MacRoberts

Blog: Glendoe Tunnel – the collapse of reasonable skill and care?

Rebecca Barrass

Rebecca Barrass looks at the litigation surrounding the Glendoe Hydro-Electric Scheme

In January 2009, energy giant SSE started operating the Glendoe Hydro-Electric Scheme. Opened officially by the Queen later that year, the scheme was cited as one of Scotland’s biggest civil engineering projects, capable of generating power for 250,000 homes every 24 hours. However, by August 2009, the scheme was no longer producing electricity. SSE discovered that the headrace tunnel, used to transport water from the reservoir to the turbine generators had collapsed and was completely blocked rendering the scheme inoperable.

SSE, losing substantial revenue, requested that the main contractor on the project, Hochtief Solutions AG, return to site and carry out remedial works. However, the parties were unable to agree on who should pay or how the works should be done. SSE then instructed BAM to undertake the works. The scheme didn’t operate for the best part of three years, and the remedial works cost a whopping £130m.

The works were governed by an NEC2 form of contract with option M, which stated “the Contractor is not liable for Defects in the works due to his design so far as he proves that he used reasonable skill and care to ensure that it complied with the Works Information”

SSE raised an action in the Court of Session to recover £137m from Hochtief, claiming that Hochtief were in breach of the Works Information and accordingly the collapse was a defect for which Hochtief was responsible. The case was heard by Lord Woolman, who decided that option M put an “important brake on liability”, finding that Hochtief had not guaranteed works and had instead only accepted the lesser obligation of “reasonable skill and care”. In other words, there was no “fitness for purpose” obligation and Hochtief only had to show that it had exercised reasonable skill and care when formulating the design. Ultimately the court found that Hochtief had exercised reasonable skill and care and as such the tunnel collapse was an Employer’s risk event for which SSE had to bear the cost.

Naturally, SSE, not content with the decision, appealed to the Inner House of the Court of Session where the case was re-heard by a panel of three judges, with the decision being handed down last month. Lord Glennie and Lord Menzies disagreed with the decision at first instance. Lord Glennie stated in his opinion: “I consider that the collapse of the tunnel was indeed due to a defect existing at takeover. Further, I consider that that defect was not due to the contractor’s design of the works but rather to the implementation of design. In those circumstances Option M is not engaged, and the defence of having used reasonable skill and care to ensure that that design complied with the Works Information is not available to the contractor.”

The court therefore found that the collapse was the result of a failure of Hochtief in their implementation of the design. Hochtief’s ability to show that they had exercised reasonable skill and care at the design stage did not protect them. The collapse amounted to a defect under the relevant terms of the contract for which Hochtief were liable.

The debate in relation to where, in design and build contracts, design obligations end and workmanship obligations begin has always been a complex one. Arguably the Court’s decision here has simply added to the ambiguity, causing more difficulties for employers, contractors and insurers alike. However, given the sums at stake – not small change, even for our energy and construction giants – it is not surprising that we will see the decision appealed in the Supreme Court. Until then? Parties need to think very carefully about the extent of the obligations they are undertaking pursuant to their contracts. It is not as simple as it might seem at first glance!

Blog: Construction Act reform – potential impact on the industry

Rebecca Barrass

Rebecca Barrass looks at the details of a UK government consultation reviewing changes to construction legislation. 

The government is currently consulting on a proposed package of reforms to the construction provisions contained in Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”). The consultation is running in parallel with a consultation in relation to retention payments in the construction industry, both of which are due to close tonight at 11:45pm.

This is not the first reform we have seen in relation to the 1996 Act. In October 2011, the government introduced amendments to the 1996 Act. Both the 1996 Act and the subsequent amendments sought to recognise the problems faced by contractors in the industry, particularly the prevalence of cash flow issues faced by smaller contractors. The amendments introduced a host of changes with the objective of:

  • increasing transparency in the exchange of information relating to payments;
  • encouraging parties to resolve disputes by adjudication, where appropriate; and
  • strengthening the right to suspend performance.

The amendments, amongst other things, removed the restriction on who can serve payment notices; clarified the content of payment and withholding notices; introduced a “fall back” provision, allowing payees to submit payment notices where the payer fails to do so; and, prohibited “pay when paid” clauses, ensuring that payment is not dependent on payments being made under another contract.

