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Contractors can go slow until Employers take notice

February 2nd, 2012 by David Eminton

 In a case heard by the Technology and Construction Court on 21 December 2012  a sub-contractor, Leander,  had carried out work to a certified value but a withholding notice had been served by the Main Contractor, Mullalley. The reason stated for withholding the certificated interim payment was that Leander had not progressed as quickly as originally anticipated by the parties. Mullalley accepted there was no contractually binding programme but argued that Leander was in breach of an implied duty to generally proceed regularly and diligently.

One of the primary arguments put forward by Counsel for Mullalley was that as the contract contained a provision (as is commonplace) entitling the Main Contractor to serve a 7 day notice to terminate if the Sub-Contractor did not proceed regularly and diligently, it should be implied that there was a general duty on the sub-contractor to so proceed at all times. It was said that the parties must have intended that there would have been such a duty otherwise why allow the contract to be terminated for delay? Mullalley claimed that Leander was in breach of that implied duty and so it should be entitled to deduct damages from the certificated payment.

The Technology and Construction division of the High Court decided that in the absence of an express provision, considering past case law and on a proper interpretation of the contract there was no justification for the court implying such a term.

The right to serve a 7 day notice to terminate for delay (referred to by the Judge as a “Hurry Up!” notice) was purely a contractual mechanism that could be used to impose the  time critical sanction of termination upon the sub-contractor if it failed to comply with the notice and there was no necessity to go further and imply extra words imposing a general duty to progress diligently.  Rather than that provision being suggestive of an implied term the judge considered if anything the opposite to be true. Had there been no notice provision relating to the progress of the works the court might have been more prepared to imply an extra term to give the contract business efficacy but there was no need to do so here as the contract provided an agreed sanction for unreasonable delay.

The case highlights the importance of careful contract drafting by employers and main contractors to ensure that progress of works is sufficiently covered in the express wording of the contract. This can be done by an express duty to proceed with reasonable expedition and/or by ensuring there is a contractually binding programme of works.

Whilst there may be no implied term to at all times progress works diligently there is, as with all contracts for services, in the absence of words to the contrary an implied term that works will be completed within a reasonable time.

This case (Leander Construction Ltd v Mullalley & Co Ltd [2011] EWHC 3449 (TCC)) does not bring any radical changes to construction or general contract law but it highlights the need to ensure that your contracts are properly drawn and that particular thought is given by the employing party as to what weaponry it needs within the terms to ensure that the works are carried out on a timely basis to avoid irrecoverable losses due to disruption of the works as a whole.

Enquiries to James Snaith or David Eminton

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Community Infrastructure Levy – time to take note

February 1st, 2012 by Victoria Onofriou

A significant number of planning authorities will be adopting a charging schedule during the course of 2012 with a view to having a framework in place to facilitate the implementation of the Community Infrastructure Levy (CIL).

CIL, introduced by the Planning Act 2008, is intended to provide a more uniform approach towards the provision of local infrastructure than has been possible via the traditional route of contributions secured pursuant to Section 106 of the Town & Country Planning Act 1990.

 The adoption of CIL is discretionary, however from 2014 councils will not be permitted to pool Section 106 contributions for more than five developments and this seems likely to prompt many local authorities to expedite the implementation of a CIL charging regime.

 CIL will be payable within sixty days of the implementation of any relevant consent.  There will be scope for making viability arguments (as under the current planning regime) but unless the council has an instalments policy, all payments will need to be made within sixty days of commencement of development.

The implementation of CIL may result in a higher level of contributions than was previously the case, and developers will need to keep a keen eye on the developing charging structure within any areas in which development is proposed.

 Developers will also need to keep an eye on the implications of varying consent granted under the old regime since a variation may produce a consent which is deemed to be subject to CIL.

