations then please contact Edwina Young at edwina.young@bpe.co.uk or on 01242 248251.

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When you first think of a pre-action protocol without prejudice meeting, you may automatically think about an adversarial war of words.  In my experience, the parties are primed before the meeting to expect such.  Is this really the point of the meeting and/or should it be?

Turning to the pre-action protocol itself, paragraph 5 states that the objective is to:

“agree… the main issues in the case, to identify the root cause of disagreement in respect of each issue, and to consider (i) whether, and if so how, the issues might be resolved without recourse to litigation, and (ii) if litigation is unavoidable, what steps should be taken to ensure that it is conducted in accordance with the overriding objective as defined in rule 1.1 of the Civil Procedure Rules.”

Rule 1.1 is a reference to furthering the Overriding Objective, which aims to enable “the court to deal with cases justly and at proportionate cost.”

None of this sounds particularly confrontational, does it? Then why do parties invariably approach it as such? Well, for a number of reasons:

(i)     Clients like their lawyers to have teeth and this may be the first time they have seen their lawyers “in action”.  It’s rather cathartic for clients to see that they’ve hired a Rottweiler.  Indeed, many mistakenly equate bark with bite and happily pay good money for such behaviour (psychological reason);

(ii)    The lawyer may decide to ham it up in front of his/her client and/or may be deliberately obtuse to see what substance the other side has to their arguments (more psychological reasons);

(iii)   Some lawyers like “fee creating” so that the parties are forced into litigation (it still happens, unfortunately); or

(iv)   Laziness/arrogance on the part of the lawyer and/or the client (normally, a defence mechanism for a poor case resulting in bare denial).

In the age of costs proportionality and Precedent H cost budgets, we lawyers have to work smarter. This is where the application of de-construction and de-stabilising techniques, such as those employed by trained and seasoned mediators are hugely beneficial. They help to get to the root of the issues and clear the red mist that may have descended during the letter of claim and response.  To be blunt, it comes down to the party representatives having the skill set to detach and approach the issues from 10,000ft – using Scott Schedules to capture the essence of arguments on both sides is a useful case management tool, I find.

Using mediator techniques, even as a party representative, can help unblock apparent stalemates.  When all around you are losing their heads, it can sometimes be good to focus attentions on what each party needs to get from the resolution of the dispute.  Puritans will scoff at this blurring of roles, but I don’t think we can necessarily rule out this type of approach.  If you need to shout to get your point across then it’s probably a weak one.  Equally, a well-timed cross word can do wonders for focussing your opponent’s attention, so I won’t rule it out completely.

Dismiss it as a Jekyll and Hyde strategy if you will, but let’s not forget paragraph 5 or the Overriding Objective post Jackson reforms.  Employ a third party mediator if you wish and hold a mediation in lieu of the traditional inter-parties meeting.  But there is another alternative and it involves employing a lawyer with mediator skills to represent you.  In the end, the latter may be better value and enhance your chances of a timely and substantial settlement in your favour.  What’s not to like?

To find out more please contact Jon Close on 01242 248278 or jon.close@bpe.co.uk

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To explain to you the importance of achieving practical completion would be to tell you all how to suck eggs.  This article is being written during Lent so eggs, for many, are off the menu anyway.  I will therefore cut to the chase.

If “practical completion” is the aim of all building projects, why does the JCT fail to define it? Perhaps it is deemed simply too obvious to require a definition.  JCT puts the onus on the Architect/Contract Administrator to certify when the works have, in his opinion, “achieved practical completion”.  PC cannot be certified unless the as built drawings and relevant information for the Health and Safety file have been provided.  The JCT SBC sets out the obligations on the Contractor during the DLP but doesn’t actually have a specific provision for dealing with snagging.

Given the potential complications that can arise from “partial possession” and “early use”, not to mention issues of sectional completion, coupled with the significant consequences of late practical completion, I for one am amazed that such a woolly situation persists.

You would do well therefore, to give your own definition of “practical completion” in each contract.  Some legal resources suggest reference to when the building project is “capable of beneficial occupation and use”.  In my opinion, that leaves two questions: (1) Use as WHAT exactly; and (2) what if the contract is for shell only, with fit out being carried by someone else?