The amendments also introduced changes to the law surrounding adjudication, including removing the possibility of contracting parties allocating the costs of adjudication to a particular party and, inserted provisions to allow parties to suspend performance in the event of non-payment.

The government undertook to review the amendments after five years and the result is the current consultation. The consultation relates to the law and practices that apply in England. However, Scottish businesses should not dismiss it. The relevant law in Scotland does not differ significantly from that in England and the results of the consultation will therefore likely be a good indication of the issues in Scotland. The construction industry, more than any other industry, has a tendency to transcend UK borders.

We see a huge number of Scottish based clients coming to us with disputes that have arisen under contracts governed by English law. Often contractors will have limited opportunity to negotiate the finer contract terms and if working for an English or England based employer, will frequently find themselves tied to a contract governed by English law – often not even realising that is the case!

The primary purpose of the consultation is to establish how effective the 2011 changes have been and whether the above objectives have been met. There is a focus on the clarity and transparency of the payment under the 1996 Act. This was a major aim of the legislation and there is clear motivation to establish whether that has been achieved.

The consultation sets out questions in respect of the 1996 Act’s fitness for purpose, including the complexity of the existing payment framework, the effectiveness of establishing a clear debt or basis of adjudication and the frequency of adjudication. It also looks at the effect of the suspension of performance provisions on payment.

The consultation further considers the measures implemented in 2011 relating to Adjudication. Adjudication was introduced as a means of quickly and cost-effectively resolving disputes that arise under, and typically during, a construction contract. The speed of adjudication as a means of dispute resolution cannot be denied but we are seeing adjudication being used more and more in high value, complex disputes and questions have been raised as to whether adjudication is the appropriate forum for resolving such disputes. The consultation addresses the costs of adjudication, requesting information in relation to the affordability of adjudication, whether there has been a significant decrease to costs, and if parties were more inclined to adjudicate following the 2011 amendments.

When the consultation closes the government will consider the answers received and determine whether there is a need or a want for further reform. The effects of the 1996 Act have been huge and in most respects, beneficial to contractors but no system is without its flaws. We are seeing a big increase in the cases coming to court concerning payment provisions since the 2011 amendments. In recent years the courts have been asked a number of important questions in relation to payment notices, default notices and the applicability of the Scheme for Construction Contracts.

To some extent, we would always expect the courts to determine issues of legislative interpretation but given the government’s resolve to review the current legislation it seems the ideal opportunity to address any issues. Whatever the outcome, and bearing in mind the current government has its hands full with all matters Brexit, the consultation is still an important opportunity to have your say and those in the industry should take full advantage of that opportunity.

  • Rebecca Barrass is a solicitor at MacRoberts

Blog: Top construction contract tips

Craig Bradshaw

Craig Bradshaw gives his top 10 tips for reviewing design responsibility in construction contracts.

Construction is a fast-paced and competitive business environment. Contractors face a constant need to win business and maintain good customer relations, all while managing time pressure, availability of resources and lengthy multi-authored contracts.

Then along comes the recent Supreme Court decision in MT Hojgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Limited and another [2017] UKSC 59.

The contractor was held liable for €26.25m of remedial works on the basis that the failed offshore wind turbine foundations were not fit for purpose, even though it was accepted the contractor had used due care and professional skill, adhered to good industry practice and complied with an international design standard.

So what is a busy contractor to do? Here are 10 tips to help manage allocation of design responsibility in construction contracts.

1) Complete copy contract
Construction contracts often contain various documents and documents incorporated by reference.

To properly review the contract, it is important to have a full copy. Carry out a preliminary review to check you have a full copy of the contract, the correct versions of documents and no missing pages. Superfluous documents should be removed.

2) Priority of documents 
Check if there is a clause regulating priority among the various documents – if so, then review its suitability for the particular contract; if not, then consider having one included.

3) Discrepancies / inconsistencies 
Where construction contracts are made up of various items of documentation there is a real possibility of unintended discrepancies or inconsistencies.

Clauses dealing with such discrepancies or inconsistencies need to be identified and reviewed to assess impact.

4) Responsibility for design 
Often a range of parties will contribute towards the overall project design – in that context there are various ways design responsibility might be allocated between the parties to a contract.

