In tenant, finds scorch marks on the wall which

In the case scenario, Rudy Partners LLP1
(“RP”), a property developer, appoints Archie Teck (“AT”) as the designer2
for a retail and commercial development brownfield project in the North West of
England. RP engaged3
Bob Ding Building plc4
(“BDB”) as the main Contractor under an un-amended 2016 JCT Standard Building
Contract, with quantities (JCT SBC/Q 2016).

 

BDB sub-contract the mechanical and electrical
engineering works to Mike and Eric Engineers Ltd (“M&E”), and groundworks,
as well as a host of others, to Cuthbert Cuttings Ltd (“CC”). Under the contract, BDB was required to procure
collateral warranties from its subcontractors in favour of tenants who are not
identified. In this regard, CC provide a standard warranty to RP based on the
JCT while M&E provide warranty to RP which includes a clause saying “The
Parties agree that tenants of the Project may claim against M&E for any
failure of M&E’s obligation to
carry out the works with the skill and care which might be expected of the
reasonable workman carrying out those works”.

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1.      Issues

Here, the three issues to be deliberated are listed
below.

 

Issue No.1: During construction work, a truck making a delivery of
expensive electrical equipment at site, falls into a sink-hole which opens up
in the car park underneath it and causes the truck to tip, the cargo is
destroyed. An investigation reveals that CC’s work in that area was not of an
‘appropriate standard’. The truck belongs to one of the tenant’s subsidiary
company which runs logistics.

 

Issue No.2 & Issue No.3: After completion of the works, a tenant complains that
the lighting is problematic in the part of the building covered by its lease
which causes its employees to strain their eyes at work. Another tenant, finds
scorch marks on the wall which seem to be linked to the wiring malfunctioning,
the wiring has to be replaced and the scorch marks painted over. The poor workmanship of M&E is blamed for both the issues but M&E say that this was
because of AT’s design problems. While this has been under discussion, BDB
enter into insolvency proceedings.

 

To evaluate the liability of CC and
M&E to RP / BDB / tenants, it is necessary to understand the obligations of
the parties under the JCT 2016 suite and compliance to various provisions of
the collateral warranty. 

 

2.     
Rules

The principal obligations in a construction contract
are (for Contractor) to carry out the work set out in the contract and the
corollary (for Employer) to pay the Contractor for that work. In addition, the
UK legislation enshrines certain requirements for the Contractor and Employer
under law5.

 

The primary Employer’s duties under the JCT SBC/Q 2016
suite will include obligation to give possession of the site (clause 2.4),
obligation to administer the site (to make appointments – clause 3.5.1, comply
with construction design and management regulation (clause 3.23), obligation to
issue instructions and provide information (clause 2.12.1) and obligation to
provide payment to the contract. A Contractor has an obligation to execute the
works in a good6
and workmanlike manner (clause 2.1) using the skill and care expected7
of a builder of ordinary competence. The clause further specifies that the
works are to be carried out in compliance with (a) contract documents (b)
construction phase plan and (c) statutory requirements8.

 

A construction defect is defined as a flaw in the
design, workmanship, and/or materials used on a project that results in a
failure of a component part of a building and causes damage to person or
property.
Clause 3.18 states that where there is
work not in accordance with the contract, the Architect9
can require that it is made good at the Contactor’s cost (in terms of time and
money). The
building defects in construction mostly relate to faulty material10, workmanship or design11 which may result in
financial loss12
to a party associated with the project. Understandably, it is impossible for an
Architect to know with certainty whether there are latent (or hidden) defects
in the Contractor’s work. However, there are legal mechanisms to resolve losses
suffered by wrong acts or omissions which lie outside of the scope of any
obvious liability under the principal contracts are (i) collateral warranties, here, parties contract to
fill any ‘gaps’ in the routes to recovery for losses, (ii) third party rights
where parties are given the ability to confer rights on parties that are not
otherwise in the contract and (iii) doctrine of ‘transferred loss’ wherein a
loss has been suffered by a third party as a result of a breach of a contract
between others.

 

1 Rudy Partners LLP is the Employer for whose benefit the works are carried out.

2 Under the Construction (Design and Management) Regulations 2015,
the Employer has legal duties to appoint the principal Designer and principal
Contractor for the project.

3 A contract is a mutual agreement between contracting parties that
is given legal effect and enforceable in court of law. Here, the contract
agreement is based on the standard form of contract issued by the Joint
Contracts Tribunal as amended in 2016.

4 Bob Ding Building plc
is the Contractor who is required to execute the contract works.

5 The applicable legislation being the Construction (Design and
Management) Regulations 2015 (“CDM 2015”), Housing Grants, Construction and
Regeneration Act 1996 (“HGCRA”) and Local Democracy, Economic Development and
Construction Act 2009 (“LDEDC”)

6 The obligation is continuous throughout
the construction process – it does not simply arise on completion of the works,
Surrey Heath Borough Council v. Lovell
Construction Ltd. and Another (1988) 42 B.L.R. 25.

7 The ‘due and proper completion of the work’ does not involve any
absolute or quasi-absolute obligation, but requires the contractor …to adopt
the usual recognised standards and practice in the trade which a careful Contractor
would employ in carrying through the contract to its completion’, refer to
dicta of Lord President Clyde in the case of Morrison’s Associated Companies Ltd. v. James Rome & Sons Ltd. 1964
S.C. 160.

8 It imposes an obligation on the Contractor to comply with any rule
or order made under any statute or directive having the force of law which
affects the Works or performance of any obligations under this Contract.

9 The architect is the Employer’s
representative, he acts as agent of the Employer.

10 William Cory & Son v
Wingate Investments (1980) 17 BLR 109.

11 The Co-operative Insurance
Society Limited v Henry Boot Scotland Limited.

12 The normal measure of damages for defective work is the cost of
reinstatement taken at the time when the defect was discovered (East Ham Corporation v Bernard Sunley 1966 3
ALL ER 619). The award of damages is based on compensatory principle, the
purpose of which is to put the claimant back in to the same financial position
a he would have been in but for the breach.