To be clear, it is not my intention to encourage people to be so prescriptive as to devalue the input of the architect/contract administrator.  My point is simply that you need to clarify the definition in order to avoid an argument (or make any such argument easier to resolve).  With so much riding on the precise date of PC, and given that the whole purpose of the project is to get to that point, it probably deserves a little more of your attention at the start.

If you have any questions about using definitions in contracts, or how to resolve disputes arising, please contact Anna Wood – anna.wood@bpe.co.uk or 01242 248215.

What have we been up to?

January 2014 saw the team mainly dealing with new instructions but we have also made exciting progress on existing matters.  Highlights of the month include:

• Reached advantageous settlement for our client in a professional negligence claim relating to asbestos
• Read a report on an adjudication of a matter with facts which were scarily parallel to those of a dispute we are currently advising on, and which happily supports our client’s case
• Attended a meeting about the ongoing progress on the new development of a GP surgery, which we have been advising on for over two years now
• Took on a number of Party Wall matters
• Advised on contracts relating to an exciting project in Quatar

However, we lawyers have been waiting for three years now for the exciting (in our minds at least) case law to start to emerge so that we can really understand how the changes to the law will have a practical impact on our clients.

The recent case of R&S Fire and Security Services Ltd (‘RS’) v Fire Defence Plc (‘FD’) [2013] EWHC 4222 (Ch) raised the issue of whether, in the absence of the correct notices, a sum owed could ever be deemed to be “disputed”.

Why would we ask this?  We were considering the merits of simply serving a Statutory Demand for unpaid amounts in the absence of notices and threatening to wind up the debtor company.

In order to answer this, we need to remind ourselves that section 122(1)(f) of the Insolvency Act provides that a company may be wound up by a Court if it is unable to pay its debts and that the whole winding up process can be started by any creditor owed more than £750.  One part of that process is to advertise the petition.  If this is discovered by a company’s bank, the bank is likely to freeze the company’s account immediately.  In short at this point it is safe to say that it is ‘game over’ for the company concerned.

How then could the debtor defend such a petition?

Well the answer is easy, all they need to do is demonstrate to the Court that the debt is (a) satisfied (i.e., the petition was in error or you have paid since), (b) is disputed (such dispute having a reasonable prospect of success) or (c) that you have a counter-claim which exceeds or matches the value of the petition debt and you can ask the Court to strike out the petition.  It really is that simple!

Now here is the good news (for debtors):

In the case of RS v FD the applicant (RS) applied to the Court for the petition to be struck out on the basis that RS had a substantial counter-claim which exceeded the petition debt.  The interesting and important point is that the petition debt had been established after an application for payment, which had not been met with either of the notices required pursuant to the Construction Act, was not paid.  Without going through all the details (which these types of articles often unnecessarily do) the good news for RS was that it won the argument and the Petition was set aside.

Now for the bad news (or good news if you’re a creditor!):

This is the important bit:  The Court held that whilst the Petition should be struck out, on the basis of the facts presented, the Court did so (and I quote) “with hesitation”.  The Court decided that in the absence of the correct notices the debt (or as we know it, the Notified Sum) was indeed a debt which in many other cases may not be disputed by the payer, in the absence of any notices.

Now I have myself, on a number of occasions, issued Statutory Demands on behalf of clients to recover debts as precursor to presenting a Petition to wind up.  It’s a strong threat.  However, when advising clients I was always mindful that if the debt was disputed, then my client should expect to pay the legal costs if an application was successfully made to strike out the Petition by the debtor.

It now appears that dependent upon the facts, a Statutory Demand and any subsequent Petition may be issued simply on the basis that the company has failed to issue the correct notices pursuant to the Construction Act and that in the absence of such notices the payer has no defence to the non-payment.

Worryingly the debt in RS v FD was less than £10,000, but of course to issue a Statutory Demand the debt need only be greater than £750.  So the next time you are deliberating whether to issue a notice because the value of the application is small, just remember if you fail to issue the notice and then decide not to pay, you may not just be closing the door on any future defence, but may soon be closing the door to your livelihood.

By Steve Oakes

For more information contact    

Steve Oakes – steven.oakes@bpe.co.uk - 01242 248457