Ideally an agreement in principle should be reached regarding design responsibility and then reflected in the contract.

Take into account issues such as: does the contractor have any design responsibility? What is the employer’s design responsibility? Is the contractor responsible for design of the whole or only part of the works? Does responsibility lie in completing the design or assuming responsibility for all existing and future design? What is the legal standard of care to be exercised in relation to design?

5) Legal duty of care 
The contract should expressly describe the agreed legal duty of care for design. Make it clear that it takes priority over any higher standard of care that might otherwise apply. Include the clause in a document with suitably high priority under any priority-of-documents clause.

Without an express clause describing the standard of care, the default position for a contractor undertaking design is likely to be a ‘fitness-for-purpose’ obligation.

6) Exclude fitness for purpose
If a ‘reasonable skill and care’ design obligation applies – rather than ‘fitness for purpose’ – then the MT Hojgaard case demonstrates the merits of having a clause excluding a fitness-for-purpose design obligation.

7) Technical documents
Generally, the technical documents should be reviewed – taking into account any priority-of-documents clause – to understand the scope of and uncertainties in the technical design requirements.

Where there is a) a requirement to comply with a prescribed design, and b) also a requirement to comply with prescribed criteria, then this may require the contractor to depart from or improve upon the prescribed design to satisfy the prescribed criteria. A contractor should review technical documents to identify and address any such issues.

Check if there is a design life provision. If so, is it acceptable in the context of the contract and legal rules on prescription and limitation (see ‘duration of liability’ below)?

8) Financial liability in respect of design 
In the context of the contract and your insurance arrangements, do you require a financial cap on liability? A financial cap on liability would need to be drafted and included in the contract.

9) Duration of liability
In the context of the contract and applicable legal rules on prescription and limitation, do you require a clause regulating the duration of your liability? Any such clause would need to be drafted and included in the contract.

10) Professional indemnity insurance
A party responsible for design will want its design liabilities to be covered by professional indemnity insurance. Therefore, consultation with insurers should take place.

Blog: Lessons in payment notices and pay less notices

Shona McCusker

Shona McCusker

Shona McCusker looks at two recent cases highlighting the difficulties in practice with payment and pay less notices.

Payment disputes in the construction industry are rife and more frequently we see payments awarded by adjudicators and subsequently enforced by the courts as a result of “smash and grab” adjudications where one party’s failure to carry out its obligations in respect of the payment procedure in the Housing Grants Construction and Regeneration Act 1996 (as amended) (“the 1996 Act”) results in another party’s financial gain.

In the past month, two cases considering the impact of not issuing payment or pay less notices as required by the 1996 Act were: Muir Construction Limited v Kapital Residential Limited a decision of 18 October from the Outer House of the Court of Session; and Adam Architecture Limited v Halsbury Homes Limited a decision of 2 November 2017 from the English Court of Appeal.  Although each case was decided on different sides of the border, the relevant provisions of the 1996 Act that were considered broadly have UK wide applicability.

Before considering Muir and Adam, a brief recap of the 1996 Act requirements for payment and pay less notices:

payment notices blogSimple enough? In practice, no! Muir and Adam highlight some of the difficulties: Muir Construction Limited v Kapital Residential Limited [2017] CSOH 132

In Muir the court had to consider whether a pay less notice issued by the Employer provided a basis on which the sum noted therein was calculated.

The court asked whether a reasonable recipient of the pay less notice would have been able to: work out the basis on which the figure in the pay less notice was calculated; understand how the figure was calculated; and make sense of the figure arrived at by the Employer. The Employer’s pay less notice sought to pay £0 to the Contractor on the basis that the value of remedying defects outweighed the sum held in retention. The court did not consider this a basis for substantiating the zero figure and deemed the pay less notice invalid.

While the decision does not analyse the full detail (or lack thereof) of the pay less notice, it does provide useful guidance that was previously lacking. The court set a minimum standard:

“[A] pay less notice in order to provide a basis needs at least to set out the grounds for withholding and the sum applied to each of these grounds with at least an indication of how each of these sums were arrived at.”

Adam Architecture Limited v Halsbury Homes Limited [2017] EWCA Civ 1735

In Adam the contract between the Employer and the Architect was terminated and the Architect issued its final account. Among other matters, the court was asked whether the Employer’s failure to issue a payment or pay less notice in respect of the final account, resulted in the sum claimed by the Architect in its final account becoming the “notified sum”, by virtue of s.111 of the 1996 Act.