 The detail (and practical implications) of CIL will become apparent within the next few months.  Further updates will follow.  In the meantime if you wish to discuss any of the points raised in this blog, please contact Victoria Onoufriou at Victoria.onoufriou@parissmith.co.uk

 

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Village Greens – Still A Stumbling Block?

February 1st, 2012 by Mark Withers

The Commons Act 2006 provides a mechanism whereby applications can be made to register land as a town or village green.  If successful, an application can ultimately operate so as to prevent redevelopment of the land in question. 

A number of pre-conditions have to be satisfied in order for an application to be successful. One of the key requirements is that a significant number of the inhabitants of the locality must have indulged as of right in lawful sports and past times on the land for at least 20 years.

An application made under the 2006 Act was considered in the case of R (Barkas) –v- North Yorkshire County Council and Scarborough Council. The case concerned a recreation field which had been used as such since at least 1948 and was set out and maintained as a recreation ground under section 80 of the Housing Act 1936. Its status under the Housing Act proved to be crucial in that the Inspector determined that the use of land by members of the public for recreational purposes had been pursuant to the legal right (since it was a playing field and not simply an area of land which they used and ultimately acquired rights over). The existence of the legal rights under the Housing Act prevented use ‘as of right’ (as required under the Commons Act 2006) and consequently the application failed.

Playing fields and recreation grounds may, as a result of this case, become more attractive for development since claims by third parties to have acquired rights under the Commons Act legislation will be much less likely to succeed.

If you wish to discuss any of the points raised in this blog please contact  Mark Withers

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Wind farm noise nuisance claim settles – Davis v Tinsley

December 19th, 2011 by Jennifer Roberts

A recent out-of-court settlement in relation to disturbance caused to a couple living near a noisy wind farm suggests that there may be scope for taking action against wind farm operators or indeed other similarly intrusive facilities.

Mr & Mrs Davis brought proceedings against the landowners and operators of wind turbines seeking either an injunction to close them down/limit the hours of operation of the turbines closest to their home or, alternatively, damages of up to £2.5 million as compensation for the disruption. They claimed that the excessive noise had forced them out of their home and into rented accommodation.

A joint press release has been issued stating that the case has been settled but that the terms of the settlement are strictly confidential. If a judgment had been reached in this case it would have impacted not only on existing wind farm owners and operators but also on the government’s plans for a number of additional farms to be set up over the next decade.

It remains to be seen whether any further injunction proceedings will be brought against other wind farms in the country by those who are troubled by turbine noise and also as to how the proposed legislation concerning turbine noise disturbance will tackle the issues.

For advice regarding nuisance claims generally, please contact Jennifer Roberts on 02380 482125 or David Eminton on 02380 482284

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Forfeiture of deposit under an oral contract

December 2nd, 2011 by Mark Withers

It is perhaps a sign of the times that the number of cases coming before the Courts (and commented on in this website)concerning the validity and terms of contracts (particularly where one party is seeking to extract itself) have increased over recent years.

A number of formalities must be satisfied in order for a contract for the sale of land to exist (principally those set out in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989). These requirements entail an agreement being in writing and so cannot be satisfied where a verbal agreement is reached for the sale of property notwithstanding the payment of a deposit. 

In circumstances therefore where a buyer pays a deposit to a seller on the basis of a handshake, there cannot be a binding agreement for the sale of an interest in land.  This obviously leaves a question mark over the status of any deposit paid particularly where one of the parties fails to complete.

This situation was considered in the case of Sharma v Simposh Limited.  A prospective buyer paid a deposit amounting in total to £55,000.  A verbal agreement was reached that the vendor would take the first phase of a development off the market and would allow the purchaser to buy that phase for £1,100,000 at any time up until the development was completed.

The purchaser decided not to complete and sought recovery of the deposit paid.

The decision of the Court at first instance (that in the absence of a contract the deposit must be repaid) was appealed.

