Disputes Yearbook 2024:
Construction disputes

Landmark Supreme Court judgment on collateral warranties

In Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) [2024] UKSC 23, the Supreme Court found that the Housing Grants, Construction & Regeneration Act 1996 (HGCRA 1996) does not generally apply to collateral warranties. The ruling is contrary to the position taken in the earlier case of Parkwood Leisure Ltd v Laing O'Rourke Wales and West Ltd [2013] EWHC 2665 (TCC).

The Supreme Court confirmed that:

• A collateral warranty will be an agreement "for ... the carrying out of construction operations" for the purpose of s.104(1) HGCRA 1996 if it is an agreement by which the contractor undertakes a contractual obligation to the beneficiary to carry out construction operations. However, this obligation needs to be separate and distinct from the contractor's obligations under the building contract and not one which is merely derivative and reflective of the same.
• A collateral warranty where the contractor is merely warranting its performance of obligations owed to the employer under the building contract, will not be an agreement "for" the carrying out of construction operations.

Applying these principles, the Supreme Court found that the collateral warranty in this case did not qualify as a construction contract.

The Supreme Court's approach is likely to mean that most collateral warranties will not be construction contracts and will therefore fall outside the scope of the HGCRA 1996. This may affect the enforceability of adjudication decisions issued pursuant to collateral warranties prior to the Supreme Court's judgment.

The Supreme Court has not ruled out the possibility that some collateral warranties may constitute construction contracts for the purpose of the HGCRA 1996, and questions remain as to the interpretation of collateral warranties that include step-in rights that arguably allow the beneficiary to "regulate" construction operations under a building contract. For the time being, however, the Supreme Court's decision provides the clarity and consistency of approach that the construction industry has been seeking and will likely be welcomed by those who commonly assume obligations under collateral warranties.

For more information, please see our blog post on the case.

Building/fire safety cases demonstrating the practical application of building safety legislation and regulations

There have been several building/fire safety cases in 2024, which have provided important guidance on the practical application of the key legislative changes that were introduced by the Building Safety Act 2022 (BSA 2022) and related regulations. Although the Technology and Construction Court (TCC) has historically been the court which has led the direction in which construction legislation is applied in practice, notable cases have also emerged from the First-Tier Tribunal (Property Chamber) (FTT). The following cases are of particular importance:

• Building Liability Orders (BLOs)

In Willmott Dixon Construction Limited v Prater & Others [2024] EWHC 1190 (TCC), the TCC provided helpful procedural guidance relating to applications for BLOs under s.130 BSA 2022. The TCC confirmed, among other things, that the BSA 2022 does not require a party against whom a BLO is sought to be made a party to the main claim or to participate in those proceedings. However, if a BLO application was contemplated, it would generally be sensible and efficient for the entity against whom the BLO was going to be sought to be made a party to the litigation and for that application to be heard together with the main claim. This case is also interesting because it relates to an application for a BLO by a defendant against companies associated with other defendants, demonstrating that, depending on the circumstances, a BLO is a remedy potentially available to both claimants and defendants. 

For more information on BLOs generally, please see our Legal Terms Explained article which was originally published in Construction Law.

• Remediation Orders (ROs)

In Secretary of State for Levelling Up, Housing and Communities v Grey GR Limited Partnership (CAM/26UH/HYI/2022/0004), the FTT granted a RO under s.123 BSA 2022, requiring the respondent landlord to remedy relevant defects in a residential tower block. While not the first RO to be issued by the FTT, this marked the first case in which the government, as an "interested person", successfully obtained a RO against a private landlord.

The case also clarified that the FTT has a discretion as to whether to make a RO, but that it would likely make one where it was satisfied that the qualifying conditions under s.123 were met and relevant defects existed (albeit subject to the facts of each case).

For more information, please see our blog post on the case.