The parties did not dispute that s.111 applied to interim payments. It was also the Architect’s position that s.111 extended to final payments and the Employer disputed this point. Further, the contract between the parties only required the Employer to issue a pay less notice in respect of interim applications, not the final account. Following consideration of the “clear words” of the 1996 Act and a body of case law, the court confirmed that irrespective of the terms of the contract, s.111 did apply to both interim and final payment applications. Had the Employer sought to pay less than the notified sum it ought to have issued a pay less notice in respect of the final account. Its failure to do so rendered it liable to make payment to the Architect of the sum claimed in the final account.

This decision follows precedent and does not come as a surprise. It does however demonstrate the importance of contract operators having a sound understanding of the contract, and the payment provisions in the 1996 Act. The consequence of not being clued up could result in an Adjudicator’s award in favour of the Contractor, subsequent enforcement proceedings and the Employer having to pay up and argue later in a subsequent litigation or arbitration. These costs could be avoided if the correct knowledge and administrative procedures are in place from the contract’s inception.

Lessons to Learn

  • Take care in drafting payment or pay less notices. Would a reasonable recipient of the document have a clear understanding of the reasons and figures?
  • Be clear on the terms of the contract and the requirements of the 1996 Act.
  • The requirement under the 1996 Act to issue payment and pay less notices does not die when the contract ends. If a Contractor submits a payment application after termination of the contract or practical completion, the Employer’s obligation to issue a payment notice or pay less notice remains.
  • Even if a Contractor’s payment application appears invalid, an Employer should issue a payment or pay less notice to avoid potentially paying out the full sum claimed by the Contractor.

 

  • Shona McCusker is a solicitor at MacRoberts

Blog: Statutory notices and duties of solicitors – the £600,000 Blandfield bill

Gillian Craig

Gillian Craig

Gillian Craig looks at the risk attaching to ownership in an imperfect registration system.

It’s not often that the Daily Mail reports on boundary issues in Edinburgh but the plight of homeowners, some of whom are on limited incomes, being landed with a £600,000 bill (or £6000 each), caught their attention.

The bill relates to the rebuilding or restoration of an old boundary wall next to a development in Blandfield

The situation is indeed a sorry one, with Edinburgh City Council exercising their statutory powers under the City of Edinburgh District Council Order Confirmation Act 1991 to require the owners of the wall to execute repairs, under pain of the council carrying out repairs themselves, and recouping the costs from the owners. The latter course has, as many of you will know, not been without controversy (see for example, BBC Scotland Investigates 2011 Scotland’s Property Scandal).

It would appear that, after some legal wrangling, it has been settled that the home- owners do indeed own the wall in question- much to their surprise (no-one told them, apparently).

Anyway, back to the Daily Mail article which is followed by a raft of readers’ comments as regards the importance of checking the extent of title and queries as regards why the conveyancing solicitors involved did not advise their clients of potential liability.

In a perfect world, both would be easy answers.

However, as regards the title, we have to deal with the inherent inaccuracy caused by the scale of the Land Register (generally being 1:1250 in urban areas).

Separately, however, we have to bear in mind the findings of Sheriff Principal Bowen in his 2015 report “Consumer Protections in Conveyancing Cases- A Report to the Council of the Law Society of Scotland” who concludes that whilst various safety net services as regards the extent of title in new developments were offered by the Keeper “thought needs to be given to clarifying the legal duty of a solicitor acting for a purchaser”.

Against that, arguably the profession cannot constitute a guarantee of title – the question therefore being one of proving negligence which, following Hunter v Hanley, is difficult when a large number of solicitors (presumably following the usual practice, and of ordinary skill, exercising ordinary care) make the same mistake.

It’s still a troubling point with no easy answers.

  • Gillian Craig is a Partner at MacRoberts

Blog: Fact over forecast in construction contracts

Mike Barlow

Mike Barlow

Mike Barlow from MacRoberts details a case regarding compensation event provisions of NEC contracts.