The Court of Appeal however held that ownership of a deposit could pass even in the absence of a contract where that reflected the party’s intentions (i.e. that the deposit would be forfeited if the buyer didn’t proceed).  In the circumstances, the Court of Appeal concluded that the agreement reached between the parties was that ownership of the deposit had passed to the seller and that it was entitled to retain the deposit following the purchaser’s failure to complete. 

This case emphasises the importance of having, at the very least, a clear (and written) agreement in place for the payment of any deposit in any land transaction.  The absence of such a document will, as happened in the Sharma case, often lead to disputes both as to the basis upon which a deposit was paid and the circumstance in which it might be repayable.

If you wish to discuss any of the issues raised in this blog please contact Mark Withers at mark.withers@parissmith.co.uk.

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Forfeiture of Deposits

November 28th, 2011 by James Snaith

In the ordinary course of events, a buyer who pays a deposit upon the exchange of contracts will lose that deposit if it fails to proceed to complete.

It is however possible for a Court Order to be obtained requiring the seller to return the deposit to the buyer even where the buyer has failed to observe its contractual obligations (and has failed to complete).

The discretion of the Court has in the past, been exercised where a deposit was considered to be excessively high (see the case of Workers Trust v Dojap Investments Limited).  There is also statutory provision (Section 49 of the Law of Property Act 1925) which provides that the Court may order the refund of a deposit where it considers it appropriate.

The recent case of Amble Assets v Long Benton Foods concerned an application for repayment of a deposit (which in this instance concerned a company sale and amounted to 10% of the value of the property and 50% of the value of the processing equipment used in the business).  The court didn’t actually rule on the reasonableness of the deposit but appeared to take the view that it was reasonable given the commercial risk involved in the transaction.  This appears to reflect the fact that Courts take the view that the question of a deposit’s reasonableness won’t depend upon whether it reflects potential loss but rather whether it is reasonable in the circumstances of the transaction as a whole.

Whilst the Amble Assets case suggests the usual rule of thumb (that a 10% deposit is reasonable) may be displaced comparatively easily, it nonetheless  emphasises the risks which a party takes in entering into a transaction on the basis of receipt of a deposit in excess of 10% of the purchase price.  In so doing there is a very real prospect that a court may order the return of the deposit even where the party who has paid the deposit defaults in respect of its other contractual obligations.

If you wish to discuss any of the issues raised in this blog, please contact James Snaith at james.snaith@parissmith.co.uk.

 

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Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and another (Revenue and Customs Comrs and other intervening) [2011] UK SC 38

November 23rd, 2011 by James McNeil

The Supreme Court has given a further indication that the courts really do not want to intervene in cases involving complex financial instruments and are now seeking to emphasize party autonomy.

This case involved a complex credit swap transaction.  Investors’ money was used to acquire assets which were then charged in favour of a security trustee.  The “waterfall” provisions of the charge (which set out the priority of payment of enforcement proceeds) stated that the counterparty to the swap (a Lehman Brothers spv); was to be paid in priority to the noteholders, unless an event of default occurred.  If an event of default did occur the priority was to be “flipped”, so that the noteholders were to be paid in priority to the counterparty.  An event of default included the insolvency of the counterparty to the swap.  Unfortunately, this then occurred due to Lehman Brothers entering into Chapter 11 Bankruptcy in September 2008.  The counterparty argued before the Court that the “flip” clause infringed the anti-deprivation rule.  This is a common law rule which states that parties cannot contract out of insolvency legislation by attempting to withdraw an asset from an insolvent estate which would otherwise be available for distribution to the creditors of that estate.

However, the Supreme Court has ruled that the anti-deprivation principle should not be extended to strike down complex commercial transactions entered into in good faith where there is no intention to evade insolvency law.  The judgment has also clarified the operation of the anti-deprivation principle in commercial transactions following the decision of the House of Lords in British Eagle International Airlines Ltd v CIE Nationale Air France [1075] 1 WLR 758 which had caused confusion between the anti-deprivation principle and the pari passu principle (which prevents parties contracting to give a creditor more than a pro-rata distribution on insolvency).

