2011 Construction Case Law Summary

There were a number of important decisions made in the Courts in 2011. Below is a selection of cases that may affect our clients and contacts within the construction and property sectors:

Costello and another v MacDonald and others [2011] EWCA Civ 930

Unjust enrichment and SPVs: The building contractor in this case had entered into a building contract with an SPV (Special Purpose Vehicle company). This SPV had no assets of its own and the sole shareholders were Mr and Mrs Costello. When the SPV defaulted on payment the contractor sought restitution from the Costellos on the grounds of unfair enrichment (as the Costellos had benefitted from the contractor's works as owners of the land and should therefore pay). The contractor's claim was rejected. The contractor had voluntarily contracted with the SPV, not the Costellos, and had therefore accepted the risks of the SPV not being able to pay. The contractor could have protected itself by asking for a guarantee from the Costellos. This case highlights the importance to contractors to carry out due diligence on their employers and ask for a guarantee if necessary.

Fernhill Properties (Northern Ireland) Ltd v Mulgrew [2010] NICh20

Penalties: Although this was a Northern Irish decision it is an interesting one for English construction law practitioners to consider. The Judge in this case held that a contractual interest rate of 15% between a property developer and a buyer was unenforceable because it was a penalty designed to deter a purchaser from defaulting on completion, rather than a genuine pre-estimate of the developer's loss. The Court of Appeal in England has previously held in Taiwan Scott v Masters Golf that a contractual interest rate of 15% was not a penalty. This was distinguished in Fernhill on the grounds that in Taiwan Scott the parties were both commercial concerns, whereas in Fernhill the buyer was an individual.

Golden Ocean Group Ltd. v Salgaocar Mining Industries PVT Ltd & Anor [2011] EWHC 56 (Comm)

Negotiations by email: In this shipping case the Court held that negotiations by email and related documents could arguably amount to a guarantee for the purposes of the Statute of Frauds 1677, even though no hard copy of the final form of guarantee was signed. Parties should therefore remember to be careful when conducting commercial negotiations by email that they do not unintentionally enter into an agreement. The best way of seeking to do that is by expressly making such communications "subject to contract".

Harrison & Ors v Shepherd Homes Ltd & Ors [2011] EWHC 1811 (TCC)

Notification of defects – NHBC: Defects to foundations had arisen...