In the case scenario, Rudy Partners LLP1(“RP”), a property developer, appoints Archie Teck (“AT”) as the designer2for a retail and commercial development brownfield project in the North West ofEngland. RP engaged3Bob Ding Building plc4(“BDB”) as the main Contractor under an un-amended 2016 JCT Standard BuildingContract, with quantities (JCT SBC/Q 2016). BDB sub-contract the mechanical and electricalengineering 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 procurecollateral warranties from its subcontractors in favour of tenants who are notidentified. In this regard, CC provide a standard warranty to RP based on theJCT while M&E provide warranty to RP which includes a clause saying “TheParties agree that tenants of the Project may claim against M&E for anyfailure of M&E’s obligation tocarry out the works with the skill and care which might be expected of thereasonable workman carrying out those works”. 1.
IssuesHere, the three issues to be deliberated are listedbelow. Issue No.1: During construction work, a truck making a delivery ofexpensive electrical equipment at site, falls into a sink-hole which opens upin the car park underneath it and causes the truck to tip, the cargo isdestroyed. 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 subsidiarycompany which runs logistics. Issue No.2 & Issue No.
3: After completion of the works, a tenant complains thatthe lighting is problematic in the part of the building covered by its leasewhich causes its employees to strain their eyes at work. Another tenant, findsscorch 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 wasbecause of AT’s design problems. While this has been under discussion, BDBenter into insolvency proceedings.
To evaluate the liability of CC andM&E to RP / BDB / tenants, it is necessary to understand the obligations ofthe parties under the JCT 2016 suite and compliance to various provisions ofthe collateral warranty. 2. RulesThe principal obligations in a construction contractare (for Contractor) to carry out the work set out in the contract and thecorollary (for Employer) to pay the Contractor for that work.
In addition, theUK legislation enshrines certain requirements for the Contractor and Employerunder law5. The primary Employer’s duties under the JCT SBC/Q 2016suite will include obligation to give possession of the site (clause 2.4),obligation to administer the site (to make appointments – clause 3.5.1, complywith construction design and management regulation (clause 3.23), obligation toissue instructions and provide information (clause 2.
12.1) and obligation toprovide payment to the contract. A Contractor has an obligation to execute theworks in a good6and workmanlike manner (clause 2.1) using the skill and care expected7of a builder of ordinary competence. The clause further specifies that theworks 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 thedesign, workmanship, and/or materials used on a project that results in afailure of a component part of a building and causes damage to person orproperty.Clause 3.18 states that where there iswork not in accordance with the contract, the Architect9can require that it is made good at the Contactor’s cost (in terms of time andmoney).
Thebuilding defects in construction mostly relate to faulty material10, workmanship or design11 which may result infinancial loss12to a party associated with the project. Understandably, it is impossible for anArchitect to know with certainty whether there are latent (or hidden) defectsin the Contractor’s work. However, there are legal mechanisms to resolve lossessuffered by wrong acts or omissions which lie outside of the scope of anyobvious liability under the principal contracts are (i) collateral warranties, here, parties contract tofill any ‘gaps’ in the routes to recovery for losses, (ii) third party rightswhere parties are given the ability to confer rights on parties that are nototherwise in the contract and (iii) doctrine of ‘transferred loss’ wherein aloss has been suffered by a third party as a result of a breach of a contractbetween 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 principalContractor for the project.3 A contract is a mutual agreement between contracting parties thatis given legal effect and enforceable in court of law. Here, the contractagreement is based on the standard form of contract issued by the JointContracts Tribunal as amended in 2016.4 Bob Ding Building plcis the Contractor who is required to execute the contract works.
5 The applicable legislation being the Construction (Design andManagement) Regulations 2015 (“CDM 2015”), Housing Grants, Construction andRegeneration Act 1996 (“HGCRA”) and Local Democracy, Economic Development andConstruction Act 2009 (“LDEDC”)6 The obligation is continuous throughoutthe construction process – it does not simply arise on completion of the works,Surrey Heath Borough Council v. LovellConstruction Ltd. and Another (1988) 42 B.L.
R. 25.7 The ‘due and proper completion of the work’ does not involve anyabsolute or quasi-absolute obligation, but requires the contractor …to adoptthe usual recognised standards and practice in the trade which a careful Contractorwould employ in carrying through the contract to its completion’, refer todicta of Lord President Clyde in the case of Morrison’s Associated Companies Ltd. v.
James Rome & Sons Ltd. 1964S.C.
160.8 It imposes an obligation on the Contractor to comply with any ruleor order made under any statute or directive having the force of law whichaffects the Works or performance of any obligations under this Contract.9 The architect is the Employer’srepresentative, he acts as agent of the Employer.10 William Cory & Son vWingate Investments (1980) 17 BLR 109.
11 The Co-operative InsuranceSociety Limited v Henry Boot Scotland Limited.12 The normal measure of damages for defective work is the cost ofreinstatement taken at the time when the defect was discovered (East Ham Corporation v Bernard Sunley 1966 3ALL ER 619). The award of damages is based on compensatory principle, thepurpose of which is to put the claimant back in to the same financial positiona he would have been in but for the breach.