Comment

The courts do seem to be stepping back from previous interventionist stances and are now leaving it up to well advised commercial parties to negotiate and agree their own positions.  If an insolvent company loses an asset as a result of documentation drafted in good faith and for commercial reasons, the Supreme Court does not believe the courts should intervene to alter an agreed position provided that there is no intention to evade insolvency law.

In theory the decision could have wide ranging consequences, certainly not confined to financial instruments, as the anti-deprivation principle applies to all forms of assets from claims to real property.  The UK Supreme Court has been sitting only since October 2009, but it is already making its weight felt in the commercial arena, and read alongside other recent Supreme Court decisions such as Rainy Sky SA (see our blog of 21 November 2011),  Belmont Park certainly helps to strike a blow for business common sense.

Whether this decision leads to renewed attempts by parties to push the boundaries of contracting out of the consequences of insolvency is less certain.  It is worth noting that the judgment in this case does not state that good faith and commercial justification will be good defences on all occasions, nor does it set out clear principles of law which can be applied definitively in all circumstances.

In short, watch this space for further developments!

For more information on this topic please contact James McNeil or Mike Pavitt

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Kernott v Jones – ‘Legal title is not necessarily the be-all and end-all’

November 15th, 2011 by Bindu Bansal

On 9 November 2011, the Supreme Court handed down the judgment on Kernott v Jones, 7 months after it was heard (on 4 May 2011). 

The case involved Mr Kernott (K) and Ms Jones (J) who met in 1980 and had 2 children.  They purchased their property (1995), jointly, with J providing the deposit and the remainder by way of a mortgage.  The legal title showed them as 50/50 owners and no other documents were prepared to show that one had a greater share than the other.  Later (1986), they obtained a joint loan for an extension to the property (with K doing some of the labouring too), enhancing the value of the property.

After some difficultly in the relationship, K moved out (1993) and J remained at the property with the children.  J paid for all expenses with no contribution from K, even towards the support for the children. 

In 1996, K and J tried to sell the property but unfortunately were not successful.  Instead, they surrendered one of their joint policies and divided the proceeds, equally.  K then purchased a property in his own name with his share of the policy proceeds. 

Proceedings were issued years later (2007) and after a number of appeals, finally reached the Supreme Court. 

The judges decided that post-separation, the beneficial interests of the K and J, had changed and restored the decision of the earlier court (the county court), stating that K had a 10% interest in the property and J, 90%. 

The judges found that there was enough evidence to suggest that K’s interest should be crystallised at the point he left and set up home for himself.  Had the property sold in 1996, K would have received his interest and there would have been no further argument.  As the house did not sell, they had to opt for Plan B.  From the splitting of the policy and the actions surrounding it, it was reasonable to infer that K would no longer have an interest in the property and what they had intended in relation to their respective shares, changed.

The decision was long-awaited but was divided (3:2), showing that the law governing this area is far from straightforward and a change may be needed.

Some points of principle are to be noted from the decision, where respective interests are not clear in a jointly owned property:

• The  presumption is that the shares in a property follow the legal title.  For example, parties having an equal share in a jointly owned property.
• This presumption, though, can be displaced, by showing that what the parties had intended at the time of registration of title was different to this, and/or that they later formed a new intention that their respective interests would change
• To work out what they intended, consideration is needed to what they said and did.
• If it is not possible to work out what they intended from this, then a court will have to look at what is fair when considering how they conducted their whole course of dealings.

There isn’t a specific statute that dictates how cohabitees financial affairs are to be resolved when they separate, as there is for married couples (the Matrimonial Causes Act 1973) and civil partners (the Civil Partnership Act 2005). This judgment has given judges more discretion and some will say, hasn’t helped the current situation, making it likely for further cases to end up at court, where the matter is entirely ‘in the hands of the judges.’