• Remediation Contribution Orders (RCOs)

Triathlon Homes LLP v Stratford Village Development Partnership and Others [2024] UKFTT 26 (PC) was the first case in which the FTT granted applications for RCOs under s.124 BSA 2022.

Among other things, the judgment contains the following key points:

• It is the FTT alone which has jurisdiction to make a RCO. The Upper Tribunal has no power to make a RCO except in its appellate capacity.
• A RCO is a non-fault-based remedy. It was created by Parliament as an alternative to – and independently of – other fault-based claims which a party may be entitled to make in relation to relevant defects. Parties cannot contract out of this new statutory regime.
• The BSA 2022 permits RCOs to be made in respect of costs incurred prior to 28 June 2022 (ie, the date on which the relevant parts of the BSA 2022 came into force).

The judgment also sheds light on the FTT's likely approach in determining whether it is "just and equitable" to issue a RCO. In this regard, the FTT emphasised the policy of the BSA 2022. Namely, that primary responsibility for the cost of remediation should fall on the original developer, being at the top of the "hierarchy or cascade of liability in relation to a relevant defect", and that others who have liability to contribute may pass on the costs they incur to the developer. Significant weight was therefore placed on the fact that those against whom the RCOs were being sought in this case were the original developer and its associated company.  

While other RCO applications will likely be assessed on their individual facts, the FTT's approach to the "just and equitable" test is significant given the limited authority on RCOs and will be relevant to similar RCO applications against head landlords and/or original developers.

• Supreme Court appeal in URS v BDW

In early 2024, URS was granted permission by the Supreme Court to appeal the Court of Appeal's decision in URS Corporation Limited v BDW Trading Limited [2023] EWCA Civ 772. The appeal is due to be heard in early December 2024.

The appeal concerns how liability should be allocated in circumstances where, as a result of allegedly negligent work undertaken by a consultant, a developer carries out remedial work on properties it no longer owns and in respect of defects for which it cannot be held liable due to the expiry of the applicable limitation periods. Importantly, the Supreme Court is expected to provide important clarifications regarding the scope and application of s.135 BSA 2022 (specifically the application of the retrospective 30-year limitation period for claims under the Defective Premises Act 1972 (DPA 1972)), s.1(1)(a) DPA 1972, and s.1 Civil Liability (Contribution) Act 1978.

For more information regarding the Court of Appeal judgment, please see our blog post.

New IBA Site Visit Model Protocol for International Arbitration

The IBA Arbitration Committee (IBA) published an IBA Site Visit Model Protocol for International Arbitration, which comprises a set of default model clauses, accompanied by drafting notes that outline additional practical considerations that may apply depending upon the case. The Model Protocol is designed to serve as a starting point for parties' discussions and sets out best international practice for the conduct of site visits. It provides flexibility for parties to agree different site procedures, while also including helpful suggestions for certain types of disputes in which site visits tend to be more common (eg, construction and engineering, manufacturing, mining and metals and energy).

FIDIC Practice Note and general contracting trends in dispute avoidance

Towards the end of 2023, the International Federation of Consulting Engineers (FIDIC) released a new practice note, Dispute Avoidance – focusing on dispute boards, to promote awareness of the dispute avoidance function of dispute boards and best practice among FIDIC users and adjudicators. The note details the benefits, main drivers for success as well as potential obstacles preventing successful dispute avoidance. It also outlines five core tasks and techniques for effective dispute avoidance using dispute boards, including practical guidance on its application.

While the FIDIC note focuses on dispute boards, many of its principles can be applied to other interim or alternative dispute resolution methods. The release of this note also reflects a broader trend in the construction industry to encourage dispute avoidance through such mechanisms, before resorting to more formal dispute resolution such as arbitration or litigation.

For instance, the 2024 JCT Design and Build Contract, which was released in April 2024, now mandates prompt notification of potential disputes and engagement in settlement negotiations by the parties. This previously optional requirement now applies by default, further emphasising the industry's general shift towards dispute avoidance.