Legal Developments In Construction Law: October 2020

• Published date: 30 October 2020
• Subject Matter: Anti-trust/Competition Law, Government, Public Sector, Real Estate and Construction, Antitrust, EU Competition , Government Contracts, Procurement & PPP, Construction & Planning
• Law Firm: Mayer Brown
• Author: Mayer Brown

1. Recovering retention: wot, no certificate?

A contractor issued court proceedings against a developer for the second half of retention and a sum for VAT. Practical completion of the contracts in question was achieved in 2011, but the developer alleged a number of defects, in particular defective heat pumps, which were replaced in 2015. No certificates of making good defects were ever issued, but did their absence prevent recovery of the balance of the retention?

The court applied the principle in Henry Boot Construction Ltd v Alstom Combined Cycles Ltd, that a contractor's right to an interim payment arises when a certificate either was issued, or ought to have been issued. In that case, although the issue of a certificate was a condition precedent to payment, its absence did not bar the right to payment If that right is established, it enables the court to decide that a certificate for payment ought to have been issued. In this case the court also noted that relevant observations in Birse Construction Ltd v Eastern Telegraph Company Ltd, Henry Boot and S&T (UK) Ltd v Grove Developments Ltd are essentially to the effect that, when it comes to the determination of the parties' substantive rights, the court should not be too hidebound by the existence or absence of notices which are required as part of the contractual machinery regulating the cash-flow between them.

Applying the Henry Boot principle, the court found, as confirmed by the evidence of the Employer's Agent under the contract, that the making good certificates should have been issued no later than 24 May 2016. The developer consequently had no defence to the claim for the retention balance.

Dr Jones Yeovil Ltd v The Stepping Stone Group Ltd [2020] EWHC 2308 (TCC)

2. Transferred loss claim meets third party rights exclusion

In Dr Jones Yeovil Ltd v The Stepping Stone Group Ltd the developer of assisted living units brought a counterclaim against the contractor for damages in respect of alleged defects. The site was owned, however, by the developer's whollyowned subsidiary, which let the units on long leases. The largest claim was for alleged additional electricity costs incurred by leaseholders because of allegedly inadequate heat pumps installed by the contractor. The developer claimed those losses, under either the "broader ground" or "narrow ground" for recovering "transferred loss", as identified in analysis of the House of Lords' decisions in Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd and St Martins Property Corporation Ltd v Sir Robert McAlpine & Sons Ltd.

The court said that it was clear from the St Martins and other cases that underpinning the principle of transferred loss...