How often do we check the weather forecast, while sitting beside a window? Why do we rely on forecasts when facts are so frequently staring at us? The Northern Irish High Court was recently faced with this conundrum in Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited. The High Court analysed the assessment of compensation events under the Professional Services Contract that forms part of the NEC3 suite of construction contracts. NEC3 is a popular form of construction contract used both in the UK and internationally to procure major projects.

The Court determined that the assessment of the financial effect of a compensation event under NEC3, where the effects were known, ought to be calculated by reference to the actual cost incurred, rather than a forecast. This helps to clear up some uncertainty as to how NEC3’s compensation event regime – which generally aims to resolve compensation events on a prospective, as opposed to a retrospective, basis – should operate when the assessment takes place after the actual effects of a compensation event have become known.  Whilst NEC3’s successor, NEC4, will make its debut later this month, on 22 June 2017, the compensation provisions remain largely the same across both versions. The Court’s decision is therefore likely to have far-reaching effects.

What happened?

Northern Ireland Housing Executive (“the Employer”) employed Healthy Buildings (Ireland) Limited (“the Consultant”) to carry out asbestos-related assessments in certain buildings. The contracts were NEC3 Professional Services Contracts (“the Contract”).

After entering into the Contract, the Employer changed the scope of the services without specifically notifying that change to the Consultant as a compensation event. In terms of the Contract, the Employer ought to have notified the Consultant of the compensation event and to have invited the Consultant to submit a quotation assessing the effects of the compensation event. In any event, the Consultant later submitted quotations which were subsequently rejected by the Employer, who assessed the effect of the compensation event as zero.

The matter was referred to Adjudication which found in favour of the Consultant. The Employer paid up, only to later challenge the Adjudicator’s decision in the Northern Irish courts, demanding repayment. The Consultant counterclaimed for additional monies over and above those awarded by the Adjudicator.

Clause 63.1 of the Contract required the financial impact of compensation events to be assessed with reference to (1) the actual Time Charge for work already done and (2) the forecast Time Charge for work not yet done. The Consultant defended the court action on the basis that under clause 63.1, the date when the Employer instructed or should have instructed the Consultant to submit quotations divided the work already done from the work not yet done. The Consultant’s position was that although its quotation was submitted after the Employer ought to have requested it, the Consultant’s quotation should nevertheless have been in the form of a forecast, not based on an actual Time Charge – because at the time when the Employer should have instructed the Consultant to submit a quotation, the work had not yet been done (so there was no actual Time Charge).

The Court was asked to determine, in this situation:

  1. whether the assessment of the effect of the compensation event should have been calculated by reference to actual costs incurred, instead of a forecast Time Charge?
  2. whether the actual costs were relevant to the assessment process under the NEC3 PSC?

Fact v Forecast

The Court answered “yes” to both (a) and (b), describing reliance on the forecast as being “strained and unnatural” and “groping in the dark”, in a situation where the facts were now available.  The Court opted for an interpretation of the Contract that, in its view, was “consistent with business common sense”. The Court requested the Consultant to make available all documents relating to its actual costs, in order to assess the financial impact of the compensation event.

In favouring the facts over a forecast, the Court considered the leading authority on NEC3, Keating on NEC3, 2012. At paragraph 7-109, Keating comments that assessment of compensation events “suggests an idea of appraisal or judgment”. The Court applied this authority to the facts of the present case and noted that where a quotation is provided after the effect of the compensation event is known, “[it] ought to be informed by the best information available as to the actual cost and time incurred by the Consultant as a result of the instruction”. In the Court’s opinion, this interpretation of the Contract was “efficacious and business-like”.

Key Points

Although there has been at least one other reported case in which the prospective versus retrospective question was an issue between the parties, this decision appears to be the first case in the UK to specifically address that question (as opposed to being decided on the basis of a breach of natural justice in the context of adjudication proceedings). As such, Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited provides some much-needed clarity in relation to the assessment of compensation events under NEC3 (and NEC4), in a situation where the parties have failed to assess a compensation event at the time it occurred, or where the assessment is disputed. This case is however unlikely to be the last word on the vitally important compensation event provisions of NEC. Employers may view the case as justification for deliberately delaying the assessment of compensation events in the hope that actual costs, calculated retrospectively, will be lower than forecast costs, calculated prospectively. That approach would be contrary to the stated aims of NEC and would be unlikely to be welcomed by at least some NEC users.