Leaving things to chance (or letting a judge decide) is risky, costly and can take months to determine.  While the law is still unclear on this area (and particularly when the Government doesn’t have any immediate plans to look at the law governing cohabitees), cohabitees are advised that preparing written documents and specifying what share each party has at the outset is vital and can save a great deal of time and money.  Care should be taken to set out, what if anything, should happen to the shares in the event of changes in circumstances such as separation, as this should help avoid the court imputing an intention to the co-owners, they may never have had.

Advice on this area including preparation of cohabitation agreements (living together agreements), can be sought from any one of the family lawyers at Paris Smith.   Please contact bindu.bansal@parissmith.co.uk

“For advice on the implications of this judgment for trustees in bankruptcy or others affected by this judgment following the bankruptcy of one of the parties, please contact mike.pavitt@parissmith.co.uk“.

To read the full case: http://www.supremecourt.gov.uk/docs/UKSC_2010_0130_Judgment.pdf

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Estate Agents – Sole Agency – Lost Commission

November 11th, 2011 by Jennifer Roberts

A recent Court of Appeal decision has highlighted the requirement for estate agents acting as sole agent to incorporate into their sole agency agreements the full required statutory wording regarding the definition of “sole agency” and their entitlement to commission. Failure to do so will lead to no entitlement to damages for lost commission.

The Estate Agents Act 1979 and accompanying regulations require agents who act under sole agency agreements to inform clients that they must remunerate the agent if contracts are exchanged for the sale of the property to a buyer who has been introduced by another agent. Agents must do this by incorporating appropriate wording to this effect into their sole agency agreements.

In the case of The Great Estates Group Limited v Digby [2011], the contract was labelled a “sole agency agreement” but it incorporated only parts of the required statutory wording, as follows:

“Sole agency

You will be liable to pay remuneration to us, in addition to any other costs or charges agreed, if at any time unconditional contracts for the sale of the property are exchanged… with a purchaser introduced by us during the period of our sole agency or with whom we had negotiations about the property during that period.”

The agreement should have included the additional wording:

“… or with a purchaser introduced by another agent during that period.”

The Court held that the agent was not entitled to damages for lost commission on the basis that this additional wording was omitted. The court was not persuaded to exercise its statutory discretion in favour of the agent as the seller had paid commission to the other agent and had not been adequately warned about the possibility of incurring two sets of fees.

If you wish to discuss any of the issues raised by this blog, please contact Jennifer Roberts on 02380 482125 or jennifer.roberts@parissmith.co.uk.

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Posted in Litigation, Property | 1 Comment »

Boundaries of Registered Land

November 10th, 2011 by Mark Withers

The position of the Land Registry regarding the accuracy of title plans and the reliance which can be placed upon the boundaries shown upon them has always been that boundaries are ‘general’ only and not definitive.  A procedure is available for determining the specific location of boundaries (described in the Land Registry practice guide 19) but this is expensive, slow and is rarely used.

In view of the position of the Land Registry (and the deficiencies of sale plans) it is perhaps surprising that there aren’t more boundaries disputes.  

One such dispute (the decision in which upholds the practice of the Land Registry in not definitively fixing boundaries) is the case of Drake –v- Fripp. The decision of the Court of Appeal resulted in a boundary shown on a registered title being relocated. This decision is of particular significance since the proprietor of the property who ‘lost’ the ownership of the disputed land was held not to have been prejudicially affected (since the boundaries shown on the title plan were general) and compensation wasn’t therefore payable.

This case emphasises once again the importance of being clear as to the extent of a party’s land ownership. There are procedures available, short of formally fixing boundaries via the Land Registry procedure referred to above, which enables boundaries to be determined with some degree of certainty. Land owners, if properly advised, are therefore able to make decisions which affect their property on the basis of a clear understanding of the location of the boundaries of their land.

If you require any further information on the points raised in this blog or wish to discuss any of the issues please contact Mark Withers at mark.withers@parissmith.co.uk

 

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