Ruling should spur clear allocation of construction contract risk

Out-Law News | 09 Feb 2021 | 2:32 pm | 3 min. read

A new ruling should spur businesses in the construction sector to clearly allocate the risks associated with building or demolition works in the terms of their contracts, an expert in construction contracts has said.

Mark Harris of Pinsent Masons, the law firm behind Out-Law, was commenting after the Court of Appeal in London confirmed that a property owner was liable for delay to the progress of demolition works stemming from an initial failure to secure the required planning permission for those works.

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The case re-enforces the need for parties to clearly define and allocate responsibility for all risks in their contract

In the case before it, the court considered an appeal raised by property owner Jean-François Clin. Clin had employed Walter Lilly & Co. who specialise in the renovation of prime residential properties to carry out substantial demolition and reconstruction works on two adjoining houses he owned in Kensington and Chelsea, a conservation area. The work was based on a JCT building contract 2005, incorporating additional revisions from the 2009 edition of the standard form contract as well as bespoke amendments.

The contractor began work as agreed until, on 17 July 2013, it received a letter from the local council asserting that the intended work would amount to 'substantial demolition', requiring conservation area consent (CAC). The work was ultimately suspended for over a year, until Clin obtained the required consent.

Clin and Walter Lilly have been in dispute over who is liable for the delay in works. Central to Clin's case was his claim that CAC was not "lawfully required" for the works to go ahead.

However, at an earlier stage of the litigation, the High Court held that the works Walter Lilly had been contracted to carry out amounted to demolition works for which a CAC was required. The judge held that Clin had an implied contractual obligation to the contractors to use all due diligence to obtain such permissions and that he had breached that implied contractual term.

The Court of Appeal has now upheld that decision and ordered Clin to bear Walter Lilly's costs of the appeal. Mark Harris, Lucy O'Dwyer and Tori Graney of Pinsent Masons acted for Walter Lilly in the case.

Harris said: "The case re-inforces the need for parties to clearly define and allocate responsibility for all risks in their contract. Here we were concerned with the risk for planning and related consents which many had assumed rested with the employer and not the contractor under a JCT standard form of building contract."

O'Dwyer said: "Whilst the court at first instance found that a term was implied into the building contract imposing a duty on Mr Clin, the bounds of that duty were not absolute and enabled him to raise arguments regarding the need for consent and the discharge of duty by the relevant statutory body. Ultimately, the Court of Appeal found that the court at first instance was correct in finding that Mr Clin required conservation area consent for the work proposed and his delay in obtaining consent amounted to a breach of the implied term. The resulting delay to the project arising from Mr Clin’s failure to obtain consent entitled Walter Lilly to an extension of time and additional costs."

In dismissing Clin's appeal, the Court of Appeal held in particular that there was no requirement in law for planning authorities, or courts, to consider whether demolition involves a significant and/or substantial impact on the "character and appearance" of the conservation area, when determining whether or not CAC is required.

That view was supported by case law dating back to 1997 which the Court of Appeal judges said "reinforces (if not dictates) the conclusion as a matter of principle that the assessment of whether or not works amount to demolition is a quantitative exercise". The court said it does not have to entail "a qualitative exercise by reference to considerations of character and appearance of the conservation area in question".

Two of the three grounds of appeal Clin raised effectively challenged the High Court's findings that the works he had contracted Walter Lilly to undertake amounted to 'demolition' for the purposes of planning law concerning conservation areas. Section 74 of the Planning (Listed Buildings and Conservation Areas) Act 1990 prohibits the demolition of buildings in conservation areas without CAC. The Court of Appeal said, though, that it was "not persuaded" that there was a "proper basis for interfering" with the High Court judge's findings on this point.

Tori Graney of Pinsent Masons said that while the judgment favoured Walter Lilly in this case, the rulings of both the High Court and Court of Appeal made clear that responsibility for obtaining planning permission will not always necessarily rest with an employer or property owner, emphasising the need for contractors to ensure related risk is explicitly allocated under contract.