  • Mike Barlow is a Partner at law firm MacRoberts

Blog: Data Protection: Information Security and the Construction Industry

Valerie Surgenor

Valerie Surgenor

Earlier this month, the construction company known as Construction Materials Online Limited was fined £55,000 by the Information Commission’s Office for breaching the laws on data protection and information security. Valerie Surgenor from MacRoberts discusses the case.

So what happened?

CMO operated a website which enabled customers to buy building materials online. CMO’s website was created by a third party website developer, and unknown to CMO, the website’s log-in pages contained a coding error.

This coding error created a vulnerability which allowed a hacker to modify payment pages and access the personal banking details of over 600 customers, including the names, addresses, bank account numbers and sort codes of customers.

What did the ICO say?

The ICO (the data protection regulator in the UK) found that CMO, as the data controller, failed to take appropriate and technical measures against unauthorised or unlawful processing of personal data as is required by principle 7 of the Data Protection Act 1998 (DPA).

In particular, the ICO found that CMO failed to:

  • Carry out regular penetration testing of the website which would have detected the coding error.
  • Ensure that the passwords on the website were sufficiently complex to resist a brute-force attack on the stored hash values (hashing is like a form of encryption whereby a password is turned into a scrambled representation of itself)

What is principle 7?

Principle 7 requires organisations to take appropriate technical and organisational measures against unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data. According to the ICO’s guidance, in practice, this principle means that organisations must:

  • Design their security to suit the nature of the personal data held by the organisation.
  • Designate a person or team with responsibility for ensuring information security.
  • Make sure the organisations has appropriate physical and technical security, and that the organisation’s policies and procedures are robust and reliably.
  • Be ready to respond to any security breach quickly and effectively.

Why should you care?

  • The construction industry is becoming increasingly more at risk to cyber-crime (and therefore data security breaches) as it becomes more connected through internet-connected systems like BMI and project management software.
  • The coding error was made by a third party, and not by CMO, yet the ICO still found CMO to be in breach of the DPA. CMO was found liable for not conducting regular and routine testing of its website. If you have a website, you must ensure it is regularly tested for security vulnerabilities to avoid breaching the DPA.
  • The passwords were hashed – which is a form of data security protection. However, the passwords were too simple and so the hacker was able to easily derive the passwords from the hash values. It is not enough to use hashing, salting or other encryption techniques if the passwords are easy to guess. Make sure the passwords your website uses are sufficiently complex e.g. use numbers, capitals and symbols.
  • In 12 months’ time, on 25 May 2018, the EU’s General Data Protection (GDPR) will come into force and radically change the rules on data protection within the UK. The potential fines under the GDPR for a breach of data security will be much higher than the current fines under the DPA – being the higher of €20m or 4% of an organisation’s total worldwide turnover.

  • Valerie Surgenor is a partner at MacRoberts

Update: Sheriff Appeal Court considers ‘intention’ in payment notices

The requirements of a valid payment notice issued under a construction contract were considered in a previous update: “A Payment Notice? Be Clear?” with reference to the case of Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd [2017] (“Surrey and Sussex”) a decision of the English High Court. In the week following this decision the Scottish Sheriff Appeal Court was similarly tasked with determining the validity of payment notices in Trilogy Services Scotland Limited v Windsor Residential [2017] (“Trilogy”). This update from David Wilson and Rebecca Barrass from MacRoberts considers the approach taken in Trilogy and the impact the differing decision will have on the validity of payment notices issued under construction contracts. 

Trilogy Services Scotland Limited v Windsor Residential [2017] Sheriff Appeal Court

Facts

Trilogy Services, civil engineering contractors, were employed by Windsor Residential to carry out works in Burntisland. The contract between the parties was brief and, as required by the Housing Grants, Construction and Regeneration Act 1996 (“1996 Act”), the relevant provisions of the Scheme for Construction Contracts (Scotland) Regulations applied including specifically the provisions in relation to payment notices.

Windsor Residential failed to remunerate Trilogy Services, or issue a notice, in respect of its final invoice. Thereafter Trilogy Services sent a letter and the outstanding invoice to Windsor Residential demanding payment. In the absence of payment, Trilogy Services raised an action. It was for the Sheriff Appeal Court to determine whether the letter sent by Trilogy Services to Windsor Residential constituted a valid payment notice.

Decision

While Windsor Residential did not dispute that the payment notice complied with the requirements in the 1996 Act, it was their position that Trilogy Service’s intention for the letter to be a payment notice was lacking. In support, the decisions in Caledonian Modular Ltd v Mar City Developments Ltd [2015] and; Henia Investments Inc v Beck Interiors Ltd [2015] were relied on. In both of these decisions the Technology and Construction Court (TCC) took the factual context into account in order to determine whether the parties intended the documents in question to represent valid payment notices.

On arriving at his decision in Trilogy the Sheriff distinguished both Caledonian and Henia on the basis that the documents relied on in those cases lacked clarity. In the present case the Sheriff determined that the factual context of the documents was clear and, consequently, Trilogy Service’s intention for the document to constitute a valid payment notice was clear.  The Sheriff determined that the letter and accompanying invoice did constitute a valid notice under the 1996 Act.

Comment

In Trilogy the Sheriff passed comment on the requirement of intention and valid payment notices, stating that to import a requirement of intention in each and every case would “drive a horse and cart through the provisions of the 1996 Act”. The Sheriff’s decision may be considered as a more conservative interpretation of the 1996 Act than that taken in Surrey and Sussex however Trilogy can be distinguished as that the factual context behind the payment notices was clear and undisputed. The same could not be said in Surrey and Sussex.

For the avoidance of doubt: a contractor ought to state clearly its intentions behind a payment notice and; an employer should consider purported payment notices carefully to ensure the validity requirements are satisfied.

Update: Scottish Government consults on unconventional oil and gas development

Keith Campbell

Keith Campbell

The Scottish Government is consulting on the future of unconventional oil and gas development in Scotland, writes MacRoberts‘ Keith Campbell.

In January 2015 the Scottish Government imposed a moratorium on onshore unconventional oil and gas (UOG) development in Scotland. This includes hydraulic fracturing for shale oil and gas, commonly known as fracking, and coal bed methane extraction.

The moratorium was to remain in place until further evidence of the potential environmental, health and economic impacts of these technologies had been gathered and an “evidence-based” decision could properly be made. The Scottish Government noted that reserves are located predominantly in Scotland’s densely-populated central belt.

It commissioned research into the evidence relating to six UOG impacts: economic impact; climate change impact; induced seismic activity; transport impact; decommissioning, site restoration and aftercare; and health impact, with the research reports published in November 2016.

The consultation does not set out a preferred Scottish Government position but seeks the views of the public and stakeholders on the findings of this and other research and whether UOG development should be permitted in Scotland.

UOG development remains controversial and politically contentious. In June 2016 the Scottish Parliament passed a non-binding motion calling for an outright ban on fracking, albeit with Scottish Government MSPs abstaining from the vote in light of the ongoing research programme and future consultation. It seems likely that consultation responses will reflect already entrenched positions on the subject.

The consultation closes on 31 May 2017. The Scottish Government will then review the responses and evidence and ask the Scottish Parliament to vote on its recommended approach. A final decision on the future of UOG is expected by the end of 2017.

Project Bank Accounts in Scotland – 15 Key Questions

MacRoberts PBAsIn September, the Scottish Government published several documents relating to the use of Project Bank Accounts (PBAs).

These documents include:

  • Implementing Project Bank Accounts in Construction Contracts
  • Scottish Government Template Trust Deed
  • Selection Stage Notices and Contractual Enabling Clauses

In a downloadable briefing note, law firm MacRoberts considers some key questions arising from the initiative.

  1. What is a PBA?
  2. How are the PBA arrangements set up?
  3. In what sequence are the documents entered into?
  4. What is the benefit of the PBA arrangements?
  5. In what projects will PBAs be used?
  6. Are there circumstances where PBAs might not be used?
  7. Who can participate in the PBA arrangements?
  8. How do supply chain members participate in the PBA arrangements?
  9. What is an Additional Party Agreement?
  10. What will main contractors need to do?
  11. What will supply chain members need to do?
  12. How will the PBA arrangements integrate with the existing payment clauses?
  13. Who will pay the bank charges on the PBA?
  14. Will disputed amounts be paid into the PBA?
  15. Will retention be paid into the PBA?

Click here to download the briefing note.